Sarine's (SI:SARI) FY17 results were under pressure from excessive polished diamond inventories in H217 and continued illicit competition in India. However, Q417 saw a sequential increase in capital equipment sales, with 11 Galaxy family systems delivered during the quarter and a total installed base of 345 systems as at end-2017 vs 299 in 2016. Midstream inventory levels seem to have normalised and scanning activity is picking up. Management confirmed its positive consumer demand outlook for FY18.
Market conditions weighing on y-o-y performance
Sarine reported a Q417 EPS of US$0.17 (down from US$1.42 in Q416), which was driven by lower capital equipment sales, reduced gross margin (mostly due to lower volumes) and G&A costs that were 24% higher y-o-y reflecting continued IP litigation. The stronger Israeli shekel was responsible for a c 10% EBIT decline. The company also booked a US$1.0m write-down of deferred and other tax assets. Group sales in Q417 increased 14.6% vs Q317, but remained 31.6% below the previous year. R&D costs continued to decline after peaking in H117, with major projects already completed.
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