Sarine Technologies Q4 profit falls 84.8% to US$93,000

SARINE Technologies has recorded a fourth-quarter net profit of US$93,000, down 84.8 per cent from US$613,000 the year before, the diamond technologies company said in a regulatory filing on Monday before the market opened.

This was due to weak industry conditions and sentiment, resulting in lower capital equipment sales and reduced recurring revenues, it said. The group added that net profit was also lower due to increased income tax expenses on the write down of certain deferred tax assets.

Earnings per share (EPS) stood at 0.03 US cent, down from 0.17 US cent the year before. Sarine is proposing a final dividend of one US cent for 2018, down from 1.5 US cents for 2017. This brings total payout for 2018 to some US$10.5 million, which is more than its net profit, and approximately equal to its total free cash flow for the year.

In order to meet long-term growth targets, the company is also temporarily reducing its dividend policy for 2019 to one US cent every six months, subject to market conditions. This is in light of the escalated return of 10 per cent which would be generated by the previous dividend policy at current share prices, as well as the uncertainties still facing the industry, along with higher expenditures in sales and marketing planned for the upcoming year, it said.

For the three months to Dec 31, the group's revenue declined 5.8 per cent to US$12.2 million from US$12.9 million the year before. There was also a sequential increase in revenues from higher capital equipment sales, offset somewhat by lower recurring revenues, from reduced quantities of rough diamonds entering the pipeline and the seasonal slowdown in scanning activities during the Indian Diwali holiday period.

Gross profit fell 11 per cent to US$7.5 million and gross profit margin eased to 61 per cent due to a change in product mix and additional costs from its newly opened Sarine Technology Laboratories. While general and administrative expenses remained stable, the group incurred higher sales and marketing expenses to support increased business activities in the retail diamond market.

For full-year 2018, the company said net profit rose 31.9 per cent to US$7.6 million from US$5.8 million the year before. EPS was at 2.17 US cents, up from 1.64 US cents the year before. Meanwhile, net asset value (NAV) per share was at 18.73 US cents, down from 20.14 US cents the year before.

Revenue for the full year stood at US$58.5 million, compared with US$58.6 million the year before, from overall lower operational expenses and lower taxes. Recurring revenues for its Galaxy product was also 3 per cent higher, with a record number of 12 million stones being scanned in 2018, compared with 10 million stones in 2017. This was despite lower aggregate volumes of rough stones entering the pipeline in 2018.

Along with stable revenue and lower overall expenses, the group also saw polished diamond retail-related revenues growing just under 15 per cent, contributing over 2 per cent of overall revenue.

In terms of outlook, the group said adverse sentiments are "likely to persist into FY2019", in view of prevailing negatives in the diamond industry midstream, and particularly working capital impairment due to credit tightening by Indian banks.

That being said, the group is "encouraged" by the record level of scanning activities due to additional sales of inclusion mapping systems to Indian manufacturers. It is seeing continued traction for its Sarine Profile solutions for the retail online and in-store polished diamond trade, especially in the Asia-Pacific (APAC) market, with presence now in over 1,200 retail outlets. Sarine added that expansion continues into new geographies, with inroads into India's domestic market, Australia, the UK and Poland.

It is also seeing "keen interest" in its Sarine Diamond Journey provenance solution and Sarine Technology Lab AI-based (artificial intelligence-based) 4Cs grading, with initial retail traction and imminent launches scheduled in China, Hong Kong, Japan and Thailand.

David Block, Sarine Technologies CEO, said: "The group's active marketing efforts have resulted in higher market penetration for Sarine Profile throughout the APAC region and elsewhere. We are pleased that our newer initiatives for the polished diamond trade are also gaining momentum."

Since the adoption of its AI-based 4Cs grading by K-Uno in Japan, the group has secured additional launch customers in China, Hong Kong and Israel. It has expanded Sarine Diamond Journey's market presence in Japan, China, Thailand and Israel. Israeli customers are "prominent midstream suppliers" to retail outlets in China, Taiwan, Singapore, Malaysia and the US.

As more midstream suppliers of polished diamonds join the Sarine Diamond Journey traceability paradigm, Sarine will be able to collect and store relevant data and imagery during the various stages of transition from rough to polished stones. This will allow the group to offer potential retail customers new services and enable retailers to subscribe to its Sarine Diamond Journey product based on data already in its cloud repository.

"The growing database will help to strengthen the value proposition of Sarine's polished diamond solutions and will in turn contribute to the group's recurring revenue stream over the longer term," Mr Block said.

Shares for Sarine Technologies closed at S$0.405 apiece on Friday.