Business context and reporting period
Asia Pacific Wire & Cable Corporation Limited (APWC) filed this Form 20-F for the fiscal year ended December 31, 2012; it is an annual report, not a standalone fourth-quarter report. APWC manufactures and distributes telecommunications and power cable, enameled wire and electronic wire, and provides cable installation services, principally in Thailand, China, Singapore and Australia. The audited consolidated financial statements use U.S. GAAP and report amounts in U.S. dollars.
Key financial metrics
Unless noted otherwise, amounts below are in millions of U.S. dollars. Per-share figures are in dollars.
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Net sales | 462.3 | 471.9 |
| Gross profit / gross margin | 51.8 / 11.2% | 43.9 / 9.3% |
| Operating profit | 23.6 | 1.9 |
| Income (loss) from continuing operations | 18.9 | (3.9) |
| Net income (loss) attributable to APWC shareholders | 10.9 | (5.4) |
| Basic and diluted EPS | 0.79 | (0.39) |
| Net cash provided by operating activities | 11.6 | 22.6 |
| Cash and cash equivalents at year-end | 72.8 | 76.7 |
| Working capital | 183.7 | 171.0 |
| Total assets | 389.4 | 337.3 |
| Total APWC shareholders’ equity | 161.7 | 146.5 |
| Total debt, as presented in selected financial data | 59.6 | 54.5 |
Year-end cash equivalents exclude short-term bank deposits: APWC also reported $6.2 million unrestricted and $11.2 million restricted deposits. Bank loans and overdrafts, including trust receipts, were $57.8 million; the $59.6 million selected-data debt figure also includes a $1.7 million short-term holding-company loan. The weighted-average borrowing rate was 3.4%. APWC reported $336.1 million of total credit facilities, of which $227.1 million was unused.
Material changes versus the prior comparable period
- Revenue declined 2.1%. Manufactured-product sales fell 6.6% to $401.0 million; distributed-product sales rose to $54.8 million from $25.5 million, while supply, delivery and installation revenue fell 62% to $6.4 million.
- Gross profit increased 18%, and gross margin improved to 11.2%. Higher power-cable margins and the release of prior inventory write-downs contributed; enameled-wire sales and margins weakened.
- Operating profit rose to $23.6 million from $1.9 million, and APWC returned to attributable net income. The comparison includes significant unusual and prior-year items, so the improvement should not be read as solely reflecting recurring operations.
- Operating cash flow fell to $11.6 million from $22.6 million. Receivables increased to $125.1 million from $98.3 million, while reported days sales outstanding improved slightly to 91 from 92 days.
- Year-end debt increased by about $5.0 million. Cash equivalents declined by $3.9 million, while working capital and total assets increased.
Outlook, commentary, risks and unusual items
- Management outlook: APWC provided no quantified earnings or revenue guidance. It said forecasting was highly uncertain and cautioned against relying on near-term trend projections. Management believed cash, operating cash generation and available facilities would be adequate for requirements through at least the next 12 months.
- Unusual earnings items: APWC recognized $4.8 million of insurance recovery for Siam Pacific’s 2011 Thailand flood losses, including $3.5–$3.6 million received during 2012 and a balance expected afterward. It also recorded $0.9 million of further flood-related repair charges. A $4.8 million inventory-impairment recovery was included in gross profit, and a $2.1 million reversal of accrued rebates related to 2008–2011 was reported as a change in estimate. In 2011, APWC recorded an $8.8 million goodwill impairment and $3.9 million of flood-related charges.
- Markets and operating risks: Copper averaged $7,950 per metric ton in 2012, down 9.9% from 2011. Lower prices and customer order delays affected sales and average selling prices. Other key risks include competition, infrastructure spending, economic uncertainty, foreign-exchange movements, and reliance on copper suppliers, including PEWC.
- Liquidity and commitments: APWC classified the Bangkok Bank $14 million term loan as current at year-end and repaid it in full in March 2013. The filing reports $231.7 million of copper purchase obligations, largely due within one year, as well as guarantees and other contractual commitments.
- Control and governance: Management and the auditor identified a material weakness in controls over complex and non-routine transactions, manual consolidation and account-balance reviews; management concluded internal control over financial reporting was ineffective at December 31, 2012. Remediation began in 2013. APWC is controlled by PEWC, which held 65.6% of the shares, and relies on Nasdaq’s controlled-company exemption.
- Other matters: The board approved disposal of APWC’s 48.73% interest in Shandong Huayu; completion and receipt of proceeds were expected in 2013. The company reported no material legal proceedings. It had never paid dividends and did not expect to pay them in the foreseeable future.
Important facts for investors to verify
- How much of FY 2012’s profit improvement is repeatable after the flood-insurance recovery, inventory-impairment recovery and rebate-estimate reversal?
- Whether the 2013 control-remediation measures addressed the disclosed material weakness, and whether later filings report any further deficiencies or adjustments.
- Availability and terms of credit facilities, covenant compliance, post-year-end repayment of the Bangkok Bank loan, and the extent to which cash and deposits are restricted or held in operating subsidiaries.
- Collection of the enlarged receivables balance, inventory levels, copper-price exposure, and the ability to pass raw-material cost changes through to customers.
- Progress and funding needs for planned factory and equipment investments, including the substantial copper purchase obligations and guarantees.
- Whether the planned Shandong Huayu disposal was completed on the expected terms, and the potential implications of PEWC’s control, share liquidity and related-party arrangements.