Fulltec – Business Profile

PROFILE FULLTEC AG A Executive Summary Fulltec AG, Zug, Switzerland, was established in 1973 at Neuhausen am Rheinfall in Switzerland as a private limited company. The company has been taken over by Mr. Frank W. Bencsits in 2000 as the General Manager. He has been forming a fully new innovative R&D company for research and development of active natural substances for pest controlling (repellents as insecticides) since that time. Consequently the company’s activities mainly comprise R&D, but bio-insecticides and repellents are also produced and sold. Fulltec doesn’t sell its products under its own trademarks so far. The products are sold through thoroughly chosen international sales partners who resell under their own brand policies. As the results of intensive research, fully natural based active ingredients with highest activity and lowest toxicity were found in 2001. Fulltec is the patent holding company for these substances. Until 2005 most of the filed patents were granted in the EC and several overseas countries like USA, China, Hong Kong and Australia. In 2002 moved the company to its new modern site in Zug, Switzerland to expand and improve R&D and manufacturing. As these new natural based Active Substances don't have the broadly well-known negative characteristics shown by the common competitive synthetic products available on the market – above all regarding toxic effects – they will possibly completely change the way of pest control business in the near future. The inventions comprise different natural substances of two groups: Ingredients of the first group only repel and those of the second group kill and repel insects and acarides of all kinds. The main objective of Fulltec AG is to be a totally ecologically oriented company, developing and selling insecticide and repellent products containing exclusively natural based and lowtoxic active substances and ingredients. The Fulltec products are based on active ingredients obtained from natural sources by patented pure physical ways of extraction which the one group can effectively be used as Insect Repellent and the other group Insecticide. The production procedure of the active repelling ingredient consists of hydrating firstly under high pressure, followed by a vacuum and water steam treatment from natural oils and fruit acids; The insecticide actives are obtained by saturating of natural oils under comparable conditions. The range of possible applications is very wide, including but not limited to application on human, in the household, use for pets and other animals, as well as for plants. As a result, the available range of products is large and currently includes all possible methods of applications on pets, animals and human, e. g. Spray, Cream, Oil and Lotion as Insect Repellent, Lice Shampoo, Gel, Lotion and Cream, different variations for use against Dust Mites (prophylaxis and cure of Allergies! ) as well as Insecticides in all conceivable forms of application. In this regard Fulltec offers concentrates also, which have to be post processed by the customers as well as â€Å"ready for use formulations† of all products. The worldwide markets for Insect Repellents and Insecticides are enormous, in the size of Billions of Dollars. The Fulltec products have been and still are extensively tested, both inhouse and in-field as well as by independent laboratories, for both efficacy and tolerance. Existing patents and registrations are representing a barrier of entry to potential competitors. With the current trend very clearly pointing towards substitution of toxic products, the market potential for Fulltec must be considered excellent. Sales are and will be effected trough thoroughly selected business and sales partners with their own significant market presence in the respective fields and markets, which sell the products under their own brands and labels. Fulltec intends to continue with this strategy, as it allows a broader and faster international market penetration. Production currently is executed by selected and certified contractors. The production processes are explicitly specified and include st rict quality control. Current infrastructure allows significant production increases without additional costs/investment. Raw materials are available on the market at more than one manufacturer, with no significant dependence on a single source or market. Research & Development will concentrate on the further refining of existing products, on testing further possible applications for the existing products and research for new active ingredients and products. Fulltec AG is already a nicely profitable organization, but has not nearly reached its potential market appearance yet. All figures show that Fulltec only just started to penetrate some major markets, and will be able to show growth rates between 30 % and 60 % revenues each year for the whole planning period. Earnings are likely to grow even faster by a higher use of existing capacity. The further development of already served markets (with additional products and into additional retail channels) as well as the development of new geographical markets will be the main target of Fulltec AG business activities in the years to come. B – The Company Small Growth Company Profitable and financially sound Strong Growth Potential Discovered new natural Active Substances A Family of Products ready for the Markets Many Patents granted and pending Ready for substantial Market Penetration B. 1 History During the period of 2000 to 2002 extensive research was done by the R teams of Fulltec AG which led to the development of different new active ingredients with insecticide and repellent properties. Early in 2000 Fulltec AG changed its business focus from a purely trading agency to a patent holding company for products, applications and systems which cover insecticide and repellent properties – this means active ingredients and formulations including specific fields of applications. Repellents are used to repel insects, whereas insecticides have a lethal effect on such insects. Market introduction started in late 1999 with the launch of a former formulation of Repellent and a Household-Insecticide tested on the market by partially using new actives. Immediate success on the market has been achieved already with these temporary products due to the fact that a) the major shareholder and current Managing Director has great experience in the marketing of such products and therefore has extensive and valuable contacts in the industry, and b) the astonishing effectiveness of this natural product line. 2 B. 2 Current Situation The Present Board of Directors of the Fulltec Company consists of the following members: Urs O. Kraft (Chairman of the Board) Frank W. Bencsits Trustee and Tax Expert Managing Director Presently Fulltec AG has no permanent employees. So there are no liabilities in dispatches or payrolls. The business location of Fulltec is Zug, Switzerland (45-km outside Zurich). Research & Development is done in the specialized chemical and entomological laboratories in Austria. Production is carried out by beholden contractors under full control of Fulltec. B. 3 Strengths and Weaknesses The following mentioned strengths and weaknesses give an overview on the current situation of Fulltec. They will be elaborated on in more detail though in the following chapters. Strengths: Fulltec owns the one and only registration of Anti-Lice products as a Medical Device according Directive 93/42/EEC in the world. High Products Efficacy of the Repellents even under Hard Circumstances (Sweating, Swimming) All Products on Natural Basis Nigligible Toxicity to Humans, Animals and Plants Repellent has Passed the OECD Skin Absorption Test Repellent Capable of Avoiding Severe Diseases like Malaria, the West Nile Virus and the Tick-born diseases Encephalitis, Tularemie (Francisella tularensis), RockyMountains-Fever (Rickettsia richettsii), Theileriose (Tehileria spec. ) and LymeBorreliosis. Products provide high Added Value in Terms of Profit and Prestige to the Distributor High Market Share in Germany, Denmark, Sweden and Hungary French Partner with Best Connections to all French Influenced Countries Rocketed in 2005 in these Well Known Difficult Accessible Markets Attractive Industry Availability of Raw Materials from Various Sources Production at Low Costs, Little Manpower and in Production Units of Small Sizes High Flexibility in Organization, Production and Sales – no Long Term Treaties Competent Management and R Teams High Liquidity High Profitability Strong Financial Base – – Challenges: Still small Market Presence in USA, NAFTA, Asia and Southern Europe 3 – Market Penetration in far countries, like China, Japan, Australia and Hong Kong just started B. 4 Goals / Future Developments Fulltec, with its development of new technologies has an important impact in the industry. The company already gained recognition and a considerable world m arket share of 10 % for Household Insecticides and Repellents. A concentration on the most attractive markets with the best relative competitive situations will allow Fulltec to achieve strong further internal growth. Prime products will be the Repellent line and the Medical Device series of Anti-Lice products for human use, a line of Household-Insecticides and Pet Care products, and a newly developed product for use against Dust Mites. Annual growth rates in the range of 30 % to 60 % for revenues will be attainable under the current economical circumstances. Fulltec AG with its innovative technologies therefore appears as an attractive future partner for potential co-operations, joint ventures, etc. Strategically using such co-operations already allowed Fulltec to achieve market leadership in individual market segments, as the market leadership in sales of repellents in European Community Pharmacies. C Products / Technology Insect Repellents / Insecticides Broad Range of Use (Humans, Household, Indoor Plants, Gardens, Several Branches of Industry, Pets, Animals, Plants) Active Ingredients of Natural and Non-Toxic Base Significant Added Value for the Customer – C. 1 Product Description C. 1. 1 Active Ingredients / Substances Repellents The active repelling ingredients are produced under physical conditions only, e. g. by hydrating under high pressure, followed by several vacuum and water steam purifying processes of different natural oils and / or their natural grown main ingredients. They also could be obtained from semi-synthetically substitutes and fruit acids in the way of patented manufacturing procedures. The active substances used in all repellent products possess the same chemical characteristics independently of their target application on the human or animal skin. Only different concentrations and varying contents of actives and their special synergists are dependent on special requirements of various targets, regardless whether used in the form of sprays, creams, oils or lotions. C. 1. 2 Repelling Effect Pests are in a position to recognize suitable quarry as a result of the presence of so called â€Å"bio receptors†. These are for example (body-) temperature, humidity, CO2-content and certain chemical substances produced in small quantities by mammal skin metabolism processes, such as ammonia, butyric acid and urea. Conventional repellents cover up such bio receptors with a more or less effective aura. Therefore they are extremely limited in 4 their efficacy, as this aura of gas becomes rapidly perforated by friction from clothing, sweat and other external influences, which then leaves an open target for attack by pests. Patented Active of Fulltec products on the other hand finely covers the whole treated skin surface and influences and eliminates the bio-receptors by various mechanisms. These continuous reactions between Receptors and Active make the quarry invisible for the attacker (camouflage effect). This process continues until the Active is entirely exhausted (around 8-hours). As the active ingredient is water resistant, it keeps the full efficacy even during periods of sweating and short periods of swimming. In contrast to most competing products, especially to natural based products, efficacy remains at a very high level for well over eight hours. In contrast to DEET, the most widely used substance in traditional repellents, the skin tolerance of Fulltec's substance is excellent. Fulltec repellent has passed as only substance of its class the very rigorous measures of the well known OECD skin absorption test! The Fulltec products are negligible toxic for human beings and animals. C. 1. 2. 1 Active Ingredients / Substances Insecticides The active insecticide ingredients are obtained by saturation under high pressure, vacuum procedures and partially water steam amidizing from natural oils and plant extracts by a patented manufacturing procedure. Concentrations in different formulations are varying according to the use. C. 1. 2. 2 Insecticide Effect Fulltec Insecticide Actives coat the target insects and acarinas with a fine, oily film. The active substances penetrate through the respiratory openings and block them so that the insect dies within a very short time. In addition, a pronounced water displacement results in the quick and complete desiccation of the pest. Fulltec Insecticides are the one and only products in the sector of insecticide Actives with exclusively physical efficacy. Fulltec Insecticide Actives do not enable resistance build-up because of this natural and physical and completely new system of efficacy. Especially efficacy is not achieved by a nerve poisonous effect how it is the case for most traditional insecticides such as carbamates, phosphoorganics and pyrethrines, which always have more or less severe effects on humans and animals. The effects of Fulltec insecticides only occur in cold-blooded species, such as insects, spiders and mites (ticks). The substances have no negative toxicological effects on the warm-blooded humans and pets. Moreover the solely physical mechanism makes the buildup of resistances of any kind impossible. C. 1. 3. Toxicological Summary Acute oral toxicity : LD50 – > 10g/kg rat Acute dermal toxicity : LD50 – > 10g/kg rabbit Inhalational toxicity : no results, inhalation non poisonous Primary skin irritation : none irritating in patch test on rabbits and humans Mucous membranes tolerance: only slightly irritating in pure concentration Biological degradability : >90% BSB28/CSB according to the modified OECD screening test Fish toxicity : LC50 – > 100mg product/liter Bacterial toxicity : EC50 – > 100mg product/liter C. 2 Products 5 The product lines, due to the substance's unspecific effect on all kinds of insects, cover a very broad range of applications for the benefit of humans, animals, and plants. All products are based on Fulltec? s Active Substances, though in varying concentrations and with different additives to achieve specific requirements of different applications. Moreover further future applications are possible, as tests continue to reveal good results in previously uncovered areas. In addition, the formulas allow various ombinations, so that the products range can include gels, creams, oils, lotions, sprays, additives to cleaning and impregnation products, shampoos, spot-on-products, collars, bracelets and aerosols. The following tables list examples of available products. C. 2. 1 Products for human and environmental use Range of Use – Men – Women – Children Product Mosquito Protector Tick Protector Wasp Protector Horsefly Protector Repellent Bracelets Anti-L ice Shampoo Anti-Lice Lotion Anti-Lice Gel Anti-Lice Spray Lice-Repellent Spray Lice Repellent Gel Insect Killer Insect – Mosquitoes – Ticks – Wasps, Hornets – Horseflies Type Repellent – Men – Women – Children – Mosqitoes, Ticks – Headlice – Crablice Medical device – Clothlice acc. Directive – Nits 93/42/EEC – House Mite Stop – Washing Machine Anti-Lice Detergent – Business premises Roach Killer – Kitchen – Basement – Gels Insect Stop Spider Stop – Flies, Mosquitoes Insecticide – Wasps, Ants – Mites – Cloth Moths – Food Moths – Fleas, Lice – Dust Mites – Lice and Nits – Cockroaches – Cockroaches – Ants – House Crickets – Spiders – Woodlice – Ants – Cockroaches – Silverfish Insecticide Repellent & Insecticide C. 2. 2 Products for Pets and Animals 6 Range of Use Pets – Domestic animals Product Insect – Fleas – Biting flies – Lice and Nits – Mosquitoes – Ticks – Mites – Fleas, Ticks â €“ Mites, Lice – Horse Flies – Lice – Flies – Flees – Ticks – Other pests and nuisances Type Repellent & Insecticide Horsefly, Sandfly, Mosquito and Tick Protector Collars X-Line and Protect Line Spot on products – Dogs, Cats Liquid Sprays – Small farm animals Spot On – Horses Liquid Sprays – Cattle – Sheep – Other Domestic Animals Repellent & Insecticides C. 2. 3 Products for Plants & Garden Range of Use General Use Product Ant Stop Termite Stop Bug Stop Flowerspray Insect Ants – Termites – Beetles – Nematopodes – Mites – Aphids – White Flies – Red Spider Mites – Caterpillars – Ants – Fruit Flies – Caterpillars – Other Insects Type Insecticide Flowers Insecticide Trees Tree Protection Repellent & Insecticide C. 3 Independent Tests and Studies General: Various independent Institutes (1) conducted numerous extensiv e studies and tests on the individual Fulltec Products. Subjects of those were first of all the efficacy under test conditions and in practical use, secondly the tolerance (Toxicology) for humans as well as animals, and thirdly the ecological behavior (biological decomposition). As the insecticide effect is solely physical and not based on a nerve poison, there can't be any buildup of resistance. Regarding the Insecticide Products, the broad range of efficacy on various kinds of insects was demonstrated in the lab as well as in practical use. Furthermore the biological decomposition was demonstrated to be excellent. On the product Roach Killer efficacy against cockroaches was demonstrated. Regarding the Repellent Products – besides efficacy and toxicology – skin tolerance were main subjects of the extensive tests conducted. All tests showed excellent results. In addition, separate studies compared the efficacy in practical use (field tests). All tests revealed superior efficacy of Fulltec's Repellents compared to competitive products 7 including the market leaders Autan (Active: Bayrepel) and OFF (Active: DEET; both products by SC Johnson). On comparable conditions, the repelling effect of Fulltec's Repellents was shown to last longer. Worth to mention explicitly is the fact that Fulltec's Repellents are the only products available on the market yet to pass the rigorous requirements of the well known OECD Skin Absorption Test. 1) LHS Institut fur Hygieneforschung und Schadlingsbekampfung in Labor und Praxis, Miesenbachgasse 7, 2700 Wiener Neustadt, Austria PRAEVMEDIC, Carmenstrasse 8a, 8032 Zurich, Switzerland Swiss Tropical Institute, Socinstrasse 57, 4002 Basel, Switzerland BioGents GmbH, Universitatsstra? e 31, 93053 Regensburg, Germany IS Insect Services GmbH, Dr. Hans Dautel, Haderslebener Str. 9, 12163 Berlin, Germany T. E. C. Insec ticides testing, 7 bis rue pont de l'aveugle, 64600 Anglet, France Hopital Avicennes, Professeur Azreki Izri, Laboratoire de Parasitologie, 125 rue de Stalingrad, 93009 Bobigny, France Complete detailed List of Test Reports see Annex I C. 4 Customer Benefits In the following graph, the characteristics of the Fulltec's substances are compared to those of DEET, Bayrepel and essential oils in Repellents. C. 4. 1 Comparison: Customer Benefit Repellents Active Ingredients Insect Repellents Fulltec DEET Bayrepel ++ + ++ + + + + ++ -+ ++ -0 0 0 + ++ ++ ++ + Essential Oils —+* + 0 ++*1 – 1 2 3 4 5 6 7 8 * = in low concentration, higher concentrations are irritant *1= banned after 01. 09. 2006 acc Directive 98/8/EEC Explanations: Comparing Fulltec's repellent against DEET, BAYREPEL containing products and essential oil: ++ = very good + = good 0 = reasonable -= could be better = unacceptable Comments: 8 1 – Long Term Effect: Contrary to the essential oils, Repellents from Fulltec show a high repelling effect for over 8 hours. DEET and Bayrepel also have proven to be effective under laboratory conditions whereas the effectiveness depended highly on the amount of active ingredient (high doses of > 30 %+ are effective like Fulltec’s Actives. Lower concentrations have poorer efficacy). 2 – Broadband Efficacy: Fulltec’s Repellents show the best broadband repelling efficacy against a wide range of nuisances, including multiple species of mosquitoes, ticks, wasps, horseflies, biting flies, black flies and mites. Products containing DEET at higher concentrations (> 30 %) are also effective widely. Bayrepel is only available in concentrations 10 and 20 % and exhibits just short protection times so that reapplications every 2 to 3 hours are necessary to get a safe level of protection. Essential oils are unsuitable because of practically non-existing protection time and broadband efficacy. 3 – Water/Sweating Resistance: Compared to the other substances, Fulltec’s products are more water resistant. As they are deactivated neither by sweating nor under water contact (e. g. short swimming) they keep their effectiveness also during sports. 4 – Skin Care: The substances used by Fulltec show significantly more skin care qualities than the competition. They only contain highly skin tolerant and even skin caring base- and active ingredients. Therefore the products are not only highly effective repellents, but also high quality cosmetic products. The plant oils and their skin caring derivates give the skin energy and vitality, whereas natural Vitamin E fights potential inflammations. Evenly applied, the product maintains the skin's natural moisture, and makes it soft and elastic. 4 – Skin Tolerance: Traditional, effective Repellents all contain high levels of skin irritating and partially highly toxic substances. Contrary, Fulltec products have never caused eczema or allergic reactions so far. Essential oils in higher concentrations cause skin and mucous membrane irritations. Furthermore they can solve plastics and synthetic textiles, which is a problem of DEET products, too. Bayrepel seems to have second best Skin Tolerance but examinations of its toxicological properties are not finalized yet. 5 – Ecological Tolerance: Fulltec products are natural non-poisonous products with a high ecological tolerance. Essential oils, above all technical qualities of Rosemary and Citronella exhibit toxic effects on soil bacterias and show only poor ecological tolerance. DEET on the other hand is an ecotoxic substance. Bayrepel seams to have only slightly ecotoxic potential. 6 – Price: The Fulltec product’s prices are usually conforming competitors and markets policies. Fulltec’s low standing expenses allows following all prerequisites of different markets and competitors pricing. 7- Availability: Bayrepel (Autan) definitely has the best availability in all retail channels today. Being the No. 1 in Central European pharmacies Fulltec? s Repellents reached a high level of availability. Furthermore they are able to substitute all Natural Actives based competitive products which will be banned after 01. 09. 2006 (deadline of Directive 98/8/EEC). These other Natural products mainly are sold through drug stores, but constantly decreasing customer acceptance and demand will lead to only a narrower availability in the future in countries outside of the EC as well in NAFTA under further restrictions by the EPA and the Canadian PESTICIDE REGISTRATION and EVALUATION COMMITTEE. 8 – User friendliness: All products are user friendly in the sense of easy application. However DEET is aggressive against several materials like plastics, is toxic and causes skin and mucous membrane irritations. This is also valid for several essential oils. Bayrepel seems to be more safe and gentle but is restricted for application on children below an age of 2 years. Only Fulltec Repellents fulfilled requirements of the OECD skin absorption test and can be used safe under observance of the recommended directions for use. In summary, the Fulltec products clearly offer the highest customer. The Fulltec products are highly effective against insects comparable to high concentrated DEET. In contrast to DEET, Fulltec products are based on natural ingredients and show excellent skin tolerance 9 and skin care qualities. In comparison essential oils repellents are of natural base, too but they show a low efficacy in terms of repelling insects over a longer period of time. Moreover a lot of them cause skin and mucous membrane irritations and possess photosensitizing potential. C. 4. 1 Protection against Competition The products are adequately protected by granted or pending patents). Fulltec AG owns the patents protecting the repelling as well as the lethal features of the active substances. In addition, the isolated declaration of ingredients according UPAC or INCI usually does not allow gaining knowledge on the exact composition and special nature of the Actives. Fulltec’s exclusive knowledge of the patented manufacturing process of Actives guarantees imitation protection of Fulltec Repellants and Insecticides by competitors. D Markets Very attractive market (extremely high market volume, high growth) Fulltec shows all pre-requisites to be successful Market is already accepting the Fulltec Products Consumer Trend clearly going towards Natural Products Barriers of entry already overcome D. 1 Market Overview D. 1. 1 Description / Characteristics If only for its enormous size, the market for Insect Repellents and Insecticides should be considered extremely attractive. Despite the big established competitors dominating the market, there are various attractive niche markets available to innovative companies. Fulltec, with its range of nature products falls into such a niche. The currently most widely used ingredients in competitive products are DEET (in repellents) and Pyrethroids (in insecticides). All those substances are being increasingly questioned and therefore avoided by many consumers and more and more even by governments and appropriate authorities. It can be expected that those products with questionable active ingredients will have to be substituted more and more by natural products. This opens up an extremely high potential for Fulltec to firmly establish itself in this market. As the products meet a high consumer acceptance already today, a bigger market penetration can be safely foreseen. D. 1. 2 Market Segments The segmentation of the market shows the following criteria: †¢ †¢ Range of use: Humans and Environment / Pets / Animals / Plants Type of use: Repellent (to repel insects) / Insecticide (to kill insects) Region: Switzerland / European Community / USA / Canada /Australia †¢ To identify the estimated total market volume, the various market segments were analyzed at first (Supplements: Estimated Market Volume). Starting points were market studies of IHA GfM for Switzerland and GFK for Germany. In addition, the relevant market segments for Fulltec in terms of distribution channels, competition, prices and margins were analyzed. On the basis of market data of the specialized trade (pharmacies, etc. ), the total market volume for Switzerland and Germany was estimated. In order to calculate total 10 world market volume, Switzerland's and Germany? s per capita consumption was taken as a base. However adaptations to in some instances different distribution channels, price levels, usages, etc. were made. D. 1. 3 Client Structure To distribute its products, Fulltec currently uses the following channels: †¢ †¢ Specialized Trade (Pharmacies, Drug Stores), and more sparely in Retail Chains and Stores However it is a set goal to penetrate all segments of distribution. In Switzerland for example, the specialized trade segment could be covered by big players in pharmaceuticals and special chemicals (for Repellents), and the retail chains and stores by international players (for Insecticides). Moreover, Fulltec currently is in negotiation with various Multinational Companies. D. 1. 4 Factors for Success In the Insect Repellent and Insecticides markets, the most important factors for success are definitely the efficacy of the products and the presence at the â€Å"point of sale†, i. . the easy availability for the consumer. Moreover the tolerance of the products for human and environment is of increasing importance. In addition, an increasing sensibility against synthetic, toxic substances is recognized, as more health consciousness of people leads to preference of natural products. The Fulltec products are both, highly efficient and ecologically well tolerated. In order to imp rove easy availability for the consumers, Fulltec decided to collaborate exclusively with established distribution partners. It is possible to achieve a high market presence in short time with this strategy. Fulltec products perfectly meet the factors of success, which allows the continuation of the quick market penetration by Fulltec products. D. 2 Market Position Current Situation Currently, the strongest market position held by the Fulltec products is repellents, a highly attractive market segment. The second position in terms of market penetration as well as attractiveness of the market segment is held by the natural insecticides, especially the market segment Pet Protection. All remaining product groups (Repellents and Insecticides in all their broadness) are positioned in relatively highly attractive market segments, but have not reached significant market penetration so far. Future Situation Longer term, Fulltec expects to achieve fairly dominant market positions in the following segments: Insect Repellents, Anti-Lice product line, Household Insecticides, Pet Protection and Mite Stop, which at the same time are the most attractive product groups and market segments. Less dominant, but nevertheless sizeable market positions are expected to be attainable in the egments Agricultural Insecticides and Garden Products. Repellent 11 At least for the next one or two years, Repellent products are expected to continue contributing the largest share to total revenues among all product groups, as the total world market for such products is huge and extremely attractive. Furthermore, Fulltec? s natural and non-toxic products today are already well accepted in Europ e and USA. It is assumed that over time, natural products will increasingly challenge the established toxic products, gaining in market share also due to legislation changing towards more restrictive forms. Anti-Lice Products Market penetration of these products is on the best way to get No. 2 in Europe and No. 1 in Medicine Devices in EC. It is expected to significantly increase its share, as being of natural base and pure physical efficacy often is the decisive factor for being chosen by consumers. Efficacy of the product is excellent, and it is being very well tolerated. Pharmaceutical trading (Drug stores and Pharmacies) will be the preferred sales channel, thereby guaranteeing high margins and profits. Pet Products By nature, the market for pet products is very attractive and competition is very high. As Fulltec will concentrate its efforts on those markets, which offer the best relative competitive position, pet products will not be at the forefront of marketing efforts at the moment. A potential cooperation with one or more established companies in this field however could change this assessment rapidly. Natural Insecticides Due to ever increasing requirements in terms of ecological tolerance and to the extensive restrictions of Directive 98/8/EEC according Biocides, natural insecticides should gain significant market share over the coming years. This product group therefore is expected to contribute markedly to total revenue growth. Mite Stop Taking into account the steady increase of Dust Mite Allergies, this segment is clearly a market of the future. Dust mite allergies come from a saturation of the air with dust and excrement particles. A Fulltec product to exterminate dust mites is already fully developed and successfully introduced into Central European markets. It is applied by spraying into air and on mite-infested surfaces. The dust particles become saturated with Mite Stop and drop to the floor, which already brings about a cleaning of the air. The fallen down particles start to act as insecticide against the dust mites population. The circle of the extermination of dust mites therefore is closed. A relatively quick market introduction is possible, as a registration as Anti-Allergicum can be avoided if the product is advertised and sold as primarily an Air Cleaner. All other currently available products on the market are still based on toxic Pyrethroids, which puts the Fulltec product into an advantageous position. Alternative methods used are various medications, which however combat the symptoms rather than the cause of the problem. Furthermore, as such drugs are high margin products, the Fulltec alternative can also be expected to sell at premium prices with high margins. D. 3 Market Assessment The following points peak in further increasing market penetration by the products of Fulltec: 1. Acceptance of the Fulltec Products 12 On the markets already served, the Fulltec products generally achieve a high market acceptance. 2. Barriers of Entry The barriers of entry to new contenders are quite high. Fulltec has already overcome them as the products lready have been tested in terms of efficacy and tolerance, and as patents and registrations processes have already been initiated. 3. Trends A major trend within today's society points towards substitution of toxic substances by natural ones. Accordingly, the market potential for Fulltec's natural and non toxic products can safely be considered very excellent. E Competition Competition in Repellents mostly DEET and Bayrepel based Competition in Insecticides mostly Pyr ethroid, Carbamates and Organophosphonics based Significant competitive advantage for Fulltec Fulltec is ready for competitive strategies E. 1 Competitive Products E. 1. 1 Repellents In competing repellents worldwide, almost universally the substance DEET (N,N-Diethyl-mtoluamide) is used. This specifically effective Insect Repellent is toxic and has a strong irritating effect on eyes and mucous membranes. Some children have shown a harming of nerves and, due to inhaling DEET, cases of death have been reported (Tenenbein, M. JAMA, J. Am. Medical Assoc, 1987, 258). In competing repellents in Europe, almost the substances Icaridin (Bayrepel) and IR3535 are used. Alternative repellents such as essential oils show a rather low efficacy and can cause allergic reactions. E. 1. 2 Insecticides A multitude of active ingredients is used by competing insecticides products. Most of them are nerve poisons. A lot of the formerly highly praised substances (DDT, Dieldrin, Lindan) are banned today in many industrialized countries because of their toxicity. Alternatively, Pyrethroids are used very widely today (about 50-75% market share). Pyrethroids are synthetic insecticides. Although the toxicity of this insect specific biocide is markedly lower for mammals, it is still a factor of up to 100-times higher compared to the Fulltec Insecticides. In addition, Pyrethroids show a considerably higher fish toxicity. Other natural insecticides currently show a clearly lower efficacy compared to both, the synthetic insecticides and the Fulltec products. E. 1. 3 Most Important Competitors The following table gives an overview on Fulltec's most important competitors and their products. In the Supplements section, there is a table listing the most important companies within the various market segments in Switzerland with their market shares. 13 Competitors and Competing Products Company Bayer SC Johnson 3M Corp. Reckitt & Coleman Shell Vogt AVON Description Multinational Chemical Co. Multinational Chemical Co. Multinational Chemical Co. Multinational Chemical Co. Multinational Chemical Co. Small Specialty Co. Intl. Cosmetics Co. Geographic al Presence International International International International International Switzerland USA and Intl. Market Position Market Leader worldwide Marked Leader USA No. 2 USA No. 3 worldwide No. 1 in Market Segments Leader Repellents CH No. 1 Mail-order USA Company Bayer SC Johnson Insecticide Baygon Raid Substance pyrethroids pyrethroids Repellent OFF, Autan Ultrathon KIK Anti-Brumm Skin So Soft Substance DEET/DMP Bayrepel DEET/DEP DEET/DMP DEET Natural Base 3M Corp. Reckitt & Coleman Heropic, Neocid pyrethroids Shell Shelltox pyrethroids Vogt AVON E. 1. 4 Competitive Advantages / Disadvantages Advantages: The products of Fulltec have enormous advantages of being based on substances well tolerated by human and environment. They do contain neither the toxic DEET nor any other harmful substances. Moreover the products show high efficacy – comparable or higher to the synthetic products and significantly higher than essential oils. Initial success, especially due to above factors, is clearly visible on already covered markets. Disadvantages: The products themselves do not have any apparent disadvantages. As the market position of the competitors is fairly dominant so far, a successful market entry of small companies like Fulltec is not easy. However, the massive advantages of Fulltec products cited above as well as an experienced management will help Fulltec to overcome such hurdles. E. 1. 5 Competitive Strategies The constantly increasing demand for natural products may tempt competitors into imitating Fulltec's substances. However the patents as well as the product know-how speak against such strategies. A substitution of the Fulltec formula by another, equally effective natural substance, is not discernible so far. After all, some competitor might be tempted into trying a takeover of Fulltec AG. The current shareholder structure though represents an insurmountable barrier at least for unfriendly and unwelcome takeover attempts. In any case the interests of the shareholders will be of major importance. F F. 1 Marketing Market Coverage 14 F. 1. 1 Distribution / Sales Distribution is effected through sales partners with a high market presence in the respective market segments. This strategy will be continued, as it allows a relatively rapid penetration of the markets. In addition, it allows using more than one distributor in a single market with the different Actives and slightly modified formulas in different structured market segments. This strategy also allows opening up the various distribution channels in a given market (Specialized Trade, Retail Trade, Mail-order Business Partners, etc. . However it is possible that some distributors are in direct competition with others selling a different form and Active Ingredient of the same basic product. For products or product groups which are not part of first priority marketing plans, strategic alliances with companies firmly entrenched in those market segments are planned. F. 1. 2 Communication Communication will be expanded to new partners to develop new markets and activities of business. Further it will be necessary to perfect and extend information. The end users will be more clearly informed about both, the negative effects of the competitive products, and of course about the advantages of the Fulltec products. This strategy will lead to accelerated substitution of the traditional synthetic products by natural Fulltec products. For this purpose, various media, like Internet TV and radio advertisement appear predestined. F. 2 Product and Marketing Design Currently Fulltec does not sell any products under its own name. The distributor or sales agent can individually choose a brand name of his own. F. 2. 1 Product Line The product line of Fulltec is described in detail earlier in this report. All products are available either as bulk ready to use, as concentrate (container, barrel) or already packaged as lotion, spray, etc. Future Years In the following years Fulltec expects continuous gain of overall market share. This should lead to a sustainable growth in revenues of at least 40 -60% per year. It will be looked for further sales partners in Europe as well as in the USA, Asia, Africa and South America, mainly for the Repellent, the Insecticide and the Anti-Lice Product line. G Production / Procurement/ Ecology / Location / R & D Patented Production Processes – Ample unused Production Capacity – No specific Dependence on Suppliers of Raw Materials – Environment-friendly Production – Good Location – R & D Emphasis – Refine existing Products – Develop further Applications G. 1 Production All sold products are produced under control of Fulltec by indep endent contractors. The production processes mainly consist of the manufacturing of Active Substances by physical 15 conversion of natural substances into efficient derivates and mixing various substances according to proprietary and secret processes and formulas. Consequently only a relatively small number of equipment and technical installations are needed. To get to the finished products, automatic filling and packing machines are used. The production process itself is high technology, although just common lab equipment (including gas chromatography and thin layer chromatography) is necessary. As the production process is highly automated, labor costs are kept low, too. Fulltec has the option to build up its own production facility or seek external contractors for tasks like mixing, filling and packaging. However at the moment such a construction step is not planned. G. 2 Procurement All ingredients and raw materials needed for the production are easily available. Suppliers are mainly big companies, competing against each other price-wise as some of the raw materials used are also traded on the commodity markets. The prices for the raw materials used do not fluctuate widely. Therefore no problems regarding the supply side are foreseeable, which should guarantee an ongoing smooth production process. G. 3 Ecology G. 3. 1 Legal Compliance All relevant laws and orders of Switzerland and the EC are strictly followed by Fulltec. However it is important to note that Fulltec does not fall under the order on ecological tolerance (Umweltvertraglichkeitsprufung) or the Storfallverordnung). For all products, safety data sheets are available, as requested by the regarding directives, e. g. Stoffverordnung (order on materials used). G. 3. 2 Raw Materials The main components of the products consist of natural raw materials. Apart from water, mainly non-toxic and well biodegradable substances are used. Some other ingredients of very low toxicity (all within Swiss poison class 4 or 5 or not classified) are just used as additives in very low quantities. All raw materials are well biodegradable. G. 4 Location Fulltec AG is located in Zug, Switzerland. Infrastructure: Currently production is done by contractors which are capable of increasing volumes significantly without causing any problems. The (rented) offices are fairly new, and adequate for Fulltec's sales activities. As most of the clients are located in different foreign countries and transport costs are low at current sales volumes, this point is of no major importance at the moment. At a later stage though, when sales continue increasing at estimated rates, other (outsourced) production facilities within major client regions or countries will be installed. The generally very high level of education of employees in Switzerland and countries of contractors (Austria, Germany) represents a competitive advantage. Locations are very attractive for employees. 16 Distance to clients: Education: Labor Costs: Corresponding to the high level of education, salary levels are quite high as well, at least compared to other countries. However, as the operation of Fulltec is not very labor intensive, this does not represent a major disadvantage. G. 5 Research & Development Research & Development is being conducted in laboratories in Austria. As this division caused no problems in the past, there is no plan to combine these efforts in one single place. In R, emphasis is being put on refining existing products. In addition, further potential applications for the same basic formula inherent in all Fulltec products are also developed as new Actives on natural basis. H Organization / Management Direct major efforts to the goal of achieving competitive advantages Lean Organization Management with proven capabilities Profit Sharing by Management H. 1 Organization H. 1. 1 Core Functions In the following, we comment on the core functions within Fulltec today, in the order of current importance or weighing (number of people involved, financial resources). Marketing / Sales: This part definitely requires the most attention in the current phase of development. New distribution and sales partners have to be located, new markets have to be developed, new products introduced, etc. Strong partners offer the best prospects in terms of the variety of products represented and of potential market penetration. Production: The production processes are very well matured. Therefore it can be outsourced to thoroughly selected partners. However Fulltec controls the whole process at any stage. Of course there will be efforts to optimize production, to use free capacities, etc. Even though good patent protection is given, the producers have to prove reliability in keeping the exact formulations secret. R: The major phase of R, the development of the formulations and the final products, is basically done. Therefore main R emphasis will be put into the refinement of existing products and the identification and development of additional applications. However this does not mean that no new products or product lines will be developed in the future. Procurement: As already mentioned in other sections of this business plan, the procurement of the raw materials does not pose any problems, neither in terms of availability nor in terms of price. Increased sales volume in future will even lead to better purchase conditions. Service: Sales advice and support is of major importance for every production company. However, regarding the specific construction of the company, service does not play a major role in the case of Fulltec, as the products do not require any kind of maintenance, repairs, or other frequent advice. Speed and accuracy of delivery on the other hand is of paramount importance. 17