Solar Kiss Project The Business Plan

ESADE MBA 2009-2011 Zorina Dimitrova Natalie Tyurin Vikash Panigrahi

1

Table of Content
MARKETING PLAN ......................................................................................................................................... 6 The Product (The Invention).......................................................................................................................... 6 Value Proposition .......................................................................................................................................... 7 Target Market ............................................................................................................................................... 8 Why Renewable Sector and Solar in specific? .......................................................................................... 8 Why Europe?............................................................................................................................................. 9 Drivers for solar power in Europe ......................................................................................................... 9 Why Bulgaria? ........................................................................................................................................... 9 Understanding the Bulgaria Market in depth: .................................................................................... 10 Favorable Conditions .......................................................................................................................... 10 Bulgaria Solar Thermal Market Situational Analysis ........................................................................... 11 Customer Segmentation ............................................................................................................................. 11 Competitors in the Market ......................................................................................................................... 12 Expansion strategy ...................................................................................................................................... 13 Placement ................................................................................................................................................... 14 Channel Design ........................................................................................................................................... 14 Channel Management............................................................................................................................. 15 Promotion ................................................................................................................................................... 15 Price ............................................................................................................................................................ 17 Sales Plan .................................................................................................................................................... 18 Marketing Budget/ Operations ................................................................................................................... 20 Risks and Challenges ................................................................................................................................... 21 Strategic .................................................................................................................................................. 21 Intellectual Property ........................................................................................................................... 21 Threat of Substitutes........................................................................................................................... 21 Prolonged Price War ........................................................................................................................... 21 Balanced Team Formation .................................................................................................................. 22 Operational ............................................................................................................................................. 22 Low-Cost Outsourced Manufacturing ................................................................................................. 22 Distribution Challenges ....................................................................................................................... 22 Financial .................................................................................................................................................. 23 2

Working Capital Management ............................................................................................................ 23 OPERATIONS ............................................................................................................................................... 25 Strategic Processes ..................................................................................................................................... 26 Capturing Clients: .................................................................................................................................... 26 Quality Management: ............................................................................................................................. 26 Planning and Budgeting: ......................................................................................................................... 26 Important/Fundamental Processes ............................................................................................................ 26 Supply Chain: .......................................................................................................................................... 26 Process Flow Diagram: ............................................................................................................................ 27 Structural/permanent subcontracting .................................................................................................... 28 Packaging production ............................................................................................................................. 28 Transportation ........................................................................................................................................ 28 Accounting and Finance .......................................................................................................................... 28 Necessary resources: equipment............................................................................................................ 29 Location................................................................................................................................................... 29 Physical infrastructure and layout .......................................................................................................... 29 Production/service capacity and permanent materials utilization ....................................................... 30 Utilization of transitory materials (consumables) .............................................................................. 31 Delivery time to clients and inventory management ............................................................................. 31 Investment and launching costs ............................................................................................................. 32 Operating expenses ................................................................................................................................ 33 Cost Analysis of opening up a Plant/Sales Offices in all countries...................................................... 33 Unit costs ............................................................................................................................................ 33 Launch plan ............................................................................................................................................. 34 HUMAN RESOURCES ................................................................................................................................... 37 Organizational Structure ......................................................................................................................... 37 Year 2011 ............................................................................................................................................ 37 Year 2013 ............................................................................................................................................ 38 Year 2015 ............................................................................................................................................ 39 Management and Governance Structures.............................................................................................. 39 Company as a Legal Entity .................................................................................................................. 40 Valuation ............................................................................................................................................. 40 Responsibilities of Managing Director ................................................................................................ 41 3

Personnel ................................................................................................................................................ 42 Sales Department................................................................................................................................ 42 Production Department ...................................................................................................................... 42 Compensation ..................................................................................................................................... 43 Other HR Policies .................................................................................................................................... 43 FINANCE ...................................................................................................................................................... 46 Balance Sheet.......................................................................................................................................... 46 Income Statement .................................................................................................................................. 47 Sensitivity Analysis .................................................................................................................................. 48 Cash Flow Statement .............................................................................................................................. 49 Risks and Contingency Plans ................................................................................................................... 50 Other Legal Considerations......................................................................................................................... 51 For a full description of the Companys legal form and structure please see the Human Resources section of this business plan under section Companys Legal Form and Structure. ............................... 51 The European Union Directive ................................................................................................................ 51 Certification............................................................................................................................................. 52 Guarantee ............................................................................................................................................... 53 Patent ...................................................................................................................................................... 53 Growth and Business Development Strategy ............................................................................................. 53 References .................................................................................................................................................. 54

Marketing Plan

MARKETING PLAN
The aim of this section is to address some of the key issue associated with market plan for the Solar Kiss business. As part of the plan, we will detail the potential market size and growth, realistic market penetration (in terms of sales projections), marketing strategy (in terms of 4Ps: which will include distribution strategy) and estimated marketing expenses and budget.

The Product (The Invention)

Solar Kiss Ltd. will be in the business of providing Solar Domestic Hot Water collectors (SDHW) for the European market. SDHW (also known as solar thermal collector) capture solar radiation and the resulting heat is conveyed to a heat transfer medium, in this case a piping system, which in turn heats up water. Solar thermal can be successfully applied to a broad range of heat requirements including Water heating plants in residential/commercial buildings Space heating/climate control in residential/commercial buildings Solar power plants: heat is used to produce steam which in turn drives generator turbines

New and improved technologies of this product are consistently being developed which result in higher efficiency of radiation-to-heat translation and lower product cost structure. A group member of Solar Kiss Ltd, Victor Atanasov, who has a PhD in Theoretical Physics, has developed a new and innovative version of the SDHW. The solar thermal collector has a standard structure as those collectors on the market. However its new and innovative absorptive layer significantly reduces the cost of production and allows for a marginal reduction from the best in the market in terms of radiation absorption. Exact price-efficiency ratio will be discussed later in this report. The following is a technical description of the workings of this product. Please see diagram on the right hand side for the visualization of breakdown of the product components. The aluminum casing is produced from aluminum profiles cut and joined together. The silicon seal prevents water from entering the inside of the collector. The protective glass has low-iron content (FeO 0.02 %), which makes the glass transparent to 90% of the solar radiation. The rock wool insulation at the back of the absorber pipe harp onto which the absorber plate is welded retains the heat in the collector thus increasing its efficiency. The inlet/outlet terminals of the absorber pipe harp can be provided with screw. To guarantee high conversion efficiency the absorber pipe harp and plate are made from copper. This structure is common to all solar thermal collectors on the 6

market. Its simplicity and durability makes it also the best from engineering point of view. The absorptive coating is applied onto the absorber in the form of a thin film. The simplest possible way to apply it is by spraying. The composition of this coating is high temperature resistant silicon resin as a binder, a solvent and nanostructure carbon. The materials used in this coating are widely available and inexpensive. Its cost is less than 1% of the total production cost of the solar thermal collector. Due to the durability of the materials and long-lasting compound used for the absorptive layer it is estimated that the product can function for 25 years without requiring any additional maintenance.

Solar Kiss Ltd. will provide two product models described below: Product type one: Solar Kiss Petit model * Area of collectors surface: 2,2m2 Overall efficiency of this collector as compared to best in the market: 70%. Amount of heat energy produced in one year or 2.000h solar radiation hours: 1,1MWh Energy saved yearly (in ): 0,10/kWh or 110 CO savings: 1,1 tons / year

Product type two: Solar Kiss Grande model* Area of collectors surface: 2,9m2 Overall efficiency of this collector as compared to best in the market: 70% Amount of heat energy produced in one year or 2.000h solar radiation hours: 1,5MWh Energy saved yearly (in ): 0,10/kWh or 150 CO savings: 1,5 tons / year

*All figures are based on projections of the Bulgarian market

Value Proposition
The value proposition of the Solar Kiss products is mainly the price-efficiency ratio. The price of Solar Kiss will be 50 % cheaper than the typical solar collector available in the market today with a downside of only 15% loss in efficiency as compared to the best product in the market.

Price of the product can be derived from total production costs plus the premium charged by the company for the provided service. Exact breakdown of the cost components will be discussed later in this report. Solar Kiss Ltd. is able to provide a substantial price reduction due to the lean operations of the business model (see Operations Section of this report). However the main contributing component 7

of the price is the cheap cost and ease of application of the absorptive layer. To have a better understand of the pricing, we draw a comparison between the performances of a collector in which the carbon paint cheapest and short-lived compound - is used as an absorptive coating with the performance of a collector in which the absorptive coating is Tinox: a ceramic-metal compound applied on copper base. Tinox is the best possible coating on the market with high efficiency rate and longevity of compound. Below is a graph comparing the efficiency levels of Tinox vs. standard carbon paint. As mentioned before the new absorptive layer provided Solar Kiss will be 15% less efficient then Tinox. Due to its toxicity the Tinox coat is applied in a vacuum environment which increases the cost of the Tinox to more than 30% of the total production cost of the collector. As mentioned before the Solar Kiss layer only makes up 1% of total production cost. The exact cost of the layer is 0.75/m. That total cost of the layer for the Petite model would comprise of 1,65 and for the Grande model 2,18. This is due to low market price of the compound components as well as with the ease of application. Solar Kiss layer can be applied in any environment without any technical background with a simple paintbrush.

Other value proposition of this product is the independence of the customer from high electricity bills and the ability to decrease his/her carbon footprint. It is projected that for a two story home, the payback period (based on Bulgarias electricity prices) will be 1,5 to 2 years.

Target Market
Why Renewable Sector and Solar in specific?
In the recent times, the renewable sector has seen tremendous growth and positive signs form the investment community. Further, most of the nations governments are announcing various stimulus packages for supporting economic recovery by encouraging programs that reduce dependency on fossil fuels. Now, when we observe the renewable sector, Solar has the highest contribution and is projected to become $116.5 billion industry in itself by 2019.

Why Europe?
Europe is the most lucrative market when it comes to renewable sector. There are 29 countries in Europe enacting legislation to promote renewable which is highest compared to any other region in world. The key legislation in major European countries which support solar power includes the FIT (Feed In Tariff) and bonus, tax credits, grants and subsidies. Drivers for solar power in Europe EU's carbon reduction targets. EU aims to reduce its carbon emissions by 20% by the end of 2020 from 1990 levels. The overall goal has been further split into country-specific targets, setting individual targets for 25 of the total 27 member countries. The installed renewable power generation capacity in the EU is foreseen to reach 512GW by 2020 as a part of the EUs overall carbon emission reduction targets, according to REN21.Out of the total 512GW renewable capacity, solar power is expected to have a share of close to 20%. Energy security policies The EU holds relatively less domestic reserves of fossil fuels compared to the rest of the world. The low level of domestic reserves enforces a substantial level of importation of fossil fuels for its energy needs. Hence there is a large drive to implement programs to have alternative sources of energy. Tax Credit schemes Some of the European countries are extending various tax benefits to companies in renewable sector. Renewable Portfolio Standards (RPS) and Renewable Energy Standards (RES) are policy enforced by many governments globally to increase the share of renewables in the total electricity generated. They are also focused on creating more price competition between different types of renewable power sources unlike FITs, which guarantees the purchase of all renewable-based power.

Why Bulgaria?
Although most of the important developments in the solar market in Europe are being witnessed in countries such as Germany, Spain and Italy, we have specially targeted Bulgaria as our first market for the very fact that apart from having favorable market conditions, both of our existing team members are from Bulgaria. We have a very good understanding of the market there and could easily leverage on the existing network (Business and Research community). Further given that Bulgaria could be considered a growing market, it is less competitive than the more established markets and thus provides us a good launching pad. We plan to make Bulgaria as our test market to launch the product, and plan to then expand to other countries.

Understanding the Bulgaria Market in depth: Bulgaria Geographic Profile: Area: 110,910 km Climate: temperate; cold, damp winters; hot, dry summers Terrain: mostly mountains with lowlands in north and southeast

Over 80% of the territory of Bulgaria is suitable for utilization of solar energy. In Bulgaria, the average annual period of sunshine is about 2100 hours. In some of its regions it may reach 2500 hours. Here are some facts about the thermal potential in Bulgaria: The average solar radiation is 1517 kWh/m (1410-1600 kWh/m); The total theoretical potential of the country is about 13x103 ktoe (Kilotons of Oil Equivalent); The utilizable annual potential is about 390 ktoe. (4535 GWh). For the region of Bulgaria the selective and non-selective solar thermal installations can produce hot water with temperature >60 for the period of four months from June to September, with >50 from the end of April until October and with >40 for a period of more than 9 months. Favorable Conditions Become a more Energy Independent State (Political and Legal) Bulgaria is heavily dependent on energy as it imports more than 70% of its primary energy sources. Bulgaria is mainly reliant on energy sources from Russia: oil, natural gas, high-quality coal and nuclear fuel. This structure of the energy balance causes concern in terms of the energy supply security . The European Union, whose dependence on imports is less (about 50%, but with a trend towards increasing this share up to 70% in 20 years time), is ensuring from each member countries and Bulgaria is one of the prime countries that needs to adhere to this target :10

 Reduction in energy use per GDP; and Utilization of local renewable energy sources (RES). Other important Factors (Social) Rapid increase of tourist facilities. Increase of energy prices and therefore the price of hot water. Increased income of the population. Bulgaria Solar Thermal Market Situational Analysis Bulgaria was the leader in Eastern Europe in design and production of solar thermal installations. Since 1990, Bulgaria is in transition and major part of the tourism facilities and industrial enterprises have been privatized that had solar collectors installed in their premises. Around 54% of the installations in the tourist facilities are still operational, but for the industrial sector only it is 8%. Now, major parts of the existing installations require repair. The main problems include the corrosion of steel collector surrounding and the absorber coatings, lack of frost protection, and broken glasses. This also creates a huge market potential. The actual installation of Solar Collectors is 5000 m/year as of 2010 and is projected to increase to 8000 m/year by 2015 (60% Increase)

Customer Segmentation
We have analyzed the Bulgarian Market and have identified the below as the major segments:1. Hotels, holiday houses, camping, swimming pools; 2. Mainly along the Black sea coast and in the mountain areas.

State and municipality buildings (hospitals, kindergartens, social houses) with new opportunities and under the structural funds it is expected that such installations will increase.

3.

Multi-storied buildings (mainly in new buildings); Block of flats are privately owned and belong to different people. Furthermore, with the existing system, building collective solar systems in many cases is accompanied by difficult decisions, arising from the structure already in place. While building collective solar systems in new blocks of flats the installation price needs to be factored.

4.

Industry for wood processing and agricultural products. Very Limited

11

Limited information is available on the current and potential size of each segment as Bulgarian institutions have done a poor job of keeping track of their records. However, based on 2010 market survey of 75 companies operating in Bulgaria published by the Global Solar Thermal Energy Council, the estimated market size in 2009 was 80.000m2 of solar collectors currently in operations. As mentioned before Bulgaria continues to be a lucrative market with in of 60% of installing in the next 5 years. The major clients listed by the companies including the percentage of their operations are as follows: Single family homes 90% Hotels and recreational facilities 85% Multifamily building 80% Public buildings 70% Industrial enterprises 22%

We will exclude industry enterprises as the regulations requirements are much more depending and not something the company can provide at this point. We will also not target public buildings as this will require involvement with government bureaucracy and corruption. Main target for Solar Kiss will comprise of multi-family building and hotels. To be successful in the solar industry, high volume sales are a must. For this reason the company would focus on large projects and not on single family homes which would require higher sales efforts to cover each home and higher risk of not obtaining the desired sales volume. Within the two segments, Solar Kiss will contact the project manager/ architect for the multi-family homes and business owners for the hotels and recreational facilities.

Competitors in the Market

When we analyzed the market, we saw that many of the existing players are from outside i.e. most of the collectors are imported. The imported collectors are from Turkey, China, Germany, Greece, Czech Republic, Italy and Austria. But overall, the most popular collectors are Chinese and Bulgarian. Of all the various manufactures, 42.1% of the firms offer Bulgarian collectors, 9.3% of the firms offer Turkish collectors 38.5% of the firms offer Chinese collectors, 4.3 % offer German collectors, 2.3% offer Czech, and 2.3% offer Italian. When we break the percentages on the type of collectors (Standard Vs Vacuum Tubes), we see that 36.8% offer both flat and vacuum tube collectors, 36.8% offer only vacuum tube collectors and 21% offer only flat collector.

The below are the names of some of the players in the Bulgarian Market : Sunsystem New Energy Systems Ltd. (NES) Shumen, ERATO Holding Haskovo , ECOTOP Ltd. Sofia 12

Apex Solar Ltd, Heliotech Solar Energy Systems , KORADO Razgrad and ECOTHERMAL ET Burgas.

The following a positioning map of some of the large competitors in the market.

PRICE EXPENSIVE
Sunsystem New Energy

Apex Solar

MAJOR COMPETITORS

ECOT OP

ERATO Holding

LESS EFFICIENT

Solar Kiss

EFFICIENCY

HOMEMADE

PRICE CHEAP

As can be seen Solar Kiss is competitive advantage is primarily based on pricing at relatively high efficiency. Another category that fall outside the competition is the homemade collectors. One potential opportunity Solar Kiss will investigate in the future is to address the needs of the customers who chose home-made over professionally made collectors and see if there is a service we can provide that is not addressed by the other major competitors.

Expansion strategy
While planning for our expansion, we have factored the overall market conditions and where we could be resourceful. Hence after spending around 1 year in Bulgaria, we plan to move to the bigger markets in Europe followed by India. The target countries include:

Italy in 2012 Third largest solar power installer. Italy aims to install 3GW of solar power generation capacity by the end of 2016.

Spain in 2012 Second largest installer of solar power globally Spain possesses rich solar resources. Spain has agreed to generate 29.4% of its electricity through renewable energy by 2020. 13

Germany in 2013 The largest installer of solar power globally. Germany has agreed to its Individual target of generating 35.2% of its electricity from renewable sources by 2020. India in 2014 Located between 30 degrees north and 30 degrees south of the equatorial line which enables it to receive a high level of insulation. Indian government plans to channel the growth of solar PV in the country through the Jawaharlal Nehru National Solar Mission (JNNSM) program. The program sets a roadmap to achieving an installed solar power generation capacity of 22GW by 2022 from the existing 120MW in 2009.

Placement
For placement the two main important sections are the design of the channel and channel management. In channel design, the focus point will be on in the way in which the Company will reach the customer and end consumer of the product. Channel management will address the process and procedure that dictate the relationship between the Company and its distributors.

Channel Design
Based on the market segmentation analysis, the customer is defined as the construction companies (mentioned as segments 1, 2 and 3 in the above customer segmentation section) in Bulgaria with the end consumer being the tenants/owners of the building in which the solar thermal collectors will be installed. This is considered to be the front-end of the supply chain. The back-end of the supply chain, relates to the suppliers of materials to the Company for construction of the solar thermal collector. In this business model there are three possible formations of the supply chain: 1. Licensing the absorptive layer to existing solar thermal producing companies. 2. Identify supplier in China/India/ and or Bulgaria for production of the solar thermal heater. The Company will be responsible for adding the final layer to the panels and selling to construction companies. The customer will then be responsible for the mounting of the product on housing. 3. The Company provides the entire service package from the building of the product to mounting of the product on the building.

14

After careful analysis of each possibility, option two was the best option. To understand why, the following factors need to be taken into consideration: market dynamics, product type, production costs, and supply chain control. Due to the fact that the low end production of the solar market is highly fragmented and solar thermal heaters are considered to be a commodity good (price driven) success can be achieved through economies of scale. Additionally, the industry is capital intensive and requires a large upfront investment especially for the production of the product. Taking this into account upfront, costs can be reduced by outsourcing production to supplier with lowest costs and best conditions, and by targeting as many construction companies as possible to achieve visibility in the market. Since the product is a commodity good, there is no need to be very selective or exclusive with the front or backend of the supply chain, as the main driver here is cost. The initial setback for option two is the relative lack of control or power over the supply chain. However, as the Company gains visibility amongst construction companies and increase the order size from the suppliers, the control will pass more into the hands of the Company.

Channel Management
Conflicts may arise along the distribution system and it therefore becomes vital to have the right strategic alignment with the Companys partners. For the back-end of the supply chain, the Company will be looking for suppliers that will insure low prices and will not sacrifice on the product quality. In this industry the main selling point is low costs and higher efficiency in solar absorption. Therefore the companys supplier will also need to share this goal in common. For the front-end of the supply chain, the company will be interested in fulfilling all the needs of the construction companies. Currently there is a directive from the European Commission that requires all members of the European Union by 2020 to have 20% of the countrys energy come from renewable resources. The countries are free to decide individual on the exact energy mix (solar, wind, biomass, etc). In some countries such as Spain and Italy, governments have made it mandatory that all newly constructed or renovated building must be designed with solar thermal collectors. Maintenance of the product (solely the solar thermal collector) will be the responsibility of the company, where as the tubing and maintenance of the boiler and pumping system will be the responsibility of the construction company. As the Company will grow the goal would be to service existing clients and provide with updated product to keep up with technological changes.

Promotion
Communication to the customer is key to raise awareness of the product and generate interest for the likelihood of installing the product and getting repeat sales. The Companys message to construction 15

companies will be to provide a product that is 50% cheaper than the average on the market with an efficiency that is comparable. Additionally the Company will provide high quality customer service and a product guarantee for 20 years.

The Company will have a communication mix that utilizes both direct and indirect selling marketing tools. For direct selling, given the workings of the solar industry, first sales will be mostly generated based on word-of-mouth and contacts provided by the team. The teams main goal will be to establish new and build long lasting relationships with construction companies and become well acquainted with the market demands. In this way the Company will collect marketing research and be able to tweak any issue that the Company may face either with the product or with the service provided. Other forms of marketing will be done through indirect selling. This will include: Website: providing detail description of our product and services Media: buying space in newspapers, or magazines related to renewable energy and construction business; additional possibility of being included in article written about solar thermal collectors Tradeshows: engaging potential investors in the business and gaining exposure for the company in the renewable energy industry. Educational seminars: provide construction business with information of the ease of installation and the added value of the product

A vital part of the promotion will also be to identify some key matrix by which the Company can measure the effectiveness of its marketing efforts and reach a better understanding of how to best reach the customers. Some measures of success include: Measure the daily website traffic; the website can also be used to see if there is increases access during the postings of advertisement in newspapers and magazines Ask the customer how they found you and why they picked the Company Advertising can also be measured by providing telephone numbers and website links to inquire further about the product Measure the effectiveness of educational seminars and tradeshows by how much additional business is received Based on these metrics the Company will be able identify which communication mix works best and is worth the financial investment.

16

Price
The following section aims to identify the price of the product which is the most comparable to the market prices. It also provides a consistent source of income for the company. We will start by looking at the manufacturing costs and any overhead costs that are required to build, sell and deliver the product. Once these values have been determined, we can address the added value of the product. Finally we will compare how the current price of the product compares to the average selling price in the solar thermal market.

The following are the manufacturing costs provided by a sample Chinese supplier:

COST PER PIECE (EURO) Collector Surface Area Average Product Cost

2,2m2 121

2,9m2 136

To the manufacturing costs, the Company will then apply the special layer which has the following costs:

COST PER PIECE (EURO) Collector Surface Area Absorptive layer cost

2,2m2 2.87

2,9m2 3.60

The total fixed costs are then as follows:

COST PER PIECE (EURO) Collector Surface Area Total Collector COGS

2,2m2 124

2,9m2 140

Given the industry standard we should assume that variable costs (labor and any consumable) comprise 15% of the total fixed costs. However, as our production is rather labor intensive we assume that our variable costs in year 1 are 20% of cost of the material of the collector with the tendency of this percentage to decrease as the company becomes more efficient. The variable costs are as follows:

COST PER PIECE (EURO) Collector Surface Area Variabe Costs

2,2m2 25

2,9m2 28

17

The Total fixed plus variable cost of the collector then becomes:

COST PER PIECE (EURO) Collector Surface Area Total Collector Costs including Variable

2,2m2 149

2,9m2 168

We have adopted a market based pricing model; therefore we mapped the competition prices against our target of being at least 50% less expensive than the average competitors collector on the Bulgarian market. Taking into account that the average cost of solar heating panels in Bulgaria is 250-350 per m the average price for each surface area is as follows:

PRICE PER PIECE (EURO) Collector Surface Area Competitor Collectors Pricing

2,2m2 538

2,9m2 675

The resulting prices (about 50% cheaper, see Solar Kiss Average Price year 1 below) are broken down to incorporate volume discounts of 20% for order quantities (from our clients) of between 50 and 200 units, and a discount of 30% for order quantities above 300.

PRICE PER PIECE (EURO) Collector Surface Area Order Units Below 50 50-200 Above 200

2,2m2

2,9m2

236 189 165

352 282 246

PRODUCT SALES MIX Collector Surface Area Order Units Below 50 50-200 Above 200 Solar Kiss Average Product Price yr. 1

2,15m2 65% 30% 5% 218

2,8m2 65% 30% 5% 326

Sales Plan
Sales of Solar Kiss are planned to begin in May 2011 in Bulgaria. For the eight months of operations we plan to sell 2300 units with a ratio of type 1 to type 2 solar collectors of 36 to 64 percent, respectively (surface area of type 1 collectors is 2.8 sq.m., type 2, 2.9sq.m.). The assumption that most of the sold 18

collectors are going to be of type 2 is based on the fact that a single household needs only one collector with such a size to meet its domestic hot water needs. In addition, large apartment blocks can be covered easier by a smaller quantity of larger surface collectors, which theoretically makes installation and mounting less costly for the consumer.

Year one and two sales are going to come only from the Bulgarian market, whereby we plan to reach 10% of the projected market share. The roll out on the Bulgarian market will help establish reliability of the product before we enter the Italian market in the end of year two of operations (2012). The optimistic view on the development of the market share is based on a number of assumptions embedded in the business model. Firstly, as mentioned, the positioning of the product is at lower end of the price spectrum with quality closely following the best performing product on the market. This positioning of affordable quality will allow us to address a market that was previously untapped; currently, the solar collectors offered on the Bulgarian market are at two extreme positions they are either high quality, Tinox collectors, imported from Germany and sold at a very high price for the average Bulgarian consumer, or they are low quality, black paint, inefficient panels, that are very often garage production.

Next to the unique positioning of our product, there are the expected changes in the energy strategy of the country in 2011, part of which are some expected governmental (or agency) stimuli to both consumer and businesses to use renewable sources of energy. Among the expected changes on the consumer side is the increased co-financing of credits for private households that want to increase their energy efficiency. Next to this, the construction business is currently obliged to account for 15% of the energy to be consumed by the newly constructed buildings to come from renewable sources. This percentage is expected to increase with the implementation of the new energy strategy. In our second target market, Italy, the percentage of renewable energy for the construction of new residential buildings is 30. After the implementation of this law in Italy, the usage of solar collectors for construction law compliance has tremendously increased as solar collectors are among the cheapest ways to secure compliance in this area for the construction companies. Since these companies are price sensitive and need the collectors only for compliance, investment in brand awareness is not necessary and the price advantage is the driver for the purchasing decision. We assume a constant 20% annual month-over-month sales growth for both types of collectors since sales will be mostly project contract related but strongly driven by returning customers (construction companies). We assume that the construction business will slowly pick up with the recovering economy in both Bulgaria and Italy, which 19

will drive the sales of solar collectors as well. To minimize sales force expenses and increase sales volume we will offer volume discounts for purchases above 50 units (20% off from the base price, for above 200 units, 30% off). These volume discounts and the volume mix are incorporated in the sales revenue calculation. Gross margin is 51% (direct COGS only) assuming the quotes received by a Chinese supplier for the collector case and the quote for the absorptive layer components received from a Belgian producer of carbon black paint. With the so designed operations operating margin is set to grow from -2 % in year 1 to 25 % in year 5. The average operating margin in the foreign target markets is planned to be considerably higher: in India due to the lower labor costs and in the rest of Europe due to the higher sales price.

Marketing Budget/ Operations

After having conducted a number of interviews with potential clients in the construction industry, we concluded that the consumer is entirely insensitive to the brand of the solar collectors as long as their performance meets the clients standards. This fact led us to the conclusion that we will not invest in the development of the brand at this point in time when we will be competing to position our product as a high performing commodity. With the future expansion abroad we will start investing in brand awareness mostly by advertising in specialized magazines for construction and green tech, both traditional and online.

To reach the goal of selling 2300 and 6175 units in 2011 and 2012, respectively we will have to hire three and six key account managers, respectively, reaching 20 people by the end of the business plan period. The sales personnel will be directly responsible for identifying the prospects after-sale customer service. To comply with the ethical standards of our company and at the same time adopt the best HR practices to maximize sales, our company will engage in revenue sharing with the sales personnel where all key accounts will, in addition to their base salary, receive five percent of the operating margin of ones individual sales. The same structure of compensation will be subsequently copied to the sales force compensation structure in the foreign markets.

The key accounts will only target the business consumer who is in a position to purchase large quantities of collectors. Among the major target segments identified is the construction business that currently complies with a regulation to construct all buildings in a way that at least 15% of all future energy consumed in the new building comes from renewable sources. Nonetheless, the construction business is the largest target client also due to the fact that it is easier from an engineering perspective to account 20

for a solar collector installation in the architectural plan of the building rather than to work around an already existing building structure. The other major target segments are elaborated upon in section Customer Segmentation of this report.

In addition to direct sales to business consumers, our key accounts will have the choice to sell the products to large warehouse-type stores, such as Metro (sales of all-usage products for business consumers, i.e. restaurants, cafes, offices) and Mr. Bricolage (specialized in the sale of small construction items for the home). Key Accounts will not be awarded the percentage of operating margin on these sales for two reasons: Firstly, this percentage on operating margin will have to be paid to the retailer as dealer margin, secondly we would like to stimulate the direct sales to businesses, thus bypassing intermediaries. However, if the key account sees a ready sell to such a dealer, the key account can include these sales to reach ones sales targets. Although, not a primary focus, these sales will necessitate much less customer interactions on the side of our key account (sell once, supply regularly, not project based), thus leaving more time for targeted sales.

Risks and Challenges

Strategic
Intellectual Property The success of this business venture is based on the low cost production, both in terms of variable and fixed costs. Solar Kiss is at immense intellectual property risk. If a competitor (regular solar collector manufacturer) is able to imitate the performance and low-cost production of Solar Kiss, then the success of Solar Kiss is at tremendous risk. The competitor, with its financial and/or distribution clout can eclipse this business venture. The product development team thus needs to protect their intellectual property as quickly as possible by registering this as a patent and protect Solar Kiss from predating competition. Legal counsel is recommended to protect and enforce intellectual property rights from the start. Threat of Substitutes While at the time of writing this report, solar water heating is the most environment friendly and costeffective means of heating water in commercial buildings, but still the danger persists of any competing product which substitutes the market for solar water heating. Prolonged Price War Solar Kiss poses a significant threat to the established solar collector manufacturers. With Solar Kiss intellectually protected, the established competitors (with deep pockets) can engage Solar Kiss in a 21

potential price war. Such a price war can be potentially very detrimental to the success of Solar Kiss. Solar Kiss will not be able to stand up to established products without the price advantage. Prolonged price wars can spell doom for Solar Kiss and can also lead to selling off the full business or licensing the intellectual property to established manufacturers. From a marketing standpoint, price war has been the most common competitive threat to new patent protected innovative products. Balanced Team Formation The importance of having a balanced team where the team members are complementary in their skills and expertise cannot be under estimated in this venture. Here, the skills requirements vary from technical (in terms of specialized product), manufacturing (low cost outsourced manufacturing), commercial (sales, marketing, distribution in new geography) and financial (nuances of managing capital in early stage start up). Finding the right people with right set of skills (and cohesive) is critical to the long term sustainability of the venture.

Operational
Low-Cost Outsourced Manufacturing To achieve the primary value proposition of Solar Kiss (50% lower cost), the business will have to look for and outsource to low cost manufacturing destinations. Outsourcing in essence, has its potential challenges, the primary being the ability to achieve desired quality on a continuous basis. With an inherent lack of control in outsourced operation, it will be difficult to monitor quality. Language issues and geographical separation (most low cost manufacturing centers around India/China) might add to the complexity of outsourced operation. The business team will have to overcome the challenges by significant time investment in choosing the right manufacturer who can deliver quality and achieve production schedules on a continuous basis. Moreover, distribution and supply chain optimization needs to be considered given Solar Kiss customer locations. Pilot manufacturing with 2-3 suppliers before finalizing the supplier is recommended. Distribution Challenges Typically, commercial real estate development industry is fairly concentrated and a few large players control majority of the industry. In an effort to get access to these developers, the business team will either have to go through an existing distribution network to get access to these end users or hire its own sales teams. Both the options have their own pros and cons. With no sales experience within this domain and the huge costs of owning a sales force, the choice of distribution through existing distributors seems to be the rational choice for an early stage start-up company.

22

Relationship and financial management of distributors is critical to the success of this venture. With not much financial and marketing clout, the distributors in this case will act as a gatekeeper and need to be handled in the right way. Right financial incentives need to be provided to keep them interested and promote Solar Kiss effectively. Also, existing competitors can use their relationship clout to create barriers within the exiting distributors through better incentive schemes.

Financial
Working Capital Management Given Solar Kiss will be a new start up venture at the start, working capital management will be critical to its sustainability. Outsourced manufacturers will demand capital upfront given limited/no credit history and no company operations. On the other hand, distributors and customers will demand greater credit period than existing manufacturers to distribute or buy Solar Kiss.

23

Operations Plan

24

OPERATIONS
In order to give a holistic view to our operational plan, we first decided to list down the various processes into strategic, important and normal processes. Strategic processes are those that are core to the business and lay the foundation for future growth. Important processes refer to the functional processes that are essential for the day to day operation of the company and which have a huge impact in making our business venture a success. Finally, normal processes are the ones that are necessary for the smooth functioning of the company. Hence in line with the above, we classify them as follows:

25

Strategic Processes
Capturing Clients:
Housing segment is the key market for our products. We need to target to construction companies, and try to win large contracts. This segment is very fragmented and generally the builders would be interested in our products right at the time for new construction so that our management team can help laying out the plan for installing solar collectors. With that said, we would place a very high focus to attract the people from this segment. This is a key focus area for growth.

Quality Management:
As the solar thermal collector market is highly competitive, we would put great focus on the quality of the product so that we always meet the customers expectations both in price and service. Each collector will be tested for permeability prior to being shipped to the client. The collector will be tested in Europe and be given a Keymark certificate which is the worldwide certificate recognition for solar collectors.

Planning and Budgeting:

As we have a very ambitious growth plan. ( 2011 -> Bulgaria, 2011 and 2012 -> Italy and Spain, 2013 -> Germany and 2014 -> India), we need to take utmost control of our financial resources. We have to have budgeting for all the different activities and tally them with the actual spending. This will let us know where we stand and hence plan / adjust our growth strategy. Budgeting will be done once a year with forecasting done each quarter. Innovation: The product we have developed (coating layer) ensures us to have the best price to efficiency ratio in the market as of today. That is our key value proposition. But as this is a technological driven industry, we have to put emphasis in product innovation to keep coming with better cost efficient products. This is very critical, as only then we can remain competitive in the long run.

Important/Fundamental Processes
Supply Chain:
In day to day operations, we see Supply Chain function as the most critical. Our business model is dependent on suppliers for both, procuring solar case panels and getting the paint for mixing. The manufacturing of paint (coating layer) shall be outsourced to a 3rd party supplier. Hence, our 2 most important types of raw material are dependent on external suppliers and how we managing these relationships shall prove vital. 26

Process Flow Diagram:

Sales and Client Service Order Processing Supplier Sourcing Manufacturing Delivery

Sales Team to secure order from Sales person

Order placed in the central system

Supplier delivers solar panel with casing

Initial inspection of casing panels

Final product shipped to buyer

Customer service to follow up on the product specification

Buyer is invoiced (30 day payment term)

Supplier Delivers materials for layer

Materials are mixed to produce layer

Order is placed with supplier

Supplier delivers packaging materials

Special paint coat is applied to the panel

Glass cover is placed (Air Tight)

Final product passes through quality control

Final Product prepared for shipping

27

Structural/permanent subcontracting
The general idea of using subcontractors is to either reduce costs or mitigate certain risks within the existing process. Based on this definition the outsourcing of the production of the solar collector casing to a Chinese manufacturer can be considered subcontracting. The reason the Company has decided to subcontract the production of the casing is to reduce the complexity within the organization, reduce the risk from the lack of specialized knowledge within the company on the production of the casing, and naturally, to reduce the costs associated with both the organizational complexity and the necessary investment for in-house production. As Solar Kiss is taking the low-cost manufacturing approach, establishing a lean manufacturing process is key. Hence, we are subcontracting most non-core activities that do not bring added value to the organization.

Packaging production
Production and delivery of ready- made carton packaging and labeling will be subcontracted to a carton packaging producer based in Bulgaria and packaging is to be delivered to the assembly plant, the subcontractor bearing the cost thereof. Although we are selling mostly to industrial customers, packaging is necessary to protect the glass cover of the collector during transportation. The average cost of the packaging is 5% of the direct material costs of the collector.

Transportation
As capturing clients is considered a strategic process, the entire sales process is kept in-house to ensure control over the quality of the services supplied. The only part of the sales process that we are planning to subcontract is the transportation. Transportation will be subcontracted to local and foreign transportation companies that can offer the best terms. Transportation will be needed for the delivery of the solar cases from the shipment delivery point in Bulgaria (from China), the Varna port, to the assembly plant. In addition, this company will deliver the ready assembled product to the client site, be it nationally, or internationally (within Europe Continent).

Accounting and Finance

As a non-core activity accounting will also be outsourced to a local accounting firm to reduce headcount and complexity and due to the fact it is a non-core activity that does not require full-time employee dedication. Two administrative employees will oversee the correct transmission of accounting data to the subcontracted accounting firm and execute the daily administrative tasks. As the firm grows we can create a separate finance and accounting department.

28

Necessary resources: equipment

The assembly of the solar collector will be highly labor intense and will require minimum investment in equipment. Production personnel will be equipped with protective overalls and face masks, to protect against the possible traces of silicon that are present in the absorptive layer of paint. Plant equipment is variable depending on the number of units produced and the number of production employees, and includes painting pistols and generic mechanical toolbox. In addition, a lifting and carrying cart will be required for easy inventory placement in the assembly plant as well as working tables, onto which the collectors will be spray painted. Again, the number of tables will be dependent on the production units: in year one, four production tables will be needed (an optional fifth for convenient testing of the final product).

Location
The location of the assembly plant (housing the coating production plant) is 20 minutes drive east of the Bulgarian capital, Sofia, close to the major highway connecting the capital to the Black Sea coast. The location has been chosen due to its close proximity to major clients in the capital, easy international transportation and convenient infrastructural connection to the delivery of the shipped panels from the Varna port. The assembly plant has already been selected and the renting terms are under negotiation. Previously, the selected premises have been used for the production of machinery and there is a possibility for Solar Kiss to rent the already available machinery together with the plant for a very competitive price. The plant in question houses a production area of 120 square meters and an office space of roughly 50 square meters. It is currently on sale together with the adjacent equipment (some of which can be used by Solar Kiss) for 30K Euro.

Physical infrastructure and layout

Figure 1 below depicts the physical layout of the plant set up to serve the production capacity for the first two years. More space will be needed from year three onwards to meet the higher demand. The initial plan assumes the renting of a plant with a larger area in the vicinity of the original plant.

29

Figure 1: Plant layout Absorptive Paint Mixing Area Delivery Area, Row inventory

Painting Table

Painting Table

Quality Testing Area

Testing Table

Finished production (assembled and tested solar collectors)

Assembly Table

Assembly Table

Hygienic Unit

Office Space
Tools and Protective Outfit Storage Area Hangers and Shelves Canteen/Kitchen Seating Area Table + Chairs

Kitchen +fridge

Production/service capacity and permanent materials utilization

To match the production of the planned selling units in year one, we assume that the total time for painting, assembling and testing of a single unit would take approximately 30 minutes, for 4 production personnel involved. This production time includes painting, assembly and testing, and packaging of the final product. The production personnel will cross function across a number of activities, so the employees can easily take over one anothers tasks in case of absences. Initially, four employees will be needed for production, having two responsible for the painting part, two of packaging and two of the four stepping in for final testing and packaging. The sequence of work would allow the painting personnel to usually step-in for packaging once the collectors have been assembled and tested. The final product will be picked up by the transportation company and delivered to the client.

30

Utilization of transitory materials (consumables) Cost of consumables is variable upon packaging, tailor made carton boxes will be ordered and delivered by a subcontractor. Other consumables costs are negligible and include the replacement of amortized painting and toolbox equipment as well as the renewing of protective production wear.

Delivery time to clients and inventory management

The order processing policy of the Company will be assemble-to-order. As most of the orders will be project based on the side of the client, as assumed under the specificity of the main target market, which is the construction industry, the Company will not be pressed by short delivery times. This will allow it to place an order with the Chinese/Indian manufacturer of solar casing well in advance, normally two months before expected delivery of the final good and final production within 20 days of client order placement for quantities below 100 units (as we will maintain minimum inventory quantities. For larger quantities the delivery time would have to be extended, taking into account both supplier capacity and internal production (final assembly) capacity.

31

Investment and launching costs

For the company to start off smoothly we would need to assure that all the legal requirements are met. Investment and launching costs would include the legal fees for setting up the company, including the minimum 5,000 BGN (2,500 Euro) capital requirement for the registering of a limited liability company, any lawyer fees and fees paid for patent filing and Keymark certificate issuance. The total of these fees amounts to approximately 16,000 Euro. Additional start-up expenses such as investment in office and production equipment will amount to 12,000 Euro (assets). Assets will be doubled in the second month of operations and will grow accordingly with the international expansion. First months rent for the plant is also assumed in the launching cost. Table 2: Start-up To bridge the gap between the first cash received from sales and the cost of inventory the Company would need a buffer of close to 50,000 Euro of inventory. The high initial cost of inventory is based on the assumption that we would have zero days of accounts payable outstanding as we are an unknown company that would have to pay the casing suppliers at the time of order placement. Reversely, as we are an unknown seller, we would have to give preferential credit conditions to our new clients, allowing them more generous payment terms. This would initially deteriorate our working capital standing. Therefore, the 50,000 Euro buffer is a

prerequisite to cover for the initial working capital gap. In addition to the start-up inventory, we would need to assure we could cover employee expenses for 3 months assuming no sales at all, which is the worst case scenario. To cover for this risk, the Company would require cash reserves of 72,000. The final start-up expenses come up to roughly 150 thousand Euros.

32

Operating expenses
Cost Analysis of opening up a Plant/Sales Offices in all countries Breakeven analysis of having a sales force based out of Bulgaria, against opening up representative sales offices in the foreign markets revealed that it is cost efficient to base the entire sales force in Bulgaria and, respectively, not to have permanent physical presence in any of the target countries with the exception of India where the lower personnel and overall operating costs of a sales office are lower than in Bulgaria. The cost analysis in India favors the opening of both a production plant and a sales office, driven by the relatively low operating costs.

The cost analysis is based on Bulgarian average payroll cost plus travelling and transportation costs to the foreign target markets (Spain, Italy and Germany) against the costs of setting up sales offices in the target markets. With the advancement of videoconferencing facilities and the decreasing travelling expenses driven by the low cost carriers, it is more cost-efficient to base the entire sales force in Bulgaria and allocate it to divisions according to geographic area.

Sales costs including travelling expenses are included in item Other in Table 3 below. Subcontracted transportation costs are assumed at 15% of total costs of goods sold. Although not planned in detail, unstructured marketing initiatives including representative expenses are included under

Marketing/Promotion.

Table 3: Operating Expenses

Unit costs Direct unit costs of Type 1 and Type 2 (different sizes) solar collectors are based on the quotes received from a Chinese supplier on the cost of the solar casing at orders of above 100 units. The cost of the absorptive layer mix is on average 3.5 Euro per unit based on price quotes from a Belgian supplier of the main ingredient of the absorptive layer. Total packaging cost is assumed on the conservative side (it is 33

probably going to be much lower) at 5% of the direct cost of goods sold per collector. Thus, the resulting direct cost per unit is 134 Euro, based on the stipulation that the sales ratio of Type 1 to Type 2 collector is 35 to 65.

Launch plan
The project plans starting date is mid-February when the company will file for a patent. Right after this process is concluded and the documentation around it is submitted, Solar Kiss will file for a Keymark certificate which is the world standard certificate for solar collectors. As the certificate is being issued by a UK certification body, we will have to pay for a representative to come to Bulgaria and test the solar collector there. Alternatively, if the certification process requires us to take the collector to the UK, we would only apply for product testing in Bulgaria. This would not grant us official certification until the end of 2011, when it is expected that a formal solar collector certification body is founded in Bulgaria. Until then, we can only sell the collector on the territory of Bulgaria, which follows our plan. The registration of the company usually takes one day, however we have extended the time for this task to two weeks to account for extraordinary events. Throughout the whole period February-May, starting mid-February we would be looking for financing in the form of equity investment, loans and governmental grants.

Towards the end of March we expect to be able to hire a plant manager, the actual informal search would be ongoing from mid-February as well. However, due to possible investor requirements to staff this function from ones own lines, we will leave this position open until final financing is secured. Next, the newly appointed plant manager and the owner will rent the plant premises and hire production personnel that would set-up the production facility. In the meantime, the first order from the suppliers can be placed and sales personnel can be instructed on the specificities of the product. Final deployment of the plant is scheduled for the end of April.

34

Table 5: Project Plan

35

Human Resources Plan

36

HUMAN RESOURCES
In this section we will aim to address some of the key issue associated with management of human resources (HR). The structure of the organization and the processes involved in HR will be directly aligned with the strategic goals of the company and provide an underlying culture to create an environment that is conducive to running a profitable business.

Organizational Structure
The following is the organizational structure of the company in years 2011, 2013, and 2015. Year 2011

Operations will commence in May 2011 thus providing us with eight working month in this year. - Based on the market assessment it is fair to say that the Company aims to produce 2,950 SKUs in 2011. Given that production requirement and financial constraints we have estimated the number of personnel required and the best organizational structure for this time period. The company will be required to hire externally a managing director to run the operations of the company as experienced management will be key to business future success. Victor Atanasov (the scientist) to serve as advisor to the manager director and provide insight related science aspect of the business. The Managing Director will over look Sale Personnel, Production Personnel, and Administrative Personnel. We believe that by placing supervision in the hands of one individual will allow better inter-department communications and faster development of the correct internal processes within each department-

37

Year 2013
Executive Team Managing Director (1)

Advisory Board Victor Atanasov (1)

Sales Manager (1)

Production Manager (1)

Administrative Personnel (1)

Sales Personnel for Bulgaria (2)

Production Personnel in Bulgaria (15)

Sales Personnel for Italy / Spain (3)

Sales Personal for Germany (3)

By 2013, the Company plans to have operations spanning across Italy, Spain and Germany.

To

accommodate to the strategic expansion, the Company will add an additional Managing Director to the Executive Team. Additionally, new roles will be created for Sale Manager and Production Manager. To avoid extensive travelling expenses and also to have a better feel for the market, the Company will look into opening sales office in the various countries. Sales Manager will sit in HQ in Bulgaria and will communicate with external offices. As productions costs are the lowest in Bulgaria, all manufacturing will continue to be made there and shipped to countries where the offer was placed.

38

Year 2015
Executive Team Managing Director (1)

Advisory Board Victor Atanasov (1) Administrative Personnel (2)

Sales Director (1)

Production Director (1)

Sales Manager for Europe (1)

Sales Manager for India (1)

Production Manager for Europe (1)

Production Manager for India (1)

Sales Personnel for Bulgaria (4)

Sales Personnel for India (5)

Production Personnel in Bulgaria (30)

Production Personnel in India (15)

Sales Personnel for Italy / Spain (5)

Sales Personnel for Germany (5)

In 2015 the company will see a further expansion into the Indian market, where one of our team members has local knowledge and demand is projected to skyrocket. To address the Indian market, the Company will split its Sales and Production between Europe and India. New positions include: 1) Sale Director, who will oversee the Sales Manager for Europe and India and; 2) Production Director to overlook Production Manager for Europe and India. Production for Europe will continue to take place in Bulgaria, however to the Indian market, the production will be local. There is a possibility in the future for India to become the Company HQ for Asia.

Management and Governance Structures

Corporate governance and transparency will be essential in the Companys ability to run it every day business in a manner that is responsible and ethical. In order to create and sustain value for the stakeholders, the company must first practice responsible business principles. The company will take into account the stakeholders interests and be held accountable to them. A supervisory board, represented by the shareholders of the company will oversee the strategic management decisions and will navigate the overall development course of the company. Members of the supervisory board are Zorina Dimitrova, Natalie Tyurin, Vikash Panagrini, Victor Atanasov and a possible fifth person,

39

representing the external investment received by the company at the start. The members will meet quarterly and on ad-hoc basis. Company as a Legal Entity Company will be initially registered as a Private Limited Liability Company (OOD) in Bulgaria. Under this legal contract, there is a minimum requirement of 5.000 Leva with and at least 70% of the capital must be paid up on foundation. The statutory bodies of the private limited companies are the general meeting of shareholders, which must be held at least once a year, and the managing director or board of directors.

The creation of an OOD will lead to the creation of the articles of association, and the Law on Commerce stipulates the obligatory provisions of the articles. Following the strategy for expansion, the Company will expand its presence into India in 2014 at which point it will follow the registration procedures there. Valuation Managing Director will be initially appointed by a temporary Advisory Board (Vikash Panigrahi, Zorina Dimitrova, Natalie Tyurin, and Victor Atanasov). Shares of the Company will be distributed based on the amount of capital invested. Initially the company will have 4 members and a managing director. We shall then approach the VCs for funding. Below are some of the assumptions and calculations:

Market Growth up to n(annual):g =80% Time to exit (in years):n(5 yrs) Profit margin after taxes after 5 years (from P&L): Pn=20% Comparable ratio for a similar company at time n (e.g 15x)=PERn (7 time multiple) Estimation of Sales at n: In=Io(1+g)^n Estimation of profit (after Tax):EATn = In*Pn (Sales * Profit) Enterpise Value :EVn = EATn * PERn ( Profit after tax * multiple) Discount Rate:10% Present Value 7,932,700.98

Expected IRR=35% Minimum Investment = 150,000 Additional Invesment to suit VC= 750,000 ( to give 30% share to VC), without this it we give him only 6%. Hence total Initial Investment - Vio = 900,000 40

Value of investment (VIn) at the time of exit - VIn = VIo * (1 + IRR)^n 4M ( in order for him to get the return that he seeks) : 4,035,630.09

Fraction of Firm VC owns for required IRR : Fr = VIn / EVn (31.6%)

Spre (old Shares): old shares = 10,000 Sm (New Shares):Sm = (Fr*Spre)/(1-Fr) issue additional 4618 M (Money to be invested) : 900,000

Price/Share : Pm = M / Sm : 900,000/4618 = 194.2 Sf ( Share of Founders) = 10,000 Sesop ( 15% of the total shares ) = 2,192.61 (Share for Managing Director)

Pre Money Valuation EVpre = Pm* (Sf + Sesop) = 2,376,525.16 Post Money Valuation EVpost = EVpre + M = 3,276,525.16 Responsibilities of Managing Director Finding the right candidate for this position will be key as the firms future success will entirely depend on his or her capabilities. It is an exciting opportunity for dynamic and entrepreneurial professional who will be working out of Sofia, Bulgaria. The following is an overview of his or her responsibilities: In partnership with the advisory board, the MD will develop and implement a strategic and diversified business plan to meet the Companys current goals and anticipated future growth: Identify and secure relationships with construction companies to drive awareness of product in the market Development of sale material to reflect Companys image and long term goals Identify, cultivate, and steward the current product offering Ensure accurate maintenance of financial records Establish streamline business processes in various business units Manage, evaluate, and coach the team to manage different aspects of the business

The positions requires an individual with at least 5 years of prior management in a start-up company; proven abilities to lead an international team; proven track record of hitting financial goals; commitment and deep understanding of the renewable energy market in Eastern and Western Europe.

41

Compensation will be based on experience as well future profitability of the company. Current projection is a minimum of 3.000 per month plus ESOP.

Personnel
This section will address some of the key roles within the Company and provide a general understanding of functions of the personnel. Sales Department The Sales Director position is responsible for the Europe and India regions, and it is a lead from the front sales role, developing new business opportunities and maximizing existing accounts. It is responsible for a managing the Sales operations and processes and managing and motivating a team of Sales and PreSales based across the regions. For this role it is essential to have a strong track record of developing and closing sales of technical products. Sale director will overlook the activities of the Sales Managers the different regions. Sales managers are responsible for supervision of their team, setting direction and guidance, and identifying key accounts. Reporting to the respective Sales Manager, the sales personnel will be directly responsible for identifying the prospects after-sale customer service. To comply with the ethical standards of our company and at the same time adopt the best HR practices to maximize sales, our company will engage in revenue sharing with the sales personnel where all key accounts will, in addition to their base salary, receive five percent of the gross margin of ones individual sales. The same structure of compensation will be subsequently copied to the sales force compensation structure in the foreign markets.

The key accounts will only target the business consumer who is in a position to purchase large quantities of collectors. Among the major target segments identified is the construction business that currently complies with a regulation to construct all buildings in a way that at least 15% of all future energy consumed in the new building comes from renewable sources. Nonetheless, the construction business is the largest target client also due to the fact that it is easier from an engineering perspective to account for a solar collector installation in the architectural plan of the building rather than to work around an already existing building structure. Production Department As the Sales Director, the Production Director also is responsible for the Europe and India regions. He or she will ensure the production of a large quantity of product by developing methods, procedures to produce quality products in a cost-effective manner, hiring production staff and working to find highquality, low-cost materials for producing products. Other management responsibilities include 42

developing and implementing production policies and procedures to ensure a safe and efficient work environment. For this role it is essential to be certified in Production and Inventory Management (CPIM) through the Association for Operations Management, as well as additional training or certification related to lean manufacturing. Production personnel will report to the Sales Manager of his or her region. Preferable the individuals will have prior knowledge of handling technical equipment. As much of the labor will be manual, the personnel will also need to be in good physical strength. Compensation The following is a summary of the project compensation for entire workforce for the next five years:
Personnel Plan
Payroll 2011 0 2012 0 2013 0 2014 0 2015 0

Personnel Plan
Executive Team Production Personnel Sales and Marketing Personnel Administrative Personnel Total People

2011 64,000 98,336 41,600 16,000 12 219,936

2012 96,000 154,375 131,040 24,000 17 405,415

2013 192,000 209,950 240,786 24,000 24 666,736

2014 192,000 314,925 433,415 48,000 36 988,340

2015 192,000 503,880 910,171 48,000 46 1,654,051

Total Payroll Personnel Plan Sales and Marketing Personnel

People Average per Person Subtotal

2011 3 13,867 41,600 1,733 6 16,389 98,336 2,049 2 8,000 16,000 1,000 1 64,000 64,000 8,000 12 219,936

2012 6 21,840 131,040 1,820 8 19,297 154,375 1,608 2 12,000 24,000 1,000 1 96,000 96,000 8,000 17 405,415

2013 10 24,079 240,786 2,007 10 20,995 209,950 1,750 2 12,000 24,000 1,000 2 96,000 192,000 8,000 24 666,736

2014 15 28,894 433,415 2,408 15 20,995 314,925 1,750 4 12,000 48,000 1,000 2 96,000 192,000 8,000 36 988,340

2015 20 45,509 910,171 3,792 20 25,194 503,880 2,100 4 12,000 48,000 1,000 2 96,000 192,000 8,000 46 1,654,051

Production Personnel
People Average per Person Subtotal

General and Administrative Personnel

People Average per Person Subtotal

Executive Team
People Average per Person Subtotal Total People

Total Payroll Expenditures

*Salaries are in line with current average wages paid for those positions in Bulgaria.

Other HR Policies
To ensure that every employee throughout the company plays an active role in implementing our commitment to responsible business, the Company will develop Policies on Business Conduct. It will relate all the regulations of the corporation that, subject to statutory law and the Articles of Incorporation, and provide the basic rules for the conduct of the corporation's business and affairs.

43

Every employee, at every level of our organization, is required to abide by its rules. This will set a general ethics code in the company and also address some of the philosophies which will be backbone structure of the company.

Selection process and compensation will depend on the demand for the positions within the company and financial constraints. All potential candidates will be subject to interviews with the MD and with the director of the business unit. Qualifications for the positions are described in the section above. All employees will sign a contract detailing their job responsibilities, compensation, and their rights as an employee of the company. Additionally employees will be asked to sign non-disclosure form about any new technologies that they may come across while on the job.

44

Finance Plan

45

FINANCE
Balance Sheet

Starting balances and general balance sheet assumptions: The purchase of current and long-term assets is dependent upon initial external investment of 135K Euros. Days accounts payable is assumed to be 30 on average although we are not a proven player on the market and have no built relationship to suppliers. We are assuming that we will be able to negotiate with the suppliers for better payment terms due to the large quantity of solar collector cases we are ordering. Days accounts receivable is also 30 as we are not in the cash position to cover for longer credit terms and since our strategy is low cost, we are trying to keep receivables at a minimum to avoid short-term lines of credit. Inventory normally covers one month of sales although the starting balance of inventory covers 1.5 months and the unsold inventory is carried over in the following months. The cost for filing for a Keymark certificate is assumed at loss at start up reflected in the balance sheet under negative earnings at start up.

46

Long-term assets include toolkits and working tables, and basic office equipment. Safety gear and smaller production related items are expensed. Long-term assets increase in line with the international expansion and are depreciated over 5 years for tax purposes, although the actual useful life of some major pieces of equipment is longer.

Income Statement

Income statement assumptions and sensitivity analysis: The revenue assumptions part of the P&L is highly sensitive to pricing. Analysis shows that a 10% decrease in either the sales price, or the quantity sold would have an adverse effect to the bottom line leading to a negative net income in the first year and to approximately one mill. Euro less in year five. Likewise, with a 10% higher direct cost of goods sold net income in year one would be negative and the net result in year five will be half a million less than originally assumed. The P&L result is most sensitive to the pricing of the collector followed by Costs of Goods Sold. COGS are by far the largest expense category in the P&L, followed by Payroll expenses. At 10% lower average price or lower quantity sold, the company could still operate at a profit.

47

Sensitivity Analysis

Marketing and Sales Costs are set at 4% of sales due to the fact that we are a sales focused rather than a marketing focused company and we will target the construction companies directly. Marketing activities planned include mostly viral marketing and word-of-mouth techniques. Corporate tax rate is set at 30% throughout the whole period. Start-up expenses such as costs of patent, Keymark certificate and legal registration are not included in the Income statement as they are incurred before the formal registration of the business. The monthly break-even sales quantity is 287 pieces with an assumed average price of 287 Euro (assumed ratio of type one to type two collector sales of 35/65). The embedded sales quantities well cover the break-even quantity that is based on year one pricing and year one per unit variable costs. Fixed costs are total operating expenses divided by 8 months.

48

Cash Flow Statement

The company holds a healthy cash position coming mainly from cash flow from operating activities. The strict dividend policy that Solar Kiss is adopting assumes total income reinvestment until year three, when 10% of the net income will be distributed in the form of dividends. This percentage increases to 20% as of year four.

49

Risks and Contingency Plans

Risk Area
Market Analysis Risk

Description
We have assumed to target the construction company in Bulgaria, gaining a market share of 10% in the first year itself. Though as of now there are no major competitors, there are many local Bulgarian companies and Chinese firms that deal in Solar sector that would soon become our competitor for such kind of coated solar panels

Priority
High

Impact
Based on this estimate, we plan to sell around 2500 solar panels in the first 8 months of operations. If we are unable to sell it, we run the risk of holding up high inventory cost We are primarily competing on low cost, with good quality product. If someone has more resources and can bring cheaper products, we could run the risk of losing our competitive advantage.

Action plan
Try to design effective marketing and sales plan to target the construction company. In addition we plan for a lean supply chain such that we do not over stock. Our value proposition (key success factor) is low cost solar collector, but with high efficiency. Our products have the best cost to efficiency ratio ( 50% less cost for a 15% reduction in efficiency). We need to invest in innovation and have roadmap to come with newer products seeing the competitive landscape. 1. We need to take extra precaution while dealing with these suppliers. 2. Also have a list of back up suppliers for both cases, who can be approached on a short notice period. 3. Try to create a WinWin model for suppliers (long term focus) 1. We are already starting to file for the patent. 2. If we are able to secure orders and have our business growing, then we can quickly develop a more advance product and file for its patency ( which already is in conceptual stages) Be vigilant of the changes going in this field (rules and regulations) and keep the business more lean

Competitive Risk

Medium to High

Supplier Risk

Our largest suppliers are suppliers of solar case panels and suppliers for absorbent materials layer (raw ingredients for paint). Hence our business model is highly dependent on supplier relationship The technology for our absorbent layer is a new invention and we plan to do an EU patent for it. Unless we file and get the patent we run the risk of any new product, having similar feature winning the race. 1. Lot of subsidies is given by government and survival of our business esp. in the initial stages is to

High

These are the 2 most vital setups for our products and any damage to supplier relationship can prove fatal for our business

Legal Risk

Medium

Affects the credibility of our product. (Loose the first mover advantage)

Environmental Risk (Regulations)

Medium

1. Would impact the bottom line. Our cost structure would become high.

50

Environmental Risk (Regulations) continued

Financial Risk

Operational Risk

Management and People

Expansion Plan

some extent dependent on this factor. 2. Electricity prices are regulated by govt, and their price would be key for our end users ( comparing utility bills of solar heater with normal electric room heater) We seek an investment of 135K from outside investment Our business model is very highly dependent on logistics and shipping. Current management structure is not very well defined, as to who would be in the board of the company. Our future expansion plan is on the below lines, 2011- Bulgaria 2012 Spain 2013 Italy 2014 Germany 2015 India This is very ambitious plan and is certainly of high risk

2. To convince our customer would become more difficult. ( calculations based on traditional valuation methods such as DCF ROI, NPV etc)

(which we are, no production unit) and adapt incase if necessary.

Medium High Low Medium

Lose controllability

Negatively impacts the bottom line of the business if not managed properly. Can create mismanagement

Medium

Try to partner with right kind of VC, whose core values are similar ( Clean Tech focus ) Cost leadership strategy, in which management control systems (KPI indicators etc) plays a key role Speak with founder and try to work a roadmap to staff the key position with utmost caution Its a strategic decision. If this goes wrong, we need to think to scale down and likewise adjust our resources. We plan to have strategic review meetings once every 6 months to see the future direction of the company.

Medium

Not going as per our future plan will dilute the valuation of our business and impact ROI and IRR

Other Legal Considerations

For a full description of the Companys legal form and structure please see the Human Resources section of this business plan under section Companys Legal Form and Structure.

The European Union Directive

An EU directive originally drawn up in December 2009 required every member state to hit a target by 2020 of 8,5% share of renewable energy mix from total energy consumption. This target has now been increased to 20%. Below is a summary of the countries Solar Kiss plans to operate in and the country statistics. 51

Member State

Share of renewables in 2005 9.4%

Share required by 2020 16%

Current Regulation

Bulgaria

Currently does not have any Solar Ordinance, but is in the process of being initiated. The largest market in Europe has been built up with the help of suitable policies. The financial incentive scheme MAP now enters its 13th year. Awareness raised by federal and local campaigns. Implemented national in 2005 across all of Italy that requires minimum energy efficiency and the use of renewables in new and refurbished buildings. Solar Ordinances in many Spanish municipalities require the installation of solar thermal systems in new buildings. In 2006 this obligation was introduced nationwide through the new technical building code. It is stated that for all new buildings and renovations a minimum solar fraction from 30 to 70% is required.

Germany

5.8%

18%

Italy

5.2%

17%

Spain

8.7%

20%

Certification
To insure that Solar Kiss can provide the highest quality of product that is in accordance with all the European Union standards and regulations, the company will apply for the Solar Keymark certification mark. The initial cost to obtain this certification ranges from 6.000-12.000, followed up by annual or bi-annual inspection at the cost of 2.000-3.000. The cost per product reduces significantly as the volume inspected increases. Below is an outline of the certification process.

52

Guarantee
Beyond compliance with EU quality standards, the company will guarantee the effectiveness of the special layer of the product for 25 years from the time of the installation. In case of failure of the effectiveness of this layer, the product can be returned free of charge and substituted with a new one. All other parts of the product upon sale will become the sole responsibility the customer.

Patent
As discussed in prior sections the scientist, Victor Atanasov, has invented a new and innovative layer that Solar Kiss plans to patent as it is the main reason that allows for the production cost to be that low. As the company plans to open operations across Europe, the patent will need to cover the entire territory of the European Union. Filing for a patent can take anywhere from one year to 18 months. The estimated cost of the patent is 5.000 with annual renewal cost starting at 400 and increasing each year at around 30%. Patent cost is quite expensive however absolutely necessary for the Solar Kiss business. The patent belongs to Solar Kiss.

Growth and Business Development Strategy

The following is the companys geographical expansion plan for the next five years: Year 1: Solar Kiss will aggressively sell only on the Bulgarian market to serve as a testing ground. Sales are planned to begin in May 2011 in Bulgaria. Year 2: 2012 plans the entering into the Spanish and Italian markets, where regulations on the construction business are in line with the new EU renewable energy targets require the increased use of solar collectors Year 3: Germany is seen as a target market in 2013 when the financial muscle of the company is expected to be strong enough to enter the fierce competition in Germany, where a lot of local producers of solar panels are present. Year 4: In 2014 we will enter India, where one of our team members has local knowledge and demand is projected to skyrocket. To continue to be relevant to the green energy market, the company will continue investment into R&D to produce new and innovative technology into the market. The Company already had a few ideas/ product in the works as proposed by Victor Atanasov, which will required R&D investment for full development and roll-out.

53

References
1. Sofia Energy Centre. 2006. EAST-GSR project: National Report on Solar Thermal Energy in Bulgaria. 2. Survey of 19 Bulgarian solar thermal producers/installers in the framework of Transsolar project, March-May 2008. Pers. Comm. 3. Bulgarian Energy Efficiency Agency. 2005. National Long-term Program for Encouraging the Use of Renewable Energy in Bulgaria 2005-2015. 4. First National Action Plan for Energy Efficiency 2008-2010. June 2007. 5. Bulgarian Energy Efficiency Agency. 2005. National Long Term Program for Energy Efficiency. 6. State Commission on Energy and Water Regulation http://www.dker.bg/ 7. Energy Efficiency Agency. http://www.seea.government.bg/ 8. Ministry of Economics and Energetics. http://www.mi.government.bg/ind/inov.html 9. Toneva, Atanaska, Association Energia 21, 2007. State of the scientific studies in the area of renewable energy sources in Bulgaria. 10. Joint Research Centre. European Commission. Photovoltaic geographic information systems. http://re.jrc.ec.europa.eu/pvgis. 11. EU Energy and Transport in figures. Statistical Pocketbook 2007/2008. Directorate General for Energy and Transport. 12. Statistical reference book 2007. Bulgarian National Statistical Institute. 13. Statistical yearbooks 2000-2007. Bulgarian National Statistical Institute 14. National Statistical Institute Census of population, building stock and farms, 2001 15. Sunsystem New Energy Sources Ltd. Pers. Comm. March-May 2008. 16. The Quality Label for Solar Thermal Products in Europe Boost, Brochure 17. http://www.estif.org/solarkeymark 18. http://ec.europa.eu/energy/intelligent 19. http://www.euractiv.com 20. http://www.solarordinances.eu 21. http://www.epo.org/patents

54