Maendeleo Resorts Business Plan Version 3

8/12/2019 Maendeleo Resorts Business Plan Version 3

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Maendeleo Resorts Limited

The Royal Dhow - Zanzibar

A Business Plan and Financial Feasibility for A Luxury Concept Resort Hotel at Fumba

Stephen Oehley - Mobile +27 84 800 9119 March 2004


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THIS WORKING PLAN IS PREPARED AND UPDATED BY MAENDELEO PROJECTS (PTY) LTD FOR MAENDELEO RESORTS LIMITED AND THE FUMBA FOUNDATION LIMITED ZANZIBAR FEBRUARY 2004 VER3

combination of debt and equity according to their own risk and return

profiles. The resort itself will yield at least 10% return on capitalemployed based on a debt equity split of US$13m / US$9m

respectively. These returns are subject to change based on the

specific investor requirements,

The Guest experience will be memorable, differentiated by a

commitment to service and an uncompromised presentation of

quality and standards. In addition, Guests shall be offered

personalised itineraries. These offerings will ensure that each

Guest's expectations are met, professionally executed and managed

and provide the opportunity for Guests to realistically claim a holistic,

meaningful and memorable Zanzibar experience. (See operatingand Design criteria).

A project team of development professionals has been assembled

all of whom have international development credentials. These

include veteran hotel development consultant - Mr John

Zimmerman, project managers - @Hart Property Development, cost

controllers -McIntosh Latilla Carrier & Laing, construction partners -

Murray & Roberts Developments, architects - Eugene Barnard &

Associates, civil and structural engineering consultants - DNS

Consulting, environmental specialists - Dr. Richard Cohen of CEN

Integrated Environmental Management Unit, technical consultant -

Johnny Smit, design consultants - Black Moon Studios, Martin Fine,Regional Manager for Tanzania of the Protea Hospitality

Corporation, corporate financial advisors - Executive Consulting and

financial and other consultants.

The resort development is presented as independently as possible

of state utilities in design and strives to presents a model for African

coastal sustainable development.

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MANAGEMENT & PARTNERS

STEPHEN OEHLEY

Stephen has over twenty years experience in business and has

focused on blue chip business development and marketing.

Following 10 years experience in the trade and technical publishingand advertising industries, Stephen established Digital Synergy (Pty)

Ltd, a design and communications services company. Stephen

managed and directed the company from 1990 until 2001 during

which time he produced solutions for corporate and parastatal

clients. These included Iscor Mining, (now Kumba Resources), JCI,

Voltex, Telkom, PPC Cement, the Council for Scientific and

Industrial Research and the Southern African Development

Community .

Stephen, his wife Belinda and family will emigrate to Fumba to serve

stakeholder interests and plan to contribute to communitydevelopment projects in the locality.

JOACHIM JOHN ZIMMERMANN

John Zimmermann is highly regarded as an international expert in all

aspects of food and beverage operations and has over 35 years of

experience in the hospitality industry. During this time, he has been

involved in the opening of over 40 hotels and has established a

worldwide reputation for everything from innovative food and

beverage concepts to efficient and cost-effective kitchen designs.These have been created for a wide range of developments, both

International and for Southern Africa Regions. Some of the more

prestigious developments include: The Ciragen Palace and Hotel in

Istanbul, The Sun City Hotel and Casino Complex, including the

Palace at the Lost City, A 3000 seat Convention Center in

Mmabatho, The luxury passenger liner S.S. Astor, operated by

Safmarine, The Sir S Ramgoolam Airport in Mauritius, Hotel

Management School in Mmbatho (an offspring of Belvoir Park,

Zurich), Hotel St. Geran in Mauritius

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John Zimmermann has been involved in the conceptual planning,

design, development and refurbishment of some of the most excitingHotel Projects in Southern Africa and the Indian Ocean Island hotels

that has included no less than eight 5 star City Hotels, twelve Casino

Hotels, five Resort Hotels and over fifteen major refurbishments

In January of 1993, in response to a growing demand for his

expertise, John Zimmermann decided to leave corporate life and

formed his own consultancy, John J Zimmermann and Associates

C.C., which is based in Johannesburg.

John brings a wealth of creative and professional expertise to the

project and shall directly influence and manage aspects of design,development and management through present stage, pre-opening

to opening and management installation. Johns Profile and Career

Portfolio are provided in the Addenda - Profiles

TREVOR t HART

Trevor has over twenty years experience in the field of project

management and civil engineering. His work ethic and dedication

were clearly demonstrated early in his working career by achieving

top place in his third year of civil engineering at Wits Technikon while

maintaining a job at Savage and Lovemore as Site Engineer and

Surveyor.

After completing his NDP in 1982, Trevor worked as Site agent for

various companies before accepting the appointment of Project

Manager for MLC Bonnet in 1990. During this time he completed

his MDP in Project Management through UNISA. He later joined

Sun International as Development Manager where he worked for 7

years before founding @HART PROPERTY DEVELOPMENT in

2002.

WAYNE TWIGG

Wayne qualified as a Chartered Accountant in 1996. He served his

articles with Ernst & Young between 1991 and 1994. After six yearsin corporate audit, a further two years in the Management Consulting

division, and time at Abbey National Bank Plc in the United

Kingdom, he founded Executive Consulting in 1999.

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For the past five years Wayne has been involved in consulting on

business and process restructuring with a focus on improving

profitability and gaining additional funding for companies. He alsoserved on the board of directors of MKN Equity, a private equity

fund.

Wayne is a member of the South African Institute of Chartered

Accountants and the Institute of Directors in South Africa. He serves

as the honorary auditor of Wycliffe, South Africa and Summer

Institute of Linguistics, South Africa. He is a trustee of OMF

International (Southern Africa) where he is a member of the

executive committee and chairs their finance committee.

ABDUL-HAKIM AMEIR ISSA

Abdul-hakim was awarded his Honours in 1999 after completing a

BA LLB at the National Law School of India in Bangalore. Other

qualifications include:

Stage en Linguistique et Methodologique de Francais undertaken

at the University of Burundi, a Company Directors Course in

Corporate Governance conducted by the Commonwealth

Association for Corporate Governance in Nairobi and Mutual

Evaluation Techniques For Anti Money-Laundering and Combatingthe Financing of Terrorism conducted by the Eastern and Southern

Africa Anti Money-Laundering Group in Bagamoyo.

Abdul-hakim is fluent in Kiswahili, French and English and practices

as State attorney in the Attorney Generals Chambers on Zanzibar.

He presently serves as a member of the Zanzibar Labour Laws

Reform Committee, on the Board of Directors of the State Fuel and

Power Corporation and as a member of The Medical Council Board.

He has also served as a member of the Quality Assurance Team for

Country Financial Assessment and Accountability conducted in

2002/3.

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BACKGROUND OF ZANZIBAR

The name Zanzibar is well known and ranks as "one of those exotic

world destinations" that everyone would like to visit. However few

people actually know where the island is and even fewer that is part

of Tanzania. Historically known as Unguja Island, Zanzibar is a coral

island connected to the mainland by a narrow submerged shelf and

lies about forty kilometers offshore east of Dar es Salaam on the

Tanzanian mainland. It measures about 110km by 40km. Annual

rainfall averages 1,500 mm with long rain between March and May

and short rains between October and December. Temperatures

moderated by sea breezes are fairly constant year round averaging

between 24 c and 29 c . The island was originally covered bytropical high forest 95% of which is now gone. The only remaining

forest is Jozani that is a protected reserve.

The population of the Archipelago is estimated at just over 813,000.

Although there is a cosmopolitan grouping in Stone Town on

Unguja, there are three principle indigenous ethnic groups, The

Hadimu, Tumbatu and the Pemba. Members of the non-African

population are primarily Shirazi who consider themselves

descendants of immigrants of Shiraz in Persia (Iran).

Most Zanzibari are SunniMuslims. Zanzibari claiming

direct descent from Omanis

follow Ibadhism. Christians

barely comprise 1% of the

population.

Zanzibar shares foreign and

monetary policy, postal and

telecommunication systems

and defense policy with the

mainland. There are two major political parties, the ruling CCM partyand CUF that draws most of its support from Pemba.

Zanzibar not only offers the visitor miles of white sand and blue

water but also has many places of historical interest. The island

holds out in addition world-class snorkeling, scuba diving and deep

sea angling opportunities. This serves to enlarge the Tourist

potential by offering history, culture, adventuring and exploring the

natural beauty of the islands resources.

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INTRODUCING THE MAENDELEO RESORT

The resort is envisaged as a welcoming, elegantly designed and well

built facility offering a spacious, cool and tranquil atmosphere with

efficient first-class guest-orientated service. The hotel will feature

voluminous use of space and water with sparse select dcor of great

beauty. There are 120 guest rooms each with magnificent sea

views. Of these, two Plantation luxury suites, four Peninsula Estate

suites and a mix of deluxe and standard accommodations with one

unit designed to facilitate accessibility for the disabled are planned.

The rooms will be interconnected to a central services facility by

boardwalks. This central facility will include all back of house supportinfrastructure, conference facilities, restaurants, lounges, shops, a

gymnasium, games room, library, a huge pool and bars and social

entertainment areas.

The construction will have a minimalist footprint and consequent low

impact on the environment and support infrastructure will include

road construction, alternative power generation and efficiency

management, water boreholes, reservoirs and purification, sewage

treatment, waste separation, compaction and management,

perimeter security fencing and maintenance infrastructure and

support.

The resort will be marketed and managed by outsourced partners

who will be required to commit to training and development and the

project will create at least 150 permanent employment opportunities.

Transport to and from the ports will be provided and excursions to

Stone Town and other places of interest facilitated. Swimming,

tennis, a social activity and entertainment calendar, cruises, diving,

angling and other water excursions from custom-built dhow craft

commissioned locally will be offered assisting local endeavours,

employment and empowerment at every opportunity.

The resort is planned within an existing free economic zone

(ZAFREZA) offering substantial incentives to developers. Details of

ZAFREZA are contained in ADDENDUM G : ZANZIBAR FREE

ECONOMIC ZONES AUTHORITY (ZAFREZA)

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MARKET RESEARCH

STRUCTURE OF THE TOURISM SECTOR

Despite its considerable potential, the tourism industry in Zanzibar is

relatively small. According to figures compiled by the Commission

for Tourism, there are currently 159 tourist accommodation

establishments, with a total of 2 979 rooms and 5 945 beds onUnguja,

In 1998, less than one-fifth of all beds were in 4 or 5 star properties,

and a further one fifth in 3 star properties. Most properties and 37 %

of all beds in 1998, are in unclassified establishments. This implies

that the bulk of tourist accommodation - probably as much as 60 %

of the total - is suitable mainly for budget travelers or backpackers.

There has been relatively little new investment in the

accommodation sector in recent years and, notwithstanding the

large number of projects that have been approved by ZIPA, only onemajor project (which will add another 400 rooms by 2004 and a

further 200 rooms in a second phase), is presently under

construction.

Outside the hotels, there are approximately twenty restaurants of

international standard, with several new high quality establishments

opened in Stone Town in the past few years.

DEMAND CHARACTERISTICS

Tourist Arrivals

According to statistics compiled by the Zanzibar Commission for

Tourism, a total of 76 329 tourists visited Zanzibar in 2001

( ADDENDUM A : TOURIST ARRIVALS BY NATIONALITY) ,

compared with 97 165 in 2000 - a decrease of 21 %. The decrease

was due partly to the adverse publicity received by Zanzibar

following the civil disturbances in January 2001 and partly to the

worldwide downturn in tourism following the events of 11th

September 2001.

These figures exclude domestic tourists visiting Zanzibar from themainland as well as foreign tourists arriving in Zanzibar on internal

air services. The true number of tourists visiting Zanzibar could

consequently be considerably greater than the official statistics

suggest.

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Market Segmentation

Europeans accounted for 70 % of total arrivals in 2001, with the

remainder divided between North America (8.3 %), Africa (9.8 %)and Rest of World (11.9 %). Within Europe, the main source

markets are Italy and Britain, which together accounted for 36 % of

total arrivals in 2001.

The main regional markets for Zanzibar are South Africa (3 121

arrivals in 2001) and Kenya (2 025 arrivals, mostly business visitors).

While mainland Tanzania has limited market potential for vacation

travel from South Africa, Zanzibar (while competing with Mauritius

and the Maldives) has generated an increase in South African

visitors for beach, diving and fishing vacations. The East African

expatriate market, concentrated in Nairobi and Mombassa, alsooffers good potential.

The Tanzania domestic market is growing and, though presently

limited in size for Zanzibar, it has some potential for development in

the short term, including Tanzanian residents with high disposable

incomes; expatriate residents living in Dar es Salaam and other

cities; VFRs of expatriate residents; conference and meetings; and

group travel by schools and clubs.

How do they come?

In 2001, some 53 % of all tourists arrived by air and the remaining

47 % by sea. Cruise ships made a total of 29 calls with a total of4 857 passengers.

How long do they stay?

The average length of stay for all categories of visitors is estimated

to be five nights in 2001*.

When do they come?

In 2000, 44 % of all visitors came in the period July to October

inclusive, compared with only 13.5 % in April-June.

How much do they spend?

The average daily expenditure was estimated at $120 per person for

2001 (for the peak season).

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ZANZIBAR'S MARKET PERFORMANCE

Competing Destinations

Compared with other destinations in eastern and southern Africa,

Zanzibar receives a very small market share. According to WTO

statistics, Zanzibar received less than one-quarter of the number of

persons who visited Reunion in 1998, less than one-fifth of the

visitors to mainland Tanzania and less than one-sixth of visitors to

Mauritius. Details are shown in ADDENDUM B : INTERNATIONALTOURIST ARRIVALS IN SUB-SAHARAN AFRICA

The number of visitors to Zanzibar is also very small compared with

competing island destinations in the Caribbean which, with in many

cases a more limited tourist product confined largely to beaches,

enjoy high standards of living due mainly to their highly developed

tourism industries.

Based on tour operator research, the structure of the European long-

haul market to sub-Saharan Africa is estimated to be

15% beach holidays only;40 % beach and safari;

16 % single destination safari/sightseeing;

17 % dual/multiple destination safari/sightseeing; and

12 % soft adventure

TOURIST ATTRACTIONS

Tourist attractions, together with access, accommodation and other

services, are the main features that distinguish one touristdestination from another.

Visitors select a destination mainly because of its primary attractions

i.e. attractions that have significant appeal and drawing power.

When they have made their decision to come to Zanzibar, the

objective is to get the visitors to stay as long as possible and to

encourage them to spend as much as possible during their visit by

providing a wide range of secondary attractions i.e. additional things

to do and see.

Because of its richly evocative name, Zanzibar already has a headstart in the minds of many travelers. Its historical and cultural legacy,

tropical climate and idyllic beaches and islands hold out opportunity

to invite travelers that have history in common with the island.

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Stone Town, with its wealth of historical buildings and traditional

Swahili culture, is Zanzibar's key, unique attraction.

The tourist product is further enhanced by a rich marine environmentcharacterised by coral reefs suitable for snorkeling and diving,

offshore islands and coral reefs, such as Changuu, Chumbe, and

Mnemba, big game fish, sea turtles and dolphins, sand beaches and

extensive water areas.

Tours to spice plantations depend on the degree of knowledge of the

tour guide or taxi driver. A knowledgeable guide or driver will result

in an experience that is both enjoyable and educational. Visits to the

Agricultural Experiment Station will also be of interest to visitors.

Jozani Forest provides a habitat for the endemic Red Colobus

monkey. Additionally, the forest offers a diverse, visually interesting

experience in the last remnant of Unguja's native forest vegetation.

Other sites and attractions, which are often included in island tours

and excursions, include the ruins of Maharubi Palace, the Mtoni

Slave Chambers, the ruins of Mtoni Palace, the Kidichi and

Kizambani Persian Baths and the Mangapwani Slave Cave.

The best known and distinctive arts activity in Zanzibar is carving,

especially production of wooden chests and doors, which has now

been expanded to include picture frames, miniature doors, chests,

other furniture and brass, copperware and jewelry. An indigenous

form of 'Tinga Tinga' art is available along with Makonde Carving

sold in the street markets and shops of Stone Town.

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MARKET POTENTIAL AND GROWTH PROJECTIONS

In 2001, according to data compiled by the Commission for Tourism

data, Zanzibar received a total of some 76 000 foreign tourists. To

this number must be added an allowance for foreign visitors

(including expatriates resident in Tanzania) traveling to Zanzibar on

internal flights (estimated at around 15 000 persons in 2001) and

domestic visitors from the mainland (estimated at around 30,000persons) who are not at present included in the official visitor arrival

statistics. This gives an estimated total of about 121 000 tourist

arrivals in 2001, plus just fewer than 5 000 cruise ship visitors.

Having fallen sharply in 2001, visitor numbers are expected to show

a substantial recovery in 2002. Thereafter, between 2003 and 2012,

an average target growth rate of around 6 % per annum has been

provisionally assumed for most categories of visitors.

On the basis of these assumptions, total tourist arrivals are

provisionally projected to reach 220 000 persons by 2012. Of thisnumber, the great majority is expected to be holiday/leisure visitors,

with business visitors expected to come mostly from mainland

Tanzania.

Based on a projected demand of around 1.2 million bed-nights by

2012, the total room requirements (assuming an average room

occupancy rate of 60 % and 1.7 persons per room) would be for

around 3 200 rooms, of which at least 2 500 would need to be of

international standard.

Of the estimated 2 500 international standard rooms required by

2012, some 1 200 rooms are currently available in 3-star or betterproperties that are operating to acceptable or near acceptable

international standards, and approximately 800 rooms are currently

under construction, or planned to be provided in the next few years.

The remaining 500 rooms will be required by 2012.

Tourism in Zanzibar is characterised by a surfeit of low quality

'backpacker' type accommodation that falls below international

standards. Analysis of the current situation indicates that, of the one

hundred and seventy one developments operating on Unguja Island,

72% (123) have not been given grades by the Commission for

Tourism and only ten properties fall within the four or five starcategory.

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The un-adopted Tourism Policy Statement (1997) produced by the

Commission For Tourism states that tourism should be culturally and

environmentally sensitive and based on fewer high spending

tourists. Services provided should be of the highest quality and mass

tourism should be rejected. This view has been widely supported in

discussions with various players in the public and private sectors.

Historically this assertion has been supported by the InvestmentProtection Act 1989 which set out to limit the lower levels of

investment, thereby encouraging 'quality' development.

Chart 1 : Tourist Accommodation by Grades on Unguja Island

No Grade72%

1 star 7%

2 star 13%

3 star 2%

4 star 3% 5 star 3%

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A breakdown of the significant competitor hotels and their pricing is

shown in ADDENDUM D : COMPETITOR ANALYSIS.


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MARKETING STRATEGY

In overall terms, the major source markets for vacation travel to

Zanzibar will continue to be the European markets, especially UK,

Italy, Scandinavia, Germany, France, the Netherlands and

Switzerland. The U.S. market is considered to have less growth

potential in the short-term - partly because comparatively few

Americans visit Zanzibar as a stand-alone destination and partly

because Americans are less likely to wish to travel overseas in the

present uncertain geo-political climate.

The main marketing effort will be focused on the more affluent

sections of the major European markets. Other markets should beserviced mostly via the Internet. This prioritisation of markets has

implications for overseas representation and trade fair participation.

The Resort will package to develop niche markets where it has a

comparative advantage, namely diving and other water sports;

deep-sea fishing; cultural tourism; eco-tourism; honeymoon market;

and smaller conferences, meetings and incentive travel.

Special promotions will be undertaken to increase occupancy levels

during the off-season, including the development of attractively

priced packages aimed at the domestic and regional markets.

MARKETING PLAN

INTERNATIONAL MARKET

International Incentive Groups

Markets will be targeted in conjunction with an outsource partner

responsible for marketing the hotel. Such a partner will be selected

partly for their international networks and ability to reach what areperceived to be the key markets. It is essential that the resort is able

to reach In-bound traffic to Sub Saharan African destinations through

sales representatives in London, Germany, Italy, France, Egypt and

North America. The resort will be marketed at all the major

International Trade Shows.

International Groups

Zanzibar is a popular destination with the main European Markets.

The South African Market has only just started to open out. It must

be remembered that prior to 1994 South African Passport holders

were not allowed entry. The purchase of Air Tanzania by South

African Airways who effectively take over the airline in December will

facilitate the introduction of Group travel from Johannesburg to the

Island. This is the fastest growing section of the market out of South

Africa.

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International Individual Tourists

This market is an important market, particularly from Europe. The

tendency today is for the Travel Agent and Tour Organizer to book

one company that can offer a bouquet of experience at their hotels,

this capacity will also be a consideration in choosing an outsource

partner.

The International Incentive Groups

This sector is seen as an important niche market particularly from

South Africa and Europe. The outward-bound incentive conference

market from South Africa alone is estimated to be worth more than

$50 million. This market is currently visiting Mauritius, Seychellesand the Islands of the Maldives.

DOMESTIC MARKET

Local Conference Market

Usually financed by NGO & International Funders, the value of thismarket is estimated to be worth more than $20 million per year to the

Tanzanian Hotel Market.

Domestic Tourism

Ambassadorial, United Nations and NGO's make up a local Tourist

market of 10 000 visitors all of whom tour the Country and stay inresort style hotels. The business sector of Tanzania accounts for

more than 500 000 bed nights in resort hotels (figures are supplied

from the

Tanzanian

Hoteliers

Association)

A significant

portion of

the

operational

marketingplan will be

developed by the outsource partner chosen to operate the resort.

Part of the selection criteria will be the strength both of their plan and

their perceived ability to implement the plan. In selecting outsource

partners, management have approached a number of potential

partners, the most significant of these being Protea Hotels who have

demonstrated their willingness to participate in this venture.

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WHY WILL THE RESORT BE SUCCESSFUL?

Location

White sand blue water beach location

Close Proximity to entry points Airport & Ferry Terminal.

Close Proximity to Stone Town

Quality Accommodation

The market needs quality accommodation most resorts are poorly

designed and badly built with the exception of the Protea Mboweni,

Serena, Blue Bay and Breezes.

The Power of the Brand

A powerfully branded operator will assist in providing credibility and

drawing guests to the resort.

Zanzibar and Tanzania

Zanzibar and Tanzania are one of the fastest growing Tourist

Destinations after South Africa in Sub Saharan Africa.

INFRASTRUCTURE

Zanzibar International Airport (ZNZ)

The airport has a 2.462m runway that in 2001 handled 68 342

international passengers in 1 795 movements (42 633 were non-

scheduled services). The domestic passenger services handled 90

910 passengers in 2001 (77 224 passengers in non-scheduled

services) by a total of 1 036 aircraft movements.

The design process for extending the runway to 3 000 m (US$ 2

million investment) and resurfacing the existing runway (US$ 2.4

million) are expected to be completed by the end of 2004. (World

Bank). Civil work is expected to commence March/April of 2004.

The terminal building is now being designed so as to separate

domestic and international traffic and to plan for an overall

upgrading. Implementation is anticipated for 2004, subject to

securing a loan to finance the project.

Labour and Supplies

There is a significant labour pool from the villages of Fumba and

neighbouring Bwelio to provide labour resources for the

development. There are commercial poultry rearing, fishing and

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farming activities in the district initiated by local residents with whom

supply agreements can be reached.

There is abundant loose alluvial coral rock in Fumba, which can be

crushed for a variety of building aggregate applications.

Local people and builders have indicated a plentiful supply of

potable water at shallow depths that can be treated and pumped toelevated reservoirs for

distribution to points of

requirement. Geotech analysis

will establish salinity and

suitability for purpose.

There is an existing electricity

supply that passes through the

property under lease and an

accessible water pipeline

(indicated on the waterengineering grid) from which the raw water reservoir can be

replenished.

There is adequate land for horticulture and other agricultural

activities. For example: the cultivation of a fresh produce market

garden.

There is a sand quarry approximately eight km from Fumba and

there are engineering contractors and locally available plant and

earthmoving equipment for civil works.

Cement is transported from Tanga on the Mainland.

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FINANCIAL PLAN

Maendeleo Resorts commissioned McIntosh Latilla Carrier & Laing,

quantity Surveyors & Construction Consultants to prepare costings

to build a five star 120 key Hotel. These together with forecasts on

operating costs that have been independently reviewed, have

together been assimilated as the basis for the financial plan and

capital requirements.

CAPITAL REQUIREMENTS

In addition to the US$2 million invested, the cost to build the Resort

will amount to US$9,25m. An additional $9.25m is necessary to

acquire the furniture and equipment, $1m is required for pre opening

expenses and $0,5m for capitalised interest. The total of $22m

amounts to 183 333 per key.

Maendeleo Resorts will raise this capital using a combination of both

debt and equity in such a manor as to facilitate equitable returns tothe providers of capital having regard to the risks associated with

such an investment.

The split between debt and equity together with the expected yields

the project will be able to provide are shown in the table below.

Table 1 Captial Requirements

Capital Type Amount Yield

Long Term Debt 13 000 000 8%

Equity 9 000 000

The Industrial Development Corporation in South Africa have

expressed an interest in providing the debt funding in the form of a

capital export loan. (ECIC). While an initial term sheet was obtained,

this is presently being revisited. Any remaining debt finance will besought from a combination of suppliers and conventional installment

sale arrangements.

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An equity partner who will add value to the Resort in the form of

expertise and influence will be sought. The return on investment

that such a partner will require will be achieved through one or more

of the following mechanisms:

An exit plan between 10 and 15 years at a fixed priceearning ratio

Preferential earnings

Convertible Stock

Based on the debt equity ratio in Table 1, the resort will provide a 10-

year return on Investment of 14%, while yielding 11.6% return on

capital employed. These returns are considered conservative and

take into account the following key assumptions:

Occupancy levels of 55%, 60%, 65%, 70% in the first threeyears respectively with an ongoing sustainable level of70% thereafter.

Inflation of 3%

Overheads of 8% of turnover

Marketing of 5% of turnoverDetailed assumptions are contained in ADDENDUM L : FINANCIALFEASIBILITY.

SUMMARY FINANCIAL DATA

Table 2 Summary Financial Information

Years3 5 10 15

Revenue 4980 10621 12313 14274

EBITDA 3787 4318 4990 5702

Attributable earnings 1517 2521 3224 4654

Net Free Cash 842 441 5279 8650

Return on Capital Employed 12% 16.7% 9.5% 6.3%

Return on Investment 10.2% 19.3% 11.7% 10%

Internal Rate of Return 21.1%

The table above represents an achievable budget with respect to

containing operating costs and maximising revenue through effective

management and marketing.

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A worse case scenario is reflected below indicating the robustness

of the hotel to fluctuations in occupancy. The table below represents

a 10% lower occupation level in each year. Such occupancy levels

will result in the Resort operating at levels that are profitable, but

yield very low returns for the first 15 years.

Table 3 Worse Case Financial Data

Year3 5 10 15

Revenue 7949 8998 10431 12092

EBITDA 3178 3672 4242 4904

Attributable earnings 873 1788 2227 3418

Net Free Cash 198 (292) 4282 (9985)

Return on Capital Employed 9.5% 15.9% 9.4% 6.3%

Internal Rate of Return 13%

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ADDENDUM A : TOURIST ARRIVALS BY NATIONALITY

Table 4 Tourist arrivals by nationality

Europe

Italy Britain Other

Europe

Total

Europe

North

America

Other

Africa

Rest of

World

Total

1995 8 922 10 391 18 882 38 195 4 804 6 680 6 736 56 415

1996 13 502 11 909 23 669 49 080 5 682 6 388 8 009 69 159

1997 19 583 14 884 26 471 60 938 7 603 8 022 9 932 86 495

1998 23 505 13 765 25 152 62 422 7 699 6 293 10 041 86 455

1999 23 279 14 141 24 939 62 359 6 745 6 367 11 447 86 918

2000 25 764 16 307 29 368 71 439 7 757 8 718 9 251 97 1652001 14 510 13 147 25 738 53 395 6 328 7 500 9 106 76 329

Source: Zanzibar Commission for Tourism

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ADDENDUM B : INTERNATIONAL TOURIST ARRIVALS IN SUB-SAHARAN AFRICA

Table 5 : Tourist Arrivals in Sub-Saharan Africa

International Tourist arrivalsDestination

Number (000) % share

South Africa 5,981 47

Zimbabwe 1,600 13

Kenya 951 8

Botswana 740 6

Mauritius 558 4

Namibia 560 4

Tanzania (incl. Zanzibar) 447 4

Reunion 377 3Zambia 362 3

Swaziland 325 3

Uganda 238 2

Malawi 205 2

Seychelles 128 1

TOTAL 12,344 100

Zanzibar (86) (0.7)

Source: World Tourism Organisation

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ADDENDUM C : TOUR OPERATOR CATALOGUES

As per the tour operator survey (Market Demand Survey forTanzania, August 2002) with programs to east and central Africa

destinations, the following inclusion of destinations were found:

Table 6 Market Demand - US Tour Operators

Destinations % of Operators Destinations % of

Operators

Tanzania 100 Zanzibar 60

Kenya 100 Zimbabwe 50*

Malawi 30 Namibia 50

Zambia 40 Uganda 40

Botswana 50 Mozambique 10

Madagascar 10

*Dropped considerably since the year 2000

Source : Market Demand Survey for Tanzania, August 2002

70% of the tour operators interviewed considered the tour program

Serengeti / Ngorongoro and Zanzibar to be popular, whereas 20%found Kenya Beach and Serengeti / Ngorongoro to be popular.

While the US tour operators sell Zanzibar, most of their market is not

looking for beach holidays, instead they are more interested in small

and mid-scale character filled hotels in Stone Town.

Table 7 Market Demand - European Tour Operators

Destinations % of

Operators

Destinations % of

Operators

Tanzania 84 Zanzibar 76

Kenya 79 Zimbabwe 57

Malawi 39 Namibia 51

Zambia 45 Uganda 39

Botswana 55 Mozambique 20

Madagascar 8 Sudan 5

Ethiopia 12 Indian Ocean Islands 5

Source : Market Demand Survey for Tanzania, August 2002

69% of those tour operators interviewed found Serengeti /

Ngorongoro and Zanzibar to be popular programs while 17% opted

for Serengeti / Ngorongoro and Kenya Beach.

Italian Tour Operators

Zanzibar is extensively covered by African Explorer, Francorosso,

Turisanda, African Safari Club etc. in the Italian market. This is due

to the direct charter flights selling mainly beach holidays with

optional safari trips to the mainland.

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ADDENDUM D : COMPETITOR ANALYSIS

BB HB FB

BLUE BAY BAY BEACH RESORT

Situated midway up the East Coast possibly the best on the Island 80 rooms High Season : 1st July - 19th Dec

Single $135 $153

Double $220 $238

Low Season: 1st April - 30th June

Single $75 $93

Double $150 $168

BREEZES

Situated midway up the East Coast 80 rooms High Season: 19h Dec-31st March

Standard room Per person per day $100

Deluxe (Supplement $25 on Deluxe room only) Per person per day $120

Superior Per person per day $130Low Season: 30th April 30th June

Standard room per person per day $65

Deluxe per person per day $75

Superior per person per day $90

Mid high Season : 1st July - 19th December

Standard room per person per day $90

Deluxe (Supplement $22 in deluxe only) per person per day $110

Superior per person per day $120

MAPENZI BEACH CLUB

Situated on the east coast 45kms from the airport 60 rooms deluxe resort

Single $135

Double $176

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BB HB FB

RAS NUNGWI VILLAGE

North of the island opposite Memba Island 40 rooms just burnt down

Low Season: 1st March - 24th April & 1st Nov-10th Dec

Single $160

Double $200

Chalet room without AC

Single $180

Double $270

High Season

Single $170

Double $220

FISHERMAN'S BEACH RESORT - (now Zanzibar beach resort)

Located next to Protea Mboweni Ruins it has an excellent location but is poorly managed and run down 60

rooms

Single $100 $110 $118

Double $130 $140 $148

CLUB VACANZE

Biggest of the Italian Resorts sleeps 600 people situated on the East Coast south of Blue Bay High season - 2002

Single $133 $143 $153

Double $266 $286 $306

Low Season: April-July: the hotel close down

PROTEA HOTEL MBWENI RUINS Only 13 rooms located close to the airport and Stone town currently running at 60% the highest occupancy in 5

years.

Standard Single $95 $105 $120

Standard Double $170 $190 $220

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( )

ADDENDUM E : SWOT ANALYSIS

STRENGTHS

Zanzibar - known name

Historic and cultural legacy

Proximity to entry/exit / key tour points

Aesthetic beauty of site

Stone Town - uniqueness and cultural experience

Paradise Islands - Pemba etc.

Variety marine activities

Friendliness of the Zanzibari

WEAKNESSES

Limited Beach

Infrastructure - roads, utilities, refuse and litter

State of sea and airport facilities

Low occupancy levels - affecting viability

Ineffective security / policing

Short high season period

OPPORTUNITIES

Infrastructure improvements

Community strengthening and funding

Participate in tourism associationTraining staff - improving service standard

Product and activities improvements

THREATS

Health and hygiene risks

Increase in rooms - insufficient airlift

Terrorism and global economic slump

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HOTEL PUBLIC AREAS

Porte cohere

95% bus, 5% hire car. Parking and Porte cochere planned

accordingly.

Reception and facilities

Desk, tour operator, shop, small business center

20-seater executive conference boardroom / library

Luggage storage: external access and departure day storage.

FOH offices: Requirement - 4 plus general office.

Other offices requirements noted

Toilets

Food and beverage outlets

Buffet restaurant (150 seats)

Bar/lounge (100 seats)

Pool/beach bar (serviced)

Pool

Size: currently 450m.

Loungers, tables, umbrellas

Features: rim-flow type.

Towel service.

Storage required.

Guest entertainment

Bandstand: visible from restaurant, bar/lounge and pool bar.

Water sports

Private beaches (man-made), loungers, shade, shower, ablutions

and food and beverage service

Curio village

Health spa: in room service.Snooker/pool table: adjacent to bar/lounge.

Satellite TV: in bar for special occasions and in bedrooms.

HOTEL BEDROOMS

Guest profile

85% double, small conference, mainly tour groups

Bed mix

60% double/double - 2 x 900mm.

40% king

Room facilities

Desk/dressing table

Armoire incorporating mini bar, TV with satellite channels, tea and

coffee

Lounger chairs (2)

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Coffee table

Telephone: internal system only.

Luggage rack

Cupboard with two hanging doors and one drawer

Mini safe

Air-conditioning

Card lock system

Bathroom facilities

Bath with hand shower

Vanity with single basin

Shower

Separate toilet

Patio facilities

Size (4m X 3m)

Armchairs (2), drinks table, chaise

Room service - provided at a premium from main kitchen if required

Store rooms - used only for linen and cleaning equipment

Room quantity and mix

Total 120 keys

Paraplegic: one part of 120 keys.

Suites: 4 parts of 120 keys.

OTHER FACILITIES ON SITE

Staff housing

Senior expat staff (families)

Middle local management (single)

Junior staff (single)

Do all laundry at central laundry

Staff feeding

40 seat facility located staff village

Training

Theoretical training (2 X 20 seats)

Practical (in hotel)

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STAFF MATRIX

120 Bedrooms HousingQuantity Exec Single

1 Expat. Director 1 12 Expat. General Manager 1 13 Expat. Rooms Division Manager 1 14 Expat. Housekeeper 1 15 Expat. F&B Manager 1 16 Expat. Chef 1 17 Expat. Finance Manager 1 18 Expat. Training Manager 1 19 Expat. Engineer 1 110 Local Human Resources Manager 111 Local Personal Manager 112 Local Human Resources Clerks 213 Local Accounts Staff 314 Local Assistant F&B Managers 215 Local Sales Executive 215 Local Reception Staff 6

16 Local Housekeeping Staff 1617 Local Maintenance/Pool 518 Local Security Manager 119 Local Security Staff 2020 Local Bar 1021 Local Waiters 3022 Local Linen / Housekeeping 323 Local Grounds Staff 5

24 Local Switchboard Operators 325 Local Training Trainers 226 Local Kitchen & Stewarding 30

Total 151

Expat Staff 9Local Staff 142

Core Staff Local 86 34

Trainees 56 56

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ADDENDUM G : ZANZIBAR FREE ECONOMIC ZONES

AUTHORITY (ZAFREZA)

The Zanzibar Free Economic Zones Authority - (ZAFREZA), was

established by law in 1992 as the sole Authority responsible for

management, administration and operation of the Export Processing

Zones Program on Zanzibar with full powers to approve and admit

projects therein. The legal instruments of its creation and authorityare the Free Economic Acts, No.s 16 & 17 of 1992 with subsequent

amendments enacted in April 1997. These, together with the

Investments Acts of 1986, lay the legal framework for a safe and

lucrative foreign investment climate in Zanzibar.

The Authority is an autonomous Government organ with a Common

Seal and has exclusive jurisdiction in the administration of the Free

Economic Zones that it is striving to promote and mobilize

investments thereto as part of the general effort to improve the

economy of Zanzibar.

(ZAFREZA) administers three export-processing zones (EPZ) s - the

Amaan Industrial Park, Fumba on the southwestern seaboard and

Micheweni on Pemba Island. The Authority caters for a variety of

investments in manufacturing, trade and industrial estate

development.

Although all investments generally are welcome, preference is given

to manufacturing or assembly industries for a variety of goods in

electronics, plastic wares, textile, garments and fruit canning that are

mainly export-orientated - in line with the Government policy of

industrialization for export.

The statutory conditional requirement to qualify to operate in an EPZ

holds that a minimum of 80% of the production of an enterprise must

be exported.

Transit and entropot trade, high potential for further expansion of

tourism and ancillary services; maritime ventures, infrastructure

projects on B.O.O.T or B.O.T basis and industrial fisheries make up

a few of the opportunities presented.

ZAFREZA INVESTMENT INCENTIVES

10 years corporate tax holiday. For subsequent 5 years taxwill be at 25% and thereafter at 50% of the ruling rate.

No customs duty and other taxes charged on the importsof machinery, equipment, spare parts, raw materials, andother supplies, necessarily required for the projects

established.

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Withholding tax exemptions for the initial period of 10years.

Exemption from income tax for the initial period of 10 yearson dividends, interest on shareholders loans or any othertype of income received by the investors.

No restrictions on recruitment of foreign staff onmanagement and technical contracts.

No restrictions on the repatriation of profits.100% foreign ownership is allowed.

ZAFREZA one-stop-center appraisal procedurescompleted within ten days.

Availability of low cost labour

Personal effects of eligible Directors and expatriates areexempt from import duties within a period of six monthsfrom date of first arrival in Zanzibar.

No exchange control restrictions

Autonomous control of investment proceeds byentrepreneurs

Exemption from Capital Gains Tax on the sale of fixedassets

Exemption from obligation to withholding tax from intereston loans from foreign banks and on bonds issued bycompanies, provided funds borrowed in both cases areused exclusively for investment or to finance operations inthe EPZ sector.

Exemption from obligation to withhold tax from royaltiesand other payments for the provision of know-how.

Exports are exempt from any export duty or levy.

ZAFREZA aftercare and facilitation.

COMPARATIVE ADVANTAGES

Good infrastructure

Good communication and transport network

An abundance of trainable English-speaking labour

Easy access to PTA, EAC, SADC, EU and other worldmarkets.

Political stability and warm attitude of welcome.

Favourable policy and positive government support.

Good business and social environments

No import licensing requirements

Minimal customs formalities.

Foreign and local currency accounts facilities.

Source ZAFREZA

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Consulting Engineers DNS Consulting Engineers

PO Box 298, Olifantsfontein 1665, South

Africa

Contact Nick StolpTel: + 2711 316 3990

Fax: + 2711 316 5137

Email [email protected]

Consulting Architects Eugene Barnard & Associates

PO Box 5952, Halfway House 1685,

South AfricaContact: Eugene Barnard

Tel: +2711 315 7357

Fax: +2711 315 9873

Email: [email protected]

Consulting Quantity Surveyors McIntosh Latilla Carrier & Laing

PO Box 52348 Saxonwold 2132 South Africa

Contact: Philip de Wet

Tel: +2711 283 1500

Fax: +2711 788 9015

Email [email protected]

Project Managers @Hart Property DevelopmentPO Box 14050 Farrarmere South Africa

Contact: Trevor t Hart

Tel: +2711 425 3717

Fax: +2711 849 6526


Construction Partners Murray & Roberts Developments

PO Box 237, Pavillion 3611, South Africa

Contact: Peter Sherwin

Tel: +2711 820 4600Fax: +2711 820 4668


Environmental Management Consultants CEN - Integrated Environmental

Management Unit

36 River Road Walmer

Port Elizabeth 6070 South Africa

Contact Dr Cohen

Telephone: +27 41 581 2983

Fax:+27 41 581 2983


Hotel Management and Marketing *

* - MOU

Protea Hospitality Corporation

PO Box 75 Sea Point 8060 South Africa

Contact Mr Otto Stehlik

Tel: +2711 430 5000

Fax: +2711 430 5333


Interior and Design Consultants Black Moon Design Studio

PO Box 6560944, Sandton, SA

Contact: Lauren Beckworth

Tel: +2711 656 0944


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ADDENDUM I : LETTERS OF SUPPORT (UPON

REQUEST)

a) Ministry of Employment, Women, Youth and Children

Development

b) Ministry of Trade Industries, Marketing and Tourism

c) Ministry of Agriculture, Natural Resources, Environ. And Co-

operatives

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ADDENDUM J : PROFILES (UPON REQUEST)

a) Joachim J Zimmermann

b) Murray & Roberts Developments

c) McIntosh Latilla Carrier & Laing

d) CEN Integrated Environmental Management Unit

e) @Hart Property Developments

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ADDENDUM K : CERTIFICATES OF INCORPORATION

(UPON REQUEST)

a) Fumba Foundation Limited

b) Maendeleo Resorts Limited

c) Maendeleo Projects (Pty) Ltd

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ADDENDUM L : FINANCIAL FEASIBILITY

a) Key Notes and Assumptions

b) Ratio Analysis and Investment Returns

c) Projected Income

d) Balance Sheet

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A KEYASSUMPTIONS


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A KEY ASSUMPTIONS

A Hotel of 120 rooms can be built and furnished for $183 333per room.

An average room rate of $218 per night can be achieved onopening

Occupancy will be 55%, 60%, 65%, 70% in years 1 through 4respectively with a sustainable 70% thereafter.

85% of the rooms will have double occupancy

90% of breakfasts and dinners will be taken by guests, and 20%of the snacks and lunches will be eaten at the hotel

The hotel will achieve 82%, 34%, and 80% profit on rooms, foodand beverages and other revenues respectively.

8% of turnover will be spent on overheads

5% of turnover will be spent on marketing

Debt will cost approximately 8% pa.

All interest prior to commencement of operations will becapitalised and will approximate $0.5m.

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B RATIOANALYSIS ANDINVESTMENTRETURNS


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B RATIO ANALYSIS AND INVESTMENT RETURNS

Sensitivity Analysis

The project yields are significantly impacted by any differential

between planned occupancy of the resort and actual occupancy

achieved. Changes in occupancy that are planned do affect the

returns with higher occupancies yielding greater returns however by

far the greatest impact is not achieving the planned levels of

occupancy. By way of illustration, a 10% lower occupancy achieved

(in the long term) will reduce earnings by 20%.

Room rates affect earnings to a lesser extent with a 10% drop in rate

resulting in an 10% drop in earnings. From this one can conclude

that key to the success of the resort is accurate planning, and

secondly that where necessary, room rates should be discounted in

favour of achieving as close to planned for occupancy as possible.

The Internal rate of return based on the projects earnings, varies

predictably with changes in the occupancy levels and room rates,with sharper changes experienced at the lower occupancy levels.

But far the greatest impact on internal rate of return is the structure

of the project between debt and equity where the greater the

proportion of debt, the higher the yield for shareholders. A project

funded entirely by equity is unlikely to provide adequate returns forshareholders.

Change in the capital cost of the project also significantly affect the

viability of the project with a $1m under spend increasing the internal

rate of return from 21.1% to 21.6% after 15 years. A $1m overspend

will reduce the IRR to 20.6% for the same period.

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RATIO ANALYSIS


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RATIO ANALYSIS

The project is initially highly geared taking both losses expected in

the initial period of operation, and finance charges into account.Once fully operational, the gearing reduces to 0% by year 5. The

project retains a health ability to meet its interest commitments with a

minimum interest cover of 3.35 times in year one and rising to 49.79

times in year 5.

Return on capital employed rises to 16.9% in year five before fallingback to 11% in year 8 as a result of capital replacement. In theory

this would happen every seven years. In practice, an ongoing

capital replacement scheme would be put in place that would result

in the smoothing of this effect.

The profit margin anticipated varies from 23% to 27% depending on

the capital replacement levels with an average of 24.1% for the 15

years projected.

The project will start yielding positive internal rates of return from

year 6, which will climb to 21.1% in year 15.

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ADDENDUM M : SITE DEVELOPMENT PLAN

(UPON REQUEST)

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ADDENDUM N : ARCHITECHTURAL & ENGINEERINGDESIGN & PERSPECTIVES (UPONREQUEST)

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Documents

Maendeleo Resorts Business Plan Version 3