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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Ordinary Participation Certificates ( Certificados de Participación Ordinarios |
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Accelerated filer |
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Non-accelerated filer |
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Emerging growth company |
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U.S. GAAP ☐ |
by the International Accounting Standards Board ☒ |
Other ☐ |
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Shaping the future together 20-F Report 2022
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| PART I | ||||
| Item 1 — Identity of Directors, Senior Management and Advisors |
4 | |||
| 4 | ||||
| 4 | ||||
| 36 | ||||
| 146 | ||||
| 146 | ||||
| 243 | ||||
| 273 | ||||
| 275 | ||||
| 276 | ||||
| 278 | ||||
| Item 11 — Quantitative and Qualitative Disclosures About Market Risk |
292 | |||
| Item 12 — Description of Securities Other than Equity Securities |
292 | |||
| 292 | ||||
| 293 | ||||
| 293 | ||||
| 293 | ||||
| PART II | ||||
| 295 | ||||
| Item 14 — Material Modifications to the Rights of Security Holders and Use of Proceeds |
295 | |||
| 295 | ||||
| 296 | ||||
| 296 | ||||
| 296 | ||||
| 298 | ||||
| Item 16D — Exemptions from the Listing Standards for Audit Committees |
299 | |||
| Item 16E — Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
299 | |||
| 299 | ||||
| 299 | ||||
| 302 | ||||
| Item 16I — Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
302 | |||
| PART III | ||||
| 303 | ||||
| 303 | ||||
| 303 | ||||
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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,” the “Company,” “we,” “us” or “our” refer to Cemex, S.A.B. de C.V. and its consolidated entities. See note 1 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
PRESENTATION OF FINANCIAL INFORMATION
The audited consolidated financial statements of Cemex, S.A.B. de C.V. 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 issued by the IASB) to reconcile such financial statements to United States Generally Accepted Accounting Principles (“U.S. GAAP”).
Unless otherwise indicated, 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 references to “Ps,” “Mexican Pesos” and “Pesos” are to Mexican Pesos. References to “billion” mean one thousand million. References in this annual report to “CPOs” are to Cemex, S.A.B. de C.V.’s Ordinary Participation Certificates (Certificados de Participación Ordinarios), each CPO represents two Series A shares (as defined below) and one Series B share (as defined below) of Cemex, S.A.B. de C.V. References to “ADSs” are to American Depositary Shares of Cemex, S.A.B. de C.V.; each ADS represents ten CPOs.
See notes 2.7, 17.1 and 17.2 to the 2022 audited consolidated financial statements of Cemex, S.A.B. de C.V. included elsewhere in this annual report for a detailed description of our debt and other financial obligations. Total debt plus other financial obligations differs from the calculation of debt under our main unsecured credit agreements, dated as of October 29, 2021, as amended and/or restated from time to time (the “2021 Credit Agreement”), dated as of December 23, 2021, as amended and/or restated from time to time (the “Mexican Peso Banorte Agreement”), and dated as of October 7, 2022, as amended and/or restated from time to time (the “2022 EUR Credit Agreement,” and collectively with the 2021 Credit Agreement and the Mexican Peso Banorte Agreement, the “Credit Agreements”). See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Our Indebtedness” for more information.
During 2022, pursuant to tender offers and other market transactions, we partially repurchased different series of our notes for an aggregate notional amount of $1,172 million. The difference between the amount paid for such notes and the notional amount redeemed, net of transactional costs, generated a repurchase gain of $104 million, recognized in the statement of operations for the year ended December 31, 2022. On June 8, 2021, we issued $1,000 million of our 5.125% Subordinated Notes with no fixed maturity (the “5.125% Subordinated Notes”). Based on IFRS, the 5.125% Subordinated Notes qualify as equity instruments and are classified within controlling interest stockholders’ equity. See note 21.2 to the 2022 audited consolidated financial statements of Cemex, S.A.B. de C.V. included elsewhere in this annual report for a detailed description of the 5.125% Subordinated Notes.
We also refer in various places within this annual report to non-IFRS measures, including “Operating EBITDA,” “Operating EBITDA” equals operating earnings before other expenses, net, plus depreciation and amortization expenses, as more fully explained in “Item 5—Operating and Financial Review and Prospects—Results of Operations—Selected Consolidated Financial Information.” Additionally, we refer to “Operating EBITDA Margin,” which is calculated by dividing our “Operating EBITDA” by our revenues. The presentation
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of these non-IFRS measures is not meant to be considered in isolation or as a substitute for the 2022 audited consolidated financial results of Cemex, S.A.B. de C.V. prepared in accordance with IFRS as issued by the IASB.
We have approximated certain numbers in this annual report to their closest round numbers or a given number of decimal places. Due to rounding, figures shown as totals in tables may not be arithmetic aggregations of the figures preceding them.
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CERTAIN TECHNICAL TERMS
When used in this annual report, the terms set forth below mean the following:
| • | Aggregates are inert granular materials, such as stone, sand, and gravel, which are obtained from land- based sources (mainly mined from quarries) or by dredging marine deposits. 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. |
| • | Cement is a binding agent which, when mixed with aggregates and water, produces either ready-mix concrete or mortar. |
| • | Cement mill (also called finish mill in the United States) is a piece of equipment used to reduce the size of the materials needed for cement production, usually to microns size (1 micron is equal to 0.001 millimeters). Traditionally, cement mills have adopted the form of ball mills. Vertical roller mills, which are more effective in terms of energy consumption compared to ball mills, are being gradually introduced to our operations in the United States, Mexico, the United Kingdom, the United Arab Emirates, and other regions in which we operate. |
| • | Clinker is 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. |
| • | Fly ash is a combustion residue from coal-fired power plants that can be used as a non-clinker cementitious material. |
| • | Gray Portland cement, used for construction purposes, is a hydraulic binding agent with a traditional composition by weight of approximately 95% clinker and up to 5% of a minor component (usually calcium sulfate). Blended portland cement has lower clinker factor, usually below 90%, which results in lower carbon dioxide (“CO2”) emissions. Both traditional and blended portland cement, when mixed with sand, stone or other aggregates and water, produce either concrete or mortar. |
| • | Petroleum coke or pet coke is a by-product of the oil refining coking process that can be incorporated into the cement production process as fuel, in substitution of fossil fuels such as natural gas or coal. |
| • | Ready-mix concrete is a mixture of cement, aggregates, admixtures and water. |
| • | Slag is the by-product of smelting ore to purify metals. |
| • | Tons means metric tons. One metric ton equals 1.102 short tons. |
| • | Urbanization Solutions is one of our four core businesses. It is a business that complements our value offering of products and solutions, looking to connect with the broader city ecosystem. It seeks to address urbanization challenges and provide means to all stakeholders in the construction value chain to enable sustainable urbanization by focusing on four market segments: performance materials, waste management, industrialized construction, and related services. |
| • | White cement is a specialty cement used primarily for decorative purposes. |
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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
Advancing our strategic priorities and being an industry leader
in the global transition to a lower-carbon and circular economy
During 2022, we made progress on our goal to optimize and rebalance our portfolio for growth by investing $474 million in strategic capital expenditures during 2022. Much of this investment was dedicated to our growth strategy of investing in bolt-on and margin enhancement projects as well as capacity additions. We estimate that our growth strategy resulted in a contribution of $100 million in incremental Operating EBITDA in 2022. Additionally, Operating EBITDA from our Urbanization Solutions core business was 21% higher in 2022 compared to 2021. In general, since 2020, we have invested more than $1 billion in strategic projects focused on accelerating growth. These investments are designed to allow us to achieve cost savings from operating efficiencies, advance our CO2 reduction goal, increase production capacity in supply-constrained markets, and drive growth in our Urbanization Solutions business. We plan to continue reorienting our portfolio more toward developed markets, particularly the U.S. and Europe, through the investments and strategic divestments we have executed, such as the divestment of our former operations in Costa Rica and El Salvador, among others.
In addition, to further fortify our balance sheet, we continue to focus mainly on the following three initiatives: (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 mainly for debt reduction and our bolt-on investments; and (iii) continuing to execute selective divestments by selling what we believe are non-essential assets, which would allow us to free up more free cash flow.
For the year ended December 31, 2022, we had net sales of $15.6 billion, which were higher than those for the year ended December 31, 2021, mainly driven by price increases across our products and services in all of the regions where we operate. During 2022, our pricing and cost mitigation efforts were able to offset much of the impact of inflation.
Strengthening our capital structure and deleveraging continues to be one of our top priorities. In response to significant market volatility, we also engaged in several liability management exercises, which included repurchasing some of our notes.
On April 13, 2022, Cemex consummated a cash tender offer and purchased $163,762,000 aggregate principal amount of the outstanding 5.200% Dollar-denominated Notes due 2030 (the “September 2030 Dollar Notes”), $108,648,000 aggregate principal amount of the outstanding 5.450% Dollar-denominated Notes due 2029 (the “November 2029 Dollar Notes”) and $156,178,000 aggregate principal amount of the outstanding 3.875% Dollar-denominated Notes due 2031 (the “July 2031 Dollar Notes”) validly tendered by holders of the tendered notes, and made a total payment of $419,293,717.35 (which included an early tender premium and accrued and unpaid interest) for such tendered notes, pursuant to the terms of an offer to purchase governing the tender offer.
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On April 27, 2022, Cemex, S.A.B. de C.V. consummated a cash tender offer and purchased $4,160,000 aggregate principal amount of the outstanding September 2030 Dollar Notes, $3,000,000 aggregate principal amount of the outstanding November 2029 Dollar Notes and $3,075,000 aggregate principal amount of the outstanding July 2031 Dollar Notes validly tendered by holders of the tendered notes after the early tender date and at or prior to the expiration date and made a total payment of $9,789,319.41 (which included accrued and unpaid interest) for such tendered notes, pursuant to the terms of an offer to purchase governing the tender offer.
On September 30, 2022, Cemex consummated a cash tender offer and purchased $291,177,000 aggregate principal amount of the July 2031 Dollar Notes, $81,944,000 aggregate principal amount of the September 2030 Dollar Notes and $94,955,000 of the November 2029 Dollar Notes validly tendered by holders of the tendered notes and made a total payment of $404,512,954.08 (which included an early tender premium and accrued and unpaid interest) for such tendered notes, pursuant to the terms of an offer to purchase and an offer to purchase supplement governing the tender offer.
On October 7, 2022, Cemex successfully closed the 2022 EUR Credit Agreement, a new €500 million three-year non-amortizing sustainability-linked term loan, the proceeds of which were used to repay other debt of the Company. The 2022 EUR Credit Agreement, which is denominated exclusively in Euros, has nearly identical terms and conditions as the other Credit Agreements, including guarantor structure, financial covenants and a parallel interest rate margin grid. The 2022 EUR Credit Agreement was issued under Cemex’s Sustainability-linked Financing Framework (the “Framework”), increasing the amount of debt that is linked to the company’s “Future in Action” program and its ultimate vision of a carbon-neutral economy. All sustainability-linked loans issued under the Framework have the same metrics and adjustments to the interest rate margin. In general, during 2022, we further aligned our funding strategy with our climate action roadmap through the 2022 EUR Credit Agreement and other financial efforts that we executed related thereto. As a result, as of the date of this report we have approximately 42% of our debt linked to sustainability key performance indicators (“KPIs”).
During 2022, we reduced total debt by $408 million and interest expenses by $45 million, compared to 2021. However, our leverage ratio, as calculated under the Credit Agreements, increased by 0.11x to 2.84x. As of December 31, 2022, we had decreased to $8,825 million (principal amount $8,870 million, excluding deferred issuance costs) our total debt plus other financial obligations in our statement of financial position (which does not include $1,000 million of 5.125% Subordinated Notes). As of December 31, 2022, 11% of our total debt plus other financial obligations was current (including current maturities of non-current debt) and 89% was non-current. As of December 31, 2022, 77% of our total debt plus other financial obligations was Dollar-denominated, 13% was Euro-denominated, 2% was Pound Sterling-denominated, 5% was Mexican Peso-denominated, 2% was Philippine Peso-denominated and 1% was denominated in other currencies. See notes 17.1 and 17.2 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
In 2022, we also made significant advancements towards our climate action goals and our “Future in Action” program, focused on developing sustainable products and solutions, decarbonizing our operations, contributing to a circular economy, enhancing biodiversity, preserving water, and pursuing innovation and partnerships. Our 2030 climate action goals, which are aligned to CO2 reduction pathways in our industry, and our 2050 net-zero roadmap across the value chain were both validated by the Science Based Targets Initiative (“SBTi”) according to the 1.5°C scenario, during 2022. Most importantly, these goals should keep us on the right path to achieving our expected objective of delivering net-zero CO2 concrete globally by 2050. Also, during 2022, we enhanced the link between our executive compensation and our climate action goals. In order to meet our 2030 targets, yearly CO2 emission results will have an impact ranging from -10% to +10% on the total cash payout of the annual executive variable compensation of various of our executives eligible for variable compensation, including the Chief Executive Officer of the Company. See “Item 6—Directors, Senior Management and Employees—Board Practices—Variable Compensation Plan.”
As of 2022, we have reduced our specific net CO2 emissions by 30% as compared to our 1990 baseline, which we estimate puts us on track to achieve our goal of more than a 47% reduction by 2030.
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For 2022, our fuel mix consisted of 35% alternative fuels, a significant substitution rate for us. While our operations in Europe continue to lead with the highest substitution rate within our operations, we are moving to boost alternative fuel usage in all our other regions. Our operations in Mexico increased alternative fuel usage by 9% in 2022. This performance is supported by an increase of almost 6% in our use of alternative fuels and a reduction of 1.5% in our clinker factor during 2022.
Since 2019, we have used hydrogen injection to increase the use of alternative fuels and maximize thermal efficiency and, as of 2021, hydrogen is in use in all of our cement plants in Europe. At the end of 2022, approximately 44% of our clinker production used hydrogen injection technologies. We have also entered into partnerships to access new hydrogen injection technologies that should accelerate this strategy and allow us to further explore and scale the adoption of hydrogen in all of our operations while reducing the consumption of fossil fuels. Additionally, we have made progress in our clean electricity consumption strategy. As of the date of this annual report, 33% of our electricity supply is free of CO2 emissions, which we estimate should keep us on track to achieve our 2030 goal of having 65% of our electricity supply free of CO2 emissions.
Using biomass waste and non-recyclable materials to fuel our kilns is a key lever along our path to achieve our decarbonization goals. Not only does this activity benefit society by helping municipalities reduce waste going to landfills, but it also allows us to reduce our usage of expensive fossil fuels in our production processes. In 2022, our operations in Europe processed waste equivalent to the annual amount produced by a city the size of Madrid, achieving close to 70% alternative fuel substitution in the region, which is higher than the industry average. As of December 31, 2022, three of our cement plants were already producing cement with CO2 levels below 430 kg per ton, our new 2030 consolidated goal. As a result, our operations in Europe have achieved a 40% reduction in CO2 emissions as compared to our 1990 baseline. We are also boosting alternative fuel usage by injecting hydrogen into our cement kilns to optimize the process. After successfully implementing this technology in our plants in Europe, we have announced investments to implement hydrogen injection in four plants in Mexico in 2023, and expect to continue scaling its use in other operations worldwide.
In 2022, we launched Regenera, our new global waste management business, which is intended to further strengthen our capabilities and the circularity services we offer to our customers. Our aim is to increase by more than 50% the amount of waste and by-products we manage by 2030, with particular focus on (i) municipal and industrial waste; (ii) construction, demolition, and excavation waste; and (iii) other waste and industry by-products. Overall, in 2022, we estimate that we managed close to 27 million tons of waste, 67 times more than the non-recyclable waste we generated.
We believe that the success of our efforts will depend on the market’s reception to our lower-carbon products. Cemex estimates that, during 2022, Vertua-branded cement represented 41% of total cement volumes and Vertua-branded ready-mix represented 33% of total ready-mix volumes, a 14.8% and 16.1% year-over-year increase, respectively. Furthermore, we expanded our Vertua brand to include a comprehensive portfolio of products and solutions with sustainability attributes beyond a lower-carbon footprint, including water conservation, energy efficiency, recycled materials and efficient construction systems.
We also took significant steps in our innovation and partnership strategy, an important lever to reach our goal of net-zero CO2 by 2050. Among other initiatives, we are partnering with start-ups and leaders in the energy space on several carbon capture, utilization, and storage (“CCUS”) projects. We are also collaborating on transformative technologies for our industry, such as powering our kilns with solar heat or electricity and using CO2 for the production of value-added carbon nanomaterials, which are in growing demand in several traditional and high-tech industries. These partnerships, along with the capabilities of Cemex’s Global Research and Development, Cemex Ventures, and our internal “Smart Innovation” process, should be instrumental in developing our first net-zero CO2 plants by 2030.
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In 2022, we also advanced our social impact strategy, which allows us to contribute to the well-being of our communities in important areas such as affordable housing, education, employment capabilities, entrepreneurship, inclusion, environmental protection and community infrastructure. Overall, we have collaborated with over 26 million people globally, contributing to our goal of reaching 30 million community partners by 2030.
CEMEX Go, our end-to-end digital platform, is also an important enabler of our transition to a lower-carbon industry by better organizing supply chains, transitioning to a paperless industry, and increasing overall efficiency in the construction sector. CEMEX Go offers a digital customer experience to over 53,000 customers in 21 countries.
Furthermore, we continue to progress in our “Working Smarter” digital transformation initiative, through which Cemex is leveraging a combination of digital technologies, operative models and innovation from leading service suppliers in order to reshape its business management services.
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Risk Factors
We are subject to various risks mainly resulting from changing economic, environmental, political, industry, business, legal, 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.
Risk Factor Summary
Risks Relating to Ownership of Our Securities
| • | 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. |
| • | 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. |
| • | Corporate rights may not be available to any person that acquires 2% or more of Cemex, S.A.B. de C.V.’s voting shares without the approval of Cemex, S.A.B. de C.V.’s Board of Directors. |
| • | Preemptive rights generally available under Mexican law may be unavailable to ADS holders. |
| • | The protections afforded to shareholders in Mexico are different from those in other countries and may be more difficult to enforce. |
Risks Relating to Our Business and Operations
| • | Economic conditions, including inflation, in countries where we operate and in other regions or countries have affected and may continue to adversely affect our business, financial condition, liquidity and results of operations. |
| • | The war between Russia and Ukraine may have a material adverse effect on our business, financial condition, liquidity and results of operation. |
| • | High energy and fuel costs have had and may continue to have a material adverse effect on our operating results. |
| • | We are subject to restrictions and reputational risks resulting from non-controlling interests held by third parties in our consolidated subsidiaries. As of the date of this annual report, we control three publicly listed companies, where this risk is heightened. |
| • | Our use of derivative financial instruments could negatively affect our net income and liquidity, especially in volatile and uncertain markets. |
| • | Political, social and geopolitical events, possible changes in public policies and other risks in some of the countries where we operate, which are inherent to the operations of an international company, could have a material adverse effect on our business, financial condition, liquidity and results of operations. |
| • | Complications in relationships with local communities may adversely affect our business continuity, reputation, liquidity and results of operations. |
| • | 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 may fail to secure certain materials required to run our business, which could have a material adverse effect on our business, financial condition, liquidity and results of operations. |
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| • | 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. Any failure to realize expected benefits from the bolt-on acquisitions of our business strategy heightens this risk. |
| • | The introduction of or failure to introduce substitutes or alternative forms of cement, ready-mix concrete or aggregates into the market and the development of or failure to develop new construction techniques and technologies could have a material adverse effect on our business, financial condition, liquidity and results of operations. |
| • | 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 be affected. |
| • | A substantial amount of our total assets consists of intangible assets, including goodwill. We have recognized charges for goodwill impairment in the past and also in 2022, and if market or industry conditions deteriorate further, additional impairment charges may be recognized. |
| • | Activities in our business can be hazardous and can cause injury to people or damage to property in certain circumstances. |
| • | Our operations and ability to source products and materials can be affected by adverse weather conditions and natural disasters, including climate change, which could have a material adverse effect on our business, financial condition, liquidity and results of operations. |
| • | We could be adversely affected by any significant or prolonged disruption to our production facilities. |
| • | Labor activism and unrest, or failure to maintain satisfactory labor relations, could adversely affect our results of operations. |
| • | Our insurance coverage may not cover all the risks to which we may be exposed. |
| • | 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 and the availability of a specialized workforce. |
| • | Future pandemics and epidemics, such as the COVID-19 pandemic, could materially adversely affect our financial condition and results of operations. |
Risks Relating to Our Indebtedness and Certain Other Obligations
| • | The Credit Agreements, the indentures governing our outstanding 3.125% Euro-denominated notes due 2026 (the “March 2026 Euro Notes”), November 2029 Dollar notes, 7.375% Dollar-denominated notes due 2027 (the “June 2027 Dollar Notes”), September 2030 Dollar Notes and July 2031 Dollar Notes (collectively, the “Notes”) and our other debt agreements and/or instruments contain several restrictions and covenants. Our failure to comply with such restrictions and covenants or any inability to capitalize on business opportunities or refinance our debt resulting from them could have a material adverse effect on our business and financial conditions. |
| • | The elimination of the London Inter-Bank Offered Rate (“LIBOR”) after June 2023 may adversely affect our financial results. |
| • | We have a substantial amount of debt and other financial obligations. If we are unable to secure refinancing on favorable terms or at all, we may not be able to comply with our payment obligations upon |