PREPARING A TECHNOLOGY BUSINESS PLAN

1 PREPARING a TECHNOLOGY BUSINESS PlanCase 1 : New Materials Hephaestus Materials Ltd. European Communities, 2002. All rights A TECHNOLOGYBUSINESS PLANCASE 1 : NEW MATERIALSHEPHAESTUS MATERIALS LTDThis booklet provides an example of atechnology BUSINESS plan . It isintended to illustrate the businessplanning process with help of aconcrete a TECHNOLOGY BUSINESS PlanCase 1 : New Materials Hephaestus Materials Ltd. European Communities, 2002. All rights A TECHNOLOGYBUSINESS PLANCASE 1 : NEW MATERIALSHEPHAESTUS MATERIALS LTD1. EXECUTIVE SUMMARY .. 42. THE 53. THE PRODUCT AND PROCESS .. 94. THE BUSINESS OF HEPHAESTUS 105. THE MARKETING STRATEGY .. 136. MANUFACTURING .. 137. FORECASTS OF SALES, CASH FLOW AND BREAK 138. MANAGEMENT CONTROLS OF THE BUSINESS .. 159. THE REQUIRED FINANCIAL 17 PREPARING a TECHNOLOGY BUSINESS PlanCase 1 : New Materials Hephaestus Materials Ltd.

2 European Communities, 2002. All rights A TECHNOLOGY BUSINESS PLANCASE 1 : NEW MATERIALSBUSINESS plan FORHEPHAESTUS MATERIALS LTDH ephaestus Materials Ltd48 Britannia RoadLittle Blighty-on-the WoldLondon UKTel.: 171-8285036 Fax: 171-8289318 Key Contacts: Dr ErebusTechnical DirectorMr U. HeepFinance DirectorPreparing a TECHNOLOGY BUSINESS PlanCase 1 : New Materials Hephaestus Materials Ltd. European Communities, 2002. All rights EXECUTIVE SUMMARYH ephaestus Materials Ltd1 is a materials development company with majorinterests in the advanced ceramics field. The company is a manufacturer ofcarbon, transition metal boride and other hard materials sells advanced materials to a variety of industrialcustomers in the heavy engineering, aerospace, automotive and Materials has developed in conjunction with research partners, via aCommunity funded RTD programme, an advanced composite with the wearresistance of alumina but with the ductility and impact strength similar to hardsteels.

3 This material will have applications for wear resistant parts such as tools,digger teeth and materials handling equipment and has the original research work on Unobtanium arose as part of a need to improvethe existing Hephaestus process for advanced ceramics. The level of scrap inmost advanced ceramics processing is usually very high but by using the resultsof research the company has been able to reduce the level of scrap (andimprove product quality) by 15%. This has resulted in a high level ofproductivity with existing machines and a saving which will be invested in thenew venture for Unobtanium potential European market for this material is estimated at EURO in year XXX62, EURO 1008 million in year XXX7 and EURO million inyear XX11. The total market is estimated at EURO 10 million in Europe andEURO 40 million world wide by year total investment required by Hephaestus Materials for this project is EURO200,000 over five years.

4 The investment covers the following expenditure: Purchase of one sintering and one hot isostatic pressing (HIP)machine Recruitment of commercial staff Training of a technical support team A marketing budget R&D development programmesThe product will need to be presented to Hephaestus existing clients who willneed to evaluate the material. Design of the simpler components will take 12-18months. Payback will be in year 4. 1 Any similarity to existing persons or companies is purely coincidental2 For purposes of this case, we are in year a TECHNOLOGY BUSINESS PlanCase 1 : New Materials Hephaestus Materials Ltd. European Communities, 2002. All rights THE MARKETIAL Consultants have estimated the European market for advanced engineeringceramics at EURO 226 million in year XXX3 growing to EURO 390 million by yearXXX8.

5 The total size of the market is summarised in the following table:Table 1. European Market for Advanced Eng. CeramicsYear XXX3 Tonnesyear XXX7 EURO million% by valueyear XXX8 EURO millionyear XXX8% by valueA12 03(non-electronic) 03(electronic)12045207018A12 03(bioceramic)1584154 PZT/PLZT(piezoelectric) 0212084154Mg0202151 SiC(reaction bonded/ infiltrated) (sintered)1042154Si2 N4(reactionbonded)32151Si3 N4(sinterec) : IAL ConsultantsThe projected growth rates of these materials are extremely high despite thefact that as with all new material developments the estimated breakthroughdates are extremely long. See below:Table 2: Annual Average Growth Rate year XXX3 - year XXX8A12 03(non-electronic)7A12 03(electronic)10A12 03(bioceramic)15 PZT/PLZT(piezoelectric)10Zr0215Mg015 SiC(reaction bonded / infiltrated)15 SiC(sintered)30Si3N4(reaction bonded)15Si3N4(sintered)30 Sialons30 PREPARING a TECHNOLOGY BUSINESS PlanCase 1 : New Materials Hephaestus Materials Ltd.

6 European Communities, 2002. All rights 3: Estimates of Commercial Breakthrough TimesYear(average)Year(upper extreme) High temperature diesel engine componentsXXX4XX13 High temperature gas turbine engine componentsXXX9XX25 Low temperature wear resistant engine componentsXXX2 XXX8 Cutting toolsXXX1 XXX5 BearingsXXX3 XXX8 Pump componentsXXX1 XXX5 Precision jugsXXX1 XXX5 Welding nozzlesXXX1 XXX5 High temperature recuperatorsXXX5XX25 The mechanical wear resistant applications represent the single most importantend user sector of the engineering ceramics market in Europe, accounting forsome 45% of the total market value. The range of applications included: cuttingand grinding tools, wire drawing cones and guides, bearing nozzles, burnernozzles, metal extrusion dies, welding pins and nozzles, pistons for meteringpumps, plungers for high pressure pumps, precision balls and valves, seal ringsfor rotary pumps, shaft protection sleeves, sealing discs and cartridges for the share that advanced ceramics hold of the European wear resistantmarket is very small.

7 The total European Market for cutting tools is estimated atEURO 2-3,000 million and the overall market for wear resistant materials couldbe as high as EURO 5,000 billion. Engineering ceramics hold between and1% of the total market for these applications with the balance being held bymetal alloys such as manganese steel or high-speed projections of the European engineering ceramics market make noattempt to take account of any dramatic technical or marketing breakthroughs,which would create an altogether different reasons for this are purely technical. Existing engineering ceramics are stillbrittle, unpredictable and difficult to manufacture compared to metals. Aconsiderable amount of research has gone into developing materials with theductility, predictability and impact resistance of metals and anti-wear propertiesof ceramics.

8 Hephaestus Materials have developed a class of composite ceramic materials, which display the best properties of both ceramics and toolingsteels. This is a specialist category of products currently used in the aerospace,military and power generating industries. These materials are embryonic interms of market growth and their value is about EURO 25 million andincluded such products as SiC and Si3N4 reaction bonded main customers for Hephaestus are firms in the industrial tooling field andthose making wear resistant metal parts for materials a TECHNOLOGY BUSINESS PlanCase 1 : New Materials Hephaestus Materials Ltd. European Communities, 2002. All rights of Customers for Unobtanium MaterialSectorUKFranceGermanyItalyRest ofEuropeTotalCutting tools101020241074 Digger teeth / mining3455522 Slides / jigs112110110112105549 Extrusion dies551010030 TOTAL130129145151120675In the cutting tools sector 10 firms control 50% of the total market.

9 In diggerteeth 10 firms control 70% of the market but in slides / jigs there is no of cutting tools have a wide product range including drill bits,milling inserts and knives. The initial application for Unobtanium will be for thereplacement of inserts. These devices are quite small and are currently madefrom hard steels, polycrystalline diamond (PCD) and will fill the gap between high performance PCD and ceramic insertsand the steel tipped inserts. The total European market is estimated at EURO320 million of which Hephaestus hope to capture a 1% market share within5 years the same % sales of advanced ceramics today. Of the remainingmarkets digger teeth / mining is thought to be worth EURO 10 million. The levelof penetration by Unobtanium is likely to be much higher because of fewerplayers and more demonstrable advantages.

10 Hephaestus hopes for a 10%market share of specialist tips in 10 years. The markets for slides / jigs andextrusion dies offer good long term growth prospects but require moredevelopment work. The values of these markets are thought to be EURO 50million and EURO 20 million for cutting tools have strict requirements from material include: Demonstrated material performance (data sheets, efficiencystudies, cost benefit analysis) High product consistency Delivery lead times of less than 1 week Customised tools for difficult materials Good technical supportSuch companies are not involved in long term projects or bespoke work. Quality,consistency, delivery and a proven level of performance are more important thanproblem solving. Strong marketing of a limited product range will be moreimportant than developing a wide range of Unobtanium material grades andinitially Unobtanium will fill a specific a TECHNOLOGY BUSINESS PlanCase 1 : New Materials Hephaestus Materials Ltd.