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 | |||||
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)
(Jurisdiction of incorporation or organization)
Republic of China
(Address of principal executive offices)
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 | ||||||
par value 0.01 per share | ||||||||
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.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
oYes x 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.
oYes x 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.
xYes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer o Accelerated filer o Non-accelerated filer x Emerging growth company o
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. o
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. o
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP o
Other o
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.
o Item 17 o 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).
o Yes x No
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Table of Contents
| Page | ||||||||
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CERTAIN DEFINITIONS AND CONVENTIONS
Unless the context otherwise indicates or requires, all references to:
•the terms “we,” “us,” “our,” and “APWC” refer to Asia Pacific Wire & Cable Corporation Limited, a holding company incorporated in Bermuda with principal executive offices in Taipei, Taiwan.
•the terms “our Company,” “our business” and “our operations” refer to APWC together with our operating subsidiaries.
•Dollar amounts in this Annual Report are expressed in thousands ($000), except where otherwise indicated (e.g. “million”) or with respect to earnings per share.
•the terms “dollar”, “US$” or “$” refer to U.S. dollars, the lawful currency of the United States of America.
• “Bt,” “Thai Baht”, “THB” or “Baht” refer to Baht, the legal tender currency of Thailand.
• “Sing$” or “S$” refer to Singapore dollars, the legal tender currency of Singapore.
• “A$” or “AU$” refer to Australian dollars, the legal tender currency of Australia.
•“RMB” refer to Chinese Renminbi, the legal tender currency of China
•“Thailand” refers to the Kingdom of Thailand.
•“Singapore” refers to The Republic of Singapore.
•“Taiwan” refers to Taiwan, The Republic of China.
•“China” or “PRC” refer to The People’s Republic of China (for the purpose of this Annual Report, excluding Hong Kong and Macau).
•“Australia” refers to the Commonwealth of Australia.
•“United States” or “U.S.” refer 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 or 1,000 kilograms.
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
This annual report on Form 20-F ("Annual Report") contains forward-looking 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; the impact of the COVID-19 pandemic on our business, operations, demands for our products, results, financial position and liquidity; the extreme volatility in the demand for and the pricing of commodities, including copper, our principal raw material, and
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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 our Company in the markets in which we conduct business; the availability and price of copper, our principal raw material, including the effects of recent and potential economic sanctions on Russia; 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; COVID-19 and government implemented lockdowns, circuit breakers, and other mandates that may adversely affect our business and operations; 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 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”). Statements about the effects of the COVID-19 pandemic on our business results, financial position and liquidity are subject to the risk that the actual impact may differ, possibly materially, from what is currently expected.
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 APWC’s common shares (the “Common Shares”) are traded on a national exchange in the United States and the relative liquidity or lack thereof, based upon the historical trading volume of our publicly-traded Common Shares and the small size of our public float;
•our dependence on a limited number of suppliers for our raw materials and our vulnerability to fluctuations in the cost and availability of such raw materials; and
•the liquidity (or lack thereof) generally of our 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.
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Part I
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable
ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable
ITEM 3: KEY INFORMATION
3.A. Selected Consolidated Financial Data
The following selected consolidated financial data is derived from the consolidated financial statements of our Company for the years ended December 31, 2022, 2021, 2020, 2019 and 2018, 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. Operating and Financial Review and Prospects” and the consolidated financial statements and the notes thereto referenced in “Item 18. Financial Statements.”
| For the Year Ended December 31, | |||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 (3) | 2018(2) | |||||||||||||||||||||||||
| (in US$ thousands, except for earnings per share) | |||||||||||||||||||||||||||||
| Income Statement Data: | |||||||||||||||||||||||||||||
| Revenue | $ | 433,893 | $ | 476,659 | $ | 313,564 | $ | 338,160 | $ | 425,940 | |||||||||||||||||||
| Costs of sales | (401,363) | (455,508) | (279,686) | (313,373) | (389,692) | ||||||||||||||||||||||||
| Gross profit | 32,530 | 21,151 | 33,878 | 24,787 | 36,248 | ||||||||||||||||||||||||
| Other operating income | 1,027 | 587 | 814 | 385 | 805 | ||||||||||||||||||||||||
| Selling, general & administrative expenses | (24,978) | (26,484) | (27,006) | (25,051) | (26,924) | ||||||||||||||||||||||||
| Other operating expenses | (512) | (227) | (129) | (770) | (1,445) | ||||||||||||||||||||||||
| Operating profit/(loss) | 8,067 | (4,973) | 7,557 | (649) | 8,684 | ||||||||||||||||||||||||
| Finance costs | (1,650) | (1,251) | (744) | (1,012) | (1,378) | ||||||||||||||||||||||||
| Finance income | 120 | 123 | 320 | 506 | 482 | ||||||||||||||||||||||||
| Share of loss of associates | (1) | (1) | (1) | (3) | (3) | ||||||||||||||||||||||||
| Exchange gain/(loss) | 143 | (4,425) | (579) | 1,550 | 1,741 | ||||||||||||||||||||||||
| Other income | 889 | 671 | 1,173 | 717 | 1,817 | ||||||||||||||||||||||||
| Other expense | (3) | (1) | (1) | (3) | (11) | ||||||||||||||||||||||||
| Profit before taxes | 7,565 | (9,857) | 7,725 | 1,106 | 11,332 | ||||||||||||||||||||||||
| Income taxes expense | (2,808) | 1,345 | (4,016) | (2,057) | (3,886) | ||||||||||||||||||||||||
| Profit/(loss) for the year | $ | 4,757 | $ | (8,512) | $ | 3,709 | $ | (951) | $ | 7,446 | |||||||||||||||||||
| Attributable to: | |||||||||||||||||||||||||||||
| Equity holders of APWC | $ | 3,874 | $ | (2,642) | $ | (552) | $ | (1,632) | $ | 2,928 | |||||||||||||||||||
| Non-controlling interests | $ | 883 | $ | (5,870) | $ | 4,261 | $ | 681 | $ | 4,518 | |||||||||||||||||||
Earnings per share (1) | |||||||||||||||||||||||||||||
| Basic and diluted profit/(loss) for the year attributable to equity holders of the parent | $ | 0.19 | $ | (0.19) | $ | (0.04) | $ | (0.12) | $ | 0.21 | |||||||||||||||||||
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| As of December 31, | |||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 (3) | 2018(2) | |||||||||||||||||||||||||
| (in US$ thousands) | |||||||||||||||||||||||||||||
| Balance Sheet Data: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 54,017 | $ | 44,507 | $ | 52,237 | $ | 53,673 | $ | 60,778 | |||||||||||||||||||
| Working capital | $ | 165,926 | 149,810 | 180,323 | 185,855 | 182,410 | |||||||||||||||||||||||
| Total assets | $ | 371,019 | 389,428 | 338,119 | 298,911 | 305,798 | |||||||||||||||||||||||
| Total debts | $ | 57,731 | 65,387 | 13,781 | 11,356 | 24,814 | |||||||||||||||||||||||
| Net assets | $ | 211,428 | 209,317 | 234,875 | 228,435 | 221,816 | |||||||||||||||||||||||
| Capital stock | $ | 206 | 138 | 138 | 138 | 138 | |||||||||||||||||||||||
| Total APWC shareholders’ equity | $ | 151,595 | 147,500 | 157,860 | 153,854 | 150,028 | |||||||||||||||||||||||
(1)The calculation of the earnings per share is based on 20,020,364 basic and diluted weighted Common Shares issued and outstanding for the year ended December 31, 2022; and was based on 13,819,669 basic and diluted Weighted Common Shares issued and outstanding for each of the year ended December 31, 2021, 2020, 2019, and 2018.
(2)Includes the impact of the application of IFRS 9 and IFRS 15.
(3)Includes the impact of the application of IFRS 16.
3.B. Capitalization and Indebtedness
Not applicable
3.C. Reasons for the Offer and Use of Proceeds
Not applicable.
3.D. Risk Factors
You should carefully consider the risk factors set forth below in connection with any investment in APWC, including any investment in the Common Shares. If any one of these risks or uncertainties occurs, our business, financial condition and results of operations could be materially and adversely affected. The risks described in this Annual Report on Form 20-F are not the only ones facing us. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Any of these risks could materially and adversely affect our business, financial condition, results of operations and cash flows, and could result in a loss of all or part of your investment.
Summary of Risk Factors
The following is a summary of the principal risks we face, organized under relevant headings. The list below is not exhaustive, and you should read the “Risk Factors” section in full.
Risks Related to Our Business (for more detailed discussion, see “Risk Factors -- Risks Related to Our Business”)
•COVID-19 could have a material adverse effect on our business, financial condition and, results of operations.
•Significant volatility in copper prices could be detrimental to our Company’s profitability.
•The markets in which we operate are highly competitive and may be affected by competition with SOEs and we cannot guarantee we will have the available capital to make necessary capital expenditures.
•We operate in highly concentrated end markets, and the loss of individual customers in such markets could have a material adverse impact on our position in that market as a whole.
•Our business could be harmed if we fail to attract and retain qualified personnel.
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•We are subject to certain environmental protection laws and regulations governing our operations.
•Information systems failure or cybersecurity breaches could have a material adverse effect on our Company, including on our business, financial condition, and results of operations.
Risks Related to our Financial Activities (for more detailed discussion, see “Risk Factors -- 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.
•We are exposed to foreign exchange rate risk.
Risk Related to the Regions in Which We Operate (for more detailed discussion, see “Risk Factors -- Risks Related to the Regions in Which We Operate”)
•The performance of our Company’s Thai operations is affected by the political and economic situation in Thailand.
•Our auditor’s China affiliate, like other independent registered public accounting firms operating in China, was not subject to inspection by the Public Company Accounting Oversight Board (the “PCAOB”), and if the PCAOB determines that it is unable to inspect or investigate completely because of a position taken by the PRC government, trading in our securities could be prohibited in the U.S. and our securities could be delisted.
•The PRC legal system may limit our Company’s remedies, impacting our subsidiaries’ ability to enforce agreements in the PRC with third parties.
•The enforcement of laws, rules and regulations in the PRC can change quickly with little advance notice. Uncertainties exist with respect to the interpretation and implementation of the PRC laws regarding foreign investment, cybersecurity, personal data protection and anti-monopoly, and any change in government interpretation or enforcement could implicate our PRC subsidiaries and have a material adverse effect on us.
•PRC regulation 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.
•The PRC government’s control of currency conversion and expatriation of funds may affect our liquidity.
•Political or social instability, including tensions between PRC and Taiwan, may materially adversely affect our Company’s business, financial condition, and results of operations.
Risks Related to the Common Shares and APWC (for more detailed discussion, see “Risk Factors -- Risks Related to the Common Shares and APWC”)
•The Common Shares may be delisted from Nasdaq, which could affect their market price and liquidity.
•As a foreign private issuer, there is less publicly available information concerning our Company than there would be if APWC was a U.S. public company.
•Our Common Shares have a limited public float and are subject to price volatility, which could adversely affect our prevailing market price.
•APWC may not be able to resume paying a dividend and any dividends paid in the future could be reduced or eliminated, which could adversely affect our prevailing market price.
•Our holding company structure and potential restrictions on the payment of dividends could materially adversely affect our market price.
•APWC is incorporated in Bermuda, and investors may face limited recourse and enforceability against APWC as well as its directors and officers as compared to corporations incorporated in the U.S.
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Control of APWC rests with its majority shareholder, PEWC, and APWC relies on Nasdaq’s controlled company and foreign private issuer exemptions, all of which could materially and adversely affect our corporate governance.
Risks Related to Our Business
COVID-19 could have a material adverse effect on our business, financial condition and, results of operations.
The global spread of the Coronavirus Disease 2019 (“COVID-19”), including more recently the highly transmissible Delta and Omicron variants thereof, has been impacting worldwide economic activity and financial markets. We are facing significant adverse effects 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, and results of operations.
Our operation and production have been affected and disrupted by the outbreak of COVID-19. From April 7, 2020 to June 1, 2020, our Singapore operating units operated with reduced on site staff and approximately half of the employees worked from home due to a partial lockdown implemented by the Singapore government. In the first half of 2020, our China production facilities had been operating below normal production levels due to the mandatory measures instituted in response to COVID-19. Starting from the third quarter of 2020 we were able to resume manufacturing activities in China and Singapore. However, our operating units were subject to temporary operation adjustments in 2020 and 2021 pursuant to local emergency regulations, with an adverse impact on our results of operations. While the overall COVID-19 situation appears to have improved in countries that have rolled out vaccination campaigns, our business and operating results may be negatively impacted if the virus worsens or mutates, if vaccination efforts are unsuccessful, or if further restrictions are implemented to contain the coronavirus. In connection with COVID-19, we may experience a new shutdown or slowdown of part or all of our manufacturing facilities.
COVID-19 has affected and disrupted our operations and the operations of our 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 products. In addition, COVID-19 has delayed the fulfillment of contracts with our customers, causing negative impacts on our liquidity and ability to generate cash flows. If we are not able to expand or extend lines of credit from banks, we may negotiate business terms with our suppliers to meet our liquidity needs, which could cause an increase in financing costs.
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, our Company has taken various measures to protect our employees, including temperature checks before entering the workplace, mandatory mask-wearing, social distancing and authorizing remote work. We have also implemented staggered work hours to lower the risk that our employees might get infected on public transportation 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 cybersecurity 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 conditions, and results of operations.
COVID-19 has also adversely impacted the recoverability of certain of our assets and resulted in the recognition of impairment charges for the year ended December 31, 2021. COVID-19 is expected to continue to impact the recoverability of our Company’s assets and lead to further impairment charges in the future.
If COVID-19 continues to adversely affect our business operations and financial results, 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. The impact of COVID-19 is constantly changing. Although we are monitoring the situation, the extent to which COVID-19 impacts our business will depend largely on future events outside of our control, including ongoing developments in the pandemic, the success of containment measures, vaccination campaigns and other actions taken by governments around the world, as well as the overall condition and outlook of the global economy. However, the effects on our business, results of operations and financial condition could be material and adverse. We will continue to closely monitor our operations.
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Significant volatility in copper prices could be detrimental to our Company’s profitability.
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 one 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, potential disruptions in supply of copper (including as the result of economic sanctions on copper producers such as Russia), 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 our Company’s cost of sales. Whether this has a material impact on our operating margins and financial results depends primarily on our 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. In the cases when we enter into a long-term sales contract at fixed selling prices, rising copper prices could render such contract onerous and our Company would be required to recognize losses from this onerous contract in the income statement. 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 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 our 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. In addition, an excessive increase in the price of copper could result in fewer orders from customers or increased cost of sales given agreed sales prices, and negatively impact our Company. Accordingly, significant volatility in copper prices could have a material adverse effect on our business, financial condition and results of operations.
The ability of suppliers to deliver raw materials, parts and components and energy resources could affect our Company’s ability to manufacture products without disruption and in turn negatively affect our operations.
Our Company uses a range of materials, including copper, aluminum, polyethylene and polyvinyl chloride compound in the global production of our products, which come from numerous suppliers. Our operations and those of our suppliers are subject to disruption by supply chain issues due to economic, political and other factors largely beyond our Company’s control, including COVID-19 related supplier plant shutdowns or slowdowns, component shortages, supply chain disruptions and delays, fluctuations in shipping costs, work stoppages, labor shortages, financial issues such as supplier bankruptcy, information technology failures, and hazards such as fire, earthquakes, flooding, droughts or other natural disasters, new laws or regulations, global economic or political events including terrorist attacks and war, and suppliers’ allocations to other purchasers. The effects of climate change, including extreme weather events, long-term changes in temperature levels, water availability, supply costs impacted by increasing energy costs, or energy costs impacted by carbon prices or offsets may exacerbate these risks. Any inability of suppliers to deliver parts, components and manufacturing equipment to our Company’s manufacturing facilities, and any inability to manufacture without disruption, could affect our adversely business’s performance.
The markets in which we operate are highly competitive.
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 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 us. 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 materially adversely affected. In addition, our Company’s business could be materially adversely impacted if low margin wire and cable manufacturers in China enter into the markets where we operate, like they have in Australia and Singapore. Our Company’s business, financial condition and results of operations may also be materially adversely affected in the event it must compete with SOEs, which are often subsidized by the government such that they are protected against the challenges of market forces confronting private enterprises. When SOE’s enter the market, 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. 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.
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In addition, in order to remain competitive in the industry, our 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 capital expenditures when required, which could materially adversely affect our business, financial condition and results of operations.
Alternative transmission technologies, such as wireless telecommunications, could materially reduce sales of our telecommunications products.
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 then be available to install the infrastructure 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 condition and results of operations.
We operate in highly concentrated end markets.
Failure to properly execute customer projects in markets where a small number of customers are responsible for a large portion of 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 SOEs 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.
Pacific Electric Wire & Cable Co., Ltd. may not perform its obligations under the Composite Services Agreement.
We engage in transactions in the ordinary course of business with our controlling shareholder, PEWC, including the purchase of certain raw materials and the distribution of PEWC’s 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. Although PEWC has performed its obligations under the Composite Services Agreement to date, 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 our Company pursuant to the terms of the Composite Services Agreement. Given its controlling shareholder position, PEWC could in such instance seek to influence our response to any such events or occurrences. 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. Our 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. Our Company does not carry insurance for consequential loss arising from business interruptions or political disturbances and does not carry product liability insurance. 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. 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.
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A significant number of our ROW employees are members of employees’ unions.
A significant number of the employees of our Rest of World (“ROW”) segment 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 our Company and could materially adversely affect our business, financial condition and results of operations.
Our business could be harmed if we fail to attract and retain qualified personnel.
If we fail to retain our key employees and attract qualified personnel by investing adequate resources to develop our human capital, 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. Our Company’s future success depends on its continued ability to attract and retain talented and qualified personnel.
Our operations are subject to environmental protection laws and regulations, which impose compliance costs and subject us to potential liabilities should we violate any of these laws and regulations.
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 cybersecurity 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 our 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 our Company’s ability to timely file periodic or annual reports with the SEC or timely disseminate material information to shareholders. Because there is no unified framework for administering information systems amongst APWC’s subsidiaries, our competitors with a unified framework for administering information systems across their subsidiaries may have a competitive advantage over us and may be able to more efficiently administer such systems and respond to incidents and minimize risk to their business.
Cybersecurity 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 our Company relies upon its majority shareholder, PEWC, for much of our Company's research and development, our Company's products are designed precisely to meet customer specifications for the applications for which they are intended. Cybersecurity risks create the potential for a material adverse impact on our 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 cybersecurity risk information to take appropriate action. We cannot offer any assurance that those controls and procedures will be sufficient to protect against cybersecurity 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.
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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. Our 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 our Company from all types of IT and cybersecurity threats. If our Company’s IT and cybersecurity measures are compromised or otherwise fail to protect systems, networks and data, or if an event of force majeure occurs and our Company’s disaster recovery plan does not operating effectively, our 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 our Company’s business, financial condition and results of operations.
Our multinational operations and structure subject us to potentially adverse tax consequences.
We conduct our business through operating subsidiaries and report our taxable income in multiple jurisdictions based upon our business operations in those jurisdictions. While we believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible that these positions may be contested or overturned by jurisdictional tax authorities, which may have a significant impact on our global provision for income taxes, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations.
Certain government agencies in jurisdictions where we do business have had an extended focus on issues related to the taxation of multinational companies. In addition, the Organization for Economic Co-operation and Development is conducting a project focused on base erosion and profit shifting in international structures, which seeks to establish certain international standards for taxing the worldwide income of multinational companies. As a result of these developments, the tax laws of certain countries in which we do business could change on a prospective or retroactive basis, and any such changes could increase our liabilities for taxes, interest and penalties, and therefore could harm our business, cash flows, results of operations and financial position.
Pursuant to the Bermuda Economic Substance Act 2018 (“ESA”) which commenced December 31, 2018, an entity that falls within the scope of the ESA and carries on as a business any of the “relevant activities” referred to in the ESA, must comply with economic substance requirements. The “relevant activities” include: banking, insurance, fund management, financing and leasing, headquarters, shipping, distribution and service center, intellectual property and holding entity. An in-scope entity which is engaged in any of the “relevant activities” must satisfy an economic substance test, by performing core income-generating activities in the jurisdiction, being directed and managed in the jurisdiction and, having within the jurisdiction (i) an adequate amount of operating expenditure, (ii) adequate physical presence and (iii) an adequate number of qualified full-time employees or other personnel.
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 debt secured by our or our subsidiaries’ assets. Any such failure to 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 make assurances that we will be able to remain in compliance with our financial covenants, which, as a result, may lead to a default. Any such default may thereby restrict our ability to access unutilized credit facilities or the global capital markets to meet our liquidity needs. Furthermore, a default under certain debt agreements by APWC or APWC’s subsidiaries may trigger cross-defaults under other debt agreements. In the event of default, we may not be able to cure the default or obtain a timely waiver. An event of default under any agreement governing our existing or future debt, if not cured or timely 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.
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We face uncertainties relating to the phasing out of LIBOR.
The one-week and two-month USD LIBOR ceased being published after December 31, 2021. The ICE Benchmark Administration Limited (the “IBA”), the administrator for LIBOR, announced on March 5, 2021 that it will cease publishing the remaining USD LIBOR tenors (overnight, one-month, three-month, six-month and 12-month) after June 30, 2023. In the United States, the Adjustable Interest Rate (LIBOR) Act was signed into law on March 15, 2022 directing the Federal Reserve Board of Governors to select SOFR (Secured Overnight Financing Rate) published by the Federal Reserve Bank of New York to replace LIBOR in certain financial contracts after June 30, 2023. On December 16, 2022 the Federal Reserve Board adopted a final rule implementing the LIBOR Act, which included identifying benchmark rates based on SOFR. For contracts not subject to US law, it remains to be seen whether SOFR or some other alternative reference rate will attain market acceptance as replacements of LIBOR. 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.
Foreign exchange fluctuations could materially impact our financial performance and our financial condition.
Our principal operations and properties are located in the three regions that constitute our business segments, namely the North Asia, Thailand and ROW regions. Although our reporting currency is the U.S. dollar, the functional currency of our Thailand region, which accounted for 40% of sales in 2022, is the Thai Baht. The functional currencies of our ROW region, which accounted for 42% of sales in 2022, are the Australian dollar and the Singapore dollar. The functional currencies for our North Asia operations, which in total accounted for 18% of sales in 2022, are divided into two groups: (1) the PRC Subsidiaries, whose functional currency is the RMB, and (2) Crown Century, 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 RMB against the U.S. dollar would adversely affect our financial performance, as measured in U.S. dollars.
Our 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: RMB, 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 RMB 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, such as 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.
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.
Significant impairment charges could materially adversely impact our results of operations.
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 Related to the Regions in Which We Operate
We face risks relating to our operations in Thailand.
A substantial portion of our Thai operations consist of the manufacture of telecommunication and power cables and sales of those products for use in various construction and infrastructure projects in Thailand. The performance of our
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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 our 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. In addition, our Thai operations could be materially adversely impacted if low margin wire and cable manufacturers from China, including SOEs, were to enter the Thailand market.
Our auditor’s China affiliate, like other independent registered public accounting firms operating in China, has not been subject to inspection by the PCAOB and consequently investors are deprived of the benefits of such inspection.
Our auditor, who issued the audit report included in this Annual Report, is a Taiwan-based accounting firm registered with the PCAOB and is subject to regular inspection by the PCAOB. However, 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. If the PCAOB determines that it is unable to inspect or investigate completely because of a position taken by the PRC government, trading in our securities could be prohibited in the U.S. and ultimately delisted.
On December 18, 2020, the United States enacted the Holding Foreign Companies Accountable Act (the “HFCAA”), which requires, amongst other things, that (i) 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 foreign authority and that (ii) the SEC 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. 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. Regarding how the term “retain” should be interpreted, 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.
On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On December 2, 2021, the SEC issued amendments effective January 10, 2022 to finalize the interim final rules previously adopted in March 2021, and established procedures to identify issuers and prohibit the trading of the securities of certain registrants as required by the HFCAA. The final rule included the SEC’s statement that a registered public accounting firm is “retained” by a registrant, as that term is used in Section 104(i) of the Sarbanes-Oxley Act, when the registered public accounting firm signs the accountant’s report on the registrant’s consolidated financial statements that is included in a registrant’s Exchange Act report.
On December 16, 2021, the SEC announced that the PCAOB designated China and Hong Kong as the jurisdictions where the PCAOB is not allowed to conduct full and complete audit inspections as mandated under the HFCAA.
On August 26, 2022, the China Securities Regulatory Commission (“CSRC”) and the Ministry of Finance of the PRC (“MOF”) executed a Statement of Protocol with the PCAOB, including detailed provisions for each stage and requirement of PCAOB inspections and investigations (the “Agreement”), to facilitate the cooperation between the PCAOB and the PRC authorities needed for the PCAOB to conduct its mandated oversight of firms headquartered in mainland China and Hong Kong.
On December 15, 2022 the PCAOB issued its HFCAA Determination Report vacating its December 16, 2021 determinations as to China and Hong Kong. Should the PCAOB encounter any impediment to conducting an inspection or investigation of auditors in mainland China or Hong Kong as a result of a position taken by an authority in either jurisdiction, the PCAOB noted that it would act immediately to consider the need to issue new determinations consistent with the HFCAA.
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On December 15, 2022 the SEC announced that the PCAOB announced that it was able, in 2022, to inspect and investigate completely issuer audit engagements of PCAOB-registered public accounting firms headquartered in China and Hong Kong. The SEC noted the necessity for continued cooperation and for the PCAOB to have full access for inspections and investigations in 2023 and beyond, and absent such complete access for three consecutive years, the SEC would prohibit trading in the securities of issuers engaging those audit firms, as required by the HFCAA. The SEC stated that the PCAOB’s 2022 determination resets the three-year clock for compliance. On December 29, 2022, the Consolidated Appropriations Act, 2023 was signed into law amending the HFCAA by shortening the non-inspection timeline for a potential trading prohibition from three (3) years to two (2) years.
The auditor of our PRC-based subsidiaries is located in the PRC and is an affiliate of APWC’s Taiwan-based auditor that signs APWC’s audit report. As the PCAOB begins audit inspections in 2023 we cannot assure you that we will not be identified by the SEC as an issuer that has retained an auditor that, for whatever reasons, the PCAOB determines it is unable to inspect or investigate completely. In addition, there can be no assurance that, if we have a “non-inspection” year, we will be able to take adequate remedial measures in response thereto. If any such event were to occur, trading in our securities could be prohibited under the HFCAA. As such, 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, which could material affect the value of the Common Shares.
The lack of PCAOB inspections in China prevented the PCAOB from fully evaluating audits and quality control procedures of our independent registered public accounting firm, depriving us and our investors of the benefits of such PCAOB inspections. Such inability of the PCAOB to conduct inspections of auditors in China makes it difficult to evaluate the effectiveness of our independent registered public accounting firm’s China affiliate’s audit and quality control procedures, which could cause investors and potential investors to lose confidence in our audit procedures and reported financial information.
It remains unclear what the SEC’s implementation process related to the above rules and amendments will entail or what further actions the SEC, the PCAOB or Nasdaq will take to address these issues and what impact those actions will have on companies that have significant operations in the PRC and have securities listed on a U.S. stock exchange. The above rules and amendments and any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information could create some uncertainty for investors, and the market price of our Common Shares could be adversely affected. If our auditor is unable to meet the PCAOB inspection requirement, we may be required to engage a new audit firm, which would require significant expense and management time. If we cannot engage a new auditor within a reasonable time under reasonable terms, our Common Shares may be delisted, and the price of our Common Shares may significantly decrease.
There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations, the PRC legal system may limit our Company’s remedies, which may impact our ability to enforce agreements in the PRC with third parties, and changes in policies, laws, rules and regulations in the PRC could adversely affect us.
Our operations conducted in the PRC are governed by PRC laws, rules and regulations and our PRC subsidiaries are subject to laws, rules and regulations applicable to foreign investment in China. 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. China has not developed a fully integrated legal system and enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities or may be subject to a significant degree of interpretation by PRC regulatory agencies and courts. As these laws, rules and regulations are relatively new and quickly evolving and because of the limited number of published decisions and the non-precedential nature of these decisions, and because the laws, rules and regulations often give the relevant regulator certain discretion in how to enforce them, the interpretation and enforcement of these laws and regulations involves uncertainties and can be inconsistent and unpredictable. Therefore, it is possible that our existing operations may be found not to be in compliance with relevant law and regulations in the future.
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. In terms of enforcement, agreements which are governed by PRC laws may be more difficult to enforce by legal or arbitral proceedings in the PRC than in countries with more developed legal systems. Even if the agreements generally provide for arbitral proceedings for disputes arising out of the agreements to be in another jurisdiction, in practice it may be difficult for us to obtain effective enforcement in the PRC of an arbitral award obtained in that jurisdiction.
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Moreover, government policies, internal rules, laws and regulations, particularly for local applications, may be varied and enacted without sufficient prior notice or announcement to the public on a timely basis, and which may be effective retroactively. Consequently, we may not be aware of a violation of a new or updated policy or rule until we are notified by the regulating authority after the violating event has occurred.
Pursuant to the “Opinions on Strictly Cracking Down on Illegal Securities Activities in Accordance with the Law” (the “Opinions”) issued by the Central Committee of the Chinese Communist Party and the State Council on July 6, 2021, among others, the PRC government seeks to strengthen judicial cooperation in cross-border supervision and law enforcement on securities activities. On December 24, 2021, the CSRC published the Provisions of the State Council of the PRC on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), and Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), which, among others, clarified the scope of overseas offering and listing by a PRC company, and listed a number of circumstances where overseas offering is prohibited.
With an effective date of March 31, 2023, the CSRC on February 17, 2023 published the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”). The new regulations for the filing-based administration of overseas securities offering and listing by companies that are incorporated in the PRC and the domestic operating entities of companies whose securities are indirectly offered and listed overseas (collectively referred to as "domestic companies") are, and are made up of six sets of documents, namely, the Trial Measures and five supporting guidelines. The CSRC also issued an accompanying "Notes on the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies" which provides an explanation of the Trial Measures. We are presently reviewing the Trial Measures and the changes from the prior drafts circulated by the CSRC to evaluate the impact, whether positive or adverse, that these regulations on overseas securities issuance by China-based organizations may have on our PRC operations, financial position and business strategies, particularly if we were to seek a spin-off and foreign listing of our Chinese entities.
As the PRC legal system continues to evolve, we cannot predict if future developments in the PRC legal system could be detrimental to our Company and have a material adverse effect on its business, financial condition, results of operations, and the value of our Common Shares.
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business, financial conditions and results of operations.
Certain of our subsidiaries operate in the PRC, where the enforcement of laws, rules and regulations can change quickly with little advance notice. The PRC government may intervene or influence the operations of our PRC subsidiaries at any time, or may begin to exert more control over offerings conducted overseas. Accordingly, our business, financial condition and results of operations may be affected to a significant degree by political, economic and social conditions in the PRC generally.
The PRC economy differs from the economies of most developed countries in many respects, including the degree of government involvement and control, with a substantial portion of the productive assets in China still managed by the government. The PRC government regulates industry development by imposing industrial policies and exerting considerable direct and indirect influence on the development of the PRC economy by controlling, among others, the allocation of resources, foreign exchange, growth rate and the level of development, monetary policy, taxation and foreign investment. The PRC government has significant influence over business activities and has become more involved in regulating China based companies. Legislative and enforcement actions and trends by the PRC authorities are not always predictable. In recent years the PRC government has enhance regulation in areas such as anti-monopoly, cybersecurity and data privacy.
The PRC Anti-Monopoly Law (“AML”) includes oversight of concentration of undertakings, monopoly agreements and abusive behavior by companies with market dominance and was amended effective August 1, 2022 to include, among others, increased penalties for anti-trust violations. The State Administration for Market Regulation (“SAMR”), the anti-monopoly enforcement agency in the PRC, has in recent years strengthened enforcement under the AML, with increased investigations and the levying of significant fines. While the business of APWC may not fall within the industries where recent active anti-monopoly enforcement efforts have focused, we cannot assure you that we will not be affected, either directly or indirectly, by this increased focus. In addition, to comply with existing and new anti-monopoly laws, regulations and guidance which are constantly evolving, we may need to devote additional resources and efforts, including adjusting investment strategy and business arrangements, which may adversely affect our business, growth prospects, and the value of our Common Shares.
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The 2017 PRC Cybersecurity Law (“CSL”) was enacted with the aim of increasing data protection, data localization, and cybersecurity in the interest of national security. Recently enacted laws include the PRC Data Security Law, effective September 1, 2021 (the “DSL”) and the Personal Information Protection Law, effective November 1, 2021 (the “PIPL”). The DSL and PIPL, together with the CSL, form the over-arching framework that governs data protection and cybersecurity in the PRC. The CSL focuses on cybersecurity and the protection of the critical information infrastructure (“CII”), the DSL focuses on regulating “important data” and data processing activities that would have an impact on national security, and the PIPL focuses on protecting personal information.
On August 17, 2021, China released the text of the “Critical Information Infrastructure Security Protection Regulations” (“CII Regulations”) which became effective September 1, 2021. Under the CII Regulations, critical information infrastructure refers to important network infrastructure and information systems, in important industries and sectors, and requires the appropriate regulatory and administrative departments in these sectors (“Protection Departments”) to formulate CII identification rules based on the actual situations of their respective sectors and submit such identification rules to the Ministry of Public Security (“MPS”) for recording. The Protection Departments are responsible for identifying the CII in their respective sectors and promptly notifying relevant operators.
On December 28, 2021, the Cyberspace Administration of China (“CAC”) and the MPS, among others, adopted Cybersecurity Review Measures (“CRM”) effective February 15, 2022, replacing the 2020 version. CRM Article I state the measures were formulated in accordance with the National Security Law of the PRC, the CSL, the DSL and the CII Regulations. The CRM require CII operators to undergo a security review if the procurement of any “network products and services” affects or may affect China’s national security. Online platform operators, holding the personal information of more than 1 million users and newly listing on foreign markets, must also report for a cybersecurity review with the Cybersecurity Review Office of the CAC. Whether the cybersecurity review requirement will apply if the listing company’s subsidiary is a PRC entity (as is the case for APWC) is undetermined.
Neither ‘important data’ nor ‘core data’ have been comprehensively defined in PRC law. ‘Important data’ is a unique category of data introduced by the CSL and adopted into the DSL, but was defined in neither law. In Q4, 2022, the National Information Security Standardization Technical Committee (TC260) released a draft guidance document, which provides a methodology and set of criteria for grading data as either ‘important data’ or ‘core data’, however the advice is not directly operational in the absence of the industry catalogues themselves and there has been no indication yet when these catalogues will be released. To the extent that any data that APWC’s PRC subsidiaries may in the future collect and process within the PRC and which falls within the scope of “important data”, APWC will be subject to various statutory obligations, such as conducting a national security review if the processing activity may affect national security, and periodically carrying out requisite risk assessments.
Compliance with current obligations and potential future obligations that may be promulgated pursuant to any of the CSL, DSL, PIPL, CII Regulations, CRM or other related laws, rules or regulations, could require us to incur additional costs and expend resources, including the updating of internal procedures and hiring of external consultants to conduct assessments, which would increase APWC’s costs and adversely affect profitability.
As final rules and implementing regulations have yet to be issued, the implications and applications of recent enforcement and legislative actions remain unclear at the moment and provide minimal guidance. Many of the economic reforms carried out by the PRC government are unprecedented or experimental and expected to be refined and improved over time. As such, we cannot assure you that APWC and APWC’s operations in the PRC will not be affected, either directly or indirectly, by such refinement or changes in government policy, or the interpretation of, or enforcement of, such laws and regulations, which could have a material adverse effect on our business, financial condition, results of operations and the value of our Common Shares.
Uncertainties with respect to the interpretation and implementation of the PRC Foreign Investment Law and Implementation Regulations may affect our Company’s Corporate Governance.
The PRC Foreign Investment Law and the Regulations for Implementation of the Foreign Investment Law (collectively the “FIL”) took effect January 1, 2020 and replaced the trio of prior laws governing foreign investment in China, namely, the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign Cooperative Joint Ventures, and the Law on Wholly Foreign-Owned Enterprises, together with their implementation regulations (the “Old FIL Laws”).
Several key changes under the FIL include protection of foreign IP rights and trade secrets, and equal treatment of domestic and foreign companies in government procurement. As the Old FIL Laws were repealed at the same time the FIL became effective, foreign-invested enterprises (“FIE”) became subject to the PRC Company Law and Partnership Enterprise Law, which stipulate different rules on corporate governance, voting, profit distributions and equity transfer restrictions, among others. FIEs established before the FIL’s effective date have a five-year transition period to convert to
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the appropriate corporate form and make necessary adjustments to their articles of association and other documents to comply with such rules, which now apply to foreign and domestic investors alike. The FIL imposes information reporting requirements on foreign investors and FIEs and any found to be non-compliant with these reporting obligations may be subject to fines or administrative liabilities.
Since the FIL is relatively new, uncertainties still exist in relation to its interpretation and implementation. The FIL may affect our relevant corporate governance practices and increase our compliance costs. We continue our review of the provisions regarding equity interest transfers and distribution of profits or remaining assets, and the specific adjustments FIEs must undertake.
On December 27, 2021, the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce of the PRC (“MOFCOM”) issued Special Administrative Measures for Foreign Investment Access (Negative List) (2021 Version) effective January 1, 2022, replacing the 2020 Version. The wire & cable industry is not within the sector where foreign investment is prohibited or restricted in either the 2020 or 2021 Version. Accordingly, APWC’s PRC business is unlikely to be directly affected by the rules and enforcement actions targeting variable interest entity structures, even if APWC proposes a spin-off of its PRC entities and an offshore listing. However, it is not known whether these matters will be addressed by additional laws or regulations promulgated pursuant to the FIL. The Foreign Investment Law and the Implementation Regulations could be interpreted and implemented in a manner that could have a material adverse effect on our Company’s business, financial condition and results of operations.
PRC regulation 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 FIEs 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 China’s 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 our 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.
The PRC government’s control of currency conversion and expatriation of funds may affect our liquidity.
The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC. Our PRC subsidiaries represent the majority of the sales in our North Asia segment, which segment constituted approximately 18% of our sales in 2022. Substantially all revenues of our subsidiaries organized under the laws of the PRC, are denominated in RMB. Shortages in the availability of foreign currency in the PRC may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or to make other payments to us, or otherwise to satisfy their foreign currency-denominated obligations. Under existing Chinese foreign exchange regulations, payments of current account items, including profit distributions, interest payments, and trade-related payments, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements, including, among others, submission of relevant documentary evidence of such transactions to designated foreign exchange banks in the PRC for processing of relevant payments. We are required to present relevant documentary evidence of such transactions and conduct such transactions at designated foreign exchange banks in the PRC. However, for any PRC company, dividends can be declared and paid only out of the retained earnings of that company under PRC law and may be subject to taxation. As a result, our PRC subsidiaries may be restricted in their ability to transfer cash outside of the PRC whether in the form of dividends, loans, and advances. If our PRC subsidiaries distribute dividends, these restrictions and requirements could reduce the amount of distributions that we would receive, which could in turn restrict our ability to fund our operations, generate income, pay dividends, and service our indebtedness.
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Furthermore, approval from SAFE or its local branch is required where RMB are to be converted into foreign currencies and remitted out of the PRC for payments of capital account items, such as the repayment of loans denominated in foreign currencies. Without a prior approval from SAFE or its local branch, cash generated from the operations of our PRC subsidiaries may not be used to repay debt in a currency other than the RMB owed by such subsidiaries to entities outside the PRC, or make other payments of capital account items outside the PRC in a currency other than the RMB. The PRC government may also at its discretion, restrict access in the future to foreign currencies for current account transactions. In the current regime of stringent regulation of outflow of capital, RMB outflow may face the same level of scrutiny by the PRC government as the outflow of foreign currencies.
Additionally, because repatriation of funds of our PRC subsidiaries requires the prior approval of SAFE and/or its authorized bank and/or compliance with certain procedural requirements, such repatriation could be delayed, restricted, or limited. There can be no assurance that the rules and regulations pursuant to which SAFE grants or denies such approval or stipulates the procedural requirements will not change in a way that adversely affects the ability of our PRC subsidiaries to expatriate funds out of the PRC, thereby negatively affecting our liquidity, our results of operations and the value of our Common Shares.
Political or social instability, including tensions between PRC and Taiwan, may materially adversely affect our 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 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 SOEs have competitive advantages and our business and operations may be materially and adversely affected in the event we must compete with such SOEs.
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. Our 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.
The Common Shares are currently listed on Nasdaq under the trading symbol “APWC” on the Capital Market tier. In order for the Common Shares to remain 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 days 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
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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 APWC (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 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, there is less publicly available information concerning our Company than there would be if APWC was a U.S. public 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 our 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 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, which could cause volatility and adversely affect our prevailing market price.
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 equity securities 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. As of December 31, 2021, approximately 75.5% of APWC’s issued and outstanding Common Shares were directly or beneficially owned by PEWC, a Taiwanese company. Following the completion of APWC’s rights offering in February 2022 (as further described in Item 7 in this Annual Report) and as of the date of this Annual Report, approximately 80.9% of APWC’s issued and outstanding Common Shares are directly or beneficially owned by PEWC, with such Common Shares subject to certain restrictions on trading. In addition, although the Common Shares are currently traded on the Nasdaq Capital Market tier, the trading and demand for the Common Shares has been historically 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 of the Common Shares. 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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Our Common Shares have a limited public float and are subject to price volatility, which could adversely affect our prevailing market price.
Given PEWC’s sizable ownership of our outstanding Common Shares, we have a limited public float, which adversely affects trading volumes and liquidity in our Common Shares. We have experienced significant share price and volume fluctuations and could be subject to continuing fluctuations in the future. The trading price of our Common Shares may fluctuate widely due to various factors, including the level of purchases or sales in our Common Shares relative to total volume of trading in our Common Shares, actual or anticipated actions by PEWC, including purchases or sales of our Common Shares by PEWC, actual or anticipated changes in our financial conditions and operating results, changes in our capital structure or liquidity including issuance of additional debt or equity to the public, changes in our dividend policy, news regarding our products or geographic markets, and broad market and industry fluctuations. This volatility in our share price, and limited trading volume in our Common Shares, could adversely affect our business and financing opportunities.
Being the subject of an activist investor campaign could cause us to incur substantial costs, divert management’s attention and resources, and have an adverse effect on our business. We have been in the past, and may continue to be, subject to proposals by activist investors urging us to take certain actions. Responding to activist campaigns is generally costly and time-consuming, as we may need to retain the services of legal, financial and communications advisors to assist APWC in responding to the activist investor’s concerns, the costs of which could negatively impact our future financial results. A campaign could also divert the attention of our directors and officers away from our business and operations, which could adversely impact our business. In addition, perceived uncertainties as to our future direction, strategy or leadership arising from an activist campaign could cause our stock price to experience periods of enhanced volatility or harm our ability to raise capital.
APWC may not be able to resume paying a dividend and any dividends paid in the future could be reduced or eliminated, which could adversely affect our prevailing market price.
APWC did not declare or pay any dividends for the years ended December 31, 2022, 2021, 2020 and 2019. 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”) and will be dependent on our Company’s future operating results and the cash requirements of our 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.
Our holding company structure and potential restrictions on the payment of dividends could materially adversely affect our market price.
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 operating 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 reserves. 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. Such restrictions on payments involving entities organized in PRC could adversely affect our liquidity, our business results and thus, the price of our Common Shares.
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APWC is incorporated in Bermuda, and investors may face limited recourse and enforceability against APWC as well as its directors and officers as compared to corporations incorporated in the U.S.
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 our 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 our 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 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 our Company had material assets located within the United States, or some of the directors and officers resided within the United States.
Control of APWC rests with its majority shareholder, PEWC, and APWC relies on Nasdaq’s controlled company and foreign private issuer exemptions, all of which could materially and adversely affect our corporate governance.
PEWC holds more than 50% of our issued and outstanding Common Shares. Accordingly, we are a “controlled company” within the meaning of Nasdaq’s corporate governance standards, and may elect to utilize exemptions from certain corporate governance standards, including the requirement (1) that a majority of the board of directors consist of independent directors, (2) to have a nominating committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (3) to have a compensation committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. We utilize the controlled company exemption for (1) the requirement to have a majority of our Board consist of independent directors, and (2) the requirement to have a nominating committee that is comprised entirely of independent directors with a written charter addressing such committee’s purpose and responsibilities. While we rely on the controlled company exemption for (2), our independent directors oversee our process for identifying director nominees and review the qualifications of such nominees.
At present, a majority of our Board is affiliated with PEWC, and we rely 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”). Nonetheless, our independent directors meet periodically in their capacity as members of our Audit Committee. Our independent auditors and management occasionally join such meetings in the interest of communicating management’s analysis of the Company’s financial performance and compliance with relevant corporate governance requirements.
Because we have fewer independent directors (i.e. those who do not meet Nasdaq’s independence standards) on our Board than issuers that comply with all of Nasdaq’s corporate governance standards, you are not provided the same level of protection afforded to investors in issuers that comply with all of Nasdaq’s corporate governance standards.
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 our Board. 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 APWC and PEWC. (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.).
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Potential conflict of certain officers and directors could adversely affect our corporate governance.
APWC has three independent directors. As of December 31, 2022, there were five additional members of our Board, all of whom are also directors or officers of, or otherwise affiliated with, PEWC, APWC’s majority shareholder. Certain of APWC’s officers are also affiliated with PEWC. In each case, they may be subject to potential conflicts of interest. In addition, certain of APWC’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 our Company and PEWC or one of its affiliates have competing interests, and in the performance by APWC 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 our Company’s business and affairs.
General Risk Factors
Any failure to achieve and maintain effective internal controls could have a material adverse effect on our reputation, business, financial conditions, and results of operations and the market price of the Common Shares.
Effective internal controls are necessary for 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 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. 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 reliability of our financial statements, which could 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 addressed by regional trade blocs, can affect the demand for our products and 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 adversely impacted by the continuing trade friction between the United States and China. We cannot predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact 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.
Our international business operations subject us to certain risks which may materially and adversely affect our business and operations.
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 severe weather and climatic 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 political unrest and turmoil in Thailand; risks related to global economic turbulence and adverse economic developments in Asian markets; risks associated with possible interest rate increases, 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;
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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.
Climate change, or legal, regulatory or market measures to address climate change, may materially adversely affect our Company’s financial condition and business operations.
Climate change resulting from increased concentrations of greenhouse gases in the atmosphere could present risks to our Company’s future operations due to natural disasters and extreme weather conditions, such as hurricanes, tornadoes, earthquakes, wildfires, droughts or flooding. Such extreme weather conditions could pose physical risks to our Company’s suppliers and facilities, disrupt operation of our Company’s supply chain, including availability of raw materials and transportation, and impact operational costs.
Concern over climate change has resulted in both existing and pending legal and regulatory requirements designed to mitigate its effects. Our Company is therefore subject to environmental, health and safety regulations in connection with its global business operations, including but not limited to: regulations related to the development, manufacture, shipping and use of its products, handling, discharge, recycling and disposal of hazardous materials used in its products or in producing its products, and the operation of its facilities. Such measures subject us to additional costs and restrictions and require operating and capital expenditures, which could impact our Company’s business, financial condition, results of operations and cash flows. For example, any pollutants and waste generated during our Company’s manufacturing process need to be disposed of and/or mitigated in compliance with applicable laws and regulations. Additionally, a lack of consistent climate legislation across the regions in which we operate may create economic and regulatory uncertainty. Any failure or inability to comply with existing or future environmental, health and safety regulations, including those relating to climate change, could result in significant remediation or other legal liabilities, the imposition of penalties and fines, restrictions on the development, manufacture, sale, shipping or use of certain of its products and limitations on the operation of its facilities.
In addition to regulatory compliance, growing customer sustainability requirements and shareholder sentiment in respect of environmental and sustainability standards could cause our Company to incur substantial expense from time to time to alter its manufacturing, operations or equipment designs to meet these regulatory and sustainability requirements as well as investor expectations. Moreover, we may not be able to timely meet these requirements due to the required level of capital investment or technological advancement. Any failure to comply with these regulations, or meet these customer requirements or sustainability targets, could adversely impact the demand for our Company’s products and subject our business to significant costs and liabilities and reputational risks that could adversely affect our business, financial condition and results of operations.
Inflationary price pressures of raw materials or other inputs used by our business could negatively impact the profitability of our business.
Increases in the price of commodities, raw materials, utilities, labor or other inputs that our operations or our Company’s suppliers use in manufacturing and supplying products, components and parts, along with logistics and other related costs, may lead to higher costs for our Company’s products and services. In addition, new laws or regulations adopted in response to climate change could increase energy and transportation costs, as well as the costs of certain raw materials and components. Any increase in the cost of inputs to our Company’s production could lead to higher costs for our Company’s products and could negatively impact our Company’s operating results, future profitability and ability to successfully deliver on our Company’s strategy.
ITEM 4: INFORMATION ON THE COMPANY
4.A. History and Development of the Company
Asia Pacific Wire & Cable Corporation Limited was incorporated on September 19, 1996 as a Bermuda exempted company limited by shares and incorporated under the Bermuda Companies Act 1981, as amended (the “Companies Act”). The address of APWC’s principal office is Room B, 15th Floor, No. 77, Sec. 2, Dunhua South Road, Taipei, 106, Taiwan, and its telephone number is +886 2-2712-2558. Our Company’s registered agent (and agent for service of process) in the United States is Puglisi & Associates, with an address at 850 Library Avenue, Suite 204, Newark, Delaware 19711.
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Principal capital expenditures consisted of purchases of property, plant and equipment totaling $3.7 million in 2022, $8.5 million in 2021 and $14.5 million in 2020, mostly for the purchase of production machinery and equipment in Thailand.
In 2023, we expect our business’ principal capital expenditures to include the purchase of new equipment to expand production capacity in Australia and Thailand. We expect total capital expenditures in 2023 to be $0.7 million based on current assumptions, although this number could change based on market conditions and other relevant factors. Our Company intends to pay for these expenditures with funds generated from its operations.
Our Company’s present plans also include the development of 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 website at www.sec.gov.
4.B. Business Overview
Our Company’s Operations and Principal Activities
APWC is a holding company (incorporated in Bermuda with principal executive offices in Taiwan) that operates its business through operating subsidiaries. Through our subsidiaries, our Company is principally engaged in the manufacture and distribution of enameled wire, power cable, and telecommunications products in Thailand, Singapore, Australia, PRC, Hong Kong and certain other markets in the Asia Pacific region. Our Company also provides project engineering services in supply, delivery and installation of power cable (“SDI”). Our Company’s major customers include appliance component manufacturers, electrical contracting firms, state owned entities, wire and cable dealers and factories.
APWC has no direct business operations other than its direct and indirect ownership of the capital stock of its subsidiaries and equity investee holdings. Although APWC has not paid a dividend to holders of our Common Shares since 2019, APWC’s ability to pay any dividends in the future, as well as to meet its other obligations and to fund operations, depends upon the amount of distributions, if any, received from its direct and indirect 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 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 applicable to the countries in which our subsidiaries are formed and conduct their business. For further discussion of the risks created by these restrictions and limitations, see “Risk Factors-Risks Related to our Financial Activities” and “Risk Factors-Risks Relating to the Regions in which We Operate.”
Reporting Segments and Geographic Regions
We operate our business in three reporting segments: Thailand, North Asia, and ROW. Our Company’s power cable and telecommunications cable products are primarily sold in the domestic markets of the countries where they are manufactured, whereas a portion of the enameled wires manufactured by our Company in Thailand are exported, primarily
to customers throughout Southeast Asia. The following table sets forth our Company’s sales revenues for the periods indicated in its three reporting segments for its principal product lines.
| Year ended December 31, 2022 | North Asia | Thailand | ROW | Total segments Consolidated | |||||||||||||||||||
| US$’000 | US$’000 | US$’000 | US$’000 | ||||||||||||||||||||
| Revenue from external customers | |||||||||||||||||||||||
| Power | 92 | 46,340 | 135,739 | 182,171 | |||||||||||||||||||
| Enamel | 76,002 | 102,122 | — | 178,124 | |||||||||||||||||||
| SDI | 1,209 | — | 44,722 | 45,931 | |||||||||||||||||||
| Others* | 26 | 23,379 | 4,262 | 27,667 | |||||||||||||||||||
| 77,329 | 171,841 | 184,723 | 433,893 | ||||||||||||||||||||
*includes revenues from fabrication service contracts and the sale of other wire and cable products.
| Year ended December 31, 2021 | North Asia | Thailand | ROW | Total segments Consolidated | |||||||||||||||||||
| US$’000 | US$’000 | US$’000 | US$’000 | ||||||||||||||||||||
| Revenue from external customers | |||||||||||||||||||||||
| Power | — | 63,629 | 127,891 | 191,520 | |||||||||||||||||||
| Enamel | 107,027 | 105,749 | — | 212,776 | |||||||||||||||||||
| SDI | — | — | 39,476 | 39,476 | |||||||||||||||||||
| Others* | 5 | 28,401 | 4,481 | 32,887 | |||||||||||||||||||
| 107,032 | 197,779 | 171,848 | 476,659 | ||||||||||||||||||||
*includes revenues from fabrication service contracts and the sale of other wire and cable products.
| Year ended December 31, 2020 | North Asia | Thailand | ROW | Total segments Consolidated | |||||||||||||||||||
| US$’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 the sale of other wire and cable products.
The following chart sets forth the organizational structure, as of December 31, 2022, of APWC and its principal subsidiaries, and indicates the percentage ownership or voting power of each entity. The location of the headquarters of each company is indicated in parentheses above the company’s name (“T” for Thailand, “C” for China or Hong Kong, “S” for Singapore and “A” for Australia).
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In Thailand, APWC has the following subsidiaries:
•Charoong Thai Wire & Cable Public Co. Ltd. (“Charoong Thai”), a public company listed in Thailand that is majority owned by APWC.
•Charoong Thai owns three principal subsidiaries in Thailand, namely Siam Pacific Electric Wire & Cable Co. Ltd. (“Siam Pacific”), Double D Cable Co. Ltd., and Siam Fiber Optics Co. Ltd.
Our Company produces and sells enameled wires, power cables, and telecommunication cables in Thailand. Charoong Thai is one of the leading cable manufacturers in Thailand. Our distribution channels include both direct sales to state owned entities and private sector participants in the infrastructure sector, and sales to agents for state owned entities. Sales within the Thailand region are made directly by the sales department of the APWC operating subsidiaries in accordance with terms and pricing set by the local subsidiaries. The major customers of our Company include clients working with the government and its contractors.
In North Asia, APWC has four principal subsidiaries:
•Crown Century Holdings Ltd. (“Crown Century”), which is a registered Hong Kong company majority owned by APWC,
•Shanghai Yayang Electric Co., Ltd. (“Shanghai Yayang”), a PRC company that is majority owned by Charoong Thai,
•Pacific Electric Wire and Cable (Shenzhen) Co. Ltd. (“PEWSC”), a PRC company wholly owned by Crown Century, and
•Ningbo Pacific Cable Co., Ltd. (“Ningbo”, collectively with PEWSC and Shanghai Yayang, the “PRC Subsidiaries”), a PRC company wholly owned by Crown Century.
Our Company produces and sells enameled wires in China. Our Company generally sells enameled wires directly to manufacturers of electric motors for use in various consumer appliances. PEWSC manufactures enameled wires for
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electric, video and audio products for the South China market. Shanghai Yayang, which had previously produced enameled wires, ceased production at the end of October of 2019 and has been restructured as a trading company in Shanghai that supplies mainly transformer, motor and coil manufacturers in the eastern part of China. Ningbo is currently a dormant entity. Our Company continues to indirectly own the equity of Ningbo, which still holds its government-granted business license. Our Company has disposed of all of the buildings and most of the equipment and the land use rights for the property where Ningbo’s operations had been situated. The principal machinery utilized at the Ningbo facility has either been sold or stored at other operating facilities of our Company.
In the ROW, APWC has three principal subsidiaries:
•Sigma Cable Company Pte. Ltd. (“Sigma Cable”), a Singapore entity that is majority owned by APWC,
•Epan Industries Pte. Ltd., a Singapore company that is wholly owned by Sigma Cable, and
•Australia Pacific Electric Cable Pty. Ltd. (“APEC”), an Australian company majority owned by APWC through its ownership in Crown Century and Sigma Cable.
Our Company produces and sells low voltage power cables in Singapore and Australia. In addition, our Company sells a wide range of wire and cable products produced by third party suppliers in addition to PEWC. Our Company also offers SDI project engineering services for medium and high voltage power cables to power transmission projects in Singapore. SP Power Assets Ltd. has historically been the principal customer for our Company’s SDI services, accounting for nearly all of our SDI sales. Sales to SP Power Assets Ltd. are under a comprehensive contract, with purchase orders placed from time to time.
In addition to these principal subsidiaries in our reportable segments, we established Asia Pacific New Energy Co. Ltd. (“APNEC”), a Taiwanese company, in Taipei City on October 26, 2018 for a new renewable energy business. APNEC seeks to develop an alternative energy business in Taiwan by availing itself of incentives provided by the Taiwan energy authority for the expansion of “green” energy alternatives. On December 15, 2022, APWC increased its investment in APNEC in the form of a capital injection of $3.9 million (or NT$120 million). The purpose was to fund the fishery solar farm and on-train communication system integration projects. These projects remain at a development-stage and APNEC has not generated material revenue to date.
Dividends received from our operating subsidiaries and equity investees may be subjected to withholding taxes. Under the Corporate Income Tax Law of the PRC, dividend distribution of profits to foreign investor(s) is subject to a withholding tax of 10%. There is no withholding tax on dividend distributions from a Hong Kong entity to either residents or non-residents. In Thailand, dividends paid by a company to any individual or corporate payee overseas are subject to a withholding tax of 10%. Under the current Singapore corporate tax system, dividends paid by a Singapore resident company are tax exempt, and are not subject to withholding taxes. In Australia, dividends paid to non-residents are exempt from dividend withholding taxes except when dividends are paid out of profit that is not taxed by Australian income tax.
APWC’s operating subsidiaries are also responsible for sales planning, marketing strategy and customer liaison. Our Company’s sales staff is knowledgeable about our Company’s products and also renders technical assistance, consulting services and repair and maintenance services to our Company’s customers. Our Company does not conduct sales through independent sales agents on a commission basis but uses its own sales employees located at APWC’s operating subsidiaries.
Payment methods for our Company’s products vary with markets and customers. The majority of sales by our Company require payment within 90 days of product delivery, 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 SDI products, our Company is required to pay PEWC 100% of the cost of the products within 45 days from the date of invoice. In connection with a purchase of copper rod, our Company is required to pay PEWC the cost of the copper rod within 60 days of receipt of the products from PEWC. For the export market, payment is usually made by prior delivery of an irrevocable letter of credit. Neither APWC nor its operating subsidiaries offer financing for purchases of our 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 in each geography. 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.
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Products and Services
Across our Company’s three reporting segments, our Company manufactures and sells a wide variety of wire and cable products in primarily three general categories: enameled wire, power cable, and telecommunications cable. Our Company’s enameled wires are used in the manufacturing of components and sub-components of a number of household appliances and small machinery. Our Company’s telecommunications and power cables are used in a range of infrastructure projects and in commercial and residential developments. In addition, our Company acts as a distributor in Singapore of wire and cable products manufactured by PEWC. Our Company also offers SDI project engineering services of medium and high voltage cables for power transmission projects in Singapore.
Products
Copper rod is the base component for most of our 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 cables 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 our Company’s primary wire and cable products is set forth below.
Enameled Wire
Our Company produces several varieties of enameled wires. Enameled wires are copper wires varnished, in an enameling process, by insulating materials. The enameling process makes the wires more resistant to oil, heat, friction and fusion, and therefore suitable for use in machinery and components and sub-components of manufactured goods. Our Company manufactures enameled wires 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 wires and 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.
Power Cable
Our Company also produces a range of armored and unarmored low voltage power transmission cables. Low voltage power cables, generally considered to be cable with a capacity of 1 to 3.3 kilovolts, are 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 cables are usually used for public lighting and power transmission running to buildings and installed either above or below ground. Unarmored low voltage cables are mainly used as lighting and power supply cables inside and outside of buildings. The voltage capacity of our Company’s power cables ranges from 300 volts to 1 kilovolt.
Production of unarmored cables 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 cables are composed of one or more cores of copper wire, insulated by substances such as PVC. Armored cables are produced in the same manner and the same range of configurations as unarmored cables, but with the addition of an outer layer of galvanized steel or iron wires to protect the cables from damage.
Telecommunications Cable
Our Company produces a wide range of bundled telecommunications cables for telephone and data transmissions with different capacities and insulations designed for use in various internal and external environments. The principal use of these cables is as access cables to connect buildings and residents to trunk cables. Telecommunications cables produced by our Company include copper-based and fiber optic cables.
Production of copper-based telecommunications cables 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
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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 wires 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 cables 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 cables and, finally, the shielded cable core is covered by plastic outer sheathing. Our Company manufactures telecommunications cables with capacities and sizes ranging from 25 to 3,000 pairs of 0.4 mm-diameter wires to 10 to 600 pairs of 0.9 mm-diameter wires.
Services
Fabrication
Our Company performs fabrication services for its customers, converting raw materials to wire and cable products. Raw materials, such as copper, aluminum, PVC, PE and optic fibers, are commodities traded on global markets with anticipated price fluctuations and currency risk. Given these risks, our Company provides fabrication services using customer-owned materials in order to limit exposure to these risks.
SDI Project Engineering Services
Given government and private sector infrastructure projects and residential and commercial buildings activity in Singapore, our 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, our Company has developed an SDI project engineering capability. This SDI project engineering involves supply, delivery and installation of primarily medium and high voltage cables to power transmission projects in Singapore. In entering into a contract to supply, deliver and install cables for a power transmission project, our Company delivers medium and high voltage cables and enters into subcontracting agreements with local companies to install the cables as required by the project.
Raw Materials
As copper constitutes the most significant component of our Company’s wire and cable products, the price of our Company’s products depends primarily upon the price of copper. In order to minimize the impact of copper price fluctuations, our 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 can affect our Company’s cost of sales. Whether this has a material impact on our Company’s operating margins and financial results depends primarily on our 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. In the cases when we enter into a long-term sales contract at fixed selling prices, rising copper prices could render this contract onerous and our Company would be required to recognize losses from this onerous contract in the income statement. Most sales of our Company’s manufactured products reflect copper prices prevailing at the time the products are ordered. A long-term decrease in the price of copper would require our Company to revalue the value of its inventory at periodic intervals to the then net realizable value, which could be below cost.
Our Company purchases copper in the form of rods and cathodes. Copper cathodes are thin sheets of copper purified from copper ore. Copper rods are drawn into copper wires for the production of enameled wires, power cables and telecommunications cables. Copper purchased by our 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 example, our Company’s operating subsidiaries in Thailand may import copper cathodes and utilizes services from their business partners, including Thai Metal Processing Co., Ltd., to process the copper cathodes.
Our Company’s key suppliers include PT. Karya Sumiden Indonesia - Indonesia, Walsin Lihwa Corporation - Taiwan, Mitsubishi Corporation RtM International Pte.- Singapore, Glencore International AG.-Switzerland, and Marubeni Corporation-Japan. Our Company attempts to maintain a few weeks supply of copper rods and cathodes for its operations.
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Our Company has regularly signed one-year contracts with each of its copper suppliers, pursuant to which our Company agrees to purchase a set quantity of copper each month. Under the terms of such contracts, the price of copper is typically 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. Our Company has not had and does not anticipate any material supply interruption or difficulty in obtaining a sufficient supply of copper rod or cathode, although the recent delays in shipping could increase our cost of acquiring copper. Our Company anticipates that its copper suppliers will be capable of providing an adequate supply of copper to meet our Company’s requirements and our Company does not anticipate any change in relations with its copper suppliers in the near term. (See Item 3D: Risk Factors-Risks Relating to our Business: “The ability of suppliers to deliver raw materials, parts and components and energy resources could affect our Company’s ability to manufacture products without disruption and in turn negatively affect our operations.”).
Our Company has historically purchased a small portion of its copper rods from PEWC. Under the Composite Services Agreement, PEWC has agreed to supply our Company on a priority basis with our copper rod requirements at prices at least as favorable as prices charged to other purchasers in the same markets purchasing similar quantities. Our Company has diversified its copper purchases from among a number of preferred copper suppliers to ensure that our Company receives the most advantageous pricing on its copper purchases. Our Company does not currently purchase copper rods from PEWC.
Other raw materials used by our Company include aluminum, which is used as a conductor in power cables and petroleum-based insulation materials such as PE, PVC and jelly compounds for insulating covers on cables and varnishes on enameled wires; aluminum foils for sheathing of communication cables; and galvanized steel wires for the production of armored wires. Our 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. Other than import tariffs in Thailand, our Company does not face any restriction or control on the purchase or import of its raw materials. Our Company may freely choose its suppliers and negotiate the price and quantity of material with its suppliers. Our 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 increases the cost of raw materials and operating expenses for our Company. If inflationary pressure persists, our Company may not be able to maintain its operating margins by raising the prices of its products.
Quality Control
In order to maintain product quality, our Company has implemented a range of quality control procedures 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 our 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 production facilities for inspection and testing of different electrical and physical properties.
Depending on the requirements of its customers, our Company has the capability to manufacture 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, such as the National Electrical Manufacturers Association Standard, the British Standard, the Japan Industrial Standard and Underwriters Laboratories Inc. Standard.
All of our Company’s principal operating entities have attained International Standards Organization (“ISO”) 9001 certification for quality management and assurance standards in the manufacture of electric wires and cables and have maintained that certification for at least the last ten years. These certifications mean that these entities have in place quality assurance systems and the capability to consistently manufacture products of quality.
Competition
The wire and cable industry in the Asia Pacific region is highly competitive. Our Company’s competitors include a large number of independent domestic and foreign suppliers. Certain competitors in each of our Company’s markets have substantially greater manufacturing, sales, research and financial resources than us. Our Company and other wire and cable producers primarily compete on the basis of product quality and performance, reliability of supply, customer service, and price.
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North Asia
PEWSC manufactures enameled wires in the Shenzhen 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 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, our Company competes with approximately thirty local wire and cable manufacturers and, to a lesser extent, with foreign producers for sales in Thailand of power cables, enameled wires, and telecommunications cables. Our Company is one of the five largest producers in the Thai market. Governmental approval processes, tariffs and other import restrictions have limited competition in the Thailand market from foreign wire and cable producers. Our Company also experiences significant competition from a number of smaller producers with regard to sales of enameled wire products.
ROW
Although we believe that Sigma Cable is one of the major suppliers of power cable products in Singapore based on available data, it is subject to significant competition from producers within the region. There are no tariff or other barriers against foreign competition in the local Singapore market, and potential competitors are free to enter the industry. Because of high capital costs, our 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 our Company or be in a position to capture a material percentage of our Company's share of the market. However, the performance of Sigma Cable in 2021 was adversely impacted by increased intense competition from other manufacturers seeking to capture a greater share of the Singaporean market.
In addition to APEC, there are two major wire and cable producers with operations in Australia: Olex Cables (owned by Nexans) and Prysmian Cables, with factories in the States of Victoria and New South Wales, respectively. A significant portion of Australian market is serviced by two importers: (i) Electra Cables which reportedly imports cables from China factories; and (ii) World Wire Cables, which reportedly also sources cables from its Chinese partners to sell in the Australian market. These companies are APEC’s principal competitors. APEC 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 sales offices with warehousing facilities in Sydney, Melbourne, Brisbane, and Perth in order to attract and serve 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.
Regional Considerations
The principal Asian markets in which we do business have displayed higher 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 pandemics.
North Asia
Our 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 recent years, the government of China 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.
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Thailand
The volume of sales of our Company’s products in Thailand tends to correlate with the general level of economic activity in Thailand. As a result, the performance of our 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. Overall, the construction industry and infrastructure projects have slowed considerably, thereby affecting local sales, placing competitive pressure on prices and prompting our 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.
Insurance
Our 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. Our Company does not carry insurance for consequential loss arising from business interruptions or political disturbances and does not carry product liability insurance. 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.
Environmental Regulations
Our Company is subject to a variety of laws and regulations covering the storage, handling, emission and discharge of materials into the environment. Our Company believes that all of its operations are in material compliance with all applicable environmental laws and regulations. Our Company has not been subjected to any material legal, regulatory or other action alleging violations or breaches of environmental standards.
4.C. Organizational Structure
Please refer to Business Overview in Item 4.B. above.
4.D. Property, Plants and Equipment
Our Company’s manufactured products are produced at facilities located on premises owned or leased by Siam Pacific, Charoong Thai, Sigma Cable, APEC, and PEWSC. The following is a summary of our Company’s material facilities and operations.
Siam Pacific owns a 7.45 acre production facility near Bangkok, Thailand, located on its owned 26.79 acre site. Telecommunications cables and enameled wires are manufactured at this facility. The production facility constitutes a portion of certain property and assets which are pledged to financial institutions.
Charoong Thai owns a 34 acre production facility in Chachoengsao province, near Bangkok, Thailand, where telecommunications cables and power cables are manufactured. The production facility is located on a 65 acre site owned by Charoong Thai. Neither the production facility nor the land is mortgaged.
Sigma Cable produces power cables at a 19,373 square meter facility in Singapore leased from the Jurong Town Corporation (“JTC”) under a 30 year lease running 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 situated on an owned 39,000 square meter land parcel in Brisbane, Australia. The manufacturing facility and land are pledged as security for a bank loan facility issued to APEC.
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Shanghai Yayang ceased production in 2019 and was restructured as a trading company, located in an area of approximately 27,839 square meters of state-owned land in an industrial district in Fengxian, Shanghai. The land-lease and buildings were pledged as security for a 2020 loan that was repaid in full in 2021. No assets at this facility are presently encumbered.
PEWSC manufactures enameled wires 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 expiring in July 5, 2046. The land and building are pledged to Agricultural Bank of China as security for a $2 million bank loan.
Most of our Company’s facilities in Thailand, Singapore, Australia and China use production processes and equipment imported from Europe, the United States, Taiwan, or Japan.
The production capacity and extent of utilization of our Company’s facilities vary from time to time, and such information is considered to be commercially sensitive and proprietary information.
ITEM 4A: UNRESOLVED STAFF COMMENTS
Not applicable
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
5.A. Operating Results
The following discussion should be read in conjunction with the information contained in our audited consolidated financial statements and notes thereto (the “Financial Statements”) referenced in Item 18 of this Annual Report. Selected accounting policies are set out in Note 3 of our consolidated financial statements referenced in Item 18 of this Annual Report, which are prepared in accordance with IFRS as issued by the IASB.
Selected Operating Data
Results are analyzed and reported along the lines of our three principal business segments, consisting of the North Asia, Thailand, and ROW regions. Included in the summary table below are certain results within our three business segments with regard to net sales, operating profit, and operating profit margin for the designated periods.
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Operating Results
| For the year ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| (US$’000 except for percentages) | |||||||||||||||||
| Net Sales: | |||||||||||||||||
| North Asia region | $ | 77,329 | $ | 107,032 | $ | 73,199 | |||||||||||
| Thailand region | 171,841 | 197,779 | 143,647 | ||||||||||||||
| ROW region | 184,723 | 171,848 | 96,718 | ||||||||||||||
| Total | $ | 433,893 | $ | 476,659 | $ | 313,564 | |||||||||||
| Operating profit/(loss): | |||||||||||||||||
| North Asia region | $ | 241 | $ | 4,523 | $ | 3,087 | |||||||||||
| Thailand region | 2,636 | (13,537) | 11,250 | ||||||||||||||
| ROW region | 7,768 | 6,690 | (4,492) | ||||||||||||||
| Corporate expenses & adjustments | (2,578) | (2,649) | (2,288) | ||||||||||||||
| Total operating (loss)/profit | $ | 8,067 | $ | (4,973) | $ | 7,557 | |||||||||||
| Operating profit/(loss) margin: | |||||||||||||||||
| North Asia region | 0.31 | % | 4.23 | % | 4.22 | % | |||||||||||
| Thailand region | 1.53 | % | (6.84) | % | 7.83 | % | |||||||||||
| ROW region | 4.21 | % | 3.89 | % | (4.64) | % | |||||||||||
As of December 31, 2022, APWC is approximately 80.96% beneficially owned and controlled by PEWC, with the remaining approximately 19.04% of the issued and outstanding Common Shares being publicly-traded in the United States and listed on Nasdaq. Based upon a review of Schedule 13D and 13G filings made with the SEC by shareholders, and a review of the share register maintained by APWC’s transfer agents in Bermuda and the U.S., we are not aware of any shareholders residing in the jurisdictions where our Company has business operations. While our Company’s operations and results are impacted by economic, fiscal, monetary and political policies of the respective governments in the countries where our Company operates, that impact is not a function of APWC’s shareholder base. Inflation has, and may continue to, increase the cost of raw materials and operating expenses for our Company. If inflationary pressure persists, we may not be able to maintain our operating margins even if we raise the price of our products.
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Year Ended December 31, 2022 Compared with Year Ended December 31,2021
| For the Year Ended December 31, | |||||||||||||||||||||||
| 2022 | 2021 | Changes | Changes | ||||||||||||||||||||
| US$’000 | US$’000 | US$’000 | % | ||||||||||||||||||||
| Income Statement Data: | |||||||||||||||||||||||
| Revenue | $ | 433,893 | $ | 476,659 | $ | (42,766) | (9.0) | ||||||||||||||||
| Costs of sales | (401,363) | (455,508) | 54,145 | (11.9) | |||||||||||||||||||
| Gross profit | 32,530 | 21,151 | 11,379 | 53.8 | |||||||||||||||||||
| Other operating income | 1,027 | 587 | 440 | 75.0 | |||||||||||||||||||
| Selling, general and administrative expenses | (24,978) | (26,484) | 1,506 | (5.7) | |||||||||||||||||||
| Other operating expenses | (512) | (227) | (285) | 125.6 | |||||||||||||||||||
| Operating profit/(loss) | 8,067 | (4,973) | 13,040 | (262.2) | |||||||||||||||||||
| Finance costs | (1,650) | (1,251) | (399) | 31.9 | |||||||||||||||||||
| Finance income | 120 | 123 | (3) | (2.4) | |||||||||||||||||||
| Share of loss of associates | (1) | (1) | — | — | |||||||||||||||||||
| Exchange loss | 143 | (4,425) | 4,568 | (103.2) | |||||||||||||||||||
| Other income | 889 | 671 | 218 | 32.5 | |||||||||||||||||||
| Other expense | (3) | (1) | (2) | 200.0 | |||||||||||||||||||
| Profit/(loss) before tax | 7,565 | (9,857) | 17,422 | (176.7) | |||||||||||||||||||
| Income taxes benefit/(expense) | (2,808) | 1,345 | (4,153) | (308.8) | |||||||||||||||||||
| Profit/(loss) for the year | 4,757 | (8,512) | 13,269 | (155.9) | |||||||||||||||||||
| Attributable to: | |||||||||||||||||||||||
| Equity holders of APWC | 3,874 | (2,642) | 6,516 | (246.6) | |||||||||||||||||||
| Non-controlling interests | 883 | (5,870) | 6,753 | (115.0) | |||||||||||||||||||
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 2022 and 2021.
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.
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Average copper prices per metric ton decreased by 5.37% from $9,314 in 2021 to $8,814 in 2022 (annual average). Copper prices indicated in this Annual Report are quoted from the index published by the LME. The 2022 and 2021 average copper prices were as follows:
| 2022 | 2021 | ||||||||||
| Average LME copper price ($/Ton) | Q1 | 9,984 | 8,479 | ||||||||
| Q2 | 9,525 | 9,711 | |||||||||
| Q3 | 7,741 | 9,371 | |||||||||
| Q4 | 8,005 | 9,697 | |||||||||
| Year | 8,814 | 9,314 | |||||||||
The average copper price in March 2023 on the LME was $8,835 per ton.
Revenue
Revenue from the North Asia region decreased by $30 million, or 28%, from $107 million in 2021 to $77.3 million in 2022. The decrease was attributable to decreased sales volume primarily due to the impact of the conflict in Ukraine. The price of raw materials, crude oil, and natural gas rose, which squeezed the export market for home appliances and electronic consumer products, and export volume shrank. Also negatively affecting revenue were China’s 2020-2022 COVID lockdowns and the Sino-American trade war, which disrupted supply chains and the world economy.
Revenue from the Thailand region decreased by $25.9 million, or 13%, from $197.8 million in 2021 to $171.8 million in 2022. The decrease was attributable primarily to the decrease in sales to the public sector in 2022 and depreciation of the Thai Baht, which depreciated by 9.71% compared to 2021.
Revenue increased by $12.9 million, or 7%, from $171.8 million in 2021 to $184.7 million in 2022 in the ROW region. Increased product sales due to orders released to the market, after the Singapore government removed certain COVID-19 restrictions. A decline in the demand for cables decreased the revenues in Australia.
Gross Profit
Gross Profit increased by $11.4 million, or a 53.8% change, from $21.2 million in 2021 to $32.5 million in 2022. The gross profit margin was 7.5% in 2022 compared to 4.4% in 2021. T