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Dear Shareholder, 1. Operational Our last update (March 2001) contained operational and financial projections for our pearl farm in Waigeo and associated joint operation ventures elsewhere in Indonesia, as released to the Australian Stock Exchange. They ran to the year 2004 and showed substantial growth over the next three years. In fact we hope, with the qualifications mentioned previously, to pay our maiden dividend this calendar year. Our farm is still growing apace and moving towards what we consider to be its optimum size. We expect that at that stage, within two or three years, our annual production of pearls from Waigeo will reach the 100,000 mark. Since I last wrote to you we have had another harvest and are pleased with the quality of the product. On this occasion we sent 16,000 pearls to Pearlautore, our agents in Sydney. Together with the first two harvests in 2001 we have now delivered approximately 50,000 pearls to Pearlautore this year. So far this year we have operated over 141,000 oysters altogether, comprising 108,000 of first operations and re-operations and 33,000 second operations. Our target for the year is 150,000. We expect to exceed this. Altogether we now have some 875,000 oysters in the water in various stages of growth. As our hatchery comes into production in the last quarter of the year this figure can be expected to increase temporarily. Millions of spat are produced at each spawning but by the time they are farmed out the natural process of attrition will have occurred to bring down oyster numbers to a more believable but nevertheless very acceptable figure. Thereafter attrition is of only minor proportions. Since my last update Kate Simpson met with a nasty accident when the outboard motor on her boat hit an object and tipped forward, breaking her leg in six places. It was a particularly painful break. She was flown out to Melbourne where her leg was set. I am pleased to report that she is recovering well and we expect her back on the farm by the end of July. She will then take over responsibility for the hatchery from Jens Knauer. Jens Knauer is taking over some management responsibilities from Joseph, who now has management duties in Perth as our new Managing Director. Jens will be responsible for managing the pearl operations, the harvests and the farm’s research and development. Most of our operators are Indonesian ladies (I introduced them by name in the June 2000 update) who are now highly skilled at their jobs. Some ex-pats will help with the seeding and the Arrow Group is once again providing training and advice. Two of the female Indonesian operators (Laila and Sugi) are currently at Brome working with the Arrow Group on a short-term exchange programme. Jens now has our pearl-meat drying process well organised and is treating some 3000 pieces of meat every ten days. The product is then frozen and sent to Australia where it is sold for the Asian market. It currently sells for $460 per kilo. Our new Safety and Security officer, Tony Ridley, has settled well into his responsibilities and is upgrading security on the farm in a most professional manner. His previous training in security matters and his fluency in Bahasa Indonesia are proving invaluable and I feel very comfortable with the way our security programme is heading. Daniel Bradbury, an earnest young man who performs a most important task as Community Relations Manager, is preparing to move over the bay to live in the village of Selpele where he will be endeavouring to keep all villagers on side and make sure that the company's efforts on behalf of the village are recognised and appreciated. His fluency with Bahasa Indonesia and his work on producing a dictionary of the Kawe (village tribe) language will prove of great help. Anne Lee is approaching completion of the research leading to her Ph.D. which is concerned with studying environmental factors affecting oyster growth and survival in order to assist in better site selection. Her sampling will be completed by December of this year and she will then move to James Cook University, in Townsville, where she will make use of the university's sophisticated laboratory facilities to work on bio-chemical analysis of her sample data. There is still a vast amount of information to be gleaned from research into all aspects of pearl culture and the company regards ongoing research and development as an important part of its operations. The long-term payoff can be significant. For this purpose the company has a research budget and Anne's is not the only research being carried out on the farm. Other matters forming part of our current research programme are: Control of pearl colouration by saibo selection. We are currently obtaining more than 85% silver and 5% gold with the remainder in lower-value cream. This is a major improvement from the past when up to 85% of the product was yellow/cream. Pre-operative conditioning by inducing a "rested" state for the animals immediately prior to operations in order to improve their chances of survival and subsequent retention of nuclei. Post-operative care in order to reduce stress and lessen trauma. For example, Cendana Indopearls is the first farm to no longer turn oysters on a full production scale. Improving pearl shape in both first and second operations via technique and husbandry. Ryan Arnup, our chief engineer, is always busy endeavouring to keep our fleet of working boats serviceable. Apart from the D'Entrecasteau and the Teguh Prima (our two large transport boats which ply between Waigeo and Sorong, 80 nautical miles away, with personnel and cargo and provisions for the 166 Indonesian and ex-pat staff on site) we have 20 work boats of various sizes, six of which we have constructed ourselves, on site. These are strong fibreglass vessels and are powered by outboards of various sizes which need constant maintenance. Since each one is serviced monthly the task is never ending. Sasha Gibson, who has been with us for two years now is responsible, as a farm manager, for tending to oyster growout and associated facilities. Sasha, who has been busier than normal with Kate and Jason away, is giving serious attention to extending her command of Bahasa Indonesia. Directors Wally James, Admiral Poernomo and I visited the site earlier this month and were very impressed with what we saw. Project Director Joseph Taylor has built a very professional organisation in a surprisingly short time. The staff, both ex-pat and Indonesian, appeared in good spirits and there were no major problems with the whole operation, David Schonell, who will take over soon as Project Manager from Joseph Taylor, Terry Rout, in charge of all our electrical installations, and one our farm managers, Jason Parsons, were on leave when we were there. Since I was last there six months ago, new staff accommodation has been built and a new office block constructed. The previous office has become a research laboratory for Anne Lee and other researchers. A Cendana Indopearls office and a house for Daniel Bradbury have been built on the outskirts of Selpele, where Daniel will live. The construction demands seem never ending. Next on the list are married quarters for David Schonell and his family and a new and larger engineering workshop for Ryan Arnup. After that will come reconstruction and refurbishment of the operating facilities at Batu Terio. All in all, what has been achieved in a relatively short time is very impressive indeed. Our Managing Director, Lucian Petersen, joined our Deputy Chairman, George Snow, at a promotional function organised by Rosario Autore in Sydney in May. This highly successful function was a significant step forward in the promotion of the pearls which Pearlautore sells. I have asked George if he would report separately to you on this function. His report appears on page four of this update. Alex Kerr,
PEARL MARKETING AND FASHION WEEK Our exclusive broker and wholesale agent, Pearlautore, based in Sydney were sponsors of Mercedes Australian Fashion Week in 2001 and they were the official sponsor of the opening ceremony held in a sparkling environment at the Museum of Contemporary Art on Sunday 6 May. Managing Director Lucian Petersen and Director George Snow attended, together with other Australian South Sea Pearl producers. This high fashion event introduced designers Michelle Jank, Gwendolynne Burkin, Justine Taylor, Aurelio Costarella and Lorinda Grant in a high fashion environment featuring South Sea pearls on both the models and the designers and most of the women at this high fashion event. The promotion of Mercedes Fashion Week by Pearlautore was part of a joint effort by pearl producers to work together to establish a wholesale and retail brand and promote the use of South Sea pearls as jewellery in a high fashion setting. It is an ambitious project jointly funded by the producers and Pearlautore. Throughout the week pearls of all colours, shapes and sizes were prominently featured, both as jewellery and as high-class fashion accessories, in a spectacular setting at Fox Studios. In support of the regular fashion shows Pearlautore had staffed a substantial stand featuring pearl jewellery, product information and supporting literature from the pearl producers, including dramatic video footage from various pearl farms. In recent years pearl jewellery in the form of strands, necklaces, pendants, earrings and brooches has moved beyond the traditional conservative presentation to a large number of formal and less formal presentations, displaying the wide range of colours from silver, white and cream to the very valuable gold Atlas Pacific pearls. This form of promotion and brand presentation will play a very valuable role in broadening the demand for pearls and pearl jewellery, to the benefit of all in the industry. The final event that I saw in the Mercedes Fashion Week was on Thursday 10th May, when a spectacular presentation of Michelle Jank’s latest line of clothing was presented to a big press, public and media audience. The startling design of the clothes, accented by the South Sea pearls, was extremely well received and the show finished what I found to be a very valuable experience in marketing and presentation. It was interesting to note the large number of women attending the shows, both at a trade and personal level, who were wearing a range of pearl jewellery. Rosario Autore of Pearlautore was quoted as saying "we are excited to be involved with such a prestigious showcase of Australian design talent. Australian South Sea Pearls are a beautiful product of nature and to have leading jewellers working with some of Australia’s most innovative designers is very exciting for us." It is very stimulating to be associated with a company producing such beautiful products and which are displayed so handsomely on women of all ages. Strong product promotion is essential, for what is a discretionary and in most cases a luxury product, to create the broad interest and fashion support. It is an essential part of the work being carried out by Pearlautore and it was exciting to see it happening before us. George Snow |
