05
Chairman’s Statement
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. 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.
I would like to remind you that, as we initially discussed in early 2014,
we are continuing our research and development into new and exciting
products and services, with significant growth potential in absolute and
recurring revenues, which we expect to be bringing to commercialisation
later in 2015 and in 2016. These include:
• The integration of our rough planning software (the Advisor™) and
our quality control faceting software (the Instructor™) with our light
performance grading technology, so as to allow manufacturers to
incorporate light performance (i.e., brilliance, fire and sparkle) into their
manufacturing criteria and polish more beautiful stones;
• The Allegro™ system, a high throughput machine for the highly
accurate processing of preformed rough gemstones (not diamonds)
directly into shaped (unfinished) gems of predefined sizes, with minimal
unnecessary weight loss and no human error, configurable to process
gems according to varying market preferences; and
• Enhancement of the Sarine Light™ and Sarine Loupe™ platforms,
adding unique abilities to identify key characteristics of the polished
diamond.
Record Group Performance - Year in Review
Revenues for FY2014 increased by 14.9% to a record US$ 87.8 million, as
compared to US$ 76.4 million for FY2013. These record revenues stemmed
primarily from continued Galaxy™ family penetration and accelerated
usage from a broader installed base in 2014 along with increased sales of
our other rough-diamond planning and processing products. It is noteworthy
that this record performance was achieved despite the challenging industry
fundamentals that evolved in the last four months of the fiscal year –
minimal manufacturer margins associated with disproportionately increased
rough diamond prices and eroded polished diamond prices, higher polished
inventory levels on the back of tepid demand from markets and pipeline
skewing due to extended certification times, and reduced working capital
credit lines available to our customers.
Galaxy™ penetration continues to grow, with deliveries in FY2014 of a
record 48 Galaxy™ family systems to customers and service centres. As
of 31 December 2014, the Group had an installed base of 190 Galaxy™
family systems. Group recurring revenue (including Galaxy™-related,
Quazer™ services, annual maintenance contracts, etc.) constituted over
35% of overall FY 2014 revenues.
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. 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 was primarily
due 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, as noted above. 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, and a net profit margin of 31.0%,
essentially the same as the net profit margin of 31.3% for FY2013.
Dividend
The Board of Directors has recommended that a final ordinary dividend
of US 2.0 cents per share (approximately US$ 7.0 million) be distributed
for FY2014. This will bring total dividends for FY2014 to US 5.0 cents per
share, approximately US$ 17.4 million. This is just under 64% of the net
profit for the year.
The Board of Directors has decided to increase the dividend policy going
forward to a fixed ordinary dividend of US 2.5 cents per share every six
months, an increase of 25%, subject to semi-annual Board approval,
shareholders’ approval at the Annual General Meeting and also subject
to business conditions, financial results, other pre-empting uses of funds,
statutory and tax issues.
Looking Ahead to 2015
We expect the following industry trends to continue influencing our
business:
a. Global economic indicators remaining positive:
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. 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.
b. Liquidity and inventory overhang:
The reduction of liquidity in the
industry midstream, the Indian diamond manufacturers, has become a
key issue. 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
Sarine Technologies Ltd. • Annual Report
2014
