NG, Rod was on record recently lamenting that they revenue in NZD, it's their Treasury policy or something like that.
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Apologies in advance if I am wrong, but wasn't rod talking about the cash they hold (from the various cash raises)? They hold in NZD which is a bugger cause they spend a huge chunk of it in the US, so would have been way better off holding it in USD (if they could).
Yep, most americans are unaware that there are currencies other than the USD:D
Xero will definitely invoice USA customers in USD, Ozzies in AUD, and Kiwi's in NZD, etc etc. But, they account in NZD and as any prudent company would do, they will have a Treasury hedge policy to adhere to.
Rod would have been lamenting the fact their hedging policy has caused them to hedge their (net) revenues back into NZD........too early:(
Sorry, by hedge, I mean repatriating the physical via spot market. In my experience, there aren't too many exporters who use options as their primary tool for currency management, usually because of poor working capital buffers, which are mostly only available in the local currency. Might be different for Xero, as they have plenty of cash, but anyway I was merely proffering a possible reason for Rod to be so glum. If they were totally unhedged, he'd be doing side-drifts around the Havelock North round-about
More likely to use forward exchange contracts, not options. In which case, might have locked in a fixed rate months into the future. I've seen policies along the lines of 100% cover for 6m revenue, 50% for 1 year, 25% for 18 months.
Alternatively, they could operate a cash sweep, whereby all forex is swept into a NZD account overnight.
Oops, selective memory. Here's the actual quotes ...
"Drury told BusinessDesk that the drop in the New Zealand dollar was not a major factor in the $200 million turnover forecast because the company earned revenue in a variety of currencies, with $74.2 million of the company's annualised committed monthly revenue of $159.3 million generated in Australia and $39.5 million in New Zealand. That compares with North American monthly revenues of $12.5 million. The UK market, where the company is also making a concerted push, accounts for $25.9 million a month on current customer numbers.
"I wish we'd kept all the money we raised in US dollars, but that wasn't our treasury policy," he said, reflecting on a 25 percent fall in the New Zealand dollar exchange rate against the US dollar in the last year, during which the company raised a total of $147.2 million from two US private equity investment funds."
And the whole article http://www.nbr.co.nz/article/xero-do...drury-b-175942
Re Baa's post : Aah yeah, well thats sort of what I thought had happened - not just his monthly revenues, but that lump of capital too.
NG, optionality carries a monetary cost, so not all wish to pay up front for the privilege of leaving some potential out there. When risk is coming at you every minute of the day, most prefer to cover and move on. Boards like that approach too.
Are they forex experts or are they beautiful accounting software experts?
In hindsight it probably would have been a smart move to keep the USD that was earmarked for spending in the US as USD. Hindsight is a wonderful thing.
In the long run it really doesn't matter as long as they pull off the plan.
In 10 years from now there will probably be a shiny page in the annual report which shows a 1c USD/NZD movement will equate to +/- $1 million earnings.
DISC do not hold
Isn't the fact that haven't kept a pool of funds in USD just poor management.
Its no excuse blaming treasury policy! Who implements & signs of on policy? The management team and board!
If they were going be spending USDs, they should have set aside USDs as otherwise they have created an FX exposure.
If it had gone against them so be it. However it was quite apparent the NZD was going to weaken, but that's even really besides the point.
I suppose one day in infinitum when they start making USD profits it will be the opposite problem.
By that stage the NZD will no doubt be strong again, after a quick trip to 50c.