Market Entry

Business Challenge for The Maverick

Business situation Our client is an auto parts manufacturer and is seeking revenue growth opportunities for its struggling filters business. The filters business, named ABC Filters, currently sells oil and air filters for consumer and commercial vehicles. In addition to automotive filters, ABC historically invested in emerging air filter technologies for large, natural gas turbines (GT) used for power generation. The process of combusting natural gas for power generation requires a tremendous amount of air intake (~720,000 ft3 of air every minute of operation) and a turbine may need up to 1,000 intake filters to remove harmful contaminates that erode and foul the turbines function. ABCs R&D investment has recently developed a cartridge-shaped E10 synthetic filter with a self-cleaning mechanism that significantly reduces turbine cleaning downtime. Unlike other filters sold in the market, the E10 will allow turbine operators to efficiently generate electricity in harsh operating conditions (excessive heat, high humidity, high pollution, etc.). If launched successfully, ABC will be selling the first E10 grade gas turbine filter with a self-cleaning mechanism. ABC is also looking at utilizing its filters servicing expertise to provide associated services for E10 customers. Although our client has high expectations for this technology, they lack deep knowledge of the natural gas power generation filter market. The client has engaged your team to assess the attractiveness of this growth opportunity and provide a market entry strategy should they choose to proceed with the filter launch.

nge for The Maverick

The brief for your team involves 1. Market sizing Lay out an approach to size the gas turbine filter market. Calculate the size of the addressable market for the clients product (i.e., cartridge synthetic filter subsegment) and prioritize geographies based on market attractiveness. Identify macro/micro trends that could influence the gas turbine market in the future. Explain the effect of these trends on future market attractiveness. 2. Value proposition Develop a value proposition for the E10 filter that highlights advantages over the E9, E12 variants. 3. Go to market (GTM) Based on your research of the market environment and ABCs capabilities, what are the possible GTM options for ABC? Evaluate the options and provide a recommendation on the most suitable GTM approach for the client. Ground Rules Feel free to use external research sources and make logical assumptions where necessary. Please ensure that all external sources, data, and assumptions are captured explicitly in your deliverable. Please make all submissions in PowerPoint format, limiting the main deliverable to a maximum of eight slides (including one-slide executive summary). Appendix can be used to capture external research, assumptions, or any other references/analysis in detail.

C historically invested

Estimated growth rates of natural gas electricity generation 5-year CAGR Europe Middle East Rest of Asia Africa North America Latin America Total Current install base of GT filters by type Panel Cell 3,000.% Synth 4,000.% 2.4% 8.1% 5.2% 7.3% .4% 4.3% 3.3% Cartridge Cell 1,000.% Synth 2,000.% 10-year CAGR 1.1% 4.7% 4.5% 5.% .4% 3.8% 2.4%

Europe

Middle East Rest of Asia Africa North America Latin America

1,000.% 3,000.% 2,500.% 1,500.% 2,500.%

1,000.% 2,000.% 2,500.% 2,500.% 2,500.%

2,000.% 2,000.% 2,000.% 1,000.% 3,000.%

6,000.% 3,000.% 3,000.% 5,000.% 2,000.%

Note: Synth = Synthetic filter technology, Cell = Cellulose filter technology High efficiency filter consideration set E9 E10 E12

Market status Filter price Filter replacement rate (months) Turbine wash time (hrs/year) Downtime for filter cleaning (hrs/year)

Available $300. 24

Testing $330. 24

Available $100. 12

90 60

120 20

180 300

Average turbine

160

150

160

180MW capacity

190MW

180MW

Average turbine uptime Price of electricity 9,800.% 9,900.% 9,600.%

$0.06 per kilowatt hour

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Tou www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain and regulations of public accounting. Copyright 2013 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited

Current installed GT distribution by region Distribution of Turbine Installations by generation capacity (measured in MW)

Key filter statistics Panel Climate Cell Marine No. of filters per MW of 10 power generated Arid Mixed Arid Mixed Humid subtropical Filter lifetime (months) Avg. Price Average loss in power generation (%) Marine Arid Humid sub-tropical 8 $80. 12 $100. $100. 15 Synth Cell

800.% 200.% 600.% 500.% 400.% 400.% Note: 1 gigawat (GW) = 1,000 megawatts ((MW)

Client Competitor A Competitor B Competitor C Competitor D

Competitor capabilities and sales Gas Filter Filter Filter turbine Gas turbine Product production installation servicing maintenance variant OEM X X X X X X X X X X X X

X X

Agent 200.% Turbine OEM Turbine 500.% Other 100.% Latin America 600.%

maintenance provider 600.% Turbine Operator 1,000.% Distributor 2,800.%

Middle East 800.%

Supply to competitors 4,800.%

Asia 1,600.%

North America 2,400.%

Other Other Client 2012 sales Latin America Client 2012 sales Agent Turbine OEM by customer type Middle East by region type Turbine maintenance provider Asia Turbine oper ator North America Distributor Europe Supply to competitors ailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules

Cartridge Synth 12 10

12

24 $300. 500.% 200.% 400.%

800.% 400.% 600.% = 1,000 megawatts ((MW)

e Gas turbine Product maintenance variant E10 X E12 E12 E9 E9

Other 300.%

Europe 4,300.%

North America

Client 2012 sales by region type

3060 Europe Middle East Rest of Asia Africa North America Latin America 100.% World Assuming 100 turbines Panel Cell No of filters/MW Lifetime in months Avg Price 30-60 Europe Middle East Rest of Asia Africa North America Latin America World 29.3% 13.8% 24.6% 10.8% 4.6% 16.9%

60120 120180 >180 5.4% 6.9% 30.1% 41.4% 17.2% 16.1% 0.0 9.2% 43.% 16.1% 4.3% 10.3% 100.% 100.% 100.%

11.2% 12.9% 11.3% 0.0 58.1% 6.5%

5 Year CAGR 2.40% 8.10% 5.20% 7.30% 0.40% 4.30% 3.30%

Synth 10 8 80 60-120 1318.5 621 1107 486 207 760.5 4500 486 2709 1548 0 3870 387 9000 15 12 100

Cell

Cartridge Synth 12 12 100

10 24 300 Total 2016 2322 2034 0 10458 1170 18000 4855.5 11862 7104 1866 16950 3862.5 46500

120-180 >180 1035 6210 2415 1380 2415 1545 15000

Europe Middle East Rest of Asia Africa North America Latin America World

Overall InstallYear Capacity 0 971 7117 2131 560 8475 773 20027

Year 1 994 7694 2242 601 8509 806 20688 1018 8317 2359 645 8543 840 21370 North Am 24% 12 7 2 1 1 0 0 24

Year 2

Regions & Sales Breakup Europe Client Sales 43% Competitors 48% Distributors 28% Turbine Ops 10% Maint Prov 6% OEM 5% Agent 2% Others 1%

21 12 4 3 2 1 0 43

Year 3 Year 4 1043 1068 1093 8991 9719 10506 2481 2610 2746 692 742 796 8577 8611 8646 876 914 953 22076 22804 23557 Region Sales Asia Middle East Latam 16% 8% 6% 8 4 3 4 2 2 2 1 1 1 0 0 1 0 0 0 0 0 0 0 0 16 8 6

Future Focus Areas Europe Client Sales 5% Competitors 48% Distributors 28% Turbine Ops 10% Maint Prov 6% OEM 5%

2.20 1.28 0.46 0.27 0.23

Region Sales North Am Asia Middle East Latam 38% 11% 40% 4% 18.06 5.25 19.16 10.54 3.06 11.18 3.76 1.09 3.99 2.26 0.66 2.40 1.88 0.55 2.00

1.85 1.08 0.39 0.23 0.19

Agent Others

2% 1%

0.09 0.05 4.58

0.75 0.38 37.63

0.22 0.11 10.94

0.80 0.40 39.92

0.08 0.04 3.86

Filter E9 E10 E12

Price 300 330 100

Replacement Rate Wash Time Downtime 24 90 60 24 120 20 12 180 300

Avg. Turbine Cap. Avg. Uptime 160-180 98% 150-190 99% 160-180 96%

Points: 1) Power requirement peaks during summer times. Our new technology is capable to deliverying max power in the most extrem 2) Uptime is higher. Which translates to more energy generation in the same Power Plant. 3) Maintenance downtime is lowest among competitiors 4) Total Working Hrs is highest among competitiors 5) Avg loss in power generation is the lowest in terms of loss as well as no. of filters required.

Install Base of GT Price 20% 60% 30% 30% 50% 20%

330

Overall 971 7117 2131 560 8475 773 20027 Estimated potential unit sales Estimated Market Size Rank 7307 2411372 63700 21021036 17458 5761202 4889 1613419 60042 19813749 6157 2031898 159554 52652676

Year 5 1120 11357 2889 854 8680 994 24334 Other 3% 1 1 0 0 0 0 0 3

4 1 3 6 2 5

48 28 10 6 5 2 1 100

Other 3% 1.47 0.86 0.31 0.18 0.15 48.00 28.00 10.00 6.00 5.00

0.06 0.03 3.06

2.00 1.00 100

Price/kwh 0.06 0.06 0.06

Replacement Cost/Year total Maintenance Time(hr/year) Total Working Hrs/Year 150 150 7500 165 140 14000 100 480 12000

x power in the most extreme temparatures as well

% 0.045798 0.39924 0.109419 0.030643 0.37631 0.038591