Accommodation and Tourism Facility
in Motherwell - A Feasibility Study
November 2007
Contents
1. Background
2
2. Description of the Project
2
3. This Feasibility Study
2
4. The Tourism Grading Council of South Africa Provides the
following Definitions of Categories of Accommodation
Establishments
3
5. The Tourism Industry in South Africa, The Eastern Cape
and Nelson Mandela Bay
4
6. Key Markets for a Proposed Motherwell Tourism Accommodation Facility
6
Support from the Motherwell Community
The Coega Industrial Development Zone
The General Growth in the Tourism Industry in the Nelson
Mandela Bay Area
World Trends to Eco-Tourism and Cultural Tourism
6
6
7
7
7. Proposed Sites for the Proposed Motherwell Tourism
Accommodation Facility
Motherwell Central
The Swartkops River Estuary
8
8
8
8. What type of Tourism Accommodation Facility Could Work on this site?
Cost Handicaps
Which Type of Tourism Accommodation Establishment
9
9
9
9. Prelimary Financial Feasibilities
11
Services to be Offered
Expenses
11
11
10. Design of the Proposed Motherwell Eco-Lodge and
Chalets
15
11. Costing of the Construction of the Proposed Motherwell
Eco-Lodge and Chalets
15
12. Final Financial Feasibilities
16
Department of Trade and Industry – Incentive Grants
Income and Expenditure Tables
Conclusions on Financial Feasibility
1
16
16
18
ACCOMMODATION AND TOURISM FACILITY IN MOTHERWELL
FEASIBILITY STUDY
1. BACKGROUND
The Nelson Mandela Bay Municipality in conjunction with the Development Bank of
Southern Africa put to tender in June 2007 a Tender Specification for a Feasibility Study and,
if feasible, for a business plan for an accommodation and tourism facility in Motherwell.
The tender was awarded to Development Partners, working in conjunction with Dojon
Financial Services cc and Mr Peter Myles, the Director of the Tourism Research Unit at the
Nelson Mandela Metropolitan University. Draft sketches are to be done by The Matrix cc
Urban Designers and Architects.
2. DESCRIPTION OF THE PROJECT
It was proposed that the envisaged facility would include:
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An ethnic-look restaurant
A tavern and/or bar
Entertainment area
Accommodation facilities
Several curio shops
Vegetable gardens
It is envisaged that the facility would create possibly 50 direct employment opportunities,
and possibly 28 other employment opportunities.
The appointed service provider would have to:
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Conduct a comprehensive feasibility study for the proposed accommodation and
tourism facility;
On confirmation of its feasibility, prepare a comprehensive business plan to ensure
that the proposed facility will be operated in a sustainable manner.
The combined feasibility study and business plan must include:
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A comprehensive market analysis
A review of technical aspects of the project
An environmental analysis of the impact of the proposed facility
Economic and financial analysis of the proposed facility, including 20 year
projections to determine viability, and
Social and institutional analysis for the proposed facility.
3. THIS FEASIBILITY STUDY
This feasibility study is designed to inspect particularly the financial feasibility of a variety of
possible facilities, and to determine under what conditions such facilities could be possible.
The Business Plan will propose strategies to minimise risk and to overcome difficulties, and
will inspect a wider range of the variables outlined in 2.4 above, as opposed to the financial
feasibilities which will dominate this feasibility study. The feasibility study will eliminate types
of facility which appear to have no chance of financial success – the business plan will
attempt to show how the preferred and most feasible options could be made to work.
2
4. The TOURISM GRADING COUNCIL OF SOUTH AFRICA provides the following
definitions of categories of accommodation establishments:

Backpacker & Hostelling
A Backpacker and/or Hostelling establishment is an accommodation facility that
provides communal facilities, including dormitories, yet may offer a range of alternative
sleeping arrangements. Only establishments that cater for transient guests (travelling
public) will qualify for grading.

Bed and Breakfast
Bed and Breakfast accommodation is provided in a family (private) home and the owner
/ manager lives in the house or on the property. Breakfast must be served. Bathroom
facilities may or may not be en-suite and/or private. In general, the guest shares the
public areas with the host family.

Guest House
A guest house can be an existing home, a renovated home or a building that has been
specifically designed to provide overnight accommodation. A guest house will have
public areas for the exclusive use of its guests. A guest house is a commercial
enterprise and as such the owner or manager may live on the property.

Country House
A country house is a large guest house, usually situated in natural, peaceful
surroundings such as near a nature reserve, a forest, a lake etc. It offers all the
services of a hotel, including dinner.

Hotel
A hotel provides accommodation to the travelling public, has a reception area, and
offers at least a ‘breakfast room’ or communal eating area. In general a hotel makes
food and beverage services available to guests; these may be outsourced or provided
by the hotel.

Lodge
A Lodge is an accommodation facility located in natural surroundings. The rates
charged are usually inclusive of all meals and the experience offered at the lodge, with
game drives, battlefield tours, etc.

Self catering
A self-catering establishment is a house, cottage, bungalow, flat, studio, apartment,
villa, houseboat, tent or any accommodation where facilities and equipment are
provided for guests to cater for themselves. The facilities should be adequate to cater
for the maximum advertised number of residents the facility can accommodate.

Caravan and Camping
A Caravan and Camping Park is a facility that provides ablution and toilet facilities and
space for guests to provide for their own accommodation, such as a tent, motor home
and/or caravan.
3
5. THE TOURISM INDUSTRY IN SOUTH AFRICA, THE EASTERN CAPE AND NELSON
MANDELA BAY
This is a vast and highly nuanced topic, and a research paper by Peter Myles, Director,
Tourism Research Unit of the Nelson Mandela Metropolitan University on this topic is
included as Annexure A.
We will draw from this research as needed, and a summary of some salient points is as
follows:
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Travel and tourism is the largest and fastest growing industry in the world.
800 million global tourists travel the world annually, with only 2 mil (0.25%) overseas
(defined as, the world but excluding Africa) visitors visiting South Africa.
South Africa is currently ranked 37th in the world as a tourism destination, but is
growing faster than other major world players.
Major events (Rugby World Cup 1995; World Summit Sustainable Development
2002; Cricket World Cup 2003) have each caused considerable growth in numbers of
overseas visitors to South Africa.
African tourists outnumber overseas visitors to South Africa by 2.5 to one (2005; 5.4
million African visitors) but spend considerably less.
The Eastern Cape only hosts 8% of foreign visitors to South Africa, which translates
to 6% of total South African bednights utilized.
Foreign tourists use, mostly, hotels; followed by self-catering units and then guest
houses.
The Eastern Cape is the 7th most popular province for foreign tourists.
80% of visitors to the Eastern Cape visit Nelson Mandela Bay.
Domestic tourism is enormously bigger (in numbers) than foreign tourism, with an
estimated nearly 50 million domestic tourist trips having been made in 2003. Statistics
here are, however, unreliable.
Domestic tourists are predominantly social visitors (in the Eastern Cape 80% are
visiting friends and family) and shopping is their biggest activity.
NM Bay played host to 405,600 foreign tourists and 2,015,710 domestic tourists in
2006, who, in total, spent R4.6 billion (about half each foreign and domestic). By 2010
these numbers will rise to 488,000 foreign tourists spending R5.3 billion, and 2.3
million domestic tourists spending R3.8 billion.
The fastest growing types of tourist accommodation over the last 10 years have been
bed and breakfasts (B and B’s) and resorts and self-catering. All types of tourist
accommodation have, however, shown growth.
Growth in accommodation for tourists in NM Bay is as follows
Hotels
Self-Catering
B & B’s
Backpackers
Resorts

1996
13
12
100
4
7
2006
29
52
141
8
8
% Growth
123%
433%
41%
100%
14%
Page 24 of Annexure A inspects the current supply of hotel facilities in the Nelson
Mandela Metropolitan area in 2004. Two five star hotels have subsequently been
added to this listing:
o
o
The King’s Tide Boutique Hotel (in Summerstrand), with 10 rooms charging
between R300 and R650 per person per night; and
The Windermere Hotel (in Humewood), with 8 rooms charging between R700 and
R1250 per person per night.
4
Of note with regard to the above:
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With the exception of the Pine Lodge, which we would contest should be in the
Primary Market category, those establishments in the Secondary Market are older,
smaller, cheaper and less likely to satisfy a discerning traveller. They are not models
to replicate, we believe, and would probably not be rebuilt today as and where they
are.
Should we then include the Pine Lodge, the King’s Tide and the Windermere into the
primary market category, this category becomes 17 hotels with just over 1520 rooms
between them, averaging a 2004 room rate of just under R400 (possibly R500 now)
and enjoying nearly 70% occupancies.
Extraordinarily, with the single exception of the Edward Hotel, all 16 other hotels in
the Primary Market Category are on the Summerstrand / Humewood beachfront.
This is possibly not surprising as this beachfront has considerable attractions:
o
o
o
o
o
It is the home of the Metro’s three biggest tourist attractions (the beaches, the
Boardwalk Casino Complex, and Bayworld)
It is close to the Airport, with the only car-rental facilities in the metro.
It is beautiful, scenic, and offers walks and open-air entertainment opportunities,
in a safe environment
It is adjacent to the Humewood Golf Club; the University; Telkom Park Rugby
Grounds and the Humerail sports facilities; and includes a Casino and a movie
complex.
It is well-served with restaurants (more than 50) and shops (Humerail, Pick’nPay
Summerstrand, etc.) and all necessary tourist facilities.
Simply put, with the exception of the Metro’s game parks, about all of its tourist
attractions are concentrated on this beachfront axis, making it the obvious place for
further investment, and also making it very difficult for other investment areas to
compete.

There is a greater geographical spread of other types of tourist accommodation:
The main areas (for rooms) are:
Area
Summerstrand
Humewood
Central
Walmer
Uitenhage
Mill Park / Linkside
Rooms
1256
902
421
258
138
131
Others of note here are:
Amsterdamhoek / Bluewater Bay
Coega
Motherwell
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90
50 and
4
It is estimated that an additional 233 rooms are required in NMB tourist
accommodation establishments by 2010, and a further 487 by 2015.
5
6. KEY MARKETS FOR A PROPOSED MOTHERWELL TOURISM ACCOMMODATION
FACILITY
From the summary points outlined in section 5, it is obvious that the development of an
ambitious tourist accommodation establishment away from the Summerstrand / Humewood
beachfront must be approached with great caution.
In the case of this Feasibility Study, the following four positives should be recorded:
6.1 Support from the Motherwell Community
Motherwell is a large community, with a significant middle class component. Motherwell’s
population is estimated at 180,000, and a significant number of these are middle class. A
study of the employed and unemployed in Motherwell suggests that there are about 47,000
Motherwell residents in employment, and it is estimated that, in 2006, there were over 3,600
housing bonds in Motherwell, averaging more than R45,000,00 per bond. This is evidence
of a significant middle-class presence (See Motherwell Employment Survey, and
Motherwell Baseline Survey, both by Development Partners conducted in 2006 [remember
references]).
This suggests that there will be a need for a tourist accommodation facility to cater for
school and church groups visiting Motherwell; as well as for visitors to the area for
weddings, funerals and the many other social events that are the stuff of everyday life. Price
is, however, a great concern – this is not an area for premium prices – and backpackers
and self-catering arrangements are fundamental to the success of such an institution.
Further, to date there are no restaurants, or tourism accommodation establishments in
Motherwell – while this suggests a limited market for the services offered, the success of
existing take-away businesses suggests that there will be support for a restaurant / coffee
shop; and that it would provide a much-needed social facility of making Motherwell an
easier place for middle-class people to live in. It is difficult to predict the extent to which the
Motherwell community will support such an establishment, but a limited degree of support is
reasonably predictable.
6.2 The Coega Industrial Development Zone
Annexure B contains three documents.
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A two-page document, “The Coega Project, Milestones”;
A table of announced investors in the Coega IDZ; their dates and the numbers of
jobs these corporations will create; and
An eight-page summary of announcements of investors in the Coega IDZ.
While many of the investment projects in the Coega IDZ are in process and not yet
“bricks and mortar”, what is incontestable is:
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The port of Ngqura is nearing completion, and the required handling equipment is
about to be installed.
The Coega IDZ is now well-advanced, with world class civil construction services in
place including roads, sewers, etc. Factory investors could now be accommodated
and the first ones are arriving;
Nearly R8 billion has been spent by government in the above regard;
The Coega Development Corporation is about to move into its 9700m² new
headquarters building in the IDZ – this will happen in December 2007.
All of this points to an explosion of industrial and commercial activity adjacent to Motherwell,
which can only increase the number and income of the Motherwell middle-class; and create
demand for tourist accommodation, restaurant facilities; recreation facilities and workshop /
conference facilities. While some of this will be taken up in the Summerstrand / Humewood
strip, there nevertheless remains a tremendous opportunity for the development of
accommodation, and restaurant, conference and recreational facilities in the areas adjacent
to the Coega IDZ.
6
Would have been a good idea to put in a map to show proximity of M’well vs Coega and
City
6.3 The General Growth in the Tourism Industry in the Nelson Mandela Bay Area
In section 5 and Annexure A we saw that a considerable growth is projected for the tourism
industry in NM Bay – tourism numbers are expected to rise by 80,000 foreign and 300,000
domestic tourists, 2006 to 2010; and this increased number of tourists is expected to spend
R4.5 billion more per annum. It is reasonable to expect that some of this will become
available for different and more adventurous tourism establishments. It has also been
projected that, after taking into consideration existing plans to build new tourist
accommodation, an additional 233 accommodation rooms are required by 2010, and a
further 487 by 2015. Surely, some of this could happen beyond Summerstrand /
Humewood.
6.4 World Trends to Eco-Tourism and Cultural Tourism
Annexure D is a paper commissioned for this report, and again written by Mr Peter Myles,
Director of the Tourism Research Unit at the Nelson Mandela Metropolitan University.
Some significant points in the paper include the following:
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A significant percentage of travellers today look for “new experiences such as
controlled danger, unusual environments and cultures, personal or physical
improvements and emotional development”. The “one size fits all” type of vacation
no longer works.
Travellers now look for unique and authentic experiences and will no longer wish to
visit the same places.
“In future, travel will be viewed not just as a vacation, but as a way of culturally
differentiating yourself”.
“Sustainable tourism” and “responsible tourism” are new and growing markets –
eco-lodges, which minimise energy and water consumption and protect flora and
fauna, are to be supported.
A new type of tourist is emerging: more educated, experienced, independent,
conservation-minded, respectful of cultures, and insistent on value for money.
“Responsible” will become to travel what “organic” is to food – a mainstream
consumer favourite that is more enjoyable for you, and better for local people and
the plant”
The World Tourism Organisation estimates that 37% of international tourists are
cultural tourists – interested in cultural and heritage attractions, museums, art and
performances.
Authentic tourism experiences are amongst the fastest-growing, highest demand
products in the tourism industry today – reaching into the community; hands-on and
interactive activities; special access, behind-the-scenes and exclusivity; learning
and discovery, and shared experiences.
“Creative tourism” is another growing market – actively engaging tourists in
activities. In Nelson, New Zealand, a network of businesses now offer tourists
creative experiences: bone carving; Maori language classes; weaving; felting and
woodwork and cooking and gastronomy. This is an excellent opportunity to involve
“tutors” from the local community.
7
7. PROPOSED SITES FOR THE PROPOSED MOTHERWELL TOURISM
ACCOMMODATION FACILITY
There are two possible areas for the development of the proposed Motherwell Tourism
Accommodation Facility – somewhere inside Motherwell proper, or on a site overlooking the
Swartkops River, on Motherwell’s western boundary.
Motherwell Central
The centre of Motherwell is a area with an increasing number of public facilities – the
Shoprite Shopping Centre; Hospital and Raymond Mhlaba Sports Centre are in close
proximity to each other, and are now adjacent to an innovative housing estate (under
construction) and a housing advice centre. Land is available here, and the positioning for
public transport is good.
We considered this area in-depth, but, in the end, felt that the attractions were not strong
enough to compete, in any meaningful way, with the qualities of the Summerstrand /
Humewood beachfront, as outlined in section 5. As such a tourism accommodation
establishment here could easily develop an economic “inferiority complex”, which would see
it undercharge by general market standards and as such battle to remain solvent. If the
executives of Coega are meaningfully part of the future customer profile of the proposed
establishment, we feel that this site would not provide the required attraction to compete
with Summerstrand / Humewood.
The Swartkops River Estuary
The Swartkops River estuary is the biggest estuary in any major South African city. It has a
massive and diversified wildlife, and, while development does encroach on the pristine
conditions in a number of places, it remains a significant area for wildlife, fishing and
watersports. And it is adjacent to Motherwell, with the residential areas of Motherwell being
separated from the estuary by the Motherwell Nature Reserve.
There are two areas of this Nature Reserve where roads exist and clearing has happened.
They are outlined in the map in Annexure C. While obviously not ideal, it is suggested in
this feasibility study that these two areas be investigated as the potential site for the
proposed Motherwell Tourism Accommodation facility. It will be difficult enough for a
Motherwell business to compete with the Summerstrand / Humewood strip – but the
Swartkops River, and views of it and access to it, could provide a competitive advantage for
a Motherwell tourism accommodation facility, and provide something different, exciting and
beautiful.
Of the two sites outlined in Annexure C, the site adjacent to the Swartkops stormwater
canal has major civil construction pending – the concrete filter tanks at
the bottom of this canal are to be enlarged, and the new tanks will be
over 100m wide, running across the riverside of the site. As such it is
not recommended by this study.
The second site has magnificent views of the river estuary, and, should
a boardwalk be built sensitively, it could have access to the riverfront
and thereby become a centre for watersports. There are many
challenges to the use of this site (they will be investigated in detail in
the Business Plan) – nevertheless the views; the unspoilt natural
vegetation; the river / frontage and the beauty of the site add up, we
believe, to a compelling package and allow this site to present the
most competitive alternative to the Summerstrand / Humewood
beachfront that Motherwell has to offer.
This site, with its natural beauty and extraordinary ecological opportunities, provides an
opportunity to introduce to the Nelson Mandela Bay the first tourist accommodation
establishment aimed at the new eco-tourism market. This is a huge and growing market,
with very few accommodation establishments in the NM Bay Area designed to access it.
8
Annexure D has a paper by Peter Myles in this regard, which introduces this new,
worldwide tourism growth market.
8. WHAT TYPE OF TOURISM ACCOMMODATION FACILITY COULD WORK ON THIS
SITE?
Cost Handicaps
We believe that any development in Motherwell would have three major cost handicaps:
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Advertising costs. Any new business requires advertising and marketing to find its
way into the market. We believe this facility will require considerable spending over
a number of years to establish its reputation. Budget here – R120.000.00 per
annum.
Security costs. It is fundamental that guests should believe that their persons and
vehicles are safe at the facility – any breach of this rule, and support would rapidly
erode away.
Security has capital costs (perimeter fencing, CCTV cameras, etc) and operating
costs (gate control, security patrols). The capital costs will be covered in the next
section – operating costs should be for security guards, 24/7. Budget –
R240.000.00 per annum.
Guest Transport. It is simple to guide a visitor from the Port Elizabeth Airport to the
Holiday Inn Garden Court, or for that matter to any beachfront facility. Likewise from
Coega. It is a much more complicated set of instructions to guide someone to a
resort in the Motherwell Nature Reserve. As such a shuttle service, to pick up and
drop off visitors to both the Airport and Coega, must be budgeted for.
Budget – R96.000.00 per annum, plus drivers.
We believe that any tourism accommodation establishment to be created in Motherwell will
have to fund these three operating costs, if it is to prosper and succeed. Thus a budget cost
of R456.000.00 per annum must be anticipated in the above regard.
Which Type of Tourism Accommodation Establishment Would Work in Motherwell?
In section 4 we listed the different categories of accommodation establishments. Here we
will assess the feasibility of each type for the site in Motherwell, taking into account the cost
handicaps mentioned above.
9
Hotel
Hotels are expensive to build and expensive to run – and are thus expensive to stay in.
Self-catering options are not common except in budget hotels, which have to be big to
survive. In our opinion, a hotel would not succeed in Motherwell.
Backpackers
We believe a backpackers would find good support from visitors to the Motherwell
community (visiting school, church and sport groups, etc), and would satisfy social and
community needs. However it would not generate enough revenue on its own to meet
the cost handicaps outlined above, and to employ significant staff to attempt to meet
the employment creation targets set in the terms of reference of this study. For rates,
see Willows Resort in Annexure E. We believe a backpackers establishment should be
combined with another, stronger cash generating facility to approach the targets in this
terms of reference.
Bed and Breakfast
Again, such an establishment would be of benefit, but the financial benefits would
accrue to the owners and a small number of staff.
8.2.4 Caravan and Camping
Again, at the going rate of R120 per caravan site per day (see Willows Resort in
annexure D), such an establishment cannot succeed except if attached to another,
stronger cash generating establishment.
8.2.5 Guest House, Country House, Lodge
We believe that such an establishment is the best of the alternatives, to meet the
targets set in the terms of reference of this project.
8.2.6 Self Catering
This is a vital quality in reducing user-cost, and must be built into any potentially
successful accommodation establishment in Motherwell.
8.2.7 Conclusion
Our conclusion is to consider a hybrid-type of establishment:
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A lodge, set in the beautiful site of the Motherwell Nature Reserve overlooking the
Swartkops River, in peaceful natural surroundings. The lodge will provide
reception, catering and conference facilities.
Accommodations to be provided in flexibly designed low-intensity chalets, which
include some that are 8 sleepers (see Pine Lodge diagrams, Annexure E) to
provide the backpacker option; and with kitchenettes for the self-catering option
also.
A boardwalk will provide access to the Swartkops River, where water sports and
riverside facilities are to be made available.
This hybrid option offers the best option of a user-friendly, inexpensive, yet high quality
establishment that can accommodate the Coega market requirements, as well as a
backpackers option, and provide a haven and a valued social amenity to the Motherwell
community. Again, please refer to the growing eco-tourism market in the Paper in
Annexure D.
10
9. PRELIMINARY FINANCIAL FEASIBILITIES:
Services to be Offered
Such a tourist accommodation establishment would offer three types of to-be-paid-for
services:
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Accommodation, to be provided in Chalets.
The smaller chalets would include a lounge with workstation (including ADSL
connection and TV); a bedroom with double bed and cupboard; a bathroom with
shower and a kitchenette with microwave, fridge, stove and catering equipment.
Possibly a balcony with outdoor furniture could also be provided.
The larger chalets could, like the Pine Lodge diagram in Annexure E, have two
bedrooms, one with a double bed and one with two bunks, and two sleeper
couches to sleep 8, thereby providing an upmarket backpackers facility at a low
backpackers price;
Catering, including restaurant, bar and tea service; and
Conference Facilities, which would include:
o
o
o
A main conference hall capable of seating 200 schoolroom style and
capable of being subdivided into two;
A breakaway room to seat 40 schoolroom style, also capable of
subdivision
Two elegant boardrooms, each capable of seating 20.
We will now consider the preliminary financial feasibilities of such a proposed
establishment.
Expenses
The expenses of such an establishment can be divided into three categories:
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Expenses related to the accommodation and conferencing facilities, and some
expenses of the entire establishment (security, cleaning, vehicles, etc.);
Expenses related to the provision of catering, bar and tea services;
Expenses related to repaying loans raised to build the establishment initially.
For the purposes of this study, we will, however, assume:
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All catering, bar and tea expenses are subcontracted, and a rental, possibly
based on turnover, is charged to the independent contractor. As such no
provision is made for employing chefs, barmen, etc.;
Expenses related to debt service will be treated separately, later.
As such this section will only cover the first of the above three expense categories at this
stage.
Table 1 outlines the annual overheads excluding catering and debt service costs of three
actual tourism accommodation establishments in the area (taken from Annual Financial
Statements escalated up to 2007) and concludes, in the right-hand column, with a
projection to the proposed Motherwell Eco-Lodge.
11
Annual Overholds Excluding Catering and
Debt Service Costs (2007 Costs)
Actual
3 Star
70 Room
Chalets and
Lodge
Auditor
Advertising
12,330
13,550
210,244
7,938
17,000
107,230
Credit card costs
Cleaning
109,781
Projection
20 Chalet
4 Star
24 Room
Hotel
126,213
Bad Debt
Bank
3 Star
51 Room
Hotel
Motherw ell EcoLodge
12,000
55,030
120,000
22,875
19,949
60,000
117,463
72,157
(1)
6,000
181,908
80,000
Guest Comforts
Pest Control
Laundry
45,414
Commission
Municipal Services: Electricity & Water
Gas and Fuel
33,726
294,970
427,474
237,860
85,937
60,000
40,328
143,568
40,248
30,000
42,033
40,000
11,944
6,000
Rates
157,354
Computer Services
13,847
16,976
Internet
20,000
1,518
Depreciation
120,154
109,659
Insurance
103,920
103,810
48,155
16,355
84,076
5,943
286,817
470,434
Legal Fees - Debt Collection
60,000
50,000
930
Licences - SAMRO, SA Tour levy, etc
Maintenance - Building, Furniture, Equipment
Garden and Pool
6,000
100,000
100,272
Electrical Appliances
Replacement Linen, etc
101,460
Motor Vehicle Expenses
37,750
12,710
96,000
Printing and Stationery
40,504
100,395
30,000
Replacement and Hiring Costs
52,168
2,690
Security
99,857
102,076
(1)
Guest Transport
Subscriptions
4,045
240,000
96,892
80,000
(1)
6,970
Sponsorships
1,216
Telephone and Postage
137,429
289,802
19,862
69,009
54,324
1,093,238
2,974,434
777,060
3,199,379
5,678,185
1,649,405
70
51
24
20
R 45,705
R 111,337
R68,725
R 84,800
Training
Television
34,527
Travel and Enrolment
Salaries, UIF, PAYE, Uniforms
Other Expenses
Total
11,518
Rooms
Expenses per room per annum
Notes:
(1) As outlined in section 8.1
(2) Staffing component and monthly salaries (in brackets)
1 General Manager (R12,000)
1 Marketing Officer (R6000)
2 Front Office personnel (2 @ R3000)
1 Back Office (bookkeeper) (R5000)
1 Driver / Gardener (R3000)
6 Housekeepers (6 @ R2000)
1 Maintenance Officer (R6000)
Total Monthly Wages Bill: R50,000
12
600,000
299,643
1,696,000
(2)
Using this as our expenses projection, we can calculate the feasible number of rooms and
required roomrate through the following graph:
This graph shows that:



A ten-roomed establishment, operating at 60% occupancy, cannot meet this
expense budget at R500 per room per night – simply this does not work.
A twenty-roomed establishment, operating at 60% occupancy, meets the entire
proposed expenses budget (excluding catering and debt service costs) at R385
per room per night.
A thirty-roomed establishment, operating at 60% occupancy, meets this budget at
R285 per room night.
This suggests that a minimum number of rooms / chalets is 20 – at this number a
roomrate of R385 per night (against the Metro average of about R500) and at a 60%
occupancy (against a Metro average of 70%) will see the accommodation revenue meet
all operating expenses except for debt service. Catering is not considered, and rental on
the catering franchise can only improve this situation.
While a 30 room / chalet establishment is more profitable, we believe this is too ambitious
initially. Nevertheless the site of the facility should be large enough to cater for this
expansion in the future.
13
Should, as we suggest, the catering, bar and tea operations be subcontracted and as
such only reflect in this feasibility study as a projected rental received from the
subcontractor, the project has two further income sources that should be considered, and
are included in the next graph.
Notes (1) CONFERENCE, WEDDING AND FUNCTION RECEIPTS are estimated at 280
seats available per day, or 102200 per annum, at 15% usage = 15330 guest
days per year, at R100 per guest = income of R1,533,000.00 per annum.
(2) CATERING INCOME ESTIMATED at 10% of ESTIMATED CATERING
TURNOVER of R876,000.00 = income of R87,600.00 per annum
(3) ACCOMMODATION INCOME AS PER FIRST GRAPH, 20 chalets @ 60%
occupancy at R300, R400 and R500 per room per night.
14
10. DESIGN OF THE PROPOSED MOTHERWELL ECO-LODGE AND CHALETS
Annexure E includes drawings by The Matrix Architects cc, that are initial draft proposals
with regard to the proposed Motherwell Tourism Accommodation facility. (While The Matrix
staff have visited the site and inspected maps and relief drawings, and taken every care to
ensure appropriate drawings, it must be noted that this is a feasibility study and as such the
drawings are preliminary and designed mostly for costing purposes).
Included also in this Annexure is a copy of “Infrastructure Guidelines - Nature Areas and
Natural Open Spaces of Nelson Mandela Bay, Final Draft June 2007”, (of which The Matrix
were co-authors), which guidelines have been used extensively in the preparation of these
drawings.
The drawings detail an Eco-Lodge, including the following facilities:

Conference Facilities:
o
o
o
o
A multi-purpose conference hall, seating approximately 200 theatre-style, and
capable of many arrangements
Two boardrooms, each capable of seating 15-20 around a board table
A breakaway room, which is also multi-configurable;
The necessary foyer spaces and toilets, and a kitchenette.
All of this backs into a large courtyard and tea garden, with a boma and entertainment deck
overlooking the Swartkops River.


A hundred seater restaurant, with bar and recreation space / lounge attached, all
arranged to overlook the River.
Reception, office, laundry, kitchen, toilets and other necessary facilities.
The proposed eco-lodge has a very “open-feel”, with a great, open central courtyard and a
large deck overlooking the river.
Also on site are 20 chalets, of two types:


A two-bedroom unit, which can sleep 4 in luxury or can be used as a backpacker
unit sleeping eight.
A one-bedroom luxury unit, sleeping 1 or 2 in great comfort.
The site also includes a boardwalk to the river, where a boathouse and recreation facility
will be built; parking and a security gatehouse on the access road entrance.
11. COSTING OF THE CONSTRUCTION OF THE PROPOSED MOTHERWELL ECOLODGE AND CHALET
Attached as Annexure F are Quantity Surveyor estimates of the construction costs of this
proposed Eco-Lodge.
The estimated final construction, and furnishing, cost is R40.570.000.00.
15
12. FINAL FINANCIAL FEASIBILITIES
Department of Trade And Industry – Incentive Grants
The Department of Trade and Industry has, for a number of years, run a reimbursive cash
grant that can be claimed by tourism related industries. These grants are under review, and
the new tables and types will be available early in 2008. The new grants will be, we are told,
similar to the old Small Medium Enterprise Development Progressive grants (SMEDP) (see
Annexure G hereto for the DTI’s notes on these grants). This SMEDP would have yielded a
reimbursable cash grant (not taxable) of the following order to the Motherwell Eco-Lodge
and Chalets.
SMEDP GRANT on R40,570,000.00
Rate
First R5,0mil
10%
Next R10,0 mil
6%
Next R15,0 mil
4%
Next R10,570
3%
TOTAL SMEDP GRANT, per year for 3 years
R
R500,000.00
R600,000.00
R600,000.00
R317,100.00
R2,017,000.00
Income and Expenditure Tables
The following table provides estimated income and expenditure projections for the first five
years of the existence of the Motherwell Eco-Lodge and Chalets. All are in real (uninflated)
Rands, and it is assumed there will be no debt-service costs.
Income
Income from
Conferencing
Income from
Accommodation
Net Income
from Catering
Total Income
Expenditure
Expenditure
EBITDA
Depreciation
PBIT
Interest Paid
PBT
Corporate Tax
Profit after Tax
SMEDP
Subsidy
Profit after Tax
and Subsidy
Investment %
return
R41,243,000.00
Notes: (1)
(2)
(3)
(4)
(5)
Year 1
511,000(1)
2
1,022,000(2)
3
1,533,000(3)
4
2,044,000(4)
5
2,044,000
1,460,000(5)
1,825,000(6)
2,190,000(7)
2,555,000(8)
2,555,000
58,400(9)
73,000(9)
87,600(9)
102,200(9)
102,200
2,029,400
2,920,000
3,810,600
4,701,200
4,701,200
1,636,000(10)
393,400
60,000
333,400
0(11)
333,400
0
333,400
1,636,000
1,284,000
60,000
1,224,000
0
1,224,000
110,022
1,113,978
1,636,000
2,204,000
60,000
2,144,000
0
2,144,000
403,920
1,740,080
1,636,000
3,065,200
60,000
3,005,200
0
3,005,200
767,520
2,237,680
1,636,000
3,065,200
60,000
3,005,200
0
3,005,200
991,716
2,237,680
2,017,000
2,350,400
2,017,000
3,130,978
2,017,000
3,757,080
2,237,680
2,237,680
5,7%
7,6%
9,1%
5,4%
5,4%
And on
Conferencing income assumed at 5% of occupancy.
Conferencing income assumed at 10% of occupancy.
Conferencing income assumed at 15% of occupancy.
Conferencing income assumed at 20% of occupancy.
Accommodation income assumed at 40% of occupancy on 20 rooms @
R500 per day.
16
(6)
Accommodation income assumed at 50% of occupancy on 20 rooms @
R500 per day.
(7) Accommodation income assumed at 60% of occupancy on 20 rooms @
R500 per day.
(8) Accommodation income assumed at 70% of occupancy on 20 rooms @
R500 per day.
(9) Catering income assumed at 10% of estimated turnover.
(10) Expenses as at Feasibility Study section 9.2 minus depreciation (see later).
(11) No debt service costs assumed – all investment is capital.
The above table assumes that there will be no borrowing – that the capital and set up
costs (see 5.1) of R41, 243,000.00 will be funded out of a capital investment.
We have to investigate also the impact of borrowing on these calculations. The following
is the impact of 100% borrowing.
INCOME AND
EXPENDITURE
ASSUMING BOND
OF R41,243,000.00
TOTAL INCOME
EXPENDITURE
Expenditure
EBITDA
Depreciation
PBIT
Interest
PBT
Corporate Tax
Profit after Tax
SMEDP Subsidy
Profit after Tax and
Subsidy
Balance of Bond
Payment
Cash Flow
Year 1
2,029,400
2
3
2,920,000
3,810,600
4
4,701,220
5
And on
4,701,200
1,636,000
1,636,000
1,636,000
1,636,000
1,636,000
393,400
1,284,000
2,204,000
3,065,200
3,065,200
60,000
60,000
60,000
60,000
60,000
334,400
1,224,000
2,144,000
3,005,200
3,005,200
5,774,000(1)
5,506,000
5,201,000
4,863,000
4,468,000
[5,440,000] [4,282,000] [3,057,000] [1,858,000] [1,463,000]
0
0
0
0
0
[5,440,000] [4,282,000] [3,057,000] [1,858,000] [1,463,000]
2,017,000
2,017,000
2,017,000
0
0
[3,423,000] [2,265,000] [1,050,000] [1,858,000] [1,463,000]
1,912,000
2,180,000
2,485,000
2,823,000
3,218,000
[5,335,000] [4,445,000] [3,525,000] [4,681,000] [4,681,000]
Notes: (1) Assumed: 10 year bond of R41, 243,000 @ 14% - repayment R7, 686, 000.00
p.a.
(2) Income and expenditure are assumed as in previous calculation.
Clearly this option is not feasible – the red ink continues out forever, for the negative cash
flow is unsustainable (after 10 years, when the bond is paid back, cumulative negative
cash flow is greater than the capital borrowed on the bond).
Where is the balance? When does this project succeed financially, with a level of
borrowing, and make a reasonable return on investment?
The following table inspects this breakeven area.
17
INCOME AND
EXPENDITURE
ASSUMING BOND
OF R10,0 mil (1)
TOTAL INCOME
EXPENDITURE
Expenditure
EBITDA
Depreciation
PBIT
Interest on Bond
PBT
Corporate Tax
Profit after Tax
SMEDP Subsidy
Profit after Tax and
Subsidy
Balance of Bond
Payment
Cash Flow
% Return on
Investment of R10,0
million
Year 1
2
3
4
5
2,029,400
2,920,000
3,810,000
4,701,000
4,701,000
1,636,000
393,400
60,000
334,400
1,400,000
[1,734,000]
0
[1,734,000]
1,000,000(3)
[734,000]
1,636,000
1,284,000
60,000
1,224,000
1,335,000
[111,000]
0
[111,000]
1,000,000
889,000
1,636,000
2,204,000
60,000
2,144,000
1,260,000
884,000
0
884,000
1,000,000
1,884,000
1,636,000
3,065,000
60,000
3,005,000
1,176,000
1,829,000
0
1,829,000
0
1,829,000
1,636,000
3,065,000
60,000
3,005,000
1,080,000
1,925,000
303,000
1,624,000
0
1,622,000
464,000
529,000
604,000
688,000
842,000
[1,198,000]
0
360,000
3,6%
1,280,000
12,8%
1,141,000
11,4%
784,000
7,8%
And on
Notes: (1) It is assumed that the Eco-Lodge is built for R20 million, funded half (R10
million) as capital, and R10 million as a 14% 10 year bond.
(2) Income and expenditure are as in previous calculations.
(3) SMEDP subsidy calculated on R20 million construction costs.
Conclusions on Financial Feasibility
The previous calculations suggest that the Motherwell Eco-Lodge and Chalets project is
feasible under the following conditions.



The project can be built and fitted out for R20 million, which is considerably less
than the “first-stab” design and costing done for this project.
Total expenditure is held at R1.693.000.00 per annum (see section 9.2).
Income increases in the following ratios (see 12.2).
Year 1
Conferencing: 280 seats per
day available: Occupancy
projected
Net income per day
Conferencing income
Nett Income from Catering
Accommodation: 20 chalets
Occupancy Rates
Room Rate
Accommodation Income


Year 2
Year 3
Year 4 and on
5%
R100.00
R511,000.00
R58,400
10%
R100.00
R1,022,000.00
R73,000.00
15%
20%
R100.00
R100.00
R1,533,000.00 R2,044,000.00
R87,600.00
R102,200.00
40%
R500.00
R1460,000.00
50%
R500.00
R1,825,000.00
60%
70%
R500.00
R500.00
R2,190,000.00 R2,555,000.00
The Department of Trade and Industries continue to operate a SMEDP type
subsidy for tourist accommodation establishments.
The Eco-Lodge project is funded half by capital investment (R10 million) and half
(R10 million) by a 10 year 14% commercial bond.
Under these circumstances, the bond can be financed, and a return of possibly 4–13% on
the balance of the capital enjoyed from year 2. This should be adequate to attract an
investor.
18