Asia Pacific Wire & Cable Corporation Limited — 2017 Form 20-F
Reporting period: Fiscal year ended December 31, 2017; this is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS and reported in U.S. dollars; amounts below are in millions unless stated otherwise.
Business context and reporting period
APWC is a Bermuda holding company manufacturing and distributing power and telecommunications cable, enameled wire and electronic wire, and providing cable supply, delivery and installation services. Its operations are principally in Thailand, China, Singapore and Australia. PEWC, a Taiwanese company, owns and controls approximately 75.4% of APWC. Thailand generated 48.6% of 2017 sales.
Key financial metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $425.2 | $384.6 |
| Gross profit / gross margin | $39.7 / 9.33% | $31.6 / 8.22% |
| Operating profit | $16.6 | $7.3 |
| Profit before tax | $18.7 | $6.5 |
| Net income | $13.5 | $6.0 |
| Net income attributable to APWC | $8.7 | $2.9 |
| Basic and diluted EPS | $0.63 | $0.21 |
| Cash and cash equivalents at year-end | $46.1 | $48.2 |
| Working capital | $181.8 | $157.0 |
| Total assets / net assets | $334.8 / $222.8 | $293.6 / $197.2 |
Net cash used in operating activities was $16.9 million, versus $9.0 million provided in 2016. Management attributed the cash use mainly to higher receivables and inventory associated with late-year sales; it said most of the receivables were collected and inventory sold in first-quarter 2018. Investing activities provided $3.9 million, mainly reflecting disposal proceeds; financing activities provided $7.0 million. Capital expenditure was $4.9 million.
Year-end interest-bearing loans and borrowings were $41.2 million, up from $28.2 million; finance leases were $0.1 million. The filing’s selected-data table reports total debt of $42.7 million for 2017. The weighted-average borrowing rate was 2.85%. Credit facilities totaled $250.9 million, with $144.5 million unused. Current liabilities were $101.3 million. The company reported a 9.7% gearing ratio, compared with 4.8% in 2016.
Material changes versus 2016
- Revenue rose 10.6%, gross profit 25.6%, and operating profit 126.4%. Gross margin increased 1.11 percentage points.
- Thailand sales increased 35.0% to $206.5 million, driven by more government projects and Baht appreciation; higher-margin project sales also lifted regional gross margin to 9.77% from 8.78%.
- North Asia sales rose 8.1% to $101.5 million. Management cited orders transferred from Chinese manufacturers closed over environmental issues; regional gross margin increased to 7.36% from 5.36%.
- ROW sales fell 14.9% to $117.2 million. Sigma Cable faced stronger competition from Chinese imports; APEC sales increased 21%, partly offsetting Sigma’s decline. ROW gross margin rose to 10.28% from 9.55%.
- Manufactured-products revenue increased to $361.9 million from $296.1 million, while distributed-products revenue declined to $42.0 million from $75.2 million; SDI revenue increased to $21.4 million from $13.3 million.
- Average LME copper prices increased 26.7%, from $4,863 to $6,163 per metric ton. Management said it generally passes copper-price changes through to customers, but timing gaps and inventory valuation can affect results.
Outlook, commentary, risks and unusual items
- Outlook: No quantified earnings or revenue guidance is provided. Management cautions that forecasting is highly uncertain and advises against relying on near-term trend projections. It expects modest near-term Singapore government demand for medium- and high-voltage cable projects.
- Liquidity and capital allocation: Management said cash, operating funds and available credit should meet requirements for at least the next 12 months. It is considering uses for Ningbo sale proceeds, including expansion, capital improvements and debt repayment. A $0.10-per-share dividend was paid in November 2017; future dividends remain subject to results, subsidiary distributions, capital needs and other restrictions.
- Unusual items: The sale of Ningbo buildings and land-use rights for approximately $8.8 million generated a reported gain of approximately $4.5 million. The company also recorded $2.8 million of foreign-exchange gain, compared with a $0.04 million loss in 2016, and a $0.3 million loss on liquidation of a subsidiary. Property impairment was $0.2 million, down from $2.5 million in 2016.
- Cash conversion and credit: Days sales outstanding increased to 82 from 71 days. Trade receivables rose to $112.4 million net, and inventory to $97.2 million. One customer represented 22.4% of trade receivables at year-end, versus 8.2% in 2016. The company recorded a $2.0 million doubtful-account provision for a customer.
- Contingency: A debtor sued to rescind APWC’s foreclosure on collateral in Thailand. APWC said it believes it has a valid first lien and expects to prevail; the collateral’s reported fair value at year-end was $1.2 million.
- Financial reporting: In 2017, the company restated previously issued 2013–2015 statements after identifying errors in North Asia accrued-liability calculations caused primarily by inaccurate currency rates. Management reported internal control over financial reporting effective as of December 31, 2017, following remedial measures, but warned weaknesses could recur. The auditor did not attest to internal controls.
- Audit and governance risks: PwC Taiwan became auditor in 2017, replacing Ernst & Young; the filing says the change was not due to a disagreement. Because of operations in China, audit work by the auditor’s China affiliate is not fully subject to PCAOB inspection. PEWC controls the company, most directors are affiliated with PEWC, and APWC relies on NASDAQ’s controlled-company exemption.
- Business risks: Key exposures include copper-price and foreign-exchange volatility; reliance on government and infrastructure investment; competition, including state-subsidized producers; political and economic uncertainty in Thailand and China; potential limits on moving subsidiary cash across borders; labor and environmental obligations; and alternative wireless transmission technologies. Insurance for flood, business interruption and certain China operations is limited.
Most important facts for investors to verify
- Whether the 2017 earnings improvement is sustainable without the Ningbo disposal gain and favorable foreign-exchange effects.
- Whether receivables and inventory built up in late 2017 converted to cash and sales as management expected, given higher DSO and customer concentration.
- Whether operating cash flow recovers after the $16.9 million cash outflow and whether borrowing growth remains manageable.
- Whether copper-price pass-through, inventory valuation and currency movements support margins in subsequent periods.
- Whether internal-control remediation remains effective and how China audit-inspection limitations affect confidence in reported results.
- Whether subsidiary distributions can support the dividend policy, and how the debtor collateral litigation and other guarantees or commitments develop.