I think that is spot on - is it a one off or is this a sign of things to come. I noted n ot a lot of commentary on new sales orders. I think the market will respond if there is more visibility of pipeline.

Agree with @LifeCapital and @mikebrisy that it is a cracking result. A result that you would probably hope they would deliver based on the orders disclosed - but you can't quibble that they're not actually getting it done.

What I can quibble with, and what I'm not sure I've got the same view about, is them becoming more investor friendly though. Is it that hard to give us a hint of what is left in the can? Maybe even give us a number for the order book? The big increase in inventory (which explains the lack of cashflow) suggests it, and the inclusion of contract liabilities (not huge but more than double the half year) both current and non-current may also suggest some long-dated contracts. But it's a little perplexing that they can't be a little bit more transparent.

Anyway I'm not selling so I clearly can't be that annoyed. I'll be eagerly awaiting the annual report to see the segment breakdown. At the half year they grew all segments (except for the one tiny one) strongly and I'll be hoping to see that happen again, which will help reduce customer concentration risk.

[Held]

@Noddy74 I agree there is a distinct lack of sophistication in their stakeholder management (investors), that is not entirely uncommon for micro-caps. But it is a risk, and a sufficient risk that I couldn't imagine taking a material position for as long as it exists.

@Noddy74 @mikebrisy

Plenty of stuff still to tidy up but the fact they are doing this may show they are trying to get better:

https://youtu.be/DN8y00fznfk?feature=shared

Sounds like a great result. $6m in cash should reduce the need to raise capital for any further expansion in manufacturing in Asia to keep up with demand. Employee stock options are to 2025 at $0.06 which sounds well aligned with shareholders expectations

Sorry if this is a dumb question, but can anyone explain how "Changes in inventories of finished goods and work in progress" is considered as a negative expense on the income statement?

I understand that it's related to cost of sales but I don't really understand why some companies are able to report a boost in earnings off the back of increasing inventory. Also how is this figure derived? I'm assuming it is the cost price to manufacture the inventory. However does this mean if said inventory is eventually written off, we could see a large unwinding and a large expense in future periods?

It's a way to calculate COGS. You can measure COGS through the formula

(a) Starting inventory

(b) Plus Purchases of inventory

(c) Less ending inventory

= COGS

It's not boosting earnings, it's just trying to net out the inventory position in (a) and (c) above.

That relationship makes sense if you think that whatever you sold either came from your existing inventory or you had to buy it...

Inventory is carried at either cost or realisable value, whatever is lower, so a write off is a write off.

Hope that helps.

Thanks for this @UlladullaDave .

So in the case of RFT, the COGS was a negative figure as ending inventory was higher than starting (18.45m vs 5.88m) resulting in a negative expense figure.

Would you agree that this inventory figure would be something crucial to look at in the coming few reports as I assume that they are stock piling in preparation for some large orders that they will fulfil in the future.

To me I see a NPBT figure of $8.7m but a Changes in inventories of finished goods and work in progress figure of $8.4m and think that overall the profitability of this business is difficult to determine until we see whether they are able to sell this inventory in the future.

I guess what I'm trying to determine is whether the Cash Flow statement is more relevant for this business and when I scroll down I see a negative free cash flow figure even though the company technically generated a profit.

This is not a knock on RFT at all, just trying to get a grasp on how I should be viewing these types of companies and gain some experience.

Nah. See what they're doing is saying "hey we used $24m of raw materials during the year, but it wasn't all for products that we sold, we also put $8.7m of that into our inventory of finished product to be sold later." If they didn't have that $8.7m inventory change line item then they'd be overstating their COGS by $8.7m (and doing all sorts of nonsense to the balance sheet along the way).

I'd definitely agree with you that when a company builds out its inventory position like that it's either a very good sign or a very bad sign. For the latter you could see at what happened with CCX and their inventory position.

The negative cash flow would likely be related to the build up in inventory.

This is common of all growing companies that make stuff. It is why in using the P&L as the basis of deriving cashflows in valuation you calculate:

EBIT + D&A - Capex - (Change in Working Capital)

It is so be expected that a firm that is digesting a large order from a low starting base will have a negative cashflow, driven by the change in opening and closing inventory.

As others have discussed here, it is a leading indicator of revenue in the next period. In $RFT's it is consistent with their communicated contracts.

Of course, what we really prefer is the $NCK model, where customers pay up front!

True,

But the revenue growth was up only 5% on prior half - on the back of high WIP / inventories. Would of been happy with high WIP/inventories if there was more growth.

Agree. However, this is an operation in early stages of scaling. Its probably not an established operation. Things like movement of WIP through the production line, warehouse, and shipping are probably lumpy. There's no way of assessing this without a site tour, and there is no way I would judge based on a small number of reports. However, this is definitely something to track half-on-half over the coming few periods.