Wednesday, 22 October 2014

Announcement

HALFYR: XRO: Xero gaining offshore momentum

18 Nov 2011 08:30NZX
Performance highlights for the six months to 30 September 2011

2011          2010 Increase
Operating revenue $7.9m $3.7m 112%
Committed monthly revenue   $1.5m   $0.75m
100%
Paying business customers  51,300  25,500 101%

Momentum

Xero''s financial performance for the six months to 30 September 2011 cemented
the company''s position as the emerging global leader in the online accounting
market.

The doubling of revenue to nearly $8 million for the period and committed
monthly subscription revenue of $1.5 million as at 30 September 2011,
validated Xero''s ability to deliver a scalable SaaS (software as a service)
business.

Rapid customer acquisition drove the result, with customer numbers doubling
to over 50,000. Xero is achieving momentum globally, proving that both the
product and the sales model can be leveraged into the large overseas markets
being targeted.

An experienced management team now leads a 140+ strong team across four
countries.

True export story

More than 40 percent of Xero''s revenue comes from offshore and the company
expects this growth to continue as the brand becomes established in large
overseas markets. Recently Xero was named New Zealand''s fastest growing
exporter in the 2011 Deloitte Fast 50 Index.

As demonstrated in the table below, all regions experienced strong growth for
the period. In Australia leading online payroll provider Paycycle was
acquired for a total consideration of NZ$1.9 million and a second office
established in Canberra. The company plans to open more offices - one in
Sydney and another in the UK.

An office in San Francisco was established and key staff have relocated. The
company is building strategic partnerships and is well connected with the
influencers in the US accounting community.

A thriving ecosystem of add-on services that integrate with Xero contributed
to growth and global brand awareness for the period, as did new exposure
through Google Apps Marketplace and Chrome Web Store.

In August the release of Xero Touch (new mobile app for iOS devices) via
Apple''s App Store, created another significant global sales avenue and
completed another deliverable in the company''s US entry strategy.

Financial results summary

6 months to 30 September 2011 6 months to 30 September 2010 Year
on year change

Revenue by Segment:
New Zealand $4.6m $2.5m 84%
Australia $1.8m $0.5m 260%
United Kingdom $1.1m $0.5m 120%
Rest of World $0.4m $0.2m 100%
Group Operating Revenue $7.9m $3.7m 112%
Operating expenses $(11.1m) $(8.0m) 39%
Net Loss $(3.7m) $(4.7m) 21%
Cash at bank $11.4m $16.6m

Xero is a maturing company with lower investment risk, as demonstrated by an
annualised subscription revenue run rate of over $18 million as at 30
September. This result was generated from over 50,000 paying customers in
over 100 countries, who together processed in excess of $50 billion of
transactions, making Xero a serious Financial Technology (FinTech) provider
on the global landscape.

Xero''s combined strategy of a low cost web 2.0 model and a targeted
accountant channel is working well.

The company continues to invest in product innovation to enhance its
leadership position. In August the Ministry of Science and Innovation
recognised Xero for its commitment to investment in Research and Development
by providing a Technology and Development Grant of up to $4 million over the
next 3 years.

Xero''s unique advantage remains the ability to offer client side accounting,
the tools for accountants to service clients, as well as an integrated
solution to run accountancy practices in the cloud without expensive
hardware.

Large competitors Intuit, Sage and MYOB are still grappling with how to
provide a reliable, fully functioned, global online product. Shifting their
legacy business models to SaaS is proving hard to do. Meanwhile, smaller
competitors lack the scale and investment backing to develop a comprehensive
solution like Xero.

The economic environment continues to create opportunities for the Xero - its
cost effective offering helping to boost the productivity of small business.

Board changes

Chairman Phil Norman has advised the board of his intention to resign as a
Director before the next annual meeting. Phil has served as Chairman for 5
years, which he considers an appropriate time for a foundation Chairman of a
fast growing company. Phil has led the business through the start up
entrepreneurial phases, the successful IPO and subsequent capital raisings to
create a strong platform for future growth.

Current Director Sam Knowles assumes the role of Board Chairman from today.
Sam''s experience is ideal to take the company through the next stage of
growth as it expands it''s team globally.

Xero co-founder Hamish Edwards will leave the board at the end of the year.
Hamish remains involved with the business as an executive.

The board recognises the outstanding work of Phil and Hamish.

Positioning for future growth

The company has leased 2,000 m2 of the John Chambers building near the
Wellington waterfront to create a Global HQ. This will consolidate the
Wellington based team - now spread across two offices - and create a
workplace environment that continues to attract top talent.

As stated at the company''s Annual Meeting in July, the Board is pursuing a
growth agenda that provides the flexibility to pursue opportunities that
create shareholder value, rather than short-term profitability. The company
is comfortable with its ability to fund continued growth and execute with
excellence. To support this growth, Xero is now ramping up investment in its
internal infrastructure, systems and global sales teams to support a million
customers as it gains traction in large overseas markets.

For more information contact:

Rod Drury
Xero CEO
rod.drury@xero.com
+64 27 6000 007

Ross Jenkins
Xero CFO
ross.jenkins@xero.com
+64 21 963 909
End CA:00216484 For:XRO    Type:HALFYR     Time:2011-11-18 08:30:15
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