CEMEX, S.A.B. de C.V. — 2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019, not a standalone fourth-quarter report. The filing is dated April 29, 2020 and presents audited consolidated results under IFRS in U.S. dollars. Comparative periods were recast for the change in presentation currency and retrospective adoption of IFRS 16; several businesses were classified as discontinued operations.
Business context and key financial metrics
CEMEX is a global producer and distributor of cement, ready-mix concrete, aggregates and related construction materials, operating in more than 50 countries. Financial amounts below are in U.S. dollars; millions unless otherwise stated.
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $13,130 | $13,531 | -3% |
| Gross profit / margin | $4,305 / 32.8% | $4,682 / 34.6% | Profit -8%; margin -1.8 points |
| Operating earnings before other expenses, net | $1,333 / 10.2% margin | $1,703 / 12.6% margin | -22%; margin -2.4 points |
| Operating earnings | $986 | $1,407 | -30% |
| Operating EBITDA (non-IFRS) | $2,378 | $2,685 | -11% |
| Net income from continuing operations | $91 | $493 | -82% |
| Controlling-interest net income | $143 / 1.1% of revenue | $528 / 3.9% | -73% |
| Cash flow from operating activities, continuing operations | $1,282 | $1,435 | -11% |
| Total cash flow from operating activities | $1,353 | $1,567 | -14% |
| Capital expenditures | $1,033 | $964 | +$69 |
| Cash and cash equivalents at year-end | $788 | $309 | +$479 |
Consolidated cement sales volumes fell 7% to 62.8 million tons; ready-mix concrete volumes fell 3% to 50.1 million cubic meters. Cost of sales declined slightly in dollars but rose to 67.2% of revenue from 65.4%, reflecting higher maintenance, raw-material and freight costs, partly offset by lower energy costs. Selling, administrative and distribution expenses were $2,972 million, approximately flat year over year.
At December 31, 2019, total debt plus other financial obligations was $11,790 million ($11,864 million principal), excluding $443 million of perpetual debentures. The reported balance was 12% short-term and 88% long-term. Cash was $788 million; current liabilities exceeded current assets by $830 million. CEMEX had $1,135 million available under its committed revolving facility at year-end. The 2019 reported covenant leverage ratio was 4.17x against a 5.25x limit, and coverage was 3.86x against a 2.50x minimum; CEMEX reported compliance at year-end.
Material changes versus 2018
- Revenue fell 3%, while cement and ready-mix volumes declined 7% and 3%, respectively. The sharpest weakness was in Mexico, where domestic cement and ready-mix volumes fell 15% and 14%, amid reduced public and private investment and delays to building permits.
- U.S. revenue increased 5%, but operating earnings before other expenses fell 25%, primarily due to uneven demand, supply-chain and transportation costs, and higher maintenance.
- Lower operating earnings, higher other expenses and foreign-exchange losses contributed to the decline in continuing-operations and controlling-interest earnings. Financial expense eased slightly to $711 million from $722 million; financial income and other items shifted to a $71 million expense from a $2 million expense.
- Other expenses increased to $347 million from $296 million. 2019 items included $45 million related to the Mexican reorganization, a $24 million U.S. multiemployer pension settlement loss, $55 million of property-damage and natural-disaster costs, and $64 million of fixed-asset impairment losses, including $52 million in Puerto Rico.
- Cash from operating activities and operating EBITDA declined, while year-end cash increased. Investing cash flow included $469 million net proceeds from disposal groups; financing cash flows included $150 million of dividends and $50 million of share repurchases.
Outlook, management commentary, risks and contingencies
- “A Stronger CEMEX” plan: Targets included $1.5–$2.0 billion of asset divestitures and $3.5 billion of debt reduction from the plan’s July 2018 launch through the end of 2020, plus operational improvements. By year-end 2019, announced or completed asset sales totaled $1.6 billion, operational improvements were $170 million, and debt reduction was $407 million. The operational-improvement target was subsequently raised to $370 million for 2020, including additional cost-reduction actions.
- COVID-19 and guidance: The filing describes significant uncertainty around the pandemic’s effect on construction demand, operations, supply chains, currencies and financing. CEMEX withdrew its prior 2020 guidance, warned that plan targets could be delayed, and outlined cost, capital-spending and production controls. It suspended the 2020 share-repurchase program and stated it would pay no dividend in 2020.
- Liquidity and going concern: After year-end, CEMEX drew the full $1.135 billion revolving facility, increasing cash and debt. It requested lender amendments to the 2017 Credit Agreement’s financial covenants because of pandemic-related risk. Management said it could not assure an agreement or waiver. The audited financial statements were prepared on a going-concern basis, but the auditor and filing disclosed that covenant uncertainty raises substantial doubt about CEMEX’s ability to continue as a going concern. Acceleration of debt following a default could materially harm liquidity.
- Debt and refinancing: Debt maturities, covenant restrictions, collateral pledges over shares of subsidiaries representing substantially all operations, and dependence on asset sales or refinancing are material risks. The filing reports $1,442 million of debt and other financial obligations maturing in 2020; this schedule is not a forecast of refinancing or payment outcomes.
- Divestitures: The Kosmos U.S. asset sale closed in March 2020, with $499 million of proceeds to CEMEX before transaction costs. The $235 million U.K. sale to Breedon remained subject to regulatory review; the filing said COVID-19 could delay or prevent completion. The $180 million white-cement sale in Spain was also pending approval.
- Legal and regulatory exposures: The filing describes SEC, DOJ and Colombian investigations related to the Maceo project, a securities class action that was dismissed with prejudice in February 2020, Colombian tax disputes, antitrust matters, and litigation involving Egypt, environmental issues and other markets. Outcomes and potential losses are uncertain; the filing does not provide clear loss estimates for some proceedings. The Maceo plant had not begun commercial operations pending permits and other processes.
- Other risks: Construction-market cyclicality, exchange-rate exposure, energy and raw-material costs, environmental and climate regulation, political instability, competition, weather events and impairment risk. Goodwill was $9,562 million, including 78% allocated to the U.S.; no goodwill impairment was recorded in 2018 or 2019.
- Climate strategy: Announced in February 2020, the new strategy seeks a 35% reduction in net CO2 emissions by 2030 and aspires to net-zero CO2 concrete globally by 2050. CEMEX reported alternative fuels were 28% of its fuel mix in 2019.
Important facts for investors to verify
- Whether lenders agreed to the requested 2017 Credit Agreement covenant changes or waivers, and the resulting covenant headroom, restrictions and financing costs.
- How the pandemic affected subsequent revenue, operating cash flow, cash and debt, and whether the company’s going-concern uncertainty changed.
- Completion and net proceeds of the Breedon and white-cement divestitures, and the use of proceeds from completed asset sales.
- Whether cost reductions and operating improvements offset weaker volumes and costs, especially in Mexico, and how reported EBITDA converts to cash after interest, taxes and capital expenditures.
- Developments and potential financial exposure in the Maceo investigations and project, Colombian tax matters, and other material legal and environmental proceedings.
- Reconciliation of debt and other financial obligations, including lease liabilities and receivables financing, to the separate debt maturity and covenant calculations.