1

Export Electronic Cigarettes from US to Vietnam

Group 12: Ale Fierro, Cory Yates, Dan Barwari, Jeffery Choi, Nicky Nguyen

2

Nguyen Minh Khang• 43, smoked for 26 years

• His 3 year old daughter developed a cough, diagnosed with asthma

• Nguyen began to have stomach problems and heart problems

3

Smoking a growing problem for Vietnam• 50% of men smoke, 65% of young

men (25-45)

• Health Problems• Has cost 1.5 million years of healthy living

in Vietnam• Annual treatment costs of $96,000,000

• Smoking kills 40,000 a year, will be 70,000 by 2030 if changes aren’t made

Vietnam India World0

5

10

15

20

25

30

35

40

45

50

% of Male Smokers

% of Male Smokers

4

Push to stop smoking Electronic Cigarettes

• Government efforts to reduce smoking rates• Higher taxes• Banning smoking in public places• Ad campaign showing negative health

effects• Age restrictions on purchasing• Bans on advertising• Restrictions on tobacco suppliers

• Can assist with quitting smoking• Replaces harmful cigarettes• $3 billion market by 2015

5

What E-Cigarettes Are and How They Work

• Nicotine Cartridge• Contains solution with variable

amounts of nicotine• Various flavors

• Atomizer• Heats up turning the liquid into a

vapor that is inhaled

• Rechargeable Battery• Provides power, may be activated

by airflow or the push of a button

6

Cage AnalysisCultural Administrative Geographic Economic

Different language 14 days to start a business

Long Distance to Vietnam

Lower income level

Vietnam is a collectivistic society, US individualistic

E-Cigarettes duty free to Vietnam

Product is lightweight, low shipping costs

Cigarettes are inexpensive

Desire for US made products

10% Value added tax Non perishable item, no spoilage

Can we make an electronic cigarette cheap enough for Vietnamese customers?

0% Special Sales Tax

Labeling requirements (Vietnamese)

7

PESTEL AnalysisPolitical Economic Social Technological Environmental Legal

Restrictions on advertising of tobacco related products

Little competition from China

Increased efforts to reduce smoking

Efforts to develop infrastructure

No significant impact

Restrictions on tobacco suppliers

Higher taxes Chinese e-cigarettes are low quality and not tested well

Ad campaigns illustrating negative health effects

Adding expressways

Age restrictions on purchasing

3 billion dollar market by 2015

8

E-Cigs Designed in US Manufactured in China

• American designs and technology• American quality standards

• Third party factory in China fabricates components

• Component parts assembled into finished product

• Inspection and Function Testing• Packaging

9

Distribution and Sales in Vietnam• Sales in our own stores

• Repairs• Replacements• Warranty• Demonstrations• Special Events

• Sales in Other Independent Retail Stores• Convenience Stores• Tobacco Stores

10

Marketing to be centrally focused on high income smokers

Product: American Quality Electronic Cigarettes

Price: Average selling price: $80.00

Promotion: Main vehicle of promotion is print advertising

Place: Local convenience stores in the 10 wealthiest cities: Ho Chi Minh City, Binh Duong, Hanoi, Danang, Quang Ninh, Dong Nai, Ba Ria, Can Tho, Tay Ninh

11

Expand Sales Into Multiple Countries – Profit Potential

• E-Cigarettes listed as a top 8 disruptive innovation by Goldman Sachs• E-Cigarette sales have doubled in the last 2 years; just passed $1b in sales –

an increase of 240% in the last year• Will comprise an estimated 10% of the total tobacco industry volume by 2020• 74% of smokers want to quit*• Few legal restrictions

*Gallup poll

12

Revenue Forecast Breakdown

Item 2014 2015 2016 2017 2018

Direct Sales $ 2,000,000.00 $ 2,100,000.00 $ 2,205,000.00 $ 2,315,250.00 $ 2,431,012.50

Distributor Sales $ 6,000,000.00 $ 6,300,000.00 $ 6,615,000.00 $ 6,945,750.00 $ 7,293,037.50

Services/Maintenance $ 800,000.00 $ 840,000.00 $ 882,000.00 $ 926,100.00 $ 972,405.00

Total Revenue $ 8,800,000.00 $ 9,240,000.00 $ 9,702,000.00 $ 10,187,100.00 $ 10,696,455.00

Units/Users 100000 105000 110250 115762.5 121551ASP (Average Selling

Price) $ 80.00 $ 80.00 $ 80.00 $ 80.00 $ 80.00

13

Profit and Loss from Operations ForecastItem 2014 2015 2016 2017 2018

Total Revenue $ 8,800,000.00 $ 9,240,000.00 $ 9,702,000.00 $ 10,187,100.00 $ 10,696,455.00

COGS $ 5,280,000.00 $ 5,544,000.00 $ 5,821,200.00 $ 6,112,260.00 $ 6,417,873.00

Gross Profit ($) $ 3,520,000.00 $ 3,696,000.00 $ 3,880,800.00 $ 4,074,840.00 $ 4,278,582.00

Gross Profit (%) 40.00% 40.00% 40.00% 40.00% 40.00%

Operating Costs

Sales & Marketing $ 1,584,000.00 $ 1,663,200.00 $ 1,746,360.00 $ 1,833,678.00 $ 1,925,361.90

R & D $ 396,000.00 $ 415,800.00 $ 436,590.00 $ 458,419.50 $ 481,340.48

G & A $ 880,000.00 $ 924,000.00 $ 970,200.00 $ 1,018,710.00 $ 1,069,645.50

Total Operating Costs $ 2,860,000.00 $ 3,003,000.00 $ 3,153,150.00 $ 3,310,807.50 $ 3,476,347.88

Total Costs $ 8,140,000.00 $ 8,547,000.00 $ 8,974,350.00 $ 9,423,067.50 $ 9,894,220.88 Other Income and

Expenses $ - $ - $ - $ - $ -

Pretax Profit ($) $ 660,000.00 $ 693,000.00 $ 727,650.00 $ 764,032.50 $ 802,234.13

Pretax Profit (%) 7.50% 7.50% 7.50% 7.50% 7.50%Taxes (35%) $ 231,000.00 $ 242,550.00 $ 254,677.50 $ 267,411.38 $ 280,781.94

Net Income $ 429,000.00 $ 450,450.00 $ 472,972.50 $ 496,621.13 $ 521,452.18

14

Cash Flow Forecast2014 2015 2016 2017 2018

Net Income $ 429,000.00 $ 450,450.00 $ 472,972.50 $ 496,621.13 $ 521,452.18

Plus Depreciation $ 32,916.67 $ 32,916.67 $ 32,916.67 $ 32,916.67 $ 32,916.67

Cash Flow From Operations $ 461,916.67 $ 483,366.67 $ 505,889.17 $ 529,537.79 $ 554,368.85

Less Equipment $ (277,500.00) $ (100,000.00) $ (100,000.00) $ (100,000.00) $ (100,000.00)

Change in NWC $ (200,000.00) $ (210,000.00) $ (220,500.00) $ (231,525.00) $ (243,101.25)

Less Purchased IP $ - $ - $ - $ - $ -

Other Cash Items $ - $ - $ - $ - $ -

Total Cash Used $ (477,500.00) $ (310,000.00) $ (320,500.00) $ (331,525.00) $ (343,101.25)

Total Cash Required or Generated $ (15,583.33) $ 173,366.67 $ 185,389.17 $ 198,012.79 $ 211,267.60

Plus Financing

Source 1 $ 3,125,000.00 $ 500,000.00 $ - $ - $ -

ETF $ 1,750,000.00 $ - $ - $ - $ -

Source 2 $ - $ - $ - $ - $ -

Total Financing $ 4,875,000.00 $ 500,000.00 $ - $ - $ -

Cum. Financing Required $ 4,875,000.00 $ 5,375,000.00 $ 5,375,000.00 $ 5,375,000.00 $ 5,375,000.00

Beginning Year Cash Balance $ 5,000,000.00 $ - $ 673,366.67 $ 858,755.83 $ 1,056,768.63

End Year Cash Balance $ 0 $ 673,366.67 $ 858,755.83 $ 1,056,768.63 $ 1,268,036.22

15

Headcount and Salary Forecast

ItemExisting

Headcount 2014 2015 2016 2017 2018

Manufacturing 0 4 4 5 5 6

Research 0 2 2 2 2 2Product Development 0 2 2 2 2 2

Sales 0 6 8 10 12 12

Marketing 0 7 9 11 13 13

G & A 0 8 8 8 8 8Total Head Count 0 29 33 38 42 43

CEO(US)

Manufacturing Shipping (US)Manager of

Vietnam Operations

AccountingResearch &

Development

Distribution Sales & Marketing

Shipping Receiving Sales Marketing

Wholesale Retail