Despite the adverse impact of COVID-19, RFT’s performance in 2020 is promising. RFT’s revenue decreased by 11.33%, which is reasonable given its manufacturing facilities were compromised between mid-March to May due to COVID restrictions. If you apply a time basis approach, the decrease is in line with lost production time being 11.53% (6/52 weeks). If COVID hadn’t arisen, revenue would have been around the same as FY19.
The slight decrease in revenue is disappointing but the runway for growth remains extremely long. I was really impressed with RFT’s ability to significantly reduce its COGS (raw materials and consumables used) as a percentage of revenue from 48% in FY19 to 29%, contributing to a decent increase in gross profit margins (45% in FY19 to 54%). RFT has managed to achieve operating efficiencies through capitalising on the additional factory purchased in October 2019.
There were also no retrenchments made and additional engineers were added to the Research & Development team, which is a major positive. This is supported by my sighting of a job posted by RFT in August, looking to recruit a Power Electronics engineer with 5-10 years of experience. It is a great sign that management are deploying capital into developing superior products to achieve long-term growth.
As a lot of businesses battle the economic headwinds brought on by COVID, we should monitor RFT’s collection of debtors, which increased by around $200k or 2% of sales.