EXECUTIVE SUMMARY
PLUS OUD PLANTATION PROJECT
THROUGHOUT PLUSHIGHWAY IN MALAYSIA
USING EXTREME PROJECT MANAGEMENT METHOD

The project will provide means to:

(i) Contribute additional income to PLUS by using Extreme Project Management Method

(ii) Rehabilitate the PLUS land bank to be the profitable agricultural area, and

(iii) Provide a sustainable economic livelihood and job in the area and as a tourist attraction.

The main objective of this project is to develop an Agarwood plantation on the land bank belong to plus highway using the Extreme Project Management Method.

The plantation is located along north region of the plus highway from Perlis to Perak area. In the first Phase the total of 500,000 Agarwood tree will be planted on the plus land bank in 4 month started from 31 Jan 2016 until 15 May 2016.

The total investment cost will be RM 11 million. The project life cycle is estimated for 15 years.

Based on the financial analysis, the NPV IRR and MRR figures show that the project is financially viable. The projected cumulative net profit before tax estimated at RM392 million after 15 years life cycle.

The company can ensure the success of this project based on the followings:

i. The land is owned by Plus Highway.

ii. The financial support by Plus.

iii. The Oud Project is managed by an experience team consisting of two planters, one accountant and one engineer.

There is no apparent serious risk or uncertainty involved as the Malaysian government is keen toward high income economy and attracting middle east tourist and there is no expired date for the oud oil production and oud resin wood and the price and quality of oud oil expected to have a bright future.

1.0 INTRODUCTION

Agarwood Project Background

Plus Oud Plantation is a project to plant Agarwood tree throughout north and south Plus highway land from the state of Perlis until Johor. The project will benefit Plus in the long run due to high demand of oud product in the world market especially in the Middle East, Japan and Taiwan / China. Oud has had its cultural touch among various civilizations for thousands of years. The Egyptians used it to embalm and anoint the dead, the Muslims to lace prayer cloths, the Arabs as incense, and Ayurvedic, Arabic, Tibetan and Chinese physicians to treat various diseases and mental illness. Oud has therefore been used in many cultures throughout the world and even now continues to be sought after by many for its rarity, difficulty of extraction, high price and cultural importance.

Agarwood Market Demand

The consumer market for Agarwood is well developed in the Middle East and Northeast Asia where Agarwood has been used for over one thousand years. Taiwan, Singapore, Hong Kong and Bangkok are major traders of Agarwood while Thailand, Indonesia, Vietnam and Malaysia are major producers. The increasing scarcity of illegal forest Agarwood makes plantation grown Agarwood much sought after to meet global demand.

Taiwan & China Market Demand

Taiwan has long been a major trader in Agarwood for both medicinal and cultural uses. According to official records, 6,843 tones of unprocessed Agarwood were imported to Taiwan in the ten years to 2003. Prices of Agarwood for medicinal use vary between US$ 3,000 to US$ 30,000 per kilogram and processed oil between US$ 7,000 to US$ 61,000 a liter. Large high quality pieces suitable for ornamental sculptures can sell for up to US$ 100,000 per kilogram.

Japan Market Demand

In Osaka, Japan, a shop known as Jinkoh-ya (literally, “Agarwood Store”) has been trading Agarwood products for over 350 years. During the period 1991-1998, according to official Customs figures, 277,396 kilograms of unprocessed Agarwood was imported into Japan, or an average of over 34 tones a year. A 2004 price survey of unprocessed Agarwood pieces found prices ranging from US$ 320 to US$ 22,700 per kilogram with the highest grades selling for between US$ 9,000 to US$ 272,000 per kilogram.

Middle East Market Demand

Demand for Agarwood products in the Middle East significantly exceeds Eastern Asia. One well known Saudi Arabian retailer specializing in oud (agar oil) has over 550 retail outlets across 17 countries with over 600,000 customers and is one of the world’s largest perfume retailers in a market worth US$ 3.3 billion a year. The company imports 45 tones of unprocessed Agarwood yearly to produce 400 different fragrances with oud as the basic ingredient and has a production capacity of 30 million bottles of perfume a year.

The Potential of Gaharu as a Plantation Species

Gaharu (Malay word for Agarwood) is the most expensive wood in the world. It is valued in many cultures for its distinctive fragrance, and used extensively in incense and perfumes. Gaharu is the occasional product of two to four genera in the family Thymelaeaceae, with Aquilaria agallocha, Aquilaria crassna and Aquilaria malaccensis being the three best known species.

The name of the species is derived from the Latin word “aquila” meaning eagle. Gaharu is known throughout many Asian countries and at least 15 species of Aquilaria trees are known to produce the much sought-after agar wood. The valuable wood has been traded for thousands of years throughout Asia. It used to be commonly found in many tropical countries, from India to Indonesia (Angela Barden et. al., 2000).

2.0 OBJECTIVE OF THIS PROJECT

The objective of the project is to plant Agarwood tree through north and south plus highway for the benefit of Plus cash flow and utilize the land along the highway to gain profit from the oud product and as the tourism attraction to the foreign visitor in the country. Foreign visitor especially from the Middle East will be surprise to see the real oud tree in front of them because most of them only use the perfume but seldom see the Agarwood tree in the real life.

3.0 PROJECT DETAILS

The principal business activities are to develop an oud plantation in the unused land along the plus highway. The project area has a total planned and targeted area of ( 250 hectares for Agarwood tree cultivation and estimated 500,000 oud tree will be planted on that area. By using Extreme Project Management concept we expect to complete the planting process in 4 month. The total investment to plant and maintenance the tree for was estimated approximately RM 7.5 million.

3.1 Project Location/Area

The project area is located at plus highway land bank along north and south highway. The land area is suitable because the height not more 0-750 m from sea level

3.2 Climate

Rainfall: Most of the area in Malaysia is very suitable for Agarwood plantation where average rain fall is less then 2,000cm.

Temperature & Sunlight: The average monthly air temperature is 27°C -32° C, with average daily sunlight 70% direct sunlight. Generally all this factors are considered favorable for oud cultivation.

3.3 Soil

Based on the result of field soil morphological observation and laboratory analysis, the soil in the project area can be classified into 2 soil types namely Lempung & Sand clay with ph 4.0 – 6.0. Generally, these soils are classified as suitable for oud cultivation.

3.4 Type of Seedling

In Malaysia two type of seedling is available in the market known as Aqualaria Sub Integra and Malaccensis.

5. Crop Distant

The recommended crop distant is 3 feet x 3 feet

6. Stand per hectare

The recommended stand per hectare is 1000 tree/ac or 2000 tree/ha

7. Fertilizer

Organic fertilizer is most recommended especially in oud tea production and the use of chemical should be avoided.

8. Year For Harvested

For oud oil year 6 after 6 month of inoculation process is the suitable time to harvest. In oud tea production the oud leaf can be harvest 8 month after planted.

4.0 ORGANIZATIONAL STRUCTURE AND MANAGEMENT

The Plus Oud is responsible for the overall project development under the management of the Board of Directors as the highest decision-maker. There are five members sitting on the board of director and one of them from DZ Oud , MTIB while the others from Plus.

The management of Plus Oud is lead by the four Malaysian namely Group General Manager and assisted by General Manager (Estate Operation), General Manager (Finance & Administration) and General Manager (Manufacturing).

5.0 INDUSTRY ANALYSIS

Today, the demand for Agarwood far exceeds supply. A recent study revealed that supply rates are only 40% of the demand and a litre of Agarwood oil can be sold for around $US10, 000 – 20,000 on the market. Indeed Agarwood is reputed to be the most expensive wood in the world and it is estimated that specialized buyers are prepared to pay as much as ten times more for this product. Global Industry Analysts (GIA) predicts that global perfume and fragrance sales will rise to USD 33 billion by 2015 and USD 36 billion by 2017.

Today, the international trade in oud involves at least 18 countries and millions of US dollars annually. Indeed, due to the growth in the population and affluence of oud-consuming markets (including Taiwan, Saudi Arabia, Japan, and the United Arab Emirates), the demand for oud has risen considerably over the past 30 years. However, the increase in demand appears to have led to diminishing supplies, leading to rising prices and concerns over the future supplies of the commodity. Furthermore, there are fears that the oud trade may drive some oud-producing species to extinction.

5.1 Market Production and Utilization of Oud Oil

The long term study of the supply and demand of oud oils from Malaysia has indicated that palm oil production and export are expected to increase. Export value for oud oil from 2005-2010 are shown in table below.

Export Value in Liter for 2005 - 2010

|Year |Value in Liter |
|2005 |11 |
|2006 |169 |
|2007 |388.50 |
|2008 |259.80 |
|2009 |252.48 |
|2010 |140.15 until July |

Source: MTIB 2010

About 80% of the world’s oud oil utilization goes into perfume application. Perfume manufactures is a major uses for oud oil. With the present relationships of price and availability, oud oil products are preferably became the choice amongst the perfume industries. Applied research has resulted in oud oil being the raw material in applications such as cosmetics, detergents and others medical products,

Gaharu resin, oil and even gaharu woodchip can be turned into the following products:

1. Pure Agarwood Oil 2. Agarwood Chips 3. Agarwood Piece 4. Agarwood Chunk 5. Agarwood Crushing 6. Agarwood Stuffing 7. Agarwood Incense 8. Agarwood Tea 9. Agarwood Perfume 10. Agarwood Soap 11. Agarwood Lotion 12. Agarwood Cream 13. Agarwood Lip Balm 14. Agarwood Candle 15. Agarwood Shampoo 16. Agarwood Conditioner 17. Kayu Sugi Agarwood

6.0 BUSINESS POTENTIAL & VIABILITY

6.1 Domestic Market

The study indicates that the demand in the domestic consumption will be increased since the government encourages the development of domestic fractional industry to meet the overwhelming demand for perfume and pharmaceutical in the world market.

6.2 Business Growth Prospect

Business growth prospect for oud oil production is considered having a very bright future and positive impact especially in Malaysia based on the following:

i. High demand from internal and external consumer. ii. Lower cost of production, land and skill work force. iii. High price on oud oil in the world market.

All these factors are the main contributes to the positive prospect in this industry.
Agarwood Prices

Market Prices of Agarwood in Kelantan (Apr 2014)

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|Agarwood Grade (Greed Gaharu) | |Origin (Tempat Asal) | |Price (Harga) | |Remark (Nota) |
|Super grade Gaharu | |Sarawak | |RM9,000/kg | |Jun 2006, source: Malaysian-German Forestry Education Project |
|Grade A | |West Malaysia | |RM1,000/kg | |1985, source: FRIM/UPM |
|Grade A | |West Malaysia | |RM14,000/kg | |2008, source: FRIM/UPM |

7.0 SWOT ANALYSIS

7.1 Strength

No bank loan at this moment, only from PLUS.
Managed by experience management who have been involved in oud plantation
Strong technical support from MTIB and agriculture department.
Supported by skilled workers from local and abroad.

7.2 Weaknesses

Requires financing for development and R&D
Unable to race additional capital to support the whole project if it was done by smallholder. 7.3 Opportunities

High price of Oud Oil and Oud Tea in the world market.
High demands and exports incentive demand from oud product.

7.4 Threat

Field and land development for planting will be affected if support unavailable.

8.0 Extreme Project Management (XPM):
The concurrent probative swim lanes are used to define goal clarification and solution set at the same time. The desired end state is usually guessed. The project team has maximum flexibility. There is hope to achieve goal with solution at the end of the project. The learning and discovery take place between the client and the development team in each phase. The scope of the project is defined at each phase. The risk of project failure is very high. Failure is difficult to define. The clients need to involve within and between phases. The client takes leadership role instead of collaborative role as opposed to APM projects. The funding organization sees the learning and discovering as potential rewards and continues the funding support. There are two reasons for the project to stop. 1. The solution is found as per the goal and it makes business sense. The project is closed as successful project. 2. The sponsor is not willing to continue the funding as he feels that project is not making any meaningful progress or is not converging on an acceptable solution. That means project is failed and it restarts with a search of solution in a different direction.

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XPM FOR PLANTING AGARWOOD AT PLUS HIGHWAY.

|XPM FLOW |Items/Action |Duration |Remarks |
| | | | |
|Scope of work | | | |
| | | | |
|Land clearance |To clear the Jati’s |1 month |Error or problem must be solve |
|Lining and planting |tree |1 month |within 2 weeks |
|Manuring | |Every 3-4 Month | |
|Crop maintenance | |Every 3 month | |
|Harvesting | |After 8 month | |
| | | | |
|Plan Phase | | |Plus Land (Perlis to |
| | | |Perak |
|Phase 1 |Planting |4 month |Error or problem must be solve |
|Phase 2 |Oud Tea Production |8 month |within 2 weeks |
|Phase 3 |Oud Oil Production |84 month | |
|Phase 4 |Oud Wood Harvesting |120 month | |
|Implement |Plus Oud Team | |Error or problem must be solve |
| | | |within 2 weeks |
|Monitor and Control |Plus Oud Team And DZ Oud Consultant|Every Month |Solution and decision must be |
| | | |implement within 2 weeks |
|Close Project |Final valuation and audit by DZ Oud|After 4 month | |
| |Consultant and Plus Audit Team | | |

9.0 OUD OIL PRODUCTION

9.1 Oud Oil Mill

In northern region Oud Oil Mill is a 100% owns by DZ Oud Enterprise and Oud Wangi Enterprise. Both companies of the mills can provide with a capacity of 100 units distillation stove. 9.2 Source of Gaharu

The Karas tree is assumed to come into maturity 5 years from planting (year planting: 2016). The project is expected to yield 2,770,350 kg of gaharu by the year 2025 from the project area which is approximately 250 hectares. The total of gaharu production is as per appendix

9.3 Target Gaharu Oil Production Capacity for the Project

Projected Gaharu production capacity is shown in appendix . The Gaharu trees are expected to be harvested by the 6th years. The initial yield (1st year of harvesting) gaharu oil production is estimated at 240 liter per month. By the year 2024 the total of oil produce is estimated at 2,216 liter.

9.2 Mills Capacity

Projected PGO mill production capacity is shown in appendix . The mill production capacity is expected to start operation by the year 4 of the project. The initial capacity is estimated 1 liter per month. This increases significantly after the year 7 after the harvesting production of gaharu from Plus Oud plantation which is estimated at 20 liter per month.

10.0 FINANCIAL ANALYSIS

The total cost of the project estimated at 11 million until year fifth of the project. The investment will be financed from the internal equity. The project life cycle is for 15 years

10.1 Cash Flow Projection For 15 years

Sales of PGO have been based on computed PGO price at RM300. The discount rate is based on 10%. Table below shows the effect of NPV, IRR, MIRR and payback period.

Price PGO at RM350 for 1 tolla (12ml)

|Figure In RM |10% Discounting rates |
|NPV |32,297,570.09 |
|IRR |38.24% |
|MIRR |21.85% |
|Payback Period |6 year |

10.2 Projected Profit

Revenue for the project is computed based on PGO RM300/tolla, projected accumulated net cash flow in year 2030 is 392 million. The payback period expected to be the year six of the project.

11. OUD TEA PRODUCTION

Oud tea is rich in essential minerals such as vitamins, calcium, zinc, iron and manganese. Oud leaves contain high levels of anti-aging and anti-cancer properties because of its high anti-oxidant contents. Oud tea is traditionally used for maintaining healthy heart function, reducing blood sugar levels, lowering blood pressure and stabilizing the nervous system. It also known to improve sleep quality, promotes natural beauty, reduces flatulence and effects of hangover, asthma and constipation, and expels oils.

The production of oud tea will be commenced after 8 month the oud tree was planted. The Plus Plantation only sells wet oud leaf direct to the supplier base on the market price range from RM1-RM2 per kilo. It was estimated a single oud tree can produce 0.5 kg quality oud leaf per month. Based on that calculation the estimated revenue as below

|No. of tree |Weight. of Oud leaves/month (0.5kg) |Price |Revenue/month (RM) |
|500,000 |250,000 kg |RM1.00 |RM250,000 |

11.1 Sales of Oud and Oud Tea

Our sales of gaharu oil and Oud Tea will be implemented as below:

i. Contract sales with Sheikh Abu Mansur Abu Yosof , Al Quraishi Group and Arabian Oud from Mecca. ii. Direct sales of wet oud leaf to Perbadanan Pembangunan Pertanian Negeri Perak. iii. Direct sales through Maltrade and cooperation with Malaysia Consulate in Arab country and China to identify potential buyer. iv. Cooperation with main importer of perfume, beauty product and pharmaceutical industry.

12. CONCLUSION.

Oud oil will become one of the export commodities to Malaysia. To encourage the development in this industry, the Malaysian government has encourage to develop new export commodities, which is intended to boost exports and improves its domestic production efficiency. Based on the positive factors such as cost of manpower, soil, climate, transportation etc and good result of the financial analysis, it is therefore conclude that the project is viable and the use of Extreme Project Management Tools is very useful to expedite the project.