A&L Canada Laboratories Inc.Opportunity in the Precision Agriculture IndustryTeam 56

Sid Aiyar, Simon Clark, Harpreet Marwah, Rayner Mendes, Kelsey Paskell, Claire Sandilands

EIR: Bryan Walkey

Executive Summary• Project objectives:

• Go to market strategy that includes Marketing, Internal Decisions, and Operations Strategy

• Break even within 18 months of operations• Realize 18% ROI within second year of operations

• Recommendations:• Target consultants and farms over 2,000 acres• Use product advocates, a whitepaper, trade shows and print/electronic advertising• Price $24,670 - $28,670• Hire a division manager

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Impact• Breakeven in 2016• 19.2% ROI• 88 total units sold in 2019• Implicit value of $1.63 million

Within this section:Precision Agriculture Overview

Competitive Analysis and Positioning

A&L’s Product and Unique Selling Proposition

Target Market and Marketing Efforts

Pricing and Projections

Marketing

4

Precision Agriculture and its BenefitsFor the farmer, precision systems provide meaningful benefits that justify the investment.

Reduce Time Surveying Crops

Minimize Impact of DiseasesReduce Costs of Inputs

Improve Yields

Research suggests that a farmer could save up to 33% on fertilizer alone.

5

Competitive AnalysisMany competitors fail to focus on benefits to the end consumer, and market their specifications in isolation of each other.

Competitor Image Precision Ease of Use Processing

SpeedRetail Price

(basic package)

Variety of Options Offered

eBee Ag by SenseFly

2 cm per pixel

Fixed wingProprietary autopilot

Flight planning

1 hour617 - 823 acres $25,000

Multiple modelsMultiple sensors

Additional accessories

Lancaster Hawkeye by

Precision Hawk

1 cm per pixel

Fixed wingAutopilot

Results analysisND $25,000

Multiple sensorsMultiple cameras

Analysis provided free

AgDrone by Honeycomb

3.2 - 4.6 cm per pixel

Fixed wingAutopilot

Flight planningResults analysis

1 hour750 - 1,000

acres$15,000 Multiple sensors

Tablet with built-in software

A&L 1.5 cm per pixel

Fixed wingOpen-sourced

autopilotFlight planning

1 hour900 – 1,200

acres$24,670 Single sensor

Single model

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Competitive PositioningSenseFly and PrecisionHawk present the greatest threat from a financial and human capital perspective.

Financial Capabilities

Innovation & Expertise Service End-to-End Solution Sensor

• Parrot: $96.9 million (cash)• 2013

revenues $6.3 million

• 427 internal full-time employees and 75 external contractors

• Not disclosed

• Import data into eMotion, and provides images, immediate feedback

• Poor quality

• $10 million in Series B financing

• Investors: Intel Capital and CEO of Hulu.com

• Significant lead time

• Data upload via Cloud; $0.10 per acre for data processing & $0.20 per acre for data storage

• Poor quality

Competitors’ access to resources presents a threat to A&L. However, their lack of high-quality product and service is an opportunity that A&L can and should capitalize on.

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A&L’s Product Offering & USPThe UAV provides a unique end-to-end solution that addresses pain points experienced by farmers.

A&L’s Product Offering

Autopilot

Stitching Software

Cloud Mapping

Image Sensor

A&L will only be able to sustain its

competitive advantage once they can develop

and monetize prescription algorithms

NDVI

Light Sensor

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Potential Target Markets – ConsultantsConsultants have been early adopters of technological innovation and can be used to increase brand recognition.

Total Market Size (1,800)

Size of the Actionable Market in FY2015

Actionable (200)

Accessible (300)

Expected (9)

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Potential Target Markets – Large FarmsLarge farms are the consumer group that receives the greatest direct benefit from the product.

10

Potential Target Markets – Crop InsurersCrop insurers could see $1.2 million in cost savings on seasonal workers if they were to utilize UAV technology.

$1.2 millionSavings assuming workers are paid $15/hr,

8 hours/day for 40 days

90,000Yearly claims

2,250Temp workers

needed

750Workers with

UAVs

1,500Fewer seasonal workers needed after

investment

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Market Strategy and Marketing EffortsDirect sales to consultants and large farms presents itself as the optimal short-term strategy.

Medium-Term (2018-2019)Short Term (2015-2017) Long-Term (2020 onwards)

Consultants Farmers Crop Insurers Distribution through Retailers

Whitepapers & Publications

Leasing to Consultants

Trade Shows Paradigm Precision

Farmers’ Willingness to Pay

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Pricing ConsiderationsWhen pricing the UAV, A&L needs to primarily consider the value to the end user.

Competitors’ Pricing

Market Signalling

Production Costs

0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$12,875$17,167$21,459$25,751$30,042$34,334$38,626$42,918

Yearly Input Savings Yearly Potential Yield IncreaseBasic Price ($24,670) Premium Price ($28,670)

Acreage

Product Packages

Basic Safety Premium$24,470 $26,920 $28,670

A&L can give customers flexibility and the option to customize their UAV solution by offering different product packages.

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Pricing Considerations & Projections

2015 2016 2017 2018 20190

20

40

60

80

100

9

44

66

79 88

22 23 28 31

22 23 28

31

20

23

26

Consultants Large Farms Crop Insurers

5-Year Unit Sales Projections

Establishing the UAV DivisionWithin this section:Internal Capabilities & Requirements

The Division Manager

Positioning within A&L

Projected Financial Performance

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Current Capabilities

Internal Capabilities & Requirements

• Research and Analytics• Only 3 full-time employees • Strong relationships with farmers and

consultants• Continuous improvement, which has resulted

in late to market• Only one R&D employee

Requirements• Build manufacturing capabilities:• Leverage existing personnel for sales and

marketing• Hire a division manager• Hire one additional full-time employee for

production and testing• Seek out additional human capital for

research and development from top universities

Human Capital Capacity Constraints

Core Competencies

A&L’s core competencies lie in agricultural research and analytics where they have developed strong relationships.

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Phantom StockSalary

ResponsibilitiesEducation and Expertise

The Division ManagerA&L should hire a division manager with strong business acumen, leadership skills, and experience within agriculture.

• Minimum 2-year business diploma Basic accounting Financial projections and modelling Marketing Operations and Logistics • Minimum five years Agriculture

experience• Product Development experience

• 5% phantom stock, redeemable after 5 years, or increasing by 1% thereafter until 2025

• Suggested salary of $70,000

Growth

DirectionLeadership

Communication

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Positioning within A&LA&Ls UAV division will interact closely with other divisions and will benefit directly from the proprietary algorithms developed by other A&L divisions, once they are fully functional.

Farmer

A&L Biologicals

UAV division

Paradigm Precision A&L

$24,670 for a UAV and $500 for prescriptions

Pays of portion of salaries Pays $150 in royalties

Illustrative ScenarioPositioning

30% Royalty to A&L for Algorithms

Separate Entity

Portion of Paradigm Precision’s Salaries

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Projected Financial PerformanceThe division has an implied value of approximately $1.63 million.

Key MetricsFY'15 FY'16 FY'17

Unit Sales 9 44 66Revenue $ 247,500 $ 1,210,000 $ 1,815,000Variable Cost Per Unit 5,970 5,649 5,366

Fixed Costs 317,615 637,837 658,196EBITDA (150,844) 191,598 604,674Free Cash Flows (216,963) (30,600) 298,122

Operating Leverage 0.8x 1.9x 2.8x Annual ROI -15.1% 19.2% 60.5%Cumulative ROI -15.1% 4.1% 64.5%

Cash Flow Projections

2015 2016 2017 2018 2019-400,000

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

(216,963)

(246,562)50,560

440,069

998,746(30,600)298,122

389,509558,677

Cumulative Free Cash Flows Free Cash Flow

19% 21% 23% 25% 27% 29% 31%

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

Discount Rate

Exit Multiple

Valuation Sensitivity

$1.63 million

Operations StrategyWithin this section:Refining A&L’s Business Model

Make versus Buy

A&L Training Program

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Refining A&L’s Business ModelA&L must choose a value discipline that takes into account its capabilities and culture as well as competitors’ strengths.

Operational Excellence

Product Leadership

A&L’s OpportunityValue Disciplines Explained

Customer Intimacy

•Understanding of the Problem•Customer Relationships•Complete End-To-End Solution

Make vs. Buy A&L should manufacture until critical mass is reached and then consider outsourcing.

21

Assemble UAVs

Manufacturing UAVs

Explore Alternatives Once Critical Mass is Reached

Source Parts in Bulk Reduce Dependence

Re-Focus on Core Competencies

Explore Partnerships and Joint Ventures

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A&L Training ProgramA&L should offer training sessions that focus on software use as well as flight operations of the UAV.

Overview of Training Program

Groups of Customers Classroom Component UAV Operations

• At Customer Field• Pre-FlightPost-Flight• SFOC Not Required

• Autopilot Set-up• Stitching Integration• Troubleshooting

• At Customer Location• In London, ON• Group Rates at Hotel

Implementation

Implementation Plan

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Marketing ActivitiesFY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Activities Dec'14 Mar'15 Jun'15 Sep'15 Dec'15 Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 Sep'17 Dec'17 Mar'18 Jun'18 Sep'18 Dec'18 Mar'19 Jun'19General Marketing:Website Development $20,000Publication Advertisements $7,200/YearWhitepaper from MNP $60,000Promotional Leasing AgreementsTrade Shows: $75,000/Year

Western Canadian Crop Production ShowCanadian Farm Progress ShowCanadian Western Agribition

Target Market:ConsultantsLarge FarmersCrop Insurers

Marketing Activities Sales Efforts Sales & Marketing

Division and Operational ActivitiesFY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Activities Dec'14 Mar'15 Jun'15 Sep'15 Dec'15 Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 Sep'17 Dec'17 Mar'18 Jun'18 Sep'18 Dec'18 Mar'19 Jun'19Manufacturing Efficiencies Production 80 hrs Target Production Time 60 hrs Target Production Time 50 hrs Target Production Time 40 hrs

Develop Sales Channels

Hire Division Manager

Hire Production and Testing Staff

Search for Additional Engineering Staff

Production 10 units 45 units 70 units 80 units 90 units

Sourcing of Bulk Parts

Develop Flight Training Program

Run Training Programs

Ongoing effort Hard Target

Thank you