AI Terminal
Sarine Technologies Ltd.
Earnings Release • Aug 8, 2022
7033_rns_2022-08-08_893ff574-ce54-4af8-94ab-33f6a06b8c8f.pdf
Earnings Release
Open in ViewerOpens in native device viewer
FINANCIAL STATEMENTS AND RELATED ANNOUNCEMENT::HALF YEARLY RESULTS
Issuer & Securities
Issuer/ Manager
SARINE TECHNOLOGIES LTD.
Securities
SARINE TECHNOLOGIES LTD - IL0010927254 - U77
Stapled Security
No
Announcement Details
Announcement Title
Financial Statements and Related Announcement
Date &Time of Broadcast
08-Aug-2022 22:49:05
Status
New
Announcement Sub Title
Half Yearly Results
Announcement Reference SG220808OTHRAEVV
Submitted By (Co./ Ind. Name) Amir J. Zolty
Designation
Company Secretary
Effective Date and Time of the event 08/08/2022 17:00:00
Description (Please provide a detailed description of the event in the box below - Refer to the Online help for the format) Please see attached:
- Condensed consolidated Interim financial statements for the six months ended 30 June 2022. 2. A press release.
Additional Details
For Financial Period Ended 30/06/2022
Attachments
Press Release H1 2022 Results Final.pdf
Sarine Condensed FS 30.6.22 Final.pdf
Total size =642K MB
EASE
PRESS RELEASE
Despite Complex Geopolitical Conditions in H1 2022 Group's Business Results Remain Robust
- Revenues only slightly (-13%) down from exceptional H1 2021, which were boosted by post-covid surge
- Sales of capital equipment fell due to geopolitical uncertainties, but recurrent revenue from both rough and polished diamonds expanded, comprising over 50% of overall revenue
- Wider adoption of Trade services increased related revenues by 70% to 11% of overall revenue in H1 2022
- Gross margin 71%; with operations further normalising to pre-Covid levels and expenditures expanding commensurately, profitability lower
- Interim dividend of US 1.0 cent per ordinary share declared as per the stated dividend policy along with a special interim bonus dividend of US 0.5 cent
Hod Hasharon (Israel) 8 August 2022 - Singapore Exchange Mainboard and Tel Aviv Exchange listed Sarine Technologies Ltd ("Sarine" and along with its subsidiaries "the Group") (U77:SI; SARN.TA), a worldwide leader in the development, manufacturing, marketing and sale of precision technology products for the evaluation, planning, processing, measurement, grading and trading of diamonds and gems, is pleased to announce its financial results for the six months ended 30 June 2022.
Review of H1 2022
Geopolitical developments, primarily the war in Ukraine and an increasingly inflationary economic environment, along with ongoing outbreaks of Covid-19 in China and the corresponding lockdowns imposed on some major cities, had an overall negative effect on business conditions, primarily in the second half of H1 2022. Notwithstanding the challenging business environment, the Group realised robust results, with revenues only 13% lower than those reported in H1 2021, which was an exceptionally strong comparable period, driven by a post pandemic surge in diamond jewellery consumer demand and a commensurate surge in polishing activity in the midstream segment of the diamond value chain.
4 Haharash St., Neve Neeman Hod Hasharon, Israel 4524075 Tel. +972-9-7903500 www.sarine.com
Under challenging conditions, and against an exceptional H1 2021 driven by the aforementioned post-pandemic surge, Group revenue declined from US\$36.0 million in H1 2021 to US\$31.2 million in H1 2022. The uncertainties, fueled by both concerns regarding ongoing consumer demand in an inflationary environment as well as sanctions imposed on the flow of Russian rough diamonds, primarily affected our capital equipment sales, which declined by approximately 30%. However, notwithstanding the imposed sanctions, midstream polishing activities remained robust throughout most of the period and translated into the continued expansion of the utilisation of our Galaxy® inclusion mapping systems. Thus, along with increased Trade-related revenues, recurrent revenue rose in H1 2022 by approximately 12%. With this growth, overall recurrent revenues for H1 2022 (including digital tenders, Galaxy® inclusion scanning, Quazer® services, polished diamond related services, annual maintenance contracts, etc.) were over 50% of group revenue, up from approximately 40% in H1 2021. The new category of Trade-related revenues, within the overall recurrent revenues, grew by some 70% to approximately 11% of Group revenue in H1 2022, up from just under 6% in H1 2021.
The more significant decline (-48%) in profitability in H1 2022 was mainly due to the lower sales and also the overall increase in operating expenses, as operations further returned to their prepandemic normal.
The Group delivered 32 Galaxy®-family inclusion mapping systems in H1 2022 with a significantly higher mix (12) of systems for scanning large stones, primarily to customers in Africa. Consistent with previous periods, just over half of the systems delivered for smaller stones scanning were sold under the one-off paradigm with no follow-on recurrent revenues to be generated from them. As of June 30, 2022, the total installed base was 743 systems.
For H1 2022, the Board of Directors has declared an interim dividend of US 1.0 cent per ordinary share as per the stated dividend policy and a special interim bonus dividend of US 0.5 cent. The dividend is expected to be paid on 2 September 2022.
Prospects
Current geopolitical uncertainties are expected to continue through to H2 2022. The Covid-19 virus and its various mutations no longer appear to be an issue for the global economy, with the exception of China. Due to its "zero Covid-19" policy there is potentialy ongoing impact on our supply chain as well as impact on retail, which is relevant, as China is the second most important market for polished diamonds. In general, consumer demand in the US for diamond jewellery appears to remain strong, although inflationary conditions could have a dampening effect going forward. US retailers remain cautiously optimistic on prospects for the year-end holiday season.
Demand for our Galaxy® family scans, which remain at previously realised high levels, is expected to continue. This indicates the flow of rough diamonds into the midstream has not diminished significantly, reducing concerns regarding the impact of sanctions on the major Russian producer, Alrosa. Work is ongoing to introduce enhancements to our Meteorite™ system in early H2 2022, which, along with the proven intrinsic value of our Advisor® 8.0 planning software released in H1 2022, should significantly improve the value proposition of our solution, and thus help counter initiatives by illicit competition.
4 Haharash St., Neve Neeman Hod Hasharon, Israel 4524075 Tel. +972-9-7903500 www.sarine.com
We are continuing to see growing adoption for our broadening range of Trade-related services. We believe the Sarine Diamond Journey™ remains the only viably scalable solution for diamond provenance and as environmental, social and governance (ESG) issues are becoming important considerations with consumers, leading luxury brands are increasingly seeking workable solutions. We are seeing expanding adoption of our Sarine Diamond Journey™ provenance and traceability solution by key luxury global brands including Maison Boucheron and the Aura Consortium comprising LVMH, Cartier and OTB who have adopted our Sarine Diamond Journey™ as their traceability solution of choice. Other high-end luxury brands are also evaluating this key solution.
Our revenues from digital tender services are expected to remain strong, with the exception of Alrosa, and this ongoing adoption of digital tenders paves the way for further collaboration on our Sarine Diamond Journey™ provenance solution. The Sarine Profile™, our digital paradigms providing "profiling" data of a polished diamond, including light performance and imaging techniques, continues to expand, with the significant launch by China's National Gem Testing Centre (NGTC), China's largest gemmological laboratory, of a new light performance grading standard for China utilising our technology.
Critical progress is continuing on two of our key Trade-related services - e-Grading™ and the Sarine AutoScan™. e-Grading™ is transitioning from beta-testing to broader roll-out to midstream customers, and additional retail brands are adopting our AI-derived grading. We continue to enhance its functionality with more advanced hardware and improve its AI-based technology. Our Sarine AutoScan™, a robotic system for the high speed scanning of rough stones, is currently undergoing beta-testing in India. The Sarine AutoScan™ is a high speed and scalable solution, which provides cost effective documentation of rough diamonds at source, for their subsequent traceability. It thus creates a seamless factual trail of the diamond's provenance and subsequent cutting and polishing, not available from any other currently available traceability solution, as all competing solutions have now adopted declaratory paradigms as the basis for their report. The Sarine AutoScan™ also addresses acute internal inventory control issues faced by miners today. We are focusing to complete beta-testing and roll out the first pilot sites of our Sarine AutoScan™ system in H2 2022.
The market for lab-grown diamonds (LGD) has expanded significantly in the last 12 months with a segment of consumers, especially in the U.S., accepting LGD as an alternative product at a lower price point per carat. This growing market has provided a new opportunity for the Group as most of our technologies are applicable to LGD. Efforts are in place to expand our business in this growing segment.
This press release is to be read in conjunction with Sarine's H1 2022 half year results released to the Singapore Exchange on 8 August 2022.
4 Haharash St., Neve Neeman Hod Hasharon, Israel 4524075 Tel. +972-9-7903500 www.sarine.com
About Sarine Technologies
Established in 1988, Sarine Technologies Ltd. is a worldwide leader in the development and manufacturing of advanced modeling, analysis, evaluation, planning, processing, finishing, grading and trading systems for diamonds. Sarine products include the Galaxy® family of inclusion and tension mapping systems, rough diamond planning and optimisation technologies, laser cutting and shaping tools, laser-marking, inscription and fingerprinting equipment, automated (AI-derived) Clarity, Color, Cut and light performance grading systems and traceability, visualisation and retailing services. Sarine systems have become standard tools in every modern manufacturing plant, properly equipped gemology lab and diamond appraisal business, and are essential aids for diamond polishers, dealers and retailers. For more information about Sarine and its products and services, visit http://www.sarine.com
Contact
APAC IR
Cyrus Capital Consulting Mr. Lee Teong Sang Tel: +65-96339035 [email protected] Sarine Technologies Ltd. Marketing & Communications Ms. Romy Gakh-Baram Tel: +972-9-7903500 [email protected]
4 Haharash St., Neve Neeman Hod Hasharon, Israel 4524075 Tel. +972-9-7903500 www.sarine.com
(Incorporated in Israel) (Registration Number: 51-133220-7)
Condensed Consolidated Interim Financial Statements For the six months ended 30 June 2022
Table of Contents
A. Condensed Consolidated and Company Statements of Financial Position
B. Condensed Consolidated Interim Statements of Profit or Loss and Other Comprehensive Income
C. Condensed Consolidated and Company Statements of Changes in Equity
D. Condensed Consolidated Statements of Cash Flows
E. Notes to the Condensed Interim Financial Statements
F. Other Information Required by Listing Rule 7.2
A. Condensed Consolidated and Company Statements of Financial Position as at:
| Group | Company | |||
|---|---|---|---|---|
| June 30 | December 31 | June 30 | December 31 | |
| 2022 | 2021 | 2022 | 2021 | |
| US\$ thousands | ||||
| Assets | ||||
| Property, plant and equipment | 10,750 | 11,348 | 1,276 | 1,199 |
| Right-of-use assets | 4,455 | 4,719 | 4,189 | 4,450 |
| Intangible assets | 2,148 | 2,244 | 104 | 138 |
| Long-term trade receivables | 746 | 700 | 234 | 89 |
| Investment in subsidiaries | -- | -- | 43,381 | 46,308 |
| Long-term income tax receivable | 500 | 500 | -- | -- |
| Deferred tax assets | 546 | 573 | -- | -- |
| Total non-current assets | 19,145 | 20,084 | 49,184 | 52,184 |
| Inventories | 7,106 | 7,280 | 4,243 | 3,544 |
| Trade receivables | 23,557 | 23,061 | 8,075 | 7,154 |
| Other current assets | 1,753 | 1,601 | 1,082 | 669 |
| Short-term investments (bank deposits) | 10,742 | 9,055 | 8,528 | 7,017 |
| Cash and cash equivalents | 28,386 | 27,358 | 14,988 | 13,128 |
| Total current assets | 71,544 | 68,355 | 36,916 | 31,512 |
| Total assets | 90,689 | 88,439 | 86,100 | 83,696 |
| Equity | ||||
| Share capital* | -- | -- | -- | -- |
| Share premium and reserves | 34,173 | 34,014 | 34,173 | 34,014 |
| Translation reserve | (3,643) | (2,896) | (3,643) | (2,896) |
| Dormant shares, at cost | (4,123) | (3,935) | (4,123) | (3,935) |
| Retained earnings | 46,402 | 43,368 | 46,402 | 43,368 |
| Total equity | 72,809 | 70,551 | 72,809 | 70,551 |
| Liabilities | ||||
| Long-term lease liabilities | 4,022 | 4,743 | 3,940 | 4,625 |
| Employee benefits | 245 | 275 | 234 | 264 |
| Total non-current liabilities | 4,267 | 5,018 | 4,174 | 4,889 |
| Trade payables | 2,798 | 2,324 | 2,302 | 1,892 |
| Other payables | 7,770 | 7,735 | 5,896 | 5,408 |
| Current lease liabilities | 897 | 974 | 682 | 722 |
| Current tax payable | 1,818 | 1,504 | -- | -- |
| Warranty provision | 330 | 333 | 237 | 234 |
| Total current liabilities | 13,613 | 12,870 | 9,117 | 8,256 |
| Total liabilities | 17,880 | 17,888 | 13,291 | 13,145 |
| Total equity and liabilities | 90,689 | 88,439 | 86,100 | 83,696 |
* No par value
B. Condensed Consolidated Interim Statements of Profit or Loss and Other Comprehensive Income:
| Group Six months ended June 30, |
||||
|---|---|---|---|---|
| 2022 US\$ thousands |
2021 | change % |
||
| Revenue | 31,172 | 35,963 | (13.3) | |
| Cost of Sales | 8,931 | 9,115 | (2.0) | |
| Gross profit | 22,241 | 26,848 | (17.2) | |
| Research and development expenses | 4,194 | 3,919 | 7.0 | |
| Sales and marketing expenses | 6,257 | 5,387 | 16.1 | |
| General and administrative expenses | 4,289 | 3,774 | 13.6 | |
| Other income from lease termination | -- | (267) | NM | |
| Profit from operations | 7,501 | 14,035 | (46.6) | |
| Net finance income | 73 | 62 | 17.7 | |
| Profit before income tax | 7,574 | 14,097 | (46.3) | |
| Income tax expense | 1,029 | 1,518 | (32.2) | |
| Profit for the period | 6,545 | 12,579 | (48.0) | |
| Other comprehensive loss | ||||
| Foreign currency translation differences from foreign operations |
(747) | (192) | 289.1 | |
| Total comprehensive income for the period |
5,798 | 12,387 | (53.2) | |
| Earnings per share Basic earnings per share (US cents) |
1.86 | 3.60 | (48.3) | |
| Diluted earnings per share (US cents) | 1.86 | 3.60 | (48.3) |
C. Condensed Consolidated and Company Statements of Changes in Equity for the period ended June 30:
| Share capital* |
Share premium and reserves |
Translation reserve |
Retained earnings |
Dormant shares |
Total | ||
|---|---|---|---|---|---|---|---|
| Group and Company | US\$ thousands | ||||||
| Balance at January 1, 2021 | -- | 33,149 | (2,699) | 33,930 | (3,689) | 60,691 | |
| Profit for the period ended June 30, 2021 |
-- | -- | -- | 12,579 | -- | 12,579 | |
| Other comprehensive loss for the period ended June 30, 2021 |
-- | -- | (192) | -- | -- | (192) | |
| Dormant shares, acquired at cost (350,000 shares) |
-- | -- | -- | -- | (159) | (159) | |
| Share-based payment expenses | -- | 139 | -- | -- | -- | 139 | |
| Exercise of options | -- | 24 | -- | -- | -- | 24 | |
| Dividend paid | -- | -- | -- | (1,749) | -- | (1,749) | |
| Balance at June 30, 2021 | -- | 33,312 | (2,891) | 44,760 | (3,848) | 71,333 | |
| Balance at January 1, 2022 | -- | 34,014 | (2,896) | 43,368 | (3,935) | 70,551 | |
| Profit for the period ended June 30, 2022 |
-- | -- | -- | 6,545 | -- | 6,545 | |
| Other comprehensive loss for the period ended June 30, 2022 |
-- | -- | (747) | -- | -- | (747) | |
| Dormant shares, acquired at cost (577,600 shares) |
-- | -- | -- | -- | (188) | (188) | |
| Share-based payment expenses | -- | 123 | -- | -- | -- | 123 | |
| Exercise of options | -- | 36 | -- | -- | -- | 36 | |
| Dividend paid | -- | -- | -- | (3,511) | -- | (3,511) | |
| Balance at June 30, 2022 | -- | 34,173 | (3,643) | 46,402 | (4,123) | 72,809 |
* No par value
D. Condensed Consolidated Statements of Cash Flows
| Six months ended June 30, 2022 2021 US\$ thousands Cash flows from operating activities Profit for the period 6,545 12,579 Adjustments for: Share-based payment expenses 123 139 Income tax expense 1,518 1,029 Depreciation of property, plant & equipment and right-of-use assets 1,190 1,267 Amortisation of intangible assets 96 222 Revaluation of lease liabilities from exchange rate differences (205) (611) Revaluation of bank financing liabilities from exchange rate differences -- (47) Other net finance expense 480 96 Changes in working capital Inventories 174 (411) Trade receivables (542) (4,739) Other current assets (152) (552) Trade payables 474 2,058 Other liabilities 2,427 (416) Employee benefits (30) (3) Income tax paid (688) (28) Net cash from operating activities 7,672 14,321 Cash flows used in from investing activities Acquisition of property, plant and equipment (420) Proceeds from realisation of property, plant and equipment 45 64 Short-terms investments, net (1,687) (6,214) Restricted short-term investments (bank deposits) -- 126 Interest received 64 53 Net cash used in investing activities (1,998) Cash flows used in financing activities Proceeds from exercise of share options 36 24 Purchase of Company's shares by the Company (159) (188) Repayment of bank financing -- (2,454) Dividends paid (3,511) (1,749) Payment of lease liabilities (439) (630) Interest paid (143) (63) Net cash used in financing activities (4,165) Net increase in cash and cash equivalents 1,509 2,818 |
Group | ||
|---|---|---|---|
| (421) | |||
| (6,392) | |||
| (5,111) | |||
| Cash and cash equivalents at beginning of year | 27,358 | 21,081 | |
| Effect of exchange rate fluctuations on cash and cash equivalents (481) |
(6) | ||
| Cash and cash equivalents at end of period 23,893 28,386 |
E. Notes to the Condensed Interim Financial Statements as at June 30, 2022
Note 1 – General
Sarine Technologies Ltd. (hereinafter "Sarine" or the "Company") is a company domiciled in Israel. The address of the Company's registered office is 4 Haharash Street, Hod Hasharon 4524075, Israel. The condensed interim financial statements of the Company, as at, June 30, 2022 and for the six months ended June 30, 2022, comprise the Company and its subsidiaries (together referred to as the "Group" and individually as "Group entities"). The Company was incorporated on November 8, 1988. On April 8, 2005, the Company was admitted to the Main Board list of the Singapore Exchange Securities Trading Ltd. and on July 5, 2021, the Company dual listed its shares for trading on the Tel Aviv Stock Exchange.
Note 2 - Basis of Preparation
A. Statement of compliance
The condensed interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The condensed interim financial statements for the six months ended June 30, 2022 have been prepared in accordance with IAS 34 Interim Financial Reporting.
The condensed interim financial statements were authorised for issue by the Company's Board of Directors on August 8, 2022.
B. Basis of measurement
The condensed interim financial statements have been prepared on the historical cost basis except for the following material items in the condensed interim statement of financial position:
- liabilities measured at fair value through profit or loss;
- assets and liabilities relating to employee benefits;
- deferred tax assets and liabilities; and
- provisions.
C. Functional and presentation currency
These condensed interim financial statements are presented in United States (US) dollars, or US\$, which is the Company's functional currency. The US dollar is the currency that represents the principal economic environment in which the Company and most Group entities operate. All financial information presented in US dollars has been rounded to the nearest thousand, except where otherwise indicated.
D. Use of estimates and judgments
The preparation of condensed interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Certain accounting estimates used in the preparation of the Group's condensed interim financial statements may require management to make assumptions regarding circumstances and events that involve considerable uncertainty. Management prepares these estimates on the basis of past experience, known facts, external circumstances, and reasonable assumptions. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
E. Changes in accounting policies
The accounting policies applied in these condensed interim financial statements for the six months ended June 30, 2022 are the same as those applied by the Company in audited financial statements for the year ended December 31, 2021.
Note 3 - Operating Segments
The Group is a worldwide leader in the development, manufacturing, marketing and sale of precision technology products for the planning, processing, evaluation and measurement of diamonds and gems. India is the principal market for these products. In accordance with IFRS 8, the Group determines and presents operating segments based on the information that is provided internally to the CEO, who is the Group's chief operating decision maker. The measurement of operating segment results is generally consistent with the presentation of the Group's condensed interim statements of comprehensive income. The Group operates in only one operating segment. Presented below are revenues broken out by geographic distribution (India, Africa, Europe, USA, Israel and Other).
| Group | ||||
|---|---|---|---|---|
| Six months ended June 30, | ||||
| US\$ thousands | ||||
| Region | 2022 | 2021 | \$ change | % |
| India | 15,947 | 25,146 | (9,199) | (36.6) |
| Africa | 6,986 | 4,551 | 2,435 | 53.5 |
| Europe | 2,100 | 1,080 | 1,020 | 94.4 |
| USA | 534 | 253 | 281 | 111.1 |
| Israel | 752 | 1,253 | (501) | (40.0) |
| Other* | 4,853 | 3,680 | 1,173 | 31.9 |
| Total | 31,172 | 35,963 | (4,791) | (13.3) |
* Primarily Asia, excluding India
Note 4 - Revenue
| Group | |||
|---|---|---|---|
| Six months ended June 30, | |||
| US\$ thousands | |||
| Composition | 2022 | 2021 | |
| Sale of products1 | 26,734 | 31,143 | |
| Maintenance & services | 4,438 | 4,820 | |
| Total | 31,172 | 35,963 |
1 Includes Galaxy® family revenues associated with customer-owned machines.
Note 5 – Income Taxes
The Group calculates the period income tax expense using the tax rate that would be applicable to the expected total annual earnings. The major components of income tax expense in the condensed interim statements of comprehensive income are:
| Group | ||
|---|---|---|
| Six months ended June 30, | ||
| US\$ thousands | ||
| 2022 | 2021 | |
| Current tax expense | 1,034 | 1,505 |
| Taxes in respect of | ||
| previous years | (13) | -- |
| Deferred tax expense | 8 | 13 |
| Total income tax expense | 1,029 | 1,518 |
Note 6 – Share Capital – The Company
| June 30, 2022 | December 31, 2021 | June 30, 2021 | |
|---|---|---|---|
| No. of shares | No. of shares | No. of shares | |
| Authorised: | |||
| Ordinary shares of no par value | 2,000,000,000 | 2,000,000,000 | 2,000,000,000 |
| Issued and fully paid: | |||
| Ordinary shares of no par value | 355,677,875 | 355,480,480 | 353,765,876 |
| Dormant shares (out of the issued and fully paid share capital): |
|||
| Ordinary shares of no par value | (4,967,800) | (4,390,200) | (4,190,200) |
| Total number of issued shares (excluding dormant shares) |
350,710,075 | 351,090,280 | 349,575,676 |
For the six months ended June 30, 2022, 197,395 share options were exercised into ordinary shares. For the six months ended June 30, 2022, the Company purchased 577,600 of its ordinary shares at an aggregate cost of US\$ [188,000]. There was no sale, transfer, disposal, cancellation and/or use of treasury shares by the Company.
As at June 30, 2022, the total number of issued shares excluding dormant shares was 350,710,075 (as at December 31, 2021- 351,090,280 and June 30, 2021 – 349,575,676). As at June 30, 2022, the total number of dormant shares was 4,967,800 (as at December 31, 2021- 4,390,200 and June 30, 2021 – 4,190,200). In accordance with Israeli Companies Law, Company shares that have been acquired and are held by the Company are dormant shares (treasury shares in Singaporean terms) as long as the Company holds them, and, as such, they do not bear any rights until they are transferred to a third party. The issued and fully paid shares as at June 30, 2022, December 31, 2021 and June 30, 2021 included 4,967,800, 4,390,200 and 4,190,200 dormant shares, respectively.
For the six months ended June 30, 2022, the Company paid a final dividend in respect of FY2021, in the amount of US\$ 3.5 million amounting to US cents 1.0. See also Note 11 – Subsequent Events.
Note 7 - Share-Based Payments
Details of changes in share options:
| Average exercise price in US\$ per |
||
|---|---|---|
| share | Options | |
| At January 1, 2022 | 0.657 | 17,078,523 |
| Granted | 0.369 | 2,530,000 |
| Cancelled | 0.987 | (3,111,178) |
| Exercised | 0.185 | (197,395) |
| At June 30,2022 | 0.534 | 16,299,950 |
During the six months ended June 30, 2022, the Company granted 2,530,000 options to employees and directors under the Company's 2015 Option Plan, with vesting conditions of one to three years and a contractual life of six years. The options vest subject to service-based conditions and performance-based conditions, relating to sales targets.
The Company measured the fair value of the share options granted using a lattice-based valuation model. The following assumptions under this method were used for the share options granted during the six months ended June 30, 2022: weighted average expected volatility of: 45.87%; weighted average risk-free interest rates (in US dollar terms) of 2.44%; dividend yield of 4.48%. The weighted average fair value of the share options granted during six months ended June 30, 2022 using the model was US\$ 0.113 per share option.
Note 8 – Earnings Per Share
Basic earnings per share
The calculation of basic earnings per share for the six months ended June 30, 2022 was based on the profit attributable to ordinary shareholders of US\$ 6,545,000 (six months ended June 30, 2021-- US\$ 12,579,000) and a weighted average number of ordinary shares outstanding of 351,043,672 (six months ended June 30, 2021 – 349,825,020, calculated as follows:
| Six months ended June 30, | ||
|---|---|---|
| 2022 | 2021 | |
| Basic earnings per share (US cents) | 1.86 | 3.60 |
| Issued ordinary shares at beginning of period Effect of share options exercised Effect of dormant shares purchased |
351,090,280 60,354 (106,962) |
349,831,926 12,431 (19,337) |
| Weighted average number of ordinary shares during period |
351,043,672 | 349,825,020 |
Diluted earnings per share
The calculation of diluted earnings per share for the six months ended June 30, 2022 was based on the profit attributable to ordinary shareholders of US\$ 6,545,000 (six months ended June 30, 2021-- US\$ 12,579,000) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of 351,111,879 (six months ended June 30, 2021 -349,856,870), calculated as follows:
| Six months ended June 30, | |||
|---|---|---|---|
| 2022 | 2021 | ||
| Diluted earnings per share (US cents) | 1.86 | 3.60 | |
| Weighted average number of | |||
| ordinary shares (basic) | 351,043,672 | 349,825,020 | |
| Effect of share options on issue | 68,207 | 31,850 | |
| Weighted average number of ordinary shares (diluted) during period |
351,111,879 | 349,856,870 |
The average market value of the Company's ordinary shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period that the options were outstanding.
Note 9 – Leases
| Group | Company | |||
|---|---|---|---|---|
| June 30, | December 31, | June 30, | December 31, | |
| 2022 | 2021 | 2022 | 2021 | |
| US\$ thousands | ||||
| Right-of-use assets | 4,455 | 4,719 | 4,189 | 4,450 |
| Current lease liabilities | 897 | 974 | 682 | 722 |
| Long-term lease liabilities | 4,022 | 4,743 | 3,940 | 4,625 |
| Total lease liabilities | 4,919 | 5,717 | 4,622 | 5,347 |
Maturity analysis of the Group's and Company's lease liabilities as at June 30, 2022.
| Group | Company | |
|---|---|---|
| US\$ thousands | ||
| Less than one year | 897 | 682 |
| One to five years | 2,805 | 2,723 |
| More than five years | 1,217 | 1,217 |
| Total lease liabilities | 4,919 | 4,622 |
The Group has lease agreements with respect to office facilities mainly in Israel and India. The Group also has lease agreements in respect to vehicles in Israel. In measurement of the lease liabilities, the Group discounted lease payments using the nominal incremental borrowing rate as at the lease inception, or at January 1, 2019 for leases in effect prior to December 31, 2018. In April 2021, the Group executed a renegotiated lease agreement for its leased office space at the Group's headquarters in Israel. Under the terms of the agreement, the leased space was downsized by approximately 30% and the financial terms were improved. Under the revised terms, the lease was extended for a period of four years, with an option for a second four-year period. As a result, for the six months ended June 30, 2021, the Group recorded a non-cash gain of US\$ 267,000 in the condensed interim consolidated statements of comprehensive income.
Note 10 – Commitments
The Group has entered into certain short-term leases for office facilities (less than 1 year). The future minimum non-cancellable lease payments relating to those leases are in the amount of approximately US\$ 25,000.
Note 11 – Subsequent Events
On August 8, 2022, the Board of Directors of the Company declared an interim dividend of US cents 1.5 per ordinary share for the half-year ended June 30, 2022. The Company expects to pay a US\$ 5,261,000 on September 2, 2022, with record date on August 19, 2022.
F. Other Information Required by Listing Rule Appendix 7.2
1. Whether the figures have been audited or reviewed and in accordance with which auditing standard or practice.
These figures have not been audited or reviewed. The figures presented were prepared in accordance with International Financial Reporting Standards (IFRS).
2. Where the figures have been audited or reviewed, the auditors' report (including any qualifications or emphasis of a matter).
Not applicable.
3. Whether the same accounting policies and methods of computation as in the issuer's most recently audited annual financial statements have been applied.
The same accounting policies and methods of computation adopted in the most recently audited financial statements for the financial year ended December 31, 2021 have been applied in the preparation for the financial statements for period ended June 30, 2022.
4. If there are any changes in the accounting policies and methods of computation, including any required by an accounting standard, what has changed, as well as the reasons for, and the effect of, the change.
Not applicable.
5. Net asset value (for the issuer and group) per ordinary share based on issued share capital of the issuer at the end of the:
(a) current financial period reported on; and
(b) immediately preceding financial year.
| Group | Company | |||
|---|---|---|---|---|
| June 30, | December 31, | June 30, | December 31, | |
| 2022 | 2021 | 2022 | 2021 | |
| Net asset value (US\$ thousands) | 72,809 | 70,551 | 72,809 | 70,551 |
| Net asset value per ordinary share: US cents |
20.76 | 20.09 | 20.76 | 20.09 |
| Singapore cents* | 28.89 | 27.96 | 28.89 | 27.96 |
At June 30, 2022, net asset value per share is calculated based on the number of ordinary shares in issue at June 30, 2022 of 350,710,075 (not including 4,967,800 dormant ordinary shares at June 30, 2022). At December 31, 2021, net asset value per share is calculated based on the number of ordinary shares in issue at December 31, 2021 of 351,090,280 (not including 4,390,200 dormant ordinary shares at December 31, 2021).
* Convenience translation based on exchange rate of US\$ 1=S\$ 1.3918 at June 30, 2022.
6. A review of the performance of the group, to the extent necessary for a reasonable understanding of the group's business:-
(a) any significant factors that affected the turnover, costs, and earnings of the group for the current financial period reported on, including (where applicable) seasonal or cyclical factors; and (b) any material factors that affected the cash flow, working capital, assets or liabilities of the group during the current financial period reported on.
Overview
H1 2022 was affected by uncertainties stemming from the hostilities in the Ukraine, which commenced in late February, the renewed outbreak of Covid-19 in China with the ongoing policy of lockdowns ordered there, and an inflationary economic environment. Sanctions impacted the flow of rough diamonds from Russia into the value chain in April and May, with decreasing impact from June onwards.
The Group reported in H1 2022, revenues of US\$ 31.2 million, profit from operations of US\$ 7.5 million, and net profit of US\$ 6.5 million, as compared to an exceptional H1 2021 driven by a post-pandemic surge of revenues of US\$ 36.0 million, profit from operations of US\$ 14.0 million, and net profit of US\$ 12.6 million.
Overall recurring revenues for H1 2022 (including Galaxy® inclusion scanning, Quazer® services, polished diamond related services, annual maintenance contracts, etc.) were over 50% of our overall revenue (approximately 40% for H1 2021), an increase of approximately 12%. Overall rough and polished diamond wholesale and retail related ("Trade") revenues, mostly from digital tenders, the Sarine Profile™, the Sarine Diamond Journey™, our AIderived grading and other technologies applied to the flow and trade of rough and polished diamonds were approximately 11% of our overall revenue for H1 2022 compared to just under 6% in H1 2021, an increase of approximately 70%.
Midstream polishing activities were robust, as evidenced by the continued expansion of the utilisation of our inclusion mapping systems, (average weekly usage in H1 2022 exceeded those realised on average throughout FY2021) However the aforementioned global geopolitical and economic uncertainties did contribute to a decline in capital equipment sales, as compared to what had been an exceptionally strong resurgence of sales in H1 2021 on the backdrop of robust consumer ("revenge") demand for luxury items, following the general recovery from the worst of the Covid-19 world crisis.
The decline in profitability in H1 2022 was mainly due to lower sales, a slightly lower gross profit margin, associated with the lower sales and the absence of the sale of inventory previously written-off in prior, as realised in H1 2021, and the overall increase in operating expenses as activities further returned to normal (e.g., the resumption of trade shows).
The Group delivered 32 Galaxy®-family inclusion mapping systems in H1 2022 comprising an unusual mix of 13 systems for larger stones, primarily to customers in Africa. Just over half of the systems for smaller stones were sold under the one-off paradigm with no follow-on per-use revenues to be generated from them in the future. As of June 30, 2022, our installed base was 743 systems.
Balance Sheet and Cash Flow Highlights
As at June 30, 2022, cash, cash equivalents, short-term investments (bank deposits) ("Cash Balances") increased to US\$ 39.1 million as compared to US\$ 36.4 million as of December 31, 2021. The increase in Cash Balances was primarily due to the Group's profitability in H1 2022, offset somewhat by the payment of a US\$ 3.5 million final FY2021 dividend in May 2022, the repurchase of US\$ 0.2 million of Sarine shares in the open market, and a slight increase in trade receivables to US\$ 24.3 million as at June 30, 2022 (US\$23.8 million as at December 31, 2021), due primarily to credit terms offered to customers.
Revenues
Revenues for H1 2022 of US\$ 31.2 million, decreased by 13%, as compared to revenues of US\$ 36.0 million reported in H1 2021. The decrease in revenues, mainly in India, was due to an approximate 30% decline in capital equipment sales, offset by an approximate 22% increase in recurring revenues. The decline in capital equipment
sales, mainly for smaller sized stones, resulted from the geopolitical uncertainties, particularly the sanctioning of Alrosa sourced rough diamonds, as well as ongoing piracy in India. The increase in recurring revenues was mainly due to increased trade related revenues, but also due to the ongoing scanning of progressively higher quantities of rough diamonds scanned on our Galaxy® technologies throughout H1 2022, seemingly regardless of the aforementioned sanctions.
Cost of sales and gross profit
Cost of sales for H1 2022 of US\$ 8.9 million, decreased by 2% (on a decrease in revenues of 13%), as compared to US\$ 9.1 million in H1 2021, with a gross profit margin of 71% in H1 2022 compared to 75% in H1 2021. The decrease in cost of sales in H1 2022 was primarily due to decreased capital equipment sales. The decrease in gross profit and the corresponding decrease in gross profit margin were primarily due to decreased overall sales. H1 2021 also benefited from the sale of inventory previously written-off in prior periods.
Research and development expenses
Research and development expenses for H1 2022 of US\$ 4.2 million increased by 7% as compared to US\$ 3.9 million in H1 2021. The increase in research and development expenses, as planned, was primarily due to higher employee costs, offset somewhat by lower outsourcing expenses.
Sales and marketing expenses
Sales and marketing expenses for H1 2022 of \$6.3 million increased by 16% as compared to US\$ 5.4 million in H1 2021. The increase in sales and marketing expenses was due primarily to increased advertising and trade-show related expenses, returning partially to pre-Covid-19 levels, and also due to increased sales commissions on higher revenues outside of India in H1 2022. Trade show activities have yet to return to normalised levels in the Asia Pacific region.
General and administrative expenses
General and administrative expenses for H1 2022 of US\$ 4.3 million, increased by 14%, as compared to US\$ 3.8 million in H1 2021. The increase in general and administrative expenses was primarily due to increased third-party legal and professional fees related to ongoing multiple patent and copyright litigations and related activities in India.
Other income from lease termination
H1 2021 results benefited from a U\$ 0.3 million, non-cash gain associated with the downsizing of leased office space at the Group's headquarters in Israel in April 2021.
Profit from operations
The Group reported a decline in profit from operations of US\$ 7.6 million in H1 2022, as compared to US\$ 14.0 million in H1 2021. The decrease in profit from operations was mainly due to the lower gross profit in H1 2022 resulting from lower revenues and increased operating expenses at more normalised pre-Covid-19 spending levels, as detailed above.
Net finance income
Net finance income for H1 2022 was US\$ 73,000 as compared US\$ 62,000 in H1 2021. The increase in net finance income was due to higher interest income during H1 2022 as compared to H1 2021.
Income tax expense
The Group recorded an income tax expense of US\$ 1.0 million for H1 2022 as compared to income tax expense of US\$ 1.5 million in H1 2021. The decrease in income tax expense was primarily due to decreased profitability in H1 2022, affected by the profitability being realised in various entities of the Group, each subject to different jurisdictions, applicable incentives, and income tax loss carryforwards.
Profit for the period
The Group reported a decline in net profit to US\$ 6.5 million in H1 2022, as compared to US\$ 12.6 million in H1 2021. The decrease in net profit was mainly due to lower profit from operations in H1 2022, as detailed above.
7. Where a forecast, or a prospect statement, has been previously disclosed to shareholders any variance between it and the actual results.
Not applicable.
8. A commentary at the date of the announcement of the significant trends and competitive conditions of the industry in which the group operates and any known factors or events that may affect the group in the next reporting period and the next 12 months.
We expect the following industry trends to continue influencing our business:
- a. Geopolitical uncertainties continue. The Covid-19 virus and its mutations, though still with us, are not, perhaps with the exception of China and its "zero Covid-19" policy, a cardinal issue affecting the global economy. Having said that, because of China's policy, there are still serious supply chain issues affecting many industries, including our suppliers.
- b. Consumer demand for diamond jewellery continues to be strong, though inflationary conditions may have a further dampening effect going forward. US retailers remain cautiously optimistic regarding the end-of-year holiday season.
- c. Our Galaxy® family scans, which remain at previously realised high levels, seem to indicate the flow of rough diamonds into the value chain pipeline has not diminished significantly, reducing concerns regarding the impact of sanctions on the major Russian producer, Alrosa. Our revenues from our digital tender services remain strong, with the exception of Alrosa. The ongoing adoption of our digital tenders opens the door for additional collaboration, e.g., on our Sarine Diamond Journey™ provenance solution.
- d. The Sarine Profile™, the umbrella term for our digital paradigms providing "profiling" data pertaining to a polished diamond, including light performance and imaging techniques, continues to expand, as exemplified by the recently announced launch in China by China's National Gem Testing Centre (NGTC), China's largest gemmological laboratory, of a new light performance grading standard for China utilising our technology.
- e. We are seeing expanding adoption of our Sarine Diamond Journey™ provenance and traceability solution by key industry players. We believe the Sarine Diamond Journey™ remains the only viably scalable solution for diamond provenance. As environmental, social and governance (ESG) issues are becoming core considerations with consumers, leading luxury brands are increasingly seeking realistic solutions. We are extremely pleased that leading luxury global brands, including Maison Boucheron and the Aura Consortium comprising LVMH, Cartier and OTB, among others, have adopted our Sarine Diamond Journey™ as their traceability solution of choice, as announced earlier this year. Other high-end luxury brands are also evaluating the adoption of our solution. Our Sarine AutoScan™, a robotic system for the high speed scanning of rough stones, is in beta-testing in India. The Sarine AutoScan™ will avail the economical documentation of the sourcing of rough diamonds for their subsequent traceability, and also addresses acute internal inventory control issues miners experience today.
- f. e-Grading™ continues its transition from beta-testing to broader introduction to midstream customers. We
continue to enhance its functionality with more advanced hardware and more sophisticated software. We are pleased that additional retail brands are adopting our AI-derived grading, as exemplified by Maison Bouscheron's selection earlier this year.
g. The market for lab-grown diamonds (LGD) expanded significantly in 2021, due to a segment of consumers, especially in the U.S., accepting LGD as an alternative product at a lower price point per carat. The market acceptance of LGD jewellery has created, as we have in the past forecast, a new opportunity for the Group, as virtually all our technologies are applicable to LGD. We believe our business from this growing segment will continue to expand in 2022.
We will focus on the following objectives in the second half of 2022:
- Continue beta-testing and first pilot sites of our Sarine AutoScan™ system;
- Continue rollout of our Advisor® 8.0 software;
- Introduce enhancements to our Meteorite™ system;
- Further refine our e-Grading™ AI-based technology; and
- Expand rollout of our e-Grading technology to the midstream.
9. Dividend
(a) Current Financial Period Reported Any dividend declared/recommended for the current financial period reported on?
The Board of Directors has declared an interim dividend of US cents 1.5 per ordinary share for the half-year ended June 30, 2022, constituting a US cents 1.0 dividend, as per the stated dividend policy, and an additional special interim dividend of US cents 0.5
(b) Corresponding Period of the Immediately Preceding Financial Year
Any dividend declared for the corresponding period of the immediately preceding financial year?
On August 4, 2021, the Board of Directors declared an interim dividend of US cents 1.5 per ordinary share for the half-year ended June 30, 2021, constituting a US cents 1.0 dividend, as per the stated dividend policy, and an additional special interim dividend of US cents 0.5.
(c) Whether the dividend is before tax, net of tax or tax exempt. If before tax or net of tax, state the tax rate and the country where the dividend is derived.
| Tax rate applicable | ||
|---|---|---|
| Amount before tax | to shareholders | |
| US\$ thousands | Percent | |
| 2022 | 5,261 | 20%/0%1 / 10%2,3 |
| 2021 | 5,269 | 20%/0%1 / 10%2,3 |
1 The tax rate will be 20% (20% in 2021) for individual Israeli shareholders and 0% (0% in 2021) for Israeli corporate shareholders.
2 The tax rate for the dividends for individual and corporate Singaporean shareholders is 10% (10% in
- 3 Payments to shareholders of dividends distributed by the Company will be subject to a tax deduction at source at the rate of 20%, in compliance with Israeli tax directives. Tax amounts deducted from dividend payments will be deposited with a trustee. A shareholder claiming eligibility for preferential tax treatment on dividend payments pursuant to Israeli tax laws or international tax treaties may apply to the trustee within 30 days of the distribution date providing all necessary details and documents, for reimbursement of excess deduction, subject to verification of such eligibility. Details regarding the application procedure shall be provided by the Company in the formal dividend announcement posted on the SGX.
(d) Date Payable
| Amount | |
|---|---|
| US\$ thousands | |
| 2 September, 2022 | 5,261 |
| 3 September, 2021 | 5,269 |
(e) Record Date
5:00 PM on:
| Amount | |
|---|---|
| US\$ thousands | |
| 19 August, 2022 | 5,261 |
| 16 August, 2021 | 5,269 |
10. If no dividend has been declared/recommended, a statement to that effect.
Not applicable.
11. If the group has obtained a general mandate from shareholders for IPTs, the aggregate value of such transactions under Rule 920(1)(a)(ii). If no IPT mandate has been obtained a statement to that effect.
The Group has not obtained a general mandate from its shareholders for IPTs.
12. Negative confirmation pursuant to Rule 705(5) (not required for announcement of full year results).
The Directors confirm that, to the best of their knowledge, nothing has come to the attention of the Board of Directors which may render the unaudited financial results of the Group for the period ended June 30, 2022, to be false or misleading, in any material aspect.
13. Confirmation pursuant to Rule 720 (1) of the Listing Manual.
The Company confirms that it has procured undertakings from all its Directors and Executive Officers in the format set out in Appendix 7.7 under Rule 720 (1) of the Listing Manual.
On behalf of the Directors
Daniel Benjamin Glinert Executive Chairman
8 August, 2022