STRATEGIC PLAN

1. XYZ Electronics STRATEGIC PLAN 1999-00 to 2003-04 JULY 1999

2. Disclaimer This document has been prepared by Genesis Management Services Pty Ltd on behalf of XYZ ELECTRONICS. This document is tendered on the express condition (acknowledged by the recipient’s acceptance of the document) that the publishers authors and contributors in particular Genesis Mnnagement Services Pty Ltd, their employees, associates and agents are not responsible for any errors or omission actions or the results of any actions taken or omitted to be taken upon the basis of information in this document. The publishers authors and contributors expressly disclaim all and any liability (whether arising by reason of negligence or otherwise) to any person or corporation whether in receipt of this document or not in respect of anything and the consequence of anything done or omitted to be done in reliance whether whole or partial upon the whole or any part of the contents of this document. NOTE: The content and figures in this presentation have been disguised and are provided for evaluation purposes only. It is not to be copied or used for any other purpose than that approved by Genesis Mnnagement Services Pty Ltd .

3. This five-year Business Plan was developed by the management team of XYZ Electronics Pty Ltd and facilitated by Genesis Management Services Pty Ltd. The purpose of the plan is to provide a strategic framework and direction to ensure focused decision-making by the management team. The business planning process comprised: a three-day workshop involving the management team to: - identify key issues - establish key objectives - develop broad strategies meetings with functional managers to develop detailed strategies, action plans and timetables a final meeting to ‘sign-off’ the plan prior to presentation to the Board of Directors. The consultants would like to thank the executive management team for their frank and constructive contributions and assistance in preparing this Business Plan. 1.0 INTRODUCTION

4. 2.0 EXECUTIVE SUMMARY This Business Plan sets out the Vision and Key Objectives for XYZ Electronics for the period 1999-00 to 2003-04, and documents the Key Strategies and Action Plans to be implemented by Management over the next year or so to achieve these Objectives. In summary, by the Year 2003-04, XYZ Electronics will have consolidated its position as the global market leader for the consumer and health-care markets for its range of electronic products, and will be recognised as an emerging global force in industrial products. It will have a turnover of at least A$170 million, of which around 65% is earned from exports, generating group pre-tax earnings of at least A$55 million. Through effective tax structures and transfer pricing, the Group tax rate should be 20-25%, and distributions to shareholders of after-tax earnings in Australia should reach $27 million pa from 2002-03. The company will employ some 1000 people, with operations in Australia, the USA and Italy, and distributors in other key regions. XYZ Electronics will remain strongly research-focused, but will progressively develop a stronger focus on marketing and business development. In line with its international expansion and establishment of discrete business units, there will also be a stronger emphasis on information technology and systems to efficiently meet the information and communication needs of the organisation. Achievement of XYZ Electronics objectives will be measured by Key Indicators such as profitability, sales growth, international reputation, quality, customer perceptions and employee satisfaction. The key risks facing the business, such as loss of key people in critical roles, supply failures, breaches of IP and the Millenium Bug are addressed where possible in the Plan.

5. 2.0 EXECUTIVE SUMMARY REVENUE FORECAST Sales A$ million Key Milestones

6. 2.0 EXECUTIVE SUMMARY PROFIT & DIVIDEND FORECAST A$ million

7. 3.0 CORPORATE DIRECTION

8. 3.1 Planning Team The following senior executives participated in the business planning process: xxxxxxxxxxx Chairman xxxxxxxxx CEO xxxxxxxxx Development Director xxxxxxxxxx Marketing Manager xxxxxxxxxx Product Manager xxxxxxxx Sales Manager xxxxxxxxx Administration Manager xxxxxxxx Business Manager, Health Products xxxxxxxx Business Manager, Industrial Products xxxxxxxxx Production Manager The team worked as group during the planning workshops and individually or in smaller groups within their functional areas to develop their respective strategies and action plans.

9. 3.2 External Environment Opportunities Threats New technologies Joint technologies for industrial products Corporate joint ventures/teaming Industrial patents Rationalisation of distributors Legislation for industrial products Aging of target consumer market Internet marketing Conservative consumer competitors Government support for R&D and other incentives Weak A$ Competitors reverse engineering Diminishing Australian market Mature consumer market Regional conflict - affecting market accessibility Downsizing trend of health institutions Internet - damage from propaganda International trade/tax legislation Legislation on health-care US economic situation GST in Australia Y2K Strong A$

10. 3.3 5-Year Vision Successfully commercialised in three core segments Successfully commercialised at least one other product internationally Sales turnover of $170m pa Net profit before tax of $55m (32% on Sales) No 1 in the world consumer and health-care markets A fully-developed presence in USA/EU for all products Joint-ventures with complementary technologies 1000 people employed worldwide A range of industrial systems licensed to international specialists A major force in the Australian industrial market Full global distribution for health products Strategic alliance in Israel New electronic control system Business Vision for 2003-04

11. 3.4 Key Questions • What are we especially good at right now? • dedicated, performance-orientated people • best product technology in the world • international business (70% exports) • financial control • responsive to customer needs • interface between marketing and research & development • creating a dynamic culture • achieving short concept-to-market lead time • How will we win in the future? • international market presence/image • being proactive in rationalising consumer products industry • continued development of new technology • greater degree of control of distribution channels • a modular approach to product technology & design • stronger marketing function • improved product development processes • more formalised but still flexible organisation structure & systems • joint-ventures with other firms • proper resourcing of industrial division • identifying another international product opportunity

12. 3.5 Business Mission Products Markets Activities World’s leading bio-tech electronics technology ConsumerHealth Industrial globally Research, design, development, production, marketing

13. CONSUMER HEALTH-CARE INDUSTRIAL • technology • sustainable continuing advancement • matching technology to customer needs • ease of use • good range of accessories • ISO-9001 • reliability • wide product range • customer service STRENGTHS • ISO-9001 • lower whole-of-life cost • technology • sustainable continuing advancement • matching technology to customer needs • ease of use • reputation • robustness & reliability • relatively inexpensive to manufacture • ISO-9001 • sensitivity • innovative technology • Ten satisfied customers WEAKNESSES • lack of repeatability in repair and servicing • performance in air testing • ergonomics • mechanical quality • higher power consumption • initial perception of difference • product iterations • servicing & training • no satisfactory product • too heavy • difficult to manufacture • susceptible to vibration OPPORTUNITIES • repackaging of technology • hybrid circuits • arrays • joint-venture with other technologies • discrimination • industrial products (huge market) • new legislation re food, etc • alliances with insurance companies • expansion of world market • market demand THREATS • legislation/limiting access • new technology • piracy of patents • mature market • piracy of patents • new technology • competitor propaganda • piracy of patents • new technology • productliability 3.6 SWOT Analysis - Product

14. CONSUMER HEALTH-CARE INDUSTRIAL STRENGTHS • distributor margins (export) • value-for-money • perception of quality = higher prices • high margins • manufacturing options • range of price points • value-for-money • perception of quality = higher prices • high margins • understanding of tendering process WEAKNESSES • some products are low • value-for-money (compared • with competitive products) • uncompetitive at lower end of market • non-standard pricing (tendering) OPPORTUNITIES • higher-performance product at • high-price • lower end of market (export) • premium price for technology edge • premium price for technology • high ROI for customer THREATS • discounting • exchange rates • subject to bureaucratic purchasing processes (price) • secret commissions • equivalent machine at lower price • differential pricing - customer collusion • exchange rates • exchange rates 3.6 SWOT Analysis - Price

15. CONSUMER HEALTH-CARE INDUSTRIAL STRENGTHS • niche industry • local market presence (Aust, USA, EU) • customer data base (Aust) • technology is promotional strength • good quality promotional materials (some) • company image • good success stories • UN endorsement • endorsement by international research community • notable success • perceived technological advantage WEAKNESSES • marketing resources/budget (USA, EU) • promotional materials • poor representation (reliant on distributors) • not recognised as a supplier of hospital equipment • low profile • no international profile • not recognised as a supplier of industrial equipment OPPORTUNITIES • build up image and credibility • differentiated marketing strategies USA/EU • build database in new markets • use Internet • trade shows & exhibitions • new market segments (eg Baby Boomers) • more proactive worldwide • joint-venture with existing providers • market expansion THREATS • disinformation • industry feeds on rumours • disinformation • industry feeds on rumours • competitor propaganda 3.6 SWOT Analysis - Promotion

16. CONSUMER HEALTH-CARE INDUSTRIAL STRENGTHS • Australian distribution network • good EU distribution • presence in Italy & USA • distribution tailored to each market • East-Coast USA distributor good • general distribution strategy/system • presence in USA and Italy for consumer products (not exploited) • only Australian local manufacturer WEAKNESSES • poor-performing West-Coast USA distributor • diminishing dealers • lack of contracts with dealers in Australia • distance from major markets • no physical presence in major markets • distance from major markets OPPORTUNITIES • dealers in Eastern Europe, etc • franchises • Internet sales • franchising, licensing THREATS • retailing poses conflict with wholesalers • competitors develop innovative distribution network 3.6 SWOT Analysis - Place

17. 3.6 SWOT Analysis - People • loyalty • highly-skilled • team spirit • management depth • succession plan STRENGTHS • multi-skilled workforce • self motivation • opportunity for growth • recognition of performance • comprehensive range of skills WEAKNESSES • functional boundaries • lack of HR policies • reliance on R&D Director for innovation • general awareness of OH&S OPPORTUNITIES • can attract the best people THREATS • key people headhunted • potential for overwork due to high growth rate of company

18. 3.6 SWOT Analysis - Processes • adequate MIS • communication infrastructure • not constrained by capital investment in plant and equipment STRENGTHS • use of contractors to reduce process management/complexity • measurement of performance • ability to change process technologies • ISO-9001 WEAKNESSES • unrealistic deadlines (focus) • MIS needs to be improved for future growth • some processes too subjective and labour intensive • high unit manufacturing costs OPPORTUNITIES • electronic commerce (supply chain from customers to suppliers) • ability to change manufacturing capacity quickly (use of contractors) THREATS • single-source contractors • loss of key contractors

19. 3.6 SWOT Analysis - Physicals STRENGTHS • new corporate facilities (Adelaide and Italy) • own leased facility in USA • internal communication • corporate high-tech image • manufacturing hedge against disaster (outsourced product) • everyone together • room to expand • minimal investment in manufacturing • modern computer system WEAKNESSES • need objective test equipment and procedures • distance from main markets (cost, travel) OPPORTUNITIES • flexibility in manufacturing • electronic data interchange with suppliers • offshore manufacturing/assembly • new modules in MIS THREATS • security • loss of data • fire • theft

20. 3.6 SWOT Analysis - Partnerships STRENGTHS • good distributors for consumer products • good and improving suppliers in Australia • strong contractual agreements with minimum performance criteria for dealers (except Australia) WEAKNESSES • no partnerships (industrial products) • suppliers volatile • reliant on few powerful individuals • inconsistent product/service support with distributors OPPORTUNITIES • industrial equipment suppliers • technology specialist/suppliers • acquire competitors’ partners • joint ventures THREATS • failure of partnerships

21. 3.7 Basis for Growth PRODUCTS Consumer Health-care Industrial New Product Mature market; Sales levelling off new product launched in 2000-01 to extend market life New product launched in 2002-03; revenue $2 mill in Year 1, $3 mill in Year 2 New Industrial products launched in 2000; steady growth by 2003-04 Minimal sales in Australia AUSTRALIA Industrial technology licensed in USA in 2003-04 Steady growth in market share to reach 30% by 2003-04 Baseline market steady at 1998-99 levels NORTH AMERICA MARKETS Baseline market steady at 1998-99 levels; Unknown opportunities from other products Steady growth in market share to reach $10 mill by 2003-04 Industrial technology licensed in Europe in 2003-04 EUROPE/ OTHER

22. 3.8 Critical Success Factors • XYZ Electronics has identified the following Critical Success Factors which will need to be addressed for it to achieve its Vision: • Market leadership in product quality and performance • Increased emphasis on product development rather than research • Continual product innovation • Development of new markets in health-care and industrial segments • Recruitment and motivation of top quality staff • Effective focus and management of R&D time • Effective MIS • Effective distribution channels for each product group.

23. 4.0 FINANCIAL PROJECTIONS

24. 4.1 Revenue and Profit Projections 1999-00 2000-01 2001-02 2002-03 2003-04 A$ million Revenue Consumer Products Australia USA Europe/Others Total Consumer Total Health-care Total Industrial New Product TOTAL REVENUE Gross Margin Gross Profit Overheads NPBT NPAT Capital Expenditure Inventory Figures removed in this illustration copy

25. 4.2 Revenue, Profit & Investment Assumptions Consumer Products Australia - Decline in overall market demand due to saturation of market USA - Steady growth in market until 30% market share achieved Europe/other - Steady growth in market until 40% share achieved Health-care - Market expected to peak at around 3,000 units in 2001-02 and 2002-03 Industrial - $10m in year 5 is a preliminary estimate, including $4m from exports Gross margin - Marginal increase in Gross Margin from 62% to 64% with increased Health-care and Industrial revenue contribution; Cost of Goods Sold includes 0.25% royalty Overhead expenses - Increases in sales/marketing staff (USA/Europe), overseas operations, systems & administration to cope with growth Capital expenditure - Steady investment in tooling, equipment & computer infrastructure at $1,000,000 pa; New building for Industrial in 2000-01 at $2 mill financed by 20-year mortgage Inventory - Stockturn maintained at 3x throughout forecast period Debtors - One month of Revenue Trade Creditors - Two months of Cost of Goods Sold

26. 4.3 Cashflow Assumptions The Cashflow projections are based on the following assumptions: Stock Increase - change in value of stock based on average of 4 months’ stock valued at COGS, assuming forecast Gross Margin Depreciation - based on 20% of capital expenditure for year added back as non-cash Building Loan Repayments - repayment of $90,000 pa for 20 years for new building Royalties - based on 4.0% of sales, included in Cost of Goods Sold Tax - 36% tax rate in Australia for local Consumer Products profits, all health-care profits and local Industrial Products profits; minimal profits generated in US Dividends - full distribution of after-tax profits generated in Australia

27. 4.4 Cashflow Projection 1999-00 2000-01 2001-02 2002-03 2003-04 CASH IN Gross Profit Creditors Increase Depreciation Add Back Total Cash Inflow CASH OUT Overhead Expenses Stock Increase Debtors Increase Capital Expenditure Building Loan Repayments Tax Total Cash Outflow Dividends Net Cashflow Figures removed in this illustration copy

28. 4.5 Funding The forecast cashflow indicates that, within current overdraft limits, XYZ Electronics is capable of funding its growth and working capital from internally-generated funds and that positive net cashflows are achievable beyond 1999-00. Assuming that inventory can be reduced to more acceptable levels in 1999-00, the only new debt funding required will be to finance a new building for the Industrial Products Division in 2000/01. XYZ Electronics should achieve zero net debt within 2001-02. Profits generated in overseas markets by XYZ Electronics internationally will be retained in Italy to fund the company’s working capital requirements.

29. 5.0 RESEARCH & DEVELOPMENT

30. 5.1 Key Objectives KEY PERFORMANCE INDICATORS KEY OBJECTIVES Continue to Develop Innovative Products in Response to Customer Needs • Sales • Market Share • Products launched on time • Overruns x $ Revenue Lost Meet Product Launch Dates • Achievement of Project Milestones • Reduced “damage control” • Low staff turnover in R&D Optimise use of R&D Resources • Market Intelligence • Patents • Competitor Benchmarking Maintain Technology Edge over Competitors

31. 5.2 Strategies Strategies Obtain regular, comprehensive market feedback Key Objective Continue to Develop Innovative Products in Response to Customer Needs Respond to market feedback Introduce New Product Evaluation phase

32. 5.2 Strategies Strategies Improve product development planning Key Objective Meet Product Launch Dates Improve project planning Improve usage of consultants Improve ease of manufacture - reduce manufacturing cost

33. 5.2 Strategies Strategies Key Objective Review current resource mix Optimise use of R&D Resources Improve use of resources across multiple projects Protect key R&D resources

34. 5.2 Strategies Strategies Increase frequency of technology advances Key Objective Forecast future trends in customer requirements and technology advances Maintain Technology Edge over Competitors Investigate other imaging technologies Protect innovations with patents

35. 6.0 MARKETING

36. 6.1 Key Objectives KEY PERFORMANCE INDICATORS KEY OBJECTIVES Maintain High Margins • Gross Margins • Seamless service/support infrastructure Capitalise on Presence in Australia, USA and Italy Build and Leverage XYZ Electronics Brand as Global Leader • Brand recognition • Unsolicited enquiries • Market share Become No 1 in Consumer Products Worldwide • Unsolicited enquiries • Market share Become Recognised as No 1 Worldwide Extend the Market for Consumer Products • Proportion of First Time Buyers • Proportion of direct sales • Sales margin Achieve Greater Control over Consumer Products Distribution Channels

37. 6.1 Key Objectives KEY PERFORMANCE INDICATORS KEY OBJECTIVES Achieve Recognition as a Worldwide Centre of Excellence • Market share • Unsolicited enquiries • Commission expenses as % of revenue Establish Effective Control over Distribution Channels • Product launched • Sales revenue for new product Identify and Commercialise a New Product Maintain our Excellent Reputation for Ethics and Service • Customer perceptions

38. 6.2 Strategies Strategies Develop brand promotion Develop existing products/technologies into new market segments Key Objective Maintain High Margins Develop recognition as market leader in innovation of product design Maintain market leading position Maintain pricing structure with high margins

39. 6.2 Strategies Strategies Establish corporate marketing plan/program Key Objective Control all XYZ Electronics communications directly Capitalise on Presence in Australia,USA and Italy Fully develop and use database Coordinate promotions between zones

40. 6.2 Strategies Strategies Key Objective Corporate promotional activity Build and Leverage XYZ Electronics Brand as Global Leader Corporate public relations programme

41. 6.2 Strategies Strategies Improve product line Key Objective Aggressive marketing program Become No 1 in Consumer Products Worldwide Develop international marketing program Aggressive attack on competitors and competitive products

42. 6.2 Strategies Strategies Establish presence in key target markets Key Objective Build linkages with Consumer Products distributors and service agents Become Recognised as No 1 Worldwide Build alliances in health-care Collaborate with relevant research facilities in Australia, US, UK and Europe Widely promote XYZ Electronics technology

43. 6.2 Strategies Strategies Extend promotion beyond existing media segments Key Objective Extend the Market for Consumer Products Review the use of existing technology in alternative applications & markets Review bio-technology and other market potential

44. 6.2 Strategies Strategies Define consumer product distribution channels Key Objective Develop direct communications between dealers and consumers Achieve Greater Control over Consumer Products Distribution Channels Develop tight control and communications with non-English speaking distributors Review product pricing Establish contracts with Australian dealers

45. 6.2 Strategies Strategies Research Australian market Develop marketing strategy for Australian Food Industry Key Objective Achieve Recognition as a Worldwide Centre Achieve accreditation by internationally-recognised authority Research Industrial market internationally License technology overseas

46. 6.2 Strategies Strategies Prepare Business Plan Key Objective Establish Effective Control over Distribution Channels Conduct joint market visits Review Agreement

47. 6.2 Strategies Strategies Key Objective Establish alliances with Universities Identify and Commercialise a New Product Evaluate new product opportunities

48. 6.2 Strategies Strategies Develop affirmative ethics and service policies Key Objective Develop service policies and procedures Maintain our Excellent Reputation for Ethics and Service Improve communications with customers Employ people with the same values In foreign markets, use locals for “local business customs”

49. 7.0 OPERATIONS

50. 7.1 Key Objectives KEY PERFORMANCE INDICATORS KEY OBJECTIVES Establish and Maintain a Safe Working Environment • Lost time accidents • Near misses Successfully Integrate Product Development within Operations • On-time product release dates • Product launched Accelerate Industrial Product Development Integrate procedures to meet Customer Requirements • Customer feedback • Warranty costs • Product returns • Complaints Progress towards Zero Defect Quality Status • Warranty costs • Product returns • Complaints Develop Objective Diagnostic Test Procedures Eliminate Crisis Management in Production Start-ups • On time product launches