I’m at a total loss with this. Finding pricing and
distribution information for my company is really difficult. Thanks to the
annual report, I can easily define the following products:
Potash
and magnesium business unit offers:
a.
Fertilizers
with special plant nutritions,
b.
products
for industrial applications,
c.
high-purity
potassium and magnesium salts for the pharmaceutical, cosmetics and food
industries, as well as
d.
pre-products
for the production of feed.
|
Key figures
|
|
2014
|
2013
|
|
Revenues
|
€ million
|
1,884.0
|
2,037.6
|
|
Earnings
before interest, taxes, depreciation and amortisation (EBITDA)
|
€ million
|
618.5
|
667.5
|
|
Operating
earnings (EBIT I)
|
€ million
|
488.8
|
552.5
|
|
Capital
expenditure
|
€ million
|
1,040.4
|
606.5
|
|
Employees
as of 31.12.
|
number
|
8,299
|
8,367
|
Salt
business unit offers:
|
Food
grade salt
|
|
|
Sonnensalz®,
SALDORO®, Cérébos®, Vatel®, Balance®
(50 % less sodium)
|
Private
households
|
|
Pretzel
salt
|
Food
processing industry
|
|
Pickling
salt
|
Food
processing industry (meat and sausage products)
|
|
Other food
grade salts
|
Food
processing industry (e.g. bread, cheese, canned food)
|
|
Industrial
salts
|
|
|
Axal®,
Regenit®
|
Water
softening
|
|
Dishwasher
salt
|
Private
households
|
|
Salt and
mineral lickstones SOLSEL®, Feed salt
|
Feed
|
|
Fish
industry salt
|
Preserving
of fish
|
|
Hide curing
salt
|
Tanneries
|
|
Pharmaceutical
salt
|
Infusions
and dialysis solutions, medicines
|
|
Other
industrial salts
|
e.g.
drilling fluids, dyeing works, leather treatment, pottery
|
|
Salt for
chemical use
|
|
|
Salt for
chemical use
|
Chemical
industry
|
|
De-icing
agents
|
|
|
De-icing
salt, magnesium chloride solution
|
Winter road
maintenance services, public road authorities, grit for private households
|
|
Key figures
|
|
2014
|
2013
|
|
Revenues
|
€ million
|
1,778.5
|
1,751.4
|
|
Earnings
before interest, taxes, depreciation and amortisation (EBITDA)
|
€ million
|
276.0
|
235.9
|
|
Operating
earnings (EBIT I)
|
€ million
|
172.9
|
117.8
|
|
Capital
expenditure
|
€ million
|
87.5
|
107.4
|
|
Employees
as of 31.12.
|
number
|
5,075
|
5,091
|
Estimated
product pricing
As a global distributor, I assume that
K + S Group price by large volumes but I’m having a lot of difficulty locating
distribution information from their website.
I’m going to focus on the trademark
products from the Salt business unit and see if I can find something to help me
estimate pricing. All the information I can find is in German…. Lol.
|
Product
|
Packaging
|
Price
(Rounded)
|
|
Axal®
|
25 kg РЕ bags on pallet
|
17€
|
|
Regenit®
|
25 kg Regeneration Salt Tablets
|
10 €
|
|
Sonnensalz®
|
10 kg
|
5 €
|
Variable cost: 1.73 € (Cost of production)
According to
the Study Guide, variable costs typically include production costs only. I know
from restating the Income statement that Cost of sales doesn’t include selling
and general expenses so I’m going to consider that production costs for the
purpose of this assignment.
The 2014
report states that total revenues for the Salt business unit were 1,784.9€ but I can’t find a Cost of sales
figure for the unit alone. For this reason, I’m going to do a general
calculation based on the consolidated statement.
The revenue,
divided by cost of sales, suggests that each product may cost 1.73 € to produce. I know this is an
incredibly loose assumption because this figure isn’t based on the specific
products but it will have to do.
Contribution
margin
The Study Guide says the Contribution
margin = Sales – Variable Costs.
|
Product
|
Packaging
|
Price
(Rounded)
|
Contribution
margin
|
|
Axal®
|
25 kg РЕ bags on pallet
|
17€
|
15.27 €
|
|
Regenit®
|
25 kg Regeneration Salt Tablets
|
10 €
|
8.27 €
|
|
Sonnensalz®
|
25 kg
|
12.5 €
|
10.77 €
|
These are
very similar products, so I imagine their variable cost would be similar. However,
I understand that my calculations here are too rough to do any kind of
analysis. Instead, I’ll discuss why I think K + S Group have diversified to
offer such a large product range from a number of business units.
From what I’ve learned while researching K + S Group, the Potash market is highly volatile. International
relations, crises and high production volumes mean the price for Potash plummeted
dramatically a couple of years ago. A similar crash could occur in future. This
is an obvious constraint for Potash products.
Salt is evidently
more secure and providing good return for the Group. It makes sense to
diversify into this market to minimize risk. Aside from mining and refining,
there isn’t a large manufacturing process for the products, so the contribution
margin is likely to be generous. However, how we use salt in different
industries will change with time. Offering salt products across a wide range of
industries is another way of diversifying to minimize risk.
Other
constraints on K + S Group are:
Resource constraints – Potash deposits
in Germany aren’t infinite. So the company expanded to Canada to ensure a
continued supply.
International currency – K + S
Group are a global supplier and must consider the fluctuations of international
currency. In 2014, the Group reported a return on currency translations, whereas
the two years previous reported losses.
Competitive market conditions – As the
products require little manufacturing, they aren’t particularly specialized/patented/etc.
Holding market position against other global mining companies would be another
constraint.
Constraints
can have an impact on the number of products a firm may produce and sell. Resource
constraints restrict the production materials and work force available to
produce the three products I have listed. This combined with international affairs
(politics, currency, etc.) and market conditions impacts the sales performance of
each product. Diversification is a good strategy, however firms need to be
careful not to over extend. K + S Group are a very large company, no doubt able
to closely monitor and consider the performance of each product.
