National Sea Products Ltd.

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National Sea Products Ltd.

Battery Point
Lunenburg, Nova Scotia BOJ 2CO
Canada
(902) 634-8811
Fax: (902) 634-4577

Public Company
Founded: 1945
Employees: 1,600
Sales: C$245.61 million
Stock Exchanges: Toronto Montreal
SICs: 2091 Canned& Cured Fish& Seafoods; 2092 Fresh or
Frozen Prepared Fish

National Sea Products Ltd. is a leading Canadian harvester, procurer, processor, and marketer of fish and seafood. Up until the early 1990s the company had been Canada’s largest fish-processing company and one of the world’s largest fishing enterprises. Since that time, National Sea has restructured and shifted its focus to procurement and marketing. National Sea’s principal subsidiary is National Sea Products Inc., a manufacturer and distributor of retail frozen seafood products throughout the United States.

National Sea Products was formed in 1945. Its origins, though, can be traced back to 1899, when W. C. Smith& Company Limited was founded. That enterprise was established by fishermen in the village of Lunenburg on the coast of Nova Scotia. French Huguenots (Protestants, many of whom were persecuted and fled France) settled Lunenburg in the 1750s and eventually established a healthy fishing industry. W. ? Smith was formed as a salt fish operation. The business was successful, and in the 1920s the same group of shareholders decided to diversify into fresh fish and the burgeoning market for cold-stored fish. To that end, they formed Lunenburg Sea Products Limited in 1926.

In 1938, Lunenburg Sea Products and W. C. Smith& Company merged to form a single company. Then, in 1945, that organization merged with Maritime National Fish Company Limited of Halifax and some other companies. The resultant organization was dubbed National Sea Products Limited. It was officially amalgamated and recognized under the laws of Nova Scotia in 1967. During the 1950s, 1960s, and 1970s, National Sea expanded and became a powerhouse in the Canadian and North American fishing industries, offering everything from cod and shrimp to scallops and lobster. It amassed a sizable fleet of fishing vessels along the Canadian Atlantic coast and became recognized as the largest Canadian fish processing company and even one of the world’s largest fishing enterprises.

National Sea’s greatest growth occurred during the 1970s. The company’s owner at the time was H. B. Nickerson& Sons Ltd. Nickerson became convinced that National Sea would reap huge rewards when Canada declared a 200-mile coastal fishing zone in 1977. To take advantage of the enlarged zone, National Sea borrowed heavily and invested in new ships and processing facilities. When the declaration was made in 1977, National Sea boosted its fishing efforts and was able to increase volume sales substantially. Unfortunately, other companies boosted their hauls as well. The result was industry overcapacity. Fish prices collapsed, leaving National Sea and many other companies barely able to pay for operating costs. To make matters worse, interest rates shot up and National Sea staggered under its massive debt load.

By the early 1980s National Sea was teetering on the edge of bankruptcy. The situation had become so intolerable for the entire East Coast fishing industry, in fact, that the Canadian government decided to step in with a recovery plan. It took more than a year for the government to whip together a program to save the industry. By that time (1984) National Sea was gasping. It faced a staggering $250 million debt load and was sitting on $50 million to $60 million worth of warehoused fish that it couldn’t sell. With National Sea and other fishing companies in deep trouble, the national government decided to nationalize the industry and bring it under government control. National Sea management scrambled, tapping all of its political and business connections, and barely managed to save the company from a government takeover.

Keeping National Sea a private company initially seemed to have been a good move. Indeed, after a six-year string of depressing losses culminating in a $19 million 1984 deficit, National Sea posted a $10.1 million profit in 1985 on sales of about $450 million. The turnaround was largely attributable to recovering prices and lower interest rates, which allowed National Sea to refinance much of its debt. However, an aggressive reorganization initiative contributed to National Sea’s recovery. Although it had operated under various owners and leaders, National Sea had effectively functioned as a family-controlled company since its inception. In the early 1980s the company was being lead by David Hennigar, who was part of the Jodrey family. The Jodreys were among Nova Scotia’s wealthiest and most powerful families. They also owned a large portion of National Sea’s shares. Other big shareholders included the Sobey family and Bill Morrow, the grandson of one of National Sea’s founders.

After the stifling setbacks of the late 1970s and early 1980s, National Sea’s complexion began to change from that of a family-owned company to that of a public company. That shift was caused, in large part, by Gordon Cummings. Hennigar had hired Cummings in 1984, shortly after National Sea had launched a reorganization effort. Cummings, who had formerly been a senior partner at a management consulting firm, joined National Sea in 1984 and succeeded Hennigar as head of day-to-day operations. He was named president of the company in 1985. Cummings was brought in because of his complete understanding of fishing industry finances as well as his proven track record in business.

Cummings had dropped out of high school at the age of 16 and taken a job as a mail clerk. Realizing that his future was limited, the ambitious Cummings began taking courses in his spare time. He eventually attained a college degree and even a masters degree in business administration in 1969. By 1974 the 33-year-old Cummings had become a partner at Woods Gordon Inc., a management consulting firm. He also became involved in regional politics, which helped him when he joined the politically connected National Sea in 1984. For example, Cummings managed to persuade Ottawa to allow National Sea to operate a high-tech, deep-sea factory freezer trawler capable of processing and freezing fish at sea (the company had been turned down for a license four times in the previous eight years). The license was expected at the time to add $4 million annually to the company’s bottom line.

Cummings began a radical facelift of National Sea in 1984. Among his first moves was to sell off six of the company’s 21 small processing plants, mostly to local operators, who Cummings believed could operate more efficiently. He eliminated some workers and restructured management as part of an effort to reduce the company’s bloated bureaucracy. He moved the company’s U.S. marketing headquarters, for example, from Florida to New Hampshire and installed an aggressive new sales team there. Importantly, Cummings recognized the need to diversify the company, reducing its traditional emphasis on harvesting and branching out into more marketing-driven arenas. To that end, National Sea launched a drive to become a major player in the North American market for frozen consumer fish products, such as battered fish sticks.

Among Cummings’s most notable efforts was his bid to make National Sea a global company. Heading up that initiative was 30-year-old Henry E. Demone, who would later play a pivotal role at National Sea. Demone was a native of Lunenburg and a third-generation National Sea employee. In fact, both his father and grandfather had served as captains on the company’s ships, and Demone’s father, Earl, had served as the skipper of the most successful vessel in National Sea’s fleet. Henry himself had gone to sea at the age of 17, working one summer with the crew of a National Sea trawler. After finishing first in his high school class and then getting his college degree, Demone’s short career carried him around the world as a crew member on a German trawler and then as a sales manager in France for a Swedish food company.

In 1984 Demone was called back to help with the reorganization of National Sea. As vice-president of international marketing, Demone spearheaded National Sea’s drive into France, Hong Kong, Australia, Argentina, and other areas. The goal was to make National Sea a global player in the fish distribution business. In fact, Demone’s efforts, combined with other strategic moves engineered by Cummings, helped to rocket National Sea’s profits more than threefold in 1986 to about $36 million. At the time, Cummings was heralded as the savior of National Sea and even the “1acocca of Nova Scotia.” Unfortunately, National Sea’s good fortune evaporated as quickly as it had appeared. National Sea soon suffered a number of setbacks, including a decline in fish exports as a result of the appreciation of the Canadian dollar, a mussel scare, and a tuna-canning scandal.

During the late 1980s National Sea languished. Believing that his strategic course was generally correct, however, Cummings continued to expand internationally, invest, and diversify into new ventures. Going into 1987 National Sea was generating more than $450 million in annual sales, employing 8,000 workers, and supporting operations in all four Atlantic provinces and three U.S. states in addition to its growing overseas units. Unfortunately, a sharp reduction in Canadian fishing quotas thwarted National Sea’s recovery. Overfishing, among other factors, contributed to a serious decline in the amount of fish that National Sea was allowed to catch. The company’s stock price had rocketed to a record C$35 in 1987 from less than $5 a few years earlier. But then company began to suffer losses. By 1989 National Sea’s stock price had plummeted to a lowly $9.

In fact, by 1989 National Sea still faced mounting losses and heavy debt, just as it had during the industry turmoil of the early 1980s. Frustrated with Cummings’s long-term strategy for National Sea, Hennigar fired him as president in 1989 and brought in the 35-year-old Demone to lead the company. Demone steered National Sea on another radically different course during the early 1990s. Part of the new strategy was adopted out of necessity. Canadian offshore fishing quotas plummeted during the early 1990s and effectively squelched any opportunities available in National Sea’s traditional harvesting business. In fact, the national quota plunged from 316,000 metric tons in 1990 to a strikingly low 34,700 metric tons in 1995; National Sea’s quota crashed from 123,000 tons to just 14,400 tons.

As profits from harvesting businesses declined, Demone sought to increase profits from other segments while shoring up the company’s bleeding balance sheet. To that end, he initiated an aggressive cost-cutting program. He sold off several of the company’s ships and processing facilities and nearly halved National Sea’s workforce to just 4,200 by 1992. Ironically, he began dismantling the globalization program that he had overseen during the mid- and late 1980s. The international pullback represented Demone’s intent to refocus all of the company’s resources on North America. Specifically, Demone planned to intensify National Sea’s efforts in the consumer frozen foods market. Evidencing the shift was the fact that only 40 percent of National Sea’s fish products were harvested on company vessels, compared to about 80 percent in the mid-1980s.

As National Sea jettisoned assets during the early 1990s, its sales fell, from C$607 million in 1990 to C$351 million in 1992 to just $266 million in 1993. Furthermore, the company posted net losses every year from 1988 to 1993. In 1993, write-offs related to discontinued operations contributed to a whopping C$42.5 million deficit for the year. Meanwhile, Demone continued to sell off assets related to traditional harvesting businesses and to reduce the company’s workforce. In 1994, for instance, the company sold thirteen ships (including two deep sea freezer trawlers), its French subsidiary, and its shrimp processing plant in Florida.

With its restructuring and rationalization program substantially complete, National Sea posted its first positive net income in seven years in 1994. Going into 1995, the company was reduced to about 1,600 full-time employees, five processing plants, and 19 fishing vessels, only 13 of which were active. Its core business had changed from harvesting fish to marketing prepared, frozen, fresh, and packaged seafood. In fact, National Sea was the largest company in that Canadian industry in 1995. It marketed its foods under the High Liner and Sea Fresh trademarks in Canada, and under the Booth, Fisher Boy, and High Liner names in the United States. National Sea still exported products to France and Japan, but its short term market emphasis remained North America.