BUSINESS WATCH

Losing one’s innocence at the bank

Phil Nuytten goes to work in a sweatshirt and baggy denims, smokes cheap cigarillos and sports the last brush cut in captivity

Peter C. Newman,NORA UNDERWOOD May 14 1990
BUSINESS WATCH

Losing one’s innocence at the bank

Phil Nuytten goes to work in a sweatshirt and baggy denims, smokes cheap cigarillos and sports the last brush cut in captivity

Peter C. Newman,NORA UNDERWOOD May 14 1990

Losing one’s innocence at the bank

BUSINESS WATCH

PETER C. NEWMAN

Phil Nuytten goes to work in a sweatshirt and baggy denims, smokes cheap cigarillos and sports the last brush cut in captivity

Although the Big Six banks still deny it, for more than a year now they seem to have been withdrawing more and more of their credit funds and facilities from what they still regard as Canada’s “Wild West”—which to them means anywhere on the Pacific side of Toronto’s Humber River—or, for that matter, east of Toronto as well. Not only have credit limits been drastically cut, but autonomous loans officers have been replaced by foreclosure artists, dedicated to the notion that it’s a lot less trouble to service one $ 10-million payout to some Bay Street hotshot than ride herd on 10 $l-million loans to Western entrepreneurs— even when the risk level is minimal. Take the case of North Vancouver’s 48-year-old Phil Nuytten, this country’s most innovative and successful commercial diver.

Much too relaxed and mischievous to fit any corporate mould, he goes to work in a sweatshirt, baggy denims and loafers, smokes cheap plastic-tipped cigarillos and sports the last brush cut in captivity. He spends his spare time carving wood and has achieved such renown that he is one of the few white men regularly admitted to the potlatches of the Kwakiutl Indians. Nuytten has been obsessed with the underwater world since he was making his own scuba gear and skipping high-school classes to explore Stanley Park’s offshore wonders. He eventually quit school to run his own skindiving supply shop and in 1966 formed CanDive Services Ltd., which over the next two decades grew into the Canadian industry’s largest underwater-skills company, at times employing up to 145 professional divers.

His enterprise was so successful that it became one of the cornerstones of a multinational diving conglomerate, Oceaneering International of Houston, with annual revenues of $130 million. Because he wanted to regain independence, he borrowed $4.5 million and repatriated his company to Vancouver in the mid-1980s. Can-Dive has since averaged annual sales of about $10 million, with healthy, if not

spectacular, profit margins. As well as pioneering exploration diving in the Beaufort Sea oilfields, Nuytten invented the Newtsuit—a diving system for deep-water diving. A lightweight garment that allows its wearers to plunge 1,000 feet in five minutes, work all day, then return to the surface without spending hours inside a decompression chamber, it gives divers unprecedented internal mobility: they can even scratch their noses.

International Hard Suits Inc., the Can-Divesubsidiary that manufactures the gear, currently has 24 orders at $300,000 per unit, worth at least $1.2 million in net profit. The company also holds patents worth several million. Nuytten’s companies have turned in healthy profits in all but two of the past 23 years, and that gap was caused by Dome Petroleum’s financial troubles and the resulting cutback in exploration and drilling in the Beaufort Sea.

But a year ago, with no warning, the Bank of Montreal almost put Nuytten out of business. Although he had repaid all but $1.2 million of an original term debt and the bank was holding at least several times that much in various collaterals, the local loans officer informed the CanDive owner that it was about to foreclose. “The

bank,” Nuytten recalls, “demonstrated an amazing degree of inflexibility. Our profit outlook is the best in years, and the fact that their precipitous action would cause Can-Dive to cease operation didn’t seem to bother them one bit. One of their officials confided to us that the main reason was that they preferred to place their money in high-growth, no-risk areas of Central Canada.”

Advised by Vancouver lawyer Fred Shandro, who specializes in such bank litigation cases, Nuytten told the Montreal he would sue if they shut him down. He then negotiated a $l-million loan guarantee from the B.C. government, though it was contingent on getting a regular commercial loan from another bank. Despite the fact that the combination of the provincial guarantee plus the undisputed worth of CanDive’s $5 million in assets removed any risk— and the fact that Can-Dive had exceeded its profit projections—all the banks dug in. “It was very obvious in our search for refinancing that the fact the Montreal was letting us go effectively precluded us from finding funds elsewhere,” Nuytten remembers with considerable bitterness. “The obvious question came up again and again—if your business is as good as it looks, why is the B of M not willing to extend their facility? The unspoken portion of the comment was, ‘It’s easier to say no to you right off than try to figure out what the Montreal knows about you that we don’t.’ The fact there was nothing to know other than what our statements indicated never got a chance to be shown. I kept saying that it was like somebody accusing you of child molestation, and when you’re called into court, they say, ‘Well, you must be guilty or you wouldn’t be in court.’

“We’d present our case to some banker who’d be jumping up and down wanting to be part of this whole thing, because he could see nothing but fees and interest coming his way. Then as soon as he found out the Montreal was handling our business in their ‘special accounts’ section, he wouldn’t have anything more to do with us. Just because one bank, acting on a capricious whim, decides they don’t want to carry you anymore, it becomes almost impossible to get financing anywhere else. Under the present system, the banks have a licence to kill, carte blanche, to wipe out your business at will.”

Nuytten eventually got his loan from two Toronto-based pension-plan venture capital funds, Commercial Capital Corp. and Canadian Corporate Funding Ltd., which are charging him a rate higher than a commercial bank would charge, but at least it’s a straight business deal with no unwarranted foreclosure possible as long as he keeps up his payments. But the process has been so demoralizing that Nuytten is now negotiating with a series of international firms to sell a substantial part of his shares in Can-Dive, proceeds from which will be used to retire all debt. “I’ve gotten old over this thing,” he laments. “I’m so pissed off at the banks for taking my innocence away, which may be a silly thing for a businessman to say, but I mean it.

“I feel as if these crazy bankers,” he says, “have cost me 10 years of my life.”

packaging practices to help industries and consumers. Half the diversion will have to result from reduction and reuse of packaging, the rest through recycling. Initially, the reduction guidelines will be voluntary. But if the first reduction target, 20 per cent by Dec. 31,1992, is not met, the federal government plans to introduce legislation to enforce the guidelines. Lotzkar says that although there are still many details to be worked out, including precisely how the targets can be achieved, she is confident that the long-term goal can be met. “I think it’s realistic,” she said. “It’s absolutely doable.”

Already, some companies have taken steps to reduce packaging. Since September, Toronto-based Procter & Gamble Inc. has marketed six of its products, including Tide, Mr. Clean, Ivory and Downy, in one-litre plastic containers

called Enviro-Paks. The theory behind the containers is that rigid plastic detergent bottles can be refilled rather than thrown out. The pouches use between 70 and 85 per cent less plastic than the bottles and could eliminate more than five million plastic bottles—about 300 tons of material that goes to landfills every year. Spokesman Barry Pipes says that the company expects to convert about 20 per cent of consumers to Enviro-Paks in the first year. Added Pipes: “It will take a while to get the public to come around.”

Other companies’ packaging reductions have proven to be cost-effective. In February, the Canadian Recording Industry Association announced plans to eliminate the clear plastic blister packs and long cardboard boxes in which compact discs are sold. The industry began the phase-out last month and it will continue until September. Explained association president Brian Robertson: “The blister pack was just an obscene piece of plastic that served no useful purpose other than to cater to the retailer.”

Stanley Kulin, president of WEA Music of Canada Ltd., says that he was surprised to receive complaints about the packaging. One man, he recalled, even mailed him a stack of the six-by-12-inch packages, saying that he was returning waste material. “In all my 36 years in the business, I’ve never before received complaints about packaging,” said Kulin. “But, with CDs, consumers are recognizing excessive packaging.” As a result, he added, WEA, for one, can cut the cost of the discs to the retailers by 75 cents.

But the Packaging Association’s Robinson acknowledges that, although the industry has to respond to environmental concerns, the 50per-cent goal is ambitious. Declared Robinson: “It’s politically motivated and probably not based on scientific fact.” There may be other problems, as well, said Larry Dworkin, public

affairs consultant to the association. For one thing, the industry may become less competitive with U.S. packagers who are not bound to make a similar diversion and whose operating costs are already lower.

In addition, federal regulations govern what information must be attached to products and what the print size has to be. Dworkin says that a bottle of contact cement, for one, will have to carry directions for use, warning labels and first-aid instructions in both English and French. He added that, because that cannot all fit on the bottle, manufacturers have to wrap the bottle in surrounding material. “The demand for packaging materials will continue to increase,” said Dworkin. “The biggest question is, who’s going to supply it? American or Canadian companies?”

The changes may also hurt the $12-billion-ayear packaging industry, which currently employs about 60,000 people. Dworkin says that without federal or provincial aid to help packaging companies develop new materials, the

guidelines will be difficult to follow. For his part, David Hay, a senior official in waste management at Environment Canada and chairman of the task force, said that there are currently no plans for any kind of funding because it is uncertain how much of an impact the policies will actually have. But they could have an effect on packaging-industry employment levels, Dworkin said. “We should anticipate some job dislocation,” he added. “How much, I don’t know.”

But industry officials and environmentalists say that consumers are going to have to change their buying habits if the target is going to be met. Pierre Dubois, a vice-president and general manager of Montreal-based Twinpak Inc., a leading Canadian manufacturer of plastic containers, says that he does not argue with the basic premise of the task force guidelines, but adds that a great deal depends on the consumer. “Everybody says they’re willing to do this, that and the other thing,” said Dubois. “But, when it comes right down to it, they’ll still go for convenience, which creates a continued demand for packaging.” For that reason, the task force’s recommendations include plans for a public education campaign. Said Abraham Finkelstein, a senior official of waste management at Environment Canada and a member of the task force: “We’re going to have to rethink our purchasing habits.”

But there is already considerable evidence of change. Indeed, major dairy producers in British Columbia are planning to reintroduce milk in glass bottles. Thomas Low, spokesman for Dairyland Foods, says that the Burnaby, B.C.based company, the largest dairy producer in the province, will have one-litre returnable glass bottles on the market by summer. Low acknowledges that glass is not perfect packaging material because it can break, is more difficult for dairies to transport and could be inconvenient for consumers. In addition, the dairies will have to put the bottles through a rigorous cleaning process, which will consume energy and large quantities of water—all of which will cause higher prices. But, Low added, “The public is going to have to realize that there’s a price tag with everything.”

Still, polls indicate that Canadians are prepared to pay more for environmentally sound products. A1989 survey by the Toronto-based Grocery Products Manufacturers of Canada, which represents 150 food and beverage makers, indicated that as many as 80 per cent of consumers would be willing to spend more on environmentally safer groceries. Janine Ferretti, executive director of Toronto-based Pollution Probe, says that she thinks the key to package reduction’s success is convenience. “We’ve got to look at a marriage between what’s practical and what makes environmental sense,” she said. “People will return reusable containers if there’s a convenient way to do it.” That is clearly the creative challenge to which the packaging industry and the federal government must now rise.

NORA UNDERWOOD with DAVID TODD in Toronto

DAVID TODD