Asia Pacific Wire & Cable Corporation Limited — FY2011 Form 20-F
Reporting period: Year ended December 31, 2011; filed April 30, 2012. This is an annual report, not a standalone fourth-quarter filing. Amounts below are in U.S. dollars unless stated otherwise. The company manufactures and distributes telecommunications and power cable and enameled wire, and provides supply, delivery and installation services across Asia-Pacific.
Key financial results
| Metric | FY2011 | FY2010 |
|---|---|---|
| Net sales | $471.9 million | $446.6 million |
| Gross profit / margin | $43.9 million / 9.3% | $57.0 million / 12.8% |
| Operating income | $1.9 million | $28.7 million |
| Income (loss) from continuing operations | $(3.9) million | $25.4 million |
| Net income (loss) attributable to APWC | $(5.4) million | $14.1 million |
| EPS attributable to APWC | $(0.39); continuing operations $(0.49) | $1.02 |
| Cash from operating activities | $22.6 million | $(2.6) million |
| Cash used in investing activities | $(13.9) million | $(6.4) million |
| Cash and cash equivalents at year-end | $76.7 million | $63.2 million |
| Working capital | $171.0 million | $170.7 million |
| Total debt | $54.5 million | $69.1 million |
| Total assets / APWC shareholders’ equity | $337.3 million / $146.5 million | $386.9 million / $153.2 million |
FY2011 operating cash flow improved with a $34.1 million reduction in receivables; days sales outstanding improved to 92 from 102. Capital expenditures were $8.9 million. Cash flow from financing activities was $5.6 million. The filing reports $14.6 million in short-term deposits, including $12.0 million restricted; these are additional to cash and cash equivalents.
Changes versus FY2010
- Sales rose 5.7%, but gross profit fell 23.0% and gross margin declined 3.5 percentage points. Management attributed margin pressure to copper costs rising faster than selling prices and lower factory utilization.
- Power cable sales grew 35.3%; enameled wire sales fell 1.3% and telecommunications cable sales fell 36.4%. Singapore supply, delivery and installation revenue decreased 28.1%; distributed product revenue decreased 5.3%.
- Operating income fell sharply, including an $8.8 million goodwill impairment and $3.9 million in Thailand flood-related charges. The company also recorded a $2.0 million inventory impairment in cost of sales.
- SPFO, a China fiber-optic cable business, was sold in December for approximately $2.9 million cash; the company reported a $2.0 million gain in discontinued operations. Total net loss was $3.1 million, compared with net income of $25.4 million in 2010.
Outlook, risks and unusual items
- Loan covenant default: CCH HK breached certain financial covenants and APWC breached a non-financial covenant under a Bangkok Bank facility. The $14 million cash loan was classified as current because it could become callable on demand if the bank declared default. Waiver and amendment negotiations remained ongoing at the report date.
- Thailand flooding: Siam Pacific suspended operations for about five months. Flood charges were $3.9 million; insurance covered certain physical damage but not business interruption, and the recovery amount was undetermined. Management expected full production to resume in Q2 2012.
- Market and raw-material risks: Copper prices fell sharply late in 2011, prompting delayed or reduced customer orders and inventory write-downs. Management cautioned that the uncertain global economy made near-term trends difficult to forecast.
- Commercial outlook: Singapore subsidiary Sigma Cable was awarded three supply, delivery and installation contracts valued at approximately $87 million in total, with work extending over three years. This is a contract announcement, not company-wide financial guidance.
- Controls and audit: Management concluded internal control over financial reporting and disclosure controls were ineffective at year-end due to a material weakness involving complex transactions, revenue recognition, tax, inventory and intercompany balances. Remediation was planned for 2012. The auditor gave an unqualified opinion on the financial statements, but did not audit or opine on internal-control effectiveness. The Hong Kong-based auditor was not subject to PCAOB inspection.
- Other risks include copper and foreign-exchange volatility, reliance on PEWC for copper rods, regional economic and political conditions, limited share trading liquidity, and controlling-shareholder influence. APWC reported no material off-balance-sheet arrangements and no material legal proceedings. It has not paid dividends and did not expect to pay them in the foreseeable future.
Investor facts to verify
- Confirm the status of the Bangkok Bank covenant waivers, any default declaration, and the loan’s current classification and repayment terms.
- Track remediation of the material weakness, particularly controls over bill-and-hold and consignment revenue, tax, inventory impairment and consolidation.
- Verify the flood-insurance claim outcome, restart progress and actual operating impact at Siam Pacific.
- Assess whether copper prices, selling-price pass-through and factory utilization support a recovery in gross margin; review inventory valuation and subsequent write-backs or charges.
- Monitor execution, timing, margins and cash requirements for the approximately $87 million Singapore contracts, and construction and funding at Ningbo Pacific.