Business Plan (Richard Ivey) - Cerebration05

A Business Plan By

Manoj Karia [email protected], 519-434-3742

Smita [email protected], 519-474-7648

Saurav [email protected], 519-857-3532

Ashwat [email protected], 519-433-7463

of the Richard Ivey School of Business

Quality

•Safety

•Efficacy

•Research

•Brand

Health

•Longevity

•Immunity

•Energy

Service

•TCM Clinics

•Consultancy

•Helplines

DRAGONCARE CANADA Ltd

Quality

•Safety

•Efficacy

•Research

•Brand

Health

•Longevity

•Immunity

•Energy

Service

•TCM Clinics

•Consultancy

•Helplines

DRAGONCARE CANADA Ltd

mailto:[email protected]




Index

Topic Pages

Executive Summary 2-7

Comprehensive Business Plan 7-26

Canada – Investment Climate 7

Canada as a TCM Market – Macroeconomic Analysis 7

The Canadian NHP Industry 8

Canada as a TCM Market For a New Entrant 8

Chinese Herbal Products – Competitive Environment 9

Entry Strategy 9

Value Proposition & Positioning 10

Marketing Strategy 10

Market Segmentation & Target Segment Identification 11

Marketing Plan 13

Organizational Plan & Management Structure 17

Operational Strategy 20

Financial Analysis 24

Business Risks 26

1

EXECUTIVE SUMMARYRECOMMENDATION

We recommend that DragonCare Ltd expand its footprint to Canada through a fully

owned subsidiary by the name of “DragonCare Canada Ltd”.

Awareness of alternative health medicine is increasing rapidly in Canada. The Canadian

Natural Health Products (NHP) industry (Market Size: $2620 million)1, of which the

herbal medicines have a 40% share (Market Size: $1048 million), is growing at 20%

annually2.

The Traditional Chinese Medicine (TCM) segment in particular is highly

fragmented with no major brand in the marketplace. Market share of none of the current

players exceeds 5%. In this respect, the market condition in Canada is similar to what

exists in DragonCare’s current markets and provides DragonCare a good opportunity to

create a niche for itself by building a brand on the strength of its scientific research

capabilities and experience of operating in such markets.

ROLL OUT STRATEGY

DragonCare Canada should employ a phased approach in introducing its products,

its geographic expansion in Canada and introduction of its full value proposition to the

Canadian customers.

1 Trade Facilitation Office Canada – Pharmaceuticals and Natural Health Products Market Research 2003. Canada Business Service Centre www.cbsc.org2 Same as above. TFOC www.tfoc.ca

2

2005

2006

2007

2008

2009

2010

2011

2012

June 2005:June 2005:

DragonCare Canada registered and set upin BC and Alberta.

Jan 2006:Jan 2006:

DragonCare Canada goes operational.

Launch of “HealthCareFor Women” products

Oct 2007 Oct 2007 -- Jan 2008:Jan 2008:

DragonCare launches “HealthCare for Children” products.

It leverage established customer base of women to ventureinto infant products.

DragonCare sets up two – three TCM clinics in Vancouver.

Mar Mar –– Oct 2009:Oct 2009:

DragonCare goes east.Starts operations inOntario.

Jan Jan –– Dec 2010 :Dec 2010 :

DragonCare introduces more products in a phased manner to support its “Flagship” women’sproducts.

Product line includes soups, cereals, etc.

Jul Jul –– Dec 2011: Dec 2011:

DragonCare Canada sets upa “Concept Store” in Vancouver.

The Store promotes and sells complete line of DragonCare products

20112011--2012:2012:

DragonCare sets up Manufacturing unit in Vancouver.

Plant to cater to Canadian And US markets.

2005

2006

2007

2008

2009

2010

2011

2012



Jan 2006:Jan 2006:



Oct 2007 Oct 2007 -- Jan 2008:Jan 2008:






Jan Jan –– Dec 2010 :Dec 2010 :






20112011--2012:2012:



DragonCare should enter Canada with two patented women’s healthcare products

preferably for nutritional benefits & immunity development which have the highest

demand in Canada3. The strategy is to develop these products as DragonCare’s

“Flagship” products in Canada. Introduction of other products will be after the

“DragonCare Brand” is established. Further, DragonCare should initially limit itself to

British Columbia and Alberta since these are the biggest markets for TCM products (51%

of people in BC & Alberta use NHPs & TCM)4. BC also has a high Chinese immigrant

population (380,000 Chinese immigrants i.e. 31% of Chinese immigrants in Canada are

in Vancouver, BC)5, thereby providing an attractive easy-to-tap market for DragonCare.

After 3 years of operations in Canada, DragonCare should introduce services in the form

of TCM clinics, thereby completing its value proposition.

Dragoncare, with its limited resources should focus on growing primarily in the

Canadian market. However, if a few years down the road, DragonCare decides to enter

the US market, it should consider setting up a manufacturing unit in Canada to take

advantage of the North American Free Trade Agreement and use Canada as a

manufacturing base for North America. However, we do not recommend setting up a

manufacturing unit in Canada to target the Canadian market because of higher risk

associated with high initial investment and also because the production costs are lower in

Malaysia and Singapore.

OPERATING MODEL

DragonCare Canada should source products from its manufacturing facilities in

Singapore and Malaysia, and use Canadian pharma-products distributors to reach the

pharma-retailers and ultimately the end users.

MARKET SIZE ANALYSIS & MARKETING PLAN

3 NDMAC. www.ndmac.ca. Exhibit5.4 NDMAC. www.ndmac.ca Exhibit 4.5 Statistics Canada. www.statcan.ca. Exhibit 15.

3

Manufacturing Sites in Singapore/Malaysia

Shipping

By 3rd Party

Canadian Distributor

- Warehousing & Distribution

DragonCare Canada

Retail Pharmacies

Retail Pharmacies

Retail Pharmacies

Customers

TCM Practitioners


Shipping

By 3rd Party



DragonCare Canada

Retail Pharmacies

Retail Pharmacies

Retail Pharmacies

Customers

TCM PractitionersInformation Flow

Material Flow

Information Flow

Material FlowMaterial Flow

Product

DragonCare should enter the Canadian market with only the TCM product line since

DragonCare can differentiate itself best on the basis of its research and scientific

capabilities (which are more applicable to this line of patentable products) and because

there are more opportunities for market penetration in this segment due to less

competition. DragonCare should introduce two patented women’s healthcare products for

nutritional benefits & immunity development (55% of consumers use NHPs for this

reason)6. The primary reason for this recommendation is that women form the biggest

TCM market segment7 (Women’s Herbal Medicine Market Size: $ 535 million. Growth

Rate: 20%).This limited introduction approach will allow DragonCare to strategically

allocate its limited resources in building the brand effectively. Exhibit 13 & 14 show

market size calculations and projected growths.

Price

We suggest that DragonCare adopt a premium pricing strategy (inline with its brand

image) and price its products at $32-$35/bottle (Retail price in Canadian $).Competitor’s

products are in the price range of $21-$35/bottle8.

Promotion

DragonCare will use a multi-pronged approach for establishing its brand. It will have a

budget of $2.5 million for promotions in 2006.Advertising in health books and buzz

marketing techniques will be the main promotion vehicles. (Market research indicates

health books (18%) and family/friend referrals (36%) as being top influencers in buying

decision for NHPs)9.

Advertising: Using health magazines for women, cable TV, radio, newspaper, bill boards,

and internet. The focus of the advertisements will be product benefits, DragonCare’s

research labs and Singapore - a clean & progressive city. This approach will help build

consumer confidence on the quality of health products imported to Canada.

Sales Promotions: Includes free samples, discount coupons, bundling products into value

packs, and bundling DragonCare goods (key chains, coffee mugs etc).

In-Store Promotions: Includes Trade Discounts and special In-Store campaigns. 6 NDMAC. www.ndmac.ca Exhibit 5.7 NDMAC www.ndmac.ca Exhibit 3.8 Competitor Websites – www.gfcherbs.com, www.nl-supplies.com,www.medicinechinese.com9 NDMAC. www.ndmac.ca. Exhibit 8.

4

Public Relationships: Includes participation in Trade Shows, sponsorship of social causes

targeted at women.

Direct Mail Campaigns: These campaigns will be used for selectively reaching potential

long term customers.

Blogs: DragonCare will also initiate/participate in discussions on herbal products in blog

sites like www.blogscanada.com where its customers can share their experiences on the

efficacy of DragonCare’s products. This channel, we believe, will prove to be effective

for buzz marketing.

Distribution

There are three main distribution channels for Dragon care in Canada: health food stores,

pharmacies and TCM practitioners. DragonCare will reach the health food stores and

pharmacies through strategic alliances with two pharma-product distributors (one each in

BC and Alberta). Online sales are not recommended based on ROI calculations.

FINANCIAL ANALYSIS

(Note: All figures are in ‘000s SGD)DragonCare Canada Pvt Ltd Forecasted Income Statements

Yearly Sales Growth 75% Sales Growth in 2010 35%upto 2010

% of Sales 2005E 2006E 2007E 2008E 2009E 2010E Remarks & AssumptionsSales 100% 0.0 5000.0 8750.0 15312.5 26796.9 36175.8COGS 6% 0.0 300.0 525.0 918.8 1607.8 2170.5

Gross Margin 94% 0.0 4700.0 8225.0 14393.8 25189.1 34005.2Sales Price is adjusted to accommodate part of transportation cost.

Transportation Cost 4% 0.0 200.0 350.0 612.5 1071.9 1447.0SGA 80% 800.0 5000.0 7000.0 12250.0 21437.5 28940.6 $2.5 million marketing expense in 2006EBITDA 10% -800.0 -500.0 875.0 1531.3 2679.7 3617.6

Depreciation 4% 0.0 200.0 350.0 612.5 1071.9 1447.04% of Sales based on assumption that Depex is 10% of Fixed Assets

EBIT -800.0 -700.0 525.0 918.8 1607.8 2170.5

Interest 0.0 108.8 190.3 333.0 582.8 786.8Interest Rate 7.5%. Prime Lending Rates of Most Singapore Banks is around 5.5%

PBT & Minority Interests -800.0 -808.8 334.7 585.7 1025.0 1383.7Minority Interests -153.6 -155.3 64.3 112.5 196.8 265.7 19.2% Min. Interest. (From 2004 PBT -646.4 -653.5 270.4 473.2 828.2 1118.0Taxes Payable on Profit -245.6 -248.3 102.8 179.8 314.7 424.9 Taxes =38% (Canadian)Tax Cover from previous Year 0.0 245.6 494.0 391.2 211.4 0.0Actual Taxes Paid 0.0 0.0 0.0 0.0 103.4 424.9Tax Cover Carried Over 245.6 494.0 391.2 211.4 0.0 0.0PAT -400.8 -405.2 270.4 473.2 724.8 693.2NOTE: 1) Sales are based on Dragoncare's price to retailers. Retailer margins are above this price.2) Fixed Assets/Sales is assumed to remain at current level of 0.29 (It has been in the range of 0.3 for the past 4 years)3) TCM products come under classification 3004.20.00.79 and no customs duty applies. Only PST applies which is levied on the customer. Sources: http://www.cbsa-asfc.gc.ca/E/pub/cm/d10-14-30/d10-14-30-e.html & Departmental Consolidation of the CUSTOMS TARIFF 2005

5

http://www.blogscanada.com/

Net Cash Flow Projections for Canadian Operations2005E 2006E 2007E 2008E 2009E 2010 E

Net Cash Flow from Operations -646.40 -1117.17 122.65 610.19 964.48 1460.57Net Cash Flow in Investments 0.00 -1450.00 -1087.50 -1903.13 -3330.47 -2719.88Cash Flow from Financing 0.00 1450.00 1087.50 1903.13 3330.47 2719.88

-646.40 -1117.17 122.65 610.19 964.48 1460.57Note:Cash flow in investments in future years will be low due to slower average growth of around 5-10%. Hence, cash flows from operations in future years will be steady and sufficient to cover any future investment requirements Growth will slow down because DragonCare would have completed its geographic and product line expansions by end of 2010.

NET CASH FLOW

5- Year Return on Initial Investment: 14.43% (Refer Exhibit 33 for details)

Net Present Value of Project: 5.2 Million SGD (Refer Exhibits 32 & 33)

Initial Investment Required: $2.1 million in 2005-06.

Profitable in 2007. 7% of DragonCare Ltd’s net profits in 2010 will be from Canadian

operations. 14% of DragonCare Ltd’s sales in 2010 will be from Canadian operations.

Positive cash flows from operations in 2007.

Breakeven Sales Volume: $ 5.3 million/year in 2006 (Refer Exhibit 44 for details)

Breakeven Market Share: 4.2% (Refer Exhibit 44 for details)

Interest Coverage Ratio: Healthy (> 4 ) Refer Exhibit 40 for other ratios.

Refer Exhibits 28 to 44 for projected financial statements (Canadian operations and

Consolidated), ratios, cash flows, sensitivities and assumptions.

Source of Funds: DragonCare Ltd should secure long term loans from its current bank in

Singapore to fund capacity expansion in its Singapore/Malaysian facilities and its own

excess cash for funding initial working capital requirements. In later years the Canadian

division can source working capital requirements from Canadian banks.

Risks: a) High working capital requirements in future years to meet growth.

Mitigation steps – Supply chain efficiency improvement.

b) Foreign exchange risks. Risk level – Medium. Mitigation Steps – Hedging.

ORGANIZATION PLAN & MANAGEMENT STRUCTURE DragonCare Canada’s Mission Statement:

“Caring for Humanity by providing the traditional route to a healthy life.”

Organization Structure:

Inline with the structure of DragonCare’s other subsidiaries, GM Canada will report to

VP-Sales & Retail. Since Marketing will be DragonCare Canada’s focus, the Marketing

Manager will report directly to GM Canada. A R&D Coordinator will act as a link

between Canadian Government and Dragoncare Ltd’s R&D headquarters for matters

regarding certification, product safety etc.

6

COMPREHENSIVE BUSINESS PLAN

CANADA – INVESTMENT CLIMATE

Canada is a dynamic and competitive economy that has liberal and favorable policies for

establishing new businesses. Canada’s strong economic fundamentals and relative cost

advantages over other developed nations provide a first rate business environment.

Canada led the G-7 countries in terms of GDP growth (3.1%) in 2000-200310 and is

expected to remain a top performer in 2004-2006 (2.8%). Canadian locations compare

well internationally in terms of statutory corporate income tax rates. Firms in Canada

have growing income tax rate advantages over US firms. Elimination of capital tax is

expected to increase the tax advantage over US from the current 2.3% to 3.4% by 200811.

Exhibit 1 summarizes few of the advantages of Canada as an investment

destination. Canada leads the G7 Countries in terms of quality of life (highest index value

= 9.2), business environment, labor costs (lowest index value = 80) and cost of living

(lowest index value = 60).

CANADA AS A TCM MARKET – MACRO ECONOMIC ANALYSIS

The Political climate in Canada is well suited for investment. The bilateral discussions on

the Canadian Singapore Free Trade Agreement are ongoing since 2001. The approval of

CSFTA will lead to the elimination of all tariff and non-tariff measures between Canada

and Singapore and more efficient trade and customs procedures. The Canadian economy

10 KPMG Competitive Alternatives G7 2004 Edition. Invest in Canada. www.investincanada.gc.ca11 KPMG Competitive Alternatives G7 2004 Edition. Invest in Canada. www.investincanada.gc.ca

7

VP- Finance

Group Chairman

Managing Director

Chief Scientist

VP- Sales and RetailOperations VP- Manufacturing

Direct Reporting

Functional Reporting

GM Canada

FinanceManager

MarketingManager R&D Co-ordinator

Materials/LogisticsManager

Marketing Dept

Logistics DeptFinance Dept

Customer Relationship Management Dept

H.R Manager

Singapore Management

Canada Management

VP- Finance

Group Chairman

Managing Director

Chief Scientist


Direct Reporting


GM Canada

FinanceManager



Marketing Dept



H.R Manager


Canada Management

is on an upswing with low unemployment rates, low interest rates, strong dollar value,

low inflation and high disposable incomes resulting in positive consumer behavior.

Increasing health consciousness and growing awareness of alternate healthcare products

especially TCM presents tremendous growth opportunities for Chinese herbal product

companies. Further, the presence of a large Chinese immigrant population also adds to

the attractiveness of Canada as a TCM market. High computer literacy has led to wide

spread usage of internet making this an attractive advertising channel. Hence, from a

macro economic perspective, Canada is a very attractive market for TCM products.

Refer Exhibit 2 for the Political, Economic, Social and Technological (PEST) Analysis.

THE NATURAL HEALTH PRODUCTS (NHP) INDUSTRY IN CANADA

Canadians are becoming increasingly willing to shoulder responsibility for their own

health. With this trend has come a new awareness of health products, therapies and

remedies derived from ancient sources of knowledge such as the Traditional Chinese

Medicines (TCM) have found increasing appeal in the contemporary Canadian Society12.

The Canadian NHP industry is a SG$ 2620 million industry growing at 20%

annually. The biggest markets for NHPs within Canada are the Western Canadian

provinces of British Columbia and Alberta. Women are the largest users of Natural

Health Products (49% of Canadian Women use NHPs) and a significant percentage of

Canadians spend over SG$ 39 monthly on these products. 55% of NHP consumers use

these products to develop immunity and for nutritional benefits.

Refer Exhibits 3 to 8 on the Canadian Natural Health Products Market.

CANADA AS A TCM MARKET FOR A NEW ENTRANT

The TCM industry (Herbal Medicine Market Size: $ 1048 million) in Canada is highly

fragmented with several small players vying for customer attention. The absence of

dominant players and major brands (no player has more than 5% market share) in such a

rapidly growing market and low barriers to entry, make Canada an attractive market for

DragonCare Ltd. Despite the threat of increased competition from new entrants, the

Canadian TCM market provides DragonCare an attractive growth avenue which it can tap

effectively by acting promptly and establishing a strong brand early on the basis of its

quality, scientifically developed products and aggressive marketing.

12 Health Canada. http://www.hc-sc.gc.ca

8

Exhibit 9 summarizes the attractiveness of the Canadian TCM market from the

perspective of a new entrant.

CHINESE HERBAL PRODUCTS MARKET - COMPETITIVE ENVIRONMENT

While the absence of a major brand in the market is to DragonCare’s advantage, it is

worth taking note that there are a large number of small players currently in the market.

Most of these are small companies/distributors (Sales < $1 million) that sell relatively

unprocessed products like ginseng roots, Chinese herbs (Example: Sumbu City Chinese

Herbs) etc. The bigger players are into selling more value added products similar to

DragonCare’s TCM product line. While a significant percentage of the Canadian players

are targeting their products at the Chinese/Asian immigrant population (their no frills

packaging with traditional names and low pricing indicate this), very few players are

targeting their products specifically at the Canadians. DragonCare can position itself to

bridge this gap and can develop its products and promotions to specifically target

westerners. The competitor to take note of for DragonCare is Kaiser Pharmaceutical Ltd,

a Taiwanese company, which co-ordinates its business through a sales office in North

America. This company too has a research oriented focus and markets its products on the

same basis13. It operates in Canada through two distributors (one in Vancouver, BC and

one in Winnipeg, Ontario) and has made a good name for its products in a short time.

However, this company sells its products only to TCM Practitioners (since it currently

focuses on the US market, it does not have the resources in Canada to take the retail

route) and DragonCare can avoid direct conflict with this company by opting for the

retail route. A few other players such as Herbal Comfort Products and A World of Good

Health sell products using the online channel14.

ENTRY STRATEGY

We recommend that DragonCare Ltd enter the Canadian market through a wholly owned

subsidiary which sources its products from its manufacturing units in Singapore/

Malaysia.

DragonCare Ltd has other avenues of entry into Canada - a joint venture (JV), an

acquisition, a greenfield project (with a new manufacturing set up in Canada) are a few

such options. While a joint venture and acquisition may help DragonCare leverage the

13 http://www.kaiser.com.tw/14 Chinese Medicine Suppliers of Canada. www.medicinechinese.com

9

knowledge/resources of partners/existing players, the absence of a large player in the

Canadian market with a good fit for DragonCare nullifies the potential benefits that these

avenues may have offered.

Further, evaluating the options based on the criteria of retaining control,

maximizing profits and minimizing the risks of starting a new business in Canada, we

find the option of setting up a subsidiary without any manufacturing facilities in Canada

as the best alternative. Exhibit 10 shows the Evaluation of the various Entry Avenues

available to DragonCare.

DRAGONCARE CANADA’S VALUE PROPOSITION & BRAND POSITIONING

DragonCare Canada will seek to become an end-to end TCM provider to Canadian

customers. In order to achieve this goal it will have a 3-Pronged Value Proposition –

Quality, Health and Services. DragonCare Canada’s Value proposition will be

represented by the three prongs of the Canadian Maple Leaf. Exhibit 11 shows

DragonCare’s Value Proposition Model.

We believe that DragonCare Canada can differentiate itself from the current

players in the Canadian TCM Market on the basis of two main factors – a) High Brand

Value and b) Scientifically Researched & Developed Products. This will also allow

DragonCare to pursue the premium pricing approach which has been a major reason for

its strong past financial performance. Exhibit 12 shows DragonCare Canada’s Product

Positioning Map

MARKETING STRATEGY

In order to strategically use its limited resources and to minimize risk, DragonCare

Canada should use a concentrated marketing approach and limit its efforts to Western

Canada and niche segments to build a strong brand image and gain a firm foothold in the

Canadian market. DragonCare should enter the Canadian market with only the TCM

product line since DragonCare can differentiate itself best on the basis of its research and

scientific capabilities (which are more applicable to this line of patentable products) and

because the Canadian market offers more opportunities in this segment. Further,

DragonCare should initially restrict itself to a very limited number of products within the

TCM category. Once the DragonCare brand is established, it can launch new products

and increase the range of offerings. After DragonCare establishes itself as a market leader

in Western Canada it can leverage on its brand image and target the eastern Canadian

10

markets. DragonCare should then look at setting up TCM clinics under its brand name in

order to complete its promise of becoming an end-to-end TCM provider.

To reduce risk and increase the chances of a successful product launch, we

recommend that Dragon care does simulated market testing followed by controlled

market testing to ensure that its products are well accepted by the target segment during

the actual launch. Simulated testing involves observing the purchasing behavior of a

focus group in a test environment containing various TCM products including those of

competitors followed by a product satisfaction survey a few weeks later. As part of

controlled market testing Dragon care will launch the product in a few locations within

Vancouver to gauge the consumer reaction to its products and then accordingly modify

its strategy during the actual launch of the product.

DragonCare will have to adapt its marketing strategy to suit the needs of the target

Canadian market – “Think Globally Act Locally”. This may result in higher initial costs

but will help secure a larger market share and greater return. To differentiate itself from

competitors who are primarily targeting the Chinese immigrants, DragonCare should

“Westernize” the names of its products and its packaging, communication, advertising

and promotion activities to target the affluent western Canadian women. The detailed

marketing plan is explained later in the report.

CANADIAN TCM MARKET SEGMENTATION & IDENTIFYING THE TARGET SEGMENT

We used the following criteria to segment the Canadian TCM Market and identify the

Target Segment for DragonCare Canada.

Measurability : The size, purchasing power and profile of the segment(s) should be

quantifiable objectively.

Accessibility : The market segment(s) should have easy accessibility.

Substantiality : The market segment(s) should be large and profitable enough to

serve.

Actionability : Effective programs can be designed to attract and serve the

segment(s).

Growth: The segment(s) should be undergoing rapid growth.

Structural Attractiveness : Avoid segments that have many strong and aggressive

competitors.

11

Company Objectives and Resources : DragonCare’s most profitable products are

in the patented TCM group for children and women.

Based on these criteria we identified the middle to high income women in western

Canada as our immediate target segment. This segment has a market size of $213 million

and is growing at an annual rate of 20%15. Refer Exhibit 13 for market size calculations.

Explanation of the Segmentation Process:

Level 0 Segmentation: Users/Non-users of herbal products

Level 1 Segmentation: Income

The population of Canada using herbal products was divided into the rich and upper

middle class users and others. The use of NHPs in Canada does not necessarily depend on

income levels16. However, only the rich and upper middle class Canadians were

considered as the target market for DragonCare since it is going to position itself as a

premium brand.

Level 2 Segmentation: Gender

A substantially higher proportion of Canadian women (49%) than men (37%) 17are found

to use herbal products and are thus identified as the primary target market.

Level 3 Segmentation: Age

Women below the age of 15 are categorized as children and not included as the primary

target segment as their health considerations differ from those of older women.

Level 4 Segmentation: Geography

Western Canada, especially British Columbia and Alberta, were chosen as the geographic

target markets as the likelihood of taking natural health care products in Canada increases

from east to west with BC and Alberta jointly ranked highest at 51%. (Exhibit 5)

The low cost advantage, the high quality of life, a large number of Asian/Chinese

immigrants in western Canada (an existing customer base for TCM products) and the

ease of imports from Asia further tilted the balance in favor of Western Canada as the

primary target market for Dragon Care. Refer Exhibit 15 for Asian Immigrant

Population Distribution in British Columbia.

15 TFOC – Pharmaceuticals and Natural Health Products Market Research 2003 www.tfoc.ca Exhibit 316 NDMAC. www.ndmac.ca Exhibit 717 NDMAC www.ndmac.ca Exhibit 3

12

After two years, DragonCare should extend its product line to include healthcare

products for children (Market size of $30 million. Refer Exhibit 14 for calculations) since

the current target segment, women, are the primary decision makers for the purchase of

these products.

MARKETING PLAN

Product

DragonCare should introduce two patented women’s healthcare products for nutritional

benefits & immunity development (55% of consumers use NHPs for this reason)18 and

establish these as DragonCare Canada’s “Flagship Products”. The limited products

approach will enable DragonCare to stay focused and strategically allocate its limited

business resources to be more effective in its brand building activities.

The packaging should reflect the premium positioning and value proposition of

the product. The packaging and labeling must meet the requirements of the Consumer

Packaging and Labeling Act, Canada. Packaging must ensure that the medicines are not

affected by temperature, light, transportation and storage. Polyethylene liners may be heat

sealed to give an air-tight closure. While vacuum packing is not generally used, it is

effective in preserving quality and compresses the product package into a smaller volume

which can lead to savings in freight costs. Packets for palletization are suitable since they

reduce handling and hence damage to the product. There should be consistency of

packaging and package sizes, an orderly loading of containers, shipping marks on the

master pack and article numbers on the inner packs. Shipping containers must be clearly

stamped or stenciled on a minimum of two sides with all code markings, and in

waterproof ink. The packages should be sturdy enough for multiple handling. Reusable

rather than disposable packaging addresses environmental concerns of Canada. Proper

packaging is important since sub-standard packaging may damage the product and create

problems for the marketing the goods and conflict with the image of “high quality”19.

An attractive green bottle with a label of the type indicated in Exhibit 16 will

successfully convey DragonCare’s brand message of health & quality. The label must

conform to the Canadian standards as recommended in the Consumer Packaging and

Labeling Act (Dual language labeling .i.e. in English and French being the prime

18 NDMAC. www.ndmac.ca Exhibit 5.19 TFOC – Pharmaceuticals & Natural Health Products Market research report 2003. www.tfoc.ca

13

requirement) and must have a customer support/helpline number as well as the Canadian

website address. The product must also be accompanied by a printed leaflet which

provides information about dosage, indications, warnings, expiry date and other relevant

information. Under the laws of Canada, drugs which are displayed for sale to the public

cannot be imported or sold unless they are contained in a security package. The security

information must be illustrated on either the outer or inner label20.

Price

Since DragonCare will offer a branded, high quality product, we suggest that it adopt a

premium pricing strategy and price its products at around $32- $35/bottle (Retail Price in

Canadian $). For the twin pack, the price should be $55-$60/pack. Current prices in the

Canadian market for similar TCM products are around $21-35/bottle21.

The rationale for the pricing strategy is “Value Based Pricing” based on an

analysis of purchasing power of the target segment and the current customer spending on

herbal products. Concerns on health and need for good quality are on the rise and

correspondingly the willingness to spend on alternative medicine is increasing. Moreover,

allopathic health expenditures are covered by government so more disposable income for

alternate health care products is available for customers.

Further, a high price will align with DragonCare’s positioning of a premium brand and

have a connotation of high quality associated with it. Also, as per market research

studies, demand is relatively less elastic for medicinal products. Hence, the higher than

average prices of DragonCare’s products should not be a concern.

Promotion

DragonCare will use a multi-pronged approach (combination of push and pull

promotional strategies) for establishing its brand and it will have a budget of $2.5 million

for promotions in 2006 (Refer Exhibit 17 for promotion budget allocation details). The

major factors that affect the decision of Canadian customers in the purchase of herbal

products are family/friend (36%), health books (18%) and medical practitioners (9%)22.

Hence, it is essential to use the promotion budget in those vehicles which can help

generate curiosity, awareness and a positive word of mouth in the market. This will

20 Food & Drugs Act, Canada. Chapter F-1721 Competitor websites. www.gfcherbs.com www.medicinechinese.com www.nl-supplies.com22 NDMAC. www.ndmac.ca Exhibit 9.

14

ensure that once DragonCare has cleared the barrier of developing an initial customer

base set up, it will have a self-sustained advertising medium. DragonCare’s public

relations activities, advertising, sales promotions, in-store promotions and direct mailing

will all be designed with this in mind.

Pull Strategies:

Advertising: Dragon care should focus its advertising on its product’s benefits, its

scientific research labs and on Singapore - a clean & progressive city. This will help build

consumer confidence on the high quality of its imported products. It should also associate

itself with health and fitness experts and sports icons to further augment its brand image.

Dragon Care should use multiple media vehicles to reach the target customers. It should

run ads on Cable TV which is a relatively inexpensive medium for running television ads

as compared to other channels. Advertising in women health magazines such as

Chatelaine, Canadian Living and Homemaker’s should be a primary means of reaching

the health conscious affluent women of BC and Alberta. Radio ads run during morning

and evening primetime are very reasonably priced and can prove to be a very important

tool for brand building. Billboards placed at strategic locations such as downtown area,

near women’s health clubs, near pharmacies etc are an effective and enduring way of

reaching the target customers. DragonCare should have a daily advertisement (25 lines)

in two of Vancouver’s leading newspapers Globe & Mail and National Post. Online ads

and banners on health related websites should also be used to target the tech-savvy

women of western Canada. (Advertising Budget $1.36 Million. Refer Exhibit 17 for

allocation among different vehicles and cost/customer calculations). DragonCare should

also develop its own website www.dragoncare.ca to further advertise its products and

build its image as a reliable TCM solutions provider.

Public Relations: Dragon care should work towards building a good corporate image by

ensuring that occasional articles on DragonCare and its products appear in health

magazines and print media. Additionally, the public relations effort may include charity

events, supplying free samples on “Mother’s Day”, “Women’s Day” etc. Dragon care

should participate in social causes related to women’s health issues to create awareness

and goodwill for DragonCare and its products. Dragon care should also participate in

annual shows such as “The Canadian Health Foods Association (www.chfa.ca)” show

15

http://www.dragoncare.ca/

and “The Importance of women’s health” show. (Public Relations Budget: $185000.

Refer Exhibit 17 for details)

Blogs: DragonCare should use innovative techniques like blogging to generate a positive

word of mouth in the market. As part of this promotion, DragonCare should

initiate/participate in discussions on herbal products in blog sites such as

www.blogscanada.com where its customers can share their experiences on the efficacy of

DragonCare’s products. This channel will prove effective in reaching the tech savvy,

affluent women of western Canada. Currently, most blog sites are free of cost.

Push Strategies:

Sales Promotions: We recommend the use of the following sales promotions at different

times during the year. Free samples should be given to TCM practitioners who can then

distribute those to their customers. As part of a major promotion strategy, a free sample

can be distributed with each copy of one of the leading women healthcare magazines.

DragonCare can also sell value packs (two for the price of one) while launching the

second product in the market for women, add coupons in bottles which give a discount

(5-10%) for the next purchase and can also bundle other items such as key chains, pens,

coffee mugs (with the DragonCare name and logo) to build the brand and to increase

sales. DragonCare should also have campaigns wherein customers can win attractive

prizes such as television, digital cameras, and music system with purchases of

DragonCare products. (Budget for Sales Promotions: $655000. Refer Exhibit 17 for

details)

In-store promotions: DragonCare should offer trade discounts to retailers to secure prime

shelf space in their stores, periodically pay extra for prominent spaces, have campaigns

for DragonCare products during which they are attractively displayed with DragonCare

banners. (Budget: $150,000)

Direct Mail: DragonCare should purchase the list of herbal product consumers (data

driven market research) and send catalogues, brochures etc specifically targeted at these

users. Customer information required for direct mail campaigns can be obtained from

Women’s Health clubs, Chinese Proprietary Medicine Societies and the retail channels

that DragonCare will be affiliated to. (Budget: $80,000. Refer Exhibit 17 for

cost/customer calculations)

16

http://www.blogscanada.com/

Distribution

There are three main distribution channels which DragonCare should adopt in Canada:

health food stores, pharmacies, and TCM practitioners. The online channel is not

recommended due to low ROI from this channel.

Natural Health Product Stores: DragonCare should primarily target these stores for sale

of their products through their distribution network.

Pharmacies: About 51% of Canadian Pharmacies are chain/franchise stores like

Shoppers Drug Mart, Pharma Plus and Jean Coutu23. So DragonCare should use this as a

secondary channel. It can use distributors like Source Medical (www.sourcemedical.com),

Life Pharma (www.lifepharma.com) and Mckesson (www.mckesson.com) to obtain shelf

space in this channel. DragonCare can utilize the Canadian Association for Pharmacy

Distribution to build relations with the leading distributors. For ease of co-ordination and

to avoid channel conflicts as well as to reduce risk from singular dependency, Dragon

care should use one distributor each for BC and Alberta.

TCM Practitioners: Dragon care must try and use Health Care Practitioners to capture

new adopters of TCM. DragonCare should use this channel sparingly given that there are

many players fighting for this channel already.

ORGANIZATIONAL PLAN & MANAGEMENT STRUCTURE

Mission, Vision & Values:

We believe that the Canadian subsidiary’s mission should be inline with the Parent

company’s mission of “Caring for the World”. Further, the Canadian arm’s vision should

reflect the Parent company’s desire to be a truly global brand. Based on this reasoning,

we propose the following for the Canadian subsidiary of DragonCare.

DragonCare Canada’s Mission Statement:

“Caring for Humanity by providing the traditional route to lead a healthy life.”

DragonCare Canada’s Vision:

“To be a global healthcare company specializing in Traditional Chinese Medicine.”

DragonCare Canada’s Values:

Focus – Our customers.

Quality – Superior products.

People – Very caring.

23 TFOC – Pharmaceuticals and Natural Health Products Market Research 2003. www.tfoc.ca

17

http://www.mckesson.com/

http://www.lifepharma.com/

http://www.sourcemedical.com/

Research – Path breaking.

Style – Strong teamwork.

Position – Leader.

Reward – Recognition and security

Legal description of the company:

The Canadian arm of DragonCare will be a wholly owned subsidiary of DragonCare Ltd

and will be named DragonCare Canada Limited.

The company will be incorporated as a separate subsidiary under the federal statute and

will be headquartered in Vancouver, British Columbia. However, the company will also

be registered in every province it operates in and will have branch offices in all those

provinces. (Note: It is a government requirement to have a company registered in every

province it operates in and to have a registered office in each of those provinces)24.

The branch offices are subject to laws of the province in which they operate. They

will maintain proper records and file tax returns as required. However, the parent

company will assume unlimited liability for the debts (if any) of its branch operations25.

DragonCare Canada’s Organization Structure:Refer Exhibit 18 for the Reporting Structure of the Canadian management team vis-à-vis

the company’s top level management.

The basic reporting structure of the country head (GM Canada) vis-à-vis the

DragonCare top brass has not been changed since it has successfully adopted this very

structure for all its subsidiaries. Hence, GM Canada will report to VP-Sales & Retail. GM

Canada need not have a direct reporting with Manufacturing since it is the Sales

Department which gives production requirements to manufacturing

Since DragonCare Canada’s focus will be marketing, the marketing head will

report directly to GM Canada. The marketing manager will be responsible for all aspects

of marketing and will assist GM Canada in Retail Distributor Relationship Management,

which is key to DragonCare’s business model. He will also oversee CRM efforts that

DragonCare Canada will operate.

Also, a R&D Coordinator will act as a link between Canadian Government and

DragonCare’s R&D division for matters regarding certification, product safety etc. This

24 Invest in Canada www.investincanada.gc.ca25 TFOC – Pharmaceuticals & Natural Health Products Market Research 2003. www.tfoc.ca

18

coordinator will report directly to GM Canada on product quality, safety matters and

development of new product variants.

The Logistics manager will be in-charge of coordinating with the distributors,

forecasting, and handling inbound and outbound traffic including customs. He will also

assist the Marketing Manager in fostering strong relationships with the distributors.

Managerial Autonomy & Reward System:

The Canadian division will have full autonomy in allocating the resources available to it.

However, the top brass of DragonCare Ltd will decide how much resource to make

available to the Canadian division based on its ability to achieve the parent’s strategic

goals.

The performance evaluation of the Canadian management team will be based on

their ability to achieve yearly Sales and Profit growth targets. We recommend using both

these as criteria for evaluation because:

a) Sales growth is inline with the parent company’s growth vision and

b) It is imperative to achieve the sales growth while also maintaining the premium

branding and pricing strategy.

Achieving one i.e. sale growth or profit growth at the expense of the other will be

detrimental to the strategy of DragonCare Ltd.

Strategic Alliances:

It is not advisable for DragonCare Canada to venture into retailing of its products in

Canada, at least for the first few years, since it will have a very limited product range.

Instead it should leverage Canadian Distributors (both Herbal and Non- Herbal product

distributors) to reach leading pharmacy & NHP outlets.

DragonCare’s value proposition to these Distributors is:

a) In DragonCare, the dealer will find an able ally who will invest heavily in

building a strong brand for its scientifically developed products.

b) DragonCare’s products will provide the distributor another avenue for growth at

almost no cost.

c) DragonCare’s premium products will provide the distributors an attractive

proposition to make higher margins.

19

d) DragonCare will help them bridge a gap between their current line of products

(non-TCM products) and a growing customer demand for TCM products.

Hiring Plan:

Activity Start Date End Date Responsibility

Selection of GM Canada 20th May 05 5th June 05 MD & VP Sales

Selection of Marketing, Logistics, HR,

Finance heads and R&D Coordinator

20th May 05 30th June 05 VP Sales &

GM Canada

Hiring Finance, Marketing

& Logistics Teams

1st Aug 05 15th Oct 05 Function Heads

The GM of DragonCare Canada will be selected from among the executives of the

Singapore division. This person should have a long history with DragonCare and should

be familiar with DragonCare’s culture, philosophy and strategy. It will be beneficial if

this executive was involved in one of DragonCare’s earlier globalization projects and has

a background in Marketing. By selecting the GM Canada from among the executives in

Singapore, DragonCare Ltd can ensure that the Canadian arm has philosophies, strategy

and culture similar to those of the parent division.

DragonCare Canada will hire Canadians to all other management positions,

especially Marketing. This is necessary since heads of these functions need to have a

thorough understanding of the Canadian market and the way it works. These managers

will then be trained at Singapore for a few weeks to orient them with the DragonCare

culture and way of working.

DragonCare Ltd should also send some top level executives from its Singapore

division to Canada for a few months to help set up the Canadian division and mentor the

management in Canada.

Exhibit 19 shows the Head Count Planned for DragonCare Canada in 2005-06.

OPERATIONAL STRATEGY

Operating Model:

Refer Exhibit 20 for the Schematic of the Operating Model to be adopted.

DragonCare Canada will source goods from DragonCare’s manufacturing sites in

Singapore and Malaysia and use strategic alliances with Canadian pharma-products

distributors to reach the pharma-retailers and ultimately the end users.

20

The shipping of goods (lead time 45 days)26 from Singapore/Malaysia to Canada will be

outsourced (preferably to the freight forwarder who handles DragonCare’s current export

shipments to other countries).

Rationale Behind the Choice of Operating Model:

Primary Decision Criteria:

a) Low Risk b) High Profit c) High Control

Secondary Decision Criteria

a) High feasibility b) Fast Implementation c) Low Investment

The above mentioned operating model will allow DragonCare to reduce its risk by

a) Limiting its investment

b) Allowing it to focus on its core competencies – Product Quality & Marketing

c) Providing it an opportunity to leverage the experience of a partner (the Canadian

Distributor) who has a sound understanding of the Canadian Market.

d) Providing it an easy way of tapping a wide range of retail pharmacy outlets.

Further, this strategy will allow DrgaonCare Ltd to operationalize its Canadian arm in a

short time (8 months). We believe it is critical for DragonCare to come to market in quick

time and build itself a niche position in the market place before competition heats up.

Refer Exhibits 21 to 23 to understand “Evaluation of Alternatives”.

Challenges Associated with the chosen Operating Model:

a) Response to Market fluctuations : Long Supply Chain can result in slower

response to meet sudden changes in customer demand. We hope to counter this by

maintaining a high level of inventory (approx. 67 days of inventory) for the first

two years till we familiarize ourselves with the Canadian market behavior and the

new Supply Chain. However, this will result in higher working capital

requirements. Having only two products in the first two years will help reduce

complexity and enhance our ability to manage inventory effectively.

b) Co-ordination with Distributor on all aspects – sales forecasting, promotion

activities, supply chain matters etc will have to be done exceedingly well. It will

take some time for the relationship to develop well and things to start functioning

smoothly. We plan to overcome this issue by trying to develop a long term

26 http://www.sinohost.com/yunnan_pages/mushrooms/shippingtime.html

21

strategic relationship with the concerned distributor. The Logistics Manager will

be assigned the responsibility to handle all supply chain and forecasting activity

coordination with the distributor. The Marketing Manager will be responsible for

co-coordinating promotion and data collection activities.

Applicable Statutory Requirements:

Mandatory Licensing Requirements:

Product License: In Canada, the federal government is responsible for the

licensing and monitoring of drugs, food, medical devices and natural health

products. DragonCare’s products will be governed by the “Natural Health Product

Regulations” of Canada. For more details visit: http://laws.justice.gc.ca

Business Number: Requirement by Canadian Revenue Agency for financial

reporting27.

Site License: For owning land/property/space.

Mandatory Insurance Coverages:

Fire insurance (extended coverage on buildings and contents)

Liability insurance (against customer complaints)

Burglary protection (theft coverage)

Dishonesty insurance (covers thefts by employees)

List of Key Acts which will regulate DragonCare Canada:

The Investment Canada Act : Regulates Foreign Investment in Canada. DragonCare

will need government approval to set up a subsidiary in Canada.

Employment Equity Act : The act provides for equitable treatment of women,

aboriginal peoples, disabled people and visible minorities in the workplace.

Food and Drugs Act and Regulations

Patent Act Amendment Act

Consumer Packaging and Labeling Act and Regulations: Need to meet certain

minimum labeling requirements like labeling in English and French.

Competition Act

Trademarks Act

Customs Tariffs Act

27 Invest in Canada www.investincanada.gc.ca

22

http://laws.justice.gc.ca/en/E-5.401/index.html

http://strategis.ic.gc.ca/epic/internet/inica-lic.nsf/vwGeneratedInterE/home?OpenDocument

http://laws.justice.gc.ca/

The Patented Medicines Regulations

The Manufacturing and Storage of Patented Medicines Regulations

Good Manufacturing Practice Guidelines.

For more details on these acts visit:

a) http://investincanada.com b) http://strategis.ic.gc.ca c)www.businessregistration.gc.ca

d) http://www.hc-sc.gc.ca/hpfb-dgpsa/nhpd-dpsn/index_e.html

Short Term Project Implementation Plan:

Refer Exhibit 24 for DragonCare Canada project implementation gantt chart.

Refer Exhibit 25 for list of responsibility assignment for the project activities.

List of Activities Critical to Meet Implementation Timeline:

a) Production Capacity Expansion

b) Canadian Distributor Sourcing

c) Shipping Supplier Sourcing

d) License Approvals

Note: All these activities do not tie up into a single Critical Path. However these activities

need to be given top priority to ensure a timely launch.

DragonCare Canada’s Long Term Plan with Timelines:

DragonCare Canada should extend its product line in two years and introduce the

children’s healthcare products. It should also start two TCM clinics in Vancouver by

2008 so that it can fulfill its value proposition to customers. DragonCare should plan to

expand to the eastern Canada, specifically Ontario, in 2009 (by then it should have

established a brand name in western Canada). It can then introduce more products (2010)

and then open a concept store in Vancouver (2011) which show cases the entire range of

DragonCare products.

Dragoncare, with its limited resources should focus on growing primarily in the

Canadian market. However, if a few years down the road, DragonCare decides to enter

the US market, it should consider setting up a manufacturing unit in Canada to take

advantage of the North American Free Trade Agreement and use Canada as a

manufacturing base for North America. However, we do not recommend setting up a

23

http://www.businessregistration.gc.ca/

http://strategis.ic.gc.ca/

http://investincanada.com/

manufacturing unit in Canada to target the Canadian market as the production costs are

lower in Malaysia and Singapore.

Refer Exhibit 26 for DragonCare Canada’s Long Term Roll Out Plan.

Operating Expenses:

Exhibit 27 lists out the Budgeted Operating Expenses for years 2005 to 2010.

FINANCIAL ANALYSIS

Refer Financial Performance Exhibits 28 to 44 for projected financial statements, net

present value of project, breakeven analysis, sensitivities and ratio analysis.

Source of Funds: We recommend that DragonCare Ltd use long term financing from its

current bank in Singapore to fund investment in fixed assets. See Exhibit 31 for total

financing required by DragonCare Canada up to 2010.

Investment in working capital and initial set up expenses of the Canadian

operations will be funded by the excess cash of DragonCare Ltd. In later years,

DragonCare Canada will secure working capital requirements from a Canadian bank.

The current Debt/Equity ratio of 0.57 and leverage of 1.52 provide it good

financial flexibility and it should not be an issue for DragonCare to get additional loans.

Further, given DragonCare Ltd’s strong financial performance – increasing profitability,

good cash flows, high interest coverage ratios and liquidity ratios – and its sound fixed

assets base – plant, machinery, retail stores (real estate) in prime locations –, DragonCare

Ltd’s current bank should not have any major problems in financing DragonCare’s

additional funding requirements.

By following this strategy, DragonCare will maintain a healthy Ending Cash

Balance (Refer Exhibit 41) to safeguard itself against any untoward developments and

also preserve its financial flexibility for future growth needs (Refer Exhibit 40 for

Debt/Equity Ratios).

Application of Funds:

The funds will be mainly used for production capacity expansion at the Singaporean /

Malaysian manufacturing sites, funding working capital increases, development of

website and initial setup and marketing expenses of Canadian operations.

Structure of New Loans:

24

The prime lending rate in Singapore has been stable at around 5.3%28 over the past 4

years and is expected to remain steady in the near future29 due to the continuing trend of

low inflation. Hence, we believe that it will not very difficult to secure a fixed interest

rate loan from its current bank.

Financial Risks & Challenges:

Foreign Exchange Fluctuations

The Canadian Dollar is currently going strong and this is good news for DragonCare

Ltd’s plans to enter Canada now. However, an appreciation of the Singapore Dollar

against the Canadian Dollar in the near future cannot be ruled out and if this happens, it

would be detrimental to the interests of DragonCare Ltd.

Risk Mitigation Steps Hedging Contracts should be undertaken when required.

Working Capital Requirements

The long supply chain makes it imperative to maintain a large finished goods inventory in

Canada in order to have the desired flexibility to meet the Canadian market demands.

This will be true at least for the initial years till DragonCare Canada gets to understand

the market behavior and the supply chain issues better.

Hence, the long supply chain will result in a highly “Positive Cash Cycle”. As a

result, financing working capital increases associated with the aggressive sales growth

forecasted for the Canadian operations will be a challenge.

In order to overcome this challenge, sales growth in Canada should be

accompanied with supply chain efficiency improvements and better inventory

management based on a sound understanding of the Canadian market behavior.

Financial Risk

Given DragonCare Ltd’s geographic diversification and strong financial performance, a

steady cash stream to meet interest obligations does not seem to be an issue at present.

(Refer Exhibit 40 for Interest Coverage i.e.EBIT/Interest).The expectation of steady

interest rates in Singapore into the future augurs well for DragonCare Ltd even if it only

manages to secure a floating interest rate loan.

28 Statistics Singapore http://www.singstat.gov.sg/keystats/mqstats/ess/aesa52.pdf29 Statistics Singapore http://www.singstat.gov.sg/keystats/hist/cpi.html

25

Further, by taking on debt in a phased manner (inline with the phased expansion

plan in Canada), DragonCare Ltd will ensure that it is not straddled with unmanageable

debt if the Canadian business does not unfold as planned.

BUSINESS RISKSRegulatory Risks:The Alternative Health Care market is relatively new and less strictly regulated at

present. However, given that this is a fast growing segment in healthcare, the government

may impose stricter regulations in the future, especially related to safety standards.

Mitigation Steps Develop good relationship with the government and create a premium

brand image supported by high quality and scientifically developed products.

Competitive Risks:The TCM market in Canada can be expected to attract many players in the near future

because of its attractiveness. An entry by a “Brand & Research” oriented competitor can

result in DragonCare facing tough times in its niche segment.

Mitigation Steps Build a strong brand in Canada quickly to gain the “first mover

advantage” and also lock in the major pharma-product distributors (and through them, the

retailers).

Litigation Risks:

The Pharmaceuticals industry is susceptible to litigation risks.

Mitigation Steps Contract a reputed legal firm like H&R Block, to sort out the legal

issues in Canada.

DragonCare’s Lack of Business Experience in North America:

The lack of prior experience of operating in North America can pose a significant

challenge to DragonCare’s efforts to be successful in this market. However, given the

fact that in North America, DragonCare sees its future growth, it has to take this leap.

Canada can also act as a strategic testing & launching ground for DragonCare’s desire to

tap the US market.

Mitigation Steps The top management of the Canadian division (except GM Canada)

should all be Canadians who have long work experience in North America (preferably in

the herbal products industry) and should be well versed with the Canadian market

conditions.

DragonCare Canada – The Journey Begins Here!

26

Exhibit 1: Why Canada as an Investment Destination !

Source: KPMG Competitive Alternatives G7 2004 edition

27

Business Environment of Top TenCountries, Rank in 2004-2008

World

Rank

1st 2nd

3rd 4th

5th6th

7th

10th9th8th

Business Environment of Top TenCountries, Rank in 2004-2008

World

Rank

1st 2nd

3rd 4th

5th6th

7th

10th9th8th

Exhibit 2: PEST Analysis

28

Free Trade Agreement in Progress with Singapore Natural Health Product industry not highly regulated Flexible health care plans to cover NHP costs Favorable tax policy

Political

High GDP Growth Positive Consumer

sentiment and spending Low unemployment Strong Dollar value Favorable Exchange Rate with Singapore Low interest rates Low Inflation

Economic

High Computer literacy Widespread use of internet. B2B software solutions for

supply chain integration High effectiveness of Online Advertising. Focus on R&D

Technological

Health Consciousness Increasing awareness of TCM and its benefits. Increasing population growth rates Large Population of Chinese Immigrants

Social

Canada Macro Economic Analysis

FAVORABLE!!!

Free Trade Agreement in Progress with Singapore Natural Health Product industry not highly regulated Flexible health care plans to cover NHP costs Favorable tax policy

Political

High GDP Growth Positive Consumer

sentiment and spending Low unemployment Strong Dollar value Favorable Exchange Rate with Singapore Low interest rates Low Inflation

Economic

High Computer literacy Widespread use of internet. B2B software solutions for

supply chain integration High effectiveness of Online Advertising. Focus on R&D

Technological

Health Consciousness Increasing awareness of TCM and its benefits. Increasing population growth rates Large Population of Chinese Immigrants

Social

Canada Macro Economic Analysis

FAVORABLE!!!

Exhibits on the Canadian Natural Health Products Market

Exhibit 3: A Market Research Summary

29

A) % of Canadians using NHPs = 51%B) Market Size of Herbal Medicine Industry in Canada = $ 1048 millionC) Annual Industry Growth Rate = 20%D) % of Women using NHPs = 49%E) % of Men using NHPs = 37%F) % of people taking NHPs in Alberta and British Columbia = 51%

References:Source of A, D, E & F: http://www.ndmac.caNDMAC - Self Care and Health - Consumer Profile - The use of Natural Products in Self CareSource of B & C: www.tfoc.caTFOC Market Research Report on Pharmaceuticals and Natural Health Products 2003.

Exhibit 4: Use of Natural Health Products(NHPs)by Region

Source: http://www.ndmac.caNDMAC - Self Care and Health - Consumer Profile - The use of Natural Products in Self Care

Exhibit 5: Reasons for taking Natural Health Products (NHPs)

30

http://www.ndmac.ca/


Exhibit 6: Frequency of Taking NHPs by Region

Frequency of Taking Natural Health Products by Region

Maritimes

%Québec

%Ontario

%

Man./Sask.

%

Alberta%

British Columbia

%

Daily 49 40 53 57 51 56

Occasionally 30 37 26 25 27 25

When Not Feeling Well

6 6 10 8 11 9


Exhibit 7: Use of NHPs by Household Income

31



Source: http://www.ndmac.caNDMAC - Self Care and Health - Consumer Profile – Summary of Demographic Factors

Exhibit 8: Sources of Information for Customers

Source: http://www.ndmac.caNDMAC - Self Care and Health - Consumer Profile – Sources of Information

Exhibit 9: The Five Forces Analysis for Industry Attractiveness

32



Rule: Weaker the Forces, Higher will be the Profitability & Attractiveness of the Industry

Exhibit 10: Evaluation of Canadian Entry Strategies

33

Canadian Market Entry Strategy

Contract Manufacturing

Low Risk, Low Profit, Low Control

Alternatives Sub-Categories Analysis Decision Criteria Strategy

Joint Ownership

Licensing

Manufacturing (New setup in

Canada)

Low risk, Medium Profit, Low control

Medium Risk, Medium Profit, Medium Control

Medium Risk, High Profit, High Control

Low Risk, Medium Profit, Medium Control

High Risk, High Profit, High Control

Low

to

Med

ium

Ris

k, H

igh

Pro

fit, H

igh

Con

trol

Direct Exporting

Joint Venturing

Direct Investment

Direct(Self-Managed)

Indirect (Intermediaries)

Acquisition (in Canada)


Exporting

Canadian Market Entry Strategy

Contract Manufacturing

Low Risk, Low Profit, Low Control

Alternatives Sub-Categories Analysis Decision Criteria Strategy

Joint Ownership

Licensing

Manufacturing (New setup in

Canada)

Low risk, Medium Profit, Low control

Medium Risk, Medium Profit, Medium Control

Medium Risk, High Profit, High Control

Low Risk, Medium Profit, Medium Control


Low

to

Med

ium

Ris

k, H

igh

Pro

fit, H

igh

Con

trol

Direct Exporting

Joint Venturing

Direct Investment

Direct(Self-Managed)

Indirect (Intermediaries)

Acquisition (in Canada)


Exporting

No major players in the marketLow product differentiationLow capital requirementsLimited access to distribution channelsLow economies of scaleLiberal government policyFew patents

Many small suppliersGeographically distributedLess forward integrationLow Bargaining Power

DistributorHigh volumeChoice of many small suppliersConsumerLow volume purchasesWide choice of herbal productsLow differentiation, Low availability

Regular use prescription medicinesNon-prescription OTC medicinesAyurvedic medicines

Many small competitors No major brands

Barriers to Entry

Supplier Power

Buyer Power

Threat of Substitutes

Competitive Rivalry

Low

Low

Medium

Medium

Medium

HIGH

Forces Analysis EffectIndustry

Attractiveness

No major players in the marketLow product differentiationLow capital requirementsLimited access to distribution channelsLow economies of scaleLiberal government policyFew patents

Many small suppliersGeographically distributedLess forward integrationLow Bargaining Power

DistributorHigh volumeChoice of many small suppliersConsumerLow volume purchasesWide choice of herbal productsLow differentiation, Low availability

Regular use prescription medicinesNon-prescription OTC medicinesAyurvedic medicines

Many small competitors No major brands

Barriers to Entry

Supplier Power

Buyer Power

Threat of Substitutes

Competitive Rivalry

Low

Low

Medium

Medium

Medium

HIGH

Forces Analysis EffectIndustry

Attractiveness

Other Factors Considered Joint Venture

Acquisition New Manufacturing

Set Up in Canada

Exporting

Implementation Time Low Low High LowInvestment Low Very High Very High ModerateDragonCare’s past experience with the Alternatives

None None None High

Potential to Leverage Partner’s Knowledge about the Canadian Market

High Moderate-High

Low Low

Exhibit 11:

34

Quality

•Safety

•Efficacy

•Research

•Brand

Health

•Longevity

•Immunity

•Energy

Service

•TCM Clinics

•Consultancy

•Helplines

DRAGONCARE CANADA Ltd’s

3 PRONGED VALUE PROPOSITION TO CUSTOMERS

Quality

•Safety

•Efficacy

•Research

•Brand

Health

•Longevity

•Immunity

•Energy

Service

•TCM Clinics

•Consultancy

•Helplines

Quality

•Safety

•Efficacy

•Research

•Brand

Health

•Longevity

•Immunity

•Energy

Service

•TCM Clinics

•Consultancy

•Helplines

DRAGONCARE CANADA Ltd’s

3 PRONGED VALUE PROPOSITION TO CUSTOMERS

Exhibit 12:

36

Bra

nd I

mag

e

Scientifically Researched & Developed Products

Competitors

Dragon Care

Dragon Care Product PositioningB

rand

Im

age

Scientifically Researched & Developed Products

Competitors

Dragon Care

Dragon Care Product Positioning

Exhibit 13: Market Size for Women’s Products

A) Population of Canada 30750100B)% of Population Using Natural Health Products (NHPs) 51%C)Number of Consumers of NHPs 15682551 C = A*BD)% of Canadian Population in Upper Middle and Higher Income group 65%E)Number of Upper Middle class and Rich class consumers of NHPs 10162293 E = C*DF)% of Women in among E 51%G)Number of Upper Middle and Higher Income women consumers of NHPs 5192932 G = F*EH)% of above women population in 15+ age group 91%I)Number of women in 15+ age group using NHPs 4709989 I = G*HJ)% of I in BC and Alberta 24%K)Number of women users of herbal medicines in the 15+ age group in BC and Alberta 1130397 K = J*IL)Average spending per month for above women population on NHPs $30M)Total Women Natural Health Product Market Size in canadian dollars per year $406,943,058 M = K*LN)% of M for products similar to Dragoncare's 40%O) Target Market size in canadian dollars per year $162,777,223 O = M*NP)One canadian dollar to Singpore dollar conversion factor $1.31Q)Target Market size in Singapore dollars per year $213,238,162 Q = P*O

Source of B): http://www.ndmac.ca/index.cfm?fuseaction=main.DspSubPage&PageID=10&SubPageID=950&fkMainPage=10Source of F & H):http://www.answers.com/topic/demographics-of-canadaSource of J) http://atlas.gc.ca/site/english/maps/peopleandsociety/populationSource of D) http://www.cfc-efc.ca/docs/ccsd/00000324.htm. (4th and 5th Quintiles have been considered)Source of L: http://www.hc-sc.gc.ca/hppb/healthcare/pubs/comp_alt/stock.htmlN): 40% of the NHP industry is for TCM products.

Western Canada Women's Natural Health Product Market Size Calculations Remarks

Target Market Size Growth Over Years

Year 2006 2007 2008 2009 2010Expected Growth 20% 20% 15% 13% 10%

Size (in 000's SGD) 213238 255886 294269 332524 365776

Note: Growth in Western Canada is forecasted to slow down in the later years as the market matures. Exhibit 14: Market Size Calculations for Children’s Products

A) Population of Children in Canada (< 10 Years of age) 3700000B)% of Infant Population in BC & Alberta (Same as % of Candian Population in BC &Alberta) 23%C)Number of Children in BC & Alberta 854700 C = A*BD)% of Children Population in Upper Middle and Higher Income group 65%E)Number of Children in Upper Middle class and Rich class 553846 E = C*DF)Average Number of Children / Family in Canada 1.5G)Number of Upper Middle Class & Higher Income Mothers in BC & Alberta 369230 G = E/FH) % of Mothers who use Natural Health Products (NHPs) for themselves 51%I) Number of Mothers using NHPs 188308 I = G*HJ) % of I who will buy NHPs for their kids 85%K) Number of Mothers buying NHPs for their kids 160061 K = I*JL) Average spending per month on NHPs $30M)Total Children's Natural Health Product Market Size in canadian dollars per year $57,622,096 M = K*LN)% of M for products similar to Dragoncare's 40%O) Target Market size in canadian dollars per year $23,048,838 O = M*NP)One canadian dollar to Singpore dollar conversion factor $1.31Q)Target Market size in Singapore dollars per year $30,193,978 Q = P*O

Source of A): http://www.absoluteastronomy.com/encyclopedia/D/De/Demographics_of_Canada.htmSource of B): http://www.absoluteastronomy.com/encyclopedia/L/Li/List_of_Canadian_provinces_and_territories_by_population.htmSource of D) http://www.cfc-efc.ca/docs/ccsd/00000324.htm. (4th and 5th Quintiles have been considered)Source of F: http://www.statcan.ca/english/Pgdb/famil50a.htmSource of H): http://www.ndmac.ca/index.cfm?fuseaction=main.DspSubPage&PageID=10&SubPageID=950&fkMainPage=10Source of J): An estimate. Most mothers will want to provide the health benefits they get from NHPs to their kids.Source of L: http://www.hc-sc.gc.ca/hppb/healthcare/pubs/comp_alt/stock.html N: 40% of herbal medicines in the market are TCM products.

Western Canada Children's Natural Health Product Market Size Calculations Remarks

37

Exhibit 15: Asian Immigrant Population Distribution

Population in Millions

As a % of Total Canadian Population Remarks

Canadian Total 29.64Chinese 1.09 3.68%Filipino 0.3 1.01%Vietnamese 0.15 0.51%Total Asia- Pacific 1.54 5.20%


As a % of Total Province Population Remarks

British Columbia 3.8

Chinese Population % in BC is much higher than canadian average and is 35% of entire chinese population

Chinese 0.38 10.00%Filipino 0.068 1.79%Japanese 0.037 0.97%


As a % of Total City's Population Remarks

Vancouver 1.96 Vancouver accounts for 51% of BC population

Chinese 0.347 17.70%Note: Almost 90% of chinese population in BC is in Vancouver

Vietnamese 0.022 1.12%

Synopsis of Exhibit: Western Canada, especially British Columbia, is an attractive market for DragonCare due to the large, concentrated and potentially easy to tap Asian Immigrant Population.

Source: http://www.statcan.ca/english/Pgdb/demo26a.htm http://www.statcan.ca/english/Pgdb/demo27a.htm

38

http://www.statcan.ca/english/Pgdb/demo27a.htm

http://www.statcan.ca/english/Pgdb/demo26a.htm

Exhibit 16: Sample Label

Exhibit 17: Marketing Budget Allocation for 2006Budget Allocation for Market Tests

Cost Remarks - Simulated Testing 15000 Limited Group - Controlled Test Environment 50000 Testing in Sample Retail Outlets in different localities

Budget Allocation for Advertisements

Vehicle

Total Reach/ Circulation in

Western Canada Cost/Use (SGD)

Frequency/ Duration of

Use

Total Annual

Cost(SGD)

Estimated Response

RateCustomers Acquired

Cost/ Customer

(SGD) Remarks

- Health Magazines/Books 315000

$17000 per Full Page Advt. 25 per Year 425000 3.00% 9450 44.97

Advertisements in Chatelaine, Canadian Living & Homemaker's

- Bill Boards 150000 people per Bill Board

$2500 per Month per Board

10 Boards Year Round 300000 1.00% 15000 20.00

Bill Boards in High Foot Step Areas

- Cable TV 1300000

$ 200 per 30 secs slot +

$ 5000 for developing Advt. 1000 per Year 220000 1.20% 15600 14.10

Low cost targetted advertising through local cable TV. 4 Different Advts will be developed

- Radio 2100000$50 for a 30 sec

airing 3000 per Year 150000 0.50% 10500 14.29 Effective if used repeadtedly.

- Newspaper 2000000 $10 per Line Daily 182500 0.50% 10000 18.2525 Line Ad with Logo DAILY in top two Newspapers

- Online Advts 1000000

$700 per month for websites reaching

100000+10 Websites Year Round 84000 0.20% 2000 42.00

Online Advts Will help drive sales demand.

- Total 1361500 62550 21.77 Average Cost/Customer

Sources of Information Costs for Cable TV: http://www.4hb.com/marketing/0131wwiobiz64adcable.htmlCost of Developing TV Advt: http://www.cheap-tv-spots.com/options.htmlCost of Health Magazine/Books Advt: http://www.chatelaine.com/binary/pdf/CHERateCard.pdfReach of Health Magazines/Books: http://www.transcontinentalpro.com/eng/pdf/canadian_living_m.pdfCosts for Bill Boards: http://www.gaebler.com/Billboard-Advertising-Costs.htmCosts for Radio Advt: http://www.albertaprolife.com/resources/radio.htmlCosts of Online Advt: http://vancouver.weatherpage.ca/info/vwp_rate_card_0305.pdfCosts of Online Advt: http://www.vistamagonline.com/articles/page.php?s=ad_ratesCosts of Online Advt: https://adwords.google.com/support/bin/answer.py?answer=6382&hl=en_USCosts of Newspaper Advt: http://www.canada.com/national/nationalpost/info/advertise/ad_pdfs/2005_1477_%20Western_Rates.pdf

Exhibit 17 Continued on Next Page

39

Recommended Dosage: 2 Tablets a day

Directions for Use:

Mfg Date:

Exp Date:

Batch No:

Mfg at: DragonCare Ltd, Singapore


Directions for Use:

Mfg Date:

Exp Date:

Batch No:


TM

Fo r mu l a t o a Hea l t h y Lif e

CMPACertified

DragonCare Brand Logo in this position

Information in FrenchInformation in English

Scientifically Proven

A Chinese wellness formula for women


Directions for Use:

Mfg Date:

Exp Date:

Batch No:



Directions for Use:

Mfg Date:

Exp Date:

Batch No:


TM

Fo r mu l a t o a Hea l t h y Lif e

CMPACertified

DragonCare Brand Logo in this position

Information in FrenchInformation in English

Scientifically Proven

A Chinese wellness formula for women

Budget Allocation for Sales PromotionsCost (SGD) Remarks

Bundling 165000 Buy one get one free/ discount on secondCoupons 100000 Discount CouponsFree Samples with Magazines 187500

Free Samples distributed with 30000 Health Magazines

Bundle other Items 100000 DragonCare logo bearing Key

Chains,Pens, Coffee MugsLottery 100000 Lucky Draw CampaignInstore Promotions & Trade Discounts 150000 Special promotion activities in retail outletsTotal 802500

Budget Allocation for Direct Mail Campaigns

ReachCost/Person Approached

Total Annual Cost

Response Rate

Customers Acquired

Cost/ Customer

(SGD) Remarks

Direct Mail Campaigns 20000

$1 per reference + $2 Material + $1 Postage. Target 80000 0.08 1600 50

These Customers can be expected to have long term Value to DragonCare as they will definitelyy be repeat buyers

Budget Allocation for Other PromotionsCost (SGD) Remarks

Free Samples to Practitioners 16000 100 Practitioners given 25 Samples each

Sponsorships of Social & Charitable Causes 150000

High Spend inline with Long Term Strategy of Creating Goodwill for better returns

Trade Shows 35000 Annual Trade Exhibitions costs

Exhibit 18: Management Structure

40

VP- Finance

Group Chairman

Managing Director

Chief Scientist


Direct Reporting


GM Canada

FinanceManager



Marketing Dept



H.R Manager


Canada Management

VP- Finance

Group Chairman

Managing Director

Chief Scientist


Direct Reporting


GM Canada

FinanceManager



Marketing Dept



H.R Manager


Canada Management

Exhibit 19:

Head Count in Different Departments

DepartmentFinance & Invoicing

Marketing & CRM

Material Management &

Logistics

R&D Support

HR

Head Count (Direct Employees) 3 5 2 1 2Contract Employees 2 1 1 1 1

Total Number of Employees (Including GM) 20

Exhibit 20: OPERATING MODEL

Exhibit 21: Evaluation of Manufacturing Alternatives

Factors Produce in Singapore and

ship finished goods to

Canada

New Production facility in

Canada

Implementation time Low High

Investment Low High

Production cost Low High

Inventory cost High Low

Volume flexibility Low High

Ease of Exit (Contingency) Easy Difficult

Import tariff 0 -NA-

Co-ordination between

R&D and Production

Easy Difficult

41


Shipping

By 3rd Party



DragonCare Canada

Retail Pharmacies

Retail Pharmacies

Retail Pharmacies

Customers

TCM Practitioners


Shipping

By 3rd Party



DragonCare Canada

Retail Pharmacies

Retail Pharmacies

Retail Pharmacies

Customers

TCM PractitionersInformation Flow

Material Flow

Information Flow

Material FlowMaterial Flow

Exhibit 22: Evaluation of Distribution Alternatives

Factors Selling directly to retailers Selling to distributors

Investment High Low

Feasibility Low High

Resources required High Low

Margins for DragonCare High Low

Administration Complex Easy

Warehouse required? Yes No (Use distributor’s)

Exhibit 23: Evaluation of Retail Alternatives

Factors Setting up DragonCare

Chain of Retail Stores

Use of Existing Retailer

Network

Investment High Low

Implementation Time High Low

Feasibility High Medium

Resources required High Low

Margins for DragonCare High Low

Administration Complex Easy

42

Exhibit 24: Project Implementation Gantt Chart

43

Launch

Understand Licencing & Incorporation Requirements

Product Licencing

Incorporation

Planning of Capacity Expansion

Capacity Expansion Activities

Site Licencing

Shipping Supplier Sourcing Sourcing Canadian Distributor

Production of 1st Batch (90Days Inventory)

Shipping from Singapore to Canada

Top Management Hiring

May 15th 05 May 31st June 30th July 15th Aug 31st Oct 31st Nov 15th Dec 31st Jan 15th 06

Marketing Planning & Promotion Activity. Website Design and Building.

Oct 15th

Launch

Understand Licencing & Incorporation Requirements

Product Licencing

Incorporation

Planning of Capacity Expansion

Capacity Expansion Activities

Site Licencing

Shipping Supplier Sourcing Sourcing Canadian Distributor

Production of 1st Batch (90Days Inventory)

Shipping from Singapore to Canada

Top Management Hiring

May 15th 05 May 31st June 30th July 15th Aug 31st Oct 31st Nov 15th Dec 31st Jan 15th 06

Marketing Planning & Promotion Activity. Website Design and Building.

Oct 15th

Strategic Activities

Launch Phase Activities

Setting up & Licensing Activities

Strategic Activities

Launch Phase Activities

Setting up & Licensing Activities

Exhibit 25: Responsibilities for Project Implementation Activities

S.No Activity Responsibility

1. Management Team Hiring Group Chairman, VP- Sales & Retail, GM

Canada

2. Incorporation GM Canada

3. Product Licensing GM Canada , R&D Coordinator

4. Capacity Expansion VP - Manufacturing

5. Shipping Supplier Sourcing Purchasing Head, Singapore & Logistics

Manager

6. Sourcing Canadian Distributor GM Canada, Marketing Manager &

Logistics Manager

7. Site Licensing Logistics Manager

8. Marketing Planning & Promotion

Activity

Marketing Manager & GM Canada

9. Website Development & Hosting Marketing Manager

44

Exhibit 26: Long Term Strategy Roll Out Plan

Exhibit 27: Operating Expenses

Figures in 000's of SGD2005 2006 2007 2008 2009 2010

Salaries & Health Benefits 340 804 1082 1446 1703 1983Administration Expenses - Travel 50 60 60 70 80 100 - Training 50 60 70 80 100 100

- Office Supplies 5 6 7 8 10 10 - Office Maintenance 5 5 6 6 7 7 - Office Lease 50 65 75 90 100 100Total General & Admin Expenditure 500 1000 1300 1700 2000 2300

OPERATING EXPENSES

45

2005

2006

2007

2008

2009

2010

2011

2012



Jan 2006:Jan 2006:



Oct 2007 Oct 2007 -- Jan 2008:Jan 2008:






Jan Jan –– Dec 2010 :Dec 2010 :






20112011--2012:2012:



2005

2006

2007

2008

2009

2010

2011

2012



Jan 2006:Jan 2006:



Oct 2007 Oct 2007 -- Jan 2008:Jan 2008:






Jan Jan –– Dec 2010 :Dec 2010 :






20112011--2012:2012:



Financial Performance Exhibits: (All figures in 000’s of Singapore $)

Exhibit 28:

DragonCare Canada Pvt Ltd Forecasted Income Statements

Yearly Sales Growth 75% Sales Growth in 2010 35%upto 2010

% of Sales 2005E 2006E 2007E 2008E 2009E 2010E Remarks & AssumptionsSales 100% 0.0 5000.0 8750.0 15312.5 26796.9 36175.8COGS 6% 0.0 300.0 525.0 918.8 1607.8 2170.5

Gross Margin 94% 0.0 4700.0 8225.0 14393.8 25189.1 34005.2Sales Price is adjusted to accommodate part of transportation cost.

Transportation Cost 4% 0.0 200.0 350.0 612.5 1071.9 1447.0SGA 80% 800.0 5000.0 7000.0 12250.0 21437.5 28940.6 $2.5 million marketing expense in 2006EBITDA 10% -800.0 -500.0 875.0 1531.3 2679.7 3617.6

Depreciation 4% 0.0 200.0 350.0 612.5 1071.9 1447.04% of Sales based on assumption that Depex is 10% of Fixed Assets

EBIT -800.0 -700.0 525.0 918.8 1607.8 2170.5

Interest 0.0 108.8 190.3 333.0 582.8 786.8Interest Rate 7.5%. Prime Lending Rates of Most Singapore Banks is around 5.5%

PBT & Minority Interests -800.0 -808.8 334.7 585.7 1025.0 1383.7Minority Interests -153.6 -155.3 64.3 112.5 196.8 265.7 19.2% Min. Interest. (From 2004 PBT -646.4 -653.5 270.4 473.2 828.2 1118.0Taxes Payable on Profit -245.6 -248.3 102.8 179.8 314.7 424.9 Taxes =38% (Canadian)Tax Cover from previous Year 0.0 245.6 494.0 391.2 211.4 0.0Actual Taxes Paid 0.0 0.0 0.0 0.0 103.4 424.9Tax Cover Carried Over 245.6 494.0 391.2 211.4 0.0 0.0PAT -400.8 -405.2 270.4 473.2 724.8 693.2NOTE: 1) Sales are based on Dragoncare's price to retailers. Retailer margins are above this price.2) Fixed Assets/Sales is assumed to remain at current level of 0.29 (It has been in the range of 0.3 for the past 4 years)3) TCM products come under classification 3004.20.00.79 and no customs duty applies. Only PST applies which is levied on the customer. Sources: http://www.cbsa-asfc.gc.ca/E/pub/cm/d10-14-30/d10-14-30-e.html & Departmental Consolidation of the CUSTOMS TARIFF 2005

Exhibit 29:

Sensitivity Analysis of Income from DragonCare Canada

Sales Growth Rates 2005E 2006E 2007E 2008E 2009E30% -400.8 -405.2 200.9 261.2 339.540% -400.8 -405.2 216.3 302.9 424.050% -400.8 -405.2 231.8 347.7 521.560% -400.8 -405.2 247.2 395.6 633.080% -400.8 -405.2 278.2 500.7 756.890% -400.8 -405.2 293.6 557.9 827.5

Note: Sales in 2006 will be $5 million in all scenarios. This is a conservative figure given that the market size itself is $ 213 million and is growing at 20% per annum.

Profits (in 000's of SG$)

Exhibit 30:

Operating Cash Flow for Canadian Operations

2005E 2006E 2007E 2008E 2009E 2010 E Remarks & AssumptionsNet Income -400.8 -405.2 270.4 473.2 724.8 693.2Add: Depreciation 0.0 200.0 350.0 612.5 1071.9 1447.0Less:Taxes carried forward 245.6 248.3 0 0 0 0Increase in AR 0 438.36 328.77 575.34 1006.85 822.26 32 Days receivable

Increase in Inventory 0 917.81 688.36 809.08 1415.88 1156.30

67 Days inventory upto 2007. Reduced to 45 days after that since we will have better experience by then

Increase in Other Current Assets 0 57.53 43.15 75.51 132.15 107.92 4 Days other current assetsAdd: Increase in Current Liabilities 0 750.00 562.50 984.38 1722.66 1406.84 15% of sales (similar to current levels)

Net Cash Flow from Operations -646.4 -1117.2 122.7 610.2 964.5 1460.6

46

Exhibit 31:Net Cash Flow Projections for Canadian Operations

2005E 2006E 2007E 2008E 2009E 2010 ENet Cash Flow from Operations -646.40 -1117.17 122.65 610.19 964.48 1460.57Net Cash Flow in Investments 0.00 -1450.00 -1087.50 -1903.13 -3330.47 -2719.88Cash Flow from Financing 0.00 1450.00 1087.50 1903.13 3330.47 2719.88

-646.40 -1117.17 122.65 610.19 964.48 1460.57Note:Cash flow in investments in future years will be low due to slower average growth of around 5-10%. Hence, cash flows from operations in future years will be steady and sufficient to cover any future investment requirements Growth will slow down because DragonCare would have completed its geographic and product line expansions by end of 2010.

NET CASH FLOW

Exhibit 32:NET PRESENT VALUE OF DRAGONCARE CANADA PLAN (in 000's SGD)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Terminal Value

Revenues 0 5000.00 8750.00 15312.50 26796.88 36175.78 39793.36 43772.70 48149.96 52964.96 58261.46 61174.53EBIT -800 -700.00 525.00 918.75 1607.81 2170.55 2387.60 2626.36 2889.00 3177.90 3495.69 3670.47Less: Taxes on EBIT -304 -266.00 199.50 349.13 610.97 824.81 907.29 998.02 1097.82 1207.60 1328.36 1394.78Net Operating Profit After Tax -496 -434.00 325.50 569.63 996.84 1345.74 1480.31 1628.34 1791.18 1970.30 2167.33 2275.69 23894.77

Free Cash Flow CalculationNOPAT -496 -434.00 325.50 569.63 996.84 1345.74 1480.31 1628.34 1791.18 1970.30 2167.33 2275.69Plus: Depreciation 0 200.00 350.00 612.50 1071.88 1447.03 1591.73 1750.91 1926.00 2118.60 2330.46 2446.98Gross Cash Flow -496 -234.00 675.50 1182.13 2068.72 2792.77 3072.05 3379.25 3717.18 4088.90 4497.78 4722.67Less: Increase in Working Cap 0 663.70 497.77 475.56 832.22 679.65 1233.59 1356.95 1492.65 1641.91 1806.11 1896.41Less: Cap. Expenditure 0 1450.00 1087.50 1903.13 3330.47 2719.88 1049.10 1154.01 1269.41 1396.35 1535.98 844.79Free Cash Flows -496 -2347.70 -909.77 -1196.56 -2093.97 -606.76 789.36 868.29 955.12 1050.63 1155.70 1981.47PV of Cash Flows -496 -2134.27 -751.88 -898.99 -1430.21 -376.75 445.57 445.57 445.57 445.57 445.57 694.49 8374.97

NPV of Project 5209

Assumptions Made RemarksSales Growth Rate upto 2009 75% Aggressive sales growth estimate due to plans of expansion through product launches and geographic expansionSales Growth in 2010 35%Sales Growth from 2010-2015 10% Sales growth estimate is lower due to no major growth drivers & increased competition. Assumptions for Terminal Value CalculationNOPAT Growth Rate beyond 2016 5% Market to reach maturity and stiff competition expected.Weighted Average Cost of Capital 10%In the Long Run, Depreciation = Capital ExpenditureIn the Long Run, Working Capital Change = 0

Exhibit 33: NPV Sensitivity & ROI CalculationsSensitivity Analysis for NPV of DragonCare Canada Project

NPV5209.21 0.01 0.02 0.03 0.04 0.05 0.06

0.07 12831.04 12985.49 13139.94 13294.39 13448.84 13603.300.08 9401.14 9523.14 9645.14 9767.14 9889.14 10011.140.09 6844.41 6942.40 7040.39 7138.38 7236.37 7334.360.10 4890.17 4969.93 5049.69 5129.45 5209.21 5288.980.11 3366.95 3432.59 3498.23 3563.87 3629.51 3695.150.12 2161.12 2215.64 2270.15 2324.67 2379.19 2433.710.13 1194.52 1240.16 1285.79 1331.43 1377.06 1422.70

Terminal NOPAT Growth Rates

WACC

5- Year Return on Initial Investment2005 2006 2007 2008 2009 2010

Profit After Tax -400.768 -405.1514 270.4275 473.2481 724.8281 693.1902PV of Profits -400.768 -368.3195 223.4938 355.5583 495.0673 430.4166Total PV of Profits 305.032Investments 2113.70Return on Initial Investment in 5 years 14.43%

47

Exhibit34:

Net Profit Trend for DragonCare Canada

-600.0

-400.0

-200.0

0.0

200.0

400.0

600.0

800.0

2005E 2006E 2007E 2008E 2009E 2010E

Year

000'

s S

inga

pore

$

Exhibit 35:

Cash Flow from Operations of DragonCare Canada

-1500.0

-1000.0

-500.0

0.0

500.0

1000.0

1500.0

2000.0

2005E 2006E 2007E 2008E 2009E 2010 E

Year

000

s o

f Sin

gapo

re $

48

Exhibit 36:

Cumulative Cash Flow from DragonCare Canada Operations

-2500.0

-2000.0

-1500.0

-1000.0

-500.0

0.0

500.0

1000.0

1500.0

2005E 2006E 2007E 2008E 2009E 2010 E

Year

000

's o

f Sin

gap

ore

$

Exhibit 37:

Forecasted Income Statements of Non-Canadian DragonCare Operations

% of Sales 2005E 2006E 2007E 2008E 2009E 2010E Remarks

Sales 133061.30 150000.00 165000.00 181500.00 199650.00 219615.00 Sales Growth 10% beyond 2006

Gross Rev (Op Rev) 85.95% 114359.79 128917.80 141809.58 155990.53 171589.59 188748.54 Based on Current % of Sales

SGA 73.33% 97578.64 110000.40 121000.44 133100.48 146410.53 161051.58 Based on Current % of Sales

EBITDA 12.61% 16781.16 18917.40 20809.14 22890.05 25179.06 27696.96 Based on Current % of Sales

Depex 2.89% 3848.77 4338.72 4772.59 5249.85 5774.84 6352.32% of Sales based on assumption that Depex is 10 % of Fixed Assets

EBIT 9.72% 12932.39 14578.68 16036.55 17640.20 19404.22 21344.64 Based on Current % of Sales

Interest 1.95% 2595.61 2926.03 3218.63 3540.50 3894.54 4284.00 Based on Current % of Sales

PBT & Minority interests7.77% 10336.78 11652.65 12817.91 14099.71 15509.68 17060.64 Based on Current % of Sales

PAT 5664.55 6385.65 7024.22 7726.64 8499.30 9349.23

26% Taxes & 19.2 % Minority Interest.Minority Interest calculated from 2004 I/S

49

Exhibit 38:Forecasted Consolidated Income Statements

2005E 2006E 2007E 2008E 2009E 2010ESales 133061.30 155000.00 173750.00 196812.50 226446.88 255790.78Gross Rev (Op Rev) 114359.79 133617.80 150034.58 170384.28 196778.65 222753.78SGA 98378.64 115200.40 128350.44 145962.98 168919.90 191439.24EBITDA 15981.16 18417.40 21684.14 24421.30 27858.74 31314.54Depex 3848.77 4538.72 5122.59 5862.35 6846.71 7799.35EBIT 12132.39 13878.68 16561.55 18558.95 21012.03 23515.19

Interest 2595.61 3034.78 3408.94 3873.54 4477.38 5070.82PBT & Minority interests 9536.78 10843.90 13152.60 14685.41 16534.66 18444.37PAT 5263.79 5980.50 7294.64 8199.89 9224.13 10042.42Dividend/Share 0.80 0.80 0.80 0.80 0.80 0.80Dividend 1777.60 1777.60 1777.60 1777.60 1777.60 1777.60Increase in Ret. Earnings 3486.19 4202.90 5517.04 6422.29 7446.53 8264.82NOTE: The consolidated Income statement is made based on 10% growth for Non-Canadian operations beyond 2006

Exhibit 39:Forecasted Consolidated Balance Sheet

2005E 2006E 2007E 2008E 2009E 2010E Remarks & AssumptionsCash 14280.86 14864.81 15355.95 16332.34 15994.74 16622.70

AR 10936.54 12739.73 14280.82 16176.37 18612.07 21023.90Days Receivables = 30 days. Up 2 days from current

Inventories 12898.52 14068.49 16071.92 17800.17 20807.29 23713.95

Invertory Days = 32 for Non-Canadian operations & 67 days for Canadian operations upto 2007 and 45 days after 2007

Other Current Assets 1531.12 1783.56 1999.32 2264.69 2605.69 2943.35 Other Current Assets = 4 Days of Sales. Same as Current

Total Current Assets 39647.05 43456.59 47708.01 52573.57 58019.78 64303.89

Fixed Assets 40037.78 44950.00 50387.50 57075.63 65669.59 74179.33 Fixed Assets/ Sales = 0.29. Same as of now.Total Assets 79684.82 88406.59 98095.51 109649.20 123689.38 138483.22

Current Liabilities 19959.19 23250.00 26062.50 29521.88 33967.03 38368.62 15% of Sales. Similar to current levels

Long Term Liabilities 10009.44 11237.50 12596.88 14268.91 16417.40 18544.83LT Liabilities / Fixed Assets remains constant at current level of 0.25

Equity 49716.19 53919.09 59436.13 65858.42 73304.95 81569.77L+OE 79684.82 88406.59 98095.51 109649.20 123689.38 138483.22

Exhibit 40:Ratio Analysis for DragonCare Ltd

2005E 2006E 2007E 2008E 2009E 2010 ETA/Equity 1.60 1.64 1.65 1.66 1.69 1.70Sales/Assets 1.67 1.75 1.77 1.79 1.83 1.85PAT/Sales 0.04 0.04 0.04 0.04 0.04 0.04ROE 11% 11% 12% 12% 13% 12%Profit Growth 13% 14% 22% 12% 12% 9%Debt/Equity 0.60 0.64 0.65 0.66 0.69 0.70Current Ratio 1.99 1.87 1.83 1.78 1.71 1.68Quick Ratio 1.26 1.19 1.14 1.10 1.02 0.98EBIT/Interest 4.67 4.57 4.86 4.79 4.69 4.64

50

Exhibit 41:Consolidated Cash Flow Statement

2005E 2006E 2007E 2008E 2009E 2010 EOperations

5263.79 5980.50 7294.64 8199.89 9224.13 10042.423848.77 4538.72 5122.59 5862.35 6846.71 7799.35

1876.14 1803.18 1541.10 1895.55 2435.70 2411.832026.04 1169.97 2003.42 1728.25 3007.11 2906.66

81.45 252.45 215.75 265.38 341.00 337.662106.19 3290.81 2812.50 3459.38 4445.16 4401.59

7886.51 10584.43 11469.46 13632.43 14732.18 16587.22

InvestmentsIncrease in Fixed Assets -9461.55 -9450.94 -10560.09 -12550.48 -15440.68 -16309.08Cash flow from Investments -9461.55 -9450.94 -10560.09 -12550.48 -15440.68 -16309.08

FinancingIncrease in Long Term Liabilities 2774.44 1228.06 1359.38 1672.03 2148.49 2127.4

-1777.60 -1777.60 -1777.60 -1777.60 -1777.60 -1777.60996.84 -549.54 -418.23 -105.57 370.89 349.83

14859.056 14280.9 14864.8 15356.0 16332.3 15994.7-578.19 583.94 491.15 976.39 -337.60 627.97

14280.86 14864.81 15355.95 16332.34 15994.74 16622.70Net Cash FlowEnding Cash

Cash Flow from Operations

Less: DividendCF from Financing

Beginning Cash

Increase in InventoryIncrease in Other Current AssetsAdd: Increase in Current Liabilities

Net IncomeAdd: DepreciationLess: Increase in AR

Exhibit 42:

2004 E2005E

2006E2007E

2008E2009E

2010 E

S1

13000

13500

14000

14500

15000

15500

16000

16500

17000

000

s o

f $

Year

Ending Cash Balance Projection for DragonCare Ltd

51

Exhibit 43:

-2000.0

0.0

2000.0

4000.0

6000.0

8000.0

10000.0

12000.0

000'

s of

Sin

gapo

re $

2005E 2006E 2007E 2008E 2009E 2010 E

Year

Profit Contribution of DragonCare Canada to performance of DragonCare Ltd.

Total Company Profits

Profit from DragonCare Canada

Exhibit 44:

Breakeven Sales Calculation2005 2006 2007 2008 2009 2010

Fixed CostsDepreciation 200.0 350.0 612.5 1071.9 1447.0Minimum Marketing Expenses 2500 3950.0 7487.5 14078.1 19405.5Overheads 1000 1300 1700 2000 2300SGA 3500 5250.0 9187.5 16078.1 21705.5Total Fixed Costs 3700.0 5600.0 9800.0 17150.0 23152.5

Variable CostsMatl + Transport /Unit 2.5 2.5 2.5 2.5 2.5Other Variable Costs/Unit 5 5 5 5 5Total Variable Cost/Unit 7.50$ 7.50$ 7.50$ 7.50$ 7.50$

Contribution/Unit 17.50$ 17.50$ 17.50$ 17.50$ 17.50$ Breakeven Sales (000's Units) 211.43 320.00 560.00 980.00 1323.00Breakeven Sales (000's SGD) 5,285.71$ 8,000.00$ 14,000.00$ 24,500.00$ 33,075.00$ Women's TCM Market Size (Before Distributor and Retailer Commissions) 126951 152341 175193 197968 217764Breakeven Market Share 4.2% 5.3% 8.0% 12.4% 15.2%

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ANNEXURE: ADDITIONAL LIST OF SOURCES

TRADE FACILITATION OFFICE CANADA56 Sparks Street, Suite 300Ottawa, Ontario, Canada K1P 5A9Tel: (613) 233-3925In Canada: 1-800-267-9674Fax: (613) 233-7860e-mail: [email protected] internet site: www.tfoc.ca

DEPARTMENT OF FOREIGN AFFAIRS AND INTERNATIONAL TRADEInformation Services (SXCI)125 Sussex Drive, Ottawa, Ontario K1A 0G2Tel: 1-800-267-8376Fax: 1-613-996-9709e-mail: [email protected] e-mail requests, please include your name, telephone number and return address.internet site: http://www.dfait-maeci.gc.ca

CANADIAN ASSOCIATION OF IMPORTERS AND EXPORTERS438 University Avenue, Suite 1618Toronto, Ontario, Canada M5G 2KB Tel: (416) 595-5333Fax: (416) 595-8226internet site: www.caie.ca

CANADIAN GENERIC PHARMACEUTICAL ASSOCIATIONHead Office4120 Yonge Street, Suite 409Toronto, Ontario, Canada M2P 2B8Tel.: (416) 223-2333Fax: (416) 223-2425Montreal Office1180 Drummond, Suite 400Montreal, Québec, Canada H3G 2S1Tel.: (514) 393-3728Fax: (514) 393-1024internet site: www.cdma-acfpp.org

CANADIAN HEALTHCARE ASSOCIATION17 York StreetOttawa, Ontario, Canada K1N 9J6Tel: (613) 241-8005Fax: (613) 241-5055internet site: www.cha.ca

CANADA CUSTOMS AND REVENUE AGENCYinternet site: www.ccra.gc.ca/tariff

53

ANNEXURE: ADDITIONAL LIST OF SOURCES

CANADIAN HEALTH FOOD ASSOCIATION550 Alden Road, Suite 205Markham, Ontario, Canada L3R 6A8Tel: (905) 479-6939Fax: (905) 479-1516internet site: www.chfa.ca

CANADIAN HOMEOPATHIC PHARMACEUTICAL ASSOCIATION408 Queen Street, Suite 105Ottawa, Ontario, Canada K1R 5A7Tel: (613) 594-5965Fax: (613) 235-5866internet site: www.chpa-aphc.ca

CANADA’S RESEARCH BASED PHARMACEUTICALS ASSOCIATION (formerly Pharmaceutical Manufacturers’ Association of Canada)55 Metcalfe Street, Suite 1220Ottawa, Ontario, Canada K1P 6L5Tel: (613) 236-0455Fax: (613) 236-6756internet site: www.canadapharma.org

HEALTH CANADAA.L. 0900C2Ottawa, Ontario, Canada K1A 0K9Telephone: (613) 957-2991Fax: (613) 941-5366internet site: www.hc-sc.gc.caHas links to the Canadian Institute for Health Information under theHealth Care section (www.cihi.ca)

INDUSTRY CANADACommunications and Marketing BranchSecond Floor, West Tower235 Queen Street, Ottawa, Ontario, Canada K1A 0H5internet site: www.strategis.ic.gc.ca(Trade Data Online)

NON-PRESCRIPTION DRUG MANUFACTURERS ASSOCIATION OF CANADA1111 Prince of Wales Drive, Suite 406Ottawa, Ontario, Canada K2C 3T2Tel: (613) 723-0777Fax: (613) 723-0779internet site: www.ndmac.ca

PATENTED MEDICINE PRICES REVIEW BOARDBox L40, Standard Life Centre333 Laurier Avenue West, Suite 1400Ottawa, Ontario, Canada K1P 1C1internet site : www.pmprb-cepmb.gc.ca

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Business Plan (Richard Ivey) - Cerebration05

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