Sense and sensibility

Business journalists can indeed be privileged, since most of the time, they get to be a real "fly on the wall" and be a witness to some of the country’s most interesting corporate stories, and boardroom dramas.

The most recent one, and still developing, has to do with the Philippines’ second-largest shipping company, Negros Navigation Co. (Nenaco).

Nenaco is an institution – it has been around for nearly 75 years – and it has been for most of that time the only real carrier of choice for passengers and cargo shippers between the ports of Manila, Bacolod, Iloilo and other cities in the Visayas. Like many companies, it too has gone through its share of ups and downs, and has lived more than nine lives. Its most recent life has taken place under the majority ownership of conglomerate Metro Pacific Corp.

Metro Pacific purchased a controlling stake in Nenaco in 1998, and had been realizing a poor return on its investment. That is, until about 18 months ago, when Metro Pacific introduced a new management team into Nenaco, comprised of former First Pacific and Metro Pacific executives with long experience in financial and corporate restructurings. The team, headed by Nenaco president Conrado Carballo and special advisor Seumas Gallagher, were given free reign to turn the company around, with one caveat: They had to accomplish their turnaround without any cash support from Metro Pacific, and they were given only a year to begin producing substantial results.

Much to everyone’s surprise, most importantly Metro Pacific itself, the tandem began to produce those much-needed results. Nenaco staff was cut by more than half, underscoring how bloated the company had become. More than a dozen non-core businesses, including a piggery (what was a shipping company doing owning a piggery!) were sold off, and the company was retooled and reorganized to focus on one core business: Transporting passengers.

And lo and behold! Beginning last year, Nenaco began to post profits. Modest profits sure – P67 million for the first nine months of 2002 – but a dramatic and positive turnaround from the previous five years of consecutive (and growing) losses. Cargo business was improving, and Nenaco’s passenger business showed profitable growth during the traditionally slow third quarter of last year, when nearly all shipping companies (including Nenaco’s larger competitor) post losses.

According to Metro Pacific vice-president for corporate communications David Nugent, Nenaco even intends to report its full year profit – in excess of P100 million – for 2002 when it posts its results later this month.

Sounds like a success story all around, doesn’t it? And success stories are sorely needed at difficult times like this. However, in recent weeks, news of Nenaco’s achievements have been clouded by darker stories, with anonymous white papers accusing management of inflating Nenaco’s profits being circulated around. Other allegations have accused the foreign consultants on the management team of luxurious lifestyles, of Nenaco not paying its debts, of just about every crime under the sun.

And who are making these accusations? My sources, from both within and outside the company, tell me that it’s a loose group of former and perhaps still some existing employees, who had formerly operated side deals, making illegal money at the company’s expense until Nenaco instituted strict financial controls.

David explained Metro Pacific’s understanding of what was going on behind the black propoganda campaign to me. "It’s a typical, and unfortunately classic example case of how some people react to change. When we began implementing changes at Nenaco, we were threatening a culture of slackness and personal aggrandizement that had been building up for quite some time. There were scams being run within and outside the company, and the ones who were losing the most were our customers. Imagine – the company was adding debt after debt after debt – yet it wasn’t acquiring new ships, nor was its core business of passage and cargo shipping growing."

"We don’t believe we’re being yabang at all to say that in the past 18 months, our new management team and Nenaco has changed all of that. Nenaco’s terminal facility at Pier 2 is the cleanest and safest place to be in all of the North Harbor area now. Service standards across the fleet have been improved, and this is considerable, given the relative age of most of the ships, and the fact that we inherited a lot of defective equipment. And most importantly, to our creditors and shareholders, including Metro Pacific which had poured billions into Nenaco over the past five years, the company has started to post profits. It’s a solid story, and the numbers are real, supported by the auditors and the Independent Directors on the Board."

"What is unfortunate, is that there are those groups, angry at the changes that have been made, angry that the days of inside deals and sloppy business transactions are over. And they’re resorting to the lowest of low tactics – spreading rumors through text and through unsigned white papers – accusing the current management of every anomaly. We however, know the truth."

David confided that Nenaco still has a long way to go until it brings down all of its debts it had inherited from the past to a comfortable level. But he also pointed out some other real, tangible effects of the positive changes happening at Nenaco. In the past two months, Nenaco management has been invited by a number of European investment banks to present Nenaco’s financials and 2003 and 2004 business strategy. And recently, Nenaco and Metro Pacific management got together for a day-long strategy session, where they firmed up plans for acquiring additional cargo vessels, and for bringing in new equity investors. He mentioned the name of one investment bank to me that Nenaco had recently met with, and it’s a name that I know, would never just listen to any company. Especially if there was any truth to the black progranda campaign behind conducted against Nenaco.

So here’s the crux. It wouldn’t make any sense at all for any investment bank to be interested in Nenaco if the rumors were true. In fact, David also told me that Metro Pacific launched its own internal investigation, led by Nenaco’s independent board directors, to see if any anomaly was committed by current management. The investigation revealed that there was no anomaly whatsoever.

It’s a sorry comment on Philippine business when even a positive story can get beaten-up by those who only want to protect their vested interests. As for me, I look at it this way – we are one of the world’s largest island nations. It’s in our national interest to have profitable, successful shipping companies. And to every serious investor, creditor, business partner of Nenaco, they know that the Nenaco of today is a far cry from where it was just a couple of years ago. They also know that it’s still a work in progress, but most importantly, that the turnaround which the Philippines’ oldest national shipping company began only a year and a half ago is real, and is sustainable.

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