Full Year Financial Statement And Dividend Announcement 2024
Financials Archive
Condensed Consolidated Interim Statements of Profit or Loss:
Condensed Consolidated and Company Statements of Financial Position as at:
Review of Performance
Overview
The natural diamond manufacturing industry, from which the Group still derives most of its revenues, faced ongoing headwinds for the second year running. Weakened consumer demand in China and the continuing disruption by lab-grown diamonds (LGD) continue to negatively impact natural diamond demand and prices, consequently slowing manufacturing activity. The LGD segment itself is also experiencing issues stemming from over-production and oversupply driving declining wholesale prices. This, coupled with intensifying competition among retailers, has driven down retail prices and absolute realised profits, with retailers accordingly pondering their course of action.
Notwithstanding challenging industry conditions, Sarine has made substantial progress in executing new strategic initiatives, as announced at year's start. The introduction of our Most Valuable Plan™ (MVP) for optimising the planning of small natural rough diamonds, the adaptation of our rough planning technologies to LGD, and the opening of a GCAL by Sarine lab in India, aimed at servicing the significant Indian LGD industry, have expanded our services portfolio, attracted new customers and are generating new recurring revenue streams. Coupled with aggressive business streamlining and cost cutting, we have enhanced our financial performance. These initiatives also bolster our strategic position for value growth, when market conditions improve and are expected to foster long-term growth as we expand our offerings for the natural stone and LGD markets alike.
The Group reported revenues of US$ 17.3 million in H2 2024, loss from operations of US$ 1.5 million, and a net profit of US$ 0.1 million, as compared to revenues of US$ 19.2 million, loss from operations of US$ 3.2 million and a net loss of US$ 3.8 million in H2 2023. For the year ended December 31, 2024, the Group recorded revenues of US$ 39.2 million, loss from operations of nil and net profit of US$ 1.1 million, as compared to revenues of US$ 42.9 million, loss from operations of US$ 1.8 millions and net loss of US$ 2.8 million for the year ended December 31, 2023.
In accordance with our strategy of recent years, the Group's business continues to pivot to deriving mostly recurring revenues from its proprietary services, including the Gal3D inclusion software (which processes the Galaxy® platforms' output) and Advisor® rough diamond planning cloud-based solution, along with other pay-per-use services In addition to the Group's grading and traceability reports, these now constitute most of the Group's revenues.
The increased profitability for the year ended December 31, 2024 compared to the year ended December 31, 2023, despite lower sales and a lower gross profit margin, was mainly due to cost reduction steps implemented by the Group along with development costs capitalisation due to the Group achieving the required technological development benchmark for capitalising some of its LGD grading related development costs, and the positive impact of the adjustment of the valuations of GCAL Put / Call options.
Balance Sheet and Cash Flow Highlights
As at December 31, 2024, cash, cash equivalents, short-term investments (bank deposits) ("Cash Balances") increased to US$ 26.3 million as compared to US$ 23.0 million as of December 31, 2023. The increase in Cash Balances was primarily due to cash generated by operating activities, predominantly a decrease of trade and other receivables, to US$ 13.9 million as at December 31, 2024 (US$16.6 million as at December 31, 2023), offset by a US$ 1.3 million buyback of Company's shares and US$2.6 million dividend distributed.
Revenues
Revenues for H2 2024 of US$ 17.3 million, decreased by 10%, as compared to revenues of US$ 19.2 million reported in H2 2023. The decrease in revenues, across most geographies, was due to the continued decline in capital equipment sales offset slightly by small increase in recurring revenues. Revenues for the year ended December 31, 2024 of US$ 39.2 million, declined by 9%, as compared to US$ 42.9 million for the year ended December 31, 2023. The overall decline in sales resulted from impaired business conditions in the entire diamond jewellery value chain, offset slightly by the introduction of our LGD rough planning solution.
Cost of sales and gross profit
Cost of sales for H2 2024 of US$ 8.2 million increased by 1%, as compared to US$8.1 million reported in H2 2023 (on a decrease in revenues of 10%), with a gross profit margin of 53% in H2 2024 compared to 58% in H2 2023. The decrease in gross profit and the corresponding decrease in gross profit margin were primarily due to decreased overall sales and inventory write-offs in accordance to Group policy.
Cost of sales for the year ended December 31, 2024 of US$ 16.2 million, increased by 4% (on a decrease in revenues of 9%), as compared to US$ 15.6 million for the year ended December 31, 2023, with a gross profit margin of 59% in FY2024 compared to 64% in FY2023. The increase in cost of sales in FY2024 and corresponding decrease in gross profit was primarily due to inventory write-offs in accordance to Group policy.
Research and development expenses
Due to the Group achieving the required technological development benchmark for capitalisation of some of its LGD grading related development costs, a sum of US$0.9 million was capitalised in H2 2024. As a result Research and development expenses for H2 2024 totalled US$ 2.8 million and decreased by 33% (12% including capitalised expenses) as compared to US$ 4.2 million in H2 2023. Research and development expenses for the year ended December 31, 2024 of $6.7 million decreased by 22% (12% including capitalised expenses) as compared to US$ 8.6 million for the year ended December 31, 2023.
Sales and marketing expenses
Sales and marketing expenses for H2 2024 of US$5.4 million decreased by 14% as compared to US$ 6.3 million in H2 2023. Sales and marketing expenses for the year ended December 31, 2024 of US$ 11.0 million decreased by 14% as compared to US$ 12.8 million in year ended December 31, 2023.The decrease in sales and marketing expenses was due primarily to cost saving steps initiated by the Group.
General and administrative expenses
General and administrative expenses for H2 2024 of US$ 2.4 million decreased by 37%, as compared to US$ 3.9 million in H2 2023. General and administrative expenses for the year ended December 31, 2024 of US$ 5.3 million, decreased by 9%, as compared to US$ 7.8 million for the year ended December 31, 2023.The decrease in general and administrative expenses was primarily due to management initiatives, mainly aimed at the reduction of IP-related legal costs, and the successful collection of debts previously classified as doubtful, offset by one off goodwill write-off in the sum of US$0.7 million.
Profit from operations
The Group reported a loss from operations of US$ 1.4 million in H2 2024 compared to a loss of US$3.2 million in H2 2023. and a zero profit from operations for the year ended December 31, 2024, as compared to a loss of US$ 1.8 million for the year ended December 31, 2023. The decrease in in sales and in gross profit was offset by cost reductions. as detailed above.
Net finance income
Net finance income for H2 2024 was US$ 1.4 million, as compared to US$ 0.2 million in H2 2023. Net finance income for the year ended December 31, 2024 was US$ 1.5 million as compared to US$ 0.6 million for the year ended December 31, 2023. The increase in net finance income was mainly due to a US$1.2 million fair value adjustment of Call and Put options related to GCAL acquisition.
Income tax expense
The Group recorded an income tax benefit of US$ 0.1 million for H2 2024, as compared to an income tax expense of US$ 0.7 million in H2 2023. The Group recorded an income tax expense of US$ 0.4 million for the year ended December 31, 2024, as compared to US$ 1.5 million for the year ended December 31, 2023. The decrease in income tax expense was primarily due to consolidated tax reporting initiatives taken by the Group and by the profitability being realised in various entities of the Group, each subject to different jurisdictions, applicable incentives, and income tax loss carry forwards.
Profit for the period
The Group reported a net - profit of US$ 0.1 million in H2 2024 compared to a net loss of US$3.8 million in H2 2023 and a net profit of US$ 1.1 million for the year ended December 31, 2024 as compared to a net loss of US$ 2.8 million for the year ended December 31, 2023, as cost saving steps, development capitalisation, fair value adjustment and consolidated tax reporting offset the lower gross profit, all as detailed above.
Commentary
We expect the following industry trends to continue influencing our business (also refer to section 6 above's Overview commentary):
- Demand for natural diamonds is anticipated to remain impaired in 2025 due to the combined effect of weak demand from China and the ongoing impact of LGD on natural diamond sales.
- The LGD market also faces challenges, marked by rapidly and sharply declining wholesale and retail prices exacerbated by a substantial accumulation of inventory in India. The decline in retail prices for lab-grown diamonds has further accentuated the fundamental difference between LGD and natural diamond jewellery, cooling the rapid adoption of LGD witnessed in 2022-2023. As the absolute revenues generated by retail LGD sales, even if still at higher margins, decline, the retailers' economic viability of selling LGD diminishes. We maintain our belief that an equilibrium will be achieved in the near term, with natural diamonds eventually retaining a significant market share, primarily in the bridal jewellery segment, and LGD commanding a more dominant position in fashion jewellery (earrings, tennis bracelets, pendants, etc.)
- The MVP adoption rate continues essentially as per our expectations. The business model is based both on significant added yield and value realised from the rough material and automation and cost savings (primarily personnel) and is remunerated based on a per-stone fee, driving recurring revenues.
- With the launch of our LGD focused GCAL by Sarine grading lab in Surat, India, we now offer a cost-effective venue for our industry-unique guaranteed grading. We have and continue to attract new customers and expect to substantially expand our LGD grading business in 2025, as we also integrate of our AI-based technology into the lab's operational workflow.
- Environmental, social and governance (ESG) issues continue to concern retailers, especially high-end luxury brands. The U.S. Customs has just announced new directives requiring the disclosure of a polished diamond's rough stone country of origin, as of April 1, 2025 (please refer to https://rapaport.com/news/diamond-origin-declaration-should-be-verifiable-us-govt-says/). We believe our collaboration with DeBeers' Tracr™ platform, along with our AutoScan™ Plus and Sarine Diamond Journey™, provide a distinctively scalable cost-effective means to meet the mandated requirements with minimal overhead or disruption to the diamond value chain.
- In line with our aggressive business streamlining and cost cutting, during 2025 the Group will transfer its manufacturing activities to India. This step will take avail of both the lower costs associated with the manpower employed in India and the existence of a qualified team of support personnel, who can relatively easily be trained to perform the necessary assembly steps entailed in the production process.
- Israel has been involved in a war with the Hamas terrorist group in the Gaza strip, following its brutal 7 October 2023 attack. Hostilities had also commenced with the Hezbollah terrorists in Lebanon and other Iranian-affiliated terrorist groups, along with Iran itself. Currently a cease fire has been achieved on all fronts. To date, the effect on the Group's activities has been minimal.
