Business context and reporting period
Asia Pacific Wire & Cable Corporation Limited (APWC) filed this Form 20-F for the fiscal year ended December 31, 2019. The company manufactures and distributes power and telecommunications cables, enameled and electronic wire, and provides cable installation services, primarily in Thailand, China, Singapore and Australia. The filing reports annual results, not separate 2019 fourth-quarter results.
Financial statements are audited and prepared under IFRS as issued by the IASB. Amounts below are in US$ millions unless noted.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $338.2 | $425.9 |
| Gross profit / margin | $24.8 / 7.3% | $36.2 / 8.5% |
| Operating profit (loss) / margin | $(0.6) / (0.2)% | $8.7 / 2.0% |
| Profit (loss) for the year | $(1.0) | $7.4 |
| Net income (loss) attributable to APWC shareholders | $(1.6) | $2.9 |
| Basic and diluted EPS | $(0.12) | $0.21 |
| Cash from operating activities | $15.1 | $40.6 |
| Capital expenditures | $5.4 | $4.4 |
| Cash and cash equivalents | $53.7 | $60.8 |
| Working capital | $185.9 | $182.4 |
| Bank loans and borrowings | $11.4 | $24.8 |
| Total assets / total liabilities | $298.9 / $70.5 | $305.8 / $84.0 |
Gross margin fell to about 7.3% from 8.5%. Cash and operating cash flow declined year over year, while reported bank borrowings decreased. IFRS 16 adoption resulted in $3.7 million of right-of-use assets and $2.8 million of lease liabilities at year-end; these are separate from the reported bank-loan balance. The company reported $207.9 million of unused credit facilities and a weighted-average borrowing rate of 3.72% for 2019. Management stated liquidity was sufficient for anticipated needs through at least the next 12 months.
Material changes versus the prior comparable period
- Revenue declined 20.6%, gross profit declined 31.6%, and operating results moved from an $8.7 million profit to a $0.6 million loss. APWC reported a $1.0 million consolidated net loss, versus $7.4 million net profit in 2018.
- Sales fell in all regions: North Asia to $76.6 million (down 26.1%), Thailand to $172.4 million (down 19.2%), and ROW to $89.2 million (down 18.1%). Management cited US-China trade tensions and lower sales volume in North Asia, delayed deliveries requested by a major client in Thailand, and intense competition in ROW.
- Segment operating profit weakened in North Asia and Thailand; ROW continued to report an operating loss. Management attributed lower margins to sales mix, competition, lower selling prices, unit costs, and severance costs associated with restructuring Shanghai Yayang.
- Average LME copper prices decreased 8.0%, from $6,525 to $6,005 per metric ton. Management said lower copper prices, market slowdown and competition contributed to the gross-profit decline; copper represented about 82% of product cost.
- Operating cash flow decreased to $15.1 million from $40.6 million, primarily due to lower sales. Cash used in financing activities was $17.9 million, chiefly reflecting debt repayment. No dividend was paid to APWC shareholders for 2019; a $0.08-per-share dividend had been paid in 2018.
Outlook, commentary, risks and unusual items
- Outlook: No quantified revenue or earnings guidance is provided. Management expects cash from operations, cash on hand and available facilities to fund requirements for at least 12 months, but cautions that COVID-19 makes future effects difficult to estimate.
- COVID-19: Subsequent to year-end, China facilities operated below normal production and had not fully recovered; Singapore operations continued with reduced on-site staffing under government restrictions. The filing warns of potential lower demand, disrupted supply and production, and reduced copper inventory values.
- Nasdaq listing: Nasdaq notified APWC in November 2019 that it did not meet the $5 million minimum market value of publicly held shares requirement for the Global Market. The compliance period was tolled through June 30, 2020; the filing stated APWC had until August 3, 2020 to regain compliance. Its publicly held share market value was approximately $3.6 million on April 22, 2020. Delisting could reduce liquidity and complicate share transfers under Bermuda rules.
- Concentration and control: PEWC beneficially owns approximately 75.4% of APWC and supplies copper, technology and other services under a related-party agreement. APWC effectively owned 50.93% of Charoong Thai, which generated approximately 51% of 2019 sales. Loss of control of that subsidiary could materially reduce consolidated revenue and assets.
- Commitments and contingencies: The contractual-obligations table reports $290.4 million of minimum copper-cathode purchase obligations, all due within one year, and $5.8 million of capital commitments. Separately, the notes describe raw-material purchase commitments in a range of $200–290 million. The company also reported $38.5 million of outstanding bank guarantees for performance bonds and a $24.7 million corporate guarantee for Sigma Cable facilities.
- Other notable items: APWC recorded $0.5 million of property, plant and equipment impairment, including impairment associated with Shanghai Yayang and other facilities. Shanghai Yayang stopped manufacturing by late October 2019 and was restructured as a trading company. APWC reported no material pending legal proceedings. The independent auditor gave an unqualified IFRS opinion; management concluded disclosure controls and internal control over financial reporting were effective, but auditor attestation on internal controls was not included.
- Key risks: Copper-price volatility and inventory valuation; customer and infrastructure-project demand; foreign-exchange exposure; competition; debt covenants and credit renewal; restrictions on subsidiary distributions; labor, regulatory and political risks in operating markets; and limited insurance coverage. The company does not carry product-liability or business-interruption insurance, and lacks business-liability/disruption insurance in China and flood/business-interruption coverage in Thailand.
Important facts for investors to verify
- Review the full audited statements and notes for cash-flow reconciliation, IFRS 16 effects, working-capital movements, and the difference between bank debt and lease liabilities.
- Confirm the status of the copper purchase commitments, including timing, pricing terms, and the differing commitment disclosures in the filing.
- Monitor COVID-19 impacts on production, customer demand, copper inventory values, and the company’s ability to convert orders and commitments into cash.
- Check APWC’s subsequent Nasdaq listing status and any resulting effects on trading liquidity and transferability of shares.
- Assess concentration and related-party exposure, including PEWC’s control and supply relationship, and APWC’s ability to retain control of Charoong Thai.
- Evaluate whether subsidiaries can distribute cash to the holding company and whether available credit facilities remain renewable and accessible under their covenants.