Guide to Cement KPIs

The most fundamental source of revenue for cement companies is the sale of construction materials and products. These companies generate their revenue primarily from three key segments:

1. Cement
2. Aggregates
3. Concrete (Ready-to-Mix Concrete)

Cement is a major segment for building and construction material companies, especially cement manufacturers. It is one of the primary construction materials used in concrete production, which is the most widely used construction material in the world. It binds aggregates (such as sand, gravel, and crushed stone) together to create durable structures. The key stages in cement production are:

• Raw material extraction or mining from quarries
• Crushing and grinding of the extracted raw materials
• Blending and proportioning the crushed raw material to create a raw mix
• Pre-heating and clinker formation
• Cooling the clinker and then grounding it to produce cement

There are several types of cement, each designed to meet specific construction requirements and applications. The most common types include:

• Portland cement: The most common type, used in general construction.
• Blended cement: A mixture of Portland cement with other materials like fly ash or slag.
• Specialty cement: Tailored for specific applications, such as rapid-hardening cement or low-heat cement

The primary source of revenue for cement manufacturers comes from manufacturing and selling cement.

Concrete is a building and construction material made up of cement, fine aggregates (like sand), and coarse aggregates (such as gravel). Portland cement is most commonly used for making concrete. When mixed with water, the mixture of cement and aggregates solidifies over time. Achieving an appropriate water-cement ratio is crucial for producing workable concrete. As water is introduced, cement undergoes a reaction, initiating the hydration process, and thus binding the materials into a durable, stone-like substance. In building and construction, concrete has applications in various load-bearing elements like foundations, columns, beams, and slabs. For cement companies, the production and sale of concrete is another source of revenue.

Aggregates, such as sand, gravel, and crushed stone, are inert granular materials crucial for concrete production. A typical concrete mix generally consists of about 60% to 75% aggregates by volume. To ensure a high-quality concrete mix, the aggregates must possess hardness and strength and must be clean. They should be free from absorbed chemicals or coatings of clay and other fine materials, as these can lead to concrete deterioration. Aggregates are of two distinct categories; fine and coarse. Fine aggregates generally consist of natural sand or crushed stone, while gravels constitute the majority of coarse aggregate.

The total revenue of companies in this industry is a function of the sales volume of cement, concrete, and aggregates and the average realized prices of these three products. Companies generally charge customers based on the volume of cement, aggregates, concrete, and/or other materials required for a construction project.

Sales volume is determined by production volume and utilization. Production volume is calculated by multiplying capacity by utilization rate. Here, capacity refers to the maximum amount of building and construction material that can be produced over a specific period under normal working conditions. Further, utilization rate, also known as capacity utilization, is a measure of how much of the available capacity is actually being used. While production volume refers to the total quantity of cement produced, sales volume represents the total quantity of cement that a company has sold during a specific period. Although production and sales volume are generally identical in the forecast period, there may be a difference in the two values in historical data. This variance can be attributed to the inclusion of ready-mix concrete intended for internal use in historical data, thus accounting for the difference.

Average realized price refers to the average revenue generated per unit of cement, concrete, and aggregate sold. These prices are influenced by various factors, including market demand and supply, raw material costs, transportation costs, competitive pricing strategies, and economic conditions.

Note that cement and aggregate are traditionally priced and reported on a “per ton” basis, while ready-mix concrete is priced and reported on a “per cubic meter” basis.

Alternatively, revenue for companies in the cement industry can also be calculated by decomposing revenue growth to isolate the core performance of the business from the impact of mergers & acquisitions (M&A) and FX on growth, which accounts for inorganic growth. To calculate organic growth, analysts factor in volume and price growth fluctuations. The growth metrics most commonly used are volume growth, price growth, organic growth, M&A growth, and forex growth.

Multinational corporations disclose their revenue distribution by geographic regions, followed by a detailed breakdown of products within those regions. The calculation of sales volume and pricing involves estimating year-over-year changes, which can be determined by using an inflation factor. Revenue is then obtained by multiplying the sales volume and price. This approach accounts for variations in each geographical area resulting from local factors, and these differences are considered in the impact drivers, ultimately influencing both revenue and cost.