Clearwater Seafoods

CLEARWATER SEAFOODS

Founded in the year 1976 at Bedford, Nova Scotia, Clearwater was a local lobster distributor. Having businesses in harvesting, processing and selling a variety of shellfish and ground fish species, it was the largest publicly traded shellfish company in North America and also held the most offshore rights to harvest premium species in Atlantic Canada. The company owned 23 offshore harvesting vessels of which 11 were engaged in processing at sea and had seven shored-based processing plants in Atlantic Canada. Clearwater had its presence in 5 countries with four distribution hubs and 1600 employees. Their major customers were from the industry of retail chain, food distributors and corporate restaurants. Firms major competitors were FPI Limited of Canada, American Seafoods Group (ASG), Eastern Fisheries, Seatrade International and Garbo Lobster Company. Though the corporate strategies of the firms were by and large common, each firm held on to a particular skill and build it into a sustainable competitive advantage to ensure differentiation. Aquaculture and seafood substitutes were two major sources from which catch-based fisheries faced major competition. Hence, to ensure their competitive advantage, seafoods companies tried to sharpen their competitive advantage on tools like capital assets, research and biodiversity programs, technology, quality assurance and research management systems.

The case is about Wight [vice president (finance) and CFO] to make a decision on whether the company should revise its strategy and change the way they do business or leave the strategy as it is and focus on communicating its rationale better to investors. Clearwater Seafoods is exposed to foreign exchange risk as the currency in which the company earned was losing value relative to the currency in which the company incurred expenses. Also, the company had an active foreign exchange risk management program in place but the investor understanding about the program was limited and hence affecting the investor confidence because the distributions were suspended since October 2005 declining the unit value by 35 per cent. The analysis further will cover all the problem the company is facing, SWOT analysis, alternative course of action and recommendations on how it could be implemented.

The main problem faced by Clearwater was the upswing of the Canadian dollar relative to the other major currencies it deals with (U.S. dollar, Pound sterling, Euro and Japanese Yen). Though the appreciation was consistent since 2001, the situation worsened mid-2004. The declining in the value of currencies in 2005, the firm’s sales was affected and received Cdn$17.6 million (Cdn$8.4 million against U.S. dollar and Cdn$9.2 against other major currencies) less than it would have if there was no decline. Clearwater had an active foreign exchange management program (forward contracts and options) but the contracts did not fully hedge futures foreign currency revenues and hence could not completely offset for the recent currency fluctuations. About 50 per cent of the cash flows from forecasted sales were hedged using forward contracts. The company sold call options on some foreign currency denominated sales to receive some premium income while hedging cash flows at rates which were acceptable for the company. This is also one of the problem faced by Clearwater and hence was necessary to look upon the future foreign exchange management program.