Sarine Technologies

[greengiraffe]

Q3 2015 Diamond Industry Conditions Update and Profitability Guidance

Kfar Saba, Israel, 1 October 2015 – Singapore Exchange Mainboard-listed Sarine Technologies Ltd (“Sarine”) (U77:SI), a worldwide leader in the development, manufacture and sale of precision technology products for the planning, processing, evaluation and measurement of diamonds and gems, wishes to update its investing public as to current industry conditions and their impact on the Group’s revenues and profitability.

As disclosed in our detailed discussion for the half year financials for H1 2015, published on 9 August 2015, issues of unsustainable rough vs. polished prices as well as residual inventory overhang resulted in very challenging market conditions in Q3. Sightholders, accordingly, refused an unprecedented 60%-70% of the offered rough diamonds at DeBeers' already substantially trimmed July sight, effectively buying only US$ 150-200 million worth – the lowest quantity for July since the global financial crisis of 2008-9. Thus, polishing output, which had already been reduced by some 20 – 30% as from December 2014, dropped to some 40 – 50% of normal output in July and August, all but negating the need for capital equipment investment and further impairing our ongoing processing fees from the GalaxyTM family of inclusion mapping systems.

At the subsequent DeBeers and Alrosa sights, in late August and September respectively, rough diamond prices were reduced by an average 8 – 10% by both producers, but quantities traded remained some 50% below normal. The Hong Kong Jewelry Show in the third week of September evidenced stronger than anticipated buying, but demand from key retailers in China and Hong Kong remains limited, though polished diamond retail activity has picked up substantially throughout the rest of the Asia Pacific area. These improving conditions towards the end of the quarter came too late to translate into significant revenues for Q3, also given that, although there has been a significant correction of rough prices, there is still reluctance by both mid- and downstream buyers to replenish stocks, as they believe further price adjustments are warranted and may be forthcoming. Therefore, coupled with the annual Diwali holiday in India in early November, we expect manufacturing activity will continue to be subdued for at least the first two months of Q4. We currently expect diamond manufacturing activities to trend back to normal from late Q4 2015 (post Diwali) or in Q1 2016, depending on developments in rough diamond pricing and the holiday season retail sales. 

The current challenges, coupled with the ongoing issues of limited working capital credit lines, have caused a handful of defaults amongst our midstream customers, primarily in India. Though the Group has not experienced any material collection issues to date, the liquidation sale of the equipment (previously bought by these manufacturers) in the second-hand market, has created additional pressure on our new-equipment sales, both for our legacy planning systems and our inclusion mapping systems, leading to the sale of only one GalaxyTM Ultra system this quarter.

Without final numbers yet available, we expect revenues for the quarter to be approximately half of those in Q3 2014 and down by approximately a third sequentially, in comparison to Q2 2015. We expect our quarterly recurring revenues to have been approximately a third down y- o-y and just shy of a fifth down sequentially, due to the lower manufacturing activities. We expect to record an operating loss for the quarter ended 30 September 2015 of around US$ 1.5 million, which includes non-cash expenses (depreciation, amortisation and option based compensation) of approximately $1.0 million.

Accordingly we are taking steps to reduce costs, while still focusing on bringing to market, in accordance with our long-term plans, what we believe to be future growth products and services. We have, as concurrently announced, launched the small stone inclusion mapping system, the MeteorTM, as planned, and will be opening our initial AllegroTM gemstone processing service centre in Jaipur, India, in Q4, also as previously announced. The pilot programs of the Sarine ProfileTM with key leading US and China/HK retailers are progressing on target for the upcoming key holiday season sales windows. The development of the derivative technologies based on the Sarine LightTM and Sarine LoupeTM complementary to the Sarine ProfileTM are also progressing, with preliminary trial beta implementation at selected customers possible in Q4. We expect revenue contributions from these new products and services will serve to broaden our revenue base in general, and our recurrent revenue base in particular, from FY2016 .

http://infopub.sgx.com/FileOpen/Press_Re...eID=371603
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(not vested)

As I said before Sarine is a derived demand company. There is no doubt there is good technology but as long as the underlying industry remains a cyclical one, a technology company depending on it can never be trading at premium ratings...

Odd Lots Vested
GG