Sarine Impacted by Macro-economic Headwinds

May 17, 2023

Sarine Technologies Ltd update its investing public on business results for Q1 2023 ended 31 March 2023. In a Review of Q1 2023, Sarine said, the negative macro-economic environment, driven by as yet un-tamed inflation and dramatically increasing interest rates, continues to take its toll on consumer confidence in the U.S., the key global market for diamond jewellery.

The expected resurgence in consumer spending in China, following the lifting of the zero-Covid policy late last year, has not yet fully manifested itself (though Richemont has reported a recovery in their mainland China sales), leaving consumer demand in the second most important market for diamonds still weaker than hoped for.

This lack of strong consumer demand has impaired business conditions in the entire diamond jewellery value chain, as already seen late last year. Consequently, the inventory of polished diamonds has risen significantly over the past 12 months, as evidenced by the ~1.8 million diamonds currently on Rapaport’ RapNet website.

Appropriately, the flow of new rough diamonds into the pipeline has decreased, as demonstrated by the three initial DeBeers sights this year – down some 20% in value (more in carat quantity) from the corresponding period of 2022. In general, the geopolitical and macro-economic conditions in Q1 2023 are so dramatically different than those in the same quarter of 2022, as to make comparisons all but meaningless.

The Group realised 12% lower revenues in Q1 2023 as compared to Q4 2022, US$ 11.5M as compared with US$ 13.1M. This decrease was also due to initial real-world use, teething-issues with our newly launched Meteorite Plus, which, we believe, have since been rectified (testing on site in India continues). As a result, only 6 Galaxy-family inclusion mapping systems were delivered in Q1 2023, bringing the total installed base to 809 systems, as of 31 March 2023.

The drop in sales of Meteorite Plus systems into the smaller stones segments, also reduced sales of our legacy planning systems into this market segment. However, utilisation of our installed Galaxy inclusion mapping systems remains robust, with an increase of some 40% in revenues, as compared to Q4 2022, during which the Diwali break occurred.

Trade-related revenues in Q1 2023 were up 12% overall as compared to Q4 2022, with a drop in digital tender related revenues, due to the decrease in the inflow of rough diamonds into the value chain, offset by higher revenues from other trade categories.

Due to the increase in recurring revenues as compared to capital equipment sales, which fell, overall recurring revenues (including digital tenders, Galaxy inclusion scanning, Quazer services, polished diamond related services, annual maintenance contracts, etc.) were 65% of Group revenue in Q1 2023, as compared to 44% in Q4 2022 (and the usual ratio of around a half of all revenues).

Accordingly, our gross margin was over 71%, and our gross profit decreased only by 4%, as compared to Q4, 2022. Operational profitability was down 13%, in line with the drop in revenues. However, as taxes in Q4 2022 were exceptionally high, due to a one-time charge related to the drawing of a dividend from Sarin India to the parent company in Israel, net profit for Q1 2023 was US$ 0.8M, as compared to only US$ 0.1M in Q4 2022. The report also presented their prospectus.

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