HomeMy WebLinkAboutValdez Regional Cold Storage and Processing Facility Business Plan3. Combination or joint operation: Under this option, the owner provides the space, area, and
major equipment for a lease fee. The fillet operator provides minor and specialized equipment,
some or all workers, supervision, and raw products. There are many variations on this option
dealing with equipment and personnel. This is a model used in roe processing in Alaska and
some "for lease" processing plants. The fee structure may include a factor for the space and area,
equipment, and personnel.
The third option is recommended. Under this option, the landlord (VFUA) will provide space, basic fillet
processing equipment, engineers, maintenance personnel, and utilities. The breakdown of responsibilities
between plant owners and tenants will be along the following lines:
Table 6
Processing Line Landlord/Tenant Responsibilities
Basic fillet equipment
Engineer, maintenance, and operations of
sensitive equipment
Thaw room operations
Equipment replacement costs
Space
In & out from cold storage
Processing workers
Specialized equipment beyond that supplied
by plant owner
Packaging
Quality Control and sanitation
All consumables
Product insurance
Building and equipment insurance Product monitoring
Inspection services Product marketing
Utilities
Insurance
The cold storage owners generally acquire and provide insurance coverage for a multitude of risks including:
• Property and casualty including fire
• Refrigeration failure, including ammonia contamination
• General liability
• Warehousemen lien (bonding)
The client generally provides insurance coverage for the value of the product stored in the cold storage. For
an optional fee on the storage rate the cold storage may provide insurance coverage for the value of the
product as declared by the client.
The following table lists typical insurance coverage for a similar cold storage facility. This insurance estimates
below include coverage for the space and equipment in the processing area. It also covers all product in the
cold storage and workers compensation for 14 cold storage personnel. The annual premium is $184,200.
Valdez Regional Cold Storage and Processing Facility Business Pion - 2009 Update McDowell Group, Inc. • Page 28
Table 7
Estimate of Insurance Premium for Typical Cold Storage Facility
General liability insurance
S 12,000
Warehousemen legal liability
5,000
Umbrella liability premium
7,000
Property insurance premium
130,000
Boiler St machinery (including refrigeration equipment)
18,000
Workers compensation premium
8,000
Auto insurance premium
4,200
Total coverage (estimate)
S 184,2DO
Not included in the insurance quote is.
• Insurance on specialized equipment owned by the fillet processor(s).
• Worker's compensation for fillet processor workers. (VFDA worker's compensation is included in
the payroll figures listed in the financial section of this report.)
• Product liability insurance for sale of fillet finished products.
Fillet operators will often carry their own coverage for products the fillet operator might own that are stored
in the cold storage. This is basically double coverage. Most of the time the owner of the product has some
type of coverage on products held in coid storage. Fillet operators would typically carry their own general
liability as well. A fillet operator would be required under the lease with the cold storage owner to have some
general liability coverage.
Regulatory Permits and Licenses
The following is a list of the licenses and permits that may be required of fillet processing facility ❑perator(s).
Some of these permits may be held in conjunction with the cold storage ownerloperator. Not covered are
local community license or permit requirements. The application process to obtain some of the permits may
require an extensive listing and review of the operation practices in the facility such as a Hazard Analysis and
Critical Control Point (HACCP) plan.
Valdez Regional Cold Storage and Processing facility Susiness Plan - 2009 update McDowell Group, Inc. • Page 29
Table 8
List of Frequently Required Permits or Licenses
Permits or Licenses (listed in alphabetical order)
AK Fish Business License Notice to Report all Injuries Posting
AK Financial Responsibility
AK Wage & Hour Act Posting
Cert. for Primary fish Buyer/Processor
Corporate License
Emergency Information Posting
Employers' Notice of Insurance
Equal Employment Opportunity posting
Europe Certification
Family Medical Leave Act Posting
Federal Minimum Wage
Intent To Operate
NPDES Annual Report
NPDES Notice of Intent
Polygraph Protection Act
Pressure Vessel Inspection Cert.
Processor Permit
Safety & Health Posting
Scale Certification
Scale Registration
Sexual Harassment Posting
Unemployment Insurance Posting
Alaska Department of Environment Conservation requires a submission of building plans and the list of
specific materials used in the construction of the processing facility prior to the commencement of
construction.
Valdez Regional Cold Storoge and Processing Facility Business Plan -1009 update McDowell Group, Inc. • Page 30
Personnel
The following organization chart depicts the lines of authority for Valdez Fisheries Development Association
personnel, including the three main business units.
VFDA ORGANIZATION CHART
VFDA Board of Direciars
Seven Members
� Mar�eger
AsasWri h1aK:Fiery
Marxenerrx
Engaxeer
I Cununsls;3) I
Frstr Ted"cw s (9)
i
Jason, wells
Executive Director
_ Dave Cabb
r' Firunciat tllanager
t.tilll'+ WatiVK
Corparate Accourewx
Gild Storage and Praaef"
Line Facilely Mertey7Br
Fmhav Vassal
Coorduwbor I I Cold Sb w Erg.
Cod 5twaga Crew (2) L
Pr"m"&V Reo*mg Cr"
(6) seaannal ppetlipil6
olfiae AAartiiger
Procr'as+rx} Facddyr auauty comNro Irmpedor
The following describes personnel duties, pay and benefits, and required skills and abilities for the initial
phase of the cold storage and processing line facility. The focus of the following discussion is on major
positions for the new facility along with a brief description of seasonal and part-time positions. In the
beginning phases of the cold storage and processing line facility, major positions cover some of the activities
of the less technical positions. As the final phase of expansion nears, more of the less technical positions (i.e.
the cold storage and shipping and receiving crews) will be required.
Cold Storage and Processing Line Facility Manager
The facility manager wili hold an exempt salaried position reporting to the VFDA Executive Director and in
turn the Board of Directors of the Corporation.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. ■ Page 31
The primary job requirement is management of the start up of a cold storage facility and the capacity to work
with a diversity of issues ranging from setting up operational systems within the cold storage, hiring
personnel, negotiating leases, attracting business users and dealing with the public and governmental
representatives. The position requires intimate knowledge of cold storage operations, including warehouse
management systems, budget development and implementation, refrigeration, quality control, personnel
management, and public relations skills.
PAY AND BENEFITS
The pay and benefits are subject to the qualifications and experience of the individual. The benefit package
includes medical and dental insurance, annual leave, holiday pay, and other benefits as described in the VFDA
Personnel Policy Manual.
This position will have a salary range of 565,000 - 575,000.
JOB DUTIES
This position is responsible for the overall operation and maintenance of the cold storage and processing line
property including personnel, building, and equipment. Additional responsibilities include compliance with
regulatory agencies, timely applications for permits and licenses, and maintaining good relations and
communications with personnel, the Board of Directors, community leaders, and the public at large.
The cold storage and processing line facility manager will develop and implement a state of the art
warehouse management system. This position is also responsible for all leasehold users operating within the
cold storage facility including negotiation with potential lessee for use of the space and equipment for fillet
operations and coordination of the cold storage and fillet operations.
The facility manager will also advise the Executive Director and the Board on local, national, and international
factors affecting the cold storage and processing line facility. The person holding this position will analyze
business developments and consult trade journals to monitor market trends and determine market
opportunities for products. This person assists in setting prices or fees and conducts economic and
commercial surveys to identify potential clients for the facility.
The facility manager will develop and implement the strategic and operation plans. The facility manager is
responsible for the annual operating budget and quarterly reporting to the Executive Director and the VFDA
Board.
The facility manager is actively involved in the recruitment of potential users of the cold storage and
processing line facility, staffing, and personnel evaluations.
MINIMUM QUALIFICATIONS
A bachelor's degree in business management or a related field and at least four years of experience in a
supervisory position in a cold storage facility or similar experience that can be substituted.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Croup, Inc. • Page 32
Office Manager
The office manager is an exempt salaried position reporting to the cold storage and processing line facility
manager or the Executive Director. This job may be a shared position with the other business components of
the Valdez Fisheries Development Association.
PAY AND BENEFITS
The pay and benefits are subject to the qualifications and experience of the individual. The benefit package
includes medical and dental insurance, annual leave, holiday pay, and other benefits as described in the VFDA
Personnel Policy Manual.
This position will have a salary range of 537,000 - $48,000.
JOB DUTIES
Primary job functions for the office manager are management and operation of the cold storage office
including the warehouse management system, accounting and financial systems, personnel, and payroll,
The office manager confers and cooperates with the cold storage and processing line facility manager and the
Executive Director and others in formulating and implementing administrative, operational, and customer
relations policies and procedures. This position will generate regular reports (i.e. accounts receivable,
accounts payable, inventory summaries, etc.) for review by the facility manager and the Executive Director.
The office manager must demonstrate good personnel relations (i.e. office workers and cold storage
employees) and ability to professionally handle the public (i.e. clients and local leaders).
MINIMUM QUALIFICATIONS
A bachelor's degree in business administration with a major in accounting or finance or equivalent and a
minimum of four years of experience in accounting with expertise in QuickBooks or other similar accounting
system. Experience with warehouse management systems is preferred.
Cold Storage Engineer
The cold storage engineer will hold an exempt salaried position, reporting to the cold storage and processing
line facility manager or the Executive Director.
PAY AND BENEFITS
The pay and benefits are subject to the qualifications and experience of the individual. The benefit package
includes medical and dental insurance, annual leave, holiday pay, and other benefits as described in the VFDA
Personnel Policy Manual.
For budget and planning purposes, the salary range for this position is $65,000 - 575,000.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. 0 Page 33
tors DUTIES
The cold storage engineer is responsible for the operation and maintenance of the cold storage plant and
equipment. This position assists with the start up and ongoing operation of the ammonia absorption
refrigeration and heating, rolling stock, facilities maintenance, and all specialized processing equipment.
The cold storage engineer routinely confers with the cold storage and processing line facility manager and
the Executive Director on status of the plant operations. This position conducts experiments to test and
analyze existing designs and equipment to obtain data on performance of the cold storage system and
equipment, and prepares reports. This position may be responsible for supervising non -technical workers in
the performance of duties as it pertains to the plant operations.
MINIMUM QUALIFICATIONS
A bachelor's degree in engineering with a major in refrigeration systems or equivalent and a minimum of four
years of experience in operating and maintaining a cold storage unit. Experience with ammonia absorption
systems is preferred.
Processing Facility Quality Control Inspector
This is an exempt salaried position reporting to the Cold Storage and Processing Line Facility Manager or the
Executive Director. This is an independent third party inspection service provided by VFDA.
PAY AND BENEFITS
The pay and benefits are subject to the qualifications and experience of the individual. The benefit package
includes medical and dental insurance, annual leave, holiday pay, and other benefits as described in the VFDA
Personnel Policy Manual.
For budget and planning purposes, the salary range for this position is $45,000 - $50,000,
108 DUTIES
The quality control inspector examines, weighs, and measures commodities, such as seafood to certify
wholesomeness, grade, and weight. This position will act as an independent auditor of product characteristics
and quality and ensure that product meets the buyer's specifications.
MINIMUM QUALIFICATIONS
A bachelor's degree in a science related field and two years of experience in a similar environment.
Cold Storage Crew
The cold storage crew are non-exempt hourly positions reporting to the cold storage and processing line
facility manager or the cold storage engineer.
Valdez Regronol Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. • Page 34
PAY AND BENEFITS
Hourly wage estimates: $12lhr. to S181hr.
JOB DUTIES
The cold storage crew works under the supervision of the cold storage and processing line facility manager or
the cold storage engineer. The crew must be able to work in a cold storage environment with sometimes
loud equipment. Workers are also required to operate equipment such as a forklift.
MINIMUM QUALIFICATIONS
A high school graduate or equivalent and demonstrated general work skills such as reporting to work on
time, following workplace rules, and ability to follow directions. Workers must be able to lift 75 pounds.
Shipping and Receiving Crew
The shipping and receiving crew are non-exempt hourly positions reporting to the cold storage and
processing line facility manager or the cold storage engineer. Some of these positions may be seasonal.
PAY AND BENEFITS
Hourly wage estimates: S1 Q1hr to S151hr.
JOB DUTIES
The shipping and receiving crew works under the supervision of the cold storage and processing line Facility
manager or the cold storage engineer. The crew must be able to work in a cold storage environment with
potentially loud equipment. Workers are also required to operate equipment such as a forklift.
MINIMUM QUALIFICATIONS
A high school graduate or equivalent and demonstrated general work skills such as reporting to work on
time, following workplace rules, and ability to follow directions. Workers must be able to lift 75 pounds.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. ■ Page 35
Operations
The proposed Valdez regional cold storage is designed to serve two basic functions:
1. Receiving, storage, and shipping: This service allows consolidation of customer specific loads,
lowers freight costs, and permits mixing several products to suit a specific customer order.
2. Reprocessing: This activity, not offered in all cold storages, permits warehoused product to be
pulled from inventory, reprocessed to meet customer specifications, and re-entered into cold
storage.
As simple as these functions may appear, to be performed efficiently requires several, often complex, steps.
The section below discusses in greater detail some of these more complex activities.
Receiving and Storage
1. Pre -receipt entry
• Shipper notification document to cold storage of incoming shipments prior to arrival at the
cold storage. This document tells the cold storage where the product is coming from. Based
on this information the cold storage creates off load tally sheets and pallet labels.
• off load tally sheet. This is a data form created by the cold storage using shipper
information for the unloading crew. This document is used by the unloading crew to record
when the product arrived and what was included. This includes the temperature of the van
and the product at the time of arrival at the cold storage.
• Pallet labels are printed in the office based on the shipper provided information on the
product arriving. The pallet labels include the lot numbers assigned by the office for tracking
within the cold storage.
2. Unload and receive
• Off load tally sheet records the product off the truck and records the piece count, weight,
and temperature of the van and the product at the time of delivery.
• Pallet label, preprinted by the office. The unloading crew palletizes the product and applies
the preprinted pallet label.
3. Location putaway
■ Off load tally sheet records the storage location in the facility. For example.. 3R-1_21-2 means
cold room 3R - row L - slot 21 - level 2.
• Off load tally also records any extra labor charges above the standard services.
Valdez Regional Cold Storage and Processing Focifity Business Plan - 2009 Updole McDowell Group, Inc. 0 Page 36
• Warehouse receipt. The off load tally sheet goes to the office and the information is used to
generate the Warehouse Receipt. This is a legal document and binding between the parties
that records what is in the cold storage. At that point the cold storage is legally responsible
For the products and condition of the product as listed on the Warehouse Receipt.
4. Confirm putaway
• Double check on data entry to confirm.
• Set up billing records and initiate the cold storage charges to invoice to the customer,
S. Transfer of ownership
• The customer may sell or transfer ownership of specific lots within the cold storage to
another customer. This can be done within the office by switching the ownership of specific
lots. Or, it may require splitting certain lots and re -label to indicate the change of ownership.
Shipping
1. Customer order entry
■ Customer order document- the order document states who owns the product, who is
receiving the product, what products were ordered, and how much was ordered. It is a
specific list of lot numbers and quantities to pull. Customer order document also provides
shipping company information for container arrival and loading schedule.
2. Order picking
• Order picking sheet. This document is generated by the cold storage office from the
information in the customer order document. It contains the specific lot numbers, product
description, and the location within the cold storage.
• Tally sheet. The order picking sheet is used as a tally sheet by floor crew to pull the product
pursuant to instructions and double Checks the product.
• Container set up sheet. This document is created by the cold storage office from the
information provided in the customer order document. It details the shipper, load date,
booking number, trucking company, and a variety of information dealing with labeling,
inspection, load configuration, net and gross load weights.
3. Loading and order confirmation
• Container load checklist. This is a preprinted checklist used by the loading crew to double
check and record the loading information. It includes the shipper, load date, loading crew
names, and confirms that pictures and other special instructions are implemented.
• Booking confirmation. The shipping company or customer provides a booking confirmation
that details the specific shipping information including the booking number, vessel,
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. • Page 37
departure port and date, arrival port and date, trucker, agent names, and temperature
settings for the container.
• Bill of lading. The cold storage office produces the bill of lading from the order picking
sheet, tally sheet, container set up sheet, and container load check list.
Warehouse Management Systems
Warehouse Management Systems {WMS} are used to handle the functions described above. These systems
automate and add an important element of reliability and accuracy to many of the receiving, tracking,
Storage, and shipping activities in the warehouse. WMS systems vary from basic hand tally, hand entry to
very sophisticated bar code and radio frequency (RF) systems. More sophisticated systems can be integrated
with accounting systems for invoice generation, account payable, accounts receivable, and financial
statements. There are also options to include warehouse management labor and time keeping functions.
The level of electronic automation in warehouse management and integration of WMS systems with
accounting systems is a major decision process to be faced in the future operating plan.
Depending on the level of integration the cost of these types of systems vary from $100,000 • S2,000,000
plus.
Factors to be considered in choosing the right warehouse management system for a specific cold storage
project include a review of the following:
• Labor savings
• Equipment choices
• Space utilization
• Inventory turnover cycles
• Transportation factors
• Information systems cost
• Employee productivity
• Customer service improvements
The warehouse management system recommended for the proposed cold storage is a relatively simple
system containing bar coding and radio frequency technology. These functions will reduce the labor
requirement on the loading dock, in the cold storage box, and in the office. These systems also reduce errors
and produce timely reporting for the cold storage operator and customer. Integration of the warehouse
management system with the accounting and finance system will further reduce time and labor and increase
timeliness of invoice and financial reporting.
The cold storage operation anticipates high volume storage with a relatively low number of customers. The
variety of products is small. The deliveries into and out of the cold storage are low. With these parameters,
the right size warehouse management system for the Valdez project is a smaller and less complicated one
Valdez Regional Cold Storage and Processing Facifrfy Business Plan - 2009 tlpdale McDowell Group, Inc. ■ Page 38
with fewer components. A survey of warehouse management system providers specializing in cold storage
operations places the range of cost for the Valdez system at $100,000 - S150,000. This includes the
computer hardware, portable bar code readers, radio antenna, and transmitters for the cold storage facility
and the computer programs that run on off -the -shelf computer software. This type of system will integrate
with most common accounting and finance programs.
The specific WMS program selected should be reviewed further when the facility's operating plan is
developed. Factors to consider include estimates for the number of customers and different products, weekly
inventory additions and deductions, size of deliveries, average holding time for product, number and sire of
shipping orders per day, and layout and design of the cold storage facility.
Reprocessing
The second basic function for the Valdez Regional Cold Storage facility is the reprocessing line. Product
arrives at the cold storage facility after it has been previously headed and gutted and frozen. Clients of the
cold storage may then remove product from the cold storage for further processing,
The fillet operations are the heart of a specialty seafood processing plant. The VFDA proposed plant includes
two fillet -processing lines capable of producing basic fillet products using high quality automated equipment.
VFDA (the landlord) will provide processing equipment needed to produce a basic pin bone out salmon fillet.
Equipment needed to produce more specialized product may be provided by the tenant.
Each fillet line is capable of running 30,000 pounds of H&G pink salmon per day. The equipment provided
by the landlord will generate 18,300 pounds of vacuum-packed pin bone out fillets per day in a single shift.
The building facility will have two independent spaces of 3,000 - 4,000 square feet fully equipped with state
of the art fillet equipment. These fillet facilities will be leased to qualified third party operators.
The frozen product for use in the fillet operations will be stored in the cold storage, The cold storage
personnel will pull the frozen product from the cold box as needed by the fillet operators and deliver it to the
thaw area in the fillet rooms.
The fillet operators will take product from the thaw area and produce the fillet and value-added products.
The finished fillet products will be frozen in a tunnel freezer operated by the cold storage personnel.
The rest of this discussion will focus on the cold storage and processing line facility business unit. The plan is
for the fillet room to handle up to 30,000 H&G pounds in a single 10 - 12 hour shift. The area and
equipment include the receiving of H&G salmon in totes and freezing with a tunnel freezer. The equipment is
designed to handle a continuous flow of product.
The plan includes the person picking up the totes of H&G fish to supply the fillet line with raw product
through the case up and labeling personnel and supervision and quality control. It is assumed the cold
storage owner provides the labor to:
Valdez Regional Cold Storage orrd Processing Facility Business Plan - 2009 update McDowell Group, Inc. ■ Page 39
• full product from the cold storage
• Set up the thaw operations
• Operate the tunnel freezer refrigeration system
• Adjust, repair, and maintain landlord -supplied equipment in Both fillet rooms
■ Move cased up product from the fillet area to cold storage holding room
• Sanitation crew
The tenant provides the labor to:
Fillet the product
• Operate any specialized equipment supplied by tenant
• Load the freezer
• Case up the product
Fillet Operations
Each fillet room has the capacity for 30,000 pounds frozen H & G salmon per working day. The frozen product
is held in the main cold storage facility. The cold storage owner/landiord provides the personnel and
equipment to pull the product from the cold storage facility and deliver it to the fillet operator. The cold
storage owner picks up the finished fillet after freezing and case up and returns the product to the cold
storage facility pending Shipment.
Table 9
Processing Line Landlord/Tenant Areas of Responsibility
Frozen salmon in cold storage
Cold storage transport to thaw room
Freezer operations
Return finished product to storage
Fillet Room Equipment
Monitoring product while thawing
Fillet processing
Loading freezers and case up
Technological innovation in the processing equipment is ongoing, The processing plant will be built in a
manner that allows for change and continuous upgrading of equipment and processes. There are a variety of
options for the purchase and ownership of the major, specialized fillet equipment.
The following equipment cost estimate assumes the tunnel freezer system is built and installed by the cold
storage owner and is available for use by each fillet operator on a fee basis. The tunnel freezer is installed,
operated, and maintained by the cold storage owner. The fillet operator personnel do the loading and
unloading of the freezer. The landlord is responsible for operating and maintaining the freezer.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. 9 Page 40
Capital costs associated with the two fillet rooms total $840,000. The table below shows these costs split out
between the four main activities performed in the processing area.
Table 1 ❑
Processing Line Basic Equipment Summary
Fillet and bone removal
S 180,000
S 180,000
S 360,000
Grading and packaging
40,000
40,000
80,000
Freezing and case up
50,000
50,000
100,000
Tunnel Freezer
300,000
(Included in #1)
300,000
Total equipment cost S 570,000 S 270,000 S 840,000
The major equipment will be purchased and installed by the cold storage owner. The use of the equipment
will be through a lease fee to the fillet room operator. The fillet room tenant will supply any additional
specialized equipment needed to create product for a particular customer product specification.
Fillet Tunnel Freezer
The box for the tunnel freezer is located adjacent to the fillet rooms to incorporate the freezer area within the
bacteria control zone of the fillet rooms. This design allows the frozen product to return to the fillet rooms for
case up and labeling by the individual fillet operators.
The major factors contributing to the selection of the tunnel freezer are:
• Cost effective operation with uneven daily production,
■ Flexibility to freeze variable size fillets from pink salmon to king salmon.
• Freezer capacity matches pink fillet production at 1,800 pounds per hour from one fillet room or
3,600 pounds per hour from both fillet rooms simultaneously. This is one rack every 10 minutes
or six racks per hour from each fillet room.
• Substantially lower initial capital cost compared to other continuous freezing options such as belt
or spiral freezers.
• Operation of the tunnel freezer drag chain mechanism is reliable and easy to use.
The tunnel freezer capacity is 1,800 finished pounds per hour for each fillet room for a total of 3,600 pounds
per hour, The refrigeration load at full production for both fillet rooms running at peak capacity is 729,000
BTU per hour or 60 tons of refrigeration at -40 saturated suction temperature. The refrigeration is assumed to
be supplied from the main cold storage ammonia absorption refrigeration plant. Refrigeration is assumed to
be available as needed to accommodate loads in the tunnel freezer. If needed later, this design allows the
installation of redundant and back up compressor systems.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 update McDowell Group, Inc. • Page 4 I
The estimated cost for the tunnel freezer box with a drag through system is S 300,000. This includes all of the
component parts for the box, coil, drag mechanism, and installation. It does not include the refrigeration and
related piping. The compressor and evaporative condenser are considered part of the cold storage system.
Payment for use of the tunnel freezer and refrigeration is blended int❑ the facility lease fee.
Processing Line Operating Casts
The entire facility, cold storage and processing, is assumed to operate on a break-even basis and is further
assumed to have no debt service. Accordingly, the lease rate for processing needs to compensate the owners
for operating and replacement costs only. The lease rate is further reduced due to the facilities access to free
waste heat that is assumed to be adequate to meet the facility's energy needs (including electricity and
energy for refrigeration needs).
Table 11
Summary of Processing Line Operating Costs
1perating Costs
Line I
Line 2 Total
Monthl)
Engineer and maintenance
$ 119,760
$ 119,760 $ 239,500
$ 19,960
Equipment replacement account
54,000
54,000 108,000
9,000
Fish waste
18,000
18,000 36,000
3,000
Total operating costs
S 191,760
S 191,760 S 383,520
$31,960
Finished product weight (pounds) 4,536,000 4,536,000 9,072,000 756,000
Valdez Fisheries Development Association's operating costs for the two processing lines is estimated to total
$384,000 per year. That amount spread over the assumed pounds of finished product indicates a breakeven
cost of approximately S0.04 to S0.05 per pound. This becomes the rental rate (if the facility is used at its full
capacity) since the owners intend to run this operation on a non-profit basis and only needs to recover actual
operating expenses.
It is recommended that the rental rate be based upon the full capacity of each fillet line (or a high percentage
of that figure), not the actual throughput. If the lease rate were based upon actual use, in the worst case a
tenant not using the facility for a month would pay no rent during that period. Such a situation would
unfairly leave the landlord with uncompensated overhead costs.
Engineering and maintenance costs refer to wages and benefits for one full time engineer and a full time
maintenance person. These workers will be responsible for adjusting and maintaining equipment used by the
tenant and operating specialized equipment such as the tunnel freezer.
Valdez Fisheries Development Association will accrue funds for replacing equipment as it wears out. The table
assumes a five-year straight-line schedule. The result is that each year 20 percent of the equipment's cost is
put into this account or about S54,000 per year for each line.
Valdez Regional Cold Storage and Processing Focrioty Business Plan - 2009 update
McDowell Group Inc. ■ Page 42
Equipment used in the processing operations requires modest amounts of electricity to run motors and
hydraulic pumps. The tunnel freezer utilizes the ammonia absorption refrigeration system built for the cold
storage. As such, it requires no compressors or other power intensive machinery. As a result, although the
tunnel freezers capital costs are high, operating costs are minimal and not a major factor in the facility's
operating costs.
Removing waste from the plant's inland location will require trucking. Those costs are expected to be about
$3,000 per month or less than a penny a pound. Even this estimate may be high. Valdez Fisheries
Development Association has serious interest from a prospective tenant willing to utilize waste products to
make their target product, a pet treat.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. ■ Page 43
Financial Summary
Valdez Fisheries Development Association History
The Valdez Fisheries Development Association began operations in 1978. VFDA has as its mission to enhance
the well being of the Prince William Sound fishery resource for the benefit of fishermen, processors, and: the
State of Alaska. Valdez Fisheries Development Association is a non-profit organization headed by a seven -
member Board of Directors- The cold storage and processing line facility wilt be included under the VFDA
corporate umbrella but for purposes of this study is considered separately.
The following table summarizes Valdez Fisheries Development Association's financial status for the last nine
years and has been compiled from income tax records from 1999 through 2007.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. + Page 44
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Assumptions
As with any proposed business venture, particularly one with no precedent, assumptions must be made in the
beginning stages of the project that serve to guide the business concept's future shape. The following
assumptions are based on interviews with board members of the Valdez Fisheries Development Association,
interested processors, community leaders, and a previously published engineering report.
Facility assumptions
• Design and capital costs are based on the Valdez Fisheries Cold Storage Conceptual Engineering
Report by Alaska Anvil, Inc. dated September 19, 2003. Costs associated with the absorption
refrigeration unit are based on a report by Energy Concepts Co. dated July 20, 200&
■ The modular approach for the development allows for ease in snow removal and phased
construction of the facility. The project will be built in 5-10 million pound stages as justified by
demand and potential revenue.
• Petro 5tar Refinery operations will continue at rates sufficient to supply the cold storage facility
with waste heat for all electric power, including refrigeration. The pipeline is expected to
continue operations for the next 30 years.
■ In accordance with the Memorandum of Understanding dated June 5, 2003 with Petro Star,
Valdez Fisheries Development Association will bear the capital and operating costs associated
with the recovery of the heat and its transmission to the cold storage facility.
• Construction costs for the facility and heat recovery system are estimated at Soo million using an
ammonia absorption system.
• Construction and processing equipment will be funded by grants, requiring no match or
repayment
Operating assumptions
■ Waste heat from the Petro Star facility is at no cost to Valdez Fisheries Development Association
other than the cost of the infrastructure to deliver the waste heat.
Revenue from operations of the combined facility will cover all operating Costs including labor,
utilities, repair and maintenance.
• The modular design of the facility will allow shutdown of unused portions of the facility when
there are fluctuations in demand for cold storage.
• To be viable, the cold storage and processing plant must be competitive with existing alternatives
available to prospective customers -
The entire facility (cold storage, warm storage, and processing plant) will be managed under the
Association's 501(c)(3) tax status.
• Fish delivered to the cold storage facility are previously headed and gutted and flash frozen.
• The Association does not wish to compete with existing capabilities in the region, merely enhance
existing operations.
Valdez Regional Cold Stomge and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. ■ Page 46
Fish returning From the Association's hatchery operations will be a main source of product for the
cold storage and the processing plant. Seafood businesses from outside the Valdez area, such as
Cordova, may use part of the facility, but the financial feasibility is justified by local use alone.
• Long term grants may offset some of the operations cost.
Processing plant assumptions
• Valdez Fisheries Development Association will equip the processing line with basic machinery and
lease to competent operators. Tenants will hire necessary personnel for processing [asks.
■ A base tenant may sublet to smaller users.
• No primary processing will be done at this site -- only value-added processing that draws product
from the cold storage.
• A fishmeal plant may be built at the site but is not a part of this study.
• A smoking facility may be built at the site but is not a part of this study.
Capital Requirements
The Valdez Fisheries Development Association intends to minimize the risk of developing a cold storage
facility by constructing the facility in stages and to the capacity needed based on the demand for cold
storage. This business plan assumes that all 12 buildings are constructed over a five-year time frame.
However, the Association can modify the construction schedule based on actual and projected usage of the
cold storage and/or agreed -upon contracts with potential users of the facility. For instance, a large processor
wishing to use the facility may encourage the Association to ramp up the construction schedule to less than
five years to meet the needs of the large processor. On the other hand, if the demand that Valdez Fisheries
Development Association anticipates does not materialize, full development may take longer.
Land
The estimated purchase price for the land is $225,000. The 18.9-acre privately held parcel is located directly
across the street from the Petro Star refinery. The Association is currently in negotiations with the landowners
and has an option for another 50 acres adjacent to the site. The building footprint for the entire cold storage
facility is 13 acres. The site and the option for the additional acreage will allow the Valdez Regional Cold
Storage and Processing Facility to expand in order to meet fishing industry needs.
Buildings
Cost of the full development including all 12 buildings, site work, engineering, and ammonia absorption
refrigeration system is approximately $40 million. The modular design of the buildings will allow Valdez
Fisheries Development Association to expand cold storage capacity as the demand for space increases. This
analysis assumes that four buildings are constructed in the first year and two additional buildings are added in
each of the following four years. The cold storage capacity for the first year is approximately 6 million pounds
of product, and if all 12 buildings are constructed, the cold storage capacity will be 30 million pounds. The
Valdez Regional Cord Storage and Processing Facifity Business Pion - 2009 Update McDowell Group, Inc. ■ Page 47
modular design of the building will also allow Valdez Fisheries Development Association to shut down
buildings when not in use or expand as the need arises.
Equipment
As currently envisioned, equipment is needed for two processing lines, an office, and cold storage equipment.
Total equipment outlay is almost S2 million and is explained more fully in the following paragraphs.
PROCESSING LINE
There will be two complete basic processing lines including fillet machines, glazers, vacuum packers, portion
controllers, labeling and boxing machines, and spiral blast freezers. Total cost for the two lines is
approximately S840,000 and is based on equipment providers' best estimate of costs for the proposed
concept. Users of the processing lines may require other specialized equipment for their processing activities.
It is anticipated that users will make their own specialized equipment purchases. The Association may
negotiate purchasing specialized equipment for long-term processing line users.
OFFICE EQUIPMENT
Office equipment needs are expected to cost approximately S21,000. This equipment includes computers,
printers, copier, inventory control software, furniture, and telephone system to equip at least three offices.
A warehouse management system especially for cold storage operations places the cost for the Valdez system
at approximately $150,000. This includes the computer hardware, portable bar code readers, radio antenna
and transmitters for the cold storage facility, and the computer programs that run on off the shelf computer
software. This type of system will integrate with most common accounting and finance programs.
OTHER EQUIPMENT
Additional equipment needed for the cold storage operations is approximately $379,500. This equipment
includes ice machines, forklifts, pallets, totes, scales, tables, and other miscellaneous equipment. Specialized
equipment will not be purchased by the Association but will instead, be supplied by the processors requiring
such equipment.
Summary of Capital Investment
Capital investment for the full project over five years is nearly S40 million. Year 1 estimates are for $27 million
in capital investment. This includes the full ammonia absorption infrastructure and four modular buildings.
The study estimates that the full facility will be built over a five-year period; however, this schedule will be
based on processors needs and could be sooner or later depending on project success.
This project is a unique concept for Alaska seafood storage and processing. The Association does not intend
to compete with already established seafood activities. Valdez Fisheries Development Association anticipates
receiving grant funding for this entire project. See Table 13 for a summary of capital costs.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. 8 Page 48
Table 13
Capital Casts Using Five -Year Phased Approach to Development
Year I Year 2 Year 3 Year 4
Year 5
Land
18.9 acres across from Petro Star
S 225,000
S -
S
$ -
S -
Total Land Outlay
S 225,000
Buildings
(4 Bidgs.)
(2 Bldgs.)
(2 Bidgs.)
(2 Sldgs.)
(2 Bldgs.)
Site work
$460,000
$4,000
$4,000
S 4,00❑
S 4,000
Concrete
993,000
238,000
238,000
238,000
238,000
Structural steel
47,000
-
Building components
3,932,000
1,438,000
1,438,000
1,438,000
1,438,000
Plant equipment
7,792,000
162,000
162,000
162,000
162,000
- Piping
732,000
54,000
54,000
54,000
54,000
Electrical
1,124,000
204,000
204,000
204,000
204,000
Instrumentation
20,000
10,000
10,000
10,000
10,000
Paint, insulation, scaffold
50,000
-
Freight
1,501,000
212,000
212,000
212,000
212,000
Studies, assessments, permits
500,000
-
-
-
-
Engineering
3,523,500
-
-
Contingency
5,146,000
580,000
580,000
580,000
580,000
Inflation adjustment
-
63,000
64,000
64,000
64,000
Total Building Outlay
S 25,720,500
$2,965,000
$2,966,000
$2,966,000
S 2,966,000
Equipment
Office equipment and
$ 18.750
$2,000
$500
-
computer software
Warehouse management
system (hardware, software, radio
150,000
'
antenna, transmittem
High -lift Forklifts
32,000
16,000
16,000
16,000
Other Forklifts
78,000
40,000
-
-
Pallets, totes, stales, tables
75,000
62,500
62,500
62,500
62,500
Ice machines
I00,000
-
-
-
Processing line equipment
(fillet:bDning, grading: packaging,
840,000
300,000
-
labeling; Wxmg, tunnel treeaer)
Inflation adjustment
-
8,000
3,000
2,000
1,000
Total Equipment Outlay
S 1,293,750
S 398,500
S 122,000
S 80,500
5 63,500
Cumulative Total for Land,
$ 27,239,250
$ 30,592,750
S 33,680,750
S 36,727,250
S 39.756,750
Buildings, Equipment
Source: Based on 6aider Cold Storage Fociiity Conceptual Engineering Report by Alaska Anvil dated September 19, 2003, Fatal Flaw Analysis
by Energy Concepts dated July 20, 2006, Valdez Fisheries Development Association's estimates, and McDowell Group
and RedPoint
Associates estimates.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. • Page 49
Revenues
Revenues from this venture are anticipated to derive from two main sources: cold storage and processing line
rental. Cold storage is assumed to be the greater source of revenue but all buildings may be used as warm
storage as well. Since both the cold and warm storage areas will use waste heat to warm or cool the space,
revenues and expenses are assumed to be similar under either scenario.
The study team contacted potential users of the cold storage processing line facility to determine interest in
the facility. The revenues depicted here are based on those conversations with potential customers. When a
high and low range for usage was indicated by the potential clients, the low range usage is assumed for Year
1 and gradually increases to the high range usage in Year 5. Successful marketing efforts may draw customers
unknown at this time, eventually enhancing revenue. High case revenue is heavily dependent on the
participation of a major processor of frozen H&G salmon.
Cold Storage
The primary source of revenue for this facility is from cold storage. Most cold storage lacilities charge fees for
each separate activity that occurs in their plant. This analysis assumes that in/out fees, loading/unloading,
inspections, and inventory tracking are all revenue generating activities. In/out fees are based on $2.00 per
CWT and loading/unloading fees are estimated at SO.77 per CWT. Inspection fees are typically billed hourly,
and inventory tracking is a nominal monthly charge, both adding minor amounts to the revenue. Other fees
may be charged but typically do not add significant revenues to operations.
Revenues from cold or warm storage are assumed to be similar. Generally, this business plan refers to the cold
storage revenues and expenses; however, the facility can be used for either. Because seafood product is
assumed the primary user for the cold storage, the highest revenues will occur in the June to September time
frame when the salmon runs return to Prince William Sound.
Figure 3 shows the anticipated pounds of product in cold storage by month in Year 5 of operations when the
facility is almost at full capacity. The cold storage demand depicted here is based on interviews with potential
customers and may not reflect the real demand for cold storage.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell 6toup, Inc. ■ Page.SO
25.000.000
20.000,000
IM+i+lOu110
10,000.000
;i4Lli 1
n
Figure 3
Monthly Cold Storage Demand in Year 5
(Pounds of Product)
Jd n4a FP6r� -9r0h ��ril May JG�� � ,94Yoe, sID 64, to b C106 r �0`a�'b
Source: Estimates based on interviews with potential customers and VFDA assumptions about processor paniupatton.
The revenues for the first year of operations are based on low estimates from potential customers for use of
the facility. The Year 5 revenue projections are based on high estimates from potential customers for their
cold storage needs. In all cases, revenues accruing to Valdez Fisheries Development Association will be
greatest in the June through September timeframe and gradually fall off throughout the rest of the year until
the following June when salmon return to Prince William Sound.
Cold storage rates for this evaluation are based on a minimum break-even point for Valdez Fisheries
Development Association with discounts for high -end users and slightly Nigher fees for low -end users of the
facility.
Processing Line
As with the cold storage area, the fee structure is based on the separate activities occurring in the plant.
Product is assumed to be moved from the cold storage area to a thawing area probably a day in advance of
using the processing line. The processing line is equipped at a minimum with fillet and boning equipment,
Valdez Regional Cord Storage and Processing Focility Business Plan — 2009 Update McDowell Group, Inc. • Page 5 1
grading and packaging, labeling and boxing machines, and a tunnel freezer for refreezing product after
value-added activity. A labeling machine is available for processors' use.
This analysis assumes the processing line will be made available to multiple processors who will rent the space
on a daily basis. It is more likely that one line will be a long-term lease and the other line for Short-term usage
or that long-term lessees will sub -let their space to smaller processors. The thawing area is assumed to hold
60,000 pounds of product, with revenues estimated at S500 per day or $0.0083 per pound. Product that has
been thawed one day can move to the processing area the next day. It is assumed that all 60,000 pounds can
be processed in one day with revenues from this activity estimated at $2,800 per day or S0.0467 per pound.
The charge to processors from these two activities is about $0.055 per pound. Further discounts could be
offered to processors willing to rent the equipment and space for longer periods.
Cleaning fees are estimated at $50 per hour for half of the processing line days. Labeling is assumed at S0.34
for 25-pound boxes.
Training
Revenues from training of processing line users are not included in this evaluation. Processing line customers
must demonstrate competency prior to use of the facility. Graduates of the Fisheries Business Incubator
Investment Program would be one way to demonstrate competency.
Other Income
Other revenues might be obtained from interest income, sales of supplies, or additional charges for services
now included as part of the total package. Other value-added activity, such as a smokery or a fishmeal plant,
is not considered for this study, though some consideration was given to including these activities at a future
time.
Revenue Summary
Total revenues from cold storage and processing activity in Year 1 are estimated at S181,100 based on the
results of interviews with potential clients. In Year 5, total revenues from cold storage and processing activity
rises to S2.7 million, assuming that potential clients are able to reach the high estimate for usage. Higher
revenues may occur sooner if processors are able to quickly relocate their operations to Valdez. High case is
based on VFDA assumptions about major processor participation. Successful marketing efforts can also
increase revenues.
Valdez Regional Cold Storage and Processing Focility Business Plan - 2009 update McDowell Group. Inc. ■ Page 32
Table 14
Annual Revenue Summary for the
Valdez Regional Cold Storage and Processing Line Facility
Cold Storage
Space Rental $ 64,100 S 153,300 S 344,900 $ 655,600 S 873,300
In/Out Fees
40,100
96,900
221,600
431,200
592,200
Loading/Unloading
14,600
33,500
73,500
138,200
183,600
Inspection Services
4,600
10,400
22,900
43,100
57,200
Cold Storage Sub -total
$ 123,400
S 294,100
S 662,900
$1,269,100
$1,706,300
Processing Line
Thawing
$ 6,300
S 16,200
S 39,600
S 81,900
$ 118,900
Line Rental
35,500
91,400
223,000
461,000
668,300
Sorting and Grading
5,700
13,100
28,700
53,900
71,600
Labeling and Boxing
6,200
14,200
31,200
58,600
77,800
Cleanup fee
1,200
3,300
8,000
16,500
23,900
Processing Line Sub -total
$ 54,900
S 138,200
S 330,500
$671,900
$ 960,400
Other
Inventory Tracking
S 2,200
$ 2,30❑
$ 2,200
S 2,200
S 2,200
supplies
600
800
900
1,100
1,200
Other Sub -total
$ 2,800
S 3,100
$ 3,100
$3,300
$3,400
Total Annual Revenues
$ 181,100
S 435,400
$ 996,500
$ 1,943,300
$ 2,670,100
Expenses
There are eight main categories of operating expenses estimated for this facility: utilities, supplies, labor,
building and equipment repair and maintenance, accounting and legal services, depreciation, and taxes. As
this analysis assumes that the entire project will be funded with grants, debt service in not included.
Depreciation is a non -cash expense; therefore cash flow before depreciation is shown.
Personnel
Personnel requirements have already been described in the Monogemeof Plan section. Those requirements
were based: on a 6- to 12-million pound cold storage facility needing 14 employees (1 1 full-time equivalents).
For this analysis, we assume that 8 employees are needed in Year 1, 9 employees in Year 2, and in Year 3, all
14 employees (includes 6 seasonal workers) are needed. Even though the previous estimate is based on a 6-
to 12-million pound cold storage facility, no additional employees are anticipated for the larger facility.
Economies of scale are realized by serving the larger facility with the same number of personnel. The labor
burden for employee benefits is assumed to be 20 percent.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. • Page 53
Utillf►les
-- Utility expenses consist of fuel oil for heat, diesel for the generator backup, and telephone utilities. Waste heat
from the Petro Star facility is expected to generate all electricity used at the facility, including the refrigeration
needed for the cold storage space and heat needed for hot water for the buildings. Heat for the office
building is assumed to be provided from fuel oil, and a diesel generator will serve as backup to the entire
system in the event of service interruptions.
Telephone service for three lines including DSL Internet service is anticipated. Water is supplied from two on -
site wells and sewer service is a 2,000-gallon septic tank and drain field. Heavy waste from processing activity
will be transported to the city dump or the cannery for disposal.
Supplies
Office supplies such as paper, pens, toner for printers and copiers, along with grounds supplies are minimal.
Included in the supplies estimate are also minor expenses for processing line cleaning.
Equipment Repair and Maintenance
Equipment repair and maintenance expenses are estimated at 1.5 percent of all equipment costs. An
additional set -aside for processing equipment upgrades has been included since typical useful life of
commercial equipment is seven years, and this analysis takes us to Year 5. It is anticipated that some
equipment may require major repairs, upgrades, or technology improvements by Year 5; this set -aside should
cover those expenses.
Building Repair and Maintenance
Building expenses include insurance (for the building only, not the customer contents), repair and
maintenance, and grounds maintenance including snow removal. Building insurance is estimated at 0.3
percent of the capital costs. This expense may be more or less depending on insurance carriers and rates at
the time of initiation of coverage. Building repair and maintenance is based on 0.25 percent of the capital
costs. This expense may be overstated for the beginning years when the building is new and will require less
maintenance but these funds should be set aside for future maintenance needs. Snow removal costs are
based on actual expenses currently expended for the Valdez Fisheries Development Association office and
Business Incubator site. Snow removal at the new facility is assumed to be a similar expense,
Taxes
Valdez Fisheries Development Association intends to operate this venture under its non-profit 501(c)(3) status
and therefore will not be liable for business corporate taxes. Fish taxes will be paid by the processors utilizing
the facility and not by the Valdez Fisheries Development Association. The only taxes envisioned for the
enterprise at this time are real property taxes. The current real property tax rate for the City of Valdez is 20
mills and the assessed value of the property for this evaluation is based on the cost to purchase the land and
construct the buildings. Valdez Fisheries Development Association may realize some additional savings on the
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. • Page 54
real property taxes provided the City grants a waiver for this facility. It is uncertain at this time if the cold
storage and processing line facility would be eligible for the waiver so the full real property tax indebtedness
is included.
Accounting and Legal
Business services such as accounting and legal fees are estimated at $5,000 in the first year and ramp up to
510,000 in Year 5.
Depreciation
Although not a cash outlay, depreciation is a very real expense. Depreciation attempts to match up profit
with the expense it took to generate that profit - or in this case, the break-even point. Accumulating the
depreciation of the buildings and equipment for this venture will allow for eventual replacement of the capital
as it reaches the end of its useful life. For this analysis, processing line equipment is assumed to have a seven-
year life and 30 percent residual value, the ice machines are assumed to have a ten-year life and 20 percent
residual value, the office equipment is assumed to have a five-year life and no residual value, and the building
is assumed to have a 35-year life and a 20 percent residual value. Depreciation is listed separately from the
normal operations in order to determine cash flow.
Debt Service
The concept for this endeavor is to cover all costs of purchasing the land, buildings, and equipment and to
cover the operating deficiencies in the beginning years with grant funds. This analysis assumes there will be
no debt service. Valdez Fisheries Development Association has as its goal to create jobs, year-round
employment, and allow processors to retain the value-added profits from their fishing endeavors.
Expense Summary
Annual expenses range from SM million in the first year of operation to $1.8 million in Year 5 based on
discussions with industry experts for labor, insurance, repair and maintenance, and depreciation schedules.
When depreciation is added, Year i expenses are $1.8 million and Year 5 expenses rise to $2.8 million. Table
15 shows the estimated five-year expense summary.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDoweN Group, Inc. ■ Page 55
Table 15
Annual Expense Summary for the
Valdez Regional Cold Storage and Processing Line Facility
- utilities
Heating fuel
S 1,200
$1,200
$ 1,200
S 1,200
S 1,200
Telephone/Internet connection
3,700
4,000
4,300
4,600
4,900
Diesel for generator backup
3,000
3.000
3,000
3,000
3,000
Utilities Sub -total
$7,900
S 8,200
$8,500
$8,800
$9,100
- - Supplies
Office
1,500
1,700
1,800
2,000
2,200
Grounds
500
600
600
700
700
Processing line
2,500
2,800
3,000
3,300
3,700
Supplies Sub -total
S 4,500
$ 5,100
$5,400
S 6,400
$ 6,600
Labor
Salaries
260,000
310.000
465,000
465,000
465,000
Burden at 20%
52,000
62,000
93,000
93,000
93,000
Labor Sub -total
S 312,000
S 372,000
S 558,000
$558,000
$558,000
Building &t Equipment Expense
Insurance (property & liability)
106,200
132,200
158,200
184,200
184,200
Building repair & maintenance
64,700
72,100
79,500
86,900
94,300
Grounds maintenance (snow removal)
10,000
10,000
10,000
10,000
10,000
Processing equipment R&M
19, 300�
25,000
27,100
28,400
29,200
Set -aside for equipment upgrades
50,000
75,000
100,000
125,000
150,000
Building & Equipment Sub -total
S 250,200
$ 314,300
$374.800
$434,500
S 467,700
Business Services
Accounting St legal
5,000
6,000
71000
8,000
10,000
_ Taxes
Real property (20 mills)
480,500
535,400
590,300
645,200
700,100
Expenses before Depreciation &c Debt
S 1,060,100
$1,241,000
S1,544,000
S 1,660,500
S1,751,500
- Service
Depreciation
Equipment (processing)
$ 84,000
S 114,800
S 114,800
S 114,800
$ 114,800
Equipment (office)
33,800
34,200
34,300
34,300
34,300
Equipment (cold storage)
11,000
12,600
18,200
19,800
19,800
Ice machines
10,000
10,000
10,000
10,000
10,000
Buildings
587,900
655,700
723,500
791,300
859,100
Depreciation Sub -total
$726,700
S 827,300
$900.800
S 970,200
S 1,038,000
Debt Service
Assumes 100% grant funding
-
-
-
Total Expenses
$1,796,800
S2,068,300
S2,444,800
S2,630,700
S2,789,500
Note, Asa 501(c)(3) Valdez Fisheries Development Association may not be subject to real property taxes for
this facility.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. • Page 56
Monthly cash Flow
Seasonal businesses must often contend with uneven cash flows during the year. This is particularly true of
businesses reliant on seafood product. Table 16 shows the monthly revenues and expenditures for Year 1 and
Year 5 of Operations. In Year Five the facility has positive cash flow for the year but has negative cash flow in
the first five months of the year. Valdez Fisheries Development Association is aware of the cash flow
challenges associated with a seafood dependent business and is prepared to meet these expenses during
periods of low cash flow from operations.
Valdez Regional Cold 5roroge and Processing focifO Business Plan - 2009 Update McDowell Group, Inc. • Page 57
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Prnlected Cash Flaw
The following table summarizes the first five years of projected cash flow from operations of the Gold storage
and processing tine facility. Revenue projections are based on existing interest in the facility and an
approximately break-even cash flow in Year 4. Cash flow from operations depicted in Table 17 does not
include an expense item for depreciation. Starting in Year 5, the Valdez Regional Cold Storage and Processing
Facility must begin to accumulate funds for replacement of processing line equipment that typically has a
useful life of seven to ten years.
Table 17
Valdez Fisheries Development Association Cash flow Statement
for the Regional Cold Storage and Processing Line Facility
Year I Year 2 Year 3 Year 4 Year 5
Revenues
Cold storage S 123,400 S 294,100 S 662,900 S 1,268,100 $ 1,706,300
Processing line 54,900 138,200 330,500 671,900 960,400
Other 2,800 3,100 3,100 3,300 3,400
Total Revenues $ 181,100 $435,400 $ 996,500 S 1,943,300 S 2,670,100
Expenses
Utilities
$7,900
S 8,200
S 8,500
S 8,800
$ 9,100
Supplies
4,500
5,100
5,400
6,000
6,600
Labor
312,000
372,000
558,000
558,000
558,000
Building &
250,400
314,500
375,000
434,700
467,900
equipment
Business services
5,000
6,000
7,000
8,000
10,000
Taxes
480,500
535,400
590,300
645,200
700,100
Total Expenses
$ 1,060,300
S 1,241,200
S 1.544,200
$ 1,660,700
$1.751,700
Cash Flow from Ops.
(S 879,200)
($805,800)
(S 547,700)
$282,600
$918,400
ti'ote. Depreciation expense has not been taken in this cash Ilow analysis
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 update McDowell Group, Inc. • Page 5 9
Risk Assessment and Mitigation
The maiar risk factors for this operation include:
Management Competence: This factor is perhaps the single most important risk factor. A new development
in a high -cost environment such as Valdez, Alaska must be managed extremely well, or the financial and
community economic consequences could be severe. The potential risk of reliance on competent
management increases as the scale of this proposed phased development increases. Mitigating measure:
Recruit a cold storage and processing line facility manager from among the best available and pay and
support this person well.
Reliance on a single customer: In this business plan VFDA assumes that most of the revenues will derive
from a single large processor currently operating in Prince William Sound. Failure to attract and keep this
customer could have serious consequences for the cold storage and processing line facility, particularly if the
processor elects to take their business elsewhere after the entire facility has been constructed. Mitigating
measures: Recruit or train an existing employee in marketing. Second, consider negotiating a long-term
contract commitment with any major customer.
Adequate volume of fish product: Historical records of fish harvest show substantial volume. However, as
witnessed in 2004, the history of salmon returns is volatile. Generally, there is more than ample supply
returning to Prince William Sound, However, poor run years have been recorded in the past. Mitigating
measures: Valdez Fisheries Development Association could work with other aquaculture operators in Prince
William Sound and the Alaska Department of fish and Game to ensure that the fish supply is properly
managed.
Quality of fish: Valdez Fisheries Development Association will not be responsible for the quality of the Fish
product or the value-added activity. However, the success of the cold storage and processing line facility is
dependent on the success of the users of the facility. Mitigating measures: Actively engage in distributing
educational materials and offer training to processors who use the cold storage and processing fine facility.
Valdez Fisheries Development Association could also provide processors information on grant funding to
purchase improved equipment for their own harvesting operations.
Deferred depreciation: The financial analysis depicted in this business plan relies on the assumption of 100
percent grant funding. Normal wear and tear on buildings and equipment is typically accounted for through
depreciation accounts but because of the grant funding assumption this business plan has focused mostly on
cash flow. This is a unique project for Alaska and the price offered to potential customers must compete with
much larger facilities in the Pacific Northwest. Mitigating measures: The financial analysis depicted in this
business plan postpones the accrual of depreciation on the building and equipment until later years. Valdez
Fisheries Development Association should consider an accelerated depreciation schedule after the facility
reaches breakeven in order to have sufficient funds in later years for repair and replacement of buildings and
equipment.
Valdez Regional Cold Storage and Processing Facility Business Pion - 2009 update McDowell Group, Inc. ■ Page 60
Petro Star reliance: The ammonia absorption refrigeration relies on the use of waste heat from the Petro Star
Refinery. The refinery has had scheduled downtime of up to two weeks in the past and unscheduled
downtime could occur at any time. Mitigating measures: Valdez Fisheries Development Association should
coordinate with Petro Star to make sure that scheduled downtime occurs at non -peak cold storage times. In
addition, VFDA should ensure that backup systems are adequate to maintain cold storage temperatures in the
event of systems wide failure for whatever reason.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. • Page 61
Valdez Regional Fold Storage and Processing Facility
Business flan - 2009 Update
Prepared for:
Valdez Fisheries Development Association
McDowell
G R Q U P
Research -Based Consulting
Anchorage
Juneau
March 2009
Valdez Regional Cold Storage and Processing Facility
Business Plan - 2009 Update
Prepared for:
Valdez Fisheries Development Association
Prepared by:
AM —McDowell
a R o u P
Juneau ■ Anchorage
March 2009
Table of Contents
ExecutiveSummary .................................................................................................................1
- Adding Value to Alaska........................................................................................................... 1
TheVFDA Concept................................................................................................................. 2
VFDAAssumptions.................................................................................................................. 2
ProjectGoals.......................................................................................................................... 3
Location Assessment............................................................................................................... 4
Salmon Market Assessment..................................................................................................... 4
Operations.............................................................................................................................. 5
CapitalRequirements.............................................................................................................. 5
Financial Summary of Operations ............................. --- ...................................................... 6
v Company Statement of Purpose............................................................................................. 7
Introduction........................................................................................................................... 7
LegalEntity..... ........................................................................................................................ 7
OrganizationHistory ............................................................................................................... 8
Locationand Facilities............................................................................................................. 8
Model for Other Facility Developments................................................................................... 9
ProductOfferings.................................................................................................................. 10
Overall Operational Concept................................................................................................ 10
OperationalGoals.................................................................................................................1 a
Cold Storage Business Offering............................................................................................. 11
Processing Line Rental........................................................................................................... 1 1
Other Business Offerings....................................................................................................... 12
Space and Area Considerations............................................................................................. 13
MarketAssessment............................................................................................................... 16
TheCurrent Situation........................................................................................................... 16
FacilityCompetition.............................................................................................................. 16
- Processor Interest.................................................................................................................. 18
Pink and Chum Salmon Product and Market Trends............................................................. 18
PW5 Salmon Harvest Trends............................................................................ .... 21
.................
Potential Growth in Facility Use............................................................................................ 23
Strategy and Implementation.............................................................................................. 25
PricingStrategy.................................................................................................................... 25
MarketingStrategy............................................................................................................... 25
MajorEvents......................................................................................................................... 26
ManagementPlan................................................................................................................. 27
Structure.............................................................................................................................. 27
ManagementOptions ........................................................................................................... 27
Insurance.............................................................................................................................. 28
Regulatory Permits and Licenses........................................................................................... 29
Personnel.............................................................................................................................. 31
Operations..................................................................................................................... M
Receivingand Storage.......................................................................................................... 36
Shipping............................................................................................................................... 37
Warehouse Management Systems........................................................................................ 38
Reprocessing........................................................................................................................ 39
filletOperations................................................................................................................... 40
FilletRoom Equipment .......................................................................................................... 40
FilletTunnel Freezer.............................................................................................................. 41
Processing Line Operating Costs........................................................................................... 42
FinancialSummary ................................................................................................................ 44
Valdez Fisheries Development Association History ................................................................. 44
Assumptions......................................................................................................................... 46
CapitalRequirements............................................................................................................ 47
Summary of Capital investment............................................................................................ 48
Revenues.............................................................................................................................. 50
Expenses............................................................................................................................... 53
MonthlyCash Flow............................................................................................................... 57
ProjectedCash Flow............................................................................................................. 59
RiskAssessment and Mitigation........................................................................................... 60
Executive Summary
Since the Valdez Fisheries Development Association's business plan for a cold storage and fish reprocessing
facility in Valdez was completed in 2005, new technology has been incorporated into the facility design that
will significantly reduce its operational costs. VFDA contracted with McDowell Group, Inc., to update the
2005 business plan (also prepared by McDowell Group) to reflect these operational cost savings as well as
current market conditions.
The new technology incorporated into the design, provided by Energy Concepts Co., alters the way in which
waste heat from Petro Star Refinery will be converted into usable power for the cold storage and fish
reprocessing facility. This new technology is expected to produce enough energy to meet all of the facility's
power needs. A thermal turbine will be inserted downstream from the ammonia absorption system and is
expected to produce in excess of 250 kilowatts.
Capital costs associated with the improved ammonia absorption system design are estimated to be
approximately V million more that the original absorption design, but operational costs are expected to be
5200,000 to 5250,000 less annually, depending on the cost of electricity in Valdez.
In this revised business plan, only operational costs have been adjusted - capital costs remain at the original
estimate of approximately $40 million. The $1 million increase associated with the new technology is well
within the range of certainty associated with the S40 million estimate; therefore no adjustment is warranted
at this time. The next step in the development process will be to refine construction cost estimates for the
facility. Operational costs have been lowered to reflect zero electricity costs.
In an effort to streamline this updated report, the appendices have been removed. They can be viewed in the
original 2005 plan.
Adding Value to Alaska
Valdez Fisheries Development Association has developed this business plan for a cold storage and fish
reprocessing facility in Valdez, The facility will use the fishery resource created by VFDA and other fisheries
available in Prince William Sound to provide local jobs and contribute to the state's economy of the. The
goals of the program include maintaining harvest -related employment, providing a means for entrepreneurs
and established processors to produce value-added products in Masks, and increasing the in -state economic
value of VFDA and Prince William Sound seafood resources, especially salmon.
Historically, a significant portion of the Alaska seafood harvest undergoes only primary processing into frozen
headed and gutted form. These fish are then exported to locations outside the state (Washington and Japan,
for example) for value-added processing into finished products for retail consumption. The Alaska economy
loses this important industrial activity, and with it employment, income, investment, and multiplier benefits.
The VFDA regional cold storage and processing facility is designed to keep this value-added activity in Alaska.
The development is intended to encourage additional processing and inventory management by existing
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. • Page t
processing companies, entrepreneurial start-ups, and harvesters interested in generating more value from
their catch.
The Valdez Fisheries Development Association is a non-profit organization with a mission of contributing to
the local area economy through development and utilization of fish resources. The organization intends to
develop the project with the goal of breaking even in terms of operating costs. Processors and fishermen who
utilize the facility for value-added activity will realize lower costs as a result of this business plan. VFDA's plan
is to seek grant funding for the capital cost, as well as for initial operating losses until the facility attracts
sufficient business to break even from operations.
The VFDA Concept
The overall concept for the regional cold storage facility is to store previously headed and gutted frozen fish
in a modular designed cold storage facility for possible later processing on site. Customers will also use the
cold storage for managing inventories of finished product. Valdez Fisheries Development Association will
purchase the land and build a facility to house a cold storage, dry heated Storage, a secondary seafood
processing area, an office, and loading docks. The temperature range for the facility modules varies from -20
to 70+ degrees Fahrenheit. VFDA will not compete with other established businesses in Valdez.
The Association will build the processing plant complete with basic value -adding equipment and lease it to
qualified tenants. The modular design of the buildings will allow VFDA to shut down portions of the building
during non -peak times, in addition, waste heat from the nearby Petro Star Refinery will be used to generate
all needed electric power, including that for the heating and cooling capabilities of the facility, thereby
reducing the costs of operating the plant.
VFDA Assumptions
As with any proposed business venture, particularly one such as this with no precedent, assumptions must be
made in the beginning stages of the project that serve to guide the business concept's future shape. The
following assumptions are based on interviews with board members of the VFDA, interested processors,
community leaders, and a previously published engineering report.
Facility assumptions
• Construction and processing equipment will be funded by grants, requiring no match or
repayment.
• The project will be built in stages over five years.
• Design and capital costs are based on the Valdez Fisheries Cold Storage Conceptual Engineering
Report by Alaska Anvil, Inc. dated September 19, 2003. Costs associated with the absorption
refrigeration unit are based on the Fatal Flaw Analysis by Energy Concepts Co. dated July 20,
2006,
Valdez Regional Cold Storage and Processing Facility Business Pion - 2009 update McDowell Group, Inc. 9 Page 2
■ Use of waste heat will work as anticipated in the Energy Concepts report and as represented by
Valdez Fisheries Development Association.
• Petro Star Refinery operations will continue at rates sufficient to supply the told storage facility
with waste heat for all electric power.
• Valdez Fisheries Development Association will bear the capital and operating costs associated with
the recovery of the heat and its transmission to the cold storage facility.
• Construction costs for the facility and heat recovery system are estimated at $37.3 million using an
ammonia absorption system. Total cost rises to S39.8 million when processing equipment and
inflation adjustments are added over the 5-year construction timeline,
Operating assumptions
• Fish delivered to the cold storage facility are previously headed and gutted and flash frozen.
• Waste heat is provided by the Petro Star facility at no cost to VFDA.
• Revenue from operations of the combined facility will cover all operating costs including labor,
utilities, repair and maintenance.
• The modular design of the facility will allow shutdown of unused portions of the facility when
there are fluctuations in demand for cold storage.
■ The cold storage and processing plant must be competitive with existing available alternatives.
• The entire facility will be managed under the Association's 501(c)(3) tax status.
• The Association will not compete with existing businesses in the region.
• Fish returning from the Association's hatchery operations will be a major source of product for the
cold storage and the processing plant.
• Long-term grants may offset some of the operations start-up shortfalls.
Processing plant assumptions
• Valdez Fisheries Development Association will equip the processing line with basic machinery and
lease to competent operators. Tenants will hire necessary personnel for processing tasks.
• A base tenant may sublet to smaller users.
• No primary processing will be done at this site — only value-added processing that draws product
from the cold storage.
Project Goals
Since Valdez Fisheries Development Association is a non-profit organization, the combined operations are
intended to break-even under the assumptions fisted. jobs, new business development, expansion of existing
businesses, and economic multiplier impacts are the ultimate goals for this project. The intention is that
profits will fail to the processors and harvesters, and that VFDA will meet operating expenses with moderate
user fees from facility customers. Extending the region's seafood business activity beyond the harvest season
by means of reprocessing stored frozen inventory should provide more employment opportunities for
seafood workers and keep more seafood dollars in the state. The cold storage unit will allow small
Valdez Reg ronoI Cold Storage and Processing Focilrty Business Plan - 2009 Updore McDowell Group, Inc. • Page 3
reprocessors to hold their fish inventory and establish new or expanded businesses over time without the
drain of a large capital investment.
Location Assessment
The key advantage for the facility is the proximity to the Petro Star Refinery, which will provide cost savings
through electricity produced by waste heat. The ability to generate electricity for all facility operations
provides a significant advantage to potential customers by lowering their costs to use the facility.
Additionally, the facilities Valdez location, near the productive Prince William Sound fishery, is an advantage
to potential users who will have ready access to raw product and will allow them the option of shipping
value-added product via air, land or sea.
Salmon Market Assessment
Commercial harvests have been substantial in recent years, and VFDA's salmon hatchery production is a
significant contributor to those harvests. The volume of salmon available to potential users of the facility
should remain substantial. The potential annual supply of salmon from Prince William Sound has averaged
more than 195 million pounds over the last six years. VFDA's planned contribution is important to this
outlook -
While canned salmon will remain an important product For PWS, demand for salmon Fillets is strong,
particulariy in the US. This has the potential to create demand for reprocessing at the Valdez Cold Storage
and Processing Facility.
Table 1
Salmon Resource in Prince William Sound, 1999.2008
(Thousands of Pounds)
..
..
. .
2008'
257
8,019
5,206
143,727
39,449
196,658
2007
896
20,237
2,811
213,455
24,799
262,198
2006
646
14,1 T 6
6,824
78,288
19,008
118,882
2005
781
11,740
4,178
207,217
16,525
240,441
2004
879
10,977
5,595
87,449
15,047
119,947
2003
1,119
16,660
4,378
189,442
24,285
235,884
2002
830
14,453
6,096
65,795
52,583
139,757
2001
870
13,890
4,250
119,460
23,500
161,970
2000
670
9,310
6,690
132,990
41,520
191,180
1999
1,360
12,180
1,360
133,690
16,160
164,750
Average Actual Harvest
831
13,158
4,739
137,151
27,288
183,167
Source: Alaska Department of Fish and Game division of Commercial Fisheries Salmon Harvest Statistics (1999-2008)
based on Salmon Fish Tickets.
'Data are preliminary as of February 2009.
Valdez Regional Cold Storage and Processing Facility Business Pion - 2009 Update McDowell Group, Inc. • Page 4
Operations
The proposed Valdez regional cold storage is designed to serve two basic functions:
1. Receiving, storage, and shipping: This service allows consolidation of customer specific loads,
lowers freight costs, and permits mixing several products to suit a specific customer order.
2. Reprocessing: This activity, not offered in all cold storage facilities, permits warehoused product
(mainly headed and gutted frozen salmon) to be pulled from inventory, reprocessed to meet
customer specifications, and re-entered into cold storage.
A warehouse management system is used to handle the functions for the steps involved in receiving, storage,
and shipping. More sophisticated systems can be integrated with accounting systems for invoice generation,
accounts payable, accounts receivable, and financial statements.
The second basic function for the Valdez Regional Cold Storage and Processing Facility is the reprocessing
line, The fillet operations are the heart of a specialty seafood processing plant. This plant includes two fillet -
processing lines capable of producing basic fillets using high quality automated equipment. Each fillet line is
capable of running 30,000 pounds of headed and gutted salmon per day. The equipment provided will
generate the equivalent of 18,300 pounds of vacuum-packed pin -bone -out fillets per day in a single shift.
Valdez Fisheries Development Association's operating costs for the two processing lines is estimated to total
S 384,000 per year. That amount spread over the assumed pounds of finished product indicates a breakeven
cost ❑l approximately S0.04 to S0.05 per pound. Since VFDA intends to run this operation on a non-profit
break-even basis, that cost becomes the rental rate for the processing line portion of the facility.
Capital Requirements
Capital investment for the full project over five years is estimated by VFDA and Anvil Alaska, Inc. at
approximately $40 million. Year 1 estimates are for just over $27 million in capital investment. This includes
the ammonia absorption infrastructure and four modular buildings. The VFDA intends to develop the full
facility over a five-year period; however, this schedule will be based on processors' needs and could take more
or less time depending on project success. The following table outlines projected capital costs.
Table 2
Capital Requirements for Valdez Regional Cold Storage and Processing Facility
Land S 225,000 $ -
Buildings 25,720,500 2,965,000
Equipment 1,293,750 388,500
S - S S
2,966,000
122,000
2,966,000
80.500
2,966,000
63,500
Total Capital
S 27,239,250
$ 3,353,500
$ 3,088,000
S 3,046,500
S 3,029,500
Cumulative Total
$ 27,239,250
$ 30,592,750
$ 33,680,750
$ 36,727,250
$ 39,756,750
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update A.trAawell Group, Inc. •Page 5
Financial Summary of Operations
Revenue
Total revenues from cold storage and processing activity in Year 1 are estimated at $181,100 based on the
results of interviews with potential clients. In Year 5, total revenues from cold storage and processing activity
increase to $2.7 million, assuming that potential clients are able to reach the high estimate for usage. VFDA's
Year 4 and 5 revenue assumptions include attracting the cold storage business of the dominant processor in
the Prince William Sound region. Nigher revenues may occur sooner if processors are able to quickly relocate
their operations to Valdez.
Revenues
Cold Storage
Processing
Other misc.
Total Revenues
Expenses
Utilities
Supplies
Labor
-- Building and
Equipment
Business services
Taxes
Total Expenses
Table 3
Pro -forma Operating Cash Flow Statement
Valdez Regional Cold Storage and Processing Facility
$ 123,400
$294,100
S 662,900
S 1,268,100
S 1,706,300
54,900
138,200
330,500
671,900
960,400
3,400
S 7,900 S 8,200 S 8,500 S 8,800 S 9,100
4,500 5,100 5,400 6,000 6,600
312,000 372,000 558,000 558,000 558,000
250,400 314,500 375,000 434,700 467,900
5,000 6,000 7,000 8,000 10,000
480,500 535,400 590,300 645,200 700,100
$1,060,300 $ 1,241,200 $ 1,544,200 S 1,660,700 $ 1,751,700
Cash Flow From ($879,200
Operations } (5805,800) ($547,700) $282,600 $918,400
Note: As a 501(c)(3) Valdez Fisheries Development Association may not be subject to real properly taxes for this facility.
Expenses
Annual expenses range from $1.1 million in the first year of operation to $1.8 million in Year 5. Estimates are
based on existing conditions in Valdez for utility races, the Alaska Anvil conceptual engineering report for
construction, the Energy Concepts analysis for power generation, and discussions with industry experts for
insurance, and repairs and maintenance. When depreciation is included, Year 1 expenses are nearly $2 million
and Year 5 expenses rise to just under $3 million.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, inc. • Page 6
Cash Flow From ($879,200
Operations } (5805,800) ($547,700) $282,600 $918,400
Note: As a 501(c)(3) Valdez Fisheries Development Association may not be subject to real properly taxes for this facility.
Expenses
Annual expenses range from $1.1 million in the first year of operation to $1.8 million in Year 5. Estimates are
based on existing conditions in Valdez for utility races, the Alaska Anvil conceptual engineering report for
construction, the Energy Concepts analysis for power generation, and discussions with industry experts for
insurance, and repairs and maintenance. When depreciation is included, Year 1 expenses are nearly $2 million
and Year 5 expenses rise to just under $3 million.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, inc. • Page 6
Company Statement of Purpose
Introduction
Valdez Fisheries Development Association believes that some fish resources in the State of Alaska are
significantly underutilized. In the case of non -canned salmon, much of the resource is minimally processed
into headed and gutted form, then shipped frozen to locations outside the state for further processing into
finished product for retail consumption. VFDA further believes that providing infrastructure close to the Prince
William Sound fishing grounds at reasonable cost will allow focal processors to increase the value of the
harvest and provide in -state employment for Alaska residents. Toward this end, Valdez Fisheries Development
Association proposes to construct a cold storage and processing facility to allow regional processors to add
value to previously headed and gutted fish product. The stated goal is to use the existing resource that Valdez
Fisheries Development Association created - through very successful hatchery program - to provide jobs and
contribute to the economic base in Prince William Sound. The anticipated benefits from this project include
the following:
• Increased Alaskan employment
• Decreased shipping costs from avoiding the shipment of non -saleable product to Seattle,
Bellingham, and other points south
• Delay shipping costs closer to time of sale
• Increased Alaskan income from keeping seafood product in the state for value-added activity
• Ability to await better market conditions or tailor products to meet specific customer requirements
• Decreased utility costs from using Petro Star Refinery waste heat
■ Model for a collaborative endeavor between the seafood and oil industries
• Model for other similarly situated Alaska communities
This business plan provides a detailed map for implementing and operating the facility as previously
described in the Valdez Cold Storage and Processing Facility Feasibility Study (May 2004). A feasibility study lays
out the general groundwork making several assumptions about customers and products to determine if a
project is realistic. A business plan takes the feasibility study to the next level by identifying detailed strategies,
tasks, schedules, costs, assets, markets, personnel, and operating systems necessary for a successful project. As
a project nears implementation other, more specific, plans will be developed.
Legal Entity
Valdez Fisheries Development Association is a non-profit organization recognized by the Internal Revenue
Service as tax-exempt under IRS Section 501(c)(3). Valdez Fisheries Development Association has a valid
Alaska business license, number 20401, which expires on 12/31/2009.
Valdez Regional Cold Storage and Processing Facility gusoness Plan — 2009 Update McDowell Group, Inc. • Page 7
Contact information for VFDA:
Valdez Fisheries Development Association
Post Office Box 125
Valdez, Alaska 99686
Tel: (907) 835-4874; fax: (907) 835-4831.
Email: vfda@alaska.com.
Organization History
In 1978, a group of local commercial fishermen formed the Valdez Fisheries Development Association, The
goals of the organization were to develop a hatchery program and offer training and community resources to
enhance the fishing industry in the Valdez area. In 1982, the Association released about 10 million pink
salmon fry from the Solomon Gulch hatchery site in Valdez. By 2007, more than 222 million fry were
released, making it the largest pink salmon hatchery in Alaska. In recent years, smaller numbers of coho
salmon have also been released.
In 2002, the Valdez Fisheries Development Association obtained a grant from the U.S. Department of
Commerce, Economic Development Administration in order to develop the Fisheries Business Incubator
Investment Program. This program was initially developed to provide the commercial fishermen of the Prince
William Sound Economic Development District with the opportunity to add value to their harvest. The
program has since been expanded to all interested parties in the state.
The goal of the program is to create new jobs within the commercial fishing industry and to save as many
existing jobs as possible by removing many of the obstacles facing fishermen in the state. The goal is
achieved by encouraging and providing a means for entrepreneurial fishermen to build business models and
develop marketing plans for selling value-added fish products. The training program is a certificate program
through the University of Alaska and Prince William Sound Community College. Designation as a certified
processor aids commercial fishermen in the direct marketing of products to individuals or corporate
consumers.
This business plan for the Cold Storage and Processing Line Facility takes the Fisheries Business Incubator
Investment Program to the next level by providing the needed infrastructure for program graduates to
continue to achieve success and potentially expand their businesses.
Location and Facilities
The corporate offices of Valdez Fisheries Development Association are located at 1815 Mineral Creek Loop
Road in Valdez. Valdez Fisheries Development Association is currently negotiating to purchase 18.9 acres on
Dayville Road in Valdez, directly across from the Petro Star Refinery, for the cold storage and processing line
facility. The refinery will be the source of heat used to generate power for the facility, including the ammonia
absorption refrigeration system. {See the Appendix for the Conceptual Engineering Report by Alaska Anvil
Valdez Regional Cold Storage and Processing Facility Business Pion - 2009 Update McDowell Group, fnc. 0 Page 8
and Fatal Flaw Report by Energy Concepts.) The location is close to ideal for capturing and using waste heat.
Insulated 8-inch lines will be set in a trench to carry waste heat from the refinery to the facility.
The building site is currently zoned for heavy industrial use - the appropriate category for the proposed
project. Product must be trucked to and from the site, which is several miles from the water. This is the case
for several Pacific Northwest and Alaska cold storage facilities and is not considered a major handicap for this
project.
The preliminary engineering study done by Anvil envisions a total of twelve 85' X 150' cold storage buildings,
a refrigerated access corridor, refrigerated dock area, office area, and dry storage. The modular design of the
buildings will allow Valdez Fisheries Development Association to shut down unused buildings during low cold
storage demand times thereby keeping operations costs at a minimum. A backup boiler and fuel tank provide
heat when the refinery is shut down. One of the cold storage buildings will have an area designated for fish
processing. The fish processing building will have sufficient space for two complete processing lines.
Model for Other Facility Developments
Valdez Fisheries Development Association has evaluated the need for, and ways to create, a cold storage
facility in Valdez. VFDA believes that appropriate infrastructure is needed to create a better environment for
the seafood industry, both in Prince William Sound and statewide.
Historically, a significant proportion of Alaskan seafood has been harvested, minimally processed, and then
shipped to locations outside the state for value-added activity. Alaska needs the ability to hold its resource in
a stable form, in -state, at reasonable cold storage prices so that processors can avoid shipping non -saleable
product south. Part of the difficulty in developing cold storage capacity in Alaska is the high cost of utilities.
The use of the Petro Star Refinery waste heat for generating power will mitigate this difficulty by reducing the
cost of electricity to zero.
The building of a cold storage and processing facility could help the existing industry - and new businesses -
be more competitive. If successful, at least some aspects of this project can act as a model for other seafood
dependent communities in the state in similar situations. The proposed VFDA facility is on a larger scale than
most communities might consider, and the potential use of waste heat from a petrochemical plant is a
unique feature. Nonetheless, lessons learned should be beneficial to other contemplated developments.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 update McDowell Group, Inc. • Page 9
Product Offerings
Overall Operational Concept
The overall concept for the cold storage facility has several primary components:
• Using grant funds, the Valdez Fisheries Development Association will purchase the land and build
a facility to house a cold storage, dry heated storage, secondary seafood processing area, an
office, and loading docks.
■ Primary processing will not be done at this facility. Product will arrive in headed and gutted form
for cold storage. Processors may rent the facility's processing equipment (boneless fillet
machines, for example) for further value-added processing.
• Using grant funds, the Association will equip and manage the cold storage facility. The facility will
be used to stockpile primary processed product and to finish products prior to shipment. Finished
product may also be stored prior to shipment.
• The Association will build the processing plant complete with basic value -adding equipment and
lease it to qualified tenants.
• Tenants may supplement the Association's supplied equipment with their own specialized
machinery needed to create desired products for their customers.
Operational Goals
The primary goal of the cold storage facility is to diversify and enhance the regional seafood economy. This
goal can be achieved by encouraging the development of new products by creating a fully equipped
processing and cold storage facility and leasing those facilities to qualified operators. A natural outcome of
this may be to increase the market value of salmon and in so doing raise the grounds price. Another outcome
may be to create year-round employment for processing workers.
A secondary goal for this project is to create a self-sustaining environment in which new products can get a
solid start. The Valdez regional cold storage facility is a unique concept and, if successful, may act as a
business model for other fishing industry regions in Alaska.
The proposed facility encourages development of higher -margin product forms of low -value salmon. This
may reduce the current over -supply of canned salmon (pink salmon in particular) and may help restore
canned prices.
Since Valdez Fisheries Development Association is a non-profit organization, the combined operations should
break-even.
Valdez Regional Cold Storage and Processing Facility Business Pion - 2009 Update McDowell Group, Inc. 9 Page 10
Cold Storage Business Offering
The largest business component, in size and revenue, is the proposed cold storage. Twelve storage units
(about 3 to 4 million pounds capacity on average) will be built in five stages resulting in a total storage
capacity of 25 to 30 million pounds. The Valdez Fisheries Development Association will manage and maintain
the cold storage business component. Seafood processors in the region will lease the -20 degree Fahrenheit
storage space. Warehoused products may be consolidated for efficient shipping, reprocessed to suit specific
customer requirements, or a combination of both. As a result, products will ship directly to customers or to
forward warehouses - thereby skipping Seattle where much of the Prince William Sound harvest is currently
stored and re -worked before being shipped again to customers. This facility will replace the need to ship
product to Seattle for storage and/or reprocessing and retain more fishing industry dollars in -state.
Customer use of the facility depends on competitive storage rates. See the Valdez Cold Storage Feasibility Study
for a listing of competitive rates. The proposed rates for this facility are well below the published rates and on
par with negotiated rates for competing cold storage facilities.
Valdez Fisheries Development Association employees will be responsible for transporting product into cold
storage from the loading dock. VFDA employees will inspect the product for proper containerization, weigh
the product, assign cold storage space, and operate the forklifts for transporting the product to the assigned
space. The customer's responsibility is to head, gut, and property freeze the fish product prior to arrival at the
Valdez Regional Cold Storage location.
Processing Line Rental
The second business component consists of two facilities equipped with contemporary processing technology
needed to thaw, fillet, package, and re -freeze. Long-term tenants will be sought to lease the units for custom
processing or for re -working their own primary -processed products held in the adjacent cold storage. Tenants
will be responsible for hiring their own personnel and for equipment needed for specialized products.
Completion of training offered by the Valdez Fisheries Business Incubator Program will qualify potential
processing line rental. Other potential users of the processing line facility must demonstrate competency on
the Association's equipment prior to utilizing the facility.
Each processor will have special needs for equipment based on their customer's expectations, Valdez Fisheries
Development Association may purchase specialized equipment for processors when negotiating processing
line rental. For purposes of this business plan, only basic processing equipment is assumed to be purchased.
In conjunction with the reprocessing facility, Valdez Fisheries Development Association will offer
comprehensive third party inspection services. Such services have become essential to provide customers with
product confidence, and will be particularly important for a facility located so far from normal distribution
centers.
Valdez Fisheries Development Association personnel will be responsible for transporting processor's product
from the cold storage to the processing line thawing area. Processors will then become responsible for the
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. - Page 1 f
product and any value-added activity. When the processor has completed value-added activity along with
repackaging and refreezing, the product may be prepared for re-entry to the cold storage or shipped directly
from the processing line facility as per prior arrangement with the Association. Product that is to be refrozen
will be transported by Valdez Fisheries Development Association personnel after weighing and assigning a
cold storage location.
Processors will typically be responsible for cleanup of the processing line facility but may elect to pay Valdez
Fisheries Development Association employees for clean-up when prior arrangements have been made for this
activity. Association employees will inspect the area after cleanup to insure that equipment is ready for the
next processor wishing to use the equipment.
Inspection services of product about to be shipped will take place when buyers request such service.
Other Business Offerings
Warm Storage
Despite the ongoing product -form shift for pink salmon, canned salmon remains a substantial product form
for the Prince William Sound region. In 2007, canned production in the region was likely over 700,000 48-tall
case equivalent, more than 30 million pounds.
Currently, much of this product is shipped as bright -stack (canned salmon without labels) to Seattle for
warehousing and for later labeling and casing. The purpose of this warm storage is to allow these
warehousing and packaging functions to occur on -site and to permit direct shipments of canned salmon. Like
the cold storage, this component will be managed by Valdez Fisheries Development Association and made
available to local processors. Throughout this report, the facility is referred to as the cold storage facility.
However, the modular design and the use of Petro Star Refinery waste heat will allow all cold storage
buildings to be used alternatively as warm storage.
Valdez Fisheries Development Association does not currently plan to offer labeling equipment services.
However, the facility can easily be used for warm storage based on processor's needs for such space and
Valdez Fisheries Development Association could negotiate with processors to supply this equipment as weft.
Only modest warm storage business is anticipated in this business plan,
Cool Storage
Though not planned at this time, the Valdez Fisheries Development Association Cold Storage facility
temperatures can be modified to allow for cool storage for fresh product as the need arises. At this time, the
Association does not anticipate the need for cool storage. The Association has the flexibility to meet customer
requests for this offering if needed.
Valdez Regional Cold 5torage and Processing Facility Business Plan — 2009 Updore McDowell Group, Inc. 0 Page 12
Build to Suit
An integral part of the success of this endeavor will be to provide the cold storage and processing line facility
customers with the tools and infrastructure needed for successful Alaskan operations. Valdez Fisheries
Development Association will tailor its operation to meet the needs of Prince William Sound processors. Those
needs might be cold, warm and dry, or cool storage. Processing line equipment will be based on customer's
needs for equipment. Additional supplies or services may be offered if customer demands warrant and
provided the Association does not then compete directly with other Valdez businesses.
Valdez Fisheries Development Association has ample acreage for future expansion that will be based on
customer's need for other offerings. This could be additional cold storage space, processing lines, or offerings
such as a smokehouse, fishmeal plant, or special packaging capabilities.
Training
Valdez Fisheries Development Association will continue to offer training through the Valdez Fisheries Business
Incubator Investment Program, There is no fee for participation in the business incubator program (program
fees are funded through grants). Users of the processing line equipment must demonstrate a certain level of
competency prior to using the facility. Potential users of the processing line facility must provide some level of
assurance that they have the necessary training for use of the seafood processing line equipment.
Support Services
Support services for the business components will be provided by a central facility, These services include
office space, loading docks, inventory tracking, and facility management services. Valdez Fisheries
Development Association will be responsible for security of the entire facility plus repair and maintenance of
the warehouses and the processing area basic equipment. The Association will also be responsible for snow
removal and grounds upkeep.
Space and Area Considerations
The space and area needed for the fillet operation is included in the construction of the cold storage
warehouse facility, in today's food manufacturing environment, quality requires control and monitoring of
bacteria levels on the product. The fillet processing area will be built and operated with an emphasis on food
quality and safety.
Each fillet room will meet the following standards for infrastructure, product control, and safety:
Infrastructure Needs:
• Space: 3,000 - 4,000 square feet with 10 - 12 foot ceiling.
• Floors: concrete and sloped for easily cleanable drain system.
• Curbs: concrete 12" - 16" high. Tight joint with floor to prevent collection and build-up of
organic materials.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 [Update McDowell Group, Inc. + Page 13
• Utilities: adequate electrical, hydraulic and air to operate the processing equipment. Preferably
the conduit and piping can be built into the walls and ceiling to reduce the area for accumulation
of moisture and dust.
• Sanitation: sanitation system and equipment can be built into the walls if it is a centralized type
system.
Product Control:
• Walls: food preparation quality.
• Ceilings: food preparation quality.
• Ventilation: positive air flow/ventilation to prevent the build-up of moisture.
• Temperature control: refrigeration coil to maintain the room temperature at or below 50 degrees
Fahrenheit.
• Waste stream disposal: An effective and efficient way to grind and dispose of the skin, bones,
and meat from the fillet process.
Safeq:
• Sprinkler system: It is best to have piping in the ceiling with low profile sprinkler heads. This
minimizes the area moisture and dust can accumulate and provide a breeding area for bacteria
growth.
• Lighting: surface mount/wash-down protected light fixtures. Whole spectrum lighting is needed
to allow for proper color grading of fillets.
• Doors/access: Personnel access and product flow into the space need to be controlled to prevent
the entrance of bacteria. Doors need to be food preparation area quality. Personnel access
requires foot and hand dip stations.
Air curtains and bug zappers: required on all open doorways and inside of all entry points.
The following diagram shows the general layout of the processing facilities in relationship to the cold storage
and the product flow lines. The layout is built around making efficient use of a common set of blast tunnel
freezers.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. • Page 14
Central Cold
Facliq
Figure 1
Processing Line Product Flow Diagram
dnc
Akate Not to scale, schematic
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, inc. • Page 1 S
Market Assessment
The Current Situation
There are currently no public or quasi -public cold storage warehouses in Valdez, or in the whole Prince
William Sound region. To date, cold storage needs are met by individual processors. Due to their high capital
costs, most processors have opted to provide the minimal amount of cold storage needed to accumulate
product into full container loads (40,000 pounds) for shipping to outside cold storages or to customers.
During the peak of the season, most frozen product is loaded directly from the plant's blast freezers into 40-
foot refrigerated containers.
The absence of a cold storage in the region means that shortly after the harvest season concludes, the entire
harvest has been shipped out of the region and there is very little economic activity in the region's seafood
industry until the next harvest period. The local seafood industry slips into eight months of dormancy.
Once product departs the region it flows toward end users, often pausing at various other (outside Alaska)
warehouses or re -processors along the way. Each of these pauses represents potential revenue lost to the
Valdez region.
Facility Competition
The proposed facility offers two Core functions: cold storage and reprocessing. For the most part, these
activities are presently supplied by businesses located elsewhere. To draw these activities to the Valdez facility,
it must successfully compete against businesses currently providing these services. Pacific Northwest
businesses, well known to the industry, now supply most of these functions and serve as good examples of
the competition faced by the planned Valdez facility. SeaFreeze and Bellingham Cold Storage offerings are
described briefly below.
SeaFreeze Inc.
SeaFreeze, inc. is a venerable component of the seafood industry in the Pacific Northwest and Alaska. It is
generally well regarded for its professionalism and customer orientation. The 350,000 square foot warehouse
is located along the Duamish River just south of downtown Seattle, conveniently sited for receiving and
shipping access by truck, sea, or rail. Importantly, its location near SeaTac International Airport and major
traffic arterials provides easy access to customers and their buyers for inspecting product.
Major offerings:
• 7 million cubic feet of frozen storage capacity (approximately 75 million pounds).
• Temperature maintained at -10 degrees Fahrenheit in 5 separate rooms.
■ 35 loading dock stations.
• 51,000 square foot facility for custom processing.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. ■ Page 16
Bellingham Cold Storage
Bellingham Cold Storage (BCS) is a very large public cold storage located at the Bellingham Harbor. This 13.+6
million cubic foot facility may be the largest warehouse complex on the west coast, including Canada and
Alaska. Like SeaFreeze, this is a well -regarded operation offering an entire range of warehouse and
reprocessing activities. Their location, about 1.5 hours north of Seattle, is a less convenient site for potential
buyers needing to inspect product.
Major offerings:
• 13.6 million cubic feet of storage space.
■ 160 million pounds of frozen storage capacity.
• 50 truck loading bays and 13 railcar loading zones.
• Reprocessing capacity to freeze 600,000 pounds daily.
Location Preference
Depending upon their needs, customers will find different advantages and disadvantages to storing and re-
working products in Valdez. One of the key advantages is the lower rates made possib€e by the facility being
constructed using grant funds and run as a non-profit business. The resulting lower rates may go a long way
to offsetting any problems concerning its remote location and associated issues regarding project oversight
and customer inspections.
The services offered by VFDA are designed to meet the stated needs of certain regional seafood processing
corporations and, in turn, their fishing fleets and the local economy. Prior to now, this important Alaskan port
offered no way for processors or other entrepreneurs to properly store frozen seafood, to further process
those products within the region, or a way for new seafood businesses to lease storage or processing space
and avoid huge initial capital costs. By leasing such facilities, the start-up times will be significantly shortened
for new business concepts. In addition, both new and existing businesses seeking opportunities for expansion
can avoid extensive delays associated with permitting, design, and construction of a new facility.
The following table highlights the advantages and disadvantages of the proposed plant as seen from the view
of a hypothetical customer.
Table 4
VFDA Plant Advantages and Disadvantages Evaluation
Grant funded capital costs Distant from corporate offices
Non-profit management Difficult for customers to inspect product
Community support Valdez is not a regular port of call for major
international shipping lines
Conveniently located close to seafood resource Seasonally difficult highway access
Inexpensive operating costs due to using waste Reprocessing during the off-season may require the
heat and no debt service on construction costs cold storage client to post employees in Valdez
Full service facility; warehouse and re -processing
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. ■ Page 17
Processor Interest
Support for this project and potential interest from processors is demonstrated by the Letters of Interest
solicited by Valdez Fisheries Development Association. (See the Appendix.) One processor puts it nicely when
he says:
"The historic methods of exporting commodity fishery products from Alaska to the lower
forty-eight states and international destinations are no longer practical. Our business has
been adversely impacted by the inability to fully process product close to "point of
harvest".
This processor goes on to say that the ability to engage in secondary processing and store products in Alaska
will help his firm to capture increased market share for Alaska seafood products.
Another processor puts it this way:
"Ultimately, (we) would be willing to alter (our) current operations if our bottom line
were positively affected. This would mean that the combination of injout fees, handling
fees, cold storage, and transportation would need to be less than or equal to our current
operational expenses. The proposed access to processing equipment further enhances
our interest in this project."
Other processors as well as community leaders in Valdez and Fairbanks have offered verbal support for the
project as well, according to VFDA management.
Pink and Chum Salmon Product and Market Trends
Product Trends
The outlook for value-added Alaska salmon is promising. The U.S. salmon fillet market is among the largest in
the world and has grown at an average annual rate of 18 percent since 1998.' Import statistics are specific to
product form, providing a very clear picture of product form preference. Salmon fillet is the preferred product
in the U.S. and accounts for nearly all salmon import growth.
Fillet processing activity at Valdez would serve a very large existing market with strong growth potential.
While the relative growth rate of fillet versus other salmon products has slowed in recent years, the total of
salmon fillet imports and Alaska salmon fillet production represents U.S. consumption of over 900,000
pounds per day. At that rate, the entire statewide production of salmon fillets in Alaska amounts to a five -
week supply. (See Figure 2.) Overall, U.S. imports of salmon fillets grew 134 percent between 1999 and
2008, while imports of all other salmon products combined grew just 42 percent during the same ten years.'
National Marine Fisheries Service annual reports.
Using data from annual reports by the National Marine Fisheries Service_
Valdez Regional Cold Storage and Processing Focitity Business Plan - 2009 Update McDowell Group, Inc. • Page 18
160.000
140.000
120,000
100,000
K
80.000
E 60.000
40,000
20,000
Figure 2
U.S. Salmon Imports by Product Form
(metric tons)
1994 1995 19,96 1997 1998 1999 2000 2001 7002 M 12004 200.5 2006 2007 2008
Source- National Marine Fisheries Service.
Two species (pink and chum) account for nearly 90 percent of PWS salmon harvest tonnage.
Pink Salmon
Alaska pink salmon values have improved substantially in recent years, driven largely by strong demand for
frozen pinks and a related product -form shift in Alaska, from canned to frozen.
The chronic surplus of tanned pink was a key factor in low pink salmon values early in this decade. Canned
pink has a shelf life of several years and with a series of record and near -record pink harvests throughout the
last decade, unsold inventory bridged the low years in the two-year abundance cycle, keeping the canned
pink market in a constant state of oversupply.
Ex -vessel and first wholesale value of Alaska pinks bottomed out during 2002-2004. Ex -vessel prices were 9-
10 cents per pound, while average first wholesale price for H & G frozen pinks remained below 55 cents per
pound and average 48-tall wholesale case price remained in the $34-S38 range.
Values began to improve in 2005 as demand for frozen pinks grew and the product -form shift from canned
to frozen accelerated. through 2002, the canned product -form share for Alaska pink salmon was in the 75-80
percent range. That share of production declined to 64 percent by 2004 and by 2007 was down to 50
percent.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. 0 Page 19
This progression and the associated price changes were accelerated by the unusually low Alaska pink harvest
of 72 million fish in 2006. Wholesale values for the major pink salmon products recovered, with frozen H&G
prices rising to the 80-90 tent range and 48-tall case prices rebounding from the low point of S34 to $57+
per case. Ex -vessel pink prices increased to 16 cents per pound in 2006, 19 cents in 2007 and 29 cents in
2008.
PINK SALMON IMPLICATIONS
The product -form shift has two important implications for Alaska pink salmon markets. One, it demonstrates
a major increase in the demand For primary -processed (H&G frozen) product. Through 2007 this was
reflected in strong export growth to low-cost labor markets like China, presumably For secondary processing.
However, there are indications From 2008 export data that export activity to such labor markets has slowed.
The relevant implication for the proposed Valdez Cold Storage Facility is a potential increase in demand for
domestic secondary processing of frozen H&G pinks.
Second, the product -form shift has reduced the supply of raw material available for canning and "dried up"
the longstanding cumulative surplus of canned pinks. This brings canned pink supply and demand into
balance and may substantially increase demand for the product. This is reflected in the September —December
average case price of $69 for 48-tall pinks, more than S10 higher than any other ASP reporting period of the
last 10 years. The relevant implication for the Valdez Cold Storage Facility is that heightened demand for raw
pink salmon to supply canned production may reduce the volume available for frozen H&G production and
secondary processing activity at Valdez.
Chum Salmon
Statewide average churn salmon prices have improved substantially in recent years, from 19 cents per pound
in 2003 to 34 cents per pound in 2007. Roe value has traditionally been a significant driver for the ex -vessel
price of chums, but the 2004-2007 price growth apparently results from increased wholesale value of chum
salmon meat products.
First wholesale value of frozen H&G chum has risen steadily since 2003. from the mid-40-cent range in 2003
to $1.09 per pound in early 2007 and a peak of $1.17 per pound in 2008. Frozen chum fillets show similar
first wholesale value growth, from the 51.3041.40 range in 2003 and 2004 to a high of $2.46 per pound in
2008.
The statewide average chum price increased to a remarkable 53 cents per pound in 2008 (preliminary),
driven primarily by a major increase in first wholesale chum roe values, but supported by the continued
growth in chum salmon meat product values.
CHUM SALMON IMPLICATIONS
The improved prices for chum salmon meat products are widely considered to be a function of the continued
growth in broad consumer demand for salmon (especially fillets), and the ongoing success of efforts to
differentiate wild salmon from farmed product. Post -season wholesale chum prices of 2006 may have been
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Updore McDowell Group, Inc. a Page 20
buoyed by substitution activity associated with the pink salmon harvest shortfall that year, but continued
value growth for chum salmon meat products in 2008 supports the notion of growing consumer demand for
the fish. The relevant implication for Valdez is a good one. Since chum salmon are twice the size of pinks, the
return for labor to fillet the fish is much higher. in light of the steady improvement in first wholesale value of
chum salmon meat products, this would logically create incentive for industry to pursue product
development for chums rather than simply shipping out high volumes of H&G as a by-product of
participating in the roe market. This creates a fall -back position for maintaining those value-added product
lines at such time as churn roe prices return to more typical levels.
PWS Salmon Harvest Trends
PWS commercial harvests have been substantial in recent years, and VFDA's salmon hatchery production is a
significant contributor. Commercial harvests of salmon in Prince William Sound exceeded projections for all
species in the five years from 1999 to 2003.
There were mixed results for actual versus projected returns during the 2004 - 2008 period, with Chinook
routinely falling below projection and sockeye harvest coming in substantially below projection in three of the
most recent five years. However, the two species that account for nearly 90 percent of PWS harvest tonnage
(pink and chum) both show positive trends with respect to actual versus projected returns in the last five
years.
The actual chum harvest was substantially below projection in 2004 (-56 percent) but actual versus projected
harvest has improved steadily since then and in 2008 the PWS harvest of over 5 million chum exceeded
projection by 41 percent. The increasing actual/projected ratio indicates significant improvement in ocean
survival of PWS-origin chum.
Actual versus projected pink harvest in PWS fluctuates consistently with the odd -even abundance cycle for
pinks. However, the PWS pink harvest has substantially exceeded the projection in three of the last five years,
by well over 50 percent. In fact, Prince William Sound has been the top pink -producing region in Alaska for
three of the last four years, accounting for half the state's total pink salmon harvest in 2008.
Valdez Regional Cold Storage and Processing Facility Business Plan — 2009 Update McDowell Group, Inc. 9 Page 21
The volume of salmon available to potential users of the Valdez facility should remain substantial, and VFDA's
planned contribution is important to this outlook. The total salmon harvest volume from PWS averages over
180 million pounds per year, with strong peak harvests exceeding 230 million pounds
Table 5
Historical
Harvests in Prince William Sound,
by Salmon Specie (thousands)
Actual Harvest (fish)
ChinookPWS
.
Co .
Pink
Chum
Total
2008•
12
1,303
548
42,413
5,089
49,365
2007
41
3,231
329
63,470
3,579
70,650
2006
32
2,525
764
21,722
2,182
27,225
2005
36
1,989
523
59,945
2,099
64,592
2004
39
1,893
620
23,531
2,002
28,085
2003
49
2,730
522
51,976
3,804
59,081
2002
40
2,263
651
18,951
6,374
28,279
2001
40
21260
490
35,250
3,100
41,140
2000
32
1,431
714
38,886
5,164
46,227
1999
60
2,040
170
45,010
1,960
49,240
Average Actual Harvest
(thousands of fish)
38
2,167
533
40,115
3,535
46,388
Actual Harvest (lbs)
ChinookPWS
2008'
257
8,019
5,206
143,727
39,449
196,658
2007
896
20,237
2,811
213,455
24,799
262,198
2006
646
14,116
6,824
78,288
19,008
118,882
2005
781
11,740
4,178
207,217
16,525
240,441
2004
879
10,977
5,595
87,449
15,047
119,947
2003
1,119
16,660
4,378
189,442
24,285
235,884
2002
830
14,453
6,096
65,795
52,583
139,757
2001
870
13,890
4,250
119,460
23,500
161,970
2000
670
9,310
6,690
132,990
41,520
191,180
1999
1,360
12,180
1,360
133,690
16,160
164,750
Average Actual Harvest
(thousands of lbs)
831
13,158
4,739
137,151
27,288
183,167
Source: Alaska Department of Fish and Game Division of Commercial Fisheries Salmon Harvest Statistics
0999 through 2008) based on Salmon Fish Tickets.
'2008 is preliminary data as of February 2009.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update WDawell Group, Inc. ■ Page 22
Potential Growth in Facility Use
Other potential supply could exist through the efforts of the hatcheries in Prince William Sound, the rivers
that feed into it, or from other areas of the state. The focus of the potential supply for this business plan has
been on Prince William Sound salmon as the most likely source for value-added activity. However, processors
could utilize this facility for halibut, sablefish, and other seafood. Non -fish items such as bottled water (warm
storage) or frozen fruits and vegetables might be candidates for the cold storage as well, but are unlikely to
contribute significant to revenues.
Valdez Fisheries Development Association Enhancement
Valdez Fisheries Development Association hatchery release activity at 230 million pink salmon fry is currently
the maximum permitted. Coho production, however, has potential for growth. The Association would like to
improve its coho production, though this would mostly serve to benefit the sport fishermen. Historically,
coho releases have been in the 1.3 to 1.9 million fish range and coho returns range from 100,000 to 475,000
adult fish with an average weight of 8.5 pounds. Coho salmon production increases could provide higher
value product and additional potential for the cold storage and processing facility. Additional coho
production not utilized by the sport fishermen could add to the production. In the near term, Valdez Fisheries
Development Association does not plan significant increases in coho production because of water restrictions.
Copper River Fish
Discussions with processors currently operating on the Copper River suggest that, at this time, there is little
interest in the Valdez facility for their product. However, late run Copper River fish could achieve higher prices
if processed in Valdez and may become a potential in the future.
Kodiak Fish
Anecdotal reports suggest that processors currently bring product from Kodiak to Valdez for processing.
Therefore, the Kodiak fish resource may also represent potential customers for the cold storage and
processing line facility. However at this time, interest in Valdez is not considered to be significant.
Other Cold Storage Product
Additional potential exists for other frozen food products (such as ice cream, meat, or frozen vegetables).
Frozen products entering the state could use the Valdez facility rather than transporting product to
Anchorage. Frozen product currently entering the state for retailers and military bases in the Interior may
realize cost savings from transporting by barge to Valdez and then by highway to their final destination. The
Valdez port is closer to Seattle (typical origination point) than Anchorage; however, the distance from Valdez
to Fairbanks is comparable to the distance from Anchorage to Fairbanks (364 miles and 358 miles,
respectively). However, it is unlikely that existing supply chains would be altered just by the existence of this
facility and this business plan does not include cold storage food products.
Valdez Regional Cold Storage and Processing Foubty Business Plow - 2009 Update McDowell Group, Inc. • Page 23
Entrepreneurial Endeavors
Discussions with Interior farmers suggest that, at this time, there is a need for cold storage for their products.
Travel distance from the Interior to Valdez may make Interior farmer participation prohibitive. However, the
potential exists for Valdez to become the entry and exit point for produce and frozen product bound to and
from the Interior region, It does not appear that interior farmers represent an immediate market for this
facility.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, inc. ■ Page 24
Strategy and Implementation
Pricing strategies must be a reflection of both management goals and market realities. The Association's goals
for this business unit are to provide needed infrastructure for the Prince William Sound fishery resource that
will allow entrepreneurs to pursue new businesses thereby creating jobs and maintaining profits in -state. The
market reality is that currently, fish processors can store and add value to their product more economically in
the Pacific Northwest and other areas.
Pricing Strategy
It is not enough for prospective users to compare just cold storage costs between various facilities. Many
other factors influence the decision of which cold storage offers the best advantage to a customer. Valdez
Fisheries Development Association charges are just part of the calculation a processor must perform to
determine the feasibility of storing product in Valdez in preference to the cold storage currently used. from a
customer's perspective, using the Valdez cold storage or reprocessing facility requires adding VFDA charges to
other related costs such as; transportation, inspections, customer convenience, exchange rates and more -
most of which will be affected by a change in storage location.
The study team does not have access to each prospective client's related costs of transportation, etc. Many of
those costs are carefully negotiated and are proprietary and confidential.
Rather than trying to determine the costs of each specific service and activity being offered by the Valdez
Fisheries Development Association facility, the study team provided potential clients with an estimated
monthly cold storage charge and asked them if, using the Valdez cold storage or reprocessing rate, they
would consider using the VFDA facility. The potential client did the calculations combining the suggested
facility charges with other refaced costs (transportation, inspection, convenience of use, etc). After looking at
the combined costs and usability, most of the prospective clients asked indicated strong interest in using the
proposed VFDA facility.
Marketing Strategy
A marketing plan defines potential customers, how to reach them, and the cost to the company of selling the
product to the customers. Marketing plans are detailed and can be complex. The following briefly outlines a
marketing strategy for Valdez Fisheries Development Association's new offering,
1. Identify the target market: Primary customers for the cold storage and processing line business
unit are the fishermen and processors operating in Prince William Sound. Other potential
customers are the fishermen and processors operating in Cook Inlet and Kodiak regions,
refrigerated and frozen food product vendors serving Prince William Sound and the Interior
region, and potential warm storage clients.
Valdez Regional Cold Storage and Processing Facility Business Plan - 2009 Update McDowell Group, Inc. 0 Page 25
2. Plan to reach the target market. This could be achieved by personal contact with Prince
William Sound operators, getting the word out at trade shows, and assigning personnel to
marketing activities.
3. Advertise and promote: Develop a brochure, take ads in trade journals, local newspapers, and
yellow pages, attend trade shows, visit with potential customers, offer incentives to employees
who bring in new customers, send announcements to local newspapers. Depending on the
available budget, any or all of these approaches may be taken to entice customers to change
their current operations and use this new facility.
Major Events
Funding, design, construction, and management of a cold storage/reprocessing facility is a serious and
complex undertaking. Each major step introduces a complex series of sub -steps and yet another series of
actions. The major categories of actions include:
• Secure funding
• Site acquisition & due diligence
• Establish timeline for all permits and licenses
• Issue a RFP for design
• Issue a RFP for construction
• Issue RFP for warehouse management systems
• Initiate construction and assign construction oversight
• Hire key personnel; manager, engineer, and Quality Control inspector
• Develop back office and administration systems
• Develop quality control, inventory tracking systems
Valdez Regional Cold Storage and Processing Facility Business Plan -1009 update McDowell Group, Inc. ■ Page 26
Management Plan
Structure
Valdez Fisheries Development Association is a non-profit corporation. Its Board of Directors consists of seven
members who represent the major salmon user groups and business people in the Port of Valdez.
With the addition of the cold storage and processing line, there will be three distinct business units in the
Valdez Fisheries Development Association organization. They are as follows:
1. Hatchery Unit: charged with the propagation and raising of fish and the development of
renewable fisheries resources for the benefit of commercial Fisherman, sport fishermen,
subsistence fishermen, fish processors, tourists, and all businesses dependent upon the fishing
industry in Alaska.
Z. Fishing Vessel Coordination Unit: led by an Administrator/Sales Manager, this unit performs a
variety of duties in the area of salmon product sales, harvest, and processing. This unit also works
directly with the Fishing Vessel Coordinator in the fulfillment of the contractual obligation to
Alyeska/SERVS Fishing Vessel Response Program.
3. Cold Storage and Processing Facility Unit: infrastructure that will allow processors to store
seafood product close to the fishing grounds for later processing thereby creating jobs and
retaining resource value in the state.
The focus of this business plan is on the Cold Storage and Processing Facility Unit of VFDA's business. It is
assumed that this entity, while part of the larger whole, will be responsible for its own revenues and expenses
and will not be supported by other units of VFDA.
Management Options
Three options were considered for managing and leasing the processing lines:
1. Owner provided: The owner provides 100 percent of all needs including spate and area,
equipment, personnel, and management. This is the model used in China and a few processing
plants in Alaska and Washington. The third party provides the fish for Fillet, the specifications, and
the customer's representative of the finished product. The plant owner provides all of the workers
and equipment to Fillet the fish to the agreed specification. The usual arrangement involves the
plant owner charging a fee based on the pounds of finished product.
2. Bare plant: The plant owner provides the Facility space and defined equipment for a fee. The
fillet operator provides the personnel, specialized equipment, and pays all operational costs.
Valdez Regional Cold Storage and Processing Facility Business Plan — 2009 Update McDowell Group, Inc. • Page 27