The Motley Fool

The Good And Bad That Investors Should Know About Sarine Technologies Ltd’s Latest Earnings

Sarine Technologies Ltd (SGX: U77) is an Israel-based company that develops, manufactures, markets, and sells precision technology products and systems that are used to process rough diamonds and other gemstones. The company’s products are used at every stage of the processes that turns rough diamonds into the shiny jewellery you see in stores.

Two weeks ago, Sarine Technologies released its 2017 third quarter results. There are both positive and negative takeaways that investors may want to learn about. But first, let’s run through the company’s latest numbers.

The results

Here’s the income statement for Sarine Technologies from its reporting quarter:

Source: Sarine Technologies 2017 third quarter earnings announcement

We can see that Sarine Technologies had an extremely challenging quarter, given that its revenue fell by over 30% and its bottom-line turned from a profit into a loss.

The negatives

Firstly, as mentioned earlier, Sarine Technologies’ revenue fell significantly compared to the third quarter of 2016. This came as a result of lower equipment sales. There was a higher than normal surplus of polished diamonds in the market, and ongoing illicit competition; these hindered the company’s sales.

Secondly, expenses remained high during the reporting quarter despite the lower revenue. This was mainly driven by higher sales and marketing expenses (the company expanded the reach of its Sarine Profile product in the retail segment of the diamond industry value chain), and higher general and administrative expenses to deal with the infringement of its intellectual property.

Thirdly, Sarine Technologies expects the high level of polished diamond inventory in India to return to normal only in the first quarter of 2018.

Lastly, illicit competition that has been affecting sales of Sarine Technologies’ inclusion mapping systems (inclusions are imperfections found in a rough diamond) is expected to prevail in the fourth quarter of 2017 as per the timeline for upcoming court hearings.

The positives

Firstly, Sarine Technologies’ recurring revenue was stable in the reporting quarter.

Secondly, the company continued to grow its Sarine Profile business, especially in the Asia Pacific and North America regions. The company expects to scan more diamonds with Sarine Profile in 2017 as compared to 2016.

Thirdly, Sarine Technologies started commercialising its new technologies for the automatic grading of a polished diamond’s Clarity and Colour in the third quarter of 2017.  According to the company, these technologies address a market of about US$500 million annually, with the potential for the market to increase to US$750 million. Sarine Technologies expects to start generating revenue from these technologies by the first quarter of 2018.

Lastly, despite the challenging quarter, Sarine Technologies continued to have a strong balance sheet. As of 30 September 2017, it had US$ 27.8 million in cash and cash equivalents, and zero borrowings.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

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.