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Xero Limited (NZE:XRO) Annual Report 2014
[May 22, 2014]

Xero Limited (NZE:XRO) Annual Report 2014

(ABN Newswire Via Acquire Media NewsEdge) Auckland, New Zealand, May 22, 2014 - (ABN Newswire) - Xero Limited's (ASX:XRO) (NZE:XRO) focus during the 2014 financial year was building its team for future growth. 376 new Xeros joined the Company, resulting in 758 staff globally by year end. During this period of rapid growth, the Company grew to 284,000 customers and generated operating revenue of $70.1m. We emerged as the leading accounting software provider in New Zealand, and the leading online accounting software provider in Australia and the United Kingdom.

With the platform for growth established in New Zealand, Australia and the United Kingdom, the Company has increased its focus on the important US market. The initial US market entry phase allowed the Company to raise a further US$150m in funding; appoint high profile, US based global technology executives to the Board; attract a high quality CEO for Xero North America; and enter into a number of high profile strategic partnerships.

During this phase we developed a detailed understanding of the US market, and with that knowledge and experience Xero is now building out the balance of the management team and moving appropriate global functions to the US. While independent product reviews place Xero strongly against competitors, there are numerous opportunities to create a 'best in class' product for the US market. US specific product development will be a significant focus in the forthcoming year.

Xero has invested over $250m in building its small business platform and supporting functions. With few other examples of such investment, the competitive landscape is squarely Xero versus Intuit. Xero has already proven its calibre and ability to win in its three initial markets.

The Board is aware of how sentiment can move across investment sectors. In October, when the Board agreed to raise substantial funding, there was a possibility the markets would change. That prudence proved to be appropriate, placing Xero in the strong position of not requiring additional funding to execute its current plans. Meanwhile, current and potential future competitors may find it more challenging to obtain the necessary resources to compete.

INVESTMENT AND GROWTH We are pursuing a growth agenda to become the long-term global leader in small business accounting software. To support this growth, the Company has ramped up investment in its internal infrastructure, systems and global marketing and sales teams. This investment will allow us to grow and support millions of customers and create long term shareholder value.

People The Company welcomes its New York based independent Chairman of the Board, Chris Liddell, who co-authors this letter. Chris most recently held the Vice Chairman and CFO roles at General Motors, where he led the Company's global finance operations and its US$23 billion IPO in November 2010. Prior to this, Chris was a Senior Vice President and CFO at Microsoft.

As signalled during the year, to support growth and increase our presence in the US and Australia, the Company has strengthened the Board with the appointment of US based Bill Veghte, who runs HP's Enterprise Group where he is the Executive Vice President and General Manager, and Sydney based banking executive Lee Hatton, as independent non-executive Directors.

Our new CEO of North America, Peter Karpas, brings a wealth of experience in the US small business market and is making significant progress building a world class leadership team.

The 376-strong employee expansion over the last year has been most prevalent in the US. Software teams and global marketing capabilities have grown in San Francisco. In Denver, a contact, sales and operations centre has been established to support US growth.

To ensure we have access to global talent we have established a distributed development model with high performance teams in Auckland, Wellington, Melbourne, Canberra, San Francisco and New York.

Performance highlights ---------------------------------------------------------------------- 12 mnths ended 12 mnths ended 12 mnths ended 31 March 2014 31 March 2013 31 Mar 2012 Total operating revenue $70.1m $38.4m $18.8m Net loss after tax ($35.5m) ($14.4m) ($7.9m) ---------------------------------------------------------------------- At 31 March 2014 At 31 March 2013 At 31 March 2012 Cash and cash equivalents $209.9m $78.2m $39.0m ---------------------------------------------------------------------- Paying customers 284,000 157,000 78,000 Annualised Committed Monthly Revenue $93.0m $51.5m $25.5m ---------------------------------------------------------------------- Strategic alliances The Company has formed a number of strategic alliances across our markets with local partners who have both market credibility and broad reach. In the US, we are pleased to be working with Square Inc., Google, Expensify, Squarespace, ADP, Clio and we recently announced an alliance with H&R Block. Similarly, in the UK we were selected as a technology partner by KPMG. In Australia, Deloitte selected Xero as its technology platform partner for online services. In New Zealand, the Company has seen a number of Xero's top accountants acquired by tier one accounting firms, largely due to the performance metrics these partners have achieved by transforming their practices with online accounting.

Ecosystem One of Xero's strengths is its vibrant 'ecosystem' of integrated third party solutions. There are now more than 300 add-on partners, up from 220 as of year ended 31 March 2013, covering such services as CRM, job costing, payroll and point of sale systems. It has been exciting to see a number of Xero add-ons raise significant funding themselves in the past year.

OPERATING OVERVIEW Xero is a hybrid business that delivers application software, with complex features typically only seen in the enterprise software space, coupled with a low cost, consumer-like distribution model where scale is achieved with automation.

It was at around 50,000 customers that we set our near term target of a million customers. We're pleased to be making substantial progress towards that goal and beyond.

In line with expectations, the Company increased its operating revenue for the year to 31 March 2014 from $38.4m to $70.1m, equating to 83% growth. Paying customers reached 284,000 at 31 March 2014. As anticipated, the full year loss grew to $35.5m. Cash on hand is $209.9m.

With a recurring revenue model, the Company commences the 2015 financial year strongly with $93.0m in annualised subscriptions, up from $51.5m at 31 March 2013.

Xero's revenue is increasingly geographically diverse. At the end of March 2014, Committed Monthly Revenue by country was New Zealand 30%, Australia 44%, UK 15%, North America 7% and Rest of World 4%.

CLOSING COMMENTS Xero is operating in an exciting space, with industry analysts acknowledging that the adoption to the cloud is accelerating ahead of earlier expectations. The Company continues to execute its business plan and with the resources in place, it remains strongly positioned.

Shareholders can take comfort in the progress of the business, the growing capabilities of its people and track record of making the right long-term decisions.

While there remains much to do, the Board is very pleased with progress, and thanks all customers, staff, partners and shareholders for their continued support.

To view the complete 2014 annual report, please visit: About Xero Limited: Xero is a global company with offices in the United States, United Kingdom, Australia and New Zealand. Xero is the emerging leader in online accounting software, providing business owners with real-time visibility of their financial position in a way that's simple, smart and secure. For advisors such as accountants and bookkeepers, Xero forges a trusted relationship with clients through online collaboration and gives them the opportunity to extend their services. Xero is a new type of multinational with teams around the world united in our passion to revolutionise small business.

Contact: Ross Jenkins CFO E-mail: Tel: +64-21-963-909 Copyright (C) 2014 ABN Newswire. All rights reserved.

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