Asia Pacific Wire & Cable Corporation Limited — FY 2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing. Figures below are in US$ millions unless stated otherwise; the financial statements follow IFRS as issued by the IASB.
Business context and financial performance
APWC is a Bermuda holding company whose operating subsidiaries manufacture and distribute power and telecommunications cables, enameled and electronic wires, and provide project engineering services, principally in Thailand, China, Singapore and Australia. PEWC, its Taiwanese majority shareholder, owns approximately 75.4%.
| Metric | FY 2018 | FY 2017 | Change |
|---|---|---|---|
| Revenue | $425.940 | $425.215 | +0.2% |
| Gross profit / gross margin | $36.248 / 8.5% | $39.688 / 9.3% | Gross profit −8.7% |
| Operating profit | $8.684 | $16.615 | −47.7% |
| Profit before tax | $11.332 | $18.668 | −39.3% |
| Net profit | $7.446 | $13.528 | −45.0% |
| Profit attributable to APWC shareholders | $2.928 | $8.720 | −66.4% |
| Basic and diluted EPS | $0.21 | $0.63 | −66.7% |
| Operating cash flow | $40.649 | $(16.424) | Improved |
| Capital expenditure | $4.441 | $4.903 | −9.4% |
Cash and cash equivalents were $60.778 million at year-end, compared with $46.093 million in 2017. Total debt was $24.814 million, down from $41.151 million; all reported bank loans and borrowings were current. Working capital was $182.410 million, total assets $305.798 million, and total equity $221.816 million. The company reported $182.361 million of unused credit facilities within total facilities of approximately $275.334 million. Net cash from investing activities was $(4.818) million and net cash used in financing was $(19.578) million; cash increased by $14.685 million overall. The average borrowing rate was 3.68%.
Cash generation benefited from reductions in receivables and inventory. Trade receivables fell to $79.617 million from $112.403 million and inventories to $83.925 million from $97.205 million. The company reported days sales outstanding of 82 days, unchanged year over year.
Material changes versus FY 2017
- Revenue was nearly flat, but higher copper costs and limited ability to pass them fully through amid competition reduced gross profit and margin. Average LME copper prices rose 5.87%, from $6,163 to $6,525 per metric ton.
- Operating profit declined partly because 2017 included approximately $4.525 million of gain from the sale of Ningbo assets. Regional results also weakened in ROW: it moved from $1.205 million operating profit to a $2.306 million operating loss, with Sigma Cable pressured by Chinese imports. Thailand operating profit declined to $9.539 million from $11.053 million; North Asia improved to $5.234 million from $3.256 million.
- Foreign-exchange gains declined to $1.741 million from $2.784 million. Other income rose to $1.817 million, including $1.537 million from discharge of a related-party liability. Other operating income fell to $0.805 million from $5.084 million.
- Operating cash flow swung to a substantial inflow, while debt declined. Cash used in financing primarily reflected repayment of borrowings and dividends.
Outlook, risks, contingencies and unusual items
Management provided no numerical earnings or revenue guidance. It said it expects liquidity from operating cash flow, cash on hand and available facilities to cover requirements for at least the next 12 months. Management is continuing efforts to collect receivables, manage inventory and raw-material purchases, negotiate supplier costs and control operating expenses. It anticipates modest near-term Singapore demand for medium- and high-voltage cable projects and is seeking alternative opportunities to grow project-engineering activity.
- Key operating risks: Copper-price volatility, intense pricing competition, customer investment and infrastructure demand, and currency movements. Copper represented about 85% of product cost in 2018; the company generally seeks to pass copper price changes through to customers, but may not do so fully or promptly.
- Geographic and regulatory risks: Political and economic uncertainty in Thailand; China market and real-estate conditions, power supply and regulatory developments; foreign-exchange controls and restrictions on distributions from subsidiaries. The company also identified uncertainty around implementation of China’s Foreign Investment Law.
- Concentration and governance: Thailand generated 50.1% of segment sales. PEWC controls the company and supplies copper, products and research and development under a related-party services agreement. Most directors are affiliated with PEWC; APWC relies on Nasdaq’s controlled-company exemption.
- Liquidity and commitments: $176.180 million of minimum copper-cathode purchase commitments were disclosed, principally due within one year. The company also reported $36.9 million of outstanding bank guarantees for Charoong Thai performance bonds and a corporate guarantee of up to $24.3 million for Sigma Cable facilities and performance bonds. These are not equivalent to funded debt.
- Other notable items: The company recorded a $1.613 million inventory allowance, a $0.749 million write-off of other current assets, and a $0.570 million trade-receivable impairment charge in 2018. It paid a $0.08-per-share dividend. A Taiwan renewable-energy initiative remained at development stage and had generated no revenue.
- Accounting and control matters: IFRS 9 and IFRS 15 were adopted in 2018; comparative periods were not restated. Management concluded disclosure controls and internal control over financial reporting were effective at year-end. The filing also describes a prior restatement related to inaccurate foreign-exchange rates used for accrued liabilities and warns that weaknesses could recur. The auditor issued an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.
- Audit oversight and legal matters: APWC disclosed that PCAOB inspections of its auditors’ China affiliates were not permitted at the time of filing. It reported no material pending legal proceedings. Bermuda’s inclusion on an EU non-cooperative tax-jurisdiction list was noted; potential consequences were uncertain and no sanctions had been issued.
Important facts for investors to verify
- Review the audited statements and notes for the composition and sustainability of the 2018 operating cash-flow improvement, including working-capital movements.
- Assess whether copper-cost pass-through, inventory valuation and competitive pressures can support gross margins, particularly in ROW and Thailand.
- Confirm the status and terms of credit facilities, current debt maturities, guarantees, letters of credit and copper purchase commitments.
- Evaluate the related-party relationship with PEWC, including supply terms, services, governance conflicts and the $1.537 million liability discharge recorded as other income.
- Monitor subsidiary cash-distribution restrictions, the sustainability of dividends, and the progress, funding and potential returns of the renewable-energy initiative.
- Consider the prior financial-statement restatement, the absence of auditor internal-control attestation, and the disclosed limitations on PCAOB inspection of China audit affiliates.