UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, |
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-14542
ASIA PACIFIC WIRE & CABLE
CORPORATION LIMITED
(Exact name of Registrant as specified in its charter)
Bermuda
(Jurisdiction of incorporation or organization)
7/15/Fl. B, No. 132,77, Sec. 32
Min-Sheng EastDunhua South Road
Taipei, 105,106, Taiwan
Republic of China
(Address of principal executive offices)
Ivan Hsia
15/Fl. B, No. 77, Sec. 2
Dunhua South Road
Taipei, 106, Taiwan
Republic of China
Tel: +886-2-27122558
Email: ivan.hsia@apwcc.com
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| ||
Common Shares, par value 0.01 per share | APWC | NASDAQ |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
13,819,669 Common Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐Yes ☒ ☐No☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes
☐ No Yes ☒No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒Yes ☐ ☒No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒Yes ☐☒ No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and large accelerated filer”“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer ☐Accelerated filer ☐Non-accelerated filer ☒Emerging growth company☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐
International Financial Reporting Standards as issued by the International Accounting Standards Board ☒
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes.
☐Yes ☒ No ☒
CERTAIN DEFINITIONS AND CONVENTIONS
Asia Pacific Wire & Cable Corporation Limited (“APWC”), the registrant, together with its subsidiaries, is referred to herein as “the Company,” “we,” “our,” or “us” unless designated or identified otherwise.
Unless otherwise specified, all references in this Annual Report to “Thailand” are to the Kingdom of Thailand, all references to “Singapore” are to The Republic of Singapore, all references to “Taiwan” are to Taiwan, The Republic of China, all references to “China” or to the “PRC” are to The People’s Republic of China (for the purpose of this Annual Report, excluding Hong Kong and Macau), all references to “Australia” are to the Commonwealth of Australia and all references to the “United States” or “U.S.” are to the United States of America.
Most measurements in this Annual Report are given according to the metric system. Standard abbreviations of metric units (e.g., “mm” for millimeter) have been employed without definitions. All references in this Annual Report to “tons” are to metric tons, which are equivalent in weight to 2,204.6 pounds.
With respect to measurements relating to the manufacture of wire and cable products, references to “pkm” are to kilometers of twisted pairs of copper wires.
Dollar amounts in this Annual Report are expressed in thousands ($000), except where otherwise indicated or with respect to earnings per share.
Unless otherwise specified, all references in this Annual Report to “$,” “U.S. dollars”, “USD” or “US$” are to United States dollars, the legal tender currency of the United States; all references to “Bt,” “Thai Baht” or “Baht” are to Baht, the legal tender currency of Thailand; all references to “Sing$” or “S$” are to Singapore dollars, the legal tender currency of Singapore; all references to “A$” or “AU$” are to Australian dollars, the legal tender currency of Australia; and all references to “RMB” are to Chinese Renminbi, the legal tender currency of China.
All references to “outstanding” in respect of APWC’s Common Shares shall mean that such Common Shares have been issued by APWC and are not registered in APWC’s register of members as treasury shares.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in thisThis Annual Report on Form 20-F contain somecontains forward-looking statements.statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current beliefs or expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Such statements may include words such as “anticipate,” “estimate,” “expect,” “intend,” “plan,” “believe”, “may”, “should”, “likely”, “seeks” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance.
Such statements are not promises or guarantees and are subject to a number of known and unknown risks and uncertainties that could cause our future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include our ability to maintain and develop market share for our products; global, regional or national economic and financial conditions, the global drop in demand for and the pricing of commodities, including copper, our principal raw material, and their individual or collective impact on demand for our products and services; the introduction of competing products or technologies; the volatility of share prices on major securities exchanges throughout the world, our inability to successfully identify, consummate and integrate acquisitions; our potential exposure to liability claims; the uncertainty and volatility of the markets in which we operate; changes in laws or regulations applicable to the Company in the markets in which we conduct business; the availability and price of copper, our principal raw material; our ability to negotiate extensions of labor agreements on acceptable terms and to successfully deal with any labor disputes; our ability to service and meet all requirements under our debt, and to maintain adequate credit facilities and credit lines; in certain markets, our ability to compete effectively with state-owned enterprises (“SOEs”), which may receive governmental subsidies to enhance results or receive preferred vendor status in state controlled projects; our ability to make payments of interest and principal under our existing and future indebtedness; our ability to increase manufacturing capacity and productivity; the fact that we have operations outside the United States that may be materially and adversely affected by acts of terrorism, war and political and social unrest, or major hostilities; exposure to political and economic developments, crises, instability, terrorism, civil strife, expropriation and other risks of doing business in foreign markets; economic consequences arising from natural disasters and other similar catastrophes, such as floods, earthquakes, hurricanes and tsunamis; the fact that Asia Pacific Wire & Cable Corporation Limited (“APWC” or the “Company”)APWC is a holding company that depends for income upon distributions from operating subsidiaries, most of which are not wholly-owned and for which there may be restrictions on the timing and amount of distributions; price competition and other competitive pressures; the impact of climate change on our business and operations and on our customers; tax inefficiencies associated with our cross-border operations, including without limitation, limitations on our ability to utilize net losses within our group of companies for income tax purposes; fluctuations in currency, exchange and interest rates, operating results and the impact of technological changes and other factors that are discussed in this report and in our other filings made with the Securities and Exchange Commission (the “SEC” or the “Commission”).
In particular, these statements include, among other things, statements relating to:
our business strategy;
our prospects for future revenues and profits in the markets in which we operate;
the impact of political, legal or regulatory changes or developments in the markets in which we do business;
our dependence upon the level of business activity and investment by our customers for the generation of our sales revenue;
our reliance on our majority shareholder for research and development relating to our product lines
the fact that ourAPWC’s common shares (the “Common Shares”) are traded on a national exchange in the United States;States and the relative liquidity or lack thereof, based upon the historical trading volume of our publicly-traded Common Shares;
our dependence on a limited number of suppliers for our raw materials and our vulnerability to fluctuations in the cost of our raw materials; and
the liquidity generally of our liquidity.property and assets.
We undertake no obligation to update any forward-looking statements or other information contained in this Annual Report, whether as a result of new information, future events or otherwise, except as required by law. You are advised, however, to consult any additional disclosures we make in our filings with the SEC. Also note that we provide a cautionary discussion of risks and uncertainties under the “Risk Factors” section of this Annual Report. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed there could also adversely affect us.
This discussion is permitted by the Private Securities Litigation Reform Act of 1995.
Unless otherwise specified, all references in this Annual Report to “Thailand” are to the Kingdom of Thailand, all references to “Singapore” are to The Republic of Singapore, all references to “Taiwan” are to Taiwan, The Republic of China, all references to “China” and to the “PRC” are to The People’s Republic of China (for the purpose of this Annual Report, excluding Hong Kong and Macau), all references to “Australia” are to the Commonwealth of Australia and all references to the “U.S.” are to the United States of America.
Most measurements in this Annual Report are given according to the metric system. Standard abbreviations of metric units (e.g., “mm” for millimeter) have been employed without definitions. All references in this Annual Report to “tons” are to metric tons, which are equivalent in weight to 2,204.6 pounds.
With respect to measurements relating to the manufacture of wire and cable products, references to “pkm” are to kilometers of twisted pairs of copper wire.
Dollar amounts in this Annual Report are expressed in thousands ($000), except where otherwise indicated or with respect to earnings per share.
Part I
Item 1: | Identity of Directors, Senior Management and Advisers |
(Not applicable)applicable
|
|
(Not applicable)applicable
Item 3: | Key Information |
|
| Selected Consolidated Financial Data |
The following selected consolidated financial data is derived from the consolidated financial statements of the Company for the years ended December 31, 2020, 2019, 2018, 2017, 2016, 2015, 2014 and 2013,2016, prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The selected data set forth below should be read in conjunction with, and is qualified in its entirety by, the discussion in “Item 5:5. Operating and Financial Review and Prospects” and the consolidated financial statements and the notes thereto includedreferenced in “Item 18:18. Financial Statements.”
| For the Year Ended December 31, |
| |||||||||||||
| 2020 |
| 2019 (3) |
| 2018 (2) |
| 2017 |
| 2016 |
| |||||
| (in US$ thousands, except for earnings per share) |
| |||||||||||||
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue | $ | 313,564 |
| $ | 338,160 |
| $ | 425,940 |
| $ | 425,215 |
| $ | 384,565 |
|
Costs of sales |
| (279,686 | ) |
| (313,373 | ) |
| (389,692 | ) |
| (385,527 | ) |
| (352,957 | ) |
Gross profit |
| 33,878 |
|
| 24,787 |
|
| 36,248 |
|
| 39,688 |
|
| 31,608 |
|
Other operating income |
| 814 |
|
| 385 |
|
| 805 |
|
| 5,084 |
|
| 5,441 |
|
Selling, general & administrative expenses |
| (27,006 | ) |
| (25,051 | ) |
| (26,924 | ) |
| (27,248 | ) |
| (26,325 | ) |
Other operating expenses |
| (129 | ) |
| (770 | ) |
| (1,445 | ) |
| (909 | ) |
| (3,386 | ) |
Operating profit/(loss) |
| 7,557 |
|
| (649 | ) |
| 8,684 |
|
| 16,615 |
|
| 7,338 |
|
Finance costs |
| (744 | ) |
| (1,012 | ) |
| (1,378 | ) |
| (1,221 | ) |
| (1,147 | ) |
Finance income |
| 320 |
|
| 506 |
|
| 482 |
|
| 876 |
|
| 1,045 |
|
Share of loss of associates |
| (1 | ) |
| (3 | ) |
| (3 | ) |
| (3 | ) |
| (710 | ) |
Impairment of investment in associates |
| — |
|
| — |
|
| — |
|
| — |
|
| (126 | ) |
Loss on liquidation of a subsidiary |
| — |
|
| — |
|
| — |
|
| (261 | ) |
| — |
|
Exchange (loss)/gain |
| (579 | ) |
| 1,550 |
|
| 1,741 |
|
| 2,784 |
|
| (38 | ) |
Other income |
| 1,173 |
|
| 717 |
|
| 1,817 |
|
| 214 |
|
| 267 |
|
Other expense |
| (1 | ) |
| (3 | ) |
| (11 | ) |
| (336 | ) |
| (94 | ) |
Profit before taxes |
| 7,725 |
|
| 1,106 |
|
| 11,332 |
|
| 18,668 |
|
| 6,535 |
|
Income taxes expense |
| (4,016 | ) |
| (2,057 | ) |
| (3,886 | ) |
| (5,140 | ) |
| (510 | ) |
Profit/(Loss) for the year | $ | 3,709 |
| $ | (951 | ) | $ | 7,446 |
| $ | 13,528 |
| $ | 6,025 |
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of APWC | $ | (552 | ) | $ | (1,632 | ) | $ | 2,928 |
| $ | 8,720 |
| $ | 2,853 |
|
Non-controlling interests | $ | 4,261 |
| $ | 681 |
| $ | 4,518 |
| $ | 4,808 |
| $ | 3,172 |
|
Earnings per share (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss)/profit for the year attributable to equity holders of the parent | $ | (0.04 | ) | $ | (0.12 | ) | $ | 0.21 |
| $ | 0.63 |
| $ | 0.21 |
|
|
| For the Year Ended December 31, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
|
| (in US$ thousands) |
| |||||||||||||||||
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of goods / services |
| $ | 425,215 |
|
| $ | 384,565 |
|
| $ | 389,632 |
|
| $ | 451,327 |
|
| $ | 460,676 |
|
Costs of sales |
|
| (385,527 | ) |
|
| (352,957 | ) |
|
| (366,143 | ) |
|
| (414,583 | ) |
|
| (408,860 | ) |
Gross profit |
|
| 39,688 |
|
|
| 31,608 |
|
|
| 23,489 |
|
|
| 36,744 |
|
|
| 51,816 |
|
Other operating income |
|
| 5,084 |
|
|
| 5,441 |
|
|
| 1,140 |
|
|
| 1,459 |
|
|
| 1,201 |
|
Selling, general & administrative expenses |
|
| (27,248 | ) |
|
| (26,325 | ) |
|
| (27,007 | ) |
|
| (29,510 | ) |
|
| (34,640 | ) |
Other operating expenses |
|
| (909 | ) |
|
| (3,386 | ) |
|
| (332 | ) |
|
| (2,168 | ) |
|
| (196 | ) |
Operating profit/(loss) |
|
| 16,615 |
|
|
| 7,338 |
|
|
| (2,710 | ) |
|
| 6,525 |
|
|
| 18,181 |
|
Finance cost |
|
| (1,221 | ) |
|
| (1,147 | ) |
|
| (1,547 | ) |
|
| (1,697 | ) |
|
| (1,734 | ) |
Finance income |
|
| 876 |
|
|
| 1,045 |
|
|
| 697 |
|
|
| 1,167 |
|
|
| 1,306 |
|
Share of loss of associates |
|
| (3 | ) |
|
| (710 | ) |
|
| (801 | ) |
|
| (338 | ) |
|
| (211 | ) |
Gain on disposal of investment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 232 |
|
Loss on disposal of a subsidiary |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (178 | ) |
|
| — |
|
Impairment of investment in associates |
|
| — |
|
|
| (126 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Loss on disposal of a subsidiary |
|
| (261 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exchange gain (loss) |
|
| 2,784 |
|
|
| (38 | ) |
|
| (4,223 | ) |
|
| (87 | ) |
|
| (1,449 | ) |
Other income |
|
| 214 |
|
|
| 267 |
|
|
| 119 |
|
|
| 104 |
|
|
| 110 |
|
Other expense |
|
| (336 | ) |
|
| (94 | ) |
|
| (180 | ) |
|
| (49 | ) |
|
| (260 | ) |
Income/(loss) from continuing operations before income taxes |
|
| 18,668 |
|
|
| 6,535 |
|
|
| (8,645 | ) |
|
| 5,447 |
|
|
| 16,175 |
|
Income taxes expense |
|
| (5,140 | ) |
|
| (510 | ) |
|
| (466 | ) |
|
| (2,219 | ) |
|
| (5,753 | ) |
Net income/(loss) |
| $ | 13,528 |
|
| $ | 6,025 |
|
| $ | (9,111 | ) |
| $ | 3,228 |
|
| $ | 10,422 |
|
Net income/(loss) attributable to non-controlling interests |
| $ | 4,808 |
|
| $ | 3,172 |
|
| $ | (1,417 | ) |
| $ | 2,194 |
|
| $ | 5,405 |
|
Net income/(loss) attributable to APWC |
|
| 8,720 |
|
|
| 2,853 |
|
|
| (7,694 | ) |
|
| 1,034 |
|
|
| 5,017 |
|
Basic and diluted profit/(loss) per share(1) |
| $ | 0.63 |
|
| $ | 0.21 |
|
| $ | (0.56 | ) |
| $ | 0.07 |
|
| $ | 0.36 |
|
5
| As of December 31, |
| |||||||||||||
| 2020 |
| 2019 (3) |
| 2018 (2) |
| 2017 |
| 2016 |
| |||||
| (in US$ thousands) |
| |||||||||||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 52,237 |
| $ | 53,673 |
| $ | 60,778 |
| $ | 46,093 |
| $ | 48,231 |
|
Working capital |
| 180,323 |
|
| 185,855 |
|
| 182,410 |
|
| 181,752 |
|
| 157,012 |
|
Total assets |
| 338,119 |
|
| 298,911 |
|
| 305,798 |
|
| 334,843 |
|
| 293,596 |
|
Total debts |
| 13,781 |
|
| 11,356 |
|
| 24,814 |
|
| 42,688 |
|
| 29,762 |
|
Net assets |
| 234,875 |
|
| 228,435 |
|
| 221,816 |
|
| 222,826 |
|
| 197,175 |
|
Capital stock |
| 138 |
|
| 138 |
|
| 138 |
|
| 138 |
|
| 138 |
|
Total APWC shareholders’ equity |
| 157,860 |
|
| 153,854 |
|
| 150,028 |
|
| 153,328 |
|
| 135,950 |
|
(1) | The calculation of the earnings per share is based on 13,819,669 |
(2) | Includes the impact of the application of IFRS 9 and IFRS 15. |
(3) | Includes the impact of the application of IFRS 16, as explained in Note 4.1(a) of our consolidated financial statements presented herewith. |
|
| As of December 31, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
|
| (in US$ thousands) |
| |||||||||||||||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 46,093 |
|
| $ | 48,231 |
|
| $ | 51,303 |
|
| $ | 68,863 |
|
| $ | 62,509 |
|
Working capital |
|
| 181,752 |
|
|
| 157,012 |
|
|
| 144,306 |
|
|
| 168,213 |
|
|
| 172,701 |
|
Total assets |
|
| 334,843 |
|
|
| 293,596 |
|
|
| 305,256 |
|
|
| 378,694 |
|
|
| 364,635 |
|
Total debt |
|
| 42,688 |
|
|
| 29,762 |
|
|
| 39,238 |
|
|
| 55,400 |
|
|
| 43,521 |
|
Net assets |
|
| 222,826 |
|
|
| 197,175 |
|
|
| 193,275 |
|
|
| 219,931 |
|
|
| 226,704 |
|
Capital stock |
|
| 138 |
|
|
| 138 |
|
|
| 138 |
|
|
| 138 |
|
|
| 138 |
|
Total APWC shareholders’ equity |
|
| 153,328 |
|
|
| 135,950 |
|
|
| 134,309 |
|
|
| 151,547 |
|
|
| 155,625 |
|
|
|
Unless otherwise specified, all references in this Annual Report to “$,” “U.S. dollars”, “USD” or “US$” are to United States dollars; all references to “Bt,” “Thai Baht” or “Baht” are to Baht, the legal tender currency of Thailand; all references to “Sing$” or “S$” are to Singapore dollars, the legal tender currency of Singapore; all references to “A$” or “AU$” are to Australian dollars, the legal tender currency of Australia; and all references to “RMB” are to Chinese Renminbi, the legal tender currency of China.Exchange Rate Information
2
Unless otherwise noted, for the convenience of the reader, translations of amounts from Baht, Singapore dollars, Renminbi and Australian dollars to U.S. dollars have been made at the respective noon buying rates in New York City for cable transfers in those currencies as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) on December 31, 2017.2020. The respective Noon Buying Rates on December 31, 20172020 were US$ 1.00 = Bt 32.56;30.02; S$ 1.336;1.321; RMB 6.506;6.525; and A$1.280. 1.297. The respective Noon Buying Rates on March 31, 2018,2021, the latest practicable date before publication of this Annual Report, were US$ 1.00 = Bt 31.19;31.25; S$1.311; 1.344; RMB 6.2736.552 and A$ 1.300.1.314. No representation is made that the foreign currency amounts could have been or could be converted into U.S. dollars on these dates at these rates or at any other rates.
Sources: Federal Reserve Bulletin, Board of Governors of the Federal Reserve System. Federal Reserve Statistical Release H.10, from the website of the Board of Governors of the Federal Reserve System at http://www.federalreserve.gov.
Thailand
The Thai Baht is convertible into foreign currencies and is subject to a managed float against a basket of foreign currencies, the most significant of which is the U.S. dollar. The composition of the basket for determining the value of the Baht is not made public by the Bank of Thailand. The following tables set forth, for the periods indicated, certain information concerning the Noon Buying Rate of the Thai Baht. No representation is made that the Baht or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or Baht, as the case may be, at any particular rate or at all.
Year Ended December 31, |
| At Period End |
|
| Average(1) |
|
| High |
|
| Low |
| At Period End |
| Average(1) |
| High |
| Low |
| ||||||||
|
| (Bt per $1.00) |
| (Bt per $1.00) |
| |||||||||||||||||||||||
2013 |
|
| 32.68 |
|
|
| 30.85 |
|
|
| 32.85 |
|
|
| 28.60 |
| ||||||||||||
2014 |
|
| 32.90 |
|
|
| 32.54 |
|
|
| 33.08 |
|
|
| 31.74 |
| ||||||||||||
2015 |
|
| 36.08 |
|
|
| 34.39 |
|
|
| 36.48 |
|
|
| 32.32 |
| ||||||||||||
2016 |
|
| 35.81 |
|
|
| 35.22 |
|
|
| 36.33 |
|
|
| 34.54 |
|
| 35.81 |
|
| 35.22 |
|
| 36.33 |
|
| 34.54 |
|
2017 |
|
| 32.56 |
|
|
| 33.75 |
|
|
| 35.89 |
|
|
| 32.49 |
|
| 32.56 |
| 33.75 |
| 35.89 |
| 32.49 |
| |||
2018 |
| 32.31 |
| 32.27 |
| 33.44 |
| 31.11 |
| |||||||||||||||||||
2019 |
| 29.75 |
| 30.89 |
| 32.26 |
| 29.75 |
| |||||||||||||||||||
2020 |
| 30.02 |
| 31.32 |
| 33.04 |
| 29.79 |
|
(1) | Average means the average of the Noon Buying Rates on the last day of each month during a year. |
6
The high and low exchange rates for the six months preceding the date of this Annual Report were:
Month |
| High |
|
| Low |
| ||
October 2017 |
|
| 33.43 |
|
|
| 33.04 |
|
November 2017 |
|
| 33.17 |
|
|
| 32.55 |
|
December 2017 |
|
| 32.77 |
|
|
| 32.49 |
|
January 2018 |
|
| 32.44 |
|
|
| 31.33 |
|
February 2018 |
|
| 31.84 |
|
|
| 31.27 |
|
March 2018 |
|
| 31.54 |
|
|
| 31.12 |
|
Month | High |
| Low |
| ||
October 2020 |
| 31.56 |
|
| 31.02 |
|
November 2020 |
| 31.13 |
|
| 30.18 |
|
December 2020 |
| 30.27 |
|
| 29.79 |
|
January 2021 |
| 30.14 |
|
| 29.89 |
|
February 2021 |
| 30.46 |
|
| 29.86 |
|
March 2021 |
| 31.30 |
|
| 30.21 |
|
Sources: Federal Reserve Bulletin, Board of Governors of the Federal Reserve System. Federal Reserve Statistical Release H.10, from the website of the Board of Governors of the Federal Reserve System at http://www.federalreserve.gov.
3
The Singapore dollar is convertible into foreign currencies and floats against a trade-weighted basket of foreign currencies, the composition of which is not made public by Singapore’s central bank, the Monetary Authority of Singapore, but of which the U.S. dollar is a component. The following tables set forth, for the periods indicated, certain information concerning the Noon Buying Rate of the Singapore dollar. No representation is made that the Singapore dollar or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or Singapore dollars, as the case may be, at any particular rate or at all.
|
| At Period End |
|
| Average(1) |
|
| High |
|
| Low |
| ||||
|
| (S$ per $1.00) |
| |||||||||||||
2013 |
|
| 1.262 |
|
|
| 1.253 |
|
|
| 1.283 |
|
|
| 1.220 |
|
2014 |
|
| 1.324 |
|
|
| 1.270 |
|
|
| 1.324 |
|
|
| 1.238 |
|
2015 |
|
| 1.417 |
|
|
| 1.378 |
|
|
| 1.434 |
|
|
| 1.317 |
|
2016 |
|
| 1.447 |
|
|
| 1.382 |
|
|
| 1.452 |
|
|
| 1.337 |
|
2017 |
|
| 1.336 |
|
|
| 1.373 |
|
|
| 1.450 |
|
|
| 1.336 |
|
Year Ended December 31, | At Period End |
| Average(1) |
| High |
| Low |
| ||||
| (S$ per $1.00) |
| ||||||||||
2016 |
| 1.447 |
|
| 1.382 |
|
| 1.452 |
|
| 1.337 |
|
2017 |
| 1.336 |
|
| 1.373 |
|
| 1.450 |
|
| 1.336 |
|
2018 |
| 1.362 |
|
| 1.350 |
|
| 1.384 |
|
| 1.304 |
|
2019 |
| 1.345 |
|
| 1.363 |
|
| 1.391 |
|
| 1.345 |
|
2020 |
| 1.321 |
|
| 1.337 |
|
| 1.461 |
|
| 1.321 |
|
(1) | Average means the average of the Noon Buying Rates on the last day of each month during a year. |
The high and low exchange rates for the six months preceding the date of this Annual Report were:
Month |
| High |
|
| Low |
| ||
October 2017 |
|
| 1.367 |
|
|
| 1.351 |
|
November 2017 |
|
| 1.365 |
|
|
| 1.345 |
|
December 2017 |
|
| 1.353 |
|
|
| 1.336 |
|
January 2018 |
|
| 1.336 |
|
|
| 1.304 |
|
February 2018 |
|
| 1.331 |
|
|
| 1.310 |
|
March 2018 |
|
| 1.325 |
|
|
| 1.308 |
|
Month | High |
| Low |
| ||
October 2020 |
| 1.368 |
|
| 1.353 |
|
November 2020 |
| 1.366 |
|
| 1.340 |
|
December 2020 |
| 1.338 |
|
| 1.321 |
|
January 2021 |
| 1.329 |
|
| 1.318 |
|
February 2021 |
| 1.337 |
|
| 1.320 |
|
March 2021 |
| 1.350 |
|
| 1.329 |
|
Sources: Federal Reserve Bulletin, Board of Governors of the Federal Reserve System. Federal Reserve Statistical Release H.10, from the website of the Board of Governors of the Federal Reserve System at http://www.federalreserve.gov.
7
China
The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign currencies, including the conversion rate limitations on capital transfers and through restrictions on foreign trade and other regulatory impediments to the free transferability of capital. The following tables set forth, for the periods indicated, certain information concerning the Noon Buying Rate of the Renminbi. No representation is made that the Renminbi or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all.
Year Ended December 31, |
| At Period End |
|
| Average(1) |
|
| High |
|
| Low |
| At Period End |
| Average(1) |
| High |
| Low |
| ||||||||
|
| (RMB per $1.00) |
| (RMB per $1.00) |
| |||||||||||||||||||||||
2013 |
|
| 6.054 |
|
|
| 6.141 |
|
|
| 6.244 |
|
|
| 6.054 |
| ||||||||||||
2014 |
|
| 6.205 |
|
|
| 6.170 |
|
|
| 6.259 |
|
|
| 6.040 |
| ||||||||||||
2015 |
|
| 6.478 |
|
|
| 6.287 |
|
|
| 6.490 |
|
|
| 6.187 |
| ||||||||||||
2016 |
|
| 6.943 |
|
|
| 6.655 |
|
|
| 6.958 |
|
|
| 6.448 |
|
| 6.943 |
|
| 6.655 |
|
| 6.958 |
|
| 6.448 |
|
2017 |
|
| 6.506 |
|
|
| 6.735 |
|
|
| 6.958 |
|
|
| 6.477 |
|
| 6.506 |
| 6.735 |
|
| 6.958 |
|
| 6.477 |
| |
2018 |
| 6.876 |
| 6.629 |
| 6.974 |
| 6.265 |
| |||||||||||||||||||
2019 |
| 6.962 |
| 6.901 |
| 7.179 |
| 6.682 |
| |||||||||||||||||||
2020 |
| 6.525 |
| 6.888 |
| 7.168 |
| 6.521 |
|
(1) | Average means the average of the Noon Buying Rates on the last day of each month during a year. |
4
The high and low exchange rates for the six months preceding the date of this Annual Report were:
Month |
| High |
|
| Low |
| ||
October 2017 |
|
| 6.653 |
|
|
| 6.571 |
|
November 2017 |
|
| 6.639 |
|
|
| 6.597 |
|
December 2017 |
|
| 6.621 |
|
|
| 6.506 |
|
January 2018 |
|
| 6.526 |
|
|
| 6.284 |
|
February 2018 |
|
| 6.347 |
|
|
| 6.265 |
|
March 2018 |
|
| 6.357 |
|
|
| 6.269 |
|
Month | High |
| Low |
| ||
October 2020 |
| 6.790 |
|
| 6.650 |
|
November 2020 |
| 6.690 |
|
| 6.556 |
|
December 2020 |
| 6.571 |
|
| 6.521 |
|
January 2021 |
| 6.482 |
|
| 6.428 |
|
February 2021 |
| 6.487 |
|
| 6.434 |
|
March 2021 |
| 6.572 |
|
| 6.465 |
|
Sources: Federal Reserve Bulletin, Board of Governors of the Federal Reserve System. Federal Reserve Statistical Release H.10, from the website of the Board of Governors of the Federal Reserve System at http://www.federalreserve.gov.
Australia
The following tables set forth, for the periods indicated, certain information concerning the Noon Buying Rate of the Australian dollar. No representation is made that the Australian dollar or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or Australian dollars, as the case may be, at any particular rate or at all.
Year Ended December 31, |
| At Period End |
|
| Average(1) |
|
| High |
|
| Low |
| At Period End |
| Average(1) |
| High |
| Low |
| ||||||||
|
| (A$ per $1.00) |
| (A$ per $1.00) |
| |||||||||||||||||||||||
2013 |
|
| 1.120 |
|
|
| 1.048 |
|
|
| 1.129 |
|
|
| 0.945 |
| ||||||||||||
2014 |
|
| 1.224 |
|
|
| 1.115 |
|
|
| 1.235 |
|
|
| 1.054 |
| ||||||||||||
2015 |
|
| 1.372 |
|
|
| 1.342 |
|
|
| 1.446 |
|
|
| 1.218 |
| ||||||||||||
2016 |
|
| 1.383 |
|
|
| 1.346 |
|
|
| 1.459 |
|
|
| 1.279 |
|
| 1.383 |
|
| 1.346 |
|
| 1.459 |
|
| 1.279 |
|
2017 |
|
| 1.280 |
|
|
| 1.301 |
|
|
| 1.383 |
|
|
| 1.239 |
|
| 1.280 |
| 1.301 |
| 1.383 |
| 1.239 |
| |||
2018 |
| 1.419 |
| 1.344 |
| 1.425 |
| 1.234 |
| |||||||||||||||||||
2019 |
| 1.423 |
| 1.438 |
| 1.493 |
| 1.373 |
| |||||||||||||||||||
2020 |
| 1.297 |
| 1.448 |
| 1.738 |
| 1.297 |
|
(1) | Average means the average of the Noon Buying Rates on the last day of each month during a year. |
8
The high and low exchange rates for the six months preceding the date of this Annual Report were:
Month |
| High |
|
| Low |
| ||
October 2017 |
|
| 1.305 |
|
|
| 1.268 |
|
November 2017 |
|
| 1.324 |
|
|
| 1.295 |
|
December 2017 |
|
| 1.332 |
|
|
| 1.280 |
|
January 2018 |
|
| 1.278 |
|
|
| 1.234 |
|
February 2018 |
|
| 1.284 |
|
|
| 1.246 |
|
March 2018 |
|
| 1.303 |
|
|
| 1.269 |
|
Month | High |
| Low |
| ||
October 2020 |
| 1.427 |
|
| 1.382 |
|
November 2020 |
| 1.419 |
|
| 1.359 |
|
December 2020 |
| 1.360 |
|
| 1.297 |
|
January 2021 |
| 1.306 |
|
| 1.284 |
|
February 2021 |
| 1.318 |
|
| 1.257 |
|
March 2021 |
| 1.321 |
|
| 1.278 |
|
Sources: Federal Reserve Bulletin, Board of Governors of the Federal Reserve System. Federal Reserve Statistical Release H.10, from the website of the Board of Governors of the Federal Reserve System at http://www.federalreserve.gov.
|
|
|
Not applicable
3.c. | Reasons for the Offer and Use of Proceeds |
Not applicable.
3.d. | Risk Factors |
You should carefully consider the following risks before you decide to buy ourin connection with any investment in the Company, including any investment in the Common Shares. If any one of these risks or uncertainties were to occur,occurs, our business, financial condition and results and performanceof operations could be seriously harmed and/or the price of our Common Shares might significantly decrease.materially and adversely affected. The risks and uncertainties described in this Annual Report on Form 20-F are not the only ones facing us. Additional risks and uncertainties that currently are not known to us or that we currently believe are immaterialnot material also may adversely affect our businesses,business, financial condition and results of operations.
Risks Relating to Our Business
COVID-19 Could Have a Material Adverse Effect on Our Business, Financial Condition and Results of Operations
The outbreak of the Coronavirus Disease 2019 (“COVID-19”), which has been declared by the World Health Organization to be a “public health emergency of international concern,” has spread across the globe and is impacting worldwide economic activity and financial markets. We are facing significant adverse risks related to the spread of COVID-19, and the recent developments surrounding the global pandemic have had, and are expected to continue to have, significant adverse effects on our business, financial condition, results of operations, and cash flows. As a result, COVID-19 could have a material and adverse effect on our business, financial condition, (financial or otherwise)and results of operations.
Our manufacturing and production have been affected by the outbreak of COVID-19. COVID-19 has affected and disrupted our operations and the valueoperations of any investmentour suppliers, customers, and other business partners, including as a result of travel restrictions, business shutdowns, and other COVID-19 containment measures. A slowdown in economic activity as a result of COVID-19 has also resulted in, and could continue to result in, a reduction in demand for our Common Shares.products.
5Due to the measures instituted in China in response to COVID-19, our China production facilities had been operating below normal production levels in the first half of 2020. Although our production in China has recovered, there can be no assurance that it will not decrease again as a result of COVID-19.
9
Disclosure ControlsThe Singapore government implemented a partial lockdown, also known as a circuit breaker, from April 7, 2020 to June 1, 2020. During this circuit breaker period, we were permitted to continue to operate with reduced on site staff, and Proceduresapproximately half of the employees of our Singapore operation worked from home while the remaining employees continued to work on-site. Although the Singapore government eased some of the circuit breaker measures after June 1, 2020, we cannot predict whether the Singapore government will again institute measures requiring businesses to close or reduce on-site staff, or if it will institute other measures in response to COVID-19 that could have a material adverse effect on our business, financial condition or results of operations. COVID-19 has had, and Internal Control over Financial Reporting
Our management is responsible for establishingexpected to continue to have, a negative impact on our business in Singapore. In addition, COVID-19 has delayed the fulfillment of contracts with our customers, causing negative impacts on our cash flow and maintaining adequate internal control over financial reporting, as defined under Rule 13a-15(f) under the Securities Exchange Actliquidity. If we are not able to expand or extend lines of 1934 (the “Exchange Act”).credit from banks, we may negotiate business terms with our suppliers to meet our liquidity needs in Singapore, which could cause an increase in financing costs.
The Company’s evaluationimpact of COVID-19 is constantly changing. Our operations in Thailand and Australia could be materially and adversely affected if an outbreak recurs in these regions. Although we are monitoring the situation, the extent to which COVID-19 impacts our business will depend on future developments, which are uncertain and unpredictable in nature.
We are facing increased operational challenges as we take measures to support and protect employee health and safety as a result of COVID-19. For example, in order to protect the employees from COVID-19, the Company has taken measures to protect its internal controls overemployees, including temperature checks before entering the workplace, mandatory mask-wearing, social distancing, and work from home. We have also implemented staggered work hours to lower the risk that our employees might get infected on public transportations if they commute during peak hours. In particular, our remote work arrangements, coupled with stay-at-home orders and quarantines, pose challenges to our employees and our IT systems, and the extension of remote work arrangements could increase operational risk, including cyber security and IT systems management risks, and impair our ability to manage our business. The increased operational challenges could have a material and adverse effect on our business, financial reporting is conducted underconditions, and results of operations.
COVID-19 has also adversely impacted the applicable framework issued byrecoverability of certain of our assets and resulted in the Committeerecognition of Sponsoring Organizations of the Treadway Commission (“COSO”). The evaluation is conducted by our management, including our chief executive officer (“CEO”) and chief financial officer (“CFO”). As of the assessment date for our annual report on Form 20-Fimpairment charges for the year ended December 31, 2015, our management, including our CEO2020. COVID-19 is expected to continue to impact the recoverability of the Company’s assets and our CFO, had concluded, based upon the information then availablelead to them, that there was not any material weaknessfurther impairment charges in the Company’s internal controls overfuture. In addition, COVID-19 is also expected to result in a decline in the price of copper, which has the effect of reducing the value of our inventory.
If COVID-19 continues to adversely affect our business operations and financial reportingresults, the probability of the occurrence of other risks described in this Annual Report could also increase. Further, COVID-19 may materially and adversely affect our business, operations and financial results in manners that are not presently known to us or that we currently do not anticipate.
Risks Relating to Copper
Copper is the principal raw material we use, accounting for a majority of the cost of sales. Our prevailing practice is to purchase copper at prices based on the average prevailing international spot market prices on the London Metal Exchange (the “LME”) for copper for the fiscal year ended December 31, 2015. However, duringone month prior to purchase. The price of copper is affected by numerous factors beyond our control, including global economic and political conditions, supply and demand, inventory levels maintained by suppliers, actions of participants in the commodities markets and currency exchange rates. As with other costs of production, changes in the price of copper may affect the Company’s cost of sales. Whether this has a material impact on our operating margins and financial results depends primarily on the Company’s ability to adjust selling prices to its customers, such that increases and decreases in the price of copper are fully reflected in those selling prices and customers continue to place orders. Most of our sales of manufactured products reflect the cost of copper used to manufacture those products at the time the products are ordered. In the ordinary course of 2016,business we maintain inventories of raw materials and finished products reasonably necessary for the Company determined that certain accounting errors had been occurring since 2009conduct of our business. These inventories typically reflect the cost of copper prevailing in the computationmarket at the time of accrued liabilities in its North Asia region due to the application of inaccurate foreign exchange rates to calculate those liabilities, particularly the U.S. dollar/RMB exchange rate. In March 2017, the Company's Audit Committee, upon the recommendation of the Company's executive officers, concluded that, due to those accounting errors, the Company's previously issued consolidated financial statements for the fiscal years 2013 through 2015, should no longer be relied upon. Accordingly, the Company restated its previously issued consolidated financial statements and related financial information contained therein as of December 31, 2015 and 2014 and for each of the years ended December 31, 2015, 2014 and 2013. In addition, certain 2012 financial results were adjusted due to the identified material weakness. The Company undertook a restatement and, on April 28, 2017, we filed an annual report on Form 20-F/purchase. A (Amendment No. 1) for the fiscal year ended December 31, 2015 to restate previously issued annual financial statements and related financial information contained therein as of December 31, 2015, and 2014 and for the years ended December 31, 2015, 2014, and 2013 (the "Amended Annual Report"). In the Amended Annual Report, the Company corrected the accounting errors that arose out the material weakness identified in that report and concluded that its internal controls over financial reporting were effective as of the filing date of the Amended Annual Report. While our management has taken remedial measures to address the material weaknesses that gave rise to the requirement to restate previously-issued financial statements, the Company cannot be certain that those remedied material weaknesses will not re-occur or that new material weaknesses will not take placelong-term decrease in the future.
Reportingprice of Financial Results
The Company is currently compliant with its reporting obligations under the Exchange Act. As a foreign private issuer, the Company is not required by the rules of the Commission to provide financial results on a quarterly or semi-annual basis. In addition, Bermuda law does notcopper would require the Company to provide interimrevalue its inventory at
10
periodic intervals to the then net realizable value, which could be below cost. Copper prices have been subject to considerable volatility, and it is not always possible to manage our copper purchases and inventory so as to neutralize the impact of copper price volatility. In addition, an excessive increase in the price of copper could result in fewer orders from customers and negatively impact the Company. Accordingly, significant volatility in copper prices could have a material adverse effect on our business, financial informationcondition and results of operations.
Competition
The wire and cable industry in the Asia Pacific region is highly competitive, and if we fail to its shareholders, whethersuccessfully invest in and maintain product development, productivity improvements and customer service and support, sales of our products could be materially adversely affected. Our competitors include a large number of independent domestic and foreign suppliers. Certain competitors in each of our markets have substantially greater manufacturing, sales, research and financial resources than we do. We and other wire and cable producers compete primarily on a quarterlythe basis of product quality and performance, reliability of supply, customer service, and price. To the extent that one or semi-annual basis. Asmore of our competitors are more successful with respect to the primary competitive factors, our business could be materially adversely affected. In addition, the Company’s business could be materially adversely impacted if low margin wire and cable manufacturers in China enter into the markets where we operate. Certain of our products are made to common specifications and may be interchangeable with the products of certain of our competitors. Since customers could potentially substitute our products with those of our competitors, customer loyalty is an important pillar of our business’s competitive position.
In addition, in order to remain competitive in the industry, the Company must periodically make substantial investments in capital equipment to ensure that our production processes are and remain state-of-the-art. Capital expenditures are not always predictable, as they are often driven by customer requirements for enhanced products. We cannot guarantee we will have the available capital to make such investorscapital expenditures when required, which could materially adversely affect our business, financial condition and results of operations.
Alternative Transmission Technologies
Our telecommunications cable business is subject to competition from other transmission technologies, principally wireless-based technologies. Wireless telecommunications businesses have sometimes made substantial inroads in early emerging markets where sufficient funding may not havethen be available to install the sameinfrastructure necessary for market-wide fixed line telecommunications. In addition, the ease of use of wireless telecommunications may make that medium an attractive alternative in circumstances where access to fixed line telecommunications is limited. These technologies present significant competition in the markets in which we conduct or plan to conduct business and no assurance can be given that the future development and use of such alternative technologies will not materially adversely affect our business, financial informationcondition and results of operations.
We Operate in Highly Concentrated Markets
Failure to properly execute customer projects in markets where a small number of customers are responsible for a large portion our sales could materially adversely impact our ability to obtain similar contracts from other customers in that market and may result in material financial penalties. In certain of our markets, sales of manufactured products are highly concentrated in large state-controlled entities or large private infrastructure developers. As those markets are often highly concentrated, the loss of individual customers in such markets could have a material adverse impact on our position in that market as a whole and could materially adversely affect our business, financial condition and results of operations.
11
PEWC May not Perform Its Obligations under the Composite Services Agreement
We engage in transactions in the ordinary course of business with PEWC, including the purchase of certain raw materials and the distribution of PEWC products in various countries in the Asia Pacific region. We and PEWC have entered into a composite services agreement dated November 7, 1996, as amended and supplemented (the “Composite Services Agreement”), which contains provisions that define our relationship and the conduct of our respective businesses. The Composite Services Agreement is renewable at our option and is currently in force. Under the Composite Services Agreement, PEWC has agreed to supply APWC with copper and provides research and development for our products. However, we are unable to ensure that PEWC will not in the future seek to limit, or be unable to perform in whole or in part, the business it conducts with the Company pursuant to the terms of the Composite Services Agreement. Any such limitation or inability to perform the Composite Services Agreement on PEWC’s part could have a material adverse effect on our business, financial condition and results of operations. (See “Item 10.C. Material Contracts” for a description of the Composite Services Agreement.)
Our Insurance Coverage Does Not Cover All of Our Business Risks
Our global operations are subject to many risks including errors and omissions, infrastructure disruptions such as large-scale outages or interruptions of service from utilities or telecommunications providers, supply chain interruptions, third-party liabilities and fires or natural disasters. The Company as they customarily receive in the casemaintains insurance policies covering certain buildings, machinery and equipment against specified amounts of a domestic issuer disclosing quarterly results on a Form 10-Q. Under the NASDAQ rules; however, listed issuers are required to report semi-annual unaudited financial results, whichdamage or loss caused by fire, flooding, other natural disasters and burglary and theft. The Company does not carry insurance for consequential loss arising from business interruptions or political disturbances and does not carry product liability insurance. In addition, the Company has been doing sincedoes not have business liability or disruption insurance for its listing on NASDAQ.
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As an auditoroperations in China and the Company does not have coverage for flood damage or business interruption for its operations in Thailand. Consequently, the amount of companies that are publicly traded in the United Statesour insurance coverage may not be adequate to cover all potential claims or liabilities, and a firm registered with the Public Company Accounting Oversight Board, or PCAOB, PricewaterhouseCoopers is required under the laws of the United Stateswe may be forced to undergo regular inspections by the PCAOB. However, because we havebear substantial operations within the People's Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese government authorities, our auditor relied on its China affiliate’s audit work that is not currently inspected fully by the PCAOB. Investors should be aware thatcosts resulting from the lack of PCAOBadequate insurance. No assurance can be given that we will not incur losses beyond the limits or outside the scope of coverage of our insurance policies. Accordingly, we may be subject to an uninsured or under-insured loss in such situations. Any failure to maintain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition and results of operations.
Employees’ Unions
Some of APWC’s operating subsidiaries have a large number of employees that are members of employees’ unions. Failure to successfully negotiate and/or renew collective agreements, strikes, or other labor disputes could result in a disruption of our operations. Any such labor dispute could lead to a disruption of our operations, hindering our ability to serve our customers, and could have a material adverse effect on the Company and could materially adversely affect our business, financial condition and results of operations.
Employees and Personnel
If we fail to retain our key employees and attract qualified personnel, our business may be harmed. The loss of any of our executive officers or other key employees could have a material adverse effect on our business, financial condition and results of operations. The loss of executive officers or key employees could impair customer relationships and result in the loss of vital industry knowledge, expertise, and experience. There is also a risk of losing key employees to our competitors, which could pose a possible risk of the theft of trade secrets, with competitors then gaining valuable information about our manufacturing process. Increased costs associated with recruiting, motivating and retaining qualified personnel could have a negative impact on our profitability. The Company’s future success depends on its continued ability to attract and retain talented and qualified personnel.
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Environmental Liabilities
We are subject to certain environmental protection laws and regulations governing our operations and the use, handling, disposal and remediation of hazardous substances used by us. We could incur environmental liability from our manufacturing activities in the event of a release or discharge by us of a hazardous substance. Under certain environmental laws, we could be held responsible for the remediation of any hazardous substance contamination at our facilities and at third party waste disposal sites and could also be held liable for any consequences arising out of human exposure to such substances or other environmental damage. There can be no assurance that the costs of complying with environmental, health and safety laws and requirements arising from our current operations, or the liabilities arising from past releases of, or exposure to, hazardous substances, will not result in future liabilities incurred, or expenditures payable, by us that would materially adversely affect our business, financial condition and results of operations.
Information Systems Failure or Cyber Security Breaches Could Have a Material Adverse Effect on Our Business, Financial Condition, and Results of Operations
APWC's subsidiaries each have their respective information systems to support the operation of such subsidiary. While APWC’s operating subsidiaries vary in the degree of reliance that they place on their information systems, any failure or interruption of these systems could materially adversely affect the Company’s business, financial condition and results of operations. Among other things, financial data may be corrupted and financial information may not be accurately reported or presented in a timely manner, which could impair the Company’s ability to timely file periodic or annual reports with the SEC or timely disseminate material information to shareholders.
Cyber security presents risks and threats to us because intense competition in the wire and cable sector renders the Company vulnerable to theft and copying of design specifications. While the Company relies upon its majority shareholder, PEWC, for much of its research and development, its products are designed precisely to meet customer specifications for the applications for which they are intended. Cyber security risks create the potential for a material adverse impact on the Company’s business, financial condition and result of operations due to, but not limited to, losing intellectual property, implementing reactive measures, managing litigation or investigations, addressing reputational harm, or losing a competitive advantage. To date, none of the cyber incidents identified have had a material adverse effect on our business. However, we do not have visibility into all unauthorized incursions and our systems may be experiencing ongoing incursions of which we are not aware. Mitigating these risks requires ongoing management oversight to ensure that sufficient controls and procedures are in place for appropriate persons to receive pertinent cyber security risk information to take appropriate action. We cannot offer any assurance that those controls and procedures will be sufficient to protect against cyber security risks and that our business, financial condition and results of audit work performedoperations will not be materially and adversely affected as a result of any such failure.
Increased reliance on APWC'sinformation systems requires the implementation of information technology (“IT”) security measures to protect networks, computers, programs and data from attack, damage or unauthorized access and ensure the confidentiality, availability and integrity of Company data. The Company employs safeguards, both technological and contractual, in order to protect its proprietary interests and those of its customers and third-party licensors, including, without limitation, certain insurance against theft and risk of loss. However, we cannot guarantee that such safeguards will protect the Company from all types of IT and cyber security threats. If the Company’s IT and cyber security measures are compromised or otherwise fail to protect systems, networks and data, or if an event of force majeure occurs and the Company’s disaster recovery plan does not operating effectively, the Company’s business may be disrupted and stand to lose assets, reputation and business, and potentially face regulatory fines and litigation as well as the cost of remediation, which could materially adversely impact the Company’s business, financial condition and results of operations.
Risks Related to our Financial Activities
Restrictive covenants and default provisions in our existing debt agreements may materially restrict our operations within Chinaas well as adversely affect our liquidity, business, financial condition and results of operations.
If our business units do not generate sufficient cash flows from operations, we may potentiallybe unable to make required payments on our debt, including on debt secured by our or our subsidiaries’ assets. Any such failure to
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make any such payment could have a material adverse effect on our liquidity, business, financial condition and results of operations.
In addition our debt agreements contain restrictive covenants and default provisions. Covenants in the agreements governing our existing debt, and debt we may incur in the future, may materially restrict our operations, including our ability to incur debt, pay dividends, make certain investments and payments, and encumber or dispose of assets. In addition, any global economic deterioration may cause us to incur significant net losses or force us to assume considerable liabilities. We cannot assure you that we will be able to remain in compliance with our financial covenants, which, as a result, may lead to a default. This may thereby restrict our ability to access unutilized credit facilities or the global capital markets to meet our liquidity needs. Furthermore, a default under any agreement by APWC or APWC’s subsidiaries may trigger cross-defaults under our other agreements. In the event of default, we may not be able to cure the default or obtain a waiver on a timely basis. An event of default under any agreement timely governing our existing or future debt, if not cured or waived, could have a material adverse effect on our liquidity, business, financial condition and results of operations. Please see Section 5.b. (“Liquidity and Capital Resources”) of this Annual Report and Note 27(c) of our consolidated financial statements referenced in Item 18 of this Annual Report for a further discussion of our secured and unsecured indebtedness, including with respect to the loan agreement pursuant to which APWC borrowed $6 million from PEWC (which loan is secured by a pledge of APWC’s 98.3% ownership interest in our subsidiary, Sigma Cable Company (Private) Limited).
We Face Uncertainties Relating to the Phasing Out of LIBOR
In July 2017, the U.K. Financial Conduct Authority, which regulates the London interbank offered rate (LIBOR), announced that it intends to phase out LIBOR by the end of 2021. Discontinuation of LIBOR and uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the amounts of interest we pay under our debt arrangements and materially adversely affect our business, financial condition and results of operations.
Risks Relating to Our Exposure to Foreign Exchange Fluctuations
Our principal operations and properties are located in the three regions that constitute our business segments, namely the North Asia, Thailand and Rest of the World (“ROW”) regions. Although our reporting currency is the U.S. dollar, the functional currency of our Thailand region, which accounted for 45.81% of sales in 2020, is the Thai Baht. The functional currencies of our ROW region, which accounted for 30.85% of sales in 2020, are the Australia dollar and the Singapore dollar. The functional currencies for our North Asia operations, which, in total accounted for 23.34% of sales in 2020, are divided into two groups: (i) PEWSC, whose functional currency is the Renminbi, and (ii) CCH HK, whose functional currency is the U.S. dollar. Accordingly, the functional currency accounts of these operations are all translated into U.S. dollars utilizing the reporting date exchange rate for balance sheet accounts, and an average exchange rate for the year for the income statement accounts, for reporting purposes. Any devaluation of the Baht, the Australian dollar, the Singapore dollar, or the Renminbi against the U.S. dollar would adversely affect our financial performance, as measured in U.S. dollars.
The Company conducts business in many foreign currencies and is subject to exchange rate risk on cash flows related to sales, expenses, financing and investment transactions. A substantial portion of our aggregate revenues is denominated in the following currencies: Renminbi, Baht, Australian dollars and Singapore dollars, while our purchases of raw materials and expenditures related to equipment upgrades are largely denominated in U.S. dollars. Any devaluation of the Baht, the Australian dollar, the Singapore dollar or the Renminbi against foreign currencies (such as the U.S. Dollar) would increase the risk of material error in the reported audited results of the Company's Chinese operations.
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Inspections of other auditors conducted by the PCAOB outside of China have at times identified deficiencies in those auditors' audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB inspections of audit work undertaken in China prevents the PCAOB from regularly evaluating our auditor's China affiliate’s audits and the quality control procedures. As a result, shareholders currently are deprived of the benefits of PCAOB inspections, and may have greater uncertainty regarding our reported financial information and procedures and the accuracy and completeness of our financial statements, as they relate to our Chinese operations
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The economies of the world's leading industrialized nations have experienced a period of prolonged growth since the "Great Recession" of 2008. That growth was fueled in part by artificially low interest rates, first initiated by the U.S. Federal Reserve Bank (the “U.S. Fed”) and the central banks of most of the leading industrialized nations, which lowered their short-term interest rates to near zero in an effort to stimulate borrowing and increase economic activity. The U.S. Fed and certain other of those central banks also undertook a series of government bond repurchase programs to enhance market liquidity and to maintain a very low interest rate environment. The extremely loweffective cost of borrowing, which continued fortransactions denominated in such other foreign currencies. This would have an extremely long period of time, enhanced liquidityadverse impact on our operations and facilitated borrowing to stimulate investment. In December 2017, the U.S. Fed voted to raise its benchmark rate to between 1.25% and 1.5%, which is the fifth benchmark interest rate increase by the U.S. Fed since December 2015. Ancash flows. Likewise, an increase in U.SU.S. dollar borrowing costs and any increase in the strength of the US$U.S. dollar in foreign exchange markets (which could also increase borrowing rates) could materially adversely affect our business in the markets where we have operating plants (Thailand, China, Singapore and Australia). Consequently, adverse movements in exchange rates could have a material adverse effect on our business, financial condition and results of operations.
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In addition, a portion of our investment properties and financial instruments are denominated in currencies other than the U.S. dollar. Accordingly, our investment results will be subject to possible currency rate fluctuations as well as the volatility of overseas capital markets. Our results of operations may be materially impacted by those fluctuations and volatility.
Impairment Charges
In prior years, we have on occasion recognized impairment charges on certain property, plant and equipment due to lack of profitability. An impairment charge may be incurred for various reasons including, but not limited to, strategic decisions made in response to changes in economic and competitive conditions, the impact of the economic environment on our business or a material adverse change in any material relationships with our clients. If we recognize significant impairment charges, our results of operations may be materially adversely affected.
Risk Relating to the Regions in which We Operate
Risks Relating to Thailand
A substantial portion of our Thai operations consists of the manufacture of telecommunications and power cables and sales of those products for use in various construction and infrastructure projects in Thailand. The performance of the Company’s Thai operations is affected by the political and economic situation in Thailand. In recent years, the level of government involvement in infrastructure development has tended to track increases or contractions in Thailand’s gross domestic product and the Thai economy has been highly cyclical and volatile, depending for economic growth in substantial part on a number of government initiatives for economic expansion. Overall, the construction industry and infrastructure projects have slowed considerably, thereby affecting local sales, placing competitive pressure on prices and prompting the Company to rationalize Thai operations and actively seek overseas markets. Political tensions remain high in Thailand and political instability in Thailand tends to diminish governmental focus on infrastructure development projects, which can materially adversely impact the volume of sales to (and payment by) our customers who are engaged in large infrastructure projects and, consequently, materially adversely affect our business, financial condition and results of operations.
Our auditor’ China affiliate, like other independent registered public accounting firm operating in China, are not permitted to be subject to inspection by Public Company Accounting Oversight Board, and consequently investors are deprived of the benefits of such inspection.
Our auditor, the independent registered public accounting firm that issued the audit report included elsewhere in this annual report, as auditor of companies that are traded publicly in the United States and firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditor’s China affiliate is located in, and organized under the laws of, the PRC, which is a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities.
In December 2020, the United States enacted the Holding Foreign Companies Accountable Act (the “HFCAA”). The HFCAA requires that the SEC identify issuers that retain an auditor that has a branch or office that is located in a foreign jurisdiction and that the PCAOB determines it is unable to inspect or investigate completely because of a position taken by an authority in that foreign jurisdiction. Amongst other things, the HFCAA also requires the SEC to prohibit the securities of any issuer from being traded on any of the U.S. national securities exchanges, such as Nasdaq, or on the U.S. “over-the-counter” markets, if the auditor of the issuer’s financial statements is not subject to PCAOB inspections for three consecutive “non-inspection” years after the law became effective.
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On April 5, 2021, the SEC’s interim final rule to implement the disclosure and submission requirements of the HFCAA was published in the U.S. Federal Register, along with the SEC’s request for public comment on the interim final rule. Regarding how the term “retain” should be interpreted for purposes of determining whether an issuer has retained an auditor that has a branch or office that is located in a foreign jurisdiction and that the PCAOB determines it is unable to inspect or investigate completely because of a position taken by an authority in that foreign jurisdiction, the SEC noted in the interim final rule that the HFCAA does not define the term “retain”, and requested comment on how the term “retain” should be understood for purposes of the HFCAA.
The auditor of our operatingPRC-based subsidiaries is located in thosethe PRC and that auditor is an affiliate of APWC’s Taiwan-based auditor that signs APWC’s audit report. Given the current question as to how “retain” should be understood for purposes of the HFCAA, we cannot assure you that we will not be identified by the SEC as an issuer that has retained an auditor that has a branch or office that is located in a foreign jurisdiction that the PCAOB determines it is unable to inspect or investigate completely because of a position taken by an authority in that foreign jurisdiction as a result of the fact that the auditor of our China affiliates is located in, and organized under the laws of, the PRC. In addition, there can be no assurance that, if we have a “non-inspection” year, we will be able to take remedial measures in response thereto. Given the foregoing, we cannot assure you that we will be able to maintain the listing of the Common Shares on Nasdaq or that you will be allowed to trade the Common Shares in the United States on the “over-the-counter” markets are reported and denominatedor otherwise. Should the Common Shares not be listed or tradeable in local currencies (referred to as our “functional currencies”) and when translated into US dollars, our reporting currency, these operating subsidiaries would suffer a decrease in reported revenue and operating profits due to foreign currency translation if one takes into account only increased U.S. dollar borrowing costs or an increase inthe United States, the value of the US$ as against one or moreCommon Shares could be materially affected.
This lack of PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of our functional currencies. Moreover,independent registered public accounting firm. As a result, we and investors in the Common Shares are deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our copper purchasesindependent registered public accounting firm’s China affiliate’s audit procedures or quality control procedures as compared to auditor outside of China that are subject to PCAOB inspections, which could cause investors and potential investors in the Common Shares to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
The PRC Legal System May Limit the Company’s Remedies
The PRC legal system is a civil law system based on U.S. dollar quotations, which meanwritten statutes. Prior court decisions may be cited for reference but have limited precedential value. Since the operating subsidiaries wouldlate 1970s, the PRC central government has promulgated a comprehensive system of laws, rules and regulations governing economic matters. However, China has not developed a fully integrated legal system. Recently enacted laws and regulations may not sufficiently cover all aspects of economic activities and the interpretation and enforcement of these laws and regulations involves uncertainties and can be inconsistent and unpredictable. Since PRC administrative and court authorities have to pay moresignificant discretion in local currency in order to meet their trade payable obligations.
Impact of Stronger U.S. Dollar Exchange Rates
The rate of exchange forinterpreting and implementing statutory and contractual terms, the U.S. dollar as against our functional currencies can have a material impact on our financial results. In effect, an increase inremedies and the strength of the U.S. dollar would increase our costs of raw materials and our costs of borrowing, while reducing our revenues as reported in our reporting currency, the U.S. dollar.
Price Volatility for our Principal Raw Material
A comparison of copper prices on the London Metals Exchange (the “LME”), between year-end 2016 and year-end 2017 shows that the average price for copper increased from $4,863 per metric ton to $6,163 per metric ton by year-end 2017, representing a 26.7% price increase. The increase in the average LME copper price in 2017 was a material contributing factor to the growth in 2017 of our average selling price compared with 2016.
Consistent with industry practice, the Company is typically able to pass on the increase in cost of raw material to its customers, This also resulted in a better turnover for the entire year of 2017. With the increase in copper and commodity prices in 2017, customers have sometimes been rushing in with order placements in the expectation that priceslegal protection we enjoy may further increase. However, commodity prices, including copper, are highly volatile. The benefits to the Company arising from copper price increases would not be sustainablelimited in the event of a downturnany claims or disputes with third parties. In addition, any litigation in copper demand,China may be protracted and therefore its pricing. In such a case,could result in substantial costs and diversion of resources and management attention. As the PRC legal system continues to evolve, we cannot predict if future developments in the PRC legal system could be detrimental to the Company could find itselfand have a material adverse effect on its business, financial condition and results of operations.
Uncertainties Exist with overvalued inventoryrespect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and how it may affect the Company’s Corporate Governance
On January 1, 2020, the PRC Foreign Investment Law (the “Foreign Investment Law”) and the Regulations for Implementation of the Foreign Investment Law (the “Implementation Regulations”), came into effect and replaced the trio of prior laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law, and the Wholly Foreign-invested Enterprise Law, together with their implementation rules. Since the Foreign Investment Law and the Implementation
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Regulations are relatively new, uncertainties still exist in relation to its interpretation and implementation. The Foreign Investment Law and the Implementation Regulations may affect our relevant corporate governance practices and increase our compliance costs. For instance, the Foreign Investment Law and the Implementation Regulations require that requires a valuation write-down, which has happenedforeign-invested enterprises established before the Foreign Investment Law became effective have 5 years to complete the necessary adjustments to their organization form, governance structure and other required matters to comply with the PRC Company Law, the Partnership Enterprise Law and other laws. The PRC Company Law significantly differs from the Sino-foreign Equity Joint Venture Enterprise Law and the Sino-foreign Cooperative Joint Venture Enterprise Law. These differences include, but are not limited to, an enterprise’s highest authority, minimum number of directors, quorum, term of directors, voting mechanisms, profit distributions and equity transfer restrictions. According to the Implementation Regulations, the provisions regarding equity interest transfer and distribution of profits or remaining assets may remain the same as previously provided in the past.
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contracts among the joint venture parties of a foreign-invested enterprise. Uncertainties still exist with respect to the specific adjustments foreign-invested enterprises must make. The Company is unable to determine the precise impactlocal branch of the volatilityState Administration for Market Regulation of copper prices,the PRC (the “SAMR”) may, at its discretion, require our PRC subsidiaries to make necessary adjustments to their articles of association and other filing documents to comply with the PRC Company Law and the Partnership Enterprise Law, as applicable.
In addition, the Foreign Investment Law and the Implementation Regulations impose information reporting requirements on its operationsforeign investors and cash flow, since its operating results are also affected by factors that are,foreign-invested enterprises. Any foreign investors or foreign-invested enterprises found to be non-compliant with these reporting obligations may be unrelatedsubject to fines or administrative liabilities.
The Foreign Investment Law does not address intercompany loans or the registration of profits of foreign-invested enterprises. It is not known whether these matters will be addressed by additional laws or regulations promulgated pursuant to the economic volatilityForeign Investment Law. The Foreign Investment Law and the pricing pressures on commodity prices, such as the completion of routine purchase cycles by customersImplementation Regulations could be interpreted and the completion, expansion or contraction of large infrastructure projects. While the Company is of the opinion that higher copper prices positively impacted the Company’s 2017 result of operations and cash flow, the Company believes that any efforts to forecast likely future performance with any degree of specificity would be fraught with uncertainty. Accordingly, the Company cautions against placing reliance on any efforts to identify trends for the foreseeable future.
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Consolidation of Charoong Thai Group Accounts
As of December 31, 2017, the Company effectively owned 50.93% of the issued and outstanding shares of Charoong Thai Wire and Cable Public Company Limited (“Charoong Thai” or “CTW”). The Company’s present intention is to maintain majority ownership of the voting securities of Charoong Thai. While the Company holds preemptive rights that would permit it to maintain majority ownership of CTW, there may be circumstances under which the Company cannot maintain majority ownership of Charoong Thai. In the event Charoong Thai were to make a further offering of voting securities, or securities convertible into or exchangeable for voting securities, and the Company was notimplemented in a position to fund or finance its participation in the offering, the ownership interest of the Company in Charoong Thai could fall below a level necessary for consolidated treatment, and the Company may lose the controlling interest in Charoong Thai. Ifmanner that were the case, the accounts of the Charoong Thai group, which includes all of the Company’s Thailand operations, would not be consolidated under IFRS, but instead would be accounted for under the equity method. In such an event, the Company’s accounts would show a significant decrease in revenue and most categories of assets and liabilities, which events could have a material adverse effect on the valueCompany’s business, financial condition and results of operations.
PRC Regulations of Loans to and Direct Investment in PRC Entities by Offshore Holding Companies may delay or prevent us from making Loans or additional Capital Contributions to our PRC Subsidiaries, which could materially adversely affect our ability to fund and expand our business
We conduct substantial business operations in China. We may make loans or capital contributions to our PRC subsidiaries. Loans or capital contributions by APWC or any of our offshore subsidiaries to our PRC subsidiaries, which are treated as foreign-invested enterprises under PRC law, may be subject to PRC regulations and/or foreign exchange loan registrations. Such loans to any of our PRC subsidiaries to finance their activities generally cannot exceed statutory limits and must be filed with the State Administration of Foreign Exchange (the “SAFE”). We may also decide to finance our PRC subsidiaries by means of capital contributions, in which case the PRC subsidiary is required to register the details of the Common Shares.capital contribution with the relevant governmental authorities in China.
Trading PriceIn light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans or capital contributions by the Company to our PRC subsidiaries and conversion of such loans or capital contributions into RMB. If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially adversely affect our ability to fund and expand our business, and could materially adversely affect or business, financial condition and results of operations.
Political or Social Instability, Including Tensions Between PRC and Taiwan, May Materially Adversely Affect the Company’s Business, Financial Condition, and Results of Operations
Political or social instability in China could also materially adversely affect our business operations or financial condition. Lack of political or social certainty exposes our operations to increased risk of adverse or
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unpredictable actions by PRC government officials. For example, APWC’s principal office is located in Taipei, Taiwan, and any escalation in political tensions between the PRC and the government of Taiwan could materially adversely impact our ability to manage our operations in the PRC efficiently or without third party interference. The PRC government has long advocated a one-China policy with regard to the Republic of China. Any overtly aggressive actions by the PRC towards Taiwan could have a materially destabilizing impact on Taiwan generally, and on our business in particular, and could materially and adversely affect our business, financial condition and results of operations.
PRC State-Owned Enterprises (“SOEs”) May Have Competitive Advantages that We May Not Be Able to Overcome
Much of the PRC's manufacturing output is still conducted through SOEs, which are often subsidized by the government such that they are protected against the challenges of market forces confronting private enterprises. As a consequence, it can become untenable for private enterprises in competition with SOEs to conduct profitable operations when the SOEs are being subsidized by the government and may operate in a loss position for an extended period. The Company’s business, financial condition and results of operations may be materially adversely affected in the event it must compete with such SOEs.
Risks Related to the Common Shares and APWC
SinceThe Common Shares may be delisted from Nasdaq, which could affect their market price and liquidity. If the Great Recession, the major indices of the leading securities exchanges, including NASDAQ where the APWC Common Shares are traded,delisted, investors may have increased significantly in value. The NASDAQ Composite has increased over 550% since its nadir in March 2009. The trading pricedifficulty disposing of the Company'stheir shares.
The Common Shares has not benefited fromare currently listed on Nasdaq under the overall, but not universal, increase insymbol “APWC” on the trading pricesCapital Market tier. In order for the Common Shares to remain the listed on the Nasdaq Capital Market tier, we must continue to meet certain minimum financial and other requirements including, without limitation, maintaining a closing bid price for the Common Shares of many equity securities. The Company believes that a number of factors have contributed to that result, including that growth on NASDAQ has been focused primarily on issuers operating inat least $1.00 per share. Nasdaq’s rules provide for the technology sector which often command a high price-earnings ratio, the Company may be perceived to carry risks often associated with Chinese companies even though APWC is a Bermuda company and the majority of its business is in Asian markets other than China, the limited liquiditydelisting of the Common Shares if the intenseclosing bid price for the Common Shares falls below $1.00 per share for 30 consecutive business and we are unable to regain compliance with the applicable requirements in the time permitted by Nasdaq.
In addition to Nasdaq’s enumerated criteria for continued listing on the Capital Market tier, Nasdaq also has broad discretionary public interest authority that it can exercise to apply additional or more stringent criteria for the continued listing of the Common Shares, or suspend or delist securities even though the securities met all enumerated criteria for continued listing on Nasdaq. We cannot assure you that Nasdaq will not exercise such discretionary authority.
In accordance with the provisions of the Exchange Control Act 1972, as amended, and related regulations of Bermuda, the permission of the Bermuda Monetary Authority (the “BMA”) is required for all issuances and transfers of shares (which includes the Common Shares) of Bermuda companies to or from a non-resident of Bermuda for exchange control purposes, other than in cases where the BMA has granted a general permission. The BMA, in its notice to the public dated June 1, 2005, has granted a general permission for the issue and subsequent transfer of any securities of a Bermuda company from and/or to a non-resident of Bermuda for exchange control purposes for so long as any “Equity Securities” of the company (which include the Common Shares) are listed on an “Appointed Stock Exchange” (which would include Nasdaq). In granting the general permission the BMA accepts no responsibility for APWC’s financial soundness or the correctness of any of the statements made or opinions expressed herein. Consequently, if the Common Shares are delisted from Nasdaq, it will be necessary to obtain the prior permission of the BMA to transfer such Common Shares to any transferee, subject to any applicable general permissions issued by the BMA.
There can be no assurance that the Common Shares will remain listed on Nasdaq on any tier. Any delisting of the Common Shares could materially adversely affect their market price and liquidity. If the Common Shares are
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delisted, APWC expects its Common Shares would be quoted on an over-the-counter market. If this were to occur, APWC’s shareholders could face significant material adverse consequences, including the need to receive permission from the BMA to transfer the Common Shares, limited availability of market quotations for the Common Shares and reduced liquidity for the trading of the Common Shares. In addition, APWC could experience a decreased ability to issue additional securities and obtain additional financing in the future.
As a foreign private competition facingissuer, APWC is exempt from a number of rules under the U.S. securities laws and is permitted to file less information with the SEC than a U.S. company.
APWC is a “foreign private issuer”, as defined in the SEC’s rules and regulations and, consequently, APWC is not subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, APWC is exempt from certain rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act. In addition, APWC’s senior management and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of APWC’s securities. Moreover, APWC is not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies, and is not required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. Accordingly, there is less publicly available information concerning the Company which makesthan there would be if APWC was a U.S. public company.
Future sales growth more challenging,of APWC’s Securities may cause the increased competition withinprevailing market price of the wire and cable industry from state-subsidized enterprises which increases pricing pressures particularly when those enterprisesCommon Shares to decrease
There may be ablefuture sales or other dilution of APWC’s equity, which could materially adversely affect the market price of the Common Shares. APWC may, from time to sell below cost, and the explosive growth of wireless communications products which draw demand and investment away from telecommunications wire and cable, among other factors.
Potential Illiquidity oftime, issue equity securities, including Common Shares or securities that are convertible into or exchangeable for, or that represent the right to receive, Common Shares. The market price of the Common Shares could decline as a result of issuances of any such equity securities or any such securities that are convertible into or exchangeable for, or that represent the right to receive, Common Shares, or as a result of the perception that such issuances could occur.
The Market for the Common Shares May Not Be Liquid
Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors, compared to less active and less liquid markets. Thinly-traded securities equity can be more volatile than equity securities for which there is significant trading volume. In addition, APWC’s share price may be volatile and could be subject to fluctuations in response to various factors, most of which are beyond our control. Liquidity of a securities market is often a function of the volume of the underlying shares that are publicly held by unrelated parties. Approximately 75.5% of ourAPWC’s issued and outstanding common shares are directly or beneficially owned by Pacific Electric Wire & Cable Co., Ltd. (“PEWC”), a Taiwanese company, which Common Shares are either unregistered securities or registered securities held by affiliates (or were repurchased by the Company), which are subject to restrictions on trading. Accordingly, approximately 75.5% of ourIn addition, although the Common Shares are not fully liquid investments. APWC has been listedcurrently remain traded on NASDAQ since April 2011; however, the volume ofNasdaq Capital Market tier, the trading in ourand demand for the Common Shares has not been significant. Thelimited. As a consequence, shareholders may find that the value of ourtheir Common Shares and/or their ability to sell their Common Shares quickly or in substantial amounts may be materially adversely affected by the limited public trading market. In the future, the Common Shares may experience significant price fluctuations which could materially adversely affect the value of your ownership interest in APWC.
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APWC May Not Be Able to Resume Paying a Dividend and Any Dividends Paid in the Future Could be impactedReduced or Eliminated
APWC did not pay dividends in 2019 or in 2020. There are a number of factors that can affect APWC’s ability to pay dividends and there is no guarantee that APWC will pay dividends in any given year or pay any specific amount of dividends. APWC may not be able, or may choose not to reinstate its dividend program and pay future dividends, and if reinstated any future dividend could again be eliminated or reduced. The declaration, amount and payment of future dividends are at the discretion of APWC’s board of directors (the “Board of Directors”) and will be dependent on the Company’s future operating results and the cash requirements of the Company’s business. In addition, APWC will not pay dividends in the event it is not allowed to do so under Bermuda law. Furthermore, since APWC is a holding company, nearly all of the assets shown on its consolidated balance sheet are held by its subsidiaries. Accordingly, APWC’s cash flow and its ability to pay dividends are dependent upon distributions from its subsidiaries. The reduction, suspension or elimination of dividends may negatively affect the market price of the Common Shares.
Holding Company Structure; Potential Restrictions on the Payment of Dividends
APWC is a holding company with no direct business operations other than its ownership of the capital stock of its subsidiaries and equity investees. APWC’s principal assets are the equity interests it directly or indirectly holds in its operating subsidiaries. As a holding company, APWC’s ability to pay dividends and meet its other obligations depends upon the amount of distributions, if any, received from its operating subsidiaries and other holdings and investments. APWC’s operating subsidiaries and other holdings and investments, from time to time, may be subject to restrictions on their ability to make distributions to APWC, including, but not limited to, as a result of restrictive covenants contained in loan agreements, restrictions on the conversion of local currency earnings into U.S. dollars or other currency, and other regulatory restrictions. For example, PRC legal restrictions permit payments of dividends by our business entities in the PRC only out of their relative illiquidity when comparedretained earnings, if any, determined in accordance with relevant PRC accounting standards and regulations. Under PRC law, such entities are also required to set aside a portion of their net income each year to fund certain reserve funds. These reserves are not distributable as cash dividends. The foregoing restrictions may also affect APWC’s ability to fund operations of one subsidiary with dividends and other payments received from another subsidiary. Distributions may also be limited from time to time by reason of restrictions protective of the rights of minority shareholders of APWC’s subsidiaries and by reason of the current cash requirements of APWC’s operating subsidiaries.
Corporate Matters; Limited Recourse; Limited Enforceability
APWC is incorporated in and organized pursuant to the publicly-traded shareslaws of many other issuers.Bermuda with its principal office located in Taiwan. All of APWC’s directors and officers reside outside the United States and the Company’s material assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon such persons or to realize judgements against them in courts of the United States predicated upon civil liabilities under the United States federal securities laws. Even if investors are successful in realizing judgments against such persons in courts of the United States, the laws of Taiwan may render such investors unable to enforce the judgment against the Company’s assets or the assets of APWC’s officers and directors. Also, investors may have difficulty in bringing an original action based upon the United States federal securities law against such persons in the Taiwan courts. Additionally, there is doubt as to the enforcement in Bermuda, in original actions or in actions for enforcement of judgments of United States courts, of liabilities predicated upon U.S. federal securities laws. As a result, shareholders may encounter more difficulties in enforcing their rights and protecting their interests in the face of actions taken by management, the Board of Directors or controlling shareholders than they would if APWC was organized under the laws of the United States or one of the states therein, or if the Company had material assets located within the United States, or some of the directors and officers resided within the United States.
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Control of the Company Rests with Majority Shareholder; Controlled Company Exemption;and Foreign Private Issuer Exemptions; Risks Related to PEWC
The Common Shares currently remain traded on Nasdaq. However, as APWC has a more than fifty percent (50%) shareholder, APWC relies upon a “controlled company exemption” to the requirement that a company have a board of directors comprised of a majority of independent directors in order to be listed on Nasdaq. At present, a majority of the board of directors of APWC is affiliated with PEWC. APWC also relies on Nasdaq’s allowance for foreign private issuers to follow home country practices in lieu of the requirement that listed companies have regularly scheduled meetings at which only independent directors are present (“executive sessions”). The independent directors of APWC meet periodically in executive session in their capacity as members of APWC’s Audit Committee of APWC’s Board of Directors without other directors present, but on occasion meet with APWC’s independent auditors present in such executive session, and on occasion meet with members of management present in order to understand more fully management’s analysis of the Company’s financial performance and compliance with relevant corporate governance requirements.
As theAPWC’s majority shareholder, Pacific Electric Wire & Cable Co., Ltd. (“PEWC”), a Taiwanese company,PEWC has sufficient votes to control the outcome of any mattersmatter presented for a shareholder vote, including the election of each member of theAPWC’s Board of Directors of the Company (“Board of Directors”).Directors. PEWC may vote its shares in the CompanyAPWC in the manner that it sees fit. In addition, subject to applicable securities laws, PEWC may sell, convey or encumber all or a portion of its ownership interest in the CompanyAPWC without regard to the best interests of theAPWC’s other shareholders of the Company except to the extent that it is prohibited from engaging in conduct oppressive to non-controlling interests under applicable law. The interests of PEWC may conflict with our interests or the interests of our other shareholders. As a result, PEWC may take actions with respect to us or our business that may not be in our or our other shareholders’ best interest.
The Common Shares of the Company are traded on the NASDAQ Global Market tier. However, as the Company has a more than fifty percent (50%) shareholder, the Company is entitled to rely upon a “controlled company exemption” to the requirement that a company have a board of directors comprised of a majority of independent directors in order to be listed on NASDAQ. At present, a majority of the board of directors of the Company is affiliated with PEWC.
Due to executive malfeasance at PEWC that was uncovered in 2003, PEWC was delisted from the Taipei Stock Exchange and remains subject to ongoing regulatory review by Taiwan securities regulators. The financial andFinancial or corporate governance issues that continue forat PEWC may affect PEWC’s attention to and actions with respect to APWC, including with respect to its performance of its obligations under, or increase the uncertainty regarding its ability to perform its obligations under, the Composite Services Agreement between PEWC and the Company, although to dateCompany. (See “Item 3.D. Risk Factors – PEWC has metmay not perform its obligations under that agreement. (See---section 10.3the Composite Services Agreement” and “Item 10.C. Material Contracts)Contracts” for a description of the Composite Services Agreement.).
Limited Trading Volume
Although our Common Shares are traded on the NASDAQ Global Market tier, the trading and demand for our Common Shares has been limited. As a consequence, shareholders may find that their ability to sell their Common Shares quickly or in substantial amounts is adversely affected by the limited public trading market. Thinly-traded equity can be more volatile than equity securities for which there is significant trading volume. The high and low daily closing prices for our Common Shares during the past 24 months (March 2016 – March 2018) were $3.10 and $1.54, respectively. In the future, our Common Shares may experience significant price fluctuations which could adversely affect the value of your ownership interest in the Company.
Potential ConflictEmployees and Personnel
If we fail to retain our key employees and attract qualified personnel, our business may be harmed. The loss of Certain Officersany of our executive officers or other key employees could have a material adverse effect on our business, financial condition and Directorsresults of operations. The loss of executive officers or key employees could impair customer relationships and result in the loss of vital industry knowledge, expertise, and experience. There is also a risk of losing key employees to our competitors, which could pose a possible risk of the theft of trade secrets, with competitors then gaining valuable information about our manufacturing process. Increased costs associated with recruiting, motivating and retaining qualified personnel could have a negative impact on our profitability. The Company’s future success depends on its continued ability to attract and retain talented and qualified personnel.
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Environmental Liabilities
We are subject to certain environmental protection laws and regulations governing our operations and the use, handling, disposal and remediation of hazardous substances used by us. We could incur environmental liability from our manufacturing activities in the event of a release or discharge by us of a hazardous substance. Under certain environmental laws, we could be held responsible for the remediation of any hazardous substance contamination at our facilities and at third party waste disposal sites and could also be held liable for any consequences arising out of human exposure to such substances or other environmental damage. There can be no assurance that the costs of complying with environmental, health and safety laws and requirements arising from our current operations, or the liabilities arising from past releases of, or exposure to, hazardous substances, will not result in future liabilities incurred, or expenditures payable, by us that would materially adversely affect our business, financial condition and results of operations.
Information Systems Failure or Cyber Security Breaches Could Have a Material Adverse Effect on Our Business, Financial Condition, and Results of Operations
APWC's subsidiaries each have three independent directors;their respective information systems to support the operation of such subsidiary. While APWC’s operating subsidiaries vary in the degree of reliance that they place on their information systems, any failure or interruption of these systems could materially adversely affect the Company’s business, financial condition and results of operations. Among other six membersthings, financial data may be corrupted and financial information may not be accurately reported or presented in a timely manner, which could impair the Company’s ability to timely file periodic or annual reports with the SEC or timely disseminate material information to shareholders.
Cyber security presents risks and threats to us because intense competition in the wire and cable sector renders the Company vulnerable to theft and copying of design specifications. While the Company relies upon its majority shareholder, PEWC, for much of its research and development, its products are designed precisely to meet customer specifications for the applications for which they are intended. Cyber security risks create the potential for a material adverse impact on the Company’s business, financial condition and result of operations due to, but not limited to, losing intellectual property, implementing reactive measures, managing litigation or investigations, addressing reputational harm, or losing a competitive advantage. To date, none of the Boardcyber incidents identified have had a material adverse effect on our business. However, we do not have visibility into all unauthorized incursions and our systems may be experiencing ongoing incursions of Directorswhich we are also directorsnot aware. Mitigating these risks requires ongoing management oversight to ensure that sufficient controls and procedures are in place for appropriate persons to receive pertinent cyber security risk information to take appropriate action. We cannot offer any assurance that those controls and procedures will be sufficient to protect against cyber security risks and that our business, financial condition and results of operations will not be materially and adversely affected as a result of any such failure.
Increased reliance on information systems requires the implementation of information technology (“IT”) security measures to protect networks, computers, programs and data from attack, damage or officersunauthorized access and ensure the confidentiality, availability and integrity of Company data. The Company employs safeguards, both technological and contractual, in order to protect its proprietary interests and those of its customers and third-party licensors, including, without limitation, certain insurance against theft and risk of loss. However, we cannot guarantee that such safeguards will protect the Company from all types of IT and cyber security threats. If the Company’s IT and cyber security measures are compromised or otherwise affiliatedfail to protect systems, networks and data, or if an event of force majeure occurs and the Company’s disaster recovery plan does not operating effectively, the Company’s business may be disrupted and stand to lose assets, reputation and business, and potentially face regulatory fines and litigation as well as the cost of remediation, which could materially adversely impact the Company’s business, financial condition and results of operations.
Risks Related to our Financial Activities
Restrictive covenants and default provisions in our existing debt agreements may materially restrict our operations as well as adversely affect our liquidity, business, financial condition and results of operations.
If our business units do not generate sufficient cash flows from operations, we may be unable to make required payments on our debt, including on debt secured by our or our subsidiaries’ assets. Any such failure to
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make any such payment could have a material adverse effect on our liquidity, business, financial condition and results of operations.
In addition our debt agreements contain restrictive covenants and default provisions. Covenants in the agreements governing our existing debt, and debt we may incur in the future, may materially restrict our operations, including our ability to incur debt, pay dividends, make certain investments and payments, and encumber or dispose of assets. In addition, any global economic deterioration may cause us to incur significant net losses or force us to assume considerable liabilities. We cannot assure you that we will be able to remain in compliance with PEWC, our majority shareholder. Certainfinancial covenants, which, as a result, may lead to a default. This may thereby restrict our ability to access unutilized credit facilities or the global capital markets to meet our liquidity needs. Furthermore, a default under any agreement by APWC or APWC’s subsidiaries may trigger cross-defaults under our other agreements. In the event of default, we may not be able to cure the default or obtain a waiver on a timely basis. An event of default under any agreement timely governing our existing or future debt, if not cured or waived, could have a material adverse effect on our liquidity, business, financial condition and results of operations. Please see Section 5.b. (“Liquidity and Capital Resources”) of this Annual Report and Note 27(c) of our officersconsolidated financial statements referenced in Item 18 of this Annual Report for a further discussion of our secured and unsecured indebtedness, including with respect to the loan agreement pursuant to which APWC borrowed $6 million from PEWC (which loan is secured by a pledge of APWC’s 98.3% ownership interest in our subsidiary, Sigma Cable Company (Private) Limited).
We Face Uncertainties Relating to the Phasing Out of LIBOR
In July 2017, the U.K. Financial Conduct Authority, which regulates the London interbank offered rate (LIBOR), announced that it intends to phase out LIBOR by the end of 2021. Discontinuation of LIBOR and uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the amounts of interest we pay under our debt arrangements and materially adversely affect our business, financial condition and results of operations.
Risks Relating to Our Exposure to Foreign Exchange Fluctuations
Our principal operations and properties are located in the three regions that constitute our business segments, namely the North Asia, Thailand and Rest of the World (“ROW”) regions. Although our reporting currency is the U.S. dollar, the functional currency of our Thailand region, which accounted for 45.81% of sales in 2020, is the Thai Baht. The functional currencies of our ROW region, which accounted for 30.85% of sales in 2020, are the Australia dollar and the Singapore dollar. The functional currencies for our North Asia operations, which, in total accounted for 23.34% of sales in 2020, are divided into two groups: (i) PEWSC, whose functional currency is the Renminbi, and (ii) CCH HK, whose functional currency is the U.S. dollar. Accordingly, the functional currency accounts of these operations are all translated into U.S. dollars utilizing the reporting date exchange rate for balance sheet accounts, and an average exchange rate for the year for the income statement accounts, for reporting purposes. Any devaluation of the Baht, the Australian dollar, the Singapore dollar, or the Renminbi against the U.S. dollar would adversely affect our financial performance, as measured in U.S. dollars.
The Company conducts business in many foreign currencies and is subject to exchange rate risk on cash flows related to sales, expenses, financing and investment transactions. A substantial portion of our aggregate revenues is denominated in the following currencies: Renminbi, Baht, Australian dollars and Singapore dollars, while our purchases of raw materials and expenditures related to equipment upgrades are largely denominated in U.S. dollars. Any devaluation of the Baht, the Australian dollar, the Singapore dollar or the Renminbi against foreign currencies (such as the U.S. Dollar) would increase the effective cost of transactions denominated in such other foreign currencies. This would have an adverse impact on our operations and cash flows. Likewise, an increase in U.S. dollar borrowing costs and any increase in the strength of the U.S. dollar in foreign exchange markets (which could also affiliatedincrease borrowing rates) could materially adversely affect our business in the markets where we have operating plants (Thailand, China, Singapore and Australia). Consequently, adverse movements in exchange rates could have a material adverse effect on our business, financial condition and results of operations.
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In addition, a portion of our investment properties and financial instruments are denominated in currencies other than the U.S. dollar. Accordingly, our investment results will be subject to possible currency rate fluctuations as well as the volatility of overseas capital markets. Our results of operations may be materially impacted by those fluctuations and volatility.
Impairment Charges
In prior years, we have on occasion recognized impairment charges on certain property, plant and equipment due to lack of profitability. An impairment charge may be incurred for various reasons including, but not limited to, strategic decisions made in response to changes in economic and competitive conditions, the impact of the economic environment on our business or a material adverse change in any material relationships with PEWC.our clients. If we recognize significant impairment charges, our results of operations may be materially adversely affected.
Risk Relating to the Regions in which We Operate
Risks Relating to Thailand
A substantial portion of our Thai operations consists of the manufacture of telecommunications and power cables and sales of those products for use in various construction and infrastructure projects in Thailand. The performance of the Company’s Thai operations is affected by the political and economic situation in Thailand. In each case, theyrecent years, the level of government involvement in infrastructure development has tended to track increases or contractions in Thailand’s gross domestic product and the Thai economy has been highly cyclical and volatile, depending for economic growth in substantial part on a number of government initiatives for economic expansion. Overall, the construction industry and infrastructure projects have slowed considerably, thereby affecting local sales, placing competitive pressure on prices and prompting the Company to rationalize Thai operations and actively seek overseas markets. Political tensions remain high in Thailand and political instability in Thailand tends to diminish governmental focus on infrastructure development projects, which can materially adversely impact the volume of sales to (and payment by) our customers who are engaged in large infrastructure projects and, consequently, materially adversely affect our business, financial condition and results of operations.
Our auditor’ China affiliate, like other independent registered public accounting firm operating in China, are not permitted to be subject to inspection by Public Company Accounting Oversight Board, and consequently investors are deprived of the benefits of such inspection.
Our auditor, the independent registered public accounting firm that issued the audit report included elsewhere in this annual report, as auditor of companies that are traded publicly in the United States and firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditor’s China affiliate is located in, and organized under the laws of, the PRC, which is a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities.
In December 2020, the United States enacted the Holding Foreign Companies Accountable Act (the “HFCAA”). The HFCAA requires that the SEC identify issuers that retain an auditor that has a branch or office that is located in a foreign jurisdiction and that the PCAOB determines it is unable to inspect or investigate completely because of a position taken by an authority in that foreign jurisdiction. Amongst other things, the HFCAA also requires the SEC to prohibit the securities of any issuer from being traded on any of the U.S. national securities exchanges, such as Nasdaq, or on the U.S. “over-the-counter” markets, if the auditor of the issuer’s financial statements is not subject to PCAOB inspections for three consecutive “non-inspection” years after the law became effective.
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On April 5, 2021, the SEC’s interim final rule to implement the disclosure and submission requirements of the HFCAA was published in the U.S. Federal Register, along with the SEC’s request for public comment on the interim final rule. Regarding how the term “retain” should be interpreted for purposes of determining whether an issuer has retained an auditor that has a branch or office that is located in a foreign jurisdiction and that the PCAOB determines it is unable to inspect or investigate completely because of a position taken by an authority in that foreign jurisdiction, the SEC noted in the interim final rule that the HFCAA does not define the term “retain”, and requested comment on how the term “retain” should be understood for purposes of the HFCAA.
The auditor of our PRC-based subsidiaries is located in the PRC and that auditor is an affiliate of APWC’s Taiwan-based auditor that signs APWC’s audit report. Given the current question as to how “retain” should be understood for purposes of the HFCAA, we cannot assure you that we will not be identified by the SEC as an issuer that has retained an auditor that has a branch or office that is located in a foreign jurisdiction that the PCAOB determines it is unable to inspect or investigate completely because of a position taken by an authority in that foreign jurisdiction as a result of the fact that the auditor of our China affiliates is located in, and organized under the laws of, the PRC. In addition, there can be no assurance that, if we have a “non-inspection” year, we will be able to take remedial measures in response thereto. Given the foregoing, we cannot assure you that we will be able to maintain the listing of the Common Shares on Nasdaq or that you will be allowed to trade the Common Shares in the United States on the “over-the-counter” markets or otherwise. Should the Common Shares not be listed or tradeable in the United States, the value of the Common Shares could be materially affected.
This lack of PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of our independent registered public accounting firm. As a result, we and investors in the Common Shares are deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s China affiliate’s audit procedures or quality control procedures as compared to auditor outside of China that are subject to PCAOB inspections, which could cause investors and potential investors in the Common Shares to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
The PRC Legal System May Limit the Company’s Remedies
The PRC legal system is a civil law system based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since the late 1970s, the PRC central government has promulgated a comprehensive system of laws, rules and regulations governing economic matters. However, China has not developed a fully integrated legal system. Recently enacted laws and regulations may not sufficiently cover all aspects of economic activities and the interpretation and enforcement of these laws and regulations involves uncertainties and can be inconsistent and unpredictable. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, the remedies and the legal protection we enjoy may be limited in the event of any claims or disputes with third parties. In addition, any litigation in China may be protracted and could result in substantial costs and diversion of resources and management attention. As the PRC legal system continues to evolve, we cannot predict if future developments in the PRC legal system could be detrimental to the Company and have a material adverse effect on its business, financial condition and results of operations.
Uncertainties Exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and how it may affect the Company’s Corporate Governance
On January 1, 2020, the PRC Foreign Investment Law (the “Foreign Investment Law”) and the Regulations for Implementation of the Foreign Investment Law (the “Implementation Regulations”), came into effect and replaced the trio of prior laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law, and the Wholly Foreign-invested Enterprise Law, together with their implementation rules. Since the Foreign Investment Law and the Implementation
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Regulations are relatively new, uncertainties still exist in relation to its interpretation and implementation. The Foreign Investment Law and the Implementation Regulations may affect our relevant corporate governance practices and increase our compliance costs. For instance, the Foreign Investment Law and the Implementation Regulations require that foreign-invested enterprises established before the Foreign Investment Law became effective have 5 years to complete the necessary adjustments to their organization form, governance structure and other required matters to comply with the PRC Company Law, the Partnership Enterprise Law and other laws. The PRC Company Law significantly differs from the Sino-foreign Equity Joint Venture Enterprise Law and the Sino-foreign Cooperative Joint Venture Enterprise Law. These differences include, but are not limited to, an enterprise’s highest authority, minimum number of directors, quorum, term of directors, voting mechanisms, profit distributions and equity transfer restrictions. According to the Implementation Regulations, the provisions regarding equity interest transfer and distribution of profits or remaining assets may remain the same as previously provided in the contracts among the joint venture parties of a foreign-invested enterprise. Uncertainties still exist with respect to the specific adjustments foreign-invested enterprises must make. The local branch of the State Administration for Market Regulation of the PRC (the “SAMR”) may, at its discretion, require our PRC subsidiaries to make necessary adjustments to their articles of association and other filing documents to comply with the PRC Company Law and the Partnership Enterprise Law, as applicable.
In addition, the Foreign Investment Law and the Implementation Regulations impose information reporting requirements on foreign investors and foreign-invested enterprises. Any foreign investors or foreign-invested enterprises found to be non-compliant with these reporting obligations may be subject to potential conflictsfines or administrative liabilities.
The Foreign Investment Law does not address intercompany loans or the registration of interest. In addition, certainprofits of foreign-invested enterprises. It is not known whether these matters will be addressed by additional laws or regulations promulgated pursuant to the Foreign Investment Law. The Foreign Investment Law and the Implementation Regulations could be interpreted and implemented in a manner that could have a material adverse effect on the Company’s business, financial condition and results of operations.
PRC Regulations of Loans to and Direct Investment in PRC Entities by Offshore Holding Companies may delay or prevent us from making Loans or additional Capital Contributions to our PRC Subsidiaries, which could materially adversely affect our ability to fund and expand our business
We conduct substantial business operations in China. We may make loans or capital contributions to our PRC subsidiaries. Loans or capital contributions by APWC or any of our officers and directors whooffshore subsidiaries to our PRC subsidiaries, which are also officers and/or directors of PEWCtreated as foreign-invested enterprises under PRC law, may be subject to conflictsPRC regulations and/or foreign exchange loan registrations. Such loans to any of interest in connectionour PRC subsidiaries to finance their activities generally cannot exceed statutory limits and must be filed with for example, pursuing corporate opportunitiesthe State Administration of Foreign Exchange (the “SAFE”). We may also decide to finance our PRC subsidiaries by means of capital contributions, in which case the PRC subsidiary is required to register the details of the capital contribution with the relevant governmental authorities in China.
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans or capital contributions by the Company to our PRC subsidiaries and PEWCconversion of such loans or one of its affiliates have competing interests, and in the performance by us and PEWC ofcapital contributions into RMB. If we fail to complete such registrations or obtain such approvals, our respective obligations under existing agreements, including the Composite Services Agreement (discussed in section 10.3). In addition, some of these persons will devote timeability to the business and affairs of PEWC and its affiliates as is appropriate under the circumstances,capitalize or otherwise fund our PRC operations may be negatively affected, which could reduce the amount of time available for overseeing or managingmaterially adversely affect our ability to fund and expand our business, and affairs. Notwithstandingcould materially adversely affect or business, financial condition and results of operations.
Political or Social Instability, Including Tensions Between PRC and Taiwan, May Materially Adversely Affect the Company’s Business, Financial Condition, and Results of Operations
Political or social instability in China could also materially adversely affect our business operations or financial condition. Lack of political or social certainty exposes our operations to increased risk of adverse or
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unpredictable actions by PRC government officials. For example, APWC’s principal office is located in Taipei, Taiwan, and any escalation in political tensions between the PRC and the government of Taiwan could materially adversely impact our ability to manage our operations in the PRC efficiently or without third party interference. The PRC government has long advocated a one-China policy with regard to the Republic of China. Any overtly aggressive actions by the PRC towards Taiwan could have a materially destabilizing impact on Taiwan generally, and on our business in particular, and could materially and adversely affect our business, financial condition and results of operations.
PRC State-Owned Enterprises (“SOEs”) May Have Competitive Advantages that We May Not Be Able to Overcome
Much of the PRC's manufacturing output is still conducted through SOEs, which are often subsidized by the government such potential conflicts, however,that they are protected against the challenges of market forces confronting private enterprises. As a consequence, it can become untenable for private enterprises in competition with SOEs to conduct profitable operations when the SOEs are being subsidized by the government and may operate in a loss position for an extended period. The Company’s business, financial condition and results of operations may be materially adversely affected in the event it must compete with such individuals, in their capacities as our directorsSOEs.
Risks Related to the Common Shares and officers, are subject to fiduciary duties to our shareholders.APWC
The Bermuda Companies Act 1981, as amended (the “Companies Act”), subjects our officersCommon Shares may be delisted from Nasdaq, which could affect their market price and directorsliquidity. If the Common Shares are delisted, investors may have difficulty disposing of their shares.
The Common Shares are currently listed on Nasdaq under the symbol “APWC” on the Capital Market tier. In order for the Common Shares to remain the listed on the Nasdaq Capital Market tier, we must continue to meet certain fiduciary standardsminimum financial and other requirements including, without limitation, maintaining a closing bid price for the Common Shares of at least $1.00 per share. Nasdaq’s rules provide for the delisting of the Common Shares if the closing bid price for the Common Shares falls below $1.00 per share for 30 consecutive business and we are unable to regain compliance with the applicable requirements in the time permitted by Nasdaq.
In addition to Nasdaq’s enumerated criteria for continued listing on the Capital Market tier, Nasdaq also has broad discretionary public interest authority that it can exercise of their executive and management duties on behalfto apply additional or more stringent criteria for the continued listing of the Company. UnderCommon Shares, or suspend or delist securities even though the Companies Act, an officer of ours (which term includes our directors) is subject to a duty of care requiring him to act honestly, in good faith and in the best interests of the Company in the discharge of his duties and to, among other things, give notice to the Board of Directors at the first opportunity of any interest he has in any material contract or proposed material contract with us or any of our subsidiaries. The Companies Act also prohibits us, subject to certain exceptions, from making loans to any directors without first obtaining the consent of shareholders holding in the aggregatesecurities met all enumerated criteria for continued listing on Nasdaq. We cannot assure you that Nasdaq will not less than nine-tenths of the total voting rights of all the shareholders having the right to vote at any shareholders meeting. We do not make any loans to our directors or executive officers inexercise such discretionary authority.
In accordance with the provisions of the Sarbanes-OxleyExchange Control Act 1972, as amended, and related regulations of Bermuda, the permission of the Bermuda Monetary Authority (the “BMA”) is required for all issuances and transfers of shares (which includes the Common Shares) of Bermuda companies to or from a non-resident of Bermuda for exchange control purposes, other than in cases where the BMA has granted a general permission. The BMA, in its notice to the public dated June 1, 2005, has granted a general permission for the issue and subsequent transfer of any securities of a Bermuda company from and/or to a non-resident of Bermuda for exchange control purposes for so long as any “Equity Securities” of the company (which include the Common Shares) are listed on an “Appointed Stock Exchange” (which would include Nasdaq). In granting the general permission the BMA accepts no responsibility for APWC’s financial soundness or the correctness of any of the statements made or opinions expressed herein. Consequently, if the Common Shares are delisted from Nasdaq, it will be necessary to obtain the prior permission of the BMA to transfer such Common Shares to any transferee, subject to any applicable general permissions issued by the BMA.
There can be no assurance that the Common Shares will remain listed on Nasdaq on any tier. Any delisting of the Common Shares could materially adversely affect their market price and liquidity. If the Common Shares are
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delisted, APWC expects its Common Shares would be quoted on an over-the-counter market. If this were to occur, APWC’s shareholders could face significant material adverse consequences, including the need to receive permission from the BMA to transfer the Common Shares, limited availability of market quotations for the Common Shares and reduced liquidity for the trading of the Common Shares. In addition, APWC could experience a decreased ability to issue additional securities and obtain additional financing in the future.
As a foreign private issuer, APWC is exempt from a number of rules under the U.S. securities laws and is permitted to file less information with the SEC than a U.S. company.
APWC is a “foreign private issuer”, as defined in the SEC’s rules and regulations and, consequently, APWC is not subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, APWC is exempt from certain rules under the Securities Exchange Act of 2002.1934, as amended (the “Exchange Act”) that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act. In addition, APWC’s senior management and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of APWC’s securities. Moreover, APWC is not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies, and is not required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. Accordingly, there is less publicly available information concerning the Company than there would be if APWC was a U.S. public company.
9Future sales of APWC’s Securities may cause the prevailing market price of the Common Shares to decrease
There may be future sales or other dilution of APWC’s equity, which could materially adversely affect the market price of the Common Shares. APWC may, from time to time, issue equity securities, including Common Shares or securities that are convertible into or exchangeable for, or that represent the right to receive, Common Shares. The market price of the Common Shares could decline as a result of issuances of any such equity securities or any such securities that are convertible into or exchangeable for, or that represent the right to receive, Common Shares, or as a result of the perception that such issuances could occur.
The Market for the Common Shares May Not Be Liquid
Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors, compared to less active and less liquid markets. Thinly-traded securities equity can be more volatile than equity securities for which there is significant trading volume. In addition, APWC’s share price may be volatile and could be subject to fluctuations in response to various factors, most of which are beyond our control. Liquidity of a securities market is often a function of the volume of the underlying shares that are publicly held by unrelated parties. Approximately 75.5% of APWC’s issued and outstanding common shares are directly or beneficially owned by Pacific Electric Wire & Cable Co., Ltd. (“PEWC”), a Taiwanese company, which Common Shares are subject to restrictions on trading. In addition, although the Common Shares currently remain traded on the Nasdaq Capital Market tier, the trading and demand for the Common Shares has been limited. As a consequence, shareholders may find that the value of their Common Shares and/or their ability to sell their Common Shares quickly or in substantial amounts may be materially adversely affected by the limited public trading market. In the future, the Common Shares may experience significant price fluctuations which could materially adversely affect the value of your ownership interest in APWC.
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APWC May Not Be Able to Resume Paying a Dividend and Any Dividends Paid in the Future Could be Reduced or Eliminated
APWC did not pay dividends in 2019 or in 2020. There are a number of factors that can affect APWC’s ability to pay dividends and there is no guarantee that APWC will pay dividends in any given year or pay any specific amount of dividends. APWC may not be able, or may choose not to reinstate its dividend program and pay future dividends, and if reinstated any future dividend could again be eliminated or reduced. The declaration, amount and payment of future dividends are at the discretion of APWC’s board of directors (the “Board of Directors”) and will be dependent on the Company’s future operating results and the cash requirements of the Company’s business. In addition, APWC will not pay dividends in the event it is not allowed to do so under Bermuda law. Furthermore, since APWC is a holding company, nearly all of the assets shown on its consolidated balance sheet are held by its subsidiaries. Accordingly, APWC’s cash flow and its ability to pay dividends are dependent upon distributions from its subsidiaries. The reduction, suspension or elimination of dividends may negatively affect the market price of the Common Shares.
Holding Company Structure; Potential Restrictions on the Payment of Dividends
APWC is a holding company with no direct business operations other than its ownership of the capital stock of its subsidiaries and equity investees. APWC’s principal assets are the equity interests it directly or indirectly holds in its operating subsidiaries. As a holding company, ourAPWC’s ability to pay dividends and meet ourits other obligations will dependdepends upon the amount of distributions, if any, received from ourits operating subsidiaries and other holdings and investments. OurAPWC’s operating subsidiaries and other holdings and investments, from time to time, may be subject to restrictions on their ability to make distributions to us,APWC, including, but not limited to, as a result of restrictive covenants contained in loan agreements, restrictions on the conversion of local currency earnings into U.S. dollars or other hard currency, and other regulatory restrictions. For example, PRC legal restrictions permit payments of dividends by our business entities in the PRC only out of their retained earnings, if any, determined in accordance with relevant PRC accounting standards and regulations. Under PRC law, such entities are also required to set aside a portion of their net income each year to fund certain reserve funds. These reserves are not distributable as cash dividends. The foregoing restrictions may also affect ourAPWC’s ability to fund operations of one subsidiary with dividends and other payments received from another subsidiary.
On November 30, 2017, Distributions may also be limited from time to time by reason of restrictions protective of the Company implemented its previously-announced dividend policy withrights of minority shareholders of APWC’s subsidiaries and by reason of the paymentcurrent cash requirements of a cash dividend of $0.10 per Common Share to all holders of record as of October 31, 2017. While the Company desires to maintain its annual dividend policy, the payment of any annual dividend is contingent upon annual results and the factors enumerated above that may restrict the distribution fromAPWC’s operating subsidiaries of cash sufficient to fund the payment of a dividend.subsidiaries.
Corporate Matters; Limited Recourse; Limited Enforceability
We areAPWC is incorporated in and organized pursuant to the laws of Bermuda. In addition, allBermuda with its principal office located in Taiwan. All of ourAPWC’s directors and officers reside outside the United States and ourthe Company’s material assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon such persons or to realize judgements against them in courts of the United States upon judgments predicated upon civil liabilities under the United States federal securities laws. Even if investors are successful in realizing judgments against such persons in courts of the United States, the laws of Taiwan may render such investors unable to enforce the judgment against the Company’s assets or the assets of itsAPWC’s officers and directors. Also, investors may have difficulty in bringing an original action based upon the United States federal securities law against such persons in the Taiwan courts. Additionally, we have been advised by our Bermuda legal counsel, Appleby (Bermuda) Limited, that there is doubt as to the enforcement in Bermuda, in original actions or in actions for enforcement of judgments of United States courts, of liabilities predicated upon U.S. federal securities laws, although Bermuda Courts will enforce foreign judgments for liquidated amounts in civil matters subject to certain conditions and exceptions.laws. As a result, shareholders may encounter more difficulties in enforcing their rights and protecting their interests in the face of actions taken by management, the Board of Directors or controlling shareholders than they would if the Company wereAPWC was organized under the laws of the United States or one of the states therein, or if the Company had material assets located within the United States, or some of the directors and officers were residentresided within the United States. See “Enforceability
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Control of Certain Civil Liabilities” for additional information.
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the Company Rests with Majority Shareholder; Controlled Company and Foreign Private Issuer Exemptions; Risks RelatingRelated to CopperPEWC
Copper isThe Common Shares currently remain traded on Nasdaq. However, as APWC has a more than fifty percent (50%) shareholder, APWC relies upon a “controlled company exemption” to the principal raw material we use, accounting forrequirement that a company have a board of directors comprised of a majority of independent directors in order to be listed on Nasdaq. At present, a majority of the costboard of sales. Our prevailing practicedirectors of APWC is affiliated with PEWC. APWC also relies on Nasdaq’s allowance for foreign private issuers to purchase copperfollow home country practices in lieu of the requirement that listed companies have regularly scheduled meetings at prices basedwhich only independent directors are present (“executive sessions”). The independent directors of APWC meet periodically in executive session in their capacity as members of APWC’s Audit Committee of APWC’s Board of Directors without other directors present, but on occasion meet with APWC’s independent auditors present in such executive session, and on occasion meet with members of management present in order to understand more fully management’s analysis of the average prevailing international spot market prices onCompany’s financial performance and compliance with relevant corporate governance requirements.
As APWC’s majority shareholder, PEWC has sufficient votes to control the LMEoutcome of any matter presented for copper fora shareholder vote, including the one month prior to purchase. The priceelection of copper is affected by numerous factors beyond our control, including international economic and political conditions, supply and demand, inventory levels maintained by suppliers, actionseach member of participantsAPWC’s Board of Directors. PEWC may vote its shares in APWC in the commodities markets and currency exchange rates. Asmanner that it sees fit. In addition, subject to applicable securities laws, PEWC may sell, convey or encumber all or a portion of its ownership interest in APWC without regard to the best interests of APWC’s other shareholders except to the extent that it is prohibited from engaging in conduct oppressive to non-controlling interests under applicable law. The interests of PEWC may conflict with other costs of production, changes inour interests or the price of copper may affect the Company’s cost of sales. Whether this has a material impact on our operating margins and financial results depends primarily on the Company’s ability to adjust selling prices to its customers, such that increases and decreases in the price of copper are fully reflected in those selling prices. Mostinterests of our sales of manufactured products reflect the cost of copper used to manufacture those products at the time the products are ordered. In the ordinary course of business we maintain inventories of raw materials and finished products reasonably necessary for the conduct of our business. These inventories typically reflect the cost of copper prevailing in the market at the time of purchase. A long-term decrease in the price of copper would require the Company to revalue its inventory at periodic intervals to the then net realizable value, which could be below cost. Copper prices have been subject to considerable volatility and it is not always possible to manage our copper purchases and inventory so as to neutralize the impact of copper price volatility. Accordingly, significant volatility in copper prices could have an adverse effect on our operations. No assurance can be given that such volatility will not re-occur.
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Risks related to our Customer Base and our Geographic Markets
Our sales of manufactured and distributed products are made primarily to customers that use our products as components in their own products or in construction or infrastructure projects in which they participate. The volume of our sales is significantly correlated with overall economic conditions in the markets in which we operate, including how much our customers invest in their own product manufacturing or project development. Increases or decreases in economic activity and investment in the markets where we operate generally willother shareholders. As a result, in higher or lower sales volume and higher or lower net income for the Company.
Risks relating to Force Majeure Events
Operations and other business conducted at our plants and other facilities are at risk to acts of god consisting of uncontrollable natural and climatic events (often referred to as force majeure events). Our only material force majeure event was the 2011 flooding at the Siam Pacific Electric Wire and Cable Ltd. (“Siam Pacific”) plant, a subsidiary 100% controlled by Charoong Thai, which occurred during a national flood crisis that affected much of the country. Our insurance coverage in Thailand does not cover damage from flooding or losses due to business interruption, as coverage for business losses due to flooding is generally not available in Thailand or is considered to be prohibitively costly in the limited circumstances where it is available.
Risks Relating to North Asia Region.
Economic Reform Measures in the PRC May Adversely Affect the Company’s Operations or Financial Condition
The PRC government has gradually moved away from a planned economic model and implemented economic reform measures emphasizing decentralization, utilization of market forces in the development of the economy and a high level of management autonomy. When General Secretary Xi Jinping took office in December 2012, the government decreased its focus on export-oriented activities and placed greater emphasis on building up rural areas in China, including integrating a number of primitive, largely inaccessible agricultural areas into the national economy. However, many of the reforms are unprecedented andPEWC may be subject to revision, modification or termination based on the outcomes of the reform efforts and other considerations, including their impact on societal stability. There is not sufficient administrative or judicial precedent to allow the Company to determine with any degree of certainty how the reforms will impact our business in China.
Recent Macro-economic Concerns
China has risen to be the world’s second largest economy measured by gross domestic product. As the GDP of China has increased significantly its rate of growth has slowed, with the reported GDP growth rate released by the National Bureau of Statistics of China dropping from 7.8% in 2013 to 6.9% in 2017. This development has fueled concern that the current economic downturn in China could become more severe and lead to a possible recession. There is widespread concern about a possible “housing bubble” in China. A downturn in residential construction is one factor that could adversely affect the Company’s business in China. A broader recession in China would likely have a more profound adverse impact on our business results in that market.
Any Decrease in Real Estate Development and Construction Activities in China May Affect the Company’s Operations or Financial Condition
Our wire and cable products manufactured and sold in China and are used in the commercial and residential real estate industry and in infrastructure development. Therefore, the demand for our wire and cable products is affected by the pace of modernization and the growth of the real estate industry in China, which could in turn be affected by a number of factors, such as the level of governmental investment in infrastructure development, the strength of the commercial and residential real estate markets, the level of disposable income, consumer confidence, unemployment rate, interest rates, credit availability and volatility in the stock markets.
To dampen an over-heated real estate market, the PRC government implemented a series of measures in the real estate market. The real estate market in China may also be negatively affected by the reform of the real estate tax system in respect of levying real estate tax on individually owned real estate which is not used for a business purpose, which has already been implemented by certain local government authorities and may be expanded nationwide sometime in the future.
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Any decrease in commercial and residential real estate development and construction activities would certainly affect the demand for our manufactured products and may affect the Company’s results of operations or financial condition.
The PRC Legal System May Limit the Company’s Remedies
The PRC legal system is a civil law system based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since the late 1970s, the PRC central government has promulgated a large volume of laws and regulations governing economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. In particular, since reforms were first introduced in 1979, the PRC legislation and regulations have significantly enhanced the protections provided to various forms of foreign investment in China. Foreign investment laws and regulations in China are evolving and the interpretations of many laws, regulations and rules are not always uniform. Accordingly, enforcement of these laws, regulations and rules involves uncertainties, which may limit the remedies available to us in the event of any claims or disputes with third parties. In addition, any litigation in China may be protracted and could result in substantial costs and diversion of resources and management attention. As the PRC legal system continues to evolve, we cannot predict future developments in the PRC legal system, including promulgation of new laws, changes to existing laws or the interpretation and enforcement thereof.
Uncertainties Existtake actions with respect to the Enactment Timetable, Interpretation and Implementation of Draft PRC Foreign Investment Law and how itus or our business that may not be in our or our other shareholders’ best interest.
Financial or corporate governance issues at PEWC may affect the Company’s Corporate Governance
On January 19, 2015, the PRC Ministry of Commerce published a discussion draft of the proposed PRC Foreign Investment Law (“Foreign Investment Law”), aimingPEWC’s attention to upon its enactment, replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, togetheractions with their implementation rules. The draft Foreign Investment Law embodies an expected PRC regulatory trendrespect to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to better align the corporate legal requirements for both foreign and domestic investments. The PRC Ministry of Commerce has finished soliciting comments on this draft; however, uncertainties existAPWC, including with respect to its enactment timetable, interpretation and implementation. The draft Foreign Investment Law, if enacted and implemented as proposed, may materially affect our relevant corporate governance practices andperformance of its obligations under, or increase our compliance costs. For instance,uncertainty regarding its ability to perform its obligations under, the draft Foreign Investment Law imposes periodic information reporting requirements on foreign investors. Aside from an investment implementation report and an investment amendment report that are required for each investment and alteration of investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with these information reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities,Composite Services Agreement between PEWC and the persons directly responsibleCompany. (See “Item 3.D. Risk Factors – PEWC may be subject to sanctions.
PRC Regulations of Loans tonot perform its obligations under the Composite Services Agreement” and Direct Investment in PRC Entities by Offshore Holding Companies may delay or prevent us from making Loans or additional Capital Contributions to our PRC Subsidiaries, which could adversely affect our ability to fund and expand our business
We conduct substantial business operations in China. We may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Loans by APWC or any of our offshore subsidiaries to our PRC subsidiaries, which are treated as foreign-invested enterprises under PRC law, are subject to PRC regulations and foreign exchange loan registrations. Such loans to any of our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart“Item 10.C. Material Contracts” for a description of the State Administration of Foreign Exchange (“SAFE”Composite Services Agreement.). The statutory limit for the total amount of foreign debts of a foreign-invested enterprise is the difference between the amount of total investment and the amount of registered capital of such foreign-invested enterprise, both of which are subject to registration with the local counterpart of the State Administration for Industry and Commerce of the PRC (“SAIC”) and approval of or filing with the local counterpart of the PRC Ministry of Commerce. We may also decide to finance our PRC subsidiaries by means of capital contributions. These capital contributions must be registered with the local counterpart of SAIC and approved by or filed with the local counterpart of the PRC Ministry of Commerce.
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According to the Circular of the State Administration of Foreign Exchange on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign invested Enterprises promulgated on March 30, 2015 and the Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts promulgated on June 9, 2016, the RMB capital converted from the foreign exchange capital, foreign debt funds, and proceeds remitted from foreign listings of a foreign-invested enterprise may not be directly or indirectly used for purposes beyond the business scope of such foreign-invested enterprise.
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, including the SAFE circular referred to above, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans or capital contributions by APWC to our PRC subsidiaries and conversion of such loans or capital contributions into RMB. If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could adversely affect our ability to fund and expand our business.
Political or Social Instability in the PRC May Adversely Affect the Company’s Operations or Financial Condition
Political or social instability in China could also adversely affect our business operations or financial condition. In addition, adverse public health epidemics or pandemics in China could not only interfere with our ability to operate our PRC subsidiaries, but could also affect the country’s overall economic growth, which could in turn affect the sales of our products in China. Growing environmental awareness and concern over the deterioration of the quality of the environment in China, including air and water quality, could dampen domestic industrial growth and reduce foreign investor interest in PRC investment. In addition, as our corporate headquarters are located in Taipei, Taiwan, any escalation in political tensions between the PRC and the government of Taiwan could impact adversely our ability to manage our operations in the PRC efficiently or without third party interference.
State-owned Enterprises (“SOEs”) may have competitive advantages that are difficult to Overcome
Much of the PRC's manufacturing output is still conducted through SOEs, which are often subsidized by the government such that they are protected against the challenges of market forces confronting private enterprises, such as the subsidiaries and investments maintained by APWC. As a consequence, it can become untenable for private enterprises in competition with certain SOEs to conduct profitable operations when the SOEs are being subsidized by the government and may operate in a loss position for an extended period.
Inflation in the PRC May Adversely Affect the Company’s Operations or Financial Condition
The rapid growth of the PRC economy has historically resulted in high levels of inflation. The PRC government has publicly announced its commitment to control inflation. If inflation is significant, our costs would likely increase, and there can be no assurance that we would be able to increase our prices to an extent that would offset the increase in our expenses.
PRC Power Shortages and Lack of Insurance May Adversely Affect the Company’s Operations or Financial Condition
We consume substantial amounts of electricity in our manufacturing processes at our production facilities in China. Certain parts of China have been subject to power shortages in recent years. We have experienced a number of power shortages at our production facilities in China to date, particularly in Shenzhen where numerous clusters of factories are situated. We are sometimes given advance notice of power shortages, but often power shortages or outages occur unexpectedly for various periods of time. We currently have a backup power system at certain of our production facilities in China. However, there can be no assurance that in the future our backup power system will be completely effective in the event of a power shortage, particularly if that power shortage is over a sustained period of time and/or we are not given advance notice thereof. Any power shortage, brownout or blackout for a significant period of time may disrupt our manufacturing, and as a result, may have an adverse impact on our business.
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The insurance industry in China is still at an early stage of development and foreign insurance companies are permitted to operate only in a certain large cities. PRC insurance companies do not offer extensive business insurance products. As a result, we have limited business liability and disruption insurance coverage for our operations in China. Any business disruption, litigation or natural disaster might result in our incurring substantial costs and the diversion of resources, which could have a material adverse effect on our business and operations.
PRC Tax Treatments May Affect the Company’s Operations or Financial Condition
Under current tax law in China, foreign-invested enterprises no longer receive more favorable tax treatment than domestic enterprises. China has in place a uniform tax rate of 25% for all enterprises (including foreign-invested enterprises) and has revoked the prior tax exemptions, reductions and preferential treatments applicable to foreign-invested enterprises. This change will very possibly increase our tax obligations in China and thereby reduce our net income in the North Asia region.
Dividends Payable by Our PRC Subsidiaries to Their Respective Offshore Investors Should Be Subject to PRC Withholding Taxes
Under Chinese tax law and related regulations, dividends, interests, rent or royalties payable by a foreign-invested enterprise, such as our PRC subsidiaries, to any of its foreign non-resident enterprise investors, and proceeds from any such foreign enterprise investor’s disposition of assets (after deducting the net value of such assets) are subject to a 10% withholding tax, unless the foreign enterprise investor’s jurisdiction of incorporation has a tax treaty with China that provides for a reduced rate of withholding tax. Undistributed profits earned by foreign-invested enterprises prior to January 1, 2008 are exempted from any withholding tax. Bermuda, where APWC, the ultimate owner of our PRC subsidiaries and investments, is incorporated, does not have such a tax treaty with China. Hong Kong, where Crown Century Holdings Limited (“CCH HK”), the sole shareholder in Pacific Electric Wire and Cable (Shenzhen) (“PEWS”), is incorporated, has a tax arrangement with China that currently provides for a 5% withholding tax on dividends subject to certain conditions and requirements, such as the requirement that the Hong Kong resident enterprise own at least 25% of the PRC enterprise distributing the dividend at all times within the 12-month period immediately preceding the distribution of dividends and be a “beneficial owner” of the dividends. However, if CCH HK is not considered to be the beneficial owner of the dividends paid to it by PEWS under the Circular of the State Administration of Taxation on the Interpretation and Determination of “Beneficial Owners” in the Tax Treaties, promulgated on October 27, 2009 and the Announcement of the State Administration of Taxation on the Determination of “Beneficial Owners” in the Tax Treaties promulgated on June 29, 2012, such dividends would be subject to withholding tax at a rate of 10%. If our PRC subsidiaries declare a dividend or distribution and distribute profits earned after January 1, 2008 to their respective offshore investors, such payments will be subject to withholding tax.
Labor Law Legislation in the PRC May Adversely Affect the Company’s Operations or Financial Condition
The PRC Labor Contract Law formalizes workers’ rights concerning overtime hours, pensions, layoffs, employment contracts and the role of labor unions. Considered one of the strictest labor laws in the world, among other things, this law requires an employer to conclude an “open-ended employment contract” with any employee who either has worked for the employer for ten years or more or has had two consecutive fixed-term contracts. An “open-ended employment contract” is in effect a lifetime, permanent contract, which is terminable only in specified circumstances, such as a material breach of the employer’s rules and regulations, or for a serious dereliction of duty. Such employment contracts with qualifying workers would not be terminable if, for example, the Company determined to downsize its workforce in the event of an economic downturn. Under the current law, downsizing by 10% or more (or more than 20 persons) may occur only under specified circumstances, such as a restructuring undertaken pursuant to the PRC Enterprise Bankruptcy Law, or where a company suffers serious difficulties in production and/or business operations. Any of the Company’s staff employed to work exclusively within the PRC are covered by the law and thus, the Company’s ability to adjust the size of its operations when necessary in periods of recession or less severe economic downturns has been curtailed. Accordingly, if the Company faces future periods of decline in business activity generally or adverse economic periods specific to the Company’s business, this law can be expected to exacerbate the adverse effect of the economic environment on the Company’s results of operations and financial condition. Additionally, this law has affected labor costs of our customers which could result in a decrease in such customers’ production and a corresponding decrease in their purchase of our products.
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Under the PRC Social Insurance Law and the Regulation on the Administration of Housing Accumulation Funds, the employer is required to pay various statutory employee benefits, including social insurance (namely pension insurance, work-related injury insurance, medical insurance, unemployment insurance and maternity insurance) and housing funds, to relevant government authorities for the benefit of its employees. If we fail to make adequate social insurance and housing fund contributions, we may be subject to late payment fees, fines and/or other penalties, and our financial condition and results of operations may be adversely affected.
Risks relating to our Exposure to Foreign Exchange Fluctuations
Fluctuations in foreign exchange rates influence our results of operations. Our principal operations are located in the three geographic regions that constitute our business segments; namely, the North Asia region, the Thailand region and the Rest of the World (“ROW”) region. A substantial portion of our aggregate revenues is denominated in the following currencies: Baht, Australian dollars, Singapore dollars and Renminbi. Nearly all of the raw materials for these operations are imported and paid for in U.S. dollars and a substantial portion of our future capital expenditures are expected to be in U.S. dollars. We require a significant amount of U.S. dollars for our ongoing equipment upgrade and maintenance programs. Any devaluation of any of the Baht, the Australian dollar, the Singapore dollar and the Renminbi against the U.S. dollar would increase the effective cost of foreign manufacturing equipment and the amount of our foreign currency denominated expenses and liabilities, which would have an adverse impact on our operations.
Although our reporting currency is U.S. dollars, the functional currency of our Thailand region, which accounted for 48.56% of our sales in 2017, is the Thai Baht. The functional currencies of our ROW region, which accounted for 27.56% of sales in 2017, are the Australia dollar and the Singapore dollar. The functional currencies for our North Asia operations, which, in total accounted for 23.88% of our sales in 2017, are divided into two groups: for Shandong Pacific Rubber Cable Company, Ltd. (“SPRC”), equity investee with 25% equity owned by APWC, (accounting under equity method), and Shanghai Asia Pacific Electric Co., Ltd. (“Shanghai Yayang”), their functional currency is Renminbi, while for CCH HK and PEWS their functional currency is U.S. dollars. Accordingly, the functional currency accounts of these operations are all translated into U.S. dollars utilizing the reporting date exchange rate for balance sheet accounts, and an average exchange rate for the year for the income statement accounts, for reporting purposes. Any devaluation of the Baht, the Australian dollar, the Singapore dollar, or the Renminbi against the U.S. dollar would adversely affect our financial performance, as measured in U.S. dollars.
In addition to our operating revenues being generated in local currencies, a portion of our investment assets are denominated in foreign currencies, including the RMB. Accordingly, our investment results will be subject to possible currency rate fluctuations as well as the volatility of overseas capital markets. Our results of operations may be materially impacted by those fluctuations and volatility.
Competition
The wire and cable industry in the Asia Pacific region is highly competitive, and if we fail to successfully invest in and maintain product development, productivity improvements and customer service and support, sales of our products could be adversely affected. Our competitors include a large number of independent domestic and foreign suppliers. Certain competitors in each of our markets have substantially greater manufacturing, sales, research and financial resources than we do. We and other wire and cable producers compete primarily on the basis of product quality and performance, reliability of supply, customer service and price. To the extent that one or more of our competitors are more successful with respect to the primary competitive factors, our business could be adversely affected. In addition, the Company’s profit could be adversely impacted if low margin wire and cable manufacturers in China enter into the markets where we operate. With respect to certain of our products, they are made to common specifications and may be interchangeable with the products of certain of our competitors. Since customers could potentially substitute our products with those of our competitors, customer loyalty is an important pillar of our business’s competitive position.
In addition, the U.S. government on April 3rd, 2018, published a list of about 1,300 Chinese exports that could be targeted for tariffs. The U.S. planned to apply the tariffs to good to punish China for its theft of trade secrets, including software, patents and other technology. A tariff would be applied to all the products, according to the US Trade Representative. While the final result is still unknown at this stage, our business in China might be adversely impacted indirectly if the U.S. government decides to take the action and apply a tariff on those products as the action might also adversely impact the business of the Company’s customers in China.
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Failure to properly execute customer projects in certain highly concentrated markets may adversely impact our ability to obtain similar contracts from other customers in the market and may result in material financial penalties. In certain markets, sales of manufactured products are highly concentrated in large state-controlled entities or large private infrastructure developers. As those markets are often highly concentrated, the loss of individual customers in such markets may have a material adverse impact on our position in that market as a whole.
Risks associated with Required Productivity Increases
Our business strategy includes a focus on increasing profitability through increased efficiency and productivity. In the event we are not able to implement measures to increase efficiencies and productivity, we may be limited in achieving increased profitability or may become less profitable. Moreover, productivity increases are linked to capacity utilization rates. A drop in the utilization rate of our manufacturing capacity would adversely impact productivity.
Employees’ Unions
Some of the operating subsidiaries of the Company have a large number of employees that are members of employees’ unions. Failure to successfully negotiate and/or renew collective agreements, strikes, or other labor disputes could result in a disruption of our operations. While the Company has never experienced a strike or other disruption due to labor disputes, the possibility exists that a labor dispute could lead to a disruption of our operations, hindering our ability to serve our customers, and ultimately having a material adverse impact on the Company’s results of operations.
Information Systems
The Company's subsidiaries have their respective information systems to support the operation of each subsidiary. Some of the Company’s subsidiaries have implemented a sophisticated system upon which they place great reliance for efficient operations. Most of the business operations, including sales, procurement, production, inventory and accounting, are processed by our internal information systems. Our operating subsidiaries vary in the degree of reliance that they place on their information systems. However, in each of our operating subsidiaries business operations may be adversely affected by the failure or breakdown of the information system, which could be the result of an attack by hackers, computer virus infection, faulty hardware or software corruption. A disruption of the information system can significantly impact the Company’s business operations. Among other things, financial data may be corrupted and financial information may not be accurately reported or presented in a timely manner, which might impair the Company’s ability to timely file periodic or annual reports with the SEC or timely disseminate material information to shareholders. A system failure could also result in a decrease in customer satisfaction because of a delay in the delivery of goods or order processing.
Increased reliance on information systems requires the implementation of IT security measures to protect networks, computers, programs and data from attack, damage or unauthorized access and ensure the confidentiality, availability and integrity of the Company data. If the IT security measures the Company implemented are compromised and fail to protect systems, networks and data, or if an event of force majeure occurs and the Company’s disaster recovery plan is not operating effectively, the Company’s business may be disrupted and stand to lose assets, reputation and business and potentially face regulatory fines and litigation as well as the cost of remediation, which may adversely impact the Company’s operating and financial results.
Employees and Personnel
If we fail to retain our key employees and attract qualified personnel, our business may be harmed. The loss of any of our executive officers or other key employees without a properly implemented transition plan, could have ana material adverse effect on our business, financial condition and results of operations. The loss of executive officers or key employees could impair customer relationships and result in the loss of vital industry knowledge, expertise, and experience. There is also a risk of losing key employees to our competitors, which could pose a possible risk of the theft of trade secrets, with competitors then gaining valuable information about our manufacturing process. Increased costs associated with recruiting, motivating and retaining qualified personnel could have a negative impact on our profitability. The Company’s future success depends on its continued ability to attract and retain talented and qualified personnel.
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As of December 31, 2017, the Company had a total of $250.9 million in credit available to itself, or one or more of its operating subsidiaries. The available credit is provided by a total of 10 banks in the various regions/territories in which we operate. Out of total available credit, $144.5 million was unused and available for borrowing. The Company, collectively and on an individual basis, is not highly leveraged and management does not consider it to be likely that the Company will become highly leveraged. The weighted average borrowing rate, for all the outstanding loans combined, was 2.85% for 2017, which runs, at this particular point in time, slightly lower than like-kind borrowing rates that might otherwise be available to us from lenders with which we do not have established relationships, i.e., three month LIBOR (data of March 15, 2018) of 2.18% plus 2.5%.
Impairment Charges
We recognized impairment charges on the property, plant and equipment at Ningbo Pacific Cable Co., Ltd. (“Ningbo” or “NPC”) and at Siam Fiber Optics in the amounts of $0.2 million and $0.001 million for the year of 2017, respectively due to lack of profitability. Should there be changes to the market conditions or in the event we close any of our manufacturing facilities, we may be required to recognize additional impairment charges for our long-lived assets. To the extent the Company must incur impairment charges on our long-lived assets, there may be an adverse effect on our financial condition, including earnings per share and other financial results.
An impairment charge may be incurred for various reasons including, but not limited to, strategic decisions made in response to changes in economic and competitive conditions, the impact of the economic environment on our business or a material adverse change in any material relationships with our clients. If we recognize significant impairment charges, our results of operations may be materially and adversely affected.
Composite Services Agreement with PEWC
We engage in transactions in the ordinary course of business with PEWC, including the purchase of certain raw materials and the distribution of PEWC products in various countries in the Asia Pacific region. We and PEWC have entered into a composite services agreement dated November 7, 1996, as amended and supplemented (the “Composite Services Agreement”), which contains provisions that define our relationship and the conduct of our respective businesses and confers certain preferential benefits on us. The Composite Services Agreement is renewable at our option and is currently in force. Under the Composite Services Agreement, PEWC is one of our suppliers of copper and it also provides research and development services for our products. However, we are unable to predict whether PEWC would, at some future date, seek to limit, or be unable to perform in whole or in part, the business it conducts with the Company pursuant to the terms of the Composite Services Agreement.
Risks Relating to Thailand Region
A substantial portion of our Thai operations, which accounted for approximately 48.6% of our total net sales in 2017, consists of the manufacture of telecommunications and power cable and sales of those products for use in large-scale telecommunications projects and various construction projects in Thailand. As a result, our future results will depend in part on the political situation in Thailand and the general state of the Thai economy. With the political tension remaining high in Thailand, the continuing political uncertainty and the risk of further social unrest tends to lessen the attractiveness of the local market for foreign investment, and diminishes the focus of the government on infrastructure development, both of which considerations may adversely impact on the volume of business of the Company’s actual and potential customers in the Thai market. In August 2017, the former prime minister was convicted in a major corruption scandal and the military launched another coup and assumed power after the prime minister fled the country. In addition, in 2017 the formal cremation of the long-standing King Bhumibol, who passed away in 2016, took place. The king was seen as a stabilizing influence in Thai politics and it is not clear that his son who succeeded him will exert a similar positive influence. Elections have been postponed on multiple occasions and are scheduled to take place in 2018; however, it is not clear that elections, if held, will stabilize the volatile political situation in Thailand.
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The Company’s Thai operations remain vulnerable to uncertainties with regard to payment for current sales and the award of future contracts in view of the ongoing political instability in Thailand. Additionally, in recent years the Thai economy has been highly cyclical and volatile, depending for economic growth in substantial part on a number of government initiatives for economic expansion. Moreover, the Baht remains volatile and subject to significant fluctuations in relation to the U.S. dollar. Such fluctuations in the value of the Baht may negatively impact our performance.
Environmental Liabilities
We are subject to certain environmental protection laws and regulations governing our operations and the use, handling, disposal and remediation of hazardous substances used by us. A risk ofWe could incur environmental liability could arise from our manufacturing activities in the event of a release or discharge by us of a hazardous substance. Under certain environmental laws, we could be held responsible for the remediation of any hazardous substance contamination at our facilities and at third party waste disposal sites and could also be held liable for any consequences arising out of human exposure to such substances or other environmental damage. There can be no assurance that the costs of complying with environmental, health and safety laws and requirements inarising from our current operations, or the liabilities arising from past releases of, or exposure to, hazardous substances, will not result in future liabilities incurred, or expenditures payable, by us that would materially adversely affect our business, financial condition and results of operations.
Information Systems Failure or Cyber Security Breaches Could Have a Material Adverse Effect on Our Business, Financial Condition, and Results of Operations
APWC's subsidiaries each have their respective information systems to support the operation of such subsidiary. While APWC’s operating subsidiaries vary in the degree of reliance that they place on their information systems, any failure or interruption of these systems could materially adversely affect the Company’s business, financial condition and results of operations. Among other things, financial data may be corrupted and financial information may not be accurately reported or presented in a timely manner, which could impair the Company’s ability to timely file periodic or annual reports with the SEC or timely disseminate material information to shareholders.
Cyber security presents risks and threats to us because intense competition in the wire and cable sector renders the Company vulnerable to theft and copying of design specifications. While the Company relies upon its majority shareholder, PEWC, for much of its research and development, its products are designed precisely to meet customer specifications for the applications for which they are intended. Cyber security risks create the potential for a material adverse impact on the Company’s business, financial condition and result of operations due to, but not limited to, losing intellectual property, implementing reactive measures, managing litigation or investigations, addressing reputational harm, or losing a competitive advantage. To date, none of the cyber incidents identified have had a material adverse effect on our business. However, we do not have visibility into all unauthorized incursions and our systems may be experiencing ongoing incursions of which we are not aware. Mitigating these risks requires ongoing management oversight to ensure that sufficient controls and procedures are in place for appropriate persons to receive pertinent cyber security risk information to take appropriate action. We cannot offer any assurance that those controls and procedures will be sufficient to protect against cyber security risks and that our business, financial condition and results of operations will not be materially and adversely affected as a result of any such failure.
Increased reliance on information systems requires the implementation of information technology (“IT”) security measures to protect networks, computers, programs and data from attack, damage or unauthorized access and ensure the confidentiality, availability and integrity of Company data. The Company employs safeguards, both technological and contractual, in order to protect its proprietary interests and those of its customers and third-party licensors, including, without limitation, certain insurance against theft and risk of loss. However, we cannot guarantee that such safeguards will protect the Company from all types of IT and cyber security threats. If the Company’s IT and cyber security measures are compromised or otherwise fail to protect systems, networks and data, or if an event of force majeure occurs and the Company’s disaster recovery plan does not operating effectively, the Company’s business may be disrupted and stand to lose assets, reputation and business, and potentially face regulatory fines and litigation as well as the cost of remediation, which could materially adversely impact the Company’s business, financial condition and results of operations.
Risks Related to our Financial Activities
Restrictive covenants and default provisions in our existing debt agreements may materially restrict our operations as well as adversely affect our liquidity, business, financial condition and results of operations.
If our business units do not generate sufficient cash flows from operations, we may be unable to make required payments on our debt, including on debt secured by our or our subsidiaries’ assets. Any such failure to
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make any such payment could have a material adverse effect on our liquidity, business, financial condition and results of operations.
In addition our debt agreements contain restrictive covenants and default provisions. Covenants in the agreements governing our existing debt, and debt we may incur in the future, may materially restrict our operations, including our ability to incur debt, pay dividends, make certain investments and payments, and encumber or dispose of assets. In addition, any global economic deterioration may cause us to incur significant net losses or force us to assume considerable liabilities. We cannot assure you that we will be able to remain in compliance with our financial covenants, which, as a result, may lead to a default. This may thereby restrict our ability to access unutilized credit facilities or the global capital markets to meet our liquidity needs. Furthermore, a default under any agreement by APWC or APWC’s subsidiaries may trigger cross-defaults under our other agreements. In the event of default, we may not be able to cure the default or obtain a waiver on a timely basis. An event of default under any agreement timely governing our existing or future debt, if not cured or waived, could have a material adverse effect on our liquidity, business, financial condition and results of operations. Please see Section 5.b. (“Liquidity and Capital Resources”) of this Annual Report and Note 27(c) of our consolidated financial statements referenced in Item 18 of this Annual Report for a further discussion of our secured and unsecured indebtedness, including with respect to the loan agreement pursuant to which APWC borrowed $6 million from PEWC (which loan is secured by a pledge of APWC’s 98.3% ownership interest in our subsidiary, Sigma Cable Company (Private) Limited).
We Face Uncertainties Relating to the Phasing Out of LIBOR
In July 2017, the U.K. Financial Conduct Authority, which regulates the London interbank offered rate (LIBOR), announced that it intends to phase out LIBOR by the end of 2021. Discontinuation of LIBOR and uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the amounts of interest we pay under our debt arrangements and materially adversely affect our business, financial condition and results of operations.
Risks Relating to Our Exposure to Foreign Exchange Fluctuations
Our principal operations and properties are located in the three regions that constitute our business segments, namely the North Asia, Thailand and Rest of the World (“ROW”) regions. Although our reporting currency is the U.S. dollar, the functional currency of our Thailand region, which accounted for 45.81% of sales in 2020, is the Thai Baht. The functional currencies of our ROW region, which accounted for 30.85% of sales in 2020, are the Australia dollar and the Singapore dollar. The functional currencies for our North Asia operations, which, in total accounted for 23.34% of sales in 2020, are divided into two groups: (i) PEWSC, whose functional currency is the Renminbi, and (ii) CCH HK, whose functional currency is the U.S. dollar. Accordingly, the functional currency accounts of these operations are all translated into U.S. dollars utilizing the reporting date exchange rate for balance sheet accounts, and an average exchange rate for the year for the income statement accounts, for reporting purposes. Any devaluation of the Baht, the Australian dollar, the Singapore dollar, or the Renminbi against the U.S. dollar would adversely affect our financial performance, as measured in U.S. dollars.
The Company conducts business in many foreign currencies and is subject to exchange rate risk on cash flows related to sales, expenses, financing and investment transactions. A substantial portion of our aggregate revenues is denominated in the following currencies: Renminbi, Baht, Australian dollars and Singapore dollars, while our purchases of raw materials and expenditures related to equipment upgrades are largely denominated in U.S. dollars. Any devaluation of the Baht, the Australian dollar, the Singapore dollar or the Renminbi against foreign currencies (such as the U.S. Dollar) would increase the effective cost of transactions denominated in such other foreign currencies. This would have an adverse impact on our operations and cash flows. Likewise, an increase in U.S. dollar borrowing costs and any increase in the strength of the U.S. dollar in foreign exchange markets (which could also increase borrowing rates) could materially adversely affect our business in the markets where we have operating plants (Thailand, China, Singapore and Australia). Consequently, adverse movements in exchange rates could have a material adverse effect on our business, financial condition and results of operations.
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In addition, a portion of our investment properties and financial instruments are denominated in currencies other than the U.S. dollar. Accordingly, our investment results will be subject to possible currency rate fluctuations as well as the volatility of overseas capital markets. Our results of operations may be materially impacted by those fluctuations and volatility.
Impairment Charges
In prior years, we have on occasion recognized impairment charges on certain property, plant and equipment due to lack of profitability. An impairment charge may be incurred for various reasons including, but not limited to, strategic decisions made in response to changes in economic and competitive conditions, the impact of the economic environment on our business or a material adverse change in any material relationships with our clients. If we recognize significant impairment charges, our results of operations may be materially adversely affected.
Risk Relating to the Regions in which We Operate
Risks Relating to Thailand
A substantial portion of our Thai operations consists of the manufacture of telecommunications and power cables and sales of those products for use in various construction and infrastructure projects in Thailand. The performance of the Company’s Thai operations is affected by the political and economic situation in Thailand. In recent years, the level of government involvement in infrastructure development has tended to track increases or contractions in Thailand’s gross domestic product and the Thai economy has been highly cyclical and volatile, depending for economic growth in substantial part on a number of government initiatives for economic expansion. Overall, the construction industry and infrastructure projects have slowed considerably, thereby affecting local sales, placing competitive pressure on prices and prompting the Company to rationalize Thai operations and actively seek overseas markets. Political tensions remain high in Thailand and political instability in Thailand tends to diminish governmental focus on infrastructure development projects, which can materially adversely impact the volume of sales to (and payment by) our customers who are engaged in large infrastructure projects and, consequently, materially adversely affect our business, financial condition and results of operations.
Our auditor’ China affiliate, like other independent registered public accounting firm operating in China, are not permitted to be subject to inspection by Public Company Accounting Oversight Board, and consequently investors are deprived of the benefits of such inspection.
Our auditor, the independent registered public accounting firm that issued the audit report included elsewhere in this annual report, as auditor of companies that are traded publicly in the United States and firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditor’s China affiliate is located in, and organized under the laws of, the PRC, which is a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities.
In December 2020, the United States enacted the Holding Foreign Companies Accountable Act (the “HFCAA”). The HFCAA requires that the SEC identify issuers that retain an auditor that has a branch or office that is located in a foreign jurisdiction and that the PCAOB determines it is unable to inspect or investigate completely because of a position taken by an authority in that foreign jurisdiction. Amongst other things, the HFCAA also requires the SEC to prohibit the securities of any issuer from being traded on any of the U.S. national securities exchanges, such as Nasdaq, or on the U.S. “over-the-counter” markets, if the auditor of the issuer’s financial statements is not subject to PCAOB inspections for three consecutive “non-inspection” years after the law became effective.
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On April 5, 2021, the SEC’s interim final rule to implement the disclosure and submission requirements of the HFCAA was published in the U.S. Federal Register, along with the SEC’s request for public comment on the interim final rule. Regarding how the term “retain” should be interpreted for purposes of determining whether an issuer has retained an auditor that has a branch or office that is located in a foreign jurisdiction and that the PCAOB determines it is unable to inspect or investigate completely because of a position taken by an authority in that foreign jurisdiction, the SEC noted in the interim final rule that the HFCAA does not define the term “retain”, and requested comment on how the term “retain” should be understood for purposes of the HFCAA.
The auditor of our PRC-based subsidiaries is located in the PRC and that auditor is an affiliate of APWC’s Taiwan-based auditor that signs APWC’s audit report. Given the current question as to how “retain” should be understood for purposes of the HFCAA, we cannot assure you that we will not be identified by the SEC as an issuer that has retained an auditor that has a branch or office that is located in a foreign jurisdiction that the PCAOB determines it is unable to inspect or investigate completely because of a position taken by an authority in that foreign jurisdiction as a result of the fact that the auditor of our China affiliates is located in, and organized under the laws of, the PRC. In addition, there can be no assurance that, if we have a “non-inspection” year, we will be able to take remedial measures in response thereto. Given the foregoing, we cannot assure you that we will be able to maintain the listing of the Common Shares on Nasdaq or that you will be allowed to trade the Common Shares in the United States on the “over-the-counter” markets or otherwise. Should the Common Shares not be listed or tradeable in the United States, the value of the Common Shares could be materially affected.
This lack of PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of our independent registered public accounting firm. As a result, we and investors in the Common Shares are deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s China affiliate’s audit procedures or quality control procedures as compared to auditor outside of China that are subject to PCAOB inspections, which could cause investors and potential investors in the Common Shares to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
The PRC Legal System May Limit the Company’s Remedies
The PRC legal system is a civil law system based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since the late 1970s, the PRC central government has promulgated a comprehensive system of laws, rules and regulations governing economic matters. However, China has not developed a fully integrated legal system. Recently enacted laws and regulations may not sufficiently cover all aspects of economic activities and the interpretation and enforcement of these laws and regulations involves uncertainties and can be inconsistent and unpredictable. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, the remedies and the legal protection we enjoy may be limited in the event of any claims or disputes with third parties. In addition, any litigation in China may be protracted and could result in substantial costs and diversion of resources and management attention. As the PRC legal system continues to evolve, we cannot predict if future developments in the PRC legal system could be detrimental to the Company and have a material adverse effect on its business, financial condition and results of operations.
Uncertainties Exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and how it may affect the Company’s Corporate Governance
On January 1, 2020, the PRC Foreign Investment Law (the “Foreign Investment Law”) and the Regulations for Implementation of the Foreign Investment Law (the “Implementation Regulations”), came into effect and replaced the trio of prior laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law, and the Wholly Foreign-invested Enterprise Law, together with their implementation rules. Since the Foreign Investment Law and the Implementation
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Regulations are relatively new, uncertainties still exist in relation to its interpretation and implementation. The Foreign Investment Law and the Implementation Regulations may affect our relevant corporate governance practices and increase our compliance costs. For instance, the Foreign Investment Law and the Implementation Regulations require that foreign-invested enterprises established before the Foreign Investment Law became effective have 5 years to complete the necessary adjustments to their organization form, governance structure and other required matters to comply with the PRC Company Law, the Partnership Enterprise Law and other laws. The PRC Company Law significantly differs from the Sino-foreign Equity Joint Venture Enterprise Law and the Sino-foreign Cooperative Joint Venture Enterprise Law. These differences include, but are not limited to, an enterprise’s highest authority, minimum number of directors, quorum, term of directors, voting mechanisms, profit distributions and equity transfer restrictions. According to the Implementation Regulations, the provisions regarding equity interest transfer and distribution of profits or remaining assets may remain the same as previously provided in the contracts among the joint venture parties of a foreign-invested enterprise. Uncertainties still exist with respect to the specific adjustments foreign-invested enterprises must make. The local branch of the State Administration for Market Regulation of the PRC (the “SAMR”) may, at its discretion, require our PRC subsidiaries to make necessary adjustments to their articles of association and other filing documents to comply with the PRC Company Law and the Partnership Enterprise Law, as applicable.
In addition, the Foreign Investment Law and the Implementation Regulations impose information reporting requirements on foreign investors and foreign-invested enterprises. Any foreign investors or foreign-invested enterprises found to be non-compliant with these reporting obligations may be subject to fines or administrative liabilities.
The Foreign Investment Law does not address intercompany loans or the registration of profits of foreign-invested enterprises. It is not known whether these matters will be addressed by additional laws or regulations promulgated pursuant to the Foreign Investment Law. The Foreign Investment Law and the Implementation Regulations could be interpreted and implemented in a manner that could have a material adverse effect on the Company’s business, financial condition and results of operations.
PRC Regulations of Loans to and Direct Investment in PRC Entities by Offshore Holding Companies may delay or prevent us from making Loans or additional Capital Contributions to our PRC Subsidiaries, which could materially adversely affect our ability to fund and expand our business
We conduct substantial business operations in China. We may make loans or capital contributions to our PRC subsidiaries. Loans or capital contributions by APWC or any of our offshore subsidiaries to our PRC subsidiaries, which are treated as foreign-invested enterprises under PRC law, may be subject to PRC regulations and/or foreign exchange loan registrations. Such loans to any of our PRC subsidiaries to finance their activities generally cannot exceed statutory limits and must be filed with the State Administration of Foreign Exchange (the “SAFE”). We may also decide to finance our PRC subsidiaries by means of capital contributions, in which case the PRC subsidiary is required to register the details of the capital contribution with the relevant governmental authorities in China.
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans or capital contributions by the Company to our PRC subsidiaries and conversion of such loans or capital contributions into RMB. If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially adversely affect our ability to fund and expand our business, and could materially adversely affect or business, financial condition and results of operations.
Political or Social Instability, Including Tensions Between PRC and Taiwan, May Materially Adversely Affect the Company’s Business, Financial Condition, and Results of Operations
Political or social instability in China could also materially adversely affect our business operations or financial condition. Lack of political or social certainty exposes our operations to increased risk of adverse or
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unpredictable actions by PRC government officials. For example, APWC’s principal office is located in Taipei, Taiwan, and any escalation in political tensions between the PRC and the government of Taiwan could materially adversely impact our ability to manage our operations in the PRC efficiently or without third party interference. The PRC government has long advocated a one-China policy with regard to the Republic of China. Any overtly aggressive actions by the PRC towards Taiwan could have a materially destabilizing impact on Taiwan generally, and on our business in particular, and could materially and adversely affect our business, financial condition and results cash flowsof operations.
PRC State-Owned Enterprises (“SOEs”) May Have Competitive Advantages that We May Not Be Able to Overcome
Much of the PRC's manufacturing output is still conducted through SOEs, which are often subsidized by the government such that they are protected against the challenges of market forces confronting private enterprises. As a consequence, it can become untenable for private enterprises in competition with SOEs to conduct profitable operations when the SOEs are being subsidized by the government and may operate in a loss position for an extended period. The Company’s business, financial condition and results of operations may be materially adversely affected in the event it must compete with such SOEs.
Risks Related to the Common Shares and APWC
The Common Shares may be delisted from Nasdaq, which could affect their market price and liquidity. If the Common Shares are delisted, investors may have difficulty disposing of their shares.
The Common Shares are currently listed on Nasdaq under the symbol “APWC” on the Capital Market tier. In order for the Common Shares to remain the listed on the Nasdaq Capital Market tier, we must continue to meet certain minimum financial and other requirements including, without limitation, maintaining a closing bid price for the Common Shares of at least $1.00 per share. Nasdaq’s rules provide for the delisting of the Common Shares if the closing bid price for the Common Shares falls below $1.00 per share for 30 consecutive business and we are unable to regain compliance with the applicable requirements in the time permitted by Nasdaq.
In addition to Nasdaq’s enumerated criteria for continued listing on the Capital Market tier, Nasdaq also has broad discretionary public interest authority that it can exercise to apply additional or more stringent criteria for the continued listing of the Common Shares, or suspend or delist securities even though the securities met all enumerated criteria for continued listing on Nasdaq. We cannot assure you that Nasdaq will not exercise such discretionary authority.
In accordance with the provisions of the Exchange Control Act 1972, as amended, and related regulations of Bermuda, the permission of the Bermuda Monetary Authority (the “BMA”) is required for all issuances and transfers of shares (which includes the Common Shares) of Bermuda companies to or from a non-resident of Bermuda for exchange control purposes, other than in cases where the BMA has granted a general permission. The BMA, in its notice to the public dated June 1, 2005, has granted a general permission for the issue and subsequent transfer of any securities of a Bermuda company from and/or to a non-resident of Bermuda for exchange control purposes for so long as any “Equity Securities” of the company (which include the Common Shares) are listed on an “Appointed Stock Exchange” (which would include Nasdaq). In granting the general permission the BMA accepts no responsibility for APWC’s financial condition.
Alternative Transmission Technologies
Our telecommunications cable business issoundness or the correctness of any of the statements made or opinions expressed herein. Consequently, if the Common Shares are delisted from Nasdaq, it will be necessary to obtain the prior permission of the BMA to transfer such Common Shares to any transferee, subject to competitionany applicable general permissions issued by the BMA.
There can be no assurance that the Common Shares will remain listed on Nasdaq on any tier. Any delisting of the Common Shares could materially adversely affect their market price and liquidity. If the Common Shares are
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delisted, APWC expects its Common Shares would be quoted on an over-the-counter market. If this were to occur, APWC’s shareholders could face significant material adverse consequences, including the need to receive permission from the BMA to transfer the Common Shares, limited availability of market quotations for the Common Shares and reduced liquidity for the trading of the Common Shares. In addition, APWC could experience a decreased ability to issue additional securities and obtain additional financing in the future.
As a foreign private issuer, APWC is exempt from a number of rules under the U.S. securities laws and is permitted to file less information with the SEC than a U.S. company.
APWC is a “foreign private issuer”, as defined in the SEC’s rules and regulations and, consequently, APWC is not subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, APWC is exempt from certain rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act. In addition, APWC’s senior management and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of APWC’s securities. Moreover, APWC is not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies, and is not required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. Accordingly, there is less publicly available information concerning the Company than there would be if APWC was a U.S. public company.
Future sales of APWC’s Securities may cause the prevailing market price of the Common Shares to decrease
There may be future sales or other transmission technologies, principally wireless-based technologies. Wireless telecommunications businesses have sometimes madedilution of APWC’s equity, which could materially adversely affect the market price of the Common Shares. APWC may, from time to time, issue equity securities, including Common Shares or securities that are convertible into or exchangeable for, or that represent the right to receive, Common Shares. The market price of the Common Shares could decline as a result of issuances of any such equity securities or any such securities that are convertible into or exchangeable for, or that represent the right to receive, Common Shares, or as a result of the perception that such issuances could occur.
The Market for the Common Shares May Not Be Liquid
Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors, compared to less active and less liquid markets. Thinly-traded securities equity can be more volatile than equity securities for which there is significant trading volume. In addition, APWC’s share price may be volatile and could be subject to fluctuations in response to various factors, most of which are beyond our control. Liquidity of a securities market is often a function of the volume of the underlying shares that are publicly held by unrelated parties. Approximately 75.5% of APWC’s issued and outstanding common shares are directly or beneficially owned by Pacific Electric Wire & Cable Co., Ltd. (“PEWC”), a Taiwanese company, which Common Shares are subject to restrictions on trading. In addition, although the Common Shares currently remain traded on the Nasdaq Capital Market tier, the trading and demand for the Common Shares has been limited. As a consequence, shareholders may find that the value of their Common Shares and/or their ability to sell their Common Shares quickly or in substantial inroadsamounts may be materially adversely affected by the limited public trading market. In the future, the Common Shares may experience significant price fluctuations which could materially adversely affect the value of your ownership interest in early emerging markets where sufficient fundingAPWC.
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APWC May Not Be Able to Resume Paying a Dividend and Any Dividends Paid in the Future Could be Reduced or Eliminated
APWC did not pay dividends in 2019 or in 2020. There are a number of factors that can affect APWC’s ability to pay dividends and there is no guarantee that APWC will pay dividends in any given year or pay any specific amount of dividends. APWC may not then be able, or may choose not to reinstate its dividend program and pay future dividends, and if reinstated any future dividend could again be eliminated or reduced. The declaration, amount and payment of future dividends are at the discretion of APWC’s board of directors (the “Board of Directors”) and will be dependent on the Company’s future operating results and the cash requirements of the Company’s business. In addition, APWC will not pay dividends in the event it is not allowed to do so under Bermuda law. Furthermore, since APWC is a holding company, nearly all of the assets shown on its consolidated balance sheet are held by its subsidiaries. Accordingly, APWC’s cash flow and its ability to pay dividends are dependent upon distributions from its subsidiaries. The reduction, suspension or elimination of dividends may negatively affect the market price of the Common Shares.
Holding Company Structure; Potential Restrictions on the Payment of Dividends
APWC is a holding company with no direct business operations other than its ownership of the capital stock of its subsidiaries and equity investees. APWC’s principal assets are the equity interests it directly or indirectly holds in its operating subsidiaries. As a holding company, APWC’s ability to pay dividends and meet its other obligations depends upon the amount of distributions, if any, received from its operating subsidiaries and other holdings and investments. APWC’s operating subsidiaries and other holdings and investments, from time to time, may be subject to restrictions on their ability to make distributions to APWC, including, but not limited to, as a result of restrictive covenants contained in loan agreements, restrictions on the conversion of local currency earnings into U.S. dollars or other currency, and other regulatory restrictions. For example, PRC legal restrictions permit payments of dividends by our business entities in the PRC only out of their retained earnings, if any, determined in accordance with relevant PRC accounting standards and regulations. Under PRC law, such entities are also required to set aside a portion of their net income each year to fund certain reserve funds. These reserves are not distributable as cash dividends. The foregoing restrictions may also affect APWC’s ability to fund operations of one subsidiary with dividends and other payments received from another subsidiary. Distributions may also be limited from time to time by reason of restrictions protective of the rights of minority shareholders of APWC’s subsidiaries and by reason of the current cash requirements of APWC’s operating subsidiaries.
Corporate Matters; Limited Recourse; Limited Enforceability
APWC is incorporated in and organized pursuant to the laws of Bermuda with its principal office located in Taiwan. All of APWC’s directors and officers reside outside the United States and the Company’s material assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon such persons or to realize judgements against them in courts of the United States predicated upon civil liabilities under the United States federal securities laws. Even if investors are successful in realizing judgments against such persons in courts of the United States, the laws of Taiwan may render such investors unable to enforce the judgment against the Company’s assets or the assets of APWC’s officers and directors. Also, investors may have difficulty in bringing an original action based upon the United States federal securities law against such persons in the Taiwan courts. Additionally, there is doubt as to the enforcement in Bermuda, in original actions or in actions for enforcement of judgments of United States courts, of liabilities predicated upon U.S. federal securities laws. As a result, shareholders may encounter more difficulties in enforcing their rights and protecting their interests in the face of actions taken by management, the Board of Directors or controlling shareholders than they would if APWC was organized under the laws of the United States or one of the states therein, or if the Company had material assets located within the United States, or some of the directors and officers resided within the United States.
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Control of the Company Rests with Majority Shareholder; Controlled Company and Foreign Private Issuer Exemptions; Risks Related to PEWC
The Common Shares currently remain traded on Nasdaq. However, as APWC has a more than fifty percent (50%) shareholder, APWC relies upon a “controlled company exemption” to the requirement that a company have a board of directors comprised of a majority of independent directors in order to be listed on Nasdaq. At present, a majority of the board of directors of APWC is affiliated with PEWC. APWC also relies on Nasdaq’s allowance for foreign private issuers to follow home country practices in lieu of the requirement that listed companies have regularly scheduled meetings at which only independent directors are present (“executive sessions”). The independent directors of APWC meet periodically in executive session in their capacity as members of APWC’s Audit Committee of APWC’s Board of Directors without other directors present, but on occasion meet with APWC’s independent auditors present in such executive session, and on occasion meet with members of management present in order to understand more fully management’s analysis of the Company’s financial performance and compliance with relevant corporate governance requirements.
As APWC’s majority shareholder, PEWC has sufficient votes to control the outcome of any matter presented for a shareholder vote, including the election of each member of APWC’s Board of Directors. PEWC may vote its shares in APWC in the manner that it sees fit. In addition, subject to applicable securities laws, PEWC may sell, convey or encumber all or a portion of its ownership interest in APWC without regard to the best interests of APWC’s other shareholders except to the extent that it is prohibited from engaging in conduct oppressive to non-controlling interests under applicable law. The interests of PEWC may conflict with our interests or the interests of our other shareholders. As a result, PEWC may take actions with respect to us or our business that may not be in our or our other shareholders’ best interest.
Financial or corporate governance issues at PEWC may affect PEWC’s attention to and actions with respect to APWC, including with respect to its performance of its obligations under, or increase uncertainty regarding its ability to perform its obligations under, the Composite Services Agreement between PEWC and the Company. (See “Item 3.D. Risk Factors – PEWC may not perform its obligations under the Composite Services Agreement” and “Item 10.C. Material Contracts” for a description of the Composite Services Agreement.).
Potential Conflict of Certain Officers and Directors
APWC has three independent directors. The other six members of APWC’s Board of Directors are also directors or officers of, or otherwise affiliated with, PEWC, APWC’s majority shareholder. Certain of the Company’s officers are also affiliated with PEWC. In each case, they may be subject to potential conflicts of interest. In addition, certain of the Company’s officers and directors who are also officers and/or directors of PEWC may be subject to conflicts of interest in connection with, for example, pursuing corporate opportunities in which the Company and PEWC or one of its affiliates have competing interests, and in the performance by the Company and PEWC of their respective obligations under existing agreements, including the Composite Services Agreement. In addition, some of these persons devote time to the business and affairs of PEWC and its affiliates, which could reduce the amount of time available for overseeing or managing the Company’s business and affairs.
General Risk Factors
Any failure to installachieve and maintain effective internal controls could have a material adverse effect on our reputation, business, financial conditions, and results of operations and the infrastructuremarket price of the Common Shares.
Effective internal controls are necessary for market-wide fixed line telecommunications. In addition,us to provide reasonable assurance with respect to our financial reports and to prevent fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the easeobjectives of usethe control system are met. Further, the design of wireless telecommunicationsa control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may make that medium an attractive alternativebecome inadequate because of changes in circumstances where accessconditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a
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cost-effective control system, misstatements due to fixed line telecommunications is limited. While these technologies do present significant competitionerror or fraud may occur and not be detected. As a result, even effective internal controls are able to provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. Any failure in our internal control could result in a material adverse effect on our business and a decline of investor confidence in the markets inreliability of our financial statements, which we conductcould materially adversely affect the market price of the Common Shares.
International Trade Policies May Negatively Impact Our Business, Results of Operations and Financial Condition
Government policies on international trade and investment such as import quotas, tariffs, and capital controls, whether adopted by individual governments or plan to conduct business,addressed by regional trade blocs, can affect the Company believes that demand for its fixed wireour products will remain strong. However, no assurance canand services and those of our customers and impact the competitive position of our products or services or those of our customers. For example, the business of our customers in China may be given thatadversely impacted by the continuing trade friction between the United States and China. We cannot predict future developmenttrade policy or the terms of any renegotiated trade agreements and usetheir impact on our business. The adoption and expansion of such alternative technologies will nottrade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely affectimpact demand for our products, our costs, our customers, and our suppliers, which in turn could materially adversely impact our business, financial condition and results of operations.
International Business Risks
We are subject to risks specific to our international business operations, including: the risk of supply disruption; production disruption or other disruption arising from events of force majeure, such as the severe weather and climatic events that caused the 2011 floods in Thailand;events; the outbreak of highly infectious or communicable diseases such as COVID-19, Severe Acute Respiratory Syndrome, swine influenza or pandemics of a similar nature; the risk of potential conflict and further instability in the relationship between Taiwan and the PRC; risks related to national and international political instability, such as disruptions to business activities and investment arising out of the political unrest and turmoil in Thailand; risks related to the recent global economic turbulence and adverse economic developments in a number of Asian markets; risks associated with the current risingpossible interest rate environment including possibleincreases, which could result in increases in the cost of borrowing and reduced liquidity for us and our customers; risks related to changes in governmental or private sector policies and priorities with respect to infrastructure investment and development; unpredictable consequences on the economic conditions in the U.S. and the rest of the world arising from terrorist attacks, and other military or security operations; unexpected changes in regulatory requirements or legal uncertainties regarding tax regimes; tariffs and other trade barriers, including current and future import and export restrictions; difficulties in staffing and managing international operations in countries such as Australia, Singapore, the PRC, Thailand and Taiwan; risks that changes in foreign currency exchange rates will make our products comparatively more expensive; limited ability to enforce agreements and other rights in foreign countries; changes in labor conditions; longer payment cycles and greater difficulty in collecting accounts receivable; burdens and costs of compliance with a variety of foreign laws; limitation on imports or exports and the possible expropriation of private enterprises; and reversal of the current policies (including favorable tax and lending policies) encouraging foreign investment or foreign trade by our host countries. Although we have not experienced any serious harm, except for the flooding situation in Thailand in 2011, in connection with our international operations, we cannot assure you that such problems will not rise in the future.
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| History and Development of the Company |
General
Asia Pacific Wire & Cable Corporation Limited was formedincorporated on September 19, 1996 as a Bermuda exempted company limited liability Companyby shares and incorporated under the Bermuda Companies Act.Act 1981, as amended (the “Companies Act”). The address of the Company’sAPWC’s principal place of businessoffice is Room B, 7th15th Floor, No. 132,77, Sec. 3, Min-Sheng East2, Dunhua South Road, Taipei, 105,106, Taiwan, and its telephone number is (886)+886 2-2712-2558. Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711, is the Company’sAPWC’s agent for service of process in the United States.
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Principal capital expenditures consisted of purchases of property, plant and equipment totaling $14.5 million in 2020, $5.4 million in 2019 and $4.4 million in 2018, mostly for the purchase of production machinery and equipment in Thailand.
In 2021, the Company anticipates its principal capital expenditures including the purchase of new equipment to expand production capacity in China and Thailand, and the construction of new factory buildings in Thailand. These expected capital expenditures in 2021 are approximately $2.5 million, which may be adjusted depending on market conditions. The Company intends to pay for these expenditures with funds generated from its operations.
The Company’s present plans include seeking to develop an alternative energy business in Taiwan by availing itself of new tax-driven development incentives provided by the Taiwan government for the expansion of “green” energy alternatives. This project remains at a development-stage and has not generated any revenues to date.
Our website is located at www.apwcc.com. The information contained or linked to on our website is not included in, or incorporated by reference into, this Annual Report on Form 20-F. Our filings with the SEC, including reports, proxy and information statements, and other information regarding us that is filed electronically with the SEC are available on the SEC’s websites at www.sec.gov.
4.b. | Business Overview |
4.b.1. | Geographic Regions |
APWC is a holding company that operates its business through operating subsidiaries, principally located in Thailand, China, Singapore and Australia.
The Company is principally engaged in the manufacture and distribution of telecommunications (primarily copper, but also fiber optic) and, power cable, enameled wire and electronicenameled wire products in the Asia Pacific region, primarily in Thailand, China, Singapore and Australia. The Company manufactures and distributes its own wire and cable products (“Manufactured Products”) and also distributes wire and cable products (“Distributed Products”) manufactured by its principal shareholder, PEWC, and other third party suppliers. The Company also provides project engineering services in the supply, delivery and installation (“SDI”) of power cables to certain of its customers.
Principal Capital Expenditures
Total purchases of property, plant and equipment amounted $7.4 million in 2015, $5.0 million in 2016 and $4.9 million in 2017, mostly for newly purchased production machinery and equipment forThe following chart sets forth the CTW group in Thailand.
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On December 18, 2017, the Company announced its financial results for the first nine months of 2017. The Company conducted its 2017 annual general meeting of shareholders (the “2017 AGM”) in Taipei on October 20, 2017, where all matters put to a vote of the shareholders were approved.
On November 30, 2017, APWC paid to its shareholders of record as of October 31, 2017, a cash dividend of $0.10 per Common Share. This dividend payment was made pursuant to the dividend policy announced by the Company in November 2016, pursuant to which APWC stated its intention, subject to its cash position and then foreseeable future cash requirements so permitting, to pay a cash dividend equal to at least 25% of its prior year net post-tax audited consolidated profits attributable to shareholders. As APWC is a holding company, its ability to pay dividends is dependent upon distributions that it receives from its operating subsidiaries and affiliates, which are subject to a number of factors including operating results, capital requirements, expansion plans, debt covenants, business prospects, consideration for non-recurring items and other factors that are deemed relevant from time to time by the respective boards of our subsidiaries and affiliates. The dividend policy will be reviewed on an ongoing basis and updated at the discretion of the Board of Directors as business circumstances and available capital and capital requirements may change. It is the intention of the APWC’s Board to share the Company's profits with shareholders, while reserving adequate funds for future expansion.
In March 2017, the Company announced the completion of a sale of buildings and land use rights at its Ningbo subsidiary in Ningbo City, China to a local private company for a cash sale price of RMB 60.6 million, or approximately US$8.8 million. The sale of the Company's land use rights and buildings at Ningbo resulted in a gain of approximately $4.4 million, which appears in the Company's 2017 financial results. The Company's principal machinery previously utilized at Ningbo has either been sold or been stored in other operating facilities of the Company. The Company concluded that it was unlikely that the operations then being conducted at Ningbo would have contributed positively to its overall results going forward. Consequently, the Company took advantage of an opportunity to dispose of its Ningbo holdings and operations on favorable terms and, as a result, eliminate the likelihood of further losses. The Company is currently considering a number of options for the optimal application of the sale proceeds, which could include expansion of core operations in other markets, capital improvements and debt repayment, among other possibilities. In addition, the Company continues to own the Ningbo subsidiary and its government-granted business license. Therefore, the Company is also examining other possible operations that could be developed taking advantage of the NPC business license.
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Also in March 2017, the Company announced that it had identified certain accounting errors in the computation of its accrued liabilities for its North Asia region, which were caused primarily by the application of inaccurate currency exchange rates used to translate income and expenditures as between our functional currency (RMB) and our reporting currency (USD). The Company characterized this reportable event as a material weakness.
With regard to the material weakness identified by the Company in 2015, the Company has strengthened the application of internal controls in accounting for foreign currency denominated transactions. The Company engaged a third-party accounting professional to provide recommendations on its accounting for foreign currency denominated transactions. The Company has taken other remedial measures in its efforts to avoid a recurrence of this material weakness in the future.
In 2017, an action was filed by a debtor seeking to rescind a foreclosure that the Company has undertaken on collateral in Thailand pledged by a delinquent customer of the Company. The Company believes that it has a valid and enforceable first lien on that collateral and that it is more likely than not to prevail against the claimant.
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In order to address the continuing market challenges facing our business, the Company has taken and plans to continue to implement a number of measures in order to maintain efficient operations.
Specifically, the Company has continued to focus on increased efforts to collect its receivables on a timely basis. The Company continues to focus on working actively with all of its significant customers to reduce collection times and minimize write-offs. The Company has also managed its inventory levels through planned reductions in raw material purchases while negotiating with suppliers to reduce costs of raw materials and supplies. The Company has focused also on reducing operating costs where practicable. We intend to continue these measures in order to preserve our liquidity and maintain a strong cash position. As of December 31, 2017, the Company had available and unused lines of credits from suppliers, banks and other lenders totaling, in the aggregate, approximately $144.5 million, an increase of $4.6 million from that date one year prior. We believe that available and unused amounts of credit are sufficient to support our current working capital needs. The total bank loans and trust receipts outstandingorganizational structure as of December 31, 2017 were $13 million higher than that as2020 of December 31, 2016. Trust receipts represent debt incurred by the Company for goods then in its possession.
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APWC experienced a 10.6% increase in overall 2017 revenues against 2016 revenues and an increase in gross profit of 25.6% against that of 2016. The Company’s operating profit in 2017 was $16.6 million, a 127.4% increase compared to $7.3 million in 2016. The increase in the operating profit was primarily due to the increase in higher margin Thailand government projects and the sale of buildings and land use rights of the Company’s Ningbo subsidiary. The Company's gross margin yielded earnings per share of $0.63 in 2017, a 200% increase compared to 2016 earnings per share of $0.21. In 2015, the Company experienced a loss per share of ($0.56) in 2015.
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The Company is a holding company that operates its business through operating subsidiaries and associates, principally located in Thailand, China, Singapore and Australia.
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The following chart shows the organizational structure of the Company as of December 31, 2017 and its principal operating subsidiaries, including affiliate ownerships, andas well as the percentage of ownership interest and voting power in each case. The location of the headquarters of each company is indicated in parentheses under the company’s name (“S”T” for Singapore, “T” for Thailand, “A” for Australia and “C” for China or Hong Kong)Kong, “S” for Singapore and “A” for Australia).
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Thailand Region
The Company’s Thai operations are conducted through Charoong Thai, Siam Pacific, Double D Cable Company Ltd. (“DD”) and Siam Fiber Optics Co. Ltd. (“Siam Fiber Optics”).
Charoong Thai is a publicly-traded Thai corporation, the shares of which are listed on the Stock Exchange of Thailand (“SET”). It manufactures aluminum and copper electric wire, medium and high voltage power cable and telecommunications cable. It has subsidiaries and affiliates in the businesses of optic fiber cable manufacturing and telecommunication and network services. Charoong Thai was established in Thailand in 1967 as a limited public company. As of December 31, 2017, the Company effectively owned 50.93% of the issued and outstanding shares of Charoong Thai. The Company’s present intention is to maintain majority ownership of the voting securities of Charoong Thai. The board of directors of Charoong Thai may authorize the issuance of additional shares of common stock of Charoong Thai. The Company has preemptive rights to purchase its pro rata share of any additional authorized shares, less amounts reserved for directors, officers and employees. In the event the board of Charoong Thai decides to cause it to issue additional shares, the Company may decide not to exercise its preemptive rights, in which case the Company’s interest may be diluted. In May 2013, rather than producing premium products, a new subsidiary – named “DD” was formed by Charoong Thai in order to produce cable products that were just on par with, or exceeded, national standards in an effort to enhance the competitive position of Charoong Thai.
Siam Pacific was established in 1988 as a joint venture between PEWC and Italian-Thai Development Plc (“Ital-Thai”), a third party, which at the time was the largest diversified construction company in Thailand, principally engaging in the design, engineering, construction and project management of large-scale civil engineering and telecommunications projects in Thailand. Capitalizing on PEWC’s wire and cable manufacturing expertise and Ital-Thai’s significant presence in the local market, Siam Pacific was able to establish its presence in this market and gain knowledge of business opportunities in Thailand. Siam Pacific is now a 100%-owned subsidiary of Charoong Thai and it focuses on the manufacture of telecommunications cable, and enameled wire for the domestic Thailand market.
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Based on information published by the Thai Ministry of Commerce on sales by dollar value, the Company believes that Siam Pacific and Charoong Thai are two of the leading telecommunications and power cable and wire manufacturers in Thailand and are two of a very limited number of the government-approved suppliers of telecommunications cables for major public telecommunications projects in Thailand.
North Asia Region
During 2017,2020, the Company’s China (andprincipal operations in North Asia) principal operationsAsia were conducted through four business entities – Shanghai Asia Pacific Electric Co., Ltd. (“Shanghai Yayang”), Crown Century Holdings Limited (“CCH HK PEWS”), Pacific Electric Wire and SPRC.Cable (Shenzhen) (“PEWSC”), and Asia Pacific New Energy Corp. Ltd. (“APNEC”). The operating entities include Shanghai Yayang, formerly known as Shanghai Pacific Electric Co., Ltd., a subsidiary in Shanghai incorporated in June 1998 to manufacture enameled wires. The Company’s effective holding in Shanghai Yayang is 68.75%. Shanghai Yayang, manufactureswhich had previously produced enameled wires, withceased production by the end of October of 2019 and has been restructured as a diameter between 0.05mmtrading company in Shanghai that supplies mainly transformer, motor and 2.5mm for sale and distributioncoil manufacturers in the eastern part of China, and to local and Taiwanese based end-users. The board consists of six directors, each of whom is either a member of management of Shanghai Yayang who is expatriated from Taiwan or a Thai representative, also expatriated or designated by APWC or PEWC.China.
The Company has an effective holding of 97.93% (including holdings through Siam Pacific) of the capital stock of CCH HK, a Hong Kong registered company, and its wholly-owned subsidiary company, PEWS. PEWSPEWSC. PEWSC manufactures enameled wires for electric, video and audio products for both domestic and export sales.the south China market.
Ningbo is currently a dormant entity. The Company continues to own the equity of Ningbo, which still holds a 25.0% interest in SPRC, which manufactures rubber cable for the China market. The remaining 75% is owned by Shandong Yanggu Wire & Cable Corp. Ltd. (“Shandong Yanggu”), an established cable manufacturer in Shandong Province that produces a wide range of cable products and is considered one of the major cable producers in China.
its government-granted business license. The Company has disposed of all of the buildings and most of the equipment and the land use rights for the property where the NingboNingbo’s operations werehad been situated. The principal machinery utilized at the Ningbo facility has either been sold or stored inat other operating facilities of APWC. the Company.
The Company continuesestablished a new entity, APNEC, in Taipei City on October 26, 2018 for new renewable energy business. APNEC seeks to owndevelop an alternative energy business in Taiwan by availing itself of incentives provided by the equityTaiwan energy authority for the expansion of Ningbo“green” energy alternatives. This project remains at a development-stage and it continueshas not generated any revenues to hold its government-granted business license.date.
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Thailand Region
The Company’s Thai operations are conducted through Charoong Thai, Siam Pacific, Double D Cable Company Ltd. (“DD”) and Siam Fiber Optics Co. Ltd. (“Siam Fiber Optics”). Charoong Thai and Siam Pacific are the Company’s principal entities in Thailand.
Charoong Thai is a publicly-traded Thai corporation, the shares of which are listed on the Stock Exchange of Thailand (“SET”). It manufactures aluminum and copper electric wire, medium and high voltage power cables and telecommunications cables. It has subsidiaries and affiliates in the businesses of fiber optic cable manufacturing and telecommunication and network services. Charoong Thai was established in Thailand in 1967 as a limited public company. As of December 31, 2020, the Company effectively owned 50.93% of the issued and outstanding shares of Charoong Thai. The Company’s present intention is to maintain majority ownership of the voting securities of Charoong Thai. The board of directors of Charoong Thai may authorize the issuance of additional shares of common stock of Charoong Thai. The Company has preemptive rights to purchase its pro rata share of any additional authorized shares, less amounts reserved for Charoong Thai’s directors, officers or employees. In the event the board of Charoong Thai decides to cause it to issue additional shares, the Company may decide not to exercise the Company’s preemptive rights, in which case its interest may be diluted.
Siam Pacific was established in 1988 as a joint venture between PEWC and Italian-Thai Development Plc. Siam Pacific is continuing looking for other business opportunity to increase production, efficiencynow a 100%-owned subsidiary of Charoong Thai and market share or expandfocuses on the scopemanufacture of its manufacturing activities.telecommunications cables, and enameled wires.
Rest of the World (“ROW”) Region
The Company’s ROW region currently includesconsists of its Singapore and Australian operations.
The Company’s Singapore operations are principally conducted through itsSigma Cable Company (Private) Limited (“Sigma Cable”), an indirectly 98.3%-owned subsidiary Sigma Cable.of the Company. The Company believes that Sigma Cable is one of the major suppliers of power cable products in Singapore. Sigma Cable manufactures and sells a range of low voltage power cable products, used mainly in infrastructure projects and commercial and residential developments. Sigma Cable is the exclusive distributor in Singapore of medium and high voltage wire and cable products manufactured by PEWC. It is also the distributor for general wirewires manufactured by a third partythird-party supplier.
Sigma Cable also has project engineering operations in Singapore to supply, deliver and install (referred to as “SDI”“SDI”) primarily medium and high voltage cablecables to power transmission projects. While the Company currently obtains its supply of medium and high voltage power cablecables for its SDI operations from PEWC, other suppliers are also available if necessary. The Company anticipates that there will be modest demand for medium and high voltage power cable projects sponsored by the Singapore government in the fairly near future.
Sigma Cable Company (Private) Limited (“Sigma Cable”), an indirect, 98.3%-owned subsidiary of the Company in Singapore owns 100% of the capital stock of Epan Industries Pte. Ltd. (“Epan”Epan”) a Singaporean Company. Currently, Epan is acting as the distributor of Sigma Cable products and those of other third party suppliers.
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The Company’s business in Australia is conducted by Australia Pacific Electric Cable Pty. Ltd. ((““APEC”APEC”). The Company’s indirect beneficial ownership interest in APEC is 98.06%. APEC is located near Brisbane and is one of three major wire and cable manufacturers in Australia. APEC produces a range of power cables supplemented by imports from overseas sister companies. APEC possesses a substantial marketing and distribution infrastructure with a network of sales offices and warehouses in the major cities of Brisbane, Sydney, Melbourne and Perth.
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| Products and Services |
TheAcross the Company’s three reporting segments, the Company engages in three principal business lines consistingthat consist of the manufacture ofmanufacturing and distributing wire and cable products the distribution of certain wire and cable products manufactured by PEWC, as well as some third party products, and the provision ofproviding fabrication or project engineering services to certain of its customers. The Company manufactures and sells a wide variety of wire and cable products in primarily in fourthree general categories: telecommunications cable,cables, power transmission cable,cables, and enameled wire, and electronic wire.wires. The Company’s telecommunications and power cables are used in a range of infrastructure projects and in commercial and residential developments. The Company’s enameled wire iswires are used in the manufacturing of components and sub-components of a number of household appliances and various small machinery. The electronic wire products, which include cable harnesses, are used in the electronics, computer, building automation, audio and communication industries. In addition, the Company acts as a distributor of wire and cable products manufactured by PEWC and other third party suppliers in Singapore. The Company also offers SDI project engineering services of medium and high voltage cablecables for power transmission projects in Singapore.
Distributed ProductsServices
Fabrication
The Company has a sales and marketing forceperforms fabrication services for the distribution of its Manufactured Products in the markets where it has manufacturing facilities and in certain other Asian markets. In addition, the Company is a distributor ofcustomers, converting raw materials to wire and cable products manufactured by PEWCproducts. Raw materials, such as copper, aluminum, polyvinyl chloride, polyethylene and other third party suppliers. The leading PEWC products sold byoptic fibers, are commodities traded on global markets with anticipated price fluctuations and currency risk. Given these risks, the Company are medium and high voltage power cable (with capacities ranging from 3.3 kilovoltsprovides fabrication services using customer-owned materials in order to 69 kilovolts), with the vast majority of such sales made in Singapore. The PEWC products sold by the Company do not compete with the Company’s Manufactured Products. In addition, from timelimit exposure to time, certain subsidiaries also sell distributed products from other suppliers in Thailand and Australia.these risks.
SDI Project Engineering Services
Based upon the needs ofGiven government and the private sector with regard toinfrastructure projects and residential and commercial buildings and infrastructure projectsactivity in Singapore, the Company anticipates modest demand for medium and high voltage power and for value added services in the power supply industry. To take advantage of these opportunities, the Company has developed itsan SDI project engineering capability. TheThis SDI project engineering involves supply, delivery and installation of primarily of medium and high voltage cablecables to power transmission projects in Singapore. ThroughIn entering into a contract to supply, deliver and install cablecables for a power transmission project, the Company delivers medium and high voltage cables and enters into subcontracting agreements with local companies to install the cablecables as required by the project.project
Products |
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Copper rod is the base component for most of the Company’s products. The manufacturing processes for these products require that the rod be “drawn” and insulated. In the “drawing” process, copper rod is drawn through a series of dies to reduce the copper to a specific diameter. For certain applications, the drawn copper conductor is then plated with tin. Copper used in cablecables is covered with various insulating materials that are applied in an extrusion process. The insulated wires are then combined, or “cabled” to produce the desired electrical properties and transmission capabilities. Then, depending upon the cable, some form of protective cover is placed over the cabled wires. A summary of the manufacturing process used for the Company’s primary wire and cable products is set forth below.
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The Company produces a wide range of bundled telecommunications cablecables for telephone and data transmissions with different capacities and insulations designed for use in various internal and external environments principallyenvironments. The principal use of these cables is as access cablecables to connect buildings and residents to trunk cables. Telecommunications cables produced by the Company include copper-based and fiber optic cables.
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Production of copper-based telecommunications cablecables begins by drawing a copper rod until it has reached the desired diameter, after which the drawn wires are subjected to a process called “annealing” in which the wires are heated in order to make the wires softer and more pliable. Utilizing an extrusion process, which involves the feeding, melting and pumping of a compound through a die to shape it in final form as it is applied to insulate the wire, the wires are then covered by a polyethylene (“PE”) or polyvinyl chloride (“PVC”) compound and foam skin, suitable for different installations and environmental conditions. In order to reduce the cross-talk between pairs of communication wires, the insulated wires are then “twinned” or twisted so that two insulated single wires are combined to create a color-coded twisted pair. The twisted pairs of wirewires are then “cabled” or “stranded” into units of 25 twisted pairs for combination with other 25 pair units to form cable of various widths and capacities. The appropriate number of units is cabled together after stranding to form a round cablecables core. Depending upon the planned environment, a petroleum jelly compound may then be added to fill the cable core to seal out moisture and water vapor. Aluminum or copper tape is used to “shield” the cablecables and, finally, the shielded cable core is covered by plastic outer sheathing. The Company manufactures telecommunications cablecables with capacities and sizes ranging from 25 to 3,000 pairs of 0.4 mm-diameter wirewires to 10 to 600 pairs of 0.9 mm-diameter wire.wires.
Power Cable
The Company produces a range of armored and unarmored low voltage power transmission cable.cables. Low voltage power cable,cables, generally considered to be cable with a capacity of 1 to 3.3 kilovolts, isare typically used to transmit electricity to and within commercial and residential buildings, as well as to outdoor installations such as street lights, traffic signals and other signs. Armored low-voltage power cable iscables are usually used for public lighting and power transmission running to buildings and installed either above or below ground. Unarmored low voltage cable iscables are mainly used as lighting and power supply cablecables inside and outside of buildings. The voltage capacity of the Company’s power cables rangeranges from 300 volts to one1 kilovolt.
Production of unarmored cablecables begins by drawing and annealing of copper rods. The drawn copper wires are then stranded or “bunched” into round or sector-shaped conductors in sizes ranging from 1.5 square millimeters to 1000 square millimeters. The copper conductors are then covered in an extrusion process with a plastic insulator such as PVC, after which 2-5 conductors are twisted into a circular cable core in a cabling process and covered by a plastic outer cover.
Unarmored cable iscables are composed of one or more cores of copper wire, insulated by substances such as PVC. Armored cable iscables are produced in the same manner and the same range of configurations as unarmored cable,cables, but with the addition of an outer layer of galvanized steel or iron wires to protect the cablecables from damage.
Enameled Wire
The Company also produces several varieties of enameled wire.wires. Enameled wire iswires are copper wirewires varnished, in an enameling process, by insulating materials. The enameling process makes the wirewires more resistant to oil, heat, friction and fusion, and therefore suitable for use in machinery and components and sub-components of manufactured goods. The Company manufactures enameled wirewires in sizes that range from 0.02 mm to 4.00 mm in diameter, varnished by various types of petroleum insulation materials including polyvinyl formal, polyurethane wirewires and polyester, among others.polyester. Enameled wire products are used in the assembly of a wide range of electrical products, including oil-filled transformers, refrigerator motors, telephones, radios, televisions, fan motors, air conditioner compressors and other electric appliances.
2427
Copper is the principal raw material used by the Company for copper-based products. The Company typically purchases copper at prices based on the average prevailing international spot market prices on the LME for copper for the one month prior to purchase. The price of copper is influenced heavily by global supply and demand as well as speculative trading. As with other costs of production, changes in the price of copper maycan affect the Company’s cost of sales. Whether this has a material impact on the Company’s operating margins and financial results depends primarily on the Company’s ability to adjust selling prices to its customers, such that increases and decreases in the price of copper are reflected in those selling prices. Most sales of the Company’s Manufactured Productsmanufactured products reflect copper prices prevailing at the time the products are ordered. A long-term decrease in the price of copper would require the Company to revalue the value of its inventory at periodic intervals to the then net realizable value, which could be below cost.
The Company purchases copper in the form of rods and cathodes. Copper cathodes are thin sheets of copper purified from copper ore. Copper purchased by the Company in the form of cathodes must be sent to subcontractors to be melted and cast into the copper rods necessary for the manufacturing processes, for a processing fee equal to approximately 3.5% (based on the Company’s past experience) of the copper cathode purchase price. The Company presently utilizes the services of Thai Metal Processing Co., Ltd. tohas facilities where it can process its copper cathodes into copper rods in Thailand, althoughand the Company has a variety of processing companiesalso utilizes services from which it may obtain these services. Construction of aother business partners, including Thai Metal Processing Co., Ltd., to process its copper processing facility could also be an additional source of revenues and profit, to the extent that sales are made to unaffiliated parties. However, the Company does not have any present plans to establish or acquire a copper processing facility.cathodes. Copper rods are drawn into copper wirewires for the production of telecommunications cable,cables, power cablecables and enameled wire.wires.
The Company has historically purchased a substantial portion of its copper rods from PEWC. Under the Composite Services Agreement between the Company and PEWC, PEWC agreed to supply to the Company on a priority basis its copper rod requirements at prices at least as favorable as prices charged to other purchasers in the same markets purchasing similar quantities. PEWC continues to be a leading supplier of copper rods to the Company’s operations, although the Company has recently diversified its copper purchases from among a number of preferred copper suppliers to try to ensure that we are consistently getting the most advantageous pricing on our copper purchases. Under the Company’s copper rod supply arrangements, orders are typically placed between eight to ten weeks before the desired delivery date, with prices “pegged” to the average spot price of copper on the LME for the one month prior to delivery plus a premium.
The Company purchasesimports both copper cathodes which are subjected to a 1.0% import tariff, and copper rods which normally are subjectin Thailand, with copper cathodes subjected to a 5.0%lower import tariff for its Thailand operations.duty than copper rods. The key suppliers are PT. Karya Sumiden Indonesia - Indonesia, PEWC-Taiwan, Alpha Industries Sdn Bhd.- Malaysia, Walsin Lihwa Corporation.-Corporation - Taiwan, Mitsubishi Corporation RtM International Ptd.- Singapore, Glencore International AG.-Switzerland, and Marubeni Corporation-Japan. The Company attempts to maintain approximately a three to five week supply of copper rods and cathodes for its Thai operations and approximately a two to four week supply in Singapore. PEWSC generally maintains one to two weeks of supply of copper rods and cathodes. APEC’s copper supply is generally maintained at one to two weeks of anticipated requirements. The Company has regularly signed one-year contracts with each of the copper suppliers, pursuant to which the Company agrees to purchase a set quantity of copper each month. Under the terms of such contracts, the price of copper is usuallytypically pegged to the monthly average of the spot price of copper on the LME for the delivery month (M-0), or 1 month before delivery month (M-1) plus a premium. The Company has almost two decadesnot had and does not anticipate any material supply interruption or difficulty in obtaining a sufficient supply of good relationships with many copper suppliers, and currently believesrod or cathode. The Company anticipates that theits copper suppliers will be capable of providing an adequate supply of copper forto meet the Company’s requirements. Therequirements and the Company does not anticipate any change in relations with its copper suppliers in the near term.
The Company attempts to maintain approximatelyhas historically purchased a three to five week supplysubstantial portion of its copper rods and cathodes for its Thai operations and approximately a two to four week supply in Singapore. In PEWS,from PEWC. Under the Composite Services Agreement between the Company generally maintains oneand PEWC, PEWC has agreed to two weekssupply to the Company on a priority basis with its copper rod requirements at prices at least as favorable as prices charged to other purchasers in the same markets purchasing similar quantities. However, the Company has diversified its copper purchases from among a number of supply ofpreferred copper suppliers to ensure that the Company receives the most advantageous pricing on its copper purchases. The Company does not currently purchase copper rods and cathodes. In APEC, the copper supply is generally maintained at one to two weeks of anticipated requirements. The Company has never experienced a material supply interruption or difficulty obtaining a sufficient supply of copper rod or cathode.from PEWC.
Other raw materials used by the Company include aluminum, which is used as a conductor in power cablecables and petroleum-based insulation materials such as PE, PVC and jelly compounds for insulating covers on cables and varnishes on enameled wire;wires; aluminum foils for sheathing of communication cable;cables; and galvanized steel wirewires for the production of armored wire.wires. The Company has not had and does not anticipate any difficulty in maintaining adequate supplies of these raw materials and expects to continue to be able to purchase such raw materials at prevailing market prices.
25
Other than import tariffs in Thailand, the Company does not face any restriction or control on the purchase or import of its raw materials. The Company may freely choose its suppliers and negotiate the price and quantity of material with its suppliers. The Company formulates consumption plans for raw materials regularly and continually monitors market conditions in respect of the supply, price and quality of raw materials.
Inflation would increase the cost of raw materials and operating expenses for the Company. TheIf inflation increases, the Company would try to maintain its grossoperating margins by increasing the prices of its products.
28
|
| Quality Control |
The Company places a significant emphasis onIn order to maintain product quality. Thequality, the Company has implemented a range of quality control procedures with stringent quality standards under the supervision of dedicated quality control staff. Quality control procedures are implemented from the raw material to the finished product stages at each of the Company’s major production facilities. Raw materials are inspected to ensure they meet the necessary level of quality before production begins. During the manufacturing process, quality control procedures are performed at several stages of production. Upon completion, finished goods are brought to quality control centers set up in the factoryproduction facilities for inspection and testing of different electrical and physical properties.
Depending on the requirements of its customers, the Company has the capability to manufacture its products to meet a variety of different quality and production standards. These include local standards and certifications, such as the Singapore Institute of Standards and Industrial Research Quality Mark and the Thailand Industrial Standard, as well as other standards, includingsuch as the National Electrical Manufacturers Association Standard, the British Standard, the Japan Industrial Standard and Underwriters Laboratories Inc. Standard, as applicable.Standard.
All of the major companies in the APWC groupCompany’s principal operating entities have attained International Standards Organization (“ISO”) 90029001 certification for quality management and assurance standards in the manufacture of electric wirewires and cablecables and have maintained that certification for at least the last ten years. TheThese certifications mean that the companiesthese entities have in place quality assurance systems and the capability to consistently manufacture products of quality.
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The Company’s telecommunications cable and power cable products are primarily sold in the domestic markets of the countries where they are manufactured, whereas mosta portion of the enameled wirewires manufactured by the Company in Thailand isare exported, primarily to customers throughout Southeast Asia. The following table sets forth the Company’s sales revenues for the periods indicated in its three reporting segments – North Asia region, Thailand region and ROW region for its three principal product lines, i.e.i.e., Manufactured Products, Distributed Products,power, enameled and SDIothers together with their respective percentage share of total sales by reporting segment for such periods.
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| For the year ended December 31, |
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| (figures in US$ are in thousands) |
| |||||||||||||||||||||
|
| 2017 |
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| 2016 |
|
| 2015 |
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|
| $ |
|
| % |
|
| $ |
|
| % |
|
| $ |
|
| % |
| ||||||
Regions: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Asia |
| $ | 101,533 |
|
|
| 23.88 | % |
| $ | 93,931 |
|
|
| 24.42 | % |
| $ | 90,237 |
|
|
| 23.20 | % |
Thailand |
|
| 206,485 |
|
|
| 48.56 | % |
|
| 152,935 |
|
|
| 39.77 | % |
|
| 165,354 |
|
|
| 42.40 | % |
ROW |
|
| 117,197 |
|
|
| 27.56 | % |
|
| 137,699 |
|
|
| 35.81 | % |
|
| 134,041 |
|
|
| 34.40 | % |
Total Net Sales |
| $ | 425,215 |
|
|
| 100.00 | % |
| $ | 384,565 |
|
|
| 100.00 | % |
| $ | 389,632 |
|
|
| 100.00 | % |
Year ended December 31, 2020 | North Asia |
| Thailand |
| ROW |
| Total segments Consolidated |
| ||||
| US$’000 |
| US$’000 |
| US$’000 |
| US$’000 |
| ||||
Revenue from external customers |
|
|
|
|
|
|
|
|
|
|
|
|
Power |
| — |
|
| 48,851 |
|
| 78,779 |
|
| 127,630 |
|
Enamel |
| 73,179 |
|
| 57,971 |
|
| — |
|
| 131,150 |
|
Fabrication |
| — |
|
| 33,101 |
|
| — |
|
| 33,101 |
|
Others* |
| 20 |
|
| 3,724 |
|
| 17,939 |
|
| 21,683 |
|
|
| 73,199 |
|
| 143,647 |
|
| 96,718 |
|
| 313,564 |
|
*include revenues from SDI service contracts (which amounted to US$15.6 million in 2020), and sale of other wires and cables products.
Year ended December 31, 2019 | North Asia |
| Thailand |
| ROW |
| Total segments Consolidated |
| ||||
| US$’000 |
| US$’000 |
| US$’000 |
| US$’000 |
| ||||
Revenue from external customers |
|
|
|
|
|
|
|
|
|
|
|
|
Power |
| — |
|
| 49,493 |
|
| 78,686 |
|
| 128,179 |
|
Enamel |
| 76,575 |
|
| 102,997 |
|
| — |
|
| 179,572 |
|
Others* |
| — |
|
| 19,889 |
|
| 10,520 |
|
| 30,409 |
|
|
| 76,575 |
|
| 172,379 |
|
| 89,206 |
|
| 338,160 |
|
*include revenues from SDI service contracts (which amounted to US$7.6 million in 2019), fabrication service contracts, and sale of other wires and cables products.
Our29
Year ended December 31, 2018 | North Asia |
| Thailand |
| ROW |
| Total segments Consolidated |
| ||||
| US$’000 |
| US$’000 |
| US$’000 |
| US$’000 |
| ||||
Revenue from external customers |
|
|
|
|
|
|
|
|
|
|
|
|
Power |
| — |
|
| 64,771 |
|
| 92,130 |
|
| 156,901 |
|
Enamel |
| 103,647 |
|
| 114,247 |
|
| — |
|
| 217,894 |
|
Others* |
| — |
|
| 34,406 |
|
| 16,739 |
|
| 51,145 |
|
|
| 103,647 |
|
| 213,424 |
|
| 108,869 |
|
| 425,940 |
|
* include revenues from SDI service contracts (which amounted to US$16.7 million in 2018), fabrication service contracts, and sale of other wires and cables products.
APWC’s operating subsidiaries are also responsible for sales planning, marketing strategy and customer liaison. The Company’s sales staff is knowledgeable about the Company’s products and frequently must renderalso renders technical assistance, consulting services and repair and maintenance services to the Company’s customers. In order to ensure quality service and maintain sensitivity to market conditions, theThe Company does not conduct sales through independent sales agents on a commission basis but uses its own sales employees located at theAPWC’s operating subsidiaries.
26
As copper constitutes the most significant component of the Company’s wire and cable products, the price of the Company’s products depends primarily upon the price of copper. In order to minimize the impact of copper price fluctuations, the Company attempts to determine the prices of its products based on the prevailing market price of copper. The Company may be affected to a degree, in the short term by significant fluctuations in the price of copper.
Payment methods for the Company’s products vary with markets and customers. The majority of sales by the Company of its Manufactured Products requires payment within 90 days, but may vary depending on the customer and payment record. Sales pursuant to a successful project tender or sales to governmental or public utilities are conducted in accordance with the tender or other applicable regulations. In connection with the distribution of medium and high voltage power cablecables manufactured by PEWC, the Company is required to pay PEWC 90% of the cost of the products either within 30 days of receipt of the product or, in the case of SDI products, upon installation, with the remaining 10% in either case to be paid within one year. In connection with thea purchase of copper rod, the Company is required to pay PEWC the cost of the copper rod within 30 days from obtaining the products from PEWC. For the export market, payment is usually made by prior delivery of an irrevocable letter of credit. Neither the CompanyAPWC nor its operating subsidiaries offers financing for purchases of the Company’s products. Company employees engaged in sales and marketing are paid a salary and may also receive a bonus based on performance.
Products are marketed under the respective names of the operating subsidiaries. For instance, products manufactured by Siam Pacific are marketed under the “Siam Pacific” trade name. Products manufactured by Sigma Cable are sold under the “Sigma Cable” brand.
North Asia
The Company produces and sells enameled wire and electronic wirewires in China. The Company’s principal China operations are conducted through fourChina-based business entities. The Company generally sells enameled wirewires directly to manufacturers of electric motors for use in various consumer appliances.
Thailand
The Company produces and sells telecommunication cable,cables, enameled wirewires and power cablecables in Thailand. Charoong Thai is one of the leading cable manufacturers in Thailand. Our distribution channels include both direct sales to government entities and private sector participants in the infrastructure sector, and sales to agents for governmental entities. Sales within the Thailand region are made directly by the sales department of the Company’sAPWC’s operating subsidiaries in accordance with terms and pricing set by the local subsidiaries. The major customers of the Company include many prominent clients working with the government and its contractors for example, True Corporation Plc (“True”), and TT&T (“Triple T”), among others, subcontractors, and distributors for the private sector. Charoong Thai has successfully participated in many major projects, which included, Suwannabhumi International Airport, Government Center, PTT Maptaput, and BRT (Bus Rapid Transit).contractors.
30
ROW
The Company produces and sells low voltage power cablecables in Singapore and Australia. In addition, the Company sells a wide range of wire and cable products produced by third party suppliers and PEWC. The Company also offers SDI project engineering services for medium and high voltage power cablecables to power transmission projects in Singapore.
In Singapore alone, sales of Manufactured Products in 2017 accounted for 33% of the total net sales in Singapore; sales of Distributed Products in 2017 accounted for 41%, with the remaining 26% representing SDI project engineering services. SP Power Assets Ltd. has historically been far and away the leadingprincipal customer for the Company’s SDI services.services, accounting for nearly all of our SDI sales. Sales to the customerSP Power Assets Ltd. are under a comprehensive contract, with purchase orders placed from time to time with the Company by SP Power Assets Ltd. or other customers, as the case may be.time.
27
The wire and cable industry in the Asia Pacific region is highly competitive. The Company’s competitors include a large number of independent domestic and foreign suppliers. Certain competitors in each of the Company’s markets have substantially greater manufacturing, sales, research and financial resources than the Company. The Company and other wire and cable producers increasinglyprimarily compete on the basis of product quality and performance, reliability of supply, customer service, and price. To
North Asia
PEWSC manufactures enameled wires in the extent that one or moreShenzhen Special Economic Zone in Guangdong Province for electronic, video and audio products in the south China market. It supplies mainly to transformer, motor and coil manufacturers. It faces competition principally from overseas imports and local manufacturers.
Shanghai Yayang has been restructured as a trading company in Shanghai and it supplies mainly transformer, motor and coil manufacturers in the eastern part of the Company’s competitors is more successful with respect to the primary competitive factors, the Company’s business could be adversely affected.China. It faces competition principally from overseas imports and manufacturers in China.
Thailand
The wire and cable industry in Thailand is highly competitive. In its various product lines, the Company competes with a total of approximately thirty local wire and cable manufacturers and, to a lesser extent, with foreign producers for sales in Thailand of telecommunications cable,cables, power cablecables and enameled wire.wires. The Company is one of the five largest producers in the Thai market. These five largest producers are the only producers of telecommunications cable approved by the Thai Industrial Standards Institute and, therefore, the only cable producers whose products may be used in government-commissioned projects. Stringent governmentalGovernmental approval processes, tariffs and other import restrictions have limited competition in the Thailand market from foreign wire and cable producers. The Company also experiences significant competition from a number of smaller producers with regard to sales of enameled wire products.
SingaporeROW
TheAlthough the Company believes that Sigma Cable is one of the major suppliers of power cable products in Singapore; however,Singapore, it experiencesis subject to significant competition from other local producers.producers within the region. There isare no tariff or other barrierbarriers against foreign competition in the local Singapore market, and potential competitors are free to enter the industry. Because of high capital costs, the Company does not presently anticipate that it is likely there will be new domestic entrants to the wire and cable industry in Singapore in the near future that would present material competition to the Company or be in a position to capture a material percentage of the Company's share of the market. However, the performance of Sigma Cable in 20172020 was adversely impacted adversely by increased intense competition from Chineseother manufacturers seeking to penetratecapture a greater share of the Singaporean market.
Australia31
Currently, besides
In addition to APEC, there are two major wire and cable producers with operations located in Australia: Olex Cables (owned by Nexans) and Prysmian Cables, with factories in the statesStates of Victoria and New South Wales, respectively. Also, Advance Cable, a cable producer with a factory in Victoria, has recently obtained a bigger market share. In addition, aA significant portion of the Australian market is serviced by two importers: (i) GeneralElectra Cables Australia, which reportedly imports cables from its parent company GeneralChina factories; and (ii) World Wire Cables, which manufactures cables in New Zealand and (ii) Electra Cables, which importsreportedly also sources cables from factoriesits Chinese partners to sell in China.Australian market. These companies are APEC’s principal competitors. APEC however is the only power cable producer in the State of Queensland and therefore seeks to take advantage of its comparative proximity to Queensland-based customers in contrast to competitors that are required to transport their products into Queensland from other states in Australia. APEC has also opened sales offices with warehousing facilities in Sydney, Melbourne, Brisbane, and Perth in order to attract and serve the customers in those regions. APEC also has a distribution agreement with one of the regional suppliers with the goal of generating additional business for the Australia operations. Foreign competition barriers exist with import duties and the more stringent Australian cable specifications standards. Asean (Association of South East Asian Nations) Free Trade Area (AFTA) Agreements are in effect with Singapore and Thailand, among other Asian countries.
China
PEWS manufactures enameled wires in the Shenzhen Special Economic Zone in Guangdong Province for electronic, video and audio products for the South China market and for export. PEWC Hong Kong, one of the subsidiaries of PEWC, is the trading arm of PEWS. It supplies mainly to overseas transformer, motor and coil manufacturers. It faces competition principally from overseas imports and local manufacturers.
28
Shanghai Yayang is the only major enameled wire producer in Shanghai and it supplies mainly to transformer, motor and coil manufacturers in the eastern part of China, locally in the Shanghai market and certain Taiwanese-based manufacturers. It faces competition principally from overseas imports and manufacturers from other provinces in China.
|
| Regional Considerations |
The principal Asian markets in which we do business have displayed exceptionalhigher overall economic growth in recent years compared to the United States and a number of other more developed markets, subject to occasional episodes of economic and currency exchange volatility attributable to various factors including the increased risks of emerging market investment, actual or potential political instability, and occasional pandemics.
North Asia
The Company’s North Asia operations are conducted principally in China. The economy of China differs from that of most developed free-market economies in a number of respects, including structure, degree of government involvement, level of development, growth rate, capital reinvestment, allocation of resources, rate of inflation, and balance of payments position. In some countries,recent years, the International Monetary Fund (the “IMF”) exerts considerable influence overgovernment of China has implemented economic policy and provides support to stabilizereform measures which emphasize decentralization, expansion of consumption in the domestic economy. In general,market, residential and commercial real estate development, infrastructure development, utilization of market forces and the Asian markets in which we do business have been export-driven in recent years and have in the casedevelopment of China and Singapore, for example, accumulated considerable capital reserves, which contributes to a more stable business environment.foreign investment projects.
Thailand Region
A substantial portion of the Company’s Thai operations, whose sales accounted for approximately 48.6% of the Company’s net sales in 2017, consists of the manufacture of telecommunications and power cable and sales of those products for use in large-scale telecommunications projects and various construction projects in Thailand. The volume of sales of thesethe Company’s products in Thailand tends to correlate with the general level of economic activity in Thailand. As a result, the performance of the Company’s Thai operations depends in significant part on the general state of the Thai economy. Infrastructure development and related construction projects in Thailand depend significantly upon government sponsored initiatives. In recent years, the level of government involvement in infrastructure development has tended to track increases or contractions in Thailand’s gross domestic product (“GDP”).product. Overall, the construction industry and infrastructure projects have slowed considerably, thereby affecting local sales, placing competitive pressure on prices and prompting the Company to rationalize Thai operations and actively seek overseas export markets. Political instability in Thailand tends to diminish governmental focus on infrastructure development projects, which can adversely impact the volume of sales to our customers who are engaged in large infrastructure projects.
4.b.8. | Insurance |
TelecommunicationsThe Company maintains insurance policies covering certain buildings, machinery and equipment against specified amounts of damage or loss caused by fire, flooding, other natural disasters and burglary and theft. The Company does not carry insurance for consequential loss arising from business interruptions or political disturbances and does not carry product liability insurance. In addition, the Company does not have business liability or disruption insurance for its operations in China and the Company does not have coverage for flood damage or business interruption for its operations in Thailand. Consequently, the amount of our insurance coverage may not be adequate to cover all potential claims or liabilities, and we may be forced to bear substantial costs resulting from the lack of adequate insurance. No assurance can be given that we will not incur losses beyond the limits or outside the scope of coverage of our insurance policies. Please see “Our Insurance Coverage Does Not Cover All of Our Business Risks” is Section 3.d. above for more information regarding insurance coverage risks.
Sales of the Company’s telecommunication products in Thailand have depended32
4.b.9. | Environmental Regulations |
The Company is subject to a significant degree onvariety of laws and regulations covering the substantial investment instorage, handling, emission and developmentdischarge of materials into the telecommunications sector by the Thai government. In particular, the Company’s sales of Manufactured Products are affected by the dollar value of contracts awarded by the government for telecommunications and other infrastructure projects.
The Company produces and sells copper core telecommunications cable, enameled copper wire and enameled aluminum wire to the Thai market, and also exports enameled wire to overseas markets. Sales of telecommunications cable, one of the Company’s leading products in Thailand, are conducted either by tender for participation in large scale telecommunications projects of the Telephone Organization of Thailand Corporation Plc. (“TOT”), or by sales directly to subcontractors of Triple T and True, the two private telephone line contractors which would be licensed by TOT with regard to particular projects. The Company generally sells enameled wire directly to electrical appliance manufacturers or an OEM (original equipment manufacturers) for both the local and export markets, and in smaller units that are sold to local dealers.
Power
In Thailand, the prevailing historical trend has been that economic growth would stimulate rapid growth in the demand for electric power, and annual rates of growth in electricity demand would outpace annual economic growth rates. Despite the rapid growth in electricity demand, electricity consumption in Thailand remains low by international standards.environment. The Company believes that all of its operations are in the medium to longer term, there will be an increased demand for power supply which will lead to increased demand for the Company’s power cable products from both developers of power production facilitiesmaterial compliance with all applicable environmental laws and contractors installing power supply lines.
29
The Company’s distribution and project engineering business segments are concentrated in the Singapore market. In 2017, the Company realized $21.4 million in revenues from SDI projects, compared to $13.3 million in 2016 and $8.8 million in 2015. Revenue in Singapore from Distributed Products in 2017 was $34.0 million, compared to $68.6 million in 2016 and $52.9 million in 2015.
The Singapore government has established targets to increase the resident population from the approximately 5.7 million citizens and permanent residents at the end of 2017 to approximately 6 million by the end of 2020. This planned growth in population is expected to result in an increase in demand for residential property and construction.regulations. The Company continueshas not been subjected to seek ways to increase its business volume in its project engineering business segment.any material legal, regulatory or other action alleging violations or breaches of environmental standards.
China
The economy of China differs from that of most developed free-market economies in a number of respects, including structure, degree of government involvement, level of development, growth rate, capital reinvestment, allocation of resources, rate of inflation and balance of payments position. In recent years, the PRC government has implemented economic reform measures which emphasize decentralization, expansion of consumption in the domestic market, residential and commercial real estate development, infrastructure development, utilization of market forces and the development of foreign investment projects of which Shanghai Yayang is an example.
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|
|
Please refer to Business Overview in section 4.2Item 4.B. above.
|
| Property, |
The Company’s Manufactured Productsmanufactured products are produced at facilities located on premises owned or leased by Siam Pacific, Charoong Thai, Sigma Cable, APEC, Shanghai Yayang and PEWS.PEWSC. The following is a summary of the Company’s material facilities and operations.
Siam Pacific owns a 7.45 acre production facility near Bangkok, Thailand, located on a 26.79 acre site that it also owns. Telecommunications cablecables and enameled wirewires are manufactured at this facility. The production facility constitutes a portion of certain property and assets which are pledged to a financial institution.institutions.
Charoong Thai owns a 24.734 acre production facility in Chachoengsao province, near Bangkok, Thailand, where telecommunications cablecables and power cablecables are manufactured. The production facility is located on a 57.965 acre site which Charoong Thai also owns. Neither the production facility nor the land is mortgaged.
Sigma Cable produces power cablecables on a 19,373 square meter site in Singapore leased from the Jurong Town Corporation (“JTC”) for 30 years from September 16, 2000 to September 16, 2030. JTC is a government-linked corporation and is Singapore’s largest industrial landlord. Building assets are pledged to United Overseas Bank.
APEC owns a 6,735 square meter power cable manufacturing facility on a 39,000 square meter land parcel in Brisbane, Australia. Neither the productionThe manufacturing facility nor theand land is mortgaged.are secured over a bank loan facility of APEC.
Shanghai Yayang operatesceased production by end of October of 2019 and has been restructured as a factory that produces enameled wires,trading company, located in an area of approximately 27,839 square meters of state-owned land in an industrial district in Fengxian, Shanghai. Assets consisting ofThe land and buildings with a value of approximately $0.6 million are pledged to Industrial and Commercial Bank of China.China as security for a $1.2 million bank loan.
PEWSPEWSC manufactures enameled wirewires in a facility on 36,000 square meters of state-owned land with a built-up area of 20,367 square meters in Long Gang, Shenzhen, China. A leasehold right of industrial land use for the land has been granted for 49 years. The land and building are pledged to Agricultural Bank of China as security for a $6.9$1.5 million bank loan.
30
AllMost of the Company’s facilities in Thailand, Singapore, Australia and China use production processes and equipment of international standard imported from Europe, the United States, Taiwan, andor Japan.
The production capacity and extent of utilization of the Company’s facilities varies from time to time, and such information is considered to be commercially sensitive and proprietary information.
ITEM 4A: | UNRESOLVED STAFF COMMENTS |
Not applicable
33
ITEM 5: | OPERATING AND FINANCIAL REVIEW AND PROSPECTS\ |
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The Company maintains insurance policies covering certain buildings, machinery and equipment against specified amounts of damage or loss caused by fire, flooding, other natural disasters and burglary and theft. The Company does not carry insurance for consequential loss arising from business interruptions or political disturbances and does not carry product liability insurance. In addition, the availability of insurance in China is limited, and the Company does not have business liability or disruption insurance for our operations in China. The Company believes that it maintains insurance coverage commensurate with the nature of and risks associated with its business. Siam Pacific has insurance coverage which covers fire and theft, but does not provide coverage for flood damage or business interruption, as in Thailand insurance companies are generally unwilling to issue policies covering flood or business interruption.
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The Company is subject to a variety of laws and regulations covering the storage, handling, emission and discharge of materials into the environment. The Company believes that all of its operations are in compliance with, and in certain circumstances exceed, all applicable environmental laws and regulations. The Company has not been subject to any legal, regulatory or other action alleging violations or breaches of environmental standards. While it is difficult to accurately estimate future environmental compliance costs and potential liabilities, if any, the Company does not currently anticipate any material adverse effect on its consolidated results of operations, financial position or cash flows as a result of compliance with these laws.
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(Not applicable)
| Operating |
The following discussion should be read in conjunction with the information contained in our audited consolidated financial statements and notes thereto (the “Financial“Financial Statements”) presentedreferenced in Item 18 of this Annual Report.
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Summarized below5.a.1.Disclosures of Critical Accounting Policies
The critical accounting estimates and judgements and those that are our accounting policies that we believe are important to the presentation ofmost significant in connection with our financial results and also involve the need for management to make estimates about the effect of matters that are uncertain in nature. Actual results may differ from these estimates, judgments and assumptions. Certain accountingstatement policies are particularly critical becauseset out in Note 3.23 of their significance to our reported financial results and the possibility that future events may differ significantly from the conditions and assumptions underlying the estimates used and judgments made by our management in preparing our financial statements. The following discussion should be read in conjunction with the consolidated financial statements and related notes, which are included in this annual report.
Fair Value Measurement
The Company measures financial instruments at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
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31
The principal or the most advantageous market must be accessible to the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset at its highest and best use or by selling it to another market participant that would use the asset at its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
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For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined on the weighted average basis and, in the case of work in progress and finished goods, comprises direct materials, direct labor and an appropriate proportion of overheads. Net realizable value is based on estimated selling prices less any estimated costs to be incurred to completion and the estimated cost necessary to make the sale.
Financial Instruments
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Initial recognition and measurement
Financial assets within the scope of International Accounting Standard 39 Financial Instruments: Recognition and Measurement (“IAS 39”) are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial assets at initial recognition.
All financial assets are recognized initially at fair value plus transaction costs, except in the case of financial assets at fair value through profit or loss.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
32
The subsequent measurement of financial assets depends on their classification as described below:
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.
Financial assets at fair value through profit or loss are carried in the balance sheet at fair value with net changes in fair value presented as finance costs (negative net changes in fair value) or finance income (positive net changes in fair value) in the income statement.
Derivatives not designated as hedging instruments
A derivative is a financial instrument or other contract within the scope of IAS 39 with all of the following characteristics:
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Fair value is the measurement basis for all financial instruments meeting the definition of a derivative. Change in fair value of non-hedged items is recorded in profit and loss.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (“EIR”) method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the income statement. The losses arising from impairment are recognized in the other operating expenses for receivables.
Held-to-maturity investments
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Company has the positive intention and ability to hold them to maturity. After initial measurement, held to maturity investments are measured at amortized cost using the EIR, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance income or finance cost in the income statement. The losses arising from impairment are recognized as finance costs in the income statement.
Available-for-sale financial assets
Available-for-sale financial assets include equity investments and debt securities. Equity investments classified as available for sale are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions.
33
After initial measurement, available-for-sale financial assets are subsequently measured at fair value with unrealized gains or losses recognized as other comprehensive income in the available-for-sale reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in other operating income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the available-for-sale reserve to the income statement in finance costs. Interest earned whilst holding available-for-sale financial investments is reported as finance income using the EIR method.
For a financial asset reclassified out of from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortized cost and any previous gain or loss on the asset that has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortized cost and the maturity amount is also amortized over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the income statement.
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The Company assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Financial assets carried at amortized cost
For financial assets carried at amortized cost, the Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR.
The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognized in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as finance income in the income statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs in the income statement.
Trade Receivables Impairment:
For a trade receivable, impairment assessment is performed on an individual basis:
34
A financial asset is impaired (and impairment losses are determined) if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after initial recognition (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.
Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the holder about the following loss events:
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For trade receivables that have been individually assessed, but for which there is no objective evidence of impairment, the review for impairment is performed on a group basis, based on similar credit risk characteristics.
Available for sale financial assets
For available-for-sale financial assets, the Company assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.
In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. A prolonged decline is considered to be one in which the fair value is below the weighted average original cost for a period of more than 12 months. When there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the income statement – is removed from other comprehensive income and recognized in the income statement. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognized directly in other comprehensive income.
In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the income statement.
Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the income statement, the impairment loss is reversed through the income statement.
35
Financial liabilities initial recognition and measurement
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial liabilities at initial recognition.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.
The Company’s financial liabilities include trade and other payables, bank overdrafts and interest bearing loans and borrowings.
Subsequent measurement
After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the income statement.
Impairment of non-financial assets
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (“CGU”) fair value less costs to sell and its value in use. A CGU is the smallest group of assets that generates cash inflows that are largely independent of the cash flows from other assets or groups of assets. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Company’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.
Impairment losses of continuing operations, including impairment on inventories, are recognized in the income statement in expense categories consistent with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the income statement.
36
Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
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Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except:
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The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Uncertain tax position
An entity’s tax position might be uncertain; for example, where the tax treatment of an item of expense or structured transaction may be challenged by the tax authorities.
Local management should consider each uncertain tax positions individually, by first consider whether each position taken in the tax return is probable of being sustained on examination by the taxing authority. It should recognize a liability for each item that is not probable of being sustained. The liability then is measured using a single best estimate of the most likely outcome. The uncertain tax positions are presented in the current tax liabilities.
The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense.
37
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Company assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent.
38
This discussion should be read in conjunction with the information contained in our Consolidated Financial Statements presentedreferenced in Item 18 of this Annual Report.
5.a.2.Selected Operating Data
Results are analyzed and reported along the lines of our three principal business segments, consisting of the North Asia region, the Thailand region, and the ROW region. For the benefit of our shareholders, includedIncluded in the summary table below are certain results for product lines within our 3three business segments with regard to net sales, grossoperating profit, and grossoperating profit margin for the periods covered. The following table sets forth selected summary data for the periods indicated (dollar ($) amounts in thousands of US$)U.S. dollar).
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| For the year ended December 31, |
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| 2017 |
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| 2016 |
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| 2015 |
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Net Sales: |
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North Asia region |
| $ | 101,533 |
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| $ | 93,931 |
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| $ | 90,237 |
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Thailand region |
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| 206,485 |
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| 152,935 |
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| 165,354 |
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ROW region |
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| 117,197 |
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| 137,699 |
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| 134,041 |
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Total |
| $ | 425,215 |
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| $ | 384,565 |
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| $ | 389,632 |
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Gross profit: |
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North Asia region |
| $ | 7,471 |
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| $ | 5,033 |
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| $ | 1,888 |
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Thailand region |
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| 20,174 |
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| 13,421 |
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| 9,488 |
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ROW region |
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| 12,043 |
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| 13,154 |
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| 12,113 |
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Total gross profit |
| $ | 39,688 |
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| $ | 31,608 |
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| $ | 23,489 |
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Gross profit margin: |
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North Asia region |
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| 7.36 | % |
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| 5.36 | % |
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| 2.09 | % |
Thailand region |
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| 9.77 | % |
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| 8.78 | % |
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| 5.74 | % |
ROW region |
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| 10.28 | % |
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| 9.55 | % |
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| 9.04 | % |
Total gross profit margin |
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| 9.33 | % |
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| 8.22 | % |
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| 6.03 | % |
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| Operating Results |
| For the year ended December 31, |
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| 2019 |
| 2018 |
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Net Sales: |
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North Asia region | $ | 73,199 |
| $ | 76,575 |
| $ | 103,647 |
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Thailand region |
| 143,647 |
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| 172,379 |
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| 213,424 |
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ROW region |
| 96,718 |
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| 89,206 |
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| 108,869 |
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Total | $ | 313,564 |
| $ | 338,160 |
| $ | 425,940 |
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Operating profit (loss): |
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North Asia region | $ | 3,087 |
| $ | 1,237 |
| $ | 5,234 |
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Thailand region |
| 11,250 |
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| 3,042 |
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| 9,539 |
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ROW region |
| (4,492 | ) |
| (1,659 | ) |
| (2,306 | ) |
Corporate expenses & adjustments |
| (2,288 | ) |
| (3,269 | ) |
| (3,783 | ) |
Total operating profit (loss) | $ | 7,557 |
| $ | (649 | ) | $ | 8,684 |
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Operating profit (loss) margin: |
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North Asia region |
| 4.22 | % |
| 1.62 | % |
| 5.05 | % |
Thailand region |
| 7.83 | % |
| 1.76 | % |
| 4.47 | % |
ROW region |
| (4.64 | )% |
| (1.86 | )% |
| (2.12 | )% |
The CompanyAPWC is 75.4%approximately 75.5% beneficially owned and is controlled by PEWC, a Taiwanese company. The remaining 24.6%approximately 24.5% of the issued and outstanding Common Shares are publicly-traded in the United States and listed on NASDAQ.Nasdaq. Based upon a review of Schedule 13D and 13G filings made with the CommissionSEC by shareholders, and a review of the share register maintained by the Company’sAPWC’s transfer agents in Bermuda and the U.S., the Company is not aware that it hasof any shareholders resident in the jurisdictions where the Company has business operations. While the Company’s operations and results are impacted by economic, fiscal, monetary and political policies of the respective governments in the countries where the Company operates, that impact is not a function of theAPWC’s shareholder base of the Company.base.
3934
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| For the Year Ended December 31, |
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| For the Year Ended December 31, |
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| 2017 |
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| 2016 |
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| Changes in $ |
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| Changes in % |
| 2020 |
| 2019 |
| Changes |
| Changes |
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| % |
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Income Statement Data: |
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Sales of goods / services |
| $ | 425,215 |
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| 384,565 |
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| 40,650 |
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| 10.6 |
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Revenue | $ | 313,564 |
| $ | 338,160 |
| $ | (24,596 | ) |
| (7.3 | ) | ||||||||||||||||
Costs of sales |
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| (385,527 | ) |
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| (352,957 | ) |
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| (32,570 | ) |
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| (9.2 | ) |
| (279,686 | ) |
| (313,373 | ) |
| 33,687 |
| 10.7 |
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Gross profit |
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| 39,688 |
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| 31,608 |
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| 8,080 |
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| 25.6 |
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| 33,878 |
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| 24,787 |
| 9,091 |
| 36.7 |
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Other operating income |
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| 5,084 |
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| 5,441 |
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| (357 | ) |
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| (6.6 | ) |
| 814 |
| 385 |
| 429 |
| 111.4 |
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Selling, general and administrative expenses |
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| (27,248 | ) |
|
| (26,325 | ) |
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| (923 | ) |
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| 3.5 |
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| (27,006 | ) |
| (25,051 | ) |
| (1,955 | ) |
| (7.8 | ) |
Other operating expenses |
|
| (909 | ) |
|
| (3,386 | ) |
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| 2,477 |
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|
| 73.2 |
|
| (129 | ) |
| (770 | ) |
| 641 |
| 83.2 |
| |
Operating profit |
|
| 16,615 |
|
|
| 7,338 |
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|
| 9,277 |
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|
| 126.4 |
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Finance cost |
|
| (1,221 | ) |
|
| (1,147 | ) |
|
| (74 | ) |
|
| (6.5 | ) | ||||||||||||
Operating profit /(loss) |
| 7,557 |
|
| (649 | ) |
| 8,206 |
| 1,264.4 |
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Finance costs |
| (744 | ) |
| (1,012 | ) |
| 268 |
| 26.5 |
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Finance income |
|
| 876 |
|
|
| 1,045 |
|
|
| (169 | ) |
|
| (16.2 | ) |
| 320 |
| 506 |
| (186 | ) |
| (36.8 | ) | ||
Share of loss of associates |
|
| (3 | ) |
|
| (710 | ) |
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| 707 |
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|
| 99.6 |
|
| (1 | ) |
| (3 | ) |
| 2 |
| 66.7 |
| |
Impairment of investment in associates |
|
| — |
|
|
| (126 | ) |
|
| 126 |
|
|
| (100 | ) | ||||||||||||
Loss on liquidation of subsidiaries |
|
| (261 | ) |
|
| — |
|
|
| (261 | ) |
|
| 100 |
| ||||||||||||
Exchange gain/(loss) |
|
| 2,784 |
|
|
| (38 | ) |
|
| 2,822 |
|
|
| 7,426.3 |
| ||||||||||||
Exchange (loss)/gain |
| (579 | ) |
| 1,550 |
| (2,129 | ) |
| (137.4 | ) | |||||||||||||||||
Other income |
|
| 214 |
|
|
| 267 |
|
|
| (53 | ) |
|
| (19.9 | ) |
| 1,173 |
| 717 |
| 456 |
| 63.6 |
| |||
Other expense |
|
| (336 | ) |
|
| (94 | ) |
|
| (242 | ) |
|
| (257.4 | ) |
| (1 | ) |
| (3 | ) |
| 2 |
| 66.7 |
| |
Income from continuing operations before income taxes |
|
| 18,668 |
|
|
| 6,535 |
|
|
| 12,133 |
|
|
| 185.7 |
| ||||||||||||
Profit before tax |
| 7,725 |
|
| 1,106 |
| 6,619 |
| 598.5 |
| ||||||||||||||||||
Income taxes expense |
|
| (5,140 | ) |
|
| (510 | ) |
|
| (4,630 | ) |
|
| (907.8 | ) |
| (4,016 | ) |
| (2,057 | ) |
| (1,959 | ) |
| (95.2 | ) |
Net income |
|
| 13,528 |
|
|
| 6,025 |
|
|
| 7,503 |
|
|
| 124.5 |
| ||||||||||||
Net income attributable to non-controlling interests |
|
| 4,808 |
|
|
| 3,172 |
|
|
| 1,636 |
|
|
| 51.6 |
| ||||||||||||
Net income attributable to APWC |
|
| 8,720 |
|
|
| 2,853 |
|
|
| 5,867 |
|
|
| 205.6 |
| ||||||||||||
Profit/(Loss) for the year |
| 3,709 |
|
| (951 | ) |
| 4,660 |
| 490.0 |
| |||||||||||||||||
Attributable to: |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Equity holders of APWC |
| (552 | ) |
| (1,632 | ) |
| 1,080 |
| 66.2 |
| |||||||||||||||||
Non-controlling interests |
| 4,261 |
| 681 |
| 3,580 |
| 525.7 |
|
General
Results of operations are determined primarily by market demand and government infrastructure projects, market selling prices of our products, our ability to manufacture high quality products efficiently in quantities sufficient to meet demand and to control production and operating costs. Our results are also influenced by a number of factors, including impacts from COVID-19, currency stability in the countries in which our operations are located, competition and the cost of raw materials, especially copper, which accounted for the majority of our cost of sales in 20172020 and 2016.2019.
In order to minimize the impact of copper price fluctuations, we attempt to “peg” the prices of our products to the prevailing market price of copper and pass changes in the cost of copper through to customers as much as possible. In certain circumstances, however, we remain affected by fluctuations in the price of copper. A recent rise or decline in copper prices may not be fully reflected under this pricing scheme for several months.
Average copper prices per metric ton increased by 26.7%2.73% from $4,863$6,005 in 20162019 to $6,163$6,169 in 20172020 (annual average).
40
Copper prices indicated in this reportAnnual Report are quoted from the index published by the LME. The 20172020 and 20162019 average copper prices were as follows:
|
|
|
| 2017 |
|
| 2016 |
| ||
Average LME copper price ($/Ton) |
| Q1 |
|
| 5,834 |
|
|
| 4,669 |
|
|
| Q2 |
|
| 5,663 |
|
|
| 4,730 |
|
|
| Q3 |
|
| 6,347 |
|
|
| 4,773 |
|
|
| Q4 |
|
| 6,808 |
|
|
| 5,280 |
|
|
| Year |
|
| 6,163 |
|
|
| 4,863 |
|
|
| 2020 |
| 2019 |
| ||
Average LME copper price ($/Ton) | Q1 |
| 5,638 |
|
| 6,220 |
|
| Q2 |
| 5,341 |
|
| 6,114 |
|
| Q3 |
| 6,521 |
|
| 5,798 |
|
| Q4 |
| 7,174 |
|
| 5,888 |
|
| Year |
| 6,169 |
|
| 6,005 |
|
The average copper price in March 20182021 on the LME was $6,796$8,479 per metric ton.
Net Sales35
Revenue
Total sales in the North Asia region increaseddecreased by $7.6$3.4 million, or 8.1%4.4%, from $93.9$76.6 million in 20162019 to $101.5$73.2 million in 2017.2020. The increasedecrease was attributable primarily due to an increaseShanghai Yayang’s cessation of manufacturing operations in orders transferred from other wire and cable manufacturers who were forced to close by the Chinese government because of environmental issues.October 2019.
Revenue from the Thailand region decreased by $28.8 million, or 16.7%, from $172.4 million in 2019 to $143.6 million in 2020. The decrease was primarily due to decreased sales of low margin products.
Revenue in the ROW region increased by $53.5$7.5 million, or 8.4%, from $152.9$89.2 million in 20162019 to $206.5$96.7 million in 2017, or 35.0%.2020. The increase was primarily because the Company obtained more government projects and the appreciation of the Baht against the US dollar.
Revenue decreased by $20.5 million, or 14.9%, from $137.7 million in 2016attributable to $117.2 million in 2017 in the ROW region. The revenue increased by 21% in APEC due to an increase in the sales of Distributed Products. However, the revenue of Sigma Cable dropped by 25%, primarily due to more intenseabating competition from the products imported from China.for reasons associated with COVID-19.
Gross Profit
Gross Profit increased by $9.1 million, or a 36.7% change, from $24.8 million in 2019 to $33.9 million in 2020. The gross profit margin was 10.8% in 2020 compared to 7.33% in 2019. The improvement in gross profit margin was primarily due to a shift in sales mix from lower margin items to higher margin items.
Operating Profit
Operating profit for 20172020 was $39.7$7.6 million, representing an increase of $8.1improvement by $8.2 million, or 25.6%, compared to $31.61,264.4% from operating loss $(0.6) million in 2016. 2019.
The grossoperating profit margin of the North Asia region increased from 5.36%1.62% in 20162019 to 7.36%4.22% in 2017. The Company’s main product in this region is enameled wire.2020. The increase was attributable primarily to an improvement in sales mix and a reduction in severance expenses, mostly occurred in 2019 resulted from the appreciationrestructuring of RMB against USD while the copper price remained stable.Shanghai Yayang.
The grossoperating profit margin of the Thailand region was 9.77% in 2017, increased from 8.78%1.76% in 2016.2019 to 7.83% in 2020. The increase was attributable primarily to the increasedan improvement in sales of our products utilized in higher margin Thailand government projects.mix.
The gross profitoperating loss margin of the ROW region increasedworsened from 9.55%(1.86)% in 20162019 to 10.28%(4.64)% in 2017.2020. The gross profit margin of the region in 2017 benefited from an increase in sales of Distributed Products by APEC.
Operating Profit
Other operating income was $5.1 million in 2017, slightly decreased by $0.4 million, or (7)%, from $5.4 million in 2016.
SG&A expenses were $27.2 million in 2017, representing an increased expense of $0.9 million, or 3.50%, in this expense category, from $26.3 million in SG&A expenses in 2016. For the years ended 2017 and 2016, SG&A expenses accounted for 6.4% and 6.8% of the net sales, respectively.
In 2017, we experienced a 70% decrease in other operating expenses, which were $0.9 million in 2017, compared with other operating expenses of $3.4 million in 2016. The fluctuationdecline was primarily attributableattributive to the impairmentreasons associated with COVID-19 and fluctuation of property, plant, and equipment of Siam Fiber Optics and NPC in 2016.copper price.
41
Our finance cost mainly consists of interest on bank loans and borrowings. Interest cost decreased to $0.7 million in 2020 compared to $1.0 million in 2019. However, interest-bearing loans and borrowings increased to $1.2$13.8 million in 20172020 compared to $1.1$11.3 million in 2016, primarily due2019. The proceeds of these loans were mainly used to fund capital expenditures and working capital needs of the increase in bank loans and borrowings.Company.
Finance Income
The financeFinance income consists of interest earned on bank deposits. Interest income decreased from $1.0$0.5 million in 20162019 to $0.9$0.3 million in 2017 by $0.1 million, or 16.2%.2020.
Share of Loss of Associates
The decrease in the share of loss of an associate by $0.7 millionremained consistent in 20172020 compared to that of 2016,2019. This was primarily due to the loss that the Company recognized in accordance with its percentage ownership interest in SPRC.Siam Pacific Holding Company.
36
Loss on liquidation of subsidiaries
The Company incurred a total write-off of its interest in Sigma Epan, which amounted to $0.3 million during 2017 due to the strike-off of Sigma Epan Industry.
Exchange Gain/(Loss)
The exchange loss of 2020 was primarily attributable to the depreciation of Thai Baht and appreciation of Chinese RMB. The exchange rates at December 31, 20172020 and 20162019 are listed below, based on the Noon Buying Rate. However, they do not actually reflect the ongoing rates during the year whenat which transactions actually took place.
|
| As of December 31, |
| As of December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
| 2020 |
| 2019 |
| ||||
Foreign currency to US$1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thai Baht |
|
| 32.56 |
|
|
| 35.81 |
|
| 30.02 |
| 29.75 |
| |
Singapore $ |
|
| 1.336 |
|
|
| 1.447 |
|
| 1.321 |
| 1.345 |
| |
Australian $ |
|
| 1.280 |
|
|
| 1.383 |
|
| 1.297 |
| 1.423 |
| |
Chinese RMB |
|
| 6.506 |
|
|
| 6.943 |
|
| 6.525 |
| 6.962 |
|
Sources: Federal Reserve Bulletin, Board of Governors of the Federal Reserve System. Federal Reserve Statistical Release H.10, from the website of the Board of Governors of the Federal Reserve System at http://www.federalreserve.gov.www.federalreserve.gov.
Income taxes
Income tax expense was $4.0 million in 2020 compared to $2.1 million in 2019. The change was mainly because the Company reversed $1.9 million of uncertain tax position, in 2016 due to expiration of statute of limitations.the increase in taxable income.
42
|
| For the Year Ended December 31, |
|
|
|
|
|
|
|
|
| For the Year Ended December 31, |
|
|
|
|
|
|
| |||||||||
|
| 2016 |
|
| 2015 |
|
| Changes in $ |
|
| Changes in % |
| 2019 |
| 2018 |
| Changes |
| Changes |
| ||||||||
|
| (in thousands) |
| US$’000 |
| US$’000 |
| US$’000 |
| % |
| |||||||||||||||||
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Sales of goods / services |
| $ | 384,565 |
|
| $ | 389,632 |
|
|
| (5,067 | ) |
|
| (1.3 | ) | ||||||||||||
Revenue | $ | 338,160 |
| $ | 425,940 |
| $ | (87,780 | ) |
| (20.6 | ) | ||||||||||||||||
Costs of sales |
|
| (352,957 | ) |
|
| (366,143 | ) |
|
| 13,186 |
|
|
| 3.6 |
|
| (313,373 | ) |
| (389,692 | ) |
| 76,319 |
| 19.6 |
| |
Gross profit |
|
| 31,608 |
|
|
| 23,489 |
|
|
| 8,119 |
|
|
| 34.6 |
|
| 24,787 |
|
| 36,248 |
| (11,461 | ) |
| (31.6 | ) | |
Other operating income |
|
| 5,441 |
|
|
| 1,140 |
|
|
| 4,301 |
|
|
| 377.3 |
|
| 385 |
| 805 |
| (420 | ) |
| (52.2 | ) | ||
Selling, general & administrative expenses |
|
| (26,325 | ) |
|
| (27,007 | ) |
|
| 682 |
|
|
| 2.5 |
| ||||||||||||
Selling, general and administrative expenses |
| (25,051 | ) |
| (26,924 | ) |
| 1,873 |
| 7.0 |
| |||||||||||||||||
Other operating expenses |
|
| (3,386 | ) |
|
| (332 | ) |
|
| (3,054 | ) |
|
| (919.9 | ) |
| (770 | ) |
| (1,445 | ) |
| 675 |
| 46.7 |
| |
Operating profit/(loss) |
|
| 7,338 |
|
|
| (2,710 | ) |
|
| 10,048 |
|
|
| 370.8 |
| ||||||||||||
Finance cost |
|
| (1,147 | ) |
|
| (1,547 | ) |
|
| 400 |
|
|
| 25.9 |
| ||||||||||||
Operating (loss)/profit |
| (649 | ) |
| 8,684 |
| (9,333 | ) |
| (107.5 | ) | |||||||||||||||||
Finance costs |
| (1,012 | ) |
| (1,378 | ) |
| 366 |
| 26.6 |
| |||||||||||||||||
Finance income |
|
| 1,045 |
|
|
| 697 |
|
|
| 348 |
|
|
| 49.9 |
|
| 506 |
| 482 |
| 24 |
| 5.0 |
| |||
Share of loss of associates |
|
| (710 | ) |
|
| (801 | ) |
|
| 91 |
|
|
| 11.4 |
|
| (3 | ) |
| (3 | ) |
| — |
| — |
| |
Impairment of investment in associates |
|
| (126 | ) |
|
| — |
|
|
| (126 | ) |
|
| (100 | ) | ||||||||||||
Exchange loss |
|
| (38 | ) |
|
| (4,223 | ) |
|
| 4,185 |
|
|
| 99.1 |
| ||||||||||||
Exchange gain |
| 1,550 |
| 1,741 |
| (191 | ) |
| (11.0 | ) | ||||||||||||||||||
Other income |
|
| 267 |
|
|
| 119 |
|
|
| 148 |
|
|
| 124.4 |
|
| 717 |
| 1,817 |
| (1,100 | ) |
| (60.5 | ) | ||
Other expense |
|
| (94 | ) |
|
| (180 | ) |
|
| 86 |
|
|
| 47.8 |
|
| (3 | ) |
| (11 | ) |
| 8 |
| 72.7 |
| |
Income/(loss) from continuing operations before income taxes |
|
| 6,535 |
|
|
| (8,645 | ) |
|
| 15,180 |
|
|
| 175.6 |
| ||||||||||||
Profit before tax |
| 1,106 |
|
| 11,332 |
| (10,226 | ) |
| (90.2 | ) | |||||||||||||||||
Income taxes expense |
|
| (510 | ) |
|
| (466 | ) |
|
| (44 | ) |
|
| 9.4 |
|
| (2,057 | ) |
| (3,886 | ) |
| 1,829 |
| 47.1 |
| |
Net income/(loss) |
| $ | 6,025 |
|
| $ | (9,111 | ) |
|
| 15,136 |
|
|
| 166.1 |
| ||||||||||||
Net income/(loss) attributable to non-controlling interests |
|
| 3,172 |
|
|
| (1,417 | ) |
|
| 4,589 |
|
|
| 323.9 |
| ||||||||||||
Net income/(loss) attributable to APWC |
|
| 2,853 |
|
|
| (7,694 | ) |
|
| 10,547 |
|
|
| 137.1 |
| ||||||||||||
(Loss)/Profit for the year | $ | (951 | ) | $ | 7,446 |
| (8,397 | ) |
| (112.8 | ) | |||||||||||||||||
Attributable to: |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Equity holders of APWC |
| (1,632 | ) |
| 2,928 |
| (4,560 | ) |
| (155.7 | ) | |||||||||||||||||
Non-controlling interests |
| 681 |
| 4,518 |
| (3,837 | ) |
| (84.9 | ) |
General
Results of operations are determined primarily by market demand and government infrastructure projects, market selling prices of our products, our ability to manufacture high quality products efficiently in quantities sufficient to meet demand and to control production and operating costs. Our results are also influenced by a number of factors, including currency stability in the countries in which our operations are located, competition and the cost of raw materials, especially copper, which accounted for the majority of our cost of sales in 20162019 and 2015.2018.
37
In order to minimize the impact of copper price fluctuations, we attempt to “peg” the prices of our products to the prevailing market price of copper and pass changes in the cost of copper through to customers as much as possible. In certain circumstances, however, we remain affected by fluctuations in the price of copper. A recent rise or decline in copper prices may not be fully reflected under this pricing scheme for several months.
Average copper prices per metric ton decreased by 11.6%7.97% from $5,502$6,525 in 20152018 to $4,863$6,005 in 20162019 (annual average).
43
Copper prices indicated in this reportAnnual Report are quoted from the LME index.index published by the LME. The 20162019 and 20152018 average copper prices were as follows:
|
|
|
| 2016 |
|
| 2015 |
| ||
Average LME copper price ($/Ton) |
| Q1 |
|
| 4,669 |
|
|
| 5,815 |
|
|
| Q2 |
|
| 4,730 |
|
|
| 6,054 |
|
|
| Q3 |
|
| 4,773 |
|
|
| 5,251 |
|
|
| Q4 |
|
| 5,280 |
|
|
| 4,487 |
|
|
| Year |
|
| 4,863 |
|
|
| 5,502 |
|
|
| 2019 |
| 2018 |
| ||
Average LME copper price ($/Ton) | Q1 |
| 6,220 |
|
| 6,959 |
|
| Q2 |
| 6,114 |
|
| 6,872 |
|
| Q3 |
| 5,798 |
|
| 6,103 |
|
| Q4 |
| 5,888 |
|
| 6,168 |
|
| Year |
| 6,005 |
|
| 6,525 |
|
The average copper price in March 20172020 on the LME was $5,822$5,179 per metric ton.
Net SalesRevenue
Total sales in the North Asia region increaseddecreased by $3.7$27.1 million, or 4.1%26.1%, from $90.2$103.6 million in 20152018 to $93.9$76.6 million in 2016.2019. The increasedecrease was attributable primarily due to an increase in orders transferred from other wirethe negative impact of the trade war between the United States and cable manufacturers who were forced to close by the Chinese government because of environmental issues.China.
Revenue from the Thailand region decreased by $12.4$41.0 million, or 19.2%, from $165.4$213.4 million in 20152018 to $152.9$172.4 million in 2016, or 7.5%.2019. The decrease was primarily due to the postponement of the delivery of products per the request of a major client.
Revenue from the ROW region decreased by $19.7 million, or 18.1%, from $108.9 million in 2018 to $89.2 million in 2019. The decrease was primarily due to intense competition.
Gross Profit
While fluctuations in raw material acquisition are preferably placed upon the customer, limiting factors reduced the effects of this strategy and impacted Gross Profit. A decrease in average copper prices per metric ton of 7.97% plus the intense competition and the depreciation of the Baht against the US dollar.
Revenue slightly increased by $3.7 million, or 2.7%, from $134.0 million in 2015 to $137.7 million in 2016 in the ROW region. The revenue increased by 13% in Sigma Cablemarket slowdown primarily due to the increasetrade war between USA and China all led to the material change in SDI and Distributed Products. However, the increase in Sigma CableGross Profit of (31.6%) for 2019.
Operating (Loss)
Operating (loss) for 2019 was offset by the decrease in APEC, where revenue dropped by 23%, due to more intense competition from the products imported from China.
Gross Profit
Gross profit for 2016 was 31.6$(0.6) million, representing an increase of 8.1a decrease by $9.3 million, or 34.6%, compared to $23.5(107.5)% from operating profit of $8.7 million in 2015. 2018.
The grossoperating profit margin of the North Asia region increaseddecreased from 2.09%5.05% in 20152018 to 5.36%1.62% in 2016.2019. The Company’s main productdecrease was attributable primarily to a decrease in this region is enameled wire. The grosssales volume, which eroded the profit margin, increased primarilyand an increase in severance payments due to the relatively stable copper price in 2016 compared to thatrestructuring of 2015.Shanghai Yayang.
The grossoperating profit margin of the Thailand region was 8.78%decreased from 4.47% in 2016, increased from 5.74%2018 to 1.76% in 2015.2019. The increasedecrease was attributable primarily to our increasedthe decrease in sales of our products utilized in higher margin Thailand government projects.products.
The gross profitoperating loss margin of the ROW region slightly increaseddecreased from 9.04%(2.12)% in 20152018 to 9.55%(1.86)% in 2016.2019. The gross profitdecrease was attributable primarily to a decrease in selling price, margin erosion because of the region in 2016 remained stable comparing to that of 2015.competition, as well as higher unit costs.
Operating Profit38
Other operating income was $5.4 million in 2016, increased by $4.3 million, or 377%, from $1.1 million in 2015, primarily due to the disposal of an investment property in the Thailand region.
SG&A expenses were $26.3 million in 2016, slightly decreased by $0.7 million, or 2.5%, from $27.0 million in 2015. For the years ended 2016 and 2015, SG&A expenses accounted for 6.8% and 6.9% of the net sales, respectively.
Other operating expenses were $3.4 million in 2016, increased by $3.1 million, or 919.9%, from $0.3 million in 2015. The increase was primarily attributable to the impairment of property, plant, and equipment of Siam Fiber Optics and NPC.
44
TheOur finance cost wasconsists of interest on bank loans and borrowings. Interest cost decreased from $1.5to $1.0 million in 20152019 compared to $1.1$1.4 million in 2016 by $0.42018. However, interest-bearing loans and borrowings decreased to $11.3 million primarilyin 2019 compared to $24.8 million in 2018 due to the repayment of bank loans and borrowings.loan repayments made in 2019.
Finance Income
The finance income wasconsists of interest earned fromon bank deposits. Interest income increasedremained consistent from $0.7$0.5 million in 20152018 to $1.0$0.5 million in 2016 by $0.3 million, or 49.9%, primarily due to the receipt of interest of a delinquent account.2019.
Share of Loss of Associates
The decrease in the share of loss of an associate by $0.1 millionremained consistent in 20162019 compared to that of 2015,2018. This was primarily due to the loss that the Company recognized in accordance with its percentage ownership interest in SPRC.
Impairment of investment in an associate
The Company’s investment in SPRC was fully impaired.Siam Pacific Holding Company.
Exchange Gain/(Loss)
The exchange gain of 2019 was primarily attributable to the appreciation of Thai Baht. The exchange rates at December 31, 20162019 and 20152018 are listed below, based on the Noon Buying Rate. However, they do not actually reflect the ongoing rates during the year whenat which transactions actually took place.
|
| As of December 31, |
| As of December 31, |
| |||||||||
|
| 2016 |
|
| 2015 |
| 2019 |
| 2018 |
| ||||
Foreign currency to US$1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thai Baht |
|
| 35.81 |
|
|
| 36.08 |
|
| 29.75 |
| 32.31 |
| |
Singapore $ |
|
| 1.447 |
|
|
| 1.417 |
|
| 1.345 |
| 1.362 |
| |
Australian $ |
|
| 1.383 |
|
|
| 1.373 |
|
| 1.423 |
| 1.419 |
| |
Chinese RMB |
|
| 6.943 |
|
|
| 6.478 |
|
| 6.962 |
| 6.876 |
|
Sources: Federal Reserve Bulletin, Board of Governors of the Federal Reserve System. Federal Reserve Statistical Release H.10, from the website of the Board of Governors of the Federal Reserve System at http://www.federalreserve.gov.
Income taxes
Other Income
Other income increased by $0.2 million from $0.1 tax expense was $2.1 million in 20152019 compared to $0.3$3.9 million in 2016 primarily2018. The change was mainly due to the net gain from financial instruments recognized in 2016.decrease of taxable income.
39
|
| Liquidity and Capital Resources |
As of December 31, 2017,2020, we had $46.1$52.2 million in cash and cash equivalents, primarily in bank accounts and cash on hand. Our current sources of cash are our cash on hand, cash generated by our operations, and our credit facilities. Our primary liquidity needs will continue to focus onis primarily utilized for the purchase and replacement of property, plant and equipment, future acquisitions and expenditures for ongoing operations.
45
We maintain several working capital and overdraft credit facilities with various commercial bank groups and financial institutions (the “Facilities”). As of December 31, 2020, the total amount of the Facilities was approximately $264.2 million and the unused amount of the Facilities was approximately $200.3 million (taking into account letters of credit issued thereunder). The Facilities do not have termination dates but are reviewed annually for renewal. There is no seasonality to the Company’s borrowing.
On July 10, 2020, the Company and PEWC entered into a secured loan agreement pursuant to which the Company borrowed the principal amount of $6 million from PEWC (the “Secured Loan”). The Secured Loan carries a 3% interest rate and is secured by a pledge of the Company’s 98.3% ownership stake in Sigma Cable. The Secured Loan’s scheduled maturity date is the date which is twelve months after July 10, 2020, but may be repaid (in whole or in part) before such date by the Company at its option. The principal amount currently outstanding on the Secured Loan is $6 million. For further information on the Company’s interest-bearing loans and borrowings from other third parties, including maturity profile, currency and interest rate structure, see Note 11(b) of our consolidated financial statements referenced in Item 18 of this Annual Report. For the Company’s maturity profile of financial liabilities, see Note 27(c) of our consolidated financial statements referenced in Item 18 of this Annual Report.
APWC has no direct business operations other than ourits ownership of the capital stock of ourits subsidiaries and equity investees. As a holding company, APWC’s ability to pay dividends, as well as to meet its other obligations (including with respect to payments on the Secured Loan), depends upon the amount of distributions, if any, received from its operating subsidiaries and other holdings and investments. Consequently, ourAPWC’s subsidiaries have been and will continue to be theits primary source of funds generatedfunds. Of the $52.2 million in cash and cash equivalents that we had on hand as of December 31, 2020, $4.3 million was held at APWC, and the remainder was held by operations.its subsidiaries. All of the Facilities are at the subsidiary level; APWC does not have any Facilities. Corporate needs (including holding company needs) are funded primarily throughby distributions from ourAPWC’s subsidiaries. We would relyAPWC relies upon distributions of dividends from ourits subsidiaries in order to pay dividends if thedeclared by its Board of Directors should at any time determine to declare any dividend. As noted in our Risk Factors, ourDirectors. APWC’s operating subsidiaries and other holdings and investments, from time to time, may be subject to restrictions on their ability to make distributions to us. Such restrictions couldAPWC, including, but not limited to, as a result fromof restrictive covenants contained in ourtheir loan agreements, restrictions on the conversion of earnings realized in local currenciescurrency earnings into U.S. dollars or other currency, and other regulatory restrictions. For example, PRC legal restrictions permit payments of dividends by our business entities in the PRC only out of their retained earnings, if any, determined in accordance with relevant PRC accounting standards and regulations. Under PRC law, such entities are also required to set aside a portion of their net income each year to fund certain reserve funds, of which the upper limit is 50%.funds. These reserves are not distributable as cash dividends. The foregoing restrictions may also affect ourAPWC’s ability to fund operations of one subsidiary with dividends and other payments received from another subsidiary. We are not aware of any other restrictions in other countries in which we do business other than those discussed in the “Risk Factors” section. Distributions may also be limited from time to time by reason of restrictions protective of the rights of minority shareholders of ourAPWC’s subsidiaries and by reason of the current cash requirements of theits operating subsidiaries. Consequently, we periodically need to manage our corporate cash needs to align with the permitted timing of distributions.
We maintain several working capital and overdraft credit facilities with various commercial bank groups and financial institutions. Under our line of credit arrangements for short-term debt with our banks, we may borrow up to approximately $250.9 million, including letters of credit for commodity purchases, on such terms as we and the banks mutually agreed upon. These arrangements do not have termination dates but are reviewed annually for renewal. As of December 31, 2017, the unused portion of the credit lines was approximately $144.5 million. Letters of credit are issued on our behalf in the ordinary course of business by our banks as required by certain supplier contracts. As of December 31, 2017, the Company had obligations in respect of amounts callable under issued, but undrawn, letters of credit totaling $37.6 million. Liabilities relating to the letters of credit are included in current liabilities. There is no seasonality to the Company’s borrowing.
Net cash used inprovided by operating activities in the year ended December 31, 20172020 was $16.9$16.4 million, as compared to $9.0$15.1 million of net cash provided by operating activities in the year ended December 31, 2016.2019. The increase in cash usedgenerated from operations was primarily attributable to improved product margins.
Net cash provided by operating activities in the year ended December 31, 2019 was $15.1 million, as compared to $40.6 million of net cash provided by operating activities in the year ended December 31, 2018. The decrease in cash generated from operations was primarily due to increasethe decrease in inventory and A/R, which was related to the increase revenue in late 2017. Most of the accounts receivable were collected and inventory subsequently sold within the first quarter of 2018.sales.
In 2016, net cash provided by operations was $9.0 million compared to $8.8 million in 2015. The increase was primarily the result of an increase in interest received in 2016.40
Days of sales outstanding (“DSO”) is a measure of the average collection period of accounts receivable, and although the calculation is influenced by the period used and the timing of sales within that period, it can provide insight into the variances in collections from period to period. Our days of sales outstanding for 20172020 was 8291 days, as compared to 7183 days for 2016.2019. The change was primary due to the impact of COVID-19, causing the fulfilment of 2020 on hand orders delayed and concentrated in year end of 2020, boosting our ending balance of trade receivables. We have in place rigorous policies across the Company that emphasize the importance of continuous focus on collection efforts.
In 2017,2020, cash provided byused in investing activities was $3.1$20.3 million compared to $0.2$6.4 million used in investing activities in 2016.2019. The increase in net cash provided by investing activities was primarily attributable to the proceeds from disposal of equipment of NPC.
In 2016, cash used in investing activities was $0.2 million compared to $7.3 million in 2015. The decrease in net cash used in investing activities was primarily attributable to the proceeds from disposal of an investmentincreased purchase in property, plant and equipment.
In 2019, cash used in the Thailand region.investing activities was $6.4 million compared to $4.8 million used in investing activities in 2018. The increase in net cash used in investing activities was primarily attributable to increased purchase in property, plant and equipment.
Net cash provided byinflows from financing activities was $7.0were $2.1 million in 2017. In 2017, net2020. The cash provided by financing activities reflectedinflows in 2020 were primarily the repayment ofattributable to an increase in borrowings.
46
Net cash used in financing activities was $10.4$17.9 million in 2016.2019. In 2016,2019, net cash used in financing activities reflected primarily the repayment of borrowings.
We believe funds generated by our operating activities, our cash on hand and amounts available to us under our credit facilities will provide adequate cash to fund our requirements through at least the next twelve months. We continue tobelieve that we have sufficient liquidity to meet our anticipated working capital, capital expenditures, general corporate requirements, and other short-term and long-term obligations as they come due. We may further enhance our liquidity in the future, as needs arise, by establishing additional lines of credit, with the supportway of one or more ofdebt and/or equity financings (including by engaging in debt and/or equity financings with our principal shareholders if necessary and available.shareholder).
|
| Research and Development |
The Company does not currently engage in its own research and development. Under the Composite Services Agreement with PEWC described herein, the Company benefits from research and development conducted by PEWC at little or no cost to the Company. Accordingly, the Company has not made material expenditures on or commitments to research and development since its formation.
|
| Trend Information |
We are not aware of any trend, commitment, event or uncertainty that can reasonably be expected to have a material effect on our current or future business other than the following, each of which has materially impacted our financial results in the past and may do so in the future:
Uncertainty arising from the volatility in the cost of copper, our principal raw material. In 2017,2020, the copper price went up from $4,863$6,005 (yearly average for 2016)2019) per metric ton to $6,163$6,169 per metric ton (yearly average for 2017)2020). Under our business model, the Company, like other companies in the industry, remains subject tois affected by movements in the price of copper, our principal raw material.
Fluctuations in the demand for our products in the markets in which we do business,business. Demand for our products in the markets in which we do business fluctuates based upon variations in the level of governmental and private investments in communications, power and industrial projects and programs that utilize our products. We are not an end-user of our products and, therefore, we depend upon the requirements of our customers to generate sales.
41
See “Quantitative“Item 11. Quantitative and Qualitative Disclosures About Market Risk.Risks.”
|
| Off-Balance Sheet Arrangements |
The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose the Company to material continuing risks, contingent liabilities, or any other obligation in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company.
47
The following table sets forth ourthe Company’s contractual obligations and commitments to make future payments under contracts and other commitments as of December 31, 2017:2020:
|
| Payments due by period |
| |||||||||||||||||
Contractual obligations (In thousands of US$) |
| Total |
|
| Less than 1 year |
|
| 2-3 years |
|
| 4-5 years |
|
| More than 5 years |
| |||||
Bank loans and overdrafts |
| $ | 41,151 |
|
|
| 41,151 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Finance lease obligations (principal amount only) |
|
| 78 |
|
|
| 36 |
|
|
| 40 |
|
|
| 2 |
|
|
| — |
|
Finance charges on finance lease obligations |
|
| 5 |
|
|
| 3 |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
Operating lease obligations |
|
| 3,640 |
|
|
| 1,174 |
|
|
| 442 |
|
|
| 417 |
|
|
| 1,607 |
|
Capital commitment relating to installation of equipment and acquisition of machinery |
|
| 786 |
|
|
| 786 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Capital commitment relating to repair and maintenance consulting service |
|
| 76 |
|
|
| 76 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Purchase obligations for copper cathodes |
|
| 277,245 |
|
|
| 277,245 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| $ | 322,981 |
|
|
| 320,471 |
|
|
| 483 |
|
|
| 420 |
|
|
| 1,607 |
|
| Payments due by period |
| ||||||||||
Contractual obligations (In thousands of US$) | Total |
| Less than 1 year |
| 1-5 years |
| More than 5 years |
| ||||
Interest-bearing loans and borrowings | $ | 15,428 |
|
| 10,279 |
|
| 925 |
|
| 4,224 |
|
Lease obligations |
| 2,621 |
|
| 613 |
|
| 1,015 |
|
| 993 |
|
Capital commitment relating to factory building improvement and acquisition of machinery |
| 2,541 |
|
| 2,520 |
|
| 21 |
|
| — |
|
Purchase obligations for raw materials |
| 251,001 |
|
| 251,001 |
|
| — |
|
| — |
|
| $ | 271,591 |
|
| 264,413 |
|
| 1,961 |
|
| 5,217 |
|
The contractual obligation for the purchase of copper cathodes disclosed in the table above was the minimum purchase commitment. For more details on financial commitments and contingencies, please refer to our audited consolidated financial statements and the notes thereto referenced in Item 18: “Financial Statements.”Statements”.
| 5.g. | Safe Harbor |
Please see the section of this report entitled “Cautionary Statement Regarding Forward-Looking Statements”
ITEM 6: |
|
|
| Directors and Senior Management |
There is only one class of directorships and no one or more directors possessespossess any veto power over matters presented to the Board or any other special or enhanced voting rights. The Bye-Laws provide that a quorum consists of a majority of the directors then in office. As of December 31, 2017,2020, there were a total of nine (9) directors on the Board, including three independent directors, Mr. Anson Chan, Dr. Yichin Lee, and Dr. Lambert Ding. By a resolution passed at the Company’sAPWC’s most recent annual general meeting of shareholders (the “20172020 AGM”) held on October 20, 2017,September 18, 2020, the shareholders determined thatset the minimum number of directors shall be fixed at two (2), and the maximum number of directors be fixed at ten (10) and that one (1) vacancy shall exist on the Board of Directors, which shall be deemed to be a casual vacancy, which may be filled from time to time by the Board of Directors in accordance with the provisions of the Bye-Laws.nine (9). Each director is entitled to one vote, and approval of any matter requires a simple majority assuming a quorum is present. The following table sets forth certain information concerning the current directors and certain other officers of the Company.APWC. All directors are subject to annual election by the shareholders of the Company.APWC. Each of the directors was reelected at the Company’s 2017APWC’s 2020 AGM. Officers generally hold office for such period and upon such terms as the Board may determine.
Name | Date of Birth | Position |
| N/A | Assistant Resident Secretary |
Anson Chan | November 3, 1963 | Independent director, Audit Committee Chairman |
Andy C.C. Cheng | April 29, 1958 | Director and Non-Executive Chairman of the Board |
Fang Hsiung Cheng | May 31, 1942 | Director |
Daphne Hsu | August 12, 1962 | Financial Controller |
Lambert L. Ding | October 12, 1959 | Independent director, Audit Committee Member |
42
Michael C. Lee | September 28, 1951 | Director |
Yichin Lee | January 4, 1961 | Independent director, Audit Committee Member |
Alex Chen | December 30, 1957 | Director |
David Sun | December 22, 1953 | Director |
Yuan Chun Tang | November 26, 1960 | Director, Chief Executive Officer |
William Gong Wei | October 31, 1961 | Chief Operating Officer |
Ivan Hsia | August 14, 1973 | Chief Financial Officer |
48
Certain officers and directors of the CompanyAPWC are or were also officers andor directors of PEWC and/or PEWC affiliates, as described below. A brief professional summary for each member of the Board of Directors and senior management is as follows:
Mr. Anson Chan has been an independent member of the Company’sAPWC’s Board of Directors and a member and Chairman of the Audit Committee and compensation committee since 2007. Mr. Chan is also a Managing Director of the Bonds Group of Companies and was a Senior Advisor to Elliott Associates from 2005 to 2008. He is also a Certified Public Accountant in the U.S. and a Charted Accountant in Ontario, Canada.
Mr. Andy C.C. Cheng was a member of the Company’sAPWC’s Board of Directors from 2004 to 2005 and was re-elected in 2007. Mr. Cheng was appointed as Chairman of the Board in 2009. From 1987 to 2003, Mr. Cheng served as Vice President in charge of procurement at PEWC. Mr. Cheng has been an Executive Vice President at PEWC since 2004 and Chairman of each of the investment divisions of PEWC, Tai Ho Investment Co., Ltd. and You Chi Investment Co., Ltd., since June 2008. Mr. Andy C.C. Cheng is not related to Mr. Fang Hsiung Cheng. Mr. Cheng currently is also a member of PEWC’s Board of Directors.
Mr. Fang Hsiung Cheng has been a member of the Company’sAPWC’s Board of Directors since 2006. He also serves as Assistant Vice President of PEWC. Mr. Fang Hsiung Cheng is not related to Mr. Andy C.C. Cheng.
Ms. Daphne Hsu has been Financial Controller of the CompanyAPWC since March 2005, prior to which she served as Financial Controller for ten years in Taiwan and China at a Thomson SA joint venture.
Dr. Lambert Ding was appointed March 17, 2011 ashas been an independent member of theAPWC’s Board of Directors.Directors since 2011. Dr. Ding is the president and CEO of Union Environmental Engineering Services and before that, he was an associate professor at Yuan Ze University. Dr. Ding holds a Doctor of Philosophy degree from the University of Southern California, awarded in 1989. He is also a Registered Environment Assessor and holds several patents. Dr. Ding serves as a member of the audit committee and compensation committee.
Mr. Michael C. Lee has been a member of the Company’sAPWC’s Board of Directors since 2004 and is also Chief Executive Officer of PEWC and Chairman of Pacific USA Holdings, Ltd. Mr. Michael C. Lee is not related to Dr. Yichin Lee. Mr. Lee currently is also a member of PEWC’s Board of Directors.
Dr. Yichin Lee has been an independent member of the Company’sAPWC’s Board of Directors and served on the Audit Committee since 2007. He is also a member of the compensation committee. Dr. Lee is the Managing Director of FCC partners. Dr. Yichin Lee holds a doctorate degree in Resource Planning and Management from Stanford University. Dr. Yichin Lee is not related to Mr. Michael C. Lee.
Mr. Alex Chen was appointedhas been a member of APWC’s Board of Directors since 2015. He also served as Chief Marketing Officer effectiveof APWC from July 1, 2015.2015 until December 31, 2019. Mr. Chen was first assigned to PEWC as Engineer, Assistant to General Manager, and later Manager of Quality Assurance Department from 1983 to 2008. He was appointed as Managing Director of Siam Pacific Electric Wire & Cable Co. Ltd. in Thailand from 2008 to 2015. Mr. Chen also serves as Vice President and General Division Manager of the General Sales Division of PEWC, and as a Director of the Taiwan Electric Research & Testing Center.
Mr. David Sun has been a member of the Company’sAPWC’s Board of Directors since 2007. He also serves as President of PEWC and Managing Director of Charoong Thai Wire and Cable Public Company Limited.
43
Mr. Yuan Chun Tang has been a member of the Company’sAPWC’s Board of Directors since 2004 and Chief Executive Officer since 2005. Mr. Yuan served as the Company’sAPWC’s Chairman from 2005 to 2009. He has also served as Chairman of PEWC since 2004 and has been the Director of Pacific Construction Corp. Ltd since 2002. Mr. Yuan served as the Director of the Taiwan Co-generation Corp. from 2005 to 2008. Mr. Yuan has also been the Chairman of the Taiwan Electric Wire & Cable Industries Association since 2004. He has served as the Supervisor to the Taipei Importers/Exporters Association as well as the Director of Chinese National Federation of Industries in Taiwan since 1998 and 2004, respectively.
49
Mr. William Gong Wei was appointedhas been Chief Operating Officer effectivesince April 1, 2013. He was first assigned to Charoong Thai Wire and Cable Pte. Co. Ltd. as Engineer, Assistant Plant Manager, and later consultant to the high voltage cable division from 1991 to 2000. Thereafter, Mr. Gong Wei left Charoong Thai to pursue other professional activities until heand rejoined the Company in 2009. In April 2009 he was appointed as General Manager of Sigma Cable in Singapore. Mr. Gong Wei holds a master’s degree from the Asian Institute of Technology in Bangkok, Thailand.
Mr. Ivan Hsia was appointed ashas been Chief Financial Officer effectivesince August 1, 2013. Mr. Hsia previously served as the Deputy CFO of the Company.APWC. Prior to that, he served as the Senior Internal Audit Manager of the Company.APWC. Before joining APWC, Mr. Hsia was the head of internal audit at Newegg.com in Los Angeles, CA, USA.
The Company’s Common Shares are tradedcurrently trade on the Global MarketsCapital Market tier of NASDAQ. Notwithstanding that, the Board of Directors is not composed of a majority of independent directors. The CompanyNasdaq. APWC is relying upon the “controlled company exemption” that is available to issuers under the rules of NASDAQ. In effect,Nasdaq as the Company’s Board of Directors is not composed of a majority of independent directors. The “controlled company exemption” provides that an issuer is not required to have its Board of Directors consist of a majority of independent directors if a shareholder, or two or more shareholders who constitute a group, have beneficial ownership of more than 50% of the issued and outstanding voting securities of the issuer. PEWC owns and controls, directly or indirectly, 75.4%approximately 75.5% of the issued and outstanding Common Shares of the Company.APWC.
No service contract exists between any officers or directors sitting on the Board and the CompanyAPWC or any of its subsidiaries providing for benefits upon termination of employment.
The CompanyAPWC has no arrangements or understandings with any major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or member of senior management.
|
| Compensation |
The aggregate amount of compensation paid by the Company to all of APWC’s directors and members of its administrative, supervisory or management bodies (“Senior Management Members”), as a group, for services in all capacities during 2020 was approximately $1.44 million. The annual compensation of APWC’s directors and Senior Management Members on an individual basis for services in all capacities is not required to be disclosed under the laws of Bermuda.
In 2020, the fee payable to each independent director was $30,000 per year and the fee payable to each director who is a director or an executive officer of the Company or PEWC or any of their respective affiliates was $20,000 per year, together with, in each case, reimbursement of reasonable travel expenses for attendance at meetings of the Board of Directors or any of its committees.
No funds or provisions have been set aside or accrued by the Company or its subsidiaries to provide pension, retirement or similar benefits to directors or management except for government mandated programs.
44
6.c. | Board Practices |
6.c.1. | Audit Committee |
The Audit Committee of the Board of Directors primarily functions to assist the Board in its oversight of: (i) the reliability and integrity of accounting policies and financial reporting and disclosure practices and (ii) the establishment and maintenance of processes to ensure that there is compliance with all applicable laws, regulations and companyCompany policy and an adequate system of internal control, management of business risks and safeguard of assets.
The Audit Committee is composed of Mr. Anson Chan, Dr. Yichin Lee and Dr. Lambert Ding, with Mr. Chan serving as the chairman of the Audit Committee.
The Audit Committee, as currently constituted, complies with the requirements of Regulation 10A-3 of the Exchange Act and the corporate governance requirements of NASDAQ.Nasdaq.
|
| Compensation Committee |
The Compensation Committee primarily functions to assist the Company in determining the compensation to be paid to the executive directors and certain members of the senior management of the Company. According to the charter under which it operates, the Compensation Committee is authorized to: (i) review and recommend to the Board, or determine, the annual salary, bonus, stock options, and other benefits, direct and indirect, of the senior management of the CompanyAPWC and its principal operating subsidiaries; (ii) review new executive compensation programs, review on a periodic basis the operations of the Company’s executive compensation programs to determine whether they are properly coordinated, establish and periodically review policies for the administration of executive compensation programs, and take steps to modify any executive compensation programs that yield payments and benefits that are not reasonably related to executive performance; (iii) engage outside auditors and consultants to advise on market compensation; and (iv) establish and periodically review policies in the area of management perquisites.
50
The Compensation Committee is comprised of three independent directors, Mr. Anson Chan, Dr. Yichin Lee, and Dr. Lambert Ding. In addition, Mr. Andy Cheng and Mr. Yuan Chun Tang, the Company’s Chairman and Chief Executive Officer, respectively, serve in a non-voting advisory capacity to the Compensation Committee.
|
|
|
The aggregate amount of compensation paid by the Company to all of the Company’s directors and executive officers, as a group, for services in all capacities during 2017 was approximately $2.4 million. As of March 31, 2018, our directors and executive officers beneficially owned approximately 103,000 Common Shares representing approximately 0.7% of the issued and outstanding Common Shares. The annual compensation of its executive officers and directors on an individual basis is not a disclosure item under the laws and regulations applicable to the Company.
In 2017, the fee payable to each independent director was $30,000 per year and the fee payable to each director who is a director or an executive officer of the Company or PEWC or any of their respective affiliates was $20,000 per year, together with, in each case, reimbursement of reasonable travel expenses for attendance at meetings of the Board of Directors or any of its committees.
No funds or provisions have been set aside for providing compensation to directors or management except for government mandated programs.
| Employees |
The Company employed a total of 1,3531,216 employees as of December 31, 2017,2020, of which about 14.4%13.7% were administrative and management personnel, with the balance being production personnel. Approximately 60.1%As of December 31, 2020, approximately 65.2% of employees were located in the Thailand region, 24.5 %19.2% in the North Asia region and 15.4%15.6% in the ROW region. Production workerspersonnel are usually organized into two 12-hour shifts or three 8-hour shifts to allow continuous factory operations.
The Company employed a total of 1,227 employees as of December 31, 2019, of which about 14.2% were administrative and management personnel, with the balance being production personnel. As of December 31, 2019, approximately 65.7% of employees were located in the Thailand region, 18.3% in the North Asia region and 16.0% in the ROW region. Production personnel are usually organized into two 12-hour shifts or three 8-hour shifts to allow continuous factory operations.
The Company employed a total of 1,326 employees as of December 31, 2018, of which about 13.3% were administrative and management personnel, with the balance being production personnel. As of December 31, 2018, approximately 60.6% of employees were located in the Thailand region, 24.6 % in the North Asia region and 14.8% in the ROW region. Production personnel are usually organized into two 12-hour shifts or three 8-hour shifts to allow continuous factory operations.
45
The Company offers a range of employee benefits, which it believes are comparable to industry practice in its local markets. Such benefits include performance-based pay incentives, medical benefits, vacation, pension, housing for a small number of workers in Singapore and in Thailand, and a small housing supplement tofor other workers. The Company also provides training programs for its personnel designated to improve worker productivity and occupational safety.
Presently, there is no group bonus, profit-sharing or stock option plan. However, some of the Company’sAPWC’s subsidiaries have bonus or profit-sharing plans based on individual performance and the profitability of the particular subsidiary for the fiscal year, which plans are generally in accordance with the industry practice and market conditions in the respective countries.
The Company has several defined benefit and defined contribution plans covering its employees in Thailand, Australia, the PRC, Singapore, Thailand, and Singapore. Contributions to the plans are made on an annual basis and totaled $1.3 million in 2017.Taiwan. Additionally, the Company has several defined benefit plans in accordance with Thailand labor law. InPursuant to these defined benefits plans, the Company pays a retiring employee at its Thai subsidiaries the Company must pay a retiring employee from one to twenty-ninetwenty-six times such employee’s salary rate during his or her final month, depending on the length of service. During 2017,2020, the Company’s total expenses under this labor law were $0.6$0.7 million. These defined benefit plans are not funded and the amount is recognized and included in Employee Benefit Liabilities inon the Company’s balance sheet. The Company settles itits obligations as and when employees retire. The accumulated benefit obligations under this planthese plans amounted to $8.3$11.3 million as at December 31, 2017.2020. For further information related to these employee benefit plans, see Note 21 of our consolidated financial statements referenced in Item 18 of this Annual Report.
51
Approximately 22%13% of the employees of Sigma Cable are members of the United Workers of Electronics & Electrical Industries, an employees’ union in Singapore. Under the terms of a collective agreement signed in June 2003, the Company is required to negotiate salary and wage increases yearly. All other worker benefits and employment terms are included in the collective agreement. The Company believes that approximately 100% and 99%100% of the employees of PEWS and Shanghai Yayang, respectively, are members of their respective Company Workers’ Unions. These unions generally operate in accordance with related labor regulations in China. Approximately 17%13% of the employees of APEC are members of the Australian Workers’ Union. None of the employees of theAPWC’s other operating subsidiaries of the Company are members of a union.
The Company has never experienced a strike or other disruption due to labor disputes. The Company considers its employee relations to be satisfactory and has not experienced difficulties attracting and retaining qualified employees.
| 6.e. | Share Ownership |
The common shares beneficially owned by the persons listed in “Item 6. Directors, Senior Management and Employees – 6.b. Compensation” are disclosed in “Item 7. Major Shareholders and Related-Party Transactions – 7.a. Major Shareholders.”
|
|
|
| Major Shareholders |
Pursuant to a 2012 Share Buy-back Plan, the Company re-purchased 9,300 Common Shares, which continue to be held by the Company and booked as treasury shares. In a subsequent private transaction in June 2013, the Company repurchased a further 1,800 Common Shares, such that aA total of 11,100 Common Shares are now issued but not outstanding and are booked as treasury shares. Excluding these treasury shares, there were 13,819,669 Common Shares issued and outstanding as of December 31, 2020. On August 21, 2015, PEWC and Moon View Ventures Limited, a BVI company and wholly-owned subsidiary of PEWC, acquired 1,355,415 Common Shares that were held indirectly by a private equity investor group. In connection with the sale of those Common Shares, the parties terminated an Amended and Restated Shareholders’ Agreement, which termination benefited the CompanyAPWC by reason of the elimination of certain U.S. tax indemnification obligations of the Company (and PEWC) in favor of the private equity investor, and the termination of the Company’s obligation to maintain effective a shelf registration statement on Form F-3, covering the Common Shares held by the private equity investor. As a result of that transaction, PEWC held, and it continues to hold, approximately 75.4% of the issued and outstanding Common Shares. The remaining approximately 24.6%75.5% of the issued and outstanding Common Shares continue to bein the manner described below. The remaining approximately 24.5% of the issued and outstanding Common Shares are presently publicly traded in the U.S. and are currently listed on the NASDAQ Global MarketsNasdaq Capital Market tier under the trading symbol “APWC”.
46
The following table sets forth certain information regarding beneficial ownership of the Company’s Common Shares as of March 31, 20182021 by (i) all persons who are known to the CompanyAPWC to own beneficially more than five percent of the Common Shares of the Company and (ii) theAPWC’s executive officers (Senior Management Members) and directors of the Company as a group. The information set forth in the following table is derived from public filings made by holders and information obtained from directors and officers. The voting rights attaching to the Common Shares below are the same as those attaching to all other Common Shares.
Identity of Person or Group |
| Number of Shares |
|
| Percent of Class |
| Number of Shares |
| Percent of Class |
| ||||
Pacific Electric Wire & Cable Co., Ltd.(1) |
|
| 10,430,769 |
|
|
| 75.417 | % |
| 10,430,769 |
|
| 75.478 | % |
LONSIN Capital Limited |
|
| 714,170 |
|
|
| 5.170 | % | ||||||
Directors and Officers of the Company |
|
| 102,954 |
|
|
| 0.744 | % | ||||||
Directors and Executive Officers (Senior Management Members) of APWC |
| 97,834 |
| 0.708 | % |
(1) | PEWC owns 1,410,739 shares directly and owns its remaining shares indirectly, as a result of PEWC’s control of its direct wholly-owned subsidiary, Moon View Ventures Limited, a BVI company, which beneficially owns 7,661,235 Common Shares, and as a result of PEWC’s control of its indirect wholly-owned subsidiary, Pacific Holdings Group, a Nevada corporation, which beneficially owns 1,358,795 Common Shares. |
52
The CompanyAPWC has 6,166,154 Common Shares that arewere registered, securities, of which 3,388,900 Common Shares are publicly-traded on the NASDAQ Global MarketsNasdaq Capital Market tier, which represents approximately 24.6%24.5% of the issued and outstanding Common Shares. With regard to the remaining 2,777,254 registered securities,such Common Shares, 2,766,154 Common Shares are held by PEWC and its subsidiaries, and 11,100 Common Shares are held by the CompanyAPWC in treasury, and all of those shares are subject to trading restrictions under Rule 144 promulgated under the U.S. Securities Act.Act of 1933. Other than (i) the approximately 103,00097,834 Common Shares held by directors or officers who are not resident in the United States, (ii) the 2,766,154 registered securities held directly or indirectly by PEWC, and (iii) the 714,17011,100 Common Shares reported to be held beneficially by Lonsin Capital Limited, a company organized under the laws of the United Kingdom (“Lonsin”), and by two of its managers who reportedly control managed accounts of customers of Lonsin, the CompanyAPWC in treasury, APWC believes that substantially all of its registered securities are held by U.S. residents (other than the 11,100 Common Shares held by the Company in treasury). The Companyresidents. APWC has no means to definitively confirm that belief; however,belief, which is based upon a review of the share registers maintained by the Company’sAPWC’s Bermuda transfer agent and U.S. transfer agent and the addresses provided by the record holders. Based upon a review of the records of the Company’sAPWC’s U.S. transfer agent, including a list of non-objecting beneficial holders ((“NOBOs“NOBOs””), the CompanyAPWC believes there are substantially more than 400 beneficial holders that are resident in the United States, although that constitutes only the Company’sAPWC’s best estimate of the number of U.S. beneficial holders.
|
| Related Party Transactions |
The Company incurs ordinary course trade and other payables with PEWC in connection with copper purchases underof products manufactured and services provided by PEWC.
On July 10, 2020, the Composite Services AgreementCompany and PEWC entered into a secured loan agreement pursuant to which the saleCompany borrowed the principal amount of $6 million from PEWC (the “Secured Loan”). The Secured Loan carries a 3% interest rate and is secured by a pledge of the Company’s 98.3% ownership stake in Sigma Cable. The Secured Loan’s scheduled maturity date is the date which is twelve months after July 10, 2020, but may be repaid (in whole or in part) before such date by the Company of Distributed Products that are manufactured by PEWC.
As of December 31, 2017at its option. The principal amount currently outstanding on the Company, including its subsidiaries, had a net principal balance outstanding of $4.4 million borrowed from PEWC and subsidiaries of PEWC. This short-term indebtednessSecured Loan is payable on a demand basis and does not accrue interest.$6 million.
The Company used the proceeds from each of the related party loansloan described above for working capital and purchases of capital equipment. The terms of borrowing by APWC or any of its subsidiaries from PEWC are on terms at least as favorable thanas terms available in arms-length transactions with unaffiliated parties.
Under the terms of the Composite Services Agreement, APWCthe Company pays a management fee to PEWC in connection with the secondment, or temporary assignment and relocation, of certain PEWC managers to APWC facilities in Thailand and China.the Company’s operating units. The assigned managers assist APWCthe Company in implementing the results of certain research and development conducted by PEWC and made available by PEWC to the Company under the terms of the Composite Services Agreement. The assigned managers also assist APWCthe Company in the procurement of raw materials, primarily copper, which is also provided for under the Composite Services Agreement. The amount of such annual management fee was approximately $143 thousand as of December 31, 2017.$133 in 2020.
47
From time to time we have engaged in a variety of transactions with our affiliates. We generally conduct transactions with our affiliates on an arm’s-length basis. The sales and purchase prices with related parties are determined through negotiation, generally based on the quoted copper price on the LME plus a certain premium.
Additional details regarding related party balances as of December 31, 20172020 and related party transactions including copper purchases from PEWC, are disclosed in our audited consolidated financial statements referenced in Item 18:“Item 18. Financial Statements.” Please refer to Note 24 of our consolidated financial statements presented herewith.
| FINANCIAL INFORMATION |
8.a. | Consolidated Statements and Other Financial Information |
|
| Consolidated Statements |
See Item 18: Financial Statements
8.a.2. | Legal Proceedings |
There are currently no material proceedings in which any director, senior manager, or affiliate is adverse to the Company or has an adverse material interest. There are no actual or pending legal proceedings to which the Company is, or is likely to become, a party which may reasonably be expected to have, or have had in the recent past, a material effect on the Company’s condition (financial or otherwise) or results of operations.
53
In November 2016, the CompanyAPWC announced that its Board of Directors had approved the initiationimplementation of a dividend policy as part of the Company'sAPWC’s ongoing commitment to increasing shareholder value and return on investment. The goal of the dividend policy is to pay cash dividends of at least 25% of the Company's net post-tax audited consolidated profits attributable to shareholders to be paid on an annual basis in cash, if and when available for distribution. In accordance with its dividend policy, on November 30, 2017, the Company2018, APWC paid a cash dividend to shareholders of record as of October 31, 2017September 14, 2018 in the amount of $0.10$0.08 per Common Share. However, APWC’s Board of Directors determined not to pay a dividend for 2019 or 2020 given that the Company had funding requirements and unsatisfied business performance.
As a holding company, the Company’sAPWC’s ability to pay dividends, as well as to meet its other obligations, depends upon the amount of distributions, if any, received from the Company’sits operating subsidiaries and other holdings and investments. The Company’sAPWC’s operating subsidiaries and other holdings and investments, from time to time, may be subject to restrictions on their ability to make distributions to the Company.APWC. Those restrictions may also affect the Company’sAPWC’s ability to fund operations of one subsidiary with dividends and other payments received from another subsidiary.
In addition, the ability of the Company'sAPWC’s operating subsidiaries to make distributions to APWC will depend upon a number of factors, including operating results, capital requirements, expansion plans, business prospects, obligations in respect of non-recurring items, debt covenants and other factors that may arise from time to time. The Company cannot provideThere can be no guarantee that APWC will pay any unconditional assurances to holders of Common Shares with regard to the Company's ability to pay further dividends in accordance with the Company's dividend policy.future.
|
| Significant Changes |
Please see Note 29 (Subsequent Events) to the consolidated financial statements referenced in Item 18 hereof for information on recent material events, which contains information regarding the declaration of a cash dividend by the Board of Directors of Charoong Thai and an unrealized loss of $2.8 million recognized in the first quarter of 2021 due to rise in the LME copper price. There have been no material or significant changes in the Company’s affairs since the end of the fiscal year ended December 31, 20172020 that have not been described herein. See Section 3.3 Risk Factors.herein or in such Note 29.
5448
|
|
The high and low market prices for Common Shares currently trade on the NASDAQ since January 1, 2013, for each period specified are as follows:
|
| Price per Share ($) |
| |||||
|
| High |
|
| Low |
| ||
Five most recent full financial years: |
|
|
|
|
|
|
|
|
2013 |
|
| 4.34 |
|
|
| 3.00 |
|
2014 |
|
| 3.38 |
|
|
| 2.27 |
|
2015 |
|
| 2.60 |
|
|
| 1.27 |
|
2016 |
|
| 2.85 |
|
|
| 1.20 |
|
2017 |
|
| 3.10 |
|
|
| 2.40 |
|
|
|
|
|
|
|
|
|
|
Two most recent full financial years: |
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
First quarter |
|
| 1.85 |
|
|
| 1.20 |
|
Second quarter |
|
| 2.62 |
|
|
| 1.75 |
|
Third quarter |
|
| 2.77 |
|
|
| 2.15 |
|
Fourth quarter |
|
| 2.85 |
|
|
| 2.15 |
|
2017 |
|
|
|
|
|
|
|
|
First quarter |
|
| 3.10 |
|
|
| 2.40 |
|
Second quarter |
|
| 3.10 |
|
|
| 2.55 |
|
Third quarter |
|
| 3.10 |
|
|
| 2.80 |
|
Fourth quarter |
|
| 3.05 |
|
|
| 2.65 |
|
2018 |
|
|
|
|
|
|
|
|
First quarter |
|
| 2.93 |
|
|
| 2.35 |
|
Most recent six months: |
|
|
|
|
|
|
|
|
October 2017 |
|
| 3.05 |
|
|
| 2.80 |
|
November 2017 |
|
| 3.00 |
|
|
| 2.65 |
|
December 2017 |
|
| 2.95 |
|
|
| 2.67 |
|
January 2018 |
|
| 2.85 |
|
|
| 2.55 |
|
February 2018 |
|
| 2.85 |
|
|
| 2.35 |
|
March 2018 |
|
| 2.93 |
|
|
| 2.50 |
|
|
|
The Company’s Common Shares have traded on NASDAQ since April 2011Nasdaq Capital Market tier under the symbol “APWC”. On February 15, 2013, the Company’s Common Shares were elevated to NASDAQ Global Markets tier. See Section 3.3.4: Risk Factor: “Potential Illiquidity of Common Shares.” The Common Shares are not listed on any other exchanges or otherwise publicly traded within or outside the United States.
55
|
| Share Capital |
As of December 31, 2017 and as of the date of the filing of this Annual Report, the Company has an authorized share capital of 50,000,000 Common Shares, par value $0.01 per share. During 2013, the Company repurchased 7,400 Common Shares, for a total of 9,300 Common Shares that were repurchased under the Company’s then active Share Buy-back Plan, until the Company suspended the Share Buy-back Plan effective as of April 25, 2013. Subsequently in 2013, in a private transaction, the Company purchased a further 1,800 Common Shares that were also booked as treasury shares and are classified as issued but not outstanding. No Common Shares have been purchased by or on behalf of the Company under the share buy-back program that was announced by the Company in 2014, but not implemented. As of December 31, 2017,2020, and as of the date of the filing of this Annual Report, there were and there are 13,830,769 Common Shares issued, andwith 13,819,669 Common Shares issued and outstanding.outstanding and 11,100 Common Shares held in Treasury. No capital stock of the Company is under option or agreed conditionally or unconditionally to be put under option. The CompanyAPWC does not have any classes of capital stock other than its Common Shares.
|
| Memorandum of Association and Bye-Laws |
|
| General |
For a detailed description of the Company’s principal activities, see Section 4.1: “History and Development of the Business.”Item 4 above. Pursuant to the Company’sAPWC’s Bye-Laws, the Board of Directors consists of a single class of directors, each director has one vote on all matters put to the Board, and a quorum consists of a majority of the members of the Board of Directors then in office. The Company’s Bye-Laws were amended on October 7, 2011 to allow the Company to purchase its own shares for cancellation or acquire them to be held as treasury shares.
In 2012, the Company commenced a Share Buy-back Plan, pursuant to which the Company repurchased, in the aggregate, 9,300 issued and outstanding Common Shares, with the most recent purchase under the Share Buy-back Plan having been made on January 10, 2013. Subsequently in 2013, in a private transaction, the Company purchased a further 1,800 Common Shares that were also booked a treasury shares and are classified as issued but not outstanding. Those repurchased Common Shares are booked as treasury shares and may be re-sold to third parties by the Company in the future. In April 2013, the Company announced the suspension of the Share Buy-back Plan.
In August 2014, the Company announced that the Board of Directors had authorized a further share buy-back plan of up to $1 million in Common Shares. The Company has not implemented that further buy-back plan. The Company may determine to implement a share buy-back plan in the future. Any determination to do so would depend upon a number of factors including the trading price of the Common Shares, the Company's liquidity, the possible alternative uses of available cash and general market conditions.
|
| Description of Shareholder Rights Attaching to |
The CompanyAPWC was incorporated in Bermuda on September 19, 1996 under the Companies Act. The rights of ourAPWC’s shareholders are governed by Bermuda law and ourAPWC’s memorandum of association and Bye-Laws.
The following discussion of our Common Shares and the laws governing the rights of our shareholders is based upon the advice of Appleby (Bermuda) Limited, our Bermuda counsel.
OurAPWC’s authorized share capital as of December 31, 20172020 was $500,000$0.5 million consisting of 50,000,000 Common Shares, par value $0.01 per share, of which, as of December 31, 2017,2020, and as of the date of the filing of this Annual Report, there were and are 13,830,769 Common Shares issued of which 13,819,669 Common Shares are issued and outstanding and eligible to vote. There are 11,100 Common Shares that are issued (but not outstanding and not currently eligible to vote) and held as treasury shares by the Company.APWC.
Holders of the Common Shares have no preemptive, redemption, conversion or sinking fund rights.
Holders of the Common Shares are entitled to one vote per share on all matters submitted to a poll vote of holders of Common Shares and do not have any cumulative voting rights.
56
OurIn the event of APWC’s liquidation, dissolution or winding-up and subject to any alternative resolution that may be pursued by APWC’s shareholders, the holders of Common Shares are entitled to share ratably in APWC’s assets, if any, remaining after the payment of all APWC’s debts and liabilities.
APWC’s issued and outstanding Common Shares are fully paid and non-assessable.
Additional authorized but unissued Common Shares, and issued shares held in treasury, may be issued or conveyed by the Board of Directors without the approval of the shareholders.
The holders of Common Shares will receive such dividends, if any, as may be declared by the Board of Directors out of funds legally available for such purposes. WeAPWC may not declare or pay a dividend, or make a distribution out of contributed surplus, if there are reasonable grounds for believing that:
we are,APWC is, or after the payment would be, unable to pay ourits liabilities as they become due; or
the realizable value of ourAPWC’s assets after such payment or distribution would be less than the aggregate amount of our liabilities and our issued share capital and share premium accounts.its liabilities.
The following is a summary of provisions of Bermuda law and ourAPWC’s organizational documents, including ourAPWC’s memorandum of association and Bye-Laws. We refer you to ourAPWC’s memorandum of association and our Bye-Laws, copies of which have been filed with the SEC. You are urged to read these documents in their entirety for a complete understanding of the terms thereof.
49
|
| Share Capital |
OurAPWC’s authorized capital consists of one class of Common Shares. Under ourAPWC’s Bye-Laws, ourAPWC’s Board of Directors has the power to issue any authorized and unissued shares on such terms and conditions as it may determine. Any shares or class of shares may be issued with such preferred, deferred, qualified or other special rights or any restrictions with regard to such matters, whether in regard to dividend, voting, return of capital or otherwise, as weAPWC may from time to time by resolution of the shareholders prescribe, or in the absence of such shareholder direction, as the Board of Directors may determine. This provision in the Bye-Laws could be used to prevent a takeover attempt, or to make a takeover attempt prohibitively expensive, and thereby preclude shareholders from realizing a potential premium over the market value of their shares.
|
| Voting Rights |
Generally, under Bermuda law and ourAPWC’s Bye-Laws, questions brought before a general meeting are decided by a simple majority vote of shareholders present or represented by proxy, with no provision for cumulative voting. Matters will be decided by votes cast by way of voting cards, proxy cards or a show of hands unless a poll is demanded.
If a poll is demanded, each shareholder who is entitled to vote and who is present in person or by proxy has one vote for each Common Share entitled to vote on such question. A poll may only be demanded under the Bye-Laws by:
the chairman of the meeting;
at least three shareholders present in person or represented by proxy;
any shareholder or shareholders present in person or represented by proxy and holding between them not less than one-tenth of the total voting rights of all shareholders having voting rights; or
a shareholder or shareholders present in person or represented by proxy holding Common Shares conferring the right to vote on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Common Shares.
Unless the Board of Directors otherwise determines, no shareholder shall be entitled to vote at any general meeting unless all calls or other sums presently payable by that shareholder in respect of all shares held by such shareholder have been paid.
57
Under Bermuda law, a company may declare and pay dividends unless there are reasonable grounds for believing that the company is, or would, after the payment, be unable to pay its liabilities as they become due or that the realizable value of the company’s assets would thereby be less than its liabilities.
Under ourAPWC’s Bye-Laws, the Board may from time to time declare dividends or distributions out of contributed surplus to be paid to the shareholders according to their rights and interests. With the sanction of a shareholders resolution, the Board of Directors may determine that any dividend may be paid by distribution of specific assets, including paid-up shares or debentures of any other company. The Board of Directors may also pay any fixed cash dividend which is payable on any of ourthe Common Shares half-yearly or on other dates, whenever ourAPWC’s position, in the opinion of theAPWC’s Board of Directors, justifies such payment.
Dividends, if any, on ourthe Common Shares will be at the discretion of ourAPWC’s Board of Directors, and will depend on our future operations and earnings, capital requirements, surplus and general financial condition as ourAPWC’s Board of Directors may deem relevant.
50
|
| Purchases by |
Under Bermuda law and as authorized by the Company’sAPWC’s memorandum of association weand Bye-Laws, APWC may purchase ourits own Common Shares out of the capital paid up on the Common Shares in question or out of funds that would otherwise be available for dividend or distribution or out of the proceeds of a fresh issue of Common Shares made for the purposes of the purchase. WeAPWC may not purchase ourits Common Shares if, on the date on which the purchase is to be effected, there are reasonable grounds for believing that the CompanyAPWC is, or after the purchase would be, unable to pay its liabilities as they become due.
However, to the extent that any premium is payable on the purchase, the premium must be provided out of the funds of the CompanyAPWC that would otherwise be available for dividend or distribution or out of the Company’sAPWC’s share premium account.
|
| Preemptive Rights |
OurAPWC’s Bye-Laws generally do not provide the holders of ourits Common Shares preemptive rights in relation to any issues of Common Shares by usAPWC or any transfer of ourAPWC’s shares.
|
| Variation of Rights |
WeAPWC may issue more than one class of shares and more than one series of shares in each class. The rights attached to any class of shares may be altered or abrogated either:
with the consent in writing of the holders of more than fifty percent of the issued shares of that class; or
pursuant to a resolution of the holders of such shares.
The Bye-Laws provide that the necessary quorum shall be two or more personsshareholders present in person or by proxy holding a majority of shares of the relevant class.class in issue and entitled to vote. The Bye-Laws specify that the creation or issuance of shares ranking pari passu with existing shares will not, subject to any statement to the contrary in the terms of issuance of those shares or rights attached to those shares, vary the special rights attached to existing shares.
|
| Transfer of Common Shares |
Subject to the “Transfer Restrictions” section below, a shareholder may transfer title to all or any of his shares by completing an instrument of transfer in the usual common form or in such other form as the Board of Directors may approve. The form of transfer is required to be signed by or on behalf of the transferor and also the transferee where any share is not fully paid. The transferor shall be deemed to remain the holder of the shares until the name of the transferee is entered in the Registerregister of Members.members of APWC.
58
The Board of Directors may, in its absolute discretion and without assigning any reason therefor, decline to register any transfer of any share which is not a fully paid share. The Board of Directors may also refuse to register an instrument of transfer of a share unless unless:
the instrument of transfer:
transfer is duly stamped, if required by law, and lodged with us;APWC;
the instrument is accompanied by the relevant share certificate for the shares to which it relates, and such other evidence of the transferor’s right to make the transfer as the Board of Directors shall reasonably require;require to show the right of the transferor to make the transfer;
the instrument of transfer is in respect of only one class of shares; and
has obtained, where applicable, the permission of the Bermuda Monetary Authority.Authority with respect thereto has been obtained; and
Our Common Shares are traded on the NASDAQ Stock Market, Inc. which qualifies as an “appointed stock exchange” for purposes of51
subject to the Companies Act, the Bye-Laws and any directions of the BermudaBoard of Directors from time to time in force, the secretary of APWC may exercise the powers and discretions of the Board of Directors with respect to: (i) the transfer of shares by a shareholder by way of an instrument of transfer in the usual common form and (ii) sending to a notice of refusal to register a transfer of shares where the Board of Directors declines to register such transfer, within three months after the date on which the instrument of transfer was lodged.
In accordance with the provisions of the Exchange Control Act 1972, as amended, and related regulations made thereunder,of Bermuda, the permission of the Bermuda Monetary Authority (the “BMA”) is required for all issuances and transfers of shares (which includes the Common Shares) of Bermuda companies to or from a non-resident of Bermuda for exchange control purposes, other than in particularcases where the BMA has granted a general permission. The BMA, in its notice to the public dated June 1, 2005. 2005, has granted a general permission for the issue and subsequent transfer of any securities of a Bermuda company from and/or to a non-resident of Bermuda for exchange control purposes for so long as any “Equity Securities” of the company (which include the Common Shares) are listed on an “Appointed Stock Exchange” (which would include Nasdaq). In granting the general permission the BMA accepts no responsibility for our financial soundness or the correctness of any of the statements made or opinions expressed herein.
Accordingly, ourthe Common Shares benefit from a general permission for free transferability for all transfers between persons who are not resident in Bermuda for exchange control purposes, for as long as such Common Shares remain listed on an appointed stock exchange. In the event that the Common Shares are delisted from Nasdaq, it will be necessary to obtain the prior permission of the BMA to transfer such Common Shares to any transferee, subject to any applicable general permissions issued by the BMA.
|
| Transmission of Shares |
In the event of the death of a shareholder, the survivor or survivors, where the deceased shareholder was a joint holder, and the estate representative, where the deceased shareholder was sole holder, shall be the only persons recognized by usAPWC as having any title to the shares of the deceased. “Estate representative” means the person to whom probate or letters of administration has or have been granted in Bermuda, or failing any such person, such other person as the Board of Directors may in its absolute discretion determine to be the person recognized by usAPWC for this purpose.
|
| Disclosure of Interests |
Under the Companies Act, a director who has an interest in a material contract or a proposed material contract, or a 10% or more interest (directly or indirectly) in an entity that is interested in a contract or proposed contract or arrangement with us, is obligated to declare the nature of such interest at the first opportunity at a meeting of the Board of Directors, or by writing to the Board of Directors. If the director has complied with the relevant sections of the Companies Act and the Bye-Laws with respect to the disclosure of his interest, the director may vote at a meeting of the Board of Directors or a committee thereof on a contract, transaction or arrangement in which that director is interested, in which case his vote shall be counted and he shall be taken into account in ascertaining whether a quorum is present.
|
| Rights in Liquidation |
Under Bermuda law, in the event of liquidation or winding-up of a company, after satisfaction in full of all claims of creditors and subject to the preferential rights accorded to any series of preferred stock,shares, the proceeds of such liquidation or winding-up are distributed among the holders of shares in accordance with a company’s bye-laws.
52
Under ourAPWC’s Bye-Laws, if we areAPWC is wound up, the liquidator may, pursuant to a resolution of the shareholders and any approval required by the Companies Act, divide among the shareholders in cash or other assets the whole or part of ourAPWC’s assets, whether such assets shall consist of property of the same kind or not, and may for such purposes set such values as such liquidator deems fair upon any property to be divided and may determine how such division shall be carried out as between the shareholders.
59
Under Bermuda law, a company, unless it elects to dispense with the holding of annual general meetings, is required to convene at least one general meeting per calendar year. The directors of a company, notwithstanding anything in such company’s bye-laws, shall, on the requisition of the shareholders holding at the date of the deposit of the requisition not less than one-tenth of the paid-up capital of the company carrying the right of vote, duly convene a special general meeting. OurAPWC’s Bye-Laws provide that the Board of Directors may, whenever it thinks fit, convene a special general meeting.
Bermuda law requires that shareholders be given at least five days’ notice of a meeting of the Company. OurAPWC. APWC’s Bye-Laws extend this period to provide that not less than 20 days’ written notice of a general meeting must be given to those shareholders entitled to receive such notice. The accidental omission to give notice to or non-receipt of a notice of a meeting by any person does not invalidate the proceedings of a meeting.
OurAPWC’s Bye-Laws state that no business can be transacted at a general meeting unless a quorum of at least two shareholders representing a majority of the issued shares of the CompanyAPWC are present in person or by proxy and entitled to vote.
Under ourAPWC’s Bye-Laws, notice to any shareholders may be delivered either personally or by sending it through the post, by airmail where applicable, in a pre-paid letter addressed to the shareholder at his address as appearing in the share register or by delivering it to, or leaving it at, such registered address. Any notice sent by post shall be deemed to have been served seven (7) days after dispatch. A notice of a general meeting is deemed to be duly given to the shareholder if it is sent to him by cable, telex or tele-copier or other mode of representing or reproducing words in a legible and non-transitory form and such notice shall be deemed to have been served twenty-four (24) hours after its dispatch.
|
| Access to Books and Records and Dissemination of Information |
Under Bermuda law, members of the general public have the right to inspect the public documents of a company available at the office of the Bermuda Registrar of Companies. These documents include the memorandum of association and any amendment to the memorandum of association.
Under Bermuda law, the minutes of shareholder meetings will be open for inspection by any shareholder or director without charge for not less than two hours during business hours each day, subject to any reasonable restrictions that weAPWC may impose. The shareholders shall be entitled to receive a copy of every balance sheet and statement of income and expenditure before a general meeting as required under the Bye-Laws.
Under ourAPWC’s Bye-Laws, unless the Board otherwise determines, the register of shareholders of the CompanyAPWC is required to be open for inspection between 10:00 a.m. and 12:00 noon each working day without charge to members of the general public. A company is required to maintain its share register in Bermuda but may, subject to the provisions of the Companies Act, establish a branch register outside of Bermuda. We haveAPWC has established a branch register with ourAPWC’s transfer agent, Computershare Limited, which is based in Jersey City, New Jersey.
Under Bermuda Law, a company is required to keep at its registered office a register of its directors and officers that is open for inspection for not less than two hours in each day by members of the public without charge. Under ourAPWC’s Bye-Laws, the register of directors and officers is available for inspection by the public between 10:00 a.m. and 12:00 noon every working day.
53
Bermuda law does not provide a general right for shareholders to inspect or obtain copies of any other corporate records, except for the Bye-Laws of the Company.
60
The Bye-Laws provide that the number of directors will be such number, not less than two, as ourAPWC’s shareholders by resolution may from time to time determine. A director will serve until re-elected or his successor is appointed at the next annual general meeting or his prior removal in the manner provided by the Companies Act or the Bye-Laws. There is no requirement under Bermuda law, the Company’sAPWC’s memorandum of association or its Bye-Laws that a majority of the Company’sAPWC’s directors be independent.
The Bye-Laws provide that each director shall have one vote on all matters presented to the Board for a vote. At the Annual General Meeting held on October 20, 2017,September 18, 2020, all nine directors then in office were re-elected.
The shareholders may by resolution determine that one or more vacancies in the Board of Directors shall be deemed casual vacancies for the purposes of the Bye-Laws. The Board, so long as a quorum of directors remains in office, shall have the power at any time and from time to time to appoint any individual to be a director so as to fill a casual vacancy. The shareholders may approve the appointment of alternate directors or may authorize the Board to appoint them. Directors may also appoint and remove their own alternates. At the Annual General Meeting held on October 20, 2017,August 30, 2019, the shareholders approved of the reservationtotal number of one directorship as a casual vacancy.directors.
WeAPWC may, in a special general meeting called for this purpose, remove a director, provided notice of such meeting is served upon the director concerned not less than fourteen days before the meeting and he shall be entitled to be heard at that meeting.
The office of a director will be vacated in the event of any of the following:
if he resigns his office by notice in writing to be delivered to ourAPWC’s registered office or tendered at a meeting of the Board of Directors;
if he becomes of unsound mind or a patient for any purpose under any statute or applicable law relating to mental health and the Board of Directors resolves that his office is vacated;
if he becomes bankrupt or enters into a general settlement with his creditors;
if he is prohibited by law from being a director; or
if he ceases to be a director by virtue of the Companies Act or is removed from office pursuant to the Bye-Laws.
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| Amendment of Memorandum of Association and Bye-Laws |
Bermuda law provides that the memorandum of association of a company may be amended by resolution passed at a general meeting of which due notice has been given. An amendment to a memorandum of association does not require the consent of the Minister of Finance of Bermuda save for specific circumstances, for example, the adopting of any authority to carry on restricted business activities.
Under Bermuda law, the holders of:
an aggregate of not less than twenty percent in par value of a company’s issued share capital or any class thereof; or
not less in the aggregate than twenty percent of the company’s debentures entitled to object to amendments to its memorandum of association,
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have the right to apply to the Supreme Court of Bermuda for an annulment of any amendment of the memorandum of association. Where such an application is made, the amendment becomes effective only to the extent that it is confirmed by the Bermuda Supreme Court. An application for an annulment of an amendment of the memorandum of association must be made within twenty-one days after the date on which the resolution amending the memorandum of association is passed and may be made on behalf of the persons entitled to make the application by one or more of their number as they may appoint in writing for the purpose.
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OurAPWC’s Bye-Laws may be amended in the manner provided for in the Companies Act, which provides that the directors may amend the Bye-Laws, provided that any such amendment shall be effective only to the extent approved by the shareholders.
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| Merger or Amalgamation |
The Companies Act provides that two or more Bermuda companies may merge and their undertaking, property and liabilities shall vest in one of such companies as the surviving company (referred to as a “merger” under Bermuda law). The Companies Act also provides that a Bermuda company may amalgamate with another company and continue as an amalgamated company (referred to as an “amalgamation” under Bermuda law). A merger or amalgamation requires a merger or amalgamation agreement which must be approved by the board of directors and at a meeting of the shareholders by seventy-five percent of the shareholders present and entitled to vote at such meeting in respect of which the quorum shall be two persons holding or representing by proxy more than one-third of the issued shares of the company. These provisions do not apply where a holding company is merging or amalgamating with one or more of its wholly-owned subsidiaries or where two or more wholly-owned companies of the same holding company are merging or amalgamating.
Under Bermuda law, in the event of a merger or an amalgamation of a Bermuda company, a shareholder who did not vote in favor of the transaction and who is not satisfied that fair value has been offered for the shares, may apply to the Supreme Court of Bermuda within one month of notice of the meeting of shareholders to appraise the fair value of those shares.
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| Class Actions and Derivative Actions |
Class actions, as they are commonly understood in the United States, are not available to shareholders under Bermuda law. Derivative actions are generally only available to shareholders under Bermuda law in very limited circumstances. A shareholder may commence an action in the name of a company to remedy a wrong done to the company where the wrongdoers are in control of the company and the act complained of is of a fraudulent character, oppressive, beyond the corporate power of the company, illegal or would have required the approval of a greater percentage of the company’s shareholders than those that actually approved it. A shareholder may not commence such an action where the wrong complained of is capable of ratification by the company in a general meeting by ordinary resolution.
Since the July 2018 amendment to the Rules of the Supreme Court, if a derivative action is commenced and the relevant defendant enters an appearance, leave of the Supreme Court of Bermuda must be obtained before the derivative action can proceed.
When one or more shareholders believes the affairs of a company are being conducted in a manner which is oppressive or prejudicial to the interest of some part of the shareholders, the Supreme Court of Bermuda, upon petition, brought by the shareholder(s), may make such order as it sees fit includingif it is satisfied that the affairs of the company are or have been conducted in such an oppressive or prejudicial manner and, that, as a result, it would be just and equitable to wind up the company, but that to so wind up the company would unfairly prejudice the part of the shareholders ; such an order can include (with limitation) provisions regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company, and in the case of a purchase of the shares by the company, for the reduction accordingly of the company’s capital or otherwise.
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| Personal Liability of Directors and Indemnity |
The Companies Act requires every officer, including directors, of a company in exercising powers and discharging duties, to act honestly in good faith with a view to the best interests of the company, and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. The Companies Act further provides that any provision, whether in the bye-laws of a company or in any contract between the company and any officer or any person employed by the company as auditor, exempting such officer or person from liability, or indemnifying him against any liability which by virtue of any rule of law would otherwise attach to him, in respect of any fraud or dishonesty of which he may be guilty in relation to the company, shall be void.
Every director, officer and committee member shall be indemnified out of ourAPWC’s funds against all civil liabilities, loss, damage or expense including liabilities under contract, tort and statute or any applicable foreign law or regulation and all reasonable legal and other costs and expenses properly payable, incurred or suffered by him as director, officer or committee member; provided that the indemnity contained in the Bye-Laws will not extend to any matter which would render it void under the Companies Act as discussed above.
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We have been designated by the Bermuda Monetary Authority as a non-resident under the Exchange Control Act of 1972 (the “Exchange Control Act”). This designation allows us to engage in transactions in currencies other than the Bermuda dollar.
The transfer of Common Shares between persons regarded as resident outside Bermuda for exchange control purposes and the issue of Common Shares to such persons may be effected without specific consent under the Exchange Control Act and regulations thereunder, provided the Common Shares are listed on an appointed stock exchange.10.b.21.Other Miscellaneous Matters
Notwithstanding the recording of any special capacity, we areAPWC is not bound to investigate or incur any responsibility in respect of the proper administration of any estate or trust.
WeAPWC will take no notice of any trust applicable to any of ourits Common Shares whether or not weit had notice of such trust.
As an “exempted company,” we areAPWC is exempt from Bermuda laws which restrict the percentage of share capital that may be held by non-Bermudians. However, as an exempted company weAPWC may not participate in certain designated business transactions, which we do not consider relevant to our present or planned business activities.
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10.c.Material Contracts |
Composite Services Agreement (“CSA”)
The Company engages in transactions in the ordinary course of business with PEWC, including the purchase of certain raw materials and the distribution of PEWC products in various countries in the Asia Pacific region. The Company and PEWC are parties to a Composite Services agreement dated November 7, 1996 (the “Composite Services Agreement” or “CSA”), which the Company has renewed annually, at its option. The Composite Services Agreement contains provisions that define the relationship and the conduct of the respective businesses of the Company and PEWC and confers certain preferential benefits on the Company. In 20172020, there were no material changes to the CSA between APWCthe Company and PEWC. Pursuant to the Composite Services Agreement,
PEWC agrees to (a) sell copper rod to the Company, upon the Company’s request, (i) at a price consisting of the spot price of copper on the LME plus an agreed upon premium and (ii) at prices and on terms at least as favorable as PEWC provides copper rod to other purchasers of similar amounts of copper rod in the same markets, and (b) give priority in the supply of copper rod to the Company over other purchasers of copper rod from PEWC.
The Company has the right to distribute any wire or cable product manufactured by PEWC in all markets in which the Company presently distributes or develops the capability to distribute in the future such products on such terms as have historically been in effect or on terms at least as favorable as PEWC grants to third parties that distribute such products in such markets. However, PEWC is not required to grant to the Company the right to distribute products manufactured by PEWC in the future in markets where the Company does not currently have the capability to distribute unless and until PEWC has no pre-existing contractual rights which would conflict with the grant of such right to the Company.
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Each of PEWC and the Company will notifyoffer the other party priorthe right to entering intoparticipate in any negotiations with a third party concerning the establishment of any facility or similar venture to manufacture or distribute any wire or cable product outside of the markets where the Company currently manufactures or distributes, or intends to develop the capability to manufacture or distribute, any wire or cable product. Unless the Company and PEWC mutually agree otherwise, the Company has the right of first refusal to enter into any definitive agreement with such third party. If, however, such third party would not agree to the substitution of the Company for PEWC or such substitution would prevent the successful completion of the facility or venture, PEWC has agreed to arrange for the Company to participate to the extent possible.
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PEWC agrees to make available to the Company, upon the Company’s request and on terms to be mutually agreed between PEWC and the Company from time to time, certain services and technology with respect to the design and manufacture of wire and cable products (including fiber optic products), and certain services with respect to computerization, inventory control, purchasing, internal auditing, quality control, emergency back-up services, and recruitment and training of personnel; such services may include the training of the Company’s employees and managers at PEWC facilities and the secondment of PEWC employees and managers to the Company.
Without the consent of the Company, PEWC will not compete with respect to the manufacture or distribution of wire and cable products in any market in which the Company is manufacturing or has taken significant steps to commence manufacturing.
For purposes of the Composite Services Agreement, each province in China is considered the equivalent of a country.
To the extent that transactions occur in the future between the Company and PEWC or affiliates of PEWC other than under the Composite Services Agreement, such transactions will be entered into on an arm’s length basis on terms no less favorable than those available from unaffiliated third parties.
10.d. Exchange Controls
APWC has been designated by the Bermuda Monetary Authority as a non-resident under the Exchange Control Act of 1972 (the “Exchange Control Act”). This designation allows APWC to engage in transactions in currencies other than the Bermuda dollar.
The transfer of Common Shares between persons regarded as resident outside Bermuda for exchange control purposes and the issue of Common Shares to such persons may be effected without specific consent under the Exchange Control Act and regulations thereunder, provided the Common Shares are listed on an appointed stock exchange.
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| Taxation |
The following is a summary of thecertain material U.S. federal income tax and Bermuda tax consequences of the acquisition, ownership and disposition of the Common Shares, based on the tax laws of the United States and Bermuda, subject to the assumptions, qualifications and limitations in our discussion below. Such summary is subject to changes in United States and Bermuda law, including changes that could have retroactive effect. Such changes in laws could result in different tax consequences from our summary below, and adversely affect your tax burden on investment income from APWC.
The following summary does not take into account the individual circumstances of an investor,is neither intended as tax advice nor does it purportpurports to bedescribe a complete technical analysis or examinationcomprehensive discussion of all potentialpossible tax effectsconsequences that may be relevant to a decisionAPWC’s investors and prospective investors. Therefore, you are strongly urged to purchase Common Shares, including without limitation,consult your own tax advisors regarding the tax laws of the various states or localities within the United States.
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The following is a summary of the material United States federal incomeoverall tax consequences of the acquisition, ownership and disposition of the Common Shares by a U.S. Holder (as defined below) and a Non-U.S. Holder (as defined below), in each case, subject to the assumptions, qualifications and limitations in our discussion below. Such summary is subject to changes in United States law, including changes that could have retroactive effect. The summary does not purport to be a comprehensive descriptionlight of all possible tax considerations that may be relevant to a decision to purchase Common Shares. your particular circumstances.
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This summary is based upon the Internal Revenue Code of 1986, as amended, (the “Code”),administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, promulgated under the Code by the U.S. Treasury Department (the “Treasury”) (including proposed and temporary regulations), rulings, current administrative interpretations and official pronouncementsall as of the IRS, and judicial decisions, all as currently in effectdate hereof, and all of which are subject to differing interpretations or to change, possibly with retroactive effect. Such change could materially and adversely affect the tax consequences described below. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. Further, this summaryThe United States does not discuss any foreign, state or localhave a comprehensive income tax consequences.treaty with Bermuda.
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In particular, this summary deals only with Common Shares held by U.S. Holders as capital assets for U.S. federal income tax purposes, and does not address any aspect of the United States tax treatment“Medicare contributions tax” on “net investment income.” In addition, it does not take into account the specific circumstances of U.S. Holders and Non-U.S. Holders that are subject to special treatment under the Code,any particular investors, such as dealers in stocks, securities, or currencies,banks, broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, financial institutions, insurance companies, tax-exempt entities, real estate investment trusts, regulated investment companies, qualified retirement plans, individual retirement accounts, and other tax deferred accounts, expatriates of the United States,partnerships and other pass-through entities, persons subject to the alternative minimum tax, persons holding shares as part of a hedging or conversion transaction or a straddle, or other integrated transaction, persons who acquired Common Shares pursuant to the exercise of any employee stock option or otherwise as compensation for services, or persons whose functional currency is not the United States dollar, orand persons who own (directly, indirectly or by attribution)are treated as owning 10% or more of the stock of the Company. This discussion is limited to investors who hold their shares as capital assets. No ruling has been or will be sought from the IRS regarding any matter discussed herein. Counsel to the Company has not rendered any legal opinion regarding any tax consequences to the Company or others of an investment in the Company. Consequently, prospective purchasers who are U.S. Holders or Non-U.S. Holders are advised to satisfy themselves as to the overall United States federal, state, local and foreign tax consequences of their acquisition, ownership and disposition of Common Shares by consulting their own tax advisors.(by vote or value).
As used herein,For the purposes of this summary, the term “U.S. Holder” means a beneficial owner of Common Shares that is (i) aan individual citizen or resident of the United States, (ii) a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States or any state (or the District of Columbia), or any entity taxable as a United States corporation, (iii) an estate, the income of which is subject to United States federal income tax regardless of its source, or (iv) a trust if a court withinthat is subject to the United States is able to exercise primary supervision overof a U.S. court and the administrationcontrol of the trust and one or more “United States persons” (as definedU.S. persons, or that has a valid election in Section 7701(a)(30) of the Code) has the authority to control all substantial decisions of the trust, or, to the extent provided in the Regulations, certain trusts in existence on August 20, 1996, and treated as U.S. Persons prior to such date, that electeffect under applicable Treasury regulations to be treated as a U.S. Persons.
Theperson. For the purposes of this summary, the term “Non-U.S. Holder” means a beneficial owner of Common Shares that is not a U.S. Holder. As described in “Taxation of Non-U.S. Holders” below, theThe tax consequences to a Non-U.S. Holder may differ substantially from the tax consequences to a U.S. Holder. Non-U.S. Holders are strongly urged to consult their own tax advisors regarding their overall tax consequences of owning and disposing of Common Shares.
If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of Common Shares, the U.S. federal income tax consequences to a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. A holder of Common Shares that is a partnership and the partners in such partnership should consult their own tax advisors regarding the U.S. federal income tax consequences of the ownership and disposition of Common Shares.
U.S. Federal Income Taxation of the Company
The Company expects that it will be treated as a foreign corporation for U.S. federal income tax purposes, and it will make no election to the contrary. As a foreign corporation, subject to the rules discussed below, the income, gains, losses, deductions and expenses of the Company will not be passed through to the investors, and all distributions by the Company to the investors will be treated as dividends, return of capital, and/or capital gains.
The Company currently does not conduct activities in the United States and expects that it will continue to conduct activities in a manner so as not to constitute the conduct of a trade or business in the United States or, invest in securities the income from which is treated, for U.S. federal income tax purposes, as arising from a U.S. trade or business. As a result, the income of the Company generally should not be subject to U.S. federal income tax on a net income basis. However, gains realized from certain investments in United States real property interests by foreign persons, such as the Company, may be subject to U.S. federal income tax on a net basis, withholding tax and a branch profits tax. Debt instruments with an equity component linked to a United States real property interest and stock in certain United States corporations holding significant real property interests may be considered United States real property interests taxable as described above.
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The discussiontax treatment of owning the Common Shares will depend in “Taxation of Dividends” and “Taxation of Capital Gains” below assumes that the Company willpart on whether or not be treatedAPWC is classified as a PFICPassive Foreign Investment Company for U.S. federal income tax purposes. For a discussion of the rules that apply if the Company is treatedExcept as a PFIC, see the discussion indiscussed below under “Passive Foreign Investment Company” below., this summary assumes that APWC is not classified as a Passive Foreign Investment Company (“PFIC”) for U.S. federal income tax purposes.
Taxation of Dividends
In November 2016, the Company announced the implementation of a dividend policy pursuant to which the Company would seek to distribute as a cash dividend at least 25% of its net post-tax audited consolidated profit attributable to APWC shareholders. On November 30, 2017, the Company paid a cash dividend of $0.10 per Common Share to holders of record as of October 30, 2017, in accordance with the Company's dividend policy. A U.S. Holder receiving a distribution with respect to Common Shares generally will be required to include such distribution in gross income (as ordinary income subject to regular, and not reduced, tax rates) on the day received as foreign-source dividend income to the extent such distribution is paid from the Company’s current or accumulated earnings and profits (as determined under United States federal income tax principles). Such dividends will not be eligible for the dividends received deduction (generally allowed to certain United States corporations in respect of dividends received from United States corporations). U.S. Holders that are corporations and directly own 10% or more of the voting stock of the Company may be entitled to claim a foreign tax credit for United States federal income tax purposes in respect of foreign taxes paid by the Company and certain subsidiaries. However, if a U.S. Holder claims the foreign tax credit, it must “gross-up” the deemed tax payment and treat the grossed-up amount as part of the dividend distribution, so that the amount included in income is equal to the dividend received plus the amount of the foreign tax deemed paid by such U.S. Holder.
Under U.S. federal income tax laws, a dividend paid to an individual U.S. shareholder from either a domestic corporation or a “qualified foreign corporation” is subject to tax at the reduced rates applicable to certain capital gains. A qualified foreign corporation includes certain foreign corporations that are eligible for benefits of a comprehensive income tax treaty with the United States which the Secretary of the Treasury determines is satisfactory for purposes of this provision and which includes an exchange of information program. In addition, a foreign corporation not otherwise treated as a qualified foreign corporation is so treated with respect to any dividend it pays if the stock with respect to which it pays such dividend is readily tradable on an established securities market in the United States.
In the absence of a comprehensive income tax treaty between the United States and Bermuda, the Company will not be treated as a “qualified foreign corporation” under the treaty test. So long as the Company is not a PFIC (as discussed below), dividends paid by the Company to individual shareholders would qualify for these reduced rates if its stock was treated as readily tradable on an established securities market in the United States.
In Notice 2003-71, 2003-2 C.B. 922, the IRS determined that common or ordinary stock, or an American depositary receipt in respect of such stock, is considered readily tradable on an established securities market in the United States if it is listed on a national securities exchange that is registered under Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) or on the NASDAQ Stock Market. As stated in the SEC’s Annual Report for 2002, registered national exchanges as of September 30, 2002 include the American Stock Exchange (now known as NYSE Amex Equities), the Boston Stock Exchange, the Cincinnati Stock Exchange, the Chicago Stock Exchange, the NYSE, the Philadelphia Stock Exchange, and the Pacific Exchange, Inc.
For so long as the Common Shares continue to be traded on NASDAQ, or are readily tradable on any other established securities market in the United States, any dividends paid by the Company should qualify for the reduced rates referred to above so long as they remain in effect.
To the extent any distribution exceeds the current and accumulated earnings and profits of the Company for a taxable year, the distribution will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s adjusted tax basis in the Common Shares with respect to which the distribution is made, causing a reduction in the adjusted basis of the Common Shares (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by the U.S. Holder on a subsequent disposition of the Common Shares). To the extent such distribution exceeds the U.S. Holder’s adjusted tax basis in the Common Shares, such excess will be treated as capital gain.
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A U.S. Holder will recognize taxable gain or loss on any sale, exchange or other disposition of Common Shares (including a liquidation, dissolution or as a result of a non-pro rata redemption of Common Shares that qualified for treatment as a sale or exchange for United States federal income tax purposes) in an amount equal to the difference between the amount realized for the Common Shares and the U.S. Holder’s adjusted tax basis in the Common Shares. Such gain or loss generally will be treated as capital gain or loss and will be long-term capital gain or loss if the Common Shares have been held for more than one year on the date of the sale, exchange or other disposition thereof, and will be short-term capital gain or loss if the Common Shares have been held for one year or less on the date of the sale or exchange thereof. Any gain recognized by a U.S. Holder generally will be treated as United States source income. In general, an individual’s short-term capital gains are taxable as ordinary income and an individual’s long-term capital gains are subject to U.S. federal income tax at preferential rates.
Long-term capital gains of corporations generally are subject to the U.S. federal income tax at a current rate of 21%. Short-term capital gain generally is taxable at ordinary income rates. Although capital gains of corporations currently are taxed at the same rates as ordinary income, the distinction between capital gain and ordinary income or loss is relevant for purposes of, among other things, limitations on the deductibility of capital losses. Corporations may deduct capital losses only to the extent of capital gains and generally may carry back capital losses to each of the preceding three years and carry forward capital losses to each of the succeeding five years. Individuals may deduct capital losses to the extent of capital gains plus up to $3,000 ($1,500 for married individuals filing separate returns) and may carry forward capital losses indefinitely.
Backup Withholding
In general, information reporting requirements may be applicable to dividend payments (or other taxable distributions) made in respect of Common Shares to non-corporate U.S. Holders, and “backup withholding” at the rate of 24% will apply to such payments (i) if the holder or beneficial owner fails to provide a taxpayer identification number in the manner required by U.S. law and applicable regulations, (ii) if the IRS notifies the payor that the taxpayer identification number furnished by the holder or beneficial owner is incorrect, (iii) if there has been notification from the IRS of a failure by the holder or beneficial owner to report all interest or dividends required to be shown on its United States federal income tax returns or (iv) in certain circumstances, if the holder or beneficial owner fails to comply with applicable certification requirements. In general, payment of the proceeds from a sale of Common Shares to or through a United States office of a broker is subject to both United States backup withholding and information reporting unless the holder or beneficial owner establishes an exemption. U.S. Holders who are required to establish their exempt status generally must provide such certification on IRS Form W-9. Amounts withheld under the backup withholding rules may be credited against a holder’s tax liability, and a holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS. Payment of the proceeds from the sale of Common Shares effected outside the United States by a foreign office of certain United States connected brokers will not be subject to backup withholding tax but will be subject to information reporting requirements unless the broker has documentary evidence in its records that the beneficial owner is a non-U.S. Holder and has no actual knowledge to the contrary, or the beneficial owner otherwise establishes an exemption.
Passive Foreign Investment Company
In general, the Company will be treated as a PFIC for United States federal income tax purposes for any taxable year if either (i) at least 75% of the gross income of the Company is passive income or (ii) at least 50% of the value (determined on the basis of a quarterly average) of the Company’s assets is attributable to assets that produce or are held for the production of passive income. The Company believes, based on its current operations and assets, that it is not a PFIC and does not expect to become a PFIC in the future. This conclusion is a factual determination based on, among other things, a valuation of the Company’s assets, which will likely change from time to time.
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If the Company were a PFIC for any taxable year during which a U.S. Holder held Common Shares, the U.S. Holder would be subject to special tax rules with respect to (i) any “excess distribution” by the Company to the U.S. Holder (generally any distribution received by the U.S. Holder in a taxable year that is greater than 125% of the average annual distribution received by the U.S. Holder in the three preceding taxable years, or the U.S. Holder’s holding period for the Common Shares, if shorter) and (ii) any gain realized on the sale or other disposition (including a pledge) of Common Shares.
Under these special tax rules, (i) the excess distribution or gain would be allocated ratably over the U.S. Holder’s holding period for the Common Shares, (ii) the amount allocated to the U.S. Holder’s current taxable year and to any period prior to the first taxable year in which the Company was a PFIC would be includible as ordinary income in the U.S. Holder’s current taxable year and (iii) the amount allocated to a prior year during which the Company was a PFIC would be subject to tax at the highest tax rate in effect for that year, and an interest charge would also be imposed with respect to the resulting tax attributable to each such prior year. The interest charge is computed using the applicable rates imposed on underpayments of United States federal income tax for the relevant periods.
The above rules will not apply if a “mark-to-market” election is available and a U.S. Holder validly makes such an election by filing a properly completed IRS Form 8621. If such election were made, a U.S. Holder generally would be required to take into account the difference, if any, between the fair market value and its adjusted tax basis in the Common Shares at the end of each taxable year as ordinary income or ordinary loss (to the extent of any net mark-to-market gains previously included in income). Thus, the U.S. Holder may recognize taxable income without receiving any cash to pay its tax liability with respect to such income. A U.S. Holder’s tax basis in the Common Shares would be adjusted to reflect any such income or loss amount. In addition, any gain from a sale, exchange or other disposition of the Common Shares would be treated as ordinary income, and any loss would be treated as ordinary loss (to the extent of any net mark-to-market gains previously included in income). A mark-to-market election is available to a U.S. Holder only if the Common Shares are considered “marketable stock” for these purposes. Generally, shares of a PFIC will be considered marketable stock if they are “regularly traded” on a “qualified exchange” within the meaning of applicable U.S. Treasury regulations. A class of shares is regularly traded during any calendar year during which such class of shares is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. A “qualified exchange” is defined to include a national securities exchange registered with the SEC or certain foreign exchanges. As the Common Shares of the Company commenced trading on the NASDAQ beginning on April 29, 2011, the mark-to-market election under the rules discussed above is available if the Company were otherwise classified as a PFIC, for so long as the Common Shares continue to be regularly traded on NASDAQ or another qualified exchange.
The special tax rules described above will also not apply to a U.S. Holder if the U.S. Holder elects to have the Company treated as a “qualified electing fund” (a “QEF election”) and the Company provides certain information to U.S. Holders. If the Company is treated as a PFIC, it will notify the U.S. Holders and provide such holders with the information necessary to make an effective QEF election, including information as to the procedures for making such an election. The QEF election is made on a shareholder-by-shareholder basis and can ordinarily be revoked only with the consent of the IRS.
A U.S. Holder that makes a valid QEF election will be currently taxable on its pro rata share of the Company’s ordinary earnings and net capital gain (at ordinary income and capital gains rates, respectively) for each taxable year that the Company is classified as a PFIC, regardless of whether distributions are received. Thus, the U.S. Holder may recognize taxable income without receiving any cash to pay its tax liability with respect to such income. The U.S. Holder’s basis in the Common Shares will be increased to reflect taxed but undistributed income. Distributions of income that have been previously taxed will result in a corresponding reduction of basis in the Common Shares and will not be taxed again as a distribution to the U.S. Holder.
A U.S. Holder owning Common Shares during any year that the Company is a PFIC must file IRS Form 8621. U.S. Holders should consult their tax advisors concerning the United States federal income tax consequences of holding Common Shares and of making a mark-to-market or QEF election if the Company is treated as a PFIC in the future.
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Controlled Foreign Corporation
A non-U.S. corporation generally will be a CFC for U.S. tax purposes if United States shareholders collectively own more than 50 percent of the total combined voting power or total value of the corporation’s stock on any day during any taxable year. For this purpose, United States shareholders are limited to those U.S. persons who own, directly, indirectly or constructively, 10 percent or more of the total combined voting power of all classes of stock of the non-U.S. corporation. If a corporation is a CFC for an uninterrupted period of 30-days in any tax year, every United States shareholder that owns stock on the last day of the CFC’s tax year, must include in gross income such shareholder’s pro rata share of the CFC’s “subpart F income” and income from investments in certain types of U.S. property (i.e., tangible personal property located in the United States, stock of a United States corporation, an obligation of a United States person, or a right to use patents, copyrights, and other similar property in the United States) even if the income has not been distributed to the shareholders in the form of dividends or otherwise. Subpart F income consists of certain specified categories of income including, among others, dividends, interest, rents, royalties, net gains from the sale of property giving rise to such income and income from certain types of transactions involving “related persons” as defined for U.S. federal income tax purposes.
The Tax Cuts and Jobs Act of 2017 introduced a new category of income called Global Intangible Low Tax Income (“GILTI”) that, like subpart F income, is deemed repatriated in the year earned. GILTI is basically the income of a CFC reduced by certain adjustments such as U.S. effectively connected income or other subpart F income, that exceeds 10% of the CFC’s Qualified Business Asset Investment (“QBAI”). QBAI is the CFC’s fixed assets that are depreciable as trade or business assets and does not include the CFC’s patents, trademarks, and certain other amortizable intangible property.
Taxation of Non-U.S. Holders
Taxation of Dividends
SubjectDistributions received by U.S. Holders with respect to the discussion in “Backup Withholding” below, Non-U.S. Holders generallyCommon Shares out of APWC’s current or accumulated earnings and profits will not be subject toconstitute foreign-source dividend income for U.S. federal income tax including withholdingpurposes. APWC does not to maintain records of earnings and profits in accordance with U.S. federal income tax principles, and therefore it is expected that APWC’s distributions will generally be reported to U.S. Holders as dividends. If you are a U.S. Holder, the dividend will be ordinary dividend income for U.S. federal income tax purposes.
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Dividends received by an individual will be taxed at the preferential rates applicable to long-term capital gains, provided the individual has held the shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date, that APWC is a qualified foreign corporation, and that certain other conditions are satisfied. APWC is a qualified foreign corporation for this purpose.
A foreign corporation is treated as a qualified foreign corporation with respect to dividends paid on distributions receivedstock that is readily tradable on Common Shares, unless the distributions are effectively connected with a trade or business conductedsecurities market in the United States, (and, if an applicable income tax treatysuch as the NASDAQ Capital Market, where the Common Shares are traded. For so requires, attributablelong as the Common Shares continue to a permanent establishment maintainedbe traded on Nasdaq, or are readily tradable on any other established securities market in the United States).States, any dividends paid by APWC should qualify for the reduced tax rates.
If distributions are effectively connected with aThe dividend will not be eligible for the dividends-received deduction generally allowed to U.S. trade or business (and, if applicable, attributable to acorporations in respect of dividends received from other U.S. permanent establishment), Non-U.S. Holders generally will be subject to tax on such distributions in the same manner as U.S. Holders, as described in “Taxation of U.S. Holders — Taxation of Dividends” above. In addition, any such distributions received by a corporate Non-U.S. Holder may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.corporations.
Taxation of Capital Gains
Gain realized by Non-U.S. Holders uponA U.S. Holder will generally recognize capital gain or loss for U.S. federal income tax purposes on the sale or exchange or complete redemptionother disposition of Common Shares, in an amount equal to the difference, if any, between the amount realized on the sale and the U.S. Holder’s adjusted tax basis in the Common Shares. The deductibility of capital losses is subject to limitations. If such U.S. Holder has held the Common Shares for more than one year, such gain or loss will generally be long-term capital gain or loss. For a non-corporate U.S. Holder, long-term capital gain of is generally taxed at preferential rates.
Passive Foreign Investment Company
Special U.S. tax rules apply to a U.S. Holder that holds an interest in a Passive Foreign Investment Company. Based on current projections concerning the composition of APWC’s income and assets, APWC does not believe that it will be treated as a capital asset generally shouldPFIC for its current or future taxable years. However, because this conclusion is based on our current projections and expectations as to our future business activity, we can provide no assurance that APWC will not be treated as a PFIC in respect of its current or any future taxable years.
In general, a non-U.S. company will be treated as a PFIC for U.S. federal income tax purposes for any taxable year if either (i) at least 75% of its gross income is passive income (such as dividends, interest, rents and royalties) or (ii) at least 50% of the average quarterly value of its assets is attributable to assets that produce or are held for the production of passive income.
If APWC were determined to be a PFIC, U.S. Holders would be subject to United Statesadditional U.S. federal income tax provided that thetaxes on gain is not effectively connected with a trade or business conducted in the United States (and, if an applicable tax treaty so requires, attributable to a permanent establishment maintained in the United States). However, in the case of nonresident alien individuals, such gain will be subject to the 30% (or lower tax treaty rate) U.S. flat tax if (i) such person is present in the United States for 183 days or more during the taxable year (on a calendar year basis unless the nonresident alien individual has previously established a different taxable year) and certain other conditions are met; and (ii) such gain is derived from U.S. sources.
Generally, the source of gain upon the sale or exchange or complete redemption of Common Shares is determined by the place of residence of the shareholder. For purposes of determining the source of gain, the Code defines residency in a manner that may result in an individual who is otherwise a nonresident alienrecognized with respect to the United States beingcommon shares and on certain distributions. In addition, an interest charge would apply to the portion of the U.S. federal income tax liability on such gains or distributions treated under the PFIC rules as having been deferred by the U.S. Holder. Moreover, dividends that a non-corporate U.S. Holder receives from APWC would not be eligible for the reduced U.S. federal income tax rates on dividends described above if APWC was a PFIC, either in the taxable year of the dividend or the preceding taxable year. If a U.S. Holder owned Common Shares in any taxable year in which APWC was a PFIC, such U.S. Holder generally would be required to file Internal Revenue Service (“IRS”) Form 8621 (or other form specified by the U.S. Department of the Treasury) on an annual basis. APWC will inform U.S. Holders if it believes that it will be classified as a United States resident for purposesPFIC in any taxable year.
U.S. Information Reporting and Backup Withholding
Payments of determining the source of income only. Each potential individual investor who anticipates being present individends and sales proceeds that are made within the United States for 183 days or more (in any taxable year) should consultthrough certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless the U.S. Holder (i) is a separate, outside tax advisor with respect to the possible application of this rule.
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Special rules may apply in the case of shareholders (i) that have an officecorporation or fixed place of business in the United States to which a distribution or gain in respect of the Common Shares is attributable;other exempt recipient, or (ii) that are former citizens or residents of the United States, CFCs, foreign personal holding companies or corporations that accumulate earnings to avoid United States federal income tax. Such persons in particular are urged to consult their United States tax advisors before investing in the Company.
Backup Withholding
In the case of Common Shares held byprovides a Non-U.S. Holder, or held in the United States bytaxpayer identification number on a custodian or nominee for a Non-U.S. Holder, U.S. back-up withholding taxes may apply to distributions in respect of such Common Shares unless such Non-U.S. Holder properly certifies as to its non-U.S. status using the appropriate version ofcompleted IRS Form W-8.W-9 and certifies that it is not subject to backup withholding.
Backup withholding is not an additional tax. Amountstax and any amounts withheld as backup withholding from a payment to a Non-U.S. Holder may be credited against hisa holder’s U.S. federal income tax liability and a Non-U.S. Holderliability. A holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRSInternal Revenue Service and furnishing any required information.
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Shareholders may be subject to other U.S. information in a timely manner.
Future Tax Legislation
Future amendmentsreporting requirements and should consult their own tax advisors for application of these reporting requirements to the Code, other legislation, new or amended U. S. Treasury Regulations, administrative rulings or guidance by the IRS, or judicial decisions may adversely affect the federal income tax aspects of an investment in the Company, with or without advance notice,their own facts and retroactively or prospectively.
U.S. Treasury Circular 230 Notice
Any United States federal tax advice included in this Annual Report (a) was not intended to be used, and cannot be used, for the purpose of avoiding United States federal tax penalties, and (b) was not written to support the promotion or marketing of the Company, its Common Shares or any transaction(s) or matter(s) addressed in the written advice. The taxpayer should seek advice based upon the taxpayer’s particular circumstances from an independent tax adviser.circumstances.
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| Bermuda Taxation |
In the opinion of Appleby (Bermuda) Limited, our Bermuda counsel, the following discussion correctly describes the material tax consequences of the ownership of Common Shares under Bermuda law, subject to the assumptions, qualifications and limitations in the discussion below. Such summary is subject to changes in Bermuda law, including changes that could have retroactive effect.
Under current Bermuda law, there are no taxes on profits, income or dividends nor is there any capital gains tax. Furthermore, the CompanyAPWC has received from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act of 1966, as amended, an undertaking that, in the event that Bermuda enacts any legislation imposing tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax shall not be applicable to the CompanyAPWC or to any of its operations, or the shares, debentures or other obligations of the Company,APWC, until March 31, 2035. This undertaking does not, however, prevent the imposition of any such tax or duty on such persons as are ordinarily resident in Bermuda and holding such shares, debentures or obligations of the CompanyAPWC or of property taxes on Company-ownedAPWC’s self-owned real property or leasehold interests in Bermuda.
As an exempted company, the CompanyAPWC must pay to the Bermuda government an annual government fee calculated on a sliding-scale basis by reference to its assessable capital, that is, its authorized share capital plus any share premium.
There is no stamp duty or other transfer tax payable upon the transfer of shares in the CompanyAPWC by shareholders.
7010.f. Dividends and Paying Agents
The United States does not have a comprehensive income tax treaty with Bermuda.Not applicable
10.g. Statement by Experts
Not applicable
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| Documents on Display |
We areAPWC is required to comply with the reporting requirements of the Exchange Act, applicable to a foreign private issuer. We areAPWC is currently required to file annually a Form 20-F no later than four months after the close of ourits fiscal year, which is December 31. Any time the CompanyAPWC is delinquent in filing timely any periodic reports, including an Annual Report on Form 20-F, with the SEC, that delinquency may adversely affect the Company’sAPWC’s status on any exchange or quotation service on which its shares are listed or quoted and the CompanyAPWC may not be entitled to use certain abbreviated registration statements with the SEC in connection with the registration of any of its securities. We haveAPWC has not been delinquent in filing ourthe Company’s annual reports in any of the past five years.
As a foreign private issuer, we areAPWC is exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and ourits officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
Our reports and other information, when so filed, may be inspected and copied (at prescribed rates) at the public reference facilities maintained by the SEC at Judiciary Plaza, 100 F Street, N.E., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information. In addition, the SEC maintains a web site that contains information filed electronically with the SEC, which can be accessed over the Internet on the SEC’s website at http://www.sec.gov. We have filed all our reports electronically since November 4, 2002. Such reports can be accessed over the Internet at http://www.sec.gov.
In addition, we post certain information regarding the Company and its operations on our website located at www.apwcc.com. Summary information regarding the Company posted on our website should not be considered to be a substitute for, or a restatement of, the more complete information regarding the Company, its results of operations and financial condition set forth in this Annual Report or other documents or information which we may file with the SEC.
10.i. Subsidiary Information
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Not applicable
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The Company has exposure to several quantitative market risks, including fluctuations in interest rates, foreign currency exchange rates and the pricing of commodities, principally copper, the Company’s main raw material. Risk management measures undertaken by the Company include entering into derivative agreements covering foreign exchange rates and copper pricing, as well as copper forward pricing agreements. The Company does not purchase or sell derivative instruments for trading purposes. The Company does not engage in trading activities involving copper contracts for which a lack of marketplace quotations would necessitate the use of fair value estimation techniques.
| 11.1 | Interest Rate Risk |
The Company is not currently a party to any derivative instruments to manage interest rate exposure. In the current interest rate environment, the Company does not believe that the limited potential loss limitation protection available through the purchase of interest rate swaps or other derivative instruments against its exposure under floating rate finance facilities merits the cost that would be incurred in those transactions.
| 11.2 | Foreign Currency Risk |
The Company has exposure to fluctuations in currency exchange rates. The Company’s revenues are generated primarily in the local currency or currencies in its principal operating regions, North Asia, Thailand, and the ROW, which are also its reporting segments. However, nearly allsignificant proportions of the costs associated with the purchase of the Company’s raw materials including copper, and its capital expenditures, including ongoing equipment upgrade and maintenance programs, are in U.S. dollars.
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As the Company’s operating subsidiaries incur operating costs in the local currency where they operate, the Company believes it is prudent that those operating subsidiaries incur indebtedness in the local currency when debt financing is necessary. The amount of indebtedness incurred by our operating subsidiaries from time to time is a function of our business strategy, the attractiveness of borrowing as opposed to other methods of financing operations and tax implications, among other considerations. The Company has exposure to currency exchange risk when the results of its operating subsidiaries are translated from the localfunctional currencies into its reporting currency, into the U.S. dollar. At December 31, 20172020 and 2016,2019, the other comprehensive income in the total equity section of the consolidated balance sheets included currency translation adjustments of $10.6$4.6 million and $(1.1)$9.8 million, respectively.
| 11.3 | Market Risks Relating to Copper |
Copper is the principal raw material we use, accounting for a majority portion of the cost of sales in 2017.2020. We purchase copper at prices based on the average prevailing international spot market prices on the LME for copper for the one month prior to purchase. The price of copper is influenced heavily by global supply and demand as well as speculative trading. As with other costs of production, changes in the price of copper may affect our cost of sales. Whether this has a material impact on our operating margins and financial results depends primarily on our ability to adjust our selling prices to our customers, such that increases and decreases in the price of copper are reflected in those selling prices. The purchase price of our products is based in part on the cost of copper used to manufacture those products. In addition, in the ordinary course of business we maintain inventories of raw materials and finished products reasonably necessary for the conduct of our business. These inventories typically reflect the cost of copper prevailing in the market at the time we purchase. Most of our sales of Manufactured Productsproducts reflect copper prices prevailing at the time the products are ordered. A long-term decrease in the price of copper would require the Company to revalue the value of its inventory at periodic intervals to the then market value, which could be below cost. Copper prices have been subject to considerable volatility and it is not always possible to manage our copper purchases and inventory so as to neutralize the impact of copper price volatility. Accordingly, significant volatility in copper prices could have a material adverse effect on the results of our operations. No assurance can be given that such volatility will not recur.
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| 11.4 | Equity Price Risk |
The Company is exposed to equity price risk as a result of our unlisted available-for-sale equity securities. The carrying value of these investments in private companies is subject to fluctuations and their fair market value may be significantly different from the carrying value.
| 11.5 | Fair Value of Designated Market-Sensitive Derivative Contracts |
(Not applicable)applicable
Item 12: | Description of Securities Other Than Equity Securities |
(Not applicable)applicable
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Item 13: | Defaults, Dividend Arrearages and Delinquencies |
The Company has not experienced any material default in the payment of principal, interest, a sinking or purchase fund installment, or incurred any other material default, not cured within 30 days relating to the Company’s or any of its consolidated subsidiaries’ indebtedness.None
Item 14: | Material Modifications to the Rights of Security Holders and Use of Proceeds |
(Not applicable)applicable
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Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of our management, including theAPWC’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures in accordance with the provisions of Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).Act. Based upon that evaluation, our management concluded that our disclosure controls and procedures were effective as of December 31, 2017.2020.
Management’s report on Internal Control over Financial Reporting
The Company’s management, including ourAPWC’s CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting. We do not expect that our internal control will prevent all errors and all fraud, or eliminate the possibility of fraudulent conduct. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
The Company’s management, including itsAPWC’s CEO and CFO, has assessed the effectiveness of our internal control over financial reporting as of December 31, 20172020 (the “Assessment Date”). In making its assessment, management used the criteria set forth in Internal Control — Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission. These criteria include the control environment, risk assessment, control activities, information and communication and monitoring of each of the above criteria. Based on this assessment, the Company’s management, including itsAPWC’s CEO and CFO, concluded that the Company’s internal control over financial reporting was effective as of the Assessment Date.
No RequirementAttestation report of Auditor Attestationregistered public accounting firm
This annual report does not contain an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuantdue to temporary rules of the Commissionfact that permitsuch report is not required as the Company to provide only management's report in this annual report.is a non-accelerated filer.
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Changes in internal control over financial reporting
The Company has strengthened the application of internal controls in accounting for foreign currency denominated transactions in 2017. Except to the extent aforementioned, thereThere were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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For more than the past five (5) years, the Common Shares of the Company have been trading on NASDAQ. During those periods of time when the Company did not have any independent directors, our full Board of Directors fulfilled the functions of an audit committee pursuant to Section 3(a)(58)(B) of the Exchange Act. For each of 2015, 20162020, 2019 and 2017, our2018, APWC’s audit committee has consisted of ourAPWC’s three independent directors, Mr. Anson Chan, Dr. Yichin Lee and Dr. Lambert L. Ding, with Mr. Chan serving as the Audit Committee’s chairman and financial expert. The Audit Committee of the Company’sAPWC’s Board of Directors meets the requirements set forth in Regulation 10A-3 under the Exchange Act and under the rules of NASDAQ.Nasdaq. Please see Section 6.a. of this Annual Report for additional information on Mr. Chan, Dr. Lee and Dr. Ding.
Item 16B: | Code of Ethics |
On April 26, 2005, the CompanyAPWC adopted a code of ethics applicable to its Chief Executive Officer and senior financial officers. A copy of the Company’sAPWC’s code of ethics for senior executives is on file with the SEC.SEC (see Item 19 below).
Item 16C: | Principal Accountant Fees and Services |
Audit Fees
The aggregate fees for fiscal years 20172020 and 20162019 for professional services rendered by the principal independent accountant for the audit of the Company’s annual financial statements totaled $0.8$0.9 million and $0.8$0.9 million, respectively.
Tax Fees
The aggregate fees for fiscal years 20172020 and 20162019 for professional services rendered by the principal independent accountant for tax compliance, tax advice and tax planning totaled approximately $60$42 thousand and $79$39 thousand, respectively.
All Other Fees
(None)
Audit Committee Approval
The engagement of the independent accountant to render audit, audit-related and non-audit services is entered into pursuant to pre-approval policies and procedures established in the Charter of the Audit Committee of the Company.APWC. Each of the services described in this Item 16C was approved by the Audit Committee.
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The Audit Committee of the Company’sAPWC’s Board of Directors consists of three directors, each of whom is independent, as such term is defined in Regulation 10A-3 promulgated under the Exchange Act, and one of whom is a financial expert.
Item 16E: | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
(Not applicable)applicable
Not applicable
7464
The Company dismissed Ernst & Young as our independent registered public accounting firm on September 29, 2017. Thereafter, our independent audit committee approved the appointment of PricewaterhouseCoopers Taiwan ("PwC Taiwan") as our independent registered public accounting firm, which approval was ratified by our shareholders at our 2017 annual general meeting of shareholders. The change was not made due to any disagreements with Ernst & Young.
The audit reports of Ernst & Young on our consolidated financial statements for the fiscal years ended December 31, 2016 and 2015 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles; however, certain accounting errors, that did not involve any disagreement, did occur which led to the Company undertaking a restatement as explained below.
The Company filed an amended annual report on Form 20-F/A (Amendment No. 1) on April 28, 2017 for the fiscal year ended December 31, 2015 to restate previously issued annual financial statements for accounting errors related to accrued liabilities attributable to the application of inaccurate currency exchange rates used to translate such liabilities.
During the fiscal years ended December 31, 2016 and 2015 and through September 29, 2017, there were no disagreements with Ernst & Young on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Ernst & Young, would have caused them to make reference thereto in its reports on the financial statements for such fiscal years then ended, nor have there been any reportable events requiring disclosure pursuant to Item 16F(a)(1)(v) of Form 20-F, except that the Company concluded the accounting errors were considered a material weakness and a reportable event under certain SEC comments to Item 304(a)(1)(v)(A) of Regulation S-K.
We provided a copy of this disclosure to Ernst & Young and requested that Ernst & Young furnish a letter addressed to the SEC stating whether it agrees with the above statements, and if not, stating the respects in which it does not agree. A copy of the letter from Ernst & Young addressed to the SEC, dated April 27, 2018, is filed as Exhibit 16 to this Form 20-F.
During the fiscal years ended December 31, 2016 and 2015 and up to October 20, 2017, neither we nor any person on our behalf consulted with PwC Taiwan regarding either (i) the applications of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on our financial statements and no written or oral advice was provide to us that PwC Taiwan concluded was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue, or (ii) any matter that was the subject of a disagreement pursuant to Item 16F(a)(1)(iv) of Form 20-F and the related instructions to Item 16F with PwC Taiwan or a reportable event pursuant to Item 16F (a)(1)(v) of Form 20-F.
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The Common Shares of the CompanyAPWC are currently traded on the NASDAQ Global MarketsNasdaq Capital Market tier. However, as the CompanyAPWC has a more than fifty percent (50%) shareholder, the Company is entitled to relyAPWC relies upon a “controlled company exemption” that exempts it from having a board of directors comprised of a majority of independent directors. At present, a majority of the board of directors of the CompanyAPWC is affiliated with PEWC. The CompanyAPWC also relies on the NASDAQ’sNasdaq’s allowance for foreign private issuers to follow home country practices in lieu of the requirement that listed companies have regularly scheduled meetings at which only independent directors are present (“executive sessions”). The independent directors of the CompanyAPWC meet periodically in executive session in their capacity as members of the Audit Committee of theAPWC’s Board of Directors of the Company without other Directors present, but on occasion meet with the independent auditors of the CompanyAPWC present in such executive session, and on occasion meet with members of management present in order to understand more fully management’s analysis of the Company’s financial performance and compliance with relevant corporate governance requirements. These are the only material differences between the Company’s corporate governance practices and the corporate governance practices set forth for domestic companies under the NASDAQNasdaq rules on thein respect of this subject matter.
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(Not applicable)applicable
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The Company has elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.
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See pages F-1 – F-91.F-98.
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| 19.1 | Index to Audited Financial Statements |
ReportsReport of independent registered public accounting firmsfirm
Consolidated income statements for the years ended December 31, 2017, 20162020, 2019, and 20152018
Consolidated statements of comprehensive income for the years ended December 31, 2017, 20162020, 2019 and 20152018
Consolidated balance sheets as of December 31, 20172020 and 20162019
Consolidated statements of changes in equity for the years ended December 31, 2017, 20162020, 2019 and 20152018
Consolidated statements of cash flows for the years ended December 31, 2017, 20162020, 2019 and 20152018
Notes to consolidated financial statements
| 19.2 | Index to Exhibits |
1.1 |
| Memorandum of Association of Asia Pacific Wire & Cable Corporation Limited (incorporated by reference to Exhibit 1.1 of the Company’s annual report on Form 20-F filed with the Securities and Exchange Commission on June 21, 2001). (P) |
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4.1 |
| Composite Services Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Form F-1 filed with the Securities and Exchange Commission on November 13, 1996). (P) |
4.2 |
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| List of significant subsidiaries (see Note 2.2 to the consolidated financial statements). |
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13.1 |
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13.2 |
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(P) – Paper filings
7867
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, theThe registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report to be signedannual report on its behalf by the undersigned, thereunto duly authorized.behalf.
| ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED | |
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April | /s/ Yuan Chun Tang | |
| Name: | Yuan Chun Tang |
| Title: | Chief Executive Officer |
7968
Asia Pacific Wire & Cable Corporation Limited
Audited Consolidated Financial Statements
As of December 31 31,, 20172020 and 20162019
Years ended December 31, 2017, 20162020, 2019 and 20152018
INDEX TO FINANCIAL STATEMENTS
CONTENTS
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23. |
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F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Asia Pacific Wire & Cable Corporation Limited:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Asia Pacific Wire & Cable Corporation Limited and its subsidiaries (the “Company”) as of December 31, 2017,2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the year thenthree years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017,2020 and 2019, and the results of theirits operations and theirits cash flows for each of the year thenthree years in the period ended December 31, 2020 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Change in Accounting Principle
As discussed in Note 4.1 the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our auditaudits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our auditaudits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our auditaudits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
Revenue Recognition – Estimating Measure of Progress for Supply, Delivery and Installation (“SDI”) Contracts
As described in Note 5 to the consolidated financial statements, the Company’s revenues include revenue from the supply, delivery and installation (“SDI”) of cable to power transmission contracts in Singapore which amounted to $15.6 million for the year ended December 31, 2020. Revenue occurs when control transfers to the customer, either over a period of time or at a single point in time, depending on the scope of each individual contract. When the transfer of control to the customer occurs over a period of time, revenue of SDI is accounted for using an input method (input costs to total expected input costs) to measure the progress used to determine the amount of related revenue. When the comparison of total contract revenue to total expected input cost indicates a loss, a provision for the entire loss on the contract shall be made in the period in which they become known. Due to the individual nature of the work to be performed on each SDI contract, management’s estimation of total expected input costs is complex and requires significant judgment.
The principal considerations for our determination that performing procedures relating to revenue recognition – estimating measure of progress for supply, delivery and installation is a critical audit matter are there was significant judgment by management when determining the total expected input costs toward complete satisfaction of performance obligation. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing audit procedures and in evaluating audit evidence relating to revenue generated from SDI contracts.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) testing management’s process for determining the estimate of total costs to complete its contracts, which included evaluating the reasonableness of significant assumptions made by management including materials, direct labor and third party-costs; (ii) evaluating the appropriateness of changes to management’s estimate of total costs to complete throughout the duration of the contract, testing actual direct costs incurred; and (iii) evaluating management’s ability to reasonably estimate the total expected costs to complete contracts, which included performing a comparison of management’s prior period cost estimates to final actual costs.
/s/ PricewaterhouseCoopers, Taiwan
Taipei, Taiwan
Republic of China
April 27, 201829, 2021
We have served as the Company's auditor since 2017.
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Asia Pacific Wire & Cable Corporation Limited:
We have audited the accompanying consolidated balance sheet of Asia Pacific Wire & Cable Corporation Limited (the “Company”) as of December 31, 2016, and the related consolidated income statements, statements of comprehensive income, changes in equity, and cash flows for each of the two years in the period ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial positions of Asia Pacific Wire & Cable Corporation Limited at December 31, 2016, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
/s/ Ernst & Young
Taipei, Taiwan
April 30, 2017
F-3
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED
CONSOLIDATED INCOME STATEMENTS
For the years ended December 31, 2017, 20162020, 2019 and 2015
2018
|
|
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
|
|
| 2020 |
| 2019 |
| 2018 |
| ||||||
| Note |
|
| US$’000 |
|
| US$’000 |
|
| US$’000 |
| Note |
| US$’000 |
| US$’000 |
| US$’000 |
| ||||||||
Sales of goods / services |
| 3.14 |
|
|
| 425,215 |
|
|
| 384,565 |
|
|
| 389,632 |
| ||||||||||||
Revenue | 5(e) |
| 313,564 |
| 338,160 |
| 425,940 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cost of sales | 7,13 |
|
|
| (385,527 | ) |
|
| (352,957 | ) |
|
| (366,143 | ) | 7(g),13 |
|
| (279,686 | ) |
| (313,373 | ) |
| (389,692 | ) | ||
Gross profit |
|
|
|
|
| 39,688 |
|
|
| 31,608 |
|
|
| 23,489 |
|
|
|
|
| 33,878 |
|
| 24,787 |
|
| 36,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Other operating income |
| 7 |
|
|
| 5,084 |
|
|
| 5,441 |
|
|
| 1,140 |
| 7(a) |
| 814 |
| 385 |
| 805 |
| ||||
Selling, general and administrative expenses |
| 7 |
|
|
| (27,248 | ) |
|
| (26,325 | ) |
|
| (27,007 | ) | 7(g) |
| (27,006 | ) |
| (25,051 | ) |
| (26,924 | ) | ||
Other operating expenses |
| 7 |
|
|
| (909 | ) |
|
| (3,386 | ) |
|
| (332 | ) | 7(b) |
|
| (129 | ) |
| (770 | ) |
| (1,445 | ) | |
Operating profit/(loss) |
|
|
|
|
| 16,615 |
|
|
| 7,338 |
|
|
| (2,710 | ) | ||||||||||||
Operating profit /(loss) |
|
|
|
| 7,557 |
|
| (649 | ) |
| 8,684 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Finance costs |
| 7 |
|
|
| (1,221 | ) |
|
| (1,147 | ) |
|
| (1,547 | ) | 7(c) |
| (744 | ) |
| (1,012 | ) |
| (1,378 | ) | ||
Finance income |
| 7 |
|
|
| 876 |
|
|
| 1,045 |
|
|
| 697 |
| 7(d) |
| 320 |
| 506 |
| 482 |
| ||||
Share of loss of associates |
| 19 |
|
|
| (3 | ) |
|
| (710 | ) |
|
| (801 | ) |
| 19 |
| (1 | ) |
| (3 | ) |
| (3 | ) | |
Impairment of investment in associates |
| 19 |
|
|
| — |
|
|
| (126 | ) |
|
| — |
| ||||||||||||
Loss on liquidation of subsidiary |
|
|
|
|
| (261 | ) |
|
| — |
|
|
| — |
| ||||||||||||
Exchange gain / (loss) |
|
|
|
|
| 2,784 |
|
|
| (38 | ) |
|
| (4,223 | ) | ||||||||||||
Exchange (loss)/gain |
|
|
| (579 | ) |
| 1,550 |
| 1,741 |
| |||||||||||||||||
Other income |
| 7 |
|
|
| 214 |
|
|
| 267 |
|
|
| 119 |
| 7(e) |
| 1,173 |
| 717 |
| 1,817 |
| ||||
Other expense |
| 7 |
|
|
| (336 | ) |
|
| (94 | ) |
|
| (180 | ) | 7(f) |
|
| (1 | ) |
| (3 | ) |
| (11 | ) | |
Profit/(loss) before tax |
|
|
|
|
| 18,668 |
|
|
| 6,535 |
|
|
| (8,645 | ) | ||||||||||||
Profit before tax |
|
|
|
| 7,725 |
|
| 1,106 |
|
| 11,332 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Income tax expense |
| 8 |
|
|
| (5,140 | ) |
|
| (510 | ) |
|
| (466 | ) |
| 8 |
|
| (4,016 | ) |
| (2,057 | ) |
| (3,886 | ) |
Profit/(loss) for the year |
|
|
|
|
| 13,528 |
|
|
| 6,025 |
|
|
| (9,111 | ) | ||||||||||||
Profit/(Loss) for the year |
|
|
|
| 3,709 |
|
| (951 | ) |
| 7,446 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Equity holders of the parent |
|
|
|
|
| 8,720 |
|
|
| 2,853 |
|
|
| (7,694 | ) |
|
|
| (552 | ) |
| (1,632 | ) |
| 2,928 |
| |
Non-controlling interests |
|
|
|
|
| 4,808 |
|
|
| 3,172 |
|
|
| (1,417 | ) |
|
|
|
| 4,261 |
|
| 681 |
|
| 4,518 |
|
|
|
|
|
|
| 13,528 |
|
|
| 6,025 |
|
|
| (9,111 | ) |
|
|
|
| 3,709 |
|
| (951 | ) |
| 7,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
„Basic and diluted profit/(loss) for the year attributable to equity holders of the parent |
| 9 |
|
| $ | 0.63 |
|
| $ | 0.21 |
|
| $ | (0.56 | ) | ||||||||||||
(Loss) /earnings per share |
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Basic and diluted (loss) / profit for the year attributable to equity holders of the parent |
| 9 |
| $ | (0.04 | ) | $ | (0.12 | ) | $ | 0.21 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2017, 20162020, 2019 and 2015
2018
|
|
|
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
|
|
| 2020 |
| 2019 |
| 2018 |
| ||||||
|
| Note |
|
| US$’000 |
|
| US$’000 |
|
| US$’000 |
| Note |
| US$’000 |
| US$’000 |
| US$’000 |
| ||||||||
Profit/(loss) for the year |
|
|
|
|
|
| 13,528 |
|
|
| 6,025 |
|
|
| (9,111 | ) | ||||||||||||
Profit /(loss) for the year |
|
|
|
| 3,709 |
| (951 | ) |
| 7,446 |
| |||||||||||||||||
Other comprehensive income/(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Other comprehensive income to be reclassified to profit or loss in subsequent periods: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other comprehensive income /(loss) to be reclassified to profit or loss in subsequent periods: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Exchange differences on translation of foreign operations, net of tax of $0 |
|
| 22 |
|
|
| 15,882 |
|
|
| (886 | ) |
|
| (15,847 | ) | 23(c) |
|
| 5,211 |
|
| 10,677 |
|
| (4,388 | ) | |
Cumulative translation differences reclassified to profit or loss on liquidation of a subsidiary |
|
| 22 |
|
|
| 248 |
|
|
| — |
|
|
| — |
| ||||||||||||
|
|
|
|
|
|
| 16,130 |
|
|
| (886 | ) |
|
| (15,847 | ) | ||||||||||||
Net gain/(loss) on available-for-sale financial assets |
|
|
|
|
|
| (80 | ) |
|
| (102 | ) |
|
| 444 |
| ||||||||||||
Income tax effect |
|
| 8 |
|
|
| 16 |
|
|
| 20 |
|
|
| 99 |
| ||||||||||||
|
|
| 22 |
|
|
| (64 | ) |
|
| (82 | ) |
|
| 543 |
|
|
|
|
| 5,211 |
|
| 10,677 |
|
| (4,388 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Re-measuring gain/(loss) on defined benefit plans |
|
| 21 |
|
|
| (772 | ) |
|
| 2 |
|
|
| (154 | ) | ||||||||||||
Changes in the fair value of equity instruments measured at fair value through other comprehensive income | 11(d) |
| (1,789 | ) |
| 1,670 |
| (419 | ) | |||||||||||||||||||
Income tax effect |
| 8 |
|
| 358 |
|
| (334 | ) |
| 84 |
| ||||||||||||||||
Other comprehensive income from equity instruments measured at fair value, net of tax | 23(c) |
|
| (1,431 | ) |
| 1,336 |
|
| (335 | ) | |||||||||||||||||
Re-measuring income/(loss) on defined benefit plans |
| 21 |
|
| 199 |
|
| (1,727 | ) |
| (410 | ) | ||||||||||||||||
Income tax effect |
|
| 8 |
|
|
| 154 |
|
|
| — |
|
|
| (52 | ) |
| 8 |
|
| (40 | ) |
| 345 |
|
| 82 |
|
Defined benefit pension plan, net of tax |
|
| 22 |
|
|
| (618 | ) |
|
| 2 |
|
|
| (206 | ) | 23(c) |
|
| 159 |
|
| (1,382 | ) |
| (328 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income/( loss) for the year, net of tax |
|
|
|
|
|
| 15,448 |
|
|
| (966 | ) |
|
| (15,510 | ) | ||||||||||||
Other comprehensive income/(loss) for the year, net of tax |
|
|
|
| 3,939 |
|
| 10,631 |
|
| (5,051 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income/(loss) for the year, net of tax |
|
|
|
|
|
| 28,976 |
|
|
| 5,059 |
|
|
| (24,621 | ) | ||||||||||||
Total comprehensive income for the year, net of tax |
|
|
|
| 7,648 |
|
| 9,680 |
|
| 2,395 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Equity holders of the parent |
|
|
|
|
|
| 18,992 |
|
|
| 1,641 |
|
|
| (17,238 | ) |
|
|
| 4,006 |
| 3,786 |
| (2,038 | ) | |||
Non-controlling interests |
|
|
|
|
|
| 9,984 |
|
|
| 3,418 |
|
|
| (7,383 | ) |
|
|
|
| 3,642 |
|
| 5,894 |
|
| 4,433 |
|
|
|
|
|
|
|
| 28,976 |
|
|
| 5,059 |
|
|
| (24,621 | ) |
|
|
|
| 7,648 |
|
| 9,680 |
|
| 2,395 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED
As of December 31, 2020 and 2019
|
|
|
|
|
| As of December 31, |
|
|
|
| As of December 31, |
| |||||||||
|
|
|
|
|
| 2017 |
|
| 2016 |
|
|
|
| 2020 |
| 2019 |
| ||||
|
| Note |
|
| US$’000 |
|
| US$’000 |
| Note |
| US$’000 |
| US$’000 |
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
|
| 10 |
|
|
| 46,093 |
|
|
| 48,231 |
|
| 10 |
| 52,237 |
| 53,673 |
| ||
Other current financial assets – at fair value through profit or loss |
|
| 11 |
|
|
| — |
|
|
| 187 |
| |||||||||
Trade receivables |
|
| 12 |
|
|
| 112,403 |
|
|
| 79,472 |
|
| 12 |
| 82,071 |
| 74,077 |
| ||
Other receivables |
|
| 12 |
|
|
| 9,509 |
|
|
| 16,918 |
| 12,27(e) |
| 6,192 |
| 6,868 |
| |||
Contract assets |
| 14 |
| 10,245 |
| 4,686 |
| ||||||||||||||
Due from related parties |
|
| 23 |
|
|
| 13,354 |
|
|
| 12,573 |
|
| 24 |
| 10,982 |
| 11,566 |
| ||
Inventories |
|
| 13 |
|
|
| 97,205 |
|
|
| 77,407 |
|
| 13 |
| 96,371 |
| 85,187 |
| ||
Gross amounts due from customers for contract work-in-progress |
|
| 14 |
|
|
| 162 |
|
|
| 2,045 |
| |||||||||
Prepayments |
|
|
|
|
|
| 1,244 |
|
|
| 1,189 |
|
|
|
| 4,055 |
| 1,926 |
| ||
Assets classified as held for sale |
| 15,16 |
|
|
| — |
|
|
| 3,368 |
| ||||||||||
Other current assets |
|
|
|
|
|
| 3,057 |
|
|
| 3,238 |
|
|
|
|
| 1,546 |
|
| 1,521 |
|
|
|
|
|
|
|
| 283,027 |
|
|
| 244,628 |
|
|
|
|
| 263,699 |
|
| 239,504 |
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Other non-current financial assets – available for sale |
| 11,25 |
|
|
| 2,747 |
|
|
| 2,765 |
| ||||||||||
Other non-current financial assets – held to maturity |
|
| 11 |
|
|
| — |
|
|
| 309 |
| |||||||||
Financial assets at fair value through other comprehensive income | 11,26 |
| 2,271 |
| 4,062 |
| |||||||||||||||
Property, plant and equipment |
|
| 15 |
|
|
| 42,326 |
|
|
| 39,637 |
| 15,27(e) |
| 54,700 |
| 41,747 |
| |||
Prepaid land lease payments |
|
| 16 |
|
|
| 1,067 |
|
|
| 1,070 |
| |||||||||
Right of use assets | 16(a) |
| 3,248 |
| 3,735 |
| |||||||||||||||
Investment properties |
| 7,17,25 |
|
|
| 763 |
|
|
| 653 |
| 7(a),17,26 |
| 6,378 |
| 730 |
| ||||
Intangible assets |
|
| 18 |
|
|
| 138 |
|
|
| 173 |
|
| 18 |
| 180 |
| 128 |
| ||
Investments in associates |
|
| 19 |
|
|
| 861 |
|
|
| 786 |
|
| 19 |
| 930 |
| 935 |
| ||
Deferred tax assets |
| 8 |
| 3,889 |
| 3,939 |
| ||||||||||||||
Other non-current assets |
|
|
|
|
|
| 892 |
|
|
| 461 |
|
|
|
|
| 2,824 |
|
| 4,131 |
|
Deferred tax assets |
|
| 8 |
|
|
| 3,022 |
|
|
| 3,114 |
| |||||||||
|
|
|
|
|
|
| 51,816 |
|
|
| 48,968 |
|
|
|
|
| 74,420 |
|
| 59,407 |
|
Total assets |
|
|
|
|
|
| 334,843 |
|
|
| 293,596 |
|
|
|
|
| 338,119 |
|
| 298,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
| ||||||||||||||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest-bearing loans and borrowings |
|
| 11 |
|
|
| 41,151 |
|
|
| 28,225 |
| 11(b) |
| 10,131 |
| 11,356 |
| |||
Trade and other payables |
|
| 20 |
|
|
| 28,850 |
|
|
| 30,023 |
|
| 20 |
| 27,370 |
| 16,879 |
| ||
Due to related parties |
|
| 23 |
|
|
| 5,805 |
|
|
| 3,096 |
|
| 24 |
| 10,620 |
| 3,284 |
| ||
Due to immediate holding company |
|
| 23 |
|
|
| 1,537 |
|
|
| 1,537 |
| |||||||||
Other current financial liabilities - at fair value through profit or loss |
|
| 11 |
|
|
| 139 |
|
|
| — |
| |||||||||
Financial liabilities at fair value through profit or loss | 11,26 |
| — |
| 3 |
| |||||||||||||||
Accruals |
|
|
|
|
|
| 15,246 |
|
|
| 13,651 |
|
|
|
| 21,361 |
| 14,437 |
| ||
Current tax liabilities |
|
| 8 |
|
|
| 4,536 |
|
|
| 3,473 |
|
| 8 |
| 3,567 |
| 2,872 |
| ||
Employee benefit liability |
|
| 21 |
|
|
| 877 |
|
|
| 594 |
| |||||||||
Financial lease liabilities |
|
| 24 |
|
|
| 36 |
|
|
| 29 |
| |||||||||
Provisions for employee benefit |
|
| 21 |
|
|
| 456 |
|
|
| 422 |
| |||||||||
Onerous contracts provisions |
|
| 3.14 |
|
|
| 555 |
|
|
| 250 |
| |||||||||
Dividend payable |
|
|
|
|
|
| 524 |
|
|
| 440 |
| |||||||||
Employee benefit liabilities |
| 21 |
| 1,950 |
| 1,888 |
| ||||||||||||||
Lease liabilities | 11(d) |
| 551 |
| 574 |
| |||||||||||||||
Other current liabilities |
|
| 3.14 |
|
|
| 1,563 |
|
|
| 5,876 |
| 22 |
|
| 7,826 |
|
| 2,356 |
| |
|
|
|
|
|
|
| 101,275 |
|
|
| 87,616 |
|
|
|
|
| 83,376 |
|
| 53,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Employee benefit liability |
|
| 21 |
|
|
| 7,416 |
|
|
| 6,058 |
| |||||||||
Financial lease liabilities |
|
| 24 |
|
|
| 42 |
|
|
| 54 |
| |||||||||
Provisions for employee benefit |
|
| 21 |
|
|
| 130 |
|
|
| 105 |
| |||||||||
Interest-bearing loans and borrowings | 11(b) |
| 3,650 |
| — |
| |||||||||||||||
Employee benefit liabilities |
| 21 |
| 10,027 |
| 10,434 |
| ||||||||||||||
Lease liabilities | 11(d) |
| 1,783 |
| 2,254 |
| |||||||||||||||
Deferred tax liabilities |
|
| 8 |
|
|
| 3,154 |
|
|
| 2,588 |
|
| 8 |
|
| 4,408 |
|
| 4,139 |
|
|
|
|
|
|
|
| 10,742 |
|
|
| 8,805 |
|
|
|
|
| 19,868 |
|
| 16,827 |
|
Total liabilities |
|
|
|
|
|
| 112,017 |
|
|
| 96,421 |
|
|
|
|
| 103,244 |
|
| 70,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
| 22 |
|
|
|
|
|
|
|
|
|
| 23 |
|
|
|
|
| ||
Issued capital |
|
|
|
|
|
| 138 |
|
|
| 138 |
|
|
|
| 138 |
| 138 |
| ||
Additional paid-in capital |
|
|
|
|
|
| 110,376 |
|
|
| 110,608 |
|
|
|
| 110,416 |
| 110,416 |
| ||
Treasury shares |
|
|
|
|
|
| (38 | ) |
|
| (38 | ) |
|
|
| (38 | ) |
| (38 | ) | |
Retained earnings |
|
|
|
|
|
| 53,350 |
|
|
| 46,012 |
|
|
|
| 52,832 |
| 53,384 |
| ||
Other components of equity |
|
|
|
|
|
| (10,498 | ) |
|
| (20,770 | ) |
|
|
|
| (5,488 | ) |
| (10,046 | ) |
Equity attributable to equity holders of the parent |
|
|
|
|
|
| 153,328 |
|
|
| 135,950 |
|
|
|
|
| 157,860 |
|
| 153,854 |
|
Non-controlling interests |
|
| 6 |
|
|
| 69,498 |
|
|
| 61,225 |
|
| 6 |
|
| 77,015 |
|
| 74,581 |
|
Total equity |
|
|
|
|
|
| 222,826 |
|
|
| 197,175 |
|
|
|
|
| 234,875 |
|
| 228,435 |
|
Total liabilities and equity |
|
|
|
|
|
| 334,843 |
|
|
| 293,596 |
|
|
|
|
| 338,119 |
|
| 298,911 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2017, 20162020, 2019 and 20152018
|
| Attributable to the equity holders of the parent |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
|
| Issued capital |
|
| Additional paid-in capital |
|
| Treasury shares |
|
| Retained earnings |
|
| Remeasurement of defined benefit plans |
|
| Available-for-sale reserve |
|
| Foreign currency translation reserve |
|
| Total |
|
| Non-controlling interests |
|
| Total equity |
| ||||||||||||||||||||
|
| US$’000 |
|
| US$’000 |
|
| US$’000 |
|
| US$’000 |
|
| US$’000 |
|
| US$’000 |
|
| US$’000 |
|
| US$’000 |
|
| US$’000 |
|
| US$’000 |
| ||||||||||||||||||||
Balance at January 1, 2015 |
|
| 138 |
|
|
| 110,608 |
|
|
| (38 | ) |
|
| 50,853 |
|
|
| (327 | ) |
|
| 672 |
|
|
| (10,359 | ) |
|
| 151,547 |
|
|
| 68,384 |
|
|
| 219,931 |
| ||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,694 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,694 | ) |
|
| (1,417 | ) |
|
| (9,111 | ) | ||||||||||
Other comprehensive gain / (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (109 | ) |
|
| 277 |
|
|
| (9,712 | ) |
|
| (9,544 | ) |
|
| (5,966 | ) |
|
| (15,510 | ) | ||||||||||
Total comprehensive income/(loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,694 | ) |
|
| (109 | ) |
|
| 277 |
|
|
| (9,712 | ) |
|
| (17,238 | ) |
|
| (7,383 | ) |
|
| (24,621 | ) | ||||||||||
Dividend paid |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,035 | ) |
|
| (2,035 | ) | ||||||||||
Balance at December 31, 2015 |
|
| 138 |
|
|
| 110,608 |
|
|
| (38 | ) |
|
| 43,159 |
|
|
| (436 | ) |
|
| 949 |
|
|
| (20,071 | ) |
|
| 134,309 |
|
|
| 58,966 |
|
|
| 193,275 |
| ||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,853 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,853 |
|
|
| 3,172 |
|
|
| 6,025 |
| ||||||||||
Other comprehensive gain / (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| (42 | ) |
|
| (1,171 | ) |
|
| (1,212 | ) |
|
| 246 |
|
|
| (966 | ) | ||||||||||
Total comprehensive income/(loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,853 |
|
|
| 1 |
|
|
| (42 | ) |
|
| (1,171 | ) |
|
| 1,641 |
|
|
| 3,418 |
|
|
| 5,059 |
| ||||||||||
Dividend paid |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,159 | ) |
|
| (1,159 | ) | ||||||||||
Balance at December 31, 2016 |
|
| 138 |
|
|
| 110,608 |
|
|
| (38 | ) |
|
| 46,012 |
|
|
| (435 | ) |
|
| 907 |
|
|
| (21,242 | ) |
|
| 135,950 |
|
|
| 61,225 |
|
|
| 197,175 |
| ||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,720 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,720 |
|
|
| 4,808 |
|
|
| 13,528 |
| ||||||||||
Other comprehensive gain / (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (315 | ) |
|
| (33 | ) |
|
| 10,620 |
|
|
| 10,272 |
|
|
| 5,176 |
|
|
| 15,448 |
| ||||||||||
Total comprehensive income/(loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,720 |
|
|
| (315 | ) |
|
| (33 | ) |
|
| 10,620 |
|
|
| 18,992 |
|
|
| 9,984 |
|
|
| 28,976 |
| ||||||||||
Dividends paid |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,382 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,382 | ) |
|
| (1,943 | ) |
|
| (3,325 | ) | ||||||||||
Effect from the changes in shareholding percentage in subsidiary |
|
| — |
|
|
| (232 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (232 | ) |
|
| 232 |
|
|
| — |
| ||||||||||
Balance at December 31, 2017 |
|
| 138 |
|
|
| 110,376 |
|
|
| (38 | ) |
|
| 53,350 |
|
|
| (750 | ) |
|
| 874 |
|
|
| (10,622 | ) |
|
| 153,328 |
|
|
| 69,498 |
|
|
| 222,826 |
|
|
| Attributable to the equity holders of the parent |
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Issued capital |
| Additional paid-in capital |
| Treasury shares |
| Retained earnings |
| Remeasurement of defined benefit plans |
| Financial assets at FVOCI reserve |
| Foreign currency translation reserve |
| Total |
| Non-controlling interests |
| Total equity |
| ||||||||||
| Note | US$’000 |
| US$’000 |
| US$’000 |
| US$’000 |
| US$’000 |
| US$’000 |
| US$’000 |
| US$’000 |
| US$’000 |
| US$’000 |
| ||||||||||
Balance at January 1, 2018 |
|
| 138 |
|
| 110,376 |
|
| (38 | ) |
| 53,194 |
|
| (750 | ) |
| 874 |
|
| (10,622 | ) |
| 153,172 |
|
| 69,561 |
|
| 222,733 |
|
Net profit |
|
| — |
|
| — |
|
| — |
|
| 2,928 |
|
| — |
|
| — |
|
| — |
|
| 2,928 |
|
| 4,518 |
|
| 7,446 |
|
Other comprehensive income/(loss) | 23 |
| — |
|
| — |
|
| — |
|
| — |
|
| (167 | ) |
| (170 | ) |
| (4,629 | ) |
| (4,966 | ) |
| (85 | ) |
| (5,051 | ) |
Total comprehensive income/(loss) |
|
| — |
|
| — |
|
| — |
|
| 2,928 |
|
| (167 | ) |
| (170 | ) |
| (4,629 | ) |
| (2,038 | ) |
| 4,433 |
|
| 2,395 |
|
Dividend paid | 23 |
| — |
|
| — |
|
| — |
|
| (1,106 | ) |
| — |
|
| — |
|
| — |
|
| (1,106 | ) |
| (2,206 | ) |
| (3,312 | ) |
Balance at December 31, 2018 |
|
| 138 |
|
| 110,376 |
|
| (38 | ) |
| 55,016 |
|
| (917 | ) |
| 704 |
|
| (15,251 | ) |
| 150,028 |
|
| 71,788 |
|
| 221,816 |
|
Net loss |
|
| — |
|
| — |
|
| — |
|
| (1,632 | ) |
| — |
|
| — |
|
| — |
|
| (1,632 | ) |
| 681 |
|
| (951 | ) |
Other comprehensive income/(loss) | 23 |
| — |
|
| — |
|
| — |
|
| — |
|
| (704 | ) |
| 680 |
|
| 5,442 |
|
| 5,418 |
|
| 5,213 |
|
| 10,631 |
|
Total comprehensive income/(loss) |
|
| — |
|
| — |
|
| — |
|
| (1,632 | ) |
| (704 | ) |
| 680 |
|
| 5,442 |
|
| 3,786 |
|
| 5,894 |
|
| 9,680 |
|
Dividends paid | 23 |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (2,763 | ) |
| (2,763 | ) |
Effect from the changes in shareholding percentage in subsidiary |
|
| — |
|
| 40 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 40 |
|
| (338 | ) |
| (298 | ) |
Balance at December 31, 2019 |
|
| 138 |
|
| 110,416 |
|
| (38 | ) |
| 53,384 |
|
| (1,621 | ) |
| 1,384 |
|
| (9,809 | ) |
| 153,854 |
|
| 74,581 |
|
| 228,435 |
|
Net profit |
|
| — |
|
| — |
|
| — |
|
| (552 | ) |
| — |
|
| — |
|
| — |
|
| (552 | ) |
| 4,261 |
|
| 3,709 |
|
Other comprehensive income/(loss) | 23 |
| — |
|
| — |
|
| — |
|
| — |
|
| 81 |
|
| (729 | ) |
| 5,206 |
|
| 4,558 |
|
| (619 | ) |
| 3,939 |
|
Total comprehensive income/(loss) |
|
| — |
|
| — |
|
| — |
|
| (552 | ) |
| 81 |
|
| (729 | ) |
| 5,206 |
|
| 4,006 |
|
| 3,642 |
|
| 7,648 |
|
Dividends paid | 23 |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,208 | ) |
| (1,208 | ) |
Balance at December 31, 2020 |
|
| 138 |
|
| 110,416 |
|
| (38 | ) |
| 52,832 |
|
| (1,540 | ) |
| 655 |
|
| (4,603 | ) |
| 157,860 |
|
| 77,015 |
|
| 234,875 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017, 20162020, 2019, and 20152018
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
|
|
| 2020 |
| 2019 |
| 2018 |
| ||||||
|
| US$’000 |
|
| US$’000 |
|
| US$’000 |
| Note |
| US$’000 |
| US$’000 |
| US$’000 |
| |||||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Profit/(loss) before tax |
|
| 18,668 |
|
|
| 6,535 |
|
|
| (8,645 | ) | ||||||||||||
Adjustments to reconcile profit/(loss) before tax to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Profit before tax |
|
|
| 7,725 |
| 1,106 |
| 11,332 |
| |||||||||||||||
Adjustments to reconcile profit before tax to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Depreciation |
|
| 4,972 |
|
|
| 5,451 |
|
|
| 5,598 |
| 15,16,17 |
| 5,340 |
| 5,274 |
| 4,936 |
| ||||
Impairment of property, plant and equipment |
|
| 223 |
|
|
| 2,524 |
|
|
| — |
|
| 15 |
| 202 |
| 546 |
| 11 |
| |||
Reversal of impairment loss of investment properties |
|
| — |
|
|
| — |
|
|
| (12 | ) | ||||||||||||
Amortization of prepaid land lease payments |
|
| 35 |
|
|
| 57 |
|
|
| 59 |
|
| 16 |
| — |
| — |
| 38 |
| |||
Gain on disposal of investment property |
|
| — |
|
|
| (4,466 | ) |
|
| (32 | ) | ||||||||||||
Amortization of intangible assets |
|
| 49 |
|
|
| 46 |
|
|
| 36 |
|
| 18 |
| 62 |
| 50 |
| 44 |
| |||
Gain on disposal of property, plant and equipment |
|
| (99 | ) |
|
| (100 | ) |
|
| (41 | ) | 7(a) |
| (239 | ) |
| (88 | ) |
| (93 | ) | ||
(Gain) loss on disposal of assets classified as held for sale |
|
| (4,525 | ) |
|
| 11 |
|
|
| — |
| ||||||||||||
Adjustment for loss (gain) on fair value of derivatives |
|
| 332 |
|
|
| (171 | ) |
|
| (20 | ) | ||||||||||||
Adjustment for (gain) loss on fair value of derivatives | 7(e),7(f) |
| (3 | ) |
| (146 | ) |
| 2 |
| ||||||||||||||
Dividend income |
|
| (100 | ) |
|
| (96 | ) |
|
| (99 | ) | 7(e) |
| (108 | ) |
| (109 | ) |
| (105 | ) | ||
Finance income |
|
| (876 | ) |
|
| (1,045 | ) |
|
| (697 | ) | 7(d) |
| (320 | ) |
| (506 | ) |
| (482 | ) | ||
Finance costs |
|
| 1,221 |
|
|
| 1,147 |
|
|
| 1,547 |
| 7(c) |
| 744 |
| 1,012 |
| 1,378 |
| ||||
Share of loss of associates |
|
| 3 |
|
|
| 710 |
|
|
| 801 |
|
| 19 |
| 1 |
| 3 |
| 3 |
| |||
Impairment of investment in associates |
|
| — |
|
|
| 126 |
|
|
| — |
| ||||||||||||
Impairment for trade receivables |
|
| 302 |
|
|
| 279 |
|
|
| 332 |
| ||||||||||||
Impairment (reversal of impairment) for trade receivables for related parties |
|
| 27 |
|
|
| (1 | ) |
|
| (16 | ) | ||||||||||||
Impairment of other receivable |
|
| — |
|
|
| 191 |
|
|
| — |
| ||||||||||||
Impairment (write-back of impairment) of inventories |
|
| 532 |
|
|
| (3,306 | ) |
|
| 1,481 |
| ||||||||||||
Impairment (reversal of impairment) for trade receivables | 7(b),12(a) |
| 124 |
| (122 | ) |
| 570 |
| |||||||||||||||
(Reversal of impairment) impairment for trade receivables for related parties | 7(a),7(b) |
| (11 | ) |
| — |
| 1 |
| |||||||||||||||
(Reversal of impairment) impairment of other receivable | 7(a),7(b) |
| (80 | ) |
| 30 |
| 53 |
| |||||||||||||||
(Write-back of impairment) impairment of inventories |
| 13 |
| (240 | ) |
| (322 | ) |
| 1,613 |
| |||||||||||||
Unrealized foreign exchange difference, net |
|
| (1,771 | ) |
|
| 1,244 |
|
|
| 1,013 |
|
|
|
| 411 |
| (503 | ) |
| (742 | ) | ||
Loss on liquidation of subsidiary |
|
| 261 |
|
|
| — |
|
|
| — |
| ||||||||||||
Noncash other operating income |
|
|
| (60 | ) |
| — |
| — |
| ||||||||||||||
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Trade and other receivable, net |
|
| (17,438 | ) |
|
| (9,949 | ) |
|
| 15,660 |
|
|
|
| (1,899 | ) |
| 16,031 |
| 27,993 |
| ||
Contract assets |
|
|
| (5,242 | ) |
| (3,160 | ) |
| (1,317 | ) | |||||||||||||
Inventories |
|
| (11,523 | ) |
|
| 7,713 |
|
|
| 16,042 |
|
|
|
| (8,828 | ) |
| 3,166 |
| 10,339 |
| ||
Prepayment and other current assets |
|
| 123 |
|
|
| 1,704 |
|
|
| (2,357 | ) |
|
|
| (1,928 | ) |
| 484 |
| 133 |
| ||
Amounts due to/from related parties |
|
| 2,733 |
|
|
| (7 | ) |
|
| (7,611 | ) |
|
|
| 2,777 |
| 1,177 |
| (1,422 | ) | |||
Other non-current assets |
|
| (398 | ) |
|
| (261 | ) |
|
| (84 | ) |
|
|
| 42 |
| (238 | ) |
| (55 | ) | ||
Trade and other payables, accruals, other current liabilities and other non-current liabilities |
|
| (6,778 | ) |
|
| 2,334 |
|
|
| (10,837 | ) |
|
|
|
| 19,917 |
|
| (5,527 | ) |
| (8,518 | ) |
Net cash flows (used in) provided by operating activities |
|
| (14,027 | ) |
|
| 10,670 |
|
|
| 12,118 |
| ||||||||||||
Net cash flows provided by operating activities |
|
|
|
| 18,387 |
|
| 18,158 |
|
| 45,712 |
| ||||||||||||
Dividend received |
|
| 100 |
|
|
| 96 |
|
|
| 99 |
|
|
|
| 108 |
| 109 |
| 105 |
| |||
Interest received |
|
| 858 |
|
|
| 869 |
|
|
| 688 |
|
|
|
| 1,199 |
| 457 |
| 405 |
| |||
Interest paid |
|
| (1,043 | ) |
|
| (941 | ) |
|
| (1,371 | ) |
|
|
| (613 | ) |
| (894 | ) |
| (1,216 | ) | |
Income tax paid |
|
| (2,787 | ) |
|
| (1,680 | ) |
|
| (2,747 | ) |
|
|
|
| (2,706 | ) |
| (2,690 | ) |
| (4,357 | ) |
Net cash (used in) provided by operating activities |
|
| (16,899 | ) |
|
| 9,014 |
|
|
| 8,787 |
| ||||||||||||
Net cash provided by operating activities |
|
|
|
| 16,375 |
|
| 15,140 |
|
| 40,649 |
| ||||||||||||
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Purchases of property, plant and equipment |
|
| (4,903 | ) |
|
| (5,044 | ) |
|
| (7,417 | ) |
| 28 |
| (14,537 | ) |
| (5,442 | ) |
| (4,441 | ) | |
Purchases of intangible assets |
|
| (10 | ) |
|
| (126 | ) |
|
| (27 | ) |
| 18 |
| (67 | ) |
| (20 | ) |
| (67 | ) | |
Purchases of investment properties |
|
| (84 | ) |
|
| — |
|
|
| — |
|
| 28 |
| (1,762 | ) |
| — |
| — |
| ||
Proceeds from disposal of held for sale assets |
|
| 8,011 |
|
|
| 210 |
|
|
| — |
| ||||||||||||
Purchases of long-term bank deposits |
|
|
| (610 | ) |
| (272 | ) |
| (410 | ) | |||||||||||||
Purchases of short-term bank deposits |
|
|
| (3,617 | ) |
| (835 | ) |
| — |
| |||||||||||||
Proceeds from disposal of property, plant and equipment |
|
| 510 |
|
|
| 113 |
|
|
| 70 |
|
|
|
|
| 297 |
|
| 171 |
|
| 100 |
|
Proceeds from disposal of other financial assets-held to maturity |
|
| 340 |
|
|
| — |
|
|
| — |
| ||||||||||||
Proceeds from disposal of investment property |
|
| — |
|
|
| 4,695 |
|
|
| 53 |
| ||||||||||||
Net cash provided by (used in) investing activities |
|
| 3,864 |
|
|
| (152 | ) |
|
| (7,321 | ) | ||||||||||||
Net cash used in by investing activities |
|
|
|
| (20,296 | ) |
| (6,398 | ) |
| (4,818 | ) | ||||||||||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Dividend paid to non-controlling shareholders of subsidiaries |
|
| (1,943 | ) |
|
| (1,159 | ) |
|
| (2,035 | ) |
|
|
| (1,208 | ) |
| (2,763 | ) |
| (2,206 | ) | |
Dividend paid to company's shareholders |
|
| (1,382 | ) |
|
| — |
|
|
| — |
| 23(b) |
| — |
| — |
| (1,106 | ) | ||||
Repayments of borrowings |
|
| (17,306 | ) |
|
| (35,346 | ) |
|
| (41,553 | ) |
|
|
| (5,037 | ) |
| (19,811 | ) |
| (25,737 | ) | |
Repayments of borrowings - related parties |
|
|
| (639 | ) |
| — |
| — |
| ||||||||||||||
Proceeds from borrowings |
|
| 27,714 |
|
|
| 26,120 |
|
|
| 28,986 |
|
|
|
| 3,531 |
| 5,349 |
| 9,517 |
| |||
Proceeds from borrowings - related parties |
|
|
| 6,000 |
| — |
| — |
| |||||||||||||||
Change in financial lease liabilities |
|
| (41 | ) |
|
| (28 | ) |
|
| (31 | ) |
|
|
| — |
| — |
| (46 | ) | |||
Principal elements of lease payments |
| 28 |
| (586 | ) |
| (426 | ) |
| — |
| |||||||||||||
Effect from the changes in shareholding percentage in subsidiary |
|
|
|
| — |
|
| (298 | ) |
| — |
| ||||||||||||
Net cash provided by (used in) financing activities |
|
| 7,042 |
|
|
| (10,413 | ) |
|
| (14,633 | ) |
|
|
|
| 2,061 |
|
| (17,949 | ) |
| (19,578 | ) |
Effect of exchange rate |
|
| 3,855 |
|
|
| (1,521 | ) |
|
| (4,393 | ) |
|
|
|
| 424 |
|
| 2,102 |
|
| (1,568 | ) |
Net decrease in cash and cash equivalents |
|
| (2,138 | ) |
|
| (3,072 | ) |
|
| (17,560 | ) | ||||||||||||
Net (decrease) increase in cash and cash equivalents |
|
|
|
| (1,436 | ) |
| (7,105 | ) |
| 14,685 |
| ||||||||||||
Cash and cash equivalents at beginning of year |
|
| 48,231 |
|
|
| 51,303 |
|
|
| 68,863 |
|
| 10 |
|
| 53,673 |
|
| 60,778 |
|
| 46,093 |
|
Cash and cash equivalents at end of year |
|
| 46,093 |
|
|
| 48,231 |
|
|
| 51,303 |
|
| 10 |
|
| 52,237 |
|
| 53,673 |
|
| 60,778 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-8
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Asia Pacific Wire & Cable Corporation Limited (“APWC” or the “Company”), which is a subsidiary of Pacific Electric Wire & Cable Co., Ltd. (“PEWC”), a Taiwanese company, was incorporated as an exempted company in Bermuda on September 19, 1996 under the Companies Act 1981 of Bermuda (as amended) for the purpose of acting as a holding company. The CompanyAPWC is principally engaged in owning operating companies engaged in the power cable, telecommunication cable, enameled wire and electronic cable industry. The Company’sAPWC’s registered office is located at Canon’s Court, 22Victoria Place, 5th Floor, 31 Victoria Street, Hamilton HM EX,10, Bermuda. The Company’sAPWC’s executive business office is presently located in Taipei, Taiwan.
The Company’sAPWC’s operating subsidiaries (the “Operating Subsidiaries”) are engaged in the manufacturing and distribution of telecommunications, power cable and enameled wire products in Singapore, Thailand, Australia, the People’s Republic of China (“PRC”) and other markets in the Asia Pacific region. Major customers of the Operating Subsidiaries include government organizations, electric contracting firms, electrical dealers, and wire and cable factories. The Company’s Operating Subsidiaries also engage in the distribution of certain wire and cable products manufactured by PEWC and third parties. The CompanyOperating Subsidiaries also provides project engineering services in supply, delivery and installation (the “SDI”) of power cable to certain of its customers.
Since 1997, the CompanyAPWC has been a U.S. public company with its common shares registered with the Securities and Exchange Commission (the “SEC” or the “Commission”). On April 29, 2011, the Company’sAPWC’s common shares commenced trading on NASDAQNasdaq Capital Market tier. On February 15, 2013, the Company’sAPWC’s common shares started trading on the NASDAQNasdaq Global Market tier.
In 2007, a U.S. private equity firm (the “PE Investor”) acquired, indirectly through a special purpose investment vehicle, 20% On July 24, 2020, APWC transferred its listing of the issued and outstanding common shares from a foreign private equity firm. In 2009,to the PE Investor caused a saleNasdaq Capital Market tier because of a portionfailing to meet the minimum Market Value of its indirect ownership interest inPublicly Held Shares ("MVPHS") requirement to continue listing on the Company such that the PE Investor then held indirectly, on a post-sale basis, 9.8% of the issued and outstanding common shares of the Company.Nasdaq Global Market.
On August 17, 2015, the PE Investor caused its special investment vehicle to sell its remaining 9.8% of the issued and outstanding shares of the Company to PEWC. PEWC is currently holding 75.4%75.5% of the equity of the CompanyAPWC and is the Company’sAPWC’s ultimate parent company.company
Share Capital
On September 8, 2008, the Company’s shareholders approved an increase to the authorized share capital from 20,000,000 common shares, par value $0.01 per share, to 50,000,000 common shares, par value $0.01 per share.
Share Capital Repurchase Program
The Company’sAPWC’s Board of Directors authorized a share capital repurchase program for its common shares on August 28, 2012, up to $2 million worth of its common shares over the next twelve months.2012. During 2012 and 2013, the CompanyAPWC repurchased 11,100 shares with total considerations of $38 until the CompanyAPWC suspended the share capital repurchase program as of June 30, 2013. The CompanyAPWC records the value of its common shares held in the treasury at cost.
On August 13, 2014, the CompanyAPWC announced that its Board of Directors authorized the future implementation of a share repurchase program of up to $1 million worth of its Common Shares. The CompanyAPWC did not announce a commencement date for that future share repurchase program, and, to date, it has not yet been implemented, and no financial liability has been recognized.
F-9
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2.1 | The consolidated financial statements are prepared in accordance with International Financial Reporting Standard (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). |
The consolidated financial statements have been prepared on a historical basis except where otherwise disclosed in the accounting policies. The consolidated financial statements are presented in U.S. dollars and all values are rounded to the nearest thousand (US$’000), except when otherwise indicated.
The consolidated financial statements comprise the financial statements of the CompanyAPWC and its subsidiaries (collectively as the “Company”) as of December 31, 20172020 and 2016,2019, and the results of operations of the Company and all subsidiaries for the years ended December 31, 2017, 20162020, 2019 and 2015.2018.
Subsidiaries are fully consolidated from the date of acquisition (the date on which the Company obtains control), and continue to be consolidated until the date that such control ceases. The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income statements, statements of comprehensive income, statements of changes in equity and balance sheets, respectively. Total comprehensive income (loss) within a subsidiary is attributed to the non-controlling interest even if it results in a deficit balance.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Company loses control over a subsidiary, it:
| ► | Derecognizes the assets (including goodwill) and liabilities of the subsidiary |
| ► | Derecognizes the carrying amount of any non-controlling interest |
| ► | Derecognizes the cumulative transaction differences recorded in equity |
| ► | Recognizes the fair value of the consideration received |
| ► | Recognizes the fair value of any investment retained |
| ► | Recognizes any surplus or deficit in profit or loss |
| ► | Reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate, as would be required if the Company had directly disposed of the related assets or liability. |
F-10
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. | BASIS OF PREPARATION (continued) |
The subsidiaries of the Company are set out below:
|
| Percentage of equity interest |
|
| Percentage of equity interest |
| ||||||||||
Place of incorporation and operations |
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
| ||||
The British Virgin Islands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APWC General Holdings Limited |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
PRC (APWC) Holding Ltd. |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
Samray Inc. |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
Siam (APWC) Holdings Ltd. |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
Moon View Ltd. |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
Trigent Investment Holdings Limited |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
Crown Century Holdings Ltd. |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
Singapore |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sigma Cable Company (Private) Limited (“Sigma Cable”) |
|
| 98.30 | % |
|
| 98.30 | % |
|
| 98.30 | % |
|
| 98.30 | % |
Sigma-Epan International Pte Ltd. (“Sigma-Epan”) (Liquidated) |
|
| 0 | % |
|
| 100 | % | ||||||||
Epan Industries Pte Ltd. |
|
| 98.30 | % |
|
| 98.30 | % |
|
| 98.30 | % |
|
| 98.30 | % |
Singvale Pte Ltd. |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
The People’s Republic of China (“PRC”) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ningbo Pacific Cable Co., Ltd. (“Ningbo Pacific”) |
|
| 100 | % |
|
| 100 | % |
|
| 97.93 | % |
|
| 97.93 | % |
Shanghai Yayang Electric Co., Ltd. (“SYE”) (iii) |
|
| 68.75 | % |
|
| 66.35 | % | ||||||||
Pacific Electric Wire & Cable (Shenzhen) Co., Ltd. (“PEWS”) (iv) |
|
| 97.93 | % |
|
| 100 | % | ||||||||
Shanghai Yayang Electric Co., Ltd. (“SYE”) |
|
| 68.75 | % |
|
| 68.75 | % | ||||||||
Pacific Electric Wire & Cable (Shenzhen) Co., Ltd. (“PEWS”) |
|
| 97.93 | % |
|
| 97.93 | % | ||||||||
Hong Kong |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crown Century Holdings Limited (“CCH (HK)”) (iv) |
|
| 97.93 | % |
|
| 100 | % | ||||||||
Crown Century Holdings Limited (“CCH (HK)”) |
|
| 97.93 | % |
|
| 97.93 | % | ||||||||
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia Pacific Electric Cable Pty Limited (“APEC”) (iv) |
|
| 98.06 | % |
|
| 99.40 | % | ||||||||
Australia Pacific Electric Cable Pty Limited (“APEC”) |
|
| 98.06 | % |
|
| 98.06 | % | ||||||||
Thailand |
|
|
|
|
|
|
|
| ||||||||
Charoong Thai Wire and Cable Public Company Limited (“Charoong Thai”) (i) |
|
| 50.93 | % |
|
| 50.93 | % | ||||||||
Siam Pacific Electric Wire & Cable Company Limited (“Siam Pacific”) |
|
| 50.93 | % |
|
| 50.93 | % | ||||||||
Double D Cable Company Limited (“Double D”) |
|
| 50.93 | % |
|
| 50.93 | % | ||||||||
Hard Lek Limited. |
|
| 73.98 | % |
|
| 73.98 | % | ||||||||
APWC (Thailand) Co., Ltd. |
|
| 99.48 | % |
|
| 99.48 | % | ||||||||
PEWC (Thailand) Co., Ltd. |
|
| 99.48 | % |
|
| 99.48 | % | ||||||||
CTW Beta Co., Ltd. |
|
| 50.89 | % |
|
| 50.89 | % | ||||||||
Siam Fiber Optics Co., Ltd. (“SFO”) (ii) |
|
| 45.84 | % |
|
| 45.84 | % | ||||||||
Taiwan |
|
|
|
|
|
|
|
| ||||||||
Asia Pacific New Energy Corporation Limited ("APNEC") (iii) |
|
| 100.00 | % |
|
| 100.00 | % | ||||||||
YASHIN Energy Corporation Limited ("YASHIN") (iii) |
|
| 100.00 | % |
|
| 100.00 | % | ||||||||
YADING Energy Corporation Limited ("YADING") (iii) |
|
| 100.00 | % |
|
| 100.00 | % |
F-11
ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. | BASIS OF PREPARATION (continued) |
|
| Percentage of equity interest |
| |||||
Place of incorporation and operations |
| 2017 |
|
| 2016 |
| ||
Thailand |
|
|
|
|
|
|
|
|
Charoong Thai Wire and Cable Public Company Limited (“Charoong Thai”) (i) |
|
| 50.93 | % |
|
| 50.93 | % |
Siam Pacific Electric Wire & Cable Company Limited (“Siam Pacific”) |
|
| 50.93 | % |
|
| 50.93 | % |
Double D Cable Company Limited (“Double D”) |
|
| 50.93 | % |
|
| 50.93 | % |
Hard Lek Limited. |
|
| 73.98 | % |
|
| 73.98 | % |
APWC (Thailand) Co., Ltd. |
|
| 99.48 | % |
|
| 99.48 | % |
PEWC (Thailand) Co., Ltd. |
|
| 99.48 | % |
|
| 99.48 | % |
CTW Beta Co., Ltd. |
|
| 50.89 | % |
|
| 50.89 | % |
Siam Fiber Optics Co., Ltd. (“SFO”) (ii) |
|
| 30.56 | % |
|
| 30.56 | % |
| (i) | Charoong Thai is listed on the Stock Exchange of Thailand and is engaged in the manufacturing of wire and cable products for the power and telecommunications industries in Thailand. |
| (ii) | The directors have concluded that the Company controls SFO, even though it holds less than half of the voting rights of this subsidiary. This is because the Company is the largest shareholder with a 50.93% equity interest in Charoong Thai, which |
|
|
|
|
In December 2017,On October 30, 2019, Charoong Thai acquired additional 30% interest in SFO for a total consideration of THB 9 million, thereby increasing the preference share of 7.8 million shares held by Siam Pacific was converted into 7.8 million ordinary shares. As a result of the preference share conversion, theCompany’s interest of the Company in CCH (HK) and PEWS decreased by 2.07%SFO from 30.56% to 97.93% and in APEC decreased by 1.34% to 98.06%45.84%.
The Company recorded the effect of change in shareholding of the subsidiaries, amounting to $232 thousands;$40 under the caption of “Additional paid-in capital” in the consolidated statement of change in equity.
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ASIA PACIFIC WIRE & CABLE CORPORATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 3.1 | Current versus non-current classification |
The Company presents assets and liabilities in the balance sheets based on current and non-current classification. An asset asis current when it is:
29(a) CTW dividend payments
On March 12, 2018,2021, the Board of Directors of Charoong Thai approved thedeclared a cash dividend paymentsdistribution to its shareholders in $4.4amounted to $5.9 million (Baht 139.3179.1 million, at the rateequivalent to Baht 0.45 per share), $ 2.9 million of Baht 0.35 per share).which will be distributed to non-controlling interest. The dividend payment was approved bywill be paid on May 14, 2021. This dividend distribution plan requires the approval of the 2021 Annual General Meeting of Shareholders of Charoong Thai.
29(b) Onerous contracts
The LME copper price rose sharply from US$7,742/ton on December 31, 2020 to US$9,476/ton on April 24, 2018 and will be paid on May 15, 2018. The amount22, 2021, additional unrealized loss of $ 2.2US$ 4.6 million will be paid to non-controlling interest.was recognized in the first quarter of 2021 for our Singapore subsidiary.
Other than the above events, the Company is not aware of any matter or circumstance not otherwise dealt with in the report that has significantly affected or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company.
The financial statements were approved and authorized for issuance by the board of directors on April 26, 2018.23, 2021.
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