UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM20-F
(Mark One)
☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
OR
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from to
Commission file number1-14946
CEMEX, S.A.B. de C.V.
(Exact name of Registrant as specified in its charter)
CEMEX PUBLICLY TRADED STOCK CORPORATION WITH VARIABLE CAPITAL
(Translation of Registrant’s name into English)
United Mexican States
(Jurisdiction of incorporation or organization)
Avenida Ricardo Margáin Zozaya #325, Colonia Valle del Campestre, San Pedro Garza García,
Nuevo León, 66265, México
(Address of principal executive offices)
Roger Saldaña Madero,
+52 81 8888-8888, +52 81 8888-4399,
Avenida Ricardo Margáin Zozaya #325, Colonia Valle del Campestre, San Pedro Garza García,
Nuevo León, 66265, México
(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.Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Ordinary Participation Certificates (Certificados de Participación Ordinarios), or CPOs, each CPO representing two Series A shares and one Series B share, traded in the form of American Depositary Shares, or ADSs, each ADS representing ten CPOs. | CX | New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act.Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.Act:
None
(Title of Class)
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.
15,085,567,39115,089,673,341 CPOs
30,214,469,91230,214,262,692 Series A shares (including Series A shares underlying CPOs)
15,107,234,95615,107,131,346 Series B shares (including Series B shares underlying CPOs)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule12b-2 of the Exchange Act (check one).Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company ☐
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Emerging growth company | ☐ |
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. ☐
† | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
TABLE OF CONTENTS
PART I
PART I | 2 | |||
Item 1—Identity of Directors, Senior Management and Advisors | 2 | |||
2 | ||||
2 | ||||
| 2 | |||
2 | ||||
Risk Factors | 3 | |||
28 | ||||
32 | ||||
32 | ||||
Geographic Breakdown of | 35 | |||
Breakdown of | 36 | |||
36 | ||||
45 | ||||
55 | ||||
55 | ||||
82 | ||||
83 | ||||
84 | ||||
109 | ||||
109 | ||||
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110 | ||||
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122 | ||||
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146 | ||||
156 | ||||
158 | ||||
Summary of Material Contractual Obligations and Commercial Commitments | 158 | |||
162 | ||||
162 | ||||
165 | ||||
167 | ||||
174 | ||||
174 | ||||
187 | ||||
Board Practices | 187 | |||
Compensation of CEMEX, S.A.B. de C.V.’s Directors and Members of Our Senior Management | 190 | |||
191 | ||||
193 | ||||
193 | ||||
193 | ||||
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195 | ||||
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203 | ||||
203 | ||||
204 | ||||
204 | ||||
Item 11—Quantitative and Qualitative Disclosures About Market Risk | 208 | |||
Item 12—Description of Securities Other than Equity Securities | 208 | |||
208 | ||||
208 | ||||
208 | ||||
208 | ||||
208 | ||||
Depositary Payments for the | 209 | |||
209 | ||||
209 | ||||
Item 14—Material Modifications to the Rights of Security Holders and Use of Proceeds | 209 | |||
209 | ||||
209 | ||||
Management’s Annual Report on Internal Control Over Financial Reporting | 209 | |||
Attestation Report of the Independent Registered Public Accounting Firm | 209 | |||
210 | ||||
210 | ||||
210 | ||||
212 | ||||
212 | ||||
Item 16D—Exemptions from the Listing Standards for Audit Committees | 212 | |||
Item 16E—Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 212 | |||
212 | ||||
212 | ||||
215 | ||||
215 | ||||
215 | ||||
215 | ||||
215 |
ii
INTRODUCTION
CEMEX, S.A.B. de C.V. is incorporated as a publicly traded variable stock corporation with variable capital (sociedad anónima bursátil de capital variable) organized under the laws of the United Mexican States (“Mexico”). Except as the context otherwise may require, references in this annual report to “CEMEX,” “we,” “us” or “our” refer to CEMEX, S.A.B. de C.V. and its consolidated entities. See note 1 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
PRESENTATION OF FINANCIAL INFORMATION
Our consolidated financial statements included elsewhere in this annual report have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
The regulations of the United States Securities and Exchange Commission (the “SEC”), do not require foreign private issuers that prepare their financial statements based on IFRS (as published by the IASB) to reconcile such financial statements to U.S.United States Generally Accepted Accounting Principles (“U.S. GAAP”).
References in this annual report to “U.S.$“$” and “Dollars” are to U.S.United States Dollars, references to “€” are to Euros, references to “£,” “Pounds Sterling” and “Pounds” are to British Pounds, and, unless otherwise indicated, references to “Ps,” “Mexican Pesos” and “Pesos” are to Mexican Pesos. References to “billion” mean one thousand million. References in this annual report to “CPOs” are to CEMEX, S.A.B. de C.V.’sCertificados de Participación Ordinarios. and each CPO represents two Series A shares and one Series B share of CEMEX, S.A.B. de C.V. References to “ADSs” are to American Depositary Shares of CEMEX, S.A.B. de C.V. and each ADS represents ten CPOs of CEMEX, S.A.B. de C.V.
Beginning with the three-months period ended March 31, 2019, and for all subsequent and comparative periods, as permitted under International Accounting Standard 21,The Effects of Changes in Foreign Exchange Rates (“IAS 21”) under IFRS, we changed our presentation currency from the Mexican Peso to the Dollar, which we consider preferable for the reasons set forth below:
● | for a consolidated group that comprises operations with a number of functional currencies, it is the decision of each entity to select its presentation currency under IAS 21, which may be the currency that management uses when controlling and monitoring the performance and financial position of such group. In our case, management uses the Dollar for these purposes; |
● | we believe that presenting our consolidated financial information using the Dollar will improve and facilitate the analysis to a broad range of users (rating agencies, analysts, investors and lenders, among others) of our consolidated financial statements; and |
● | the use of the Dollar as presentation currency will also improve the comparison of our consolidated financial statements with those of other global entities. |
Our audited consolidated financial statements, including comparative amounts provided below,and the accompanying notes to the audited consolidated financial statements, are presented as if the new presentation currency had always been our presentation currency. All currency translation adjustments have been set to zero as of January 1, 2010, which was the date of our transition to IFRS. Translation adjustments and cumulative translation adjustments recognized in other comprehensive income have been presented as if we had used Dollars as the presentation currency from that date. Comparative financial statements and their related notes were re-presented for the change in presentation currency by applying the methodology set out in IAS 21, using the closing exchange rates for the consolidated statements of financial position and the closing exchange rates of each month within the respective periods for consolidated income statements, consolidated statements of comprehensive income and consolidated statements of cash flows. Historic equity transactions were translated at the foreign exchange rate on the date of the transactions and were subsequently carried at historical value.
The financial statements of foreign subsidiaries, as determined using their respective functional currency, are translated to Dollars at the year-end closing exchange rate for statement of financial position accounts and at the closing exchange rates of each month within the period for income statement accounts. The corresponding translation effect is included within “Other equity reserves” and is presented in the consolidated statement of comprehensive income (loss) for the period as part of the currency translation results of foreign subsidiaries adjustment until the disposal of the net investment in the foreign subsidiary.
Beginning January 1, 2019, IFRS 16, Leases (“IFRS 16”), superseded all existing guidance related to lease accounting including IAS 17, Leases, and introduced a single lessee accounting model that requires a lessee to recognize, for all leases, allowing exemptions in the case of leases with a term of less than 12 months or when the underlying asset is of low value, assets for the right-of-use of the underlying asset against a corresponding financial liability, representing the net present value of estimated lease
payments under the contract. Under this model, the lessee recognizes in the income statement depreciation of the asset for the right-of-use and interest on the lease liability. After concluding the inventory and measurement of our leases, we adopted IFRS 16 using the full retrospective approach by means of which we determined an opening cumulative effect in our statement of financial position as of January 1, 2017, that is at the beginning of the oldest comparative period and re-presented previously reported financial statements of comparative periods. Therefore, unless otherwise indicated, all comparative amounts from our comparative financial statements as of December 31, 2018 and for the years ended December 31, 2017 and 2018 have been re-presented to include the effects of adoption of IFRS 16. See note 2.1 to our 2019 audited consolidated financial statements included elsewhere in this annual report are translationsfor a detailed description of Peso amounts at an exchange rateour adoption of Ps19.65 to U.S.$1.00, the CEMEX accounting rate (as defined herein) as of December 31, 2017. However, in the case of transactions conducted in Dollars, we have presented the U.S. Dollar amount of the transaction and in most cases, when such amounts are presented in our consolidated financial statements, the corresponding Peso amount is presented in our consolidated financial statements. These translations have been prepared solely for the convenience of the reader and should not be construed as representations that the Mexican Peso amounts actually represent those Dollar amounts or could be converted into Dollars at the rate indicated. Between January 1, 2018 and April 20, 2018, the Mexican Peso appreciated by approximately 6% against the U.S. Dollar, based on the noon buying rate for Pesos. See “Item 3—Key Information—Selected Consolidated Financial Information.”IFRS 16.
The noon buying rate for Mexican Pesos on December 31, 2017 was Ps19.64 to U.S.$1.00 and on April 20, 2018, was Ps18.61 to U.S.$1.00.
References in this annual report to total debt plus other financial obligations (which include debt under the facilities agreement, dated as of July 19, 2017, Credit Agreement (as defined herein)as amended and/or restated from time to time, including as amended on April 2, 2019 and November 4, 2019 (the “2017 Facilities Agreement”)) do not include debt and other financial obligations of ours held by us. See notes 2.6 and 16.2 to our 20172019 audited consolidated financial statements included elsewhere in this annual report for a detailed description of our other financial obligations. Total debt plus other financial obligations differs from the calculation of debt under the 2017 CreditFacilities Agreement.
We also refer in various places within this annual report
As a result of the April 2019 Facilities Agreement Amendments (as defined under “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Our Indebtedness”), among other things, we extended $1,062 million of maturities under the 2017 Facilities Agreement by three years and made certain adjustments tonon-IFRS measures, including “Operating EBITDA.” “Operating EBITDA” equals operating earnings before other expenses, net, plus amortization and depreciation expenses, as more fully explained in “Item 3—Key Information—Selected Consolidated Financial Information.” The presentation of thesenon-IFRS measures is not meant to be considered in isolation or as a substitute for our 2017 audited consolidated financial results prepared in accordance with IFRSleverage ratio, as issued by the IASB.
We have approximated certain numbersdescribed elsewhere in this annual report, in connection with the implementation of IFRS 16 and to their closest round numbers or a given number of decimal places. Due to rounding, figures shown as totals in tables may not be arithmetic aggregationscompensate for any potential effect from such adoption. In addition, we delayed the scheduled tightening of the figures preceding them.consolidated financial leverage ratio limit by one year. Moreover, as a result of the November 2019 Facilities Agreement Amendments (as defined under “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Our Indebtedness”), among other things, we negotiated: (a) an additional basket of up to $500 million that can only be used for buy-backs of shares or securities that represent shares of CEMEX, S.A.B. de C.V.; (b) a new allowance for disposals of non-controlling interests in subsidiaries that are not obligors (as defined in the 2017 Facilities Agreement) under the 2017 Facilities Agreement of up to $100 million per calendar year; (c) amendments relating to the implementation of our corporate reorganizations in Mexico, Europe and in the Trinidad Cement Group (as defined in the 2017 Facilities Agreement); and (d) modifications to the calculation and limits of the consolidated coverage ratio and the consolidated leverage ratio. See note 16.1 to our 2019 audited consolidated financial statements included elsewhere in this annual report for a detailed description of our financial covenants. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for more information.
CERTAIN TECHNICAL TERMS
When used herein,in this annual report, the terms set forth below mean the following:
● | Aggregatesare inert granular materials, such as stone, sand and gravel, which are mined from quarries. They give ready-mix concrete its necessary volume and add to its overall strength. Under normal circumstances, one cubic meter of fresh concrete contains two tons of gravel and sand. |
● | Clinkeris an intermediate cement product made by sintering limestone, clay, and iron oxide in a kiln at around 1,450 degrees Celsius. One ton of clinker is used to make approximately 1.1 tons of gray portland cement. |
● | Gray portland cement, used for construction purposes, is a hydraulic binding agent with a composition by weight of at least approximately 95% clinker and up to 5% of a minor component (usually calcium sulfate) which, when mixed with sand, stone or other aggregates and water, produces either concrete or mortar. |
● | Petroleum coke (pet coke) is a by-product of the oil refining coking process. |
● | Ready-mix concrete is a mixture of cement, aggregates, and water. |
● | Tonsmeans metric tons. One metric ton equals 1.102 short tons. |
● | White cementis a specialty cement used primarily for decorative purposes. |
Item 1—Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2—Offer Statistics and Expected Timetable
Not applicable.
As of the date of this annual report, the effects of the novel strain of the coronavirus identified in China in late 2019 (“COVID-19”) on, among other things, supply chains, global trade, mobility of persons, business continuity, demand for goods and services and oil prices have grown throughout the world, including Mexico, the United States and in other countries in Asia, the Middle East, South and Central America, the Caribbean and Europe. Governmental authorities around the world have implemented numerous measures attempting to contain and mitigate the effects of the COVID-19 pandemic. The degree to which these measures, and COVID-19 generally, affect our results and operations will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. See “—Risk Factors—Risks Relating to Our Business—The recent COVID-19 outbreak could materially adversely affect our financial condition and results of operations,” “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” and “Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement.”
Financial Evolutionand Our “A Stronger CEMEX” Plan
As of December 31, 2008, we had $18,784 million of total debt, not including $3,020 million of Perpetual Debentures (as defined below). Most Important Transactions sinceof our outstanding debt as of December 31, 2008 had been incurred to finance our acquisitions, including the 2009 Refinancingacquisition of Rinker Group Limited (“Rinker”) in 2007, and our capital expenditure programs. The acquisition of Rinker substantially increased our exposure in the U.S., which experienced a sharp downturn in the housing and construction sectors caused by the 2007-2008 financial crisis. This downturn had adverse effects on our U.S. operations, making it more difficult for us to achieve our goal of decreasing our acquisition-related leverage and, given extremely tight credit markets during the height of the financial crisis, making it increasingly difficult for us to refinance our acquisition-related debt.
On August 14, 2009, CEMEX, S.A.B. de C.V. and certain of its subsidiaries entered intowe reached a comprehensive financing agreement (thewith our major creditors (as subsequently amended, the “2009 Financing Agreement”), which. The 2009 Financing Agreement extended the final maturities of U.S.$15approximately $15 billion in syndicated and bilateral loansbank facilities and private placement notes to February 14, 2014. On July 5, 2012, CEMEX, S.A.B. de C.V. and certainobligations. As part of its subsidiaries launched an exchange offer and consent request (the “2012 Exchange Offer and Consent Request”), to eligible creditors under the 2009 Financing Agreement, pursuant to which eligible creditors were requested to consent to certain amendments to the 2009 Financing Agreement (together, the “2012 Amendment Consents”). In addition, CEMEX, S.A.B. de C.V. and certain of its subsidiaries offered to exchange the indebtedness owed to such creditors under the 2009 Financing Agreement that were eligible to participate in the 2012 Exchange Offer and Consent Request (the “Participating Creditors”) for (i) new loans (or, in the case of the private placement notes, new private placement notes) or (ii) up to U.S.$500 million of CEMEX, S.A.B. de C.V.’s 9.50% Senior Secured Notes due 2018 issued on September 17, 2012 (the “June 2018 U.S. Dollar Notes”), in each case, in transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”).
On September 17, 2012, CEMEX, S.A.B. de C.V. and certain of its subsidiaries successfully completed the refinancing transactions contemplated by the 2012 Exchange Offer and Consent Request (collectively, the “2012 Refinancing Transaction”), and CEMEX, S.A.B. de C.V. and certain of its subsidiaries entered into (a) an amendment and restatement agreement, dated September 17, 2012 (the “2012 Amendment and Restatement Agreement”), pursuant to which the 2012 Amendment Consents with respect to the 2009 Financing Agreement were given effect, and (b) a facilities agreement, dated September 17, 2012 (as amended from time to time, the “2012 Facilities Agreement”), pursuant to which CEMEX, S.A.B. de C.V. and certain of its subsidiaries were deemed to borrow loans from those Participating Creditors participating in the 2012 Exchange Offer and Consent Request in principal amounts equal to the principal amounts of indebtedness subject to the 2009 Financing Agreement that was extinguished by such Participating Creditors. As a result of the 2012 Refinancing Transaction, Participating Creditors received (i) U.S.$6,155 million in aggregate principal amount of new loans and new private placement notes and (ii) U.S.$500 million aggregate principal amount of the June 2018 U.S. Dollar Notes. In addition, U.S.$525 million aggregate principal amount of loans and private placement notes, which had remained outstanding under the 2009 Financing Agreement as of September 17, 2012, were subsequently repaid in full, as a result of prepayments made in accordance with the 2012 Facilities Agreement.
On September 29, 2014, CEMEX, S.A.B. de C.V. and certain of its subsidiaries entered into a facilities agreement, as amended and restated (the “2014 Credit Agreement”) for U.S.$1.35 billion with nine of the main lending banks from its 2012 Facilities Agreement. On November 3, 2014, five additional banks joined the 2014 Credit Agreement as lenders with aggregate commitments of U.S.$515 million, increasing the total amount of the 2014 Credit Agreement from U.S.$1.35 billion to U.S.$1.87 billion (increasing the revolving tranche of the 2014 Credit Agreement proportionally to U.S.$746 million).
On July 30, 2015, CEMEX, S.A.B. de C.V. repaid in full the total amount outstanding of U.S.$1.94 billion under the 2012 Facilities Agreement with new funds from 17 financial institutions, which joined new tranches under the 2014 Credit Agreement.
In February 2016, CEMEX, S.A.B. de C.V. and certain of its subsidiaries launched a consent request to lenders under the 2014 Credit Agreement, pursuant to which lenders were requested to consent to certain amendments to the 2014 Credit Agreement, including certain amendments in relation to the implementation of CEMEX’s plan to divest certain assets in the Philippines, certain amendments to financial covenants, and other related technical amendments (together, the “2016 Credit Agreement Amendments”). On March 7, 2016, CEMEX, S.A.B. de C.V. and certain of its subsidiaries obtained the requisite consents from lenders under the 2014 Credit Agreement to make the 2016 Credit Agreement Amendments. The 2016 Credit Agreement Amendments became effective when certain customary conditions precedent were fulfilled on March 17, 2016.
On November 30, 2016, CEMEX, S.A.B. de C.V. prepaid U.S.$373 million outstanding under the 2014 Credit Agreement and corresponding to the September 2017 amortization thereunder. In addition to this prepayment, and as part of an agreement reached with a group of lenders under the 2014 Credit Agreement, U.S.$664 million (Ps13,758 million) of funded commitments under the 2014 Credit Agreement maturing in 2018 were exchanged into a revolving facility, maintaining their original amortization schedule and the same terms and conditions.
On July 19, 2017, CEMEX, S.A.B. de C.V. and certain of its subsidiaries entered into a facilities agreement (the “2017 Credit Agreement”) for an amount in different currencies equivalent to U.S.$4.1 billion (in aggregate), the proceeds of which were used to refinance in full the indebtedness incurred under the 2014 Credit Agreement and other debt repayment obligations. As of December 31, 2017, the outstanding indebtedness incurred under the 2017 Credit Agreement was U.S.$2.5 billion. The indebtedness incurred under the 2017 Credit Agreement ranks equally in right of payment with certain of our other existing and future indebtedness, pursuant to the terms of the intercreditor agreement, dated September 17, 2012 among CEMEX, S.A.B. de C.V. and certain of its subsidiaries named therein, Citibank Europe PLC, UK Branch (formerly Citibank International plc), as facility agent, the financial institutions, noteholders and other entities named therein and Wilmington Trust (London) Limited, as security agent, as amended by an amendment agreement, dated October 31, 2014, and as amended and restated by an amendment and restatement agreement dated on or about July 23, 2015 and an amendment and restatement agreement dated July 19, 2017 (the “Intercreditor Agreement”). As of July 19, 2017, total commitments initially available under the 2017 Credit Agreement included (i) €741 million, (ii) £344 million and (iii) U.S.$2,746 million, out of which U.S.$1,135 million were in the revolving credit facility tranche of the 2017 Credit Agreement. As of December 31, 2017, the 2017 Credit Agreement had an amortization profile, considering all commitments of U.S.$4.1 billion under the 2017 Credit Agreement, of U.S.$583 million in 2020, U.S.$1,166 million in 2021 and U.S.$2,301 million in 2022. See note 16.1 to our 2017 audited consolidated financial statements included elsewhere in this annual report.
CEMEX, S.A.B. de C.V. and certain of its subsidiaries havewe pledged under pledge agreements or transferred to trustees under acertain security trust,trusts substantially all the shares of CEMEX México, S.A. de C.V. (“CEMEX México”), which as of the date of this annual report was merged with CEMEX, S.A.B. de C.V., Cemex Operaciones México, S.A. de C.V. (“Cemex Operaciones México”), CEMEX Innovation Holding Ltd. (formerly known as CEMEX TRADEMARKS HOLDING Ltd.) (“CTH”CIH”), New Sunward Holding B.V. (“New Sunward”) and CEMEX España, S.A., a Spanish subsidiary in which we hold a 99.9% interest (“CEMEX España”), as collateral (together, the “Collateral”), and all proceeds of suchthe Collateral, to secure our obligations under the 2017 Credit2009 Financing Agreement the Senior Secured Notes (as defined herein) and under a number ofseveral other financing arrangements for the benefit of the creditors and holders of debt and other obligations that benefit from provisions in their agreements or instruments requiring that their obligations be equally and ratably secured. TheseThe subsidiaries whose shares were pledged or transferred asare part of the Collateral collectively own, directly or indirectly, substantially all our operations worldwide. See “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—We pledged the capital stock5—Operating and Financial Review and Prospects—Recent Developments—Other Recent Developments—Effectiveness of subsidiaries that represent substantially all of our business as collateral to secure our payment obligations under the 2017 Credit Agreement, the Senior Secured Notes and other financing arrangements.”
Since 2012,Mergers between CEMEX, S.A.B. de C.V. and certain direct and indirect subsidiaries in Mexico (the “Mexican Reorganization”)” for a description of its subsidiariesthe mergers into CEMEX, S.A.B. de C.V. of CEMEX México and Empresas Tolteca de México, S.A. de C.V. (“Empresas Tolteca”). As a result of the mergers, the shares of CEMEX México are no longer part of the Collateral.
Since the signing of the 2009 Financing Agreement, we have completed a number of capital markets transactions, debt transactions and asset disposals, the majority of the proceeds of which have been used to repay indebtedness,reduce the amounts outstanding under the 2009 Financing Agreement, to pay other debt not subject to the 2009 Financing Agreement, to improve our liquidity position and for general corporate purposes. The most relevant capital markets transactions we completed consisted of:
2
in September 2014, the issuance by CEMEX, S.A.B. de C.V. of U.S.$1.1 billion aggregate principal amount of its 5.7% Senior Secured Notes due 2025 (the “January 2025 U.S. Dollar Notes”) and €400 million aggregate principal amount of its 4.750% Senior Secured Notes due 2022 (the “January 2022
|
As of December 31, 2017, our reported2019, we had $11,790 million (principal amount $11,864 million, excluding deferred issuance costs) of total debt plus other financial obligations in our statement of financial position, were Ps226,216 million (U.S.$11,512 million) (principal amount Ps231,621 million (U.S.$11,787 million), excluding deferred issuance costs), which does not include Ps8,784$443 million (U.S.$447 million), which represents the nominal amount of outstanding Perpetual Debentures.
Since the beginning Of our total debt plus other financial obligations, 12% was short-term (including current maturities of 2018, we have engagedlong-term debt) and 88% was long-term. As of December 31, 2019, 67% of our total debt plus other financial obligations was Dollar-denominated, 23% was Euro-denominated, 5% was Pound Sterling-denominated, 2% was Philippine Peso-denominated and immaterial amounts were denominated in the following significant capital markets transactionsother currencies. See notes 16.1, 16.2 and debt related activities, which are not reflected in20.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report:report.
In 2018, we embarked on January 10, 2018,a strategic plan to build “A Stronger CEMEX.” This transformational plan is designed to fortify CEMEX’s position as a leading global heavy building materials company, accelerate our path to investment grade, enhance CEMEX, S.A.B. de C.V.’s total shareholder return and generate long-term value for all of our stakeholders. Specifically, we believe that through this strategic plan, we can rebalance and streamline our existing portfolio in order to better position ourselves to deliver higher growth and greater stakeholder value over the January 2022 Euro Notes Redemption;
We refer to the October 2018 U.S. Dollar Notes, January 2021 U.S. Dollar Notes, March 2023 Euro Notes, April 2024 U.S. Dollar Notes, June 2024 Euro Notes, January 2025 U.S. Dollar Notes, May 2025 U.S. Dollar Notes, April 2026 U.S. Dollar Notes and December 2024 Euro Notes collectively, as the “Senior Secured Notes.” For a more detailed description of these transactions, seeCPOs. See “Item 5—Operating and Financial Review and Prospects—SummaryRecent Developments—Recent Developments Relating to Effects of Material Contractual ObligationsCOVID-19 on Our Business and Commercial Commitments—Senior Secured Notes.”Operations” and “Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for more information on how COVID-19 has impacted our “A Stronger CEMEX” plan, and also see note 26 to our 2019 audited consolidated financial statements included elsewhere in this annual report for a description about our ability to reach an agreement to amend the 2017 Credit Agreement which raises significant doubt about our ability to continue as a going concern.
As of March 31, 2018, our total debt plus other financial obligations were Ps210,527 million (U.S.$11,498 million) (principal amount Ps215,726 million (U.S.$11,782 million)), which does not include Ps8,232 million (U.S.$450 million), which represents the nominal amount of Perpetual Debentures.
We are subject to various risks mainly resulting from changing economic, environmental, political, industry, business, regulatory, financial and climate conditions, as well as risks related to ongoing legal proceedings and investigations. The following risk factors are not the only risks we face, and any of the risk factors described below could significantly and adversely affect our business, liquidity, results of operations or financial condition.condition, as well as, in certain instances, our reputation.
Risks Relating Toto Our Business
Economic conditions in some of the countries where we operate and in other regions or countries may adversely affect our business, financial condition, liquidity and results of operations.
The economic conditions in some of the countries where we operate have had and may continue to have a material adverse effect on our business, financial condition, liquidity and results of operations throughout our operations worldwide. Our results of operations are highly dependent on the results of our operating subsidiaries mainlyworldwide, including those in the United States,U.S., Mexico, South America, Central America, and the Caribbean (“SCA&C”), Europe, Asia, the Middle East and Africa. Accordingly,
As of December 31, 2019, our operations were mostly in Mexico, the U.S., certain countries in Europe, SCA&C, Asia, the Middle East and Africa (as described in “Item 4—Information on the Company—Business Overview”).
For a geographic breakdown of our revenues for the year ended December 31, 2019, see “Item 4—Information on the Company—Geographic Breakdown of Revenues for the Year Ended December 31, 2019.”
As of April 10, 2020, the main downside concern relates to the COVID-19 pandemic. The measuresimplemented by governmental authorities in an attempt to contain and mitigate the effects of COVID-19,including shutdowns of non-essential infrastructure businesses, stricter border controls, stringent quarantines and social distancing, have had a substantial negative impact on the world economy.
Although the pandemic has had a negative impact on both rich and poor countries, emerging markets and low-income nations, particularly across Africa, Latin America and Asia, are more vulnerable to its effects given their weaker health systems. These emerging markets and developing countries have densely populated cities and have been unable to implement social distancing measures. With fewer resources to begin with, they are dangerously exposed to the ongoing demand and supply shocks and drastic tightening in financial conditions, and some may face a high debt burden. The risk of portfolio outflows from emerging markets is very high. Commodity exporters are taking a double blow from the collapse in commodity prices and remittances are expected to dwindle.
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Many governments have already undertaken fiscal stimulus measures, enacting substantial amounts of funds in fiscal measures as well as massive monetary measures. The speed and strength of the recovery will depend on large, timely and targeted fiscal and financial measures such as wage subsidies, tax deferrals, cash transfers, extensions of unemployment insurance and social assistance, temporary adjustment of loans terms and credit guarantees, and to reduce stress to the financial system and avoid contagion. These measures seek to prevent liquidity pressures from turning into solvency problems. As measures to stabilize the economy take hold and business starts to normalize, policymakers will need to move swiftly to boost demand.
The pandemic has already turned global economic growth sharply negative in the past few months, though the magnitude of the drop is still uncertain. Most forecasts assume that the pandemic will fade in the second half of 2020, permitting a gradual lifting of containment measures and the reopening of the economy.The degree to which COVID-19 affects our results and operations will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
As of December 31, 2019, according to the International Monetary Fund (the “IMF”), global growth was projected to rise from an estimated 2.9% in 2019 to 3.3% in 2020 and to 3.4% for 2021. This projection had been slightly lower than the IMF’s projections a few months earlier due to the sudden downturns in economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years. In a few cases, this reassessment also reflected the impact of increased social unrest. We believe, as of the date of this annual report, that in addition to the global spread of COVID-19 discussed above, the other possible main downside concerns include: an escalation of trade tensions (given that prospects for trade and technology tensions between the U.S. and China to be fully resolved remain elusive, despite sporadic favorable news regarding ongoing negotiations and, moreover, escalation of U.S.-Europe trade frictions could undermine the nascent bottoming out of global manufacturing and trade); potential renewed weakness in manufacturing that could eventually spread to services and lead to a broader slowdown; a sharper than expected slowdown in China (due to authorities unable to “manage” a soft landing in the context of high debt, corporate bond defaults and distress of small banks); rapid shifts in financial sentiment, portfolio reallocations toward so called “safe” assets, sharp market corrections and central banks running out of alternatives to stimulate economic activity, as well as a sudden reassessment of the outlook for monetary policy. A widespread tightening in financial conditions would expose the financial vulnerabilities built up over years from low interest rates and further curtail spending on machinery, equipment and household durables; a rapid increase in risk aversion could reduce investors’ risk appetite with regard to emerging markets or lead to capital flows from emerging markets (higher interest rates, exchange rate depreciations and risk of sudden stops). Concerns regarding fiscal challenges for highly indebted countries may reappear; intensifying social unrest across many countries (reflecting, in some cases, the erosion of trust in established institutions and a lack of representation in governance structures) could dampen economic growth and investment climate, as well as complicate future reform efforts; the risk of renewed uncertainty around Brexit (as defined below) (for more details, see “–Political and social events and possible changes in governmental policies in some of the countries where we operate have had and may continue tocould have a material adverse effect on our business, financial condition, liquidity and results of operations throughout our operations worldwide.
While upside and downside risks to the short-term global economic growth outlook seem to be broadly balanced, we believe the scenario is not risk free. We believe that as of the date of this annual report, the possible main downside concerns include risks of a shift toward protectionist policies in a context of growing tradeoperations”); rising geopolitical tensions, amongparticularly between the U.S. and China;Iran, that could disrupt global oil supply, hurt sentiment, and weaken already tentative business investment; uncertainty from the upcoming U.S. presidential elections that could pose a possibly sharp tightening of financial conditionsrisk for both the U.S. and its impact on the global economy emerging markets, risk aversion, foreign exchange markets, volatility and financial markets; economic vulnerability of emerging market economies; elections in in some Latin American countries, in particular in Mexico; economic and political uncertainties in Europe; China´s economic performance;amidst trade and geopolitical risks intensions which are affecting foreign policy; and increased frequency and intensity of weather-related disasters as a result of climate change that endangers human health and the Middle East, and other regions experiencing political turmoil, includingglobal economy beyond the current situation in Syria.directly affected regions. The materialization of any of these concerns may have and may continue to have a material adverse effect on our business, financial condition, liquidity and results of operations. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the IMF’s revised economic global growth outlook and other important information.
A worsening of trade tensions and the imposition of broader barriers to cross-border trade could not only take a direct toll on economic activity but could also weaken confidence. The recent escalating cycle of trade restrictions and retaliation among the U.S. and China could have negative consequences to the global economy, including the countries in which we operate.
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The equity market correctionU.S. was in March 2018 followingan extended expansion in its current business cycle. Even though the U.S. tariff announcement on steel and aluminum and a rangeprobability of Chinese products, as well asrecession in the announcement by China of retaliatory tariffs on imports from the U.S., are examples showing that asset prices can correct rapidly and trigger potentially disruptive portfolio adjustments. Financial conditions that existforecast horizon had diminished, it should not be fully dismissed, in particular in light of the dateCOVID-19 pandemic. Accordingly, the likelihood of this annual reportwhat could tighten sharply and expose vulnerabilities that have accumulated over the years, with potential adverse repercussions for economic growth. High asset valuations, both in emerging and advance economies, and very compressed term premiums raise the possibility ofbe viewed as a financial market correction, which could dampen growth and confidence.
The U.S. Federal Reserve System has increased“policy mistake” such as raising rates too soon, while not likely, is still possible. Given the political uncertainty as a result of an electoral year, the likelihood of finalizing a multi-year highway bill prior to the Fixing America’s Surface Transportation Act’s expiration in 2020 is low, forcing state and local governments to work under short-term interest rates at a measured pace since December 2015. There is a risk that further interest rate hikes could cause Dollar appreciation, a manufacturing slowdownfunding extensions. The lack of long-term funding frameworks does not support the highway planning and economic deceleration on the back of a slower housing investment. However, a slower than warranted pace of increase in interest rates could result in inflation acceleration and the disanchoring of inflation expectations, possibly leading to swift monetary policy tightening and a potential recession in the U.S. The recently legislated tax code overhaul and bipartisan agreement on the federal budget in the U.S. could further add to rising fiscal deficits and unsustainable debt dynamics over the next five years. Also, the current account deficit could increase given the projected impact of the fiscal stimulus on domestic demand in the U.S. High fiscal and current account deficits could affect both economic activity and exchange rates. The U.S. housing sector supply constraints, associated in part with labor shortages, could result in a slower pace of growth in housing starts in the U.S.
In the U.S., continuing federal budget disputes, including delays in passing the 2019 fiscal year budget, could lead to lesser than FastAct-authorizationspending levels in highways and streets. The global market volatility and consumer spending retrenchment in the U.S. trade (North American Free Trade Agreement (“NAFTA”), China tariffs, Trans-Pacific Partnership, etc.), immigration (Deferred Action for Childhood Arrivals, the U.S.-Mexico border wall initiative, etc.) policy uncertainty and geopolitical concerns (heightened tensions between the U.S. with Russia and Iran), could undermine consumer confidence and investment prospects in the U.S. In all,process. Together, these uncertainties cancould have a material adverse impact not only toon our financial condition, business and results of operations in the U.S., but also worldwide.on our consolidated financial conditions, business and results of operations. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information regarding the impact of COVID-19 on our industry in the U.S.
In China, tensions with the U.S. and the slowdown in demand have added pressure to an economy already in the midst of a structural slowdown and in need of regulatory strengthening to rein in high dependence on debt. If trade tensions fail to ease, economic activity may fall short of expectations. Furthermore, excessive stimulus to support near-term growth through a loosening of credit standards or a resurgence of shadow banking activity and off-budget infrastructure spending could heighten financial vulnerabilities, reduce the availability of monetary policy tools in the future and increase downside risk to medium-term growth. In addition, measures taken to limit the spread of COVID-19 will have a negative impact on short-term growth. If COVID-19 continues to spread globally or supply chain disruption persists, the economic damage could be greater. Together, these uncertainties, as well as weaker economic performance and increased policy uncertainty in China, could affect our financial condition, business, liquidity and results of operations. For more information, see “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations.”
Many emerging market economies have gone through boutsexperienced periods of financialhigh economic volatility over the past few years. Some large commodity exporters and other stressed economies weathered also experienced substantial exchange rate movements. Though it proved short lived for mostmovement. Many of these countries many countries in this group remain vulnerable to sudden shifts in global market sentiment. There is aThe risk of new episodes of market volatility, increased risk aversion and capital outflows from emerging markets continues, which could cause emerging marketsmarkets’ currencies to further depreciate. The high level of U.S. Dollar denominatedDollar-denominated corporate indebtedness in emerging markets constitutesprovides an additional source of instability. EmergingAlso, emerging markets would face higher global risk premiums and substantial capital outflows, putting particular pressure on economies with domestic debt imbalances. The risk of a contagion effect across emerging markets could be significant and have an adverse effect toon our business.business and on our financial condition, liquidity and results of operations.
Domestic demand
As a result of a general election in Mexico is gradually softeningin 2018, a new federal government and may continue to soften. Any deteriorationMexican National Congress led by the new president’s political party have taken office. The Mexican economy slowed down in the growth perspectives of the U.S. or in the global financial conditionsfiscal year 2019, and risk perception could negatively affect Mexico. Regarding NAFTA, an agreement in principlethis slowdown is expected to be reached during 2018, though we cannot rule out a scenario wherecontinue in 2020. As is the NAFTA renegotiation finally do not take place, which could negatively affect investment, foreign exchange rates and confidencecase with most changes in Mexico. Other risks that could negatively affect Mexico are if inflation fails to continue decelerating towardsadministration, there still is uncertainty regarding the central banks of Mexico’s target range; oil production in Mexico continues strongly declining, dragging mining production in Mexico; manufacturing production does not positively react to a global manufacturing boost; and there is higher than expected domestic demand deceleration.
As of the datelong-term impact of this annual report,new government’s economic and public policies and the impact any policies could have on the economy of Mexico, faces a high level of uncertainty with regard to its national presidential elections scheduled to occur in the summer of 2018. The uncertainty about what type of president the candidate that wins the elections would be is a short-term risk that might influence foreign exchange depreciation, capital outflows, and lower levels of investment in Mexico.
In China, the relianceincluding on stimulus measures to maintain high rates of growth continues. Regulators in Chinahave taken important measures to reduce shadow banking and bring financial activity back onto bank balance sheets. However, total credit growth remains high. External triggers, such as a shift toward protectionism in advanced economies or domestic shocks, could lead to a broader tightening of financial conditions in China, possibly exacerbated by capital outflow pressures, with an adverse impact on demand and output. The consequences for emerging market economies of weaker economic performance and increased policy uncertainty in China could be significant.
In Colombia, the correction of macroeconomic imbalances, such as inflation, is making progress, but still needs to advance further. While consumer and producer expectations are gradually recovering, domestic demand remains weak. Activity is expected to improve slightly from the low levels seen in recent years supported by the recovery of external demand, higher oil prices, the effect of lower interest rates and civil works investment. But any deteriorationexchange rates, in external demand, global financial conditionsattracting or oil prices would negatively affect Colombian activity. Civil worksmaintaining foreign investment mainly with private financing, could be lower than anticipatedin Mexico and coming presidential elections may generate some uncertainty. The new government would probably face the need of another fiscal reform (to increase revenues).
In Europe, the environment of negative deposit rates is distorting financial markets and creates uncertain consequences for the banking sector. There is a risk that negative rates would erode bank profitability and curb lending across Eurozone borders, creating other systemic risks to European economies. The economic activity in the Eurozone last year outperformedregulatory and inflation expectations had recovered, but was still below European Central Bank’s (the “ECB”) objective. There is a risk thatinstitutional framework of the ECB finish its easing policy too early. Uncertainty about the Euro’s performance remains,country, which could affect our financial condition, business, liquidity and results of operations, particularly in European Union member states.Mexico.
The Eurozone’s economic growth and European integration are challengedMexican economy was largely held back by falling private investment, mainly caused by a numberdecline in business confidence due to external and domestic uncertainties, stagnation of uncertainties,the manufacturing sector and a further slowdown of private consumption. In addition, the disbursement of the 2019 public budget was lower than expected resulting in low public investment, particularly in the construction sector.
The Mexican economy faces significant risks in the short-term including, but not limited to, delays in implementingaside from the needed structural reforms in some European countries; unresolved political and financial risks associated with Greece; uncertainty regarding the profitabilityimpact of the European banking systemCOVID-19 pandemic: (i) further declines in generaloil production, which could affect the mining sector and tax revenues; (ii) the Italian banking sector in particular; the process of United Kingdom’s exit from the EU; and the ongoing refugee crisis. Also, the renewed popularity of nationalistic policies in Europe is another aftereffecteffects of the financial crisisdowngrade of Petróleos Mexicanos’s (“PEMEX”) debt rating or a requirement to restructure PEMEX, which could undermine fiscal stability and its prolonged aftermath. All these factors could impactMexico’s sovereign debt rating; (iii) failure to revive private investment due to uncertainty in government policies or controversial government decisions; (iv) private consumption faltering as a result of deteriorating labor market confidenceconditions and could limit the benefitlower remittance inflows; (v) a further contraction of construction activity as a result of cuts in public investment or weak government spending and stagnation of private investment; (vi) further slowdown of U.S. manufacturing activity (which is strongly correlated with Mexico’s manufacturing sector); and (vii) aggressive tightening of monetary policy as a result of the renewal of inflationary pressures and/or high currency forex fluctuation. For more information, see “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations.”
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The laws and regulations in Mexico to which we are subject, and interpretations thereof, may change, sometimes substantially, as a result of a variety of factors beyond our control, including political, economic, tailwindsregulatory or social events. As a result of amendments in May 2019 to the Mexican Federal Labor Law (Ley Federal del Trabajo) and monetary policy stimulusother related regulations, among other things, new labor authorities and courts were created, new bargaining procedures were implemented and provisions related to employees’ freedom of association and organization, collective bargaining agreements, and rules against labor discrimination were issued or amended. We cannot assure you that these changes will not adversely affect our business, financial condition, results of operations and prospects, in particular in Mexico. Additionally, in August 2019, the new Mexican Law for Europethe Termination of Ownership (Ley Nacional de Extinción de Dominio) was enacted. This new law grants the authority to the Mexican federal government to terminate the ownership of real estate property in Mexico if illicit activities are performed on such real estate properties. Therefore, if any illicit activities are performed on our real estate property (even without our knowledge or control), we could be deprived of our ownership rights and possibly worldwide.
Regarding our operations in Europe, the United Kingdom’s expected exit from the European Union is already affecting financial markets and increasing foreign exchange volatility. The United Kingdom’s exit from the European Union is having anwould not be compensated for such loss, which could have a material adverse impact on its economic activity. The substantial uncertainty about post-Brexit arrangements is weighing on investment and import cost. This situation could impact our business, andfinancial condition, results of operations and prospects, in particular in Mexico.
In Colombia, prior to the impact of COVID-19, economic activity had continued to grow, supported by robust growth in fixed investment due to lower corporate taxes and healthy private consumption supported by a solid financial system, growing remittances and higher demand from Venezuelan migrants. However, increasing unemployment and social unrest could weigh on consumer and investor confidence. Public investment is expected to remain subdued. The fiscal deficit is being reduced at a slow pace and a new tax reform should be required in two years to achieve the fiscal deficit target (negative impact on growth). Furthermore, Colombia is vulnerable to large capital outflows and the current account deficit increased to above 4.0% of GDP in 2019. If these risks continue, they could have a material adverse effect on our business, financial condition, results of operations and prospects in Colombia.
In Nicaragua, persistent uncertainty arising from the ongoing political crisis will continue to weigh on the economy. The main risks include (i) a further deterioration of the political and social landscape; (ii) an escalation of punitive measures and specific regulations by the U.S. government on foreign investment in Nicaragua’s businesses and other matters related to Nicaragua, such as the Nicaragua Human Rights and Anticorruption Act of 2018; and (iii) a further deterioration of fiscal and monetary imbalances which could result in a currency crisis. If these risks continue, they could have a material adverse effect on our business, financial condition, results of operations and prospects in Nicaragua.
The manufacturing recession and trade disputes have significantly affected the European economy, particularly the German economy, which is highly exposed to manufacturing activity and global trade. If trade tensions regain traction and/or the new carbon dioxide (“CO2”) related regulations further affect the car industry, it will be more difficult for the German economy to recover. With regard to the building industry, shortages (mostly in the United Kingdom.
labor market) continue to pose a risk for production, not only in Germany but also in other European countries such as Poland or the Czech Republic, as well as in developed countries such as the U.S. In Spain, the Catalan region conflict has resulted in social unrest,current government’s weakness is a source of concern. Regulatory and although it seems to have a transitory impacteconomic policy uncertainty remains high and is one of the main sources of instability, particularly in the local economy, an escalationautomotive and residential sectors, as well as other sectors most exposed to contracts linked to the minimum wage. In France, public investment was a main driver for growth in past quarters; however, our sector could suffer public investment disruptions in the aftermath of the conflictlocal elections in March 2020. In Poland, infrastructure outlays may not recover, weighing down on the industry throughout 2020 (cost increases have led companies to renegotiate government contracts leading to a sudden halt in infrastructure outlays in the third quarter of 2019); further, the housing market could affect tosuffer a sharp downward adjustment from the Spanish economy and to the construction sector performance. On the other hand, given that the Spanish national government seems to lack legislative support, early elections cannot be ruled out. These factors could adversely affect our operations and result of operations in Spain.high levels observed.
Significant trade links with western Europe render some of the eastern European countries susceptible to economic and political pressures from western Europe.
Additionally, centralCentral European countries might experience a reduction in the proceeds they receive from the European Union’s (the “EU”) structural funds over the coming years, which could hinder infrastructure investment in such countries and adversely affect our European operationsfinancial condition, business, liquidity and results of operations.operations, particularly with regard to our operations in Europe.
The Governing Council of the European Central Bank reduced the interest rate on its deposit facility by 10 basis points to -0.50% in September 2019 and, as of November 1, 2019, the Eurosystem restarted net purchases under its asset purchase program. The environment of negative deposit rates is distorting financial markets and creating uncertain consequences for the banking sector. There is a risk that negative rates may erode bank profitability and curb lending across Eurozone borders, creating other systemic risks to European economies.
All these factors, coupled with the impact of the COVID-19 pandemic, could impact market confidence and could limit the benefit of monetary policy stimulus for Europe and possibly worldwide, which in turn could adversely affect our results of operations, business, liquidity and financial position, particularly in Europe.
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In Israel, the Middle East, political risk could moderate economic growth and adversely affect construction investments. The U.S.’ recognition of Jerusalem as Israel’s capital early this year has increased the tension amongcontributed to further tensions between Israelis and Palestinians. The conflict between Israel and Palestine continues to generate instability andAlso, the overall situation in Syria could worsen. Any escalation of these conflict or social unrestworsen, which would impact Israel, and the region in this region maygeneral. The political uncertainty arising from a third legislative election with no clear result in a year in March 2020 could affect our operations and it cannotsector, as many public construction projects could be ruled out.
In Egypt, we cannot be certain if the new government that was elected in 2018 willdelayed. The uncertainty around housing policy could also continue to successfully implementedweigh down the reforms needed to bring political and economic stability to the country. Any premature easing of monetary policy before inflation expectations are fully anchored,industry. The high public deficit will eventually require fiscal tightening measures. If these risks continue or opposition to reforms by vested interests,
could undermine stabilization efforts in Egypt. External risks relate to a worsening of the security situation that could slow the recovery of tourism, a sustained rise of global oil prices, lower growth in Egypt’s main trading partners, or any unexpected tightening of global financial conditions cannot be ruled out. Ifmaterialize, they materialize, all of this factors could adversely affect our financial condition, business, liquidity and results of operations, particularly in Israel. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on other impacts to our operations in Egypt.relation to COVID-19.
In the Philippines, there are some factors, such as delays on infrastructure projects, local currency weakness,weather-related supply disruptions, higher than expected global oil price hikes, natural disasters, business slowdowns due to government policy changes, foreign policy shifts, and a potential resurgence of security concerns in the country’s central bank not implementing its policies at a sufficient pace, and investors fatigue, thatsouthern region, could adversely affect the country’sPhilippine economy. The current government’s foreign policy andeffect of COVID-19 spreading in Southeast Asia could also impact different sectors of the potential change in the constitution towards federalism could have a negative political effect to the country, whichcountry. These risks could jeopardize the development of the country’s infrastructure development plan, dampen investment and eventually affect itscurb economic growth, andgrowth. If any of these risks materialize, they could adversely affect our financial condition, business, liquidity and results of operations, particularly in the country.Philippines.
In general, demand for our products and services is strongly related to construction levels and depends, in large part, on residential and commercial construction activity, as well as private and public infrastructure spending in almost all of the countries where we operate. Public and private infrastructure spending in countries dependent on revenue generated by the energy sector is exposed to decreases in energy prices. Therefore, decreases in energy prices could affect public and private infrastructure spending which, in turn, could affect the construction industry. This could ultimately affect our financial condition, business, liquidity and results of operations.
Declines in the construction industry are usually correlated with declines in general economic conditions. As a result, deterioration inof economic conditions in the countries where we operate, in particular due to the COVID-19 pandemic, could have a material adverse effect on our business, financial condition, liquidity and results of operations. In addition, we cannot assure you that growth in the gross domestic product of the countries where we operate will translate into a correlated increase in demand for our products.
We are subject to the effects of general global economic and market conditions that are beyond our control. If these conditions remain challenging or deteriorate, our business, financial condition, liquidity and results of operations could be adversely affected. Possible consequences from macroeconomic global challenges could have an adverse impact on our business, financial condition, liquidity and results of operations.
The recent COVID-19 outbreak could materially adversely affect our financial condition and results of operations.
The impact of the novel strain of the coronavirus identified in China in late 2019 has grown throughout the world, including Mexico, the United States and in other countries in Asia, the Middle East, South and Central America, the Caribbean and Europe, and governmental authorities around the world have implemented numerous measures attempting to contain and mitigate the effects of the virus. These measures, and the effects of the COVID-19 pandemic, have generally resulted, or may result, in: (i) temporary restrictions on, or suspended access to, or shutdown, or suspension or the halt of, our manufacturing facilities, including our cement plants and grinding mills; (ii) staffing shortages, production slowdowns or stoppages and disruptions in our delivery systems; (iii) disruptions or delays in our supply chains, including shortages of materials, products and services on which we and our businesses depend; (iv) reduced availability of land and sea transport, including labor shortages, logistics constraints and increased border controls or closures; (v) increased cost of materials, products and services on which we and our businesses depend; (vi) reduced investor confidence and consumer spending in the regions where we operate, as well as globally; (vii) a general slowdown in economic activity, including construction, and a decrease in demand for our products and services and industry demand generally; (viii) constraints on the availability of financing in the financial markets, if available at all, including on access to credit lines and working capital facilities from financial institutions;(ix) not being able to satisfy any liquidity needs if our operating cash flow and funds received under our receivables and inventory financing facilities decrease, respectively, or if we are not able to obtain borrowings under credit facilities, proceeds of debt and equity offerings and proceeds from asset sales; (x) our inability to, if required, refinance our existing indebtedness on desired terms, if at all; or (xi) our inability to comply with, or receive waivers with respect to, restrictions and covenants under the agreements governing our existing indebtedness, including maintenance covenants under our 2017 Facilities Agreement.
These measures have adversely affected and may further adversely affect our workforce and operations and the operations of our customers, distributors, suppliers and contractors, and may adversely affect our financial condition and results of operations. There is significant uncertainty regarding such measures and potential future measures, and restrictions on our access to our manufacturing facilities, on our operations or on our workforce, or similar limitations for our distributors and suppliers, could limit customer demand and/or our capacity to meet customer demand, any of which could have a material adverse effect on our financial condition and results of operations. The degree to which COVID-19 affects our results and operations will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” and “Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for more information on how COVID-19 has impacted our financial performance and results of operations and see note 26 to our 2019 audited consolidated financial statements included elsewhere in this annual report for a description about further possible impacts to our business, financial condition, liquidity and results of operations.
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Political and social events and possible changes in governmental policies in some of the countries where we operate could have a material adverse effect on our business, financial condition, liquidity and results of operations.
In recent years, some of the governments in the countries where we operate, such as in the United States,U.S. and Mexico, have implemented and may continue to implement significant changes in laws, public policy or regulations that could affect the political, economic and social conditions in the U.S. and Mexico, in the other countries where we operate, as well as in other countries. Any such changes may have a material adverse effect on our business, financial condition, liquidity and results of operations.
Furthermore, national
Further, presidential, and legislative, as well as state and local elections have taken place, or are scheduled to take place in 20182020 in several of the countries where we operate, including Mexico, Colombia, Brazil,Israel, the U.S., Poland, the Dominican Republic, Puerto Rico, Trinidad and certain countries in Europe, as well as mid-term elections in the United States. In Mexico, national presidentialTobago, Croatia and legislative elections are scheduled to take place in July 2018, with the elected presidential candidate assuming his duties in December 2018, and a presidential election will take place in Colombia in May 2018, with the elected candidate entering office in August 2018. For these countries, as is mostly the case when there is a change in governments, aEgypt. A change in federal government and the political party in control of the legislature in suchany of these countries could result in sharp changes to suchthe countries’ economic, political or social conditions, and in changes into laws, regulations and public policies, which may contribute to economic uncertainty in some of the countries in which we operate and could also materially impact our business, financial condition, liquidity and results of operations. Similarly, if no political party wins a clear majority in the legislative bodies of these countries, legislative gridlock and political and economic uncertainty may occur.result.
We cannot assure you that political or social developments in the countries where we operate or elsewhere, such as the election of new administrations, changes in laws, public policy or regulations, political
disagreements, civil disturbances and the rise in violence and perception of violence, willare not expected to have a corresponding material adverse effect on the countries in which we operate, on global financial markets, or on our business, financial condition, liquidity and results of operations.
The United Kingdom’s withdrawal from the EU (“Brexit”) and the future of the relationship between the United Kingdom and the EU could have a material adverse effect on our business, financial condition, liquidity and results of operations, particularly in the United Kingdom. The United Kingdom officially left the EU on January 31, 2020, after more than three years of controversial negotiations. Immediately after Brexit, the United Kingdom entered a transition period with the EU to define the terms of their future relationship, which is expected to extend until December 31, 2020. During this transition period, the United Kingdom will continue to fully abide by EU rules and its trading relationship with the EU will remain the same. The Conservative Party in the United Kingdom won a commanding majority in the British Parliament, diminishing the possibility of a “Hard-Brexit” scenario. Nonetheless, leaving the EU without a comprehensible trade agreement, renewed volatility and diminished confidence still pose major risks for the country and the global economy. The decline in our sector could be even higher if the commercial sector is affected. As a result, Brexit and the uncertainty surrounding the United Kingdom’s future relationship with the EU will continue impacting the United Kingdom’s economic activity and financial conditions, which may result in a decline in business investment, consumer confidence and economic growth, as well as in depreciation of the Pound Sterling. The overall economic impact of the process surrounding the United Kingdom’s departure from the EU, including, if the United Kingdom leaves without a comprehensive deal, may also contribute to greater instability in global financial markets.
We have taken measures to look to continue to serve the United Kingdom market with minimal disruption to our operations. These measures include, but are not limited to, maintaining adequate inventory levels of raw materials, products and critical spare parts; engaging with suppliers and contractors to seek continuity in the products and services we contract from them; and assessing potential exposure to new import duties. As of the date of this annual report, we believe we are well prepared to mitigate any potential operational disruption caused by Brexit, however, the uncertainty surrounding the future relationship between the United Kingdom and the EU could result in decreased demand for our products and has the potential to have a material adverse effect on our financial condition, business, liquidity and results of operations, particularly in the United Kingdom.
Difficulties in relationships with local communities may adversely affect our business continuity, reputation, liquidity, and results of operations.
Although we make significant efforts to maintain good long-term relationships and continuous communication with local and neighboring communities where we operate, there can be no assurance that such communities may have or may develop interests or objectives which are different from or even in conflict with our objectives, which could result in legal or administrative proceedings, civil unrest, protests, negative media coverage, direct action or campaigns, including, but not limited to, requests for the government to revoke or deny our concessions, licenses or other permits to operate. Any such events could cause delays or disruptions in our operations or result in operational restrictions or higher costs, which could materially and adversely affect our business, reputation, liquidity and results of operations.
The 2017 CreditFacilities Agreement contains several restrictions and covenants. Our failure to comply with such restrictions and covenants could have a material adverse effect on our business and financial conditions.
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The 2017 CreditFacilities Agreement requires us to comply with several financial ratios and tests, including (i) a minimum consolidated coverage ratio of Operating EBITDA to interest expense (including interest accrued on Perpetual Debentures and cash payments on preferred stock)Debentures) and (ii) a maximum consolidated leverage ratio of totalnet debt (including Perpetual Debentures, guarantees and guarantees,capitalized leases under IFRS 16, excluding convertible/exchangeable obligations, the principal amount of subordinated optional convertible securities and finance leases and plus or minus the fair valuemark-to-market amount of derivative financial instruments, among other adjustments) to Operating EBITDA (in each case, as described in the 2017 CreditFacilities Agreement). The calculation and formulation of Operating EBITDA, interest expense, totalnet debt, the consolidated coverage ratio and the consolidated leverage ratio are set out in the 2017 CreditFacilities Agreement and may differ from the calculation and/or formulation of analogous terms in this annual report. Our ability to comply with these ratios may be affected by our results of operations, economic conditions and volatility in foreign exchange rates, by overall conditions in the financial and capital markets and the construction sector, and by any monetary penalties or fines we may have to pay as a result of any administrative or legal proceedings to which we may be exposed to. See “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings,”Proceedings” for more information oninformation.
As a result of the April 2019 Facilities Agreement Amendments, among other things, we extended $1,062 million of maturities by three years and made certain adjustments to our regulatory mattersconsolidated financial leverage ratio, in connection with the implementation of IFRS 16 and legal proceedings. to compensate for any potential effect from such adoption. In addition, we delayed the scheduled tightening of the consolidated financial leverage ratio limit by one year. Moreover, as a result of the November 2019 Facilities Agreement Amendments, among other things, we negotiated: (a) an additional basket of up to $500 million that can only be used for buy-backs of shares or securities that represent shares of CEMEX, S.A.B. de C.V.; (b) a new allowance for disposals of non-controlling interests in subsidiaries that are not obligors (as defined in the 2017 Facilities Agreement) under the 2017 Facilities Agreement of up to $100 million per calendar year; (c) amendments relating to the implementation of corporate reorganizations in Mexico, Europe and in the Trinidad Cement Group (as defined in the 2017 Facilities Agreement); and (d) modifications to the calculation and limits of the consolidated coverage ratio and the consolidated leverage ratio. See note 16.1 to our 2019 audited consolidated financial statements included elsewhere in this annual report for a detailed description of our financial covenants. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for more information.
The 2017 CreditFacilities Agreement requires us to comply with a minimum consolidated coverage ratio of Operating EBITDA to interest expense (including interest accrued on Perpetual Debentures and cash payments on preferred stock)Debentures), for the following periods, measured quarterly, of not less than (i) 2.50:1 for each12-month period ending on December 31, 2017, March 31, 2018, June 30, 2018,2019 through September 30, 2018, December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019 and March 31, 20202022 and (ii) 2.75:1 for the12-month period ending on June 30, 2020December 31, 2022 and on each subsequent quarterly date. In addition, the 2017 CreditFacilities Agreement requires us to comply with a maximum consolidated leverage ratio of totalnet debt (including Perpetual Debentures, guarantees and guarantees,capitalized leases under IFRS 16, excluding convertible / convertible/exchangeable obligations, the principal amount of subordinated optional convertible securities and finance leases and plus or minus the fair value of derivative financial instruments, among others) to Operating EBITDA, plus other adjustments) to EBITDAadjustments for the following periods, measured quarterly, not to exceed (i) 5.25:1 for theeach 12-month period ending December 31, 20172019 up to and including the12-month period ending on March 31, 2018, 2021;(ii) 5.00:1 for the12-month period periods ending June 30, 20182021 and the12-month period ending September 30, 2018,2021; (iii) 4.75:1 for the12-month period ending December 31, 20182021 up to and including the12-month period ending March 31, 2019,on September 30, 2022; (iv) 4.50:1 for eachthe 12-month period periods ending June 30, 2019, September 30, 2019, December 31, 20192022 and March 31, 20202023; and (v) 4.25:1 for the12-month period ending June 30, 20202023 and on each subsequent quarterly date.Reference Period (as defined in the 2017 Facilities Agreement). For the period ended December 31, 2017,2019, we reported to the lenders under the 2017 CreditFacilities Agreement a consolidated coverage ratio of 3.463.86 and a consolidated leverage ratio of 3.85,4.17, each as calculated pursuant to the 2017 CreditFacilities Agreement. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Our Indebtedness.”Indebtedness” and“Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for information regarding the proposed amendments to address any potential breach of the financial ratios in the 2017 Facilities Agreement.
Pursuant to the 2017 CreditFacilities Agreement, we are limited in relation torestricted from making aggregate annual capital expenditures in excess of U.S.$1$1.5 billion in any financial year (excluding certain capital expenditures, joint venture investments and acquisitions to be made by each ofCEMEX Latam Holdings, S.A. (“CLH”) and/or CHP CEMEX Holdings Philippines, Inc. (“CHP”)and their respective subsidiaries, and those funded by Relevant Proceeds (as defined in the 2017 CreditFacilities Agreement)), which capital expenditures, joint venture investments and acquisitions at any time then incurred are subject to a separate aggregate limit of (a) U.S.$500 million (or its equivalent) for each of CEMEX Latam and its subsidiaries and (b) U.S.(i) $500 million (or its equivalent) for each ofCLH and its subsidiaries and (ii) $500 million (or its equivalent) for CHP and its subsidiaries. In addition, in each case, the amounts of which we and our subsidiaries are allowed to incur for permitted acquisitions and investments in joint ventures cannot exceed certain thresholds as set out in the 2017 CreditFacilities Agreement. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for more information on potential new restrictions to our capital expenditures.
We are also subject to a number of negative covenants under the 2017 CreditFacilities Agreement that, among other things, restrict or limit (subject to certain exceptions) our ability and the ability of each obligor (as defined in the
2017 CreditFacilities Agreement) to: (i) create liens,liens; (ii) incur additional debt,debt; (iii) change our business or the business of any obligor (as defined in the 2017 Credit Facilities
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Agreement, taken as a whole),; (iv) enter into mergers,mergers; (v) enter into agreements that restrict our subsidiaries’ ability to pay dividends or repay intercompany debt,debt; (vi) acquire assets,certain assets; (vii) enter into or invest in joint venture agreements,agreements; (viii) dispose of certain assets,assets; (ix) grant additional guarantees or indemnities,indemnities; (x) declare or pay cash dividends or make share redemptions,redemptions; and (xi) enter into certain derivatives transactions. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for more information on potential restrictions on dividend payments and share redemptions.
The 2017 CreditFacilities Agreement also contains a number of affirmative covenants that, among other things, require us to provide periodic financial information to our creditors. Pursuant to the 2017 CreditFacilities Agreement, a number of covenants and restrictions will, if CEMEX so elects, cease to apply (including the capital expenditure limitations mentioned above) or become less restrictive if (i) our consolidated leverage ratio for the two most recently completed quarterly testing periods is less than 3.75:1;1 or less; or, for the three most recently completed quarterly testing periods, our consolidated leverage ratio for the first and third of those quarterly testing periods is 3.75:1 or less and in the second quarterly testing period would have been 3.75:1 or less but for the proceeds of certain permitted financial indebtedness being included in the calculation of debtdebt; and (ii) no default under the 2017 CreditFacilities Agreement is continuing. At that point, the existing consolidated coverage ratio and consolidated leverage ratio tests will be replaced by a requirement that the consolidated leverage ratio must not exceed 4.25:1 and the consolidated coverage ratio must not be less than 2.75:1. However, we cannot assure you that we will be able to meet the conditions for these restrictions to cease to apply prior to the final maturity date under the 2017 CreditFacilities Agreement. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for more information.
The 2017 CreditFacilities Agreement contains events of default, some of which may occur and are outside of our control. Such events of default include but are not limited to defaults (subject to certain exceptions) and grace periods, based on(i) non-payment,non-payment; (ii) material inaccuracy of representations and warranties,warranties; (iii) breach of covenants,covenants; (iv) bankruptcy (quiebra) or insolvency (concurso mercantil) of CEMEX, S.A.B. de C.V., any other obligor under the 2017 CreditFacilities Agreement or any other of our material subsidiaries (as defined in the 2017 CreditFacilities Agreement),; (v) inability to pay debts as they fall due or by reason of actual financial difficulties, suspension or threatened suspension of payments on debts exceeding U.S.$50$50 million or commencement of negotiations to reschedule debt exceeding U.S.$50 million,$50 million; (vi) a cross-default in relation to financial indebtedness in excess of U.S.$50 million,$50 million; (vii) certain changes to the ownership of any of the obligors under the 2017 Credit Agreement,Facilities Agreement; (viii) enforcement of any security against an obligor or material subsidiary,subsidiary; (ix) any attachment, distress or execution affects any asset of an obligor or material subsidiary which is reasonably likely to cause a material adverse effect; (x) expropriation and sequestration of assets of certain of our subsidiaries that cause a material adverse effect; (xi) the imposition of restrictions not in effect on July 19, 2017 are imposed that limit the ability of obligors to transfer foreign exchange for purposes of performing material obligations under the 2017 Credit Agreement, (xi)Facilities Agreement; (xii) any material adverse change arising in the financial condition of CEMEX, which creditors representing two thirds or more of the total commitments under the 2017 CreditFacilities Agreement determine would result in our failure, taken as a whole, to perform payment obligations under the 2017 Credit Agreement,Facilities Agreement; and (xii)(xiii) it becomes unlawful for us to comply with its laws or our obligations under the 2017 Credit Agreement.Facilities Agreement where non-performance is reasonably likely to cause a material adverse effect. If an event of default occurs and is continuing, upon the authorization of creditors representing two thirds or more of the total commitments under the 2017 CreditFacilities Agreement, the 2017 Facilities Agreement’s agent has the ability to accelerate all outstanding amounts due under the 2017 CreditFacilities Agreement. Acceleration is automatic in the case of insolvency.
We cannot assure you that in the future we will be able to comply with the restrictive covenants and limitations contained in the 2017 Credit Agreement.Facilities Agreement or that we will be in compliance with other agreements which constitute financial indebtedness in excess of $50 million in which any non-compliance would trigger a cross-default, such as, for example, the senior unsecured Philippine Peso term loan facility entered into by CHP with BDO Unibank, Inc. on February 1, 2017 for a loan of up to the Philippine Peso equivalent of, as of December 31, 2019, $224 million, as amended or supplemented from time to time. Our failure to comply with such covenants and limitations could result in an event of default, which could materially and adversely affect our business, financial condition, liquidity and results of operation.operations. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for more information.
Changes to, or replacement of, the LIBOR Benchmark Interest Rate, could adversely affect our business, financial condition, liquidity and results of operations.
In July 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), a regulator of financial services firms and financial markets in the United Kingdom, stated that they will plan for a phase out of regulatory oversight of the London InterBank Offered Rate (“LIBOR”) interest rate indices. The FCA has indicated they will support the LIBOR indices through 2021 to allow for an orderly transition to an alternative reference rate. LIBOR indices, in particular the Dollar LIBOR, are commonly used as a benchmark for our financing agreements, financial obligations and derivatives, including our 2017 Facilities Agreement, which systematically catalogue relevant LIBOR provisions, including uniform trigger provisions intended to identify a test for when LIBOR no longer governs the agreement and/or uniform fallback provisions intended to identify an alternative reference rate, or there may be vast, or slight, differences in those provisions. It is uncertain at this time whether LIBOR will change or cease to exist or the extent to which those entering into financial agreements will transition to any other particular benchmark. Other benchmarks may perform differently than LIBOR or have other consequences that cannot currently be anticipated. As of December 31, 2019, 22% of our foreign currency-denominated long-term debt bears floating rates at a weighted average interest rate of LIBOR plus 285 basis points. A transition away from and/or changes to the LIBOR benchmark interest rate could adversely affect our business, financial condition, liquidity and results of operations.
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We pledged the capital stock of some of our subsidiaries that represent substantially all of our business as collateral to secure our payment obligations under the 2017 CreditFacilities Agreement, the indentures governing our outstanding Senior Secured Notes and other financing arrangements.
In connection with the 2017 CreditFacilities Agreement, we pledged under pledge agreements or transferred to trustees under acertain security trust,trusts the Collateral and all proceeds of the Collateral, to secure our obligations under the
2017 CreditFacilities Agreement, our Senior Secured Notes (as defined herein) and under a number of other financing arrangements for the benefit of the creditors and holders of debt and other obligations that benefit from provisions in their agreements or instruments requiring that their obligations be equally and ratably secured.
As of December 31, 2017,2019, the Collateral and all proceeds of such Collateral secured were (i) Ps184,226$8,910 million (U.S.$9,377 million) (principal amount Ps185,969 million (U.S.$9,464$8,984 million)) aggregate principal amount of debt under the 2017 CreditFacilities Agreement, our Senior Secured Notes and other financing arrangements and (ii) Ps8,784$443 million (U.S.$447 million) aggregate principal amount of the dual-currency notes underlying our Perpetual Debentures. TheseThe subsidiaries whose shares are part of the Collateral collectively own, directly or indirectly, substantially all of our operations worldwide. Provided that no default has occurred which is continuing under the 2017 CreditFacilities Agreement, the Collateral will be released automatically if we meet specified financial covenant targets in accordance with the terms of the Intercreditor Agreement.Agreement (as defined under “Item 5— Operating and Financial Review and Prospects—Liquidity and Capital Resources—Our Indebtedness”). See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Other Recent Developments—Effectiveness of Mergers between CEMEX, S.A.B. de C.V. and certain direct and indirect subsidiaries in Mexico (the “Mexican Reorganization”)” for a description of circumstances whereby CEMEX México and Empresas Tolteca have ceased to guarantee our indebtedness to the extent they provided guarantees, and the shares of CEMEX México that were pledged or transferred to trustees under security trusts to benefit certain secured creditors of CEMEX and certain of its subsidiaries are no longer part of the collateral securing our indebtedness.
We have a substantial amount of debt and other financial obligations maturing in the next several years. If we are unable to secure refinancing on favorable terms or at all, we may not be able to comply with our upcoming payment obligations. Our ability to comply with our principal maturities and financial covenants may depend on us implementing certain initiatives, which may include making asset sales, and there is no assurance that we will be able to implement any such initiatives or execute such sales, if needed, on terms favorable to us or at all.
As of December 31, 2017,2019, our total debt plus other financial obligations were Ps226,216$11,790 million (U.S.$11,512 million) (principal amount Ps231,621 million (U.S.$11,787$11,864 million)), which does not include Ps8,784$443 million, (U.S.$447 million), which represents the nominal amount of our Perpetual Debentures. Of such total debt plus other financial obligations, amount, Ps36,335$1,442 million (U.S.$1,849 million) (principal amount Ps36,061 million (U.S.$1,835$1,445 million)) matures during 2018; Ps1,118 million (U.S.$57 million) (principal amount Ps4,874 million (U.S.$248 million)) matures during 2019; Ps21,002 million (U.S.$1,069 million) (principal amount Ps21,256 million (U.S.$1,082 million)) matures during 2020; Ps27,550$895 million (U.S.$1,402 million) (principal amount Ps27,638 million (U.S.$1,407$895 million)) matures during 2021; and Ps140,212$1,389 million (U.S.$7,135 million) (principal amount Ps141,792$1,401 million) matures during 2022; $780 million (U.S.$7,216(principal amount $780 million)) matures during 2023; and $7,284 million (principal amount $7,343 million) matures after 2021.2023. As a result of the April 2019 Facilities Agreement Amendments, $531 million and $531 million, payable under the 2017 Facilities Agreement in July 2020 and January 2021, respectively, will now mature in July 2023 and January 2024, respectively, and $48 million and $48 million remains payable under the 2017 Facilities Agreement in July 2020 and January 2021, respectively. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Other Recent Developments—Effectiveness of Mergers between CEMEX, S.A.B. de C.V. and certain direct and indirect subsidiaries in Mexico (the “Mexican Reorganization”)” for a description of circumstances whereby CEMEX México and Empresas Tolteca de México, S.A. de C.V. have ceased to guarantee our indebtedness to the extent they provided guarantees, and the shares of CEMEX México that were pledged or transferred to trustees under security trusts to benefit certain secured creditors of CEMEX and certain of its subsidiaries are no longer part of the collateral securing our indebtedness.
If we are unable to comply with our principal maturities under certain of our indebtedness, or refinance or extend maturities of certain of our indebtedness, substantially all of our debt could be accelerated. Acceleration of our debt would have a material adverse effect on our business, financial condition, liquidity and results of operations. As a result of the restrictions under the 2017 CreditFacilities Agreement, the indentures that govern our outstanding Senior Secured Notes and other debt instruments, the current global economic environment and uncertain market conditions, we may not be able to, if we need to do so to repay our indebtedness, complete asset sales on terms that we find economically attractive or at all. Volatility in the credit and capital markets could significantly affect us due to its effect on the availability of funds to potential acquiring parties, including industry peers. In addition, high levels of consolidation in our industry in some jurisdictions may further limit potential assets sales to interested parties due to antitrust considerations. If we need to sell assets to repay our indebtedness but are unable to complete asset sales and our cash flow or capital resources prove inadequate, we could face liquidity problems and may not be able to comply with financial covenants and payment obligations under our indebtedness.indebtedness, which would have a material adverse effect on our business, financial condition, liquidity and results of operations.
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In addition, our levels of debt, contractual restrictions and our need to deleverage may limit our planning flexibility and our ability to react to changes in our business and the industry and may place us at a competitive disadvantage compared to competitors who may have no need to deleverage or who may have lower leverage ratios and fewer contractual restrictions.restrictions, or that have no restrictions at all. There can also be no assurance that, because of our leverage ratio and contractual restrictions, we will be able to improve or maintain our operating margins and deliver financial results comparable to the results obtained in the past under similar economic conditions.conditions, or that we will be able to execute the capital expenditures that are disclosed in this annual report. Also, there can be no assurance that we will be able to implement our business strategy and initiatives, and improve our results and sales,revenues, which could affect our ability to comply with our payment obligations under our debt agreements and instruments.
We may not be able to generate sufficient cash to service all of our indebtedness or satisfy our short-term liquidity needs, and we may be forced to take other actions to satisfy our obligations under our indebtedness and our short-term liquidity needs, which may not be successful.
Historically, we have addressed our liquidity needs, including funds required to make scheduled principal and interest payments, refinance debt, and fund working capital and planned capital expenditures, mostly with operating cash flow, borrowings under credit facilities and receivables and inventory financing facilities, proceeds of debt and equity offerings and proceeds from asset sales.
As of December 31, 2017,2019, we had U.S.$576$599 million funded under our securitization programs in Mexico, the United States,U.S., France and the United Kingdom. We cannot assure you that, going forward, we will be able to, if needed, roll over or renew these programs, which could adversely affect our liquidity.
The weakness of the global economic environment and its adverse effects on our operating results may negatively affect our credit rating and the market value of CEMEX, S.A.B. de C.V.’s CPOs and ADSs.ADSs, or that of our publicly listed subsidiaries, mainly CLH and CHP. If current economic pressures continue or worsen, we may be dependent on the issuance of equity as a source to repay our existing or future indebtedness. Although we have been able to raise debt, equity and equity-linked capital in the recent past, conditions in the capital markets could be such that traditional sources of capital may not be available to us on reasonable terms or at all. As a result, we cannot assure you that we will be able to successfully raise additional debt and/or equity capital on terms that are favorable to us or at all.
We have historically, when needed, sought and obtained waivers and amendments to several of our debt instruments relating to a number of financial ratios. Our ability to comply with these ratios could be affected by global economic conditions and volatility in foreign exchange rates and the financial and capital markets, among other factors. If necessary, we may need to seek waivers or amendments to one or more of our debt agreementagreements or debt instruments in the future. However, we cannot assure you that any future waivers or amendments, if requested, will be obtained. If we are unable to comply with the provisions of our debt agreements or debt instruments, and are unable to obtain a waiver or amendment, the indebtedness outstanding under such debt agreementagreements and/or instruments could be accelerated. Acceleration of these debt agreements and/or instruments would have a material adverse effect on our business, liquidity and financial condition.
If the global economic environment deteriorates and our operating results worsen significantly, if we are unable to complete debt or equity offerings or, if needed, any divestitures, and/or our cash flow or capital resources prove inadequate, we could face liquidity problems and may not be able to comply with our principal payments under our indebtedness or refinance our indebtedness. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the impact of COVID-19 on our liquidity.
The indentures governing our outstanding Senior Secured Notes and the terms of our other indebtedness impose significant operating and financial restrictions, which may prevent us from capitalizing on business opportunities and may impede our ability to refinance our debt and the debt of our subsidiaries.
As of MarchDecember 31, 2018,2019, there were U.S.$4,124$4,461 million and €1,600€1,450 million aggregate principal amount of then-outstanding Senior Secured Notes outstanding under the indentures governing such notes. Mostly all of the indentures governing our outstanding Senior Secured Notes and the other instruments governing our consolidated indebtedness impose significant operating and financial restrictions on us. These restrictions will limit our ability, among other things, to: (i) incur debt;debt, including restrictions on incurring debt at our subsidiaries, which are not parties to the indentures governing the Senior Secured Notes; (ii) pay dividends on stock; (iii) redeem stock or redeem subordinated debt; (iv) make investments; (v) sell assets, including capital stock of subsidiaries; (vi)
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guarantee indebtedness; (vii) enter into agreements that restrict dividends or other distributions from restricted subsidiaries; (viii) enter into transactions with affiliates; (ix) create or assume liens; (x) engage in mergers or consolidations; and (xi) enter into a sale of all or substantially all of our assets.
These restrictions could limit our ability to seize attractive growth opportunities for our businesses that are currently unforeseeable, particularly if we are unable to incur financing or make investments to take advantage of these opportunities.
These restrictions may significantly impede our ability to develop and implement refinancing plans inwith respect ofto our debt.
Most of the covenants are subject to a number of important exceptions and qualifications. The breach of any of these covenants could result in a default under the indentures governing our outstanding Senior Secured Notes, as well as certain other existing debt obligations, as a result of the cross-default provisions contained in the instruments governing such debt obligations. In the event of a default under any of the indentures governing our outstanding Senior Secured Notes, holders of our outstanding Senior Secured Notes could seek to declare all amounts outstanding under such Senior Secured Notes, together with accrued and unpaid interest, if any, to be immediately due and payable. If the indebtedness under our outstanding Senior Secured Notes, or certain other existing debt obligations were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full such accelerated indebtedness or our other indebtedness.
Furthermore, upon the occurrence of any event of default under the 2017 CreditFacilities Agreement, the indentures governing our outstanding Senior Secured Notes or any of our other debt, the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If the lenders accelerate payment of those amounts, we cannot assure you that our assets would be sufficient to repay those amounts in full those amounts or to satisfy our other liabilities. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” and “Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for more information on the impact of the COVID-19 pandemic on our business, including that CEMEX, S.A.B. de C.V. will not pay any dividends in 2020, and on the proposed amendments to the 2017 Facilities Agreement and the risk of an event of default under the 2017 Facilities Agreement.
In addition, in connection with the entry into new financings or amendments to existing financing arrangements and while our debt rating remains below investment grade, our financial and operational flexibility may be further reduced as a result of more restrictive covenants, requirements for security and other terms that are often imposed onsub-investment grade entities.
CEMEX, S.A.B. de C.V.’s ability to repay debt and pay dividends depends on our subsidiaries’ ability to transfer income and dividends to us.
Aside from operating certain assetsits significant operations in Mexico, CEMEX, S.A.B. de C.V. is a holding company that owns the stock of its direct subsidiaries and is the beneficial owner of the equity interests of its indirect subsidiaries and has holdings of cash and marketable securities. In general, CEMEX, S.A.B. de C.V.’s ability to repay debt and pay dividends, as well as to generally make other payments, partially depends on the continued transfer to it of dividends and other income and funds from its wholly-owned andnon-wholly-owned non-wholly owned subsidiaries. Even thoughAlthough our debt agreements and instruments restrict us from entering into any agreement or arrangement that limits the ability of any subsidiary of CEMEX, S.A.B. de C.V. to declare or pay dividends or repay or capitalize intercompany indebtedness, the ability of CEMEX, S.A.B. de C.V.’s subsidiaries to pay dividends and make other transfers to itCEMEX, S.A.B. de C.V. is subject to various regulatory, contractual and legal constraints of the countries in which we operate.operate, including the need to create legal reserves prior to transferring funds. The 2017 CreditFacilities Agreement restricts CEMEX, S.A.B. de C.V.’s and its subsidiaries’ ability to declare or pay cash dividends.dividends above the permitted amounts (subject to certain exceptions). In addition, the indentures governing our outstanding Senior Secured Notes also limit CEMEX, S.A.B. de C.V.’s and its subsidiaries’ ability to pay dividends. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” and “Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for more information on the impact of the COVID-19 pandemic on our business, including that CEMEX, S.A.B. de C.V. will not pay any dividends in 2020, and on the proposed amendments to the 2017 Facilities Agreement.
The ability of CEMEX, S.A.B. de C.V.’s direct and indirect subsidiaries to pay dividends and make loans and other transfers to it is generally subject to various regulatory, legal and economic limitations. Depending on the jurisdiction of organization of the relevant subsidiary, such limitations may include solvency and legal reserve requirements, dividend payment restrictions based on interim financial results or minimum net worth and withholding taxes on loan interest payments. For example, our subsidiaries in Mexico are subject to Mexican legal requirements, which provide that a corporation may declare and pay dividends only out of the profits reflected in theyear-end financial statements that are or have been approved by its stockholders. In addition, such payment can be approved by a subsidiary’s stockholders only after the creation of a required legal reserve (equal to one fifth of the relevant company’s capital) and compensation or absorption of losses, if any, incurred by such subsidiary in previous fiscal years.
CEMEX, S.A.B. de C.V. may also be subject to exchange controls on remittances by its subsidiaries from time to time in a number of jurisdictions. In addition, CEMEX, S.A.B. de C.V.’s ability to receive funds from
these subsidiaries may be restricted by covenants in the debt instruments and other contractual obligations of those entities.
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As of the date of this annual report, CEMEX, S.A.B. de C.V. currently does not expect that existing regulatory, legal and economic restrictions on its currentexisting direct and indirect subsidiaries’ ability to pay dividends and make loans and other transfers to it will negatively affect its ability to meet its cash obligations. However, the jurisdictions of organization of CEMEX, S.A.B. de C.V.’s current direct or indirect subsidiaries, or of any future subsidiary, may impose additional and more restrictive regulatory, legal and/or economic limitations. In addition, CEMEX, S.A.B. de C.V.’s subsidiaries may not be able to generate sufficient income to pay dividends or make loans or other transfers to it in the future, or may not have access to Dollars in their respective countries, which, as of the date of this annual report, would be the preferred currency to be received by CEMEX, S.A.B. de C.V. to service the majority of its debt payments. Also, because not all of CEMEX, S.A.B. de C.V.’s subsidiaries are wholly-owned, any decision to have any of CEMEX, S.A.B. de C.V.’s subsidiaries declare and pay dividends or make loans or other transfers to us is subject to any minority rights that non-controlling shareholders may have in the CEMEX, S.A.B. de C.V. subsidiary that is not wholly-owned. Any material additional future limitations on our subsidiaries could adversely affect CEMEX, S.A.B. de C.V.’s ability to service our debt and meet its other cash obligations. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the impact of COVID-19 on our operating subsidiaries and the possibility of less income being generated by our operating subsidiaries.
We are subject to restrictions due toand reputational risks resulting from non-controlling interests held by third parties in our consolidated subsidiaries.
We conduct our business through subsidiaries. In some cases, third-party shareholders holdnon-controlling interests in these subsidiaries, such as in the case of CEMEX Latam,including CLH, CHP, TCLTrinidad Cement Limited (“TCL”) and CCCL.Caribbean Cement Company Limited (“CCCL”), among others. Various disadvantages may result from the participation ofnon-controlling shareholders whose interests may not always be aligned with ours. Some of these disadvantages may, among other things, result in our inability to implement organizational efficiencies, divest or acquire assets and transfer cash and assets from one subsidiary to another in order to allocate assets most effectively. In addition, we are also exposed to third-party shareholders initiating different actions or proceedings against us as controlling shareholders on corporate and corporate governance related matters, which could also harm our reputation and have an adverse effect on our business, liquidity, financial condition and results of operations.
We have to service our debt and other financial obligations denominated in Dollars with revenues generated in Mexican Pesos or other currencies, as we do not generate sufficient revenue in Dollars from our operations to service all our debt and other financial obligations denominated in Dollars. This could adversely affect our ability to service our obligations in the event of a devaluation or depreciation in the value of the Mexican Peso, or any of the other currencies of the countries in which we operate, compared to the U.S. Dollar. In addition, our consolidated reported results and outstanding indebtedness are significantly affected by fluctuations in exchange rates between the Dollar (our reporting currency, vis-à-vis the Mexican Peso and significant other currencies.currencies within our operations).
A substantial portion of our total debt plus other financial obligations is denominated in Dollars. As of MarchDecember 31, 2018,2019, our debt plus other financial obligations denominated in Dollars represented 65%67% of our total debt plus other financial obligations, which does not include U.S.$371$371 million of Dollar-denominated Perpetual Debentures. Our Dollar-denominated debt must be serviced with funds generated mostly by CEMEX, S.A.B. de C.V.’s as well as its direct and indirect subsidiaries.subsidiaries’ operations in Mexico. Although we have substantial operations in the U.S., we continue to strongly rely on ournon-U.S. assets to generate revenues to service our Dollar-denominated debt. Consequently, we have to use revenues generated in Mexican Pesos, Euros or other currencies to service our Dollar-denominated obligations. See “Item 5—Operating and Financial Review and Prospects—Quantitative and Qualitative Market Disclosure—Interest Rate Risk, Foreign Currency Risk and Equity Risk—Foreign Currency Risk.” A devaluation or depreciation in the value of the Mexican Peso, Euro, British Pound Sterling, Colombian Peso, Philippine Peso or any of the other currencies of the countries in which we operate, compared to the U.S. Dollar, could adversely affect our ability to service our Dollar-denominated debt. In 2017,2019, our operations in Mexico, the United Kingdom, France, Germany, Spain, Poland, the Rest of Europe, (as described in “Item 4—Information onColombia, Panama, the Company—Business Overview”), Colombia, Costa Rica,Dominican Republic, Caribbean TCL (as defined below), Rest of South, Central America and the Caribbean, the Philippines, Egypt,Israel and the Rest of Asia, Middle East and Africa, (as described in “Item 4—Information on the Company—Business Overview”), which are our mainnon-Dollar-denominated non-Dollar denominated operations, together generated 61%65% of our total net salesrevenues in Mexican PesoDollar terms (21%, 7%5%, 6%, 4%3%, 2%, 2%, 3%5%, 4%, 1%, 2%, 2%, 4%, 3%, 1%5% and 5%2%, respectively) before eliminations resulting from consolidation. In 2017, 24%2019, 27% of our net salesrevenues in Mexican PesoDollar terms were generated from our operations in the United States. U.S. before eliminations resulting from consolidation.
During 2017,2019, the Mexican Peso appreciated 5%3.7% against the U.S. Dollar, the Euro appreciated 12%depreciated 2.1% against the U.S. Dollar and the British Pound Sterling appreciated 9%3.9% against the U.S. Dollar. Currency hedges that we may be a party to or may enter in the future may not be effective in covering all our currency-related risks. Our
consolidated reported results for any period and our outstanding indebtedness as of any date are significantly affected by fluctuations in exchange rates between the Mexican PesoDollar and other currencies, as those fluctuations influence the amount of our non-Dollar indebtedness when translated into Mexican PesosDollars and also result in foreign exchange gains and losses as well as gains and losses on derivative contracts, including those entered into to hedge our exchange rate exposure. For a description of these restrictions,impacts, see “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—“—Our use of derivative instruments has negatively affected, and any new derivative financial
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instruments could negatively affect, our operations, especially in volatile and uncertain markets.” See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the impact of COVID-19 on the Mexican Peso value against the Dollar.
In addition, as of MarchDecember 31, 2018,2019, our Euro-denominated total debt plus other financial obligations represented 25%23% of our total debt plus other financial obligations, which does not include the €64 million aggregate principal amount of our Euro-denominated Perpetual Debentures.
Our use of derivative financial instruments has negatively affected, and any new derivative financial instruments could negatively affect, our operations, especially in volatile and uncertain markets.
We have used, and may continue to use, derivative financial instruments to manage the risk profile associated with interest rates and currency exposure of our debt, to reduce our financing costs, to access alternative sources of financing and to hedge our net assets in certain currency, as well as some of our financial and operating risks. However, we cannot assure you that our use of such instruments will allow us to achieve these objectives due to the inherent risks in any derivatives transaction.transaction or the risk that we will not continue to have access to such instruments at reasonable costs, or at all.
As of December 31, 2017,2019, our derivative financial instruments consisted of equity forwards on third party shares, foreign exchange forward contracts under a net investment hedge program, interest rate derivativesswap instruments related to energy projects andbank loans, equity forwards on third-party shares, as well as fuel price hedging derivatives, which had an impact on our financial position. The fair value changes of our derivative financial instruments are reflected in our income statement, which could introduce volatility in our controlling interest net income and our related ratios. For the years endedAs of December 31, 20162018 and 2017,2019, the recognition of changes in the fair value ofaggregate notional amount under our outstanding derivative financial instruments during the applicable period representedwas $2,608 million ($1,249 million of net gainsinvestment hedge, $1,126 million of Ps317interest rate swaps, $111 million (U.S.$17 million)of forwards on third-party shares and $122 million of fuel price hedging) and $2,324 million ($1,154 million of net gainsinvestment hedge, $1,000 million of Ps161interest rate swaps, $74 million (U.S.$9 million)of forwards on third-party shares and $96 million of fuel price hedging), respectively.
respectively, with a mark-to-market valuation representing a net liability of $18 million as of December 31, 2018 and a net liability of $100 million as of December 31, 2019. See note 16.4 to our 2019 audited consolidated financial statements included elsewhere in this annual report for a detailed description of our derivative financial instruments. For the majority of the last teneleven years, CEMEX has significantly decreased its use of derivatives instruments related to debt, both currency and interest rate derivatives related to debt, thereby reducing the risk of cash margin calls. However, with respect to our existing financial derivatives, we may incur net losses and be subject to margin calls that do not require a substantial amount of cash to cover such margin calls. If we enter into new derivative financial instruments, we may incur net losses and be subject to margin calls in which the cash required to cover margin calls may be substantial and may reduce the funds available to us for our operations or other capital needs. In addition, as with any derivative position, CEMEX assumes the creditworthiness risk of the counterparty, including the risk that the counterparty may not honor its obligations to us. In addition, entering into new derivative financial instruments incurs costs, and we cannot assure you that any new derivative financial instrument that we enter into will be done so at reasonable costs, or, if our credit risk worsens, will be available to us at all.
We are subject to the laws and regulations of the countries where we operate and do business and any material changes in such laws and regulations and/or any significant delays in our assessing the impact and/or adapting to such changes may have an adverse effect on our business, financial condition, liquidity and results of operations.
Our operations are subject to the laws and regulations of the countries where we operate and do business, and such laws and regulations, and/or governmental interpretations of such laws and regulations, may change. Because CEMEX, S.A.B. de C.V. is organized under Mexican laws, and because of the considerable size of CEMEX, S.A.B. de C.V.’s operations in the U.S. and the fact that CEMEX, S.A.B. de C.V.’s ADSs trade on the New York Stock Exchange (the “NYSE”), we have to comply with the laws and regulations, and/or governmental interpretations of such laws and regulations, of Mexico and the U.S., whether or not we operate and do business through a subsidiary located in Mexico or the U.S.
Any change in such changelaws and regulations, and/or governmental interpretations of such laws and regulations, may have a material adverse effect on our business, financial condition, liquidity and results of operations. Furthermore, changes in laws and regulations, and/or governmental interpretations of such laws and regulations, in the countries where we operate may require us to devote a significant amount of time and resources to assess and, if required, to adjust our operations to any such changes, which could have a material adverse effect on our business, financial condition, liquidity and results of operations. In addition, any significant delays in assessing the impact and/or, if required, in adapting to changes in laws and regulations and/or governmental interpretations of such laws and regulations may also have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects. For more information, see “—Economic conditions in some of the countries where we operate and in other regions or countries may adversely affect our business, financial condition, liquidity and results of operations.operations,” “—Political and social events and possible changes in governmental policies in some of the countries where we operate could have a material adverse effect on our business, financial condition, liquidity and results of operations “and “—Our operations are subject to environmental laws and regulations.”
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We or our third-party providers may fail to maintain, obtain or renew or may experience material delays in obtaining requisite governmental or other approvals, licenses and permits for the conduct of our business.
We and our third-party providers of goods and services, as applicable, require various approvals, licenses, permits, concessions and certificates in the conduct of our business. We cannot assure you that we, or our third- party providers of goods and services, will not encounter significant problems in obtaining new or renewing existing approvals, licenses, permits, concessions and certificates required in the conduct of our business, or that we, or our third-party providers of good and services, will continue to satisfy the conditions to which such approvals, licenses, permits, concessions and certificates that we currently have or may be granted in the future. There may also be delays on the part of regulatory and administrative bodies in reviewing our applications and granting approvals. The implementation of new laws and regulations on environmental-related matters in the countries in which we operate or in the countries from which our third-party providers of goods and services source their deliverables to us, may create stricter requirements to comply with. This could delay our ability to obtain the related approvals, licenses, permits, concessions and certificates, or could result in us not being able to obtain them at all. If previously obtained approvals, licenses, permits and certificates are revoked and/or if we, or our third-party providers of goods and services, fail to obtain and/or maintain the necessary approvals, licenses, permits, concessions and certificates required for the conduct of our business, we may be required to incur substantial costs or temporarily suspend or alter the operation of one or more of our operating units, production facilities, mineral extraction locations or of any relevant component of them, which could affect the general production of these units, facilities or locations, which in turn could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the impact of certain measures being taken by the governments of the countries in which we operate regarding temporary closures of our operating facilities to stop the spread of COVID-19.
We may fail to secure certain materials required to run our business.
We increasingly use in most of our business certainby-products of industrial processes produced by third parties, such as pet coke,fly-ash, fly ash, slag and synthetic gypsum.gypsum, among others, as well as natural resources such as water. While we are not dependent on our suppliers and while we try to secure the supply of the required materials, products or resources through long-term renewable contracts and framework agreements, which ensureallow us to better management ofmanage supplies, short-term contracts are however entered into in certain countries where we operate. Should existing suppliers cease operations or reduce or eliminate production of theseby-products, or should for any reason any suppliers not be able to deliver to us the contractual quantities, or should laws and/or regulations in any region or country limit the access to these materials, products or resources, sourcing costs for these materials could increase significantly or require us to find alternative sources for these materials, which could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects. Additionally,In particular, scarcity and quality of natural resources (such as water and aggregates reserves) in some of the countries where we operate could have a material adverse effect on our operations, costs and results of operations. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the impact of COVID-19 on supply chains.
We may not be able to realize the expected benefits from any acquisitions or joint ventures, some of which may have a material impact on our business, financial condition, liquidity and results of operations.
Even though
Although we have not made any major acquisitions in recent years or entered into significant joint ventures in recent years, our ability to realize the expected benefits from any acquisitions or joint ventures depends, in large part, on our ability to integrate acquired operations with our existing operations in a timely and effective manner.manner or on our ability to properly manage, together with any joint venture partner, any joint venture business. These efforts may not be successful. Although we have had disposed of assets in the past through our recently concluded divestment programand may continue to do so to reduce our overall leverage and rebalance our portfolio, the 2017 CreditFacilities Agreement and other debt instruments restrict our ability to acquire assets and weenter into joint ventures. We may in the future acquire new operations or enter into joint ventures and integrate such operations into our existing operations, and some of such acquisitions or joint ventures may have a material impact on our business, financial condition, liquidity and results of operations. We cannot assure you that we will be successful in identifying or acquiring suitable assets in the future, or that the terms under which we may acquire any assets or enter into joint ventures in the future would be favorable to us.us or that we will be able to find suitable partners for our joint ventures at all. If we fail to achieve theany anticipated cost savings from any acquisitions or joint ventures, our business, financial condition, liquidity and results of operations could be materially and adversely affected.
High energy and fuel costs may have a material adverse effect on our operating results.
Electric energy and fuel costs represent an important part of our overall cost structure. The price and availability of electric energy and fuel are generally subject to market volatility and, therefore, may have an adverse impact on our costs and operating results. Furthermore, if third partythird-party suppliers fail to provide to us the required amounts of energy or fuel under existing agreements, we may need to acquire energy or fuel at an increased cost from other suppliers, without being reimbursed for the increased costs by the
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committed supplier, to fulfill certain contractual commitments.commitments with third parties or for use in our operations. In addition, governments in
several of the countries wherein which we operate are working to reduce energy subsidies, introduce clean energy obligations or impose new excise taxes, which could further increase energy costs which could adversely affect us.and have a material adverse effect on our business, financial condition, liquidity and results of operations.
Furthermore, if our efforts to increase our use of alternative fuels are unsuccessful, due to their limited availability, price volatility or otherwise, we would be required to use traditional fuels, which may increase our energy and fuel costs and could have a material adverse effect on our business, financial condition, liquidity and results of operations.
See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to the Effects of the COVID-19 Pandemic on Oil Prices and Demand” for more information on the impact of COVID-19 on energy and fuel costs, in particular the decrease in the price of oil.
The introduction of substitutes for cement, ready-mix concrete or aggregates into the market and the development of new construction techniques and technologies could have a material adverse effect on our business, financial condition, liquidity and results of operations.
Materials such as plastic, aluminum, ceramics, glass, wood and steel can be used in construction as a substitute for cement, ready-mix concrete or aggregates. In addition, other construction techniques, such as the use of dry wall, and the integration of new technologies in the construction industry, such as 3-D printing, mini-mills and mobile plants, and changes in housing preferences could adversely impact the demand and price for our cement, ready-mix concrete and/or aggregates. Further,Furthermore, research aimed at developing new construction techniques and modern materials and digitalizing the construction industry may introduce new products and technologies in the future that could reduce the demand for and prices forof our products.
We operate in highly competitive markets with numerous players employing different competitive strategies and if we do not compete effectively, our revenues, market share and results of operations willmay continue to be harmed.affected.
The markets in which we operate are highly competitive and are served by a variety of established companies with recognized brand names, as well as new market entrants and increasing imports. Companies in these markets compete based on a variety of factors, often employing aggressive pricing strategies to gain market share. Our ability to increase our net sales depends, in part, on our ability to compete effectively. We compete with different types of companies and based on different factors in each market. For example, in the relatively consolidated cement andready-mix concrete industries, we generally compete based on quality, andclient segmentation, value proposition, available to our clients.and superior customer experience. In the more fragmented market for aggregates, we generally compete based on capacity and our price for our products.products and our customer centric culture. In certain areas of the markets in which we compete, some of our competitors may be more established, benefit from greater brand recognition or have greater manufacturing and distribution channels and other resources than we do. In addition, if our competitors were to combine, they may be able to compete more effectively with us, and they may also dispose of assets, which could lead to new market entrants, that increaseincreasing competition in our markets. For example, Lafarge, S.A. (“Lafarge”) and Holcim Ltd. (“Holcim”) finalized their mergermerged in 2015, and Ireland’s CRH plc (“CRH”) acquired the vast majority of the assets disposed by Lafarge and Holcim pursuant to the requirements of regulators. Another example is HeidelbergCement AG’s (“Heidelberg”) acquisition of Italcementi S.p.A. (“Italcementi”), which was completed in July 2016. In addition, as of the date of this annual report, some of our major competitors have announced they intend to divest assets in different parts of the world (Southeast Asia for example), which may lead to increased competition in the markets in which we operate. It is unclear how competitors that could potentially acquire those assets will compete in the markets in which we operate. Some may use aggressive competitive strategies based on imports and pricing that could be damaging to our industry’s profitability and, as a consequence, our results of operations. In addition, asset optimization by buyers of the disposed assets could result in an operational cost advantage.
If
As a result, if we are not able to compete effectively, we may continue to lose substantial market share, potentially substantially, in the countries in which we operate, and our net salesrevenues could decline or grow at a slower rate and our business and results of operations would be harmed, which could have a material adverse effect on our business, financial condition, liquidity and results of operations.
A substantial amount of our total assets consists of intangible assets, including goodwill. We have recognized charges for goodwill impairment in the past, and if market or industry conditions deteriorate further, additional impairment charges may be recognized.
Our 20172019 audited consolidated financial statements, included elsewhere in this annual report, have been prepared in accordance with IFRS as issued by the IASB, under which goodwill is not amortized and is tested for impairment. Tests for impairment are carried out when impairment indicators exist or at least once a year during the fourth quarter of each year, and are performed by
determining the recoverable amount of the groups of cash-generating units (“CGUs”) to which goodwill balances have been allocated, which consistsallocated. The recoverable amount of CGUs consist of the higher of such groups of cash-generating unitsunits’ fair value, less cost to sell, and their corresponding value in use, represented by the discounted amount of estimated future cash flows expected to be generated by such groups of cash-generating unitsCGUs to which goodwill has been allocated. An impairment loss is recognized under IFRS if the recoverable amount is lower than the net book value of the groups of cash-generating unitsCGUs to which goodwill has been allocated within other expenses, net. We determine the discounted amount of estimated future cash flows over periods of five years. In specific circumstances, when, according to our experience, actual results for a given cash-generating unitCGU do not fairly reflect historical performance
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and most external economic variables provide us with confidence that a reasonably determinable improvement in themid-term is expected in their operating results, management uses cash flow projections over a period of up to ten years, to the point inat which future expected average performance resembles the historical average performance and to the extent we have detailed, explicit and reliable financial forecasts and is confident and can demonstrate its ability, based on past experience, to forecast cash flows accurately over that longer period.forecasts. If the value in use of a group of cash-generating unitsCGUs to which goodwill has been allocated is lower than its corresponding carrying amount, we determine its corresponding fair value using methodologies generally accepted in the markets to determine the value of entities, such as multiples of Operating EBITDA and/or by reference to other market transactions, among others. transactions.
Impairment tests are significantly sensitive to, among other factors, the estimation of future prices of our products, trends in the development of operating expenses, local and international economic trends in the construction industry, the long-term growth expectations in the different markets, as well as the discount rates and the growth rates in perpetuity applied, among others.applied. For purposes of estimating future prices, we use, to the extent available, historical data plus the expected increase or decrease according to information issued by trusted external sources, such as national construction or cement producer chambers and/or in governmental economic expectations. Operating expenses are normally measured as a constant proportion of revenues, following experience. However, such operating expenses are also reviewed considering external information sources in respect of inputs that behave according to international prices, such as oil and gas. We use specificpre-tax discount rates for each group of cash-generating unitsCGUs to which goodwill is allocated, which are applied topre-tax cash flows. The amounts of estimated undiscounted cash flows are significantly sensitive to the growth rates in perpetuity applied. Likewise, the amounts of discounted future cash flows are significantly sensitive to the weight average cost of capital (discount rate) applied. The higher the growth rate in perpetuity applied, the higher the amount of undiscounted future cash flows by group of cash-generating unitsCGUs obtained. Conversely,Moreover, the amounts of discounted future cash flows are significantly sensitive to the weighted average cost of capital (discount rate) applied. The higher the discount rate applied, the lower the amount of discounted estimated future cash flows by group of cash-generating unitsCGUs obtained.
During the last quarters of each of 2015, 20162017, 2018 and 2017,2019, we performed our annual goodwill impairment test. For the years ended as of December 31, 20152018 and 2016,December 31, 2019, we did not determine any goodwill impairments. During 2017, in connection with our operating segment in Spain and considering the uncertainty over the improvement of indicators affecting the country’sSpain’s construction industry (and consequently the expected consumption of cement,ready-mix concrete and aggregates), partially a result ofdue to the country’s then complex prevailing political environment, which resultsresulted in limited expenditure in infrastructure projects, as well as the uncertainty in the expected price recovery and the effects of increased competition and imports,imports. As a result, our management considered a future reduction of the related cash flows projections from 10 to five years and determined that the net book value of our operating segment in Spain exceeded the amount of the net presentits value of projected cash flowsin use by Ps1,920 million (U.S.$98 million).$98 million. As a result, we recognized a goodwill impairment during 2017 in the aforementioned amount as part of “Other expenses, net” in the income statement against the related goodwill balance. See note 15.2 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
Considering the important role that economic factors play in testing goodwill for impairment, we cannot assure that an eventualany downturn in the economies where we operate will not necessitate further impairment tests and a possible downward readjustment of our goodwill for impairment under IFRS. Such an impairment test could result in impairment charges which could be material to our financial statements, which could have a material adverse effect on our financial condition.
We are subject to litigation proceedings, including a federal securities class action, government investigations relating to corruption related matters and antitrust proceedings, that could harm our business if an unfavorable ruling were to occur.and our reputation.
From time to time, we are and may become involved in litigation, investigations and other legal or administrative proceedings relating to claims arising from our operations, either in the normal course of business or not.not, or arising from violations or alleged violations of laws, regulations or acts. As described in, but not limited to, “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings,” as of December 31, 2019, we are currentlywere subject to a number of significant legal proceedings, including, but not limited to,
those a federal securities class action alleging false and misleading statements in connection with alleged misconduct relating to the Maceo Project (as defined under “Regulatory Matters and Legal Proceedings—Other Legal Proceedings—Maceo, Colombia—Legal Proceedings in Colombia”) and the potential regulatory or criminal actions that might arise as a result, an SEC investigation concerning a new cement plant being built by CEMEX Colombia S.A. (“CEMEX Colombia”) in the Antioquia department of the Municipality of Maceo, Colombia, as well as an investigation from the U.S.United States Department of Justice (the “DOJ”) mainly relating to our operations in Colombia and other jurisdictions, and antitrust investigations in countries in which we operate.operate, including by the DOJ in the territorial U.S. In addition, our main operating subsidiary in Egypt, Assiut Cement Company (“ACC”), is involved in certain Egyptian legal proceedings relating to the acquisition of ACC. Investigations and litigation, and in general any legal or administrative proceeding,proceedings, are subject to inherent uncertainties and unfavorable rulings may occur. We cannot assure you that these or any of our other regulatory matters and legal proceedings, including any that may arise in the future, will not harm our reputation or materially affect our ability to conduct our business in the manner that we expect or otherwise materially adversely affect us should an unfavorable ruling occur, which could have a material adverse effect on our business, financial condition, liquidity and results of operations.
Failure to maintain effective internal control over financial reporting could result in material misstatements in our financial statements which could negatively impact the market price of our stock.
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We havecannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that our internal control over financial reporting was effective. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Internal control over financial reporting refers to a process designed by, or under the supervision of, the Chief Executive Officer (the “CEO”) and Executive Vice President of Finance and Administration/Chief Financial Officer (the “CFO”) and effected by CEMEX, S.A.B. de C.V.’s board of directors and our management to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. As an example, in 2016 and 2017, our management concluded that our internal control over financial reporting was not effective as of December 31, 2017, and our remediation efforts are ongoing. As a result, our ability to report our results of operations accurately, including our ability to make required filings with government authorities, may be adversely affected if our remediation efforts are not adequate. In addition, the trading price of our securities may be adversely affected by a related negative market reaction.
We have identified a material weakness in our internal control over financial reporting. Our management, including CEMEX, S.A.B. de C.V.’s Chief Executive Officer and Executive Vice President of Finance and Chief Financial Officer, has concluded that our disclosure controls and procedures were not effective as of December 31, 2017 to achieve their intended objectives. We have identified the following material weakness in our internal control over financial reporting: our risk assessment process did not operate effectively to implement controls that would prevent, or detect and correct, misstatements resulting from apparent collusion or management override of controls in relation to significant unusual transactions. In addition, we did not design and operate effective monitoring controls to detectnon-compliance with our policies related to the financial reporting of significant unusual transactions. This material weakness relates, in part, to the previously disclosed irregular payments to anon-governmental individual made in connection with the construction by CEMEX Colombia of a new integrated cement plant in the Antioquia department near the municipality of Maceo, Colombia (the “Maceo Project”).operating effectively. As of December 31, 2017,2018 and December 31, 2019, respectively, our management and our independent registered public accounting firm concluded that our internal controls over financial reporting were operating effectively. However, we cannot assure you that additional material weaknesses will not be identified in the implementation offuture, which could result in material misstatements in our remediation planfinancial statements or a failure to address this material weakness was not far enough advanced to provide a sufficient level of assurance that such circumvention or override of controls and misuse of funds by management would be prevented. For more information, see “Item 15—Controls and Procedures.” As of the date of this annual report, the process of designing, implementing and validating remedial measures related to the material weakness is ongoing. Ifmeet our efforts to remediate this material weakness are not successful, we may be unable to report our results of operations accurately and make our required filings with government authorities, including the SEC. Furthermore,reporting obligations. This, in turn, could negatively impact our business and operating results, andaccess to capital markets, the market price of our securities may be adversely affected by related negative market reactions. We cannot be certain that inshares and our ability to remain listed on the future additional material weaknesses will not exist or otherwise be discovered.NYSE.
Our operations are subject to environmental laws and regulations.
Our operations are subject to a broad range of environmental laws and regulations in each of the jurisdictions in which we operate. These laws and regulations impose stringent environmental protection standards regarding, among other things, air emissions, wastewater discharges, the use and handling of hazardous waste or materials, waste disposal practices and the remediation of environmental damage or contamination. These laws and regulations expose us to the risk of substantial environmental costs and liabilities, including fines and other sanctions, the payment of compensation to third parties, remediation costs and damage to reputation. Moreover, the enactment of stricter laws and regulations, stricter interpretation of existing laws or regulations or new enforcement initiatives, may impose new risks or costs on us or result in the need for additional investments in pollution control equipment, which could result in a material decline in our profitability.
In late 2010, the U.S. Environmental Protection Agency (“EPA”) issued the final Portland Cement National Emission Standard for Hazardous Air Pollutants (“Portland Cement NESHAP”) for Hazardous Air Pollutants under the federal Clean Air Act (“CAA”). This rule required Portland cement plants to limit mercury emissions, total hydrocarbons, hydrochloric acid and particulate matter by September 2013. The rule was challenged in federal court, and in December 2011, the D.C. Circuit Court of Appeals remanded the Portland Cement NESHAP to EPA and directed the agency to recompute the standards. In February 2013, EPA issued a revised final Portland Cement NESHAP rule that relaxed emissions limits for particulate matter and moved the compliance deadline to September 2015. In April 2013, environmental groups again challenged the revised Portland Cement NESHAP rule in federal court. In April 2014, the D.C. Circuit issued a ruling upholding both the revised particulate matter emission limits and the September 2015 compliance deadline. As of December 31, 2019, Portland Cement NESHAP compliance-related work continues in 2018 incontinued to be conducted at several of our plants, for whichplants. While we have received extensionsexpect to meet all emissions standards imposed by the compliance deadline. Compliance could require usPortland Cement NESHAP, failure to utilize significant resources, whichdo so could have a material adverse impact on our results ofbusiness operations, liquidity and financial condition; however, we expect that such impact would be consistent with the impact on the cement industry as a whole.
In February 2013, EPA issued revised final emissions standards under the CAA for commercial and industrial solid waste incinerators (“CISWI”). Under the CISWI rule, if a material being used in a cement kiln as an alternative fuel is classified as a solid waste, the plant must comply with CISWI standards. The CISWI rule covers nine pollutants and imposes potentially more stringent emissions limits on certain pollutants that also are regulated under the Portland Cement NESHAP. TheEPA received petitions to further reconsider certain provisions of the 2013 CISWI rule. EPA granted reconsideration on four specific issues and finalized the reconsideration of the CISWI rule in June 2016. The 2013 CISWI rule was also challenged by both industrial and environmental groups in federal court. In July 2016, the D.C. Circuit issued a ruling upholding portionsmost of the rule and remanding otherseveral portions to EPA for further consideration. In December 2016,EPA has not issued a revised final rule after remand but the D.C. Circuit rejectedportions of the motions for reconsideration. If therule upheld on appeal are final and in effect. The final CISWI rule takes effect in its current form, and ifestablished a compliance date of February 2018, which was not impacted by the appeal. If kilns at CEMEX plants in the U.S. are determined to be CISWI kilns due to the use of certain alternative fuels, the emissions standards imposed by the CISWI rule could have a material impact on our business operations.
Under certain environmental laws and regulations, liability associated with investigation or remediation of hazardous substances can arise at a broad range of properties, including properties currently or formerly owned or operated by CEMEX, as well as facilities to which we sent hazardous substances or wastes for treatment, storage or disposal, or any areas affected while we transported any hazardous substances or wastes. Such laws and regulations may apply without regard to causation or knowledge of contamination. We occasionally evaluate various alternatives with respect to our facilities, including possible dispositions or closures. Investigations undertaken in connection with these activities (or ongoing operational or construction activities) may lead to hazardous substance releases or discoveries of historical contamination that must be remediated, and closures of facilities may trigger compliance
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requirements that are not applicable to operating facilities. While compliance with these laws and regulations has not materially adversely affected our operations in the past, we cannot assure you that these requirements will not change, and that compliance will not adversely affect our operations in the future. Furthermore, we cannot assure you that existing or future circumstances or developments with respect to contamination will not require us to make significant remediation or restoration expenditures, which could have a material adverse effect on our business, financial condition, liquidity and results of operations.
The cement manufacturing process requires the combustion of large amounts of fuel and creates carbon dioxide (“CO2”)CO2 as aby-product of the calcination process. Therefore, efforts to address climate change through federal, state, regional, EU and international laws and regulations requiring reductions in emissions of greenhouse gases (“GHGs”) can create economic risks and uncertainties for our business. Such risks could include the cost of purchasing allowances or credits to meet GHG emission caps, the cost of installing equipment to reduce emissions to comply with GHG limits or required technological standards, decreased profits or losses arising from decreased demand for our goods and higher production costs resulting directly or indirectly from the imposition of legislative or regulatory controls. To the extent that financial markets view climate change and GHG emissions as a financial risk, this could have a material adverse effect on our cost of and access to capital. Given the uncertain nature of the actual or potential statutory and regulatory requirements for GHG emissions at the federal, state, regional, EU and international levels, we cannot predict the impact on our operations or
financial condition or make a reasonable estimate of the potential costs to us that may result from such requirements. However, the impact of any such requirements, whether individually or cumulatively, could have a material economic impact on our operations in the United StatesU.S. and in other countries. For more information on certain laws and regulations addressing climate change that we are, or could become, subject to, and the impacts to our operations arising therefrom, see “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Environmental Matters.”
Cement production raises a number of health and safety issues. As is the case with other companies in our industry, some of our aggregate products contain varying amounts of crystalline silica, a common mineral. Also, some of our construction and material processing operations release, as dust, crystalline silica that is in the materials being handled. Excessive, prolonged inhalation of verysmall-sized particles of crystalline silica has allegedly been associated with respiratory disease (including silicosis). As part of our annual due diligence, we work with our stakeholders to verify that certain health and safety protocols are in place as regards the management of silica and its health effects, as well as in relations to other substances and products. Nonetheless, under various laws we may be subject to future claims related to exposure to these or other substances or products.
Other health and safety issues related to our business include: burns arising from contact with hot cement kiln dust or dust on preheater systems; air borne hazards related to our aggregates mining activities; noise, including from chutes and hoppers, milling plants, exhaust fans and blowers; the potential for dioxin formation if chlorine-containing alternative fuels are introduced into kilns; plant cleaning and maintenance activities involving working at height or in confined or other awkward locations, and the storage and handling of coal, pet coke and certain alternative fuels, which, in their finely ground state, can pose a risk of fire or explosion; and health hazards associated with operatingready-mix concrete trucks. While we actively seek to minimize the risk posed by these issues, personal injury claims may be made, and substantial damages awarded, against us. We may also be required to change our operational practices, involving material capital expenditure.
As part of our insurance-risk governance approach, from time to time we evaluate the need to address the financial consequences of environmental laws and regulations through the purchase of insurance. As a result, we do arrange certain types of environmental impairment insurance policies for both site-specific, as well as multi-site locations. We also organizenon-specific environmental impairment insurance as part of the provision of a broader corporate insurance strategy. These latter insurance policies are designed to offer some assistance to our financial flexibility to the extent that the specifics of an environmental incident could give rise to a financial liability. However, we cannot assure you that a given environmental incident will be covered by the environmental insurance we have in place, or that the amount of such insurance will be sufficient to offset the liability arising from the incident. Any such liability may be deemed to be material to us and could have a material adverse effect on our business, financial condition, andliquidity, results of operations.operations and reputation.
We are an international company and are exposed to risks in the countries in which we have operations or interests.
We are dependent, in large part, on the economies of the countries in which we market our products and services. The economies of these countries are in different stages of socioeconomic and political development. Consequently, like many other companies with significant international operations, we are exposed to risks from, among other things, changes in economic growth, foreign currency exchange rates, interest rates, inflation, oil price volatility, trade policy, government spending,policies, regulatory framework, social instability and other political, economic or social developments, including the outbreak of disease or similar public threats, such as COVID-19, that may materially affect our business, financial condition, liquidity and results of operations.
As of December 31, 2017, we2019, our operations were mostly had operations in Mexico, the United States, the United Kingdom, France, Germany, Spain, the Rest ofU.S., certain countries in Europe, Colombia, Panama, Costa Rica, Caribbean TCL, the Rest of South, Central AmericaSCA&C, Asia and the Caribbean, the Philippines, Egypt, and the Rest of Asia, Middle East and Africa (as described in “Item 4—Information on the Company—Business Overview”).
For a geographic breakdown of our net salesrevenues for the year ended December 31, 2017,2019, see “Item 4—Information on the Company—Geographic Breakdown of Net SalesRevenues for the Year Ended December 31, 2017.2019.”
In recent years, concerns over global economic conditions, protectionist trade policies, oil price, energy costs, climate change, geopolitical issues, political uncertainty, social instability, the availability and cost of credit and the international financial markets have contributed to economic uncertainty and reduced expectations for the global economy.
In addition, the current COVID-19 pandemic and its impact on supply chains, global trade, people mobility, business continuity, lower demand and oil prices, among other things, has increased the risk of a deep global recession in 2020. Even though some governments and central banks have announced and implemented monetary and fiscal policies to curb the potential impact on the economies and financial markets, these measures may vary by country and may not be enough to deter material adverse economic and financial effects. Fears about the magnitude of the economic downturn have had and may continue to have a negative impact on financial markets and emerging market currencies, which in turn have impacted and may continue to impact our results of operations and financial condition.
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As of the date of this annual report, 2020, the wide spread of COVID-19 has impacted and may continue to impact our company’s business in some of the markets where we operate. Many of our operations have been and may continue to be impacted by governments’ decisions to suspend non-essential activities or lower production to comply with social distancing protocols, as well as by lower demand for our products. In Mexico, we are operating in accordance to technical guidelines defined by the Mexican government. In the South and Central America and the Caribbean region, with the exception of Costa Rica, Nicaragua and Haiti, our operations have been temporarily affected. In Europe, Middle East, Africa and Asia, the main impacts have been felt in Spain and the Philippines, where our operations are running on a limited basis. Other countries have taken a toll on the market side, with drops in demand which has ended up in some temporary site closures. In the U.S., while all of our sites remain operational, the main impact has been a slowdown in demand particularly in California and the mid-south region. The fact that many states continue to put in place shelter in place orders will probably add complexity in terms of logistics and cause some additional delays in orders and site construction projects.
While the impact and duration of COVID-19 are highly uncertain and remain unclear, we have undertaken several measures to maximize the protection and health of our employees, communities, third parties and other stakeholders while reinforcing our business strength and financial resilience across our markets. However, if the COVID-19 pandemic continues to escalate, it could potentially have a material adverse effect on our business, financial condition, liquidity and results of operations.
Our operations in Egypt, the United Arab Emirates (“UAE”) and Israel have experienced instability as a result of, among other things, civil unrest, terrorism, extremism, deterioration of general diplomatic relations and changes in the geopolitical dynamics in the region. There can be no assurances that political turbulence in Egypt, Iran, Iraq, Syria, Libya, Yemen and other countries in Africa, the Middle East and Asia will abate in the near future or that neighboring countries will not be drawn into conflict or experience instability. In addition, some of our operations are or may be subject to political risks, such as confiscation, expropriation and/or nationalization, as for example was the case of our past operations in Venezuela and is currently the case in Egypt. See “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Other Legal Proceedings—Egypt Share Purchase Agreement.”
Our
Since 2011, our operations in Egypt have since 2011 been exposed to political and social turmoil in the country. In March 2018, Egypt held a new presidential election and President Abdel Fattah el-Sisi wasre-elected for a second term (2018 – 2022). CEMEX’s operations in Egypt have been adversely affected by the turbulence in Egypt andThroughout this time, CEMEX continueshas continued with its cement production, dispatch and sales activities asactivities. Abdel Fattah el-Sisi has been the president of the date of this annual report. We cannot assure you that theEgypt since 2014, and was reelected regime will be ablefor a second term in March 2018 (2018-2022). The current government faced unrest in 2019, due to avoid further politicalclashes between government forces and opposition protesters. Further mobilization and social turbulence. Risksturbulence cannot be discounted in the future. Egypt will hold parliamentary elections on December 31, 2020, which could lead to renewed waves of popular unrest. Additional risks to CEMEX’s operations in Egypt include a potential reduction in overall economic activity, exchange rate volatility, increased cost of energy, cement oversupply, andchanges in regulations, the threat of terrorist attacks, which could have a material adverse effect on our operations in the country.
Our operations are also exposed to the Israeli-Palestinian conflict. Confrontations between the Israeli Defense Force and Palestinians in the Gaza Strip have continued generating sporadic events of violence in the region. Progress on peace iscontinues to be stalled, asdespite efforts from third parties (including the U.S. and the United Nations) to reach an agreement. As of December 31, 2019, the parties continued to portray opposite views over the contested territory and neither side has shown intentions for making concessions. If the conflicts escalate,conflict escalates, it could have a negative impact on the geopolitics and economy in the region, which in turn could adversely affect our operations, financial condition, liquidity and results of operations.
Military activities in Ukraine and on its borders, including Russia effectively taking control of Crimea followed by Crimea’s independence vote and absorption by Russia, have combined with Ukraine’s weak economic conditions to create uncertainty in Ukraine and the global markets. In response to the annexation of the Crimean region of Ukraine by Russia and also related to2014, as well as Russia’s intervention in Syria have made the conflicts in Syria, other nations,country subject to international sanctions from different countries, including the U.S., have imposed and may continue to impose economic sanctions on Russia.the EU. While not directly impacting territories in which we had operations as of December 31, 2017, this2019, the Ukrainian dispute could negatively affect the economies of the countries in which we operate and their access to Russian energy supplies, andsupplies. In addition, the dispute could negatively impact the global economy. Further,economy as a whole. Furthermore, potential responses by Russia to those sanctions could adversely affect European economic conditions, which could have a material adverse effect on our operations mainly in Europe, and ifEurope. If conflicts with Russia escalate to military conflict, it could also have a material adverse effect on our business, financial condition, liquidity and results of operations.
In the Middle East, region, during 2017,regional tensions have intensified since the Gulf Cooperation Council splitU.S.’s withdrawal from the Joint Comprehensive Plan of Action (2018), commonly known as the Iran Nuclear Deal. The conflict escalated after General Qasem Soleimani, the Iranian Commander of the Quds Force, was killed in a way not seen since its foundation in 1981, after Saudi Arabia, the UAEU.S. drone strike, which was followed by Iranian retaliation. The Iran conflict poses a significant security and Bahrain launched a boycott of Qatar in June 2017, alleging Qatar’s support to Islamist groups. The end of the conflict does not appear to be imminent, as Qatar refuses to accept demands from Gulf Cooperation Council countries. The Qatar-Gulf crisis may have a negative economic impact on the region. Additionally, as previously mentioned, the civil war in Syria could escalate tensions betweenterrorism risk, mainly for the U.S. and Russia, Israel and Iran, and their corresponding allies.Iran’s allies in the region. Increased tensions among these countries could lead to a risk of afull military action, thatand could have the potential topotentially have a material adverse effect on our business, financial condition, liquidity and results of operations.operations, mainly in Israel and UAE. In addition, the ongoing Qatar-Gulf crisis and the civil war in Syria may have a negative economic impact on the region.
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In Asia, there is considerable political instability in Taiwangeopolitical tension related to its disputes withpro-democracy protests in Hong Kong, Taiwan’s status in relation to China, and in South Korea related to itsKorea’s disputes with North Korea which also include theand disputes between the U.S. and North Korea. Similarly, mutually exclusive territorial disputes among several Southeast Asian countries in the South China Sea amplify the potential for an outbreak of hostilities.continue. A major outbreak of hostilities or other political upheaval in China, Taiwan, North Korea, or South Korea or Hong Kong could adversely affect the global economy, which could have a material adverse effect on our business, financial condition, liquidity or results of operations. In addition, China was impacted by its trade war with the U.S., which have had major implications on global trade and supply chains. A potential sharp and unexpected reduction of economic growth in China or an economic contraction of this country, could affect the global economy to an extent that could have a material adverse effect on our business, financial condition, liquidity and results of operations.
Other regions are also exposed
Numerous protests have erupted in Latin American countries, such as Colombia, Chile, Ecuador, Nicaragua, Puerto Rico among others. In addition, the region continues to political turmoil, includingbe affected by the continued political unrest in Venezuela,Venezuelan crisis, which may similarly affecthas had a major impact on the results of our operations in those regions.regional economy and poses an important social and security risk.
Further, there
There have been terrorist attacks and ongoing threats of future terrorist attacks in countries in which we maintain operations. We cannot assure you that there will not be other attacks or threats that will cause any damage to our operating units and facilities or locations, or harm any of our employees, including members of CEMEX, S.A.BS.A.B. de C.V.’s board of directors or senior management, or lead to an economic contraction or erection of material barriers to trade in any of our markets. An economic contraction in any of our major markets could affect domestic demand for cement and,our products, which could have a material adverse effect on our business, financial condition, liquidity and results of operations.
As part of our risk governance approach, from time to time we evaluate the need to address the financial consequences of political or social risk through the purchase of insurance. As a result, we purchase certain types of political risk insurance policies for selected countries where we operate and which are exposed to political turmoil, geopolitical issues or political uncertainty. These insurance policies are designed to offer some assistance to our financial flexibility to the extent that the specifics of a political incident could give rise to a financial liability. However, we cannot assure you that a given social or political event and possible changes in government policies will be covered by the political risk insurance policies we have in place, or that the amount of such insurance will be sufficient to offset the liability arising from such applicable events. Any such liability could have a material adverse effect on our business, financial condition, liquidity and results of operations.
Our operations and ability to source products and materials can be affected by adverse weather conditions and natural disasters.
Construction activity, and thus demand for our products, decreases substantially during periods of cold weather, when it snows or when heavy or sustained rainfalls occur, or generally, in general any rainy and snowy weather. Consequently, demand for our products is significantly lower during the winter or raining and snowing seasons in temperatethe countries in which we operate and during the rainy season in tropical countries.do business. Generally, winter weather in our European and North American operations significantly reduces our first quarter sales volumes, and to a lesser extent our fourth quarter sales volumes. Sales volumes in these and similar markets generally increase during the second and third quarters because of normally better weather conditions. However, high levels of rainfall and/or snow can also adversely affect our operations during these periods, as well such as our access to products and materials used in our operations (as was the case in 2017 for2018 with regard to our operations in the Philippines.Philippines, which was exacerbated by a natural landslide that affected our operations in the country). Natural disasters likesuch as the earthquake in Mexico and Hurricanes Harvey and Irma in the United StatesU.S. in 2017 could also have a negative impact on our sales volumes, which could also be material.have a material adverse effect on our results of operations. Our operations in Florida and Texas, the Caribbean and certain parts of the Gulf of Mexico are particularly exposed to hurricanes and similar weather events. This decrease in sales volumes is usually compensatedcounterbalanced by the increase in the demand offor our products during the reconstruction phase, unless any of our operating units or facilities are impacted because ofby the natural disaster. Such adverse weather conditions and natural disasters can have a material adverse effect on our business, financial condition, liquidity and results of operations if they occur with unusual intensity, during abnormal periods, or last longer than usual in our major markets, or if they cause scarcity and increases in the cost of the products we need to run our business, especially during peak construction periods.
We will be adversely affected by any significant or prolonged disruption to our production facilities.
Any prolonged and/or significant disruption to our production facilities, whether due to repair, maintenance or servicing, governmental or administrative actions, regulatory issues, civil unrest, industrial accidents, unavailability or excessively high cost of raw materials such as energy to the point of making it inefficient to run our production facilities, mechanical equipment failure, human error, natural disaster or otherwise, will disrupt and adversely affect our operations. Additionally, any major or sustained disruptions in the supply of utilities such as water or electricity or any fire, flood, earthquake, volcanic eruption, landslide or other natural calamities or communal unrest or acts of terrorism may disrupt our operations or damage our production facilities or inventories and could have a material adverse effect on our business, financial condition, liquidity and results of operations.
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We typically shut down our facilities to undertake maintenance and repair work at scheduled intervals. Although we schedule shut downsshutdowns such that not all our facilities are shut down at the same time, the unexpected shut downshutdown or closure of any facility may nevertheless materially affect our business, financial condition, liquidity and results of operations from one period to another.
We are increasingly dependent on information technology and our systems and infrastructure, as well as those provided by third-party service providers;providers, face certain risks, including cyber securitycyber-security risks.
We increasingly rely on a variety of information technology and cloud services, on a fully digital customer integration platform, such as CEMEX Go, and on automated operating systems to manage and support our operations, as well as to offer our products to our customers. The proper functioning of this technology and these systems is critical to the efficient operation and management of our business, as well as for the sales generated by our business. In addition, theseOur systems and technologies may require modifications or upgrades as a result of technological changes, or growth in our business.business and to enhance our business security. These changes may be costly and disruptive to our operations, and could impose substantial demands on our systems and increase system outage time. Our systems and technology, as well as those provided by our third-party service providers, such as International Business Machines Corporation (“IBM”) and Microsoft, two of our main information technology and service providers, may be vulnerable to damage, disruption or intrusion caused by circumstances beyond our control, such as physical or electronicbreak-ins, catastrophic events, power outages, natural disasters, computer system or network failures, security breaches, computer viruses or malware,and cyber-attacks, including malicious codes, worms, ransomware, phishing, denial of service attacks and unauthorized access and cyber-attacks.access. For example, our development and implementation of digital solutions to improve sales, customer experience, enhance our operations and increase our business efficiencies could be impeded by such damages, disruptions or intrusions. AlthoughTo try to minimize such risks, we take actions to securesafeguard our systems and electronic information through a set of cyber-security controls, processes and a proactive monitoring service to attend to potential breaches. In addition, we also have disaster recovery plans in case of incidents that could cause major disruptions to our business,business. However, these measures may not be sufficient, and our systems have in the past been subject to certain minor intrusions. Although we are certified under and compliant with International Organization for Standardization (“ISO”) 27001:2013 standards for information security management systems to preserve the confidentiality, integrity and availability of data and also are certified on the Payment Card Industry security standard which provides a trustful e-commerce mechanism for customers, we cannot assure that we will always be able to retain or renew this certification or that our systems will not be subject to certain intrusions.
In relation to our overall operations, particularly due to our digital transformation initiatives and the implementation of CEMEX Go, our audit committee is informed of the cyber-security threats we face and is involved in approving general steps to try to mitigate any such cyber-security threats. As of December 31, 2017,2019, CEMEX Go has more than 36,300 users across the countries in which we do business, and through CEMEX Go we receive approximately 66% of our main product orders. As of December 31, 2019, we have not detected, and our third-party service providers have not informed us of, any relevant event that has materially damaged, disrupted or resulted in an intrusion of our systems. Any significant information leakages or theft of information, or any unlawful processing of personal data, could affect our compliance with data privacy laws and make us subject to regulatory action, including substantial fines and private litigation with potentially large costs, and could damage our relationship with our employees, customers and suppliers, and alsowhich could have a material adverse impact on our business, financial condition, andliquidity, results of operations. operations and prospects.
As of December 31, 2017,2019, our 13-month insurance does not cover any riskprogram, which expires on June 25, 2020, includes insurance coverage that, subject to its terms and conditions, is intended to address certain costs associated with cyber security risks. In addition,incidents, network failures and data privacy-related concerns. Nevertheless, this insurance coverage may not, depending on the specific facts and circumstances surrounding an incident, cover all losses or types of claims that may arise from an incident or the damage to our reputation or brands that may result from an incident. However, any significant disruption to our systems could have a material adverse effect on our business, financial condition, liquidity and results of operations.operations, and could also harm our reputation.
Activities in our business can be hazardous and can cause injury to people or damage to property in certain circumstances.
Most of our production facilities and units, as well as mineral extractionsextraction locations, require individuals to work with chemicals, equipment and other materials that have the potential to cause fatalities, harm and injury or fatalities, when used without due care. An accident or injury that occurs at our facilities could result in disruptions to our business and operations and could have legal and regulatory, consequences andas well as reputational, consequences. As a result, we may be required to compensate such individuals or incur other costs and liabilities, any and all of which could have a material adverse impact on our reputation, business, financial condition, liquidity, results of operations and prospects.
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Additionally, cement production raises a number of health and safety issues. As is the case with other companies in our industry, some of our aggregate products contain varying amounts of crystalline silica, a common mineral. Also, some of our construction and material processing operations release, as dust, crystalline silica that is in the materials being handled. Excessive, prolonged inhalation of very small-sized particles of crystalline silica has allegedly been associated with respiratory disease (including silicosis). As part of our annual due diligence, we work with our stakeholders to verify that certain health and safety protocols are in place with regards to the management of silica and its health effects, as well as in relation to other substances and products. Nonetheless, any health issues related to cement and aggregates production can result in future claims related to exposure to these products or substances, which could have a material adverse impact on our reputation, business, financial condition, liquidity, results of operations and prospects.
Other health and safety issues related to our business include: burns arising from contact with hot cement kiln dust or dust on preheater systems; airborne hazards related to our aggregates mining activities; noise, including from chutes and hoppers, milling plants, exhaust fans and blowers; the potential for dioxin formation if chlorine-containing alternative fuels are introduced into kilns; plant cleaning and maintenance activities involving working at height or in confined or other awkward locations, and the storage and handling of coal, pet coke and certain alternative fuels, which, in their finely ground state, can pose a risk of fire or explosion; and health hazards associated with operating ready-mix concrete trucks. We may also be exposed to liability resulting from injuries or fatalities involving third-party service providers, such as drivers for our suppliers when delivering products or services to us. While we actively seek to minimize the risk posed by these issues, personal injury claims may be made, and substantial damages awarded, against us, which could have a material adverse impact on our reputation, business, financial condition, liquidity and results of operations. Additionally, we may also be required to change our operational practices, involving material capital expenditure.
Labor activism and unrest, or failure to maintain satisfactory labor relations, could adversely affect our results of operations.
Labor activism and unrest may adversely affect our operations and thereby adversely affect our business, financial condition, liquidity, results of operations and prospects. Although most of our significant operations have not been affected by any significant labor disputedisputes in the past, we cannot assure you that we will not experience labor unrest, activism, disputes or actions in the future, including as a result of labor laws and regulations that have recently been enacted or that could come into effect in the future, some of which may be significant and could adversely affect our business, financial condition, liquidity, results of operations and prospects. For example, the activity of labor unions in Mexico is expected to increase, as a result of law that permits unions to actively seek sponsorship of collective bargaining agreements. For a description of our most relevant collective bargaining agreements, see “Item 6—Directors, Senior Management and Employees—Employees.”Employees” in the 2018 Annual Report.
Increases in liabilities related to our pension plans could adversely affect our results of operations.
We have obligations under defined benefit pension and other benefit plans in certain countries in which we operate, mainly in North America and Europe. Our actual funding obligations will depend on benefit plan changes, government regulations and other factors, including changes in longevity and mortality statistics. Due to the large number of variables and assumptions that determine pension liabilities and funding requirements, which
are difficult to predict because they change continuously as demographics evolve, despite the fact that we support our projections with studies by external actuaries, ouractuaries. We have a net projected liability recognized in theour statement of financial position of Ps23,653 million (U.S.$1,204 million) as of December 31, 2017 and the2019 of $1,138 million. The future cash funding requirements for our defined benefit pension plans and other postemploymentpost-employment benefit plans could significantly differ from the amounts estimated as of December 31, 2017.2019. If so, these funding requirements, as well as our possible inability to properly fund, and/or provide sufficient guarantees for, such pension plans if we are unable to deliver the cash or equivalent funding requirements, could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects. See note 18 to our 2019 audited consolidated financial statements included elsewhere in this annual report for a detailed description of our pension obligations.
Our insurance coverage may not cover all the risks to which we may be exposed.
We
Among others, we face the risks of fatalities and injury of our employees and contractors, loss and damage to our products, property and machinery due to, among others,other things, fire, theft and natural disasters such as floods, and also face risks related to cyber securitycyber-security related matters. Such events may cause a disruption to, or cessation of, our operations and business. While we believe that we have adequate and sufficient coverage, in line with industry practices, in some instances our insurance coverage may not be sufficient to cover all of our potential unforeseen losses and liabilities. In addition, our insurance coverage may not cover all the risks to which we may be exposed, such as cyber security risks.all risks related to cyber-security, pandemics and/or epidemics (including COVID-19). If our losses exceed our insurance coverage, or if we are not covered by the insurance policies we have taken up, we may be liable to cover any shortfall or losses. Our insurance premiums may also increase substantially because of such claims. In suchSuch circumstances could have a material adverse effect on our business, liquidity, financial condition and results may be materially adversely affected.of operations.
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Our success depends on the leadership of CEMEX, S.A.B. de C.V.’s board of directors and on key members of our management.executive management team.
Our success depends largely on the efforts and strategic vision of CEMEX, S.A.B. de C.V.’s board of directors and on key members of our executive management team. The loss of the services of some or all of the members of CEMEX, S.A.B. de C.V.s board ofC.V.’s directors or our executivesenior management could have a material adverse effect on our business, financial condition, liquidity and results of operations.operations, as well as on our reputation. Although we have for the last five years appointed new members to the board of directors (including to replace outgoing directors), we cannot assure you that one or more members on our board of directors will continue to change each year.
The execution of our business strategy also depends on our ongoing ability to attract and retain additional qualified employees. For a variety of reasons, particularly with respect to the competitive environment and the availability of skilled labor, we may not be successful in attracting and retaining the personnel we require. If we are unable to hire, train and retain qualified employees at a reasonable cost, we may be unable to successfully operate our business or capitalize on growth opportunities and, as a result, our business, financial condition, liquidity and results of operations could be materially and adversely affected.
We are subject to anti-corruption, anti-bribery, anti-money laundering and antitrust laws and regulations in the countries in which we operate.operate, some of which are considered high-risk countries. Any violation of any such laws or regulations could have a material adverse impact on our reputation and results of operations and financial condition.
We are subject to anti-corruption, anti-bribery, anti-money laundering, antitrust and other international laws and regulations and are required to comply with the applicable laws and regulations of the countries in which we operate.operate, some of which, including Mexico, Jamaica, Trinidad and Tobago, Colombia, Panama, Egypt, the Philippines, El Salvador, the Dominican Republic, Guatemala, Nicaragua, and Haiti, are considered high-risk countries with regard to corruption-related matters. In addition, we are subject to regulations on economic sanctions that restrict our dealings with certain sanctioned countries, individuals and entities. Given the large number of contracts that we are a party to around the world, the geographic distribution of our operations and the great variety of actors that we interact withinwith in the course of business, we are subject to the risk that our affiliates, employees, directors, officers, partners, agents and service providers may misappropriate our assets, manipulate our assets or information, make improper payments or engage in corruption, bribery, money laundering or other illegal activity, for such person’s personal or business advantage.
There can be no assurance that our internal policies and procedures will be sufficient to prevent or detect all inappropriate practices, fraud or violations of law by our affiliates, employees, directors, officers, partners, agents
and service providers or that any such persons will not take actions in violation of our policies and procedures. If we fail to fully comply with applicable laws and sanction regulations, the relevant government authorities of the countries where we operate have the power and authority to investigate us and, if it is the case, impose fines, penalties and other penalties.remedies, which could cause us to lose clients, suppliers and access to debt and capital markets. Any violations by us of anti-bribery and anti-corruption laws or sanctions regulations could have a material adverse effect on our business, liquidity, reputation, results of operations and financial condition.
For further information regarding our ongoing proceedings with respect to anti-corruption laws, see “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—We are subject to litigation proceedings, including a federal securities class action, government investigations relating to corruption and antitrust proceedings, that could harm our business if an unfavorable ruling were to occur”and our reputation” and “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings.”
Certain tax matters may have ana material adverse effect on our cash flow, financial condition and net income.income, as well as on our reputation.
We are subject to certain tax matters, mainly in Mexico, Colombia and Spain, that, if adversely resolved, may have a material adverse effect on our cash flow,operating results, liquidity and financial condition and net income.position, as well as on our reputation. See notes 2.13 and 19.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report, “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Tax Matters—Mexico,” “—Regulatory Matters and Legal Proceedings—Tax Matters—Colombia,” and “—“Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Tax Matters—Spain” for a description of the legal proceedings regarding these Mexican, Colombian and Spanish tax matters, all included elsewhere in this annual report.
It may be difficult to enforce civil liabilities against us or the members of CEMEX, S.A.B. de C.V.’s board of directors, our executive officerssenior management and controlling persons.
CEMEX, S.A.B. de C.V. is a publicly traded variable stock corporation with variable capital (sociedad(sociedad anónima bursátil de capital variable)variable) organized under the laws of Mexico. Substantially all members of CEMEX, S.A.B. de C.V.’s board of directors and the majority of the members of our senior management reside in Mexico, and all or a significant portion of the assets of those persons may be, and the majority of our assets are, located outside the United States.U.S. As a result, it may not be possible for you to effect service of process within the United States
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U.S. upon such persons or to enforce against them or against us in U.S. courts judgments predicated upon the civil liability provisions of the federal securities laws of the United States.U.S. We have been advised by our General Counsel, Roger Saldaña Madero, that there is doubt as to the enforceability in Mexico, either in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated on the U.S. federal securities laws.
The protections afforded tonon-controlling shareholders in Mexico are different from those in the United StatesU.S. and may be more difficult to enforce.
Under Mexican law, the protections afforded tonon-controlling shareholders are different from those in the United States.U.S. and countries in continental Europe. In particular, the legal framework and case law pertaining to directors’ duties and disputes between shareholders and us, the members of CEMEX, S.A.B. de C.V.’s board of directors, our officers or CEMEX, S.A.B. de C.V.’s controlling shareholders, if any, are less developed under Mexican law than under U.S. and continental European law. Mexican law generally only permits shareholder derivative suits (i.e., suits for our benefit as opposed to the direct benefit of our shareholders) and there are different procedural requirements for bringing shareholder derivative lawsuits, such as shareholder derivative suits,minimum holdings, which differ from those you may be familiar with under U.S. andin effect in other laws.jurisdictions. There is also a substantially less active plaintiffs’ bar dedicated to the enforcement of shareholders’ rights in Mexico than in the United States.U.S. As a result, in practice it may be more difficult for ournon-controlling shareholders to enforce their rightsinitiate an action against us or our directors or controlling shareholders or obtain direct remedies than it would be for shareholders of a U.S. company.
ADS holders may only vote the Series B shares represented by the CPOs deposited with the ADS depositary through the ADS depositary and are not entitled to vote the Series A shares represented by the CPOs deposited with the ADS depositary or to attend shareholders’ meetings.
Under
Any person acquiring CEMEX, S.A.B. de C.V.’s ADSs should be aware of the terms of the ADSs, the corresponding deposit agreement pursuant to which CEMEX, S.A.B. de C.V.’s ADSs are issued (the “Deposit Agreement”), the CPO Trust (as defined in the Deposit Agreement) and CEMEX, S.A.B. de C.V.’sby-laws, by-laws. Under such terms, a holder of an ADS has the right to instruct the ADS depositary to exercise voting rights only with respect to Series B shares (as defined below) represented by the CPOs deposited with the depositary, but not with respect to the Series A shares (as defined below) represented by the CPOs deposited with the depositary. ADS holders will not be able to directly exercise their right to vote unless they withdraw the CPOs underlying their ADSs (and, in the case ofnon-Mexican holders, even if they do so, they may not vote the Series A shares represented by the CPOs) and may not receive voting materials onin time to ensure that they are able to instruct the depositary to vote the CPOs underlying their ADSs or receive sufficient notice of a shareholders’ meeting to permit them to withdraw their CPOs to allow them to cast their vote with respect to any specific matter. Holders of ADSs will not have the right to instruct the ADS depositary as to the exercise of voting rights in respect of Series A shares underlying CPOs held in the CPO Trust (as defined in the Deposit Agreement).Trust. Under the terms of the CPO Trust, Series A shares underlying CPOs held bynon-Mexican nationals, including all Series A shares underlying CPOs represented by ADSs, will be voted by the Trustee (as defined in the Deposit Agreement), according to the majority of all Series A shares held by Mexican nationals and Series B shares voted at the meeting. In addition, the depositary and its agents may not be able to send out voting instructions on time or carry them out in the manner an ADS holder has instructed. As a result, ADS holders may not be able to exercise their right to vote and they may lack recourse if the CPOs underlying their ADSs are not voted as they requested. In addition, ADS holders are not entitled to attend shareholders’ meetings. ADS holders will also not be permitted to vote the CPOs underlying the ADSs directly at a shareholders’ meeting or to appoint a proxy to do so without withdrawing the CPOs. If the ADS depositary does not receive voting instructions from a holder of ADSs in a timely manner such holder will nevertheless be treated as having instructed the ADS depositary to give a proxy to a person we designate, or at our request, the corresponding CPO trust’s technical committee designates, to vote the Series B shares underlying the CPOs represented by the ADSs in his/her discretion. The ADS depositary or the custodian for the CPOs on deposit may represent the CPOs at any meeting of holders of CPOs even if no voting instructions have been received. The CPO trustee may represent the Series A shares and the Series B shares represented by the CPOs at any meeting of holders of Series A shares or Series B shares even if no voting instructions have been received. By so attending, the ADS depositary, the custodian or the CPO trustee, as applicable, may contribute to the establishment of a quorum at a meeting of holders of CPOs, Series A shares or Series B shares, as appropriate.
Non-Mexicans may not hold CEMEX, S.A.B. de C.V.’s Series A shares directly and must have them held in a trust at all times.
Non-Mexican investors in CEMEX, S.A.B. de C.V.’s CPOs or ADSs may not directly hold the underlying Series A shares, but may hold them indirectly through CEMEX, S.A.B. de C.V.’s CPO trust. Upon the early termination or expiration of the term of CEMEX, S.A.B. de C.V.’s CPO trust on September 6, 2029, the Series A shares underlying CEMEX, S.A.B. de C.V.’s CPOs held bynon-Mexican investors must be placed into a new trust similar to the current CPO trust fornon-Mexican investors to continue to hold an economic interest in such shares. We cannot assure you that a new trust similar to the CPO trust will be created or that the relevant authorization for the creation of the new trust or the transfer of our Series A shares to such new trust will be obtained. In that event, sincenon-Mexican holders currently cannot hold Series A shares directly, they may be required to sell all of their Series A shares to a Mexican individual or corporation.corporation, which could expose shareholders to a loss in the sale of the corresponding Series A shares and which may cause the price of CEMEX, S.A.B. de C.V.’s CPOs and ADSs to decrease.
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Preemptive rights may be unavailable to ADS holders.
ADS holders may be unable to exercise preemptive rights granted to CEMEX, S.A.B. de C.V.’s shareholders, in which case ADS holders could be substantially diluted following future equity or equity-linked offerings. Under Mexican law, whenever CEMEX, S.A.B. de C.V. issues new shares for payment in cash or in kind, CEMEX,
S.A.B. de C.V. is generally required to grant preemptive rights to CEMEX, S.A.B. de C.V.’s shareholders, except if the shares are issued in respect of a public offering or if the relevant shares underlie convertible securities. However, ADS holders may not be able to exercise these preemptive rights to acquire new shares unless both the rights and the new shares are registered in the United States or an exemption from registration is available. We cannot assure you that we would file a registration statement in the United States at the time of any rights offering.
Mexico has had no exchange control system in place since the dual exchange control system was abolished in November 1991. The Mexican Peso has floated freely in foreign exchange markets since December 1994, when the Mexican Central Bank (Banco de México) abandoned its prior policy of having an official devaluation band. Since then, the Mexican Peso has been subject to substantial fluctuations in value. The Mexican Peso depreciated against the U.S. Dollar by approximately 2% in 2013, 11% in 2014, 14% in 2015 and 20% in 2016, and appreciated against the U.S. Dollar by approximately 5% in 2017. These percentages are based on the exchange rate that we use for accounting purposes (the “CEMEX accounting rate”). The CEMEX accounting rate on any given date is determined based on the closing exchange rate reported by certain sources, such as Reuters. For any given date, the CEMEX accounting rate may differ from the noon buying rate for Mexican Pesos in New York City published by the U.S. Federal Reserve Bank of New York. 27
The following table sets forth, for the periods and dates indicated, theend-of-period, average and high and low points of the CEMEX accounting rate as well as the noon buying rate for Mexican Pesos, expressed in Mexican Pesos per U.S.$1.00.
CEMEX Accounting Rate | Noon Buying Rate | |||||||||||||||||||||||||||||||
Year Ended December 31, | End of the period | Average(1) | High | Low | End of the period | Average(1) | High | Low | ||||||||||||||||||||||||
2013 | 13.05 | 12.85 | 13.39 | 11.98 | 13.10 | 12.76 | 13.43 | 11.98 | ||||||||||||||||||||||||
2014 | 14.74 | 13.37 | 14.78 | 12.84 | 14.75 | 13.31 | 14.79 | 12.85 | ||||||||||||||||||||||||
2015 | 17.23 | 15.98 | 17.23 | 14.95 | 17.20 | 15.87 | 17.36 | 14.56 | ||||||||||||||||||||||||
2016 | 20.72 | 18.72 | 20.72 | 17.18 | 20.62 | 18.66 | 20.84 | 17.19 | ||||||||||||||||||||||||
2017 | 19.65 | 18.88 | 20.83 | 17.81 | 19.64 | 18.89 | 21.89 | 17.48 | ||||||||||||||||||||||||
Monthly (2017) | ||||||||||||||||||||||||||||||||
September | 18.25 | 18.15 | 18.24 | 17.65 | ||||||||||||||||||||||||||||
October | 19.16 | 19.13 | 19.18 | 18.21 | ||||||||||||||||||||||||||||
November | 18.60 | 18.63 | 19.26 | 18.51 | ||||||||||||||||||||||||||||
December | 19.65 | 19.64 | 19.73 | 18.62 | ||||||||||||||||||||||||||||
Monthly (2018) | ||||||||||||||||||||||||||||||||
January | 18.58 | 18.62 | 19.48 | 18.49 | ||||||||||||||||||||||||||||
February | 18.84 | 18.84 | 18.90 | 18.36 | ||||||||||||||||||||||||||||
March | 18.31 | 18.17 | 18.86 | 18.17 | ||||||||||||||||||||||||||||
April(2) | 18.53 | 18.61 | 18.61 | 17.97 |
Between January 1, 2018 and April 20, 2018, the Mexican Peso appreciated by approximately 6% against the U.S. Dollar, based on the noon buying rate for Mexican Pesos.
For a discussion of the financial treatment of our operations conducted in other currencies, see “Item 3—Key Information—Selected Consolidated Financial Information” included elsewhere in this annual report.
Selected Consolidated Financial Information
The financial data set forth below as of and for each of the five years ended December 31, 2017, have been derived from our 2017 audited consolidated financial statements.
The financial data set forth below as of December 31, 20162018 and 20172019, and for each of the three years ended December 31, 2015, 20162017, 2018 and 20172019 have been derived from, and should be read in conjunction with, and are qualified in their entirety by reference to, our 20172019 audited consolidated financial statements included elsewhere in this annual report. Our 2017 audited consolidated financial statements prepared under IFRS for the year ended December 31, 2017, were approved by our shareholders at the annual general ordinary shareholders’ meeting held on April 5, 2018. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Shareholders.”
The operating results of newly acquired businesses are consolidated in our financial statements beginning on the acquisition date. Therefore, all periods presented do not include operating results corresponding to newly acquired businesses before we assumed control. As a result, the financial data for the years ended December 31, 2015, 2016, and 2017 may not be comparable to that of prior periods.
Our 20172019 audited consolidated financial statements included elsewhere in this annual report have been prepared in accordance with IFRS, which differ in significant respects from U.S. GAAP. The regulations of the SEC do not require foreign private issuers that prepare their financial statements on the basis of IFRS (as published by the IASB) to reconcile such financial statements to U.S. GAAP.
Non-Mexican
Presentation Currency
Beginning March 31, 2019, and for all subsequent periods, as permitted under IAS 21 under IFRS, we changed our presentation currency from the Mexican Peso to the Dollar. Our audited consolidated financial statements, including comparative amounts included inand the accompanying notes to the audited consolidated financial statements, are firstpresented as if the new presentation currency had always been our presentation currency. All currency translation adjustments have been set to zero as of January 1, 2010, which was the date of our transition to IFRS. Translation adjustments and currency translation results of foreign subsidiaries recognized in other comprehensive income (loss) have been presented as if we had used Dollars as the presentation currency from that date. Comparative financial statements and their related notes were re-presented for the change in presentation currency by applying the methodology set out in IAS 21, using the year-end closing exchange rates for the consolidated statements of financial position and the closing exchange rates of each month within the respective periods for consolidated income statements, consolidated statements of comprehensive income and consolidated statements of cash flows. Historic equity transactions were translated into Dollar amounts, in each case at a commercially available or an official governmentthe foreign exchange rate on the date of the transactions and were subsequently carried at historical value.
The financial statements of foreign subsidiaries, as determined using their respective functional currency, are translated to Dollars at the year-end closing exchange rate for the relevant period or date, as applicable,statement of financial position accounts and those Dollar amounts are then translated into Mexican Peso amounts at the CEMEXclosing exchange rates of each month within the period for income statement accounts.
Adoption of IFRS 16
Moreover, beginning January 1, 2019, IFRS 16 superseded all existing guidance related to lease accounting rate, describedincluding IAS 17, Leases, and introduced a single lessee accounting model that requires a lessee to recognize, for all leases, allowing exemptions in the case of leases with a term of less than 12 months or when the underlying asset is of low value, assets for the right-of-use of the underlying asset against a corresponding financial liability, representing the net present value of estimated lease payments under “—Mexican Peso Exchange Rates,”the contract. Under this model, the lessee recognizes in its income statement depreciation of the asset for right-of-use and interest on the lease liability. After concluding the inventory and measurement of our leases, we adopted IFRS 16 using the full retrospective approach by means of which we determined an opening cumulative effect in our statement of financial position as of January 1, 2017, that is at the relevantbeginning of the oldest comparative period or date, as applicable.
The Dollar amounts provided below,and re-presented previously reported financial statements of comparative periods. Therefore, unless otherwise indicated, all comparative amounts from our comparative financial statements as of December 31, 2018 and for the years ended December 31, 2017 and 2018 have been re-presented to include the effects of adoption of IFRS 16. See note 2.1 to our 2019 audited consolidated financial statements included in elsewhere in this annual report for a detailed description of our adoption of IFRS 16.
Acquisitions and discontinued operations
The operating results of newly acquired businesses are translationsconsolidated in our financial statements beginning on the acquisition date. Therefore, all periods presented do not include operating results corresponding to newly acquired businesses before we assumed control. As a result, the financial data for the years ended December 31, 2017, 2018 and 2019 may not be comparable to that of Mexican Peso amounts at an exchange rate of Ps19.65 to U.S.$1.00, the CEMEX accounting rate asprior periods.
As of December 31, 2017. However,2019, through an affiliate in the caseUnited Kingdom, we were in negotiations with Breedon for the sale of transactions conductedcertain assets in Dollars,the United Kingdom for a total consideration of $235 million, including $31 million of debt. The assets held for sale mainly consist of 49 ready-mix plants, 28 aggregate quarries, four depots, one cement terminal, 14 asphalt plants, four concrete products operations, as well as a portion of our paving solutions business in the United Kingdom. After completion of the potential divestiture, we havewill retain significant operations in the United Kingdom related to, among other things the production and sale of cement, ready-mix concrete, aggregates, asphalt and paving solutions. As of December 31, 2019, the assets and liabilities associated with this segment under negotiation in the United Kingdom are presented in the statement of financial position within the line items of
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“assets held for sale,” including a proportional allocation of goodwill of $49 million, and “liabilities directly related to assets held for sale,” respectively. Moreover, for purposes of the income statements for the years ended December 31, 2017, 2018 and 2019 the operations related to this segment are presented net of tax in the single line item “Discontinued operations.” See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Assets Divestiture Plans” for more information regarding this transaction.
On November 26, 2019, we announced that our U.S. affiliate Kosmos Cement Company (“Kosmos”), a partnership with a subsidiary of BUZZI Unicem S.p.A. in which CEMEX held a 75% interest, entered into a binding agreement for the sale of certain assets to Eagle Materials Inc. (“Eagle Materials”) for $665 million. The divestment successfully closed on March 6, 2020. The share of proceeds to us from this transaction was $499 million, minus transaction costs. The assets that were divested consisted of the Kosmos cement plant in Louisville, Kentucky, as well as related assets which include seven distribution terminals and raw material reserves. As of December 31, 2019, the assets and liabilities associated with the sale of the Kosmos cement plant in Louisville, Kentucky, and related assets in the U.S. Dollar amountare presented in the statement of financial position within the line items of “assets held for sale,” including a proportional allocation of goodwill of $291 million, and “liabilities directly related to assets held for sale,” respectively. Moreover, for purposes of the income statements for the years ended December 31, 2017, 2018 and 2019 the operations related to this segment are presented net of income tax in the single line item “Discontinued operations.” See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Assets Divestiture Plans” for more information regarding this transaction.
On June 28, 2019, after obtaining customary authorizations, we closed with several counterparties the sale of our ready-mix and aggregates business in the central region of France for an aggregate price of €31.8 million ($36.2 million). Our operations of these disposed assets in France for the period from January 1 to June 28, 2019 and for the years ended December 31, 2017 and 2018 are reported in the income statements, net of income tax, in the single line item “Discontinued operations,” including in 2019 a gain on sale of $17 million net of a proportional allocation of goodwill related to this reporting segment of $8 million.
On May 31, 2019, we concluded the sale of our aggregates and ready-mix assets in the North and North-West regions of Germany to GP Günter Papenburg AG for €87 million ($97 million). The assets divested in Germany consisted of four aggregates quarries and four ready-mix facilities in North Germany, and nine aggregates quarries and 14 ready-mix facilities in North-West Germany. Our operations of these disposed assets for the period from January 1 to May 31, 2019 and for the years ended December 31, 2017 and 2018 are reported in the income statements net of income tax in the single line item “Discontinued operations,” including in 2019 a gain on sale of $59 million.
On March 29, 2019, we closed the sale of our businesses in the Baltics and Nordics to the German building materials group Schwenk ZementKG (“Schwenk”) for a price in Euro equivalent to $387 million. The divested Baltic assets consisted of one cement production plant in Broceni with a production capacity of 1.7 million tons, four aggregates quarries, two cement quarries, six ready-mix plants, one marine terminal and one land distribution terminal in Latvia. The divested assets also included our 37.8% indirect interest in one cement production plant in Akmene, Lithuania with a production capacity of 1.8 million tons, as well as the exports business in Estonia. The divested Nordic assets consisted of three import terminals in Finland, four import terminals in Norway and four import terminals in Sweden. Our operations of these disposed assets for the period from January 1 to March 29, 2019 and for the years ended December 31, 2017 and 2018 are reported in the income statements net of income tax in the single line item “Discontinued operations,” including a gain on sale of $66 million in 2019.
On March 29, 2019, we entered into a binding agreement with Çimsa Çimento Sanayi Ve Ticaret A.Ş. to divest our white cement business outside of Mexico and the U.S. for $180 million, including our Buñol cement plant in Spain and our white cement customers list. The closing of the transaction andis subject to approval by Spanish authorities. As of the corresponding Mexican Peso amount that is presenteddate of this annual report, we expect to close the transaction during the first half of 2020, but we are not able to assess if COVID-19 will delay the closing of this divestment or prevent us from closing. Our operations of these assets in our 2017 audited consolidated financial statements. These translations have been prepared solelySpain for the convenience of the reader and should not be construed as representations that the Mexican Peso amounts actually represent those Dollar amounts or could be converted into Dollars at the rate indicated. The noon buying rate for Mexican Pesos onyears ended December 31, 2017, was Ps19.64 to U.S.$1.00. Between January 1, 2018 and April 20,2019 are reported in the income statements, net of income tax, in the single line item “Discontinued operations.”
On September 27, 2018, we concluded the Mexican Peso appreciated by approximately 6% againstsale of our construction materials operations in Brazil (the “Brazilian Operations”) through the sale to Votorantim Cimentos N/NE S.A. of all the shares of our Brazilian subsidiary Cimento Vencemos Do Amazonas Ltda., consisting of a fluvial cement distribution terminal located in Manaus, Amazonas province, as well as the operating license. The sale price was $31 million.
On June 30, 2017, we concluded the sale of our Pacific Northwest Materials Business (the “Pacific Northwest Materials Business”) consisting of aggregate, asphalt and ready-mix concrete operations in Oregon and Washington to Cadman Materials, Inc. (“Cadman Materials”), a subsidiary of HeidelbergCement Group, for $150 million. We recorded a net gain on disposal of these assets of $22 million, which included a proportional allocation of goodwill of $73 million. The operations of our Pacific Northwest Materials Business for the six-month period ending June 30, 2017 are reported in the income statements, net of income tax, in the single line item “Discontinued operations.”
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On January 31, 2017, we concluded the sale of our Concrete Reinforced Pipe Manufacturing Business (“Concrete Pipe Business”) in the U.S. Dollar,to Quikrete Holdings, Inc. (“Quikrete”) for $500 million plus a potential contingent consideration based on future performance of $40 million. We determined a net gain on disposal of these assets of $148 million which included a proportional allocation of goodwill of $260 million. The operations of the noon buying rateConcrete Pipe Business for Mexican Pesos.
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES
Selected Consolidated Financial Information
As of and for the Year Ended December 31, | ||||||||||||||||||||
2015(14)(16) | 2016(14)(16) | 2017(14) | 2018(14) | 2019 | ||||||||||||||||
(in millions of Dollars, except ratios and share and per share amounts) | ||||||||||||||||||||
Income Statement Information: | ||||||||||||||||||||
Revenues | $ | 13,726 | $ | 13,355 | $ | 12,926 | $ | 13,531 | $ | 13,130 | ||||||||||
Cost of sales(1) | (9,050 | ) | (8,568 | ) | (8,365 | ) | (8,849 | ) | (8,825 | ) | ||||||||||
Gross profit | 4,676 | 4,787 | 4,561 | 4,682 | 4,305 | |||||||||||||||
Operating expenses | (2,996 | ) | (2,882 | ) | (2,826 | ) | (2,979 | ) | (2,972 | ) | ||||||||||
Operating earnings before other expenses, net(2) | 1,680 | 1,905 | 1,735 | 1,703 | 1,333 | |||||||||||||||
Other expenses, net | (182 | ) | (91 | ) | (205 | ) | (296 | ) | (347 | ) | ||||||||||
Operating earnings(2) | 1,498 | 1,814 | 1,530 | 1,407 | 986 | |||||||||||||||
Financial items(3) | (1,325 | ) | (931 | ) | (902 | ) | (724 | ) | (782 | ) | ||||||||||
Share of profit of equity accounted investees | 44 | 37 | 33 | 34 | 49 | |||||||||||||||
Earnings before income tax | 217 | 920 | 661 | 717 | 253 | |||||||||||||||
Discontinued operations(4) | 62 | 38 | 222 | 77 | 88 | |||||||||||||||
Non-controlling interest net income | 58 | 64 | 75 | 42 | 36 | |||||||||||||||
Controlling interest net income | 58 | 726 | 792 | 528 | 143 | |||||||||||||||
Basic earnings per share(5)(6) | 0.0015 | 0.0164 | 0.0174 | 0.0114 | 0.0031 | |||||||||||||||
Diluted earnings per share(5)(6) | 0.0015 | 0.0164 | 0.0174 | 0.0114 | 0.0031 | |||||||||||||||
Basic earnings per share from continuing operations(5)(6) | 0.0001 | 0.0155 | 0.0125 | 0.0098 | 0.0012 | |||||||||||||||
Diluted earnings per share from continuing operations(5)(6) | 0.0001 | 0.0155 | 0.0125 | 0.0098 | 0.0012 | |||||||||||||||
Number of shares outstanding(5)(7)(8) | 49,124 | 48,668 | 48,439 | 48,015 | 47,322 | |||||||||||||||
Statement of Financial Position Information: | ||||||||||||||||||||
Cash and cash equivalents | 887 | 561 | 699 | (15) | 309 | 788 | ||||||||||||||
Assets held for sale(9) | 313 | 1,015 | 70 | (15) | 107 | 839 | ||||||||||||||
Property, machinery and equipment, net and assets for the right-of-use, net(13) | 12,428 | 11,107 | 12,782 | (15) | 12,454 | 11,850 | ||||||||||||||
Total assets | 31,472 | 28,944 | 29,884 | (15) | 29,181 | 29,363 | ||||||||||||||
Short-term debt | 13 | 59 | 864 | (15) | 45 | 62 | ||||||||||||||
Long-term debt | 13,298 | 11,342 | 9,009 | (15) | 9,266 | 9,303 | ||||||||||||||
Liabilities directly related to assets held for sale | 39 | 39 | — | 16 | 37 | |||||||||||||||
Non-controlling interest and Perpetual Debentures(10) | 1,178 | 1,397 | 1,571 | (15) | 1,572 | 1,503 | ||||||||||||||
Total controlling interest | 8,327 | 8,097 | 9,027 | (15) | 9,481 | 9,321 | ||||||||||||||
Other Financial Information: | ||||||||||||||||||||
Book value per share(5)(8)(11) | 0.1695 | 0.1664 | 0.1864 | (15) | 0.1975 | 0.1970 | ||||||||||||||
Operating margin before other expenses, net | 12.3 | % | 14.3 | % | 13.4 | % | 12.6 | % | 10.2 | % | ||||||||||
Operating EBITDA(12) | 2,596 | 2,761 | 2,698 | 2,685 | 2,378 | |||||||||||||||
Capital expenditures | 764 | 685 | 984 | 964 | 1,033 | |||||||||||||||
Depreciation and amortization of assets | 916 | 856 | 963 | 982 | 1,045 | |||||||||||||||
Net cash flow provided by operating activities from continuing operations before financial expense, coupons on Perpetual Debentures and income taxes | 2,719 | 3,278 | 2,859 | 2,383 | 2,144 | |||||||||||||||
Basic earnings per CPO from continuing operations(5)(6) | 0.0003 | 0.0465 | 0.0375 | 0.0294 | 0.0036 | |||||||||||||||
Basic earnings per CPO(5)(6) | 0.0045 | 0.0492 | 0.0522 | 0.0342 | 0.0093 | |||||||||||||||
Total debt plus other financial obligations(13) | 15,566 | 13,218 | 12,626 | (15) | 11,758 | 11,790 |
As of and For the Year Ended December 31, | ||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||
(in millions of Mexican Pesos, except ratios and share and per share amounts) | ||||||||||||||||||||
Income Statement Information: | ||||||||||||||||||||
Net sales | Ps 190,370 | Ps 199,942 | Ps 219,299 | Ps 249,945 | Ps 258,131 | |||||||||||||||
Cost of sales(1) | (130,686 | ) | (134,742 | ) | (144,513 | ) | (160,433 | ) | (169,534 | ) | ||||||||||
Gross profit | 59,684 | 65,200 | 74,786 | 89,512 | 88,597 | |||||||||||||||
Operating expenses | (40,404 | ) | (43,347 | ) | (47,910 | ) | (53,969 | ) | (56,026 | ) | ||||||||||
Operating earnings before other expenses, net(2) | 19,280 | 21,853 | 26,876 | 35,543 | 32,571 | |||||||||||||||
Other expense, net | (4,863 | ) | (5,045 | ) | (3,032 | ) | (1,670 | ) | (3,815 | ) | ||||||||||
Operating earnings(2) | 14,417 | 16,808 | 23,844 | 33,873 | 28,756 | |||||||||||||||
Financial items(3) | (18,195 | ) | (18,952 | ) | (21,117 | ) | (16,998 | ) | (15,685 | ) | ||||||||||
Share of profit of equity accounted investees | 232 | 294 | 737 | 688 | 588 | |||||||||||||||
Earnings (loss) before income tax | (3,546 | ) | (1,850 | ) | 3,464 | 17,563 | 13,659 | |||||||||||||
Discontinued operations(4)(5) | 97 | 90 | 1,028 | 768 | 3,499 | |||||||||||||||
Non-controlling interest net income | 1,223 | 1,103 | 923 | 1,173 | 1,417 | |||||||||||||||
Controlling interest net income (loss) | (10,834 | ) | (6,783 | ) | 1,201 | 14,033 | 15,221 | |||||||||||||
Basic earnings (loss) per share(6)(7) | (0.28 | ) | (0.16 | ) | 0.03 | 0.32 | 0.34 | |||||||||||||
Diluted earnings (loss) per share(6)(7) | (0.28 | ) | (0.16 | ) | 0.03 | 0.32 | 0.34 | |||||||||||||
Basic earnings (loss) per share from continuing operations(6)(7) | (0.29 | ) | (0.16 | ) | 0.01 | 0.30 | 0.26 | |||||||||||||
Diluted earnings (loss) per share from continuing operations(6)(7) | (0.29 | ) | (0.16 | ) | 0.01 | 0.30 | 0.26 | |||||||||||||
Number of shares outstanding(6)(8)(9) | 34,270 | 37,370 | 49,124 | 48,668 | 48,439 | |||||||||||||||
Statement of Financial Position Information: | ||||||||||||||||||||
Cash and cash equivalents | 15,176 | 12,589 | 15,322 | 11,616 | 13,741 | |||||||||||||||
Assets from discontinued operations held for sale(4)(5) | — | — | 1,945 | 21,029 | 1,378 | |||||||||||||||
Property, machinery and equipment, net | 205,717 | 202,928 | 216,694 | 230,134 | 232,160 | |||||||||||||||
Total assets | 496,130 | 514,961 | 542,264 | 599,728 | 567,581 | |||||||||||||||
Short-term debt including current maturities of long-term debt | 3,959 | 14,507 | 223 | 1,222 | 16,973 | |||||||||||||||
Long-term debt | 187,021 | 191,327 | 229,125 | 235,016 | 177,022 | |||||||||||||||
Liabilities from operations held for sale | — | — | — | 815 | — | |||||||||||||||
Non-controlling interest and perpetual debentures(10) | 14,939 | 17,068 | 20,289 | 28,951 | 30,879 | |||||||||||||||
Total controlling interest | 133,379 | 131,103 | 143,479 | 167,774 | 179,539 | |||||||||||||||
Other Financial Information: | ||||||||||||||||||||
Net working capital(11) | 20,754 | 20,757 | 16,806 | 7,920 | 2,902 | |||||||||||||||
Book value per share(6)(9)(12) | 3.89 | 3.51 | 2.92 | 3.45 | 3.71 | |||||||||||||||
Operating margin before other expense, net | 10.1 | % | 10.9 | % | 12.3 | % | 14.2 | % | 12.6 | % | ||||||||||
Operating EBITDA from continuing operations(13) | 33,447 | 35,556 | 41,534 | 51,534 | 48,563 | |||||||||||||||
Ratio of Operating EBITDA to interest expense(13) | 1.7 | 1.7 | 2.1 | 2.4 | 2.5 | |||||||||||||||
Capital expenditures | 8,409 | 9,486 | 12,313 | 13,279 | 12,419 | |||||||||||||||
Depreciation and amortization | 14,167 | 13,703 | 14,658 | 15,991 | 15,992 | |||||||||||||||
Net cash flow provided by operating activities from continuing operations before financial expense, coupons on perpetual debentures and income taxes | 26,400 | 35,445 | 43,441 | 61,267 | 51,389 | |||||||||||||||
Basic earnings (loss) per CPO of continuing operations(6)(7) | (0.87 | ) | (0.48 | ) | 0.03 | 0.90 | 0.78 | |||||||||||||
Basic earnings (loss) per CPO(6)(7) | (0.84 | ) | (0.48 | ) | 0.09 | 0.96 | 1.02 | |||||||||||||
Total debt plus other financial obligations | 230,298 | 244,429 | 268,203 | 273,868 | 226,216 |
(1) | Cost of sales includes depreciation, amortization and depletion of assets involved in production, expenses related to storage in production plants, freight expenses of raw materials in plants and delivery expenses of ourready-mix concrete business. Our cost of sales excludes (i) expenses related to personnel and equipment comprising our selling network and those expenses related to warehousing at the points of sale and (ii) freight expenses of finished products from our producing plants to our points of sale and from our points of sale to our customers’ locations, which are all included as part of the line item titled “Operating expenses.” |
(2) | In the income statements, |
consolidated financial statements included elsewhere in this annual report. Under IFRS, while there are line items that are customarily included in the income statements, such as |
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(3) | Financial items include our financial |
(4) | Considering the disposal of entire reportable operating segments as well as the sale of significant businesses, CEMEX’s income statements present in the single line item of “Discontinued operations” the results of: (a) the assets held for sale in the United Kingdom for the years 2017, |
(5) |
CEMEX, S.A.B. de C.V.’s capital stock consists of Series A shares and Series B shares. Each CPO represents two Series A shares and one Series B share. As of December 31, |
(6) | Earnings |
underlying each CPO). Basic |
(7) | CEMEX, S.A.B. de C.V. did not declare a dividend for fiscal |
Represents the |
(9) | In 2015, includes the |
(10) | As of December 31, |
Book value per share is calculated by dividing the total controlling interest by the number of shares outstanding. |
(12) | Operating EBITDA equals operating earnings before other expenses, net, plus |
(13) | From 2017 through 2019, other financial obligations include: (a) lease contracts as per IFRS 16; (b) liabilities secured with accounts receivable; and (c) the liability components associated with CEMEX’s financial instruments convertible into CEMEX’s CPOs. In 2015 and 2016, other financial obligations included capital leases according to former IAS 17. See notes 2.1, 14.2 and 16.2 to our 2019 audited consolidated financial statements included elsewhere in this annual report. |
(14) | The information for the years ended December 31, 2015 and 2016 does not include rights of use, as IFRS 16 requires. The information for the years ended December 31, 2017 and 2018 was re-presented after the adoption of IFRS 16 and discontinued operations. See note 2.1 to our 2019 audited consolidated financial statements included elsewhere in this annual report. |
(15) | The amounts that correspond to “Statement of Financial Position Information” presented in the 2017-year column, as well as the information derived from such financial statement, are amounts which represent balances as of January 1, 2018 and not December 31, 2017. |
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(16) | In 2019, CEMEX changed its presentation currency from the Mexican Peso to the Dollar and adopted IFRS 16, both with retrospective effect for 2017 and 2018. See note 2.1 to our 2019 audited consolidated financial statements included elsewhere in this annual report. The amounts for 2015 and 2016 were translated into Dollars using the exchange rates at the reporting date for the balance sheet and the exchange rates at the end of each month for the income statement. |
For the Year Ended December 31, | ||||||||||||||||||||
2015(1) | 2016(1) | 2017(2) | 2018(2) | 2019 | ||||||||||||||||
(in millions of Dollars) | ||||||||||||||||||||
Reconciliation of Net cash flow provided by operating activities from continuing operations before financial expense, coupons on Perpetual Debentures and income taxes to Operating EBITDA | ||||||||||||||||||||
Net cash flow provided by operating activities from continuing operations before financial expense, coupons on Perpetual Debentures and income taxes | $ | 2,719 | $ | 3,278 | $ | 2,859 | $ | 2,383 | $ | 2,144 | ||||||||||
Plus/minus: | ||||||||||||||||||||
Changes in working capital excluding income taxes | 225 | 589 | (431 | ) | 55 | (98 | ) | |||||||||||||
Depreciation and amortization of assets | (916 | ) | (856 | ) | (963 | ) | (982 | ) | (1,045 | ) | ||||||||||
Other items, net | (348 | ) | (1,106 | ) | 270 | 247 | 332 | |||||||||||||
Operating earnings before other expenses, net | 1,680 | 1,905 | 1,735 | 1,703 | 1,333 | |||||||||||||||
Plus: | ||||||||||||||||||||
Depreciation and amortization of assets | 916 | 856 | 963 | 982 | 1,045 | |||||||||||||||
Operating EBITDA | $ | 2,596 | $ | 2,761 | $ | 2,698 | $ | 2,685 | $ | 2,378 |
For the Year Ended December 31, | ||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||
(in millions of Mexican Pesos) | ||||||||||||||||||||
Reconciliation of Operating EBITDA to net | ||||||||||||||||||||
Operating EBITDA | Ps 33,447 | Ps 35,556 | Ps 41,534 | Ps 51,534 | Ps 48,563 | |||||||||||||||
Less: | ||||||||||||||||||||
Depreciation and amortization expense | 14,167 | 13,703 | 14,658 | 15,991 | 15,992 | |||||||||||||||
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Operating earnings before other expenses, net | 19,280 | 21,853 | 26,876 | 35,543 | 32,571 | |||||||||||||||
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Plus/minus: | ||||||||||||||||||||
Changes in working capital excluding income taxes | (4,237 | ) | 1,475 | 3,596 | 11,017 | 8,040 | ||||||||||||||
Depreciation and amortization | 14,167 | 13,703 | 14,658 | 15,991 | 15,992 | |||||||||||||||
Other items, net | (2,810 | ) | (1,586 | ) | (1,689 | ) | (1,284 | ) | (5,214 | ) | ||||||||||
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Net cash flow provided by operations activities from continuing operations before financial expense, coupons on perpetual debentures and income taxes | Ps 26,400 | Ps 35,445 | Ps 43,441 | Ps 61,267 | Ps 51,389 | |||||||||||||||
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(1) | The information for the years ended December 31, 2015 and 2016 was not re-presented for the effects of IFRS 16. |
(2) | As re-presented after the adoption of IFRS 16 and discontinued operations. |
Item 4—Information on the Company
Unless otherwise indicated, references in this annual report to our sales and assets, including percentages, for a country or region are calculated before eliminations resulting from consolidation, and thus include intercompany balances between countries and regions. These intercompany balances are eliminated when calculated on a consolidated basis.
CEMEX, S.A.B. de C.V. is a publicly traded variable stock corporation with variable capital, or(sociedad anónima bursátil de capital variable,) organized under the laws of Mexico, with its principal executive offices located at Avenida Ricardo Margáin Zozaya #325, Colonia Valle del Campestre, San Pedro Garza García, Nuevo León, 66265, Mexico. OurCEMEX, S.A.B. de C.V.’s main phone number is +52 81 8888-8888.
Our website is located at www.cemex.com. The information on our website is not, and is not intended to be, part of this annual report and is not incorporated into this annual report by reference.
CEMEX, S.A.B. de C.V. was foundedstarted doing business in 1906 and was registered with the Mercantile Section of the Public Registry of Property and Commerce in Monterrey, Nuevo León, Mexico, on June 11, 1920 for a period of 99 years. At CEMEX, S.A.B. de C.V.’s 2002 ordinary general shareholders’ meeting, this period was extended to the year 2100 and in 2015 this period changed to be indefinite. Beginning April 2006, CEMEX’s full legal and commercial name is CEMEX,Sociedad Anónima Bursátil de Capital Variable.Variable.
CEMEX is
We are one of the largest cement companies in the world, based on annual installed cement production capacity and sales volumes ascapacity. As of December 31, 2017, of approximately 92.42019, we had 93.1 million tons of annual installed cement production capacity and 68.5our cement sales volumes in 2019 were 62.8 million tons, respectively. After the merger of Holcim with Lafarge during 2015, which resulted in the company LafargeHolcim Ltd. (“LafargeHolcim”),tons. We estimate we are the next largestready-mix concrete company in the world with annual sales volumes of approximately 51.7 million cubic meters and one of the largest ready-mix concrete and aggregates companies in the world with annual sales volumes of approximately 147.450.1 million cubic meters and 135.1 million tons, respectively, in each case, based on our annual sales volumes in 2017.2019. We are also one of the world’s largest traders of cement and clinker, having traded approximately 109.2 million tons of cement and clinker in 2017.2019. This information does not include discontinued operations. See note 4.2 to our 20172019 audited consolidated financial statements included elsewhere in this annual report. CEMEX, S.A.B. de C.V. is an operating and a holding company engaged, directly or indirectly, through its operating subsidiaries, primarily in the production, distribution, marketing and sale of cement,ready-mix
concrete, aggregates, clinker and other construction materials throughout the world,world. We also provide related services and that provides reliable construction-related services to customers and communities and maintain business relationships in more than 50 countries throughout the world, and maintains business relationships in over 100 countries worldwide.world.
We operate globally,in different parts of the world, with operations in Mexico, the United States,U.S., Europe, South America, Central America, the Caribbean (“SCA&C”), Asia, the Middle East and Africa. We had total assets of Ps567,581$29,363 million (U.S.$28,885 million) as of December 31, 2017,2019, and an equity market capitalization of approximately Ps193,367$3,032 million (U.S.$10,435 million) as of April 20, 2018.2020.
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As of December 31, 2017,2019, our cement production facilities were located in Mexico, the United States,U.S., the United Kingdom, Germany, Spain, Poland, Latvia,the Czech Republic, Croatia, Colombia, Panama, Costa Rica, Guatemala, the Dominican Republic, Puerto Rico, Nicaragua, Trinidad and Tobago, Jamaica, Barbados, Egypt, the UAE, and the Philippines. As of December 31, 2017,2019, our assets (after eliminations), cement and grinding plants andas well as installed capacity, on an unconsolidated basis by region, were as set forth below. Installed capacity, which refers to theoretical annual production capacity, represents gray portland cement and white cement equivalentgrinding capacity which counts each ton of white cement capacity as approximately two tons of gray portland cement capacity,including, for example, the grinding mill in the UAE, and includes installed capacity of cement and grinding plants that have been temporarily closed. Installed capacity may vary due to product mix changes in our production facilities.
As of December 31, 2017 | As of December 31, 2019 | |||||||||||||||||||||||
Assets After Eliminations (in Billions of Mexican Pesos) | Number of Cement Plants | Installed Cement Production Capacity (Millions of Tons Per Annum) | Assets After Eliminations (in Millions of Dollars) | Number of Cement and Grinding Plants | Installed Cement Grinding Capacity (Millions of Tons Per Annum) | |||||||||||||||||||
Mexico(1) | Ps 72 | 15 | 29.5 | $ | 3,910 | 15 | 26.4 | |||||||||||||||||
United States(2) | 268 | 11 | 15.2 | |||||||||||||||||||||
U.S.(2) | 13,898 | 10 | 14.1 | |||||||||||||||||||||
Europe | ||||||||||||||||||||||||
United Kingdom | 35 | 2 | 2.4 | 1,562 | 3 | 3.6 | ||||||||||||||||||
France | 20 | — | — | 978 | — | — | ||||||||||||||||||
Germany | 9 | 1 | 2.4 | 401 | 2 | 3.1 | ||||||||||||||||||
Spain | 26 | 7 | 10.4 | 1,190 | 6 | 7.7 | ||||||||||||||||||
Poland | 5 | 2 | 3.0 | |||||||||||||||||||||
Rest of Europe(3) | 16 | 5 | 5.7 | |||||||||||||||||||||
South, Central America and the Caribbean (“SAC”) | ||||||||||||||||||||||||
Rest of Europe(3) | 756 | 8 | 8.1 | |||||||||||||||||||||
SCA&C | ||||||||||||||||||||||||
Colombia | 24 | 2 | 4.0 | 1,187 | 4 | 4.1 | ||||||||||||||||||
Panama | 7 | 1 | 2.1 | 337 | 1 | 1.2 | ||||||||||||||||||
Costa Rica | 2 | 1 | 0.9 | |||||||||||||||||||||
Caribbean TCL(4) | 11 | 3 | 2.5 | |||||||||||||||||||||
Rest of South, Central America and the Caribbean(5) | 11 | 3 | 4.4 | |||||||||||||||||||||
Asia, Middle East and Africa | ||||||||||||||||||||||||
Caribbean TCL(4) | 542 | 3 | 2.9 | |||||||||||||||||||||
Dominican Republic | 193 | 1 | 2.4 | |||||||||||||||||||||
Rest of South, Central America and the Caribbean(5) | 381 | 6 | 3.3 | |||||||||||||||||||||
Asia, Middle East and Africa (“AMEA”) | ||||||||||||||||||||||||
Philippines | 12 | 2 | 4.5 | 689 | 2 | 5.7 | ||||||||||||||||||
Egypt | 5 | 1 | 5.4 | |||||||||||||||||||||
Rest of Asia, Middle East and Africa(6) | 14 | — | — | |||||||||||||||||||||
Israel | 611 | — | — | |||||||||||||||||||||
Rest of Asia, Middle East and Africa(6) | 423 | 2 | 6.6 | |||||||||||||||||||||
Corporate and Other Operations | 30 | — | — | 1,466 | — | — | ||||||||||||||||||
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Continuing Operations | 567 | — | — | 28,524 | 63 | 89.2 | ||||||||||||||||||
Assets held for sale | 1 | — | — | |||||||||||||||||||||
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Assets held for sale(7) | 839 | 2 | 3.9 | |||||||||||||||||||||
Total | Ps 568 | 56 | 92.4 | $ | 29,363 | 65 | 93.1 | |||||||||||||||||
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“—” Not applicable
The above table includesexcludes our proportional interest in the installed capacity of companies in which we hold anon-controlling interest and reflects our organizational structure as of December 31, 2017.
(1) | “Number of cement plants” and “installed cement production capacity” includes two cement plants that were temporarily inactive with an aggregate annual installed capacity of |
(2) | “Number of cement plants” and “installed cement production capacity” includes two cement plants that were temporarily inactive with an aggregate annual installed capacity of |
(3) | “Rest of Europe” refers |
(4) | “ |
(5) | “Rest of South, Central America and the Caribbean” or “Rest of SCA&C” refers |
(6) | “Rest of Asia, Middle East and Africa” or “Rest of AMEA” includes mainly our operations |
During
(7) | Number of Cement Plants and Installed Cement Production Capacity classified under “Assets held for sale” refers mainly to our cement plants in Louisville, KY, U.S. and Buñol, Spain. |
For the majority of the last 2730 years, we had embarked on a major geographic expansion program intended to diversify our cash flows and enter into markets whose economic cycles within the cement industry operate largely operate independently from those of Mexico and which offerwe believe offered long-term growth potential. We have built an extensive network of marine and land-based distribution centers and terminals that give us marketing access around the world. As part of our strategy, we also periodically review and reconfigure our operations in implementing our post-merger integration process, and we also divest assets that we believe are less importantfundamental to our strategic objectives.portfolio. The following are our most significant acquisitions, and our most significant divestitures and reconfigurations that we have announced or closed since 2014:2016:
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● | On December 2, 2016, we agreed to the sale of our assets and operations related to our ready-mix concrete pumping business in Mexico to Cementos Españoles de Bombeo, S. de R.L., a Mexican subsidiary of Pumping Team S.L.L. (“Pumping Team”), a specialist in the supply of ready-mix concrete pumping services based in Spain, for $88 million. This agreement included the sale of fixed assets upon closing of the transaction for $16 million plus administrative and client and market development services. Under this agreement, we will also lease facilities in Mexico to Pumping Team over a period of ten years with the possibility to extend such term for three additional years, for an aggregate initial amount of $77 million, plus contingent revenue, subject to results, productivity and term-extension fees for up to $30 million, linked to annual metrics within the first five years of the agreement. On April 28, 2017, after receiving the approval by the Mexican authorities, we concluded the sale. |
● | On December 5, 2016, Sierra Trading (“Sierra”), a wholly-owned CEMEX España subsidiary, one of our indirect subsidiaries, presented an offer (as amended, the “Offer”) to all shareholders of TCL, a company then publicly listed in Trinidad and Tobago, Jamaica and Barbados, to acquire up to 132,616,942 ordinary shares in TCL, pursuant to which Sierra offered a certain offer price (the “Offer Price”) payable at the option of shareholders of TCL, except for shareholders of TCL in Barbados, in either Trinidad and Tobago Dollars, or $ in Trinidad and Tobago and Jamaican Dollars, or $ in Jamaica. The Offer Price represented a premium of 50% over the December 1, 2016 closing price of TCL’s shares on the Trinidad and Tobago Stock Exchange. The total number of TCL shares tendered and accepted in response to the Offer was 113,629,723 which, together with Sierra’s pre-existing shareholding in TCL (147,994,188 shares), represented 69.83% of the outstanding TCL shares. The total cash payment by Sierra for the tendered shares was $86 million. CEMEX started consolidating TCL for financial reporting purposes on February 1, 2017. In March 2017, TCL de-listed from the Jamaica and Barbados stock exchanges. TCL’s subsidiaries include, but are not limited to, CCCL and Arawak Cement Company Limited (“Arawak”), which, as of December 31, 2019, owned cement plants in Jamaica and Barbados, respectively. |
● | On January 31, 2017, one of our subsidiaries in the U.S. closed the sale of its Concrete Pipe Business to Quikrete for $500 million plus an additional $40 million contingent consideration based on future performance. |
● | On February 10, 2017, one of our subsidiaries in the U.S. sold its Fairborn, Ohio cement plant and cement terminal in Columbus, Ohio to Eagle Materials for $400 million. |
● | During January and September 2017, by means of a public offering on the Mexican Stock Exchange (Bolsa Mexicana de Valores) (“MSE”) and a definitive sale to two financial institutions, respectively, we sold an aggregate of 76.5 million shares of Grupo Cementos de Chihuahua, S.A.B. de C.V. (“GCC”), representing a 23% equity interest in GCC that was held through our investments in companies in which we have a minority interest. We received combined proceeds of $377 million. We continue to hold a 20% indirect interest in GCC through Camcem, S.A. de C.V. (“CAMCEM”), GCC’s parent company. |
● | On June 30, 2017, one of our subsidiaries in the U.S. closed the divestment of the Pacific Northwest Materials Business, consisting of aggregate, asphalt and ready-mix concrete operations in Oregon and Washington to Cadman Materials for $150 million. |
● | On September 29, 2017, one of our subsidiaries in the U.S. closed the divestment of the Block USA Materials Business (the “Block USA Materials Business”), consisting of concrete block, architectural block, concrete pavers, retaining walls and building material operations in Alabama, Georgia, Mississippi and Florida, to Oldcastle APG South, Inc. (“Oldcastle") for $38 million. |
● | On February 14, 2018, we increased our interest in Lehigh White Cement Company, a company that manufactures white cement in the U.S., from 24.5% to 36.75% by paying a total consideration of $36 million. |
● | In August 2018, our subsidiary in the United Kingdom acquired shares of the ready-mix concrete producer Procon Readymix Ltd (“Procon”) for an amount in Pounds Sterling equivalent to $22 million, based on the Pound Sterling to Dollar exchange rate as of August 31, 2018. Based on the valuation of the fair values of the assets acquired and liabilities assumed, the net assets of Procon amount to $10 million and goodwill was determined in the amount of $12 million. See note 4.1 to our 2019 audited consolidated financial statements included elsewhere in this annual report. |
● | On September 27, 2018, one of our subsidiaries concluded the sale of our Brazilian Operations through the sale to Votorantim Cimentos N/NE S.A. of all shares of our Brazilian subsidiary Cimento Vencemos Do Amazonas Ltda., consisting of a fluvial cement distribution terminal located in Manaus, Amazonas province, as well as the related operating license. The sale price was $31 million. See note 4.2 to our 2019 audited consolidated financial statements included elsewhere in this annual report. |
● | On March 29, 2019, we closed the sale of our businesses in the Baltics and Nordics to the German building materials group Schwenk, for a price equivalent to $387 million. The divested Baltic business consisted of one cement production plant in Broceni with a production capacity of 1.7 million tons, four aggregates quarries, two cement quarries, six ready-mix plants, one marine terminal and one land distribution terminal in Latvia. The divested business also included our |
On July 18, 2016, CHP closed its initial public offering of 45% of its common shares in the Philippines, and 100% of CHP’s common shares started trading on the Philippine Stock Exchange under the ticker “CHP.” As of December 31, 2017, CASE, an indirect subsidiary of CEMEX, S.A.B. de C.V., directly owned 55% of CHP’s outstanding common shares. The net proceeds to CHP from its34
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● | On March 29, 2019, we entered into a binding agreement with Çimsa Çimento Sanayi Ve Ticaret A.Ş.to divest our white cement business outside of Mexico and the U.S. for $180 million, including our Buñol cement plant in Spain and our white cement customers list. The closing of the transaction is subject to approval by Spanish authorities. As of the date of this annual report, we expect to close the transaction during the first half of 2020, but we are not able to assess if COVID-19 will delay the closing of this divestment or prevent us from closing. |
● | On May 31, 2019, we concluded the sale of our aggregates and ready-mix business in the North and North-West regions of Germany to GP Günter Papenburg AG for €87 million ($97 million). The assets divested in Germany consisted of four aggregates quarries and four ready-mix facilities in North Germany, and nine aggregates quarries and 14 ready-mix facilities in North-West Germany. |
● | On June 28, 2019, after obtaining customary authorizations, we closed with several counterparties the sale of our ready-mix and aggregates business in the central region of France for an aggregate price of €31.8 million ($36.2 million). |
● | On November 26, 2019, our U.S. affiliate Kosmos, a partnership with a subsidiary of BUZZI Unicem S.p.A. in which CEMEX held a 75% interest, entered into a binding agreement for the sale of certain assets to Eagle Materials for $665 million. The divestiture successfully closed on March 6, 2020. The proceeds to CEMEX from this transaction was $499 million, minus transaction costs. The assets being divested consisted of the Kosmos cement plant in Louisville, Kentucky, as well as related assets which include seven distribution terminals and raw material reserves. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Assets Divestiture Plans” for more information regarding our assets in the U.S. |
● | As of December 31, 2019, through an affiliate in the United Kingdom, we were in negotiations with Breedon for the sale of certain assets in the United Kingdom for a total consideration of $235 million, including $31 million of debt. The assets held for sale mainly consist of 49 ready-mix plants, 28 aggregate quarries, four depots, one cement terminal, 14 asphalt plants, four concrete products operations, as well as a portion of our paving solutions business in the United Kingdom. After completion of the potential divestiture, we will retain significant operations in the United Kingdom related to the production and sale of cement, ready-mix concrete, aggregates, asphalt and paving solutions. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Assets Divestiture Plans” for more information regarding this transaction. |
● | On January 29, 2020, CHP announced the successful completion of its stock rights offering |
From January 1, 2016 to December 31, 2017, we sold assets for approximately U.S.$2.7 billion, thereby achieving our goal of U.S.$2.5 billion in asset sales by the end of 2017.
Geographic Breakdown of Net SalesRevenues for the Year Ended December 31, 20172019
The following chart indicates the geographic breakdown of our net sales,revenues, before eliminations resulting from consolidation, for the year ended December 31, 2017:2019:
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Breakdown of Net SalesRevenues by ProductLine of Business for the Year Ended December 31, 20172019
The following chart indicates the breakdown of our net salesrevenues by product, after eliminations resulting from consolidation, for the year ended December 31, 2017:2019:
We always strive to provide superior building solutions in the markets we serve. To this end, we tailor our products and services to suit customers’ specific needs, from home construction, improvement and renovation to agricultural, industrial and marine/hydraulic applications.
Cement
Cement is a binding agent, which, when mixed with sand, stone or other aggregates and water, produces eitherready-mix concrete or mortar. Whether in bags or in bulk, we provide our customers with high-quality branded cement products and services. We tapuse our professional knowledge and experience to develop customized products that fulfilldesigned to satisfy our clients’ specific requirements and that also foster sustainable construction. In many of the countries where we have cement operations, a large proportion of cement sold is a bagged, branded product. We often deliver the product to a large number of distribution outlets such that our bagged, branded cement is available to the end users inat a point of sale in close proximity to where the product will be used. We striveseek to develop brand identity and recognition in our bagged product.
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We manufacture cement through a closely controlled chemical process, which begins with the mining and crushing of limestone and clay, and, in some instances, other raw materials. The clay and limestone are thenpre-homogenized, a process which consists of combining different types of clay and limestone. The mix is typically dried, then fed into a grinder which grinds the various materials in preparation for the kiln. The raw materials are calcined, or processed, at a very high temperature in a kiln, to produce clinker. Clinker is the intermediate product used in the manufacture of cement. For limestone, clay and gypsum, requirements are based on chemical composition that, depending on the other materials available, matches with the quality demanded by
the production process. For cement limestone, clay and gypsum, we run chemical tests to prepare the mining plan of the quarry, to confirm material quality and reduce variations in the mineral content. We consider that limestone and clay quality of our cement raw material quarries are adequate for the cement production process.
There are two primary processes used to manufacture cement: the dry process and the wet process. The dry process is more fuel efficient. As of December 31, 2017,2019, 53 of our 5655 operative cement production plants used the dry process and threetwo used the wet process. Our operative production plants that use the wet process are in the United Kingdom, Nicaragua and Trinidad and Tobago. In the wet process, the raw materials are mixed with water to form slurry, which is fed into a kiln. Fuel costs are greater in the wet process than in the dry process because the water that is added to the raw materials to form slurry must be evaporated during the clinker manufacturing process. In the dry process, the addition of water and the formation of slurry are eliminated, and clinker is formed by calcining the dry raw materials. In the most modern application of this dry process technology, the raw materials are first blended in a homogenizing silo and processed through apre-heater tower that utilizes exhaust heat generated by the kiln topre-calcine the raw materials before they are calcined to produce clinker.
Clinker and gypsum are fed inpre-established proportions into a cement grinding mill where they are ground into an extremely fine powder to produce finished cement. We primarily cover our gypsum needs from third parties; however, we also operate gypsum quarries in the United States,U.S., Spain, the Dominican Republic and Egypt. Our main types of cement include the following:
Gray Ordinary Portland Cement: Our gray ordinary portland cement is a high-quality, cost-effective building material, mainly composed of clinker, that meets applicable chemical and physical requirements and is widely used in all construction segments: residential, commercial, industrial, and public infrastructure.
White Portland Cement: CEMEX is one of the world’s largest producers of white portland cement. We manufacture this type of cement with limestone, low iron content kaolin clay, and gypsum. Customers use our white portland cement in architectural works requiring great brightness and artistic finishes, to create mosaics and artificial granite, and for sculptural casts and other applications where white prevails.
Masonry or Mortar: Masonry or mortar is a portland cement that we mix with finely ground inert matter (limestone). Our customers use this type of cement for multiple purposes, including concrete blocks, templates, road surfaces, finishes, and brick work.
Oil-well Cement: Ouroil-well cement is a specially designed variety of hydraulic cement produced with gray portland clinker. It usually forges slowly and is manageable at high temperatures and pressures. Produced in classes from A to H and J, ouroil-well cement is applicable for different depth, chemical aggression, or pressure levels.
Blended Cement: Blended hydraulic cements are produced by inter-grinding or blending portland cement and supplementary cementitious materials such as ground granulated blast furnace slag, fly ash, silica fume, calcined clay, hydrated lime,limestone, and other pozzolans. The use of blended cements inready-mix concrete reduces mixing water and bleeding, improves workability and finishing, inhibits sulfate attack and the alkali-aggregate reaction, and reduces the heat of hydration. CEMEX offers an array of blended cements which have a lower CO2CO2 footprint resulting from their lower clinker content due to the addition of supplementary cementitious materials. The use of blended cements reinforces our strong dedication to sustainable practices and furthers our objective of offering an increasing range of more sustainable products.
Ready-Mix Concrete
Ready-Mix Concrete
Ready-mix concrete is a combination of cement, fine and coarse aggregates, admixtures (which control properties of the concrete including plasticity, pumpability,freeze-thaw resistance, strength and setting time), and water. We tailor ourready-mix concrete to fit our clients’ specific needs. By changing the proportion of
water, aggregates, and cement in the mix, we modify our concrete’s resistance, manageability, and finish. We also use additives to customize our concrete consistent with the transportation time from our plant to the project, weather conditions at the construction site, and the project’s specifications. From our water-resistant to our self-compacting concrete, we produce a great variety of specially designed concrete to meet the many challenges of modern construction.
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We develop solutions based on theour thorough knowledge and application ofready-mix concrete technology. Leveraging years of experience, a global pool of knowledge, andstate-of-the-art expertise about the differentready-mix concrete constituents and their interaction, we offer our customers tailor-designed concrete. CEMEXready-mix concrete technologists are able to modify the properties of concrete through the use of innovative chemical admixtures, combined with the proper proportions of the various concrete constituents. For example, depending on the type of application and jobsite requirements, we can designready-mix concrete that is more fluid, stronger, develops strength faster, and also retains workability longer. Through the development of chemical admixtures solutions, our researchers design special concretes that fulfill the construction industry’s increasingly demanding performance requirements. CEMEX offers a specialready-mix concrete portfolio, comprised of such products as ultra-rapid hardening concrete, crack-resistant/low shrinkage concrete, self-consolidating concrete, architectural concrete, pervious concrete, antibacterial concrete and a number of others.
We continuously work to improve the properties ofready-mix concrete that make it a key component of sustainable construction: durability, resistance to aggressive environments, light reflection, and capacity to store energy, among others. We also constantly work to develop innovative solutions that advance the sustainability of structures made withready-mix concrete. This way, our customers can design sustainable buildings that can take advantage of the benefits of concrete in a wide range of applications. We offer engineered concrete for harbors and bridges with a special design of high performancehigh-performance concrete that combines durability and low maintenance with resistance to aggressive environments, and for industrial applications which consists of concrete with high acid resistance which is robust and durable for such uses as cooling towers; wetowers. We also offer concrete for building and housing used for structures such as self-compacting concrete that improves the strength and durability of building structures, while reducing energy use and noise due to concrete vibration, and envelope concrete such as structural lightweight concrete or insulating concrete forms which offer insulation solutions to improve energy efficiency in buildings, and concrete for building design that takes advantage of concrete’s capacity to store energy—its thermal mass—minimizing temperature fluctuations in a building over the course of the day, reducing the need for additional heating and cooling; wecooling. We also offerready-mix concrete for water and wastewater management and for roads and pavements.
The types ofready-mix concrete we offer our clients include, but are not limited to:
StandardReady-Mix Concrete: Standardready-mix concrete is the most common form of concrete. It is prepared for delivery at a concrete plant instead of mixed on the construction site.
Architectural and Decorative Concrete: This type ofready-mix concrete can provide a structural function, as well as an aesthetic or decorative finish. It can offer smooth or rough surfaces or textures, as well as a variety or range of colors.
Rapid-Setting Concrete: Designed to enhance early strength development, this type ofready-mix concrete allows fast formwork removal, accelerated construction sequencing, and rapid repair for such jobs as roads and airport runways. Typically used in low temperature(5-10°C) concreting during winter, this type ofready-mix concrete can also be used in buildings, railways, and precast applications. In addition to saving time, this type ofready-mix concrete technology offers improved durability and acid resistance.
Fiber-Reinforced Concrete:Ready-mix concrete designed with micro or macro fibers that can be used either for structural applications, where the fibers can potentially substitute for steel rebar reinforcement, or for reducing shrinkage, primarily early age shrinkage. Macro fibers can significantly increase the ductility of concrete, making it highly resistant to crack formation and propagation.
Fluid-Fill Concrete: Fluid mortar orready-mix concrete simplifies the process of laying pipe and cable by surrounding the pipe or cable with a tightly packed shell that provides protection from the elements, prevents settling, and enables crews to work quickly.
Roller-Compacted Concrete: Compacted in place and cured, roller-compacted concrete is a zero slumpzero-slump ready-mix concrete with the abrasion resistance to withstand high velocity water, making it the material of choice for spillways and other infrastructure subject to high flow conditions. It represents a competitive solution in terms of cost and durability when compared to asphalt.
Self-Consolidating Concrete: Self consolidating concrete has very high flow; therefore, it is self-leveling, eliminating the need for vibration. Due to the superplasticizers used, chemical admixtures that impart very high flow, self-consolidating concrete exhibits very high compaction as a result of its low air content. Consequently, self-consolidating concrete can have very high strengths, exceeding 50 MPa.megapascals.
Pervious Concrete: Because of its unique design mix, pervious concrete is a highly porous material that allows water, particularly rainwater, to filter through, reduces flooding and heat concentration by up to 4°C, and helps to prevent skidding on wet roads. Thisready-mix concrete is ideally used in parking lots, footpaths, and swimming pool border applications.
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Antibacterial Concrete: This type ofready-mix concrete helps control bacteria growth and is used to help maintain clean environments in structures such as hospitals, laboratories, and farms.
Aggregates
We are one of the world’s largest suppliers of aggregates: primarily the crushed stone, sand and gravel, used in virtually all forms of construction. Our customers use our aggregates for a wide array of applications: as a key component in the construction and maintenance of highways, walkways, parking lots, airport runways, and railways; for drainage, water filtration, purification, and erosion control; as fill material; for sand traps on golf courses, beaches, playing field surfaces, horse racing tracks, and related applications; and to build bridges, homes, and schools.
Aggregates are obtained from land-based sources such as sand and gravel pits and rock quarries or by dredging marine deposits.
Hard Rock Production. Rock quarries usually operate for at least 30 years and are developed in distinct benches or steps. A controlled explosion is normally used to release the rock from the working face. It is then transported by truck or conveyor to a crusher to go through a series of crushing and screening stages to produce a range of final sizes to suit customers’ needs. Dry stone is delivered by road, rail or water from the quarry.
Sand and Gravel Production. Sand and gravel quarries are much shallower than rock quarries and are usually worked and restored in progressive phases. Water can either be pumped out of the quarries allowing them to be worked dry or they can be operated as lakes with extraction below water. A conveyor draws the raw material into the processing plant where it is washed to remove unwanted clay and to separate sand. Sand separated during processing is dewatered and stockpiled. Gravel then passes over a series of screens that sieve the material into different sizes. Processing separates the gravel into stockpiles in a range of sizes for delivery.
Marine Aggregate Production. A significant proportion of the demand for aggregates is satisfied from rivers, lakes, and seabeds.sea beds. Marine resources are increasingly important to the sustainable growth of the building materials industry. Marine aggregates also play an important role in replenishing beaches and protecting coastlines from erosion. At sea, satellite navigation is used to position a vessel precisely within its licensed dredging area. Vessels trail a pipe along the seabed and use powerful suction pumps to draw sand and gravel into the cargo hold. Dredged material is discharged at wharves, where it is processed, screened and washed for delivery.
Aggregates are an indispensable ingredient inready-mix concrete, asphalt, and mortar. Accounting for approximately 60% to 75% ofready-mix concrete’s volume, aggregates strongly influence concrete’s freshly mixed and hardened properties. Aggregates not only increase concrete’s strength, but also can make the mix more compact, enabling applications such as weatherproofing and heat retention. They can further contribute to concrete’s aesthetic qualities. For example, sand gives surface treatments their brightness.
The types of aggregates we offer our clients include, but are not limited to:
Crushed Stone and Manufactured Sand: These products are obtained by mining rock and breaking it down to a preferred size. In the case of manufactured sand, the product is obtained by crushing rock to the selected shape or texture, ensuring product and project specifications are met. Sources of crushed stone can be igneous, sedimentary, or metamorphic.
Gravel: Gravel deposits are produced through a natural process of weathering and erosion. It can be used for roads, for concrete manufacturing, or for decorative purposes.
Sand: Sand occurs naturally and is composed of fine rock material and mineral particles. Its composition is variable depending on the source. It can be used for roads, for concrete manufacturing, or sanitation.
Recycled Concrete: Recycled concrete is created by breaking, removing, and crushing existing concrete to a preferred size. It is commonly used as a base layer for other construction materials because it compacts to form a firm surface.
Related Products
We rely on our close relationship with our customers to offer them complementary products for their construction needs, which mainly include the following:
Asphalt: We offer a wide range of cost effective, high performance asphalt products, from our standard hot mix asphalt, which is made by combining crushed stone with liquid asphalt cement, to highly technical products that can be used on major highway systems, driveways, commercial parking lots, or rural country roads. Designed for consistency and reliability, our asphalt products are designed to withstand different weight loads, traffic volumes, and weather conditions.
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Concrete Block: Standard concrete block, sometimes referred to as gray block, concrete masonry unit, or cinder block, is one of the most practical and long-lasting materials used in building. Its strength, durability, and versatility, including its energy efficiency, excellent fire and high wind resistance, and noise insulation, make concrete block a compelling alternative to many other building materials.
Roof Tiles: We offer a comprehensive range of concrete roof tiles and fittings, designed to meet the requirements of most roofing applications. Available in a wide selection of sizes, shapes, and colors, our roof tiles serve residential and commercial needs.
Architectural Products: Ourhigh-end architectural concrete products offer a range of styles for different building or landscaping projects. Specialty rock products, as well as architectural block, in an array of colors, sizes, and textures, take our customers’ designdesigns to a new level. Block paving solutions and decorative paving provide an ideal range of applications for any hard landscaping project.
Pipe: We design and manufacture standard and special concrete pipe for various applications such as storm and sanitary sewers. Offered in diverse types, sizes, and lengths, our pipe products meet or exceed applicable standards and customer requirements throughout our different operations.
Other Precast Products: Among our other precast products, we offer rail products, concrete floors, box culverts, bridges, drainage basins, barriers, and parking curbs. In selected markets, we further complement our commercial offer with admixtures, gypsum, and cementitious materials such as fly ash and blast furnace slag.
Building Solutions
We help build the homes people live in, the roads that connect them, and the infrastructure that makes their cities vibrant. With over a century of experience delivering tailor-made building solutions, we work with our customers around the world to build sustainable structures that will thrive today and well into the future.
Housing: We integrate our cutting-edge design, building materials, and construction systems into flexible and replicable housing solutions for our clients and communities across the globe.
Paving: As the world’s leader in concrete-based pavement solutions, we help connect cities and their surrounding communities through safer, more durable, and energy-efficient highways, mass transit systems, airport runways, rural roadways, and city streets.
Green Building Consultancy: We are focused on delivering sustainable building solutions to the increasingly complex needs of a societysocieties with limited natural resources.
Urbanization Solutions
Our urbanization solutions seek to replicate stand-alone businesses, leverage our core business, and offer a value proposition based on sustainability and connect to the broader city ecosystem. Addressing urbanization challenges, our high-quality, sustainable construction products and innovative building solutions aim to exceed our customers’ expectations and meet society’s growing needs. We participate throughout the entire construction value chain and selectively in complementary businesses that enable us to become closer to our customers.
Services
We continuously communicate and interact with our customers to identify and implement effective ways to meet their toughest challenges. We recognize that customer loyalty happens by design, not by chance. To better serve our customers, we not only need to have a clear understanding of what they need, but also the means and passion to fulfill those needs.
In each market and locality in which we operate, we do our best to provide our customers with the most compelling integrated building solutions. For example, to solve infrastructure needs in major cities, we not only provide ready-mix concrete, but we also design the project, define the best technical solution, offer different financial schemes and execute the project in collaboration with local builders. Similarly, we work alongside our neighbors in small, less-affluent communities to help them solve their housing needs and pave their streets and sidewalks.
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The following are examples of the different services offered to our customers throughout our operations, all of which services are provided in substantially all our operations and may vary from location to location:
24/7 LOAD®: Our delivery service offers customers the ease of receiving products mostly whenever they need them, allowing our customers to optimize their project schedules according to their specific needs.
ATM-like Bulk Cement Dispatch System: This service offers our customers greater flexibility and efficiency. It enables them to get cement at their convenience, shortening their logistics schedules by minimizing loading and unloading times and also cutting back on more traditional transactional practices.
Construrama®: We partner with our cement distribution network to offer customers an extensive range of brand-name products at competitive prices. Our retailers also receive integral training to better manage all aspects of their business, including inventory management, product promotion, salesforce programs, product-delivery and sourcing logistics.
Customer-oriented Educational and Training Services: In several of the countries where we operate, customers can receive training on specific topics related to the use of building materials. By sharing knowledge and best practices, our educational and training services guide and teach our customers. Topics range from teaching customers about the characteristics and uses of white cement, to showing retailers how to improve their inventory management and increase their sales.
Construction Financing Services: Most of our customers can receive financing on certain projects and product purchases through various innovative financing programs that vary from country to country. For example, since 1998, our United Nations award-winninglow-income housing program,Patrimonio Hoy, has assisted more than 587,000 families with affordable services and building materials through financing mechanisms and technical assistance. Additionally, in certain countries where we operate, such as Mexico, we offerturn-key solutions for developers and partner with governments and local authorities to identify, coordinate, and develop public infrastructure projects.
Mobile Solutions: Through automated messages sent via short message services (SMS), most of our customers can be notified each time an order of cement orready-mix concrete is ready for delivery. Thisfree-of-charge service keeps our customers well informed of their specific project logistics. Most of our customers can also receive information about their pending invoice payments.
Multiproducts: We offer our customers in most of the countries in which we operate aone-stop shopping experience by providing them with a full array of complementary construction-related supplies through our retail stores from plumbing and electrical supplies to paint, lumber, and lighting fixtures.
Online Services: Most of our customers have all day online access to information, from account balances to new products and services releases through online services such as CEMEX Go, CEMEX Connect, CEMEX One, eSelling, CEMEXNet and Commercial Portal. Our customers can place online cement orders, and in some countries, they are able to review their order status at any time during theof day or night. The online service is also an open communication channel to receive feedback from our customers. We believe that our online services, such as CEMEX Go, can represent an advantage in certain situations, such as the COVID-19 pandemic, in which our customers can access our products and services remotely. During 2019, we successfully completed the deployment of our CEMEX Go digital platform throughout our targeted markets and it is now available in 21 countries. 90% of our total recurring cement, ready-mix concrete, and aggregates customers are using CEMEX Go, conducting more than half of their purchases, or more than 45% of our global sales, through the platform.
Service Centers: We offer aone-stop contact call center where customers can manage their business and find fast, reliable service, place orders, make inquiries, review order status, or request technical assistance, all in one single call.
Smart Silo®: We work together with our customers, so they always have the appropriate quantity of cement in their silos. Through24-hour monitoring of our customers’ silos’ cement stock levels, our SmartSilo®SmartSilo® technology allows us to anticipate and respond to their product replenishment needs ahead of time.
Technical Support: We lookaim to provide our customers withtop-level technical assistance through ourstate-of-the-art equipment and our highly professional, well-trained technical services staff. We look to take extra efforts and provide value above and beyond fulfilling our customers’ need for cement, aggregates,ready-mix concrete, and related products such as mortar.
Description of ourOur Raw Materials Reserves
We are a leading global provider of building materials, including cement,ready-mix concrete and aggregates. Our cement production process begins with the mining and crushing of limestone and clay, and, in some instances, other raw materials. We have access to limestone and clay quarries near most of our cement plant sites worldwide since these minerals are the main raw materials in the cement production process.
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In addition, we are one of the world’s largest suppliers of aggregates, primarily hard rock, sand and gravel, obtained from quarries, to be used inready-mix concrete and other concrete-based products such as blocks and pipes.
Customers use our aggregates for a wide array of purposes, from a key componentcomponents in the construction and maintenance of highways, walkways, and railways to an indispensable ingredientingredients in concrete, asphalt and mortar. Aggregates can be used in their natural state or crushed into smaller size pieces.
The types of mine mostly used to extract raw
Raw materials for aggregates and cement production are primarily extracted from open pit or open cut mines, which relate totarget deposits of economically useful minerals or rocks that are found near the land surface.Open-pit mines that produce raw material for our industry are commonly referred to as quarries.
Open-pit mines are typically enlarged until either the mineral resource is exhausted or an increasing ratio of overburden to exploitable material makes further mining uneconomic.economically unfeasible. In some cases, we also extract raw materials by dredging underwater deposits.
Aggregates and other raw
Raw materials for our own cement production processes are obtained mainly from our own sources. However, we may cover our needs for aggregates and other raw material needsmaterials through the supply from third-parties.third-party suppliers. For the year ended December 31, 2017, approximately 17%2019, 15% of our total raw material needs were supplied by third-parties.third parties.
Reserves are considered as proven when all legal and environmental conditions have been met and permits have been granted. Proven reserves are those for which (i) the quantity is computed from dimensions revealed by
drill data, together with other direct and measurable observations such as outcrops, trenches and quarry faces and (ii) the grade and/or quality are computed from the results of detailed sampling; and (iii) the sampling and measurement data are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of the reserves are well-established. Probable reserves are those for which quantity and grade and/or quality are computed from information similar to that used from proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.
Our reserve estimates are prepared by CEMEX’s engineers and geologists and are subject to annual review by our corporate staff jointly with the regional technical managers associated towith our business units. OnIn specific circumstances we have used the services of third-party geologists and/or engineers to validate our own estimates. OverDuring the three-year period ended December 31, 2017,2019, we have employed third-partiesthird parties to review (i) our cement raw materials reserves estimates in Mexico, Colombia, Nicaragua, Costa Rica, the United Kingdom, Germany, LatviaSpain and Spain,the Philippines and (ii) our aggregates reserves estimates in France, Poland, the Czech Republic, the United Kingdom, Germany and Mexico.
Reserves
Our reserves determination incorporatesincludes only materials meeting specific quality requirements. For aggregates used inready-mix concrete, such requirements are based on hardness, shape and size; forsize. For cement raw materials (mainly limestone and clay), such requirements are based on a chemical composition that matches the quality demanded by the production process. In the case of cement raw materials, since chemical composition varies frombetween production sites and even inwithin the same site, we conduct geostatistical chemical tests and determine the best blending proportions to meet production quality criteria and to try to maintain an extraction ratio close to 100% of the reported reserves for such materials.
The main equipment utilized in our production sites is as follows:
● | In our cement facilities: drills, crushers, kilns, coolers, mills, packing/loading machines, pay loaders, excavators, off-road trucks and other material handling equipment. |
● | In our ready-mix concrete facilities: batch plants, silos and mobile equipment and mixer trucks. |
● | In our aggregates facilities: drills, crushers, screens, belt conveyors, pay loaders, excavators, trucks and other material handling equipment. |
We believe that our facilities are generally in general good condition and adequate for efficient operations.
During 2017,2019, our total quarry material production was approximately 189.1179.1 million tons, of which approximately 63%62% was used for our own consumption to produce cement,ready-mix concrete and/or other products which are later sold to the public and the remaining 37%38% was directly sold to customers.
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Our estimates distinguish between owned and leased reserves, the laterlatter being determined over the term of the lease contract, and includeincluding only those permitted reserves which are proven and probable. As of December 31, 2017,2019, the total surface of property in our quarries operations (including cement raw materials quarries and aggregates quarries), was approximately 87,63986,054 hectares, of which approximately 80%82% was owned by us and approximately 20%18% was managed through lease or similar contracts.
As of December 31, 2017,2019, we operated 172187 cement raw materials quarries across our global operations, serving our facilities dedicated to cement production, which are located at or near the cement plant facilities. We estimate that our proven and probable cement raw material reserves, on a consolidated basis, have an average remaining life of approximately 8087 years, assuming 2013-20172015-2019 average annual cement production (last five years average production).
The table set forth below presents our total permitted proven and probable cement raw materials reserves by geographic segment and material type extracted or produced in our cement raw materials quarries operations.
Property Surface (hectares) | Reserves (Million tons) | 2019 | 5 years aver. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Location | Mineral | Number of quarries | Property Surface (hectares) | Reserves (Million tons) | Years to depletion | 2017 Annualized Production | 5 years aver. Annualized Production | Own Use | Mineral | Number of quarries | Owned | Leased | Proven | Probable | Total | Years to depletion | Annualized Production | Annualized Production | Own Use | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Owned | Leased | Proven | Probable | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mexico(1) | Limestone | 18 | 9,771 | 48 | 1,252 | 1,665 | 2,917 | 140 | 19.9 | 20.8 | 96 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mexico(1) | Limestone | 19 | 9,871 | 48 | 1,285 | 1,629 | 2,914 | 141 | 17.8 | 20.7 | 94 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 15 | 8,912 | — | 161 | 148 | 309 | 89 | 3.2 | 3.5 | 100 | % | Clay | 15 | 8,912 | — | 155 | 148 | 303 | 92 | 2.8 | 3.3 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 15 | 1,729 | 150 | 8 | 22 | 30 | 98 | 0.3 | 0.3 | 100 | % | Others | 16 | 1,756 | 150 | 8 | 24 | 32 | 98 | 0.5 | 0.3 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United States(2) | Limestone | 11 | 18,787 | — | 444 | 54 | 498 | 39 | 13.0 | 12.7 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United States(2) | Limestone | 18 | 18,933 | 91 | 482 | 136 | 618 | 50 | 13.0 | 12.2 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 3 | 144 | 39 | 20 | 13 | 33 | 0 | 0.4 | 0.0 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 2 | 132 | 7 | 22 | — | 22 | — | 0.3 | — | 0 | % | Others | 2 | 30 | — | — | 3 | 3 | 0 | 0.1 | 0.0 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Europe | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom | Limestone | 3 | 431 | 107 | 74 | 43 | 117 | 52 | 24 | 2.3 | 100 | % | Limestone | 3 | 431 | 107 | 52 | 59 | 111 | 46 | 2.1 | 2.4 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 2 | 98 | — | 14 | 18 | 32 | 49 | 0.7 | 0.7 | 100 | % | Clay | 2 | 108 | 107 | 22 | 5 | 27 | 21 | 0.6 | 1.3 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Germany | Limestone | 1 | 298 | — | 5 | 101 | 106 | 36 | 3.1 | 2.9 | 88 | % | Limestone | 1 | 298 | — | 5 | 88 | 93 | 37 | 2.6 | 2.5 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Spain | Limestone | 12 | 726 | 117 | 298 | 131 | 429 | 82 | 4.5 | 5.2 | 100 | % | Limestone | 12 | 726 | 117 | 289 | 131 | 420 | 93 | 4.1 | 4.5 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 6 | 64 | 72 | 18 | — | 18 | 26 | 0.5 | 0.7 | 96 | % | Clay | 6 | 64 | 30 | 17 | — | 17 | 38 | 0.4 | 0.5 | 93 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 2 | 102 | 9 | 1 | 14 | 15 | — | — | — | 0 | % | Others | 3 | 102 | 3 | 1 | 14 | 15 | 391 | 0.0 | 0.0 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Poland | Limestone | 2 | 288 | — | 70 | — | 70 | 26 | 3 | 3 | 96 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rest of Europe | Limestone | 4 | 745 | 50 | 202 | 47 | 249 | 55 | 4.6 | 4.5 | 98 | % | Limestone | 5 | 637 | 68 | 210 | 216 | 426 | 71 | 5.7 | 6.0 | 99 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 1 | 70 | — | 10 | 2 | 12 | 49 | 0.2 | 0.2 | 100 | % | Others | 1 | 4 | 5 | — | — | — | 60 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 1 | 4 | 5 | — | — | — | 60 | — | — | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SAC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCA&C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Colombia | Limestone | 13 | 3,026 | 1,751 | 51 | 191 | 242 | 59 | 3.8 | 4.1 | 92 | % | Limestone | 13 | 3,026 | 1,751 | 38 | 251 | 289 | 74 | 3.4 | 3.9 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 3 | 183 | 250 | — | 12 | 12 | 102 | — | 0.1 | 100 | % | Clay | 4 | 232 | 250 | 10 | 12 | 22 | 185 | (4) | 0.1 | 0.1 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 1 | 86 | 52 | — | 2 | 2 | 20 | 0.1 | 0.1 | 100 | % | Others | 2 | 86 | 153 | 1 | 11 | 12 | 65 | 0.1 | 0.2 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Panama | Limestone | 3 | 110 | — | 32 | 50 | 82 | 33 | 2 | 2 | 100 | % | Limestone | 3 | 110 | — | 68 | 24 | 92 | 46 | 1.5 | 2.0 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 2 | 179 | — | — | 15 | 15 | 50 | — | — | 100 | % | Clay | 2 | 179 | — | 6 | — | 6 | 25 | 0.2 | 0.3 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Costa Rica | Limestone | 1 | 48 | — | 37 | — | 37 | 40 | 1 | 1 | 98 | % | Limestone | 1 | 48 | — | 35 | — | 35 | 38 | 0.7 | 0.9 | 99 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 2 | 94 | 60 | 4 | 6 | 11 | 42 | — | — | 100 | % | Clay | 2 | 94 | 60 | 4 | 6 | 10 | 45 | 0.2 | 0.2 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 1 | 27 | — | 5 | — | 5 | 199 | — | — | 100 | % | Others | 1 | 27 | — | 5 | — | 5 | 206 | 0.0 | 0.0 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Caribbean TCL | Limestone | 3 | 103 | 40 | 3 | 248 | 251 | 108 | 2.1 | 2.3 | 100 | % | Limestone | 14 | 83 | 261 | 3 | 30 | 33 | 23 | 1.4 | 1.4 | 81 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 2 | 135 | — | 17 | — | 17 | 139 | 0.1 | 0.1 | 100 | % | Clay | 2 | 135 | — | 1 | 16 | 17 | 90 | 0.2 | 0.2 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 2 | 7 | — | — | — | — | 3 | 0.2 | 0.2 | 100 | % | Others | 6 | — | 23 | 1 | — | 1 | 10 | 0.1 | 0.1 | 9 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rest of South, Central America and the Caribbean | Limestone | 15 | 681 | 221 | 316 | 397 | 713 | 244 | 2.8 | 2.9 | 100 | % | Limestone | 4 | 701 | — | 311 | 608 | 919 | 291 | 2.7 | 3.2 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 2 | 242 | — | 21 | 30 | 51 | 429 | — | 01 | 100 | % | Clay | 2 | 242 | — | 21 | 30 | 51 | 2,104 | 0.0 | 0.0 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 5 | — | 1,566 | 12 | 50 | 62 | 26 | 0.1 | 2.3 | 60 | % | Others | 1 | — | 1,543 | 11 | 50 | 61 | 392 | 0.2 | 0.2 | 90 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asia, Middle East and Africa | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Philippines(3) | Limestone | 5 | 238 | — | 28 | 180 | 208 | 37 | 6.2 | 5.7 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Philippines(3) | Limestone | 7 | 278 | — | 216 | — | 216 | 38 | 5.7 | 5.7 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 3 | 37 | — | 1 | 2 | 3 | 17 | 0.1 | 0.2 | 100 | % | Clay | 3 | 37 | — | 1 | 2 | 3 | 14 | 0.0 | 0.2 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 5 | 76 | 9 | 6 | 3 | 8 | 11 | 0.4 | 0.7 | 100 | % | Others | 5 | 76 | 9 | 5 | — | 5 | 7 | 0.1 | 0.7 | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Egypt | Limestone | 2 | — | 203 | 286 | — | 286 | 53 | 4.5 | 5.4 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rest of Asia, Middle East and Africa | Limestone | 2 | — | 203 | 8 | 15 | 23 | 5 | 2.7 | 4.4 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 3 | — | 404 | 76 | 1 | 77 | 59 | 0.9 | 1.3 | 100 | % | Clay | 3 | — | 392 | 2 | 26 | 28 | 23 | 0.7 | 1.2 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 4 | — | 26 | 2 | — | 2 | 25 | — | 0.1 | 100 | % | Others | 4 | — | 4 | — | — | — | — | 0.0 | 0.2 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CEMEX Consolidated | Limestone | 93 | 35,252 | 2,537 | 3,096 | 3,108 | 6,204 | 83 | 73.2 | 74.9 | 98 | % | Limestone | 102 | 35,142 | 2,646 | 3,003 | 3,187 | 6,190 | 89 | 63 | 70 | 94 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Clay | 43 | 10,145 | 793 | 344 | 235 | 579 | 78 | 6.6 | 7.5 | 95 | % | Clay | 44 | 10,147 | 878 | 258 | 259 | 517 | 71 | 6 | 7 | 80 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 36 | 2,030 | 1,818 | 34 | 91 | 125 | 33 | 1.2 | 3.8 | 96 | % | Others | 41 | 2,080 | 1,890 | 31 | 103 | 134 | 78 | 1 | 2 | 71 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Totals(5) | 187 | 47,370 | 5,414 | 3,292 | 3,548 | 6,840 | 87 | 70.2 | 78.8 | 74 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Totals | 172 | 47,427 | 5,148 | 3474 | 3,433 | 6,907 | 80 | 81.1 | 86.2 |
(1) | Our cement raw materials operations in Mexico include three limestone quarries that also produce hard rock aggregates. |
(2) | Our cement raw materials operations in the U.S. include one limestone quarry that also produces hard rock aggregates. |
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(3) | Although we consolidate CHP into our consolidated financial statements under IFRS, we do not control the raw materials used in our operations in the Philippines. Such raw materials are primarily supplied by APO Land & Quarry Corporation (“ALQC”) and Island Quarry and Aggregates Corporation (“IQAC”). ALQC is wholly owned by Impact Assets Corporation, which is a corporation in which we own a 40% equity interest. IQAC is wholly owned by Albatross Holdings, which is a corporation in which we own a 40% equity interest. |
(4) | Not including Maceo Plant’s (as defined below) annualized production. |
(5) | Figures for Property Surface, Reserves and Years to depletion are rounded up. |
As of December 31, 2017,2019, we operated approximately 295262 aggregates quarries across our global operations, mostly dedicated to serving ourready-mix concrete and aggregates businesses. We estimate that our proven and probable aggregates reserves, on a consolidated basis, have an average remaining life of 3754 years, assuming 2013-20172015-2019 average production (last five years average aggregates production).
The table set forth below presents our total permitted proven and probable aggregates reserves by geographic segment and material type extracted or produced in our aggregates quarries operations. We note that the locations of our aggregates reserves differ from those of our cement reserves.
Property Surface (hectares) | Reserves (Million tons) | 2019 | 5 years aver. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Location | Mineral | Number of quarries | Property Surface (hectares) | Reserves (Million tons) | Years to depletion | 2017 Annualized Production | 5 years aver. Annualized Production | Own Use | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Owned | Leased | Proven | Probable | Total | Mineral | Number of quarries | Owned | Leased | Proven | Probable | Total | Years to depletion | Annualized Production | Annualized Production | Own Use | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mexico | Hardrock | 13 | 1,395 | 135 | 216 | 293 | 508 | 48 | 10.7 | 10.5 | 13 | % | Hardrock | 12 | 655 | 183 | 212 | 147 | 359 | 33 | 10.3 | 10.9 | 60 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 1 | — | 48 | 2 | 10 | 13 | 7 | 1.9 | 1.8 | 46 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United States | Hardrock | 16 | 7,989 | 1,250 | 546 | 155 | 701 | 32 | 23.1 | 22.1 | 34 | % | Hardrock | 16 | 10,748 | 1,066 | 725 | 494 | 1,219 | 50 | 27.3 | 24.1 | 32 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sand & Gravel | 50 | 4,820 | 4,527 | 402 | 41 | 443 | 28 | 15.8 | 15.9 | 46 | % | Sand & Gravel | 42 | 4,337 | 3,974 | 265 | 233 | 498 | 30 | 18.2 | 16.8 | 51 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 2 | 163 | 88 | 1 | — | 1 | 3 | 0.3 | 0.3 | 37 | % | Others | 2 | 163 | 88 | — | — | — | 2 | 0.2 | 0.3 | 28 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Europe | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom | Hardrock | 10 | 450 | 754 | 410 | — | 410 | 45 | 9.6 | 9.1 | 48 | % | Hardrock | 20 | 530 | 979 | 430 | 57 | 487 | 43 | 11.1 | 11.3 | 38 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sand & Gravel | 2 | 157 | — | 2 | — | 2 | 8 | 0.3 | 0.2 | 48 | % | Sand & Gravel | 48 | 2,505 | 1,362 | 51 | 130 | 182 | 26 | 5.7 | 6.9 | 30 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 59 | 2,556 | 1,560 | 115 | 88 | 203 | 21 | 8.6 | 9.7 | 46 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
France | Hardrock | 11 | 96 | 272 | 116 | 4 | 119 | 31 | 3.1 | 3.9 | 19 | % | Hardrock | 10 | 62 | 131 | 81 | 5 | 86 | 29 | 2.9 | 3.0 | 16 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sand & Gravel | 28 | 666 | 976 | 109 | 28 | 137 | 23 | 4.9 | 5.8 | 31 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 6 | 386 | 746 | 31 | 4 | 35 | 156 | 1.4 | 2.3 | 63 | % | Sand & Gravel | 24 | 422 | 590 | 129 | 15 | 144 | 27 | 4.9 | 5.2 | 10 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Germany | Hardrock | 2 | 26 | 235 | 26 | 18 | 44 | 30 | 1.2 | 1.5 | 23 | % | Hardrock | 1 | 26 | 7 | 6 | 18 | 24 | 102 | 0.4 | 0.2 | 32 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sand & Gravel | 22 | 1,616 | 502 | 51 | 76 | 127 | 17 | 5.8 | 7.3 | 38 | % | Sand & Gravel | 14 | 826 | 302 | 22 | 72 | 94 | 26 | 3.6 | 3.6 | 35 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 1 | 32 | — | — | — | 1 | 4 | 0.1 | 0.1 | 80 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Spain | Hardrock | 12 | 457 | 169 | 228 | 184 | 412 | 533 | 0.7 | 0.8 | 22 | % | Hardrock | 17 | 466 | 234 | 213 | 183 | 396 | 429 | 1.5 | 0.9 | 22 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sand & Gravel | 3 | 432 | 110 | 50 | 1 | 51 | 471 | — | 0.1 | 10 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Poland | Hardrock | 1 | 5 | 36 | 5 | 22 | 27 | 54 | 0.3 | 0.5 | 38 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sand & Gravel | 4 | 324 | 176 | 9 | 8 | 17 | 4 | 3.5 | 4.1 | 47 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 1 | 6 | 6 | — | — | — | — | — | 0.1 | 10 | % | Sand & Gravel | 3 | 432 | 110 | 48 | — | 48 | 146 | 0.8 | 0.3 | 14 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rest of Europe | Hardrock | 11 | 443 | 84 | 118 | 92 | 210 | 16 | 12.3 | 13.4 | 56 | % | Hardrock | 8 | 14 | 93 | 16 | 24 | 40 | 22 | 2.6 | 1.8 | 12 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sand & Gravel | 7 | 8 | 170 | 4 | 2 | 6 | 8 | 0.5 | 0.7 | 31 | % | Sand & Gravel | 14 | 415 | 241 | 18 | 23 | 41 | 6 | 6.2 | 6.5 | 48 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 16 | 442 | 71 | 30 | 23 | 54 | 13 | 3.9 | 4.0 | 29 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SAC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCA&C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Colombia | Hardrock | 2 | 58 | — | 1 | 9 | 10 | 25 | 0.4 | 0.4 | 100 | % | Sand & Gravel | 10 | 640 | — | 11 | 35 | 46 | 86 | 0.2 | 0.5 | 64 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sand & Gravel | 1 | — | — | — | — | — | 3 | — | — | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Panama | Hardrock | 2 | 31 | 20 | 5 | 12 | 17 | 24 | 0.3 | 0.7 | 43 | % | Hardrock | 2 | 31 | 20 | 5 | 12 | 17 | 93 | 0.0 | 0.2 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 1 | — | 56 | — | 1 | 1 | 6 | 0.1 | 0.1 | 48 | % | Others | 1 | — | 56 | — | 1 | 1 | 5 | 0.0 | 0.2 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rest of South, Central America and the Caribbean | Hardrock | 2 | 150 | 942 | 22 | 1,876 | 1,897 | 3,783 | 0.6 | 0.5 | 45 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hardrock | 4 | — | 145 | 17 | 605 | 621 | 806 | 0.4 | 0.8 | 13 | % | Sand & Gravel | 7 | 289 | 61 | 3 | 10 | 13 | 22 | 0.7 | 1.2 | 7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asia, Middle East and Africa | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Philippines(1) | Hardrock | 2 | 77 | 25 | 151 | — | 151 | 477 | 0.0 | 0.3 | 15 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rest of Asia, Middle East and Africa | Hardrock | 6 | — | 20 | 68 | 10 | 78 | 7 | 11.8 | 11.9 | 84 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sand & Gravel | 3 | 150 | 120 | 23 | 6 | 29 | 71 | 0.2 | 0.4 | 21 | % | Sand & Gravel | 1 | — | — | — | — | — | 2 | 0.1 | 0.2 | 81 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 1 | — | — | — | 1 | 1 | — | — | — | 47 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asia, Middle East and Africa | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Philippines(1) | Hardrock | 3 | 77 | 24 | 151 | — | 151 | 61 | 0.4 | 2.5 | 11 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CEMEX Consolidated | Hardrock | 87 | 11,027 | 3,125 | 1,837 | 1,394 | 3,231 | 49 | 63 | 66 | 36 | % | Hardrock | 96 | 12,759 | 3,699 | 1,927 | 2,826 | 4,753 | 73 | 68.3 | 65.2 | 45 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sand & Gravel | 120 | 8,173 | 6,581 | 651 | 162 | 812 | 23 | 31 | 35 | 42 | % | Sand & Gravel | 163 | 9,868 | 6,639 | 547 | 519 | 1,066 | 26 | 40.4 | 41.2 | 40 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 88 | 3,585 | 2,574 | 180 | 128 | 308 | 17 | 16 | 18 | 44 | % | Others | 3 | 163 | 144 | 1 | 1 | 1 | 3 | 0.2 | 0.5 | 28 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Totals(2) | 262 | 22,789 | 10,481 | 2,474 | 3,346 | 5,820 | 54 | 108.9 | 106.9 | 43 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Totals | 295 | 22,785 | 12,279 | 2,668 | 1,684 | 4,352 | 37 | 110 | 119 | 39 | % |
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(1) | Although we consolidate CHP into our consolidated financial statements under IFRS, we do not control the raw materials used in our operations in the Philippines. Such raw materials are primarily supplied by ALQC and IQAC. ALQC is wholly owned by Impact Assets Corporation, which is a corporation in which we own a 40% equity interest. IQAC is wholly owned by Albatross Holdings, which is a corporation in which we own a 40% equity interest. |
(2) | Figures for Property Surface, Reserves and Years to depletion are rounded up. |
Please see “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on how COVID-19 has impacted our business strategy.
CEMEX has a general vision and value creation model comprised of the following six elements: (i) purpose, (ii) mission, (iii) values, (iv) strategy,strategic pillars, (v) operating model and (vi) stakeholders.
PURPOSE. We expect to build a better future for our employees, our customers, our shareholders, our suppliers and the communities where we live and work.
MISSION. We intend to create sustainable value by providing industry-leading products and solutions to satisfy the construction needs of our customers around the world.
VALUES. We intend to: (i) ensureprotect the safety of all our employees by being accountable to each other for our actions and behaviors and trying to be an industry leader by example; (ii)��focus on our customers by aligning ourselves closely with their business and their needs and, following through with our commitments, resolving problems quickly and making it easy to do business with us; (iii) pursue excellence in all aspects of our business and interactions with customers by challenging ourselves to constantly improve and build upon our strong reputation around the world for quality and reliability; (iv) work as one CEMEX by leveraging on our collective strength and global knowledge to share best practices, replicate good ideas and collaborate across boundaries; and (v) act with integrity by remaining honest and transparent in all our interactions, complying with our code of ethics, and caring for our people, communities and natural resources.
STRATEGYSTRATEGIC PILLARS. To achieve our mission, our strategy is to create value by building and managing a global portfolio of integrated cement,ready-mix concrete, aggregates and related businesses. The four pillars that underpin our strategy are, in no particular order, (i) valuing our employeespeople as our main competitive advantage and primary asset, (ii) helping our customers succeed, (iii) pursuing markets that offer long-term profitability, and (iv) looking to have sustainability fully embedded in our business.
To aid our strategy, in 2018, we embarked on our strategic plan to build “A Stronger CEMEX.” This transformational plan is designed to fortify CEMEX’s position as a leading global heavy building materials company, accelerate our path to investment grade metrics, enhance CEMEX, S.A.B. de C.V.’s total shareholder return and generate long-term value for all of our stakeholders. Specifically, we believe that through this strategic plan, we can rebalance and streamline our existing portfolio in order to better position ourselves to deliver higher growth and greater stakeholder value over the mid-to-long-term by divesting between $1.5 billion and $2 billion in assets by the end of 2020; originally, achieve recurring operational improvements in our operations of $230 million by 2020; accelerate our path to investment grade by further deleveraging CEMEX by reducing our debt by $3.5 billion between the launch of the “A Stronger CEMEX” plan on July 1, 2018, and the end of 2020; and, subject to our business performance and required approvals at CEMEX, S.A.B. de C.V.’s general ordinary shareholders’ meeting for each applicable year, to return value to CEMEX, S.A.B. de C.V.’s shareholders through dividends and stock repurchase programs. For 2020, we have identified an additional $140 million in cost-reduction actions further increasing our $230 million target for 2020 to a total of $370 million of recurring operational improvements by the end of 2020. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on how we have increased debt and cash levels to attend to the COVID-19 pandemic and how we will not pay dividends during 2020.
As of December 31, 2019, our asset sales, announced or closed, reached $1.6 billion, including the announced divestment of certain assets in the United Kingdom to Breedon for a total consideration of $235 million; we achieved operational improvements of $170 million; we achieved a debt reduction of $407 million; and we paid a cash dividend of $150 million and CEMEX, S.A.B. de C.V. repurchased 157.7 million CPOs.
In addition, to further fortify our balance sheet, we continue to be focused mainly on the following three initiatives, while at all times remaining committed to building a better world and helping alleviate some of the biggest challenges communities are facing today: (i) growing our Operating EBITDA through further cost-reduction efforts, operating efficiencies and customer-centric commercial strategies across all our core businesses; (ii) maximizing our free cash flow, which is expected to be used for debt
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reduction; and (iii) continuing to execute selective accretive divestments by selling what we believe are non-essential assets, which could allow us to free up more free cash flow to reduce debt. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on how we have raised cash to be in a position to meet any liquidity requirements and not reduce debt as a temporary measure to attend to the COVID-19 pandemic and its effect on our liquidity.
We value our people as our main competitive advantage
We aspire to hiretop-class employees, and our team’s health, safety and professional growth are among our top priorities. We plan to develop leaders and encourage them to create new ways of thinking and acting, while at the same time being diligent in assessing risks and opportunities. We look to foster an open dialogue in our interactions to align our goals and achieve greater results.
Placing Health and Safety First.as a Top Value and Priority.
Health and Safety (“H&S”) remains one of our top values and priorities. We are working towards developing a culture within which everyone in our organization embraces H&S. We believe that the health and safety of our employees, contractors and the people we interact with in our local communities on a day-to-day basis is of the utmost importance.
To help us meet our goals, four core principles guide our decisions and actions: (i) nothing comes before the health and safety of our employees, contractors, and communities; (ii) making health and safety a moral responsibility per employee by looking after ourselves and each other; (iii) looking to create safe workplaces; and (iv) maintaining accountability for health and safety practices.
We are constantly working towards our ultimate target of zero injuries inworldwide, evidenced by our operations worldwide.Zero4Life objective. In 2017, our Employee Lost-Time Injury2019, the total number of Lost Time Injuries (“LTI”) Frequency Rate was reduced by 2% and Total Recordable Injuries (“TRI”) was reduced by less than 1%, when compared to 2018. Our employee LTI frequency rate was held at the low level of 0.5, (basedand we believe we are on number of employees per million hours worked), bringing us closertrack to reach our goal of reducing such rate to 0.3 or less by 2020. WeAlthough our employee TRI frequency rate increased from 2.4 to 2.6, we made progress with reducing the number of contractor TRIs by 7% when compared to 2018. During 2020 we are encouragedworking on health-related actions to see that 95%achieve a reduction in our employee sickness absence rate, which increased slightly by 1.6% in 2019.
In 2019, the number of CEMEXfatal occurrences at our operations experienced no fatalities or lost-time-injuries in 2017. We recognizewas reduced by 31%, which is the remaining 5% is still considerable. However,lowest ever recorded by us, and we consider that the overall direction is positive. Also in 2017, CEMEX Total Recordable Injury (“TRI”)
Frequency Rate continued to decline, reaching 3.4 compared to 4.1make progress in 2016most countries, with 96% of our operations achieving zero fatalities and 4.5LTIs. However, in 2015. Four regions2019, there was one employee fatality and 17 countries reduced their TRI Rates, with seven countries maintaining a rate of zero. In addition, the global Employee Sickness Absence Rate for CEMEX improved from 1.8 to 1.6 in 2017.
There were 20five contractor fatalities, in 2017 related to our business: three employees, seven contractors and 10 third parties, 1360% of which were road traffic related. Our goal is to have zero injuries and fatalities. To reach this objective, we are actively working to identify and mitigate risks. Each injury and fatality is analyzed to identify risks and prevent future incidents.occurred away from our premises.
Most of thesethe fatalities were caused bydue to incidents involving moving vehiclevehicles. In an effort aimed at eliminating those types of incidents, (i.e., collisions involving contractors’ trucks). To prevent further fatalities, we have investedcontinue to invest in specific safety features for our company’s trucks and technology and training programs that aim to encourage our employees and contractors to use properthe appropriate driving techniques for their safetyto take care of themselves and the safety of others.other vulnerable road users. For example, we are reinforcing our defensive driverGlobal Supply Chain Health & Safety track has helped to further embed our Vulnerable Road Users program as well as support the roll out of a communication campaign focused on contract drivers. Furthermore, in the Philippines, more than 265 drivers have graduated from Driver’s Academy, a third-party training program through which participants expand their knowledge of road safety. Additionally, under our Safety Time Out Campaign, our AMEA team held safety workshops for our employees and we have introduced a stronger driver certification scheme.contractors at various plants and facilities across the region. We will continue to work hard and drive forward with our initiatives so that our employees and contractors understand the importance of and become integral to our H&S culture.
The following table sets forth our performance indicators with respect to safety by geographic location for the year ended December 31, 2017 and accounts for information that became available in March 2018:2019:
Mexico | United States | Europe | SAC | Asia, Middle East and Africa | Total CEMEX | Mexico | U.S. | Europe | SCA&C | AMEA | Total CEMEX | |||||||||||||||||||||||||||||||||||||
Total fatalities, employees, contractors and other third parties (#) | 8 | 1 | 6 | 3 | 2 | 20 | 2 | 2 | 1 | 2 | 2 | 9 | ||||||||||||||||||||||||||||||||||||
Fatalities employees (#) | — | — | 2 | 1 | — | 3 | 1 | — | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||
Fatality rate employees(1) | — | — | 1.9 | 1.5 | — | 0.7 | ||||||||||||||||||||||||||||||||||||||||||
Fatality rate employees(1) | 0.1 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Lost-Time injuries (LTI), employees (#) | — | 18 | 19 | 9 | 2 | 50 | 7 | 16 | 12 | 10 | 4 | 50 | (2) | |||||||||||||||||||||||||||||||||||
Lost-Time injuries (LTI), contractors (#) | 6 | 9 | 24 | 13 | 7 | 68 | 6 | 1 | 16 | 12 | 2 | 43 | (3) | |||||||||||||||||||||||||||||||||||
Lost-Time injury (LTI) frequency rate, employees per million hours worked | — | 0.9 | 1.0 | 0.5 | 0.3 | 0.5 | 0.3 | 0.8 | 0.6 | 0.6 | 0.6 | 0.5 |
(1) | Incidents per 10,000 people in a year. |
(2) | Includes one Lost-Time injury (LTI) in our corporate offices. |
(3) | Includes six Lost-Time injuries (LTI) in our corporate offices. |
We attempt to achieve the goal that all
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At CEMEX, health and safety training is a key part of our strategy to reach our Zero4Life goal. We aim for our employees to have the correct knowledge, skills and experience to perform their jobs safely through our investments in programs that provide employees with health and safety training.a safe manner. As part of our manager-training program, executives and supervisors must complete our Health and Safety (“H&S”) Academy, which is designed to enhance the leadership skills of our line managers and supervisors, and, so that H&S is one of our top prioritypriorities across our organization fromfor our productionproducing plants toand our corporate offices. In 2017, we trained over 4,800The Health and Safety Academy was launched in 2016 with the Foundation module, which prepares our line managers throughto lead by example and play a “Foundation” module. And have expanded this through the launch of a “Module 2.” Each module is availablefundamental role in all five ofensuring safety throughout our regions,operations. Our Module 2, which was launched in 2017 and rolled out further in 2018, enables our line managers to utilizeapply and use the 14 tools of our H&S Management System (HSMS) to achievesupport our Zero4Life goalobjective in their operations.
Since we launched the Health and Safety Academy and as of December 31, 2019, 7,500 line managers have been through our Foundation module and so far, 6,500 line managers have participated in our Module 2. In addition,2018, we also launched Module 3, which is aimed at enhancing proficiency in key H&S topics and so far, 2,000 line managers have participated in our Module 3. Additionally, we continued to trainprovide a wide range of training to our employeesfront-line workers in Hazard Identification, which was a global initiative in 2017.various topics, including safe driving, machinery isolation, emergency management, and occupational health and well-being.
Furthermore, we have continued to support our global networks with respect to H&S. We have a dedicated H&S Tracktrack that sits within each network to promote working together through a coordinated, consistent and collaborative approach to reach our company-wide goal of zero injuries: (i) the H&S Functional Network; (ii) the Global H&S Council; (iii) 6six global network H&S tracks; and (iv) a Global Health Forum.
We
Across our operations, we continue to enhance our health practices and reduce our safety risks to strengthen our H&S culture.objective. During 2019, supported by our Global Health Forum specialist team, we also remained focused on the occupational health and well-being of our employees. In 2019, we continued to provide health checks and further promoted our CEMEX Health Essentials. Additionally, as part of our Fit4Life program, we defined five global areas in which to develop goal-setting standards: (i) smoking cessation; (ii) work-life balance; (iii) stress recognition training for managers; (iv) drugs and alcohol testing ‘with cause’; and (v) health discussions during Visible Felt Leadership H&S is consideredengagements, which encompasses exercises that aim to reinforce our safety culture and awareness, as well as a better defined health recognition program for our operations. In some countries where we have operations, we organized a range of health activities and events to help raise awareness and to encourage healthy habits. Some examples of specific initiatives include health-related activities and events to encourage good health habits, which often involved our employees’ families; a “Health Week” program which was run across our entire operations in product development, from designthe U.S.; and sports tournaments which were organized to disposal. We lookpromote fitness in the Philippines. Furthermore, in Mexico, for the fifth consecutive year, the ‘Suma Salud’ health program was carried out successfully, helping our employees to abide by applicable legislationreduce their Body Mass Index and H&S requirements when designing our productsimprove their lifestyles with healthier choices. In the SCA&C region, a number of Health ‘challenges’ activities took place in all countries across the region. In addition to the local assessment and approval of programs with contractors that we have developed material safety data sheets that describe potential hazards and precautions to take when handling eachin substantially all of our products. For instance,the countries in which
we operate, havewe are also implementing third-party verification to help us validate the 12 CEMEX Safety Essentials embedded into everyday operations,health and the first CEMEX Safety Essential issafety credentials of contractors we may potentially engage, including major contractors. In 2019, we created a target to ensure that we look after ourselves and each other. Beyond focusing on their own safety, this guideline encourages our employees to warn their colleagues of potential safety risks, while encouraging such employees to report unsafe conditions to their managers, as well.
In an effort to reduce safety challenges related to road transportation, ourReady-Mix Track launched an initiative to combat mixer truck rollovers. This initiative is designed to raise awareness among managers and drivers on actions that can cause rollovers and imposes requirements on our operations to prevent these incidents.
In our aggregates operations, we analyzed and identified that, over consecutive weeks, a number of incidents occurred on the first dayapprove at least 80% of the week, sospending value with such contractors. As of December 31, 2019, we decided to implement “first day back to work” training. Whilehave accomplished verification of 81% of such contractors, which represents 942 of the content of each training session is decided bymajor contractors that access our local operations, the concept is to target the most relevant areas of each particular operation in order to proactively remind people of correct procedures and to ensure they know how to adopt them.operating facilities.
During 2017, we implemented a global electronic system to support our efforts in H&S, especially around incident management, reporting, leadership engagement visits, Near Miss/Hazard Alert reporting and action plans. This system was developed by a third party, and we anticipate its full implementation during 2018.
We also continued to embed several global standards that are targeted at specific areas to prevent common causes of injuries and ill health, including Pedestrians on Urban Sites, Mobile Equipment, and Working at Height.
Attracting and Retaining Talent. We aim to offer the programs, benefits, and a work environment that are designed to attract and retain talented employees. Our approach to talent management is founded on three pillars: (i) employ the right people, in the right place, at the right time to perform the right job to achieve our strategy; (ii) enable a high-performing and rewarding culture to deliver sustainable business value in a safe, ethical workplace; and (iii) build and develop our workforce capabilities to confront challenges and pursue excellence.
As we transform and look to expand, one of our main objectives is to develop people with the potential to fill key leadership positions—positions, increasing their experience and capabilities to equipwith the intention of having them to succeed in increasingly challenging roles. Through this process, we work to improve our employees’ commitment to our companyus by helping them meet their own career development expectations and preparingprepare them for key roles as they face critical challenges in their professional development. Our succession management process enables us to build a talented pool of leaders with the skills and understanding of our business fundamentals to continue our pursuit of reaching our goals. Through ongoing training and development opportunities, our employees are taught new skills and their expertise is deepened in several critical areas, including H&S, customer-centric capabilities, environmental conservation and awareness, leadership development and stakeholder engagement.
We look to foster a dynamic, high-performance environment where open dialogue is encouraged and rewarded. Apart from competitive compensation, more than 80%60% of our global workforce receives health and life insurance benefits beyond those required by local law in their respective countries. Approximately half of our global workforce receives retirement provision benefits above local requirements and more than 60%40% of our operations receive additional funds for disability and invalidity coverage beyond what is required by local laws in their respective countries.
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In 2017, we began to integrate our current institutional Academies—academies, which include our Commercial, Health & Safety, Supply Chain, and Culture & Values—Values academies, under the concept of CEMEX University. CEMEX University aims to develop a digital continuous learning ecosystem for our employees and respond to our multi-region, multi-business learning needs. CEMEX University leverages traditionalin-person training with new digital learning platforms to embed a growth mindset throughout our organization and fulfill our employees’ potential.
In April 2018, ourCEMEX, S.A.B. de C.V.’s Chief Executive Officer approved our Human Rights Policy, applicable to all CEMEX employees, directors and officers, which states that, among other things, CEMEX intendslooks to provide a workplace that is free from harassment and discrimination on the basis of race, gender, national origin, sexual orientation, disability and membership toin any political, religious or union organization and offering them equal opportunities for training, personal development, individual recognition and promotion on the basis of merit. Employees who believe that there may have been a violation of the principles laid down in theour Human Rights Policy can report it through various channels, including local Human Resources departments, Ethics Committees and our secured ETHOS line secured internet website. Community members, contractors and suppliers are also encouraged to submit a report through the ETHOS line if they believe there may have been a violation of theour Human Rights Policy.Policy or any other guideline as stated in our recently updated Code of Ethics and Business Conduct.
See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on how we have addressed the health and safety of our employees during the COVID-19 pandemic.
Helping our customers succeed
We aim to place our customers at the center of everything we do. Our customers deal with important challenges daily and we aim to invest time in our relationships and listen closely to understand their needs. We aim to be where our customers are and need us to be and to offer our full value proposition of our products and services, developing stronger customer relationships and loyalty, and helping them succeed. We achieve this by delivering quality products, innovative solutions and a superior customer experience driven by a bold digital transformation.
Delivering A Superior Customer Experience.
Our Customer Centricity Global Network has implemented various initiatives to place our customer at the center of everything we do. Additionally, through the creation of CEMEX Ventures, we are developing new sources of possible revenue by developing ideas that we expect will revolutionize our industry through the use of technology. Among these efforts, CEMEX Go is at the center of our transformation.
We want our customers to view us as reliable, easy to work with, innovative, expert and professional. We have organized our company and redesigned a considerable number of our processes in an effort to ensure that we create the best possiblea positive experience for our customers. Our customer centricity initiatives have focused on pricing policies, sales management, and customer segmentation.
Through our Commercial Academy and related initiatives, we are reinforcing our focus on customers as a core organizational value and priority that meets both our customers’ and our need for growth and profitability. ToSince 2012, we have reached a total of 14,500 participants undergoing its different programs across our operations, and, to date, we have delivered approximately 5,700580 training sessions to our professionals, reaching approximately 2,000 employees worldwide.professionals. Additionally, we enjoy a wide reach in most of the markets where we operate, with what we believe to be the facilities and logistical capabilities to serve our customers accurately, consistently and rapidly.
Moreover, we areseek to strategically expandingexpand our manufacturing and distribution capabilities to serve our customers’ and communities’ increasing demand for high-quality public infrastructure, commercial buildings and housing projects more efficiently, effectively, and reliably. For example, in 2017, we successfully acquired and consolidated a majority stake in TCL. As one of the leading producers and distributors of cement andready-mix concrete products in the Caribbean, TCL significantly bolsters our regional operations and trading network—enabling us to deliver a strong experience for our new and existing customers in the area.
One example of our operational effectiveness is our work with Mexico City’s New International Airport. Given the large scale of the project, one of its most significant challenges is to organize the supply chain efficiently. The raw materials required to produce the concrete for this project will come from different sources and will be transported in trucks, trains, and ships; all of which are part of the logistics solution that we offer our customers. Additionally, we are installing several concrete plants on the airport construction site to guarantee continuous supply throughout the project.
Digital Transformation. Beyond changing the way we operate internally, we are leveraging digital technologies to transform our customerscustomers’ experience with CEMEX. We are embracing digital technologies to both streamline and simplify the way our customers engage with us and enhance how we operate. To this end, we launched a digital transformation strategy during 2016.
Over the past few years, we developed and implemented several digital solutions that are being used by our customers. Specifically, in November 2016, we announced a partnership with International Business Machines Corporation (IBM)IBM and Neoris, Inc., one of our subsidiaries, to develop digital solutions to help us transform how we interact with customers. Following the initial deployment, we are continuously updating and adding capabilities to continually improve the functionality and to stay ahead of our customers’ expectations.
We intend to transform the global building materials industry with the launch of CEMEX Go, an innovative, fully digital customer integration platform. CEMEX Go is a multi-device offering that provides a seamless experience for order placement, live tracking of shipments, and managing invoices and payments for our main products.
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During 2017, we started the rollout of CEMEX Go in the United StatesU.S. and Mexico. ItsDuring 2018, CEMEX Go was deployed in Colombia, France, Costa Rica, Panama, Nicaragua, El Salvador, Spain, the Dominican Republic, Puerto Rico, Guatemala, Peru, Poland, Philippines, the Czech Republic, Egypt and UAE. As of December 31, 2019, its deployment was completed throughout substantially all countries in which we do business, and we began to evolve CEMEX’s Go capabilities to better fulfill our customer needs.
As of December 31, 2019, CEMEX Go had approximately 36,300 users across the restcountries in which we do business, and through it we received approximately 66% of our geographies will continue in 2018.main products orders.
Providing Superior and Sustainable Products, Solutions and Services.We aim to move from being a product-selling company to a comprehensive solutions provider.
As the only global building materials company with its own concrete admixtures business, we are able to design and develop novel, tailor-made concrete technologies with our proprietary chemicals. Moreover, our experts in fields such as geology, chemistry, materials science, and various other engineering disciplines work alongside behavioral scientists, cultural anthropologists, and commercial strategists to anticipate and understand society’s trends to create innovative, sustainable construction solutions that seek to satisfy our customers’ current and future needs, while truly challenging the current state of the art. Among other benefits, our concrete solutions help improve land use, increase water and energy efficiency, mitigate noise pollution, and lower buildings’ carbon footprint.
Led by our Global R&D in Switzerland, our team of experts works in close collaboration with our customers to offer them unique, integrated and cost-effective solutions that aim to fulfill their specific performance requirements, including a growing portfolio of value-added brands. In order to provide the same offering in all of our operations, our salesforce is continually informed and trained on value-added brands, with material shared by our Global R&D through our internal Global Networks. Another initiative is to begin integrating Building Information Modeling (BIM) technology into our interaction with customers, providing them with an overview of their projects and how our products can be incorporated.
Technologies developed by our Global R&D are protected by more than 5035 international patent families, covering new cements, cementitious materials, concrete mix designs, admixtures formulations and construction systems.
Together with members of our Aggregates Global Network, our Global R&D supported the design, creation and launch of our new value-added aggregates brand: neogem.brand,Neogem. These products are specialized high-quality aggregates, whose intrinsic properties meet the essential needs of five market sectors—Agricultural, Environmental, Industrial, Landscaping and Sports. Neogem covers an extensive range of premium minerals that can add value to our customers’ projects through particular functional or aesthetic features. Neogem products are innovative, carefully selected and tailor-made solutions that go beyond commonly known building materials.
CEMEX Building Award: HonoringProviding Superior and Sustainable Products, Solutions and Services. We aim to move from being a product-selling company to a comprehensive solutions provider.
To the best of our knowledge, as the best. Throughonly global building materials company with its own concrete admixtures business, we are able to design and develop novel, tailor-made concrete technologies with our annual CEMEX Building Award, oneproprietary chemicals. Moreover, our experts in fields such as geology, chemistry, materials science and various other engineering disciplines work alongside behavioral scientists, cultural anthropologists and commercial strategists to anticipate and understand society’s trends in order to create innovative, sustainable construction solutions that seek to satisfy our customers’ current and future needs, while truly challenging the current state of the most renowned competitions in the construction field, we not only honor engineers, architects,art. Among other benefits, our concrete solutions help improve land use, increase water and other building professionals, but also encourage creativity in the application of new concrete technology to improve our communities. The CEMEX Building Award recognizes projects in Mexicoenergy efficiency, mitigate noise pollution and the rest of the world in five categories and with four special prizes. For the XXVI Edition, a total of 545 projects competed in the national awards, while 70 projects from 17 different countries competed in the international awards.
CEMEX Obtains Environmental Product Declarations For 80 Types Of Concrete. CEMEX earned the National Ready Mixed Concrete Association’s certification of 80 Environmental Product Declarations (EPDs) from four of itsready-mix concrete operations in Mexico, the U.S., and Panama. This certification reaffirms CEMEX’s commitment to sustainable development, while reinforcing its vision to build a better future for all of its stakeholders.
An EPD is a voluntary declaration that provides quantitative information on the environmental impact of a product using a life cycle assessment (LCA) methodology, verified by an independent third party. It also serves as a mechanism to score points on sustainable building certifications such as LEED. EPDs are designed to meet the world market demand for scientifically based, transparent, and reliable information, enabling organizations to communicate their products’ environmental performance in a credible and understandable way.
Pursue markets that offer long-term profitability
We look to operate in markets where we can add value for our employees, our customers and CEMEX, S.A.B. de C.V.’s shareholders. We intend to focus on those markets that offer long-term profitability.profitability and Operating EBITDA growth potential, leveraging those assets that are best suited to achieve this. We may venture beyond these core businesses when it is essential to better market our products. We believe that a geographically diverse portfolio of assets, in markets, regions or cities that we believe offer long-term profitability, provides us with the opportunity for significant value creation through profitable organic growth over the medium- to long-term.medium-to-long-term. Consequently, we intend to be selective and strategic about where we remain and where we operate. OurWe believe our business portfolio isshould be particularly focused on small and/or medium geographies that combine strong fundamentals, ranging from economic growth potential toper-capita cement consumption, population growth, degree of urban development and political stability.
Leveraging
As of the date of this annual report, as part of our “A Stronger CEMEX” plan, we are undertaking actions that are designed to streamline and reposition our portfolio in order to enhance our diversification and achieve higher profitable growth. As such, we expect to optimize our portfolio by focusing on the markets we believe offer long-term growth potential and retaining those assets that we believe are best suited to grow, offering us long-term profitability. While these actions are being undertaken, we could continue to complement our “A Stronger CEMEX” plan with organic investments, on a stand-alone basis or with other partners, using a metropolis-centric approach leveraging our related businesses and digital strategy.
Furthermore, leveraging our global presence and extensive operations worldwide, we intend to continue focusing on our core cement, aggregates,ready-mix concrete and related businesses. ByWe believe that by managing our core operations as one vertically integrated business, we not only capture a significant portion of the cement value chain, but we believe we also create value for our customers by offering comprehensive building solutions. Historically, this strategic focus has enabled us to grow our existing businesses, particularly in high-growth markets and with specialized, high-margin products.
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Complementary Businesses.Businesses. We participate selectively in complementary businesses, including, but not limited to, the development of alternative and renewable sources of energy, concrete pavement solutions, housing, prefabricated concrete products, admixtures.asphalt and admixtures, among others. We believe such projects allows us to provide valuable services to our customers, grow our core markets, develop our competitive advantage and improve our overall performance.
New Businesses Enabled Byby Digital Technologies. DuringSince its launch in 2017, we launched our open innovation and corporate venture capital unit, CEMEX Ventures, which focusescontinues to focus on engaging startups, entrepreneurs, universities, and other stakeholders expected to shape the construction ecosystem of tomorrow by tackling our industry’s toughest challenges.
Leveraging our knowledge of the industry with new, leading edge technologies and platforms, CEMEX Ventures is developingplans to develop opportunities in key focus areas outside of our core business, including urban development, connectivity improvements in the supply chain across the construction value chain, and jointly with the CEMEX Research and Development Centers in Switzerland (the “CEMEX Research Center”) and other development areas, the expansion of our open innovation ecosystem in search of opportunities in new construction trends and technologies, while developing new project finance resources.including construction materials, carbon footprint and processes evolution.
CEMEX Ventures’ main role is to look for investment opportunities that go beyond our core business. It also aims to identify and assess emerging technologies to bring CEMEX new ideas and perceptions of the construction ecosystem. To this end, CEMEX Ventures allocates resources to search, incubate, and deploy innovative construction related opportunities and solutions.
During 2017,2019, CEMEX Ventures analyzed more than 2,0001,100 potential businesses, invested in three additional startups and two follow-on investments in startups that have been in CEMEX Ventures’ portfolio since 2017. Additionally, we developed and engaged in sixthree technology deep dives, launched the “Construction Technology Top 50 Startups” list jointly with CEMEX employees. Furthermore,industry partners and created the “We Speak Construction” program, an effort to gather industry experts around the world to talk about construction issues. Following its success, in 2018, CEMEX Ventures launched its Construction Startup Competition which aimed to find startups looking to lead the transformation of the construction industry, and in 2019 it held its
Open Challenge, its first third startup competition for startups, entrepreneurs, innovators, businesses and employees that are exploring newwhere more than 550 startups proposed solutions and business opportunities in anykey focus areas.
In addition, in 2019, pursuing our goal to actively drive the innovation of its focus areas. Following its success,our industry by unlocking new value opportunities for our current and potential customers while looking to boost our internal innovation and efficiency, we also launched “Smart Innovation,” a model aiming to bolster internal innovation at CEMEX Ventures is preparing its Construction Startup Competition 2018.and in our industry. The Smart Innovation platform includes the Innovation Map, the CEMEX innovation challenge and innovation day, and the innovation ideas management tool. During the year, this process yielded more than 1,250 ideas, some of which are being reviewed and analyzed.
Look to have stainabilitysustainability fully embedded in our business
Our sustainability efforts begin with CEMEX, S.A.B. de C.V.’s board of directors and are then facilitated across our entire organization. CEMEX, S.A.B. de C.V.’s Sustainability Committeesustainability committee is comprised of four members of CEMEX, S.A.B. de C.V.’s board of directors members reportingdirectors. The sustainability committee reports directly to CEMEX, S.A.B. de C.V.’s board of directors. The Sustainability Committeesustainability committee is supported by our Corporate Sustainability function, which reports to the Executive Vice President of Sustainability, Commercial and Operations Development, who is also a member of our Executive Committee.senior management. To help embed sustainability into our entire business strategy, we have coordinators representing each geographical region where we operate. In parallel, our Global Sustainability Functional Network works to implement our core sustainability initiatives across all of our operating regions and business lines. On March 26, 2020, the members of CEMEX, S.A.B. de C.V.’s sustainability committee were elected at CEMEX, S.A.B. de C.V.’s general ordinary shareholders’ meeting. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Other Recent Developments—New Climate Action Strategy” for an update on our general new action climate strategy.
Improving Quality of Life and Well-being. As a company that striveslooks to make a progressive impact through its innovative services and solutions, our ability to operate as a responsible business is fundamental to our business model. This enables us to understand stakeholders’ material issues, map social impacts, and identify risks and opportunities in order to create shared value for us and society.
Our high impact social strategy directly contributes to our vision of building a better future and aims to understand our stakeholders’ expectations by managing our impacts and creating value and well-being through three strategic priorities:(i) co-designing and implementing socially impactful inclusive business models with customers and entrepreneurs; (ii) implementing sustainable community engagement plans intended to improve quality of life; and (iii) designing andco-creating responsible cross-functional practices within our operations and our value chain.
To achieve these three priorities, our aim is to continue improving the quality of life and well-being of our employees and our communities by considering economic, social, and environmental criteria and focusing on: (i) education and development capabilities; (ii) sustainable and resilient infrastructure and mobility; (iii) social and environmental entrepreneurship; and (iv) a culture of environmentenvironmental protection and health.
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Although our social projects focus on our core business expertise to create value and well-being, we believe that we are also causing positive impacts on other global challenges. Thus, consistent with our commitment to the United Nations Sustainable Development Goals, we measure our progress and contributions to some of these goals.
Pursuing Excellence in Environmental Management. We believe the pursuit of excellent environmental practices benefits sustainable growth. In addition to ourCEMEX, S.A.B. de C.V. board of directors-level Sustainability Committee,directors’ sustainability committee, our Global Environmental Council, which is composed of our primary environmental executives responsible for each of our operating regions, shares new trends, proposals and best practices to identify, inform, and tackle key environmental management concerns.
We are committed to contributecontributing to climate change mitigation and its consequences. For decades, as part of our carbon emissions reduction strategy, we have focused on usinglow-emission alternatives to traditional fossil fuels, decreasing our clinker factor, promoting clean energy and increasing energy efficiency across our operations. To this end, we have continuously sought to increase our use of low carbon alternative fuels, which represented 26.2%28% of our total fuel mix in 2017,2019, and generated U.S. $123more than $165 million in savings.savings including CO2 emissions avoided in carbon regulated markets.
As a result of our efforts, we avoided more than seven million tonsreduced our net CO2 emissions per ton of CO2 emissions in 2017cementitious products by 22.4% compared to our 1990 baseline. That is comparablebaseline—equivalent to offsetting the yearly average carbonannual emissions from 1.3generated by 1.6 million passenger vehicles.
We actively seek to develop new technologies to reduce our carbon footprint. Most notably, as of December 31, 2019, we are currentlywere involved in foursix European research projects that aim to directly and indirectly reduce our carbon emissions. Furthermore, we explore alternatives to traditional clinker and cement chemistry that enable the production of less CO2-intensiveCO2-intensive cements.
To complement these technical measures, we participate in several forums and bilateral dialogues with key stakeholders. These activities are designed to disseminate knowledge about potential reduction measures in our sector and to promote a legislative framework that enables us to implement these measures. ForAs an example, these activities includewe have a long history of contributing our leading role inbest practices through our work with the Cement SustainabilitySustainable Initiative a cement sector project under(“CSI”). The work done in CSI was transferred as of January 1, 2019 to the World Business CouncilGlobal Cement and Concrete Association (“GCCA”). The GCCA is an initiative of more than 36 major producers that actively promotes the use of concrete as an essential material for Sustainable Development, and the WorldBank-led Carbon Pricing Leadership Coalition.construction.
We have the expertise to responsibly source, process, store and recover energy from alternative fuels and we are confidentstrongly believe that increasingco-processing residues from other sectors in our cement plants will further contribute to overcoming challenges such as climate change, waste management and fossil fuel depletion—depletion, while utilizing the principles of a circular economy.
Our key contribution to a circular economy is our transformation of waste streams from other sectors into valuable materials. To reduce most of the waste generated from our processes, we maximize our reuse of clinker kiln dust in our production loop, largely avoiding landfill disposal. To realize the financial and environmental benefits of waste, we monitor, minimize, reuse and recycle our waste, whenever possible.
In 2017,2019, approximately 95% of the waste generated by our production processes was recovered, reused or recycled. The remaining material was sent to disposal sites. Moreover,Additionally, last year alone, we used more than 13 million tons of waste as a result offuel and alternative raw materials across our efforts, the disposal of ournon-hazardous waste, which comprises the majority ofbusiness lines. This is equivalent to the waste createdproduced by almost 50 million people in our operations, decreased approximately 9% in 2017 compared to 2016.one year.
CEMEX Environmental Management System (“EMS”). We use EMS to evaluate and facilitate consistent and complete implementation of risk-based environmental management tools across our operations. The EMS consists of key mechanisms for environmental impact assessment, stakeholder engagement and accident response based on input from a range of environmental and biodiversity specialists.
As of December 31, 2017, 88%2019, 91% of our operations had implemented either the CEMEX EMS or equivalentpro- grams. programs. As we approach full implementation of our global EMS in 2020, our goal is for all CEMEXof CEMEX’s operational facilities to be 100% compliant with our internal environmental criteria.
Through our Recycle R8 strategy, we conducted a comprehensive audit process across over 300 sites—from our quarries to our cement and concrete plants and corporate offices—put in place the right waste and recycling facilities at each site, and completely changed the culture among our employees. Before Recycle R8, we diverted 27% waste away from landfills; today it is 80%, with us moving towards our target of 100%.
The release of nitrogen oxides, (NOX), sulfur compounds (SOX), and dust occurs during cement manufacturing. Other emissions, including dioxins, furans, volatile organic compounds and heavy metals, are released in very small or negligible quantities. To control our stack emissions and ensure that we remain compliant with local and national regulations, we have steadily expanded emissions monitoring at our manufacturing operations even exceeding regulation requirements in many geographies.
Through our internal EMS and more specifically through our Atmospheric Emissions Global Procedure, we monitor major emissions to ensurewhich assists us with our compliance with local regulation limits. To further improve upon these efforts, we have updated the minimum performance levels to fulfill annually for major emissions. In addition, we are working on establishing more stringent environmental standards for air emissions that will be based on EU Best Available Techniques.
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In 2017,2019, we invested U.S. $83$80 million in sustainability related projects at our global operations, including projects to monitor and reducecontrol our air emissions, increase our operations efficiency and mitigate our carbon footprint through alternative fuels and increase our operations efficiency, from the replacement of electro filters with bag filters to the acquisition of continuous emissions monitoring systems.clinker substitution efforts.
Our environmental incidents managementEnvironmental Incidents Management.We. We consistently work to minimize our environmental impact, and we believe we are prepared to respond to any emergency that may pose a potential threat to our operations and local communities: (i) we work with our neighbors, law enforcement officials, public agencies, and other stakeholders to develop contingency plans at each of our sites; (ii) we created emergency response teams that are specifically trained to address environmental incidents and hold annual emergency drills; and (iii) we consistently record and report incidents at every level of our business to identify recurring root causes and to share corrective actions.
We have updated our Global Environmental Incident Reporting Tool to include social incidents—incidents, consolidating our holistic approach to the integral management of incidents. We believe that transparent and timely reporting environmental incidents is the first step to reducing theirthe occurrence and severity.severity of such events. Our rigorous efforts to standardizestrengthen a detailed documentation and analysis of environmental and social incidents led to the implementationregistration of our environmental management processes enabled us to avoid the occurrence offour Category 1 incidentsevents during 2017.2019. Moreover, given our new reporting scope, our Category 2 incidents decreased significantly,went from 6457 in 20162018 to 3739 in 2017. This significant drop was mainly due to updating2019. Enhancing the CEMEX Environmental Incidentand Social Incidents Reporting Procedure whereinhas also allowed the circumstances of specific incidents were recordedto be registered in the context of their corrective action to ensureallow a betterfollow-up and corresponding remediation.
Preserving land, waterLand, Water and biodiversityBiodiversity. The preservation of land, biodiversity and water plays a key role in our long-term resource management strategy.
To protect water and enable our business to succeed, we are increasing our water efficiency and minimizing our water waste through the implementation of our Corporate Water Policy. This policy includes standardization of our water measurement based on the Water Protocol developed in coordination with the International Union for Conservation of Nature.
OPERATING MODEL. We aim to operate effectively and achieve the greatest possible value by leveraging our knowledge and scale to establish best practices and common practices worldwide. Our operating model consists of: (i) working with global networks to market our products and solutions; (ii) providing modern support functions and technology to clients and customers; (iii) ensuringhaving clear and effective transactional functions at all levels of our business; and (iv) maintaining efficient governance controls.
STAKEHOLDERS. We value our: (i) employees by providinghaving plans and other resources that we believe provide a great workplace that helps them build skills, expertise and a strong sense of purpose; (ii) clients by tailoring our offerings to solve their construction needs while making it easy for them to work with us and by providing enhanced performance and reliability; (iii) shareholders by focusing on maximizingplans designed to maximize revenue, reducingreduce costs, optimizingoptimize assets and reducingreduce risk; and (iv) community and suppliers by serving as an engine of economic growth, building more capable, inclusive and resilient communities and striving to reduce local air, water and waste impacts in an effort to conserve biodiversity.
Cement and concrete promotion partners. We actively participate in different industrial associations at regional, national, and local levels to develop partnerships, gain knowledge, provide a voice, and in the case of our sector, promote cement and concrete. Our business units also engage with international stakeholders such as intergovernmental organizations orsub-regional alliances, which have an impact on our operations.
We are increasingly involved in global bodies—which help to coordinate these worldwide topics—such as the Cement Sustainability Initiative. The Cement Sustainability Initiative is a sector initiative within the World Business Council for Sustainable Development.
Environment partnersand Biodiversity Partners. We work closely with several partners to protect the environment and biodiversity of the countries in which we operate by engaging in fruitful partnerships with global, national and local organizations. At a global level, we cooperate closely with UNESCO, Wild Foundation, Birdlife International, Wildlife Conservation Society, World Business Council for Sustainable Development, Wildlife Habitat Council, Conservation International and the International Union for Conservation of Nature. These projects have led to a series of conservation and nature books that have proven widely successful.
Knowledge and learning partnersInnovation Partners. We often leverage the knowledge and expertise of thought partners from our partnerships with academicvaried perspectives such as consulting, research institutions, universities and research institutions.technology partners.
We continue to support the Massachusetts Institute of Technology (MIT) Concrete Sustainability Hub (CSHub). By conducting ongoing research, the mission
Some of the most relevant partners we collaborate or have collaborated with include Deloitte Consulting, McKinsey & Company, IBM, ExperiencePoint, MIT CSHub is to develop breakthroughsCenter for Information Systems, MIT Sloan School of Management, Cambridge University-Cambridge Service Alliance, Harvard Business Publishing, Degreed, NovoEd, London School of Economics, Ecole Polytechnique Fédéral de Lausanne and Tec de Monterrey. These collaborations enable the design, development, curation and delivery of relevant learning experiences aligned with our strategic capabilities and emerging practices.
Shared Value Partners. Through collaboration in responsible business processes, we can achieve better results through the co-creation of value for society. We believe that will achieve sustainable and durable homes, buildings, and infrastructure through advances in concrete technology. MIT results show that inter-industry competition means lower prices for both concrete and asphalt and that a diversified network provides better performance.
Social impact partners.Our more than 500 partnerships and strategic alliances worldwide have proven to be a key success factor in successfully multiplying our positive impact on society.society and in the creation of sustainable communities.
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These collaborative alliances have made possible joint projects, best practices documentation and pilots of socially innovative solutions throughout different lines of action: resiliency, environment, education, social integration, health, women’s economic empowerment in the communities, development of employability capabilities for youth and people in vulnerable situations in the communities, inclusive businesses, affordable housing, volunteering and CEMEX Foundation activities.
Regain our Investment Grade.
In light
We remain committed to regaining our investment grade, which is one of our top priorities. We believe our “A Stronger CEMEX” plan should allow us to make progress in reaching this goal, as we expect that we should be able to increase our free cash flow, which would enable us to further reduce our debt, invest in our business and potentially return value to our shareholders.
Based on our “A Stronger CEMEX” plan, we expect to reduce our debt by $3.5 billion between the launch of the global economic environment“A Stronger CEMEX” plan on July 1, 2018, and the end of 2020, or possibly soon thereafter, with the intent to regain our substantial amountinvestment grade. If this is achieved, it would mean that we have reduced debt by more than $10 billion since the end of indebtedness,2013. During 2019, we achieved a debt reduction of $407 million. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Assets Divestiture Plans” for more information regarding these transactions.
Our financial strategy is designed to strengthen our capital structure by: (i) reducing refinancing risks, mainly by reducing short-term maturities and extending average life of debt; (ii) lowering our financial costs, using available free cash flow and divestments to reduce our liabilities and/or optimizing our funding sources by looking for opportunities to issue new securities while redeeming other securities with higher costs, as well as managing our interest rate mix between fixed and floating rates; and (iii) maintaining ample liquidity through the revolving credit facility under the 2017 Facilities Agreement and access to short-term credit lines. We believe that our debt portfolio currency mix, mainly in Dollars and Euros, allows us to balance exposures to currency fluctuations in our most important markets while allowing for optimization of our funding costs. In addition, since 2017, we began to hedge CEMEX’s net investment in Mexican Pesos through derivative instruments.
Also, we have been focusing, and expect to continue to focus, on optimizing our operations by looking to grow our market positions or the markets that we believe offer the highest growth potential, and our core business and implementing our pricing policies for our products, on strengthening our capital structure and regaining financial flexibility through reducing our debt and cost of debt, on improving cash flow generation and on extending maturities. Our efforts in lowering our interest expense and our effective management of working capital have allowed us to support our free cash flow. As of the date of this annual report, we plan to continue with these efforts.
We have also introduced a comprehensive pricing strategy for our products that we expect to more fully reflect and capture the high value-creating capability of our products and services. Our strategy focuses on value enhancement, optimizing gains in customer relationships and on generating sufficient returns that would allow us to reinvest in our business. Under this strategy, we are establishing internal procedures and guidelines that are expected to support our approach to pricing our different products and services.
In addition, we plan to maintain and grow our market positions in cement,ready-mix concrete and aggregates by being one of the most customer-centric companies in the industry. WeAmong other actions, we also expect to implement pricing initiatives for our products and receive compensation through fees for the services we provide that should allow us to improve our overall profits. We anticipate advocating and promoting the increased usage of cementitious based products, to grow our aggregate footprint and replace our aggregate reserves in a manner, designed to have a sustainable business, andprofits, as well as to operate in the most capital and cost-efficient manner possible. We may also seek to expand our presence in business related to cement, ready-mix concrete and aggregates, and potentially also implement similar pricing strategies in the markets related to these businesses.
We have a long history of successfully operating world-class cement production facilities in developed and emerging markets and have demonstrated our ability to produce cement at a lower cost compared to industry standards in most of these markets.
We continue to look to reduce our overall production related costs for all of our products and regional and corporate overhead through disciplined cost management policies and through improving efficiencies by removing redundancies. We have implemented several worldwide standard platforms as part of this process and have also started different initiatives, such as a system designed to improve our operating processes worldwide.worldwide and other digital-based solutions to achieve this. In addition, we implemented, and have been using, a centralized management information systems throughout our operations, including administrative, accounting, purchasing, customer management, budget preparation and control systems, which have helped us achieve cost efficiencies, and weefficiencies. We also have a strategic agreement with IBM expected to improve some of our business processes. We have also transferred key processes, such as procurement and trading, from a centralized model to a regional model and are simplifying and delayering our business to accelerate decision-making and maximize efficiency. In a number of our core markets, such as Mexico, we launched aggressive initiatives aimed at reducing the use of fossil fuels, consequently reducinglooking to reduce our overall energy costs.
Furthermore, significant economies of scale in key markets at times allow us to obtain competitive freight contracts for key components of our cost structure, such as fuel and coal, among others.
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Through a worldwide import and export strategy, we willplan to continue to seek to optimize capacity utilization and maximize profitability by redirecting our products from countries experiencing economic downturns to target export markets where demand may be greater. Our global trading system enables us to coordinate our export activities globally to try and take advantage of demand opportunities and price movements worldwide allowing our regions to have access to information required to execute our trading activities.opportunities. Should demand for our products in the United StatesU.S. improve, subject to any measures the current U.S. government could implement, we believe we are well-positioned to service this market through our established presence in the southern and southwestern regions of the country and our current ability to import to the United States.U.S.
Our industry relies heavily on natural resources and energy, and we use cutting-edge technology to increase energy efficiency, reduce carbon dioxideCO2 emissions and optimize our use of raw materials and water. We are committed to measuring, monitoring and improving our environmental performance. In the last few years, we have implemented various procedures to improve the environmental impact of our activities as well as our overall product quality, such as a reduction of carbon dioxideCO2 emissions, an increased use of alternative fuels to reduce our reliance on primary fuels, an increased number of sites with local environmental impact plans in place and the use of alternative raw materials in our cement.
Global Cost-Reduction
See “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—The recent COVID-19 outbreak could materially adversely affect our financial condition and Pricing Initiativesresults of operations” and “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on how the COVID-19 pandemic may affect us regarding our debt and cash levels, which could considerably delay us in regaining our investment grade.
Operational Improvements
In response to decreased demand in most of our markets starting in 2008, mostly as a result of the global economic recession, in 2008 we identified and began implementing global cost-reduction initiatives intended to reduce our annual cost structure to a level consistent with the decline in demand for our products. Such global cost-reduction initiatives encompasshave encompassed different undertakings, including headcount reductions, capacity closures across the cement value chain and a general reduction in global operating expenses. During the past years, CEMEX has launched a company-wide programprograms aimed at enhancing competitiveness, providing a more agile and flexible organizational structure and supporting an increased focus on the company’s markets and customers. For the year ended December 31, 2017, we reached our target that had been set out for the 2017 year of approximately U.S.$150 million in annualized cost savings through the implementation2019, and as part of our cost reduction program,“A Stronger CEMEX” plan, we implemented initiatives that allowed us to achieve recurring operational improvements of $170 million and we expect to achieve a total of $370 million by the end of 2020. These initiatives include improving our operational performance and expense rationalization, increasing our use of alternative fuels in several of the countries in which contemplated an improvement in underperforming operations, a reduction in selling, generalwe operate, serving our customers better and administrativeat lower costs, optimizing our production and the optimization oflogistics supply chain models and optimizing our organizational structure.procurement strategy.
In connection with the implementation of our cost-reduction initiatives, and as partsince 2017, we have implemented a low-cost sourcing initiative which is designed to maintain the continuity of our ongoing effortsoperations, while looking to eliminate redundancies at all levelsprovide attractive costs without materially affecting the quality of the products and streamline corporate structuresservices we acquire by using a strategic sourcing process empowered by our people’s knowledge and quality management. This initiative is intended to increasereduce our efficiencycost of operations, while maintaining quality and reduce operating expenses, as well as our divestitures, we have reduced our global headcounttimely delivery by approximately 28%,acquiring goods and equipment from 56,791 employees as of December 31, 2008 (excluding personnel from our operationsMexico, India, Turkey and certain countries in Australia sold in 2009Asia and our operations in Venezuela, which were expropriated in 2008) to approximately 40,878 employees as of December 31, 2017.Eastern Europe, among others.
Also as part of these initiatives, since 2009,at times we have temporarily shut down (some for a period of at least two months) severalsome of our cement production lines in order to rationalize the use of our assets and reduce the accumulation of our inventories. WeIn the past we have also announced the permanent closure of some of our cement plants, such as our Davenport cement plant located in northern California in 2010.plants. Similar actions were taken in ourready-mix concrete and aggregates businesses. SuchIn the past, such rationalizations have included, among others, our operations in Mexico, the United States,U.S. including Puerto Rico, Spain and the United Kingdom. As of December 31, 2019, we had four cement plants temporarily shut down (two in Mexico (Hidalgo, Nuevo Leon and Hermosillo, Sonora) and two in the U.S. (Brooksville, Florida and Wampun, Pennsylvania).
Furthermore, during 2017, we achievedintend to achieve energy cost-savings by actively managing our energy contracting and sourcing, and by increasing our use of alternative fuels. We believe that these cost-saving measures could better position us to quickly adapt to potential increases in demand and thereby benefit from the operating leverage we have built into our cost structure.
We have also introduced a comprehensive pricing strategy foraim to better serve our products that is expectedcustomers at lower cost and to more fully reflectoptimize our production and capture the high value-creating capability of our products and services. Our strategy focuses on value
enhancement, optimizing gains in customer relationships and in generating sufficient returns that would allow us to reinvest in our business. Under this strategy we are establishing internal procedures and guidelines that are expected to support our approach to pricing our different products and services.
Optimizing Capital Expenditures
During different parts of the past years, we had reduced capital expenditures related to maintenance and expansion of our operations in response to weak demand for our products.products in some of the markets in which we do business. Such reductions were implemented to maximizewith the intention of maximizing our free cash flow generation available for debt service and debt reduction, consistent with our ongoing efforts to strengthen our capital structure, improve our conversion of Operating EBITDA to free cash flow and regain our financial flexibility. During 20162018 and 2017, we decreased2019, our capital expenditures related to maintenance and expansion of our operations to U.S.$685have been $964 million and U.S.$656$1,033, respectively, lower in 2018 than the $984 million respectively, from U.S.$762 millionexpended in 2015.2017. Pursuant to the
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2017 CreditFacilities Agreement, we are limited in our ability to make aggregate annual capital expenditures in excess of U.S.$1$1.5 billion in any financial year (excluding certain capital expenditures, joint venture investments and acquisitions to be made by each of CEMEX LatamCLH and/or CHP and their respective subsidiaries and those funded by Relevant Proceeds (as defined in the 2017 CreditFacilities Agreement)), which capital expenditures, joint venture investments and acquisitions at any time then incurred are subject to a separate aggregate limit of (a) U.S.$500 million (or its equivalent) for each of CEMEX Latam and its subsidiaries and (b) U.S.(i) $500 million (or its equivalent) for each ofCLH and its subsidiaries and (ii) $500 million (or its equivalent) for CHP and its subsidiaries. In addition, the amounts of which we and our subsidiaries are allowed forto put towards permitted acquisitions and investments in joint ventures cannot exceed certain thresholds as set forth in the 2017 CreditFacilities Agreement. We believe that these restrictions on capital expenditures may still allow us to opportunistically increase capital expenditures in some of the markets in which we operate, if necessary, as we did in 2019 and as we intend to do in 2020, and to take advantage of improved market conditions, if any. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our reduction in capital expenditures intended to improve our liquidity during the COVID-19 pandemic and—Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for more information on possible modifications to the amount of capital expenditures as a result of possible amendments to the 2017 Facilities Agreement.
Cement is the primary building material in the industrial and residential construction sectors of mostthe majority of the markets in which we operate. TheWe believe that the lack or shortage of available cement substitutes further enhances the marketability of our product. The primaryend-users of cement in each region in which we operate vary but usually include, among others, wholesalers,ready-mix concrete producers, industrial customers and contractors in bulk. Additionally, sales of bagged cement to individuals for self-construction and other basic needs arehave traditionally been a significant component of the retail sector. Theend-users ofready-mix concrete generally include homebuilders, commercial and industrial building contractors and road builders. Majorend-users of aggregates includeready-mix concrete producers, mortar producers, general building contractors and those engaged in road building activity, asphalt producers and concrete product producers. In summary, because of their many favorable qualities, a considerable number of builders worldwide use our cement,ready-mix concrete and aggregates for almost every kind of construction project, from hospitals and highways to factories and family homes.
As of December 31, 2017,2019, we did not depend on any of oursingle existing customerscustomer to conduct our business and the loss of any of our existing customers individually would not have had a material adverse effect on our financial condition or results of operations. For the period ended December 31, 2017,2019, none of our individual customers represented more than 10% of our consolidated net sales.
CEMEX, S.A.B. de C.V. is an operating and also a holding company andthat, in general, CEMEX operates its business through subsidiaries that,which, in turn, hold interests in CEMEX’s cement andready-mix concrete operating companies, as well as other businesses. The following chart summarizes CEMEX’s corporate structure as of December 31, 2017.2019. The chart also shows for each company, unless otherwise indicated, CEMEX’s approximate direct or indirect, or consolidated, percentage equity ownership or economic interest.interest, or percentage of shares in certain subsidiaries that are part of the Collateral. The chart has been simplified to show only some of CEMEX’s major holding companies and/or operating companies in most of the main countries in which CEMEX operates, and/or relevant companies in which we holdCEMEX holds a significant direct or indirect interest, and does not include all of CEMEX’s intermediaryoperating subsidiaries and its intermediate holding companiescompanies. The chart reflects the corporate reorganization approved on November 13, 2019, pursuant to which CEMEX, S.A.B. de C.V. merged and all CEMEX’s operating subsidiaries.absorbed CEMEX México and Empresas Tolteca. The mergers between CEMEX, S.A.B. de C.V. and Empresas Tolteca and CEMEX, S.A.B. de C.V. and CEMEX México became effective against third parties on February 26, 2020 and March 9, 2020, respectively.
See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Other Recent Developments—Effectiveness of Mergers between CEMEX, S.A.B. de C.V. and certain direct and indirect subsidiaries in Mexico (the “Mexican Reorganization”)” for a description of the mergers into CEMEX, S.A.B. de C.V. of CEMEX México and Empresas Tolteca.
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(1) | Includes |
(2) | Includes |
(3) | CxNetworks N.V. is the holding company of the global business and IT consulting entities, including Neoris N.V. |
(4) | Includes a 100% interest pledged or transferred to a security trust as |
(5) | Includes |
(6) | Includes New Sunward and |
(7) | Includes |
(8) | Includes CEMEX España’s direct or indirect, or consolidated, interest. |
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(9) | Includes CEMEX France Gestion (S.A.S.)’s (“CEMEX France”) 94.75% interest and CEMEX |
(10) | Represents CEMEX España’s indirect economic interest in three companies incorporated in the UAE, CEMEX Topmix LLC, CEMEX Supermix LLC and CEMEX Falcon LLC. CEMEX España indirectly owns a 49% equity interest in each of these companies, and CEMEX España indirectly holds the remaining 51% of the economic benefits through agreements with other shareholders. |
Represents CHP’s direct and indirect equity interest. |
(12) | Represents outstanding shares of |
(13) | Represents |
(14) | Represents |
(15) | Represents |
(16) | Represents |
(17) | Represents CEMEX Colombia’s indirect interest. |
(18) | Includes CEMEX (Costa Rica), S.A.’s (“CEMEX Costa Rica”) 98% interest and CEMEX Colombia’s 2% indirect interest. |
(19) | Includes |
Mexico
Mexico
Overview. For the year ended December 31, 2017,2019, our operations in Mexico represented 21% of our net salesrevenues in Mexican PesoDollar terms before eliminations resulting from consolidation. As of December 31, 2017,2019, our businessoperations in Mexico represented approximately 32%28% of our total installed cement capacity and 13%14% of our total assets.
As of December 31, 2017,2019, CEMEX, S.A.B. de C.V. was both a holding company for some of our operating companies in Mexico and an operating companywas involved in the manufacturingproduction, marketing, sale and distribution of cement, ready-mix concrete, aggregates and other construction materials in Mexico.Mexico, as well as a construction materials and related products service provider. CEMEX, S.A.B. de C.V., indirectly, is also the holding
company for substantiallyof all our international operations. CEMEX, S.A.B. de C.V. accounts for a substantial part of the revenues and operating income of our operations in Mexico.
Our Tepeaca cement plant in Puebla, Mexico, currently hasas of December 31, 2019, had a production capacity of approximately 3.43.1 million tons of cement per year. In December 2014, we announced the restart of the Tepeaca cement plant expansion, consisting inof the construction of a new kiln.kiln and mill. Its total production capacity is expected to reach approximately 4.9 million tons of cement per year by 2019 and 7.8 million tons of cement per year by 2022.2020 based on mill capacity. Additionally, we are currently investinginvested in the same region to increase our cement production capacity by 0.5 million tons of cement through a debottlenecking project for our operations in Huichapan. TheThis project is expected to bewas completed induring the secondfirst quarter of 2018.2019.
In 2001, we launched the Construrama program, a registered brand name for construction material stores. Through the Construramathis program, we offer to an exclusive group of our Mexican distributors the opportunity to sell a variety of products under the Construrama brand name, a concept that includes the standardization of stores, image, marketing, products and services. As of December 31, 2017, approximately 7782019, 948 independent concessionaries with more than 1,8422,028 stores were integrated into the Construrama program, with nationwide coverage.
Industry. For 2017,2019, the National Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía) indicated that total construction activity in Mexico contracted by 1.1%5.1% up to December 2019 (seasonally adjusted figures). Such contraction has been attributed to the steep decline in infrastructure activity of 10.3%, which was only slightly offset by the slowa negative performance in the building sector (0.5%)of minus 3.2%, in special works of minus 13.1% and lower than expected infrastructure activity of minus 6.1%.
Cement in Mexico is sold principallymainly through distributors, with the remaining balance sold throughready-mix concrete producers, manufacturers ofpre-cast concrete products and construction contractors. Cement sold through distributors is mixed with aggregates and water by the end user at the construction site to form concrete.Ready-mix concrete producers mix the ingredients in plants and deliver it to local construction sites in mixer trucks, which pour the concrete. Unlike more developed economies, where purchases of cement are concentrated in the commercial and industrial sectors, retail sales of cement through distributors in 20172019 accounted for approximately 62%61% of Mexico’s demand (bagged presentation). Individuals who purchase bags of cement for self-construction and other basic construction needs are a significant component of the retail sector. We believe that this large retail sales base is a factor that significantly contributes to the overall performance of the Mexican cement market.market in Mexico.
The retail nature of the Mexican cement market also enables us to foster brand loyalty, which distinguishes us from other worldwide producers selling primarily in bulk. We own the registered trademarks for our brands in Mexico, such as “Tolteca,” “Monterrey,” “Maya,” “Anahuac,” “Campana,” “Gallo,” “Centenario,” as well as certainsub-brands, such as “Extra,” “Impercem”
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and “Optimo” for grey cements and mortar and, additionally, recently launched “Multiplast” for coatings. We believe that these brand names are important in Mexico since cement is principally sold in bags to retail customers who may develop brand loyalty based on differences in quality and service. We also have trademark registrations for our special concrete’s brands such as “Promptis,” “Resilia,” “Pervia,” “Insularis” and “Evolution.” In addition, we own the registered trademark for the “Construrama” brand name for construction material stores.stores and for our new digital solution we have trademark registrations for “CEMEX Go” and “Olivia.”
Competition.Competition. In the early 1970s, the cement industry in Mexico was regionally fragmented. However, for over more than the past 45 years,since that time, cement producers in Mexico have increased their production capacity and the Mexican cement industry in Mexico has consolidated into a national market, thus becoming increasingly competitive. TheAs of December 31, 2019, the major cement producers in Mexico arewere CEMEX; LafargeHolcim; Sociedad Cooperativa Cruz Azul, a Mexican operator; Cementos Moctezuma, an associate of Cements Molins;Molins and Buzzi-Unicem; and GCC, a Mexican operator in whose majority holder, CAMCEM, we hold a minority interest. During 2013, a then newthen-new cement producer, Elementia (Cementos Fortaleza), entered the market and in 2014 merged withacquired two cement plants from Lafarge (prior to the Lafarge-Holcim merger) within. As of December 31, 2019, the Mexican market. The majorready-mix concrete producers in Mexico arewere CEMEX, LafargeHolcim, Sociedad Cooperativa Cruz Azul and Cementos Moctezuma. In addition, as of December 31, 2019, the use ofnon-integrated ready-mixers has been increasing.
We believe potential entrants into the Mexican cement market face various impedimentsbarriers to entry, including, among other things,things: the time-consuming and expensive process of establishing a retail distribution network and developing the brand identification necessary to succeed in the retail market; the lack of port infrastructure and the high inland transportation costs resulting from the lowvalue-to-weight ratio of cement; the distance from ports to major consumption centers and the presence of significant natural barriers, such as mountain ranges, which border Mexico’s east and west coasts; the strong brand recognition and the wide variety of special products with enhanced properties; the extensive capital expenditure requirements; and the length of time required for construction of new plants, which we estimate is approximately two years.
Our Operating Network in Mexico
During 2017,2019, we operated 13 out of our total of 15 cement plants (two were temporarily inactive) and 88103 cement distribution centers (including seveneight marine terminals) located throughout Mexico.
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We operate modern cement plants on the Gulf of Mexico and Pacific coasts of Mexico, most of the time allowing us to take advantage of attractive transportation costs to export to the United States,U.S. and the Caribbean, and Central and South America.SCA&C region, when possible.
Products and Distribution Channels
Cement.Cement. For the year ended December 31, 2017,2019, our cement operations represented 59%58% of net salesrevenues for our operations in Mexico before eliminations resulting from consolidation in Mexican PesoDollar terms and our domestic cement sales volume represented 96%91% of our total cement sales volume in Mexico. As a result of the retail nature of the Mexican market, our operations in Mexico are not dependent on a limited number of large customers. The total volume of the five most important distributors accounted for approximately 12% of our total cement sales by volume in Mexico in 20172019 (excluding our in-house channels).
Ready-Mix Concrete.Concrete. For the year ended December 31, 2017,2019, our ready-mix concrete operations represented 21%23% of net salesrevenues for our operations in Mexico before eliminations resulting from consolidation in Mexican PesoDollar terms. Our ready-mix concrete operations in Mexico purchase substantially all their cement requirements from our cement operations in Mexico. Ready-mix concrete is sold through our own internal sales force and facilities network.
Aggregates.Aggregates. For the year ended December 31, 2017,2019, our aggregates operations represented 5%6% of net salesrevenues for our operations in Mexico before eliminations resulting from consolidation in Mexican PesoDollar terms.
Exports.Exports. Our operations in Mexico export a portion of their cement production, mainly in the form of cement and to a lesser extent in the form of clinker. Exports of cement by our operations in Mexico represented approximately 4%9% of our total cement sales volume in Mexico for 2017.2019. In 2017, approximately 53%2019, 67% of our cement exports from Mexico were to the United States, 45%U.S. and 33% were to theour Rest of South, Central America and the Caribbean region and 2% were to Costa Rica.region.
The cement and clinker exports by our operations in Mexico to the United StatesU.S. are mostly marketed through our trading network subsidiaries. Our cement and clinker transactions between CEMEX and its subsidiaries, are conducted on an arm’s-length basis.
Production Costs.Costs. Our cement plants in Mexico primarily utilize pet coke and alternative fuels. We have entered into four 20-year agreements with Petróleos Mexicanos (“PEMEX”) pursuant toPEMEX, two under which PEMEX has agreed to supply us with pet coke including Termoeléctrica del Golfo’s (“TEG”) coke consumption,for our cement plants through 2022/2022 and 2023. In 2017, dueHowever, during the past years, the volumes delivered by PEMEX to our operations in Mexico have been affected as a result of operational issues at their refineries, PEMEX supplied us with approximately a total of 0.7 million tons ofPEMEX’s refineries. In general, we believe our operations in Mexico would be able to purchase pet coke less than half ofin the minimum annual volume committed.open market, if needed, to make up for any quantities not supplied by PEMEX. The PEMEX pet coke contracts have reduced
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somewhat helped in reducing the volatility of our fuel costs for our operations in Mexico. In addition, in 1992, our
operations in Mexico began using alternative fuels to further reduce the consumption of residual fuel oil and natural gas. These alternative fuels represented approximately 20%26.5% of the total fuel consumption for our cement plant operations in Mexico in 2017.2019. For additional information, see “Item 5—Operating and Financial Review and Prospects—Summary of Material Contractual Obligations and Commercial Commitments—Contractual Obligations.”
In 1999, we entered into an agreement with an international partnership, which financed, built and operated TEG, a 230 megawatt (“MW”) energy plant in Tamuín, San Luis Potosí, Mexico. We entered into this agreement in order to reduce the volatility of our energy costs. The power plant commenced commercial operations in April 2004. In 2007, the original operator was replaced and the contractagreement was extended to 2027. For additional information, see “Item 5—Operating and Financial Review and Prospects—Summary of Material Contractual Obligations and Commercial Commitments—Contractual Obligations.”
In 2006, in order to take advantage of the high wind potential in the “Tehuantepec Isthmus,” CEMEX and the Spanish company ACCIONA, S.A. (“ACCIONA”), formed an alliance to develop a wind farm project for the generation of 250 MW in the Mexican state of Oaxaca. The installation of 167 wind turbines in the farm was finished on November 15, 2009. For additional information, see “Item 5—Operating and Financial Review and Prospects—Summary of Material Contractual Obligations and Commercial Commitments—Contractual Obligations.”
In connection with the beginning of full commercial operations of the Ventika S.A.P.I. de C.V. and the Ventika II S.A.P.I. de C.V. wind farms (jointly “Ventikas”“ Ventikas”), located in the Mexican state of Nuevo Leon, with a combined generation capacity of 252 MW, we agreed to acquire a portion of the energy generated by Ventikas for our Mexican plants for a period of 20 years, which began in April 2016. During 2017,2019, Ventikas supplied approximately 9.79%7.4% of CEMEX’s overall electricity needs in Mexico. This agreement is for CEMEX’s own use and as of the date of this annual report CEMEX does not intend to engage in energy trading. In 2017, we signed a contract with Energía Azteca X, a natural gas combined cycle plant located in Mexicali, Baja California. This plant started supplying energy to the CEMEX Ensenada plant in November 2018. In 2019, we consumed 65.8% of the CEMEX Ensenada electric energy needs from Energía Azteca X.
On October 24, 2018, in order to take advantage of lower electric energy prices, we entered into agreements for a period of 20 years with Tuli Energía, S. de R.L. de C.V. (“Tuli Energía”) and Helios Generación, S. de R.L. de C.V. (“Helios Generación”) to acquire a portion of the energy generated by such solar projects. The solar plants located in Mexican state of Zacatecas have a combined generation capacity of 300 MW. These solar plants started producing energy in September 2019. As of December 31, 2019, we expect that the effective commencement date of such agreements will be during the first half of 2020.
We have, from time to time, purchased hedges from third parties to reduce the effect of volatility in energy prices in Mexico. See “Item 5—Operating and Financial Review and Prospects—Summary of Material Contractual Obligations and Commercial Commitments—Contractual Obligations.” Additionally, in 2015, we created CEMEX Energía an energy division seeking to develop a portfolio of power projects in Mexico, which is in the process of becoming a participant in the wholesale electricity market through a subsidiary. ThisCEMEX’s subsidiary participated as a buyer in the third long-term power auction organized in 2017 by CENACEthe National Center for Energy Control (Centro Nacional de Control de Energía) (“CENACE”) (the independent system operator) and has been allocated a 20-year contract, which as of the date of this annual report we expect could commence in June 2020 or at a later date. The contract is for 16,129 clean energy certificates per year for compliance starting in 2020with legal requirements and 14.9 GWh/a of electric power to be supplied to CEMEX’s own operations in Mexico.power.
Description of Properties, Plants and Equipment. As of December 31, 2017,2019, we had 15 wholly-owned cement plants (of which two were temporarily inactive) with a cement installed capacity of 26.4 million tons per year and proportional interests through associates in three other cement plants located throughout Mexico, with a total potential capacity of 29.5 million tons per year, of which two were temporarily inactive.Mexico. We have exclusive access to limestone quarries and clay reserves near each of our plant sites in Mexico. We estimate that, as of December 31, 2017,2019, the limestone and clay permitted proven and probable reserves of our operations in Mexico had an average remaining life of approximately 140141 and 8992 years, respectively, assuming 2013-20172015-2019 average annual cement production levels. As of December 31, 2017,2019, all our productionproducing plants in Mexico utilized the dry process. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the impact of certain measures being taken by the governments of the countries in which we operate regarding temporary halts in production at our operating facilities to stop the spread of COVID-19.
As of December 31, 2017,2019, we had a network of 8195 land distribution centers (five were temporarily inactive) in Mexico, which are supplied through a fleet of our own trucks and rail cars, as well as leased trucks and rail facilities, and operated seveneight marine terminals. In addition, we had 254 (46250 ready-mix concrete plants (47 were temporarily inactive)ready-mix concrete plants throughout 7773 cities in Mexico, more than 2,5002,100 ready-mix concrete delivery trucks and 12 aggregates quarries.quarries (one was temporarily inactive).
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Capital Expenditures. We made capital expenditures of U.S.$68 million in 2015, U.S.$84 million in 2016 and U.S. $113$162 million in 2017, $168 million in our operations2018 and $199 million in Mexico. We currently expect2019. As of December 31, 2019, we expected to make capital expenditures of over U.S.$136$186 million in our operations in Mexico during 2018.2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in Mexico during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
United States
Overview. For the year ended December 31, 2017,2019, our operations in the United StatesU.S. represented 24%27% of our net salesrevenues in Mexican PesoDollar terms before eliminations resulting from consolidation. As of December 31, 2017,2019, our businessoperations in the United StatesU.S. represented 16%15% of our total installed cement capacity and approximately 47%49% of our total assets. As of December 31, 2017,2019, CEMEX, Inc. was the main holding company of our operating subsidiaries in the United States.U.S.
As of December 31, 2017,2019, we had a cement manufacturing capacity of approximately 15.215.7 million tons per year in our operations in the United States, including 0.6 million tons in proportional interests throughnon-controlling holdings.U.S. As of December 31, 2017,2019, we operated a geographically diverse base of 11 cement plants (two were temporarily inactive) located in Alabama, California, Colorado, Florida, Georgia, Kentucky, Louisiana, Pennsylvania, Tennessee and Texas. As of that date, we also operated 4642 (four temporarily inactive) rail, truck or water servedwater-served active cement distribution terminals and 11 deep-water import terminals (two were temporarily inactive) in the United States.U.S. As of December 31, 2017,2019, we had 335333 ready-mix concrete plants located in Alabama, Arizona, California, Florida, Georgia, Louisiana, Nevada, Tennessee, and Texas and Virginia and 60 aggregates facilities in Arizona, California, Florida, Georgia, Nevada, South Carolina and Texas.
On September 23, 2013, we and Concrete Supply Company, a leading producer ofready-mix concrete throughout the Carolinas,North and South Carolina, entered into a joint venture agreement and formed a joint venture company named Concrete Supply Co., LLC, in which is majority owned by Concrete Supply Holdings Co whoholds a majority ownership stake in and acts as the managing member. This joint venture is a leading concrete supplier in North and South Carolina with strong local management.
In February 2015, we completed an asset swap with Vulcan Materials Company, under which CEMEX exchanged its asphalt plants in Arizona and Sacramento for 12ready-mix concrete plants in California. Under the agreement, CEMEX continues supplying aggregates to the exchanged asphalt plants. Also, CEMEX is able to capture incremental cement sales to the acquiredready-mix concrete plants. Given the operations and strategic focus in these markets, we expect each party should earn a higher return on the exchanged assets and continue serving its customers efficiently. This swap was a cash-free transaction.
On November 18, 2016, after all conditions precedent were satisfied, CEMEX, S.A.B. de C.V. announced that it had closed the sale of certain
See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Assets Divestiture Plans” for more information regarding our assets in the U.S. to GCC for U.S.$306 million. The assets were sold by an affiliate of CEMEX to an affiliate of GCC in the U.S., and mainly consisted of CEMEX’s cement plant in Odessa, Texas, two cement terminals and the building materials business in El Paso, Texas and Las Cruces, New Mexico.
On January 31, 2017, one of CEMEX, S.A.B. de C.V.’s subsidiaries in the U.S. closed the sale of our Concrete Pipe Business to Quikrete for U.S.$500 million plus an additional U.S.$40 million contingent consideration based on future performance.
On February 10, 2017, one of our subsidiaries in the United States sold its Fairborn, Ohio cement plant and cement terminal in Columbus, Ohio to Eagle Materials for U.S.$400 million. The proceeds obtained from this transaction were used mainly for debt reduction and for general corporate purposes.
On June 30, 2017, one of our subsidiaries in the U.S. closed the divestment of the Pacific Northwest Materials Business, consisting of aggregates, asphalt and ready mix concrete operations in Oregon and Washington, to Cadman Materials for U.S.$150 million. The proceeds obtained from this sale were used mainly for debt reduction and general corporate purposes.
On September 29, 2017, one of our subsidiaries in the U.S. closed the divestment of the Block USA Materials Business, consisting of concrete block, architectural block, concrete pavers, retaining walls and building material operations in Alabama, Georgia, Mississippi and Florida, to Oldcastle for U.S.$38 million. The proceeds obtained from this sale were used mainly for debt reduction and general corporate purposes.
Industry. Demand for cement is derived from the demand forready-mix concrete and concrete products which, in turn, is dependent on the demand for construction. The construction industry is composed of three major sectors: the residential, the industrial and commercial,industrial-and-commercial and the public sectors. The public sector is the most cement intensive sector, particularly for infrastructure projects such as streets, highways and bridges.
The
Prior to the impact of the COVID-19 pandemic, the construction industry is still continuing to recoverhad showed signs of a slow recovery from the recessionfinancial crisis experienced during 2008 and 2009, which was the worst downturn in over 70 years. The construction industry was hit particularly hard during this recessionfinancial crisis due to the collapse of the housing sector. Housing starts fell 73% from a peak of 2.1 million units in 2005 to only 554,000 units in 2009. The decline in housing and other construction activity resulted in a 45% decline in cement demand from 2005 to 2010. The economic recovery hashad proceeded at a relatively moderate pace, with real gross domestic product average annual growth of 2.1%2.3% since 2011 to full year 2017.through the end of 2019. With the economy growing again, the construction sector stabilized in 2010 and joined the economy-wide recovery in 2011. The excess vacant inventory in the housing sector has been absorbed and existing home inventories for sale have declined to below normal levels across the nation, which together have supported an increase in housing prices for 2015, 20162017, 2018 and 20172019 of about 17%16%. Housing starts increased by 112%223% from 0.554 million554 thousand units in 2009 to 1.1741.3 million units in 2016.2019. Housing starts in 20172019 increased by 2.4%3% from 20162018 to 1.2021.3 million units, which remains well below the historical steady state level. The industrial and commercialindustrial-and-commercial sector hashad also been growing with nominal spending up 68%8% from 20132014 to 2017. Industrial and commercial2019. Industrial-and-commercial nominal spending increaseddecreased by 2% in 2017.2019. The public sector, which has lagged compared to the other construction sectors in this recovery, recorded a spending declineincrease of 2.1%9% in 2017.2019. Cement demand hashad been increasing annually since 20132014 with an estimated growth of 2.4%3.2% in 20172019 after an increase of 20%21% from 20122013 to 2016. The2018. As of December 31, 2019, the Portland Cement Association is forecasting a 2.6%1.7% increase in cement demand in the U.S. for 2018.2020, but as of the date of this annual report we are not able to assess whether the cement demand in the U.S. will increase or not during 2020 because of the effects of the COVID-19 pandemic. See “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—The recent COVID-19 outbreak could materially adversely affect our financial condition and results of operations” for more information on the risk of lower demand for our products and services.
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Competition. TheAs of December 31, 2019, the cement industry in the United States isU.S. was highly competitive, including national and regional cement producers in the United States. OurU.S. As of December 31, 2019, our principal competitors in the United States areU.S. were LafargeHolcim,Buzzi-Unicem, Heidelberg HeidelbergCement and Ash Grove Cement.CRH.
The
As of December 31, 2019, the independent U.S.ready-mix concrete industry iswas highly fragmented. According to the National Ready MixedReady-mixed Concrete Association (“NRMCA”), it is estimated that as of December 31, 2019 there arewere about 5,500ready-mix concrete plants that produceready-mix concrete in the United StatesU.S. and about 55,000ready-mix concrete mixer trucks that deliverdelivered the concrete to the point of placement. The NRMCA estimates that, as of December 31, 2019, the value ofready-mix concrete produced by the industry iswas approximately U.S.$35$35 billion per year. Given that the concrete industry has historically consumed approximately 75% of all cement produced annually in the United States,U.S., many cement companies choose to develop concrete plant capabilities. See “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—The recent COVID-19 outbreak could materially adversely affect our financial condition and results of operations” and “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on how the ready-mix concrete industry in the U.S. could be affected by the COVID-19 pandemic.
Aggregates are widely used throughout the United StatesU.S. for all types of construction because they are the most basic materials for building activity. The U.S.United States Geological Survey (“USGS”) estimates over 2.22.5 billion tons of aggregates were produced in 2017, a decrease2019, an increase of about 1%5% over 2016. Crushed2018. As of December 31, 2019, crushed stone accounted for 60%60.7% of aggregates consumed, sand & gravel 40%38.6%, and slag 1%0.7%. These products are produced in all 50 states and havehad a value of U.S.$23 billion.$28.5 billion as of December 31, 2019. The U.S. aggregates industry is highly fragmented and geographically dispersed. The top ten producing states represent approximately 50%represented 55% of all production.production as of year-end 2019. According to the USGS, during 2017,2019, an estimated 3,6004,061 companies operated approximately 9,7606,830 sand and gravel sites and 1,4001,430 companies operated 3,7003,440 crushed stone quarries and 8298 underground mines in the 50 U.S. states.
Our Operating Network in the United StatesU.S.
The maps below reflect the location of our operating assets, including our cement plants and cement terminals in the United StatesU.S. as of December 31, 2017.2019.
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Products and Distribution Channels
Cement. For the year ended December 31, 2017,2019, our cement operations represented 33%32% of revenues for our operations in the United States’ net salesU.S., before eliminations resulting from consolidation in Mexican PesoDollar terms. In the United States,U.S., we deliver a substantial portion of cement by rail, which occasionally those gogoes directly to customers. Otherwise, shipments go to distribution terminals where customers pick up the product by truck or we deliver the product by truck. The majority of our cement sales in the United StatesU.S. are made directly to users of gray portland and masonry cements, generally within a radius of approximately 200 miles of each plant.
Ready-Mix Concrete. For the year ended December 31, 2017,2019, ourready-mix concrete operations represented 42%43% of revenues for our operations in the United States’ net salesU.S., before eliminations resulting from consolidation in Mexican PesoDollar terms. Ourready-mix concrete operations in the United StatesU.S. purchase most of their cement aggregates requirements from our cement operations in the United States.U.S. Ourready-mix concrete products are mainly sold to residential, commercial and public contractors and to building companies.
Aggregates. For the year ended December 31, 2017,2019, our aggregates operations represented 17%18% of revenues for our operations in the United States’ net salesU.S., before eliminations resulting from consolidation in Mexican PesoDollar terms. We estimate that, as of December 31, 2017,2019, the crushed stone quarries and sand/gravel pits permitted proven and probable reserves of our operations in the United StatesU.S. had an average remaining life of approximately 3050 and 37 years, respectively, assuming 2013-20172015-2019 average annual aggregates production levels. Our aggregates are consumed mainly by our internal operations and by our trade customers in theready-mix, concrete products and asphalt industries.
Production Costs. The largest cost components of our plants are usually electricity and fuel, which accounted for approximately 26% of our total production costs of our cement operations in the United StatesU.S. in 2017. We are currently2019. As of December 31, 2019, we had been implementing a program expected to gradually replace coal with more economic fuels, such as pet coke, tires and other alternative fuels, which has resulted in reduced energy costs. By retrofitting our cement plants to handle alternative energy fuels, we believe we have gained more flexibility in supplying our energy needs and have become less vulnerable to potential price spikes.spikes in energy. In 2017,2019, the increased use of alternative fuels helped to offset the effect on our fuel costs of increasing coal prices. Power costs in 20172019 represented approximately 11% of ourthe cash manufacturing cost of our cement operations in the United States,U.S., which represents production cost before depreciation. We have improvedaim to improve the efficiency of our electricity usage of our cement operations in the United States,U.S., concentrating our manufacturing activities inoff-peak hours and negotiating lower rates with electricity suppliers.
Description of Properties, Plants and Equipment. As of December 31, 2017,2019, we operated 11 cement manufacturing plants in the United StatesU.S. (two were temporarily inactive), including the Kosmos cement plant in Louisville, Kentucky, and had a total installed cement capacity of 15.215.7 million tons per year including 0.6 million tons representing our proportional interests through associates in six other cement plants.year. We estimate that, as of December 31, 2017,2019, the limestone permitted proven and probable reserves of our operations in the United StatesU.S. had an average remaining life of approximately 3950 years, assuming 2013-20172015-2019 average annual cement production levels. As of that date, we operated a distribution network of 3947 active cement terminals. All of our 11 cement production facilities in 20172019 were wholly-owned by CEMEX, Inc., except for the cement plant in Louisville, Kentucky, plant, which is owned by Kosmos, Cement Company, a joint venture in which we own a 75% interest and a subsidiary of Dyckerhoff AG (a subsidiary ofBuzzi-Unicem) owns a 25% interest. As of December 31, 2017,2019, CEMEX, Inc. had 335333 wholly-ownedready-mix concrete plants (66(44 were temporarily inactive) and operated 49a total of 60 aggregates quarries.quarries (14 of which were temporarily inactive). As of December 31, 2017,2019, we distributed fly ash through sixfour terminals and two third-party-owned utility plants, which operate both as sources of fly ash and
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distribution terminals. As of that date, we also owned 12 concrete block facilities. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Assets Divestiture Plans” for more information regarding our assets in the U.S. and “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the temporary shut-down of a few ready-mix concrete plants in the San Francisco area as a result of COVID-19.
In the United States,U.S., we have continued to take a number of actions to streamline our operations and improve productivity, including temporary capacity adjustments and rationalizations in some of our cement plants, and shutdowns ofready-mix concrete and block plants and aggregates quarries. We are currentlyAs of December 31, 2019, we were utilizing approximately 80%87% of ourready-mix concrete plants, 55%60% of our block manufacturing plants and 77% of our aggregates quarries in the United States.U.S.
Capital Expenditures. Expenditures.We made capital expenditures of U.S.$216$354 million in 2015, U.S.$1972017, $405 million in 20162018 and U.S.$185$398 million in 20172019 in our operations in the United States. We currently expectU.S. As of December 31, 2019, we had expected to make capital expenditures of approximately U.S.$233$388 million in our operations in the United StatesU.S. during 2018.2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in the U.S. during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Europe
For the year ended December 31, 2017,2019, our business in Europe, which includes our operations in the United Kingdom, France, Germany, Spain, PolandEurope and the Rest of Europe, as described below, represented
25% 21% of our net salesrevenues before eliminations resulting from consolidation. As of December 31, 2017,2019, our businessoperations in Europe represented 26%24% of our total installed capacity and 20%16% of our total assets.
As of December 31, 2019, as part of our “A Stronger CEMEX” plan, we continue to completely transform the way our Europe region is organized. We continue to fully transition from country-based organization to functional, product-focused organization across the whole region. Once completed, these changes are expected to result in higher efficiencies and faster implementation of actions to serve our customers better and increase our profitability.
Our Operations in the United Kingdom
Overview. For the year ended December 31, 2017,2019, our operations in the United Kingdom represented 7%5% of our net salesrevenues in Mexican PesoDollar terms, before eliminations resulting from consolidation in Mexican PesoDollar terms. As of December 31, 2017,2019, our operations in the United Kingdom represented 6%5% of our total assets.
As of December 31, 2017, CEMEX Investments Limited was the main holding company of our operating subsidiaries in the United Kingdom. We are2019, we were a leading provider of building materials in the United Kingdom with vertically integrated cement,ready-mix concrete, aggregates and asphalt operations. Weoperations, and were are also an important provider of concrete and precast materials solutions such as concrete blocks, concrete block paving, flooring systems and sleepers for rail infrastructure.
As of December 31, 2019, through an affiliate in the United Kingdom, we were in negotiations withBreedon for the sale of certain assets in the United Kingdom for a total consideration of $235 million, including $31 million of debt. The assets held for sale mainly consist of 49 ready-mix plants, 28 aggregate quarries, four depots, one cement terminal, 14 asphalt plants, four concrete products operations, as well as a portion of our paving solutions business in the United Kingdom. After completion of the potential divestiture, we will retain significant operations in the United Kingdom related to the production and sale of cement, ready-mix concrete, aggregates, asphalt and paving solutions. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Assets Divestiture Plans” for more information regarding our assets in the UK.
Industry. According to the United Kingdom’s Construction Products Association, in 2017, the gross domestic product of the United Kingdom was estimated to have grown by 1.8% compared to 1.9% growth in 2016. TotalU.K. Office for National Statistics, total construction output is estimated to have increased by 5.1%2.3% in 2017,2019, as compared to a 3.9%0% increase in 2016 over the preceding year. Whilst public housing grew by 10%, the private housing sector is estimated to have grown by 5% in 2017, with the private housing market continuing to be stimulated by the government’s Help to Buy scheme. Publicnon-housing sector is estimated to have2018. New construction orders decreased by 1.4%1.2% in 2017. The industrial sector fellthe full year 2019. Housing starts decreased 10% in the full year 2019. Industrial & Commercial segment decreased 0.5% weighed down by 3.6%, affected by lower activity in factories and warehouses subsectors. In 2017, the commercial sector increased by 3%, boosted by office and retail subsectors. The infrastructure sectorwhich decreased 1.3% (after a decline of 6.7% in 2018) as a result of Brexit-related uncertainty. Infrastructure grew by 4.1% driven by rail and gas, air and communications subsectors.6.6% in 2019. As of April 27, 2018,December 31, 2019, the official data corresponding to 20172019 has not been released by the Mineral Products Association, but as of the date of this annual report we estimate that domestic cement demand remained flatcontracted in 20172019 compared to 2016.2018. Ready-mix concrete consumption in the full year 2019 contracted by 3.9%.
Competition. OurAs of December 31, 2019, our primary competitors in the United Kingdom are: Tarmac (now owned(owned by CRH after divestments by Lafarge and Holcim during their merger), Hanson (a subsidiary of HeidelbergCement)Heidelberg), Aggregate Industries (a subsidiary of LafargeHolcim) and Breedon, Group, formerly Breedon Aggregates, which acquired Hope Construction Materials (owned by Mittal Investments and formed three years ago from enforced divestments by Lafarge and Tarmac when they created Lafarge Tarmac). The Lafarge Tarmac business was divested to CRH (except for two cement plants to be retained by LafargeHolcim)Investments). In addition, during 2019 an estimated 2.92.7 million tons of cement were imported to the United Kingdom by various players including CRH, LafargeHolcim, HeidelbergCementHeidelberg and other independents, with materialproducts that compete with ours increasingly arriving from over-capacity markets including Ireland, Spain and Greece.
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Our Operating Network in the United Kingdom
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Products and Distribution Channels
Cement. For the year ended December 31, 2017,2019, our cement operations represented 17%21% of net salesrevenues for our operations in the United Kingdom before eliminations resulting from consolidation in Mexican PesoDollar terms.
About 83%73% of our United Kingdom cement sales were of bulk cement, with the remaining 17%23% in bags. Our bulk cement is mainly sold toready-mix concrete, concrete block andpre-cast product customers and contractors. Our bagged cement is primarily sold to national builders’ merchants.
Ready-Mix Concrete. For the year ended December 31, 2017,2019, ourready-mix concrete operations represented 26%29% of net salesrevenues for our operations in the United Kingdom before eliminations resulting from consolidation in Mexican PesoDollar terms. Special products, including self-compacting concrete, fiber-reinforced concrete, high strength concrete, flooring concrete and filling concrete, represented 24%20% of our 20172019 United Kingdom sales volume. In 2017,2019, ourready-mix concrete operations in the United Kingdom purchased 100%97% of its cement requirements from our cement operations in the United Kingdom and approximately 89% of its aggregates requirements from our aggregates operations in the United Kingdom. Ourready-mix concrete products are mainly sold to public, commercial and residential contractors.
Aggregates. For the year ended December 2017,2019, our aggregates operations represented 28%27% of net salesrevenues for our operations in the United Kingdom before eliminations resulting from consolidation in Mexican PesoDollar terms. In 2017,2019, our United Kingdom aggregates sales were divided as follows: 45%54% were sand and gravel 48% limestone and 7% hard stone.46% were limestone. In 2017, 16%2019, 22% of our aggregates volumes were obtained from marine sources along the United Kingdom’s coast. In 2017, approximately2019, 40% of our United Kingdom aggregates production was consumed by our ownready-mix concrete operations as well as our asphalt, concrete block and precast operations. We also sell aggregates to major contractors to build roads and other infrastructure projects.
Production Costs
Cement. In 2017,2019, fixed production costs increaseddecreased by 20%4.8% driven by annual increases in hired manpower, maintenance and services as a resultthere being fewer days of a major kiln overhaul which was not performed in 2016.2019 compared to 2018. Variable costs increaseddecreased by 12%,5% in absolute terms, primarily as a result of annual increasesno kiln overhaul in fuel, refractory bricks and balls and crushers. We2019. During 2019, we continued to implement our cost reduction programs through our use of alternative fuels. In March 2015, our partner Suez opened its Malpass factory, adjacent to our Rugby plant, to supply us with Refuse Derived Fuels.
Ready-Mix Concrete. In 2017,2019, fixed production costs increaseddecreased by 1%4.6%, as compared to fixed production costs in 2016,2018, due to annual increasesdue to savings in hired manpower, services and insurance.maintenance spend.
Aggregates. In 2017,2019, fixed production costs increased by 1%8.2% as compared to 20162018 fixed production costs.
Description of Properties, Plants and Equipment. As of December 31, 2017,2019, we operated two cement plants and one clinker grinding facility in the United Kingdom. Assets in operation atyear-end 2017 2019 represent an installed cement capacity of 2.43.6 million tons per year. We estimate that, as of December 31, 2017,2019, the limestone and clay permitted proven and probable reserves of our operations in the United Kingdom had an average remaining life of approximately 5246 and 4921 years, respectively, assuming 2013-20172015-2019 average annual cement production levels. As of December 31, 2017,2019, including the assets under negotiation with Breedon, we also owned two cement import terminals and operated 199193 ready-mix fixed concrete plants (seven(190 fixed and three mobile, from which seven and two, respectively, were temporarily inactive) and 5668 aggregates quarries in the United Kingdom. In addition, we had operating units dedicated to the asphalt, concrete blocks, concrete block paving, sleepers and flooring businesses in the United Kingdom. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Assets Divestiture Plans” for more information regarding our assets in the UK.
In order to have access to blended cements, which are more sustainable based on their reduced clinker factor and use ofby-products from other industries, our grinding and blending facility at the Port of Tilbury, located on the Thames River east of London has an annual grinding capacity of approximately 1.20.9 million tons, which allows us to have access to blended cements. Blended cements are more sustainable based on their reduced clinker factor and use ofby-products from other industries.
Capital Expenditures. We made capital expenditures of U.S.$57$84 million in 2015, U.S.$302017, $61 million in 20162018 and U.S.$53$67 million in 20172019 in our operations in the United Kingdom. We currently expectAs of December 31, 2019, we expected to make capital expenditures of approximately U.S.$44$71 million in our operations in the United Kingdom during 2018.2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in the United Kingdom during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
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Our Operations in France
Overview. As of December 31, 2017, CEMEX France was our main subsidiary in France. We are2019, we were a leadingready-mix concrete producer and a leading aggregates producer in France. We distribute most of our materials by road and a significant quantity by waterways, seeking to maximize the use of this efficient and sustainable alternative. For the year ended December 31, 2017,2019, our operations in France represented 6% of our net salesrevenues in Mexican PesoDollar terms, before eliminations resulting from consolidation. As of December 31, 2017,2019, our operations in France represented 3% of our total assets.
Industry. According to the French Building Association,National Institute of Statistics and Economic Studies, housing starts in the residential sector decreased by 0.9% in 2019 compared to 2018. Non-residential construction investments increased by 15.7%3.2% in 20172019 compared to 2016.Non-residential buildings starts increased by 5.8% in 2017 compared to 20162018 and demand from the public works sector increased by approximately 4.4%12.1% over the same period.
According to theNational Union of Quarrying and Building Materials Association, totalIndustries (French Association), ready-mix concrete consumption grew 1.1% in France in 2017 reached approximately 5.6 million of cubic meters, a 7.2% increase/decrease compared to 2016, and total aggregates production amounted to approximately 16.7 million tons, a 9.6% increase/decrease compared to 2016.2019.
Competition. OurAs of December 31, 2019, our main competitors in theready-mix concrete market in France includeincluded LafargeHolcim, ItalcementiHeidelberg, CRH and Vicat. OurVicat SA (“Vicat”), and our main competitors in the aggregates market in France includeincluded LafargeHolcim, Italcementi,Heidelberg, Colas (Bouygues) and Eurovia (Vinci). In France, we rely on sourcing cement from third parties, while many of our major competitors inready-mix concrete are subsidiaries of French cement producers.
Our Operating Network in France
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Description of Properties, Plants and Equipment. As of December 31, 2017,2019, we operated 242216 ready-mix concrete plants (one was temporarily inactive) in France, 1 maritimeone marine cement terminal located in Le Havre, on the northern coast of France, 21 land distribution centers, 4234 aggregates quarries and 10nine river ports.
Capital Expenditures. We made capital expenditures of U.S.$32$51 million in 2015, U.S.$192017, $44 million in 20162018 and U.S. $20$38 million in 20172019 in our operations in France. We currently expectAs of December 31, 2019, we expected to make capital expenditures of approximately U.S.$25$51 million in our operations in France during 2018.2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in France during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Our Operations in Germany
Overview. For the year ended December 31, 2017,2019, our operations in Germany represented 4%3% of our net salesrevenues in Mexican PesoDollar terms, before eliminations resulting from consolidation. As of December 31, 2017,2019, our operations in Germany represented 2%1% of our total assets. As of December 31, 2017, CEMEX Deutschland AG was our main subsidiary in Germany. We are3, 2019, we were a leading provider of building materials in Germany, with vertically integrated cement,ready-mix concrete and aggregates businesses.
On January 5, 2015, we closed a series of transactions with Holcim, pursuant to which, we sold to Holcim assets in the western region of Germany consisting of one cement plant, two cement grinding mills, one slag granulator, 22 aggregates quarries and 79ready-mix plants, while we maintained our operations in the north, east and south of Germany.
Industry. According to EUROCONSTRUCT Institute,DESTATIS, the German Federal Statistical Office, total construction outputinvestment (Gross Fixed Capital Formation) in Germany increased by 2.6%3.9% in 2017,2019, compared to 2016. The2018. During 2019, we had certain broad-based growth among segments with the main driver of such increase wasbeing the residential sector. According to the German Cement Association, in 2017, the national cement consumption in Germany increasedcivil engineering works, which grew by 4.6% to 28.8 million tons, while theready-mix5.5%. concrete market and the aggregates market each increased by approximately 4.8%.
Competition. OurAs of December 31, 2019, our primary competitors in the cement market in Germany arewere Heidelberg, Dyckerhoff (a subsidiary ofBuzzi-Unicem), LafargeHolcim, CRH and Schwenk, a local German competitor. These competitors, along with CEMEX in Germany, representrepresented a market share of about 80%above 95%, as estimated by us, for 2017.2019. Theready-mix concrete and aggregates markets in Germany are fragmented and regionally heterogeneous, with many local competitors. The consolidation process in theready-mix concrete and aggregates markets is moderate.
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Our Operating Network in Germany
Description of Properties, Plants and Equipment. As of December 31, 2017,2019, we operated one cement plant and one cement grinding mill in Germany and our installed cement capacity was 2.43.1 million tons per year. We estimate that, as of December 31, 2017,2019, the limestone permitted proven and probable reserves of our operations in Germany had an average remaining life up to 3637 years, assuming 2013-20172015-2019 average annual cement production levels. As of that date,December 31, 2019, our operations in Germany also included one cement grinding mill, 8461 ready-mix concrete plants (four(two were
temporarily inactive), 2415 aggregates quarries (three(two were temporarily inactive), two land distribution centers for cement and two maritimemarine terminals.
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Capital Expenditures. We made capital expenditures of U.S.$22$36 million in 2015, U.S.$262017, $27 million in 20162018 and U.S.$23$25 million in 20172019 in our operations in Germany. We currently expectAs of December 31, 2019, we expected to make capital expenditures of approximately U.S.$10$26 million in our operations in Germany during 2018.2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in Germany during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Our Operations in Spain
Overview. As of December 31, 2017, we held approximately 99.9% of CEMEX España (including shares held in treasury), a holding company for most of our international operations, including our operations in Spain. For the year ended December 31, 2017,2019, our operations in Spain represented 2% of our net salesrevenues in Mexican PesoDollar terms, before eliminations resulting from consolidation. As of December 31, 2017,2019, our operating business in Spain represented 5%4% of our total assets.
On October 1, 2012, CEMEX EspañMarch 29, 2019, we entered into a agreed tospin-off its Spanish industrial operationsbinding agreement with Çimsa Çimento Sanayi Ve Ticaret A.Ş.to divest our white cement business outside of Mexico and the U.S. for $180 million, including our Buñol cement plant in favor of CEMEX España Operaciones, S.L.U. (“CEMEX España Operaciones”), a subsidiary in which CEMEX España holds 100%Spain and our white cement customers list. The closing of the share capital.
In December 2012,transaction is subject to approval by Spanish authorities. As of the mergerdate of CEMEX España Operaciones and Aricemex, S.A. and Hormicemex, S.A. was completed and, as a result, our manufacturing and sales of cement, aggregates, concrete and mortar were consolidated in CEMEX España Operaciones, which became our Spanish operating subsidiary.
On January 5, 2015,this annual report, we closed a series of transactions with Holcim, pursuantexpect to which we acquired from Holcimclose the Gador cement plant (with an annual installed cement production capacity of approximately 0.97 million tons, which production capacity was reassessed after managing and operating the plant intransaction during the first quarterhalf of 2015) and2020, but we are not able to assess if COVID-19 will delay the Yeles cement grinding station (with an annual installed cement production capacityclosing of 0.90 million tons)this divestment or prevent us from closing.
Industry. By the end of 2015, CEMEX España Operaciones decided to dismantle the Yeles cement grinding station to optimize its production capacity footprint in central Spain.
Industry.In 2017, the2019, construction investment in the construction sector in Spain is estimated to have increased by 4.6%0.8% compared to 2016,2018 primarily driven by the investmentresidential sector, with a 2.9% growth, while the non-residential sector decreased by 1.7% in the residential construction sector, which is estimated to have increased by 7.8% in 2017. full year 2019.
According to the Spanish Cement Producers Association (Agrupación de Fabricantes de Cemento de España) (“OFICEMEN”), cement consumption in Spain increased byimports decreased 11% in 2017 compared to 2016.
According OFICEMEN, cement imports increased 14.8% in 2014, increased 15.1% in 2015, decreased 11.6% in 2016. For 2017 cement imports2016, increased by 0.3% in 2017 and increased by 29% in 2018. Clinker imports according to OFICEMEN, increased by more than 100% in 2017, decreased 97% in 2018 and, according to our estimates as of the date of this annual report, increased by more than 100% in 2019 compared to 2016. Clinker imports declined 26% in 2013, 2.4% in 2014, 50.4% in 2015, 86.1% in 2016 and increased 3.9% in 2017.2018.
In the early 1980s, Spain was one of the leading exporters of cement in the world, exporting up to 13 million tons per year. However, as
As of December 31, 2017,2019, cement exports from Spain amounted to approximately 4.1three million tons per year.tons. In recent years, Spanish cement and clinker export volumes have fluctuated, reflecting the rapid changes in demand in the Mediterranean basin as well as the strength of the Euro and changes in the domestic market. According to OFICEMEN, these total export volumes increased 17.8%decreased 8% in 2013, 32.5%2017, decreased 10% in 2014,2018 and, according to our estimates, as of the date of this annual report, decreased 4.1%by 23% in 2015, increased 5.6% in 2016, and decreased 10.4% in 2017.2019 compared to 2018.
Competition. According to our estimates, as of December 31, 2017,2019, we were one of the largest multinational producers of clinker and cement in Spain. Competition in theready-mix concrete industry is intense in large urban areas. The overall high degree of competition in the Spanishready-mix concrete industry is reflected in the multitude of offerings from a large number of concrete suppliers. We have focused on developing value addedvalue-added products and attempting to differentiate ourselves in the marketplace. The distribution ofready-mix concrete remains a key component of our business strategy in Spain.
Our Operating Network in Spain
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Products and Distribution Channels
Cement. For the year ended December 31, 2017,2019, our cement operations represented 75%64% of net salesrevenues for our operations in Spain before eliminations resulting from consolidation in Mexican PesoDollar terms. We offer various types of cement in Spain, targeting specific products to specific markets and users. In 2017, approximately 19%2019, 16% of the domestic sales volume of CEMEX España Operacionesour main operating subsidiary in Spain consisted of bagged cement, and the remainder of CEMEX España Operaciones’sits domestic sales volume consisted of bulk cement, primarily toready-mix concrete operators, including sales to our other operations in Spain, as well as industrial customers that use cement in their production processes and construction companies.
Ready-Mix Concrete. For the year ended December 31, 2017,2019, ourready-mix concrete operations represented 13%24% of net salesrevenues for our operations in Spain before eliminations resulting from consolidation in Mexican PesoDollar terms. Ourready-mix concrete operations in Spain in 20172019 purchased almost 95%91% of their cement requirements from our cement operations in Spain and approximately 52%51% of their aggregates requirements from our aggregates operations in Spain.
Aggregates. For the year ended December 31, 2017,2019, our aggregates operations represented 4%6% of net salesrevenues for our operations in Spain before eliminations resulting from consolidation in Mexican PesoDollar terms.
Exports. Exports of cement and clinker by our operations in Spain, which represented approximately 27%5% of net salesrevenues for our operations in Spain before eliminations resulting from consolidation, decreased approximately 19%56% in 20172019 compared to 2016,2018, primarily as a result of an increase in domestic demand and consequently, a decrease in the volume sold to Algeria, Ghana, Togo, Brazil and Greece, offset by higher salesexported to the United States, theU.S., United Kingdom and Guinea. Export prices are lower than domestic market prices, and costs are usually higher for export sales. Of our total exports from Spain in 2017, 15%2019, 21% consisted of white cement, 40% of gray portland cement and 45%53% of clinker. Of our total gray cement and clinker export volumes from our operations in Spain during 2017, 4% were to our South, Central America and the Caribbean region, 33% were to the United States, 9%2019, 54% were to the United Kingdom, 1%22% were to Colombia, 12% were to Poland 7% wereand the remaining to the Rest of Europe regionGermany, Guinea and 46% were to the Rest of Asia, Middle East and Africa region.Andorra.
Production Costs. We have improved the efficiency of our operations in Spain by introducing technological improvements that have significantly reduced our energy costs, including the use of alternative fuels, in accordance with our cost reduction efforts. In 2017,2019, we used organic waste, tires and plastics as fuel, achieving a 33%48% substitution rate for pet coke in our gray and white clinker kilns for the year.
Description of Properties, Plants and Equipment. As of December 31, 2017,2019, including the plant we are divesting in Buñol, our operations in Spain included seven cement plants located in Spain with an annual installed cement capacity of 10.410.0 million tons. As of that date, we also had 2528 operative distribution centers, including 1720 land and eight marine terminals, 6172 ready-mix concrete plants (42(34 were temporarily inactive), 1920 aggregates quarries (15(11 were temporarily inactive) and eight mortar plants. As of December 31, 2017,2019, we owned 12 limestone quarries located in close proximity to our cement plants and six clay quarries in our cement operations in Spain. We estimate that, as of December 31, 2017,2019, the limestone and clay permitted proven and probable reserves of our operations in Spain had an average remaining life of approximately 8294 and 2638 years, respectively, assuming 2013-20172015-2019 average annual cement
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production levels. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the impact on our operating facilities as a result of COVID-19.
Capital Expenditures. We made capital expenditures of U.S.$17$35 million in 2015, U.S.$252017, $27 million in 20162018 and U.S.$29$34 million in 20172019 in our operations in Spain. We currently expectAs of December 31, 2019, we expected to make capital expenditures of approximately U.S.$27$21 million in our operations in Spain during 2018.
Our Operations in Poland
Overview.2020. As of December 31, 2017, CEMEX Polska Sp. Z.O.O. (“CEMEX Polska”) was our main subsidiary in Poland. We are a leading providerthe date of building materials in Poland, servingthis annual report, the cement,ready-mix concrete and aggregates markets. As of December 31, 2017, we operated two cement plants with an installed cement capacity of three million tons per year and one grinding mill in Poland. As of December 31, 2017, we also operated 41ready-mix concrete plants (one was temporarily inactive), seven aggregates quarries (two were temporarily inactive) and two maritime terminals in Poland.
Industry. According to our estimates, total cement consumption in Poland reached approximately 17 million tons in 2017, increasing compared to 2016.
Competition. Our primary competitors in the cement,ready-mix concrete and aggregates markets in Poland are Heidelberg, LafargeHolcim, CRH, Dyckerhoff and Miebach.
Capital Expenditures. We madeexpected capital expenditures of U.S.$12 million in 2015, U.S.$10 million in 2016 and U.S.$12 million in 2017to be made in our operations in Poland. We currently expectSpain during 2020 are under review as a result of measures taken by CEMEX to makemitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures of approximately U.S.$42 million in our operations in Poland during 2018.expenditures.
Rest of Europe
As of December 31, 2017,2019, our operations in the Rest of Europe segment consisted primarily of our operations in Poland, the Czech Republic Croatia and Latvia, as well as trading activities in Scandinavia and Finland.
Croatia. These operations represented 4%5% of our net sales in Mexican Peso terms,revenues, before eliminations resulting from consolidation in Mexican PesoDollar terms, for the year ended December 31, 2017,2019, and 3% of our total assets as of December 31, 2017.2019. As of December 31, 2019, we expected to make capital expenditures of $55 million in the Rest of Europe region during 2020. As of the date of this annual report, the expected capital expenditures to be made in our operations that make up our Rest of Europe region during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Our Operations in the Czech RepublicPoland
Overview. As of December 31, 2019, we were a leading provider of building materials in Poland, serving the cement, ready-mix concrete and aggregates markets. As of December 31, 2019, we operated two cement plants and one grinding mill with an installed cement capacity of 3.8 million tons per year. As of December 31, 2019, we also operated 42 ready-mix concrete plants (two were temporarily inactive), six aggregates quarries and two marine terminals in Poland.
Industry. According to our estimates as of the date of this annual report, total cement consumption in Poland reached approximately 19.8 million tons in 2019, increasing 1.4% compared to 2018.
Competition. As of December 31, 2019, our primary competitors in the cement, ready-mix concrete and aggregates markets in Poland were Heidelberg, LafargeHolcim, CRH, Dyckerhoff and Miebach.
Capital Expenditures. We made capital expenditures of $16 million in 2017, $36 million in 2018 and $32 million in 2019 in our operations in Poland. As of December 31, 2019, we expected to make capital expenditures of $28 million in our operations in Poland during 2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in Poland during 2020 are under review as a result of measures taken by CEMEX Czech Republic, s.r.o. wasto mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our main subsidiarycapital expenditures.
Our Operations in the Czech Republic. We areRepublic
Overview. As of December 31, 2019, we were a leading producer ofready-mix concrete and aggregates in the Czech Republic. We also distribute cement in the Czech Republic. As of December 31, 2017,2019, we operated 77ready-mix concrete plants (one was temporarily inactive), 16 aggregates quarries in the Czech Republic (one was temporarily inactive) and three aggregates quarries in Slovakia. As of that date, we also operated one cement plant and one grinding mill with annual cement installed capacity of one1.7 million tons, one cement grinding mill, one cement terminal and one admixtures plant in the Czech Republic. As of December 31, 2019, we also operated 73 ready-mix concrete plants (four of which were temporarily inactive) and 15 aggregates quarries in the Czech Republic.
Industry. According to the Czech Statistical Office, total construction output in the Czech Republic increased by approximately 2.3%3.9% in 2017.2019 (seasonally adjusted). The increase was mainly driven by an accelerationa growth in theboth building development segment.as well as in civil engineering. The main drivers behind the increase were private investments in industrial as well as housing development,accelerated execution of public infrastructure projects and most of the growth occurred over the first half of 2017. For 2017, the increase in building construction is estimated at 5.6%, while a decrease in civil engineering construction is estimated at 5.4%. The decline in civil engineering construction was mainly due to the delayed start of large planned infrastructure projects. still relatively strong residential development.
According to the Czech Cement Association, total cement consumption in the Czech Republic reached year-over-year growth of 3.7%0.5% in the first half of 2017. Full year2019. As of the date of this annual report, the full-year growth for 2019 is estimated to be around 4%2%. SpecificAs of the date of this annual report, the specific full-year data for 20172019 will be provided by the Czech Cement Association in July 2018 due2020. According to limitations imposed by EU competition laws. In 2017, growthour estimates, in 2019, the decline of each of totalready-mix concrete production in the Czech Republic is estimated at 2.0% and growth of the aggregates market in the Czech Republic is estimated at 4.0%.
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Competition. OurAs of December 31, 2019, our main competitors in the cement,ready-mix concrete and aggregates markets in the Czech Republic arewere Heidelberg, Buzzi,Buzzi-Unicem, LafargeHolcim, Strabag and Skanska.
Capital Expenditures. We made capital expenditures of U.S.$9$14 million in 2015, U.S.$72017, $14 million in 20162018 and U.S.$8$16 million in 20172019, in our operations in the Czech Republic. We currently expectAs of December 31, 2019, we expected to make capital expenditures of approximately U.S.$11$21 million in our operations in the Czech Republic during 2018.2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in the Czech Republic during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Our Operations in Croatia
Overview.OverviewAs of December 31, 2017, we held 100% of CEMEX Hrvatska d.d., our operating subsidiary in Croatia.. We were the largest cement producer in Croatia based on installed capacity as of December 31, 2017,2019, according to our estimates. We haveAs of December 31, 2019, we had three cement plants in Croatia with an annual cement installed capacity of 2.42.6 million tons. As of December 31, 2017,2019, one cement plant in Croatia was temporarily inactive. As of December 31, 2017,2019, we also operated 12 land distribution centers, three maritimemarine cement terminals in Croatia, Bosnia and Herzegovina and Montenegro, sevensix ready-mix concrete facilities in Croatia and Bosnia and Herzegovina and one aggregates quarry in Croatia.
On April 5, 2017, CEMEX announced that the European Commission issued a decision that ultimately doesdid not allowDuna-Dráva Cement Kft to purchase our aforementioned operations in Croatia. Consequently, the transaction did not close and CEMEX decided to maintain its operations in Croatia and continue to operate them for an indefinite time. As of December 31, 20172018 and 20162019 and for the years ended December 31, 2017, 20162018 and 2015,2019, our operations in Croatia are consolidatedline-by-line in the financial statements. See our note 4.2 of our audited consolidated financial statements.
Industry.Industry. According to our estimates made as of the date of this annual report, total cement consumption in Croatia, Bosnia and Herzegovina and Montenegro reachedwas almost 3.33.5 million tons in 2017, an increase2019, the same as in 2018.
Competition. As of 12.5% compared to 2016.
Competition.OurDecember 31, 2019, our primary competitors in the cement market in Croatia arewere Nexe and LafargeHolcim.
Capital Expenditures.Expenditures. We made capital expenditures of U.S.$4.6$9 million in 2015, none in 2016 and U.S.$52017, $4 million in 20172018 and $4 million in 2019 in our operations in Croatia. We currently expectAs of December 31, 2019, we expected to make capital expenditures of approximately U.S.$4.0$5 million in our operations in Croatia during 2018.
Our Operations in Latvia
Overview.2020. As of December 31, 2017, CEMEX SIA was our operating subsidiary in Latvia. We are the only cement producer and a leadingready-mix concrete producer and supplier in Latvia. From our cement plant in Latvia we also supply markets mainly in Estonia, Lithuania, Finland and Sweden, among others. Asdate of December 31, 2017, we operated one cement plant in Latvia with an installed cement capacity of 1.6 million tons per year. We also operated sevenready-mix concrete plants (two were temporarily inactive) and four aggregates quarries in Latvia. In 2017, we continued to develop inthis annual report, the road construction business by supplying Roller Compacted Concrete.
Capital Expenditures. In total, we madeexpected capital expenditures of U.S.$14 million in 2015, U.S.$6.9 million in 2016 and U.S.$3.5 million in 2017to be made in our operations in Latvia. We currently expectCroatia during 2020 are under review as a result of measures taken by CEMEX to makemitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures of approximately U.S.$8.3 million in our operations in Latvia during 2018.expenditures.
Our Equity Investment in Lithuania
Overview. As of December 31, 2017, we owned an interest of 37.8% in Akmenés Cementas AB, a cement producer in Lithuania, which operates one cement plant in Lithuania with an annual installed cement capacity of 1.8 million tons.
Our Operations in Other European Countries
Overview. As of December 31, 2017, we operated 10 marine cement terminals in Norway and Sweden through CEMEX AS, a leading bulk-cement importer in the Nordic region. As of December 31, 2017, we also operated three marine cement terminals in Finland.
Capital Expenditures. We made no significant capital expenditures in our operations in other European countries in 2015, 2016 and 2017. We currently do not expect to make any significant capital expenditures in our operations in other European countries during 2018.
South, Central America and the Caribbean
For the year ended December 31, 2017,2019, our business in SAC,SCA&C, which includesincluded our operations in Colombia, Panama, Costa Rica, Caribbean TCL, the Dominican Republic and Rest of South, Central America and the Caribbean segments, as described below, represented 13% of our net salesrevenues before eliminations resulting from consolidation in Mexican PesoDollar terms. As of December 31, 2017,2019, our businessoperations in SACSCA&C represented 15% of our total installed capacity and 10%9% of our total assets.
CEMEX Latam
CLH is the main holding company for CEMEX’s operations in Colombia, Panama, Costa Rica, Guatemala, Nicaragua and El Salvador and Brazil.Salvador.
Our Operations in Colombia
Overview. As of December 31, 2017, CEMEX Latam directly and indirectly owned 99.7% of CEMEX Colombia, our main subsidiary in Colombia. As of December 31, 2017,2019, CEMEX Colombia was the second-largest cement producer in Colombia, based on installed cement capacity of 4.04.1 million tons per year as of December 31,
2017. 2019. For the year ended December 31, 2017,2019, our operations in Colombia represented 4% of our net salesrevenues before eliminations resulting from consolidation in Mexican PesoDollar terms. As of December 31, 2017, our operations in Colombia represented 4% of our total assets.
CEMEX Colombia has a significant market share in the cement andready-mix concrete market in the “Urban Triangle” of Colombia comprising the cities of Bogotá, Medellín and Cali. During 2017,2019, these three metropolitan areas accounted for approximately 37.4%38.0% of Colombia’s cement consumption. CEMEX Colombia’s IbagueIbagué plant, which uses the dry process and is strategically located in the Urban Triangle, is CEMEX Colombia’s largest plant and had an annual installed capacity of 2.8 million tons as of December 31, 2017.2019. CEMEX Colombia, through its Cúcuta plant and Clemencia grinding facility, is also an active participant in Colombia’s northeastern and coastal markets.
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Industry. According to our estimates made as of the date of this annual report, the installed capacity for cement in Colombia was 18.220.3 million tons in 2017.2019. According to DANEthe Colombian National Statistical Administrative Department (Departamento Administrativo Nacional de Estadística), total cement consumption in Colombia reached 12.112.5 million tons during 2017, a decrease2019, an increase of 2.7%4.0% from 2016,2018, while cement exports from Colombia during 2019 reached 0.20.4 million tons. We estimate that as of December 31, 2019, close to 57%60% of cement in Colombia iswas consumed by the housing and self-construction sector, while the infrastructure sector accountsaccounted for approximately 33%30% of total cement consumption and has been growing in recent years.years up to December 31, 2019. The other construction segments in Colombia, including the formal housing and commercial sectors, account for the balance of cement consumption in Colombia.
Competition. OurAs of December 31, 2019, our two largest competitors in Colombia arewere Cementos Argos, which has established a leading position in the Colombian Caribbean coast, Antioquia and Southwest region markets, and LafargeHolcim Colombia. There areWe estimate that as of December 31, 2019 there were eight other local and regional competitors.competitors in Colombia.
Theready-mix concrete industry in Colombia iswas fairly consolidated with the top three producers accounting for approximately 72%70% of the market as of December 31, 2017.2019. CEMEX Colombia was the second-largestready-mix concrete producer as of December 31, 2017.2019. The first-first and third-largest producers were Cementos Argos and LafargeHolcim Colombia, respectively.
The aggregates market in Colombia is highly fragmented and is dominated by the informal market. Approximately 80%95% of the aggregates market in Colombia was comprised of small independent producers as of December 31, 2017.2019.
Our Operating Network in Colombia
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Products and Distribution Channels
Cement. For the year ended December 31, 2017,2019, our cement operations represented 49%57% of net salesrevenues for our operations in Colombia before eliminations resulting from consolidation in Mexican PesoDollar terms.
Ready-Mix Concrete. For the year ended December 31, 2017,2019, ourready-mix concrete operations represented 28%27% of net salesrevenues for our operations in Colombia before eliminations resulting from consolidation in Mexican PesoDollar terms.
Aggregates.Aggregates. For the year ended December 31, 2017,2019, our aggregates operations represented 9%8% of net salesrevenues for our operations in Colombia before eliminations resulting from consolidation in Mexican PesoDollar terms.
Description of Properties, Plants and Equipment. As of December 31, 2017,2019, CEMEX Colombia owned two operating cement plants and threetwo cement grinding mills, having a total annual installed cement capacity of 4.04.1 million tons. In addition, through its grinding mills, CEMEX Colombia could produce 0.5 million tons of cement sourced by third parties. In 2017,2019, we replaced 20%11.3% of our total fuel consumed in CEMEX Colombia with alternative fuels, and we had an internal electricity generating capacity of approximately 37 MW as of December 31, 2017.2019. We estimate that, as of December 31, 2017,2019, the limestone and clay permitted proven and probable reserves of our operations in Colombia had an average remaining life of approximately 5975 and 102185 years, respectively, assuming 2013-20172015-2019 average annual cement production levels. The operating licenses for quarries in Colombia are renewed every 30 years; assuming renewal of such licenses, we estimate having sufficient limestone reserves for our operations in Colombia for over 20070 years assuming 2013-20172015-2019 average annual cement production levels. As of December 31, 2017,2019, CEMEX Colombia also operated twelve15 land distribution centers, twoone mortar plants, 54plant (temporarily inactive), 56 ready-mix concrete plants (18(21 were temporarily inactive) and nine10 aggregates operations (four(eight were temporarily inactive). AsSee “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of that date, CEMEX Colombia also owned 13 limestone quarries.COVID-19 on Our Business and Operations” for more information on the impact of certain measures being taken by the governments of the countries in which we operate regarding temporary halts in production at our operating facilities to stop the spread of COVID-19.
CEMEX Colombia is also finishing building a new cement plant in the Antioquia department of the Municipality of Maceo, Colombia. See “Item 4—Information on the Company—Regulatory“Regulatory Matters and Legal Proceedings” and “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to ourOur Regulatory Matters and Legal Proceedings—Other Legal Proceedings—Maceo, Colombia—Operational Matters”Proceedings” for the status of that project.
Capital Expenditures. We made capital expenditures of U.S.$156$62 million in 2015, U.S.$1802017, $22 million in 20162018 and U.S.$62$25 million in 20172019 in our operations in Colombia. We currently expectAs of December 31, 2019, we expected to make capital expenditures of approximately U.S.$29$31 million in our operations in Colombia during 2018.2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in Colombia during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
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Our Operations in Panama
Overview. As of December 31, 2017, CEMEX Latam indirectly held an approximate 99.483% interest in Cemento Bayano, S.A., our main subsidiary in Panama and a leading cement producer in the country. For the year ended December 31, 2017,2019, our operations in Panama represented 2%1% of our net salesrevenues before eliminations resulting from consolidation in Mexican PesoDollar terms.
Industry. WeAs of the date of this annual report, we estimate that approximately 1.91.3 million cubic meters of ready-mix concrete were sold in Panama during 2017.2019. Cement consumption in Panama increased 2.35% from 2016,decreased 11.6% in 2019 compared to 2018, mainly due to the executionhigh levels of inventory in apartments and offices, delays in infrastructure projects.projects as well as increased participation of imported cement.
Competition. TheAs of December 31, 2019, the cement industry in Panama includesincluded three cement producers: Cemento Bayano, Argos Panamá, an affiliate of Cementos Argos, and Cemento Interoceánico.nico, S.A., a company in which we were a minority shareholder until mid-November 2019 when we sold our shares to Cemento Progreso, S.A.
Description of Properties, Plants and Equipment. As of December 31, 2017, Cemento Bayano operated one cement plant in Panama, with an annual installed capacity of 2.1 million tons. As of that date, Cemento Bayano also owned and operated 15 ready-mix concrete plants (three were temporarily inactive), three aggregates quarries (one was temporarily inactive) and four land distribution centers.
Capital Expenditures. We made capital expenditures of U.S.$19 million in 2015, U.S.$7 million in 2016 and U.S.$8 million in 2017 in our operations in Panama. We currently expect to make capital expenditures of approximately U.S.$14 million in our operations in Panama during 2018.
Our Operations in Costa Rica
Overview. As of December 31, 2017, CEMEX Colombia, a CEMEX Latam subsidiary, indirectly held an approximate 99.1% interest in CEMEX (Costa Rica), S.A. (“CEMEX Costa Rica”), our main operating subsidiary in Costa Rica and a leading cement producer in the country. For the year ended December 31, 2017, our operations in Costa Rica represented 1% of our net sales before eliminations resulting from consolidation in Mexican Peso terms.
During 2015, a total of U.S.$5 million were invested as part of a program to increase the overall capacity in theColorado de Abangares plant, allowing a 10% throughput increase that catered to the needs of our operations in Nicaragua during 2016. Since the expansion, Colorado Plant’s kiln has been operating at the expected capacity with an operational efficiency above 97%. The majority of our operational requirements in Nicaragua have been consistently provided from our operations in Costa Rica.
Industry. We estimate that approximately 1.4 million tons of cement were sold in Costa Rica during 2017. In 2017, the market had an estimated ratio of 50/50 in the bulk/bagged mix due to the execution of two major infrastructure projects.
Competition. The Costa Rican cement industry currently includes two producers, CEMEX Costa Rica and LafargeHolcim Costa Rica, both of which have integrated lines. Further, in 2017 an estimated 38,000 tons were imported by a local construction company.
Description of Properties, Plants and Equipment. As of December 31, 2017, CEMEX Costa Rica2019, our operations in Panama through Cemento Bayano operated one cement plant and one grinding mill in Costa Rica,Panama, with a total annualan installed cement capacity of 0.91.2 million tons. As of that date, CEMEX Costa Rica hadCemento Bayano also operated seven operational ready-mix concrete plants (one was temporarily inactive), three aggregates quarries (all of which are currently inactive) and four distribution centers (including one aggregates quarrylocation at the cement plant). See “Item 5—Operating and one land distribution center.Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the impact of certain measures being taken by the governments of the countries in which we operate regarding temporary halts in production at our operating facilities to stop the spread of COVID-19.
Exports. During 2017, clinker exports by our operations in Costa Rica represented approximately 26% of our total production and were made to our operations in Nicaragua.
Capital Expenditures. We made capital expenditures of U.S.$10$8 million in 2015, U.S.$42017, $12 million in 20162018 and U.S.$2$10 million in 20172019 in our operations in Costa Rica. We currentlyPanama. As of the date of this annual report, we expect to make capital expenditures of approximately U.S.$3$5 million in our operations in Costa RicaPanama during 2018.2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in Panama during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Our Operations in Caribbean TCL
During 2017, Sierra, pursuant to the Offer, acquired 113,629,723 ordinary shares of TCL, which, together with Sierra’s existing ownership of TCL of 39.5%, resulted in Sierra holding 69.83% of the outstanding TCL shares as of December 31, 2017. The total consideration paid by Sierra for the TCL shares was U.S.$86 million (Ps1,791 million).
We started consolidating TCL and its subsidiaries for financial reporting purposes on February 1, 2017. In March 2017, TCL de-listed from the Jamaica and Barbados stock exchanges.
As of December 31, 2017,2019, Caribbean TCL was one of the leading producerproducers and marketermarketers of cement and ready-mix concrete products in the Caribbean’s construction sector, with operations strategically located in Jamaica, Trinidad and Tobago, Guyana and Barbados.
Our
As of December 31, 2019, our focus with respect to Caribbean TCL will continue on attempting to maximize further synergies from TCL’s integration with us. We intend on improvingAs of December 31, 2019, we intended to improve the productivity and capacity of our Caribbean TCL’s cement plants, on continuingcontinue the vertical integration of Caribbean TCL’s business, on investinginvest in developing its employees and by offeringoffer strong value products.
Capital Expenditures.We made capital expenditures of $32 million in 2017, $29 million in 2018 and $21 million in 2019 in Caribbean TCL. As of December 31, 2019, we expected to make capital expenditures of $22 million during 2020 in Caribbean TCL. As of the date of this annual report, the expected capital expenditures to be made in our operations in the Caribbean TCL during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Our Operations in Trinidad & Tobago
Description of Properties, Plants and Equipment. As of December 31, 2017,2019, TCL operated one cement plant in Trinidad & Tobago, with a total annual cement installed capacity of 0.91.0 million tons. As of that date,December 31, 2019, TCL had fivethree operational ready-mix concrete plants (one was temporarily inactive), two aggregates quarries, and fourfive land distribution centers.centers and one marine terminal. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the impact of certain measures being taken by the governments of the countries in which we operate regarding temporary halts in production at our operating facilities to stop the spread of COVID-19.
Capital Expenditures. We made capital expenditures of U.S.$6.8 million in 2017 in Trinidad & Tobago. We currently expect to make capital expenditures of U.S.$6.1 million during 2018.
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Our TCL Operations in Jamaica
Overview. As of December 31, 2017,2019, we held an indirect controlling position mainly through Trinidad Cement LimitedTCL in Caribbean Cement Company Limited (“CCCL”) in Jamaica TCL.CCCL.
Description of Properties, Plants and Equipment. As of December 31, 2017,2019, CCCL operated one cement plant in Jamaica, with a total annualcement installed capacity of 1.21.5 million tons. As of that date,December 31, 2019, CCCL had one aggregate quarrie and threefour land distribution centers.centers and one marine terminal.
Capital Expenditures. We made capital expenditures of U.S.$16 million in 2017 in CCCL. We currently expect to make capital expenditures of approximately U.S.$12 million in our operations in CCCL during 2018.
Our Operations in Barbados
Overview. As of December 31, 2017,2019, through TCL, we held an indirect controlling position in Arawak in Barbados.
Description of Properties, Plants and Equipment. As of December 31, 2017,2019, Arawak operated one cement plant in Barbados, with a total annualcement installed capacity of 0.4 million tons. As of that date, Arawak had one ready-mix concrete plant and(temporarily inactive), one land distribution center.center and one marine terminal.
Capital Expenditures. We made capital expenditures of U.S.$5 million in 2017 in Barbados. We currently expect to make capital expenditures of approximately U.S.$3 million in our operations in Barbados during 2018.
Rest of South, Central America and the Caribbean
As of December 31, 2017, our operations in the Rest of South, Central America and the Caribbean segment consisted primarily of our operations in Puerto Rico, the Dominican Republic, Nicaragua, Jamaica and other countries in the Caribbean, excluding our Caribbean TCL segment, Guatemala, and smallready-mix concrete operations in Argentina. These operations represented 4% of our net sales, in Mexican Peso terms, before eliminations resulting from consolidation. As of December 31, 2017, our business in the Rest of South, Central America and the Caribbean segment represented 3% of our total assets.
Our Operations in Puerto Ricothe Dominican Republic
Overview. As of December 31, 2017, CEMEX de Puerto Rico, Inc. (“CEMEX Puerto Rico”) was our main subsidiary in Puerto Rico.
Industry. In 2017, cement consumption in Puerto Rico reached 0.4 million tons according to our estimates.
Competition. The cement industry in Puerto Rico in 2017 was comprised of two cement producers: CEMEX Puerto Rico and Cementos Argos (formerly Antilles Cement Co and, our new acquisition, San Juan Cement Co).
Description of Properties, Plants and Equipment. As of December 31, 2017, CEMEX Puerto Rico operated one cement plant with an installed cement capacity of approximately 1.2 million tons per year. As of that date, CEMEX Puerto Rico also owned 12ready-mix concrete plants (seven were temporarily inactive) and two land distribution centers. As of that date, CEMEX Puerto Rico also owned an aggregates quarry, which is currently closed, and one marine terminal used for fly ash.
Capital Expenditures. We made capital expenditures of U.S.$5 million in 2015, U.S.$1.8 million in 2016 and U.S.$1.3 million in 2017 in our operations in Puerto Rico. We currently expect to make capital expenditures of approximately U.S.$1.6 million in our operations in Puerto Rico during 2018.
Our Operations in the Dominican Republic
Overview. As of December 31, 2017,2019, CEMEX Dominicana, S.A.’s (“CEMEX Dominicana”) was our main subsidiary in the Dominican Republic and a leading cement producer in the country. CEMEX Dominicana’s sales network coverscovered the country’s main consumption areas, which are Santo Domingo, Santiago de los Caballeros, La Vega,Altagracia, San Cristobal and San Pedro de Macorís, Samaná and La Altagracia.Macoris. On May 8, 2000, CEMEX Dominicana entered into a lease agreement with the government of the Dominican Republic related to the exploitation of a gypsum mine located at Las Salinas, Barahona, which has enabled CEMEX Dominicana to supply all local and regional gypsum requirements. The lease agreement expires on May 8, 2025 and may be extended by the parties.
Industry. In 2017, cement consumption For the year ended December 31, 2019, our operations in the Dominican Republic reached 4.2 million tons accordingrepresented 2% of our revenues before eliminations resulting from consolidation in Dollar terms. As of December 31, 2019, our operations in the Dominican Republic represented 1% of our total assets.
Industry. According to figures from the Dominican Cement Producers Association (Asociación Dominicana de Productores de Cemento Portland (ADOCEM).) for the period from January 2019 to November 2019, and taking into account CEMEX Dominicana’s estimate for December 2019, as of the date of this annual report we estimate that cement consumption in the Dominican Republic reached 4.7 million tons, in 2019.
Competition.Competition Our. As of December 31, 2019, our principal competitors in the Dominican Republic arewere: Cementos Cibao, a local competitor;producer; Domicem, a mixed Italian/local cement producer; Cementos Argos, a grinding operation of a Colombian cement producer; Cementos Santo Domingo, a cement grinding partnership between a local investor and Cementos La Union from Spain; Cementos Panam, a local cement producer; and Cementos Andion,Andino, a grinding operation; and a partially-constructedpartially constructed cement kiln of a Colombian cement producer.
Description of Properties, Plants and Equipment. As of December 31, 2017,2019, CEMEX Dominicana operated one cement plant in the Dominican Republic, with an installed cement capacity of 2.62.4 million tons per year. As of that date, CEMEX Dominicana also owned eightnine ready-mix concrete plants (four were temporarily inactive), one aggregates quarry, two land distribution centers and leased two marine terminals.
Capital Expenditures. We made capital expenditures of U.S.$17$9 million in 2015, U.S.$92017, $8 million in 20162018 and U.S.$9$8 million in 20172019 in our operations in the Dominican Republic. We currently expectAs of December 31, 2019, we expected to make capital expenditures of approximately U.S.$11$9 million in our operations in the Dominican Republic during 2018.2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in the Dominican Republic during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Rest of South, Central America and the Caribbean
As of December 31, 2019, our operations in the Rest of South, Central America and the Caribbean segment consisted primarily of our operations in Costa Rica, Puerto Rico, Guatemala, Nicaragua and other countries in the Caribbean, excluding our Caribbean TCL segment. These operations represented 4% of our revenues, in Dollar terms, before eliminations resulting from consolidation. As of December 31, 2019, our business in the Rest of South, Central America and the Caribbean segment represented 1% of our total assets. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
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Our Operations in NicaraguaCosta Rica
Overview. As of December 31, 2019, CEMEX Colombia, a CLH subsidiary, indirectly held a 99.1% interest in CEMEX Costa Rica.
During 2015, we increased the overall capacity in the Colorado de Abangares cement plant(“Colorado Plant”), allowing a then 10% throughput increase that catered to the needs of our operations in Nicaragua during 2016. Since the expansion, the Colorado Plant’s kiln has been operating at the expected capacity with an operational efficiency above 97%. As of December 31, 2019, the majority of our operational requirements in Nicaragua have been consistently provided from our operations in Costa Rica.
Industry. As of the date of this annual report, we estimate that approximately 1.1 million tons of cement were sold in Costa Rica during 2019. In 2019, the market had an estimated ratio of 40/60 in the bulk/bagged mix due to traditional building techniques in the housing segment, which require bagged cement and industrial-and-commercial demand ready-mix which requires bulk.
Competition. As of December 31, 2019, the Costa Rican cement industry included three producers, CEMEX Costa Rica and LafargeHolcim Costa Rica, both of which have integrated lines, and Elementia, which started a cement mill during June 2018 which imports clinker from different sources.
Description of Properties, Plants and Equipment. As of December 31, 2019, CEMEX Costa Rica operated one cement plant and one grinding mill in Costa Rica, with a total installed cement capacity of 0.8 million tons. As of that date, CEMEX Costa Rica operated seven ready-mix concrete plants (four were temporarily inactive), and leased one aggregates quarry and one land distribution center.
Exports.During 2019, clinker exports by our operations in Costa Rica represented 25% of our total production and were made to our operations in Nicaragua.
Capital Expenditures. We made capital expenditures of $2 million in 2017, $3 million in 2018 and $4 million in 2019 in our operations in Costa Rica. As of December 31, 2019, we expected to make capital expenditures of $4 million in our operations in Costa Rica during 2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in Costa Rica during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Our Operations in Puerto Rico
Overview. As of December 31, 2019, CEMEX de Puerto Rico, Inc. (“CEMEX Puerto Rico”) was our main subsidiary in Puerto Rico.
Industry. In 2019, cement consumption in Puerto Rico reached 0.6 million tons according to the Puerto Rico Economic Development Bank.
Competition. The cement industry in Puerto Rico in 2019 was comprised of two cement producers: CEMEX Puerto Rico and Cementos Argos (formerly Antilles Cement Co (Marine Terminal) and San Juan Cement Co (Cement Plant)).
Description of Properties, Plants and Equipment. As of December 31, 2019, CEMEX Puerto Rico operated one cement plant, which operated as a grinding mill only, with an installed cement capacity of 1.3 million tons per year. As of that date, CEMEX Puerto Rico also operated six ready-mix concrete plants (three were temporarily inactive), two land distribution centers (one was temporarily inactive) and one marine terminal used for fly ash. As of that date, CEMEX Puerto Rico also owned an aggregates quarry, which is currently inactive.
Capital Expenditures. We made capital expenditures of $1 million in 2017, $1 million in 2018 and $4 million in 2019 in our operations in Puerto Rico. As of December 31, 2019, we expected to make capital expenditures of $2 million in our operations in Puerto Rico during 2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in Puerto Rico during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
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Our Operations in Nicaragua
Overview. As of December 31, 2019, CEMEX Colombia and CEMEX Costa Rica, both CEMEX LatamCLH subsidiaries, indirectly and directly owned 100% of CEMEX Nicaragua, S.A. (“CEMEX Nicaragua”), our operating subsidiary in Nicaragua.
Industry. We estimate that approximately 10.7 million tons of cement, approximately 0.40.1 million cubic meters ofready-mix concrete and approximately 6.73.5 million tons of aggregates were sold in Nicaragua during 2017.2019.
Competition. TwoAs of December 31, 2019, two market participants compete in the Nicaraguan cement industry, CEMEX and LafargeHolcim.
Description of Properties, Plants and Equipment. As of December 31, 2017,2019, we leased and operated one fixed cement plant and owned one grinding mill with a total installed cement capacity of 0.60.7 million tons, eightsix ready-mix concrete plants (four(five were temporarily inactive), and two distribution centers in Nicaragua. Since March 2003, CEMEX Nicaragua has also leased a 100,000 ton milling plant in Managua, which has been used exclusively for pet coke milling.
Capital Expenditures. We made capital expenditures of U.S.$9$6 million in 2015, U.S.$3.32017, $8 million in 20162018 and U.S.$6.0$5 million in 20172019 in our operations in Nicaragua. We currently expectAs of December 31, 2019, we expected to make capital expenditures of approximately U.S.$6.9$3 million in our operations in Nicaragua during 2018.2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in Nicaragua during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Our Operations in Guatemala
Overview. As of December 31, 2017, CEMEX Latam2019, CLH indirectly owned 100% of CEMEX Guatemala, our main operating subsidiary in Guatemala. As of December 31, 2017,2019, we owned and operated one cement grinding mill in Guatemala with an installed cement capacity of 0.5 million tons per year. As of that date, we also owned and operated five land distribution centers, one clinker dome close to the maritimeour leased marine terminal in the southern part of the country and fourthree ready-mix concrete plants (one was temporarily inactive)(all of which were active).
Capital Expenditures. We made capital expenditures of U.S.$2 million in 2015, U.S.$6 million in 2016 and U.S.$2$2 million in 2017, $1 million in 2018 and $1 million in 2019 in Guatemala. We currently expectAs of December 31, 2019, we expected to make capital expenditures of approximately U.S.$1$3 million in our operations in Guatemala during 2018.
Our Operations in Jamaica
Description of Properties, Plants and Equipment.2020. As of December 31, 2017,the date of this annual report, the expected capital expenditures to be made in our operations in Guatemala during 2020 are under review as a result of measures taken by CEMEX España indirectly held a 100% interest in CEMEX Jamaica Limited, which operates one calcined lime plant in Jamaica with a capacityto mitigate potential risks posed by the spread of approximately 120,000 tons per yearCOVID-19. See “Item 5—Operating and one hydrate line with a capacityFinancial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of approximately 4.800 tons per year.COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Our Operations in Other Rest of South, Central American and Caribbean Countries
Overview. As of December 31, 2017, CEMEX España indirectly held 100% of Readymix Argentina, S.A., which owns oneready-mix concrete plant in Argentina. Additionally, as of December 31, 2017,2019, we held a non-controlling position in National Cement Ltd. Inin the Cayman Islands, Maxcem Bermuda Ltd. in Bermuda and Societe des Ciments Antillais, a company with cement operations in Guadalupe and Martinique. As of December 31, 2019, CEMEX España additionally indirectly held a 100% interest in CEMEX Jamaica Limited, which operates one calcined limestone plant in Jamaica with a capacity of 120,000 tons per year and one hydrate line with a capacity of 4,800 tons per year.
We believe that the Caribbean region holds considerable strategic importance because of its geographic location. As of December 31, 2017,2019, we operated a network of tenseven marine terminals in the Caribbean region,these countries, which facilitated exports from our operations in several countries, including Mexico, the Dominican Republic, Puerto Rico and the United States. ThreeU.S. Two of our marine terminals are located in the main cities of Haiti, and three are in the Bahamas, and one is in Manaus, Brazil.Bahamas. As of December 31, 2017,2019, we also had anon-controlling interest in two other terminals, one in Bermuda and the other in the Cayman Islands.
Capital Expenditures. WeIn our operations in Rest of SCA&C, we made capital expenditures in our other operations in SAC of U.S.$1.4$2 million in 2015, U.S.$1.42017, $1 million in 20162018 and U.S.$0.7$4 million in 2017. We currently expect2019. As of December 31, 2019, we expected to make capital expenditures of U.S.$7$6 million in our operations in other SACSCA&C countries during 2018.2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in the Rest of SCA&C during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
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Asia, Middle East and Africa
For the year ended December 31, 2017,2019, our business in Asia, Middle East and Africa, which includes our operations in the Philippines, EgyptIsrael and the Rest of Asia, Middle East and Africa segment, as described below, represented 9%10% of our net salesrevenues before eliminations resulting from consolidation in Mexican PesoDollar terms. As of December 31, 2017,2019, our businessoperations in Asia represented 11%13% of our total installed capacity and approximately 5% of our total assets.
Our Operations in the Philippines
Overview. As of December 31, 2017,2019, on a consolidated basis through various subsidiaries, CEMEX S.A.B. de C.V.España indirectly held indirectly 100% of CASE,CEMEX Asian South East Corporation (“CASE”), which in turn owned 55%66.78% of the outstanding share capital of CHP. As of
December 31, 2017,2019, CHP directly and indirectly owned 100% of our two principal operating subsidiaries in the Philippines, Solid Cement Corporation (“Solid Cement”) and APO Cement Corporation (“APO”). For the year ended December 31, 2017,2019, our operations in the Philippines represented 3% of our net salesrevenues before eliminations resulting from consolidation in Mexican PesoDollar terms. As of December 31, 2017,2019, our operations in the Philippines represented 2% of our total assets. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Other Recent Developments” for the status of the CHP share rights offering (“SRO”) and CASE’s updated equity interest in CHP.
As of December 31, 2019, CHP iswas investing in a new 1.5 million ton integrated cement production line at CEMEX’s Solid Cement Plant located in Luzon, Philippines (the “Solid Cement Plant”) with an estimated total investment of approximately U.S.$225$234 million. Upon completion, this new line willshould double the capacity of the Solid Cement Plant and will represent a 26% increase in our cement capacity in the Philippines. In December 2017,October 2018, we entered into principal project agreements with CBMI Construction Co., Ltd, an affiliate of Sinoma International Engineering Co., Ltd., for the Departmentprocurement, construction and installation of Environment and Natural Resources issued an environmental compliance certificate to CHP that covers the new line. TheOn April 25, 2019, Solid Cement held its ceremonial groundbreaking for the new line. Various works were already ongoing, including the mobilization of equipment and site development. As of the end of 2019, civil works, mainly related to excavation and foundation works for the different buildings and structures of the project, were in progress. In addition, the kiln and vertical cement mill for the new line isare already at the plant. As of December 31, 2019, preparatory activities had been underway in connection with the construction of a new power line to provide additional support to the existing power infrastructure servicing our Solid Cement Plant. As of December 31, 2019, the new line was estimated to start operations by the firstsecond quarter of 2020.2021. See “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—The recent COVID-19 outbreak could materially adversely affect our financial condition and results of operations” and “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Competition. As of December 31, 2017,2019, our major competitors in the Philippine cement market were LafargeHolcim, Republic, Eagle, Northern, Goodfound, Taiheiyo, Mabuhay, and Mabuhay.Big Boss.
Description of Properties, Plants and Equipment. As of December 31, 2017,2019, our operations in the Philippines included two cement plants with an annual installed cement capacity of 4.55.7 million tons, exclusive access to twofour quarries to supply raw materials to our cement plants, 2115 land distribution centers and five marine distribution terminals. We estimate that, as of December 31, 2017,2019, the limestone and clay permitted proven and probable reserves accessed by our operations in the Philippines had an average remaining life of approximately 3738 and 1714 years, respectively, assuming 2013-20172015-2019 average annual cement production levels. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the impact of certain measures being taken by the governments of the countries in which we operate regarding temporary halts in production at our operating facilities to stop the spread of COVID-19.
CementCement.. For the year ended December 31, 2017,2019, our cement operations represented 97%100% of net salesrevenues for our operations in the Philippines before eliminations resulting from consolidation in Mexican PesoDollar terms.
Capital Expenditures. We made capital expenditures of U.S.$21$33 million in 2015, U.S.$222017, $36 million in 20162018 and U.S.$28$84 million in 20172019 in our operations in the Philippines. We currently expectAs of December 31, 2019, we expected to make capital expenditures of approximately U.S.$73$124 million in our operations in the Philippines during 2018.2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in the Philippines during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Our Operations in Israel
Overview. We are a leading producer and supplier of raw materials for the construction industry in Israel. In addition to ready-mix concrete and aggregates, we produce a diverse range of building materials and infrastructure products in Israel. As of
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December 31, 2019, we operated 63 ready-mix concrete plants, six aggregates quarries, one sand pit, one concrete products plant, one admixtures plant and one limestone factory in Israel. For the year ended December 31, 2019, our operations in Israel represented 5% of our revenues before eliminations resulting from consolidation in Dollar terms and 2% of our total assets.
Capital Expenditures. We made capital expenditures of $32 million in 2017, $27 million in 2018 and $33 million in 2019 in our operations in Israel. As of December 31, 2019, we expected to make capital expenditures of $28 million in our operations in Israel during 2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in Israel during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Rest of Asia, Middle East and Africa
As of December 31, 2019, our operations in the Rest of Asia, Middle East and Africa consisted primarily of our operations in Egypt and the UAE. These operations represented 2% of our revenues before eliminations resulting from consolidation in Dollar terms, for the year ended December 31, 2019, and 1% of our total assets as of December 31, 2019. As of December 31, 2019, we expected to make capital expenditures of $14 million in our operations of the Rest of Asia, Middle East and Africa during 2020.
Our Operations in Egypt
Overview. As of December 31, 2017, ACC was our main subsidiary in Egypt. As of December 31, 2017,2019, we operated one cement plant in Egypt with an annual installed cement capacity of approximately 5.4 million tons. This plant is located approximately 280 miles south of Cairo and serves the upper Nile region of Egypt, as well as Cairo and the deltaDelta region, Egypt’s main cement market. We estimate that, as of December 31, 2017,2019, the limestone and clay permitted proven and probable reserves of our operations in Egypt had an average remaining life of approximately 535 and 5923 years, respectively, assuming 2013-20172015-2019 average annual cement production levels. In addition, as of December 31, 2017,2019, we also operated 11nine ready-mix concrete plants (one was temporarily inactive), of(of which foursix are owned and seventhree are under management contractsrented; and tentwo were temporarily inactive), and eight land distribution centers in Egypt. For the year ended December 31, 2017, our operations in Egypt represented 1% of our net sales before eliminations resulting from consolidation in Mexican Peso terms and 1% of our total assets.
See “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Other Legal Proceedings—Egypt Share Purchase Agreement” for a description of certain legal proceedings relating to the share purchase agreement, signed in November 1999 between CEMEX, S.A.B. de C.V. and state-owned Metallurgical Industries Company, pursuant to which CEMEX, S.A.B. de C.V. acquired a controlling interest in ACC.
IndustryIndustry.. According to the Ministry of Investment official figures and CEMEX’s estimates, based on government data (local and imported cement), the Egyptian market consumed approximately 53.948.5 million tons of cement during 2017.2019. Cement consumption decreased by approximately 4.2%4% in 20172019 compared to 2016,2018, which was mainly attributed
to the erosion in consumers’ purchasing power after Egypt adopted an aggressive economic reform program that included a free flotation of the currency and elimination of several subsidies.lower disposable income effected by subsidies removal. As of December 31, 2017,2019, the cement industry in Egypt had a total of 1918 cement producers, with an aggregate annual installed cement production capacity of approximately 7984.3 million tons.
Competition.Competition. According to the Ministry of Investment official figures, during 2017,2019, LafargeHolcim (Egyptian Cement Company), CEMEX (ACC)ACC and Heidelberg (Suez Cement, Torah Cement and Helwan Portland Cement) were three of the largest cement producers in the world and represented approximately 32%34% of the total cement production in Egypt. Other significant competitors in Egypt are Arabian (La Union), Titan (Alexandria Portland Cement and BeniSuef Cement), Amreyah (InterCement), National, Sinai (Vicat), Sinai White cement (Cementir), South Valley, Nile Valley, El Seweedy, ArmyArish Cement, Aswan Medcom, Misr BeniSuef, Al Nahda and Misr Quena Cement Companies, Building Materials Industries Co. ASEC Cement, Shoura Cement and Egyptian Kuwait Holding Company.National Company for Cement (Reni Suef plant).
Cement andReady-Mix Concrete. For the year ended December 31, 2017,2019, cement represented 83%88% andready-mix concrete represented 12% of net salesrevenues for our operations in Egypt before eliminations resulting from consolidation in Mexican PesoDollar terms.
Capital Expenditures. We made capital expenditures of U.S.$47$22 million in 2015, U.S.$202017, $9 million in 20162018 and U.S.$22$9 million in 20172019 in our operations in Egypt. We currently expectAs of December 31, 2019, we expected to make capital expenditures of approximately U.S.$9$10 million in our operations in Egypt during 2018.
Rest of Asia, Middle East and Africa
2020. As of December 31, 2017,the date of this annual report, the expected capital expenditures to be made in our operations in Egypt during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the Restspread of Asia, Middle EastCOVID-19. See “Item 5—Operating and Africa consisted primarilyFinancial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our operations in Israel and the UAE. These operations represented 5% of our net sales in Mexican Peso terms, before eliminations resulting from consolidation in Mexican Peso terms, for the year ended December 31, 2017, and 2% of our total assets as of December 31, 2017.capital expenditures.
Sale of our Operations in Rest of Asia, Middle East and Africa
On May 26, 2016, we closed the sale of our operations in Bangladesh and Thailand to SIAM Cement for U.S.$70 million (Ps1,450 million). In June 2017, we divested our concrete operations in Malaysia through a managementbuy-out for U.S.$4.6 million. The proceeds from each of these transactions were used mainly for debt reduction and for general corporate purposes. We continue to have entities in Malaysia.
Our Operations in Israelthe UAE
Overview. As of December 31, 2017,2019, CEMEX Holdings (Israel) Ltd. was our subsidiary in Israel. We are España leading producer and supplier of raw materials for the construction industry in Israel. In addition toready-mix concrete and aggregates, we produce a diverse range of building materials and infrastructure products in Israel. As of December 31, 2017, we operated 63ready-mix concrete plants, six aggregates quarries, one sand pit, one concrete products plant, one admixtures plant, and one lime factory in Israel.
Capital Expenditures. We made capital expenditures of U.S.$13 million in 2015, U.S.$16 million in 2016 and U.S.$21 million in 2017 in our operations in Israel. We currently expect to make capital expenditures of approximately U.S.$16 million in our operations in Israel during 2018.
Our Operations in the UAE
Overview. As of December 31, 2017, we held a 49% equity interest (and a 100% economic benefit)interest) in threeall of our main UAE companies: CEMEX Topmix LLC and CEMEX Supermix LLC, twoready-mix concrete manufacturing
companies, and CEMEX Falcon LLC, which specializes in the production of cement and slag.slag, as well as in other companies in the country. We are not allowedpermitted to have a controlling interest in these companies (UAE lawCommercial Companies Law requires 51% ownership by UAE
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nationals). However, through agreements with other shareholders in these companies, we have control over the remaining 51% of the economic benefits in each of the companies. As a result, we own a 100% economic interest in all three companies. WeCEMEX España also indirectly held a 100% equity stake in CEMEX Arabia FZC, a company dedicated to trading activities (100% ownership is possible as it is in a Free Zone).free zone), which was liquidated on May 14th, 2019 and its activities transferred to CEMEX Falcon LLC. As of December 31, 2017,2019, we owned eightnine ready-mix concrete plants (one was temporarily inactive) and one cement and slag grinding facility in the UAE with an annual installed cement capacity of 1.2 million tons, serving the markets of Dubai and Abu Dhabi as well as neighboring countries such as Oman and Qatar.Oman.
Capital Expenditures. We made capital expenditures of U.S.$2$3 million in 2015, U.S.$42017, $6 million in 20162018 and U.S.$3$4 million in 20172019 in our operations in the UAE. We currently expectAs of December 31, 2019, we expected to make capital expenditures of approximately U.S.$4$4 million in our operations in the UAE during 2018.2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in the UAE during 2020 are under review as a result of measures taken by CEMEX to mitigate potential risks posed by the spread of COVID-19. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on our capital expenditures.
Sale of our Operations in Rest of Asia, Middle East and Africa
On May 26, 2016, we closed the sale of our operations in Bangladesh and Thailand to SIAM Cement for $70 million. In June 2017, we divested our concrete operations in Malaysia through a management buy-out for $4.6 million.
In 2017,2019, we traded approximately 11.310.9 million tons of cementitious andnon-cementitious materials in 105102 countries, including 9.59.2 million tons of cement and clinker. Approximately 6.2Slightly more than 4.5 million tons of the traded cement and clinker consisted of exports from our operations in Mexico, Croatia, Germany, Spain, Croatia, Mexico, Germany, Latvia,Trinidad & Tobago, the Dominican Republic, Barbados, Costa Rica, Trinidad, Barbados,Latvia, Poland, Jamaica, Czech Republic, the Philippines, Puerto Rico, Jamaica, Poland, Nicaragua the Czech Republic, Philippines, Guatemala, the United States and the UAE. The remaining approximately 3.3Slightly above 4.6 million tons remaining were purchased from third parties in countries such as China, Honduras, Spain, Taiwan, Turkey, the United StatesThailand, Peru and Vietnam. In 2017,2019, we traded approximately 1.10.9 million tons of granulated blast furnace slag, anon-clinker cementitious material, and 0.70.8 million tons of other products.
Our trading network enables us to maximize the capacity utilization of our facilities worldwide while reducing our exposure to the inherent cyclicality of the cement industry. We are able to distribute excess capacity to regions around the world where there is demand. In addition, we believe that our worldwide network of strategically located marine terminals allows us to coordinate maritime logistics on a global basis and minimize transportation expenses. Our trading operations also enable us to explore new markets without significant initial capital expenditure.
Freight rates, which account for a large share of the total import supply cost, have been subject to significant volatility in recent years. OurWe estimate, however, that our trading operations however, have obtained significant savings by contracting maritime transportation in due time and by using our own and chartered fleet,fleets, which transported approximately 59%50% of our cement and clinker traded volume during 2017.2019.
In addition, based on our spare fleet capacity, we provide freight service to third parties, thus providingwhich allows us with valuable shipping market information and generatingto generate additional revenues.
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The following table provides a summary of our cement plants, including location, used capacity, including grinding mill production and years of operation as of and for the year ended December 31, 2017:2019:
Location | Used Capacity | Years of Operation(1) | Used Capacity | Years of Operation(1) | ||||||||
Atotonilco, Hidalgo, México | 1,280 | 59 | 963 | 61 | ||||||||
Barrientos, Estado de México, México | 948 | 73 | 793 | 75 | ||||||||
Ensenada, Baja California, México | 441 | 42 | 369 | 44 | ||||||||
Guadalajara, Jalisco, México | 853 | 44 | 395 | 46 | ||||||||
CPN, Sonora, México | — | 37 | - | 39 | ||||||||
Hidalgo, Nuevo León, México | 73 | 112 | 82 | 114 | ||||||||
Huichapan, Hidalgo, México | 3,263 | 33 | 3,330 | 35 | ||||||||
Mérida, Yucatán, México | 805 | 64 | 711 | 66 | ||||||||
Monterrey, Nuevo León, México | 1,604 | 98 | 1,608 | 100 | ||||||||
Tamuín, San Luis Potosí, México | 1,659 | 53 | 1,531 | 55 | ||||||||
Tepeaca, Puebla, México | 2,749 | 23 | 2,706 | 25 | ||||||||
Torreón, Coahuila, México | 1,085 | 51 | 998 | 53 | ||||||||
Valles, San Luis Potosí, México | 383 | 52 | 321 | 54 | ||||||||
Yaqui, Sonora, México | 2,107 | 28 | 1,971 | 30 | ||||||||
Zapotiltic, Jalisco, México | 1,555 | 50 | 1,535 | 52 | ||||||||
Balcones, TX, United States | 1,993 | 37 | 2,028 | 39 | ||||||||
Brooksville, FL (North), United States | — | 42 | - | 44 | ||||||||
Brooksville, FL (South), United States | 1,270 | 30 | 1,303 | 32 | ||||||||
Clinchfield, GA, United States | 652 | 43 | 639 | 45 | ||||||||
Demopolis, AL, United States | 726 | 40 | 697 | 42 | ||||||||
Knoxville, TN, United States | 628 | 38 | 587 | 40 | ||||||||
Kosmosdale/Louisville, KY, United States | 1,282 | 17 | 1,307 | 19 | ||||||||
Miami, FL, United States | 906 | 59 | 992 | 61 | ||||||||
Lyons, CO, United States | 356 | 37 | 302 | 39 | ||||||||
Victorville, CA, United States | 2,732 | 52 | 2,727 | 54 | ||||||||
Wampum, PA, United States | — | 52 | - | 54 | ||||||||
Rugby, United Kingdom | 1,197 | 18 | 1,150 | 20 | ||||||||
Ferriby, United Kingdom | 492 | 51 | 426 | 53 | ||||||||
Rudersdof, Germany | 2,198 | 52 | 2,032 | 54 | ||||||||
Alcanar, Spain | 771 | 49 | 720 | 51 | ||||||||
Buñol, Spain | 463 | 50 | 375 | 52 | ||||||||
Castillejo, Spain | 410 | 106 | 554 | 108 | ||||||||
Lloseta, Spain | 318 | 50 | - | 52 | ||||||||
Morata, Spain | 387 | 85 | 456 | 87 | ||||||||
San Vicente, Spain | 460 | 42 | 505 | 44 | ||||||||
Gador, Spain | 337 | 41 | 7 | 43 | ||||||||
Chelm, Poland | 1,286 | 57 | 1,413 | 59 | ||||||||
Rudniki, Poland | 729 | 52 | 701 | 54 | ||||||||
Broceni, Latvia | 988 | 8 | ||||||||||
Prachovice, Czech Republic | 761 | 63 | 848 | 65 | ||||||||
Kolovoz, Croatia | 14 | 109 | 8 | 111 | ||||||||
Juraj, Croatia | 855 | 105 | 1,041 | 107 | ||||||||
Kajo, Croatia | 367 | 113 | 239 | 115 | ||||||||
Cucuta, Colombia | 230 | 34 | 316 | 36 | ||||||||
Ibagué, Colombia | 2,453 | 25 | 2,412 | 27 | ||||||||
Calzada Larga, Panama | 855 | 40 | 591 | 42 | ||||||||
Colorado de Abangares, Costa Rica | 568 | 38 | 504 | 40 | ||||||||
Claxton Bay, Trinidad y Tobago | 670 | 64 | 678 | 66 | ||||||||
Rockport, Jamaica | 846 | 66 | 759 | 68 | ||||||||
St. Lucy, Barbados | 216 | 34 | 272 | 36 | ||||||||
San Pedro de Macorís, Dominican Republic | 1,956 | 27 | 1,950 | 29 | ||||||||
San Rafael del Sur, Nicaragua(2) | 400 | 75 | ||||||||||
San Rafael del Sur, Nicaragua(2) | 305 | 77 | ||||||||||
Ponce, Puerto Rico | 277 | 27 | 276 | 29 | ||||||||
APO, Philippines | 3,123 | 19 | 3,319 | 21 | ||||||||
Solid Cement, Philippines | 1,707 | 24 | 1,563 | 26 | ||||||||
Assiut, Egypt | 4,390 | 31 | 3,421 | 33 |
(1) | Approximate. |
(2) | Leased. |
For the aggregate installed cement production capacity of our cement plants by region, see “Item 4—Information on the Company—Business Overview.”
We have insurance coverage for our cement plants, which we believe is adequate and sufficient, in line with industry practices. However, in some instances our insurance coverage may not be sufficient to cover all of our potential unforeseen losses and liabilities. In addition, our insurance coverage may not cover all the risks to which our cement plants may be exposed. See “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—Our insurance coverage may not cover all the risks to which we may be exposed.”
Regulatory Matters and Legal Proceedings
A description of material regulatory matters and legal proceedings affecting us as of December 31, 2019 is provided below. For recent developments related to material regulatory matters and legal proceedings affecting us, seeMateriality is tested at a CEMEX, S.A.B. de C.V. consolidated level. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to ourOur Regulatory Matters and Legal Proceedings.”Proceedings” for more information.
Antitrust Proceedings
Polish Antitrust Investigation.
On January 2, 2007, CEMEX Polska Sp. Z.O.O. (“CEMEX Polska”) received a notification from the Polish Competition and Consumer Protection Office (the “Protection Office”) informing it of the formal initiation of an antitrust proceeding against all cement producers in Poland, including CEMEX Polska and another of our indirect subsidiaries in Poland. The notification alleged that there was an agreement between all cement producers in Poland regarding prices and other sales conditions for cement, an agreed division of the market with respect to the sale and production of cement, and the exchange of confidential information, all of which limited competition in the Polish market with respect to the production and sale of cement. On December 9, 2009, the Protection Office delivered to CEMEX Polska its decision against Polish cement producers related to an investigation which covered a period from 1998 to 2006. The decision imposed fines on a number of Polish cement producers, including CEMEX Polska. The fine imposed on CEMEX Polska was approximately Polish Zloty 115.56 million (approximately U.S.$33.26($30.4 million as of December 31, 2017,2019, based on an exchange rate of Polish Zloty 3.47483.7973 to U.S.$1.00)$1.00), which is approximatelywas 10% of CEMEX Polska’s total revenue in 2008. CEMEX Polska disagreed with the decision, denied that it committed the practices alleged by the Protection Office and, therefore, on December 23, 2009, CEMEX Polska filed an appeal before the Polish Court of Competition and Consumer Protection in Warsaw (the “First Instance Court”). After a series of hearings, on December 13, 2013, the First Instance Court issued its judgment in regards withregard to the appeals filed by CEMEX Polska and other cement producers, which were previously combined into a joint appeal. The First Instance Court reduced the penalty imposed on CEMEX Polska to approximately Polish Zloty 93.89 million (approximately U.S.$27.02($24.7 million as of December 31, 20172019 based on an exchange rate of Polish Zloty 3.47483.7973 to U.S.$1.00)$1.00), which is approximatelywas equal to 8.125% of CEMEX Polska’s revenue in 2008. On May 8, 2014, CEMEX Polska filed an appeal against the First Instance Court judgment before the Appeals Court in Warsaw. After severalOn March 27, 2018, after different hearings, in the Appeals Court issued its final judgment reducing the fine imposed upon CEMEX Polska to Polish Zloty 69.4 million ($18.3 million as of December 31, 2019 based on a hearing held on March 11, 2016,an exchange rate of Polish Zloty 3.7973 to $1.00). This fine, which was equal to 6% of CEMEX Polska’s revenue in 2008, was paid. On November 19, 2018, CEMEX Polska filed before the AppealsPolish Supreme Court did not announce a final judgment; instead, it reopenedan extraordinary, narrow based cassation appeal against the hearing phase which had been closed on February 26, 2016. The parties involved were informedAppeal Court’s judgment specifically seeking the reduction of the imposed fine. On August 8, 2019, CEMEX Polska was notified that the AppealsPolish Supreme Court will ask certain questions toaccepted its cassation appeal, as well as the cassation appeals of the Protection Office and those of other cement producers. As of December 31, 2019, we expect that the final ruling of the Polish Constitutional Tribunal regardingSupreme Court on the conformity withcassation appeal of CEMEX Polska will be issued at the Polish Constitutiondate of the calculation of the reduced penalty imposed on CEMEX Polska. On April 5, 2017, the Polish Constitutional Tribunal, outside of a hearing, declined to answer the questions of the Appeals Court, informing the Appeals Court that the Appeals Court has the authority to interpret independently competition law rules for purposes of this particular court case, subject to compliance with the Polish Constitution. The files of the case were returned to the Appeals Court during May of 2017, which scheduled a court hearing for January 29, 2018. It is highly probable that the Appeals Court will issue its final decision during this hearing or within next 14 days after the following two weeks. The above-mentioned penalty is not enforceable until the Appeals Court issues its final judgment and if the penalty is maintained in the Appeals Court final resolution, then the penalty will be payable within 14 calendar days of the announcement of the Appeals Court order regarding its final resolution. CEMEX Polska has created the accounting provision in relation with this proceeding in an amount equal to 100% of the reduced penalty of the First Instance Court judgment.hearing scheduled for January 16, 2020. As of
December 31, 2017, we do not expect that an2019, a final adverse resolution to this matter wouldshould not have a material adverse impact on our results of operations, liquidity and financial condition. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Regulatory Matters and Legal Proceedings” for more information regarding the Polish Antitrust Investigation.
Antitrust Investigation in Spain by the CNMC.
On September 16 and 17, 2014, the Competition Directorate (Dirección de Competencia) of the Spanish National Commission of Markets and Competition (Comisión Nacional de los Mercados y la Competencia) (“CNMC”), in the context of an investigation of the Spanish cement,ready-mix concrete and related products industry regarding alleged anticompetitive practices, inspected one of our facilities in Spain. On January 12, 2015, CEMEX España Operaciones, S.L.U. (“CEMEX España Operaciones”) was notified of the initiation by the CNMC of a disciplinary proceeding for alleged prohibited conducts pursuant to Article 1 of the Spanish Competition Law (Ley 15/2007, de 3 de Julio, de Defensa de la Competencia). On November 19, 2015, CEMEX España Operaciones was notified that the alleged anticompetitive practices covered the year 2013 for the cement market and the years 2008, 2009, 2012, 2013 and 2014 for theready-mix market. On March 8, 2016, the Competition Directorate (Dirección de Competencia) notified CEMEX España Operaciones of a resolution proposal (propuesta de resolución) which considers that the alleged anti-competitive practices were carried out in the markets and years previously indicated. Thereafter, CEMEX España Operaciones submitted allegations rejecting the resolution proposal. On September 8, 2016, CEMEX España Operaciones was notified of a decision issued by the CNMC pursuant to which CEMEX España Operaciones has been required to pay a fine of €5,865,480 (approximately U.S.$7.04 ($6.57
million as of December 31, 2017,2019, based on an exchange rate of €0.8331€0.8917 to U.S.$1.00)$1.00). On November 7, 2016, CEMEX España Operaciones filed an appeal before the National Court (Audiencia Nacional) against the CNMC’s decision. The National Court has been requested to suspend the sanction, and, by a resolution issued on December 22, 2016, the National Court granted the requested suspension, subject to the issuance of a bank guarantee for the principal amount of the sanction. The CNMC has been notified of both the interposition of the appeal and the request for suspension. As of December 31, 2017, we do not expect that an2019, a final adverse resolution to this matter wouldshould not have a material adverse impact on our results of operations, liquidity and financial condition.
Antitrust Case in Ohio.On October 2013, a nonstructural steel manufacturing joint venture in which CEMEX, Inc. has an indirect majority interest, other nonstructural steel manufacturers, and related associations were named as defendants in a lawsuit filed in an Ohio State Court alleging a conspiracy among the defendants to adopt sham industry standards with a goal to exclude the plaintiffs’ products from the market. A resolution to finalize this matter has been reached with the plaintiffs, definitively finalizing the claim against CEMEX, Inc. with no adverse resolution against CEMEX, Inc. and no adverse impact to our operations, liquidity and financial condition.
Antitrust Case in Georgia and South Carolina.Carolina
On July 24, 2017, twoready-mix concrete producers filed a lawsuit in a U.S. Federal Court in the state of Georgia against certain subsidiaries of CEMEX in the U.S. and other companies alleging customer allocation and price fixing in both theready-mix concrete and cement markets in the coastal Georgia and southeastern coastal South Carolina areas. As CEMEX does not participate in theready-mix concrete market in these areas, the lawsuit does not allege any improper actions by CEMEX with respect toready-mix concrete. On October 2, 2017, we filed a motion to dismiss the lawsuit. On November 22, 2017,This motion to dismiss was denied on August 21, 2018, and, as a single concrete instillation company filed a lawsuit in a U.S. Federal Courtresult, CEMEX will continue to defend the allegations in the Stateongoing proceedings with its answer filed at the end of South Carolina against subsidiaries of CEMEX in the U.S. on behalf of purchasers of concrete based on the same allegations made in the lawsuit filed in Georgia.October, 2018. As of December 31, 2017,2019, at this stage of the lawsuit, while we are not able tocannot assess with certainty the likelihood of an adverse result in this lawsuit, we believe a final adverse resolution to these lawsuits, butthis lawsuit is not probable; however, if such lawsuits areadversely resolved, adversely to us, we do not expectbelieve such adverse resolution wouldshould not have a material adverse impact on our results of operations, liquidity and financial condition. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Regulatory Matters and Legal Proceedings” for more information regarding this antitrust investigation.
United States and its Territories Department of Justice Grand Jury Subpoena
Certain of our subsidiaries in the U.S. were notified of a grand jury subpoena dated March 29, 2018 issued by the DOJ in connection with an investigation of possible antitrust law violations in connection with our sales (and related sales practices) of grey portland cement and slag in the U.S. and its territories. This subpoena does not mean that the DOJ has concluded that we or any of our affiliates or employees have violated the law. Rather, the DOJ issued this grand jury subpoena to gather facts necessary to make an informed decision about whether violations of U.S. law have occurred. As of December 31, 2019, we are cooperating with the DOJ and intend to comply with the subpoena. As of December 31, 2019, given the status of the investigation, we are not able to assess if this investigation will lead to any fines, penalties or remedies against us, or if such fines, penalties or remedies, if any, would have a material adverse effect on our results of operations, liquidity or financial condition.
Antitrust Investigation in Panama
On June 12, 2018, the Authority for Consumer Protection and Competition Defense of Panama (the “Panama Authority”) carried out a discovery procedure within the context of an administrative investigation ex officio against CEMEX and other competitors for the alleged commission of absolute and relative monopolistic practices in relation to the gray concrete and the ready-mix concrete markets. During the administrative investigation, the Panama Authority considered there were elements that serve as a basis for considering the possible existence of monopolistic or anticompetitive practices, consisting of (i) price fixing and/or production restriction in the gray cement market sold to ready-mix concrete manufacturing companies in Panama; and (ii) unilateral and/or joint predatory acts and/or cross subsidies in the ready-mix concrete market. On October 16, 2018, the Panama Authority notified us of a new information request in order to continue their investigation. On December 11 and 12, 2018, two executives of CEMEX rendered an affidavit, and on February 14, 2019, CEMEX provided the rest of the information and documentation that was requested by the Panama Authority. This administrative investigation does not mean that the Panama Authority has concluded that we or any of our affiliates or employees in Panama have violated the law, rather, the Panama Authority is gathering facts necessary to make an informed decision about whether violations of Panamanian law have occurred. As of December 31, 2019, we are cooperating with the Panama Authority with regard to this investigation. As of December 31, 2019, given the status of the investigation, we are not able to assess whether this investigation will lead to any fines, penalties or remedies against us, or if such fines, penalties or remedies, if any, would have a material adverse effect on our results of operations, liquidity or financial condition.
Antitrust Investigation in Colombia.
On September 5, 2013, CEMEX Colombia was notified of Resolution No. 49141 dated August 21, 2013, issued by the Colombian Superintendency of Industry and Commerce (Superintendencia de Industria y Comercio) (“SIC”) pursuant to which the SIC opened an investigation and issued a statement of objections (pliego de cargos) against five cement companies and fourteen14 directors of those companies, including CEMEX Colombia, for alleged anti-competitive practices. The investigated parties were accused of allegedly breaching: (i) Article 1 of Law 155 of 1959, which prohibits any kind of practice, procedure
or system designed to limit free competition and determining or maintaining unfair prices; (ii) numeral 1 of Article 47 of Decree 2153 of 1992, which prohibits any agreements designed to directly or indirectly fix prices; and (iii) numeral 3 of Article 47 of Decree 2153 of 1992, which prohibits any market sharing agreements between producers or between distributors. Additionally, fourteen14 executives, including two former executives
of CEMEX Colombia, were also being investigated for allegedly breaching paragraph 16 of Article 4 of Decree 2153 of 1992, as amended by Article 26 of Law 1340 of 2009, which provides that the SIC may investigate and sanction any individual who collaborates, facilitates, authorizes, executes or tolerates behavior that violates free competition rules. Although the SIC announced three charges, only two of them were under investigation, namely, price fixing agreements and market sharing agreements.
On October 12, 2017, the SIC’s Superintendent Delegate for Competition Protection issued anon-binding report stating that CEMEX Colombia and two other industry competitors engaged in illegal anticompetitive practices and recommending to impose sanctions against such companies. On November 10, 2017, CEMEX Colombia filed its final arguments against such report.
On December 11, 2017, the SIC’s Chief Superintendent decided to impose a sanction against CEMEX Colombia, two other cement companies and six natural persons, for entering into an agreement to fix grey cement prices in Colombia. The fines imposed upon CEMEX Colombia, in an amount of 73,771.7 millionwhich were paid on January 5, 2018, amounted to $73.77 billion Colombian Pesos (approximately U.S.$24.72($22.51 million as of December 31, 2017,2019, based on an exchange rate of 2,984.003,277.14 Colombian Pesos to U.S.$1.00)$1.00). By means of the same resolution dated December 11, 2017, the Chief Superintendent determined there was not sufficient material evidence and ordered to close the investigation relatedin relation to the other conducts alleged conduct against CEMEX Colombia underpursuant to Resolution No. 49141 dated August 21, 2013.
As of December 31, 2017,
CEMEX Colombia has decided not to file a reconsideration request. Instead, CEMEX Colombia intends to filerequest; and, instead, filed an annulment and reestablishment of right claim (acción de nulidad y restablecimiento de derecho) before the Administrative Court (Tribunal Contencioso Administrativo) on June 7, 2018 requesting that the charges brought forth by the SIC are annulled and the restitution of the fine is paid, with any adjustments provided for by Colombian law. Once filed, thisThis claim could take up to six years to be resolved. As of December 31, 2017,2019, we are not able to assess the likelihood of an adverse result toof this matter, but if such matter is resolved adversely to us, we do not expect such adverse resolution toshould not have a material adverse impact on our results of operations, liquidity and financial condition.
Environmental Matters
In the ordinary course of business, we are subject to a broad range of environmental laws and regulations in each of the jurisdictions in which we operate. These laws and regulations impose increasingly stringent environmental protection standards regarding, among other things, air emissions, wastewater discharges, the use and handling of hazardous waste or materials, waste disposal practices and the remediation of environmental damage or contamination. These laws and regulations expose us to the risk of substantial environmental costs and liabilities, including liabilities associated with divested assets and past activities and, in some cases, the acts and omissions of the previous owners or operators of a property or facility that we own or operate. Furthermore, in some jurisdictions, certain environmental laws and regulations impose liability without regard to fault or the legality of the original activity at the time of the actions giving rise to liability. To prevent, control and remediate environmental problems and maintain compliance with regulatory requirements, in line with our global initiatives on environmental management, we maintain an environmental policy designed to monitor and control environmental matters. Our environmental policies require that each of our subsidiaries respect and comply with local laws and meet our own internal standards to minimize the use ofnon-renewable resources and the generation of hazardous and other wastes. We use processes that are designed to reduce the impact of our operations on the environment throughout all the production stages in all of our operations worldwide. In addition, during 2012 we started the implementation of a global EMS at our operating sites that provides a framework to facilitate the consistent and systematic implementation of practical, risk-based environmental management at all sites. As of December 31, 2017,2019, we expect to finish the implementation of the EMS at all of our operating sites by December 31, 2020. It will be used to support sites and businesses across CEMEX globally to document, maintain and continuously improve our environmental performance. We believe that, as of
December 31, 2017,2019, a substantial part of our operations already comply with all material environmental laws applicable to us, as the majority of our cement plants already have some kind of EMS (most of which are ISO 14000 certified by the International Organization for Standardization (“ISO”))ISO), with the remaining implementation efforts directed mainly ontowards our aggregates andready-mix plants.
We regularly incur capital expenditures that have an environmental component or that are impacted by environmental regulations. However, we do not keep separate accounts for such mixed capital and environmental expenditures. Environmental expenditures that extend the life, increase the capacity, improve the safety or efficiency of assets or are incurred to mitigate or prevent future environmental contamination may be capitalized. Other environmental costs are expensed when incurred. For the years ended December 31, 2015, 2016, 2017 and 2017,2018 our sustainability capital expenditures (including our environmental expenditures and investments in alternative fuels and cementitious materials) were approximately U.S.$86.03$79.9 million, approximately U.S.$79.9$83.14 million and approximately U.S.$83.14$83 million, respectively. As of December 31, 2017, we do not expect a material increase in our environmental expenditures in 2018.
The following is a discussion of environmental regulations and related matters in our major markets.markets as of December 31, 2019.
Mexico.
We were one of the first industrial groups in Mexico to sign an agreement with the Mexican Ministry of Environment and Natural Resources (Secretaría del Medio Ambiente y Recursos Naturales) (“SEMARNAT”) to carry out voluntary environmental audits in our 15 Mexican cement plants under agovernment-run program. In 2001, the Mexican Environmental Protection Agency (Procuraduría Federal de Protección al Ambiente), which is part of SEMARNAT, completed the audit of our cement plants and
awarded each of them a Clean Industry Certificate (Certificado de Industria Limpia) (“CIC”) certifying that our cement plants are in full compliance with applicable environmental laws. The CICs are subject to renewal every two years. As of December 31, 2017,2019, our operating cement plants in Mexico had CICs or were in the process of renewing them. As of December 31, 2017, we expect the renewal of all currently expired CICs.
For over a decade,almost three decades, the technology forco-processing and recycling used tiresalternative fuels into an energy source has been employed in our cement plants located in Ensenada and Huichapan.Mexico. By the end of 2016, almost2019, all of our operating cement plants in Mexico were using tires as an alternative fuel (except for installations in Torreon and Valles). As of December 31, 2017, municipal collection centers in the cities of Tijuana, Mexicali, Ensenada, Mexico City, Reynosa, Nuevo Laredo and Guadalajara enable us to obtain an estimated 24,000 tons of tires per year as alternative fuel.fuels. Overall, approximately 20.61%26.5% of the total fuel used in our operating cement plants in Mexico during 20172019 was comprised of alternative fuels. This information is available on a yearly basis.
Between 1999
In 2017, 2018 and December 31, 2017,2019 our operations in Mexico have invested approximately U.S.$126.14$16.15 million, $8.76 million and $11.49 million, respectively, in the acquisition of environmental protection equipment and the implementation of the ISO 14001:2004 environmental management standards of ISO.ISO, for a total of $148.9 million since 1999. The audit to obtain the renewal of the ISO 14001:20042015 certification took place during the first quarter of 20152019 and our operating cement plants in Mexico obtained the renewal of the ISO 14001:20042015 certification for environmental management systems, which is valid until September of 2018.February 2021.
On June 6, 2012 the General Law on Climate Change (Ley General de Cambio Climático) (the “Climate Change Law”) was published in the Mexican Official Gazette. The Climate Change Law establishes a legal framework to regulate policies for climate change mitigation and adaptation. Many importantImportant provisions of the Climate Change Law require the development of secondary legislation, and depend on the publication of subsequent implementing regulations. For instance, the Climate Change Law provides, among other things, for (i) the elaboration of a registry of the emissions that are generated by fixed sources, (ii) companies to report their emissions, if required, and (iii) the application of fines to those companies that fail to report or that report false information. In this regard, on October 29, 2014, the Regulations to the General Law on Climate Change Regarding the National Registry of Emissions (Reglamento de la Ley General de Cambio Climático en Materia del Registro Nacional de Emisiones) (the “Regulations”) became effective. As of December 31, 2019, CEMEX has been granted the positive dictum on GHG emission reporting by the Mexican environmental agency for all its required plants. The purpose of the Regulations is to
govern the Climate Change Law regarding the National Registry of Emissions, identifying the sectors and subsectors, which include among others, the cement industry, that must file the corresponding reports before the National Registry of Emissions. We had previously reported our direct and indirect carbon dioxideCO2 emissions to SEMARNAT under a voluntary scheme. The Climate Change Law also allows for the establishment of specific greenhouse gas reduction targets in accordance with the respective contribution of each economic sector to the national greenhouse gas emissions. As of December 31, 2017,2019, we are not able to estimatedetermine the impact if any, that any measures related to thisthe Regulations and Climate Change Law may have uponon our operations in Mexico. Although the Climate Change Law does not establish a program for emissions trading, it does vest on the Mexican federal government the power to create, authorize and regulate such a scheme, which may be voluntary or binding. We are closely observing the development of implementing regulations and, as of December 31, 2017,2019, we cannot estimate the impact, if any, that any measures related to this may have upon our operations in Mexico. A Special Tax on Production and Services (Impuesto Especial Sobre Producción y Servicios) on the sale and import of fossil fuels was included in the tax reform that became effective on January 1, 2014. During 2017, petroleumthe year ended December 31, 2019, pet coke, a primary fuel widely used in our kilns in Mexico was taxed at a rate of Ps17.15 (approximately U.S.$0.87Ps19.15 ($1.01 as of December 31, 2017,2019, based on an exchange rate of Ps19.65Ps18.92 to U.S.$1.00)$1.00) per ton.
On August 12, 2014, a package of energy reform legislation became law in Mexico. The then newly enacted energy reform legislation, which included nine new laws, as well as amendments to existing laws, implemented the December 2013 constitutional energy reform and established a new legal framework for Mexico’s energy industry. One of the new laws that was enacted is the Electric Industry Law (Ley de la Industria Eléctrica) (the “Electric Industry Law”), which establishes a legal framework for electricity-related activities in Mexico, which has the effect of structurally changing the national electric industry. On October 31, 2014, certain rules and regulations related to the energy reform legislation, including the regulations of the Electric Industry Law, were published. As part of the Electric Industry Law, a system for tradable clean energy certificates was created and certain clean energy procurement obligations were imposed on consumers. The clean energy procurement obligations for 20182019 to 2022 have beenwere announced at 5%, 5.8%, 7.4%, 10.9% and 13.9%, respectively, and this requirement is expected to increase in subsequent years. CEMEX’s operations in Mexico have ongoing commitments to procure power from renewable projects operating under the “self-supply” framework of the former Electric Energy Public Service Law, and the energy supplied under these contracts is exempted from the clean energy obligation. Nonetheless, starting insince 2018, we are required to acquire clean energy certificates to comply with the clean energy obligations for the fraction of energy supply that does not come from clean generators. Over time, according to the penalty levels set by the Mexican Energy Regulatory Commission (Comisión Reguladora de Energía),non-compliance with the clean energy procurement obligations could have a material adverse impact on our business or operations. However,operations in Mexico, but as of December 31, 2017,2019, we wereare not able to assess if such impact would in turn have a material adverse impact on our results of operations, liquidity and financial condition.
On September 8, 2015, the Electricity Market Rules (Bases del Mercado Eléctrico) (the “Rules”) were published in the Federal Official Gazette and became effective on September 9, 2015. The Rules, which are an important step forward in the implementation of the reforms enacted regarding Mexico’s energy industry, contain the design and operation principles of the different components of the wholesale electricity market (the “Electricity Market”). As of December 31, 2017,2019, we are in the process of becoming a participantauthorized
participants in the Electricity Market. Additionally, CEMEX participated as a buyer in the third long-term power auction organized in 2017 by the National Center for Energy Control (Centro Nacional de Control de Energía) (“CENACE”),CENACE, the independent national electric system operator, and has been allocated a20-year contract for 16,129 clean energy certificates per year for compliance starting in 2020 and 14.9 GWh/a of electric power.
During 2016, a new electrical standardstandards code was issued in Mexico (Có(Código de Red)Red) (the “Electrical Standard Code”“Code”). The Electrical Standard Code establishes new standards for electrical operation that will be enforced beginning in 2019 against consumers connected to the national grid. TheAs of December 31, 2019, we estimate that the implementation of the Electrical Standard Code will require investments across our operating assets in Mexico, which we expect to amount to approximately U.S.$6$6 million.
United States.
Our operating subsidiaries in the United StatesU.S. are subject to a wide range of U.S. federal, state and local laws, regulations and ordinances dealing with the protection of human health and the environment that are strictly enforced and can lead to significant monetary penalties for noncompliance. These laws and regulations expose us to the risk of substantial environmental costs and liabilities, including liabilities associated with divested assets and past activities and, in some cases, the acts and omissions of the previous owners or operators of a property or facility. These laws regulate, among other things, water discharges, noise, and air emissions, including dust, as well as the handling, use and disposal of hazardous andnon-hazardous waste materials. Certain laws also create a shared liability scheme under which parties are held responsible for the cost of cleaning up releases to the environment of designated hazardous substances. We therefore may have to conduct environmental remediation associated with the disposal or release of hazardous substances at our various operating facilities, or at sites in the United StatesU.S. to which we sendsent hazardous waste for disposal. WeAs of December 31, 2019, we believe that our current procedures and practices for handling and managing materials are generally consistent with industry standards and legal and regulatory requirements, and also believe that we take appropriate precautions designed to protect employees and others from harmful exposure to hazardous materials.
As of December 31, 2017,2019, CEMEX, Inc. and its subsidiaries had accrued liabilities specifically relating to environmental matters in the aggregate amount of approximately U.S.$29.84$63.3 million. The environmental matters relate to (i) the disposal of various materials, in accordance with past industry practice, that might be categorized as hazardous substances or wastes,waste and (ii) the cleanup of hazardous substances or wasteswaste at sites used or operated by CEMEX, Inc. and its subsidiaries including discontinued operations, either individually or jointly with other parties. Most of the proceedings are in the preliminary stages, and a final resolution might take several years. For purposes of recording the provision, CEMEX, Inc. and its subsidiaries consider that it is probable that a liability has been incurred and the amount of the liability is reasonably estimable, whether or not claims have been asserted, and without giving effect to any possible future recoveries. Based on information developed to date,as of December 31, 2019, CEMEX, Inc. does not believe it will be required to spend significant sums on these matters, in excess of the amounts previously recorded. The ultimate cost that might be incurred to resolve these environmental issues cannot be assured until all environmental studies, investigations, remediation work, and negotiations with, or litigation against, potential sources of recovery have been completed.
In 2007, the EPA launched a CAA enforcement initiative against the U.S. cement industry. The primary goal of the initiative is to assess the industry’s historic compliance with the CAA’s New Source Review program and to reduce emissions from the industry through the installation ofadd-on controls. CEMEX hasWe have actively engaged with the EPA on its investigations, which involved multiple CEMEXof our facilities in the U.S., and hashave entered into four settlements involving a total of U.S.$6.1$6.1 million in civil penalties and a commitment to incur certain capital expenditures for pollution control equipment at itsour Victorville, California,California; Fairborn, Ohio (divested on February 10, 2017),; Lyons, Colorado,Colorado; Knoxville, Tennessee,Tennessee; Louisville, Kentucky (divestment of this installation is expected to occur around the second quarter of 2020); Demopolis, Alabama,Alabama; Odessa, Texas (divested on November 18, 2016); and New Braunfels, Texas plants. Based on our past experience with such matters and currently available information, as of December 31, 2017,2019, we believe any further proceedings willshould not have a material adverse impact on our results of operations, liquidity and financial condition.
In 2002, CEMEX Construction Materials Florida, LLC (formerly Rinker Materials of Florida, Inc.) (“CEMEX Florida”), a subsidiary of CEMEX, Inc., was granted a federal quarry permit and was the beneficiary of another federal quarry permit for the Lake Belt area in South Florida. The permit held by CEMEX Florida covered CEMEX Florida’s Seaboard Coast Line (“SCL”)SCL and Florida East Coast (“FEC”)FEC quarries. CEMEX Florida’s Kendall Krome quarry is operated under the permit of which it was a beneficiary. The FEC quarry is the largest of CEMEX Florida’s quarries measured by volume of aggregates mined and sold. CEMEX Florida’s Miami cement mill is located at the SCL quarry and is
supplied by that quarry, while the FEC and Kendall Krome quarries have supplied aggregates to CEMEX and third-party users. In response to litigation brought by environmental groups concerning the manner in which the federal quarry permits were granted, in January 2009, the U.S. District Court for the Southern District of Florida ordered the withdrawal of the federal quarry permits for CEMEX Florida’s SCL, FEC and Kendall Krome quarries. The judge ruled that there were deficiencies in the
procedures and analysis undertaken by the Army Corps of Engineers (“Corps”) in connection with the issuance of the permits. Upon appeal, on January 21, 2010, the Eleventh Circuit Court of Appeals affirmed the district court’s ruling withdrawing the federal quarry permits for the three CEMEX Florida quarries as well as other third-party federal quarry permits subject to the litigation. On January 29, 2010, the Corps completed a multi-year review commenced as a result of this litigation and issued a Record of Decision (“ROD”) supporting the issuance of new federal quarry permits for the FEC and SCL quarries. Excavation of new aggregates was stopped at the FEC and SCL quarries from January 20, 2009 until new permits were issued. The FEC permit was issued on February 3, 2010, and the SCL permit on February 18, 2010. The ROD also indicated that a number of potential environmental impacts must be addressed at the wetlands located at the Kendall Krome site before a new federal quarry permit may be issued for mining at that quarry. ItAs of December 31, 2019, it is unclear how long it will take to fully address the Corps’ concerns regarding mining in the Kendall Krome wetlands. While no new aggregates will be quarried from wetland areas at Kendall Krome pending the resolution of the potential environmental issues, the FEC and SCL quarries will continue to operate. If CEMEX Florida is unable to maintain the new Lake Belt permits, which require various conditions to be met to extend the areas covered by the permits, to the extent available, CEMEX Florida would need to source aggregates to the extent available, from other locations in Florida or import aggregates. This would likely affect operating income from our Florida operations. As of December 31, 2017,2019, any adverse impacts on the Florida economy arising from the cessation or significant restriction of quarrying operations in the Lake Belt area could also have a material adverse impact on our results of operations, liquidity and financial condition.
In June 2010, the EPA proposed regulating Coal Combustion Residuals (“CCRs”) generated by electric utilities and independent power producers as a hazardous or special waste under the United States Resource Conservation and Recovery Act. CEMEX usesIn the U.S., we use CCRs as a raw material in theour cement manufacturing process, as well as a supplemental cementitious material in some of ourready-mix concrete products. On December 19, 2014, the EPA issued a final rule on the regulation of CCRs (the “Final Rule”). As of December 31, 2017,2019, we expectbelieve that the effects of the Final Rule willshould not have a material adverse impact on our results of operations, liquidity and financial condition.
We
Our operations in the U.S. are subject to a number of federal and state laws and regulations addressing climate change. On the federal side, EPA has promulgated a series of regulations pertaining to emissions of GHGs from industrial sources. EPA issued the Mandatory Reporting of GHGs Rule, effective December 29, 2009, which requires certain covered sectors, including cement manufacturing, with GHG emissions above an established threshold to inventory and report their GHG emissions annually on afacility-by-facility basis. In 2010, EPA issued a final rule that establishes GHG thresholds for the New Source Review Prevention of Significant Deterioration (“PSD”) and Title V Operating Permit programs.programs (“Title V”). The rule “tailors” the requirements of these CAA permitting programs to limit which facilities will be required to obtain PSD and Title V permits for GHG emissions. Cement production facilities are included within the categories of facilities required to obtain permits, provided that their GHG emissions exceed the thresholds in the tailoring rule. The PSD program requires new major sources of regulated pollutants and major modifications at existing major sources to securepre-construction permits that establish, among other things, limits on pollutants based on Best Available Control Technology (“BACT”).
According to EPA’s rules, stationary sources, such as cement manufacturing, which are already regulated under the PSD program fornon-GHG pollutants, need to apply for a PSD permit for any GHG emissions increases above 75,000 tons/year of carbon dioxideCO2 equivalent (“CO2E”CO2E”). Therefore, new cement plants and existing plants undergoing modification which are major sources fornon-GHG pollutants regulated under the CAA need to acquire a PSD permit for construction or modification activities that increase CO2ECO2E by 75,000 or more tons/year, and would have to determine and install BACT controls for those emissions. Furthermore, any new source that emits 100,000 tons/year of CO2ECO2E or any existing source that emits 100,000 tons/year of CO2ECO2E and undergoes modifications that would increase CO2ECO2E emissions by at least 75,000 tons/year, must comply with PSD obligations. Complying with these PSD permitting requirements can involve significant costs and delay. As of December 31, 2017,2019, the costs of futureGHG-related regulation of our facilities through these efforts or others could have a material economic impact on our U.S. operations and the U.S. cement manufacturing industry, which in turn could have a material adverse impact in our results of operations, liquidity and financial condition.
With respect to state efforts to address climate change, in 2006, the State of California adopted the Global Warming Solutions Act (Assembly Bill 32 or “AB32”) setting into law a goal to reduce the State’s carbon dioxideCO2 emissions to 1990 levels by 2020. As part of the measures derived from AB32, the California Air Resources Board (“CARB”) developed acap-and-trade program, enforced from 2013, that covers most industrial sources of greenhouse gas emissions in the State, including cement production facilities. The program involves allocating a number of allowances free of charge to covered installations, which must subsequently surrender back to the regulator a number of allowances or qualified offset credits matching their verified emissions during the compliance period. Based on the free allowances received, our Victorville cement plant has met all of its compliance obligations for the second compliance
period (2015 to 2017)(2015-2017) without a material impact on its operating costs. Ascosts; and, as of December 31, 2017, it2019, is expected to meet all of its compliance obligations for the third compliance period (2018 to 2020)(2018-2020) without a material impact on its operating costs. Furthermore, as of December 31, 2017,2019, for our operations in California, we are actively pursuing initiatives to substitute fossil fuels for lower carbon fuels, improve our energy efficiency and utilize renewable power in an effort to economically reduce our direct and indirect GHG emission intensities. However, even with these ongoing efforts and the expected distribution of free allowances, as of December 31, 2017 we cannot assure you that2019, the measures corresponding to future compliance periods of AB32, which may eventually require us to purchase emission allowances at increased prices due to their reduced availability, and the resulting overall costs of complying with acap-and-trade program, will notcould have a materialan impact on our operations in California, orwhich in turn could have an adverse impact on our results of operations, liquidity and financial condition.
In 2007, CARB approved a regulation that requires California equipment owners/operators to reduce diesel particulate and nitrogen oxide emissions fromin-useoff-road in-use off-road diesel equipment and to meet progressively more restrictive emission targets. In 2008, CARB approved a similar regulation forin-useon-road in-use on-road diesel equipment. The emission targets requires us to retrofit our California-based equipment with diesel emission control devices or replace equipment with new engine technology in accordance with certain deadlines. As of December 31, 2017,2019, compliance with the CARB regulations has resulted in equipment related expenses or capital investments, including overhauling engines and purchases of new equipment directly related to the CARB regulations, in excess of U.S.$32.45$32.45 million. As of December 31, 2017,2019, we estimate that we may continue to incur substantial expenditures to comply with these requirements.
Europe.
Europe
General overview of EU industrial regulation
In
As of December 31, 2019, the EU, the cement sector is subject to a range of environmental laws at EU and national EU member state (“Member State”) levels. These laws can be very broadly categorized as (1) primary and direct controls placed upon their main operational activities and (2) more general legal regimes which protect different aspects of the environment across many sectors.
The primary examples of the first kind of control are the various laws governing the specific operational activities of the sector, through stringent permitting and emissions controls, which are dealt with in the mainsub-section below. Examples of the second, more general, legal controls are the EU Water Framework Directive (2000/60/EC) and the EU Waste Framework Directive (2008/98/EC) which impose various obligations in relation to protection of the surface and underground water environments and the recovery, disposal and overall management of waste. In practice, the applicable substance of even these more general laws tends to filter through to the industry via the direct route of the permitting emissions control systems. However, it is important to recognize that in the EU the sector is subject to a complex web of different environmental protection laws and standards.
The EU legal system also operates in a way differentdifferently compared to federal systems. The EU legal regime, is referred to as “supra-national” law. Itsupra-national law, sits “above”above the legal systems of the different EU member states (“Member States,States”), which retain their independence subject to tight oversight from EU institutions, especially the Court of Justice, the European Commission, and the European Parliament. As such, EU law operates (in its many fields of application, including industrial regulation) in order to “control”control and authoritatively interpret the legislation and implementation of law
(EU (EU and domestic) in those Member States. One of the key manifestations of this “supra-national control”supra-national control are the inter-related doctrines of the supremacy of EU law and of conforming interpretation. Essentially, where an area of legal control in a Member State has its origin in an EU Directive, then the Member States must transpose the Directive fully and effectively into their domestic law and every organ of the Member State, including its regulators and its Courts, must interpret (and if necessary change) domestic law in order to conform with the objectives and the letter of the relevant EU Directive. This is of relevance to the cement sector since almost every aspect of its environmental regulation has its origins in EU legislation.
In the EU, the cement sector is subject to a range of environmental laws at EU and national Member States levels. These laws can be very broadly categorized as (1) primary and direct controls placed upon their main operational activities and (2) more general legal regimes which protect different aspects of the environment across many sectors.
The primary examples of the first kind of control are the various laws governing the specific operational activities of the sector, through stringent permitting and emissions controls, which are further explained below; examples of the second, more general, legal controls are the EU Water Framework Directive (2000/60/EC) and the EU Waste Framework Directive (2008/98/EC) which impose various obligations in relation to protection of the surface and underground water environments and the recovery, disposal and overall management of waste. In practice, even these more general laws indirectly impact our industry through permitting emissions control systems.
EU Industrial Permits and Emissions Controls
In the EU, the primary legal environmental controls applied to cement plants have been those EU Directives which control operational activities and emissions from those activities. Until recently, theseThese controls were primarily derived from two EU Directives: (1) theso-called “IPPC Directives”Directive” (as described below) and (2) the Incineration Directive (as defined below). On January 6, 2011, the Industrial Emissions Directive (2010/75/EU) (“IED”) came into force. The IED recasts seven pieces of existing legislation into a single coherent legislative instrument, including the IPPC DirectivesDirective and the Incineration Directive, both of which it repeals. With some exceptions, the IED retains the essential substance of the earlier Directives.
The primary EU legislative control over the sector (until the transition between 2010-2014 of the IED) was the Directive on Integrated Pollution Prevention and Control (2008/1/EC) (“IPPC Directive”)., which was repealed by the IED. The 2008 version of this Directive was in fact an update and consolidation of an earlier Directive first promulgated in 1996. Since 1996, these IPPC Directives have adopted an integrated approach to regulation of various sectors of industrial plant, including cement, by taking into account and controlling/regulating the whole environmental performance of the plant. They required cement works to have a permit which, until recently in England and still in some other states, continues to be referred to as an “IPPC Permit.” These permits contain emission limit values and other conditions based on the application of (what was in 1996) a new legal and technical concept called “best available techniques” (“BAT”).
The concept of BAT is central to the system, and effectively imposes a legal obligation on plant operators to use and apply the best available techniques (as they develop from time to time) in order to prevent or, where this was not practicable, minimize emissions of pollutants likely to be emitted in significant quantities from the plant to air, water or land. Emission limit values, parameters or equivalent technical measures must be based on the best available techniques, without prescribing the use of one specific technique or technology and taking into consideration the technical characteristics of the installation concerned, its geographical location and local environmental conditions. In all cases the permit conditions must ensure a high level of protection for the environment as a whole.
Permit conditions also had to address energy efficiency, waste minimization, prevention of accidental emissions and site restoration. To assist the permitting authorities and companies in determining the BAT, the European Commission organized an exchange of information between experts from the Member States, industry and environmental organizations. This resulted in the adoption and publication by the European Commission of BAT Reference Documents (“BREFs”) for the industry sectors covered by the IPPC Directive. A key element of the BREFs were the conclusions on BAT (“BAT conclusions”) which were used as a reference for setting permit conditions. All of these IPPC Directive requirements have been followed through (and in some respects tightened) by the IED.
The second earlier Directive, which was applied in direct control of cement operations, was the EU Waste Incineration Directive (2000/76/EC) (“Incineration Directive”) which regulated those parts of the cement operation that used recovered waste materials as substitute fuels in cement kilns. Its aim was to prevent or limit, as far as practicable, negative effects on the environment, in particular pollution by emissions in air, soil, surface water and groundwater and the resulting risks to human health, from incineration andco-incineration plants.
Cement and limelimestone kilns as a primary or secondary source of fuel fall within the definition of“co-incineration
“co-incineration plants.” The Incineration Directive sought to achieve its aim by setting and maintaining stringent operational conditions and technical requirements, as well as emission limit values for a range of pollutants including dust, nitrogen oxides, sulfur dioxide, hydrogen chloride, heavy metals and dioxins. Again, the essential substance of the Incineration Directive has been followed through into the IED, which repealed the Incineration Directive andit together with the IPPC Directive.
The IED has applied to new industrial installations since January 7, 2013 and to existing industrial installations (other than large combustion plants) since January 7, 2014. Under the IED, operators of industrial installations, including cement plants, are required to obtain an integrated permit from the relevant permitting authority in the Member States. As with the IPPC Directive, permit conditions, including emission limit values, must be based on BAT and, as of December 31, 2019, a total of 3516 BREFs of the existing 32 are being rewritten or revised for the IED. However, there is an important difference between the IPPC Directive and the IED. Under the IPPC Directive, the BREFs were considered as guidance only. This is not the case under the IED. Where BAT conclusions specify emission levels, permitting authorities are required to set emission limit values that do not exceed these levels. They may derogate from this requirement only where the costs associated with the achievement of the emission levels associated with the BAT disproportionately outweigh the environmental benefits due to the geographical location, the local environmental conditions or the technical characteristics of the installation concerned. The permitting authorities must document the reasons for the derogation from the emission limit values in the permit, including the result of the cost-benefit assessment. In April 2013, pursuant to European Commission Decision No. 2013/163/EU, the European Commission published new BAT conclusions under the IED for Productionproduction of Cement, Limecement, lime and Magnesium Oxide,magnesium oxide, together with specific emission levels. This document sets out an extensive list of technical requirements for most aspects of the cement manufacturemanufacturing process in the EU, with a view to prevention and minimization of all polluting emissions. It is a new requirement under the IED that permitting authorities must review and, if necessary, update permit conditions within four years of the European Commission publishing decisions on BAT conclusions for a particular activity. WhileThe European Commission describes review of the BREFs as a continuing process due to ongoing technological advances so updates may be expected. As of December 31, 2017, we are not able2019, this has the potential to assess what degree of impact these requirementsrequire our operations in the preceding sentence and in general all requirements that come into effect with regardsEurope to be adapted to conform to the IED will have onlatest BAT, which in turn could impact our operations, asoperations.
As of December 31, 2017, it is reasonable to assume2019, we believe that thereour operations in Member States will be an impactimpacted given the change in regulatory approach heralded by the legislation its ongoing revision and the fact that it will be key to the permitting of the cement industry in the EU. In particular,As of December 31, 2019, we are not able to assess the European Commission describes reviewdegree of impact the BREFs as a continuing process due to ongoing technological advances and so updates may be expected. This hasrequirements that come into effect under the potential to requireIED will have on our operations in Europe to be adapted to conform to the latest BAT.Member States.
Croatia
As a result of a lawsuit filed by the city of KaštelaKastela against the Ministry of Environment of the Republic of Croatia, the IPPC Permit issued on behalf of CEMEX Hrvatska d.d. (“CEMEX Croatia”) by the Ministry of Environment was revoked on July 6, 2015 by a final andnon-appealable judgment of a first instance court in Split, Croatia. The judgment required the Ministry of Environment to repeat the procedure for the issuance of a new IPPC Permit. On November 23, 2015, the Ministry of Environment issued a new IPPC Permit, which has been challenged by the city of Kaštela.Kastela. On January 7, 2016, CEMEX Croatia received the claim and replied to it in due time. The Ministry of Environment also replied to the claim. At a court hearing held on September 14, 2016, the litigation proceedings concluded. On November 18, 2016, the administrative court in Split, Croatia notified CEMEX Croatia that the decision regarding the IPPC Permit was annulled and the matter was remanded to the Ministry of Environment in order to repeat the procedure. On December 2, 2016, CEMEX Croatia and the Ministry of Environment filed an appeal against such judgment. Regarding the aforementioned appeal, on February 6, 2019, the High Administrative Court ruled in favor of CEMEX Croatia. The Court decided (i) to overrule the annulment of IPPC Permit and (ii) to reject the claim of the city of Kastela. The High Administrative Court´s decision is final. As of December 31, 2017, CEMEX Croatia is awaiting the decision on the appeal. If the IPPC Permit is conclusively annulled,2019, we do not believe that such judgment would have a material adverse impact onexpect our results of operations, liquidity and financial condition.condition will suffer materially due to this matter.
In addition, in accordance with Article 21(3) of the IED, within four years of BAT conclusion publications, the competent authority is to reconsider and, if necessary, update all permit conditions and ensure that the installation complies with such permit conditions. Accordingly, on January 3, 2017, the Ministry of Environment invited CEMEX Croatia to submit relevant expert opinions in order to update the existing permit conditions and
ensure compliance with permit conditions. On March 20, 2017, CEMEX Croatia submitted expert opinions to the Ministry of Environment, and, as of December 31, 2017, CEMEX Croatia had not yet been notified ofEnvironment. The hearing to determine whether the decision oninstallation is in compliance with all permit conditions was opened to the public by the Ministry of Environment’s appeal. ShouldEnvironment on June 29, 2018 and was completed 30 days later. If the installation is determined to be in compliance, a permit would be issued within approximately six months of completion of such hearing. Regarding concession permits, there was additional documentation included under water usage in Sy. Jurai and Sy. Kajo plants. The Croatian Water Management had additional requirements which included a detailed calculation of water flows, water consumption and discharges in plants. On September 6, 2019, a draft of the IPPC Permit was announced on the web site of the Ministry of Environment, however, there is a public insight period that lasts 30 days in which any interested member of the public can provide opinions and propose amendments to such permit. The IPPC Permit was issued on December 3, 2019, and such issuance completed the permit process harmonization with BAT from November 2015. The IPPC Permit will be finally annulled, we dofinal, should it not believe thatbe contested before the judgment would have a material adverse impact on our resultscourt within the contestation period prescribed by the local environmental permit regulation and court procedure.
Furthermore, through the issuance of operations, liquidity and financial condition. In the meantime, a new permit based on an amendment to the conditions of the IPPC Permit, the main environmental license for CEMEX Croatia will become permanent, and any future changes will be issued in accordance withmade through an amendment process within the IED.existing IPPC Permit. Therefore, CEMEX Croatia will no longer be required to go through the process of issuing a new IPPC Permit.
EU Emissions Trading
In 1997, as part of the United Nations Framework Convention on Climate Change, (the “UNFCCC”), the Kyoto Protocol was adopted to limit and reduce GHG emissions. The Kyoto Protocol set legally binding emission reduction targets for 37 industrialized countries and the EU. Under the Kyoto Protocol, industrialized countries agreed to reduce their collective GHG emissions by 5% against 1990 levels over the five yearfive-year period 2008-2012 (“first commitment period”);2008-2012; future mandatory targets were expected to be established for commitment periods after 2012. To compensate for the sting of binding targets, the Kyoto Protocol allows three “flexibility” mechanisms to be used by parties in meeting their emission limitation commitments: the Clean Development Mechanism (“CDM”), Joint Implementation (“JI”) and International Emissions Trading.
In 2012, at the United Nations Climate Change Conference in Doha, Qatar, the Doha Amendment to the Kyoto Protocol was adopted. Certain parties, including the United Kingdom and the EU, committed to reduce GHG emissions by at least 18% below 1990 levels in the eight yeareight-year period from 2013 to 2020 (“Second Commitment Period”).2020.
Our operations in the United Kingdom, Spain, Germany, Latvia, Poland, Croatia (since 2013) and Czech Republic, are subject to binding caps on CO2CO2 emissions imposed pursuant to the EU’s emissions trading system (“ETS”) that was established by Directive 2003/87/EC to implement the Kyoto Protocol. Under the ETS, a cap or limit is set on the total amount of CO2CO2 emissions that can be emitted by the power plants, energy-intensive installations (including cement plants) and commercial airlines that are covered by the system. The cap is reduced over time so that the total amount of emissions will decrease. Within the cap, companies receive or buy emission allowances. These allowances are tradable so as to enable companies that manage to reduce their emissions to sell their excess allowances to companies that are not reaching their emissions objectives. After each year, a company must surrender enough carbon allowances to cover all its emissions. FailureIn general, failure to meet the emissions caps is subject to significant monetary penalties.penalties of €100 for each ton of CO2 equivalent emitted by the installation for which the operator has not surrendered allowances.
In addition to carbon allowances, the ETS also allows the use of Kyoto Protocol units: the Emission Reduction Unit, representing a metric ton of carbon saved by a project under the JI mechanism, and the Certified Emission Reduction unit (“CERs”) under the CDM. The ETS recognizes these units as equivalent to its carbon allowances and allows them to be used by companies for compliance up to a certain limit to offset their carbon emissions in the EU. As of December 31, 2017,2019, we have registered 19 CDM projects with a total potential to, according to our estimates, reduce approximately 2.44 million tons of CO2ECO2E emissions per year. The corresponding CERs from these projects could be used for internal purposes or sold to third parties. Croatia, as a newlate entrant because of when it joined the EU, has a right to use only 4.5% of its verified carbon emissions in relation to other EU ETS members which have a right to use up to 11% of their free allocation of EU allowances.
The ETS consists of three trading phases: Phase I which lasted from January 1, 2005 to December 31, 2007, Phase II, which lasted from January 1, 2007 to December 31, 2012, and was intended to meet commitments under the Kyoto first commitment period,First Commitment Period, and Phase III which commenced on January 1, 2013 and will end on December 31, 2020. For Phase III of the ETS, there is also a cap on nitrous oxide and perfluorocarbons (PFC) emissions. Prior to the commencement of each of ETS Phases I and II, each Member State was responsible for publishing its National Allocation Plan (“NAP”), a document which sets out a national cap on the total amount of carbon emissions by all installations during each relevant trading phase and the methodology by which the cap would be allocated to the different sectors in the ETS and their respective installations. Each Member State’s cap contributed to an overall EU cap on emissions, where one carbon allowance must be surrendered to account for
one metric ton of carbon emitted. The carbon allowances were mostly distributed for free by each Member State to its ETS installations, although some Member States also used a fraction of their material cap for auctioning, mainly to power generators. Under ETS Phase III, however, the system of NAPs has been replaced by a singleEU-wide,top-down, cap on CO2CO2 emissions, with allocation for all installations made according to harmonized EU rules and set out in each Member State’s National Implementation Measures (“NIM”). Additional restrictions have been introduced on the extent to which Kyoto Protocol units can be used to offset EU carbon emissions, and auctioning, not free allocation, has become the default method for distributing allowances. For those allowances that are still given away free, as discussed below, harmonized rules apply based onEU-wide benchmarks of emissions performance.
EU policymakers see the free allocation of allowances as a principleprincipal way to reduce the risk of carbon leakage—that is, the risk that energy-intensive industries, facing higher costs because of the ETS, will move their facilities beyond the EU’s borders to countries that do not have climate change controls, thus resulting in a leakage of CO2CO2 emissions without any environmental benefits. In 2009, a list of ETS sectors deemed to be at significant risk of carbon leakage was formally adopted by the European Commission, following agreement by Member States and the European Parliament. The list which was valid from 2010 to 2014 included the cement production sector, on the basis that the additional costs imposed by the ETS would lead to a 30% or more increase in production costs as a proportion of the “gross value added.” A decision on the list of sectors deemed to be at significant risk of carbon leakage for the period 2015-2019 was adopted by the European Commission on October 29, 2014 and the cement production sector resulted selected again. Sectors classified as deemed to be at significant risk of carbon leakage will continue to receive 100% of their benchmark allocation of allowances free of charge during Phase III, adjusted by a cross-sectoral correction factor that is beinghas been applied uniformly upon all participating facilities in Europe in order to reduce the amount of free allocation that each installation receives so that the total sum does not exceed the authorizedEU-wide cap for free allocation. By contrast, sectors that are not considered at risk of carbon leakage received 80% of their benchmark allowances for free in 2013, declining to 30% by 2020.
On April 27, 2011, the European Commission adopted Decision 2011/278/EU that states the rules, including the benchmarks of greenhouse gas emissions performance, to be used by the Member States in calculating the number of allowances to be annually allocated for free to industrial sectors (such as cement) that are deemed to be exposed to the risk of “carbon leakage.” The number of allowances to be allocated to installations for free will be based on a combination of historic activity levels at that installation and an EU benchmark of carbon efficiency for the production of a particular product—for example, clinker. An installation’s historic activity level is calculated by taking the median of its annual production levels during the baseline period, either 2005 to 2008 or, where historic activity levels are higher, 2009/10. The product benchmark is based on the average carbon emissions of the top 10% most “carbon efficient” EU installations for a particular product during 2007/8, where carbon efficiency is measured by carbon intensity or carbon emission per metric ton of product. Preliminary allocation calculations based on the rules were carried out by each Member State and included in a NIM table which was sent for scrutiny to the European Commission. On September 5, 2013, the European Commission adopted Decision 2013/448/EU which approved the NIMs submitted by most Member States and which sets the annual cross-sectoral correction factors for the period 2013-2020. The cross-sectoral correction figure will be used to adjust the levels of product benchmarks used to calculate the free allocation of allowances to each installation. This is to ensure that the total amount handed out for free does not exceed the maximum set in the ETS Directive. Each Member State is required to adjust its national allocation table of free allowances each year and submit this for approval to the European Commission prior to issuing allowances. The application of this cross-sectoral correction factor results in an important decrease in the quantity of allowances that ourETS-participant operations expect to receivereceived for free in the 2013-2020 period.
On February 26, 2014, the European Commission adopted a Decisiondecision on national allocation allowances for the last group of Member States including Croatia, which was granted 5.56 million of free allowances. Since this time, a regularly updated allocation table showing the number of allowances that have been allocated per Member State is published on the European Commission’s website. Based on the European Commission
approved NIMs that were published in the first quarter of 2014 for Phase III, as of December 31, 2019, we expect that the aggregate amount of allowances that will be annually allocated for free to CEMEX in Phase III of the ETS will beshould remain sufficient to operate.operate until the completion of Phase III. An important factor in providing such assurance is the European Commission Decision 2014/746/EU (which took effect on January 1, 2015) which, as mentioned, included the manufacture of cement as an industry at significant risk of carbon leakage meaning that the industry will continue to receive 100% of its benchmark allocation of allowances free of charge during Phase III. Although the European Council has indicated that the free allocation of allowances to carbon leakage sectors will continue beyond Phase III, a future decision that the cement industry should no longer be regarded as a significant risk of carbon leakage could have a material impact on our operations and our results of operations, liquidity and financial condition.
An installation can only receive its full allocation of free allowances if it is deemed to have not partially ceased under the “partial cessation rule” of the ETS. Partial cessation applies where asub-installation which contributes at least 30% of the installation’s final annual amount of emissions allocated, or contributes to more than 50,000 allowances or reduces its activity level by at least 50% of its historic activity levels. If activity levels are reduced to between 50% and 75% of the historic activity level, the amount of free carbon allowances thesub-installation will receive will reducebe reduced by half in the following year; if activity levels are reduced by 75% to 90% compared to historic activity levels, the amount of free carbon allowances thesub-installation will receive will reduce by 75% in the following year; and if activity levels are reduced by 90% or more compared to historic activity levels, no allowances shall be allocated free of charge the following year with respect to thesub-installation concerned. This represents a change from ETS Phase II, in which the rules for partial cessation were defined by each Member State’s NAP and often did not result in any reduction in the level of free allocation, but an installation was no longer entitled to a free allocation from the following year if it had permanently ceased operating. The new rules are therefore more stringent, and to the extent that they result in our plants foregoing free carbon allowances, as of December 31, 2017,2019, they could represent a significant loss of revenue to us, since carbon allowances are also tradable.tradable, which in turn could have a material adverse impact on our results of operations, liquidity and financial condition.
Despite having sold a substantial amount of allowances during Phase II of the ETS, as mentioned, as of December 31, 2019, we believe that the aggregate amount of allowances that will behave been annually allocated for free to CEMEX in Phase III of the ETS (2013 to 2020)(2013-2020) will be sufficient to operate. This assessment stems from various factors, notably our efforts to reduce emissions per unit of clinker produced, the stream of offset credits coming from our internal portfolio of CDM projects and our expected long position in the initial years of Phase III of the ETS. We are taking measures intended to minimize our exposure to this market, while continuing to supply our products to our customers. AsThe EU Parliament, EU Council and EU Commission (Trilogue) have approved the amendment of December 31, 2017, it is not possiblethe ETS legislation for Phase IV of the ETS (2021-2030). On March 14, 2018, the European Parliament and the Council published Directive (EU) 2018/410, amending Directive 2003/87/EC to predict with certainty at this stage how CEMEXenhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814. This new Directive defines the rules for Phase IV of the ETS (2021-2030). During 2019 and 2020, all issues contained in Directive (EU) 2018/410 will be affected by potential reform topublished (i.e. values of the EUbenchmarks for the ETS sectors, productions of reference and the list of leakage sectors which will receive free allocation). The cement sector is included in the list of leakage sectors, which should receive free allocation, therefore, CEMEX should receive free allocation during the 2021-2030 period. The allocation (as defined under Directive (EU) 2018/410) should follow the same procedure that it previously followed. During Phase IV. However,IV of the European Council has indicated thatETS (2021-2030), theEU-wide overall cap on emission allowances willshould be reduced by 2.2% every year from 2021, and that benchmarks will be updated based on recent data and thattwice during the 2021-2030 period, a more dynamic allocation based on recent production shall replace the “historical activity level.” These modifications, which are still subjectlevel” and less emission allowances will be available for auction due to final approval by EU institutions (astheir allocation to the EU’s Market Stability Reserve. As of December 31, 2017, expected during 2018), suggest that there may2019, it is not possible to predict with certainty how CEMEX will be fewer allowances available with respect to our operations in the future. The EU Parliament, EU Council and EU Commission (Trilogue) have reached a provisional agreement for the amendment of the ETS legislation for Phase IV of the ETS (2021 to 2030), which would become final once formally approvedaffected by the EU Parliament and the EU Council. If such provisional agreement werereform to be approved and incorporated into the EU ETS as of December 31, 2017,in Phase IV; however, we expect that the aggregate amount of allowances that will be annually allocated for free to CEMEX in Phase IV wouldwill not be sufficient for our operations. Therefore,operations, and, therefore, CEMEX would requirewill need to purchase emission allowances at some point in time during Phase IV. Such emission allowances will likely be purchased at increased prices due to their reduced availability in auctions, since they would have been allocated to the Market Stability Reserve, which could have a material impact on our results of operations, liquidity and financial condition.
As a result of the 2019 United Nations Climate Change Conference, also known as “COP25” held in Madrid, the EU has published its “Green Deal” with the following changes (among others) that reflects most of Europe’s strategy to achieve carbon neutrality by 2050, which are expected to impact our industry in the coming years: (i) implementation of a carbon border adjustment to protect from imports, which shows that our industry will need to lobby intensively to preserve free allocation; (ii) enforcement of the existing legislation on energy performance of buildings; (iii) extension of the ETS to the maritime sector, and possibly also to other sectors, including those related to construction;(iv) implementation of measures to address pollution from industrial activities; (v) development of a new sustainable finance strategy; (vi) a review of regulations that cover construction products, as well as other initiatives.
In addition, 73 other non-EU countries announced they would submit enhanced action plans for reaching carbon zero by 2050. As part of the Paris Agreement calls, countries are invited to deliver new Nationally Determined Contributions (“NDCs”) every five years. During COP25, 41 countries, including the EU, representing 10.1% of global emissions, committed to update their respective NDC by 2020. Furthermore, 80 countries have signaled their intention to enhance ambition or action in an NDC by 2020, representing 10.5% of global emissions. All countries where CEMEX has operations, except for U.S., Egypt, the Philippines and Guatemala, have committed to update and/or enhance their NDC targets at “COP26” scheduled to be held in Glasgow in 2020. According to the World Economic Forum report from September 2019 on “CO2 emissions around the world,” from a total of 36.831 billion tons of CO2 emissions in 2018, China represents 27%, the U.S. 15% and the EU 9%. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our New Climate Strategy” for more information on our CO2 strategy.
Great Britain Landfills
In Great Britain, future expenditure on closed and current landfill sites has been assessed and quantified over the period in which the sites are considered to have the potential to cause environmental harm, generally consistent with the regulatory view of up to 60 years from the date of closure. The assessed expenditure relates to the costs of monitoring the sites and the installation, repair and renewal of environmental infrastructure. The
costs have been quantified on a net present value basis in the amount of £131,619,244 (approximately U.S.$177.74£131,034,978.70 ($173.55 million as of December 31, 2017,2019, based on an exchange rate of £0.7405£0.755 to U.S.$1.00)$1.00) as of December 31, 2017,2019, and we made an accounting provision for this amount.
Colombian Water Use Litigation
Philippines Environmental Class Action
On June 5, 2010,September 20, 2018, a landslide occurred in Sitio Sindulan, Barangay Tina-an, Naga City, Cebu, Philippines (the “Landslide”), a site located within an area covered by mining rights of ALQC.
CEMEX, S.A.B. de C.V. is an indirect minority shareholder in ALQC, the Districtprincipal raw material supplier of Bogotá’s Environmental Secretary (Secretaría Distrital de Ambiente de Bogotá)one of our subsidiaries in the Philippines, APO.
On November 19, 2018, CHP and APO were served summons concerning an environmental class action lawsuit filed by 40 individuals and one legal entity (on behalf of 8,000 individuals allegedly affected by the Landslide) at the Regional Trial Court of Talisay, Cebu (the “Environmental Secretary”“Talisay Court”) issued a temporary injunction suspending all mining activities at CEMEX Colombia’s El Tunjuelo quarry, located in Bogotá, Colombia. As partagainst CHP, ALQC, APO, the Mines and Geosciences Bureau of the temporary injunction, Holcim Colombia and Fundación San Antonio (local aggregates producers that also have mining activities located in the same area as the El Tunjuelo quarry) were ordered to suspend mining activities in that area. The Environmental Secretary alleged that during the past 60 years, CEMEX Colombia and the other companies illegally changed the course of the Tunjuelo River, used the percolating waters without permission and improperly used the edge of the river for mining activities. In connection with the temporary injunction, in June 2010, the Environmental Secretary initiated proceedings to impose fines against CEMEX Colombia. CEMEX Colombia has requested that the temporary injunction be revoked, arguing that its mining activities are supported by all authorizations required pursuant to the applicable environmental laws and that all the environmental impact statements submitted by CEMEX Colombia have been reviewed and authorized by the MinistryDepartment of Environment and Sustainable Development (Ministerio de Ambiente y Desarrollo Sostenible). On June 11, 2010,Natural Resources, the local authorities in Bogotá, in compliance withCity Government of Naga, and the Environmental Secretary’s decision, sealed off the mine to machinery and prohibited the extractionProvince of CEMEX Colombia’s aggregates inventory. Although there is not an official quantificationCebu, for “Restitution of Damage of the possible fine,Natural and Human Environment, Application for the Issuance of Environmental Secretary has publicly declaredProtection Order against Quarry Operations in Cebu Island with Prayer for Temporary Protection Order, Writ of Continuing Mandamus for Determination of the Carrying Capacity of Cebu Island and Rehabilitation and Restoration of the Damaged Ecosystems.”
In the complaint, among other allegations, plaintiffs claim that the fine could beLandslide occurred as much as 300a result of the defendants’ gross negligence; and seek, among other relief, (i) monetary damages in the amount of 4.3 billion ColombianPhilippine Pesos (approximately U.S.$100.54($84.92 million as of December 31, 2017,2019, based on an exchange rate of 2,984.00 Colombian50.635 Philippine Pesos to U.S.$1.00). The temporary injunction does not currently compromise$1.00), (ii) the production and supplyestablishment ofready-mix concrete to any of our clients in Colombia. At this stage, a 500 million Philippine Pesos ($9.87 million as of December 31, 2017,2019, based on an exchange rate of 50.635 Philippine Pesos to $1.00) rehabilitation fund, and (iii) the issuance of a Temporary Environment Protection Order against ALQC aiming to prevent ALQC from performing further quarrying activities while the case is still pending.
As of December 31, 2019, among other defenses and based on a report by the Mines and Geosciences Bureau of the Department of Environment and Natural Resources, CHP, APO and ALQC (individually, each a “Private Defendant” and collectively, the “Private Defendants”) deny liability and hold the position that the Landslide occurred due to natural causes.
In an Order dated August 16, 2019, the Talisay Court denied plaintiffs’ Application for Temporary Environment Protection Order. Plaintiffs moved for reconsideration, but the Talisay Court also denied plaintiffs’ Motion in an Order dated September 30, 2019. Plaintiffs may appeal this ruling to the Court of Appeal but only on ground of grave abuse of discretion.
Likewise, in a separate Order also dated September 30, 2019, the Talisay Court partially granted the affirmative defenses raised by the Private Defendants in their respective answers, and ruled, among others, that the subject case against CHP and APO is dismissed for failure to state a cause of action. The Talisay Court also ruled that: (i) the 22 plaintiffs who failed to sign the verification and certification against forum shopping are dropped as party-plaintiffs; (ii) the subject case is not a proper class suit, and that the remaining 17 plaintiffs can only sue for their respective claims, but not as representatives of the more than 8,000 alleged victims of the landslide incident; (iii) plaintiffs’ cause of action against ALQC for violation of Section 19(a) of Republic Act No. 10121 is dismissed; (iv) there is a misjoinder of causes of action between the environmental suit and the damage suit; and (v) the damage suit of the remaining plaintiffs will proceed separately upon payment of the required docket fees within 30 days from receipt of Order, otherwise, the case for damages will be dismissed. This Court Order is not yet final and may be still be appealed by the parties thereto. A motion for reconsideration was filed on November 26, 2019 by the plaintiffs, such motion is yet to be heard by the Talisay Court.
In the event that the latter Order is reconsidered and a final adverse resolution is issued in this matter, plaintiffs will have the option to proceed against any one of ALQC, APO or CHP for satisfaction of the entirety of the potential judgement award, without the need to proceed against any other Private Defendant beforehand. Thus, ALQC’s, APO’s or CHP’s assets alone could be exposed to execution proceedings. As of December 31, 2019, because of the status and preliminary stage of the lawsuit, considering all possible defenses available, we are not able tocannot assess with certainty the likelihood of an adverse result butin this lawsuit, and, in turn, we cannot assess if adversely resolved, it coulda final adverse resolution, if any, would have a material adverse impact on our results of operations, liquidity and financial condition.
Tariffs
The following is a discussion of tariffs on imported cement in some of the majority of our major markets.countries and regions in which we operate.
Mexico.
Mexican tariffs on imported goods vary by product and have historically been as high as 100%. Over the years, import tariffs have been substantially reduced and currently range from none at all for raw materials to over 20% for finished products. As a result of NAFTA, as ofthe North American Free Trade Agreement (“NAFTA”), starting January 1, 1998, the tariff on cement imported into Mexico from the United StatesU.S. or Canada was eliminated. As of December 31, 2019, Mexico, the U.S. and Canada had reached an agreement with respect to NAFTA’s renegotiation which would not have any impact on tariffs on cement imported from the U.S. or Canada into Mexico. The new agreement was signed on November 30, 2018, and is called the “USMCA” and is intended to supersede NAFTA, but has not yet been ratified by Canada and is therefore not in full force and effect. Meanwhile, NAFTA will remain in effect. The USMCA treaty was passed by the U.S. Congress on December 19, 2019 and by the U.S. Senate on January 16, 2020, and the U.S. President signed the USMCA into law on January 29, 2020. The USMCA will become effective 90 days after it is ratified by Canada.
While the lack of existence or reduction in tariffs could lead to increased competition from imports in our Mexicanthe markets in Mexico in which we operate, it is possible that other factors, such as that the cost of transportation incurred from most producers outside Mexico to central Mexico, traditionally the region of highest demand in Mexico, could be seen as a barrier to enter certain of the regions in Mexico in which we operate. As of December 31, 2017, we are not able to assess the outcome of negotiations between the governments of Mexico, the U.S. and Canada with respect to NAFTA or its impact, if any, on tariffs on cement imported from the United Stated or Canada into Mexico.
United States.
Cement imported into the United StatesU.S. from Cuba and North Korea is subject to custom duties depending on the specific type of cement. Imports into the United StatesU.S. from Cuba and North Korea are generally prohibited due to the U.S. import/export controls and economic sanctions. In order to import cement and other products into the United StatesU.S. from Cuba or North Korea, an importer would be required to obtain a license from the U.S. government or otherwise establish the existence of a license exception.
Cement
On September 18, 2018, the United States Trade Representative released a list of approximately $200 billion worth of Chinese imports that were to be subject to additional tariffs. This list included cement, clinker, slag cement and granulated slag from the manufacture of iron or steel. These additional tariffs were effective starting September 24, 2018 and initially were in the amount of 10%. The U.S. was expected to increase the additional tariffs to 25% starting January 1, 2019, but this increase was postponed for 90 days starting on December 1, 2018, to allow time for the U.S. and China to negotiate their trade disputes. Accordingly, absent a resolution of the trade disputes, the rate of additional duty for the products covered by the September 2018 tariff action increased to 25% on May 10, 2019. On August 23, 2019, the U.S. announced that the current 25% import tariff would be increased to 30% by October 1, 2019. On September 11, 2019, the U.S. announced that implementation of this increase would be delayed to October 15, 2019, however, the implementation of this increase has not yet occurred as of December 31, 2019, and the tariff remains at 25%.
As of December 31, 2019, cement imports from countries other than Cuba, China and North Korea into the United States are currentlyU.S. were duty free, however, certain individuals and entities on U.S. government lists of specially designated nationals and prohibited parties, may be subject to U.S. import/export controls and other sanctions that prohibit transactions (including import transactions) with such persons without a license.
Europe.
Member countries of the EU are subject to the uniform EU commercial policy. There is no tariff on cement imported into a country that is a member of the EU from another member country or on cement exported from an EU country to another member country. As of December 31, 2017,2019, for cement imported into a member country from anon-member country, the tariff was 1.7% of the customs value. Any country with preferential treatment with the EU is subject to the same tariffs as members of the EU. MostAs of December 31, 2019, most Eastern European producers exporting cement into EU countries currently paypaid no tariff.
Tax Matters
Mexico.
In November 2009, the Mexican Congress approved a general tax reform, effective as of January 1, 2010 (the “2010 Tax Reform”). Specifically, the 2010 Tax Reform included changes to the tax consolidation regime that required CEMEX, among others, to determine and retroactively pay taxes at a current rate on items in past years that were eliminated in consolidation or that reduced consolidated taxable income (“Additional Consolidated Taxes”). The 2010 Tax Reform required CEMEX to pay taxes on certain previously exempted intercompany dividends, certain other special tax items and operating losses generated by members of the consolidated tax group not recovered by the individual company generating such losses within the succeedingten-year period. The 2010 Tax Reform also increased the statutory income tax rate from 28% to 30% for the years 2010 to 2012, then lowered it to 29% for 2013 and 28% for 2014 and future years. However, in December of 2012, the Federal Revenue Law (Ley de Ingresos de la Federación), applicable in 2013, had established that the statutory income tax rate would remain at 30% in 2013, and thereafter lowered to 29% for 2014 and 28% for 2015 and future years. As per the tax reforms enacted for 2014, the statutory income tax will remain at 30%.
For the 2010 fiscal year, CEMEX was required to pay (at the new, 30% tax rate) 25% of the Additional Consolidated Taxes for the period between 1999 and 2004, with the remaining 75% payable as follows: 25% in 2011, 20% in 2012, 15% in 2013 and 15% in 2014.
Additional Consolidated Taxes arising after the 2004 tax year are taken into account in the sixth fiscal year after such year and are payable over the succeeding five years in the same proportions (25%, 25%, 20%, 15% and 15%). Applicable taxes payable as a result of this tax reform are increased by inflation adjustments as required by the Mexican Income Tax Law (Ley(Ley del Impuesto Sobre la Renta)Renta). In connection with these changes in the tax consolidation regime in Mexico, as of December 31, 2009, we recognized a liability of approximately Ps10.5 billion (approximately U.S.$534.35($554.96 million as of December 31, 2017,2019, based on an exchange rate of Ps19.65Ps18.92 to U.S.$1.00)$1.00), of which approximately Ps8.2 billion (approximately U.S.$417.30($433.40 million as of December 31, 2017,2019, based on an exchange rate of Ps19.65Ps18.92 to U.S.$1.00)$1.00) was recognized under “Othernon-current assets” in connection with the net liability recognized under the new tax law and that we expect to realize in connection with the payment of this tax liability, and approximately Ps2.2 billion (approximately U.S.$111.96($116.27 million as of December 31, 2017,2019, based on an exchange rate of Ps19.65Ps18.92 to U.S.$1.00)$1.00) was recognized against “Retained earnings” upon adoption of IFRS according to the new law, related to: (a)(i) the difference between the sum of the equity of the controlled entities for tax purposes and the equity for tax purposes of the consolidated entity, (b)(ii) dividends from the controlled entities for tax purposes to CEMEX, S.A.B. de C.V., and (c)(iii) other transactions among the companies included in the tax consolidation group that represented the transfer of resources within such group.
On June 30, 2010, CEMEX paid approximately Ps325 million (approximately U.S.$16.54 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00) of Additional Consolidated Taxes. This first payment represented 25% of the Additional Consolidated Taxes for the period that includes from 1999 to 2004. On March 31, 2011, CEMEX made a second payment of approximately Ps506 million (approximately U.S.$25.75 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00). This second payment, together with the prior payment, represented 50% of the Additional Consolidated Taxes for the period that includes from 1999 to 2004, and also included the first payment of 25% of the Additional Consolidated Taxes for the period that corresponds to 2005. On March 30, 2012, CEMEX paid Ps698 million (approximately U.S.$35.52 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00). This third payment, together with the two prior payments, represented 70% of the Additional Consolidated Taxes for the period that includes from 1999 to 2004, 50% of the Additional Consolidated Taxes for the period that
corresponds to 2005 and it also included the first payment of 25% of the Additional Consolidated Taxes for the period that corresponds to 2006. On March 27, 2013, CEMEX paid Ps2 billion (approximately U.S.$101.78 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00). This fourth payment, together with the three prior payments, represented 85% of the Additional Consolidated Taxes for the period that includes from 1999 to 2004, 70% of the Additional Consolidated Taxes for the period that corresponds to 2005, 50% of the Additional Consolidated Taxes for the period that corresponds to 2006 and 25% of the Additional Consolidated Taxes for the period that corresponds to 2007. On March 31, 2014, CEMEX paid Ps2 billion (approximately U.S.$101.78 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00). This fifth payment, together with the four prior payments, represented 100% of the Additional Consolidated Taxes for the period that includes from 1999 to 2004, 85% of the Additional Consolidated Taxes for the period that corresponds to 2005, 70% of the Additional Consolidated Taxes for the period that corresponds to 2006 and 50% of the Additional Consolidated Taxes for the period that corresponds to 2007. On March 31, 2015, CEMEX paid Ps1.5 billion (approximately U.S.$76.34 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00). This sixth payment, together with the five prior payments, represented 100% of the Additional Consolidated Taxes for the period that includes from 1999 to 2004, 100% of the Additional Consolidated Taxes for the period that corresponds to 2005, 85% of the Additional Consolidated Taxes for the period that corresponds to 2006 and 70% of the Additional Consolidated Taxes for the period that corresponds to 2007. On March 31, 2016, CEMEX paid Ps119 million (approximately U.S.$6.06 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00). This seventh payment, together with the six prior payments, represented 100% of the Additional Consolidated Taxes for the period that includes from 1999 to 2004, 100% of the Additional Consolidated Taxes for the period that corresponds to 2005, 100% of the Additional Consolidated Taxes for the period that corresponds to 2006 and 85% of the Additional Consolidated Taxes for the period that corresponds to 2007. On March 31, 2017, CEMEX paid Ps38 million (approximately U.S.$1.93 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00). This eighth payment, together with the seven prior payments, represented 100% of the Additional Consolidated Taxes for the period from 1999 to 2004, 100% of the Additional Consolidates Taxes for the period that corresponds to 2005, 100% of the Additional Consolidated Taxes for the period that corresponds to 2006 and 100% of the Additional Consolidated Taxes for the period that corresponds to 2007. As of December 31, 2017,2019, we have paid an aggregate amount of approximately Ps7.3 billion (approximately U.S.$371.5($385.83 million as of December 31, 2017,2019, based on an exchange rate of Ps19.65Ps18.92 to U.S.$1.00)$1.00) of Additional Consolidated Taxes.
In December 2010, pursuant to certain additional rules, the tax authorities granted the option to defer the calculation and payment of certain items included in the law in connection with the taxable amount for the difference between the sum of the equity of controlled entities for tax purposes and the equity of the consolidated entity for tax purposes. As a result, CEMEX reduced its estimated tax payable by approximately Ps2.9 billion (approximately U.S.$147.58($153.27 million as of December 31, 2017,2019, based on an exchange rate of Ps19.65Ps18.92 to U.S.$1.00)$1.00) against a credit to the income statement when the new tax enactment took place. In addition,As of December 31, 2019, after accounting for the following that took place in 2010: (a)(i) cash payments, (b)(ii) income tax from subsidiaries paid to the parent company, (iii) effects of tax deconsolidation, and (c)(iv) other adjustments the estimated tax payable for tax consolidation in Mexico amountedthat took place from 2010 to approximately Ps10.1 billion (approximately U.S.$513.99 million2019, as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00) as of December 31, 2010. Furthermore, after accounting for the following that took place in 2011: (a) cash payments, (b) income tax from subsidiaries paid to the parent company, and (c) other adjustments, the estimated tax payable for tax consolidation in Mexico increased to approximately Ps12.4 billion (approximately U.S.$631.04 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00) as of December 31, 2011. Additionally, after accounting for the following that took place in 2012: (a) cash payments, (b) income tax from the subsidiaries paid to the parent company, and (c) other adjustments, as of December 31, 2012, the estimated tax payable for tax consolidation in Mexico increased to approximately Ps14.5 billion (approximately U.S.$737.91 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00). Furthermore, after accounting for the following that took place in 2013: (a) cash payments, (b) income tax from subsidiaries paid to the parent company, (c) other adjustments, and (d) effects of tax deconsolidation, as of December 31, 2013, the estimated tax payable for tax consolidation in Mexico increased to approximately Ps24.8 billion (approximately U.S.$1.26 billion as of December 31, 2017,
based on an exchange rate of Ps19.65 to U.S.$1.00). Additionally, after accounting for the following that took place in 2014: (a) payments, the majority of which were in cash, and (b) other adjustments, as of December 31, 2014,2019, the estimated tax payable for tax consolidation in Mexico decreased to approximately Ps21.4Ps1 billion (approximately U.S.$1.09 billion($52.85 million as of December 31, 2017,2019, based on an exchange rate of Ps19.65Ps18.92 to U.S.$1.00). Additionally, after accounting for the following that took place in 2015 and after giving effect to the 2016 Tax Reform (as defined below), as a result of: (a) payments made during the period, the tax payable for tax consolidation in Mexico was decreased to approximately Ps16.2 billion (approximately U.S.$824.43 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00), which after the application of (b) different tax credits, and (c) assets for tax loss carryforwards worth, before discount, approximately Ps11.9 billion (approximately U.S.$605.60 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00), as of December 31, 2015, the estimated tax payable for tax consolidation in Mexico further decreased to approximately Ps3.9 billion (approximately U.S.$198.47 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00). Additionally, after accounting for the following that took place in 2016: (a) cash payments, and (b) other adjustments, as of December 31, 2016, the estimated tax payable for tax consolidation in Mexico decreased to approximately Ps3.2 billion (approximately U.S.$162.85 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00). Additionally, after accounting for the following that took place in 2017: (a) cash payments and (b) other adjustments, as of December 31, 2017, the estimated tax payable for tax consolidation in Mexico decreased to approximately Ps2.5 billion (approximately U.S.$127.23 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00)$1.00).
In addition, as a result of the enactment of the new Income Tax Law (Ley(Ley del Impuesto Sobre la Renta)Renta) in Mexico approved in December 2013 and effective beginningas of January 1, 2014 (the “2014 Tax Reform”), the statutory income tax rate for 2014 and beyond will remain at 30%, and the tax consolidation regime that was in effect up until December 31, 2013, was replaced prospectively by a new integration regime, to which CEMEX will not apply. In consequence,apply to CEMEX. Consequently, as of 2014, each company in Mexico will determine its income taxes based solely on its individual results, and a period of up to ten years has been established for the settlement of the liability for income taxes related to the tax consolidation regime accrued until December 31, 2013 (“Deconsolidation Taxes”).
On April 30, 2014, CEMEX paid Ps2.3 billion (approximately U.S.$117.05($121.56 million as of December 31, 2017,2019, based on an exchange rate of Ps19.65Ps18.92 to U.S.$1.00)$1.00). From this amount, Ps987 million (approximately U.S.$50.23On April 30, 2015, CEMEX paid Ps3.7 billion ($195.56 million as of December 31, 2017,2019, based on an exchange rate of Ps19.65Ps18.92 to U.S.$1.00) were$1.00). On April 29, 2016, CEMEX paid in cash and Ps1.3 billion (approximately U.S.$66.16Ps728 million ($38.47 million as of December 31, 2017,2019, based on an exchange rate of Ps19.65Ps18.92 to U.S.$1.00) were$1.00). On April 28, 2017, CEMEX paid throughPs924 million ($48.83 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00). On April 30, 2018, CEMEX paid Ps970 million ($51.26 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00). On April 30, 2019, CEMEX paid Ps592 million ($31.28 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00). This sixth payment, together with the application of a tax credit, whichfive prior payments represented approximately 25%100% of the Deconsolidation Taxes for the period that correspondedcorresponds to the 2008 tax year. On April 30, 2015, CEMEX paid Ps3.7 billion (approximately U.S.$188.30 million asyear, 100% of December 31, 2017, based on an exchange ratethe Deconsolidation Taxes for the period that corresponds to the 2009 tax year, 85% of Ps19.65the Deconsolidation Taxes for the period that corresponds to U.S.$1.00). From this amount, Ps2.3 billion (approximately U.S.$117.05 million asthe 2010 tax year, 70% of December 31, 2017, based on an exchange rate of Ps19.65the Deconsolidation Taxes for the period that corresponds to U.S.$1.00) were paid in cash and Ps1.4 billion (approximately U.S.$71.25 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00) were paid through the application of a2011 tax credit. This second payment, together with the first payment, representedyear, 50% of the Deconsolidation Taxes for the period that corresponds to the 20082012 tax year and 25% of the Deconsolidation Taxes for the period that corresponds to the 20092013 tax year. On April 29, 2016, CEMEX paid Ps728 million (approximately U.S.$37.05 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00). This third payment, together with the two prior payments, represented 70% of the Deconsolidation Taxes for the period that corresponds to the 2008 tax year, 50% of the Deconsolidation Taxes for the period that corresponds to the 2009 tax year and 25% of the Deconsolidation Taxes for the period that corresponds to the 2010 tax year. On April 28, 2017, CEMEX paid Ps924 million (approximately U.S.$47.02 million as of December 31, 2017, based on an exchange rate of Ps19.65 to U.S.$1.00). This fourth payment, together with the three prior payments, represented 85% of the Deconsolidation Taxes for the period that corresponds to the 2008 tax year, 70% of the Deconsolidation Taxes for the period that corresponds to the 2009 tax year, 50% of the Deconsolidation Taxes for the period that corresponds to the 2010 tax year and 25% of the Deconsolidation Taxes for the period that corresponds to the 2011 tax year.
In October 2015, the Mexican Congress approved a tax reform, effective as of January 1, 2016 (the “2016 Tax Reform”). Specifically, the 2016 Tax Reform granted Mexican companies two tax credits to offset part of the Deconsolidation Taxes payable as a result of the elimination of the group taxation regime: (a)(i) 50% of the taxes due as a result of unamortized losses used to compute the consolidated tax could be settled with individual accumulated losses adjusted for inflation using a factor of .150.15 multiplied by such
losses, and (b)(ii) tax credit against Deconsolidation Taxes related to intercompany dividends that were paid without having sufficient tax profits.
CEMEX applied both tax credits against its remaining Deconsolidation Taxes through the filing of amended tax returns regarding the year ending on December 31, 2015 and upon the withdrawal of the constitutional challenge (juicio(juicio de amparo)amparo) against the 2014 Tax Reform filed by us on February 12, 2015. Additionally, the 2016 Tax Reform granted Mexican companies the option not to pay the remaining asset tax payments included in the Deconsolidation Tax liability. CEMEX also applied this option.
As of December 31, 2017,2019, taking into account the effects of the 2016 Tax Reform, our estimated payment schedule of Deconsolidation Taxes (which includes the Additional Consolidated Taxes) is as follows: approximately Ps958Ps417 million (approximately U.S.$48.75($22.04 million as of December 31, 2017,2019, based on an exchange rate of Ps19.65Ps18.92 to U.S.$1.00)$1.00) in 2018; approximately Ps5622020; Ps368 million (approximately U.S.$28.60($19.45 million as of December 31, 2017,2019, based on an exchange rate of Ps19.65Ps18.92 to U.S.$1.00)$1.00) in 2019; and approximately Ps9362021; Ps120 million (approximately U.S.$47.63($6.34 million as of December 31, 2017,2019, based on an exchange rate of Ps19.65Ps18.92 to U.S.$1.00)$1.00) in 20202022 and thereafter.Ps104 million ($5.49 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00) in 2023.
Property Tax Matter in the State of Hidalgo, Mexico
During the last quarter of 2017, the municipality of Atotonilco de Tula, Hidalgo, Mexico issued new valuations regarding our operating facility in that municipality to assess the corresponding property tax payable by CEMEX México starting in 2017. CEMEX México contended that the valuation by the municipality is contrary to the Cadastral Law of the State of Hidalgo (United StatesLey de Catastro del Estado de Hidalgo.) and had twice tried to effect payment of the property tax corresponding to the years 2017 and 2018 in accordance with its calculations made pursuant to the Revenue Law of the Municipality of Atotonilco de Tula, Hidalgo (Ley de Ingresos del Municipio de Atotonilco de Tula, Hidalgo) and the Cadastral Law of the State of Hidalgo (Ley de Catastro del Estado de Hidalgo) in effect as of September 30, 2019. The municipality refused to accept such payment based on an alleged difference in the property tax to be paid, which had not been formally determined by the municipality. The municipality’s refusal to accept payment could have resulted in CEMEX México failing to obtain a municipal license required for the operation of CEMEX México’s Atotonilco operating facility pursuant to municipal regulations published in the Official Gazette of the State of Hidalgo (Periódico Oficial del Estado de Hidalgo) on February 12, 2018, since payment of the corresponding property tax is a requirement for obtaining the municipal license.
On November 14, 2019, the municipality of Atotonilco de Tula, Hidalgo received from CEMEX México the payment of the property tax for the years 2017, 2018 and 2019. On November 21, 2019, the 2018 and 2019 municipal licenses required for the operation of the Atotonilco facility were issued by the municipality and we withdrew the actions we had initiated. As of December 31, 2017,2019, this matter has been closed.
United States
As of December 31, 2019, the United States Internal Revenue Service (“IRS”) concluded its audits for the years 2014, 2015, 2016 and 2015.2017. The final findings did not alter the originally filed CEMEX returns in the U.S., which had no reserves set aside for any potential tax issues. On May 18, 2016 and August 9, 2017,March 29, 2018, the IRS commenced its audits of the 2016 and 20172018 tax years, respectively,year under the Compliance Assurance Process. Wecompliance assurance process. As of December 31, 2019, we have not identified any material audit issues and, as such, no reserves are recorded for either the 2016 or the 2017 audits2018 tax year audit in our financial statements.
Colombia.
On April 1, 2011, the Colombian Tax Authority notified CEMEX Colombia of a proceeding notice in which the Colombian Tax Authority rejected certain deductions taken by CEMEX Colombia in its 2009year-end tax return. The Colombian Tax Authority assessed an increase in taxes to be paid by CEMEX Colombia in the amount of approximately 90 billion Colombian Pesos (approximately U.S.$30.16($27.46 million as of December 31, 2017,2019, based on an exchange rate of 2,984.003,277.14 Colombian Pesos to U.S.$1.00)$1.00) and imposed a penalty in the amount of approximately 144 billion Colombian Pesos (approximately U.S.$48.26($43.94 million as of December 31, 2017,2019, based on an exchange rate of 2,984.003,277.14 Colombian Pesos to U.S.$1.00)$1.00). The aforementioned penalty was equivalent to 160% of the additional amount paid by CEMEX Colombia. However, in 2017, Law 1819 of 2016 became effective. The inaccuracy penalty under such law is 100%. Therefore, CEMEX Colombia requested of the State Council in April 2017 that the arguments of the Colombian Tax Authority be sustained, and that a penalty of 100%, be applied pursuant to the principle of favorability. This would translate to an amount of $89 billion Colombian Pesos ($27.15 million as of December 31, 2019, based on an exchange rate of $3,277.14 Colombian Pesos to $1.00). The Colombian Tax Authority argues that certain expenses are not deductible for fiscal purposes because they are not linked to direct revenues recorded in the same fiscal year, without taking into consideration that future revenue will be taxed with income tax in Colombia. CEMEX Colombia responded to the proceeding notice on June 25, 2011. On December 15, 2011, the Colombian Tax Authority issued its final determination, which confirmed the information in the special proceeding. CEMEX Colombia appealed the final determination on February 15, 2012. On January 17, 2013, the Colombian Tax Authority notified CEMEX Colombia of the resolution confirming the official liquidation.initial payment notice. CEMEX Colombia appealed the final determination on May 10, 2013 which was admitted on June 21, 2013. On July 3, 2013, the appeal was notified to the Colombian Tax Authority, and hearings took place on February 18, 2014 and March 11, 2014. An adverse
resolution to the appeal was notified to CEMEX Colombia on July 14, 2014 and on July 22, 2014, CEMEX Colombia filed an appeal before the ColombianConsejo de Estadoagainst such adverse resolution. IfAs of December 31, 2019, if the appeal before the ColombianConsejo de Estadois adversely resolved against CEMEX Colombia, in addition to any amounts to be paid in confirmation of the official liquidation,initial payment notice, CEMEX Colombia would, as of the payment date, be required to pay interest on the amounts that would be declared due as of the dates they would have had to be paid. AtAs of December 31, 2019, at this stage of the proceeding as of December 31, 2017,and considering all possible defenses available, while we are not able tocannot assess with certainty the likelihood of an adverse result in this special proceeding, butwe believe a final adverse resolution to this special proceeding is not probable. However, if adversely resolved, we do not expect it wouldbelieve such adverse resolution could have a material adverse impact on our results of operations, liquidity and financial condition.
SpainOn April 6, 2018, the Colombian Tax Authority notified CEMEX Colombia of a proceeding notice in which the Colombian Tax Authority rejected certain deductions taken by CEMEX Colombia in its 2012 year-end income tax return. The Colombian Tax Authority assessed an increase in taxes to be paid by CEMEX Colombia in the amount of 124.79 billion Colombian Pesos ($38.07 million as of December 31, 2019, based on an exchange rate of 3,277.14 Colombian Pesos to $1.00) and imposed a penalty in the amount of 124.79 billion Colombian Pesos ($38.07 million as of December 31, 2019, based on an exchange rate of 3,277.14 Colombian Pesos to $1.00). On June 22, 2018, CEMEX Colombia responded to the proceeding notice, and, on December 28, 2018, CEMEX Colombia was notified of the issuance of the official notice which confirmed the information in the proceeding notice. CEMEX Colombia filed an appeal for reconsideration on February 21, 2019 within the legal term. The Colombian Tax Administration has one year as of the filing date to resolve this matter. As of December 31, 2019, if a final resolution adverse to CEMEX Colombia is reached in this matter, in addition to any amounts to be paid in confirmation of the official payment notice, CEMEX Colombia would, as of the payment date, be required to pay interest on the amounts that would be declared due as of the dates they would have had to be paid. As of December 31, 2019, at this stage of the proceeding and considering all possible defenses available, while we cannot assess with certainty the likelihood of an adverse result in this special proceeding, we believe a final adverse resolution to this special proceeding is not probable. However, if adversely resolved, we believe such adverse resolution could have a material adverse impact on our results of operations, liquidity and financial condition. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Regulatory Matters and Legal Proceedings” for more information regarding this matter.
On September 5, 2018, the Colombian Tax Authority notified CEMEX Colombia of a proceeding notice in which the Colombian Tax Authority rejected certain deductions taken by CEMEX Colombia in its 2011 year-end income tax return. The Colombian Tax Authority assessed an increase in taxes to be paid by CEMEX Colombia in the amount of 85.17 billion Colombian Pesos ($25.98 million as of December 31, 2019, based on an exchange rate of 3,277.14 Colombian Pesos to $1.00) and imposed a penalty in the amount of 85.17 billion Colombian Pesos ($25.98 million as of December 31, 2019, based on an exchange rate of 3,277.14 Colombian Pesos to $1.00). On November 30, 2018, CEMEX Colombia responded to the proceeding notice. On May 15, 2019, CEMEX Colombia was notified of the issuance of a tax assessment maintaining the initial rejection of the deductions taken by CEMEX Colombia in its 2011 year-end income tax return. CEMEX Colombia filed an appeal on July 11, 2019. If a final resolution adverse to CEMEX Colombia is reached in this matter, in addition to any amounts to be paid in confirmation of the initial payment notice, CEMEX Colombia would, as of the payment date, be required to pay interest on the amounts that would be declared due as of the dates they would have had to be paid. As of December 31, 2019, at this stage of the proceeding and considering all possible defenses available, while we cannot assess with certainty the likelihood of an adverse result in this special proceeding, we believe a final adverse resolution to this special proceeding is not probable. However, if adversely resolved, we believe such adverse resolution could have a material adverse impact on our results of operations, liquidity and financial condition.
Spain
On July 7, 2011, the tax authorities in Spain notified CEMEX España of a tax audit process in Spain covering the tax years from and including 2006 to 2009. The tax authorities in Spain have challenged part of the tax losses reported by CEMEX España for such years. CEMEX España has been formally notified of fines in the aggregate amount of approximately €456 million (approximately U.S.$547.34($511.38 million as of December 31, 2017,2019, based on an exchange rate of €0.8331€0.8917 to U.S.$1.00)$1.00) resulting from the July 7, 2011 tax audit process in Spain.
The laws of Spain provide a number of appeals that can be filed against such fines without CEMEX España having to make any payment until such appeals are finally resolved. On April 22, 2014, CEMEX España filed appeals against such fines before the Tribunal Economico Administrativo Central (“TEAC”) of the Spanish Tax Authorities. On September 20, 2017, CEMEX España was notified by the TEAC about an adverse resolution to such appeals. CEMEX España filed a recourse against such resolution on November 6, 2017 before the National Court (Audiencia Nacional) and applied for the suspension of the payment of the fines. The National Court (Audiencia Nacional) admitted the recourse; and, on January 31, 2018, it notified CEMEX España of the granting of the suspension of the payment, subject to the provision of guarantees on or before April 2, 2018. In this regard, CEMEX España provided the respective guarantees in the form of a combination of a liability insurance policy and a mortgage of several assets in Spain owned by its Spanish subsidiary CEMEX España Operaciones, S.L.U. On November 29, 2017,6, 2018, the National Court (Audiencia Nacional) notified Cemex Españaconfirmed the acceptance of the admissionguarantees by the Spanish Tax Office, which ensures the suspension of the recourse filed on November 6, 2017 and requestedpayment until the TEAC to send the full administrative file to Cemex España. At this stage, asrecourses are definitively resolved. As of December 31, 2017,2019, at this stage of the matter and considering all possible defenses available, while we are not able tocannot assess with certainty the likelihood of an adverse result in general nor as it relates to the request to suspend payment while recourses are being processed. However,this matter, we believe a final adverse resolution ofto this matter is not probable. However, if adversely resolved, we believe such adverse resolution could have a material adverse impact on our results of operations, liquidity and financial condition.
Egypt.
On February 9, 2014, ACC was notified of the decision of the Egyptian Ministry of Finance’s Appeals Committee (the “Appeals Committee”) pursuant to which ACC has been required to pay a development levy on clay (the “Levy on Clay”) applied to the Egyptian cement industry in the amount of: (i) approximately 322 million Egyptian Pounds (approximately U.S.$18.16($20.07 million as of December 31, 2017,2019, based on an exchange rate of Egyptian Pounds 17.730816.0431 to U.S.$1.00)$1.00) for the period from May 5, 2008 to August 31, 2011; and (ii) approximately 50,235 Egyptian Pounds (approximately U.S.$2,833.21($3,131 as of December 31, 2017,2019, based on an exchange rate of Egyptian Pounds 17.730816.0431 to U.S.$1.00)$1.00) for the period from September 1, 2011 to November 30, 2011. On March 10, 2014, ACC filed a claim before the North Cairo Court requesting the nullification of the Appeals Committee’s decision and requesting that the North Cairo Court rule that the Egyptian tax authority is not entitled to require payment of the aforementioned amounts. In parallel, ACC has filed a request before the Ministerial Committee for Resolution of Investment Disputes (the “Ministerial Committee”) claimingnon-entitlement of the Egyptian tax authority to the Levy on Clay used in the production of cement from the date of enforceability of Law No. 114/2008 up until issuance of Law No. 73/2010, and from cement produced using imported clinker. On September 28, 2015, ACC was notified by the Egyptian Cabinet that on September 2, 2015, it ratified an August 10, 2015 decision by the Ministerial Committee (the “Ministerial Committee’s Decision”) pursuant to which the Egyptian tax authority is instructed to cease claiming payment of the Levy on Clay from ACC. The Ministerial Committee’s Decision applies to the years from 2008 up to the issuance date of Law No. 73/2010. It was further decided that the Levy on Clay should not be imposed on imported clinker. At this stage, as of December 31, 2017,2019, the Ministerial Committee’s Decision strongly supports ACC’s position in this dispute, given the fact that the Ministerial Committee’s Decision is legally binding on the Egyptian tax authority. The Ministerial Committee’s Decision was submitted to the Egyptian tax authority and, accordingly, the Egyptian tax authority issued a settlement memorandum (the “Settlement Memorandum”), whereby it confirmed and recognized the Ministerial Committee’s Decision. Furthermore, in application of the Settlement Memorandum and the Ministerial Committee’s Decision, the Egyptian tax authority issued a new claim to ACC for an adjusted amount of 55,586 Egyptian Pounds (approximately U.S.$3,135.00($3,465 as of December 31, 2017,2019, based on an exchange rate of Egyptian Pounds 17.730816.0431 to U.S.$1.00)$1.00). On a March 7, 2016 session of the North Cairo Court, ACC submitted the Settlement Memorandum and the Ministerial Committee’s Decision. At a May 28, 2016 session before the North Cairo Court, the expert’s office appointed to review the case file submitted its report that confirmed and recognized the Ministerial Committee’s Decision and at this session this case was reviewed jointly with the Egyptian tax authority case which was filed to challenge ACC’s right to cancel the Levy on Clay. The North Cairo Court adjourned the jointly reviewed cases to June 25, 2016. These cases were thereafterre-adjourned to July 30, 2016 for submission of documents by the attorney for the State pertaining to the settlement of the dispute with ACC. At the session of July 30, 2016, the two cases were adjourned first to September 19, 2016, and afterwards to October 10, 2016 and December 27, 2016 for the
foregoing reason. On December 27, 2016, the North Cairo Court ruled for referring the two jointly reviewed cases to the Cairo Administrative Judiciary Court for the former’s lack of jurisdiction to review the same. A session has been scheduled to be held before the Cairo Administrative Judiciary Court on February 5, 2018 in order to review the two referred cases. We do not expect that such referral will prejudice what we believe is ACC’s favorable legal position in this dispute. In parallel and in order to expedite the proceedings, ACC submitted, on December 27, 2018, a request to the Committee for Resolution of Tax Disputes to ratify the settlement. The two joint cases have been adjourned by the Commissioners of the Cairo Administrative Judiciary Court to April 13, 2020, until the request submitted to the Committee for Resolution of Tax Disputes is resolved. As of December 31, 2017,2019, we do not expect our operations, liquidity and financial condition to suffer a material adverse impact because of this matter.
Other Legal Proceedings
Colombian Construction Claims.
On August 5, 2005, the Urban Development Institute (Instituto de Desarrollo Urbano) (“UDI”), and an individual filed a lawsuit in the Fourth Anti-Corruption Court of Bogotá (Fiscalía Cuarta Anticorrupción de Bogotá) against a subsidiary of CEMEX Colombia claiming that it was liable, along with the other members of theAsociación Colombiana de Productores de Concreto(“ASOCRETO”), an association formed by theready-mix concrete producers in Colombia, for the premature distress of the concrete slabs of theAutopista Nortetrunk line of the TransMilenio bus rapid transit system of Bogotá in whichready-mix concrete and flowable fill supplied by CEMEX Colombia and other ASOCRETO members was used. The plaintiffs alleged that the base material supplied for the road construction failed to meet the quality standards offered by CEMEX Colombia and the other ASOCRETO members and/or that they provided insufficient or inaccurate information in connection with the product. The plaintiffs were seeking the repair of the concrete slabs in a manner which guarantees their service during the20-year period for which they were originally designed, and estimate that the cost of such repair could have been approximately 100 billion Colombian Pesos (approximately U.S.$33.51($30.51 million as of December 31, 2017,2019, based on an exchange rate of 2,984.003,277.14 Colombian Pesos to U.S.$1.00)$1.00). The lawsuit was filed within the context of a criminal investigation against a former director and two officers of the UDI, the contractor, the inspector and two ASOCRETO officers. On January 21, 2008, a court issued an order, sequestering the El Tunjuelo quarry, as security for payment of a possible future money judgment against CEMEX Colombia. The court determined that in order to lift this attachment and prevent further attachments, CEMEX Colombia was required to deposit 337.8 billion Colombian Pesos (approximately U.S.$113.20($103.07 million as of December 31, 2017,2019, based on an exchange rate of 2,984.003,277.14 Colombian Pesos to U.S.$1.00)$1.00) in cash instead of posting an insurance policy to secure such recovery. CEMEX Colombia appealed this decision and the Superior Court of Bogotá (Tribunal Superior de Bogotá) allowed CEMEX to present an insurance policy in the amount of 20 billion Colombian Pesos (approximately U.S.$6.70($6.1 million as of December 31, 2017,2019, based on an exchange rate of 2,984.003,277.14 Colombian Pesos to U.S.$1.00)$1.00). CEMEX gave the aforementioned security, and, on July 27, 2009, the court lifted the attachment on the quarry.
On October 10, 2012 the court issued a first instance judgment pursuant to which the accusation made against the ASOCRETO officers was nullified. The judgment also convicted a former UDI director, the contractor’s legal representatives and the inspector to a prison term of 85 months and a fine of 32 million Colombian Pesos (approximately U.S.$10,723.86($9,765 as of December 31, 2017,2019, based on an exchange rate of 2,984.003,277.14 Colombian Pesos to U.S.$1.00)$1.00). As a consequence, of the nullification, the judge ordered a restart of the proceeding against the ASOCRETO officers. The UDI and other parties to the legal proceeding appealed the first instance judgment and on August 30, 2013 the Superior Court of Bogotá resolved to reduce the prison term imposed to the former UDI director and the UDI officers to 60 months and imposed a fine equivalent to 8.8 million Colombian Pesos (approximately U.S.$2,949.06($2,685 as of December 31, 2017,2019, based on an exchange rate of 2,984.003,277.14 Colombian Pesos to U.S.$1.00)$1.00). Additionally, the UDI officers were sentenced to severally pay the amount of 108,000 million108 billion Colombian Pesos (approximately U.S.$36.19($32.95 million as of December 31, 2017,2019, based on an exchange rate of 2,984.003,277.14 Colombian Pesos to U.S.$1.00)$1.00) for the purported damages in the concrete slabs of the TransMilenio bus rapid transit system. Additionally, the Superior Court of Bogotá overturned the penalty imposed to the contractor’s legal representatives and inspector because the criminal action against them was time barred.barred due to the passage of time. Furthermore, the Superior Court of Bogotá revoked the annulment in favor of the ASOCRETO officers and ordered the first instance judge to render a judgment regarding the ASOCRETO officers’ liability or lack thereof. On June 25, 2014, the Supreme Court of Colombia’s Penal Cassation Chamber (Sala de Casación Penal
de la Corte Suprema de Justicia de Colombia) dismissed the cassation claim filed by the former UDI director and the UDI officers against the Superior Court of Bogotá’s judgment. Dismissal of the cassation claim has no effect on CEMEX Colombia’s or the ASOCRETO officers’ interests in these proceedings. On January 21, 2015, the Penal Circuit Court of Bogotá issued a resolution agreeing with the arguments presented by CEMEX Colombia regarding the application of the statute of limitations to the criminal investigation against the ASOCRETO officers and acknowledging that the ASOCRETO officers were not public officers, and as a consequence, finalizing the process against the ASOCRETO officers and the civil responsibility claim against CEMEX Colombia. On July 28, 2015, the Superior Court of Bogotá (Tribunal Superior de Bogotá) upheld this resolution and as such the action brought against CEMEX Colombia for the premature distress of the concrete slabs of theAutopista Nortetrunk line has ended. In addition, six legal actions related to the premature distress of the concrete slabs of theAutopista Nortetrunk line of the TransMilenio bus rapid transit system were brought against CEMEX Colombia. The Cundinamarca Administrative Court (Tribunal Administrativo de Cundinamarca) nullified five of these actions and, as of December 31, 2017,2019, only one remains outstanding. In addition, the UDI filed another action alleging that CEMEX Colombia made misleading advertisements on the characteristics of the flowable fill used in the construction of the concrete slabs. CEMEX Colombia participated in this project solely and exclusively as supplier of theready-mix concrete and flowable fill, which were delivered and received to the satisfaction of the contractor, complying with all the required technical specifications. CEMEX Colombia neither participated in nor had any responsibility onfor the design, sourcing of materials or their corresponding technical specifications or construction. On May 24, 2016, the Civil Court of Bogota settled the action filed by the UDI against CEMEX Colombia. The court acceptsaccepted the arguments in defense of CEMEX Colombia, ruling that the flowable fill is not what caused the damage to the slabs and that the damages were caused by design changes when executing the road without consulting the original designer and the lack of drains. The UDI filed an appeal against the court’s ruling. On December 7, 2016, the Superior Court of Bogota (Tribunal Superior de Bogotá) upheld the Civil Court of Bogota’s decision. On June 17, 2019, an administrative court, in the first instance, ruled against CEMEX Colombia and other concrete producers because the judge found that there was a violation of consumer rights for alleged faults in the roads. Consequently, the judge ordered CEMEX Colombia to issue a public statement acknowledging the alleged violation and commit to not incur such violation in the future. This first decision did not contemplate any economic consequence for CEMEX Colombia. CEMEX Colombia filed an appeal against this decision within the legal term. At this stage of the proceedings, as of December 31, 2017, we are not able to assess the likelihood of an adverse result2019, regarding the remaining pending action filed before the Cundinamarca Administrative Court, but if adversely resolved, we do not expect that it willsuch adverse resolution should have a material adverse impact on our results of operations, liquidity and financial condition.
Croatian Concession Litigation.
After an extended consultation period, in April 2006, the cities of KaštelaKastela and Solin in Croatia published their respective Master (physical) Plans defining the development zones within their respective municipalities, adversely impacting the mining concession granted to CEMEX Croatia by the Government of Croatia in September 2005. During the consultation period, CEMEX Croatia submitted comments and suggestions to the Master Plans intended to protect and preserve the rights of CEMEX Croatia’s mining concession, but these were not taken into account or incorporated into the Master Plans by KaštelaKastela and Solin. Immediately after publication of the Master Plans, CEMEX Croatia filed a series of lawsuits and legal actions before the local and federal courts to protect its acquired rights under the mining concessions, including: (i) on May 17, 2006, a constitutional appeal before the constitutional court in Zagreb, seeking a declaration by the court concerning CEMEX Croatia’s constitutional claim for decrease and obstruction of rights earned by investment and seeking prohibition of implementation of the Master Plans; and (ii) on May 17, 2006, an administrative proceeding before an administrative court seeking a declaration from the Government of Croatia confirming that CEMEX Croatia acquired rights under the mining concessions. The administrative court subsequently ruled in favor of CEMEX Croatia, validating the legality of the mining concession granted to CEMEX Croatia by the Government of Croatia, in September
2005. On June 15, 2012, we were notified that the case had been transferred from the constitutional court to the administrative court as a result of a new law that places the administrative courts in charge of disputes relating to environmental planning. In February 2014, the administrative court requested CEMEX Croatia to declare if it was still interested in proceeding with the concession litigation and if so, to provide additional clarification and documentation to support such claims. On March 3, 2014, CEMEX Croatia submitted the clarification and required documentation and on April 4, 2014, CEMEX Croatia was notified that the administrative court rejected its claims and found that its acquired rights or interests under the mining concessions had not been violated as a result of any act or decision made by the cities of Solin or KaštelaKastela or any other governmental body.
On April 29, 2014, CEMEX Croatia filed two claims before
the Constitutional Court of the Republic of Croatia alleging that CEMEX Croatia’s constitutional rights to a fair trial and judicial protection had been violated. On August 1, 2014, CEMEX Croatia also filed an application before the European Court of Human Rights alleging that CEMEX Croatia’s constitutional rights to a fair trial, property rights, concession rights and investment had been violated due to irregularities in a general act, which has been denied. The European Court of Human Rights found the application to be inadmissible pursuant to articles 34 and 35 of the Convention for the Protection of Human Rights and Fundamental Freedoms, meaning that CEMEX Croatia did not exhaust all its domestic legal remedies, thus stipulating the Constitutional Court of the Republic of Croatia’s jurisdiction in this matter. On February 6, 2015, the decision of the European Court of Human Rights was sent to the Constitutional Court of the Republic of Croatia. The Constitutional Court of the Republic of Croatia granted the claim, annulled the decision of the administrative court and remanded the case to the administrative court for a new trial. On June 9, 2017, the administrative court issued a decision rejecting CEMEX Croatia’s request. CEMEX will not file an appeal, thus the administrative court’s decision is final. However, as of December 31, 2017, we do not believe that an administrative court’s decision adverse to CEMEX Croatia would have a material adverse impact on our results of operations, liquidity and financial condition. During May 2015, CEMEX Croatia obtained a new location permit from the Croatian Ministry of Construction and Physical Planning for CEMEX Croatia’s Sveti Juraj-Sveti Kajo quarry. On August 2, 2016, CEMEX Croatia obtained a decision pursuant to which a right of way was granted on land owned by the Republic of Croatia and located in Sveti Juraj-Sveti Kajo quarry. The period of such right of way will be compatible with the location permit previously granted. SuchOn December 5, 2018, CEMEX Croatia was notified of a decision is oneissued by the Ministry of the prerequisites for obtainingEconomy granting CEMEX Croatia a new mining concession.concession that will expire on May 31, 2053; and, as a result, this proceeding has ended. As of December 31, 2017, in order2019, we do not expect our operations, liquidity and financial condition to alleviate thesuffer a material adverse impact because of the Master Plans, CEMEX Croatia is in the process of negotiating and preparing all documentation necessary to comply with applicable rules and regulations in order to obtain a new mining concession.this matter.
Israeli Class Action Litigation.
On June 21, 2012, one of our subsidiaries in Israel was notified about an application for the approval of a class action suit against it. The application was filed by a homeowner who built his house with concrete supplied by our Israeli subsidiary in October 2010 (a same application was filed against three other companies by the same legal representative). According to the application, the plaintiff claims that the concrete supplied to him did not meet with the “Israel Standard for Concrete Strength No. 118” and that, as a result, our Israeli subsidiary acted unlawfully toward all of its customers who requested a specific type of concrete but that received concrete that did not comply with Israeli standard requirements. As per the application, the plaintiff claims that the supply of the allegednon-conforming concrete has caused financial andnon-financial damages to those customers, including the plaintiff. We presume that the class action would represent the claim of all the clients who purchased the allegednon-conforming concrete from our Israeli subsidiary during the past seven years, the limitation period according to applicable laws in Israel. The damages that could be sought amount to approximately 276 million Israeli Shekels (approximately U.S.$79.6($79.86 million as of December 31, 2017,2019, based on an exchange rate of 3.4673.456 Israeli Shekels to U.S.$1.00)$1.00).
Our Israeli subsidiary submitted a formal response to the corresponding court. Both parties presented their preliminary arguments. In a hearing held on December 20, 2015, the preliminary proceeding was completed, and the court set dates for hearing evidence on May 8, 10 and 16, 2016. In addition, the court decided to join together all claims against all four companies, including our subsidiary in Israel, in order to simplify and shorten court proceedings, however, it should be mentioned that the court had not formally decided to join together all claims. On the hearing dates, the applicants in all four claims presented evidence, including expert testimony. The evidentiary hearingAn abandonment of action has not been completed assubmitted to the court with respect to two of December 31, 2017. The court had set October 25, 2017 as the date to hear evidence on behalf of two otherfour defendant companies, but this hearing will be rescheduledour Israeli subsidiary and another company remain as defendants. Our subsidiary in Israel and the applicant already submitted their summations with regards to a new date by the court.application for the approval of the class action. On July 9, 2019, the application for approval of the class action against CEMEX Holdings (Israel) Ltd. was dismissed. No appeals were submitted prior to the October 10, 2019 deadline for appealing the judgment. As of December 31, 2017, our subsidiary in Israel is not able to assess2019, following the likelihooddismissal of the class action application being approved or, if approved, of an adverse result, such as an award for damages inand considering that no appeals were submitted prior to the full amount that could be sought, but if adversely resolved, we do not believe the final resolutions would have a material adverse impact on our results of operations, liquidity and financial condition.deadline, this case is closed.
Egypt Share Purchase Agreement.
On April 7, 2011 and March 6, 2012, lawsuits seeking, among other things, the annulment of the share purchase agreement entered into by and between CEMEX and state-ownedstate owned Metallurgical Industries Company (the “Holding Company”) in November 1999 pursuant to which CEMEX
acquired a controlling interest in ACC (the “Share Purchase Agreement”), were filed by different plaintiffs, including 25 former employees of ACC, before the 7th and 8th Circuits of Cairo’s State Council Administrative Judiciary
Court, respectively. Hearings in both cases were adjourned in order for the State Commissioner Authority (“SCA”) to prepare the corresponding reports to be submitted for the consideration of the 7th and 8th Circuits of Cairo’s State Council Administrative Judiciary Court. During March 2015, the SCA submitted the relevant reports recommending, in both cases, that the 7th and 8th Circuits of Cairo’s State Council Administrative Judiciary Court stays the proceedings until the High Constitutional Court pronounces itself with regards to the challenges against the constitutionality of the Presidential Decree on Law No. 32 of 2014 (“Law 32/2014”). A hearing was held on October 13, 2015 before the 8th Circuit of Cairo’s State Council Administrative Judiciary Court in which the SCA’s report was reviewed and the case was adjourned to January 26, 2016 for passing judgment. At the session held on January 26, 2016, the 8th Circuit of Cairo’s State Council Administrative Judiciary Court issued a judgment ruling for the dismissal of this case considering the plaintiff’s lack of standing. The legal prescription period for the plaintiff to challenge the judgment before the High Administrative Court of 60 calendar days from the date of issuance of the judgment has expired without the plaintiff filing a challenge to the judgment. Accordingly, the January 26, 2016 judgment issued by the 8th Circuit of Cairo’s State Council Administrative Judiciary Court is final and definitive. At a session held on September 3, 2015, the 7th Circuit of Cairo’s State Council Administrative Judiciary Court accepted the SCA’s report recommendation and ruled for staying the proceedings until the High Constitutional Court pronounces itself with regards to the challenges against the constitutionality of Law 32/2014. As of December 31, 2017,2019, at this stage of the proceedings and considering all possible defenses available, while we are not able tocannot assess with certainty the likelihood of an adverse resolutionresult regarding this lawsuit filed before the 7th Circuit of Cairo’s State Council Administrative Judiciary Court, we believe a final adverse resolution to this special proceeding is not probable, but if adversely resolved, we do not believe the resolution in the first instance would have an immediate material adverse impact on our results of operations, liquidity and financial condition as there are different legal recourses that we could take. However, if we exhaust all legal recourses available to us, a final adverse resolution of this matter could have a material adverse impact on our operations, liquidity and financial condition.
Regarding a different lawsuit submitted to a First Instance Court in Assiut, Egypt and notified to ACC on May 23, 2011, on September 13, 2012, the first instance court of Assiut, Egypt issued a judgment (the “First Instance Judgment”) to (i) annul the Share Purchase Agreement; and (ii) reinstate former employees to their former jobs at ACC. The First Instance Judgment was notified to ACC on September 19, 2012. On October 18, 2012, ACC filed an appeal against the First Instance Judgment, which was followed by the Holding Company’s appeal filed on October 20, 2012 before the Appeal Court in Assiut, Egypt (the “Appeal Court”). At a November 17, 2013 hearing, the Appeal Court decided to join the appeals filed by ACC and the Holding Company and adjourned the session to January 20, 2014 to render judgment. On January 20, 2014, the Appeal Court issued a judgment (the “Appeal Judgment”) accepting both appeals, revoking the First Instance Judgment, ruling fornon-qualitative jurisdiction of the first instance court to review the case and referred the matter to the administrative court in Assiut, Egypt (the “Assiut Administrative Court”) for a hearing to be held on March 16, 2014. This hearing was subsequently rescheduled to May 17, 2014 and ultimately was not held because the case file had not been completed on time in order for it to be referred to the Assiut Administrative Court. The SCA submitted a report recommending that the Assiut Administrative Court to declare itself incompetent to review this case and to refer it to the Assiut Administrative Judiciary Court (the “Assiut Administrative Judiciary Court”). The Assiut Administrative Court scheduled a new hearing for October 11, 2014 to review the case. On October 15, 2014, the Assiut Administrative Court ruled for itsnon-jurisdiction to review the case and referred the case to the Assiut Administrative Judiciary Court. On December 11, 2014, ACC filed an appeal against the Assiut Administrative Court ruling (the “Appeal”), requesting that its enforcement be suspended until a judgment is issued on the appeal filed before the Cassation Court on March 12, 2014. Additionally, another appeal substantially on the same terms as the Appeal was filed on March 10, 2014 by the Holding Company against the same ruling (the “Appeal”“Parallel Appeal”). On February 10, 2015 and March 17, 2015, hearings were held before the Assiut Administrative Judiciary Court’s SCA in which the SCA decided to adjourn in order to prepare the corresponding report to be submitted for the consideration of the Assiut Administrative Judiciary Court. On October 2015, the SCA issued a report recommending mainly that due to the absence of geographical jurisdiction to review the case, it should be referred to the 7th Circuit of “Economic and Investment Disputes” of Cairo’s State Council Administrative Judiciary Court. The Assiut Administrative Judiciary Court held a hearing for the case on February 24, 2016, in which it decided to refer the case to the First
Circuit (formerly 7th Circuit) of “Economic and Investment Disputes” of Cairo’s State Council Administrative Judiciary Court. Cairo’s State Council Administrative Judiciary Court held a hearing on March 28, 2017 to notify the parties of the procedures, whereupon the court adjourned the hearing until June 13, 2017 in order for the parties to submit their memoranda. On June 13, 2017 the Assiut Administrative Judiciary Courtcourt decided to refer the case back to SCA to prepare and submit a complementary report on the merits. As of December 31, 2017, theThe SCA is expected toshall notify ACC with a new hearing date before the SCA if it deems necessary, or after the SCA finishes the preparation of the complementary report a new hearing will be scheduled before Cairo’s State Council Administrative Judiciary Court. In a session held on February 11, 2016 in order to review the Appeal, the Assiut Administrative Judiciary Court decided to refer the case to the First Circuit of Cairo’s State Council Administrative Judiciary Court, which in turn decided to refer the Appeal to the Assiut Administrative Judiciary Court. On November 9, 2016, the Assiut Administrative Judiciary Court held a session in order to review the referred Appeal, and adjourned the Appeal to February 8, 2017. On February 8, 2017, the court adjourned the hearing until June 14, 2017 in order for the parties to submit their final memoranda. On June 14, 2017 the court postponed the case to a hearing until November 23, 2017 in order for the parties to review the submitted documents. At the hearing held on November 23, 2017, the Assiut Administrative Judiciary Court referred the Appeal to the Commissioner’s Division for the Commissioner to render the corresponding opinion. On May 9, 2019, the Commissioner’s Division to which the Appeal had been referred by the Assiut Administrative Judiciary Court issued an advisory opinion recommending that the Assiut Administrative Judiciary Court’s judgment of October 15, 2014 be vacated and that a hearing
on the case be adjourned until a judgment is issued on an appeal filed before the Cassation Court on March 12, 2014 by ACC. The Court adjourned the Appeal to the hearing session of September 24, 2019 for parties to submit memoranda, and then adjourned to the hearing session of October 23, 2019, for perusal of submitted documents and commenting. On August 27, 2018, the Assiut Administrative Judiciary Court decided to refer the Parallel Appeal to the Cairo Administrative Judiciary Court. As of December 31, 2017,2019, ACC has not been notified of a session before the Cairo Administrative Judiciary Court. We expect a similar ruling on the Appeal filed by ACC. As of December 31, 2019, at this stage of the proceedings and considering all possible defenses available, while we are not able tocannot assess with certainty the likelihood of an adverse resolutionresult regarding this lawsuit filed before the First Circuit of Cairo’s State Council Administrative Judiciary Court, we believe a final adverse resolution to this special proceeding is not probable, but if adversely resolved, we do not believe the resolution in the first instance would have an immediate material adverse impact on our results of operations, liquidity and financial condition as there are different legal recourses that we would be able to explore.could take. However, if we exhaust all legal recourses available to us, a final adverse resolution of this matter could have a material adverse impact on our operations, liquidity and financial condition.
On March 12, 2014, ACC filed a challenge before the Cassation Court against the part of the Appeal Judgment that refers to the referral of the case to the Assiut Administrative Court and payment of the appeal expenses and attorney fees, and requested a suspension of the Appeal Judgment execution with respect to these matters until the Cassation Court renders its judgment (the “Challenge”). A hearing was held on April 12, 2016 in order to review the Challenge’s summary request only, which requested the Cassation Court to stay the execution of part of the Appeal Judgment regarding the referral of the case to the Assiut Administrative Court and payment of the appeal expenses and attorney fees. At this hearing the Cassation Court rejected the summary request. As of December 31, 2017,2019, ACC has not been notified of a session before the Cassation Court in order to review the subject matter of the Challenge. As of December 31, 2017,2019, at this stage of the proceedings and considering all possible defenses available, while we are not able tocannot assess with certainty the likelihood of an adverse resolutionresult regarding the Challenge, we believe a final adverse resolution to this special proceeding is not probable, but if adversely resolved, we do not believe the resolution would have an immediate material adverse impact on our results of operations, liquidity and financial condition as there are different recourses that we could take. However, if we exhaust all legal recourses available to us, a final adverse resolution of this matter could have a material adverse impact on our operations, liquidity and financial condition.
Also, on February 23, 2014, three plaintiffs filed a lawsuit before the Assiut Administrative Judiciary Court requesting the cancelationcancellation of the resolutions taken by the Holding Company’s shareholders during the extraordinary general shareholders meeting pursuant to which it was agreed to sell ACC’s shares and enter into the Share Purchase Agreement in 1999. A hearing held on May 17, 2014 was adjourned in order for the SCA to prepare a report to be submitted for the consideration of the Assiut Administrative Judiciary Court. On September 4, 2014, ACC received the report issued by the SCA which isnon-binding to the Assiut Administrative Judiciary Court. On December 11, 2014, the Assiut Administrative Judiciary Court resolved to refer the case to the 7th Circuit of Cairo’s State Council Administrative Judiciary Court. The 7th Circuit of Cairo’s State Council Administrative Judiciary Court decided to adjourn to July 25, 2015 in order to review the parties’ pleadings. On this hearing held on July 25, 2015, the 7th Circuit of Cairo’s State Council Administrative Judiciary Court adjourned the case to September 3, 2015 for passing judgment. At the session held on September 3, 2015, the 7th Circuit of Cairo’s State Council Administrative Judiciary Court ruled for staying the proceedings until the High Constitutional Court pronounces itself with regards to the challenges against the constitutionality of Law No.32/2014. As of December 31, 2017,2019, we still do not have sufficient information to assess
the likelihood of the 7th Circuit of Cairo’s State Council Administrative Judiciary Court cancelling the resolutions adopted by the Holding Company’s shareholders, or, if such shareholders’ resolutions are cancelled, how would such cancelationcancellation would affect us, butus. However, if adversely resolved, we do not believe the resolution in this first instance would have an immediate material adverse impact on our results of operations, liquidity and financial condition as there are different legal recourses that we could take. However, if we exhaust all legal recourses available to us, a final adverse resolution of this matter could have a material adverse impact on our operations, liquidity and financial condition.
On April 22, 2014, Law 32/2014, which regulates legal actions to challenge agreements entered into by the Egyptian State (including its ministries, departments, special budget entities, local administrative units, authorities and state-participated companies) and third parties, was published in the Official Gazette, becoming effective as of April 23, 2014, but subject to its presentation, discussion and approval by the House of Representatives 15 days after it holds its first session. As per the provisions of Law 32/2014, and considering certain exceptions, only the parties to these agreements have standing to challenge the validity of an agreement. During October and November 2015, parliamentary elections to the House of Representatives took place and the elected House of Representatives started to hold its sessions on January 10, 2016, as expected, and Law 32/2014 was discussed and ratified on January 20, 2016, as legally required. As of December 31, 2017,2019, a constitutional challenge has been filed by a third party against Law 32/2014 before the High Constitutional Court. The High Constitutional Court has scheduled a hearing for May 6, 2017 to proceed with the constitutional challenge that was filed against Law 32/2014 after the SCA had submitted its report with respect to the case. On May 6, 2017 the court decided to refer the case back to SCA to prepare and submit a complementary report on the merits. The SCA, if it deems it necessary, may schedule a hearing for reviewing the case before the SCA. After the SCA finishes the preparation of the complementary report, a new hearing will be scheduled before the High Constitutional Court. As of December 31, 2017,2019, we are still not able to assess if the High Constitutional Court will dismiss Law 32/2014, but if the High Constitutional Court dismisses Law 32/2014, this could adversely impact the ongoing matters regarding the Share Purchase Agreement, which could have a material adverse impact on our operations, liquidity and financial condition.
South Louisiana Flood Protection Authority-East Claim. On July 24, 2013 a Petition for Damages and Injunctive Relief was filed by the South Louisiana Flood Protection Authority-East (“SLFPAE”) in the Civil District Court for the Parish of Orleans, State of Louisiana, against approximately 100 defendants, including CEMEX, Inc. SLFPAE is seeking compensation for and the restoration of certain coastal lands near New Orleans alleged to have been damaged by activities related to oil and gas exploration and production since the early 1900s. CEMEX, Inc., which was previously named Southdown, Inc., may have acquired liabilities, to the extent there may be any, in connection with oil and gas operations that were divested in the late 1980s. The matter was removed to the United States District Court for the Eastern District of Louisiana (the “Louisiana District Court”) and a motion by the Plaintiffs to remand to State Court was denied. In addition, on June 6, 2014, Louisiana Senate Bill No. 469 was enacted into Act No. 544 (“Act 544”) which prohibits certain state or local governmental entities such as the SLFPAE from initiating certain causes of action including the claims asserted in this matter. The effect of Act 544 on the pending matter has yet to be determined by the Louisiana District Court. Further, CEMEX, Inc. was dismissed without prejudice by the plaintiffs. On February 13, 2015, the Louisiana District Court dismissed the plaintiffs’ claims with prejudice. On February 27, 2015, the plaintiffs appealed this ruling. This ruling has been affirmed by the United States Court of Appeals for the Fifth Circuit, finalizing the process. As a result, there is no outstanding civil responsibility claim against CEMEX, Inc. As of December 31, 2017, we do not expect our operations, liquidity or financial condition to suffer a material adverse impact because of this matter.
Maceo, Colombia—Legal Proceedings in Colombia.
On August 28, 2012, CEMEX Colombia entered into a memorandum of understanding (the “MOU”) with CI Calizas y Minerales S.A. (“CI Calizas”) to acquire land, a mining concession, an environmental license, free trade zone benefits and related assets necessary to carry out the construction by CEMEX Colombia of a new integrated cement plant in the Antioquia department near the municipality of Maceo, Project.Colombia (the “Maceo Project”). In connection with the MOU, CI Calizas was represented by anon-governmental individual (the “Representative”).
After the execution of the MOU, one of CI Calizas’ former shareholders was linked to an expiration of the property proceeding by the Colombian Attorney General’s Office (the “Attorney General’s Office”) that, among other measures, suspended CI Calizas’ ability to transfer certain assets to CEMEX Colombia as required by the MOU (the “Affected Assets”). In order to protect its interests in the Affected Assets, CEMEX Colombia joined the expiration of the property proceeding, attended each procedural stage and cooperated with the Attorney General’s Office. CEMEX Colombia also requested the dismissal of the expiration of the property proceeding against the Affected Assets. On May 2, 2016, in order to collect further evidence, the Attorney General’s Office denied CEMEX Colombia’s request for the dismissal of the expiration of the property proceeding. The expiration of the property proceeding is in its investigative phase, pending the appointment of thead litemcurators by the Attorney General’s Office. Upon appointment of thead litemcurators, the evidentiary phase will commence, and the relevant evidence will be presented and studied. We expect that the Attorney General’s Office’s final decision as to whether it will proceed with the expiration of the property proceeding with respect to the Affected Assets could take five to ten years.
In July 2013, CEMEX Colombia entered into a five-year lease agreement (the “Lease Agreement”) with a depository that had been designated by the Colombian National Narcotics Directorate (Dirección Nacional de Estupefacientes) (the “CNND”) with respect to the Affected Assets. The Lease Agreement, along with an accompanying governmental mandate, authorized CEMEX Colombia to continue the work necessary for the construction and operation of the Maceo Project during the expiration of the property proceeding. The Lease Agreement is currently set to expireexpired on July 15, 2018, unless earlier terminated by2018. Notwithstanding the Colombian Administrator of Special Assets (Sociedad de Activos Especiales S.A.S) (the “SAE”), which assumed the functions of the CNND after the CNND’s liquidation. CEMEX Colombia plans to negotiate an extension to the termexpiration of the Lease Agreement, and intendsCEMEX Colombia is entitled to continue using the Affected Assets pursuant to the terms of the accompanying mandate until the conclusion of the expiration of the property proceeding.
On April 12, 2019, CEMEX Colombia reached a conciliatory agreement with the Attorney General’s Office allowing CEMEX Colombia to operate its Maceo cement plant in the region of Antioquia (the “Maceo Plant”), pursuant to which the signing of a mining operation, the provision of manufacturing services and dispatch and leasing of real estate for cement production (the “New Lease Agreement”) was endorsed. CEMEX Colombia, under the terms of the New Lease Agreement, will lease the land portion of the Affected Assets for a duration of 21 years, which can be extended by another 10 years. The New Lease Agreement will remain in full force and accompanying mandate.effect regardless of the outcome following the expiration of the property proceeding over the Affected Assets unless the criminal judge grants CEMEX Colombia (and of one of its subsidiaries) the ownership rights related to the Affected Assets. In such case, the New Lease Agreement will be terminated given that CEMEX Colombia and its subsidiary would be the owners of the Affected Assets and the New Lease Agreement would no longer be required to operate and manage them. As of the date of this annual report, it is expected that the Maceo Plant will begin operating when the following main applications and procedures that are being processed with the competent authorities are positively resolved: (i) the partial discharge of the Maceo Plant from the Integrated Management District (Distrito de Manejo Integrado) of the Alicante River Canyon (Cañón de Río Alicante), (ii) the amendment to the environmental license that allows the production of at least 950,000 tons of cement per year, (iii) the land usage amendment to allow for industrial and mining use and (iv) the procurement of permits to complete the construction of several sections of the access road to the Maceo Plant. Once these permits are obtained, CEMEX Colombia is expected to complete construction of the access road to the Maceo Plant.
Assuming that CEMEX Colombia conducted itself in good faith, and taking into account that its investments in the Maceo Project were incurred with the consent of the SAEColombian Administrator of Special Assets (Sociedad de Activos Especiales S.A.S) (the “SAE”) and CI Calizas under the Lease Agreement and the accompanying mandate, we believe the value of such investments is protected by Colombian law. Colombian law provides that, if a person builds on another person’s property with the knowledge of such other person, the person that built on the property shall be compensated with the value of what was built or otherwise be transferred the property in the event the owner of the property decides to recover possession. We also believe that, during the term of the New Lease Agreement, and the accompanying mandate, CEMEX Colombia may use the Affected Assets in order to operate the Maceo Project. In the event that CEMEX Colombia’s right to the Affected Assets is extinguished in favor of the government of Colombia, which we believe is unlikely, the SAE may decide not to sell the Affected Assets to CEMEX Colombia or not to extend the Lease Agreement.Colombia. In either case, under Colombian law, CEMEX Colombia would be entitled to compensation for the value of the investments made in the Maceo Project. As of December 31, 2017,2019, at this stage of the proceedings, we werebelieve that the likelihood of an adverse result in this matter is not probable as we are not able to assess the likelihood
of CEMEX Colombia receiving an adverse decision relating to the expiration of property proceedings or if the ownership of the assets subject to the MOU will be extinguished in favor of the Republic of Colombia. However, as of December 31, 2017,2019, we believe that an adverse resolution in which CEMEX Colombia is not compensated for the value of its investments in the Maceo Project could have a material adverse effect on our results of operations, liquidity or financial condition.
On December 30, 2013, CEMEX Colombia and the Representative entered into a different memorandum of understanding (the “Land MOU”), pursuant to which the Representative would represent CEMEX Colombia in the acquisition of lands adjacent to the Maceo Project. In connection with the Maceo Project, CEMEX Colombia conveyed to the Representative over U.S.$14.46$13 million, including cash payments and interest (based on an exchange rate of 2,984.003,277.14 Colombian Pesos to U.S.$1.00$1.00 as of December 31, 2017)2019). Due to the expiration of property proceeding against the Affected Assets described above, the acquisition of the Affected Assets was not finalized.
During 2016, CEMEX, S.A.B. de C.V. received reports through its anonymous reporting hotline regarding potential misconduct by certain employees, including with regard to the Maceo Project. CEMEX, S.A.B. de C.V.
initiated an investigation and internal audit pursuant to its corporate governance policies and its code of ethics.
On September 23, 2016, CEMEX LatamCLH disclosed that it had identified irregularities in the process for the purchase of the land related to the Maceo Project in an accusation with the Attorney General’s Office so that the Attorney General’s Office may take the actions it deems appropriate. Further, on December 20, 2016, CEMEX LatamCLH enhanced such filing with additional information and findings obtained as of such date. On June 1, 2017 the Attorney General’s Office petitioned a hearing for imputation of charges (audiencia de imputación de cargos) against two former employees of CEMEX and a representative of CI Calizas. The hearing was scheduledtook place from June 7, 2018 to take place on January 15, 2018.June 29, 2018 and finished with the imposition of precautionary measures against the former executives and representative of CI Calizas. The hearing process will continue during 2020.
On September 23, 2016, CEMEX LatamCLH and CEMEX Colombia terminated the employment of the Vice President of Planning of CEMEX Latam,CLH, who was also CEMEX Colombia’s Director of Planning, and the Legal Counsel of CEMEX Latam,CLH, who was also the General Counsel of CEMEX Colombia. In addition, effective as of September 23, 2016, the Chief Executive Officer of CEMEX Latam,CLH, who was also the President of CEMEX Colombia, resigned from both positions. On October 4, 2016, in order to strengthen levels of leadership, management and corporate governance practices, the boardBoard of directorsDirectors of CEMEX LatamCLH resolved to split the roles of Chairman of the boardBoard of directorsDirectors of CEMEX Latam,CLH, Chief Executive Officer of CEMEX LatamCLH and Director of CEMEX Colombia, and appointed a new Chairman of the boardBoard of directorsDirectors of CEMEX Latam,CLH, a new Chief Executive Officer of CEMEX Latam,CLH, a new Director of CEMEX Colombia and a new Vice President of Planning of CEMEX LatamCLH and CEMEX Colombia. A new legal counsel for CEMEX LatamCLH and CEMEX Colombia was also appointed during the fourth quarter of 2016.
Additionally, pursuant to the requirements of CEMEX, S.A.B. de C.V.’s and CEMEX Latam’sCLH’s audit committees, CEMEX Colombia retained external counsel to assist CEMEX LatamCLH and CEMEX Colombia to collaborate as necessary with the Attorney General’s Office, as well as to assist on other related matters. A forensic investigator in Colombia was engaged, as well.
The Attorney General’s Office is investigating the irregularities in connection with the transactions conducted pursuant to the MOU, and the Land MOU.MOU, as well as other matters regarding our business in Colombia. Such investigation is in its initial phaseinvestigations are running their due course but have not been concluded, and, as such, we cannot predict what actions, if any, the Attorney General’s Office may implement. Any actions by the Attorney General’s Office and any actions taken by us in response to the aforementioned irregularities regarding the Maceo Project, including, but not limited to, the departure of the abovementionedaforementioned executives and further investigations in Colombia, could have a material adverse effect on our results of operations, liquidity or financial condition.
SEC Investigation Relating
Investigations related to the Legal Proceedingsongoing matters in Colombia. and certain other countries
In December 2016, CEMEX, S.A.B. de C.V. received subpoenas from the SEC seeking information to determine whether there have been any violations of the U.S. Foreign Corrupt Practices Act stemming from the Maceo Project. These subpoenas do not mean that the SEC has concluded that CEMEX, S.A.B. de C.V. or any of its affiliates violated the law. As discussed in “—Maceo, Colombia—Legal Proceedings in Colombia,”,” internal audits and investigations by CEMEX, S.A.B. de C.V. and CEMEX LatamCLH had raised questions about payments relating to the Maceo Project. The payments made to the Representative in connection with the Maceo Project did not adhere to CEMEX, S.A.B. de C.V.’s and CEMEX Latam’sCLH’s internal controls. As announced on September 23, 2016, the CEMEX LatamCLH and CEMEX Colombia officers responsible for the implementation and execution of the above referenced payments were terminated and the then Chief Executive Officer of CEMEX LatamCLH resigned. CEMEX, S.A.B. de C.V. has been cooperating with the SEC and the Attorney General’s Office and intends to continue cooperating fully with the SEC and the Attorney General’s Office. It isWe previously disclosed that it was possible that the DOJ orand other investigatory entities in other jurisdictions maycould also open investigations into this matter. ToIn this regard, aside from ongoing investigations in Colombia, on March 12, 2018, the extent they do so,DOJ issued a grand jury subpoena to CEMEX, S.A.B. de C.V. relating to its operations in Colombia and other jurisdictions. CEMEX, S.A.B. de C.V. intends to cooperate fully with the SEC, the DOJ and any such inquiries.other investigatory entity. As of December 31, 2017,2019, CEMEX, S.A.B. de C.V. is unable to predict the
duration, scope, or outcome of either the SEC investigation or the DOJ investigation, the investigations in Colombia, or any other investigation that may arise. However,arise, or, because of the current status of the SEC investigation and the preliminary nature of the DOJ investigation, the potential sanctions which could be borne by CEMEX, S.A.B. de C.V. does not expect the SEC investigation to, or if such sanctions, if any, would have a material adverse impact on itsCEMEX, S.A.B. de C.V.’s consolidated results of operations, liquidity or financial position.
Maceo, Colombia—Operational Matters.
On October 27, 2016, CEMEX LatamCLH decided to postpone the commencement of operations of the cement plant in Maceo, Colombia. This decision was mainly due to the following circumstances: CEMEX Colombia had not received permits required to finalize road access to such cement plant. The only existing access to such cement plant cannot guarantee safety or operations and could limit the capacity to transport products from the cement plant. As of December 31, 2019, the process to obtain the permits required to finalize the road access to such cement plant in Maceo, Colombia, is ongoing. CEMEX Colombia has provided all information that the authorities have requested in order to grant such permits, but CEMEX Colombia is not able to assess if and when such permits will be received.
CEMEX Colombia had not received a final response to the request to expand the free trade zone that covers the Maceo Project in order to commission a new clinker line at such cement plant. Failure to obtain such expansion would jeopardize CEMEX Colombia’s capability to consolidate the benefits that would otherwise be available for CEMEX Colombia in the area. CEMEX Colombia had requested the Colombian Ministry of Trade, Industry and Tourism (Ministerio de Comercio, Industria y Turismo) for an expansion of the free trade zone, for which CEMEX Colombia did not receive a final decision. CEMEX Colombia believes the delay in such decision could have been related to the expiration of property proceeding against the Affected Assets. During the third quarter of 2017, at the request of CEMEX Colombia, the Colombian Tax Authority (Dirección de Impuestos y Aduanas Nacionales) (“DIAN”) granted the suspension of the expansion process of the free trade zone that CEMEX Colombia had previously requested.
CEMEX Colombia determined that the area covered by the environmental license related to the Maceo Project partially overlapped with a District of Integrated Management (Distrito de Manejo Integrado), which could limit the granting of the environmental license modification. On October 9, 2017, CEMEX Colombia filed a petition with Corantioquia in order to subtract from the District of Integrated Management the zoning area covered by the environmental license related to the construction by CEMEX Colombia of the Maceo Project, in order to avoid any overlap between them. On January 12, 2018, CEMEX Colombia was notified of Corantioquia’s decision to admit such petition and initiate the proceedings; and CEMEX Colombia had not received authorizations for the modification of land use in order to carry out industrial and mining activities at the site of the cement plant in Maceo, Colombia. As of December 31, 2019, the process to obtain the authorizations required to modify the land use of the site of the cement plant in Maceo, Colombia, is ongoing.
On September 3, 2019, CEMEX Colombia was notified of the favorable decision issued by the Corantioquia Board of Directors to approve, through Agreement No. 567, the removal from the Integrated Management District of the Renewable Natural Resources Alicante River Canyon, of an area of 169.2 hectares of the municipality of Maceo. CEMEX Colombia will be responsible for managing the execution of the environmental compensations requested by the Corantioquia Board of Directors, reaffirming its commitment to generate development, employment and community welfare, by preserving the ecosystem and the environment, contributing, in this case, to the economic and social development of an area historically impacted by violence, such as the municipality of Maceo.
The environmental license and the mining concession related to the Maceo Project were held by different legal entities, which is contrary to typical procedure in Colombia. The environmental license related to the Maceo Project is held by Central de Mezclas S.A. (“Central de Mezclas”), a subsidiary of CEMEX Colombia. However, the mining permit related to the Maceo Project was remanded back to CI Calizas as a result of the revocation of such mining concession by the Mining Secretariat (Secretaría de Minas) of Antioquia in December 2013. In connection with the environmental license that had been issued for the Maceo Project, during the second half of 2016, Corantioquia, the regional environmental agency with jurisdiction over the Maceo Project environmental license, requested authorization and consent from Central de Mezclas to reverse the assignment of the environmental license for the Maceo Project back to CI Calizas, which also holds the corresponding mining title. On February 22, 2018, Central de Mezclas has petitioned Corantioquia to evaluate the basis forgranted such request.
authorization. CEMEX Colombia had requested a modification to the environmental license, and on December 13, 2016, Corantioquia notified Central de Mezclas that it had adopted the decisiondecided to deny the request for modification of the environmental license related to the Maceo Project to 950,000 tons per annum on the basis of the overlap of the project area with the District of Integrated Management. On December 14, 2016, Central de Mezclas appealed the decision. On March 28, 2017, Central de Mezclas was notified of Corantioquia’s decision, which affirmed the decision that had previously denied the modification of the environmental license for a 950,000 per annum project. As a result, as of December 31, 2017,2019, CEMEX Colombia was actively working on the zoning and compatibility of the District of Integrated Management, as well as analyzing alternatives for a partial adjustment to the District of Integrated Management, to avoid future discussions regarding feasibility of expanding the proposed production in the Maceo Project beyond 950,000 tons per annum.
Once these alternatives are implemented, CEMEX Colombia will reconsider submitting a new request pursuing the modification of the environmental license to expand its production of 950,000 tons per annum as initially planned; and
CEMEX Colombia’s petition to decrease the size of the zoning area covered by the environmental license related to the Maceo Project in order to avoid any overlap with the District of Integrated Management was filed on October 9, 2017 with the regional environmental agency with jurisdiction over this matter.
CEMEX Colombia and Central de Mezclas plan to continue to work on solving the issues causing the postponement of the commissioning of the Maceo Project cement plant in order to capture, as soon as reasonably possible, the full operating benefits of this facility in Colombia. CEMEX Colombia believes some of these issues could be related to the expiration of property proceeding against the Affected Assets. As of December 31, 2017,2019, we do not expect to suffer a material adverse impact to our results of operations, liquidity or financial condition as a result of the Maceo Project cement plant not being commissioned to operate pending resolution of these issues.
Quarry matter in France.
One of our subsidiaries in France, CEMEX Granulats Rhône Méditerranée (“CEMEX Granulats”), is a party to a contract executed in 1990 (the “Quarry Contract”) with SCI La Quinoniere (“SCI”), pursuant to which CEMEX Granulats has drilling rights to extract reserves and conduct quarry remediation at a quarry in the Rhone region of France. In 2012, SCI filed a claim against CEMEX Granulats for breach of the Quarry Contract, requesting the rescission of the Quarry Contract and damages plus interest, totaling an aggregate amount of approximately €55 million (approximately U.S.$66.02($61.68 million as of December 31, 2017,2019 based on an exchange rate of €0.8331€0.8917 to U.S.$1.00)$1.00), resulting from CEMEX Granulats having partially filled the quarry allegedly in breach of the terms of the Quarry Contract. On May 18, 2016, CEMEX Granulats was notified about an adverse judgment in this matter by the corresponding court in Lyon, France, primarily ordering the rescission of the Quarry Contract and damages plus interest, totaling an aggregate amount of approximately €55 million (approximately U.S.$66.02($61.68 million as of December 31, 2017,2019, based on an exchange rate of €0.8331€0.8917 to U.S.$1.00)$1.00). We believe thisThis judgment is not enforceable. On June 6, 2016, CEMEX Granulats filed the notice of appeal with the appealsappeal court in Lyon, France. CEMEX Granulats and SCI have concluded exchanging submissions before the appeals court. The proceedings closed on December 4, 2017 and the oral hearing is scheduled to be held on February 7, 2018. The judgment of the appeals court is expectedmid-2018. Additionally, SCI updated its claim for damages to an approximate aggregate amount of €67 million (approximately U.S.$80.42($75.13 million as of December 31, 2017,2019, based on an exchange rate of €0.8331€0.8917 to U.S.$1.00)$1.00). There can be no assurance asThe judgment of the appeal court was notified to whether or not CEMEX Granulats will receive an adverse resulton March 13, 2018. It overrules the first instance judgment but orders the rescission of the Quarry Contract. It also appoints a judicial expert to (i) determine the volume of both excavated materials and backfilling materials and (ii) give their opinion on the potential damages suffered by SCI. This judgment is enforceable. CEMEX Granulats has filed the notice of appeal with the Court of Cassation. The decision was handed down on May 23, 2019. Our appeal was dismissed, and the Court of Cassation declared that CEMEX Granulats breached the Quarry Contract. In connection with this matter, judicial experts were appointed by the Lyon Court of Appeal to (i) determine the volume of both excavated materials and backfilling materials at issue and (ii) provide their assessment of the potential damages suffered by SCI, a process that is expected to end by February 28, 2020. Proceedings on any appeals or any other recourse it may pursue.actions CEMEX Granulats has initiated regarding this matter are expected to be finalized during the first half of 2020. At this stage of the proceedings, as of December 31, 2017,2019, we are not able to assessdetermine the likelihood of an adverse result regardingfinal amount that we would pay in relation to this matter, but if adversely resolved, we do not expect that it willany amounts to be paid would not have a material adverse impact on our results of operations, liquidity and financial condition. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Regulatory Matters and Legal Proceedings” for more information regarding this matter.
Federal Securities Class Action
On March 16, 2018, a putative securities class action complaint was filed against us: one of our members of the board of directors and certain of our officers (CEO and CFO) in the U.S. District Court for the Southern District of New York, on behalf of investors who purchased or otherwise acquired securities of ours between August 14, 2014 to March 13, 2018, inclusive. The complaint alleged violations of Sections 10(b) and 20(a) of the Exchange Act based on purportedly issuing press releases and SEC filings that included materially false and misleading statements in connection with alleged misconduct relating to the Maceo Project and the potential regulatory or criminal actions that might arise as a result. On September 14, 2018, we filed a motion to dismiss this lawsuit. During the fourth quarter of 2018, plaintiffs filed an opposition brief to this motion to dismiss and we filed a response to such opposition brief. On July 12, 2019, the competent judge granted our motion to dismiss the action but permitted plaintiffs an opportunity to re-plead. On August 1, 2019, plaintiffs filed a Second Amended Class Action Complaint, again based on purported false and misleading statements in connection with alleged misconduct relating to the Maceo Project and the potential regulatory or criminal actions that might arise as a result. The Second Amended Class Action Complaint altered the class period to now start on April 23, 2015, and added CLH as a party, as well as a cause of action under Section 20(b) of the Exchange Act against CLH. All of the defendants moved to dismiss the action on September 5, 2019, the plaintiffs filed an opposition brief on October 11, 2019, and the defendants filed reply briefs on November 1, 2019. As of December 31, 2019, at this stage of the proceedings, we are not able to assess the likelihood of an adverse result to this lawsuit because of its current status and its preliminary nature, and for the same reasons we are also not able to assess if a final adverse result in this lawsuit would have a material adverse impact on our results of operations, liquidity and financial condition. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Regulatory Matters and Legal Proceedings” for more information regarding this matter.
General
As of December 31, 2017,2019, we are involved in various legal and administrative proceedings as well as investigations involving, but not limited to, product warranty claims, commercial claims, environmental claims, claims regarding the procurement
and supply of products and services, patent and copyright infringement claims, claims and disputes regarding the transportation of goods and services, indemnification claims relating to divestments and acquisitions and similar types of claims brought against us that have arisen in the ordinary course of business. We, and different organizations or associations to which we belong, also receive various information requests from various governmental and administrative authorities when such authorities are conducting periodic or general reviews of the markets in which we operate. We believe we have made adequate provisions to cover both current and contemplated general and specific litigation risks, and we believe these matters will be resolved without any significant effect on our operations, financial position and results of operations. We are sometimes able to make and disclose reasonable estimates of the expected loss or range of possible loss, as well as disclose any provision accrued for such loss. However, for a limited number of ongoing legal proceedings, we may not be able to make a reasonable estimate of the expected loss or range of possible loss or may be able to do so but believe that disclosure of such information on acase-by-case basis would seriously prejudice our position in the ongoing legal proceedings or in any related settlement discussions. Accordingly, in these cases, we have disclosed qualitative information with respect to the nature and characteristics of the contingency, but have not disclosed the estimate of the range of potential loss.
Item 4A—Unresolved Staff Comments
Not applicable.
Item 5—Operating and Financial Review and Prospects
Cautionary Statement Regarding Forward-Looking Statements
This annual report contains, and the reports we will file or furnish in the future may contain, forward-looking statements within the meaning of the U.S. federal securities laws. We intend for these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements inwithin the meaning of the U.S. federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may,” “assume,” “might,” “should,” “could,” “continue,” “would,” “can,” “consider,” “anticipate,” “estimate,” “expect,” “envision,” “plan,” “believe,” “foresee,” “predict,” “potential” and“potential,” “target,” “strategy,” “intend” or other similar words. These forward-looking statements reflect, as of the date such forward-looking statements are made, or unless otherwise indicated, our current expectations and projections about future events based on our knowledge of present facts and circumstances and assumptions about future events. These statements necessarily involve risks and uncertainties that could cause actual results to differ materially from our expectations. Some of the risks, uncertainties and other important factors that could cause results to differ, or that otherwise could have an impact on us or our subsidiaries, include:consolidated entities, include, among other things:
● | the cyclical activity of the construction sector; |
● | our exposure to other sectors that impact our and our clients’ businesses, such as, but not limited to, the energy sector; |
● | availability of raw materials and related fluctuating prices; |
● | competition in the markets in which we offer our products and services; |
● | general political, social, health, economic and business conditions in the markets in which we operate or that affect our operations and any significant economic, health, political or social developments in those markets, as well as any inherent risks to international operations; |
● | the regulatory environment, including environmental, tax, antitrust, and acquisition-related rules and regulations; |
● | our ability to satisfy our obligations under our material debt agreements, the indentures that govern our outstanding Senior Secured Notes (as defined under “Results of Operations—Summary of Material Contractual Obligations and Commercial Commitments—Senior Secured Notes”) and our other debt instruments and financial obligations; |
● | the availability of short-term credit lines or working capital facilities, which can assist us in connection with market cycles; |
● | the impact of our below investment grade debt rating on our cost of capital; |
● | loss of reputation of our brands; |
● | our ability to consummate asset sales, fully integrate newly acquired businesses, achieve cost-savings from our cost-reduction initiatives, implement our global pricing initiatives for our products and generally meet our “A Stronger CEMEX” plan’s initiatives (as further described in this annual report); |
● | the increasing reliance on information technology infrastructure for our sales invoicing, procurement, financial statements and other processes that can adversely affect our sales and operations in the event that the infrastructure does not work as intended, experiences technical difficulties or is subjected to cyber-attacks; |
● | changes in the economy that affect demand for consumer goods, consequently affecting demand for our products and services; |
● | the impact of pandemics, epidemics or outbreaks of infectious diseases and the response of governments and other third parties, including with respect to COVID-19, which have affected and may continue to adversely affect, among other matters, supply chains, international operations, availability of liquidity, investor confidence and consumer spending, as well as availability of, and demand for, our products and services; |
● | weather conditions, including but not limited to, excessive rain and snow, and disasters such as earthquakes and floods; |
● | trade barriers, including tariffs or import taxes and changes in existing trade policies or changes to, or withdrawals from, free trade agreements, including the USMCA, if it comes into effect, and NAFTA, while it is in effect, both of which Mexico is a party to; |
● | terrorist and organized criminal activities as well as geopolitical events; |
● | declarations of insolvency or bankruptcy, or becoming subject to similar proceedings; |
● | natural disasters and other unforeseen events (including global health hazards such as COVID-19); and |
● | other risks and uncertainties described under “Item 3—Key Information—Risk Factors” and elsewhere in this annual report. |
Readers are urged to read this annual report and carefully consider the risks, uncertainties and other factors that affect our business. The information contained in this annual report is subject to change without notice, and we are not obligated to publicly update or revise forward-looking statements.statements after the date hereof or to reflect the occurrence of anticipated or unanticipated events or circumstances. Readers should review future reports filed or furnished by us with the SEC.
This annual report also includes statistical data regarding the production, distribution, marketing and sale of cement,ready-mix concrete, clinker and aggregates. We generated some of this data internally, and some was obtained from independent industry publications and reports that we believe to be reliable sources. We have not independently verified this data nor sought the consent of any organizations to refer to their reports in this annual report.
The following discussion and analysis should be read in conjunction with, and are qualified in their entirety by reference to our 2017 audited consolidated financial statements for the years ended as of December 31, 2018 and 2019, and for each of the three years ended December 31, 2017, 2018 and 2019, included elsewhere in this annual report. Our financial statements have been prepared in accordance with IFRS.
As previously described, our audited consolidated financial statements for the years ended December 31, 2018 and 2019, and for each of the three years ended December 31, 2017, 2018 and 2019 included elsewhere in this annual report include the following:
● | Our change in presentation currency from the Mexican Peso as of December 31, 2018 to the Dollar as of December 31, 2019, |
● | Our full retrospective adoption of IFRS 16 as of January 1, 2017, and |
● | Our presentation of several incurred and projected sales of assets as discontinued operations. |
In connection with the changes described above, the previously issued comparative financial statements as of December 31, 2018 and for the years ended December 31, 2017 and 2018 were re-presented. See note 2.1 to our 2019 audited consolidated financial statements included elsewhere in this annual report.
The regulations of the SEC do not require foreign private issuers that prepare their financial statements on based on IFRS (as published by IASB) to reconcile such financial statements to U.S. GAAP.
The percentage changes in cement sales volumes described in this annual report for our operations in a particular country or region include the number of tons of cement and/or the number of cubic meters ofready-mix concrete sold to our operations in other countries and regions. Likewise, unless otherwise indicated, the net salesrevenues financial information presented in this annual report for our operations in each country or region includes the Mexican PesoDollar amount of salesrevenues derived from sales of cement andready-mix concrete to our operations in other countries and regions, which have been eliminated in the preparation of our 20172019 audited consolidated financial statements included elsewhere in this annual report.
The following table sets forth selected consolidated financial information as of December 31, 20172018 and 20162019 and for each of the three years ended December 31, 2017, 2018 and 2019 by principal geographic segment expressed as an approximate percentage of our total consolidated group. We operate in countries and regions with economies in different stages of development and structural reform and with different levels of fluctuation in exchange rates, inflation and interest rates. These economic factors may affect our results of business,operations, liquidity and financial conditions and results of operations,condition, depending upon the depreciation or appreciation of the exchange rate of each country and region in which we operate compared to the Mexican PesoDollar and the rate of inflation of each of these countries and regions.
Net Sales For the Period Ended December 31, | Operating Earnings Before Other Expenses, Net For the Period Ended December 31, | Total Assets at December 31, | Revenues For the Year Ended December 31, | Operating Earnings Before Other | Total Assets at | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2015(1) | 2016(1) | 2017(1) | 2015(2) | 2016(2) | 2017(2) | 2016 | 2017(2) | 2017 | (1) | 2018 | (1) | 2019 | (1) | 2017 | (2) | 2018 | (2) | 2019 | (2) | 2018 | (2) | 2019 | (2) | |||||||||||||||||||||||||||||||||||||||||
Mexico | 21 | % | 20 | % | 21 | % | 48 | % | 47 | % | 58 | % | 12 | % | 13 | % | 23 | % | 23 | % | 21 | % | 60 | % | 63 | % | 61 | % | 12 | % | 14 | % | ||||||||||||||||||||||||||||||||
United States | 24 | % | 25 | % | 24 | % | 8 | % | 13 | % | 14 | % | 48 | % | 47 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. | 24 | % | 25 | % | 27 | % | 13 | % | 19 | % | 18 | % | 49 | % | 49 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Europe | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom | 8 | % | 8 | % | 7 | % | 6 | % | 7 | % | 5 | % | 5 | % | 6 | % | 6 | % | 5 | % | 5 | % | 5 | % | 3 | % | 4 | % | 6 | % | 5 | % | ||||||||||||||||||||||||||||||||
France | 5 | % | 6 | % | 6 | % | 1 | % | 1 | % | 1 | % | 3 | % | 3 | % | 6 | % | 6 | % | 6 | % | 1 | % | 2 | % | 3 | % | 3 | % | 3 | % | ||||||||||||||||||||||||||||||||
Germany | 3 | % | 4 | % | 4 | % | 1 | % | 0.5 | % | 1 | % | 1 | % | 2 | % | 3 | % | 3 | % | 3 | % | 1 | % | 1 | % | 3 | % | 2 | % | 1 | % | ||||||||||||||||||||||||||||||||
Spain | 3 | % | 2 | % | 2 | % | 2 | % | 0.5 | % | (1 | )% | 5 | % | 5 | % | 2 | % | 2 | % | 2 | % | (1 | )% | (1 | )% | (1 | )% | 4 | % | 4 | % | ||||||||||||||||||||||||||||||||
Poland | 2 | % | 2 | % | 2 | % | 1 | % | 1 | % | 1 | % | 1 | % | 1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Rest of Europe | 3 | % | 3 | % | 4 | % | 1 | % | 1 | % | 2 | % | 3 | % | 3 | % | 4 | % | 5 | % | 5 | % | 1 | % | 4 | % | 5 | % | 4 | % | 3 | % | ||||||||||||||||||||||||||||||||
SAC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCA&C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Colombia | 5 | % | 5 | % | 4 | % | 13 | % | 10 | % | 5 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | 5 | % | 4 | % | 5 | % | 4 | % | 4 | % | ||||||||||||||||||||||||||||||||
Panama | 2 | % | 2 | % | 2 | % | 6 | % | 5 | % | 5 | % | 1 | % | 1 | % | 2 | % | 2 | % | 1 | % | 5 | % | 3 | % | 2 | % | 1 | % | 1 | % | ||||||||||||||||||||||||||||||||
Costa Rica | 1 | % | 1 | % | 1 | % | 4 | % | 3 | % | 3 | % | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Caribean TCL | — | — | 2 | % | — | — | 1 | % | — | 2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Rest of South, Central | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
America and the Caribbean | 5 | % | 4 | % | 4 | % | 6 | % | 7 | % | 7 | % | 2 | % | 3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Asia, Middle East and Africa | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Caribbean TCL | 2 | % | 2 | % | 2 | % | 1 | % | 2 | % | 2 | % | 2 | % | 2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Dominican Republic | 2 | % | 1 | % | 2 | % | 3 | % | 3 | % | 6 | % | 1 | % | 1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Rest of SCA&C | 4 | % | 4 | % | 4 | % | 7 | % | 7 | % | 7 | % | 2 | % | 1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
AMEA | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Philippines | 4 | % | 4 | % | 3 | % | 7 | % | 6 | % | 3 | % | 2 | % | 2 | % | 3 | % | 3 | % | 3 | % | 3 | % | 3 | % | 6 | % | 2 | % | 2 | % | ||||||||||||||||||||||||||||||||
Egypt | 3 | % | 3 | % | 1 | % | 5 | % | 5 | % | 1 | % | 1 | % | 1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Rest of Asia, Middle East and Africa | 4 | % | 4 | % | 5 | % | 4 | % | 4 | % | 5 | % | 2 | % | 2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Israel | 4 | % | 4 | % | 5 | % | 4 | % | 4 | % | 5 | % | 2 | % | 2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Rest of AMEA | 2 | % | 2 | % | 2 | % | 2 | % | 1 | % | (1 | )% | 2 | % | 1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Corporate and Other Operations | 7 | % | 7 | % | 8 | % | (13 | )% | (11 | )% | (11 | )% | 10 | % | 5 | % | 9 | % | 9 | % | 8 | % | (10 | )% | (18 | )% | (25 | )% | 4 | % | 7 | % | ||||||||||||||||||||||||||||||||
Continuing operations | 238,812 | 263,516 | 275,074 | 26,876 | 35,543 | 32,571 | 578,699 | 566,203 | 13,731 | 14,570 | 13,922 | 1,735 | 1,703 | 1,333 | 29,074 | 28,524 | ||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued operations | — | — | — | — | — | — | 21,029 | 1,378 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets held for sale and related liabilities | — | — | — | — | — | — | 107 | 839 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eliminations | (19,513 | ) | (13,571 | ) | (16,943 | ) | — | — | — | — | — | (805 | ) | (1,039 | ) | (792 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
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Consolidated net sales | 219,299 | 249,945 | 258,131 | 26,876 | 35,543 | 32,571 | 599,728 | 567,581 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Consolidated information | 12,926 | 13,531 | 13,130 | 1,735 | 1,703 | 1,333 | 29,181 | 29,363 |
(1) | Percentages by reporting segment are determined from continuing operations before eliminations resulting from consolidation. |
(2) | Percentages by reporting segment are determined from continuing operations after eliminations resulting from consolidation. |
The preparation of financial statements in accordance with IFRS requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses
during the period. These assumptions are reviewed on an ongoing basis using available information. Actual results could differ from these estimates.
The main items subject to significant estimates and assumptions by our management include impairment tests of long-lived assets, recognition of deferred income tax assets, as well as the measurement of financial instruments at fair value, the assets and assets, liabilities related to employee benefits, and revenue recognition.as well as the analyses of contingent liabilities. Significant judgment by our management is required to appropriately assess the amounts of these assets and liabilities.
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As of December 31, 20172018 and 20162019, and for the years ended December 31, 2015, 20162017, 2018 and 2017,2019, identified below are the accounting policies we have applied under IFRS that are critical to understanding our overall financial reporting.
Presentation currency
Beginning March 31, 2019, and for all subsequent periods, as permitted by IAS 21 under IFRS and with the authorization of CEMEX, S.A.B. de C.V.’s board of directors, considering the previous favorable opinion of its audit committee, we changed our presentation currency from the Mexican Peso to the Dollar considering the following factors:
● | For a consolidated group that comprises operations with a number of functional currencies, it is a decision of each entity to select its presentation currency under IAS 21, which may be the currency that management uses when controlling and monitoring the performance and financial position of the group. In our case, management uses the Dollar for these purposes; |
● | We believe that presenting our consolidated financial information using the Dollar improves and facilitates the analysis to a broad range of users (rating agencies, analysts, investors and lenders, among others) of our consolidated financial statements; and |
● | The use of the Dollar as presentation currency also improves the comparison of our consolidated financial statements with those of other global entities. |
Our consolidated financial statements, including comparative amounts and the accompanying notes to the audited consolidated financial statements, are presented as if the new presentation currency had always been our presentation currency. All currency translation adjustments were set to zero as of January 1, 2010, which was the date of our transition to IFRS. Translation adjustments and currency translation results of foreign subsidiaries recognized in other comprehensive income have been presented as if we had used Dollar as the presentation currency from that date. Comparative financial statements and their related notes were re-presented for the change in presentation currency by applying the methodology set out in IAS 21, using the closing exchange rates for the consolidated statements of financial position and the closing exchange rates of each month within the respective periods for consolidated income statements, consolidated statements of comprehensive income and consolidated statements of cash flows. Historic equity transactions were translated at the foreign exchange rate on the date of the transactions and were subsequently carried at historical value. In addition, as a result of this change in presentation currency and in compliance with IAS 1,Presentation of Financial Statements, CEMEX includes a third statement of financial position as of January 1, 2018, which incorporates the effects for the adoption of IFRS 16 described below.
Leases
Beginning January 1, 2019, IFRS 16 superseded all existing guidance related to lease accounting including IAS 17,Leases, and introduced a single lessee accounting model that requires a lessee to recognize, for all leases, allowing exemptions in the case of leases with a term of less than 12 months or when the underlying asset is of low value, assets for the right-of-use of the underlying asset against a corresponding financial liability, representing the net present value (“NPV”) of future contractual fixed payments under the contract. Under this model, the lessee recognizes in the income statement depreciation of the asset for the right-of-use and interest on the lease liability. After concluding the inventory and measurement of its leases, we adopted IFRS 16 using the full retrospective approach by means of which we determined an opening cumulative effect in its statement of financial position as of January 1, 2017, which is the beginning of the oldest comparative period. At the inception of a lease contract, we assess whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an unidentified asset for a period in exchange for consideration.
As mentioned above, based on IFRS 16, financial liabilities related to lease contracts are recognized against assets for the right-of-use, measured at their commencement date as the NPV of the future contractual fixed payments, using the interest rate implicit in the lease or, if that rate cannot be readily determined, our incremental borrowing rate. We determine our incremental borrowing rate by obtaining interest rates from our external financing sources and making certain adjustments to reflect the term of the lease, the type of the asset leased and the economic environment in which the asset is leased.
We do not separate the non-lease component from the lease component included in the same contract. Lease payments included in the measurement of the lease liability comprise contractual rental fixed payments, less incentives, fixed payments of non-lease components and the value of a purchase option, to the extent that option is highly probable to be exercised or is considered a bargain purchase option. Interest incurred under the financial obligations related to lease contracts is recognized as part of the line item “Interest expense” in the income statement.
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At the commencement date or on modification of a contract that contains a lease component, we allocate the consideration in the contract to each lease component based on their relative stand-alone prices. We apply the recognition exception for lease terms of 12 months or less and contracts of low-value assets and recognize the lease payment of these leases as rental expense in the income statement over the lease term. We defined the lease contracts related to office and computer equipment as low-value assets.
The lease liability is amortized using the effective interest method as payments are incurred and is remeasured when: (a) there is a change in future lease payments arising from a change in an index or rate, (b) if there is a change in the amount expected to be payable under a residual guarantee, (c) if we change our assessment of whether we will exercise a purchase, extension or termination option, or (d) if there is a revised in-substance fixed lease payment. When the lease liability is remeasured, an adjustment is made to the carrying amount of the asset for the right-of-use or is recognized within “Financial income and other items, net” if such asset has been reduced to zero.
The effects of IFRS 16 in our opening balance sheet as of January 1, 2017 were as follows:
Condensed Consolidated Statement of Financial Position | As of January 1, 2017 Original | IFRS 16 adoption adjustment | As of January 1, 2017 Re-presented | |||||||||
Total current assets | $ | 4,273 | $ | – | $ | 4,273 | ||||||
Property, machinery and equipment, net and assets for the right-of-use, net | 11,107 | 851 | 11,958 | |||||||||
Deferred income tax assets | 751 | 23 | 774 | |||||||||
Other items of non-current assets | 12,813 | – | 12,813 | |||||||||
Total non-current assets | 24,671 | 874 | 25,545 | |||||||||
Total Assets | $ | 28,944 | $ | 874 | $ | 29,818 | ||||||
Short-term other financial obligations | $ | 562 | $ | 163 | $ | 725 | ||||||
Other items of current liabilities | 3,571 | – | 3,571 | |||||||||
Total current liabilities | 4,133 | 163 | 4,296 | |||||||||
Long-term other financial obligations | 1,253 | 815 | 2,068 | |||||||||
Deferred income tax liabilities | 946 | – | 946 | |||||||||
Other items of non-current liabilities | 13,118 | – | 13,118 | |||||||||
Total non-current liabilities | 15,317 | 815 | 16,132 | |||||||||
Total Liabilities | 19,450 | 978 | 20,428 | |||||||||
Retained earnings(1) | 933 | (104 | ) | 829 | ||||||||
Other items of controlling interest | 7,002 | – | 7,002 | |||||||||
Total controlling interest | 7,935 | (104 | ) | 7,831 | ||||||||
Non-controlling interest and perpetual debentures | 1,559 | – | 1,559 | |||||||||
Total Stockholders’ Equity | 9,494 | (104 | ) | 9,390 | ||||||||
Total Liabilities And Stockholders’ Equity | $ | 28,944 | $ | 874 | $ | 29,818 |
(1) | The initial effect refers to a temporary difference between the straight-line amortization expense of the right-of-use asset against the amortization of the financial liability under the effective interest rate method since origination of the contracts. This difference will reverse over the remaining term of the contracts. |
Resulting from the adoption of IFRS 16, CEMEX re-presented its previously reported statement of financial position as of December 31, 2018, as follows:
Condensed Consolidated Statement of Financial Position | As of December 31, 2018 | IFRS 16 adjustment | As of December 31, 2018 | |||||||||
Total current assets | $ | 3,421 | $ | – | $ | 3,421 | ||||||
Property, machinery and equipment, net and assets for the right-of-use, net | 11,423 | 1,031 | 12,454 | |||||||||
Deferred income tax assets | 592 | 26 | 618 | |||||||||
Other items of non-current assets | 12,688 | – | 12,688 | |||||||||
Total non-current assets | 24,703 | 1,057 | 25,760 | |||||||||
Total Assets | $ | 28,124 | $ | 1,057 | $ | 29,181 | ||||||
Short-term other financial obligations | $ | 648 | $ | 207 | $ | 855 | ||||||
Other items of current liabilities | 3,940 | – | 3,940 | |||||||||
Total current liabilities | 4,588 | 207 | 4,795 | |||||||||
Long-term other financial obligations | 612 | 980 | 1,592 | |||||||||
Deferred income tax liabilities | 758 | (10 | ) | 748 | ||||||||
Other items of non-current liabilities | 10,993 | – | 10,993 | |||||||||
Total non-current liabilities | 12,363 | 970 | 13,333 | |||||||||
Total Liabilities | 16,951 | 1,177 | 18,128 | |||||||||
Retained earnings | 1,742 | (120 | ) | 1,622 |
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Condensed Consolidated Statement of Financial Position | As of December 31, 2018 | IFRS 16 adjustment | As of December 31, 2018 | |||||||||
Other items of controlling interest | 7,859 | – | 7,859 | |||||||||
Total controlling interest | 9,601 | (120 | ) | 9,481 | ||||||||
Non-controlling interest and perpetual debentures | 1,572 | – | 1,572 | |||||||||
Total Stockholders’ Equity | 11,173 | (120 | ) | 11,053 | ||||||||
Total Liabilities And Stockholders’ Equity | $ | 28,124 | $ | 1,057 | $ | 29,181 |
In addition, resulting from the adoption of IFRS 16, CEMEX re-presented its previously reported income statements for the years ended December 31, 2017 and 2018, as follows:
For the years ended December 31, | ||||||||||||||||||||||||
Condensed consolidated income statements | 2018 | IFRS 16 effects | 2018 | 2017 | IFRS 16 effects | 2017 | ||||||||||||||||||
Revenues | $ | 13,531 | $ | – | $ | 13,531 | $ | 12,926 | $ | – | $ | 12,926 | ||||||||||||
Cost of sales | (8,883 | ) | 34 | (8,849 | ) | (8,397 | ) | 32 | (8,365 | ) | ||||||||||||||
Operating expenses | (3,003 | ) | 24 | (2,979 | ) | (2,846 | ) | 20 | (2,826 | ) | ||||||||||||||
Other expenses, net | (296 | ) | – | (296 | ) | (205 | ) | – | (205 | ) | ||||||||||||||
Financial expense | (653 | ) | (69 | ) | (722 | ) | (1,023 | ) | (63 | ) | (1,086 | ) | ||||||||||||
Financial income and other items, net | 35 | (3 | ) | 32 | 219 | (2 | ) | 217 | ||||||||||||||||
Earnings before income tax | 731 | (14 | ) | 717 | 674 | (13 | ) | 661 | ||||||||||||||||
Income tax | (226 | ) | 2 | (224 | ) | (10 | ) | (6 | ) | (16 | ) | |||||||||||||
Net income from continuing operations | 505 | (12 | ) | 493 | 664 | (19 | ) | 645 | ||||||||||||||||
Discontinued operations | 77 | – | 77 | 222 | – | 222 | ||||||||||||||||||
Consolidated Net Income | 582 | (12 | ) | 570 | 886 | (19 | ) | 867 | ||||||||||||||||
Non-controlling interest net income | 42 | – | 42 | 75 | – | 75 | ||||||||||||||||||
Controlling Interest Net Income | $ | 540 | $ | (12 | ) | $ | 528 | $ | 811 | $ | (19 | ) | $ | 792 |
Moreover, resulting from the adoption of IFRS 16, CEMEX re-presented its previously reported statements of cash flows for the years ended December 31, 2017 and 2018, as follows:
For the years ended December 31, | ||||||||||||||||||||||||
Condensed consolidated statements of cash flows | 2018 | IFRS 16 effects | 2018 | 2017 | IFRS 16 effects | 2017 | ||||||||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||||||||||
Net income from continuing operations | $ | 513 | $ | (20 | ) | $ | 493 | $ | 673 | $ | (28 | ) | $ | 645 | ||||||||||
Non-cash items: | ||||||||||||||||||||||||
Depreciation and amortization of assets | 763 | 219 | 982 | 787 | 176 | 963 | ||||||||||||||||||
Other non-cash items | 896 | 67 | 963 | 759 | 61 | 820 | ||||||||||||||||||
Changes in working capital, excluding income taxes | (55 | ) | – | (55 | ) | 431 | – | 431 | ||||||||||||||||
Operating cash flows from continuing operations before financial expense, coupons on perpetual debentures and income taxes | 2,117 | 266 | 2,383 | 2,650 | 209 | 2,859 | ||||||||||||||||||
Interest on debt and coupons on perpetual debentures paid | (672 | ) | (69 | ) | (741 | ) | (836 | ) | (63 | ) | (899 | ) | ||||||||||||
Income taxes paid | (208 | ) | 1 | (207 | ) | (240 | ) | (6 | ) | (246 | ) | |||||||||||||
Operating cash flows from continuing operations | 1,237 | 198 | 1,435 | 1,574 | 140 | 1,714 | ||||||||||||||||||
Operating cash flows from discontinued operations | 132 | – | 132 | 131 | – | 131 | ||||||||||||||||||
Net cash flows provided by operating activities | 1,369 | 198 | 1,567 | 1,705 | 140 | 1,845 | ||||||||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||||||||||
Property, machinery and equipment and assets for the right-of-use, net | (601 | ) | – | (601 | ) | (567 | ) | – | (567 | ) | ||||||||||||||
Other items of investing activities | (214 | ) | – | (214 | ) | 1,120 | – | 1,120 | ||||||||||||||||
Net cash flows provided by (used in) investing activities | (815 | ) | – | (815 | ) | 553 | – | 553 | ||||||||||||||||
FINANCING ACTIVITIES | ||||||||||||||||||||||||
Other financial obligations, net | (388 | ) | (190 | ) | (578 | ) | (78 | ) | (112 | ) | (190 | ) | ||||||||||||
Other items of financing activities | (585 | ) | – | (585 | ) | (2,200 | ) | – | (2,200 | ) | ||||||||||||||
Net cash flows used in financing activities | (973 | ) | (190 | ) | (1,163 | ) | (2,278 | ) | (112 | ) | (2,390 | ) | ||||||||||||
Decrease in cash and cash equivalents from continuing operations | (551 | ) | 8 | (543 | ) | (151 | ) | 28 | (123 | ) | ||||||||||||||
Increase in cash and cash equivalents from discontinued operations | 132 | – | 132 | 131 | – | 131 | ||||||||||||||||||
Foreign currency translation effect on cash | 29 | (8 | ) | 21 | 158 | (28 | ) | 130 | ||||||||||||||||
Cash and cash equivalents at beginning of period | 699 | – | 699 | 561 | – | 561 | ||||||||||||||||||
Cash and Cash Equivalents at End of Period | $ | 309 | $ | – | $ | 309 | $ | 699 | $ | – | $ | 699 |
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Income Taxes
Our operations are subject to taxation in many different jurisdictions throughout the world. The effects reflected in profit or lossthe income statement for income taxes include the amounts incurred during the period and the amounts of deferred income taxes, determined according to the income tax law applicable to each subsidiary.subsidiary, reflecting uncertainty in income tax treatments, if any. Consolidated deferred income taxes represent the addition of the amounts determined in each subsidiary by applying the enacted statutory income tax rate to the total temporary differences resulting from comparing the book and taxable values of assets and liabilities, considering tax loss carryforwards as well asand other recoverable tax credits, to the extent that it is probable that future taxable profits will be available against which they can be utilized. The measurement of deferred income taxes at the reporting period reflects the tax consequences that follow the manner in which CEMEX expectswe expect to recover or settle the carrying amount of its assets and liabilities. Deferred income taxes for the period represent the difference between balances of deferred income taxes at the beginning and the end of the period. Deferred income tax assets and liabilities relating to different tax jurisdictions are not offset. According to IFRS, all items charged or credited directly in stockholders’ equity or as part of other comprehensive income or loss for the period are recognized net of their current and deferred income tax effects. The effect of a change in enacted statutory tax rates is recognized in the period in which the change is officially enacted. Our worldwide tax position is highly complex and subject to numerous laws that require interpretation and application and that are not consistent among the countries in which we operate. Significant judgment is required to appropriately assess the amounts of tax assets and liabilities.
For the recognition of deferred
Deferred tax assets, derived from net operating losses we assess:
(a)mainly related to tax loss carryforwards, are reviewed at each reporting date and are reduced when it is not deemed probable that the related tax benefit will be realized, considering the aggregate amount of self-determined tax loss carryforwards included in our incomethat we believe will not be rejected by the tax returns in each country where we operate,authorities based on available evidence that the tax authorities would not reject such self-determined tax loss carryforwards; and
(b) the likelihood of the recoverability of such tax loss carryforwardsrecovering them prior to their expiration through an analysis of estimated future taxable income.
If we consider that it is probable that the tax authorities would reject a self-determined deferred tax asset, we would decrease such deferred tax assets. Likewise, if we considerasset. When it is considered that we would not be able to use a deferred tax carryforward asset will not be recovered before its expiration, we would decrease the value of thenot recognize such deferred tax asset. Both situations would result in additional income tax expense for the period in which such determination is made.
We consider In order to determine whether it is probable that deferred tax assets will ultimately be recovered, we take into consideration all available positive and negative evidence, including factors such as market conditions, industry analysis, our expansion plans, projected taxable income, carryforward periods, current tax structure, potential changes or adjustments in tax structure, tax planning strategies and future reversals of existing temporary differences, etc., in the determination of whether it is probable that such deferred tax assets will ultimately be recovered.
Every reporting period,differences. Likewise, we analyze our actual results versus our estimates, and adjust, as necessary, our tax asset valuations as necessary.valuations. If actual results vary from our estimates, the deferred tax asset and/or valuations may be affected and necessary adjustments will be made based on relevant information. Any adjustments recorded will affectinformation in our income statements instatement for such period.
The
Based on IFRIC 23,Uncertainty over income tax treatments (“IFRIC 23”), the income tax effects from an uncertain tax position are recognized when it is probable that the position will be sustained based on its technical merits and assuming that the tax authorities will examine each position and have full knowledge of all relevant information, and they are measured using a cumulativeinformation. The probability model. Eachof each position has been considered on its own, regardless of its relation to any other broader tax settlement. The probability threshold represents a positive assertion by management that we are entitled to the economic benefits of a tax position. If it is improbable for a tax position to be sustained, no benefits of the position are recognized. Our policy is to recognize interest and penalties related to unrecognized tax benefits as part of the income tax in the consolidated income statements.
Our overall tax strategy is to structure our worldwide operations to reduce or defer the payment of income taxes on a consolidated basis. Many of the activities we undertake in pursuing this tax reduction strategy are highly complex and involve interpretations of tax laws and regulations in multiple jurisdictions and are subject to review by the relevant taxing authorities. It is possible that the taxing authorities could challenge our application of these regulations to our operations and transactions. The taxing authorities have in the past have challenged interpretations that we have made and have assessed additional taxes. Although we have, from time to time, paid some of these additional assessments, in general, we believe that these assessments have not been material and that we have been successful in sustaining our positions. No assurance can be given, however, that we will continue to be as successful as we have been in the past or that pending appeals of current tax assessments will be judged in our favor.
Our effective income tax rate is determined by dividing the line item “Income tax” in our consolidated income statements into the line item “Earnings before income tax.” This effective tax rate is further reconciled to our statutory tax rate applicable in Mexico and is presented in note 19.3 to our 20172019 audited consolidated financial statements included elsewhere in this annual report. A significant effect inon our effective tax rate, and consequently inon the reconciliation of our effective tax rate, relates to the difference between the statutory income tax rate in Mexico of 30% against the applicable income tax rates of each country where we operate. For the years ended December 31, 2015, 20162017, 2018 and 2017,2019, the statutory tax rates in our main operations were as follows:
Country | 2015 | 2016 | 2017 | |||||||||
Mexico | 30.0 | % | 30.0 | % | 30.0 | % | ||||||
United States | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
United Kingdom | 20.3 | % | 20.0 | % | 19.3 | % | ||||||
France | 38.0 | % | 34.4 | % | 34.4 | % | ||||||
Germany | 29.8 | % | 28.2 | % | 28.2 | % | ||||||
Spain | 28.0 | % | 25.0 | % | 25.0 | % | ||||||
Philippines | 30.0 | % | 30.0 | % | 30.0 | % | ||||||
Colombia | 39.0 | % | 40.0 | % | 40.0 | % | ||||||
Egypt | 22.5 | % | 22.5 | % | 22.5 | % | ||||||
Switzerland | 9.6 | % | 9.6 | % | 9.6 | % | ||||||
Others | 7.8% - 39.0 | % | 7.8% - 39.0 | % | 7.8% - 39.0 | % |
Country | 2017 | 2018 | 2019 |
Mexico | 30.0% | 30.0% | 30.0% |
United States | 35.0% | 21.0% | 21.0% |
United Kingdom | 19.3% | 19.3% | 19.3% |
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Country | 2017 | 2018 | 2019 |
France | 34.4% | 34.4% | 34.4% |
Germany | 28.2% | 28.2% | 28.2% |
Spain | 25.0% | 25.0% | 25.0% |
Philippines | 30.0% | 30.0% | 30.0% |
Colombia | 40.0% | 37.0% | 33.0% |
Egypt | 22.5% | 22.5% | 22.5% |
Others | 7.8% - 39.0% | 7.8% - 39.0% | 7.8% - 35.0% |
Our current and deferred income tax amounts included in our consolidated income statements are highly variable and are subject, among other factors, to the amounts of taxable income determined in each jurisdiction in which we operate. Such amounts of taxable income depend on factors such as sale volumes and prices, costs and expenses, exchange rates fluctuations and interest on debt, among others, as well as on the estimated tax assets at the end of the period due to the expected future generation of taxable gains in each jurisdiction. See our discussion of operations included elsewhere in this “Item 5—Operating and Financial Review and Prospects.”
Effective January 1, 2018, we adopted IFRS 9,Financial Instruments: classification and measurement (“IFRS 9”), which sets forth the guidance relating to the classification and measurement of financial assets and financial liabilities, the accounting for expected credit losses of financial assets and commitments to extend credits, as well as the requirements for hedge accounting. IFRS 9 replaced IAS 39, Financial instruments: recognition and measurement (“IAS 39”). We applied IFRS 9 prospectively. The accounting policies were changed to comply with IFRS 9. The changes required by IFRS 9 are described as follows:
● | Among other things, IFRS 9 changed the classification categories for financial assets under IAS 39 and replaced them with categories that more closely reflect the measurement method, the contractual cash flow characteristics and the entity’s business model for managing the financial asset. |
● | Cash and cash equivalents, trade and other accounts receivable and other financial assets, which were classified as “Loans and receivables” and measured at amortized cost under IAS 39, are now classified as “Held to collect” under IFRS 9 and continue to be measured at amortized cost. |
● | Investments and non-current accounts receivable that were classified as “Held to maturity” and measured at amortized cost under IAS 39 are now classified as “Held to collect” under IFRS 9 and continue to be measured at amortized cost. |
● | Investments that were classified as “Held for trading” and measured at fair value through profit or loss under IAS 39 are now classified as “Other investments” under IFRS 9 and are measured at fair value through profit or loss. |
● | Certain investments that were classified as “Held for sale” and measured at fair value through other comprehensive income under IAS 39 are now considered strategic investments under IFRS 9 and continue to be measured at fair value through other comprehensive income. |
Debt instruments and other financial obligations continue to be classified as “Loans” and measured at amortized cost under IFRS 9 and derivative financial instruments continue to be measured at fair value through profit or loss under IFRS 9.
We assessed which business models applied to our financial assets and liabilities as of the date of initial application of IFRS 9 and classified our financial instruments into the appropriate IFRS 9 categories. As of January 1, 2018, the changes due to the classification and measurement requirements under IFRS 9 did not impact either the measurement or carrying amount of financial assets and liabilities and there was no effect on our retained earnings.
Derivative financial instruments
In compliance with the guidelines established by our Risk Management Committee and the restrictions in our debt agreements and our hedging strategy, we use derivative financial instruments with the objectives of: (a)(i) changing the risk profile or setting a fixed the price of fuels and electric energy; (b)(ii) foreign exchange hedging; (c)(iii) hedging forecasted transactions; and (d)(iv) accomplishing other corporate objectives.
Derivative financial instruments are recognized as assets or liabilities in the balance sheet at their estimated fair values, and changes in such fair values are recognized in the income statements within “Financial income (expense) and other items, net” for the period in which they occur, except for changes in the fair value of derivative instruments associated with cash flow hedges, in which case, such changes in fair value are recognized in stockholders’ equity, and are reclassified to earnings as the interest expense of the related debt
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is accrued, in the case of interest rate swaps, or when the underlying products are consumed in the case of contracts on the price of raw materials, fuel and commodities. Likewise, in hedges of the net investment in foreign subsidiaries, changes in fair value are recognized in stockholders’ equity as part of the foreign currency translation result, which reversal to earnings would take place upon disposal of the foreign investment. During the reported periods, we have not designated any derivative instruments in fair value hedges. Derivative instruments are negotiated with institutions with significant financial capacity; therefore, we believe the risk ofnon-performance of the obligations agreed to by such counterparties to be minimal. See note 16.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
The estimated fair value under IFRS represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, considering the counterparty’s credit risk in the valuation, that is, an exit price or a market-based measurement.
In connection with hedge accounting under IFRS 9, among other changes, there is a relief for entities in performing: (a) the retrospective effectiveness test at inception of the hedging relationship and (b) the requirement to maintain a prospective effectiveness ratio between 0.8 and 1.25 at each reporting date for purposes of sustaining the hedging designation, both requirements under IAS 39. Under IFRS 9, a hedging relationship can be established to the extent the entity considers, based on the analysis of the overall characteristics of the hedging and hedged items, that the hedge will be highly effective in the future and the hedge relationship at inception is aligned with the entity’s reported risk management strategy. IFRS 9 maintains the same hedge accounting categories of cash flow hedge, fair value hedge and hedge of a net investment established in IAS 39, as well as the requirement of recognizing the ineffective portion of a cash flow hedge immediately in the income statement. We performed an analysis of our derivative financial instruments upon adoption of IFRS 9 on January 1, 2018 and determined that the changes in hedge accounting described above did not impact either the measurement or carrying amount of the assets and liabilities related to our derivative financial instruments and there was no effect on our retained earnings.
The concept of exit value is premised on the existence of a market and market participants for the specific asset or liability. When there is no market and/or market participants willing to make a market, IFRS establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
● | Level 1—It represents quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date. A quoted price in an active market provides the most reliable evidence of fair value and is used without adjustment to measure fair value whenever available. |
● | Level 2—These are inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly, and are used mainly to determine the fair value of securities, investments or loans that are not actively traded. Level 2 inputs included equity prices, certain interest rates and yield curves, implied volatility, credit spreads and other market corroborated inputs, including inputs extrapolated from other observable inputs. In the absence of Level 1 inputs, we determined fair values by iteration of the applicable Level 2 inputs, the number of securities and/or the other relevant terms of the contract, as applicable. |
● | Level 3—These are unobservable inputs for the asset or liability. We use unobservable inputs to determine fair values, to the extent there are no Level 1 or Level 2 inputs, in valuation models such as Black-Scholes, binomial, discounted cash flows or multiples of Operating EBITDA, including risk assumptions consistent with what market participants would use to arrive at fair value. |
Significant judgment and estimates by management are required to appropriately identify the corresponding level of fair value applicable to each derivative financing transaction, as well as to assess the amounts of the resulting assets and liabilities, mainly in respect of levelLevel 2 and levelLevel 3 fair values, in order to account for the effects of derivative financial instruments in the financial statements. See note 16.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
Impairment of financial assets
Impairment losses of financial assets, including trade accounts receivable, are recognized using the expected credit loss model for the entire lifetime of such financial assets on initial recognition, and at each subsequent reporting period, even in the absence of a credit event or if a loss has not yet been incurred, considering for their measurement past events and current conditions, as well as reasonable and supportable forecasts affecting collectability.
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Allowances for credit losses were established until December 31, 2017 based on incurred loss analyses over delinquent accounts considering aging of balances, the credit history and risk profile of each customer and legal processes to recover accounts receivable. Beginning in 2018, with the adoption of IFRS 9, such allowances are determined and recognized upon origination of the trade accounts receivable based on a model that calculates the expected credit loss (“ECL”) of the trade accounts receivable. See notes 2.1 and 9 to our 2019 audited consolidated financial statements included elsewhere in this annual report.
Under this ECL model, we segment our accounts receivable in a matrix by country, type of client or homogeneous credit risk and days past due and determine for each segment an average rate of ECL, considering actual credit loss experience over the last 24 months and analyses of future delinquency, that is applied to the balance of accounts receivable. The average ECL rate increases in each segment of days past due until the rate is 100% for the segment of 365 days or more past due. See note 9 to our 2019 audited consolidated financial statements included elsewhere in this annual report. The effects of the adoption of IFRS 9 on January 1, 2018, related to the expected credit loss model, represented an increase in our allowance for expected credit losses of $29 million recognized against retained earnings, net of a deferred income tax asset of $8 million. The balances of such allowance and deferred tax assets increased from the reported amounts as of December 31, 2017, of $109 million and $754 million, respectively, to $138 million and $762 million as of January 1, 2018, respectively, after the adoption effects. Significant judgment and estimates by management are required to appropriately assess expected credit losses under IFRS 9.
Impairment of long-lived assets
Our statement of financial position reflects significant amounts of long-lived assets (including property, machinery and equipment, goodwill, intangible assets of definite life and other investments) associated with our operations throughout the world. Many of these amounts have resulted from past acquisitions, which have required us to reflect these assets at their fair market values at the dates of acquisition. According to their characteristics and the specific accounting rules related to them, we assess the recoverability of our long-lived assets at least once a year, normally during the fourth quarter, as is the case for goodwill, or whenever events or circumstances arise that we believe trigger a requirement to review such carrying values, as is the case with property, machinery and equipment and intangible assets of definite life.
Property, machinery and equipment, assets for the right-of-use, intangible assets of definite life and other investments are tested for impairment upon the occurrence of factors such as the occurrence of a significant adverse event,internal or external indicators of impairment, such as changes in our operating environment, changes in projected usebusiness model or in technology that affects the asset, as well as expectations of lower operating results for each cash generating unit, in order to determine whether their carrying amounts may not be recovered. In such cases, an impairment loss is recorded in the income statements for the period when such determination is made within “Other expenses, net.” The impairment loss of an asset results from the excess of the asset’s carrying amount over its recoverable amount, corresponding to the higher of the fair value of the asset, less costs to sell such asset, and the asset’s value in use, the latter represented by the net present value of estimated cash flows related to the use and eventual disposal of the asset.
As a result of impairment tests conducted on several CGUs considering certain triggering events, mainly: (a) the closing and/or reduction of operations of cement and ready-mix concrete plants resulting from adjusting the supply to current demand conditions, such as the further adjustment in Puerto Rico in the last quarter of 2019 due to the continued adverse outlook and the overall uncertain economic conditions in such country after hurricane “Maria” in 2017; (b) change of operating model of certain assets or the transferring of installed capacity to more efficient plants; as well as (c) for certain equipment, remaining idle for several periods. For the years ended December 31, 2019, 2018 and 2017, we adjusted the related fixed assets to their estimated value in use in those circumstances in which the assets would continue in operation based on estimated cash flows during the remaining useful life, or to their realizable value, in case of permanent shut down, and recognized impairment losses within the line item of “Other expenses, net.” See note 14.1 to our 2019 audited consolidated financial statements included elsewhere in this annual report.
During 2017, 2018 and 2019, the breakdown of impairment losses of fixed assets by country was as follows:
For the Year Ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
(in millions of Dollars) | ||||||||||||
Puerto Rico | $ | – | $ | – | $ | 52 | ||||||
United States | 8 | 13 | 6 | |||||||||
Colombia | – | 2 | 3 | |||||||||
France | 3 | – | 1 | |||||||||
Poland | – | 5 | – | |||||||||
Spain | 24 | 2 | – | |||||||||
Mexico | 2 | 1 | – | |||||||||
Czech Republic | 8 | – | – | |||||||||
Panama | 3 | – | – | |||||||||
Others | 1 | – | 2 | |||||||||
$ | 49 | $ | 23 | $ | 64 |
See note 14.1 to our 2019 audited consolidated financial statements included elsewhere in this annual report.
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We do not have intangible assets of indefinite life other than goodwill. As mentioned above, goodwill is tested for impairment when required due to significant adverse changes or at least once a year, during the last quarter of such year, by determining the recoverable amount of the group of cash-generating units (“CGUs”)CGUs to which goodwill balances have been allocated, which consists of the higher of such group of CGUs fair value, less cost to sell and its value in use, represented by the discounted amount of estimated future cash flows to be generated by such CGUs to which goodwill has been allocated. Other intangible assets of indefinite life may be tested at the CGU or group of CGUs level, depending on their allocation. We determine discounted cash flows generally over periods of five years. In specific circumstances, when, according to our experience, actual results for a given cash-generating unit do not fairly reflect historical performance and most external economic variables provide us with confidence that a reasonably determinable improvement in themid-term is expected in their operating results, management uses cash flow projections over a period of up to ten years, to the point in which future expected average performance resembles the historical average performance and to the extent we have detailed, explicit and reliable financial forecasts and is confident and can demonstrate its ability, based on past experience, to forecast cash flows accurately over that longer period.forecasts. If the value in use of a group of CGUs to which goodwill has been allocated is lower than its corresponding carrying amount, we determine the fair value of our reporting units using methodologies generally accepted in the market to determine the value of entities, such as multiples of Operating EBITDA and by reference to other market transactions, among others. An impairment loss under IFRS is recognized within other expenses, net, if the recoverable amount is lower than the net book value of the group of CGUs to which goodwill has been allocated. Impairment charges recognized on goodwill are not reversed in subsequent periods.
For the years ended December 31, 2015, 20162017, 2018 and 2017,2019, the geographicreportable segments we reportedpresented in note 4.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report represent our groups of CGUs to which goodwill has been allocated for purposes of testing goodwill for impairment. In arriving at this conclusion, we considered: (a)(i) that after the acquisition, goodwill was allocated at the level of the geographicreportable operating segment; (b)(ii) that the operating components that comprise the reported segment have similar economic characteristics; (c)(iii) that the reported segments are used by us to organize and evaluate its activities in its internal information system; (d)(iv) the homogenous nature of the items produced and traded in each operative component, which are all used by the construction industry; (e)(v) the vertical integration in the value chain of the products comprising each component; (f)(vi) the type of clients, which are substantially similar in all components, (g)components; (vii) the operative integration among components; and (h)(viii) whether the compensation system of the specific country is based on the
consolidated results of the geographicreportable segment and not on the particular results of the components. In addition, the country level represents the lowest level within us at which goodwill is monitored for internal management purposes.
Significant judgment by management is required to appropriately assess the fair values and values in use of these assets. Impairment tests are significantly sensitive to, among other factors, the estimation of future prices of our products, the development of operating expenses, local and international economic trends in the construction industry, the long-term growth expectations in the different markets as well as the discount rates and the growth rates in perpetuity applied. For purposes of estimating future prices, we use, to the extent available, historical data plus the expected increase or decrease according to information issued by trusted external sources, such as national construction or cement producer chambers and/or in governmental economic expectations. Operating expenses are normally measured as a constant proportion of revenues, following past experience. However, such operating expenses are also reviewed considering external information sources in respect to inputs that behave according to international prices, such as gas and oil. We use specificpre-tax discount rates for each group of CGUs to which goodwill is allocated, which are applied topre-tax cash flows. The discount rates are determined using the approach of the weighted average cost of capital (WACC formula). The amounts of estimated undiscounted cash flows are significantly sensitive to the growth rate in perpetuity applied. Likewise, the amounts of discounted estimated future cash flows are significantly sensitive to the weighted average cost of capital (discount rate) applied. The higher the growth rate in perpetuity applied, the higher the amount obtained of undiscounted future cash flows by group of CGUs obtained. Conversely,Moreover, the amounts of discounted estimated future cash flows are significantly sensitive to the weighted average cost of capital (discount rate) applied. The higher the discount rate applied, the lower the amount obtained of discounted estimated future cash flows by group of CGUs obtained. Additionally, we monitor the useful lives assigned to these long-lived assets for purposes of depreciation and amortization, when applicable. This determination is subjective and is integral to the determination of whether impairment has occurred.
During the last quarter of each of 2015, 20162017, 2018 and 2017,2019, we performed our annual goodwill impairment test. Based on these analyses, for the year ended as of December 31, 2015 and 2016, we did not determine impairment losses of goodwill in any of the reported periods. Duringduring 2017, in connection with the operating segment in Spain, considering the uncertainty over the improvement indicators affecting the country’s construction industry, and consequently in the expected consumption of cement,ready-mix concrete and aggregates, partially a result of the country’s complex prevailing political environment, which has limited expenditure in infrastructure projects, as well as the uncertainty in the expected price recovery and the effects of increased competition and imports, our management considered a reduction in the horizon of the related cash flows projections from 10 to five years and determined that the net book value of such operating segment in Spain exceeded the amount of the net present value of projected cash flows by Ps1,920 million (U.S.$98 million).$98 million. As a result, we recognized an impairment loss of goodwill in 2017 for the aforementioned amount as part of “Other expenses, net” in the income statement against the related goodwill balance. During 2018 and 2019, we did not determine impairment losses of goodwill. See note 15.2 to our 20172019 audited consolidated financial statements included elsewhere in this annual report. Pretax
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Pre-tax discount rates and long-term growth rates used to determine the discounted cash flows in the group of CGUs with the main goodwill balances in 2015, 20162017, 2018 and 20172019 are as follows:
Discount rates | Growth rates | |||||||||||||||||||||||
Reporting units | 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | ||||||||||||||||||
United States | 8.6 | % | 8.6 | % | 8.8 | % | 2.5 | % | 2.5 | % | 2.5 | % | ||||||||||||
Spain | 9.9 | % | 9.5 | % | 9.5 | % | 1.9 | % | 1.6 | % | 1.7 | % | ||||||||||||
Mexico | 9.6 | % | 9.8 | % | 10.2 | % | 3.5 | % | 2.9 | % | 2.7 | % | ||||||||||||
Colombia | 9.8 | % | 10.0 | % | 10.5 | % | 4.0 | % | 4.0 | % | 3.7 | % | ||||||||||||
France | 9.0 | % | 9.1 | % | 9.0 | % | 1.6 | % | 1.8 | % | 1.8 | % | ||||||||||||
United Arab Emirates | 10.2 | % | 10.2 | % | 10.4 | % | 3.6 | % | 3.4 | % | 3.1 | % | ||||||||||||
United Kingdom | 8.8 | % | 8.8 | % | 9.0 | % | 2.3 | % | 1.9 | % | 1.7 | % | ||||||||||||
Egypt | 12.5 | % | 11.4 | % | 11.8 | % | 4.6 | % | 6.0 | % | 6.0 | % | ||||||||||||
Range of discount rates in other countries | 9.0% - 13.8 | % | 9.1% - 12.8 | % | 9.1% - 11.7 | % | 2.4% - 4.3 | % | 2.2% - 7.0 | % | 2.3% - 6.8 | % |
Discount rates | Growth rate | ||||||
Groups of CGUs | 2017 | 2018 | 2019 | 2017 | 2018 | 2019 | |
United States | 8.8% | 8.5% | 7.8% | 2.5% | 2.5% | 2.5% | |
Spain | 9.5% | 8.8% | 8.3% | 1.7% | 1.7% | 1.6% | |
Mexico | 10.2% | 9.4% | 9.0% | 2.7% | 3.0% | 2.4% | |
Colombia | 10.5% | 9.5% | 8.9% | 3.7% | 3.6% | 3.7% | |
France | 9.0% | 8.4% | 8.0% | 1.8% | 1.6% | 1.4% | |
United Arab Emirates | 10.4% | 11.0% | 8.8% | 3.1% | 2.9% | 2.5% | |
United Kingdom | 9.0% | 8.4% | 8.0% | 1.7% | 1.6% | 1.5% | |
Range of rates in other countries | 9.1% - 11.8% | 8.5% - 13.3% | 8.1% - 11.5% | 2.3% - 6.8% | 2.3% - 6.9% | 1.6% - 6.5% | |
As of December 31, 2017,2019, the discount rates we used in our cash flowflows projections remained relatively flatto determine the value in countries with the most significant goodwill balancesuse of our operating segments generally decreased in 2019 as compared to the values determined2018 in 2016. During the year,a range of 0.6% up to 2.6%, mainly as a result of a decrease in 2019 in the funding cost observed in the industry decreasedthat changed from 6.2%7.3% in 20162018 to 6.1%5.4% in 2017, and the risk multiple attributed2019. The risk-free rate associated to us alsoremained significantly flat in the level of 2.9%, while the country risk-specific rates decreased from approximately 1.29slightly in 2016 to 1.262019 in 2017. Nonetheless, these decreasesmost cases. These reductions were partially offset by ana slight increase in the risk-free ratepublic comparable companies’ stock volatility (beta) that changed from 2.70%1.06 in 20162018 to 2.76%1.08 in 2017, as well as by overall increases2019 and the decrease in the sovereign riskweighing of debt in the calculation of the discount rates of certain major countries.that changed from 33.5% in 2018 to 31.7% in 2019. As of December 31, 2016, the2018, such discount rates remained almost flatdecreased slightly in most cases in a range of 0.3% up to one percentage point, except for UAE and the Caribbean, as compared to 2017. This reduction was mainly attributable to a decrease in the values determinedpublic comparable companies’ stock volatility (beta) and general decreases in 2015. Among other factors,the country specific sovereign yields in the majority of the countries where CEMEX operates and the weighing of debt in the calculation, effects that were partially offset for increases during 2018 in the funding cost observed in the industry decreasedthat changed from 6.9%6.1% in 20152017 to 6.2%7.3% in 2016,2018 and the risk-freerisk free rate also decreasedassociated with CEMEX which increased from approximately 3.2%2.8% in 20152017 to 2.7%2.9% in 2016. Nonetheless, these increases were offset by reductions in 2016 in the country-specific sovereign yields for the majority of the countries where CEMEX operates. As of December 31, 2015, the discount rates remained almost flat in most cases as compared to the values determined in the previous year.2018. With respect to long-term growth rates, following general practice under IFRS, CEMEX uses country-specificcountry specific rates, which are mainly obtained from the Consensus Economics, a compilation of analysts’ forecast worldwide, or fromeconomic data released by the International Monetary Fund when the first are not available for a specific country.Fund.
In connection with our assumptions included in the table above, we performedperform sensitivity analyses to changes in assumptions, affecting the value in use of all groups of cash-generating units with an independent reasonably possible increase of 1% in thepre-tax discount rate and an independent possible decrease of 1% in the long-term growth rate. In addition, we performedperform cross-check analyses for reasonableness of our results using multiples of Operating EBITDA. In order to arrive at these multiples, which represent a reasonableness check of our discounted cash flow models;models, we determineddetermine a weighted average of multiples of Operating EBITDA to enterprise value observed in the industry and/or in recent mergers and acquisitions in the industry. The average multiple wasis then applied to a stabilized amount of Operating EBITDA and the result wasis compared to the corresponding carrying amount for each group of cash-generating units to which goodwill has been allocated. As of December 31, 2016 and 2017, weWe considered an industry weighted average Operating EBITDA multiple of 9.09.0x for each of 2015, 20162017, 11.1x for 2018 and 2017. Our own EBITDA multiples to enterprise value as of the same dates were 8.7 times in 2015, 8.9 times in 2016 and 8.5 times in 2017. The lowest multiple observed in our benchmark as of December 31, 2015, 2016 and 2017 was 5.8 times, 5.9 times and 6.5 times, respectively; and the highest was 18.0 times, 18.3 times and 18.9 times, respectively.11.5x for 2019.
As of December 31, 2015, 20162017, 2018 and 2017,2019, except for the Operating Segmentour operating segment in Spain described above, in which CEMEXwe determined an impairment loss of goodwill in 2017, none of our sensitivity analyses resulted in a relativepotential impairment risk in our operating segments.
Nonetheless, we continually monitor the evolution of the specific cash-generating unitsCGUs to which goodwill has been allocated and, in the event that the relevant economic variables and the related cash flows projections would be negatively affected, it may result in a goodwill impairment loss in the future.
As of December 31, 20162018 and 2017,2019, goodwill allocated to the United StatesU.S. accounted in both years for 79% and 78%, respectively, of our total amount of consolidated goodwill. In connection with our determination of value in use relative to our groups of CGUs in the United StatesU.S. in the reported periods, we have considered several factors, such as the historical performance of such operating segment, including operating results in recent years, the long-term nature of our investment, the recent signs of recovery in the construction industry, the significant economic barriers for new potential competitors considering the high investment required and the lack of susceptibility of the industry to technology improvements or alternate construction products, among other factors. We have also consideredTo improve our assurance, as mentioned above, we verified our conclusions using sensitivity analyses using Operating EBITDA multiples of recent developmentssale transaction within the industry occurred in our operations insuch country, as well as macroeconomic information regarding gross domestic product and cement consumption over the United States, such asprojected periods issued by the 13%, 1% and 1% increases inready-mix concrete volumes in 2015, 2016 and 2017, respectively,IMF and the 5%, 1% and 1% increases in 2015, 2016 and 2017, respectively, ofready-mix concrete prices, which are key drivers for cement consumption and our profitability, and which trends are expected to continue over the next few years, as anticipated in our cash flow projections.
As a result of impairment tests conducted on several cash-generating units considering certain triggering events, mainly: a) the closing and/or reduction of operations of cement andready-mix concrete plants resulting from adjusting our supply to current demand conditions, b) the transferring of installed capacity to more efficient plants, such as the projected closing in the short term of a cement mill in Colombia, and c) the recoverability of certain investments in Colombia, we recognized impairment losses on property, plant and equipment, for an aggregate amount of Ps1,145 million (U.S.$66 million), Ps1,899 million (U.S.$101 million) and Ps984 million (U.S.$52 million) in 2015, 2016 and 2017, respectively, and adjusted the related fixed assets to their estimated value in use in those circumstances in which the assets would continue in operation based on estimated cash flows during their remaining useful life, or to their realizable value, in case of permanent shut down.
During 2016 and 2017, the breakdown of impairment losses by country was as follows:U.S. Portland Cement Association, respectively.
For the Year Ended December 31, | ||||||||
2016 | 2017 | |||||||
(in millions of Mexican Pesos) | ||||||||
Spain | Ps — | Ps 452 | ||||||
Czech Republic | — | 157 | ||||||
United States | 277 | 153 | ||||||
Panama | — | 56 | ||||||
France | — | 50 | ||||||
Latvia | — | 46 | ||||||
Mexico | 46 | 45 | ||||||
Puerto Rico | 1,087 | — | ||||||
Colombia | 454 | — | ||||||
Other countries | 35 | 25 | ||||||
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Ps 1,899 | Ps 984 |
See note 15.2 to our 2017 audited consolidated financial statements included elsewhere in this annual report.
Asset retirement obligations
We recognize unavoidable obligations, legal or constructive, to restore operating sites upon retirement of long-lived assets at the end of their useful lives, which are measured at the net present value of estimated future cash flows to be incurred in the restoration process, and are initially recognized against the related assets’ book value. The increase to the assets’ book value is depreciated during its remaining useful life. The increase of the liability, related to the passage of time is charged to the line item titled “Financial income (expense) and other items, net.” Adjustments to the liability for changes in estimations are recognized against fixed assets, and depreciation is modified prospectively.
Asset retirement obligations are related mainly to future costs of demolition, cleaning and reforestation, so that quarries, maritime terminals and other production sites are left in acceptable condition at the end of their operation. See notes 17 and 24 to our 2017 audited consolidated financial statements included elsewhere in this annual report.
Assets and liabilities related to employee benefits
The costs associated with our employees’ benefits for: (a)(i) defined benefit pension plans;plans and (b)(ii) other post-employment benefits, primarily comprised of health care benefits, life insurance and seniority premiums, granted by us and/or pursuant to applicable law, are recognized as services rendered, based on actuarial estimations of the benefits’ present value with the advice of external actuaries. For certain pension plans, we have created irrevocable trust funds to cover future benefit payments (“plan assets”). These plan assets are valued at their estimated fair value at the statement of financial position date. The actuarial assumptions and
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accounting policy
consider: (a)(i) the use of nominal rates; (b)(ii) a single rate is used for the determination of the expected return on plan assets and the discount of the benefits obligation to present value; (c)(iii) a net interest is recognized on the net defined benefit liability (liability minus plan assets); and (d)(iv) all actuarial gains and losses for the period, related to differences between the projected and real actuarial assumptions at the end of the period, as well as the difference between the expected and real return on plan assets, are recognized as part of “Other items of comprehensive income, net” within stockholders’ equity.
The service cost, corresponding to the increase in the obligation for additional benefits earned by employees during the period, is recognized within operating costs and expenses. The net interest cost, resulting from the increase in obligations for changes in net present value (NPV) and the change during the period in the estimated fair value of plan assets, is recognized within “Financial income (expense) and other items, net.”
The effects from modifications to the pension plans that affect the cost of past services are recognized within operating costs and expenses over the period in which such modifications become effective to the employees or without delay if changes are effective immediately. Likewise, the effects from curtailments and/or settlements of obligations occurring during the period, associated with events that significantly reduce the cost of future services and/or reduce significantly the population subject to pension benefits, respectively, are recognized within operating costs and expenses.
Revenue Recognition
Our consolidated net sales representContingent liabilities
We recognize provisions when there is a legal or constructive obligation to do so resulting from past events, where resolution would require cash outflows, or when required due to the value, beforedelivery of other resources owned by us.
We conduct significant activities in all the countries we operate, and we are exposed to events that may create possible obligations that must be analyzed at each reporting period, in order to conclude whether we have a present obligation that could lead to an outflow of resources embodying economic benefits; or present obligations that do not meet the recognition criteria, according to IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
We are involved in various legal proceedings that have arisen in the ordinary course of business. These proceedings include (1) antitrust proceedings; (2) product warranty claims; (3) claims for environmental damages; (4) indemnification claims relating to acquisitions or divestitures; (5) claims to revoke permits and/or concessions; (6) tax on sales, of revenues originated by productsmatters; and services sold by consolidated subsidiaries as a result of their ordinary activities, after the elimination of transactions between related parties,(7) other diverse civil, administrative, commercial and are quantified at the fair valuelegal actions. Some of the consideration received or receivable, decreased by any trade discounts or volume rebates grantedcases require significant judgment and estimates from management to customers. Revenue fromappropriately assess the sale of goods and services is recognized when goods are delivered or services are rendered to customers, there is no condition or uncertainty implying a reversal thereof, and they have assumed the risk of loss. Revenue from trading activities, in which we acquire finished goods from a third party and subsequently sell the goods to another third-party, are recognized on a gross basis, considering that we assume the total risk on the goods purchased, not acting as agent or broker.
Revenue and costs related to construction contracts are recognized in the period in which the work is performed by reference to the contract’s stage of completion at the endlikelihood of the period, considering that the following have been defined: (a)outcomes and whether a present obligation exists. We maintain regional, country and centralized in-house legal departments which follow up on each party’s enforceable rights regarding the asset under construction; (b) the consideration to be exchanged; (c) the mannerof these cases and terms of settlement; (d) actual costs incurred and contract costs required to complete the asset are effectively controlled; and (e) it is probable that the economic benefits associatedassist with the contract will flow to the entity. The stage of completion of construction contracts represents the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs or the surveys of work performed or the physical proportionevaluation of the contract work completed, whichever better reflectslikelihood of the percentage of completion under the specific circumstances. Progress payments and advances receivedoutcomes. In certain circumstances, external legal advice is also engaged.
Obligations or losses resulting from customers do not reflect the work performed andpast events are recognized as liabilities in the statement of financial position only when present obligations exist, are probable to result in an outflow of resources and the amount can be measured reliably. We do not recognize a shortprovision when a loss is less than probable or long term advanced payments, as appropriate.
Newly-issued IFRS standardswhen it is considered probable but it is not yet adopted
There are a number of IFRS standards issued aspossible to estimate the amount of the date of issuance of theseoutflow. In such cases, the entity discloses a contingent liability in the notes to the financial statements, that have not yet been adopted.unless the possibility of an outflow of resources is remote.
IFRS 9, Financial instruments: classification
We are sometimes able to make and measurement (“IFRS 9”)
IFRS 9 sets forthdisclose reasonable estimates of the guidance relating to the classification and measurementexpected loss or range of financial assets and liabilities, the accounting for expected credit losses of financial assets and commitments to extend credits,possible loss, as well as disclose any provision accrued for such loss. However, for a limited number of ongoing legal proceedings, we may not be able to make a reasonable estimate of the requirements for hedge accounting.expected loss or range of possible loss, or may be able to do so but believe that disclosure of such information on a case-by-case basis would seriously prejudice our position in the ongoing legal proceedings or in any related settlement discussions. Accordingly, in such cases, we disclose qualitative information with respect to the nature and characteristics of the contingency but do not disclose our estimate of the range of potential loss.
Revenue Recognition
We adopted IFRS 9 will replace IAS 39, financial instruments: recognition and
measurement15,Revenues from contracts with customers (“IAS 39”). IFRS 9 is effective beginning15”) on January 1, 2018. Among other aspects, IFRS 9 changes2018, using the classification categories for financial assets under IAS 39 of: (1) assets held to maturity; (2) loans and receivables; (3) fair value through the income statement; and (4) assets available for sale; and replaces them with categories that reflect the measurement method, the contractual cash flow characteristics and the entity’s business model for managing the financial asset, including: (1) amortized cost, which will significantly comprise the IAS 39 assets held to maturity and loans and receivables categories; (2) fair value through other comprehensive income, similar to IAS 39 held to maturity category; and (3) fair value through the income statement, with the same IAS 39 definitions. The adoption of such classification categories under IFRS 9 will not haveretrospective approach without any significant effecteffects on our operating results and financial situation or compliance of contractual obligations (financial restrictions).
In addition, under the new impairment model based on expected credit losses, impairment losses for the entire lifetime of financial assets, including trade accounts receivable, will be recognized on initial recognition,situation. See notes 2.15 and at each subsequent reporting period, even in the absence of a credit event or if the loss has not yet been incurred, considering for their measurement past events and current conditions, as well as reasonable and supportable forecasts affecting collectability. Changes in the allowance for doubtful accounts under the new expected credit loss model upon adoption of IFRS 9 on January 1, 2018 will be recognized through equity.
In this regard, we developed an expected credit loss model applicable to its trade accounts receivable that considers the historical performance, as well as the credit risk and expected developments for each group of customers, ready for the prospective adoption of IFRS 9 on January 1, 2018. The preliminary effects for adoption of IFRS 9 on January 1, 2018 related to the new expected credit loss model will result in an estimated increase in the allowance for doubtful accounts as of December 31, 2017 of Ps519 that will be recognized against equity, which will represent a significant impact on our operating results, financial situation and compliance of contractual obligations (financial restrictions). See note 2.203 to our 20172019 audited consolidated financial statements included in elsewhere in this annual report.
In connection with hedge accounting under IFRS 9, among other changes, there is a relief for entities in performing: (a) the retrospective effectiveness test at inception of the hedging relationship; and (b) the requirement to maintain a prospective effectiveness ratio between 0.8 and 1.25 at each reporting date for purposes of sustaining the hedging designation, both of which are requirements of IAS 39. Under IFRS 9, a hedging relationship can be established to the extent the entity considers, based on the analysis of the overall characteristics of the hedging and hedged items, that the hedge will be highly effective in the future and the hedge relationship at inception is aligned with the entity’s reported risk management strategy. Nonetheless, IFRS 9 maintains the same hedging accounting categories of cash flow hedge, fair value hedge and hedge of a net investment established in IAS 39, as well as the requirement of recognizing the ineffective portion of a cash flow hedge immediately in the income statement. We do not expect any significant effect upon adoption of the new hedge accounting rules under IFRS 9 beginning January 1, 2018.
Considering the prospective adoption of IFRS 9 as of January 1, 2018, according to the options provided in the standard, there may be lack of comparability beginning January 1, 2018 with the information of impairment of financial assets disclosed in prior years; however, the effects are not expected to be significant.
IFRS 15, Revenues from contracts with customers (“IFRS 15”)
Under IFRS 15, an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, following a five stepfive-step model: Step 1: Identify the contract(s) with a customer (agreement that creates enforceable rights and obligations); Step 2: Identify the different performance obligations (promises) in the contract and account for those separately; Step 3: Determine the transaction price (amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services); Step 4: Allocate the transaction price to each performance obligation based on the relative stand-alone selling prices of each distinct good or
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good or
service; and Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation by transferring control of a promised good or service to the customer. A performance obligation may be satisfied at a point in time (typically for the sale of goods) or over time (typically for the sale of services and construction contracts). IFRS 15 also includes disclosure requirements to provide comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. IFRS 15 is effective on January 1, 2018 and will supersede all existing guidance on revenue recognition. Beginning January 1, 2018, we adopted IFRS 15 using the full retrospective approach, which represents the restatement of the financial statements of prior years.
In 2015, we began the evaluation of the impacts of IFRS 15 on the accounting and disclosures of our revenues. As of December 31, 2017, we have analyzed our contracts with customers in all the countries in which we operate in order to review the different performance obligations and other promises (discounts, loyalty programs, rebates, etc.) included in such contracts, among other aspects, aimed to determine the differences in the accounting recognition of revenue with respect to current IFRS and concluded the theoretical assessment. In addition, key personnel were trained in the new standard with the support of external experts and an online training course was implemented. Moreover, CEMEX also concluded the quantification of the adjustments that are necessary to present prior year’s information
Our policies under IFRS 15 beginningare as follows:
Revenue is recognized at a point in 2018. The adjustments determined in our revenue recognition did not generate any material impact on our operating results, financial situation and compliance of contractual obligations (financial restrictions).
Among other minor effects, the main changes under IFRS 15 as they apply to us refer to: (a) several reclassifications that are required to comply with IFRS 15, new accountstime or over time in the statementamount of financial position aimedthe price, before tax on sales, expected to recognize contract assets (costs to obtainbe received by our subsidiaries for goods and services supplied as a contract) and contract liabilities (deferred revenue for promises not yet fulfilled); (b) rebates and/or discounts offered to customers in a sale transaction that are redeemable by the customer in a subsequent purchase transaction, are considered separateresult of their ordinary activities, as contractual performance obligations rather than future costs,are fulfilled and a portioncontrol of the sale price of such transaction allocated to these promises should be deferred to revenue until the promise is redeemed or expires;goods and (c) awards (points) offered to customers through their purchases under loyalty programs that are later redeemable for goods or services also represent separate performance obligations, rather than future costs, and a portion of the sale price of such transactions allocated to these points should be deferred to revenue until the points are redeemed or expire. These reclassifications and adjustments were not material.
Considering the full retrospective adoption of IFRS 15 beginning January 1, 2018, accordingpasses to the options consideredcustomer. Revenues are decreased by any trade discounts or volume rebates granted to customers. Transactions between related parties are eliminated in the standard, there will not be lack of comparability of the financial information prepared in prior years.consolidation.
IFRS 16, Leases (“IFRS 16”)
IFRS 16 defines leases as any contract or part of a contract that conveys to the lessee the right to use an asset for a period of time in exchange for consideration and the lessee directs the use of the identified asset throughout that period. In summary, IFRS 16 introduces a single lessee accounting model, and requires a lessee to recognize, for all leases with a term of more than 12 months, unless the underlying asset is of low value, assets for theright-of-use the underlying asset against a corresponding financial liability, representing the net present value of estimated lease payments under the contract, with a single income statement model in which a lessee recognizes amortization of theright-of-use asset and interest on the lease liability. A lessee shall present either in the statement of financial position, or disclose in the notes,right-of-use assets separately from other assets, as well as, lease liabilities separately from other liabilities. IFRS 16 is effective beginning January 1, 2019 and will supersede all current standards and interpretations related to lease accounting.
As of December 31, 2017, we have concluded an assessment of its main outstanding lease contracts and other contracts that may have embedded the use of an asset, in order to inventory the most relevant characteristics of such contracts (types of assets, committed payments, maturity dates, renewal clauses, etc.).
During the first quarter of 2018, we expect to define our future policy under IFRS 16 in connection with the exception for short-term leases andlow-value assets, in order to set the basis and be able to quantify the required adjustments for the proper recognition of the assets for the“right-of-use” and the corresponding financial liabilities, aiming to adopt IFRS 16 on January 1, 2019. We plan preliminarily to adopt IFRS 16 retrospectively to the extent such adoption is practicable. Based on our preliminary assessment as of the reporting date, we consider that upon adoption of IFRS 16, most of our outstanding operating leases would be recognized in the statement of financial position, increasing assets and liabilities, as well as amortization and interest, without any significant initial effect on net assets. See note 23.5 to our 2017 audited consolidated financial statements included elsewhere in this annual report.
We do not expect any significant effect on its operation results, financial situation and compliance with contractual obligations (financial restrictions) due to the adoption effects. If retrospective adoption of IFRS 16 beginning January 1, 2019 is applied, according to the options considered in the standard, there would not be lack of comparability of the financial information prepared in prior years.
IFRIC 23, Uncertainty over income tax treatments (“IFRIC 23”)
IFRIC 23 clarifies the accounting for uncertainties in income taxes. among other aspects,recognize variable consideration when an entity concludes that it is nothighly probable that a particular tax treatmentsignificant reversal in the amount of cumulative revenue recognized for the contract will not occur and is accepted,measured using the entity has to useexpected value or the most likely amount ormethod, whichever is expected to better predict the expected valueamount based on the terms and conditions of the tax treatment when determining taxable profit (tax loss), tax bases, unused tax losses, unused tax creditscontract.
Revenue and tax rates. The decision should be basedcosts from trading activities, in which we acquire finished goods from a third party and subsequently sell the goods to another third-party, are recognized on a gross basis, considering that we assume the total risk on the goods purchased, not acting as agent or broker.
When revenue is earned over time as contractual performance obligations are satisfied, which is the case of construction contracts, we apply the stage of completion method provides better predictionsto measure revenue, which represents: (i) the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs; (ii) the surveys of work performed; or (iii) the physical proportion of the resolutioncontract work completed, whichever better reflects the percentage of completion under the specific circumstances. Revenue and costs related to construction contracts are recognized in the period in which the work is performed by reference to the contract’s stage of completion at the end of the uncertainty. IFRIC 23period, considering that the following have been defined: (i) each party’s enforceable rights regarding the asset under construction; (ii) the consideration to be exchanged; (iii) the manner and terms of settlement; (iv) actual costs incurred and contract costs required to complete the asset are effectively controlled; and (v) it is probable that the economic benefits associated with the contract will be effective beginning January 1, 2019. Considering our current policy for uncertain tax positions described above weflow to the entity. Progress payments and advances received from customers do not expect any significant effect fromreflect the adoption of IFRIC 23.work performed and are recognized as a short- or long-term advance payments, as appropriate.
Consolidation of Our Results of Operations
Our 20172019 audited consolidated financial statements included elsewhere in this annual report include those subsidiaries in which we hold a controlling interest or which we otherwise control. Control exists when we have the power, directly or indirectly, to govern the administrative, financial and operating policies of an entity in order to obtain benefits from its activities.
Investments in associates are accounted for by the equity method, when we have significant influence, which is generally presumed with a minimum equity interest of 20% unless it is proven that we have significant influence with a lower percentage. Under the equity method, after acquisition, the investment’s original cost is adjusted for the proportional interest of the holding company in the associate’s equity and earnings, considering the effects of inflation.
All balances and transactions between the group subsidiaries have been eliminated in consolidation.
For
Discontinued operations
Considering the disposal of entire reportable operating segments as well as the sale of significant businesses, our income statements present in the single line item of “Discontinued operations” the results of: (a) the assets held for sale in the United Kingdom for the years 2017, 2018 and 2019; (b) the assets held for sale in the U.S. related to the Kosmos cement plant in Louisville, Kentucky, and related assets for the years 2017, 2018 and 2019; (c) the white cement business held for sale in Spain for the years 2017, 2018 and 2019; (d) the French assets sold for the years ended December2017 and 2018 and for the period from January 1 to June 28, 2019; (e) the German assets sold for the years 2017 and 2018 and for the period from January 1 to May 31, 2015, 20162019; (f) the Baltic and Nordic businesses sold for the years 2017 our consolidated results reflectand 2018 and for the following transactions:
On September 28, 2017, CEMEX, S.A.B. de C.V. sold its then remaining direct interest in GCC, consisting of 31,483,332 shares of common stock of GCC, representing 9.47% of the equity capital of
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Significant Transactions
For the years ended December 31, 2017, 20162018 and 2015,2019, our consolidated results reflect the Croatian Operations are consolidatedline-by-line in the financial statements.following transactions:
● | As of December 31, 2019, through an affiliate in the United Kingdom, we were in negotiations with Breedon for the sale of certain assets in the United Kingdom for a total consideration of $235 million, including $31 million of debt. The assets held for sale mainly consist of 49 ready-mix plants, 28 aggregate quarries, four depots, one cement terminal, 14 asphalt plants, four concrete products operations, as well as a portion of our paving solutions business in the United Kingdom. After completion of the potential divestiture, we will retain significant operations in the United Kingdom related to the production and sale of cement, ready-mix concrete, aggregates, asphalt and paving solutions. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Assets Divestiture Plans” for more information regarding this transaction. |
● | On November 26, 2019, we announced that our U.S. affiliate Kosmos, a partnership with a subsidiary of BUZZI Unicem S.p.A. in which CEMEX held a 75% interest, entered into a binding agreement for the sale of certain assets to Eagle Materials for $665 million. The divestiture successfully closed on March 6, 2020. The share of proceeds to us from this transaction was $499 million,minus transaction costs. The assets that were divested consisted of the Kosmos cement plant in Louisville, Kentucky, as well as related assets which include seven distribution terminals and raw material reserves. The closing of this transaction was subject to the satisfaction of certain conditions, including approval from regulators. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Assets Divestiture Plans” for more information regarding this transaction. |
● | On June 28, 2019, after obtaining customary authorizations, we closed with several counterparties the sale of our ready-mix and aggregates business in the central region of France to several counterparties for an aggregate price of €31.8 million ($36.2 million). |
● | On May 31, 2019, we concluded the sale of our aggregates and ready-mix assets in the North and North-West regions of Germany to GP Günter Papenburg AG for €87 million ($97 million). The assets divested in Germany consisted of four aggregates quarries and four ready-mix facilities in North Germany, and nine aggregates quarries and 14 ready-mix facilities in North-West Germany. |
● | On March 29, 2019, we closed the sale of our assets in the Baltics and Nordics to the German building materials group Schwenk for a price in Euro equivalent to $387 million. The divested Baltic assets consisted of one cement production plant in Broceni with a production capacity of 1.7 million tons, four aggregates quarries, two cement quarries, six ready-mix plants, one marine terminal and one land distribution terminal in Latvia. The assets divested also included our 37.8% indirect interest in one cement production plant in Akmene, Lithuania with a production capacity of 1.8 million tons, as well as the exports business to Estonia. The divested Nordic assets consisted of three import terminals in Finland, four import terminals in Norway and four import terminals in Sweden.CEMEX’s operations of these disposed assets for the period from January 1 to March 29, 2019 and for the years ended December 31, 2017 and 2018 are reported in the income statements net of income tax in the single line item “Discontinued operations,” including in 2019 a gain on sale of $66 million. |
● | On March 29, 2019, we entered into a binding agreement with Çimsa Çimento Sanayi Ve Ticaret A.Ş. to divest our white cement business outside of Mexico and the U.S., for $180 million, including our Buñol cement plant in Spain and our white cement customers list.The closing of the transaction is subject to approval by Spanish authorities. As of the date of this annual report, we expect to close the transaction during the first half of 2020, but we are not able to assess if COVID-19 will delay the closing of this divestment or prevent us from closing. |
● | On September 27, 2018, one of our subsidiaries concluded the sale of our Brazilian Operations through the sale to Votorantim Cimentos N/NE S.A. of all the shares of CEMEX’s Brazilian subsidiary Cimento Vencemos Do Amazonas Ltda, consisting of a fluvial cement distribution terminal located in Manaus, Amazonas province, as well as the operating license. The sale price was $31 million. |
● | In August 2018, our subsidiary in the United Kingdom acquired shares of the ready-mix concrete producer Procon for an amount in Pounds Sterling equivalent to $22 million, based on the Pound Sterling to Dollar exchange rate as of August 31, 2018. Based on the valuation of the fair values of the assets acquired and liabilities assumed, the net assets of Procon amount to $10 million and goodwill was determinedin the amount of$12 million. See note 4.1 to our 2019 audited consolidated financial statements included elsewhere in this annual report. |
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● | On September 29, 2017, one of our subsidiaries in the U.S. closed the divestment of the Block USA Materials Business, consisting of concrete block, architectural block, concrete pavers, retaining walls and building material operations in Alabama, Georgia, Mississippi and Florida to Oldcastle for $38 million. The proceeds obtained from this sale were used mainly for debt reduction and general corporate purposes. |
● | During January and September 2017, by means of a public offering on the MSE and a definitive sale to two financial institutions, respectively, we sold an aggregate of 76.5 million shares of GCC, representing a 23% equity interest that was held through our investments in associates. We received combined proceeds of $377 million. We continue to hold a 20% indirect interest in GCC through CAMCEM, GCC’s parent company. |
● | On June 30, 2017, we concluded the sale of our Pacific Northwest Materials Business consisting of aggregate, asphalt and ready-mix concrete operations in Oregon and Washington to Cadman Materials, Inc., a subsidiary of HeidelbergCement Group, for $150 million. |
● | On February 10, 2017, one of our subsidiaries in the U.S. sold its Fairborn, Ohio cement plant and cement terminal in Columbus, Ohio to Eagle Materials for $400 million. The proceeds obtained from this transaction were used mainly for debt reduction and for general corporate purposes. |
● | On January 31, 2017, one of our subsidiaries in the U.S. closed the sale of its Concrete Pipe Business to Quikrete for $500 million plus an additional $40 million contingent consideration based on future performance. |
See notes 4.1 and 4.2 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
Selected Consolidated Income Statements Data
The following table sets forth our selected consolidated income statements data for each of the three years ended December 31, 2015, 20162017, 2018 and 20172019 expressed as a percentage of net sales.revenues.
Year Ended December 31, | ||||||||||||||||||||||||
Year Ended December 31, | 2017 | 2018 | 2019 | |||||||||||||||||||||
2015 | 2016 | 2017 | ||||||||||||||||||||||
Net sales | 100 | % | 100 | % | 100 | % | ||||||||||||||||||
Revenues | 100 | % | 100 | % | 100 | % | ||||||||||||||||||
Cost of sales | (65.9 | ) | (64.2 | ) | (65.8 | ) | (64.7 | ) | (65.4 | ) | (67.2 | ) | ||||||||||||
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Gross profit | 34.1 | 35.8 | 34.2 | 35.3 | 34.6 | 32.8 | ||||||||||||||||||
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Operating expenses | (21.8 | ) | (21.6 | ) | (21.6 | ) | (21.9 | ) | (22.0 | ) | (22.6 | ) | ||||||||||||
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Operating earnings before other expenses, net | 12.3 | 14.2 | 12.6 | 13.4 | 12.6 | 10.2 | ||||||||||||||||||
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Other expenses, net | (1.4 | ) | (0.7 | ) | (1.5 | ) | (1.6 | ) | (2.2 | ) | (2.7 | ) | ||||||||||||
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Operating earnings | 10.9 | 13.5 | 11.1 | 11.8 | 10.4 | 7.5 | ||||||||||||||||||
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Financial expense | (9.0 | ) | (8.6 | ) | (7.5 | ) | (8.4 | ) | (5.4 | ) | (5.4 | ) | ||||||||||||
Financial income (expense) and other items, net | (0.6 | ) | 1.8 | 1.4 | ||||||||||||||||||||
Financial income and other items, net | 1.4 | 0.0 | (0.6 | ) | ||||||||||||||||||||
Share of profit on equity accounted investees | 0.3 | 0.3 | 0.2 | 0.3 | 0.3 | 0.4 | ||||||||||||||||||
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Earnings before income tax | 1.6 | 7.0 | 5.2 | 5.1 | 5.3 | 1.9 | ||||||||||||||||||
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Income tax | (1.1 | ) | (1.2 | ) | (0.2 | ) | (0.1 | ) | (1.7 | ) | (1.2 | ) | ||||||||||||
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Net income from continuing operations | 0.5 | 5.8 | 5.0 | 5.0 | 3.6 | 0.7 | ||||||||||||||||||
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Discontinued operations, net of tax | 0.5 | 0.3 | 1.4 | |||||||||||||||||||||
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Discontinued operations | 1.7 | 0.6 | 0.7 | |||||||||||||||||||||
Consolidated net income | 1.0 | 6.1 | 6.4 | 6.7 | 4.2 | 1.4 | ||||||||||||||||||
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Non-controlling interest net income | 0.5 | 0.5 | 0.5 | 0.6 | 0.3 | 0.3 | ||||||||||||||||||
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Controlling interest net income | 0.5 | 5.6 | 5.9 | 6.1 | 3.9 | 1.1 | ||||||||||||||||||
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Year Ended December 31, 20172019 Compared to Year Ended December 31, 20162018
Summarized in the table below are the percentage (%) increases (+) and decreases (-) for the year ended December 31, 2017,2019, compared to the year ended December 31, 2016,2018, in our domestic cement andready-mix concrete sales volumes, as well as export sales volumes of cement and domestic cement andready-mix concrete average sales prices for each of our geographicreportable segments.
Effective January 1, 2016, according
Reportable segments represent the components of CEMEX that engage in business activities from which we may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity’s top management to an announcement mademake decisions about resources to be allocated to the segments and assess their performance, and for which discrete financial information is available. We operate geographically and by CEMEX’s Chief Executive Officerline of business on December 1, 2015, CEMEX’sa regional basis. For the reported periods, our operations were reorganized intoorganized in five geographical regions, each under the supervision of a regional president, as follows: (1)1) Mexico, (2) United States, (3)2) the U.S., 3) Europe, (4) South, Central America4) SCA&C and the Caribbean and (5) Asia, Middle East and Africa. Under the new organization, the geographical operating segments under the former Mediterranean region were incorporated5) AMEA. The accounting policies applied to determine the Europe region or the Asia, Middle East and Africa region, as applicable. The financial information by geographic operatingreportable segment issuedare consistent with those described in the financial statements of prior years was restated in order to give effect to: (a) the reversal from discontinued operations relatednote 2 to our Croatian Operations for the years 2016 and 2015; and (b) the new geographic operating organization described above for the year 2015. Until December 31, 2015, our operations were organized into six geographical regions: (1) Mexico, (2) United States, (3) Northern Europe, (4) Mediterranean, (5) South, Central America and the Caribbean, and (6) Asia. Under the current operating organization, the geographic operating segments under the former Mediterranean region were incorporated into the current Europe region or the Asia, Middle East and Africa region, as applicable. See notes 4.2 and 4.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
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The table below and the other volume data presented by geographicreportable segment in this “—Year Ended December 31, 20172019 Compared to Year Ended December 31, 2016”2018” section are presented before eliminations resulting from consolidation (including those shown onin note 4.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report).
Domestic Sales Volumes | Export Sales Volumes | Average Domestic Sales Prices in Local Currency(1) | ||||||||||||||||||||||||||||||||||||||
Domestic Sales Volumes | Export Sales Volumes | Average Domestic Sales Prices in Local Currency(1) | ||||||||||||||||||||||||||||||||||||||
Geographic Segment | Cement | Ready-Mix Concrete | Cement | Cement | Ready-Mix Concrete | |||||||||||||||||||||||||||||||||||
Reportable Segment | Cement | Ready-Mix Concrete | Cement | Cement | Ready-Mix Concrete | |||||||||||||||||||||||||||||||||||
Mexico | -4 | % | -3 | % | +20 | % | +16 | % | +10 | % | -15 | % | -14 | % | +22 | % | +2 | % | +3 | % | ||||||||||||||||||||
United States(2) | -6 | % | -2 | % | — | +3 | % | +1 | % | |||||||||||||||||||||||||||||||
United States | -2 | % | +2 | % | — | +4 | % | +3 | % | |||||||||||||||||||||||||||||||
Europe | ||||||||||||||||||||||||||||||||||||||||
United Kingdom | -6 | % | -2 | % | — | +1 | % | Flat | -3 | % | -1 | % | — | +3 | % | +1 | % | |||||||||||||||||||||||
France | — | +7 | % | — | — | +1 | % | — | +1 | % | — | — | +3 | % | ||||||||||||||||||||||||||
Germany | +15 | % | -3 | % | -19 | % | Flat | +2 | % | +1 | % | -6 | % | +11 | % | +5 | % | +5 | % | |||||||||||||||||||||
Spain | +28 | % | +4 | % | -19 | % | -4 | % | +6 | % | +4 | % | +26 | % | -58 | % | +4 | % | +2 | % | ||||||||||||||||||||
Poland | +5 | % | +5 | % | -25 | % | +3 | % | +1 | % | ||||||||||||||||||||||||||||||
Rest of Europe(3) | +9 | % | +12 | % | +33 | % | Flat | +4 | % | |||||||||||||||||||||||||||||||
Rest of Europe | Flat | -5 | % | -7 | % | +7 | % | +6 | % | |||||||||||||||||||||||||||||||
South, Central America and the Caribbean | ||||||||||||||||||||||||||||||||||||||||
Colombia | -6 | % | -13 | % | — | -19 | % | -2 | % | +9 | % | +5 | % | — | +5 | % | Flat | |||||||||||||||||||||||
Panama | +3 | % | +9 | % | — | Flat | Flat | -15 | % | -28 | % | +80 | % | -6 | % | -3 | % | |||||||||||||||||||||||
Costa Rica | +3 | % | +11 | % | -11 | % | -3 | % | -10 | % | ||||||||||||||||||||||||||||||
Caribbean TCL(4) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Rest of South, Central America and the Caribbean(5) | +1 | % | +1 | % | -21 | % | +4 | % | -6 | % | ||||||||||||||||||||||||||||||
Caribbean TCL | -4 | % | -15 | % | +19 | % | Flat | -7 | % | |||||||||||||||||||||||||||||||
Dominican Republic | +6 | % | -5 | % | -6 | % | +9 | % | +9 | % | ||||||||||||||||||||||||||||||
Rest of South, Central America and the Caribbean | -11 | % | -29 | % | -10 | % | Flat | +7 | % | |||||||||||||||||||||||||||||||
Asia, Middle East and Africa | ||||||||||||||||||||||||||||||||||||||||
Philippines | Flat | -58 | % | -1 | % | -10 | % | +16 | % | -3 | % | — | -10 | % | +4 | % | — | |||||||||||||||||||||||
Egypt | -6 | % | -4 | % | — | +10 | % | -3 | % | |||||||||||||||||||||||||||||||
Rest of Asia, Middle East and Africa(6) | +46 | % | +10 | % | -87 | % | +3 | % | +5 | % | ||||||||||||||||||||||||||||||
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Israel | — | +5 | % | — | — | -1 | % | |||||||||||||||||||||||||||||||||
Rest of Asia, Middle East and Africa | -21 | % | -23 | % | -68 | % | +3 | % | +3 | % |
“—” = Not Applicable
(1) | Represents the average change in domestic cement andready-mix concrete prices in local currency terms. For purposes of a |
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On a consolidated basis, our cement sales volumes remained flat, with 68.3decreased 7%, from 67.2 million tons in 2016 and 68.52018 to 62.8 million tons in 2017,2019, and ourready-mix concrete sales volumes increased 1%decreased 3%, from 51.451.7 million cubic meters in 20162018 to 51.750.1 cubic meters in 2017.2019. Our net sales increased approximatelyrevenues decreased 3%, from Ps249,945$13,531 million in 20162018 to Ps258,131$13,130 million in 2017,2019, and our operating earnings before other expenses, net decreased 8%22%, from Ps35,543$1,703 million in 20162018 to Ps32,571$1,333 million in 2017.
The following tables present selected financial information of net salesfor revenues and operating earnings before other expenses, net for each of our geographicreportable segments for the years ended December 31, 20162018 and 2017.2019. The net salesrevenues information in the table below isare presented before eliminations resulting from consolidation (including those shown in note 4.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report). Variations in net salesrevenues determined on the basis of Mexican PesosDollars include the appreciation or depreciation which occurred during the period between the local currencies of the countries in the regionsvis-à-vis the Mexican Peso;Dollar; therefore, such variations differ substantially from those based solely on the countries’ local currencies:
Geographic Segment | Variation in Local Currency(1) | Approximate Currency Fluctuations | Variation in Mexican Pesos | Net Sales For the Year Ended | ||||||||||||||||
2016 | 2017 | |||||||||||||||||||
(in millions of Mexican Pesos) | ||||||||||||||||||||
Mexico | +9 | % | — | +9 | % | Ps 53,579 | Ps 58,442 | |||||||||||||
United States(2) | -2 | % | — | -2 | % | 66,554 | 65,536 | |||||||||||||
Europe | ||||||||||||||||||||
United Kingdom | -2 | % | -3 | % | -5 | % | 21,153 | 20,179 | ||||||||||||
France | +7 | % | +4 | % | +11 | % | 14,535 | 16,162 | ||||||||||||
Germany | +2 | % | +3 | % | +5 | % | 9,572 | 10,056 | ||||||||||||
Spain | +1 | % | +4 | % | +5 | % | 6,563 | 6,870 | ||||||||||||
Poland | +9 | % | +7 | % | +16 | % | 4,799 | 5,552 | ||||||||||||
Rest of Europe(3) | +16 | % | +3 | % | +19 | % | 7,935 | 9,439 | ||||||||||||
South, Central America and the Caribbean | ||||||||||||||||||||
Colombia | -17 | % | +3 | % | -14 | % | 12,415 | 10,685 | ||||||||||||
Panama | +4 | % | — | +4 | % | 4,906 | 5,112 | |||||||||||||
Costa Rica | +2 | % | -2 | % | — | 2,818 | 2,805 | |||||||||||||
Caribbean TCL(4) | — | — | — | — | 4,332 | |||||||||||||||
Rest of South, Central America and the Caribbean(5) | +2 | % | +1 | % | +3 | % | 11,378 | 11,716 | ||||||||||||
Asia, Middle East and Africa | ||||||||||||||||||||
Philippines | -10 | % | -4 | % | -14 | % | 9,655 | 8,296 | ||||||||||||
Egypt | +4 | % | -48 | % | -44 | % | 6,950 | 3,862 | ||||||||||||
Rest of Asia, Middle East and Africa(6) | +13 | % | +1 | % | +14 | % | 11,858 | 13,516 | ||||||||||||
Others(7) | +29 | % | -10 | % | +19 | % | 18,846 | 22,514 | ||||||||||||
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Net Sales from continuing operations before eliminations resulting from consolidation | +4 | % | Ps 263,516 | Ps 275,074 | ||||||||||||||||
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Eliminations resulting from consolidation | (13,571 | ) | (16,943 | ) | ||||||||||||||||
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Net sales from continuing operations | +3 | % | Ps 249,945 | Ps 258,131 | ||||||||||||||||
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Variation in | Approximate | Revenues | ||||||||||||||||||
Local | Currency | Variation in | For the Year Ended | |||||||||||||||||
Reportable Segment | Currency(1) | Fluctuations | Dollars | 2018 | 2019 | |||||||||||||||
(in millions of Dollars) | ||||||||||||||||||||
Mexico | -12% | — | -12% | $ | 3,302 | $ | 2,897 | |||||||||||||
United States | +5% | — | +5% | 3,614 | 3,780 | |||||||||||||||
Europe | ||||||||||||||||||||
United Kingdom | +1% | -4% | -3% | 773 | 749 | |||||||||||||||
France | +2% | -5% | -3% | 895 | 869 |
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Variation in | Approximate | Revenues | ||||||||||||||||||
Local | Currency | Variation in | For the Year Ended | |||||||||||||||||
Reportable Segment | Currency(1) | Fluctuations | Dollars | 2018 | 2019 | |||||||||||||||
(in millions of Dollars) | ||||||||||||||||||||
Germany | +8% | -6% | +2% | 429 | 439 | |||||||||||||||
Spain | +1% | -5% | -4% | 334 | 319 | |||||||||||||||
Rest of Europe | Flat | -8% | -8% | 733 | 672 | |||||||||||||||
SCA&C | ||||||||||||||||||||
Colombia | +7% | -11% | -4% | 524 | 504 | |||||||||||||||
Panama | -18% | — | -18% | 222 | 181 | |||||||||||||||
Caribbean TCL | -2% | — | -2% | 254 | 248 | |||||||||||||||
Dominican Republic | +16% | -4% | +12% | 218 | 245 | |||||||||||||||
Rest of SCA&C | -13% | — | -13% | 590 | 511 | |||||||||||||||
AMEA | ||||||||||||||||||||
Philippines | Flat | +2% | +2% | 448 | 458 | |||||||||||||||
Israel | +3% | +2% | +5% | 630 | 660 | |||||||||||||||
Rest of AMEA | -20% | — | -20% | 357 | 286 | |||||||||||||||
Others | -11% | — | -11% | 1,247 | 1,104 | |||||||||||||||
Revenues from continuing operations before eliminations resulting from consolidation | -4% | $ | 14,570 | $ | 13,922 | |||||||||||||||
Eliminations resulting from consolidation | (1,039 | ) | (792 | ) | ||||||||||||||||
Revenues from continuing operations | -3% | $ | 13,531 | $ | 13,130 |
Reportable Segment | Variation in Local Currency(1) | Approximate Currency Fluctuations | Variation in Dollars | Operating Earnings Before Other Expenses, Net For the Year Ended December 31, | ||||||||||||||||
2018 | 2019 | |||||||||||||||||||
(in millions of Dollars) | ||||||||||||||||||||
Mexico | -24% | — | -24% | $ | 1,069 | $ | 810 | |||||||||||||
United States | -25% | — | -25% | 317 | 237 | |||||||||||||||
Europe | ||||||||||||||||||||
United Kingdom | +1% | -1% | Flat | 50 | 50 | |||||||||||||||
France | +19% | -7% | +12% | 41 | 46 | |||||||||||||||
Germany | +301% | +10% | +311% | 9 | 37 | |||||||||||||||
Spain | -5% | -5% | -10% | (20 | ) | (18 | ) | |||||||||||||
Rest of Europe | +31% | -15% | +16% | 63 | 73 | |||||||||||||||
SCA&C | ||||||||||||||||||||
Colombia | Flat | -10% | -10% | 68 | 61 | |||||||||||||||
Panama | -36% | -1% | -37% | 49 | 31 | |||||||||||||||
Caribbean TCL | -15% | — | -15% | 39 | 33 | |||||||||||||||
Dominican Republic | +51% | -4% | +47% | 51 | 75 | |||||||||||||||
Rest of SCA&C | -22% | — | -22% | 112 | 87 | |||||||||||||||
AMEA | ||||||||||||||||||||
Philippines | +37% | +2% | +39% | 57 | 79 | |||||||||||||||
Israel | -2% | +2% | Flat | 66 | 66 | |||||||||||||||
Rest of AMEA | -156% | +1% | -155% | 22 | (12 | ) | ||||||||||||||
Others | -11% | — | -11% | (290 | ) | (322 | ) | |||||||||||||
Operating earnings before other expenses, net from continuing operations | -22% | $ | 1,703 | $ | 1,333 |
Geographic Segment | Variation in Local Currency(1) | Approximate Currency Fluctuations | Variation in Mexican Pesos | Operating Earnings (Loss) Before Other Expenses, Net For the Year Ended December 31, | ||||||||||||||||
2016 | 2017 | |||||||||||||||||||
(in millions of Mexican Pesos) | ||||||||||||||||||||
Mexico | +12 | % | — | +12 | % | Ps 16,866 | Ps 18,969 | |||||||||||||
United States(2) | +2 | % | -5 | % | -3 | % | 4,573 | 4,452 | ||||||||||||
Europe | ||||||||||||||||||||
United Kingdom | -28 | % | -3 | % | -31 | % | 2,559 | 1,766 | ||||||||||||
France | +69 | % | -4 | % | +65 | % | 185 | 306 | ||||||||||||
Germany | +89 | % | +74 | % | +163 | % | 89 | 234 | ||||||||||||
Spain | -275 | % | -20 | % | -295 | % | 151 | (294 | ) | |||||||||||
Poland | +11 | % | +4 | % | +15 | % | 249 | 286 | ||||||||||||
Rest of Europe(3) | +59 | % | +2 | % | +61 | % | 481 | 775 | ||||||||||||
South, Central America and the Caribbean | ||||||||||||||||||||
Colombia | -55 | % | +3 | % | -52 | % | 3,486 | 1,659 | ||||||||||||
Panama | -7 | % | -1 | % | -8 | % | 1,830 | 1,688 | ||||||||||||
Costa Rica | -9 | % | -2 | % | -11 | % | 1,011 | 901 | ||||||||||||
Caribbean TCL(4) | — | — | — | — | 449 | |||||||||||||||
Rest of South, Central America and the Caribbean(5) | -6 | % | -6 | % | -12 | % | 2,438 | 2,153 | ||||||||||||
Asia, Middle East and Africa | ||||||||||||||||||||
Philippines | -58 | % | -2 | % | -60 | % | 2,157 | 866 | ||||||||||||
Egypt | -70 | % | -15 | % | -85 | % | 1,915 | 295 | ||||||||||||
Rest of Asia, Middle East and Africa(6) | +12 | % | +1 | % | +13 | % | 1,318 | 1,492 | ||||||||||||
Others(7) | +11 | % | -20 | % | -9 | % | (3,765 | ) | (3,426 | ) | ||||||||||
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Operating earnings before other expenses, net | -8 | % | Ps 35,543 | Ps 32,571 | ||||||||||||||||
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“—” = Not Applicable
(1) | Represents the variation in local currency terms. For purposes of a |
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Net salesRevenues. Our consolidated net sales increasedrevenues decreased 3%, from Ps249,945$13,531 million in 20162018 to Ps258,131$13,130 million in 2017.2019. The increasedecrease was primarily attributablemainly due to higher prices for our products, in local currency terms,a decrease in our Mexico, the United Statesconsolidated cement and Europe regions, as well as higher cementready-mix concrete sales volumes, mainly in our United States, Europe and Asia, Middle East and Africa regions.Mexican operations. Set forth below is a quantitative and qualitative analysis of the various factors affecting our net salesrevenues on a geographicreportable segment basis. The discussion of volume data and net salesrevenues information below is presented before eliminations resulting from consolidation as described in note 4.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
126
Mexico
Our domestic cement sales volumes from our operations in Mexico decreased approximately 4%15% in 20172019 compared to 2016,2018, andready-mix concrete sales volumes decreased 3%14% over the same period. Our net salesrevenues from our operations in Mexico represented 21% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. The decrease in domestic cement and ready-mix concrete sales volumes was primarily attributable to muted public and private investment in a government-transition year and by delays and suspensions of building permits in Mexico City. The commercial sector was the main driver of demand during the year, with favorable dynamics in tourism-related investments and commercial projects. The formal residential sector continued implementation of our value-before-volume strategy.to be supported by mortgages from commercial banks and to a lesser degree by the Mexican National Housing Institute (Instituto del Fondo Nacional de la Vivienda para los Trabajadores) (“INFONAVIT”). Our cement export volumes from our operations in Mexico, which represented approximately 4%9% of our Mexican cement sales volumes for the year ended December 31, 2017,2019, increased approximately 20%22% in 20172019 compared to 2016.2018. Of our total cement export volumes from our operations in Mexico during 2017, 53%2019, 67% was shipped to the United States, 2% to Costa RicaU.S. and 45%33% to our Rest of South, Central America and the Caribbean region. Our average sales price of domestic cement from our operations in Mexico increased 16%2%, in Mexican Peso terms, in 20172019 compared to 2016,2018, and our average sales price ofready-mix concrete increased 10%3%, in Mexican Peso terms, over the same period. For the year ended December 31, 2017,2019, cement represented 59%58%,ready-mix concrete 21%23% and our aggregates and other businesses 20%19% of our net salesrevenues in Mexican PesoDollar terms from our operations in Mexico before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of increases in domestic cement andready-mix concrete sales prices, partially offset by decreases in domestic cement andready-mix concrete sales volumes, partially offset by increases in our netdomestic cement and ready-mix concrete sales prices, our revenues in Mexico, in Mexican Peso terms, increased 9%decreased 12% in 20172019 compared to 2016.
United States
Our domestic cement sales volumes from our operations in the United StatesU.S. decreased approximately 6%2% in 20172019 compared to 2016,2018, andready-mix concrete sales volumes decreasedincreased 2% over the same period. The decreasesdecrease in the domestic cement and ready mix concrete sales volumevolumes was primarily attributable to bad weather in some of our operationkey states, coupled with weak residential performance during the first half of 2019, as well as unfavorable competitive dynamics in the United States were mainly driven by the sale to an affiliate of GCC of certain assets consistingFlorida. Activity in a cement plant in Odessa, Texas, two cement terminals and the building materials business in El Paso, Texas and Las Cruces, New Mexico and the sale of the Fairborn, Ohio cement plant and cement terminal in Columbus, Ohio to Eagle Materials. The operations of the net assets sold to GCC and Eagle Materials did not represent discontinued operations and were consolidated by CEMEXline-by-line in the income statements for 2015, 2016 and 2017. See note 4.3 to our 2017 audited consolidated financial statements included elsewhere in this annual report. In the residential sector activity acceleratedincreased during the second half of 2019, supported by single-familylower interest rates. Infrastructure activity, particularly street-and-highway spending, remained dynamic and was driven by funding at the state/local level. In the industrial-and-commercial sector, a decrease in commercial construction was offset by growth in offices and improvements. In theindustrial-and-commercial sector, national contract awards declined during 2017; however, awards in our key states increased, including in Florida and Texas.lodging. Our operations in the United StatesU.S. represented 24%27% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average domestic cement sales prices of our operations in the United StatesU.S. increased 3%4%, in Dollar terms, in 20172019 compared to 2016,2018, and our averageready-mix concrete sales price increased 1%3%, in Dollar terms, over the same period. For the year ended December 31, 2017,2019, cement represented 33%32%,ready-mix concrete 42%43% and our aggregates and other businesses 25% of net salesrevenues in Mexican PesoDollar terms from our operations in the United StatesU.S. before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the increases in domestic ready-mix concrete sales volumes and our domestic cement and ready-mix concrete sales prices, partially offset by decreases in domestic cement andready-mix concrete sales volumes, partially offset by increases in domestic cement andready-mix concrete sales prices, net salesrevenues from our operations in the United States,U.S., in Dollar terms, decreased 2%increased 5% in 20172019 compared to 2016.2018.
Europe
In 2017,2019, our operations in the Europe region consisted of our operations in the United Kingdom, France, Germany Spain and Poland,Spain, which represent the most significant operations in this region, in addition to the Rest of Europe, which refers primarily to operations in the Czech Republic, Croatia and Latvia, as well as trading activities in Scandinavia and Finland.Europe. Our net salesrevenues from our operations in the Europe region represented 25%21% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. As of December 31, 2017,2019, our operations in the Europe region represented 20%16% of our total assets. The infrastructure sector was the main contributor to growth in regional cement demand during 2019. Multi-year projects in UK, Germany, Poland and France, favorable activity in the residential sector in Spain, Poland, Germany and the Czech Republic and positive performance in the industrial-and-commercial sector in all countries except for the UK supported cement demand growth in 2019. Set forth below is a quantitative and qualitative analysis of the effects of the various factors affecting our net salesrevenues for our main operations in the Europe region.
United Kingdom
Our domestic cement sales volumes from our operations in the United Kingdom decreased approximately 6%3% in 20172019 compared to 2016,2018, andready-mix concrete sales volumes decreased 2%1% over the same period. The decreases in domestic cement andready-mix concrete sales volumes resulted primarily from a high base of comparison due tonon-recurring industry sales in 2016, as well as softening market conditions due to political uncertainty. The residential sector was the main driver of demand during 2017, supported by government’shelp-to-buy program.reflect continued uncertainty around Brexit. Our operations in the United Kingdom represented approximately 7%5% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales
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price of domestic cement from our operations in the United Kingdom increased 1%3%, in Pound terms, in 20172019 compared to 2016,2018, and our average sales price ofready-mix concrete remained flat,increased 1%, in Pound terms, over the same period. For the year ended December 31, 2017,2019, cement represented 17%21%,ready-mix concrete 26%29% and our aggregates and other businesses 57%50% of net salesrevenues in Mexican PesoDollar terms from our operations in the United Kingdom before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of increases in our domestic cement and ready-mix concrete sales prices, partially offset by decreases in domestic cement andready-mix concrete sales volumes, partially offset by an increase in our sales prices of domestic cement, net salesrevenues from our operations in the United Kingdom, in Pound terms, decreased 2%increased 1% in 20172019 compared to 2016.2018.
France
Ourready-mix concrete sales volumes from our operations in France increased approximately 7%1% in 20172019 compared to 2016. Volume growth during the full year reflects continued activity2018. Being in the residential sector,intensive phase of a large project, such as the “Grand Paris” project, as well as “Grand Paris”-related projects. The residentialdemand from the industrial-and-commercial sector, was supported by low interest rates and government’s initiatives including abuy-to-let program andzero-rate loans for first time buyers.benefited our France operations. Our operations in France represented approximately 6% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales price ofready-mix concrete of our operations in France increased 1%3%, in Euro terms, in 20172019 compared to 2016.2018. For the year ended December 31, 2017,2019, ready-mix concrete represented 67% and our aggregates and other businesses 33% of net salesrevenues in Mexican PesoDollar terms from our operations in France before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the increases in our ready-mix concrete sales volumes and sales prices, net salesrevenues from our operations in France, in Euro terms, increased 7%2% in 20172019 compared to 2016.2018.
Germany
Our domestic cement sales volumes from our operations in Germany increased 15%1% in 20172019 compared to 2016,2018, andready-mix concrete sales volumes decreased 3%6% over the same period. Cement volume growth during the year reflects our participation in infrastructure projects and strong demand from the residential sector. The infrastructure sector benefited from increased central government spending, whilewas the main contributor to growth in domestic cement demand during 2019. Multi-year projects in Germany, favorable activity in the residential sector continued to benefit from low unemployment and mortgage rates, rising purchasing power as well as ongoing immigration.positive performance in the industrial-and-commercial sector supported cement demand growth in 2019. Our operations in Germany represented 4%3% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our cement export volumes from our operations in Germany, which represented 30%27% of our Germany cement sales volumes for the year ended December 31, 2017, decreased 19%2019 increased 11% in 20172019 compared to 2016. Of2018. All of our total cement export volumes from our operations in Germany during 2017, 23%2019, were to Poland and 77% were to Ourour Rest of Europe region. Our average sales price of domestic cement from our operations in Germany remained flat,increased 5%, in Euro terms, in 20172019 compared to 2016,2018, and our average sales price ofready-mix concrete increased 2%5%, in Euro terms, over the same period. For the year ended December 31, 2017,2019, cement represented 28%40%,ready-mix concrete 37%38% and our aggregates and other businesses 35%22% of net salesrevenues in Mexican PesoDollar terms from our operations in Germany before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the increaseincreases in our domestic cement and ready-mix concrete sales prices and domestic cement sales volumes andready-mix concrete sales prices,volume, partially offset by the decreases inready-mix concrete sales volumes, net salesrevenues from our operations in Germany, in Euro terms, increased 2%8% in 20172019 compared to 2016.2018.
Spain
Our domestic cement sales volumes from our operations in Spain increased 28%4% in 20172019 compared to 2016,2018, whileready-mix concrete sales volumes increased 4%26% over the same period. OurThe increases in domestic cement volume growth during the year reflects favorable activity fromand ready-mix concrete volumes reflected improvement in the residential andsector in Spain while theindustrial-and-commercial sectors. The residential sector benefited from favorable credit conditions, income increases, job creation, andpent-up housing demand. Theindustrial-and-commercial sector was supported by offices, tourism and agricultural projects.also showed a positive performance. Our operations in Spain represented 2% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our cement export volumes from our operations in Spain, which represented 27%16% of our Spain cement sales volumes for the year ended December 31, 2017,2019, decreased
approximately 19% 58% in 20172019 compared to 2016.2018. Of our total cement export volumes from our operations in Spain during 2017, 4% were to the South, Central America and the Caribbean region, 33% were to the United States, 9%2019, 53% were to the United Kingdom, 1% were to Poland, 7%19% were to the Rest of Europe region, 22% were to Colombia and 46%6% were to the Rest of Asia, Middle East and Africa region. Our average sales price of domestic cement of our operations in Spain decreasedincreased 4%, in Euro terms, in 20172019 compared to 2016,2018, and our average sales price ofready-mix concrete increased 6%2%, in Euro terms, over the same period. For the year ended December 31, 2017,2019, cement represented 75%64%,ready-mix concrete 13%24% and our aggregates and other businesses 12% of net salesrevenues in Mexican PesoDollar terms from our operations in Spain before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of increases in our domestic cement andready-mix concrete sales volumes andready-mix concrete sales prices, partially offset by decreases in domestic cement sales prices, net salesrevenues from our operations in Spain, in Euro terms, increased 1% in 20172019 compared to 2016.2018.
Poland
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Our domestic cement sales volumes from our operations in Poland increased 5% in 2017 compared to 2016, whileready-mix concrete sales volumes increased 5% over the same period. The residential sector continued with favorable trends supported by low interest rates, low unemployment and governmental sponsored programs. Our operations in Poland represented 2% of our total net sales for the year ended December 31, 2017, in Mexican Peso terms, before eliminations resulting from consolidation. Our cement export volumes from our operations in Poland, which represented 3% of our Poland cement sales volumes for the year ended December 31, 2017, decreased 25% in 2017 compared to 2016. Of our total cement export volumes from our operations in Poland during 2017, 26% were to the Germany and 74% were to our Rest of Europe region. Our average sales price of domestic cement of our operations in Poland increased 3%, in Polish Zloty terms, in 2017 compared to 2016, and our average sales price ofready-mix concrete increased 1%, in Polish Zloty terms, over the same period. For the year ended December 31, 2017, cement represented 48%,ready-mix concrete 38% and our aggregates and other businesses 14% of net sales in Mexican Peso terms from our operations in Poland before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of increases in domestic cement sales volumes and sales prices, andready-mix concrete sale volumes and sales prices, net sales from our operations in Poland, in Polish Zloty terms, increased 9% in 2017 compared to 2016.
Rest of Europe
Our domestic cement sales volumes from our operations in the Rest of Europe increased 9%remained flat in 20172019 compared to 2016,2018, andready-mix concrete sales volumes increased 12%decreased 5% over the same period. Our cement export volumes from our operations in the Rest of Europe segment, which represented 29%7% of our Rest of Europe cement sales volumes for the year ended December 31, 2017, increased 33%2019, decreased 7% in 20172019 compared to 2016.2018. Of our total cement export volumes from our operations in Rest of Europe during 2017, 9% were to the Germany, 8% were to Spain, 2% were to Poland, 57%2019, 82% were within the region 19%and 18% were to the Asia, Middle East and Africa region and 5% were to our Rest of South, Central and the Caribbean region. Our net salesrevenues from our operations in the Rest of Europe represented 4%5% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement from our operations in the Rest of Europe remained flat,increased 7%, in Euro terms, in 20172019 compared to 2016,2018, and our average sales price ofready-mix concrete increased 4%6%, in Euro terms, over the same period. For the year ended December 31, 2017,2019, cement represented 60%50%,ready-mix concrete 26%36% and our aggregates and other businesses 14% of net salesrevenues in Mexican PesoDollar terms from our operations in the Rest of Europe before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of increases in our domestic cement and ready-mix concrete sales volumes andprices, offset by a decrease in ready-mix concrete sales volumes, andready-mix concrete sales prices, net salesrevenues in the Rest of Europe, in Euro terms, increased 16%remained flat in 20172019 compared to 2016.2018.
South, Central America and the Caribbean
In 2017,2019, our operations in the SACSCA&C region consisted of our operations in Colombia, Panama, and Costa Rica, as well as,the Dominican Republic, our Caribbean TCL operations, which refers to TCL’s operations in Barbados, Jamaica and Trinidad and Tobago, which represent our most significant operations in this region, and the Rest of South, Central AmericaSCA&C, Guatemala and El Salvador, excluding the acquired operations of the Caribbean which refers primarily to operations in Puerto Rico, the Dominican Republic, Nicaragua, Jamaica and other countries in the Caribbean, excluding our Caribbean TCL segment, Guatemala, and smallready-mix concrete operations in Argentina. Some of these trading operations in the Caribbean region consist of the resale of cement produced by our operations in Mexico.TCL. Our net salesrevenues from our operations in the SACSCA&C region represented 13% of our total net salesrevenues in Mexican PesoDollar terms for the year ended December 31, 2017,2019, before eliminations resulting from consolidation. As of December 31, 2017,2019, our operations in the SACSCA&C region represented 10%9% of our total assets. Set forth below is a quantitative and qualitative analysis of the effects of the various factors affecting our net salesrevenues for our main operations in the SACSCA&C region.
Colombia
Our domestic cement sales volumes from our operations in Colombia decreased 6%increased 9% in 20172019 compared to 2016,2018, andready-mix concrete sales volumes decreased 13%increased 5% over the same period. The decreasesincreases in domestic cement sales volumes and inready-mix concrete sales volumes waswere primarily due to weak demand from industrial and commercialstrong infrastructure activity related to major projects, as well as from high and middle-income housing developments.good performance in the residential self-construction segment. Our net salesrevenues from our operations in Colombia represented approximately 4% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement from our operations in Colombia decreased 19%increased 5%, in Colombian Peso terms, in 20172019 compared to 2016,2018, and our average sales price ofready-mix concrete decreased 2%,remained flat, in Colombian Peso terms, over the same period. For the year ended December 31, 2017,2019, cement represented 49%57%,ready-mix concrete 28%27% and our aggregates and other businesses 23%16% of our net salesrevenues in Mexican PesoDollar terms from our operations in Colombia before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of decreasesincreases in domestic cement andready-mix concrete sales volumes and in our domestic cement sales prices, net salesrevenues of our operations in Colombia, in Colombian Peso terms, decreased 17%increased 7% in 20172019 compared to 2016.2018.
Panama
Our domestic cement sales volumes from our operations in Panama increased approximately 3%decreased 15% in 20172019 compared to 2016,2018, andready-mix concrete sales volumes increased approximately 9%decreased 28% over the same period. The decreases in domestic cement and ready-mix concrete sales volumes in Panama were affected by a slowdown in construction, high inventory levels for apartments and offices and delays in infrastructure projects. Higher cement imports also negatively impacted industry dynamics. Our netcement export volumes from our operations in the Panama segment represented less than 1% of our Panama cement sales volumes for the year ended December 31, 2019, and increased 80% in 2019 compared to 2018. All of our total cement exports from our operations in Panama during 2019 were to the Rest of South, Central America and the Caribbean region. Our revenues from our operations in Panama represented 2%1% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement and theready-mix concrete from our operations in Panama remained flatdecreased 6% in Dollar terms, in 20172019 compared to 2016.2018, and our average sales price of ready-mix concrete decreased 3%, in Dollar terms, over the same period. For the year ended December 31, 2017,2019, cement represented 62%65%,ready-mix concrete 28%23% and our aggregates and other businesses 10%12% of our net salesrevenues in Mexican PesoDollar terms from our operations in Panama before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of increasesdecreases in domestic cement andready-mix concrete sales volumes netand our sales prices, revenues of our operations in Panama, in Dollar terms, increased 4%decreased 18% in 20172019 compared to 2016.2018.
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Costa Rica
Caribbean TCL
Our domestic cement sales volumes from our operations in Costa Rica increased 3%Caribbean TCL decreased 4% in 20172019 compared to 2016, and2018, while ready-mix concrete sales volumes increased 11%decreased 15% over the same period. Our cement export volumes fromAs mentioned in note 4.1 to our operations2019 audited consolidated financial statements included elsewhere in Costa Rica, which represented 26% of cement sales volumes from our operationsthis annual report, CEMEX acquired a controlling interest in Costa Rica for the year ended December 31, 2017, decreased 11% in 2017 compared to 2016. All of our total cement exports from our operations in Costa Rica during 2017 were to the Rest of South, Central America and the Caribbean region. Our net sales from our operations in Costa Rica represented approximately 1% of our total net sales for the year ended December 31, 2017, in Mexican Peso terms, before eliminations resulting from consolidation. Our average sales price of domestic cement from our operations in Costa Rica decreased approximately 3%, in Costa Rican Colones terms, in 2017 compared to 2016, and our average sales price ofready-mix concrete decreased 10%, in Costa Rican Colones terms, over the same period. For the year ended December 31, 2017, cement represented 77%,ready-mix concrete 14% and our aggregates and other businesses 9% of our net sales from our operations in Mexican Peso terms before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of increases in domestic cement andready-mix concrete sales volumes, partially offset by the decreases in domestic cement andready-mix concrete sales prices, net sales of our operations in Costa Rica, in Costa Rican Colones terms, increased 2% in 2017 compared to 2016.
Caribbean TCL
in February 2017. Our net salesrevenues from our operations in Caribbean TCL represented 2% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our cement export volumes from our operations in Caribbean TCL segment represented 16%22% of our Caribbean TCL cement sales volumes for the year ended December 31, 2017.2019, increased 19% in 2019 compared to 2018. All of our total cement exports from our operations in Caribbean TCL during 20172019 were to the Rest of South, Central America and the Caribbean region. Our average sales price of domestic cement of our operations in Caribbean TCL remained flat, in Trinidad and Tobago Dollar terms, in 2019 compared to 2018, and our average sales price of ready-mix concrete decreased 7%, in Trinidad and Tobago Dollar terms, over the same period. For the year ended December 31, 2017,2019, cement represented 94%91%,ready-mix concrete 1%4% and our other businesses 5% of net salesrevenues in Mexican PesoDollar terms from our operations in Caribbean TCL before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of decreases in domestic cement and ready-mix concrete sales volumes and our ready-mix concrete sales prices, revenues of our operations in Caribbean TCL, in Trinidad and Tobago Dollar terms, decreased 2% in 2019 compared to 2018.
Dominican Republic
Our domestic cement sales volumes from our operations in the Dominican Republic increased 6% in 2019 compared to 2018, while ready-mix concrete sales volumes decreased 5% over the same period. The increases in our domestic cement sales volumes in our Dominican Republic region were mainly driven by strong activity in tourism-related projects and a solid residential sector. Our operations in the Dominican Republic represented 2% of our total revenues for the year ended December 31, 2019, in Dollar terms, before eliminations resulting from consolidation. Our cement export volumes from our operations in the Dominican Republic, which represented 13% of our Dominican Republic cement sales volumes for the year ended December 31, 2019, decreased 6% in 2019 compared to 2018. Of our total cement export volumes from our operations in the Dominican Republic during 2019, all were to our Rest of South, Central America and the Caribbean region. Our average sales price of domestic cement of our operations in the Dominican Republic increased 9%, in Dominican Peso terms, in 2019 compared to 2018, and our average sales price of ready-mix concrete increased 9%, in Dominican Peso terms, over the same period. For the year ended December 31, 2019, cement represented 76%, ready-mix concrete 11% and our aggregates and other businesses 13% of revenues in Dollar terms from our operations in the Dominican Republic before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of increases in our domestic cement and ready-mix concrete sales prices and domestic cement sale volumes, partially offset by decreases in domestic ready-mix concrete sales volumes, revenues from our operations in the Dominican Republic, in Dominican Peso terms, increased 16% in 2019 compared to 2018.
Rest of South, Central America and the Caribbean
Our domestic cement volumes from our operations in the Rest of South, Central America and the Caribbean increased 1%decreased 11% in 20172019 compared to 2016,2018, andready-mix concrete sales volumes increased 1%decreased 29% over the same period. Our cement export volumes from our operations in the Rest of South, Central America and the Caribbean segment, which represented 9%6% of our Rest of South, Central America and the Caribbean cement sales volumes for the year ended December 31, 2017,2019, decreased 21%10% in 20172019 compared to 2016.2018. Of our total cement export volumes from our operations in Rest of South, Central America and the Caribbean during 2017, 90%2019, 69% were within the same region and 10%31% were to the Rest of Europe region. Our net salesrevenues from our operations in the Rest of South, Central America and the Caribbean represented 4% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement from our operations in the Rest of South, Central America and the Caribbean increased 4%remained flat in Dollar terms, in 20172019 compared to 2016,2018, and our average sales price ofready-mix concrete decreased 6%increased 7%, in Dollar terms, over the same period. For the year ended December 31, 2017,2019, cement represented 86%85%,ready-mix concrete 10%9% and our aggregates and other businesses 4%6% of net salesrevenues in Mexican PesoDollar terms from our operations in the Rest of South, Central America and the Caribbean before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of increasesdecreases in domestic cement sales volumes and sales prices andready-mix concrete sales volumes, partially offset by the decreasean increase in our ready-mix concrete sales prices, net salesrevenues of our operations in the Rest of South, Central America and the Caribbean, in Dollar terms, increased 2%decreased 13% in 20172019 compared to 2016.2018.
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Asia, Middle East and Africa
For the year ended December 31, 2017,2019, our operations in the Asia, Middle East and Africa region consisted of our operations in the Philippines and Egypt,Israel, which represent the most significant operations in this region, in addition to the Rest of Asia, Middle East and Africa, which refers primarily to operations in Egypt and the UAE and Israel.UAE. Our net salesrevenues from our operations in the Asia, Middle East and Africa region represented 9%10% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. As of December 31, 2017,2019, our operations in the Asia, Middle East and Africa region represented 5% of our total assets. Set forth below is a quantitative and qualitative analysis of the effects of the various factors affecting our net salesrevenues for our main operations in the Asia, Middle East and Africa region.
The Philippines
Our domestic cement sales volumes from our operations in the Philippines remained flatdecreased 3% in 20172019 compared to 2016, andready-mix concrete sales volumes decreased 58% over2018. Despite an improvement in activity early in the same period. The steadinessyear, the decrease in our domestic cement sales volumes resulted primarily from a moderationwas mainly caused by adverse weather conditions in cement consumption, especially in infrastructure,December 2019, due to the post-election government transition.two typhoons which hit Luzon and Visayas, our most important markets. Our cement export volumes from our operations in the Philippines, which represented less than 1% of our Philippines cement sales volumes for the year ended December 31, 2017,2019, decreased 1%10% in 20172019 compared to 2016.2018. All of our total cement exports from our operations in Philippines during 20172019 were to the Rest of Asia, Middle East and Africa region. Our net salesrevenues from our operations in the Philippines represented 3% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement from our operations in the Philippines decreased 10%increased 4%, in Philippine Peso terms, in 20172019 compared to 2016 and our average sales price ofready-mix concrete increased 16%, in Philippine Peso terms, over the same period.2018. For the year ended December 31, 2017,2019, cement represented 97%99.6% and ourready-mix concrete aggregate and other businesses 3%0.4% of our net salesrevenues in Mexican PesoDollar terms from our operations in the Philippines before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of
Increases in our domestic cement sales prices were completely offset by decreases in domestic cement sales prices, net salesvolumes As a result, revenues of our operations in the Philippines, in Philippine Peso terms, decreased 10%remained flat in 20172019 compared to 2016.2018.
Egypt
Israel
Our domestic cementready-mix concrete sales volumes from our operations in Egypt decreased 6%Israel increased 5% in 20172019 compared to 2016, while2018. The increase in the ready-mix concrete sales volumes decreased 4% over the same period. Government projects related to the Suez Canal tunnelswas mainly driven by an increase in market demand andlow-income housing continued to drive cement demand during the year. industrial-and-commercial activity was especially positive. Our net sales from our operations in EgyptIsrael represented 1%5% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement increased 10%ready-mix concrete of our operations in Israel decreased 1%, in Egyptian PoundIsraeli New Shekel terms, in 20172019 compared to 2016, and our average sales price ofready-mix concrete decreased 3%, in Egyptian Pound terms, over the same period.2018. For the year ended December 31, 2017, cement2019, ready-mix concrete represented 83%,ready-mix concrete 12%68% and our aggregates and other businesses 5%32% of net salesrevenues in Mexican PesoDollar terms from our operations in EgyptIsrael before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the increaseincreases in domestic cementready-mix concrete sales prices,volumes, partially offset by a decreases in our ready-mix concrete sales volumes and sales prices, andrevenues from our operations in domestic cement sales volumes, our net salesIsrael, in Egypt, in Egyptian PoundIsraeli New Shekel terms, increased 4%3% in 20172019 compared to 2016.2018.
Rest of Asia, Middle East and Africa
Our domestic cement sales volumes from our operations in the Rest of Asia, Middle East and Africa increased 46%decreased 21% in 20172019 compared to 2016,2018, andready-mix concrete sales volumes increased 10%decreased 23% over the same
period. Our cement export volumes from our operations in Rest of Asia, Middle East and Africa, which represented 14%less than 1% of our Rest of Asia, Middle East and Africa cement sales volumes for the year ended December 31, 2017,2019, decreased approximately 87%68% in 20172019 compared to 2016.2018. All of our total cement exports from our operations in the region during 20172019 were within the same operations region. Our net salesrevenues from our operations in our Rest of Asia, Middle East and Africa segment represented 5%2% of our total net salesrevenues for the year ended December 31, 2017,2019, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement increased 3%, in Dollar terms, in 20172019 compared to 2016,2018, and the average sales price ofready-mix concrete increased 5%3%, in Dollar terms, over the same period. For the year ended December 31, 2017,2019, cement represented 5%68%,ready-mix concrete 65%30% and our aggregates and other businesses 30%business 2% of net salesrevenues from our operations in the Rest of Asia, Middle East and Africa before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of increasesdecreases in domestic cement and ready-mix concrete sales volumes, partially offset by an increase in our domestic cement sales volumes and prices and inready-mix concrete sales volumes and prices, net salesrevenues from our operations in the Rest of Asia, Middle East and Africa, in Dollar terms, increased 13%decreased 20% in 20172019 compared to 2016.2018.
Others
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Our Others segment refers to: (i) cement trade maritime operations, (ii) our information technology solutions business (Neoris N.V.), (iii) CEMEX, S.A.B. de C.V. and other corporate entities and (iv) other minor subsidiaries with different lines of business. Net sales(Revenues)
Revenues from our Others segment increased 29%decreased 11% before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable, in 20172019 compared to 2016,2018, in Dollar terms. The increasedecrease resulted primarily from an increasea decrease in our worldwide cement volume of our trading operations and a sales increasedecrease in our information technology solutions company. For the year ended December 31, 2017,2019, our information technology solutions company represented 30%28% and our trading operations represented 37% of our net salesrevenues in our Others segment, in Dollar terms.
Cost of Sales.
Our cost of sales, including depreciation, increased 6%decreased 0.3% from Ps160,433$8,849 million in 20162018 to Ps169,534$8,825 million in 2017.2019. As a percentage of net sales,revenues, cost of sales increased from 64.2%65.4% in 20162018 to 65.8%67.2% in 2017.2019. The increase in cost of sales as a percentage of net salesrevenues was mainly driven by higher maintenance, an increase in raw materials cost and freight costs partially mitigated by lower energy costs. Our cost of sales includes freight expenses of raw materials used in our producing plants.
Gross Profit.
For the reasons explaineddescribed above, our gross profit decreased 1%8% from Ps89,512$4,682 million in 20162018 to Ps88,597$4,305 million in 2017.2019. As a percentage of net sales,revenues, gross profit decreased from 35.8%34.6% in 20162018 to 34.2%32.8% in 2017.2019. In addition, our gross profit may not be directly comparable to those of other entities that include all their freight expenses in cost of sales. As described below, we include freight expenses of finished products from our producing plants to our points of sale and from our points of sale to our customers’ locations within operating expenses as part of distribution and logisticlogistics expenses.
Operating expenses.
Our operating expenses, which are represented by administrative, selling and distribution and logistics expenses, increased 4%decreased 0.2%, from Ps53,969$2,979 million in 20162018 to Ps56,026$2,979 million in 2017.2019. As a percentage of net sales,revenues, operating expenses remained flat at 21.6%increased from 22.0% in 2016 and 2017.2018 to 22.6% in 2019. Our operating expenses include expenses related to personnel, equipment and services involved in sales activities and storage of product at points of sale, which are included as part of the operating expenses, as well as freight expenses of finished products between plants and points of sale and freight expenses between points of sale and the customers’ facilities, which are included as part of the line item “Distribution and logisticlogistics expenses.” For the years ended December 31, 20162018 and 2017,2019, selling expenses included as part of the line item “Operating expenses” amounted to Ps6,974$312 million and Ps6,450$371 million, respectively. As discussed above, we include freight expenses of finished products from our producing plants to our points of sale and from our points of sale to our customers’ locations within distribution and logisticlogistics expenses, which in the aggregate represented costs of Ps26,245$1,537 million in 20162018 and Ps28,495$1,489 million in 2017.2019. As a percentage of net sales,revenues, distribution and logistics expenses increaseddecreased from 10.5%11.4% in 20162018 to 11.0%11.3% in 2017.
Operating Earnings Before Other Expenses, Net
For the reasons mentioneddescribed above, our operating earnings before other expenses, net decreased 8%22% from Ps35,543$1,703 million in 20162018 to Ps32,571$1,333 million in 2017.2019. As a percentage of net sales,revenues, operating earnings before other expenses, net decreased from 14.2% in 2016 to 12.6% in 2017.2018 to 10.2% in 2019. Additionally, set forth below is a quantitative and qualitative analysis of the effects of the various factors affecting our operating earnings before other expenses, net on a geographicreportable segment basis.
Mexico
Our operating earnings before other expenses, net, from our operations in Mexico increased 12%decreased 24% in 20172019 compared to 2016,2018, in Mexican PesoDollar terms, from operating earnings before other expenses, net, of Ps16,866$1,069 million in 20162018 to operating earnings before other expenses, net, of Ps18,969$810 million in 2017.2019. Our operating earnings before other expenses, net from our operations in Mexico represented 58%61% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The increasedecrease resulted primarily from the increasedecrease in our netrevenues driven by a decrease in our sales and the continued implementation of our value-before-volume strategy.volumes.
United States
Our operating earnings before other expenses, net, from our operations in the United States increased 2%U.S. decreased 25% in 20172019 compared to 2016,2018, in Dollar terms. Our operating earnings before other expenses, net from our operations in the United StatesU.S. represented 14%18% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The increase in operating earnings before other expenses, netdecrease resulted primarily from the value-before-volume strategyuneven demand dynamics among our four key states, which increased supply chain and transportation costs and was further exacerbated by higher maintenance, partially offset by a decreasethe increase in our net sales.revenues.
Europe
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Europe
United Kingdom. Our operating earnings before other expenses, net, from our operations in the United Kingdom decreased 28%increased 1%, in 2017Pound terms, in 2019 compared to 2016 in Pound terms.2018. Our operating earnings before other expenses, net from our operations in the United Kingdom represented 5%4% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The decreaseincrease resulted primarily from a decreasean increase in our net sales.revenues.
France. Our operating earnings before other expenses, net, from our operations in France increased 69%19%, in 2017Euro terms, in 2019 compared to 2016 in Euro terms.2018. Our operating earnings before other expenses, net from our operations in France represented 1%3% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The increase in our operating earnings before other expenses, net in France resulted primarily from an increase in our net sales.revenues and due to our cost reduction efforts.
Germany. Our operating earnings before other expenses, net, from our operations in Germany increased 89%301%, in 2017Euro terms, in 2019 compared to 2016 in Euro terms. Our operating earnings before other expenses from our operations in Germany represented 1% of our total operating earnings before other expenses for the year ended December 31, 2017, in Mexican Peso terms. The increase resulted primarily from an increase in net sales.
Spain.2018. Our operating earnings before other expenses, net from our operations in Germany represented 3% of our total operating earnings before other expenses, net for the year ended December 31, 2019, in Dollar terms. The increase resulted primarily from an increase in our revenues as well as our cost reduction efforts.
Spain. Our operating loss before other expenses, net, from our operations in Spain decreased significantly5% in 20172019 compared to 20162018, in Euro terms. Our operating loss before other expenses, net from our operations in Spain represented a loss of $18 million, which was a negative impact of 1% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The decrease in the operating earnings before other expenses, net, resulted primarily from higher energyan increase in our production and operational costs, partially offset by an increase in our net sales.revenues.
Poland. Our operating earnings before other expenses, net, from our operations in Poland increased 11% in 2017 compared to 2016 in Polish Zloty terms. Our operating earnings before other expenses from our operations
in Poland represented 1% of our total operating earnings before other expenses for the year ended December 31, 2017, in Mexican Peso terms. The increase in the operating earnings before other expenses, net, resulted primarily from an increase in our net sales.
Rest of Europe. Our operating earnings before other expenses, net, from our operations in the Rest of Europe increased 59%31% in 20172019 compared to 20162018, in Euro terms. Our operating earnings before other expenses, net from our operations in the Rest of Europe region represented 2%5% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The increase resulted primarily from an increasea decrease in our net sales driven by improved economic fundamentals that supported volume growth for our three core products.operating costs.
South, Central America and the Caribbean
Colombia. Our operating earnings before other expenses, net, from our operations in Colombia decreased 55%remained flat in 20172019 compared to 20162018, in Colombian Peso terms. Our operating earnings before other expenses, net from our operations in Colombia represented 5% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The decrease resulted primarilyincrease in revenues from a decreaseour Colombian operations was offset by an increase in net sales affected by weak demand from industrial and commercial projects, as well as from high and middle-income housing developments.our energy costs.
Panama. Our operating earnings before other expenses, net, from our operations in Panama decreased 7%36% in 20172019 compared to 20162018, in Dollar terms. Our operating earnings before other expenses, net from our operations in Panama represented 5%2% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The decrease resulted primarily from a slowdowndecrease in the high-income residential andindustrial-and-commercial sectors and higher fuel costs, partially offset byour revenues, as well as an increase in our net sales.operational costs.
Costa RicaCaribbean TCL. Our operating earnings before other expenses, net, from our operations in Costa RicaCaribbean TCL decreased 9%15% in 20172019 compared to 20162018, in Costa Rican ColonesTrinidad and Tobago Dollar terms. Our operating earnings before other expenses, net from our Caribbean TCL operations in Costa Rica represented 3%2% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The decrease resulted primarily from higher energy costs, partially offset bya decrease in our revenues and an increase in our net sales.distribution expenses.
Caribbean TCLDominican Republic. Our operating earnings before other expenses, net, from our Caribbean TCL operations in the Dominican Republic increased 51% in 2019 compared to 2018, in Dominican Peso terms. Our operating earnings before other expenses, net from our operations in the Dominican Republic represented 1%6% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The increase resulted primarily from an increase in our revenues.
Rest of South, Central America and the Caribbean. Our operating earnings before other expenses, net, from our operations in the Rest of South, Central America and the Caribbean decreased 6%22% in 20172019 compared to 20162018, in Dollar terms. Our operating earnings before other expenses, net from our operations in the Rest of South, Central America and the Caribbean region represented 7% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The decrease resulted primarily from a slowdown in construction activity for new projects in Nicaragua, partially offset by an increasedecrease in our net sales in the rest of the region.revenues.
Asia, Middle East and Africa
The Philippines. Our operating earnings before other expenses, net, from our operations in the Philippines decreased 58%increased 37% in 20172019 compared to 20162018, in Philippine Peso terms. Our operating earnings before other expenses, net from our operations in the Philippines represented 3%6% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The decreaseincrease resulted primarily from a decrease in net sales and by an increase in our energy and distributionoperating costs.
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EgyptIsrael. Our operating earnings before other expenses, net, from our operations in EgyptIsrael decreased 70%2% in 20172019 compared to 20162018, in Egyptian PoundIsraeli New Shekel terms. Our operating earnings before other expenses, net from our operations in EgyptIsrael represented 1%5% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The decrease in Israel operating earnings resulted primarily from higher fuel and electricityan increase in our operating costs, partially offset by an increase in our net sales.revenues.
Rest of Asia, Middle East and Africa. Our operating earnings before other expenses, net, from our operations in the Rest of Asia, Middle East and Africa increased 12%,decreased significantly by 156% in 20172019 compared to 20162018, in Dollar terms. Our operating earningsloss before other expenses, net from our operations in the Rest of Asia, Middle East and Africa region represented 5%a loss of $12 million, which was a negative impact of 1% of our total operating earnings before other expenses, net for the year ended December 31, 2017,2019, in Mexican PesoDollar terms. The increasedecrease resulted primarily from a decrease in our revenues and an increase in our net sales.operational costs.
Others. Our operating loss before other expenses, net, from our operations in our Others segment increased 11% in 20172019 compared to 20162018, in Dollar terms. The increase in our operating loss resulted primarily from an increasea decrease in our operating costrevenues from our otherOthers segment, partially offset by an increasemainly in connection with a decrease in our net sales.trading operations revenues.
Other Expenses, Net. Our other expenses, net, increased by Ps2,145,17%, in Mexican PesoDollar terms, from an expense of Ps1,670$296 million in 20162018 to an expense of Ps3,815$347 million in 2017.2019, including in both years, expenses related to property damages and natural disasters of $56 million in 2018 and $55 million in 2019. The increase in 20172019 resulted primarily from goodwill impairmentexpenses recognized in 2019 related to the Mexican Reorganization of $45 million and the recognition of a settlement loss of $24 million in 2019 related to our operating segmentchange of a multiemployer plan in Spain, in additionthe U.S. from defined benefit to an expense recognized for a penalty imposed by the SIC in Colombia in connection with a market investigation, partially offset by the results from the sale of assets and lower impairment losses on property, machinery and equipment as compared to the prior year, net of other items. As a percentage of net sales, other expenses, net, increased from 0.7% in 2016 to 1.5% in 2017.defined contribution. See notes 6, 13.2, 14, 1518 and 24.127 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
The most significant items included under this caption for the years ended December 31, 20162018 and 20172019, are as follows:
For the Years Ended December 31, | ||||||||||||||||
For the Year Ended December 31, | 2018 | 2019 | ||||||||||||||
2016 | 2017 | (in millions of Dollars) | ||||||||||||||
Results from the sale of assets and others, net | $ | 149 | $ | 230 | ||||||||||||
Restructuring costs | 72 | 48 | ||||||||||||||
Impairment losses | 62 | 64 | ||||||||||||||
Remeasurement of pension liabilities | 8 | - | ||||||||||||||
Charitable contributions | 5 | 5 | ||||||||||||||
(in millions of Mexican Pesos) | $ | 296 | $ | 347 | ||||||||||||
Impairment losses | Ps (2,518 | ) | Ps (2,936 | ) | ||||||||||||
Restructuring costs | (778 | ) | (843 | ) | ||||||||||||
Charitable contributions | (93 | ) | (127 | ) | ||||||||||||
Results from the sale of assets and others, net | 1,719 | 91 | ||||||||||||||
|
| |||||||||||||||
Ps (1,670 | ) | Ps (3,815 | ) | |||||||||||||
|
|
Financial expense. Our financial expense decreased 10%2%, from Ps21,487$722 million in 20162018 to Ps19,301$711 million in 2017,2019, primarily attributable to lower interest rates on our financial debt as well asand a decrease in ourlower average financial debt during 20172019 compared to 2016, partially offset by higher premium payments during 2017 compared to 2016.2018. See notesnote 16.1 and 16.2 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
Financial income (expense) and other items, net.net. Our financial income (expense) and other items, net, in Mexican PesoDollar terms, decreased 19%,increased significantly, from Ps4,489an expense of $2 million in 20162018 to Ps3,616an expense of $71 million in 2017,2019, mainly as a result of negative foreign exchange results during the year which decreased significantly,changed from a gain of Ps5,004$10 million in 20162018 to a loss of Ps26$32 million in 2017, primarily attributable to2019 mainly considering the fluctuation of the Mexican Peso versusagainst the U.S. Dollar, partially offset by the fluctuation of the Euro against the Dollar, and our results from financial instruments, net, which changed from a gain of $39 million in 2018 to a loss of $1 million in 2019 as a result of lower valuation gains on our equity forwards on third-party shares, partially compensated by a one-off loss on the sale and remeasurement of previously held interest before change in control of associates of Ps4,164.$10 million in 2018, resulting from last fair value adjustments related to our acquisition of TCL. See notes 713.1 and 16.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
The most significant items included under this caption for the years ended December 31, 20162018 and 20172019 are as follows:
For the Year Ended December 31, | ||||||||
2016 | 2017 | |||||||
(in millions of Mexican Pesos) | ||||||||
Financial income (expense) and other items, net: | ||||||||
Results from sale of associates andre-measurement of previously held interest before change in control of associates | — | 4,164 | ||||||
Financial income | 402 | 338 | ||||||
Results from financial instruments | 113 | 161 | ||||||
Foreign exchange results | 5,004 | (26 | ) | |||||
Effects of net present value on assets and liabilities and others, net | (1,030 | ) | (1,021 | ) | ||||
|
|
|
| |||||
Ps 4,489 | Ps 3,616 | |||||||
|
|
|
|
For the Year Ended | ||||||||
2018 | 2019 | |||||||
(in millions of Dollars) | ||||||||
Financial income and other items, net: | ||||||||
Effects of amortized cost on assets and liabilities and others, net | $ | (59 | ) | $ | (59 | ) | ||
Foreign exchange results | 10 | (32 | ) | |||||
Results from financial instruments, net | 39 | (1 | ) | |||||
Financial income | 18 | 21 | ||||||
Remeasurement of previously held interest before change in control of associates | (10 | ) | – | |||||
$ | (2 | ) | $ | (71 | ) |
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Income Taxes. Our income tax effect in the income statements, which is primarily comprised of current income taxes plus deferred income taxes, decreased 83%28% from an expense of Ps3,125$224 million in 20162018 to an expense of Ps520$162 million in 2017.2019.
The decrease in the income tax expense is mainly attributable to our deferred income taxes during the period, which increased from deferred tax revenue of Ps331 in 2016 to deferred tax revenue of Ps2,938 in 2017. Such increase resulted primarily from the recognition of deferred income tax assets related to our operations in the United States due to revised and improved projections of taxable revenue in the future determined in 2017 as compared to 2016, net of the decrease in such deferred income tax assets in the United States regarding the Tax Cuts and Jobs Act enacted on December 22, 2017, which reduced the U.S. statutory federal tax rate from 35% to 21%. This net increase in deferred tax assets in the United States was partially offset by increases in the deferred income tax expense from our other operations during 2017 as compared to 2016.
Our current income tax expense remained flatincreased from $99 million in 20172018 to $143 million in 2019, mainly as a result of increases in taxes in Colombia, the Dominican Republic and the Netherlands. In addition, during 2018, there was a positive effect of tax uncertainties compared to 2016.2019. Our deferred income tax expense decreased from a deferred income tax expense of $125 million in 2018 to $19 million in 2019, mainly associated with the recognition of deferred tax assets related to tax loss carryforwards from our operations in Mexico, a lower use of net operating losses in the U.S. compared to 2018 and a lower reserve of intellectual property tax value in Switzerland compared to 2018. See notes 19.1, 19.2, 19.3 and 19.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
For each of the years ended December 31, 20162018 and 2017,2019, our statutory income tax rate in Mexico was 30%. OurConsidering a decrease in our earnings before income taxes from $717 million in 2018 to $253 million in 2019 mentioned above, as well as differences between accounting and tax expenses, partially offset by the recognition of deferred tax assets during 2019, our average effective income tax rate in 2016, which is determined as described below, resulted inincreased from an income tax rate of 17.8%, considering earnings before income tax of Ps17,563 million, and our average effective tax rate31.2% in 2017 resulted2018 to 64.0% in an income tax rate of 3.8%, considering earnings before income tax of Ps13,659 million.2019. Our average effective tax rate equals the net amount of income tax expense divided by incomeearnings before income taxes, as these line items are reported in our consolidated income statements. See “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—Certain tax matters may have ana material adverse effect on our cash flow, financial condition and net income”income, as well as on our reputation” and note 19.3 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
Net Income from continuing operations. For the reasons described above, our net income from continuing operations for 20172019 decreased 9%82%, from a net income from continuing operations of Ps14,438$493 million in 20162018 to a net income from continuing operations of Ps13,139$91 million in 2017.2019. As a percentage of revenues, net income from continuing operations represented 3.6% for the year ended as of December 31, 2018 and 0.7% for the year ended as of December 31, 2019.
Discontinued operations. For the years ended December 31, 20162018 and 2017,2019, our discontinued operations included in our consolidated income statements amounted to Ps768a net income from discontinued operations of $77 million and Ps3,499a net income from discontinued operations of $88 million, respectively. As a percentage of net sales,revenues, discontinued operations, net of tax, represented 0.3%0.6% for the year ended as of December 31, 20162018, and 1.4%0.7% for the year ended as of December 31, 2017.2019. See note 4.2 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
Consolidated Net Income. For the reasons described above, our consolidated net income (before deducting the portion allocable tonon-controlling interest) for 2017 increased 9%2019 decreased 69%, from a consolidated net income of Ps15,206$570 million in 20162018 to a consolidated net income of Ps16,638$179 million in 2017.
Non-controlling Interest Net Income. Changes innon-controlling interest net income in any period reflect changes in the percentage of the stock of our subsidiaries held bynon-associated third parties as of the end of each month during the relevant period and the consolidated net income attributable to those subsidiaries.Non-controlling interest net income increased 21%decreased 14%, from an income of Ps1,173$42 million in 20162018 to an income of Ps1,417 million$36 in 2017,2019, primarily attributable to an increasea decrease in the net income of the consolidated entities in which others have anon-controlling interest. As a percentage of revenues, non-controlling interest net income represented 0.3% for the years ended as of December 31, 2018 and 2019. See note 20.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
Controlling Interest Net Income. Controlling interest net income represents the difference between our consolidated net income andnon-controlling interest net income, which is the portion of our consolidated net income attributable to those of our subsidiaries in whichnon-associated third parties hold interests. For the reasons described above, our controlling interest net income increased 8%decreased 73%, from a controlling interest net income of Ps14,033$528 million in 20162018 to Ps15,221$143 million in 2017.2019. As a percentage of revenues, controlling interest net income, represented 3.9% for the year ended as of December 31, 2018, and 1.1% for the year ended as of December 31, 2019.
Year Ended December 31, 20162018 Compared to Year Ended December 31, 20152017
Summarized in the table below are the percentage (%) increases (+) and decreases (-) for the year ended December 31, 2016,2018, compared to the year ended December 31, 2015,2017, in our domestic cement andready-mix concrete sales volumes, as well as export sales volumes of cement and domestic cement andready-mix concrete average sales prices for each of our geographicreportable segments.
Reportable segments represent the components of CEMEX that engage in business activities from which we may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity’s top management to make decisions about resources to be allocated to the segments and assess their performance, and for which discrete financial information is available. We
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operate geographically and by line of business on a regional basis. For the reported periods, our operations were reorganized into five geographical regions, each under the supervision of a regional president, as follows: (1) Mexico, (2) the U.S., (3) Europe, (4) SCA&C, and (5) AMEA. Under our then new organization, the geographical operating segments under the former Mediterranean region were incorporated to the Europe region or the Asia, Middle East and Africa. The accounting policies applied to determine the financial information by reportable segment are consistent with those described in note 2 to our 2019 audited consolidated financial statements included elsewhere in this annual report.
Considering similar regional and economic characteristics and/or materiality, certain countries have been aggregated and presented as single line items as follows: (i) Rest of Europe; (ii) Rest of South, Central America and the Caribbean; (iii) Caribbean TCL; and (iv) Rest of Asia, Middle East and Africa.
The table below and the other volume data presented by geographicreportable segment in this “Year“—Year Ended December 31, 20162018 Compared to Year Ended December 31, 2015”2017” section are presented before eliminations resulting from consolidation (including those shown on note 4.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report).
Domestic Sales Volumes | Export Sales Volumes | Average Domestic Sales Prices in Local Currency(1) | ||||||||||||||||||
Geographic Segment | Cement | Ready-Mix Concrete | Cement | Cement | Ready-Mix Concrete | |||||||||||||||
Mexico | +4 | % | -3 | % | +22 | % | +18 | % | +8 | % | ||||||||||
United States(2) | +2 | % | -1 | % | — | +4 | % | +1 | % | |||||||||||
Europe | ||||||||||||||||||||
United Kingdom | +7 | % | -3 | % | — | +2 | % | +2 | % | |||||||||||
France | — | +4 | % | — | — | -3 | % | |||||||||||||
Germany | Flat | +2 | % | -6 | % | -2 | % | +1 | % | |||||||||||
Spain | -3 | % | +2 | % | -12 | % | -2 | % | -5 | % | ||||||||||
Poland | -1 | % | +7 | % | -38 | % | -3 | % | -4 | % | ||||||||||
Rest of Europe(3) | +1 | % | -1 | % | -43 | % | -2 | % | Flat | |||||||||||
South, Central America and the Caribbean | ||||||||||||||||||||
Colombia | Flat | -8 | % | — | +1 | % | +4 | % | ||||||||||||
Panama | -14 | % | -3 | % | — | +2 | % | -4 | % | |||||||||||
Costa Rica | -12 | % | -9 | % | +18 | % | -3 | % | +2 | % | ||||||||||
Rest of South, Central America and the Caribbean(4) | +7 | % | -31 | % | -29 | % | -5 | % | -9 | % | ||||||||||
Asia, Middle East and Africa | ||||||||||||||||||||
Philippines | +1 | % | +11 | % | -7 | % | +1 | % | +2 | % | ||||||||||
Egypt | +2 | % | -3 | % | — | +3 | % | +6 | % | |||||||||||
Rest of Asia, Middle East and Africa(5) | -44 | % | Flat | +76 | % | Flat | +3 | % |
Domestic Sales Volumes | Export Sales Volumes | Average Domestic Sales Prices in Local Currency(1) | ||||||||||||||||||
Reportable Segment | Cement | Ready-Mix Concrete | Cement | Cement | Concrete | |||||||||||||||
Mexico | +1% | +10% | +51% | +3% | +8% | |||||||||||||||
United States | +4% | +8% | — | +2% | +2% | |||||||||||||||
Europe | ||||||||||||||||||||
United Kingdom | -5% | -2% | — | -1% | Flat | |||||||||||||||
France | — | +28% | — | — | +4% | |||||||||||||||
Germany | -1% | -8% | -24% | +2% | +6% | |||||||||||||||
Spain | +4% | +34% | -36% | +5% | +2% | |||||||||||||||
Rest of Europe | +5% | +1% | -34% | +4% | +7% | |||||||||||||||
South, Central America and the Caribbean | ||||||||||||||||||||
Colombia | -6% | -11% | — | +2% | Flat | |||||||||||||||
Panama | -18% | -15% | — | -1% | -7% | |||||||||||||||
Caribbean TCL | +6% | +10% | +16% | +2% | -11% | |||||||||||||||
Dominican Republic | -1% | -8% | -10% | +11% | +4% | |||||||||||||||
Rest of South, Central America and the Caribbean | +2% | -9% | -46% | Flat | Flat | |||||||||||||||
Asia, Middle East and Africa | ||||||||||||||||||||
Philippines | +7% | -94% | +4% | +1% | -1% | |||||||||||||||
Israel | — | +4% | — | — | +2% | |||||||||||||||
Rest of Asia, Middle East and Africa | -2% | -7% | -28% | +15% | +11% |
“—” = Not Applicable
(1) | Represents the average change in domestic cement andready-mix concrete prices in local currency terms. |
On a consolidated basis, our cement sales volumes remained relatively flat at 68.2increased 3%, with 65 million tons in 20152017 and 68.367 million tons in 2016,2018, and ourready-mix concrete sales volumes decreased 1%increased 6%, from 51.849 million cubic meters in 20152017 to 51.4 million52 cubic meters in 2016.2018. Our net salesrevenues increased 14%5%, from Ps219,299$12,926 million in 20152017 to Ps249,945 million$13,531 in 2016,2018, and our operating earnings before other expenses, net increased 32%decreased 2%, from Ps26,876$1,735 million in 20152017 to Ps35,543$1,703 million in 2016.
The following tables present selected financial information of net salesfor revenues and operating earnings before other expenses, net for each of our geographicreportable segments for the years ended December 31, 20162017 and 2015.2018. The net salesrevenues information in the table below isare presented before eliminations resulting from consolidation (including those shown in note 4.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report). Variations in net salesrevenues determined by Mexican Pesoson the basis of Dollars include the appreciation or depreciation which occurred during the period between the local currencies of the countries in the regionsvis-à-vis the Mexican Peso; therefore, such variations differ substantially from those based solely on the countries’ local currencies:
Geographic Segment | Variation in Local Currency(1) | Approximate Currency Fluctuations | Variation in Mexican Pesos | Net Sales For the Year Ended | ||||||||||||||||
2015 | 2016 | |||||||||||||||||||
(in millions of Mexican Pesos) | ||||||||||||||||||||
Mexico | +7 | % | — | +7 | % | Ps 50,260 | Ps 53,579 | |||||||||||||
United States(2) | — | +17 | % | +17 | % | 56,846 | 66,554 | |||||||||||||
Europe | ||||||||||||||||||||
United Kingdom | +2 | % | +3 | % | +5 | % | 20,227 | 21,153 | ||||||||||||
France | +3 | % | +17 | % | +20 | % | 12,064 | 14,535 | ||||||||||||
Germany | -2 | % | +18 | % | +16 | % | 8,285 | 9,572 | ||||||||||||
Spain | -9 | % | +16 | % | +7 | % | 6,151 | 6,563 | ||||||||||||
Poland | -4 | % | +12 | % | +8 | % | 4,445 | 4,799 | ||||||||||||
Rest of Europe(3) | -4 | % | +10 | % | +6 | % | 7,457 | 7,935 | ||||||||||||
South, Central America and the Caribbean | ||||||||||||||||||||
Colombia | +1 | % | +6 | % | +7 | % | 11,562 | 12,415 | ||||||||||||
Panama | -10 | % | +17 | % | +7 | % | 4,599 | 4,906 | ||||||||||||
Costa Rica | -8 | % | +14 | % | +6 | % | 2,658 | 2,818 | ||||||||||||
Rest of South, Central America and the Caribbean(4) | -9 | % | +2 | % | -7 | % | 12,177 | 11,378 | ||||||||||||
Asia, Middle East and Africa | ||||||||||||||||||||
Philippines | +2 | % | +12 | % | +14 | % | 8,436 | 9,655 | ||||||||||||
Egypt | +5 | % | -5 | % | — | 6,923 | 6,950 | |||||||||||||
Rest of Asia, Middle East and Africa(5) | -2 | % | +17 | % | +19 | % | 9,929 | 11,858 | ||||||||||||
Others(6) | +15 | % | -3 | % | +12 | % | 16,793 | 18,846 | ||||||||||||
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Net sales from continuing operations before eliminations resulting from consolidation | +10 | % | Ps 238,812 | Ps 263,516 | ||||||||||||||||
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Eliminations resulting from consolidation | 19,513 | 13,571 | ||||||||||||||||||
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Net sales from continuing operations | +14 | % | Ps 219,299 | Ps 249,945 | ||||||||||||||||
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Approximate | Revenues | |||||||||||||||||||
Variation in | Currency | Variation in | For the Year Ended | |||||||||||||||||
Reportable Segment | Local Currency(1) | Fluctuations | Dollars | 2017 | 2018 | |||||||||||||||
(in millions of Dollars) | ||||||||||||||||||||
Mexico | +9% | -3% | +6% | $ | 3,104 | $ | 3,302 |
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Approximate | Revenues | |||||||||||||||||||
Variation in | Currency | Variation in | For the Year Ended | |||||||||||||||||
Reportable Segment | Local Currency(1) | Fluctuations | Dollars | 2017 | 2018 | |||||||||||||||
(in millions of Dollars) | ||||||||||||||||||||
United States | +9% | — | +9% | 3,320 | 3,614 | |||||||||||||||
Europe | ||||||||||||||||||||
United Kingdom | -2% | -6% | -8% | 841 | 773 | |||||||||||||||
France | +8% | +3% | +11% | 805 | 895 | |||||||||||||||
Germany | +6% | -2% | +4% | 412 | 429 | |||||||||||||||
Spain | +8% | +1% | +9% | 306 | 334 | |||||||||||||||
Rest of Europe | +14% | +5% | +19% | 616 | 733 | |||||||||||||||
SCA&C | ||||||||||||||||||||
Colombia | -7% | — | -7% | 566 | 524 | |||||||||||||||
Panama | -17% | — | -17% | 266 | 222 | |||||||||||||||
Caribbean TCL | +10% | -1% | +9% | 232 | 254 | |||||||||||||||
Dominican Republic | +10% | -5% | +5% | 207 | 218 | |||||||||||||||
Rest of SCA&C | -2% | — | -2% | 605 | 590 | |||||||||||||||
AMEA | ||||||||||||||||||||
Philippines | +6% | -4% | +2% | 440 | 448 | |||||||||||||||
Israel | +5% | -1% | +4% | 603 | 630 | |||||||||||||||
Rest of AMEA | +12% | — | +12% | 318 | 357 | |||||||||||||||
Others | +14% | — | +14% | 1,090 | 1,247 | |||||||||||||||
Revenues from continuing operations before eliminations resulting from consolidation | +6% | $ | 13,731 | $ | 14,570 | |||||||||||||||
Eliminations resulting from consolidation | (805 | ) | (1,039 | ) | ||||||||||||||||
Revenues from continuing operations | +5% | $ | 12,926 | $ | 13,531 |
Operating Earnings Before | ||||||||||||||||||||
Variation in | Approximate | Other Expenses, Net for | ||||||||||||||||||
Local | Currency | Variation in | the Year Ended | |||||||||||||||||
Reportable Segment | Currency(1) | Fluctuations | Dollars | 2017 | 2018 | |||||||||||||||
(in millions of Dollars) | ||||||||||||||||||||
Mexico | +6% | -3% | +3% | $ | 1,041 | $ | 1,069 | |||||||||||||
United States | +42% | — | +42% | 224 | 317 | |||||||||||||||
Europe | ||||||||||||||||||||
United Kingdom | -46% | +3% | -43% | 87 | 50 | |||||||||||||||
France | +68% | +10% | +78% | 23 | 41 | |||||||||||||||
Germany | -23% | -13% | -36% | 14 | 9 | |||||||||||||||
Spain | +4% | +1% | +5% | (19 | ) | (20 | ) | |||||||||||||
Rest of Europe | +468% | +5% | +473% | 11 | 63 | |||||||||||||||
SCA&C | ||||||||||||||||||||
Colombia | -21% | — | -21% | 86 | 68 | |||||||||||||||
Panama | -45% | — | -45% | 89 | 49 | |||||||||||||||
Caribbean TCL | +56% | — | +56% | 25 | 39 | |||||||||||||||
Dominican Republic | +13% | -4% | +9% | 47 | 51 | |||||||||||||||
Rest of SCA&C | -9% | — | -9% | 123 | 112 | |||||||||||||||
AMEA | ||||||||||||||||||||
Philippines | +17% | +4% | +21% | 47 | 57 | |||||||||||||||
Israel | +5% | -2% | +3% | 64 | 66 | |||||||||||||||
Rest of AMEA | -20% | -11% | -31% | 32 | 22 | |||||||||||||||
Others | -82% | — | -82% | (159 | ) | (290 | ) | |||||||||||||
Operating earnings before other expenses, net form continue operations | -2% | $ | 1,735 | $ | 1,703 |
Geographic Segment | Variation in Local Currency(1) | Approximate Currency Fluctuations | Variation in Mexican Pesos | Operating Earnings (Loss) Before Other Expenses, Net For the Year Ended December 31, | ||||||||||||||||
2015 | 2016 | |||||||||||||||||||
(in millions of Mexican Pesos) | ||||||||||||||||||||
Mexico | +30 | % | — | +30 | % | Ps 12,963 | Ps 16,866 | |||||||||||||
United States(2) | +68 | % | +26 | % | +94 | % | 2,356 | 4,573 | ||||||||||||
Europe | ||||||||||||||||||||
United Kingdom | +48 | -2 | % | +50 | % | 1,701 | 2,559 | |||||||||||||
France | -33 | % | +13 | % | -20 | % | 232 | 185 | ||||||||||||
Germany | -15 | % | -27 | % | -42 | % | 153 | 89 | ||||||||||||
Spain | -68 | % | +3 | % | -65 | % | 427 | 151 | ||||||||||||
Poland | -28 | % | +10 | % | -18 | % | 303 | 249 | ||||||||||||
Rest of Europe(3) | +10 | % | +20 | % | +30 | % | 371 | 481 | ||||||||||||
South, Central America and the Caribbean | ||||||||||||||||||||
Colombia | -7 | % | +5 | % | -2 | % | 3,541 | 3,486 | ||||||||||||
Panama | -1 | % | +17 | % | +16 | % | 1,571 | 1,830 | ||||||||||||
Costa Rica | -11 | % | +13 | % | +2 | % | 994 | 1,011 | ||||||||||||
Rest of South, Central America and the Caribbean(4) | +32 | % | — | +32 | % | 1,850 | 2,438 | |||||||||||||
Asia, Middle East and Africa | ||||||||||||||||||||
Philippines | +10 | % | +13 | % | +23 | % | 1,759 | 2,157 | ||||||||||||
Egypt | +59 | % | -5 | % | +54 | % | 1,241 | 1,915 | ||||||||||||
Rest of Asia, Middle East and Africa(5) | +13 | % | +17 | % | +31 | % | 1,006 | 1,318 | ||||||||||||
Others(6) | +6 | % | -1 | % | +5 | % | (3,592 | ) | (3,765 | ) | ||||||||||
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Operating Earnings before other expenses, net | +32 | % | Ps 26,876 | Ps 35,543 | ||||||||||||||||
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“—” = Not Applicable
(1) | Represents the variation in local currency terms. For purposes of a |
Net salesRevenues. Our consolidated net salesrevenues increased 14%5%, from Ps219,299$12,926 million in 20152017 to Ps249,945$13,531 million in 2016.2018. The increase was primarily attributable to higher prices offor our products, in local currency terms, in most of our operations,Mexico, the U.S. and Europe regions, as well as higher cement volumes in our Mexico, the U.S., Europe and ourRest of Asia, Middle East and Africa region.regions. Set forth below is a quantitative and qualitative analysis of the various factors affecting our net salesrevenues on a geographicreportable segment basis. The discussion of volume data and net salesrevenues information below is presented before eliminations resulting from consolidation as described in note 4.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
Mexico
Our domestic cement sales volumes from our operations in Mexico increased 4%1% in 20162018 compared to 2015,2017, andready-mix concrete sales volumes decreased 3%increased 10% over the same period. Our net salesrevenues from our operations in Mexico represented 20%23% of our total net sales from continuing operationsrevenues for the year ended December 31, 2016,2018, in Mexican PesoDollar terms, before eliminations resulting from consolidation. The increase in domestic cement salesCement volumes was primarily attributable to conditions induring the industrial/commercial, formal housing and self-construction sectors, as well as our value-before-volume strategy. The industrial/commercial sector wasyear were supported by continued commercial activity, as well as warehouseincreased demand from the formal residential and industrial-park construction. Despite a decline in government subsidies during 2016,industrial-and-commercial sector mitigated by lower infrastructure activity. In the formal residential sector, benefited frominvestment in mortgages for new home acquisitions continued to grow as INFONAVIT surpassed its 2018 target. In the Instituto del Fondo Nacional de la Vivienda para los Trabajadores’ (Infonavit) stable investment industrial-and-commercial sector, favorable dynamics continued in tourism, office-space and banks’ double-digit growth in mortgage lending. The main indicators for the self-construction sector, including remittances and job creation, remained solid during the year.manufacturing-related construction. Our cement export volumes from our operations in Mexico, which represented 4%6% of our Mexican cement sales volumes for the year ended December 31, 2016,2018, increased 22%51% in 20162018 compared to 2015.2017. Of our total cement export volumes from our operations in Mexico during 2016, 46%2018, 63% was shipped to the United States, 41%U.S., and 37% to our Rest of South, Central America and the Caribbean and 13% to South America.region. Our average sales price of domestic cement from our operations in Mexico increased 18%3%, in Mexican Peso terms, in 20162018 compared to 2015,2017, and our average sales price ofready-mix concrete also increased 8%, in Mexican Peso terms, over the same period. For the year ended December 31, 2016,2018, cement represented 57%,ready-mix concrete 21%22% and our aggregates and other businesses 22%21% of our net salesrevenues in Mexican PesoDollar terms from our operations in Mexico before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of an increaseincreases in our domestic cement and ready-mix concrete sales volumesprices and domestic cement andready-mix concrete sales prices, partially offset by a decrease inready-mix concrete sales volumes, our net salesrevenues in Mexico, in Mexican Peso terms, increased 7%9% in 20162018 compared to 2015.
United States
Our domestic cement sales volumes from our operations in the United StatesU.S. increased 2%4% in 20162018 compared to 2015 sales,2017, andready-mix concrete sales volumes decreased 1%increased 8% over the same period. The increasesResidential and infrastructure activity were the main drivers of volume growth. In the industrial-and-commercial sector, construction spending was driven by offices, lodging and commercial activity. Regarding infrastructure, street-and-highway spending continued to grow in 2018. Contract awards in our key states are growing in the domestic cement sales volumedouble-digits and in excess of our operation in the United States were mainlynational average, driven by the residential, construction andspecific state infrastructure sectors. The residential sector was supported by low interest rates and inventories, strong job creation and household formation. Construction spending for the cement-intensive segments in the industrial/commercial sector increased in 2016, which reflected growth in the lodging and office segments, offsetting a decline in energy, agriculture and manufacturing. In the infrastructure sector,streets-and-highways spending picked up toward the end of the year after a weakpre-election performance.funding initiatives. Our operations in the United StatesU.S. represented 25% of our total net sales from continuing operationsrevenues for the year ended December 31, 2016,2018, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average domestic cement sales prices of our operations in the United StatesU.S. increased 4%2%, in Dollar terms, in 20162018 compared to 2015,2017, and our averageready-mix concrete sales price increased 1%2%, in Dollar terms, over the same period. For the year ended December 31, 2016,2018, cement represented 33%32%,ready-mix concrete represented 42% and our aggregates and other businesses 25%represented 26% of net salesrevenues in Mexican PesoDollar terms from our operations in the United StatesU.S. before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the increases in our domestic cement and ready-mix concrete sales volumes and sales pricesdomestic cement andready-mix concrete sales prices, completely offset by a decrease in ourready-mix concrete and other segments sales volumes, net salesrevenues from our operations in the United States,U.S., in Dollar terms, remained flatincreased 9% in 20162018 compared to 2015.2017.
Europe
In 2016,2018, our operations in the Europe region consisted of our operations in the United Kingdom, France, Germany Spain and PolandSpain, which represent the most significant operations in this region, in addition to the Rest of Europe, which refers primarily to operations in thePoland, Czech Republic Croatia and Latvia, as well as trading activities in Scandinavia and Finland.Croatia. Our net salesrevenues from our operations in the Europe region represented 25%21% of our total net sales from continuing operationsrevenues for the year ended December 31, 2016,2018, in Mexican PesoDollar terms, before eliminations resulting from consolidation. As of December 31, 2016,2018, our operations in the Europe region represented 19% of our total assets from continuing operations.assets. Set forth below is a quantitative and qualitative analysis of the effects of the various factors affecting our net salesrevenues for our main operations in the Europe region.
United Kingdom
Our domestic cement sales volumes from our operations in the United Kingdom increased 7%decreased 5% in 20162018 compared to 2015,2017, andready-mix concrete sales volumes decreased 3%2% over the same period. The increasedecreases in domestic cement and ready-mix concrete sales volumes resulted primarily from improvements in all of our main demand sectors. In addition, cement volume growth during the year benefited from higher sales of blended cement that resulted from fly ash scarcity.reflect continued uncertainty around Brexit. Our operations in the United Kingdom represented 8%5% of our total net sales from continuing operationsrevenues for the year ended December 31, 2016,2018, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement from our operations in the United Kingdom increased 2%decreased 1%, in Pound terms, in 20162018 compared to 2015,2017, and our average sales price ofready-mix concrete increased 2%,remained flat, in Pound terms, over the same period. For the year ended December 31, 2016,2018, cement represented 18%21%,ready-mix concrete 27%28% and our aggregates and other businesses 55%51% of net salesrevenues in Mexican PesoDollar terms from our operations in the United Kingdom before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the increasesdecreases in our domestic cement and ready-mix concrete sales volumes and domestic cement sales volumes and sales prices, andready-mix concrete sales prices, partially offset by a decrease inready-mix concrete sales volumes, net salesrevenues from our operations in the United Kingdom, in Pound terms, increaseddecreased 2% in 20162018 compared to 2015.2017.
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France
Ourready-mix concrete sales volumes from our operations in France increased 4%28% in 20162018 compared to 2015. The increase inready-mix concrete sales volumes resulted primarily from improvements in the residential and industrial/commercial sectors, which were2017. Infrastructure activity was the main driversdriver of volume, including the “Grand Paris” project, as well as demand duringfrom the year. The residential sector was supported by low interest rates and government initiatives, including abuy-to-let program andzero-rates loans for first time buyers.industrial-and-commercial sector. Our operations in France represented 6% of our total net sales from continuing operationsrevenues for the year ended December 31, 2016,2018, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales price ofready-mix concrete of our operations in France decreased 3%increased 4%, in Euro terms, in 20162018 compared to 2015.2017. For the year ended December 31, 2016,2018, ready-mix concrete represented 67% and our aggregates and other businesses 33% of net salesrevenues in Mexican PesoDollar terms from our operations in France before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the increases in our ready-mix concrete sales volumes partially offset by the decrease inready-mix concreteand our sales prices, net salesrevenues from our operations in France, in Euro terms, increased 3%8% in 20162018 compared to 2015.2017.
Germany
Our domestic cement sales volumes from our operations in Germany remained flatdecreased 1% in 20162018 compared to 2015,2017, andready-mix concrete sales volumes increased 2%decreased 8% over the same period. Competitive dynamics improved during 2016. The residential sector was the main driver of cement consumption despite capacitydecrease in ready-mix concrete volumes reflected, in part, continued supply constraints in the local construction industry and public authorities’ restrictions.industry. This sector continuedalso resulted in lower domestic cement volumes supplied to benefitour ready-mix concrete operations. Our operations in Germany represented 3% of our total revenues for the year ended December 31, 2018, in Dollar terms, before eliminations resulting from low unemployment and mortgage rates, rising purchasing power and growing immigration.consolidation. Our cement export volumes from our operations in Germany, which represented 37%25% of our Germany cement sales volumes in Germany for the year ended December 31, 2016,2018, decreased 6%24% in 20162018 compared to 2015. Our operations in Germany represented 4% of our total net sales from continuing operations for the year ended December 31, 2016, in Mexican Peso terms, before eliminations resulting from consolidation.2017. Our average sales price of domestic cement from our operations in Germany decreasedincreased 2%, in Euro terms, in 20162018 compared to 2015,2017, and our average sales price ofready-mix concrete increased 1%6%, in Euro terms, over the same period. For the year ended December 31, 2016,2018, cement represented 28%32%,ready-mix concrete 37%34% and our aggregates and other businesses 35%34% of net salesrevenues in Mexican PesoDollar terms from our operations in Germany before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the decreaseincreases in our domestic cement and ready-mix concrete sales prices, partially offset by the increasesdecreases in domestic cement and ready-mix concrete sales prices and sales volumes, net salesrevenues from our operations in Germany, in Euro terms, decreased 2%increased 6% in 20162018 compared to 2015.2017.
Spain
Our domestic cement sales volumes from our operations in Spain decreased 3%increased 4% in 20162018 compared to 2015,2017, whileready-mix concrete sales volumes increased 2%34% over the same period. Political uncertainty for mostThe increase in domestic cement and ready-mix concrete volumes reflected in part the introduction of 2016 weighed on consumer sentiment,ten new ready-mix concrete plants and three new aggregates quarries. Activity from the construction activity was particularly negatively affected during 2016.residential and industrial-and-commercial sectors continued to be favorable. The residential sector which was the main driver of cement demand during the year, benefitedcontinued to benefit from favorable credit conditions, low interest rates, positive income perspectives and income prospects, job creationpent-up housing demand, with double-digit growth in both housing permits andpent-up housing demand. mortgages. Our operations in Spain represented 2% of our total net sales from continuing operationsrevenues for the year ended December 31, 2016,2018, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our cement export volumes from our operations in Spain, which represented 58%32% of our Spain cement sales volumes for the year ended December 31, 2016,2018, decreased 12%36% in 20162018 compared to 2015.2017. Of our total cement export volumes from our operations in Spain during 2016, 13%2018, 5% were to SACthe SCA&C region, 16%22% were to the U.S., 32% were to the United States, 15%Kingdom, 10% were to the Rest of Europe region and 56%31% were to the Rest of Asia, Middle East and Africa.Africa region. Our average sales price of domestic cement of our operations in Spain decreased
2%increased 5%, in Euro terms, in 20162018 compared to 2015,2017, and our average sales price ofready-mix concrete decreased 5%increased 2%, in Euro terms, over the same period. For the year ended December 31, 2016,2018, cement represented 79%70%,ready-mix concrete 12%20% and our aggregates and other businesses 9%10% of net salesrevenues in Mexican PesoDollar terms from our operations in Spain before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the decreasesincreases in our domestic cement and ready-mix concrete sales volumes and domestic cement andready-mix concrete sales prices, partially offset by an increase inready-mix concrete sales volumes, net salesrevenues from our operations in Spain, in Euro terms, decreased 9%increased 8% in 20162018 compared to 2015.2017.
Poland
Our domestic cement sales volumes from our operations in Poland decreased 1% in 2016 compared to 2015, whileready-mix concrete sales volumes increased 7% over the same period. Domestic cement volume decline reflects further delays in infrastructure sector projects and a slight loss in our market position. The residential sector was the main driver of demand during 2016. Our cement export volumes from our operations in Poland, which represented 4% of our Poland cement sales volumes for the year ended December 31, 2016, decreased 38% in 2016 compared to 2015. Of our total cement export volumes from our operations in Poland during 2016, 72% were to Germany and 28% were to the Rest of Europe region. Our operations in Poland represented 2% of our total net sales from continuing operations for the year ended December 31, 2016, in Mexican Peso terms, before eliminations resulting from consolidation. Our average sales price of domestic cement of our operations in Poland decreased 3%, in Euro terms, in 2016 compared to 2015, and our average sales price ofready-mix concrete decreased 4%, in Euro terms, over the same period. For the year ended December 31, 2016, cement represented 48%,ready-mix concrete 38% and our aggregates and other businesses 14% of net sales from our operations in Poland before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the decreases in domestic cement sales volumes and sales prices andready-mix concrete sales prices, partially offset by an increase inready-mix concrete sales volumes, net sales from our operations in Poland, in Euro terms, decreased 4% in 2016 compared to 2015.
Rest of Europe
Our domestic cement sales volumes from our operations in the Rest of Europe increased 1%5% in 20162018 compared to 2015,2017, andready-mix concrete sales volumes decreasedincreased 1% over the same period. The decreases inready-mix concrete sales volumes in the Rest of Europe region were primarily due to a decrease in our sales volumes in the Croatian Operations. Our cement export volumes from our operations in the Rest of Europe segment, which represented 25%8% of our Rest of Europe cement sales volumes for the year ended December 31, 2016,2018, decreased 43%34% in 20162018 compared to 2015.2017. Of our total cement export volumes from our operations in Rest of Europe during 2016, 67% was shipped2018, 7% were to Dominican Republic, 31% were to Israel, 50% were within the same region 30%and 12% were to South, Central Americathe Asia, Middle East and the Caribbean, 2% to Poland and 1% to Germany.Africa region. Our net salesrevenues from our operations in the Rest of Europe represented 3%5% of our total net sales from continuing operationsrevenues for the year ended December 31, 2016,2018, in Mexican Peso
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Dollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement from our operations in the Rest of Europe decreased 2%increased 4%, in Euro terms, in 20162018 compared to 2015,2017, and our average sales price ofready-mix concrete remained flatincreased 7%, in Euro terms, over the same period. For the year ended December 31, 2016,2018, cement represented 60%41%,ready-mix concrete 26%30% and our aggregates and other businesses 14%29% of net salesrevenues in Mexican PesoDollar terms from our operations in the Rest of Europe before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the decreasesincreases in our domestic cement and ready-mix concrete sales volumes and domestic cement sales prices, partially offset by the increases in domestic cement sales prices, net salesrevenues in the Rest of Europe, in Euro terms, decreased 4%increased 14% in 20162018 compared to 2015.
South, Central America and the Caribbean
In 2016, our operations in the SAC region consisted of our operations in Colombia, which represented the most significant operations in this region, in addition to Panama, Costa Rica, and the Rest of South, Central America and the Caribbean, which refers primarily to operations in Puerto Rico, the Dominican Republic, Nicaragua, Jamaica and other countries in the Caribbean, excluding our Caribbean TCL segment, Guatemala, and smallready-mix concrete operations in Argentina. Some of these trading operations in the Caribbean region consist of the resale of cement produced by our operations in Mexico.
Our net salesrevenues from our operations in the SACSCA&C region excluding Caribbean TCL, represented 12%13% of our total net salesrevenues in Dollar terms for the year ended December 31, 2016, in Mexican Peso terms,2018, before eliminations resulting from consolidation. As of December 31, 2016,2018, our operations in the SACSCA&C region represented 8%10% of our total assets. Set forth below is a quantitative and qualitative analysis of the effects of the various factors affecting our net salesrevenues for our main operations in the SAC region excluding Caribbean TCL.SCA&C region.
Colombia
Our domestic cement sales volumes from our operations in Colombia remained flatdecreased 6% in 20162018 compared to 2015,2017, andready-mix concrete sales volumes decreased 8%11% over the same period. The decreasedecreases in domestic cement sales volumes and in ready-mix concrete sales volumes waswere primarily due to delaysa general industry downturn and macroeconomic challenges that adversely affected national consumption during 2016.an aggressive pricing strategy carried out by our competitors. Our net salesrevenues from our operations in Colombia represented 5%4% of our total net salesrevenues for the year ended December 31, 2016,2018, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement from our operations in Colombia increased 1%2%, in Colombian Peso terms, in 20162018 compared to 2015,2017, and our average sales price ofready-mix concrete increased 4%,remained flat, in Colombian Peso terms, over the same period. For the year ended December 31, 2016,2018, cement represented 54%51%,ready-mix concrete 27% and our aggregates and other businesses 19%22% of our net salesrevenues in Mexican PesoDollar terms from our operations in Colombia before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the increasesdecreases in domestic cement andready-mix concrete sales prices,volumes, partially offset by the decreasean increase inready-mix concretes our domestic cement sales volumes, net salesprices, revenues of our operations in Colombia, in Colombian Peso terms, increased 1%decreased 7% in 20162018 compared to 2015.2017.
Panama
Our domestic cement sales volumes from our operations in Panama decreased 14%18% in 20162018 compared to 2015, while2017, and ready-mix concrete sales volumes decreased 3%15% over the same period. The decreases in domestic cement and ready-mix concrete sales volumes reflected the market slowdown and slow execution of infrastructure projects. Our revenues from our operations in Panama represented 2% of our total net sales from continuing operationsrevenues for the year ended December 31, 2016,2018, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement offrom our operations in Panama increased 2%,decreased 1% in Dollar terms, in 20162018 compared to 2015,2017, and our average sales price ofready-mix concrete decreased 4%7%, in Dollar terms, over the same period. For the year ended December 31, 2016,2018, cement represented 64%61%,ready-mix concrete 27%represented 26% and our aggregates and other businesses 9%represented 13% of net salesour revenues in Dollar terms from our operations in Panama before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the decreases in our domestic cement and ready-mix concrete sales andready-mix concrete volumes andready-mix concrete sales prices, partially offset by an increase in domestic cement sales prices, net sales fromrevenues of our operations in Panama, in Dollar terms, decreased 10%17% in 20162018 compared to 2015.2017.
Costa Rica
Caribbean TCL
Our domestic cement sales volumes from our operations in Costa Rica decreased 12%Caribbean TCL increased 6% in 20162018 compared to 2015,2017, whileready-mix concrete sales volumes decreased 9%increased 10% over the same period. As mentioned in note 4.1 to our 2019 audited consolidated financial statements included elsewhere in this annual report, CEMEX acquired a controlling interest in Caribbean TCL in February 2017. Our revenues from our operations in Costa Rica
Caribbean TCL represented 1%2% of our total net salesrevenues for the year ended December 31, 2016,2018, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our cement export volumes from our operations in Costa Rica, whichCaribbean TCL segment represented 29%19% of our Costa RicaCaribbean TCL cement sales volumes for the year ended December 31, 2016,2018, increased 18%16% in 20162018 compared to 2015.2017. All of our total cement exports from our operations in Costa RicaCaribbean TCL during 20162018 were withinto the sameRest of South, Central America and the Caribbean region. Our average sales price of domestic cement of our operations in Costa Rica decreased 3%Caribbean TCL increased 2%, in Costa Rican ColonesTrinidad and Tobago Dollar terms, in 20162018 compared to 2015,2017, and our average sales price ofready-mix concrete increased 2%decreased 11%, in Costa Rican ColonesTrinidad and Tobago Dollar terms, over the same period. For the year ended December 31, 2016,2018, cement represented 76%89%,
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ready-mix concrete 14%4% and our aggregates and other businesses 10%7% of net salesrevenues in Dollar terms from our operations in Costa RicaCaribbean TCL before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the decreasesincreases in our domestic cement andreedy-mix ready-mix concrete sales volumes and domestic cement sales prices, partially offset by an increasedecreases in domesticour ready-mix concrete sales prices, netrevenues of our operations in Caribbean TCL, in Trinidad and Tobago Dollar terms, increased 10% in 2018 compared to 2017.
Dominican Republic
Our domestic cement sales volumes from our operations in Costa Rica,the Dominican Republic decreased 1% in Costa Rican Colones terms,2018 compared to 2017, while ready-mix concrete sales volumes decreased 8% over the same period. The decreases in 2016our domestic cement and ready-mix concrete sales volumes in our Dominican Republic region were mainly driven by lower consumption from the private sector, fewer government projects and delays of state permits to initiate. Our operations in the Dominican Republic represented 1% of our total revenues for the year ended December 31, 2018, in Dollar terms, before eliminations resulting from consolidation. Our cement export volumes from our operations in the Dominican Republic, which represented 14% of our Dominican Republic cement sales volumes for the year ended December 31, 2018, decreased 10% in 2018 compared to 2015.
2017. Of our total cement export volumes from our operations in the Dominican Republic during 2018, all were to our Rest of South, Central America and the Caribbean region. Our average sales price of domestic cement of our operations in the Dominican Republic increased 11%, in Dominican Peso terms, in 2018 compared to 2017, and our average sales price of ready-mix concrete increased 4%, in Dominican Peso terms, over the same period. For the year ended December 31, 2018, cement represented 75%, ready-mix concrete 11% and our aggregates and other businesses 14% of revenues in Dollar terms from our operations in the Dominican Republic before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of increases in our domestic cement and ready-mix concrete sales prices, partially offset by decreases in domestic cement and ready-mix concrete sales volumes, revenues from our operations in the Dominican Republic, in Dominican Peso terms, increased 10% in 2018 compared to 2017.
Rest of South, Central America and the Caribbean
Our domestic cement volumes from our operations in the Rest of South, Central America and the Caribbean excluding Caribbean TCL increased 7%2% in 20162018 compared to 2015,2017, andready-mix concrete sales volumes decreased 31%9% over the same period. Our net sales from our operations in the Rest of South, Central America and the Caribbean excluding Caribbean TCL represented 4% of our total net sales for the year ended December 31, 2016, in Mexican Peso terms, before eliminations resulting from consolidation. Our cement export volumes from our operations in the Rest of South, Central America and the Caribbean segment, excluding Caribbean TCL, which represented 12%6% of our Rest of South, Central America and the Caribbean excluding Caribbean TCL cement sales volumes for the year ended December 31, 2016,2018, decreased 29%46% in 20162018 compared to 2015.2017. Of our total cement export volumes from our operations in Rest of South, Central America and the Caribbean during 2018, 96% were within the same region and 4% were to the Rest of Europe region. Our revenues from our operations in the Rest of South, Central America and the Caribbean represented 4% of our total revenues for the year ended December 31, 2018, in Dollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement from our operations in the Rest of South, Central America and the Caribbean excluding Caribbean TCL decreased 5%remained flat in Dollar terms, in 20162018 compared to 2015,2017, and our average sales price ofready-mix concrete decreased 9%,remained flat, in Dollar terms, over the same period. For the year ended December 31, 2016,2018, cement represented 84%,ready-mix concrete 12%10% and our other businesses 4%6% of net salesrevenues in Mexican PesoDollar terms from our operations in the Rest of South, Central America and the Caribbean excluding Caribbean TCL before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the decreases inready-mix concrete sales volumes, and sales prices and domestic cement sales prices, partially offset by thean increase in domestic cement sales volumes, net salesrevenues of our operations in the Rest of South, Central America and the Caribbean, excluding Caribbean TCL, in Dollar terms, decreased 9%2% in 20162018 compared to 2015.2017.
Asia, Middle East and Africa
For the year ended December 31, 2016,2018, our operations in the Asia, Middle East and Africa region consisted of our operations in Egyptthe Philippines and the Philippines,Israel, which represent the most significant operations in this region, in addition to the Rest of Asia, Middle East and Africa, which refers primarily to operations in Egypt and the UAE and Israel.UAE. Our net salesrevenues from our operations in the Asia, Middle East and Africa region represented 11%9% of our total net salesrevenues for the year ended December 31, 2016,2018, in Mexican PesoDollar terms, before eliminations resulting from consolidation. As of December 31, 2016,2018, our operations in the Asia, Middle East and Africa region represented 5%6% of our total assets. Set forth below is a quantitative and qualitative analysis of the effects of the various factors affecting our net salesrevenues for our main operations in the Asia, Middle East and Africa region.
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The Philippines
Our domestic cement sales volumes from our operations in the Philippines increased 1%7% in 20162018 compared to 2015, while2017, and ready-mix concrete sales volumes, increased 11%which for the year ended December 31, 2018, represented less than 1% of our revenues in Dollar terms from our operations in the Philippines, decreased 94% over the same period. The increase in our domestic cement sales volumes resulted primarily from moderation in cement consumption, especially inwere supported by the infrastructure due to the post-election government transition.and residential sectors, coupled with operational and logistics debottlenecking efforts. Our cement export volumes from our operations in
the Philippines, which represented less than 1% of our Philippines cement sales volumes for the year ended December 31, 2016, decreased 7%2018, increased 4% in 20162018 compared to 2015.2017. All of our total cement exports from our operations in Philippines during 2018 were to the Rest of Asia, Middle East and Africa region. Our net salesrevenues from our operations in the Philippines represented 4%3% of our total net salesrevenues for the year ended December 31, 2016,2018, in Mexican PesoDollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement from our operations in the Philippines increased 1%, in Philippine Peso terms, in 20162018 compared to 2015, while2017, and our average sales price of ready-mix concrete sales prices increased 2%decreased 1%, in Philippine Peso terms, over the same period. For the year ended December 31, 2016,2018, cement represented 96%,ready-mix concrete 1%99% and our aggregates and other businesses 3%1% of our net salesrevenues in Mexican PesoDollar terms from our operations in the Philippines before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the increases in our domestic cement sales volumes and our sales prices, partially offset by decreases in our domestic ready-mix concrete sales volumes and our sales prices, net salesrevenues of our operations in the Philippines, in Philippine Peso terms, increased 2%6% in 20162018 compared to 2015.2017.
Egypt
Israel
Our domestic cementready-mix concrete sales volumes from our operations in EgyptIsrael increased 2%4% in 20162018 compared to 2015, while2017. The increase in the ready-mix concrete sales volumes decreased 3% overwas mainly driven by an increase in market demand, as well as projects in the same period.
The decrease inready-mix concrete sales volumes resulted primarily from the currency depreciation, which triggered inflationsouth and reduced purchasing power.center regions. Our net sales from our operations in EgyptIsrael represented 3%4% of our total net salesrevenues for the year ended December 31, 2016,2018, in Mexican Peso terms.Dollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cementready-mix concrete of our operations in Israel increased 3%2%, in Egyptian PoundIsraeli New Shekel terms, in 20162018 compared to 2015, and our average sales price ofready-mix concrete increased 6%, in Egyptian Pound terms, over the same period.2017. For the year ended December 31, 2016, cement2018, ready-mix concrete represented 84%,ready-mix concrete 13%66% and our aggregates and other businesses 3%34% of net salesrevenues in Mexican PesoDollar terms from our operations in EgyptIsrael before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the increases in domestic cementour ready-mix concrete sales volumes and sales prices, andready-mix concrete sales prices, partially offset by the decreasesrevenues from our operations inready-mix concrete sales volumes, our net sales Israel, in Egypt, in Egyptian PoundIsraeli New Shekel terms, increased 5% in 20162018 compared to 2015.2017.
Rest of Asia, Middle East and Africa
Our domestic cement sales volumes from our operations in the Rest of Asia, Middle East and Africa decreased 44%2% in 20162018 compared to 2015,2017, andready-mix concrete sales volumes remained flatdecreased 7% over the same period. The decrease in our domestic cement sales volumes resulted primarily from a decrease in our sales volumes in our UAE operations. Our net sales from our operations in our Rest of Asia, Middle East and Africa segment represented 4% of our total net sales for the year ended December 31, 2016, in Mexican Peso terms, before eliminations resulting from consolidation. Our cement export volumes from our operations in Rest of Asia, Middle East and Africa, which represented 65%1% of our Rest of Asia, Middle East and Africa cement sales volumes for the year ended December 31, 2016, increased 76%2018, decreased 28% in 20162018 compared to 2015.2017. All of our total cement exports from our operations in the region during 2018 were within the same operations region. Our revenues from our operations in our Rest of Asia, Middle East and Africa during 2016 were withinsegment represented 2% of our total revenues for the same region.year ended December 31, 2018, in Dollar terms, before eliminations resulting from consolidation. Our average sales price of domestic cement remained flatincreased 15%, in Dollar terms, in 20162018 compared to 2015,2017, and the average sales price ofready-mix concrete increased 3%11%, in Dollar terms, over the same period. For the year ended December 31, 2016,2018, cement represented 7%66%,ready-mix concrete 66%31% and our aggregates and other businesses 27%business 3% of net sales in Mexican Peso termsrevenues from our operations in the Rest of Asia, Middle East and Africa before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable.
As a result of the decreaseincreases in our domestic cement and ready-mix concrete sales volumesprices, partially offset by the increasedecreases in our domestic cement and ready-mix concrete sales prices, net salesvolumes, revenues from our operations in the Rest of Asia, Middle East and Africa, in Dollar terms, decreased 2%increased 12% in 20162018 compared to 2015.
Others
Our Others segment refers to: (i) cement trade maritime operations, (ii) our information technology solutions business (Neoris N.V.), (iii) CEMEX, S.A.B. de C.V. and other corporate entities and (iv) other minor subsidiaries with different lines of business. Net sales
Revenues from our Others segment increased 15%14% before intra-sector eliminations within the segment and before eliminations resulting from consolidation, as applicable, in 20162018 compared to 2015,2017, in Dollar terms. The increase resulted primarily from an increase in our worldwide cement volume of our trading operations.operations and a sales increase in our information technology solutions company. For the year ended December 31, 2016,2018, our information technology solutions company represented 30% and20%, our trading operations represented 32%50% and other businesses represented 30% of our net salesrevenues in our Others segment, in Dollar terms.
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Cost of Sales.
Our cost of sales, including depreciation, increased 11%6% from Ps144,513$8,365 million in 20152017 to Ps160,433$8,849 million in 2016.2018. As a percentage of net sales,revenues, cost of sales decreasedincreased from 66%64.7% in 20152017 to 64%65.4% in 2016.2018. The decreaseincrease in cost of sales as a percentage of net salesrevenues was mainly driven by our cost reduction initiatives.higher energy costs, as well as higher volumes of purchased cement and clinker. Our cost of sales includes freight expenses of raw materials used in our productionproducing plants.
Gross Profit.
For the reasons explaineddescribed above, our gross profit increased 20%3% from Ps74,786$4,561 million in 20152017 to Ps89,512$4,682 million in 2016.2018. As a percentage of net sales,revenues, gross profit increaseddecreased from 34%35.3% in 20152017 to 36%34.6% in 2016.2018. In addition, our gross profit may not be directly comparable to those of other entities that include all their freight expenses in cost of sales. As described below, we include freight expenses of finished products from our producing plants to our points of sale and from our points of sale to our customers’ locations within distributionoperating expenses and logistic expenses, which in aggregate represented costsas part of Ps23,374 million in 2015 and Ps26,245 million in 2016. As a percentage of net sales, distribution and logistics expenses remained flat at 11% in 2015 and in 2016.expenses.
Operating expenses.
Our operating expenses, which are represented by administrative, selling and distribution and logistics expenses, increased 13%5%, from Ps47,910$2,826 million in 20152017 to Ps53,969$2,979 million in 2016.2018. As a percentage of net sales,revenues, operating expenses remained flat at 22%increased from 21.9% in 2015 and2017 to 22.0% in 2016.2018. Our operating expenses include expenses related toassociated with personnel, equipment and services involved in sales and administrative activities and storage of product at points of sale, which are included as part of the administrative and sellingoperating expenses, as well as freight expenses of finished products between plants and points of sale and freight expenses between points of sale and the customers’ facilities, which are included as part of the line item “Distribution and logistics expenses.” For the years ended December 31, 20152017 and 2016,2018, selling expenses included as part of the line item “Operating expenses” amounted to Ps5,883$323 million and Ps6,974$312 million, respectively. As mentioned before,discussed above, we include freight expenses of finished products from our producing plants to our points of sale and from our points of sale to our customers’ locations within distribution and logisticlogistics expenses, which in the aggregate represented costs of Ps23,374$1,412 million in 20152017 and Ps26,245$1,537 million in 2016.2018. As a percentage of net sales,revenues, distribution and logistics expenses remained flat at 11%increased from 10.9% in 2015 and2017 to 11.4% in 2016.2018.
Operating Earnings Before Other Expenses, Net
For the reasons mentioneddescribed above, our operating earnings before other expenses, net increased 32%decreased 2% from Ps26,876$1,735 million in 20152017 to Ps35,543$1,703 million in 2016.2018. As a percentage of net sales,revenues, operating earnings before other expenses, net increaseddecreased from 12%13.4% in 20152017 to 14%12.6% in 2016.2018. Additionally, set forth below is a quantitative and qualitative analysis of the effects of the various factors affecting our operating earnings before other expenses, net on a geographicreportable segment basis.
Mexico
Our operating earnings before other expenses, net, from our operations in Mexico increased 30%3% in 20162018 compared to 2015,2017, in Mexican PesoDollar terms, from operating earnings before other expenses, net, of Ps12,963$1,041 million in 20152017 to operating earnings before other expenses, net, of Ps16,866$1,069 million in 2016.2018. Our
operating earnings before other expenses, net from our operations in Mexico represented 47%63% of our total operating earnings before other expenses, net for the year ended December 31, 2016,2018, in Mexican PesoDollar terms. The increase resulted primarily from higher contributionsthe increase in our products, as well as an increase in domestic cement sales volumes.revenues, partially offset by higher maintenance cost.
United States
Our operating earnings before other expenses, net, from our operations in the United StatesU.S. increased 68%42% in 20162018 compared to 20152017, in Dollar terms. Our operating earnings before other expenses, net from our operations in the United StatesU.S. represented 13%19% of our total operating earnings before other expenses, net for the year ended December 31, 2016,2018, in Mexican PesoDollar terms. The increase in operating earnings before other expenses, net resulted primarily from an increase in domestic cement sales volumes and due to higher contributions in our products during 2016 compared to 2015.revenues.
Europe
Europe
United Kingdom. Our operating earnings before other expenses, net, from our operations in the United Kingdom increased 48%decreased 46% in 20162018 compared to 20152017, in Pound terms. Our operating earnings before other expenses, net from our operations in the United Kingdom represented 7%3% of our total operating earnings before other expenses, net for the year ended December 31, 2016,2018, in Mexican PesoDollar terms. The increasedecrease resulted primarily from a decrease in our cost reduction initiatives and an increase in net sales of our domestic cement sales volumes.revenues, as well as higher production cost.
France. Our operating earnings before other expenses, net, from our operations in France decreased 33%increased 68% in 20162018 compared to 20152017, in Euro terms. Our operating earnings before other expenses, net from our operations in France represented 2% of our total operating earnings before other expenses, net for the year ended December 31, 2018, in Dollar terms. The increase resulted primarily from an increase in our revenues and due to our cost reduction efforts.
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Germany. Our operating earnings before other expenses, net, from our operations in Germany decreased 23% in 2018 compared to 2017, in Euro terms. Our operating earnings before other expenses, net from our operations in Germany represented 1% of our total operating earnings before other expenses, net for the year ended December 31, 2016,2018, in Mexican PesoDollar terms. The decrease in our operating earnings before other expenses, net in France resulted primarily from higher maintenancean increase in our operational costs, partially offset by an increase in our net sales.revenues.
GermanySpain. Our operating earningsloss before other expenses, net, from our operations in Germany decreased 15%Spain increased 4% in 20162018 compared to 20152017, in Euro terms. Our operating earningsloss before other expenses, net from our operations in GermanySpain represented less thana loss of $20 million, which was a negative impact of 1% of our total operating earnings before other expenses, net for the year ended December 31, 2016,2018, in Mexican PesoDollar terms. The decreaseincrease resulted primarily from a decreasean increase in net sales.our production and operational costs, partially offset by an increase in our revenues.
Spain. Our operating earnings before other expenses, net, from our operations in Spain decreased 68% in 2016 compared to 2015 in Euro terms. Our operating earnings before other expenses, net from our operations in Spain represented less than 1% of our total operating earnings before other expenses, net for the year ended December 31, 2016, in Mexican Peso terms. The decrease in the operating earnings before other expenses, net, resulted primarily from a decrease in net sales.
Poland. Our operating earnings before other expenses, net, from our operations in Poland decreased 28% in 2016 compared to 2015 in Polish Zloty terms. Our operating earnings before other expenses, net from our operations in Poland represented 1% of our total operating earnings before other expenses, net for the year ended December 31, 2016, in Mexican Peso terms. The decrease in the operating earnings before other expenses, net, resulted primarily from a decrease in net sales.
Rest of Europe. Our operating earnings before other expenses, net, from our operations in the Rest of Europe increased 10%468% in 2016Euro terms in 2018 compared to 20152017, in Euro terms. Our operating earnings before other expenses, net from our operations in the Rest of Europe region represented 1%4% of our total operating earnings before other expenses, net for the year ended December 31, 2016,2018, in Mexican PesoDollar terms. The increase resulted primarily from our improved operating efficienciesan increase in our Rest of Europe region, partially offset by a decreaserevenues and an increase in our net sales.
South, Central America and the Caribbean
Colombia. Our operating earnings before other expenses, net, from our operations in Colombia decreased 7%21% in 20162018 compared to 20152017, in Colombian Peso terms. Our operating earnings before other expenses, net from our operations in Colombia represented 10%4% of our total operating earnings before other expenses, net for the year ended December 31, 2016,2018, in Mexican PesoDollar terms. The decrease resulted primarily from increasesa decrease in electricity rates and higher maintenance costs, partially offset byrevenues, as well as an increase in our net sales.production cost due to lower demand.
Panama. Our operating earnings before other expenses, net, from our operations in Panama decreased 1%45% in 20162018 compared to 20152017, in Dollar terms. Our operating earnings before other expenses, net from our operations in Panama represented 5% of our total operating earnings before other expenses, net for the year ended December 31, 2016, in Mexican Peso terms. The decrease in the operating earnings before other expenses, net, resulted primarily from a decrease in net sales.
Costa Rica. Our operating earnings before other expenses, net, from our operations in Costa Rica decreased 11% in 2016 compared to 2015 in Colones terms. Our operating earnings before other expenses, net from our operations in Costa Rica represented 3% of our total operating earnings before other expenses, net for the year ended December 31, 2016,2018, in Mexican PesoDollar terms. The decrease resulted primarily from a decrease in theour revenues, as well as an increase in our energy cost.
Caribbean TCL. Our operating earnings before other expenses, net, from our operations in Caribbean TCL increased 56% in 2018 compared to 2017, in Trinidad and Tobago Dollar terms. Our operating earnings before other expenses, net from our Caribbean TCL operations represented 2% of our total operating earnings before other expenses, net for the year ended December 31, 2018, in Dollar terms. The increase resulted primarily from a decreasean increase in our revenues.
Dominican Republic. Our operating earnings before other expenses, net, sales.from our operations in the Dominican Republic increased 13% in 2018 compared to 2017, in Dominican Peso terms. Our operating earnings before other expenses, net from our operations in the Dominican Republic represented 3% of our total operating earnings before other expenses, net for the year ended December 31, 2018, in Dollar terms. The increase resulted primarily from an increase in our revenues, partially offset by an increase in production cost.
Rest of South, Central America and the Caribbean. Our operating earnings before other expenses, net, from our operations in the Rest of South, Central America and the Caribbean excluding Caribbean TCL increased 32%decreased 9% in 20162018 compared to 20152017, in Dollar terms. Our operating earnings before other expenses, net from our operations in the Rest of South, Central America and the Caribbean region excluding Caribbean TCL represented 7% of our total operating earnings before other expenses, net for the year ended December 31, 2016,2018, in Mexican PesoDollar terms. The increasedecrease resulted primarily from a reductiondecrease in our energy cost, mainly in Dominican Republic and Guatemala, partially offset by a decrease in net sales.revenues.
Asia, Middle East and Africa
The Philippines. Our operating earnings before other expenses, net, from our operations in the Philippines increased 10%17% in 20162018 compared to 20152017, in Philippine Peso terms. Our operating earnings before other expenses, net from our operations in the Philippines represented 6%3% of our total operating earnings before other expenses, net for the year ended December 31, 2016,2018, in Mexican PesoDollar terms. The increase resulted primarily from an increase in net sales.our revenues.
EgyptIsrael. Our operating earnings before other expenses, net, from our operations in EgyptIsrael increased 59%5% in 20162018 compared to 20152017, in Egyptian PoundIsraeli New Shekel terms. Our operating earnings before other expenses, net from our operations in EgyptIsrael represented 5%4% of our total operating earnings before other expenses, net for the year ended December 31, 2016,2018, in Mexican PesoDollar terms. The increase resulted primarily from an increase in net sales.our revenues.
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Rest of Asia, Middle East and Africa. Our operating earnings before other expenses, net, from our operations in the Rest of Asia, Middle East and Africa increased 13%decreased 20% in 20162018 compared to 20152017, in Dollar terms. Our operating earnings before other expenses, net from our operations in the Rest of Asia, Middle East and Africa region represented 4%1% of our total operating earnings before other expenses, net for the year ended December 31, 2016,2018, in Mexican PesoDollar terms. The increasedecrease resulted primarily from an increase in our production cost, reduction initiatives and operating efficiencies.partially offset by an increase in our revenues.
Others. Our operating loss before other expenses, net, from our operations in our Others segment increased 6%82% in 20162018 compared to 20152017, in Dollar terms. The increase in our operating loss resulted primarily from an increase in our operating cost infrom our other segment, partially offset by an increase in net sales.our revenues.
Other Expenses, Net. Our other expenses, net, decreased 45%increased 44%, in Mexican PesoDollar terms, from Ps3,032an expense of $205 million in 20152017 to Ps1,670an expense of $296 million in 2016.2018. The decreaseincrease in 2018 resulted primarily from the losses from the sale of assets and others, net, which includes a loss of $56 million in connection with property damages and natural disasters, partially offset by
increase a decrease in impairment losses during 2016in 2018 compared to 2015.2017. As a percentage of net sales, ourrevenues, other expenses, net, decreasedincreased from 1.4%1.6% in 20152017 to 0.7%2.2% in 2016. In 2015, our other expenses, net, includes impairment losses from fixed assets of Ps1,145 million. In 2016, our other expenses, net, includes impairment losses from fixed assets of Ps1,899 million.2018. See notes 6, 13.2, 14, and 15.115 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
The most significant items included under this caption for the years ended December 31, 20152017 and 20162018 are as follows:
For the Year Ended December 31, | ||||||||||||||||
For the Year Ended December 31, | 2017 | 2018 | ||||||||||||||
2015 | 2016 | (in millions of Dollars) | ||||||||||||||
Results from the sale of assets and others, net | $ | 2 | $ | 149 | ||||||||||||
Restructuring costs | 45 | 72 | ||||||||||||||
Impairment losses | 151 | 62 | ||||||||||||||
Remeasurement of pension liabilities | – | 8 | ||||||||||||||
Charitable contributions | 7 | 5 | ||||||||||||||
(in millions of Mexican Pesos) | $ | 205 | $ | 296 | ||||||||||||
Impairment losses | Ps (1,517 | ) | Ps (2,518 | ) | ||||||||||||
Restructuring costs | (845 | ) | (778 | ) | ||||||||||||
Charitable contributions | (60 | ) | (93 | ) | ||||||||||||
Results from the sale of assets and others, net | (610 | ) | 1,719 | |||||||||||||
|
| |||||||||||||||
Ps (3,032 | ) | Ps (1,670 | ) | |||||||||||||
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Financial expense. Our financial expense increased 9%decreased 34%, from Ps19,784$1,086 million in 20152017 to Ps21,487$722 million in 2016,2018, primarily attributable to costs associated withlower interest rates on our financial debt renegotiationsas well as a decrease in our financial debt during 2016.2018 compared to 2017. See notesnote 16.1 and 16.2 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
Financial income (expense) and other items, net. Our financial income (expense) and other items, net, increased from a net expense of Ps1,333 million in 2015 to a net revenue of Ps4,489 million in 2016. This increase is primarily attributable to our results from financial instruments, net, which changed from a loss of Ps2,729 million in 2015 to a gain of Ps113 million in 2016, primarily attributable to derivatives related to CEMEX, S.A.B. de C.V.’s shares, as well as by our foreign exchange results, which increasedDollar terms, decreased significantly, from a gain of Ps1,970$184 million in 20152017 to a loss of $2 million in 2018, mainly as a result of the sale of associates and the remeasurement of previously held interest before change in control of associates, which decreased significantly, from a gain of Ps5,004$221 million in 2016 due2017 to a loss of $10 million in 2018, primarily attributable to the fluctuationgain from the sale of the Mexican Peso against the U.S. Dollar.SeeGCC’s common stock during 2017. See notes 77.2 and 16.413.1 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
The most significant items included under this caption for the years ended December 31, 20152017 and 20162018 are as follows:
For the Year Ended December 31, | ||||||||||||||||
For the Year Ended December 31, | 2017 | 2018 | ||||||||||||||
2015 | 2016 | (in millions of Dollars) | ||||||||||||||
Financial income and other items, net: | ||||||||||||||||
Effects of amortized cost on assets and liabilities and others, net | $ | (59 | ) | $ | (59 | ) | ||||||||||
Foreign exchange results | (5 | ) | 10 | |||||||||||||
Results from financial instruments, net | 9 | 39 | ||||||||||||||
Financial income | 18 | 18 | ||||||||||||||
Results in the sale of associates and remeasurement of previously held interest before change in control of associates | 221 | (10 | ) | |||||||||||||
(in millions of Mexican Pesos) | $ | 184 | $ | (2 | ) | |||||||||||
Financial income (expense) and other items, net: | ||||||||||||||||
Financial income | Ps 318 | Ps 402 | ||||||||||||||
Results from financial instruments, net | (2,729 | ) | 113 | |||||||||||||
Foreign exchange results | 1,970 | 5,004 | ||||||||||||||
Effects of net present value on assets and liabilities and others, net | (892 | ) | (1,030 | ) | ||||||||||||
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Ps (1,333 | ) | Ps 4,489 | ||||||||||||||
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Income TaxesTax. Our income tax effect in the income statements, which is primarily comprised of current income taxes plus deferred income taxes, increased 32%significantly from an expense of Ps2,368$16 million in 20152017 to an expense of Ps3,125$224 million in 2016.2018.
The increase in the income tax expense is mainly attributable to several factors discussed below.an increase in our deferred income tax expense during the period, which decreased from a deferred income tax revenue of $168 million in 2017, mainly associated with the recognition of deferred tax assets related to tax loss carryforwards from our operations in the U.S. in 2017, to a deferred tax expense of $125 million in 2018 that includes the derecognition of deferred income tax assets of $92 million mainly related to net operating tax losses recognized in prior years. Such increase in our deferred income tax expense during 2018 was partially offset by a decrease in our current income tax expense, which decreased from $184 million in 2017 to $99 million in 2018. The decrease in our current income tax expense in 2018 was mainly attributable to lower taxable income in certain operations, such as Central and South America, as well as a reduction in our uncertain tax positions during the period of $32 million. See notes 19.1, 19.2, 19.3 and 19.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
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Our current income tax expense increased from an income of Ps6,121 million in 2015 to an expense of Ps3,456 million in 2016. The increase in our current income tax expense in 2016 resulted primarily from aone-time benefit of Ps12,320 million recognized in 2015 resulting from the reduction of income tax accounts payable accrued in prior years related to the disconnection of the tax consolidation regime in Mexico pursuant to the income tax reform approved by the Mexican Congress in 2015. Such increase was partially offset by the significant devaluation of the Mexican Peso during 2016. See notes 19.2 and 19.4 to our 2017 audited consolidated financial statements included elsewhere in this annual report.
Our deferred income tax expense decreased from an expense of Ps8,489 million in 2015 to an income of Ps331 million in 2016. The decrease in our deferred income tax expense in 2016 resulted primarily from an expense of Ps5.9 billion recognized in 2015 attributable to the reduction of our deferred tax assets from tax loss carryforwards and also as a consequence of the changes resulting from the income tax reform in Mexico mentioned above, which allowed us to settle a portion of the income tax accounts payable related to the disconnection of the tax consolidation regime using the aforementioned deferred tax assets. Such decrease was partially offset by an increase in our deferred tax assets in 2016 of Ps856 million primarily related to the effects of foreign currency results. See notes 19.2 and 19.4 to our 2017 audited consolidated financial statements included elsewhere in this annual report.
For each of the years ended December 31, 20152017 and 2016,2018, our statutory income tax rate in Mexico was 30%. Our average effective tax rate in 2015, which is determined2017, as described below, resulted in an effective income tax rate of 68.4%2.4%, considering earnings before income tax of Ps3,464$661 million, and our average effective income tax rate in 20162018 resulted in an effective income tax rate of 17.8%31.2%, considering earnings before income tax of Ps17,563$717 million. Our average effective income tax rate equals the net amount of income tax expense divided by incomeearnings before income taxes, as these line items are reported in our consolidated income statements. See note 19.3 to our 2017 audited consolidated financial statements included elsewhere in this annual report. See “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—Certain tax matters may have ana material adverse effect on our cash flow, financial condition and net income.”income, as well as on our reputation” and note 19.3 to our 2019 audited consolidated financial statements included elsewhere in this annual report.
Net Income from continuing operations. For the reasons described above, our net income from continuing operations for 2016 increased significantly,2018 decreased 24%, from a net income from continuing operations of Ps1,096$645 million in 20152017 to a net income from continuing operations of Ps14,438$493 million in 2016.2018. As a percentage of net sales,revenues, net income from continuing operations represented 5.8% and 0.4%5.0% for the yearsyear ended as of December 31, 20152017 and 2016, respectively.3.6% for the year ended as of December 31, 2018.
Discontinued operations. For the years ended December 31, 20152017 and 2016,2018, our discontinued operations included in our consolidated income statements amounted to Ps923$222 million and Ps1,173$77 million, respectively. As a percentage of net sales,revenues, discontinued operations, net of tax, represented 0.4% and 0.3%1.7% for the yearsyear ended as of December 31, 20152017, and 2016, respectively.0.6% for the year ended as of December 31, 2018. See note 4.2 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
Consolidated Net Income. For the reasons described above, our consolidated net income (before deducting the portion allocable tonon-controlling interest) for 2016 increased significantly2018 decreased 34%, from a consolidated net income of Ps2,124$867 million in 20152017 to a consolidated net income of Ps15,206$570 million in 2016.2018. As a percentage of revenues, consolidated net income represented 6.7% for the year ended as of December 31, 2017, and 4.2% for the year ended as of December 31, 2018.
Non-controlling Interest Net Income. Changes innon-controlling interest net income in any period reflect changes in the percentage of the stock of our subsidiaries held bynon-associated third parties as of the end of each month during the relevant period and the consolidated net lossincome attributable to those subsidiaries.
Non-controlling interest net income increased 27%decreased 44%, from an income of Ps923$75 million in 20152017 to an income of Ps1,173$42 million in 2016,2018, primarily attributable to an increasea decrease in the net income of the consolidated entities in which others have anon-controlling interest. As a percentage of revenues, non-controlling interest net income represented 0.6% for the year ended as of December 31, 2017, and to0.3% for the increase in ournon-controlling interest in our Philippines operations through CHP.year ended as of December 31, 2018. See note 20.4 to our 20172018 audited consolidated financial statements included elsewhere in this annual report.
Controlling Interest Net IncomeIncome.. Controlling interest net income represents the difference between our consolidated net income andnon-controlling interest net income, which is the portion of our consolidated net income attributable to those of our subsidiaries in whichnon-associated third parties hold interests. For the reasons described above, our controlling interest net income increased significantlydecreased 33%, from a controlling interest net income of Ps1,201$792 million in 20152017 to Ps14,033$528 million in 2016.2018. As a percentage of revenues, controlling interest net income, represented 6.1% for the year ended as of December 31, 2017, and 3.9% for the year ended as of December 31, 2018.
Liquidity and Capital Resources
Operating Activities
We have satisfied our operating liquidity needs primarily through operationsthe operation of our subsidiaries and expect to continue to do so for both the short and long-term. Although cash flow from our operations has historically met our overall liquidity needs for operations, servicing debt and funding capital expenditures and acquisitions, our subsidiaries are exposed to risks from changes in foreign currency exchange rates, price and currency controls, interest rates, inflation, governmental spending, social instability and other political, economic and/or social developments in the countries in which we operate, among other risks, any one of which may materially decrease our net income and decrease cash from operations. Consequently, in order to meet our liquidity needs, we also rely on cost-cutting and operating improvements to optimize capacity utilization and maximize profitability, as well as borrowing under credit facilities, loans, proceeds of debt and equity offerings and proceeds from asset sales.sales, including our account receivables securitizations. Our consolidated net cash flows provided by operating activities from continuing operations before financial expense and coupons on Perpetual Debentures and income taxes paid in cash were Ps43,441$2,859 million in 2015, Ps61,2672017, $2,383 million in 20162018 and Ps51,389$2,144 million in 2017.2019. See our statements of cash flows included elsewhere in this annual report. CEMEX management is of the opinion that working capital is sufficient for our presentcurrent requirements.
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Sources and Uses of Cash
Our review of sources and uses of resourcescash below refers to nominal amounts included in our statementconsolidated statements of cash flows for 2015, 20162017, 2018 and 2017.
Our primary sources and uses of cash during the years ended December 31, 2015, 20162017, 2018 and 20172019 were as follows:
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2015 | 2016 | 2017 | 2017 | 2018 | 2019 | |||||||||||||||||||
(in millions of Mexican Pesos) | (in millions of Dollars) | |||||||||||||||||||||||
Operating Activities | ||||||||||||||||||||||||
Consolidated net income | 2,124 | 15,206 | 16,638 | |||||||||||||||||||||
Consolidated Net Income | 867 | 570 | 179 | |||||||||||||||||||||
Discontinued operations | 1,028 | 768 | 3,499 | 222 | 77 | 88 | ||||||||||||||||||
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Net income from continuing operations | 1,096 | 14,438 | 13,139 | 645 | 493 | 91 | ||||||||||||||||||
Non-cash items | 38,749 | 35,812 | 30,210 | 1,783 | 1,945 | 1,955 | ||||||||||||||||||
Changes in working capital, excluding income taxes | 3,596 | 11,017 | 8,040 | 431 | (55 | ) | 98 | |||||||||||||||||
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Net cash flows provided by operating activities from continuing operations before interest, coupons on Perpetual Debentures and income taxes | 43,441 | 61,267 | 51,389 | |||||||||||||||||||||
Net cash flows provided by operating activities from continuing operations before Interest and coupons on Perpetual Debentures and income taxes | 2,859 | 2,383 | 2,144 | |||||||||||||||||||||
Financial expense and coupons on Perpetual Debentures and income taxes paid | (25,302 | ) | (23,312 | ) | (20,423 | ) | (1,145 | ) | (948 | ) | (862 | ) | ||||||||||||
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Net cash flows provided by operating activities from continuing operations | 18,139 | 37,955 | 30,966 | 1,714 | 1,435 | 1,282 | ||||||||||||||||||
Net cash flows provided by operating activities from discontinued operations | 977 | 1,192 | 144 | 131 | 132 | 71 | ||||||||||||||||||
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Net cash flows provided by operating activities | 19,116 | 39,147 | 31,110 | 1,845 | 1,567 | 1,353 | ||||||||||||||||||
Investing Activities | ||||||||||||||||||||||||
Property, machinery and equipment, net | (8,930 | ) | (4,563 | ) | (10,753 | ) | (567 | ) | (601 | ) | (651 | ) | ||||||||||||
Disposal of subsidiaries and associates, net | 2,722 | 1,424 | 23,841 | |||||||||||||||||||||
Other long-term assets and others, net | (1,672 | ) | (2,341 | ) | (1,479 | ) | ||||||||||||||||||
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Net cash flows (used in) provided by investing activities from continuing operations | (7,880 | ) | (5,480 | ) | 11,609 | |||||||||||||||||||
Net cash flows (used in) provided by investing activities from discontinued operations | (153 | ) | 1 | — | ||||||||||||||||||||
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Acquisition and disposal of subsidiaries and other disposal groups, net | 1,202 | (26 | ) | 469 | ||||||||||||||||||||
Intangible assets and other non-current assets and others, net | (82 | ) | (188 | ) | (111 | ) | ||||||||||||||||||
Net cash flows (used in) provided by investing activities | (8,033 | ) | (5,479 | ) | 11,609 | 553 | (815 | ) | (293 | ) | ||||||||||||||
Financing Activities | ||||||||||||||||||||||||
Sale ofnon-controlling interest in subsidiaries | — | 9,777 | (55 | ) | ||||||||||||||||||||
Dividends paid | – | – | (150 | ) | ||||||||||||||||||||
Derivative financial instruments | 1,098 | 399 | 246 | 16 | 20 | (56 | ) | |||||||||||||||||
Repayment of debt, net | (11,473 | ) | (46,823 | ) | (39,299 | ) | ||||||||||||||||||
Proceeds from (repayments of) debt, net | (2,056 | ) | (420 | ) | 47 | |||||||||||||||||||
Other financial obligations, net | 177 | — | — | (190 | ) | (578 | ) | (233 | ) | |||||||||||||||
Share repurchase program | – | (75 | ) | (50 | ) | |||||||||||||||||||
Securitization of trade receivables | (506 | ) | (999 | ) | 169 | 25 | 32 | (6 | ) | |||||||||||||||
Non-current liabilities, net | (1,763 | ) | (1,972 | ) | (3,745 | ) | (185 | ) | (142 | ) | (96 | ) | ||||||||||||
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Net cash flows used in financing activities | (12,467 | ) | (39,618 | ) | (42,684 | ) | (2,390 | ) | (1,163 | ) | (544 | ) | ||||||||||||
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Decrease in cash and cash equivalents from continuing operations | (2,208 | ) | (7,143 | ) | (109 | ) | ||||||||||||||||||
Increase (decrease) in cash and cash equivalents from continuing operations | (123 | ) | (543 | ) | 445 | |||||||||||||||||||
Increase in cash and cash equivalents from discontinued operations | 824 | 1,193 | 144 | 131 | 132 | 71 | ||||||||||||||||||
Cash conversion effects, net | 4,117 | 2,244 | 2,090 | |||||||||||||||||||||
Cash and cash equivalents at the beginning of the year | 12,589 | 15,322 | 11,616 | |||||||||||||||||||||
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Cash and cash equivalents at the end of the year | 15,322 | 11,616 | 13,741 | |||||||||||||||||||||
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Foreign currency translation effect on cash | 130 | 21 | (37 | ) | ||||||||||||||||||||
Cash and cash equivalents at beginning of period | 561 | 699 | 309 | |||||||||||||||||||||
Cash and cash equivalents at end of period | 699 | 309 | 788 |
2019. During 2019, excluding the negative foreign currency effect of our initial balances of cash and cash equivalents generated during the period of $37 million, there was an increase in cash and cash equivalents from continuing operations of $445 million. This increase was the result of our net cash flows provided by operating activities from continuing operations, which, after interest and coupons on Perpetual Debentures and income taxes paid in cash of $862 million, amounted to $1,282 million, partially offset by our net cash flows used in financing activities of $544 million and our net cash flows used in investing activities of $293 million.
For the year ended December 31, 2019, our net cash flows provided by operating activities included cash flows generated from changes in working capital, excluding income taxes, of $98 million, which was primarily comprised of other accounts receivable and other assets, inventories and other accounts payable and accrued expenses, for an aggregate amount of $147 million, partially offset by trade payables and trade receivables, net for an aggregate amount of $49 million.
During 2019, our net cash flows provided by operating activities from continuing operations after interest and coupons on Perpetual Debentures and income taxes paid in cash of $862 million, amounted to $1,282 million, were mainly disbursed in connection with (i) our net cash flows used in financing activities of $544 million, which include dividends paid of $150 million, resources used in our share repurchase program of $50 million, derivative financial instruments, of $56 million and resources used in our other financial obligations, net, of $233 million, partially offset by net proceeds from debt of $47 million and (ii) our net cash flows used in the investing activities from continuing operations of $293 million, which was primarily comprised of investment in property, machinery and equipment, net, and intangible assets and other non-current assets and others, net, for an aggregate amount of $762 million, partially offset by net resources from disposal of subsidiaries of $469 million.
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2018. During 2018, excluding the positive foreign currency effect of our initial balances of cash and cash equivalents generated during the period of $21 million, there was a decrease in cash and cash equivalents from continuing operations of $543 million. This decrease was the result of our net cash flows used in financing activities of $1,163 million and our net cash flows used in investing activities of $815 million, partially offset by our net cash flows provided by operating activities from continuing operations, which, after interest expense and coupons on Perpetual Debentures and income taxes paid in cash of $948 million, amounted to $1,435 million.
For the year ended December 31, 2018, our net cash flows provided by operating activities included cash flows applied in working capital, excluding income taxes, of $55 million, which was primarily comprised of other accounts receivable and other assets, inventories and other accounts payable and accrued expenses, for an aggregate amount of $301 million, partially offset by trade payables and trade receivables, net for an aggregate amount of $246 million.
During 2018, our net cash flows provided by operating activities from continuing operations after interest and coupons on Perpetual Debentures and income taxes paid in cash of $948 million, amounted to $1,435 million, were disbursed in connection with (i) our net cash flows used in financing activities of $1,163 million, which include repayment of our debt, net, other financial obligations, net, share repurchase program and non-current liabilities, net, for an aggregate amount of $1,215 million, partially offset by derivative instruments and securitization of trade receivables for an aggregate amount of $52 million and (ii) our net cash flows used in investing activities of $815 million, which was primarily comprised of investment in property, machinery and equipment, net, acquisition and disposal of subsidiaries and other disposal groups, net and by intangible assets and other non-current assets and others, net.
2017. During 2017, excluding the positive foreign currency effect of our initial balances of cash and cash equivalents generated during the period of Ps2,090$130 million, there was a decrease in cash and cash equivalents offrom continuing operations of Ps109$123 million. This decrease was the result of our net cash flows used in financing activities of Ps42,684$2,390 million partially offset by our net cash flows provided by our investing activities of $553 million and by our net cash flows provided by operating activities from continuing operations, which, after financial expenseinterest and coupons on Perpetual Debentures and income taxes paid in cash of Ps20,423$1,145 million, amounted to Ps30,966 million, and by our investing activities from continuing operations of Ps11,609$1,714 million.
For the year ended December 31, 2017, our net cash flows provided by operating activities included cash flows generated inby working capital of Ps8,040$431 million, which was primarily comprised of trade receivables, net, other accounts receivable and other assets, inventories, trade payables and other accounts payable and accrued expenses.expenses, for an aggregate amount of $450 million, partially offset by inventories of $19 million.
During 2017, our net cash flows provided by operating activities from continuing operations after financial expenseinterest and coupons on Perpetual Debentures and income taxes paid in cash of Ps30,966$1,145 million, amounted to $1,714 million and our net cash flows provided by investing activities from continuing operations of Ps11,609$553 million, which include acquisition and disposal of subsidiaries and associates,other disposal groups, net for an amount of Ps23,841$1,202 million, partially offset by investment in property, machinery and equipment, net and intangible assets and other long-termnon-current assets and others, net, for an aggregate amount of Ps12,232$649 million, were disbursed in connection with our net cash flows used in financing activities of Ps42,684$2,390 million, which include repayment of our debt, net,non-current liabilities other financial obligations, net, and sale ofnon-controlling interest in subsidiariesnon-current liabilities for an aggregate amount of Ps43,099$2,431 million, partially offset by derivative financial instruments and securitization of trade receivables for an aggregate amount of Ps415$41 million.
2016. During 2016, excluding the positive foreign currency effect of our initial balances of cash and cash equivalents generated during the period of Ps2,244 million, there was a decrease in cash and cash equivalents from continuing operations of Ps7,143 million. This decrease was the result of our net cash flows used in financing activities of Ps39,618 million and our net cash flows used in investing activities from continuing operations of Ps5,480 million, partially offset by our net cash flows provided by operating activities from continuing operations, which, after financial expense and coupons on Perpetual Debentures and income taxes paid in cash of Ps23,312 million, amounted to Ps37,955 million.
For the year ended December 31, 2016, our net cash flows provided by operating activities included cash flows generated in working capital of Ps11,017 million, which was primarily comprised of trade payables and other accounts payable and accrued expenses, for an aggregate amount of Ps16,928 million, partially offset by trade receivable, net, other accounts receivable and other assets and inventories for an aggregate amount of Ps5,911 million.
During 2016, our net cash flows provided by operating activities from continuing operations after financial expense and coupons on Perpetual Debentures and income taxes paid in cash of Ps37,955 million were mainly disbursed in connection with (i) our net cash flows used in financing activities of Ps39,618 million, which include repayment of our debt, net, securitization of trade receivables andnon-current liabilities for an aggregate amount of Ps49,794 million, partially offset by derivative financial instruments and sale ofnon-controlling interest in subsidiaries for an aggregate amount of Ps10,176 million and (ii) our net cash flows used in the investing activities from continuing operations of Ps5,480 million, which include investment in property, machinery and equipment, net and other long-term assets and others, net for an aggregate amount of Ps6,904 million, partially offset by disposal of subsidiaries and associates, net for an amount of Ps1,424 million.
2015. During 2015, excluding the positive foreign currency effect of our initial balances of cash and cash equivalents generated during the period of Ps4,117 million, there was a decrease in cash and cash equivalents from continuing operations of Ps2,208 million. This decrease was the result of our net cash flows used in financing activities of Ps12,467 million and our net cash flows used in investing activities from continuing operations of Ps7,880 million, partially offset by our net cash flows provided by operating activities from continuing operations, which, after financial expense and coupons on Perpetual Debentures and income taxes paid in cash of Ps25,302 million, amounted to Ps18,139 million.
For the year ended December 31, 2015, our net cash flows provided by operating activities included cash flows generated in working capital of Ps3,596 million, which was primarily comprised of cash flows originated by trade payables and other accounts payable and accrued expenses, for an aggregate amount of Ps10,615 million, partially offset by cash flows disbursed by trade receivable, net, other accounts receivable and other assets and inventories for an aggregate amount of Ps7,019 million.
During 2015, our net cash flows provided by operating activities from continuing operations after financial expense and coupons on Perpetual Debentures and income taxes paid in cash of Ps18,139 million were disbursed in connection with (i) our net cash flows used in financing activities of Ps12,467 million, which include repayment of our debt, net, securitization of trade receivables andnon-current liabilities for an aggregate amount of Ps13,742 million, partially offset by derivative financial instruments and other financial obligations, net, for an aggregate amount of Ps1,275 million and (ii) our net cash flows used in the investing activities from continuing operations of Ps7,880 million, which include investments in property, machinery and equipment, net and other long-term assets and others, net for an aggregate amount of Ps10,602 million, partially offset by our disposal of subsidiaries and associates, net for an amount of Ps2,722 million.
As of December 31, 2017,2019, we had the following uncommitted lines of credit, of which the only committed portion refers to the revolving credit facility under the 2017 Facilities Agreement, at annual interest rates ranging between 1.25%0.75% and 6.50%8.50%, depending on the negotiated currency:
Lines of Credit | Available | Lines of Credit | Available | |||||||||||||
(in millions of Mexican Pesos) | (in millions of Dollars) | |||||||||||||||
Other lines of credit in foreign subsidiaries | 9,506 | 7,237 | 385 | 286 | ||||||||||||
Other lines of credit from banks | 9,309 | 8,169 | 683 | 635 | ||||||||||||
Revolving credit facility under the 2017 Facilities Agreement | 1,135 | 1,135 | ||||||||||||||
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| 2,203 | 2,056 | |||||||||||||
18,815 | 15,406 | |||||||||||||||
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In addition, to the above, as of December 31, 2017,2019, we had a combined U.S.$1,512 million (Ps29,711 million) available underfull availability in our committed revolving credit facility and an undrawn term loan tranche ofunder the 2017 CreditFacilities Agreement. We expect that this, in addition to our proven capacity to continually refinance and replace short-term obligations, will enable us to meet any liquidity risk in the short term. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the impact of COVID-19 on our debt and cash levels.
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Capital Expenditures
Our capital expenditures incurred for the years ended December 31, 20162018 and 2017,2019, and our expected capital expenditures during 2018,2020, which include an allocation to 20182020 of a portion of our total future committed amount, are as follows:
Actual For the Year Ended December 31, Actual | Estimated in 2018 | Actual for the Year | Estimated | |||||||||||||||||||||
2016 | 2017 | 2018 | 2019 | |||||||||||||||||||||
(in millions of U.S. Dollars) | (in millions of Dollars) | |||||||||||||||||||||||
Mexico | 84 | 113 | 136 | 168 | 199 | 186 | ||||||||||||||||||
United States | 197 | 185 | 233 | 405 | 398 | 388 | ||||||||||||||||||
Europe | ||||||||||||||||||||||||
United Kingdom | 30 | 53 | 44 | 61 | 67 | 71 | ||||||||||||||||||
France | 19 | 20 | 25 | 44 | 38 | 51 | ||||||||||||||||||
Germany | 26 | 23 | 10 | 27 | 25 | 26 | ||||||||||||||||||
Spain | 25 | 29 | 27 | 27 | 34 | 21 | ||||||||||||||||||
Poland | 10 | 12 | 42 | |||||||||||||||||||||
Rest of Europe | 14 | 17 | 27 | 54 | 52 | 54 | ||||||||||||||||||
South, Central America and the Caribbean | ||||||||||||||||||||||||
SCA&C | ||||||||||||||||||||||||
Colombia | 180 | 62 | 29 | 22 | 25 | 31 | ||||||||||||||||||
Panama | 7 | 8 | 14 | 12 | 10 | 5 | ||||||||||||||||||
Costa Rica | 4 | 2 | 3 | |||||||||||||||||||||
Caribbean TCL | — | 31 | 21 | 29 | 21 | 22 | ||||||||||||||||||
Rest of South, Central America and the Caribbean | 23 | 18 | 28 | |||||||||||||||||||||
Asia, Middle East and Africa | ||||||||||||||||||||||||
Dominican Republic | 8 | 8 | 9 | |||||||||||||||||||||
Rest of SCA&C | 14 | 18 | 18 | |||||||||||||||||||||
AMEA | ||||||||||||||||||||||||
Philippines | 22 | 28 | 73 | 36 | 84 | 124 | ||||||||||||||||||
Egypt | 20 | 22 | 9 | |||||||||||||||||||||
Rest of Asia, Middle East and Africa | 21 | 24 | 18 | |||||||||||||||||||||
Israel | 27 | 33 | 28 | |||||||||||||||||||||
Rest of AMEA | 15 | 13 | 14 | |||||||||||||||||||||
Others | 3 | 9 | 61 | 15 | 8 | 52 | ||||||||||||||||||
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Total consolidated | 685 | 656 | 800 | 964 | 1,033 | 1,100 | ||||||||||||||||||
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Of which | ||||||||||||||||||||||||
Of which: | ||||||||||||||||||||||||
Expansion capital expenditures | 251 | 137 | 250 | 157 | 234 | 300 | ||||||||||||||||||
Base capital expenditures | 434 | 519 | 550 | 807 | 799 | 800 | ||||||||||||||||||
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(1) | See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the impact of COVID-19-related measures on our estimated capital expenditures for 2020. |
For the years ended December 31, 20162018 and 2017,2019, we recognized U.S.$685$964 million and U.S.$656$1,033 million in capital expenditures from our continuing operations, respectively. As of December 31, 2017,2019, in connection with our significant projects, we had contractually committed capital expendituresexpenditure commitments of approximately U.S.$20$134 million, including our capital expenditures estimated to be incurred during 2018.2020. This amount is expected to be incurred during 2018,2020, based on the evolution of the related projects. Pursuant to the 2017 CreditFacilities Agreement, we are prohibited from making aggregate annual capital expenditures in excess of U.S.$1$1.5 billion in any financial year (excluding certain capital expenditures, joint venture investments and acquisitions by each of CEMEX LatamCLH and CHP and their respective subsidiaries and those funded by Relevant Proceeds (as defined in the 2017 CreditFacilities Agreement)), which capital expenditures, joint venture investments and acquisitions at any time then incurred are subject to a separate aggregate limit of (a) U.S.$500(i) $500 million (or its equivalent) for CEMEX LatamCLH and its subsidiaries and (b) U.S.(ii) $500 million (or its equivalent) for CHP and its subsidiaries. In addition, the amounts of which we and our subsidiaries are allowed for permitted acquisitions and investments in joint ventures cannot exceed certain thresholds as set out in the 2017 CreditFacilities Agreement.
Our Indebtedness
As of December 31, 2017,2019, we had Ps226,216$11,790 million (U.S.$11,512 million) (principal amount Ps231,621$11,864 million, (U.S.$11,787 million), excluding deferred issuance costs) of total debt plus other financial obligations in our statement of financial position, which does not include Ps8,784$443 million (U.S.$447 million) of Perpetual Debentures. Of our total debt plus other financial obligations, 16%12% were short-term (including current maturities of long-term debt) and 84%88% were long-term. As of December 31, 2017, 62%2019, 67% of our total debt plus other financial obligations was Dollar-denominated, 29%23% was Euro-denominated, 5% was Sterling Pound-denominated,Pound Sterling-denominated, 2% was Philippine Peso-Denominated, 1% was Mexican Peso-denominated and immaterial amounts were denominated in other currencies. See notes 16.1, 16.2 and 20.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
On August 14, 2009, CEMEX, S.A.B. de C.V. and certain of its subsidiaries entered into the 2009 Financing Agreement, which extended the final maturities of U.S.$15 billion in syndicated and bilateral loans and private placement notes to February 14, 2014. On July 5, 2012, CEMEX, S.A.B. de C.V. and certain of its subsidiaries launched the 2012 Exchange Offer and Consent Request to eligible creditors under the 2009 Financing Agreement pursuant to which eligible creditors were requested to provide the 2012 Amendment Consents. In addition, CEMEX, S.A.B. de C.V. and certain of its subsidiaries offered to exchange the indebtedness owed to the Participating Creditors for (i) new loans (or, in the case of the private placement notes, new private placement notes) or (ii) up to U.S.$500 million of our June 2018 U.S. Dollar Notes, in each case, in transactions exempt from registration under the Securities Act. On September 17, 2012, CEMEX, S.A.B. de C.V. and certain of its subsidiaries successfully completed the 2012 Refinancing Transaction, and CEMEX, S.A.B. de C.V. and certain of its subsidiaries entered into (a) the 2012 Amendment and Restatement Agreement, pursuant to which the 2012 Amendment Consents with respect to the 2009 Financing Agreement were given effect, and (b) the 2012 Facilities Agreement, pursuant to which CEMEX, S.A.B. de C.V. and certain of its subsidiaries were deemed to borrow loans from those Participating Creditors participating in the 2012 Exchange Offer and Consent Request in principal amounts equal to the principal amounts of indebtedness subject to the 2009 Financing Agreement that was extinguished by such Participating Creditors. As a result of the 2012 Refinancing Transaction, Participating Creditors received (i) U.S.$6,155 million in aggregate principal amount of new loans and new private placement notes and (ii) U.S.$500 million aggregate principal amount of the June 2018 U.S. Dollar Notes. In addition, U.S.$525 million aggregate principal amount of loans and private placement notes, which had remained outstanding under the 2009 Financing Agreement as of September 17, 2012, were subsequently repaid in full, as a result of prepayments made in accordance with the 2012 Facilities Agreement.
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On September 29, 2014, CEMEX, S.A.B. de C.V. and certain of its subsidiaries entered into a facilities agreement (as amended and restated, the 2014“2014 Credit AgreementAgreement”) for U.S.$1.35$1.35 billion with nine of the main lending banks from its 2012 Facilities Agreement. On November 3, 2014, five additional banks joined the 2014 Credit Agreement as lenders with aggregate commitments of U.S.$515$515 million, increasing the total amount of the 2014 Credit Agreement from U.S.$1.35$1.35 billion to U.S.$1.87$1.87 billion (increasing the revolving tranche of the 2014 Credit Agreement proportionally to U.S.$746$746 million).
On July 30, 2015, CEMEX, S.A.B. de C.V. repaid in full the total amount outstanding of U.S.$1.94 billion under the 2012 Facilities Agreement with new funds from 17 financial institutions, which joined new tranches under the 2014 Credit Agreement.
On November 30, 2016, CEMEX, S.A.B. de C.V. prepaid U.S.$373 million outstanding under the 2014 Credit Agreement and corresponding to the September 2017 amortization thereunder. In addition to this prepayment, and as part of an agreement reached with a group of lenders under the 2014 Credit Agreement, U.S.$664 million (Ps13,758 million) of funded commitments under the 2014 Credit Agreement maturing in 2018 were exchanged into a revolving facility, maintaining their original amortization schedule and the same terms and conditions.
On July 19, 2017, CEMEX, S.A.B. de C.V. and certain of its subsidiaries entered into the 2017 CreditFacilities Agreement for an amount in different currencies equivalent to U.S.$4.1$4.1 billion (in aggregate), the proceeds of which were used to refinance in full the indebtedness incurred under the 2014 Credit Agreement and other debt repayment obligations, allowing us to increase the then average life of our syndicated bank debt to approximately 4.3 years with a final maturity in July 2022. As of December 31, 2017, the outstanding indebtedness incurred under the 2017 Credit Agreement was U.S.$2.5 billion. The indebtedness incurred under the 2017 CreditFacilities Agreement ranks equally in right of payment with certain of our other existing and future indebtedness, pursuant to the terms of an intercreditor agreement, dated September 17, 2012, among CEMEX, S.A.B. de C.V. and certain of its subsidiaries named therein, Citibank Europe PLC, UK Branch (formerly Citibank International plc), as facility agent, the Intercreditor Agreement.
As offinancial institutions, noteholders and other entities named therein and Wilmington Trust (London) Limited, as security agent, as amended by an amendment agreement, dated October 31, 2014, and as amended and restated by an amendment and restatement agreement, dated on or about July 23, 2015, and an amendment and restatement agreement, dated July 19, 2017 total commitments initially available under the 2017 Credit Agreement included (i) €741 million, (ii) £344 million and (iii) U.S.$2,746 million, out of which U.S.$1,135 million were in the revolving credit facility tranche of the 2017 Credit Agreement. As of December 31, 2017, the 2017 Credit Agreement had an amortization profile, considering all commitments of U.S.$4.1 billion under the 2017 Credit Agreement, of U.S.$583 million in 2020, U.S.$1,166 million in 2021 and U.S.$2,301 million in 2022. See note 16.1 to our 2017 audited consolidated financial statements included elsewhere in this annual report.
(the “Intercreditor Agreement”). CEMEX, S.A.B. de C.V. and certain of its subsidiaries have pledged the Collateral and all proceeds of the Collateral to secure our payment obligations under the 2017 CreditFacilities Agreement, our outstanding Senior Secured Notes and under several other of our financing arrangements. These subsidiaries whose shares were pledged or transferred as part of the Collateral collectively own, directly or indirectly, substantially all our operations worldwide. See “Item 3—Key Information—Risk Factors.” Factors—Risks Relating to Our Business—We pledged the capital stock of some of our subsidiaries that represent substantially all of our business as collateral to secure our payment obligations under the 2017 CreditFacilities Agreement, the indentures governing our outstanding Senior Secured Notes and other financing arrangements.” Also see “—Recent Developments—Other Recent Developments—Effectiveness of Mergers between CEMEX, S.A.B. de C.V. and certain direct and indirect subsidiaries in Mexico (the “Mexican Reorganization”)” for a description of circumstances whereby CEMEX México and Empresas Tolteca have ceased to guarantee our indebtedness to the extent they provided guarantees. The shares of CEMEX México that were pledged or transferred to trustees under security trusts to benefit certain secured creditors of CEMEX and certain of its subsidiaries are no longer part of the collateral securing our indebtedness.
In February 2019, CEMEX, S.A.B. de C.V. launched a consent request to lenders under the 2017 Facilities Agreement, pursuant to which lenders were requested to consent to certain amendments to the 2017 Facilities Agreement in order to, among other things, (i) extend the July 2020 and January 2021 repayment installments for a significant portion of the term loan tranches by three years; (ii) delay the scheduled tightening of the consolidated financial leverage ratio limit by one year; and (iii) make adjustments for the implementation of IFRS 16—Leases and to compensate for its effects on certain financial ratios (together, the “April 2019 Facilities Agreement Amendments”). In March 2019, CEMEX, S.A.B. de C.V. obtained the requisite consents from lenders under the 2017 Facilities Agreement to implement the April 2019 Facilities Agreement Amendments. The April 2019 Facilities Agreement Amendments became effective when certain customary conditions precedent were fulfilled, and the parties entered into an amendment and restatement agreement to the 2017 Facilities Agreement on April 2, 2019.
On November 4, 2019, we amended and restated by an amendment and restatement agreement the 2017 Facilities Agreement. These amendments (together, the “November 2019 Facilities Agreement Amendments” and, together with the April 2019 Facilities Agreement Amendments, the “2019 Facilities Agreement Amendments”) include: amendments providing for an additional basket of up to $500 million that can only be used for buy-backs of shares or securities that represent shares of CEMEX, S.A.B. de C.V.; amendments providing for a new allowance for disposals of non-controlling interest in subsidiaries that are not obligors (as defined in the 2017 Facilities Agreement) under the 2017 Facilities Agreement of up to $100 million per calendar year; amendments relating to the implementation of corporate reorganizations in Mexico, Europe and in the Trinidad Cement Group (as defined in the 2017 Facilities Agreement); and amendments to the consolidated leverage ratio and the consolidated coverage ratio (as defined and calculated in the 2017 Facilities Agreement) to increase CEMEX’s flexibility, as follows:
AMENDED LEVERAGE RATIO AND COVERAGE RATIO LEVELS
Reference period ending | Consolidated leverage ratio | Consolidated coverage ratio | ||
31-Dec-19 | 5.25x | 2.50x | ||
31-Mar-20 | 5.25x | 2.50x | ||
30-Jun-20 | 5.25x | 2.50x | ||
30-Sep-20 | 5.25x | 2.50x | ||
31-Dec-20 | 5.25x | 2.50x | ||
31-Mar-21 | 5.25x | 2.50x | ||
30-Jun-21 | 5.00x | 2.50x | ||
30-Sep-21 | 5.00x | 2.50x | ||
31-Dec-21 | 4.75x | 2.50x | ||
31-Mar-22 | 4.75x | 2.50x |
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Reference period ending | Consolidated leverage ratio | Consolidated coverage ratio | ||
30-Jun-22 | 4.75x | 2.50x | ||
30-Sep-22 | 4.75x | 2.50x | ||
31-Dec-22 | 4.50x | 2.75x | ||
31-Mar-23 | 4.50x | 2.75x | ||
30-Jun-23; and each subsequent Reference Period (as defined in the 2017 Facilities Agreement) | 4.25x | 2.75x |
See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” and “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for more information on the impact of COVID-19 on our debt and cash levels and regarding possible amendments to the 2017 Facilities Agreement, including to the financial ratios.
As of December 31, 2017,2019, we reported an aggregate amount of outstanding debt of Ps50,093$2,897 million (U.S.$2,549 million) under the 2017 CreditFacilities Agreement. As of December 31, 2017,2019, we had full availability under the U.S.$1,135$1,135 million revolving credit facility tranche of the 2017 Credit Agreement, as well as full availability underFacilities Agreement. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on the U.S.$377 million term loan.impact of COVID-19 on our debt and cash levels. If we areunableare unable to comply with our upcoming principal maturities under our indebtedness, or are not able to refinance or extend maturities of our indebtedness, our debt could be accelerated. Acceleration of our debt would have a material adverse effect on our financial condition. See “Risk“Item 3—Key Information—Risk Factors—We have a substantial amount of debt and other financial obligations maturing in the next several years. If we are unable to secure refinancing on favorable terms or at all, we may not be able to comply with our upcoming payment obligations. Our ability to comply with our principal maturities and financial covenants may depend on us implementing certain initiatives, which may include making asset sales, and there is no assurance that we will be able to implement any such initiatives or execute such sales, if needed, on terms favorable to us or at all.”
For a discussion of restrictions and covenants under the 2017 CreditFacilities Agreement, see “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—The 2017 CreditFacilities Agreement contains several restrictions and covenants. Our failure to comply with such restrictions and covenants could have a material adverse effect on our business and financial conditions.”
For a description of the Senior Secured Notes, see “Item 5—Operating and Financial Review and Prospects—Summary of Material Contractual Obligations and Commercial Commitments—Senior Secured Notes.”
Some of our subsidiaries and special purpose vehicles (“SPVs”) have issued or provided guarantees of certain of our indebtedness, as indicated in the table below.
The Notes | Senior Secured Notes | 2017 Facilities Agreement | Perpetual Debentures | |||||||||||
$6,044 million (principal amount $6,087 million) | $2,865 million (principal amount $2,897 million) | $443 million | ||||||||||||
CEMEX Finance LLC | ✓ |
| ✓ |
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CEMEX, S.A.B. de C.V. | ✓ | ✓ | ✓ | ✓ | ||||||||||
CEMEX México, S.A. de C.V. (2) | ✓ | ✓ | ✓ | ✓ | ||||||||||
CEMEX Concretos, S.A. de C.V. | ✓ | ✓ | ✓ | |||||||||||
Empresas Tolteca de México, S.A. de C.V. (2) | ✓ | ✓ | ✓ | |||||||||||
✓ | ✓ | ✓ | ✓ | |||||||||||
CEMEX España, S.A. | ✓ | ✓ | ✓ | |||||||||||
| ✓ | ✓ | ✓ | |||||||||||
✓ | ✓ | ✓ | ||||||||||||
| ✓ | ✓ | ✓ | |||||||||||
✓ | ✓ | ✓ | ||||||||||||
✓ | ✓ | ✓ | ||||||||||||
CEMEX | ✓ | ✓ | ✓ |
(1) | Includes Senior Secured Notes and Perpetual Debentures held by CEMEX, as applicable. |
(2) | ||||||||||||
See “ Recent Developments—Other Recent Developments—Effectiveness of Mergers between CEMEX, | ||||||||||||
S.A.B. de C.V. and certain direct and indirect subsidiaries in Mexico (the “ Mexican Reorganization”)” for a description of circumstances whereby CEMEX | ||||||||||||
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| México and Empresas Tolteca have ceased to guarantee our indebtedness to the extent they provided guarantees. |
In addition, as of MarchDecember 31, 2018,2019, (i) CEMEX Materials LLC iswas a borrower of Ps2,848$154 million (U.S.$156 million) (principal amount Ps2,745 million (U.S.$150$150 million)) under an indenture which is guaranteed by CEMEX Corp.; and (ii) on an as adjusted basis after giving effect to the Mexican
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Reorganization, several of our other operating subsidiaries were borrowers under debt facilities or debt arrangements aggregating Ps5,890 million (U.S.$322 million).$300 million.
Most of our current outstanding indebtedness has beenwas incurred to finance our acquisitions and to finance our capital expenditure programs. Historically, we have addressed our liquidity needs (including funds required to make scheduled principal and interest payments, refinance debt, and fund working capital and planned capital expenditures) with operating cash flow, securitizations, borrowings under credit facilities, proceeds of debt and equity offerings and proceeds from asset sales.
If the global economic environment deteriorates and our operating results worsen significantly, if we were unable to complete debt or equity offerings, or if we are unable to consummate asset sales or if the proceeds of any divestitures and/or our cash flow or capital resources prove inadequate, we could face liquidity problems and may not be able to comply with our upcoming principal payments under our indebtedness or refinance our indebtedness. If we are unable to comply with our upcoming principal maturities under our indebtedness, or refinance or extend maturities of our indebtedness, our debt could be accelerated. Acceleration of our debt would have a material adverse effect on our business and financial condition.
We
Historically, we and our subsidiaries have sought and obtained waivers and amendments to several of our debt instruments relating to a number of financial ratios in the past. Our ability to comply with these ratios may be affected by current global economic conditions and volatility in foreign exchange rates and the financial and capital markets. We may need to seek waivers or amendments in the future. However, we cannot assure you that any future waivers or amendments, if requested, will be obtained. If we or our subsidiaries are unable to comply with the provisions of our debt instruments and are unable to obtain a waiver or amendment, the indebtedness outstanding under such debt instruments could be accelerated. Acceleration of these debt instruments would have a material adverse effect on our financial condition.
Relevant Transactions Related to Our Indebtedness During 2017in 2019
As of December 31, 2017, we had Ps226,216 million (U.S.$11,512 million) (principal amount Ps231,621 million (U.S.$11,787 million), excluding deferred issuance costs) of total debt plus other financial obligations in our statement of financial position, which does not include Ps8,784 million (U.S.$447 million) of Perpetual Debentures. As of December 31, 2017, 62% of our total debt plus other financial obligations was Dollar-denominated, 29% was Euro-denominated, 5% was Sterling-denominated, 2% was Philippine Peso-denominated, 1% was Mexican Peso-denominated and immaterial amounts were denominated in other currencies.
The following is a description of our most important transactions related to our indebtedness in 2017:2019:
● | In February 2019, we launched a consent request to lenders under the 2017 Facilities Agreement, pursuant to which we requested lenders to consent to certain amendments to the 2017 Facilities Agreement in order to, among other things, (i) extend the July 2020 and January 2021 repayment installments for a significant portion of the term loan tranches by three years; (ii) delay the scheduled tightening of the consolidated financial leverage ratio limit by one year; and (iii) make adjustments for the implementation of IFRS 16—Leases and tocompensate forits effects on certain financial ratios. In March 2019, we obtained the requisite consents from lenders under the 2017 Facilities Agreement to implement the April 2019 Facilities Agreement Amendments. The April 2019 Facilities Agreement Amendments became effective when certain customary conditions precedent were fulfilled, and the parties entered into an amendment and restatement agreement to the 2017 Facilities Agreement, on April 2, 2019. |
● | During March 2019, we renewed the securitization program outstanding in United Kingdom and France. As a result of such renewal, the program was scheduled to mature in March 2020. |
● | On March 19, 2019, we issued €400 million aggregate principal amount of our March 2026 Euro Notes (as defined under “Results of Operations—Summary of Material Contractual Obligations and Commercial Commitments—Senior Secured Notes”) in transactions exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act. CEMEX España, New Sunward, CEMEX Asia, CEMEX Concretos, CEMEX Corp., CEMEX Finance, Cemex Africa & Middle East Investments, CEMEX France, CEMEX Research Group AG (“CEMEX Research Group”) and CEMEX UK have fully and unconditionally guaranteed the performance of all of our obligations under the March 2026 Euro Notes. The payment of principal, interest and premium, if any, on such notes is secured by a first-priority security interest over the Collateral and all proceeds of the Collateral. See “—Recent Developments—Other Recent Developments—Effectiveness of Mergers between CEMEX, S.A.B. de C.V. and certain direct and indirect subsidiaries in Mexico (the “Mexican Reorganization”)” for a description of circumstances whereby CEMEX México and Empresas Tolteca have ceased to guarantee our indebtedness to the extent they provided guarantees and the shares of CEMEX Méxicothat were pledged or transferred to trustees under security trusts to benefit certain secured creditors of CEMEX and certain of its subsidiaries are no longer part of the collateral securing our indebtedness. |
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● | On April 15, 2019, we redeemed €400 million aggregate principal amount of our March 2023 Euro Notes (as defined under “Results of Operations—Summary of Material Contractual Obligations and Commercial Commitments—Senior Secured Notes”) mainly using the proceeds from the issuance of the March 2026 Euro Notes. |
● | On April 30, 2019, we fully redeemed the remaining €150 million aggregate principal amount of the March 2023 Euro Notes (the “March 2023 Euro Notes Redemption”). |
● | On November 4, 2019, we further amended and restated, by way of the November 2019 Facilities Agreement Amendments, our 2017 Facilities Agreement (originally amended and restated on April 2, 2019). These amendments include: amendments providing for an additional basket of up to $500 million that can only be used for buy-backs of shares or securities that represent shares of CEMEX, S.A.B. de C.V.; amendments providing for a new allowance for disposals of non-controlling interests in subsidiaries that are not obligors (as defined in the 2017 Facilities Agreement) under the 2017 Facilities Agreement of up to $100 million per calendar year; amendments relating to the implementation of corporate reorganizations in Mexico, Europe and in the Trinidad Cement Group (as defined in the 2017 Facilities Agreement); and amendments to the consolidated leverage ratio and the consolidated coverage ratio (as defined and calculated in the 2017 Facilities Agreement) to increase CEMEX’s flexibility. |
● | On November 19, 2019, we issued $1 billion aggregate principal amount of our November 2029 Dollar Notes (as defined below) in transactions exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act. CEMEX España, New Sunward, CEMEX Asia, CEMEX Concretos, CEMEX Corp., CEMEX Finance, Cemex Africa & Middle East Investments, CEMEX France, CEMEX Research Group and CEMEX UK have fully and unconditionally guaranteed the performance of all of our obligations under the November 2029 Dollar Notes. The payment of principal, interest and premium, if any, on such notes is secured by a first-priority security interest over the Collateral and all proceeds of the Collateral. See “—Recent Developments—Other Recent Developments—Effectiveness of Mergers between CEMEX, S.A.B. de C.V. and certain direct and indirect subsidiaries in Mexico (the “Mexican Reorganization”)” for a description of circumstances whereby CEMEX México and Empresas Tolteca have ceased to guarantee our indebtedness to the extent they provided guarantees, and the shares of CEMEX Méxicothat were pledged or transferred to trustees under security trusts to benefit certain secured creditors of CEMEX and certain of its subsidiaries are no longer part of the collateral securing our indebtedness. |
● | On November 28, 2019, the November 2019 Mandatory Convertible Mexican Peso Notes (as defined below) were converted into ordinary, nominative shares and without nominal value, representative of the capital of CEMEX, represented by CPOs. This conversion was made at a conversion rate of 509.1077 CPOs per note, delivering a total of 236,050,840 CPOs. |
● | On December 6, 2019, we extended for an additional 27 months the securitization program outstanding in the U.S. for an amount of $405 million. As a result of such extension, the program is now scheduled to mature in March 2022. |
● | On December 13, 2019, we extended for an additional 18 months the securitization program outstanding in Mexico for 1.8 billion Mexican Pesos. As a result of such extension, the program is now scheduled to mature in June 2021. |
● | On December 19, 2019, we redeemed $350,000,000 of the April 2024 Dollar Notes (as defined under “Results of Operations—Summary of Material Contractual Obligations and Commercial Commitments—Senior Secured Notes”) using mainly the proceeds from the issuance of the November 2029 Dollar Notes (as defined under “Results of Operations—Summary of Material Contractual Obligations and Commercial Commitments—Senior Secured Notes”). |
● | During 2019, we conducted drawdowns and repayments under the revolving tranche of the 2017 Facilities Agreement. As of December 31, 2019, we had no amount outstanding under the revolving tranche of the 2017 Facilities Agreement. In addition, as of December 31, 2019, we had an aggregate amount of $1,135 million available under the revolving tranche of the 2017 Facilities Agreement. |
We used a substantial portion of the proceeds from these transactions to repay and refinance indebtedness, to improve our liquidity position and for general corporate purposes. Through these and prior refinancing transactions, we addressed all maturities under the 2009 Financing Agreement, the 2012 Facilities Agreement and the 2014 Credit Agreement. For a description of the 2017 CreditFacilities Agreement, see “—Our Indebtedness.”
Our Other Financial Obligations
Other financial obligations in the consolidated statement of financial position as of December 31, 20162018 and 20172019 are detailed as follows:
December 31, 2016 | December 31, 2017 | |||||||||||||||||||||||
Short- term | Long- term | Total | Short- term | Long- term | Total | |||||||||||||||||||
March 2020 Optional Convertible Subordinated U.S. Dollar Notes | Ps — | 10,417 | 10,417 | — | 9,985 | 9,985 | ||||||||||||||||||
March 2018 Optional Convertible Subordinated U.S. Dollar Notes | — | 13,575 | 13,575 | 7,115 | — | 7,115 | ||||||||||||||||||
November 2019 Mandatory Convertible Mexican Peso Notes | 278 | 689 | 967 | 323 | 371 | 694 | ||||||||||||||||||
Liabilities secured with accounts receivable | 11,095 | — | 11,095 | 11,313 | — | 11,313 | ||||||||||||||||||
Finance leases | 285 | 1,291 | 1,576 | 611 | 2,503 | 3,114 | ||||||||||||||||||
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Short-term | 2018 Long-term | Total | Short-term | 2019 Long-term | Total | |||||||||||||||||||
(in millions of Dollars) | ||||||||||||||||||||||||
Leases | $ | 237 | 1,078 | 1,315 | $ | 262 | 1,044 | 1,306 | ||||||||||||||||
Liabilities secured with accounts receivable | 599 | — | 599 | 599 | — | 599 | ||||||||||||||||||
Convertible subordinated notes due 2020 | — | 514 | 514 | 520 | — | 520 | ||||||||||||||||||
Mandatory convertible securities due 2019 | 19 | — | 19 | — | — | — | ||||||||||||||||||
$ | 855 | 1,592 | 2,447 | $ | 1,381 | 1,044 | 2,425 |
As mentioned in note 2.6 to our 20172019 audited consolidated financial statements included elsewhere in this annual report, financial instruments convertible into CEMEX, S.A.B. de C.V.’s CPOs and/or ADSs contain components of both liability and equity, which are recognized differently depending on whether the instrument is mandatorily convertible or is optionally convertible by election of the note holders, as well as the currency in which the instrument is denominated.
March 2020 Optional Convertible Subordinated U.S. Dollar Notes
During 2015, CEMEX, S.A.B. de C.V. issued U.S.$521 million aggregate principal amount of its March 2020 Optional Convertible Subordinated U.S. Dollar Notes. The March 2020 Optional Convertible Subordinated U.S. Dollar Notes were issued: (a) U.S.$200 million as a resultdenominated and the functional currency of the exercise on March 13, 2015issuer.
Leases
We have several operating and administrative assets under lease contracts. As previously described, beginning January 1, 2019, we applied IFRS 16 using the full retrospective approach and re-presented the amounts in prior periods. We apply the recognition exemption for short-term leases and leases of U.S.$200 million notional amount of CCUs (described below),low-value assets. See notes 14.2 and (b) U.S.$321 million as a result of private exchanges with certain institutional investors on May 28, 2015, which together with early conversions, resulted in a total of U.S.$626 million aggregate principal amount of the March 2016 Optional Convertible Subordinated U.S. Dollar Notes held by such investors being paid and the issuance and delivery by CEMEX of an estimated 42 million ADSs, which included a number of additional ADSs issued to the holders asnon-cash inducement premiums. The March 2020 Optional Convertible Subordinated U.S. Dollar Notes, which are subordinated to all of CEMEX’s liabilities and commitments, are convertible into a fixed number of CEMEX, S.A.B. de C.V.’s ADSs at any time at the holder’s election and are subject to antidilution adjustments. The difference at the exchange date between the fair value of the March 2016 Optional Convertible Subordinated U.S. Dollar Notes and the 42 million ADSs against the fair value of March 2020 Optional Convertible Subordinated U.S. Dollar Notes, represented a loss of Ps365 million recognized in 2015 as part of the line item Financial income (expense) and other items, net. As of December 31, 2016 and 2017, the conversion price per ADS was U.S.$11.45 and U.S.$11.01, respectively. The aggregate fair value of the conversion option as of the issuance dates which amounted to Ps199 million was recognized in other equity reserves. After antidilution adjustments, the conversion rate as of December 31, 2016 and 2017 was 87.3646 ADS and 90.8592 ADS, respectively, per each U.S.$1 thousand principal amount of such notes. See note 16.2to our 20172019 audited consolidated financial statements included elsewhere in thisthe annual report.
March 2018 Optional Convertible Subordinated U.S. Dollar Notes
On March 15, 2011, CEMEX, S.A.B. de C.V. closed the offering of U.S.$690 million aggregate principal amount of the March 2018 Optional Convertible Subordinated U.S. Dollar Notes and U.S.$978 million principal amount of the March 2016 Optional Convertible Subordinated U.S. Dollar Notes. The notes were subordinated to all of CEMEX’s liabilities and commitments, are convertible into a fixed number of CEMEX, S.A.B. de C.V.’s ADSs, at the holder’s election, and are subject to antidilution adjustments. A portion of the net proceeds from this transaction was used to fund the purchase of capped call options, which are generally expected to reduce the potential dilution cost to us upon the potential conversion of the March 2018 Optional Convertible Subordinated U.S. Dollar Notes. After the exchange of notes describedChanges in the paragraph above, U.S.$352 million principal amountbalance of the March 2016 Optional Convertible Subordinated U.S. Dollar Notes that remained outstandinglease financial liabilities during 2017, 2018 and 2019 were repaid in cash at their maturity on March 15, 2016.Asas follows:
(in millions of Dollars) | 2017 | 2018 | 2019 | |||||||||
Lease financial liability at beginning of year | $ | 1,054 | 1,309 | 1,315 | ||||||||
Additions from new leases | 328 | 296 | 274 | |||||||||
Reductions from payments | (112 | ) | (192 | ) | (239 | ) | ||||||
Cancellations and liability remeasurements | (11 | ) | (67 | ) | (54 | ) | ||||||
Foreign currency translation and accretion effects | 50 | (31 | ) | 10 | ||||||||
Lease financial liability at end of year | $ | 1,309 | 1,315 | 1,306 |
As of December 31, 20162019, the maturities of lease financial liabilities were as follows:
(in millions of Dollars) | Total | ||||
2020 | $ | 262 | |||
2021 | 221 | ||||
2022 | 159 | ||||
2023 | 115 | ||||
2024 and thereafter | 549 | ||||
$ | 1,306 |
Total cash outflows for leases in 2017, 2018 and 2017, the conversion price per ADS was U.S.$8.922019 were $183 million, $266 million and U.S.$8.57,$316 million, respectively. After antidilution adjustments, the conversion rate as of December 31, 2016 and 2017 was 112.1339 ADS and 116.6193 ADS, respectively, per each U.S.$1,000 principal amount of the March 2018 Optional Convertible Subordinated U.S. Dollar Notes. See notes 16.2 and 16.4 to our 2017 audited consolidated financial statements included elsewhere in this annual report.
On June 19, 2017, certain institutional holders of CEMEX, S.A.B. de C.V.’s March 2018 Optional Convertible Subordinated U.S. Dollar Notes agreed to convert U.S.$325 million aggregate principal amount of those notes in exchange for 43 million ADSs. CEMEX did not pay any cash to those noteholders in connection with the conversions. On March 15, 2018, CEMEX, S.A.B. de C.V. redeemed the remaining U.S.$365 million aggregate principal amount of the March 2018 Optional Convertible Subordinated U.S. Dollar Notes.
November 2019 Mandatory Convertible Mexican Peso Notes
In December 2009, CEMEX, S.A.B. de C.V. completed an exchange offer of debt into 10% mandatory convertible notes due 2019 (the “November 2019 Mandatory Convertible Mexican Peso Notes”) for approximately U.S.$315 million principal amount. Reflecting antidilution adjustments, the notes will be converted at maturity or earlier if the price of the CPO reaches Ps26.22 into approximately 236 million CPOs at a conversion price of Ps17.48 per CPO. The conversion rate under the November 2019 Mandatory Convertible Mexican Peso Notes is 509.1077 CPOs per each convertible obligation. During their tenure, holders have an option to voluntarily convert their securities on any interest payment date into CPOs. Considering the currency in which the notes are denominated and the functional currency of CEMEX, S.A.B. de C.V.’s financing division, the conversion option embedded in these securities is treated as a stand-alone derivative liability at fair value in the income statements. Changes in fair value of the conversion option generated gains of approximately U.S.$18 million (Ps310 million) in 2015, losses of approximately U.S.$29 million (Ps545 million) in 2016, and gains of approximately U.S.$19 million (Ps359 million) in 2017. See notes 2.4 and 16.2 to our 2017 audited consolidated financial statements included elsewhere in this annual report.
Our Receivables Financing Arrangements
Our subsidiaries in Mexico, the United States,U.S., France and the United Kingdom are parties to sales of trade accounts receivable programs with financial institutions, referred to as securitization programs. As of December 31, 20162018 and 2017,2019, trade accounts receivable included receivables of U.S.$658$664 million (Ps13,644 million) and U.S.$647$682 million, (Ps12,713 million), respectively. Under these programs, our subsidiaries effectively surrender control associated with the trade accounts receivable sold and there is no guarantee or obligation to reacquire the assets. However, weNonetheless, in such programs, our subsidiaries retain certain residual interest in the programs and/or maintain continuing involvement with the accounts receivable; therefore,receivable. Therefore, the trade accounts receivable sold were not removed from the statement of financial position, and the funded amounts received arewere recognized within the line item of “Other financial obligations.”obligations” and the difference in each year against the trade receivables sold was maintained as reserves. Trade accounts receivable qualifying for sale exclude amounts over certain days past due or concentrations over certain limits to any customer, according to the terms of the programs. The portion of the accounts receivable sold maintained as reserves amounted to U.S.$123$65 million (Ps2,549 million) and U.S.$71$83 million (Ps1,400 million) as of December 31, 20162018 and 2017,2019, respectively. Therefore, the funded
amount to us was U.S.$535$599 million (Ps11,095 million) in 20162018 and U.S.$576$599 million (Ps11,313 million) as of December 31, 2017.2019. The discount granted to the acquirers of the trade accounts receivable is recorded as financial expense and amounted to U.S.$13$23 million (Ps258 million) and U.S.$16$25 million (Ps308 million) in 20162018 and 2017,2019, respectively. Our securitization programs are usually negotiated for periods of one yearto two years and are usually renewed at their maturity. See notes 9 and 16.2 to our 2017 audited consolidated financial statements included herein.
Finance Leases
As of December 31, 2016 and 2017, we held several operating buildings and mainly mobile equipment, under finance lease contracts for a total of U.S.$76 million (Ps1,576 million) and U.S.$158 million (Ps3,105 million), respectively. See note 16.2 to our 2017 audited consolidated financial statements included elsewhere in this annual report. Future payments associated with these contracts are presented in note 23.4 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
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March 2020 Optional Convertible Subordinated Dollar Notes
During 2015, we issued, in March 2015 and May 2015, respectively, $521 million aggregate principal amount of our 3.72% Convertible Subordinated Notes due March 15, 2020 (“March 2020 Optional Convertible Subordinated Dollar Notes”) as a result of exchanges or settlements of other convertible notes. The March 2020 Optional Convertible Subordinated Dollar Notes, which are subordinated to all of our liabilities and commitments, are convertible into a fixed number of our ADSs at any time at the holder’s election and are subject to anti-dilution adjustments. The aggregate fair value of the conversion option as of the issuance dates, which amounted to $12 million, was recognized in “Other equity reserves.” As of December 31, 2018 and 2019, the conversion price per ADS for the March 2020 Optional Convertible Subordinated Dollar Notes was $11.01 Dollars in 2018 and $10.73 Dollars in 2019. After anti-dilution adjustments, the conversion rate for the March 2020 Optional Convertible Subordinated Dollar Notes as of December 31, 2018 and 2019 was 90.8592 and 93.2334 ADS, respectively, per each one thousand dollars principal amount of such notes. See note 16.2 to our 2019 audited consolidated financial statements included elsewhere in this annual report.
November 2019 Mandatory Convertible Mexican Peso Notes
In December 2009, we exchanged certain debt into $315 million principal amount of 10% mandatorily convertible securities denominated in Mexican Pesos maturing in 2019 (the “November 2019 Mandatory Convertible Mexican Peso Notes”). On November 28, 2019, the November 2019 Mandatory Convertible Mexican Peso Notes expired and were converted into 236 million CPOs at a conversion price in Mexican Pesos equivalent to $0.8937 per CPO. See note 16.2 to our 2019 audited consolidated financial statements included elsewhere in this annual report.
Perpetual Debentures
We define the “Perpetual Debentures”Debentures,” collectively, as collectively,the (i) U.S. Dollar-Denominated 6.196%6.222% Fixed-to-Floating Rate Callable Perpetual Debentures issued by C5 Capital (SPV) Limited, (ii) U.S. Dollar-Denominated 6.640%6.345% Fixed-to-Floating Rate Callable Perpetual Debentures issued by C8 Capital (SPV) Limited, (iii) U.S. Dollar-Denominated 6.722%6.655% Fixed-to-Floating Rate Callable Perpetual Debentures issued by C10 Capital (SPV) Limited and (iv) Euro-Denominated 6.277%4.400% Fixed-to-Floating Rate Callable Perpetual Debentures issued byC10-EUR Capital (SPV) Limited. Unless the context otherwise requires, when we refer to the Perpetual Debentures (as defined above), we also include our underlying dual-currency notes that underlie the Perpetual Debentures. See “—Recent Developments—Other Recent Developments—Effectiveness of Mergers between CEMEX, S.A.B. de C.V. and certain direct and indirect subsidiaries in Mexico (the “Mexican Reorganization”)” for a description of circumstances whereby CEMEX México and Empresas Tolteca have ceased to guarantee our indebtedness to the extent they provided guarantees, and the shares of CEMEX México that were pledged or transferred to trustees under security trusts to benefit certain secured creditors of CEMEX and certain of its subsidiaries are no longer part of the collateral securing our indebtedness.
As of December 31, 2015, 20162017, 2018 and 2017,2019, non-controlling interest stockholders’ equity included U.S.$440$447 million, (Ps7,581 million), U.S.$438$444 million (Ps9,075 million) and U.S.$447$443 million, (Ps8,784 million), respectively, representing the notional amount of Perpetual Debentures, which exclude any perpetual debenturesPerpetual Debentures held by subsidiaries. The Perpetual Debentures have no fixed maturity date and do not represent contractual obligations to exchange any series of its outstanding Perpetual Debentures for financial assets or financial liabilities. Based on their characteristics, the Perpetual Debentures, issued through SPVs, qualify as equity instruments and are classified withinnon-controlling interest as they were issued by consolidated entities, and, if the conditions to interest deferred are satisfied, we have the unilateral right to defer indefinitely the payment of interest due on the Perpetual Debentures. Issuance costs, as well as the interest expense, which is accrued based on the principal amount of the Perpetual Debentures, are included within “Other equity reserves” and represented expenses of Ps507$25 million, $29 million and Ps482$29 million in 20162017, 2018 and 2017,2019, respectively. The different SPVs were established solely for purposes of issuing the Perpetual Debentures and are included in our 20172019 audited consolidated financial statements included elsewhere in this annual report. As of December 31, 2017,2019, the Perpetual Debentures were as follows:
Issuer | Issuance Date | Nominal Amount at Issuance Date (in millions) | Nominal Amount Outstanding as of December 31, 2017 (in millions) | Repurchase Option | Interest Rate | |||||||||||
C10-EUR Capital (SPV) Ltd.(3) | May 2007 | € | 730 | € | 64 | Tenth anniversary | EURIBOR + 4.79 | % | ||||||||
C8 Capital (SPV) Ltd.(2) | February 2007 | U.S.$ | 750 | U.S.$ | 135 | Eighth anniversary | LIBOR + 4.40 | % | ||||||||
C5 Capital (SPV) Ltd.(1)(2) | December 2006 | U.S.$ | 350 | U.S.$ | 61 | Fifth anniversary | LIBOR + 4.277 | % | ||||||||
C10 Capital (SPV) Ltd.(2) | December 2006 | U.S.$ | 900 | U.S.$ | 175 | Tenth anniversary | LIBOR + 4.71 | % |
Issuer | Issuance Date | Nominal Amount at Issuance Date (in millions) | Nominal Amount Outstanding as of December 31, 2019 (in millions) | Repurchase Option | Interest Rate | |||||||||
C10-EUR Capital (SPV) Ltd.(3) | May 2007 | € | 730 | € | 64 | Tenth anniversary | EURIBOR + 4.79% | |||||||
C8 Capital (SPV) Ltd.(2) | February 2007 | $ | 750 | $ | 135 | Eighth anniversary | LIBOR + 4.40% | |||||||
C5 Capital (SPV) Ltd.(1)(2) | December 2006 | $ | 350 | $ | 61 | Fifth anniversary | LIBOR + 4.277% | |||||||
C10 Capital (SPV) Ltd.(2) | December 2006 | $ | 900 | $ | 175 | Tenth anniversary | LIBOR + 4.71% |
(1) | Under the 2017 |
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(2) | “ |
(3) | “EURIBOR” above refers to the Euro Interbank Offered Rate. As of December 31, |
Stock Repurchase Program
Under Mexican law, CEMEX, S.A.B. de C.V.’s shareholders may authorize aare the only ones authorized to approve the maximum amount of resources that can be allocated to the stock repurchase program at any annual general ordinary shareholders’ meeting. Unless otherwise instructed by CEMEX, S.A.B. de C.V.’s shareholders, we are not required to purchase any minimum number of shares pursuant to such program.
In connection with CEMEX, S.A.B. de C.V.’s 2015 and 2016 annual general ordinary shareholders’ meetings held on March 31, 2016 and March 30, 2017, respectively, no stock repurchase program was proposed.
In connection with CEMEX, S.A.B. de C.V.’s 2017 and 2018 annual general ordinary shareholders’ meetingmeetings held on April 5, 2018 a proposal wasand March 28, 2019, respectively, proposals were approved to set the amount of U.S.$500$500 million or its equivalent in Mexican Pesos, each year and until the next ordinary shareholders’ meeting, as the maximum amount of resources for the year ending on December 31, 2018, and until the next ordinary shareholders meeting is held, that CEMEX, S.A.B. de C.V. can use to purchaserepurchase its own shares or securities that represent such shares. The board of directors of CEMEX, S.A.B. de C.V. wasapproved the policy and procedures for the operation of the stock repurchase program, and is authorized to determine the basis on which the purchaserepurchase and placement of such shares is made, appoint the persons who will be authorized to make the decision of purchasingrepurchasing or placingreplacing such shares and appoint the persons responsible to make the transaction and furnish the corresponding notices to authorities. The board of directors of CEMEX, S.A.B. de C.V. and/orattorneys-in-fact or delegates designated in turn, or the persons responsible for such transactions, will determine, in each case, if the purchaserepurchase is made with a charge to stockholders’ equity as long as the shares belong to CEMEX, S.A.B. de C.V., or with a charge to share capital if it is resolved to convert the shares intonon-subscribed shares to be held in treasury. See “—Recent Developments—Recent Developments Relating to Our Shareholders’ Meeting.” We remain subject to certain restrictions regarding the repurchase of shares of our capital stock under the 2017 CreditFacilities Agreement and the indentures governing the outstanding Senior Secured Notes.
As of December 31, 2018, under the 2018 repurchase program, CEMEX, S.A.B. de C.V. repurchased 153.6 million CPOs at a weighted-average price in Mexican Pesos equivalent to $0.4883 per CPO. The total amount of these CPO repurchases, excluding fees and value-added tax, was $75 million. All the shares repurchased under the 2018 repurchase program were cancelled in 2019 by resolution of the CEMEX, S.A.B. de C.V. annual general ordinary shareholders’ meeting passed on March 28, 2019.
As of December 31, 2019, under the 2019 repurchase program, CEMEX, S.A.B. de C.V. repurchased 157.7 million CPOs, at a weighted-average price in Mexican Pesos equivalent to $0.3164 per CPO. The total amount of these CPO repurchases, excluding fees and value-added tax, was $50 million. The shares repurchased under the 2019 repurchase program were proposed for cancellation at the CEMEX, S.A.B. de C.V. annual general ordinary shareholders’ meeting held on March 26, 2020.
The following table sets out information concerning repurchases by CEMEX, S.A.B. de C.V. of its CPOs in 2019. We did not repurchase CPOs other than through the stock repurchase program.
Period | Total Number of CPOs Purchased | Average Price in Dollars per CPO | Total Number of CPOs Purchases as Part of Publicly Announced Plans or Programs | Approximate Peso Value of CPOs that May Yet Be Purchased Under Plans | |||||||||||||
January 1 to January 31 | — | �� | — | — | $ | 8,125,977,478.16 | |||||||||||
February 1 to February 28 | — | — | — | $ | 8,193,977,289.69 | ||||||||||||
March 1 to March 31 | — | — | — | $ | 9,700,000,000.00 | ||||||||||||
April 1 to April 30 | — | — | — | $ | 9,465,000,000.00 | ||||||||||||
May 1 to May 31 | — | — | — | $ | 9,810,000,000.00 | ||||||||||||
June 1 to June 30 | — | — | — | $ | 9,605,000,000.00 | ||||||||||||
July 1 to July 31 | — | — | — | $ | 9,580,000,000.00 | ||||||||||||
August 1 to August 31 | 136,900,000 | 0.30866 | 136,900,000 | $ | 9,173,324,564.71 | ||||||||||||
September 1 to September 30 | 20,800,000 | 0.36741 | 20,800,000 | $ | 8,880,655,138.15 | ||||||||||||
October 1 to October 31 | — | — | — | $ | 8,655,600,522.39 | ||||||||||||
November 1 to November 30 | — | — | — | $ | 8,804,136,568.79 | ||||||||||||
December 1 to December 31 | — | — | — | $ | 8,516,066,660.61 | ||||||||||||
Total | 157,700,000 | 0.31644 | 157,700,000 |
Research and Development, Patents and Licenses, etc.
Headed by CEMEX Research Center, Research and Development Centers in Switzerland (“CEMEX Research Center”R&D”), R&D is increasingly assuming a key role as it is recognized as an important contributorelement in creating value for our products, which is important to CEMEX’s comprehensive pricing strategy for CEMEX’s products. Through the development of innovative technologies, services, and commercial models, CEMEX is leveraging itsknow-how based assets to create an important differentiation in its offerings to customers in a broad range of markets with unique challenges. Focus is placedWe focus on creating tangible value for our customers by makingcreating products designed to make their business
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more profitable, but more importantly, as leaders in the industry, there is an underlying mission for CEMEX intends to elevate and accelerate the industry’s evolution in order to achieve greater sustainability, increase engagement in social responsibility and provoke an important leap in its technological advancement.
CEMEX’s R&D initiatives are globally led, coordinated and managed by CEMEX Research Center, which encompasses the areas of Product Development & Construction Trends, Cement Production Technology, Sustainability, Business Process & IT, Innovation, and Commercial & Logistics.
CEMEX’s interaction and engagement with customers is growing and evolving through the exploration of novel interaction methodologies. CEMEX’s R&D continues to develop and evolve in the area of customer centricity, but with complementary emphases on digitalization, development of digital-based business models, socio-urban dynamics, processes and technologies to mitigate CO2, and evaluating, adopting and proposing methodologies to engage specific types of customers who are the key decision makers in the very early stages of a construction project. Such methodologies are defining innovative approaches to involve and expose existing, potential, and future customers (e.g. Engineering & Architectural students) to our value-added products (cement, aggregates, ready-mix concrete, and admixtures) and constructions solutions. In other words, we aspire to create a unique customer experience in which the customer can see, touch, interact and even stimulate the modification of our technologies.
The areas of Product Development & Construction Trends and Cement Production Technology are responsible for, among others, developing new products for our cement,ready-mix concrete, aggregate and admixture businesses as well as introduce novel and/or improved processing and manufacturing technology for all of CEMEX’s core businesses. These areas also address energy efficiency of buildings, comfort, novel and more efficient construction systems. Additionally, the Product Development & Construction Trends and Sustainability areas collaborate to develop and propose construction solutions through consulting and the integration of the aforementioned technologies.
The Cement Production Technology and Sustainability areas are dedicated to, among others, operational efficiencies leading to cost reductions and enhancing our CO2CO2 footprint and overall environmental impact through the usage of alternative or biomass fuels, and the use of supplementary materials in substitution of clinker.clinker, as well as by managing our CO2 footprint, mitigating it and processing it in the context of a circular economy. For example, we have developed processes and products that allow us to reduce heat consumption in our kilns, which in turn reduces energy costs. Special emphasis is placed on defining parameters by which we communicate our efforts to preserve resources for the future, reduce our CO2 footprint and become more resilient with respect to our energy-related needs and potential supply constraints.
With respect to energy, the R&D team is focusing on energy storage, which represents the largest and most near-term opportunity to accelerate renewable energy deployments and bring us closer to replacing fossil fuels as the primary resource to meet the world’s continual growth in energy demand. Global products/brands have been conceptualized and engineered to positively impact the jobsite safety, promote efficient construction practices, sensibly preserve natural resources vital to life, lower carbon foot-print and improve the quality of life in rapidly transforming cities. Underlying
Underlying CEMEX’s R&D philosophy is a growing culture of global collaboration and coordination, where the Innovation Teaminnovation team identifies and promotes novel collaboration practices and mobilizes its adoption within CEMEX. Getting closer and understanding our customers is a fundamental transformation within CEMEX, and consequently the Commercial & Logistics area is carrying out research initiatives to better attend the needs of customers as well as identify key changes in our supply chain management that should enable us to bring products, solutions and services to our customers in the most cost-effective and efficient manner, using what we believe to be the best available technologies to design a new standard in digital commercial models. As of December 31, 2019, CEMEX Research Center actively participates in six research projects (SOLPART, EPOS, LEILAC, GENESIS, DESTINY and eCOCO2), funded by the European Union under the H2020 program, to develop new technologies aimed at reducing CEMEX’s carbon footprint in Europe and other countries in which CEMEX operates.
There are nine laboratories supporting CEMEX’s R&D efforts under a collaborationcollaborative network. The laboratories are strategically located in close proximity to our plants and assist the operating subsidiaries with troubleshooting, optimization techniques and quality assurance methods. The laboratory located in Switzerland is continually improving and consolidating our research and development efforts in the areas of cement, concrete, aggregates, admixtures, mortar and asphalt technology, sustainability as well as inand energy management. In addition, CEMEX Research Center actively generates as well asand registers patents and pending applications in many of the countries in which CEMEX operates. Patents and trade secrets are managed strategically in order for us to ensure anachieve important technologylock-ins associated with CEMEX technology.
Our Information Technology divisions develop information management systems and software relating to cement andready-mix concrete operational practices, automation and maintenance. These systems have helped us to better serve our clients with respect to purchasing, delivery and payment. More importantly, thanks to the activities of the Business Process and IT departments, CEMEX
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is continuously improving and innovating its business processes to adapt them to the dynamically evolving markets andto better serve CEMEX’s needs. The launch of CEMEX Go and its deployment throughout our operations is a testament to our commitment to evolve our digital commercial model to better serve the market and our customers.
R&D activities comprise part of the daily routine of the aforementioned departments and divisions mentioned above; therefore,divisions. Therefore, the costs associated with such activities are expensed as incurred. However,In 2017, 2018 and 2019, total combined expenses of these departments recognized within administrative expenses were $38 million, $39 million and $38 million, respectively. We capitalize the costs incurred in the development of software for internal use which are capitalized and amortized in operating results over the estimated useful life of the software, which is approximately five years.
In 2015, 2016 Capitalized direct costs incurred in the development stage of internal-use software, such as professional fees, direct labor and 2017, the total combined expense of the technology and energy departments in CEMEX, which includes all significant R&D activities,related travel expenses amounted to Ps660$76 million (U.S.$41 million), Ps712in 2017, $133 million (U.S.$38 million)in 2018 and Ps754$102 million (U.S.$38 million), respectively.in 2019. See notes 5 and 15.1 to our 2019 audited consolidated financial statements included elsewhere in this annual report.
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 20172019 that are reasonably likely to have a material and adverse effect on our net sales,revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial conditions.
Summary of Material Contractual Obligations and Commercial Commitments
The 2017 CreditFacilities Agreement
On July 19, 2017, CEMEX, S.A.B. de C.V.we and certain of itsour subsidiaries entered into the 2017 CreditFacilities Agreement for an amount in different currencies equivalent to U.S.$4.1$4.1 billion (in aggregate), the proceeds of which were used to refinance indebtedness incurred under a then-existing credit agreement and other debt repayment obligations. As of December 31, 2017,In March 2019 and October 2019, we obtained the outstanding indebtedness incurredrequisite consents from lenders under the 2017 CreditFacilities Agreement was U.S.$2.5 billion.to make the 2019 Facilities Agreement Amendments. The 2019 Facilities Agreement Amendments became effective when certain customary conditions precedent were fulfilled, and the parties entered into an amendment and restatement agreement to the 2017 Facilities Agreement, on April 2, 2019 and November 4, 2019, respectively. See “—Liquidity and Capital Resources—Our Indebtedness” and “—Liquidity and Capital Resources—Relevant Transactions Related to Our Indebtedness in 2019” for a discussion of the 2019 Facilities Agreement Amendments. See “—Recent Developments—Other Recent Developments—Effectiveness of Mergers between CEMEX, S.A.B. de C.V. and certain direct and indirect subsidiaries in Mexico (the “Mexican Reorganization”)” for a description of circumstances whereby CEMEX México and Empresas Tolteca have ceased to guarantee our indebtedness to the extent they provided guarantees, and the shares of CEMEX México that were pledged or transferred to trustees under security trusts to benefit certain secured creditors of CEMEX and certain of its subsidiaries are no longer part of the collateral securing our indebtedness.
As of December 31, 2017,2019, we reported an aggregate principal amount of outstanding debt of Ps50,841 million (U.S.$2,587 million)$2,897 under the 2017 CreditFacilities Agreement. The 2017 CreditFacilities Agreement is secured
by a first-priority security interest over the Collateral and all proceeds of such Collateral. As of July 19, 2017, commitments initially available under the 2017 CreditFacilities Agreement included (i) €741 million, (ii) £344 million and (iii) U.S.$2,746$2,746 million, out of which U.S.$1,135$1,135 million were in the revolving credit facility tranche of the 2017 CreditFacilities Agreement. As of December 31, 2017,2019, the 2017 CreditFacilities Agreement had an amortization profile, considering all commitments of U.S.$4.1 billion under the 2017 Credit Agreement, of U.S.$583$628 million in 2020, U.S.2021,$1,1662,294 million in 2021 and U.S.$2,3012022, $531 million in 2022.2023 and 2024, respectively.
Our failure to comply with restrictions and covenants under the 2017 CreditFacilities Agreement could have a material adverse effect on our business and financial conditions.
For a discussion of restrictions and covenants under the 2017 CreditFacilities Agreement, see “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—The 2017 CreditFacilities Agreement contains several restrictions and covenants. Our failure to comply with such restrictions and covenants could have a material adverse effect on our business and financial conditions.”
Senior Secured Notes
We refer to the April 2024 Dollar Notes, June 2024 Euro Notes, January 2025 Dollar Notes, May 2025 Dollar Notes, December 2024 Euro Notes, March 2026 Euro Notes, April 2026 Dollar Notes and November 2029 Dollar Notes (each as defined below) collectively as the “Senior Secured Notes.” See “—Recent Developments—Other Recent Developments—Effectiveness of Mergers between CEMEX, S.A.B. de C.V. and certain direct and indirect subsidiaries in Mexico (the “Mexican Reorganization”)” for a description of circumstances whereby CEMEX México and Empresas Tolteca have ceased to guarantee our indebtedness to the extent they provided guarantees, and the shares of CEMEX México that were pledged or transferred to trustees under security trusts to benefit certain secured creditors of CEMEX and certain of its subsidiaries are no longer part of the collateral securing our indebtedness.
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The indentures governing our outstanding Senior Secured Notes impose significant operating and financial restrictions on us. These restrictions will limit our ability, among other things, to: (i) create liens; (ii) incur in additional debt; (iii) change CEMEX’s business or the business of any obligor or material subsidiary (in each case, as defined in the Credit2017 Facilities Agreement); (iv) enter into mergers; (v) enter into agreements that restrict our subsidiaries’ ability to pay dividends or repay intercompany debt; (vi) acquire assets; (vii) enter into or invest in joint venture agreements; (viii) dispose of certain assets; (ix) grant additional guarantees or indemnities; (x) declare or pay cash dividends or make share redemptions; (xi) enter into certain derivatives transactionstransactions; and (xii) exercise any call option in relation to any perpetual bonds issues unless the exercise of the call options does not have a materially negative impact on our cash flow.
January 2021 and October 2018 U.S.April 2024 Dollar Notes. On October 2, 2013,April 1, 2014, CEMEX S.A.B. de C.V.Finance issued the January 2021 U.S.$1.0 billion aggregate principal amount of its 6.000% Dollar-Denominated Senior Secured Notes due 2024 (the “April 2024 Dollar Notes and the October 2018 U.S. Dollar Notes,Notes”), in transactions exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act. CEMEX, México,S.A.B. de C.V., CEMEX España, New Sunward, CEMEX Asia, B.V. (“CEMEX Asia”), CEMEX Concretos, CEMEX Corp., CEMEX Finance, CEMEX EgyptianCemex Africa & Middle East Investments, CEMEX France, CEMEX Research Group AG (“CEMEX Research Group”),and CEMEX UK and Empresas Tolteca have fully and unconditionally guaranteed the performance of all obligations of CEMEX S.A.B. de C.V.Finance under the January 2021 and October 2018 U.S.April 2024 Dollar Notes. The payment of principal, interest and premium, if any, on such notes is secured by a first-priority security interest over the Collateral and all proceeds of the Collateral. On May 12, 2016,December 19, 2019, CEMEX, S.A.B. de C.V. completedredeemed $350 million of the purchaseApril 2024 Dollar Notes using mainly the proceeds from the issuance of U.S.$178.5 millionthe November 2029 Dollar Notes.
January 2025 Dollar Notes. On September 11, 2014, CEMEX, S.A.B. de C.V. issued $1.1 billion aggregate principal amount of the October 2018 U.S.its 5.700% Senior Secured Notes due 2025 (the “January 2025 Dollar Notes through the May 2016 Tender Offer. All such October 2018 U.S. Dollar Notes purchased in the May 2016 Tender Offer were immediately canceled. Following the settlement of the May 2016 Tender Offer, U.S.$319.5 million aggregate principal amount of the October 2018 U.S. Dollar Notes remained outstanding. In addition, we repurchased U.S.$6.1 million principal amount of the October 2018 U.S. Dollar Notes in open market purchases in 2016, all of which have been canceled. CEMEX, S.A.B. de C.V. completed the purchase of U.S.$241.9 million and U.S.$385.1 million aggregate principal amount of the January 2021 U.S. Dollar Notes through the October 2016 Tender Offer and the March 2017 Tender Offer. All such January 2021 U.S. Dollar Notes purchased in the tender offers were immediately canceled. Following the settlement of both tender offers, U.S.$341.7 million aggregate principal amount of the January 2021 U.S. Dollar Notes remained outstanding. In addition, we repurchased U.S.$31.4 million principal amount of the January 2021 U.S. Dollar Notes in open market purchases in 2016, all of which have been canceled. In addition, we repurchased U.S.$8.5 million principal amount of the January 2021 U.S. Dollar Notes in an open market purchase in 2017, all of which have been cancelled. On March 15, 2018, we redeemed all of the outstanding January 2021 U.S. Dollar Notes.
April 2024 U.S. Dollar Notes. On April 1, 2014, CEMEX Finance issued the April 2024 U.S. Dollar NotesNotes”) in transactions exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act.
CEMEX S.A.B. de C.V., CEMEX México,Concretos, New Sunward, CEMEX España, New Sunward, CEMEX Asia, CEMEX Concretos, CEMEX Corp., CEMEX EgyptianFinance, Cemex Africa & Middle East Investments, CEMEX France, CEMEX Research Group and CEMEX UK and Empresas Tolteca have fully and unconditionally guaranteed the performance of all obligations of CEMEX, FinanceS.A.B. de C.V. under the April 2024 U.S.January 2025 Dollar Notes. The payment of principal, interest and premium, if any, on such notes is secured by a first-priority security interest over the Collateral and all proceeds of the Collateral.
JanuaryMay 2025 U.S. Dollar Notes and January 2022March 2023 Euro Notes. On September 11, 2014,In March 2015, CEMEX, S.A.B. de C.V. issued the January$750 million aggregate principal amount of its 6.125% Senior Secured Notes due 2025 U.S.(the “May 2025 Dollar Notes”) and €550 million aggregate principal amount of its 4.375% Senior Secured Notes and the January 2022due 2023 (the “March 2023 Euro Notes,Notes”) in transactions exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act. CEMEX México, CEMEX Concretos, Empresas Tolteca, New Sunward, CEMEX España, CEMEX Asia, CEMEX Corp., CEMEX Finance, Cemex Egyptian Investments, CEMEX France, CEMEX Research Group and CEMEX UK have fully and unconditionally guaranteed the performance of all obligations of CEMEX, S.A.B. de C.V. under the January 2025 U.S. Dollar Notes and January 2022 Euro Notes. The payment of principal, interest and premium, if any, on such notes is secured by a first-priority security interest over the Collateral and all proceeds of the Collateral. On January 10, 2018, we redeemed all of the outstanding January 2022 Euro Notes.
May 2025 U.S. Dollar and March 2023 Euro Notes. In March 2015, CEMEX, S.A.B. de C.V. issued the May 2025 U.S. Dollar Notes and the March 2023 Euro Notes in transactions exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act. CEMEX México, CEMEX Concretos, Empresas Tolteca, New Sunward, CEMEX España, CEMEX Asia, CEMEX Corp., CEMEX Finance, Cemex EgyptianAfrica & Middle East Investments, CEMEX France, CEMEX Research Group and CEMEX UK, have fully and unconditionally guaranteed the performance of all obligations of CEMEX, S.A.B. de C.V. under the May 2025 U.S. Dollar Notes and March 2023 Euro Notes. The payment of principal, interest and premium, if any, on such notes is secured by a first-priority security interest over the Collateral and all proceeds of the Collateral. On April 15, 2019, CEMEX, S.A.B. de C.V. redeemed €400 million aggregate principal amount of its March 2023 Euro Notes using mainly the proceeds from the issuance of the March 2026 Euro Notes. On April 30, 2019, CEMEX, S.A.B. de C.V. fully redeemed the remaining €150 million aggregate principal amount of the March 2023 Euro Notes.
April 2026 U.S. Dollar Notes. On March 16, 2016, CEMEX, S.A.B. de C.V. issued the April$1.0 billion aggregate principal amount of its 7.75% Senior Secured Notes due 2026 U.S.(the “April 2026 Dollar Notes,Notes”) in transactions exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act. CEMEX México, CEMEX España, New Sunward, CEMEX Asia, CEMEX Concretos, CEMEX Corp., CEMEX Finance, CEMEX EgyptianCemex Africa & Middle East Investments, CEMEX France, CEMEX Research Group and CEMEX UK and Empresas Tolteca have fully and unconditionally guaranteed the performance of all obligations of CEMEX, S.A.B. de C.V. under the April 2026 U.S. Dollar Notes. The payment of principal, interest and premium, if any, on such notes is secured by a first-priority security interest over the Collateral and all proceeds of the Collateral.
June 2024 Euro Notes. On June 14, 2016, CEMEX Finance issued the June€400 million aggregate principal amount of its 4.625% Senior Secured Notes due 2024 denominated in Euros (the “June 2024 Euro NotesNotes”) in transactions exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act. CEMEX, S.A.B. de C.V., CEMEX México, CEMEX Concretos, Empresas Tolteca, New Sunward, CEMEX España, CEMEX Asia, CEMEX Corp., Cemex EgyptianAfrica & Middle East Investments, CEMEX France, CemexCEMEX Research Group and CEMEX UK have fully and unconditionally guaranteed the performance of all obligations of CEMEX Finance under the June 2024 Euro Notes. The payment of principal, interest and premium, if any, on such notes is secured by a first-priority security interest over the Collateral and all proceeds of the Collateral.
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December 2024 Euro Notes.Notes. On December 5, 2017, CEMEX, S.A.B. de C.VC.V. issued the November€650 million aggregate principal amount of its 2.750% Euro-Denominated Senior Secured Notes due 2024 (the “December 2024 Euro Notes,Notes”) in transactions exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act. CEMEX México, CEMEX España, New Sunward, CEMEX Asia, CEMEX Concretos, CEMEX Corp., CEMEX Finance, CEMEX EgyptianCemex Africa & Middle East Investments, CEMEX France, CEMEX Research Group and CEMEX UK and Empresas Tolteca have fully and unconditionally guaranteed the performance of all obligations of CEMEX, S.A.B. de C.V. under the December 2024 Euro Notes. The payment of principal, interest and premium, if any, on such notes is secured by a first-priority security interest over the Collateral and all proceeds of the Collateral.
March 2026 Euro Notes. On March 19, 2019, CEMEX, S.A.B. de C.V. issued €400 million aggregate principal amount of its 3.125% Euro-Denominated Senior Secured Notes due 2026 (the “March 2026 Euro Notes”) in transactions exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act. CEMEX España, New Sunward, CEMEX Asia, CEMEX Concretos, CEMEX Corp., CEMEX Finance, Cemex Africa & Middle East Investments, CEMEX France, CEMEX Research Group and CEMEX UK have fully and unconditionally guaranteed the performance of all obligations of CEMEX, S.A.B. de C.V. under the March 2026 Euro Notes. The payment of principal, interest and premium, if any, on such notes is secured by a first-priority security interest over the Collateral and all proceeds of the Collateral.
November 2029 Dollar Notes. On November 19, 2019, CEMEX, S.A.B. de C.V. issued $1.0 billion aggregate principal amount of its 5.450% Senior Secured Notes due 2029 (the “November 2029 Dollar Notes”) in transactions exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act. CEMEX España, New Sunward, CEMEX Asia, CEMEX Concretos, CEMEX Corp., CEMEX Finance, Cemex Africa & Middle East Investments, CEMEX France, CEMEX Research Group and CEMEX UK have fully and unconditionally guaranteed the performance of all obligations of CEMEX, S.A.B. de C.V. under the November 2029 Dollar Notes. The payment of principal, interest and premium, if any, on such notes is secured by a first-priority security interest over the Collateral and all proceeds of the Collateral.
Convertible Notes
March 2020 Optional Convertible Subordinated U.S. Dollar Notes. During 2015, CEMEX, S.A.B. de C.V. issued U.S.$521in March 2015 and May 2015, respectively, a total of $521 million aggregate principal amount of its 3.72% optional convertible subordinated notes due March 2020 Optional Convertible Subordinated U.S. Dollar Notes. 15, 2020.
The March 2020 Optional Convertible Subordinated U.S. Dollar Notes were issued: (a) U.S.$200 million as a result of the exercise on March 13, 2015 of U.S.$200 million notional amount of CCUs, and (b) U.S.$321 million as a result of private exchanges with certain institutional investors on May 28, 2015, which together with early conversions, resulted in a total of U.S.$626 million aggregate principal amount of the March 2016 Optional Convertible Subordinated U.S. Dollar Notes held by such investors being paid and the issuance and delivery by CEMEX of an estimated 42 million ADSs, which included a number of additional ADSs issued, to the holders asnon-cash inducement premiums. The March 2020 Optional Convertible Subordinated U.S. Dollar Notes, which are subordinated to all of CEMEX’sour liabilities and commitments, are convertible into a fixed number of CEMEX, S.A.B. de C.V.’s ADSs at any time at the holder’s election and are subject to antidilution adjustments. The difference at the exchange date between the fair value of the March 2016 Optional Convertible Subordinated U.S. Dollar Notes and the 42 million ADSs against the fair value of the March 2020 Optional Convertible Subordinated U.S. Dollar Notes, represented a loss of Ps365 million recognized in 2015 as part of “Financial income (expense) and other items, net”. The aggregate fair value of the conversion option as of the issuance datesdate which amounted to Ps199$12 million was recognized in other“Other equity reserves.” As of December 31, 20162018 and 2017,2019, the conversion price per ADS underfor the March 2020 Optional Convertible Subordinated U.S. Dollar Notes was U.S.$11.45$11.01 and U.S.$11.01,$10.73 per ADS, respectively. After antidilution adjustments, the conversion rate for the March 2020 Optional Convertible Subordinated Dollar Notes as of December 31, 20162018 and 20172019 was 87.364690.8592 and 93.2334 ADS and 90.8592 ADS, respectively; per each U.S.$1one thousand Dollars principal amount of such notes. See note 16.2 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
November 2019 Mandatory Convertible Mexican Peso Notes. In December 2009, CEMEX, S.A.B. de C.V. completed an exchange offer of debt into mandatorily convertible securities in Mexican Pesos for approximately U.S.$315$315 million principal amount of the November 2019 Mandatory Convertible Mexican Peso Notes. Reflecting antidilution adjustments,On November 28, 2019 (the scheduled conversion date), the notes will besecurities were converted at maturity or earlier if the price of the CPO reaches Ps26.22 into approximately 236 million CEMEX, S.A.B. de C.V. CPOs at a conversion price of Ps17.48in Mexican Pesos equivalent to $0.8937 Dollars per CPO. The conversion rate under the November 2019 Mandatory Convertible Mexican Peso Notes is 509.1077 CPOs per each convertible obligation. During their tenure, holders have an option to voluntarily convert their securities on any interest payment date into CPOs. Considering the currency in which the notes are denominated and the functional currency of CEMEX, S.A.B. de C.V.’s financing division, the conversion option embedded in these securities is treated as a stand-alone derivative liability at fair value in the income statements, recognizing an initial effect of Ps365 million. See note 16.2 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
March 2018 Optional Convertible Subordinated U.S. Dollar Notes. On March 15, 2011, CEMEX, S.A.B. de C.V. closed the offering of U.S.$690 million aggregate principal amount of the March 2018 Optional Convertible Subordinated U.S. Dollar Notes. The notes are subordinated to all of CEMEX’s liabilities and commitments. The notes are convertible into a fixed number of CEMEX, S.A.B. de C.V.’s ADSs, at the holder’s election, and are subject to antidilution adjustments. On June 19, 2017, the CEMEX, S.A.B. de C.V. agreed to, with certain institutional holders, the early conversion of approximately U.S.$325 in aggregate principal amount of the 2018 Convertible Notes in exchange for approximately 43 million ADSs, which included the number of additional ADSs issued to the holders asnon-cash inducement premiums. As a result of the early conversion agreements, the liability components of the converted notes of Ps5,468 million was reclassified from other financial obligations to other equity reserves. In addition, considering the issuance of shares, CEMEX, S.A.B. de C.V. increased common stock for Ps4 million and additionalpaid-in capital for Ps7,059 million against other equity reserves, and recognized expense for the inducement premiums paid in shares of Ps769 million, recognized within “Financial income and other items, net” in the 2017 income statement. As of December 31, 2016 and 2017, the conversion price per ADS under the March 2018 Optional Convertible Subordinated U.S. Dollar Notes was approximately U.S.$8.92 and U.S.$8.57, respectively. After antidilution adjustments, the conversion rate as of December 31, 2016 and 2017 was 112.1339 ADS and 116.6193 ADS, respectively; per each U.S.$1 thousand
principal amount of the March 2018 Optional Convertible Subordinated U.S. Dollar Notes. During August 2016, CEMEX, S.A.B. de C.V. amended 58.3% of the total notional amount of such capped calls, with the purpose of reducing the volatility of their fair value by lowering the strike prices in exchange for reducing the number of underlying options. These amendments involved no cash settlements. As a result of such amendments, CEMEX, S.A.B. de C.V. retained a total amount of capped call transactions greater than approximately 71 million CEMEX ADSs after antidilution adjustments maturing in March 2018. During 2017, CEMEX, S.A.B. de C.V. amended capped calls transactions maturing in March 2018, with the purpose of unwinding the position, pursuant to which CEMEX, S.A.B. de C.V. received an aggregate amount of approximately U.S.$103 million in cash. As of December 31, 2017, CEMEX, S.A.B. de C.V. closed all of its options on its own shares. See notes 16.2 and 16.4 to our 2017 audited consolidated financial statements included elsewhere in this annual report. On March 15, 2018, CEMEX, S.A.B. de C.V. redeemed the remaining U.S.$365 million aggregate principal amount of the March 2018 Optional Convertible Subordinated U.S. Dollar Notes.
Commercial Commitments
On July 30,27, 2012, we entered into a Master Professional Services Agreement with IBM. This agreement provides the framework for the ordinary course of business-related services IBM provides to us on a global scale, including: information technology, application development and maintenance, finance and accounting outsourcing, human resources administration and contact centercontact-center services. The term of the agreement began on July 30,27, 2012 and will end on August 31, 2022, unless earlier terminated.terminated earlier. Our minimum required payments to IBM under the agreement are approximately U.S.$50is $50 million per year. We will have the right to adjust the cost and qualitynegotiate a reduction of the servicesservice fees every two years if, we determineas a result of a third party’s benchmarking assessment, it is determined that they do not meet certain benchmarks.IBM’s fees are greater than those charged by other providers for services of similar nature. We may terminate the agreement (or a portion of it) at our discretion and without cause at any time by providing at leastsix-months’ notice to IBM and paying termination charges consisting of IBM’s unrecovered investment and breakage and wind-down costs. In addition, we may terminate the agreement (or a portion of it) for cause without paying termination charges. Other termination rights may be available to us for a termination charge that will vary withvaries depending on the reason for termination. IBM may terminate the agreement if we (i) fail to make payments when due or (ii) become bankrupt and do not pay in advance for the services.
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On April 28, 2017, we completed the sale of the assets and activities related to the ready-mix concrete pumping business in Mexico to Pumping Team specializing in the supply of ready-mix concrete pumping services, for an aggregate price of $88 million, which included the sale of fixed assets for $16 million, plus administrative and client and market development services, as well as the lease of facilities in Mexico that we will supply to Pumping Team over a period of ten years with the possibility to extend such term for three additional years, for an aggregate initial amount of $71 million, which are recognized each period as services are rendered. The agreement includes the possibility of a contingent revenue subject to results, productivity and term extension fees for up to $30 million, linked to annual metrics within the first five years of the agreement. In the first two years of operation under the agreements from May 2018 to April 2019 and May 2017 to April 2018, we received an aggregate amount of $2 million related to this contingent revenue.
As of December 31, 2017,2019, we did not depend on any single one of our suppliers of goods or services to conduct our business.
Contractual Obligations
As of December 31, 2016 and 2017,2019, we had material contractual obligations as set forth in the table below.
As of December 31, 2016 | As of December 31, 2017 | As of December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||
Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 Years | Total | |||||||||||||||||||||||||||||||||
(in millions of U.S. Dollars) | ||||||||||||||||||||||||||||||||||||||||||||
Long-term debt | U.S.$ 11,379 | 798 | 519 | 2,411 | 6,164 | 9,892 | 55 | 1,915 | 3,041 | 4,420 | 9,431 | |||||||||||||||||||||||||||||||||
Capital lease obligations(1) | 107 | 36 | 87 | 52 | — | 175 | ||||||||||||||||||||||||||||||||||||||
Convertible notes(2) | 1,205 | 379 | 527 | — | — | 906 | ||||||||||||||||||||||||||||||||||||||
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Total debt and other financial obligations(3) | 12,691 | 1,213 | 1,133 | 2,463 | 6,164 | 10,973 | ||||||||||||||||||||||||||||||||||||||
Operating leases(4) | 515 | 109 | 181 | 136 | 68 | 494 | ||||||||||||||||||||||||||||||||||||||
Interest payments on debt(5) | 3,996 | 448 | 968 | 809 | 848 | 3,073 | ||||||||||||||||||||||||||||||||||||||
Pension plans and other benefits(6) | 1,414 | 156 | 307 | 316 | 808 | 1,587 | ||||||||||||||||||||||||||||||||||||||
Purchases of raw material, fuel and energy(7) | 4,440 | 649 | 810 | 866 | 2,001 | 4,326 | ||||||||||||||||||||||||||||||||||||||
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Leases(1) | 333 | 546 | 295 | 552 | 1,726 | |||||||||||||||||||||||||||||||||||||||
Convertible notes(2) | 520 | – | – | – | 520 | |||||||||||||||||||||||||||||||||||||||
Total debt and other financial obligations(3) | 908 | 2,461 | 3,336 | 4,972 | 11,677 | |||||||||||||||||||||||||||||||||||||||
Interest payments on debt(4) | 469 | 870 | 720 | 471 | 2,530 | |||||||||||||||||||||||||||||||||||||||
Pension plans and other benefits(5) | 156 | 282 | 287 | 709 | 1,434 | |||||||||||||||||||||||||||||||||||||||
Acquisition of property, plant and equipment(6) | 155 | 30 | 1 | 3 | 189 | |||||||||||||||||||||||||||||||||||||||
Purchases of raw material, fuel and energy(7) | 482 | 595 | 613 | 1,134 | 2,824 | |||||||||||||||||||||||||||||||||||||||
Total contractual obligations | U.S.$ 23,056 | 2,575 | 3,399 | 4,590 | 9,889 | 20,453 | 2,170 | 4,238 | 4,957 | 7,289 | 18,654 | |||||||||||||||||||||||||||||||||
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Total contractual obligations | Ps 477,720 | 50,599 | 66,790 | 90,193 | 194,319 | 401,901 | ||||||||||||||||||||||||||||||||||||||
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(1) |
(2) | Refers to the liability components |
(3) | The schedule of debt payments, which includes current maturities, does not consider the effect of any refinancing of debt that may occur during the following years. In the past, we have replaced our long-term obligations for others of a similar nature. |
Estimated cash flows on floating rate denominated debt were determined using the floating interest rates in effect as of December 31, |
(5) | Represents estimated annual payments under these benefits for the next |
(6) | Refers mainly to the expansion of a cement-production line in the Philippines. |
(7) | Future |
As of December 31, 2015, 20162017, 2018 and 2017,2019, in connection with the commitments for the purchase of fuel and energy included in the table above, a description of the most significant contracts is as follows:
On October 24, 2018, we entered into two energy financial hedge agreements in Mexico, for a period of 20 years with Tuli Energía and Helios Generación. We expect that the effective commencement date of such agreements will be during the first half of 2020. Pursuant to these agreements, we fixed the megawatt-hour cost over an electric energy volume of 400 thousand MW per year (200 thousand MW per agreement), through the payment of $25.375 per MW of electric power in exchange for a market price. The committed price to pay will increase 1.5% annually. The differential between the agreed price and the market price is settled monthly. We consider these agreements to be a hedge for a portion of our aggregate consumption of electric energy in Mexico and recognize the result of the exchange of price differentials described previously in the income statement as a part of the costs of energy. During 2019, we received $1.1 million as a result of these hedges. We do not record these agreements at fair value due to the fact that there is not a deep market for electric power in Mexico that would effectively allow for its valuation.
In connection with the beginning of full commercial operations of the Ventikas, S.A.P.I. de C.V. and the Ventika II S.A.P.I. de C.V. wind farms (jointly “Ventikas”) located in the Mexican state of Nuevo Leon with a combined generation capacity of 252 MW, we agreed to acquire a portion of the energy generated by Ventikas for our overall electricity needs in Mexico for a period of 20 years, which began in April 2016. As of December 31, 2017,2019, the estimated annual cost of this agreement was U.S.$27$18 million, assuming energy generation at full capacity (energy supply from wind sources is variable in nature and final amounts can be determined only based on energy ultimately received at the agreed prices per unit).
In September 2006,
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Beginning in order to take advantageFebruary 2010, for our overall electricity needs in Mexico, we reached an agreement with the EURUS Wind Farm (“EURUS”) for the purchase of a portion of the high wind potential in the “Tehuantepec Isthmus,” we and ACCIONA formed an alliance to developelectric energy generated for a period of no less than 20 years. EURUS is a wind farm project for the generationwith an installed capacity of 250 MW operated by ACCIONA in the Mexican state of Oaxaca. The estimated annual cost of this agreement is $64 million (unaudited) assuming that we receive all our energy allocation. Energy supply from wind sources is variable in nature and final amounts can be determined only based on energy ultimately received at the agreed prices per unit.
We acted as promoter of the project, which was named EURUS. ACCIONA provided the required financing, constructed the facility and currently owns and operates the wind farm. The operation of the 167 wind turbines on the farm commenced on November 15, 2009. The agreements between us and ACCIONA established that our plantsmaintain a commitment initiated in Mexico will acquire a portion ofApril 2004 to purchase the energy generated by the wind farmTEG until 2027 for a period of at least 20 years, which began in February 2010, when EURUS reached the committed limit capacity. For the years ended December 31, 2015, 2016 and 2017, EURUS supplied approximately 28.0%, 22.9% and 20.6%, respectively, of our overall electricity needs in Mexico during such years. Mexico. The estimated annual cost of this agreement is $113 million assuming we receive all our energy allocation. Nonetheless, final amounts will be determined considering the final megawatt hour effectively received at the agreed prices per unit.
In 1999, we entered into agreements with an international partnership, which financed, built and operated TEG, an electrical energy generating plant in Mexico. In 2007, the original operator was replaced. Pursuant to the agreement, we would purchase the energy generated from TEG for a term of not less than 20 years, which started in April 2004 and that was further extended until 2027connection with the change of operator. In addition,above, we also committed to supply TEG and another third-party electrical energy generating plant adjacent to TEG all fuel necessary for their operations a commitment that has been hedged through four20-year agreements entered with PEMEX, which terminate in 2024. Consequently, foruntil the last three years, CEMEX intendsyear 2027, equivalent to purchase the required fuel in the market. For the years
ended December 31, 2015, 2016 and 2017, TEG supplied approximately 69.3%, 66.3% and 68.4%, respectively, of our overall electricity needs during such year for our cement plants in Mexico.
In regards with the above, in March 1998 and July 1999, we signed contracts with PEMEX providing that beginning in April 2004 PEMEX’s refineries in Cadereyta and Madero City would supply us with a combined volume of approximately 1.75 million tons of pet coke per year. As per the pet coke contracts with PEMEX, 1.2 million tons of petroleum coke per year. We cover our commitments under this agreement by acquiring the contractedaforementioned volume will be allocated to TEGof fuel from sources in the international markets and the other energy producer and the remaining volume will be allocated to our operations in Mexico. By entering into the pet coke contracts with PEMEX, we expect to have a consistent source
As of pet coke throughout the20-year term.
In 2007,December 31, 2019, CEMEX Zement GmbH (“CXZ”COZ”), our subsidiary in Germany, entered into a long-termheld an energy supply contract until 2023 with Vattenfall Europe New Energy Ecopower (“VENEE”), pursuant to which VENEE committed to supply energy to our Rüdersdorf plant for a period of 15 years starting on January 1, 2008. Since 2017 the new owner of the power plant and the contract is the STEAG—IndustriekraftwerkSTEAG-Industriekraftwerk Rüdersdorf GmbH (“SIKW”). in connection with the overall electricity needs of CEMEX’s Rüdersdorf plant. Based on the contract, each year CXZCOZ has the option to fix in advance the volume of energy in terms of MW that it will acquire from SIKW, with the option to adjust the purchase amount one time on a monthly and quarterly basis. According to this agreement, CXZ has acquired 27 MW for 2018 and 28 MW for 2019 and CXZ expects to acquire between 26 and 28 MW for the following years starting in 2018 and thereafter. The estimated annual cost of this agreement is approximately U.S.$12$18 million assuming that CEMEX receiveswe receive all itsour energy allocation. The contract, which establishes a price mechanism for the energy acquired, based on the price of energy future contracts quoted on the European Energy Exchange, did not require initial investments and was expected to be performed at a future date. Based on its terms, this contract qualified as a financial instrument under IFRS. However, as the contract is for CEMEX’s own use and CEMEX sells any energy surplus as soon as actual energy requirements are known, regardless of changes in prices and thereby avoiding any intention of trading in energy, such contract is not recognized at its fair value.
Off-Balance Sheet Arrangements
We do not have anyoff-balance sheet arrangements that are reasonably likely to have a material effect on our financial condition, operating results and liquidity or capital resources.
Quantitative and Qualitative Market Disclosure
Our Derivative Financial Instruments
For the year ended December 31, 2016, we had net gains related to the recognition of changes in fair values of derivative financial instruments of Ps317 million (U.S.$17 million). For the year ended December 31, 2017, we had a net gain related to the recognition of changes in fair values of derivative financial instruments of Ps161 million (U.S.$9 million). See note 16.4 to our 2017 audited consolidated financial statements included elsewhere in this annual report.
In the ordinary course of business, we are exposed to commodities risk, including the exposure from inputs such as fuel, coal, pet coke,fly-ash, gypsum and other industrial materials that are commonly used by us in the production process, and expose us to variations in prices of the underlying commodities. To manage this and other risks, such as credit risk, interest rate risk, foreign exchange risk, equity risk, commodities risk and liquidity risk, considering the guidelines set forth by theCEMEX, S.A.B. de C.V.’s board of directors, which represent our risk management framework and are supervised by several committees,of our committees. Our management establishes specific policies that determine strategies focused on obtaining natural hedges or risk diversification to the extent possible, such as avoiding customer concentration on a determined market or aligning the currencies portfolio in which we incur our debt with those in which we generate our cash flows. As of December 31, 20172018 and 2016,2019, these strategies were sometimes complemented withby the use of derivative financial instruments, such as commodity forward contracts on diesel fuel and coal negotiated to fix the price of these underlying commodities.instruments. See note 16.4 and 16.5 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
During the reported periods, in compliance with the guidelines established by our Risk Management Committee, anyrisk management committee, the restrictions set forth by our debt agreements and our hedging strategy, we held derivative financial instruments, with the objectives of:of, as the case may be: (a) changing the risk profile or fixedfixing the price of fuels and electric energy; (b) foreign exchange hedging; (c) hedge of forecasted transactions; and (d) accomplishing other corporate objectives.purposes. See note 16.4 to our 2019 audited consolidated financial statements included elsewhere in this annual report.
As of December 31, 2018 and 2019, the notional amounts and fair values of our derivative instruments were as follows:
At December 31, 2018 | At December 31, 2019 | |||||||||||||||||
(in millions of Dollars) | Notional Amount | Estimated Fair value | Notional Amount | Estimated Fair value | Maturity Date | |||||||||||||
Net investment hedge | 1,249 | 2 | 1,154 | (67 | ) | December 2021 | ||||||||||||
Equity forwards on third-party shares | 111 | 2 | 74 | 1 | March 2021 | |||||||||||||
Interest Rate Swaps | 1,126 | (8 | ) | 1,000 | (35 | ) | June 2023 | |||||||||||
Fuel price hedging | 122 | (14 | ) | 96 | 1 | December 2023 | ||||||||||||
2,608 | (18 | ) | 2,324 | (100 | ) |
The caption “Financial income and other items, net” in the income statement includes gains and losses related to the recognition of changes in fair values of those derivative financial instruments not specifically designated as hedges, which represented net gains of $9 million in 2017, net gains of $39 million in 2018 and net losses of $1 million in 2019. As described below, changes in fair value of our net investment hedge are recognized in other comprehensive income for the period as part of our currency translation results. In addition, changes in fair value of our outstanding interest rate swaps related to debt are recognized as part of our financial expense in the income statement. Changes in fair value of our fuel price hedging derivatives are temporarily recognized through other comprehensive income and are recycled to operating expenses as the related fuel volumes are consumed.
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For the majority of the last ten years, we significantly decreased our use of derivative instruments related to debt, including currency and interest rate derivatives, thereby reducing the risk of cash margin calls.
Our Net Investment Hedge. As of December 31, 2018 and 2019, we hold Dollar / Mexican Peso foreign exchange forward contracts under a program that started in February 2017 at around $1,250 million, which can be notionally adjusted in relation to hedged risks, with monthly revolving settlement dates from one to 24 months. The average life of these contracts is approximately one year. For accounting purposes under IFRS, we have designated this program as a hedge of our net investment in Mexican Pesos, pursuant to which changes in fair market value of these instruments are recognized as part of other comprehensive income in equity. For the years 2017, 2018 and 2019, these contracts generated gains of $6 million, losses of $59 million and losses of $126 million, respectively, which partially offset currency translation results in each year recognized in equity generated from our net assets denominated in Mexican Pesos due to the appreciation of the Mexican Peso in 2018 and 2019 and the depreciation of the Mexican Peso in 2017. See note 16.4 to our 2019 audited consolidated financial statements included elsewhere in this annual report.
Our Equity Forward Contracts on Third-Party Shares. As of December 31, 2018 and 2019, we maintained equity forward contracts with cash settlement in March 2020 and March 2021, respectively, over the price of 20.9 million shares of GCC in 2018, and 13.9 million shares of GCC in 2019, in connection with our sale of GCC shares in September 2017 included elsewhere in this annual report. During 2018 and 2019, we early settled a portion of these contracts for 10.6 million shares and 6.9 million shares, respectively. Changes in the fair value of these instruments and early settlement effects generated losses of $24 million in 2017, gains of $26 million in 2018 and gains of $2 million in 2019 recognized within “Financial income and other items, net” in the income statement. See notes 13.1 and 16.4 to our 2019 audited consolidated financial statements included elsewhere in this annual report.
Our Interest Rate Swaps. As of December 31, 2018 and 2019, CEMEX held interest rate swaps for a notional amount of $1,000 million, the fair value of which represented a liability of $19 million and $35 million, respectively, negotiated in June 2018 to fix interest payments of existing bank loans bearing floating rates. The contracts mature in June 2023. For accounting purposes under IFRS, we designated these contracts as cash flow hedges, pursuant to which, changes in fair value are initially recognized as part of other comprehensive income in equity and are subsequently allocated through financial expense as the interest expense of the related bank loans is accrued. For the years ended in 2018 and 2019, changes in fair value of these contracts generated losses of $19 million and of $26 million, respectively, recognized in other comprehensive income.
As of December 31, 2018, we had an interest rate swap maturing in September 2022 associated with an agreement entered by us for the acquisition of electric energy in Mexico, the fair value of which represented an asset of $11 million. Pursuant to this instrument, during the tenure of the swap and based on its notional amount, we received fixed rate of 5.4% and paid LIBOR. Changes in the fair value of this interest rate swap generated losses of $6 million in both 2017 and 2018, recognized in the income statement for each period. During 2019, we unwound and settled this interest rate swap.
Our Fuel Price Hedging Derivatives. As of December 31, 2018 and 2019, we maintained forward and option contracts negotiated to hedge the price of certain fuels, including diesel, and gas, as solid fuel, in several operations for aggregate notional amounts of $122 million and $96 million, respectively, with an estimated aggregate fair value representing liabilities of $14 million in 2018 and assets of $1 million in 2019. By means of these contracts, for our own consumption only, we fixed the price of these fuels over certain volumes representing a portion of the estimated consumption of such fuels in several operations. These contracts have been designated as cash flow hedges of diesel, gas or coal consumption, and as such, changes in fair value are recognized temporarily through other comprehensive income and are recycled to operating expenses as the related fuel volumes are consumed. For the years 2017, 2018 and 2019, changes in fair value of these contracts recognized in other comprehensive income represented gains of $4 million, losses of $35 million and gains of $15 million, respectively.
With respect to our existing financial derivatives, we may incur net losses and be subject to margin calls that will require cash. If we enter into new derivative financial instruments, we may incur net losses and be subject to margin calls. The cash required to cover the margin calls may be substantial and may reduce the funds available to us for our operations or other capital needs.
As with any derivative financial instrument, we assume the creditworthiness risk of the counterparty, including the risk that the counterparty may not honor its obligations to us. Before entering into any transaction,derivative financial instrument, we evaluate, by reviewing credit ratings and our business relationship according to our policies, the creditworthiness of the financial institutions and corporations that are prospective counterparties to our derivative financial instruments. We select our counterparties to the extent we believe that they have the financial capacity to meet their obligations in relation to these instruments. Under current financial
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conditions and volatility, there can be no assurancewe cannot assure that risk ofnon-compliance with the obligations agreed to with such counterparties is minimal. See notenotes 16.4 and 16.5 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
Since the beginning of 2009, we have been reducing the aggregate notional amount of our derivatives, thereby reducing the risk of cash margin calls. This initiative has included closing substantially all notional amounts of derivative instruments related to our debt (currency and interest rate derivatives) and the settlement of our inactive derivative financial instruments (see note 16.4 to our 2017 audited consolidated financial statements), which we finalized during April 2009. The 2017 Credit Agreement significantly restricts our ability to enter into certain derivative transactions.
We use derivative financial instruments in order to change the risk profile associated with changes in interest rates and foreign exchange rates of debt agreements, as a vehicle to reduce financing costs, as an alternative source of financing, and as hedges of: (i) highly probable forecasted transactions, (ii) our net assets in foreign subsidiaries and (iii) future exercises of options under our executive stock option programs. Before entering into any transaction, we evaluate, by reviewing credit ratings and our business relationship according to our policies, the creditworthiness of the financial institutions and corporations that are prospective counterparties to our derivative financial instruments. We select our counterparties to the extent we believe that they have the financial capacity to meet their obligations in relation to these instruments. Under current financial conditions and volatility, we cannot assure that risk ofnon-compliance with the obligations agreed to with such counterparties is minimal.
The fair value of derivative financial instruments is based on estimated settlement costs or quoted market prices and supported by confirmations of these values received from the counterparties to these financial instruments. The notional amounts of derivative financial instrument agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss.
At December 31, 2016 | At December 31, 2017 | |||||||||||||||||||
(in millions of U.S. Dollars) | Notional Amount | Estimated Fair value | Notional Amount | Estimated Fair value | Maturity Date | |||||||||||||||
Net investment hedge | — | — | 1,160 | 47 | December 2019 | |||||||||||||||
Foreign exchange forwards related to forecasted transactions | 80 | — | 381 | 3 | January 2018 | |||||||||||||||
Equity contracts on third party shares | — | — | 168 | 7 | March 2019 | |||||||||||||||
Interest Rate Swaps | 147 | 23 | 137 | 16 | September 2022 | |||||||||||||||
Fuel price hedging | 77 | 15 | 72 | 20 | October - December 2018 | |||||||||||||||
November 2019 Mandatory Convertible Mexican Peso Notes and options on CEMEX, S.A.B. de C.V.’s shares | 576 | 26 | — | (20 | ) | November 2019 | ||||||||||||||
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Our Interest Rate Swaps.As of December 31, 2016 and 2017, we had an interest rate swap maturing in September 2022 with notional amounts of U.S.$147 million and U.S.$137 million, respectively, negotiated to
exchange floating for fixed rates in connection with agreements we entered into for the acquisition of electric energy in Mexico. As of December 31, 2016 and 2017, the fair value of the swap represented assets of U.S.$23 million (Ps477 million) and U.S.$16 million (Ps314 million), respectively. Pursuant to this instrument, during the tenure of the swap and based on its notional amount, we will receive a fixed rate of 5.4% and will pay at LIBOR. Changes in the fair value of interest rate swaps, generated losses of U.S.$4 million (Ps69 million) in 2015, U.S.$6 million (Ps112 million) in 2016 and U.S.$6 million (Ps114 million) in 2017, which were recognized in the income statement for each year. See note 16.4 to our 2017 audited consolidated financial statements included elsewhere in this annual report.
Our Equity Forwards on Third-Party Shares. As of December 31, 2017, in connection with the definitive sale of our GCC shares in September 2017 to two financial institutions that acquired all corporate rights and control under the aforementioned shares (see note 13.1 to our 2017 audited consolidated financial statements included elsewhere in this annual report), we negotiated equity forward contracts to be settled in cash maturing in March 2019 over the price of approximately 31.4 million GCC shares. During 2017, changes in the fair value of these instruments generated losses of U.S.$24 million (Ps463 million) recognized within “Financial income (expense) and other items, net” in the income statement. GCC is a Mexican construction company listed on the Mexican Stock Exchange. As of December 31, 2017, the fair value of the equity forwards represented an asset of approximately U.S.$7 million (Ps138 million), net of cash collateral.
Our Options on Our Own Shares. On March 15, 2011, in connection with the offering of the March 2018 Optional Convertible Subordinated U.S. Dollar Notes and to effectively increase the conversion price for CEMEX, S.A.B. de C.V.’s ADSs under such notes, CEMEX, S.A.B. de C.V. entered into capped call transactions after antidilution adjustments of over approximately 80 million ADSs maturing in March 2018, by means of which, at maturity of the notes in March 2018, we will receive in cash the difference between the market price of the ADS and U.S.$8.57, with a maximum appreciation per ADS of U.S.$5.27. We paid a total premium of approximately U.S.$222 million. During August 2016, we amended 58.3% of the total notional amount of such capped calls, with the purpose of reducing the volatility of their fair value by lowering the strike prices in exchange for reducing the number of underlying options. These amendments involved no cash settlements. As a result of such amendments, CEMEX, S.A.B. de C.V. retained a total amount of capped call transactions over approximately 71 million CEMEX, S.A.B. de C.V. ADSs after antidilution adjustments maturing in March 2018. As of December 31, 2016, the fair value of such options represented assets of U.S.$66 million (Ps1,368 million). During 2015, 2016 and 2017, changes in the fair value of this contract generated losses of approximately U.S.$228 million (Ps3,928 million), gains of approximately U.S.$44 million (Ps818 million) and gains of approximately U.S.$37 million (Ps725 million), respectively, which were recognized in the income statements for each year. During 2017, we amended capped calls transactions maturing in March 2018 over approximately 71 million CEMEX, S.A.B. de C.V. ADSs, with the purpose of unwinding the position, pursuant to which CEMEX, S.A.B. de C.V. received an aggregate amount of approximately U.S.$103 million in cash. As of December 31, 2017, CEMEX, S.A.B. de C.V. closed all of its options on its own shares.
In addition, in connection with the November 2019 Mandatory Convertible Mexican Peso Notes (see note 16.2 to our 2017 audited consolidated financial statements included elsewhere in this annual report), and considering (i) the change in CEMEX, S.A.B. de C.V.’s functional currency effective January 1, 2013 and (ii) that the currency in which such November 2019 Mandatory Convertible Mexican Peso Notes are denominated and the functional currency of the issuer differ, beginning January 1, 2013, we now separate the conversion option embedded in such instruments and recognize it at fair value, which as of December 31, 2016 and 2017, resulted in a liability of approximately U.S.$40 million (Ps829 million) and U.S.$20 million (Ps393 million), respectively. Changes in fair value of the conversion option generated gains of U.S.$18 million (Ps310 million) in 2015, losses of U.S.$29 million (Ps545 million) in 2016 and gains of U.S.$19 million (Ps359 million) in 2017.
Foreign exchange forward contracts. As of December 31, 2017, we held foreign exchange forward contracts that matured in January 2018 negotiated to maintain the Euro value of a portion of the December 2024 Euro Notes issued for Euros during December 2017, after converting a portion of these proceeds into U.S. dollar to settle other indebtedness in Dollars in December 2017, whereas the final use of these proceeds had been projected to be the settlement of other indebtedness in Euros during 2018. See note 4.2 to our 2017 audited consolidated financial statements included elsewhere in this annual report. For the years 2016 and 2017, changes in the estimated fair value of these instruments, including the effects resulting from positions entered and settled during each year, generated gains of U.S.$10 million (Ps186 million) in 2016 and losses U.S.$17 million (Ps337 million) in 2017, each recognized within “Financial income (expense) and others, net.” We continue to hold foreign exchange forward contracts as part of our hedging strategy.
In addition, during 2017, we negotiated foreign exchange forwards contract to hedge our exposure to currency translation effects arising from certain investments in foreign subsidiaries. These contracts have been documented as a net investment hedge. As of December 31, 2017, the fair value of these foreign exchange forward contracts represented an asset liability of U.S.$47 million (Ps924 million). Changes in fair value are recognized through other comprehensive income. For the year end period ended December 31, 2017, changes in the estimated fair value of these instruments, generated gains of U.S.$6 (Ps110), recognized within stockholders’ equity.
Fuel price hedging. We maintained forward contracts negotiated to hedge the price of diesel fuel in several countries in 2016 and 2017 for aggregate notional amounts as of December 31, 2016 and 2017 of U.S.$44 million (Ps912 million) and U.S.$46 million (Ps904 million), respectively, with an estimated fair value representing an asset of U.S.$7 million (Ps145 million) in 2016 and an estimated fair value representing an asset of U.S.$10 million (Ps197 million) in 2017. By means of these contracts, for own consumption only, we fixed the fuel component of the market price of diesel over certain volumes representing a portion of the estimated diesel consumption in such operations. These contracts have been designated as cash flow hedges of diesel fuel consumption, and as such, changes in fair value are recognized temporarily through other comprehensive income, and are recycled to operating expenses as the related diesel volumes are consumed. For the years 2016 and 2017, changes in fair value of these contracts recognized in other comprehensive income represented gains of U.S.$7 million (Ps145 million) and gains of U.S.$3 million (Ps57 million), respectively.
In addition, as of December 31, 2016 and 2017, we held forward contracts negotiated to hedge the price of coal, as solid fuel, for an aggregate notional amounts as of December 31, 2016 and 2017 of U.S.$33 million (Ps684 million) and U.S.$26 million (Ps511 million), respectively, with an estimated fair value representing an asset of U.S.$8 million (Ps166 million) in 2016 and an estimated fair value representing an asset of U.S.$10 million (Ps197 million) in 2017. By means of these contracts, for own consumption only, we fixed the price of coal over certain volumes representing a portion of the estimated coal consumption in our applicable operations. These contracts have been designated as cash flow hedges of coal consumption and, as such, changes in fair value are recognized temporarily through other comprehensive income, and are recycled to operating expenses as the related coal volumes are consumed. For the year ended December 31, 2016 and 2017, changes in fair value of these contracts recognized in other comprehensive income represented gains of U.S.$8 million (Ps166 million) and gains of U.S.$1 million (Ps19 million), respectively.
Interest Rate Risk, Foreign Currency Risk and Equity Risk
Interest Rate Risk. The table below presents tabular information of our fixed and floating rate long-term foreign currency-denominated debt as of December 31, 2017.2019. Average floating interest rates are calculated based on forward rates in the yield curve as of December 31, 2017.2019. Future cash flows represent contractual principal payments. The fair value of our floating rate long-term debt is determined by discounting future cash flows using borrowing rates available to us as of December 31, 20172019 and is summarized as follows:
Expected maturity dates as of December 31, 2017 | ||||||||||||||||||||||||||||
Long-Term Debt(1) | 2018 | 2019 | 2020 | 2021 | After 2022 | Total | Fair Value | |||||||||||||||||||||
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Variable rate | U.S.$ | — | — | 519 | 1,035 | 1,163 | U.S.$ | 2,717 | U.S.$ | 2,362 | ||||||||||||||||||
Average interest rate | — | — | 2.95 | % | 2.95 | % | 3.08 | % | ||||||||||||||||||||
Fixed rate | U.S.$ | — | — | — | 336 | 5,956 | U.S.$ | 6,292 | U.S.$ | 7,013 | ||||||||||||||||||
Average interest rate | — | — | — | 7.25 | % | 5.58 | % |
Expected maturity dates as of December 31, 2019 | ||||||||||||||||||||||||||||
Long-Term Debt(1) | 2020 | 2021 | 2022 | 2023 | After 2024 | Total | Fair Value | |||||||||||||||||||||
(In millions of Dollars, except percentages) | ||||||||||||||||||||||||||||
Variable rate | $ | 53 | 672 | 1,189 | 612 | 524 | $ | 3,050 | $ | 3,141 | ||||||||||||||||||
Average interest rate | 3.79 | % | 4.10 | % | 4.07 | % | 4.19 | % | 4.11 | % | ||||||||||||||||||
Fixed rate | $ | 2 | 1 | 40 | 53 | 6,212 | $ | 6,308 | $ | 6,625 | ||||||||||||||||||
Average interest rate | 4.93 | % | 5.59 | % | 5.62 | % | 5.62 | % | 5.51 | % |
(1) | The information above includes the current maturities of the long-term debt. Total long-term debt as of December 31, |
As of December 31, 2017,2019, we were subject to the volatility of floating interest rates, which, if such rates were to increase, may adversely affect our financing cost and our net income. As of December 31, 2016, 28%2018, 37% of our foreign currency-denominated long-term debt bearsbore floating rates at a weighted average interest rate of LIBOR plus 306241 basis points. As of December 31, 2017, 31%2019, 22% of our foreign currency-denominated long-term debt bearsbore floating rates at a weighted average interest rate of LIBOR plus 268285 basis points. As of December 31, 20162018 and 2017,2019, if interest rates at that date had been 0.5% higher, with all other variables held constant, CEMEX’sour net income for 20162018 and 20172019 would have been reduced by approximately U.S.$18$19 million (Ps373 million) and U.S.$18$19 million, (Ps353 million), respectively, as a result of higher interest expense on variable-rate debt. However, this analysis does not include the interest rate swaps held by CEMEXus during 20162018 and 2017.2019. See note 16.5 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
Foreign Currency Risk.Risk. Due to our geographic diversification, our revenues are generated in various countries and settled in different currencies. However, some of our production costs, including fuel and energy, and some of our cement prices, are periodically adjusted to take into account fluctuations between the Dollar and the other currencies in the U.S. Dollar/Mexican Peso exchange rate.which we operate. For the year ended December 31, 2017, approximately2019, 21% of our net sales,revenues, before eliminations resulting from consolidation, were generated in Mexico, 24%27% in the United States, 7%U.S., 5% in the United Kingdom, 6% in France, 4%3% in Germany, 2% in Spain, 2% in Poland, 3%5% in the Rest of Europe, 4% in Colombia, 2% in Panama, 1% in Costa Rica,Caribbean TCL, 2% Caribbean TCL,in the Dominican Republic, 4% in the Rest of South, Central America and the CaribbeanSCA&C region, 3% in Philippines, 1%5% in Egypt, 5%Israel, 2% in the Rest of Asia, Middle East and Africa region and 9%8% from our Other operations.
Foreign exchange gains and losses occur by monetary assets or liabilities in a currency different from its functional currency and are recorded in the consolidated income statements, except for exchange fluctuations associated with foreign currency indebtedness directly related to the acquisition of foreign entities and related parties’ long-term balances denominated in foreign currency, for which the resulting gains or losses are reported in other comprehensive income. As of December 31, 20162018 and 2017,2019, excluding from the sensitivity analysis the impact of translating the net assets of foreign operations into our reporting currency and considering a hypothetical 10% strengthening of the U.S. Dollar against the Mexican Peso, with all other variables held constant, our net income for 20162018 and 20172019 would have increaseddecreased by approximately U.S.$136$63 million (Ps2,829 million) and U.S.$119$76 million, (Ps2,829 million), respectively, as a result of higher foreign exchange
losses on our dollar-denominatedDollar-denominated net monetary liabilities held in consolidated entities with other functional currencies. Conversely, a hypothetical 10% weakening of the U.S. Dollar against the Mexican Peso would have had the opposite effect.
As of December 31, 2017, 59%2019, 67% of our total debt plus other financial obligations was U.S. Dollar-denominated, 33%23% was Euro-denominated, 5% was British Pounds-denominated,Pound Sterling-denominated, 2% was Philippine Peso-denominated, 1% was Mexican Peso-denominated and immaterial amounts were denominated in other currencies, which does not include Ps8,784$443 million (U.S.$447 million) of Perpetual Debentures; therefore,Debentures. Therefore, we had a foreign currency exposure arising from the debt plus other financial obligations denominated in U.S. Dollars and the debt and other financial obligations denominated in Euros versus the currencies in which our revenues are settled in most countries in which we operate. We cannot guarantee that we will generate sufficient revenues in U.S. Dollars and Euros from our operations to service these obligations. As of December 31, 20162018 and 2017,2019, CEMEX had not implemented any derivative financing hedging strategy to address this foreign currency risk.
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In addition, considering that CEMEX S.A.B. de C.V.’s functional currency for all assets, liabilities and transactions associated with its financial and holding company activities is the Dollar (note 2.4), there is foreign currency risk associated with the translation of subsidiaries’ net assets denominated in different currencies (Mexican Peso, Euro, Pound Sterling and other currencies) into Dollars. When the Dollar appreciates, the value of CEMEX S.A.B. de C.V.’s net assets denominated in other currencies decreases in terms of Dollars, generating negative foreign currency translation and reducing stockholders’ equity. Conversely, when the dollar depreciates, the value of CEMEX S.A.B. de C.V.’s net assets denominated in other currencies would increase in terms of Dollars generating the opposite effect. As mentioned above in our derivative financial instruments section, we have implemented a long-term program for up to $1,250 million to hedge foreign currency translation in connection with our net assets denominated in Mexican Pesos. See notes 2.4 and 16.5 to our 2019 audited consolidated financial statements included elsewhere in this annual report.
Equity Risk. Equity risk represents the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in the market price of CEMEX, S.A.B. de C.V.’s and/or a third party’s shares. As described above, we have entered into equity forward contracts on GCC shares. Under these equity forward contracts, there is a direct relationship in the change in the fair value of the derivative with the change in price of the underlying share. Upon liquidation, the equity forward contracts provide for cash settlement and the effects are recognized in the income statements as part of “Financial income (expense) and other items, net” in our 2017 audited consolidated financial statements included elsewhere in this annual report.
As of December 31, 2017,2018 and 2019, the potential change in the fair value of CEMEX’sour forward contracts in GCC shares that would result from a hypothetical, instantaneous decrease of 10% in the market price of GCC shares in dollars,Dollars, with all other variables held constant, CEMEX’sour net income for 20172018 and 2019 would have been reduced by U.S.$14$11 million (Ps283 million),and $7 million, respectively, as a result of additional negative changes in fair value associated with these forward contracts. A 10% hypothetical increase in the price of GCC shares in 20172019 would have generated approximately the opposite effect, respectively.effect.
Liquidity Risk. Liquidity risk represents the risk that we will not have sufficient funds available to meet our obligations. In addition even though the changes in fair value of our embedded conversion option in the November 2019 Mandatory Convertible Mexican Peso Notes that are denominated in a currency other than the functional issuer’s currency affect the income statement, they do not imply any risk or variability into cash flows considering that through their exercise,provided by our operating activities, in order to meet our overall liquidity needs for operations, servicing debt and funding capital expenditures and acquisitions, we will settle a fixed amountrely on cost-cutting and operating improvements to optimize capacity utilization and maximize profitability, as well as borrowing under credit facilities, proceeds of debt with a fixed amount of shares. As of December 31, 2017 and 2016, the potential change in the fair value of the embedded conversion options in the 2019 Mandatory Convertible Mexican Peso Notes that would resultequity offerings, and proceeds from a hypothetical, instantaneous increase of 10% in the market price of our CPOs, with all other variables held constant, would have decreased our net income by U.S.$8 million (Ps162 million) in 2016 and decreased by U.S.$9 million (Ps180 million) in 2017 as a result of additional negative changes in fair value associated with this option. A 10% hypothetical decrease in our CPO price would generate approximately the opposite effect.
Liquidity Risk.asset sales. We are exposed to risks from changes in foreign currency exchange rates, prices and currency controls, interest rates, inflation, governmental spending, social instability and other political, economic and/or social developments in the countries in which we operate, any one of which may materially affect our results and reduce cash from operations.
As of December 31, 2019, current liabilities, which included $1,443 million of current maturities of debt and other financial obligations, exceeded current assets by $830 million. For the year ended December 31, 2019, we generated net cash flows provided by operating activities from continuing operations of $1,284 million, after payments of interest and income taxes. Our management believes that we will generate sufficient cash flows from operations in the following twelve months to meet our needs of cash. In addition, as of December 31, 2019, we have available committed lines of credit under the 2017 we hadFacilities Agreement, which include the revolving credit facility for a combined amount of U.S.$1,512 million (Ps29,711 million) available$1,135 million. This, in addition to our committed revolving credit facilityhistorical capacity to be able to refinance and an undrawn tranche underreplace our short-term obligations, should enable us to meet any liquidity risk in the 2017 Credit Agreement.short term. See notes 16.1, 16.2 and 23.423.1 to our 20172019 audited consolidated financial statements included elsewhere in this annual report.
See “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—The recent COVID-19 outbreak could materially adversely affect our financial condition and results of operations” and see “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” and “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement” for more information on our liquidity position and on risks to our business mainly caused by the COVID-19 pandemic.
Investments, Acquisitions and Divestitures
The transactions described below represent our principal investments, acquisitions and divestitures completed during 2015, 20162017, 2018 and 2017.2019.
Investments and Acquisitions
During 2019, CASE increased its interest in CHP from 55% to 66.78% by conducting open market purchases for a total of $31.3 million. On December 16, 2019, CHP announced that it obtained approval from the Philippine Stock Exchange to raise the
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equivalent in Philippine Peso of up to $250 million through the SRO. As of December 31, 2019, CHP expected that the SRO would be made to all eligible shareholders on January 14, 2020. As of December 31, 2019, it was possible that we could further increase our interest in CHP as a result of the stock rights offering to 75.66%. The net proceeds from the offering will be used by CHP primarily to fund the expansion of our Solid Cement Plant and the repayment of intra-group loans. See “—Recent Developments—Other Recent Developments” for the status of the SRO.
On February 14, 2018, we increased our ownership interest in Lehigh White Cement Company, a company that manufactures white cement in the U.S., from 24.5% to 36.75%, by paying a total consideration of $36 million.
In August 27, 2015, we completed2018, our subsidiary in the constructionUnited Kingdom acquired the shares of the first phaseready-mix concrete producer Procon for an amount in Pounds Sterling equivalent to $22 million, based on the Pound Sterling to Dollar exchange rate as of a new cement grinding plant in Nicaragua. CEMEX Latam invested approximately U.S.$30 million for infrastructure procurement andAugust 31, 2018. Based on the installationvaluation of the first cement grinding mill. The second phase, which is expected to be completed by the end of 2017, will include the installation of a second cement grinding mill and an additional investment of approximately U.S.$25 million. Upon completionfair values of the second phase, CEMEX Nicaragua is expectedassets acquired and liabilities assumed, the net assets of Procon amount to reach an estimated total$10 million and goodwill was determined in the amount of $12 million. See note 4.1 to our 2019 audited consolidated financial statements included elsewhere in this annual cement production capacity of approximately 860,000 tons.report.
On January 24, 2017, Sierra, which is a wholly-owned CEMEX España subsidiary, announced that, having received a foreign investment license from the Trinidad and Tobago Ministry of Finance, all terms and conditions had been complied with or waived and the Offer (as defined below) to all shareholders that took place on December 5, 2016 had accordingly been declared unconditional. In addition, such OfferThe offer closed in Jamaica on February 7, 2017. Sierra acquired all TCL shares deposited pursuant to the Offer up to the maximum number of the offered shares. The TCL shares deposited in response to the Offer, together with Sierra’s existing shareholding in TCL, represented 69.83% of the outstanding TCL shares. The total consideration paid by Sierra for the TCL shares was U.S.$86$86 million.
After conclusion of the Offer, CEMEX consolidatesconsidering the obtention of control, we began consolidating TCL and its subsidiaries, including CCCL, for financial reporting purposes beginning February 1, 2017.
Divestitures
During 20162017, 2018 and 2017,2019, we made divestitures of approximately U.S.$1,045$1,514 million, $84 million and U.S.$1,514$621 million, respectively (which included fixed assets of approximately U.S.$121$93 million, $69 million and U.S.$93$109 million, respectively).
On May 26, 2016, we closed the sale of our operations in Bangladesh and Thailand to SIAM Cement for U.S.$70 million. The proceeds from this transaction were used mainly for debt reduction and for general corporate purposes.
On July 18, 2016, CHP closed its initial public offering of 45% of its common shares in the Philippines, and 100% of CHP’s common shares started trading on the Philippine Stock Exchange under the ticker “CHP.”
As of December 31, 2017, CASE,2019, through an indirect subsidiary of CEMEX España, directly owned 55% of CHP’s outstanding common shares. The net proceeds to CHP from its initial public offering were U.S.$507 million after deducting estimated underwriting discounts and commissions, and other estimated offering expenses payable by CHP. CHP used the net proceeds from the initial public offering to repay existing indebtedness owed to BDO Unibank and to an indirect subsidiary of CEMEX, S.A.B. de C.V. CHP’s assets consist primarily of CEMEX’s cement manufacturing assetsaffiliate in the Philippines.
On August 29, 2016,United Kingdom, we announced that we would be participatingwere in the corporate restructuring of GCC, which resulted in CEMEX owning 23% of the outstanding share capital of GCC and, additionally, a minority interest in CAMCEM, an entity which in turn owns a majority interest in GCC. On the same day, we also announced that we reached an agreementnegotiations with GCC on the terms and conditions regarding the sale to GCC of certain assets in the U.S. On November 18, 2016, after all conditions precedent were satisfied, CEMEX announced that it had closedBreedon for the sale of certain assets in the United Kingdom for a total consideration of $235 million, including $31 million of debt. The assets held for sale mainly consist of 49 ready-mix concrete plants, 28 aggregate quarries, four depots, one cement terminal, 14 asphalt plants, four concrete products operations, as well as a portion of our paving solutions business in the United Kingdom. After completion of the potential divestiture, we will retain significant operations in the United Kingdom related to the production and sale of cement, ready-mix concrete, aggregates, asphalt and paving solutions. As of December 31, 2019, the assets and liabilities associated with this segment under negotiation in the United Kingdom are presented in the statement of financial position within the line items of “assets held for sale.” See “—Recent Developments Relating to Our Assets Divestiture Plans” for more information regarding this transaction.
On November 26, 2019, we announced that our U.S. affiliate, Kosmos, a partnership with a subsidiary of Buzzi Unicem S.p.A. in which we hold a 75% interest, signed a definitive agreement for the sale of certain assets to GCCEagle Materials for U.S.$306$665 million. The assets were sold by an affiliatedivestiture successfully closed on March 6, 2020. The share of proceeds to CEMEX to an affiliate of GCC in the U.S., and mainlyfrom this transaction was $499 million, minus transaction costs. The divested assets consisted of CEMEX’sthe Kosmos cement plant in Odessa, Texas, two cementLouisville, Kentucky, as well as related assets which include seven distribution terminals and raw material reserves. As of December 31, 2019, the building materials business in El Paso, Texasassets and Las Cruces, New Mexico. On February 15, 2017, we sold 45,000,000 shares of common stock of GCC, representing 13.53% ofliabilities associated with the equity capital of GCC, at a price of Ps95 per share in a public offering to investors in Mexico
authorized by the CNBV and in a concurrent private placement to eligible investors outside of Mexico. After the offerings, CEMEX, S.A.B. de C.V. owned a 9.47% direct interest in GCC and the minority interest in CAMCEM. Proceeds from the sale were Ps4,094 million (U.S.$210 million). On September 28, 2017, CEMEX, S.A.B. de C.V. announced the final sale of the remaining 9.47% direct interestKosmos cement plant in GCC previouslyLouisville, Kentucky and related assets in the United States are presented in the statement of financial position within the line items of “assets held by CEMEX, S.A.B. de C.V. for U.S.$168sale,” including a proportional allocation of goodwill of $291 million, (Ps3,012 million). Followingand “liabilities directly related to assets held for sale,” respectively. Moreover, for purposes of the income statements for the years ended December 31, 2017, 2018 and 2019, the operations related to this segment are presented net of income tax in the single line item “Discontinued operations.” See “—Recent Developments Relating to Our Assets Divestiture Plans” for more information regarding this transaction.
On June 28, 2019, after obtaining customary authorizations, we closed with several counterparties the sale of shares, we no longer held a direct interest but continued to holdour ready-mix and aggregates business in the central region of France for an indirect shareaggregate price of 20% in GCC through our minority interest in CAMCEM. The proceeds of this transaction were mainly used for debt reduction and for general corporate purposes.€31.8 million ($36.2 million).
On December 2, 2016,May 31, 2019, we agreedconcluded the sale of our aggregates and ready-mix assets in the North and North-West regions of Germany to GP Günter Papenburg AG for €87 million ($97 million). The assets divested in Germany consisted of four aggregates quarries and four ready-mix facilities in North Germany, and nine aggregates quarries and 14 ready-mix facilities in North-West Germany.
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On March 29, 2019, we closed the sale of our assets and operations related to our ready-mix concrete pumping business in Mexico to Pumping Team, a specialist in the supplyBaltics and Nordics to German building materials group Schwenk for a price in Euro equivalent to $387 million. The Baltic assets that were divested consisted of one cement production plant in Broceni with a production capacity of 1.7 million tons, four aggregates quarries, two cement quarries, six ready-mix concrete pumping services basedplants, one marine terminal and one land distribution terminal in Latvia. The assets divested also included our 37.8% indirect interest in one cement production plant in Akmene, Lithuania with a production capacity of 1.8 million tons, as well as the exports business to Estonia. The divested Nordic assets consisted of three import terminals in Finland, four import terminals in Norway and four import terminals in Sweden. CEMEX’s operations of these disposed assets for the period from January 1 to March 29, 2019 and for the years ended December 31, 2017 and 2018 are reported in the income statements net of income tax in the single line item “Discontinued operations,” including in 2019 a gain on sale of $66 million.
On March 29, 2019, we entered into a binding agreement with Çimsa Çimento Sanayi Ve Ticaret A.Ş. to divest our white cement business outside of Mexico and the U.S., for $180 million, including our Buñol cement plant in Spain for Ps1,649 million. This agreement included the sale of fixed assets uponand our white cement customer list. The closing of the transaction for Ps309 million plus administrative and client and market development services. Under this agreement, we will also lease facilities in Mexico to Pumping Team over a period of ten years with the possibility to extend for three additional years, for an aggregate initial amount of Ps1,340 million, plus a contingent revenueis subject to results for upapproval by Spanish authorities. As of the date of this annual report, we expect to Ps557 million linked to annual metrics beginning inclose the transaction during the first year and uphalf of 2020, but we are not able to assess if COVID-19 will delay the fifth yearclosing of the agreement. On April 28, 2017, after receiving the approval by the Mexican authorities, we concluded the sale.this divestment or prevent us from closing.
On January 31, 2017, one of our subsidiaries in the U.S. closed the sale of our Concrete Pipe Business to Quikrete for U.S.$500 million plus an additional U.S.$40 million contingent consideration based on future performance.
On February 10, 2017, one of our subsidiaries in the United States sold its Fairborn, Ohio cement plant and cement terminal in Columbus, Ohio to Eagle Materials for U.S.$400 million. The proceeds obtained from this transaction were used mainly for debt reduction and for general corporate purposes.
On June 30, 2017, one of our subsidiaries in the U.S. closed the divestment of the Pacific Northwest Materials Business, consisting of aggregates, asphalt and ready mix concrete operations in Oregon and Washington, to Cadman Materials for U.S.$150 million. The proceeds obtained from this sale were used mainly for debt reduction and general corporate purposes.
On September 29, 2017, one of our subsidiaries in the U.S. closed the divestment of the Block USA Materials Business, consisting of concrete block, architectural block, concrete pavers, retaining walls and building material operations in Alabama, Georgia, Mississippi and Florida to Oldcastle for approximately U.S.$38$38 million. The proceeds obtained from this sale were used mainly for debt reduction and general corporate purposes.
Recent Developments Relating to Our Indebtedness
On September 27, 2018, one of our subsidiaries concluded the sale of our Brazilian Operations through the sale to Votorantim Cimentos N/NE S.A. of all the shares of CEMEX’s Brazilian subsidiary Cimento Vencemos Do Amazonas Ltda, consisting of a fluvial cement distribution terminal located in Manaus, Amazonas province, as well as the operating license. The sale price was $31 million. We determined a net gain on sale of $12 million. Our Brazilian Operations for the period from January 10,1 to September 27, 2018 we redeemedand the remaining €400 million aggregate principal amountyear ended December 31, 2017 are reported in the income statements, net of income tax, in the January 2022 Euro Notes.single line item “Discontinued Operations.”
On February 14, 2018, we drew down U.S.$377 million aggregate principal amount under the previously undrawn term loan tranche of theJune 30, 2017, Credit Agreement.
On February 14, 2018, we agreed, through one of our subsidiaries in the United States, to increase our ownership interest in Lehigh White Cement Company from 24.5% to 36.75%. On March 29, 2018, weU.S. closed the acquisition and paid a total of U.S.$34 million.
On March 15, 2018, we redeemed the remaining U.S.$365 million aggregate principal amountdivestment of the March 2018 Optional Convertible Subordinated U.S. Dollar Notes.Pacific Northwest Materials Business consisting of aggregate, asphalt and ready-mix concrete operations in Oregon and Washington to Cadman Materials, Inc., a subsidiary of HeidelbergCement Group, for $150 million.
On March 15, 2018, we redeemedFebruary 10, 2017, one of our subsidiaries in the remaining U.S.$341 million aggregate principal amount sold its Fairborn, Ohio, cement plant and cement terminal in Columbus, Ohio, to Eagle Materials for $400 million.
On January 31, 2017, one of our subsidiaries in the January 2021 Dollar Notes.
During March 2018, we renewedU.S. concluded the securitization programs outstandingsale of its Concrete Pipe Business in the United States Franceto Quikrete Holdings, Inc. for $500 million plus a potential contingent consideration based on future performance of $40 million.
Recent Developments Relating to Effects of COVID-19 on Our Business and Operations
The spread of COVID-19 and its effects on, among other things, supply chains, global trade, mobility of persons, business continuity, demand for goods and services and oil prices have significantly increased the United Kingdom. Asrisk of a deep global recession in the remainder of 2020 that could last beyond 2020. The International Monetary Fund recently published itsWorld Economic Outlook report, which stated that, as a result of the COVID-19 pandemic, the global economy is projected to contract sharply by –3% in 2020, much worse than during the 2008–09 financial crisis.
Even though some governments and central banks have announced and implemented monetary and fiscal policies to curb COVID-19’s impact on economies and financial markets, these measures vary by country and may not be enough to deter material adverse economic and financial effects. Fears about the magnitude of the economic downturn have had and may continue to have an adverse effect on financial markets and emerging market currencies, which in turn have adversely affected and may continue to adversely affect our industry and our results of operations and financial condition. We expect that the construction activity across most of the markets in which we operate and in which we offer our products and services will be adversely affected for some time, before returning to pre-pandemic levels.
In addition, emerging market foreign exchange rates have been adversely affected by the global market sell-off, mainly on the back of the COVID-19 pandemic, as well as because of other factors such renewals, each programas the perception of the Mexican government’s policies and lower oil prices. The Dollar’s surge given its perceived safe-haven status has driven several emerging market currencies, such as the Mexican Peso, to record lows against the Dollar in recent weeks, with the Mexican Peso devaluing by more than 20% against the Dollar from December 31, 2019 to the date of this annual report.
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The wide spread of COVID-19 has also adversely affected and may continue to adversely affect our business continuity in some of the markets in which we operate and in which we offer our products and services. Many of our operations have been and may continue to be adversely affected by (i) government decisions that seek to stop the spread of COVID-19 and entail social distancing guidelines and other health and safety measures, which at times suspend non-essential activities or have the effect of lowering activity at our operating facilities, leading to lower production; and (ii) depressed demand for our products and services. As of the date of this annual report, several of our cement and ready-mix concrete operating facilities in different parts of the world have been operating with reduced volumes and, in some cases, have temporarily halted operations due to the effects of COVID-19 on the markets in which we operate and the demand for our products and services, or in compliance with measures enacted by local governments. In particular, as of the date of this annual report:
● | In Mexico, we are operating in accordance with technical guidelines set by the Mexican government. We had initially announced that we would temporarily halt all production and certain related activities in Mexico until April 30, 2020, in accordance with a decree (the “Mexico COVID-19 Decree”) issued by the Health Ministry of Mexico in response to COVID-19. However, on April 7, 2020, relying on technical guidelines to the Mexico COVID-19 Decree issued by the Health Ministry of Mexico in the Official Mexican Gazette, we announced that we would be permitted to resume production and related activities in Mexico to support the development of sectors designated as essential by the Mexican government during the COVID-19 pandemic. However, if we are again required to halt all or part of our operations in Mexico, it would further adversely affect our financial condition, business, liquidity and results of operations. For the year ended December 31, 2019, our operations in Mexico represented 21% of our revenues in Dollar terms before eliminations resulting from consolidation. |
● | In most of ourSCA&Cregion, our operations have been temporarily affected. For instance, on March 28, 2020, the government of Trinidad and Tobago issued regulations addressing COVID-19 (the “Trinidad and Tobago COVID-19 Regulations”) pursuant to which certain of our operations in Trinidad and Tobago were required to temporarily cease operations on March 30, 2020. As a result of the Trinidad and Tobago COVID-19 Regulations, we temporarily halted substantially all of our operations in Trinidad and Tobago, except for certain activities related to the safe operation and preservation of the kiln and certain port operations. Also, pursuant to orders issued by the government of Barbados on March 28, 2020, we temporarily halted operations at our cement manufacturing facility located in Barbados. In addition, following measures implemented by the authorities in Panama, we temporarily halted production and related activities in Panama until at least May 24, 2020. Additionally, pursuant to a nationwide decree issued by the government of Colombia in response to COVID-19, we temporarily halted production and related activities in Colombia on March 25, 2020. However, pursuant to a subsequent nationwide decree issued by the government of Colombia on April 8, 2020, we partially resumed certain operations that were deemed essential to attend to the COVID-19 pandemic in Colombia from April 13 to April 27, 2020, after which date we resumed the majority of our operations in Colombia, and will only resume our full operations once allowed by the government of Colombia. We also adopted certain preventive measures with respect to our operations in Guatemala and the Dominican Republic, resulting in reduced activity and, in turn, production, in these countries. For the year ended December 31, 2019, our operations in ourSCA&C region represented 13% of our revenues in Dollar terms before eliminations resulting from consolidation. |
● | In our Europe, Middle East, Africa and Asia region, the main effects have been felt in Spain and the Philippines, where our operations are running on a limited basis or have been temporarily halted. Other countries have experienced negative effects in the markets in which we offer our products and services, with drops in demand, resulting in some temporary site closures. For instance, on March 19, 2020, we voluntarily initiated the steps to temporarily halt production at the Solid Cement Plant in the Philippines. This voluntary measure is consistent with the Philippine government’s implementation of the “Enhanced Community Quarantine” in Luzon, Philippines, which was declared by the president of the Philippines in an effort to institute more stringent measures to contain the spread of COVID-19 and which is expected to remain in place at least until April 30, 2020. For the year ended December 31, 2019, our operations in Spain and in the Philippines represented 2% and 3%, respectively, of our revenues in Dollar terms before eliminations resulting from consolidation. For the year ended December 31, 2019, our operations in our Europe, Middle East, Africa and Asia region represented 31% of our revenues in Dollar terms before eliminations resulting from consolidation. |
● | In the U.S., except for a few ready-mix concrete plants in the San Francisco area that have been temporarily shut down, all sites that were operational before the COVID-19 pandemic remain active. Although states and local governments continue to modify terms of shelter-in-place orders, while we have seen some decrease in volumes attributable to COVID-19, we believe that our customers have generally adjusted to the increased COVID-19-related operating health and safety requirements that have been implemented at construction projects and do not seem to be ceasing their activity because of these requirements. For the year ended December 31, 2019, our operations in the U.S. represented 27% of our revenues in dollar terms before eliminations resulting from consolidation. |
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We are also taking actions to protect our communities and the places where we operate. For example, at certain locations we are actively cleaning and sanitizing open public areas with our concrete ready-mix trucks and filling our concrete ready-mix trucks with soap and water to release into open areas, such as hospital entrances, health-care facilities, urban places, among others. Furthermore, our admixures plants are producing hand disinfectant according to World Health Organization specifications in quantities sufficent to cover the needs of all employees and neighboring local communities for the entire year.
We are monitoring the development of the COVID-19 pandemic and leveraging the information and recommendations from health organizations such as the World Health Organization, Centers for Disease Control and other organizations, as well as from the authorities of the countries in which we operate. We have set up local rapid response teams (“RRTs”) that remain on alert throughout our global operations and we continue to implement preventive measures. Some of the measures we have taken so far include restrictions on all work-related travel, arrangements for certain of our employees to work remotely and optimization of the number of people working in our operating facilities and other locations at any given time. Among other initiatives, we have enhanced our internal information campaigns for recommended practices for health, hygiene, and social interaction, such as promoting social distancing. For example, we are currently implementing our H&S Protocols across our operations, including, among others, our Personal Hygiene, Screening, Physical Distancing and Quarentine Protocols, which set forth certain practices that need to be performed by our employees, contractors, customers and visitors. Under our Personal Hygiene Protocol, we encourage our workers to wash their hands frequently or, when not close to a bathroom, to use antibacterial gel or alcohol-based hand rub, and, when sneezing and coughing, to cover nose and mouth with a disposable tissue or with flexed elbow or upper sleeve. Additionaly, under our Physical Distancing Protocol, we aim to (i) increase distance between closely-spaced facilities; (ii) ventilate the workplace; and (iii) clean workstations between shifts. We are also carrying out our Screening at Workplace Protocol which (i) screens people at the reception areas and all entry points for pandemic-related disease symptoms; (ii) limits visitors to a minimum; and (iii) assesses the access to, and availability of, medical services for the employees. Also, as part of our Workplace Cleaning Protocol, surfaces that are frequently touched with hands are cleaned often. Furthermore, as part of our Truck Drivers’ Protocol, we are (i) disinfecting the steering wheel, the levers, buttons, and everything that is now schedulednormally touched by a hand, with the aim of keeping the truck cabin clean; and (ii) encouraging our drivers to matureuse personal protective equipment (face mask and gloves) at all times and to observe physical distancing inside and outside of the truck (i.e., no more than one person in the truck at any one time). In addition, we are implementing our Commuting to and from Work Protocol, which aims to provide company transportation service when possible and to reduce number of weekly commutes by adjusting work shifts. Lastly, through our Quarantine Protocol, we seek to separate persons who (i) have a confirmed infectious illness; (ii) have disease-like symptoms; (iii) have been exposed to people with illness, but are not ill; and (iv) are returning from travel to medium- or high-risk locations. In general, we believe that we are applying strict hygiene guidelines in all of our operations, and we have modified our manufacturing, sales, and delivery processes to implement physical distancing intended to considerably reduce the possibility of COVID-19 contagion.
The main objective of our RRTs is the development and execution of activities aimed at mitigating impact from COVID-19. The focus of these activities is to monitor and protect our employees, clients, communities, suppliers, among others, to protect our business continuity and foster communication. In particular, our RRTs are (i) monitoring global health guidelines and peer response in relation to COVID-19; (ii) consolidating and updating COVID-19-related information; (iii) following up on any quarantine cases and providing support; (iv) assisting in protecting our employees by attempting to reduce the risk of COVID-19 contagion with the implementation of various hygiene measures, guidelines and protocols; (v) enhancing the frequency and procedures related to cleaning at our various sites; (vi) implementing various remote working programs; (vii) implementing screening and quarantine enforcement measures; (viii) ensuring availability of medical support and hygiene travel kits; (ix) implementing restrictions on attending large gatherings; (x) creating and releasing guidelines for social distancing, travel, cleaning, personal hygiene, screening and quarantine; (xi) enhancing engagement with our communities, industry associations and local authorities; (xii) implementing actions to protect our business continuity by developing plans designed to strengthen our business and promote financial resiliency; and (xiii) communicating all of our COVID-19-related measures to internal and external audiences.
We believe that we have developed plans to safely and responsibly deal with possible future halts to our operations, while at the same time maintaining our property, plants and equipment in appropriate technical condition, as well as to resume our operations when needed. We are in continuous and close contact with our suppliers to facilitate addressing any critical sourcing needs and we have enhanced our customer-centric practices. We continue to cooperate with our clients and suppliers in order to implement measures that are designed to maintain business continuity and to mitigate any disruptions to our businesses caused by COVID-19.
Moreover, we believe that we have been able to strengthen our liquidity position, primarily with drawdowns of $1.135 billion under our committed revolving credit facility (our drawdowns of $1 billion and $135 million on March 2019.
During20, 2020 and April 1, 2020, respectively, constituted the first quarter of 2018, we conducted drawdowns and repaymentsfull amount available under the committed revolving tranchecredit facility), drawdowns under our other credit lines and loans and with the proceeds of almost $500 million from a recent asset sale. The drawdowns had the effect of increasing our overall debt and cash levels in the short to medium term. In addition, we are continuing to evaluate several other options to increase our financial liquidity and flexibility, which may further increase our debt and cash levels and could include receiving government support from any financial aid or relief programs offered by the governments of the countries in which we operate and that we may qualify for. This includes the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in the U.S. The CARES Act provides opportunities for additional liquidity, loan guarantees and other government programs to support companies affected by the
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COVID-19 pandemic and their employees. As of the date of this annual report, we have not received any financial aid or used any financial relief program related to COVID-19, but we intend to explore all available options, globally. Although we are currently reviewing any benefits under the CARES Act and similar governmental programs outside the U.S. for which we may be eligible, we cannot assure you that we will be able to access such benefits in a timely manner or at all and, in certain cases, we cannot predict the manner in which such benefits will be allocated or administered.
We have identified $200 million in cost-saving initiatives for the 2020 year, which had been expected to be fully realized in 2020, but that as of the date of this annual report we believe could be delayed. Additionally, among other things, we intend to suspend, reduce or delay certain planned (i) capital expenditures; (ii) budgeted operating expenses in line with the evolution of demand per market in which we operate; (iii) production and, where required, inventory levels in all of our markets consistent with depressed demand; and (iv) corporate and global network activities that detract from our current business focus on managing the crisis and our operations. We also intend to maintain a reasonable amount of inventory at our operating facilities and other locations, with the intention of continuing to serve our customers to the extent possible.
As a further measure to enhance our liquidity, we have suspended the CEMEX, S.A.B. de C.V. share repurchase program for the remainder of 2020 and, as previously announced, CEMEX, S.A.B. de C.V. will not be paying dividends during 2020.
Lastly, starting on May 1, 2020 and for a 90-day period and subject to all applicable laws and regulations, CEMEX, S.A.B. de C.V.’s Chairman of the Board of Directors, Chief Executive Officer and the members of our Executive Committee have agreed to forgo 25% of their salaries; the members of the Board of Directors of CEMEX, S.A.B. de C.V. have agreed to forgo 25% of their remuneration (including with respect to the upcoming meetings in April 2020); and we have asked certain senior executives to voluntarily forgo 15% of their monthly salaries and other employees to voluntarily defer 10% of their monthly salary, the deferred amount to be paid in full during December 2020. We also intend to work to mitigate the impact on jobs of our hourly employees affected by the COVID-19 pandemic.
There can be no assurance that the measures we have taken or may take in the future will offset the adverse impact of COVID-19. The degree to which COVID-19 affects our results and operations will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the COVID-19 pandemic, its severity, the actions to contain COVID-19 or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
Given the uncertain outlook, we withdrew our prior 2020 guidance. See “Item 3—Key Information—Risk Factors—Risks Relating to Our Business—The recent COVID-19 outbreak could materially adversely affect our financial condition and results of operations.”
Recent Developments Relating to Proposed Amendments to the 2017 Facilities Agreement
Mainly as a result of the adverse effects of COVID-19 explained elsewhere in this annual report, which include a potential decrease in construction activity in most of the markets in which we offer our products and services, our operating and financial performance during the COVID-19 pandemic could be adversely affected.
In order to address any potential breach of the financial ratios in the 2017 Facilities Agreement, consistent with how CEMEX has managed its financial obligations during the past six years, as of the date of this annual report, we are seeking the consent of the lenders under the 2017 Facilities Agreement to modify certain financial covenants contained in the 2017 Facilities Agreement. In particular, we are proposing to amend the consolidated leverage ratio and the consolidated coverage ratio limits.
As part of the amendments we are seeking, certain limits and certain allowances that as of the date of this annual report are available to us under the 2017 Facilities Agreement would be reduced or cease to be available, in each case until the consolidated leverage ratio is equal to or less than certain ratio levels. Mainly, allowances relating to the use of certain proceeds (including from disposals) for capital expenditures, as well as allowances for the use of cash on hand for certain acquisitions and share buybacks, would be reduced. In addition, we would reduce the overall capital expenditure investment allowance (including for CLH and CHP), the available acquisition limits and the limits on the amount of loans to third parties that we can make, until the consolidated leverage ratio is equal to or less than certain ratio levels. A modification of the existing margin at the highest leverage level and the addition of further step-ups on the margin grid is also being sought, which would increase the financial expense under the 2017 Facilities Agreement.
As of December 31, 2019, we were in compliance with the 2017 Facilities Agreement. However, our failure to comply with the financial covenants in the 2017 Facilities Agreement could result in an event of default, which would materially and adversely affect our business, financial condition, liquidity and results of operations. As of the date of this annual report, lenders under the 2017 Facilities Agreement have until May 26, 2020, unless extended to a further date, to consent to the amendments being proposed to the 2017 Facilities Agreement, at which time, or sooner if possible, we would expect to announce the status of the proposed amendments and the main terms agreed with the lenders under the 2017 Facilities Agreement. Although we have good relations with our lenders and have successfully sought amendments and/or obtained waivers in the past, receiving the consents to implement the amendments or to receive waivers is not within our control, so we cannot assure you that we will be able to reach an agreement with the lenders under the 2017 Facilities Agreement to (i) implement the proposed
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amendments or as to what the final terms of any such agreement regarding the proposed amendments will be, or, if needed, (ii) waive any potential non-compliance with the 2017 Facilities Agreement, or that we will not be out of compliance with one or more financial covenants in the future. See“Item 3—Key Risk Factors—Risks Relating to Our Business—The 2017 Facilities Agreement contains several restrictions and covenants. Our failure to comply with such restrictions and covenants could have a material adverse effect on our business and financial conditions” for more information on the consequences of any event of default under our 2017 Facilities Agreement, and also see note 26 to our 2019 audited consolidated financial statements included elsewhere in this annual report for a description of our ability to reach an agreement to amend the 2017 Credit Agreement resultingwhich raises significant doubt about our ability to continue as a going concern.
Recent Developments Relating to Effects of COVID-19 on Our Internal Control Over Financial Reporting
CEMEX understands the importance of transparency, accuracy and precision of maintaining proper internal controls, especially in a principal outstanding amount underthose related to financial reporting. Therefore, in collaboration with management, the revolving trancheaudit committee and our auditors, the Company is implementing actions to help ensure financial reporting and auditing processes remain robust and as timely as possible in the middle of the 2017 Credit Agreementglobal COVID-19 crisis. These actions include, among others, (i) the implementation of Ps12,817 million (U.S.$700 million) asnew controls for emergency procedures, (ii) close monitoring of March 31, 2018. In addition, asIT access controls to enable remote workforces, (iii) controls to mitigate the potential increase in cybersecurity risks and, (iv) if an existing control cannot be performed, identify/implement alternative appropriately designed controls to compensate for the lack of March 31, 2018, we hadinformation. Additionally, the Company is implementing an aggregate amountalternative audit plan to remotely test the operating effectiveness of Ps7,965 million (U.S.$435 million) available undercontrols, due to travel restrictions.
Recent Developments Relating to the revolving trancheEffects of the 2017 Credit Agreement.COVID-19 Pandemic on Oil Prices and Demand
As of the date of this annual report, global oil prices have recently suffered their biggest fall since 1991. The COVID-19 pandemic has drastically undermined energy demand worldwide. Factories have been idled and thousands of flights canceled around the world. In March 2020, the International Energy Agency stated that it expected demand will contract this year for the first time since the recession in 2009 that followed the global financial crisis. This has also created inventory capacity problems as there is not enough storage capacity for the oil being produced but not consumed.
Furthermore, a price war between some the major oil producing countries in the world in the face of collapsing demand has contributed to the historic plunge in oil prices. As a result, the major oil producing countries would lose money regardless of the market share they can claw back. The Gulf countries produce oil at the lowest cost, but due to high government spending and generous subsidies for citizens, they need a certain price per barrel to balance their fiscal budgets.
Oil-dependent nations that have suffered from years of conflict, uprisings or sanctions would be affected the most. Iraq, Iran, Libya and Venezuela all belong in that category, and the United States, Mexico and Colombia would also be adversely affected. This would directly affect infrastructure and public housing spending, as countries whose budget is dependent on income generated by oil sales would be materially adversely affected and would need to decrease public spending which would have a material adverse effect on countries‘ economic outlook and on our sales, financial condition, business, liquidity and results of operations.
Likewise, the plunge of oil prices, along with other factors, has contributed to capital outflows from emerging economies reliant on oil revenue such as Mexico, which have driven emerging market currencies to record-low levels against the Dollar. Depreciation of emerging market currencies may have a material adverse effect on our financial condition and results of operations.
Certain countries that import oil such as China, India and Germany could get some relief in the form of less expensive energy bills. The magnitude of the impact will depend on government policy with respect to domestic energy prices. Consumers benefit in general from lower oil prices and the resulting decline in gas prices at gasoline stations, especially in the United States where retail markets react more directly to supply and demand. Taxes and surcharges make up a higher share of gas station prices in Europe, so we believe the effect would be less marked. Any reduction in gas prices would likely be outweighed by the dislocation to the economy caused by the COVID-19 led slowdown in global growth.
Lower land and maritime transportation costs resulting from lower fuel prices could increase cement and clinker imports to our markets. There would also be an adverse impact on U.S. oil producers and energy jobs in states such as Texas, Louisiana, Oklahoma, New Mexico and North Dakota, which have enjoyed a boom over the last decade, and also on PEMEX, the state owned oil producer in Mexico, which would have a material adverse effect on the country’s economic growth and our financial condition, business, liquidity and results of operations, in particular in the U.S. and in Mexico.
Recent Developments Relating to Our ShareholdersAssets Divestiture Plans
On April 5,January 8, 2020, we reached an agreement for the sale of certain assets in the United Kingdom to Breedon for a total consideration of $235 million, which includes $31 million of debt. The assets held for sale as of December 31, 2019 consist of 49 ready-mix plants, 28 aggregate quarries, four depots, one cement terminal, 14 asphalt plants, four concrete products operations, as well as a portion of our paving solutions business in the United Kingdom and certain other inactive sites of ours in the United Kingdom. If the divestiture is completed, we will retain significant operations in the United Kingdom related to, among other things, the production and sale of cement, ready-mix concrete, aggregates, asphalt and paving solutions. As of December 31, 2019, the assets and liabilities associated with this transaction in the United Kingdom are presented in the statement of financial position within the line items of “assets held for sale,” including a proportional allocation of goodwill of $49 million, and “Liabilities directly related to assets held for sale,” respectively. For purposes of the income statements for the years ended December 31, 2017, 2018 and 2019, the operations related to this divestiture are presented net of tax in the single line item “Discontinued operations.” On January 20, 2020, the United Kingdom Competition and Markets Authority (the “CMA”) imposed an initial enforcement order on Breedon, Southern Limited and Cemex Investments Limited in relation to this proposed acquisition by Breedon. The initial enforcement order requires both companies to operate separately while the CMA reviews the transaction. As of the date of this annual report, we expect to finalize this divestment during the second quarter of 2020, but we are not able to assess if COVID-19 will delay the closing of this divestment or prevent us from closing the transaction.
On March 6, 2020, we successfully closed our divestiture in the U.S. announced on November 26, 2019, pursuant to which our U.S. affiliate Kosmos, a partnership with a subsidiary of BUZZI Unicem S.p.A. in which CEMEX held a 75% interest, entered into a binding agreement for the sale of certain assets to Eagle Materials for $665 million. The share of proceeds to us from this transaction was $499 million, minus transaction costs. The assets that were divested consisted of the Kosmos cement plant in Louisville, Kentucky, USA, as well as related assets which included seven distribution terminals and raw material reserves. As of December 31, 2019, the assets and liabilities associated with the sale of the Kosmos cement plant in Louisville, Kentucky, and related assets in the U.S. are presented in the statement of financial position within the line items of “assets held for sale,” including a proportional allocation of goodwill of $291 million, and “liabilities directly related to assets held for sale,” respectively. Moreover, for purposes of the income statements for the years ended December 31, 2017, 2018, and 2019 the operations related to this segment are presented net of income tax in the single line item “Discontinued operations.”
Recent Developments Relating to CEMEX, S.A.B. de C.V.’s Shareholders’ Meeting
On March 26, 2020, CEMEX, S.A.B. de C.V. held an Ordinary General Shareholders Meeting followed by an Extraordinary General Shareholders Meeting. The most significant items that were approved byits ordinary general shareholders’ meeting at which the shareholders at the Ordinary General Shareholders Meeting were:
In addition, the shareholders approved the appointment of the members of the board of directors, the audit committee, the corporate practices and finance committee and the sustainability committee of CEMEX, S.A.B. de C.V.
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Recent Developments Relating to CEMEX, S.A.B. de C.V.’s boardSenior Management and Board of directors, including new director Gabriel Jaramillo Sanint.
The most significant item that
Effective March 27, 2020, (i)Joaquín Miguel Estrada Suarez, the President of our Asia, Middle East and Africa region, and of CEMEX’s global trading activities, decided to leave CEMEX, (ii) Sergio Mauricio Menendez Medina,thecurrent President for CEMEX in Europe, was approved by shareholders at the Extraordinary General Shareholders Meeting was an increase to the capital stock ofappointed President for CEMEX S.A.B. de C.V. in its variable portionEurope, Middle East, Africa & Asia and will, as a result, oversee business in the amount of Ps1,258,407.08, throughPhilippines, Israel, Egypt and the issuance of upUAE in addition to 453,217,080 nominative ordinary common shares without expression of nominal value, of which 302,144,720his current responsibilities, and (iii) Jesus Vicente Gonzalez Herrera,thecurrent President for CEMEX in SCA&C, will be Series A, and upalso oversee CEMEX’s Global Trading activities, in addition to 151,072,360 will be Series B, and which will confer the same rights and obligations as the currently outstanding shares. The shares will be subscribed and paid for through a public offer or private placement, either in Mexico or abroad, and/or through the issuance of convertible notes pursuant to Article 210 Bis of the General Law of Negotiable Instruments and Credit Operations (Ley General de Títulos y Operaciones de Crédito). The shares will be kept in treasury to be subscribed and paid afterwards, through payment or conversion, as applicable, without the preemptive right being applicable pursuant to the Company’sby-lawshis current responsibilities. and applicable legislation.
Recent Developments Relating to Our BoardIndebtedness
Maturity of Directorsour March 2020 Optional Convertible Subordinated Dollar Notes
On March 15, 2020, we informed the MSE that our 3.720% Subordinated Optional Convertible Notes issued on (i) March 13, 2015 (the “March 2015 Convertible Notes”) and Senior Management(ii) May 28, 2015 (the “May 2015 Convertible Notes,” and collectively with the March 2015 Convertible Notes, the “March 2020 Optional Convertible Subordinated Dollar Notes”) matured, without conversion, in accordance with the indenture governing such notes, except for $2,000 aggregate principal amount of our May 2015 Convertible Notes which, as of March 15, 2020, was converted into 185 ADSs. As a result, on March 13, 2020, CEMEX paid to the trustee of the March 2020 Optional Convertible Subordinated Dollar Notes the amount of $521.1 million as full settlement.
As described under “—
Recent Developments Relating to Our Shareholders,”Stock Repurchase Program
From March 10, 2020 to March 24, 2020, under the 2019 repurchase program authorized at CEMEX, S.A.B. de C.V.’s ordinary general shareholders meeting held on April 5, 2018, Gabriel Jaramillo Sanint was appointed as memberMarch 28, 2019, CEMEX, S.A.B. de C.V. repurchased 378.2 million CPOs, which represented 2.5% of CEMEX, S.A.B. de C.V.’s board of directors. Additionally, Roberto Luis Zambrano Villarreal, whooutstanding share capital as of December 31, 20172019, at a weighted-average price of 5.01 Pesos per CPO, which was a member ofequivalent to an amount $83.2 million, excluding value-added tax. CEMEX, S.A.B. de C.V.’s board did not repurchase any other CPOs between January 1, 2020 and March 10, 2020 and has not repurchased any additional CPOs since March 24, 2020.On April 8, 2020, we announced that, to enhance our liquidity, we suspended the CEMEX, S.A.B. de C.V. share repurchase program for the remainder of directors, concluded his role as director at2020.
Other Recent Developments
Closing of CHP’s SRO
On January 29, 2020, CHP, the Ordinary General Shareholders Meetingholding company of our main operations in the Philippines, announced the results of its SRO pursuant to which 8,293,831,169 common shares of CHP were issued and listed on the Philippine Stock Exchange on March 4, 2020. As of December 31, 2019, CEMEX España indirectly held on April 5, 2018. Rogelio Zambrano Lozano, Roger Saldaña Madero and René Delgadillo Galván were elected as Chairman, Secretary and Assistant Secretary66.78% of CHP’s common shares. After giving effect to the SRO, CEMEX España’s indirect ownership of CHP’s common shares increased to 75.66%.
The net proceeds from the SRO will be used primarily to (i) fund the expansion of CHP’s Solid Cement Plant, including to pay outstanding amounts owed to us related to the expansion of the boardSolid Cement Plant, and (ii) for other general corporate purposes, including paying other outstanding amounts owed to us.
Effectiveness of directorsMergers between CEMEX, S.A.B. de C.V. and certain direct and indirect subsidiaries in Mexico (the “Mexican Reorganization”)
On November 13, 2019, CEMEX, S.A.B. de C.V. and certain of its direct and indirect subsidiaries in Mexico including, among others, CEMEX México and Empresas Tolteca, entered into a merger agreement pursuant to which each such subsidiary merged with and into CEMEX, S.A.B. de C.V., with CEMEX, S.A.B. de C.V. as the surviving entity, effective as of December 1, 2019. In accordance with Mexican Law, the merger of each subsidiary becomes effective against third parties three months after the date of filing of the corresponding merger deed with the Mexican Public Register of Commerce(Registro Público de Comercio). The mergers between CEMEX, S.A.B. de C.V. and Empresas Tolteca and CEMEX, S.A.B. de C.V. and CEMEX México became effective against third parties on February 26, 2020 and March 9, 2020, respectively.
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As a result of the mergers of CEMEX México and Empresas Tolteca into CEMEX, S.A.B. de C.V., CEMEX México and Empresas Tolteca have ceased to guarantee our indebtedness to the extent that they provided guarantees, and the shares of CEMEX México that were pledged or transferred to trustees under security trusts to benefit certain secured creditors of CEMEX and certain of its subsidiaries are no longer part of the collateral securing our indebtedness as a result of such shares ceasing to exist. 172 New Climate Action Strategy On February 19, 2020, we announced a new strategy to address climate change, seeking an intermediate target of reducing 35% of our CO2 net emissions by 2030 aligned with the Science-Based Targets methodology. In order for us to meet our new target, this objective has been included in the variable compensation of senior management; and we have detailed CO2 roadmaps developed at each of our cement plants which include a roll-out of proven CO2 reduction technologies and the investments required for their implementation. Furthermore, we aspire to deliver net-zero CO2 concrete globally by 2050, which should contribute to the development of smart urban projects, sustainable buildings and climate-resilient infrastructures.
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Recent Developments Relating to ourOur Regulatory Matters and Legal Proceedings
Antitrust Proceedings—
Tax Matters in Colombia
On January 8, 2020, in connection with the tax proceeding in Colombia related to the year 2012, CEMEX Colombia was notified that the DIAN, had, in response to the appeal filed by CEMEX Colombia, confirmed the DIAN's assessment that CEMEX Colombia is required to pay increased taxes and corresponding penalties, as previously notified on April 6, 2018. CEMEX Colombia has four months to appeal this resolution in the corresponding administrative courts in Colombia. No amounts are required to be paid by CEMEX Colombia until all available recourses have been filed and concluded. Notwithstanding this resolution, as of March 31, 2020, CEMEX considers that an adverse resolution after conclusion of all available defense procedures is not probable. However, it is difficult to assess with certainty the likelihood of an adverse result in the proceeding. If this proceeding is adversely resolved, CEMEX believes this could have a material adverse impact on the operating results, liquidity or financial position of CEMEX. See note 19.4 to our 2019 audited consolidated financial statements included elsewhere in this annual report for a description of this proceeding.
Polish Antitrust Investigation
We refer to
In connection with the antitrust proceedings brought by the Protection Officeproceeding initiated in 2007 against all cement producers in Poland, including CEMEX Polska and otheranother of our indirect subsidiaries in Poland. On March 27, 2018,Poland, on January 16, 2020, the AppealsSupreme Court, issued itsduring the first court hearing, postponed the final judgment, which reducesruling on the fine imposed uponcassation appeal of CEMEX Polska to Polish Zloty 69.4 million (approximately U.S.$19.97 million asfor an unspecified period until a formal motion on exclusion of December 31, 2017 based on an exchange rate of Polish Zloty 3.4748 to U.S.$1.00). This penalty is equal to approximately 6% of CEMEX Polska’s revenue in 2008 and was paid by CEMEX Polska on April 9, 2018. CEMEX Polska still has the right to file a cassation appeal before the Polish Supreme Court within two months following receipt of written justificationone of the Appeal Court’s judgment, which CEMEX Polska expects to receive withinjudges is resolved by another judge of the following two to five months.Supreme Court. As of April 27, 2018, we are not able to determine if CEMEX Polska will pursue such cassation appeal. CEMEX Polska had created the accounting provision in relation with this proceeding in an amount equal to 100% of the reduced penalty of the First Instance Court judgment. However, CEMEX Polska has reduced such accounting provision to an amount sufficient to cover the penalty imposed by the Appeals Court. See “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Antitrust Proceedings—Polish Antitrust Investigation.”
Antitrust Proceedings—Antitrust Case in Georgia and South Carolina
We refer to the lawsuit filed on November 22, 2017 in a U.S. Federal Court in the State of South Carolina by a single concrete instillation company against our subsidiaries in the U.S. based on the same allegations made in the lawsuit filed on July 24, 2017 in a U.S. Federal Court in the state of Georgia by twoready-mix concrete producers. On January 15, 2018, the single concrete instillation company amended its complaint to eliminate all claims against our subsidiaries. Thus, we are no longer a defendant in this lawsuit. See “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Antitrust Proceedings—Antitrust Case in Georgia and South Carolina.”
Antitrust Proceedings—United States and its Territories Department of Justice Grand Jury Subpoena
Certain of our subsidiaries in the United States were notified of a grand jury subpoena dated March 29, 2018 issued by the DOJ in connection with an investigation of possible antitrust law violations in connection with our sales (and related sales practices) of grey portland cement and slag in the United States and its territories. This subpoena does not mean that the DOJ has concluded that we or any of our affiliates or employees have violated the law. Rather, the DOJ issued this grand jury subpoena to gather facts necessary to make an informed decision about whether violations of U.S. law have occurred. At this time, we are cooperating with the DOJ and intend to comply with the subpoena. As of April 27, 2018, we are not able to assess if this investigation will lead to any fines, penalties or remedies against us, or if such fines, penalties or remedies, if any, would have a material adverse effect on our results of operations, liquidity or financial condition.
Environmental Matters—Mexico
Regarding our involvement in the Electricity Market in Mexico, we have been authorized pursuant to the Electric Industry Law (Ley de la Industria Eléctrica) to become participants in the Electricity Market. See “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Environmental Matters—Mexico.”
Environmental Matters—Europe—EU Emissions Trading
Regarding the applicable binding caps on CO2 emissions and the amount of emission allowances allocated to our operations pursuant to the EU’s ETS, the EU Parliament, EU Council and EU Commission have approved the amendment of the ETS legislation for Phase IV of the ETS (2021-2030). During Phase IV of the ETS (2021-2030), theEU-wide overall cap on emission allowances will be reduced by 2.2% every year from 2021, benchmarks will be updated based on recent data twice during the 2021-2030 period, a more dynamic allocation based on recent production shall replace the “historical activity level” and less emission allowances will be available for auction due to their allocation to the European Union’s Market Stability Reserve. As of April 27, 2018, it is not possible to predict with certainty how we will be affected by the reform to the EU ETS in Phase IV. However, we expect that the aggregate amount of allowances that will be annually allocated for free to us in Phase IV will not be sufficient for our operations. Therefore, we expect that we will be required to purchase emission allowances at some point in time during Phase IV at increased prices due to their reduced availability in auctions, since they would have been allocated to the Market Stability Reserve. See “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Environmental Matters—Europe—EU Emissions Trading.”
Tax Matters—Mexico—Property Tax Matter in the State of Hidalgo
During the last quarter of 2017, the municipality of Atotonilco de Tula, Hidalgo issued new valuations regarding CEMEX México’s operating facility in that municipality to assess the corresponding property tax payable by CEMEX México starting in 2017. CEMEX México is currently contesting the legality of such valuations before the Administrative Court of the State of Hidalgo (Tribunal de Justicia Administrativa del Estado de Hidalgo), which has not yet issued a decision. CEMEX México contends that the valuation by the municipality is contrary to the Cadastral Law of the State of Hidalgo (Ley de Catastro del Estado de Hidalgo) and has twice tried to effect payment of the property tax corresponding to the years 2017 and 2018 in accordance with its calculations made pursuant to the Revenue Law of the Municipality of Atotonilco de Tula, Hidalgo (Ley de Ingresos del Municipio de Atotonilcode Tula, Hidalgo) and the Cadastral Law of the State of Hidalgo (Ley de
Catastro del Estado de Hidalgo) currently in effect. The municipality has refused to accept such payment based on an alleged difference in the property tax to be paid, which has not been formally determined by the municipality. The municipality’s refusal to accept payment could result in CEMEX México failing to obtain a municipal license required for the operation of CEMEX México’s Atotonilco operating facility pursuant to new municipal regulations published in the Official Gazette of the State of Hidalgo (Periódico Oficial del Estado de Hidalgo) on February 12, 2018, since payment of the corresponding property tax is a requirement for obtaining the municipal license. Failure to obtain the aforementioned municipal license could affect the operativity of our Atotonilco facility while this license is obtained. As of April 27, 2018, we are not able to assess the likelihood of an adverse result to this matter. However, if such matter is finally resolved adversely to us and it affects the operativity of our Atotonilco facility, such effect could have an adverse impact on our results of operations, liquidity and financial condition.
Tax Matters—United States
In addition to the audits being conducted by the IRS for the 2016 and 2017 tax years; on March 29, 2018, the IRS commenced its routine audit of the 2018 tax year, under the Compliance Assurance Process. See “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Tax Matters—United States.”
Tax Matters—Colombia
On April 9, 2018, the Colombian Tax Authority notified CEMEX Colombia of a proceeding notice in which the Colombian Tax Authority rejected certain deductions taken by CEMEX Colombia in its 2012year-end income tax return. The Colombian Tax Authority assessed an increase in taxes to be paid by CEMEX Colombia in the amount of approximately 124.79 billion Colombian Pesos (approximately U.S.$41.82 million as of December 31, 2017, based on an exchange rate of 2,984.00 Colombian Pesos to U.S.$1.00) and imposed a penalty in the amount of approximately 124.79 billion Colombian Pesos (approximately U.S.$41.82 million as of December 31, 2017, based on an exchange rate of 2,984.00 Colombian Pesos to U.S.$1.00). CEMEX Colombia intends to appeal the Colombian Tax Authority’s decision and exhaust all legal recourses available, which could take between six and eight years to resolve. If a final resolution adverse to CEMEX Colombia is reached in this matter, in addition to any amounts to be paid in confirmation of the official liquidation, CEMEX Colombia would, as of the payment date, be required to pay interest on the amounts that would be declared due as of the dates they would have had to be paid. As of April 27, 2018, we are not able to assess the likelihood of an adverse result to this matter. However, if such matter is finally resolved adversely to us,2020, we do not expect suchthat a final adverse resolution to this matter would have a material adverse impact on our results of operations, liquidity and financial condition.
Tax Matters—Spain
We refer toAntitrust Cases in Georgia and South Carolina
On July 24, 2017, two ready-mix concrete producers filed a lawsuit in a U.S. Federal Court in the recoursestate of Georgia against certain of our subsidiaries in the U.S. and other companies alleging customer allocation and price fixing in both the ready-mix concrete and cement markets in the coastal Georgia and southeastern coastal South Carolina areas. In addition, on January 22, 2020, new plaintiffs who were the prior owners of a ready-concrete producer filed by CEMEX España on November 6, 2017 beforelawsuit in the National Court (Audiencia Nacional)same court against the TEAC’ssame subsidiaries of CEMEX making substantially similar allegations as the suit filed in July 2017. As we do not participate in the ready-mix concrete market in these areas, the lawsuits do not allege any improper actions by us with respect to ready-mix concrete. On October 2, 2017, we filed a motion to dismiss the July 2017 lawsuit. This motion to dismiss was denied on August 21, 2018, and, as a result, CEMEX will continue to defend the allegations in the ongoing proceedings and filed its answer at the end of October 2018. CEMEX has not yet made any filings in connection with the January 2020 lawsuit. As of March 31, 2020, at this stage of the lawsuits, while we cannot assess with certainty the likelihood of an adverse result in these lawsuits, we believe a final adverse resolution to the appeals filed against the fines imposed upon CEMEX España by the Spanish tax authorities arising from the tax audit process covering the tax years from and including 2006 to 2009. On January 31, 2018, the National Court (Audiencia Nacional) notified CEMEX España of the granting of the suspension of the payment of the fines, subject to the provision of guarantees on or before April 2, 2018. In this regard, CEMEX España has provided the respective guarantees in the form of a combination of a liability insurance policy and a mortgage of several assets owned by its Spanish subsidiary CEMEX España Operaciones, S.L.U. Once the sufficiency ofthese lawsuits is not probable; however, if adversely resolved, we believe such guarantees is confirmed, the National Court is expected to confirm the suspension of the payment until the recourses are definitively resolved. See “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Tax Matters—Spain.”
Other Legal Proceedings—Maceo, Colombia—Operational Matters
We refer to the authorization and consent requested from Central de Mezclas by Corantioquia to reverse the assignment of the environmental license for the Maceo Project back to CI Calizas, which also holds the corresponding mining title. On February 22, 2018, Central de Mezclas granted such authorization.
We refer to CEMEX Colombia’s petition to subtract from the District of Integrated Management the zoning area covered by the environmental license related to the construction by CEMEX Colombia of the Maceo Project, in order to avoid any overlap between them. On January 12, 2018, CEMEX Colombia was notified of Corantioquia’s decision to admit such petition and initiated the corresponding proceedings. See “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Other Legal Proceedings—Maceo, Colombia—Operational Matters.”
Other Legal Proceedings—Department of Justice Investigation Relating to Matters in Colombia and Other Jurisdictions
We previously disclosed that, in addition to the SEC, it was possible that the DOJ and other investigatory entities in other jurisdictions could also open investigations into the Maceo Project. In this regard, on March 12, 2018, the DOJ issued a grand jury subpoena to us relating to our operations in Colombia and other jurisdictions. We intend to cooperate fully with the SEC, DOJ, and any other investigatory entity. As of April 27, 2018, we are unable to predict the duration, scope, or outcome of either the SEC investigation or the DOJ investigation, or any other investigation that may arise, or, because of the current status of the SEC investigation and the preliminary nature of the DOJ investigation, the potential sanctions which could be borne by us, or if such sanctions, if any, wouldadverse resolution should not have a material adverse impact on our results of operations, liquidity andor financial condition. See “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Other Legal Proceedings—SEC Investigation Relating to the Legal Proceedings in Colombia.”
Other Legal Proceedings—Quarry Matter in France
We refer to CEMEX Granulats’ appeal filed against the adverse judgment related to SCI’s claim against CEMEX Granulats for breach of the Quarry Contract, pursuant to which CEMEX Granulats has drilling rights to extract reserves and conduct quarry remediation at a quarry in the Rhone region of France. The judgment of the appeal court was provided to CEMEX Granulats on March 13, 2018. Such judgment overrules the first instance judgment but orders the rescission of the Quarry Contract. It also appoints a judicial expert to (i) determine the volume of both excavated materials and backfilling materials and (ii) give his opinion on the potential damages suffered by SCI. This judgment is enforceable. CEMEX Granulats has filed a notice of appeal with the Court of Cassation, which will advance in parallel to the judicial expert’s process. Proceedings on any additional hearings regarding this appeal or any other actions CEMEX Granulats may initiate in this matter could take approximately 16 months to be finalized. See “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Other Legal Proceedings—Quarry Matter in France.”
Other Legal Proceedings—Federal Securities Class Action
On March 16, 2018, a putativeFebruary 28, 2020, we informed the MSE that the securities class action complaint was filed on March 16, 2018, as amended, against usCEMEX, certain officers of CEMEX (one of whom is a member of CEMEX’s board of directors), and one of our membersCEMEX’s partially-owned subsidiaries, CLH, which was dismissed with prejudice on February 11, 2020, is now closed as a result of the board of directors (CEO) and certain of our officers (CEO and CFO) in the U.S. District Court for the Southern District of New York, on behalf of investors who purchased or otherwise acquired securities of ours between August 14, 2014plaintiffs’ agreement not to March 13, 2018, inclusive. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) based on purportedly issuing press releases and SEC filings that included materially false and misleading statements in connection with alleged misconduct relating to the Maceo Project and the potential regulatory or criminal actions that might arise as a result. We deny liability and intend to vigorously defend the case. As of April 27, 2018, we are not able to assess the likelihood of an adverse result to this lawsuit. Because of its current status and its preliminary nature, we are not able to assess if a final adverse result in this lawsuit would have a material adverse impact on our results of operations, liquidity and financial condition.appeal.
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Item 6—Directors, Senior Management and Employees
Senior Management and Directors
Senior Management
Set forth below is the name, position and positionexperience of each member of our senior management team as of December 31, 2017.2019. The terms of office of the senior managers are indefinite. For a description of changes to our senior management team, see “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to CEMEX, S.A.B. de C.V.’s Senior Management and Board of Directors,” effective as of March 27, 2020, which mainly consists of Joaquín Miguel Estrada Suarez leaving CEMEX,Sergio Mauricio Menendez Medina, being appointed President for CEMEX Europe, Middle East, Africa & Asia, in addition to Mr. Menendez’ current responsibilities, and Jesus Vicente Gonzalez Herrera overseeing CEMEX’s global trading activities, in addition to Mr. Gonzalez’ current responsibilities.
Name, Position | Experience | |
Fernando Ángel González Olivieri
| Mr. González Olivieri has been a member of CEMEX, S.A.B. de C.V.’s With his deep knowledge of CEMEX and the markets in which CEMEX operates, Mr. Gonzalez brings to the CEMEX, S.A.B. de C.V. Board of Directors a global vision and leadership that directly contributes to the formulation and the integral implementation of CEMEX’s global business strategy. He joined CEMEX in 1989 and from that year through 1994 occupied different positions within CEMEX in the Strategic Planning, Business Development and Human Resources departments. He then served as Corporate Vice-President of Strategic Planning from 1994 to 1998, President of CEMEX Venezuela, S.A.C.A. from 1998 to 2000, President of CEMEX Asia from 2000 to May 2003 and President of CEMEX’s South, Central American and the Caribbean region from May 2003 to February 2005. | |
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Mr. González Olivieri earned his B.A. and M.B.A. degrees from the Instituto Tecnológico y de Estudios Superiores de Monterrey.
President CEMEX USA (Male - 51) |
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| Joined CEMEX in 1996 and has held several executive positions in the areas of Strategic Planning, Business Development,Ready-mix Concrete, Aggregates and Human Resources. He headed CEMEX’s operations in Egypt and our former Mediterranean Region. He |
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Name, Position (Age as of December 31, 2019) | Experience | |
President of CEMEX |
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Sergio Mauricio Menéndez Medina President CEMEX Europe (Male – 49) | Joined CEMEX in 1993. He has held several executive positions, including Director of Planning and Logistics in Asia, Corporate Director of Commercial Development, President of CEMEX Philippines, Vice President of Strategic Planning for the Europe, Middle East, Africa and Asia region, President of CEMEX Egypt, Vice President of Infrastructure Segment and Government Sales in Mexico, and most recently, Vice President of Distribution Segment Sales in Mexico. He is President of CEMEX Europe. Mr. Menéndez holds a B.S. in Industrial Engineering from Tecnológico de Monterrey and an M.B.A from Stanford University. | |
Joaquín Miguel Estrada Suarez
| Joined CEMEX in 1992 and has held several executive positions, including head of operations in Egypt and Spain, as well as head of Trading for Europe, the Middle East and Asia. | |
José Antonio González Flores
Officer
| Joined CEMEX in 1998 and |
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Name, Position (Age as of December 31, 2019) | Experience | |
Juan Pablo San Agustín Rubio
Business Development
| Joined CEMEX in 1994 and has held executive positions in the Strategic Planning, Continuous Improvement,E-business and Marketing areas. He is | |
Luis Hernández Echávez
Organization Development | Joined CEMEX in 1996 and has held senior management positions in the Strategic Planning, |
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MaherAl-Haffar
Corporate Communications and Public Affairs
| Joined CEMEX in 2000. Prior to his current position, he was Vice President of Investor Relations, Corporate Communications and Public Affairs. He also served as a Managing Director in Finance and Head of Investor Relations for CEMEX. Before joining CEMEX, he spent 19 years with Citicorp Securities Inc. and Santander Investment Securities as an investment banker and capital markets professional.Mr. Al-Haffar holds a B.S. in Economics from the University of Texas and a Master’s | |
Mauricio Doehner Cobián
Enterprise Risk Management
| Joined CEMEX in 1996 and has held several executive positions in areas such as Strategic Planning and Enterprise Risk Management for Europe, Asia, the Middle East, South America and Mexico. He is | |
Juan Romero Torres Operations Development
| Joined CEMEX in 1989 and has occupied several senior management positions, including President of CEMEX Colombia, President of our operations in Mexico, President of the South America and the Caribbean Regions, President of our former Europe, Middle East, Africa and Asia Region. and President of CEMEX México. Since September 1, 2019, he is the Executive Vice President of Sustaintability, Commercial and Operations Development. Mr. Romero was appointed Vice President and representative of the board of directors of the National Chamber of Cement (Cámara Nacional del Cemento) in June 2011, and is also a member of the board of directors of GCC. Mr. Romero graduated from Universidad de Comillas in Spain, where he studied Law and Economic and Enterprise Sciences. |
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Name, Position (Age as of December 31, 2019) | Experience | |
Jaime Gerardo Elizondo Chapa Executive Vice President of Global Supply Chain (Male - 56) | Joined CEMEX in 1985 and has headed several operations, including Panama, Colombia, Venezuela and Mexico and was President of CEMEX South America (including Central America) and the Caribbean. As of December 31, 2018, he was the President of CEMEX Europe. Mr. Elizondo served as President and Vice President of the National Chamber of Cement (Cámara Nacional del Cemento) and as Vice President of the Transformation Industry Chamber of Nuevo León (Cámara de la Industria de la Transformación de Nuevo León). He is the Executive Vice President of Global Supply Chain for CEMEX and also a member of CLH’s board of directors. He graduated with a B.S. in Chemical and System Engineering and holds an M.B.A. from ITESM. | |
Jesús Vicente González Herrera President of CEMEX South, Central America and the Caribbean (Male - 54) | Joined CEMEX in 1998 and has held several senior positions, including Corporate Director of Strategic Planning, Vice President of Strategic Planning in CEMEX USA, President of CEMEX Central America, President of CEMEX UK and, more recently, | |
Rafael Garza Lozano
| Joined CEMEX in 1985 and has served as Chief Accounting Officer since 1999. |
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Consejo Mexicano para la Investigación y Desarrollo de Normas de Información Financiera and an alternate member of the board of directors of GCC. Mr. Garza is a certified public accountant and he received a Master’s degree in Administration and Finance from ITESM. He also attended executive programs at ITAM, IPADE and Harvard University. | ||
Roger Saldaña Madero
| Joined CEMEX in 2000 and served as Legal Counsel of CEMEX |
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Name, Position (Age as of December 31, 2019) | Experience | |
holds a Master’s |
Board of Directors
Set forth below are the names, position and experience of the members of CEMEX, S.A.B. de C.V.’s board of directors as of December 31, 2017. For a description of changes to CEMEX, S.A.B. de C.V.’s board of directors in 2018, see the description of CEMEX, S.A.B. de C.V.’s 2017 annual general ordinary shareholders’ meeting held on April 5, 2018 in “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our board of directors and Senior Management.” 2019.
No alternate directors were elected at CEMEX, S.A.B. de C.V.’s 20172019 annual general ordinary shareholders’ meeting.meeting that took place on March 26, 2020. Members of CEMEX, S.A.B. de C.V.’s board of directors serve forone-year terms.
Name, | Experience | |
Rogelio Zambrano Lozano
| Mr. Zambrano Lozano has been a member of CEMEX, S.A.B. de C.V.’s With his vast experience and knowledge in the construction, building materials and real estate sectors, since his appointment as Chairman of the Board of CEMEX, S.A.B. de C.V., Mr. Zambrano has focused on strengthening corporate governance practices and guiding the business strategy to enhance the operational and financial performance of CEMEX at a global level, based on the commitment to create long-term value for all CEMEX’s stakeholders. He was President of CEMEX, S.A.B. de C.V.’s Finance Committee from 2009 until March 2015 and he was also Chairman of CEMEX México’s |
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He is a grandson of the late Mr. Lorenzo Zambrano Gutiérrez, one of CEMEX, S.A.B. de C.V.’s founders, and a son of Mr. Marcelo Zambrano Hellion, who was a member of CEMEX, S.A.B. de C.V.’s | ||
Fernando Ángel González Olivieri
| See “—Senior Management.” | |
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| Experience | |
Marcelo Zambrano Lozano Non-Independent Director (Male - 64) | Mr. Zambrano Lozano has been a member of the Board of Directors of CEMEX, S.A.B. de C.V. His detailed knowledge of the real estate and construction industries, as well as the construction materials sector, provides the CEMEX, S.A.B. de C.V. Board of Directors with an extensive view of the main trends in the sector, thus helping CEMEX to anticipate and satisfy the needs of customers in each of the market segments CEMEX participates in. He graduated with a degree in Marketing from the Instituto Tecnológico y de Estudios Superiores de Mr. Zambrano Lozano has a | |
Directors, Tomás Milmo Santos and Ian Christian Armstrong Zambrano, both members of CEMEX, S.A.B. de C.V.’s Board of Directors. | ||
Ian Christian Armstrong Zambrano Non-Independent Director
| Mr. Armstrong Zambrano has been a member of CEMEX, S.A.B. de C.V.’s He had previously been a provisional member of CEMEX, S.A.B. de C.V.’s |
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Name, Position (Age as of |
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Mr. Armstrong Zambrano is a graduate in He | ||
Tomás Milmo Santos (Male – 55) Non-Independent Director | Mr. Milmo Santos has been a member of CEMEX, S.A.B. de C.V.’s Board of Directors since 2006. He is Chairman of the Board of Directors and CEO of Grupo Perseus, a company focused on the energy sector, as well as Vice President of the Board of Directors of Thermion Energy Group. He is Co-Chairman of the telecommunications company Axtel, S.A.B. de C.V. (a publicly listed company in Mexico) and member of the Board of Directors of Promotora Ambiental, S.A. Likewise, he is a member of the directive board of the Instituto Tecnológico y de Estudios Superiores de Monterrey and Chairman of the Board of Directors of Tec Salud and Alianza Educativa Ciudadana por Nuevo León, a non-profit organization. Mr. Milmo Santos is an entrepreneur with decades of experience in the industrial, energy and telecommunications sectors, which provides to the CEMEX, S.A.B. de C.V. Board of Directors insight into the various markets where CEMEX, S.A.B. de C.V. operates around the world. He served as an alternate member of CEMEX, S.A.B. de C.V.’s Board of Directors from 2001 to 2006, member of the CEMEX, S.A.B. de C.V.’s Finance Committee from 2009 to 2015, and a member of the Board of Directors of CEMEX México until 2017. He graduated with a degree in economics from Stanford University. Mr. Milmo Santos has a family relationship with Rogelio Zambrano Lozano, Chairman of CEMEX, S.A.B. de C.V.’s Board of Directors, and Marcelo Zambrano Lozano, member of CEMEX, S.A.B. de C.V.’s Board of Directors. | |
Armando J. García Segovia
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Name, Position (Age as of December 31, 2019) | Experience | |
He brings to the He initially joined CEMEX in 1975,
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He has a familial relationship with Rodolfo García Muriel, a member of CEMEX, S.A.B. de C.V.’s | ||
Rodolfo García Muriel
| Mr. García Muriel has been a member of CEMEX, S.A.B. de C.V.’s Board of Directors since 1985, a member of the corporate practices and finance committee since March 26, 2015 and member of the audit committee since March 31, 2016. He is Chief Executive Officer of Compañía Industrial de Parras, S.A. de C.V., Chairman of the Board of Directors of Grupo Romacarel, S.A.P.I de C.V., a member of the Board of Directors of Comfort Jet, S.A. de C.V., a member of the Regional Board of Directors of Grupo Financiero CitiBanamex and a member of the directive board of He is a business leader with a long history as a founder, director and president of many different companies in the manufacturing, construction, transport and communications industries, among others, thereby contributing his vast experience to CEMEX, S.A.B. de C.V.’s Board of Directors wide vision of the global business environment. |
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Name, Position (Age as of December 31, 2019) | Experience | |
He was a member of CEMEX, S.A.B. de C.V.’s Finance Committee from 2009 until March He graduated with a degree in Electric Mechanical Engineering from the Universidad Iberoamericana and Mr. García Muriel | ||
Dionisio Garza Medina
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| With his extensive business experience and in-depth knowledge of the energy, oil and education sectors, the economy and global markets in general, Mr. Garza Medina brings to CEMEX, S.A.B. de C.V. Mr. Garza Medina developed his professional career at ALFA, S.A.B. de C.V., where he held senior executive positions for 35 years, including Chief Executive Officer Mr. Garza Medina graduated as an industrial engineer and holds a | |
Francisco Javier Fernández Carbajal
| Mr. Fernández Carbajal has been a member of CEMEX, S.A.B. de C.V.’s |
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Name, Position (Age as of December 31, 2019) | Experience | |
Officer of Servicios Administrativos Contry, S.A. de C.V., a privately held company that provides investment management and central administrative services. He has a 38-year business career that has allowed him to gain substantial knowledge in relation to payment systems, financial services and senior leadership experience from his tenure in Grupo Financiero BBVA Bancomer, Mexico´s largest financial services company, in which he served in a diverse array of senior executive roles, including Executive Vice President of Strategic Planning, Deputy President of Systems and Operations, Deputy President and Chief Financial Officer. His background and career related to the payments and financial services industry enables him to bring a global perspective to CEMEX, S.A.B. de C.V.’s Board of Directors and to provide relevant insights in relation to strategic planning, operations and management and an enhanced understanding of risk management of large, complex organizations. In addition, as the Chief Financial Officer of a large publicly traded company, and through his board and committee membership in several large companies in Mexico and the U.S., he has accumulated extensive experience in corporate finance and accounting, financial reporting and internal controls, and human resources and compensation, which contributes to his service on CEMEX, S.A.B. de C.V.’s Board of Directors. He graduated with a degree in | ||
Armando Garza Sada
| Mr. Garza Sada has been a member of CEMEX, S.A.B. de C.V.’s The performance at the highest corporate level of He also has participated in university and think tank boards, thus developing some knowledge of education and economic development. |
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Name, Position (Age as of December 31, 2019) | Experience | |
Mr. Garza Sada holds a |
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Institute of Technology and an M.B.A. from Stanford University. | ||
David Martínez Guzmán
| Mr. Martínez Guzmán has been a member of CEMEX, S.A.B. de C.V.’s He brings extensive knowledge and After receiving his M.B.A. in 1984, Mr. Martínez Guzmán joined Citibank, N.A. in New York in the Latin America Sovereign Restructuring unit, where he helped coordinate the 1984 Argentina Financing Plan and subsequent restructuring. In 1987, he formed Fintech in New York to trade and structure transactions in both sovereign and corporate debt of emerging economies and is recognized as In the corporate sector, over the last three decades, Mr. Martínez Guzmán has consistently pursued high- value strategic investments through numerous restructurings across various industries in Latin America, forging partnerships with local shareholders and management. Over the last decade, Mr. Martínez Guzmán has also pursued strategic investments in the Eurozone periphery. His involvement in the region also includes active participation in the recapitalization process of systemically important banks in Greece, Spain and Italy. Mr. Martínez Guzmán holds a Master’s degree in Business Administration from Harvard Business School. He holds a Bachelor of Arts degree in Philosophy from the Universitas Gregoriana in Rome, Italy, and a Bachelor of Science degree in Mechanical and Electrical Engineering from the Universidad Nacional Autónoma de Mé | |
Everardo Elizondo Almaguer
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Name, Position (Age as of December 31, 2019) | Experience | |
Estudios Superiores de Monterrey. He is also a professor of monetary policy in the School of Economics of the Universidad Autónoma de Nuevo Leó With his renowned career as a financial analyst, exemplary public official and university scholar, Mr. Elizondo Almaguer brings to CEMEX, S.A.B. de He was the director for economic studies at Alfa, S.A.B. de C.V. and Grupo Financiero BBVA Bancomer, S.A. de C.V. Mr. Elizondo Almaguer is a graduate in | ||
Ramiro Gerardo Villarreal Morales
| Mr. Villarreal Morales has been a member of the Board of Directors of CEMEX, S.A.B. de C.V. since 2017. He is also a member of the Board of Directors of Grupo Cementos de Chihuahua, S.A.B. de C.V., the real estate development company Vinte Viviendas Integrales, S.A.B. de C.V. and Banco Bancrea, S.A. Institución de Banca Multíple, all of which are public companies. With his vast knowledge and experience within CEMEX, Mr. Villarreal Morales offers the CEMEX, S.A.B. de C.V.’s Board of Directors key guidance in regulatory and legal matters, as well as extensive knowledge related to corporate governance and financial transactions issues. Mr. Villarreal Morales has more than 50 years of professional experience in the legal and financial fields. He joined CEMEX in 1987 as General |
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Name, | Experience | |
He graduated with a degree in Law with honorary citation from the Universidad Autónoma de Nuevo León and received a Master’s of Science degree in Finance from the University of Wisconsin-Madison, where he was appointed to the honor roll. | ||
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Gabriel Jaramillo Sanint Independent Director (Male - 70) | Mr. With an outstanding 35-year career in the financial sector and in the field of philanthropy, being mainly focused on the health sector, as well as a deep knowledge of the Among other positions, he was a member of After his retirement, he has concentrated on philanthropic work in Global Health, leading the transformation of the Global Fund to Fight AIDS, TB and Malaria. As a consequence of the turnaround, the Global Fund raised $13 billion from 2017 to 2020. Mr. Jaramillo Sanint holds an M.B.A. and Bachelor’s degree in Marketing from California State University. In 2015, Mr. Jaramillo received honorary degrees from Universidad Autonoma de Manizales and North Eastern University. | |
Isabel María Aguilera Navarro Independent Director (Female – 59) | Mrs. Aguilera Navarro is an independent consultant and also an associate professor at the ESADE Business School in Barcelona. She is a member of the Board of Directors of the following public companies: Oryzon Genomics, S.A. since November 2015, Spain Real Estate SOCIMI, S.A. since June 2017 and the Italian bank Banca Farmafactoring S.p.A. (BFF) since April 2018. Since April 2019, Mrs. Aguilera Navarro has been a member of the Board of Directors of HPS, and, since December 2019, she has been a member of the non-listed company Making Science. With her vast experience and extensive knowledge of multinational corporations, Mrs. Aguilera Navarro brings to the |
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Name, Position (Age as of December 31, 2019) | Experience | |
CEMEX, S.A.B. de C.V. Board of Directors guidance and strategic vision which contributes to its business strategy and to enhancing CEMEX, S.A.B. de C.V.’s objectives at a global level, including the constant strengthening of information technology and digitalization efforts. Mrs. Aguilera Navarro was President of General Electric (GE) Spain and Portugal from 2008 to 2009, General Manager of Google Inc. Spain and Portugal (now Alphabet) from 2006 to 2008, Operations Director of NH Hotel Group SA from May 2002 to June 2005 and General Director of Dell Computer Corporation for Spain, Italy and Portugal, from March 1997 to May 2002. The Financial Times named her one of the 25 most important executive women in Europe, while Fortune Magazine rated her as one of the 50 leading women in the world. Mrs. Aguilera Navarro was also a member of the Board of She has also served as a Counselor to several Spanish non-profit organizations, such as the Companies Institute (Instituto de Empresa) and the Association for Management Progress (Asociación para el Progreso de la Gestión). She was a member of the Advisory Board of Farmaindustria, Ikor and Pelayo Mutua de Seguros and a business entrepreneur from 2009 to 2012 at Twindocs International. Mrs. Aguilera Navarro has a degree in Architecture and Urban Planning from the Escuela Técnica Superior de Arquitectura de Sevilla (ETSA) and a Master’s degree in business administration from the IE Business School. Mrs. Aguilera Navarro participated in the Program for General Management by the IESE Business School and the Program for Senior Management of Leading Companies by the San Telmo Institute. |
Senior Management and Board Composition
As of December 31, 2017, all2019, 93.3% the members of our senior management were male and of6.7% were female. A female was appointed to CEMEX, S.A.B. de C.V.’s board of directors were male.on March 28, 2019.
As of December 31, 2017,2019, there were no alternate members in CEMEX, S.A.B. de C.V.’s board of directors.
In compliance with the Mexican Securities Market Law (Ley del Mercado de Valores), which was enacted on December 28, 2005 and became effective on June 28, 2006 (the “Mexican Securities Market Law”), CEMEX, S.A.B. de C.V.’s shareholders approved, at an extraordinary shareholders’ meeting held on April 27, 2006, a proposal to amend various articles of CEMEX, S.A.B. de C.V.’sby-laws (estatutos sociales), in order to improve
our standards of corporate governance and transparency, among other matters. The amendments included outlining the fiduciary duties of the members of CEMEX, S.A.B. de C.V.’s board of directors, who are now required:
● | to perform their duties in a value-creating manner for the benefit of CEMEX without favoring a specific shareholder or group of shareholders; |
● | to act diligently and in good faith by adopting informed decisions; and |
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● | to comply with their duty of care and loyalty, abstaining from engaging in illicit acts or activities. |
The Mexican Securities Market Law also eliminated the position of statutory examiner, whose duties of surveillance are now the responsibility of the board of directors, fulfilled through the corporate practices and finance committee the audit committees, as well as through the external auditor who audits the entity’s financial statements, each within its professional role. With its surveillance duties, CEMEX, S.A.B. de C.V.’s board of directors is no longer in charge of managing CEMEX; instead, this is the responsibility of CEMEX, S.A.B. de C.V.’s chief executive officer.
Pursuant to the Mexican Securities Market Law and CEMEX, S.A.B. de C.V.’sby-laws, at least 25% of its directors must qualify as independent directors.
Other than any contractual arrangements entered into with any member of CEMEX, S.A.B. de C.V.’s board of directors while employed by us, which provide or may provide for retirement and pension benefits, CEMEX, S.A.B. de C.V. has not entered into any service contracts with its directors that provide for benefits upon termination of employment.
The Audit Committee, the Corporate Practices and Finance Committee and Other Committees
The Mexican Securities Market Law required CEMEX, S.A.B. de C.V. to create a corporate practices committee comprised entirely of independent directors, in addition to its then existing audit committee. In compliance with such requirement, in 2006 CEMEX, S.A.B. de C.V. increased the responsibilities of its audit committee and changed its name to “corporate practices and audit committee.” To further enhance the effectiveness of its corporate governance, at CEMEX, S.A.B. de C.V.’s annual general ordinary shareholders’ meeting held on April 23, 2009, CEMEX, S.A.B. de C.V.’s shareholders approved the division of this committee into two committees with different members and responsibilities: the audit committee and the corporate practices committee. In addition, at the annual general ordinary shareholders’ meeting held on April 29, 2010, CEMEX, S.A.B. de C.V.’s shareholders approved the creation of the finance committee. In addition, at the annual general ordinary shareholders’ meeting held on March 26, 2015, CEMEX, S.A.B. de C.V.’s shareholders approved that the then existingthen-existing corporate practices committee tooktake over certain responsibilities of the then existingthen-existing finance committee and changedchanges its name to “corporate practices and finance committee.”
CEMEX, S.A.B. de C.V.’s audit committee is responsible for:
● | evaluating our internal controls and procedures and identifying deficiencies; |
● | following up with corrective and preventive measures in response to any non-compliance with our operation and accounting guidelines and policies; |
● | evaluating the performance of our external auditors; |
● | describing and valuing non-audit services performed by our external auditor; |
● | reviewing CEMEX, S.A.B. de C.V.’s financial statements; |
● | assessing the effects of any modifications to the accounting policies approved during any fiscal year; |
● | overseeing measures adopted as a result of any observations made by CEMEX, S.A.B. de C.V.’s shareholders, directors, executive officers, employees or any third parties with respect to accounting,
CEMEX, S.A.B. de C.V.’s corporate practices committee and finance committee is responsible for:
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Under CEMEX, S.A.B. de C.V.’sby-laws and the Mexican Securities Market Law, all members of the corporate practices and finance committee and the audit committee, including their presidents, are required to be independent directors. The president of the audit committee and the corporate practices and finance committee shall be appointed and removed from his or her position only by the general Set forth below are the names of the members of CEMEX, S.A.B. de C.V.’s
AUDIT COMMITTEE:
CORPORATE PRACTICES AND FINANCE COMMITTEE:
In addition, at a meeting of CEMEX, S.A.B. de C.V.’s board of directors held on September 25, 2014, CEMEX, S.A.B. de C.V.’s directors approved the creation of a sustainability committee. CEMEX, S.A.B. de C.V.’s sustainability committee is responsible for:
As of
Compensation of CEMEX, S.A.B. de C.V.’s Directors and Members of Our Senior Management For the year ended December 31,
Restricted Stock Incentive Plan (RSIP)
Under the terms of the RSIP, eligible employees are allocated a specific number of restricted CPOs as variable compensation to be vested over a four-year period.
As of the date of this annual report, we have three compensation programs that conform to the RSIP, As of December 31, 2019, the CPO Ordinary Plan had around 564 participants, which constitute the top employees of the company. The annual award under the Ordinary Plan is calculated based on the result of the gross annual guaranteed compensation of the participants in Dollars as of May 31 of each calendar year, times a management factor, that, depending on the level of the participant, is 28%, 24%, 18% or 12%, and divided by the last 90-day average closing price, converted into Dollars, of CPOs As of December 31, 2019, the KVP Plan had around 60 participants, which constitute employees in KVPs. The annual award under the
Starting in 2017, a third compensation program, known as the Performance Plan, replaced the Ordinary Plan that our KVP Plan participants received prior to 2017. The Performance Plan entails calculating a specific target of CPOs for each plan participant. The final payout under such plan can range from 0% to 200% of the target of CPOs according to CEMEX, S.A.B. de C.V.’s three-year total shareholder return relative to two market references: one market reference is comprised of seven public companies from the global construction and materials industry, and the Under the Performance Plan, the vesting period occurs at the end of three years in a single 100% block, at which time the resultant number of CPOs become unrestricted immediately. Approximately 23 million CPOs were granted during 2019 under the Performance Plan, with an estimated fair value of 130%, which are expected to vest on July 1, 2022. See note
To better align CEMEX Starting in 2018, a CHP compensation plan was granted to Philippines eligible participants. While this plan replaced their ordinary CPO plan, the mechanics of the plan remain the same. As of December 31, 2019 and 2018, there were 11 eligible participants with a total award of 5.7 million and 5.3 million, respectively CHP shares. Compensation of CEMEX, S.A.B. de C.V.’s Chief Executive Officer and senior management
The short-term variable performance bonus is paid in both cash and restricted shares and the long-term variable performance bonus is paid in the form of restricted shares. We use Cash Value Added to CEMEX, S.A.B. de C.V.’s board of directors is compensated in a fixed manner based on participation in board meetings. The Chairman of CEMEX, S.A.B. de C.V.’s board of directors, however, is compensated in a similar manner as CEMEX, S.A.B. de C.V.’s senior management, including through the long-term The As of December 31, 2018. The following table sets forth the number of our
In Mexico, as of December 31, 2019, we have entered into collective bargaining agreements on aplant-by-plant basis, and such collective bargaining agreements are renewable on an annual basis with respect to salaries and on a biannual basis with respect to benefits. During
In the U.S., as of December 31, 2019, approximately In Spain, as of December 31, In the United Kingdom, as of December 31, In Germany, as of December 31, In France, as of December 31, In Panama, as of December 31, 2019, approximately 55% of our workforce were members of Sindicato de Trabajadores de Cemento Bayano, a union which is a legal entity registered before the Panamanian Ministry of Labor. The In Colombia, as of December 31, In In Israel, as of December 31, 2019, our aggregates manufacturing and lime manufacturing operations had existing special collective bargaining agreements with the “Histadrut”—the largest employee organization in Israel. The rest of our operations in Israel are not part of collective bargaining agreements. In the Philippines, as of December 31, 2019, approximately 33% of the non-managerial employees of our cement plants were members of, and were represented by, labor unions. Their labor conditions including wages and benefits are governed by collective bargaining agreements negotiated at the plant level. The Solid Cement Plant has one rank and file union and one supervisors’ union. The collective bargaining agreement for the Solid Cement Plant supervisors’ union will expire on December 31, 2022, while the rank and file union collective bargaining agreement will expire on February 28, 2023. The APO Cement Plant also has one rank and file union and one supervisors’ union. The collective bargaining agreements for both supervisors’ union and the rank and file union at the APO Cement Plant will expire on December 31, 2021. In Egypt, as of December 31, 2019, the majority of our eligible employees were represented by the Assiut Cement Labor Union and the General Building Materials Union. The collective bargaining agreement, of which our employees are party to, governs annual profit share and productivity bonus payments. Such agreement will expire on December 31, 2021. As of December 31, stock options and restricted CPOs under our RSIP. This percentage Item 7—Major Shareholders and Related Party Transactions The information contained in Amendment No. The information contained in Schedule 13G filed with the SEC on February 13, As of December 31, As of December 31, underlying the CPOs represented by ADSs. Voting instructions may be given only Other than BlackRock, Dodge & Cox and the CPO trust, we are not aware of any person that is the beneficial owner of five percent or more of any class of CEMEX, S.A.B. de C.V.’s voting securities. As of December 31, CEMEX, S.A.B. de C.V.’sby-laws provide that its board of directors must authorize in advance any transfer of voting shares of its capital stock that would result in any persons, or groups acting in concert, becoming a holder of 2% or more of CEMEX, S.A.B. de C.V.’s voting shares. In the event this requirement is not met, the persons acquiring such shares will not be entitled to any corporate rights with respect to such shares, such shares will not be taken into account for purposes of determining a quorum for shareholders’ meetings, CEMEX, S.A.B. de C.V. will not record such persons as holders of such shares in its share registry and the registry undertaken by Mexican securities regulations provide that our majority-owned subsidiaries may neither directly nor indirectly invest in CEMEX, S.A.B. de C.V.’s CPOs nor other securities representing CEMEX, S.A.B. de C.V.’s capital stock. The Mexican securities authority could require any disposition of the CPOs or of other securities representing our capital stock so owned and/or impose fines on us if it were to determine that the ownership of CEMEX, S.A.B. de C.V.’s CPOs or of other securities representing CEMEX, S.A.B. de C.V.’s capital stock by CEMEX, S.A.B. de C.V.’s subsidiaries, in most cases, negatively affects the interests of CEMEX, S.A.B. de C.V.’s shareholders. Notwithstanding the foregoing, the exercise of all rights pertaining to CEMEX, S.A.B. de C.V.’s CPOs or to other securities representing our capital stock in accordance with the instructions of CEMEX, S.A.B. de C.V.’s subsidiaries does not violate any provisions of CEMEX, S.A.B. de C.V.’sby-laws or theby-laws of its subsidiaries. The holders of these CPOs or of other securities representing CEMEX, S.A.B. de C.V.’s capital stock are entitled to exercise the same rights relating to their CPOs or their other securities representing CEMEX, S.A.B. de C.V.’s capital stock, including all voting rights, as any other holder of the same series. As of December 31,
From January 1, Consolidated Financial Statements and Other Financial Information See See “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings.” A declaration of any dividend can be made by CEMEX, S.A.B. de C.V.’s shareholders at any general ordinary shareholders’ meeting. Any dividend declaration is usually based upon the recommendation of CEMEX, S.A.B. de C.V.’s board of directors. However, CEMEX, S.A.B. de C.V.’s shareholders are not obligated to approve the board’s recommendation. CEMEX, S.A.B. de C.V. may only pay dividends from retained earnings included in financial statements that have been approved by CEMEX, S.A.B. de C.V.’s shareholders and after all losses have been paid The recommendation of CEMEX, S.A.B. de C.V.’s board of directors as to whether to pay and the amount of any annual dividends has been, and will continue to be, in absence of contractual restrictions to pay or declare dividends, based upon, among other things, earnings, cash flow, capital requirements, contractual restrictions, and our financial condition and other relevant factors. Owners of ADSs on the applicable record date will be entitled to receive any dividends payable in respect of the Series A shares and the Series B shares underlying the CPOs represented by those CEMEX, S.A.B. de C.V. did not declare a dividend for fiscal years Except as described herein, no significant change has occurred since the date of our
CEMEX, S.A.B. de C.V.’s CPOs are listed on the
Item 10—Additional Information Articles of Association andBy-laws
General Pursuant to the requirements of Mexican corporations law, CEMEX, S.A.B. de C.V.’s articles of association andby-laws (estatutos sociales) CEMEX, S.A.B. de C.V. is an operating and a holding company engaged directly or indirectly, through its operating subsidiaries, primarily in the production, distribution, marketing and sale of cement,ready-mix concrete, aggregates, clinker and other construction materials throughout the world. CEMEX, S.A.B. de C.V.’s corporate purpose can be found in article 2 of CEMEX, S.A.B. de C.V.’sby-laws. CEMEX, S.A.B. de C.V. has two series of common stock, the Series A common stock, with no par value (“Series A shares”), which can only be owned by Mexican nationals, and the Series B common stock, with no par value (“Series B shares”), which can be owned by both Mexican andnon-Mexican nationals. CEMEX, S.A.B. de C.V.’sby-laws state that the Series A shares may not be held bynon-Mexican individuals, corporations, groups, units, trusts, associations or governments that are foreign or have participation by foreign governments or their agencies. CEMEX, S.A.B. de C.V.’sby-laws also state that the Series A shares shall at all times account for a minimum of 64% of CEMEX, S.A.B. de C.V.’s total outstanding voting stock and that the Series B shares shall at all times account for a minimum of 36% of CEMEX, S.A.B. de C.V.’s total outstanding voting stock. Other than as described herein, holders of the Series A shares and the Series B shares have the same rights and obligations. In 1994, CEMEX, S.A.B. de C.V. changed from a fixed capital corporation to a variable capital corporation in accordance with Mexican corporation law. As a result, CEMEX, S.A.B. de C.V. established a fixed capital account and a variable capital account and issued one share of variable capital stock of the same series for each eight shares of fixed capital stock held by any shareholder. Each of our fixed and variable capital accounts is comprised of Series A shares and Series B shares. Under the Mexican Securities Market Law and CEMEX, S.A.B. de C.V.’sby-laws, holders of shares representing variable capital are not entitled to withdraw those shares. Shareholder authorization is required to increase or decrease either the fixed capital account or the variable capital account. Shareholder authorization to increase or decrease the fixed capital account must be obtained at an extraordinary meeting of shareholders. Shareholder authorization to increase or decrease the variable capital account must be obtained at an ordinary general meeting of shareholders. On April 29, 1999, CEMEX, S.A.B. de C.V.’s shareholders approved a stock split, and for every one of CEMEX, S.A.B. de C.V.’s shares of any series CEMEX, S.A.B. de C.V. issued two Series A shares and one Series B share. Concurrently with this stock split, CEMEX, S.A.B. de C.V. also consummated an exchange offer to exchange new CPOs and new ADSs representing the new CPOs for CEMEX, S.A.B. de C.V.’s On June 1, 2001, the then-effective Mexican On February 6, 2002, the Mexican securities authority (Comisión Nacional Bancaria y de Valores) issued an official communication authorizing the amendment of CEMEX, S.A.B. de C.V.’sby-laws to incorporate additional provisions to comply with the then new provisions of the then-effective Mexican On March 19, 2003, the Mexican securities authority issued new regulations designed to (i) further implement minority rights granted to shareholders by the then-effective Mexican On April 24, 2003, CEMEX, S.A.B. de C.V.’s shareholders approved changes to itsby-laws, incorporating additional provisions and removing some restrictions. The changes that are still in force are as follows:
On December 30, 2005, the Mexican Securities Market Law was published to continue bringing corporate governance requirements of Mexican listed companies in line with international standards. This new law included provisions increasing disclosure information requirements, improving minority shareholder rights and strengthening corporate governance standards, including the introduction of new requirements and fiduciary duties (duties of care and loyalty) and major shareholder of publicly traded companies. The law also provided that each member of the audit committee must be an independent director and required the creation of corporate governance committees integrated by independent directors as well. In addition, the law clarified directors’ duties, specified safe harbors for directors’ actions, clarified what is deemed as a conflict of interest and clarified what are the confidentiality obligations for directors. Under the then new Mexican Securities Market Law, CEMEX, S.A.B. de C.V. was required to adopt specific amendments to itsby-laws within 180 days of the effective date of the new law. Following approval from CEMEX, S.A.B. de C.V.’s shareholders at its extraordinary shareholders’ meeting held on April 27, 2006, CEMEX, S.A.B. de C.V. amended and restated itsby-laws to incorporate these amendments. The amendments to CEMEX, S.A.B. de C.V.’sby-laws became effective on July 3, 2006. The most significant of these amendments were as follows:
On March 20, 2014, CEMEX, S.A.B. de C.V. held an extraordinary shareholders’ meeting, at which its shareholders approved, among other items, the board of directors’ proposal to expand the corporate purpose of CEMEX, S.A.B. de C.V. so that, aside from being a holding company, CEMEX, S.A.B. de C.V. can undertake operating activities related to the production and commercialization of cement,ready-mix concrete and aggregates. On March 26, 2015, CEMEX, S.A.B. de C.V. held an extraordinary shareholders’ meeting, at which its shareholders approved, among other items, CEMEX, S.A.B. de C.V.’s corporate existence for an indefinite period of On March 28, 2019, CEMEX, S.A.B. de C.V. held an extraordinary shareholders’ meeting, at which its shareholders approved, among other items, changes to articles 2 and 28 of CEMEX, S.A.B. de C.V.���s by-laws, incorporating additional provisions and removing some restrictions. The changes, among other items, are the following: broadening CEMEX, S.A.B. de C.V.’s corporate purpose, which would permit CEMEX to transport goods; amending the provision regarding seaport related services for its marine terminals; the manufacture and commercialization of cement bags, etc.; and clarifying that CEMEX, S.A.B. de C.V.’s Relevant Executives (as defined under the laws of Mexico) are entitled to indemnification and liability protection only for liability arising from the lack of diligence when acting in good faith and pursuant to our best interests. Changes in Capital Stock and Preemptive Rights Subject to certain exceptions CEMEX, S.A.B. de C.V.’sby-laws provide that, subject to certain exceptions, shareholders have preemptive rights with respect to the class and in proportion to the number of shares of our capital stock they hold, in connection with any capital increase in the number of outstanding Series A shares, Series B shares or any other existing series of shares, as the case may be. Subject to certain requirements: (i) under article 53 of the Mexican Securities Market Law, this preemptive right to subscribe is not applicable to increases of CEMEX, S.A.B. de C.V.’s capital through public Holders of ADSs that are U.S. persons or are located in the Pursuant to CEMEX, S.A.B. de C.V.’sby-laws, significant acquisitions of shares of CEMEX, S.A.B. de C.V.’s capital stock and changes of control of CEMEX, S.A.B. de C.V. require prior approval from CEMEX, S.A.B. de C.V.’s board of directors. CEMEX, S.A.B. de C.V.’s board of directors must authorize in advance any transfer of, or creation of any encumbrance or lien on, voting shares of CEMEX, S.A.B. de C.V.’s capital stock that would result in any person or group becoming a holder of 2% or more of CEMEX, S.A.B. de C.V. information; f) the morality and economic solvency of the potential acquirers; g) the protection of minority rights and the rights of our employees; and h) whether an adequate base of investors would be maintained. If CEMEX, S.A.B. de C.V.’s board of directors denies the authorization, or the transfer had been authorized on the basis of false or incorrect information or information had been withheld or the requirements established in CEMEX, S.A.B. de C.V.’sby-laws are not complied with, the persons involved in the transfer shall not be entitled to exercise the voting rights corresponding to the transferred shares, Any acquisition of shares of CEMEX, S.A.B. de C.V.’s capital stock representing 30% or more of its capital stock by a person or group of persons requires prior approval from CEMEX, S.A.B. de C.V.’s board of directors and, in the event approval is granted, the acquirer has an obligation to make a public offer to purchase all of the outstanding shares of CEMEX, S.A.B. de C.V.’s capital stock. In the event the requirements for significant acquisitions of shares of CEMEX, S.A.B. de C.V.’s capital stock are not met, the persons acquiring such shares will not be entitled to any corporate rights with respect to such shares, such shares will not be taken into account for purposes of determining a quorum for shareholders’ meetings, CEMEX, S.A.B. de C.V. will not record such persons as holders of such shares in its share registry and the registry undertaken by CEMEX, S.A.B. de C.V.’sby-laws require the stock certificates representing shares of its capital stock to make reference to the provisions in itsby-laws relating to the prior approval of the CEMEX, S.A.B. de C.V. board of directors for significant share transfers and the requirements for recording share transfers in its share registry. In addition, shareholders are responsible for informing CEMEX, S.A.B. de C.V. within five business days whenever their shareholdings exceed 5%, 10%, 15%, 20%, 25% and 30% of CEMEX, S.A.B. de C.V.’s capital stock. If a person acquires beneficial ownership (within the meaning of Rule13d-3 promulgated by the SEC under the Exchange Act) of 20% or more in voting power of the outstanding voting stock of CEMEX, S.A.B. de C.V., a change of control will be deemed to have occurred under the 2017 CEMEX, S.A.B. de C.V. is required to maintain a share registry to record the names, nationalities and domiciles of all significant shareholders, and any shareholder that meets or exceeds these thresholds must be recorded in this registry if such shareholder is to be recognized or represented at any shareholders’ meeting. If a shareholder fails to inform CEMEX, S.A.B. de C.V. of its shareholdings reaching a threshold as described above, we will not record the transactions that cause such threshold to be met or exceeded in CEMEX, S.A.B. de C.V.’s share registry, and such transaction will have no legal effect and will not be binding on us. CEMEX, S.A.B. de C.V.’sby-laws also require that its shareholders comply with legal provisions regarding acquisitions of securities and certain shareholders’ agreements that require disclosure to the public. Repurchase Obligation In accordance with Mexican securities regulations, CEMEX, S.A.B. de C.V. is obligated to make a public offer for the purchase of stock to its shareholders if CEMEX, S.A.B. de C.V.’s registration with the Mexican securities registry is canceled, either by resolution of its shareholders or by an order of the Mexican securities authority. The minimum price at which we must purchase the stock is the higher of:
CEMEX, S.A.B. de C.V.’s board of directors shall prepare and disclose to the public through the Following the cancelation of CEMEX, S.A.B. de C.V.’s registration with the Mexican securities registry, it must place in a trust set up for that purpose for asix-month period an amount equal to that required to purchase the remaining shares held by investors who did not participate in the offer. Shareholders’ Meetings and Voting Rights Shareholders’ meetings may be called by:
Notice of shareholders’ meetings must be published through the electronic system established by the Ministry of Economy General shareholders’ meetings can be ordinary or extraordinary. At every general shareholders’ meeting, each qualified holder of Series A shares and Series B shares is entitled to one vote per share. Shareholders may vote by proxy duly appointed in writing. Under the CPO trust agreement, holders of CPOs who are not Mexican nationals cannot exercise voting rights corresponding to the Series A shares represented by their CPOs, in which case, the CPO trustee will vote the underlying Series A shares in the same manner as the holders of the majority of the voting shares. An annual general ordinary shareholders’ meeting must be held during the first four months after the end of each of CEMEX, S.A.B. de C.V.’s fiscal year to consider the approval of a report of its board of directors regarding CEMEX, S.A.B. de C.V.’s performance and its financial statements for the preceding fiscal year and to determine the allocation of profits from the preceding year. In addition, CEMEX, S.A.B. de C.V.’s annual general ordinary shareholders’ meeting must:
A general extraordinary shareholders’ meeting may be called at any time to deal with any of the matters specified by Article 182 of the Mexican corporations law, which include, among other things:
In order to vote at a meeting of shareholders, shareholders must (i) appear on the list that Indeval and CEMEX, S.A.B. de C.V.’sby-laws provide that a shareholder may only be represented by proxy in a shareholders’ meeting with a duly completed form provided by CEMEX, S.A.B. de C.V. authorizing the proxy’s presence. In addition, CEMEX, S.A.B. de C.V.’sby-laws require that the secretary acting at the shareholders’ meeting publicly affirm the compliance by all proxies with this requirement. A shareholders’ resolution is required to take action on any matter presented at a shareholders’ meeting. At an ordinary shareholders’ meeting, The attendance quorum for a general ordinary shareholders’ meeting Rights of Minority Shareholders At CEMEX, S.A.B. de C.V.’s annual general ordinary shareholders’ meeting, any shareholder or group of shareholders representing 10% or more of its voting stock has the right to appoint or remove one member of CEMEX, S.A.B. de C.V.’s board of directors, in addition to the directors appointed by the majority. Such appointment may only be revoked by other shareholders when the appointment of all other directors is also revoked. CEMEX, S.A.B. de C.V.’sby-laws provide that holders of at least 10% of its outstanding capital stock are entitled to demand the postponement of the voting on any resolution of which they deem they have not been sufficiently informed. Under Mexican law, holders of at least 20% of CEMEX, S.A.B. de C.V.’s outstanding capital stock are entitled to vote on a particular matter Under Mexican law, an action for civil liabilities against directors may be initiated by a shareholders’ resolution for violation of their duty of loyalty to shareholders. In the event shareholders decide to bring an action of this type, the persons against whom that action is brought will immediately cease to be directors. Additionally, shareholders representing not less than 33% of the outstanding shares may directly exercise that action against the directors; provided that:
Under CEMEX, S.A.B. de C.V.’sby-laws, shareholders representing 5% or more of its outstanding capital stock may initiate actions exclusively on behalf of CEMEX, S.A.B. de C.V. against members of its board of directors, its corporate practices and finance committee and audit committee, its chief executive officer, or any relevant executives, for breach of their duty of care or duty of loyalty to shareholders or for committing illicit acts or activities. The only requirement is that the claim covers all of the damage alleged to have been caused to us or any entities on which we have a significant influence and not merely the damage suffered by the plaintiffs. Actions initiated on these grounds have a five-year statute of limitations from the day of the act or action that caused the damage. Any recovery of damages with respect to these actions will be for CEMEX, S.A.B. de C.V.’s benefit and not that of the shareholders bringing the action. Registration and Transfer CEMEX, S.A.B. de C.V.’s common stock is evidenced by share certificates in registered form with registered dividend coupons attached. Shareholders who have not deposited their shares into the CPO trust may hold their shares in the form of physical certificates or through institutions that have accounts with Indeval. Accounts may be maintained at Indeval by brokers, banks and other entities approved by the Mexican securities authority. CEMEX, S.A.B. de C.V. maintains a stock registry, and, in accordance with Mexican Pursuant to Mexican law, any transfer of shares must be registered in CEMEX, S.A.B. de C.V.’s stock registry, if effected physically, or through book entries that may be tracked back from CEMEX, S.A.B. de C.V.’s stock registry to the records of Indeval. Redemption CEMEX, S.A.B. de C.V.’s capital stock is subject to redemption upon approval of our shareholders at an extraordinary shareholders’ meeting. Share Repurchases If approved by CEMEX, S.A.B. de C.V.’s shareholders at a general shareholders’ meeting, we may purchase CEMEX, S.A.B. de C.V.’s outstanding shares. The economic and voting rights corresponding to repurchased shares cannot be exercised during the period the shares are owned by us and the shares will be deemed outstanding for purposes of calculating any quorum or vote at any shareholders’ meeting. We may also repurchase our equity securities on the Directors’ and Shareholders’ Conflict of Interest Under Mexican law, any shareholder who has a conflict of interest with CEMEX, S.A.B. de C.V. with respect to any transaction is obligated to disclose such conflict and is prohibited from voting on that transaction. A shareholder who violates this prohibition may be liable for damages if the relevant transaction would not have been approved without that shareholder’s vote. Under Mexican law, any director who has a conflict of interest with CEMEX, S.A.B. de C.V. in any transaction must disclose that fact to the other directors and is prohibited from participating and being present during the deliberations and voting on that transaction. A director who violates this prohibition will be liable for damages and lost profits. Additionally, CEMEX, S.A.B. de C.V.’s directors may not represent shareholders in our shareholders’ meetings. Withdrawal Rights Whenever CEMEX, S.A.B. de C.V.’s shareholders approve a change of corporate purpose, change of nationality or transformation from one form of corporate organization to another, Mexican law provides that any shareholder entitled to vote on that change who has voted against it may withdraw from CEMEX, S.A.B. de C.V. and receive an amount equal to the book value (in accordance with the latest statement of financial position approved by the annual general ordinary shareholders’ meeting) attributable to such shareholder’s shares, provided that such shareholder exercises that right within 15 days following the meeting at which the change was approved. Dividends At each annual general ordinary shareholders’ meeting, CEMEX, S.A.B. de C.V.’s board of directors submits, for approval by its shareholders, its financial statements together with a report on them prepared by its board of directors and the statutory auditors. CEMEX, S.A.B. de C.V.’s shareholders, once they have approved the financial statements, determine the allocation of our net income, after provision for income taxes, legal reserve and statutory employee profit sharing payments, for the preceding year. All shares of CEMEX, S.A.B. de C.V.’s capital stock outstanding at the time a dividend or other distribution is declared are entitled to share equally in that dividend or other distribution. Liquidation Rights In the event CEMEX, S.A.B. de C.V. is liquidated, the surplus assets remaining after payment of all its creditors will be divided among CEMEX, S.A.B. de C.V.’s shareholders in proportion to the respective shares held by them. The liquidator may, with the approval of CEMEX, S.A.B. de C.V.’s shareholders, distribute the surplus assets in kind among CEMEX, S.A.B. de C.V.’s shareholders, sell the surplus assets and divide the proceeds among CEMEX, S.A.B. de C.V.’s shareholders or put the surplus assets to any other uses agreed to by a majority of CEMEX, S.A.B. de C.V.’s shareholders voting at an extraordinary shareholders’ meeting. Differences Between Our Corporate Governance Practices and NYSE Standards for Domestic Companies For a description of significant ways in which CEMEX, S.A.B. de C.V.’s corporate governance practices differ from those required of domestic companies under NYSE standards, see You may find additional information in the corporate governance section of our website CEMEX, S.A.B. de C.V. Avenida
The information on our website is not, and is not intended to be, part of this annual report and is not incorporated into this annual report by reference. CEMEX, S.A.B. de C.V. did not declare a dividend for fiscal years At pro-rata basis in connection with the At CEMEX, S.A.B. de C.V.’s 2018 annual general ordinary shareholders’ meeting, held on March 28, 2020, CEMEX, S.A.B. de C.V. declared a cash dividend in the amount of $150 million, paid in Mexican Pesos in two equal installments, in June 2019 and December 2019. As of December 31,
On December 18, 2006, CEMEX, through two special purpose vehicles, issued two tranches offixed-to-floating rate callable Perpetual Debentures. C5 Capital (SPV) Limited issued held by us). C10 Capital (SPV) Limited issued For a description of the material terms relating to the November 2019 Mandatory Convertible Mexican Peso Notes In connection with the 2017 For a description of the material terms relating to the Senior Secured Notes, see “Item 5—Operating and Financial Review and Prospects—Summary of Material Contractual Obligations and Commercial Commitments—Senior Secured Notes.”
Not applicable. Mexican Tax Considerations General The following is a summary of certain Mexican federal income tax considerations relating to the ownership and disposition of CEMEX, S.A.B. de C.V.’s CPOs or ADSs. This summary is based on Mexican income tax law that is in effect on the date of this annual report, which is subject to change. This summary is limited tonon-residents of Mexico, as defined below, who own CEMEX, S.A.B. de C.V.’s CPOs or ADSs. This summary does not address all aspects of Mexican income tax law. Holders are urged to consult their tax counsel as to the tax consequences that the purchase, ownership and disposition of CEMEX, S.A.B. de C.V.’s CPOs or ADSs may have. For purposes of Mexican taxation, an individual is a resident of Mexico if he or she has established his or her home in Mexico. If the individual also has a home in another country, he or she will be considered a resident of Mexico if his or her center of vital interests is in Mexico. Under Mexican law, an individual’s center of vital interests is in Mexico if, among other things:
A Mexican
A legal entity is a resident of Mexico if it is organized under the laws of Mexico or if it maintains the principal administration of its business or the effective location of its management in Mexico. A Mexican citizen is presumed to be a resident of Mexico for tax purposes unless such person or entity can demonstrate otherwise. If a legal entity or an individual is deemed to have a permanent establishment in Mexico for tax purposes, all income attributable to such permanent establishment will be subject to Mexican taxes, in accordance with relevant tax provisions. Individuals or legal entities that cease to be residents of Mexico must notify the tax authorities within 15 business days before their change of residency. Anon-resident of Mexico is a legal entity or individual that does not satisfy the requirements to be considered a resident of Mexico for Mexican federal income tax purposes. Taxation of Dividends Dividends from earnings generated before January 1, 2014, either in cash or in any other form, paid tonon-residents of Mexico with respect to Series A shares or Series B shares represented by the CPOs (or in the case of holders who hold CPOs represented by ADSs), will not be subject to withholding tax in Mexico. As a result of the enactment of certain tax provisions in Mexico, as of January 1, 2014, dividends in cash from identifiedpre-tax retained earnings generated after January 1, 2014 will be subject to a 10% withholding tax. This tax is considered as a definitive payment. Disposition of CPOs or ADSs As a result of the enactment of certain tax provisions in Mexico, as of January 1, 2014, in the case of individuals, capital gains of shares issued by Mexican companies Gains on the sale or disposition of CPOs by a holder who is anon-resident of Mexico will not be subject to any Mexican tax, if the sale is carried out through the Under the terms of the Convention Between the Deposits and withdrawals of ADSs will not give rise to any Mexican tax or transfer duties. The term Estate and Gift Taxes There are no Mexican inheritance or succession taxes applicable to the ownership, transfer or disposition of ADSs or CPOs by holders that arenon-residents of Mexico, although gratuitous transfers of CPOs may, in some circumstances, cause a Mexican federal tax to be imposed upon a recipient. There are no Mexican stamp, issue, registration or similar taxes or duties payable by holders of ADSs or CPOs. U.S. Federal Income Tax Considerations General The following is a summary of certain U.S. federal income tax This summary is based on provisions of Title 26 of the U.S. For purposes of this summary, a “U.S. Shareholder” means a beneficial owner of CPOs or ADSs, who is for U.S. federal income tax purposes:
If a partnership (including any entity arrangement treated as a partnership for U.S. federal income tax purposes) is the beneficial owner of CPOs or ADSs, the U.S. federal income tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. A partner in a partnership that is the beneficial owner of CPOs or ADSs should consult its tax advisor regarding the associated tax consequences. U.S. Shareholders should consult their tax advisors as to the particular tax consequences to them under Ownership of CPOs or ADSs in general In general, for U.S. federal income tax purposes, U.S. Shareholders who own ADSs will be treated as the beneficial owners of the CPOs represented by those ADSs, and each CPO will represent a beneficial interest in two Series A shares and one Series B share. Taxation of distributions with respect to CPOs and ADSs A distribution of cash or property with respect to the Series A shares or Series B shares represented by CPOs, including CPOs represented by ADSs, generally will be treated as a dividend to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, and will be includible in the gross income of a U.S. Shareholder as foreign source “passive” income on the date the distribution is received by the CPO trustee or successor thereof. Any such dividend will not be eligible for the dividends-received deduction allowed to corporate U.S. Shareholders. To the extent, if any, that the amount of any distribution by us exceeds our current and accumulated earnings and profits as determined under U.S. federal income tax principles, it will be treated first as atax-free return of the U.S. Shareholder’s adjusted tax basis in the CPOs or ADSs, as applicable, and thereafter as capital gain. For more on the treatment of capital gain with respect to the CPOs and ADSs, see “Taxation—U.S. Federal Income Tax Considerations—Taxation of capital gains on disposition of CPOs or ADSs” below. The gross amount of any dividends paid in Mexican Pesos will be includible in the income of a U.S. Shareholder in a Dollar amount calculated by reference to the exchange rate in effect the day the Mexican Pesos are received by the CPO trustee or successor thereof whether or not the Mexican Pesos are converted into Dollars on that day. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in income to the date such payment is converted into Dollars will be treated as ordinary income or loss. Such gain or loss will generally be income from sources within the Dividend income is generally taxed as ordinary income. However “qualified dividend income” received by U.S. Shareholders that are individuals (as well as certain trusts and estates) is generally eligible for preferential U.S. federal income tax rates (provided that certain holding period requirements are met). “Qualified dividend income” includes dividends paid on shares of “qualified foreign corporations” if, among other things: (i) the shares of the foreign corporation are readily tradable on an established securities market in the We believe that we are a “qualified foreign corporation” because (i) the ADSs trade on the New York Stock Exchange and (ii) we are eligible for the benefits of the comprehensive income tax treaty between Mexico and the Taxation of capital gains on disposition of CPOs or ADSs The sale, exchange, redemption, or other disposition of CPOs or ADSs will result in the recognition of gain or loss by a U.S. Shareholder for U.S. federal income tax purposes in an amount equal to the difference between the amount realized on the disposition and the U.S. Shareholder’s tax basis in the CPOs or ADSs, as applicable. Such gain or loss will be long-term capital gain or loss if the U.S. Shareholder’s holding period for the CPOs or ADSs exceeds one year at the time of disposition. Long-term capital gain recognized by a U.S. Shareholder that is an individual (as well as certain trusts and estates) upon the sale or exchange of CPOs or ADSs is generally eligible for preferential U.S. federal income tax rates. The deduction of capital losses is subject to limitations. Gain from the disposition of CPOs or ADSs generally will be treated as U.S. source for foreign tax credit purposes; losses will generally be allocated against U.S. source income. Deposits and withdrawals of CPOs by U.S. Shareholders in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes.
A U.S. Shareholder may, under certain circumstances, be subject to information reporting with respect to some payments to that U.S. Shareholder such as dividends or the proceeds of a sale or other disposition of the CPOs or ADSs. Backup withholding also may apply to amounts paid to such holder unless such holder (i) is a corporation or comes within certain exempt categories and demonstrates this fact when so required, or (ii) provides a correct taxpayer identification number and otherwise complies with applicable requirements of the backup withholding rules. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be creditable against the U.S. Shareholder’s federal income tax liability, and the U.S. Shareholder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS and timely furnishing any required information. An individual U.S. Shareholder may be required to submit to the IRS certain information with respect to his or her beneficial ownership of CPOs or ADSs, unless such CPOs or ADSs are held on his or her behalf by a U.S. financial institution. The law also imposes penalties if an individual U.S. Shareholder is required to submit such information to the IRS and fails to do so. U.S. Shareholders should consult their tax advisors regarding the application of the new law in their particular circumstances. Documents on Display We are subject to the informational requirements of the Exchange Act and, in accordance with these requirements, file reports and information statements and other information with the SEC. These reports and information statements and other information filed by us with the SEC In reviewing the agreements included as exhibits to this annual report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about us or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Item 11—Quantitative and Qualitative Disclosures About Market Risk See “Item 5—Operating and Financial Review and Prospects—Quantitative and Qualitative Market Item 12—Description of Securities Other than Equity Securities Not applicable. Not applicable. Not applicable. Item 12D—American Depositary Shares Under the terms of the Deposit Agreement for CEMEX, S.A.B. de C.V.’s ADSs, an ADS holder may have to pay the following service fees to the depositary:
An ADS holder also is responsible to pay fees and expenses incurred by the ADS depositary and taxes and governmental charges including, but not limited to:
We have agreed to pay some of the other charges and expenses of the ADS depositary. Note that the fees and charges that a holder of ADSs is required to pay may vary over time and may be changed by us and by the ADS depositary. ADS holders will receive notice of the changes. The fees described above may be amended from time to time. Depositary Payments for the In relations activities (including but not limited to investor meetings, conferences and fees to investor relations service vendors) and other miscellaneous expenses related to the listing of our ADSs on the NYSE. Item 13—Defaults, Dividend Arrearages and Delinquencies None. Item 14—Material Modifications to the Rights of Security Holders and Use of Proceeds None. Item 15—Controls and Procedures Disclosure Controls and Procedures Our management has evaluated, with the participation of CEMEX, S.A.B. de C.V.’s
Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting refers to a process designed by, or under the supervision of, the CEO and CFO and effected by CEMEX, S.A.B. de C.V.’s board of directors and our management to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
Under the supervision and with the participation of our management, including the CEO and CFO and principal financial and accounting officers, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, Based on this evaluation, our management
Attestation Report of the Independent Registered Public Accounting Firm
The report on the audit of the effectiveness of our internal control over financial reporting
Changes in Internal Control Over Financial Reporting
209 We have not identified changes in our internal control over financial reporting during Item 16A—Audit Committee Financial Expert CEMEX, S.A.B. de C.V.’s board of directors has determined that it has at least one “audit committee financial expert” (as defined in Item 16A of Form20-F) serving on its audit committee. Mr. We have adopted a written code of ethics that applies to all board members, employees, including our principal executive officer, principal financial officer and principal accounting Our code of ethics provides the following main guidelines: (i) Our purpose (ii) Our
(iv) Human rights: we look to support and respect the protection of internationally proclaimed human rights principles and we do not tolerate any violation of human rights in our (v) Harassment and
(vi) Diversity and (vii) Customer relations: we work to be our customers’ best option and (viii) Supplier relations: we look to manage our supplier relationships with honesty, respect and integrity, offering equal opportunities for all parties; (ix) Government relations: our operations require a wide range of interactions with government agencies in many countries; these agencies may act as regulators, customers, suppliers, stockholders and/or promoters; we plan to always conduct our interactions with these agencies consistent with our values, with particular emphasis on integrity; (x) Community relations: we are committed to promoting and contributing to the development of our communities by preserving the environment, fostering mutually beneficial relationships and maintaining open lines of communication. When considering CEMEX’s participation in economic, social, and environmental programs, we should always comply with the law; (xi) Environment: our business should be carried out in an environmentally responsible and sustainable manner, aiming to mitigate the environmental and social impacts of our business; (xii) Antitrust compliance: we are committed to conducting all of our business activities in compliance with applicable laws. We operate in many countries and are subject to different antitrust laws and regulations. Therefore, our country managers seek that our business activities conform to local laws and regulations, and to our own policies; 210 (xiii) Anti-corruption: we forbid our personnel from promising or providing anything of value to government officials or any third parties to secure any undue advantage or unduly influence any decisions; (xiv) Preventing money laundering: we prohibit money laundering, understood as the process of disguising the nature and source of money or other property connected with criminal activity, such as drug trafficking, terrorism, bribery or corruption, by integrating the illicit money or property into the stream of commerce so that (xv) Conflicts of interest and (xvi) Gifts and hospitalities: we, (xvii) Use of CEMEX’s assets: employees should never use CEMEX assets for their own benefit, and we look to ensure that (xviii) Political activities: we acknowledge and
(xix) Data privacy and protection: we plan to protect the confidentiality and integrity of personal data to foster trustworthy business relationships. We aim to process personal data fairly and lawfully and provide access to it within our organization only on a need-to- know basis; (xx) Insider trading: we should never buy or sell the stock of CEMEX while in possession of non-public material information about the company. We should never “tip” others or share non-public material information even if we do not intend to profit for ourselves or others; (xxi) Intellectual property: we look to ensure the protection of CEMEX’s intellectual property and capture innovation to ensure added value and freedom to operate. CEMEX recognizes and respects the intellectual property of third parties and intends to prevent and avoid consequences of potential infringement of third parties’ rights; (xxii) Accurate records: we look to provide our stakeholders with correct and complete information in a timely manner; anyone responsible for financial records, or any other CEMEX records or reporting, must aim to ensure that those records accurately reflect our business activities, are (xxiii) Communication and use of social media: we should not make any statements outside of CEMEX about company performance, initiatives or any other internal matters. We look to We promote awareness and enforcement of our code of ethics through our ethics committees, training programs and secured internal communications channels. We periodically evaluate and update the provisions of our code of ethics. You may view our code of ethics in the corporate governance section of our website (www.cemex.com), or you may request a copy of our code of ethics, at no cost, by writing to or telephoning us as follows: 211 CEMEX, S.A.B. de C.V. Avenida
Item 16C—Principal Accountant Fees and Services Audit Audit-Related Fees: KPMG Cárdenas Dosal, S.C. in Mexico and KPMG firms worldwide Tax Fees: KPMG Cárdenas Dosal, S.C. in Mexico and KPMG firms worldwide charged us All fees. In fiscal year Audit CommitteePre-Approval Policies and Procedures Our audit committee is responsible for, among other things, During Item 16D—Exemptions from the Listing Standards for Audit Committees Not applicable. Item 16E—Purchases of Equity Securities by the Issuer and Affiliated Purchasers Not applicable. Item 16F—Change in Not applicable. Section 303A.11 of the NYSE Listed Company Manual (“LCM”) requires that listed foreign private issuers, such as CEMEX, disclose any significant ways in which their corporate governance practices differ from those followed by U.S. companies under NYSE listing standards. CEMEX’s corporate governance practices are governed by itsby-laws, by the corporate governance provisions set forth in the Mexican Securities Market Law, the Mexican Regulation for Issuers (Circular de Emisoras 212 CEMEX, on a voluntary basis, also complies with the Mexican Code of Best Corporate Practices (Código de Mejores Prácticas Corporativas The following is a summary of significant ways in which our corporate governance practices differ from those required to be followed by U.S. domestic companies under the NYSE’s listing standards.
213
214 Not applicable. See pagesF-1 through
1.1 Amended and Restated By-laws of CEMEX, S.A.B. de C.V.(i) 2.1 Form of Certificate for shares of Series A Common Stock of CEMEX, S.A.B. de C.V.(k) 2.2 Form of Certificate for shares of Series B Common Stock of CEMEX, S.A.B. de C.V.(k) 2.4 Form of CPO Certificate.(k) 2.5 Form of Second Amended and Restated Deposit Agreement (Series A and Series B share CPOs), dated August 10, 1999, among CEMEX, S.A. de C.V., Citibank, N.A. and holders and beneficial owners of American Depositary Shares.(a)(p) 215 216 217 218 219 15.1 Mine safety and health administration safety data.(k) 101. INS XBRL Instance Document.(k) 101. SCH XBRL Taxonomy Extension Schema Document.(k) 101. CAL XBRL Taxonomy Extension Calculation Linkbase Document.(k) 101. LAB XBRL Taxonomy Extension Label Linkbase Document.(k) 101. PRE XBRL Taxonomy Extension Presentation Linkbase Document.(k) 101. DEF XBRL Taxonomy Extension Definition Document.(k)
In reviewing the agreements included as exhibits to this annual report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about us or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. 220 SIGNATURES CEMEX, S.A.B. de C.V. hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: April 221 INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Consolidated Income Statements (Millions of
The accompanying notes are part of these consolidated financial statements.
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) (Millions of
The accompanying notes are part of these consolidated financial statements.
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Consolidated Statements of Financial Position (Millions of
The accompanying notes are part of these consolidated financial statements.
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Millions of
The accompanying notes are part of these consolidated financial statements.
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Statements of Changes in Stockholders’ Equity (Millions of
The accompanying notes are part of these consolidated financial statements.
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
CEMEX, S.A.B. de C.V., founded in 1906, is a The shares of CEMEX, S.A.B. de C.V. are listed on the Mexican Stock Exchange (“MSE”) as Ordinary Participation Certificates (“CPOs”) under the symbol “CEMEXCPO”. Each CPO represents two series “A” shares and one series “B” share of common stock of CEMEX, S.A.B. de C.V. In addition, CEMEX, S.A.B. de C.V.’s shares are listed on the New York Stock Exchange (“NYSE”) asAmerican Depositary Shares (“ADSs”) under the symbol “CX.” Each ADS represents ten CPOs. The terms “CEMEX, S.A.B. de C.V.” and/or the “Parent Company” used in these accompanying notes to the financial statements refer to CEMEX, S.A.B. de C.V. without its consolidated subsidiaries. The terms the “Company” or “CEMEX” refer to CEMEX, S.A.B. de C.V. together with its consolidated subsidiaries. The issuance of these consolidated financial statements was authorized by the Board of Directors of CEMEX, S.A.B. de C.V. on February
The consolidated financial statements as of December 31, Presentation currency and definition of terms Beginning March 31, 2019 and for all subsequent periods, as permitted by International Accounting Standard 21,The Effects of Changes in Foreign Exchange Rates (“IAS 21”) under IFRS and with the authorization of CEMEX, S.A.B. de C.V.’s Board of Directors, considering the previous favorable opinion of its Audit Committee, CEMEX changed its presentation currency from the Mexican peso to the dollar of the United States of America (“U.S. dollar”) considering the following factors: For a consolidated group that comprises operations with a number of functional currencies, it is a decision of each entity to select its presentation currency under IAS 21, which may be the currency that management uses when controlling and monitoring the performance and financial position of the group. In the case of CEMEX, management uses the U.S. dollar for these purposes; The Company believes that presenting its consolidated financial information using the U.S. dollar will improve and facilitate the analysis to a broad range of users (rating agencies, analysts, investors and lenders, among others) of the Company’s consolidated financial statements; and The use of the U.S. dollar as presentation currency will also improve the comparison of CEMEX’s consolidated financial statements with those of other global entities. The consolidated financial statements, including comparative amounts and the accompanying notes to the consolidated financial statements, When reference is made to CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Presentation currency and definition of terms
Amounts disclosed in the notes in connection with outstanding tax and/or legal proceedings (notes 19.4 and 24), which are originated in jurisdictions Discontinued operations
Income statements CEMEX includes the line item titled “Operating earnings before other expenses, net” considering that it is a relevant operating measure for CEMEX’s Considering that it is an indicator of CEMEX’s ability to internally fund capital expenditures and to measure its ability to service or incur debt under its financing agreements, for purposes of notes 4.4 and 16, CEMEX presents “Operating EBITDA” (operating earnings before other expenses,
management for decision-making purposes. Statements of cash flows The statements of cash flows exclude the following transactions that did not represent sources or uses of cash: Financing activities:
In 2019, 2018 and 2017, the increases in other financing obligations in connection with lease contracts negotiated during the year for $220, $229 and $317, respectively (note 16.2); In 2019, 2018 and 2017, in connection with the CPOs issued as part of the executive share-based compensation programs (note 21), the total increases in equity for $17 in 2019, $34 in 2018 and $42 in 2017; In 2017,
In 2017, Investing activities: In 2019, 2018 and 2017, in connection with the Newly issued IFRS adopted in the reported periods IFRS 16 (notes 2.6, 14 and 16.2) Beginning January 1, 2019, IFRS 16 superseded all existing guidance related to lease accounting including IAS 17,Leases(“IAS 17”) and introduced a single lessee accounting model that requires a lessee to recognize, for all leases, allowing exemptions in the case of The effects of IFRS 16 in the Company’s opening balance sheet as of January 1, 2017 were as follows: CEMEX, Notes to the As of (Millions of
Moreover, resulting from the
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) In addition, resulting from the adoption of IFRS 16, CEMEXre-presented its previously reported income statements and statements of cash flows for the years ended December 31, 2018 and 2017, as follows:
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) IFRS 9,Financial Instruments: classification and measurement (“IFRS 9”) CEMEX adopted IFRS 9 beginning January 1, 2018, which sets forth the guidance relating to the classification and measurement of financial assets and financial liabilities, the accounting for expected credit losses of financial assets and commitments to extend credits, as well as the requirements for hedge accounting; and replaced IAS 39,Financial instruments: recognition and measurement (“IAS 39���). Among other aspects of presentation that had no impact on the valuation or the book value of the Company’s financial assets and liabilities and therefore on the retained earnings of CEMEX, regarding the new impairment model under IFRS 9 based on expected credit losses, impairment losses for the entire lifetime of financial assets, including trade accounts receivable, are recognized on initial recognition of the asset, and in each subsequent reporting period, even in the absence of a credit event or if a loss has not yet been incurred, considering for their measurement the history of credit losses and current conditions, as well as reasonable and supportable forecasts affecting collectability. CEMEX developed an expected credit loss model applicable to its trade accounts receivable that considers the historical performance and economic environment, as well as the credit risk and expected developments for each group of customers and applied the simplified approach upon adoption of IFRS 9. The effects of the adoption of IFRS 9 on January 1, 2018 related to the expected credit loss model represented an increase in the allowance of expected credit losses of $29 recognized against retained earnings, net of a deferred income tax asset of $8. The balances of such allowance of expected credit losses and deferred tax assets increased from the reported amounts as of December 31, 2017 of $109 and $754, respectively, to $138 and $762 as of January 1, 2018, respectively, after the adoption effects. Other newly issued IFRS adopted in the reported periods In addition, there were other new standards, interpretations and standard amendments adopted as of January 1, 2019 prospectively, that did not result in any material impact on CEMEX´s results or financial position, and which are explained as follows:
The consolidated financial statements include those of CEMEX, S.A.B. de C.V. and those of the entities in which the Parent Company exercises control, including structured entities (special Investments are accounted for by the equity method when CEMEX has significant influence which is generally presumed with a minimum equity interest of 20%. The equity method reflects in the financial statements, the investee’s original cost and CEMEX’s share of the investee’s equity and earnings after acquisition. The financial statements of joint ventures, which relate to those arrangements in which CEMEX and other third-party investors have joint control and have rights to the net assets of the arrangements, are recognized under the equity method. During the reported periods, CEMEX did not have joint operations, referring to those cases in which the parties that have joint control of the arrangement have rights over specific assets and obligations for specific liabilities relating to the arrangements. The equity method is discontinued when the carrying amount of the investment, including any long-term interest in the investee or joint venture, is reduced to zero, unless CEMEX has incurred or guaranteed additional obligations of the investee or joint venture.
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements; as well as the reported amounts of revenues and expenses during the period. These assumptions are reviewed on an ongoing basis using available information. Actual results could differ from these estimates. The items subject to significant estimates and assumptions by management include impairment tests of long-lived assets, recognition of deferred income tax assets, as well as the measurement of financial instruments at fair value, and the assets and liabilities related to employee benefits. Significant judgment is required by management to appropriately assess the amounts of these concepts.
Transactions denominated in foreign currencies are recorded in the functional currency at the exchange rates prevailing on the dates of their execution. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the statement of financial position date, and the resulting foreign exchange fluctuations are recognized in earnings, except for exchange fluctuations arising from: 1) foreign currency indebtedness associated with the acquisition of foreign entities; and 2) fluctuations associated with related parties’ balances denominated in foreign currency, The financial statements of foreign subsidiaries, as determined using their respective functional currency, are translated to Considering its integrated activities, for purposes of functional currency, the Parent Company is considered to have two divisions, one related with its financial and holding company activities, in which the functional currency is the dollar for all assets, liabilities and transactions associated with these activities, and another division related with the Parent Company’s operating activities in Mexico, in which the functional currency is the peso for all assets, liabilities and transactions associated with these activities.
The most significant closing
The balance in this caption is comprised of available amounts of cash and cash equivalents, mainly represented by highly-liquid short-term investments, which are readily convertible into known amounts of cash, and which are not subject to significant risks of changes in their values, including overnight investments, which yield fixed returns and have maturities of less than three months from the investment date. These fixed-income investments are recorded at cost plus accrued interest. Accrued interest is included in the income statement as part of “Financial income and other items, net.”
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Classification and measurement of financial instruments The financial assets that meet both of the following conditions and are not designated as at fair value through profit or loss: a) are held within a business model whose objective is to hold assets to collect contractual cash flows; and b) its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are classified as “Held to collect” and measured at amortized cost. Amortized cost represents the net present value (“NPV”) of the consideration receivable or payable as of the transaction date. This classification of financial assets comprises the following captions: Cash and cash equivalents (notes 2.5 and 8). Trade receivables, other current accounts receivable and other current assets (notes 9 and 10). Due to their short-term nature, CEMEX initially recognizes these Trade receivables sold under securitization programs, in which certain residual interest in the trade receivables sold in case of recovery failure and continued involvement in such assets is maintained, do not qualify for derecognition and are maintained
Investments andnon-current accounts receivable (note 13.2)
The financial assets that are not classified as “Held to collect” or that do not have strategic characteristics fall into the residual category of held at fair value through the income statement as part of “Financial income and other items, Debt instruments and other financial obligations are classified as “Loans” and measured at amortized cost (notes 16.1 and 16.2)
Derivative financial instruments are recognized as assets or liabilities in the statement of financial position at their estimated fair values, and the changes in such fair values are recognized in the income statement within “Financial income and other items, net” for the period in which they occur, except in the case of hedging instruments as described below (note 16.4). Impairment of financial assets Impairment losses of financial assets, including trade accounts receivable, are recognized using the expected credit loss model (“ECL”) for the entire lifetime of such financial assets on initial recognition, and at each subsequent reporting period, even in the absence of a credit event or if a loss has not yet been incurred, considering for their measurement past events and current conditions, as well as reasonable and supportable forecasts affecting collectability. For purposes of the ECL model of trade accounts receivable, CEMEX segments its accounts receivable in a matrix by country, type of client or homogeneous credit risk and days past due and determines for each segment an average rate of ECL, considering actual credit loss experience over the last 24 months and analyses of future delinquency, that is applied to the balance of the accounts receivable. The average ECL rate increases in each segment of days past due until the rate is 100% for the segment of 365 days or more past due. Costs incurred in the issuance of debt or borrowings Direct costs incurred in debt issuances or borrowings, as well as debt refinancing ornon-substantial modifications to debt agreements that did not represent an extinguishment of debt by considering that the holders and the relevant economic terms of the new instrument are not substantially different to the replaced instrument, adjust the carrying amount of the related debt and are amortized as interest expense as part of the effective interest rate of each instrument over its maturity. These costs include commissions and professional fees. Costs incurred in the extinguishment of debt, as well as debt refinancing or modifications to debt agreements, when the new instrument is substantially different
As mentioned in note 2.1, CEMEX adopted IFRS 16 beginning January 1, 2019 using the full retrospective approach. At the inception of a CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Leases (notes 2.8, 14 and 16.2) – continued Based on IFRS 16, leases are recognized as financial liabilities against assets for theright-of-use, measured at their commencement date as the net present value (“NPV”) of the future contractual fixed payments, using the interest rate implicit in the lease or, if that rate cannot be readily determined, CEMEX´s incremental borrowing rate. CEMEX determines its incremental borrowing rate by obtaining interest rates from its external financing sources and makes certain adjustments to reflect the term of the lease, the type of the asset leased and the economic environment in which the asset is leased. CEMEX does not separate thenon-lease component from the lease component included in the same contract. Lease payments included in the measurement of the lease liability comprise contractual rental fixed payments, less incentives, fixed payments ofnon-lease components and the value of a purchase option, to the extent that option is highly probable to be exercised or is considered a bargain purchase option. Interest incurred under the financial obligations related to lease contracts is recognized as part of the “Interest expense” line item in the income statement. At commencement date or on modification of a contract that contains a lease component, CEMEX allocates the consideration in the contract to each lease component based on their relative stand-alone prices. CEMEX applies the recognition exception for lease terms of 12 months or less and contracts oflow-value assets and recognizes the lease payment of these leases as rental expense in the income statement over the lease term. CEMEX defined the lease contracts related to office and computer equipment aslow-value assets. The lease liability is amortized using the effective interest method as payments are incurred and is remeasured when: a) there is a change in future lease payments arising from a change in an index or rate, b) if there is a change in the amount expected to be payable under a residual guarantee, c) if the Company changes its assessment of whether it will exercise a purchase, extension or termination option, or d) if there is a revisedin-substance fixed lease payment. When the lease liability is remeasured, an adjustment is made to the carrying amount of the asset for theright-of-use or is recognized within “Financial income and other items, net” if such asset has been reduced to zero. Financial instruments with components of both liabilities and equity (note 16.2)
In cash flow hedges, the effective portion of changes in fair value of derivative instruments Embedded derivative financial instruments CEMEX reviews its contracts to identify the existence of embedded derivatives. Identified embedded derivatives are analyzed to determine if they need to be separated from the host contract and recognized in the statement of financial position as assets or liabilities, applying the same valuation rules used for other derivative instruments. Put options granted for the purchase ofnon-controlling interests
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Fair value measurements (note 16.3) Under IFRS, fair value represents an “Exit Value” which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, considering the counterparty’s credit risk in the valuation. The concept of Exit Value is premised on the existence of a market and market participants for the specific asset or liability. When there The three levels of the fair value hierarchy are as follows:
Level
Level
Level
Inventories are valued using the lower of cost or net realizable value. The cost of inventories is based on weighted average cost formula and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. CEMEX analyzes its inventory balances to determine if, as a result of internal events, such as physical damage, or external events, such as technological changes or market conditions, certain portions of such balances have become obsolete or impaired. When an impairment situation arises, the inventory balance is adjusted to its net realizable
Property, machinery and equipment are recognized at their acquisition or construction cost, as applicable, less accumulated depreciation and accumulated impairment losses. Depreciation of fixed assets is recognized as part of cost and operating expenses (note 5)
lives of the assets, except for mineral reserves, which are depleted using theunits-of-production method. As of December 31,
Assets for theright-of-use related to leases are initially measured at cost, which comprises the initial amount of the lease liability adjusted by any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle, remove or restore the underlaying asset, less any lease incentives received. The asset for theright-of-use is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlaying asset to CEMEX by the end of the lease term or if the cost of the asset for theright-of-use reflects that CEMEX will exercise a purchase option. In that case the asset for theright-of-use would be depreciated over the useful life of the underlying asset, on the same basis as those of property, plant and equipment. In addition, assets for theright-of-use may be reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. CEMEX capitalizes, as part of the related cost of fixed assets, interest expense from existing debt during the construction or installation period of significant fixed assets, considering CEMEX’s corporate average interest rate and the average balance of investments in process for the period. All waste removal costs or stripping costs incurred in the operative phase of a surface mine in order to access the mineral reserves are recognized as part of the carrying amount of the related quarries. The capitalized amounts are further amortized over the expected useful life of exposed ore body based on the CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of (Millions of U.S. dollars) Property, machinery and equipment and assets for theright-of-use (note 14) – continued Costs incurred in respect of operating fixed assets that result in future economic benefits, such as an extension in their useful lives, an increase in their production capacity or in safety, as well as those costs incurred to mitigate or prevent environmental damage, are capitalized as part of the carrying amount of the related assets. The capitalized costs are depreciated over the remaining useful lives of such fixed assets. Periodic maintenance
Business combinations are recognized using the acquisition method, by allocating the consideration transferred to assume control of the entity to all assets acquired and liabilities assumed, based on their estimated fair values as of the acquisition date. Intangible assets acquired are identified and recognized at fair value. Any unallocated portion of the purchase price represents goodwill, which is not amortized and is subject to periodic impairment tests (note 2.10). Goodwill may be adjusted for any CEMEX capitalizes intangible assets acquired, as well as costs incurred in the development of intangible assets, when probable future economic benefits associated are identified and there is evidence of control over such benefits. Intangible assets are recognized at their acquisition or development cost, as applicable. Indefinite life intangible assets are not amortized since the period in which the benefits associated with such intangibles will terminate cannot be accurately established. Definite life intangible assets are amortized on a straight-line basis as part of operating costs and expenses (note 5).
Startup costs are recognized in the income statement as they are incurred. Costs associated with research and development activities (“R&D activities”), performed by CEMEX to create products and services, as well as to develop processes, equipment and methods to optimize operational efficiency and reduce costs are recognized in the operating results as incurred. Direct costs incurred in the development stage of computer software for internal use are capitalized and amortized through the operating results over the useful life of the software, which on average is approximately 5 years. Costs incurred in exploration activities such as payments for rights to explore, topographical and geological studies, as well as trenching, among other items incurred to assess the technical and commercial feasibility of extracting a mineral resource, which are not significant to CEMEX, are capitalized when probable future economic benefits associated with such activities are identified. When extraction begins, these costs are amortized during the useful life of the quarry based on the estimated tons of material to be extracted. When future economic benefits are not achieved, any capitalized costs are subject to impairment. CEMEX’s extraction rights have
Property, machinery and equipment, assets for theright-of-use, intangible assets of definite life and other investments These assets are tested for impairment upon the occurrence of When impairment indicators exist, for each intangible asset, CEMEX determines its projected revenue streams over the estimated useful life of the asset.
through benchmarking with industry practices and the corroboration of CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Impairment of Goodwill is tested for impairment when required The Impairment tests are significantly sensitive to the estimation of future prices of CEMEX’s products, the development of operating expenses, local and international economic trends in the construction industry, the long-term growth expectations in the different markets, as well as the discount rates and the growth rates in perpetuity applied. For purposes of estimating future prices, CEMEX uses, to the extent available, historical
of CGUs to which goodwill is allocated, which are applied to discountpre-tax cash flows. The amounts of estimated undiscounted cash flows are significantly sensitive to the growth rate in perpetuity applied.
CEMEX recognizes provisions when it has a legal or constructive obligation resulting from past events, whose resolution would Considering guidance under IFRS, CEMEX recognizes provisions for levies imposed by governments Restructuring CEMEX recognizes provisions for restructuring when the restructuring detailed plans have been properly finalized and authorized by management and have been communicated to the third parties involved and/or affected by the restructuring prior to the statement of financial Asset retirement obligations (note 17) Unavoidable obligations, legal or constructive, to restore operating sites upon retirement of long-lived assets at the end of their useful lives are measured at the NPV of estimated future cash flows to be incurred in the restoration process and are initially recognized against the related assets’ book value. The increase to the assets’ book value is depreciated during its remaining useful life. The increase in the liability related to adjustments to NPV by the passage of time is charged to the line item “Financial income and other items, net.” Adjustments to the liability for changes in estimations are recognized against fixed assets, and depreciation is modified prospectively. These obligations are related mainly to future costs of demolition, cleaning and reforestation, so that quarries, maritime terminals and other production sites are left in acceptable condition at the end of their operation. CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Costs related to remediation of the environment (notes 17 and 24) Provisions associated with environmental damage represent the estimated future cost of remediation, which are recognized at their nominal value when the time schedule for the disbursement is not clear, or when the economic effect for the passage of time is not significant; otherwise, such provisions are recognized at their discounted values. Reimbursements from insurance companies are recognized as assets only when their recovery is practically certain. In that case, such reimbursement assets are not offset against the provision for remediation costs.
Contingencies and commitments (notes 23 and 24) Obligations or losses related to contingencies are recognized as liabilities in the statement of financial position only when present obligations exist resulting from past events that are
Defined contribution pension plans The costs of defined contribution pension plans are recognized in the operating results as they are incurred. Liabilities arising from such plans are settled through cash transfers to the employees’ retirement accounts, without generating future obligations. Defined benefit pension plans and other post-employment benefits The costs associated with employees’ benefits The service cost, corresponding to the increase in the obligation for additional benefits earned by employees during the period, is recognized within operating costs and expenses. The net interest cost, resulting from the increase in obligations for changes in NPV and the change during the period in the estimated fair value of plan assets, is recognized within “Financial income and other items, net.” The effects from modifications to the pension plans that affect the cost of past services are recognized within operating costs and expenses over the period in which such modifications become effective to the employees or without delay if changes are effective immediately. Likewise, the effects from curtailments and/or settlements of obligations occurring during the period, associated with events that significantly reduce the cost of future services and/or reduce significantly the population subject to pension benefits, respectively, are recognized within operating costs and expenses. Termination benefits Termination benefits, not associated with a restructuring event, which mainly represent severance payments by law, are recognized in the operating results for the period in which they are incurred.
The effects reflected in the income statement for income taxes include the amounts incurred during the period and the amounts of deferred income taxes, determined according to the income tax law applicable to each CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Income taxes – continued Deferred tax assets are reviewed at each reporting date and are reduced when it is not deemed probable that the related tax benefit will be realized, considering the aggregate amount of self-determined tax loss carryforwards that CEMEX believes will not be rejected by the tax authorities based on available evidence and the likelihood of recovering them prior to their expiration through an analysis of estimated future taxable income. If it is probable that the tax authorities would reject a self-determined deferred tax asset, CEMEX would decrease such asset. When it is considered that a deferred tax asset will not be recovered before its expiration, CEMEX would not recognize such deferred tax asset. Both situations would result in additional income tax expense for the period in which such determination is made. In order to determine whether it is probable that deferred tax assets will ultimately be recovered, CEMEX takes into consideration all available positive and negative evidence, including factors such as market conditions, industry analysis, expansion plans, projected taxable income, carryforward periods, current tax structure, potential changes or adjustments in tax structure, tax planning strategies, future reversals of existing temporary differences. Likewise, CEMEX analyzes its actual results versus the Company’s estimates, and adjusts, as necessary, its tax asset valuations. If actual results vary from CEMEX’s estimates, the deferred tax asset and/or valuations may be affected, and necessary adjustments will be made based on relevant information in CEMEX’s income statement for such period.
The effective income tax rate is determined dividing the line item “Income Tax” by the line item “Earnings before income tax.” This effective tax rate is further reconciled to CEMEX’s statutory tax rate applicable in Mexico (note 19.3). A significant effect in CEMEX’s effective tax rate and consequently in the
For the years ended December 31,
CEMEX’s current and deferred income tax amounts included in the income statement for the period are highly variable, and are subject, among other factors, to taxable income determined in each jurisdiction in which CEMEX operates. Such amounts of taxable income depend on factors such as sale volumes and prices, costs and expenses, exchange
Common stock and additionalpaid-in capital (note 20.1) These items represent the value of stockholders’ contributions, and include increases related to the capitalization of retained earnings and the recognition of executive compensation programs in Other equity reserves (note 20.2) Groups the cumulative effects of items and transactions that are, temporarily or permanently, recognized directly to stockholders’ equity, and includes the comprehensive income, which reflects certain changes in stockholders’ equity that do not result from investments by owners and distributions to owners. The most significant items within “Other equity reserves” during the reported periods are as follows: CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Items of “Other equity reserves” included within other comprehensive income:
Currency translation effects from the translation of foreign subsidiaries, net of: a) exchange results from foreign currency debt directly related to the acquisition of foreign subsidiaries; and b) exchange results from foreign currency related
The effective portion of the valuation and liquidation effects from derivative financial instruments under cash flow hedging relationships, which are recorded temporarily in stockholders’ equity (note 2.6);
Changes in fair value of
Current and deferred income taxes during the period arising from items whose effects are directly recognized in stockholders’ equity. Items of “Other equity reserves” not included in comprehensive income:
Effects related to controlling stockholders’ equity for changes or transactions affectingnon-controlling interest stockholders in CEMEX’s consolidated subsidiaries;
Effects attributable to controlling stockholders’ equity for financial instruments issued by consolidated subsidiaries that qualify for accounting purposes as equity instruments, such as the interest expense paid on perpetual debentures;
The equity component of securities which are mandatorily or optionally convertible into shares of the Parent Company (notes 2.6 and 16.2). Upon conversion, this amount will be reclassified to common stock and additionalpaid-in capital; and
The cancellation of the Parent Company’s shares held by consolidated entities. Retained earnings (note 20.3) Retained earnings represent the cumulative net results of prior years, net of: a) dividends declared; b) capitalization of retained earnings; Non-controlling interest and perpetual debentures (note 20.4) This caption includes the share ofnon-controlling stockholders in the results and equity of consolidated subsidiaries. This caption also includes the nominal
Revenue and costs from trading activities, in which CEMEX acquires finished goods from a third party and subsequently sells the goods to another third-party, are recognized on a gross basis, considering that CEMEX assumes When revenue is earned over time as contractual performance obligations are satisfied, which is the case of construction contracts, CEMEX apply the stage of completion method to measure revenue, which represents: a) the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs; b) the surveys of work performed; or c) the physical proportion of the contract work completed; whichever better reflects the percentage of completion under the specific circumstances. Revenue
been defined: a) each party’s enforceable rights regarding the asset under construction; b) the consideration to be exchanged; c) the manner and terms of settlement; d) actual costs incurred and contract costs required to complete the asset are effectively controlled; and e) it is probable that the economic benefits associated with the contract will flow to the entity.
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars)
Cost of sales represents the production cost of inventories at the moment of sale. Such cost of sales includes depreciation, amortization and depletion of assets involved in production, expenses related to storage in production plants and freight expenses of raw material in plants and delivery expenses of CEMEX’sready-mix concrete business. Administrative expenses represent the expenses associated with personnel, services and equipment, including depreciation and amortization, related to managerial activities and back office for the Company’s management. Sales expenses represent the expenses associated with personnel, services and equipment, including depreciation and amortization, involved specifically in sales activities. Distribution and logistics expenses refer to expenses of storage at points of sales, including depreciation and amortization, as well as freight expenses of finished products between plants and points of sale and freight expenses between points of sales and the customers’ facilities.
Share-based payments to executives are defined as equity instruments when services received from employees are settled by delivering shares of the Parent Company and/or a subsidiary; or as liability instruments when CEMEX commits to make cash payments to the executives on the exercise date of the awards based on changes in the Parent Company and/or subsidiary’s own stock (intrinsic value). The cost of equity instruments represents their estimated fair value at the date of grant and is recognized in the income statement during the period in which the exercise rights of the employees become vested. In respect of liability instruments, these instruments are valued at their estimated fair value at each reporting date, recognizing the changes in fair value through the operating results.
In certain countries where CEMEX operates, such as EU countries, mechanisms aimed at reducing carbon dioxide emissions (“CO2”) have been established by means of which, the relevant environmental authorities have granted certain number of emission rights (“certificates”) free of cost to the different industries releasing CO2,
which must submit to such environmental authorities at the end of a compliance period, certificates for a volume equivalent to the tons of CO2 released. Companies must obtain additional certificates to meet deficits between actual CO2 emissions during the compliance period and certificates received, or they can dispose of any surplus of certificates in the market. In addition, the United Nations Framework Convention on Climate Change (“UNFCCC”) CEMEX does not maintain emission rights, CERs and/or enter into forward transactions with trading purposes. CEMEX accounts for the effects associated with CO2 emission reduction mechanisms as follows:
Certificates received for free are not recognized in the statement of financial position. Revenues from the sale of any surplus of certificates are recognized by decreasing cost of sales. In forward sale transactions, revenues are recognized upon physical delivery of the emission certificates.
CERs received from the UNFCCC are recognized as intangible assets at their development cost, which are attributable mainly to legal expenses incurred in the process of obtaining such CERs. During
CEMEX sells its products primarily to distributors in the construction industry, with no specific geographic concentration within the countries in which CEMEX operates. As of and for the years ended December 31,
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
CEMEX’s revenues are mainly originated from the sale and distribution of
Information of revenues by reportable segment and line of business for the
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
expires. For the years ended December 31, 2019, 2018 and 2017
In August 2018, a subsidiary of CEMEX in the United Kingdom acquired all the shares of theready-mix producer Procon Readymix Ltd (“Procon”) for an amount in pounds sterling equivalent to $22, considering the pound sterling to dollar exchange rate as of August 31, 2018. Based on the valuation of the fair values of the assets acquired and liabilities assumed, the net assets of Procon amounted to $10 and goodwill was determined in the amount of $12. On December 5, 2016, through its subsidiary Sierra Trading (“Sierra”), CEMEX presented an offer and take-over bid, which was amended on January 9, 2017 (the “Offer”), to all shareholders of Trinidad Cement Limited (“TCL”), a company publicly listed in Trinidad and Tobago
As of December 31, 2019, through an affiliate in the United Kingdom, CEMEX was in negotiations with Breedon Group plc for the sale of certain assets for an amount that could reach $235, including $31 of debt. The assets held for sale mainly consist of 49ready-mix plants, 28 aggregate quarries, four depots, one cement terminal, 14 asphalt plants, four concrete products operations, as well as a portion of CEMEX’s paving solutions business in the United Kingdom. After completion of the potential divestiture, CEMEX will retain significant operations in the United Kingdom related with the production and sale of cement,ready-mix concrete, aggregates, asphalt and paving solutions. As of December 31, 2019, the assets and liabilities associated with this segment under negotiation in the United Kingdom are presented in the statement of financial position within the line items of “assets held for sale,” including a proportional allocation of goodwill of $49, and “liabilities directly related to assets held for sale,” respectively. Moreover, for purposes of the income statements for the years ended December 31, 2019, 2018 and 2017 the operations related to this segment are presented net of tax in the single line item “Discontinued operations.” See note 26 for subsequent events in connection with this transaction. On November 26, 2019, CEMEX announced that its U.S. affiliate Kosmos Cement Company (“Kosmos”), a partnership with a subsidiary of Buzzi Unicem S.p.A. in which CEMEX holds a 75% interest, signed a definitive agreement for the sale of certain assets to Eagle Materials Inc. for $665. The share of proceeds to CEMEX from this transaction will be $499. The assets being divested consist of Kosmos’ cement plant in Louisville, Kentucky, as well as related assets which include seven distribution terminals and raw material reserves. The closing of this transaction is subject to the satisfaction of certain conditions, including approval from regulators. CEMEX currently expects to finalize this divestiture during the first half of 2020. As of December 31, 2019, the assets and liabilities associated with the sale of Kosmos in the United States are presented in the statement of financial position within the line items of “assets held for sale,” including a proportional allocation of goodwill of $291, and “liabilities directly related to assets held for sale,” respectively. Moreover, for purposes of the income statements for the years ended December 31, 2019, 2018 and 2017 the operations related to this segment are presented net of income tax in the single line item “Discontinued operations.” CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
On May 31, 2019, CEMEX concluded the sale of its aggregates and
On March 29, 2019, CEMEX closed the sale of assets in the Baltics and Nordics to the German building materials group Schwenk for a price in euro equivalent to $387. The Baltic assets divested consisted of one cement production plant in Broceni with a production capacity of approximately 1.7 million tons, four aggregates quarries, two cement quarries, sixready-mix plants, one marine terminal and one land distribution terminal in Latvia. The assets divested also included CEMEX’s 37.8% interest in Akmenes Cementas AB owner of a cement production plant in Akmene in Lithuania with a production capacity of approximately 1.8 million tons, as well as the exports business to Estonia. The Nordic assets divested consisted of three import terminals in Finland, four import terminals in Norway and four import terminals in Sweden. CEMEX’s operations of these disposed assets for the period from January 1 to March 29, 2019 and for the years ended December 31, 2018 and 2017 are reported in the income statements, net of income tax, in the single line item “Discontinued operations,” including in 2019 a gain on sale of $66. On March 29, 2019, CEMEX signed a binding agreement with Çimsa Çimento Sanayi Ve Ticaret A.Ş. to divest CEMEX’s white cement business, except for Mexico and the U.S., for a price of $180, including its Buñol cement plant in Spain and its white cement customer list. The transaction is pending for its conclusion the authorization of the On September 27, 2018, CEMEX concluded the sale of its construction materials operations in Brazil (the “Brazilian Operations”) through the sale to Votorantim Cimentos N/NE S.A. of all the shares of CEMEX’s Brazilian subsidiary Cimento Vencemos Do Amazonas Ltda, consisting of a fluvial cement distribution terminal located in Manaus, Amazonas province, as well as the operation license. The sale price was $31. CEMEX determined a net gain on sale of $12. CEMEX’s Brazilian Operations
On June 30, 2017, CEMEX concluded the sale of its Pacific Northwest Materials Business consisting of aggregate, asphalt andready-mix concrete operations in Oregon and Washington to Cadman Materials, Inc., a subsidiary of HeidelbergCement Group, for On
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Discontinued operations
On September 12, 2016, CEMEX announced that one of its subsidiaries in the United States signed a definitive agreement for the sale of its Fairborn, Ohio cement plant and cement terminal in Columbus, Ohio to Eagle Materials Inc. (“Eagle Materials”) for The operations of the net assets in Ohio sold to For the
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Selected financial information by
Considering similar regional and economic characteristics and/or materiality, certain countries have been aggregated and presented as single line items as follows: a) “Rest of Europe” refers mainly to CEMEX’s operations and activities in Poland, the Czech Republic and Croatia; b) “Rest of SCA&C” refers mainly to CEMEX’s operations and activities in Costa Rica, Puerto Rico, Nicaragua, Jamaica, the Caribbean, Guatemala and El Salvador, excluding the acquired operations of TCL; c) “Caribbean TCL” refers to TCL’s operations mainly in Trinidad and Tobago, Jamaica, Guyana and Barbados; and d) “Rest of AMEA” refers to CEMEX’s operations and activities in Egypt and the United Arab Emirates. The segment “Others” refers to: 1) cement trade maritime operations, 2) Neoris N.V., CEMEX’s subsidiary involved in the business of information technology solutions, 3) the Parent Company, other corporate entities and finance subsidiaries, and 4) other minor subsidiaries with different lines of business. Selected information of the consolidated income statements
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Selected information of the income statements by reportable segment – continued
Debt by reportable segment is included in note 16.1. As of December 31, 2019 and 2018, selected statement of financial position information by
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Selected information of the statements of financial
Revenues by line of business and reportable segment for the years ended December 31, 2019, 2018 and 2017 were as follows:
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Information related to revenue by line of business and reportable segment – continued
Consolidated operating expenses during 2019, 2018 and 2017 by function are as follows:
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Operating expenses, depreciation and amortization
Depreciation and amortization recognized during
The detail of the line item “Other expenses, net” in
Consolidated financial expense in 2019, 2018 and 2017 includes $77, $74 and $71 of interest expense from financial obligations related to lease contracts (notes 14.2 and 16.2).
The detail of
As of December 31,
Based on net settlement agreements, the balance of cash and cash equivalents excludes deposits in margin accounts that guarantee several obligations of CEMEX of CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars)
As of December 31,
As of December 31, Allowances for doubtful accounts were established until December 31, 2017 based on incurred loss analyses over delinquent accounts considering aging of balances, the credit history and risk profile of each customer and legal processes to recover accounts receivable. Beginning in 2018 such allowances are determined and recognized upon origination of the trade accounts receivable based on an ECL model (note 2.6). As of December 31, 2019, the balances of trade accounts receivable and the allowance for ECL were as follows:
Changes in the allowance for expected credit losses in 2019, 2018 and 2017, were as follows:
As of December 31, 2019 and 2018, consolidated other accounts receivable consisted of:
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
As of December 31,
For the years ended December 31,
As of December 31,
As of December 31,
As of December 31, 2019 and 2018, the investments in common shares of associates were as follows:
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
On November 15, 2019, through its subsidiary Balboa Investments B.V., CEMEX sold its 25% equity interest in Cemento Interoceánico, S.A. (“Cemento Interoceánico”), customer, cement producer and competitor of the Company in Panama, to an international cement group (the “Purchaser”) for a price of $44, plus an additional consideration(“earn-out”) for up to $20 to be received in 2020 (note 17.2). As condition precedent for this acquisition of such 25% equity interest of Balboa in Cemento Interoceánico, the Purchaser required CEMEX enter with Cemento Interoceánico into a new clinker supply agreement including certain commercial conditions as well as a guaranteed installed capacity reserve of CEMEX’s plant in Panama for a period of 10 years beginning on November 15, 2019. The portion of the proceeds allocated to the new clinker supply agreement was recognized as deferred revenue and will be amortized to CEMEX’s income statement over the10-year tenure of such contract with Cemento Interoceánico as the conditions agreed upon are fulfilled and revenue is earned. On March 29, 2019, as part of the sale of the Baltic and Nordic assets to the German building materials group Schwenk described in note 4.2, CEMEX sold its 37.8% equity interest in Akmenes Cementas AB. During During January and September 2017, by means of
As mentioned in note 4.1, on February 1, 2017, CEMEX assumed control of its former associate TCL, which was accounted until such date for under the equity method. The purchase of TCL represented a step acquisition. As a result, the remeasurement of CEMEX’s previously held ownership interest in TCL of 39.5% generated a gain of $32 in 2017 as part of “Financial income and other items, net.” Combined condensed statement of financial position information of CEMEX’s associates as of December 31, 2019 and 2018 is set forth below:
Combined selected information of the statements of operations of CEMEX’s associates in 2019, 2018 and 2017 is set forth below:
The share of equity accounted investees by reportable segment in the income statements for 2019, 2018 and 2017 is detailed as follows:
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
As of December 31,
As of December 31,
As of December 31, 2019 and 2018, consolidated property, machinery and equipment, net and the changes in
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Property, machinery and equipment, net
As a result of impairment tests conducted on several CGUs considering certain triggering events, mainly: a) the closing and/or reduction of operations of cement andready-mix concrete plants resulting from adjusting the supply to current demand conditions, such as the During the years ended December 31, 2019, 2018 and 2017 impairment losses of fixed assets by country are as follows:
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
For the years ended December 31, 2019, 2018 and 2017,
As of December 31,
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Goodwill – continued Changes in consolidated goodwill in
Intangible assets of definite life Changes in intangible assets of definite life in
For purposes of goodwill impairment tests, all cash-generating units within a country are aggregated, as goodwill is allocated at that level. Considering materiality for disclosure purposes, certain balances of goodwill were presented for Rest of During the last quarter of each year, CEMEX performs its annual goodwill impairment test. During 2019 and 2018, CEMEX did not determine impairment losses of goodwill. Based on these analyses, during 2017, in connection with the CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
CEMEX’spre-tax discount rates and long-term growth rates used to determine the discounted cash flows in the group of CGUs with the main goodwill balances were as follows:
In connection with the assumptions included in the table above, CEMEX As of December 31, CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of U.S. dollars) Analysis of goodwill impairment – continued As of December 31, 2019 and 2018, goodwill allocated to its operating segment in the United States accounted in both years for
As of
As of
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
As of December 31,
Changes in consolidated debt for the
As of December 31,
The maturities of consolidated long-term debt as of December 31, 2019, were as follows:
As of December 31, 2019, CEMEX had the following lines of credit, of which, the only commited portion referes to the revolving credit facility under the 2017 Credit Agreement, at annual interest rates ranging between 0.75% and 8.50%, depending on the negotiated currency:
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
2017 Credit Agreement and 2014 Credit Agreement
All tranches under the 2017 Credit Agreement have substantially the same terms, including
The balance of debt under the 2017 Credit Agreement and previously under the 2014 Credit Agreement, which debtor is CEMEX, S.A.B. de C.V., was originally guaranteed by CEMEX México, S.A. de C.V., CEMEX Concretos, S.A. de C.V., Empresas Tolteca de México, S.A. de C.V., New Sunward Holding B.V., CEMEX España, During the years 2019, 2018 and 2017, under both the 2017 Credit Agreement and the 2014 Credit Agreement, In addition to the restrictions mentioned above, and subject in each case to the permitted negotiated amounts and other exceptions, CEMEX is also subject to a number of negative covenants that, among other things, restrict or limit its ability CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
2017 Credit Agreement and 2014 Credit Agreement
In addition, the 2017 Credit Agreement, and previously the 2014 Credit Agreement, contains events of default, some of which may occur and are outside of CEMEX’s control such as expropriation, sequestration and availability of foreign exchange. As of December 31, Financial Covenants The 2017 Credit Agreement After the April 2, 2019 amendments, which modified the calculation of
Leverage Ratio: After the April 2, 2019 amendments mentioned above, is calculated by dividing “Funded Debt” by pro forma Operating EBITDA for the last twelve months as of the calculation date including the adoption of IFRS 16. Funded Debt equals debt, as reported in the statement of financial position, net of cash and cash equivalents, excluding components of liability of convertible subordinated notes, plus lease liabilities, perpetual debentures and guarantees, plus or minus the fair value of derivative financial instruments, as applicable, among other adjustments for business acquisitions or disposals. Before the April 2, 2019 amendments, the calculation of Funded Debt did not include cash and cash equivalents and obligations under lease contracts. Pro forma Operating EBITDA represents, Operating EBITDA for the last twelve months as of the calculation date, after IFRS 16 effects, plus the portion of Operating EBITDA referring to such twelve-month period of any significant acquisition made in the period before its consolidation in CEMEX,
CEMEX’s ability to comply with these ratios may be affected by economic conditions and volatility in foreign exchange rates, as well as by overall conditions in the financial and capital markets. CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the As of December 31, (Millions of
Financial covenants – continued
CEMEX will classify all of its outstanding debt as current debt
As of December 31,
CEMEX has several operating and administrative assets under lease contracts (note 14.2). As mentioned in note 2.1, beginning January 1, 2019, CEMEX applied IFRS 16 using the full retrospective approach andre-presented the amounts of prior periods. CEMEX applies the recognition exemption for short-term leases and leases oflow-value assets. Changes in the balance of lease financial liabilities during 2019, 2018 and 2017 were as follows:
As of December 31, 2019, the maturities of lease financial liabilities are as follows:
Total cash outflows for leases in 2019, 2018 and 2017 were $316, $266 and $183, respectively. Future payments associated with these contracts are presented in note 23.1.
As mentioned in note 9, the funded amounts of sale of trade accounts receivable under securitization programs and/or factoring programs with recourse, are recognized in “Other financial obligations” in the statement of financial position.
During 2015, the Parent Company issued
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of Other financial obligations – continued
In December 2009, the Parent Company exchanged debt into
Financial assets and liabilities The The estimated fair value of CEMEX´s long-term debt is level 2 and is either based on estimated market prices for such or similar instruments, considering interest rates currently available for CEMEX to negotiate debt with the same maturities, or determined by discounting future cash flows using market-based interest rates currently available to CEMEX. The fair values determined by CEMEX for its derivative financial instruments are level 2. There is no direct measure for the risk of CEMEX or its counterparties in connection with such instruments. Therefore, the risk factors applied for CEMEX’s assets and liabilities originated by the valuation of such derivatives were extrapolated from publicly available risk discounts for other public debt instruments of CEMEX or of its counterparties. The estimated fair value of derivative instruments fluctuates over time and is determined by measuring the effect of future relevant economic variables according to the yield curves shown in the market as of the reporting date. These values should be analyzed in relation to the fair values of the underlying transactions and as part of CEMEX’s overall exposure to fluctuations in interest rates and foreign exchange rates. The notional amounts of derivative instruments do not represent amounts of cash exchanged by the parties, and consequently, there is no direct measure of CEMEX’s exposure to the use of these derivatives. The amounts exchanged are determined on the basis of the notional amounts and other terms included in the derivative instruments. As of December 31,
As of December 31,
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
During the reported periods, in compliance with the guidelines established by its Risk Management Committee, the restrictions set forth by its debt agreements and its hedging strategy (note 16.5), CEMEX held derivative instruments, with the objectives of, as the case may be of: a) changing the risk profile or fixed the price of fuels and electric energy; b) foreign exchange hedging; c) hedge of forecasted transactions; and d) other corporate purposes. As of December 31,
The caption “Financial income and other items, net” in the income statement includes gains and losses related to the recognition of changes in fair values of the derivative financial instruments during the applicable period,
As of December 31,
As of December 31,
As of December 31,
As of December 31, 2019 and 2018, CEMEX maintained forward and option contracts negotiated to hedge the price of certain fuels, including diesel, and gas, as solid fuel, in several
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Enterprise risks may arise from any of the following situations: i) the potential change in the value of assets owned or reasonably anticipated to be owned, ii) the potential change in value of liabilities incurred or reasonably anticipated to be incurred, iii) the potential change in value of services provided, purchase or reasonably anticipated to be provided or purchased in the ordinary course of business, iv) the potential change in the value of assets, services, inputs, In the ordinary course of business, CEMEX is exposed to commodities risk, including the exposure from inputs such as fuel, coal, petcoke,fly-ash, gypsum and other industrial materials which are commonly used by CEMEX in the production process, and expose CEMEX to variations in prices of the underlying commodities. To manage this and other risks, such as credit risk, interest rate risk, foreign exchange risk, equity risk and liquidity risk, considering the guidelines set forth by the Parent Company’s Board of Directors, which represent CEMEX’s risk management framework and that are supervised by several Committees, CEMEX’s management establishes specific policies that determine strategies oriented to obtain natural hedges to the extent possible, such as avoiding customer concentration on a determined market or aligning the currencies portfolio in which CEMEX incurred its debt, with those in which CEMEX generates its cash flows.
As of December 31,
The main Credit risk Credit risk is the risk of financial loss faced by CEMEX if a customer or The Company’s management has established a policy of low risk tolerance which analyzes the creditworthiness of each new client individually before offering the general conditions of payment terms and delivery. The review includes external ratings, when references are available, and in some cases bank references. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates, which only affects CEMEX’s results if the fixed-rate long-term debt is measured at fair value. All of CEMEX’s fixed-rate long-term debt is carried at amortized cost and therefore is not subject to interest rate risk. CEMEX’s accounting exposure to the risk of changes in market interest rates relates primarily to its long-term debt obligations with floating interest rates, which, if such rates were to increase, may adversely affect its financing cost and the results for the period. Nonetheless, it is not economically efficient to concentrate
As of December 31,
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. CEMEX’s exposure to the risk of changes in foreign exchange rates relates primarily to its operating activities. Due to its geographic diversification, CEMEX’s revenues and costs are generated and settled in various countries and in different currencies. For the year ended December 31, Foreign exchange As of December 31,
As of December 31,
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Foreign currency risk – continued In addition, considering that the Parent Company’s functional currency for all assets, liabilities and transactions associated with its financial and holding company activities is the dollar (note 2.4), there is foreign currency risk associated with the translation of subsidiaries’ net assets denominated in different currencies (peso, euro,
other currencies) into dollars. When the dollar appreciates, the value of CEMEX’s net assets denominated in other currencies decreases in terms of dollars, generating negative foreign currency translation and reducing stockholders’ equity. Conversely, when the dollar depreciates, the value of CEMEX’s net assets denominated in other currencies would increase in terms of dollars generating the opposite effect. As mentioned in note 16.4, CEMEX has implemented a long-term program for up to Equity risk Equity risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in the market price of As of December 31,
Liquidity risk Liquidity risk is the risk that CEMEX will not have sufficient funds available to meet its obligations. In addition to cash flows provided by its operating activities, in order to meet CEMEX’s overall liquidity needs for operations, servicing debt and funding capital expenditures and acquisitions, CEMEX relies on cost-cutting and operating improvements to optimize capacity utilization and maximize profitability, as well as borrowing under credit facilities, proceeds of debt and equity offerings, and proceeds from asset sales. CEMEX is exposed to risks from changes in foreign currency exchange rates, prices and currency controls, interest rates, inflation,
governmental spending, social instability and other political, economic and/or social developments in the countries in which it operates, any one of which may materially affect CEMEX’s results and reduce cash from operations. The maturities of CEMEX’s contractual obligations are included in note As of December 31, As of December 31, CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars)
As of December 31,
17.2) OTHERNON-CURRENT LIABILITIES As of December 31,
Changes in consolidated other current andnon-current liabilities for the years ended December 31,
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars)
18) PENSIONS AND POST-EMPLOYMENT BENEFITS Defined contribution pension plans The consolidated costs of defined contribution plans for the years ended December 31, 2019, 2018 and 2017 Defined benefit pension plans Most of CEMEX’s defined benefit plans have been closed to new participants for several years. Actuarial results related to pension and other post-retirement benefits are recognized in earnings and/or in “Other comprehensive income” for the period in which they are generated, as appropriate. For the years ended December 31, 2019, 2018 and 2017, the effects of pension plans and other post-employment benefits are summarized as follows:
As of December 31, 2019 and 2018, the reconciliation of the actuarial benefits’ obligations and pension plan assets, are presented as follows:
For the years 2019, 2018 and 2017, actuarial (gains) losses for the period were generated by the following main factors as follows:
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
In As of December 31,
The most significant assumptions used in the determination of the benefit obligation were as follows:
As of December 31,
As of December 31,
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Pensions and post-employment benefits – continued In some countries, CEMEX has established health care benefits for retired personnel limited to a certain number of years after retirement. As of December 31, Significant events of settlements or curtailments related to employees’ pension benefits and other post-employment benefits during the reported periods During 2019, CEMEX in France closed two legal entities resulting in a curtailment gain of $3, which were recognized in the income statement for the period. There were no significant events during 2018. During 2017, CEMEX in Spain removed certain increases in
Sensitivity analysis of pension and other post-employment benefits For the year ended December 31,
Multiemployer defined benefit pension plans
In addition to the funding described in the preceding paragraph, CEMEX negotiated with a union managing a multiemployer plan in the United States the change of the plan from defined benefit to defined contribution beginning on September 29, 2019. This change generated aone-time settlement obligation of $24 recognized in the income statement in 2019 as part of other expenses, net, against an accrued liability. Payments are
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
The amounts of income tax expense in the statements of operations for 2019, 2018 and 2017 are summarized as follows:
As of December 31,
As of December 31, 2019 and 2018, balances of the deferred tax assets and liabilities included in the statement of financial position are located in the following entities:
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Deferred income taxes – continued The breakdown of changes in consolidated deferred income taxes during 2019, 2018 and 2017
Current and/or deferred income tax relative to items of other comprehensive income during
As of December 31,
As of December 31,
For the years ended December 31,
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Effective tax rate – continued Differences between the financial reporting and the corresponding tax basis of assets and liabilities and the different income tax rates and laws applicable to CEMEX, among other factors, give rise to permanent differences between the statutory tax rate applicable in Mexico, and the effective tax rate presented in the consolidated statements of operations, which in
The following table compares variations between the line item “Changes in deferred tax assets” as presented in the table above against the changes in deferred tax assets in the statement of financial position for the years ended December 31,
Uncertain tax positions As of December 31, A summary of the beginning and ending amount of unrecognized tax benefits for the years ended December 31,
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Uncertain tax positions – continued During 2017, considering recoverability analyses and cash flow projections, CEMEX recognized deferred income tax assets related to its operations in the United States for
deferred tax assets by Tax examinations can involve complex issues, and the resolution of issues may span multiple years, particularly if subject to negotiation or litigation. Although CEMEX believes its estimates of the total unrecognized tax benefits are reasonable, uncertainties regarding the final determination of income tax audit settlements and any related litigation could affect the amount of total unrecognized tax benefits in future periods. It is difficult to estimate the timing and range of possible changes related to Significant tax proceedings As of December 31,
In September 2012, the Tax Authority requested CEMEX Colombia to amend its income tax return for the year 2011 in connection with several deductible expenses including the amortization of goodwill. CEMEX Colombia rejected the arguments of the ordinary request and filed a motion requesting the case to be closed. The 2011 income tax return was under audit of the Tax Authority from August 2013 until September 5, 2018, when CEMEX
special requirement on November 30, 2018 and the tax authority notified the official review liquidation on May 15, 2019, maintaining the claims of the special requirement; therefore, CEMEX Colombia filed an appeal within the legal term on July 11, 2019. If the proceeding would be adversely resolved in its final stage, CEMEX Colombia would have to pay the amounts determined in the official settlement plus interest accrued on the amount of the income tax adjustment until the date of payment. As of December 31,
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
As of December 31,2019 and 2018, stockholders’ equity excludes investments in CPOs of the Parent Company held by subsidiaries of $8 (20,541,277 CPOs) and $10 (20,541,277 CPOs), respectively, which were eliminated within “Other equity reserves.”
As of December 31, 2019 and 2018, the breakdown of consolidated common stock and additionalpaid-in capital
As of December 31, 2019 and 2018 the common stock of CEMEX, S.A.B. de C.V. was presented as follows:
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Common stock and additionalpaid-in capital – continued On March 28, 2019, stockholders at the annual ordinary shareholders’ meeting approved: (i) a cash dividend of $150. The dividend was paid in two installments, the first installment, for half of the dividend was paid on June 17, 2019 at the rate of US$0.001663 per share and the second installment for the remainder of the dividend was paid on December 17, 2019 at the rate of US$0.001654 per share; (ii) the acquisition of own shares of up to $500 or its equivalent in Mexican pesos, as the maximum amount of resources that through fiscal year 2019, and until the next ordinary annual shareholder’s meeting is held, CEMEX may be used for the acquisition of its own shares or securities that represent such shares; (iii) a decrease of CEMEX’s share capital, in its variable part for the amount in pesos equivalent to $0.2826, through the cancellation of approximately 2 billion ordinary, registered and withoutpar-value, treasury shares; (iv) a decrease of CEMEX’s share capital, in its variable part for the amount in pesos equivalent to $0.0670 by the cancellation of approximately 461 million ordinary, registered and withoutpar-value, treasury shares; (v) the increase of CEMEX’s share capital in its variable part for the amount $22 thousands, through the issuance of 150 million ordinary shares. The subscription of shares representing the capital increase was made at a theoretical value of $0.000143 dollars per share, and if applicable plus a premium defined by the Board of Directors. Until December 31, 2019, under the 2019 repurchase program, CEMEX has repurchased 157.7 million CEMEX CPOs, at a weighted-average price in pesos equivalent to $0.3164 dollars per CPO. The total amount of these CPO repurchases, excluding value-added tax, was $50. On April 5, 2018, stockholders at the annual ordinary shareholders’ meeting approved: (i) a resolution to increase the variable common stock by issuing up to 750 million shares (250 million CPOs), which will be kept in the Parent Company’s treasury and used to be subscribed and paid pursuant to the terms and conditions of CEMEX’s long-term compensation stock program; and (ii) the amount of a reserve of up to $500 or its equivalent in pesos for the year ending December 31, 2018 and until the next ordinary annual shareholders meeting to be held in 2019 for purposes of a Parent Company’s share repurchase program. On April 5, 2018, stockholders at the extraordinary shareholders’ meeting approved a resolution to increase the variable common stock by issuing up to 453 million shares (151 million CPOs), which will be kept in the Parent Company’s treasury for their subscription by means of issuance in a public offer or private placement and/or by issuance of new convertible securities. This authorization expires on April 4, 2023. Until December 31, 2018, under the 2018 repurchase program, CEMEX had repurchased 153.6 million CEMEX CPOs, at a weighted-average price in pesos equivalent to $0.4883 dollars per CPO. The total amount of these CPO repurchases, excluding value-added tax, was $75. These CPOs were cancelled during 2019 by resolution of the ordinary shareholders’ meeting on March 28, 2019. On March 30, 2017, stockholders at the annual ordinary shareholders’ meeting approved resolutions to: (i) increase the variable common stock through the capitalization of retained earnings by issuing up to 1,687 million shares (562 million CPOs), which shares were issued, representing an increase in
In connection with the long-term executive share-based compensation
As of December 31,
For the years ended December 31,
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Other equity reserves – continued
The Parent Company’s net income for the year is subject to a 5% allocation toward a legal reserve until such reserve equals one fifth of the common stock. As of December 31,
Non-controlling interest Non-controlling interest represents the share ofnon-controlling stockholders in the equity and results of consolidated subsidiaries. As of December 31,
In February 2017, as described in note 4.1, CEMEX acquired a controlling interest in TCL,
In July 2016, CHP,
In November 2012, pursuant to a public offering in Colombia and an international private placement, CLH, a direct subsidiary of CEMEX España, Perpetual debentures As of December 31,
CEMEX’s perpetual debentures have no fixed maturity date and there are no contractual obligations for CEMEX to exchange any series of its outstanding perpetual debentures for financial assets or financial liabilities. As a result, these debentures, issued entirely by Special Purpose Vehicles (“SPVs”), qualify as equity instruments and are classified withinnon-controlling interest, as they were issued by consolidated entities. In addition, subject to certain conditions, CEMEX has the unilateral right to defer indefinitely the payment of interest due on the debentures. The classification of the debentures as equity instruments was made under applicable IFRS. The different SPVs were established solely for purposes of issuing the perpetual debentures and were included in CEMEX’s consolidated financial statements. As of December 31, 2019 and 2018, the detail of CEMEX’s perpetual debentures, excluding the perpetual debentures held by subsidiaries, was as follows:
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
CEMEX has long-term restricted share-based compensation programs providing for the grant of the
Beginning January 1, 2013, those eligible executives belonging to the operations of CLH and subsidiaries ceased to receive Parent Company’s CPOs and instead started receiving shares of CLH, sharing significantly the same conditions of CEMEX’s plan also over a service period of four years. During In addition, beginning in 2018, those eligible executives belonging to the operations of CHP and subsidiaries ceased to receive Parent Company’s CPOs and instead started receiving shares of CHP, sharing significantly the same conditions of CEMEX’s plan. During 2019 and 2018, CHP provided funds to a broker for the purchase of 4,961,130 and 871,189 CHP’s shares in the market, respectively, on behalf and for delivery to the elegible executives. The combined compensation expense related to the programs described above as determined considering the fair value of the awards at the date of grant in CEMEX
CPO granted during the period was
Basic earnings per share is calculated by dividing net income attributable to ordinary equity holders of the Parent Company (the numerator) by the The amounts considered for calculations of earnings per share in
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Earnings per share
As of December 31,
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Contractual obligations – continued
As of December 31, 2019 and 2018, CEMEX was party to other commitments for several purposes, including the purchase of fuel and energy, the estimated future cash flows over maturity of which are presented in note 23.1. A description of the most significant contracts is as follows: Beginning in April 2016, in connection with the Ventika S.A.P.I. de C.V. and the Ventika II S.A.P.I. de C.V. wind farms (jointly “Ventikas”) located in the Mexican state of Nuevo Leon with a combined generation capacity of 252 Megawatts (“MW”), CEMEX agreed to acquire a portion of the energy generated by Ventikas for its overall electricity needs in Mexico for a period of 20 years. The estimated annual cost of this agreement is $18 (unaudited) assuming that CEMEX receives all its energy allocation. Nonetheless, energy supply from wind is variable in nature and final amounts are determined considering the final MW per hour (“MWh”) effectively received at the agreed prices per unit. On July 27, 2012, CEMEX signed a10-year strategic agreement with International Business Machines Corporation (“IBM”) pursuant to which IBM provides, among others, data processing services (back office) in finance, accounting and human resources; as well as Information Technology (“IT”) infrastructure services, support and maintenance of IT applications in the countries in which CEMEX operates. Beginning in February 2010, for its overall electricity needs in Mexico CEMEX agreed with EURUS the purchase a portion of the electric energy generated for a period of no less than 20 years. EURUS is a wind farm with an installed capacity of 250 MW operated by ACCIONA in the Mexican state of Oaxaca. The estimated annual cost of this agreement is $64 (unaudited) assuming that CEMEX receives all its energy allocation. Nonetheless, energy supply from wind source is variable in nature and final amounts will be determined considering the final MWh effectively received at the agreed prices per unit. CEMEX maintains a commitment initiated in April 2004 to purchase the energy generated by Termoeléctrica del Golfo (“TEG”) until 2027 for its overall electricity needs in Mexico. The estimated annual cost of this agreement is $113 (unaudited) assuming that CEMEX receives all its energy allocation. Nonetheless, final amounts will be determined considering the final MWh effectively received at the agreed prices per unit. In regards with the above, CEMEX also committed to supply TEG and another third-party electrical energy generating plant adjacent to TEG all fuel necessary for their operations until the year 2027, equivalent to approximately 1.2 million tons of petroleum coke per year. CEMEX covers its commitments under this agreement acquiring the aforementioned volume of fuel from sources in the international markets and Mexico. CEMEX Zement GmbH (“CZ”), CEMEX’s subsidiary in Germany, held a long-term energy supply contract until 2023 with STEAG—Industriekraftwerk Rüdersdorf GmbH (“SIKW”) in connection with the overall electricity needs of CEMEX’s Rüdersdorf plant. Based on the contract, each year CZ has the option to fix in advance the volume of energy in terms of MW that it will acquire from SIKW, with the option to adjust the purchase amount one time on a monthly and quarterly basis. The estimated annual cost of this agreement is $18 (unaudited) assuming that CEMEX receives all its energy allocation. On October 24, 2018, CEMEX, S.A.B. de C.V. entered into an energy financial hedge agreement in Mexico, commencing October 1, 2019 and for a period of 20 years. Trough the aforementioned contract, the Company fixed the megawatt hour cost over an electric energy volume of 400 thousand megawatts hour per year, through the payment of US$25.375 price per megawatt hour of electric power in exchange for a market price. The committed price to pay will increase 1.5% annually. The differential between the agreed price and the market price is settled monthly. CEMEX considers this agreement as a hedge for a portion of its aggregate consumption of electric energy in Mexico and recognizes the result of the exchange of price differentials described previously in the Income Statement as a part of the costs of energy. During 2019, the Company received $1.1. CEMEX, S.A.B. de C.V. does not record this agreement at fair value due to the fact that there is not a deep market for electric power in Mexico that would effectively allow for its valuation.
In some countries, CEMEX has self-insured health care benefits plans for its active employees, which are managed on cost plus fee arrangements with major insurance companies or provided through health maintenance organizations. As of December 31, 2019, in certain plans, CEMEX has established stop-loss limits for continued medical assistance derived from a specific cause (e.g., an automobile accident, illness, etc.) ranging from 23 thousand dollars to 550 thousand dollars. In other plans, CEMEX has established stop-loss limits per employee regardless of the number of events ranging from 100 thousand dollars to 2.5 million dollars. The contingency for CEMEX if all employees qualifying for health care benefits required medical services simultaneously is significantly. However, CEMEX believes this scenario is remote. The amount expensed through self-insured health care benefits was $62 in 2019, $62 in 2018 and $64 in 2017. CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars)
CEMEX is involved in various significant legal proceedings, the resolutions of which are deemed probable and imply the incurrence of losses and/or cash outflows or the delivery of other resources owned by CEMEX. As a result, certain provisions and/or losses have been recognized in the financial statements, representing the best estimate of
In January 2007, the Polish Competition and Consumers Protection Office (the “Protection Office”) initiated an antitrust proceeding against all cement producers in the country, including CEMEX Polska Sp. Z.o.o.
As of December 31,
As of December 31, In 2012, in connection with a contract entered into in 1990 (the “Quarry Contract”) by CEMEX
Rhône region of France, SCI filed a claim against CEMEX GRM for breach of the Quarry Contract, requesting the rescission of such contract and damages plus interest for a revised amount in euros equivalent to $75, arguing that CEMEX GRM partially filled the quarry allegedly in breach of the terms of the Quarry Contract. After many hearings, resolutions and appeals over the years, on March 13, 2018, the court of appeals issued an enforceable resolution ordering the rescission of the Quarry Contract and designated a judicial expert to: a) determine the volume of both excavated and backfilling materials, and b) give his opinion on the potential damages suffered by SCI, a process that is expected to end by February 28, 2020. CEMEX GRM appealed this resolution with the court of cassation, which on May 23, 2019 dismissed such appeal. As of December 31,
CEMEX is involved in various legal proceedings, which have not required the recognition of accruals, considering that the probability of loss is less than CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
On September 20, 2018, triggered by heavy rainfall, a landslide causing damages and fatalities (the “Landslide”) occurred in a site located within an area covered by mining rights of APO Land & Quarry Corporation (“ALQC”) in Naga City, Cebu, Philippines. ALQC is a principal raw material supplier of APO Cement Corporation (“APO”), a wholly owned subsidiary of CHP. CEMEX indirectly owns a minority 40% stake in ALQC. On November 19, 2018, CHP and APO were served summons concerning an environmental class action lawsuit filed by 40 individuals and one legal entity (on behalf of 8,000 individuals allegedly affected by the Landslide) at the Regional Trial Court (the “Court”) of Talisay, Cebu, against CHP, ALQC, APO, the Mines and Geosciences Bureau of the Department of Environment and Natural Resources, the City Government of Naga, and the Province of Cebu. In the complaint, (i) among other allegations, plaintiffs claim that the Landslide occurred as a result of the defendants’ gross negligence; and (ii) seek, among other relief, (a) monetary damages for an amount in Philippine Pesos equivalent to $85, (b) the establishment of a rehabilitation fund for an amount in Philippine Pesos equivalent to $10, and (c) the issuance of a Temporary Environment Protection Order against ALQC aiming to prevent ALQC from performing further quarrying activities while the case is still pending. This last request was rejected by the Court on August 16, 2019. Moreover, on September 30, 2019 the Court dismissed the case against CHP and APO, order that is not yet final and that was appealed by the plaintiffs on November 26, 2019. As of December 31, 2019, CHP, APO and ALQC (collectively, the “Private Defendants”) hold and will defend its position that the Landslide occurred due to natural causes and deny any liability. In the event that the latter order is reconsidered, and a final adverse resolution is issued in this matter, plaintiffs will have the option to proceed against any one of ALQC, APO or CHP for satisfaction of the entirety of the potential judgement award, without the need to proceed against any other Private Defendant beforehand. Thus, ALQC’s, APO’s or CHP’s assets alone could be exposed to execution proceedings. As of December 31, 2019, because of the status and preliminary stage of the lawsuit, CEMEX is not able to assess with certainty the likelihood of an adverse result in this lawsuit; and, CEMEX is neither able to assess if a final adverse result in this lawsuit would have a material adverse impact on its results of operations, liquidity and financial position. On June 12, 2018, the Authority for Consumer Protection and Competition Defense of Panama (the “Panama Authority”) carried out an investigation against Cemento Bayano and other competitors for the alleged commission of monopolistic practices in relation to the gray cement and theready-mix concrete markets. From this investigation, the Panama Authority considered the possible existence of monopolistic or anticompetitive practices consisting of: (i) price fixing and/or production restriction of gray cement sold toready-mix concrete producers in Panama; and (ii) unilateral and/or joint predatory acts and/or cross subsidies in theready-mix concrete market. In October 2018, the Panama Authority notified Cemento Bayano of a new information request in order to continue their investigation and confirm if there were violations to the law. In February 2019, Cemento Bayano finalized the delivery to the Panama Authority of the required information and documentation. Cemento Bayano considers it did not commit unlawful acts and is fully cooperating with the Panama Authority. As of December 31, 2019, Cemento Bayano has delivered all required information and the Panama Authority is analyzing the collected information. Considering the available judgment elements, CEMEX is not able to assess if this investigation will lead to any fines, penalties or remedies, or if such fines, penalties or remedies, if any, would have a material adverse effect on the Company’s results of operations, liquidity or financial position. Certain of CEMEX’s subsidiaries in the United States were notified of a grand jury subpoena dated March 29, 2018 issued by the United States Department of Justice (“DOJ”) related to an investigation of possible antitrust law violations in connection with CEMEX’s sales (and related sales practices) of gray Portland cement and slag in the United States and its territories. The objective of this subpoena is to gather facts necessary to make an informed decision about whether violations of U.S. law have occurred. CEMEX has been cooperating with the DOJ and is complying with the subpoena. As of December 31, 2019, given the status of the investigation, CEMEX is not able to assess if this investigation will lead to any fines, penalties or remedies, or if such fines, penalties or remedies, if any, would have a material adverse effect on the Company’s results of operations, liquidity or financial position. On March 16, 2018, a putative securities class action complaint was filed against the Parent Company and one of our members of the Board of Directors whom is also officer (the CEO) and other officer (the CFO) in the U.S. District Court for the Southern District of New York, on behalf of investors who purchased or otherwise acquired Parent Company’s securities between August 14, 2014 to March 13, 2018, inclusive. The complaint alleged violations are based in that press releases and filings to the United States Securities and Exchange Commission (“SEC”) that included materially false and misleading statements in connection with alleged misconduct relating to the Maceo Project and the potential regulatory or criminal actions that might arise as a result of such deficiencies. On July 12, 2019, the Judge granted CEMEX’s motion to dismiss the action but permitted plaintiffs an opportunity tore-plead. On August 1, 2019, plaintiffs filed an amended complaint, based on the same alleged violations, but changing the relevant class period that now starts on April 23, 2015 (before it was August 14, 2014) and including CLH as defendant in addition to CEMEX, S.A.B de C.V. All of the defendants moved to dismiss the action on September 5, 2019 and the plaintiffs filed an apposition brief on October 11, 2019 which was replied by the defendants on November 1, 2019. As of December 31, 2019, CEMEX is not able to assess the likelihood of an adverse result considering the current status and preliminary nature of this lawsuit, or if a final adverse result in this lawsuit would have a material adverse effect on the Company’s results of operations, liquidity or financial position. In December 2016, the Parent Company received subpoenas from the SEC seeking information to determine whether there have been any violations of the U.S. Foreign Corrupt Practices Act stemming from the Maceo Project. These subpoenas do not mean that the SEC has concluded that the Parent Company or any of its affiliates violated the law. The Parent Company has been cooperating with the SEC and intends to continue cooperating fully with the SEC. The DOJ also opened an investigation into this matter. In this regard, on March 12, 2018, the DOJ issued a grand jury subpoena to the Parent Company relating to its operations in Colombia and other jurisdictions. The Parent Company intends to cooperate fully with the SEC, the DOJ and any other investigatory entity. As of December 31, 2019, the Parent Company is unable to predict the duration, scope, or outcome of either the SEC investigation or the DOJ investigation, or any other investigation that may arise, or, because of the current status of the SEC investigation and the preliminary nature of the DOJ investigation, the potential sanctions which could be borne by the Parent Company, or if such sanctions, if any, would have a material adverse impact on CEMEX results of operations, liquidity or financial position. CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Contingencies from legal proceedings – continued In February 2014, the Egyptian Tax Authority requested Assiut Cement Company (“ACC”), a subsidiary of CEMEX in Egypt, the payment of a development levy on clay
In connection with the legal proceedings presented in notes 24.1 and 24.2, the exchange rates as of December 31, In addition to the legal proceedings described above in notes 24.1 and 24.2, as of December 31,
case-by-case basis would seriously prejudice CEMEX’s position in the ongoing legal proceedings or in any related settlement discussions. Accordingly, in these cases, CEMEX has disclosed qualitative information with respect to the nature and characteristics of the contingency but has not disclosed the estimate of the range of potential loss.
In connection with the cement plant located in the municipality of Maceo in Colombia, as described in note 14.1, as of December 31, 2019, the plant has not initiated commercial operations considering several significant processes for the profitability of the investment. The evolution and status of the main issues related to such plant are described as follows: Memorandums of understanding In August 2012, CEMEX Colombia signed a memorandum of understanding (the “MOU”) with the representative of the entity CI Calizas y Minerales S.A. (“CI Calizas”), for the acquisition and transfer of assets mainly comprising land, the mining concession and the shares of Zona Franca Especial Cementera del Magdalena Medio S.A.S. (“Zomam”) (holder of the free trade zone concession). In addition, in December 2013, CEMEX Colombia engaged the same representative of CI Calizas to also represent in the name and on behalf of CEMEX Colombia in the acquisition of certain land adjacent to the plant, signing a new memorandum of understanding (the “Land MOU”). Under the MOU and the Land MOU, CEMEX Colombia made cash advances to this representative for amounts in Colombian Pesos equivalent to approximately $13.4 million of a total of approximately $22.5 million, and paid interest accrued over the unpaid committed amount for approximately $1.2 million. These amounts considering the exchange rate as of December 31, 2016 of 3,000.75 Colombian Pesos per U.S. Dollar. In September 2016, after confirming irregularities in the acquisition processes by means of investigations and internal audits initiated in response to complaints received, which were reported to Colombia’s Attorney General (the “Attorney General”), providing the findings obtained, and considering that such payments were made in breach of the Parent Company’s and CLH’s policies, the Company decided to terminate the employment relationship with then those responsible for the Planning and Legal areas and accepted the resignation of the then Chief Executive Officer. Moreover, as a result of the findings and considering the available legal opinions as well as the low likelihood of recovering those advances, in December 2016, CEMEX Colombia write off such advances from its investments in progress (note 14.1) and cancelled the remaining advance payable. CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Expiration of property process and other related matters After the signing of the MOU, in December 2012, a former shareholder of CI Calizas, who presumptively transferred its shares of CI Calizas two years before the signing of the MOU, was linked to a process of expiration of property initiated by the Attorney General. Amongst other measures, the Attorney General ordered the seizure and consequent suspension of the right to dispose the assets subject to the MOU, including the shares of Zomam acquired by CEMEX Colombia before the beginning of such process. As a third party acting in good faith and free of guilt, CEMEX Colombia joined the expiration of property process fully cooperating with the Attorney General. As of December 31, 2019, it is estimated that a final resolution in the ongoing expiration of property process, under which is about to begin the evidentiary phase, may take between 10 and 15 years from its beginning. As of December 31, 2019, pursuant to the expiration of property process of the assets subject to the MOU and the failures to legally formalize the purchases under the Land MOU, CEMEX Colombia does not have the legal representation of Zomam, is not the rightful owner of the land and is not the assigned entity of the mining concession. In addition, there is an ongoing criminal investigation that resulted in a legal resolution by means of which an indictment was issued to two of the Company’s former officers and to CI Calizas’ representative. CEMEX is not able to anticipate the actions that criminal judges may impose against these people. Lease contract, mandate agreement and operation contract
On April 12, 2019, CEMEX Colombia, CCL and another of its subsidiaries reached a conciliatory agreement with the SAE and CI Calizas before the Attorney General’s Office and signed a contract of Mining Operation, Manufacturing and Delivery Services and Leasing of Properties for Cement Production (the “Operation Contract”), which will allow CEMEX Colombia to continue using the assets subject to the aforementioned expiration of property process for an initial term of 21 years that can be renewed for 10 additional years, provided that the extension of the mining concession is obtained. The Operation Contract was signed by CI Calizas and Zomam with the authorization of the SAE as delegate of these last two companies, considering the following terms: As consideration for entering into the agreement, CEMEX Colombia and /or a subsidiary will pay to CI Calizas and Zomam the following amounts in Colombian Pesos equivalent: a) an annual payment of $15 to CI Calizas for the use of land that will be adjusted annually for changes in the Consumer Price Index; b) a single payment for the rental of the aforementioned land from July 2013 to the signing date, based on the agreed upon rental amounts, reducing the lease payments made by CEMEX Colombia prior to the signing of the Operation Contract; c) an additional single payment in Colombian Pesos equivalent to $305 already paid for considerations not received during the negotiations of the Operation Contract; and d) a payment for the limestone extracted to date for an amount in Colombian Pesos equivalent to $1 million payable in two installments, the first already paid and the second a year after the signing of the Operation Contract. Once the Maceo Plant begins commercial operations, CEMEX Colombia and/or a subsidiary will pay on a quarterly basis: a) 0.9% of the net sales resulting from the cement produced in the plant as compensation to CI Calizas for the right of CEMEX Colombia to extract and use the mineral reserves; and b) 0.8% of the net sales resulting from the cement produced in the plant as payment to Zomam for cement manufacturing and delivery services, as long as Zomam maintains the Free Zone benefit, or, 0.3% of the aforementioned net sales exclusively for the use of equipments, in case that Zomam losses the benefits as Free Trade Zone. The Operation Contract will continue in force regardless of the result in the expiration of property process, except that the applicable criminal judge would recognize ownership rights of the assets under expiration of property to CEMEX Colombia and its subsidiary, in which case the Operation Contract would no longer be needed and would be early terminated. Under the presumption that CEMEX Colombia conducted itself in good faith, CEMEX considers that it will be able to keep ownership of the plant, and that the rest of its investments are protected by Colombian law, under which, if a person builds on the property of a third party, with full knowledge of such third party, this third party may: a) take ownership of the plant, provided a corresponding indemnity to CEMEX Colombia, or otherwise, b) oblige CEMEX Colombia to purchase the land. Nonetheless, had this not be the case, CEMEX Colombia would take all necessary actions to safeguard its rights. In the event that the expiration of property over the assets subject to the MOU is ordered in favor of the State, if the assets were adjudicated to a third party in a public tender offer, considering the signing of the Operation Contract, such third party would have to subrogate to the Operation Contract. As of December 31, 2019, CEMEX is not able to estimate whether the expiration of property over the assets subject to the MOU will be ordered in favor of the State, or, if applicable, if the assets would be adjudicated to a third party in a public tender offer. CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Status in connection with the commissioning of the plant On September 3, 2019, CEMEX Colombia was notified of the resolution issued by Corantioquia’s Directive Council, the regional environmental authority, regarding to the approval for the subtraction from the Integrated Management District (“IMD”) of the Canyon of the Alicante River of 169.2 hectares corresponding to the surface of the Maceo Plant. As of December 31, 2019, after the signing of the Operation Contract and the subtraction of the plant’s surface from the IMD, the commissioning of the Maceo plant and the conclusion of the access road remain suspended until favorable resolutions would be obtained in other significant procedures in process with the respective authorities to guarantee the commissioning of the plant, such as: a) modify the land use where the project is located to harmonize it with industrial and mining use; b) modify the environmental license to expand the extraction capacity of limestone, essential raw material for the production of cement, up to 990 thousand tons per year; and c) obtaining several permits for the conclusion of the access road. CEMEX Colombia continues to work to address these issues as soon as possible and limits its activities to those on which it has the relevant authorizations. As of December 31, 2019, CEMEX continues working intensively in the necessary processes for the commissioning of the plant, nonetheless, at this date, the Company cannot provide a precise date for the plant’s startup.
All significant balances and transactions between the entities that constitute the CEMEX group have been eliminated in the preparation of the consolidated financial statements. These balances with related parties resulted primarily from: (i) the sale and purchase of goods between group entities; (ii) the sale and/or acquisition of subsidiaries’ shares within the CEMEX group; (iii) the invoicing of administrative services, rentals, trademarks and commercial name rights, royalties and other services rendered between group entities; and (iv) loans between related parties. Transactions between group entities are conducted on arm’s length terms based on market prices and conditions. When market prices and/or market conditions are not readily available, CEMEX conducts transfer pricing studies in the countries in which it operates to assure compliance with regulations applicable to transactions between related parties. The definition of related parties includes entities or individuals outside the CEMEX group, which, For the years ended December 31, In addition, for the years ended December 31,
On January On January 8, 2020, in connection with the In connection with the putative securities class action complaint filed in the U.S. District Court for the Southern District of New York on March 16, 2018, as amended on August 1, 2019 (note 24.2), on February 11, 2020, the aforementioned complaint was dismissed and On March 4, 2020, pursuant to On March 6, 2020, CEMEX announced that it successfully closed its divestment of the CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Subsequent events – continued As part of the corporate reorganization approved on November 13, 2019 and the resulting intragroup mergers, by means of which, CEMEX, S.A.B. de C.V. merged and abosorbed Empresas Tolteca de México, S.A. de C.V. and CEMEX, S.A.B. de C.V. merged and absorbed CEMEX México, S.A. de C.V., with effects among the participants beginning December 1, 2019 (note 27), on March 11, 2020, CEMEX announced that those mergers became effective on February 26, 2020 and March 9, 2020, respectively. As a result of the mergers, which were executed in compliance with CEMEX’s debt agreements and other financial instruments, CEMEX México, S.A. de C.V. and Empresas Tolteca de México, S.A. de C.V. have ceased to guarantee CEMEX’s indebtedness to the extent that they provided guarantees. In addition, shares of CEMEX México, S.A. de C.V. that were pledged or transferred to trustees to benefit certain creditors of CEMEX are no longer part of the collateral (note 16.1). In connection with the 2019 share repurchase program described in note 20.1, from March 10, 2020 to March 24, 2020, CEMEX, S.A.B. de C.V. repurchased 378.2 million CEMEX CPOs, at a weighted-average price of 5.01 pesos per CPO, which was equivalent to $83.2, excluding value-added tax. On March 13, 2020, CEMEX paid $521 as full settlement of the aggregate outstanding amount of the 2020 Convertible Notes which matured on March 15, 2020 without conversion (note 16.2). On March 11, 2020, the World Health Organization declared a pandemic the outbreak of the novel spread of the Coronavirus COVID-19 (the “COVID-19 Pandemic”), due to its rapid spread throughout the world, having affected as of such date more than 150 countries. Most governments took and are taking restrictive measures to contain the spread of such pandemic, which, have resulted, or may result in the following implications for the Company’s business units: (i) temporary restrictions on, or suspended access to, or shutdown, or suspension or the halt of, its manufacturing facilities, personnel shortages, production slowdowns or stoppages and disruptions in the delivery systems; (ii) disruptions or delays in the supply chains, including shortages of materials, products and services on which the Company and its businesses depend; (iii) reduced availability of land and sea transport, including labor shortages, logistics constraints and increased border controls or closures; (iv) increased cost of materials, products and services on which the Company and its businesses depend; (v) reduced investor confidence and consumer spending in the countries where the Company operates; (vi) a general slowdown in economic activity, including construction, and a decrease in demand for the Company’s products and services and industry demand generally; (vii) constraints on the availability of financing in the financial markets, if available at all; or (viii) inability to, if required, to further refinance the Company’s existing indebtedness in desired conditions, if financing is available at all. The wide spread of COVID-19 Pandemic has adversely affected and may continue to adversely affect CEMEX’s business continuity in some of the countries and markets in which the Company operates and offer its products and services. These measures are negatively affecting and may further affect the workforce and operations of CEMEX, as well as the operations of its customers, distributors and suppliers. The Company maintains significant uncertainty regarding such measures and potential future measures, and restrictions on its access to its operating facilities, on its operations or on its workforce, or similar limitations for its distributors and suppliers, which could limit customer demand and/or the Company’s capacity to meet customers demand, any of which could have a material adverse effect on CEMEX’s financial condition and results of operations. The degree to which the COVID-19 Pandemic would affect the financial condition and results of operations of CEMEX will depend on future developments, which are highly uncertain, including, but not limited to, the duration and spread of the outbreak, its severity, the actions taken by local governments to contain the COVID-19 virus or ease its effects, and how quickly and to which extent normal economic and operating conditions will recover. From the beginning of the COVID-19 Pandemic, CEMEX implemented, and has continue to implement, strict hygiene guidelines in all its operations and modified its manufacturing, selling and distributions processes in order to implement physical distancing for employees, and reduce the possibility of contagion. CEMEX’s operations have begun to be affected to different degrees. As of the date hereof, according and in compliance to the quarantine measures enacted and implemented by the local governments, certain CEMEX’s cement, ready-mix concrete and aggregates operating facilities in different parts of the world have been operating with reduced volumes and, in some cases, have temporarily halted operations due to the effects of the COVID-19 Pandemic. CEMEX most important segments are, or have been, affected as follows: In Mexico, CEMEX is operating in accordance with technical guidelines set by the Mexican government. CEMEX had initially, announced that the Company would temporarily halt all production and certain related activities in Mexico until April 30, 2020, in accordance with a decree (the “Mexico COVID-19 Decree”) issued by the Health Ministry in Mexico in response to COVID-19 Pandemic. However, on April 7, 2020, relying on technical guidelines to the Mexico COVID-19 Decree issued by the Health Ministry of Mexico in the Official Mexican Gazette, CEMEX announced that the Company would be permitted to resume production and related activities in Mexico to support the development of sectors designated as essential by the Mexican government during the COVID-19 Pandemic. In most of CEMEX’s South America, Central America and Caribbean region, the Company’s operations have been temporarily affected. As a result of different regulations, CEMEX’s operations in Trinidad and Tobago, Barbados and Panama, have been temporarily halted in most of its operations. Furthermore, in Colombia, CEMEX temporarily halted production and related activities on March 25, 2020. However, pursuant to a subsequent nationwide decree on April 8, 2020, CEMEX partially resumed certain operations that were deemed essential to attend to the COVID-19 pandemic in Colombia from April 13 to April 27, 2020, after which time our full operations in Colombia would resume. CEMEX has also adopted certain preventive measures with respect to its operations in Guatemala and the Dominican Republic, resulting in reduced activity and, in turn, production, in these countries. In Europe, Middle East, Africa and Asia region, CEMEX’s main effects have been experienced in Spain and the Philippines, where its operations are running on a limited basis or have temporarily halted. Other countries have experienced negative effect on the market side, with drops in demand resulting in some temporary site closures. CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, 2019, 2018 and 2017 (Millions of U.S. dollars) Subsequent events – continued In the United States, except for a few ready-mix concrete plants in the San Francisco area that have been temporarily shut down, all sites that were operational before the COVID-19 Pandemic remain active. Although states and local governments continue to modify terms of shelter in place orders, while CEMEX has seen some decrease in volumes attributable to COVID-19 Pandemic, CEMEX believes that its customers have generally adjusted to the increased operating safety requirements on projects under construction and do not seem to be ceasing their activity. The International Monetary Fund recently published its World Economic Outlook report, which stated that as a result of the COVID-19 Pandemic and its effects on supply chains, global trade, mobility of persons, business continuity, lower demand for goods and services and oil prices, have significantly increased the risk of a deep global recession and projects the global economy to contract sharply. Even though some governments and central banks have implemented monetary and fiscal policies to curb the potential adverse effects on economies and financial markets, these measures may vary by country and may not be enough to deter material adverse economic and financial effects. The Company expects that the construction activity across most of the markets in which it operates will be adversely affected for a few months, once that restrictive measures would be lifted, before returning to pre-COVID-19 Pandemic levels. The consequences resulting from the COVID-19 Pandemic have started to considerably affect the Company. CEMEX considers that, as the effects and duration of such pandemic may extend, there could be significant adverse effects in the future mainly in connection with: (i) increases in estimated credit losses on trade accounts receivable; (ii) impairment of long-lived assets including goodwill; (iii) variation in exchange rates; (iv) further disruption in supply chains; and (v) liquidity effects to meet the Company’s short-term obligations. As of the issuance date of these financial statements it is not possible to make reliable estimates of potential unforeseen adverse effects on the Company’s business from the COVID-19 Pandemic that may arise due to the uncertainty associated to the duration and consequences of the COVID-19 in the different markets in which the Company operates. Nonetheless, as events evolve during the year 2020 and there will be increased visibility identify and measure such effects, CEMEX will continue to evaluate and recognize the possible adverse effects in its financial condition, results of operations and cash flow. In order to mitigate short-term liquidity risks to the Company, in March 2020, CEMEX drew down $1,135 under the committed revolving facility, which consist of the full amount available under the committed revolving credit facility (note 16.1). CEMEX also has identified several cost-savings and cash enhancing initiatives for year-2020. Among other things, CEMEX intends to suspend, reduce or delay certain planned (i) capital expenditures; (ii) budgeted operating expenses in line with the evolution of demand per market in which CEMEX operates, (iii) production and, where required, inventory levels in all of CEMEX’s markets in line with lower demand conditions; and (iv) corporate and global network activities that detract from the Company’s business focus on managing the crisis and their respective operations. In addition, CEMEX is suspending its share repurchase program for the remainder of the year and, as previously informed, CEMEX, S.A.B. de C.V. will not be paying dividends during 2020. The Company projects it will generate sufficient cash flows from operations in 2020 which, will enable the Company to meet its short-term obligations. Moreover, CEMEX shall undertake the following temporary measures, starting May 1st, 2020 and for a 90-day period and subject to all applicable laws and regulations, CEMEX, S.A.B. de C.V.’s Chairman of the Board of Directors, Chief Executive Officer and the members of our Executive Committee have agreed to forgo 25% of their salaries; the members of the Board of Directors of CEMEX, S.A.B. de C.V. have agreed to forgo 25% of their remuneration (including with respect to the upcoming meetings in April 2020). In addition, CEMEX has asked certain senior executives to voluntarily forgo 15% of their monthly salaries also during May, June and July 2020. Finally, CEMEX has asked other salaried employees to voluntarily defer 10% of their monthly salary during the same three-month period, the deferred amount to be paid in full during December 2020; and for hourly employees, where applicable, CEMEX will work to mitigate the effects on jobs derived from any operational shutdowns due to demand contraction or government measures as a consequence of the COVID-19 Pandemic and economic crisis. Going concern As of December 31, 2019, the Company was in compliance with its financial covenants (note 16.1) under the 2017 Credit Agreement. Nonetheless, the anticipated adverse effects on the Company’s business and operating performance in 2020 as a result of the COVID-19 Pandemic, as discussed above, could result in the Company not meeting its financial covenants under the 2017 Credit Agreement in a future compliance date during 2020, including the leverage and coverage ratios. Considering this, on April 23, 2020 the Company formally requested its lenders under the 2017 Credit Agreement to modify the financial covenants contained therein. CEMEX’s failure to comply with such financial covenants could result in an event of default under the 2017 Credit Agreement, as well as the notes payable under the cross-default provisions thereof (note 16.1), which if that were to occur would materially and adversely affect the Company’s business, financial condition, liquidity and results of operations. In seeking any modifications to the 2017 Credit Agreement, it is expected that the lenders under the 2017 Credit Agreement may require CEMEX to agree to additional restrictions, for example with respect to capital expenditures, share repurchase programs, acquisitions or the use of proceeds from asset sales and fundraising activities, and may increase the financial expense CEMEX would be required to pay under the 2017 Credit Agreement. While CEMEX has historically successfully renegotiated credit facilities in the normal course, its ability to reach an agreement with its lenders to modify the 2017 Credit Agreement is not within the Company’s control. As of the date of these financial statements, CEMEX cannot assure that it will be able to CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
Subsequent events
The accompanying consolidated financial statements were authorized for
As mentioned in notes 4.4 and 20.4, as of
CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of December 31, (Millions of
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors CEMEX, S.A.B. de C.V. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of financial position of CEMEX, S.A.B. de C.V. and subsidiaries (the Company) as of December 31, We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, Going concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 26 to the consolidated financial statements, the Company´s future compliance with financial covenants under the 2017 Credit Agreement is uncertain given the impact ofCOVID-19. The Company’s plans with regard to this matter, which includes its request of lenders under the 2017 Credit Agreement to modify the related financial covenants, are described in the Note 26. This condition raises substantial doubt about the Company´s ability to continue as a going concern. The Consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Changes in Accounting Policy As discussed in Note 2.1 to the consolidated financial statements, the Company has elected to change its presentation currency . Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Evaluation of the goodwill impairment analysis for certain groups of cash-generating units (Millions of U.S. dollars) As discussed in Notes 2.10 and 15.2 to the consolidated financial statements, the goodwill balance as of December 31, 2019 was $9,562 which represented 33% of the Company’s total consolidated assets as of that date. The goodwill balance includes $7,469 related to groups of cash-generating units (CGUs) in the United States of America (USA), $494 related to groups of CGUs in Spain, and $296 related to groups of CGUs in Colombia. Goodwill is tested for impairment upon the occurrence of internal or external indicators of impairment or at least once a year, during the last quarter of such year. We identified the evaluation of the goodwill impairment analysis for these three groups of CGUs as a critical audit matter because the estimated value in use involved a high degree of subjectivity. Specifically, the long-term growth rate and the discount rate used to calculate the value in use of the three groups of CGUs were challenging to audit and minor changes to these assumptions had a significant effect on the value in use. The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s goodwill impairment assessment process, including controls related to the determination of the value in use of the groups of CGUs, and the development of the long-term growth rate and discount rate assumptions. We performed sensitivity analyses over the long-term growth rate and discount rate assumptions to assess their impact on the determination of the value in use of the groups of CGUs. We evaluated the Company’s forecasted long-term growth rates for these groups of CGUs by comparing the growth assumptions to publicly available data. We compared the Company’s historical cash flows forecasts to actual results to assess the Company’s ability to accurately forecast. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
Evaluation of certain tax and legal proceedings As discussed in Notes 2.11, 2.13, 19.4 and 24 to the consolidated financial statements, the Company is involved in certain significant tax and legal proceedings in Mexico (Corporate), Spain, Egypt and Colombia. The Company records provisions for legal proceedings when it is probable that an outflow of resource embodying economic benefits will be required to settle a present obligation and when the outflow can be reliably estimated. The Company discloses a contingency for legal proceedings whenever the likelihood of loss from the proceedings is considered possible or when it is considered probable but it is not possible to reliably estimate the amount of the outflow. The Company recognizes the effect of an uncertain tax treatment when it is probable that it would be accepted by the tax authorities. If an uncertain tax treatment is considered not probable of being accepted, the Company reflects the effect of uncertainty in its tax balances. We identified the evaluation of certain tax and legal proceedings and the related provisions recognized and/or disclosures made as a critical audit matter because it required significant challenging auditor judgment and effort. This is specifically due to the nature of the estimates and assumptions, including judgments about the likelihood of loss and the amounts that would be paid in the event of loss. The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s evaluation of tax and legal proceedings, including controls related to the evaluation of information from external and internal legal counsel, the determination of the likelihood of loss and the estimate of the loss amount, as well as controls over the financial statement disclosures. We evaluated the competence and capabilities of the internal and external legal counsel that assessed the likelihood of loss and the estimate of the outflow of resources. In addition, we assessed the amounts recorded and/or disclosed by:
We involved tax and legal professionals with specialized knowledge, who assisted in evaluating the conclusions reached by the Company. We assessed that the disclosures reflect the underlying facts and circumstances of each tax and legal proceeding. /s/ KPMG We have not been able to determine the specific year that we began serving as the Monterrey, N.L. April INTERNAL CONTROL REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors CEMEX, S.A.B. de C.V. Opinion on Internal Control Over Financial Reporting We have audited CEMEX, S.A.B. de C.V. and We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting as of December 31, We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG Cardenas Dosal, Monterrey, N.L., Mexico April
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