10 July 2019

PJ Valves: optimising working capital

New opportunities and global growth ambitions meant that PJ Valves needed a funding solution that would support its working capital requirements and allow it to grow in new markets. HSBC UK’s deep understanding of how the business operates, the Bank’s trade expertise and its close relationship with UK Export Finance is supporting PJ Valves in reaching its full potential.

Background

Family-owned PJ Valves has been manufacturing and supplying valves to energy projects around the world since 1976. Its position as one of the first specialist project valve companies supplying the oil and gas industry and its long-term perspective have made the company the natural partner of some of the leading businesses in on-shore and off-shore energy production.

Headquartered in the UK, PJ Valves began life focused largely on the UK market. The company developed particular experience and expertise in the North Sea industry as well as supplying international projects managed through London contractors. Over the years, the company has expanded its global reach, through factories in India and Europe and offices in the US and Singapore.

This expansion has provided PJ Valves with the scope to supply projects on a global scale and the company anticipates that 2019 will be a record year for sales to both domestic and global markets.

The challenge

The initial expansion of the business’ focus from the UK to more global markets required a step change in how PJ Valves operated. The terms of many of the contracts the company sought to tender required significant guarantees, as Richard Evans, Group Finance Director at PJ Valves, explains:

“Often it’s a stipulation of the contracts that you have to provide a guarantee, through the contract itself, and then to cover the warranty period afterwards. And they may be anywhere up to five year warranties, which can be a large commitment for a growing business.”

It’s not just financial security that the guarantee provides either. “The backing of HSBC UK provides PJ Valves with support from an international global brand which is recognised in all our key markets, giving us additional credibility with our customers and suppliers,” he continues.

In fact, as Richard points out, securing a guarantee line was crucial to the business’ plans. “Getting HSBC UK’s backing was instrumental in supporting the growth of the business. It gave the management and the directors the confidence to take on large contracts and make commitments to customers and to suppliers knowing that we have the financial backing to be able to do so.”

More recently, PJ Valves turned to HSBC UK to support its working capital requirements. “We have significant growth ambitions for the business, in 2019 and beyond, which we recognised could create pressure on our working capital,” says Richard.

“Having a facility to support our working capital gives us better options internally, and the flexibility to offer tailored solutions to our customers.”

The solutions

Initially working alongside UK Export Finance (UKEF) to provide a guarantee line that enabled PJ Valves to tender for and secure large overseas contracts, HSBC UK’s support for the business has evolved into an export loan facility. This works alongside the UKEF-backed guarantee package to support PJ Valves’ significant growth plans.

Export guarantee

“By working closely with UKEF, we were able to provide access to a large guarantee facility that supported PJ Valves in winning new business and implementing its growth strategy,” says Christine Barton, Business Development Director, Global Trade & Receivables Finance at HSBC UK. “As a result, today over 70% of the company’s revenues derive from export opportunities, compared with 20% in 2011.”

UKEF works with banks to facilitate access to export finance in the form of guarantees, insurance and loans that supports UK companies to trade overseas.

“The backing of HSBC UK and UKEF has allowed us to write significantly larger guarantees than we would as a standalone business, so their support has certainly been helpful,” says Richard. “It also gives us greater credibility. Customers see that we are backed by two recognised global brands and they have confidence that we are able to write good sized guarantees and that their project is secure.”

“Businesses like PJ Valves are natural partners for UKEF,” explains Craig Green, Export Finance Manager for Buckinghamshire and Hertfordshire. “We’re committed to working alongside banks such as HSBC UK to provide support that can help businesses pursue international growth. In the case of PJ Valves, our facility has helped support cash flow and provide the guarantee that overseas clients demand.”

As a result of the support provided by HSBC UK in collaboration with UKEF, PJ Valves received the Queen’s Award for Enterprise – International Trade in 2017, in recognition of its overseas growth and export strategy.

The backing of HSBC UK and UKEF has allowed us to write significantly larger guarantees than we would as a standalone business, so their support has certainly been helpful.

Richard Evans, Group Finance Director, PJ Vavles

Export loan facility

With significant global growth to date and more targeted in 2019, PJ Valves approached HSBC UK to support its working capital. “Our projects are typically structured on a milestone basis, which made securing a traditional invoice financing solution quite difficult, because we'd essentially be sending invoices to the customer in advance of any product being delivered,” explains Richard.

“We spent time with our Relationship Director, David Self, and Christine to help them understand the business and for them to come up with a tailored solution that's appropriate to us.”

“That understanding was important in helping us create a solution that worked and that would help PJ Valves achieve its growth ambitions,” says Christine. “Providing an export loan facility that gives PJ Valves a working capital line on a contract specific basis, was the ideal solution.”

Flexible terms allow PJ Valves to draw on the facility as and when it needs it and it also offers the ability to drawdown in a currency the company chooses. “That’s hugely important to me because we've got a global customer base and a global supply chain. And in some instances it's not possible to naturally hedge your purchasing against your selling debt. Taking export loans in the currency that I need them in is just one less problem to worry about,” says Richard, pointing out that the export loan facility “is exactly the solution that fits with how we do business.”

The process

Spanning over a decade, PJ Valves’ relationship with HSBC UK has been a key part of its growth story. “HSBC UK has been very supportive of the business through good times and less good times. The oil and gas industry has gone through some difficult periods, particularly in 2015/2016, and it's an industry that is very much working its way back. HSBC UK has stayed close to us through that time. They've been proactive in suggesting solutions and very supportive in terms of making our case when applying for facilities. The doubling of our guarantee facility and the export loan facility, that we’ve seen over the last six months, demonstrates that support.”

Having an assured guarantee line enables the business to tender and secure projects with confidence, and will be central to PJ Valves’ ambitious plans for 2019. “The support of HSBC UK, working with UKEF is going to be essential in helping us get to where we need to get to this year,” says Richard.

“For example, we took an order in January for US$5.7 million. That order’s been in the pipeline for quite a few months and, knowing it was coming, HSBC UK and I set about increasing the guarantee facility in anticipation. The facility was put in place in November. The order’s now come in and I can write the guarantee for it immediately because that facility's already in place.

“Their support and proactivity has got that in place in good time such that there's no stress on our side – we know it's there. The order comes in, we write the guarantee and the customer sees it as a seamless operation because all the work’s been done beforehand.”

Funding and support from HSBC UK, working alongside UKEF in the case of the guarantee and alone to provide the export loan facility, has helped PJ Valves grow significantly and establish itself as a global supplier.

“HSBC UK has helped us change and grow from a UK-focused business to a global business and now they're supporting us to take the next step of that journey through 2019 and beyond,” concludes Richard. “They've been proactive and up front about it so that we know facilities are in place when we need them.”

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