CEMEX, S.A.B. de C.V. — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS as issued by the IASB. Unless stated otherwise, amounts below are in millions of Mexican pesos (Ps); dollar translations are for convenience.
Business context and reporting period
CEMEX is a global producer and distributor of cement, ready-mix concrete, aggregates and related construction materials, operating in more than 50 countries. For 2018, revenue before consolidation eliminations came principally from Europe (25%), the United States (24%) and Mexico (21%). Results remain exposed to construction cycles, regional conditions and currency movements.
Key financial metrics
| Metric | 2018 | 2017 | Change or context |
|---|---|---|---|
| Revenue | Ps276,855 | Ps257,437 | Up 8% |
| Gross profit / margin | Ps93,890 / 33.9% | Ps88,579 / 34.4% | Profit up 6%; margin down 0.5 percentage points |
| Operating earnings before other expenses, net | Ps33,196 | Ps32,612 | Up 2%; margin declined from 12.7% to 12.0% |
| Operating earnings | Ps27,359 | Ps28,797 | Down 5% |
| Operating EBITDA | Ps49,266 | Ps48,600 | Up 1%; non-IFRS measure |
| Controlling-interest net income | Ps10,467 | Ps15,224 | Down 31%; EPS was Ps0.22 versus Ps0.34 |
| Operating cash flow, after interest, perpetual-debenture coupons and cash taxes | Ps26,535 | Ps30,997 | Down 14%; cash flow before those payments was Ps43,316 |
| Cash and cash equivalents at year-end | Ps6,068 | Ps13,741 | Down Ps7,673 |
| Total debt plus other financial obligations | Ps207,724 (US$10.571 billion) | Ps226,216 | Down 8%; excludes Ps8,729 of perpetual debentures |
| Total assets | Ps552,628 | Ps567,691 | Down 3% |
Cost of sales rose 8% and increased from 65.6% to 66.1% of revenue, with higher energy costs and purchased cement and clinker cited as factors. Operating expenses rose 8%; distribution and logistics costs increased to Ps31,992 from Ps28,485. Financial expense declined 35% to Ps12,597. Current liabilities exceeded current assets by Ps22,891; net working capital was Ps650. Debt and other financial obligations were 7% short-term and 93% long-term. Debt currency exposure was 64% U.S. dollars, 26% euros, 5% pounds sterling and 2% Philippine pesos.
Material changes versus the prior comparable period
- Cement sales volumes increased 2% to 69.4 million tons; ready-mix concrete volumes increased 3% to 53.3 million cubic meters.
- Revenue and EBITDA grew, but underlying operating margin narrowed as cost of sales and logistics expenses increased relative to revenue.
- Net income fell despite lower financing costs. Other expenses rose to Ps5,837 from Ps3,815, including Ps1,080 of property-damage and natural-disaster losses and Ps2,994 of losses from asset sales and other items. Income tax expense increased to Ps4,467 from Ps520; the effective tax rate was 28.8%, versus 3.8% in 2017, including derecognition of deferred tax assets.
- Cash from operations declined, working capital used Ps1,062, and cash balances fell. Net debt reduction continued, with management reporting total debt reduction of close to US$1 billion in 2018.
- 2018 included the sale of CEMEX’s Brazilian operations for US$31 million. The results were classified as discontinued operations; discontinued-operations income was Ps212, versus Ps3,461 in 2017, which included gains on earlier divestitures.
Outlook, management commentary and key risks
Management’s “A Stronger CEMEX” plan targets US$1.5–2.0 billion of asset divestitures by 2020, US$230 million of recurring operational improvements by 2020, and US$3.5 billion of debt reduction between the plan’s launch and 2020, with the aim of regaining investment grade. These are targets, not guarantees. Estimated 2019 capital expenditure was US$850 million, including US$300 million of expansion spending; the Philippines accounted for US$152 million of the estimate.
At December 31, 2018, CEMEX reported a 4.41 consolidated coverage ratio and 3.84 consolidated leverage ratio under the then-applicable 2017 Credit Agreement definitions. Covenants required minimum coverage of 2.50 and maximum leverage of 4.75 for the December 2018 test period. After year-end, amendments effective April 2, 2019 extended US$1.06 billion of scheduled 2020–2021 installments by three years, delayed scheduled covenant tightening by one year and adjusted covenant calculations for IFRS 16. CEMEX also reported US$825 million available under the revolving facility at year-end.
- Legal and regulatory matters: SEC and DOJ investigations relate principally to the Maceo project in Colombia; the filing states their scope and outcomes could not be predicted. A U.S. securities class action also relates to Maceo. The Maceo plant remained subject to permits and other approvals; a new 21-year lease agreement was endorsed in April 2019, after year-end, but operation still depended on outstanding approvals.
- Other contingencies: A Philippine environmental class action arising from a 2018 landslide sought damages of 4.3 billion Philippine pesos (about US$81.78 million) and a 500 million peso rehabilitation fund. CEMEX said it could not assess the likelihood or materiality of an adverse outcome. Tax disputes in Spain and Colombia, antitrust investigations and environmental obligations also warrant monitoring.
- Market and operating risks: Demand depends on construction and infrastructure spending; management highlighted economic and political uncertainty, Brexit, trade tensions, emerging-market volatility, energy and fuel costs, adverse weather, foreign exchange exposure and competitive pricing. A stronger U.S. dollar may increase the burden of servicing dollar debt from non-dollar revenues.
- Other financial risks: 37% of foreign-currency long-term debt bore floating rates at LIBOR plus 241 basis points at year-end. Goodwill was Ps194,779, with 78% allocated to the United States; no goodwill impairment was recorded in 2018, but estimates are sensitive to market assumptions. The 2018 audit found internal control over financial reporting effective, following material weaknesses reported for 2016 and 2017.
- Capital returns: Shareholders approved a US$150 million dividend payable in two 2019 installments and authorized up to US$500 million for repurchases. CEMEX repurchased CPOs for Ps1,520 million (about US$75 million) in 2018. Debt agreements restricted dividends and repurchases, subject to their terms and exceptions.
Important facts for investors to verify
- Reconcile reported earnings and cash flow to the audited IFRS statements, including non-IFRS EBITDA, tax effects, foreign exchange and divestiture-related items.
- Track cash, debt maturities, available committed liquidity and covenant calculations after the April 2019 credit amendments; confirm the treatment of perpetual debentures and lease liabilities.
- Assess progress against the 2020 divestiture, cost-improvement and debt-reduction targets, and whether planned sales close at expected values.
- Monitor the Maceo approvals and start-up, and developments in the SEC, DOJ, securities class action, Philippine landslide claim and material tax and antitrust proceedings.
- Check whether the declared dividend and authorized repurchases are completed and remain consistent with debt restrictions and cash-generation needs.