The Good And The Bad: Sarine Technologies’ 2017 First Half Earnings

Sarine Technologies Ltd (SGX: U77) is an Israel-based company that develops precision technology products that helps in the processing of diamonds and gemstones. The company’s products provide solutions for every stage of the manufacturing process that turns rough diamonds into the polished jewellery-worthy versions you see in stores.

In early August, the company released its first half results for 2017. There are both positive and negative takeaways from the company’s latest earnings that investors may want to learn about. Let’s take a look, starting with an overview of the numbers:

1. The overall result

Here are the important numbers from the income statements of Sarine Technologies for the first halves of 2017 and 2016:

Source: Sarine Technologies 2017 second quarter results announcement

As you can see, the company’s revenue and net profit in the first half of 2017 were down on a year-on-year basis. The company’s revenue decline  was driven mainly by weaker sales of equipment in India due to competition from piracy. Meanwhile, the lower bottom-line was driven by the fall in revenue and higher expenses.

2. The negatives

Firstly, in the second quarter of 2017, revenue was down by 13% year-on-year. This marked a reverse from what we saw in the first quarter of 2017, when revenue grew by 5% year-on-year.

Secondly, operating expenses climbed 11.6% in the first half of 2017 as compared to the same period in 2016 despite a decline in revenue. The higher operating expenses were driven by a depreciation of the US dollar against the Israel new shekel, and higher research and development costs.

Thirdly, there was an increase in illicit competition in the markets that Sarine Technologies operates in. So far, the company has been rigorously defending itself through legal and other means. Nevertheless, it expects such competition to continue going forward.

3. The positives

Firstly, the company has continued to grow its Sarine Profile business, especially in Asia Pacific and North America. Sarine Profile is a system that targets the downstream portion of the diamond industry value chain. Sarine Technologies expects to double the revenue it earns from Sarine Profile in the second half of 2017 when compared to the first half of the year.

Secondly, Sarine Technologies will begin to commercialise its new technologies for Clarity and Colour grading of polished diamonds in the third quarter of this year. These technologies will address a market of about US$500 million.

Thirdly, despite a weaker result in the first half of 2017, Sarine Technologies continues to have a strong balance sheet that has US$37.1 million in cash and equivalents, and zero borrowings.

In sum, Sarine Technologies had a challenging time in the first half of 2017 due to an increase in illicit competition and a stronger US dollar. But, the company will be expanding its market penetration for Sarine Profile, and introducing new products soon. These should be positive for the longer-term development of Sarine Technologies’ business.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.