Down Under Enterprises is an Australian tea tree and essential oils supplier at the heart of what it means to be an Aussie exporter: harvesting world-class natural products from the land, and providing them to the rest of the world.
One half of Down Under's business revenue is comprised of tea tree oil sales, and the other half of their sales are of other essential oils - such as sandalwood, lemon myrtle and cypress. Winners of the NSW Premier’s export award for agri-business, their founder, Dee-Ann Prather, was also the winner of the NSW Premier’s award for women in international business.
Dee-Ann founded Down Under while living in the USA, where the business now has its own distribution facility. To date, this is the market in which Down Under has seen the majority of its growth. 86% of their revenue comes from the US. Currently, 92% of Down Under's total business is generated by exports from Australia, with the rest being from domestic sales.
Making a Global Connection
Dee-Ann founded Down Under with the goal of connecting Australia’s high-quality essential oil producers, including her parents and brother, to the rest of the world. The business’s substantial growth since inception is testament to both Dee-Ann’s vision, and the quality of Down Under’s products.
As an exporter, one of Dee-Ann’s primary concerns is the significant exchange rate risk Down Under faces due the seasonality of production and international trade terms. Now being based in NSW, with a distribution facility in the US and sales coming from all over the world, margins are profoundly affected by fluctuating exchange rates as Down Under receive and make payments internationally.
Until June 2018, Down Under was only trading foreign currencies in the spot market when transacting foreign currencies (primarily USD). As a result, the business was heavily exposed to fluctuations in the FX markets, and could see the profitability of its contracts swing wildly as exchange rates moved.
Understanding and Managing Risk
Over the years, Dee-Ann was approached by a range of foreign exchange service providers, but she found that the vast majority lacked the depth of knowledge that she felt they needed. When approached by XE (previously HiFX), their expertise stood up to the high level of scrutiny which Dee-Ann demanded – having worked on an investment bank trading floor in a previous career.
The team at XE worked with Dee-Ann to mitigate Down Under’s exchange rate risk and develop a strategy to improve profit margins and manage cash flow. Today, Dee-Ann hedges some 80% of foreign exchange in the form of forward contracts for their US-AUD exchanges.
Typically entering into forward contracts every 2 months, ranging in value from US$190,000 to US$700,000. And spot transactions ranging from US$10,000 to US$500,000 in some months.
Dee-Ann continues to be “more than happy with the service provided by XE”. Thanks to XE, she has been able to better manage the currency risk Down Under face as an exporter due to the products and advice provided.
“The team is informative and educational in their approach to helping Down Under find the appropriate solutions for risk management – a testament to their knowledge and excellent approach to service.”
As Down Under continues to grow and seeks to diversify geographically, it is important to Dee-Ann that right FX partner helps manage the increasing complexity of the business’ foreign exchange requirements. As Down Under works to develop new markets in Asia, especially in China and Korea, Dee-Ann is confident that XE has the right knowledge and product solutions to support doing business in these markets.
Fostering Long-Term Relationships in the Global Marketplace
When the Down Under team started working with XE, the business had just achieved success in securing new long-term supply agreements with several of Down Under's US customers.
Having previously not utilised forward exchange contracts, the benefits that these instruments deliver by locking in future rates and delivering certainty for Dee-Ann and her executive team has been a game changer. They are no longer at the mercy of the currency markets, having peace of mind that exchange rate fluctuations won’t erode profitability.
“Overall, we are able to forecast and plan cash flow better. And hedging our book of business to minimise exchange rate risk has provided much greater peace of mind and made for better business stability.
While this is a problem faced by all internationally exposed businesses, it is one that can be solved.”
To learn more about Down Under Enterprises, check out their website.
Regardless of your business size, XE will work with you to tailor a FX solution to best suit your ever-changing business needs.