FY12 operating update

We’ve just updated the market on our progress to March 31, 2012.

Xero doubles revenue and invests for growth

Key metrics for the 12 months to March 31, 2012

• Revenue doubled from $9.3m to over $19m
• Business customers grew from 36,000 to over 78,000
• Offshore revenue rose to 51% of Monthly Committed Revenue (MCR)
• Annualised MCR is now in excess of $25.5m

Doubling of customer growth across regions

Country	FY2011	FY2012	Growth
New Zealand	23,000	47,000	104%
Australia	6,000	16,000	166%
United Kingdom	5,000	11,000	120%
United States/Global	2,000	4,000	100%

Substantial investment continues

As stated at the Xero Annual Meeting in July 2011, the company is pursuing a growth agenda and has recently successfully raised $35.6m to fund that growth.

Xero has become a significant Financial Technology (FinTech) provider having securely processed over $20 billion of transactions on behalf of customers in the last quarter and over $100 billion in transactions in total.

Xero has been focused on growing the business significantly in the last year:

• Staff employed rose from 113 to 194 with 44 staff based in offshore markets
• New offices opened in Auckland, Wellington, Melbourne, Canberra, Milton Keynes and San Francisco
• Two acquisitions were made – PayCycle and WorkflowMax – these have been successfully integrated into the business
• Substantial investment in the Xero hosting platform, which comprises 50 servers hosted across dual data centers in the US. Xero manages over 50 terabytes of production data.

General Commentary

It was another year of substantial growth for Xero as the company focused on acquiring customers and growing revenue, as well as building its team. Xero continues to demonstrate that it can execute effectively across multiple regions, innovate and keep delivering a best in class product and customer experience.

In its home market of New Zealand, Xero is proving to be the preferred provider for the accounting industry. In Australia and the UK, Xero is emerging as a leading challenger by winning market share from the incumbents and introducing a new generation of businesses to accounting.

For FY13, New Zealand, Australia and the UK will be the growth engines for the company. Entry into the US market is progressing well as the company executes its plan and works with early adopters. Key objectives for the US during FY13 are to deliver US product features, further build out the US team and demonstrate traction against incumbent provider Intuit in key accounts.

Thank you to our valued customers, partners and shareholders for your ongoing support.

Small business marketing: Differentiation and positioning

Peter Economides for Apple 1997 TBWA/Chiat/Day

Last time, we defined what marketing is and how the ‘Four P s’ framework illustrates the marketing mix for your business.

There have been some really good discussions over in Xero Community and its great to see everyone sharing ideas across lots of different industries.

Now we start getting into the fun stuff: differentiation and positioning. It’s a huge topic so today I’ll just cover off ‘attributes’ and ‘consideration sets’.

Simply put, differentiation is what makes your product or service unique from your competitors. As we all know, business is competitive so you have to define attributes of your offer that make you stand out from everyone else.

Positioning is what you do to the mind of the customer. That is, you position the product in the mind of someone, rather than necessarily making changes to the product itself. One commonly quoted example of this is ‘Volvo: Safety’. Engineers may argue with you that there are other cars that are equally, if not more ‘safe’ but Volvo has put a stake in the ground that the attribute ‘safety’ is theirs.

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