XERO LIMITED
Annual Report
2021
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Contents
Highlights
About Xero
Chair’s Review
CEO’s Review
Xero’s response to COVID-19
Social and environmental impact
Key Risks
Our Performance
The Board of Directors
Corporate Governance Statement
Remuneration Report
Independent auditor’s report
Financial Statements
Notes to the Financial Statements
Directors’ Responsibilities Statement
Disclosures
Corporate Directory
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3
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9
19
23
33
36
55
57
73
94
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103
138
139
147
Highlights
$848.8m
Operating revenue
Up 18% YOY
2.741m
Subscribers
Up 456,000 YOY
$963.6m
Annualised monthly recurring revenue
Up 17% YOY
$7.6b
Total subscriber lifetime value
Up $2.1b YOY
86.0%
Gross Margin Percentage
Up 0.8PP YOY
$56.9m
Free cash flow
Up $29.8m YOY
$1.3b
Total available liquidity
Cash on hand, short-term deposits and undrawn
committed debt facilities
$191.2m
EBITDA
Up $53.5m YOY
A global
ecosystem
of 1,000+
connected
apps
300+
connections
to banks
and financial
service
partners
Xero was included in the
2021 Bloomberg Gender-
Equality Index as one of only
13 companies headquartered
in Australia or New Zealand
Xero was certified carbon
neutral by the Australian
Government’s Climate
Active program
Total value
of invoices
raised via
Xero during
FY21 -
$984.9b
Total value of
transactions
through Xero
platform in
FY21 -
$4.2t*
*Incoming and outgoing transactions
XERO ANNUAL REPORT 3
About Xero
In this Annual Report, we showcase
inspiring stories from Xero customers,
partners and our people. We recognise
that Xero would not be the company it
is today without these communities.
They share the world seen through their
eyes, both during the past year, and as
they look ahead to the future.
4
Xero is a cloud-based accounting software platform for small businesses with
more than 2.7 million subscribers globally. Through Xero, small businesses and
their advisors have access to real-time financial data any time, anywhere,
and on any device.
Founded in 2006, Xero is a global business, domiciled in New Zealand and
listed on the Australian Securities Exchange (ASX: XRO). Our team of more
than 3,600 employees is driven by our purpose to make life better for people
in small business, their advisors and communities around the world.
The relationships we have with our partners in the accounting and
bookkeeping communities are part of what makes Xero unique. Xero’s
platform allows accountants and bookkeepers to collaborate with their
small business clients on a single, up-to-date general ledger and manage
their finances, including invoicing, payroll, tax compliance, cash flow, and
much more.
Xero has built a thriving ecosystem of over 1,000 connected apps and more than
300 connections to banks and financial service providers. With apps that support
everything from inventory and logistics to point of sale and project management,
the Xero App Marketplace empowers small businesses to build their own toolkit to
run all aspects of their business, and have them all work together seamlessly.
We are dedicated to building a socially conscious and environmentally sustainable
business, benefitting the millions of customers we serve, their advisors, communities,
and the shareholders and employees of Xero. We are committed to reducing our impact
on the environment. During the year ended 31 March 2021 (FY21), Xero was certified
carbon neutral by the Australian Government’s Climate Active program.
Our commitment to gender diversity and inclusion was recognised with Xero’s inclusion
in the 2021 Bloomberg Gender-Equality Index.
THROUGH THEIR EYES
Real-time data key to supporting clients
Pamela Phillips | Xero Partner |
de Jong Phillips | United Kingdom
When COVID-19 hit, the de Jong Phillips team in
Epsom, UK, was on the front foot. Instead of needing
to spend time navigating working from home or
figuring out how to embrace the cloud, director and
co-founder Pamela Phillips and her team were straight
on the phone with their clients, offering a much-
needed listening ear and, in time, financial advice.
“With Xero, our clients’ numbers are always up to
date. The minute the pandemic happened, we could
look into our clients’ Xero accounts and see whether
they had a cash flow issue, which enabled us to
quickly advise if they needed to secure funding, or
consider if they needed to access the furlough scheme
or make redundancies. If we didn’t have these quick
insights, we would have had to spend months to get
client files up to date. But we could help straight away
– that was a massive help to our clients and made a
huge difference to their stress levels at the time.”
As the pandemic continued to dominate the business
landscape, Pamela and her team realised they needed
to streamline their client communication. “Those
conversations evolved into Zoom webinars, many
inspired by resources on Xero’s Business Continuity
Hub on Xero Central. We would follow up off the
back of those with anyone who wanted a one-on-one
conversation. This approach enabled us to reach
more clients, and we also invited non-clients to our
webinars, too.”
de Jong Phillips’ tech-savvy approach to business
has played a key role in the survival of their clients’
businesses. As UK businesses start to recover, the
support Pamela and her team provide will continue
to be invaluable.
XERO ANNUAL REPORT 6
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Chair’s Review
Small businesses are seeking
services beyond cloud accounting,
and we are responding to this
with continued investment in
our platform and products, and
by making targeted acquisitions
of additional services
and capabilities.
Dear shareholder,
We are seeing a significant shift in the way business is conducted around
the world as digitisation accelerates across industries, and small businesses
adopt cloud technologies. Operating at the intersection of technology and
accounting, Xero is in a strong position to support our customers as they
tackle these changes and realise the benefits of doing business in the cloud.
David Thodey AO
Chair of the Board
At the same time, we acknowledge that for many
people around the world, this year has been
disruptive and even tragic, as nations, families
and communities grapple with the impacts
of COVID-19.
As a director of Xero, I am encouraged to see
first-hand how small business owners have
navigated their way through constantly changing
market conditions and customer demands – in
some cases entirely revising their business
models, and adopting new technologies and
ways of serving customers.
Against this backdrop, our business continues
to grow strongly. Xero’s 2021 financial year (FY21)
began on 1 April 2020 just as COVID-19 was
escalating around the world.
Our teams at Xero have remained focused on
responding to changing customer needs and
introducing new products and services, while at
the same time executing our growth strategy,
completing a significant capital raise, and making
three strategic acquisitions.
We are seeing small businesses turn to cloud-
based tools such as Xero to inform and guide
their business decisions. From forecasting cash
flow to tax compliance and running payroll,
Xero’s small business platform continues to
create value for our customers in today’s
operating environment.
We are pleased to report strong subscriber growth
during FY21, as we welcomed new customers
and churn rates remained low, demonstrating
the value of a Xero subscription to our new and
existing customers. After a first half challenged by
COVID-19, we added new subscribers at a record
rate in the second half of the year, highlighting the
continued demand for cloud-based tools across
all our markets.
Today, more than 2.7 million subscribers use
Xero globally. They have access to Xero’s
ecosystem of more than 1,000 connected apps
and over 300 connections to banks and financial
service providers.
Looking ahead we are optimistic as new
digitally native businesses are being launched, and
existing businesses switch to online tools. More
economies are reopening, or preparing to reopen,
and small businesses are adapting their business
models in preparation for a post-pandemic world.
Focus on strategic investments
Small businesses are seeking services beyond
cloud accounting, and we are responding to this
with continued investment in our platform and
products, and by making targeted acquisitions of
additional services and capabilities.
We were pleased to see significant confidence
in Xero and our strategy when we undertook a
successful capital raise of US$700 million, via
zero-coupon convertible notes. We were able
to raise an additional US$408 million of capital, after
associated transaction costs and early repayment of
the majority of the existing 2023 convertible notes.
The new capital provides Xero with greater financial
flexibility to pursue strategic investments and
deliver ongoing innovation and support to our
customers and partners. This includes the
acquisitions completed recently, including Waddle,
a cloud-based lending platform; Planday, a
workforce management solution; and Tickstar, an
e-invoicing infrastructure business.
Responsible data use, security
and trust
Our vision for Xero is to be the most insightful and
trusted small business platform. Customer data is
at the heart of this, and we are committed to
ensuring that the data we hold is secure, used
responsibly, transparently, and with consent.
We invest heavily to protect data on the Xero
platform, and encourage our customers to adopt
practices that help keep their accounts and
data safe.
We continue to review and enhance our data
governance, as well as provide policies and
education to guide Xero employees on responsible
data use – whether that is in designing products,
developing features for customers, or entering
into partnerships.
We also know that security is integral to building
and operating a trusted platform. To better
safeguard our customers, in March we began the
implementation of multi-factor authentication (MFA)
globally, which provides an extra layer of protection
during login.
This year we enhanced our platform’s security
infrastructure and laid the foundations for greater
automation and an improved operating model for
our security services.
Xero’s social and environmental
impact
Xero was recognised with carbon neutral
certification by the Australian Government’s
Climate Active program in February. The
certification is the culmination of almost
two years of work by our teams following our
commitment to be carbon neutral across all areas
of our business as part of our environmental
sustainability program, Net Zero @ Xero.
From the beginning of our carbon neutral
program, we have offset our calculated emissions
through the purchase of carbon certified offset
projects in Indonesia, India, and New Zealand.
In FY21, we expanded our sponsorship of the
Fishermans Bay Conservation Project near
Akaroa in New Zealand. More information
about Xero’s FY20 carbon disclosure, emission
reduction plans, and projects in place to offset
our emissions can be viewed on the Climate
Active website.
We remain focused on reducing Xero’s impact
on climate change. We intend to report on our
response to climate change, in alignment with the
standards of the Task Force on Climate-related
Financial Disclosures. More information about our
social and environmental impact program is on
page 23.
XERO ANNUAL REPORT
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Right: Xero
team members,
New Zealand
In 2021, Xero earned a place in the
Bloomberg Gender-Equality Index
for the second consecutive year.
Black Accountants to bring greater parity for
Black accounting and finance professionals
through technical training, networking, and
career opportunities.
Also paramount, is broad representation that
reflects the diversity of the customers and
communities we serve. We are taking steps so
that, over time, our Board and leadership team
better reflect this diversity.
Last year, we set numerical targets for
representation of women at Xero. For our
leadership team and across the company, we took
a 40:40:20 approach – at least 40% women and
40% men, with the remaining 20% unspecified to
allow for flexibility and to recognise that gender
is non-binary.
For our Board, our target gender balance is at
least three female directors and at least three
male directors, with an intended Board size of
seven to nine directors.
As of 31 March 2021, 63% of our leadership team
and 42% of our employees were women, and we
had three female and five male directors. More
information about our initiatives in this area
is in the corporate governance statement on
page 57.
In 2021, Xero earned a place in the Bloomberg
Gender-Equality Index for the second consecutive
year. Xero is one of just 13 companies in the index
headquartered in Australia or New Zealand.
At the same time, we recognise there is more
to do, and we look forward to creating a more
diverse and inclusive organisation.
Our focus on developing people leaders at Xero
aims to ensure we create and lead diverse teams,
where each person feels they belong. In support
Risk management
As a high-growth company, we recognise that
managing risks and opportunities is critical to
the execution of our strategy and maintaining the
trust of all stakeholders.
The Board takes this responsibility seriously,
and Xero has a risk management framework in
place that includes regular updates to the Board.
Further information on our approach is on page
33 of this report.
Diversity and inclusion
At Xero, diversity means acknowledging,
appreciating, and celebrating all the many ways
we are different in all its forms, both visible and
not. It includes differences that relate to gender,
age, culture, ethnicity, race, disability, family
status, language, religion, sexual orientation,
gender identity, as well as differences in
background, skills, work styles, perspectives,
and experiences.
We are focusing on racial equality and diversity
through several initiatives and partnerships. The
global Black Lives Matter movement reinforced
the need for everyone to tackle racism and racial
inequality, a responsibility we take seriously
at Xero. Recently, our team in the US entered
a partnership with the National Association of
of this, we recently launched a leadership training
program for all managers to equip them with tools
to create and support an environment that is
psychologically safe and inclusive.
Board update
As Chair of Xero’s Board, I could not have
navigated this year’s challenges without the
support and guidance of our experienced
team of directors. With COVID-19, we had more
frequent Board meetings as we worked with the
management team to navigate the challenges of
the pandemic. I would like to thank our directors
for the extra time and counsel they have provided.
We were pleased to welcome Steven Aldrich,
who joined the Board in October 2020. Steven
is US-based, and his technology and product
development expertise in small business services
is proving invaluable as we execute our strategy in
North America.
On behalf of the Board, thank you to Xero’s
leadership team and to all our Xero people for
their exceptional efforts this year.
Conclusion
Looking ahead, we expect digital transformation
to continue to accelerate around the world.
As a company born in the cloud, Xero is well
positioned to support our customers as they
adapt to these digitally driven ways of working.
We are seeing small businesses turn to
cloud-based tools such as Xero to inform
and guide their business decisions.
From forecasting cash flow to tax
compliance and running payroll, Xero’s
small business platform continues to
create value for our customers in today’s
operating environment.
As the world moves toward a post-pandemic
state, all of us at Xero remain focused on our
purpose of making life better for people in small
business and their advisors and communities
around the world.
The Board remains committed to supporting the
business to invest in the growth of Xero as we see
the significant global market opportunity for our
products and services.
Sincere thanks to our customers, partners, and
shareholders for the trust you place in Xero.
David Thodey
Xero Chair
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CEO’s Review
Planday, Xero’s largest acquisition
to date, provides a workforce
management platform serving
employers and their employees in
Europe, the UK and the US.
Steve Vamos
Chief Executive
Officer
Dear shareholder,
Xero has an important responsibility to meet the current and future
needs of our customers by investing in product innovation and customer
experience, and pursuing our vision to be the most insightful and trusted
small business platform.
The last year has been deeply challenging for
Xero people, our customers, partners and their
communities. During the year, we focused our efforts
on doing what we could to support our customers
and partners’ immediate needs, while continuing
to pursue our longer-term purpose and strategy.
Xero finished FY21 strongly and enters FY22
with momentum and confidence in our long-
term strategy.
There are a number of major global trends that
help shape our strategy, particularly when
considered through a 10-year lens. These include
adoption of cloud technologies, digitisation of tax
and compliance, innovation in financial services,
and the post COVID-19 recovery of the small
business economy.
This year brought home to many people in small
businesses the need to understand their financial
position in real-time and how it may change in
future. Having this insight became more important
than ever, and the value our customers place in
their subscription and connection to the broader
Xero community was clear.
Looking ahead we believe small businesses will be
a major driver of economic recovery in a post-
pandemic world. Small businesses make up more
than 90% of businesses in the markets Xero
operates in, and represent a significant proportion
of employment and gross domestic product in
those markets.
FY21 results update
We welcomed 456,000 net new subscribers in FY21,
taking total subscribers to over 2.7 million globally.
In the second half of the year, we added 288,000
subscribers – our strongest half-year period ever.
EBITDA, net profit and free cash flow increased
strongly compared to FY20. This reflects top-line
growth together with close management of
expenses and considered capital allocation.
The impact of COVID-19 was most pronounced
during the first few months of FY21, and we adopted
a responsive spending and investment approach.
As conditions and confidence improved in many
of our markets, investment in growth picked up
and coincided with the markedly higher subscriber
additions in the second half of the year.
Execution of strategy
We made good progress in FY21 executing
Xero’s growth strategy. Xero’s strategic priorities,
set out below, guide our decision-making and how
we invest.
• Drive cloud accounting adoption – increasing
the penetration of small business cloud
accounting software
• Grow the small business platform – extending
and enriching Xero as a platform to help small
businesses run their business
• Build for global scale and innovation – preparing
Xero to realise our aspirations to become the most
insightful and trusted small business platform
Digitisation of tax and compliance continues to be
a trend that is driving adoption of cloud accounting.
An example is the UK Government’s Making
Tax Digital initiative, the next stages for which
are coming up in 2022 for those under the VAT
threshold and 2023 for Income Tax. During FY21 we
continued to invest in readiness for these changes.
Supporting our priority to build for global scale
and innovation, we raised US$700 million of capital
in new convertible notes at a zero-coupon rate and
repaid the majority of the existing 2023 convertible
notes. We were therefore able to successfully raise
an additional US$408 million of capital through
the transaction. As we execute our strategy, the
proceeds give us flexibility to, among other things,
pursue strategic investments such as the three
acquisitions we announced during the year, of
Waddle, Planday and Tickstar.
In FY21, we acquired Waddle for a total consideration
of up to AUD$80 million (approximately NZD$87
million). Waddle is a cloud-based lending platform
that leverages accounting data to help small
businesses gain access to working capital and
better manage cash flow. Waddle’s addition to Xero
will help grow our small business platform by
solving for critical small business financial needs.
Planday is Xero’s largest acquisition to date,
purchased for up to €183.5 million (approximately
NZD$305 million). Planday provides a workforce
management platform serving employers and their
employees in Europe, the UK and the US. Planday
simplifies worker scheduling, payroll compliance,
and communication with employees. This
acquisition will help grow Xero’s small business
platform by expanding it to serve more employing
businesses and their employees.
In anticipation of e-invoicing growth worldwide, we
acquired e-invoicing technology provider Tickstar
for up to SEK150 million (approximately NZD$25
million). Tickstar provides e-invoicing network
access points and capabilities that promise to
enable faster, more secure transactions and help
drive cloud accounting.
Areas of planned strategic investment
Strategic
priorities
Drive cloud
accounting
Grow small
business platform
Build for global scale
and innovation
Areas of
planned
investment
Best-in-class cloud
accounting for small
business
Extend access and
distribution to serve
all small businesses
Serve small businesses
with multi-lingual
editions
Small business needs
beyond accounting
and compliance
Payments and access
to capital
New applications
leveraging data,
artificial intelligence
and machine learning
Attract, inspire and
retain world class
talent
Robust technology
to drive innovation
at speed
Optimised operational
and financial structure
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Market highlights
North America
Subscribers grew by 18% in the year to 285,000
with a notable recovery in net additions in H2
FY21. Revenue increased by 2% (6% in constant
currency (CC)) reflecting the loss of revenue
from bundling Hubdoc into Xero Business Edition
subscriptions in late FY20 and the absence of any
Xerocon-related revenue in FY21.
UK
Subscribers grew by 17% to 720,000. Revenue
grew by 22% (23% in CC). A marked recovery in
H2 FY21 (the UK’s second strongest half year
period ever) resulted in net subscriber additions
for the year of 107,000.
Rest of World
Subscribers grew by 40% to 175,000, the largest
annual increase this market has delivered to date.
The largest contributors to subscribers were
South Africa and Singapore. Revenue grew by 27%
(32% in CC).
Australia
Subscribers grew by 22% in FY21 to reach
1,115,000. Revenue was up 20% (18% in CC). Good
demand for Xero’s revised Starter product and
increased partner channel adoption helped drive
Australia’s best ever year for subscriber growth.
New Zealand
Subscribers grew by 14% in the year to 446,000.
Revenue increased by 12%. This marked the best
full year net subscriber performance in three
years and demonstrates continued opportunity
to move to the cloud, particularly in the
partner channel.
ANZ
International
Australia
New Zealand
United Kingdom North America
Rest of World
FY21
YOY
FY21
YOY
FY21
YOY
FY21
YOY
FY21
YOY
Subscribers
1.12m +22%
446k
+14%
720k
+17%
285k
+18%
175k
+40%
Net additions
201k
+7%
54k
+32%
107k
-29%
44k
-4%
50k
+19%
Revenue
$384m +20% $130m +12%
$224m +22% $57m
+2%
$54m +27%
1.56M SUBSCRIBERS (+20% YOY)
1.18M SUBSCRIBERS (+21% YOY)
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This year brought home to many
people in small businesses the
need to understand their financial
position in real-time and how it
may change in future.
Right: Xero
customer, Poplar
Petfood & Produce,
Australia
To achieve our aspiration to make life better for
people in small business, we want to get Xero
into the hands of as many accountants and
bookkeepers as possible. We know Xero helps to
drive deeper and more meaningful conversations
between advisors and their clients, based on
accurate financial insights.
As part of our strategy to strengthen relationships
with global accounting firms, in March we signed
a global agreement with BDO. BDO is the first to
be awarded Xero Global Partner status. Xero will
become BDO’s preferred accounting solution for its
small and medium-sized clients worldwide. Initial
participating member firms are expected to include
BDO in Australia, New Zealand, the UK and Canada.
Talent and leadership
Attracting, retaining and inspiring world-class
talent is a priority and critical to our growth. We aim
to hire people who are purpose-driven, customer-
centric and passionate about small business. Our
team of Xero people around the world grew 19% to
more than 3,600 employees, adding more than
550 employees over the year.
As Xero continues to scale and support more
customers, we are expanding our product and
technology teams globally. During the year, our
Toronto office in Canada became Xero’s North
American hub for product and technology
innovation. We also continued to invest in our
existing hubs in Wellington, Auckland, Melbourne
and Canberra.
We are proud of how our people responded to
COVID-19, and delivered features that customers
needed the most. During calendar year 2020,
Xero’s product and technology teams collectively
doubled the number of back and front end
application updates, even with the disruptions of
COVID-19 and people moving to work remotely.
Enhancing connections for our
customers and accounting and
bookkeeping partners
During the year, we enhanced Xero’s customer
experience by adding ecosystem apps,
partnerships and bank feeds.
Xero now has an ecosystem of more than 1,000
connected apps. These apps provide vital services
for our accounting and bookkeeping partners
and small business customers in areas such as
point of sale, inventory management and financial
forecasting – to name just a few.
We extended our partnerships with financial
institutions around the world, and, as a result,
Xero now supports more than 300 connections to
banks and financial service providers.
Our US customers gained direct connections to
Citibank, Bank of America and Chase Bank in
early 2021, following agreements made in previous
years. Many of our US customers now have
access to high quality, API-driven bank feeds that
automatically import transactions into Xero from
the four biggest US banks. We also launched a
direct API bank feed with Nedbank in South Africa.
We expanded our payments capabilities,
delivering a new way to manage and pay multiple
bills at once in the UK in partnership with Wise
(formerly known as Transferwise). We also
enhanced our invoice payment experiences with
Stripe and GoCardless, making it more seamless
for businesses to accept payments.
We continue to ensure that Xero’s leadership
team is structured to optimally address the
needs of our customers and drive consistency of
decision-making and sharing of ideas across all
of our markets.
During the second half of FY21, we expanded the
remit of Xero’s Chief Customer Officer role to lead
our global sales and customer functions including
the Managing Directors in each region. The
region Managing Directors continue to focus on
building brand presence and driving subscriber
momentum in the markets they lead.
Evolution of the Xero Small
Business Insights program
We advanced our Xero Small Business Insights
(XSBI) program by launching the monthly Xero
Small Business Index in May 2021. This index
measures a number of important indicators
within the small business segment. It allows a
unique country-by-country comparison of small
business sales, wages, jobs and invoice payment
times across Australia, New Zealand and the UK.
Created by Xero with help from Accenture, the
Xero Small Business Index uses anonymised,
aggregated data from hundreds of thousands
of small businesses, to give monthly insights
across our largest markets. Equipped with this
information, policymakers have a clearer picture
of the small business economy so they can make
better-informed decisions.
Our people
I’d like to acknowledge and thank all Xero
people around the world for their commitment,
passion, and hard work during FY21. Our people
have adjusted well to working from home
despite many facing isolation, conducting
homeschooling, and living with health and
wellbeing concerns.
In the face of these challenges, I’m proud of how
we have continued to support one another and our
customers. We have demonstrated and lived our
values, especially #team and #human.
We focused on supporting the wellbeing of our
people and our customers during COVID-19 and
established a wellbeing function within our people
experience team to grow our efforts in this area.
We created a wellbeing hub for our people, with
resources for them and their families, including an
information kit for parents, and we listened to our
people through regular pulse surveys and Ask Me
Anything sessions to understand how we could
support them.
We also updated our flexible working policy to give
our people choice in terms of where and what hours
they work including adjustable start and finish
times, compressed work weeks and remote working.
Outlook
Xero will continue to focus on growing its global
small business platform and maintain a preference
for reinvesting cash generated, subject to
investment criteria and market conditions, to drive
long-term shareholder value.
Total operating expenses (excluding acquisition
integration costs) as a percentage of operating
revenue for FY22 are expected to be in a range of
80–85% which is consistent with levels seen in the
second half of FY21 and the pre-pandemic period.
Integration costs, relating to the three acquisitions
announced during FY21, are expected to increase
total operating expenses as a percentage of
operating revenue by up to 2% for FY22.
As previously stated, the acquisition of Planday
is expected to contribute approximately three
percentage points of additional operating revenue
growth in FY22.
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Product updates
We made significant investments in product development and technology in FY21, delivering new tools for
small businesses and their advisors to manage and monitor their operations. We made enhancements that
focus on providing fast and accurate data, streamlined workflows, and deeper insights to help our customers.
Below are some of the product initiatives and delivery highlights.
Starter plan
There has been strong uptake of our enhanced
Starter plan, which is tailored for early-stage
businesses with simpler needs, such as sole
traders. The revised plan removed the limit on
bank reconciliation and provides for the ability to
approve and send up to 20 invoices per month.
Like all Business Edition plans, it also includes
Hubdoc for automated document collection
and management.
Xero Tax UK
In FY21, we enabled UK accountants and
bookkeepers to lodge company tax for their
customers directly via Xero practice management
tools. Xero Tax has helped to drive growth in our
more developed markets, and we are investing for
the next phases of Making Tax Digital in 2022
and 2023.
Payroll UK
Xero Payroll software was updated to process
furlough leave for eligible current or reinstated
employees, as well as apply for the HMRC Job
Retention Scheme payments for employees.
Payroll Australia
We delivered tools to help Australian customers
assess their eligibility for the JobKeeper wage
subsidy, make payments to employees, and file the
required reports to the Australian Taxation Office.
Short-term cash flow
This tool takes data from a customer’s Xero
account – such as their bank accounts, bills, and
invoices – to produce a current view of cash flow.
It projects a bank balance as much as 30 days into
the future, showing the impact of existing bills and
invoices if they’re paid on time.
E-invoicing (Australia & New Zealand)
We launched the ability for customers to send
e-invoices from Xero via the international Peppol
network. E-invoicing eliminates manual entry and
increases accuracy at the recipients’ end, as data
fields automatically populate in their e-invoicing
software, and can contribute to faster payment.
Business snapshot
This is a visual dashboard of key financial metrics
showing customers’ business performance at a
glance: income, expenses, average time to get
paid, and average time to pay suppliers (debtor
and creditor days), as well as their balance sheet
position and cash balance.
Xero Projects - profitability
This new dashboard in Xero Projects provides at-a-
glance visibility of the profitability of each project.
Practice management updates
Accountants and bookkeepers now see a unified
client list across Xero HQ and Xero Practice
Manager, enabling them to easily send documents
for small businesses to sign remotely with
Document Packs.
Conclusion
We are pleased with our progress in FY21 under
challenging conditions, and we enter FY22 with
continued focus on our purpose: to make life
better for people in small business, their advisors
and communities around the world.
We see tremendous opportunity and demand for
small business to contribute to economic and
social recovery, while recognising that COVID-19 is
still impacting many people and communities.
Xero will continue to work hard to support our
customers by continuing to invest in product
development, strategic acquisitions and
partnerships that enable us to address their
current and future needs.
Thank you to our people, customers and partners,
shareholders and everyone who supports Xero.
Steve Vamos
Chief Executive Officer
THROUGH THEIR EYES
Focus on Spotlight
Richard Francis, CEO | Xero App Partner |
Spotlight Reporting | New Zealand
Spotlight Reporting, an app that delivers deep reporting and
business insights, has been connected to Xero for a decade.
When it joined Xero’s ecosystem, it was one of a dozen app
partners. Since then, Spotlight has expanded beyond its
home country of New Zealand to serve customers globally.
“Xero’s decision to allow its customers to share their
accounting data with apps in 2010 opened up opportunities
for us to support small business in new ways,” says Spotlight
CEO and founder Richard Francis.
Xero already had a suite of features and functionalities, and
Spotlight’s team was able to create solutions that extended
these capabilities.
Richard added, “Suddenly we could turn real-time Xero data
into meaningful and tailored performance reports with a click
of a button. This added another layer of sophistication for
our customers, enabling them to make real-time decisions to
support their business.”
Richard explains that Xero attracted the kind of accountants,
bookkeepers and advisors that Spotlight wanted to work
with – those who focused not just on taxes but advisory.
This included strategy, mentoring, and producing visual
forecasts and budgets that helped business owners reach
their financial goals.
“If small and medium businesses are having better
conversations with their advisors and making smarter
decisions, then everyone benefits,” says Richard.
Since 2010, Xero’s ecosystem has attracted app partners that
handle everything from inventory management and point of
sale to employee rostering and more.
“Because Xero is continually innovating, we’re motivated to
do the same,” says Richard. “We keep moving and offering
capabilities that are different or extensions of what Xero
does. And it works very well.”
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Xero + apps – the secret to success
Kristen Buttress | Xero Customer |
Kristen’s Kick-Ass Ice Cream | South Africa
For Kristen Buttress, Managing Director of Kristen’s Kick-Ass Ice Cream in South
Africa and Mauritius, using Xero alongside a suite of connected apps from the
Xero App Marketplace, has enabled her to grow her business. It’s also given her
the most precious thing of all – more time with her two young children.
Kristen says handing her business reins over to her accountant, and putting
her trust in Xero and apps Vend, Shopify, SimplePay, and Dext (previously
ReceiptBank) just over a year ago, has been a game changer for her business
and her personal life.
Vend and Shopify enabled Kristen to keep her business operating throughout
COVID-19. During lockdown, facilitated by the two apps, she upgraded her
website and started offering ice cream deliveries.
“I love how all the apps talk to each other, and integrate well with Xero.
If I ever want to know how my business is doing, I can see my receivables,
payables, and how my bank accounts are looking. And if I need any further
information, my accountant walks me through it. It’s enabled me to grow as
a business owner and given me so much time back to work on my business
and be with my family.”
And being able to clearly see her accounts receivable via Xero has given her
the confidence to move her wholesale clients from cash accounts to 30-day
accounts, leading to more income from those customers, not to mention the
time savings: “I used to spend about 30 hours a month on paperwork – now it’s
more like two!”
If I ever want to know how my business is
doing, I can see my receivables, payables,
and how my bank accounts are looking.
XERO ANNUAL REPORT
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Xero’s response to COVID-19
What drives Xero is our purpose: to make
life better for people in small business,
their advisors and communities around the
world. During COVID-19, we acted to help
our customers and people adapt to new
ways of working in a number of ways.
COVID-19 Xero Crisis
Management Team
comprising leaders from
Xero teams globally is
formed to monitor COVID-19
and make decisions to
ensure the safety of our
people and our business
(March 2020)
Customer Response
Team is established to,
among other things, assist
small businesses, provide
dedicated 24/7 guidance
including how to access
support from governments
and Xero (March 2020)
Xero Hour expands to
more regions for small
businesses, accountants
and bookkeepers. These
free online sessions offer
advice from industry experts
on marketing, business skills
and wellbeing, and a forum
to exchange knowledge
(April 2020)
Xero HQ offers monthly
revenue export to make it
easier for accountants and
bookkeepers to help identify
clients across their practice
that need government or
additional support
(May 2020)
Xero HQ offers document
packs in Australia to
help partners collaborate
remotely with their clients,
adding the ability to
organise clients’ tax returns
and financial documents,
share them and get them
e-signed, all within Xero
(June 2020)
Xero Business Finance
Pack app is released.
Creates nine financial
reports using the most
up-to-date Xero data,
including reports commonly
requested when applying
for a business loan in NZ
(August 2020)
Xero On Air goes live. Xero’s
first digital customer and
partner engagement series
covering major product
announcements and sharing
strategies for businesses
and partners to navigate
COVID-19 (September 2020)
March 2020
April
May
June
July
August
September
Shifted all Xero employees
to remote working and
closed all of our offices
(March 2020)
Wellbeing Hub is
launched with resources
for Xero employees and
their families, including a
wellbeing kit to help with
mental health and keeping
active (April 2020)
Xero Payroll becomes
JobKeeper-enabled for
Australian customers to
provide access to government
stimulus packages,
accommodate pandemic-
related leave in the UK, and
allow customers to calculate,
apply for, and pay wage
subsidies to employees in NZ
(April 2020)
Education webinars are
hosted for thousands of
accounting and bookkeeping
partners on how to help
clients access government
support for COVID-19 in
Australia, the UK, and NZ
(webinars hosted from March
through June in Australia,
UK, and NZ)
Take Your Business Online
kit is released for customers
in NZ (July 2020)
Short-term cash flow
product feature is
enhanced for small business
customers to project a 30-
day bank balance, showing
the impact of existing bills
and invoices (June 2020)
Xero enhanced Starter
plan is launched, removing
limits on bank reconciliation
and increasing invoicing
limits to help sole traders,
start-ups and customers
with less complex needs
(September 2020)
Xero Small Business
Insights publishes
Pandemic Insights report
covering NZ, Australia, and
the UK to show impacts of
COVID-19 on small business
and inform government
policy (September 2020)
Increased wellbeing programs
June 2020
September
September
October
January 2021
March
Americas Town Hall
session: Facilitated
by a leading diversity
Beyond Blue partnership:
In Australia, our partnership
with Beyond Blue is
Head of Wellbeing:
We appointed a Head of
Xero Assistance Programme:
In NZ, the Xero Assistance
Shift Collab: We launch a
partnership with Shift Collab
Flexible work at Xero:
Flexible policy evolves to
Wellbeing to promote
Programme is extended from
in the US, offering a series of
give employees choice in
and inclusion expert to
established, giving our
the welfare of our people
a pilot to provide free and
mental wellbeing workshops
terms of where and what
provide Xero employees
partners access to a range
globally, with a focus on
confidential wellbeing support
for our accounting and
hours they work, including
an opportunity for open
of mental wellbeing content
their psychological needs
for customers, accounting and
bookkeeping partners and
compressed work weeks
dialogue on racism and
(September 2020)
(September 2020)
bookkeeping partners, and
our small business clients
and remote roles
racial inequity (June 2020)
their employees and families
(January 2021)
(March 2021)
(October 2020)
XERO ANNUAL REPORT
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Xero supports quick pivot
to virtual team building
Michael Alexis | Xero Customer | Museum Hack
and TeamBuilding | United States
When COVID-19 changed the events landscape across
the world, Museum Hack owner Michael Alexis and
his business partner, Tasia Duske, had to get creative.
Practically overnight, their unconventional ‘renegade’
tours of museums in major US cities went on hold, and
a new business was born – TeamBuilding.
In the whirlwind that followed, Xero’s accurate, up-to-date
financial data and insights enabled Michael to get a clearer
picture of his business performance, enabling him to form
an action plan for survival.
“Having up-to-date figures is essential, especially during a
time when there is so much fluctuation. Looking closely at
our expenses, we identified where we could cut costs. We
made the tough decision to lay off the majority of our staff
and switched to our new virtual team building business.”
Virtual team building events such as ‘Tiny Campfire’
– including real s’mores – and ‘Gingerbread Wars’ –
gingerbread decorating kits – are some of TeamBuilding’s
most popular events. While they sound delicious and fun,
Xero helped Michael identify their financial viability.
“During the holiday season, the gingerbread kits literally
overwhelmed our delivery process – our couriers refused
to take any more packages from us! Xero allowed us to see
what revenue Gingerbread Wars was bringing in but also
what it was costing us – particularly the cost of shipping
in winter months when we were sending the kits out last
minute. Revenue is nice, but operating costs and expenses
are also important.”
XERO ANNUAL REPORT
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Xero’s social and environmental impact
and diversity and inclusion programs
THROUGH THEIR EYES
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We are committed to building a diverse and inclusive business that
operates sustainably for the benefit of the millions of customers we serve,
their advisors and communities, our shareholders and the people at Xero.
Xero’s social and environmental impact (SEI)
and diversity and inclusion (D&I) programs are
focused on meeting our responsibilities in these
areas and scaling our business in a way that
reduces our impact on the planet and builds and
scales a diverse workforce.
Expanding and evolving these programs is a
priority for Xero, and we enter FY22 having made
progress toward this goal.
Our SEI program identifies four key
categories:
• Supporting our people
• Supporting our communities
• Supporting our customers (business support)
• Supporting the environment
This section contains an update on our recent
efforts under each of these categories.
Supporting our people
Work-life balance
Work-life balance is essential for wellbeing and
is an area we focused on during FY21. In March
we updated our flexible working policy to give
our people choice in terms of where and what
hours they work including adjustable start and
finish times, compressed work weeks and
remote working.
Having a healthy work-life balance is particularly
important when starting or growing a family.
To help address the challenges our people face
during this time, in FY21 we expanded Xero’s
parental leave policy.
All primary carers, regardless of how they
become a parent, are entitled to full leave
payments equivalent to 26 weeks. For employees
whose partner has a child, adopts a child or
brings one into their care, we offer up to six weeks
of paid leave.
It can be difficult for new parents to jump straight
back into work after time away. ‘Keeping in touch’
days help employees to keep connected with
colleagues by returning to work for up to 10 days
while on parental leave, paid at their usual salary.
When employees return to work following
parental or partner’s leave, with the support
of their manager they can choose initially how
they want to work including returning on a
part-time basis.
Diversity and Inclusion
Diversity in the workplace is essential for high-
performing and healthy teams. We actively seek
a diverse pool of candidates and maintain a
culture of inclusion to help our people feel valued
and respected and to have a sense of belonging
and fairness.
Xero considers D&I a priority in the creation
of a sustainable business that is capable of
delivering long-term value to shareholders and
our broader communities. Xero embraces the
diverse experience, ideas, skills and perspectives
of our people – which enables us to innovate,
attract and retain top talent, and better reflect
and serve our customers, partners, and our
communities. Xero takes a broad view of the
meaning of diversity and believes that through
inclusion we will tap into the power of our
people’s differences.
We believe our Board and leadership team
should reflect this diversity across a range
of dimensions, including racial and ethnic
diversity, and we will work towards more
diverse representation over time.
Six key principles provide the framework
for our goal of developing and maintaining
a diverse and inclusive workplace and the
implementation of initiatives to support this.
They are:
• We value diversity because it reflects our
customer base and ensures our people thrive
• We’re all accountable to create an inclusive
culture
• We’re committed to attracting diverse talent
and hiring fairly
• We support flexible ways of working
• We’re committed to equal pay for equal work
• We have an obligation to champion diversity
and inclusion in the community
We recognise the importance of an inclusive
culture and representation that reflects the
diversity of the customers and communities
we serve.
In February 2021, we launched an inclusive
leadership training program for our managers
to ensure our leaders understand how to create
and lead diverse teams.
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Enjoying my time as
a new parent
Tessa Khoo | Xero Employee |
Marketing Director | Singapore
What does support for parents typically look
like in Asia?
Support for parents is very different in this part of the world.
Women aren’t encouraged to take maternity leave beyond
the standard four months – there’s an underlying social
pressure to get back to work as soon as you can. I personally
don’t know anyone who has taken more time off. And new
fathers or secondary carers typically don’t take more than a
week off work.
What does Xero’s new parental leave policy
mean for you?
In an environment where things are so uncertain, I’m
grateful to work in an organisation that genuinely cares how
it supports its people in both their personal and professional
lives. The new Xero policy of six months’ paid parental leave
means I have more time to focus on my family and the huge
transition we’ll be going through. For me and other parents-
to-be at Xero, it helps ease the social pressures that many
new parents feel, and additionally makes a huge difference
to fathers or secondary carers. Paternity leave isn’t really a
thing in Asia, but Xero’s policy gives up to six weeks’ fully
paid parental leave to secondary carers, too.
How does going on parental leave affect
your team?
Taking more time out from work creates more opportunities
for my team. Part of Xero’s parental leave policy includes
paid ‘keeping in touch’ days, which enables new parents at
Xero to feel included and supported by Xero while on leave.
I want to stay connected while I’m on leave, so I’ll be using
those days. But it also gives me a chance to set the team up
with the right support, so they can lead and flourish in new
areas while I’m away.
XERO ANNUAL REPORT
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Right: Our social
and environmental
impact framework
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Extending our efforts on inclusion, in February
2021 we appointed a Head of Digital Accessibility.
This role will help ensure Xero’s product
development considers customers who have
sensory or cognitive impairments, or physical
limitations, that could impact their ability to use
our products.
As of 31 March 2021, 63% of our Xero
leadership team1 and 42% of our
employees were women, and we had
three female and five male directors
on our Board.
Addressing racial inequality and diversity
We want to play our part in tackling systemic
racial inequality. We want to welcome more
people from underrepresented groups to Xero and
strive to foster an inclusive, culturally safe work
environment where people feel supported to build
their careers.
Examples of initiatives undertaken this year include:
• We worked closely with a diversity and
inclusion consulting expert on a plan to
evaluate and increase the racial and ethnic
diversity of our employees, beginning with North
America. We recently expanded our diversity
and inclusion team with the appointment of a
diversity & inclusion program manager based
in the US to help implement a plan and share
lessons across our global business. The insights
and actions from what we have learnt in North
America are being considered for all our regions
• We conducted training for people leaders in
North America focused on understanding the
workplace experience of Black professionals,
led by the Black Professionals in Tech Network
• Diversity is important to our accounting and
bookkeeping partners as well. In early 2021,
we partnered with the National Association of
Black Accountants (NABA) in the US. We are
working to drive awareness of Xero – both as
a cloud accounting platform and an employer
– and offer Black Xero employees professional
development and growth opportunities
through NABA
• In addition, we are teaming up with the Oakland
Black Business Fund (OBBF) in Northern
California. Xero will offer OBBF’s small business
and bookkeeping members access to our cloud
accounting software, educational resources,
and certification workshops
Gender balance
As of 31 March 2021, 63% of our Xero leadership
team1 and 42% of our employees were women,
and we had three female and five male directors
on our Board.
Outside of the Board level, across our organisation,
we continue to work towards our long-term goal of
women representing 50% of our employees who
identify in the gender binary.
We’re proud that Xero was included in the 2021
Bloomberg Gender-Equality Index for the second
consecutive year. Xero is one of just 13 companies
headquartered in Australia or New Zealand that
have earned this distinction for 2021.
¹ Refer to the CEO Review, which sets out the expanded
role for the Chief Customer Officer and new reporting lines
for the Managing Directors in each region. These changes
have increased diversity at the leadership team level.
More information about our initiatives to support
gender diversity is set out in the Corporate
Governance Statement (see page 57).
Supporting our communities
Xero Community Appeal
In July 2020, we launched the Xero Community
Appeal, our first global fundraiser, to support
charities helping the most vulnerable and
marginalised people in the countries Xero is based.
The appeal ran for six months through a fundraising
portal with Xero customer, Catalyser (catalyser.
com). To kick the appeal off, Xero pledged $50,000
and matched all individual donations.
Together we raised almost $200,000, which has
been donated to charities in the regions that Xero
operates in. This amount can provide:
• A safe night of accommodation for 1,400 women
fleeing domestic violence in New Zealand
• 3,667 mental health consults in Australia and
the UK
• 6,139 hygiene kits to help children in Asia stay
healthy and minimise the risk of COVID-19
transmission
• Support for 457 Black youths in Canada to
build the skills and confidence to run their
own businesses
Supporting mental health
To support the mental health and wellbeing of
New Zealanders, we continue to offer the Xero
Assistance Programme (XAP) to our customers.
This initiative provides free access to mental
health support and counselling for all Xero’s
New Zealand accounting and bookkeeping
partners. It also includes all subscribers to Xero
Starter, Standard and Premium plans plus their
employees and families.
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Together we raised almost
$200,000
for the Xero Community appeal,
enough for charities to pay for all
of the following:
A safe night of accommodation for
1,400
women fleeing domestic violence
3,667
mental health consults
6,139
hygiene kits to help children stay
safe during COVID-19
support for
457
Black youths to build the skills and
confidence to run their own businesses
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A place where my voice is
heard and elevated
Dahalia Jenkins | Xero Employee |
Product Marketing Manager |
United States
What’s it like working at Xero?
It’s been a breath of fresh air. Taking the leap of faith to
join Xero in April 2020, right as the world felt like it was
falling apart, was really liberating. Even though I haven’t
yet met anybody I work with in person, it’s been cool to be
able to build relationships with team members around the
world and still feel connected via our video meeting tools
and All Hands meetings. I’m especially looking forward
to meeting my colleagues in New York, who I’ll be able to
spend time with once the world opens up again.
What’s been the highlight of your time at
Xero so far?
A lot was happening in the US last year with the Black
Lives Matter movement and other issues, and it was a
lot to digest and take on. Unofficially, a group of us got
together and formed an Employee Resource Group called
Black Xero. We started Black Xero to have a virtual safe
space where we could discuss everything impacting
the US. Eventually, we expanded and started sharing
information with the broader US team. Having great
discussions about race relations and how we can come
together to make things better has been wonderful.
And having the support of Tony Ward (President, Xero
Americas) and the leadership team made it possible for
us to make our group legitimate.
Are there any initiatives or policies you’ve
used in the past 12 months and what’s your
experience been?
Once a month or so, our people experience team in the US
hosts workshops to help us with our mental health and
general wellbeing. Sessions have covered topics such as
nutrition, overcoming imposter syndrome, and breaking
perfectionism. I know I’m a person who suffers from these
things – they’re always playing in the back of my head.
Those sessions have been really helpful, and it’s been
refreshing to come together and just see that I’m not
alone. I look forward to those sessions as they help me to
work on myself in a safe environment.
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The XAP service is 100% confidential and
provided by Benestar, an expert provider
in mental health services. The initiative is
designed to offer treatment along with lifestyle
advice that can prevent mental health issues
from arising. In addition, XAP offers advice on
physical health and managing relationships at
home and work.
In Australia, Xero has partnered with Beyond
Blue, a not-for-profit provider of mental health
initiatives that provides our employees and
accounting and bookkeeping partners with free
access to mental health resources.
In 2020, we joined Shift Collab, a leader in
mental health education, to deliver a series of
mental health workshops to our employees
across the US. We later expanded this to
include separate sessions for accounting
and bookkeeping partners and small
business clients.
Community engagement
In FY21, we continued our community outreach
and engagement program with the goal of
fostering racial, gender and ethnic diversity
among today’s students, who are tomorrow’s
generation of talent. After shifting our program
largely online due to COVID-19, our initiatives
included creating an online coding adventure for
young people in New Zealand, co-creating the
Trailblazing Women in Tech quiz for girls aged
9 to 13 with the She# team and supporting a
number of our people to participate as mentors
in the GirlBoss Edge: Engineering & Technology
online career accelerator for high school-age
young women.
We are fortunate to have been able to resume
some community engagement activities in
person, such as hosting work experience days
for a group of young women and Māori and
Pasifika students in New Zealand, ShadowTech
days for teachers to spend a half-day alongside
IT professionals, and a She# networking event
for women working in technology.
In the US, we awarded the first Xero Forward
Fund scholarships. These recognise outstanding
students who bring unique backgrounds,
perspectives and skills that will help influence
the future of accounting. The three winners each
received a US$10,000 scholarship for tuition or
other associated study costs.
Supporting non-profit organisations
To help local non-profit organisations, Xero’s
employee volunteer program Community
Connect entitles all Xero employees to a paid
day of leave each year. In FY21, our people
volunteered in their local communities as
COVID-19 restrictions allowed, contributing
almost 3,000 hours.
Xero also provides over a million dollars in
discounts annually to non-profit organisations
and community groups through our non-profit
discount program.
Responsible supply chain
We have a Supplier Code of Conduct at Xero
and, using a risk-based approach, we have
integrated it into our supplier due-diligence
process. Our procurement team has received
ethical procurement certification provided by
the Chartered Institute of Procurement
& Supply so that it can better recognise
situations where we need to safeguard against
unethical behaviours and consider modern
slavery risks in our supply chain. We aim to
have a positive impact through our influence on
our supply chain and by working with socially
conscious vendors.
Modern slavery and human trafficking
We remain vigilant on modern slavery risks,
have policies and processes to help us address
these risks, and we regularly assess the
effectiveness of our actions. Given the visibility
we have over our operations, we consider our
modern slavery and human trafficking risk to
be relatively low.
Most of our suppliers are located in New
Zealand, Australia, the US and the UK. These
countries have a low prevalence of modern
slavery and governments that take strong
action against it.
Xero’s costs largely comprise technology-
related and marketing and advertising-related
goods and services, and our contracts require
our suppliers to act in accordance with all
applicable laws. Similarly, our recruitment
process includes right-to-work checks for
all employees to safeguard against human
trafficking and modern slavery risks.
In March, we were one of more than 80
companies to sign a petition calling for the
New Zealand Government to pass a Modern
Slavery Act. This legislation would bring New
Zealand into line with other jurisdictions and
would require businesses to understand the
risks of modern slavery in their purchasing, to
publicly report on those risks, and take action
to address them. Our current modern slavery
statement, prepared under Australian and UK
law, is available on our website.
XERO ANNUAL REPORT
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Conclusion
We thank all of our people, partners and their
communities, and investors for their support. We
will share more on our efforts as the year unfolds.
For information on Xero’s social and
environmental impact, and diversity and inclusion
initiatives, visit xero.com/socialimpact
29
Right: Steve Vamos,
Xero CEO and
Craig Hudson, Xero
Managing Director -
NZ & Pacific Islands
at Fishermans Bay,
New Zealand
Supporting businesses
Small business environmental tools
We are exploring how to support small businesses
in adopting more sustainable ways of working.
To help educate them on reducing their carbon
footprint, we created a guide for small business,
an educational video, webinar, blogs, and a case
study with actions small businesses can take now.
Partners in the Xero App Marketplace are
also helping small businesses operate more
sustainably. For example, the Carbon Analytics
app integrates with Xero and converts a US or UK
small business’s purchase data – such as utilities
and petrol – into carbon and water equivalents to
calculate the business’s carbon footprint.
In FY21, our people volunteered in
their local communities as COVID-19
restrictions allowed, contributing
almost 3,000 hours.
Xero will continue looking into scalable resources
and support models that help both us and
small businesses operate in an environmentally
conscious way.
Supporting the environment
Climate
Our environmental sustainability program Net
Zero @ Xero is our commitment to carbon
neutrality. As part of our journey to becoming
carbon neutral, Xero has undertaken a number of
activities to decrease our energy consumption (see
below) and has purchased certified carbon offsets
to offset 100% of our remaining carbon emissions.
Carbon offsets have been purchased from projects
in Indonesia, India and New Zealand. This includes
recently expanding our sponsorship of the
Fishermans Bay Conservation Project near Akaroa
in New Zealand. That means that in addition to
the Fishermans Bay project’s carbon benefits,
we’re also directly supporting biodiversity-related
activities such as yellow-eyed penguin sanctuary
habitat management; possum and predator pest
control work; noxious weed control work; and
provision and maintenance of safe tracks for
public and educational groups.
In FY21, Xero was certified carbon neutral by the
Australian Government’s Climate Active program.
In addition, we have taken the following steps to
support sustainability:
• Reducing electricity consumption via efficiency
measures within Xero offices such as sensor and
timer lighting, extensive use of LED lighting in all
offices, working with air conditioning engineers
and landlords to improve the efficiency of
heating and cooling systems
• Cutting waste production and increasing
recycling rates including e-waste collection and
compost bins in some offices
• Making procurement decisions that consider
the carbon intensity of our suppliers and our
climate impact
• Evolving our flexible work policy to allow our
people to choose how many days a week they
work from home and how many in the office,
with their manager’s approval. We expect this
will reduce carbon emissions associated with a
reduction in people commuting to work
• Encouraging our people to use alternative
modes of transport to get to work, such as
cycling, by offering ‘end of trip’ facilities
including showers, bike cages and lockers
• Purchasing Forest Stewardship Council-
certified paper stock for jobs that require
printing
• Proactively working with Amazon Web
Services (AWS), our cloud services provider,
to determine how we can operate our
infrastructure more efficiently and mitigate
future emissions. AWS is committed to running
its business in the most environmentally
friendly way possible and achieving 100%
renewable energy usage for its global
infrastructure by 2025
Each year our business is growing to serve more
customers, and as we do so, we remain mindful
of Xero’s impact on the natural environment and
the climate. While we are proud of our progress on
carbon neutrality, we recognise there is more to
do to understand and minimise this impact.
As a key focus for Xero, we will be investing in
this and setting targets that are appropriate and
sustainable for the long term. A key step for FY22
will be to start our journey to report in alignment
with the Recommendations of the Task Force on
Climate-related Financial Disclosures.
XERO ANNUAL REPORT
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THRO UG H T HEIR E YES
Making a positive impact
in many ways
Rae Biffin | Xero Employee |
Senior Post Production Artist |
Australia
What made you want to join Xero?
When I started looking for a new job, I sought out
companies with values similar to my own, and companies
with solid wellbeing policies. I did a lot of research about
Xero’s values and initiatives and I felt like the direction
Xero was heading was also where I wanted to go. The Net
Zero @ Xero initiative (our commitment to offset 100%
of Xero’s carbon emissions) is something that really
attracted me, because it aligns with my own personal
values. And it’s nice to be able to come to work and
see Xero taking positive steps when it comes to our
environmental impact.
Having a supportive and approachable
direct manager really enables me to
bring my full self to work.
What’s it like working at Xero?
I really enjoy working for a company that’s striving
to have a positive impact through supporting small
business. And having a supportive and approachable
direct manager really enables me to bring my full self to
work. My direct manager is a wonderful listener and
a calming presence, so having him on the team is
something I’m grateful for.
How does Xero help you to be yourself
at work?
Xero’s #human value reflects the authenticity, passion, energy, and
purpose that we all bring to work each day. Different opinions and
ways of life are also welcomed. Knowing that most of my co-workers
share this value, I find it easy to have conversations at work – even
ones that might feel a bit tricky to navigate. That makes working as a
team feel more effortless, and I’m able to focus more on the creative
side of my work.
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Understanding the importance
of mental wellbeing
Theo Redmond | Xero Employee |
Workplace Experience and Hospitality Assistant |
New Zealand
What made you want to join Xero?
In 2016, I had the opportunity to work with Xero at an event
called Fieldays – I was a barista at Xero’s stand. I got a glimpse
of Xero’s culture and values and I thought it was amazing.
Everyone was so kind and #human. So when a role came up,
I didn’t think twice about applying.
What’s it like working at Xero?
I love that there is so much diversity at Xero and that
everyone gets to bring their whole self to work every
day. The big one for me is how much our leaders care
about our wellbeing. I find it amazing that I can take
paid wellbeing leave for my mental health, and that
it’s just a normal thing – as normal as having a cold.
It’s been awesome to not feel any kind of stigma or
pressure about mental wellbeing.
What’s been the highlight of your
time at Xero so far?
Being able to connect with other Xeros (Xero
employees) remotely through the COVID-19 level four
lockdown. At first, it was a real challenge for me. I had to
really think about how to give our team a platform where
they could still feel engaged, inspired and empowered
– but from home. I feel like that’s a huge part of my role
every morning with the barista service – I’m giving banter,
I’m giving energy, I’m giving life. I’m basically setting the tone
for everyone’s day. I came up with Theo Talks, a 15 minute daily
online talk show. Theo Talks really gave me a platform to connect
and it also pushed me to challenge my fear of speaking in public.
Now, I have the confidence to be part of productions like Xero On Air
and Xerovision, and it’s just turned into a beautiful thing.
I find it amazing that I can take paid
wellbeing leave for my mental health,
and that it’s just a normal thing.
XERO ANNUAL REPORT
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Key Risks
Xero is a long-term focused and high-growth
business with operations located around
the world. As a result, we address a variety
of opportunities and face a range of risks,
which we consider from a sustainable,
long-term value creation perspective.
Xero recognises that all management and
employees have a role to play in this area.
Therefore, we have aligned accountability
for managing risk to the globally recognised
‘Three Lines Model’. Key roles are outlined in
the diagram below.
The Xero risk framework is designed to
identify material financial and non-financial
risks that may impact our ability to achieve
our strategic objectives.
Risk assessment and mitigation are part
of our culture at Xero, and responsibility
is shared between the Board and senior
managers. The Board sets and approves the
risk framework and risk appetite statement,
and provides oversight of management’s
execution of the framework.
Xero’s Risk Management Accountability
Three Lines Model
The Xero Board
Deciding the nature and extent of the risks
Xero is prepared to take to meet objectives
The Board’s role: Set risk appetite, and oversight
of the risk management framework
Xero Leadership Team
& Management
Establishing risk management framework and
managing risks with Board defined risk appetite
First line’s role
Day to day
ownership and
management
of risks and
controls
Second line’s
role
Expertise, support,
monitoring and
challenge on risk-
related matters
Assurance
Independent assurance over
risks
Third line’s role
Independent and objective
assurance and advice on the
effectiveness of risk and
control management
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Key
Accountability,
reporting
Delegation,
direction, resources,
oversight
Alignment,
communication,
coordination,
collaboration
34
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The table below highlights some of the key risks facing Xero and the high-level mitigation activities we have in place.
Strategic risks
Mitigation
Strategic execution
Failure to execute our
strategic initiatives leading to
reduced revenue growth and
reputational impacts
Product delivery
execution
Failure to deliver new products
and innovations that meet our
customers’ needs
Access to talent/
workforce planning
Inability to attract, develop
and retain talent to deliver
on strategy
Competitive intensity
and disruption
New technologies and/or
competitors that impact
Xero’s ability to deliver on
our strategic priorities and
financial performance
• Program and project governance over strategic initiatives with regular review, oversight
and reporting
• Alignment of strategic initiatives with annual operational plans, objectives and
key results
• Executive sponsorship and accountability for each strategic initiative
• Investment in engineering and product-development capability
• Prioritisation of initiatives to focus available resources and talent on delivery of highest
priority projects
• Xero invests in targeted customer and market research programs, which are used to
inform future product-development needs and priorities across Xero
• Attraction and retention strategies in place including flexible work practices and career
development opportunities
• Continually exploring new resourcing options to ensure we can access talent
• Recruitment team in place across all regions
• Succession planning processes for key roles in place
• Systems in place for monitoring and responding to competitor and market activity
• Development of strategic partnerships and pipeline of potential acquisitions
• Increased investment in core product development, along with additional resourcing
options to enable faster product development
M&A and related
business integration
Failure to successfully realise
value and/or integrate new
acquisitions as planned
• Board and leadership team oversight of integration activities and performance with
corporate development team and Xero Investment Committee in place
• Board approved integration framework including pre-acquisition due diligence
processes in place
• Dedicated M&A Integration Management Office established
Social and environmental
(including climate)
Failure to create a diverse and
sustainable business, resulting
in financial, reputational and
brand damage
Operational risks
Platform stability
Failure or disruption of
our platform, resulting in
customer churn and/or
reputational damage
Data and cyber security
breaches
Security controls and processes
are insufficient, leading to a
breach and resulting in loss of
data or system functionality,
customer churn, and/or
reputational damage
• Regular review and oversight of Environmental, Social, and Governance (ESG) initiatives
and risks by leadership team and Audit and Risk Management Committee
• Development of a road map underway to align with the Task Force on Climate-related
Financial Disclosures (TCFD) guidelines for climate reporting
• Net Zero @ Xero carbon neutrality commitment
• Diversity and inclusion policy and procedures in place
• Strategic focus on, and investment in, best practice technologies and engineering
capabilities
• Regular monitoring of and reporting on platform and database performance
• Disaster recovery, business continuity and crisis management plans in place
• Governance and oversight mechanisms such as the Security Governance Group, Data Use
and Governance Group, Audit and Risk Management Committee risk updates
• Data security and awareness programs for all Xero employees and partner education
• Best practice tools and processes in place to provide multi-layer protection against
unauthorised access, e.g. multi-factor authentication, security penetration testing
• SOC2 and ISO 27001 compliance and certification, including regular external audits
XERO ANNUAL REPORT
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COVID-19 recovery
Failure to manage Xero’s
potential financial, operational,
and people risks (and
opportunities) from COVID-19
• Regular financial oversight and monitoring of impacts across our markets including
Crisis Management Team
• Investment and strategic focus on opportunities created by increased digitisation trends
• Ongoing support of customers and employees
Wellbeing, health
and safety
Failure to protect employees’
wellbeing, health and safety
Legal, regulatory and
compliance
Failure to manage legal,
regulatory and compliance
risks that may impact Xero’s
products, brand and/or
financial returns
Financial risks
Capital access and
management
Failure to allocate
resources appropriately and
productively and constraints
on access to capital
Adverse global
economic conditions
Significantly weakened
global conditions, as a result
of the pandemic, could
harm our business and
financial condition
Emerging risks
Legal and regulatory
changes
Failure to identify and
manage changes to the
regulatory environment that
may introduce new risks and/
or present new opportunities
to our business
Machine learning and
artificial intelligence
Failure to manage risks
and opportunities,
leading to financial and
reputational impacts
• Investment in dedicated programs and resources that support our employees, including
Flexible Working and Respect and Responsibility Policies
• Regular surveys and reporting on employee wellbeing, and engagement metrics
and trends
• Regular review and oversight of regulatory and compliance areas by the leadership team
and Audit and Risk Management Committee
• Regular review and updates undertaken in monthly product risk and regulatory forums,
and at the Security Governance Group and Data Use Governance Group
• Policies, procedures, training and education provided over key regulatory and compliance
areas, supported by internal and external audits
• Proactive and regular dialogue with regulators and industry bodies
• Maintaining strong relationships with banking partners and investors
• Regular review of capital strategy such as our recent convertible notes raising
• Governance oversight of capital allocation and investment by the Audit and Risk
Management Committee and and the executive level Treasury Governance Committee
• Regular financial oversight and monitoring across our markets
• Governance and oversight from the Board
• Detailed financial analysis and scenario modelling to enable responsive changes to
spending and investment approaches
• Monthly product risk and regulatory forums
• Regulatory team to provide input on emerging changes and potential business impacts
• Global government relations function to coordinate proactive government and policy
engagement strategy
• Governance oversight from the Data Use Governance Group and focus on ethical and
responsible use of data and machine learning
• Approach is framed by Xero Responsible Data Use Commitments, which include a
specific commitment on reducing data and algorithmic bias that may adversely impact
small business owners
• Emerging data literacy programs to drive awareness and understanding of best practice
across the Xero engineering and analytics community
XERO ANNUAL REPORT 36
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Our Performance
You should read the following commentary with the
consolidated financial statements and the related notes in
this report.
Some parts of this commentary include information
regarding Xero’s plans and strategy, and include forward-
looking statements that involve risks and uncertainties.
Actual results and the timing of certain events may differ
materially from future results expressed or implied by the
forward-looking statements contained in this commentary.
All amounts are in New Zealand dollars (NZD) except where
indicated. References to the period or FY21 are for the 12
months ended 31 March 2021. References to H1 FY21, or the
first half, refer to the six month period ended 30 September
2020. References to H2 FY21, or the second half, refer to the
six month period ended 31 March 2021. References to the
comparative period or FY20 are for the 12 months ended 31
March 2020.
Non-GAAP measures have been included as Xero believes
they provide useful information for readers to assist in
understanding Xero’s (the Group’s) financial performance.
Non-GAAP financial measures should not be viewed
in isolation or considered as substitutes for measures
reported in accordance with New Zealand equivalents to
International Financial Reporting Standards (NZ IFRS).
As Planday A/S (‘Planday’) and Tickstar AB (‘Tickstar’) were
acquired on 1 April 2021, their performance and position are
not included in these results.
37
Business results
Year ended 31 March
Subscription revenue
Other operating revenue
Total operating revenue
Cost of revenue
Gross profit
Gross margin percentage
Total operating expenses
Percentage of operating revenue
Other income and expenses
Asset impairments
Operating profit
Percentage of operating revenue
Net finance expense
Income tax credit/(expense)
Net profit
Percentage of operating revenue
*pp stands for percentage points
**NM stands for not meaningful
2021
($000s)
828,106
20,676
848,782
(118,893)
729,889
86.0%
2020
($000s)
696,220
22,011
718,231
(106,582)
611,649
85.2%
(663,825)
(580,090)
78.2%
(4,377)
-
61,687
7.3%
(105,623)
63,710
19,774
2.3%
80.8%
2,550
(1,427)
32,682
4.6%
(22,845)
(6,501)
3,336
0.5%
change
19%
-6%
18%
12%
19%
0.8pp*
14%
-2.6pp
NM**
NM
89%
2.7pp
NM
NM
NM
1.8pp
During FY21, Xero continued to execute its growth strategy, resulting in strong financial results despite the ongoing challenges of
COVID-19. Xero delivered top-line revenue growth and operational discipline, along with an alignment of expenditure as
appropriate to the operating environment presented by COVID-19. This has resulted in increases to EBITDA and free cash flow in
the year.
The resilience of Xero’s global business model has meant that, despite the impact of COVID-19 on Xero’s financial and operating
performance, Xero has been able to continue to invest in scaling its global business, developing new products, and driving quality
subscriber growth. This investment was increased in the second half of the year as the impacts of COVID-19 on our markets
became clearer, resulting in considerably lower EBITDA and free cash flow in the second half than in the first half.
Operating revenue growth was driven by subscriber growth in all markets. Xero reached key milestones in the first half of FY21 with
both the Australian market and the International segment surpassing one million subscribers. In H2 FY21, Xero built on this with
the ANZ segment surpassing 1.5 million subscribers. Xero ended FY21 with 2.7 million subscribers.
Gross margin improved by 0.8 percentage points compared to FY20. This was due to the realisation of further productivity gains
from Xero Central (Xero’s customer experience and community platform). Total operating expenses increased by 14% against the
comparative period, but decreased by 2.6 percentage points as a proportion of operating revenue. This decrease was a result of
Xero cutting back on expenditure early in the year in response to the uncertainty related to COVID-19. Operating costs increased in
H2 FY21 as the operating environment and market opportunities became clearer. Growth in total operating revenue of 18%
exceeded growth in total operating expenses, resulting in operating profit of $61.7 million in FY21, up $29.0 million from $32.7
million in FY20.
The increase in net finance expense was largely driven by one-off losses on term debt on extinguishment of the 2023 convertible
notes and recognition of the 2025 convertible notes. Lower market interest rates also contributed to a reduction in interest
income, compared to FY20.
Net profit was impacted by losses on term debt and transaction costs relating to the extinguishment of the 2023 convertible notes
and settlement of the 2025 convertible notes of $72.8 million. Net profit was also impacted by a benefit to tax expense resulting
from recognition of a deferred tax asset on New Zealand tax losses and carried forward R&D expenditure of $65.0 million. The net
impact of the convertible notes and the deferred tax one-offs in FY21 was an $7.8 million loss resulting in $19.8 million net profit.
XERO ANNUAL REPORT 38
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Earnings before interest, tax, depreciation, and amortisation (EBITDA)
EBITDA disclosures (which are non-GAAP financial measures) have been included as Xero believes they provide useful information
for readers in understanding Xero’s financial performance. EBITDA is calculated by adding back net finance expense, depreciation
and amortisation, and income tax expense/(credit) to net profit.
Year ended 31 March
Net profit
Add back: net finance expense
Add back: depreciation and amortisation
Add back: income tax expense/(credit)
EBITDA
EBITDA margin
2021
($000s)
19,774
105,623
129,541
(63,710)
191,228
22.5%
2020
($000s)
3,336
22,845
105,061
6,501
137,743
19.2%
change
NM
NM
23%
NM
39%
3.3pp
EBITDA increased by $53.5 million in FY21 compared to FY20, resulting in EBITDA margin increasing from 19.2% in FY20 to 22.5%
in FY21. The increase in EBITDA was driven by a combination of revenue growth and operational discipline, which resulted in a
decrease in spending as a proportion of operating revenue.
Revenue grew by 18% compared to FY20 due to subscriber growth of 20%. Total operating expenses as a proportion of operating
revenue decreased from 80.8% in FY20 to 78.2% in FY21. This was driven by efficiencies, as well as deliberate decreases in H1 FY21
spend in response to the COVID-19 environment, particularly across the sales and marketing function.
In H1 FY21, total operating expenses decreased by 10.1 percentage points to 70.4% as a proportion of operating revenue compared
to H1 FY20. In contrast, H2 FY21 total operating expenses increased 4.5 percentage points to 85.5% as a proportion of operating
revenue compared to H2 FY20 (an increase of 15.1 percentage points from H1 FY21). This decrease in total operating expenses in H1
FY21, and subsequent increase in H2 FY21, reflects Xero’s continual assessment of the operating environment, and the balance
struck between responding to the operating environment and optimising long term growth. Xero continues to demonstrate a
commitment to invest for the long-term with product design and development expenses increasing 40% compared to the
comparative period, significantly higher than operating revenue growth of 18%.
Operating expenses as a percentage of operating revenue
90.0%
80.0%
70.0%
60.0%
H1 FY19
H2 FY19
H1 FY20
H2 FY20
H1 FY21
H2 FY21
39
EBITDA excluding the impact of non-cash share-based payments and impairments (a non-GAAP financial measure) is provided as
Xero believes it provides useful information to analyse trends in cash-based operating expenses.
Year ended 31 March
EBITDA
Add back: non-cash share-based payments
Add back: non-cash impairments
EBITDA excluding non-cash share-based
payments and impairments
Percentage of operating revenue
2021
($000s)
191,228
42,731
-
233,959
27.6%
2020
($000s)
137,743
34,336
1,427
173,506
24.2%
change
39%
24%
NM
35%
3.4pp
EBITDA excluding non-cash share-based payments and impairments for FY21 was $234.0 million, an improvement of $60.5 million
or 35% compared to FY20. Operating revenue growth of 18% exceeded the growth of cash-based operating expenses, which grew
by 12%. This resulted in EBITDA excluding non-cash share-based payments and impairments improving as a percentage of
operating revenue by 3.4 percentage points.
Cash flows and liquidity
Free cash flow is a non-GAAP financial measure that has been included to demonstrate net cash generated by, and invested into,
the business. Xero defines free cash flow as cash flows generated from operating activities less cash flows used for investing
activities, excluding cash used for acquisitions of, and investments into, businesses and strategic assets.
Year ended 31 March
Receipts from customers
Other operating cash flows
Total cash flows from operating activities
Investing activities
Add back: acquisitions
Free cash flows
Percentage of operating revenue
2021
($000s)
845,963
(627,324)
218,639
(197,970)
36,277
56,946
6.7%
2020
($000s)
717,264
(550,635)
166,629
(139,524)
-
27,105
3.8%
change
18%
14%
31%
42%
NM
110%
2.9pp
Free cash flows increased by $29.8 million in FY21, from $27.1 million in FY20 to $56.9 million. As a percentage of total operating
revenue, this was a 2.9 percentage point increase from 3.8% in FY20 to 6.7% in FY21.
Receipts from customers increased by 18% or $128.7 million to $846.0 million in FY21. This aligns with the year-on-year increase in
total operating revenue of 18% and subscriber growth of 20%. Cash flows from operating activities increased by $52.0 million to
$218.6 million as receipts from customers grew at a faster rate (18%) than other operating cash flows (14%).
Cash outflows from investing activities, excluding acquisitions, increased by 16% or $22.2 million. The increase was largely driven
by higher capitalised spend on product design and development, which increased by $28.5 million or 26% compared to FY20. The
acquisition cash flows of $36.3 million related to the acquisition of Waddle in October 2020. As Planday and Tickstar were
acquired in April 2021, they are excluded from this result.
XERO ANNUAL REPORT
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Free cash flows
$60m
$50m
$40m
$30m
$20m
$10m
$0
($10m)
($20m)
($30m)
FY18
FY19
FY20
FY21
Total available liquidity (defined as cash and cash equivalents, short-term deposits including proceeds from convertible notes, and
undrawn committed debt facilities) at 31 March 2021 was $1.3 billion. This comprised $1.1 billion of cash and cash equivalents and
short-term deposits as well as access to an undrawn committed standby debt facility of NZD150.0 million. The standby facility is
in place to ensure Xero maintains access to prudent levels of operational liquidity, appropriate to the size and maturity of the
business. The lender group for the standby facility consists of ANZ, BNZ, Citibank, and HSBC.
During the year, the Group raised NZD990.9 million to fund strategic investments and acquisitions through the concurrent
buyback of its convertible notes that were to mature in October 2023 (2023 convertible notes) and issuance of new notes maturing
in December 2025 (2025 convertible notes). The notes proceeds are held in USD and comprise NZD901.1 million of cash and cash
equivalents and short-term deposits balance. Neither Xero’s term debt nor the bank facilities mature in the next 12 months.
41
Operating revenue
Subscription revenue comprises recurring monthly fees from subscribers to Xero’s cloud-based platform. Within a subscription,
customers also receive support services and product updates.
Operating revenue includes subscription revenue as well as revenue from other related services, including attendance fees for
conferences and events such as Xerocon, revenue share agreements with financial services providers including fintech partners,
and the implementation of online accounting and other software services. Subscription revenue comprised 98% of operating
revenue in FY21.
Year ended 31 March
Subscription revenue
Other operating revenue
Total operating revenue
2021
($000s)
828,106
20,676
848,782
2020
($000s)
696,220
22,011
718,231
change
change in
constant currency*
19%
-6%
18%
19%
-5%
18%
*Constant currency operating revenue (a non-GAAP financial measure) is provided to assist readers in understanding and assessing Xero’s financial
performance during the year, excluding the impact of foreign currency fluctuations. Constant currency operating revenue is calculated by translating
operating revenue for FY21 at the effective exchange rates for FY20
Operating revenue growth of 18% from FY20 was due to the increase in subscription revenue of 19%. The subscription revenue
increase was primarily driven by organic subscription growth, with subscriber numbers at 31 March 2021 increasing by 456,000
subscribers, or 20%, compared to 31 March 2020. In addition, an increase in subscribers using Xero add-ons such as payroll,
projects, and expenses modules in FY21 compared to FY20 contributed further to the subscription revenue increase. These results
reflect the value subscribers place on Xero’s platform and Xero’s ability to cater to small businesses’ needs, both in times of
economic uncertainty and strength.
Other operating revenue decreased by 6% (5% in constant currency). This was due to three Xerocon conference events (Brisbane,
San Diego and London), as well as physical Xero roadshows being held in the comparative period. None of these events were held
in-person in FY21 due to the COVID-19 pandemic. In lieu of an in-person conference, Xero ran Xero On Air, a free digital customer-
engagement series, designed to connect, inspire, and share information with accounting and bookkeeping partners and small
businesses around the world.
The impact to operating revenue from not holding conferences was partially offset by an increase in revenue from financial
services. Xero partners with fintech providers to assist subscribers in accessing online financial solutions including invoice
payment services and lending services, resulting in an associated share of revenue between Xero and the provider. Waddle, which
was acquired in the current year, also contributed to other operating revenue in FY21. Other operating revenue excluding
conference income increased by 56% compared to FY20.
As 85% of Xero’s operating revenue is denominated in currencies other than NZD (the Group’s functional currency), changes in
foreign exchange rates over the year have influenced reported revenue. The impact of the comparatively weaker NZD against the
Australian dollar (AUD) was offset by the impacts of the stronger NZD against the US dollar (USD) and Great British pound (GBP)
during FY21 compared to FY20. This resulted in constant currency operating revenue for the Group being $0.7 million lower than
reported revenue.
XERO ANNUAL REPORT 42
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Operating revenue by geography
Year ended 31 March
Australia
New Zealand
Australia and New Zealand (ANZ) total
United Kingdom
North America
Rest of World
International total
Total operating revenue
2021
($000s)
2020
($000s)
change
change in
constant currency
384,150
130,384
514,534
223,564
56,558
54,126
334,248
848,782
320,376
116,154
436,530
183,565
55,398
42,738
281,701
718,231
20%
12%
18%
22%
2%
27%
19%
18%
18%
12%
16%
23%
6%
32%
21%
18%
Operating revenue for FY21 was 18% higher than the comparative period, primarily driven by subscriber growth in all of Xero’s
geographies. In the ANZ segment, operating revenue increased by 18% (16% in constant currency), compared to 20% growth in
subscribers. With the high level of cloud adoption in the ANZ market, Xero’s continued revenue growth year-on-year reflects the
value Xero offers.
Australia’s operating revenue grew by 20% (18% in constant currency) compared to subscriber growth of 22%. The slightly lower
growth in operating revenue compared to subscriber growth was mainly due to the comparative period including Xerocon revenue,
with the Sydney conference due to take place in September 2020 cancelled as a result of COVID-19. New Zealand operating
revenue grew by 12% compared to subscriber growth of 14%.
International operating revenue grew by 19%, or 21% in constant currency, in line with subscriber growth of 21%. Operating revenue
growth in the UK of 22% was more than subscriber growth of 17%, due mainly to the growth of revenue from financial services, as
well as further uptake in platform-related products such as payroll.
North America operating revenue grew by 2%, or 6% in constant currency, which is lower than subscriber growth of 18%. Growth
was impacted by the comparative period including revenue from Xerocon, as well as the decision to bundle Hubdoc within the
Xero business edition product in March 2020. The Hubdoc bundling impacted North America more than other markets due to the
majority of Hubdoc subscribers being in this region.
The Rest of World’s performance of 27% growth (32% in constant currency) was driven by subscriber growth of 40%, with South
Africa and Singapore the largest contributing markets. The comparatively lower growth in operating revenue than subscribers was
due to strong subscriber additions in H2 FY21 compared to H1 FY21, the revenue for which will have greater impact in FY22.
Reported revenue has been adversely impacted by fluctuations in the foreign exchange rates, specifically the comparatively
stronger NZD against both the GBP and USD on average during FY21 compared to FY20. In constant currency, operating revenue
for the International segment is $6.0 million higher than reported revenue.
Total Group operating revenue by geography*
$1b
$800m
$600m
$400m
$200m
Rest of World
North America
United Kingdom
New Zealand
Australia
0
FY18
FY19
FY20
FY21
*Represents each region’s contribution to total Group operating revenue for the respective period
43
Subscriber numbers
The definition of ‘subscriber’ is: Each unique subscription to a Xero-offered product that is purchased by a user (e.g. small business
or accounting partner) and which is, or is available to be, deployed. Subscribers that have multiple subscriptions to integrated
products on the Xero platform are counted as a single subscriber.
At 31 March
Australia
New Zealand
Australia and New Zealand (ANZ) total
United Kingdom
North America
Rest of World
International total
Total paying subscribers
2021
2020
change
1,115,000
446,000
1,561,000
720,000
285,000
175,000
1,180,000
2,741,000
914,000
392,000
1,306,000
613,000
241,000
125,000
979,000
2,285,000
22%
14%
20%
17%
18%
40%
21%
20%
COVID-19 had a material impact in all markets, resulting in lower subscriber additions than expected particularly in the first six
months of the year. However, H2 FY21 saw a positive shift in subscriber growth, as the adjustment to remote working practices and
social distancing during the pandemic emphasised the importance of cloud-based solutions. Subscribers grew by 20% compared to
31 March 2020, bringing total subscribers to 2,741,000. In FY21, 456,000 net subscribers were added compared to 467,000 in
FY20. Of the 456,000 subscribers added in FY21, 288,000 or 63% were added in H2 FY21, the most subscribers added in any half
year period.
Xero continued to strengthen its presence in the established ANZ segment to finish the period with over 1.5 million subscribers. ANZ
grew subscribers by 20%, or 255,000, from 31 March 2020. H2 FY21 was a record half year number of subscriber additions, despite
H1 being historically stronger than H2 in ANZ.
The growth rate for subscribers in Australia improved from H1 FY21 to H2 FY21 with 201,000 subscribers added in FY21. This was a
22% increase in subscribers from 31 March 2020. This increase was a result of Xero’s presence and position as a market leader in
the region, combined with easing COVID-19 restrictions in H2 FY21. This performance was assisted by the general digitisation of the
economy, encouraging adoption of cloud-based software. In addition, using cloud-based software like Xero assisted subscribers
in accessing the Australian Government’s COVID-19 JobKeeper payment scheme. The combination of these factors helped the
retention of existing subscribers as well as helped gain new subscribers. New Zealand added 54,000 subscribers in FY21, growing
14% over the year.
The UK led the International segment, adding 107,000 subscribers in FY21 to end FY21 on 720,000 subscribers, an increase of 17%
from 31 March 2020. The impact of COVID-19 in the UK restricted opportunities for growth. Despite this, the UK market has shown
resilience with 77% of subscribers added in FY21 occurring in H2 FY21. This reflects the value of a Xero subscription and increasing
cloud adoption in the region.
Despite a difficult operating environment as a result of COVID-19, North America subscriber numbers increased by 18%, or 44,000,
compared to 46,000 added in FY20. Of the 44,000 net subscribers added in FY21, 34,000, or 77%, were added in H2 FY21, the
largest organic increase in North America subscribers for a half.
Our Rest of World markets also performed strongly given the uncertain operating environment, with 50,000 subscribers added,
representing 40% growth in FY21. Continued investment to drive growth in South Africa and Singapore has supported strong results
in these markets during FY21.
Net subscriber additions
456k
FY21
Region (% of total net additions)
Australia (44%)
New Zealand (12%)
United Kingdom (23%)
North America (10%)
Rest of World (11%)
467k
FY20
Region (% of total net additions)
Australia (40%)
New Zealand (9%)
United Kingdom (32%)
North America (10%)
Rest of World (9%)
XERO ANNUAL REPORT 44
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Regional subscriber numbers at 31 March 2021*
Australia
New Zealand
United Kingdom
North America
1,115,000
446,000
720,000
285,000
2020 | 914,000
Up 22%
2020 | 392,000
Up 14%
2020 | 613,000
Up 17%
2020 | 241,000
Up 18%
* Rest of World subscribers at 31 March 2021 175,000 (31 March 2020 125,000)
Annualised monthly recurring revenue
Annualised monthly recurring revenue (AMRR) is a non-GAAP financial measure, which represents monthly recurring revenue at
31 March multiplied by 12. It provides a 12-month forward view of revenue, assuming any promotions have ended and other factors
such as subscriber numbers, transaction volumes, pricing, and foreign exchange remain unchanged during the year.
Constant currency AMRR (also a non-GAAP financial measure) is calculated by translating AMRR at 31 March 2021 at the foreign
exchange rates at 31 March 2020 and is provided to assist in understanding and assessing year-on-year growth rates, excluding
the impact of foreign currency fluctuations.
At 31 March
ANZ
International
Total
2021
($000s)
584,954
378,643
963,597
2020
($000s)
467,537
353,020
820,557
change
25%
7%
17%
change in
constant currency
20%
16%
18%
Total Group
AMRR at 31 March 2021 was $963.6 million, an increase of $143.0 million, or 17%, from 31 March 2020. The principal driver of this
growth was the increase in subscribers across the Group.
ANZ
AMRR for the ANZ segment increased by 25% to $585.0 million compared to 31 March 2020, surpassing $500 million in H1 FY21.
This increase was driven by subscriber growth of 20%, which aligns to the AMRR year-on-year increase in constant currency.
Constant currency AMRR growth of 20% was five percentage points lower than reported growth, due to the comparatively weaker
NZD against the AUD at 31 March 2021 compared to 31 March 2020.
International
Reported AMRR growth in the International markets of 7% was heavily impacted by foreign exchange fluctuations. The stronger
NZD against the USD and GBP at 31 March 2021 compared to 31 March 2020 accounted for a nine percentage point, or $32.0
million, decrease on reported AMRR. In constant currency terms AMRR growth was 16%, comparatively lower than subscriber
growth of 21% due to lower average revenue per user (ARPU).
45
Gross profit
Gross profit represents operating revenue less cost of revenue. Cost of revenue consists of expenses directly associated with
securely hosting Xero’s services, sourcing relevant data from financial institutions, and providing support to subscribers.
The costs include hosting and content distribution costs, bank feed costs, personnel and related expenses (including salaries,
benefits, bonuses, and share-based payments) directly associated with cloud infrastructure and subscriber support, contracted
third-party vendor costs, related depreciation and amortisation, and allocated overheads.
Year ended 31 March
Operating revenue
Cost of revenue
Gross profit
Gross margin percentage
2021
($000s)
848,782
(118,893)
729,889
86.0%
2020
($000s)
718,231
(106,582)
611,649
85.2%
change
18%
12%
19%
0.8pp
Gross profit was $729.9 million for FY21, a 19% increase on the comparative period. This resulted in a gross margin of 86.0%, up 0.8
percentage points from FY20. This increase was driven by operating revenue growth of 18%, outgrowing cost of revenue growth by
six percentage points. The 12% increase in cost of revenue was primarily due to an increase in cloud hosting costs as subscriber
numbers grew, and continued focus on platform stability.
Productivity gains from the continued growth in use of Xero Central contributed to efficiencies in Xero’s cost of revenue.
Gross margin percentage
88.0%
86.0%
84.0%
82.0%
80.0%
FY18
FY19
FY20
FY21
XERO ANNUAL REPORT
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Sales and marketing
Sales and marketing expenses consist of personnel and related expenses (including salaries, benefits, bonuses, the amortisation
of capitalised commission costs, and share-based payments) directly associated with the sales and marketing teams, and the
cost of educating and onboarding both partners and small business customers. Costs also include relationship management
costs incurred to support the existing subscriber base. Other costs included are external advertising costs, marketing costs, and
promotional event costs, as well as allocated overheads.
Year ended 31 March
Sales and marketing expenses
Percentage of operating revenue
2021
($000s)
307,948
36.3%
2020
($000s)
312,852
43.6%
change
-2%
-7.3pp
Sales and marketing costs decreased by $4.9 million, or 2%, compared to FY20, to $307.9 million for FY21. The majority of sales
and marketing costs are incurred to acquire new subscribers and are expensed in the period, in contrast to the associated revenue
from those subscribers, which is recognised over the life of the subscriber (currently expected to be more than eight years on
average).
Sales and marketing costs have decreased in FY21 due to deliberately reduced spending in response to the uncertainties
presented by COVID-19, as well as the comparative period including three Xerocon events and physical roadshows. As a result,
Xero carefully managed its variable costs, particularly during the first half of FY21 until the impacts of COVID-19 became clearer.
There was a 10% decrease in sales and marketing spend in H1 FY21 compared to H1 FY20. In contrast to this, there was a 6%
increase in H2 FY21 compared to H2 FY20. This demonstrates Xero’s ability to take an agile approach to capital allocation, either
to control costs or invest for growth, as appropriate for the operating environment.
The average cost of acquiring a subscriber increased to $433 per gross subscriber added in FY21 compared to $420 in FY20. This
reflects slightly lower subscriber additions in FY21 compared to FY20.
As a percentage of operating revenue, sales and marketing expenses decreased by 7.3 percentage points, from 43.6% in FY20 to
36.3% in FY21. This percentage was heavily influenced by the reduction in spending during H1 FY21 in response to the COVID-19
environment. Sales and marketing expenses increased as a percentage of operating revenue by 8.5 percentage points from 31.9%
in H1 FY21, to 40.4% in H2 FY21. This increase from H1 FY21 to H2 FY21 shows a trend towards more normalised levels of sales and
marketing expenses as a percentage of revenue. Lower levels of sales and marketing expenditure seen in FY21 are not expected to
be sustained over the next few years as Xero looks to maximise opportunities as the impact of COVID-19 lessens over time.
47
Product design and development
Product design and development costs consist primarily of personnel and related expenses (including salaries, benefits, bonuses,
and share-based payments) directly associated with product design and development teams, as well as allocated overheads.
The proportion of product design and development expenses that creates a benefit in future years and meets certain
requirements under NZ IFRS is capitalisable as an intangible asset and is then amortised to the Income Statement over the
estimated life of the asset created. The amount amortised relating to the Xero product and platform is included as a product
design and development expense.
Year ended 31 March
2021
($000s)
2020
($000s)
Total product design and development costs
(including amounts capitalised)
Percentage of operating revenue
Less capitalised development costs
Product design and development expense (excluding
amortisation of amounts capitalised)
Less government grants
Add amortisation of capitalised development costs
Product design and development expenses
Percentage of operating revenue
311,672
36.7%
(136,164)
175,508
(5,206)
79,230
249,532
29.4%
225,756
31.4%
(102,621)
123,135
(5,164)
60,287
178,258
24.8%
change
38%
5.3pp
33%
43%
1%
31%
40%
4.6pp
Xero is strategically investing in developing its product and platform, ensuring a balance between developing new functionality
and investing in the platform for long-term growth. Some key new product features in FY21 included:
• Making updates to Xero Payroll to support small businesses quickly accessing government subsidies during COVID-19. This
included allowing Australian subscribers to enrol their employees for JobKeeper payments directly with the Australian Tax
Office (ATO). Xero was the first major cloud accounting provider to market with this solution, which included building an
employee eligibility calculator and enabling direct filing with the ATO through Single Touch Payroll (STP). In the UK, Xero also
supported furlough leave and reporting to HMRC within Xero Payroll
• Releasing Xero Verify, our own multi-factor authentication app to make it simple for businesses to improve their security
• Releasing the new match-making tool within the advisor directory using innovative algorithms to match small businesses with
the right accounting expertise
• Releasing eFiling with the South African Revenue Service in beta trial to support South African businesses to prepare, store,
and submit VAT Returns within the Xero platform
• Enhancing the Starter plan (Early plan in the US), which removed the limits on bank reconciliation and increased the invoice
limit to 20 per month to support small businesses with less complex accounting needs
• Accelerating the rollout of the Business Snapshot and short-term cash flow pilots in H1 FY21 to all Xero business edition plans
to provide better visibility into cash flow and business performance
• Launching e-invoicing in Australia and New Zealand, allowing small businesses to send and receive invoices directly from Xero
into their government customers’ accounting systems
• Releasing the Pay with Wise (previously known as Transferwise) integration, allowing UK businesses to pay and manage
multiple bills through Xero regardless of which bank customers use, and reconcile transactions easily
• Releasing practice management updates, including new functionality such as a unified client list across Xero HQ and Xero
Practice Manager (XPM), enabling businesses to e-sign documents with Document Packs in Australia, enhancements to the
Advisor Directory, and updates to Xero Tax in the UK
XERO ANNUAL REPORT 48
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Total product design and development costs increased by $85.9 million, or 38%, from $225.8 million in FY20 to $311.7 million
in FY21. Of this, $136.2 million was capitalised, with the balance of $175.5 million included in the Income Statement within total
product design and development expenses. As a proportion of operating revenue, total product design and development costs
for FY21 (including amounts capitalised) increased by 5.3 percentage points to 36.7%. This highlights Xero’s commitment to
continuous investment in its global platform as Xero scales, even in times of uncertainty.
The capitalised portion of development costs increased by $33.5 million or 33% from the comparative period. Capitalised
development costs as a percentage of total product design and development costs was 43.7% for FY21. This was a 1.8 percentage
point decrease from 45.5% in FY20. As more new projects began in FY21, research activities increased resulting in a higher
proportion of research expenses relative to development costs.
The amortisation of previously capitalised product design and development expenditure of $79.2 million was included as a non-
cash expense in the Income Statement, giving total net expenses (after the netting off of government grants) of $249.5 million for
FY21. Amortisation of previously capitalised development costs increased due to higher intangibles balances than in FY20.
General and administration
General and administration expenses consist of personnel and related expenses (including salaries, benefits, bonuses, and share-
based payments) for executive, finance, billing, legal, human resources, strategy, and corporate development employees, and the
Xero Board. It also includes legal, accounting, and other professional services fees, insurance premiums, other corporate expenses,
and allocated overheads.
Year ended 31 March
General and administration expenses
Percentage of operating revenue
2021
($000s)
106,345
12.5%
2020
($000s)
88,980
12.4%
change
20%
0.1pp
General and administration expenses were $106.3 million for FY21, $17.4 million or 20% higher than FY20. The main growth
areas were an increase in professional services to support Xero’s acquisitions in FY21 as well as an increase in personnel-related
expenses, which were largely attributable to the growth in employee headcount over the second half of FY21.
General and administration costs as a proportion of operating revenue increased marginally compared to FY20, by 0.1 percentage
points to 12.5%.
Employees
At 31 March
Total Group
2021
3,642
2020
3,055
change
19%
Full-time equivalent employees (FTEs) increased by a record 587 or 19% in FY21, taking total FTEs to 3,642. This is compared to a
20% increase in subscribers, and 18% increase in operating revenue. The growth in FTEs reflects increased investment in product
design and development increasing headcount by 39%, as well as strategic investment to prepare for future growth. Growth in
product design and development was partially offset by reductions in headcount in the customer support area as efficiencies and
automation continue to be realised.
49
Net finance expense
Year ended 31 March
Interest income on deposits
Total finance income
Loss on recognition/extinguishment of term debt
Amortisation of debt discount and issuance costs
Lease liability interest
Interest on convertible notes
Bank standby facility costs
Other finance expense
Total finance expense
Net finance expense
2021
($000s)
5,155
5,155
(67,169)
(21,781)
(6,053)
(5,783)
(1,852)
(8,140)
(110,778)
(105,623)
2020
($000s)
13,432
13,432
-
(17,023)
(6,280)
(11,010)
(1,691)
(273)
(36,277)
(22,845)
change
-62%
-62%
NM
28%
-4%
-47%
10%
NM
205%
362%
Finance income in FY21 was $5.2 million, a decrease of $8.3 million, or 62%, from FY20. This was primarily due to lower global
interest rates.
Finance expenses in FY21 increased by 205% driven by combined losses of $67.2 million on recognition of the 2025 convertible
notes and extinguishment of the 2023 convertible notes. Other finance expenses increased by $7.9 million due to $5.7 million
worth of transaction costs relating to the buyback of the 2023 convertible notes and issuance of the 2025 convertible notes.
Interest on convertible notes also decreased by 47%, or $5.2 million, while the amortisation of debt discount and issuance costs
increased by 28%, or $4.7 million.
The decrease in interest results from the new convertible notes having a zero coupon interest rate, as compared to the 2023
convertible notes, which had a 2.4% coupon interest rate.
Amortisation of debt discount and issuance costs increased in FY21 from the comparative period as a result of an increase in the
value of the conversion feature in the 2025 convertible notes as compared to the 2023 convertible notes.
XERO ANNUAL REPORT Segment information
Operating revenue is allocated to a segment depending on where the subscriber resides. Expenses include cost of revenue, sales
and marketing costs incurred directly in-region, and an allocation of centrally managed costs and overheads, such as hosting and
user support costs.
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Year ended 31 March 2021
Operating revenue
Expenses
Segment contribution
Contribution margin percentage
Year ended 31 March 2020
Operating revenue
Expenses
Segment contribution
Contribution margin percentage
ANZ
($000s)
International
($000s)
Total
($000s)
514,534
(175,341)
339,193
65.9%
436,530
(164,962)
271,568
62.2%
334,248
(251,500)
82,748
24.8%
281,701
(254,472)
27,229
9.7%
848,782
(426,841)
421,941
49.7%
718,231
(419,434)
298,797
41.6%
ANZ
Operating revenue for FY21 increased by 18% compared to FY20, or 16% in constant currency, along with surpassing the 1.5 million
subscriber milestone, cementing Xero’s position as a market leader in the segment. Australia experienced operating revenue
growth of 20%, while New Zealand grew by 12%.
Expenses in the ANZ segment increased 6% compared to FY20, impacted by the deliberate reduction in expenditure early in H1
FY21 until the impacts of COVID-19 became clearer. Xero was able to return to more regular expenditure levels in H2 FY21. This
largely influenced the 3.7 percentage point increase in the contribution margin percentage for ANZ, as the segment contribution
increased by $67.6 million, or 25%.
International
Operating revenue in the International segment grew by 19% in FY21, or 21% in constant currency, driven by subscriber growth of
21%. The segment had a 204% increase in contribution margin compared to the comparative period, with a contribution of $82.7
million compared to $27.2 million in FY20.
As a percentage of revenue, the contribution margin improved substantially from 9.7% in FY20 to 31.6% in H1 FY21, due to the
combination of revenue growth over the year, and a deliberate reduction in expenditure in response to the impacts of COVID-19 in
H1 FY21. The contribution margin decreased to 24.8% in the second half of the year, driven by increased investment as the impacts
of COVID-19 became clearer. The contribution margin remained comparatively lower than that of ANZ, reflecting the emphasis
on investment in subscriber additions in the UK, North America, Asia, and South Africa as Xero continues to develop brand
recognition and build distribution channels in these markets.
Key SaaS metrics
SaaS companies like Xero operate on many of the same performance metrics as traditional companies, such as revenue, cash
flow, and customer numbers. However, understanding the performance of SaaS companies and being able to benchmark them is
assisted by an understanding of SaaS-specific metrics. Below are some of the headline metrics Xero uses to manage and drive
its performance.
Average revenue per user (ARPU) is calculated as AMRR (see definition on page 44) at 31 March, divided by subscribers at that
time (and divided by 12 to get a monthly view).
CAC months are the months of ARPU to recover the cost of acquiring (customer acquisition costs: CAC) each new subscriber.
The calculation represents the sales and marketing costs for the year excluding the capitalisation and amortisation of contract
acquisition costs, less conference revenue (such as Xerocon), divided by gross new subscribers added during the same period,
divided by ARPU.
51
Churn is the value of monthly recurring revenue (MRR) from subscribers who leave Xero in a month as a percentage of the total
MRR at the start of that month. The percentage provided is the average of the monthly churn for the previous 12 months.
Lifetime value (LTV) is the gross margin expected from a subscriber over the lifetime of that subscriber. This is calculated by
taking the average subscriber lifetime (one divided by churn), multiplied by ARPU, multiplied by the gross margin percentage.
Group LTV is calculated as the sum of the individual segment LTV, multiplied by their respective segment subscribers, divided by
total Group subscribers.
LTV/CAC is the ratio between the LTV and the cost to acquire that subscriber. For example, the LTV derived from a subscriber in
ANZ is currently on average 13.2 times the cost of acquiring that subscriber. Xero strives to maximise total LTV while optimising
the level of CAC investment it undertakes in order to achieve a desirable LTV/CAC ratio. Xero can improve total LTV in multiple
ways, such as increasing subscriber numbers, enhancing products and services for existing subscribers thereby increasing ARPU
and/or reducing churn, and improving gross margin through cost efficiencies.
The table below outlines key metrics across Xero’s segments:
At 31 March 2021
ARPU ($)
CAC months
Churn
LTV per subscriber ($)
LTV/CAC
At 31 March 2020
ARPU ($)
CAC months
Churn
LTV per subscriber ($)
LTV/CAC
ANZ
International
31.23
8.9
0.73%
3,682
13.2
26.74
22.4
1.43%
1,608
2.7
ANZ
International
29.83
9.7
0.84%
3,058
10.6
30.05
18.1
1.59%
1,573
2.9
Total
29.30
14.8
1.01%
2,789
6.4
Total
29.93
14.0
1.13%
2,422
5.8
ANZ
ARPU increased by 5% compared to FY20. During FY21, the NZD weakened against the AUD, having a favourable impact on ARPU.
The price change to Xero business edition plans in Australia in March 2021 also impacted ARPU favourably. These impacts were
slightly offset by shifts in product mix, from higher priced to lower priced products, aided by the introduction of the enhanced
Starter product. In constant currency terms, ANZ’s ARPU was flat compared to 31 March 2020.
CAC months at 31 March 2021 was lower at 8.9 compared to 9.7 in the comparative period. This was the result of the increased
subscriber additions in H2 FY21 for both Australia and New Zealand outpacing the growth in H2 FY20, in addition to decreased
sales and marketing expenditure during the period.
Churn was 0.73% at 31 March 2021, a decrease of 0.11 percentage points from 0.84% in the comparative period. Churn increased
slightly in the first few months of the year, before reducing to below pre-COVID-19 levels, indicating the value Xero products have
to small businesses.
Lower churn, combined with the increase in ARPU and gross margin, drove LTV per subscriber to $3,682 from $3,058, a 20%
(15% in constant currency) increase from 31 March 2020. Total ANZ subscriber LTV increased by $1.7 billion, or 44%, to $5.7 billion
at 31 March 2021 compared to $4.0 billion at 31 March 2020.
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International
ARPU decreased by 11% in FY21. The comparatively stronger NZD against the USD and GBP negatively impacted ARPU. In constant
currency terms, ARPU decreased by 3% compared to 31 March 2020. The decrease in constant currency was due to the shift
towards a more efficient but lower ARPU partner channel.
CAC months increased from 18.1 months at 31 March 2020 to 22.4 months at 31 March 2021. Subscriber additions in H2
FY21 improved compared to H1 FY21 but remained lower than FY20. Despite no increase in sales and marketing costs, the
comparatively lower subscriber additions combined with lower ARPU led to an increase in CAC months.
LTV per subscriber increased by 2% (11% in constant currency) due to a combination of lower churn and higher gross margin,
partially offset by lower ARPU. Total International subscriber LTV increased by $0.4 billion, or 23%, to $1.9 billion at 31 March 2021
compared to $1.5 billion at 31 March 2020.
Total Group
Group ARPU decreased by 2% compared to 31 March 2020. This was partially due to the impact of foreign currency movements.
ARPU decreased 1% in constant currency compared to 31 March 2020 due to product mix impacts.
Churn for the Group decreased by 0.12 percentage points to 1.01% from 1.13% in the comparative period. Combining this with the
improved gross margin, LTV per subscriber increased by 15% to $2,789 from $2,422 at 31 March 2020, despite a 2% decrease in
Group ARPU. In constant currency terms, LTV per subscriber increased by 14%.
Total subscriber LTV at 31 March 2021 was $7.6 billion, an improvement of $2.1 billion compared to 31 March 2020. CAC months
increased 6% to 14.8 months when compared to 31 March 2020, as the combined impact of the International segment’s lower
ARPU and subscriber additions outweighed ANZ’s improved performance in both.
Total lifetime value
$8b
$6b
$4b
$2b
$0
FY18
FY19
FY20
FY21
At 31 March
International
ANZ
53
THRO UGH THE IR EYES
Advisory approach enables
client success
Shayne Dueck | Xero Partner |
MNP | Canada
As head of Canadian accounting, tax and business
consulting firm MNP’s cloud service line, ease, Shayne
Dueck and his team provide small and medium-sized
businesses with ‘always on’ accounting and bookkeeping
services, facilitated by Xero.
Using Xero gives ease real-world business insights,
enabling them to be better business advisors rather than
just producing year-end financial statements.
Adopting innovative features such as Xero’s short-term
cash flow tool, which was launched in June 2020 to help
businesses project their cash flow, has enabled the ease
team to dig deeper into their clients’ books.
“We work with an energy technology company in Calgary
that previously ran their accounts entirely through
spreadsheets. Early into their journey with us, the
greater visibility into their cash flow that Xero provided
showed us they didn’t have a handle on cash inflows or
outflows. The owners were in the dark about their cash
flow. We were able to use the cash flow tool to help
them start preserving their cash and gain visibility over
when cash is coming or going from their business. By
connecting Xero with app partner Spotlight Reporting,
which offers additional reporting and tracking KPIs,
we were able to dig deep into what they could do to
generate cash flow.”
Now, the client is breaking even and surviving through
COVID-19. The owners are a lot more confident in making
business decisions, and they’re finally able to sleep
at night.
“It’s pretty incredible to see how their team can now
understand their cash flow and successfully run their
business. Being able to partner with them to do that has
been really satisfying.”
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The Board of Directors
David Thodey AO
Chair of the Board
Australia
David is a business leader focused on innovation,
technology and telecommunications, with more
than 30 years of experience creating brand and
shareholder value. He is currently chairman of
Australia’s national scientific research agency, the
Commonwealth Scientific and Industrial Research
Organisation (CSIRO), and Tyro, Australia’s
only independent EFTPOS provider, and a non-
executive director of Ramsay Health Care, a global
hospital group. David had a successful executive
career as CEO of Telstra, a significant Australian
telecommunications company and as CEO of IBM
Australia and New Zealand. In 2017, David was made
an Officer (AO) in the General Division of the Order
of Australia.
Independent Director since June 2019
and Chair since February 2020
People and Remuneration Committee
Nominations Committee (Chair)
Steven is an entrepreneur and professional director
with more than 25 years’ experience in creating
and delivering products within the technology and
accounting software industries. Steven is currently
a non-executive director of Blucora, a provider of
technology-enabled financial solutions, and Ruby
Receptionists, a virtual customer engagement
solution provider.
was Chief Product Officer. Prior to this, Steven was
the CEO of Outright, an online bookkeeping service,
which was acquired by GoDaddy. Steven has also
held various senior management roles at Intuit,
including Vice President of Strategy and Innovation
for the small business division. Steven holds a
Bachelor of Arts in Physics from the University of
North Carolina and an MBA from Stanford University.
Steven has held a range of senior executive roles,
including at GoDaddy, the world’s largest services
platform for entrepreneurs, where most recently he
Independent Director since October 2020
People and Remuneration Committee
Mark is an experienced professional director with
more than 20 years of international experience in
corporate finance and investment banking. Mark is
currently a non-executive director (and audit and risk
committee chair) of Chorus and Z Energy. Chorus and
Z Energy are both dual-listed ASX/NZX businesses.
He is Chair of Milford Asset Management and acting
chair of Virsae, a communications management
SaaS business.
Mark was at Deutsche Bank for 10 years, initially
based in Sydney in Mergers and Acquisitions, then
in London as a Managing Director and co-head of a
European M&A industry group. Mark holds a Bachelor
of Business Studies (Accounting & Finance) degree
from Massey University New Zealand, is a member of
Chartered Accountants Australia and New Zealand,
a chartered member of the New Zealand Institute of
Directors and a member of the Australian Institute of
Company Directors.
Independent Director since April 2020
Audit and Risk Management Committee (Chair)
For more than a decade, Rod led Xero to be a global
software business and S&P/ASX 100 company. Rod
started his career at Ernst & Young and went on to
establish and lead a number of innovative technology
businesses. Rod was an independent director on the
NZX Board and the Trade Me Board. At the Deloitte
Top 200 Awards in 2017, Rod was named Visionary
Leader of the Year. He was named Ernst & Young New
Zealand Entrepreneur of the Year in 2013, and is a
member of the New Zealand Hi-Tech Hall of Fame.
Director since July 2006
Nominations Committee
Steven Aldrich
Non-executive
Director
USA
Mark Cross
Non-executive
Director
New Zealand
Rod Drury
Xero Founder /
Non-executive
Director
New Zealand
XERO ANNUAL REPORT Lee has more than 20 years’ experience
internationally in the Financial Services industry and
has held senior executive roles in marketing, strategy
and risk in large scale customer-facing businesses.
In 2020, Lee joined the Global Executive team at
Afterpay and is responsible for driving the business’
strategy for new platforms, products and services.
Lee has been recognised by IBM as one of 40 Women
Leaders in Artificial Intelligence across the globe
for her work in delivering world-first innovations.
Lee holds a Bachelor of Business from Auckland
University of Technology (NZ), and is an alumni
of Berkeley Haas School of Business. She is also a
member of Chief Executive Women (CEW) which
represents Australia’s most senior and distinguished
female leaders.
Independent Director since April 2014
Audit and Risk Management Committee
Dale is a former technology entrepreneur. Dale co-
founded mobile pioneer Omega Logic in 1999, which
co-launched prepay top-ups in the UK. She led the
growth of top-up transactions to £450m within five
years, then turned to investing and advising start-
ups and won the British Angel Investor of the Year
award in 2011. Dale is currently a non-executive
director at the Cranemere Group, and a board
advisor to Accelerate:Her. She was formerly a non-
executive director and Trustee for the Peter Jones
Foundation and a non-executive director at Sussex
Place Ventures and the Department for Business,
Innovation & Skills. She holds an MBA from the
London Business School and served on the Business
Taskforce on EU Redtape for the British Prime
Minister in 2013. Dale was awarded a CBE
by Her Majesty the Queen in 2013, for services
to business.
Independent Director since April 2018
Audit and Risk Management Committee
Nominations Committee
Susan is an experienced business leader with
a particular interest in helping companies to
drive growth through technology, innovation and
organisational culture. Susan is currently the chair
of Vista Group and an independent director of
Trustpower, Property for Industry and Arvida Group.
Susan will not be standing for re-election at the
Trustpower annual shareholder meeting later this year.
Susan is also a member of the New Zealand Markets
Disciplinary Tribunal and a Board member of non
profit Global Women. Susan is a past director of
ASB Bank and was a past Ministerial Appointee to
The National Advisory Council for the Employment
of Women. Susan is founding co-chair and a
shareholder in fast-growing health and wellness
company Organic Initiative Limited.
Independent Director since February 2017
People and Remuneration Committee (Chair)
Nominations Committee
Craig co-founded Australian small business
accounting software provider MYOB in 1991. Craig
built MYOB to be a popular business tool and brand
which, in 2004, merged with Solution 6 to become
Australia’s largest IT company. Craig joined the Xero
Board in 2009. He now spends the majority of his
time working in the philanthropic sector.
Director since May 2009
People and Remuneration Committee
Nominations Committee
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Non-executive
Director
Australia
Dale Murray CBE
Non-executive
Director
United Kingdom
Susan Peterson
Non-executive
Director
New Zealand
Craig Winkler
Non-executive
Director
Australia
57
Corporate Governance Statement
Introduction from the Chair
Dear Shareholder,
Our Annual Report, including my Chair Review (see page 5) and the following Corporate
Governance Statement, sets out Xero’s approach to corporate governance.
The directors and leadership team share a commitment to
nurturing a culture across Xero that seeks to embed and
uphold the highest standards of corporate governance.
Xero’s corporate governance framework is designed to
support our operations, deliver on our strategy, monitor
performance and ensure management of risk, and to do so
in a manner that reflects the digital, global and high growth
nature of Xero’s business.
The Board has for some time taken a continuous
improvement approach to corporate governance,
particularly as Xero has continued to grow and evolve,
as have the expectations of our investors and other
stakeholders. We have continued to do this in FY21, in a
particularly challenging environment worldwide. The Board
made changes as the year progressed, including:
• During the pandemic, the Board met more frequently
and received increased reporting on key financial and
other metrics to monitor and appropriately respond to
the impact of the pandemic on Xero, our customers,
employees and stakeholders across regions
• Governance of fast-moving M&A transactions evolved.
This included the establishment of an M&A authority
framework and formation of a Board Advisory Group,
with additional deal-specific Board meetings held as
required to monitor, consider and approve transactions
• The Board responded to the unusual circumstances of
the year by holding nine additional Board meetings and
one additional nominations committee meeting, over
and above the original schedule of meetings
• Where possible, Committee and Board meetings were
separated by a number of days which facilitated greater
consideration of matters and the ability to respond to
the challenges of virtual meetings
• Following a review of the Board composition and
skills matrix, Steven Aldrich a US based director with
experience in technology and product development
and small business, was appointed to the Board on
1 October 2020
• Rotation of the role of Chair of the Audit and Risk
Management (ARM) Committee and People &
Remuneration (P&R) Committee with Mark Cross
appointed to Chair the ARM Committee and Susan
Peterson appointed to Chair the P&R Committee
• Xero’s continuous disclosure processes continued to
evolve, including an updated Continuous Disclosure
Policy and the introduction of supporting procedures
and a disclosure committee charter
• Xero’s Annual Meeting was held entirely virtually with all
directors in attendance via videolink from Australia, New
Zealand, the UK and the US
• A platform for the distribution of video content to
the Board was developed to provide directors who
are unable to travel to Xero offices with updates and
insights into the day-to-day operations of the business
The Board takes a holistic view of governance and believes
in the fundamental importance of diversity and inclusion. I
have addressed this topic more fully in my Chair Review on
page 5.
My fellow directors and I know that diversity and inclusion
come together to create and maintain a strong culture
across our business, which in turn drives good outcomes
for our investors and other stakeholders. I am pleased that
Xero’s core value, #human, and flexible working policy
and measures for diversity and inclusion and employee
wellbeing saw Xero recognised as one of the Best Places
to Work in Australia and New Zealand by the Australian
Financial Review and BOSS Magazine in April 2021 (ranked
fourth in the technology category).
In addition, the Board has an ongoing commitment to
actively improve Xero’s social and environmental impact
which is addressed more fully in the SEI and D&I section on
pages 23 to 32.
The Board is pleased that the focus and attention given to
many facets of corporate governance, some of which I have
outlined above, contribute to delivering great outcomes for
our people, our customers and our investors.
David Thodey
Xero Chair
XERO ANNUAL REPORT
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ASX principles and recommendations
Xero is listed on the Australian Securities Exchange (ASX)
and is a New Zealand incorporated and domiciled company.
From a regulatory perspective, this means that while the
ASX Listing Rules apply to Xero, certain provisions of the
Australian Corporations Act 2001 (Cth) do not.1
Xero’s corporate governance reporting framework has
been developed with regard to the ASX Listing Rules and
the ASX Council’s Corporate Governance Principles and
Recommendations (ASX Principles and Recommendations).
This Corporate Governance Statement (Statement)
addresses the recommendations contained in the 4th
edition of the ASX Principles and Recommendations, which
applies to Xero for the financial year ended 31 March 2021.
This Statement is current as at 30 April 2021, and has been
approved by the Board.
This Statement should be read in conjunction with this
Annual Report and Xero’s Investor Centre at www.xero.com/
about/investors/governance, where full copies of Xero’s
corporate governance policies and charters can be found.
References to FY21 are to the financial year ended
31 March 2021.
1 Xero complies with the ASX Listing Rules. As Xero is not incorporated
in Australia, it is not a disclosing entity for the purpose of Chapter 2M
of the Australian Corporations Act 2001 (Cth) (Financial reports and
audits) and certain provisions of that chapter do not apply (e.g. section
295 regarding annual financial report, section 298 regarding directors’
report or section 300A regarding remuneration reporting). As a New
Zealand company, Xero’s annual reporting is primarily governed by the
Companies Act 1993 (New Zealand)
Principle 1: Lay solid foundations for
management and oversight
The Board
Charter The Board Charter outlines the Board’s roles and
responsibilities and describes those matters expressly
reserved for the Board’s determination and those matters
delegated to management. The Charter is available
on Xero’s website at www.xero.com/about/investors/
governance/.
The Board is appointed by the shareholders (other
than directors who are appointed by the Board to fill a
casual vacancy, who must be subsequently approved
by shareholders at the next Annual Meeting of the
company), and meets sufficiently regularly to perform its
role effectively. It comprises directors who bring a mix of
skills, knowledge, experience, diversity and independence,
together with a deep understanding of, and competence to
deal with, current and emerging issues and to guide
the business.
Responsibilities The Board is responsible for
overseeing and appraising Xero’s strategic direction,
purpose, values, policies, performance, risk appetite and
governance framework. To assist with carrying out its
responsibilities, the Board has established the following
standing Committees:
1. Audit and Risk Management Committee (ARM
Committee)
2. People and Remuneration Committee (P&R Committee)
3. Nominations Committee
The Board may also delegate specific functions to ad hoc
Committees from time to time.
Xero’s Chief Executive Officer (CEO) has responsibility for
the day-to-day management and administration of the Xero
business, supported by the rest of Xero’s leadership team.
The CEO manages Xero in accordance with the strategic
plan, annual budget and operating plan, risk appetite, and
risk management strategies approved by the Board.
59
The Board monitors Xero’s management and performance and ensures that management’s activities are aligned with the
expectations and are within the risk appetite and risk management framework set by the Board and management. The Board has a
number of mechanisms to ensure this is achieved, including:
• Approving Xero’s strategic plan, overseeing performance to ensure alignment with the strategic plan, and focusing Xero’s
activities on long-term shareholder value
• Assessing and making determinations on Xero’s culture and management framework, governance policies, procedures and
compliance, and relevant Board and Committee frameworks
• Approving Xero’s financial statements, required reports and annual budget, as well as confirming Xero’s financial position and
overseeing and reviewing the integrity of Xero’s accounting and corporate reporting systems
• Selecting the CEO, overseeing succession plans for Xero’s leadership team, and approving policies, practices and measurable
objectives for achieving diversity and inclusion
• Approving the remuneration framework, ensuring Xero’s remuneration policies and practices fit with its strategic goals, and
overseeing equity incentive programs
• Approving an annual operating plan and systems of financial and non-financial risk management, as well as confirming Xero
has in place accurate and reliable reporting systems, internal controls, compliance activities, and systems to monitor the
effectiveness of Xero’s risk management framework
Appointment Before appointing a director, Xero undertakes appropriate background checks to determine that candidate’s
suitability. The qualifications of each director are detailed on pages 55 and 56 of this Annual Report.
All directors are appointed pursuant to formal letters of appointment or agreements setting out the key terms and conditions of
their appointment, including:
• Remuneration
• Board, Committee and directors’ duties, responsibilities and time commitment
• Board and individual performance evaluation
• Disclosure of interests and matters affecting independence
• Confidentiality
• The Board’s policy on obtaining independent advice
•
Insurance and deeds of indemnity
Board and Committee membership and meeting attendance The members of Xero’s Board and Committees for FY21 is set
out below. The number of meetings scheduled in advance for the year and attendance at those meetings is also set out below.
Additional Board and Committee meetings are held to meet governance demands; in FY21 the Board held 9 additional meetings
and the Nominations Committee held 1 additional meeting.
Director
Board
Nominations
Committee
ARM
Committee
P&R
Committee
David Thodey
Steven Aldrich2
Mark Cross3
Rod Drury4
Lee Hatton
Dale Murray
Susan Peterson
Craig Winkler⁵
Held1
Attended
Held1
Attended
Held1
Attended
Held1
Attended
8
4
8
8
8
8
8
8
8
3
8
8
8
8
8
8
5*
-
-
1
-
5
5
4
5
-
-
1
-
5
5
4
-
-
6*
-
6
6
-
2
-
-
6
-
6
6
-
2
5
1
-
-
-
-
5*
5
5
1
-
-
-
-
5
5
¹ Held represents the number of scheduled meetings held that the relevant director was eligible to attend. Some Committee meetings are open to optional
attendance by other directors; such optional attendance is not reflected in the table
² Appointed as a Director 1 October 2020 and appointed to the P&R Committee 13 October 2020
³ Appointed as Chair of the ARM Committee 13 October 2020
⁴ Appointed to the Nominations Committee 13 October 2020
⁵ Appointed to ARM Committee 13 October 2020; resigned as a member of the Nominations Committee effective 31 October 2020
* Denotes Committee Chair
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our business to achieve diversity priorities and initiatives
across our regions and functions.
Respect and Responsibility Policy Xero’s Respect and
Responsibility Policy supports a clear and consistent
approach to equal opportunity, promotes a workplace
free from discrimination, harassment, sexual harassment,
and bullying, and sets out the internal process to resolve
concerns and complaints. The policy is supported by an
online training module for all employees and additional
training for people managers.
Wellbeing At Xero, we value wellbeing and believe it
is part of our commitment to create an inclusive work
environment to support our employees, customers, and
partners. During FY21, we focused on supporting the
wellbeing of our people and our customers in the COVID-19
operating environment. This included a range of employee
listening strategies, including internal pulse surveys,
to understand our people’s experience of the COVID-19
environment and how we could best support them. We
created a Wellbeing Hub for our people with a range of
resources for them and their families, including a resource
kit for parents. We supported our people managers with a
toolkit to help them prioritise the wellbeing of their teams
and adapt to the challenges of remote working, and piloted
a program of capability development for people managers
around building resilient teams.
In September 2020, we appointed a global Head of
Wellbeing to further develop our wellbeing strategy and
consolidate and enhance our efforts to promote, protect,
and support the wellbeing of our people. The initial focus
of this strategy has been to deploy an evidence-based
framework called the ‘wellbeing climate’, which seeks to
understand how well our people’s psychological needs
are met during their experience of work. Integrating this
framework into our systems and leadership capability
enables Xero to better identify and respond to psychosocial
risk, and provides a foundation to make evidence-based
decisions about how work should be designed.
Digital accessibility In February 2021, we appointed a
Head of Digital Accessibility to promote accessibility of
Xero’s products for our customers and ensure that
diversity and inclusion is embedded in our product
development approach.
Company Secretary Chaman Sidhu is the Chief Legal
Officer & Company Secretary of Xero. Her qualifications and
experience are set out on Xero’s website at www.xero.com/
about/team/.
The Company Secretary is accountable to the Board,
through the Chair, on all matters to do with the effective
functioning of the Board. The formal reporting line of the
Company Secretary is through the CEO. All directors have
direct access to the Company Secretary.
Leadership Team
Appointment Before appointing a senior executive, Xero
undertakes appropriate background checks to determine
that candidate’s suitability. All members of Xero’s
leadership team are appointed pursuant to formal letters of
appointment or agreements setting out the key terms and
conditions of their appointment, including remuneration.
Diversity and inclusion1
Xero values diversity and inclusion and considers it a
priority in the creation of a sustainable business capable
of delivering shareholder value. Xero embraces the diverse
experience, ideas, skills and perspectives of our people.
The diversity of our people enables Xero to innovate,
attract and retain top talent, and to better reflect and
serve our customers, partners, and the communities we
interact with every day. Xero takes a broad view of the
meaning of diversity and believes that it’s through inclusion
that we will tap into the potential and power of our
people’s differences.
Diversity and Inclusion Policy Xero’s Diversity and
Inclusion Policy outlines requirements for the Board to
establish measurable objectives for achieving diversity
and to annually assess those objectives and the progress
towards achieving them. This policy is available on Xero’s
website at www.xero.com/about/investors/governance/.
The policy reflects six key principles that provide the
framework for Xero’s goal of developing and maintaining a
diverse and inclusive workplace and the implementation of
initiatives to support this. The key principles are:
1. We value diversity because it reflects and serves our
customers and ensures our people thrive
2. We’re all accountable to create an inclusive culture
3. We’re committed to attracting diverse talent and hiring
fairly
4. We support flexible ways of working
5. We’re committed to equal pay for equal work
6. We have an obligation to champion diversity and
inclusion in the community
Xero’s Head of Diversity and Inclusion leads our global
diversity and inclusion strategy and initiatives and supports
¹ See also SEI and D&I Section on page 23 for more detail on Xero’s diversity and inclusion initiatives
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Measurable objectives for diversity In addition to the information contained in the SEI and D&I section (see pages 23 to 32), the
following is a summary of progress achieved against Xero’s measurable objectives for FY21, as approved by the Board:
Objective
Progress
Xero maintains a
gender balance on its
Board by having at
least 3 female directors
and at least 3 male
directors*
Xero attracts diverse
talent in the tech
industry with particular
focus on women in
tech, and maintains:
•
•
female
representation on
Xero’s leadership
team at or above
40%
female
representation across
all employees at or
above 40%
(This reflects a 40:40:20
target for these levels, i.e.
40% women and 40% men,
with the remaining 20%
unspecified to allow for
flexibility and recognise that
gender is not binary)
• At 31 March 2021, Xero’s Board was comprised of 3 women and 5 men
• Progress on gender diversity: At 31 March 2021, 42% of Xero’s employees and 63%¹ of
Xero’s leadership team were women
•
Included in the 2021 Bloomberg Gender-Equality Index recognising our commitment to
supporting diversity in the workplace (our second consecutive year in this index) and
accredited with the GenderTick from YWCA New Zealand
• Community engagement: Maintained our support for organisations and initiatives to
attract and develop a more gender diverse workforce, including Code Like A Girl and Tech
Girls Movement in Australia
• Continued our community outreach and engagement program in New Zealand with the
aim of increasing gender and ethnic diversity in the early-stage pipeline of talent into tech.
In response to COVID-19, online initiatives included an Online Coding Adventure for young
people, co-creating the Trailblazing Women in Tech quiz for girls with the She# team
and supporting our people to participate as mentors in the GirlBoss Edge: Engineering &
Technology online career accelerator for high school aged young women. Some in-person
activities have resumed, such as hosting school student work experience days for a group of
young women and Pasifika students and ShadowTech days for teachers
• Measurement & monitoring: Evolved our internal diversity dashboard that tracks key
diversity data to include new metrics and individual dashboards to support accountability
for our leadership team
• To reflect our understanding that gender is not binary, began reporting internally and
externally on the representation of gender diverse and non-binary people at Xero (based on
self-identification) in addition to the representation of women
• Gender pay equity: Conducted our annual organisation-wide pay equity review at Xero and
in the process of submitting the now annual gender pay gap report for our UK business for
the period of 4 April 2019 to 5 April 2020
• Hiring more inclusively and attracting diverse talent: Relaunched Diversity and Inclusion
in hiring training for our talent teams and interviewing at Xero training for hiring managers,
including education about counteracting unconscious bias in the hiring process and
utilisation of recruitment platforms promoting diversity such as Work180 in Australia and
established new partnerships with Tech Returners in the UK, and the Black Professionals in
Tech Network in the Americas
• Networks for women: The Empower employee resource group for women in the Americas
and the Women of Xero community in Australia continued to organise events in support of
gender equality at Xero
Xero is an inclusive
work environment
where different
contributions and
perspectives are valued
and everyone can bring
their whole self to work
Some of the ways in which we continued to build our inclusive work environment during
the year:
•
Inclusive leadership: Developed an inclusive leadership learning program in response to
challenges highlighted in the COVID-19 operating environment, with many of our people
leaders remotely leading diverse, physically distributed teams for the first time. Following
a successful pilot in November 2020, we are now offering this inclusive leadership program
as foundational learning to build the inclusion capability of leaders across Xero, in
support of our expectation that great people leaders at Xero build inclusive, resilient, and
psychologically safe teams
* Given an intended board size of 7 - 9 directors, this equates to maintaining not less than 30% female representation and not less than 30% male
representation on the Board
¹ Refer to CEO Review which sets out the expanded role for the Chief Customer Officer and new reporting lines for the Managing Director in each region.
These changes have increased diversity at the leadership team level
XERO ANNUAL REPORT Xero is an inclusive
work environment
where different
contributions and
perspectives are valued
and everyone can bring
their whole self to work
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• Cultural diversity survey: Launched our first cultural diversity survey on World Day for
Cultural Diversity in May 2020. The survey focused on three key indicators of cultural
diversity that are meaningful from a global perspective: country of origin, languages we use,
and identity. Our objective was to obtain a globally consistent baseline for cultural diversity
across these indicators, and we shared the results of our survey internally and externally.
Following this survey, we also reviewed our data around racial and ethnic diversity to
understand how our workforce reflects the communities we operate in, so we can identify
representation gaps and work to narrow these gaps over time
• Addressing racism & racial inequality: After a town hall session for our people in the
Americas to discuss their reactions to Black Lives Matter and their experiences of systemic
racism and racial inequality, our Americas leadership team worked with a local expert to
develop an action plan to amplify our Diversity and Inclusion efforts in the region. This plan
was informed by insights from focus groups conducted with employees and leaders in the
Americas during August and September 2020. In February 2021, we appointed a Diversity
and Inclusion Program Manager to support the implementation of this plan in the Americas,
and help us share learnings across our global business. We also conducted allyship training
for all people leaders in the Americas, focused on understanding the workplace experience
of Black professionals, facilitated by a leader from the Black Professionals in Tech Network
• Support for parents: Launched a new program of inclusive benefits to support our people
when they are starting or growing their family, including significantly increased leave
benefits (up to 26 weeks as a top-up to 100% of base salary for all primary carers, and six
weeks paid leave for partners), a standard ‘flexi-return’ policy when returning to work and
10 paid ‘keeping in touch’ days to ensure parents can stay connected to Xero while on leave.
Our support for parents is available to all permanent employees globally, regardless of their
gender identity, how they become a parent, or how long they have been with Xero
• LGBTQI+ inclusion: Installed all gender signage across the accessible bathrooms and
shower rooms in our Wellington headquarters to create a more inclusive and welcoming
environment for trans, gender diverse and non-binary employees and guests, with a plan
to extend this initiative wherever possible in our offices globally. Options were introduced
in Xero’s internal human resources system to enable employees to identify as non-binary
or gender diverse. Highlighted significant events such as Pride Month in the northern
hemisphere, Wear It Purple Day in Australia and LGBTQ History Month in the UK with
internal communications, videos, educational posts and virtual events. Successfully
piloted an ally skills training program in December 2020, with a broader rollout planned
commencing with our Product team initially, to develop people’s confidence and practical
skills to take effective action when they can best act as an ally
• Sharing personal stories: Promoted inclusion through creating awareness and understanding
on topics such as neurodiversity (through a series of profiles of neurodivergent Xeros in our
global #diversity channel) and invisible disabilities (through a personal story shared across
our global business on International Day of People with Disability)
• Mental health & wellbeing: Delivered a range of mental health support and wellbeing
resources in response to the COVID-19 environment, and offered all our people an additional
day of paid wellbeing leave in the lead-up to World Mental Health Day
• Cultural inclusion: Promoted cultural awareness and inclusion by highlighting cultural and
religious events such as Māori, Samoan, and Tongan language weeks and Matariki (Māori
New Year) in New Zealand, Africa Day in the UK, NAIDOC Week (National Aborigines and
Islanders Day Observance Committee) in Australia, and Ramadan and Lunar New Year
globally. Our recently formed employee resource group, Black Xero, also curated a program
of educational content and events for Black History Month in the Americas
•
Indigenous engagement in Australia: Our Australian senior leadership team completed
Indigenous cultural competency training to increase their knowledge, skills and confidence
working with Aboriginal and Torres Strait Islander people and communities, with a view to
building cultural competency within our business and beginning our reconciliation journey
• Flexible Work: After completing a rapid transition to fully remote working in response to
COVID-19, we established a working group called Future of Work to guide our longer-term
approach to Flexible Working recognising the significant connections between flexibility,
wellbeing, and inclusion for our people. The working group delivered an updated Approach
to Flexible Work policy that is underpinned by flexibility and choice for all employees
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Our workforce demographics
We’re committed to increasing transparency of our workforce data1 as an important first step on our journey towards
better reflecting the communities we operate in and the customers we serve. For the first time this year, we include data
about age, racial and ethnic diversity.
We are committed to further understanding our global race and ethnicity profile and over the course of FY22 will
develop measurable initiatives to improve our diversity.
Gender2, 3
Executive leadership
team
Employees
All people managers
Age³
Men (37%)
Women (63%)
Men (57%)
Women (42%)
Men (60%)
Women (40%)
Additional gender identities
(1%)
Additional gender identities
(0.3%)
20–29 years (30%)
30–39 years (46%)
40–49 years (19%)
50 years + (5%)
Gender diversity statistics The proportion of women employed by Xero Limited and its subsidiaries (Xero Group) as at 31 March
2021 is shown below:1
At 31 March
Directors
Leadership team4
2021
women
3
5
2021
men
5
3
2021
total
8
8
Employees
1,535
2,093
3,6503
2021
%
38%
63%
42%
2020
women
2020
men
3
5
4
7
2020
total
7
12
1,292
1,743
3,0473
2020
%
43%
42%
42%
¹ Gender and age data covers our global workforce. Race & ethnicity data is provided for countries where the majority of employees have answered an
optional race/ethnicity question in Workday, our human resources information system. All data is self-reported, as at 31 March 2021.
² Xero has an optional gender identification question that allows employees to choose from the following options: female, male, gender diverse, non-
binary, none of the options offered and prefer not to say. Where employees have selected non-binary, gender diverse, none of the options offered or prefer
not to say, their responses are included in the total. 42 employees (1.1%) were excluded from the total because they have not responded to the gender
identification question
³ These figures include permanent full-time, permanent part-time, fixed-term, casual employees and interns, and do not include contractors
⁴ Xero’s leadership team is defined as the CEO and all senior executives who report directly to the CEO. During FY21, our four regional leaders (who
identify as male) became direct reports to the Chief Customer Officer. This reduced the number of direct reports to the CEO from 11 to 7 and increased the
percentage of women on our leadership team. The number of women on the leadership team remained unchanged
WGEA report notification Xero’s Australian subsidiary, Xero Australia Pty Limited, submits an annual Workplace Gender Equality
Report under the Australian Workplace Gender Equality Act 2012 (available once published on WGEA’s website at
www.wgea.gov.au).
XERO ANNUAL REPORT
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Race & ethnicity1
Australia2
New Zealand3
United Kingdom4
United States5
Aboriginal and/or Torres
Strait Islander people6 (0.1%)
African and/or Middle
Eastern7 (1%)
Asian8 (12%)
Australian (31%)
European9 (5%)
Other Oceanian10 (1%)
Asian12 (16%)
Māori13 (2%)
Middle Eastern / Latin
American / African (3%)
New Zealand European14
(33%)
Other European (14%)
Pacific Peoples (1%)
People of the Americas (1%)
No data11 (31%)
No data11 (47%)
Asian or Asian British15 (9%)
Asian (7%)
Black, African, Caribbean or
Black British16 (4%)
Black or African American
(3%)
Mixed or multiple ethnic
groups17 (2%)
White18 (53%)
No data11 (32%)
Hispanic or Latin (6%)
Native Hawaiian or other
Pacific Islander (0.3%)
Two or more races (5%)
White (60%)
No data11 (20%)
1 Gender and age data covers our global workforce. Race & ethnicity data is provided for countries where the majority of employees have answered an
optional race/ethnicity question in Workday, our human resources information system. All data is self-reported, as at 31 March 2021.
² Categories in this donut broadly reflect the Australian Bureau of Statistics Standard Classification of Cultural and Ethnic Groups, 2019
³ Categories in this donut broadly reflect the Stats NZ Ethnicity Standard Classification, 2005
⁴ Categories in this donut broadly reflect the UK Government’s harmonised list of ethnic groups, 2011
⁵ Categories in this donut broadly reflect US Equal Opportunity Employment Commission EEO-1 reporting categories
⁶ Aboriginal and Torres Strait Islander peoples are the First Peoples of Australia
⁷ Includes people who selected any of these descriptors in Workday: North African, Sub-Saharan African
⁸ Includes people who selected any of these descriptors in Workday: North-East Asian, South-East Asian, Southern and Central Asian
⁹ Includes people who selected any of these descriptors in Workday: North-West European, Southern and Eastern European
10 Includes people who selected any of these descriptors in Workday: Australian South Sea Islander, Oceanian Other
11 Includes people who have not answered the race/ethnicity question in Workday, or who selected “None of the options offered” or “Prefer not to say”
12 Includes people who selected any of these descriptors in Workday: Asian - Chinese / Indian / Other
13 Māori are the tangata whenua, the Indigenous people, of New Zealand
14 New Zealanders of European descent may also self-identify as Pākehā
15 Includes people who selected any of these descriptors in Workday: Asian - Bangladeshi / Chinese / Indian / Other / Pakistani
16 Includes people who selected any of these descriptors in Workday: Black - African / British
17 Includes people who selected any of these descriptors in Workday: Mixed - White & Asian / White & Black Caribbean / Other
18 Includes people who selected any of these descriptors in Workday: White - British / Irish / Other / Other European
65
Evaluation of the Board
On an annual basis, the Board, with assistance from
the Nominations Committee, reviews and evaluates its
performance (including against the requirements of the
Board Charter) and the performance of Committees and
individual directors.
These performance reviews are conducted both internally
and, on a periodic basis, externally with the assistance of a
facilitator. The Board conducted an internal performance
review during FY21. This review evaluated Board,
Committee, and individual director performance.
The Board, with guidance from the Nominations
Committee, determines the size and composition of the
Board, and the appointment, re-election or retirement of
directors. A director does not participate in the decision
regarding their own election or re-election.
After considering a number of factors, including the results
of the performance reviews, the Board determines whether
to endorse the directors who will stand for re-election at
the Annual Meeting. Information relevant to the election
or re-election of directors at an Annual Meeting, including
their professional experience and all other material
information relevant to a decision on whether or not
to elect or re-elect a director, is included in the Notice
of Meeting distributed each year in advance of the
Annual Meeting.
Evaluation of the leadership team
The Chair of the Board, with support from the P&R
Committee, reviews and makes recommendations on
the performance evaluation of the CEO. The CEO, with
oversight from the P&R Committee, reviews and makes
recommendations on the performance evaluation of the
rest of Xero’s leadership team.
The performance of Xero’s leadership team is reviewed
annually. Performance reviews are conducted by assessing
each executive’s performance against specific and
measurable quantitative and qualitative performance
criteria. The assessment is then discussed with the P&R
Committee. The performance criteria against which the
executives are assessed are aligned with the financial and
non-financial objectives of Xero.
Performance reviews for Xero’s leadership team took
place for FY21 in accordance with this process. The
remuneration outcomes resulting from the performance
reviews for the CEO and Chief Financial Officer (CFO) are
detailed in pages 73 to 92 of this Annual Report in the
Remuneration Report.
Principle 2: Structure the board to be
effective and add value
Nominations Committee
Charter The Nominations Committee Charter sets out
the Nominations Committee’s role to, in summary, assist
the Board in relation to Board and Committee size,
composition, performance evaluation, succession planning,
and director and CEO appointment. The Nominations
Committee Charter is available on Xero’s website at www.
xero.com/about/investors/governance/.
The Nominations Committee Charter provides that the
Committee will consist of a majority of independent
directors, be chaired by an independent non-executive
director, and have at least three members. The Committee
composition meets these requirements. The Committee
meets at least four times per year and all directors have a
standing invitation to attend its meetings.
Details about the Nominations Committee membership
and meeting attendance are set out under Principle 1 on
page 58.
Responsibilities The Nominations Committee’s duties and
responsibilities include:
• Regularly reviewing and making recommendations to
the Board as to the size and composition of the Board
and its Committees
• Overseeing the search for, and selection of, new
directors for nomination for appointment by the Board
• Making recommendations to the Board regarding the
appointment of the CEO, as well as the nomination of
directors for election or re-election by shareholders
• Overseeing and regularly reviewing an appropriate
director induction program, as well as considering
the professional development needs of directors and
ensuring they have access to ongoing professional
development as required
• Overseeing the regular assessment of, and making
recommendations to the Board as to, the independence
of each director and associated disclosures
• Developing succession plans for the Board to maintain
an appropriate mix of skills, knowledge, experience,
independence, and diversity
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Director appointment In selecting and appointing new directors, the Board identifies and considers qualified potential candidates
with the appropriate mix of skills, knowledge, experience, diversity, and independence that the Board and Committees are seeking
to achieve, and the time commitment required from non-executive directors.
Suitable candidates are appointed by the Board and hold office until Xero’s next Annual Meeting, where they are then eligible
for election.
The director skills matrix was reviewed and updated following the appointment of additional directors in FY21 and the table below
summarises the directors’ relevant skills, and the Board is satisfied that the skills matrix demonstrates that the Board has the
appropriate mix of skills and experience necessary to oversee the governance and operations of Xero.
Capability
Number of directors with the capability
High capability
Medium capability
Cloud, online, and financial platforms
Expertise in business software and delivering solutions at scale through
SaaS, cloud and platforms
Digital product management and marketing
Digital product expertise with extensive expertise across technology trends,
and implications and the software and technology product value chain
Strategy and development
Corporate strategy and development including M&A and strategic
partnerships
Go-to-market and customer experience
Deep customer insight and advocacy. Go-to-market expertise including
direct sales, internet sales and new markets, and specific customer
channel experience
Financial expertise
Financial expertise with deep public company experience in finance,
accounting, planning and investor relations
International markets
Exposure to at least two of Xero’s key international markets
(Asia, Americas, EMEA, New Zealand and/or Australian markets)
Listed company governance; risk
Depth of expertise in listed company governance, compliance and risk
management
People and culture
Remuneration, workforce planning, talent, culture, and diversity
and inclusion
3
2
8
6
2
2
4
7
4
5
-
2
5
6
4
1
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Independence
Xero considers a director to be independent when they are a non-executive director who is independent of management and free
of any business or other relationship that could materially interfere with (or could reasonably be perceived to materially interfere
with) the independent exercise of their unfettered judgement, having regard to the best interests of Xero as a whole.
In the context of director independence, ‘materiality’ is considered from both a Xero and an individual director perspective.
The Board makes an assessment of the independence of each director upon their appointment and annually thereafter.
Directors are required to disclose to the Board relevant personal interests and conflicts of interest on an ongoing basis. In
accordance with the definition of independence above, and having regard to the relevant factors listed in the ASX Principles and
Recommendations, the following directors of Xero are considered to be independent:
• David Thodey (Chair)
• Steven Aldrich (Commenced 1 October 2020)
• Mark Cross
• Lee Hatton
• Dale Murray
• Susan Peterson
The length of service of each director is ascertainable from the information on pages 55 and 56 of this Annual Report.
Board composition and Chair
The Board Charter states that the Board will consist of a majority of independent non-executive directors. The Chair of Xero,
David Thodey, is assessed as an independent non-executive director. The Chair’s role is to, in summary, lead the Board, facilitate
constructive discussion at Board meetings, and ensure that the Board functions effectively and communicates the Board’s
position to shareholders.
Board diversity and tenure
As at 31 March 2021
Tenure
Gender
Location
Race & Ethnicity
0-3 years 37.5% (3 directors)
Male 62.5% (5 directors)
NZ 37.5% (3 directors)
100% White and/or European
3-6 years 25% (2 directors)
Female 37.5% (3 directors)
AU 37.5% (3 directors)
UK 12.5% (1 director)
US 12.5% (1 director)
descent))
heritage (includes one director
who also identifies as Pākehā (a
New Zealander of European
6-9 years 12.5% (1 director)
9+ years 25% (2 directors)
Induction
All new Board members are given appropriate induction to enable them to gain an understanding of Xero, its values, its people,
and customers, its operations, its financial, strategic, and risk management position, and the rights, duties and responsibilities
of the Board, its Committees, and management. In addition, ASX Listing Rules training is provided to Board members when they
join the Board. Each new Board member has the opportunity to meet with existing Board members, Xero’s leadership team, and
relevant members of the senior management team. All Board members are expected to maintain the skills required to discharge
their respective roles, and are supported in this with access to training and professional development opportunities identified and
overseen by the Nominations Committee.
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Principle 3: Act ethically and
responsibly
Principle 4: Safeguard integrity in
corporate reporting
Code of Conduct
Xero has a Code of Conduct (the Code), which applies to all
directors, officers, employees, contractors, and consultants
of the Xero Group. The Code details Xero’s standards
and values and sets out expectations for behaviour and
conducting business at Xero. The Code is underpinned by
Xero policies, some of which are global and some of which
are country specific, and include topics covering safety
and wellbeing, respect and consideration, and workplace
behaviour. The Code also sets out Xero’s zero-tolerance
approach to bribery, facilitation payments, and corruption
in any form. The Board is informed of any material breaches
of the Code.
The Code is available on Xero’s website at https://www.
xero.com/about/investors/governance/ and is also made
available to employees via Xero’s intranet.
Whistleblower Policy
Xero has a Whistleblower Policy, which applies to everyone
who currently works or formerly worked at any entity in the
Xero Group (including all directors, officers, employees,
contractors, consultants, volunteers, interns, casual
workers, and agency workers) and to any current or former
supplier of goods or services (whether paid or unpaid) to
any entity in the Xero Group (and their employees). The
policy also applies to the relatives, dependants, or spouses
of any of those people. The policy aims to encourage a
culture of openness and accountability within the Xero
Group. It includes topics such as the types of concerns that
can be raised, how to raise concerns, how whistleblowers
will be protected and supported, and how Xero will
investigate and deal with any concerns that are raised. The
Board is informed of any material concerns reported under
the policy.
The policy is available on Xero’s website at https://www.
xero.com/about/investors/governance/ and is also made
available to employees via Xero’s intranet along with
supporting information specific to relevant regions.
Modern Slavery and Human Trafficking
Statement
Xero has published a statement (on behalf of itself and Xero
Australia Pty Limited under Australia’s Modern Slavery Act
2018 (Cth) and on behalf of itself and Xero (UK) Limited
under the United Kingdom’s Modern Slavery Act 2015)
setting out the actions that it has taken to understand
potential modern slavery risks related to its business and
supply chains and to implement steps to prevent slavery
and human trafficking.
This statement is available on Xero’s website at www.xero.
com/about/investors/governance/.
Audit and Risk Management Committee
Purpose The ARM Committee Charter (the ARM Charter)
sets out the ARM Committee’s role to, in summary, assist
the Board in relation to financial reporting principles and
policies, integrity of Xero’s financial statements, audit
functions, internal control processes, risk management,
and legal and regulatory compliance. The ARM Charter
is available on Xero’s website at www.xero.com/about/
investors/governance/.
The ARM Charter sets out that the Committee will:
• Consist of non-executive directors
• Be chaired by an independent director who is not the
chair of the Board
• Have at least three members, a majority of whom are
independent
• Be composed of members who are financially literate
• Have at least one member with accounting or related
financial management expertise
The Committee composition meets these requirements.
The Committee meets at least four times per year and all
directors have a standing invitation to attend its meetings.
Details about ARM Committee membership and meeting
attendance are set out under Principle 1 on page 58, and
ARM Committee members’ qualifications can be found at
pages 55 and 56.
Responsibilities The ARM Committee is responsible for
providing recommendations and advice to the Board on
areas including:
• Reviewing financial statements and financial forecasts
intended for external publication and the results of the
half-year review and full-year audit
• Reviewing Xero’s corporate and financial reporting
and disclosure processes, as well as Xero’s accounting
policies and financial reporting practices
• Overseeing the effectiveness of the accounting and
internal control systems
• Appointment, reappointment, removal, and
remuneration or replacement of the external auditor as
well as approving and reporting annually on the fees for
and terms of the external auditor’s engagement, and on
the scope and adequacy of the audit plan of the external
auditors
• Reviewing and reporting on the overall adequacy and
effectiveness of relevant internal controls, processes,
and compliance
Principle 5: Make timely and balanced
disclosure
Continuous Disclosure Policy
Xero’s Continuous Disclosure Policy describes the key
obligations of the Board and Xero’s leadership team to
ensure that Xero complies with its disclosure obligations
under the ASX Listing Rules. The Continuous Disclosure
Policy applies to all directors and employees of Xero or
any Xero group company, as well as any contractor,
consultant, or other person who has agreed to comply
with Xero’s policies.
The Board is responsible for compliance with Xero’s
continuous disclosure obligations and has established a
Disclosure Committee, comprising the CEO, the CFO, and
the Chief Legal Officer & Company Secretary to support this
primary responsibility and provide assurance. Xero’s Chief
Legal Officer & Company Secretary is primarily responsible
for overseeing and coordinating all communications with
the ASX, and is the Disclosure Officer for the purpose of
the policy. Any briefing or presentation materials that
contain price sensitive information will be released to the
ASX before being communicated outside Xero. The Board
receives copies of all material Market Releases as soon as
possible after they have been released to the market.
Xero’s Authorised Representatives, being those persons
authorised to speak on behalf of Xero to major investors
and analysts, include the Chair, the CEO, the CFO, the
Executive General Manager of Investor Relations, the
Executive General Manager of Communications, the
General Manager of Corporate Communications, or their
respective delegates, and any other person authorised by
the CEO.
Xero’s Continuous Disclosure Policy is available on the Xero
website at www.xero.com/about/investors/governance/.
69
• Approving and reviewing the structure of the Assurance
function, the scope and adequacy of the program of
work, and reviewing significant assurance findings and
action taken by management to address these
• Annually assessing and reviewing the overall adequacy
and effectiveness of Xero’s risk management framework
to satisfy itself that it continues to be sound and that
Xero is operating with due regard to the risk appetite
set by the Board, the methodology and processes
for identifying, assessing, monitoring, and managing
financial and non-financial risks, and the risk appetite
Reporting The Chair of the ARM Committee communicates
the findings of the Committee to the Board at the next
Board meeting.
To ensure that the external auditor remains independent
at all times, non-audit work is authorised by the ARM
Committee.
Xero is committed to ensuring that the external auditor
carries out its function independently and has adopted
an Auditor Independence Policy. The policy requires that
the senior audit partner must be rotated at least every
five years. The senior audit partner responsible for the
FY21 audit commenced as Xero’s audit partner in the
FY21 financial year. The policy also requires the external
auditor to confirm annually that it has complied with all
professional regulations relating to auditor competency
and independence.
The external auditor will attend and be available to answer
shareholder questions at Xero’s Annual Meeting.
Declaration regarding financial statements
As a New Zealand domiciled company, section 295A of the
Australian Corporations Act 2001 (Cth) is not applicable
to Xero. However, the CEO and CFO provide written
statements to the Board in accordance with the ASX
Principles and Recommendations, in respect of Xero’s half
and full year reporting periods. These statements confirm
whether, in their opinion:
• The financial records of Xero have been properly
maintained;
• The financial statements comply with the appropriate
accounting standards;
• The financial statements give a true and fair view of the
financial position and performance of Xero.
The CEO and CFO also confirm to the Board that their
view is founded on the basis of a sound system of risk
management and internal control which is operating
effectively in all material respects.
XERO ANNUAL REPORT Principle 6: Respect the rights of
security holders
Shareholder communication
Investor Centre Xero’s website has a dedicated Investor
Centre. This provides important information about Xero
and its governance that is relevant to Xero’s shareholders.
Xero’s Investor Centre includes:
• Xero’s Board and Committee Charters, policies,
and Constitution
• Profiles of Xero’s directors and leadership team
• ASX Market Releases
• Pre-Annual Meeting engagement with our largest
beneficial interest holders and the primary governance
advisory bodies
• Engagement with the retail investor community through
close involvement with shareholder associations
Annual Meeting
Xero encourages shareholders to attend our Annual
Meeting and to ask questions of the Chair, Board, CEO, CFO
and other attending members of Xero’s leadership team:
• Half and full year financial results and investor
• Shareholders are notified of the Annual Meeting in
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advance of the meeting in accordance with
regulatory requirements
• Shareholder voting is conducted via a poll, and
shareholders may vote electronically or by proxy
• Xero moved to a fully virtual Annual Meeting in FY20
in response to COVID-19. The meeting was held via an
online platform provided by Xero’s share registrar, Link
Market Services Limited. Shareholders were able to
watch the meeting live, vote, and ask questions online
• Xero’s FY21 Annual Meeting will be fully virtual via an
online platform provided by Xero’s share registrar, Link
Market Services Limited
• Noting the geographical spread of its shareholders,
Xero carefully plans the timing and format (including
accommodating virtual attendance) of its Annual
Meeting to allow as many shareholders as possible to
attend and participate
presentations
• Links to live webcasts or conference calls for the
financial results and other investor briefings
• Key upcoming dates in the financial calendar
• Historical financial reports and share price
• Details of Xero’s share registrar, Link Market
Services Limited
• An online form to enable investors to send enquiries
directly to the Xero investor relations team
Xero’s media releases can be found in the media section
of the Xero website at https://www.xero.com/about/media/
announcements/.
Annual Report and other shareholder communications
Alongside the publication of half and full year results,
Xero’s Annual Report is made available to shareholders
electronically (and by post when elected) and includes
relevant information about the operations of Xero and
other required disclosures. Each shareholder also receives
a Notice of Annual Meeting, inviting them to attend and
participate in Xero’s Annual Meeting.
Shareholders may elect to receive communications from,
and send communications to, Xero and its share
registry electronically.
Investor relations program
Xero has an investor relations function which operates
a comprehensive and active investor relations program.
The program supports Xero’s commitment to ensure its
shareholders receive important information in a timely
and effective manner and facilitates regular dialogue with
investors. Activities undertaken as part of the investor
relations program include:
• Post-result and ad hoc meetings with institutional
investors and analysts
• Attendance at a range of domestic, regional, and global
investor conferences
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Principle 7: Recognise and manage risk
Risk Management Governance and Audit and
Risk Management Committee
As mentioned under Principle 4 on page 68, the Board has
established an ARM Committee that operates under the
ARM Charter, which is available on Xero’s website.
Risk management oversight and accountability is an integral
part of Xero’s overall governance and the Board has ultimate
accountability for risk management, which includes ensuring
that material risks facing Xero have been identified and that
adequate controls, monitoring, and reporting mechanisms
are in place and operating effectively. The ARM Committee
assists the Board with its oversight of risk management,
audit, and compliance.
The ARM Committee operates in accordance with the ARM
Charter, which sets out its responsibilities for monitoring
Xero’s risk management, including how Xero identifies,
assesses, and controls strategic, operational, and financial
risks within the Board approved risk appetite. This is
designed to ensure the adequacy and effectiveness of Xero’s
ongoing risk management program, including policies and
guidelines relating to corporate governance, legal, regulatory
and ethical compliance, business continuity management,
data privacy, and information systems security.
Enterprise Risk Management framework
Xero has an enterprise risk management framework that is
managed by the CFO and overseen by the ARM Committee.
There are several components to Xero’s risk management
framework including
• Policies and procedures covering key financial and non-
financial risks
• Guidelines and limits for approval of all expenditure,
including capital expenditure and investments
• Various strategic governance forums whose purpose
includes oversight of key areas of risk, including the
Security Governance Group and the Data Use and
Governance Group
• Due diligence processes for M&A activities
A key component of Xero’s risk management framework is
the regular review of key risks and opportunities by Xero’s
leadership team. The Xero Group risk profile was developed,
and continues to be reviewed and refined, through a series
of workshops and discussions involving Xero’s leadership
team, senior management, and operational specialists.
The identified risks are included in a risk radar for review
according to the key risk categories, which include strategic,
operational, legal and compliance, financial and emerging
risks. The risk radar is reviewed with each member of
Xero’s leadership team at least twice per year. Risks lying
outside the boundaries of Xero’s agreed risk appetite require
proactive mitigation and include ongoing action plans, which
are tracked and monitored on a periodic basis by Xero’s
leadership team.
Management of economic, environmental, and
social sustainability risks
There are a number of risks that could materially impact
Xero. As part of Xero’s risk management process, Xero has
identified and assessed those areas of risk that may impact
the business. Effective monitoring and mitigation of these
risks supports Xero’s ongoing growth and protects returns.
The enterprise risk framework covers a broad range of
financial and non-financial risks. Pages 33 and 35 of this
Annual Report highlight a range of key risks including
economic, environmental, and social sustainability
related risks and how Xero manages or intends to manage
those risks.
Xero operates in an online environment, with its operational
model being primarily desk-based employees. Accordingly,
Xero’s direct environmental footprint is relatively small and
is made up largely from the energy used in its offices, third-
party data centres, and from the typical consumables of an
online, desk-based business. However, we acknowledge that
how we conduct our business has an impact on a range of
stakeholders, the communities in which we operate, and on
the environment more broadly.
We recognise the importance of climate change, which is
included as a risk within our enterprise risk radar. We are
working towards alignment with the Task Force on Climate-
related Financial Disclosures which will provide additional
insights on risks and opportunities, and allow us to drive
further risk management focus across this key area of risk.
More information about our approach to social and
environmental impact is available on pages 23 to 32 in this
report and on Xero’s website at www.xero.com/about/social-
and-environmental-impact.
Review of risk appetite and risk framework
The ARM Committee reviews Xero’s risk management
framework at least annually to satisfy itself that it continues
to be sound and that Xero is operating with due regard to
the risk appetite set by the Board
The ARM Committee also reviews and approves the
risk appetite parameters, and reviews the risk radar at
least twice per year to ensure it has oversight of status,
understands key changes, and monitors key mitigation
action plans. The ARM Committee also receives risk ‘deep-
dive’ updates on key risk areas.
The ARM Committee engaged an external provider to review
Xero’s risk management framework during FY21 and, based
on the findings from that review, considered the current
framework to be sound. In line with the desire to continually
improve our risk management framework and ensure it
evolves with the continued growth of the business, further
investment in people, processes, and technology will be
made in the coming year.
XERO ANNUAL REPORT
Internal audit
Xero has an internal Assurance function which provides
independent and objective assurance and advice on
Xero’s organisational governance, risk management and
internal control processes. The Assurance function assists
the business in understanding and managing risk and
provides confidence that the key elements of the business
that are relied on to manage risk are in place and working
effectively.
To maintain independence, the Executive General Manager
of Risk and Assurance has a functional reporting line to
the Chair of the ARM Committee (day to day reporting is
to the Chief Financial Officer) and regularly meets with the
Chair without other management present. The Head of
Assurance reports to the Executive General Manager of Risk
and Assurance and also has direct access to the Chair of
the ARM Committee. The Assurance function develops an
assurance plan which is approved by the ARM Committee
twice per year. The ARM Committee receives and
reviews reports regarding assurance activity undertaken
and, through these reports, monitors the progress of
management action plans.
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Principle 8: Remunerate fairly and
responsibly
People & Remuneration Committee
Charter The P&R Committee Charter (the P&R Charter)
sets out the P&R Committee’s role to, in summary, assist
the Board in relation to overseeing the human resources
activities of Xero, including overseeing strategies and
policies relating to organisational structure and culture,
remuneration, employee performance and development,
and succession planning of Xero’s leadership team (other
than the CEO). The P&R Charter is available on Xero’s
website at www.xero.com/au/about/investors/governance/.
The P&R Charter provides that the Committee will consist
of a majority of independent directors, be chaired by an
independent non-executive director, and have at least
three members. The Committee composition meets these
requirements. The Committee meets at least four times per
year and all directors have a standing invitation to attend
its meetings.
Details about P&R Committee membership and meeting
attendance are set out under Principle 1 on page 58.
Responsibilities The P&R Committee’s duties and
responsibilities include:
• Overseeing appointment, termination, performance, and
succession planning of Xero’s leadership team (other
than the CEO)
• Reviewing and recommending to the Board Xero’s
remuneration strategy, structure and policy, and short
and long-term incentive plans, including amendments to
such plans and other material employee benefits
• Making annual recommendations to the Board about
measurable objectives for achieving diversity and
assessing the effectiveness of the Diversity and Inclusion
Policy, measurable objectives for diversity and the
progress toward achieving them
More information about the P&R Committee and
Xero’s approach to remuneration, including details of
remuneration paid to directors (executive and non-
executive) are set out in the 2021 Remuneration Report on
pages 73 to 92 of this Annual Report. The Remuneration
Report also contains information on Xero’s policy for
determining the nature and amount of remuneration for
directors and senior executives.
Xero’s Share Trading Policy prohibits employees and
directors from entering into transactions that are intended
to hedge or otherwise limit the economic risk of unvested
or restricted Xero securities.
A copy of Xero’s Share Trading Policy is available on Xero’s
website at www.xero.com/au/about/investors/governance/
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Remuneration Report
In this report
1.
Introduction
2. Remuneration strategy
3. Xero’s performance
4. Remuneration outcomes overview
5. Directors and senior executives
6. Remuneration governance
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7. Key remuneration components for
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the CEO and CFO
8. STI outcomes in detail
9. CEO and CFO remuneration
10. CEO and CFO employment
conditions
11. Non-executive director
remuneration
12. Our team’s remuneration
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1. Remuneration
Our Xero team faced many unexpected and serious
challenges as a result of the COVID-19 global pandemic.
Everyone across our business worked tirelessly to support
our customers, while always prioritising the wellbeing of
our team.
Despite this difficult backdrop, our business delivered
continued strong momentum in Australia and New Zealand
together with an impressive recovery in our international
markets. These results are a credit to our team, our
customers and our partners, who have demonstrated
incredible resilience. We couldn’t be more grateful for the
incredible effort of all involved.
Our People and Remuneration Committee (P&R Committee)
worked even more closely with our leadership team as the
impact of the pandemic was felt. We prioritised the health
and wellbeing of our people as we closed our offices in every
region and rapidly adjusted to supporting new and emerging
needs of our customers and partners across the globe.
Some of the ways in which we helped our people included:
• Providing a monetary allowance to purchase equipment
to set up safely and ergonomically at home
• Ensuring all people leaders were supported with training
to lead and support their teams remotely
•
Increasing our internal communications to ensure that
we were staying connected while working from home,
and providing the information that our team needed,
when they needed it
• Appointing a Global Head of Wellbeing to lead programs
to promote the wellbeing of our global team, with a focus
on their psychological needs
• Launching a wellbeing hub for our team and their
families, including a wellbeing kit to help with mental
health and keeping active
• Ensuring our #human value was amplified by increasing
our use of video technology to host personal health and
wellbeing and coaching sessions
As our offices closed, our teams took on the challenge
of accelerating delivery while working remotely. The
outstanding work delivered across the business from
customer-facing, product and technology delivery, and
corporate services teams, was integral in delivering Xero’s
financial performance.
During calendar year 2020, Xero’s product and technology
teams collectively doubled the number of back and front
end application updates, even with the disruptions of
COVID-19 and our people moving to work remotely. Our
people experience team managed the largest ever increase
in our people, adding over 550 full-time equivalent team
members over the year. A large proportion of the
new hires joined our team with remote set-up, onboarding,
and induction.
As the year progressed and businesses across the globe
settled into new ways of working, the P&R Committee
reconsidered the performance targets and the remuneration
initiatives that had initially been deferred. The P&R
Committee also prioritised the need for fair recognition and
reward of our Xero team as the competition for technology
talent intensified across the globe.
As such, the remuneration review that had been paused
earlier in the financial year was completed and, when and
where appropriate against market benchmarks, salary
increases were granted.
Our approach to reward and recognition is designed to
support Xero’s purpose, values, and the successful delivery
of our strategy. This is key to our remuneration philosophy
and practices.
This Remuneration Report outlines the principles and
structure of Xero’s remuneration of its directors and
executives (being the CEO and direct reports of the
CEO), with particular focus on the CEO Steve Vamos
and CFO Kirsty Godfrey-Billy. We also provide details
on the relationship between remuneration, Xero’s FY21
performance, and shareholder outcomes.
During the early stages of the pandemic, a period of
heightened uncertainty for our business, we made the
decision to defer a number of planned initiatives including
the annual remuneration review, grant of executive options,
and setting of incentive-related performance targets.
In the interests of providing greater transparency and
insight into our remuneration practices, this report goes
beyond what we are required to disclose as a New Zealand
incorporated company. As always, we welcome feedback on
this evolving report.
As we grow and scale, we will continue to review the
structure of our executive remuneration regularly to ensure
we attract and retain the best global talent and remain
market competitive.
1.1.3 Equity grants
During FY21, in addition to our annual remuneration
strategy and structure review, we continuously monitored
the appropriateness of our remuneration approach and
outcomes in light of the challenges and uncertainties of
COVID-19. Being conscious of the need for disciplined cost
management, Xero decided it was appropriate to defer
the FY21 LTE options grant scheduled to take place in
May 2020, until October 2020. This action resulted in a
significantly higher exercise price and fewer options being
granted to executives than would have otherwise been
the case.
1.1.4 Remuneration review outcomes
The monitoring of our approach to remuneration in FY21
also resulted in the P&R Committee deciding it was
appropriate to postpone the planned review of executive
remuneration, scheduled to take place in April 2020,
until October 2020. Using market peer data, the
remuneration review showed the CEO’s target total
remuneration was considerably lower than benchmark.
In response, the LTE component of the CEO’s target
remuneration was increased while his base salary and
target STI remained unchanged. As a result of the changes
outlined in 1.1.2, the CFO’s remuneration package was
rebalanced to reduce the LTE component and increase the
base salary and STI components.
There were no changes to the fees paid to non-executive
directors during FY21. However, a scheduled review of the
fee structure and fees paid began late in FY21, with any
proposed changes to take effect in FY22.
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1.1 Key developments in FY21
1.1.1 Xero’s performance and short-term incentive
(STI) outcomes
Xero achieved record subscriber growth in the second half
of FY21, to achieve our strongest half-year period ever.
In FY21, EBITDA, net profit and free cash flow increased
strongly compared to FY20. This reflects top-line growth
together with close management of expenses and
considered capital allocation.
This performance is reflected in the outcomes against STI
targets for the CEO and CFO. Both executives earned an STI
award for FY21 of 110% of target (being 90% of maximum).
1.1.2 Review of remuneration structure
Each year Xero reviews its executive remuneration strategy
and structure to ensure it is aligned to our strategic
objectives and is fit for purpose. Two changes resulted
from the most recent review completed during FY21. The
first involved rebalancing executive remuneration by
changing the mix of long-term equity (LTE), base salary,
and STI components for both the CEO and executives.
These changes capture Xero’s continued evolution from
its start-up origins to a global technology company,
where competitive remuneration is an important factor in
attracting and retaining executive talent.
The second change was the introduction of a new annual
LTE plan. The new plan replaces the FY19 executive block
options plan that involved a one-off grant of options vesting
over one to four years, depending on grant date and the
start date of new executives.
Under the new LTE plan, option grants will be made
each year and vest in full, three years from May in the
year options were granted. The move to an annual grant
cadence helps to provide Xero, together with existing and
future executives, a more dynamic and flexible form of long-
term incentivisation.
Consideration was also given to an alternative equity vehicle
or award structure. However the Board determined that the
LTE plan has been effective in motivating, rewarding, and
retaining executives to deliver against longer-term strategy
and sustained shareholder value creation.
The new LTE plan provides alignment between shareholder
and executive outcomes and incentivises long-term value
creation. Options are granted with an exercise price based
on the share price at the time (based on the 30-day volume
weighted average price (“VWAP”)), with the value in options
for executives only being realised if the share price exceeds
the exercise price set at the grant date.
The LTE remains subject to malus and clawback provisions,
as outlined in section 2.4, and further details on the LTE
plan are outlined in section 7.5.
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Xero‘s remuneration framework is designed to attract, inspire
and retain best-in-class talent through a structure that:
• Ensures alignment with business strategy
• Supports sustainable long-term value creation for
shareholders and other stakeholders
• Supports appropriate risk-taking and risk management
2. Remuneration strategy
2.1 Our purpose and values
Xero’s purpose is to make life better for people in small
business, their advisors, and communities around the
world. This purpose is underpinned by five values that are
fundamental to everything we do, including our approach to
remuneration and reward.
• Remuneration comprises a fixed and variable
component, and Xero’s variable remuneration structured
to ensure simplicity
• STI for executives includes ‘voice of customer’ and
‘voice of employee’ metrics
• STI outcomes for executives are finalised having regard
to Xero’s values
• The Board has discretion to reduce or change deferred
STI and LTE outcomes, to ensure no unfair benefit is
obtained by the executive (see 2.4 below)
#Human
#Challenge
#Team
#Ownership
#Beautiful
Xeros are authentic,
inclusive and really
care
Xeros dream big,
lead and embrace
change
Kind and assume best
intent
Are curious and think
big
Xeros are great
team players
Champion Xero’s
purpose and
priorities
Inclusive,
approachable and
show empathy
Welcome challenging
conversations and do
it with respect
Work together to do
what’s best for Xero
and our customers
Are willing to be
vulnerable, share fears,
failures and learnings
Lead and embrace
change, seeking new
and better ways
Appreciate and
celebrate each other
and success
Xeros deliver on our
commitments
Do what we say we
will do
Own our mistakes
and take positive
action
Move fast to get the
right things done
Xeros create
experiences that
people love
Create experiences
that inspire and
delight
Do high-quality
work
Go the extra mile
Incentivising appropriate risk-taking and managing risks
further underpin our remuneration principles and structure.
This approach to managing risk is borne out in a number
of ways:
• STI measures, weightings, and targets are reviewed
and approved annually by the P&R Committee and
Board, ensuring oversight and independence from
plan participants
• STI performance measures are calibrated to ensure
they align to our values, Xero’s strategy and Xero’s
risk appetite
• STI financial outcomes are only confirmed after audited
results are finalised
• 50% of executives’ STI awards are deferred for 12
months and awarded in equity rather than cash,
and vesting of the equity component is subject to
confirmation from the P&R Committee that no award
adjustment events have occurred
• A three-year vesting period applies for annual options
grants under the LTE, meaning that options are at risk
and subject to malus and clawback for three years (as
discussed below)
• All executive variable remuneration (being deferred STI
and LTE) is subject to malus and clawback rules that
allow the Board to adjust, lapse, or claw back unvested
and vested awards in certain circumstances to ensure no
unfair benefit is obtained by executives (see section 2.4)
•
In certain circumstances, the Board is able to exercise
discretion to adjust all elements of executive variable
remuneration to ensure no unfair benefit is obtained by
executives (see section 2.4)
Sections 7.4 and 7.5 contain further information about
Xero’s STI and LTE arrangements.
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2.2 Remuneration principles
As a global technology company, Xero is dependent on
highly skilled, specialist team members to execute our
strategy. Our ability to attract, retain, reward, and motivate
our people is fundamental to our long-term success.
Our executive remuneration framework has been carefully
and purposefully developed to enable this by offering:
• Fixed remuneration competitive with the market
• Short-term incentives based on challenging individual
and company-wide targets, with a deferred equity
component
• An options-based equity plan that is aligned with Xero’s
strategy, ensuring a focus on execution and long-term
value creation
The relatively high proportion of equity within the
remuneration structure, and the use of options as the
equity instrument, continues to help ensure we attract
highly skilled people. It also aligns executive performance
with shareholder interests and rewards the effective
execution of Xero’s strategic plan over a multi-year period.
The following summarises each remuneration principle and
how it is reflected in our remuneration structure:
Alignment: A significant proportion of executive
remuneration is contingent on share price, ensuring
Xero executives receive rewards that mirror shareholder
outcomes.
Fairness: Market competitive, up-front cash-based
remuneration is balanced by equity remuneration with
significant potential upside.
Collaboration: Performance conditions attached to STI
are largely company-wide focused, with a less significant
individual component. Collaboration is key to the way we
work; hence performance metrics are focused on this.
Significant equity components emphasise the value of
delivering on Xero’s company-wide strategic objectives,
which are intended to drive long-term shareholder value.
Xero’s people must collaborate to earn personal rewards.
Simplicity: There are no complicated LTE performance
measures that require extensive explanation or to which
the executives do not have a direct line of sight – the
structure simply incentivises long-term value creation. STI
performance measures are aligned with the voices of the
shareholder, customer, and employee and are clear and
easily assessed.
Flexibility: Xero’s short-term incentive performance
measures combined with long-term options strike the
right balance between ensuring that Xero executives
have sufficient flexibility to respond to changing needs
and circumstances, while always having regard to Xero’s
strategy, vision, and long-term value creation.
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2.3 Remuneration structure
To foster tight alignment between the interests of executives and shareholders, Xero’s executive remuneration structure is
deliberately weighted to have a substantial proportion of total target remuneration at risk. A large part of this at-risk component
consists of option grants, providing leverage, and an effective multi-year incentive aligned with Xero’s high-growth strategy.
Component
Fixed annual
remuneration
Short-term incentive
(STI)
Long-term incentive
(LTE)
Description
• Base salary
• Retirement benefits (superannuation / KiwiSaver or local
equivalent)
• An at-risk component set as a percentage of base salary
• Calculated based on achievement against a range of company-
wide performance measures (financial and non-financial) and
individual objectives
• Paid after a one-year performance period (1 April to 31 March,
aligned with Xero’s financial year). STI comprises 50% cash
and 50% deferred equity in the form of restricted stock units
(RSUs). Each RSU entitles the executive to receive one Xero
share on vesting. Deferred equity vests one year after grant,
subject to continuing employment and confirmation that no
award adjustment events have occurred
• An at-risk component set as a percentage of base salary and
granted annually to participating executives, which entitles the
executive to Xero shares on vesting of the option and payment
of the exercise price
• Options vest in the third May following grant
• New hires / promotions may be invited to participate in the
annual options plan, with a pro-rata allocation to reflect their
entry into the plan part way through the year
• Vesting is subject to continued employment, which provides
an additional time-based retention incentive. Vesting is also
subject to confirmation that no award adjustment events have
occurred
Link to strategy and performance
Reviewed annually based on individual
skills, experience, accountabilities,
performance, leadership, and behaviours.
Rewards delivery of key strategic and
financial objectives, in line with the annual
business plan, and rewards outcomes
aligned to Xero’s goals for growth and
operational discipline.
Organisational measures are approved by
the P&R Committee and aligned with the
strategic objectives of Xero.
Rewards delivery against longer-term
strategy and sustained shareholder
value creation. Fosters alignment
between shareholder, customer, and
executive outcomes.
2.4 Malus and clawback
All executive variable remuneration is subject to malus and clawback provisions, which apply to vested and unvested equity
awards. These provisions give the P&R Committee broad discretion to adjust, lapse/forfeit, or require repayment of equity
awards to ensure no unfair benefit is obtained by the executive. This is one of the ways that we embed risk management into our
remuneration strategy and forms part of the P&R Committee’s deliberations when considering whether to approve vest awards.
Malus and clawback provisions will be relevant in a range of potential circumstances, for example where:
• An executive has acted fraudulently, dishonestly or is in breach of their obligations to Xero
• Xero becomes aware of a material misstatement in the financial statements of the Xero Group
• An executive commits an act which brings the Xero Group into disrepute
• An executive fails to perform any act reasonably and lawfully requested of that executive
2.5 Remuneration benchmarking
Executive remuneration is benchmarked to a specific S&P/ASX peer group that is determined to be similar to Xero in terms
of size, scale, and operations. Each year, the peer group is reviewed and updated by Xero, in conjunction with an independent
remuneration consultant. Xero’s P&R Committee, in partnership with an external consultant, conducts a comparative analysis of
the executive team’s compensation against reported roles within that identified peer group.
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3. Xero’s performance
Xero’s financial results over the last five years are shown below, along with STI outcomes:
Measure
Subscribers
Annualised Monthly
Recurring Revenue
FY17
1,035,000
FY18*
1,386,000
FY19
1,818,000
FY20
2,285,000
FY21
2,741,000
$363,120,000
$484,421,000
$638,179,000
$820,557,000
$963,597,000
Operating Revenue*
$295,389,000
$406,659,000
$552,819,000
$718,231,000
$848,782,000
Free Cash Flow*
($70,831,000)
($28,513,000)
$6,451,000
$27,105,000
$56,946,000
Average STI received as %
of maximum (CEO/CFO)
72%
85%
79%
56%
90%
* Operating Revenue and Free Cash Flow for FY18 has been restated for changes in NZ IFRS 9, NZ IFRS 15, and NZ IFRS 16. FY17 has not been restated
Xero’s share price, total shareholder return, the S&P/ASX100 index return and STI outcomes over the last five years are shown
below:
Measure
Xero Share Price (AU$)*
Xero Total Shareholder
Return
FY17
18.10
29.75%
ASX100 Total Shareholder
22.78%
Return
Average STI received as %
of maximum (CEO/CFO)
72%
* Closing price for the last trading day in the financial year
FY18
33.44
84.75%
3.08%
85%
FY19
48.65
45.48%
FY20
67.91
39.59%
FY21
126.53
86.32%
14.16%
-12.60%
33.03%
79%
56%
90%
XERO ANNUAL REPORT
4. Remuneration outcomes overview
Headline remuneration outcomes for Xero’s CEO and CFO are disclosed in the graph below on a realisable basis for FY21, including:
• Fixed annual remuneration
• Realisable cash and deferred RSU STI awarded based on FY21 performance: 50% is paid in cash and 50% deferred into RSUs.
Deferred RSUs are expected to be granted in May 2021 and vest in May 2022, subject to continued service and malus and
clawback provisions. The number of RSUs granted is dependent on the share price at grant: 110 percent of target STI (90
percent of maximum) was awarded to each the CEO and CFO
• Value of the CEO’s one-off performance-based RSUs that vested during FY21: based on FY19 performance measures, the
second of three tranches of 6,794 RSUs vested during FY21
• Value of the CFO’s options that vested during FY21: 20,000 options from a legacy grant in FY17 vested for the CFO during FY21,
and 33,332 options from the FY19 executive block options grant
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CEO
CFO
0
1,000,000
2,000,000
3,000,000
4,000,000
Fixed
STI cash
STI equity
RSUs
LTE options
Further details on the CEO’s and CFO’s STI outcomes are outlined in section 8.
Further details on the CEO’s and CFO’s other remuneration elements and outcomes for the FY21 year are outlined in section 9.
5. Directors and senior executives
This report focuses on the remuneration of Xero’s directors, CEO and CFO in FY21 as identified in the table below.
Position
Period position was held during the year
Country of
residence
New Zealand
New Zealand
CEO
CFO
Australia
Independent non-executive Chair
New Zealand
Founder, non-executive director
Australia
Independent non-executive director
Kingdom
New Zealand
Independent non-executive director
Australia
Non-executive director
Executive
Steve Vamos
Kirsty Godfrey-Billy
Non-executive directors
David Thodey
Rod Drury
Lee Hatton
Susan Peterson
Craig Winkler
Mark Cross
Steven Aldrich
Dale Murray, CBE
United
Independent non-executive director
New Zealand
Independent non-executive director
Full year (appointed as director 1 April 2020)
United States
Independent non-executive director
Appointed as director 1 October 2020
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
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6. Remuneration governance
Xero’s remuneration governance framework is managed
by the P&R Committee on behalf of the Board. The
P&R Committee is tasked with ensuring that Xero’s
remuneration practices are aligned with Xero’s strategic
objectives and consistent with Xero’s remuneration
principles and risk appetite. The P&R Committee considers
the interplay between remuneration structures and risk
when designing frameworks and setting and determining
remuneration outcomes.
6.1 Role of the People and Remuneration
Committee
The P&R Committee operates under a charter, which
is available on Xero’s website at www.xero.com/about/
investors/governance. The P&R Committee oversees Xero’s
strategies and policies relating to:
• Organisational structure and culture
• Remuneration
• Employee performance and development
• Succession planning for direct reports to the CEO
(succession planning for the CEO is managed by the
Nominations Committee)
The P&R Committee provides strategic, structural,
and policy oversight of remuneration, employee
performance and culture for the Xero workforce, making
recommendations to the Board regarding HR policies,
remuneration budgets, employee incentive plans and
material employee benefits.
The P&R Committee’s oversight of the remuneration
of the CEO, and direct reports, involves close scrutiny
of remuneration amounts and performance outcomes,
including developing independent recommendations
for CEO remuneration amendments and performance
outcomes to be presented to the Board. The P&R
Committee makes recommendations to the Board on
STI and LTE plans and on remuneration arrangements
for the CEO, and approves and informs the Board of the
remuneration of the CFO and other executives.
The P&R Committee reviews and approves all equity and
incentive payments to the executives, considering whether
there are any reasons for delaying, holding back, or clawing
back equity or incentive payments, as per the malus and
clawback provisions.
The P&R Committee seeks input from management
and engages the services of independent advisors
where appropriate.
6.2 People and Remuneration Committee
independence
Consistent with the ASX Corporate Governance
Principles and Guidelines, the P&R Committee consists
of four members of the Board, the majority of whom are
independent, including the Chair. The current
membership comprises:
•
•
•
•
Susan Peterson (Chair)
David Thodey
Craig Winkler
Steven Aldrich
Other members of the Board, the CEO, executives, and
members of Xero’s wider leadership team may be invited to
attend meetings of the P&R Committee where appropriate.
6.3 External and independent advice
During the year, the P&R Committee engaged external
consultants to provide guidance on Xero’s remuneration
framework given Xero’s current and expected growth
trajectory. This forms part of Xero’s governance framework.
The P&R Committee is entitled to obtain independent
advice, independent of management, to ensure that
decisions are made in the best interests of Xero.
6.4 No dealing or protection arrangements
Xero’s Securities Trading Policy prohibits employees and
directors from entering into transactions that are intended
to hedge or otherwise limit the economic risk of unvested
or restricted Xero securities.
Executives are not permitted to deal with their RSUs
or options. All dealing of shares received on vesting or
exercise of RSUs and options are subject to the rules
outlined in the Securities Trading Policy.
A copy of Xero’s Share Trading Policy is available on Xero’s
website at www.xero.com/about/investors/governance.
XERO ANNUAL REPORT
7. Key remuneration components for the CEO and CFO
Further detail is outlined below on how the remuneration structure described in section 2.3 applies to the CEO and CFO.
7.1 CEO remuneration mix
The CEO’s remuneration mix is as follows:
Target
Maximum
36%
35%
40%
Fixed annual
remuneration
STI cash
STI equity
LTE
38%
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12%
12%
18%
18%
7.2 CFO remuneration mix
The CFO’s remuneration mix is as follows:
Target
25%
12%
12%
Maximum
23%
51%
19%
19%
Fixed annual
remuneration
STI cash
STI equity
LTE
48%
7.3 Fixed annual remuneration
Fixed annual remuneration is set in the context of Xero’s wider, growth-orientated remuneration strategy and considers an
individual executive’s skills, experience, accountabilities, performance, leadership, and behaviours.
Fixed remuneration is reviewed annually to ensure that it continues to be appropriate and attract and retain key talent. This review
process is conducted based on benchmarking data as described earlier.
For the CEO, the FY21 remuneration review process resulted in no change to his base salary for FY21.
For the CFO, the FY21 remuneration review process resulted in her base salary increasing to $625,000 from $550,000 as of 1
October 2020.
Element
Components
Process
Details
Base salary
Retirement benefits (superannuation, KiwiSaver or local equivalent)
Set and reviewed annually based on individual skills, experience,
accountabilities, performance, appropriate benchmarks, leadership
and behaviours
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7.4 At risk – short-term incentive (STI)
STI is an at risk component of remuneration that is structured to reward progress towards and alignment with Xero’s strategic and
financial objectives as well as creation of value for customers, employees and shareholders in the financial period. STI payments
are set as a percentage of base salary, based on level of responsibility and country of residence.
STI is calculated based on achievement against a range of organisational performance measures (financial and non-financial) and
individual objectives and vesting outcomes are determined with regard to whether the executive has acted in accordance with
Xero’s values. The STI performance metrics have been chosen as they focus the CEO and CFO on growing global revenue and
creating valued customer experiences while at the same time maintaining operational discipline. STI payments comprise 50%
cash and 50% deferred equity in the form of RSUs.
For the CEO, the FY21 remuneration review process resulted in no change to his STI for FY21.
For the CFO, the FY21 remuneration review process resulted in her target STI increasing to $312,500 (50% of base salary) from 1
October 2020, compared with 40% of base salary for FY20.
Element
Purpose
Target opportunity (% base salary)
Details
Focus participants on delivery of business objectives over a one year
period.
CEO 60%, CFO 50% (pro-rated to 45% for FY21, as the change from 40%
to 50% was halfway through the year).
Maximum opportunity (% base salary)
CEO 74%, CFO 61%.
Performance period
Performance measures
Financial objectives (60%)
Non-financial objectives (40%)
Target setting
Evaluation of performance
Pay vehicle
Vesting conditions
Forfeiture and termination
Change of control
Performance is measured from 1 April to 31 March.
Performance metrics measure success in relation to our key stakeholders,
reflecting the voice of employee, customer, and shareholder.
Financial objectives reflect the voice of shareholder - cash flow and net
new monthly recurring revenue (MRR) targets.
Non-financial metrics are based on:
• Voice of Customer – Partner and small business net promoter score
(NPS) targets
• Voice of employee – Employee NPS and engagement targets
• Individual objectives – Goals aligned to company strategic objectives
The targets set at the beginning of each financial year are reviewed
and approved by the P&R Committee and are aligned to our longer-
term strategic objectives. Given the uncertainty around the impact of
COVID-19, the setting of STI company financial targets was delayed until
August 2020.
Performance against financial and non-financial objectives is determined
at the end of the financial period after review of executive performance by
the CEO, in consultation with the P&R Committee (and in the case of the
CEO, by the Board).
50% of STI awarded is paid in cash, with the remaining 50% issued in
RSUs.
RSUs vest one year from grant date, subject to continued service.
Unless the Board determines otherwise, if the executive ceases
employment, all unvested RSUs will lapse and all STI awards not yet paid
are forfeited.
The Board has broad discretion to determine the appropriate treatment
of unvested RSUs on a change of control. Amongst other things, the
Board may decide to vest/lapse unvested RSUs or settle them in cash
instead of shares.
If the Board does not exercise its discretion, unvested RSU’s will vest pro
rata, based on the proportion of the vesting period that has passed at the
time of the change of control and the extent to which any applicable
conditions have been satisfied.
Malus / Clawback provisions
Outlined in section 2.4.
Dividends and voting
RSUs do not carry an entitlement to dividends or voting prior to vesting.
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7.4.2 Link between remuneration and strategy
Performance Measure
Weighting
Rationale for why chosen
Financial
Group net new monthly recurring revenue
45%
Key indicator of financial performance
Free Cash Flow
15%
Key indicator of financial performance
Ensures continued focus on growth
Aligns to ‘Challenge’, ‘Team’, and ‘Ownership’ values
Non-Financial
Individual objectives
Partner and Small Business net promoter
score (NPS)
Ensures continued focus on disciplined allocation of capital
Rewards appropriate balance between return generation and
reinvestment in growth
Aligns to ‘Challenge’, ‘Team’, and ‘Ownership’ values
20%
Key indicator of individual executive performance
Ensures continued focus on individual goals
Rewards for individual performance
Aligns to ‘Challenge’ and ‘Ownership’ values
10%
Key indicator of customer satisfaction
Ensures continued focus on customer retention
Aligns to ‘Human’, ‘Challenge’, ‘Team’, ‘Ownership’, and ‘Beautiful’
values
Employee engagement
5%
Key indicator of employee satisfaction
Employee net promoter score
5%
Key indicator of employee satisfaction
Ensures continued focus on employee engagement
Aligns to ‘Human’, ‘Challenge,’ and ‘Team’ values
Ensures continued focus on employee engagement
Aligns to ‘Human’, ‘Challenge’, and ‘Team’ values
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7.5 At risk – long-term equity (LTE)
LTE is an at-risk component of executive remuneration that is structured to reward the effective execution of Xero’s strategic plan
over a multi-year period.
A new LTE plan was implemented during FY21. The pay vehicle remained as options, but the grant cycle is now annual. Further
details are outlined in the table below.
For the CEO, the FY21 remuneration review process resulted in his LTE increasing from $820,000 to $1,080,000 (94% of base
salary, compared with 72% of base salary in FY20).
For the CFO, the FY21 remuneration review process resulted in her LTE decreasing from $350,000 to $312,500 (50% of base salary,
compared with 64% of base salary in FY20).
Element
Purpose
Details
Rewards delivery against longer-term strategy and sustained shareholder
value creation. Provides alignment between shareholder, customer, and
executive outcomes and time-based retention through multi-year vesting.
Maximum opportunity (% base salary)
CEO 94%, CFO 50%.
Pay vehicle
Options with an exercise price based on the 30-day VWAP leading up to grant
date. Options lapse two years from the date of vest.
The exercise price acts as an in-built performance hurdle, incentivising
executives to create value that increases the Xero share price above the
exercise price over the vesting period.
Grant date
Options are granted annually. From FY22 this will be in or around July.
Vesting conditions
Forfeiture and termination
Exercise of vested options
Change of control
Malus / Clawback provisions
Dividends and voting
Options were granted in November 2020 following a deferral from earlier in
the year due to uncertainties relating to COVID-19.
Options all vest in the third May following grant. Options granted in November
2020 will vest in May 2023.
In the event of summary dismissal, all unvested options are forfeited, and all
vested but unexercised options will lapse.
In any other circumstances, all vested options will remain on foot and must be
exercised within 30 days of ceasing employment, unless the Board decides
otherwise.
Executives are unable to exercise options during a closed period and are
subject to Xero’s Share Trading Policy and dealing restrictions as outlined in
section 6.4.
The Board has broad discretion to determine the appropriate treatment
of vested and unvested options on a change of control. Amongst other
things, the Board may decide to vest/lapse unvested options, settle them in
cash instead of shares, or require vested options to be exercised within a
specified period.
If the Board does not exercise its discretion, unvested options will vest pro
rata based on the proportion of the vesting period that has passed at the time
of the change of control and the extent to which any applicable conditions
have been satisfied.
Outlined in section 2.4.
Options do not carry an entitlement to dividends or voting prior to
being exercised.
XERO ANNUAL REPORT 7.6 Legacy CEO and CFO equity arrangements
Details of other equity grants made to the CEO and CFO before the current LTE was adopted are outlined below.
7.6.1 Legacy CEO equity arrangements
7.6.1.1 Legacy CEO RSUs
Element
Purpose
Details
Focus participant on delivery of business objectives over a one-year period
and provide time-based retention through multi-year vesting.
Target opportunity (% base salary)
Maximum opportunity (% base salary)
70%
140%
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Performance period
Performance measures
Pay vehicle
Grant details
Vesting conditions
Outcome
7.6.1.2 Legacy CEO options
Element
Purpose
Pay vehicle
Grant details
Vesting conditions
Performance was measured from 1 April 2018 to 31 March 2019.
The performance metrics were as follows:
40 percent
Revenue growth
MRR
40 percent
EBITDA 20 percent
RSUs
A total of 32,658 RSUs were issued in April and June 2018 to account for
maximum performance. Following confirmation of achievement against
targets at the end of FY19, 12,276 RSUs were forfeited, leaving 20,382 RSUs to
vest.
RSUs vest in three equal tranches in May 2019, 2020, and 2021. Vesting is
contingent upon continued service and subject to malus and clawback.
The first and second tranches of 6,794 RSUs vested in May 2019 and 2020.
The third tranche of 6,794 RSUs will vest in May 2021.
Details
Executive team retention plan intended to reward delivery against longer-
term strategy and sustained shareholder value creation. Provides alignment
between shareholder, customer, and executive outcomes and time-based
retention through multi-year vesting.
Options with an exercise price based on the 20-day VWAP leading up to grant
date. Options lapse five years from grant date.
180,000 options were granted in August 2018.
Options vest in two equal tranches in June in each of the third and fourth
years after grant. Vesting is contingent upon continued service and subject to
malus and clawback.
Outcome
No options vested during FY21.
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7.6.2 Legacy CFO equity arrangements
7.6.2.1 Legacy CFO options
Element
Purpose
Pay vehicle
Grant details
Vesting conditions
Outcome
Details
Executive team retention plan intended to reward delivery against longer-
term strategy and sustained shareholder value creation. Provides alignment
between shareholder, customer, and executive outcomes and time-based
retention through multi-year vesting.
Options with an exercise price based on the 20-day VWAP leading up to grant
date. Options lapse five years from grant date.
80,000 options were granted in June 2016,
80,000 options were granted in June 2018, and a further 20,000 options were
granted in October 2018.
2016 options vest in four equal tranches at each 12-month anniversary of the
grant date. Vesting is contingent upon continued service and subject to malus
and clawback.
2018 options vest in three equal tranches in June in each of the second, third,
and fourth years after grant. Vesting is contingent upon continued service.
2016 options - tranches of 20,000 options vested in June 2017, 2018, 2019,
and 2020.
The first tranche of the 2018 options of 33,332 vested in June 2020.
8.STI outcomes in detail
The annual outcomes achieved for the CEO and CFO are based on Xero’s FY21 performance as follows:
Objectives
Weighting
Outcome
Threshold
Target
Maximum
Outcome
Outcome
(% of target)
(% of max)
Company Objectives
Voice of the shareholder¹
Voice of the customer
Voice of the employee
Total Company Objectives
Individual Objectives
CEO individual targets
CFO individual targets
Total CEO Outcome
Total CFO Outcome
60%
10%
10%
20%
20%
117.0%
85.1%
100.0%
100.0%
100.0%
100.0%
61.8%
49.4%
100.0%
100.0%
100.0%
100.0%
110.2%
90.0%
110.2%
90.0%
¹ For the voice of the shareholder component, there is the ability to out-perform up to 150% on the net new MRR measure.
Further details on the measures, weightings and rationale can be found in 7.4.2
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9. CEO and CFO remuneration
The following table provides details of the actual remuneration received by the CEO and CFO during FY21 and FY20. This
represents the ‘take home pay’ of the CEO and CFO during those years, rather than the accounting values recognised by applicable
accounting standards.
Total
remuneration
received
inclusive of
share price
appreciation
($000s)
2,510
1,960
4,144
Fixed remuneration
Variable remuneration1
Accounting value of grants vested
during the year, in the form of:
Salary
($000s)
Superannuation/
KiwiSaver
($000s)
Other²
($000s)
Cash STI
($000s)
Option/
Share
grants
($000s)
RSU
grants
($000s)
Additional
value of all
grants vested
in the year,
attributable to
share price
appreciation
($000s)
S Vamos
FY 2021
S Vamos
FY 2020
K Godfrey-
Billy
FY 2021
K Godfrey-
Billy
FY 2020
1,145
1,145
588
550
54
54
14
14
57
79
9
2
281
270
-
-
514
246
459
167
90
839
75
2,529
75
184
110
940
1,875
¹ Includes the value of options and RSUs granted in prior years that vested in the year
2 Other fixed pay relating to annual leave
The following tables present current at-risk equity and holdings for the CEO and CFO.
9.1 At-risk equity as at 31 March 2021
Options
CEO
CFO
RSUs
CEO
CFO
Opening
balance1
Granted
during the
year
180,000
120,000
18,118
1,261
30,783
8,908
3,296
1,056
Vested
Exercised
Lapsed/
Forfeited
Closing
balance
-
33,332
11,324
1,261
-
20,000
-
-
-
-
-
-
¹ For options, includes all vested / unvested options that have not been exercised. For RSUs, only includes what has not been vested
9.2 Equity holdings as at 31 March 2021
CEO
CFO
Shares
3,000
-
Options
210,783
108,908
210,783
108,908
10,090
1,056
RSUs
10,090
1,056
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10. CEO and CFO employment conditions
Item
Basis of contract
Notice period
Details
Ongoing (no fixed term)
CEO – 6 months by either party
CFO – 3 months by either party
Shorter notice may apply by agreement
Base salary
Subject to annual review (but no adjustments to base salary are
guaranteed)
11. Non-executive director remuneration
The total remuneration available to non-executive directors is fixed by shareholders.
Currently, the annual total aggregate non-executive director remuneration is capped at $2.2 million, as approved by shareholders
at Xero’s Annual Meeting in August 2019.
The Board sets the fees for the non-executive directors at a level that provides Xero with the ability to attract and retain directors
of a high calibre. Directors have the option to receive their fees in cash or Xero shares.
The fees paid to non-executive directors are structured to reflect time commitment, responsibilities, and workloads. Target fees
for non-executive directors are benchmarked to the Australian and New Zealand markets. However, where benchmarked non-
executive director fees are higher in a director’s local market, these are used as the benchmark for that director. This reflects the
global composition of Xero’s Board.
To preserve independence and impartiality, non-executive directors have not received any performance-related or at-risk
compensation (such as options) since 2016. Xero does not provide any scheme for retirement benefits, other than statutory
superannuation, for non-executive directors.
Below are the target annual fees payable to non-executive directors during FY21. Directors’ fees are paid in New Zealand dollars in
order to avoid exchange rate fluctuations impacting the annual fee cap.
Country of
residence
New Zealand
Australia
United States
United Kingdom
Chair
($000s)
Director
Audit & Risk Management
People & Remuneration
($000s)
Committee Chair
Committee Chair¹
($000s)
($000s)
358
358
358
373
145
145
252
145
30
30
30
30
30
30
30
30
¹ No additional fees are currently paid for Chair of the Nominations Committee or for membership of any committee
Fees are reviewed every two years, with the latest review having commenced in the second half of 2020. The outcome of the review
highlighted that, based on market practice, Committee member fees should be paid separately to the current remuneration fees.
It also highlighted that Xero’s fees were considerably lower than the median of our peer group. As a result of the review, directors
who are members of the Audit and Risk Management Committee and P&R Committee, will receive an additional NZ$19,000
annually, with effect from 1 April 2021. A decision on any further changes to the target annual fees has been postponed until later
in 2021.
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The total remuneration1 of, and the value of other benefits received by, each non-executive director during FY21 was:
Director
Country of
residence
Role
Committee Chair
2021
base fees
($000s)
2021
Committee
Chair fees
($000s)
2021
Total fees
($000s)
David Thodey,
AO
Rod Drury
Lee Hatton
Australia
New Zealand
Chair
NED
Australia
Independent NED
Nominations
Committee
-
ARM
Committee
Dale Murray
CBE
United
Kingdom
Independent NED
-
Susan Peterson
New Zealand
Independent NED
P&R Committee
Craig Winkler
Australia
NED
Mark Cross2
New Zealand
Independent NED
Steven Aldrich3
United States
Independent NED
Total
-
ARM
Committee
358
145
145
145
145
145
145
126
1,354
¹ Total remuneration is presented based on accounting expense and may include amounts earned, but not yet received
² Appointed director 1 April 2020
³ Appointed director 1 October 2020
⁴ Chair of ARM Committee 1 April 2020 to 31 October 2020
⁵ Chair of ARM Committee from 1 November 2020
-
-
18⁴
-
30
-
13⁵
-
61
358
145
163
145
175
145
158
126
1,4151
The total remuneration1 of, and the value of other benefits received by, each non-executive director during FY20 was:
Director
Country of
residence
Role
Committee Chair
2020
base fees
($000s)
2020
Committee
Chair fees
($000s)
2020
Total fees
($000s)
David Thodey
AO²
Rod Drury
Lee Hatton
Australia
New Zealand
Chair
NED
Australia
Independent NED
Dale Murray
CBE
United
Kingdom
Independent NED
Nominations
Committee
-
ARM
Committee
-
Susan Peterson
New Zealand
Independent NED
P&R Committee
Craig Winkler
Australia
NED
Former
Director
Bill Veghte3
United States
Independent NED
Graham Smith⁴
United States
Former Chair
Total
-
-
Nominations
Committee
143
138
138
138
138
138
45
399
1,277
-
-
29
-
22
-
4
-
55
143
138
167
138
160
138
49
399
1,3321
¹ Total remuneration is presented based on accounting expense and may include amounts earned but not yet received
² Appointed director 27 June 2019, appointed Board Chair effective 1 February 2020
³ Ceased as a director effective 15 August 2019
⁴ Ceased as a director effective 31 March 2020
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12. Employee remuneration
The following table shows the number of current and former employees of Xero whose remuneration and benefits for FY21 were
within the specified bands above $100,000.
Remuneration including share-
based remuneration
Number of employees
Remuneration including
share-based remuneration
Number of employees
100,000 to 109,999
110,000 to 119,999
120,000 to 129,999
130,000 to 139,999
140,000 to 149,999
150,000 to 159,999
160,000 to 169,999
170,000 to 179,999
180,000 to 189,999
190,000 to 199,999
200,000 to 209,999
210,000 to 219,999
220,000 to 229,999
230,000 to 239,999
240,000 to 249,999
250,000 to 259,999
260,000 to 269,999
270,000 to 279,999
280,000 to 289,999
290,000 to 299,999
300,000 to 309,999
310,000 to 319,999
320,000 to 329,999
330,000 to 339,999
340,000 to 349,999
350,000 to 359,999
360,000 to 369,999
370,000 to 379,999
380,000 to 389,999
390,000 to 399,999
400,000 to 409,999
410,000 to 419,999
420,000 to 429,999
430,000 to 439,999
440,000 to 449,999
450,000 to 459,999
460,000 to 469,999
480,000 to 489,999
490,000 to 499,999
540,000 to 549,999
560,000 to 569,999
570,000 to 579,999
620,000 to 629,999
232
188
204
194
152
163
132
110
112
63
100
67
49
45
51
33
29
21
15
18
16
11
10
11
5
7
9
7
7
6
2
2
3
1
3
2
1
3
2
1
1
2
1
680,000 to 689,999
740,000 to 749,999
750,000 to 759,999
760,000 to 769,999
770,000 to 779,999
780,000 to 789,999
860,000 to 869,999
950,000 to 959,999
980,000 to 989,999
1,040,000 to 1,049,999
1,060,000 to 1,069,999
1,070,000 to 1,079,999
1,100,000 to 1,109,999
1,120,000 to 1,129,999
1,160,000 to 1,169,999
1,200,000 to 1,209,999
1,210,000 to 1,219,999
1,220,000 to 1,229,999
1,230,000 to 1,239,999
1,270,000 to 1,279,999
1,290,000 to 1,299,999
1,440,000 to 1,449,999
1,610,000 to 1,619,999
1,650,000 to 1,659,999
1,680,000 to 1,689,999
1,810,000 to 1,819,999
1,820,000 to 1,829,999
1,850,000 to 1,859,999
1,880,000 to 1,889,999
1,940,000 to 1,949,999
2,090,000 to 2,099,999
2,190,000 to 2,199,999
2,340,000 to 2,349,999
2,360,000 to 2,369,999
2,500,000 to 2,509,999
2,750,000 to 2,759,999
3,010,000 to 3,019,999
3,730,000 to 3,739,999
3,740,000 to 3,749,999
3,930,000 to 3,939,999
4,140,000 to 4,149,999
4,240,000 to 4,249,999
4,500,000 to 4,509,999
2
2
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
XERO ANNUAL REPORT The remuneration covered in the table includes monetary payments received and share-based payments vested (i.e. restricted
shares, RSUs and vested options). The table above includes remuneration received by the CEO and CFO.
The value of options vested during the year has been calculated as the difference between the exercise price of those options
and the share price on the day the options vest (become exercisable). Our methodology in calculating the value of equity for
employees has been chosen as it provides a closer representation of the actual remuneration received during the year and is
consistent with the approach made within the CEO and CFO remuneration disclosures detailed above.
92
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Consolidated Financial Statements
Independent auditor’s report
Financial Statements
Income Statement
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
General information
1. Reporting entity and statutory base
2. Basis of accounting
Performance
3. Segment information
4. Revenue
5. Expenses
6. Finance income and expense
7. Earnings per share
Operating assets and liabilities
8. Trade and other receivables
9. Property, plant and equipment
10. Intangible assets
11. Trade and other payables
12. Other current liabilities
13. Lease liabilities
14. Contingent consideration
Funding and risk
15. Term debt
16. Financial instruments, capital and financial risk
management
17. Derivatives and hedge accounting
18. Share capital
Group structure
19. Business combinations
20. Group entities
Other information
21. Current and deferred income tax
22. Reconciliation of operating cash flows
23. Changes in financial assets and liabilities arising
from financing activities
24. Share-based payments
25. Key management personnel and related parties
26. Commitments and contingencies
27. Events after balance sheet date
Directors’ responsibilities statement
94
99
99
99
100
101
102
103
103
103
104
105
105
107
108
109
110
111
114
114
115
116
116
118
125
127
128
129
130
132
133
133
136
136
137
138
XERO ANNUAL REPORT
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Independent auditor’s report to the
Shareholders of Xero Limited
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Xero Limited (“the company”) and its subsidiaries (together “the Group”) on pages
99 to 137, which comprise the consolidated statement of financial position of the Group as at 31 March 2021, and the consolidated
income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated statement of cash flows for the year then ended of the Group, and the notes to the consolidated financial statements
including a summary of significant accounting policies.
In our opinion, the consolidated financial statements on pages 99 to 137 present fairly, in all material respects, the consolidated
financial position of the Group as at 31 March 2021 and its consolidated financial performance and cash flows for the year then
ended in accordance with New Zealand equivalents to International Financial Reporting Standards and International Financial
Reporting Standards.
This report is made solely to the company’s shareholders, as a body. Our audit has been undertaken so that we might state to the
company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s
shareholders, as a body, for our audit work, for this report, or for the opinions we have formed.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code of Ethics for
Assurance Practitioners (including International Independence Standards) (New Zealand) issued by the New Zealand Auditing and
Assurance Standards Board, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
During the year Ernst & Young has provided R&D tax credit advice and other assurance services related to the Group’s compliance
with ISO 27001 and the issuance of the 2025 convertible notes. Post year end Ernst & Young provided non-assurance services to
a subsidiary acquired post year end relating to data extraction. Partners and employees of our firm may deal with the Group on
normal terms within the ordinary course of trading activities of the business of the Group. Ernst & Young uses the Group’s platform
in delivering services to some clients. We have no other relationship with, or interest in, the Group.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each
matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of
the audit report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to
respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures,
including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying
consolidated financial statements.
95
Capitalised Software Development Costs
Why significant
How our audit addressed the key audit matter
Intangible assets make up 59% of the Group’s non-current
assets. The most significant of these intangible assets is
capitalised software development costs.
The Group capitalises costs incurred in the development
of its software. These costs are then amortised over the
estimated useful life of the software.
The Group’s process for calculating the value of internally
developed software involves judgment as it includes
estimating time which staff spend developing software and
determining the value attributable to that time.
NZ IAS 36 Impairment of Assets requires finite life intangible
assets (including capitalised software development
costs) be tested for impairment whenever there is an
indication that the intangible assets may be impaired. This
assessment requires judgment including consideration
of both internal and external sources of information. The
Group concluded there was no indication the finite life
intangible assets may be impaired.
Disclosures relating to the capitalised software
development costs, including key assumptions, are included
in Note 10 of the consolidated financial statements.
Our work on capitalised software development costs
focused on the Group’s process for estimating the time and
cost spent by staff on software development that can be
capitalised in accordance with NZ IAS 38 Intangible Assets.
Our audit procedures included:
• Assessing the nature of a sample of projects against
the requirements of NZ IAS 38 Intangible Assets to
determine if they were capital in nature;
• Assessing the procedures applied to determine the rates
applied to capitalise payroll costs;
• Assessing the effectiveness of controls over the
processing of payroll costs; and
• Assessing capitalised costs with reference to payroll
information for a sample of employees.
We assessed the factors the Group considered regarding
potential impairment of capitalised software development
costs and whether any indicators of impairment existed.
This included having regard to:
• Significant changes in the extent or manner in which
associated software is used;
• Potential or actual redundancy or disposal of
developed software;
• Amortisation periods applied to developed software
relative to past experience of software lifecycles; and
• Significant changes in the market in which the assets
are used.
We assessed the adequacy of the disclosures related
to capitalised software development costs and related
impairment considerations in the consolidated
financial statements.
XERO ANNUAL REPORT
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Goodwill Impairment Testing
Why significant
How our audit addressed the key audit matter
The Group’s balance sheet includes $126.1 million of
goodwill at 31 March 2021. This consists of $78.8 million in
relation to the 100% acquisition of Hubdoc Inc in August
2018 and $47.3 million in relation to the acquisition of
Waddle Holdings Pty Limited in October 2020.
NZ IAS 36 Impairment of Assets requires goodwill be tested
for impairment annually irrespective of whether there are
any indicators of impairment and this assessment requires
judgment including consideration of both internal and
external sources of information.
The goodwill of $126.1 million is allocated to three cash
generating units (CGUs); Waddle, Australia and New
Zealand (ANZ), and International.
The Group assessed goodwill impairment by using a
multiple approach for the ANZ and International CGUs and
a discounted cashflow approach for the Waddle CGU.
Disclosures relating to goodwill impairment, including key
assumptions, are included in Note 10 of the consolidated
financial statements.
We assessed the Group’s models and judgments in their
annual impairment test. Our audit procedures included:
• Using our valuation specialists to:
• assess whether the methodology applied in the
multiple approach and the discounted cashflow
model met the requirements of NZ IAS 36 Impairment
of Assets;
• consider the discount rates and terminal growth rates
used in the discounted cashflow impairment model;
• consider the revenue multiple used in the multiple
based impairment model;
• Assessing the appropriateness of cash flow forecasts
considering historical cash flows, our knowledge of the
businesses and relevant external information. Given the
current economic uncertainty as a result of the COVID-19
pandemic, we placed a particular focus on assumed
subscriber and associated revenue growth forecasts;
• Validating the revenue used in the multiple based
approach to revenue for the year ended 31 March 2021;
• Performing sensitivity analysis around key drivers of
the impairment models, including the sensitivity of the
results to changes in future projected cash flows and the
revenue multiples used;
• We assessed the adequacy of the disclosures related to
goodwill impairment considerations in the consolidated
financial statements. This included assessing whether
the assumptions which have the most significant effect
on the determination of the recoverable amount of CGUs
have been appropriately disclosed in the consolidated
financial statements.
97
Convertible Notes and Related Call Spreads
Why significant
How our audit addressed the key audit matter
During the year, the Group issued USD700 million of zero
coupon convertible notes maturing in 2025. The convertible
notes are listed on the Singapore Exchange Securities
Trading Limited (SGX-ST). In connection with the issuance,
Xero also entered into call spread transactions.
The Group also redeemed 99% of the USD300 million 2023
2.375% coupon convertible notes in December 2020. The
2023 convertible notes were settled using a mix of cash
and shares.
Decisions regarding the appropriate accounting treatment
for the convertible notes and associated call spreads
required judgment as did the valuation of the convertible
notes and call spreads at the relevant dates. Xero engaged
a third party to value the 2023 and 2025 convertible notes
and the related call spreads at the transaction dates
and, where relevant, at year end. Note 15 of the financial
statements describes these transactions and the related
valuations and accounting.
Our work on the convertible notes and call spreads focused
on the appropriateness of the accounting treatments as well
as the judgements made in determining their valuations.
Our audit procedures included:
•
Involving our financial instrument accounting specialists
to consider and challenge the accounting treatments of
the settlement of the 2023 convertible notes and unwind
of the associated call options as well as the issue of the
2025 convertible notes and associated call options;
• Consideration of the external valuation of the
derivative instruments and the conversion elements
of the notes by engaging our financial instrument
valuation specialists to assess the appropriateness of
the valuation methods adopted, the inputs used in the
valuations and the resulting valuation amounts adopted
by management; and
• Considering the disclosures in the financial statements
for appropriateness.
XERO ANNUAL REPORT
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Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud
or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in
accordance with International Standards on Auditing (New
Zealand) will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated
financial statements.
A further description of the auditor’s responsibilities for
the audit of the financial statements is located at the
External Reporting Board’s website: https://www.xrb.
govt.nz/standards-for-assurance-practitioners/auditors-
responsibilities/audit-report-1/. This description forms part
of our auditor’s report.
The engagement partner on the audit resulting in this
independent auditor’s report is Simon O’Connor.
Chartered Accountants
Wellington
13 May 2021
Information other than the financial statements
and auditor’s report
The directors of the company are responsible for the
Annual Report, which includes information other than the
consolidated financial statements and auditor’s report.
Our opinion on the consolidated financial statements does
not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other
information and, in doing so, consider whether the other
information is materially inconsistent with the consolidated
financial statements or our knowledge obtained during the
audit, or otherwise appears to be materially misstated.
If, based upon the work we have performed, we conclude
that there is a material misstatement of this other
information, we are required to report that fact. We have
nothing to report in this regard.
Directors’ responsibilities for the financial
statements
The directors are responsible, on behalf of the entity, for
the preparation and fair presentation of the consolidated
financial statements in accordance with New Zealand
equivalents to International Financial Reporting Standards
and International Financial Reporting Standards, and
for such internal control as the directors determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error.
In preparing the consolidated financial statements, the
directors are responsible for assessing on behalf of the
entity the Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless
the directors either intend to liquidate the Group or cease
operations, or have no realistic alternative but to do so.
99
Financial Statements
Income Statement
Year ended 31 March
Subscription revenue
Other operating revenue
Total operating revenue
Cost of revenue
Gross profit
Operating expenses
Sales and marketing
Product design and development
General and administration
Total operating expenses
Other income and expenses
Asset impairments
Operating surplus
Finance income
Finance expense
Net profit/(loss) before tax
Income tax credit/(expense)
Net profit
Basic earnings per share
Diluted earnings/(loss) per share
Statement of Comprehensive Income
Year ended 31 March
Net profit
Other comprehensive income*
Movement in cash flow hedges (net of tax)
Translation of foreign operations (net of tax)
Total other comprehensive loss for the year
Total comprehensive income for the year
Notes
4
5
2021
($000s)
828,106
20,676
848,782
(118,893)
729,889
(307,948)
(249,532)
(106,345)
2020
($000s)
696,220
22,011
718,231
(106,582)
611,649
(312,852)
(178,258)
(88,980)
5
(663,825)
(580,090)
6
6
21
7
7
Note
17
(4,377)
–
61,687
5,155
(110,778)
(43,936)
63,710
19,774
$0.14
($2.66)
2021
($000s)
19,774
(6,730)
(6)
(6,736)
13,038
2,550
(1,427)
32,682
13,432
(36,277)
9,837
(6,501)
3,336
$0.02
$0.02
2020
($000s)
3,336
845
(3,393)
(2,548)
788
* Items of other comprehensive income may be reclassified to the Income Statement when specific conditions are met
The accompanying notes form an integral part of these financial statements
XERO ANNUAL REPORT Statement of Financial Position
Notes
At 31 March
2021
($000s)
At 31 March
2020
($000s)
100
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Assets
Current assets
Cash and cash equivalents
Short-term deposits
Trade and other receivables
Income tax receivable
Derivative assets
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Derivative assets
Other non-current assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Employee entitlements
Lease liabilities
Income tax payable
Derivative liabilities
Other current liabilities
Total current liabilities
Non-current liabilities
Term debt
Derivative liabilities
Lease liabilities
Contingent consideration
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital
Reserves
Accumulated losses
Total equity
Total liabilities and shareholders' equity
The accompanying notes form an integral part of these financial statements
8
17
9
10
21
15, 17
11
13
15, 17
12
15
15, 17
13
14
21
657,849
452,814
86,397
762
861
5,622
1,204,305
109,358
484,017
103,267
122,813
268
819,723
2,024,028
44,751
78,007
10,580
1,046
6,221
28,219
168,824
108,027
428,052
55,877
–
124,698
1,856
718,510
86,638
342,246
3,751
–
2,543
435,178
1,153,688
42,954
39,893
11,755
2,679
3,157
15,694
116,132
854,078
424,587
120,861
83,950
35,907
6,300
8,162
1,109,258
1,278,082
18
1,293,320
(226,612)
(320,762)
745,946
2,024,028
121,972
60,871
2,840
1,114
3,806
615,190
731,322
677,540
85,362
(340,536)
422,366
1,153,688
101
Statement of Changes in Equity
Share
capital
($000s)
Treasury
shares
($000s)
Notes
Share-
based
payment
reserve
($000s)
Accumulated
losses
($000s)
Foreign
currency
translation
reserve
($000s)
Cash flow
hedge
reserve
($000s)
Call
spread
options
reserve
($000s)
Total
equity
($000s)
Balance at 1 April 2020
687,341
(9,801)
49,479
(340,536)
(2,489)
3,111
35,261
422,366
Net profit
Other comprehensive
loss
Total comprehensive income
Transactions with owners:
Share-based payments,
net of tax
Exercising of employee
share options
Issue of shares
Unwind of call spread options
Premium on call spread options,
net of issuance costs
–
–
–
–
–
–
–
–
–
19,774
–
19,774
–
(6)
(6)
–
(6,730)
(6,730)
18, 24
31,756
7,910
43,979
18, 24
44,578
15, 18
531,536
–
–
(12,700)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19,774
(6,736)
13,038
83,645
31,878
531,536
(400,189)
(400,189)
63,672
63,672
Balance at 31 March 2021
1,295,211
(1,891)
80,758
(320,762)
(2,495)
(3,619)
(301,256)
745,946
Balance at 1 April 2019
638,234
(10,386)
30,902
(343,872)
904
2,266
35,261
353,309
Net profit
Other comprehensive
income/(loss)
Total comprehensive income
Transactions with owners:
–
–
–
–
–
–
–
–
–
3,336
–
–
–
(3,393)
3,336
(3,393)
845
845
Share-based payments, net of tax
18, 24
16,282
585
23,497
Exercising of share options
18, 24
17,353
–
(4,920)
Issue of shares – deferred
consideration for acquisition
of Hubdoc
15,472
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,336
(2,548)
788
40,364
12,433
–
15,472
Balance at 31 March 2020
687,341
(9,801)
49,479
(340,536)
(2,489)
3,111
35,261
422,366
The accompanying notes form an integral part of these financial statements
XERO ANNUAL REPORT 102
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Notes
2021
($000s)
2020
($000s)
Statement of Cash Flows
Year ended 31 March
Operating activities
Receipts from customers
Other income
Interest received
Payments to suppliers and employees
Interest paid
Income tax paid
Net cash flows from operating activities
22
Investing activities
Capitalised development costs
Business acquisitions, net of cash acquired
Capitalised contract acquisition costs
Purchase of property, plant and equipment
Other investing activities
Net cash flows from investing activities
Financing activities
Proceeds from issuance of convertible notes, net of issuance costs
Call spread options
Payments for buyback of convertible notes
Proceeds from unwind of call spread options
Financing transaction costs
Payment of lease liabilities
Lease incentives
Exercising of share options
Proceeds from borrowings
Payments for short-term deposits
Proceeds from short-term deposits
Net cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents
Foreign currency translation adjustment
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
The accompanying notes form an integral part of these financial statements
13
13
845,963
6,089
6,827
(609,671)
(19,089)
(11,480)
218,639
717,264
5,609
14,363
(542,760)
(19,460)
(8,387)
166,629
(139,809)
(111,296)
(36,277)
(11,093)
(10,561)
(230)
–
(13,682)
(13,872)
(674)
(197,970)
(139,524)
976,060
(80,921)
(415,305)
108,633
(5,670)
(11,632)
495
31,878
814
(855,428)
795,540
544,464
565,133
(15,311)
108,027
657,849
–
–
–
–
–
(13,417)
504
12,433
–
(785,753)
734,563
(51,670)
(24,565)
11,065
121,527
108,027
103
Notes to the Financial Statements
1. Reporting entity and statutory base
Xero Limited (‘the Company’) is registered under the New Zealand Companies Act 1993 and is listed on the Australian Securities
Exchange (ASX). The Company is required to be treated as an FMC Reporting Entity under the Financial Markets Conducts Act
2013 and the Financial Reporting Act 2013.
The consolidated financial statements of the Company and its subsidiaries (together ‘the Group’ or ‘Xero’) for the year ended 31
March 2021 were authorised in accordance with a resolution of the directors for issue on 13 May 2021.
2. Basis of accounting
(a) Basis of preparation
The audited consolidated financial statements of the Group have been prepared in accordance with Generally Accepted
Accounting Practice in New Zealand (NZ GAAP) and the Financial Reporting Act 2013. The Group is a for-profit entity for
the purposes of complying with NZ GAAP. The consolidated financial statements comply with New Zealand equivalents to
International Financial Reporting Standards (NZ IFRS), other New Zealand accounting standards, and authoritative notices that
are applicable to entities that apply NZ IFRS. The consolidated financial statements also comply with International Financial
Reporting Standards.
Other than where described below, or in the notes, the consolidated financial statements have been prepared using the historical
cost convention.
The consolidated financial statements are presented in New Zealand dollars ($) (the ‘presentation currency’). Items included in
the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in
which the entity operates (the ‘functional currency’).
(b) Changes in accounting policies and disclosures
The accounting policies and disclosures adopted are consistent with those of the previous year.
Certain comparative information has been reclassified to conform with the current period’s presentation.
(c) Standards or interpretations issued but not yet effective and relevant to the Group
In April 2020 the New Zealand Accounting Standards Board issued amendments to IAS 1: Presentation of Financial Statements.
The amendments are effective for Xero from 1 April 2023. The amendments will result in the current classification of the term debt
and embedded conversion feature derivative liability components of Xero’s 2025 convertible notes.
There are no other standards or amendments that have been issued but are not yet effective that are expected to have a
significant impact on the Group.
The Group has not adopted, and currently does not anticipate adopting, any standards prior to their effective dates.
(d) Critical accounting estimates
In applying the Group’s accounting policies, management continually evaluates judgements, estimates, and assumptions based
on experience and other factors, including expectations of future events that may have an impact on the Group. All judgements,
estimates, and assumptions made are believed to be reasonable based on the most current set of circumstances available to the
Group. Actual results may differ from the judgements, estimates, and assumptions made.
Significant judgements, estimates, and assumptions made by management in the preparation of these financial statements are
outlined within the financial statement notes to which they relate.
XERO ANNUAL REPORT 104
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3. Segment information
The Group operates in one business segment, providing online business solutions for small businesses and their advisors.
Xero has two operating segments: Australia and New Zealand (ANZ) and International. These segments have been determined
based on how the Xero leadership team (the chief operating decision-maker) reviews financial performance.
Segment operating expenses represent sales and marketing costs and service delivery costs, including both in-country costs and
an allocation of centrally managed costs.
ANZ
($000s)
International
($000s)
Total
($000s)
Year ended 31 March 2021
Operating revenue
Expenses
Segment contribution
Year ended 31 March 2020
Operating revenue
Expenses
Segment contribution
514,534
(175,341)
339,193
436,530
(164,962)
271,568
Reconciliation from segment contribution to net profit/(loss) before tax
Year ended 31 March
Segment contribution
Product design and development
General and administration
Asset impairments
Other income and expenses
Finance income
Finance expense
Net profit/(loss) before tax
Depreciation and amortisation by segment
Year ended 31 March
ANZ
International
Corporate (not allocated to a segment)
Total
334,248
(251,500)
82,748
281,701
(254,472)
27,229
2021
($000s)
421,941
(249,532)
(106,345)
–
(4,377)
5,155
(110,778)
(43,936)
2021
($000s)
14,401
20,931
94,209
129,541
848,782
(426,841)
421,941
718,231
(419,434)
298,797
2020
($000s)
298,797
(178,258)
(88,980)
(1,427)
2,550
13,432
(36,277)
9,837
2020
($000s)
14,125
18,799
72,137
105,061
At 31 March 2021, $422.5 million, or 71%, of the Group’s property, plant and equipment and intangible assets was domiciled in New
Zealand (2020: $361.2 million, or 84%).
Share-based payments by segment
Year ended 31 March
ANZ
International
Corporate (not allocated to a segment)
Total
2021
($000s)
9,890
9,468
23,373
42,731
2020
($000s)
7,601
8,110
18,625
34,336
105
4. Revenue
Operating revenue by geographic location
Year ended 31 March
Australia
United Kingdom
New Zealand
North America
Rest of World
Total operating revenue
2021
($000s)
384,150
223,564
130,384
56,558
54,126
848,782
2020
($000s)
320,376
183,565
116,154
55,398
42,738
718,231
Subscription revenue
Subscription revenue comprises recurring monthly fees from subscribers to Xero's cloud-based software products. Subscribers
are invoiced monthly. Unbilled revenue at balance date is recognised in the Statement of Financial Position as accrued income
and included within trade and other receivables. Unearned revenue at balance date is recognised in the Statement of Financial
Position as income in advance and included within other current liabilities.
Subscription revenue is recognised as performance obligations under contracts with customers are met. Performance obligations
for subscriptions to Xero's cloud-based software consist of the provisioning of the software and related support services over the
term of the contract. Where the performance obligations of add-ons are usage-based (such as payroll and expenses), revenue
is recognised consistent with the usage profile.
Other operating revenue
Other operating revenue primarily comprises revenue from related non-subscription services such as financial services products,
including invoice payment services and Waddle’s invoice lending platform services.
Performance obligations under fintech arrangements include the referral of customers to the revenue share counterparty and the
continued servicing of that customer by the counterparty.
5. Expenses
Overhead allocation
The presentation of the Income Statement by function requires certain overhead costs to be allocated to functions. These
allocations require management to apply judgement. Facilities, internal use information technology costs, and depreciation and
amortisation relating to internal use software have been allocated to functions on a headcount basis. Recruitment costs have been
allocated according to the number of employees hired in each function during the period.
Sales tax
The Income Statement and the Statement of Cash Flows have been prepared so that all components are stated exclusive of sales
tax, except where sales tax is not recoverable. All items in the Statement of Financial Position are stated net of sales tax with the
exception of trade receivables and trade payables, which include sales tax payable. Sales tax includes Goods and Services Tax and
Value Added Tax where applicable.
XERO ANNUAL REPORT 106
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Cost of revenue and operating expenses
Year ended 31 March
Employee entitlements
Employee entitlements capitalised
Share-based payments
Share-based payments capitalised
Advertising and marketing
Platform costs
Computer equipment and software
Consultants and contractors
Superannuation costs
Communication, insurance and office administration
Rental costs
Auditor’s remuneration
Travel-related costs
Other operating expenses
Total cost of revenue and operating expenses excl. depreciation and amortisation*
* Includes grant income of $5.7 million (2020: $5.2 million)
Depreciation and amortisation
Year ended 31 March
Relating to:
Amortisation of development costs
Amortisation of other intangible assets
Depreciation of property, plant and equipment
Total depreciation and amortisation
Total cost of revenue and operating expenses
Depreciation and amortisation included in function expenses as follows:
Product design and development
Cost of revenue
Sales and marketing
General and administration
Total depreciation and amortisation
2021
($000s)
456,938
(124,440)
55,857
(13,126)
92,586
52,136
29,851
35,343
19,201
6,402
6,073
572
454
35,330
653,177
2020
($000s)
371,679
(106,758)
45,174
(10,838)
113,227
40,252
23,657
18,936
15,094
7,962
5,768
471
16,356
40,631
581,611
2021
($000s)
2020
($000s)
90,929
13,683
24,929
129,541
782,718
90,002
8,664
26,668
4,207
129,541
69,452
12,574
23,035
105,061
686,672
68,490
7,105
25,819
3,647
105,061
107
Auditor’s remuneration
The auditor of the Group is Ernst & Young New Zealand.
Year ended 31 March
Fees for auditing the statutory financial statements
Fees for other assurance and agreed-upon-procedures services under legislation or
contractual arrangements not required to be provided by the auditor
Assurance related*
Fees for other services
Tax compliance**
Other non-audit services
Total auditor’s remuneration
2021
($000s)
384
153
29
6
572
2020
($000s)
373
80
16
2
471
* Assurance related services relate to the provision of a comfort letter over convertible notes issuance and ISO 27001 certification. The comfort letter
procedures were closely related to the financial statement audit
** Tax compliance services relate to assistance with the preparation of R&D tax incentive claim in Australia
6. Finance income and expense
Finance income
Finance income comprises interest income on cash and cash equivalents and short-term deposits. Interest income is recognised
as it is accrued using the effective interest method. The effective interest method calculates the amortised cost of the financial
asset and allocates the interest income over its expected life.
Finance expense
Year ended 31 March
Loss on recognition/extinguishment of term debt*
Amortisation of debt discount and issuance costs
Lease liability interest
Interest on convertible notes
Bank standby facility costs
Other finance expense**
Total finance expense
2021
($000s)
67,169
21,781
6,053
5,783
1,852
8,140
2020
($000s)
–
17,023
6,280
11,010
1,691
273
110,778
36,277
* Consists of $62.5 million loss on extinguishment of 2023 convertible notes and $4.7 million loss on initial recognition of the 2025 convertible notes
** Other finance expense for the year ended 31 March 2021 includes $5.7 million of expensed transaction costs relating to the buyback of the 2023
convertible notes and issuance of the 2025 convertible notes
XERO ANNUAL REPORT 108
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7. Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares.
Basic EPS is calculated by dividing the net profit attributable to ordinary shareholders of the Company by the weighted average
number of ordinary shares on issue during the year, excluding shares held as treasury shares.
Diluted EPS is determined by adjusting the net profit attributable to ordinary shareholders and the weighted average number of
ordinary shares on issue for the effects of all potential dilution to ordinary shares, which comprise convertible notes, restricted
shares, options, and restricted stock units (RSUs). Instruments are only treated as dilutive when their conversion to ordinary
shares would decrease EPS or increase the loss per share.
Year ended 31 March
Net profit after tax
Add back: foreign exchange revaluation on contingent consideration included in ordinary
shares for basic calculation before the date of share issue, net of tax
Net profit attributable to equity holders of the Group, used in calculating basic EPS
Add back: revaluation gain on call spread transactions
Net profit/(loss) attributable to equity holders of the Group, used in calculating
diluted EPS
2021
(000s)*
$19,774
–
$19,774
($418,850)
2020
(000s)*
$3,336
($44)
$3,292
–
($399,076)
$3,292
Weighted average number of ordinary shares for basic EPS
143,522
140,922
Effect of dilution from:
Call spread transactions
Share options
Restricted shares
Restricted stock units
4,363
1,411
133
485
–
1,376
450
404
Weighted average number of ordinary shares adjusted for the effect of dilution
149,914
143,152
Basic earnings per share
Diluted earnings/(loss) per share
* Except for per share amounts
$0.14
($2.66)
$0.02
$0.02
Dilutive earnings per share is negative in the current year due to the add back of significant revaluation gains on the 2023 call
spread transactions. The 2023 convertible notes, that are closely linked to the 2023 call spread transactions but are not included
in the calculation of diluted earnings per share, would have had an offsetting positive impact on net profit of $496 million had they
been also included in diluted earnings per share.
The weighted average number of shares outstanding used in computation of diluted earnings per share does not include the
effect of the following potentially outstanding shares. The effects of these potentially outstanding shares were not included in the
calculation because their effect would be anti-dilutive or they were out of the money.
Year ended 31 March
Convertible note
Call spread options
Contingent consideration
Share options
Total potentially outstanding shares
2021
(000s)
6,057
1,694
97
8
7,856
2020
(000s)
6,474
6,474
132
–
13,080
109
8. Trade and other receivables
At 31 March
Prepayments
Accrued income
Trade receivables
Provision for doubtful debts
Interest receivable
Other receivables
Total trade and other receivables
2021
($000s)
42,930
24,943
8,658
(402)
700
9,568
2020
($000s)
22,617
22,750
7,614
(633)
2,534
995
86,397
55,877
Trade and other receivables are initially recognised at the fair value of the amounts to be received. They are subsequently
measured at amortised cost (using the effective interest method) less impairment losses.
Trade receivables relate primarily to the monthly subscriptions to Xero's cloud-based software products. Subscriptions are
charged monthly, the majority being paid by direct debit. At 31 March 2021, trade receivables of the Group of $0.4 million were past
due and are considered partially impaired (2020: $0.9 million).
Other receivables at 31 March 2021 includes $9.2 million receivable in relation to shares that were sold to cover employees’
withholding obligations under Xero’s employee share-based compensation plans. A corresponding liability is recognised in
employee entitlements.
Key estimates and assumptions
In accordance with NZ IFRS 9: Financial Instruments, the Group recognises impairment losses using the Expected Credit Loss
(ECL) model. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and the
cash flows that the Group expects to receive. The shortfall is discounted at an approximation to the asset’s original effective
interest rate. Under the ECL model, impairment losses may be measured as either the 12-month ECL, which is the portion of
lifetime ECLs that result from default events that are possible within 12 months after the reporting date, or the lifetime ECL, which
is the expected credit loss resulting from all possible default events over the expected life of the financial instrument. The Group
has elected to use the lifetime ECL model to calculate the impairment for trade receivables.
A six-month historical default rate is applied to the current period trade receivable balance to calculate any impairment. The
carrying amount of the asset is reduced through the use of a provision account, and the amount of the loss is recognised in the
Income Statement. When a receivable is uncollectible, it is written off against the provision account for receivables. Subsequent
recoveries of amounts previously written off are credited to the Income Statement.
XERO ANNUAL REPORT 110
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9. Property, plant and equipment
Year ended 31 March 2021
Opening net book value
Additions
Disposals*
Depreciation expense
Foreign exchange adjustment
Closing net book value
At 31 March 2021
Cost
Accumulated depreciation
Closing net book value
Right of
use asset
($000s)
Leasehold
improvements
($000s)
Furniture and
equipment
($000s)
Computer
equipment
($000s)
54,807
43,063
(4,043)
(15,113)
(1,666)
77,048
108,818
(31,770)
77,048
16,743
7,227
(53)
(3,744)
4
20,177
30,674
(10,497)
20,177
9,578
1,455
(26)
(2,299)
(154)
8,554
14,743
(6,189)
8,554
5,510
2,028
(14)
(3,773)
(172)
3,579
9,582
(6,003)
3,579
* $4.0 million of right of use asset disposals relates to disposal of lease liabilities (2020: $6.8 million)
Year ended 31 March 2020
Opening net book value
Additions
Disposals
Depreciation expense
Impairment reversals
Foreign exchange adjustment
Closing net book value
At 31 March 2020
Cost
Accumulated depreciation
Closing net book value
Right of
use asset
($000s)
Leasehold
improvements
($000s)
Furniture and
equipment
($000s)
Computer
equipment
($000s)
63,440
8,312
(6,795)
(12,614)
207
2,257
54,807
79,552
(24,745)
54,807
15,474
4,866
(87)
(3,662)
–
152
16,743
23,836
(7,093)
16,743
7,542
4,478
(366)
(2,355)
–
279
9,578
15,374
(5,796)
9,578
5,035
4,770
(41)
(4,404)
–
150
5,510
11,602
(6,092)
5,510
Total
($000s)
86,638
53,773
(4,136)
(24,929)
(1,988)
109,358
163,817
(54,459)
109,358
Total
($000s)
91,491
22,426
(7,289)
(23,035)
207
2,838
86,638
130,364
(43,726)
86,638
Key estimates and assumptions
Property, plant and equipment are stated at historical cost less accumulated depreciation.
Depreciation on assets is charged on a straight-line basis to allocate the differences between their original cost and the residual
values over their estimated useful lives, as follows:
Leasehold improvements
Right of use asset*
Computer equipment
Furniture and equipment
* Substantially all of the right of use asset relates to building leases
** Lease terms range between 2-12 years
Term of lease**
Term of lease**
2–3 years
2–7 years
111
10. Intangible assets
Year ended 31 March 2021
Opening net book value
Additions*
Acquisitions
Amortisation expense
Foreign exchange adjustment
Closing net book value
At 31 March 2021
Cost
Accumulated amortisation
Closing net book value
Software
development
($000s)
Contract
acquisition
asset
($000s)
Other
intangible
assets
($000s)
227,151
155,206
27,340
(90,929)
(160)
318,608
505,485
(186,877)
318,608
33,078
11,471
–
(11,579)
(1,069)
31,901
61,340
(29,439)
31,901
3,244
697
5,534
(2,104)
27
7,398
12,328
(4,930)
7,398
Goodwill
($000s)
Total
($000s)
78,773
–
47,108
–
229
342,246
167,374
79,982
(104,612)
(973)
126,110
484,017
126,110
–
126,110
705,263
(221,246)
484,017
* Included in software development additions is $27.5 million of external costs capitalised (2020: $17.3 million)
Year ended 31 March 2020
Opening net book value
Additions
Amortisation expense
Impairments
Foreign exchange adjustment
Closing net book value
At 31 March 2020
Cost
Accumulated amortisation
Closing net book value
Software
development
($000s)
Contract
acquisition
asset
($000s)
Other
intangible
assets
($000s)
Goodwill
($000s)
Total
($000s)
177,695
120,542
(69,452)
(1,634)
–
227,151
370,563
(143,412)
227,151
28,727
13,829
(10,937)
–
1,459
33,078
60,360
(27,282)
33,078
4,536
345
(1,637)
–
–
78,773
–
–
–
–
289,731
134,716
(82,026)
(1,634)
1,459
3,244
78,773
342,246
6,075
(2,831)
3,244
78,773
–
78,773
515,771
(173,525)
342,246
XERO ANNUAL REPORT 112
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Key estimates and assumptions
Software development
Costs that are directly associated with the development
of software are recognised as intangible assets where the
following criteria are met:
– It is technically feasible to complete the software
product so that it will be available for use
– Management intends to complete the software product
and use or sell it
– There is an ability to use or sell the software product
– It can be demonstrated how the software product will
generate probable future economic benefits
– Adequate technical, financial, and other resources
to complete the development and to use or sell the
software product are available
– The expenditure attributable to the software product
during its development can be reliably measured
Other development expenditure that does not meet the
above criteria is recognised as an expense when incurred.
Development costs previously recognised as expenses
are not recognised as assets in a subsequent period.
Research costs, and costs associated with maintenance,
are recognised as an expense when incurred.
At 31 March 2021, if software development capitalisation
rates had been 10% higher/lower with all other variables
held constant, the impact on operating expenses would
have been $13.6 million lower/higher.
Contract acquisition assets
In accordance with NZ IFRS 15: Revenue from Contracts
with Customers, Xero capitalises incremental costs of
obtaining customer contracts. Capitalisable costs consist
of sales commissions that have a direct relationship to new
revenue contracts obtained. Costs capitalised are amortised
to sales and marketing and expensed over the average
period of benefit associated with the costs. The period of
benefit for the contract acquisition asset is determined
to be five years. Management have determined this as
appropriate with reference to estimated customer lifespans
and the useful lives of the software sold to which the
commissions relate.
Other intangible assets
Other intangible assets consist of patents, domains, brands,
and trademark costs, along with customer contracts. Other
intangible assets acquired in a business combination are
initially measured at cost, which is their fair value at the
date of acquisition. Internally generated assets, excluding
capitalised development costs, are not capitalised and
expenditure is recognised in the Income Statement when it
is incurred.
Useful lives of intangible assets
With the exception of goodwill, the useful lives of the
Group's intangible assets are assessed to be finite. Assets
with finite lives are amortised over their useful lives and
tested for impairment whenever there are indications that
the assets may be impaired.
Amortisation is recognised in the Income Statement on
a straight-line basis over the estimated useful life of the
intangible asset, from the date it is available for use. The
estimated useful lives are as follows:
Software development
Contract acquisition asset
Customer contracts
3–7.5 years
5 years
3–7 years
Patents, domains, brands, and trademark costs
5–10 years
Impairment considerations
At each reporting date, the Group assesses whether there
is any indication that an asset may be impaired. Where an
indicator of impairment exists, the Group makes a formal
estimate of the recoverable amount. Where the carrying
value of an asset exceeds its recoverable amount, the
asset is considered impaired and is written down to its
recoverable amount.
The recoverable amount is the greater of fair value less
costs to sell or the asset’s value in use. For the purposes
of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows.
Goodwill is tested at least annually for impairment, or
whenever indicators of impairment exist.
An impairment loss is recorded if its recoverable amount
is less than its carrying amount. The recoverable amount
is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax
discount rate.
113
Goodwill and goodwill impairment testing
Goodwill represents the excess of purchase consideration over the fair value of net assets acquired in a business combination.
Goodwill is allocated to cash-generating units (CGUs), which are the lowest level of assets for which separately identifiable cash
flows can be attributed. Of Xero’s goodwill at 31 March 2021, $78.8 million relates to the acquisition of Hubdoc Inc., and $47.3
million relates to the acquisition of Waddle. The Group performed a detailed impairment review of goodwill and concluded there
was no impairment for the year ended 31 March 2021. In accordance with NZ IAS 36: Impairment of Assets, the recoverable amount
of goodwill for the purpose of impairment testing is determined as the higher of an asset’s fair value less costs to sell and its value
in use. The methodology applied for the current year testing is outlined below.
Waddle goodwill
Waddle goodwill has been allocated to the Waddle, ANZ, and International CGUs as follows:
At 31 March 2021
Goodwill allocated
Waddle CGU
($000s)
ANZ CGU
($000s)
International CGU
($000s)
36,962
7,424
2,951
Total
($000s)
47,337
The recoverable amount of the Waddle CGU was calculated on the basis of value in use using a discounted cash-flow model.
Future cash flows were projected for a period of five years, with an average annual growth rate of 287%. Growth reflects the fact
that revenues are expected to increase at a much higher rate than expenses as economies of scale are achieved. A terminal growth
rate of 5% and a post-tax discount rate of 20% were applied. The terminal growth rate is determined based on the long-term
anticipated growth rate of the business.
The forecast financial information is based on both past experience and future expectations of CGU performance. The major
inputs and assumptions used in performing an impairment assessment that require judgement include revenue forecasts,
operating cost projections, discount rates, terminal growth rates, and future technology paths. Based on sensitivity analysis
performed, no foreseeable changes in the assumptions would cause the carrying amounts of the Waddle CGU to exceed its
recoverable amount.
The recoverable amounts of the ANZ and International CGUs were calculated on the basis of fair value less costs of disposal in
accordance with NZ IFRS 13: Fair Value Measurement. Fair value was determined using a revenue multiple of 16.7. This input is
classified as level two on the fair value hierarchy and is based on revenue multiples of comparable companies. Based on
sensitivity analysis performed, no foreseeable changes in the assumptions would cause the carrying amounts to exceed their
recoverable amounts.
Hubdoc goodwill
Hubdoc goodwill is allocated across the ANZ and International CGUs. Of the $78.8 million of goodwill, $39.0 million is allocated to
ANZ and $39.8 million is allocated to International.
The recoverable amounts of the ANZ and International CGUs for the purpose of impairment testing of the Hubdoc goodwill are
calculated on the basis of fair value less costs of disposal in the same manner as used for the Waddle goodwill as noted above.
Based on sensitivity analysis performed, no foreseeable changes in the assumptions would cause the carrying amounts of the
CGUs to exceed their recoverable amounts.
XERO ANNUAL REPORT 114
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11. Trade and other payables
At 31 March
Trade payables
Accrued expenses
Sales tax payable
Total trade and other payables
2021
($000s)
13,386
24,011
7,354
44,751
2020
($000s)
10,615
23,440
8,899
42,954
The Group recognises trade and other payables initially at fair value and subsequently at amortised cost using the effective
interest method. The amounts are unsecured and non-interest bearing.
12. Other current liabilities
At 31 March
Income in advance
Contingent consideration
Term debt
Accrued interest
Other short-term liabilities
Total other current liabilities
Notes
14
15
2021
($000s)
13,113
10,712
2,604
20
1,770
28,219
2020
($000s)
9,607
–
–
5,812
275
15,694
The Group recognises other current liabilities, excluding contingent consideration, initially at fair value, and subsequently at
amortised cost using the effective interest method. Contingent consideration is recognised at the present value of expected future
cash flows. Adjustments are made to the fair value where expected achievement against targets changes.
Income in advance is recognised when the Group has received consideration prior to services being rendered. All income in
advance from the prior period was subsequently recognised as revenue in the year.
115
13. Lease liabilities
Balance at 1 April
Leases entered into during the period
Lease incentives received
Principal repayments
Change in future lease payments
Foreign exchange adjustment
Balance at 31 March
Current
Non-current
2021
($000s)
72,626
36,402
495
(11,632)
(1,511)
(1,850)
94,530
10,580
83,950
2020
($000s)
82,849
5,988
504
(13,417)
(6,213)
2,915
72,626
11,755
60,871
Under NZ IFRS 16: Leases, the Group is required to recognise lease liabilities for contracts identified as containing a lease, except
when the lease is for 12 months or less, or the underlying asset is of low value.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in
the Income Statement. Low-value assets comprise IT equipment and small items of office furniture. The expense relating to low-
value assets for the year ended 31 March 2021 was $3.7 million (2020: $2.8 million).
Lease liabilities are initially measured at the present value of the remaining lease payments, discounted at the Group’s incremental
borrowing rate. Subsequently, the carrying value of the liability is adjusted to reflect interest and lease payments made. Lease
liabilities may be re-measured when there is a change in future lease payments arising from a change in an index or market rate, or
if there is a change in the Group’s estimate of the amount expected to be payable.
The Group assesses at lease commencement whether it expects to exercise renewal options included in contracts. Where it is
reasonably certain that renewal options will be exercised, the extension period is included in the lease liability calculation.
XERO ANNUAL REPORT 116
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14. Contingent consideration
Balance at 1 April
Additions
Unwinding of discount
Change in fair value estimate
Foreign exchange adjustment
Balance at 31 March
Current
Non-current
Note
19
2021
($000s)
2,840
42,314
1,761
(543)
247
46,619
10,712
35,907
Contingent consideration comprises the Group’s assessment of amounts payable to vendors in respect of the Instafile and Waddle
business combinations. Additions to contingent consideration consists of $41.1 million relating to the acquisition of Waddle, and an
additional $1.2 million relating to the acquisition of Instafile.
Of the above, $21.6 million is expected to be settled in shares and $25.0 million in cash. The non-current portion of contingent
consideration is expected to become payable following the achievement of specified product and revenue milestones between
April 2022 and September 2023.
15. Term debt
In September 2018, Xero Investments Limited, a wholly owned subsidiary of the Company, made an offering of USD300 million of
convertible notes (the ‘2023 convertible notes’). The notes were scheduled to mature on 4 October 2023.
In November 2020, Xero Investments Limited made a new convertible notes offering of USD700 million (the ‘2025 convertible
notes’). In conjunction with the settlement of the 2025 notes, Xero Investments Limited entered into a buyback of the 2023
convertible notes and unwound the existing call spread options.
Buyback of the 2023 convertible notes
In December 2020, Xero Investments Limited repurchased USD297.0 million of the 2023 convertible notes for a total consideration
of USD666.4 million, being settled for USD292.2 million in cash and USD374.2 million in the ordinary shares of Xero Limited.
At extinguishment, the bond component of the notes, which was historically accounted for at amortised cost, was settled at fair
value. The settlement resulted in a $62.5 million loss on extinguishment being recognised in the Income Statement.
The conversion feature derivatives were carried in the Statement of Financial Position at their estimated fair value, and adjusted
at each reporting period with any gains or losses being recorded in the Income Statement. During the year, the Group recognised a
$421.1 million revaluation loss in the Income Statement relating to the conversion feature derivatives. At extinguishment,
the value of the conversion feature derivative relating to the December 2020 redemption was $513.4 million.
A further USD1.2 million of the 2023 notes was redeemed in cash in January 2021 at par. The remaining USD1.8 ($2.6 million)
million of the 2023 notes is expected to be cash settled in May 2021 based on the volume-weighted average price of the ordinary
shares over the preceding 90 day trading period. The unredeemed portion of the notes is accounted for at fair value based on
the current share price. At 31 March 2021, the values of the bond component and embedded derivative were $2.6 million and
$2.9 million respectively. The bond component and the embedded derivative are included in other current liabilities and other
current derivative liabilities respectively. The net impact on the Income Statement of the January 2021 settlement, and expected
settlement of the May 2021 redemptions was a $0.9 million loss.
117
Unwind of the 2023 call spread transactions
The lower strike call options were accounted for in the Statement of Financial Position at their estimated fair value. The derivative
assets were adjusted to fair value at each reporting period, with unrealised gains or losses reflected in the Income Statement.
During the period, the Group recognised a $418.8 million revaluation gain in the Income Statement relating to the 2023 lower strike
call options. At unwind, the value of the lower strike call options was $510.2 million.
The upper strike call options were accounted for as equity and initially recognised at their fair value less transaction costs. On
unwind the upper strike call options are settled at their current fair value. The unwind resulted in a $400.2 million loss being
recognised in equity.
2025 convertible notes and conversion feature derivative
In November 2020, Xero Investments Limited made an offering of USD700 million of zero coupon convertible notes. The
convertible notes were settled and listed on the SGX-ST on 2 December 2020.
The notes have a zero coupon interest rate. The notes are unsubordinated, unsecured obligations of Xero, and have a final
maturity date of 2 December 2025. The settlement of the notes will be in cash unless Xero elects to settle in shares, in which case
Xero will be obliged to deliver ordinary shares to relevant noteholders. The cash settlement amount will be calculated based on
the volume-weighted average price of the ordinary shares over the preceding 75-day trading period. The initial conversion of the
notes is USD134.72 per ordinary share based on a fixed exchange rate of AUD1.00 = USD0.73.
The conversion feature of the notes is required to be separated from the notes and is accounted for as a derivative financial
liability. The fair value of the conversion feature derivative at the time of issuance was $146.4 million and was recorded at a
discount for the purpose of accounting for the debt component of the notes. The discount is amortised as interest expense using
the effective interest method over the term of the notes.
The principal amount, unamortised debt discount, unamortised issuance costs, and net carrying amount of the liability
component of the 2025 notes at 31 March 2021 are as follows:
At 31 March
Principal amount
Unamortised debt discount
Unamortised issuance costs
Term debt
2021
($000s)
1,002,400
(133,266)
(15,056)
854,078
At initial recognition, the fair value of the 2025 notes was determined using a market interest rate for an equivalent non-
convertible bond. The notes are subsequently recognised at amortised cost. The fair value of the debt component of the 2025
notes at 31 March 2021 was $862.2 million.
Call spread options
In connection with the issuance of the 2025 notes, Xero purchased call spread options which are expected to reduce potential
dilution to shareholders upon conversion of the notes, by offsetting any cash payments Xero may be required to make in excess of
the principal amounts on conversion. The call spread options will be effective at offsetting dilution on conversion of the notes up
to a share price of USD174.64 (AUD237.76). The call spread options consist of 0.7 million lower strike call options purchased with
an average strike price equal to the conversion price of the notes, and 0.7 million upper strike call options sold with an average
strike price of USD174.64. Both the lower call and upper call options are exercisable into a total of approximately 5.2 million
ordinary shares. The call spread options have expiry dates between 13 August 2025 and 25 November 2025. The net cost of the
call spread was $80.9 million, which was paid from the proceeds of the 2025 notes.
The lower strike call options are accounted for as derivative financial assets and are accounted for at their fair value. The upper
strike call options are accounted for as equity, and are recognised at their initial fair value, less transaction costs. The carrying
value of the upper strike call options is $63.7 million.
XERO ANNUAL REPORT 118
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Transaction costs
Transaction costs relating to the 2025 notes have been allocated between the debt component and the conversion derivatives
using the relative proportions of these on initial measurement of the instruments. Costs attributed to the debt component of $14.7
million are amortised to finance expense over the term of the notes using the effective interest method. Costs attributable to the
conversion derivatives of $2.6 million were recognised immediately in the Income Statement. Transaction costs related to the call
spread options have been attributed between the lower strike call options and upper strike call options, with the lower strike call
option costs of $0.6 million being recognised immediately in the Income Statement. Costs attributable to the upper strike call
options of $0.6 million are deducted from the amount recognised in equity.
An additional $2.5 million in costs relating to the extinguishment of the 2023 notes and unwind of the existing call spread options
were recognised immediately in the Income Statement.
16. Financial instruments, capital and financial risk management
Financial instruments
Financial instruments recognised in the Statement of Financial Position include cash and cash equivalents, short-term deposits,
receivables and payables, contingent consideration, term debt, and derivative financial instruments. The Group’s policy is that no
speculative trading in financial instruments may be undertaken.
Classification and fair values
Xero has carried out a fair value assessment of its financial assets and liabilities at 31 March 2021 in accordance with NZ IFRS 9.
Under NZ IFRS 9, financial instruments are classified as either measured at amortised cost, fair value through other
comprehensive income, or fair value through profit or loss. The classification of the Group’s financial instruments into these
categories is included in the table below.
The carrying values of the Group’s other financial instruments do not materially differ from their fair value.
There were no transfers between classes of financial instruments during the period.
Key estimates and assumptions
The Group’s foreign exchange derivatives, conversion feature, call option derivative assets and contingent consideration liabilities
are recognised at fair value. Fair value of foreign exchange derivatives are determined using forward exchange rates that are
quoted in an active market (level two on the fair value hierarchy).
The fair values of the conversion feature and call option derivative assets relating to the convertible notes are determined using
valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as
little as possible on entity-specific estimates (level two on the fair value hierarchy). Inputs into the valuation include share price
volatility and time to expiration.
The fair value of contingent consideration is determined using valuation techniques such as probability weighted forecasts of
meeting certain product development and revenue targets (level three on the fair value hierarchy), and is discounted using the
Group’s weighted average cost of capital.
119
At 31 March 2021
Assets
Cash and cash equivalents
Term deposits
Trade and other receivables
Derivative assets (foreign currency derivatives)*
Derivative assets (call spread options)
Other current assets
Other non-current assets
Total financial assets
Liabilities
Trade and other payables
Derivative liabilities (foreign currency derivatives)*
Derivative liabilities (conversion feature on
convertible notes)
Term debt
Other current liabilities
Contingent consideration
Total financial liabilities
At 31 March 2020
Assets
Cash and cash equivalents
Term deposits
Trade and other receivables
Derivative assets (foreign currency derivatives)*
Derivative assets (call spread options)
Other non-current assets
Total financial assets
Liabilities
Trade and other payables
Derivative liabilities (foreign currency derivatives)*
Derivative liabilities (conversion feature on
convertible notes)
Term debt
Other current liabilities
Other non-current liabilities
Total financial liabilities
Financial assets at
amortised cost
($000s)
Financial instruments
at fair value through
profit or loss
($000s)
Financial liabilities
at amortised cost
($000s)
Total carrying
value
($000s)
657,849
452,814
18,524
–
–
4,937
268
–
–
–
1,551
122,123
–
–
1,134,392
123,674
–
–
–
–
–
–
–
108,027
428,052
10,510
–
–
1,327
547,916
–
–
–
–
–
–
–
–
3,956
123,126
–
13,316
35,907
176,305
–
–
–
7,347
117,351
–
124,698
–
3,256
121,873
–
–
2,840
127,969
–
–
–
–
–
–
–
–
37,397
–
–
854,078
846
–
657,849
452,814
18,524
1,551
122,123
4,937
268
1,258,066
37,397
3,956
123,126
854,078
14,162
35,907
892,321
1,068,626
–
–
–
–
–
–
–
34,055
–
–
424,587
5,812
–
108,027
428,052
10,510
7,347
117,351
1,327
672,614
34,055
3,256
121,873
424,587
5,812
2,840
464,454
592,423
* Foreign currency derivatives are hedge accounted when possible with unrealised gains and losses recognised in other comprehensive income until the
underlying cash flows are realised, at which point the gains and losses are reclassified to the Income Statement
XERO ANNUAL REPORT 120
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Capital management
The capital structure of the Group primarily consists of equity raised by the issue of ordinary shares in the Company and issued debt.
Xero manages its capital to ensure that it maintains an appropriate capital structure to support the business and maximise
shareholder value. The Group’s capital structure is adjusted based on business needs and economic conditions. During the
year ended 31 March 2021, Xero issued USD700 million of convertible notes for the purpose of investments into strategic and
complementary businesses and assets which are in line with the Group’s strategy to drive long-term shareholder value, and for
general corporate purposes. Xero repurchased USD298.2 million of the 2023 convertible notes, utilising USD293.4 million of cash
from the new convertible note proceeds, along with the issuance of USD374.2 million in share capital.
Xero’s $150 million standby debt facility remains undrawn at 31 March 2021. There are no current plans to draw down on the
facility. The facility provides Xero with additional liquidity to cover unforeseen operating cash flow requirements. Counterparties
to the facility are ANZ, BNZ, HSBC, and Citibank. The facility expires in August 2022.
In November 2020 an additional AUD30 million facility was entered into, with HSBC as the sole counterparty. The facility was put
in place to fund the Waddle loans receivable portfolio on an ongoing basis and expires in August 2022. At 31 March 2021 the facility
is drawn by AUD0.8 million. The drawn balance is included in other current liabilities at 31 March 2021.
Financial risk management
The Group is exposed to the following risks through the normal course of business and from its use of financial instruments:
a. Market risk
b. Liquidity risk
c. Credit risk
The following presents both qualitative and quantitative information on the Group’s exposure to each of the above risks, along
with policies and processes for managing risk.
(a) Market risk
The Group is exposed to market risk primarily through changes in foreign currency exchange rates and interest rates.
Foreign currency risk
Nature of risk
Foreign currency risk is the risk that changes to foreign currency exchange rates negatively impact the Group’s New Zealand dollar
(NZD) net cash flows.
Exposure and risk management
Xero is exposed to currency risk from the operations of foreign subsidiaries and foreign currency denominated expenses in the
parent Company. The Group has significant operations in four currencies, being Great British pounds (GBP), Australian dollars
(AUD), United States dollars (USD), and Canadian dollars (CAD), with exposures to other currencies to a lesser degree. The
material exposures are USD and CAD outflows, as well as AUD and GBP inflows. In order to reduce the impact of short-term
movements in exchange rates, the Group’s treasury policy requires a portion of the next 18 months’ cash flows to be hedged
with forward exchange contracts and vanilla options (outright purchased options and vanilla collars), except for AUD and GBP
cashflows, where hedging a portion of the next 24 months’ forecast cashflows is permitted within the policy threshold.
121
The Group’s exposure to monetary foreign currency financial instruments and lease liabilities is outlined below in NZD:
AUD
($000s)
USD
($000s)
GBP
($000s)
CAD
($000s)
EUR
($000s)
At 31 March 2021
Exposures
Cash and cash equivalents, and
short-term deposits
Trade and other receivables
Other current assets
Trade and other payables
Other current liabilities
Contingent consideration
Lease liabilities
8,137
2,024
4,937
(9,257)
(8,078)
(35,907)
(4,321)
757,230
1,068
–
(4,217)
(2,624)
–
13,173
2,820
–
(5,619)
(3,460)
–
(8,850)
(30,480)
Term debt (including conversion feature)
–
(1,002,400)
–
2,170
155
–
145,619
–
–
(1,409)
(1,505)
–
–
(454)
–
–
–
–
–
161,684
119,219
(29,146)
(288,939)
101,745
78,179
(9,850)
(9,388)
(503)
143,611
Derivative financial instruments
(foreign currency derivatives)
Total foreign currency exposure
At 31 March 2020
Exposures
Cash and cash equivalents, and
short-term deposits
Trade and other receivables
Trade and other payables
Other current liabilities
Other non-current liabilities
Lease liabilities
8,525
1,387
(8,766)
–
–
419,699
3,695
(7,019)
(5,812)
–
(5,392)
(13,523)
9,004
2,736
(6,187)
–
(2,840)
(1,794)
–
2,310
174
(524)
–
–
(1,223)
–
–
–
–
–
–
–
–
–
–
Term debt (including conversion feature)
–
(500,526)
Derivative financial instruments
(foreign currency derivatives)
Total foreign currency exposure
85,164
80,918
(31,517)
(135,003)
63,990
64,909
(13,231)
(12,494)
XERO ANNUAL REPORT 122
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At 31 March, a movement of 10% in the NZD would impact the Income Statement and Statement of Changes in Equity
(after hedging) as detailed in the table below:
Impact on:
Net profit/(loss) before income tax
(increase/(decrease))
Equity (before income tax) (increase/(decrease))
2021
($000s)
10% decrease
2020
($000s)
14,365
(57,624)
(1,751)
12,646
2021
($000s)
(11,753)
47,147
10% increase
2020
($000s)
1,432
(10,214)
This analysis assumes a movement in the NZD across all currencies and only includes the effect of foreign exchange movements
on financial instruments. All other variables remain constant.
Interest rate risk
Nature of risk
Interest rate risk is the risk that changes in interest rates negatively impact the Group’s financial performance or the value of its
financial instruments.
Exposure and risk management
The Group’s interest rate risk arises from its cash and cash equivalents and short-term deposit balances, and when term debt
at fixed rates is refinanced. Cash and cash equivalents comprise cash in hand, deposits held on call with banks, funds invested
in money market funds, and other short-term and highly liquid investments with original maturities of 90 days or less. Surplus
balances are placed in short-term investments at fixed rates. The repricing of these at maturity exposes the Group to interest
rate risk. Money market funds invested into include a broad range of highly rated short-term fixed income securities and calculate
investment returns on a daily basis. Changes to interest rates will impact the returns generated by each fund. The convertible
notes would give rise to interest rate risk at maturity (December 2025) if the Group were to refinance at prevailing interest rates,
with higher interest rates increasing the cost of debt financing should they be in effect at this time.
The Group does not currently enter into interest rate hedges. However, management regularly reviews its investment and funding
arrangements to ensure it achieves the best returns on its funds while maintaining access to necessary liquidity levels to service
the Group’s day-to-day activities.
Sensitivity to interest rate risk
If interest rates for the year had been 1.0% higher/lower with all other variables held constant, the impact on the interest income
and net profit of the Group would have been $9.6 million higher/lower, and accumulated losses $9.6 million lower/higher (2020:
$5.4 million). This analysis assumes that the cash and cash equivalents and short-term deposits balance was consistent with the
year end balance throughout the year.
123
(b) Liquidity risk
Nature of risk
Liquidity risk is the risk that the Group cannot pay contractual liabilities as they fall due.
Exposure and risk management
At 31 March 2021 the Group held cash and cash equivalents of $657.8 million and term deposits of $452.8 million, which are
available to be used to service the Group’s day-to-day activities and for investments into strategic and complementary businesses
and assets. The $150 million syndicated standby facility provides additional liquidity to cover unforeseen operating cash flow
requirements. The AUD30.0 million facility, of which AUD29.2 million is undrawn at 31 March 2021, provides additional liquidity to
fund expansion of the Waddle loans receivable portfolio.
The liquidity risk that arises on maturity of the convertible notes in December 2025 is being closely monitored by management,
with the intention that there will be repayment or refinancing plans in advance of this to ensure that the Group has sufficient
liquidity to meet its contractual obligations as they fall due.
The Group’s exposure to liquidity risk based on undiscounted contractual cash flows relating to financial liabilities and lease
liabilities is summarised below:
Less than
12 months
($000s)
Between
1 and 2 years
($000s)
Between
2 and 5 years
($000s)
Over 5 years
($000s)
Total contractual
cash flows
($000s)
Carrying
amount
($000s)
At 31 March 2021
Non-derivative financial liabilities
Trade and other payables
Lease liabilities
Other current liabilities
Term debt
Contingent consideration
Contractual cash flows
Derivative financial liabilities
Derivative liabilities
Forward exchange contracts
Inflows
Outflows
Contractual cash flows
At 31 March 2020
Non-derivative financial liabilities
Trade and other payables
Lease liabilities
Term debt
Other non-current liabilities
Contractual cash flows
Derivative financial liabilities
Forward exchange contracts
Inflows
Outflows
Contractual cash flows
37,397
16,338
10,621
–
–
64,356
2,858
–
231,507
(40,028)
194,337
–
–
3,901
16,731
–
–
39,483
(8,207)
31,276
–
–
–
12,830
39,746
55,776
–
1,002,400
19,032
–
–
–
37,397
124,690
10,621
37,397
94,530
10,536
1,002,400
854,078
22,933
17,952
1,061,178
55,776
1,198,041
1,014,493
–
–
7,561
(7,561)
–
–
–
–
–
–
2,858
–
278,551
(55,796)
2,858
(3,956)
–
–
225,613
(1,098)
Less than
12 months
($000s)
Between
1 and 2 years
($000s)
Between
2 and 5 years
($000s)
Over 5 years
($000s)
Total contractual
cash flows
($000s)
Carrying
amount
($000s)
34,055
18,446
11,887
–
64,388
–
62,563
(65,158)
(2,595)
–
16,468
11,887
2,840
31,195
–
3,095
(3,128)
(33)
–
33,470
524,301
–
–
53,003
–
–
34,055
121,387
34,055
72,626
548,075
430,399
2,840
2,840
557,771
53,003
706,357
539,920
–
–
–
–
–
–
–
–
–
(3,256)
65,658
(68,286)
–
–
(2,628)
(3,256)
XERO ANNUAL REPORT 124
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(c) Credit risk
Nature of risk
Credit risk arises in the normal course of Xero’s business on financial assets if a counterparty fails to meet its contractual obligations.
Exposure and risk management
Financial instruments that potentially subject the Group to credit risk principally consist of cash and cash equivalents, short-term
deposits, derivatives, bonds and deposits, loan receivables portfolio, and receivables.
The Group manages credit risk by placing cash, short-term deposits, and derivative contracts with high-quality financial
institutions. The exposure to the credit risk of the call option counterparties means that in the event of default the Group may
have to pay an increased amount on settlement of the convertible notes. The Group manages liquidity factoring in any risk of
default. The credit risk associated with trade receivables is small due to the inherently low transaction value and the distribution
over a large number of customers.
Other current assets include the acquired Waddle loans receivable portfolio, which consists of secured loans made to small
businesses based on a customer’s nominated accounts receivable. The Group assesses the creditworthiness of the loans
receivable portfolio on a pooled basis due to the composition of the loans having similar characteristics, being small homogeneous
loans with similar risk profiles. The Group has assessed the credit risk of the loans receivable portfolio as low, due to low historic
default rates and the distribution of the portfolio being over a number of customers.
Group financial assets subject to credit risk at balance date are as follows:
At 31 March
Cash and cash equivalents
Short-term deposits
Trade and other receivables
Derivative financial assets
Other current assets
Non-current assets
2021
($000s)
657,849
452,814
18,524
123,674
4,937
268
2020
($000s)
108,027
428,052
10,510
124,698
–
1,327
Total financial assets subject to credit risk
1,258,066
672,614
A summary of the Group’s exposure to credit risk on cash and cash equivalents, short-term deposits, and derivative assets
categorised by external credit risk grading is as follows:
At 31 March
Cash and cash equivalents and short-term deposits
AAAm
A-1+
A-1
A-2
2021
($000s)
398,147
469,880
236,791
5,845
2020
($000s)
–
470,121
60,379
5,579
Total cash and cash equivalents and short-term deposits
1,110,663
536,079
Derivative assets
A-1+
A-1
Total derivative assets
Total exposure to credit risk
946
122,728
123,674
1,234,337
5,917
118,781
124,698
660,777
Of the Group’s trade and other receivables, other current assets and non-current assets, $9.2 million are with counterparties
with an A-1 external credit risk rating. The remaining amounts are with counterparties who have no external credit risk rating.
Due to the nature of the Group’s business, the balances do not consist of any concentration of risk that is considered individually
material.
125
17. Derivatives and hedge accounting
The Group’s derivative financial instruments consist of forward exchange contracts, vanilla foreign exchange options (outright
purchased options and vanilla collars), conversion feature of the convertible notes, and call spread options entered into in
connection with the convertible notes.
At 31 March
Current derivative assets
Forward exchange contracts
Call spread options
Foreign exchange options
Non-current derivative assets
Call spread options
Forward exchange contracts
Total derivative assets
Current derivative liabilities
Conversion feature of convertible notes
Forward exchange contracts
Foreign exchange options
Non-current derivative liabilities
Conversion feature of convertible notes
Forward exchange contracts
Foreign exchange options
Total derivative liabilities
2021
($000s)
861
–
–
122,123
690
123,674
(2,858)
(3,363)
–
2020
($000s)
5,732
117,351
1,615
–
–
124,698
–
(1,937)
(1,220)
(120,268)
(121,873)
(593)
–
(39)
(60)
(127,082)
(125,129)
Foreign currency hedges
The Group uses derivatives in the form of forward exchange contracts and vanilla foreign exchange options (outright purchased
options and vanilla collars) to reduce the risk that movements in foreign exchange rates will affect the Group’s NZD cash flows.
Whenever possible, these hedges have been designated as a hedge of a highly probable forecast transaction (a cash flow hedge
under NZ IFRS 9: Financial Instruments). The Group determines the existence of an economic relationship between the hedging
instrument and the hedged item based on the currency and timing of respective cash flows. Derivatives in hedge relationships
are designated based on a hedge ratio of 1:1. Hedges that do not have a highly probable forecast transaction are recognised as
ineffective hedges.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised
in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the Income
Statement. Amounts accumulated in equity are reclassified to the Income Statement in the periods when the hedged transaction
affects profit and loss. Only the intrinsic value of options are designated as hedge relationships with movements in the time value
of foreign exchange options recognised immediately in the Income Statement. The Group has taken up the option under NZ IFRS 9
to defer forward points into other comprehensive income.
During the year, a net hedging loss of $9.0 million (before taxation) was recognised in other comprehensive income (2020: gain
of $6.8 million). During the year, a gain of $0.4 million (before taxation) was reclassified out of other comprehensive income to
the Income Statement (2020: gain of $5.6 million). The remaining balance will be reclassified to the Income Statement in future
reporting periods as the relevant hedging instruments mature.
XERO ANNUAL REPORT 126
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Hedge position
The Group’s hedge accounted financial instruments are as follows:
At 31 March
Derivative assets
Buy USD – Sell NZD
Buy CAD – Sell NZD
Buy NZD – Sell AUD
Buy NZD – Sell GBP
Total
Derivative liabilities
Buy USD – Sell NZD
Buy CAD – Sell NZD
Buy NZD – Sell AUD
Buy NZD – Sell GBP
Total
2021
Average
forward price
2021
Fair value
($000s)
2021 Notional
amount hedged
(NZD)
($000s)
2020
Average
forward price
2020
Fair value
($000s)
2020 Notional
amount hedged
(NZD)
($000s)
0.7256
0.9097
0.9139
0.4937
0.6719
0.8656
0.9265
0.5144
575
177
93
283
1,128
(752)
(51)
(1,498)
(1,655)
(3,956)
14,470
4,672
21,885
16,203
20,092
4,044
144,637
85,542
0.6692
0.8692
0.9332
–
–
–
–
0.5051
3,388
528
3,034
–
6,950
–
–
–
(2,643)
(2,643)
28,180
13,231
85,164
–
–
–
–
53,665
Conversion feature and call option derivatives
The conversion feature derivative liability of the 2025 convertible notes represents an embedded derivative financial instrument
in the host debt contract. The conversion feature represents the Group’s obligation to issue Xero Limited shares (or an equivalent
amount of cash) should noteholders exercise their conversion option. The embedded conversion derivatives are carried in the
Statement of Financial Position at their estimated fair value and adjusted at the end of each reporting period, with any unrealised
gain or loss reflected in the Income Statement. During the year ended 31 March 2021, the Group recognised a $27.1 million
revaluation gain in the Income Statement relating to the 2025 conversion feature derivative.
In connection with the issue of the 2025 convertible notes, the Group entered into call spread options. The lower strike call
options mirror the conversion option embedded in the convertible notes, and are accounted for as derivative assets in the
Statement of Financial Position at their estimated fair value. The derivative assets are adjusted to fair value each reporting period,
with unrealised gains or losses reflected in the Income Statement. During the year ended 31 March 2021, the Group recognised a
$24.3 million revaluation loss in the Income Statement relating to the lower strike call options.
127
18. Share capital
Balance at 1 April
Issue of ordinary shares – buyback of 2023 convertible notes
Issue of ordinary shares – exercising of employee share options
Issue of ordinary shares – restricted stock unit schemes
Issue of ordinary shares – employee restricted share plan
Issue of ordinary shares – exercising of director share options
Issue of ordinary shares – acquisition of Hubdoc
Issue of ordinary shares – directors' fees
Ordinary shares on issue at 31 March
Treasury shares
Ordinary shares on issue at 31 March excluding treasury shares
All shares have been issued, are fully paid, and have no par value.
Notes
15
24
24
24
2021
(000s)
141,851
3,750
952
314
97
–
–
–
146,964
(133)
146,831
2020
(000s)
140,774
–
504
266
67
60
176
4
141,851
(339)
141,512
During the year, the Company issued 3,750,005 shares at a price of AUD135.86 to part fund the buyback of the 2023
convertible notes.
During the year, employees exercised 952,438 share options with a weighted average exercise price of $33.26 (2020: 504,021,
$22.70).
During the year, 341,519 RSUs vested, of which 313,527 were converted to shares with a weighted average price of $72.64.
The remaining 27,992 were surrendered to settle payroll withholding obligations (2020: 327,917 vested, 266,190 converted at
a weighted average price of $48.01, 61,727 surrendered to settle payroll withholding obligations).
During the year, the Company allocated 133,589 shares under the employee restricted share plan, at a weighted average price of
AUD93.88 (2020: 141,582, AUD63.95). Of the shares allocated, 97,131 were new shares issued, and 36,458 were the reissue of shares
held as treasury shares (2020: 66,823 and 74,759 respectively).
XERO ANNUAL REPORT 128
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19. Business combinations
On 1 October 2020, Xero acquired 100% of the ordinary shares in invoice financing platform Waddle, for consideration of AUD35.9
million cash (including completion adjustment of AUD4.9 million). An additional AUD24.5 million in shares of Xero Limited and
AUD24.5 million in cash may be payable to the previous shareholders of Waddle dependent on the achievement of certain product
development and revenue milestones over the period to September 2023.
Of the AUD49 million contingent consideration, AUD14 million is payable based on the achievement of specific product and
business integration milestones. The remaining AUD35 million contingent consideration is dependent on the achievement of
specified revenue milestones. All contingent consideration payments are payable 50% in cash and 50% in shares, unless
otherwise agreed.
The number of shares issued on settlement of the contingent consideration will be based on the 20-day weighted average price
of Xero Limited shares preceding issue date. Based on management’s projections, it is expected that the performance targets will
be met and therefore the contingent consideration is recorded at 100%. Management will continue to assess the probability of
achievement throughout the 36-month period and will record any revaluation adjustments accordingly.
Goodwill of $47.1 million has been recognised to reflect Waddle’s expertise and technology that will enable the Group to grow
Xero’s small business platform and help our customers better manage cash flow and gain access to working capital.
Assets acquired and liabilities assumed
Software development asset
Customer contracts intangible asset
Brand intangible asset
Goodwill
Tangible assets acquired
Tangible liabilities assumed
Net assets acquired
Consideration transferred
Cash*
Contingent consideration
Total consideration
1 October 2020
($000s)
27,340
5,010
524
47,108
7,286
(7,293)
79,975
38,832
41,143
79,975
* Net of cash acquired as part of the business combination, cash outflows relating to the acquisition were $36.3 million
The acquired software development asset, customer contracts, and brand are determined to have useful lives of 7 years,
7 years, and 5 years respectively.
For the period from acquisition date to 31 March 2021, Waddle contributed $2.1 million in operating revenue and $0.2 million in net
loss. If the acquisition had occurred on 1 April 2020, management estimates that consolidated operating revenue and net profit
would have been an additional $2.4 million higher and $0.4 million lower respectively for the year ended 31 March 2021.
129
20. Group entities
Consolidation subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through
its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases.
Inter-company transactions and balances between Group companies are eliminated on consolidation.
The financial statements of each of the Group’s subsidiaries are prepared in the functional currency of that entity. The functional
currency is determined for each entity based on factors such as the principal trading currency. The assets and liabilities of these
entities are translated at exchange rates existing at balance date. Revenue and expenses are translated at rates approximating the
exchange rates ruling at the dates of the transactions. The exchange gains or losses arising on translation are recorded in other
comprehensive income and accumulated in the foreign currency translation reserve in equity.
Country of
incorporation
Balance date
Interest
2021 (%)
Interest
2020 (%)
Xero (NZ) Limited
Xero (UK) Limited
Xero Australia Pty Limited
Xero, Inc.
Xero (Singapore) Pte. Ltd
Xero Software (Canada) Ltd
Xero (HK) Limited
Xero South Africa (Pty) Ltd
Xero Trustee Limited
Hubdoc Inc.
Hubdoc Pty Limited
Hubdoc (UK) Limited
Xero Investments Limited
Waddle Holdings Pty Limited
Waddle Loans Pty. Ltd.
Waddle SaaS Pty Ltd
Waddle Servicing Pty Ltd
Waddle IP Pty. Ltd.
Waddle Loans Limited
Xero (NZ) Holdings Limited
Xero (Australia) Holdings Pty Limited
New Zealand
United Kingdom
Australia
United States
Singapore
Canada
Hong Kong
South Africa
New Zealand
Canada
Australia
31 March
31 March
31 March
31 March
31 March
31 March
31 March
31 March
31 March
31 March
31 March
United Kingdom
31 January
New Zealand
31 March
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
Australia
30 June
30 June
30 June
30 June
30 June
30 June
31 March
31 March
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
–
–
XERO ANNUAL REPORT 130
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21. Current and deferred income tax
Tax expense comprises current and deferred tax. Income tax is recognised in the Income Statement or Statement of
Comprehensive Income except when it relates to items recognised directly in equity (in which case the income tax is recognised in
equity). Income tax is based on tax rates and regulation enacted in the jurisdictions in which the entities operate.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. The amount of deferred tax is based on the expected manner
of realisation of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the end of the
reporting period.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available, against which
the asset can be utilised.
Income tax expense
The tax on the Group’s profit/(loss) before tax differs from the theoretical amount that would arise using the New Zealand
statutory income tax rate as follows:
Year ended 31 March
Accounting profit/(loss) before income tax
At the New Zealand statutory income tax rate of 28%
Non-deductible expenditure
Prior period adjustment
Recognition of historic unrecognised tax losses
Tax rate variance of subsidiaries
Current year tax losses/deferred expenditure not recognised
Income tax (credit)/expense
Comprising:
Income tax payable
Prior period adjustment
Deferred tax
Recognition of tax losses
Tax losses utilised
Effect of changes in foreign currency
Income tax (credit)/expense
2021
($000s)
(43,936)
(12,302)
(2,197)
(1,833)
(55,060)
2,371
5,311
(63,710)
9,410
(1,833)
(16,334)
(55,060)
–
107
(63,710)
2020
($000s)
9,837
2,754
370
(116)
(14,036)
847
16,682
6,501
9,196
(116)
(1,565)
–
(972)
(42)
6,501
(28,002)
80,857
103,267
131
Deferred income tax
Derivatives
($000s)
Provisions and
employee benefits
($000s)
Tax depreciation
($000s)
Tax losses and
R&D expenditure
($000s)
Year ended 31 March 2021
Deferred tax asset balances
At 1 April 2020
Prior period adjustment
Charged to Income Statement
Charged to equity
Impact of change in tax rates
At 31 March 2021
Deferred tax liability balances
–
–
–
(792)
–
(792)
9,288
(336)
24,677
17,371
204
51,204
At 1 April 2020
(1,209)
14,646
Prior period adjustment
Recognition of deferred tax
on business combination
Charged to Income Statement
Charged to equity
At 31 March 2021
Year ended 31 March 2020
Deferred tax asset balances
At 1 April 2019
Prior period adjustment
Charged to Income Statement
Charged to equity
Impact of change in tax rates
At 31 March 2020
Deferred tax liability balances
At 1 April 2019
Prior period adjustment
Charged to Income Statement
Charged to equity
Tax losses utilised
At 31 March 2020
–
–
–
1,209
–
–
–
–
–
–
–
(881)
–
–
(328)
–
90
–
(14,470)
–
266
5,661
(547)
4,153
(23)
44
9,288
9,276
(267)
2,185
3,452
–
(2,858)
1,296
(26,257)
–
(183)
(2,679)
1,861
73,371
8,304
–
(22,977)
(263)
(5,814)
22,403
–
(6,651)
(2,849)
584
(547)
–
(46)
8,426
10
–
(8,351)
–
85
(1,199)
647
(2,718)
591
–
(2,858)
(2,679)
(19,048)
39
(3,968)
–
–
8,864
(412)
2,462
(3,460)
972
8,426
(1,209)
14,646
(22,977)
Total
($000s)
3,751
2,821
71,791
24,883
21
(1,114)
(163)
(5,814)
(418)
1,209
(6,300)
1,613
684
888
568
(2)
3,751
(1,789)
(640)
679
(336)
972
(1,114)
XERO ANNUAL REPORT 132
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Key estimates and assumptions
Recognised tax losses and temporary differences
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available, against which the
deductible temporary differences can be offset.
The Group has reviewed previously unrecognised New Zealand tax losses and has determined that it is now probable that future
expected taxable profits will arise for which the tax losses and other unrecognised temporary differences (primarily comprising
carried forward R&D expenditure) can be utilised. Current shareholder continuity further supports the recognition of a deferred tax
asset. Accordingly, in the year to 31 March 2021, the Group has recognised a deferred tax asset of $83.1 million in respect of New
Zealand tax losses and carried forward R&D expenditure.
The Group’s recognised deferred tax asset and deferred tax liability are expected to be recovered and realised by $15.6 million and
$0.34 million respectively within the next 12 months. Deferred tax assets and liabilities have been offset where the balances are
due to/receivable from the same counterparties.
Carried forward R&D expenditure
The Group has elected to defer the deduction of research and development expenditure in accordance with sections DB 34(7)
and EE 1(5) of the Income Tax Act 2007.
The estimated deferred research and development expenditure available to the Group is $94.6 million (2020: $85.4 million).
The deferred research and development expenditure can be deducted from taxable income in future periods, and the ability to
carry forward deferred research and development expenditure is not dependent on maintaining shareholder continuity.
Unrecognised tax losses and temporary differences
The Group has estimated unrecognised tax losses available to carry forward and other unrecognised temporary differences in
overseas jurisdictions of $170.6 million (2020: $133.2 million) subject to shareholder continuity being maintained (as applicable),
noting that deferred tax assets are recognised for carried forward tax losses to the extent of deferred tax liabilities.
22. Reconciliation of operating cash flows
Year ended 31 March
Net profit
Adjustments:
Depreciation
Amortisation
Loss on recognition/extinguishment of term debt
Share-based payments
Amortisation of debt discount and issuance costs
Recognition of historic unrecognised tax losses
Deferred tax and current taxes recognised in equity
Bad debts
Other non-cash items
Tax losses utilised
Impairment of assets
Changes in working capital:
Increase in receivables and prepayments
Decrease in interest receivable
Increase/(decrease) in trade payables and other related items
Increase/(decrease) in current tax payable
Increase in employee entitlements
Increase in income in advance
Net cash flows from operating activities
2021
($000s)
19,774
24,929
104,612
67,169
42,731
21,781
(55,060)
(1,772)
1,331
11,684
–
–
(34,053)
1,672
(23,880)
(2,570)
36,785
3,506
218,639
2020
($000s)
3,336
23,035
82,026
–
34,336
17,023
–
(1,565)
1,974
(2,435)
(972)
1,427
(5,833)
931
6,396
721
4,304
1,925
166,629
133
23. Changes in financial assets and liabilities arising from financing activities
Year ended 31 March 2021
At 1 April
2020
($000s)
Proceeds
($000s)
Payments
($000s)
Amortisation
expense
($000s)
Foreign
exchange
movement
($000s)
Other non-
cash items*
($000s)
At 31 March
2021
($000s)
Short-term deposits
428,052
(795,540)
855,428
Call spread option derivative assets**
117,350
(510,160)
145,341
–
–
(35,126)
–
452,814
(24,981)
394,573
122,123
Term debt and conversion feature
(546,460)
(976,060)
415,305
(21,781)
61,285
87,901
(979,810)
Other current liabilities
–
(814)
–
–
(12)
–
(826)
Year ended 31 March 2020
At 1 April
2019
($000s)
Proceeds
($000s)
Payments
($000s)
Amortisation
expense
($000s)
Short-term deposits
336,819
(734,563)
785,753
Call spread option derivative assets**
73,999
Term debt and conversion feature
(435,098)
–
–
–
–
Foreign
exchange
movement
($000s)
40,043
10,720
Other non-
cash items
($000s)
At 31 March
2020
($000s)
–
428,052
32,631
117,350
–
–
(17,023)
(61,181)
(33,158)
(546,460)
* Other non-cash movements reflect the loss on extinguishment of the 2023 convertible notes, and the fair value of the bond component and embedded
conversion derivative relating to the issuance of the 2025 convertible notes
** Excludes cash flows related to equity classified call spread option derivatives
24. Share-based payments
The Group operates equity-settled, share-based compensation plans, under which employees provide services in exchange
for non-transferable options, RSUs, or restricted shares. The value of the employee services rendered for the grant of
non-transferable options, RSUs, and restricted shares is recognised as an expense over the vesting period, and the amount is
determined by reference to the fair value of the options, RSUs, and restricted shares granted.
Employee restricted share plan
Under the employee restricted share plan, ordinary shares in the Company are issued to a trustee, Xero Limited Employee
Restricted Share Trust, a wholly owned subsidiary, and allocated to participants on grant date, using funds lent to them by
the Company.
The shares are beneficially owned by the participants. The length of retention period before the shares vest is up to three years.
If the individual is still employed by the Group at the end of each specific period, the employee is given a bonus that must be
used to repay the loan and shares are then transferred to the employee. The weighted average grant date fair value of restricted
shares granted during the year was AUD93.88 (2020: AUD63.95) and was determined by the volume-weighted average price of the
Company shares preceding the grant date. Shares with a grant date fair value of $17.6 million vested during the year (2020: $11.1
million). The Group has no legal or constructive obligation to repurchase or settle the shares for cash.
XERO ANNUAL REPORT 134
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Movements in the number of restricted shares outstanding are as follows:
Outstanding restricted shares at start of period
Granted
Forfeited
Settled
Outstanding restricted shares at 31 March – allocated to employees
Forfeited shares not yet reallocated – held by Trustee
Total
Percentage of total ordinary shares
Ageing of unvested shares
Vest within one year
Vest after one year
Total unvested shares at 31 March*
2021
Number of shares
(000s)
2020
Number of shares
(000s)
313
134
(17)
(304)
126
7
133
0.1%
83
43
126
371
142
(61)
(139)
313
26
339
0.2%
138
44
182
* 31 March 2020 balance varies from the total above due to shares that vested on 31 March 2020 but were not settled until 1 April 2020
The number of shares awarded pursuant to the restricted share plan (RSP) does not equal the number of shares created for the
scheme as forfeited shares are held in the trust and reissued.
Share options scheme
Options are granted to selected employees and executives. Options are conditional on the completion of the necessary years of
service (the vesting period) as appropriate to that tranche.
The options tranches vest within four years from the grant date. No options can be exercised later than the second anniversary of
the final vesting date. There were 65 holders of options at 31 March 2021 (2020: 52).
The Group has no legal or constructive obligation to repurchase or settle the options in cash.
Movements in the number of options outstanding and their related weighted average exercise prices are as follows:
Outstanding at start of period
Granted
Forfeited/expired
Exercised
Outstanding at 31 March
Exercisable at 31 March
2021
Weighted average
exercise price ($)
42.04
110.24
52.27
33.26
58.98
37.10
2021
Options
(000s)
2,861
456
(88)
(952)
2,277
264
2020
Weighted average
exercise price ($)
31.91
64.85
37.12
22.07
42.04
21.32
2020
Options
(000s)
2,995
763
(333)
(564)
2,861
288
The weighted average share price on the date of exercise for options exercised in the year ended 31 March 2021 was AUD102.27
(2020: AUD67.94). The weighted average remaining contractual term of options outstanding at 31 March 2021 is 3.7 years (2020:
3.1 years).
135
Options outstanding at 31 March fall within the following ranges:
Granted
2016–17
2017–18
2018–19
2019–20
2020–21
Exercise price
NZD17.51 – NZD19.50
NZD25.75 – NZD32.48
AUD34.00 – AUD48.33
AUD51.82 – AUD83.04
AUD79.50 – AUD138.28
2021
Options
(000s)
75
66
1,134
546
456
2,277
2020
Options
(000s)
445
190
1,463
763
–
2,861
The weighted average fair value of options granted during the year, determined using the Black-Scholes valuation model, was
$29.98 per option (2020: $18.89).
The significant inputs into the model were the market share price at grant date, the exercise price as shown above, expected
annualised volatility of between 34.1% and 36.1%, a dividend yield of 0%, an expected option life of between three and five years,
and an annual risk-free interest rate of between 0.2% and 0.4%.
The volatility input is measured as the standard deviation of continuously compounded share returns and is based on a statistical
analysis of daily share prices over a period consistent with the options' expected life.
Restricted stock units
RSUs are issued to certain employees and executives of the Group. On the grant date, an RSU agreement is entered into between
employee and Company stipulating the number of units granted and their vesting schedules. On the vest date, the RSUs are
converted to ordinary shares in the Company.
No cash consideration is required to be paid on vesting of the RSUs. The fair value of RSUs granted in the year ended 31 March
2021 was $32.8 million (2020: $28.1 million) as determined by the volume-weighted average share price. The RSUs are conditional
on the employees completing up to three years' service (the vesting period) and are, for the most part, converted to shares in
equal amounts over the vesting period.
Movements in the number of RSUs outstanding and their related weighted average grant prices are as follows:
2021 Weighted
average grant date fair
value ($)
2021 RSUs
(000s)
2020 Weighted
average grant date fair
value ($)
2020 RSUs
(000s)
Outstanding at start of period
Granted
Forfeited
Converted to shares
Surrendered to settle payroll withholding obligations
Outstanding at 31 March
60.16
101.72
80.53
72.64
48.78
90.00
379
359
(45)
(314)
(28)
351
38.89
66.00
53.71
48.01
34.33
60.16
370
425
(89)
(266)
(61)
379
The Company withholds shares under certain circumstances to settle tax withholding obligations on vesting. Based on the market
share price on 31 March 2021, future cash payments to meet tax withholding obligations on the vesting of RSUs are expected to be
$0.2 million (2020: $1.5 million).
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25. Key management personnel and related parties
Key management personnel
Key management personnel are defined as those persons having authority and responsibility for planning, directing, and
controlling the activities of the Group, directly or indirectly, and include the directors, the Chief Executive, and the Chief Financial
Officer. Xero's key management personnel were redefined in the current year as a result of the impact COVID-19 had on the way
the business was managed and the increased need for financial discipline in an uncertain environment. As a result, year-over-year
balances are not comparable.
The following table summarises remuneration paid to key management personnel.
Year ended 31 March
Short-term employee benefits
Directors' fees
Share-based payments - options
Share-based payments - restricted stock units
Share-based payments - employee restricted share plan
2021
($000s)
2,307
1,415
2,327
296
–
2020
($000s)
8,329
1,332
7,807
1,360
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Related party transactions
During the year Atomic.io Limited, a related party by way of a 19% shareholding and common directorship of a Xero director,
provided product development and support services to the Group of $296,000.
During the year 0TO60 Tourism Limited, a related party by way of being wholly owned and governed by a Xero director, provided
client sales and marketing event services to the Group of $20,000.
Other than that related to the remuneration of key management personnel there are no balances or commitments outstanding
with related parties as at 31 March 2021.
A number of key management personnel, or their related parties, hold positions in other entities that result in them having control
or significant influence over the financial or operating policies of these entities. A number of these entities subscribe to services
provided by the Group. None of these related party transactions are significant to either party, and are completed on arm's length
terms. There were no related party transactions during the year other than as detailed above.
No amounts with any related parties have been written off or foregone during the year (2020: nil).
26. Commitments and contingencies
Capital commitments
Capital commitments of $15.2 million for building fit-outs were contracted for at 31 March 2021 but not yet incurred (2020:
$1.2 million).
Contingent liabilities
There were no contingent liabilities at 31 March 2021 (2020: nil).
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27. Events after balance sheet date
Planday acquisition
On 1 April 2021, Xero acquired 100% of the ordinary shares in cloud-based workforce management business Planday A/S and
subsidiaries (‘Planday’), pursuant to an agreement dated 4 March 2021. The acquisition will enable Xero to continue its strategy to
grow the small business platform.
Consideration for the acquisition comprised an upfront cash payment of EUR85.6 million and shares of EUR70.1 million, including
an adjustment for working capital, with further contingent consideration of up to EUR27.8 million payable 50% in shares and 50%
in cash subject to meeting certain product and revenue milestones.
Tickstar acquisition
On 1 April 2021, Xero acquired 100% of the ordinary shares in e-invoicing infrastructure business Tickstar AB ('Tickstar'), pursuant
to an agreement dated 24 March 2021. The acquisition aligns with Xero's strategic priority to drive adoption of cloud accounting
around the world.
Consideration for the acquisition comprised an upfront cash payment of SEK30 million and shares of SEK30 million, including an
adjustment for working capital, with further contingent consideration of up to SEK90 million payable 50% in shares and 50% in
cash subject to meeting certain product and revenue milestones.
At the date these financial statements were authorised for issue, the initial accounting for the respective Planday and Tickstar
business combinations had not been completed due to the time required to complete the valuations of the acquired intangibles,
along with the work required to align the accounting policies of the acquired companies to that of the Xero Group. This information
will be included in the Group's interim report for the six months ended 30 September 2021.
There were no other significant events between balance date and the date these financial statements were authorised for issue.
XERO ANNUAL REPORT 138
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Directors’ Responsibilities Statement
The directors are required to prepare financial statements for each financial year that present fairly the financial position of the
Group and its operations and cash flows for that period.
The directors consider these financial statements have been prepared using accounting policies suitable to the Group’s
circumstances, that these have been consistently applied and are supported by reasonable judgements and estimates, and that
all relevant financial reporting and accounting standards have been followed.
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy, at any time, the
financial position of the Group and to enable them to ensure that the financial statements comply with the Companies Act
1993 (New Zealand). They are also responsible for safeguarding the assets of the Group and for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
During the year ended 31 March 2021, the principal activities of the Group were for the provision of online business solutions for
small businesses and their advisors. Other than as disclosed in this Annual Report, there were no significant changes in the state
of affairs or activities of the Group during the year.
The Board authorised these financial statements for issue on 13 May 2021.
For and on behalf of the Board
David Thodey
Chair
Xero Limited
13 May 2021
Mark Cross
Director
Xero Limited
13 May 2021
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Disclosures
All financial figures in this section of the Annual Report are in New Zealand dollars except where indicated otherwise. References
to FY21 are to the financial year ended 31 March 2021. References to FY20 are to the financial year ended 31 March 2020. Xero
Group means Xero Limited (Xero) and its subsidiaries.
Equity holdings of Directors, CEO & CFO
At 31 March 2021
Number of ordinary shares
Number of unlisted options
Number of restricted stock
(Shares)
(Options)
units (RSUs)
Non-executive directors
David Thodey¹
Rod Drury²
Lee Hatton
Dale Murray
Susan Peterson
Craig Winkler³
Mark Cross⁴
Steven Aldrich
CEO and CFO
Steve Vamos
Kirsty Godfrey-Billy
8,461
11,914,789
5,378
950
3,340
6,675,990
2,500
–
3,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
210,783
108,908
10,090
1,056
¹ Shares are held by Aspiring Co Pty Limited on behalf of the Thodey Family Trust. David Thodey is a director of Aspiring Co Pty Limited and the
beneficiaries of the Thodey Family Trust are the immediate family members of David Thodey
² Shares are held by Rodney Kenneth Drury, Anna Margaret Clare Stuck, and Scott Moran, as trustees of the Rodanna Ventures Trust. The beneficiaries of
the Rodanna Ventures Trust are Anna Margaret Clare Stuck, Rodney Kenneth Drury and their immediate family members.
³ 6,654,545 Shares are held by Givia Pty Limited, the trustee of an Australian charitable trust. Craig Winkler is a director of Givia Pty Limited; he and his
family members are not beneficiaries of the trust. 21,445 Shares are held by a custodian for the benefit of Bangarie Investments Pty Limited. Craig Winkler
is a director of Bangarie Investments Pty Limited
⁴ Shares are held by Alpha Investment Partners Limited on behalf of Alpha Investment Trust. Mark Cross is a director of Alpha Investment Partners
Limited and the beneficiaries of Alpha Investment Trust are Mark Cross and the immediate members of his family.
XERO ANNUAL REPORT 140
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Entries recorded in the Interests Register
Xero maintains an interests register in accordance with the Companies Act 1993 (New Zealand).
Directors’ interests
Directors disclosed the following relevant interests, or cessations of interest, during FY21.
Director/Entity
David Thodey
Relationship
National COVID-19 Coordination Commission (NCCC)¹
ceased to be deputy chair
Vodafone Group Plc
Mark Cross
ceased to be a director
MFL Mutual Fund Limited / Superannuation Investments Limited
ceased to be chair and director
Lee Hatton
Afterpay Limited
Suncorp Group Limited
Dale Murray
Seedrs
Susan Peterson
Arvida Group Limited
ASB Bank Limited
Rod Drury
0TO60 Tourism Limited
Steven Aldrich*
Blucora, Inc.
appointed Executive vice president
ceased to be chief executive officer of banking and
wealth division
ceased to be an advisor
director
ceased to be a director
director and shareholder
director
¹ Finite commitment, at the request of the Australian Government, to advise on Australia’s economic and social response to COVID-19
* Commenced 1 October 2020
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Share dealings of directors
Directors disclosed the following acquisitions or disposals of relevant interests in Xero Shares during FY21.
Registered holder
Date of acquisition/disposal
Consideration per Share
Number of Shares acquired/
David Thodey
Aspiring Co Pty Limited¹
Rod Drury²
Rodanna Ventures Trust²
Rodanna Ventures Trust²
Rodanna Ventures Trust²
Lee Hatton
Lee Hatton
Susan Peterson
Susan Peterson
Craig Winkler³
Givia Pty Limited³
Givia Pty Limited³
Givia Pty Limited³
Mark Cross
31 August 2020
3 September 2020
30 November 2020
1 December 2020
26 September 2020
14 September 2020
3 September 2020
30 November 2020
2 December 2020
Alpha Investment Partners Limited⁴
3 September 2020
(AUD)
$101.34
$99.00
$133.02
$133.51
$97.77
$89.84
$100.00
$132.97
$133.00
$101.90
(disposed)
4,000
(2,000,000)
(1,756,485)
(48,505)
(4,000)
710
(1,000,000)
(1,000,000)
(600,000)
2,500
¹ Shares are held by Aspiring Co Pty Limited on behalf of the Thodey Family Trust. David Thodey is a director of Aspiring Co Pty Limited and the
beneficiaries of the Thodey Family Trust are the immediate family members of David Thodey
² Shares are held by Rodney Kenneth Drury, Anna Margaret Clare Stuck, and Scott Moran, as trustees of the Rodanna Ventures Trust. The beneficiaries of
the Rodanna Ventures Trust are Anna Margaret Clare Stuck, Rodney Kenneth Drury and their immediate family members
³ Craig Winkler is a director of Givia Pty Limited, the trustee of an Australian charitable trust. Craig Winkler and his family members are not beneficiaries of
the trust. See ASX announcement dated 16 May 2017 for information on disposals by Givia Pty Limited
⁴ Shares are held by Alpha Investment Partners Limited on behalf of Alpha Investment Trust. Mark Cross is a director of Alpha Investment Partners
Limited and the beneficiaries of Alpha Investment Trust are Mark Cross and the immediate members of his family.
Insurance
In accordance with the Companies Act 1993 (New Zealand), Xero has continued to insure its directors and officers (through
renewal of its D&O insurance policy) against potential liability or costs incurred in any proceeding, except to the extent prohibited
by law.
Deeds of Indemnity
Xero has provided deeds of indemnity to all directors and officers of Xero and its subsidiaries for potential liabilities and costs they
may incur for acts or omissions in their capacity as directors or officers of Xero or its subsidiaries, to the extent permitted by law.
XERO ANNUAL REPORT 142
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Remuneration Reporting
Xero’s remuneration policy and practices are summarised on pages 73 to 92 of this Annual Report.
Shareholder Information
The shareholder information set out below is current as at 6 April 2021, unless otherwise specified.
Issued capital The total number of issued Shares in Xero at 31 March 2021 was 146,964,510, of which 132,713 Shares were held on a
restricted basis in connection with Xero’s share-based compensation plans.
Distribution of shareholding
Range
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Total
Name of holders
34,715
2,304
277
175
35
37,506
%
92.46
6.14
0.74
0.47
0.09
100.00
Shares
6,036,834
4,766,378
2,002,268
4,702,091
130,364,818
147,872,389
%
4.08
3.22
1.35
3.18
88.16
100.00
There were 303 holders of less than a marketable parcel of Shares as at 6 April 2021, based on a market price of AUD $135.00
per Share.
RSUs and Options There were 64 individuals holding a total of 2,274,884 Options and 2,130 individuals holding a total of 350,341
RSUs. RSUs are a conditional contractual right to be issued an equivalent number of Shares in Xero.
Substantial holdings and limitations on the acquisition of securities Xero is a New Zealand incorporated and domiciled
company listed on the ASX. From a regulatory perspective, this means that while the ASX Listing Rules apply to Xero, certain
provisions of the Australian Corporations Act 2001 (Cth) do not. Xero is not subject to chapters 6, 6A, 6B, and 6C of the Australian
Corporations Act 2001 (Cth) dealing with the acquisition of its Shares (including substantial holdings and takeovers). The
Companies Act 1993 (New Zealand) applies to Xero and certain provisions of the Financial Markets Conduct Act 2013 (New
Zealand) also apply to Xero (including in relation to financial reporting, but not including the provisions relating to substantial
shareholdings).
There is no requirement on Xero’s substantial shareholders to provide substantial product holder notices to Xero. Xero has not
received any such notices during FY21.
Key limitations on the acquisition of Shares in Xero are imposed by the following New Zealand legislation: Commerce Act 1986,
Overseas Investment Act 2005, and Takeovers Act 1993, together with various regulations and codes promulgated under
such legislation.
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Top 20 holders The names of the 20 largest holders of Xero Shares as at 6 April 2021 are listed below.
Name
1. HSBC Custody Nominees (Australia) Limited
2. J P Morgan Nominees Australia Limited
3. Rodney Kenneth Drury & Anna Margaret Clare Stuck & Scott Moran
4. Citicorp Nominees Pty Limited
5. Givia Pty Limited
6. National Nominees Limited
7. BNP Paribas Noms Pty Ltd
8.HSBC Custody Nominees (Australia) Limited - GSCO ECA
9. Custodial Services Limited
10. JBWere (NZ) Nominees Limited <56968 A/C>
11. Citicorp Nominees Pty Limited
12. BNP Paribas Nominees Pty Ltd
13. Nelson Nien Sheng Wang & Pei-Chun Ko
14. Australian Foundation Investment Company Limited
15. BNP Paribas Nominees Pty Ltd Six Sis Ltd
16. Solium Nominees (Australia) Pty Ltd
17. HSBC Custody Nominees (Australia) Limited
18. BNP Paribas Nominees Pty Ltd
19. HSBC Custody Nominees (Australia) Limited - A/C 2
20. National Nominees Limited
Top 20 holders of fully paid Shares (total)
Other shareholders (balance on register)
Grand total
Number of shares held
% of issued capital
Shares
50,286,890
29,971,970
11,914,789
9,636,027
6,654,545
3,004,488
2,351,960
2,250,018
1,781,347
1,745,207
1,740,718
1,598,103
1,138,688
870,500
832,389
823,749
495,932
445,582
354,483
259,000
128,156,385
19,716,004
147,872,389
34.01
20.27
8.06
6.52
4.50
2.03
1.59
1.52
1.20
1.18
1.18
1.08
0.77
0.59
0.56
0.56
0.34
0.30
0.24
0.18
86.67
13.33
100.00
Voting rights Xero has a single class of Shares on issue. Where voting at a meeting of shareholders is by voice or a show of
hands, every shareholder present in person, or representative, has one vote. On a poll, every shareholder present in person, or by
representative, has one vote for each fully paid Share. In practice, Xero ensures that all resolutions at shareholder meetings are
decided by a poll rather than a show of hands.
On-market buy-back There is no current on-market buy-back for Xero Shares.
XERO ANNUAL REPORT 144
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Company Information
Donations The Xero Group made charitable donations totalling $145,459 during FY21. The Xero Group made no donations to
political parties during FY21.
Company directors The following persons held office as directors of Xero Limited during FY21.
Directors
Directors who ceased to hold office during FY21
David Thodey (Chair)
Steven Aldrich
Mark Cross
Rod Drury
Lee Hatton
Dale Murray
Susan Peterson
Craig Winkler
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Company subsidiaries and directors as at 31 March 2021 Xero had 21 wholly owned subsidiaries as shown in the table below. The
following persons held office as directors of Xero’s subsidiary companies during FY21.
Jurisdiction
Subsidiary
Directors
Directors who ceased to
hold office during FY21
Australia
Hubdoc Pty Limited
Kirsty Godfrey-Billy
Trent Innes
Chaman Sidhu
Xero Australia Pty Limited
Kirsty Godfrey-Billy
Trent Innes
Chaman Sidhu
Xero (Australia) Holdings Pty
Kirsty Godfrey-Billy
Limited
Trent Innes
Chaman Sidhu
Waddle Holdings Pty Limited
Kirsty Godfrey-Billy
Waddle Loans Pty Limited
Waddle SaaS Pty Limited
Waddle Servicing Pty Limited
Waddle IP Pty Limited
Canada
Hubdoc Inc.
Xero Software (Canada) Ltd
Hong Kong
Xero (HK) Limited
New Zealand
Xero Investments Limited
Xero (NZ) Limited
Chaman Sidhu
Simon Creighton
Kirsty Godfrey-Billy
Chaman Sidhu
Simon Creighton
Kirsty Godfrey-Billy
Chaman Sidhu
Simon Creighton
Kirsty Godfrey-Billy
Chaman Sidhu
Simon Creighton
Kirsty Godfrey-Billy
Chaman Sidhu
Simon Creighton
Bill Kimball
Andy Burner
Kirsty Godfrey-Billy
Bill Kimball
Andy Burner
Kirsty Godfrey-Billy
Kevin Fitzgerald
Kirsty Godfrey-Billy
Damien Tampling
Anna Curzon
Kirsty Godfrey-Billy
Craig Hudson
Anna Curzon
Kirsty Godfrey-Billy
Craig Hudson
Xero Trustee Limited
Kirsty Godfrey-Billy
Xero (NZ) Holdings Limited
Anna Curzon
Kirsty Godfrey-Billy
Craig Hudson
Will Buckley (resigned
effective 15 October 2020)
Will Buckley (resigned
effective 15 October 2020)
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Simon Creighton (resigned
effective 1 October 2020)
New Zealand
Waddle Loans Limited
Singapore
Xero (Singapore) Pte. Ltd
South Africa
Xero South Africa (Pty) Ltd
United Kingdom
Hubdoc (UK) Limited
Xero (UK) Limited
United States
Xero, Inc.
Anna Curzon
Kirsty Godfrey-Billy
Damien Tampling
Kevin Fitzgerald
Kirsty Godfrey-Billy
Damien Tampling
Kirsty Godfrey-Billy
Colin Timmis
Gary Turner
Damon Anderson
Kirsty Godfrey-Billy
Gary Turner
Damon Anderson
Kirsty Godfrey-Billy
Gary Turner
Kirsty Godfrey-Billy
Tony Ward
Andy Burner
Corporate Directory
Registered offices
Directors
Leadership team
Other Company Information
David Thodey, AO (Chair)
Steven Aldrich
Mark Cross
Rod Drury
Lee Hatton
Dale Murray, CBE
Susan Peterson
Craig Winkler
New Zealand
19-23 Taranaki Street
Te Aro, Wellington 6011
New Zealand
Contact:
www.xero.com/about/contact
Australia
1/6 Elizabeth Street
Hawthorn, Vic 3122
Australia
Contact:
www.xero.com/about/contact
Company numbers
183 0488 (New Zealand)
ARBN 160 661 183 (Australia)
Web address
www.xero.com
Auditor
Ernst & Young
Stock exchange
Xero’s ordinary shares
are listed on the ASX
Share registrar
Link Market Services Limited
Level 13, Tower 4,
727 Collins Street
Melbourne, Vic 3000
Australia
Telephone: +61 1300 554 474
Steve Vamos
Chief Executive Officer
Anna Curzon
Chief Product Officer
Kirsty Godfrey-Billy
Chief Financial Officer
Rachael Powell
Chief Customer Officer
Mark Rees
Chief Technology Officer
Nicole Reid
Chief People Officer
Chaman Sidhu
Chief Legal Officer
& Company Secretary
Damien Tampling
Chief Strategy & Corporate
Development Officer
Regional Managing
Directors
Craig Hudson
Managing Director,
New Zealand &
Pacific Islands
Trent Innes
Managing Director,
Australia & Asia
Gary Turner
Managing Director,
United Kingdom & EMEA
Tony Ward
President, Americas