17
Management’s Business Operations
& Financial Review
centres of Mumbai and Surat, we now have full control over the business
direction and marketing of our products in the key Indian market. In 2009, we
inaugurated a service centre in Surat, which provides our customers in India
with Galaxy™ internal inclusion detection and mapping and Quaser™ laser
cutting services.A second service centre in India was opened in Mumbai in the
beginning of 2012.These service centres generate a recurring revenue stream
from the use of the Galaxy™ systems, as does the operation of in-house
systems acquired by customers, due to the unique business model we have
implemented to leverage this unequalled technology.
The emerging diamond manufacturing centres of southern Africa represent
evolving markets and growth potential for our products. Sarine has taken
and is taking steps to strengthen its market presence in these markets. The
appointment of an agent in South Africa initially in 2005 was followed by
expansion in 2008 into the strategic Botswana market (whose importance
has grown markedly since DeBeers relocated its activities there from London)
and the appointment of a dedicated agent in Namibia in early 2012. During
2011, service centres for automated internal inclusion detection and mapping,
planning and sawing services were opened in South Africa and Namibia. A
service centre in Botswana was opened in the beginning of 2012.
We expect growth in our sales to and profits from the wholesale and retail
trade of polished diamonds, the ‘downstream’, during the next few years.
We are now targeting this industry segment as our primary market for
strategic expansion. While as the midstream adds US$ 6 billion in value, the
downstream portion of the industry holds significant growth potential for the
Group because it adds almost ten times that figure – US$ 52 billion, and,
whereas the average profit margin in the midstream is 1-4% (with indications
that in 2014 this number was eroded to zero or even negative figures for
many players), the margins realised by high-end retailers can be as high as
20%-35%, with the downstream overall generating about half of the profits
realised in the industry. The retail diamond jewellery business accounts for
roughly a quarter of the composite global luxury goods retail trade, which
amounted to US$ 288 billion in 2013 and previously grew at 5% year over
year, and is centred around the U.S. and Europe (65%-70%), followed by
Japan, China and the Gulf region. In 2014 we opened our offices in the U.S. on
47th St. in midtown Manhattan and we will be opening a permanent regional
presence in Hong Kong in the coming months.
To this end we have initiated the following endeavours:
• Light Performance Technology (LPT) – we acquired LPT at the end of 2010
and developed our Sarine Light™ product for the accurate, consistent
and objective quantified measurement of a diamond’s brilliance, fire,
sparkle and light symmetry. The Sarine Light™ was launched in 2012
at the JCK show in Las Vegas in June and the Hong Kong show in
September. The initial commercial customer was CIMA, one of Japan’s
leading diamond jewellery chains, which adopted the Sarine Light™ in
April 2013, followed by additional Japanese customers throughout 2013
and 2014. Marketing in India and the U.S., as well as in Hong Kong
/ China, Taiwan, and Korea in the Far East commenced in 2014, with
commercial customers now in most of these markets.With the opening of
our regional sales and support centre in Hong Kong, we will be expanding
into additional Asian markets, such as Thailand, Malaysia, Indonesia and
Singapore.
• Realistic diamond visualisation – we acquired the DSee technology at the
end of 2011 and derived from it the Sarine Loupe™ to capture accurate
realistic imagery of a polished diamond, including its internal features.
The Sarine Loupe™ provides various levels of imaging to suit different
consumer requirements:
- Real View – the stone is imaged at a minimal 5-10 times
magnification (depending on the stone’s actual size), and shown as
viewed from the distance of one foot (~30cm), with an emphasis on
assessing its actual appearance and beauty, while also verifying, by
observing its inclusions, just how eye-clean it is;
- Top Inspection – the stone is imaged at 10-25 times magnification as
viewed through its table, with simulated rotation and tilt to emulate
the manner in which a stone is typically inspected when initially held
up to a physical loupe, allowing the buyer to fully assess the stone’s
inclusions (Clarity) and faceting (Cut);
- Full Inspection - a means to truly assess a polished diamond’s
minutest details without having it physically in hand, at up to 40
times magnification, using optional near-microscopic zoom (even
better than a conventional loupe) from virtually 360 degrees in all
axes.
We also expect to be able to derive additional information regarding
the polished stone’s key grading characteristics, as the Sarine Loupe™
platform continues to evolve.
• Diamond Assay Service (DAS) – an online subscription service that
enables the user to verify whether a diamond is really a diamond (albeit
without differentiating between natural or synthetic / treated stones),
ascertain its geometric parameters, Cut grade and estimated value, and
proposes possible solutions for its re-cutting and re-polishing so as to
derive greater potential value.
• Inclusion mapping for polished diamonds - in research and development.
The recognition that imaging technologies have become essential marketing
and sale tools with the capacity to “show and tell” the polished gem, and
not just present dry tabular non-intuitive data, has become near-ubiquitous
amongst e-tailers and retailers alike.We have thus launched a new marketing
and sales offering, the Sarine Profile™ so as to allow online trading with a
completely new level of confidence, while reducing costs for both seller and
buyer. The Sarine Profile™ is unique in that it offers on one concise display
“page”, all the benefits of our diverse cutting-edge technologies, along
with other user-opted data, such as the stone’s gemmological laboratory
report, promotional material, etc. The DiaMension™ HD / Axiom proportion
measuring systems provide geometrical proportions and Hearts and Arrows
depiction, the Sarine Light™ generates light performance grading and the
light play’s video rendition and the Sarine Loupe™ offers the various optional
levels of video imaging and inspection, described above.
The business model, which has been adopted for all the aforementioned
products and services for the polished diamond trade, is based on the model
which has been successfully adopted for the Galaxy™ family of inclusion
mapping systems for rough diamonds – namely a mix of product sales and
ongoing derivative services, generating both fixed and recurring revenue
streams.
Sarine Technologies Ltd. • Annual Report
2014
