4cd24817c0ed8_Busines and Feasibiliy Study on Pearl Farming

Business

Plan &

Feasibility

Study for

Pearl Culture

in Baa Atoll

Thulhaadhoo,

Maldives.

Draft Final Document

Prepared for UNDP

September 2010

Consultants:

Moloque & Horsburgh Public

Accountants

Business Plan & Feasibility Study for Pearl Culture in B.Thulhaadhoo

P a g e | 2

Table of Contents

Executive SummaryExecutive SummaryExecutive SummaryExecutive Summary ....................................................................................................................................................................................................................................................................................................................................................................................................................5555 Statement of PurposeStatement of PurposeStatement of PurposeStatement of Purpose ........................................................................................................................................................................................................................................................................................................................................................................................................6666 BackgroundBackgroundBackgroundBackground ....................................................................................................................................................................................................................................................................................................................................................................................................................................................................6666 The Business ConceptThe Business ConceptThe Business ConceptThe Business Concept ....................................................................................................................................................................................................................................................................................................................................................................................................8888 Mission StatementMission StatementMission StatementMission Statement ............................................................................................................................................................................................................................................................................................................................................................................................................................9999 ObjectivesObjectivesObjectivesObjectives .................................................................................................................................................................................................................................................................................................................................................................................................................................................................... 10101010 Guiding Principles and ValuesGuiding Principles and ValuesGuiding Principles and ValuesGuiding Principles and Values ................................................................................................................................................................................................................................................................................................................................................ 11111111 Critical Success FactorsCritical Success FactorsCritical Success FactorsCritical Success Factors .................................................................................................................................................................................................................................................................................................................................................................................... 12121212 Internal & External AnalysisInternal & External AnalysisInternal & External AnalysisInternal & External Analysis ................................................................................................................................................................................................................................................................................................................................................................ 14141414 SWOT Analysis .....................................................................................................................14 Strengths ...........................................................................................................................14 Weaknesses ......................................................................................................................16 Opportunities .....................................................................................................................17 Threats ..............................................................................................................................19 STEP Analysis .......................................................................................................................21 Sociological .......................................................................................................................21 Technological ....................................................................................................................21 Economical........................................................................................................................22 Political ..............................................................................................................................22 Products and ServicesProducts and ServicesProducts and ServicesProducts and Services ............................................................................................................................................................................................................................................................................................................................................................................................ 23232323 Legal form of the businessLegal form of the businessLegal form of the businessLegal form of the business .................................................................................................................................................................................................................................................................................................................................................................... 24242424 Business Model and scope of activitiesBusiness Model and scope of activitiesBusiness Model and scope of activitiesBusiness Model and scope of activities ............................................................................................................................................................................................................................................................................................ 26262626 A Historical Perspective on Pearls and Peal FarmingA Historical Perspective on Pearls and Peal FarmingA Historical Perspective on Pearls and Peal FarmingA Historical Perspective on Pearls and Peal Farming ........................................................................................................................................................................................................ 28282828 Environmental Impact of Pearl FarmingEnvironmental Impact of Pearl FarmingEnvironmental Impact of Pearl FarmingEnvironmental Impact of Pearl Farming ........................................................................................................................................................................................................................................................................................ 29292929 Marketing PlanMarketing PlanMarketing PlanMarketing Plan ............................................................................................................................................................................................................................................................................................................................................................................................................................................ 33333333 Market Analysis .....................................................................................................................33 Competitive Comparison .......................................................................................................37 Competitive Edge ..................................................................................................................37 Pricing Strategy .....................................................................................................................39


P a g e | 3

Marketing Strategy ................................................................................................................39 Marketing and Profitability Goals / Objectives ........................................................................41 Promotion Strategy ................................................................................................................43 Marketing Programs ..............................................................................................................44 Distribution and Sales StrategyDistribution and Sales StrategyDistribution and Sales StrategyDistribution and Sales Strategy ............................................................................................................................................................................................................................................................................................................................................ 45454545 Management and Organisational PlanManagement and Organisational PlanManagement and Organisational PlanManagement and Organisational Plan ................................................................................................................................................................................................................................................................................................ 48484848 Proposed Organizational Structure ........................................................................................48 Management Team ...............................................................................................................48 Strategic Alliances and Management Support .......................................................................52 Assistance from other relevant sources .................................................................................53 Members Responsibilities ......................................................................................................55 Training and Development .....................................................................................................55 Evaluation and Controls ........................................................................................................56 Governance ...........................................................................................................................57 Financial Strategy & Feasibility StudyFinancial Strategy & Feasibility StudyFinancial Strategy & Feasibility StudyFinancial Strategy & Feasibility Study .................................................................................................................................................................................................................................................................................................... 59595959 Financial Strategy ..................................................................................................................59 Application of Funds For Proposed Project ............................................................................61 Methodology ..........................................................................................................................63 Statement of Limiting Conditions ...........................................................................................63 Assumptions ..........................................................................................................................65 Projected Financial Statements (10 year projections) ............................................................71 Accounting Ratios & Key Financial Indicators ........................................................................87 Conclusion ............................................................................................................................88 ReferencesReferencesReferencesReferences ................................................................................................................................................................................................................................................................................................................................................................................................................................................................ 89898989


P a g e | 4


P a g e | 5

Executive Summary

The main objective of this document is to establish the financial and economic feasibility of the business of pearl culture in the Maldives and to prepare a business plan as a source of reference for the proposed Cooperative which is soon to assume ownership of the Baa Atoll Thulhaadhoo Pearl Farm. The research project carried out in Vaavu Bodumohara which had finally led to this pearl farm was undertaken by the Marine Research Center (MRC) and the local office of UNDP funded by the Japan Human Resource Development Fund. Spat collection and growing rafts have been deployed on the Thulhaadhoo reef, and oysters are being grown on the rafts. A fully functional pearl farm is currently in operation and training has been already given to 27 people on the island in mother-of-pearl jewelry making and pearl farming. Spin-off activities such as jewelry making are expected to create numerous opportunities for women and the youth to utilize their idle time productively for income generation. The goal of the proposed business should be to set-up and establish a profitable and self sustaining Pearl Farm on the island, targeted mainly on the high-end tourism clientele visiting the country. Sale of Pearls and mother of pearls (pearl shells) will be the primary income generating activities. However, farm tours for tourist excursions, sale of souvenirs and farm merchandise are also expected to generate a substantial amount of income for the Cooperative. Proper management, appropriate sales and carefully designed marketing strategies together with good financial management is critical for the success of the pearl farm. The farm is expected to generate an excellent return on investment for the members of the Cooperative. Due to the nature of pearl farming, the business will take about three years from spat collection to harvesting of fully grown inoculated oysters. Hence, the business is not expected to generate any profits during this period. Cash flow management is also expected to be most difficult during this period. Subsequent years are expected to generate healthy profits for the business.


P a g e | 6

The payback period for the total investment is expected at 4.7 years. The Average Return on Equity on member contribution is 67% per annum (over a period of 10 years). The project appears to be highly feasible and is an attractive investment option with numerous socio-economic benefits to the Thulhaadhoo Community.

.

Statement of Purpose

The main objective of this document is to establish the financial and economic feasibility of the business of pearl culture in the Maldives and to prepare a business plan as a source of reference for the Cooperative which is soon expected to assume ownership of the Baa Atoll Thulhaadhoo Pearl Farm. It is also the purpose of this document to provide internal and external users of this plan with a synopsis of this pearl farm, the business concept and a plan for its growth and expansion.

Background

Based on a request by the Ministry of Fisheries and Agriculture (MoFA), in recognition of the need to diversify fisheries sector and with the identification of pearl and mother-of-pearl as sustainable sources of precious and semi-precious raw materials, the United Nations Development Programme (UNDP) in January-February 1995 funded a review of the potential for pearl culture in the Maldives.

The major finding of that review was that Penguin Shell, Pteria penguin, was common in the Maldives and was a suitable candidate for pearl culture.


P a g e | 7

In 1996 MRC commenced the first pearl culture activity as Pearl Culture Pilot Project with financial assistance from UNDP. When this five year project ended the Marine Research Centre (MRC) and UNDP started in 2003 a follow-up five year project - Pearl Culture Demonstration, Extension and Marketing Project (PCDEMP), which is expected to continue till end 2010. PCDEMP is being funded by the Japan Human Resource Development Fund through UNDP.

The project activities of PCDEMP included refining pearl culture techniques developed by the previous pilot project in Vaavu Atoll Bodumohoraa (as its research base); conducting training in pearl farming and jewelry making, and marketing of jewelry. Pearl culture techniques were refined during this stage. Pearl farming and jewelry making training, and commercialization activities began at the latter stages of this phase of the project

During the initial research conducted by MRC, it was discovered that there were two different species of pearl oysters inhabiting the Maldivian waters.They were identified as (1) Penguin Shells (Pteria penguin) and (2) Blacklip Oyster (Pinctada margaritifera). Out of these two species Penguin shell was found to be more abundant in Maldivian waters and hence, PDEMP has been culturing pearls in Penguin Shell only.

PCDEMP has since moved to Baa Atoll to initiate commercial pearl culture in Thulhaadhoo Island in collaboration with its Island Development Committee. Five people from the island had been selected and trained in raft deployment, spat collection and growing and mother-of-pearl jewelry making; and employed as project staff. Spat collection and growing rafts have been deployed on Thulhaadhoo reef, and oysters are being grown on the rafts. A fully functional pearl farm is currently in operation and training has been already given to 27 people on the island in mother-of-pearl jewelry making and pearl farming.

As the project is drawing to end by 2010, UNDP and MRC are currently working with the community on transferring the demonstration/ pearl farm to the local community. In


P a g e | 8

order to make the project sustainable after the handover, UNDP and MRC are working together with the community on the formation of a cooperatives in the island.

The Business Concept

The goal of this business should be to set-up and establish a profitable and self sustaining Pearl Farm on the island of Baa Atoll Thulhaadhoo. In short, the concept rests on an idea of a development which should mainly comprise of:

� A fully fledged Pearl Farm producing pearls and pearl shells for crafts persons on the island and other potential markets.

� A small section of the farm targeted to tourist clientele arriving on excursions, with creative demonstrations of the various aspects and stages of Peal Culture. The farm could be promoted as a pearl farm in a remote tropical island owned and operated by the island community.

� A gift shop and a showroom displaying and selling loose pearls, pearl jewelry, souvenirs and other gift items.

� A workshop demonstrating live jewelry making by island crafts persons � And sale of farm related souvenirs and other merchandise to the tourism market.

The business should be set-up and operated using professional expertise as much as possible to reap the highest yield possible from an establishment of this nature. In the initial stages, part-timers and multi-skilled personnel should be used to make the business more cost effective. Use of a professional management company in the management and marketing of the farm should be considered. As most of the resorts operating in the region are up market resorts and since they all have substantial budgets for Corporate Social Responsibility (CSR) activities, it could be an ideal opportunity to associate with them and let them


P a g e | 9

manage the farm for the Cooperative, at least at the initial stages. Preliminary discussions with such entities have been positive. The proposed business model does not directly involve the Cooperative in jewelry making. It should only act as a seller of Pearls and Oyster shells to the craftsmen. In addition, the Cooperative’s role in the proposed model should be limited to promoting, facilitating and coordination of promotion and sale of jewelry items to target markets. Further information on choice of business model are discussed in the section on Business Model in this document. In the proposed concept, pearl farming should be carried out using the most cost effective and efficient means of production and should be mainly targeted to the tourism market in the Baa Atoll, Kaafu Atoll (more specifically North Male ‘Atoll) and Lhaviyani. Any excess stocks of pearls and pearl jewelry can be diverted to Male ’and other tourist resorts in the country. However, in the long run, if there is sufficient pearl production, the proposed Cooperative should even consider exporting or sale of excess stocks at Pearl Exchanges in the region such as those in Mumbai and Abu Dhabi. Catering to tourist excursions and development of a creative concept for farm tours focusing on the tourist clientele should be an important part of the business concept. Merchandising is expected to be a significant source of revenue for the proposed business. These activities should take place in the above mentioned dimensions to enable the members of the Cooperative to invest at relatively low risk and exploit the best investment opportunities and returns for the members of the Cooperative.

Mission Statement


P a g e | 10

The Mission of the proposed business is to position itself as an eco friendly Pearl Farm operated and managed by a community owned Cooperative of Baa Atoll Thulhaadhoo:

• which cultivates and harvest high quality pearls in the proposed farm, and • which should provide a consistent supply of pearls and pearl shells for the crafts

persons on the island and contribute directly to improvement of their livelihoods. • which attracts tourist to its pearl farm by putting together attention-grabbing farm

tours. • which should generate a healthy return on investment to the members of the

proposed Cooperative.

Objectives

1. Develop a sustainable pearl farm business, able to survive off its own cash flow 2. To increase income and job opportunities for the island community and bring

diversification to marine-based economic activities. 3. To give confidence to the members of the proposed Cooperative to invest and

engage in this business. 4. To utilize key business functions and practices (R&D, feasibility testing,

fundraising, market intelligence and communication) to better shape its business to be able to inform and support businesses.

5. To help seek and secure the required funds to finance the proposed plan. 6. To become a leading supplier of pearl and pearl based jewelry in the country. 7. To become a well respected and reliable marketer and supplier of Pearls. 8. To develop the range of markets, and opportunities for consumption of the

proposed products and services and encourage participation, understanding and engagement.

9. Through sustainable and eco-friendly investment practices, generate a reasonably good return on investment to members of the Cooperative within a reasonable amount of time.


P a g e | 11

Guiding Principles and Values

The management of the proposed pearl farm should believe that the first responsibility is to be given to its customers. Hence, the foremost importance should be given to ensure that high quality pearl and pearl products are delivered to its customers. The management of the proposed Cooperative should value its customers as well as its members, the staff and distributors and every possible effort should be made to sustain the lowest possible costs in order to pass the benefits of increased margins to the members of the Coop themselves.

The management should always inspire and respect the company’s personnel by recognizing their merit. It should always be the management’s belief that the organisation’s personnel should be adequately compensated.

The responsibility it has to its community should never be overlooked. As a good corporate citizen, it should live up to its social responsibility. A deep belief in its responsibility towards maintaining and preserving the natural resources and the environment should also made apparent in its activities

The confidence of the members should be supported by competent, concrete management, adhering to a business attitude that stresses integrity and long-term strategic planning to meet overall Cooperative’s goal. The business should make a sound profit, providing a fair return on equity that justifies continued long-term investment.

Leadership and advocacy should be a key guiding principle of the business. It should engage itself by involving, leading by example, trust and confidence of the industry, positive promotion of talent and market innovation.


P a g e | 12

Partnership in creating value – The management should believe that more (of everything) can be achieved through the added value of the sum of the parts than in isolation.

Distinctiveness and diversity of skills, practices and experimentation, ensuring that the business is always open to and actively seeking out new perspectives and challenges, capitalizing on new opportunities and promoting the access and affordability benefits of the product and experiences offered.

Last but not least, Openness should be a key ingredient of its guiding principle. Straight forward communication, listening, clear dialogue and reflections on the industry and the business’s priorities in relation to it should certainly be a core principle in all its engagements.

Critical Success Factors

• Securing finance for start-up working capital and capital expenditure requirements.

• Having sufficient funds to operate the pearl farm (especially the first two years). • Be profitable on a forward basis by the third year onwards. • Be cash flow positive by the third year of operation itself. • Attaining targeted sales revenues. • Production of high quality pearls is the key to having a profitable farm. The

quality and price of a pearl depends on several factors: size, shape, luster, color, orient and texture.

• Suitable size space and good location for the Pearl Farm with a reliable supply of spat.

• Ability to secure sufficient lagoon space required for farm expansion and diversification into other species


P a g e | 13

• Seek reliable and competent partners to associate with in the various stages of the value chain.

• Conduct an effective marketing and promotions strategy. • Proper inventory management of the pearl farm and harvested stocks (taking into

consideration the high commercial value of the stocks) • Proper management, administration, marketing and good financial management

is critical for success. • Good relationship between Farm management and jewelry makers. • Carefully monitoring response rates of all marketing efforts. • Develop and market the pearl farm as an eco-friendly community owned farm. • • Obtaining of proper licenses and legal authority over selected lagoon space for

pearl farm. • Existence of suitable infrastructure to support the activities on the island. • Utilization of appropriate and efficient equipment to meet the set objectives. • Prevention of predators from eating or damaging pearl oysters. • Protection of the farm from vandalism and theft. • Keeping the pearl oysters healthy by collecting and handling them properly. • Regular inspection, cleaning and maintenance of oysters. • Proper inspection and monitoring of work carried out by pearl farm workers. • Proper handling and transportation of oysters. • Access to grafting technicians. The skill of the grafting technician affects pearl

quality and farm operating costs.

• Trained farmers and access to technical and research information. • Conduct further training in management, pearl farming and mother-of-pearl

jewelry making on Thulhaadhoo • For long-term sustainable production, it would be necessary to set up a hatchery

for producing spats as it is normally difficult to stabilize production only depending on the natural spats.


P a g e | 14

• Effective coordination, communication and relationship management with lending/aid agencies and other stake holders.

• Timely harvesting of pearls. • Market awareness of products and services provided. • Effective coordination between the different levels of the value chain to meet the

needs of final consumers. • Ability to market pearls and the jewelry made out of pearls and mother of pearls. • Staff and member commitment to excellence and customer’s satisfaction. • Accessibility and responsiveness to the needs of the customers. • Setting up the farm in a way that is tourist friendly (e.g observation rafts,

anchoring mechanisms for boats, large signage, environment friendly messages, trained excursion guides, the whole packaging of the tour etc)

• Functioning as an establishment that is fluid, responsive, and willing to change in order to meet the frequent shifts of the industry.

• Productive dialogue between the pearl farming Cooperative, the industry and government, facilitated possibly by the proposed cooperative speaking with one voice on behalf of its members.

Internal & External Analysis

SWOT Analysis

Strengths

• Promoters are highly committed to the project and have a good understanding of the project and its requirements.

• A Shari’a compliant business. • A healthy and growing economy, particularly the tourism industry. • An ideal development opportunity for remote communities. • Entrepreneurial spirit of the Thulhaadhoo Community and their enthusiasm to

take over the business.


P a g e | 15

• Pristine, un-crowded marine and terrestrial environment/habitat of the lagoon selected for the farm.

• An attractive business venture because of the high value of the final product. • Pearls are fast gaining recognition as an asset. • Cultured pearls are generally larger and of a more consistent size and color than

natural pearls. • The final product is normally lightweight and non-perishable. • It is a sustainable, lucrative industry, and in many cases it provides both direct

and indirect benefits to the environment. o The direct benefits are from reducing the pressure on the natural stocks of

oysters. o Indirect benefits are in providing a viable, sustainable industry for rural

areas and isolated atolls, and in encouraging greater stewardship of marine resources.

• Pearl farming is labour-intensive, and provides employment for both farm workers and in spin-off secondary support industries such as jewelry making.

• Helps diversify marine-based economic activities in the Maldives. • With the exception of the grafting process, pearl farming is a relatively simple

form of Mariculture. • Pearls require no refrigeration and require very simple processing. • Pearl oysters do not require artificial feeds, complicated farm structures or

constant attention. • If properly managed, pearl farming will not harm the environment. • Pearl farming is eminently sustainable, from a stock management perspective. • Pearl farming often relieves pressure on other marine resources, such as reef

fisheries, that might otherwise be subject to unsustainable commercial exploitation.

• Pearl farming is a compatible occupation for people who like working on water and have boating, diving and fishing skills.

• Trained farmers, grafting technicians and jewelry makers on the island.


P a g e | 16

• Baa Thulhaadhoo already has an established handicraft making industry which makes it easier to attract tour groups and can also utilize the industry’s existing channels of marketing.

• No perceived environmental or political risk involved in the proposed business. • The pearl farm is currently supported by a wide range of environmental and

development agencies, including the UNDP, Global Environment Facility (GEF), Atoll Ecosystem Conservation Project (AECP) , and the Marine Research Centre of the government of Maldives.

• Pearl farms provide an ideal opportunity for resort operators to work with its owners/community as a part of their Corporate Social Responsibility (CSR) program.

Weaknesses

• Establishing and operating a pearl farm requires a large investment of time and money over a period of several years.

• Substantial work remains to be undertaken to create awareness on the various options available for raising of capital and for the legal form of the business.

• Currently there is no public facility or office space to carry out the management aspects of the business.

• Difficulties in securing investment finance. • Island communities and the proposed cooperative society for Thulhaadhoo

currently have limited knowledge and experience of managing a business of this nature.

• Cooperative societies are relatively new to the target community. • Island Council is another option for transfer of this business, however it appears

that Island Councils may take some time to materialise and may also take time to reach the maturity needed. Island Councils are likely to be less business oriented and more politically

• The correct biological conditions must be present to allow pearl oysters to grow well and produce high quality pearls.


P a g e | 17

• Obtaining spat, growing them out to grafting size, grafting and culturing until the first harvest is a lengthy process.

• In organising excursions, the distance between the resorts in the atoll and Thulhaddho may hinder the resorts in organising excursions.

• Logistical difficulties during bad weather (in terms of farm management and organising excursions for the tourism market).

• Due to the locality and nature of this business, it makes it difficult to provide 24 hour security for the farm, and is therefore susceptible to theft and vandalism.

• This is a first in the Maldives and hence no industry financial or economic data is currently available, except those of research statistics collected during the project stage.

• Lack of economies of scale due to low production levels at start-up stage. • Lack of trade and marketing information. Market values of locally cultured pearls

and pearl shells have not yet been tested in the market and hence no information is available on this aspect.

Opportunities

• An opportunity for the island community to participate in this lucrative industry. • An excellent opportunity to attract tourist excursions to the island. • A healthy growing economy thriving with opportunities • The tourism industry with its arrivals dominated by Italy, UK, China, France,

Germany, Russia, Switzerland, Japan and Austria, the pearl farm appears to have a ready market to sells its luxury items.

• Supply pearls and pearl products to the domestic fashion and designer market. • Engage jewelry crafts persons to combine pearls with other precious metals to

create value adding jewelry and ornamental items. • Become a marketing vehicle for Jewelry makers on the island to sell their

products to the markets on a commission basis.


P a g e | 18

• Creates opportunities for private management companies to work with island communities in the management of the farm.

• An excellent opportunity to earn foreign exchange for the local community. • An ideal opportunity for the Thulhaadhoo community to demonstrate the

successful implementation of a Cooperative society model to manage the project. • A growing tourist market within the atoll and outside. • A developing market such as the Internet. • Ability to maintain consistency in prices and standards and obtain a better quality

harvest through a cooperative mechanism. • Develop a strong brand for locally cultured pearls which can be marketed around

the world. • Include pearl culture training in the fisheries training and education program of

MRC and MoFA. • Act as a lobbying force and advocate for pearl farming. • Opportunities for strategic alliances in a variety of areas such as with resort

operators, management companies, marketing firms and financing firms. • Ability to form a strategic alliance with the MRC for technical support and

purchase of spat from their farms. • Seek management assistance and training support from the fisheries institute in

K.Villigili. • Easier for community owned and managed businesses to attract funding and

technical assistance from aid agencies. • Merchandising opportunities. • Establish a vocational school to educate and train community people. • B.Thulhadhoo cooperative could possibly lead pearl farming in the Maldives and

start providing their expertise and experience to other prospective projects in the country on a commercial basis.


P a g e | 19

• Regular reporting of economic dimensions and importance of industry

Threats

• All pearl oysters are vulnerable to attack from predators. • Pearl oysters can suffer from predation or fouling that may ruin their commercial

value, health or even kill them. • Potential resource declines due to oceanographic and climate changes, pollution,

and urban encroachment. • Pearl oysters are sensitive to environmental changes. Only a healthy pearl oyster

can produce a high quality pearl, and it may only take a short period of stress to damage the developing pearl.

• Inflationary factors which may drive up the investment and operational costs may not make the farm financially sustainable.

• Price fluctuations in the global market. • Fluctuations in demand for such luxury items due to world economic situations

and/or a decline in the tourism industry. • Inability to achieve economies of scale may threaten the sustenance of the farm. • Continued lack of economic perspective in resource management decisions. • Unless properly sorted out, legal complications and ownership claims on the

lease of lagoon space for the pearl farm may create uncertainty and deter further investments.

• Failure to effectively transfer the project to the target community or management failure by the proposed Cooperative society could lead to loss of public and community support for the project.

• Adverse environmental impacts may result from inappropriate raft site selection, raft deployment and raft maintenance.

• Competition from other peal farms in the long run. • Unless a proper authentication process is available, imported pearls and imitation

pearls may pose complications in terms of competition.


P a g e | 20

• Possibility for losses due to theft will be higher if the site is far from shore. Theft and vandalism commonly cause economic losses on pearl oyster farms.

• Damage to the farm due to adverse weather conditions. • Accidental damage to the farm (to anchors and buoys) caused by boats during

times of low visibility. • Unless a hatchery for producing spats is set up, for sustainable production, it

may become difficult to stabilize production depending only on the natural spats. • Disease can strike without warning and kill many pearl oysters in a short period

of time.


P a g e | 21

STEP Analysis

Sociological

• Culture and Gender does not have a significant impact on this type of business. However, the business of jewelry making provides an ideal opportunity for women and the youth to utilize their idle time productively for income generation.

• The Thulhaadhoo community is already exposed to the handicraft business and the trend is set to grow, this presents an opportunity for the community to engage in related product lines and diversify its current product range to accommodate for these trends.

• Language is not a barrier to this type of business as majority in the community is literate. Even though English is widely understood, Dhivehi language would be more effective to reach out to the community. For marketing and packaging of finished jewelry, souvenirs etc. English and other languages such as Japanese, German and Italian maybe used.

Technological

• With current uptake of technology and the internet by consumers, it presents opportunities for possible specialized e-commerce services such as e-stores etc.

• Implementation of technological advances in systems such as POS systems, stock control systems etc. can lead to increase efficiency, productivity and need for less staff which could bring down the cost of operations.

• Multitude of systems and vendors available providing a wide range of products and solutions; this choice should enable the business to select and implement systems that are best suited for its operations at the lowest cost.

• Technological advances can provide the business with integration and interconnection of all systems. (E.g. POS systems, Stock control Systems etc). Integration and interconnection of such system should provide the management


P a g e | 22

with up to date real-time reports and statistics that can be used to make better decisions and manage the business better.

• Use of technology in the monitoring of the pearl farm can save the company valuable assets/resources.

Economical

• The interest rates are controlled by the government in the Maldives and the government policy on interest rates need to be considered as it would affect financing and loans available for expansion etc.

• Government intervention is minimal in the Mariculture and manufacturing sector. And price regulation is minimal and limited to only to certain goods classed as ‘necessities’.

• Government and MNCCI sponsored SME programs in the form of loans and management support services facilitate the growth and expansion of such business.

Political

• Government plans to introduce legislation on corporate taxation in the near future, this business needs to plan for the effects of such a legislation including impact on prices, margins and profits, as well as increased regulatory reporting requirements that are likely to come into effect, if a corporate structure is preferred over the proposed cooperative society model.

• It is possible that the government may implement other tax schemes such as tax on goods, income tax or sales tax. The effects of such taxes in the long run should be considered.

• Maldives has joined the South Asian Free Trade Area (SAFTA) which will come in to effect in the near future; SAFTA poses new challenges and opportunities. This business should plan to utilize the opportunity and plan to utilize the


P a g e | 23

changes to increase sales and maximize profit.The elite Indian luxury market may open up some opportunities.

• The country is not politically stable at the moment. This presents some concerns which the business needs to be aware of. It is possible that the current government policies, practices and regulations might change with a change in the political environment. Particulary, if UNDP is considering the transfer of the farm to the Island Council.

• Consideration should be given to issues related to religion, culture, morality, ethics and current government standards and recommendations when carrying out business activities. (E.g. marketing and advertising). This particular business is Shari’a Compliant.

• Possible employment regulations and cost of compliance in the event of a legislation that requires it. Considerations should be given to the recently enacted Labour Law.

• Possible environmental regulations and cost of compliance in the event of a legislation that requires it. (if applicable)

• Decentralization and establishment of an elected local governance council can affect the way community level businesses operate. Councils can levy fees for land and water use etc.

Products and Services

The primary business of the farm should be that of pearl farming and sale of pearls and pearl shells.

As a complementary service, which may generate the business a significant size of income, the Cooperative shall put together some well organized tours of the pearl farm, especially tailored for the tourist clientele from the resort market. These tours should demonstrate to the tourists the various stages of Peal farming and how they produce


P a g e | 24

the Maldivian Pearl, and possibly even demonstrating the grafting and opening of a live oyster shell. Refreshments can also be sold to the tourists, and they may also be taught about the practical side of the industry.

Visitors should also be given the opportunity to dive/snorkel in the pearl farm and browse in the showroom and gift shop, which should offer an affordable range of beautifully handcrafted pearl jewelry, gifts and souvenirs such as t-shirts, post cards, coffee mugs and DVDs depicting the various aspects of the pearl farm. The management can also organize live sessions of jewelry making as a value adding component to the entire experience.

The proposed business shall also aim to become an effective vehicle for the jewelry crafts people on the island to market and sell their products to the niche markets on a commission basis.

Legal form of the business

The sponsors of the PCDEMP are advocating for a Cooperative Society model for the business, and are currently working closely with the island community in the registration process. Other options are to be considered only if the preferred option fails to materialize.

The proposed Cooperative Society should be established under the Cooperative Society Act of the Maldives and its associated rules and regulations. The relevant rules and regulations are available on http://www.trade.gov.mv/index.php?lid=32

Other possible options include all public private partnership models which should be formed in compliance with the relevant laws and regulations of the Maldives. E.g Island Councils forming joint ventures with private sector to own and operate the farm.


P a g e | 25


P a g e | 26

Business Model and scope of activities

A number of options were considered in the selection of a business model for the proposed Cooperative. The following table depicts the various options considered and their respective scope of activity under each option.

Although reference is made to Cooperatives in the following table and elsewhere in this document, users of this plan may adapt the concept of cooperatives used in this document to other forms of businesses as well.

Scope of Business Scope of Business Scope of Business

Option 1 Option 2 Option 3 Cooperative to Manage/Operate Farm Cooperative to Manage/Operate Farm Cooperative to Manage/Operate Farm Cooperative operates Jewelry making workshop for demonstration purposes only No involvement in jewelry making Cooperative to be involved in business development and business promotion as a link between crafts persons and the resort market and other potential markets.

Cooperative operates Jewelry making workshop for demonstration purposes only Advises Jewelry makers on market demand Cooperative to operate and manage a workshop where Jewelry makers are employed and paid for work done (pre-agreed rates and products made strictly according to Cooperatives requirements)


P a g e | 27

Cooperative to Sells pearls and Pearl Shells (raw materials) to Craftsmen on the island Cooperative to sells pearls and Pearl Shells (raw materials)to Craftsmen on the island on condition that craftsmen market and sell their jewelry through the Cooperative only. Cooperative will not sell any pearls or pearl shells (raw materials) to the community craftsmen with any precondition. Encourage crafts persons to sell through the Cooperative showroom and gift shop (but not compulsory)

Craftsmen make jewelry and sell their products through the Cooperative only (compulsory) Cooperative carries out selling, marketing & promotion Cooperative carries out selling, marketing & promotion Cooperative makes commission from sale of Jewelry. Cooperative makes full profit from sale. Cooperative makes payment to Craftsman after sale. Organizes Farm Tours Organizes Farm Tours Organizes Farm Tours Develop/Sell merchandise Develop/Sell merchandise Develop/Sell merchandise

Option 1 (one) had been chosen as the preferred option for the purposes of this business plan and feasibility study. This option was chosen considering primarily the expected management capacity of the Cooperative at the early stages of this business. However, this does not limit the expansion of the scope of activities in the longer run. As


P a g e | 28

the business grows and reaches a level of maturity, it is expected that the management committee of the Cooperative should at those stages take such strategic decisions. The preferred option is the most conservative model of all the above models and therefore any increase in the scope of business would only generate additional profits to the business.

A number of strategies outlined in the marketing plan of this document should come into play as the business expands, and the Cooperative should assume a greater role in the marketing and promotion aspects of the operation.

A Historical Perspective on Pearls and Peal Farming

Pearls have long been treasured and highly valued in many cultures throughout history. According to industry reports, prior to the 19th century, pearls were "harvested" rather than "produced". The only pearls available were natural pearls, where pearl production was left entirely up to the forces of nature. Pearls were extracted from the seabed and retrieved pearl oysters. The shell was destroyed in order to identify and collect the pearl. Thousands of oysters were destroyed in order of find a single pearl. This is why natural pearls were considered to be very rare, valuable, and expensive. Historically, pearls have been harvested from seas and oceans by pearl divers. The main pearl beds have been known to be in the seabed in the Persian Gulf, the Red Sea, and the Gulf of Mannar. Some natural pearl harvesting had also occurred in the South China Sea.

The science and art of Pearl culturing changed the face of the pearl industry, and made pearl jewelry infinitely more affordable for use in fashion jewelry. According to many published reports, this process was first developed in the early 20th century in Japan and Australia. This discovery revolutionized the pearl industry, because it allowed pearl farmers to reliably cultivate large numbers of high-quality pearls. In contrast to natural


P a g e | 29

pearls—which have widely varying shapes, sizes, and qualities, and which are difficult to find, Pearls could now be produced by the tens of thousands, thereby bringing their cost down to a point where pearls have now become accessible to large numbers of people around the world. Today more than 99% of all pearls sold worldwide are cultured pearls.

Environmental Impact of Pearl Farming

According to many published environmental impact assessment reports, pearl farms are one of the few industries that actually gives back more than it takes from the environment. The following positive aspects of this type of farming should be considered when looking at the environmental aspects of pearl farming:

• No mining is involved. There are no corrosives leaked into surrounding areas and no chemical leaching. Pearl culture is aimed to replace mining of pearls and black corals on which pearl shells are found. The activity aims to reduce pressure on the natural environment through alternative farming/culture techniques.

• The culturing of pearls involves no fertilizers, feeds, herbicides, drugs, chemicals, or antibiotics

• Pearl Farmers throughout the world are known to be great advocate for the environment. They understand that high quality pearls can only be harvested from healthy oysters grown in clean, nutrient rich waters. Pearl farmers are often the leading local advocates in enacting laws and protecting water quality to keep their industry alive. In addition, Pearl Farming encourages local island community’s greater stewardship over their natural resources and fosters pride in their land, water and other resources.

• Pearl Farms provide protection for the fragile reefs.


P a g e | 30

• The cages, nets, ropes and equipment used on pearl farms provide a habitat for other vital aquatic species from young lobsters and shellfish to crustaceans and fish during critical times in their life cycles.

• Strict standards & regulations often set by the relevant authorities often help evolve the pearl farming industry into an environmentally compassionate trade.

The MRC in its draft PCDEMP report states that the pearl culture techniques developed by PCDEMP are environment friendly and that they cause minimum environmental impacts. According to MRC, the environmental impacts of pearl culture are basically the combined results of raft site selection, raft deployment and raft maintenance. The effective implementation of these three phases of a pearl culture project would lead to minimum environmental impacts. For the purposes of this plan, below is an extract from the draft PCDEMP report outlining a few of the environmental impacts of this activity and the respective mitigation plans for those. The table below outlines the predicted environmental impacts and measures that can be taken to mitigate these impacts. Out of the predicted impacts, the most serious one is damage to corals. Other impacts are minor and some of them are even beneficial. It can be concluded that the overall environmental impact of pearl culture is low for pearl farms that use the techniques developed by PCDEMP. To minimize environmental impacts of pearl culture, the following matrix can be useful in assessing environmental impacts of pearl culture.


P a g e | 31

Activity Impact resulting from the

activity

Nature/characteristic of the

impact

Overall significance of the

impact Mitigation measure

Construction phase

Dropping raft anchors Damage of corals when anchor

touches sea bottom

Short term, negative Low as anchor is dropped into the

sandy area of atoll basin where corals

are usually absent

Ensure that the atoll basin area of the

raft site is sandy

Dragging anchors along the sea

bottom when tightening raft line

Damage to corals when anchor is

dragged along sea bottom

Short term, negative Low as anchor is dragged along the

sandy area of atoll basin where corals

are usually absent

Ensure that the atoll basin area of the

raft site is sandy

Driving iron bar into the reef slope

for fastening raft rope

Breaking of corals due to

irresponsible diving practices

Short term, negative Moderate

Educate dive team on responsible

diving practices

Educate dive team on responsible

diving practices

Operational phase

Maintaining raft lines Damage to corals due to broken raft

line getting entangled on reef

Short term, negative Low as there is little possibility of

the floating line sinking and getting

entangled on reef

Regular raft monitoring and repairing

Growing oyster Damage to corals due to broken

oyster lines getting entangled on reef

Short term, negative Low as the oyster line is short with a

small surface area Regular raft monitoring and repairing

Collecting spats Damage to corals due to broken spat

collector lines getting entangled on

reef

Short term, negative Moderate as the spat collection line is

long with a large surface area Regular raft monitoring and repairing

Attraction of fish such as baitfish to

spat collectors and the whole raft

system

Medium term, neutral Low as not many fish species are

attracted to the object

None

Entanglement of manta rays Medium term, negative Low (MRC experienced one manta

ray entanglement and death in a spat

collector raft in 8 years)

Regular raft monitoring and repairing

Fish laying eggs on spat collectors Medium term, neutral Low as not many fish species lay

eggs on the object

None

Fouling organisms growing on spat

collectors and raft ropes the raft.

Medium term, neutral Low as these the usual inhabitants of

the area Cleaning spat collectors and rafts if


P a g e | 32

fouling is heavy

Spawning of oysters on rafts Medium term, positive Low

None

Smell when cleaning fouled spat

collectors and ropes on land

Short term, negative Low Cleaning fouled spat collectors and

ropes in the sea itself or on beach in

non-residential areas


P a g e | 33

Marketing Plan

Market Analysis

The Cooperative should always encourage growth, aspiration, achievement, enterprise and experimentation, to clearly position the Cooperative as one of the most enterprising Cooperatives in the Maldives. During the project phase, three markets had been identified for pearl and mother-of-pearl products: Those were (1) the high-end tourist market at which high quality pearl products and the farm excursions would be targeted (2) low end tourist market and (3) local gift market at which medium quality pearl and mother-of-pearl products would be targeted. This strategy appears to be still valid and hence the emphasis given to each market should be determined based on the economic outlook of the respective markets at any given point in time. The market and the economic outlook heavily depend on performance of tourism, as well as the government’s ability to push through its reform measures. Since the recent financial crisis, tourist arrivals appear to have seemingly bounced off the bottom, driven by arrivals from Europe and other countries such as those of China. It is expected that arrivals will recover to pre-crisis levels during the approaching high season. According to Maldives Monetary Authority (MMA) publications, with a better than initially expected economic outcome in 2009, the economy is projected to grow at 3.0% for 2010 and 3.5% in 2011.

In consideration of the core objectives of this business, its main market in the short to medium term appears be the Maldives attract the high end clientele. Maldives coming from Europe and other more developed countries, the appears to be a ready market for pearls, pearl jewelry and the farmattraction. The said group has a higher propensity to spend on luxury items such as pearls and other jewelry items, and hence becomes a priority market of focus.

The international export markets and the domestic jewelry and fashion market should also be considered in the overall sales and marketing program.

Fig 2: Tourist Arrivals by Country (2007

-

100,000.00

200,000.00

300,000.00

400,000.00

500,000.00

600,000.00

700,000.00

19

91

19

92

19

93

19

94

19

95

19

96

Tourist Arrivals to Maldives


P a g e | 34

objectives of this business, its main market in the short to be the Maldives tourism market, particularly those

As seen in Figure:2 below, with over 70% of tourists to the Maldives coming from Europe and other more developed countries, the appears to be a ready market for pearls, pearl jewelry and the farm itself

The said group has a higher propensity to spend on luxury items such as pearls and other jewelry items, and hence becomes a priority market of focus.

markets and the domestic jewelry and fashion market should also be considered in the overall sales and marketing program.

: Tourist Arrivals by Country (2007-2008)

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Tourist Arrivals to Maldives (Source: Min. of Tourism)Tourist Arrivals


objectives of this business, its main market in the short to ourism market, particularly those resorts which

of tourists to the Maldives coming from Europe and other more developed countries, the tourism sector

itself as a tourist The said group has a higher propensity to spend on luxury items such as

pearls and other jewelry items, and hence becomes a priority market of focus.

markets and the domestic jewelry and fashion market should

Tourist Arrivals


P a g e | 35

A closer look at the composition of tourists arriving in the Maldives (as shown in Figure 3) further supports the strategy and relevant assumptions to target the high-end tourism market. It should be noted that more than 83% of the tourists arriving in the Maldives comprise of the economically active (ages: 25-44) and the middle aged (ages: 45-64), which are the ideal age groups to be targeted for the proposed business. Fig 3: Tourist Arrivals by Age Group (Source: Min.of Tourism, March 2009)


P a g e | 36

Further dissection of the tourism market reveals that close to 60% of Beds (See Fig: 4 below) currently in operation are in Raa, Baa, Lhaviani and Kaafu Atolls which are the closest to location of the proposed operation. It will make it easier to drive traffic to the region and enabling the resort operators in the region to consider it a project of much relevance. This would be due to the proximity of the location and their ability to be a part of the project and contribute to the community in a mutually beneficial manner through their various CSR programs. Fig:4 Distribution of Bed Capacity


P a g e | 37

Competitive Comparison

Currently, there is no direct competition to the proposed business. However, imported pearls and imitated products may pose some degree of competition.

In the long run, similar farms and set-ups in other parts of the country would possibly create competition in the same markets. It should be noted that training had been given in all aspects of pearl farming and jewelry making to private parties in Vaavu Atoll during the pilot project phase and would now have the capacity to commence a similar operation.

Competitive Edge

The Cooperative’s competitive edge should be its networking and affiliations. The management’s should develop a close relationship with a number of resort operators, especially those in the atoll and in proximity to Baa Atoll should provide the business


P a g e | 38

with a ready market. The management should spread the Cooperative’s proposition, to meet/exceed customer's expectations.

The conceptual design of the pearl farm and associated facilities and the whole ‘experience’ of visiting the farm itself is a competitive edge. Such a farm being owned and operated by a small island community also contributes to the edge factor of this business.

The planned marketing strategy should be that the products would be promoted as 100% Maldivian/environment friendly products so that they would clearly be distinguished from similar imported products. An authenticity certificate should accompany all pearls to add value to the pearls sold here. MNCCI is currently working on such a project to develop a procedure to authenticate 100% Maldivian made products.

More than anything else, the management’s drive to achieve success should be a competitive edge by itself. Hard work, integrity, accessibility, experience, quality service, and customer satisfaction should be the other factors influencing the businesses competitive edge.


P a g e | 39

Pricing Strategy

Pricing for the pearl and pearl products and other proposed services to be provided by this business should be market driven. Its pricing structure should be based upon the targeted clientele and a survey of similar products and service providers in Maldives and overseas.

The profitability margins should also be initially set at low and realist margins taking into account the level of awareness currently existing in the market. In time, it is expected that the margins will pick up and along with an increasing awareness of the uniqueness of the products and services offered; it should be able to generate a reasonable return on the planned investment.

In order to operate profitably under these prices, it is imperative that the management should monitor and control costs. Its goal should be to obtain the highest price within the competitive range by convincing the clientele that the products and services offered by the Cooperative would exceed that of its competitors, if any.

Some factors to be considered in setting a price would be:

a) cost of materials used b) overhead expenses c) time invested d) the overall outcome of the finished piece e) the level of difficulty in producing a similar piece f) the uniqueness of the Maldivian peal and the brand value it carries. g) An estimate of the price the target market would be willing to pay.

Marketing Strategy


P a g e | 40

Maldives has grown to be a substantial tourism destination based upon the appeal of the coral islands and the idyllic sea setting. The conceptual design of the pearl farm, its associated products and services and its efforts to preserve the ecology and environment should be highlighted as an over encompassing aspect of all marketing efforts. To support the government’s objectives of enhancing and diversifying the tourism product of Maldives, the Cooperative should ensure that the entire concept on which the pearl farm and its products are developed will provide a wholly different experience for the discerning visitor. The concept and the products and services offered by the Cooperative should be projected to attract a wide range of clientele. For the high-end tourist market, a good option would be to place it as a remote tropical pearl farm skillfully combined with some aspects of modern amenities. The CSR activities of the resort operators in managing and contributing to the farm and the environment can be highlighted. The community involvement, how the farm contributes to employment (especially employment of women), its contribution to the island economy and the community’s ownership of the farm should be emphasized in a manner attractive to the seasoned luxury traveler. The island and its unique handicraft industry could also be a value adding aspect of the whole experience if marketed accordingly.

Tour operators and resorts should be selected and engaged to promote the concept and the presentation brochures. Brochures and publications should highlight the relevant concepts. Promotional merchandising is expected to be an important part of the proposed business. A systematic effort should be made in maximizing merchandise sales using product design, selection, packaging, pricing, and display that stimulate consumers to spend more. This is expected to be significant source of revenue especially in the first


P a g e | 41

two years of business, during which the farm is not expected to generate much revenue from sale of pearls or jewelry. Attractively packaged farm memorabilia should generate healthy revenues.

Marketing and Profitability Goals / Objectives

To take advantage of the developments in the international marketplace and to improve the performance, the tourism industry of Maldives must improve its competitiveness. This means more than increasing the number of visitors and the value of revenue they generate. It means propelling the industry into a position where it is recognized for sophisticated, differentiated and highly valued products and services that command a premium price.

The proposed pearl farm and its products and facilities should be design to offer the visitors a different experience from the conventional island hopping experience.. The initial projections have been to cater to a wide range of clientele not specifically targeting any specific nationality. In that regard the Cooperative should enter the market with a good perspective and clear goals and objectives such as those that are listed below.

• To capture the target markets and maximize sales. • To ensure that its excess capacity is properly utilized by undertaking appropriate

promotional activities. • Maintain positive, steady growth each quarter. • Maximise revenue by using appropriate merchandising and promotion

techniques. • To expand consumer awareness of its product over a period of 1-3 years. • Experience a growth in new customers who are turned into long-term customers.


P a g e | 42

• Realise an increase in sales each subsequent year. • To monitor effectiveness of the promotional campaign (that is monitor media

medium) within one year. • To diversify the market spread especially by penetrating further into new potential

makets of rapid growth. • To diversify into new markets with a view to increase the yield. • to promote the pearl farm as a destination for day trippers and excursion tourists

wishing to enjoy a different experience from other island hopping excursions • promote the products as 100% Maldivian products so that they would clearly be

distinguished from similar imported products. • Develop a brand which inspires confidence in the consumers.

• Promote the pearl farm as having some additional unique attractions such as jewelry making demonstrations, grafting and opening of live oyster shells, and the option of buying freshly harvested peals from the Cooperative’s own showroom and gift shop.

• To promote the range of products and services offered by the pearl farm as attractively priced, high quality, dependable range of products and services and acquire a high regard from the target markets.

The above marketing goals should fit within the overall plan and should be mainly based on the high-end tourism market, particularly that of those resorts operating in the Baa Atoll and the region.

The marketing and sales agents should closely liaise with resort operators in the region and should develop the marketing and sales material in those languages that make up its market.

The profitability margins should also be initially set at low and realist margins taking into account the level of awareness currently existing in the market about this project. In


P a g e | 43

time, the margins should pick up and along with an increasing awareness of the uniqueness of the product; The Cooperative should be able to generate a reasonable return on its planned investments.

In short, the principle objectives should be to:

• ensure that the visitor capacity and farm produce is utilized by undertaking proper promotion.

• maintain and increase the yield.

Promotion Strategy

Multiple strategies should be used to promote the activities of this Pearl Farm. Throughout the promotional strategy, the management’s focus should be on selling the products and services offered by this Pearl Farm. The types of promotions should include:

• Continuous monitoring of market needs and requirements to deliver products and services to satisfy market demand.

• Establishing partnerships with other key players in the industry. • Developing a website and other promotional material, brochures etc to promote

its various products and the pearl farm. • Join community and business groups/organizations as a means of increasing

public awareness of its products and services and also to obtain feedback from customer groups to improve its products and services.

• Networking with other strategic players in the market to deliver excellence. • Find and allocate resources to marketing and a steady stream of market

intelligence, to enable it to sustain its business. • Participating in relevant trade fairs and offer information workshops to the target

markets.


P a g e | 44

• Hold exhibitions in tourist resorts for marketing pearl and mother of pearl products.

• Implement an effective brand strategy which should create a unique identity which should differentiate the Cooperative’s products from the competition.

• Networking with the buyers (Resort Operators, Souvenir Shops and Jewelry makers on other islands).

• Selective advertising in News papers, Magazines and other tools of media. • Introduction of customized “packages” for various market segments to create

excitement in the market.

Marketing Programs

Public RelationsPublic RelationsPublic RelationsPublic Relations and Networkingand Networkingand Networkingand Networking

At the time of official commemoration of the pearl farm and its operations, resort operators, Gem merchants in Maldives and journalists from some leading Newspapers and magazines should be invited for a day trip to Thulhaadhoo Island. A special publicity campaign should be undertaken to promote the pearl farm. Networking and promotion through a network of resort souvenir shops and souvenir retailers in Male’ would be critical. AdvertisingAdvertisingAdvertisingAdvertising

Advertisements should be placed in major local news papers and magazines that are targeted at tourists arriving in Maldives and sovenier and Gem dealers in the Maldives. Advertisements should also be placed in in-flight magazines of local air taxis and the domestic airline, and other places of strategic importance where lots of publicity would be likely to be received.


P a g e | 45

Direct MailDirect MailDirect MailDirect Mail

Special Brochures should be developed and sent to nearby resorts and placed at public areas where tourists frequent. Brochures and invitations should also be sent to local and international Pearl magazines, Pearl Exchanges, development assistance agencies, relevant associations, photographers, fashion designers to attract such parties to the pearl farm. CooperativeCooperativeCooperativeCooperative‘s‘s‘s‘s own own own own Website and other Social Networking SitesWebsite and other Social Networking SitesWebsite and other Social Networking SitesWebsite and other Social Networking Sites

Another effective form of marketing these days is the use of the businesses’ website which will be a source to disseminate information, increase visibility, and process orders. The website should be submitted to various search engines so people that are not even looking specifically for pearls and pearl jewelry would come across the site. Social networking sites like Facebook, MySpace, and Twitter have become powerful marketing tools that if used correctly, can drive business to the website and translate into sales. Such tools should be used extensively as they cost very little and is an effective marketing medium.

Distribution and Sales Strategy

The Cooperative should be careful in considering its distribution and sales strategy as these have significant implications for:

• product margins and profits


P a g e | 46

• marketing and sales budgets • final retail pricing • sales management practices

Distribution channels can include one or more of these options:

• Retailing and wholesaling from the pearl farm itself • Retailing through resort souvenir shops • Jewelry and Gem Shops in Resorts, Airports and Male’ • International sales agents and Pearl Exchanges (through international brokers) • Retailing and wholesaling via the Cooperative’s website and other internet sites

such as Ebay, Alibaba etc.

Following are some important sales strategies that could be employed to generate the required levels of revenue.

• Projecting an image of uniquenessProjecting an image of uniquenessProjecting an image of uniquenessProjecting an image of uniqueness Be different and stand out from the competition.

• Strong Customer relationshipsStrong Customer relationshipsStrong Customer relationshipsStrong Customer relationships Building long term relationships with customers should generate a continuous stream of revenue for many years.

• Direct SalesDirect SalesDirect SalesDirect Sales Direct sales using email. The Cooperative sales team should periodically send updates and notices to client lists. As long as the Cooperative has their permission and avoid overuse, E-mail can be a powerful and inexpensive sales and marketing tool.

• Sales AgentsSales AgentsSales AgentsSales Agents


P a g e | 47

Networking with good sales agents is important. Successful businesses realize that the quality of their sales agents is critical to sustaining their growth in the marketplace.

• Web Site and Web StoresWeb Site and Web StoresWeb Site and Web StoresWeb Site and Web Stores

Development of a dynamic website coupled with a web store / shopping cart would be an important strategy to consider. Sales via the web are increasing as an increasing number of people have access and become more comfortable with the idea. Setting up a sales site on the web keeps getting easier with new software available. The Cooperative may also work with a web site vendor’s on-line software or could even possibly hire someone to prepare a customized site. Whichever way the Cooperative chooses, it should offer on-line security to assure the customer’s information security.

Use of Ebay and other retailers on the World Wide Web should also be considered in the long run.

Management and Organisational

Proposed Organizational Structure

Management Team

For this Pearl Farm to be cost effective, it is proposed that the management structure be based upon a shared services model. As much as possible, multishould be employed at least in the initial stages to make the systemeffective and sustainable. The management philosophy should be based upon shared responsibility, qualified and capable staff and mutual respect. An Advisory BoardAn Advisory BoardAn Advisory BoardAn Advisory Board

Operations

(Field Officers)

OPTIONAL

Spat Suppliers, Service Consultants & Management

Company (External)


P a g e | 48

and Organisational Plan

Proposed Organizational Structure

or this Pearl Farm to be cost effective, it is proposed that the management structure be based upon a shared services model. As much as possible, multi-tasking personnel should be employed at least in the initial stages to make the systemeffective and sustainable. The management philosophy should be based upon shared responsibility, qualified and capable staff and mutual respect.

General Manager

Management Committee

Administration

(Manager)

Accounts

(Cashiers/Accountant)

OPTIONAL

Spat Suppliers, Service Consultants & Management

Company (External)

Lawyers & Auditors (External)


or this Pearl Farm to be cost effective, it is proposed that the management structure be tasking personnel

should be employed at least in the initial stages to make the systems more cost effective and sustainable. The management philosophy should be based upon shared

Accounts

(Cashiers/Accountant)


P a g e | 49

The promoters of this project (UNDP and MRC), brings to this business a wealth of knowledge, with research, administrative and management experience which they wish to transfer to the proposed Cooperative. It is proposed that a temporary Advisory board be formed for a period of 12 months from inception of the Cooperative. The advisory board should ideally be composed of a representative each from UNDP, MRC and the management committee of the Cooperative. If a third party management company is involved, they should also be represented in this committee. The Management CommitteeThe Management CommitteeThe Management CommitteeThe Management Committee The management Committee and the Management Company (if any) should meet on a regular basis to review financial issues, identify customer relations issues, and develop future goals for growth, marketing, and sales. This group should be assigned the task of developing a plan to implement and integrate the business plan. As for management strength, maintaining professionalism as much as possible in every aspect of the business is a necessity in today’s competitive business environment. To achieve this end, the management should always make it a point to get advice and assistance from the proposed Advisory Board, its business partners, and from other most competent sources in the respective fields for its business.

As a newly established Cooperative striving to achieve excellence in everything it does, the members and the management should understand and believe that the most important element of developing a business is the strength and ability of its management team.

The management of Cooperative should comprise of (1) a very active Management Committee, and (2) an executive management team which has the responsibility for the day-to-day management of the various aspects of the operations of the Cooperative.


P a g e | 50

Cooperatives consist of members, a management committee, and employees. All have important participation roles to play and responsibilities to fulfill. Cooperatives should operate through the participation of the principal parties—

members, Management Committee, manager, and employees. These cooperative participators should have separate roles, though they share the common interest of building a successful business. Members Members Members Members ---- As owners of the business, they should organize, incorporate, finance, and elect a management committee to set the cooperative's policy and govern. Members use the cooperative and are the reason for its existence. Management Committee Management Committee Management Committee Management Committee ---- Members of this committee are elected by, and serve at the will of, the membership. While some serve limited terms, others serve multiple terms. They have two primary responsibilities: hire competent management and guide the direction of the business by providing policy and oversight to its operation.

Manager Manager Manager Manager ---- The manager reports to and works closely with the Management Committee. He or she is responsible for the day-to-day operations and performance of the cooperative. The Manager should be on board in key policy decision-making and should also lead the operations in the farm. A person fitting the following criteria should ideally be employed

• Collective experience and background in management of a similar facility • Management of human resources in similar establishments in the Maldives. • Handling and management of bookings for excursions. • Reasonable qualifications to international standards for different required

managerial sectors. • Collective experience and professional knowledge for the sector. • Good understanding of spending patterns of target groups.


P a g e | 51

• Ability to make presentations and demonstration of business knowledge at various shows and events hosted for visitors.

Employees Employees Employees Employees ---- Hired by the manager, employees work for the member-owners in carrying out responsibilities in the cooperative’s operation as dictated by the manager. Field officers working on the farm have been already trained for the job.


P a g e | 52

Strategic Alliances and Management Support

Spat SuppliersSpat SuppliersSpat SuppliersSpat Suppliers

The Cooperative management should liaise with MRC and use the existing rafts on Bodumoharaa Field Station to supply oysters to its pearl farmers at the initial stage of the farm operation. This strategy should enable the Cooperative to get income from the farm even in the first or second year of operation. This factor has not even been considered in the feasibility study to maintain prudence and be conservative in the estimates.

Service CService CService CService Consultant onsultant onsultant onsultant

Service consultants should normally be hired by the Management Committee of the Cooperative. They can add value to the operation by helping design and brand the products and services to suit the target market. For example, the consultant would advise on areas of jewellery packaging, use of eco-friendly practices such as use of paper bags instead of polythene etc. The consult would ensure that the products and services are compatible to the expectations of the customers. The Service Consultant should also be on board in key policy decision-making and shall also work under the Manager. It is proposed that this person be a service consultant with a minimum experience of five years being engaged in different areas in the hotel industry. The person is required to have a wide range of knowledge.

Capabilities should include the ability to train and educate the staff of the farm and service outlets in terms of professional and efficient service, attitudes and behaviors, and matters relating to the business. The consultant should also advice to the management in areas related to upgrading facilities and services of the facility as well as recruiting of staff.


P a g e | 53

PPPProfessional rofessional rofessional rofessional Management CompanyManagement CompanyManagement CompanyManagement Company

Should the services of a management company be considered, it should normally be hired by the Management Committee of the Cooperative. They should add value to the operation by helping ease the workload of the Cooperative, and help keep everything running smoothly in a professional manner keeping the business on track. They should ideally bring their network of their marketing and sales contacts to create opportunities and generate a higher income for the pearl farm operations.

In this model, if a management company is involved, it should be assumed that their role would most possibly be in the concept development, marketing and sales aspects. If so, the Cooperative maybe able to save some valuable resources allocated for marketing, sales etc which have been provided for in the feasibility.

Such a management service could also be provided by a joint effort of all those resorts that wish to make such as a service a part of their CSR activity. Once they become part of this operation, they have even a better reason to drive traffic to the farm and also more proactively promote the products and services offered by the pearl farm.

A detailed management plan should be worked out later in consultation with the partners and associates in business by incorporating their suggestions and ideas.

Assistance from other relevant sources

The Cooperative should proactively liaise with Maldives National Chamber of Commerce and Industries (MNCCI), the Development Banking Cell of the Bank of Maldives and the SME based business units being operated under the auspices of the Ministry of Trade and Economic Development. These entities have expressed their


P a g e | 54

enthusiasm and willingness to support the proposed business in providing management and financial backing using their resources.

In terms of attracting aid from donor agencies and other such entities, Cooperatives as a business model have an edge over private sector businesses. The fact that they are normally community owned and has a wider member base with a more equal shareholding of all members, makes it more attractive and less complicated for donors in extending aid. The Cooperative should use this inherent characteristic of its form and business to its maximum advantage.


P a g e | 55

Members Responsibilities

As owners of the cooperative, members have major responsibilities. They must use, control, and finance their cooperative to gain the economic benefits for which the proposed Cooperative is to be organized. They should play an active ownership role in expressing their views and needs, participating in the governance process and decision making, and evaluating how well the cooperative is performing. Members should be given the opportunity to be educated in business practices and see firsthand the benefits derived from working together. They often gain valuable leadership training through such participation. The experience they gain from expressing their views in various meetings, participating on committees, serving on the management committee, and speaking on behalf of the cooperative helps develop good leadership traits which they could possibly used in other businesses of the Cooperative or island development activities.

Training and Development

The management should always inspire and respect the company’s personnel by recognizing their merit. It should always be the management’s belief that the organisation’s personnel should be adequately trained and compensated.

Personnel training and remuneration should be regularly reviewed to keep up with market developments and to keep staff motivated. Competition in the long run can affect staff turnover and hence sufficient emphasis on staff training is critical to maintain stability in the farm operations. A training video on pearl farming and jewelry making is being prepared in collaboration with the Educational Development Centre of the Maldives.


P a g e | 56

A hand book on pearl farming is also available, and a handbook on mother-of-pearl jewelry is being prepared along with training videos on pearl farming and jewelry making.

Evaluation and Controls

The members of the Cooperative and management should evaluate the effectiveness of this plan and the feasibility study in meeting its goals. Quarterly meetings should at least be held with its sales team to assess and evaluate the results of each quarter. If a management company is involved, the management advisory committee should meet and discuss the status of affairs. The plans should then be reviewed if needed and new goals should be re-assessed and developed for the periods ahead.

Proper internal controls shall be in place to help the cooperative to achieve its goals and objectives. It should be the means by which the cooperative’s resources will be directed, monitored, and measured and should play an important role in preventing and detecting fraud and protecting the business’s resources, both physical (e.g., pearl stocks, machinery and property) and intangible (e.g., reputation or intellectual property such as trademarks). As pearls are a high value item, segregation of duties, proper supervision, monitoring and management of inventory is essential for the success of the business. Considering the risks involved, it is important that stock keeping, accounting and cashiering be handled by 3 different persons. This aspect of control cannot be over emphasized from a risk and control perspective.

Budgets should be designed and used as a benchmark against which results should be measured. These should be adapted as needed to accommodate changes in funding and anticipated expenditures. They should also be utilized an essential tool for


P a g e | 57

assessing and managing the operations of the Cooperative. Budget-to-actual reports should be generated on a monthly basis, and then reconciled to financial statements. Any significant line-item or funding source variances should be identified and investigated by the appropriate staff. Governance

The members should ensure that management fully complies with the requirements of the Cooperative Governance Code published by the Registrar of Cooperatives.

More specifically, members should control their cooperative by casting votes on major business decisions (for example, merger) and by the authority they delegate to the Management Committee through a democratic election process. Level of control should be directly related to members’ degree of participation in this important process. Formal decisions should be made by members at the annual meeting such as nominating and electing members to the Management Committee, amending the bylaws, accepting the audit report, voting on major actions or policies proposed by the board and management, and voting on resolutions and motions. Informal participation covers participation in cooperative activities such as:

• serving on advisory committees and taking on special assignments; • expressing opinions in discussions with other members or directors; • providing feedback to employees and management; • responding to surveys about attitudes and assessments, product and

service evaluations, buying and marketing intentions, and providing other opinions about changing conditions.

Active member participation provides additional information that helps the Management Committee and management better carry out their responsibilities. By active


P a g e | 58

involvement in the governance process, members should maintain control of the cooperative's scope, direction, and operation. Members place the health of the cooperative in the hands of the Management Committee. Members reaffirm performance by re-electing or electing new members to the Management Committee. Members should participate in the governance activities of the proposed cooperative or accept the decisions made by others.


P a g e | 59

Financial Strategy & Feasibility Study

Financial Strategy

For the purposes of this feasibility study, the total investment value is estimated to be in the vicinity of Rf. 1.6 million. Please see the investment schedule (Table 2 under Projected Financial Statements) for a break-up of the expected total investment. Out of this total, the value of assets expected be transferred to the Cooperative by UNDP at the end of PCPDEMP is estimated at Rf. 822,000.00 (approximately 45% of the total investment ).

It is assumed that the members and the management of the Cooperative will have to raise approximately Rf. 800,000.00 to finance the project. The full amount need not be raised via share capital as following are some alternatives which should be explored to reduce the burden on the members. The required finance could be raised by a combination of the following strategies:

a) Raising share capital from members b) Advertising and sponsorship programs. c) Financial assistance in the form of loans and/or grants from well-wishers (resort

operators, other businesses and individuals), government agencies and other donor agencies.

d) Financial assistance in the form loans from SME and development support schemes such as those of BML, MNCCI and Ministry of Trade.

e) Community donations and pro-bono work by members and community (e.g construction work)

f) Supplier Credit from MRC for supply of spat. g) Fund raising programs such as dinner nights etc.


P a g e | 60

It should also be noted that fullRf.800,000.00 would not be required immediately. It will required over a period of two and half years and the amount may be further reduced by selling the existing stocks of pearls currently in production, which have not been considered in this study . Equity to be raised can be reduced even more by purchasing spat from MRC to reduce the duration required from spat collection to harvesting.

Furthermore, management should seek the support of established marketing firms in Male’in the development of the concepts and marketing material. Expected concept development and start-up promotion expenses are forcasted as significant unless otherwise the management would be able to convince the service providers to a pro-bono arrangement as part of their CSR contribution and in return for good publicity. If properly proposed and presented, these firms would possibly be willing to help such community efforts for free or possibly at subsidised rates. Such a strategy would bring huge savings to the cooperative, thereby further reducing the amount of funds required.

Good cashflow management should also reduce stress on the reserves and help ease cashflow problems during the first two years.

To remain conservative with the assumtions used, the above strategies for pro-bono arrangements and spat purchases from MRC have not been factored into the feasibility study.


P a g e | 61

Application of Funds For Proposed Project

The funds utilized under this investment would be used for the development of the Pearl farm and related businesses as envisaged in this business plan. To achieve the objectives stated in this plan the following capital expenditure is essential as initial investment in this project.


P a g e | 62

Sources of Funds Yr 0

Equity to raised by members 800,000

Contributions by UNDP/MRC 821,704

Total Inflow 1,621,704

Application of Funds Yr 0

Civil Works (Buildings)

Office & Showroom Building 60,000

Workshop 40,000

100,000

Furniture & Fittings

Office, Showroom and Workshop 30,000

30,000

Rafts & Other Floating Accessories

Spat Collection Long Lines 231,168

Juvenile oyster rearing longlines : pockets/free-hanging 73,344

Pearl production longlines 63,864

Observation Deck/Platform Raft for visitors 40,000

Signage & concept development 50,000

Mooring facilities for excursion boats 40,000

498,376

Workshop Tools & Equipment

Inoculation equipment 5,000

Electric drill 900

Other equipment provided by project for use in W/shop 92,428

98,328

Vessels

Work boat with 25 hp ouboard engine 95,000

-

95,000

Business Development

Merchandising 200,000

Eco-friendly concept development (Tourism oriented) 40,000

Marketing, Consultancy & Other Miscellaneous Expenses 130,000

370,000

Total Investment 1,191,704

Balance remaining for Working Capital 430,000


P a g e | 63

Methodology

In order to assess the financial feasibility of the project, two basic methods were used for project evaluation, namely the Payback Period method and the Discounted Cash Flow (DCF) method.

The payback period method evaluates the project, based on the period of recovery of the initial investment. For this purpose, the future cash flows generated by the project are compared with the initial cash outlay in order to determine the period required to recover the investment. Further, a discounted payback period has been computed. In this method, the time value of money has been considered using present value of cash flows.

The Net Present Value method attempts to evaluate the project by taking into account the time value of future cash flows. For this purpose, the estimated future cash flows are discounted by the cost of capital in order to arrive at cash flows at present value. The net cash flows at present value are then compared with the initial investment in determining the feasibility of the project.

As an initial step in evaluating the feasibility, we have projected the future cash flows of the proposed project. In order to forecast the future, several assumptions were made with regard to both the supply and demand side, operating revenues and related costs. These assumptions are detailed in the relevant sections of the feasibility study.

Statement of Limiting Conditions

All assumptions made in order to appraise this project were based on information obtained from UNDP, MRC and various other industry sources and from very limited published information. Nothing has come to our attention to cause us to believe that the facts and data set forth in this report are not correct. It must be noted by all users of this


P a g e | 64

document that there will usually be differences between estimated and actual results because events and circumstances frequently do not occur as expected and those differences may be material.

A few income generation options such as income from sale of bad quality harvests have not been considered in the feasibility study. It should also be noted that the working capital requirement as shown in the feasibility may not be fully required at the beginning but should be managed of the first two years of operation.


P a g e | 65

Assumptions

All specific assumptions are shown in the Assumption Sheet below and in the accompanying Business Plan. Following are some selected assumptions from the table.

• All financial figures are presented in Maldivian Rufiya. • The financial projections are for a period of 10 years. • No depreciation on fixed assets is charged in the year of acquisition and full year’s depreciation is charged in

the year of sale or disposal of fixed assets. • No loans have been assumed for the forecasted period.

Initial OutlayInitial OutlayInitial OutlayInitial Outlay

• The investment schedule (Table 2 under Projected Financial Statements) shows the details of the initial outlay which aggregates to Rf. 1.6 million.

• Approximately Rf. 370,000 has been allocated for Business Development and merchandising. • Rf. 430,000 has been allocated for working capital. Funds need not be raised immediately but can be raised

over the first two and half years as and when the need arises. These funds will be required as bridging finance until the first batch of harvesting is sold.

Production & HarvestProduction & HarvestProduction & HarvestProduction & Harvest

• All research based technical data pertaining to the following aspects of pearl production were provided by MRC


P a g e | 66

o Value of investment to be transferred by UNDP to the Cooperative at the point of farm transfer o Costing of Rafts and other floating accessories o Estimated selling price of loose pearls and pearl shells. o Pearl production capacity, inoculation, survival rates and other assumptions relevant for harvesting.

• It is assumed that only 75% of the inoculated oysters would survive to grow into good quality pearls. • No revenue has been assumed for the 25% of pearls or pearl shells which do not qualify as good quality pearls.

In reality, some amount of money can be generated from these as well. • Average number of pearls in each oyster has been assumed to be 2. It is a very conservative assumption as

each oyster has the capacity for 3 pearls. ExcursionsExcursionsExcursionsExcursions

• Number of excursions to the pearl farm from resorts are initially assumed to be at 4 trips per month. The assumption that each of the 4 resorts (i.e 1. Four Seasons Resort, 2. Reethi Beach Resort, 3.Soneva Fushi & Spa, 4. Royal Island Resort & Spa) does 1 excursion per month to the pearl farm is a conservative estimate. Frequency has been forecasted to increase from the 2nd year onwards.

• Price of ticket for each person is assumed to be at US$ 10.00 per person with an increment of price by 10% each year.

Sale of Sovenier and merchandiseSale of Sovenier and merchandiseSale of Sovenier and merchandiseSale of Sovenier and merchandise


P a g e | 67

• It is assumed that 60% of visitors would spend an average of US$ 20.00 per person per excursion on souvenirs and merchandise.

• The cost of souvenirs and merchandise sold are assumed at an average of rate of 40% of all selling prices. Direct Costs & OverheadsDirect Costs & OverheadsDirect Costs & OverheadsDirect Costs & Overheads All assumptions made for direct expenses and overheads are shown in the assumption sheet and are self explanatory. DividDividDividDividendsendsendsends For the purposes of this feasibility, no assumptions have been made for payment of dividends. Availability of healthy cash

reserves from year 3 onwards indicates availability of sufficient funds for payment of dividends. o


P a g e | 68

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Type and number of rafts used in operation

Spat Collection Long Lines 28 28 28 28 28 28 28 28 28 28 28

Juvenile oyster rearing longlines : pockets/free-hanging 12 12 12 12 12 12 12 12 12 12 12

Pearl production longlines 12 12 12 12 12 12 12 12 12 12 12

Production / Output

No.of Inoculated Oysters on Each Production Longline 328 328 328 328 328 328 328 328 328 328

% of inoculated oysters expected to survive 80% 80% 80% 80% 80% 80% 80% 80% 80% 80%

No.of Inoculated Oysters expected to survive 262 262 262 262 262 262 262 262 262 262

Average No.of Pearls in each surviving Oyster 2 2 2 2 2 2 2 2 2 2

% of Good quality Pearls from inoculated surviving oysters 75% 75% 75% 75% 75% 75% 75% 75% 75% 75%

No.of Harvests each year 0% - - 1 1 1 1 1 1 1 1

Number of good quality Pearls available for Sale from Harvest - - 5,904 5,904 5,904 5,904 5,904 5,904 5,904 5,904

Number of Pearl Shells available for Sale from Harvest - - 3,936 3,936 3,936 3,936 3,936 3,936 3,936 3,936

Avg. price of a good quality Pearl - 129 132 136 140 145 149 153 158

Avg. price of a Pearl Shell - 40 41 42 44 45 46 48 49

Est. total revenue from Sale of Pearls - 758,664 781,424 804,867 829,013 853,883 879,500 905,884 933,061

Est. total revenue from Sale of Pearl Shells - 157,440 162,163 167,028 172,039 177,200 182,516 187,992 193,631

Excursion Estimates

Avg. No.of Excursions per week 1 2 2 2 2 2 3 3 3 3

Avg, number of persons per excursion 16 16 16 16 16 16 16 16 16 16

Farm Tour Ticket price per person 129 141 155 163 171 180 189 198 208 219

No.of visitors to farm per year 864 1,728 1,728 1,728 1,728 1,728 2,592 2,592 2,592 2,592

Est. Total Income per year from Farm Tours 111,024 244,253 268,678 282,112 296,218 311,028 489,870 514,363 540,081 567,086

Other Income Estimates

% of visitors estimated to purchase souveniers / merchandise 60% 60% 60% 60% 60% 60% 60% 60% 60% 60%

No.of visitors estimated to purchase souvenier /merchandise 518 1,037 1,037 1,037 1,037 1,037 1,555 1,555 1,555 1,555

Estimated avg.sale of souvenier / mechandise to each visitor 257 270 297 327 359 395 435 478 526 578

Est.Total Income from merchandising 133,229 279,780 307,759 338,534 372,388 409,627 675,884 743,472 817,820 899,601

Est. Cost of Sale of merchandise 40% 40% 40% 40% 40% 40% 40% 40% 40% 40%

Feasibility Study for B.Thulhaadhoo Pearl Farm

Baa Atoll

Maldives

ASSUMPTIONS SHEET


P a g e | 69


P a g e | 70

Direct Costs

Direct Labour 126,000 126,000 168,000 168,000 210,000 210,000 210,000 210,000 210,000 210,000

Est. Cost of Sale of merchandise 53,292 111,912 123,103 135,414 148,955 163,851 270,354 297,389 327,128 359,841

Fuel Cost for Vessel 5% 36,000 36,360 36,724 38,560 40,488 42,512 44,638 46,870 49,213 51,674

Operating Overhead Expenses (Rf)

Staff Salary & Allowances 5% 108,000 108,000 144,000 151,200 158,760 166,698 175,033 183,785 192,974 202,622

Staff Benefits 5% 6,000 6,000 8,000 8,400 8,820 9,261 9,724 10,210 10,721 11,257

Electricity 5% 18,000 18,900 19,845 20,837 21,879 22,973 24,122 25,328 26,594 27,924

Farm Safety and Security 24,000 24,240 24,482 25,707 26,992 28,341 29,759 31,246 32,809 34,449

Telephone, Fax & Internet 5% 14,400 14,544 14,689 15,424 16,195 17,005 17,855 18,748 19,685 20,670

Repair and Maintenance 5% 18,000 18,180 18,362 44,280 18,545 18,731 18,918 44,107 19,107 19,298

Office Supplies 5% 6,000 6,060 6,121 6,427 6,748 7,085 7,440 7,812 8,202 8,612

Professional Fees at discounted rates(Audit, Legal, IT, etc.) 5% 15,000 15,150 15,302 15,455 15,609 15,765 15,923 16,082 16,243 16,405

Transportion & Travelling 5% 36,000 36,360 36,724 38,560 40,488 42,512 44,638 46,870 49,213 51,674

Training and Development 5% 6,000 6,300 6,615 6,946 7,293 7,658 8,041 8,443 8,865 9,308

Business Promotion & Marketing Expenses 5% 24,000 33,600 47,040 65,856 92,198 129,078 180,709 252,992 354,189 495,865

Insurance 5% 8,940 9,387 9,856 10,349 10,867 11,410 11,980 12,579 13,208 13,869

Miscellaneous 5% 24,000 25,200 26,460 27,783 29,172 30,631 32,162 33,770 35,459 37,232

Lease Rent - Lagoon 5% 30,000 31,500 33,075 34,729 36,465 38,288 40,203 42,213 44,324 46,540

FINANCING

Total Investment 1,621,704

Grant Aid in kind 821,704 Discounting Factor 12%

Funds to be raised by Co-op members 800,000


P a g e | 71

Projected Financial Statements (10 year projections)

1. Balance Sheets

All Amounts are in US$ Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Fixed Assets

Fixed Assets 821,704 691,696 561,688 431,680 301,672 171,664 834,220 672,509 510,799 349,088 187,378

Total 821,704 691,696 561,688 431,680 301,672 171,664 834,220 672,509 510,799 349,088 187,378

Current Assets

Bank 430,000 120,621 16,961 771,104 1,521,413 2,272,439 2,345,457 3,400,797 4,432,204 5,466,047 6,442,187

Total 430,000 120,621 16,961 771,104 1,521,413 2,272,439 2,345,457 3,400,797 4,432,204 5,466,047 6,442,187

Current Liabilities

Accruals - - - - - - - - - - -

Total - - - - - - - - - - -

Net Current Assets 430,000 120,621 16,961 771,104 1,521,413 2,272,439 2,345,457 3,400,797 4,432,204 5,466,047 6,442,187

Total Assets 1,251,704 812,317 578,649 1,202,784 1,823,085 2,444,103 3,179,677 4,073,307 4,943,003 5,815,136 6,629,565

FINANCED BY:

Owner's Equity

Equity 1,621,704 1,621,704 1,621,704 1,621,704 1,621,704 1,621,704 1,621,704 1,621,704 1,621,704 1,621,704 1,621,704

Profits/(loss) (370,000) (809,387) (1,043,055) (418,920) 201,381 822,399 1,557,973 2,451,603 3,321,299 4,193,432 5,007,861

Total 1,251,704 812,317 578,649 1,202,784 1,823,085 2,444,103 3,179,677 4,073,307 4,943,003 5,815,136 6,629,565

Term Liability

Liabilities - 0 - - - - - - - - -

Total - 0 - - - - - - - - -

Total Funds 1,251,704 812,317 578,649 1,202,784 1,823,085 2,444,103 3,179,677 4,073,307 4,943,003 5,815,136 6,629,565


Baa Atoll

Maldives

BALANCE SHEET PROJECTIONS


P a g e | 72


P a g e | 73

2.Profit & Loss Statements


Sales

Sale of Pearls - - 758,664 781,424 804,867 829,013 853,883 879,500 905,884 933,061

Sale of Pearl Shells - - 157,440 162,163 167,028 172,039 177,200 182,516 187,992 193,631

Sale of Tickets (Pearl Farm Tour) 111,024 244,253 268,678 282,112 296,218 311,028 489,870 514,363 540,081 567,086

Sale of Sourveniers / Merchandise 133,229 279,780 307,759 338,534 372,388 409,627 675,884 743,472 817,820 899,601

Total Sales 244,253 524,033 1,492,541 1,564,233 1,640,500 1,721,707 2,196,837 2,319,851 2,451,777 2,593,379

Less: Direct Costs

Direct Labour 126,000 126,000 168,000 168,000 210,000 210,000 210,000 210,000 210,000 210,000


Fuel Cost for Vessel 36,000 36,360 36,724 38,560 40,488 42,512 44,638 46,870 49,213 51,674

Total Direct Costs 215,292 274,272 327,827 341,974 399,443 416,363 524,991 554,259 586,341 621,514

Gross Profit 28,961 249,761 1,164,714 1,222,260 1,241,057 1,305,344 1,671,846 1,765,593 1,865,436 1,971,865

Less: Operational Overheads

General 314,340 319,821 363,531 406,095 397,833 416,359 435,797 481,193 477,404 499,860

Selling and Marketing Expenses 370,000 24,000 33,600 47,040 65,856 92,198 129,078 180,709 252,992 354,189 495,865

Finance

Total Operational Overheads 370,000 338,340 353,421 410,571 471,951 490,032 545,436 616,506 734,185 831,593 995,725

Net Profit Before Depreciation (370,000) (309,379) (103,660) 754,143 750,309 751,026 759,907 1,055,340 1,031,407 1,033,843 976,140

Less: Depreciation 130,008 130,008 130,008 130,008 130,008 24,333 161,711 161,711 161,711 161,711

Net Profit (370,000) (439,387) (233,668) 624,135 620,301 621,018 735,575 893,629 869,697 872,132 814,429


Baa Atoll

Maldives

STATEMENT OF PROJECTED OPERATING PROFITABILITY


P a g e | 74


P a g e | 75

2. Cash flow Statements


Cash Inflow

Investment Contribution 1,621,704 - -

Sale of Pearls 0 0 758,664 781,424 804,867 829,013 853,883 879,500 905,884 933,061

Sale of Pearl Shells 0 0 157,440 162,163 167,028 172,039 177,200 182,516 187,992 193,631

Sale of Tickets (Pearl Farm Tour) 111,024 244,253 268,678 282,112 296,218 311,028 489,870 514,363 540,081 567,086

Sale of Sourveniers / Merchandise 133,229 279,780 307,759 338,534 372,388 409,627 675,884 743,472 817,820 899,601

Total Inflow 1,621,704 244,253 524,033 1,492,541 1,564,233 1,640,500 1,721,707 2,196,837 2,319,851 2,451,777 2,593,379

Cash Outflow

Capital Investment (Purchasing Price)

Buildings 100,000 0 0 0 0 0 0 0 0 0 0

Furniture and Fittings 30,000 0 0 0 0 0 39,000 0 0 0 0

Rafts & Other Floating Accessories 498,376 0 0 0 0 0 647,889 0 0 0 0

Workshop Tools & Equipment 98,328 0 0 0 0 0 0 0 0 0 0

Vessels 95,000 0 0 0 0 0 0 0 0 0 0

Total 821,704 0 0 0 0 0 686,889 0 0 0 0

Direct Costs

Direct Costs 215,292 274,272 327,827 341,974 399,443 416,363 524,991 554,259 586,341 621,514

Total 0 215,292 274,272 327,827 341,974 399,443 416,363 524,991 554,259 586,341 621,514


Baa Atoll

CASH FLOW STATEMENT


P a g e | 76


P a g e | 77

Operating Costs

Staff Salary & Allowances 108,000 108,000 144,000 151,200 158,760 166,698 175,033 183,785 192,974 202,622

Staff Benefits 6,000 6,000 8,000 8,400 8,820 9,261 9,724 10,210 10,721 11,257

Electricity 18,000 18,900 19,845 20,837 21,879 22,973 24,122 25,328 26,594 27,924


Telephone, Fax & Internet 14,400 14,544 14,689 15,424 16,195 17,005 17,855 18,748 19,685 20,670

Repair and Maintenance 18,000 18,180 18,362 44,280 18,545 18,731 18,918 44,107 19,107 19,298

Office Supplies 6,000 6,060 6,121 6,427 6,748 7,085 7,440 7,812 8,202 8,612

Professional Fees at discounted rates(Audit, Legal, IT, etc.) 15,000 15,150 15,302 15,455 15,609 15,765 15,923 16,082 16,243 16,405

Transportion & Travelling 36,000 36,360 36,724 38,560 40,488 42,512 44,638 46,870 49,213 51,674

Training and Development 6,000 6,300 6,615 6,946 7,293 7,658 8,041 8,443 8,865 9,308

Insurance 8,940 9,387 9,856 10,349 10,867 11,410 11,980 12,579 13,208 13,869

Miscellaneous 24,000 25,200 26,460 27,783 29,172 30,631 32,162 33,770 35,459 37,232

Lease Rent - Lagoon 30,000 31,500 33,075 34,729 36,465 38,288 40,203 42,213 44,324 46,540

Total 0 314,340 319,821 363,531 406,095 397,833 416,359 435,797 481,193 477,404 499,860

SELLING EXPENSES

Advertisement & Sales Promotions 370,000 24,000 33,600 47,040 65,856 92,198 129,078 180,709 252,992 354,189 495,865

Total 370,000 24,000 33,600 47,040 65,856 92,198 129,078 180,709 252,992 354,189 495,865

FINANCE EXPENSES

Loan Interest 0 0 0 0 0 0 0 0 0 0 0

Total 0 0 0 0 0 0 0 0 0 0 0

Total outflow 1,191,704 553,631 627,693 738,398 813,925 889,475 1,648,688 1,141,497 1,288,444 1,417,934 1,617,240

Net cashflow 430,000 (309,379) (103,660) 754,143 750,309 751,026 73,019 1,055,340 1,031,407 1,033,843 976,140

Opening cashflow - Cash at Bank 0 430,000 120,621 16,961 771,104 1,521,413 2,272,439 2,345,457 3,400,797 4,432,204 5,466,047

Closing cashflow - Cash at Bank 430,000 120,621 16,961 771,104 1,521,413 2,272,439 2,345,457 3,400,797 4,432,204 5,466,047 6,442,187

430,000 120,621 16,961 771,104 1,521,413 2,272,439 2,345,457 3,400,797 4,432,204 5,466,047 6,442,187


P a g e | 78

3. Investment Schedule

Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10

Civil Works (Buildings)

Office & Showroom Building 60,000

Workshop 40,000

100,000 - - - - - - - - - -

Furniture & Fittings

Office, Showroom and Workshop 30,000 39,000

30,000 - - - - - 39,000 - - - -

Rafts & Other Floating Accessories

Spat Collection Long Lines 231,168 406,572

Juvenile oyster rearing longlines : pockets/free-hanging 73,344 128,995

Pearl production longlines 63,864 112,322

Observation Deck/Platform Raft for visitors 40,000

Signage & concept development 50,000

Mooring facilities for excursion boats 40,000

- - -

498,376 - - - - - 647,889 - - - -

Workshop Tools & Equipment

Inoculation equipment 5000

Electric drill 900

Other equipment provided by project for use in W/shop 92,428

98,328 - - - - - - - - - -

Vessels & Vehicles

Work boat with 25 hp ouboard engine 95,000

- - -

95,000 - - - - - - - - - -

Business Development

Merchandising 200,000

Eco-friendly concept development (Tourism oriented) 40,000

Marketing, Consultancy & Other Miscellaneous Expenses 130,000

370,000 - - - - - - - - - -

Working Capital 430,000

Total Investment 1,621,704 - - - - - 686,889 - - - -


Baa Atoll

Maldives

INESTMENT ANALYSIS


P a g e | 79

4. Income and Overhead Breakdowns

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Sale of Pearls

Quantity Sold (Nos) - - 5,904 5,904 5,904 5,904 5,904 5,904 5,904 5,904

Selling Price (Rf/Pearl) - - 128.50 132.36 136.33 140.42 144.63 148.97 153.44 158.04

- - 758,664 781,424 804,867 829,013 853,883 879,500 905,884 933,061

Sale of Pearl Shells

Quantity Sold (Nos) - - 3,936 3,936 3,936 3,936 3,936 3,936 3,936 3,936

Selling Price (Rf/Pearl Shell) - - 40.00 41.20 42.44 43.71 45.02 46.37 47.76 49.19

- - 157,440 162,163 167,028 172,039 177,200 182,516 187,992 193,631

Sale of Tickets (Pearl Farm Tour)

Quantity Sold (Nos) 864 1,728 1,728 1,728 1,728 1,728 2,592 2,592 2,592 2,592

Selling Price (Rf./Ticket) 128.50 141.35 155.49 163.26 171.42 179.99 188.99 198.44 208.36 218.78

111,024 244,253 268,678 282,112 296,218 311,028 489,870 514,363 540,081 567,086

Sale of Sourveniers / Merchandise

Estimated avg.sale of souvenier / mechandise to each visitor 257 270 297 327 359 395 435 478 526 578

No.of visitors estimated to purchase souvenier /merchandise 518.40 1,036.80 1,036.80 1,036.80 1,036.80 1,036.80 1,555.20 1,555.20 1,555.20 1,555.20

133,229 279,780 307,759 338,534 372,388 409,627 675,884 743,472 817,820 899,601

Sale of Pearls, Pearl Shells & Other associated income


Baa Atoll

Maldives

SALES


P a g e | 80


GENERAL EXPENSES

Staff Salary & Allowances 108,000 108,000 144,000 151,200 158,760 166,698 175,033 183,785 192,974 202,622

Staff Benefits 6,000 6,000 8,000 8,400 8,820 9,261 9,724 10,210 10,721 11,257

Electricity 18,000 18,900 19,845 20,837 21,879 22,973 24,122 25,328 26,594 27,924


Telephone, Fax & Internet 14,400 14,544 14,689 15,424 16,195 17,005 17,855 18,748 19,685 20,670

Repair and Maintenance 18,000 18,180 18,362 44,280 18,545 18,731 18,918 44,107 19,107 19,298

Office Supplies 6,000 6,060 6,121 6,427 6,748 7,085 7,440 7,812 8,202 8,612

Professional Fees at discounted rates(Audit, Legal, IT, etc.) 15,000 15,150 15,302 15,455 15,609 15,765 15,923 16,082 16,243 16,405

Transportion & Travelling 36,000 36,360 36,724 38,560 40,488 42,512 44,638 46,870 49,213 51,674

Training and Development 6,000 6,300 6,615 6,946 7,293 7,658 8,041 8,443 8,865 9,308

Insurance 8,940 9,387 9,856 10,349 10,867 11,410 11,980 12,579 13,208 13,869

Miscellaneous 24,000 25,200 26,460 27,783 29,172 30,631 32,162 33,770 35,459 37,232

Lease Rent - Lagoon 30,000 31,500 33,075 34,729 36,465 38,288 40,203 42,213 44,324 46,540

Total 314,340 319,821 363,531 406,095 397,833 416,359 435,797 481,193 477,404 499,860

SELLING AND MARKETING EXPENSES

Business Promotion & Marketing Expenses 370,000 24,000 33,600 47,040 65,856 92,198 129,078 180,709 252,992 354,189 495,865

Total 370,000 24,000 33,600 47,040 65,856 92,198 129,078 180,709 252,992 354,189 495,865

OTHER OPERATING EXPENSES

Depreciation 130,008 130,008 130,008 130,008 130,008 24,333 161,711 161,711 161,711 161,711

Total 130,008 130,008 130,008 130,008 130,008 24,333 161,711 161,711 161,711 161,711


Baa Atoll

Maldives

OPERATIONAL OVERHEADS


P a g e | 81


Direct Labour 126,000 126,000 168,000 168,000 210,000 210,000 210,000 210,000 210,000 210,000


Fuel Cost for Vessel 36,000 36,360 36,724 38,560 40,488 42,512 44,638 46,870 49,213 51,674

Total Direct Costs 215,292 274,272 327,827 341,974 399,443 416,363 524,991 554,259 586,341 621,514


Baa Atoll

Maldives

DIRECT COSTS


Number of Staff

Direct Labour 3 3 4 4 5 5 5 5 5 5

Administrative Staff 3 3 4 4 4 4 4 4 4 4

6 6 8 8 9 9 9 9 9 9

Staff Salaries

Direct Labour 126,000 126,000 168,000 168,000 210,000 210,000 210,000 210,000 210,000 210,000

Administrative Staff Salaries 108,000 108,000 144,000 144,000 144,000 144,000 144,000 144,000 144,000 144,000

234,000 234,000 312,000 312,000 354,000 354,000 354,000 354,000 354,000 354,000

Other Benefits

Medical Insurance (Rf. 1000/- per person per year) 6,000 6,000 8,000 8,000 9,000 9,000 9,000 9,000 9,000 9,000

6,000 6,000 8,000 8,000 9,000 9,000 9,000 9,000 9,000 9,000

Average Staff Benefits per Staff per Year 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000


Baa Atoll

Maldives

SALARIES AND STAFF BENEFITS


P a g e | 82


P a g e | 83

STAFF STRUCTURE

For Startup

Nos Designation

Salary Rate (Rf)

Total Monthly Salary (Rf)

TYPE

1 General Manager / Marketing

3,500.00 3,500.00 Part Time

1 Manager / Accountant

3,500.00 3,500.00 Full Time

1 Cashier

2,000.00 2,000.00 Part Time

3 Field Officers

3,500.00 10,500.00 Full Time

6 Total 19,500.00 -

5. Fixed Assets and Investment Schedules

Year 0

Cost Additions Depr Acc Depr NBV Additions Depr Acc Depr NBV Additions Depr Acc Depr NBV Additions Depr Acc Depr NBV

Buildings 5% 100,000 - 5,000 5,000 95,000 - 5,000 10,000 90,000 - 5,000 15,000 85,000 - 5,000 20,000 80,000

Furniture and Fittings 20% 30,000 - 6,000 6,000 24,000 - 6,000 12,000 18,000 - 6,000 18,000 12,000 - 6,000 24,000 6,000

Rafts & Other Floating Accessories 20% 498,376 - 99,675 99,675 398,701 - 99,675 199,350 299,026 - 99,675 299,026 199,350 - 99,675 398,701 99,675

Workshop Tools & Equipment 10% 98,328 - 9,833 9,833 88,495 - 9,833 19,666 78,662 - 9,833 29,498 68,830 - 9,833 39,331 58,997

Vessels & Vehicles 10% 95,000 - 9,500 9,500 85,500 - 9,500 19,000 76,000 - 9,500 28,500 66,500 - 9,500 38,000 57,000

Total 821,704 - 130,008 130,008 691,696 - 130,008 260,016 561,688 - 130,008 390,024 431,680 - 130,008 520,032 301,672

Year 4Depr Rate

Year 1 Year 2 Year 3

Additions Depr Acc Depr NBV Additions Depr Acc Depr NBV Additions Depr Acc Depr NBV Additions Depr Acc Depr NBV Additions

Buildings - 5,000 30,000 70,000 - 5,000 35,000 65,000 - 5,000 40,000 60,000 - 5,000 45,000 55,000 -

Furniture and Fittings 39,000 - 30,000 39,000 - 7,800 37,800 31,200 - 7,800 45,600 23,400 - 7,800 53,400 15,600 -

Rafts & Other Floating Accessories 647,889 - 498,376 647,889 - 129,578 627,954 518,311 - 129,578 757,532 388,733 - 129,578 887,109 259,156 -

Workshop Tools & Equipment - 9,833 58,997 39,331 - 9,833 68,830 29,498 - 9,833 78,662 19,666 - 9,833 88,495 9,833 -

Vessels & Vehicles - 9,500 57,000 38,000 - 9,500 66,500 28,500 - 9,500 76,000 19,000 - 9,500 85,500 9,500 -

Total 686,889 24,333 674,373 834,220 - 161,711 836,083 672,509 - 161,711 997,794 510,799 - 161,711 1,159,504 349,088 -

Year 6 Year 7 Year 8 Year 9

Additions Depr Acc Depr NBV

- 5,000 50,000 50,000

- 7,800 61,200 7,800

- 129,578 1,016,687 129,578

- 9,833 98,328 (0)

- 9,500 95,000 -

- 161,711 1,321,215 187,378

Year 10


P a g e | 84

6. Calculation of NPV and IRR

STATEMENT OF PROJECTED FEASIBILITY


CASH IN FLOW: 1,621,704 244,253 524,033 1,492,541 1,564,233 1,640,500 1,721,707 2,196,837 2,319,851 2,451,777 2,593,379

CASH OUT FLOW:

Capital Investment - - - - - 686,889 - - - -

Others - 553,631 627,693 738,398 813,925 889,475 961,799 1,141,497 1,288,444 1,417,934 1,617,240

NET CASH FLOW - (309,379) (103,660) 754,143 750,309 751,026 73,019 1,055,340 1,031,407 1,033,843 976,140

Net Cumulative Cashflow (beg. of the year) - 430,000 120,621 16,961 771,104 1,521,413 2,272,439 2,345,457 3,400,797 4,432,204 5,466,047

Net Cumulative Cashflow (end of the year) - 120,621 16,961 771,104 1,521,413 2,272,439 2,345,457 3,400,797 4,432,204 5,466,047 6,442,187


P a g e | 85

Net Disc. Factor PV's of Disc. Factor PV's of

Cashflow 10.75% Cashflows 12.0% Cashflows

Year 0 (1,621,704) 1.00000 (1,621,704) 1.00000 (1,621,704)

Year 1 (309,379) 0.90293 (279,349) 0.89286 (276,231)

Year 2 (103,660) 0.81529 (84,513) 0.79719 (82,637)

Year 3 754,143 0.73615 555,165 0.71178 536,784

Year 4 750,309 0.66470 498,730 0.63552 476,835

Year 5 751,026 0.60018 450,750 0.56743 426,152

Year 6 73,019 0.54192 39,570 0.50663 36,993

Year 7 1,055,340 0.48932 516,400 0.45235 477,382

Year 8 1,031,407 0.44182 455,701 0.40388 416,568

Year 9 1,033,843 0.39894 412,440 0.36061 372,814

Year 10 976,140 0.36022 351,621 0.32197 314,291

Net Present Value 1,294,812 1,077,248

Internal Rate of Return 20.71%


Baa Atoll

Maldives

NPV AND INTERNAL RATE OF RETURN AND PAYBACK PERIOD


P a g e | 86

Payback Period Calculation

Period Amount Balance

Year 0 (1,621,704.00) (1,621,704.00)

Year 1 (309,378.69) (1,931,082.69)

Year 2 (103,659.88) (2,034,742.57)

Year 3 754,142.94 (1,280,599.62)

Year 4 750,308.83 (530,290.80)

Year 5 751,025.60 220,734.80

Year 6 73,018.56 293,753.36

Year 7 1,055,339.84 1,349,093.21

Year 8 1,031,407.23 2,380,500.43

Year 9 1,033,842.75 3,414,343.18

Year 10 976,139.68 4,390,482.86

Payback Period 4.7 years


P a g e | 87

Accounting Ratios & Key Financial Indicators


Return on Assets Ratio -54% -40% 52% 34% 25% 23% 22% 18% 15% 12%

Gross Proft Margin Ratio 12% 48% 78% 78% 76% 76% 76% 76% 76% 76%

Return on Equity of Members Contribution -55% -29% 78% 78% 78% 92% 112% 109% 109% 102%

Return on Capital Employed -54% -40% 52% 34% 25% 23% 22% 18% 15% 12%

Return on Sales Ratio -180% -45% 42% 40% 38% 43% 41% 37% 36% 31%

Net Present Value at 10.75% 1,294,812

Net Present Value at 12% 1,077,248

Internal Rate of Return 20.71%

Payback Period 4.7 years


Baa Atoll

Maldives

ACCOUNTING AND PROFITABILITY RATIOS


P a g e | 88

Conclusion The analysis of the project shows that the investment is financially feasible and highly viable. According to the above financial projections, the business is not expected to make any profits in the first two years. However, a profit of Rf. 624,000 is expected for the third year of operations. Substantially higher profits are expected in subsequent years during the forecasted period. Net cash flow is also expected to be negative during the first two years. The projections show a healthy cash flow from the 3rd year onwards. Dividends can be paid to members each year from the 3rd year onwards. The baseline discount rate used in the projections was at 10.75% p.a, which is the assumed and expected cost of capital for a community owned business of this nature. The Net Present Value (NPV) of the project for a 10-year period at a 10.75% discounting factor resulted in a positive value of US$ 1,294,812.00 and a payback period of 4.7 years at present value cash flow. Internal Rate of Return (IRR) is 20.71%. The analysis was further subjected to a sensitivity analysis using a discount factor of 12% which would be higher than the expected cost of capital and the results still continued to be positive at US$ 1,077,248.00 The return on equity (RoE) to the members is expected to remain negative during the first two years and picks up with the sale of pearls from the farm’s first harvest in year 3 (with an RoI of 78%). The ten year average is expected to be in the range of 67% per year. This is a very high return on equity even with such conservative estimates. Similarly, return on capital employed (RoCE) remains negative and becomes positive from the 3rd year onwards. The RoCE declines because the projections do not assume any payments of dividends and hence the capital of the company continues to grow faster than the increasing profitability.


P a g e | 89

It must be noted that the above figures and analysis have been undertaken only for a period of 10 years and that the returns on the investment are expected to be even higher beyond the projected 10 year period. Hence, based on the above results and subject to the assumptions made, the proposed pearl farming business appears to be attractive and financially feasible with numerous socio-economic benefits to the Thulhaadhoo community. References Andy Müller, Kobe/Japan (2009). A brief Analysis of the Global Seawater Cultured Pearl Industry (Past, Present, Future). The European Gemmological Symposium in Berne, Switzerland C.A. Tisdell & Bernard Poirine (2008). Socio-economics of pearl culture: Industry changes and comparisons focusing on Australia and French Polynesia. . . . Aquaculture Economics and Management.

Maria Haws, Ph.D.(2002) The Basic Methods of Pearl Farming: A Layman’s Manual. Center for Tropical and Subtropical Aquaculture Publication No. 127 Marine Research Centre (2009) Mariculture Report 1999-2009.Final Document. Marine Research Centre (2009) Pearl Culture Demonstration, Extension and Marketing Project. Draft Final Report.

Marine Resources Division (2006) Pearl Oyster: Information Bulletin. Secretariat of the Pacific Community


P a g e | 90

Ministry of Tourism, Arts and Culture (2010) Toursim Year Book. Ministry of Tourism, Arts and Culture. Republic of Maldives T.Yamamoto & Hideyukitanaka (2007). Potential development of Mabe Pearl Farming in Vava’u Islands , Kingdom of Tonga.

4cd24817c0ed8_Busines and Feasibiliy Study on Pearl Farming

Documents