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Montres de Versailles Ltd.
Year 2 Annual Report

November 13, 2004

Matt Komorowski – President Pierre L. Laliberte – VP Finance Hussein Shariff – VP Marketing Karina Avramenko – VP Strategy Katja Mimica – VP Operations Proprietary and Confidential

Table of Contents I. Executive Summary II. Strategy III. Competitive Analysis IV. Marketing V. Product and Operations VI. Finance VII. Operations Requiring Approval VIII. 2005 Compensation Due IX. Appendix 3 3 3 4 6 8 9 10 11

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I. Executive summary
The 2005 fiscal year has come to a close with Montres de Versailles (MDV) achieving the second highest results in the industry. Net income is lower than the previous year due to increased competition and changes in various economic variables. Many companies have readjusted their strategies. Management has been consistently reacting to the continuously changing market conditions. Strong emphasis has been placed on aggressive marketing to promote MDV’s strong brand image. This includes various sponsorships and celebrity endorsements. Many 2005 financial forecasts have been met, whereas certain 2006 and 2007 financial forecasts have been revised.

II. Strategy
Keeping constant with the existing strategy, MDV will concentrate on maintaining its position in its core markets. Germany and the United States have maintained stable growth while Japan has been projected as a high growth market (last quarters demand increased 33%). In order to take advantage of this, greater marketing efforts will be made to further acquire a larger portion of the increasing demand. The Mexican and UK markets have been steadily decreasing; their share of total marketing expenditure will decrease accordingly in the coming year. China has not been a focal market in the past, but the high growth projections and increasing contribution margins have provided incentive to engage in aggressive marketing. Price The overall price level in the low-end market has been steadily decreasing by 2%6%. The smallest decrease occurred in the past period. This indicates that the market is beginning to realize the harmful effects of a price war. Management has maintained prices above average throughout the period. Period 26 was an exception; prices were lowered significantly to reduce inventory levels. On the other hand, overall prices in the high-end market have been increasing by 2%-8%. MDV strives to continue to maintain prices above average.

III. Competitive Analysis
Quantum (Please see appendix A for Quantum - competitive positioning graph) Company 1 Company 1 has altered its strategy from producing a very high quality product to producing a lower quality product. To match the change in quality levels, they have decreased their prices to below average. This is a viable move from a strategic perspective since their primary markets are Mexico and China. The consumers in those countries are very price sensitive and not very quality sensitive. Company 1 is competing closely with Company 4 in its primary markets (China, Mexico, U.K.)

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Company 2 Company 2 has lowered its quality level and maintained its low price level. Currently, they are the low price leaders. Company 4 Company 4 managed a big turn-around this year. Their sales and net income were the highest throughout first three quarters of this year. In addition, they were the market leaders in China, Mexico, and the U.K. Although Company 4 has maintained its general strategy, it has started to increase its prices in the last two periods. Management at MDV believes this company will remain in this position and react to market conditions by adjusting their price levels. Company 5 Company 5 has defined itself strategically by producing an above average quality product and charging an above average price.

Dynasty In the 2005 fiscal year, no significant changes have occurred in the high-end product market. (Please see appendix B for Dynasty - competitive positioning graph) Company 1 Company 1...
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