The disruptions of the Covid-19 pandemic have been replaced in 2022 by newer challenges – high inflation, rising interest rates and fears of a recession. For Polygroup, a manufacturer of artificial Christmas trees and above-ground swimming pools, this has meant constant adjustments to ensure the right products reach the market at the right time and at the right price.
Polygroup started manufacturing artificial Christmas trees in Thailand in 1989 and moved the production to China in 1997. The company has become the world’s leading producer of artificial Christmas trees, with more than 13,000 employees. Now, with plants in China and Mexico, it has adapted quickly to the challenges that began in 2020 with the onset of Covid-19.
Businesses never had to act on contingency plans before, but now we have to, so we rehearse and revise them constantly.Lewis Cheng, Chairman of Polygroup
“We don’t have control over everything, so we focus on what we do have control over,” said Lewis Cheng, Chairman of Polygroup. “We need to plan, conserve cash, and be nimble. Businesses never had to act on contingency plans before, but now we have to, so we rehearse and revise them constantly.”
More time, more money
The pandemic has impacted many businesses globally, including Polygroup. Movement restrictions in mainland China left it with a shortage of workers at its main facility in Guangdong Province, and the freeze in global supply chains disrupted the supply of key ingredients such as PVC resin, which was 100% imported. Polygroup has also had to make allowances for slower delivery times to key markets in the US and Europe.
These pressures added to the challenge of managing the company’s finances. Christmas trees take about 15 months to manufacture and deliver. During this time, the company is holding inventory for its customers, which ties up cash, and any change to shipping schedules affects the company’s working capital.
Timothy Lee, Head of Transaction Banking, Greater China, at BNP Paribas points out that this is where a strong relationship with the right bank can be beneficial. “Across the retail and manufacturing sectors, many of our clients have to manage the rising commodity prices and longer inventory holding period,” he said. “We work with them to provide the appropriate solutions to bridge their working capital needs and secure that buyer and seller relationship.”
With the deep relationship and understanding of Polygroup, BNP Paribas was able to swiftly respond to these new risks and requirements. In view of the extended cash conversion cycle, the bank provided longer-tenor loans to enable the purchase of raw materials upfront.
As the company pays suppliers in local currency but receive payment from customers in US dollars, the bank also supports Polygroup’s portfolio of natural hedge, which is critical to limiting foreign exchange exposure, and maintaining cost.
The Covid-19 experience prompted companies, banks and regulators to consider new solutions. For example, Hong Kong introduced a Pre-approved Principal Payment Holiday Scheme for eligible corporates in April 2020, which extended repayment terms by 90 days. “We took action under the scheme for some eligible clients,” said Cherrie Siu, Head of Trade for Hong Kong at BNP Paribas. “We initiated dialogues to better understand their sales orders, new payment terms and shipment schedules so we can identify the best approach to support the clients’ working capital needs.”
We initiated dialogues to better understand Polygroup’s sales orders, new payment terms and shipment schedules so we can identify the best approach to support the clients’ working capital needs.Cherrie Siu, Head of Trade for Hong Kong, BNP Paribas
As well as securing supply lines and financing arrangements, Polygroup is also introducing more sustainable practices into its business. Its sustainability initiatives date back to 2001 and include extensive ‘reduce, reuse and recycle’ programmes across the manufacturing process, as well as researching new machinery and materials to cut greenhouse gas emissions.
Sustainability is also a core part of the BNP Paribas relationship. “Clients want a deeper and more differentiated relationship with their banks,” said Lee. “We work with them to develop specific sustainability KPIs for their business model. It’s not just a thing we pitch – it’s a key focus.”
China plus one
Polygroup has one advantage when it comes to supplying markets in North America: 12 years ago it embarked on a ‘China plus one’ strategy by opening a facility in Ciudad Juarez, Mexico, which now accounts for about 4% of the company’s output.
“We’re able to ship some of the goods that are manufactured in Mexico by trucking across the border rather than having to depend on ocean freight,” explained Cheng. “Not only has that helped with supply chain problems, but we’re not subject to some of the tariffs that are in place today.”
Looking ahead, Cheng does not rule out a ‘China plus two’ strategy to ensure Polygroup continues to serve its key markets. He remains optimistic about the company’s prospects.
“The world needs Christmas trees and swimming pools and we want to be the manufacturer of those,” he said. “We are looking for options every year, communicating with external partners and evaluating vertical integration options.”
Listening is key. Having deep understanding of Polygroup’s business model and working capital needs allows us to provide the right information and solutions to help them navigate through these unexpected challenges.Timothy Lee, Head of Transaction Banking, Greater China, BNP Paribas
The volatile environment in recent years has prompted many companies to rethink their business resilience and supply chain strategy. “Listening is key,” as Lee summarised the long-term partnership between BNP Paribas and Polygroup. “Having deep understanding of Polygroup’s business model and working capital needs allows us to provide the right information and solutions to help them navigate through these unexpected challenges.”
This is the second episode of BNP Paribas’ “Thinking Treasurer” interview series, produced in partnership with The Asset.
Watch the full video here.