The Business Times: Going digital to improve efficiency and navigate FX risk

PERHAPS the best way to visualise the growth of home-grown specialist retailer Phoon Huat is to think of the mustard seed, which is often used in European cooking and baking. The seed is a mere 1 mm to 2 mm in diameter – but as a tree, it can rise up to 9 m in height.

The 75-year-old company started in Middle Road with one product – the RedMan Rose Flavoured Concentrate.

Today, the home-grown company’s 22 outlets – marked by its ubiquitous RedMan logo – strategically span the island.

When it started in 1947, its “headquarters” was a 35 sq m shophouse. Now, its main building sits on a 25,000 sq m site in Pandan Loop, and houses the group’s office, warehousing, and manufacturing and cold-chain facilities.

Besides specialising in the manufacturing and supply of quality baking ingredients, tools and services for food, consumer retail, artisan and industrial bakeries, the company has expanded its product range to include premium meats, seafood and gourmet fine foods.

Phoon Huat has over 15,000 products under its many brands.

Emre Olcer, Phoon Huat’s CEO, said that the company’s growth was always on an uptrend. Even during the Covid-19 pandemic, when its B2B business dropped, the slack was more than picked up by the B2C business, thanks to a wave of customers who were under lockdown and started baking and cooking at home.

In the early days of cash transactions, Phoon Huat relied on family members for “cash management” – everyone chipped in to count the day’s takings, and they were paid in coins.

But with revenues crossing US$100 million in June 2023, “cash management” now means more than just handling cash or Singapore dollars. It includes cashless cross-border transactions involving a plethora of overseas markets and foreign currencies.

Lee Tjen Chew, CFO of Phoon Huat, pointed out that for a long time, Phoon Huat’s FX management processes involved using paper-based documentation, faxes and phone calls, to get price quotes from FX dealers, who sometimes called back only half a day later with a quote.

“Over time, using human effort to track and manage our FX transaction risk became untenable. Today, Phoon Huat handles over 15,000 products, and we import and export in 50 markets, in 10 major currencies. We clearly needed a digital platform that gives us live at-a-glance information that we can use to make accurate business decisions,” he added.

According to HSBC’s report The road ahead: 2021 Corporate Risk Management Survey, Lee is not alone, with some 25 per cent of Asia CFOs surveyed saying that they were worried about FX risks, and another 51 per cent ranking “FX risk management” as among the top three treasury functions. Yet another 51 per cent said they planned to invest resources to mitigate “FX risk”.

In 2019, Phoon Huat turned to HSBC for help in managing one of its term loans that was caught in the industry transition from the Singapore Dollar Swap Offered Rate (SOR) to the Singapore Overnight Rate Average (Sora).

At that time, the financial services industry was transitioning away from Interbank Offered Rates (IBORs) such as Libor towards Risk-Free Rates (RFRs), which impacted the SOR as its computation was based on the US-dollar Libor.

Phoon Huat’s Lee said: “We were looking to refinance one of our term loans, and HSBC gave us a solution that was more comprehensive, beyond the term-loan issue, compared with what the other banks offered us.”

Besides helping to switch Phoon Huat’s term loan from SOR to Sora, the bank also helped the company to navigate the interest rate risks that came with the loan’s floating-rate liabilities, including providing various options for transition lending and derivatives.

In the process, Phoon Huat was introduced to the HSBC Evolve system, and the company has never looked back since.

The CFO said that the company’s FX requirements used to be simple.

“But with Evolve, we now handle more FX volume in a week, with the same number of staff. Our volume has increased, but in terms of staff structure, we have not changed. The same lean team now works faster and more efficiently,” said Lee.

But he pointed out that the real strategic benefit of Evolve is that it is a digital platform.

“The capabilities that we get from a digital platform such as Evolve go beyond just efficiency and speed that comes from going paperless... Digitalisation leads to better analysis. We can access the relevant data at any time. For example, we can see how much US currency we buy and how frequently, and we can analyse the trends and predict our FX needs more accurately. It is tough to do that using a paper-based approach.”

Joanna Lee, managing director, head (corporate sales), markets and securities services, HSBC Singapore, said that HSBC Evolve’s one-stop platform, as well as its streamlined and integrated processes, from pre-trade to post-trade, empowers clients such as Phoon Huat to manage their FX exposure independently.

“This self-serve feature is important, especially in times of market volatility when businesses have to make timely decisions regarding their FX exposure,” she added.

So, has the mustard seed of Phoon Huat achieved full growth? Not at all.

Phoon Huat’s Olcer said: “In the next three years, we plan to grow our overseas footprint both for the B2B and B2C businesses, especially in Asean. That means we will need to use Evolve more, as we will be exposed to more FX transactions.”

HSBC Evolve is an integrated FX management platform that provides clients with greater operational efficiency, with its single process for booking rates, confirming transactions, and submitting settlement instructions via a mix of standing settlement instructions and submitting details in telegraphic transfer and trade financing instructions online.

Joanna Lee, managing director and head of corporate sales, markets and securities services at HSBC Singapore, said: “With HSBC Evolve, clients such as Phoon Huat get a one-stop platform for managing their FX exposure, achieving greater operational efficiency, and reducing operational costs with Evolve’s streamlined and integrated process from pre- to post-trade.”

She added that the ability to self-serve across multiple geographies is also very valuable, especially during times of market volatility.

“The platform also gives the specialist retailer more governance and control, as its authorisation matrix is customised to Phoon Huat’s internal policies. HSBC Evolve, paired with our global network and in-country presence across the globe, plays an enabling role in our clients’ expansion within and outside of Singapore,” said Lee.

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