Sarine, a company specializing in the development and production of technologies for the diamond industry (headquartered in Israel) managed to restore profitability after cutting operating expenses and launching new services. This is stated in the company's report for the first quarter of 2024.
The successful implementation of the renewed development strategy was also facilitated by the general situation in the global market, where a decline in natural diamond reserves by the end of fiscal 2023 and a significant drop in rough prices in the first quarter of 2024 contributed to the recovery of their flow, which, the company believes, “will benefit Sarine's core business.”
As noted in the press release, economic difficulties in China in the first quarter of 2024 continued to restrain consumer demand in the second most important market for diamond jewelry as consumers preferred to buy gold, a classic safe-haven asset. The rapid expansion of the lab-grown diamonds (LGD) segment in the U.S. market slowed down considerably, also impacted by dramatic price drops - up to $500 per 1 carat of LGD.
The new reality is the reduction of the historical share of natural diamonds in the market amid the division of consumer demand between them and synthetic stones. De Beers sales, which have recovered significantly since the end of 2023 and have gradually improved in each of the initial 2024 sales cycles, were still down 16% in the first four months compared to the same period last year. Full-year forecasts are down 10%. Uncertainty over the G7 sanctions regime and how it will be extended from September 2024 has also added to the uncertainty in the diamond industry for both natural and synthetic stones.
In this environment, against the backdrop of the partial recovery of the natural diamond value chain, Sarine is seeing an improvement in the sales cycle. Thus, the group's revenue for the first quarter of 2024 increased by 27% compared to the fourth quarter of 2023 to $11.2 million (virtually flat at $11.5 million in Q1 2023). At the segment level, capital equipment sales increased 19% and recurring revenues increased 31% due to the recovery of incoming rough diamonds in the pipeline.
“As of March 31, 2024, the Galaxy family had an installed base of 832 systems,” the company said. “Based on revenue mix, gross profit margin was 64.1% in Q1 2024, compared to 49.5% in Q4 2023 and 71.4% in Q1 2023.” Accordingly, gross profit in Q1 2024 was $7.2 million compared to $4.3 million in Q4 2023, but below $8.2 million in Q1 2023.
In line with management's plans, operating expenses were reduced by just under 6% quarter-on-quarter and down over 12% year-on-year, giving the group a profit of $600,000 in Q1 2024 compared to a loss of $2.8 million in the previous quarter.
The company hopes that the market disruption caused by synthetic diamonds has already peaked last year and the diamond industry should now be expected to recover. “If the recovery continues further, it will benefit our traditional businesses of capital equipment sales and Galaxy scanning,” the company pointed out. “The group's new services have started gaining traction and we expect recurring revenues to increase from their broadening adoption throughout 2024.”
Hélène Tarin, Editor in Chief of the Asian Bureau, Rough&Polished
