Sarine fears a net loss over US$01mn
Diamond
industry midstream
Faces
a reduction in manufacturing!
Advent
of LGD drives adverse!
Halts
capital equipment expenditures!
By
updating the Group’s revenues and profitability for Q1 2019, Sarine
Technologies Ltd says, “In our FY2018, we noted that the prevailing negatives
in the diamond industry midstream, which impaired our results in the latter
part of 2018, were likely to continue into FY2019.
Indeed,
during Q1 2019 our midstream customers not only continued to experience working
capital issues due to credit tightening policies implemented by Indian banks
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.
In
addition, the uncertainties caused by the advent of lab-grown diamonds (LGD) in
the market, notwithstanding the U.S. Federal Trade Commission’s (FTC) latest
criticism of certain players’ lax implementation of their directives on the full
disclosure of the diamonds’ non-natural source and their warning concerning the
presentation of LGD as more environmentally friendly, 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.
Together,
these factors have continued to result in a reduction in manufacturing
activities, and consequently recurring revenues from inclusion mapping
services, as also evidenced by the ongoing reduction of miners’ rough output
into the pipeline, such as DeBeers sights having been reduced by as much as
25%. These negatives have also contributed to a tendency to postpone capital
equipment expenditures.
Notwithstanding
all these issues, the Group delivered a record 33 Galaxy-family inclusion
mapping systems this quarter-continuing indication of the market’s growing
understanding and appreciation of the value of our technology over the pirated
version of same. All of these systems were of the Meteorite (29) and Meteor (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 our overall gross margin to below 60%.
There
may be some very preliminary indications that the midstream market is beginning
to stabilise. The latest-March, De Beers sight was back to customary levels.
Consequently, the number of stones being scanned by our inclusion mapping
systems has also increased back to higher levels.
Current
indications are that our revenues for the first quarter will be just under
US$11 million, and, given the above-noted reduction in our gross margin, even
with our ongoing prudent management of our operational expenses (no significant
increase in these except in G&A, which has bumped up sequentially by some
US$ 0.2 million, as we have moved into the actual trial phase of our patent
litigation), we currently expect that we will record 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).
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