Sarine Technologies offers 34 cents per share in off-market equal access share buyback offer

The company reported a loss of just under US$1 mil for the 3QFY2023 amid ongoing challenges.

Sarine Technologies has offered to pay 34 cents per share in an off-market equal access share buyback offer.

The offer, which is open to Sarine’s shareholders, is in accordance to Sarine’s existing share purchase mandate at the extraordinary general meeting (EGM) held on April 24.

Under the equal access offer, Sarine will offer to buy up to 4 million shares representing around 1.15% of the total number of 348.1 million shares in issue as at Nov 20. Assuming the maximum share purchase amount, Sarine will commit $1.4 million towards the purchase of the shares. The company’s shareholders will be entitled to accept the offer in full or partially in respect of the stake he or she holds on the date of the close of the offer.

Shareholders may also choose not to accept the offer.

Sarine’s CEO and directors, who hold a total collective stake of 12.02% in the company, will not be taking part in the offer. As such, shareholders will be entitled to tender for an additional 480,782 shares for acceptance under the equal access offer.

According to Sarine, the equal access offer will enhance value for its shareholders as the reduction of the total number of shares in circulation will increase its earnings per share (EPS).

The offer will also provide shareholders with an opportunity to realise their investments in the shares at a premium over recent market prices of the shares without incurring transaction costs.

"The directors believe that the company's shares are significantly undervalued due to prevailing market uncertainties and are fully committed to creating long-term shareholder value. This offer is the first step in the company's strategy to realise this substantial value,” says Daniel Benjamin Glinert, executive chairman of the board.

3QFY2023 results

Sarine has reported a loss of “just under” US$1 million ($1.34 million) for the 3QFY2023 ended Sept 30. Revenue fell by 28% y-o-y to US$10.4 million.

Net profit for the 9MFY2023 fell by 100% y-o-y to US$0 million while revenue fell by 25% y-o-y to US$34 million.

The decline was attributed to the macro-economic uncertainties in the US and economic woes in China, which saw lower sales in polished diamonds and a drop in their prices. Indian manufacturers have also reduced their inventories, especially going into the second half of the year in anticipation of weaker holiday seasons and ongoing competition from lab grown diamonds in the US. The lowered inventories are also in anticipation of likely new G7 sanctions on Russian diamonds, which is expected to take place in early 2024.

The loss in the 3QFY2023 and 9MFY2023 were mainly due to lower revenue and lower gross profit margin (GPM) resulting from lower revenue and product mix. To compensate for reduced midstream polishing activity, the company is taking immediate steps to reduce operating expenses in the 4QFY2023.

“With the decline in the quantities of rough diamonds entering the pipeline, commensurately reduced manufacturing activities were evident. Appropriately, our traditional businesses of selling capital equipment and, to a lesser extent, our inclusion scanning services, were impaired,” says Sarine.

“As our inclusion scanning services are primarily on the larger higher-end rough diamonds, they are more resilient to a slowdown in overall diamond manufacturing and were less impacted,” it adds.

However, the outlook for the holiday season remains uncertain with the company seeing budget-focused shoppers in the US showing a further shift to lab-grown diamonds.

“The extent of this trend, and the overall end-of-year holiday season in the West and the Chinese New Year buying early in 2024, will determine how fast the natural diamond industry recovers,” says Sarine.

Looking ahead, Sarine expects overall industry conditions to remain challenging with its traditional businesses of selling capital equipment and its Galaxy scanning services to stay affected under the negative market conditions.

That said, the lowered supply of rough diamonds, which will reduce polished inventories, will contribute to price stabilisation and eventual recovery. This is expected to take place in the first half of 2024.

In addition, the company is expecting to see increased revenues from its readily scalable traceability technologies along with its collaboration with Tracr amid the sanctions on Russian-sourced diamonds. Environmental, social and governance (ESG) issues are becoming increasingly important for investors, consumers and high-end retailers, notes the company.

“Lastly, to further bolster our position as the industry leader for natural diamond planning, we will be introducing in early 2024 a new algorithm to provide substantial added value for the expansive market of smaller rough stones,” it adds.

Shares in Sarine closed at 28.5 cents on Nov 17.

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