20
2014
Revenue by
Geographic
Segment
Africa
5%
Europe
3%
India
79%
Note: India polishes approximately 90% of the world’s polished
diamonds (by stone count). It is natural that the majority of the Group’s
revenues are derived from India, given that we primarily supply high-tech
equipment and services to the rough diamond polishing industry to enable
production optimisation (speed and cost), risk minimisation and polished
yield maximisation, while revenues from other jurisdictions may increase
as we broaden commercialisation of new products and services catering to
the polished diamond trade (i.e., the Sarine Light™, Sarine Loupe™
and Sarine Profile™).
Israel
6%
North America
1%
Other
6%
RELATED ACTIVITY
TARGET CLIENT
Gross Profit
Gross profit for FY2014 increased by 13.4% to US$ 61.9 million, as compared to US$ 54.6 million for FY2013. For FY2014
the Group recorded a gross profit margin of 71% essentially the same as in FY2013. Gross profit included non-cash
amortisation expenses related to the amortisation of the Galatea know-how and previously capitalised Group research
and development costs of US$ 2.7 million and US$ 2.4 million, in FY2014 and FY2013, respectively.
Operational Profit
Profit from operations for FY2014 increased by 10.6% to a record US$ 32.9 million, as compared to US$ 29.8 million in
FY2013. For FY2014 the Group recorded an operating margin of 37.5% as compared to an operating margin of 39.0%
for FY2013.The decrease in our operating margin is due primarily to our increased expenses for research and development
and sales and marketing in line with our strategic investment in new products and services for the polished diamond trade
and non-diamond gemstones and their initial marketing efforts.
Net Profit
For FY2014 the Group reported a record net profit of US$ 27.2 million, an increase of 14.0% compared to net profit of
US$ 23.9 million for FY2013 (net profit before a one-time income tax expense for prior periods of US$ 26.5 million). For
FY2014, the Group recorded a net profit margin of 31.0% essentially the same as the net profit margin of 31.3% for
FY2013 (34.7% before the one-time income tax expense for prior periods).
Operating Review
Opportunities
Market-driven Opportunities
• Global economic indicators remain overall stable, with generally positive
developments in the U.S., still the largest single market for polished
diamonds, where diamond jewellery buying expanded marginally for
2014 and started 2015 with the best Valentine’s Day sales on record.
As the markets in Japan and Europe remain tepid the polished diamond
trade’s expectations are mostly focused on renewed demand from the
Chinese market, thus creating a more balanced demand in the global
diamond markets.
Company-driven Opportunities
• The Galaxy™ family of inclusion scanning products:
Deliveries of
Galaxy™ family (including Solaris™) systems in 2014 were a record 48
(46 in 2013 and 41 in 2012 and 34 in 2011). As of 31 December 2014
we had 190 systems deployed worldwide. Indeed, our recurring revenue
stream from the installed Galaxy™ and Solaris™ systems continues to
expand significantly, and accounted for most of the recurring revenue for
the year, which was over 35% of our overall revenues. We expect this
trend to continue in 2015. We continue to closely monitor our various
would-be competitors’ activities. The upgraded solution introduced by
our Russian competitor in 2014 has still not realised any commercial sales
(though some services are being offered), and promised improvements
have not been implemented. The system introduced by the Indian
competitor appears to have been aborted, as work on the prototype
systems has seemingly been abandoned. At a trade show in India in
December 2014 two new competitors indicated their intent to launch
competing systems, one Israeli and another Indian, but as of this writing
nothing tangible has materialised. Given our clearly superior integrative
solution with our extensive installed base of planning systems, the
Group expects to realise significant deliveries of Galaxy™ and Solaris™
systems in 2015, assuming positive industry sentiment. As we have now
successfully introduced systems covering stones from just under a carat
rough and up (the Solaris™, the Galaxy™ and the Galaxy™ XL), and
as we have also successfully addressed the need for high-resolution
scanning (the Galaxy™ Ultra), our research and development efforts
relating to our inclusion scanning family of systems is now turning to
the smaller stone sizes. The next stone range we are aiming to address
is 20 - 85 points rough, generally corresponding to polished stone sizes
of 7 – 20 points. As an indication of the potentially addressable market
at these stone sizes, it should be noted that 50 million polished stones
of 7 – 20 points are manufactured annually, fully fourfold the aggregate
numbers of all polished stones over 20 points in size, though it should
be remembered that there is not a one-to-one correlation between the
number of polished stones and that of rough stones.To achieve the return
on investment necessary for our customers to adopt the planned product,
our development focus will be on lowering the total cost of ownership
(TCO). Commercialisation is planned for late 2015 or 2016 having shown
promising initial results.
Sarine Technologies Ltd. • Annual Report
2014
Management’s Business Operations
& Financial Review
