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• Market phenomena exhibited in late 2014 and January 2015, namely
tight liquidity, rough vs. polished prices out of sync and inventory
overhang, all as discussed above, may result in manufacturers reducing
their manufacturing activities accordingly.The reduction of manufacturing
volumes is a risk factor affecting our recurring revenue stream, as this
would cause a drop in usage fees from the use of our inclusion mapping
systems, both at our service centres and our customers’ production sites.
• Our success and ability to compete are substantially dependent on our
proprietary technology. The steps that we have taken to protect our
proprietary rights may not be adequate, and we might not be able to
prevent others from using what we regard as our technology. If we
have to resort to legal proceedings to enforce our proprietary rights,
the proceedings could be costly, and we may not be able to recover our
expenses.
• We may be subject to claims by others regarding infringement of their
proprietary technology. Litigation over intellectual property rights exists
in the industry. In addition to our outstanding legal proceedings, we may
in the future be subject to other claims.
• As part of our business plan, we intend to develop new product lines
for new industry segments and new products in existing product lines,
and to expand our marketing and sales efforts in new and existing
market segments and geographical areas.There is no assurance that such
expansion plans will be commercially successful. If we fail to achieve a
sufficient level of revenue or if we fail to manage our production costs
effectively, we will not be able to recover our costs, and our future
financial position and performance may be materially and adversely
affected.
• The location of the Company in Israel, and the concentration of its
research and development and manufacturing activities there, remains a
geopolitical risk factor.
The Audit Committee and Management have analysed these and many more
risk factors and have compiled a matrix of risks, pertaining to the Company’s
business and performance, financial management, information technology (IT)
and regulatory compliance issues, delineating the severity of their potential
negative impairment to the Company and their probability of being realised.
Thus, a comprehensive weighted prioritised risk factor list has been derived.
The Audit Committee has reviewed the Company’s internal controls and their
adequacy at addressing the aforementioned risks in general, and has engaged
the services of the Internal Auditor for in-depth analyses of key issues on a
routine basis. The primary areas that have been so audited, and the internal
controls fine-tuned appropriately as per the findings of said audits, have
been inventory, purchasing, sales cycle, payment security and information
security in Israel as well as purchasing, spare parts inventory, service centre
operations, collection of receivables, customer credits, attendance and
payroll, the new building project in Surat, India, and information control and
integration between Sarin India and Sarine Israel. All the findings of said
audits have been reviewed by the Board, with appropriate enhancements to
the internal controls agreed upon with Management. In many instances (e.g.,
service centre operations, confidentiality, purchasing and payroll, inventory,
purchasing, service centre operations, customer information confidentiality,
information control and integration, and attendance and payroll), repeat
reviews have been executed to verify the requested corrective actions due
implementation.
The Board of Directors, with the concurrence of the Audit Committee, is of
the opinion that the internal controls which have been and are being put in
place should adequately address the aforementioned as well as other risks
pertaining to our business operations, finance, IT and compliance with our
regulatory environment.
Financial Review
Cash Flow
As at 31 December 2014, cash, cash equivalents and short-term investments
(bank deposits) (“Cash Balances”) increased to US$ 45.5 million from the
US$ 33.1 million reported as of 31 December 2013, following the Group’s
record profitability offset by the payment of US$ 17.4 million in dividends in
2014 - the US$ 10.4 million interim dividend for 2014 paid in August 2014
and the US$ 7.0 million final dividend for the fiscal year 2013 paid in May
2014, and the Group’s US$ 1.0 million buy-back of its shares in the open
market in 2014.
Cash Management and Liquidity
Throughout 2014 the Group maintained cash reserves higher than needed
for the financing of ongoing operating activities. The policy dictated by the
Board of Directors for the management of these cash surpluses is to invest
them in low-risk short-term interest-bearing accounts and instruments with
high liquidity, in our working currencies - primarily US Dollars, but also New
Israeli Shekels and Indian Rupees. Financial instruments held are classified as
current assets. When the cash and investment (short-term deposits) balances
are analysed and compared to the annual cash requirements needed for the
financing of the ongoing business activities of the Group, it is apparent that
the Group has strong liquidity.
Accounting Policies
The consolidated financial statements are prepared in accordance with
the International Financial Reporting Standards - IFRS. The preparation of
financial statements, in conformity with the IFRS, requires management to
make judgments, estimates and assumptions that affect the application of
policies and reported amounts of assets and liabilities, income and expenses.
The financial statements are presented in United States Dollars, which is the
Group’s functional currency, rounded to the nearest thousand. The accounting
policies set out in our yearly financial reports have been applied consistently
to all periods presented in these consolidated financial statements and have
been applied consistently to all Group entities.
For more detailed information on our accounting policies and related
explanations, please refer to our Consolidated Financial Statements.
Shareholder Return
Sarine is a profitable company. During FY2014 the Company earned
US$ 27.2 million, equivalent to basic earnings per share of US cents 7.83
(6.96 in FY2013) and fully diluted earnings per share of US cents 7.70 (6.87
in FY2013).
For FY2014, the Group’s dividend policy provided for the distribution of
US cents 2.0 on a semi-annual basis as a dividend to its shareholders.
For FY2014 the Company paid in September 2014 an interim dividend of
US cents 2.0 and a special interim dividend of US cents 1.0 per share,
totalling approximately US$ 10.4 million, and will pay (subject to approval
at the Annual General Meeting on 20 April 2015) a final dividend totalling
US cents 2.0 per share, around US$ 7.0 million, amounting to approximately
US$ 17.4 million in total for the year (just under 64% of our net earnings).
For 2015, the Board of Directors has decided to increase the dividend policy
to US cents 2.5 every six months, an increase of 25%, subject to semi-annual
Board approval, the Annual General Meeting’s approval of the final dividend
and subject to business conditions, financial results, other pre-empting uses
of funds, statutory and tax issues, etc.
Sarine Technologies Ltd. • Annual Report
2014
Management’s Business Operations
& Financial Review
