1. Strategic Level of Confidence MatrixObjective process providing level of confidence inassessing future growth potential of business entitiesfor investment or prioritization of investmentpurposes

2. The ProblemHow reliable is a business valuation for a new or growing business?When a business is being valued by a potential purchaser, seller, or investor, or when a company is assessing themerits of investing resource or capital behind an internal division or concept, a range of factors must be taken intoaccount, and the final value determined is a product of all of these variables. Some of these variables are relatively easyto objectively value (e.g. cash, receivables, physical assets), but some are notoriously difficult to value and can behighly subjective. This difficulty can be exacerbated under a number circumstances such as: Where the future of the business may look very different from the past A business may wish to attract new capital, for example, for a major initiative into new markets, new products, or new distribution strategies that will dramatically alter the future prospects of the operation. When previous and current accounts are not able to allow for this, how can a reliable forecast be made? Where the business is highly dependant on innovation of one sort or another The developers of a business that has developed some ground-breaking new technology products are approached by a multinational who wish to acquire them however there is no trading history with these new lines. What is the value of the business? Where the business is unique The owners of a vertically integrated food service business wish to sell. They contract the raw materials, manufacture and process, and distribute under different brands to supermarkets, food service as well as their own extensive proprietary retail chain. They are so unique there is no benchmark, so how can this business be accurately valued? Where there is high dependancy on one critical factor, such as a key person A company wishes to enter a new market and has identified the acquisition of a successful local business as the most attractive option. However the business owes much of its success to its founding family who wish to exit, and how will this affect future cash flows and the current valuation? 3. The ProcessFuture growth prospects for a business can be a matter of opinionThe process of valuing a business is focused on finding a figure (or range) that can be agreed by the parties involved.At its core, it is the current value of the expected future revenues from the business, adjusted according to the riskrelated to these future revenues. The SLC Matrix is designed as a simple way to validate the risk level of projectedfuture revenues and growth prospects for a business Tangible assets + Tangible assets can be valued with relative ease. Intangible assets, and how reliable intangible assets.future growth projections are, requires judgement and the SLC Matrix is designed to provide an objective overlay Typically a business will have a Strategic Plan (whether formalized or not) which Strategic Plan formakes certain predictions based on a set of assumptions. Normal financial analysis is the business will able to interrogate these assumptions to enable the future profit streams to be make certainprojected, discounted as appropriate, and a current value estimated. But doubt will always remain on how accurate these future projections areprojections and assumptions The SLC MatrixThe SLC Matrix does not replace conventional valuation methods but provides provides a wayan overlay that enables the future growth potential of a business to beto validate thepredicted on a more objective and reliable basis future growthpotential 4. 7 Key DriversThe ability of a business to grow and sustain new levels of revenue (notincluding acquisition) is highly dependent on 7 key attributes 1 Proprietary assets 2 Track record 3 Robustness 4 Scalability 5 Ease of replication 6 Risk of being copied 7 Market sustainability 5. Key Attribute #1Proprietary Assets The Attribute 1Proprietary assets Proprietary assets can be defined as any physical, intellectual, legal, human or Track recordother asset that is exclusively under the control of the business. The sustainability2 of future growth projections can be highly dependant on whether the business owns proprietary assets; the extent to which these are protected or able to be3Robustnessreplicated, whether these could be lost or destroyed, and the degree to which the business depends on these.4Scalability Examples include intellectual property such as trade secrets, patents, brand; legal agreements providing such things as exclusivity; ownership or control over key elements of the value chain from exclusive supply of a critical raw material,5Ease of replication distribution monopoly; real estate in key locations; etc. Human capital may also be seen as a proprietary asset the variables being the level of control (e.g. restrictions on trade or anti-competition) and death/disability risk (which can be6Risk of being copied mitigated through insurance).7Market sustainability5 - StrongProprietary assets strong and sustainable 4 - Positiveand provide robust long Some or all proprietaryterm businessassets strong andadvantage 3 - Neutralconfer business Proprietary assetsadvantageneutral providing 2 - Negative neither advantage nor Minor or fragiledisadvantageproprietary assets1 - PoorBusiness has no appreciable proprietary assetsRating on 1-5 Scale 6. Key Attribute #2Track Record1Proprietary assetsThe AttributeTrack record refers to the demonstrated historic capability of the business and 2Track record management team to deliver consistently on new initiatives, and the level ofsimilarity between past and future plans. A business/management team that candemonstrate the successful delivery of similar challenges and meet objectives3Robustnessshould be rated highly as likely to possess the necessary capabilities to continue todeliver. Conversely a history of failing to achieve objectives or deliver to plan, or4Scalabilityfuture expectations that may require different experience or skill sets to deliverare indicative of a low level of confidence. Judgement must be used to allow forsuch variables as willingness to engage new and appropriately skilled specialist5Ease of replicationresources if required; and subjective measures such as leadership drive, focus andtenacity. This measure is predicated on the simple assumption that the past6Risk of being copied delivery of business results is a strong indicator of future expectation.7Market sustainability5 - Strong Strong track record in successful delivery of 4 - Positivesimilar objectives Track record showspositive signs of 3 - Neutralprevious delivery of Track record neutral similar objectivespast performanceleading to moderate 2 - Negative neither adds norfuture confidence Partial track record ofdetracts from likelihoodsome success in of future delivery1 - Poordelivery butunconvincing in relationBusiness unable to showto current plans previous successful delivery of objectives requiring similar skillsRating on 1-5 Scale 7. Key Attribute #3Robustness1Proprietary assets The AttributeRobustness refers to the level to which the business has the capacity to absorb or Track record respond to pressure, change, or the unexpected without placing the delivery of2future objectives in jeopardy. This may be measured across many dimensionsincluding financial, human resources, technology, regulation, and competitor 3Robustness activity among others. In cases where the delivery of future plans have significantdependency on a small number of variables that could dramatically impact future Scalabilityplans (e.g. plans highly dependant on the capability of a single individual, the4status quo or change of critical legislation, or the availability of additional fundingnot yet secured) will be scored negative/poor on this attribute according to the5Ease of replicationlevel of fragility and risk identified. Conversely where it can be shown that futureplans have only minor exposure to such dependencies, or for example wheremultiple options are available reducing the relative future risk, the business6Risk of being copiedshould receive a positive/strong rating for robustness.7Market sustainability 5 - Strong The risk of anyunforseen circumstance 4 - Positive has little likelihood of There are fewnegatively impactinguncertainties and risks the delivery of future3 - Neutral and the business is plans The business is likely to cope with most balanced in terms of eventualities 2 - Negativerobustness with this Some risk exists owingattribute neither strongto the dependency on nor weak1 - Poorcertain assumptions Future plans are highly dependant on a number of assumptions with few or noRating on 1-5 Scale alternatives 8. Key Attribute #4 ScalabilityThe Attribute 1 Proprietary assetsScalability refers to the ease, cost, speed and reliability of using the existing business as a basis for expansion (scale). Analysis under this attribute requires the 2 Track recordtesting of a range of scale or volume increments and hinges on identifying capacity constraints within the entire value chain of the business and modelling the cost and revenue implications. It is critical not to assume scale efficiencies or a 3 Robustnesssmooth growth curve without careful analysis of all variables for example a manufacturing plant operating at 70% capacity may see scale economies deliver4 Scalability unit cost reduction at 25% growth, but at 50% growth the cost of additional plant (which would then be under-utilized) could result in overall increased unit cost. Businesses with capacity constraints or other impediments across the entire value 5 Ease of replication chain, or those whose nature requires significant step increments to costs should receive negative/poor ratings while those with few capacity constraints and where margins are stable with growth should be ranked positive/strong.. 6 Risk of being copied 7 Market sustainability5 - Strong Clear scalability with demonstrable benefit4 - Positive to be obtained with Business scalablerelative certainty without major3 - Neutralimpediment and No significant moderate benefit impediments to scalepossible2 - Negative but no clear benefit Some capacityeither constraints or other1 - Poor impediments including potential for capital Significant capacity investment constraints, other growth impediments or large capital investments required Rating on 1-5 Scale 9. Key Attribute #5Ease of Replication1Proprietary assets The AttributeUnlike scalability which normally assumes the leverage of existing resources or Track record assets to produce incremental returns, replication addresses the ease, cost, speed2and other key factors in the duplication, or cloning, of a business. Many franchisemodels, for example, grow through the replication of businesses that have been3Robustness shown to have suitable scale. Naturally there is a relationship between these twoattributes. A business that would be difficult to replicate because of its unique Scalabilitycharacteristics (e.g. location, heritage, personnel, specialization) is likely to be4rated neutral through poor, while one that has no such impediments and can beeasily and quickly replicated many times over should be rated positive to strong. 5Ease of replicationIn circumstances where the future growth projections of a business do not requirereplication in any way the rating should be neutral as the business will be neitheradvantaged nor disadvantaged by this attribute.6Risk of being copied7Market sustainability 5 - Strong Replication will be asignificant growth4 - Positivedriver and the business There are clear positiveis strongly positioned benefits in replicatingfor this to occur with3 - Neutralthe business model and expectation of success Replication is irrelevantthis is achievable with as a driver of growth, or no major impediments 2 - Negativethe business has no Replication is desirableclear advantage oras a driver of growthdisadvantage in this1 - Poorbut will present someregardchallenges Growth requires replication but unique attributes make this difficult to achieve Rating on 1-5 Scale 10. Key Attribute #6Risk of Being Copied 1Proprietary assets The AttributeThe degree to which the business is protected from value erosion throughTrack recordcompetitive activity (copy/improve) has a bearing on the ability of the business to 2deliver its growth plans. Businesses that would be difficult to copy e.g.established brand, unique location, strong customer loyalty, secret or protected 3Robustnessintellectual property should be rated positive or strong. Where no suchuniqueness or protections apply and the landscape is relatively free forScalability competitors to easily and quickly copy or even improve, these businesses should 4receive negative/poor ratings. . 5Ease of replication6Risk of being copied 7Market sustainability 5 - Strong The business hasstrong protections or 4 - Positive uniqueness and is well There is a level ofinsulated from the riskcomfort that it would of being copied3 - Neutral be difficult for This attribute is eithercompetitors to of low significance or seriously erode value2 - Negative the risk of being copied through copying There is some risk ofis neutral competitors being able1 - Poor to copy or improve on Few impediments existthe business model to prevent competitors copying or improving the business modelRating on 1-5 Scale 11. Key Attribute #7Market Sustainability 1 Proprietary assetsThe Attribute This final measure requires analysis not of the target business, but the market in Track recordwhich the business operates and its future projections, and the alignment of that 2 with the products/services the business produces. Key questions include the market size and growth, technological advancement, market trends, regulatory 3 Robustnessenvironment, barriers to competitor entry, time scale for ROI, etc. Businesses rated positive or strong should be able to demonstrate there will be sustainable Scalability demand for their product/service, or if a fast cycle is expected (e.g. fashion 4 manufacturing, consumer electronics) the speed and quantum related to obtaining a satisfactory ROI is aligned with market realities. Where this cannot be 5 Ease of replication demonstrated or unquantified risks are present (such as new technologies that could leapfrog the current business model or dependence on a key issue that may change (such as a regulation, tax or tariff treatment, personal relationship etc) the 6 Risk of being copied business should receive a negative/poor rating7 Market sustainability 5 - Strong There is a robust anddemonstrated market 4 - Positive for the The market outlook for products/servicesthe products/services isproduced with little3 - Neutral generally positivechance this will change The risks and assurances related to 2 - Negativethe future market for There is a real risk that the products/servicesthe market for the are in balance1 - Poorproducts/services could There is very change and this may significant risk that thehave a negative effect market may change, negatively impacting future prosectsRating on 1-5 Scale 12. MethodologyThe SLC Matrix is simple but flexible, and a powerful tool if used systematically1. Gather Data2. Adjust Attribute Weighting 3. Apply Scoring Decide on theUndertake research relative importance4. Tabulate and Determine Finalto obtain objective of each attribute for Ratingdata relevant to the particular case5. Populate each of the 7 keySummary Report attributesOn a 1-5 scaleScore each attributedefault (neutral) is 3 based on the data but each attributecollected, as objectively and Complete themay be over- or consistently as matrix, calculateunder-weighted by possible the total score and2 points Produce summarydetermine final rating report or additionalmaterials as required 13. Attribute Weighting The relative importance of each attribute can be adjusted on a case by case basisTo ensure the model if flexible and can cater for a range of different scenarios, each attribute can be under- or over-weighted by 2 points above or below the median/neutral of 3Attribute1 2 345Proprietary STRONGLYUNDER NEUTRAL OVER STRONGLYassets UNDERWEIGHT WEIGHT UNDER WEIGHT WEIGHTTrack record Attribute neither over- or under- important in this particular case important in this particular case Attribute is unimportant in this Attribute is relatively moreRobustnessAttribute is relatively lessAttribute is critical in thisStrongly over-weightDefault Position particular caseparticular caseScalability weightedEase ofreplicationRisk of beingcopiedMarketsustainability 14. Attribute Weighting Worksheet 1. Grade the importance of each attribute on a 5-point scale 2. Arrive at score according to individual and specific circumstancesof the company or market to identify which attributes are more andless important than others in this particular case Allows for the 7 key attributes to beweighted on a 1-5 scale to Strongly Under WeightNeutral Over Weight Strongly Overaccommodate specific circumstances Under WeightWeight 12 3 4 51 Proprietary assets2 Track record3 Robustness4 Scalability5 Ease of replication6 Risk of being copied7 Market sustainabilityEach key attribute is graded on a 1-5 scale as objectively as possible depending onhow important this particular attribute is for the particular circumstances 15. Attribute Score Each of the 7 key attributes is scored according to the objective analysis of the data provided and observations of the research teamUsing a 5 point scale and the guidance provided within the template, each attribute is scored with 3 representingneutral Attribute12 3 4 5 ProprietaryPOOR WEAK NEUTRAL POSITIVE STRONG assets advantaged nor disadvantaged on thisThe company is disadvantaged on thisThe company is strongly advantaged The company is neither materially Track record disadvantaged on this attributeThe company is placed at an advantage on this attribute The company is strongly Robustnesson this attribute Scalability attributeattribute Ease of replication Risk of being copied Market sustainability 16. Attribute Score Worksheet 1. Based on data and observation, grade the business on the 1-5scale according to the guidelines set out in the summary of eachattribute Allows for the 7 key attributes to bescored on a 1-5 scale as objectively as PoorNegativeNeutral Positive Strong possible 12 34 5 1Proprietary assets 2Track record 3 Robustness 4Scalability 5Ease of replication 6Risk of being copied 7Market sustainabilityEach key attribute is graded on a 1-5 scaleas objectively as possible according to theguidelines laid out in the summary of each attribute 17. Consolidation1. Enter the weighting for each attribute and the score given on a 1-5 scale2. Add weighting and attribute score and total the two scores for each attribute to derive final SLC Total Example Attribute WeightingScoreWeighting + ScoreProprietary assets4 5 9Track record3 2 5Robustness3 3 6Scalability 2 3 5Ease of replication 3E3 6Risk of being copied4 2 6Market sustainability 5 4 9SLC Total 46 18. Final SLC Rating Add the weighting and score for each attribute and total the sum of all measuresEach of the 7 attributes may be scored from 1 (low) to 5 (high) resulting in the possible spread of scores 7-35 with amid point of 21.Each attribute is also weighted for importance on the same basis.The blended total therefore has a potential spread of 14 70 with 42 being the neutral mid point.NeutralNegative PositivePoor Strong24 or Lower25-3536-48 49-60 61 or Higher Low level of confidenceHigh level of confidence 19. Analysis of SLC RatingAdd the weighting and score for each attribute and total the sum of all measures PoorNegativeNeutral PositiveStrongAnalysis of the capabilityof the business to deliverAnalysis of the Analysis of the on the key attributes that capability of theAnalysis of theAnalysis of thecapability of theare likely to determinebusiness to deliver on capability of thecapability of thebusiness to deliver onsuccess indicates neither the key attributes thatbusiness to deliver on business to deliver onthe key attributes thatstrong positive or negative are likely to determinethe key attributes thatthe key attributes thatare likely to determine correlation success indicates a loware likely to determine are likely to determine level of correlation. success indicates a level of correlation thatsuccess indicates a success indicates a veryis negative to someLevel of confidence in thepositive level ofhigh level of correlation extentbusiness successfully correlationThe level of confidence delivering on its objectivesin the business being The level of confidence is neutral indicating the able to successfully The level of confidencein the business being The level of confidenceabsence of significantdeliver on its objectivesin the business beingable to successfullyin the business being negative factors, but also is low and this is likelyable to successfullydeliver on its objectivesable to successfully the possible lack of anyto be driven by deliver on its objectivesis very strong and deliver on its objectivescompelling positive multiple factors. is positive.compelling. is negative however factors. this may be mitigated if Extreme caution is the specific factors were addressed to a Less caution is There is clearThere is good advised and satisfactory level. required withreason forreason to havefundamentalreasonable levels of confidencesignificantchanges need toconfidence being although it wouldconfidence in the be undertaken orCaution is advisedbe wise to guardlikelihood theand a number ofjustified . Efforts can the conceptfocus on identifying against over- objectives will be abandonedissues should beconfidence met addressed beforeand building greater proceedingconfidence in the positive attributes 20. About the Author A veteran of the Asia PacificRoyal Siam Natural Health and Beauty business scene, David Christensen is Royal Siam is an international manufacturer an Australian (with New Zealandand distributor of branded skincare, haircare roots), currently based in Bangkok,and related health and beauty products, with Thailand where he is CEO ofits headquarters in Bangkok, Thailand.The premium skincare and anti agingcompany specializes in the use of natural products manufacturer Royal Siam ingredients, leveraging the extensive Natural Health and Beauty. knowledge base built up over more than 800 Having lived and worked in 14years by the Thai Traditional Medicine countries as wide afield as Russia,profession. In addition to this emphasis on India, and Japan, David has anatural and traditional ingredients, Royal Siam background in advertising withresearches and includes some of the latestingredients and techniques developed by Saatchi & Saatchi and DDB,modern science resulting in a range of extensive international business premium skincare and anti aging products that strategy consulting experience as arepresent world best practice in both 100% Partner with Gravitas Partnership in natural products as well as those that include Hong Kong, and senior regional linesynthetic ingredients.The company management roles across Asia distributes its products through retail Pacific with American Express, operations in Thailand and globally via and Carlson Wagonlit, and AXA Asia international online store, accessed at Pacific. http://www.royalsiam.asia.The website of His LinkedIn profile can be seen atwww.royalsiam.asia contains extensive this link LinkedIn Profile and you resources and information about the skincare can contact him by email atindustry as well as the role Royal Siam plays david@royalsiam.asia within the industry. . www.royalsiam.asia 21. Acknowledgment of UseThe SLC Matrix may be used without restriction provided appropriate acknowledgement is made and an unlocked version of the documentprovided upon request The concepts and content contained in the SLC approach may be freely used or adapted for use without restriction or prior approval provided appropriate acknowledgment if given to the author. In undertaking valuation exercises or analysing the future potential of business entities for a variety of reasons, no two situations are exactly the same as there are so many differing variables. However the common lack of any form of systematic framework or methodology for assessing the future potential of a business can often place too much emphasis on historic data, or to use pure financial data as the primary criteria neither of which may give a full picture. Use of the SLC Matrix, or developing a more focused approach using SLC as a base, will in many cases assist those involved in being able to see more clearly out of the front window of the vehicle they are driving, rather than attempting to drive forward, while looking in the rear view mirror! Please contact the author if you have any further questions or comments. An unlocked version of this PowerPoint document will be provided upon request. david@royalsiam.asia 22. Background and ThanksThe SLC Matrix may be used without restriction provided appropriate acknowledgement is madeWhy was the SLC Matrix developed? Personal AcknowledgmentsBoth as a consultant and as a senior line manager within multinationalThe opportunity to work alongside, observe, and learn from a number ofcorporations, I have regularly faced the same dilemma how do I find a way people in varying situations have given me the insights that haveto put some process or objective rigor into the analysis of the future potentialcontributed to the development of the approach. I particular I would likeof a business, or a business unit, or even an idea that is proposed for futureto acknowledge:development when historical information isnt appropriate or sufficient toadequately predict the likely future outcome. Jamie Donaldson of McNeill & Partners, Hong Kong, for the manyprojects we worked on together, and his demonstration of rigorousTo some people, this is intuitive (often these make the best entrepreneurs),financial disciplines, systematic process, tenacity and reliability. Mikebut it is very difficult to replicate this. To others, intuition becomes blurred with Blackburn of Gravitas Partnership, Beijing, who is the best example Iego and personal perspectives and assessments are made on a know of the intuitive business decision-maker and his demonstrationpreconceived set of assumptions that may or may not be correct. Others mayof the ideal application of experience and sound judgement. Terryadopt a more cautious view and discount anything but past and present Mezger of Deloitte in Hong Kong and John ORorke, Steve Kean andfinancial data, and thus run the risk of failing to capture opportunities. Some Graham Morris of Towers Watson in Hong Kong who all demonstratedpeople come from the school that if they trust the people involved, that is all the importance of rigorous and logical methodology in addressingthat is necessary and others have formed the view through experience that itscomplex business issues. Eve Patton of Asia Biotech in Hong Konga lottery and some things work and some dont so there isnt much that canwho showed the importance of understanding future market trends, longbe done other than a calculated risk. term planning and strategy, patience, and the perspective of the privateequity investor. Tom Thomson of LMG Pacific Health Insurance inNone of these views satisfied me, as each had a propensity to either forThailand for demonstrating the importance of pragmatic strategies andhigher than acceptable risk exposure through failing to adequately addressactions and balancing immediate needs with longer term strategies.risks, or to lead to a more conservative analysis than was really necessary,Peter Kennerley of Melbourne for demonstrating the value ofleading to the likelihood that opportunities could be overlooked. systematic processes in developing strategy and the need to constantlychallenge assumptions. Gary Bennett of New York Life for hisFor this reason the SLC matrix was developed as a means to provide some demonstration that it is the motivation, capability and engagement ofgreater rigor and framework for at least asking the right questions, leading to people that ultimately determines whether a strategy succeeds or not,hopefully a more reliable and robust outcome and decision. I hope thisand finally Simon Christensen from Microsoft who has demonstratedexperience resonates with other managers and advisers and the approach is through excellence in software engineering that rigorous and systematicuseful. process does not necessarily stifle creativity but in fact may allow it toflourish