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Xero says global roll-out of core product still best option

Thursday 15th August 2019

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Xero’s biggest immediate opportunities are to keep driving growth of its core accounting software in existing markets and to enter other geographies, says chief executive Steve Vamos.

“The opportunity here is significant. The current level of adoption of small business cloud accounting globally is estimated to be less than 20 percent of the total potential market in the English-speaking countries in which we operate,” Vamos told the annual shareholders’ meeting in Auckland.

That’s in contrast to Xero’s more than 50 percent adoption rate in Australia and New Zealand, “testament to the product innovation Xero has pioneered over the last decade and the fact that Xero was born in this part of the world.”

Xero listed on NZX in 2007 after raising $15 million from selling shares at $1 each. It now trades only on ASX where its shares are trading at A$60.55, down 3.3 percent from yesterday but up 35 percent from a year ago. The S&P/ASX 200 Index is down 2 percent so far today and up nearly 5 percent from a year ago.

At March 31, the company had 1.8 million subscribers, up 432,00, or 32 percent, from a year earlier. A shareholder asked for an update on subscriber numbers but Vamos said he couldn’t provide that information. “I would get in a lot of trouble if I did.”

Chair Graham Smith told shareholders that Xero would stick to its twice-yearly reporting cycle, meaning that shareholders won’t get an update until November.

Ahead of Vamos’ speech, shareholders were asked to vote on a number of resolutions, including an $800,000 increase in the directors’ fee pool to $2.2 million.

Ahead of the meeting, the New Zealand Shareholders’ Association had complained about the lack of supporting information provided to justify the increase.

NZSA chair Tony Mitchell told the meeting his organisation has noticed a change for the worse in Xero’s level of disclosure since it left NZX in early 2018.

“This is not about the size of payments that are chosen to be put forward today. It’s about the process of disclosure that allows shareholders to make an informed decision.”

Susan Peterson, who chairs the board’s people and remuneration committee, promised that her committee would discuss the issue and that “we take all shareholders’ views to heart.”

Despite Mitchell saying he was voting his proxies against the directors' fees resolution, final voting results showed only 0.36 percent of shares voted, excluding abstentions, opposed the fee increase. In fact, significantly more, 2.9 percent, were voted against authorising the board to fix the auditor's remuneration.

Vamos said the stand-out part of the latest year’s result was in Britain where a decade-long period of investment has "really started to deliver.”

British subscribers rose 48 percent to 463,000 in the year ended March and Vamos noted that of the 151,000 subscribers added in the year, 108,000 came in the second half.

Vamos said the acquisition of Instafile will help Xero accelerate the adoption of cloud accounting in Britain and that it expects to see a similar result as the company got from similar initiatives in Australia and New Zealand.

Becoming a platform for small business technology is also “central to our future and for our strategy,” Vamos said.

Platform and other non-core accounting revenues grew 63 percent year-on-year and from 7 percent to 9 percent of total revenues in the year ended March.

The company now has more than 200 connections to banks and financial services partners globally.

“Our near-term focus on continued platform growth is about driving workflows and deeper partnerships with financial service providers and banks – especially in the area of payments where we’ve extended our partnership with Stripe, a leading payment provider, to deliver a seamless payment service integration into Xero’s core invoicing workflow.”

Vamos said the Hubdoc acquisition had fast-tracked Xero’s “code-free accounting vision” and it has entered a partnership with Gusto to improve its payroll offering in the US.


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