Situation
A Hong Kong-headquartered industrial group invoicing predominantly in USD, occasionally in EUR, with a recurring high EUR cost base linked to its European operations and supplier base. It was buying EUR on the spot market to cover those purchases, then selling back into USD the EUR received from its clients a few months later — more than EUR 3 million converted every year, in both directions, on the same underlying flow.
Industry
Precision manufacturing — plastic injection and metal component production, serving automotive, medical and industrial OEMs, with facilities in Asia and in the EU
Company size
Mid-sized family-owned group — USD 15 million annual turnover — 8 staff
The group’s cash sat in USD; part of its cost base was in EUR. Each time a EUR payment came due, USD were converted at whatever the market offered that day. Months later, EUR receivables from European clients landed on the account with no immediate use — and were converted straight back into USD. The same flow, round-tripped: over EUR 3M a year passing through the market twice, two spreads paid, and twelve months of directional exposure nobody had deliberately taken.
More than EUR 3 million was being converted each year through a succession of one-off spot transactions, with conversion costs paid twice on the same underlying flows. EUR liquidity was only available when each conversion occurred, while incoming EUR receivables played no role in the treasury structure. The group therefore had no visibility over the EUR/USD rate applied to its annual European cost base.
EUR/USD rate on the full round trip fixed and known in advance
Double conversion spread removed on over EUR 3 million of annual volume
EUR receivables turned from an idle balance into the repayment source of the structure
