Business Plan

Energy Challenge Services

Contents
1. Company description .................................................................................................................... 4
2. Business Model .................................................................................................................................. 5
2.1. Opportunity description ......................................................................................................... 5
2.2. Business model .......................................................................................................................... 6
2.2.1. Value proposition ............................................................................................................. 6
2.2.2. Customer segments ........................................................................................................ 6
2.2.3. Channels ............................................................................................................................ 9
2.2.4. Customer relationship ................................................................................................... 11
2.2.5. Revenue streams ........................................................................................................... 11
2.2.6. Key partners..................................................................................................................... 12
2.2.7. Key activities.................................................................................................................... 13
2.2.8. Key resources .................................................................................................................. 13
2.2.9. Cost Structure.................................................................................................................. 14
3. Vision, Mission and Values ........................................................................................................... 14
3.1. Vision ......................................................................................................................................... 14
3.2. Mission ....................................................................................................................................... 15
3.3. Values........................................................................................................................................ 15
4. External Environment Analysis .................................................................................................... 17
4.1. PESTEL analysis......................................................................................................................... 17
4.2. Industry attractiveness .......................................................................................................... 19
4.3. Competitive forces (Porters model) ................................................................................ 20
4.3.1. Threat of entry: high ...................................................................................................... 20
4.3.2. Industry rivals: strong ..................................................................................................... 21
4.3.3. Bargaining power of suppliers: weak ....................................................................... 21
4.3.4. Bargaining power of buyers: strong.......................................................................... 21
4.3.5. Treat of substitutes: weak ............................................................................................ 21
4.4. Factors that drive industry change and impact ........................................................... 22
4.5. Industry rivals positioning .................................................................................................... 23
4.6. Likely strategic moves of the rivals .................................................................................... 24
4.7. Key factors for future competitive success .................................................................... 24

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5. Internal Environment Analysis ..................................................................................................... 25
5.1. Competitive resources and capabilities ......................................................................... 26
5.2. SWOT analysis of the business............................................................................................. 27
5.3. Assessment of competitiveness and appeal to the customers................................ 28
5.4. Competitive positioning ....................................................................................................... 30
6. Distinctive competencies ............................................................................................................ 31
7. Growth and Generic Strategies ................................................................................................ 32
7.1. Selection of generic strategy ............................................................................................. 32
7.2. Selection of growth strategy .............................................................................................. 33
8. Marketing strategy ........................................................................................................................ 35
8.1. Marketing strategy ................................................................................................................ 35
8.2. Marketing mix ......................................................................................................................... 35
8.2.1. Products and services portfolio.................................................................................. 35
8.2.2. Prices ................................................................................................................................. 37
8.2.3. Promotion ......................................................................................................................... 38
8.2.4. People ............................................................................................................................... 39
8.2.5. Place ................................................................................................................................. 39
8.2.6. Process .............................................................................................................................. 40
8.2.7. Physical evidence.......................................................................................................... 41
8.3. Marketing & Sales strategies .............................................................................................. 41
8.3.1. Phase 1.............................................................................................................................. 41
8.3.2. Phase 2: Future developments .................................................................................. 43
8.4. Positioning and client retention campaigns .................................................................. 43
9. Production / Operations .............................................................................................................. 45
9.1. Resources ................................................................................................................................. 45
9.1.1. People ............................................................................................................................... 45
9.1.2. Tools ................................................................................................................................... 46
9.1.3. Offices ............................................................................................................................... 47
9.2. Processes .................................................................................................................................. 47
9.2.1. Processes design ............................................................................................................ 47
9.2.2. Operational KPIs ............................................................................................................. 49

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 9.2.3. Continuous improvement............................................................................................ 49
9.3. IT application: Work Force Management (WFM) ......................................................... 49
10. Human Resources ...................................................................................................................... 51
10.1. Organizational structure .................................................................................................. 51
10.2. Recruitment ......................................................................................................................... 53
10.3. Training .................................................................................................................................. 53
10.4. Motivation ............................................................................................................................ 54
11. Risks ................................................................................................................................................ 54
11.1. External risks ......................................................................................................................... 54
11.2. Internal risks .......................................................................................................................... 56
12. Financial plan ............................................................................................................................. 58
12.1. Summary financial projections....................................................................................... 58
12.1.1. Income statement ..................................................................................................... 58
12.1.2. Statement of financial position .............................................................................. 59
12.2. Key financial ratios ............................................................................................................ 60
13. Exit Strategies .............................................................................................................................. 61
References............................................................................................................................................... 63
Appendices.................................................................................................................................................. 67
Appendix 1 ECSs strategic objectives ........................................................................................ 67
Appendix 2 Processes description ................................................................................................ 70
Appendix 3 Key financial assumptions ........................................................................................ 73
Appendix 4 Key financial ratios ..................................................................................................... 77

1. Company description
Energy Challenge Services(ECS), a limited liability company to be
headquartered in Bucharest, Romania, will offer integrated utility services to
households and small to medium businesses. ECS will offer a range of utility
services to the clients, based on the core values of safety (for both customers
and for our personnel) and flexibility (with a one-stop-shop, get the job done
approach, i.e. specialization of the personnel allowing for multi-utility services).
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 The company will be owned by 4 shareholders, individuals, also holding
the key management positions in the company.

2. Business Model
2.1. Opportunity description
Following market analysis, we have identified the potential on the
Southern half of Romania for the supply of technical services, namely home
energy services, ranging from revisions and verifications of in-house gas
installations and periodical technical verification of heating devices to small
repairs of gas and electricity in-house installations.
The opportunity was identified based on several key elements (detailed
further in the business plan):
- There are a number of services that are mandatory for all customers with
a certain periodicity revisions and verifications of in-house gas
installations and technical verification of heating devices and these
services could represent the basis for further development;
- In addition, the market trend is for integrated home services, providing
maximum comfort and minimum time spent for the client. There is high
potential for multi-utility service providers on the market (Bain, 2014);
- The potential of market development, identified based on
macroeconomic review (GDP growth, GDP/capita) is significantly higher
in areas around Bucharest;
- The Southern market is fragmented, and therefore, while competition is
stronger, there is also better growth potential. The dynamism of the
industry may make it harder to survive, but eventually the survivors tend to
be rewarded with better growth prospects (Davidsson et al, 2010).

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 2.2. Business model
2.2.1. Value proposition
The value proposition is focused around safety and comfort for the
customers, with a getting-the-job-done approach.
Safety is paramount for utility services particularly in the gas business, on
a yearly basis, in Romania, there are hundreds of deaths caused by intoxication
with carbon monoxide. Therefore, ensuring the timely and accurate revision of
in-house installations is critical for both households and businesses. Our business is
focused on ensuring maximum safety for our clients, by employing only licensed
/ authorized workers and employing latest technologies in gas leakage
detection. This will be expanded to the other services energy and non-energy
as safety is key for all utility services.
Comfort is the second key attribute of utility services: since these are
perceived by the customers as a basic necessity, customers expect a getting-
the-job-done approach, with very little (if any) time involvement from their side.
Our focus is on maximizing the comfort by using agile processes and enhanced
technological support, particularly in setting appointments.

2.2.2. Customer segments

Our initial target for market penetration is represented by customers falling
under the requirement of performing revisions and verifications of in-house
installations. As this is a regulatory obligation, the market for such services exists
and can be easily identified through their relationship with the gas distribution
operation.
Geographically, we have selected to address the Southern region. From
our market study, we noted that the Southern market for revisions and
verifications is fragmented. Historically, revisions and verifications of in-house gas
installations are performed by the gas distributor or companies affiliated to the
gas distributor.

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 There are only a few, very small, service suppliers, as X Company has
managed to maintain the entire market under its control, through an aggressive
low-price policy. On the Southern region, the operator of the distribution system
has opted to reduce dramatically its market share, leaving room for other
service providers the market being very fragmented. In terms of customer
segmentation, our main target is represented by households (due to their large
number and ease of access). For households, it is critical to have their gas
installations verified timely as otherwise the DSO has the obligation to
disconnect them. Households are price sensitive, since the service is perceived
as non-value added, but merely a legal requirement, and, from our market
study, there seems to be no supplier loyalty.

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The Business Model Canvas

Key Partners Key Activities Value Proposition Customer Relationships Customer Segments

- Gas DSO
- Suppliers / manufacturers of central
heating installations, heating devices,
thermostats, etc.
- Financial institutions (access to client
base; warranty and post-warranty
services; possibility for one-stop-shop,
including even financing of acquisition
of heating devices)
- Select and train employees(workers
and sales force)
- Regulatory approvals / licensing
(company and employees)
- Acquire list of gas customers from DSO
- Set-up call center (outsourced) and
website
- Marketing campaign - develop
bundled services
We provide you with safety and comfort
We are a reliable business partner,
focused on safety issues
Characteristics:
- Safety as paramount
- Getting the job done approach: all-
in-one solutions and speed of service
(one visit and multiple solutions)
- Scalability and ease of customization
for each clients needs
Focus on getting things done - minimum Household market (HH)
involvement from the customer,
ensuring that their needs are met with
no effort from their side Business market (focus on small, up to
medium businesses)
Long-term relationships - long-term
contracts with complex (bundled)
- Start from the traditional customer
services - adding services as needed,
base for revisions and verifications -
ensuring payment flexibility
acquire lists per targeted counties from
gas distributor
- Feedback from clients (gathered
- Start from Bucharest and neighboring
directly, through website or call center)
areas
to be incorporated in additional /
different home energy services

Key Resources Channels

- Tools and equipment - Use workers as direct sales force for list
- WFM implementation (productivity of HH with expiring revisions /
increase) verifications and for identifying potential
- Workers (multi-skill training and additional services
motivation scheme)
- Sales force (training and motivation - Call center - dedicated, toll free
scheme) number
- Bank financing
- Website (with possibility of setting
appointments) and mobile app

- In addition, BM will also be

approached through dedicated sales
force

Cost Structure Revenue Streams

- PEX-driven business (largest share of costs for workers and sales force) - Revisions and verifications of in-house installations
- Customer list acquisition costs - Technical verifications for heating devices
- Outsourcing costs (call center, support services) - Shift from sale of single products to packages of services (full energy services for the house)

- Business mostly cost-driven

- The largest part of costs are fixed (PEX), however employees will be hired based on evolution of the
business, in order to minimize impact

Exhibit 1: Business Model CANVAS for ECS Utility Services

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 In addition to the legally-required services, a second service offered from
the start is the verification of the central heating installations. The target for these
services will be identified from two sources: partnerships with producers / sellers
and direct identification of the potential by our employees (when performing
revision of the in-house gas installation). On the medium to long run, we aim to
obtain customer loyalty through offering subscriptions for total utility services
(including small repairs for gas and electricity installations, air conditioning
cleaning, in-house water works, etc.)
Business market represents an additional target, to be addressed
however specifically, in a more customized manner, through specialized sales
representatives. The services offered are the same on the short run, but,
depending on the size of the customer, customized solutions may be offered
from monthly subscriptions for service packages, up to installation of heating
solutions (including financing possibilities) on the longer run.

2.2.3. Channels
We will raise initial awareness about our services through:
- Direct contact of the customers with expiring revisions and verifications.
We will acquire the list of such customers from the DSO and we will
approach them in a centralized manner, i.e. by location. Generally,
considering the expansion of the gas network, we would expect that most
customers which are close geographically (i.e. same street, same
neighbourhood) also fall in the same category of expiration of revisions
and verifications, which would allow for planning the visits. Prior to the first
visit, we would inform them (through written notifications) about the
expiration of the revision/verification and that we would be available to
perform the service on a certain date.
- Listing on National Energy Regulatory Authority website as soon as the
company is set up, we will obtain all required regulatory licenses and

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 certifications. Thus, as the company is certified, it will be included on the
official list of service providers on NERAs website. The DSOs call centres
are obliged to make reference to this list.
- Website we will set up a company website, with the possibility for the
customers to set up appointments online, depending on their availability.
In addition, a specialized mobile application will be developed and the
customer will be able to see at any moment the stage of the request.
- Call centre a toll-free number will be created (mentioned on all
notifications and invoices and on the website), for the customers to be
able to contact us directly.
- Dedicated sales force will be used for business market only, in order to
allow for a differentiated approach, and more flexibility in terms of
services offered, payment terms, etc.
In order to help the customers evaluate our value proposition, we will
provide them with questionnaires during the revision and verification, and ask for
their view on the services provided and on additional potential services. Based
on the filled-in questionnaires, we will be able to focus better on what the
customers want / need.
Purchase of our services will be performed either directly (immediately
when the operator performs the work, he/she will print an invoice and collect
the cash; alternatively, sales representatives will conclude contracts directly),
through the website or call-centre (if the customers contact us proactively to set
appointments).
Delivery of services will be performed on site, by the specialized
workforce.

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 2.2.4. Customer relationship
Since this is a start-up business, there is no established customer
relationship. We will need to focus on establishing the initial contact and then
securing the relation.
The initial potential customers list will be acquired from DSO (distribution
system operator), and getting the first job done for customers will be critical in
order to ensure long-term relationship. For both households and business clients,
the aim will be on convincing them that we want to simplify things (provide
them with comfort and safety), allow them to focus on the important things.
We will have the approach of concluding longer-term contracts for the
basic services (regulatory requirements), e.g. if the revision of the in-house
installation is due every 24 months, we will propose 48 month contracts (in order
to ensure that the next job will also be done by our company). In addition, we
will be flexible to types of services requested by clients, and incorporate their
feedback in defining packages.

2.2.5. Revenue streams

There are several revenue streams identified:
- Revisions and verifications of in-house gas installations (R&V) we
consider this to be the bread and butter of our business (since these are
regulated services). Clients are rather price-sensitive, therefore the initial
pricing will be set considering the competitors prices (identified through
the market study), and is considered to grow in line with forecasted
inflation (stay flat in real terms).
- Technical verification of heating devices (TVH) while this is also a legal
requirement, the potential market is smaller, and our aim is to grow
through partnerships with suppliers / producers. We aim to have lower
initial prices, in order to gain a share of the market, and, over the following

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 years, as we gain customer awareness, we will align with the market
average.
- Service bundles we will propose to customers to move from price per
burning point (the current model applied in the market) to price per
apartment (including both types of services proposed, as well as,
potentially, additional small repairs, installation of air conditioning, etc.).
However, in the financial projections, we have not included revenues from
additional services, but only from the first two business lines (short-term
projections).

2.2.6. Key partners

The success of our business model depends on several key partners:
Gas DSO: unique holder of the list of gas customers and dates of
expiration of revisions and verifications. They have the legal obligation to
provide such lists (for a fee/customer) to all authorized service providers.
Suppliers and manufacturers of central heating installations: technical
verification of heating devices is the obligation of the supplier /
manufacturer for the first two years, and may then be undertaken by any
authorized company. While many suppliers have their own divisions /
service companies, the market trend is to outsource such non-core
services to smaller service providers. We aim to conclude partnerships that
would allow us to take over services for their clients. Our target is to
identify suppliers / manufacturers that still perform in-house such services
and identify cooperation possibilities including potentially that they
outsource the business to us. The preliminary market study shows that
there are very good prospects in this direction.
On the longer run, partnerships with financial institutions may also be set-
up. Depending mainly on business clients requirements, but also on the
trend on the household market, if we identify there is a substantial need,

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 we intend to conclude partnerships with financial institutions in order to
offer fully bundled services (i.e. including financial solutions for the
acquisition of central heating solutions).

2.2.7. Key activities

Operations prerequisites include:
Recruitment and training of employees since we aim to apply agile
processes and also use our employees as sales force, we intend to recruit
skilled people and train them further (multi-skilled approach);
Detailed payment and incentive scheme for employees should be
developed early in the process, as it is critical in the business plan
financials;
Licenses for the company and employees would need to be obtained
from NERA;
Acquiring list of customers from Gas DSO;
Set-up support services (including outsourced call centre) and website
and launch the marketing campaign.

2.2.8. Key resources

The most important resource in our business is represented by the
employees, both production and sales force, as they will be the main customer
contact point. Employees must also have all necessary tools, equipment and
materials, in order to ensure a steady production flow. Further, by
implementation of a Work Force Management tool, we aim to optimize routes
and time per operation, and achieve an increase in productivity.
In addition, financial resources are critical, as the business is financed
through a mix of debt and equity.

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 2.2.9. Cost Structure
The largest share of the costs is represented by personnel expenses (PEX),
as this is the key resource of the business. These are fixed costs, but, in order to
reduce them, the following strategies will be used:
Increase the number of employees in line with the business development;
Team leaders will act 80% of the time as field personnel, replacing /
supporting operational employees;
In order to have flexibility over the periods when employees may not be
sufficient (as business may grow), leasing personnel will be used. In
addition to flexibility, the leasing of personnel also has the advantage of
having lower costs than hiring.
Other costs include: tools and materials (operational costs, variable), DSO
customer list (fixed cost), costs with call centre and administrative services (fixed
costs), car leasing, warehouse rental etc. In view of ensuring flexibility and
scalability of operations, call centre and administrative services will be
outsourced, locations will be rented and vehicles will be used under operational
leasing.

3. Vision, Mission and Values

3.1. Vision
We aim to become a trusted provider of energy services, offering
protection and comfort to our customers, through a range of safe, efficient and
high-quality services, at a competitive price. We will focus on the specific needs
and requirements of each customer, by providing excellent customer service,
cross-utility knowledge and experience, with the aid of latest technologies.
Through a highly effective network of customers and suppliers, we will be able to
maximize benefits across the value chain. Our people will be inspired to listen to
the customers, answering effectively and efficiently to their needs, showing
unparalleled support to ensure flexibility and ultimate home safety.

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 3.2. Mission
Our mission is to help our customers relax by knowing that their home is
safe and all their energy services needs are taken care of by our highly-skilled,
trained and experienced personnel, at the highest quality standards, and at
competitive prices. We are dedicated to listening to our customers,
understanding their needs and helping them accomplish their goal of greater
comfort and utmost safety in their home. And, because we value our customers
time, we are simplifying our procedures for multi-utility services, offering a
maximum degree of flexibility.

3.3. Values
We put Safety first
We are committed to a zero harm policy. We will take all necessary endeavours
to ensure maximum safety of our customers home and business place, with no
compromise towards the safety of our people or others. We will ensure our
employees are trained in the policy, procedures and regulatory requirements of
health and safety so that they are empowered to achieve zero harm in the
conduct of their work.
We invest in our People
We are dedicated to developing our employees throughout their career,
making sure we become an employer of choice. Our employees are our
ambassadors, and we believe they will achieve their full potential if they are
motivated and supported by our internal policies.

We are Experts in our field

We are committed to a policy of training and development of our people, so
that they become the best and brightest in our field. All our field employees are

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NERA certified in both gas and electricity operations, so they can ensure the
best quality of multi-skilled work. Our experts can be trusted to perform home
energy services to the highest standards, understanding the customers needs
and proposing the most efficient solutions on spot.
We are Flexible to our customers needs
We value our customers time and we are dedicated to provide them with the
most efficient and cost-effective solutions to their requests. We keep our
promises and deliver on time, without any extra effort from our customers.
We are dedicated to achieve Customer Loyalty
Through flexibility, zero harm policy and professionalism, we are fully dedicated
to our customers and aim to achieve their loyalty. We are a partner of choice
for both households and business consumers in the field of energy services.

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 4. External Environment Analysis
4.1. PESTEL analysis
The following chart depicts the most relevant factors: political, economic,
social, technical, legal and environmental issues. The scales used are related
with their certainty and relevance or importance to the market.

Exhibit 2: PESTEL Analysis

Score I: Importance. From very important (10) to irrelevant (0)

C: Certainty. From very certain (10) to very uncertain (0)

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 PESTEL Certainty Importance
High political pressure to increase State budget
10 8
revenues (IMF requirements)
Political

Subsidy program (Casa Verde) for renewable

6 8
heating for households
2016 - election year 10 7
Uncertain fiscal regulations (fast changing Tax
10 6
Code with limited input from companies)
Weakening RON reduces purchase power of
10 7
Economic

indebted Romanian households

Decreasing gas consumption fuels growing gas
prices - support for sales of solid fuel and 9 10
condensing gas boilers
Removal of subsidies into district heating
6 8
delayed
Low demographic growth and ageing
9 7
Social

population
Urbanization trend leading to shifts in
9 8
customers' expectations
Rising smart homes / smart technology for
9 7
Technical

households
Large stock of old gas boilers 8 7
Inefficient district heating systems in Romanian
9 6
cities
Environment

Increasing awareness regarding energy 9 7

efficiency

Trend towards increased usage of renewable 8 6

energy sources
Conversion from district heating to individual
8 8
heating systems (Exhibit 3)
Legal

Obligation of using condensing boilers starting

10 6
September 2015

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 Exhibit 3: Shift from centralized heating systems to individual heating systems

4.2. Industry attractiveness

The utility market has significant potential of development (Bain, 2014).
Particularly for revisions and verifications services, based the market research
findings, the market progresses into an expansion phase due to the constant
demand triggered by the legal requirements and also in terms of
service/auxiliary diversification. Having an increasing of demand - raised from
legal obligations, some particular segments (i.e. revisions and verifications) from
the market are considered safe and could be attractive for business. Each
segment has its very own potential to expansion first through the entry of new
players on the market and subsequently through the increasing the volume
demand.
According to the National Institute of Statistics, in Romania approx. 3.3
million households are connected to gas, with approx. 6.7 million gas burning
points due for revision every 2 years. Therefore, the annual national market
potential for R&V at national level stayed in 2013 at 1.67 million households
thereof, approx. 0.78 million in Southern region. Considering average market
prices, the value of the R&V market for the Southern region exceeded 68 mio.
RON in 2013.

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 Out of the total households, about 2.35 million have central heating
systems. Applying the same computation principles, the value of the TVH market
for the Southern region exceeded 66 mio. RON in 2013.

4.3. Competitive forces (Porters model)

Competitive forces concept described model by Porter is an analysis tool
which assess the competitive strategy and profitability of the company. This tool
classifies and analyses the most important forces identified as follows:
Threat of entry
Industry rivals
Bargaining power of suppliers
Bargaining power of buyers
Treat of substitutes.
These forces are shaping the industry as well as the level of competition.
Porter M. (2008) noted that stronger competitive forces might result in less
profitable industry, also few buyers and suppliers but many substitute products
and competitors could be also very competitive but not attractive due to the
low profitability.

4.3.1. Threat of entry: high

Within the frame of the national regulations, this specific market of utility
services could be expanded due the increasing demand of these services and
diversity of possible suppliers.
Other potential new competitors entrance might be facilitated due to
the small scale operations level associated with low investment costs for start-
up/setup and easily accreditations performed by the competent authorities
(very low entry barriers). This situation creates the risk of losing potential market
share due to the rising number of competitors.

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 4.3.2. Industry rivals: strong
At the national level the competition is strong (i.e. over 940 NERA
authorized companies, thereof more than 50% acting on the Southern region).
ECS will develop its operations in Southern region where the existing market
incumbents is Y Company, the main competitor with a market share of 31%. In
addition, there are more than 60 authorized suppliers in Bucharest and Ilfov
county, with different levels of coverage and operational representations.

4.3.3. Bargaining power of suppliers: weak

Suppliers are in weak position on the market, because the key resource in
the industry is the human capital, and there is an abundance of workers in the
field.

4.3.4. Bargaining power of buyers: strong

The households have the possibility to choose the suppliers due to the high
competition and small prices. The services and products provided are not too
much differentiated and therefore the customers can always change the
service supplier easily as they do not bear the costs for changing the service
provider. The customers are sensitive to prices (small prices and limited service
occurrence), but R&V and TVH services are mandatory.

4.3.5. Treat of substitutes: weak

There are many alternative to produce a competitive pressure from the
suppliers with such similar services provide within the same price range. The
same types of services could be provided also by the potent entrants (i.e. major
gas market players from different value chain segments) interested to enter on
related market segments and to develop their service portfolio. However, R&V
and TVH cannot be substituted, merely packaged differently. Thompson et al
(2013) mentioned that the lower prices of the substitutes leads to higher quality
and performance and lower the customers switching cost increase the
competitive pressure of substitute products.

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4.4. Factors that drive industry change and impact
Commercial environment and the risk of losing potential market share due
to the rising number of competitors could affect negatively the business
development on the long term.
Political climate rather instable and unpredictable regulations could
affect the industry. Having not too many legislative similarities within
European countries - these legal requirements regarding revisions/
verifications might with withdrawn risking a market deregulation related
with the services which could be no longer mandatory.
New European directive set to be in force in September 2015 states that
European consumers have to replace/ phase out the older boilers in
favour of the new condensing boilers - in order maximize the efficiency
and eco-friendly usage. The implementation of this directive is mandatory
and will affect especially the market dimension of the household
customers and might not be affordable for many from existing customers.
The macroeconomic factor to the general income changes, the
inflationary trends in economy, rising unemployment and fluctuations in
the world economy.
Advance in technology could produce technological changes with
significant impact on price/performance combination.

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 4.5. Industry rivals positioning
At national level, the largest players are X Company and Y Company .
Both X Company and Y Company offer technical services for gas in-house
installations and heating systems. The differentiating factor for Y Company is
given by the implementation of special system for security inspection diagnose
for each component of the gas installation in order to spot the deficiencies. Also
at every revision/ verification, Y Company signs a contract for a period of 4
years, as compared with 2.5 years by X Company. Moreover, Y Company
entered in strategic partnerships with producers of heating devices, which
provide to workforce a continuous professional development.
The rest of the market is divided between a number of small competitors,
thereof the most relevant are Z Company and W Company (with >5% market
share at national level).
An overview of evolution of prices per revision, verification and TVH is
shown below:

Exhibit 4: Pricing evolution

The prices for the North region (mainly X Company) are the lowest on the
market, while the South region has prices slightly above the average in

23
Romanian market. While Y Company focuses of high profitable customers
practising high level prices in detriment of market share, X Company offers low
prices targeting a dominant market share.

The pricing structure varies between players, the most common are:
- Pricing per apartment up to a certain number of burning points (up to 3);
with additional fee for exceeding burning points;
- Pricing per burning point;
- Yearly subscription contract.

4.6. Likely strategic moves of the rivals

While currently there is no diversification in terms of products offered, both

X Company and Y Company are slowly making moves towards introducing new
bundled products, on their own geographical areas. No other competitor has
similar capabilities.
In addition, companies like Q Company have recently shown interest in
introducing additional services (e.g. car towing, insurance).

4.7. Key factors for future competitive success

The energy services market is a relatively stable market in term of
demand, driven by the customers high sensitivity to low prices, non-branded
loyalty and a diverse network of suppliers.
In order to differentiate the company from competitors, the key successful
factors should be considered as follows:
timely delivery (on time/on spot) of exceptional quality of services
provided;
flexibility to the customers needs one-stop-shop as key success factor,
as no other competitor offers currently the entire range;

24
 innovation through use of technology;
pricing strategy centred on affordability;
maximum safety (a paramount objective for the company);
cost-efficient management of value chain activities.

5. Internal Environment Analysis

Our business competitive approach is concentrating on entering a
geographic market with significant potential for growth through improved
product offering, higher quality, wider selection and competitive prices. The
market of home energy services is considered to be a market in expansion in
terms of demand and diversity of supply.
The success of the sustainable business strategy depends on several
strategic directions:
Operational efficiency: we believe that every activity, especially field
services can be more efficient using modern technologies and
applications and smart management
Reasonable lower cost : maintaining the prices at a reasonable level,
attracting customers by offering innovative services at the best quality-
price ratio in order to gain market share
Portfolio diversification: we see the opportunity to conquer new market
segments with the current services offer and further more to expand the
products and services portfolio towards integrated packages.
Marketing and communication innovative approach: the key message of
our entire communication is based on safety and comfort, care for their
life and on efficiency.
Human resources: we aim to increase the value of each employees
work, to motivate them in order to reach performance and convince
them at the same time to be real ambassadors of the company. We

25
 propose to introduce a motivational scheme based on KPIs and a
standard Work Force Management Application.

5.1. Competitive resources and capabilities

The most important resource in our business is represented by the
employees, both production and sales force, as they will be the main customer
contact point. Employees must also have all necessary tools, equipment and
materials, in order to ensure a steady production flow. We aim to achieve an
increase in productivity by implementation of a Work Force Management tool,
with the scope to optimize routes and time per operation.
As our business is people oriented, we invest in developing and
motivating our staff, through multi-skill trainings and incentive systems. The
organizational resources are equally important, such as IT and communications
systems. We promote an entrepreneurial culture based on knowledge and
flexibility with customer needs. Cappelli, P, and Crocker-Hefter, A (1996)
concluded that the "flexibility" dimension is associated with "prospectors"
companies that seek first-mover advantages in attacking new markets or quick
responses to changing customer preferences.
The organizational capabilities are knowledge based, residing in people
with extensive experience and organisational processes and IT systems.
Granstrand, O. et al (1997) stated the challenge for management is to
give more attention to the distribution of corporate technological
competencies beyond the core, the enhancement and integration of new
competencies, and the potential for related new product markets.
Main differentiation factors of our business are:
- Innovation:
Every activity of the company, from training and shaping specialists, field
services in energy to designing and executing complex projects are made
in an innovative manner.

26
 We focus on finding new and innovative solutions oriented to meet our
clients needs.
- Human Resources motivational scheme:
We focus on increasing the employees performance.
For a company to be successful, it is required a sound performance
management system thus we proposed the implementation of
Balanced Scorecard.
- IT application: Work Force Managament (WFM)
Created for processes optimization
We focused on increasing the efficiency of work performed
We believe that the mix of WFM features and the HR motivational
scheme, results in an increase in efficiency of the work performed leading to
competitive advantage.

5.2. SWOT analysis of the business

In order to evaluate the company overall situation we have conducted a
SWOT analysis.

27
 Exhibit 5: SWOT analysis of the company

The companys strengths lies in the high expertise of our people and its
potential to grow on the market based on several distinctive competencies
related to low prices policy, work force management, high quality and
innovation (one-stop-shop as key success factor). The company market
opportunities reveal the customers trend to switch from centralized to individual
heating. We expect this market to grow proportionally to the progressive
connection of clients to the gas network, a trend that is linked to both
demographics, urbanization but also to the progressive disconnection of
households from the central heating services (due to abrupt cost increases in
the last 3-4 years).
We also see room for future business opportunities via expansion to
bundled services and strategic alliances.
It can be concluded that the company is able to overcome threats and
weaknesses by constantly improving its business strategy to respond to new
market challenges and through a flexible approach.

5.3. Assessment of competitiveness and appeal to the customers

The comparative market analysis indicates there are prospects for growth
in the Southern part of the country where the main competitor Distrigaz COnfort
targets the business segment mostly in Bucharest area, leaving room to market
entry in the residential segment. Our business aims to enter the adjacent markets
with a product of high quality at competitive prices. Our market strategy is to
start from area closer to Bucharest where there is less competition and setting a
price which is close to the average at the country level.
In order to identify how effectively our business delivers value to the
customers a value chain analysis was used to show the activities creating value
to the customers.

28
 Exhibit 6: Value chain analysis

Our business model envisages outsourcing of certain primary activities

such as supply chain management (transport, receiving and storing of parts and
components) and all support functions, focusing only on the core business.
In terms of costs, personnel expenses represent our largest cost
component, therefore our costing strategy is based on flexibility find an
optimal ratio between hired and leased personnel in order to minimize costs and
answer market development.
We expect certain cost reductions arising from a cost-efficient
management of value chain activities by outsourcing non-core activities,
employing leased personnel, implementing WFM and using Leagile), but within
normal business course, easily copied by competitors thus insufficient to
achieve cost leadership.
Our business model entails a significant component of differentiation from
the competition, through maximum flexibility to customers needs and launching
of diversified products, using multi-skilled employees and support of technology.
These differentiation factors support the business to gain a competitive
advantage based on improvement in quality, features and performance.

29
 5.4. Competitive positioning
Our business is open to win market share from small competitors and offer
a very good price/quality ratio. Reasonable prices give us the possibility to use
the new company clients database and companys image to expand the
products and services portfolio, to increase the overall market share of the
company and to diminish potential risks. The business can market its services
both individually and bundled in subscriptions.
Compared with significant market players a competitive strength
assessment indicates strong capabilities to innovate, focus on customer service
and high quality. Financial resources is critical, there is the risk that financing
cannot be obtained from financial institutions.
The weighted score (Exhibit 9) indicates a slightly competitive advantage
of key rivals over ECS. If ECS wants to go offensive it aims directly at winning
customers away from Elsaco Brunata or other minor competitors (not even listed
here), with lower overall strength scores. In terms of quality and customer service
experience we are better positioned. These are distinctive capabilities based on
which the strategic objectives will be defined.

30
 Exhibit 7: Weighted competitive strengths assessment

Lewis, M, Andriopoulos, C, & Smith, W (2014) raise attention about the

strategic agility in conducting business which brings in contradictions, such as
stability-flexibility, commitment-change, and established routines/novel
approaches.

6. Distinctive competencies
Hitt and Ireland (1986) stated that competencies may be developed
through: (1) differential resource allocations to various activities; (2) assignment
of key personnel to manage key activities; (3) delegation of additional
organizational power to those managing key activities; and (4) inclusion of key
personnel in the dominant coalition.
Cappelli, and Crocker-Hefter (1996) concluded that each organization
has its own training programs, rewards systems, and work organization, and
these systems develop skills and behaviours that help an organization create
distinctive competencies for attacking markets. They also concluded that two
practices are especially noteworthy in the management of sales
representatives. The first is intensive training and the second applicants with
experience in customers contact.
Our distinctive competency is to deliver exceptional value to customers in
a form of a superior service (with the unique one-stop-shop approach), offering
efficient and high-quality services, at a competitive price.
Through high quality and reliability of services, combined with operational
efficiency and highly trained employees, we will be able to differentiate from
competitors, by offering integrated solutions to our customers needs.

31
 7. Growth and Generic Strategies

7.1. Selection of generic strategy

There seems to be an agreement in the literature as to the fact that
following a well-defined strategy gives better results on the long-run, and,
moreover, for small companies, a combined strategy (mix of cost and
differentiation) seems to have the best results (Leitner and Gldenberg, 2010;
Davidsson et al, 2010; Miller, 1992).
Following the findings of our internal and external analysis, we have
analysed the applicability of low-cost vs. differentiation competitive strategies
(Thompson et al, 2013, p.144-172) to the general business model (Casadesus-
Masanell and Ricart, 2010).
As we found that generally the energy services market is currently defined
by low customer loyalty and high price-sensitivity, a low-cost provider strategy
would seem to be a powerful competitive approach. However, in practice,
achieving the lowest costs may counter our core objective of maximum safety.
We expect, however, certain cost reductions arising from a cost-efficient
management of value chain activities (outsourcing non-core activities,
employing leased personnel, implementing WFM and using Leagile), but within
normal business course, easily copied by competitors thus insufficient to
achieve cost leadership.
On the other hand, our business model entails a significant component of
differentiation from the competition, through the unique one-stop-shop
approach, with flexibility to customers needs, multi-skilled employees and use of
technology. Moreover, coordination with partners in strategic alliances (boiler
producers / resellers, financial institutions) is also envisaged as strategy leading
to differentiation through better answering to the customers needs. Business
development is envisaged through answering to the needs of two customer
groups households and small and medium enterprises.

32
 Considering the above, we have selected a focused differentiation
strategy, i.e. we would keep in our focus only a limited part of the total potential
market (we will not address large groups / companies, as we consider we do
not have the geographical coverage) and aim to achieve maximum flexibility
to their needs.

7.2. Selection of growth strategy

In order to define the growth strategy, we have considered a part of the
existing literature in the area of strategy for small firms growth. For example,
Storey (1994) found that there is significant impact on company growth deriving
from strategic options in relation to technological sophistication, market
positioning and new product introduction.
The correlation between strategy and growth was further analysed in
several studies (Bamford et al, 1997; O'Gorman, 1997; Wiklund and Shepherd,
2005), with positive results. Going further, Freel and Robson (2004) analysed the
relationship between innovation (in both products and processes) and SME
growth. Their findings, indicating a direct relation between innovation and
growth, also pinpoint importantly that, for service companies, incremental
process innovation seems to be more successful in increasing sales and
productivity.
Raffa et al (1996) found in their study that small firms, which are initially
based on technical entrepreneurial know-how, may expand their market
abilities and achieve growth through collaboration with larger firms,
collaboration with professionals and consultants, use of external (technical and
market) competencies, or acquisition of new market competencies through
diversification of the activities or through hiring market-oriented employees.
In light of the above, our growth plan entails the following steps:
- The first stage is market penetration as we are competing on a highly
competitive market. A Bain analysis (2014) also suggested that there is

33
 significant development room in the field of energy services, as
technology evolves and customers become more sophisticated.
However, traditionally, energy services are offered by utility company, as
an addition to their commodity offer. Still, noting Distrigaz Conforts
strategy to focus its area of activity, we consider significant potential exists
for a new market entrant. Our penetration strategy is based on low prices
and strategic alliances.
- Product expansion in line with literature findings, we have also adopted
a strategy of product expansion for growth, taking into account
particularly customer feedback, but also market trends. Our objective is to
develop full in-house service packages for customers, under longer-term
contracts, ensuring a certain level of loyalty, and with an innovative
thinking.
- Strategic alliances on the medium run (years 3+), growth will be
supported through strategic partnerships with boiler producers / resellers
and financial institutions. This will allow access to additional customers /
higher market share, and will also support differentiation (through bundled
products) and brand awareness.
- Acquisition expansion through acquisition will not be actively pursued,
but will be considered as an opportunistic option. Currently we are
envisaging two potential situations in which an acquisition could prove
attractive:
o Local expansion through acquisition of very small competitors in
case we need to expand in a certain area (depending on
customers presence / requests), a solution could be acquisition of
very small energy services companies (with up to 10 employees,
acting on limited geographic areas);
o Expansion through acquisition of service business lines from
producers / resellers of boilers. If, following discussions with potential

34
 strategic partners, it is identified that they are interested in
outsourcing a service line, a partnership may be defined through
which we would take over the business line and the customer base.

8. Marketing strategy
8.1. Marketing strategy
ECS SRL is a new company focused on customers needs, which aims to
become a preferred service vendor for home heating services. The company
wants to develop the business from base services (R&V and THV) to complex
one-stop-shop solutions. The expansion in different market sectors (e.g. energy
efficiency solutions) will be also explored through partnerships with major players
from energy market.
Products provided and services will be clustered according to the
customers needs (i.e. having different prices range, customized based on
customers types, or the most up-to-date products in order to increase
efficiency).
A customer oriented approach, according to their segment (i.e.
household/ business) and demographics, needs to be strategically tailored by
the marketing and sales functions.
The key marketing message will be centred on safety and comfort for our
customers.

8.2. Marketing mix

8.2.1. Products and services portfolio

As defined by Kotler, P. (2010 p. 43) the product is anything which might
be used to capture the consumer's need under the form of services, objects,
ideas, events or a mix of these.
According with the strategy plan for the first stage of the business the core
companys product planned are:

35
 revision and verification of in-house gas installations (R&V);
technical verification of heating systems (TVH).
Additional in-house services (e.g. air conditioning, house repairs) will be
clustered into an integrated packages deliverable on spot by the specialized
and certified technicians.
For the further business development the product strategy will be
expanded with mix of strategies in order to achieve a consistent portfolio
diversification correlated with business development.
However for this market - the differentiator factor for products and
services is delivered through specialized marketing campaigns with the key
message that the products and services provided will ensure the safety of the
families and comfort of their homes.
The products /services packages and related instructions will be branded
and will carry the company logo.

36
 8.2.2. Prices
Berkowitz et al, (2000 p.350-353) noted that price is that amount of the
money or other valuable goods given in exchange to a service and offer a
valuable indicator about the perception of the quality. The same authors
concluded that price has a determinant role within the marketing mix model,
having a critical importance on companies' profits and affects directly the sales.
The company sets the price strategy for mass products with lower prices
which will ensure the company cash-flows, while the revenues from additional
services will grow at a slower rate, after market penetration.
For R&V, where the market is mature and the service is regulated, we will
approach customers directly and offer prices aligned to the market. Since the
service is regulated, studies show that the client perceives little value-added
and simply wants to get the job done with the first provider. Reaching
customers and gaining market share could be done by acquiring customer lists
in advance.
For TVH, where the market is in an earlier development stage, strategic
alliances with producers / sellers seem critical in order to gain significant
customer reach. While we plan to conclude such alliance(s) in the first 3 years,
meanwhile, we will also offer the service to customers, using lower market
penetration prices, which will be aligned to the market level over the first two
years.
By maintaining the prices at the low levels and offering a good
price/quality ratio, the company will strive to put the focus on quality and not on
the price. The affordable price range gives the possibility to increase the overall
market share of the company, gain brand awareness and diminish potential
risks.

37
 8.2.3. Promotion
The company aims to become successful, trustful and reliable for the
customers as well as for employees.
An open environment for communication and transparency within the
organization will contribute and enhance an organizational culture where the
safety is the paramount objective. Knilans G. (2009 p12-13) mentioned that
promotion is equivalent with communication and finally determines the buying
decision. The companys business objective is to deliver excellence and
performance, offering safety and comfort to the customers, through a range of
efficient and high-quality services at reasonable price.
The companys communication objectives are structured on two
categories of messages:
Emotional: closer to customer, confidence in the company products and
services provided, safety provider.
Reasoned: costs reduction on each possible level.
Press, online, TV and direct e/mailings will be used a main channels for
direct promotional activities.
For the initial phase of the business, promotional campaigns will be
centred on maintenance services related to the traded products/ services
based on a subscription or fees. After a free of charge (trial) period, the service
will be chargeable (test for free our maintenance services).
This strategy will assure a rapid market penetration, with a reasonable
price and facilitated by an aggressive promotion through media/ radio
channels. A mailing notification campaign to the customers will be performed
on regular basis especially in the areas where the validity of the revisions is close
to expiry date.
In the launching year of the business, the companys communication
could be done within the market positioning communication campaigns.

38
 8.2.4. People
The most valuable asset of the company is represented by the
employees. They are companys image (i.e. marketer and ambassador) and
their behaviour, attitude, confidence and expertise have to support the values
promoted by the organization.
The employees' attitude about the work they perform and the messages
conveyed by the employing company must be flawless. The companys
employees interactions with the customers could determine the success of the
organization, they must be an example of social involvement for the consumers
and their duty is to provide them with safety.
The company will have highly trained and multi skilled certified field
workforce in order to deliver the maximum quality of the services to the
customers. Regular trainings in companys procedures and processes will be
provided, as well as the induction trainings in companys values, vision and
mission for internal and external employees. The company will also use the
leased technicians (external) with the same level of skills as the companys
internal employees. In this way, the company will be able to assure a
standardized quality services to the customers.

8.2.5. Place
Knilans G. (2009 p12-13) explained that the new available technology
changed the traditional meaning of place in the new models of 7P marketing
mix and highlighted the importance of two additional elements online buying
space and servicing. Online space hosts the most attractive/challenging
environment for service promotion and selling through targeted specialized
marketing campaigns. Informational platforms web portals are important tools
for the companies and facilitate the information flow directly to the customers.
The company will develop an interactive web portal with information
about the company: vision, mission, values, organizational chart, services
offered, etc. Also the website will be provided with personal operator able to

39
offer real time answers to the customers. The company will create the possibility
for registered customers to have accounts with relevant historical data (past
revisions/ verifications), to schedule the next appointments for the upcoming
verifications - within the timeline required by law and to track the payments
subscriptions accordingly.
The company web portal will provide dates of revision and verification
and can be configured to release an alert system to the household owners and
the companys service providers - alerting them about the due date for
payments/subscriptions and timelines for the periodic revisions

8.2.6. Process
The entire company will follow/ undergo specific processes and
procedures in order to assure the agility of the organization with focus on the
specific needs and requirements of each customer, providing excellent services,
expertise and cross-utility knowledge.
Procedures for multi-utility services will be simplified in order to achieve a
maximum degree of flexibility and comfort for customers. Clear roles and
responsibilities (the RACI matrix for management team and trackable KPIs) will
enhance the performance of the company, creating a professional working
environment for achieving the business objectives, based on BSC
implementation.
Continuous improvements and compliance with quality regulations, norms
and standards would the basis for a sustainable business.
The business activities flow will be included in the training/learning
process of employees and also certain timelines for services delivery which will
be set in order to achieve the customers satisfaction.
Agile processes of the company as well the usage of WFM and highly
skilled work force will be determinant for success of the organization. In this
respect company will recruit skilled people and will invest in their continuous
learning processes for further developments (multi-skilled approach).

40
 8.2.7. Physical evidence
The brand of the company will be easy to recognize and accept mainly
due to transmit a strong message related with the safety of its customers and
quality of the services performed.
Company will be launched and positioned as a company which will add
value to the services provided, aimed at ensuring customers comfort and
safety in their own homes. The company can be registered as an authorized
data operator in order to use the data for both sales and marketing functions,
following the corresponding laws and regulations.

8.3. Marketing & Sales strategies

ECSs focused marketing strategy consists in gaining market share in each
market sector entered through reasonable price levels in order to retain clients
and subsequently approaching them with new products and services. Our
diversification strategy of products and services portfolio has 2 phases:
o Phase 1 (2015 2020): organic growth (both vertically and
horizontally), i.e. expansion on gas market products and services
o Phase 2 (not estimated in time): future developments under the
umbrella of energy efficiency concept and distributed energy
generation related services.

8.3.1. Phase 1
I. Expansion of customers portfolio
Key message: the central message of the current promotion services is that
these are compulsory, however will be presented under a safety for consumers
life umbrella.
Marketing and communication: emotional, conveying also details on the legal
obligation.

41
Actions:
Send individual letters to customers announcing the next monthly
revisions. In order to be cost efficient, this channel will be used as a
dedicated customer support for other campaigns.
SMS alert before the invoice due date.
Partnership with municipalities in order to obtain approval for
communication messages displays/ posters relating to the services offer.
The sales teams will target the companies to offer the services (i.e.
customized packages for employees that purchase services from our
company).

II. Expansion of product portfolio

Additional products and services offered (under one-stop-shop concept):
Small repairs (gas, power, water)
Installations & Maintenance
Small gas installation projects
Plumbing services
Targeted customers
Households
SoHo / SME
Promoting strategy:
Offer integrated packages one-stop-shop approach;
Make deals/ service agreements with developers/ building associations.
Participate in public auctions held by municipalities and state institutions.
Campaigns:
Cross-selling campaigns in South Romania for Small repairs.
The teams performing R&V perform a free of charge assessment of the
installation and provides support in scheduling a team for the repairs or
makes the small repairs on the spot;

42
 Service will be promoted on the spot to the existing customers.
Campaign for cross-selling domestic and industrial customers.

8.3.2. Phase 2: Future developments

Future developments under the umbrella of energy efficiency concept

and distributed energy generation related services targets the conscious
customers:
Analyse the energy flow (i.e. home energy hub) within a building/
household (i.e. electricity, gas, water);
Informational platform in order to increase awareness;
Mini-meters and sensors installation (for each plug in order to meter the
individual consumption);
Fully customization for each household in order to deliver info on energy
efficiency (e.g. average temperature, air conditioning consumption, leaks
and financial impact);
Provides detailed reports and correlations on historic data and forecasts;.
Provides the customer with a clear view on the consumption and its
impact on financials;
Automation platform: increase efficiency and savings;
Fully customization of the way energy can be used, according to the
sensors and programs set;
Access from internet/ iPad and other devices.
Such services would include: home safety solutions, energy efficiency
solutions, energy audits, energy consultancy, etc.

8.4. Positioning and client retention campaigns

43
1) Strategy: Customers could advise a person to buy/take a decision on a
product/ service, or simply to make referrals, and afterwards the company
will develop a customer incentive program.
Marketing and communication:
customers will receive briefings on the campaigns.
online campaign.
one-to-one communication made by operational teams.
Actions and tactics:
Create a call centre connected to a data base with the existing
consumers (which will be updated on regular basis).
The existing consumers can obtain a loyalty card (with accumulating
points if you recommend the company to at least three other people who
order different services). These 3 people need to contact the call centre
and say the name of the person who recommended us. We will note the
contact details in the database, and schedule the service. Depending on
the number of new customers brought in by an existing customer, he/she
obtains loyalty points. Based on the respective points the customer can
receive certain services free of charge.
Flyers delivery with customer notification (i.e. approx. 60,000 per month) &
other communication materials located in high traffic hubs

2) Strategy: follow up on market price campaign in order to develop the

customer database and set direct communication with consumers.
Key message: We want to prove that we are a professional company with a
professional team, however we do not have the highest price on the market
comparing with competitors which are offering similar services, but instead we
provide you with additional value and care for your safety.

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 9. Production / Operations
Operational efficiency: we believe that every activity, especially field
services can be more efficient using modern technologies and applications and
smart management. Work force efficiency is maximized by applying lean
principles in order to eliminate waste, by defining the products through the eyes
of the customer, identifying the value stream, optimizing the flow in order to
eliminate any interruptions by using a workforce management system,
empowering the workforce and close co-operation with suppliers (Robertson
and Jones, 1999). However, our services being solutions to the customer
problems, covering with one team all the issues identified in the customers
home, the entrepreneurial culture and the knowledge-based organization imply
an agile approach (Robertson and Jones, 1999).
In lean production, the customer buys specific products, as opposed to
the customer reserving capacity that may additionally need to be made
available at very short notice in agile production. (Mason-Jones, Naylor & Towill,
2000). A mix of these principles is applied in designing the leagile operations of
the company. Leagile is the combination of the lean and agile paradigms
within a total supply chain strategy by positioning the decoupling point so as to
best suit the need for responding to a volatile demand downstream yet
providing level scheduling upstream from the marketplace. (Naylor et al. 1997)

9.1. Resources

9.1.1. People
The operations will start in Bucharest and Ilfov with 10 employees,
extending to the neighbouring counties and reaching an estimated of 98 field
service technicians in five years. All technicians will be centrally managed by a
department head, and locally by an operational team leader at county level. In
order to cover the activity peaks, the company will also use leased
technicians. Personnel leasing is similar to temporary employment but doesnt

45
involve a direct contractual relationship with the employee and is limited to a
maximum of 2 years. On average, a leasing employee has a cost of ~70% of
the directly employed technicians. Nevertheless, the leased technicians will
acquire the same skills as the company employees, in order to deliver the same
service level to our customers.
The field technicians will be highly trained, multi skilled, in order to achieve
maximum efficiency and quality in providing the services to our customers.
Besides their technical expertise, some legal certifications are mandatory for
their activity:
For revision and verification the technicians are required to have a
III-D NERA authorization, which needs to be renewed every 3 years;
For TVH the sub-/ engineers need to be ISCIR authorized;
For electrical small repairs, the technicians are required to have a
category II-B NERA authorization valid for 5 years.

9.1.2. Tools
Hand tools: mini snoopers, gas detectors; hand-pumps, valves, common
plumbing equipment, technical clothing, multi meter, electrician toolbox,
voltage pencil, mobile terminal for workforce management (rugged
smartphone), mobile printer.
Cars will be leased. Car maintenance will be outsourced to a fleet
management company.
IT Systems: Workforce Management System
Materials are stored in rented warehouses. Minimal mobile stock will be
maintained by each technician in order to cover onsite repairs.

46
 9.1.3. Offices
Office space will be rented at county level. It will be dimensioned to
accommodate the office personnel exclusively. Due to the implementation of
the work force management system that automates process steps and provides
continuous communication and electronic exchange of information and
documents between the central operations support systems and the
technicians, there will be no need for providing office space for the field service
technicians.

9.2. Processes

9.2.1. Processes design

The business process is designed in order to: ensure the agility of the
organization, provide top-down guidance, ensure consistency in how critical
activities are performed and create a work climate to facilitate a good strategy
execution. The main purpose in process design is to provide the organization
members a sense of direction and create the boundaries of their actions while
empowering them to act within these boundaries in order to achieve the
companys business objectives.
The R&V customer appointments will be performed on customer request
via phone call or self-care web portal, or through mass notification campaigns
when the revision and verification validity is close to expire. In order to achieve
efficiency, the visits are planned in such a way to bundle customers in a
geographic proximity (same street, neighbourhood or small towns and villages).

47
 Exhibit 8: Process workflow

Together with the notification the customer receives a copy of the service
contract, which is signed at the time of the visit. The contract is valid for 48
months so as to ensure customer retention.
From a technical point of view we differentiate between the process of
Verification (performed by one technician in ~30 minutes) and a more complex
Revision (performed by two technicians in ~40 minutes). Other activities that can
be performed are: periodic technical verifications for heating devices,
installations and warranty services for heating devices, small electric/gas repairs
(operations detailed in Appendix 2).
When confirming the compliance of the in-house installation the customer
and the technician sign a standardized document that will be returned to the
distribution company in order to attest that the revision or verification has been
performed. In the absence of this document, the distribution company may be
entitled to request a shut off of the customer meter.

48
 9.2.2. Operational KPIs
The critical success factors for the business are: customer satisfaction
driven by high quality and reliability and operational efficiency in order to
improve agility and reduce cost. Based on these critical success factors, we
defined the key performance indicators (KPIs) that will measure the operational
process performance (80%) and sales performance (20%).
Operational KPIs:
- First Appointment Met in order to avoid re-appointments
- First Time Right - to measure the quality of the services performed.
- Inquiry Solving Time to measure the speed of the repairs counted from
the customer inquiry.
- Repeated Rate to measure the quality of the services performed.
- Customer Satisfaction measured through customer surveys or follow-up
calls in order to quantify the level of satisfaction with provided services.
Sales KPIs:
- Sales Volume measured versus the target.

9.2.3. Continuous improvement

We strongly believe that in order to achieve the highest level of efficiency
and the highest level of customer satisfaction, continuous improvement must be
pursued. The first step is to constantly implement industry best practices that
have been proven to deliver superior results. Also, by defining the process,
constant process measures, analysis of defective results, improvement measures
and post implementation control based on Six Sigma DMAIC principles will
ensure incremental improvement of the process.

9.3. IT application: Work Force Management (WFM)

According to a Gartner (2014) report, the four main objectives of a Work
Force Management system are:
manage orders,

49
 schedule and assign a service technician,
help that technician to perform end-to-end service tasks, including the
ability to look up inventory status in real time or cached on a wireless
device
field service functionality that supports a variety of field service models,
such as reactive, preventive, predictive or reliability-centred maintenance
In our vision, the WFM system will insure activity efficiency by the following
features:
reduced number of printed documents required to be filled;
optimization of route paths;
optimal allocation of orders according to the routes;
real-time activities monitoring and updated info on task performed and
workload;
provides operational reports;
inventories management;
eliminates human and data operating errors;
improved communication;
processes automation.
Although the benefits of a Work Force Management system are vital for
efficient operations, the low initial investment budget forces us to approach a
local software company in order to develop a customized system to efficiently
address our needs. The initial investment is EUR 100,000 Euro, with an estimated
payback time of 2 years. The expected operational efficiency boost as
opposed to not implementing the system is 10%.
The system will be tailored to our operational process. The orders are
introduced in the systems either manually, by operators, or through northbound
interface from the customer portal based on customer appointments. The
system will automatically assign one or two technicians based on order
complexity, availability, skills and distance to the customers address. Work order

50
assignments can be also overruled by the team leader. Also, the team leader
has the possibility to assign manual work orders. The technician will get the list of
work orders on his mobile

Right
terminal and will be able to
People
receive, review and validate

Right Right the order, perform the

Cost Skills
Work Force assigned tasks and transmit to
Management

the central server the order

Right Right status, access or record in the

Plan Time

Exhibit 12: WFM implementation

central data base several information (i.e. inventories management), print

invoices once the work order is completed thus enabling on the spot cash
collection. The final result will be the assignment of the right people, with the
right skills, at the right time to carry the right plan at the right cost.

10. Human Resources

We aim to increase the value of each employees work, to motivate them
in order to reach performance and convince them at the same time to be real
ambassadors of the company.

10.1. Organizational structure

In order to cultivate and maintain agility, the organization is structured on
four main verticals: Operations including field operations and IT under the direct
coordination of CEO, Commercial including marketing, PR, sales and the
coordination of the outsourced call centre, Strategy and Business development,
as well as Managed Services. Each main vertical is managed by an executive
director reporting to the CEO: chief commercial officer, chief strategy officer
and managed services officer.

51
 The field operations department is composed by county level field
technician teams, each supervised by a team leader. The number of teams is
expected to grow with the geographical extension of the business and
therefore, at a later stage, are expected to be grouped into regional structures
in order to be effectively managed. All field operations and IT will be managed
by an Operations manager.

Exhibit 13: Organizational chart

In terms of organization dynamics, we expect an increase in the number

of technicians over the next five years from 10 in 2016 to 98 in 2020, driven by the
geographic business expansion. However, considering that the field technicians
have also sales objectives, we do not expect the same growth rate in the sales
agents. Also, in order to compensate for the high cost of internal labour and to
cover for peaks in activity, the company will lease technicians. Personnel
leasing is similar to temporary employment but does not involve a direct
contractual relationship with the employee and is limited to a maximum of 2
years.

52
 Evolution of Personnel
120
Team Leaders
100 10
23
80 7 Field Technicians
22 (leasing)
60 6
8 Field Technicians
40 75 (internal)
3 45 53
20
1 24 9 11 Sales force
10 3 5 7
0
2016 2017 2018 2019 2020

Exhibit 14: Personnel development

10.2. Recruitment
As building a new player on a highly competitive market, the quality of
the human resource plays a key role in the success of the business. Therefore we
will rely on our experienced management team to enrol highly skilled
technicians operating in the market. We expect our competitors to be the main
suppliers of highly skilled manpower. The main principles for recruitment are:
technical skills including ANRE certifications, field experience, customer focus
and adherence to the companys values. The same principles apply for both
internal and leased employees.

10.3. Training
Acquiring good quality workforce is not enough. It needs to be improved
constantly by updating with new regulations and technologies. The main focus
areas are:
Periodic NERA and ISCIR certifications for gas and electricity
Internal certifications (basic and advanced) for installing and repairing
new technologies like heating devices.
Vendor trainings for installing and repairing new technologies
Trainings on processes and procedures
Training on workforce management system and new features

53
 Customer interaction trainings
Sales abilities trainings

10.4. Motivation
In order to improve technicians motivation, a performance management
system will be implemented based on operational KPIs and Sales KPIs, cascaded
from the Balanced Scorecard. The main advantages of the performance
management system, based on SMARTER objectives (Yemm, 2013) are:
Allows the assessment of the technicians performance.
Provide an effective framework where people can reach their full
potential and are rewarded accordingly with the result of their work and
make sure that high performers are motivated to pursue in the companys
direction.
Ultimately, will sustain the achievements of the companys strategic
objectives.
A competitive remuneration package will be created for the technicians,
consisting of three parts (fix, variable and performance bonus granted
according to the degree of achievement of the performance indicators).

11. Risks
The business is exposed to both external and internal business risks,
summarized hereinafter.
11.1. External risks
External risks arising from events outside the company and beyond its
influence or control (Kaplan and Mikes, 2012):
Business environment: risk of new competitors Business environment
developing, coupled with potential loss of market 5
4
share due to price competition. As the
3 X
Likelyhood

competition for the R&V business consists in a great 2

1
1 2 3 4 54 5
Consequencies
 number of very small companies, there is a significant risk of market
development, particularly considering price sensitivity of customers for a
regulated service. In order to mitigate this risk, a diversification of products is
planned. In addition, the business plan already foresees the potential loss of
market share generated by business turnaround, counteracting with a
pricing increase in order to align with competition
Regulatory risk: currently R&V and TVH services are Regulatory Risk
regulated by NERA/ISCIR (i.e. revisions are 5
4
performed every 8 years, verifications every 2 3

Likelyhood
years, according to regulatory requirements and 2 X
1
TVH every 2 years). There is a risk of market
1 2 3 4 5
deregulation (i.e. services no longer compulsory), Consequencies
which would lead to a general market fall. This, however, is a risk affecting
the entire R&V market, so it cannot be seen as having very high relevance
for one company in particular. While such risk could not be mitigated, it can
nevertheless be decreased through diversification, i.e. expanding in related
lines of business not subject to regulatory requirements, such as
maintenance, repairs and warranty services for heating equipment, sale of
energy efficiency and safety products, other small repairs.
Macroeconomic risk: factors generating such risk Macroeconomic Risk
relate to general changes in income, inflationary 5
4
tendency in the economy, rising unemployment as 3 X
Likelyhood

well as the fluctuations in world economy. These 2

1
risks are generally less predictable because they 1 2 3 4 5
do not appear at regular intervals and may not Consequencies

necessarily result in losses to the firm. In general, the recent global liquidity
crisis has resulted in, among other things, a lower level of capital market
funding, and lower liquidity levels across the banking sector and higher

55
 scrutiny on companies requiring funding. The volatility of the RON exchange
rate and of the main currencies used in international trade is very high.
Political instability has an important influence on Political Instability Risk
the functioning of a business, both in the long and 5
4
short term. The general political climate in 3 X

Likelyhood
Romania has been instable in the recent years, 2
1
characterized by sudden changes (usually through 1 2 3 4 5
Government Emergency Ordinances), and it can Consequencies

be said that, in combination with the Regulatory, this could have a very
significant impact on the business. Both of these last two risks are general,
affecting the entire economy, so little, if any, mitigation action can be
taken.

11.2. Internal risks

Internal (preventable) risks, arising from within the organization, are
controllable and have to be eliminated or avoided (Kaplan & Mikes, 2012):
Credit risk: the R&V business model is based on a Credit Risk
very high number of clients with very small 5
4
individual tariffs. Most clients are households, the
3 X
Likelyhood

service is regulated, and therefore, as a general 2

1
rule, the related credit risk is rather high. In order to
1 2 3 4 5
mitigate such risk, the invoices or subscription Consequencies
contracts will be issued in advance to clients, workers will cashing in the
services on the spot, etc., the transactions being monitored via WFM.
Financial risk: financing is required for investment in Financial Risk
the IT tool, and there is a risk that such financing 5
4
may not be obtained from the financial institutions, 3 X
Likelyhood

if needed. In such situation, the shareholders have 2

1
1 2 3 4 5
Consequencies
56
the option to grant loans to the company themselves, under arms length
conditions.

57
12. Financial plan
12.1. Summary financial projections
12.1.1. Income statement
P&L Position 2016 2017 2018 2019 2020
(RON)

Revenues 949,510 3,044,130 6,255,717 9,133,911 12,163,086

1 Revision and 464,454 1,435,441 2,957,583 4,062,536 5,231,531

Verifications
2 Heating 485,056 1,608,689 3,298,133 5,071,375 6,931,555
devices
verification

Personnel costs (864,733) (1,933,482) (3,583,314) (5,222,609) (7,046,866)

1 Personnel Costs (552,000) (844,560) (1,722,902) (3,163,249) (4,541,019)

(internal FTE)
2 Personnel Costs - (591,192) (964,825) (902,112) (920,154)
(leasing FTE)
3 Personnel Costs (140,173) (277,498) (446,314) (622,614) (806,655)
(sales)
4 Personnel Costs (172,560) (220,231) (449,272) (534,634) (779,038)
(team leaders)

Other expenses (499,714) (942,994) (2,121,604) (2,963,251) (3,686,847)

1 Other direct (250,714) (696,394) (1,350,004) (1,663,051) (2,240,847)

costs
2 Indirect costs (48,600) (145,800) (291,600) (340,200) (486,000)
3 Management (50,400) (100,800) (480,000) (960,000) (960,000)
costs
4 Start-up costs (150,000)

EBITDA (414,937) 167,654 550,799 948,051 1,429,373

Amortization/ - (45,000) (90,000) (90,000) (90,000)

Depreciation
1 Amortization (45,000) (90,000) (90,000) (90,000)
2 Depreciation - - - -

EBIT (414,937) 122,654 460,799 858,051 1,339,373

1 Interest (81,000) (81,000) (64,800) (48,600) (32,400)
2 Income tax @ - - 9,325 (129,512) (209,116)
16%

Net income (495,937) 41,654 405,324 679,939 1,097,858

58
 12.1.2. Statement of financial position
01.01. 31.12. 31.12. 31.12. 31.12. 31.12.
2016 2016 2017 2018 2019 2020
Fixed assets
- Intangible assets - 225,000 405,000 315,000 225,000 135,000
Current assets
- Inventory - 20,893 58,033 112,500 138,588 186,737
- Receivables - 158,252 507,355 521,310 761,159 1,013,591
- Cash 500,000 601,123 35,036 517,642 1,048,389 1,367,986
Total assets 500,000 1,005,267 1,005,424 1,466,452 2,173,136 2,703,314

Share capital 500,000 500,000 500,000 500,000 500,000 500,000

Current year profit (495,937) 41,654 405,324 679,939 1,097,858
/ (loss)
Retained earnings (495,937) (454,282) (48,958) 30,981
Long-term - 720,000 540,000 360,000 180,000 -
liabilities
Short-term
liabilities
- Bank loan - 180,000 180,000 180,000 180,000 180,000
- Trade and other 29,143 78,583 176,800 246,938 307,237
payables
- Personnel 72,061 161,123 298,609 435,217 587,239
liabilities
Total equity and 500,000 1,005,267 1,005,424 1,466,452 2,173,136 2,703,314
liabilities

59
 12.2. Key financial ratios
The key summary financial ratios are included in Appendix 4.
Both turnover and EBITDA are expected to grow systematically over the 5-year
period, with EBITDA
margin going from -44% in
the first year to 12% by
2020. The growth is mainly
due to the expected
market share increase in
both key business lines,
combined with an
improved productivity of
operations and combined
Exhibit 15: Turnover and EBITDA evolution

use of leased and own personnel (with the Operating expenses ratio
decreasing from 128% to 88% by 2020).
Worth mentioning is that the business will be self-sustainable operationally
from year 2, with the operating self-sufficiency ratio (defined as total revenue /
total operating expenses) exceeding 1 from year 2. In other words, the need of
cash is temporary and driven mainly by the investment in intangible assets
(WFMS) for operations, additional capital being necessary only for the first year
of operations.
The current ratio supports this point,
staying at an average above 2:1 throughout
the period.

Exhibit 16: Current ratio evolution

60
 Net profit margin is also expected to become positive (but merely above
breakeven) in the second year of operations, going up to 9% by 2020. This is
particularly achievable through the use of a mix of own and leased employees,
which allow for optimization of costs early in the set-up of the business.
Overall, from the perspective of financial institutions and investors /
shareholders, the expected evolution of the business is attractive, with ROCE
reaching a whopping 75% by 2020 (and with an average of 24% over the entire
5-year period). As bank funds are used mainly for the IT investment, the largest
part of the return is attributable to the shareholders, but after paying principal
and interest to the bank. Interest coverage remains high throughout the entire
period, exceeding 2:1 from year 2 of operations (2017).

13. Exit Strategies

According to DeTienne (2010), entrepreneurial exit is defined as the
process by which the founders of privately held firms leave the firm they helped
to create; thereby removing themselves, in varying degree, from the primary
ownership and decision-making structure of the firm. The entrepreneurs desire
to leave the business at some point in time is defined as exit intention and is
related most likely to the entrepreneurs motivation at start-up (De Tienne et al,
2012). According to Boeker (1989) and DeTienne (2010), the exit intentions are
developed early in the lifetime of the business and will therefore influence the
decisions and behaviours. A high correlation between intentions and exits is
indicated in a study by DeTienne and Cardon (2012) which concluded that 70
percent of exits were performed in the intended path.
In our case, the high investment in the human resource as well as in
process optimizations by implementing state-of-the-art IT systems to support
efficient operations, imply long-term commitment of the investors to sustain the
growth of the company.

61
 However, the good financial results and the innovation implemented in
managing operations, will make the business attractive for acquisition by
another player in the market. According to DeTienne (2010), a buy-out is
attractive to strategic buyers who look for cost saving advantages and/or
operational synergies with their own business operations. Several options will be
taken into consideration for the acquisition exit path:
- Acquisition by a competitor acting in a different geographical area such
as Company X which is operating in the Northern part of the country, in
order to expand the operations coverage and increase the customer
base.
- Acquisition by a competitor in the same geographic area in order to
benefit on the efficiency achieved through our operational model
- Acquisition by the gas distribution company in order to re-consolidate
R&V and TVH activities already optimized
- Acquisition by an investment fund. Current shareholders will maintain
management positions only and act based on strategic KPIs.

62
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Appendices
Appendix 1 ECSs strategic objectives
Perspective Objective Targets
Maximize financial - Achieve stable EBITDA margin
performance above 10% in 5 years
- Achieve 10% market share in R&V
market in 5 years
Financial
- Gain 12% market share in TPV
market in 5 years
- Improve productivity by 10% in 5
years
Improve customer - Improve customer satisfaction
Customer
experience index by 20% in 5 years
Optimize relations with - Conclude at least one
business partners (suppliers representation contract with a
/ producers of central producer/retailer for each county
heating devices, financial in the Southern region in 5 years
institutions, etc.) - Achieve 25% of total revenues
from TPV market from
representation contracts in 5 years
Processes Improve quality of client - Decrease average answering time
interaction in call centre by 10% per year in 5
years
- Answer to 100% of the online
requests in the same day in 3 years
- Achieve zero-delay to 100% of the
appointments in 4 years
Develop and launch - Introduce at least 3 new products

67
 customer solutions in 3 years
- Achieve 10% year-on-year market
share increase for each new
product line in the first 3 years after
introduction
Create a safety-driven - Zero customer incidents
environment - Zero personnel incidents
Enhance implementation - 100% share of works performed
of technology based on WFM planning in 4 years
- At least 25% of customer orders
received online or through call
centre in 5 years
Improve productivity of - Increase number of operations
employees performed per day per employee
by 10% in 4 years
Optimize stakeholder - Zero fines paid to authorities
management (NARE, consumer protection, etc.)
- Number of days needed for
licensing new employees equal to
minimum legal requirements in 3
years
Secure and support - 100% of employees participation
personnel development to at least one training annually
- Employee satisfaction index higher
Learning than 8 in 3 years (1-10 scale)
and growth - Average result of employee
evaluation higher than 7 in 3 years
(1-10 scale)
Develop IT capabilities - 100% implementation of website

68
 functionalities in 2 years
- 100% implementation of WFM in 3
years
- 100% implementation of IVR in call
centre in 2 years
Support a culture of - 100% of employees attending
continuous improvement Agile and Lean trainings every
year

69
Appendix 2 Processes description
Verification (once every 2 years):
a) checking the burners and the condition of joints and sealing gaskets;
b) checking the stability of pipes mounted on supports;
c) testing the tightness of pipe joints and valves under gas working pressure
with soapy foam or other technologies for checking leaks (mini-snooping
device);
d) checking the operation of measuring, control, regulating and safety
equipment
e) removing / disconnecting and sealing the consumption points connected
without legal approval;
f) checking the condition of existing vents and shafts;
g) checking documentation submitted by the consumer, proving that
cleaning chimneys and fume channels was done by operators authorized
under regulations and issued no more than 6 months before periodic
inspection of facility;
h) checking the condition of stations and housing of pressure regulators /
meters
i) checking documentation submitted by consumers, attesting the
execution of periodic technical inspection of appliances burning gaseous
fuels by operators companies authorized under regulations.
Revision (every 8 years):
a) performing all the operations required for periodic technical verification;
b) performing pressure strength test, according to the technical rules for
design and operation of gas supply systems;
c) performing leak pressure test as defined in technical standards for the
design and operation of gas appliances.
Periodic technical verification for heating devices (every 2 years):
a) check the documentation

70
 b) check the integrity of the heating device
c) heating device cleaning if required
d) hydraulic pressure check
e) check and tune the burner
f) analyze the burn gases
g) check the correct function of the control and safety devices
h) perform any checks recommended by the equipment vendor.
Installations and warranty services for heating devices:
a) physical installation of the equipment
b) connection of the equipment to the gas installation
c) connection of the equipment to the house heating circuit
d) connection of the equipment to the power network
e) install and check control and safety devices
f) perform functionality tests
Electric/Gas small repairs:
a) repair the electrical distribution frame, power outlets, power switcECS,
replace power cables etc.
b) repair/replace gas connectors

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Appendix 3 Key financial ratios
2016 2017 2018 2019 2020
1. Profitability sustainability ratios

=(Current period - Previous period

Sales Growt h Sales) / Previous period Sales n/a 221% 106% 46% 33%
R&V share of revenues n/a 49% 47% 47% 44%
VTP share of revenues n/a 51% 53% 53% 56%

=Tot al revenues / Tot al operat ing

Operat ing self-sufficiency expenses 66% 103% 109% 109% 111%
EBI TDA margin = EBI TDA / Tot al revenues -44% 6% 9% 10% 12%
Net profit margin = Net profit / Tot al revenues -52% 1% 6% 7% 9%

=Net profit / Average

ROE shareholders' equit y -197% 167% 163% 86% 80%
= Net profit / Average capit al
ROCE employed -81% 6% 58% 64% 75%

2. Operational efficiency ratios

= Operat ing expenses / Tot al

Operat ing expenses rat io revenues 128% 94% 91% 90% 88%
Cash conversion cycle = DI O+DSO-DPO -7.19 -5.39 -8.45 -18.11 -24.92
= Average invent ory / Cost of
Days I nvent ory Out st anding (DI O) mat erials *365 15.21 20.68 23.05 27.55 26.50
= Average receivables / Turnover *
Days Sales Out st anding (DSO) 365 30.42 39.90 30.01 25.62 26.63
Days Payables Out st anding (DPO) = Average payables / CoS * 365 52.81 65.98 61.51 71.29 78.04

3. Liquidity ratios

Current rat io = Current Asset s / Current Liabilit ies 2.77 1.43 1.76 2.26 2.39
= (Cash + Receivables) / Current
Quick rat io Liabilit ies 2.70 1.29 1.59 2.10 2.22

4. Leverage ratios
= (Short -t erm debt + Long-t erm
Debt -t o-Equit y debt ) / Tot al shareholders' equit y 221.50 15.75 1.20 0.32 0.11
I nt erest coverage = EBI TDA / I nt erest expenses -5.1 2.1 8.5 19.5 44.1

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Appendix 3 Key financial assumptions

Revenues

The main revenue lines for the initial 5-year projection period will be:
- Revisions and verifications of in-house gas installations.
o Starting price: 74.2 RON/apartment without VAT (92
RON/apartment, VAT included)
o Annual increase in line with inflation
o Estimated market share: 1% in year 1, up to 10% in year 5
- Technical periodical verifications of heating devices
o Starting price: 95.2 RON/apartment without VAT (118
RON/apartment, VAT included)
o 10% increase for the first two years, in order to align with market
prices
o Starting year 3, annual increase in line with inflation
o Estimated market share: 1% in year 1, up to 12% in year 5 (faster
market share increase, due to strategic alliances)
Expenses

We estimate that over 50% of the expenses are personnel expenses both
operational and sales employees:
- Operational employees (blue collars)
o Total number of employees: determined using a norm of 12 revisions
and verifications / day / FTE and 5 technical periodical boiler
verifications / day / FTE. Leased employees will be used periodically,
but not longer than 2 years / person. Through implementation of
WFM and use of Leagile methodology, sustainable increase in
productivity of 10% in year 3 and additional 1% in year 4 is assumed.

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 o Own employees: we estimate an annual pay of approx. EUR 7,200
net (RON 31,200) to each employee, including annual bonus. This
translates in an annual salary cost of RON 55,200 /employee (higher
than market average, in order to motivate well-qualified employees
and avoid personnel turnover).
o Leased employees: through the use of leased employees, total
annual cost for the company would decrease by at least 30% as
compared to own employees i.e. we estimate an annual cost of
RON 38,640/employee.
- Team leader costs the number of team leaders was determined under
the assumption that a team leader is needed for each fraction of 10 FTEs.
The annual cost of team leaders is 30% higher than operational
employees cost, at RON 71,760/year in the first year (subsequently
increasing in line with inflation rate).
- Sales employees. The cost per employee includes:
o Fixed component set at 30% below average cost for operational
personnel, i.e. RON 22,200 net/year/employee
o Variable component (sales bonus) set at 5% of sales. The same
component applies also to operational personnel, for additional
sales generated on the spot. Therefore, we estimated in the
projections that all sales of verifications of heating devices would be
subject to bonus.
All personnel expenses are assumed to grow in line with forecasted
inflation rate.
In order to minimize fixed costs, our strategy is to outsource all non-core
services (HSE, car fleet management, warehousing, administrative costs), which
allows to consider all costs as increasing in line with the number of employees.
Other direct expenses include:

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 - Office and warehousing costs estimated at EUR 1,000 / team / month
(RON 4,500);
- Car leasing and fuel costs estimated at EUR 1,000 / team / month (RON
4,500);
- Tools and materials estimated at EUR 300 / team / month (RON 1,500).
Since we have not included additional forecasted revenue from small
repairs, additional materials for small repairs are also not budgeted;
- Billing costs costs with mobile printing estimated at 1.5 RON/invoice in
year one, based on market average;
- DSO tax costs with acquisition of customer list at 3.5 RON / customer in
year one. For year 1, 50% success rate estimated, increasing gradually to
100% in year 5.
Indirect expenses include (based on market providers of such services)
the following estimates:
- HSE costs 100 EUR/team/month (training and HSE materials);
- Regulatory costs 100 EUR/team/month (costs with obtaining licenses);
- Legal support costs 200 EUR/team/month;
- Finance costs 300 EUR/team/month;
- HR costs 200 EUR/team/month.
All direct and indirect expenses are assumed to grow in line with
forecasted inflation rate.
Management costs were considered to increase from year to year, in line
with the business development. In year one, management costs are very low
(RON 12,600 / year / position), increasing up to RON 240,000 / year / position
over 5 years. This reflects management commitment towards long-term business
development.
Start-up costs reflected in year 1 include obtaining initial authorizations,
finding locations, recruiting and training the personnel, etc., and are estimated
at RON 150,000.

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 Amortization is related to implementation of WorkForce Management
System, over 2 years. The system is amortized over a 5-year period, in line with
RAS accounting requirements.
Income tax is computed at 16%. Losses may be carried forward for 9 years
and offset against profit tax due.
Dividends will be paid out for the first time in 2020, based on 2019 results -
when it is estimated the entire loss brought forward from the first year will be
covered. A pay-out of RON 600,000 in dividends was assumed (RON 150,000 for
each shareholder). Going forward, a reasonable share of profits will be
distributed, but without any impact on business development and sustainability.

Financing

Company financing will be ensured through a mix of debt and equity:

- the initial share capital brought by the four shareholders amounts to RON
500,000 (RON 125,000 each);
- a long-term bank loan of RON 900,000, over a 5-year period, at a 9%
annual effective interest rate, is assumed to be accessible based on the
current business plan.
We consider that the debt-to-equity ratio of 1.8:1 is reasonable and
achievable from financial institutions perspective (as normally, 3:1 debt-to-
equity ratio is acceptable under Romanian law) and we also expect that, in
practice, a lower interest rate is achieved.

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Appendix 4 Key financial ratios
2016 2017 2018 2019 2020
1. Profitability sustainability ratios

=(Current period - Previous period

Sales Growt h Sales) / Previous period Sales n/a 221% 106% 46% 33%
R&V share of revenues n/a 49% 47% 47% 44%
VTP share of revenues n/a 51% 53% 53% 56%

=Tot al revenues / Tot al operat ing

Operat ing self-sufficiency expenses 66% 103% 109% 109% 111%
EBI TDA margin = EBI TDA / Tot al revenues -44% 6% 9% 10% 12%
Net profit margin = Net profit / Tot al revenues -52% 1% 6% 7% 9%

=Net profit / Average

ROE shareholders' equit y -197% 167% 163% 86% 80%
= Net profit / Average capit al
ROCE employed -81% 6% 58% 64% 75%

2. Operational efficiency ratios

= Operat ing expenses / Tot al

Operat ing expenses rat io revenues 128% 94% 91% 90% 88%
Cash conversion cycle = DI O+DSO-DPO -7.19 -5.39 -8.45 -18.11 -24.92
= Average invent ory / Cost of
Days I nvent ory Out st anding (DI O) mat erials *365 15.21 20.68 23.05 27.55 26.50
= Average receivables / Turnover *
Days Sales Out st anding (DSO) 365 30.42 39.90 30.01 25.62 26.63
Days Payables Out st anding (DPO) = Average payables / CoS * 365 52.81 65.98 61.51 71.29 78.04

3. Liquidity ratios

Current rat io = Current Asset s / Current Liabilit ies 2.77 1.43 1.76 2.26 2.39
= (Cash + Receivables) / Current
Quick rat io Liabilit ies 2.70 1.29 1.59 2.10 2.22

4. Leverage ratios
= (Short -t erm debt + Long-t erm
Debt -t o-Equit y debt ) / Tot al shareholders' equit y 221.50 15.75 1.20 0.32 0.11
I nt erest coverage = EBI TDA / I nt erest expenses -5.1 2.1 8.5 19.5 44.1

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