Sarine Technologies Ltd said, in an update to investors released yesterday, that the Group’s revenues and profitability for Q1 2019 have, as per earlier expectations, been impacted by the continuation of the “prevailing negatives in the diamond industry midstream” that had earlier impaired their results in FY2018.

While detailed financials for the quarter will be released on May 9, the Group said that current indications are that revenue for the three-month period ended March 31 will be just under US$ 11 million. It added that based on this it was likely to record a net loss of between US$ 1 to 1.5 million dollars in Q1.

Sarine reported that its midstream customers not only continued to experience working capital issues due to credit tightening policies implemented by Indian banks during Q1, but also had to meet the latter’s call for return of some of the already extended credit by the Indian fiscal year’s end on 31 March 2019.

Additionally, uncertainties caused by the advent of lab-grown diamonds (LGD) in the market (notwithstanding the US FTC’s recent warning letters to certain players on improper communications of the product’s origins), as well as the ongoing trade disputes between the U.S. and China, which continue to dampen the critically important Chinese market, continue to drive adverse sentiments in the industry’s midstream.

Sarine said that these factors have continued to result in a reduction in manufacturing activities, and consequently recurring revenues from its inclusion mapping services also dropped. The prevailing conditions had also led to a reduction of miners’ rough output into the pipeline and further, contributed to a tendency to postpone capital equipment expenditures, the Company noted.

Nevertheless, the Group delivered a record 33 Galaxy®-family inclusion mapping systems this quarter, which, it said, provided “continuing indication of the market’s growing understanding and appreciation of the value of (its) technology over the pirated version of same”. It clarified that these systems were of the MeteoriteTM (29) and MeteorTM (4) models, which have significantly lower gross margins than the models for larger stones and, coupled with fewer inclusion mapping scans, as noted above, this has reduced the overall gross margin to below 60%.

The technology company also stated that there are preliminary indications that the midstream market is beginning to stabilise, pointing out that the latest (March) De Beers sight was back to customary levels. It said that, consequently, the number of stones being scanned by its inclusion mapping systems has also increased back to higher levels.

Sarine said that the impact of these factors on its revenue, even with the “ongoing prudent management of …operational expenses” will likely result in a net loss of between US$ 1 to 1.5 million dollars, including non-cash expenses (depreciation, amortisation and option based compensation, typically a million dollars or so).