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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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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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 Allah, 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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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
Secretary
Kill
Receiver
(2)
Eviscer-
Hanger
Packaging
Cutter
Killing
Gutters (3)
Cropper (3)
Custodian
Sanitizer (2)
Cutter
Accountant
Other
Packer
Maintenance
Shipper
CFIA
Inspector (1.5)
Offal
Preparers
HACCP
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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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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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. Receive Live Birds
c. Stunning and
Slaughter
b. Hand Slaughter
d. Scalding and
Defeathering
e. Head Puller/
Hock Cutter
f. Evisceration
g. Giblets
h. Cooling
i. Cutting
i. Cutting
k. Packing and
Grading
l. Refrigeration
n. Distribution
j. Blast Tunnel
k. Packing and
Grading
m. Freezer
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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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 nonHalal) 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 out 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
Costs:
Land and Building
Equipment:
Arrival department
Defeathering department
Evisceration department
Chilling department
Weighing department
Offal department
Miscellaneous
Spare parts
Office Supplies
Electrical
Installation
Piping
Air Conditioning
Total Capital Costs
2006
2008
2010
2012
1,100,000
Input
Input
Input
Input
Input
Input
Input
Input
Input
Input
Input
Input
Input
Working Capital
Cash
Input
Accounts Receivable
Inventories
Accounts Payable
Total Net Working Capital
20,691
284,130
182,805
290,000
141,224
67,933
136,030
82,432
50,000
20,000
250,000
22,000
30,000
2,677,245
87,113
21,120
92,059
22,240
97,287
23,360
102,811
24,480
108,233
114,299
120,647
127,291
400,000
340,461
16,143
275,032
481,571
593,593
23,136
464,775
151,955
625,072
24,162
491,033
158,200
656,550
25,236
518,759
163,027
688,028
26,361
548,036
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
Beginning Inventory
Cost of Goods Manufactured
Cost of Goods Available for Sale
Ending Inventory
Cost of Goods Sold
0
4,623,441
4,623,441
16,143
4,607,298
2006
2008
2010
2012
19,763
23,643
24,693
25,792
7,176,718 7,489,528 7,844,989 8,235,236
7,196,481 7,513,171 7,869,682 8,261,028
23,136
24,162
25,236
26,361
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 materials, 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 with
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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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
Direct Labour Costs
Permanent Labourers
20
Wage
12.00
Hours
2,080
Total
499,200
Overhead Salary Workers
HACCP Inspector
1
Salary
40,000
CFIA Inspector
1.5
Salary
60,000
Maintenance Supervisor
1
Salary
47,877
Total Fixed Salaries
177,877
Admin Salary Workers
Plant Manager
1
Salary
100,000
Receptionist/Accounting Clerk I
2
Salary
25,676
Total Admin Salaries
151,352
Total Salaries
828,429
2006
2008
2010
2012
20
12.67
2,080
527,155
20
13.34
2,080
555,110
20
14.02
2,080
583,066
20
14.69
2,080
611,021
1
42,240
1.5
63,360
1
50,558
187,838
1
44,480
1.5
66,720
1
53,239
197,799
1
46,720
1.5
70,080
1
55,920
207,760
1
48,960
1.5
73,440
1
58,601
217,721
1
105,600
2
27,114
159,828
874,821
1
111,200
2
28,552
168,303
921,213
1
1
116,800
122,400
2
2
29,990
31,427
176,779
185,255
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
Benefits for Direct Labour Employees
Employment Insurance
10,483
Canada Pension Plan
23,136
Holiday Pay
28,954
Workers Compensation
36,541
Blife
628
ADD
166
LTD
4,238
Dent
7,463
EHC
4,921
Pension Plan
12,480
Total
129,010
Benefits for Overhead Salaried Employees
Employment Insurance
3,735
Canada Pension Plan
6,078
Holiday Pay
10,317
Workers Compensation
6,433
Blife
63
ADD
17
LTD
71
Dent
299
EHC
492
Pension Plan
2,197
Total
29,700
Benefits for Salaried Employees
Employment Insurance
3,178
Canada Pension Plan
5,172
Holiday Pay
8,778
Workers Compensation
3,784
Blife
94
ADD
25
LTD
636
Dent
1,119
EHC
738
Pension Plan
3,784
Total
27,308
Total Benefits
186,018
2006
2008
2010
2012
11,070
24,431
30,575
38,588
663
175
4,479
7,887
5,201
13,179
136,248
11,657
25,727
32,196
40,634
701
185
4,733
8,334
5,496
13,878
143,542
12,244
27,023
33,818
42,680
741
195
5,002
8,808
5,808
14,577
150,896
12,831
28,318
35,439
44,727
783
207
5,286
9,308
6,138
15,276
158,312
3,945
6,418
10,895
6,793
66
18
75
315
520
2,320
31,364
4,154
6,759
11,472
7,153
70
18
79
333
550
2,443
33,031
4,363
7,099
12,050
7,513
74
20
83
352
581
2,566
34,702
4,572
7,440
12,628
7,873
78
21
88
372
614
2,689
36,375
3,356
5,461
9,270
3,996
99
26
672
1,183
780
3,996
28,840
196,452
3,534
5,751
9,762
4,208
105
28
710
1,250
824
4,208
30,380
206,953
3,712
6,041
10,253
4,419
111
29
750
1,321
871
4,419
31,928
217,526
3,890
6,330
10,745
4,631
117
31
793
1,396
921
4,631
33,486
228,174
Table 4. Benefits
Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 20
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.
Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 23
Dykal Holdings
Figure 3. The Consumer 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)
Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 24
Dykal Holdings
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
Dykal Holdings
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.
Name
Canada
Manitoba
Saskatchewan
Alberta
Population
2001
30,007,094
1,119,583
978,933
2,974,807
1996
28,846,761
1,113,898
990,237
2,696,826
% change
4.0
0.5
-1.1
10.3
Table 5. Canadian Population and Growth (Stats Canada 93F0053XIE)
Saskatchewan Saskatoon Regina
Moose
Jaw
Swift
Current
978,933
Population
in 2001
Population
in 1996
990,237
Population
Change
(%)
-1.1
Table 6.
225,927
192,800
33,519
16,527
219,056
193,652
34,829
16,437
3.1
-0.4
-3.8
0.5
Population Growth of Saskatchewan and Major Saskatchewan 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
Dykal Holdings
Alberta
Population
in 2001
2,974,807
Population
in 1996
2,696,826
Population
Change
(%)
10.3
Table 7.
Calgary
Edmonton
Red Deer
Lethbridge
951,395
927,845
67,707
67,374
821,628
862,597
60,080
63,053
15.8
8.7
12.7
6.9
Population Growth of Alberta 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 (%)
Table 8.
0.5
0.6
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
Muslim Population
to have large Islamic populations, which may be areas for future expansion.
800,000
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
Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 28
Dykal Holdings
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.
British Columbia
56,220
2001 (Stats Canada 93F0053XIE)
City
Islamic Population
Saskatoon
Regina
Swift Current
Calgary
Edmonton
Red Deer
Lethbridge
Winnipeg
1,140
770
40
25,920
19,575
420
145
4,805
Canadian Islamic Population in
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
Dykal Holdings
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 females generally are
responsible for the household cooking.
Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 30
Dykal Holdings
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 nonHalal 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.
Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 31
Dykal Holdings
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 Lilydale 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
Dykal Holdings
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 nonHalal 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
Dykal Holdings
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 sales 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
Dykal Holdings
Dykal will purchase advertising space in the three magazines mentioned 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
Advertising
Magazine ads
Newsletters
Total Advertising
Promotion & Development
Web page
Maintance
Travel expenses
Trade shows
Total Promotion
Total Marketing Expenses
2006
2007
2008
36,000
20,400
56,400
37,008
20,971
57,979
38,016
21,542
59,558
39,024
22,114
61,138
40,032
22,685
62,717
18,000
2,000
28,000
2,000
50,000
106,400
2,056
28,784
2,056
32,896
90,875
2,112
29,568
2,112
33,792
93,350
2,168
30,352
2,168
34,688
95,826
2,224
31,136
2,224
35,584
98,301
2009
Advertising
Magazine ads
Newsletters
Total Advertising
Promotion & Development
Web page
Maintance
Travel expenses
Trade shows
Total Promotion
Total Marketing Expenses
2005
2010
2011
2012
2013
41,040
23,256
64,296
42,048
23,827
65,875
43,056
24,398
67,454
44,064
24,970
69,034
45,072
25,541
70,613
2,280
31,920
2,280
36,480
100,776
2,336
32,704
2,336
37,376
103,251
2,392
33,488
2,392
38,272
105,726
2,448
34,272
2,448
39,168
108,202
2,504
35,056
2,504
40,064
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.
Comm 492.3- College of Agriculture and College of Commerce, University of Saskatchewan 36
Dykal Holdings
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 Royal 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.
Long Term Debt
Owner's Equity
Total
75%
25%
2004
2,369,111
789,704
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
Costs:
Land and Building
Equipment:
Arrival department
Defeathering department
Evisceration department
Chilling department
Weighing department
Offal department
Miscellaneous
Spare parts
Office Supplies
Electrical
Installation
Piping
Air Conditioning
Total Capital Costs
2006
2008
2010
2012
1,100,000
Input
Input
Input
Input
Input
Input
Input
Input
Input
Input
Input
Input
Input
Working Capital
Cash
Input
Accounts Receivable
Inventories
Accounts Payable
Total Net Working Capital
20,691
284,130
182,805
290,000
141,224
67,933
136,030
82,432
50,000
20,000
250,000
22,000
30,000
2,677,245
87,113
21,120
92,059
22,240
97,287
23,360
102,811
24,480
108,233
114,299
120,647
127,291
400,000
340,461
16,143
275,032
481,571
593,593
23,136
464,775
151,955
625,072
24,162
491,033
158,200
656,550
25,236
518,759
163,027
688,028
26,361
548,036
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
Selling Price Non-Halal
Raw Materials
Frieght Non-Halal
Direct Labour Employees
Base Case
$2.798/Kg
$1.289/Kg
$0.04/Kg
20
Base Case
Sales Revenue
Cost of Goods Sold
Gross Margin
Expenses
Income Before Taxes
Income Taxes
Net Income (Loss)
Cash end of year
2004
4,541,357
4,607,298
-65,941
455,636
-521,577
0
-521,577
41,753
2005
6,188,455
6,046,919
141,536
442,494
-300,958
0
-300,958
6,041
2006
7,918,456
7,173,345
745,112
447,164
297,947
0
297,947
423,460
2007
8,128,699
7,326,486
802,214
451,635
350,579
0
350,579
936,426
2008
8,338,943
7,489,009
849,933
455,891
394,043
68,063
339,034
1,332,758
Sales Revenue
Cost of Goods Sold
Gross Margin
Expenses
Income Before Taxes
Income Taxes
Net Income (Loss)
Cash end of year
2009
8,549,186
7,661,836
887,349
459,916
427,433
131,283
300,186
1,754,374
2010
8,759,429
7,844,446
914,983
463,695
451,288
140,967
314,260
2,069,854
2011
8,969,672
8,035,404
934,268
467,209
467,059
147,330
323,565
2,472,428
2012
9,179,915
8,234,667
945,249
470,439
474,809
150,397
328,138
2,760,497
2013
9,390,158
8,441,123
949,035
473,365
475,670
150,631
328,646
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
Live Poultry
Packaging Supplies
Freight and Pallet Charges
Total Direct Labour + Benefits
Water
Total Fixed Overhead
Total Overhead Salaries and Benefits
Magazine ads
Newsletters
Website
Travel expenses
Trade shows
Admin Expense
Total Cost Non-Halal
Cost
% of Cost
5,023,491
75.088%
42,534
0.636%
107,991
1.614%
636,783
9.518%
54,235
0.811%
417,932
6.247%
210,367
3.144%
0
0.000%
0
0.000%
3,647
0.055%
15,764
0.236%
1,126
0.017%
176,302
2.635%
6,690,171
Halal
Live Poultry
Packaging Supplies
Freight and Pallet Charges
Total Direct Labour + Benefits
Water
Total Fixed Overhead
Total Overhead Salaries and Benefits
Magazine ads
Newsletters
Website
Travel expenses
Trade shows
Admin Expense
Total Cost Halal
Cost
% of Cost
558,166
68.12%
18,671
2.28%
15,121
1.85%
70,754
8.64%
6,026
0.74%
46,437
5.67%
23,374
2.85%
40,536
4.95%
22,970
2.80%
405
0.05%
15,764
1.92%
1,126
0.14%
19,589
2.39%
819,350
Kg's of Product
Cost per Kg
2,268,191
2.95
Kg's of Product
Cost per Kg
252,021
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 marketing
boards. Dykal Holdings will also be limited in its ability to demand higher prices for its nonHalal product as it will be providing it to a single buyer, who therefore will have high bargaining
power.
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
IRR=0
$2.680/Kg
$1.358/Kg
$0.16/Kg
29
Allowable % Change
- 4.20%
+ 5.10%
+ 75%
+ 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
Selling Prices (per kg)
Non-Halal Poultry
Halal Poultry
Average Selling Price
Gross Margin
Net Income (Loss)
Net Cash Flow from Operations
Cash end of year
2006
2007
2008
3.078
3.135
3.106
3.164
3.222
3.193
3.250
3.310
3.280
3.336
3.398
3.367
3.423
3.486
3.454
397,580
-49,095
35,012
516,147
783,426
277,621
579,817
1,058,998
1,582,811
726,373
932,823
1,865,081
1,668,870
774,502
985,311
2,807,912
1,744,648
816,685
991,062
3,661,376
2009
Selling Prices (per kg)
Non-Halal Poultry
Halal Poultry
Average Selling Price
Gross Margin
Net Income (Loss)
Net Cash Flow from Operations
Cash end of year
2005
2010
2011
2012
2013
3.509
3.573
3.541
3.595
3.661
3.628
3.681
3.749
3.715
3.767
3.837
3.802
3.853
3.924
3.889
1,808,908
852,202
997,257
4,609,816
1,862,937
881,820
1,003,255
5,463,451
1,907,737
906,141
1,008,528
6,415,878
1,944,079
925,630
1,012,639
7,265,567
1,972,552
940,647
1,015,226
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
Selling Prices (per kg)
Non-Halal Poultry
Halal Poultry
Average Selling Price
Gross Margin
Net Income (Loss)
Net Cash Flow from Operations
Cash end of year
2.518
2.565
2.541
2.589
2.636
2.613
2006
2007
2.659
2.708
2.684
2.730
2.780
2.755
2008
2.800
2.852
2.826
-511,989
-954,987
-802,788
-388,961
-455,986
-3,023
40,988
74,717
-880,719
-432,490
-393,028
-363,649
-553,831
-200,106
-179,072
-186,125
-978,916 -1,304,860 -1,525,446 -1,848,132
2009
2010
Selling Prices (per kg)
Non-Halal Poultry
Halal Poultry
Average Selling Price
Gross Margin
Net Income (Loss)
Net Cash Flow from Operations
Cash end of year
2005
2.871
2.924
2.897
2.941
2.995
2.968
2011
2012
3.012
3.067
3.040
3.082
3.139
3.111
2013
3.153
3.211
3.182
96,928
108,909
111,659
105,953
92,377
-345,575
-337,503
-338,416
-347,524
-364,219
-197,372
-212,921
-232,882
-257,367
-286,492
-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
2004
0
565,150
2005
0
862,565
2006
0
1,006,929
2007
0
1,181,765
2008
0
1,224,203
2009
0
1,325,149
2010
0
1,300,831
2011
0
1,350,226
2012
0
1,276,700
2013
0
1,288,581
Selling Price
3.1434
3.0133
2.8068
2.8601
2.9175
2.9796
3.0458
3.1158
3.1891
3.2656
Base Case Selling Price % Change
2.7980
11%
2.8763
5%
2.9547
-5%
3.0330
-6%
3.1114
-7%
3.1897
-7%
3.2681
-7%
3.3464
-7%
3.4248
-7%
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
2004
-565,772
0
2005
-274,806
0
2006
-133,728
0
2007
-179,527
0
2008
-30,959
0
2009
-108,357
0
2010
35,263
0
2011
-58,282
0
2012
84,239
0
2013
-21,974
0
Selling Price
2.7588
2.8700
2.7504
2.7845
2.9035
2.9335
3.0594
3.0906
3.2231
3.2555
Base Case Selling Price % Change
2.7980
-1%
2.8763
0%
2.9547
-7%
3.0330
-9%
3.1114
-7%
3.1897
-9%
3.2681
-7%
3.3464
-8%
3.4248
-6%
3.5031
-8%
Table 21. After-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, the 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 financed through a bank loan. The debt-toequity 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 by 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.
Current Ratio
Debt to Equity
Total Asset Turnover
Debt Ratio
Gross Profit Margin
Net Profit Margin
Return on Assets
Return on Equity
Dykal Holdings Average
4.1572
-4.7014
2.1498
0.7262
0.0820
0.0136
0.0367
1.0157
Lilydale for 1998-2003
1.1647
2.0534
3.7352
0.8414
0.0779
0.0006
-0.0003
-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
September 21, 2003]
[accessed
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/cgibin/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