Background and Potential Opportunities for SELCO

Harish HandeVP

November 2003

• Background & Overview• Recent Developments• Long-term Opportunities• Next Steps

• The Solar Electric Light Company (SELCO) was founded in 1997 to manage subsidiary companies engaged in the selling and servicing of solar electric lighting systems.

• SELCO was started by the Solar Electric Light Fund (SELF) to commercially scale-up a distribution and retail network through which to sell and service household lighting systems.

• The Company is a Delaware-registered US corporation with majority interests in two operating subsidiaries in India and Sri Lanka, and maintains a project office in Vietnam.

• The company is approaching profitability at revenues of $5 million per year, and employs 350 people

Background & OverviewCompany History

Background & OverviewThe Market

• Throughout the world, people lack access to reliable sources of electricity

– Un-served: Approximately 2 billion people lack access to primary grid electricity

– Underserved: Many of those who actually have access to the grid do not reliably receive it

• Without reliable access to electricity, households and businesses are using alternative sources of lighting and electricity

– Kerosene for wick lamps– Dry-cell batteries for flashlights and radios– Recycled car batteries for lighting and TV– Generator sets as AC electricity backup– Solar home systems for DC electricity

• In addition to home lighting and electricity, there are other significant needs waiting to be met

– Communications– Clean drinking water and efficient irrigation– Water heating– Refrigeration– Other Productive Uses

Background & OverviewCurrent Products- Home Lighting Systems

• SELCO’s primary product is a solar-photovoltaic home lighting system. A solar photovoltaic module is used to charge up a deep-cycle battery during the day, and discharged during the evening to run lights, TV, radio, and other small DC appliances.

• Most of SELCO home-lighting systems are custom designed to cater to the varied needs of rural, semi-rural, semi-urban and urban clients.

• SELCO stocks a range of DC lighting options to meet the particular needs of individual customers.

– Reading Lights– Night Lights– Focus Lights– Corridor Lights– Outdoor Lights– Portable Lights– Restroom lights

• Each solar home lighting includes installation and four service visits during first year.

Background & OverviewCurrent Products- 12-volt and AC appliances

• In addition to SHS, SELCO sells other 12V DC appliances

– 12 volt Cassette Recorders, – Radios, – Black-and-white & color televisions, – Soldering Irons– Fans– Door Bells– Other

• SELCO sells systems for AC appliances– Mixers, – Color TV’s, – EPBAX’s etc.– CFLs for energy efficient lighting

• SELCO designs photovoltaic systems for residential and commercial users needing:

– Back up power– Primary power– Short Term Emergency power

Background & OverviewCurrent Products: Large Installations

• In addition to individual systems for homes and businesses, SELCO also designs, installs, and services large-scale systems including:

– Large AC and DC systems of up to 20KW– Solar PV/ Grid-intertied AC hybrid systems– Water heating systems up to 1k liters/day– Water pumping systems from 7k to 120k liters/day of

surface and submersible pumping. – Telecommunication repeater stations– Over 25 KM of installed DC electric fencing

• Example of customers for such large scale systems are– Seminaries and religious complexes– Residential Dormitories for Schools– Financial Institutions.– Wild Life Parks and Remote Recreation Centers

• Approximately 15% of SELCO’s revenue comes from large-scale projects.

Background & OverviewSolar Water Heating

Distribution Network

HQ

RegOffc

RegOffc

SSC

SSC

SSC

SSC

Salesforce

Dealers

Salesforce

Dealers

Salesforce

Dealers

Salesforce

Dealers

Cus

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ers

Background & Overview

HQ:

Each subsidiary has a headquarters located in large commercial city, responsible for overall company management.

Regional Offices Located strategically throughout service

territories, each office directly manages

between 5-10 SSCs

SSCsSELCO’s retail showroom, inventory depot, and base

of sales and service operations. Located in

central rural towns.

Salesforce & Dealers: SELCO’s direct sales force and shops (dealers) market

SELCO’s products to potential customers

Background & OverviewSubsidiary Headquarters & Reg. Offices

• Headquarters: SELCO subsidiary operations are managed through country-level subsidiary headquarters operations located in a central commercial city. Headquarters operations are responsible for:

– Central Management– Operations Management– Finance & Accounting– Purchasing

• Regional Offices centers have recently been introduced for better management of SSCs. Regional operations are responsible for:

– Management of SSCs under its jurisdiction– Local sales & marketing– Expansion in its area of operations.

There are currently two regional offices in each India and Sri Lanka.

Background & Overview

• SELCO sells its products through a wholly-owned network of sales and service centers (SSC) located throughout the areas of its operations.

• Each SSC contains a showroom for products and serves as the basis for sales and service operations for the given geographic territory

• SELCO currently has 32 SSCs in India and Sri Lanka, with plans for over 50 additional SSCs in the next five years.

• It is anticipated that new centers will be a combination of wholly-owned stores and franchised dealerships operating under defined company policies.

Sales & Service Centers (SSCs)

Background & OverviewSales Executives and Agents

Salesforce:• SELCO employs a direct salesforce of 90

salespeople in India and Sri Lanka. • Salesmen visit customer homes to introduce

SELCO products and services. They also introduce financial packages to the potential clients

Dealers: • In addition to its sales executives, SELCO

utilizes a network of independent dealers to market its products.

• Dealers introduce potential customers to SELCO’s products and steer interested ones directly to SELCO SSC or sales executives to close the sale. For their efforts, dealers are paid commissions of between 5% and 10%.

Background & OverviewInstallation and After-Sales Service

• SELCO provides installation and after-sales service packages on all products sold.

• Prior to closing a sale, an installation technician will visit customers home to tailor product to best fit customer electrical and lighting needs.

• After sale, trained SELCO technicians visit customer home for installation. On a periodic basis, service technicians visit customers homes to check on system performance.

• After the initial 1-year of included service, annual maintenance contracts (AMCs) are available for purchase by SELCO’s customers.

SELCO believes that its commitment to high quality service and lasting customer relationships will be its key to long-term success.

Background & OverviewConsumer Finance

• SELCO also provides access to consumer financing through its partners. As its primary products represent large customer purchases, typically 3-6 months salary or equivalent, SELCO bundles purchasing with finance through local financing organization.

• With financing at 10-20% p.a., a $400 solar home lighting system at 20% down can be purchased over four years for between $10-12 per month, which is similar to expenditures for competing power sources.

• SELCO has developed relationships with over thirty rural banking networks in rural India and Sri Lanka, as well as working extensively with credit cooperatives, leasing companies, and other local sources of finance.

Through the provision of financing, SELCO aims to provide “one-stop shopping” for customers seeking reliable home lighting and electricity.

• Background & Overview• Recent Developments• Long-term Opportunities• Next Steps

• SELCO has recently expanded its product offerings beyond solar electric lighting systems• With its network of service centers, trained sales force, and service technicians, SELCO has the opportunity to introduce additional products and services

– Telecommunications– Water Pumping coupled with drip Irrigation– Refrigeration– Other productive uses, e.g., powering rice mills, spray painting machines etc.

• SELCO believes that it can be a valuable channel partner for manufacturers and distributors lacking direct retail access to customers. • SELCO also believes that with its network of service centers coupled with its excellent relationship with rural financial institutions, it can provide a fantastic

opportunity to like minded organization to sell and promote technologies that could directly impact the quality of life in the rural areas.

Recent DevelopmentsProduct Line Expansion

• SELCO has entering the home and small business telecommunications market through sales of wireless local loop telephones.

• In late August, 2003 SELCO sold its first 50 wireless local loop (WLL) telephone systems through Mobitel and the Sri Lankan Telecommunications administration.

• Each WLL unit employs a radio to connect individual homes to central transmitter/receivers.

The combination of wireless telephone and power provide families and businesses with the enter the 21st century without waiting for wired power or communications.

Recent DevelopmentsTelecommunications

Water Pumping & Micro-Drip Irrigation

Recent Developments

• Solar water pumps can be coupled with drip irrigation kits for water conservation and increased economic activities. Kits range in size from a 20-litre bucket irrigating 25 m² to customized systems covering 1000 m² or more.

– Crops irrigated by drip systems show water savings of up to 50 percent resulting in reduced labor and energy costs.

– Controlled application of water to the plants suppresses weed growth, further reducing labour costs.

– Increased frequency and uniformity of water application plus reduced competition from weeds results in improved plant growth and yield increases of 30 to 50 percent.

• SELCO has entered into product development and product design Currently developing an integrated type wall-mounted battery box.

• With its installed base, technical capabilities, and understanding of the market, SELCO believes it can be a SELCO is tremendous source of information in product design.

• SELCO expects to take control of product development and design, but partner with contract manufacturer rather than begin manufacturing directly.

• SELCO can be a source of value for other product design firms interested in direct testing, market feedback, and beta-testing.

Product Design

Recent Developments

Recent DevelopmentsOther Productive Uses

• SELCO is beginning to package solar electric systems with productive loads to sell or lease to rural entrepreneurs

• SELCO is currently introducing the first 12V DC refrigerators for rural store owners. We have partnered with one of Sri Lanka’s largest beverage distributors and refrigerator manufacturer to undertake a marketing study to determine potential market for small refrigerators.

• SELCO is looking at a number of potential productive use applications, including:

– Sewing machines– Market stall light rental– Entertainment products (TV/DVD, Karaoke,

Games)

• SELCO is a finalist in the World Bank’s Development Marketplace, which includes $250,000 in grant funds for development and testing.

• Background & Overview• Recent Developments• Long-term Opportunities• Next Steps

Service

SELCO has the potential to utilize its distribution network and customer relationships to be at intersection of product, service, and finance:

Selling high quality, branded consumer durable products coupled with after-sales service and consumer financing

Product

Finance

• Sustainable• High-Quality• Branded• Consumer Durables• Empowering

customers

Installation and after-sales service at the Customer Home on all company products sold

Consumer Durables Financing

Long-Term OpportunitiesExpanded SELCO Vision: Moving beyond Strictly Solar

• Background & Overview• Recent Developments• Long-term Opportunities • Next Steps

• SELCO anticipates seeking additional equity in mid-2004 to undertake additional opportunities.

• We believe there are a number of milestones that should be completed prior to a successful equity offering.

• These milestone relate to:– Advancements in SELCO Operations: – Identification of New Opportunities– Preparation for Investment Offering

• SELCO believes that it will be able to complete these required tasks and begin full equity round by March, 2004, complete equity round by mid-to-late 2004.

Summary

Next Steps

Next Steps

Milestone Schedule

• Operational Improvements:– Roll-out of Company-wide Management Information System– Standard company structures and policies implemented– Parent company management team fleshed out – Indian PVMTI investment-led growth in sales outlets – Sri Lankan -- Cashflow improvements realized; A/R reduced– Vietnam future resolved (closure or scale-up as project office)

• New Opportunity Identification– Next 2-3 Country Opportunities Identified– Feedback from additional products introductions

12/033/04

12/03

12/03

11/03

Early 2004

Target

2/0412/03

Next StepsInvestment Related

• Investment Materials Preparation:– Business Plan written– Financial Projections Complete– Polished Investment Presentation Ready– Offering Documents Drafted– SELCO consolidated March 31, 2004 audit

• Investors Identification & Roadshow– Potential Investors identified– Initial contact made and shortlist identified– SELCO full road show presentations to

interested investors

• Closing– Closure of $2 to $5 million in equity

5/04

10/03

12/03

11/03Early 2004

Starting 4/04

Target

1/042/04

Mid-2004

• Who is the appropriate investor audience for SELCO?

• What additional information / backup documentation/proof is needed to present a truly compelling story?

• How should we prioritize milestone achievement prior to equity round?

Questions….

Next Steps