HomeMy WebLinkAboutVFDA Appendix #3, Business PlanAppendix 43 a,,.ez Regional �&IdN.Sxtdazge and
Procesj& Facility
PREPARED FOR:
Valdez Fisheries Development Association
February 2005
Valdez Regional Cold Storage
and Processing Facility
Business Plan
PREPARED FOR:
Valdez Fisheries Development Association
PREPARED BY:
Juneau • Anchorage
IN ASSOCIATION WITH:
REDPOINT ASSOCIATES
February 2005
i'
TABLE OF CONTENTS
ExecutiveSummary........................................................................................................... 1
AddingValue to Alaska...............................................................................................................................1
TheVFDA Concept.......................................................................................................................................1
VFDAAssumptions......................................................................................................................................2
ProjectGoals..................................................................................................................................................3
LocationAssessment....................................................................................................................................3
SalmonResource Availability.....................................................................................................................4
Operations......................................................................................................................................................4
CapitalRequirements...................................................................................................................................5
Financial Summary of Operations..............................................................................................................5
J Company Statement of Purpose....................................................................................... 7
Introduction...................................................................................................................................................7
LegalEntity....................................................................................................................................................8
OrganizationHistory............................................................................................ ........................................8
Locationand Facilities..................................................................................................................................9
Model for Other Facility Developments................................................................................................... .9
ProductOfferings.................................................................................... 11
OverallOperational Concept....................................................................................................................11
OperationalGoals.......................................................................................................................................11
ColdStorage Business Offering................................................................................................................12
ProcessingLine Rental...............................................................................................................................12
OtherBusiness Offerings...........................................................................................................................13
Spaceand Area Considerations'................................................................................................................14
MarketAssessment.......................................................................................................... 17
TheCurrent Situation.................................................................................................................................17
Competition.................................................................................................................................................17
Lettersof Interest........................................................................................................................................19
ProductForm Change................................................................................................................................19
RecentTrends...............................................................................................................................................21
MarketGrowth.......................................................... .................... .............................................................. 22
Strategyand Implementation.......................................................................................... 24
PricingStrategy...........................................................................................................................................24
MarketingStrategy................................................................................................................2
Major Events .......................5
25
ManagementPlan............................................................................................................. 26
Structure.......................................................................................................................................................26
ManagementOptions: ................................................................................................................................ 26
Insurance......................................................................................................................................................27
RegulatoryPermits and Licenses..............................................................................................................28
Personnel......................................................................................................................................................30
Operations........................................................................................................................ 36
Receivingand Storage................................................................................................................................36
1 Shipping.: .............. 37
Reprocessing................................................................................................................................................39
FilletOperations..........................................................................................................................................40
Fillet Room Equipment
FilletTunnel Freezer...................................................................................................................................41
ProcessingLine Operating Costs..............................................................................................................43
j Financial Summary
Valdez Fisheries Development Association History............................................................................ 45
}} Assumptions................................................................................................................................................46
-I
Capital Requirements.................................................................................................................................47
Summaryof -Capital Investment...............................................................................................................49
Revenues......................................................................................................................................................51
1 Expenses.......................................................................................................................................................54
MonthlyCash Flow....................................................................................................................................58
ProjectedCash Flow...................................................................................................................................60
Risk Assessment and Mitigation.................................................................................... 61
Appendix........................ :.................................................................................................. 63
Lettersof Interest.............................:..............................................................................................................
Valdez Cold Storage Facility Conceptual Engineering Report by Alaska Anvil, Inc. — September
19, 2003..............................................................................................................................................................
Valdez Fisheries Development Association Business License and IRS determination letter ..............
Valdez Fisheries Development Association Tax Returns 1999 through 2003........................................
Resumesfor Key Personnel...........................................................................................................................
N
EXECUTIVE SUMMARY
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 jobs and contribute to the economies of the state. The goals of the program
include maintaining harvest -related employment, providing a means for
entrepreneurs and established processors to produce value-added products in
Alaska, and increasing the in -state economic value of the VFDA and Prince William
Sound seafood resource, 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 the 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 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 willing
to use the facility for value-added activity will realize a lower unit cost as a result of
this business plan. VFDA's plan is to seek grant funding for the capital cost, as well
as for the initial operating losses until the facility attracts sufficient markets 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, secondary
seafood processing area, an office, and loading docks. The temperature range for the
facility modules varies from -20 to 70+ degrees Fahrenheit. Valdez Fisheries
Development Association will not compete with other established businesses in
Valdez.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 9
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
both the heat and the cooling capabilities of the facility, thereby reducing the utility
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 inthe 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
• Design and capital costs are based on the Valdez Fisheries _Cold Storage
Conceptual Engineering Report by Alaska Anvil, Inc. dated September 19,
2003.
• The project will be built in stages over five years.
• Construction and processing equipment will be funded by grants, requiring
no match or repayment.
• Use of waste heat will work as anticipated in the Alaska Anvil report and as
represented by Valdez Fisheries Development Association.
• Petro Star Refinery operations will continue at rates sufficient to supply the
cold storage facility with waste heat for refrigeration.
• 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 $39.8
million when processing equipment and inflation adjustments are added
over the five 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.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 2
• 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 listed. 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 fall to the processors and harvesters, and that VFDA will meet operating
expenses with moderate user fees from facility customers. Extending the regions
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 reprocessors to hold their fish inventory and establish new or expanded
businesses over time without the drain of a large capital investment.
Location Assessment
Depending on their needs, customers will find different advantages and
disadvantages to storing and re -working product in Valdez. One of the key
advantages is the lower rates charged to customers made possible by the facility
being constructed using grant funds (no debt service costs), reduced refrigeration
costs, and run as a non-profit business. In addition, the proximity of the facility to
the fishing grounds is seen by VFDA as an advantage to potential customers.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 3
Salmon Resource Availability
Commercial harvests have been substantial in recent years, and VFDA's salmon
hatchery production is a significant contributor to those harvests. Commercial
harvests of salmon in Prince William Sound exceeded projections for all species in
the five years from 1999 to 2003. For pink and chum salmon the actual harvest
exceeded the projected harvest by more than 150 percent. While future harvests are
not likely to regularly exceed forecasts, the volume of salmon available to potential
users of the facility should remain substantial, VFDA's planned contribution is
important to this outlook. The potential supply of salmon from Prince William
Sound has averaged more than 169 million pounds in the last six years.
Table 1
Salmon Resource in Prince William Sound
(1999 through 2004)
In Thousands of Pounds
Source: Alaska Department of Fish and Game Division of Commercial Fisheries Salmon Harvest Statistics (1999 through 2004)
based on Salmon Fish Tickets. *2004 is preliminary data.
Operations
The proposed Valdez regional cold storage is designed to serve two basic functions:
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.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 4
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 $455,000 per year. That amount spread over the assumed
pounds of finished product indicates a breakeven cost of approximately $0.05 per
pound. Since VFDA intends to run this operation on a non-profit break-even basis,
that $0.05 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 $39.8 million. Year 1 estimates are for $27.2
million in capital investment. This includes the full 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 be sooner or later depending on project success.
Table 2
Capital Requirements for
Valdez Regional Cold Storage and Processing Facility
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 rises 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. Higher revenues may occur
sooner if processors are able to quickly relocate their operations to Valdez.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 5
Expenses
Annual expenses range from $1.2 million in the first year of operation to $2 million
in Year 5 based on existing conditions in Valdez for utility rates, the Alaska Anvil
conceptual engineering report for construction, and discussions with industry
experts for insurance, repair and maintenance, and depreciation schedules. When
depreciation is added, Year 1 expenses are almost $2 million and Year 5 expenses
rise to $3 million.
Table 3
Pro -forma Operating Cash Flow Statement
Valdez Regional Cold Storage and Processing Facility
Note: As a 501(c)(3) Valdez Fisheries Development Association may not be subject to real property taxes for this facility.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan 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 local
processors to increase the value of the harvest and provide in -state employment for
j 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.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 7
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 12/31/2005. (See the Appendix for copies of the Alaska
business license and IRS determination letter.)
The mailing address is:
Valdez Fisheries Development Association
Post Office Box 125
Valdez, Alaska 99686
The telephone number is (907) 835-4874.
The fax number is (907) 835-4831.
The email address is 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 2004, more than 226
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 a business model and develop a
marketing plan 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.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 8
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 18.6 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 for the ammonia
absorption refrigeration system. (See the Appendix for the Conceptual Engineering
Report by Alaska Anvil.) 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 cold storage refrigeration unit.
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.
The use of waste heat from the Petro Star Refinery to provide energy for cooling the
facility cuts the annual electric utility consumption for this facility in half. The
estimated electric utility savings is $262,000 annually based on Alaska Anvil's
September 2003 report.
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 establishing this activity in the past has been
the high cost of utilities in Alaska. The use of the Petro Star Refinery waste heat
could minimize this difficulty by dropping the cost of electricity by as much as one-
half.
Valdez Fisheries.Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 9
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 Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 10
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 Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 11
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 properly 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 McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 12
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 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.
4 Inspection services of product about to be shipped will take place when buyers
request such service.
Other Business Offerings
Warm Storage
A significant amount of product from the Prince William Sound area is canned (63
percent of pink salmon, 12 percent of sockeye, and,11 percent of chum salmon on
average from 1998 through 2002). 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 well. 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 Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 13
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, fish meal
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
J 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:
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 14
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.
Figure 1
Processing Line Product Flow Diagram
door
Central Cold Storage
Facility
Fillet Room # 1
thaw
h&g into fillet room
fillet operation
room
a
Warehouse
Open working
racking freezer carts
Area
finish frz
ase up
to cld st
unload frz tunnel freezer #1 load frz
unload frz tunnel freezer #2 load frz
finish frz
to cld st case up
rack frz carts
'on�
thaw
h g to fillet room
fillet era
op
room
Fillet room # 2
Valdez Fisheries Development Association
Cold Storage and Processing Facility Business Plan
Note: Not to scale, schematic only.
McDowell Group, Inc. and RedPoint Associates
Page • 16
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.
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).
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 17
■ Temperature maintained at.-10 degrees Fahrenheit in 5 separate rooms.
■ 35 loading dock stations.
■ 51,000 square foot facility for custom processing.
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 possible 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 is a short summary of the proposed plant's advantages and
disadvantages as seen from the view of a hypothetical customer.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 18
Table 4
VFDA Plant Advantages and Disadvantages Evaluation
Letters of 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 in/out 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.
Product Form Change
Canned salmon is the primary product form for Alaska pink salmon. Wholesale
prices for canned pinks are depressed due largely to chronic surplus inventory as a
Valdez Fisheries Development Association. McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 19
result of record harvest and production levels in recent years. Canned pink salmon
inventory was estimated at 4.4 million 48-tall case equivalent at the close of the 2004
sales season on September 1, 2004. The five-year average sales volume during the
September -August sales season is 3.16 million 48-tall case equivalent.'
Assuming sales of canned pink in the upcoming sales season are consistent with the
previous five years' average, there will likely be 900,000 — 1,000,000 cases in surplus
inventory at the close of the 2005 sales. season.
There is an ongoing shift from canned pink to frozen and value-added products such
as fillet, consumer -ready portions, and retort pouches. The canned portion of the.
pink harvest has declined from approximately 85 percent in 1996 to an estimated 70
percent in 2004.2 This is a gradual shift but will likely accelerate with continued
marketing effort and consumer acceptance of alternative products.
Meanwhile, the U.S. salmon fillet market is among the largest in the world and has
grown at an average rate of 15 percent annually since 1997.3 U.S. imports of fresh
and frozen salmon in 2003 were only about 11 percent less than japans. Farmed
salmon imports supply most of the U.S. market.
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. (See Figure 2.) The outlook for value-
added Alaska salmon is promising. With a product -form change to fillet, processors
can reduce the oversupply of canned product and meet the ever-increasing U.S.
demand for salmon fillets.
1 Salmon Market Information Service preliminary pack and inventory estimate January, 2005.
2 Alaska Seafood Marketing Institute, Salmon Market Bulletin October 2004
3 Alaska Seafood Marketing Institute, Salmon Market Bulletin, April 2004.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 20
140,001
120,001
100,001
U, 80,001
C
O
v
U
N
E 60,001
40,001
20,00
Figure 2
U.S. Salmon Imports by Product Form
(metric tons)
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: National Marine Fisheries Service. December 2004 is estimated based on the previous 11 months.
Overall, U.S. imports of salmon fillets grew 130 percent between 1999 and 2004,
while imports of all other salmon products combined grew just 10 percent during the
same five years 4
Recent Trends
Commercial harvests of salmon in Prince William Sound exceeded projections for all
species in the five years from 1999 to 2003. For pink and chum salmon, the actual
harvest exceeded the projected harvest by more than 150 percent. Sockeye
projections also exceeded projections by almost 60 percent. In 2004, the Alaska
Department of Fish and Game increased the projected returns of pink salmon by
more than double. Sockeye and chum salmon projections were also increased
significantly to reflect the previous high rates of return. However, the projected
returns were not realized in 2004. As Table 5 shows, the potential supply of salmon
4 Using data from annual reports by the National Marine Fisheries Service.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 21
from Prince William Sound has averaged more than 169 million pounds in the last
six years.
Table 5
Historical Harvests in Prince William Sound,
by Salmon Species (thousands)
Source: Alaska Department of Fish and Game Division of Commercial Fisheries Salmon Harvest Statistics (1999 through 2004)
based on Salmon Fish Tickets. *2004 is preliminary data.
Market Growth
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 or frozen fruits and vegetables might be candidates for the cold
storage as well but are unlikely to contribute significant amounts 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
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 22
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.
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 Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 23
STRATEGYAND 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 related 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.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 24
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.
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 Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 25
Structure
MANAGEMENT PLAN
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:
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.
2. 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 Facili , 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
space 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.
Valdez Fisheries Development Association
Cold Storage and Processing Facility Business Plan
McDowell Group, Inc. and RedPoint Associates
Page • 26
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.
3. 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 (VFDA) 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
Processing workers
Engineer, maintenance, and operations of
sensitive equipment
Specialized equipment beyond that supplied
by plant owner
Thaw room operations
Packaging
Equipment replacement costs
Quality Control and sanitation
Space
All bonsumables
In & out from cold storage
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)
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 27
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 coverages 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 of the product in the cold storage
and workers compensation for 14 cold storage personnel. The annual premium is
$184,200.
Table 7
Estimate of Insurance Premium for Typical Cold Storage Facility
General Liability Insurance $ 12,000
Warehousemens Legal Liability 5,000
Umbrella Liability premium 7,000
Property Insurance premium 130,000
Boiler & Machinery (including refrigeration equipment) 18,000
Workers Compensation premium 8,000
Auto Insurance premium 4,200
Total Coverages (Estimate) $184,200
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 cold 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 operator(s). Some of these permits may be held in conjunction
with the cold storage owner/operator. Not covered are local community license or
permit requirements. The application process to obtain some of the permits may
Valdez Fisheries Development Association
Cold Storage and Processing Facility Business Plan
McDowell Group, Inc. and RedPoint Associates
Page • 28
require an extensive listing and review of the operation practices in the facility such
as a Hazard Analysis and Critical Control Point (HACCP) plan.
Table 8
List of Frequently Required Permits or Licenses
AK Fish Business License
Notice to Report all Injuries Posting
AK Financial Responsibility
NPDES Annual Report
AK Wage & Hour Act Posting
NPDES Notice of Intent
Cert. for Primary Fish Buyer/Processor
Polygraph Protection Act
Corporate License
Pressure Vessel Inspection Cert.
Emergency Information Posting
Processor Permit
Employers' Notice of Insurance
Safety & Health Posting
Equal Employment Opportunity posting
Scale Certification
Europe Certification
Scale Registration
Family Medical Leave Act Posting
Sexual Harassment Posting
Federal Minimum Wage
. Unemployment Insurance Posting
Intent To Operate
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 Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 29
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 I
VFDA Board of Directors
Seven Members
Jason Wells
Executive Director
Dave Cobb.
Financial Manager
Laura Weaver
Corporate Accountant
Hatchery Manager l Cold Storage and Processing
Line Facility Manager
Assistant Hatchery Fishing Vessel
Manager Coordinator Cold Storage Engineer
Maintenance Office Manager
Engineer
Culturists (3) Cold Storage Crew (2) Processing Facility Quality Control Inspector
Fish Technicians (9) Shipping and Receiving Crew
(6) Seasonal positions
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.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 30
Cold Storage and Processing Line Facility Manager
The facility manager will hold an exempt salaried position reporting to the VFDA
Executive Director and in turn the Board of Directors of the Corporation.
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 $65,000 - $75,000.
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.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates .
Cold Storage and Processing Facility Business Plan Page • 31
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 degree in business management or a related field and at least four years
experience in a supervisory position in a cold storage facility or similar experience
that can be substituted.
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 $37,000 - $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 degree in business administration with a major in accounting or finance
or other equivalent and a minimum of four years' experience in accounting with
expertise in QuickBooks or other similar accounting system. Experience with
warehouse management systems is preferred.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 32
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 -
$75,000.
Job 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 degree in engineering with a major in refrigeration systems or other
equivalent and a minimum of four years 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.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 33
Job 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 degree in a science related field and two years 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.
Pay and benefits
Hourly wage estimates: $12/hr to $18/hr.
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 maybe seasonal.
Pay and benefits
Hourly wage estimates: $10/hr to $15/hr.
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
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 34
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.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 35
OPERATIONS
The proposed Valdez regional cold storage is designed to serve two basic functions:
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.
tlj j111Lp1C CLJ ULCJC ILUB-LiViLj 11Lay appear, ill be perforli Led cffil.iei Liiy rel jUlres scverai
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-L21-2. means: cold room #3R — row L — slot 21— level 2.
• Off load tally also records any extra labor charges above the standard
services
• 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
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 36
Shipping
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.
5. 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.
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 on 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 by 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 check list. This is a preprinted check list 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, departure port and date,
arrival port and date, trucker, agent names, and temperature settings
for the container.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 37
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 - $2,000,000 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.
Valdez Fisheries Development Association
Cold Storage and Processing Facility Business Plan
McDowell Group, Inc. and RedPoint Associates
Page • 38
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
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 - $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.
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
or deliveries, average liolding time for pro act, nurrLver and size of slidppirig 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
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 39
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:
■ pull 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/landlord 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
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 40
Fillet Room Equipment
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.
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 10
Processing Line Basic Equipment Summary
Fillet and bone removal
$ 180,000
-
$ 180,000
$ 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
$ 670,000
$ 270,000
$ 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.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 41
■ 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.
Ease of operations. 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.
The estimated cost for the tunnel freezer box with a drag through system is $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 into the facility
lease fee.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 42
Processing Line Operating Costs
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 refrigeration energy needs.
Table 11
Summary of Processing Line Operating Costs
Valdez Fisheries Development Association's operating costs for the two processing
lines is estimated to total $455,000 per year. That amount spread over the assumed
pounds of finished product indicates a breakeven cost of approximately
$0.05/pound. Since the owners intend to run this operation on .a non-profit basis
and only need to recover actual operating expenses, that $0.05 becomes the rental
rate if the facility is used at its full capacity.
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 $54,000 per year for each line.
Equipment used in the processing operations requires modest amounts of electricity
to run motors and hydraulic pumps. The tunnel freezer utilizes the ammonia
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 43
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. The electrical cost figure developed here is based on
the electrical needs for the equipment,. amount of time that equipment is in use, and
the prevailing electrical rate in Valdez ($0.18/kWh).
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 Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 44
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 will 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 five years and has been compiled from income tax records
from 1999 through 2003.
Valdez Fisheries Development Association
Financial History
(Calendar Years 1999 through
2003)
Revenues:
Grants
$ -
$ -
$ -
$ 326,344
$ 123,323
Program fees
2,955,891
2,761,237
2,802,097
2,784,587
3,032,229
Interest earnings
72,636
85,973
59,323
47,346
16,874
Rental income
-
-
6,608
5,320
5,461
Other revenue
82,363
(37,879)
-
-
-
Total Revenues
$3,110,891
$2,809,331
$2,868,028
$3,163,698
$3,177,886
Expenses:
Salaries and wages
770,125
717,711
770,110
822,534
903,381
Employee benefits
136,857
139,388
153,686
151,708
163,313
Payroll taxes
74,142
67,467
71,085
73,864
81,922
Insurance
52,386
54,367
72,630
88,633
71,688
Legal and accounting
114,083
53,437
54,585
98,907
24,732
Supplies
368,199
426,839
56,890
20,408
478,212
Utilities
76,665
90,805
107,457
152,275
148,404
Equipment rental and maintenance
15,768
21,273
29,531
65,883
57,594
Depreciation
250,986
257,013
269,867
288,174
356,977
Contract labor
294,472
309,396
323,537
342,813
391,451
Other expenses
43,196
618,473
747,431
698,299
410,369
Total Expenses
$2,196,877
$2,756,169
$2,666,809
$2,803,497
$3,088,044
Balance (Revenues minus
$ 914,013
$ 53,162
$ 211,219
$ _ 360,101
$ 89,843
EXnensesl':.
Note: The Fisheries Business Incubator Investment Program began operation in 2002.
Valdez Fisheries Development Association
Cold Storage and Processing Facility Business Plan
McDowell Group, Inc. and RedPoint Associates
Page • 45
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.
• 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.
• Use of waste heat will work as anticipated in the Alaska Anvil report and as
represented by Valdez Fisheries Development Association.
• Petro Star Refinery operations will continue at rates sufficient to supply the
cold storage facility with waste heat for 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
$37,329,000 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.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 46
• 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.
• 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 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.
• A fish meal plant may be built at the site but is not a part of this study.
• A smoking facility maybe built at the site but is not apart 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 twelve 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 18.6-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.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 47
Buildings
Cost of the full development including all 12 buildings, site work, engineering, and
ammonia absorption refrigeration system is $37,329,000. 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 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 $2 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 $840,000 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 $21,000. 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 $1501000. 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.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 48
Summary of Capital Investment
Capital investment for the full project over five years is $39.8 million. Year 1
estimates are for $27.2 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 Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 49
Table 13
Capital Costs Using Five -Year Phased Approach to Development
Land
18.6 acres across from Petro I $ 225,000
Star
Total Land Outlay
$ 225,000
Buildings
(4 Bldgs.)
(2 Bldgs.)
(2 Bldgs.)
(2 Bldgs.)
(2 Bldgs.)
Site work
$ 460,000
$ 4,000
$ 4,000
$ 4,000
$ 4,000
Concrete
893,000
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
$25,720,500
$ 2,965,000
$ 2,966,000
$ 2,966,000
$ 2,966,000
Equipment
Office equipment and computer
software
$ 18,750
$ 2,000
$ 500
-
-
Warehouse management system
including hardware, software,
radio antenna, and transmitters
150,000
-
-
-
High -lift Forklifts
32,000
16,000
16,000
16,000
Other Forklifts
78,000
-
40,000
-
-
Pallets, totes, scales,.and tables
75,000
62,500
62,500
62,500
62,500
Ice machines
100,000
-
-
-
-
Processing line equipment (fillet
and boning, grading and
packaging, labeling and boxing
machines, tunnel freezer
840,000
300,000
-
-
-
Inflation adjustment
8,000
3,000
2,000
1,000
Total Equipment Outlay
$ 1,293,750
$ 388,500
$ 122,000
$ 80,500
$ 63,500
Cuma/ Vivei Total forLangl,
BurLdings, and Equipment $27,239,250 $30,a92,750 $33,fi80,750 $36,727,250 $39,756,750
Source: Based on Valdez Cold Storage Facility Conceptual Engineering Report by Alaska Anvil, dated September 19, 2003, Valdez
Fisheries Development Association's estimates, and McDowell Group and RedPoint Associates estimates.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 50
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 facilities 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 $0.77 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 Five 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 Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 51
25,000,00
20,000,001
15,000,001
N
C
O
IL
10,000,001
5,000,00,
Figure 3
Monthly Cold Storage Demand in Year Five
(pounds of product)
✓an4ay Re6�4ay arch �prii Mal- J��e ��y 9�gtrS� Septe�� �tobe� N01,0 ece11,be,
Source: Estimates based on interviews with potential customers and VFDA assumptions about processor
participation.
The revenues for the first year of operations are based on low estimates from
potential customers for use of the facility. The Year Five 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 higher 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
Valdez Fisheries Development Association
Cold Storage and Processing Facility Business Plan
McDowell Group, Inc. and RedPoint Associates
Page • 52
processing line is equipped at a minimum with fillet and boning equipment, 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 $500 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 $0.0467 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 $0.34 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 fish meal 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
$181,100 based on the results of interviews with potential clients. In Year 5, total
revenues from cold storage and processing activity rises to $2.7 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 Fisheries Development Association
Cold Storage and Processing Facility Business Plan
McDowell Group, Inc. and RedPoint Associates
Page • 53
Table 14
Annual Revenue Summary for the
Valdez Regional Cold Storage and Processing Line Facility
Cold Storage
Space Rental
$ 64,100
$ 153,300
$ 344,900
$ 655,600
$ 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
Processing Line
Thawing
6,300
16,200
39,600
81,900
118,800
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
Other
Inventory Tracking
2,200
2,300
2,200
2,200
2,200
Supplies
600
800
900
1,100
.1,200
Totalgnnual1
181,100
$ 435,400
$ 996500
, $1,943300
$967.0,100
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 Management Plan section.
Those requirements were based on a 6 to 12-million pound cold storage facility
needing 14 employees (11 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.
Utilities
Utility expenses consist of electricity, fuel oil for heat, diesel for the generator back-
up, and telephone utilities. Waste heat from the Petro Star facility is expected to
generate the refrigeration.needed for the cold storage space and the heat needed for
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 54
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 back-up to the entire system in the
event of shut -downs. Electric power usage for the pumps and compressor system
for the waste heat was estimated at $265,728 annually in the Alaska Anvil conceptual
engineering report. Since the Alaska Anvil report utility usage was based on the
completed concept (all 12 buildings), and building construction is a phased approach
over five years, the electrical utilities have been phased as well. The modular
approach of the building will allow shutdown of buildings not in use so there may
be reduced electrical costs depending on how often and how long these buildings
can be safely closed off.
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 drainfield. 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
Processing equipment repair and maintenance expenses are estimated at 1.5 percent
of equipment costs. An additional set -aside for 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
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 55
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 is 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 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 $10,000 in Year Five.
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 7-year life and 30 percent residual value, the ice machines are
assumed to have a 10-year life and 20 percent residual value, the office equipment is
assumed to have a 5-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 $1.2 million in the first year of operation to $2 million
in Year 5 based on existing conditions in Valdez for utility rates, the Alaska Anvil
conceptual engineering report for construction, and discussions with industry
experts for insurance, repair and maintenance, and depreciation schedules. When
depreciation is added, Year 1 expenses are almost $2 million and Year 5 expenses
rise to $3 million.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 56
Table 15
Annual Expense Summary for the
Valdez Regional Cold Storage and Processing Line Facility
Expense-.. • i-
Utilifies
Electricity
$ 203,400
$ 212,300
$ 236,700
$ 271,100
$ 282,100
Fuel oil for heat
1,200
1,200
1,200
1,200
1,200
Telephone/Internet Connection
3,700
4,000
4,300
4,600
4,900
(3 lines)
Diesel for generator backup
3,000
3,000
3,000
3,000
3,000
Sub -total Utilities
211,300
220,500
245,200
279,900
291,200
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
Sub -total Supplies
4,500
5,100
5,400
6,000
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
Sub -total Labor
312, 000
372,000
558,000
558,000
558,000
Building and Equipment Expense
Insurance (property and liability)
106,200
132,200
158,200
184,200
184,200
Building repair and maintenance
64,700
72,100
79,500
86,900
94,300
Grounds maintenance (snow
10,000
10,000
10,000
10,000
10,000
removal)
Processing equipment R&M
19,300
25,000
27,100
28,400
29,200
Set -aside for equipment
50,000
75,000
100,000
125,000
150,000
upgrades
Sub -total Building and Equipment
250,200
314,300
374,800
434,500
467,700
R&M
Business Services
Accounting and Legal 5,0001 6,0001 7,000 1 8,0001 10,000
Taxes
Real property (20 mills)
480,500
535,400
590,300
645,200
700,100
Expenses before Deprecia#ion
$1,263,700
$1,453,500;
$1,780,900
$1,931,800
$2,033,800
and>Debt Sernce: .. _.
_.
Depreciation
Equipment (processing)
$ 84,000
$ .114,800
$ 114,800
$ 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
Sub -total Depreciation
726, 700
827,300
900,800
970,200
1,038,000
Debt Service
Assumes 100% grant funding
-
-
-
-
-
Total Expenses $1990,400 $2,28Qi81)0 $2,681,700 $2,902000 $3,071,800
Note: As a 501(c)(3) Valdez Fisheries Development Association may not be subject to real property taxes for this facility.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page - 57
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 One and Year Five of Operations. In
Year Five the facility has positive cash flow overall for the year but has negative cash
flow in the first five months. Valdez Fisheries Development Association is well
aware of the cash flow challenges with a seafood dependent business and are
prepared annually to meet expenses during lulls in the business cycle.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 58
O O O
O
O O
00 O O O
O0
::
O O O O
CD O
0 0 00
0
0 0 0
CD
o 0
00 00 0
0
0
0 0 0 0
0 0 0
0 0 0 0
0
:o
• r O r
., ., .,
r
M O
.. ..
00 Co O O O
.. .. .. .. ..
ti:
..
tD
N et O r
., .. .. .,
N to CO
., ., ..
r O O r
.. ..
00
N
r
r sP
O r O N 0
M
N ,;
M O Co O
r CO 00
CA O 00 O
M,
(O ;
Co O CD
00
T
00 O r 00
CD
% Co M 1-
CA ti
00 T O O
0
-:
r
N
r r M It
N
C _;
CO 0) co co
N r
N O
O
y: Co
W
r
64 CV
N
O O O
O
O O
O O O O
O
O
O O O O
O O O
O O O
O
:0
0 0 0
O (6 CD
O
N
O O
IT v
O O O O
co 00 v O
O
00
O:
O O O O
N N Cl) 1�
O O O
M Lo CA
O O O
V 00
O
''O
s U
O
I'
(O c I'
ti
tD
CO to (0 O
LC) V'
(A CC)
01
69.
r
r
N
ID
CD co CD
r
N69,
�•
D)
.. CD .;
..
O O O
O
O O
O O O O
O
O:
O O O O
O o 0
00 0
0
0
0 00
r Ln I-
O
Cl)
O O
't V'
O O O O
co 00 v 0
O
CO
O '-
O O O O
(D N M r
o 0 0
LO LO 0)
0 0 0
V' OD V'
0::
to :,
O
CO
• CO LO
N
Il-
CO co ti
r
O •
N co ti cl
t` '7
(M 00
r
r
r
r
N
LD
;�
co o M
CN
O:
O'
....�
O O O
O
0 0
0 0 0 0
O
�
O o 0 0
O O o
0 0 0
0
0
O O O
O
O O
O O O O
O
0-
O -'
O O Co O
O O O
O O O
0
CA O co
r
't V'
(n 00 V' O
00
(h N M 00
LO CO O
-'T (n Vr
(D LO
M
r-
(O (O Iz
ti
I- co 0() co
f� V'
(A co
r
h
r
r
N
LD
:.
0) O O
N
ffl r N
r .:.
r.....:7
O O O
O
O O
O O O O
O
O
O O O o
O O O
O O O
0
0
O O O
O
0 0
0 0 0 0
'V_
O
0: :
O O O O
o 0 0
0 0 0
O
O
(M CDLO
CO
V' V'
V' V' f`
r ...,,.
00 00 LC)
LO (O O)
6) 00 W
O
00 (D
CD
f�
O MM
M
�:
r
M
M ,'
co
r O M O
N
r r N
O O O
O
O O
O O O o 0
0
0 -'
O o 0 0
O O O
O O O O
0.
O
O O O
O
O o
0 0 0 0 0
0
O
O O O O
O O O
O CD o o
O-
O
V' LO) N
O o (fl
CD
CD
to V'
C6
V_ It to I- M
LC) LC) Ch O
1
V•
r
co O CA 1 -
O 6i (n O
LO (O Cr
I• �
Cn O CA
ti r O
0) ::
M
. !L;
r r
M
r
co V'
O
!
V' Ln Nr V'
N r
(D Ln
CD
O '.
64
N
C,
N:
r N to
M
V
64
000
0
00
00000
O
0-
0000
000
0000
0
0:
0 0 0
0
o o
o o 0 o o
0
O'
o o a o
0 0 0
0 0 0 0
o
p>
Cl! N N
r
(fl V
co
LO o V I- N
00 vM O
CD
1:
00 O CO It
M V• �- CA
LO CO O
f` �•
O C6 6) O
O O
n
O
::
M ..
r r N
v
r
LLB v M V'
LOM
ITh r N
N r
0 (.0 LO
La(f3
N
M
L„)
r M CD
r M
O
000
CD
CD00000
0
0oao
00oaao
o'p'
0 0 0
0
0 0
0 0 0 0
'd'
0
c ;:
0 0 0 0
o 0 0
0 0 0
0:
0'
CO N LC')
O
LO Nr
V' V' t`
M O V' ti
V' CO o
Q1 co O
t0
r
- N I(O
CO
I-
LC) LC) Cr!
M
N� O
(fl
r Na
O
r r
M
r
M
CD
N
co. O O 0)
N r
(D
O O O
O
O o
0 0 0 0
O
0
O O O O
O O O
o o o
O`
O
O o o
O
0 0
0 O O O
O
O
O Q O O
O O O
O O O
O
.; O.
00 N (N
N
v co
V' v V' N
O
M
LC) ti 00 O
co CO 6)
CA 00 r
T
• <-
N
I1
L6 Lf) CA
00
fo
M N M O
co
M
LD
i
fh
r
r
V'
r
r
O O O
O
O O
O O O .O
O
0
O O O O
O O O
O O O
O
0
0 0 00
0 0
0 0 0 0
0
0 0 0 0
0 0 0
0 0 0
0
CO r N
r
v co
00 co LC) N
O
(D
LC) V N r
CD LC) O
co O O
r
Il-
CO co M
O
-
C7 N r ti
0 ',4-
0) C6
n
64
r
r
O
y
r r
r r
co
~
_t0D
O O O
O
0 0
0 0 0 0
O
p
O O O O
O o 0
0 0 0
o
O
O O O
O
O O
O O O O
0
G
O O O O
0 0 0
0 0 0
0 .,
O ":
LC) N N
C)
v co
co co v N
O)
O 0)M N
r LO (MM
co
N
r
r
h
(O (O 6)
cn
-
(D V' r N
(A V'
6) ('")
C
..'
64
0 0 o
O
O o
0 0 0 0
O
p-
O O o 0
0 0 0
0 0 0
O
O
0 0 0
O
0 0
0 0 0 0
O
O --
O O O O
0 0 0
0 0 0
O
O
• M N N
h
V' v
co OD V' M
_
r
et
LC) O Ln Lo
_ _
O LO 6)
_ _
M 00 o
_ _
u)
-:
p .
N
N
1-
CO CO fA
ti
� r
N
O
(fl
`-
O
st i�
coOV'
000
O O O
O
O O
O O O O L
O
':
O
O O O O
O O O
O O O (
0
O
O O O
r N CO
O
CD
0 0
V' V'
0 0 O O
CA N V• M
O
N
O O O O
6) to V' 00
O O O
r LO 0)
O O O
v00 O
O;
1-
':
�.
M
V
I�z
(A Ln a
M
O
CV v (N M
co V'
-- M
M
R.
r
LO V r
O
LC) O
N r
0 CM
ti
...M
C
j
C y
O. d
y
y
cm N Q.
N
;
J k
GC1
C J o k
._
(=
o (a -j
d
cr.
C
xs n ° W
c a�i
o CD -i rx
CL
06 .0
L7)
Ca (a
i
CT
(ate
..
"- m C)
' U)
(n
CL)
m
+r
C C T a) m
y y"
�. y ;'
C
"- C`a 0) U) m
H N '�
fll
c C N
H
C
O
m •� N
N N 7 �'
(u (n .c
O p.
O
(y w
y (n
(n a) �'
7 co
`
(n
p iZ O L m
a+
3 (n N
y N
fl 7 L N
::� •�,.
d
r CL o a),
40).L2 7 U
L
L
d=
C1 7= U
.� X
M X
D U CL
O
X= 0 w M¢ � I-
m C.:
m U CL O
x
U) W M¢ I-
m'�
U; O;
W
G
m
(n
co
O (q
m m
Qco
C U-
Q
O 0
U
j O
N
Qa
CO C
N m
� (U
h 2
� O
N
�a
'crjU
Projected Cash Flow
The following table summarizes the first five years of projected cash flow from
operations of the cold storage and processing line facility. Revenue projections are
based on existing interest in the facility and an approximately break-even cash flow
in year five. Cash flow from operations depicted in Table 17 does not include an
expense item for depreciation. Starting in Year Five, 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 7 to 10 years.
Table 17
Valdez Fisheries Development Association Cash Flow Statement
for the Regional Cold Storage and Processing Line Facility
e
Revenues
Cold Storage
$ 123,400
$ 294,100
$ 662,900
$ 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
436,400
996,500
1,943,300
2,670,100
Expenses
Utilities
$ 211,300
$ 220,500
$ 245,200
$ 279,900
$ 291,200
Supplies
4,500
5,100
5,400
6,000
6,600
Labor
312,000
372,000
558,000
558,000
558,000
Building and Equipment
250,400
314,500
375,000
434,700
467,900
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
1,263,700
1,453,500
1,780,900
1,931,800
2,033,800
Cash Flow from
$(1,082600)
(784,400)
$ 11,500
$ 636,300
Note: Depreciation expense has not been taken in this cash flow analysis.
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 60
RISK ASSESSMENT AND MITIGATION
The major 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 line 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
Valdez Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 61
the facility reaches breakeven in order to have sufficient funds in later years for
repair and replacement of buildings and equipment.
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 Fisheries Development Association McDowell Group, Inc. and RedPoint Associates
Cold Storage and Processing Facility Business Plan Page • 62
APPENDIX
Letters of Interest
Valdez Fisheries Development Association Appendix
Cold Storage and Processing Facility Business Plan McDowell Group, Inc.
Valdez Regional Cold Storage Facility Conceptual Engineering Report by
Alaska Anvil, Inc. — September 19, 2003.
Valdez Fisheries Development Association Appendix
Cold Storage and Processing Facility Business Plan McDowell Group, Inc.
Valdez Fisheries Development Association Business License and IRS
determination letter.
Valdez Fisheries Development Association Appendix
Cold Storage and Processing Facility Business Plan McDowell Group, Inc.
Valdez Fisheries Development Association Tax Returns 1999 through
2003
Valdez Fisheries Development Association Appendix
Cold Storage and Processing Facility Business Plan McDowell Group, Inc.
Resumes for Key Personnel
Valdez Fisheries Development Association Appendix
Cold Storage and Processing Facility Business Plan McDowell Group, Inc.
Jason C. Wells
Box 682
Valdez, AK 99686
(907) 835-4409
Professional Experience
1995 to present Valdez Fisheries Development Association, Valdez Alaska
Executive Director - Responsible to a seven member board of directors.
Duties include full oversight of a production salmon hatchery, annual budget
management, cost accounting, production goals, personnel policy, public
relations, city, state, and federal permitting. Included certification of facility
for food grade egg extraction.
1991 to 1994 Wells Brothers Inc., Valdez Alaska
Owner/operator - Commercial Fishing Captain- oversight of commercial
seine and tendering vessels. Duties include hiring and training crews,
equipment maintenance, vessel and crew safety, fish location, finance and
processor negotiating.
1984 to 1991 Valdez Fisheries Development Association, Valdez Alaska
Executive Director - Responsible to a seven member board of directors.
Duties include full oversight of a production salmon hatchery, annual budget
management, cost accounting, production goals, personnel policy, public
relations, city, state, and federal permitting. Included certification of facility
for food grade egg extraction.
1979 to 1984 Valdez Fisheries Development Association, Valdez Alaska
Project Manager - Responsible to a seven member board of directors. Duties
include: development of corporate goals and objectives for salmon
enhancement in Port Valdez, incorporate 501(C)(3) corporation, evaluate
local resources, formulate long term development strategy, obtain
governmental permits, arrange for project financing, oversee project design
and construction, recruit staff, development of personnel policy, account for
city, state, and federal grants.
1976 to 1978 Green Construction Co., Fairbanks Alaska
Expediter - Purchased heavy equipment parts and construction materials for
remote construction projects throughout Alaska.
1974 to 1976 Green Associates, Inc., Fairbanks Alaska
Warehouseman - Duties included office support, shipping, and receiving of
equipment, and construction materials to northern pipeline camps.
Valdez Fisheries Development Association Appendix
Cold Storage and Processing Facility Business Plan McDowell Group, Inc.
1972 to 1973 Williams Brothers Canada, Ltd., Calgary, Alberta, Canada
Field Biologist - conducted field surveys on fisheries populations in and
around the Arctic National Wildlife Refuge. Stationed at Arctic Village and
Kavik River.
Education
Valdez School system - K to 12 Graduated 1966
University of Alaska -1966 to 1968
University of Washington -1968 to 1971- B.S. Fisheries Biology
ETT Certified
24 Hour HAZWOP Certified
Organizations
City of Valdez, Councilman
Regional Citizen Advisory Committee, V.P. TOEM Committee
Director Prince William Sound Aquaculture Corporation
References
Bob Kellar - President Valdez Fisheries Development Association (907) 835-4365
John Kelsey - Valdez Dock Company (907) 835-4517
eTom Gilson - Finance Officer for the City of Valdez (907) 835-4431
Valdez Fisheries Development Association Appendix
Cold Storage and Processing Facility Business Plan McDowell Group, Inc.
David C. Cobb
Box 1858
Valdez, AK 99686
(907) 835-2637
Statement of Qualifications
• Fifteen years of work in Alaska aquaculture industry
• Fourteen years of work in the State of Montana Hatchery systems and Fisheries
Biology field
• Two years Assistant Hatchery Manager
• Four Years Project and Maintenance Manager
• Four years Business Manager
• Fourteen years of progressively responsible supervisory experience including hiring,
training, and evaluating work performance
• Eighteen years member of American Fisheries Society
Community Involvement
• Valdez Elks 2537 (Trustee)
• Valdez Dart Association
• Valdez Eagle Aerie
• Valdez High School Booster Club (President)
• St. Francis Xavier Catholic Church Parish Council
• Prince William Sound Economic Development Council (1st Vice President)
• Prince William Sound Community College "Friends of the College Board"
• Valdez Chamber of Commerce
• Valdez Convention and Visitors Bureau
• Valdez City Council (four years)
• Mayor, City of Valdez (two years)
Statewide Involvement
• Public Advisory Group to Exxon Valdez Oil Spill Trustees — appointed by U.S.
Secretary f the Interior
• Resource Development Council — Board Member
• Coastal Policy Commission — Appointed by the Governor of the State of Alaska
• Member of the Alaska Municipal League
• Member of the Alaska Mayors. Conference
Valdez Fisheries Development Association Appendix
Cold Storage and Processing Facility Business Plan McDowell Group, Inc.
Education
Associate Degree in Fisheries Biology — Olympic Community College, Bremerton, Washington
(1967 —1968)
Bachelors of Science Degree in Fisheries Biology — College of Great Falls, Great Falls, Montana
(1980-1981)
Continuous professional development workshops and training classes
Work History
5/82 — present Fish Culturist, Assistant Manager, Projects and Maintenance Manager, and
Business Manager — Valdez Fisheries Development Association, Box 125,
Valdez, AK 99686
6/68 to 4/82 Numerous positions within Fish Hatchery system and in Field Biology
projects, Montana State Department of Fish and Game, Great Falls, Montana
59404
10/66 to 5/68 Attending college
9/62 to 9/66 U.S. Marine Corp.
References
Don Daniels, President
Valdez Fisheries Development Association
Box 125
Valdez, AK 99686
(907) 835-4469
George Levasseur, District Director
Department of Transportation & Public Facilities
Box 507
Valdez, AK 99686
(907) 835-4322
Dr. JoAnn McDowel, President
Prince William Sound Community College
Box 97
Valdez, AK 99686
(907) 834-1610
David Beck, Manager (personal reference)
Ketchum Air Service
Valdez, Alaska 99686
(907) 835-3789
Valdez Fisheries Development Association Appendix
Cold Storage and Processing Facility Business Plan McDowell Group, Inc.
Laura Weaver
Box 293
Valdez, AK 99686
(907) 835-4447
Education
Bachelors of Business Administration from the University of Alaska Fairbanks,1976.
Accounting major.
Associates Degree in Computer Information Systems 1976. Business Programming.
Licensed Certified Public Accountant since 1979.
24-Hour HAZWOP Certified
Experience
Present Accounting. Responsible for all accounting functions including payroll, general
ledger, accounts payable, monthly financial statements, and preparation of budget.
Provide additional information as needed to management. Responsible for
maintaining adequate cash flow through budgeting and investment to generate the
best rate of return with cash on hand.
Budgeting. Provide information and assistance in preparing the next fiscal year
budget. Provide management with actual historical information to assist in
preparing department budget.
Computer. Currently maintain all accounting functions on PC Fund software. Data
input for management of scientific historical information.
Knowledge of Lotus, Excel, Word Perfect, and Fundaware.
Other Duties. Assists management with sale of fish and collection of revenues from
Processors. Maintain bidders list and communicate with bidders on a daily basis
during fishing season to promote timely sale, pickup of fish, and collection of
revenue. All other duties necessary in a one -person office.
Past Prepared monthly financial statements. Supervisor of accounting department.
Prepared monthly government and tax reports. Provided assistance in preparing the
budget and analysis of budgeted to actual expenses. Worked with all private and
government auditors to successfully complete all audits. Responsible for the
development and implementation of computer programs for the accounting
department. Reconcilement of calculated inventory to actual inventory and
investigation of variances.
Valdez Fisheries Development Association Appendix
Cold Storage and Processing Facility Business Plan McDowell Group, Inc.
Job History
1987 — present Administrative Assistant, Accountant. Valdez Fisheries Development
Association Inc., Box 125, Valdez, AK 99686
1980 —1987 Accounting Manager. Mapco Alaska Petroleum Inc. (North Pole Refinery)
1100 H & H Lane, North Pole, AK 99705
1979 —1980 Office Manager. Arctic Mechanical, Fairbanks, AK 99701
1975 —1979 Staff Accountant. Stock Inc., CPA. University Avenue, Fairbanks, AK 99701.
Prepared monthly financial statements and payroll taxes for clients. Did
individual income tax returns =. Prepared unaudited and audited financial
statements and corporate income taxes for clients.
h
Valdez Fisheries Development Association Appendix
Cold Storage and Processing Facility Business Plan McDowell Group, Inc.