2013 Annual Report

We’re proud to present our Annual Report for the 2013 Financial Year (that is to 31 March 2013)

Key messages:

• Our loss was slightly lower than expected at $14.4m – while growing fast we do keep a close eye on costs
• We have substantially grown our team over the year. Building capability for the future. It’s a huge amount of work to double a team.
• Our team is executing very well
• We’re just at the beginning of a massive market shift

If you’re interested in all things Xero I’d urge you to read the Chairmans and CEO report.

Our team is very grateful for the support of our shareholders.

As always, we’d welcome any questions below.

Hi-Tech Company of the Year

It was a big night for our team in Auckland, New Zealand on Friday as we took out the Hi-Tech Company of Year and the Export Award at the New Zealand Hi-Tech Awards. There was a piece on the three finalists on the news on Saturday.

For me, it was a surreal moment, standing on stage with a handful of Xero staff, in front of 700 people, listening to Rod’s acceptance speech (as well as my heart pounding loudly). Xero had been announced winner of the NZ Hi-Tech Company of the Year, the top accolade within the industry. Earlier we had received the Exporter of the year over $5 million Award. It was particularly nice that our friends at PWC and HSBC sponsored our awards, and that so many people within the industry were there to congratulate us and share in our celebration.

Steve Wozniak from Apple was on the judging panel. They noted …

“The hallmarks of a great company are focused leadership, rational planning, and superb results in the market, Xero exhibits all of these” and “Xero is executing the Web 2.0 playbook perfectly, blending brand building, product development, capital raising and value creation, and global expansion. Xero is the new benchmark for product-based tech companies in NZ.”

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Industry consolidation

Big news yesterday as MYOB announced they have finally acquired BankLink.

There will be lots of industry banter about what this means. Here are our thoughts.

Why did MYOB buy?

This acquisition makes sense for MYOB. Under their second Private Equity owner, US based Bain capital, they continue to load the business up with debt, which is now over 700m. Bain is now looking to exit out of MYOB and is signaling an IPO.

Bain probably did not foresee how the cloud is so quickly changing the economics of accounting software. Both MYOB and Reckon ‘double dip’ by charging accountants for accountant side software to process the same set of books originated in the small business software the owner has already paid for. In the cloud this goes away with Xero not charging for accountant tools.

MYOB do not report their detailed numbers. Actually neither has Reckon but with our increased market share it’s very likely that their NZ based accountant revenues are under pressure. With so much debt, if revenues are soft then MYOB would be under enormous pressure from its bankers. When we started Xero MYOB claimed 70,000 NZ customers of small business accounting. Xero now has over 70,000 customers in New Zealand on monthly billing so unless the market has doubled Xero is likely number 1 in our home market.

MYOB is also under pressure as its cloud sync model, which moves data between the installed desktop software and the cloud, has now been shipped and seems to be having issues. All these factors are probably accelerating the Bain’s desire to exit.

So if an IPO exit is planned then the MYOB acquisition of BankLink, which presumably carries little debt, makes sense to top up any revenue gaps.

Why did BankLink sell?

So why did BankLink sell after rejecting MYOB for so long? With the cloud accounting industry just taking off why would anyone in the space sell now?

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Growing a software start-up in the UK

Our business in the UK has covered some distance over the last four or so years where, having doubled our UK customer number every year, we now have more than 22,000 UK companies and tens of thousands of happy British users running Xero.

Our growing presence in Blighty prompted UK software industry veteran Jyoti Banerjee to stop by our headquarters last week to record an interview with our UK managing director, Gary Turner for use in a class that Jyoti lectures at Saïd Business School, University of Oxford on software entrepreneurship.

Here’s a clip from the interview where Gary discusses the challenges Xero first encountered getting setup in the UK.

Deloitte offers Xero in Australia

Great news in Australia today – Deloitte is offering its clients the ability to migrate to Xero.

Photo from a meeting today in Melbourne shows (from L-R) Gavin Fernandes – Xero Key Accounts Manager , Ben Shields – Deloitte Partner, Chris Ridd – Xero Managing Director, David Hill – Deloittte National Managing Partner, Rod Drury – Xero CEO.

Here’s the announcement as posted to the NZX and ASX:
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www.xero.com Marketing site is down

The www.xero.com marketing site is offline due to an issue at our hosting provider.

There is no impact to the Xero applications however if you normally go to www.xero.com to login you should use login.xero.com.

UPDATE (7:00am GMT):  The marketing site is back online.  Our apologies for any interruption.

March 2013 Operating Update

Today we’ve released an Operating Update to the market on our progress over the past year (see further below). This phase of the business is about building out our products, proving our operating models and rapidly growing capacity.

This chart is useful in showing our revenue growth compared to our losses as we invest. You can see clearly that after our capital raising in 2012 we upped our investment to more quickly grow the team so we can continue to deliver rapid growth as we build the foundations for a million paying customers.

The results should give confidence that we’re executing and allows us to continue our substantial investment to deliver the best accounting software in the world, making life easier for millions of small business owners and their advisors. We really love what we’re doing and feel we’re making a positive difference.

It’s been interesting hearing from people watching us closely. We’re getting lots of congratulations and in our home market many people think we’re nearly done. Nothing could be further from reality. We think we’re still at the beginning. Half of all Xeros are in their first year of what we hope will be long Xero careers. We’re thrilled to have quickly grown to over 150,000 customers but that is just a drop in the bucket globally.

We’re fired up, have a ton of stuff in the pipeline and we’re going for it!

Thank you again to our many customers, fantastic partners and patient shareholders who are allowing us to build a great long term business.

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The UK economy – dispatches from front line

I have to say it’s a pleasure to be able to offer some sharp relief to the gloomy economic fog that still seems to shroud much of Europe and the UK.

It’s been six months since I joined Xero to head up our commercial operations. In 2012 our UK team tripled in size and we still have positions that we are recruiting for. Amid that it’s been fantastic to spend the last six months focusing on nothing but growth, both in terms of new customer acquisition, growing our UK operations and staff numbers*.

I have seen an entirely different side of UK business to the one that has been on the news, that of a flourishing and vibrant start-up and small business community. In the last year alone 497,184 new UK companies where formed, in fact the number of UK company formations has grown by 10% for the last three years straight. Continue reading ›