Business context and reporting period
Asia Pacific Wire & Cable Corporation Limited (APWC) filed an annual Form 20-F for the fiscal year ended December 31, 2021, prepared under IFRS as issued by the IASB. This is an annual report, not a standalone fourth-quarter filing. APWC manufactures and distributes enameled wire, power and telecommunications cables, and provides supply, delivery and installation (SDI) services across Thailand, North Asia and the Rest of World (ROW). Its controlling shareholder is Pacific Electric Wire & Cable Co., Ltd. (PEWC).
Financial performance and position
| Metric (US$ millions, except per-share data) | 2021 | 2020 |
|---|---|---|
| Revenue | 476.7 | 313.6 |
| Gross profit / gross margin | 21.2 / 4.4% | 33.9 / 10.8% |
| Operating profit (loss) | (5.0) | 7.6 |
| Net profit (loss) | (8.5) | 3.7 |
| Loss attributable to APWC shareholders / diluted EPS | (2.6) / $(0.19) | (0.6) / $(0.04) |
| Net cash from (used in) operating activities | (41.6) | 16.4 |
| Capital expenditure (cash purchases of property, plant and equipment) | 8.5 | 14.5 |
| Cash and cash equivalents, balance-sheet figure | 44.5 | 52.2 |
| Interest-bearing loans and borrowings | 65.4 | 13.8 |
Gross profit contracted despite sharply higher sales. The company reported a $4.4 million foreign-exchange loss, versus a $0.6 million loss in 2020, and finance costs rose to $1.3 million from $0.7 million. A $1.3 million income-tax benefit partly offset the pretax loss. Total comprehensive loss was $22.5 million, including a $15.0 million foreign-currency translation loss in other comprehensive income.
At year-end, working capital was $149.8 million (current assets of $312.0 million less current liabilities of $162.2 million). The cash-flow statement reports closing cash of $42.5 million after netting $2.0 million of bank overdrafts; the balance-sheet cash figure is $44.5 million. Net debt, using the company’s stated definition, was $65.7 million, and its gearing ratio was 23.9%, compared with net cash and a reported 0.0% gearing ratio in 2020. Unused credit facilities were approximately $153.3 million, including unused letters of credit.
Operating cash use primarily reflected higher copper-related working-capital needs: inventories increased to $128.8 million from $96.4 million, while trade receivables rose to $103.6 million from $82.1 million. The filing also reports a $14.1 million inventory allowance recognized in cost of sales in 2021.
Material changes versus the prior year
- Revenue grew 52.0%, but costs of sales rose 62.9%; gross profit fell 37.6% and APWC moved from operating profit to operating loss.
- Average London Metal Exchange copper prices increased 51.0%, from $6,169 to $9,314 per metric ton. Management attributed the lower margin mainly to copper-price effects, including onerous contracts and inventory write-downs in Thailand.
- Thailand revenue rose 37.7%, but the segment shifted from $11.3 million operating profit to a $13.5 million operating loss. ROW revenue rose 77.7% and the segment returned to operating profit; North Asia operating profit increased to $4.5 million from $3.1 million.
- Borrowings increased substantially to fund working capital, raw-material purchases and capital needs amid higher sales and copper prices. Operating cash flow reversed from a $16.4 million inflow to a $41.6 million outflow.
Outlook, commentary, risks and unusual items
Management said cash on hand, operating cash generation and available credit facilities should fund requirements for at least the next 12 months, while noting that additional debt or equity financing could be needed if liquidity sources prove insufficient. No formal earnings guidance is provided. The company estimated 2022 capital expenditure at $0.8 million based on current assumptions, subject to change, while describing planned capacity expansion in China and Thailand and new factory construction in Thailand. It expects to fund expenditures from operations.
In February 2022, APWC completed an oversubscribed rights offering, issuing 6.8 million shares at $1.22 per share for approximately $8.3 million in gross proceeds. PEWC’s aggregate ownership rose from 75.5% at year-end 2021 to approximately 81.0% after the offering. In March 2022, the LME copper price increase was associated with a further $0.8 million unrealized loss on onerous contracts. Charoong Thai declared a $1.2 million dividend, subject to shareholder approval and payable in May 2022; this is a subsidiary distribution, not an APWC shareholder dividend.
Principal risks include copper-price and supply volatility, COVID-19 disruptions, customer and end-market concentration, competition (including state-owned enterprises), foreign-exchange exposure, debt covenants and refinancing, and restrictions on moving cash from subsidiaries to the holding company. The filing also highlights PRC regulatory and currency-transfer uncertainty, Taiwan–China tensions, and potential U.S. trading or delisting consequences related to PCAOB inspection restrictions affecting the auditor’s China affiliate. APWC paid no parent-company dividends in 2019–2021 and did not anticipate a 2022 dividend. Management assessed disclosure controls and internal control over financial reporting as effective at year-end; the auditor’s financial-statement opinion was unqualified. The auditor identified SDI revenue recognition and estimates of contract costs to complete as a critical audit matter.
Important facts for investors to verify
- Whether copper costs, onerous-contract provisions and inventory valuation continue to weigh on Thailand’s margins and cash generation.
- The near-term maturity and renewal profile of borrowings: $62.1 million of balance-sheet borrowings were current, and contractual loan payments due within one year were $62.3 million.
- Whether reported credit availability remains accessible and whether subsidiary cash can be distributed to APWC when needed.
- Customer concentration: one ROW customer generated $56.6 million, or 11.87% of 2021 revenue; one customer represented 15.53% of year-end trade receivables.
- The assumptions supporting the $0.8 million 2022 capital-expenditure estimate and the status and funding of planned capacity projects.
- The rights offering’s dilution and change in PEWC ownership, and the effect of continued absence of APWC dividends.
- Progress on PCAOB inspection-related listing requirements and any material subsequent changes in COVID-19, copper prices, or foreign-exchange exposures.