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• Rough planning products:
We continue to focus on bolstering the
added value realised by utilising our planning systems in conjunction with
our inclusion mapping systems. This has been a winning proposition both
underpinning our inclusion systems’ market penetration and increasing
our share of the planning systems market. Indeed, we have continued
seeing expansion of our planning products sales, notwithstanding
their being a fully mature product line. We are concurrently addressing
critical issues of intellectual property protection by implementing Cloud
technology, including in the next release of the Advisor™ so as to better
thwart attempts to copy or otherwise misappropriate our intellectual
property assets. Currently in beta-testing, the commercial release of
Advisor™ 6.0 is planned for Q2 2015.
• Facet polishing products:
Sales of the new DiaMension™ Axiom
platform, enabling more comprehensive geometric data measurements
relating to the polished diamond, at a new and unmatched level of
accuracy, have commenced. The initial system has been delivered to
Tiffany and Company in the U.S. The system is being evaluated by various
gemmological laboratories, and has already been adopted by some. We
expect the DiaMension™ Axiom’s introduction will lead to a refined
definition and the automated grading of a polished diamond’s Symmetry,
and thus create a new business opportunity for the Group.
• Sarine Light™:
The in-store tablet-based display system, to better
meet retailers’ needs for the online video comparison of various stones’
light performance in the actual sales environment, has been completed.
Furthermore, modified round shapes and the Princess shape have
already been added to the system’s capabilities. Work continues now on
Cushion shaped stones. In addition, we plan this year to integrate our
light performance grading technology with our rough diamond planning
systems and our polished diamond facet polishing quality control systems
(i.e., the Advisor™ and Instructor™ software packages), so as to allow
manufacturers to add light performance optimisation to their polished
diamonds manufacturing criteria. We are also researching another
derivative functionality from the Sarine Light™ system, which we believe
will, in the future, add significantly to the service’s value proposition.
• Sarine Loupe™:
The Sarine Loupe™ system’s enhancement continues.
The expansion of the addressable stone size down to 30 points has been
completed (in Q1 2015). We are currently focusing on the integration of
even more sophisticated control software for the lighting and camera
subsystems, to enable the derivation on the Sarine Loupe™ platform
of additional critical information defining the imaged stone’s key
characteristics.We are confident that the ability to derive these additional
data defining the imaged polished diamond will differentiate our offering
from the growing competition in the imaging market and add significant
value to the Sarine Loupe™ platform. We expect tangible results in the
second half of 2015.
• Sarine Profile™:
Marketing efforts of the Sarine Light™ and the Sarine
Loupe™ imaging services, which are truly complementary, have been
unified, as we are seeing more and more evidence that the distinction
between B2B and B2C commerce is becoming blurred. Furthermore, the
recognition that imaging technologies have become essential marketing
and sale tools, having 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™, which 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 data and the Sarine Loupe™ offers
various optional levels of video imaging and inspection. The customer
pays for those services chosen to be featured on the promotional Sarine
Profile™ page, on a per-stone basis, depending, as with the Galaxy™,
on whether the imaging is done on a machine owned by the customer
or at a service centre. We are seeing significant interest in this new
offering in the markets in which it has already launched (primarily India,
Israel, Japan and the U.S.) and we expect that 2015, prevailing industry
conditions allowing, will indeed see material revenues generated from
this initiative.
• Allegro™:
The Allegro™ system, a new technology in development
since last year, is similar in concept to Sarine’s original first product, the
Robogem, initially launched in the late 1980s. It is a high-speed and
high-accuracy machine which processes gemstones (not diamonds)
and transforms the preformed (i.e., the initial suggested location of the
table has been manually identified) stone directly into a fully-shaped
(unfinished) gem. It thus comprises partial functionality of our rough
planning systems, as well as (non-laser) cutting and shaping abilities,
to provide extremely accurately sized stones, with minimal unnecessary
weight loss, high throughput and no human error. Furthermore, the
machine is configurable to process gems according to varying market
preferences. When measured by the number of stones handled annually,
the manufacturing market for other gemstones is significantly larger in
volume than that of diamonds, albeit not by dollar value, of course. It is
our intent to offer the system’s capabilities as an inexpensive (equating
or below the cost of manual manufacturing) per-stone service and to
thus create a new recurrent revenue stream. We expect beta-rollout in
Q2 2015, with commercialisation late in 2015 or early 2016.
Risk Factors
• The reduction of liquidity in the industry mid-stream, the Indian diamond
manufacturers, was, in 2014, a key risk factor. This resulted from reduced
bank credit, compounded both by razor-slim profit margins, as the trend
of increasing prices of rough diamonds was clearly divergent from eroding
polished diamond prices for much of the year, and by high inventory
levels. The latter stemmed from overall market conditions along with
long certification lead-times, even as these improved from the mid-2014
peaks of over five months. In fact, the decline in certification lead-times,
though clearly an important positive development, actually exacerbated
the high inventory levels issue temporarily in the last quarter of 2014, as
stones submitted for certification at various time points during the year
returned concurrently towards year-end. Data from the first months of
2015 indicate that the prices of rough diamonds have corrected back
to be more in line with polished diamond price trends, inventory levels
have dropped due to renewed consumer demand, and certification cycles
continue to shorten. We thus believe this risk factor may be less acute in
2015 than in 2014.
• Polished diamond prices ended 2014 down, as their erosion became
more pronounced in the fourth quarter. A possible explanation for this
trend may have been the need of Indian diamond manufacturers to
sell at reduced prices in order to service their credit lines, as inventories
increased and available credit decreased (as noted above). Rough
diamond prices increased overall for 2014, continuing to increase in the
last quarter of 2014 regardless of the polished diamond market trends.
This drove DeBeers sightholders to leave some 10% of the goods on the
table at the last sight of 2014. Though DeBeers reduced prices marginally
in the January 2015 sight, the reduction was less than anticipated and,
an even more significant portion of the sight (25% as reported by some
industry pundits) was deferred by sightholders. Thus, the January 2015
sight was the lowest January sight in a decade (except 2009), lower by
some 30% than the average January sight. Subsequently, at the February
sight, DeBeers implemented a second price cut, bringing the overall
reduction since the beginning of the year to an average of some 6%. This
aggregate reduction in rough prices seems to have been sufficient, as the
entire sight was taken by the sightholders, who have already indicated
their willingness for an even larger sight in March. Still, the variance in
trends between rough diamond prices and polished diamond prices is
always a risk factor to be watched.
Sarine Technologies Ltd. • Annual Report
2014
Management’s Business Operations
& Financial Review
