Ongoing Macro-economy weigh on Sarine

Nov 20, 2023

In a review of Q3 and 9M 2023 Sarine Technology said, the macro-economic uncertainties in the U.S. continue to affect consumer confidence and retail sales. Economic woes in China have prevented the expected retail recovery in the second most important market for polished diamonds. These two key factors led to a decline in the sale of polished diamonds and a drop in their prices.

Accordingly, Indian manufacturers strove to reduce inventories, especially going into the second half of the year, in anticipation of possibly weaker holiday seasons and ongoing competition from LGD in the U.S., as well as ahead of likely new G7 sanctions on Russian diamonds, anticipated for early 2024.

The quantities of rough diamonds entering the pipeline have therefore decreased significantly, with DeBeers sights showing a 35% decline for the year and a 53% decline for their sights in H2 2023 so far. The latest sight in October was a mere US$ 80 million (82% down y-o-y), as Sightholders were allowed to refuse all their allocations.

India’s two-month voluntary freeze on rough imports, which went into effect October 15, has further helped reduce inventories, as has a late spurt of buying by US jewelers completing their holiday purchases and seeking goods before India’s Diwali break in November. The US jewelers’ purchasing activities actually drove polished diamond prices up somewhat, reversing a year-long downward trend.

With the decline in the quantities of rough diamonds entering the pipeline, commensurately reduced manufacturing activities were evident. Appropriately, our traditional businesses of selling capital equipment and, to a lesser extent, our inclusion scanning services, were impaired. As our inclusion scanning services are primarily on the larger higher-end rough diamonds, they are more resilient to a slowdown in overall diamond manufacturing and were less impacted.

The holiday outlook remains uncertain, and budget-focused shoppers in the U.S. may show a further shift to LGD, further denting sales of 1- to 2-carat naturals. The extent of this trend, and the overall end-of-year holiday season in the West and the Chinese New Year buying early in 2024, will determine how fast the natural diamond industry recovers.

Group revenue and net profit for the nine months ended 30 September fell 25% and 100% respectively year over year to US$34 million and US$0 million respectively. Capital equipment sales in the third quarter dropped significantly, and, with no Galaxy-family inclusion mapping systems delivered in the quarter, our installed base remained at 823 systems.

Overall recurring revenues for Q3 and 9M 2023 were 72% and 64% of our overall revenue. Our new businesses relating to rough and polished diamond wholesale and retail related (“Trade-related services”) activities, bolstered by our acquisition of the New York GCAL lab, continued to show growth. Trade-related revenues accounted for about 32% and 21% of our overall revenue in Q3 and 9M 2023.

The loss in Q3 2023 and the decline in profitability in 9M 2023 were mainly due to lower revenue and a lower gross profit margin resulting from lower revenue and product mix. To compensate for reduced midstream polishing activity, the Group is taking immediate steps to reduce operating expenses already in Q4 2023.


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