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									Dykal Holdings


1.0 Introduction
1.1 Industry Overview


Currently a poultry farm has been raising chickens and selling them to Lilydale processing plant.
Lilydale limits the weight of chickens they purchase to 1.75kg in order to supply KFC
throughout the province. However, by using the terms set out by Lilydale the farm is unable to
maximize the potential of its chicken barns and therefore is currently exploring ways to increase
production.


Essentially the idea has been to extend the chickens growing period from the current 37 day
cycle to a 56 day cycle. This would eliminate the period in which the barns are vacant. In turn
this would increase the chicken’s weight and therefore make them unsaleable to Lilydale.
Therefore the idea is for the farm to expand into a market of both Halal (Islamic) and non-Halal
chicken by opening its own processing facility.


The concept of opening a live kill poultry processing plant which uses procedures approved by
the Islamic community will allow for the proper promotion of the chicken into a niche market.
The plant will be constructed at VIS-A-VIS; an old bottling building located in Wynyard in close
proximity to poultry suppliers. Presently the existing structure has been gutted and has the
potential to be renovated into the proper processing facility.


Over the past few years chicken has become a health alternative to red meats. This creates a
large expanding potential market within the Prairie Provinces (Muslim Population Statistics
website, 2003). The Halal market is also expanding as immigration increases and the population
of Islamic people increase in the Western Provinces.             This creates the potential for the
development of a new chicken processing plant to service the needs of the consumers and the
highly expanding niche market.




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Dykal Holdings


1.2 Mission Statement


“Dykal Holdings, a Saskatchewan based company, will strive to meet the needs of all customers
by providing competitive prices and a premium, value-added product while providing a pleasant
working environment for all employees.”


1.3 Business Goals


The business goals of Dykal Holdings are to:
      Form a ten year financial analysis as to the projected outlook of the processing plant.
      Convert an existing building into a high revenue business by generating high amounts of
       sales capital
      Develop a production plant which uses processing techniques that satisfies the Islamic
       ethnic groups.
      Establish a successful marketing plan in order to penetrate the Halal chicken market and
       the existing poultry market.
      To achieve a 20% profit, before income taxes on gross sales of $4.54 million in the first
       year of operation
      Grow sales less allowances for returns of Halal poultry, to $9.39 million within the first
       10 years of operation.


1.4 Policy


Current legislation puts chicken production under a quota system.          This means that for a
producer to produce and sell chicken they must have a quota from the government. This quota
assigns the number of kilograms of chicken the producer will grow per 56 day cycle. However
this quota does not affect where the chicken is sold to, therefore Dykal Holdings is able to sell
the processed chicken outside of Saskatchewan, with the only requirement being that the plant is
federally inspected (Ted Baas, 2003).




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Dykal Holdings


In order to ensure that poultry processed at the facility will be classified as Halal a number of
special criteria must be followed; the animal must be slaughtered by a Muslim, a Jew or a
Christian. The animal should be held and its throat should be slit with a very sharp knife to make
sure that the three main blood vessels are cut. In addition to this the animal must be facing east.
While cutting the throat of the animal (without severing the spinal cord), the person must
pronounce the name of Allah or recite a blessing which contains the name of Alla h, such as
"Bismillah Allah- u-Akbar" (The Most Kind, The Most Merciful).


Dykal Holdings plans on obtaining certification from a number of Islamic groups. This will be
done in order to express the authenticity of the product to the consumer. This process is easily
accomplished; representatives from the groups often travel to the processing plant in order to
inspect the facility firsthand. Once they are satisfied that the requirements are being fulfilled the
product is certified. Additional random checks of the plant will also be conducted throughout the
year.




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Dykal Holdings


2.0 Operations Plan
2.1 Organizational Structure


Dykal Holdings will be established as a corporation. Refer to Figure 1 for a visual representation
of the organizational structure.



                                          CEO

                                          Plant




   Office                            Eviscer-        Packaging           Other
                     Kill

                     Receiver          Hanger                             Custodi an
                       (2)                              Cutter
   Secretary
                                       Cutter                            S anitizer (2)

    Accoun-          Killing
                                                       Packer            Maintenance
      tant                            Gutters (3)

                                                                             CFIA
                                      Cropper (3)      Shipper           Inspector (1.5)


                                        Offal                              HACCP
                                      Preparers




Figure 1. Organizational Structure of Dykal Holdings



2.2 Site Plan


The plant is located in Wynyard on Highway 16. There is a service road along this highway to
allow easy access to the plant. The offices and front entrance to the plant are on the north side of
the building, facing the highway. There is sufficient parking located on the northwest and




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Dykal Holdings


southeast corners of the property. The receiving and shipping docks are located on the south side
of the building. (See Appendix A)


In the next ten years Dykal Holdings does not expect any additions to the site as the expansion is
already incorporated into the site design.



2.3 Building and Floor Plans


The building is 42,388 square feet, this includes 34,334 square feet for manufacturing and office
space totals 8,054 square feet which includes space for offices, locker rooms, showers, an atrium
and a board room. (See Appendix B) The processing line will accommodate a 50% planned
increase in production therefore the plant layout will not change in the next five years.


2.4 Work Plan and Flow of Work
2.4.1 Process Flow


a. Birds will be received by truck in crates. Two shipments of birds will be received over the
   day; the first shipment in the morning and the second just before noon. Each shipment will
   contain half of the day’s birds. Birds will be removed from crates and hung on shackles
   facing east. Figure 2 shows letters a – n in a flow chart.
b. The hand slaughter line will run on the same line as the stunning line, the stunner will not be
   implemented when the Halal chickens are being slaughtered. Birds must be hand killed;
   being sure that the spinal cord is kept intact when the neck is silt, which can be done at the
   killing point on the line, in the same location the non-Halal bird’s throats would be slit. Each
   bird must be blessed by a Muslim, Jew or Christian before it is killed to grant Halal
   certification. This person will assist in the slaughter of the chickens, whether processing
   Halal or non-Halal chicken. After the birds have been hand killed they will be bled the same
   as non-Halal birds and continue on to be further processed.


c. To keep birds separate (Halal and non-Halal) a gap will be left between the Halal chickens
   and non-Halal chickens, if both methods are utilized on the same day. This is the same


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Dykal Holdings


   criteria followed by other processing facilities such as Maple Leaf Pork in Brandon to keep
   vegetable fed hogs and non-vegetable fed hogs separate. When not killing for the Halal



                                     a. Recei ve Li ve Birds



                    b. Hand Slaughter                          c. Stunning and
                                                                   Slaughter

                                        d. Scalding and
                                         Defeathering


                                        e. Head Puller/
                                         Hock Cutter


                                        f. Evisceration                      g. Giblets


                                          h. Cooling

           i. Cutting
                                                    i. Cutting           j. Blast Tunnel


       k. Packing and
           Grading                                                       k. Packing and
                                                                             Grading


      l. Refrigeration
                                                                           m. Freezer


       n. Distribution
                                                                         n. Distribution


Figure 2. Process Flow Diagram


   market, the birds will go through the stunner. The bird’s throat is then cut and is allowed to
   bleed for 1.5 to 2 minutes before dressing begins.



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Dykal Holdings


d.   Both Halal and non-Halal birds will be treated the same from here on. The birds are lowered
     into a scalding tank, which is at 52°C. The speed of the line ensures that the birds are in the
     water for the correct amount of time. The scald tank is set up so the birds go through the
     same tank twice; the purpose of this is to minimize that area required for scalding in the
     plant. The scald water must be agitated to ensure uniform temperature throughout. After the
     birds are through the scald tank they go into the plucker. This machine is equipped with
     rubber fingers and brushes the feathers off the bird.


e. The defeathered bird then goes through a Head Puller that pulls the neck out straight, and
     cuts it off leaving the neck intact. This method of head removal will be beneficial when it
     comes to eviscerating the bird. Next on the line the birds go to the Hock Cutter. Here the
     bird’s feet are cut off and the bird drops down onto a conveyor that will lead to the
     evisceration tables. The feet stay on the shackles until they reach the Foot Unloader where
     the feet are taken off and the shackles move through a washer and then back to be reloaded
     with live birds. There is a viable Asian market for the feet, but for the purposes of this study
     they will not be considered.


f.   The birds now on the conveyor will be rehung onto the evisceration line. Next, a series of
     workers will manually eviscerate the birds. A cut is made around the vent, being careful not
     to cut intestines; this cut must be large enough to fit a hand into. Next a drawing tool is
     inserted into the cut and the offal is pulled out. The heart, liver and gizzards are removed and
     go to the giblet room. Next an incision is made on the crop which is removed by hand. The
     lungs are removed by a vacuum operated lung pistol. With the use of a pneumatic neck
     shear, the necks with skin are harvested. The bird then goes through an outside bird washer.
     The wash cabinet has a series of water spray heads that line the conveyor. The water is
     chlorinated when it comes out of these nozzles. The nozzles rotate as they clean the carcass.
     The cleaning process takes about one minute.


g. The heart, liver and gizzards move into the giblet room where they are hand cleaned and
     packaged in plastic bags. The gizzards must be sliced open, washed out, and then skinned.




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     Again there is a lucrative market for these products which will not be considered for this
     study.


h. After the birds have been cleaned they are cooled. An air chiller will be used, which will
     decrease the temperature of the carcass from 35°C to 5°C. The birds are being cooled in this
     manner as a premium air cooled product. A water chilled system is more economical,
     however does not create as high of quality product as water is added to the chicken, which is
     unfavoured by consumers.       Some birds will be left whole and others will be further
     processed. The birds also pass through a carousel weigher and grader. After the birds are
     chilled they leave the line by an unloader. The shackles pass through a washer and return to
     the hanging line.


i.   A portioning machine will be used to cut the birds into pieces. The machine is equipped with
     an arm that is pointed towards the operator. The carcass is placed in the groove of the
     machine and the arm pushed down to cut the bird into two pieces. Other pieces of chicken
     can easily be made by cleavers and knives. Most of the product sold will be cut into pieces
     and sold as chilled fresh product. Note that this product will not be deboned as this is a very
     labour intensive process and requires highly trained personnel to decrease wastes.


j.   The whole birds will go through a blast chiller to freeze them extremely fast before entering a
     freezer room. Only a small portion of the whole birds will be sold frozen, the ones to be sold
     in the Halal market. The non-Halal market will be sold fresh, chilled whole chickens. The
     whole birds must be frozen as there is not a large enough market for fresh whole birds.


k. The Halal whole chickens will be vacuum package and weighed. Vacuum packaging has
     been chosen as it will increase shelf life by eliminating the amount of oxygen in the package.
     The Halal pieces will be boxed into 5 kg lots and sold as legs, thighs, breasts, and wings.
     Any of the Halal processed chicken will have a Halal certified sticker added to the package to
     keep it distinguished from non-Halal chicken. The non-Halal product will be sold in large
     crates to individual stores. There will be separation of breast, thighs, wings, drumsticks, and




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     whole chickens, all of which are sold chilled and fresh. All the products (Halal and non-
     Halal) will have the vegetable grain fed label on, as well as the air chilled label.


l.   The cut product will then be placed into coolers and shipped out within two days to our
     wholesale buyers (IGA).


m. The Halal chicken will be shipped every other week to different locations through the same
     distributor as the non-Halal.


n. The product will be delivered to the wholesale buyers by truck (CoolX). The truck must be
     refrigerated for transport so products do not spoil.


Non-edible waste such as the feathers, heads, and intestines are transported by water through the
floor gutters to the pits. The solid wastes are separated from the water wastes. From here the
offal will be stored and disposed of at the Wynyard Waste Facility. Other disposal options, such
as rendering may be looked at in the future. Water from the feather separator will be recycled to
the feather gutter by a recirculation pump. The remainder of water will be disposed of through
the sewers. Refer to Appendix C for a visual representation of the above process.


2.5 Average Day and Week


In an average day at Dykal Holdings employees will come to work and change into work clothes
(supplied by Dykal Holdings). Each employee is required to go through a boot wash and hand
station. All employees will be required to wear latex gloves and hairnets. All jewellery must be
removed prior to the start of the shift. The line will run continuously, with the slaughter line, and
processing lines, coffee and lunch breaks spread over a period of time so that the operation does
not have to completely shut down. This means the kill will stop for the breaks, but the next
position goes on break only after the birds have been past their work station. After 10 hours of
work the plant will shut down for the day. Employees then will proceed to change o ut of their
work clothes and shower if they choose.




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Once the kill and processing line is shut down the plant must be sanitized. Different employees
than those working on the slaughter and processing lines will sanitize the building at the end of
each shift. These employees do the same as the line workers in regards to changing clothing and
washing their boots and hands. Once changed all equipment is washed down and then soaked
with an organic acid. This organic acid has to sit for 2 hours and then is rinsed. Once all
cleaning is complete the employees change out of their work clothes. This is the end of one full
day for the processing and cleaning staff.


The average day for office staff is coming to work and leaving after an eight- hour day. During
this day tasks such as book keeping, pay roll, taking orders and other office work will be done.



In an average week the following hours will be required for each position. Line staff will be
required to work four ten hour shifts. The sanitation staff will be required to work five eight
hour shifts a week. The receptionists and plant manager will all be required to work five eight
hour shifts per week.     The maintenance persons will be required to five eight hour shift per
week. Finally the HACCP (Hazard Analysis Critical Control Points) employee will be required
to work four ten hour shifts per week. There will be two CFIA inspectors, one CFIA Inspector
will work four ten hour shifts per week, and the other will only be required to work
approximately 20 hours a week. This will be the only part-time employee; all other employees
will work a 40 hour week.



The only seasonal effect there may be on the plant is the Ramadan holy month. However, this
will not affect the plant as the same amount of chicken will be processed from week to week and
month to month. This season may affect the marketer of the product, but not Dykal Holdings
directly. This is not foreseen as a problem as the majority of chicken sold by Dykal Holdings
will be non-Halal.




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2.6 Quality Control Program


There will be a HACCP employee responsible for doing random microbiological tests, looking
for bacteria, and for bio-film build up on the equipment. This person will also be responsible for
making sure that all employees wash correctly and will ensure that any meat that gets dropped
onto the floor is disposed of in a correct manner.        On top of these duties the HAACP
co-ordinator will conduct random tests looking for drugs in birds which are used in production,
but can not be present at the time of processing. Finally this person will be responsible for
documenting checks in the event that a government inspector does an audit of the plant.



One full time CFIA (Canadian Food Inspection Agency) inspector will be employed along with
one part time inspector. These employees are required by the provincial government and report
directly to them. One will be working on the slaughter line checking and inspecting every bird
that comes off the trucks and into the processing plant to be slaughtered. This person is required
to be present during all hours of operation in the live kill area. The second CFIA inspector will
work only half time and be located on the processing side of the operation and will be
responsible for doing 20 hours worth of random checks.


2.7 Supply/Service Analysis


One poultry farm, which wishes to remain anonymous at this time, will supply all live chickens.
All packaging supplies will come from Rayton Packing located in Calgary. All water supplies
will come from the Town of Wynyard (Sheila Hitchings, 2003).


2.8 Limitations


There are some limitations that Dykal Holdings may encounter. One foreseen limitation was
water; however after consulting with the Town of Wynyard, Shelia Hitchings assured Dykal
Holdings that there would be sufficient water supply for the plant. The town of Wynyard also
assured Dykal Holdings that the sewer system would be able to handle the excess waste water.



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Different alternatives to dealing with waste products exist. The easiest and cheapest method
appears to be disposing of wastes in the Wynyard Waste Facility, and as such this is the method
that will be utilized; the cost is $0.01/kg, see Schedule 3.


2.9 Capital Budget


                                           2004          2006      2008      2010      2012
Costs:
Land and Building                         1,100,000
Equipment:
 Arrival department           Input          20,691
 Defeathering department      Input         284,130
 Evisceration department      Input         182,805
 Chilling department          Input         290,000
 Weighing department          Input         141,224
 Offal department             Input          67,933
 Miscellaneous                Input         136,030
 Spare parts                  Input          82,432       87,113    92,059    97,287   102,811
 Office Supplies              Input          50,000       21,120    22,240    23,360    24,480
 Electrical                   Input          20,000
 Installation                 Input         250,000
 Piping                       Input          22,000
 Air Conditioning             Input          30,000
Total Capital Costs                       2,677,245     108,233    114,299   120,647   127,291

Working Capital
Cash                      Input             400,000
Accounts Receivable                         340,461     593,593    625,072   656,550   688,028
Inventories                                  16,143      23,136     24,162    25,236    26,361
Accounts Payable                            275,032     464,775    491,033   518,759   548,036
Total Net Working Capital                   481,571     151,955    158,200   163,027   166,354

Table 1. Capital Budget


2.10 Working Capital Planning and Management
2.10.1 Cost of Goods Sold


The total cost of goods sold is equal to cost of goods available for sales less the ending
inventory. Cost of goods available for sale is the beginning inventory plus the cost of goods



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manufactured. The total cost of goods sold is therefore $4,607,298 in the first year, see Table 2.
The direct labour costs include all line worker wages totalling $628,210 in the first year
including benefits. Manufacturing overhead consists of, maintenance staff wages, inspector
wages, HACCP wages, taxes, insurance, capital cost allowance, gas costs, and electricity costs.
The total manufacturing overhead costs are $656,457 in the first year .


                                       2004         2006      2008      2010      2012
   Beginning Inventory                        0      19,763    23,643    24,693    25,792
   Cost of Goods Manufactured         4,623,441   7,176,718 7,489,528 7,844,989 8,235,236
   Cost of Goods Available for Sale   4,623,441   7,196,481 7,513,171 7,869,682 8,261,028
   Ending Inventory                      16,143      23,136    24,162    25,236    26,361
   Cost of Goods Sold                 4,607,298   7,173,345 7,489,009 7,844,446 8,234,667
Table 2. Cost of Goods Sold


2.10.2 Inventories


There will not be any raw material inventory as live birds will come in at increments through out
the day. Finished goods stored will be 20,000 birds at peak times. The ideal inventory is 10,000
birds. Total inventory costs will be $16,143 in the first year of operation. (See Appendix E.1)
Essentially Dykal Holdings will be utilizing a just-in-time inventory control system.


2.10.3 Accounts Receivable


Assuming that Dykal Holdings will allow 30 days for accounts to be paid and no discount will be
provided if an early payment is received the accounts receivable will be $340,461 in the first
year of operations. (See Appendix E.2)



2.10.4 Accounts Payable


Assuming that poultry supplier is not giving Dykal Holdings a discount, and is allowing Dykal
Holdings to have 30 days to pay without interest, also the packing supplier allows 30 days to




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pay, and the delivery charges are paid every two weeks the accounts payable will be $275,032 in
the first year of operations. (See Appendix E.3)


2.11 Cash Conversion Cycle


No raw material inventories exist as birds arrive on an ongoing basis throughout the day;
packaging supplies are delivered every two weeks. Finished goods inventory will consist of 2
days of fully processed birds. WPF is allowing 30 days to pay for the raw mater ials, with no
discount for early payment. As such the accounts payable will be for 30 days. Likewise Dykal
Holdings wholesalers will provide payment within 30 days of receiving the product. With no
discount for early payment, Dykal Holdings will assume a 30 day accounts payable. Therefore
the Cash Conversion Cycle of Dykal Holdings is 2 days.




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3.0 Human Resources Plan
3.1 Employee Plan


As a large production plant there will be a number of individuals required for Dykal Holdings to
operate in a continuous manner. Originally 26.5 employees ranging from management to floor
workers will be hired. Meaning 26 full time employees and one part time employee will be
hired. No additional people are believed to be needed upon increasing the slaughter of chicken.
This is because at the beginning employees will be under worked, but each position is required
for the line to flow.


All employees will be required to go through a training program which will outline the
companies’ expectations and give full details pertaining to Halal processing. This is important
so that during Halal processing proper methods are used and the company complies w ith
certification requirements.


There will also be training sessions available to new staff.      These sessions will focus on
processing practices that are used in day to day operations including regular processing
techniques, not just those for Halal. During the training programs employees will be given a
chance to get hands on experience specifically outlining their individual duties according to what
division of the operations cycle they fall in.


Safety training is also mandatory for new employees. A one week orientation course will outline
proper procedures in order to reduce the risk of industrial accidents also including First Aid and
CPR.



3.2 Labour, Hiring and Training Policy


Within the processing plant there are jobs that require specific knowledge and training and
therefore will require someone with qualifications that meet the guidelines of that particular
position. These positions include foremen, supervisors, plant manager, maintenance and several
production line workers. All salaries are outlined in Table 3.


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Dykal Holdings


Although an individual has already been selected for the position of Plant Manager, criteria for
other positions of authority involved with plant manufacturing and operations will be as follows:


Plant Manager

Description

      Manage cost effective and efficient production of quality products.
      Develop and maintain capable and effective employees in all areas of production.
      Maintain a positive employee-relations environment in support of cost effective
       production of quality products by all plant workers.
      Ensure open and effective communications with all other departments within Wynyard
       Poultry Processing Plant.
      Continuously improve our manufacturing resources, process, and efficiencies.

Criteria

      Bachelor’s degree, preferably in Chemical, Mechanical or Food engineering.
      Experience with or assisting in the management of a food manufacturing plant...
      Excellent interpersonal and team building skills.
      Expertise in process and cost management.
      Excellent communication skills
      Strong leadership skills with the proven ability to take the initiative.

Maintenance Supervisor


Description

      Ensure that capital equipment is properly maintained to ensure smooth and constant
       production.
      Responsible for the care and up keep of site grounds.
      Maintain building and site

Criteria

      Working knowledge of relevant equipment


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      Ability to perform quick and efficient tasks in order to minimize down time.

Production Line Worker


Description

      Ability to work within a team setting
      Complete on the job training and safety courses
      Develop skills necessary to operate proper equipment
      Proven ability to work in a fast paced environment

Criteria

      Basic knowledge of equipment
      Ability to work in a fast-paced food product environment
      Ability to follow instructions
      Demonstrates independent work habits
      Preference will be given to individuals of Islamic decent

Receptionist


Description

      Communicating with suppliers and customers via person and phone
      Dealing with small public relations
      Perform general office duties

Criteria
      Ability to multi-task
      Familiar with various word processing programs including but not exclusively: Microsoft
       Word, Corel, WordPerfect
      Possess excellent keyboarding skills
      Excellent managerial, organizational, and verbal/written communication skills.




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Accountant


Description
      Responsible for recording financial records of day to day activities
      Demonstrate an understanding of tax concepts and apply them appropriately
      Complete employee payroll

Criteria

      Bachelor’s degree in one of the following disciplines; Accounting, Finance or Business
       administration.
      Ability to work in a team environment

CFIA Inspector


Description

      Inspects incoming birds and final product.
      Responsible for ensuring all government regulations are followed.
      Ensures that safety protocol is followed.
      Works closely with HACCP Coordinator.

Criteria

      Bachelor’s degree in one of the following: Food Science, Applied Microbiology, Animal
       Science or a related field
      Preferably experience in processing as there is only one full time inspector.
      Ability to enforce guidelines and rules.

HACCP Coordinator


Description
      Responsible for random microbial tests and monitoring of product.
      Ensures food quality and food safety.
      Works closely with CFIA Inspectors


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Criteria

      Bachelor’s degree in one of the following disciplines; Food Science, Applied
       Microbiology or a related field
      Good laboratory skill and knowledge
      Ability to enforce guidelines and rules.


3.2.1 Total Salary Costs


                                  2004        2006       2008       2010         2012
Direct Labour Costs
Permanent Labourers                   20           20         20         20           20
Wage                               12.00        12.67      13.34      14.02        14.69
Hours                             2,080        2,080      2,080      2,080        2,080
Total                           499,200      527,155    555,110    583,066      611,021
Overhead Salary Workers
HACCP Inspector                        1            1          1          1            1
Salary                           40,000       42,240     44,480     46,720       48,960
CFIA Inspector                       1.5          1.5        1.5        1.5          1.5
Salary                           60,000       63,360     66,720     70,080       73,440
Maintenance Supervisor                 1            1          1          1            1
Salary                           47,877       50,558     53,239     55,920       58,601
Total Fixed Salaries            177,877      187,838    197,799    207,760      217,721
Admin Salary Workers
Plant Manager                          1            1          1          1         1
Salary                          100,000      105,600    111,200    116,800   122,400
Receptionist/Accounting Clerk I        2            2          2          2         2
Salary                           25,676       27,114     28,552     29,990    31,427
Total Admin Salaries            151,352      159,828    168,303    176,779   185,255
Total Salaries                  828,429      874,821    921,213    967,605 1,013,997
Table 3. Salary Costs


3.3 Employee Benefits


All employees will be eligible for a benefit package, set out by the company. All employees will
go through a six month probationary period before becoming eligible for benefits. The cost of
health and dental insurance, along with the accidental death or injury is $145.13 per employee.



Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 19
Dykal Holdings


                                        2004      2006      2008      2010      2012
Benefits for Direct Labour Employees
Employment Insurance                   10,483     11,070    11,657    12,244    12,831
Canada Pension Plan                    23,136     24,431    25,727    27,023    28,318
Holiday Pay                            28,954     30,575    32,196    33,818    35,439
Workers Compensation                   36,541     38,588    40,634    42,680    44,727
Blife                                     628        663       701       741       783
ADD                                       166        175       185       195       207
LTD                                     4,238      4,479     4,733     5,002     5,286
Dent                                    7,463      7,887     8,334     8,808     9,308
EHC                                     4,921      5,201     5,496     5,808     6,138
Pension Plan                           12,480     13,179    13,878    14,577    15,276
Total                                129,010     136,248   143,542   150,896   158,312
Benefits for Overhead Salaried Employees
Employment Insurance                    3,735      3,945     4,154     4,363     4,572
Canada Pension Plan                     6,078      6,418     6,759     7,099     7,440
Holiday Pay                            10,317     10,895    11,472    12,050    12,628
Workers Compensation                    6,433      6,793     7,153     7,513     7,873
Blife                                      63         66        70        74        78
ADD                                        17         18        18        20        21
LTD                                        71         75        79        83        88
Dent                                      299        315       333       352       372
EHC                                       492        520       550       581       614
Pension Plan                            2,197      2,320     2,443     2,566     2,689
Total                                  29,700     31,364    33,031    34,702    36,375
Benefits for Salaried Employees
Employment Insurance                    3,178      3,356     3,534     3,712     3,890
Canada Pension Plan                     5,172      5,461     5,751     6,041     6,330
Holiday Pay                             8,778      9,270     9,762    10,253    10,745
Workers Compensation                    3,784      3,996     4,208     4,419     4,631
Blife                                      94         99       105       111       117
ADD                                        25         26        28        29        31
LTD                                       636        672       710       750       793
Dent                                    1,119      1,183     1,250     1,321     1,396
EHC                                       738        780       824       871       921
Pension Plan                            3,784      3,996     4,208     4,419     4,631
Total                                  27,308     28,840    30,380    31,928    33,486
Total Benefits                       186,018     196,452   206,953   217,526   228,174
Table 4. Benefits




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Dykal Holdings


All employees will be subjected to monthly deductions from their pay cheques as seen in Table
4. These deductions will also be an expense incurred by the employer as they are required to
contribute to these. Assuming that the rates will remain constant over the next five years the
employer will pay equal amounts of CPP (Canada Pension Plan) as the employee with a rate of
3.417%. EI (Employment Insurance) is set at a rate of 2.10%. Other deductions are pension
plan 2.50% of gross wage and worker’s compensation is 7.32% of gross wage.




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 21
Dykal Holdings


4.0 Marketing Plan
4.1 Sales and Profit Objectives


The objective of Dykal Holdings is to achieve a 20% profit before taxes on gross sales of $4.54
million in the first year of operations, growing to $9.39 million within 10 years of operation.
This will be accomplished by selling 90% of the product under store label through a partnership
agreement with the Saskatchewan IGAs and 10% of the product as a branded product to
individual Islamic associations located in the major cities of Alberta, Saskatchewan and
Manitoba. Lists of all IGAs in Saskatchewan, and Islamic Centres in Manitoba, Saskatchewan
and Alberta, can be found in Appendix F and G, respectively.


4.2 Product


Dykal Holdings will be selling two separate product lines. There will be a Halal product and a
non-Halal product. Both will be marketed under the Prairie Pride Poultry (PPP) name. Both
products are a vegetable fed, air chilled product, and each characteristic will be represented by a
label on all packages. All chicken will be federally inspected to ensure a high quality, certified
product, which Dykal Holdings will be able to sell across the country. All whole, broiler
chickens will be sold at an average weight of 1.54 kgs.


Halal products will be sold frozen, as pieces and whole products. The pieces will be packaged in
5kg boxes and the whole birds will be packaged in a vacuum sealed bag. The Halal products
will have an additional sticker on it stating that the product is Halal certified.


Non-Halal products will be sent as a fresh bulk product in crates. These crates are ice packed to
maintain temperature. There will be individual crates for wings, thighs, breasts, drumsticks, and
whole chickens.




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 22
Dykal Holdings


4.3 Price


Dykal Holdings’ product will be priced based on the market rates + $0.08 per kilogram because
the chickens that are being processed will be 100% vegetable fed. In the first year of operation
the expected selling price of non-Halal product will be $2.798/kg. This means that Dykal
Holdings will be pricing at a premium. The price for the Halal chicken that Dykal Holdings will
be selling will be priced in accordance to other chicken sold as Halal. In the first year of
operation the expected selling price will be $2.8496/kg.


Dykal Holdings will largely be a price taker in the market, as it will have to competitively price
the product to ensure continued contracts. To minimize these effects Dykal Holdings will seek
to establish long-term contracts. The terms and conditions for the non-Halal product will be
different from that of the Halal product. The non-Halal product will have prices set monthly and
allow 30 days for payment with no discount for early payment.


The Halal product will require payment upon delivery, with a return policy stating that all
products not sold will be given a credit towards future purchases worth 50% of the value of the
purchase. Although this will cost approximately $6,490 in the first year it will reduce the risk for
the Islamic associations therefore encouraging them to purchase products from Dykal Holdings.


4.4 Market Analysis
4.4.1 The Chicken Market


Over the past few years the chicken market has been growing in Canada. In January of 2003
grocery sales of chicken increased by 8.9% compared to the past five year increase of 2.8% per
year (Canadian Chicken Market Review website, 2003). Consumers are beginning to see the
health benefits of chicken and purchase this as an alternative to red meats. The demand for
chicken varies seasonally throughout the year, shown in Figure 3, with an overall increase in
chicken demand over the last 3 years.




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Figure 3. The Consume r Demand of Chicken - June 2001-January 2003 (Canadian Chicken
Market Review)

Consumers appear to be replacing their pork consumption with chicken as this ratio of chicken to
pork continues to increase, while the ratio of chicken to beef remains at an all time low and is on
a decreasing trend, as see in Figure 4.




Figure 4. The Wholesale Ratio of Chicken to Beef and Pork (Canadian Chicken Market
Review website, 2003)




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Chicken production across Canada has decreased over the past few months. This may be due to
low prices of the wholesaler, and constant grain prices, making the industry less profitable.
Another factor is the implication of quotas, which has decreased the amount of chickens to be
raised in each province, setting a maximum amount each producer can grow and sell. This
decline in overall chicken production, as seen in Figure 5, shows a decrease in provincial storage
stock of chicken in Saskatchewan since 2002. There have also been decreases in Alberta, and
Manitoba, which are major targets of Dykal Holdings. Increases in stored chicken are present in
other Canadian provinces, but will not affect Dykal Holdings’ market, as these areas are not
being marketed by Dykal Holdings.




Figure 5.   The Storage of Chicken in various Canadian Provinces 2002-03 (Canadian
Chicken Market Review website, 2003)


4.4.2 Non-Halal Market


The Canadian population has increased over the last few years with a 4.0% increase in
population from 1996 to 2001, while the Saskatchewan population decreased by 1.1% in the
same time period, shown in Table 5. There has been substantial growth in Alberta, which is a
close location for Dykal Holdings to target in the future. Manitoba has remained constant over
these years with a slight increase of 0.5% (Stats Canada 93F0053XIE). These numbers overall
show an increasing market in the Prairie Provinces. It can also be seen that Saskatoon has


Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 25
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experienced the greatest growth of the major cities in Saskatchewan and several of the other
cities have reduced in size. With Alberta’s significant growth new markets are being created,
Dykal Holdings can use this area as an expansion option in the future once the IGA market in
Saskatchewan is fully developed and prospering. Tables 6, 7, and 8 illustrate the population
change in the cities being targeted.


                           Population
Name
                           2001            1996                  % change
Canada                     30,007,094      28,846,761            4.0
Manitoba                   1,119,583       1,113,898             0.5
Saskatchewan               978,933         990,237               -1.1
Alberta                    2,974,807       2,696,826             10.3


Table 5. Canadian Population and Growth (Stats Canada 93F0053XIE)




                                                  Moose    Swift
               Saskatchewan Saskatoon Regina      Jaw      Current

               978,933
 Population
 in 2001                      225,927   192,800   33,519   16,527
 Population
 in 1996    990,237           219,056   193,652   34,829   16,437
 Population
 Change
 (%)        -1.1              3.1       -0.4      -3.8     0.5


Table 6.      Population Growth of Saskatchewan and Major Saskatche wan Cities (Stats
Canada 93F0053XIE)


The target market for the non-Halal market will be IGA store managers. IGA will in turn,
market the product to the end consumer, who are middle to upper class, health conscious
individuals. These people have excess discretionary money to purchase a premium product.




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 26
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              Alberta    Calgary      Edmonton      Red Deer    Lethbridge
 Population
 in 2001    2,974,807    951,395      927,845       67,707      67,374
 Population
 in 1996    2,696,826    821,628      862,597       60,080      63,053
 Population
 Change
 (%)        10.3         15.8         8.7           12.7        6.9


Table 7.      Population Growth of Albe rta and Major Alberta Cities (Stats Canada
93F0053XIE)


                 Manitoba Winnipeg
 Population in
 2001          1,119, 583 671,274
 Population in
 1996          11,131,898 667,093
 Population
 Change (%)      0.5            0.6


Table 8.   Population Growth of Manitoba and Major Manitoba Cities (Stats Canada
93F0053XIE)


4.4.3 The Halal Market


The Islamic population is growing in Canada, especially in the western provinces due to
increasing immigration from Pakistan. As seen in Figure 6, the Islamic population has doubled
in the last ten years. In 1991 the population was 253,260 making up 0.9% of the Canadian
demographics. By 2001 this level has increased to 579,640 making up 2% of the Canadian
population (Muslim Population Statistics website, 2003).


Figure 7 shows the Islamic population as it is distributed across Canada. Alberta has a fairly
significant Islamic population ranging between 25,000 and 50,000. This is a close market for
Dykal Holdings to capture and penetrate and will be easy to develop early on.             The
Saskatchewan and Manitoba Islamic populations, although lower than Alberta, show potential


Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 27
Dykal Holdings


for Dykal Holdings to become a sole provider for these markets. Other parts of Canada are seen
to have large Islamic populations, which may be areas for future expansion.



                       800,000
   Muslim Population




                       600,000

                       400,000

                       200,000

                            0
                                 1991          2001
                                        Year




Figure 6. Islamic Population of Canada (Canadian Muslim Population Stats website, 2003)




Figure 7. Distribution of Canadian Islamic Population in 1991 (Halal Food Product Market
Report website, 2003)

Table 9 shows the Islamic population in Saskatchewan, Alberta, Manitoba, Quebec, Ontario and
British Columbia. Dykal Holdings will target cities, which have Islamic Centres. The majority


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of the Halal market will be in Alberta. Table 10 shows the Islamic population in each city being
targeted. In Saskatchewan, Saskatoon has the greatest Islamic population therefore will be
Dykal Holdings’ major focus; however this is only a small market. The majority of the Halal
chicken will be marketed to Alberta, with the two major cities being Edmonton and Calgary,
both with much larger Islamic populations. Finally, Dykal Holdings will target Manitoba,
essentially Winnipeg, as this city is the closest major Manitoban city with an Islamic Centre to
Wynyard.



Province                Islamic Population

Quebec                  108,620

Ontario                 352,525

Manitoba                5,095

Saskatchewan            2,230

Alberta                 49,045                   Table 9.    Canadian Islamic Population in
British Columbia        56,220                   2001 (Stats Canada 93F0053XIE)


 City                Islamic Population
 Saskatoon           1,140
 Regina              770
 Swift Current       40
 Calgary             25,920
 Edmonton            19,575
 Red Deer            420
 Lethbridge          145
 Winnipeg            4,805

Table 10. Islamic Population in SK, AB, and MB cities in 2001 (Stats Canada 93F0053XIE)

Other Halal meat products available for Islamic populations are lamb/mutton/goat, chicken, and
beef/veal. A major goal of Dykal Holdings marketing will be to bring a health aspect of chicken
across to the Islamic consumer demonstrating the benefits of chicken as a better alternative than



Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 29
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other meat choices. Table 11 shows chicken as a healthy alternative to other meats such as beef,
lamb and pork, as it is lower in calories and fat and similar in protein content. Turkey has better
nutritional value, but does not lend itself to being an “everyday” meat, thus is not foreseen as a
major problem.

In Canada the population is aging, meaning the ratio of young to old is low. The Islamic
population is the opposite, with half their population below the age of 20 (Halal Food Product
Market Report). In the future, immigration and movement of the Islamic population could
potentially affect the marketing strategy of Dykal Holdings. By looking at past trends it can be
assumed that the Islamic population will continue to increase in Canada and expand further into
the Prairie Provinces.


 Product*      Calories (kcal) Protein Fat
 Lean Beef 123                  20.3       4.6
 Lamb          162              20.8       8.8
 Pork          147              20.7       7.1
 Turkey        107              21.9       2.2
 Chicken       121              20.5       4.3
* All values are based on raw, meat only basis.

Table 11.     The Nutritional Value of Different Meats (per 100 grams) (McCanca &
Widdowson, 1991)

Green Peace and animal rights groups may also cause problems for the Halal market. In the
Halal method of slaughter the birds will not be stunned before they are killed. This may cause an
up rise to occur with animal rights groups. Hopefully educating activists can avoid this and
show that this method of slaughter is for religious purposes only, and is a humane method of
slaughter.

Dykal Holdings will be targeting all Islamic people who practice their faith and are involved
with Islamic Centres, more specifically females.        This is because fema les generally are
responsible for the household cooking.




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4.5 SWOT analysis
4.5.1 Strengths


      Dykal Holdings will have access to a constant supply of raw materials, in this case live
       chickens.
      The processing plant will have the ability to accommodate a 50% increase in production
       at any time, and the processing lines will be able to process both Halal chicken and non-
       Halal chicken.
      Ability to reach two markets using one processing line.
      All chicken will be air chilled, vegetable fed and federally inspected, capturing a
       premium market.
      Management experience and expertise in the industry based on plant location.


4.5.2 Weaknesses


      The cost of setting up a new plant is expensive with the machinery being the largest cost
       of approximately one million dollars.
      Dykal Holdings will not own a fleet of trucks, therefore shipping will have to be
       contracted out which will cause fluctuations in price.


4.5.3 Opportunities


      Growing Halal market.
      Only one other major chicken processing plant in Saskatchewan; Lilydale.
      Large pool of trained workers in Wynyard, giving a large easily accessible trained
       workforce for Dykal Holdings.
      Chicken is becoming a healthier alternative for meals; in addition Halal products are
       starting to become more common.




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4.5.4 Threats


         Within the town of Wynyard there is currently a processing plant; Lilydale Cooperative.
         Lilydale Cooperative lost approximately $16 million last year.       This may indicate
          weakness in the market.
         There are strict requirements for processing Halal chicken which will add costs to
          production.


4.6 Competition

The major competitors in the Western non-Halal poultry market are Lilydale Cooperative and
Maple Leaf. There are many other poultry brand names being sold in stores but they are
subsidiaries of Lilydale Cooperative. In the Halal market Lilydale and small chicken processors
are the main competition. After conducting a market analysis, it has been observed that Lilydale
and Maple Leaf together hold approximately 80% share of the market, and other store brands
hold approximately 20% of the market.         Lilydale Cooperative and Maple Leaf have many
strengths and weaknesses. The most important strength that they both hold is that they have
efficient economies of scale.       At Maple Leaf and Lilyda le plants chicken is produced in
extremely large quantities, and their cost of producing one bird is substantially less than Dykal
Holdings will be. Maple Leaf’s main advantage over Lilydale is that its product is branded as a
prime natural product, whereas Lilydale sells both branded and non-branded products.
Consumers see both companies’ products as high quality in comparison to other chicken on the
market.


A major weakness of Lilydale is that last year it lost approximately $16 million dollars. This
was the result of a combination of two factors, the first being a planned five million dollar
expansion of the Lilydale Plant in Wynyard. The second factor was the 9-11 crisis which caused
the demand for KFC, Lilydale’s major buyer, therefore, frozen stocks of products increased and
prices were adjusted downwards to reduce inventory. This factor is a one time event and will not
affect the future of the industry. Consumers view Lilydale’s products to be of high quality in the



Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 32
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frozen market, and in many cases in the fresh market consumers are unaware that they are eating
Lilydale’s fresh chicken when they purchase some of the unbranded chicken at the store. Other
competitors include Schneiders, who sell chicken as pieces in boxes and as a frozen product
rather than fresh. Schneiders will be an indirect competitor, since Dykal Holdings will not be
selling non-Halal product in this form.


Dykal Holdings will have to meet all of the needs of the consumers in order to get a comparable
product to its competitors. Dykal Holdings’ product is vegetable fed, therefore can be labelled as
a natural product as well is air chilled making it comparable to Maple Leaf’s Prime Chicken.
Trends in the industry show that the pieces market will be of greater importance, as people tend
not to purchase whole chicken products as often.


4.7 Distribution


Warehousing of PPP will be minimal and will be prepared for a “just in time” distribution
system. Dykal Holding will use CoolX, a division of TransX (a logistics firm with operations
throughout Canada) to deliver the product, on a daily basis, in bulk crates to individual IGA
stores located in Saskatchewan. CoolX will also deliver the Halal product to the Islamic
Association’s centers in Manitoba, Saskatchewan and Alberta, on a bi-weekly basis. A contract
will be established with CoolX defining operating terms. Initial estimates are $0.04/kg for non-
Halal poultry and $0.06/kg for Halal poultry (Craig Strilchuk, 2003). This type of contract, will
allow Dykal Holdings to ensure a lower cost, although this option will require that Dykal
Holdings use CoolX for a defined time frame.


This distribution method is different from Lilydale’s method, which utilizes a fleet of company
owned and operated trucks to deliver the product. The use of CoolX is a good fit for the product
because it allows timely, low cost delivery to a widely distributed geographic area. This will
also reduce Dykal Holdings initial capital investment, as a fleet of trucks will not be required.




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 33
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4.8 Promotion


Dykal Holdings will have to persuade the IGA head office to certify PPP as a registered supplier
for the chain. This will allow Dykal Holdings to supply the product to individual IGA stores.
Upon receiving certification Dykal Holdings will give sa les pitches to IGA managers to gain
them as a purchaser of PPP. Advertising for the non-Halal market will be minimal because the
product will not be branded as PPP, it will be an IGA branded product.


4.9 Selling and Advertising


The main focus of the marketing will be with regards to developing the Halal product. To do
this, Dykal Holdings will advertise in print media such as magazines and newsletters. Although
no western magazines are currently available with a direct focus on the Islamic community a
number of national magazines are available, with larger readership in Western Canada. These
include:


             Azizah, a magazine directed towards Islamic women, who will be the primary
            target group as they do most of the cooking in the family.




                 Message, is a magazine which focuses on cultural and religious issues. This will
                 provide a broad base of readership of customers who are concerned about
                 upholding their faith, and therefore consuming Halal products.


           The American Muslim magazine, presents the comprehensive and balanced
           understanding of Islam, addresses Islamic issues, and covers Islamic events. Again
           this will provide Dykal with the opportunity to reach a wide targeted audience.




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 34
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Dykal will purchase advertising space in the three magazines mentio ned above which each have
monthly issues. This will have a cost of $36,000 per year (12 issues X 3 magazines X $1000).
Newsletters and articles distributed to patrons by the Islamic associations are also an excellent
means of reaching a target audience. This will provide Dykal Holdings with concentrated local
penetration, at a lower cost than magazine advertising. The cost for purchasing advertising space
in the 17 Islamic Associations’ newsletters listed in Appendix B is $20,400 per year (17
newsletters X 12 issues per year X $100).


                                        2004         2005          2006         2007         2008
Advertising
  Magazine ads                       36,000        37,008       38,016       39,024       40,032
  Newsletters                        20,400        20,971       21,542       22,114       22,685
  Total Advertising                  56,400        57,979       59,558       61,138       62,717
Promotion & Development
 Web page                            18,000
   Maintance                          2,000         2,056        2,112        2,168        2,224
  Travel expenses                    28,000        28,784       29,568       30,352       31,136
  Trade shows                         2,000         2,056        2,112        2,168        2,224
  Total Promotion                    50,000        32,896       33,792       34,688       35,584
Total Marketing Expenses            106,400        90,875       93,350       95,826       98,301
                                        2009         2010          2011         2012         2013
Advertising
  Magazine ads                       41,040        42,048       43,056       44,064       45,072
  Newsletters                        23,256        23,827       24,398       24,970       25,541
  Total Advertising                  64,296        65,875       67,454       69,034       70,613
Promotion & Development
 Web page
   Maintance                          2,280        2,336        2,392         2,448        2,504
  Travel expenses                    31,920       32,704       33,488        34,272       35,056
  Trade shows                         2,280        2,336        2,392         2,448        2,504
  Total Promotion                    36,480       37,376       38,272        39,168       40,064
Total Marketing Expenses            100,776      103,251      105,726       108,202      110,677


Table 12. Dykal Holdings: Marketing Budget

It is important to note that word of mouth advertising is the best means of increasing sales in the
Halal market as the community is very closely “knit,” therefore actively controlling product
quality and adhering to Halal requirements is essential to the products success. The Halal and


Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 35
Dykal Holdings


non-Halal products will also require additional marketing to ensure success. This will include
the development of a website for the two products, so that interested parties can research the
company and its products. The website will allow both IGA stores and Halal customers to place
and pay for orders online. The total cost for development and maintenance the website for the
first year is $18,000 and $2,000 respectfully.       In the remaining years only the $2,000
maintenance charge will be incurred.


Dykal Holdings will also need to travel to trade shows and conventions to actively promote the
products. The total traveling expenses are estimated to be $28,000 (4 trade shows X $2,000 per
trip + $20,000 travel to individual Halal buyers and IGA store managers). The cost of the trade
show itself is minimal, requiring only the purchase of booth space, for a total cost of $2,000 per
year (4 trade shows X $500/booth). The total cost for marketing will be $106,400 in the first
year and $90,875 in year two with inflation calculated at 2.8%. For a complete look at the
marketing budget see Table 12.




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5.0 Financial Plan
5.1 Sources of Funding


In order for Dykal Holdings to meet initial capital expenditures, and maintain a positive cash
flow, a total of $3,158,815 of long-term debt and owner’s equity will be required, see Table 13.
The long-term debt will be financed with a loan from the Ro yal Bank of Canada (RBC) and the
client will supply the owner’s equity. The total loan amount is $2,369,111 or 75% of the total
funding required (Schedule 8). Normally, a bank would be unwilling to lend such a large
percentage of the total investment; however, the client is willing to pledge additional land and
buildings as collateral to secure the loan.

                                              2004
Long Term Debt                  75%           2,369,111
Owner's Equity                  25%             789,704
Total                                         3,158,815

Table 13. Financing Budget


The amount of the loan $2,369,111 will be amortized over 25 years with an interest rate of 7.2%.
The loan will have fixed payments of $206,971 per year with the option of contributing
additional money in any year towards the principle of the loan (Schedule 9). It is important to
note that the entire loan could be paid in full in the base case by 2010 using cash on hand.


5.2 Opening Balance Sheet


Land will be purchased for a nominal fee of $1, this will allow for the legal transfer of ownership
and is common in small communities. The cost of the building is $1,099,999, this includes an
allowance of $300,000 for renovations to the existing building as it has been vacate for a number
of years.




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 37
Dykal Holdings


All processing equipment prices are quoted from Meyn Food Technologies. For a breakdown of
the equipment required and individual specifications please refer to Appendix D. Of note are
spare parts which must be purchased every other year (Schedule 7).


Office equipment was estimated after an assessment of the current facility and was valued at
$50,000. This would include the purchase of office chairs desks and computers and general
supplies. As well, $20,000/year will be allotted for replacement and new office supplies. An air
conditioning unit must also be purchased in order to cool the manufacturing area. The cost is
estimated to be $30,000 and includes installation. A summary of the capital budget is seen in
Table 14.

                                        2004         2006        2008       2010        2012
Costs:
Land and Building                      1,100,000
Equipment:
 Arrival department         Input         20,691
 Defeathering department    Input        284,130
 Evisceration department    Input        182,805
 Chilling department        Input        290,000
 Weighing department        Input        141,224
 Offal department           Input         67,933
 Miscellaneous              Input        136,030
 Spare parts                Input         82,432      87,113     92,059      97,287    102,811
 Office Supplies            Input         50,000      21,120     22,240      23,360     24,480
 Electrical                 Input         20,000
 Installation               Input        250,000
 Piping                     Input         22,000
 Air Conditioning           Input         30,000
Total Capital Costs                    2,677,245     108,233    114,299     120,647    127,291

Working Capital
Cash                      Input          400,000
Accounts Receivable                      340,461     593,593    625,072     656,550    688,028
Inventories                               16,143      23,136     24,162      25,236     26,361
Accounts Payable                         275,032     464,775    491,033     518,759    548,036
Total Net Working Capital                481,571     151,955    158,200     163,027    166,354


Table 14. Capital Budget




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 38
Dykal Holdings


5.3 Summary of Financial Results
Table 15 is an overview of several key values in the financial plan over the 10 year period.

Key Variables             Base Case
Selling Price Non-Halal    $2.798/Kg
Raw Materials              $1.289/Kg
Frieght Non-Halal           $0.04/Kg
Direct Labour Employees        20


Base Case
                                2004        2005        2006        2007        2008
Sales Revenue                 4,541,357   6,188,455   7,918,456   8,128,699   8,338,943
Cost of Goods Sold            4,607,298   6,046,919   7,173,345   7,326,486   7,489,009
Gross Margin                    -65,941     141,536     745,112     802,214     849,933
Expenses                        455,636     442,494     447,164     451,635     455,891
Income Before Taxes            -521,577    -300,958     297,947     350,579     394,043
Income Taxes                          0           0           0           0      68,063
Net Income (Loss)              -521,577    -300,958     297,947     350,579     339,034
Cash end of year                 41,753       6,041     423,460     936,426   1,332,758
                                2009        2010        2011        2012        2013
Sales Revenue                 8,549,186   8,759,429   8,969,672   9,179,915   9,390,158
Cost of Goods Sold            7,661,836   7,844,446   8,035,404   8,234,667   8,441,123
Gross Margin                    887,349     914,983     934,268     945,249     949,035
Expenses                        459,916     463,695     467,209     470,439     473,365
Income Before Taxes             427,433     451,288     467,059     474,809     475,670
Income Taxes                    131,283     140,967     147,330     150,397     150,631
Net Income (Loss)               300,186     314,260     323,565     328,138     328,646
Cash end of year              1,754,374   2,069,854   2,472,428   2,760,497   3,137,582

Net Present Value of Equity Investment                     213,134

Internal Rate of Return on Equity Investment                26%

External Rate of Return on Equity Investment                12%

Table 15. Base Case Financial Results


Examination of these summary results leads to the logical conclusion that under the base case
scenario Dykal Holdings is an excellent investment opportunity due to a 26% IRR. This is
higher then the standard required rate of return of 15%.


Complete financial schedules and projections are provided in Appendix H.




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 39
Dykal Holdings


5.4 Unit Cost Analysis


In order to make accurate decisions regarding management of a business it is important to
evaluate the distribution of the costs associated with the production, marketing and selling of the
product. Understanding what represents the majority of the costs per unit allows a manager to
evaluate where costs could be reduced and monitored if costs are increasing to the point where
there is a need to change production methods or selling tactics.


Table 16 is the breakdown of the average cost to produce and sell one kilogram of poultry.
Average cost was calculated by taking the ten year financial projections and averaging them,
which was completed for each variable.


For chicken processing the largest single cost is the purchase of live birds which makes up
approximately 75% of the total cost for non-Halal and 68% for Halal. Direct labour is the
second largest single cost making up approximately 9.5% and 8.6%, for non-Halal and Halal
respectfully.


Average Cost Breakdown
Non-Halal                                Cost    % of Cost   Halal                                  Cost    % of Cost
Live Poultry                           5,023,491  75.088%    Live Poultry                           558,166   68.12%
Packaging Supplies                        42,534   0.636%    Packaging Supplies                      18,671     2.28%
Freight and Pallet Charges               107,991   1.614%    Freight and Pallet Charges              15,121     1.85%
Total Direct Labour + Benefits           636,783   9.518%    Total Direct Labour + Benefits          70,754     8.64%
Water                                     54,235   0.811%    Water                                    6,026     0.74%
Total Fixed Overhead                     417,932   6.247%    Total Fixed Overhead                    46,437     5.67%
Total Overhead Salaries and Benefits     210,367   3.144%    Total Overhead Salaries and Benefits    23,374     2.85%
Magazine ads                                   0   0.000%    Magazine ads                            40,536     4.95%
Newsletters                                    0   0.000%    Newsletters                             22,970     2.80%
Website                                    3,647   0.055%    Website                                    405     0.05%
Travel expenses                           15,764   0.236%    Travel expenses                         15,764     1.92%
Trade shows                                1,126   0.017%    Trade shows                              1,126     0.14%
Admin Expense                            176,302   2.635%    Admin Expense                           19,589     2.39%
Total Cost Non-Halal                   6,690,171             Total Cost Halal                       819,350

Kg's of Product                        2,268,191             Kg's of Product                        252,021
Cost per Kg                                 2.95             Cost per Kg                               3.25


Table 16. Average Cost Breakdown of Dykal Holdings




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 40
Dykal Holdings


As noted in Table 16 the average cost per kg for non-Halal is $2.95, over the next 10 years, while
Halal is $3.25. This difference in price is due mainly to economies of scale with 90% of the
production being distributed as non-Halal and the remaining 10% being sold as a Halal product.
Advertising expenses, which include, magazines and newsletters also provide additional costs for
Halal products totalling approximately 8%.


5.5 Key Variables


Several variables where analyzed in order to determine which would have the largest effect on
the feasibility of the project. To determine this, each variable was manipulated separately to
obtain an Internal Rate of Return of zero.


From the Table 17 it becomes clear that there are two extremely important variables, selling
price of Non-Halal poultry and the purchase price of raw materials (live chicken).          Dykal
holdings will have little control over raw materials prices as these are governed by market ing
boards. Dykal Holdings will also be limited in its ability to demand higher prices for its non-
Halal product as it will be providing it to a single buyer, who therefore will have high bargaining
power.


      Key Variables     Base Case              IRR=0       Allowable % Change
Selling Price Non-Halal $2.798/Kg            $2.680/Kg        - 4.20%
Raw Materials           $1.289/Kg            $1.358/Kg       + 5.10%
Frieght Non-Halal        $0.04/Kg            $0.16/Kg        + 75%
Direct Labour Employees     20                   29          + 31%

Table 17. Breakeven points of key variables for Dykal Holdings



5.6 Best Case Results


By affecting the key decision variable of selling price for both products the sensitivity of the
projects bottom line can be evaluated. In the best case, seen in Table 18, the selling price would
be at a 10% higher price.



Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 41
Dykal Holdings


Best Case
                                          2004          2005         2006          2007        2008
Selling Prices (per kg)
Non-Halal Poultry                              3.078       3.164        3.250        3.336        3.423
Halal Poultry                                  3.135       3.222        3.310        3.398        3.486
Average Selling Price                          3.106       3.193        3.280        3.367        3.454

Gross Margin                               397,580       783,426    1,582,811     1,668,870   1,744,648
Net Income (Loss)                          -49,095       277,621      726,373       774,502     816,685
Net Cash Flow from Operations               35,012       579,817      932,823       985,311     991,062
Cash end of year                           516,147     1,058,998    1,865,081     2,807,912   3,661,376
                                          2009          2010         2011          2012        2013
Selling Prices (per kg)
Non-Halal Poultry                              3.509       3.595        3.681        3.767        3.853
Halal Poultry                                  3.573       3.661        3.749        3.837        3.924
Average Selling Price                          3.541       3.628        3.715        3.802        3.889

Gross Margin                             1,808,908     1,862,937    1,907,737    1,944,079    1,972,552
Net Income (Loss)                           852,202       881,820      906,141      925,630      940,647
Net Cash Flow from Operations              997,257     1,003,255    1,008,528    1,012,639    1,015,226
Cash end of year                         4,609,816     5,463,451    6,415,878    7,265,567    8,216,323

Net Present Value of Equity Investment                                   2,217,154

Internal Rate of Return on Equity Investment                                74%

External Rate of Return on Equity Investment                                27%



Table 18. Best Case Financial Results


In this scenario, Dykal Holdings becomes an even better investment. The internal rate of return
rises substantially to 74% and net income grows to almost $1,000,000 in 2013.


In addition to this the entire long-term debt outstanding could be paid off in full by 2007 with
cash on hand.


5.7 Worst Case Results


By affecting the key decision variable of selling price for both products the sensitivity of the
projects bottom line can be further evaluated. In the worst case, seen in Table 19, the selling
price would be at a 10% lower price.


Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 42
Dykal Holdings


Worst Case
                                          2004         2005       2006       2007         2008
Selling Prices (per kg)
Non-Halal Poultry                              2.518     2.589      2.659         2.730     2.800
Halal Poultry                                  2.565     2.636      2.708         2.780     2.852
Average Selling Price                          2.541     2.613      2.684         2.755     2.826

Gross Margin                              -511,989     -455,986     -3,023     40,988     74,717
Net Income (Loss)                         -954,987     -880,719   -432,490   -393,028   -363,649
Net Cash Flow from Operations             -802,788     -553,831   -200,106   -179,072   -186,125
Cash end of year                          -388,961     -978,916 -1,304,860 -1,525,446 -1,848,132
                                          2009         2010       2011       2012         2013
Selling Prices (per kg)
Non-Halal Poultry                              2.871     2.941      3.012         3.082     3.153
Halal Poultry                                  2.924     2.995      3.067         3.139     3.211
Average Selling Price                          2.897     2.968      3.040         3.111     3.182

Gross Margin                                 96,928    108,909    111,659    105,953     92,377
Net Income (Loss)                          -345,575   -337,503   -338,416   -347,524   -364,219
Net Cash Flow from Operations              -197,372   -212,921   -232,882   -257,367   -286,492
Cash end of year                         -2,093,211 -2,454,561 -2,742,266 -3,161,216 -3,510,711

Net Present Value of Equity Investment                               -2,494,911

Internal Rate of Return on Equity Investment                          Negative

External Rate of Return on Equity Investment                          Negative


Table 19. Worst Case Financial Results


In this scenario, Dykal Holdings becomes a very poor investment. The internal rate of return
drops substantially to a negative number and net income remains negative throughout the project.


In addition to this the cash on hand is negative throughout the entire project meaning that both
short term and long term obligations would be unable to be fulfilled. Cash on hand drops to
negative $3,510,711 by 2013.

5.8 Net-Income Break-even Analysis

The results of this sensitivity analysis where calculated by varying the selling price of non-Halal
poultry in order to obtain a net income of zero in each year. The results further illustrate the fact
that this project is extremely sensitive to changes in selling prices. See Table 20.


Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 43
Dykal Holdings


Net Income Break-even Analysis
  Year    Net Income After-Tax Cash          Selling Price    Base Case Selling Price % Change
  2004         0         565,150                3.1434               2.7980             11%
  2005         0         862,565                3.0133               2.8763              5%
  2006         0        1,006,929               2.8068               2.9547             -5%
  2007         0        1,181,765               2.8601               3.0330             -6%
  2008         0        1,224,203               2.9175               3.1114             -7%
  2009         0        1,325,149               2.9796               3.1897             -7%
  2010         0        1,300,831               3.0458               3.2681             -7%
  2011         0        1,350,226               3.1158               3.3464             -7%
  2012         0        1,276,700               3.1891               3.4248             -7%
  2013         0        1,288,581               3.2656               3.5031             -7%


Table 20. Break-even analysis of Dykal Holdings

5.9 After-tax Year End Cash Break-even Analysis

The results of this sensitivity analysis where calculated by varying the selling price of non-Halal
poultry in order to obtain an after-tax cash balance of zero in each year. Once again the results
illustrate that this project is particularly sensitive to changes in selling prices. See Table 21.

After-Tax Cash Break-Even Analysis
  Year    Net Income After-Tax Cash          Selling Price    Base Case Selling Price % Change
  2004     -565,772         0                   2.7588               2.7980             -1%
  2005     -274,806         0                   2.8700               2.8763              0%
  2006     -133,728         0                   2.7504               2.9547             -7%
  2007     -179,527         0                   2.7845               3.0330             -9%
  2008      -30,959         0                   2.9035               3.1114             -7%
  2009     -108,357         0                   2.9335               3.1897             -9%
  2010       35,263         0                   3.0594               3.2681             -7%
  2011      -58,282         0                   3.0906               3.3464             -8%
  2012       84,239         0                   3.2231               3.4248             -6%
  2013      -21,974         0                   3.2555               3.5031             -8%


Table 21. Afte r-tax break-even analysis of Dykal Holdings




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 44
Dykal Holdings


5.10 Ratio Analysis


When interpreting ratios it is important to remember the nature of Dykal Holdings industry,
processing. Analysis should be compared to the ratios to those in industry. Lilydale, t he main
competitor of Dykal Holdings will be used to compare ratios and determine how they relate to
one another. Looking at the overall ratios of the company, seen in Table 22, Dykal Holdings
appears to be a good investment opportunity.


Liquidity ratios are used to measure the ability of the company to meet short term obligations.
The current ratio is used to measure the liquidity and is calculated by dividing current assets by
current liabilities. Dykal Holdings has a higher degree of liquidity when compared to Lilydale.
Liquidity is a measure of how quickly assets can be turned into cash. The current ratio for Dykal
Holdings is very high as the current assets are increasing because cash is not being paid out in
the form of dividends. This means that Dykal Holdings has a lower risk of insolvency, 4.1572,
than Lilydale which has a current ratio 1.1647.


Solvency ratios measure the risk of financing the business and making fixed debt payments. A
large portion, 75%, of the processing plant will be fina nced through a bank loan. The debt-to-
equity ratio is total liabilities divided by total equities. Dykal Holdings has a negative, 4.7014,
debt-to-equity ratio as a result of the companies high debt load.


The debt ratio is the total liabilities divided b y total assets. A debt ratio 72.62%, as seen in
Dykal Holdings, would indicate a high debt payment which implies high financial risk. Lilydale
is seen to have a high debt ratio, 0.8414, indicating this is normal for the industry. This anomaly
can be primarily contributed to the high initial fixed cost when starting a manufacturing plant.


Investment utilization ratios measure how efficiently the company is using its assets. The total
asset turnover is calculated by dividing total sales by total assets. A higher assets turnover is
preferred as implies that assets are being converted into sales faster. Lilydale has a more
efficient asset turnover ratio, 3.7352, and can be primarily contributed to its larger economies of
scale.



Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 45
Dykal Holdings


Profitability ratios measure the financial performance of the company. These are often used to
set targets for the company and compare performance to competitors in the industry. Lilydale
has a negative profitability ratio as they had a $16 million loss last year. Higher ratios are also
seen in Dykal Holdings as no dividends are being paid out, as the client wants to keep the money
in the company for future investment. Taking these two factors into account, the profitability
ratios are a bias observation of Dykal Holdings actual profits.


                                               Dykal Holdings Average      Lilydale for 1998-2003
Current Ratio                                          4.1572                      1.1647
Debt to Equity                                        -4.7014                      2.0534
Total Asset Turnover                                   2.1498                      3.7352
Debt Ratio                                             0.7262                      0.8414
Gross Profit Margin                                    0.0820                      0.0779
Net Profit Margin                                      0.0136                      0.0006
Return on Assets                                       0.0367                     -0.0003
Return on Equity                                       1.0157                     -0.0316

Table 22. Comparison of Key Ratios


5.11 Conclusion


Based on the financial model completed for Dykal Holdings, the company appears to be a viable
business venture as it becomes profitable after only the first two years of operation. It should
noted that even a small change in the price of raw materials (live chicken price increasing
5.10%) or a small change in the selling price (only 4.20% for non-Halal chicken) will wipe out
all of the profits obtained by Dykal Holdings at the present levels. This makes the project more
risky and is the reason for the higher IRR and ERR. The giblets and feet market was not looked
at for the purpose of this project, but is foreseen to be a potentially profitable market. As well
increasing the number of birds that are processed in the plant would increase the economies of
scale but was also not looked at in developing this plan.




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 46
Dykal Holdings


6.0 References
6.1 Personal References

Kevin Bolt
Pineview All Natural Meats
Phone: 306-239-4763

Bob Conklin
Stork Gamco Inc.
Phone: 770-532-7041
Website: http://www.stork-gamco.com

Darleen Derow
Lilydale Foods
Food Safety Inspector
Wynyard, SK
Phone: 306-554-2555

Jerry Dyer
AutoPlan Consultants
Phone: 770-535-0135
Autoplan@aol.com

Sheila Hitchings
Wynyard Town Office
Wynyard, SK
Phone: 306-554-2123

Rick Johannason
Lilydale Foods
Manager
Wynyard, SK
Phone: 306-554-2555

Bob Kolheler
Meyn Food Processing Technology B.V.
Edmonton, AB
Phone: 780-953-7063
Cell: 1-780-953-7063
bob@meyncanada.com
http://www.meyn.nl




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 47
Dykal Holdings


Clint Lacoste
Rayton Packaging
Calgary, Alberta
Phone: 403-640-9276

Dwayne Onofriechuck
Vis-à-vis
Caretaker
Wynyard, SK
Phone : 306-554-2529
Cel : 306-554-7077

Tom Reins
Cantrell Machine Company, Inc.
P. O. Box 757
1400 S. Bradford Street
Gainesville, GA. 30503
Phone: 1-800-922-1232
http://www.cantrell.com/contact.htm

Shelly
RiteWay Packaging Supplies and Services Inc.
Edmonton, Alberta
Phone: 780-467-7131

Van Stewart
Saskatchewan Poultry Producers
Phone: 306-775-1677

Craig Strilchuk
TransX
craig_strilchuk@transx.com


6.2 Internet References


An Up-To-Date Assessment of the Muslim method of Slaughter,
http://www.hmspoultry.ca.uk/AN%20UP-TO-DATE%20ASSESSMENT.htm                    [accessed
September 21, 2003]

Canadian Chicken Market Review, (Oct 10, 2003)
http://www.georgemorris.org/PDF%20Files/CCMRSample0403.pdf




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 48
Dykal Holdings


Canadian Muslim Population Statistics, (Oct 16, 2003)
http://www.jannah.org/popstatistics/canadamuslims.html

Chicken Farmers of Canada, http://www.chicken.ca/E_links.htm
[Accessed September 30, 2003]

Halal Food Product Market Report, (Oct 7, 2003) http://atn-riae.agr.ca/africa/e3281.pdf


IGA, (October 21, 2003) www.iga.com


Lilydale Foods, www.lilydale.com [accessed September 15, 2003]


MapleLeafFarms, (October 20, 2003) www.zabihahalal.com


Monster, www.monster.ca [accessed September 29, 2003]



Muslim Population Statistics, (Oct 16, 2003)
http://www.muslim-canada.org/muslimstats.html

Small Poultry Processing, http://64.4.20.250/cgi-
bin/linkrd?_lang=EN&lah=98c7eb7d299def8e70332fe9be833fd2&lat=1065243588&hm___acti
on=http%3a%2f%2fwww%2efao%2eorg%2fdocrep%2f003%2ft0561e%2fT0561E00%2ehtm
[accessed September 15, 2003]

Statistics Canada, (October 16, 2003)
http://www12.statcan.ca/english/Profil01/PlaceSearchForm1.cfm
http://geodepot.statcan.ca/Diss/Highlights/Highlights_e.cfm

The Canadian Poultry Meat Processing Industry,
http://www.agr.gc.ca/food/profiles/poultry/poultry_e.html
[Accessed September 17, 2003]


Town of Wynyard, http://www.town.wynyard.sk.ca/ [accessed September 12, 2003]


Trying to Help Muslims Eat Halal, http://eat-halal.com
[Accessed on September 21, 2003]




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 49
Dykal Holdings


6.3 Books


McCanca and Widdowson’s, The Composition of Foods, Fifth Edition. The Royal Society of
Chemistry. 1991.




Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 50

								
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