Product Demand
The demand for the products produced by Compass Minerals is influenced greatly by technological advancements as well as innovation of new products (Compass Minerals). The development of more efficient application methods for salt as well as plant nutrients may reduce demand and adversely affect revenues.
New methods for delivery of plants nutrients could also adversely affect demand and increase competition. The salt industry is characterized by a slow rate of technological adoption and innovation. Compass Minerals should invest in research and development to identify and meet the changing consumer needs. Development of new products will expand the market possibilities for Compass Mineral by tapping into new market niches. This will enhance revenues for the company in line with the 20 percent growth in EBITDA. It will also diversify the revenue streams of the company thus smoothing revenue fluctuations due to seasonality in the salt business. Compass Mineral continues to identify new market opportunities for growth in terms of productions and geography. The company has made numerous acquisitions in different countries including Brazil, Canada, and Chile. These acquisitions allow the company to tap into the domestic markets of those countries. The expansion of markets both in terms of products segments and geography will increase the EBITDA of the company sustainably.
Salt Production
Technological advancements in technology are motivated by the need to enhance production efficiency. Consequently, the unit cost is expected to decline with the adaptation of new technologies. Technological advancement may influence the competition faced by Compass Minerals. If competitors adopt a superior technology, they can produce at a lower unit cost and charge lower prices for their products. Compass Minerals has to keep investing in efficiency-enhancing technologies. Particularly, technologies that reduce the cost of energy which is an integral component of production costs. Approximately 8 percent of the total production for Compass Mineral are energy related costs. Reduction of the energy costs will significantly improve the bottom line.
Compass Mineral uses three production techniques: underground mining, salt evaporation, and mechanical evaporation. Compass Mineral has invested heavily in enhancing production efficiency. The company adopted Veolia HPD-PIC Crystallizer Technology in 2015 which has increased the output of potassium sulfate and enhanced the overall efficiency of the plant (Veolia). The new systems provide higher yields, higher purity and use less water compared to the previous technology. The company intends to invest more than 160 million dollars to implement a new technology and expand the production scale (Compass Minerals). The new pond technology is expected to reduce brine loss. Reduction in brine will result in a reduction in operating costs. Besides, the expected expansion of the production plant will increase the scale economies thus lowering the unit production costs. Compass Mineral also enhances its technology through acquisitions. The company recently acquired a thirty-five percent stake in a leading plant nutrients producer and distributor in Brazil Produquimica (Compass Minerals).
Compass Mineral continues to stay ahead of the competition in the salt industry in terms of the technology it employs. To maintain its market leadership, sustained investment in research and development is necessary. It advanced technology and continuous adoption of the latest salt mining technologies will increase the operating margins and consequently the EBITDA of the company. A clear technology adoption plan should be included as part of the long-term strategy. The financial implications should also be considered because the salt production process is capital intensive.
Works Cited
Compass Minerals. Compass Minerals Announces Sulfate of Potash Capacity Expansion on Its 40th Anniversary at the Great Salt Lake. n.d. Web. 1 May 2016.
Compass Minerals. "Compass Minerals Annual Report." 2015. Web.
—. Compass Minerals to Acquire 35% Stake in Leading Brazilian Specialty Plant Nutrition Company. 2016. Web. 2 May 2016.
Veolia. Compass Minerals Expands Sulfate of Potash (SOP) Production with Veolia’s HPD® Crystallization Technology. 19 October 2015. Web. 1 May 2016.
