RFT 18.2% 1.8¢ rectifier technologies ltd

With the spare time over the holidays I find it helpful to take...

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    With the spare time over the holidays I find it helpful to take a few hours every year and look back at my trades and more importantly what is currently in my portfolio. While looking at RFT, I kept coming back to the idea that over the past year we have seen much better communication from management as well as a more positive outlook on the business moving forward.

    Since Yingming Wang took a controlling stake in RFT through Pudu Investments in 2010, reading the directors commentaries in the annual reports is not a fun activity. My highlight from the 2010 report:

    "Clearly, the company's cost structure is inconsistent with its current revenues and either costs have to be further reduced or sales increased, or ideally both, as a matter of urgency."

    The changes to the cost structure largely meant outsourcing manufacturing to Malaysia. In 2011, the Australian cost base was $3.2m. By 2014 this was $2m. An excerpt from the 2011 report:

    "While very good progress has been made, albeit overdue, in returning the company to profitability, much more work remains to be done to ensure longer term growth, continued profitability, reliable cash flow and overall balance sheet stability."

    A multitude of factors led to stagnating results between 2012-15. The cost of transitioning manufacuring to Malaysia was high (roughly $1.1m), the AUD was strong, R&D spending increased and RFT divested their UK business. During this time, every directors commentart in the annual report began with:

    "While the day to day operations continue to be very challenging..."

    Over that time, RFT management was also very tight lipped about operations. Other than shareholding changes and the financial reports, only two market sensitive announcements were released, being two major contract wins.

    However everything finally came together in 2016 with strong revenue growth, the new lower cost base established, normalised R&D spend and a lower AUD. This led to NPAT for 2016 of $1.68m. During the year we also saw two electric vehicle announcements, the Unipower distribution agreement and the announcement of manufacturing capacity expansion. On top of that, director commentary in the annual report was upbeat for the first time in years:

    "Athough significant improvements in the company's operational performance in 2016, the company continues to look for future growth of market share of industries it supplies to, such as utilities, oil and gas, defence, telecommunications, transportation and scientific instrumentation, with specific focus on the new and emerging electric vehicle charging market and renewable energy technologies industry.
    Continued investment into new product development is critical for the company to achieve further success in the future. Our R&D team endeavours to deploy the latest technology to optimize current products and work closely with our partners to develop new products for specific market and emerging market segments. Pursuit of the high growth electric vehicle charging market is heading in the right direction, with products and new developments offered to partners who have a well established footprint in this space."

    I was unable to attend, but feedback from posters on HC who were able to make the AGM was that management seemed very bullish about the future prospects of the business. Combine that with the fact key staff members at RFT have taken large shareholdings in the company over the past year and I think the future is extremely bright.

    RFT management has historically been extremely pragmatic in the reporting of results and outlook for the business, however I think it is clear from their behaviour of the past year they are more confident than ever of delivering strong results in the near future.
 
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Last trade - 16.10pm 28/03/2024 (20 minute delay) ?
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