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CX Cemex S.A.B. De C.V.

Table of Contents

 

 

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, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

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

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:

 

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:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the 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.

15,089,673,341 CPOs

30,214,262,692 Series A shares (including Series A shares underlying CPOs)

15,107,131,346 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 every Interactive Data File required to be submitted 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 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.

 

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

 

TABLE OF CONTENTS

 

PART I2
Item 1—Identity of Directors, Senior Management and Advisors2
Item 2—Offer Statistics and Expected Timetable2
Item 3—Key Information2
COVID-19 Outbreak2
Financial Evolution and Our “A Stronger CEMEX” Plan2
Risk Factors3
Selected Consolidated Financial Information28
Item 4—Information on the Company32
Business Overview32
Geographic Breakdown of Revenues for the Year Ended December 31, 201935
Breakdown of Revenues by Line of Business for the Year Ended December 31, 201936
Our Products36
Our Business Strategy45
User Base55
Our Corporate Structure55
Our Trading Operations82
Our Cement Plants83
Regulatory Matters and Legal Proceedings84
Item 4A—Unresolved Staff Comments109
Item 5—Operating and Financial Review and Prospects109
Cautionary Statement Regarding Forward-Looking Statements109
Overview110
Critical Accounting Policies111
Results of Operations122
Liquidity and Capital Resources146
Research and Development, Patents and Licenses, etc.156
Trend Information158
Summary of Material Contractual Obligations and Commercial Commitments158
Off-Balance Sheet Arrangements162
Quantitative and Qualitative Market Disclosure162
Investments, Acquisitions and Divestitures165
Recent Developments167
Item 6—Directors, Senior Management and Employees174
Senior Management and Directors174
Senior Management and Board Composition187
Board Practices187
Compensation of CEMEX, S.A.B. de C.V.’s Directors and Members of Our Senior Management190
Employees191
Share Ownership193
Item 7—Major Shareholders and Related Party Transactions193
Major Shareholders193
Related Party Transactions194
Item 8—Financial Information194
Consolidated Financial Statements and Other Financial Information194
Legal Proceedings194
Dividends195
Significant Changes195

 

  i

 

 

Item 9—Offer and Listing195
Listing Details195
Item 10—Additional Information195
Articles of Association and By-laws195
Share Capital203
Material Contracts203
Exchange Controls204
Taxation204
Item 11—Quantitative and Qualitative Disclosures About Market Risk208
Item 12—Description of Securities Other than Equity Securities208
Item 12A—Debt Securities208
Item 12B—Warrants and Rights208
Item 12C—Other Securities208
Item 12D—American Depositary Shares208
Depositary Fees and Charges208
Depositary Payments for the Year Ended December 31, 2019209
PART II209
Item 13—Defaults, Dividend Arrearages and Delinquencies209
Item 14—Material Modifications to the Rights of Security Holders and Use of Proceeds209
Item 15—Controls and Procedures209
Disclosure Controls and Procedures209
Management’s Annual Report on Internal Control Over Financial Reporting209
Attestation Report of the Independent Registered Public Accounting Firm209
Item 16—RESERVED210
Item 16A—Audit Committee Financial Expert210
Item 16B—Code of Ethics210
Item 16C—Principal Accountant Fees and Services212
Audit Committee Pre-Approval Policies and Procedures212
Item 16D—Exemptions from the Listing Standards for Audit Committees212
Item 16E—Purchases of Equity Securities by the Issuer and Affiliated Purchasers212
Item 16F—Change in Registrant’s Certifying Accountant212
Item 16G—Corporate Governance212
Item 16H—Mine Safety Disclosure215
PART III215
Item 17—Financial Statements215
Item 18—Financial Statements215
Item 19—Exhibits215

 

  ii

 

 

INTRODUCTION

 

CEMEX, S.A.B. de C.V. is incorporated as a publicly traded variable stock corporation (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 2019 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 United States Generally Accepted Accounting Principles (“U.S. GAAP”).

 

References in this annual report to “$” and “Dollars” are to 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,” 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 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 for a detailed description of our adoption of IFRS 16.

 

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, 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 2019 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 Facilities Agreement.

 

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 to our consolidated financial leverage ratio, as described elsewhere in this annual report, in connection with the implementation of IFRS 16 and 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 (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 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.

 

 

 

 

PART I

 

Item 1—Identity of Directors, Senior Management and Advisors

 

Not applicable.

 

Item 2—Offer Statistics and Expected Timetable

 

Not applicable.

 

Item 3—Key Information

 

COVID-19 Outbreak

 

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 of our outstanding debt as of December 31, 2008 had been incurred to finance our acquisitions, including the acquisition 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, we reached a comprehensive financing agreement with our major creditors (as subsequently amended, the “2009 Financing Agreement”). The 2009 Financing Agreement extended the maturities of approximately $15 billion in syndicated and bilateral bank facilities and private placement obligations. As part of the 2009 Financing Agreement, we pledged or transferred to trustees under certain security 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.) (“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 the Collateral, to secure our obligations under the 2009 Financing Agreement and under several 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. The subsidiaries whose shares are part of the Collateral collectively own, directly or indirectly, substantially all our operations worldwide. 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 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 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.

 

  2

 

 

As of December 31, 2019, 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, which does not include $443 million of Perpetual Debentures. Of our total debt plus other financial obligations, 12% was short-term (including current maturities of long-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 other currencies. See notes 16.1, 16.2 and 20.4 to our 2019 audited consolidated financial statements included elsewhere in this annual report.

 

In 2018, we embarked on 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 mid-to-long-term by divesting between $1.5 billion and $2 billion in assets by the end of 2020; achieve recurring operational improvements 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 seek to return value to CEMEX, S.A.B. de C.V.’s shareholders. 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 Group plc (“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 repurchased 157.7 million CPOs. 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 “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.

 

Risk Factors

 

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, as well as, in certain instances, our reputation.

 

Risks Relating to 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 worldwide. Our results of operations are highly dependent on the results of our operating subsidiaries worldwide, including those in the U.S., Mexico, South America, Central America, the Caribbean (“SCA&C”), Europe, Asia, the Middle East and Africa.

 

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.

 

  3

 

 

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 could have a material adverse effect on our business, financial condition, liquidity and results of operations”); rising geopolitical tensions, particularly between the U.S. and 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 risk for both the U.S. and the global economy amidst trade and geopolitical tensions 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 global economy beyond the directly affected regions. The materialization of any of these concerns may 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.

 

  4

 

 

The U.S. was in an extended expansion in its current business cycle. Even though the probability of recession in the forecast horizon had diminished, it should not be fully dismissed, in particular in light of the COVID-19 pandemic. Accordingly, the likelihood of what could be viewed as a U.S. Federal Reserve “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 funding extensions. The lack of long-term funding frameworks does not support the highway planning and spending process. Together, these uncertainties could have a material adverse impact not only on our financial condition, business and results of operations in the U.S., but also 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 experienced periods of high economic volatility over the past few years. Some large commodity exporters and stressed economies also experienced substantial exchange rate movement. Many of these countries remain vulnerable to sudden shifts in global market sentiment. The risk of new episodes of market volatility, increased risk aversion and capital outflows from emerging markets continues, which could cause emerging markets’ currencies to further depreciate. The high level of Dollar-denominated corporate indebtedness in emerging markets provides an additional source of instability. Also, 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 on our business and on our financial condition, liquidity and results of operations.

 

As a result of a general election in Mexico in 2018, a new federal government and Mexican National Congress led by the new president’s political party have taken office. The Mexican economy slowed down in the fiscal year 2019, and this slowdown is expected to continue in 2020. As is the case with most changes in administration, there still is uncertainty regarding the long-term impact of this new government’s economic and public policies and the impact any policies could have on the economy of Mexico, including on interest rates and exchange rates, in attracting or maintaining foreign investment in Mexico and in the regulatory and institutional framework of the country, which could affect our financial condition, business, liquidity and results of operations, particularly in Mexico.

 

The Mexican economy was largely held back by falling private investment, mainly caused by a decline in business confidence due to external and domestic uncertainties, stagnation of 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, aside from the impact of the COVID-19 pandemic: (i) further declines in oil production, which could affect the mining sector and tax revenues; (ii) the effects of the downgrade of Petróleos Mexicanos’s (“PEMEX”) debt rating or a requirement to restructure PEMEX, which could undermine fiscal stability and Mexico’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 conditions and lower 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, regulatory or social events. As a result of amendments in May 2019 to the Mexican Federal Labor Law (Ley Federal del Trabajo) and other 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 the 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 would not be compensated for such loss, which could have a material adverse impact on our business, financial 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 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 current government’s weakness is a source of concern. Regulatory and economic policy uncertainty remains high and is one of the main sources of instability, particularly in the automotive 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 local 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 suffer a sharp downward adjustment from the high levels observed.

 

Additionally, Central 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 financial condition, business, liquidity and results of 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 U.S.’ recognition of Jerusalem as Israel’s capital contributed to further tensions between Israelis and Palestinians. Also, the overall situation in Syria could worsen, which would impact Israel, and the region in general. The political uncertainty arising from a third legislative election with no clear result in a year in March 2020 could affect our sector, as many public construction projects could be delayed. The uncertainty around housing policy could also continue to weigh down the industry. The high public deficit will eventually require fiscal tightening measures. If these risks continue or materialize, they 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 relation to COVID-19.

 

In the Philippines, 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 southern region, could adversely affect the Philippine economy. The effect of COVID-19 spreading in Southeast Asia could also impact different sectors of the country. These risks could jeopardize the country’s infrastructure development plan, dampen investment and curb economic growth. If any of these risks materialize, they could adversely affect our financial condition, business, liquidity and results of operations, particularly in the 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 of 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 the 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.

 

Further, presidential, legislative, state and local elections have taken place, or are scheduled to take place in 2020 in several of the countries where we operate, including Israel, the U.S., Poland, the Dominican Republic, Puerto Rico, Trinidad and Tobago, Croatia and Egypt. A change in federal government and the political party in control of the legislature in any of these countries could result in sharp changes to the countries’ economic, political or social conditions, and in changes to laws, regulations and public policies, which may contribute to economic uncertainty 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 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, are not expected to have a material adverse effect 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 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.

 

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The 2017 Facilities 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 (ii) a maximum consolidated leverage ratio of net debt (including Perpetual Debentures, guarantees and capitalized leases under IFRS 16, excluding convertible/exchangeable obligations, the principal amount of subordinated optional convertible securities and plus or minus the mark-to-market amount of derivative financial instruments, among other adjustments) to Operating EBITDA (in each case, as described in the 2017 Facilities Agreement). The calculation and formulation of Operating EBITDA, interest expense, net debt, the consolidated coverage ratio and the consolidated leverage ratio are set out in the 2017 Facilities 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” for more information.

 

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 consolidated financial leverage ratio, in connection with the implementation of IFRS 16 and 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 Facilities Agreement requires us to comply with a minimum consolidated coverage ratio of Operating EBITDA to interest expense (including interest accrued on Perpetual Debentures), for the following periods, measured quarterly, of not less than (i) 2.50:1 for each 12-month period ending on December 31, 2019 through September 30, 2022 and (ii) 2.75:1 for the 12-month period ending on December 31, 2022 and on each subsequent quarterly date. In addition, the 2017 Facilities Agreement requires us to comply with a maximum consolidated leverage ratio of net debt (including Perpetual Debentures, guarantees and capitalized leases under IFRS 16, excluding convertible/exchangeable obligations, the principal amount of subordinated optional convertible securities and plus or minus the fair value of derivative financial instruments, among others) to Operating EBITDA, plus other adjustments for the following periods, measured quarterly, not to exceed (i) 5.25:1 for each 12-month period ending December 31, 2019 up to and including the period ending on March 31, 2021;(ii) 5.00:1 for the 12-month periods ending June 30, 2021 and September 30, 2021; (iii) 4.75:1 for the 12-month period ending December 31, 2021 up to and including the period ending on September 30, 2022; (iv) 4.50:1 for the 12-month periods ending December 31, 2022 and March 31, 2023; and (v) 4.25:1 for the 12-month period ending June 30, 2023 and each subsequent Reference Period (as defined in the 2017 Facilities Agreement). For the period ended December 31, 2019, we reported to the lenders under the 2017 Facilities Agreement a consolidated coverage ratio of 3.86 and a consolidated leverage ratio of 4.17, each as calculated pursuant to the 2017 Facilities Agreement. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Our 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 Facilities Agreement, we are restricted from making aggregate annual capital expenditures in excess of $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 CEMEX Holdings Philippines, Inc. (“CHP”)and their respective subsidiaries, and those funded by Relevant Proceeds (as defined in the 2017 Facilities Agreement)), which capital expenditures, joint venture investments and acquisitions at any time then incurred are subject to a separate aggregate limit of (i) $500 million (or its equivalent) for CLH and its subsidiaries and (ii) $500 million (or its equivalent) for CHP and its subsidiaries. In addition, in each case, the amounts 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 Facilities 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 Facilities 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 Facilities Agreement) to: (i) create liens; (ii) incur additional debt; (iii) change our business or the business of any obligor (as defined in the 2017 Facilities

 

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Agreement, taken as a whole); (iv) enter into mergers; (v) enter into agreements that restrict our subsidiaries’ ability to pay dividends or repay intercompany debt; (vi) acquire certain 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; 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 Facilities 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 Facilities 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 3.75:1 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 debt; and (ii) no default under the 2017 Facilities 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 Facilities 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 Facilities 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; (ii) material inaccuracy of representations and warranties; (iii) breach of covenants; (iv) bankruptcy (quiebra) or insolvency (concurso mercantil) of CEMEX, S.A.B. de C.V., any other obligor under the 2017 Facilities Agreement or any other of our material subsidiaries (as defined in the 2017 Facilities 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 $50 million or commencement of negotiations to reschedule debt exceeding $50 million; (vi) a cross-default in relation to financial indebtedness in excess of $50 million; (vii) certain changes to the ownership of any of the obligors under the 2017 Facilities Agreement; (viii) enforcement of any security against an obligor or material 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 that limit the ability of obligors to transfer foreign exchange for purposes of performing material obligations under the 2017 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 Facilities Agreement determine would result in our failure, taken as a whole, to perform payment obligations under the 2017 Facilities Agreement; and (xiii) it becomes unlawful for us to comply with our obligations under the 2017 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 Facilities Agreement, the 2017 Facilities Agreement’s agent has the ability to accelerate all outstanding amounts due under the 2017 Facilities 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 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 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 Facilities Agreement, the indentures governing our outstanding Senior Secured Notes and other financing arrangements.

 

In connection with the 2017 Facilities Agreement, we pledged or transferred to trustees under certain security trusts the Collateral and all proceeds of the Collateral, to secure our obligations under the 2017 Facilities Agreement, our Senior Secured Notes 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, 2019, the Collateral and all proceeds of such Collateral secured were (i) $8,910 million (principal amount $8,984 million) aggregate principal amount of debt under the 2017 Facilities Agreement, our Senior Secured Notes and other financing arrangements and (ii) $443 million aggregate principal amount of the dual-currency notes underlying our Perpetual Debentures. The 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 Facilities Agreement, the Collateral will be released automatically if we meet specified financial covenant targets in accordance with the terms of the Intercreditor 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, 2019, our total debt plus other financial obligations were $11,790 million (principal amount $11,864 million), which does not include $443 million, which represents the nominal amount of our Perpetual Debentures. Of such total debt plus other financial obligations, $1,442 million (principal amount $1,445 million) matures during 2020; $895 million (principal amount $895 million) matures during 2021; $1,389 million (principal amount $1,401 million) matures during 2022; $780 million (principal amount $780 million) matures during 2023; and $7,284 million (principal amount $7,343 million) matures after 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 Facilities 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, 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, 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, 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 revenues, which could affect our ability to comply with our payment obligations under our debt agreements and instruments. 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 compliance with the 2017 Facilities Agreement and “—Recent Developments—Recent Developments Relating to Effects of COVID-19 on Our Business and Operations” for more information on how COVID-19 has impacted out debt and cash levels.

 

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, 2019, we had $599 million funded under our securitization programs in Mexico, the 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, 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 agreements 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 agreements 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 December 31, 2019, there were $4,461 million and €1,450 million aggregate principal amount of then-outstanding Senior Secured Notes 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, 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 with respect to 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 Facilities 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 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 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 on sub-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 its 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 and non-wholly owned subsidiaries. Although 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 CEMEX, S.A.B. de C.V. is subject to various regulatory, contractual and legal constraints of the countries in which we operate, including the need to create legal reserves prior to transferring funds. The 2017 Facilities Agreement restricts CEMEX, S.A.B. de C.V.’s and its subsidiaries’ ability to declare or pay cash 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 the year-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. does not expect that existing regulatory, legal and economic restrictions on its existing 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 and 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 hold non-controlling interests in these subsidiaries, including CLH, CHP,Trinidad Cement Limited (“TCL”) and Caribbean Cement Company Limited (“CCCL”), among others. Various disadvantages may result from the participation of non-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 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 within our operations).

 

A substantial portion of our total debt plus other financial obligations is denominated in Dollars. As of December 31, 2019, our debt plus other financial obligations denominated in Dollars represented 67% of our total debt plus other financial obligations, which does not include $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’ operations in Mexico. Although we have substantial operations in the U.S., we continue to strongly rely on our non-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, Pound Sterling, Colombian Peso, Philippine Peso or any of the other currencies of the countries in which we operate, compared to the Dollar, could adversely affect our ability to service our Dollar-denominated debt. In 2019, our operations in Mexico, the United Kingdom, France, Germany, Spain, the Rest of Europe, Colombia, Panama, the Dominican Republic, Caribbean TCL (as defined below), Rest of South, Central America and the Caribbean, the Philippines, Israel and the Rest of Asia, Middle East and Africa, which are our main non-Dollar denominated operations, together generated 65% of our total revenues in Dollar terms (21%, 5%, 6%, 3%, 2%, 5%, 4%, 1%, 2%, 2%, 4%, 3%, 5% and 2%, respectively) before eliminations resulting from consolidation. In 2019, 27% of our revenues in Dollar terms were generated from our operations in the U.S. before eliminations resulting from consolidation.

 

During 2019, the Mexican Peso appreciated 3.7% against the Dollar, the Euro depreciated 2.1% against the Dollar and the Pound Sterling appreciated 3.9% against the 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 Dollar and other currencies, as those fluctuations influence the amount of our non-Dollar indebtedness when translated into Dollars 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 impacts, see “—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 December 31, 2019, our Euro-denominated total debt plus other financial obligations represented 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 or the risk that we will not continue to have access to such instruments at reasonable costs, or at all.

 

As of December 31, 2019, our derivative financial instruments consisted of foreign exchange forward contracts under a net investment hedge program, interest rate swap instruments related to bank 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. As of December 31, 2018 and 2019, the aggregate notional amount under our outstanding derivative financial instruments was $2,608 million ($1,249 million of net investment hedge, $1,126 million of interest rate swaps, $111 million of forwards on third-party shares and $122 million of fuel price hedging) and $2,324 million ($1,154 million of net investment hedge, $1,000 million of interest rate swaps, $74 million of forwards on third-party shares and $96 million of fuel price hedging), 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 eleven years, CEMEX has significantly decreased its use of 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 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 laws 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, 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,” “—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 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 certain by-products of industrial processes produced by third parties, such as pet coke, fly ash, slag and synthetic gypsum, among others, as well as natural resources such as water. While we are not dependent on our suppliers and we try to secure the supply of the required materials, products or resources through long-term renewable contracts and framework agreements, which allow us to better manage supplies, short-term contracts are entered into in certain countries where we operate. Should existing suppliers cease operations or reduce or eliminate production of these by-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. 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.

 

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 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 disposed of assets in the past and may continue to do so to reduce our overall leverage and rebalance our portfolio, the 2017 Facilities Agreement and other debt instruments restrict our ability to acquire assets and enter 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 or that we will be able to find suitable partners for our joint ventures at all. If we fail to achieve any 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-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 with third parties or for use in our operations. In addition, governments in several of the countries in which we operate are working to reduce energy subsidies, introduce clean energy obligations or impose new excise taxes, which could further increase energy costs 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. 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 of 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 may continue to be 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. We compete with different types of companies based on different factors in each market. For example, in the relatively consolidated cement and ready-mix concrete industries, we generally compete based on quality, client segmentation, value proposition, and superior customer experience. In the more fragmented market for aggregates, we generally compete based on capacity and price for our 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, increasing competition in our markets. For example, Lafarge, S.A. (“Lafarge”) and Holcim Ltd. (“Holcim”) merged 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., 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.

 

As a result, if we are not able to compete effectively, we may continue to lose market share, potentially substantially, in the countries in which we operate, and our revenues 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 2019 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 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. The recoverable amount of CGUs consist of the higher of such groups of cash-generating units’ 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 CGUs 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 CGUs 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 CGU 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 the mid-term is expected in their operating results, management uses cash flow projections over a period of up to ten years, to the point at which future expected average performance resembles the historical average performance and to the extent we have detailed, explicit and reliable financial 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 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 market transactions.

 

Impairment tests are significantly sensitive to, among other factors, the estimation of future prices of our products, 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. 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 specific pre-tax discount rates for each group of CGUs to which goodwill is allocated, which are applied to pre-tax cash flows. The amounts of estimated undiscounted cash flows are significantly sensitive to the growth rates in perpetuity applied. The higher the growth rate in perpetuity applied, the higher the amount of undiscounted future cash flows by group of CGUs obtained. 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 CGUs obtained.

 

During the last quarters of each of 2017, 2018 and 2019, we performed our annual goodwill impairment test. For the years ended December 31, 2018 and December 31, 2019, we did not determine any goodwill impairments. During 2017, uncertainty over the improvement of indicators affecting Spain’s construction industry (and consequently the expected consumption of cement, ready-mix concrete and aggregates), partially due to the country’s then complex prevailing political environment, resulted in limited expenditure in infrastructure projects, as well as uncertainty in the expected price recovery and the effects of increased competition and imports. As a result, our management determined that the net book value of our operating segment in Spain exceeded its value in use by $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 2019 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 any 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 and antitrust proceedings, that could harm our business 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, 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 were subject to a number of significant legal proceedings, including, but not limited to, 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 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, 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 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 cannot 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 operating effectively. As of December 31, 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 future, which could result in material misstatements in our financial statements or a failure to meet our reporting obligations. This, in turn, could negatively impact our business and operating results, access to capital markets, the market price of our shares and our ability to remain listed on the 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”) 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 continued to be conducted at several of our plants. While we expect to meet all emissions standards imposed by the Portland Cement NESHAP, failure to do so could have a material adverse impact on our business 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. EPA 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 most of the rule and remanding several portions to EPA for further consideration. EPA has not issued a revised final rule after remand but the portions of the rule upheld on appeal are final and in effect. The final CISWI rule established 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 CO2 as a by-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 U.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.”

 

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 organize non-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, liquidity, results of 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 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, 2019, our operations were mostly in Mexico, the U.S., certain countries in Europe, SCA&C, Asia and 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.”

 

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.”

 

Since 2011, our operations in Egypt have been exposed to political and social turmoil in the country. Throughout this time, CEMEX has continued with its cement production, dispatch and sales activities. Abdel Fattah el-Sisi has been the president of Egypt since 2014, and was reelected for a second term in March 2018 (2018-2022). The current government faced unrest in 2019, due to clashes between government forces and opposition protesters. Further mobilization and social turbulence 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, changes 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 continues to be stalled, despite 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 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 in 2014, as well as Russia’s intervention in Syria have made the country subject to international sanctions from different countries, including the U.S. and the EU. While not directly impacting territories in which we had operations as of December 31, 2019, the Ukrainian dispute could negatively affect the economies of the countries in which we operate and their access to Russian energy supplies. In addition, the dispute could negatively impact the global 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. 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, regional tensions have intensified since the U.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 U.S. drone strike, which was followed by Iranian retaliation. The Iran conflict poses a significant security and terrorism risk, mainly for the U.S. and Iran’s allies in the region. Increased tensions could lead to a risk of full military action, and could potentially have a material adverse effect on our business, financial condition, liquidity and results of 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 geopolitical tension related to pro-democracy protests in Hong Kong, Taiwan’s status in relation to China, South Korea’s disputes with North Korea and disputes between the U.S. and North Korea. Similarly, mutually exclusive territorial disputes among several Southeast Asian countries in the South China Sea continue. A major outbreak of hostilities or political upheaval in China, Taiwan, North Korea, 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 reduction of economic growth in China 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.

 

Numerous protests have erupted in Latin American countries, such as Colombia, Chile, Ecuador, Nicaragua, Puerto Rico among others. In addition, the region continues to be affected by the Venezuelan crisis, which has had a major impact on the regional economy and poses an important social and security risk.

 

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.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 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 any rainy and snowy weather. Consequently, demand for our products is significantly lower during the winter or raining and snowing seasons in the countries in which we operate and 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 as our access to products and materials used in our operations (as was the case in 2018 with regard to our operations in the Philippines, which was exacerbated by a natural landslide that affected our operations in the country). Natural disasters such as the earthquake in Mexico and Hurricanes Harvey and Irma in the U.S. in 2017 could have a negative impact on our sales volumes, which could also 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 counterbalanced by the increase in the demand for our products during the reconstruction phase, unless any of our operating units or facilities are impacted by 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 shutdowns such that not all our facilities are shut down at the same time, the unexpected shutdown or closure of any facility may nevertheless materially affect our business, financial condition, liquidity and results of operations from one period to another. 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 government measures to temporarily suspend some of our operations to stop the spread of COVID-19.

 

We are increasingly dependent on information technology and our systems and infrastructure, as well as those provided by third-party service providers, face certain risks, including cyber-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. Our systems and technologies may require modifications or upgrades as a result of technological changes, growth in our 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 electronic break-ins, catastrophic events, power outages, natural disasters, computer system or network failures, security breaches, computer viruses and cyber-attacks, including malicious codes, worms, ransomware, phishing, denial of service attacks and unauthorized access. For example, our digital solutions to improve sales, customer experience, enhance our operations and increase our business efficiencies could be impeded by such damages, disruptions or intrusions. To try to minimize such risks, we safeguard 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. 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, 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, which could have a material adverse impact on our business, financial condition, liquidity, results of operations and prospects.

 

As of December 31, 2019, our 13-month insurance program, 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 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, 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 extraction locations, require individuals to work with chemicals, equipment and other materials that have the potential to cause fatalities, harm and injury 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, as 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 disputes 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” 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. We have a net projected liability recognized in our statement of financial position as of December 31, 2019 of $1,138 million. The future cash funding requirements for our defined benefit pension plans and other post-employment benefit plans could significantly differ from the amounts estimated as of December 31, 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.

 

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 other things, fire, theft and natural disasters such as floods, and also face risks related to cyber-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 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. Such circumstances could have a material adverse effect on our business, liquidity, financial condition and results 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 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 some or all of CEMEX, S.A.B. de C.V.’s directors or our senior management could have a material adverse effect on our business, financial condition, liquidity and results of 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, 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, 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 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 with 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 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 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 and our reputation” and “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings.”

 

Certain tax matters may have a material adverse effect on our cash flow, financial condition and net income, as well as on our reputation.

 

We are subject to certain tax matters, mainly in Colombia and Spain, that, if adversely resolved, may have a material adverse effect on our operating results, liquidity and financial position, as well as on our reputation. See notes 2.13 and 19.4 to our 2019 audited consolidated financial statements included elsewhere in this annual report, “Item 4—Information on the Company—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 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 senior management and controlling persons.

 

CEMEX, S.A.B. de C.V. is a publicly traded variable stock corporation (sociedad anónima bursátil de capital 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 U.S. As a result, it may not be possible for you to effect service of process within the

 

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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 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 to non-controlling shareholders in Mexico are different from those in the U.S. and may be more difficult to enforce.

 

Under Mexican law, the protections afforded to non-controlling shareholders are different from those in the 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, are less developed under Mexican law than under U.S. and continental European law. Mexican law only permits shareholder derivative suits (i.e., suits for our benefit as opposed to the direct benefit of our shareholders) and there are procedural requirements for bringing shareholder derivative lawsuits, such as minimum holdings, which differ from those in effect in other jurisdictions. There is also a substantially less active plaintiffs’ bar dedicated to the enforcement of shareholders’ rights in Mexico than in the U.S. As a result, in practice it may be more difficult for our non-controlling shareholders to initiate 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.

 

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.’s 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 of non-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 in 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. Under the terms of the CPO Trust, Series A shares underlying CPOs held by non-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 by non-Mexican investors must be placed into a new trust similar to the current CPO trust for non-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, since non-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, 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.

 

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Selected Consolidated Financial Information

 

The financial data set forth below as of December 31, 2018 and 2019, and for each of the three years ended December 31, 2017, 2018 and 2019 have been derived from, and should be read in conjunction with, and are qualified in their entirety by reference to, our 2019 audited consolidated financial statements included elsewhere in this annual report.

 

Our 2019 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.

 

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 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 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 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.

 

Adoption of IFRS 16

 

Moreover, 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 of estimated lease payments under 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 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 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 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, 2017, 2018 and 2019 may not be comparable to that of prior periods.

 

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, 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. 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.” 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 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. Our operations of these assets in Spain for the years ended December 31, 2017, 2018 and 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 sale 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. 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 Concrete Pipe Business for the one-month period ending January 31, 2017 are reported in the income statements net of tax in the single line item “Discontinued operations.”

 

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 

 

 

(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 our ready-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, we include the line item titled “Operating earnings before other expenses, net” considering that is a relevant measure for our management as explained in note 2.1 to our 2019 audited 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 revenues, operating costs and expenses and financial revenues and expenses, among others, the inclusion of certain subtotals such as “Operating earnings before other expenses, net” and the display of such income statements varies significantly by industry and company according to specific needs.

 

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(3)

Financial items include our financial expense and our financial income and other items, net, which includes our results in the sale of associates and remeasurement of previously held interest before change in control of associates, financial income, results from financial instruments, net (derivatives, fixed-income investments and other securities), foreign exchange results and effects of amortized cost on assets and liabilities and others, net. See notes 7.1 and 7.2 to our 2019 audited consolidated financial statements included elsewhere in this annual report.

 

(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, 2018 and 2019; (b) Kosmos’ assets held for sale in the United States 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 2017 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, 2019; (f) the Baltic and Nordic businesses sold for the years 2017 and 2018 and for the period from January 1 to March 29, 2019; (g) the operating segment in Brazil sold for the years 2016 and 2017 and for the period from January 1 to September 27, 2018; (h) CEMEX’s Pacific Northwest Materials Business operations in the United States sold for the years 2015 and 2016 and for the six months ended June 30, 2017; (i) CEMEX’s Concrete Pipe Business operations in the United States for the years 2015 and 2016 and for the one-month ended January 31, 2017; (j) CEMEX´s operations in Bangladesh and Thailand for the year 2015 and for the period from January 1 to May 26, 2016; and (k) CEMEX´s operations in Austria and Hungary sold for the period from January 1 to October 31, 2015. See note 4.2 in our consolidated financial statements included elsewhere in this annual report.

 

(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, 2019, 99.88% of CEMEX, S.A.B. de C.V.’s outstanding share capital was represented by CPOs. Each ADS represents ten CPOs.

 

(6)Earnings per share is calculated based upon the weighted-average number of shares outstanding during the year, as described in note 22 to our 2019 audited consolidated financial statements included elsewhere in this annual report. Basic earnings per CPO is determined by multiplying the basic earnings per share for each period by three (the number of shares underlying each CPO). Basic earnings per CPO is presented solely for the convenience of the reader and does not represent a measure under IFRS. As shown in notes 4.2 and 22 to our 2019 audited consolidated financial statements included elsewhere in this annual report, and in connection with our discontinued operations mentioned above, for the year ended December 31, 2015, “Basic earnings per share” and “Diluted earnings per share” include $0.0001 from “Continuing operations,” for the year ended December 31, 2016, “Basic earnings per share” and “Diluted earnings per share” include $0.0155 from “Continuing operations,” for the year ended December 31, 2017, “Basic earnings per share” and “Diluted earnings per share” include $0.0125 from “Continuing operations,” for the year ended December 31, 2018, “Basic earnings per share” and “Diluted earnings per share” include $0.0098 from “Continuing operations,” and for the year ended December 31, 2019, “Basic earnings per share” and “Diluted earnings per share” include $0.0012 from “Continuing operations.” In addition, for the years ended December 31, 2015, 2016, 2017, 2018 and 2019, “Basic earnings per share” and “Diluted earnings per share” include $0.0014, $0.0009, $0.0049, $0.0016 and $0.0019, respectively, from “Discontinued operations.” See note 22 to our 2019 audited consolidated financial statements included elsewhere in this annual report.

 

(7)CEMEX, S.A.B. de C.V. did not declare a dividend for fiscal year 2017. For fiscal year 2018, CEMEX, S.A.B. de C.V. declared a cash dividend in the amount of $150 million, payable in Mexican Pesos in two equal installments, in June 2019 and December 2019. At CEMEX, S.A.B. de C.V.’s 2016 annual general ordinary shareholders’ meeting, held on March 30, 2017, CEMEX, S.A.B. de C.V.’s shareholders approved a capitalization of retained earnings. New CPOs issued pursuant to such recapitalization were allocated to shareholders on a prorata basis. As a result, shares equivalent to 562 million CPOs were allocated to shareholders on a prorata basis in connection with the 2016 recapitalizations, respectively. In each case, CPO holders received one new CPO for each 25 CPOs held and ADS holders received one new ADS for each 25 ADSs held. There was no cash distribution and no entitlement to fractional shares. No recapitalization of retained earnings was approved at CEMEX, S.A.B. de C.V.’s 2017 and 2018 annual general ordinary shareholders’ meetings held on April 5, 2018 and March 28, 2019, respectively. No recapitalization of retained earnings or cash dividend was proposed for CEMEX, S.A.B. de C.V.’s 2019 annual general ordinary shareholders’ meeting held on March 26, 2020.

 

(8)Represents the weighted average number of shares diluted included in note 22 to our 2019 audited consolidated financial statements included elsewhere in this annual report.

 

(9)In 2015, includes the assets held for sale of Andorra plant in Spain. In 2016, includes the assets held for sale of Fairborn cement plant and the Concrete Pipe Business in the United States, the ready-mix pumping equipment in Mexico and the assets of Andorra plant in Spain. In 2017, includes the assets held for sale of Andorra plant in Spain. In 2018, includes the assets held for sale in the central region of France. In 2019, includes assets held for sale in the United Kingdom, Kosmos’ assets in the United States and the white cement assets in Spain.

 

(10)As of December 31, 2017, 2018 and 2019, non-controlling interest included $447 million, $444 million and $443 million, respectively, that represents the nominal amount of Perpetual Debentures, denominated in Dollars and Euros, issued by consolidated entities. In accordance with IFRS, these securities qualify as equity due to their perpetual nature and the option to defer the coupons.

 

(11)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 depreciation and amortization expenses. Operating EBITDA is calculated and presented because we believe that it is widely accepted as a financial indicator of our ability to internally fund capital expenditures and service or incur debt. Operating EBITDA is a non-IFRS measure and should not be considered an indicator of our financial performance as an alternative to cash flow, as measures of liquidity or as being comparable to other similarly titled measures of other companies. Under IFRS, while there are line items that are customarily included in income statements prepared pursuant to IFRS, such as revenues, operating costs and expenses and financial revenues and expenses, among others, the inclusion of certain subtotals, such as operating earnings before other expenses, net, and the display of such income statement varies significantly by industry and company according to specific needs. Our Operating EBITDA may not be comparable to similarly titled measures reported by other companies due to potential differences in the method of calculation. Operating EBITDA is reconciled below to operating earnings before other expenses, net, as reported in the income statements, and to net cash flows provided by operating activities from continuing operations before financial expense, coupons on Perpetual Debentures and income taxes, as reported in the statement of cash flows. Financial expense under IFRS does not include coupon payments of the Perpetual Debentures issued by consolidated entities of $25 million in 2017, $29 million in 2018 and $29 million in 2019, as described in note 20.4 to our 2019 audited consolidated financial statements included elsewhere in this annual report.

 

(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 

 

 

 

(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.

 

Business Overview

 

CEMEX, S.A.B. de C.V. is a publicly traded variable stock corporation (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. CEMEX, 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. started 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.

 

We are one of the largest cement companies in the world, based on annual installed cement production capacity. As of December 31, 2019, we had 93.1 million tons of annual installed cement production capacity and our cement sales volumes in 2019 were 62.8 million tons. We estimate we are one of the largest ready-mix concrete and aggregates companies in the world with annual sales volumes of 50.1 million cubic meters and 135.1 million tons, respectively, in each case, based on our annual sales volumes in 2019. We are also one of the world’s largest traders of cement and clinker, having traded 9.2 million tons of cement and clinker in 2019. This information does not include discontinued operations. See note 4.2 to our 2019 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. We also provide related services and reliable construction-related services to customers and communities and maintain business relationships in more than 50 countries throughout the world.

 

We operate in different parts of the world, with operations in Mexico, the U.S., Europe, South America, Central America, the Caribbean (“SCA&C”), Asia, the Middle East and Africa. We had total assets of $29,363 million as of December 31, 2019, and an equity market capitalization of $3,032 million as of April 20, 2020.

 

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As of December 31, 2019, our cement production facilities were located in Mexico, the U.S., the United Kingdom, Germany, Spain, Poland, 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, 2019, our assets (after eliminations), cement and grinding plants as 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 grinding 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, 2019

 
  

Assets After Eliminations (in Millions of Dollars)

  

Number of Cement and Grinding Plants

  

Installed Cement Grinding Capacity (Millions of Tons Per Annum)

 
Mexico(1) $3,910   15   26.4 
U.S.(2)  13,898   10   14.1 
Europe            
United Kingdom  1,562   3   3.6 
France  978       
Germany  401   2   3.1 
Spain  1,190   6   7.7 
Rest of Europe(3)  756   8   8.1 
SCA&C            
Colombia  1,187   4   4.1 
Panama  337   1   1.2 
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  689   2   5.7 
Israel  611       
Rest of Asia, Middle East and Africa(6)  423   2   6.6 
Corporate and Other Operations  1,466       
Continuing Operations  28,524   63   89.2 
Assets held for sale(7)  839   2   3.9 
Total $29,363   65   93.1 

 

“—” Not applicable

 

 

 

The above table excludes our proportional interest in the installed capacity of companies in which we hold a non-controlling interest and reflects our organizational structure as of December 31, 2019.

 

(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 2.4 million tons of cement.

 

(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 2.0 million tons of cement.

 

(3)“Rest of Europe” refers mainly to our operations in Poland, the Czech Republic and Croatia.

 

(4)“Caribbean TCL” refers to TCL’s operations mainly in Trinidad and Tobago, Jamaica, Barbados and Guyana.

 

(5)“Rest of South, Central America and the Caribbean” or “Rest of SCA&C” refers mainly to our operations in Costa Rica, Puerto Rico, Nicaragua, Jamaica, the Caribbean, Guatemala and El Salvador, excluding our operations of Caribbean TCL.

 

(6)“Rest of Asia, Middle East and Africa” or “Rest of AMEA” includes mainly our operations in Egypt and the UAE.

 

(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 30 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 independently from Mexico and which we 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 fundamental to our portfolio. The following are our most significant acquisitions, divestitures and reconfigurations that we have announced or closed since 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

 

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 37.8% indirect interest in one cement production plant in Akmenes in 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 on 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 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 resulting in the issuance of 8,293,831,169 common shares. The listing date for the offered shares occurred on March 4, 2020. As of December 31, 2019, we held 66.78% of CHP’s common shares. After giving effect to the stock rights offering, our ownership of CHP’s common shares increased to 75.66%. On December 16, 2019, CHP had announced that it obtained approval from the Philippine Stock Exchange to raise the equivalent in Philippine Peso of up to $250 million through a stock rights offering to all eligible shareholders. The net proceeds from the offering for CHP will be used primarily to fund the expansion of our Solid Cement Plant (as defined below) and to repay intra-group loans. See “Item 5—Operating and Financial Review and Prospects—Recent Developments—Other Recent Developments” for the status of the stock rights offering.

 

Geographic Breakdown of Revenues for the Year Ended December 31, 2019

 

The following chart indicates the geographic breakdown of our revenues, before eliminations resulting from consolidation, for the year ended December 31, 2019:

 

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Breakdown of Revenues by Line of Business for the Year Ended December 31, 2019

 

The following chart indicates the breakdown of our revenues by product, after eliminations resulting from consolidation, for the year ended December 31, 2019:

 

 

Our Products

 

We 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 either ready-mix concrete or mortar. Whether in bags or in bulk, we provide our customers with high-quality branded cement products and services. We use our professional knowledge and experience to develop customized products designed 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 at a point of sale in close proximity to where the product will be used. We seek 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 then pre-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 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, 2019, 53 of our 55 operative cement production plants used the dry process and two used the wet process. Our operative production plants that use the wet process are in 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 a pre-heater tower that utilizes exhaust heat generated by the kiln to pre-calcine the raw materials before they are calcined to produce clinker.

 

Clinker and gypsum are fed in pre-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 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: 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: Our oil-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, our oil-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 limestone, and other pozzolans. The use of blended cements in ready-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 CO2 footprint resulting from their lower clinker content due to the addition of supplementary cementitious materials. The use of blended cements reinforces our dedication to sustainable practices and furthers our objective of offering an increasing range of more sustainable products.

 

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 our ready-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 our thorough knowledge and application of ready-mix concrete technology. Leveraging years of experience, a global pool of knowledge, and state-of-the-art expertise about the different ready-mix concrete constituents and their interaction, we offer our customers tailor-designed concrete. CEMEX ready-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 design ready-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 special ready-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 of ready-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 with ready-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-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. 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. We also offer ready-mix concrete for water and wastewater management and for roads and pavements.

 

The types of ready-mix concrete we offer our clients include, but are not limited to:

 

Standard Ready-Mix Concrete: Standard ready-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 of ready-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 of ready-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 of ready-mix concrete can also be used in buildings, railways, and precast applications. In addition to saving time, this type of ready-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 or ready-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-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 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. This ready-mix concrete is ideally used in parking lots, footpaths, and swimming pool border applications.

 

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Antibacterial Concrete: This type of ready-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 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 in ready-mix concrete, asphalt, and mortar. Accounting for 60% to 75% of ready-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, 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: Our high-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’ designs 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 societies 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-winning low-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 offer turn-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 or ready-mix concrete is ready for delivery. This free-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 a one-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 of 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 a one-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. Through 24-hour monitoring of our customers’ silos’ cement stock levels, our SmartSilo® technology allows us to anticipate and respond to their product replenishment needs ahead of time.

 

Technical Support: We aim to provide our customers with top-level technical assistance through our state-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 Our 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 in ready-mix concrete and other concrete-based products such as blocks and pipes.

 

Customers use our aggregates for a wide array of purposes, from key components in the construction and maintenance of highways, walkways, and railways to indispensable ingredients in concrete, asphalt and mortar. Aggregates can be used in their natural state or crushed into smaller size pieces.

 

Raw materials for aggregates and cement production are primarily extracted from open pit or open cut mines, which target 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 economically unfeasible. In some cases, we also extract raw materials by dredging underwater deposits.

 

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 materials through third-party suppliers. For the year ended December 31, 2019, 15% of our total raw material needs were supplied by 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 with our business units. In specific circumstances we have used the services of third-party geologists and/or engineers to validate our own estimates. During the three-year period ended December 31, 2019, we have employed third parties to review (i) our cement raw materials reserves estimates in Mexico, Colombia, Nicaragua, Costa Rica, the United Kingdom, Germany, Spain and the Philippines and (ii) our aggregates reserves estimates in France, Poland, the Czech Republic, the United Kingdom, Germany and Mexico.

 

Our reserves determination includes only materials meeting specific quality requirements. For aggregates used in ready-mix concrete, such requirements are based on hardness, shape and size. 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 between production sites and even within 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 good condition and adequate for efficient operations. During 2019, our total quarry material production was 179.1 million tons, of which 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 38% was directly sold to customers.

 

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Our estimates distinguish between owned and leased reserves, the latter being determined over the term of the lease contract, and including only those permitted reserves which are proven and probable. As of December 31, 2019, the total surface of property in our quarries operations (including cement raw materials quarries and aggregates quarries) was 86,054 hectares, of which 82% was owned by us and 18% was managed through lease or similar contracts.

 

As of December 31, 2019, we operated 187 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 87 years, assuming 2015-2019 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   Owned   Leased   Proven   Probable  Total   Years to depletion   Annualized Production   Annualized Production   Own Use  
Mexico(1) Limestone  19   9,871   48   1,285   1,629   2,914   141   17.8   20.7   94%
  Clay  15   8,912      155   148   303   92   2.8   3.3   100%
  Others  16   1,756   150   8   24   32   98   0.5   0.3   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%
  Others  2   30         3   3   0   0.1   0.0   100%
Europe                                          
United Kingdom Limestone  3   431   107   52   59   111   46   2.1   2.4   100%
  Clay  2   108   107   22   5   27   21   0.6   1.3   100%
Germany Limestone  1   298      5   88   93   37   2.6   2.5   100%
Spain Limestone  12   726   117   289   131   420   93   4.1   4.5   100%
  Clay  6   64   30   17      17   38   0.4   0.5   93%
  Others  3   102   3   1   14   15   391   0.0   0.0   100%
Rest of Europe Limestone  5   637   68   210   216   426   71   5.7   6.0   99%
  Others  1   4   5            60          
SCA&C                                          
Colombia Limestone  13   3,026   1,751   38   251   289   74   3.4   3.9   100%
  Clay  4   232   250   10   12   22   185(4)  0.1   0.1   100%
  Others  2   86   153   1   11   12   65   0.1   0.2    
Panama Limestone  3   110      68   24   92   46   1.5   2.0   100%
  Clay  2   179      6      6   25   0.2   0.3   100%
Costa Rica Limestone  1   48      35      35   38   0.7   0.9   99%
  Clay  2   94   60   4   6   10   45   0.2   0.2   100%
  Others  1   27      5      5   206   0.0   0.0   100%
Caribbean TCL Limestone  14   83   261   3   30   33   23   1.4   1.4   81%
  Clay  2   135      1   16   17   90   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  4   701      311   608   919   291   2.7   3.2   100%
  Clay  2   242      21   30   51   2,104   0.0   0.0    
  Others  1      1,543   11   50   61   392   0.2   0.2   90%
Asia, Middle East and Africa                                          
Philippines(3) Limestone  7   278      216      216   38   5.7   5.7   100%
  Clay  3   37      1   2   3   14   0.0   0.2    
  Others  5   76   9   5      5   7   0.1   0.7   100%
Rest of Asia, Middle East and Africa Limestone  2      203   8   15   23   5   2.7   4.4    
  Clay  3      392   2   26   28   23   0.7   1.2    
  Others  4      4               0.0   0.2    
CEMEX Consolidated Limestone  102   35,142   2,646   3,003   3,187   6,190   89   63   70   94%
  Clay  44   10,147   878   258   259   517   71   6   7   80%
  

Others 

  41   2,080   1,890   31   103   134   78   1   2   71%
  Totals(5)  187   47,370   5,414   3,292   3,548   6,840   87   70.2   78.8   74%

 

 

 

(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, 2019, we operated approximately 262 aggregates quarries across our global operations, mostly dedicated to serving our ready-mix concrete and aggregates businesses. We estimate that our proven and probable aggregates reserves, on a consolidated basis, have an average remaining life of 54 years, assuming 2015-2019 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   Owned   Leased   Proven   Probable  Total   Years to depletion   Annualized Production   Annualized Production   Own Use  
Mexico Hardrock  12   655   183   212   147   359   33   10.3   10.9   60%
                                           
United States Hardrock  16   10,748   1,066   725   494   1,219   50   27.3   24.1   32%
  Sand & Gravel  42   4,337   3,974   265   233   498   30   18.2   16.8   51%
  Others  2   163   88            2   0.2   0.3   28%
Europe                                          
United Kingdom Hardrock  20   530   979   430   57   487   43   11.1   11.3   38%
  Sand & Gravel  48   2,505   1,362   51   130   182   26   5.7   6.9   30%
France Hardrock  10   62   131   81   5   86   29   2.9   3.0   16%
  Sand & Gravel  24   422   590   129   15   144   27   4.9   5.2   10%
Germany Hardrock  1   26   7   6   18   24   102   0.4   0.2   32%
  Sand & Gravel  14   826   302   22   72   94   26   3.6   3.6   35%
Spain Hardrock  17   466   234   213   183   396   429   1.5   0.9   22%
  Sand & Gravel  3   432   110   48      48   146   0.8   0.3   14%
Rest of
Europe
 Hardrock  8   14   93   16   24   40   22   2.6   1.8   12%
  Sand & Gravel  14   415   241   18   23   41   6   6.2   6.5   48%
SCA&C                                          
Colombia Sand & Gravel  10   640      11   35   46   86   0.2   0.5   64%
Panama Hardrock  2   31   20   5   12   17   93   0.0   0.2    
  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%
  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  1                  2   0.1   0.2   81%
CEMEX Consolidated Hardrock  96   12,759   3,699   1,927   2,826   4,753   73   68.3   65.2   45%
  Sand & Gravel  163   9,868   6,639   547   519   1,066   26   40.4   41.2   40%
  Others  3   163   144   1   1   1   3   0.2   0.5   28%
  Totals(2)  262   22,789   10,481   2,474   3,346   5,820   54   108.9   106.9   43%

 

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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.

 

Our Business Strategy

 

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) 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) protect 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 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.

 

STRATEGIC 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 people 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 hire top-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 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 worldwide, evidenced by our Zero4Life objective. In 2019, the total number of Lost Time Injuries (“LTI”) 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, and we believe we are on track to reach our goal of reducing such rate to 0.3 or less by 2020. Although 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 working on health-related actions to achieve a reduction in our employee sickness absence rate, which increased slightly by 1.6% in 2019.

 

In 2019, the number of fatal occurrences at our operations was reduced by 31%, which is the lowest ever recorded by us, and we continued to make progress in most countries, with 96% of our operations achieving zero fatalities and LTIs. However, in 2019, there was one employee fatality and five contractor fatalities, 60% of which occurred away from our premises.

 

Most of the fatalities were due to incidents involving moving vehicles. In an effort aimed at eliminating those types of incidents, we continue 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 the appropriate driving techniques to take care of themselves and other vulnerable road users. For example, our Global 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 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, 2019:

 

  Mexico  U.S.  Europe  SCA&C  AMEA  Total CEMEX 
Total fatalities, employees, contractors and other
third parties (#)
  2   2   1   2   2   9 
Fatalities employees (#)  1               1 
Fatality rate employees(1)  0.1                
Lost-Time injuries (LTI), employees (#)  7   16   12   10   4   50(2)
Lost-Time injuries (LTI), contractors (#)  6   1   16   12   2   43(3)
Lost-Time injury (LTI) frequency rate, employees per million hours worked  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.

 

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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 in a safe manner. As part of our manager-training program, executives and supervisors must complete our Health and Safety 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 priorities across our organization for our producing plants and our corporate offices. The Health and Safety Academy was launched in 2016 with the Foundation module, which prepares our line managers to lead by example and play a fundamental role in ensuring safety throughout our operations. Our Module 2, which was launched in 2017 and rolled out further in 2018, enables our line managers to apply and use the 14 tools of our H&S Management System to support our Zero4Life objective 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 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 provide a wide range of training to our front-line workers in 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 track that sits within each network to promote working together through a coordinated, consistent and collaborative approach to reach our goal of zero injuries: (i) the H&S Functional Network; (ii) the Global H&S Council; (iii) six global network H&S tracks; and (iv) a Global Health Forum.

 

Across our operations, we continue to enhance our health practices and reduce our safety risks to strengthen our H&S 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 engagements, 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 the U.S.; and sports tournaments which were organized to promote 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 reduce their Body Mass Index and improve 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 in substantially all of the countries in which we operate, we are also implementing third-party verification to help us validate the health and safety credentials of contractors we may potentially engage, including major contractors. In 2019, we created a target to approve at least 80% of the spending value with such contractors. As of December 31, 2019, we have accomplished verification of 81% of such contractors, which represents 942 of the major contractors that access our operating facilities.

 

Attracting and Retaining Talent. We aim to offer 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, increasing their experience and capabilities with the intention of having them succeed in increasingly challenging roles. Through this process, we work to improve our employees’ commitment to us by helping them meet their own career development expectations and prepare 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 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 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, which include our Commercial, Health & Safety, Supply Chain, and Culture & 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 traditional in-person training with new digital learning platforms to embed a growth mindset throughout our organization and fulfill our employees’ potential.

 

In April 2018, CEMEX, 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 looks to provide a workplace that is free from harassment and discrimination on the basis of race, gender, national origin, sexual orientation, disability and membership in 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 our Human Rights Policy can report it through various channels, including local Human Resources departments, Ethics Committees and our secured ETHOS line 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 our Human Rights 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 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 create a positive experience for our customers.

 

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. Since 2012, we have reached a total of 14,500 participants undergoing its different programs across our operations, and, to date, we have delivered approximately 580 training sessions to our 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 seek to strategically expand our manufacturing and distribution capabilities to serve our customers’ and communities’ demand for high-quality public infrastructure, commercial buildings and housing projects more efficiently, effectively, and reliably.

 

Digital Transformation. Beyond changing the way we operate internally, we are leveraging digital technologies to transform our customers’ 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 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 improve functionality and to stay ahead of our customers’ expectations.

 

We intend to transform the global building materials industry with 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 U.S. and Mexico. During 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 countries in which we do business, and through it we received approximately 66% of our main products orders.

 

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 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 35 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. 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.

 

Providing 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 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 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 art. Among other benefits, our concrete solutions help improve land use, increase water and energy efficiency, mitigate noise pollution and lower buildings’ carbon footprint.

 

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 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. Consequently, we intend to be selective and strategic about where we remain and where we operate. We believe our business portfolio should be particularly focused on small and/or medium geographies that combine strong fundamentals, ranging from economic growth potential to per-capita cement consumption, population growth, degree of urban development and political stability.

 

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. We 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. 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, 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 by Digital Technologies. Since its launch in 2017, our open innovation and corporate venture capital unit, CEMEX Ventures, continues 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 plans to develop opportunities in key focus areas outside of our core business, including urban development, 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, 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 2019, CEMEX Ventures analyzed more than 1,100 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 three technology deep dives, launched the “Construction Technology Top 50 Startups” list jointly with 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 third startup competition for entrepreneurs, innovators, businesses and employees where more than 550 startups proposed solutions and business opportunities in key focus areas.

 

In addition, in 2019, pursuing our goal to actively drive the innovation of 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 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 sustainability 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 committee is comprised of four members of CEMEX, S.A.B. de C.V.’s board of directors. The sustainability committee reports directly to CEMEX, S.A.B. de C.V.’s board of directors. The sustainability 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 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 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 looks 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 and co-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 environmental 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 CEMEX, S.A.B. de C.V. board of 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 contributing to climate change mitigation and its consequences. For decades, as part of our carbon emissions reduction strategy, we have focused on using low-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 28% of our total fuel mix in 2019, and generated more than $165 million in savings including CO2 emissions avoided in carbon regulated markets.

 

As a result of our efforts, we reduced our net CO2 emissions per ton of cementitious products by 22.4% compared to our 1990 baseline—equivalent to the annual emissions generated 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 were involved in six 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-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. As an example, we have a long history of contributing our best practices through our work with the Cement Sustainable Initiative (“CSI”). The work done in CSI was transferred as of January 1, 2019 to the Global 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 construction.

 

We have the expertise to responsibly source, process, store and recover energy from alternative fuels and we strongly believe that increasing co-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, 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 2019, approximately 95% of the waste generated by our production processes was recovered, reused or recycled. The remaining material was sent to disposal sites. Additionally, last year alone, we used more than 13 million tons of waste as fuel and alternative raw materials across our business lines. This is equivalent to the waste produced by almost 50 million people in 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, 2019, 91% of our operations had implemented either the EMS or equivalent programs. As we approach full implementation of our global EMS in 2020, our goal is for all of CEMEX’s operational facilities to be 100% compliant with our internal environmental criteria.

 

The release of nitrogen oxides, sulfur compounds 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 which 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 2019, we invested $80 million in sustainability related projects at our global operations, including projects to monitor and control our air emissions, increase our operations efficiency and mitigate our carbon footprint through alternative fuels and clinker substitution efforts.

 

Our Environmental Incidents Management. 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, consolidating our holistic approach to the integral management of incidents. We believe that transparent and timely reporting is the first step to reducing the occurrence and severity of such events. Our efforts to strengthen a detailed documentation and analysis of environmental and social incidents led to the registration of four Category 1 events during 2019. Moreover, given our new reporting scope, our Category 2 incidents went from 57 in 2018 to 39 in 2019. Enhancing the CEMEX Environmental and Social Incidents Reporting Procedure has also allowed the circumstances of specific incidents to be registered in the context of their corrective action to allow a better follow-up and corresponding remediation.

 

Preserving Land, Water and Biodiversity. 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) having clear and effective transactional functions at all levels of our business; and (iv) maintaining efficient governance controls.

 

STAKEHOLDERS. We value our: (i) employees by having 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 plans designed to maximize revenue, reduce costs, optimize assets and reduce 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.

 

Environment and 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 Innovation Partners. We often leverage the knowledge and expertise of thought partners from varied perspectives such as consulting, research institutions, universities and technology partners.

 

Some of the most relevant partners we collaborate or have collaborated with include Deloitte Consulting, McKinsey & Company, IBM, ExperiencePoint, MIT Center 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 more than 500 partnerships and strategic alliances worldwide have proven to be a key factor in successfully multiplying our positive impact on 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.

 

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 “A Stronger CEMEX” plan on July 1, 2018, and the end of 2020, or possibly soon thereafter, with the intent to regain our investment grade. If this is achieved, it would mean that we have reduced debt by more than $10 billion since the end of 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. Among 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, 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 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 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. 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 initiatives aimed at reducing the use of fossil fuels, consequently looking 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 plan 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. Should demand for our products in the U.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 U.S.

 

Our industry relies heavily on natural resources and energy, and we use cutting-edge technology to increase energy efficiency, reduce CO2 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 CO2 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.

 

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 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, 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 have 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 company-wide programs 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, 2019, and as part of our “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 we operate, serving our customers better and at lower costs, optimizing our production and logistics supply chain models and optimizing our procurement strategy.

 

In connection with the implementation of our cost-reduction initiatives, since 2017, we have implemented a low-cost sourcing initiative which is designed to maintain the continuity of our operations, while looking to provide attractive costs without materially affecting the quality of the products and services we acquire by using a strategic sourcing process empowered by our people’s knowledge and quality management. This initiative is intended to reduce our cost of operations, while maintaining quality and timely delivery by acquiring goods and equipment from Mexico, India, Turkey and certain countries in Asia and Eastern Europe, among others.

 

Also as part of these initiatives, at times we temporarily shut down (some for a period of at least two months) some of our cement production lines in order to rationalize the use of our assets and reduce the accumulation of our inventories. In the past we have announced the permanent closure of some of our cement plants. Similar actions were taken in our ready-mix concrete and aggregates businesses. In the past, such rationalizations have included, among others, our operations in Mexico, the 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, we intend 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 also aim to better serve our customers at lower cost and to optimize our production and logistics supply chain models.

 

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 in some of the markets in which we do business. Such reductions were implemented with 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 2018 and 2019, our capital expenditures related to maintenance and expansion of our operations have been $964 million and $1,033, respectively, lower in 2018 than the $984 million expended in 2017. Pursuant to the

 

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2017 Facilities Agreement, we are limited in our ability to make aggregate annual capital expenditures in excess of $1.5 billion in any financial year (excluding certain capital expenditures, joint venture investments and acquisitions to be made by each of CLH and/or CHP and their respective subsidiaries and those funded by Relevant Proceeds (as defined in the 2017 Facilities Agreement)), which capital expenditures, joint venture investments and acquisitions at any time then incurred are subject to a separate aggregate limit of (i) $500 million (or its equivalent) for CLH and its subsidiaries and (ii) $500 million (or its equivalent) for CHP and its subsidiaries. In addition, the amounts which we and our subsidiaries are allowed to put towards permitted acquisitions and investments in joint ventures cannot exceed certain thresholds as set forth in the 2017 Facilities 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.

 

User Base

 

Cement is the primary building material in the industrial and residential construction sectors of the majority of markets in which we operate. We believe that the lack or shortage of available cement substitutes further enhances the marketability of our product. The primary end-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 have traditionally been a significant component of the retail sector. The end-users of ready-mix concrete generally include homebuilders, commercial and industrial building contractors and road builders. Major end-users of aggregates include ready-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, 2019, we did not depend on any single existing customer 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, 2019, none of our individual customers represented more than 10% of our consolidated revenues.

 

Our Corporate Structure

 

CEMEX, S.A.B. de C.V. is an operating and a holding company that, in general, operates its business through subsidiaries which, in turn, hold interests in CEMEX’s cement and ready-mix concrete operating companies, as well as other businesses. The following chart summarizes CEMEX’s corporate structure as of December 31, 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, 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 CEMEX holds a significant direct or indirect interest, and does not include all of CEMEX’s operating subsidiaries and its intermediate holding companies. The chart reflects the corporate reorganization approved on November 13, 2019, pursuant to which CEMEX, S.A.B. de C.V. merged and 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 CEMEX’s direct or indirect, or consolidated, interest.

 

(2)Includes a 99.99% interest pledged or transferred to a security trust as part of the Collateral.

 

(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 part of the Collateral.

 

(5)Includes COM’s 54.54% interest and CIH’s 45.46% interest. CEMEX, S.A.B. de C.V. indirectly holds 100% of Cemex Operaciones México and CIH.

 

(6)Includes New Sunward and CEMEX, S.A.B. de C.V.’s interest, and shares held in CEMEX España’s treasury.

 

(7)Includes a 99.63% interest pledged or transferred to a security trust as part of the Collateral.

 

(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 UK Operations Ltd.’s (“CEMEX UK”) 5.25% interest.

 

(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.

 

(11)Represents CHP’s direct and indirect equity interest.

 

(12)Represents outstanding shares of CLH capital stock and excludes treasury stock.

 

(13)Represents CLH’s indirect interest.

 

(14)Represents CLH’s 99.483% indirect interest in ordinary shares, and excludes: (i) a 0.516% interest held in Cemento Bayano, S.A.’s (“Cemento Bayano”) treasury, and (ii) a 0.001% interest held by third parties.

 

(15)Represents CLH’s direct and indirect interest in four companies incorporated in Guatemala, CEMEX Guatemala, S.A. (“CEMEX Guatemala”), Global Concrete, S.A., Gestión Integral de Proyectos, S.A. and Cementos de Centroamérica, S.A.

 

(16)Represents CLH’s 97.70% consolidated (direct and indirect) interest in ordinary shares and 98.94% direct interest in preferred shares.

 

(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 TCL’s direct and indirect 74.08% interest and CEMEX, S.A.B. de C.V.’s indirect 4.96% interest.

 

Mexico

 

Overview. For the year ended December 31, 2019, our operations in Mexico represented 21% of our revenues in Dollar terms before eliminations resulting from consolidation. As of December 31, 2019, our operations in Mexico represented 28% of our total installed cement capacity and 14% of our total assets.

 

As of December 31, 2019, CEMEX, S.A.B. de C.V. was both a holding company for some of our operating companies in Mexico and was involved in the production, marketing, sale and distribution of cement, ready-mix concrete, aggregates and other construction materials in 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 of 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, as of December 31, 2019, had a production capacity of 3.1 million tons of cement per year. In December 2014, we announced the restart of the Tepeaca cement plant expansion, consisting of the construction of a new kiln and mill. Its total production capacity is expected to reach 4.9 million tons of cement per year by 2020 based on mill capacity. Additionally, we invested 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. This project was completed during the first quarter of 2019.

 

In 2001, we launched the Construrama program, a registered brand name for construction material stores. Through this 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, 2019, 948 independent concessionaries with 2,028 stores were integrated into the Construrama program, with nationwide coverage.

 

Industry. For 2019, the National Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía) indicated that total construction activity in Mexico contracted by 5.1% up to December 2019 (seasonally adjusted figures). Such contraction has been attributed to a negative performance in the building sector 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 mainly through distributors, with the remaining balance sold through ready-mix concrete producers, manufacturers of pre-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 2019 accounted for 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 cement 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 certain sub-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 and for our new digital solution we have trademark registrations for “CEMEX Go” and “Olivia.”

 

Competition. In the early 1970s, the cement industry in Mexico was regionally fragmented. However, since that time, cement producers in Mexico have increased their production capacity and the cement industry in Mexico has consolidated into a national market, thus becoming increasingly competitive. As of December 31, 2019, the major cement producers in Mexico were CEMEX; LafargeHolcim; Sociedad Cooperativa Cruz Azul, a Mexican operator; Cementos Moctezuma, an associate of Cements Molins and Buzzi-Unicem; and GCC, a Mexican operator in whose majority holder, CAMCEM, we hold a minority interest. During 2013, a then-new cement producer, Elementia (Cementos Fortaleza), entered the market and in 2014 acquired two cement plants from Lafarge (prior to the Lafarge-Holcim merger). As of December 31, 2019, the major ready-mix concrete producers in Mexico were CEMEX, LafargeHolcim, Sociedad Cooperativa Cruz Azul and Cementos Moctezuma. In addition, as of December 31, 2019, the use of non-integrated ready-mixers has been increasing.

 

We believe potential entrants into the Mexican cement market face various barriers to entry, including, among other 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 low value-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 2019, we operated 13 out of our total of 15 cement plants (two were temporarily inactive) and 103 cement distribution centers (including eight marine terminals) located throughout Mexico.

 

 

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We operate 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 U.S. and the SCA&C region, when possible.

 

Products and Distribution Channels

 

Cement. For the year ended December 31, 2019, our cement operations represented 58% of revenues for our operations in Mexico before eliminations resulting from consolidation in Dollar terms and our domestic cement sales volume represented 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 12% of our total cement sales by volume in Mexico in 2019 (excluding our in-house channels).

 

Ready-Mix Concrete. For the year ended December 31, 2019, our ready-mix concrete operations represented 23% of revenues for our operations in Mexico before eliminations resulting from consolidation in Dollar 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. For the year ended December 31, 2019, our aggregates operations represented 6% of revenues for our operations in Mexico before eliminations resulting from consolidation in Dollar terms.

 

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 9% of our total cement sales volume in Mexico for 2019. In 2019, 67% of our cement exports from Mexico were to the U.S. and 33% were to our Rest of South, Central America and the Caribbean region.

 

The cement and clinker exports by our operations in Mexico to the U.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. Our cement plants in Mexico primarily utilize pet coke and alternative fuels. We have entered into four 20-year agreements with PEMEX, two under which PEMEX has agreed to supply us with pet coke for our cement plants through 2022 and 2023. However, during the past years, the volumes delivered by PEMEX to our operations in Mexico have been affected as a result of operational issues at PEMEX’s refineries. In general, we believe our operations in Mexico would be able to purchase pet coke in the open market, if needed, to make up for any quantities not supplied by PEMEX. The PEMEX pet coke contracts have

 

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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 26.5% of the total fuel consumption for our cement plant operations in Mexico in 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 agreement 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 Ventika S.A.P.I. de C.V. and 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 Mexican plants for a period of 20 years, which began in April 2016. During 2019, Ventikas supplied 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, a CEMEX’s subsidiary 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”) (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 with legal requirements and 14.9 GWh/a of electric power.

 

Description of Properties, Plants and Equipment. As of December 31, 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. 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, 2019, the limestone and clay permitted proven and probable reserves of our operations in Mexico had an average remaining life of 141 and 92 years, respectively, assuming 2015-2019 average annual cement production levels. As of December 31, 2019, all our producing 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, 2019, we had a network of 95 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 eight marine terminals. In addition, we had 250 ready-mix concrete plants (47 were temporarily inactive) throughout 73 cities in Mexico, more than 2,100 ready-mix concrete delivery trucks and 12 aggregates quarries (one was temporarily inactive).

  

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Capital Expenditures. We made capital expenditures of $162 million in 2017, $168 million in 2018 and $199 million in 2019. As of December 31, 2019, we expected to make capital expenditures of over $186 million in our operations in Mexico during 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, 2019, our operations in the U.S. represented 27% of our revenues in Dollar terms before eliminations resulting from consolidation. As of December 31, 2019, our operations in the U.S. represented 15% of our total installed cement capacity and 49% of our total assets. As of December 31, 2019, CEMEX, Inc. was the main holding company of our operating subsidiaries in the U.S.

 

As of December 31, 2019, we had a cement manufacturing capacity of 15.7 million tons per year in our operations in the U.S. As of December 31, 2019, we operated a geographically diverse base of 11 cement plants (two were temporarily inactive) located in Alabama, California, Colorado, Florida, Georgia, Kentucky, Pennsylvania, Tennessee and Texas. As of that date, we also operated 42 (four temporarily inactive) rail, truck or water-served active cement distribution terminals and 11 deep-water import terminals (two were temporarily inactive) in the U.S. As of December 31, 2019, we had 333 ready-mix concrete plants located in Alabama, Arizona, California, Florida, Georgia, Nevada, Tennessee, 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 of ready-mix concrete throughout North and South Carolina, entered into a joint venture agreement and formed a joint venture company named Concrete Supply Co. LLC, in which Concrete Supply Holdings Co holds 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 12 ready-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 acquired ready-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.

 

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.

 

Industry. Demand for cement is derived from the demand for ready-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 and the public sectors. The public sector is the most cement intensive sector, particularly for infrastructure projects such as streets, highways and bridges.

 

Prior to the impact of the COVID-19 pandemic, the construction industry had showed signs of a slow recovery from the financial crisis experienced during 2008 and 2009, which was the worst downturn in over 70 years. The construction industry was hit particularly hard during this financial 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 had proceeded at a relatively moderate pace, with real gross domestic product average annual growth of 2.3% since 2011 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 2017, 2018 and 2019 of about 16%. Housing starts increased by 223% from 554 thousand units in 2009 to 1.3 million units in 2019. Housing starts in 2019 increased by 3% from 2018 to 1.3 million units, which remains below the historical steady state level. The industrial-and-commercial sector had also been growing with nominal spending up 8% from 2014 to 2019. Industrial-and-commercial nominal spending decreased by 2% in 2019. The public sector, which has lagged compared to the other construction sectors in this recovery, recorded a spending increase of 9% in 2019. Cement demand had been increasing annually since 2014 with an estimated growth of 3.2% in 2019 after an increase of 21% from 2013 to 2018. As of December 31, 2019, the Portland Cement Association is forecasting a 1.7% increase in cement demand in the U.S. for 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. As of December 31, 2019, the cement industry in the U.S. was highly competitive, including national and regional cement producers in the U.S. As of December 31, 2019, our principal competitors in the U.S. were LafargeHolcim, Buzzi-Unicem, HeidelbergCement and CRH.

 

As of December 31, 2019, the independent U.S. ready-mix concrete industry was highly fragmented. According to the National Ready-mixed Concrete Association (“NRMCA”), it is estimated that as of December 31, 2019 there were about 5,500 ready-mix concrete plants that produce ready-mix concrete in the U.S. and about 55,000 ready-mix concrete mixer trucks that delivered the concrete to the point of placement. The NRMCA estimates that, as of December 31, 2019, the value of ready-mix concrete produced by the industry was approximately $35 billion per year. Given that the concrete industry has historically consumed approximately 75% of all cement produced annually in the 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 U.S. for all types of construction because they are the most basic materials for building activity. The United States Geological Survey (“USGS”) estimates over 2.5 billion tons of aggregates were produced in 2019, an increase of about 5% over 2018. As of December 31, 2019, crushed stone accounted for 60.7% of aggregates consumed, sand & gravel 38.6%, and slag 0.7%. These products are produced in all 50 states and had a value of $28.5 billion as of December 31, 2019. The U.S. aggregates industry is highly fragmented and geographically dispersed. The top ten producing states represented 55% of all production as of year-end 2019. According to the USGS, during 2019, an estimated 4,061 companies operated 6,830 sand and gravel sites and 1,430 companies operated 3,440 crushed stone quarries and 98 underground mines in the 50 states.

 

Our Operating Network in the U.S.

 

The maps below reflect the location of our operating assets, including our cement plants and cement terminals in the U.S. as of December 31, 2019.

 

  

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Products and Distribution Channels

 

Cement. For the year ended December 31, 2019, our cement operations represented 32% of revenues for our operations in the U.S., before eliminations resulting from consolidation in Dollar terms. In the U.S., we deliver a substantial portion of cement by rail, which occasionally goes 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 U.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, 2019, our ready-mix concrete operations represented 43% of revenues for our operations in the U.S., before eliminations resulting from consolidation in Dollar terms. Our ready-mix concrete operations in the U.S. purchase most of their cement aggregates requirements from our cement operations in the U.S. Our ready-mix concrete products are mainly sold to residential, commercial and public contractors and to building companies.

 

Aggregates. For the year ended December 31, 2019, our aggregates operations represented 18% of revenues for our operations in the U.S., before eliminations resulting from consolidation in Dollar terms. We estimate that, as of December 31, 2019, the crushed stone quarries and sand/gravel pits permitted proven and probable reserves of our operations in the U.S. had an average remaining life of 50 and 37 years, respectively, assuming 2015-2019 average annual aggregates production levels. Our aggregates are consumed mainly by our internal operations and by our trade customers in the ready-mix, concrete products and asphalt industries.

 

Production Costs. The largest cost components of our plants are usually electricity and fuel, which accounted for 26% of our total production costs of our cement operations in the U.S. in 2019. 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 in energy. In 2019, the increased use of alternative fuels helped to offset the effect on our fuel costs of increasing coal prices. Power costs in 2019 represented 11% of the cash manufacturing cost of our cement operations in the U.S., which represents production cost before depreciation. We aim to improve the efficiency of our electricity usage of our cement operations in the U.S., concentrating our manufacturing activities in off-peak hours and negotiating lower rates with electricity suppliers.

 

Description of Properties, Plants and Equipment. As of December 31, 2019, we operated 11 cement manufacturing plants in the U.S. (two were temporarily inactive), including the Kosmos cement plant in Louisville, Kentucky, and had a total installed cement capacity of 15.7 million tons per year. We estimate that, as of December 31, 2019, the limestone permitted proven and probable reserves of our operations in the U.S. had an average remaining life of 50 years, assuming 2015-2019 average annual cement production levels. As of that date, we operated a distribution network of 47 active cement terminals. All of our 11 cement production facilities in 2019 were wholly-owned by CEMEX, Inc., except for the cement plant in Louisville, Kentucky, which is owned by Kosmos, a joint venture in which we own a 75% interest and a subsidiary of Dyckerhoff AG (a subsidiary of Buzzi-Unicem) owns a 25% interest. As of December 31, 2019, CEMEX, Inc. had 333 wholly-owned ready-mix concrete plants (44 were temporarily inactive) and operated a total of 60 aggregates quarries (14 of which were temporarily inactive). As of December 31, 2019, we distributed fly ash through four 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 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 of ready-mix concrete and block plants and aggregates quarries. As of December 31, 2019, we were utilizing approximately 87% of our ready-mix concrete plants, 60% of our block manufacturing plants and 77% of our aggregates quarries in the U.S.

 

Capital Expenditures.We made capital expenditures of $354 million in 2017, $405 million in 2018 and $398 million in 2019 in our operations in the U.S. As of December 31, 2019, we had expected to make capital expenditures of $388 million in our operations in the U.S. during 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, 2019, our business in Europe, which includes our operations in Europe and the Rest of Europe, as described below, represented 21% of our revenues before eliminations resulting from consolidation. As of December 31, 2019, our operations in Europe represented 24% of our total installed capacity and 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, 2019, our operations in the United Kingdom represented 5% of our revenues in Dollar terms, before eliminations resulting from consolidation in Dollar terms. As of December 31, 2019, our operations in the United Kingdom represented 5% of our total assets.

 

As of December 31, 2019, we were a leading provider of building materials in the United Kingdom with vertically integrated cement, ready-mix concrete, aggregates and asphalt operations, 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 U.K. Office for National Statistics, total construction output increased by 2.3% in 2019, as compared to a 0% increase in 2018. New construction orders decreased by 1.2% in the full year 2019. Housing starts decreased 10% in the full year 2019. Industrial & Commercial segment decreased 0.5% weighed down by the commercial sector which decreased 1.3% (after a decline of 6.7% in 2018) as a result of Brexit-related uncertainty. Infrastructure grew 6.6% in 2019. As of December 31, 2019, the official data corresponding to 2019 has not been released by the Mineral Products Association, but as of the date of this annual report we estimate that domestic cement demand contracted in 2019 compared to 2018. Ready-mix concrete consumption in the full year 2019 contracted by 3.9%.

 

Competition. As of December 31, 2019, our primary competitors in the United Kingdom are: Tarmac (owned by CRH after divestments by Lafarge and Holcim during their merger), Hanson (a subsidiary of Heidelberg), Aggregate Industries (a subsidiary of LafargeHolcim) and Breedon, which acquired Hope Construction Materials (owned by Mittal Investments). In addition, during 2019 an estimated 2.7 million tons of cement were imported to the United Kingdom by various players including CRH, LafargeHolcim, Heidelberg and other independents, with products 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, 2019, our cement operations represented 21% of revenues for our operations in the United Kingdom before eliminations resulting from consolidation in Dollar terms. About 73% of our United Kingdom cement sales were of bulk cement, with the remaining 23% in bags. Our bulk cement is mainly sold to ready-mix concrete, concrete block and pre-cast product customers and contractors. Our bagged cement is primarily sold to national builders’ merchants.

 

Ready-Mix Concrete. For the year ended December 31, 2019, our ready-mix concrete operations represented 29% of revenues for our operations in the United Kingdom before eliminations resulting from consolidation in Dollar terms. Special products, including self-compacting concrete, fiber-reinforced concrete, high strength concrete, flooring concrete and filling concrete, represented 20% of our 2019 United Kingdom sales volume. In 2019, our ready-mix concrete operations in the United Kingdom purchased 97% of its cement requirements from our cement operations in the United Kingdom and 89% of its aggregates requirements from our aggregates operations in the United Kingdom. Our ready-mix concrete products are mainly sold to public, commercial and residential contractors.

 

Aggregates. For the year ended December 2019, our aggregates operations represented 27% of revenues for our operations in the United Kingdom before eliminations resulting from consolidation in Dollar terms. In 2019, our United Kingdom aggregates sales were divided as follows: 54% were sand and gravel and 46% were limestone. In 2019, 22% of our aggregates volumes were obtained from marine sources along the United Kingdom’s coast. In 2019, 40% of our United Kingdom aggregates production was consumed by our own ready-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 2019, fixed production costs decreased by 4.8% driven by there being fewer days of major kiln overhaul in 2019 compared to 2018. Variable costs decreased by 5% in absolute terms, primarily as a result of no kiln overhaul in 2019. During 2019, we continued to implement our cost reduction programs through our use of alternative fuels.

 

Ready-Mix Concrete. In 2019, fixed production costs decreased by 4.6%, as compared to fixed production costs in 2018, due to due to savings in maintenance spend.

 

Aggregates. In 2019, fixed production costs increased by 8.2% as compared to 2018 fixed production costs.

 

Description of Properties, Plants and Equipment. As of December 31, 2019, we operated two cement plants and one clinker grinding facility in the United Kingdom. Assets in operation at year-end 2019 represent an installed cement capacity of 3.6 million tons per year. We estimate that, as of December 31, 2019, the limestone and clay permitted proven and probable reserves of our operations in the United Kingdom had an average remaining life of 46 and 21 years, respectively, assuming 2015-2019 average annual cement production levels. As of December 31, 2019, including the assets under negotiation with Breedon, we also owned two cement import terminals and operated 193 ready-mix concrete plants (190 fixed and three mobile, from which seven and two, respectively, were temporarily inactive) and 68 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 of by-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 0.9 million tons, which allows us to have access to blended cements. Blended cements are more sustainable based on their reduced clinker factor and use of by-products from other industries.

 

Capital Expenditures. We made capital expenditures of $84 million in 2017, $61 million in 2018 and $67 million in 2019 in our operations in the United Kingdom. As of December 31, 2019, we expected to make capital expenditures of $71 million in our operations in the United Kingdom during 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, 2019, we were a leading ready-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, 2019, our operations in France represented 6% of our revenues in Dollar terms, before eliminations resulting from consolidation. As of December 31, 2019, our operations in France represented 3% of our total assets.

 

Industry. According to the 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 3.2% in 2019 compared to 2018 and demand from the public works sector increased by 12.1% over the same period. According to National Union of Quarrying and Building Materials Industries (French Association), ready-mix concrete consumption grew 1.1% in 2019.

 

Competition. As of December 31, 2019, our main competitors in the ready-mix concrete market in France included LafargeHolcim, Heidelberg, CRH and Vicat SA (“Vicat”), and our main competitors in the aggregates market in France included LafargeHolcim, Heidelberg, Colas (Bouygues) and Eurovia (Vinci). In France, we rely on sourcing cement from third parties, while many of our major competitors in ready-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, 2019, we operated 216 ready-mix concrete plants in France, one marine cement terminal located in Le Havre, on the northern coast of France, 21 land distribution centers, 34 aggregates quarries and nine river ports.

 

Capital Expenditures. We made capital expenditures of $51 million in 2017, $44 million in 2018 and $38 million in 2019 in our operations in France. As of December 31, 2019, we expected to make capital expenditures of $51 million in our operations in France during 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, 2019, our operations in Germany represented 3% of our revenues in Dollar terms, before eliminations resulting from consolidation. As of December 31, 2019, our operations in Germany represented 1% of our total assets. As of December 3, 2019, we were a leading provider of building materials in Germany, with vertically integrated cement, ready-mix concrete and aggregates businesses.

 

Industry. According to DESTATIS, the German Federal Statistical Office, total construction investment (Gross Fixed Capital Formation) in Germany increased by 3.9% in 2019, compared to 2018. During 2019, we had certain broad-based growth among segments with the main driver being the civil engineering works, which grew by 5.5%.

 

Competition. As of December 31, 2019, our primary competitors in the cement market in Germany were Heidelberg, Dyckerhoff (a subsidiary of Buzzi-Unicem), LafargeHolcim, CRH and Schwenk, a local German competitor. These competitors, along with CEMEX in Germany, represented a market share of above 95%, as estimated by us, for 2019. The ready-mix concrete and aggregates markets in Germany are fragmented and regionally heterogeneous, with many local competitors. The consolidation process in the ready-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, 2019, we operated one cement plant and one cement grinding mill in Germany and our installed cement capacity was 3.1 million tons per year. We estimate that, as of December 31, 2019, the limestone permitted proven and probable reserves of our operations in Germany had an average remaining life up to 37 years, assuming 2015-2019 average annual cement production levels. As of December 31, 2019, our operations in Germany also included 61 ready-mix concrete plants (two were temporarily inactive), 15 aggregates quarries (two were temporarily inactive), two land distribution centers for cement and two marine terminals.

  

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Capital Expenditures. We made capital expenditures of $36 million in 2017, $27 million in 2018 and $25 million in 2019 in our operations in Germany. As of December 31, 2019, we expected to make capital expenditures of $26 million in our operations in Germany during 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. For the year ended December 31, 2019, our operations in Spain represented 2% of our revenues in Dollar terms, before eliminations resulting from consolidation. As of December 31, 2019, our operating business in Spain represented 4% of our total assets.

 

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.

 

Industry. In 2019, construction investment increased by 0.8% compared to 2018 primarily driven by the residential sector, with a 2.9% growth, while the non-residential sector decreased by 1.7% in the full year 2019.

 

According to the Spanish Cement Producers Association (Agrupación de Fabricantes de Cemento de España) (“OFICEMEN”), cement imports decreased 11% in 2016, 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 2018.

 

As of December 31, 2019, cement exports from Spain amounted to three million 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 decreased 8% in 2017, decreased 10% in 2018 and, according to our estimates, as of the date of this annual report, decreased by 23% in 2019 compared to 2018.

 

Competition. According to our estimates, as of December 31, 2019, we were one of the largest multinational producers of clinker and cement in Spain. Competition in the ready-mix concrete industry is intense in large urban areas. The overall high degree of competition in the Spanish ready-mix concrete industry is reflected in the multitude of offerings from a large number of concrete suppliers. We have focused on developing value-added products and attempting to differentiate ourselves in the marketplace. The distribution of ready-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, 2019, our cement operations represented 64% of revenues for our operations in Spain before eliminations resulting from consolidation in Dollar terms. We offer various types of cement in Spain, targeting specific products to specific markets and users. In 2019, 16% of the domestic sales volume of our main operating subsidiary in Spain consisted of bagged cement, and the remainder of its domestic sales volume consisted of bulk cement, primarily to ready-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, 2019, our ready-mix concrete operations represented 24% of revenues for our operations in Spain before eliminations resulting from consolidation in Dollar terms. Our ready-mix concrete operations in Spain in 2019 purchased almost 91% of their cement requirements from our cement operations in Spain and 51% of their aggregates requirements from our aggregates operations in Spain.

 

Aggregates. For the year ended December 31, 2019, our aggregates operations represented 6% of revenues for our operations in Spain before eliminations resulting from consolidation in Dollar terms.

 

Exports. Exports of cement and clinker by our operations in Spain, which represented 5% of revenues for our operations in Spain before eliminations resulting from consolidation, decreased 56% in 2019 compared to 2018, primarily as a result of an increase in domestic demand and consequently, a decrease in the volume exported to the U.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 2019, 21% consisted of gray portland cement and 53% of clinker. Of our total gray cement and clinker export volumes from our operations in Spain during 2019, 54% were to the United Kingdom, 22% were to Colombia, 12% were to Poland and the remaining to Germany, Guinea and 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 2019, we used organic waste, tires and plastics as fuel, achieving a 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, 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 10.0 million tons. As of that date, we also had 28 operative distribution centers, including 20 land and eight marine terminals, 72 ready-mix concrete plants (34 were temporarily inactive), 20 aggregates quarries (11 were temporarily inactive) and eight mortar plants. As of December 31, 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, 2019, the limestone and clay permitted proven and probable reserves of our operations in Spain had an average remaining life of 94 and 38 years, respectively, assuming 2015-2019 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 $35 million in 2017, $27 million in 2018 and $34 million in 2019 in our operations in Spain. As of December 31, 2019, we expected to make capital expenditures of $21 million in our operations in Spain during 2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in Spain 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 Europe

 

As of December 31, 2019, our operations in the Rest of Europe segment consisted primarily of our operations in Poland, the Czech Republic and Croatia. These operations represented 5% of our revenues, before eliminations resulting from consolidation in Dollar terms, for the year ended December 31, 2019, and 3% of our total assets as of December 31, 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 Poland

 

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 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 Republic

 

Overview. As of December 31, 2019, we were a leading producer of ready-mix concrete and aggregates in the Czech Republic. We also distribute cement in the Czech Republic. As of December 31, 2019, we operated one cement plant and one grinding mill with annual cement installed capacity of 1.7 million tons, 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 3.9% in 2019 (seasonally adjusted). The increase was mainly driven by a growth in both building development as well as in civil engineering. The main drivers behind the increase were accelerated execution of public infrastructure projects and still relatively strong residential development.

 

According to the Czech Cement Association, total cement consumption in the Czech Republic reached year-over-year growth of 0.5% in the first half of 2019. As of the date of this annual report, the full-year growth for 2019 is estimated to be around 2%. As of the date of this annual report, the specific full-year data for 2019 will be provided by the Czech Cement Association in July 2020. According to our estimates, in 2019, the decline of total ready-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. As of December 31, 2019, our main competitors in the cement, ready-mix concrete and aggregates markets in the Czech Republic were Heidelberg, Buzzi-Unicem, LafargeHolcim, Strabag and Skanska.

 

Capital Expenditures. We made capital expenditures of $14 million in 2017, $14 million in 2018 and $16 million in 2019, in our operations in the Czech Republic. As of December 31, 2019, we expected to make capital expenditures of $21 million in our operations in the Czech Republic during 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. We were the largest cement producer in Croatia based on installed capacity as of December 31, 2019, according to our estimates. As of December 31, 2019, we had three cement plants in Croatia with an annual cement installed capacity of 2.6 million tons. As of December 31, 2019, one cement plant in Croatia was temporarily inactive. As of December 31, 2019, we also operated 12 land distribution centers, three marine cement terminals in Croatia, Bosnia and Herzegovina and Montenegro, six 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 did not allow Duna-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, 2018 and 2019 and for the years ended December 31, 2017, 2018 and 2019, our operations in Croatia are consolidated line-by-line in the financial statements.

 

Industry. According to our estimates made as of the date of this annual report, total cement consumption in Croatia, Bosnia and Herzegovina and Montenegro was almost 3.5 million tons in 2019, the same as in 2018.

 

Competition. As of December 31, 2019, our primary competitors in the cement market in Croatia were Nexe and LafargeHolcim.

 

Capital Expenditures. We made capital expenditures of $9 million in 2017, $4 million in 2018 and $4 million in 2019 in our operations in Croatia. As of December 31, 2019, we expected to make capital expenditures of $5 million in our operations in Croatia during 2020. As of the date of this annual report, the expected capital expenditures to be made in our operations in Croatia 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.

 

South, Central America and the Caribbean

 

For the year ended December 31, 2019, our business in SCA&C, which included 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 revenues before eliminations resulting from consolidation in Dollar terms. As of December 31, 2019, our operations in SCA&C represented 15% of our total installed capacity and 9% of our total assets.

 

CLH is the main holding company for CEMEX’s operations in Colombia, Panama, Costa Rica, Guatemala, Nicaragua and El Salvador.

 

Our Operations in Colombia

 

Overview. As of December 31, 2019, CEMEX Colombia was the second-largest cement producer in Colombia, based on installed cement capacity of 4.1 million tons per year as of December 31, 2019. For the year ended December 31, 2019, our operations in Colombia represented 4% of our revenues before eliminations resulting from consolidation in Dollar terms.

 

CEMEX Colombia has a significant market share in the cement and ready-mix concrete market in the “Urban Triangle” of Colombia comprising the cities of Bogotá, Medellín and Cali. During 2019, these three metropolitan areas accounted for approximately 38.0% of Colombia’s cement consumption. CEMEX Colombia’s Ibagué plant, which is strategically located in the Urban Triangle, is CEMEX Colombia’s largest plant as of December 31, 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 20.3 million tons in 2019. According to the Colombian National Statistical Administrative Department (Departamento Administrativo Nacional de Estadística), total cement consumption in Colombia reached 12.5 million tons during 2019, an increase of 4.0% from 2018, while cement exports from Colombia during 2019 reached 0.4 million tons. We estimate that as of December 31, 2019, close to 60% of cement in Colombia was consumed by the housing and self-construction sector, while the infrastructure sector accounted for approximately 30% of total cement consumption and has been growing in recent 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. As of December 31, 2019, our two largest competitors in Colombia were Cementos Argos, which has established a leading position in the Colombian Caribbean coast, Antioquia and Southwest region markets, and LafargeHolcim Colombia. We estimate that as of December 31, 2019 there were eight other local and regional competitors in Colombia.

 

The ready-mix concrete industry in Colombia was fairly consolidated with the top three producers accounting for approximately 70% of the market as of December 31, 2019. CEMEX Colombia was the second-largest ready-mix concrete producer as of December 31, 2019. The 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 95% of the aggregates market in Colombia was comprised of small independent producers as of December 31, 2019.

 

Our Operating Network in Colombia

 

 

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Products and Distribution Channels

 

Cement. For the year ended December 31, 2019, our cement operations represented 57% of revenues for our operations in Colombia before eliminations resulting from consolidation in Dollar terms.

 

Ready-Mix Concrete. For the year ended December 31, 2019, our ready-mix concrete operations represented 27% of revenues for our operations in Colombia before eliminations resulting from consolidation in Dollar terms.

 

Aggregates. For the year ended December 31, 2019, our aggregates operations represented 8% of revenues for our operations in Colombia before eliminations resulting from consolidation in Dollar terms.

 

Description of Properties, Plants and Equipment. As of December 31, 2019, CEMEX Colombia owned two operating cement plants and two cement grinding mills, having a total installed cement capacity of 4.1 million tons. In 2019, we replaced 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, 2019. We estimate that, as of December 31, 2019, the limestone and clay permitted proven and probable reserves of our operations in Colombia had an average remaining life of 75 and 185 years, respectively, assuming 2015-2019 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 70 years assuming 2015-2019 average annual cement production levels. As of December 31, 2019, CEMEX Colombia also operated 15 land distribution centers, one mortar plant (temporarily inactive), 56 ready-mix concrete plants (21 were temporarily inactive) and 10 aggregates operations (eight were temporarily inactive). 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.

 

CEMEX Colombia is also finishing building a new cement plant in the Antioquia department of the Municipality of Maceo, Colombia. See “Regulatory Matters and Legal Proceedings” and “Item 5—Operating and Financial Review and Prospects—Recent Developments—Recent Developments Relating to Our Regulatory Matters and Legal Proceedings” for the status of that project.

 

Capital Expenditures. We made capital expenditures of $62 million in 2017, $22 million in 2018 and $25 million in 2019 in our operations in Colombia. As of December 31, 2019, we expected to make capital expenditures of $31 million in our operations in Colombia during 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. For the year ended December 31, 2019, our operations in Panama represented 1% of our revenues before eliminations resulting from consolidation in Dollar terms.

 

Industry. As of the date of this annual report, we estimate that approximately 1.3 million cubic meters of ready-mix concrete were sold in Panama during 2019. Cement consumption in Panama decreased 11.6% in 2019 compared to 2018, mainly due to high levels of inventory in apartments and offices, delays in infrastructure projects as well as increased participation of imported cement.

 

Competition. As of December 31, 2019, the cement industry in Panama included three cement producers: Cemento Bayano, Argos Panamá, an affiliate of Cementos Argos, and Cemento Interoceánico, 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, 2019, our operations in Panama through Cemento Bayano operated one cement plant in Panama, with an installed cement capacity of 1.2 million tons. As of that date, Cemento Bayano also operated seven ready-mix concrete plants (one was temporarily inactive), three aggregates quarries (all of which are currently inactive) and four distribution centers (including one location at the cement plant). 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 $8 million in 2017, $12 million in 2018 and $10 million in 2019 in our operations in Panama. As of the date of this annual report, we expect to make capital expenditures of $5 million in our operations in Panama during 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

 

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, 2019, Caribbean TCL was one of the leading producers and marketers 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.

 

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. As of December 31, 2019, we intended to improve the productivity and capacity of our Caribbean TCL’s cement plants, continue the vertical integration of Caribbean TCL’s business, invest in developing its employees and offer strong value products to our customers in the region and elsewhere.

 

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, 2019, TCL operated one cement plant in Trinidad & Tobago, with a total annual cement installed capacity of 1.0 million tons. As of December 31, 2019, TCL had three operational ready-mix concrete plants (one was temporarily inactive), two aggregates quarries, five land distribution 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.

 

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Our TCL Operations in Jamaica

 

Overview. As of December 31, 2019, we held an indirect controlling position mainly through TCL in CCCL.

 

Description of Properties, Plants and Equipment. As of December 31, 2019, CCCL operated one cement plant in Jamaica, with a total cement installed capacity of 1.5 million tons. As of December 31, 2019, CCCL had four land distribution centers and one marine terminal.

 

Our Operations in Barbados

 

Overview. As of December 31, 2019, through TCL, we held an indirect controlling position in Arawak in Barbados.

 

Description of Properties, Plants and Equipment. As of December 31, 2019, Arawak operated one cement plant in Barbados, with a total cement installed capacity of 0.4 million tons. As of that date, Arawak had one ready-mix concrete plant (temporarily inactive), one land distribution center and one marine terminal.

 

Our Operations in the Dominican Republic

 

Overview. As of December 31, 2019, CEMEX Dominicana, S.A.’s (“CEMEX Dominicana”) sales network covered the country’s main consumption areas, which are Santo Domingo, Santiago de los Caballeros, La Altagracia, San Cristobal and San Pedro de 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. For the year ended December 31, 2019, our operations in the Dominican Republic represented 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) 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. As of December 31, 2019, our principal competitors in the Dominican Republic were: Cementos Cibao, a local 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 Andino, a grinding operation; and a partially constructed cement kiln of a Colombian cement producer.

 

Description of Properties, Plants and Equipment. As of December 31, 2019, CEMEX Dominicana operated one cement plant in the Dominican Republic, with an installed cement capacity of 2.4 million tons per year. As of that date, CEMEX Dominicana also owned nine 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 $9 million in 2017, $8 million in 2018 and $8 million in 2019 in our operations in the Dominican Republic. As of December 31, 2019, we expected to make capital expenditures of $9 million in our operations in the Dominican Republic during 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 Costa 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 CLH subsidiaries, indirectly and directly owned 100% of CEMEX Nicaragua, S.A. (“CEMEX Nicaragua”), our operating subsidiary in Nicaragua.

 

Industry. We estimate that 0.7 million tons of cement, 0.1 million cubic meters of ready-mix concrete and 3.5 million tons of aggregates were sold in Nicaragua during 2019.

 

Competition. As 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, 2019, we leased and operated one cement plant and owned one grinding mill with a total installed cement capacity of 0.7 million tons, six ready-mix concrete plants (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 $6 million in 2017, $8 million in 2018 and $5 million in 2019 in our operations in Nicaragua. As of December 31, 2019, we expected to make capital expenditures of $3 million in our operations in Nicaragua during 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, 2019, CLH indirectly owned 100% of CEMEX Guatemala, our main operating subsidiary in Guatemala. As of December 31, 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 our leased marine terminal in the southern part of the country and three ready-mix concrete plants (all of which were active).

 

Capital Expenditures. We made capital expenditures of $2 million in 2017, $1 million in 2018 and $1 million in 2019 in Guatemala. As of December 31, 2019, we expected to make capital expenditures of $3 million in our operations in Guatemala during 2020. As of 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 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 Other Rest of South, Central American and Caribbean Countries

 

Overview. As of December 31, 2019, we held a non-controlling position in National Cement Ltd. in 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, 2019, we operated a network of seven marine terminals in these countries, which facilitated exports from our operations in Mexico, the Dominican Republic, Puerto Rico and the U.S. Two of our marine terminals are in Haiti, and three are in the Bahamas. As of December 31, 2019, we also had a non-controlling interest in two other terminals, one in Bermuda and the other in the Cayman Islands.

 

Capital Expenditures. In our operations in Rest of SCA&C, we made capital expenditures of $2 million in 2017, $1 million in 2018 and $4 million in 2019. As of December 31, 2019, we expected to make capital expenditures of $6 million in our operations in other SCA&C countries during 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, 2019, our business in Asia, Middle East and Africa, which includes our operations in the Philippines, Israel and the Rest of Asia, Middle East and Africa segment, as described below, represented 10% of our revenues before eliminations resulting from consolidation in Dollar terms. As of December 31, 2019, our operations in Asia represented 13% of our total installed capacity and 5% of our total assets.

 

Our Operations in the Philippines

 

Overview. As of December 31, 2019, on a consolidated basis through various subsidiaries, CEMEX España indirectly held 100% of CEMEX Asian South East Corporation (“CASE”), which in turn owned 66.78% of the outstanding share capital of CHP. As of December 31, 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, 2019, our operations in the Philippines represented 3% of our revenues before eliminations resulting from consolidation in Dollar terms. As of December 31, 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 was 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 $234 million. Upon completion, this new line should double the capacity of the Solid Cement Plant and will represent a 26% increase in our cement capacity in the Philippines. In October 2018, we entered into principal project agreements with CBMI Construction Co., Ltd, an affiliate of Sinoma International Engineering Co., Ltd., for the procurement, construction and installation of the new line. On 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 are 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 second quarter of 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, 2019, our major competitors in the Philippine cement market were LafargeHolcim, Republic, Eagle, Northern, Goodfound, Taiheiyo, Mabuhay, and Big Boss.

 

Description of Properties, Plants and Equipment. As of December 31, 2019, our operations in the Philippines included two cement plants with an annual installed cement capacity of 5.7 million tons, exclusive access to four quarries to supply raw materials to our cement plants, 15 land distribution centers and five marine distribution terminals. We estimate that, as of December 31, 2019, the limestone and clay permitted proven and probable reserves accessed by our operations in the Philippines had an average remaining life of 38 and 14 years, respectively, assuming 2015-2019 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.

 

Cement.For the year ended December 31, 2019, our cement operations represented 100% of revenues for our operations in the Philippines before eliminations resulting from consolidation in Dollar terms.

 

Capital Expenditures. We made capital expenditures of $33 million in 2017, $36 million in 2018 and $84 million in 2019 in our operations in the Philippines. As of December 31, 2019, we expected to make capital expenditures of $124 million in our operations in the Philippines during 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, 2019, we operated one cement plant in Egypt with an annual installed cement capacity of 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 Delta region, Egypt’s main cement market. We estimate that, as of December 31, 2019, the limestone and clay permitted proven and probable reserves of our operations in Egypt had an average remaining life of 5 and 23 years, respectively, assuming 2015-2019 average annual cement production levels. In addition, as of December 31, 2019, we also operated nine ready-mix concrete plants (of which six are owned and three are rented; and two were temporarily inactive), and eight land distribution centers in Egypt. 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.

 

Industry.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 48.5 million tons of cement during 2019. Cement consumption decreased by approximately 4% in 2019 compared to 2018, which was mainly attributed to lower disposable income effected by subsidies removal. As of December 31, 2019, the cement industry in Egypt had a total of 18 cement producers, with an aggregate annual installed cement production capacity of approximately 84.3 million tons.

 

Competition. According to the Ministry of Investment official figures, during 2019, LafargeHolcim (Egyptian Cement Company), ACC and Heidelberg (Suez Cement, Torah Cement and Helwan Portland Cement) represented approximately 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), South Valley, Nile Valley, El Seweedy, Arish Cement, Aswan Medcom, Misr BeniSuef, Al Nahda and Misr Quena Cement Companies, Building Materials Industries Co. ASEC Cement, Shoura Cement and National Company for Cement (Reni Suef plant).

 

Cement and Ready-Mix Concrete. For the year ended December 31, 2019, cement represented 88% and ready-mix concrete represented 12% of revenues for our operations in Egypt before eliminations resulting from consolidation in Dollar terms.

 

Capital Expenditures. We made capital expenditures of $22 million in 2017, $9 million in 2018 and $9 million in 2019 in our operations in Egypt. As of December 31, 2019, we expected to make capital expenditures of $10 million in our operations in Egypt during 2020. As of 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 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 UAE

 

Overview. As of December 31, 2019, CEMEX España held a 49% equity interest (and a 100% economic interest) in all of our main UAE companies: CEMEX Topmix LLC and CEMEX Supermix LLC, ready-mix concrete manufacturing companies, and CEMEX Falcon LLC, which specializes in the production of cement and slag, as well as in other companies in the country. We are not permitted to have a controlling interest in these companies (UAE Commercial 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. CEMEX 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), which was liquidated on May 14th, 2019 and its activities transferred to CEMEX Falcon LLC. As of December 31, 2019, we owned nine ready-mix concrete plants 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.

 

Capital Expenditures. We made capital expenditures of $3 million in 2017, $6 million in 2018 and $4 million in 2019 in our operations in the UAE. As of December 31, 2019, we expected to make capital expenditures of $4 million in our operations in the UAE during 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.

 

Our Trading Operations

 

In 2019, we traded 10.9 million tons of cementitious and non-cementitious materials in 102 countries, including 9.2 million tons of cement and clinker. Slightly more than 4.5 million tons of the traded cement and clinker consisted of exports from our operations in Mexico, Croatia, Germany, Spain, Trinidad & Tobago, the Dominican Republic, Barbados, Costa Rica, Latvia, Poland, Jamaica, Czech Republic, the Philippines, Puerto Rico, Nicaragua and the UAE. Slightly above 4.6 million tons remaining were purchased from third parties in countries such as Spain, Taiwan, Turkey, Thailand, Peru and Vietnam. In 2019, we traded 0.9 million tons of granulated blast furnace slag, a non-clinker cementitious material, and 0.8 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. We estimate, however, that our trading operations have obtained significant savings by contracting maritime transportation in due time and by using our own and chartered fleets, which transported 50% of our cement and clinker traded volume during 2019.

 

In addition, based on our spare fleet capacity, we provide freight service to third parties, which allows us to generate additional revenues. 

 

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Our Cement Plants

 

The following table provides a summary of our cement plants, including location, used capacity, grinding mill production and years of operation as of and for the year ended December 31, 2019:

 

Location Used Capacity Years of Operation(1)
Atotonilco, Hidalgo, México 963 61
Barrientos, Estado de México, México 793 75
Ensenada, Baja California, México 369 44
Guadalajara, Jalisco, México 395 46
CPN, Sonora, México - 39
Hidalgo, Nuevo León, México 82 114
Huichapan, Hidalgo, México 3,330 35
Mérida, Yucatán, México 711 66
Monterrey, Nuevo León, México 1,608 100
Tamuín, San Luis Potosí, México 1,531 55
Tepeaca, Puebla, México 2,706 25
Torreón, Coahuila, México 998 53
Valles, San Luis Potosí, México 321 54
Yaqui, Sonora, México 1,971 30
Zapotiltic, Jalisco, México 1,535 52
Balcones, TX, United States 2,028 39
Brooksville, FL (North), United States - 44
Brooksville, FL (South), United States 1,303 32
Clinchfield, GA, United States 639 45
Demopolis, AL, United States 697 42
Knoxville, TN, United States 587 40
Kosmosdale/Louisville, KY, United States 1,307 19
Miami, FL, United States 992 61
Lyons, CO, United States 302 39
Victorville, CA, United States 2,727 54
Wampum, PA, United States - 54
Rugby, United Kingdom 1,150 20
Ferriby, United Kingdom 426 53
Rudersdof, Germany 2,032 54
Alcanar, Spain 720 51
Buñol, Spain 375 52
Castillejo, Spain 554 108
Lloseta, Spain - 52
Morata, Spain 456 87
San Vicente, Spain 505 44
Gador, Spain 7 43
Chelm, Poland 1,413 59
Rudniki, Poland 701 54
Prachovice, Czech Republic 848 65
Kolovoz, Croatia 8 111
Juraj, Croatia 1,041 107
Kajo, Croatia 239 115
Cucuta, Colombia 316 36
Ibagué, Colombia 2,412 27
Calzada Larga, Panama 591 42
Colorado de Abangares, Costa Rica 504 40
Claxton Bay, Trinidad y Tobago 678 66
Rockport, Jamaica 759 68
St. Lucy, Barbados 272 36
San Pedro de Macorís, Dominican Republic 1,950 29
San Rafael del Sur, Nicaragua(2) 305 77
Ponce, Puerto Rico 276 29
APO, Philippines 3,319 21
Solid Cement, Philippines 1,563 26
Assiut, Egypt 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.”

 

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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. Materiality 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 Our Regulatory Matters and Legal 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 Polish Zloty 115.56 million ($30.4 million as of December 31, 2019, based on an exchange rate of Polish Zloty 3.7973 to $1.00), which was 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 regard 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 Polish Zloty 93.89 million ($24.7 million as of December 31, 2019 based on an exchange rate of Polish Zloty 3.7973 to $1.00), which was 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. On March 27, 2018, after different hearings, 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 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 Polish Supreme Court an extraordinary, narrow based cassation appeal against the Appeal Court’s judgment specifically seeking the reduction of the imposed fine. On August 8, 2019, CEMEX Polska was notified that the Polish Supreme Court accepted 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 Supreme Court on the cassation appeal of CEMEX Polska will be issued at the date of the court hearing or within next 14 days after the hearing scheduled for January 16, 2020. As of December 31, 2019, a final adverse resolution to this matter should 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 the ready-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 ($6.57

 

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million as of December 31, 2019, based on an exchange rate of €0.8917 to $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, 2019, a final adverse resolution to this matter should not have a material adverse impact on our results of operations, liquidity and financial condition.

 

Antitrust Case 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 state of Georgia against certain subsidiaries of CEMEX 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. As CEMEX does not participate in the ready-mix concrete market in these areas, the lawsuit does not allege any improper actions by CEMEX with respect to ready-mix concrete. On October 2, 2017, we filed a motion to dismiss the 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 with its answer filed at the end of October, 2018. As of December 31, 2019, at this stage of the lawsuit, while we cannot assess with certainty the likelihood of an adverse result in this lawsuit, we believe a final adverse resolution to this lawsuit is not probable; however, if adversely resolved, we believe such adverse resolution should 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 14 directors of those companies, including CEMEX Colombia, for alleged anti-competitive practices. The investigated parties were accused of 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, 14 executives, including two former executives

 

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of CEMEX Colombia, were also being investigated for 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 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, which were paid on January 5, 2018, amounted to $73.77 billion Colombian Pesos ($22.51 million as of December 31, 2019, based on an exchange rate of 3,277.14 Colombian Pesos to $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 in relation to the other conducts alleged against CEMEX Colombia pursuant to Resolution No. 49141 dated August 21, 2013.

 

CEMEX Colombia decided not to file a reconsideration request; 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. This claim could take up to six years to be resolved. As of December 31, 2019, we are not able to assess the likelihood of an adverse result of this matter, but if such matter is resolved adversely to us, such adverse resolution should 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 of non-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 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, 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, 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 ISO), with the remaining implementation efforts directed mainly towards our aggregates and ready-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, 2016, 2017 and 2018 our sustainability capital expenditures (including our environmental expenditures and investments in alternative fuels and cementitious materials) were $79.9 million, $83.14 million and $83 million, respectively.

 

The following is a discussion of environmental regulations and related matters in our major 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 a government-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

 

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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, 2019, our operating cement plants in Mexico had CICs or were in the process of renewing them.

 

For almost three decades, the technology for co-processing used alternative fuels into an energy source has been employed in our cement plants in Mexico. By the end of 2019, all our operating cement plants in Mexico were using alternative fuels. Overall, approximately 26.5% of the total fuel used in our operating cement plants in Mexico during 2019 was comprised of alternative fuels. This information is available on a yearly basis.

 

In 2017, 2018 and 2019 our operations in Mexico invested $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, for a total of $148.9 million since 1999. The audit to obtain the renewal of the ISO 14001:2015 certification took place during 2019 and our operating cement plants in Mexico obtained the renewal of the ISO 14001:2015 certification for environmental management systems, which is valid until 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. Important 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 CO2 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, 2019, we are not able to determine the impact that any measures related to the Regulations and Climate Change Law may have on 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, 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 the year ended December 31, 2019, pet coke, a primary fuel widely used in our kilns in Mexico was taxed at a rate of Ps19.15 ($1.01 as of December 31, 2019, based on an exchange rate of Ps18.92 to $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 2019 to 2022 were announced at 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, since 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 in Mexico, but as of December 31, 2019, we are not able to assess if such impact would in turn have a material adverse impact on our 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, 2019, we are authorized

 

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participants in the Electricity Market. Additionally, CEMEX participated as a buyer in the third long-term power auction organized in 2017 by CENACE, the independent national electric system operator, and has been allocated a 20-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 standards code was issued in Mexico (Código de Red) (the “Code”). The Code establishes new standards for electrical operation that will be enforced beginning in 2019 against consumers connected to the national grid. As of December 31, 2019, we estimate that the implementation of the Code will require investments across our operating assets in Mexico, which we expect to amount to $6 million.

 

On October 2, 2019, the SEMARNAT published the basis for a trial emissions trading program (programa de prueba del sistema de comercio de emisiones). The trial program sets forth an initial 24-month pilot phase for the adoption of the program, beginning January 1, 2020, followed by a 12-month period to transition to the operative stage, which ends on December 31, 2022. The trial program will not have any economic consequences for the participants; but after December 2022, SEMARNAT will establish emission caps per industrial sector in line with Mexico’s greenhouse gas emissions reduction targets. We will have to meet those caps through mitigation measures or acquire emission reduction certificates in the proposed market. We cannot anticipate the impact that this new cap-and-trade scheme and the mandatory emissions caps will have on our operations in Mexico.

 

United States

 

Our operating subsidiaries in the U.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 and non-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 U.S. to which we sent hazardous waste for disposal. As 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, 2019, CEMEX, Inc. and its subsidiaries had accrued liabilities specifically relating to environmental matters in the aggregate amount of $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 waste and (ii) the cleanup of hazardous substances or waste 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 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 of add-on controls. We have actively engaged with the EPA on its investigations, which involved multiple of our facilities in the U.S., and have entered into four settlements involving a total of $6.1 million in civil penalties and a commitment to incur certain capital expenditures for pollution control equipment at our Victorville, California; Fairborn, Ohio (divested on February 10, 2017); Lyons, Colorado; Knoxville, Tennessee; Louisville, Kentucky (divestment of this installation is expected to occur around the second quarter of 2020); Demopolis, 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, 2019, we believe any further proceedings should 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 SCL and 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

 

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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. As 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 from other locations in Florida or import aggregates. This would likely affect operating income from our Florida operations. As of December 31, 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. In the U.S., we use CCRs as a raw material in our cement manufacturing process, as well as a supplemental cementitious material in some of our ready-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, 2019, we believe that the effects of the Final Rule should not have a material adverse impact on our results of operations, liquidity and financial condition.

 

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 a facility-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 (“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 secure pre-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 for non-GHG pollutants, need to apply for a PSD permit for any GHG emissions increases above 75,000 tons/year of CO2 equivalent (“CO2E”). Therefore, new cement plants and existing plants undergoing modification which are major sources for non-GHG pollutants regulated under the CAA need to acquire a PSD permit for construction or modification activities that increase CO2E 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 CO2E or any existing source that emits 100,000 tons/year of CO2E and undergoes modifications that would increase CO2E 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, 2019, the costs of future GHG-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 CO2 emissions to 1990 levels by 2020. As part of the measures derived from AB32, the California Air Resources Board (“CARB”) developed a cap-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 met all of its compliance obligations for the second compliance

 

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period (2015-2017) without a material impact on its operating costs; and, as of December 31, 2019, is expected to meet all of its compliance obligations for the third compliance period (2018-2020) without a material impact on its operating costs. Furthermore, as of December 31, 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, 2019, 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 a cap-and-trade program, could have an impact on our operations in California, which 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 from in-use off-road diesel equipment and to meet progressively more restrictive emission targets. In 2008, CARB approved a similar regulation for 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, 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 $32.45 million. As of December 31, 2019, we estimate that we may continue to incur substantial expenditures to comply with these requirements.

 

Europe

 

General overview of EU industrial regulation

 

As of December 31, 2019, the EU legal system also operates differently compared to federal systems. The EU legal regime, referred to as supra-national law, sits above the legal systems of the different EU member states (“Member 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 and authoritatively interpret the legislation and implementation of law (EU and domestic) in those Member States. One of the key manifestations of this 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, 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. These controls were primarily derived from two EU Directives: (1) the so-called “IPPC 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 Directive 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 a legal and technical concept called “best available techniques” (“BAT”).

 

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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 and co-incineration plants.

 

Cement and limestone kilns as a primary or secondary source of fuel fall within the definition of “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 it 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 16 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 production of cement, lime and magnesium oxide, together with specific emission levels. This document sets out an extensive list of technical requirements for most aspects of the cement manufacturing 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. The 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, 2019, this has the potential to require our operations in Europe to be adapted to conform to the latest BAT, which in turn could impact our operations.

 

As of December 31, 2019, we believe that our operations in Member States will be impacted 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. As of December 31, 2019, we are not able to assess the degree of impact the requirements that come into effect under the IED will have on our operations in Member States.

 

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Croatia

 

As a result of a lawsuit filed by the city of Kastela 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 and non-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 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, 2019, we do not expect our operations, liquidity and financial 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. The hearing to determine whether the installation is in compliance with all permit conditions was opened to the public by the Ministry of Environment 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 final, should it not be contested before the court within the contestation period prescribed by the local environmental permit regulation and court procedure.

 

Furthermore, through the issuance of 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 made through an amendment process within the 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 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-year 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-year period from 2013 to 2020.

 

Our operations in the United Kingdom, Spain, Germany, Poland, Croatia (since 2013) and Czech Republic, are subject to binding caps on CO2 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 CO2 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. In general, failure to meet the emissions caps is subject to significant monetary penalties of €100 for each ton of CO2 equivalent emitted by the installation for which the operator has not surrendered allowances.

 

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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, 2019, we have registered 19 CDM projects with a total potential to, according to our estimates, reduce approximately 2.44 million tons of CO2E emissions per year. The corresponding CERs from these projects could be used for internal purposes or sold to third parties. Croatia, as a late 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, 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 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 single EU-wide, top-down, cap on CO2 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 on EU-wide benchmarks of emissions performance.

 

EU policymakers see the free allocation of allowances as a principal 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 CO2 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 has 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 authorized EU-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 our ETS-participant operations received for free in the 2013-2020 period.

 

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On February 26, 2014, the European Commission adopted a decision 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 allocated for free to CEMEX in Phase III of the ETS should remain sufficient to 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 a sub-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 the sub-installation will receive will be 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 the sub-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 the sub-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, 2019, they could represent a significant loss of revenue to us, since carbon allowances are also 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 have been annually allocated for free to CEMEX in Phase III of the ETS (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. The EU Parliament, EU Council and EU Commission (Trilogue) have approved the amendment of the 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 enhance 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 published (i.e. values of the benchmarks 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 of the ETS (2021-2030), the EU-wide overall cap on emission allowances should 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 EU’s Market Stability Reserve. As of December 31, 2019, it is not possible to predict with certainty how CEMEX 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 CEMEX in Phase IV will not be sufficient for our operations, and, therefore, CEMEX will 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.

 

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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 £131,034,978.70 ($173.55 million as of December 31, 2019, based on an exchange rate of £0.755 to $1.00) as of December 31, 2019, and we made an accounting provision for this amount.

 

Philippines Environmental Class Action

 

On 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 principal raw material supplier of 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 “Talisay Court”), 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, for “Restitution of Damage of the Natural and Human Environment, Application for the Issuance of Environmental Protection 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 Landslide occurred as a result of the defendants’ gross negligence; and seek, among other relief, (i) monetary damages in the amount of 4.3 billion Philippine Pesos ($84.92 million as of December 31, 2019, based on an exchange rate of 50.635 Philippine Pesos to $1.00), (ii) the establishment of a 500 million Philippine Pesos ($9.87 million as of December 31, 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.

 

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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 cannot assess with certainty the likelihood of an adverse result in this lawsuit, and, in turn, we cannot assess if a 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 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 the North American Free Trade Agreement (“NAFTA”), starting January 1, 1998, the tariff on cement imported into Mexico from the U.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 the markets in Mexico in which we operate, it is possible that other factors, such as 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.

 

United States

 

Cement imported into the U.S. from Cuba and North Korea is subject to custom duties depending on the specific type of cement. Imports into the U.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 U.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.

 

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 U.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, 2019, for cement imported into a member country from a non-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. As of December 31, 2019, most Eastern European producers exporting cement into EU countries paid no tariff.

 

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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 succeeding ten-year period.

 

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 del Impuesto Sobre la Renta). In connection with these changes in the tax consolidation regime in Mexico, as of December 31, 2009, we recognized a liability of Ps10.5 billion ($554.96 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00), of which Ps8.2 billion ($433.40 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00) was recognized under “Other non-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 Ps2.2 billion ($116.27 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00) was recognized against “Retained earnings” upon adoption of IFRS according to the new law, related to: (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, (ii) dividends from the controlled entities for tax purposes to CEMEX, S.A.B. de C.V., and (iii) other transactions among the companies included in the tax consolidation group that represented the transfer of resources within such group.

 

As of December 31, 2019, we have paid an aggregate amount of Ps7.3 billion ($385.83 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $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 Ps2.9 billion ($153.27 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00) against a credit to the income statement when the new tax enactment took place. As of December 31, 2019, after accounting for (i) cash payments, (ii) income tax from subsidiaries paid to the parent company, (iii) effects of tax deconsolidation, and (iv) other adjustments that took place from 2010 to 2019, as of December 31, 2019, the estimated tax payable for tax consolidation in Mexico decreased to Ps1 billion ($52.85 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00).

 

In addition, as a result of the enactment of the new Income Tax Law (Ley del Impuesto Sobre la Renta) in Mexico approved in December 2013 and effective as 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, which will not 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 ($121.56 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00). On April 30, 2015, CEMEX paid Ps3.7 billion ($195.56 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00). On April 29, 2016, CEMEX paid Ps728 million ($38.47 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00). On April 28, 2017, CEMEX paid Ps924 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 five prior payments represented 100% of the Deconsolidation Taxes for the period that corresponds to the 2008 tax year, 100% of the Deconsolidation Taxes for the period that corresponds to the 2009 tax year, 85% of the Deconsolidation Taxes for the period that corresponds to the 2010 tax year, 70% of the Deconsolidation Taxes for the period that corresponds to the 2011 tax year, 50% of the Deconsolidation Taxes for the period that corresponds to the 2012 tax year and 25% of the Deconsolidation Taxes for the period that corresponds to the 2013 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: (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 0.15 multiplied by such

 

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losses, and (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 de 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, 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: Ps417 million ($22.04 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00) in 2020; Ps368 million ($19.45 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00) in 2021; Ps120 million ($6.34 million as of December 31, 2019, based on an exchange rate of Ps18.92 to $1.00) in 2022 and 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 (Ley 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, 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 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 March 29, 2018, the IRS commenced its audits of the 2018 tax year under the compliance assurance process. As of December 31, 2019, we have not identified any material audit issues and, as such, no reserves are recorded for the 2018 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 2009 year-end tax return. The Colombian Tax Authority assessed an increase in taxes to be paid by CEMEX Colombia in the amount of 90 billion Colombian Pesos ($27.46 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 144 billion Colombian Pesos ($43.94 million as of December 31, 2019, based on an exchange rate of 3,277.14 Colombian Pesos to $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 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

 

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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. As 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 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.

 

On 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 €456 million ($511.38 million as of December 31, 2019, based on an exchange rate of €0.8917 to $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 6, 2018, the National Court (Audiencia Nacional) confirmed the acceptance of the guarantees by the Spanish Tax Office, which ensures the suspension of the payment until the recourses are definitively resolved. As of December 31, 2019, at this stage of the matter and considering all possible defenses available, while we cannot assess with certainty the likelihood of an adverse result in this matter, we believe a final adverse resolution to 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.

 

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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) 322 million Egyptian Pounds ($20.07 million as of December 31, 2019, based on an exchange rate of Egyptian Pounds 16.0431 to $1.00) for the period from May 5, 2008 to August 31, 2011; and (ii) 50,235 Egyptian Pounds ($3,131 as of December 31, 2019, based on an exchange rate of Egyptian Pounds 16.0431 to $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”) claiming non-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, 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 ($3,465 as of December 31, 2019, based on an exchange rate of Egyptian Pounds 16.0431 to $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. 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. 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, 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 the ready-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 which ready-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 the 20-year period for which they were originally designed, and estimate that the cost of such repair could have been 100 billion Colombian Pesos ($30.51 million as of December 31, 2019, based on an exchange rate of 3,277.14 Colombian Pesos to $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 ($103.07 million as of December 31, 2019, based on an exchange rate of 3,277.14 Colombian Pesos to $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 ($6.1 million as of December 31, 2019, based on an exchange rate of 3,277.14 Colombian Pesos to $1.00). CEMEX gave the aforementioned security, and, on July 27, 2009, the court lifted the attachment on the quarry.

 

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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 ($9,765 as of December 31, 2019, based on an exchange rate of 3,277.14 Colombian Pesos to $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 ($2,685 as of December 31, 2019, based on an exchange rate of 3,277.14 Colombian Pesos to $1.00). Additionally, the UDI officers were sentenced to severally pay the amount of 108 billion Colombian Pesos ($32.95 million as of December 31, 2019, based on an exchange rate of 3,277.14 Colombian Pesos to $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 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, 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 the ready-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 for 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 accepted 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, 2019, regarding the remaining pending action filed before the Cundinamarca Administrative Court, if adversely resolved, we do not expect that such 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 Kastela 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 Kastela 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

 

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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 Kastela 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. 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. On December 5, 2018, CEMEX Croatia was notified of a decision issued by the Ministry of Economy granting CEMEX Croatia a mining concession that will expire on May 31, 2053; and, as a result, this proceeding has ended. As of December 31, 2019, we do not expect our operations, liquidity and financial condition to suffer a material adverse impact because of 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 alleged non-conforming concrete has caused financial and non-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 alleged non-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 276 million Israeli Shekels ($79.86 million as of December 31, 2019, based on an exchange rate of 3.456 Israeli Shekels to $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. An abandonment of action has been submitted to the court with respect to two of the four defendant companies, but our Israeli subsidiary and another company remain as defendants. Our subsidiary in Israel and the applicant already submitted their summations with regards to the 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, 2019, following the dismissal of the class action and considering that no appeals were submitted prior to the 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 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

 

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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 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, 2019, at this stage of the proceedings and considering all possible defenses available, while we cannot assess with certainty the likelihood of an adverse result 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 for non-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 its non-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 “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 court decided to refer the case back to SCA to prepare and submit a complementary report on the merits. The SCA shall 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 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

 

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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, 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 cannot assess with certainty the likelihood of an adverse result 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 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, 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, 2019, at this stage of the proceedings and considering all possible defenses available, while we cannot assess with certainty the likelihood of an adverse result 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 cancellation 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 is non-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, 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 cancellation would affect us. 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, 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, 2019, a constitutional challenge has been filed by a third party against Law 32/2014 before the High Constitutional Court. The High Constitutional Court 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, 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.

 

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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, Colombia (the “Maceo Project”). In connection with the MOU, CI Calizas was represented by a non-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) 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 expired on July 15, 2018. Notwithstanding the expiration of the Lease Agreement, CEMEX 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 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 Colombian 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, 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. 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, 2019, at this stage of the proceedings, we believe that the likelihood of an adverse result in this matter is not probable as we are not able to assess the likelihood

 

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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, 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 $13 million, including cash payments and interest (based on an exchange rate of 3,277.14 Colombian Pesos to $1.00 as of December 31, 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, CLH 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, CLH 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 took place from June 7, 2018 to 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, CLH and CEMEX Colombia terminated the employment of the Vice President of Planning of CLH, who was also CEMEX Colombia’s Director of Planning, and the Legal Counsel of CLH, who was also the General Counsel of CEMEX Colombia. In addition, effective as of September 23, 2016, the Chief Executive Officer of 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 Board of Directors of CLH resolved to split the roles of Chairman of the Board of Directors of CLH, Chief Executive Officer of CLH and Director of CEMEX Colombia, and appointed a new Chairman of the Board of Directors of CLH, a new Chief Executive Officer of CLH, a new Director of CEMEX Colombia and a new Vice President of Planning of CLH and CEMEX Colombia. A new legal counsel for CLH 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 CLH’s audit committees, CEMEX Colombia retained external counsel to assist CLH 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, the Land MOU, as well as other matters regarding our business in Colombia. Such investigations 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 aforementioned executives and further investigations in Colombia, could have a material adverse effect on our results of operations, liquidity or financial condition.

 

Investigations related to ongoing 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 CLH 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 CLH’s internal controls. As announced on September 23, 2016, the CLH and CEMEX Colombia officers responsible for the implementation and execution of the above referenced payments were terminated and the then Chief Executive Officer of CLH 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. We previously disclosed that it was possible that the DOJ and other investigatory entities in other jurisdictions could also open investigations into this matter. In this regard, aside from ongoing investigations in Colombia, on March 12, 2018, the 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 other investigatory entity. As of December 31, 2019, CEMEX, S.A.B. de C.V. is unable to predict the

 

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duration, scope, or outcome of either the SEC investigation or the DOJ investigation, the investigations in Colombia, 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 CEMEX, S.A.B. de C.V., or if such sanctions, if any, would have a material adverse impact on CEMEX, S.A.B. de C.V.’s consolidated results of operations, liquidity or financial position.

 

Maceo, Colombia—Operational Matters

 

On October 27, 2016, CLH 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 granted such authorization. CEMEX Colombia had requested a modification to the environmental license, and on December 13, 2016, Corantioquia notified Central de Mezclas that it had decided 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, 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;

 

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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, 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 €55 million ($61.68 million as of December 31, 2019 based on an exchange rate of €0.8917 to $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 €55 million ($61.68 million as of December 31, 2019, based on an exchange rate of €0.8917 to $1.00). This judgment is not enforceable. CEMEX Granulats filed the notice of appeal with the appeal court in Lyon, France. SCI updated its claim for damages to an aggregate amount of €67 million ($75.13 million as of December 31, 2019, based on an exchange rate of €0.8917 to $1.00). The judgment of the appeal court was notified to CEMEX Granulats on 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 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, 2019, we are not able to determine the final amount that we would pay in relation to this matter, but we expect that any 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, 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

 

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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 a case-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 within 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,” “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 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);

 

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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 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.

 

Overview

 

The following discussion and analysis should be read in conjunction with, and are qualified in their entirety by reference to our 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.

 

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The regulations of the SEC do not require foreign private issuers that prepare their financial statements 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 of ready-mix concrete sold to our operations in other countries and regions. Likewise, unless otherwise indicated, the revenues financial information presented in this annual report for our operations in each country or region includes the Dollar amount of revenues derived from sales of cement and ready-mix concrete to our operations in other countries and regions, which have been eliminated in the preparation of our 2019 audited consolidated financial statements included elsewhere in this annual report.

 

The following table sets forth selected consolidated financial information as of December 31, 2018 and 2019 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 operations, liquidity and financial condition, depending upon the depreciation or appreciation of the exchange rate of each country and region in which we operate compared to the Dollar and the rate of inflation of each of these countries and regions.

 

  

Revenues For the Year Ended December 31,

  

Operating Earnings Before Other
Expenses, Net For the Year Ended December 31,

  

Total Assets at
December 31,

 
   2017(1)  2018(1)  2019(1)  2017(2)  2018(2)  2019(2)  2018(2)  2019(2)
Mexico  23%  23%  21%  60%  63%  61%  12%  14%
U.S.  24%  25%  27%  13%  19%  18%  49%  49%
Europe                                
United Kingdom  6%  5%  5%  5%  3%  4%  6%  5%
France  6%  6%  6%  1%  2%  3%  3%  3%
Germany  3%  3%  3%  1%  1%  3%  2%  1%
Spain  2%  2%  2%  (1)%  (1)%  (1)%  4%  4%
Rest of Europe  4%  5%  5%  1%  4%  5%  4%  3%
SCA&C                                
Colombia  4%  4%  4%  5%  4%  5%  4%  4%
Panama  2%  2%  1%  5%  3%  2%  1%  1%
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  3%  3%  3%  3%  3%  6%  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  9%  9%  8%  (10)%  (18)%  (25)%  4%  7%
Continuing operations  13,731   14,570   13,922   1,735   1,703   1,333   29,074   28,524 
Assets held for sale and related liabilities                    107   839 
Eliminations  (805)  (1,039)  (792)               
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.

 

Critical Accounting Policies

 

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, the measurement of financial instruments at fair value, the assets and liabilities related to employee benefits, 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, 2018 and 2019, and for the years ended December 31, 2017, 2018 and 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
Original

  

IFRS 16 adjustment

  

As of December 31, 2018
Re-presented

 
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
Original

  

IFRS 16 adjustment

  

As of December 31, 2018
Re-presented

 
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
Original

  

IFRS 16 effects

  

2018
Re-presented

  

2017
Original

  

IFRS 16 effects

  

2017
Re-presented

 
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
Original

  

IFRS 16 effects

  

2018
Re-presented

  

2017
Original

  

IFRS 16 effects 

  

2017
Re-presented 

 
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 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 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 and 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 we 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.

 

Deferred tax assets, 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 that we believe 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, we would decrease such asset. When it is considered that a deferred tax asset will not be recovered before its expiration, we 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, we take 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 and future reversals of existing temporary differences. Likewise, we analyze our actual results versus our estimates, and adjust, as necessary, our tax asset 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 in our income statement for such period.

 

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. The probability of 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 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 2019 audited consolidated financial statements included elsewhere in this annual report. A significant effect on our effective tax rate, and consequently on 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, 2017, 2018 and 2019, the statutory tax rates in our main operations were as follows:

 

Country

2017

2018

2019

Mexico30.0%30.0%30.0%
United States35.0%21.0%21.0%
United Kingdom19.3%19.3%19.3%

 

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Country

2017

2018

2019

France34.4%34.4%34.4%
Germany28.2%28.2%28.2%
Spain25.0%25.0%25.0%
Philippines30.0%30.0%30.0%
Colombia40.0%37.0%33.0%
Egypt22.5%22.5%22.5%
Others7.8% - 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.”

 

Financial instruments

 

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: (i) changing the risk profile or setting a fixed the price of fuels and electric energy; (ii) foreign exchange hedging; (iii) hedging forecasted transactions; and (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 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 of non-performance of the obligations agreed to by such counterparties to be minimal. See note 16.4 to our 2019 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 Level 2 and Level 3 fair values, in order to account for the effects of derivative financial instruments in the financial statements. See note 16.4 to our 2019 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 internal or external indicators of impairment, such as changes in our operating business 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 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 the mid-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. 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, 2017, 2018 and 2019, the reportable segments we presented in note 4.4 to our 2019 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: (i) that after the acquisition, goodwill was allocated at the level of the reportable operating segment; (ii) that the operating components that comprise the reported segment have similar economic characteristics; (iii) that the reported segments are used by us to organize and evaluate its activities in its internal information system; (iv) the homogenous nature of the items produced and traded in each operative component, which are all used by the construction industry; (v) the vertical integration in the value chain of the products comprising each component; (vi) the type of clients, which are substantially similar in all components; (vii) the operative integration among components; and (viii) whether the compensation system of the specific country is based on the consolidated results of the reportable 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 specific pre-tax discount rates for each group of CGUs to which goodwill is allocated, which are applied to pre-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. The higher the growth rate in perpetuity applied, the higher the amount obtained of undiscounted future cash flows by group of CGUs obtained. 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 2017, 2018 and 2019, we performed our annual goodwill impairment test. Based on these analyses, during 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 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 $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 2019 audited consolidated financial statements included elsewhere in this annual report.

 

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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 2017, 2018 and 2019 are as follows:

 

 

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, 2019, the discount rates we used in our cash flows projections to determine the value in use of our operating segments generally decreased in 2019 as compared to 2018 in 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 that changed from 7.3% in 2018 to 5.4% in 2019. The risk-free rate associated to us remained significantly flat in the level of 2.9%, while the country risk-specific rates decreased slightly in 2019 in most cases. These reductions were partially offset by a slight increase in the public comparable companies’ stock volatility (beta) that changed from 1.06 in 2018 to 1.08 in 2019 and the decrease in the weighing of debt in the calculation of the discount rates that changed from 33.5% in 2018 to 31.7% in 2019. As of December 31, 2018, such discount rates decreased 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 public comparable companies’ stock volatility (beta) and general decreases in 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 that changed from 6.1% in 2017 to 7.3% in 2018 and the risk free rate associated with CEMEX which increased from 2.8% in 2017 to 2.9% in 2018. With respect to long-term growth rates, CEMEX uses country specific rates, which are mainly obtained from economic data released by the International Monetary Fund.

 

In connection with our assumptions included in the table above, we perform 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 the pre-tax discount rate and an independent possible decrease of 1% in the long-term growth rate. In addition, we perform 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, we determine 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 is then applied to a stabilized amount of Operating EBITDA and the result is compared to the corresponding carrying amount for each group of cash-generating units to which goodwill has been allocated. We considered an industry weighted average Operating EBITDA multiple of 9.0x for 2017, 11.1x for 2018 and 11.5x for 2019.

 

As of December 31, 2017, 2018 and 2019, except for our operating segment in Spain described above, in which we determined an impairment loss of goodwill in 2017, none of our sensitivity analyses resulted in a potential impairment risk in our operating segments. Nonetheless, we continually monitor the evolution of the specific CGUs 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.