five year corporate plan summary - fresh water fish market

FFMC Corporate Plan Summary FY2011/12 ‐ FY2015/16 1/26 *Note: Treasury Board and the Governor‐in‐Council have approved this Plan and Budgets for Years One and Two only.

Freshwater Fish Marketing Corporation

Five‐Year Corporate Plan Summary

Corporate Plan 11/12 to 15/16 Capital Budget 11/12

Operating Budget 11/12

Submitted: October 2011


ExecutiveSummary Freshwater Fish Marketing Corporation (Freshwater) has provided effective market access and a reliable source of income to the commercial fishers of its mandated region in western and northern Canada for more than 40 years. In fulfilling its mandate since 1969, Freshwater has returned over $1.0 billion to the remote northern communities it serves and has contributed an additional benefit of approximately $0.7 billion through the operation of its plant and collection infrastructure. This result has been achieved while operating in a self‐sustaining manner, as required by its mandate. Freshwater Fish was created in 1969 in response to the recommendations of the McIvor Commission, which found that ‘the uncertainties and risks [of the freshwater fishery] are especially extensive in exporting … due to (1) the perishable nature of the product (2) the absence of effective quality control and (3) the lack of coordination between the demand and supply coming to the market’. Freshwater was put in place to solve these issues and to strengthen prices through the advantages generated by a single desk approach to marketing. Freshwater’s primary goal is to increase returns to fishers in a self‐sustaining manner. It does this by providing low‐risk access to global markets and creating an orderly market for freshwater fish. Accordingly, Freshwater buys all fish offered for sale, even when the supply exceeds current market demand. Surplus supply is preserved in frozen inventory and sold when market demand exceeds fresh supply, thus creating an orderly market for fishers and ensuring the best possible price for their catch. To coordinate supply and demand in this way, Freshwater requires working capital that is higher than expected in companies of similar size. In recent years, Freshwater has often been criticized for declining returns to fishers but on analysis, prices to fishers over the past thirty years have performed better than prices for hogs and cattle in western Canada, indicating that the single‐desk marketing structure has helped bring stability to the fishery. The real cause of the decline in prices to fishers has been the tremendous strengthening of the Canadian dollar (CAD) versus the US dollar (USD), FFMC’s most important market currency. The weakening USD has been partially offset by strong post‐recession market prices. This price performance has stabilized total returns to fishers, which have averaged approximately $30 million annually over the past six years, even though the USD/CAD rate change removed $4.5 million from Freshwater’s revenue. In addition to creating an orderly market for freshwater fish, Freshwater has provided economic and business opportunities in rural and remote communities throughout its mandate region, often the only avenue of economic development available. Of the 53 communities where Freshwater operates delivery points, 42 are predominantly Aboriginal (First Nations and Métis). The fishery fosters independent business owners, increases employment in the region and offsets the need for social assistance. In FY2009/10, 76% of the more than $33 million that FFMC paid out in returns to fishers and agency fees went to predominantly Aboriginal communities: a total of $25.3 million. This income remains in the


community in the form of wages for hired labour (fishers hire an average of four crew members) and money spent at local businesses. Freshwater Fish gives western and northern Canadian fishers access to global markets while reducing their risk by hedging foreign currency sales, managing receivables and coordinating supply against demand. Freshwater, like every other Canadian food processor and exporter, has had to contend with a number of fast‐paced changes to its environment over the past decade: the weak US dollar / strong Canadian dollar, increasingly complex food safety and security regulations, more stringent workplace safety requirements, increasing access to international markets and increasing international competition in domestic markets, to name just a few of the most significant. The rising Canadian dollar has meant that over three years, fishers have had to absorb an average price decline of 21%. Such a dramatic reduction in the face of increasing costs for both fuel and labour is creating a crisis among those already marginal fishers who must rely on the lower‐value species for their livelihood, and in the more remote communities for which freight is a significant cost of doing business. To give the fishery time to adjust to current exchange rates, the FY2011/12 Corporate Plan sets prices at approximately the same level as the previous year. With the USD/CAD at $0.98, this has been a very difficult target to achieve from a planning perspective and even after cost reduction commitments throughout the operation, it results in initial payments set at 93% of expected Total Returns to Fishers. The central theme of the FY2011/12 plan continues to be the need for the business to adjust to a strong Canadian dollar. With almost two‐thirds of Freshwater’s production being exported to US markets, the rapid rise of the Canadian dollar relative to the US dollar has created significant challenges for Freshwater and the fishery. Freshwater has taken the standard approach to a strong Canadian dollar: moving away from commodities toward value‐added products and seeking efficiency gains in the production process. To this end, the sales and marketing department has put more resources behind product and market development, and has been very effective in moving prices up as market and economic conditions allow. Operations management has been working to squeeze more efficiencies out of the forty‐year‐old plant. This plan contains several more initiatives in both these areas. Cost reduction projects have been ongoing for a number of years and appear in several areas of this plan: most significantly, working capital, ERP / business processes, supply chain management, plant management and plant renovation. Where possible, vacant positions have been left vacant for extended periods and third‐party contractors have been used in place of hiring additional staff. Internal audit, public relations and payroll will all be handled by third parties in FY2011/12. Cost reductions on a per unit basis can also be achieved by increasing volume through the plant. Initiatives on supply development and market development address the two sides of this volume equation. While the five year plan calls for increasing volumes over the plan period, the loss of Saskatchewan as a signatory to the FFMA and therefore as a supplier is a possibility that must be


considered. Saskatchewan delivers approximately 10% of Freshwater’s fish by value and 17% by volume. The Northwest Territories Fishers Federation recently reversed a decision to withdraw from the FFMA, and this has now been formalized by the NWT government. Freshwater Fish works closely with the Canadian Food Inspection Agency (CFIA) and its customers to ensure its processing plant meets federal and customer requirements for food safety. The Freshwater plant is routinely inspected by major customers including Costco and Red Lobster in Canada and Frial and Cosmos from Europe, as well as CFIA. Freshwater recently became one of the few foreign plants that are certified for export to Russia. To continue to meet and exceed food safety regulations, significant reinvestment is required in the processing plant. There are now few opportunities remaining for efficiency gains within the existing plant without a significant investment. Freshwater’s forty‐year‐old processing plant has been allowed to deteriorate from lack of ongoing investment to the point where closure is a very real possibility without continued redevelopment work over the plan period. Studies indicate that an investment of $35 million would generate approximately $2.5 million of the $4.5 million in annual earnings lost to a strengthening Canadian dollar over the last five years. To prevent major breakdown, delisting by CFIA or cancellation of orders by important customers, approximately $10 million has been invested over the past three years. This will leave a balance of $25 million against the $35 million investment required. An additional $2.4 million will be invested in FY2011/12 toward the renovation of the processing plant. However, further investments toward the plant renovation are limited by both the capacity of the business to service additional debt and by the legislated FFMC Corporate Plan borrowing limit and are not enough to reduce the risk of closure to acceptable levels or to provide the needed cost savings in operations. A greater capital investment in the plant has been evaluated as an alternate scenario which seeks $16.5 million as a capital injection. In addition to the planned renovation discussed above, Freshwater must allocate funds annually for replacement of worn‐out equipment and infrastructure. Where possible, capital projects are used to target efficiency and yield improvements; however, to remain ahead of food safety regulations, customer standards and risk of equipment failure, priority must be given to business continuance projects. Capital expenditures of $2.8 million are included in the FY2011/12 plan. Additionally, $4.6 million of capital projects included in the FY2010/11 plan have been carried forward into FY2011/12, resulting in total capital expenditures of $7.4 million. The replacement of the tunnel freezer for $4.5 million is the largest contributor to the $4.6 million carried forward from FY2010/11. The three tunnel freezers installed as used equipment in 1970 are now approaching fifty years of service, and CFIA has notified Freshwater that they no longer meet requirements and will have to be removed from service if the situation is not remedied. The tunnel freezer replacement is a business continuance investment that will also generate a 2.3% yield improvement and payback of 5.5 years. Other business continuance projects include the receiving area ceiling replacement, drainage around electrical utilities and the continued retrofit of Freshwater’s freight barge. An additional $2 million is planned annually from 2012/13 for replacement and worn out equipment and infrastructure.


Capital expenditures in this plan are based on the need to meet operational and regulatory minimums while maintaining total corporate debt below the legislated borrowing limit. For operating and capital investment requirements in FY2011/12, Freshwater Fish is requesting authority to borrow up to $39.5 million from a financial institution that is a member of the Canadian Payments Association. $39.5 million equates to 79% of Freshwater’s legislated borrowing limit. Borrowing authority requirements: FY2011/12 FY2012/13 FY2013/14 FY2014/15 FY2015/16Borrowing Requirement (thousands) $39,500 $35,900 $38,500 $38,500 $38,900

This plan uses as its foundation the 2010 Strategic Plan developed after a thorough strategic review. The strategic plan, which is updated annually through a series of workshops, identifies several key strategies to ensure FFMC’s sustainability. Freshwater’s newly‐approved Long Term Debt and Retained Earnings policy comes into effect in the FY2011/12 plan year. Effective in FY2011/12, final payment to fishers is based on available cash rather than a percentage of net income. As a commitment to meeting its mandate as a self‐sustaining Crown Corporation, retained earnings will be built up and the forecast in this plan shows that cash will be available to fishers by FY2013/14. From FY2011/12 through FY2012/13 cash will be used by Freshwater to invest in capital and pay down debt. When cash is available, forecasted to be FY2013/14, a portion will be disbursed as final payments to fishers upon Board of Director approval. Through implementation of this policy, Freshwater is committing to rebuilding its retained earnings and paying down capital debt based on a schedule agreed with its bank. It should be noted that in the current weak USD/strong CAD environment, this commitment comes with a degree of risk if fishers alone are required to pay off all existing capital debt, this requirement is likely to trigger further reductions in the buying price of fish. Marginal fishers are already leaving the fishery for more lucrative resource‐sector jobs. With their departure, delivery volumes fall. Falling volume reduces operational efficiencies, which in turn means lower prices to fishers ‐ quickly becoming a cycle that could seriously damage Freshwater and the fishery. A third party review of Freshwater’s financial management and planning processes was conducted in 2009 by Grant Thornton at the request of the Department of Finance. The report concluded that overall Freshwater has balanced financial management, planning and execution, while keeping all elements of financial management internally consistent. Suggested practical improvements have been incorporated into the Action Plans for FY2011/12. In 2010, Freshwater Fish underwent its regular Special Examination by the Office of the Auditor General of Canada. Freshwater was given an adverse opinion due to a number of governance, strategic, risk management and operational issues. Management has undertaken to address these issues as quickly as possible through several projects, two of which are yield management and the creation of a Human Resources Strategic Plan to better document HR activities and objectives. A number of recommendations were in place by year‐end FY2010/11.


The Board is addressing risk management issues with management and is working with the Department of Fisheries & Oceans to find solutions to governance and strategic issues. The Corporate Plan presented here details how Freshwater Fish will continue to increase returns to fishers in a self‐sustaining manner in its mandated region, provide economic opportunities for rural and remote communities, open global markets for Canadian freshwater fish and meet the most stringent requirements for food safety and sustainability.


StatutoryAuthority,MandateandProfile

StatutoryAuthority Freshwater Fish Marketing Act R.S.C. c.F‐13

Mandate Increase returns to fishers; create an orderly market; promote international markets; increase trade in fish; purchase all fish offered for sale.

CorporateProfile Freshwater Fish Marketing Corporation (FFMC) is a federal Crown Corporation created in 1969 under the Freshwater Fish Marketing Act to buy, process and market freshwater fish from Manitoba, Saskatchewan, Alberta, Northwest Territories, and northwestern Ontario. A Board of Directors, with the President and Chief Executive Officer, governs the Corporation. Freshwater operates as a self‐supporting business receiving no government subsidies, with a complex supply chain of delivery points, agents, temperature‐controlled transport, processing and inventory management to match the fish harvest of approximately 2,100 commercial fishers with market demand. It purchases 17 million kgs of freshwater fish each year, which is packed whole or processed into fillets, minced and caviar products in the Winnipeg plant. The plant is federally‐inspected, kosher‐certified, and compliant with international standards for product safety and quality. Annual sales of more than $63 million go to important niche markets in the USA (60%), Canada (18%), Europe (20%), and other markets (2%). A ‘final payment’ from any year‐end surpluses is distributed to fishers annually subject to the Retained Earnings Policy.


Vision,MissionandGoals

VisionFreshwater Fish Marketing Corporation maximizes returns to the fishers of Western Canada through effective marketing, efficient supply chain management and the value‐added processing of quality freshwater fish products.

MissionFreshwater will provide the core activities of its legislated mandate which are to:

• Purchase all fish offered for sale • Create an orderly market • Promote international markets • Increase trade in fish • Maximize returns to commercial fishers

To do this, Freshwater will support the orderly management of the freshwater fishery through planned harvesting, processing and marketing strategies to maximize returns to commercial fishers.

Goals• To generate market value and leadership • To manage an effective and efficient supply chain • To assure continued stakeholder confidence • To maintain corporate viability and sustainability


StrategicInitiatives The Mission, Vision and Goals define the boundaries within which Freshwater Fish operates. Strategies set Freshwater’s focus and direction over the ten year strategic horizon and are determined by the need to manage risks and leverage opportunities to ensure a sustainable future for FFMC. Freshwater has identified seven key strategies to ensure its sustainability. A more detailed summary of strategies is presented in Appendix 7.

1. Ensure the long‐term financial viability of the Corporation Freshwater Fish will create or modify policy and put in place programs to reduce its short‐term debt, properly finance its long‐term capital expenditure program and operate on best practice principles. 2. Develop processing infrastructure to meet fishery and market needs Invest in infrastructure and develop systems to add value to products, reduce costs and meet current standards for food safety, security and quality. 3. Stakeholder knowledge and support Execute a two‐way communications strategy for each stakeholder group (fishers, government, employees) to maximize the fishery resource and increase returns to fishers. 4. Expand the business to create value and diversify to promote stability Create broader product lines and a more diverse set of key markets to reduce dependence on core species and markets. 5. Manage the Corporation within a market‐oriented business model Operate using species‐specific business plans and sound market assessments to drive investment and harvest management with the goal of increasing revenues. 6. Promote sustainable development and commercial viability of the fishery Work with fishing communities and government to improve opportunities and income for fishers. 7. Create an environment of total quality management Develop a culture of total quality management throughout the supply chain to meet customers’ needs effectively, efficiently and consistently.


Initiatives Use of corporate resources is guided by the seven strategies described in 3.5. The strategies drive eleven strategic initiatives. Initiatives are designed to put strategies in motion by creating a structure from which strategic projects can be generated. Initiatives are usually three to five years in length. The following chart shows how initiatives address strategies.

3.6.1.Strategy/InitiativeMatrix

STRATEGIES

1‐Financial viability

2‐Processing infrastructure

3‐Stakeholder know

ledge&support

4‐Expand & diversify

thebusiness

5‐Market‐oriented

businessmodel

6‐Fishery‐sustainable &viable

7‐Total quality managem

ent

I N I T I A V E S

1 Balance Sheet

2 Plant Renovation

3 Culture of Excellence

4 Lake‐to‐plate Quality Assurance

5 Supply Chain Management

6 Cost Management

7 Supply Development

8 Market & Product Development

9 Species Management

10 Stakeholder Communications

11 Governance


DescriptionofInitiatives 1. Balance sheet Freshwater Fish has a weak balance sheet with high levels of debt and minimal retained earnings. A revolving operating line has been used to finance all debt including capital debt. This initiative is designed to strengthen Freshwater’s balance sheet and adopt a short and long‐term debt structure. This must be balanced against the need to avoid further reducing prices to fishers, many of whom are already operating at marginal economic levels. 2. Plant redevelopment After 40 years of operation the plant and its equipment are nearing the end of their useful life. An estimated $35 million needs to be invested in a major renovation; of this $10 million has been spent and $2.4 million will be spent on the frozen graders and other projects in FY2011/12 to ensure business continuance. However, these investments are limited by both the capacity of the business to service additional debt and by the legislated borrowing limit and are not enough to reduce the risk of closure to acceptable levels or to provide the needed cost savings in operations. An additional $22.6 million would be needed to assure a fully compliant and efficient plant. This option will be discussed in Appendix 4. 3. Culture of excellence Missing skill sets have been resourced and performance development and pay‐at‐risk systems implemented. Now the organization needs to undergo a culture change that will see it focus on quality and excellence in all of its processes. 4. Lake to plate quality assurance Related to the Culture of Excellence initiative, there is an opportunity to increase value to fishers and customers by improving processes and work habits to provide a more consistent product with fewer errors in specifications, documentation and timing. 5. Supply chain management Until 2008 Freshwater had no formal supply chain management system. Since then a Supply Chain Manager has been hired and certain basic processes implemented. Going forward Freshwater will focus on streamlining logistics to reduce costs. 6. Cost management A number of systems, processes and reporting structures have been established to manage Freshwater’s costs. These include installing a Process Operating System, hiring a Cost Accountant and implementing standard costing systems. Yield management systems are the next priority but this step will require investment in systems and equipment; until this is possible data will be collected and analyzed on a regular basis.


7. Supply development Food processing is a low‐margin, capital intensive business that requires high volumes to achieve profitability; with this in mind, reversing the decline in deliveries and offsetting any lost supply sources is a priority. The focus will be on whitefish as the species with the most potential for growth both from a supply side and markets perspective. 8. Market and product development To grow volume and reduce risk while increasing prices over the long term the business must expand beyond its traditional markets and products. Freshwater Fish is investing where it has an opportunity to build new markets. 9. Species management Each of the major species is operated as a separate business unit and each must have its own business plan including a supply development plan and marketing plan. Species specific Profit and Loss statements are produced monthly. 10. Stakeholder communications Freshwater Fish has communications strategies for each of its stakeholder groups and a communications company has been retained to help implement each strategy. The goal is to improve the understanding of and support for Freshwater among its stakeholders. 11. Governance This initiative is designed to raise Freshwater’s governance to best practice levels over the plan period. In the near term, it will focus on finding solutions to governance issues addressed in the Auditor General’s Special Examination report and any shortfalls found in the annual financial audit.


OneYearActionPlan(FY2011/12) The Action Plan is separated into two parts: the first describes major projects to be undertaken through the year and the second is a chart of the Key Performance Indicators (KPIs) by department, along with a summary of how each department plans to achieve these targets.

CorporateProjects

Corporate projects are the vehicles that achieve progress against initiatives and therefore progress against strategies. It is at the project level that budgets, resources and outcomes are determined.

Corporate projects are often inter‐departmental or cross‐functional, and have an executive committee member as champion and a project leader. The executive committee champion updates the executive committee on progress, issues and resourcing requirements. The project leader looks after the day‐to‐day activities of the project and reports to the executive committee champion. All corporate projects have a project outline approved by the strategic planning team.

The following chart shows how corporate projects address initiatives. Each corporate project is described in detail in Section 4.1.2.


StrategicInitiatives/ProjectsMatrix INITIATIVES

1 2 3 4 5 6 7 8 9

10

11

Balance sheet

Plant renovation

Culture of excellence

Lake‐to‐plate quality assurance

Supply chain managem

ent

Cost managem

ent

Supply development

Market &

product development

Species managem

ent

Stakeholder communications

Governance

P R O J E C T S

1 Enterprise resource planning

2 Margin & contribution management

3 Yield management

4 Plant efficiency

5 Tunnel freezer replacement

6 Saskatchewan supply

7 Respectful workplace

8 Human resource policies & procedures

9 Governance development


KeyPerformanceIndicatorsandActionPlansbyDepartment Achievement of the Plan requires each department to operate within its expense budget and meet certain operational goals summarized in the Key Performance Indicators given below. Department Metric Performance Target Finance Working capital

management 1. 10% improvement in current ratio

Long term capital debt 2. Separated from operating line by Oct 31/11 IFRS conversion 3. First quarterly report Sept 30,2011

Annual report by Apr 30,2012 Sales and Marketing Gross sales revenue / net

sales revenue 4. $66.5M / $61.0M

Margins and contributions 5. Reduce write downs by $0.5M 6. Reduce negative margin SKUs in whitefish by 20%

New business 7. 1.0M lbs / $2.0M Processing

Yield improvement 8. 1% increase in pickerel equating to $325,000 improvement

Direct labour efficiency 9. 4% increase in direct labour efficiency totaling $125,000

Field Operations Delivery volume 10. Total deliveries of 15.8M kilograms Great Slave Lake whitefish deliveries

11. 480,000 kilograms

South Indian Lake 12. 54,000 kilograms Pike roe 13. 23,000 kilograms delivered Communication with fishers 14. 15 fisher meetings, 4 newsletters

Quality Assurance and Technical Services

Compliance – customers 15. Pass all customer audits Compliance – CFIA 16. No plant closures due to deficiencies Employee awareness – workmanship

17. Four training events to key personnel

Human Resources and Government Services

Days lost (WCB) 18. Reduce days lost by 2% ‐ from 696 to 682

Absenteeism management 19. Reduce average number of incidents per employee from 16 to 14.

Supply Chain

Outbound freight cost improvement

20. 5% reduction in total cost

Cold Storage cost reduction 21. $150,000 President’s Office Communication 22. Annual public meeting held December 2011

23. Five face‐to‐face meetings with DFO and provincial ministries at ADM level or above

24. Four quarterly reports to staff

Integrated risk management 25. Preliminary structure presented to the Board by Apr 30, 2012


5.CapitalBudget In developing the capital plan for the planning period, Freshwater has taken into account all aspects of the challenges of a 40 year old processing infrastructure and designed a capital plan that is affordable within its borrowing limits while meeting the commitment of paying down debt. Investments as per Schedule A below are made in categories such as maintenance or replacement of aging plant infrastructure and information technology. These investments will provide some operating efficiencies but mainly represent the minimal investment to remain compliant with food safety and security regulations. Schedule A

*$9,795,000 capital investment in FY2011/12 includes $4.87 million in capital expenditures previously approved in the 2010/11 capital spending plan. The capital budget for 2011/12 is $4.92 million. The accompanying schedule on page 37 provides a detailed breakdown by fiscal year and spending category. However, a risk does exist that capital expenditures will not be sufficient from FY2012/13‐2015/16 to maintain equipment and infrastructure nearing the end of their useful lives. Consequences are:

1. Maintenance ‐ aging equipment and infrastructure are expensive to maintain and are increasingly prone to break‐down during periods of heavy use/peak season;

2. Non‐compliance with food safety or security regulations ‐ CFIA and product delisting by key customers due to the inability to meet quality assurance standards; and,

3. Efficiency ‐ old technology and worn‐out equipment reduce efficiencies and yields, increasing costs. Therefore, Appendix 4 includes a scenario where greater capital investments are made and in which $16.5 million in existing long‐term debt is funded by other means and can be contributed in a way that does not increase the debt load of Freshwater Fish.

FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16

Total Plant 9,795,000$ 1,750,000$ 1,750,000$ 1,750,000$ 1,750,000$ Total Field Operations 250,000$ 250,000$ 250,000$ 250,000$

Total Capital Investment 9,795,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$


“MajorRenovationPlan($35M)”

Infrastructure Operations Compliance Improved Efficiency

Business Development

TRANSCONA PLANT

Ceiling FY10/11 43$ 43$ Roof Repairs FY 10/11 107$ 107$ Blast Freezer Storage Racks FY 10/11 38$ 38$ Doors FY 10/11 6$ 6$ Forklifts & Power Workers FY 10/11 74$ 74$ Tunnel Freezer FY 10/11 4,516$ 4,516$ Fish scaler FY 10/11 90$ 90$

Flooring 72$ 72$ Receiving Ceiling 200$ 200$ Electrical Upgrade 32$ 32$ Foot Foaming System Upgrade 51$ 51$ Pressure Vessel Upgrade 77$ 77$ Fire Prevention Alarm Upgrade 90$ 90$ Powerhouse land drainage 385$ 385$ Asbestos abatement 64$ 64$ Plant lighting 77$ 77$ Water Pipe Replacement 64$ 64$ Roof Repairs 107$ 107$ Forklift 49$ 49$ HR Office Furniture & Security 40$ 40$ Offal Pit 128$ 128$ Doors 103$ 103$ Dock Plates 64$ 64$ Strappers 77$ 77$ L-Tape Machine 10$ 10$ Baader Rebuild 193$ 193$ Polybag Sealer 77$ 77$ Perimeter Fencing Repair 64$ 64$ Parking Lot Asphalt Repairs 77$ 77$ Tote Dumpers 45$ 45$ Totes 124$ 124$ Dry Storage Racks 39$ 39$ Skinner 128$ 128$ Frozen Grader 1,541$ 1,541$

Office and Compute -$ Communication Pack 4$ 4$ Servers -$

Virtual Server -$ FPS Blade 7$ 7$ Exchange upgrade 9$ 9$ BI implementation 8$ 8$ Kronos Blade 7$ 7$

IT workstations 1$ 1$ Laptops 2$ 2$ Fortianalyzer 2$ 2$ Clocks 4$ 4$ Contingencies 1$ 1$ Plant Label printers 4$ 4$ Fax Machine 2$ 2$ Laser Printers Large 3$ 3$ Kronos Upgrade 17$ 17$ Paramount-Kronos interface 10$ 10$ Contingencies 1$ 1$

Transcona Plant Failure Contingency -$ Powerhouse - Engineering 278$ 278$ Plant - Maintenance 214$ 214$

TOTAL TRANSCONA PLANT 492$ 1,545$ 5,678$ 1,708$ -$ 9,423$ FIELD OPERATIONS -$ Poplar River Barge 197$ 197$ Riverton -$

Electric Pallet Jack 8$ 8$ Repair Riverton south wall 6$ 6$ Truck 30$ 30$

Berens River -$ Boat Repair 3$ 3$ Shower Room 8$ 8$ Sewer Line repair 5$ 5$

Selkirk -$ Tubs 30$ 30$ Gate 6$ 6$ Washer & Dryer 1$ 1$

Wabowden -$ Ice Flaker 34$ 34$ Repair lighting 9$ 9$

The Pas -$ Water Pump 11$ 11$

Hay River -$ Ice Bin 6$ 6$ Roof Repairs 7$ 7$ Tamiko Lee Ann 9$ 9$

Edmonton -$ Office Equipment 1$ 1$

-$ TOTAL FIELD OPERATIONS -$ 372$ -$ -$ -$ 372$

TOTAL CAPITAL BUDGET 492$ 1,916$ 5,678$ 1,708$ -$ 9,795$

TOTAL CAPITAL BUDGET $ BY CATEGORY 9,795$ TOTAL CAPITAL BUDGET % BY CATEGORY 100.00%

Major Renovations Replacement of worn-out equipment and infrastructure

FY 11-12:

82.56%

TOTAL Maintenance Payback

1,708$ 17.44%

8,087$

Carried over from FY 10-11:

Definitions • Maintenance: Capital investment required to replace or repair assets to assure business continuance

• Infrastructure: investments related to the physical plant environment

• Operations: investments related to the processing of fish

• Compliance: investments related to food safety or security regulations

• Payback: Capital investments that will provide a cost saving

• Improved Efficiency: investments with a financial return in material yield, operating and/or labour efficiency

• Business Development: investments with a financial return in product and market development


6.OperatingBudget Freshwater Fish is committed to running a high quality and effective organization by providing commercial and economic development, assuring food security and safety and encouraging and shaping markets for Canadian freshwater fish exports throughout the world. The attached projected financial statements reveal the fiscal realities of these commitments and the financial outcome of supporting the strategies discussed in this plan.

FishDeliveriesFreshwater has developed a comprehensive regional supply development plan that has been incorporated into the financial projections. The financial plan includes a detailed analysis by Freshwater’s field operations group of the effect of reduced Saskatchewan supply contingent upon that province’s withdrawal from the Freshwater Fish Marketing Act . Freshwater has plans in place to develop supply relationships with co‐operatives and agents in the event that Saskatchewan is no longer part of Freshwater’s mandate region. The financial projections assume that 50% of Saskatchewan volume will be delivered to Freshwater after April 1, 2012.

RevenuesFreshwater Fish’s revenues consider the growth expectations consistent with the objectives of the market and product development initiative along with the reduction of Saskatchewan delivery and sales volume. The impact of Saskatchewan withdrawing from the Freshwater Fish Marketing Act in April 2012 will result in a 5% reduction in sales revenue in FY2012/13 relative to FY2011/12.

ExpenseManagementFreshwater has a cost management initiative described within the plan that includes a mix of annual savings from operating and labour efficiencies, material yield and process improvements. These improvements have been incorporated into the financial statements.

PaymentstoFishers

InitialPaymentContinued global economic challenges and Freshwater’s commitment to encourage increased fishing assume no further decreases in initial prices to fishers. Annual targets identified in the projected income statements identify reduced initial payment ratios based on improved costs from operating efficiencies, market processes as forecast and CAD/USD rates stable at par.


FinalPaymentandRetainedEarningsFreshwater’s retained earnings policy was approved by the Board of Directors in February 2011. Effective in FY2011/12, final payment to fishers is based on available cash rather than a percentage of net income. The projected balance sheet demonstrates that retained earnings will be built up and cash will be available to fishers by FY2013/14, allowing Freshwater to invest in capital and pay down debt. When cash is available, a portion will be disbursed as final payments to fishers upon Board of Director approval.

DebtFreshwater’s borrowing authority is $50 million and currently is authorized at $39.5 million. The Corporation currently utilizes a revolving demand credit facility providing access to funds up to the amount of $39.5 million. The funds are advanced through loans, overdrafts, promissory notes and bankers’ acceptances. The bankers’ acceptances are renewed weekly and in FY2010/11 bore a weighted average interest rate of 0.97%. The U.S. dollar denominated promissory note is renewed for 3 or 6 month terms and bore a weighted average interest rate of 1.22% in FY2010/11. Freshwater recognizes that debt levels are excessive and has made significant progress in its initiative to strengthen its balance sheet. Freshwater’s total debt at the end of FY2010/11 was $23.6 million. Financial projections over the planning period demonstrate that debt will be restructured and paid down based on the following assumptions.

• Existing long‐term debt o $16.5 million, 20 year amortization, 2.77% interest

• New long‐term debt for capital investment

o $9.795 million for capital purchases in 2012, 20 year amortization, 2.77% interest o $2 million for capital purchases annually 2013‐2016, 20 year amortization, 2.77%, 2.99%,

3.20%, 3.39%, 3.55% interest rates respectively

• Working Capital Debt o $ 4 million LIBOR loan, 1.15% interest 2012, inflation adjusted 2013‐2016 o $ 3.1 million Banker’s Acceptance, 2.05% interest 2012, inflation adjusted 2013‐2016

The financial projections show total debt requirements as of the end of each fiscal year. Peak borrowing requirements affected by increased working capital during the year are reflected in the borrowing authority section below. Freshwater is negotiating with financial institutions and plans to have the revised debt structure in place by Oct 31, 2011.


BorrowingauthorityProjected peak borrowing requirements will be as follows: FY2011/12 FY2012/13 FY2013/14 FY2014/15 FY2015/16Borrowing Requirement (thousands) $39,500 $35,900 $38,500 $38,500 $38,900

AssumptionsUnderlyingFinancialsThe following are select high level assumptions used towards key areas of Freshwater Fish’s financial projections:

• Inflation of 2% annually; • Foreign currency exchange of $CAD/$USD at par; • Depreciation per accounting policy; and, • Selling and administration costs include efficiency gains and a reduction in field operations

expenses starting in FY2012/13 to reflect reduced services provided to Saskatchewan fishers.

RisksThe following are select high level risks that could impact key areas of Freshwater Fish’s financial projections:

• Continued global economic challenges could further strengthen CAD, reducing sales revenue; • Increasing interest rates; • Declining marketability of fish due to lack of eco‐certification; and, • The short‐term impact of the retained earnings policy, which projects no final returns to fishers

until FY2013/14, could cause fishers to withdraw from the fishery, providing Freshwater with less volume of fish, increased operating costs and potential deterioration of profitability and the freshwater fishery.


StatementofOperations,ComprehensiveIncomeandRetainedEarnings2012

FFMC Pro-Forma Financial Statements-

S2 - Quarterly fiscal 2012 income statements Quarterly Quarterly Quarterly QuarterlyFiscal 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Fiscal 2012

Actual Forecast Forecast Forecast Forecast ForecastStart Date 1-May-2010 1-May-2011 1-Aug-2011 1-Nov-2011 1-Feb-2012 1-May-2011End Date 30-Apr-2011 31-Jul-2011 31-Oct-2011 31-Jan-2012 30-Apr-2012 30-Apr-2012

Volume (kgs) 20,593,557 4,983,671 4,982,310 5,126,554 5,100,219 20,192,753 Net sales 62,486,597 15,026,000 14,863,000 16,308,000 14,840,373 61,037,373

Cost of SalesOpening inventory of finished fish products 15,015,000 9,195,000 10,111,134 11,114,060 11,766,796 plus:

Fish purchases (initial payment) 26,545,000 6,638,494 6,636,682 6,828,822 6,793,743 26,897,741 Direct labour 2,735,878 777,903 769,465 844,273 768,293 3,159,934 Agency operating costs 4,794,000 1,190,697 1,177,781 1,292,286 1,175,988 4,836,752 Other variable expenses 8,294,719 3,052,898 3,019,781 3,313,368 3,015,183 12,401,230 Processing material 1,311,000 352,120 348,300 382,163 347,770 1,430,353 Amortization 1,558,000 335,704 358,590 398,845 509,122 1,602,261 Outside processing 596,000 135,969 134,494 147,570 134,289 552,322 Other fixed expenses 3,171,000 1,186,030 1,173,164 1,287,221 1,171,378 4,817,794

less:Ending inventory of finished fish products (9,195,000) (10,111,134) (11,114,060) (11,766,796) (13,086,436) (13,086,436)

Cost of goods sold 54,825,597 12,753,682 12,615,332 13,841,811 12,596,127 51,806,951

Gross margin 7,661,000 2,272,318 2,247,668 2,466,189 2,244,246 9,230,422 % of net sales 12.26% 15.12% 15.12% 15.12% 15.12% 15.12%

ExpensesAdministrative (5,528,544) (1,472,582) (1,471,360) (1,512,910) (1,506,799) (5,963,650) Field operations (507,684) (126,117) (126,117) (129,895) (129,423) (511,552) Interest (399,682) (150,227) (160,581) (172,571) (203,512) (686,890) Other expense (income) 102,910 1,269 1,244 1,244 1,244 5,000

Total expenses (6,333,000) (1,747,656) (1,756,813) (1,814,133) (1,838,490) (7,157,092)

Earnings before final payment and income taxes 1,328,000 524,662 490,855 652,057 405,756 2,073,330

Final payment to fishers 1,195,000 - - - - - % of earnings before final payment and income taxes 90.0% 0.0% 0.0% 0.0% 0.0%

Net earnings 133,000 524,662 490,855 652,057 405,756 2,073,330

Retained earningsBeginning of year 2,908,000 3,041,000 3,565,662 4,056,517 4,708,573 3,041,000 Net earnings 133,000 524,662 490,855 652,057 405,756 2,073,330 End of year 3,041,000 3,565,662 4,056,517 4,708,573 5,114,330 5,114,330

Total payments to fishers 27,740,000 6,638,494 6,636,682 6,828,822 6,793,743 26,897,741 Total available funds 27,873,000 7,163,156 7,127,537 7,480,878 7,199,499 28,971,071 Payment % 99.52% 92.68% 93.11% 91.28% 94.36% 92.84%


BalanceSheet2012


S3 - Quarterly fiscal 2012 balance sheets Quarterly Quarterly Quarterly QuarterlyFiscal 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012

Actual Forecast Forecast Forecast ForecastStart Date 1-May-2010 1-May-2011 1-Aug-2011 1-Nov-2011 1-Feb-2012End Date 30-Apr-2011 31-Jul-2011 31-Oct-2011 31-Jan-2012 30-Apr-2012

AssetsCurrent assets

Cash 6,000 - - - - Accounts receivable 6,997,000 7,513,000 7,431,500 8,154,000 7,629,672 Inventory

Finished fish products 9,195,000 10,111,134 11,114,060 11,766,796 13,086,436 Parts 845,000 845,000 845,000 845,000 845,000

Prepaid expenses 752,000 469,493 464,400 509,550 476,784 Total current assets 17,795,000 18,938,628 19,854,960 21,275,346 22,037,892

Non-current assetsCapital assets, net 13,725,000 14,717,504 16,084,120 17,669,485 21,917,288 Intangible assets 61,000 61,000 61,000 61,000 61,000

Total non-current assets 13,786,000 14,778,504 16,145,120 17,730,485 21,978,288

Total assets 31,581,000 33,717,132 36,000,080 39,005,830 44,016,180

LiabilitiesCurrent liabilities

Bank indebtedness - 1,250,503 1,607,933 1,839,071 2,311,441 Accounts payable and accrued liabilities 3,517,000 4,209,611 4,163,486 4,571,053 4,275,033 Provision for final payment to fishers 1,195,000 - - - - Operating line (LIBOR) 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 Operating line (BAs) 3,086,000 3,086,000 3,086,000 3,086,000 3,086,000 Current portion of long-term debt 825,000 891,410 977,671 1,076,881 1,314,727

Total current liabilities 12,623,000 13,437,525 13,835,090 14,573,005 14,987,201

Non-current liabilitiesLong-term debt 15,675,000 16,713,945 18,108,473 19,724,252 23,914,649 Accrued obligation for WCB 242,000 - - - -

Total non-current liabilities 15,917,000 16,713,945 18,108,473 19,724,252 23,914,649

Total liabilities 28,540,000 30,151,470 31,943,563 34,297,257 38,901,850

Shareholder equityCapital - - - - - Retained earnings 3,041,000 3,565,662 4,056,517 4,708,573 5,114,330

Total shareholder equity 3,041,000 3,565,662 4,056,517 4,708,573 5,114,330

Total liabilities and shareholder equity 31,581,000 33,717,132 36,000,080 39,005,830 44,016,180

Total borrowing requirements 39,500,000 39,500,000 39,500,000 39,500,000

FFMC*Not

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Plan SummaryBoard and the

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BalanceSheet2012‐2016


S9 - Annual balance sheets Annual Annual Annual Annual Annual AnnualFiscal 2011 Fiscal 2012 Fiscal 2013 Fiscal 2014 Fiscal 2015 Fiscal 2016

Actual Forecast Forecast Forecast Forecast ForecastStart Date 1-May-2010 1-May-2011 1-May-2012 1-May-2013 1-May-2014 1-May-2015End Date 30-Apr-2011 30-Apr-2012 30-Apr-2013 30-Apr-2014 30-Apr-2015 30-Apr-2016

AssetsCurrent assets

Cash 6,000 - - - 1,314,765 3,358,847 Accounts receivable 6,997,000 7,629,672 7,248,188 7,475,781 7,715,006 7,930,178 Inventory

Finished fish products 9,195,000 13,086,436 15,214,524 16,363,650 17,360,025 18,279,983 Parts 845,000 845,000 845,000 845,000 845,000 845,000

Prepaid expenses 752,000 476,784 444,064 452,945 462,004 471,244 Total current assets 17,795,000 22,037,892 23,751,776 25,137,376 27,696,801 30,885,252

Non-current assetsCapital assets, net 13,725,000 21,917,288 21,734,593 21,519,791 21,274,489 21,000,106 Intangible assets 61,000 61,000 61,000 61,000 61,000 61,000

Total non-current assets 13,786,000 21,978,288 21,795,593 21,580,791 21,335,489 21,061,106

Total assets 31,581,000 44,016,180 45,547,368 46,718,167 49,032,289 51,946,357

LiabilitiesCurrent liabilities

Bank indebtedness - 2,311,441 1,697,192 378,269 - - Accounts payable and accrued liabilities 3,517,000 4,275,033 4,083,427 4,217,337 4,342,861 4,449,867 Provision for final payment to fishers 1,195,000 - - - - - Operating line (LIBOR) 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 Operating line (BAs) 3,086,000 3,086,000 3,086,000 3,086,000 3,086,000 3,086,000 Current portion of long-term debt 825,000 1,314,727 1,414,727 1,514,727 1,614,727 1,714,727

Total current liabilities 12,623,000 14,987,201 14,281,346 13,196,333 13,043,588 13,250,595

Non-current liabilitiesLong-term debt 15,675,000 23,914,649 24,399,922 24,785,194 25,070,467 25,255,739 Accrued obligation for WCB 242,000 - - - - -

Total non-current liabilities 15,917,000 23,914,649 24,399,922 24,785,194 25,070,467 25,255,739

Total liabilities 28,540,000 38,901,850 38,681,268 37,981,527 38,114,055 38,506,334

Shareholder equityCapital - - - - - - Retained earnings 3,041,000 5,114,330 6,866,100 8,736,640 10,918,235 13,440,023

Total shareholder equity 3,041,000 5,114,330 6,866,100 8,736,640 10,918,235 13,440,023

Total liabilities and shareholder equity 31,581,000 44,016,180 45,547,368 46,718,167 49,032,289 51,946,357

Total borrowing requirements 39,500,000 39,466,946 38,515,972 38,523,962 38,849,382

FFMC*Not

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2012‐2016

‐ FY2015/16n‐Council have

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d Two only.

five year corporate plan summary - fresh water fish market

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