31 Dec 16 - Half year report, page-7

Hi SaberX

It all depends if their underlying costs (e.g. administration and other salaries, vehicles, offices etc.) are well-controlled. A problem that can happen with some company's when there's a dramatic drop in revenues is that their set costs become very significant on their balance sheet.

Here's what I mean:
- say a company has $10 million pa costs that are pretty much set. They get $100 million in revenue with a 20% margin, making $20 mil operational profit. Leaving $10 mil profit.
The following year, they only have contracts worth $30 mil in revenue. They still manage a 20% margin, for $6 mil operating profit, but they stay in the same flash premises, don't lay off anyone etc., so their base running costs are still $10 mil. This would result in a $4 mil p.a. loss.

A very simplistic example I know, but I'm waiting to see whether RDG have managed the decrease in scale of their business well so as not to end up in that kind of situation.