Xero Annual Report 2023
1
XERO LIMITED
Annual Report
2023
Contents
About this Report
1
Highlights
2
About Xero
3
Chair’s Review
6
CEO’s Review
10
How Xero Creates Value
14
Strategy
16
Material Matters
18
Key Risks
19
Inputs
People and Culture
25
Customers, Partners and Ecosystem
35
Platform, Technology and Data
43
Social and Environmental
51
Financial
59
Governance
62
Our Performance
69
Audit Report, Financial Statements and Notes
83
Directors’ Responsibilities Statement
122
Disclosures
123
Remuneration Report
131
Corporate Directory
156
Xero Annual Report 2023
1
Xero’s Annual Report for 2023 has been prepared with
reference to the International Integrated Reporting Council
(IIRC) Framework and has been structured around five key
inputs into our business, or capitals as referred to by the
framework:
People and Culture – Diverse world-class leadership
and talent supported by an equitable and inclusive
culture and working environment to do the best work
of their lives
Customers, Partners and Ecosystem – Trusted
connections with the community of small business
customers, partners including small business advisors,
ecosystem developers, and other stakeholders
including governments and regulators
Platform, Technology and Data – Xero’s systems,
processes and other knowledge and intellectual
property drive innovation at speed to create beautiful
products and generate insights
Social and Environmental – Responsible practices
across everything we do as a business, including social
and environmental impact
Financial – Allocation of capital including revenue
and cash flows to optimise financial performance, and
access to capital to support the execution of Xero’s
strategy and long-term value creation
At Xero, we understand the deep connection between our
long-term financial performance, social and environmental
impact, and organisational culture.
Materiality
This report covers matters material to value creation
as identified through stakeholder consultation and a
materiality assessment conducted in accordance with the
IIRC Framework. For information about the material matters
identified and our stakeholder engagement process, please
refer to Material Matters on page 18.
Reporting suite
Xero’s Annual Report 2023 should be read in conjunction with
the other materials that comprise our 2023 annual reporting
suite. These are available at Xero’s Investor Centre:
Investor Presentation and Databook available at
www.xero.com/about/investors/financial-info
Governance and leadership at
www.xero.com/about/investors/governance, where full copies
of Xero’s Corporate Governance Statement, Modern Slavery
and Human Trafficking Statement, charters, key governance
policies, and full biographies for the board of directors and
executive leadership team can be found.
Additional information about Xero’s sustainability
activities and performance can be found at
www.xero.com/sustainability
Throughout this report we have hyperlinked other websites
and documents that may be useful. To download a
hyperlinked copy of this report, please visit our Investor
Centre at www.xero.com/about/investors
Company and reporting information
Xero is listed on the Australian Securities Exchange (ASX)
and is a New Zealand incorporated and domiciled company.
This means that while the ASX Listing Rules apply to Xero,
certain provisions of the Australian Corporations Act 2001
(Cth) do not.
As a New Zealand company, Xero’s annual report is primarily
governed by the Companies Act 1993 (New Zealand). The
Remuneration Report is not intended to fully replicate
the statutory disclosure requirements of an Australian
company’s remuneration report, as these requirements
do not apply to Xero. However, the information provided
goes beyond New Zealand requirements to provide greater
transparency and insight into our remuneration practices.
This report covers the activities of the Xero Group’s global
operations. Except where otherwise specified, statements
should be read as pertaining to the activities of Xero Limited
and its subsidiaries (Xero or Xero Group).
Some parts of this report include information regarding
Xero’s plans and strategy, and include forward-looking
statements about Xero and the environment in which it
operates 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 report.
All amounts are in New Zealand dollars (NZD) except
where indicated.
Non-Generally Accepted Accounting Principles (non-GAAP)
measures have been included as Xero believes they provide
useful information for readers to assist in understanding the
Xero 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).
References to the year, period or FY23 are to the financial
year ended 31 March 2023. References to the comparative
period or FY22 are to the financial year ended 31 March 2022.
References to H1 FY23, or the first half, refer to the six-month
period ended 30 September 2022. References to H2 FY23,
or the second half, refer to the six-month period ended 31
March 2023.
About this Report
ABOUT THIS REPORT
Highlights
Operating revenue
$1,399.9m
Up 28% YoY
Gross margin percentage
87.3%
Flat YoY
Annualised monthly recurring revenue
$1,553.8m
Up 26% YoY
Total available liquidity
$1.1b
Cash on hand, short-term deposits and
undrawn committed debt facilities
Subscribers
3.741m
Up 470,000 YoY
Free cash flow
$102.3m
Up $100.2m YoY
Operating income
$57.3m
Up 61% YoY
Net loss
$113.5m
Up $104.4m YoY
Total subscriber lifetime value
$13.4b
Up $2.5b YoY
Adjusted EBITDA
$301.7m
Up $93.0m YoY
Xero named number one global
tech company for gender equality
by Equileap
Overall emissions intensity per FTE
down 42% from FY20 base year
Xero set science based
emissions reduction targets
for Scope 1, 2 and 3
Xero’s total global community
contribution was more than
$3.5 million
Xero Annual Report 2023
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Xero Annual Report 2023
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About Xero
Xeros are authentic, inclusive and really care
• Kind and assume best intent
• Inclusive, approachable and show empathy
• Are willing to be vulnerable, share fears, failures
and learnings
Xeros dream big, lead and embrace change
• Are curious and think big
• Welcome challenging conversations and do
it with respect
• Lead and embrace change, seeking new and
better ways
Xeros are great team players
• Champion Xero’s purpose and priorities
• Work together to do what’s best for Xero and
our customers
• 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
#Human
#Challenge
#Beautiful
Xero was founded in 2006, leading the charge to bring cloud
accounting tools to small businesses globally. The launch of
Xero meant accountants and bookkeepers could collaborate
with their small business clients in real time through our
open platform to monitor their financials, simplify core
compliance and run their business.
Since our launch, Xero has grown into a global small
business platform that services accountants and
bookkeepers and small business customers directly. In
addition to our core accounting solution, our platform
extends to payroll, workforce management, expenses,
projects, payments and other solutions depending on the
region. Xero has an extensive ecosystem of connected apps
and connections to banks and other financial institutions
helping small businesses access a range of solutions from
within our platform.
In FY23, Xero generated total operating revenue of
$1.4 billion and ended the financial year with 3.74 million
global subscribers in Australia, New Zealand, North America,
the United Kingdom and more than 180 additional countries
across our online platform.
Our vision remains to be the most insightful and trusted
small business platform. This is about offering a fully
integrated platform that gives customers powerful insights
about their business, drives more meaningful discussions
with their advisors, and helps them to make more informed
business decisions. Our vision is supported by our three
strategic priorities, outlined on pages 16-17.
Our people
Our global team is driven by our purpose to make life
better for people in small business, their advisors and
communities around the world. Our objective is to enable
our people to do the best work of their lives by aligning and
embedding our purpose, values and culture within all our
business activities.
Our values and accompanying ‘Xero Way’ behaviours (shown
right) reflect not only how our people work with each other,
but how we interact with people and organisations outside
of Xero.
Our values
#Team
#Ownership
“Xeros” is a term used to refer to
Xero employees internally
ABOUT XERO
Xero Annual Report 2023
4
Our customers
Our focus is on the significant opportunity to drive digital
adoption in the small business sector as we continue to grow
Xero for the long term.
Xero’s objective is to enable our customers to make informed
decisions through real-time access to information, along
with powerful insights that digital tools enable. This helps
our customers to save time, reduce complexity, manage
compliance, and better manage their cash flow.
We continuously engage with our customers and partners
to help drive further awareness and adoption of digital
technologies, such as cloud accounting, across the small
business community. Our Xerocon events provide an
opportunity for our partner community to connect with their
peers and learn more about Xero’s latest tools, features and
updates to help them better serve their clients and run their
practices. We also run roadshow events across our regions,
aimed at connecting with the local community and providing
education about our platform and the benefits it offers.
For customers, we also provide support within the Xero
platform to help them get the most out of the product, and
we offer a 24/7 customer support portal called Xero Central.
Xero Central has a range of content including how-to
articles, videos, community discussions and the option to
raise a case with our customer experience team if they need
further support.
We continuously collect feedback from customers to
help inform the design and development of additional or
enhanced functionality to ensure we meet our customers’
evolving needs.
Our relationships with partners
The close relationships we have with our partners, from
accountants and bookkeepers to third party apps, banks
and financial service providers, are an important part of
how Xero operates.
Our network of accounting and bookkeeping partners
continues to be a key factor to our success across our
markets as we work together to introduce Xero to more
small businesses.
Our ecosystem of connected apps has evolved with the
introduction of the Xero App Store. The Xero App Store
offers small businesses an easier way to discover and buy
apps on the Xero platform, while giving app developers a
better way to grow their business, with access to greater
insights, tools and billing payment capabilities.
We continuously engage
with our customers
and partners to help
drive further awareness
and adoption of digital
technologies, such as cloud
accounting, across the
small business community
ABOUT XERO
Xero Annual Report 2023
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Our products
Xero’s small business platform includes a range of integrated
products, such as:
Accounting and compliance software
Core accounting and compliance software for
small businesses and their advisors, providing a
trusted, digital system of record, making accounting, tax
and other compliance simpler, smarter and more seamless,
and allowing small business owners to have greater control
and visibility.
Software for small business operations
Software for small businesses that helps them
simplify day-to-day operations to better run
their business in areas beyond core accounting
and compliance needs, such as managing
inventory, payroll and employees.
Software for accountants and
bookkeepers
Software that helps advisors manage their
workflows, serve existing small business
clients and support their compliance needs
while enabling them to identify and attract
new clients.
Access to financial services for
small businesses
Software for small businesses to manage cash
flow, take and make payments, and scale their
business with increased confidence.
Integrations that provide access to
third party software
Third party integrations with ecosystem app
partners to create an open platform for small
businesses and their advisors.
Our sustainability
We are committed to building a sustainable business for
the millions of customers we serve, their advisors, our
communities, our shareholders and our employees. We are
focused on reducing our impact on the environment, and
are proud to be certified carbon neutral by the Australian
Government’s Climate Active program annually since FY20
for our owned and operated businesses globally1.
In FY23, we set the following emissions reduction targets
in line with climate science, aligned to the goals of the
Paris Agreement:
• 42% reduction in Scope 1 and 2 emissions from a FY20
base by FY30
• 17% reduction in Scope 3 emissions from a FY20 base
by FY30
• Net-zero no later than FY50 (with fewer than 10% of total
emissions that require abatement through offsets)
Our targets were designed with Xero’s growth ambitions in
mind and were established through extensive modelling
to provide clear direction to reduce our greenhouse gas
emissions across Scopes 1, 2 and 3.
We recognise we have a responsibility to help small
businesses become more sustainable. Through our work
with Cogo and Ecologi, and by providing access to education
and other tools, we are taking steps to help small
businesses play their role in supporting the transition to
a net-zero economy.
Inclusion is critical to succeeding as a sustainable business,
and we are proud that our commitment to gender diversity
and inclusion (D&I) was recognised in FY23 through Xero’s
inclusion in the 2023 Bloomberg Gender-Equality Index. This
is the fourth consecutive year Bloomberg has recognised
Xero’s commitments to gender D&I.
Reflecting our progress in a number of areas, in FY23, Xero
was included in the Dow Jones Sustainability Index (DJSI)
for the second time.
For more information on our approach to sustainability,
see the People and Culture and Social and Environmental
sections on page 25 and 51 of this report or visit our website
www.xero.com/sustainability
Ok
31
1 Xero applies for Climate Active carbon neutral certification annually in arrears in October. In FY23, our certification for FY22 was maintained.
We will report the outcome of our FY23 certification application in the FY24 Annual Report
ABOUT XERO
Xero Annual Report 2023
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Dear shareholder
Xero has delivered a strong operating result in FY23
within another year of challenging macroeconomic
conditions. We are seeing more small businesses
placing their trust in Xero’s digital platform to run
their business, manage their cashflow and meet
critical compliance needs.
In this higher interest rate environment and with our
increased focus on operating efficiency, we have taken action
to streamline our business. We have also revalued our recent
acquisitions, reflecting the current valuation backdrop and
the operating performance of these businesses. While this
has negatively impacted our FY23 EBITDA, we are confident
we are well positioned to balance growth and profitability in
the coming years.
Small businesses around the world continue to operate in
a complex environment. The Xero Small Business Insights
(XSBI) program (now available in five countries) uses
anonymised and aggregated data to track the performance
of small business and improve understanding of the sector.
XSBI shows that small businesses in many of our markets
started 2023 in a more challenging position than in 20221.
They continue to navigate inflationary and interest rate
pressures, and slowing economies, while adapting to the
ever-changing needs of their customers.
In this challenging environment, Xero’s cloud-based
subscription product enables small businesses to work
more effectively and efficiently. The value customers place
in their Xero subscription is demonstrated by our delivery
of strong top-line results and subscriber growth, alongside
consistently low churn.
We remain confident about the future growth opportunity for
our company.
Xero’s next chapter
Xero is one of only a few technology companies of its
size and global reach listed on the Australian Securities
Exchange. As our global footprint grows, the skill set and
experience required of our management team continues
to evolve. Our growth ambitions were at the centre of
the Board’s global recruitment process for a new CEO
following Steve Vamos’ decision to retire after almost five
years. The Board and all the Xero team thank Steve for his
significant contribution to Xero. After considering a number
of exceptional candidates, we were pleased to appoint
Sukhinder Singh Cassidy as Xero’s new CEO in November
2022. Sukhinder formally took over from Steve in February to
lead us through our next phase of growth.
Sukhinder is an experienced global technology executive
with more than 25 years’ leadership experience. She has held
various leadership positions, including as President, Asia
Pacific & Latin America at Google; President at StubHub;
founder of the Boardlist; founder of Joyus, where she was
CEO; and co-founder of Yodlee. Sukhinder also brings
extensive public and private board experience with multiple
companies. Sukhinder’s expertise in building products and
scaling go-to-market businesses across virtually every global
region is critical to leading Xero in our next chapter.
It is our intent to continue to grow our global executive
capabilities as Xero grows.
David Thodey, AO
Chair of the Board
Chair’s Review
1 January 2023 Xero Small Business Index for Australia, New Zealand and the UK
CHAIR’S REVIEW
Xero Annual Report 2023
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The long-term opportunity for cloud accounting remains
significant and under Sukhinder’s leadership, Xero is well
positioned to take advantage of this. However, the higher
interest rate environment and the revaluation effect of
companies in our sector has meant there has been greater
scrutiny on expenditure, growth and profitability. This, along
with inflationary pressures, has meant we have increased
our focus on our operating costs and the returns that we
generate from our investments.
In March 2023, we announced a program to streamline Xero’s
operations, realign the business to drive greater operating
efficiency, and better balance our growth and profitability.
This required an organisational restructure to strengthen our
ability to deliver value for all our stakeholders, and position
Xero for the future. We believe we are now better placed
to become a higher performing global SaaS company and
generate disciplined growth. We will continue to foster Xero’s
unique, purpose-driven culture, and we are committed to
providing the right level of support to our people whose roles
have been impacted by the changes we have made.
We also understand the deep connection between our
long-term financial performance, social and environmental
impact, and organisational culture. This year, we have
again prepared our Annual Report with reference to the
International Integrated Reporting Council (IIRC) Framework.
The report is structured around five key inputs into our
business, or capitals, as referred to by the framework.
Fostering and preserving trust
Our purpose, to make life better for people in small business,
their advisors, and communities around the world, remains
our driving force.
Trust is central to our vision, purpose and values. We build
this trust by striving to act with integrity and authenticity
and by upholding high standards of governance.
We recognise that we must be vigilant in protecting our
customers’ data and acknowledge this challenge requires
constant focus. Keeping customers’ data secure and
handling it responsibly is critical to building and operating
a trusted platform. We take a multi-layered and risk-based
approach to managing security through the use of cutting-
edge security technology, a robust security risk management
process, and working to keep security considerations front
of mind for all our people. We are resolute in our focus to
continuously improve our approach to security – given the
constantly changing nature of the external threat landscape
– and regularly introduce new capabilities and process
enhancements to further strengthen our security posture.
You can read more about Xero’s responsible data use
practices and our approach to cybersecurity risks and
protecting data on pages 46-47.
The quality of customer data in the Xero platform allows
us to provide trusted insights based on anonymised and
aggregated data. We use this data to deliver XSBI to share
an informed perspective on the small business economies in
the UK, Australia, New Zealand, and as of this year, Canada
and the US. XSBI is trusted by government agencies to
support their policy making decisions that impact small
business. Institutions that engage with XSBI include the
Office for National Statistics (UK) and the Reserve Bank of
Australia (RBA).
Trust is central to our
vision, purpose and
values. We build this trust
by striving to act with
integrity and authenticity
and by upholding high
standards of governance
CHAIR’S REVIEW
Xero Annual Report 2023
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Sustainability commitment
Minimising our environmental footprint and our impact on
the community, while operating in a reliable and transparent
way, is vital to maintaining trust and protecting and growing
Xero’s value. We have a role to play in taking meaningful
action on climate change and supporting the transition to a
net-zero economy as we continue to grow.
We have taken the next steps towards net-zero and have
set company-wide emissions reduction targets in line with
climate science, aligned to the goals of the Paris Agreement.
The targets were designed with Xero’s growth ambitions in
mind and were established through extensive modelling.
They provide clear pathways for us to reduce our greenhouse
gas emissions. From an FY20 baseline, we have set targets to
reduce our Scope 1 and 2 emissions by 42% and our Scope 3
emissions by 17% by 2030, and to be net-zero2 by 2050.
We are also helping small businesses to become more
sustainable through our education tools and partnerships.
Xero recognises that every business has a role to play in
supporting the transition to a net-zero economy and we are
in a unique position to help small businesses take steps in
their sustainability journey.
In FY23, Xero became a member of the United Nations
Global Compact Network Australia and we are committed
to supporting the United Nations Sustainable Development
Goals.
In recognition of the progress we have made in social,
environmental and governance initiatives, Xero was included
for the second time in the Dow Jones Sustainability
Index (DJSI).
More information about our environmental and social
practices is on pages 51-57, and in our separate Taskforce on
Climate-related Financial Disclosures (TCFD) Statement.
Supporting diversity, equity and inclusion
The Board is committed to ensuring Xero’s people reflect
the communities we live and operate in, and to fostering an
environment where our people are encouraged to bring their
whole selves to work.
While our overall representation of women remains
unchanged from FY22, we have made good progress towards
our gender diversity target for senior leaders with 38.7% (up
from 33.9% in FY22) and people leaders with 45.0% (up from
43.7% in FY22). In line with our commitment to equal pay
for equal work, we continued to monitor our gender pay gap.
Our median gender pay gap is 9.5%, which has decreased 1.5
percentage points since FY22 and is in our target range.
In 2023, we were ranked by Equileap, a provider of data and
insights on gender equality, as the number one information
technology company for gender equality globally, and the
number one New Zealand headquartered company.
We aim to ensure the retention rate of our people who are
from identified underrepresented racial and ethnic groups
is proportionate to our broader retention rate at all levels
of Xero. We established this as a measurable objective in
FY23. Our analysis shows that retention of employees from
identified underrepresented racial and ethnic groups is
proportionate to our broader retention rates.
Our commitment to diversity, equity and inclusion is an
essential component of Xero’s unique culture and how we
serve our customers and partners. You can read more about
diversity, inclusion and belonging at Xero in the People and
Culture section of this report, on page 25.
2 Fewer than 10% of total emissions that require abatement
through offsets
CHAIR’S REVIEW
Xero Annual Report 2023
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Future opportunities
Small business cloud adoption is still low in many
countries around the world. Demand for online cloud-
based accounting tools remains strong and the opportunity
to introduce the benefits of cloud accounting to new
customers is significant. We are also focused on helping
existing customers to further improve how they manage
their business using Xero’s tools and the wide business
applications offered through our partner ecosystem.
As we prepare for Xero’s next chapter of disciplined,
customer-focused growth, the Board continues to work
closely with Sukhinder and the leadership team to help deliver
our vision and our purpose, and drive disciplined growth.
On behalf of the Board, I would like to extend our
appreciation to Steve Vamos for his significant contribution
and impact on Xero’s growth and development as a global
business. His authentic leadership style propelled Xero’s
approach to people leadership, diversity and inclusion, and
the introduction of Xero’s sustainability and climate targets.
I would also like to thank our great Xero team for their
dedication and commitment to our customers and for their
development of our innovative products and services.
As Chair of Xero, I am delighted to work with a global team
of experienced and engaged directors. Our governance
approach reflects the risk appetite set by the Board and
aligns directly with Xero’s purpose, values and strategic
objectives. I would like to thank our directors for their
dedication in FY23 and in the future.
The Board and I are encouraged by the opportunity ahead
and also to work with someone of Sukhinder’s calibre and
global experience to lead Xero into its next important
chapter of growth.
The Board sincerely appreciates the ongoing trust and
support of our Xero team, customers, partners, and the
support from you, our shareholders.
Thank you to everyone who supports Xero.
David Thodey
Chair of the Board
Xero customer Visual Contrast (US)
CHAIR’S REVIEW
Xero Annual Report 2023
10
Dear shareholder
I started my journey as Xero’s CEO in February this
year, and I’m deeply excited about our opportunity to
help power the global small business economy. Xero is
a special company and an important business tool for
small business and their advisors. It’s truly a privilege
to be leading a team so dedicated to delivering our
purpose for customers, partners, shareholders and our
communities around the world.
I’m also pleased to share our strong FY23 operating results.
We grew FY23 operating revenue by 28% to $1.4 billion,
which contributed to a 45% increase in adjusted EBITDA
compared to FY22 to $301.7 million. This drove a significant
increase in free cash flow to $102.3 million, reflecting a free
cash flow margin of 7.3% compared to 0.2% in FY22.
We also incurred non-cash impairments and associated
costs, and restructuring charges in FY23. This led to EBITDA
decreasing 26% compared to FY22 to $158.4 million. This
includes a $77.9 million impairment to Planday (mainly
reflecting a reduction in market valuation multiples along
with operational performance), $48.5 million of impairments
and other costs related to Waddle, $34.7 million in
restructuring costs, and non-cash accounting revaluation
gains of $17.9 million.
Our FY23 operating expense to operating revenue ratio
was 80.7% (excluding restructuring costs of $34.7 million),
consistent with guidance. This resulted in improved
operating income, a measure that reflects underlying
business performance, which grew 61% to $57.3 million.
Excluding restructuring charges, operating income was
$92.0 million with an operating income margin of 6.6%.
Our total global subscribers increased 14% to 3.74 million,
underpinned by double-digit subscriber growth in all our
markets; and we delivered consistently low churn, improved
average revenue per user (ARPU), and increased total
subscriber lifetime value (LTV).
These operating results demonstrate Xero’s resilience
in a complex macroeconomic environment, our valuable
customer proposition, increasing efficiency, and our move
towards even more disciplined, customer-focused growth.
Consistent with these ambitions, in March 2023, we
announced a program to streamline and simplify our
organisation. This included reshaping our organisational
structure by reducing 700-800 roles across our business,
and also exiting one of our smaller, early-stage businesses,
Waddle. These changes will adjust our operating cost base
for FY24 as we seek to take a more balanced approach to
growth and profitability going forward, while being more
dynamic and measured in the way we allocate capital to
drive value creation over the short, medium and longer term.
Sukhinder Singh Cassidy
CEO
CEO’s Review
CEO’S REVIEW
Xero Annual Report 2023
11
Moreover, with an estimated global Total Addressable
Market (TAM) of more than 45 million small businesses1,
Xero’s potential remains enormous. We are committed to
building on the strong momentum that you can see in our
FY23 result, and pursuing our aspiration to build a higher
performing global SaaS company.
Drive cloud accounting
Australia and New Zealand continue to lead the world in
small business cloud accounting adoption – as highlighted
by our FY23 result. Xero’s continued growth in Australia and
New Zealand demonstrates the value we can drive in highly
penetrated markets.
In our international markets, we continue to localise Xero to
meet customer needs and further strengthen our accountant
and bookkeeper relationships to take advantage of the large
and unpenetrated opportunity. We delivered strong revenue
and subscriber growth, and are turning our attention to
increasing adoption of our broader product set, as more
small businesses adopt digital technology.
In August 2022, we announced a strategic partnership with
Avalara, an automated tax compliance software specialist, to
build an integration that automates the sales tax compliance
journey for US-based customers. We launched a closed
beta trial in early 2023 and are encouraged by the positive
customer response so far.
In March, we announced a partnership with Allinial Global,
the second-largest accounting association in the world.
This global agreement makes Xero the preferred cloud
accounting solution for Allinial Global’s member firms
and brings Xero to more small businesses worldwide. This
follows a multi-year global partnership signed with the PKF
Global accountancy and advisory network, to empower PKF
advisors with data and insights to help their clients make
more informed decisions.
We view our strong relationships with the accounting and
bookkeeper communities as a key differentiator. These
relationships are an important element of our approach to
drive cloud accounting adoption with their small business
clients, which also creates a virtuous effect in our direct
small business channel.
Another important part of our strategy is bringing customer
communities together to connect and collaborate, through
events like Xerocons and Xero roadshows. After COVID-19
interrupted Xerocons in recent years, we brought our partner
community together in 2022 at Xerocons in London, New
Orleans, and Sydney. This year, we announced Xerocon
will be a global event that will next be hosted in Sydney in
August 2023.
Xero is a FIFA Women’s Football Partner. This partnership
promotes brand awareness in new and existing markets,
while championing women in small business and football.
During the year, we announced a commercial partnership
with The English Football Association (The FA), making Xero
the Official Partner of both the England women’s senior team
and England Football. As part of The FA partnership, we’re
helping to build the financial resilience of clubs by providing
access to educational tools, resources and expert advice.
Our total global subscribers
increased 14% to 3.74
million, underpinned by
double-digit subscriber
growth in all our markets
1 Estimated TAM across English-speaking addressable cloud
accounting markets, based on publicly available data
CEO’S REVIEW
Xero Annual Report 2023
12
Grow the small business platform
Over recent years, Xero’s small business platform has evolved
to include payroll, payments, workforce management, and
more. We also have an extensive ecosystem of more than
1,000 connected apps and more than 300 direct connections
to banks and other financial institutions, including to API
providers that then provide access to additional banks and
financial institutions. This ecosystem extends our customer
engagement further by providing customers with access to
a range of solutions from within Xero to help them run their
business, efficiently and effectively.
Xero empowers customers to take control of their cash
flow by embedding financial tasks into workflows, such
as creating invoices, getting paid and making payments.
In FY23, we continued to grow our support for customers
with their payment needs. This included deepening
our relationship with Stripe, a financial infrastructure
platform for businesses, and expanding our partnership
with GoCardless, a global leader in direct bank payment
solutions, to provide the Instant Bank Pay feature to our
customers.
In FY23, Xero introduced updates to Xero Payroll in Australia
to help customers manage compliance by ensuring all three
stages of Single Touch Payroll (STP) Phase 2 transition
are available.
We also launched Payroll history in Australia to provide
an easy-to-access audit trail of changes made within Xero
by a small business owner, advisor or app partner to help
understand, track, manage and troubleshoot changes to
employee details.
In April 2023, Planday launched in Australia, supporting its
first two awards – Retail and Clerks. Planday is part of our
suite of employee management tools – Xero Payroll, Xero Me
and Xero Expenses – that help employers and employees
to connect in real time. We’re working to make Planday
available for Australian customers under the Hospitality
Award and plan to expand to more awards over time.
Xero customer Visual Contrast (US)
We take pride in being a
purpose-led employer, with
a diverse, world-class team
CEO’S REVIEW
Xero Annual Report 2023
13
Build for global scale and innovation
People and culture
We take pride in being a purpose-led employer, with a
diverse, world-class team. We are known for our culture and
values, which was an important factor for me in joining Xero.
We’re committed to staying true to our values, developing
and preserving our culture, and nurturing our people.
I’m proud that Xero’s commitment to diversity, inclusion and
belonging has driven our inclusion in the Bloomberg Gender-
Equality Index for the fourth consecutive year, and also
saw us ranked by Equileap as the number one information
technology company for gender equality globally, and the
number one New Zealand headquartered company.
As we strive to become a higher performing global SaaS
company, we’ve made two new appointments to our
executive team. Angad Soin was promoted to Chief Business
Operations and Strategy Officer in February 2023. Angad
is responsible for leading the cross-business processes
that shape the development and execution of Xero’s global
strategy, and drive operational excellence.
In April 2023, Diya Jolly joined Xero as our Chief Product
Officer bringing more than 20 years of market-leading global
experience in designing, developing and launching consumer
and business products in high-growth tech companies,
including Google, YouTube, and Okta. In this critical role,
Diya will lead the next generation of Xero’s product vision to
design and deliver high-value products for our partners and
small businesses.
Technology
In addition to the Avalara partnership and Planday Australia
launch, in FY23 we delivered a number of product updates
and new features for customers. Examples include: practice
tools updates to provide a single source of truth for client
data across Xero Practice Manager, Xero HQ and Xero Tax;
launching Xero Go in the UK to meet the less complex needs
of self-employed businesses and their advisors; and
South African Rand (ZAR) billing to help customers and
partners to consistently plan for subscription costs in their
local currency.
We continue to remain focused on delivering value
to customers and taking advantage of the significant
opportunity ahead for Xero. At the same time, we remain
committed to our multi-year platform modernisation
strategy, in order to unlock further improvements in
efficiency, scalability, productivity and speed to market.
Outlook
Along with reinvestment in strategic priorities, management
is targeting an operating expense to operating revenue ratio
in FY24 of around 75%. This will improve operating income
margin compared to FY232.
Xero’s long-term aspiration is to continue to improve its
operating expense ratio and its operating income margin,
although a specific timeline has not been set. These ratios,
and their component parts, may vary from period to period
as we identify opportunities for disciplined, customer-
focused growth.
Our next chapter
We’re pleased with Xero’s FY23 performance and we
continue to execute well. We enter FY24 with strong
momentum, but there is much more to do.
We remain clear about our vision, to be the most trusted and
insightful small business platform – and we’re positive about
the multiple levers Xero has to deliver growth, including
driving further adoption of cloud accounting and deepening
our customer engagement and experience.
I’m excited about and committed to helping drive Xero’s
next chapter of growth. We are entering a new phase as a
company, focused on being smarter, faster and stronger for
our customers and communities. We also strive to be more
disciplined and balanced in our growth as we move forward.
I would like to acknowledge and thank Steve Vamos for
his valuable contribution as CEO for the past five years,
providing me a smooth transition into the role, and also to
Xero’s Board and leadership team for their confidence in me.
On behalf of Xero’s leadership team, I’d also like to thank all
our shareholders, people, customers and partners for your
ongoing loyalty and support of our vision.
Best,
Sukhinder Singh Cassidy
Chief Executive Officer
2 This applies both including and excluding restructuring charges
CEO’S REVIEW
Xero Annual Report 2023
14
How Xero Creates Value
What we do
Supported by Governance (see page 62) and Risk Management (see page 19)
Inputs
Our purpose
To make life better for people in small business,
their advisors and communities around the world
Our vision
To be the most insightful and trusted small
business platform
People and Culture
Diverse world-class leadership and talent
supported by an equitable and inclusive culture
and working environment to do the best work of
their lives
Customers, Partners and Ecosystem
Trusted connections with the community of
small business customers, partners including
small business advisors, ecosystem developers,
and other stakeholders including governments
and regulators
Platform, Technology and Data
Xero’s systems, processes and other knowledge and
intellectual property drive innovation at speed to
create beautiful products and generate insights
Social and Environmental
Responsible practices across everything we
do as a business, including social and
environmental impact
Financial
Allocation of capital including revenue and cash
flows to optimise financial performance, and
access to capital to support the execution of
Xero’s strategy and long-term value creation
31
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HOW XERO CREATES VALUE
Xero Annual Report 2023
15
Products
Outcomes
Our products are described on page 5
Our values
#Human
#Challenge
#Beautiful
#Team
#Ownership
Xeros are authentic,
inclusive and really care
Xeros dream big, lead
and embrace change
Xeros are great
team players
Xeros deliver on our
commitments
Xeros create
experiences that
people love
Integrations that provide access
to third party software
Software for accountants
and bookkeepers
Software for small business
Accounting compliance
31
People and Culture
• Attraction, development and retention of top talent
is enhanced
• Diversity, equity and an inclusive environment
are promoted
• Improved health, safety and wellbeing performance
Value drivers are described on page 25
Customers, Partners and Ecosystem
• Customers and partners are more successful and
confident on Xero
• Greater stakeholder trust and customer advocacy
through a product experience that exceeds
expectations
• Improved brand awareness, perception and value,
including trust in platform reliability and the
security of data
Value drivers are described on page 35
Platform, Technology and Data
• Xero is the small business platform of choice
• New and improved services (quality, harnessing
machine learning capabilities, and business support)
• Increased speed to market
• Reliable, secure and responsibly utilised data,
including privacy and cybersecurity
Value drivers are described on page 43
Social and Environmental
• Wellbeing within the small business community
• Improved environmental outcomes
• Responsible procurement practices both within Xero
and the wider community are built and promoted
• Improved levels of financial literacy and inclusion
Value drivers are described on page 51
Financial
• Our strategy and vision are supported, and
long-term value for shareholders is created
• Strong balance sheet
• Revenue growth and returns in the form of strong
cash flows
Value drivers are described on page 59
Access to financial services
for small business
“Xeros” is a term used to refer to Xero employees internally
HOW XERO CREATES VALUE
Xero Annual Report 2023
16
Strategy
Drive cloud accounting adoption
Cloud accounting adoption in small businesses remains
low in many countries around the world. We are focused
on driving adoption of Xero by bringing tangible benefits
to small businesses and their advisors by saving time,
reducing errors and delivering actionable insights about
their business. The market opportunity from driving
cloud adoption exceeds 45 million small businesses
across the markets Xero operates in1.
The cloud accounting industry continues to benefit from
a number of trends, including government digitisation,
innovation within financial services, and continued innovation
in small business cloud solutions that drives technology
adoption. These initiatives and trends are present in many
markets and are fuelling demand for digitally enabled and
cloud-based accounting and compliance solutions.
How we drive adoption:
• Introducing small businesses, accountants and
bookkeepers to the benefits of cloud accounting through
the use of marketing, educational materials, training, and
Xero subscription trials
• Connecting with our accounting and bookkeeping
partners is an important part of our approach particularly
through events such as roadshows and Xerocon events,
which we host for cloud accounting leaders
• In line with our vision, we aspire to be the world’s most
insightful and trusted platform, allowing accountants,
bookkeepers and small businesses to collaborate in real
time via a single ledger to manage their business, monitor
their financials and simplify core compliance. This makes
routine parts of running a business easier, faster and
more efficient
• We continue to help our customers harness the power
of data by investing in growing the artificial intelligence
capabilities across our product. This streamlines core
accounting tasks such as bank reconciliations and
reduces data entry, while also helping customers make
better decisions using AI-powered insights
Continuously improving our core product and customer
experience making our product easier to use and serving
more customer needs:
• Better serving customers with less complex accounting
needs. Our launch of Xero Go in the UK allows Xero to be
more relevant to these types of customers in the UK. We
will learn from our experiences there to consider other
markets in the future
• Improving product-market fit in North America including
more direct bank feed integrations, integrations to
automate sales tax compliance in the US (Avalara
partnership) and improved tax solution in Canada
(expanded TaxCycle integration)
• Developing practice and compliance tools to help our
accounting and bookkeeping partners better serve their
existing clients, find and onboard new clients and run
their operations. A key area of investment has been
working towards a single source of truth for client data
across our practice tools which will save time, reduce
errors and improve user experience
• Helping small businesses to stay compliant. We have
made it easier for small businesses to stay on top of
relevant government regulatory changes including Single
Touch Payroll (STP) Phase 2 in Australia, GST rates in
Singapore, and Making Tax Digital (MTD) compliance in
the UK
For further information on product releases, see our Platform,
Technology and Data section on page 43
Xero is a long-term oriented business with ambitious growth plans to scale globally with
discipline. Our strategy is centred on delivering our vision to be the most trusted and
insightful small business platform. It comprises three strategic priorities which guide our
decision-making as we navigate the opportunities and risks that exist for our business.
Xero’s strategic priorities seek to create sustainable value for our customers, employees and shareholders across the five inputs.
These three strategic priorities are:
Drive cloud accounting adoption
Grow the small business platform
Build for global scale and innovation
1 Estimated TAM across English speaking addressable cloud accounting markets, based on publicly available data
STRATEGY
Xero Annual Report 2023
17
Grow the small business platform
Our vision is to be the most insightful and trusted
small business platform. Our approach is to provide a
platform with a healthy ecosystem of apps, integrations,
partnerships, and financial services solutions on
which small businesses can find solutions to run their
business, whether built by Xero or by our ecosystem
partners. We believe this open approach of working
together with ecosystem partners will deliver a better
and faster outcome for small businesses.
Cloud accounting is just one of the many digital tools from
which small businesses can benefit. There are many other
operational and financial needs such as payroll, payments
and invoicing, and workforce management. Xero is well
positioned to provide a single integrated platform that
allows best-in-class products and services to be integrated
into Xero’s single, real-time ledger. Providing an integrated
platform helps make life easier for small businesses
and enhances accountants’ and bookkeepers’ ability to
advise and provide more insights to their clients while
simultaneously protecting and extending the value of our
core offering.
Our platform is open to the community of ecosystem
partners who serve small businesses, not just to Xero-owned
solutions. This strategic choice better serves the unique
needs of small businesses by offering flexibility to choose
the solutions that best serve their needs.
Enhancing our open platform
Xero’s ecosystem includes more than 1,000 connected apps
and more than 300 direct connections to banks and other
financial institutions, including to API providers that then
provide access to additional banks and financial institutions.
Our customers are increasingly connecting through the Xero
App Store, where small businesses and partners can easily
find, choose and purchase the right third-party connected
apps for their needs. For Xero subscribers in Australia, the
UK and New Zealand, the Xero App Store makes it possible
to start a trial and securely purchase apps in just a few
clicks, all using their Xero login, which can be managed in
one place.
Building Xero’s financial and operational
solutions
We continue to invest in financial and operational solutions
including payments and invoicing workflow, payroll solutions
and Planday. For example, over the past year we have
strengthened the financial solutions we offer to help small
businesses take control of their cash flow by embedding
financial tasks in existing and new accounting workflows.
A key focus is improving the customer experience of our
payments and invoicing workflow and customer awareness
of our financial solutions, making it easier to get paid and
make payments within Xero.
Similarly, we have continued to improve Xero Payroll
in Australia with updates to help customers manage
compliance for Single Touch Payroll (STP) Phase 2 and the
launch of Payroll history. We have also further developed
scheduling and compliance tools by extending Planday’s
offerings to small businesses. A Planday beta was made
available in Australia in 2022 and officially launched in
April 2023 for Australian small businesses who pay their
staff under the Retail and/or Clerks awards. We continue to
work on making Planday available for customers under the
Hospitality Award. An award is an industrial instrument used
in Australia that outlines the minimum employment terms,
pay rates and conditions for workers in particular industries
and occupations under the Fair Work Act in Australia2.
Build for global scale and innovation
We are investing in improving our business systems,
technologies, people capabilities and operating
structure. This provides the opportunity to deliver more
innovation, and, in turn, deliver our vision faster and to
more places around the world.
We have continued to focus on the following areas:
• Modernisation of our technology platform: We remain
focused on delivering ongoing value for customers
through our product and technology efforts each
year, while continuing to invest in a multi-year
platform modernisation strategy to unlock long term
efficiency, scalability, productivity and speed to market
improvements. For further information, see our Platform,
Technology and Data section on page 43
• Optimising our operating and financial structure to deliver
a better balance of disciplined growth and profitability.
Most significant this year has been the reshaping of
our organisation structure and the way we work across
functions - to operate with greater clarity, speed and
effectiveness. For further information, see our People and
Culture section on page 25
2 Awards include entitlements such as penalty rates, overtime and casual rates; annual and other types of leave; hours of work, rosters and breaks;
and allowances
STRATEGY
Xero Annual Report 2023
18
Governance
• Corporate governance, compliance and risk
management
• Board and management composition, capabilities
and remuneration
These are discussed on pages 19 and 62 of this report.
Material Matters
In FY23, we completed Xero’s second stakeholder
engagement and materiality assessment in accordance
with the International Integrated Reporting Council
(IIRC) Framework. This was to ensure we are continuing
to identify and respond to the sustainability issues,
risks and opportunities that are most material to our
stakeholders to create long-term value.
The assessment considered a range of inputs, including peer
and competitor benchmarking, a review of the Sustainability
Accounting Standards Board (SASB) software and IT services
sector standard, and Xero’s internal policy documents. We
reviewed a range of thought leadership documents from
leading institutions such as the World Bank, World Economic
Forum and Organisation for Economic Development (OECD)
to ensure global macroeconomic and geopolitical trends
were reflected in the analysis. We also engaged directly with
internal and external stakeholders through surveys with
more than 1,000 responses from employees, investors, board
members, partners, and customers. The initial findings were
reviewed by our Environmental, Social and Governance
(ESG) Steering Committee, and validated by the Xero
leadership team and board of directors.
Through this process we identified the ESG “matters
material to value creation” for Xero. How we manage each
of these to enhance Xero’s value, is described under each of
the Inputs in this report on pages 25-68.
The material matters for FY23 identified by the stakeholder
engagement and materiality assessment are set out to the
right. The assessment identified one new material matter for
FY23: remuneration, incentives and pay transparency. Waste
management and responsible use of resources was identified
as being more material in FY23. Supporting and enabling
Xero’s ecosystem to do good, which was included in our FY22
Annual Report, was no longer considered material in FY23.
The material matters identified are grouped under four
of Xero’s Inputs that are described in further detail in the
How Xero Creates Value section of the report on pages
14-15. A fifth grouping of matters has been formed under
the category of ‘Governance’ which also forms a critical
component of our value creation process.
People and Culture
• Diversity and inclusion
• Employee health, safety and wellbeing
• Employee attraction, training, development
and retention
• Remuneration, incentives and pay transparency
Customers, Partners and Ecosystem
• Stability, reliability and accessibility of information
• Customer support, loyalty and engagement
Platform, Technology and Data
• Stability, reliability and accessibility of information
• Cyber security and data protection
• Customer privacy
• Technological innovation, artificial intelligence
and digitisation
Social and Environmental
• Climate action and energy management
• Responsible supply chain and modern slavery
• Waste management and responsible use of resources
• Community support, engagement and partnerships
MATERIAL MATTERS
Xero Annual Report 2023
19
Key Risks
Xero is a 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.
The Xero risk management framework is designed to identify material financial and non-financial risks that may impact our ability
to achieve our strategic priorities.
The Board sets the risk appetite and provides oversight of management’s execution of Xero’s risk management framework.
Responsibility for managing risks within the Board-defined risk appetite is shared between the Xero Leadership Team,
management and all our people.
We recognise that all our people 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.
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
Third line’s role
Independent and objective
assurance and advice on the
effectiveness of risk and
control management
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
Assurance
Independent assurance
over risks
Xero’s Risk Management Accountability – Three Lines Model
Accountability,
reporting
Delegation, direction,
resources, oversight
Alignment, communication,
coordination, collaboration
External Assurance Providers
Xero Leadership Team
& Management
Establishing risk management framework and
managing risks within Board-defined risk appetite
Key
KEY RISKS
Xero Annual Report 2023
20
Key areas of
potential risk
Mitigation strategies and activities
Related
inputs
Access to talent/
workforce planning
Ability to attract, develop
and retain talent to deliver
on strategy
• Attraction and retention strategies with broad employee value
proposition, including flexible work policies and career development
opportunities
• Continuously exploring new resourcing options to ensure we have the
opportunity to access an expanded potential top talent pool
• Recruitment teams across all regions
• Succession-planning processes for key roles
Product delivery
execution
Ability to deliver new products
and innovations that meet our
customers’ needs
• Investment in engineering and product development capability
• Prioritisation of initiatives to focus available resources and talent on
delivery of highest priority projects
• Investment in targeted customer and market research programs, which
are used to inform future product development needs and priorities
across Xero
Short-term
performance (growth
and cash) does not
meet expectations
The risk that our short-term
performance falls short of our
internal targets and external
market expectations resulting
in increased cost of capital,
negative shareholder/market
sentiment impacting future
access to capital
• Monitoring of forecasts versus actual performance and market
expectations
• Opportunity to continuously improve market communication strategy
to build understanding of Xero’s strategy and focus on long term
performance
• Allocation of capital in a way that balances short-term performance and
investment in long-term strategic objectives, including a company-wide
program underway to streamline operations, realign the business to drive
greater operating leverage, and better balance of growth and profitability
Platform stability
Failure or disruption of
our platform, resulting in
poor customer experience
and potential disruption
to customers’ businesses,
leading to customer churn
and/or reputational damage
• Strategic focus on, and investment in, best practice technologies,
processes and engineering capabilities to improve robustness of the
platform and strengthen stability
• Opportunity to continuously enhance customer support offering and
communication to strengthen trust
• Regular monitoring of, and reporting on, platform and database
performance
• Disaster recovery, business continuity, and crisis management plans in
place and regularly tested
The table below highlights key strategic, operational and emerging areas of potential risk facing Xero, the high-level mitigation
activities we have in place, and the linkage to related inputs.
Financial
Platform,
Technology
and Data
Customers,
Partners and
Ecosystem
People and
Culture
Social and
Environmental
KEY RISKS
Xero Annual Report 2023
21
Key areas of
potential risk
Mitigation strategies and activities
Related
inputs
Data and cybersecurity
breaches
Security controls and
processes are insufficient,
leading to a breach and
resulting in loss of data
or system functionality,
and potential disruption
to customers’ businesses,
leading to customer churn
and/or reputational damage
• Governance and oversight mechanisms and Audit and Risk Management
Committee risk updates
• Data security and awareness programs for all Xero employees and partner
and customer education, providing an opportunity to empower users of
the Xero platform with knowledge of how their actions can help keep their
data safe and accounts secure
• Investment in best practice tools and processes 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
• Plans in place to respond to a significant cybersecurity incident
• Periodic cybersecurity simulations conducted with management and/or
the Board
Competitive intensity
and disruption
New technologies and/or
competitors that impact
Xero’s ability to deliver on
our strategic priorities and
financial performance
• Systems in place for monitoring and responding to competitor and market
activity, used to help inform business decision-making
• Development of strategic partnerships and pipeline of potential
acquisitions
• Continual investment in product innovation and development to provide
beautiful products that meet customer needs
Strategic execution
Ability to execute our
strategic initiatives resulting
in customer, operational,
financial and reputational
impacts
• Program and project governance of strategic initiatives with regular
review, oversight and reporting
• Continued focus on improving execution through alignment of strategic
initiatives with annual operational plans, objectives and key results
• Executive sponsorship and accountability for each strategic initiative
• Board oversight from regular briefings on progress, challenges
and outcomes
Financial
Platform,
Technology
and Data
Customers,
Partners and
Ecosystem
People and
Culture
Social and
Environmental
KEY RISKS
Xero Annual Report 2023
22
Key areas of
potential risk
Mitigation strategies and activities
Related
inputs
M&A and related
business integration
Ability 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
• Integration Framework including pre-acquisition due diligence processes
• Dedicated M&A Integration Management Office established enhancing
ability to identify issues/opportunities
Social and
environmental
(including climate)
Ability to create a diverse and
sustainable business
• Regular review and oversight of ESG initiatives and risks by leadership
team and Audit and Risk Management Committee
• Road map developed to align with the Task Force on Climate-related
Financial Disclosures (TCFD) guidelines for climate reporting
• Net Zero @ Xero carbon neutrality commitment and emissions reduction
targets aligned to Paris Agreement
• Diversity and inclusion policy in place, supported by region-specific
programs and Employee Resource Groups (ERGs) to drive inclusion
and belonging
• Education and support to small business customers on building
sustainable businesses
Wellbeing, health and
safety
Ability to protect employees’
wellbeing, health and safety
• 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, including lead and lag indicator analysis
• Helping employees through the COVID-19 pandemic by providing a safe
and effective working environment including hybrid and remote working
• Ongoing monitoring of COVID-19 trends and impacts and the risk of other
potential pandemics
Legal, regulatory and
compliance
Ability to manage legal,
regulatory and compliance
risks that may impact Xero’s
products, brand and/or
financial returns
• 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 senior governance forums
• Policies, procedures, training and education provided covering
key regulatory and compliance areas, supported by internal and
external audits
• Proactive and regular dialogue with regulators and industry bodies
Financial
Platform,
Technology
and Data
Customers,
Partners and
Ecosystem
People and
Culture
Social and
Environmental
KEY RISKS
Xero Annual Report 2023
23
Key areas of
potential risk
Mitigation strategies and activities
Related
inputs
Capital access and
management
Ability to allocate resources
appropriately and
productively and constraints
on access to capital
• Maintaining strong relationships with banking partners and investors
• Board oversight and regular review of capital management strategy and
investment allocation
• Governance oversight of capital management and liquidity management
by the Board, Audit and Risk Management Committee, and Treasury
Governance Committee
Adverse global
economic conditions
Impacts and opportunities
of adverse global economic
conditions
• Regular financial oversight and monitoring across our markets
• Detailed financial analysis and scenario modelling to enable responsive
changes to spending and investment approaches for changes in economic
and business conditions
Legal and regulatory
changes
Ability to identify and manage
changes to the regulatory
environment that may
introduce new risks and/or
present new opportunities to
our business
• Monthly product risk and regulatory forums
• Regulatory team provide input on emerging changes and potential
business impacts
• Global Government Relations function coordinates proactive government
and policy engagement strategy
Machine learning and
artificial intelligence
Ability to manage risks
and opportunities from the
application AI and machine
learning-related product and
platform features
• Governance and focus on ethical and responsible use of data and
machine learning
• Approach 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
• Promoting internal and external data literacy programs to drive awareness
and understanding of best practice and industry-wide current issues
across the Xero engineering and analytics community
• Monitoring AI developments and investing to continuously evolve our
product and technology to fully leverage AI and machine learning
Channel and product
concentration risks
Ability to diversify to offset
risks related to focus on
Accounting & Bookkeeping
channel and core product
• Building a deeper relationship with small businesses in Xero’s existing
markets to bolster additional channels to market
• Continuously extending the small business platform to solve more small
business challenges beyond core compliance
Financial
Platform,
Technology
and Data
Customers,
Partners and
Ecosystem
People and
Culture
Social and
Environmental
KEY RISKS
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PEOPLE AND CULTURE
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PEOPLE AND CULTURE
People and
Culture
Material matters: Employee attraction, training,
development and retention | Diversity and inclusion |
Employee health, safety and wellbeing | Remuneration,
incentives andpay transparency.
We bring together diverse world-class leadership and talent
enabled by an inclusive culture and working environment.
Xero’s culture allows our people to do the best work of their
lives, while driving innovation, productivity and value creation.
We believe our strong purpose-led employer brand and a
diverse, equitable and inclusive culture are key drivers of our
ability to attract, develop and retain the talent we need to
deliver innovative technology solutions to our small business
customers and in the delivery of our strategy.
There are four key ways in which we create and enhance
value through our people and culture:
• Attract, develop and retain top talent
• Promote diversity, equity and inclusion
• Prioritise the health, safety and wellbeing of our people
• Offering fair remuneration, incentives and pay
transparency
1 Refer to page 27 for definitions of the terms used in gender representation reporting
2 Includes the former CEO – Steve Vamos
3 Refer to page 29 for an explanation of the difference between median gender pay equity gap and median gender pay gap
KPIs
Performance
vs target
FY23 performance
Average annual employee net promoter score (eNPS)
32
Annual voluntary employee turnover
15.7%
At least 45% representation of women among our senior leaders, our
people leaders and all employees by the end of FY251
CEO and direct reports 40.0% women2
Women senior leaders 38.7%
Women people leaders 45.0%
Women employees 44.2%
Xero maintains a gender balance on its Board with not less than 30%
women and not less than 30% men. By the end of FY25, the Board
aspires to have at least 40% women and 40% men as directors, with
the remaining 20% unallocated to allow flexibility for renewal and
recognise that gender is not binary
Three women (37.5%) and five men
(62.5%) directors
Median gender pay equity gap (like for like basis)3
-0.8%, in favour of women
Median gender pay gap
9.5%
We aim to ensure the retention rate of our people who are from
identified underrepresented racial and ethnic groups is proportionate
to our broader retention rate at all levels of Xero year-on-year
Proportionate
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PEOPLE AND CULTURE
Attract, develop and retain top talent
Reshaping Xero’s organisational structure
Xero has a strong purpose-led employer brand and a diverse
and inclusive culture.
In March 2023, we announced a program to streamline our
operations, realign the business to drive greater operating
leverage and better balance growth and profitability to
further strengthen Xero for the future. As we aspire to build
a higher performing global SaaS company, we know we
must deliver better for our customers and execute against a
disciplined growth framework.
This is why we are strengthening our ability to take
advantage of the significant growth opportunity presented
by cloud accounting. The program included the difficult
decision to reduce the number of roles across Xero. We
continue to foster Xero’s unique, purpose-driven culture, and
are committed to providing the right level of support to our
people whose roles have been impacted by the restructure.
The impact of the reshaping of our organisational structure
and the way we work across functions – to operate with
greater clarity, speed and effectiveness – will take effect in
FY24. The sections below refer to outcomes and position at
the end of FY23.
Attraction and retention of talent
During FY23, we tempered the pace of hiring across Xero,
focusing on hiring in areas critical to creating long-term
value for Xero, our customers and our partners. This resulted
in our global team of full-time equivalent (FTE) employees
increasing 6.2% year-on-year to 5,080.
We appointed Sukhinder Singh Cassidy as CEO, replacing
Steve Vamos on 1 February 2023. Sukhinder’s appointment
followed a rigorous global recruitment process. Angad Soin
was promoted to Chief Business Operations and Strategy
Officer in February 2023. He is responsible for shaping and
executing Xero’s strategy and driving operational excellence.
In March 2023, we also announced the appointment of Diya
Jolly as Chief Product Officer to lead Xero’s product teams.
Diya commenced in the role in April 2023. As we continue
to grow and scale our global footprint, the skill set and
experience required of our leadership team continues
to evolve.
Culture
Xero is known for its culture and the way in which we live
our values every day. To ensure alignment with our values
from day one, all new employees4 are onboarded with a
focus on Xero’s values, behaviours and our Respect and
Responsibility training. Our people4 also undertake training
to ensure they understand our Code of Conduct which
includes our expected standards around ethics and anti-
bribery and corruption.
Annual voluntary turnover and FTE growth
Our annual voluntary employee turnover trended down
over FY23 to reach 15.7% compared to 16.1% in FY225. This
reflected the impact of the measures we implemented
to strengthen our position as an employer of choice.
We conducted in-depth analysis on which elements of
remuneration and rewards our people value the most to
ensure we direct our investment where it will have the most
positive impact on their satisfaction and wellbeing. As a
result of the insights from our analysis, new and enhanced
benefits were introduced including Xtra Leave globally (five
days additional paid leave), plus health/medical, life, trauma
and salary continuance insurances across New Zealand,
Australia and the UK.
Engagement
To empower our people to do the best work of their lives,
we seek to foster an equitable and inclusive environment
where our people feel like they belong, are supported and
recognised. An important aspect of understanding how we
are performing is through employee sentiment data. Xero
continues to operate above global industry benchmarks
of 276 for Employee Net Promoter Score (eNPS) with a
12-month rolling average of 32. This measure has decreased
when compared to our FY22 score of 415. While still a strong
result compared to industry benchmarks, we recognise
external factors such as global uncertainty in the technology
sector and inflationary pressures along with internal
resourcing and prioritisation decisions will have contributed
to our people feeling potentially less inclined to promote
Xero as a place to work than they did in FY22.
We continuously look to improve the satisfaction of our
people and create an exceptional workplace environment
by evaluating and seeking to improve key drivers of
engagement. These include timely recognition, capability
and leadership development, investment in wellbeing, and
creating role and career frameworks to help our people map
out their future with Xero.
4 Does not include employees of Planday
5 FY22 figure does not include employees of Planday
6 Officevibe 90-day rolling period average as at 4 April 2023 for Computer software, IT and services
Xero Annual Report 2023
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PEOPLE AND CULTURE
7 Xero’s senior leaders includes the CEO, senior executives with global roles who report directly to the CEO, and their direct reports whose roles meet a
minimum role size as determined by a job evaluation methodology
Enhance diversity, equity and inclusion
Diversity, equity, inclusion and belonging in the workplace
are critical to enabling our people to thrive. A diverse
workforce enables us to better understand and serve
customers, attract top talent and innovate successfully.
We strive to foster a work environment where different
perspectives and contributions are valued, and where our
people are encouraged to bring their whole selves to work.
Through our data-driven approach, we gain insight on which
groups are currently underrepresented at Xero, or may face
special challenges. We use this to tailor our diversity, equity,
inclusion and belonging strategy and programs to better
support these groups, promote equitable decision-making,
amplify the voices of underrepresented communities and
identify opportunities to continually evolve our approach to
diversity and inclusion. For more information on our inclusive
programs and practices, please see our website:
www.xero.com/sustainability
Gender diversity
We are committed to ensuring people of every gender
participate at every level and in every function at Xero. We
also believe people of all genders deserve fair and equal
treatment, including when it comes to compensation.
In 2023, we were ranked the number one global information
technology company, and number one New Zealand
headquartered company for gender equality globally by
Equileap. We were also included in the Bloomberg Gender-
Equality Index for the fourth consecutive year, in recognition
of our commitment to supporting gender diversity in
the workplace.
Measurable objectives
Xero’s FY23 measurable objectives to improve the
representation of women were:
Gender diversity in board composition
• Xero maintains a gender balance on its Board with not
less than 30% women and not less than 30% men
• By the end of FY25, the Board aspires to have at
least 40% women and 40% men as directors, with
the remaining 20% unallocated to allow flexibility for
renewal and to recognise that gender is not binary
Gender diversity in senior executive and
workforce composition by the end of FY25
• Proportion of senior leaders7 who are women greater
than or equal to 45%
• Proportion of people leaders who are women greater
than or equal to 45%
• Proportion of all employees who are women greater than
or equal to 45%
• Initiatives and activities to attract, develop, promote and
retain diverse talent at Xero
80%
80%
100%
100%
90%
100%
100%
100%
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28
PEOPLE AND CULTURE
The charts below demonstrate the progress we have made towards our measurable objectives. For more information regarding the
programs we run at Xero to increase representation of women, please visit: www.xero.com/sustainability
Gender representation8,9,10
8 Gender and age data covers Xero’s global workforce, excluding contingent workers. All data is self-reported as at 31 March 2023
9 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 none of the options offered or prefer not to say, their responses are
included in the total. 5 employees (0.1%) were excluded from the total because they did not responded to the gender identification question
10 These figures include permanent full-time, permanent part-time, fixed-term, casual employees and interns
Percentages may not add up to 100% due to rounding
All Xero employees
Senior leaders
CEO and direct reports
People leaders
Board
Female (44%)
Gender diverse (<1%)
Non-binary (<1%)
Male (55%)
Prefer not to say (<1%)
Female (45%)
Gender diverse (<1%)
Non-binary (<1%)
Male (55%)
Female (40%)
Male (60%)
Female (39%)
Male (61%)
Female (38%)
Male (63%)
Xero Annual Report 2023
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PEOPLE AND CULTURE
Gender pay equity11
One important area for Xero is our strategic and operational
focus on gender pay equity because we believe this is one of
the most impactful measures of ensuring fair pay for all.
We are committed to equal pay for equal work, and we have
several robust practices in place to review our gender pay
equity. For more information about our practices, please visit
our website: www.xero.com/sustainability/people
At the time of our last review in March 2023, our analysis
showed that on a like-for-like basis, we are providing
equitable salary outcomes when compared to overall median
market remuneration.12
Our median gender pay equity gap was -0.8%, in favour of
women. Our median gender pay gap is 9.5%13, which has
decreased 1.5 percentage points since FY22 and is in our
target range. For more information on the programs we have
in place to further address this gender pay gap, please visit
our website: www.xero.com/sustainability
Cultural, racial and ethnic diversity
We understand the importance of ensuring that our team
reflects the communities we live and operate within. We
have started the journey towards broad-based diversity
across all our functions and geographies by seeking to better
understand ourselves first, and then using these insights to
identify priority areas of focus.
11 Median is calculated as the weighted average of regional medians to ensure the Xero Group number is not impacted by market differences
12 To calculate gender pay equity, we assess how our employees’ remuneration compares to the median remuneration for their equivalent local market role
(e.g. how much an Accountant employed by Xero in New Zealand is paid compared to what the market median is for an Accountant in New Zealand). The
median position for males is then compared to median position for females to determine the pay equity gap. Does not include employees of Planday for
FY22
13 To calculate our gender pay gap, we review actual total earnings of employees over the past 12 months. We then take the median actual earnings of
males, minus the median actual earnings of females, divided by the median actual earnings of males. A weighted average was then used across each
region to get to a Xero overall figure. Does not include employees of Planday for FY22
-2%
0%
2%
4%
6%
8%
10%
12%
FY22
FY23
Median gender pay equity gap
Median gender pay gap
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PEOPLE AND CULTURE
Measurable objective
Xero’s FY23 measurable objective in relation to
workforce inclusion is as follows:
Inclusion at Xero
Xero is an inclusive work environment where different
contributions and perspectives are valued, and everyone
can bring their whole self to work. In FY23, we established
a measurable objective for identified underrepresented
racial and ethnic groups, based on data collected through
our cultural diversity survey. 68.6% of our people have
self-disclosed their ethnic and racial identity, and we
now have a greater understanding of where our people
come from, what groups they identify with, and what
languages they speak. We aim to ensure the retention
rate of Xeros who are from identified underrepresented
racial and ethnic groups is proportionate to our broader
retention rate at all levels of Xero year-on-year. Our
analysis shows that retention of employees from
identified underrepresented racial and ethnic groups is
proportionate to our broader retention rate.
Xero ethnic composition by geography14
14 All reporting on race data is based on voluntary global self-reporting. It does not include any employees where local legislation does not permit voluntary
self reporting with respect to racial identity. The race categories used by Xero for self-reporting reflect each region’s government reporting standards.
However, for the purpose of this report some race categories have been adapted so they are globally relevant. All countries and regions who have
reached a minimum self reporting number have been displayed and any reference to ‘No data’ includes people who have not self-disclosed their racial
and ethnic background, or who selected ‘none of the options offered’, or ‘prefer not to say’ from the country/region listed. 328 employees (6.3%) were
excluded from the graphs as the regions did not reach the minimum reporting number. Does not include contingent workers
Percentages may not add up to 100% due to rounding
Australia – All
Australia – People leaders
Canada – All
Canada – People leaders
No data (40%)
Asian (17%)
Other Oceanian (2%)
People of the Americas (1%)
Aboriginal and/or Torres
Strait Islander peoples (<1%)
White or European (38%)
African and/or Middle Eastern
(1%)
White or European (46%)
Asian (8%)
Other Oceanian (3%)
No data (40%)
People of the Americas (2%)
White or European (36%)
No data (21%)
Black or African (5%)
Asian (35%)
Hispanic or Latinx (2%)
Hispanic or Latinx (2%)
White or European (52%)
No data (20%)
Other Oceanian (3%)
Asian (22%)
Black or African (2%)
African and/or
Middle Eastern (1%)
Other Oceanian (2%)
In FY23, in recognition that our people come from a range
of backgrounds and cultures, we introduced a new type of
leave – Religious, Ethical or Cultural Leave. This new
leave enables our people to swap certain legislated public
holidays to a day more relevant to their beliefs, customs
and traditions.
We introduced a global education series to foster greater
inclusion, designed to build better understanding and
capability for our people to demonstrate inclusive
behaviours, use inclusive language and have inclusive
conversations.
We have implemented a range of initiatives to facilitate
broad conversations at work about a range of topics related
to race and ethnic diversity. Information about these
initiatives can be found on our website:
www.xero.com/sustainability
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PEOPLE AND CULTURE
New Zealand – All
United States – All
New Zealand –
People leaders
United States –
People leaders
United Kingdom – All
Asia – All
United Kingdom –
People leaders
Asia – People leaders
White (63%)
No data (9%)
Hispanic/Latinx (7%)
Two or more races (5%)
Native Hawaiian or Other
Pacific Islander (<1%)
Asian (10%)
Black or African American
(6%)
White (69%)
Asian (8%)
No data (7%)
Black or African American
(1%)
Native Hawaiian or Other
Pacific Islander (1%)
Hispanic or Latinx (10%)
Two or more races (3%)
New Zealand European (39%)
Other European (21%)
Asian (8%)
No data (26%)
Māori (4%)
White or European (58%)
Chinese (38%)
Asian (10%)
White or European (15%)
Filipino (3%)
Black, African, Caribbean or
Black British (5%)
Black, African, Caribbean or
Black British (3%)
Indian (8%)
Japanese (3%)
No data (25%)
No data (28%)
Two or more races (2%)
Two or more races (<1%)
Asian (5%)
Two or more races (3%)
White or European (61%)
White or European (44%)
Asian (4%)
Chinese (11%)
Indian (11%)
No data (31%)
No data (33%)
New Zealand European (35%)
Asian (21%)
Other European (14%)
No data (23%)
Māori (3%)
Middle Eastern, Latin
American or African (3%)
Middle Eastern, Latin
American or African (1%)
Pacific Peoples (<1%)
Pacific Peoples (<1%)
Percentages may not add up to 100% due to rounding
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PEOPLE AND CULTURE
Ensure the health, safety
and wellbeing of our
people
Providing a physically and psychologically safe workplace for
our people is essential if they are to thrive.
Our global wellbeing program
Xero has long championed the benefits of health and mental
wellbeing to our people, our customers and our partners. In
FY23, we delivered an organisation-wide program called Time
Well Spent to our people, which focused on optimising factors
that reduce stress, increase control and improve performance.
We introduced a global fitness platform for our people
and established a wellbeing champions network to further
demonstrate our commitment to our people’s wellbeing.
We were also pleased to see a continued year-on-year
increase in parental leave taken by fathers and male primary
caregivers, since we introduced our gender-neutral parenting
benefits in FY21.
We were recognised as one of the best workplaces for
wellbeing in the UK15 in recognition of our efforts in this space.
For more information about our mental health and wellbeing
initiatives, please visit our website:
www.xero.com/sustainability
15 UK’s Best Workplaces™ for Wellbeing 2023
Xero is an inclusive work
environment where
different contributions and
perspectives are valued
Remuneration and pay
transparency
Xero is committed to transparency around our pay practices.
For several years we have run dedicated remuneration
foundation sessions – focused on upskilling our people
leaders to ensure they understand our remuneration
framework and are confident to have constructive, positive
conversations about remuneration.
In FY23, in response to feedback and in line with our
strategy, we offered remuneration foundation sessions to
all of our people. These covered everything from our salary
review processes, job sizing and benchmarking to gender
pay equity and our broader benefits. We also created
learning content that provides details on our remuneration
processes, how to have conversations about pay, our total
rewards and the wider benefits that come from working
at Xero.
Xero Annual Report 2023
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PEOPLE AND CULTURE
Xero customer Lewes FC (UK)
Xero Annual Report 2023
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CUSTOMERS, PARTNERS AND ECOSYSTEM
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CUSTOMERS, PARTNERS AND ECOSYSTEM
Customers,
Partners and
Ecosystem
Material matters: Customer support, loyalty and
engagement | Stability, reliability and accessibility
of information.
With 3.74 million subscribers globally, we’re focused on
building and growing our relationships with our subscribers,
and expanding our subscriber base. These relationships
are based on the trust we earn by providing subscribers
with the connections, support, insights and a reliable and
accurate service to help manage their businesses effectively.
Our trusted relationships with customers, accounting and
bookkeeping partners, third-party app developers, ecosystem
partners and other key stakeholders including governments
and regulators, are a significant contributor to Xero’s long-
term value.
We do this through five key activities:
• Small business customer support, advocacy
and engagement
• Accounting and bookkeeping partnerships
• Trust in the platform: reliability and support
• Ecosystem relationships
• Government and regulator relationships
*For discussion on performance related to these KPIs, see Our Performance section on pages 69 to 82
We measure our progress in achieving this against a number of key indicators:
KPIs
FY23 performance
Subscriber numbers*
3,741,000
Churn*
0.90%
LTV*
$13.4 billion
Number of apps in ecosystem
Ecosystem of more than 1,000 connected apps and more than 300
direct connections to banks and other financial institutions, including
to API providers that then provide access to additional banks and
financial institutions
Xero Annual Report 2023
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CUSTOMERS, PARTNERS AND ECOSYSTEM
Customer support, advocacy and
engagement
Building strong relationships, advocacy and trust with our
customers is all about ensuring they are well supported
while using and discovering the features and functionality of
Xero products. We aim to do this by creating a customer and
product experience that exceeds expectations. Reflecting
our relationship-driven approach, our global customer team
supports our customers, from onboarding through education
to customer support and success, aiming to provide a
beautiful experience at every stage of their journey.
The value we create for our customers through our product,
platform, education and support is demonstrated by our
low churn that remained consistent year on year at 0.90%.
This high degree of customer loyalty reflects the value our
customers derive from our long-term relationship with them
and the continual evolution of the Xero platform.
Education
An important part of our approach is education and ensuring
our customers feel confident about using Xero to run their
business. Our customers have access to a range of learning
content, including small business guides, webinars, online
videos, and articles via our customer support platform,
Xero Central.
Our partners can gain their Xero advisor certification and
Xero payroll certification through Xero Central. These
learning experiences help our partners become proficient
and confident with Xero’s core features – and stay up to
date with changes and new features through regular product
updates events.
Accounting and bookkeeping partnerships
Our aspiration is to ensure more accountants and
bookkeepers around the world use Xero to help them drive
meaningful conversations with their clients. They hold
special relationships with their small business clients – often
described as their most trusted advisors – and can have a
direct impact on their success.
We empower our partners with accurate, real-time data so
they can help their clients achieve their goals, ultimately
helping to build and grow sustainable and resilient small
businesses. The financial insights delivered through our
platform help our partners focus on what matters most
to their small business clients – whether that’s growing
their business, diversifying their products and services,
exploring new markets, improving processes, or going
completely digital.
The Xero partner program gives our partners the tools and
knowledge to improve their practices, and rewards them
with a range of benefits that can help them achieve their
own practice goals. Connecting with our partners is an
important part of our approach and a key element of this is
engaging through events like roadshows and Xerocons. After
pandemic-related interruptions in recent years, we were
delighted to reconnect with more than 6,400 members of
our accounting, bookkeeping and app partner communities
in 2022 at Xerocons in London, New Orleans, and Sydney.
Trust in the platform: reliability and support
We are committed to retaining the trust our customers’ have
in us as a key partner in running their business, managing
their finances and supporting their compliance needs. This
means we need to deliver on their expectation that the Xero
platform will be readily available and that we are there to
help them out if they encounter issues.
We empower our partners
with accurate, real-time
data so they can help
clients achieve their goals,
ultimately helping to build
and grow sustainable and
resilient small businesses
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CUSTOMERS, PARTNERS AND ECOSYSTEM
Reliability
As well as expecting us to provide a high level of support,
our customers expect us to be open and honest about the
performance of the Xero platform, which forms an important
part of the customer value proposition. The Xero Status page
provides customers access to real-time updates about
action being taken to resolve any performance issues,
and historical updates on platform performance. In FY23,
we made improvements to real time status monitoring to
provide more informative and timely updates to customers.
For a more detailed discussion of how we’re investing in
modernising Xero to make it faster and more reliable, please
refer to the Platform, Technology and Data section on page
43 of this report.
Customer support
Our support model is designed to help our customers get
the most out of Xero. Xero Central is the home of Xero’s
support and learning, and gives our customers access to
education materials, community discussions and instant
answers through our support content articles. In FY23, we
introduced support content articles within the dynamic
in-Xero help menu, allowing our customers to search for,
and read, articles in the page they’re working on and without
leaving the Xero platform, helping to bring support to where
our customers need it.
For more complex customer queries, Xero has a support
team available where many of the team answering customer
accounting questions have a degree-level accounting
background, so customers can get the specialised support
they need.
Xero customer Blakeaway (AU)
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38
CUSTOMERS, PARTNERS AND ECOSYSTEM
Xero customer Blakeaway (AU)
Xero Annual Report 2023
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CUSTOMERS, PARTNERS AND ECOSYSTEM
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CUSTOMERS, PARTNERS AND ECOSYSTEM
Ecosystem relationships
Our open ecosystem is a strategic area of our business,
enabling our customers to connect seamlessly with a
broader range of interconnected cloud-based products
and services. Xero’s ecosystem consists of more than 1,000
connected apps and more than 300 direct connections
to banks and other financial institutions, including to API
providers that then provide access to additional banks and
financial institutions.
Our ecosystem of connected apps has evolved with the
introduction of the Xero App Store1. The Xero App Store
offers small businesses an easier way to discover and buy
apps that integrate with Xero, while giving app developers
a way to promote and grow their business, with access to
greater insights, tools, billing and payment capabilities.
With improved search and personalised recommendations
powered by machine learning, the Xero App Store presents
relevant apps for customers at the right time, based on their
unique profile.
The Xero App Store operates under a commercial
model where Xero earns 15% revenue share on new app
subscriptions. We have seen strong uptake in eligible apps
migrating to the Xero App Store and we are pleased with our
progress in this area. Encouraging a healthy app ecosystem
benefits both our customers and our app developer partners.
Third-party app developers
Our relationship with our developer partners is very
important to Xero and our customers. On an open platform
like Xero, developer partners (often small businesses
themselves) can build their own third-party apps and
services which form part of our partner ecosystem. Through
connecting to Xero, our partners extend Xero’s capabilities
into new market areas, niche use cases, and anywhere there
is a gap in our own offering. Through this open approach
to our platform, we empower developers to innovate and
solve problems for the benefit of our customers, support
developers in scaling their businesses, and enable them to
access and add real value to our 3.74 million subscribers.
1 Full App Store features are currently available for customers in Australia, New Zealand and the UK
Xero customer Blakeaway (AU)
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CUSTOMERS, PARTNERS AND ECOSYSTEM
Xero Small Business
Insights (XSBI) is used
by government agencies
to support their policy-
making decisions
impacting small business
Government and regulator relationships
Governments in many parts of the world are encouraging
digitalisation of small businesses, and we work with and aim
to maintain relationships with governments and regulators to
enable this transition
In Australia, the Government’s appetite for boosting digital
capability and adoption among small businesses remains
strong. The Technology Investment Boost has been introduced
to Parliament and there is progress in the Consumer Data
Right (CDR) regime and eInvoicing adoption efforts.
Similar digitalisation initiatives are being pursued in other
regions in which Xero operates. Despite implementation
delays, the UK Government remains committed to digitising
its tax system. The UK Government also remains committed
to Open Banking through the establishment of the Open
Banking Implementation Entity, with new legislation
introduced in Parliament to enable smart data and Open
Finance frameworks. There is early stage progress for Open
Banking in the United States with a consultation underway on
proposed rules for the regime. The Government of Canada is
undertaking an ePayroll project to modernise how employers
send critical business information to government agencies.
The Singapore Government is also promoting eInvoicing and
offering incentives for small businesses to adopt technology
through its SMEs Go Digital program.
As the global economic environment is expected to remain
complex, preparing small businesses to manage cash
flow and liquidity challenges is emerging as a worldwide
trend. Governments in the UK, Australia and New Zealand
are undertaking reviews into payment times to small and
medium-sized businesses. While these reviews remain in
progress, we expect a range of legislative changes to prepare
and protect small businesses from cash flow challenges.
The quality of customer data in the Xero platform allows us
to provide insights based on anonymised, aggregated data.
We use this data to deliver XSBI to share a perspective on the
small business economies in Australia, New Zealand, and the
UK, and more recently Canada and the US. XSBI reports and
data are available, at no cost, at our website:
www.xero.com/xerosbi
XSBI is used by government agencies to support their
policymaking decisions impacting small business. Institutions
that engage with XSBI include the Office for National
Statistics (UK) and the Reserve Bank of Australia (RBA).
Sent!
OK
Xero Annual Report 2023
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PLATFORM, TECHNOLOGY AND DATA
XOXOXO
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Xero Annual Report 2023
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PLATFORM, TECHNOLOGY AND DATA
Platform,
Technology
and Data
Material matters: Stability, reliability and accessibility
of information | Cybersecurity and data protection |
Customer privacy | Technological innovation, artificial
intelligence and digitisation.
We strive to create beautiful products and, in line with our
vision, build the most trusted and insightful platform for
small business. To deliver this, we design and build systems
and processes, and accumulate knowledge and intellectual
property. The performance of our platform, strategic
investments to support innovation and the delivery of
new features, and diligent management of our customers’
data are key to fulfilling our aspiration to be the platform
of choice for small businesses and their advisors. Value is
created by providing a platform for customers, partners
and other stakeholders to collaborate on accounting and
tax compliance and other small business needs, and by
surfacing data-driven insights that enable faster and more
informed decision-making.
There are five key ways we deliver value through our
platform, technology and customer data:
• Delivering our platform: a reliable, innovative
cloud solution
• Product innovation and development
• Managing cybersecurity risks and protecting our
customers’ data
• Using data responsibly
• Protecting our customers’ privacy
We measure our progress in achieving this against a number of key indicators:
KPIs
Performance vs target
FY23 performance
Investment in product design and development, including R&D
N/A
$597 million
Employee completion of security training
78.5%
Responsible Data Use: introduced risk assessment for
unintended consequences of automated decision making
N/A
Yes
Number of notifiable privacy incidents
N/A
1
Xero Annual Report 2023
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PLATFORM, TECHNOLOGY AND DATA
Delivering our platform
Our cloud-based platform allows small business customers
and partners to access real-time data to better manage their
businesses, support compliance with accounting and tax
requirements, collaborate and connect to other parties such
as banks, financial services partners or ecosystem apps. We
understand how much our customers and partners rely on
being able to access the Xero platform at any time, from any
location, on any device. Our site performance and customer
experience are central to the value we deliver.
Like any software as a service (SaaS) platform, from time
to time we do encounter technical issues that impact
our platform performance and therefore our customers’
experience. In FY23, this included some issues with bank
feeds that we have worked to resolve internally and with
our providers. During the year, we introduced new ways of
monitoring our platform performance, which has remained
strong throughout the year.
Product innovation and development
In FY23, we invested $597 million in product design and
development. We continue to focus our efforts on delivering
Xero’s vision to be the most insightful and trusted small
business platform. Xero remains focused on delivering
ongoing value for customers through our product and
technology efforts each year, while continuing to invest in a
multi-year platform modernisation strategy to unlock long
term efficiency, scalability, productivity and speed to market
improvements.
Innovating to meet our customers’ evolving needs is key to
maintaining customer loyalty. Our approach is to balance
this by responding to today’s needs and building products
and features that will benefit our customers in the future.
Xero customer Must Love (US)
During the year, we
introduced new ways of
monitoring our platform
performance, which has
remained strong throughout
the year
Xero Annual Report 2023
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PLATFORM, TECHNOLOGY AND DATA
FY23 product initiatives and delivery highlights:
Global
• Progressed implementation of changes across our
practice tools to provide a single source of truth for
client data across Xero Practice Manager (XPM), Xero
HQ and Xero Tax
• Enhanced our reporting functionality to help
customers get quick access to the answers they need,
enjoy powerful customisations and streamline their
analysis
• Incorporated machine learning into Hubdoc to identify
when a document may be a credit note and flag
it for review
• Launched a new beta for Xero Analytics
Plus that harnesses the power of
artificial intelligence to predict bill and
invoice payments
UK
• Launched Xero Go — a mobile app
designed to ease the burden of financial
administration for self-employed businesses
and their advisors in the UK, and introduced bank
feeds as an optional paid add-on
• Expanded our partnership with GoCardless, a global
leader in direct bank payment solutions, to provide its
Instant Bank Pay feature to Xero’s customers
• Launched document packs in Xero HQ, which
allows accountants and bookkeepers to easily collate
documents and gather electronic signatures
from clients
North America
• Announced a new partnership, and launched a
closed beta trial, with Avalara in the US to build an
integration that automates the sales tax compliance
journey from within the Xero platform
• Launched an integration with Bank of Montreal (BMO)
to create a direct bank feed in Canada and the US for
small business
• Rolled out updates to our Canadian tax offering
to provide a more seamless experience, including
an expanded TaxCycle integration, which includes
support for the T2125 and T776 forms and an updated
tax (GIFI) mapping experience in Xero
• Launched an integration with Envestnet Yodlee that
deepens our partnership to access new direct bank
feeds in the US and Canada
• Developed a new Hubdoc bank statement
extraction feature which supports US and
Canada customers to instantly import and
reconcile transaction data from PDF bank
statements from certain banks
Australia and New Zealand
• Introduced updates to Xero Payroll in Australia to help
small businesses manage compliance by ensuring all
three stages of the Single Touch Payroll (STP) Phase 2
transition are available
• Launched Payroll history to provide an easy-to-
access audit trail of changes made within Xero by a
small business owner, advisor or app partner to help
understand, track, manage and troubleshoot changes
to employee details
• In April 2023, Planday was made available for
Australian small businesses who pay their staff under
the Retail and Clerks awards. We continue to work
on making Planday available for customers under the
Hospitality Award
• Added more fields in Xero Tax in Australia
to provide richer data and updated the
multi-factor authentication process
• Made improvements to eInvoicing
including the ability to autocode
incoming eInvoices from suppliers
Rest of World
• Launched Rand (ZAR) billing to customers in South
Africa to assist customers and partners to consistently
plan for subscription costs in their local currency
• Made improvements for Singapore
customers to reflect compliance changes,
including a new GST rate and changes to
tax rates for low-value goods
Xero Annual Report 2023
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PLATFORM, TECHNOLOGY AND DATA
Managing cybersecurity risks and
protecting data
We take a multi-layered and risk-based approach to
managing security through the use of cutting edge security
technology, a robust security risk management process and
working to keep security considerations front of mind for all
our people.
We have clear roles and responsibilities with respect to
cybersecurity. We continuously improve our approach
to security and regularly introduce new capabilities and
process enhancements to further strengthen our security
posture, including launching a new Bug Bounty program
in FY23 and regularly running technical incident response
drills. We also established a comprehensive ‘Security
Champions Program’ with representatives from across
our business attending monthly workshops and events to
enhance our internal security culture, a reflection of our
strong commitment to information security.
Security is everyone’s responsibility and all our employees
are required to undergo annual security training1. As at
31 March 2023, 78.5%2 of our employees had completed
our security training. While we expect all our employees to
complete the training, we may not reach every person every
year for various reasons such as extended employee leave.
We remain focused on uplifting the completion rate and are
confident our multi-faceted approach to security provides
adequate protection.
The Security Governance Group, comprised of executives
with responsibility for Security, Data, Customer, Legal,
Product, Technology and Risk, meets regularly and provides
management-level governance of security issues. The Board
has oversight of security through quarterly updates to
the Audit and Risk Management Committee and regularly
reviews external cybersecurity frameworks including from
the National Institute of Standards and Technology (NIST)
and Australian Institute of Company Directors (AICD).
We have a comprehensive cyber strategy in place which
is regularly reviewed and is also updated in the event of
material changes to our internal and external environment,
including external threat level changes, materially significant
changes in business direction and heightened legislative and
regulatory requirements.
Our information security management system is certified to
the International Standards Organization Standard 27001
(ISO/IEC 27001:2013). Our information security management
system also meets the Trust Services Criteria for Security,
Availability and Confidentiality as defined by the Association
of International Certified Professional Accountants
(AICPA) which is documented in our SOC2 report. For more
information about our security certifications and credentials,
please visit our website: www.xero.com/security
Cyber risk is an organisational risk embedded in our overall
risk management framework. Given the constantly changing
nature of the external threat landscape, we regularly review
security risks and controls to confirm they are managed in
line with our business risk appetite and responsibility to
build and operate a trusted platform.
Data protection and using data responsibly
Our customers and partners play a key role in our overall
approach to security. We invest heavily in protecting the
data on the Xero platform, all of which is stored with our
trusted third-party data storage providers. We work closely
with these providers to assess their information security
practices against our standards.
We also publish a range of free educational resources to help
our customers understand and protect themselves against
the risk of cybercrime and data loss.
An important aspect of protecting data is using it
responsibly. We believe using data responsibly is in
everyone’s interest, including our small business customers,
advisors, suppliers and our partners. We require all our
people1 to undertake annual Responsible Data Use training.
We have a comprehensive
cyber strategy in place
which is regularly reviewed
and is also updated in the
event of material changes
to our internal and
external environment
1 Does not include employees of Planday
2 The completion percentage represents the active employees at 31 March 2023 who completed the training during FY23
Xero Annual Report 2023
47
PLATFORM, TECHNOLOGY AND DATA
3 www.xero.com/data/for-small-businesses
4 Australia - Office of the Australian Information Commissioner; Canada - Office of the Privacy Commissioner of Canada; New Zealand - Privacy
Commissioner; Singapore - Personal Data Protection Commission; South Africa - Office of the Information Regulator; UK - Information Commissioner’s
Office; USA (California) - State of California Department of Justice; Sweden - Swedish Authority for Privacy Protection
5 Does not include employees of Planday
In FY23, we also undertook several initiatives to support our
continued responsible use of data. This included:
• Strengthening our approach to assessing data risk, which
included a new approach to considering any ‘unintended
consequences’ of automated decision-making systems
• Updating our Responsible Data Use Policy to set
clear expectations for our people on managing our
customers’ data
• Embedding relevant guidance into our Product
Framework to ensure it’s available to remind and guide
teams on their obligations at the relevant points in the
delivery of new features
For more information on how we approach responsible data
use, and our commitments to using data responsibly please
visit our website: www.xero.com/data/commitments
We also use anonymised customer data for secondary
purposes, both to generate insights into the small business
economy and to enhance our product and service offerings
for our customers. We regularly share these aggregated and
anonymised insights, for instance through the Xero Small
Business Insights (XSBI) program. We do not charge a fee
for access to XSBI. Our use of customer data aligns with our
Responsible Data Use Commitments.
Supporting customers
We continued the work of the Responsible Data Use Advisory
Council, welcoming two additional members with a specialist
focus on Data Privacy, and Strategic Data Use3. The council
met quarterly throughout the year to explore current topics
and develop materials to assist small businesses to protect
their customers’ data and use it in responsible ways.
Protecting our customers’ privacy
To be the most trusted and insightful small business
platform means we must respect our customers’ privacy.
We process a lot of personal data – about our customers,
their employees, vendors and other parties. How we treat
personal data is important to make sure we meet the
expectations of those who have entrusted us with it and to
comply with legal requirements.
During FY23 we notifid the Office of the Australian
Information Commissioner (OAIC) of one privacy incident
that occurred in June 2022. The matter was closed by
the OAIC in October 2022 without further investigation.
Affected customers were also notified. We are not aware of
any further privacy incidents in FY23 that met the threshold
for notification to a relevant authority4. Therefore, no other
notifications were required to be made to the relevant
authority in FY23.
Privacy and data governance framework
We have a robust privacy and data governance framework.
This includes security, privacy, and data governance policies,
as well as data classification and control standards which
ensure that more sensitive data gets higher and appropriate
levels of protection. New projects that potentially involve
new or changed data use complete a data use assessment.
Projects that are identified as potentially higher-risk must
undergo a data protection impact assessment (DPIA) to
identify the privacy impact, and set out recommendations
for managing, minimising or eliminating that impact. The
DPIA also forms a critical element of our approach to
responsible data use and our data controls for personal
data. This process was further enhanced in FY23 with the
introduction of a privacy and risk management program.
All Xero employees5 are required to undertake annual privacy
training, to understand what personal data is and what
we can all do to help protect it. This training includes an
assessment that they are required to pass upon completion
of the course. We also run periodic awareness campaigns
with our people.
For more information on how we collect, store, retain,
share and manage customer data, please refer to our
Privacy Notice.
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PLATFORM, TECHNOLOGY AND DATA
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PLATFORM, TECHNOLOGY AND DATA
Xero customer Must Love (US)
Xero Annual Report 2023
50
SOCIAL AND ENVIRONMENTAL
Xero Annual Report 2023
51
SOCIAL AND ENVIRONMENTAL
Social and
Environmental
Material matters: Climate action and energy management
| Responsible supply chain and modern slavery |
Community support, engagement and partnerships |
Waste management and responsible use of resources
Trust is central to our vision and our strategic priority to build
for global scale and innovation. We strive to act with integrity,
authenticity and in line with our values in order to maintain and
further nurture trust with everyone connected to our business.
This trust allows us to be considered as a partner of choice
for our customers, the employer of choice for our people and
future employees, responsible stewards for our shareholders,
and the platform of choice by users and developers.
One key way we build stakeholder trust is by caring for the
environment and helping our customers, partners, suppliers
and communities thrive within a resilient and sustainable
value chain.
The key ways in which we deliver this are:
• Climate action and energy management1
• Waste management and responsible use of resources
• Commitment to a responsible supply chain and to
preventing modern slavery
• Provision of community support, engagement and
partnerships
1 Including supporting and disclosing under the framework of the Task Force on Climate-Related Financial Disclosures (TCFD)
2 We apply for Climate Active carbon neutral certification annually in arrears in October. In FY23, our certification for FY22 was maintained. We will report
the outcome of our FY23 certification application in the FY24 Annual Report
3 Refer to our TCFD statement on our website: www.xero.com/sustainability for details around progress against our TCFD activities identified for FY23
KPIs
Performance vs target
FY23 performance
Maintain carbon neutral certification through the
purchase of Verified Carbon Standard offsets of carbon
emissions2
Certification for FY22 achieved
in FY23
Implement the recommendations of the Task Force on
Climate-Related Financial Disclosures (TCFD)3
Progress has been made
against all of Xero’s TCFD
roadmap activities identified
for FY23
Reduce Scope 1 and 2 carbon emissions by 42% by
2030 from FY20 baseline
In progress
973 tCO2e
-1.3% on FY20 base year
Reduce Scope 3 carbon emissions by 17% by 2030 from
FY20 baseline
In progress
11,242 tCO2e
-4.1% on FY20 base year
Reduce carbon emissions intensity
2.4 tCO2e / FTE
-42.2% on FY20 base year
Diversion of waste from landfill
N/A
58.4%
Employee completion of modern slavery
awareness training
81.1%
Global community contributions
N/A
More than $3.5 million
We measure our progress in achieving this against a number of key indicators:
Xero Annual Report 2023
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SOCIAL AND ENVIRONMENTAL
Climate action and energy management
Minimising our environmental footprint and operating in
a reliable and transparent way are important to attracting
and retaining talent, maintaining the trust of our customers
and shareholders, and to protecting and growing the value
of Xero. We have an active role to play in taking meaningful
action on climate change and supporting the transition to a
net-zero economy as Xero continues to grow.
In 2019, we launched our Net Zero @ Xero program. We
started by offsetting 100% of our carbon emissions across
Scopes 1, 2 and 3 annually, allowing us to receive carbon
neutral certification by the Australian Government’s Climate
Active program. While we’ve made progress, we acknowledge
we still have more to do.
We have now taken the next steps towards net-zero and
have set company-wide emissions reduction targets in
line with climate science, aligned to the goals of the Paris
Agreement. The targets we’ve committed to were designed
with Xero’s growth ambitions in mind. They were established
through extensive modelling and provide clear pathways
for us to reduce our greenhouse gas emissions. From an
FY20 baseline, we have committed to reduce our Scope
1 and 2 emissions by 42% and our Scope 3 emissions by
17% by 2030, and to be net-zero by 20504. We have signed
our commitment to having our targets validated by the
Science Based Targets initiative (SBTi) and our targets were
submitted to the SBTi organisation for validation in FY23.
Carbon emissions5
We measure our Scope 1, 2 and 36 emissions according to
the Greenhouse Gas (GHG) Protocol for organisations from
a baseline year of FY20. We have seen a decrease of 3.9% in
our emissions since FY207. Our FY23 emissions7 increased
compared to FY22, driven primarily by a resumption
of global travel (flights) and the return of international
Xerocon events. Our FY23 information and communications
technology (ICT) emissions8 are down 63.1% compared to
FY22 as a result of the decarbonisation actions undertaken
by our cloud hosting suppliers. In FY23, working from home
emissions9 decreased and emissions from upstream leased
assets10 increased, reflecting a return to more office-based
working. Our emissions intensity (tCO2e per FTE) was 2.40 in
FY23, 42.2% lower than FY20 base year.
Reducing business travel, improving the sustainability of our
events and transitioning to renewable energy remain key
priorities to achieve our 2030 emissions reduction targets.
Due to differences in Climate Active Technical guidance
and Science Based Target Net-Zero guidance, we are
transitioning to reporting in alignment with the Greenhouse
Gas (GHG) Protocol in our Annual Report and supporting
documents. This inventory will be used to report our
progress against our 2030 emissions reduction targets. Our
Climate Active inventory will continue to be provided in our
annual Climate Active public disclosure summary available
on the Australian Government’s Climate Active website.
For more information on the composition of, and actions
to reduce, our carbon emissions, please refer to our TCFD
Statement on our website: www.xero.com/sustainability
4 Fewer than 10% of total emissions that require abatement through offsets
5 Xero is a participant in the Australian Government’s Climate Active carbon neutral program. Emissions which have been previously reported have been
calculated under guidance associated with this scheme and have some variations in alignment with the Greenhouse Gas (GHG) Protocol. In FY23,
reporting GHG protocol aligned figures will be provided for historical years in our Databook, which align with the SBTi target setting approach. These will
be distinct from the Climate Active inventories
6 We have adopted Scope 3 emission categories from the GHG protocol. These categories capture the following sub categories relevant to Xero: business
travel (flights, taxi, rideshare, rental car, grey fleet and accommodation), employee commuting (employee commute and working from home), purchased
goods and services (ICT including cloud services, paper, food & catering and events), upstream leased assets (shared/base building electricity and
natural gas), waste generated in operations (general waste, recycled waste, organic waste and water), fuel and energy-related activities (fleet fuel and
purchased electricity not included in Scope 1 or 2)
7 FY23 emissions for this report have been calculated using an extrapolation of activity data from the 9 months of the financial year (1 April to 31
December). This number will be amended in the FY24 Annual Report using the full financial year activity data
8 ICT emissions are categorised in alignment with GHG Protocol under purchased goods and services in the Scope 3 emissions sources graph below
9 Working from home emissions are categorised in alignment with GHG Protocol under employee commuting in the Scope 3 emission sources graph below
10 Shared/base building electricity and natural gas
Xero Annual Report 2023
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SOCIAL AND ENVIRONMENTAL
Waste management and responsible
use of resources
We continuously improve our recycling methods and
look for ways to reduce overall waste, including through
recycling and composting, and sourcing sustainable
materials where possible. We saw an overall increase in
total waste in FY23 as a result of a return to increased
office-based working. Our focus in this area has been
on diversion of waste from landfill and in FY23, through
our initiatives and employee commitment to waste
minimisation and recycling, we diverted 58.4% of overall
waste from landfill – an improvement of more than 10%
year-on-year from FY22.
For more information on our recycling and waste
management practices please visit our website:
www.xero.com/sustainability
15,000
12,000
FY20
tCO₂e
FY20 baseline
Total Scope 1, 2 and 3 emissions
FY21
FY22
FY2311
FY24
FY25
FY26
FY27
FY28
FY29
FY30
9,000
6,000
3,000
0
Recycling (84,644 t)
Recycling (137,912 t)
General waste/landfill
(93,434 t)
General waste/landfill
(98,197 t)
Total (178,078 t)
Diversion rate: 47.5%
Total (236,190 t)
Diversion rate: 58.4%
FY22
FY23
Carbon emissions (metric tonnes of C02 equivalent)
11FY23 emissions for this report have been calculated using an extrapolation of activity data from the 9 months of the financial year (1 April to 31
December). This number will be amended in the FY24 Annual Report using the full financial year activity data
Xero Annual Report 2023
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SOCIAL AND ENVIRONMENTAL
Xero customer Good Wood (US)
Xero Annual Report 2023
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SOCIAL AND ENVIRONMENTAL
Xero Annual Report 2023
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SOCIAL AND ENVIRONMENTAL
Responsible supply chain and
modern slavery
By behaving ethically and responsibly in every aspect of our
global operations, right across our value chain, we seek to
build and maintain the trust of our stakeholders. This means
holding ourselves accountable for the direct and indirect
impacts of our actions on the human rights, wellbeing
and resilience of our partners, customers, suppliers and
their communities. It also means understanding where the
risks are in our value chain and what actions we can take
to mitigate these, or remediate issues we might identify.
Developing and promoting responsible procurement
practices is an important part of living our values and
building greater trust in Xero.
We are committed to working to prevent any form of slavery
and human trafficking in our operations and supply chains.
We remain vigilant against key modern slavery risks. We are
working to refine and implement policies and processes to
help us monitor and mitigate them, and we regularly assess
the effectiveness of our actions. We require all our people12
to undertake Modern Slavery Awareness training in order to
educate them on forms of modern slavery, help to identify
the risks, and provide information on how to raise concerns.
As at 31 March 2023, 81.1% of our employees had completed
our Modern Slavery Awareness training before the required
date. For more information about how we manage the risk
of modern slavery and human trafficking, please refer to our
FY23 Modern Slavery and Human Trafficking Statement.
12 Does not include employees of Planday
13 Partnership investments are instances where we have invested financially in a partnership with a ‘for purpose’ organisation, such as a non-profit, or a
specific activity like sponsoring a campaign that creates positive social or environmental impact
Volunteering – in kind contribution ($375,873)
Cash donations made to non-profit organisations ($90,078)
Partnership investments ($710,601)
Foregone revenue ($2,283,491)
Tech outreach community investments ($104,500)
Community support, engagement and
partnerships
In FY23, our community contributions totalled more
than $3.5 million, up 57.6% on our FY22 contributions.
This increase was driven primarily by uptake of the Xero
Assistance Program (XAP), discounts given to non-profit
organisations and paid employee volunteering hours.
We take a holistic approach to calculating our
contribution to communities, combining cash donations,
foregone revenue related to discounts given to non-
profit organisations, community support, volunteering
contributions, and partnership investments13. We use this
metric to understand the positive impact we are having on
building the resilience of the global communities in which
we operate, and to inform the development of our overall
philanthropy strategy.
Bringing to life our #human value, our people embrace
these opportunities and are often the driving force behind
this work. As part of our Community Connect volunteering
program, every permanent Xero employee is encouraged to
take a day of paid volunteering leave each year to dedicate
to community causes that matter to them. We have a global
network of social and environmental impact heroes who help
us to engage our people with the communities in which they
live and work, and prioritise the initiatives that make the
most impact.
Community contribution FY23: more than
$3.5 million
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SOCIAL AND ENVIRONMENTAL
Supporting small businesses to become
more sustainable
We are also investing in helping small businesses to
become more sustainable, through our education tools and
partnerships. Xero recognises that every business has a role
to play in supporting the transition to a net-zero economy
and we are in a unique position to help small businesses take
steps in their sustainability journey. In FY23, we announced a
partnership with sustainability fintech Cogo in Australia and
welcomed UK-based climate tech start-up Ecologi into our
ecosystem. Working with companies like Cogo and Ecologi
will help provide small businesses in Australia and the UK
with tools to better understand their carbon footprint and
take action to reduce it.
For more information on how we support small business
sustainability please visit our website:
www.xero.com/sustainability/small-business
Supporting the UN Sustainable
Development Goals
In FY23, we joined the United Nations Global Compact
Network Australia (UNGCNA). The UN Global Compact
is the world’s largest corporate sustainability initiative
– working to transform businesses and encouraging
adoption of Sustainable Development Goals (SDGs).
UNGCNA convenes participants and leading practitioners
from business, government, academia, and the
community to create opportunities for knowledge
exchange across sectors. Through this membership,
we will work collaboratively with peers to advance our
sustainability priorities including; human and labour
rights, environment and climate change, bribery
prevention, and governance. For more information please
visit our website: www.xero.com/sustainability
Xero customer Good Wood (US)
Xero Annual Report 2023
58
FINANCIAL
Xero Annual Report 2023
59
FINANCIAL
Financial
The significant opportunity in our markets means our priority
is to drive disciplined growth and long-term value creation.
We support the execution of our vision and strategy by aligning
to these in the operational and financial decisions we make,
through our annual planning, budgeting and capital
allocation process.
We regularly monitor our financial performance and position
through detailed financial analysis. This enables a responsive
approach to spending and investment, according to the
economic environment and business conditions in which we
operate. We have well-established governance and oversight
practices including through our Board and Audit and Risk
Management Committee.
There are three key ways we seek to deliver financial value:
• Generating returns in the form of strong cash flows within
the business
• Allocating cash generated into growth opportunities
to drive revenue and future cash flows subject to our
investment criteria
• Maintaining a strong balance sheet and access to liquidity
KPIs
FY23 performance
Operating revenue growth
28% (25% in constant currency)
Gross profit
$1,222 million
LTV/CAC
6.5 times
EBITDA
$158 million
Adjusted EBITDA
$302 million
Free cash flow
$102 million
Available liquidity
$1.1 billion
We measure our progress, support our strategy and vision, and create long-term
value for our shareholders using a number of key indicators:
Xero Annual Report 2023
60
The financial strength of our business model is
demonstrated through our Generally Accepted Accounting
Principles (GAAP) as well as non-GAAP financial measures
including SaaS metrics, which should be considered together
and are discussed in the sections Our Performance (pages
69 - 82) and Financial Statements (pages 83 - 121).
Generating returns
Our strategic priorities and focus on building for global scale
and innovation guide the way we invest to generate
long-term financial value. As we seek to take a more
balanced approach to growth and profitability, while
delivering value to customers, we adopt a disciplined
approach to cost management. This enables us to be
dynamic and measured in the way we drive value creation
over the short, medium and longer term, balancing short-
term performance and long-term growth. These initiatives
include building new products and functionality, entering
into partnerships, and acquiring businesses that are a
strategic fit. When considering where to invest our capital,
we take into account a balance across gross profit, free
cash flow, return on investment, and Lifetime Value (LTV)/
Customer Acquisition Cost (CAC).
In FY23, Xero’s gross profit increased $265 million to
$1,222 million, due to revenue growth (as discussed in the
next section), along with maintaining efficiency in Xero’s
customer support teams and hosting costs for our cloud-
based products.
Xero’s LTV/CAC ratio fell to 6.5 at 31 March 2023, driven by
a 14% increase in the average cost of acquiring a subscriber,
offset by a 10% increase in Average Revenue per User
(ARPU). The increase in the average customer acquisition
cost was due to the impact of three Xerocon events in FY23,
inflationary pressures and investment to drive growth across
all regions. We also continued to focus on growing our
International markets, which are comparatively less efficient
than those in ANZ.
In March 2023, we announced a program to streamline and
simplify our operations, realign the business to drive greater
efficiency, and better balance growth and profitability for the
future. The financial benefits of reshaping our organisational
structure are expected to take effect in FY24, with costs
associated with this program incurred in FY23.
EBITDA, which is another earnings-based indicator we use
to assess financial performance, decreased by 26% to $158
million in the period. This reduction mainly reflected the
impact of non-cash impairments, along with the impact of
our restructuring program.
Adjusted EBITDA increased by 45% to $302 million in the
period. This increase was due to operating revenue growth
exceeding the growth in operating expenses excluding
restructuring costs. Further details can be found in the Our
Performance section on page 71.
During FY23 free cash flow improved by more than $100
million, from $2.1 million in FY22 to $102.3 million in FY23.
This reflects operational efficiencies while disciplined
customer focused growth is balanced with profitability.
See the Our Performance section on pages 69-82 for further
information on gross profit, LTV/CAC, EBITDA, adjusted
EBITDA and free cash flow.
Allocating cash generated into growth
opportunities
Revenue growth can be considered in the context of two of
our strategic priorities – driving cloud accounting adoption
and growing the small business platform. We measure the
contribution to revenue from the first of these strategic
priorities primarily through growth in subscriber numbers.
The contribution of the second strategic priority is measured
through growth in ARPU and other operating revenues.
Together, these are core drivers of operating revenue growth,
for which our key performance indicators also include
Average Monthly Recurring Revenue (AMRR).
Operating revenue grew 28% (25% in constant currency) in
FY23, and AMRR grew by 26% (23% in constant currency).
This was primarily driven by subscriber growth of 14%.
In addition, operating revenue and ARPU increased as a
result of:
• Price changes to reflect the value of enhanced features
and functions of the Xero offering
• Financial services-related revenue such as bill and invoice
payments through financial service providers
• Other platform revenue such as Planday and Xero
add-ons, including Payroll
• Favourable FX movements
See the Our Performance section on pages 69-82 for further
information on Operating Revenue, ARPU and AMRR.
FINANCIAL
Xero Annual Report 2023
61
Maintaining a strong balance sheet and
access to liquidity
Maintaining a strong balance sheet ensures value creation by
providing a foundation to sustainably support investments
that are aligned to our strategic priorities. Xero’s balance
sheet is structured to support our business model, maximise
financial performance, and withstand potential adverse
changes to operating conditions. We do this through
investment in assets that generate positive cash flows, while
maintaining access to liquidity.
Xero’s Treasury Policy sets out parameters for management
to operate within in order to protect Xero’s financial
assets and manage risk within approved limits. The policy
covers our key treasury risks including liquidity, treasury
counterparty credit, and foreign exchange management, and
governs the day-to-day treasury operations. Compliance with
the policy is overseen by the Audit and Risk Management
Committee and the policy is reviewed annually.
Our balance sheet is further strengthened by the role our
people and culture play in driving innovation to create our
most valuable assets – our software development, or the
new products and functionality we have built, that are tools
for small businesses and their advisors. For more information
on investment in these areas, see the People and Culture
section (page 25) and the Platform, Technology and Data
section on (page 43).
Cash flows from investing activities, as per the Statement of
Cash Flows in the Financial Statements (page 91), decreased
by 29%, or $125 million, from FY22. This decrease was due
to business acquisition costs, due to the purchases of the
Planday, Tickstar, LOCATE, and TaxCycle businesses that
occurred in the prior year.
Total available liquidity (defined as cash and cash
equivalents, short-term deposits, and undrawn committed
debt facilities) is broken down below:
During the year, Xero reduced its short-term debt facilities
as part of ongoing capital management. This included
decisions not to renew its undrawn NZD150 million standby
debt facility and cancelling facilities related to the
Waddle direct lending portfolio, due to the decision to exit
the Waddle business.
Approach to tax
Xero takes its responsibilities as a participant in the New
Zealand and international tax systems seriously. We seek
to comply with all applicable tax laws and regulations that
apply to the Xero Group, and to pay the amount of tax that is
required to be paid in the countries where we operate.
We manage our tax affairs in accordance with the Xero Tax
Risk Strategy and Control Framework, which was approved
by the Xero Board this year. The purpose of that framework
is to ensure that Xero:
• Manages its tax obligations within the law, and in a
manner that builds trust with Xero’s stakeholders
• Undertakes all transactions with a clear business purpose
or commercial rationale
• Develops and maintains open, transparent and
collaborative relationships with the tax authorities in the
countries in which we operate
More information about Xero’s approach to tax can be found
in our Xero Tax Strategy Statement.
Available Liquidity
Amount as at 31
March 2023
Cash and cash equivalents
$231 million
Short-term deposits
$887 million
Undrawn committed debt facilities
$0 million
Total
$1.1 billion
TAX
FINANCIAL
Xero Annual Report 2023
62
GOVERNANCE
Governance
Xero’s purpose is to make life better for people in small business, their advisors and communities around the world. Xero is a purpose-
led, values-driven business and the Board of Xero (Board) is committed to a culture that seeks to embed and uphold high standards of
corporate governance. The Board recognises the importance of this to good decision-making and long-term value creation.
Xero’s corporate governance framework is designed to deliver on Xero’s purpose and strategy, support Xero’s operations, monitor
performance, and manage risk. The framework does this in a manner that reflects Xero’s values and the digital, global and high-growth
nature of Xero’s business. As Xero grows and evolves, so do the expectations of Xero’s shareholders and other stakeholders, and the
Board is committed to a continuous improvement approach to corporate governance.
The Board continues to be well supported by its three standing Committees: the Audit and Risk Management Committee (ARM
Committee), the People and Remuneration Committee (P&R Committee), and the Nominations Committee.
Leadership Team
CEO
Our People
Xero Board
The role of the Board is to demonstrate leadership, represent Xero’s
shareholders and promote and protect the interests of the company in the
short and long-term. The Board is responsible for the overall governance,
management and strategic direction of Xero and for delivering accountable
corporate performance in accordance with Xero’s purpose, strategy
and values
Audit & Risk
Management
Committee
People &
Remuneration
Committee
Nominations
Committee
Xero’s Governance Framework
Key
Accountability,
reporting
Delegation, direction,
resources, oversight
Further information about Xero’s Corporate Governance Framework,
including the responsibilities of each Committee, is set out in our Corporate
Governance Statement. This is available on Xero’s Investor Centre at
www.xero.com/about/investors/governance, together with our key governance
policies, Code of Conduct, and Board and Committee Charters.
Shareholders and stakeholders
Purpose, values and culture
Risk management
Strategy
Independent assurance and advice
Policies, systems and processes
Xero Annual Report 2023
63
GOVERNANCE
Xero Board
David is a business leader focused on innovation, technology
and telecommunications, with more than 30 years’ experience
creating brand and shareholder value. He is Chair of the Xero
Board and a non-executive director of Ramsay Health Care, a
global hospital group.
David was CEO of IBM Australia and New Zealand and Telstra,
and has wide experience as a board director including
as a past director of Vodafone Group, CSIRO, CSL, and
TelstraClear. David has a Bachelor of Arts in Anthropology
and English from Victoria University of Wellington and
completed the post-graduate General Management Program
at Northwestern University’s Kellogg School of Management.
David received an honorary Doctorate in Science from Deakin
University in 2016, an honorary Doctorate in Technology from
University of Technology in 2018, and was recognised for his
services to business and ethical business leadership with an
Order of Australia (AO) in 2017.
Mark is an experienced professional director with more than
20 years of international experience in corporate finance and
investment banking. He is currently the chair of Chorus, a
board member of the Accident Compensation Corporation
(ACC) New Zealand, and chair of the ACC Investment
Committee. His recent previous directorships include Z
Energy and Milford Asset Management (chair).
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) 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.
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 formerly an independent director of the NZX and Trade
Me. He holds a Bachelor of Commerce and Administration
(Accounting, Information Systems) from Victoria University
of Wellington. 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.
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
Semrush, an online visibility management SaaS platform,
and a previous non-executive director of Avantax.
Steven has held a range of senior executive roles, including
at GoDaddy, the world’s largest services platform for
entrepreneurs, where most recently he 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 a Master
of Business Administration from Stanford University.
David Thodey, AO
Chair of the Board
Australia
Independent director since June 2019
and Chair since February 2020
Nominations Committee (Chair)
People and Remuneration Committee
Steven Aldrich
Non-executive director
United States
Independent director since October 2020
People and Remuneration Committee
Mark Cross
Non-executive director
New Zealand
Independent director since April 2020
Audit and Risk Management Committee (Chair)
People and Remuneration Committee
Rod Drury
Xero founder / Non-executive director
New Zealand
Director since July 2006
Nominations Committee
Xero Annual Report 2023
64
GOVERNANCE
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 2022, Lee joined Block - she
holds the roles of lead, Cash App Financial Operations and
Co-Lead of Global. Lee was 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 the Auckland University of
Technology, and is an alumni of the Berkeley Haas School of
Business. She is also a member of Chief Executive Women,
which represents Australia’s most senior and distinguished
female leaders.
Dale is an experienced non-executive director and former
technology entrepreneur and CEO. Dale is currently a non-
executive director at the Cranemere Group, Jupiter Fund
Management, Rated People, LendInvest, and Lightspeed
Commerce and is a board advisor to Accelerate:Her. She was
formerly a non-executive director and trustee for the Peter
Jones Foundation, a non-executive director at Sussex Place
Ventures and at the Department for Business, Innovation &
Skills (UK).
Dale co-founded and was CEO of mobile pioneer Omega
Logic in 1999, which co-launched prepay top-ups in the UK,
leading the growth of top-up transactions to £450m within
five years. She then turned to investing and advising startups
and won the British Angel Investor of the Year award in
2011. She holds a Master of Business Administration from
the London Business School and served on the Business
Taskforce on EU Redtape for the British Prime Minister in
2013. Dale was made Commander of the Most Excellent
Order of the British Empire (CBE) by Her Majesty Queen
Elizabeth II in 2013, for services to business.
Susan is an experienced non-executive director and 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 Arvida Group, Mercury NZ, and Craigs
Investment Partners.
Susan is also a board member of non-profit Global Women
and was previously a member of the New Zealand Markets
Disciplinary Tribunal. Susan is a past director of ASB Bank and
Trustpower and a past ministerial appointee to the National
Advisory Council on the Employment of Women. Susan holds
a Bachelor of Commerce and Bachelor of Laws from the
University of Otago.
Brian is a professional director who has extensive experience
from his career as an executive and CEO driving growth and
innovation for leading technology, software-as-a-service and
cloud-based companies. His experience includes leading
Pandora Media, a streaming music provider in the US, and
aQuantive, a digital marketing services and technology
company that was acquired by Microsoft.
Brian is currently lead director of Frontdoor, the largest
provider of home service plans in the United States, and is
presiding director on the board of The New York Times. He
was previously a director of Chewy and Teledoc Health and
chairman of Grubhub.
Brian has been included in the National Association of
Corporate Directors Directorship 100, which recognises the
most influential board members. He holds a Bachelor of Arts
with Honors in Economics from Harvard College and a Master
of Business Administration from the Stanford Graduate
School of Business.
Lee Hatton
Non-executive director
Australia
Independent director since April 2014
Audit and Risk Management Committee
Brian McAndrews
Non-executive director
United States
Independent director since February 2022
Audit and Risk Management Committee
Dale Murray, CBE
Non-executive director
United Kingdom
Independent director since April 2018
Audit and Risk Management Committee
Susan Peterson
Non-executive director
New Zealand
Independent director since February 2017
People and Remuneration Committee (Chair)
Nominations Committee
Xero Annual Report 2023
65
GOVERNANCE
Board diversity and tenure
Gender
Location
Race and ethnicity
Tenure
Male 62.5% (5 directors)
NZ 37.5% (3 directors)
White and/or European
heritage 100%
0-3 years 37.5% (3 directors)
Female 37.5% (3 directors)
AU 25.0% (2 directors)
3-6 years 25.0% (2 directors)
UK 12.5% (1 director)
US 25.0% (2 directors)
6-9 years 25.0% (2 directors)
9+ years 12.5% (1 director)
Xero Annual Report 2023
66
GOVERNANCE
Skills matrix
The Board regularly considers the desired mix of skills, experience, knowledge and capabilities to effectively govern Xero now and
in the future. In FY23, these capabilities were updated and the current directors’ relevant skills and experience were assessed
with reference to the desired capabilities. The result of this assessment is set out in the table below. Following this assessment,
the Board is satisfied that it continues to have the appropriate mix of skills and experience necessary to fulfil the Board’s role in
leading a global SaaS business.
The Board skills assessment helps inform the Board’s renewal and succession planning and helps identify opportunities for
professional development for existing directors. When considering Board composition, the Board also has regard to the desired
personal attributes of directors, including alignment with Xero’s values, and the benefits of geographic diversity, cultural, ethnic or
racial diversity, gender diversity, age diversity, and diversity of thought.
Capability
Number of directors with the capability
High capability¹
Moderate capability2
Global Markets
Experience in Xero’s current and emerging global markets including scaling global
businesses with large customer bases
2
6
Software as a service (SaaS) Technology and Data
Experience in SaaS, cloud, digital platforms and data
3
5
Digital Product Management
Experience in digital product management, technology trends, and implications
and the software and technology product value chain
4
4
Sales, Marketing and Customer Experience
Experience in customer insight and advocacy, sales, marketing and business
development
6
2
Strategy
Strategy and corporate development including M&A and strategic partnerships
8
-
Financial Acumen
Qualifications or experience in corporate finance, financial accounting, and capital
markets
2
5
Governance and Risk Management
Experience as a director on a listed company board including expertise in investor
engagement, governance, compliance, sustainability and risk management
principles, policies and frameworks
6
2
People and culture
Experience in setting remuneration frameworks, workforce planning, talent
management, culture, and the promotion of diversity, equity and inclusion
7
1
Executive Leadership
Experience as a senior executive in a large organisation or listed company
8
-
¹ High capability: High level of knowledge or experience in the relevant skill area. High level of proficiency and experience in applying the skill, including in
complex situations, as a senior executive or board member
² Moderate capability: Sound knowledge and understanding of the relevant skill through either experience, application in Board and Committee activities
and/or through training and professional development activities
Xero Annual Report 2023
67
GOVERNANCE
Key areas of Board focus
Strategy and investment for sustainable
long-term growth
The Board remains focused on the significant long-term
opportunity for cloud accounting, and overseeing Xero’s
strategy and capital allocation to take advantage of this.
The Board has recognised that investors are more focused
on balancing growth and profitability in our sector. In
this context, along with inflationary pressures, we have
increased our focus on operating costs and the returns
that we generate from our investments. As noted in the
Chair’s Review, the Board worked with management to
streamline Xero’s operations, realign the business to drive
greater operating efficiency, and better balance growth and
profitability.
Further detail on Xero’s strategy can be found on
pages 16 and 17.
Board and executive succession
In FY23, the Board appointed Sukhinder Singh Cassidy
as Xero’s new CEO from 1 February 2023, following the
retirement of Steve Vamos. Sukhinder’s appointment
followed a rigorous global recruitment process led by the
Nominations Committee and recognises that as we continue
to grow and scale our global footprint, the experience
requirements of our leadership continues to evolve.
The Board, supported by the P&R Committee, oversees
senior executive succession and development planning to
ensure that the leadership team has the skills required to
deliver on Xero’s strategy, underpinned by a robust talent
pipeline. In FY23, Angad Soin (Chief Business Operations
& Strategy Officer) was appointed to Xero’s executive
leadership team, and in March 2023 we were pleased to
announce the appointment of Diya Jolly (Chief Product
Officer) who joined the team in April 2023.
Board performance and governance
Each year the Board undertakes an evaluation of its
performance. In FY23, the Board conducted an externally
facilitated performance review. The process included the
use of confidential in-depth questionnaires and one-on-
one interviews with directors and management. Overall,
this review concluded that the performance of the Board
and its Committees continues to be sound. The Board has
identified actions to continue to support its focus on being
a consistently high-performing Board, including actions
related to setting up and supporting the new CEO for
success, ongoing Board succession planning and capability,
and continuing to refine the Board’s operating rhythm.
During the year the Board invested time to consider
opportunities for continuous improvement in its overall
governance practices and the efficiency of its decision
making as a global board. As a result, it will work with
management to implement a number of improvements to its
operating rhythm during FY24.
Further details on Xero’s Board can be found in Xero’s
Corporate Governance Statement, available on Xero’s
Investor Centre.
Risk
The Board, supported by the ARM Committee, continued
to oversee the implementation of Xero’s risk management
framework and the effectiveness of systems, controls and
processes. The ARM Committee receives regular ‘deep dive’
updates on key risk areas including strategic, operational,
legal and compliance, financial and emerging risks. The
Board and ARM Committee received regular updates on
focus areas including cyber and considered macro-level
impacts that may present risks or opportunities to Xero
meeting our long-term strategic objectives.
In FY23, the Board approved ‘Risk Guardrails”, including the
key risk appetite principles, that build on Xero’s existing risk
appetite guidance to support decision-making, planning and
risk management activities across Xero.
Further details on Xero’s approach to risk can be found on
pages 19 to 23.
Xero Annual Report 2023
68
GOVERNANCE
People and culture
The organisational changes announced in March 2023
included the difficult decision to reduce 700-800 roles
across Xero globally. Xero remains focused on developing
and preserving our culture and cultivating our talent. The
impact of reshaping our organisational structure will flow
through in FY24.
Xero’s people remain critical to our success and the Board
is committed to having regular and meaningful engagement
with our people, including through site visits and “ask
me anything” sessions, and the insights from this inform
the Board’s decision-making and strategy development.
The Board closely monitors key people metrics including
employee net promoter score (eNPS) and engagement for
our people, both globally and by senior leadership team
member.
In FY23, an Employee Rewards Optimisation Survey was
launched to inform the continued growth and evolution of
our employee value proposition globally. As a result, new
and enhanced benefits were introduced including enhanced
leave globally, and health/medical, life, trauma, and salary
continuance insurances across New Zealand, Australia and
the UK, providing a more competitive and globally consistent
reward offering.
Xero values diversity, equity and inclusion (DEI) and
recognises the importance of increasing awareness and
understanding across a range of diversity, equity and
inclusion issues. In September 2022, the Board participated
in an education session with thought leaders and inclusion
experts focused on the growth and evolution of DEI in a
business context, the challenges and opportunities existing
for global organisations in DEI, and how Xero and the Board
could challenge their thinking and approaches to DEI.
Further detail on Xero’s approach to People and Culture can
be found on pages 25 to 32.
Customers
Xero’s customers are central to our purpose: to make life
better for people in small business, their advisors and
communities around the world. In FY23, the Board was
pleased to be able to again meet with our small business
customers and accounting and bookkeeping partners in
person at customer engagement events in London and
Denver and at Xerocon in Sydney.
The Board closely monitors key customer metrics including
churn and net promoter scores (NPS) for our small
business customers and our accounting and bookkeeping
partners, both globally and by region. Other metrics such
as subscriber numbers and lifetime value (LTV) provide an
indication of the value we are providing to our customers
and the strength of our customer and partner relationships.
The performance of Xero’s platform, innovation and
protecting and using our customers’ data responsibly are
essential to maintaining those trusted relationships and
guide the decisions we make in relation to strategy execution
and capital allocation.
Further detail on our Customers, Partners and Ecosystem
can be found on pages 35 to 41.
Reporting performance against Xero’s climate
roadmap
In November 2022, the Board approved emissions reduction
targets consistent with the recommendations of the Science
Based Targets initiative (SBTi) and identified emission
reduction plans to be achieved by FY30. In FY22, Xero
developed a three-year roadmap to implement a climate
approach that is consistent with the four core elements of
the TCFD framework, and the Board is pleased to report
Xero’s performance against that roadmap this year in our
standalone TCFD Statement.
Further detail on Xero’s approach to sustainability can be
found on pages 51 to 57 and on Xero’s website at
www.xero.com/sustainability
Xero Annual Report 2023
69
OUR PERFORMANCE
Our Performance
You should read the following commentary with the consolidated financial statements and the related notes in this report.
Non-GAAP measures have been included as Xero believes they provide useful information for readers to assist in understanding
Xero’s (the Xero Group) financial performance and are used when management measures 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). Non-GAAP financial measures do not have a standardised
meaning prescribed by NZ IFRS or Generally Accepted Accounting Practice and therefore may not be comparable to similar
financial information presented by other entities. Xero’s Non-GAAP financial information has not been subject to audit or review.
Business results
Year ended 31 March
2023
($000s)
2022
($000s)
change
Subscription revenue
1,326,278
1,049,618
26%
Other operating revenue
73,606
47,201
56%
Total operating revenue
1,399,884
1,096,819
28%
Cost of revenue
(177,943)
(139,388)
28%
Gross profit
1,221,941
957,431
28%
Gross margin percentage
87.3%
87.3%
0.0pp*
Sales and marketing
(471,831)
(405,653)
16%
Product design and development
(490,048)
(372,024)
32%
General and administration
(168,077)
(144,172)
17%
Restructuring costs
(34,692)
–
NM**
Total operating expenses
(1,164,648)
(921,849)
26%
Percentage of operating revenue
83.2%
84.0%
-0.8pp
Operating income
57,293
35,582
61%
Other income and expenses
5,590
31,087
-82%
Asset impairments and disposals
(122,680)
(24,695)
NM
Earnings before interest and tax
(59,797)
41,974
NM
Percentage of operating revenue
-4.3%
3.8%
-8.1pp
Net finance expense
(15,880)
(39,611)
-60%
Income tax expense
(37,855)
(11,477)
NM
Net loss
(113,532)
(9,114)
NM
Percentage of operating revenue
-8.1%
-0.8%
-7.3pp
*pp stands for percentage points
**NM stands for not meaningful
Xero’s FY23 results demonstrate the strength of our business in a complex macroeconomic environment with operating revenue
growth of 28% (25% in constant currency) and subscriber growth of 14%. This outcome was delivered alongside a greater focus
on operating efficiency with operating expenses as a percentage of operating revenue reducing by 3.3 percentage points to 80.7%
(excluding restructuring costs).
In March 2023, Xero announced a program to streamline its operations, realign the business to drive greater operating efficiency,
and better balance growth and profitability. Restructuring costs associated with this program of $34.7 million are included in
these results.
Operating revenue growth was primarily driven by subscriber growth, as Xero continued to see growth across both its ANZ and
International markets. In total, 470,000 net subscribers were added during FY23, bringing total subscribers to 3,741,000 at 31
March 2023. Operating revenue growth outpaced subscriber growth by 14%, primarily reflecting the benefit of price changes
through the year alongside increased financial services related revenue, and revenue from Xerocon events.
Gross profit of $1.2 billion grew 28% from FY22, aligned with the growth in operating revenue, resulting in gross margin holding flat
year-on-year at 87.3%.
Xero Annual Report 2023
70
OUR PERFORMANCE
Operating income1, a measure of operating performance, increased 61% to $57.3 million compared to FY22. This metric was
impacted by restructuring costs of $34.7 million. Excluding these, operating income would have been $92.0 million representing an
operating income margin of 6.6%.
EBITDA1 decreased by $54.3 million, or 26%, year-on-year to $158.4 million. This was driven by the impact of items not included
in operating income including a $77.9 million non-cash impairment relating to Planday, mainly reflecting a reduction in market
valuation multiples along with operational performance, $48.5 million of non-cash impairments and other costs related to Waddle,
non-cash accounting revaluation gains of $17.9 million alongside the restructuring charges of $34.7 million.
Adjusted EBITDA1, which excludes the items above, was $301.7 million, for FY23, an improvement of $93.0 million, or 45%,
compared to the prior year, as costs grew at a lower rate than revenue.
Cash receipts from customers grew 28% from FY22, in line with operating revenue growth. Other operating cash flows grew 18%,
reflecting improved operational efficiency as hiring slowed. This resulted in an increase in free cash flow of $100.2 million, from $2.1
million in FY22 to $102.3 million.
Net loss for FY23 was $104.4 million higher than FY22 despite revenue growth and improvements in operating expense ratios.
This was primarily due to the impacts of non-cash items including impairments and disposals of $122.7 million, alongside the
restructuring costs of $34.7 million.
Operating income
Operating income is a non-GAAP financial measure that has been included to demonstrate the operating performance of the
business. Xero defines operating income as total operating revenue less cost of revenue less total operating expenses.
Year ended 31 March
2023
($000s)
2022
($000s)
change
Total operating revenue
1,399,884
1,096,819
28%
Cost of revenue
(177,943)
(139,388)
28%
Operating expenses excluding restructuring costs
(1,129,956)
(921,849)
23%
Restructuring costs
(34,692)
–
NM
Operating income
57,293
35,582
61%
Operating income margin
4.1%
3.2%
0.9pp
Operating income increased 61% to $57.3 million compared to FY22. This metric was impacted by restructuring costs of $34.7
million. Excluding these, operating income would have been $92.0 million representing an operating income margin of 6.6%. This
was more than double the 3.2% margin in FY22 as operating revenue growth of 28% was higher than operating expense growth
excluding restructuring costs of 23%, this reflects emerging operating efficiencies in our business.
Earnings before interest, tax, depreciation, and amortisation (EBITDA) and adjusted 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 to net profit/(loss).
Year ended 31 March
2023
($000s)
2022
($000s)
change
Net loss
(113,532)
(9,114)
NM
Add back: net finance expense
15,880
39,611
-60%
Add back: depreciation and amortisation
218,196
170,687
28%
Add back: income tax expense
37,855
11,477
NM
EBITDA
158,399
212,661
-26%
EBITDA margin
11.3%
19.4%
-8.1pp
1 Non-GAAP financial measure, see relevant section for definition
Xero Annual Report 2023
71
OUR PERFORMANCE
EBITDA decreased by $54.3 million, or 26%, from FY22. The EBITDA margin decreased by 8.1 percentage points from 19.4% in FY22
to 11.3% in FY23. This was driven by $126.5 million non-cash impairments and other costs related to Waddle and Planday, $34.7
million in restructuring costs, and non-cash accounting revaluation gains of $17.9 million.
Adjusted EBITDA (a non-GAAP financial measure) is provided as Xero believes it provides useful information for users to
understand and analyse the underlying business performance. Adjusted EBITDA is calculated by adding back net finance
expense, depreciation and amortisation, and income tax expense, as well as certain non-cash, revaluation and other accounting
adjustments and charges to net profit/(loss).
Year ended 31 March
2023
($000s)
2022
($000s)
change
EBITDA
158,399
212,661
-26%
Add back: restructuring costs
34,692
–
NM
Add back: non-cash impairments of Planday
77,927
–
NM
Add back: non-cash impairments and other costs relating to the exit
of Waddle
48,527
22,122
119%
Add back: non-cash revaluations
(17,856)
(26,063)
-31%
Adjusted EBITDA
301,689
208,720
45%
Adjusted EBITDA margin
21.6%
19.0%
2.6pp
Adjusted EBITDA was $301.7 million, an increase of $93.0 million, or 45%, compared to FY22. Operating revenue growth of 28%
exceeded the growth in operating expenses excluding restructuring costs of 23%. This resulted in a 2.6 percentage point increase
in adjusted EBITDA margin.
Included within the Waddle add back is a $41.3 million impairment of the Waddle business, a $1.6 million disposal of related
software and recognition of onerous contract of $5.6 million. Non-cash revaluations consist of revaluations of contingent
consideration, Planday revenue incentive and revaluation of derivatives.
Cash flows
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
2023
($000s)
2022
($000s)
change
Receipts from customers
1,394,237
1,089,806
28%
Other operating cash flows
(1,003,788)
(853,435)
18%
Total cash flows from operating activities
390,449
236,371
65%
Investing activities
(304,896)
(430,044)
-29%
Add back: acquisition consideration
15,879
185,423
-91%
Add back: investment into businesses and strategic assets
908
10,323
-91%
Free cash flow
102,340
2,073
NM
Percentage of operating revenue
7.3%
0.2%
7.1pp
Receipts from customers increased by $304.4 million, or 28%, to $1.4 billion, consistent with operating revenue growth of 28%.
Total cash flows from operating activities increased by $154.1 million, or 65%, to $390.5 million. Receipts from customers outpaced
growth in operating cash outflows of 18%, demonstrating improvements in operational efficiency, higher interest income, and lower
tax payments compared to FY22.
Cash outflows from investing activities decreased by $125.1 million, or 29%, compared to FY22. The decrease reflected lower
cash flows related to acquisitions in FY23 compared to the acquisitions of Planday, Tickstar, LOCATE and TaxCycle during FY22.
Investing cash flows excluding acquisitions increased by $44.4 million, or 18%, as capitalised spend on product design and
development increased by $57.1 million, or 28%, compared to FY22, offset by lower purchases of property, plant and equipment.
Free cash flow improved by $100.2 million from $2.1 million in FY22 to $102.3 million in FY23. This was a 7.1 percentage point
increase as a percentage of total operating revenue, from 0.2% in FY22 to 7.3% in FY23. $86.8 million, or 85%, of FY23 free cash
flow was derived in the second half of FY23, as operating expenses as a percentage of operating revenue decreased as operational
efficiencies were delivered.
Xero Annual Report 2023
72
OUR PERFORMANCE
Operating revenue
Subscription revenue comprises recurring fees from subscribers to Xero’s cloud-based platform, products and services. Within a
subscription, customers also receive support services and product updates.
Total operating revenue includes subscription revenue as well as revenue from other related services including revenue share
agreements with financial services providers, software licences, and the implementation of online accounting and other software
services.
Constant currency operating revenue (a non-GAAP financial measure) is provided to assist readers in understanding and
assessing Xero’s financial performance excluding the impact of foreign currency fluctuations. Constant currency operating revenue
is calculated by translating operating revenue for FY23 at the effective exchange rates for FY22.
Year ended 31 March
2023
($000s)
2022
($000s)
change
change in
constant currency
Subscription revenue
1,326,278
1,049,618
26%
23%
Other operating revenue
73,606
47,201
56%
52%
Total operating revenue
1,399,884
1,096,819
28%
25%
Total operating revenue grew 28% to $1,399.9 million in FY23 from $1,096.8 million in FY22. Due to the comparatively weaker
NZD against both the Australian Dollar (AUD) and the United States Dollar (USD), in constant currency terms, operating revenue
grew 25%.
Subscription revenue increased by $276.7 million, or 26%, in FY23, driven predominately by organic subscriber growth of 470,000,
or 14%. The remainder of the growth largely came from price increases that occurred throughout the year along with increases in
platform products such as Planday and Payroll. Price changes occurred for business edition plans in New Zealand, Australia, and
the United Kingdom in September 2022, North America and Rest of World in November 2022, and in March 2023 for partner
edition plans in most regions.
Other operating revenue increased by $26.4 million, or 56%, compared to FY22, largely as a result of growth in financial services
related revenue such as bill and invoice payments through financial service providers. Additionally, revenue was generated by the
return of Xerocon events across Australia, the UK and North America, and Xero roadshows. Growth in TaxCycle and ecosystem
revenue also contributed to this increase.
Operating revenue by geography
Year ended 31 March
2023
($000s)
2022
($000s)
change
change in
constant currency
Australia
623,768
483,288
29%
25%
New Zealand
173,951
149,392
16%
16%
Australia and New Zealand (ANZ) total
797,719
632,680
26%
23%
United Kingdom
370,751
291,614
27%
29%
North America
95,909
72,571
32%
21%
Rest of World
135,505
99,954
36%
26%
International total
602,165
464,139
30%
27%
Total operating revenue
1,399,884
1,096,819
28%
25%
ANZ – Operating revenue increased by $165.0 million, or 26% (23% in constant currency), from the comparative period.
Australia’s operating revenue grew by $140.5 million, or 29% (25% in constant currency), mainly driven by subscriber growth of
17%. Revenue growth was higher than subscriber growth driven by price changes, growth in financial services related revenue, and
the resumption of Xerocon.
New Zealand operating revenue grew by $24.6 million, or 16%. This was higher than subscriber growth of 11%, driven mainly by
price changes and an uptake in adjacent products.
Xero Annual Report 2023
73
OUR PERFORMANCE
International – Operating revenue grew 30% (27% in constant currency) compared to subscriber growth of 14%. International
markets now contribute 43% to total operating revenue compared to 42% in FY22.
UK operating revenue grew 27% (29% in constant currency) compared to subscriber growth of 14% against the prior year. This was
driven by price changes, growth in financial services related revenue, Xerocon London, Planday and other add-ons.
North America operating revenue increased by 32% (21% constant currency) compared to FY22, compared to subscriber growth of
13%. The growth was driven by price changes, Xerocon New Orleans, and growth in financial services.
Operating revenue in Xero’s Rest of World markets increased by 36% from FY22 (26% in constant currency) compared to
subscriber growth of 12%. The largest contributing market for subscriber growth was South Africa. Local billing was launched in
South Africa in November 2022 which provides an opportunity to drive future growth. Revenue growth exceeded subscriber growth
mainly due to price changes.
Total group operating revenue by geography*
*Represents each regions’ contribution to total Group operating revenue for the respective period
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
2023
2022
change
Australia
1,566,000
1,344,000
17%
New Zealand
567,000
512,000
11%
Australia and New Zealand (ANZ) total
2,133,000
1,856,000
15%
United Kingdom
970,000
850,000
14%
North America
384,000
339,000
13%
Rest of World
254,000
226,000
12%
International total
1,608,000
1,415,000
14%
Total paying subscribers
3,741,000
3,271,000
14%
FY20
0
$1.5b
$900m
$1.2b
$300m
$600m
FY21
FY22
FY23
Australia
United Kingdom
New Zealand
North America
Rest of World
Xero Annual Report 2023
74
OUR PERFORMANCE
Xero Group - 470,000 subscribers were added in FY23, bringing total subscribers to 3.74 million. All regions had double-digit
growth with Australia continuing to be the highest growing market.
ANZ - Subscriber numbers grew by 277,000, or 15%, to a total of 2.1 million reflecting the strength of our product offering and
market presence in this region. Continued low churn levels further highlight the value customers place in Xero’s offering.
Australia continues to deliver strong subscriber growth with 222,000 added in FY23.
New Zealand added 55,000 subscribers (11% growth) in FY23, in a complex economic environment with high cloud penetration.
International - The International segment added 193,000 subscribers during FY23, bringing total subscribers to 1.6 million.
118,000 subscribers were added in the second half of the year compared to 75,000 added in H1 FY23, reflecting an improvement in
the international market performance.
UK subscribers grew by 120,000, or 14%, with 76,000 subscribers added in the second half of the year. This was higher than the
second half of FY22 impacted by various factors including favourable uptake of Making Tax Digital (MTD).
North America subscriber numbers increased by 45,000, or 13%, during FY23 with 30,000 added in the second half of the year.
Subscriber additions in the second half were in line with the same period of FY22, reflecting some seasonality of subscriber
additions.
Rest of World markets grew by 28,000 subscribers, or 12%, with 254,000 subscribers at 31 March 2023. The largest contributing
market was South Africa. Local currency billing was launched in South Africa in FY23, allowing subscribers to consistently plan for
subscription costs and demonstrating Xero’s commitment to localise our offering as markets grow.
Australia (43%)
New Zealand (12%)
United Kingdom (25%)
North America (10%)
Rest of World (10%)
FY22
Region (% of total net additions)
530k
Australia (47%)
New Zealand (12%)
United Kingdom (25%)
North America (10%)
Rest of World (6%)
FY23
Region (% of total net additions)
470k
Net subscriber additions
Regional subscriber numbers at 31 March 2023*
Australia
1,566,000
2022 | 1,344,000
Up 17%
New Zealand
567,000
2022 | 512,000
Up 11%
United Kingdom
970,000
2022 | 850,000
Up 14%
North America
384,000
2022 | 339,000
Up 13%
* Rest of World subscribers at 31 March 2023: 254,000 (31 March 2022: 226,000)
Xero Annual Report 2023
75
OUR PERFORMANCE
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 2023 at the foreign
exchange rates at 31 March 2022 and is provided to assist in understanding and assessing year-on-year growth rates, excluding
the impact of foreign currency fluctuations.
At 31 March
2023
($000s)
2022
($000s)
change
change in
constant currency
ANZ
876,477
712,652
23%
23%
International
677,326
518,435
31%
23%
Total
1,553,803
1,231,087
26%
23%
Total Group – AMRR grew by 26% (23% in constant currency) to $1,553.8 million at 31 March 2023. This was driven by subscriber
growth and a 10% improvement in Average Revenue Per User (ARPU). As a result, AMRR growth outpaced subscriber growth by 12
percentage points.
ANZ – AMRR of $876.5 million at 31 March 2023 grew 23% compared to FY22. This was mainly driven by subscriber growth, as well
as price changes and an uptake in ecosystem and financial service related products.
International – AMRR increased 31% to $677.3 million at 31 March 2023. This was driven by subscriber growth, favourable FX
impacts, price changes, and growth in financial services related products.
In constant currency terms, AMRR grew by 23% compared to 31 March 2022, due to the stronger USD and Great British Pound
(GBP) against the NZD at 31 March 2023.
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 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
2023
($000s)
2022
($000s)
change
Operating revenue
1,399,884
1,096,819
28%
Cost of revenue
(177,943)
(139,388)
28%
Gross profit
1,221,941
957,431
28%
Gross margin percentage
87.3%
87.3%
0.0pp
Gross profit increased by $264.5 million, or 28%, from FY22 to $1.2 billion, while gross margin percentage remained high at 87.3%.
Cost of revenue increased by 28% compared to FY22, in line with operating revenue. The increase was driven by additional hosting
costs, inflationary impacts from suppliers and increased personnel costs as Xero continued investing in our customer experience
team to support continued subscriber growth.
Xero Annual Report 2023
76
OUR PERFORMANCE
Gross margin percentage
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
2023
($000s)
2022
($000s)
change
Sales and marketing expenses
471,831
405,653
16%
Percentage of operating revenue
33.7%
37.0%
-3.3pp
Sales and marketing costs include:
• costs incurred in acquiring new subscribers
• costs associated with upselling to existing customers, and
• initiatives to educate existing customers to reduce churn.
These costs are expensed in the period. This is in contrast to the associated revenue from those subscribers, which is recognised
over the life of the subscriber (currently expected to be more than nine years on average).
Sales and marketing costs increased by 16% to $471.8 million for FY23, compared to operating revenue growth of 28%, reflecting
improvements in a number of operational metrics. The increase in sales and marketing expenses of $66.2 million in FY23 reflected
the resumption of Xerocon events in H1 FY23, inflationary pressures, increased personnel costs, and a return to travel following the
opening up of international borders.
Sales and marketing expenses as a percentage of operating revenue decreased by 3.3 percentage points to 33.7%, compared to
37.0% in FY22. Sales and marketing expenses as a percentage of operating revenue for the second half of FY23 was 31.4%, which
was 5.2 percentage points lower compared to the same period in FY22. This decrease reflected targeted efficiencies in sales and
marketing costs.
The average cost of acquiring a subscriber, which is one component of our sales and marketing costs, increased to $551 per
gross subscriber added, compared to $484 in FY22. The impact of three Xerocon events, compared with none in FY22, and
overall increased costs have driven this increase. We also had a continued focus on growing our International markets, which are
comparatively less efficient than those in ANZ.
FY20
80.0%
82.0%
86.0%
88.0%
84.0%
FY21
FY23
FY22
Xero Annual Report 2023
77
OUR PERFORMANCE
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, teams building and enhancing the
platform and related infrastructure, 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
2023
($000s)
2022
($000s)
change
Total product design and development costs
(including amounts capitalised)
597,181
471,990
27%
Percentage of operating revenue
42.7%
43.0%
-0.3pp
Less capitalised development costs
(259,767)
(211,683)
23%
Product design and development expense (excluding
amortisation of amounts capitalised)
337,414
260,307
30%
Less government grants
(2,130)
(3,350)
-36%
Add amortisation of capitalised development costs
154,764
115,067
34%
Product design and development expenses
490,048
372,024
32%
Percentage of operating revenue
35.0%
33.9%
1.1pp
Xero is committed to investing in product innovation and development to deliver new products, features and experiences to
customers to enable seamless work across the Xero platform.
Xero is also committed to investment in platform delivery to make the platform faster, more functional and more flexible, as well
as to support future platform growth and strategy delivery. For further details including product initiatives and delivery highlights,
see the Platform, Technology and Data section on page 43.
Total product design and development costs increased $125.2 million (27%) to $597.2 million for FY23. This was slightly lower
than operating revenue growth of 28% in the same period. Of this, $259.8 million was capitalised, with the balance of $337.4
million included in the Income Statement. The amount capitalised represents a capitalisation rate of 43.5% of total product design
and development costs for FY23, a decrease of 1.3 percentage points compared to 44.8% in FY22. As a percentage of operating
revenue, total product design and development costs for FY23 (including amounts capitalised) were 42.7%, a decrease of 0.3
percentage points on FY22.
The amortisation of capitalised development costs of $154.8 million reflects the impact of previously capitalised costs. This was
included as a non-cash expense in the Income Statement, resulting in total net expenses (after the netting off of government
grants) of $490.0 million for the year. As a percentage of operating revenue, product design and development expenses were
35.0%, an increase of 1.1 percentage points compared to FY22.
Xero Annual Report 2023
78
OUR PERFORMANCE
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, corporate communications, 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
2023
($000s)
2022
($000s)
change
General and administration expenses
168,077
144,172
17%
Percentage of operating revenue
12.0%
13.1%
-1.1pp
General and administration expenses increased by $23.9 million, or 17%, compared to FY22. This was driven by an increase in
personnel-related costs due to inflationary pressures and increased FTEs compared to FY22. The recruitment and overlap of the
new Chief Executive and the former Chief Executive’s service period also contributed to this increase.
General and administration expenses as a percentage of operating revenue decreased 1.1 percentage points compared to FY22,
to 12.0%. The reduction in expenses as a percentage of operating revenue is driven by lower professional services and integration
related costs, along with moderated hiring across the general and administration teams.
Employees
At 31 March
2023
2022
change
Xero Group
5,080
4,784
6%
Full-time equivalent (FTE) employees increased by 296, or 6%, in FY23 compared to 1,142 added in FY22, which included 266 FTEs
from acquired entities. This reflects a targeted approach to moderate hiring as Xero delivers economies of scale.
FTEs at 31 March 2023 largely exclude the impact of the program to streamline Xero’s operations announced and commenced in
March 2023. This will result in a reduction in FTEs in the first quarter of FY24. This is in contrast to the costs associated with this
program which have been recognised in FY23.
Xero Annual Report 2023
79
OUR PERFORMANCE
Net finance expense
Year ended 31 March
2023
($000s)
2022
($000s)
change
Interest income on deposits
29,101
4,080
NM
Finance lease interest income
18
–
NM
Total finance income
29,119
4,080
NM
Amortisation of discount and debt issuance costs
(34,640)
(29,682)
17%
Lease liability interest
(8,155)
(6,423)
27%
Unwind of contingent consideration
(992)
(5,112)
-81%
Bank standby facility costs
(652)
(2,134)
-69%
Other finance expense
(560)
(340)
65%
Total finance expense
(44,999)
(43,691)
3%
Net finance expense
(15,880)
(39,611)
-60%
Finance income increased significantly by $25.0 million to $29.1 million in FY23. This was due to higher global interest rates in
addition to an increase in cash and short-term deposit balances compared to FY22. Higher interest income was the key driver in
net finance expense decreasing by $23.7 million (60%).
Total finance expense increased by 3% to $45.0 million in FY23. This was largely due to an increase in amortisation of discount
and debt issuance costs of $5.0 million (17%) following a weaker NZD relative to the USD. This was partly offset by lower unwind
of discount on contingent consideration due to a lower contingent consideration liability relating to acquisitions, as well as lower
bank standby facility costs as a result of the $150 million facility not being renewed in H1 FY23.
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.
ANZ
($000s)
International
($000s)
Total
($000s)
Year ended 31 March 2023
Operating revenue
797,719
602,165
1,399,884
Expenses
(245,710)
(404,064)
(649,774)
Segment contribution
552,009
198,101
750,110
Contribution margin percentage
69.2%
32.9%
53.6%
Year ended 31 March 2022
Operating revenue
632,680
464,139
1,096,819
Expenses
(201,864)
(343,177)
(545,041)
Segment contribution
430,816
120,962
551,778
Contribution margin percentage
68.1%
26.1%
50.3%
ANZ - Operating revenue for FY23 grew by $165.0 million, or 26% (23% in constant currency), compared to FY22. This was driven
by subscriber growth, price changes and higher financial services related revenue.
Expenses in the ANZ segment increased by 22% from FY22, primarily due to an increase in cost of revenue. These expenses
increased 29%, driven by increases in hosting costs to provide greater site stability to support Xero’s growing customer base.
Segment contribution increased by $121.2 million (28%) to $552.0 million in FY23. The segment contribution margin percentage
was impacted by the return of Xerocon Sydney in the first half of the year, but still improved when compared to FY22. For the
second half of the year the contribution margin was 71.7%, compared to 68.9% in the same period of FY22.
Xero Annual Report 2023
80
OUR PERFORMANCE
International - Operating revenue for FY23 grew by $138.0 million, or 30% (27% in constant currency), compared with FY22. This
was a result of continued subscriber growth, price changes, and strong performances in financial services related revenue and
add-on revenue streams such as payroll.
Expenses in the International segment increased by $60.9 million, or 18%, from FY22, primarily due to a 16% increase in sales and
marketing spend. A key component of the increase in sales and marketing spend was related to Xerocon events in the UK and the
US, which returned in FY23. Excluding Xerocon expenses, sales and marketing expenses for the segment increased 11% over FY22,
compared to revenue growth of 30%.
The segment’s contribution for FY23 increased by $77.1 million, or 64%, to $198.1 million, compared with FY22. This resulted
in an increased contribution margin of 32.9% for FY23, up 6.8 percentage points on FY22. For the second half of the year the
contribution margin was 35.8%, compared to 27.0% in the same period of FY22.
Although the International segment contribution margin is increasing, it remains comparatively lower than that of ANZ. Xero’s
investment in the International segment reflects a greater focus on growing brand recognition and developing stronger distribution
channels.
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, evaluating 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 75) at 31 March, divided by subscribers at that
time and divided by 12 to get a monthly view.
Customer acquisition costs (CAC) months are the months of ARPU to recover the cost of acquiring each new subscriber.
The calculation represents the sales and marketing costs for the year, excluding the capitalisation and amortisation of contract
acquisition costs, less Xerocon revenue, divided by gross new subscribers added during the same period, divided by ARPU.
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. Xero
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 per subscriber and the cost to acquire that subscriber. For example, the LTV derived from a
subscriber is currently on average 6.5 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.
Xero Annual Report 2023
81
OUR PERFORMANCE
The table below outlines key metrics across Xero’s segments:
At 31 March 2023
ANZ
International
Total
ARPU ($)
34.24
35.10
34.61
CAC months
9.1
23.3
15.9
Churn
0.68%
1.21%
0.90%
LTV per subscriber ($)
4,374
2,542
3,587
LTV/CAC
14.0
3.1
6.5
At 31 March 2022
ANZ
International
Total
ARPU ($)
32.00
30.53
31.36
CAC months
8.8
22.9
15.5
Churn
0.66%
1.23%
0.90%
LTV per subscriber ($)
4,225
2,164
3,333
LTV/CAC
14.9
3.1
6.9
Xero Group – Xero Group ARPU increased 10% compared to 31 March 2022, driven by price increases and favourable FX impacts.
In constant currency terms, ARPU increased 8% on FY22.
Churn for the Xero Group remained at a low level and was flat compared to FY22 at 0.90%. Slight improvements in the
International segment offset a small increase in ANZ.
CAC months increased year-on-year to 15.9. This was due to lower subscriber growth and increased sales and marketing compared
to FY22. Year-on-year comparisons are impacted by Xerocon-related expenses. Excluding the impact of Xerocon, CAC months
remained consistent with FY22 at 15.5 months.
Total Subscriber LTV at 31 March 2023 increased by $2.5 billion, or 23% (21% in constant currency), to $13.4 billion compared to
31 March 2022. This increase was driven by growth in subscriber numbers and a 10% increase in ARPU. This resulted in a LTV per
subscriber of $3,587, 8% higher than FY22.
The LTV/CAC ratio decreased to 6.5 at 31 March 2023, from 6.9 at the end of FY22, due to the 14% increase in CAC per gross
subscriber added, offset by the 8% improvement in subscriber LTV.
ANZ - ARPU increased by 7% to $34.24 compared to FY22 (7% increase in constant currency). This was primarily driven by price
increases in both Australia and New Zealand and increased uptake in ecosystem and financial services related products.
CAC months increased year-on-year to 9.1 months, in line with increased sales and marketing costs. This was offset by increased
ARPU combined with higher gross subscriber additions compared to FY22.
Churn for FY23 increased slightly to 0.68%, from 0.66% for FY22, and remains at historically low levels.
The increase in ARPU, offset by the increase in churn, resulted in a 4% (4% in constant currency) increase in LTV per subscriber
from $4,225 in prior year to $4,374. Total ANZ subscriber LTV increased by $1.5 billion, or 19% (19% in constant currency), to
$9.3 billion at 31 March 2023.
An increase in sales and marketing expenditure and a slight increase in churn drove the decrease in the LTV/CAC ratio from 14.9 to
14.0 year-on-year, partially offset by increased gross additions year-on-year.
International - ARPU increased by 15% (9% in constant currency) to $35.10 compared to FY22. Price increases, adjacent products
and FX had a positive impact on International ARPU growth.
CAC months increased from 22.9 months in FY22 to 23.3 months in FY23, primarily driven by a 17% increase in CAC per gross
subscriber addition compared to the comparative period. Excluding Xerocon events in the UK and US, CAC months were 22.7 for
FY23, a 1% improvement on FY22.
Xero Annual Report 2023
82
OUR PERFORMANCE
Subscriber LTV for the International segment increased by 33% (26% in constant currency) compared to FY22 due to
improvements in ARPU and churn. This led to total International subscriber LTV of $4.1 billion, an increase of $1.0 billion, or 33%
(26% in constant currency) compared to FY22.
LTV/CAC remained consistent at 3.1 in FY23. Increased sales and marketing expenditure in the International segment balanced
increased subscriber LTV, driven by higher ARPU, lower churn and increased gross margin percentage.
Total lifetime value
At 31 March
$0
$15b
$12b
$9b
$6b
$3b
FY20
FY22
FY23
FY21
International
ANZ
Xero Annual Report 2023
83
FINANCIAL STATEMENTS
Audit Report, Financial Statements and Notes
Independent auditor’s report
84
Financial Statements
88
Income Statement
88
Statement of Comprehensive Income
88
Statement of Financial Position
89
Statement of Changes in Equity
90
Statement of Cash Flows
91
Notes to the Financial Statements
92
General information
1. Reporting entity and statutory base
92
2. Basis of accounting
92
Performance
3. Segment information
93
4. Revenue
94
5. Expenses
94
6. Other income and expenses
96
7. Finance income and expense
96
8. Earnings per share
97
Operating assets and liabilities
9. Trade and other receivables
97
10. Property, plant and equipment
98
11. Intangible assets
99
12. Trade and other payables
103
13. Other current liabilities
103
14. Provisions
103
15. Lease liabilities
104
16. Contingent consideration
105
Funding and risk
17. Term debt
105
18. Financial instruments, capital and financial risk management 106
19. Derivatives and hedge accounting
113
20. Changes in financial assets and liabilities arising from
financing activities
114
21. Share capital
115
Group structure
22. Group entities
115
Other information
23. Current and deferred tax
116
24. Reconciliation of operating cash flows
118
25. Share-based payments
119
26. Key management personnel and related parties
121
27. Commitments and contingencies
121
28. Events after the balance sheet date
121
Xero Annual Report 2023
84
INDEPENDENT AUDITOR’S REPORT
Independent auditor’s report to the
Shareholders of Xero Limited
Opinion
We have audited the financial statements of Xero Limited (“the company”) and its subsidiaries (together “the Group”) on pages
88 to 121, which comprise the consolidated statement of financial position of the Group as at 31 March 2023, 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 88 to 121 present fairly, in all material respects, the consolidated
financial position of the Group as at 31 March 2023 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 other assurance services related to the Group’s compliance with ISO 27001 and has
provided market remuneration data. 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.
Xero Annual Report 2023
85
INDEPENDENT AUDITOR’S REPORT
Capitalised Software Development Costs
Why significant
Capitalised software development costs make up 48% of the
Group’s non-current assets.
The Group capitalises costs incurred in the development of
its software when certain criteria are met, as explained in
Note 11. These costs are then amortised over the estimated
useful life of the software.
The Group’s process for calculating the cost of internally
developed software involves judgment as it includes
estimating time staff spent developing software and
determining the cost attributable to that time.
NZ IAS 36 Impairment of Assets requires finite life intangible
assets (including capitalised software development costs)
to 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.
Disclosures relating to capitalised software development
costs, including key assumptions, are included in Note 11 of
the consolidated financial statements.
How our audit addressed the key audit matter
In obtaining sufficient appropriate audit evidence, we:
• Assessed the nature of a sample of projects against the
requirements of NZ IAS 38 Intangible Assets to determine
if they were capital in nature;
• Assessed the procedures used to determine the rates
applied to capitalise payroll costs; and
• Assessed 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 2023
86
INDEPENDENT AUDITOR’S REPORT
Goodwill Impairment Testing
Why significant
The Group’s statement of financial position includes $331
million of goodwill at 31 March 2023 allocated across the
following four cash generating units (CGUs):
• $139 million for Planday
• $92 million for International
• $63 million for Australia and New Zealand
• $37 million for TaxCycle
NZ IAS 36 Impairment of Assets requires goodwill be tested
for impairment annually irrespective of whether there are
any indicators of impairment. This assessment requires
judgment including consideration of both internal and
external sources of information.
Goodwill in relation to the Planday and Waddle CGUs were
both impaired in the current year. The impairment loss
recognised totalled $95m.
In considering whether goodwill was impaired, the group
estimated the recoverable amount of each CGU using either
a revenue multiple approach or a discounted cash flow
approach to assess its fair value. Both of these approaches
require significant judgment in assessing the appropriate
valuation inputs.
Disclosures relating to goodwill impairment, including key
assumptions used and sensitivity of the assessment to
certain judgmental inputs, are included in Note 11 of the
consolidated financial statements.
How our audit addressed the key audit matter
In obtaining sufficient appropriate audit evidence, we:
• Used our valuation specialists to:
–
assess whether the methods applied met the
requirements of NZ IAS 36 Impairment of Assets;
–
for CGUs where a multiples approach has been used,
consider the appropriateness of the revenue multiples
used in the impairment models in relation to observed
multiples for other businesses considered comparable;
–
for CGUs where a discounted cash flow approach was
used, consider the appropriateness of the discount
rate and terminal growth rate applied
• Considered free cash flows incorporated in discounted
cash flow models with reference to historical
performance;
• Checked whether revenue used in revenue multiple
calculations aligned to actual revenue for the year;
• Performed sensitivity analysis for key drivers of the
impairment models, including the sensitivity of the
results to changes in the revenue multiples, discount rate
and terminal growth rates used;
• Assessed the adequacy of the disclosures related to
goodwill impairment considerations and impairment
recognised 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.
Xero Annual Report 2023
87
INDEPENDENT AUDITOR’S REPORT
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.
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
18 May 2023
Xero Annual Report 2023
88
FINANCIAL STATEMENTS
Financial Statements
Income Statement
Year ended 31 March
Notes
2023
($000s)
2022
($000s)
Subscription revenue
1,326,278
1,049,618
Other operating revenue
73,606
47,201
Total operating revenue
4
1,399,884
1,096,819
Cost of revenue
5
(177,943)
(139,388)
Gross profit
1,221,941
957,431
Operating expenses
Sales and marketing
(471,831)
(405,653)
Product design and development
(490,048)
(372,024)
General and administration
(168,077)
(144,172)
Restructuring costs
(34,692)
–
Total operating expenses
5
(1,164,648)
(921,849)
Operating income
57,293
35,582
Other income
6
18,130
45,177
Other expenses
6
(12,540)
(14,090)
Asset impairments and disposals
10, 11
(122,680)
(24,695)
Earnings before interest and tax
(59,797)
41,974
Finance income
7
29,119
4,080
Finance expense
7
(44,999)
(43,691)
Net profit/(loss) before tax
(75,677)
2,363
Income tax expense
23
(37,855)
(11,477)
Net loss
(113,532)
(9,114)
Basic and diluted loss per share
8
($0.76)
($0.06)
Statement of Comprehensive Income
Year ended 31 March
Note
2023
($000s)
2022
($000s)
Net loss
(113,532)
(9,114)
Other comprehensive income*
Movement in cash flow hedges (net of tax)
19
(2,403)
6,604
Translation of foreign operations (net of tax)
(8,361)
2,084
Total other comprehensive income/(loss) for the year
(10,764)
8,688
Total comprehensive loss for the year
(124,296)
(426)
* 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 2023
89
FINANCIAL STATEMENTS
Statement of Financial Position
Notes
At 31 March
2023
($000s)
At 31 March
2022
($000s)
Assets
Current assets
Cash and cash equivalents
230,624
404,192
Short-term deposits
886,563
531,866
Trade and other receivables
9
128,998
112,311
Derivative assets
19
5,570
6,233
Income tax receivable
4,406
8,551
Other current assets
7,450
8,601
Total current assets
1,263,611
1,071,754
Non-current assets
Property, plant and equipment
10
138,094
158,317
Intangible assets
11
963,032
959,354
Derivative assets
19
31,853
56,269
Deferred tax assets
23
92,000
97,069
Other non-current assets
1,565
577
Total non-current assets
1,226,544
1,271,586
Total assets
2,490,155
2,343,340
Liabilities
Current liabilities
Trade and other payables
12
52,204
55,461
Employee entitlements
95,708
82,727
Provisions
14
42,925
560
Lease liabilities
15
17,258
14,292
Derivative liabilities
19
5,544
2,511
Income tax payable
3,607
936
Other current liabilities
13
37,819
40,003
Total current liabilities
255,065
196,490
Non-current liabilities
Term debt
17
1,019,794
884,839
Lease liabilities
15
106,163
121,926
Derivative liabilities
19
28,147
56,624
Deferred tax liabilities
23
12,859
13,377
Contingent consideration
16
1,152
13,817
Other non-current liabilities
13,069
22,344
Total non-current liabilities
1,181,184
1,112,927
Total liabilities
1,436,249
1,309,417
Equity
Share capital
21
1,710,392
1,580,858
Reserves
(213,078)
(217,059)
Accumulated losses
(443,408)
(329,876)
Total equity
1,053,906
1,033,923
Total liabilities and shareholders' equity
2,490,155
2,343,340
The accompanying notes form an integral part of these financial statements
Xero Annual Report 2023
90
FINANCIAL STATEMENTS
Statement of Changes in Equity
Notes
Share
capital
($000s)
Treasury
shares
($000s)
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 2021
1,295,211
(1,891) 80,758
(320,762)
(2,495)
(3,619) (301,256)
745,946
Net loss
–
–
–
(9,114)
–
–
–
(9,114)
Other comprehensive income
–
–
–
–
2,084
6,604
–
8,688
Total comprehensive loss
–
–
–
(9,114)
2,084
6,604
–
(426)
Transactions with owners:
Share-based payments, net of tax
25
62,344
5,987
16,876
–
–
–
–
85,207
Share options exercised
25
52,415
–
(16,011)
–
–
–
–
36,404
Issue of shares – acquisition related
21
166,792
–
–
–
–
–
–
166,792
Balance at 31 March 2022
1,576,762
4,096
81,623
(329,876)
(411)
2,985 (301,256) 1,033,923
Net loss
–
–
–
(113,532)
–
–
–
(113,532)
Other comprehensive loss
–
–
–
–
(8,361)
(2,403)
–
(10,764)
Total comprehensive loss
–
–
–
(113,532)
(8,361)
(2,403)
–
(124,296)
Transactions with owners:
Share-based payments, net of tax
25
80,589
3,129
28,852
–
–
–
–
112,570
Share options exercised
25
45,816
–
(14,107)
–
–
–
–
31,709
Balance at 31 March 2023
1,703,167
7,225 96,368
(443,408)
(8,772)
582 (301,256) 1,053,906
The accompanying notes form an integral part of these financial statements
Xero Annual Report 2023
91
FINANCIAL STATEMENTS
Statement of Cash Flows
Year ended 31 March
Note
2023
($000s)
2022
($000s)
Operating activities
Receipts from customers
1,394,237
1,089,806
Other income
1,422
3,161
Interest received
21,768
2,926
Payments to suppliers and employees
(1,006,411)
(830,568)
Interest paid
(9,271)
(8,715)
Income tax paid
(11,296)
(20,239)
Net cash flows from operating activities
24
390,449
236,371
Investing activities
Capitalised development costs
(262,496)
(205,348)
Purchase of property, plant and equipment
(6,752)
(19,029)
Capitalised contract acquisition costs
(16,587)
(16,344)
Business acquisitions
(15,879)
(185,423)
Other investing activities
(3,182)
(3,900)
Net cash flows from investing activities
(304,896)
(430,044)
Financing activities
Proceeds from short-term deposits
1,427,144
963,878
Payments for short-term deposits
(1,742,659)
(1,044,173)
Proceeds from borrowings
2,146
4,279
Repayment of borrowings
(4,888)
(2,433)
Share options exercised
31,709
35,981
Payment of lease liabilities
(16,547)
(13,599)
Payments for buyback of convertible notes
–
(5,455)
Net cash flows from financing activities
(303,095)
(61,522)
Net decrease in cash and cash equivalents
(217,542)
(255,195)
Foreign currency translation adjustment
43,974
1,538
Cash and cash equivalents at the beginning of the period
404,192
657,849
Cash and cash equivalents at the end of the period
230,624
404,192
The accompanying notes form an integral part of these financial statements
Xero Annual Report 2023
92
NOTES TO THE FINANCIAL STATEMENTS
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 Market 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 2023 were authorised in accordance with a
resolution of the directors for issue on 18 May 2023.
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
Operating income disclosures have been added to the
Income Statement for the current and comparative periods.
The disclosures represent total operating revenue less cost
of revenue and operating expenses, and demonstrate the
operating performance of the Group.
Certain comparative information in the Income Statement,
Statement of Financial Position and Notes 7, 11 and 13 has
been reclassified to conform with the current period’s
presentation.
All other accounting policies and disclosures adopted are
consistent with those of the previous year.
(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 NZ IAS 1: Presentation of
Financial Statements. The amendments are effective for
Xero from 1 April 2024. The amendments will result in the
current classification of the term debt and embedded
conversion feature derivative liability components of Xero's
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.
The 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 2023
93
NOTES TO THE FINANCIAL STATEMENTS
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 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 2023
Operating revenue
797,719
602,165
1,399,884
Expenses
(245,710)
(404,064)
(649,774)
Segment contribution
552,009
198,101
750,110
Year ended 31 March 2022
Operating revenue
632,680
464,139
1,096,819
Expenses
(201,864)
(343,177)
(545,041)
Segment contribution
430,816
120,962
551,778
Reconciliation from segment contribution to net profit/(loss) before tax
Year ended 31 March
2023
($000s)
2022
($000s)
Segment contribution
750,110
551,778
Product design and development
(490,048)
(372,024)
General and administration
(168,077)
(144,172)
Restructuring costs
(34,692)
–
Other income
18,130
45,177
Other expenses
(12,540)
(14,090)
Asset impairments and disposals
(122,680)
(24,695)
Finance income
29,119
4,080
Finance expense
(44,999)
(43,691)
Net profit/(loss) before tax
(75,677)
2,363
Depreciation and amortisation by segment
Year ended 31 March
2023
($000s)
2022
($000s)
ANZ
14,445
14,801
International
27,072
23,204
Corporate (not allocated to a segment)
176,679
132,682
Total
218,196
170,687
At 31 March 2023, $618.8 million, or 56%, of the Group’s property, plant and equipment and intangible assets was domiciled
in New Zealand (2022: $517.0 million, or 45%).
Share-based payments by segment
Year ended 31 March
2023
($000s)
2022
($000s)
ANZ
12,525
11,704
International
17,815
13,876
Corporate (not allocated to a segment)
50,522
35,477
Total
80,862
61,057
Xero Annual Report 2023
94
NOTES TO THE FINANCIAL STATEMENTS
4. Revenue
Operating revenue by geographic location
Year ended 31 March
2023
($000s)
2022
($000s)
Australia
623,768
483,288
United Kingdom
370,751
291,614
New Zealand
173,951
149,392
North America
95,909
72,571
Rest of World
135,505
99,954
Total operating revenue
1,399,884
1,096,819
Subscription revenue
Subscription revenue comprises recurring monthly fees from subscribers to Xero's cloud-based software products. Subscribers are
invoiced monthly. Unbilled revenue earned at balance date is recognised in the Statement of Financial Position as accrued income
and included within trade and other receivables. Unearned revenue received 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 over time 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,
of which the majority are provided under agency relationships, and ecosystem arrangements along with income from conferences.
For the year ended 31 March 2023, 58%, or $42.5 million (2022: 60%, or $28.4 million) of other operating revenue was recognised
on a usage basis over time, and 13%, or $9.9 million, (2022: nil) related to conference revenue recognised at a point in time.
Performance obligations under financial services and ecosystem arrangements include the referral of customers to the revenue
share counterparty and the continued servicing of that customer by the counterparty. Performance obligations for conference
revenue consist of the delivery of the conference.
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 2023
95
NOTES TO THE FINANCIAL STATEMENTS
Cost of revenue and operating expenses
Year ended 31 March
2023
($000s)
2022
($000s)
Employee entitlements
766,166
608,219
Employee entitlements capitalised
(221,241)
(171,648)
Share-based payments
106,920
80,355
Share-based payments capitalised
(26,058)
(19,298)
Advertising and marketing
167,012
144,646
Platform costs
91,639
72,871
Platform costs capitalised
(9,980)
(9,668)
Consultants and contractors
75,524
86,289
Consultants and contractors capitalised
(44,915)
(46,035)
Computer equipment and software
50,463
40,433
Superannuation costs
38,651
28,953
Travel-related costs
16,208
2,972
Recruitment and other personnel costs
12,218
13,848
Communication, insurance and office administration
12,200
10,706
Rental costs
9,395
9,283
Auditor's remuneration
818
778
Restructuring costs
34,692
–
Other operating expenses
44,683
37,846
Total cost of revenue and operating expenses excl. depreciation and amortisation*
1,124,395
890,550
*Net of $302.2 million of costs capitalised as intangible assets (2022: $246.6 million) and grant income of $2.2 million (2022: $3.5 million)
Depreciation and amortisation
Year ended 31 March
2023
($000s)
2022
($000s)
Relating to:
Amortisation of development costs
170,816
127,323
Amortisation of other intangible assets
17,281
15,510
Depreciation of property, plant and equipment
30,099
27,854
Total depreciation and amortisation
218,196
170,687
Total cost of revenue and operating expenses
1,342,591
1,061,237
Depreciation and amortisation included in function expenses:
Product design and development
171,316
126,579
Sales and marketing
31,676
29,363
Cost of revenue
9,841
8,642
General and administration
5,363
6,103
Total depreciation and amortisation
218,196
170,687
Xero Annual Report 2023
96
NOTES TO THE FINANCIAL STATEMENTS
Auditor's remuneration
The auditor of the Group is Ernst & Young New Zealand.
Year ended 31 March
2023
($000s)
2022
($000s)
Fees for auditing the statutory financial statements
682
633
Fees for other assurance and agreed-upon-procedures services under legislation or
contractual arrangements not required to be performed by the auditor
Assurance-related*
131
107
Fees for other services
Tax compliance
–
36
Other non-audit services**
5
2
Total auditor's remuneration
818
778
* Assurance-related services relate to ISO 27001 certification
** Other non-audit services relate to the provision of remuneration market data
6. Other income and expenses
Other income
Year ended 31 March
2023
($000s)
2022
($000s)
Revaluation of contingent consideration
8,921
38,874
Planday revenue incentive
4,836
–
Derivative revaluation gain
4,129
–
Other income
244
6,303
Total other income
18,130
45,177
Other expenses
Year ended 31 March
2023
($000s)
2022
($000s)
Onerous contract provision
5,575
–
Other expenses
6,965
1,280
Derivative revaluation loss
–
2,274
Planday revenue incentive
–
10,536
Total other expenses
12,540
14,090
7. 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
2023
($000s)
2022
($000s)
Amortisation of discount and debt issuance costs
34,640
29,682
Lease liability interest
8,155
6,423
Unwind of discount on contingent consideration
992
5,112
Bank standby facility costs
652
2,134
Other finance expense
560
340
Total finance expense
44,999
43,691
Xero Annual Report 2023
97
NOTES TO THE FINANCIAL STATEMENTS
8. 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 loss 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.
Year ended 31 March
2023
(000s)*
2022
(000s)*
Weighted average number of ordinary shares
150,037
148,396
Net loss attributable to equity holders of the Group
($113,532)
($9,114)
Basic loss per share
($0.76)
($0.06)
* Except for per share amounts
Diluted EPS is determined by adjusting the net loss 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.
For the years ended 31 March 2023 and 31 March 2022, there were no differences between diluted and basic EPS.
9. Trade and other receivables
At 31 March
2023
($000s)
2022
($000s)
Prepayments
44,485
43,700
Accrued income
41,965
35,132
Trade receivables
13,919
16,164
Provision for doubtful debts
(954)
(1,291)
Interest receivable
9,311
1,873
Other receivables
20,272
16,733
Total trade and other receivables
128,998
112,311
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 subscriptions to Xero’s software products, the majority paid by direct debit. At 31 March 2023,
trade receivables of the Group of $0.9 million were past due and are considered partially impaired (2022: $1.0 million).
Other receivables at 31 March 2023 include $19.4 million receivable in relation to shares that were sold to cover employees’
withholding obligations under Xero’s employee share-based compensation plans (2022: $15.9 million). 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 an Expected Credit Loss (ECL)
model. The Group calculates the impairment for trade receivables using lifetime ECL, which is the expected credit loss resulting
from all possible default events over the expected life of the trade receivable.
A six-month historical default rate is applied to the current period trade receivable balance to calculate any impairment. Where
relevant, forward-looking information is also included in the ECL assessment. 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 2023
98
NOTES TO THE FINANCIAL STATEMENTS
10. Property, plant and equipment
Right of use asset
($000s)
Leasehold
improvements
($000s)
Furniture and
equipment
($000s)
Computer
equipment
($000s)
Total
($000s)
Year ended 31 March 2023
Opening net book value
116,853
26,887
9,214
5,363
158,317
Additions
10,405
2,667
328
3,115
16,515
Impairments and disposals*
(2,314)
(107)
(146)
(75)
(2,642)
Reassessment of lease liabilities
(8,046)
-
-
-
(8,046)
Depreciation expense
(19,433)
(4,190)
(2,494)
(3,982)
(30,099)
Foreign exchange adjustment
3,157
406
219
267
4,049
Closing net book value
100,622
25,663
7,121
4,688
138,094
At 31 March 2023
Cost
153,490
44,083
15,325
10,485
223,383
Accumulated depreciation
(52,868)
(18,420)
(8,204)
(5,797)
(85,289)
Closing net book value
100,622
25,663
7,121
4,688
138,094
*$1.0 million of right of use asset disposals relates to finance lease receivable (2022: $0.2 million of right of use asset disposals related to disposal of lease
liabilities)
Right of use asset
($000s)
Leasehold
improvements
($000s)
Furniture and
equipment
($000s)
Computer
equipment
($000s)
Total
($000s)
Year ended 31 March 2022
Opening net book value
77,048
20,177
8,554
3,579
109,358
Additions
49,896
11,423
2,718
5,077
69,114
Acquisitions
8,473
466
558
210
9,707
Impairments and disposals
(197)
(22)
(220)
(45)
(484)
Depreciation expense
(16,870)
(5,138)
(2,417)
(3,429)
(27,854)
Foreign exchange adjustment
(1,497)
(19)
21
(29)
(1,524)
Closing net book value
116,853
26,887
9,214
5,363
158,317
At 31 March 2022
Cost
153,223
41,997
15,915
10,082
221,217
Accumulated depreciation
(36,370)
(15,110)
(6,701)
(4,719)
(62,900)
Closing net book value
116,853
26,887
9,214
5,363
158,317
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:
Right of use asset*
Term of lease**
Leasehold improvements
Term of lease**
Furniture and equipment
2–7 years
Computer equipment
2–3 years
* Substantially all of the right of use asset relates to building leases
** Lease terms range between 2–12 years
There were no changes to the useful lives of property, plant and equipment compared to the year ended 31 March 2022.
Xero Annual Report 2023
99
NOTES TO THE FINANCIAL STATEMENTS
11. Intangible assets
Software
development
($000s)
Contract acquisition
asset
($000s)
Other intangible
assets
($000s)
Goodwill
($000s)
Total
($000s)
Year ended 31 March 2023
Opening net book value
490,171
35,997
13,252
419,934
959,354
Additions*
284,461
15,769
1,964
–
302,194
Amortisation expense
(170,816)
(14,230)
(3,051)
–
(188,097)
Impairments
(21,691)
–
(2,443)
(94,904)
(119,038)
Disposals
(2,234)
–
–
–
(2,234)
Foreign exchange adjustment
2,735
1,854
280
5,984
10,853
Closing net book value
582,626
39,390
10,002
331,014
963,032
At 31 March 2023
Cost
932,662
73,862
15,684
331,014
1,353,222
Accumulated amortisation
(350,036)
(34,472)
(5,682)
–
(390,190)
Closing net book value
582,626
39,390
10,002
331,014
963,032
* Included in software development additions is $54.9 million of external costs capitalised (2022: $55.3 million)
Software
development
($000s)
Contract acquisition
asset
($000s)
Other intangible
assets
($000s)
Goodwill
($000s)
Total
($000s)
Year ended 31 March 2022
Opening net book value
318,608
31,901
7,398
126,110
484,017
Additions
228,720
17,087
842
–
246,649
Acquisitions
72,222
–
10,807
314,252
397,281
Amortisation expense
(127,323)
(12,571)
(2,939)
–
(142,833)
Impairments
(983)
–
(2,736)
(20,381)
(24,100)
Disposals
(595)
–
–
–
(595)
Foreign exchange adjustment
(478)
(420)
(120)
(47)
(1,065)
Closing net book value
490,171
35,997
13,252
419,934
959,354
At 31 March 2022
Cost
741,874
77,932
16,973
419,934
1,256,713
Accumulated amortisation
(251,703)
(41,935)
(3,721)
–
(297,359)
Closing net book value
490,171
35,997
13,252
419,934
959,354
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 2023, if software development capitalisation
rates had been 10% higher/lower with all other variables held
constant, the impact on operating expenses would have
been $26.0 million lower/higher (2022: $21.2 million).
Xero Annual Report 2023
100
NOTES TO THE FINANCIAL STATEMENTS
Contract acquisition costs
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
(2022: 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
3–7.5 years
Contract acquisition asset
5 years
Customer contracts
7.5 years
Patents, domains, brands, and
trademark costs
5–10 years
There were no differences to the estimated useful lives of
intangible assets compared to the year ended 31 March
2022, other than customer contracts which had useful lives
ranging from 3-7.5 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.
In accordance with NZ IAS 36: Impairment of Assets, the
recoverable amount of an asset is the greater of fair value
less costs of disposal or 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.
Finite life intangible asset impairment testing
Further to the impairment disclosed within the goodwill
impairment testing section below, an indicator of
impairment was identified in March 2023 for the Waddle
CGU in connection with the decision to exit the Waddle
business. As a result, an impairment test was performed over
the Waddle CGU at 31 March 2023.
The recoverable amount of the Waddle CGU of $10.1 million
at 31 March 2023 was calculated on the basis of fair value
less costs of disposal in accordance with NZ IFRS 13: Fair
Value Measurement. This methodology yielded a higher
recoverable amount than that obtained using a value in use
approach and therefore was required to be used in
impairment testing under NZ IAS 36. Fair value was
determined using a 12-month look back peer company
revenue multiple of 1.6, including a control premium of 40%.
The recoverable amount is classified as level two on the fair
value hierarchy.
As the fair value less costs of disposal is less than the
carrying value of the CGU of $25.4 million, an impairment of
$15.3 million has been recognised in the current year. Of this
impairment, $14.9 million, $0.3 million and $0.1 million was
recognised against capitalised software, other intangible
assets and property, plant and equipment, respectively. The
impairment charge is recorded within asset impairments and
disposals in the Income Statement for the year ended 31
March 2023.
A sensitivity analysis has been performed over the key inputs
to the determined revenue multiple, being the publicly
traded multiples of peer companies and the control
premium. With all other variables held constant, a 10%
decrease in the peer company revenue multiple would result
in a increase to the impairment loss of $1.2 million. With all
other variables held constant, a 10% decrease in the control
premium would result in an increase to the impairment loss
of $0.3 million.
Goodwill impairment testing
Goodwill is allocated to cash-generating units (CGUs), which
are the lowest level of assets that generate cash inflows that
are largely independent of the cash inflows of other assets.
The Group performed a detailed impairment review of
goodwill for the year ended 31 March 2023. The allocation of
goodwill to CGUs and methodology applied for the current
year testing are outlined below. There were no changes to
the allocation of goodwill from business combinations in
previous years.
Xero Annual Report 2023
101
NOTES TO THE FINANCIAL STATEMENTS
At 31 March, goodwill is allocated to CGUs within the Group
as follows:
At 31 March
2023
($000s)
2022
($000s)
ANZ CGU
63,212
61,552
International CGU
91,886
89,372
Planday CGU
138,612
216,539
TaxCycle CGU
37,304
36,297
Waddle CGU
–
16,174
Total goodwill
331,014
419,934
ANZ and International CGUs
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 was
determined using a 12-month look back peer company
revenue multiple of 5.9 for ANZ and 7.7 for International
(2022: 15.4), including a control premium of 40% for ANZ and
38% for International (2022: 20%). The recoverable amount
is classified as level two on the fair value hierarchy. A
sensitivity analysis has been performed over the key inputs
to the determined revenue multiple, being the publicly
traded multiples of peer companies and the control
premium. A reasonably possible change in the key inputs
would not give rise to an impairment.
Planday CGU
The recoverable amount of the Planday CGU of $195.7
million at 31 March 2023 was calculated on the basis of fair
value less costs of disposal in accordance with NZ IFRS 13.
This valuation methodology yields a higher recoverable
amount than that obtained using a value in use valuation
approach and therefore is the approach required to be used
in calculating impairment under NZ IAS 36. Fair value was
determined using a 12-month look back peer company
revenue multiple of 5.2 (2022: 12.2), including a control
premium of 32% (2022: 20%). The recoverable amount is
classified as level two on the fair value hierarchy.
As the fair value less costs of disposal is less than the
carrying value of the CGU of $273.7 million, an impairment of
$77.9 million has been recognised in the current year.
As a result of the impairment, goodwill relating to the Planday
CGU was reduced from $216.5 million to $138.6 million. The
impairment charge is recorded within asset impairments and
disposals in the Income Statement for the year ended 31
March 2023. The impairment results from a reduction in
market valuation multiples, along with operational
performance.
A sensitivity analysis has been performed over the key inputs
to the determined revenue multiple, being the publicly
traded multiples of peer and the control premium. With all
other variables held constant, a 10% decrease in the peer
company revenue multiple would result in an increase to the
impairment loss of $20.6 million. With all other variables
held constant, a 10% decrease in the control premium would
result in an increase to the impairment loss of $5.0 million.
TaxCycle CGU
The recoverable amount of the TaxCycle CGU was calculated
based on a value in use valuation using a discounted cash
flow model. The major inputs and assumptions used in
performing the assessment that require judgement are
included in the table below.
Cash flow forecast period
5 years
Average annual cash flow growth
75%
Terminal growth rate
4%
Discount rate (post-tax)
12%
Discount rate (pre-tax)
16%
Growth in cash flows reflects the fact that revenues are
expected to increase at a much higher rate than expenses as
economies of scale are achieved. The forecast financial
information was based on both past experience and future
expectations of CGU performance. The terminal growth rate
is determined based on the long-term anticipated growth
rate of the business and was determined with reference to
external benchmarks. The discount rate used is based on the
CGU’s weighted average cost of capital and was determined
by an external valuation specialist.
A sensitivity analysis was performed over the key inputs to
the value in use valuation, being the discount rate, terminal
growth rate and cash flow forecasts. With all other variables
held constant, the discount rate would need to increase by
1.5 percentage points, the terminal growth rate would need
to decrease by 2.0 percentage points, or the forecast cash
flows would need to be discounted by 18.0 percentage points
before the recoverable amount of the CGU would be less
than its carrying value.
For the year ended 31 March 2022, the recoverable amount
of the TaxCycle CGU was calculated on the basis of fair value
less costs of disposal. The peer company revenue multiple
used in determining the recoverable amount under the fair
value less costs of disposal valuation was 10.1, including a
control premium of 20%. With all other variables held
constant, the peer company multiple would have needed to
decrease by 2.0 before the recoverable amount of the CGU
was less than its carrying value. With all other variables held
constant, no possible decreases to the control premium
would have resulted in the recoverable amount being less
than its carrying amount.
Xero Annual Report 2023
102
NOTES TO THE FINANCIAL STATEMENTS
Waddle CGU
An indicator of impairment was identified at 30 September
2022 for the Waddle CGU, due to changed operational and
market conditions. As a result, an impairment test was
performed over the Waddle CGU at 30 September 2022.
The recoverable amount of the Waddle CGU of $23.9 million
at 30 September 2022 was calculated based on a value in use
valuation using a discounted cash flow model. This valuation
methodology yielded a higher recoverable amount than that
obtained using a fair value less costs of disposal approach
and therefore was required to be used in impairment testing
calculations under NZ IAS 36.
The major inputs and assumptions used in performing the
assessment at 30 September 2022 that require judgement
are included in the table below.
Cash flow forecast period
5 years
Average annual revenue cash flow growth
43%
Average annual costs cash flow growth
22%
Terminal growth rate
4%
Discount rate (post-tax)
16%
Discount rate (pre-tax)
23%
Growth in cash flows reflected the fact that revenues were
expected to increase at a much higher rate than expenses as
economies of scale were achieved. The forecast financial
information was based on both past experience and future
expectations of CGU performance. The terminal growth rate
was determined based on the long-term anticipated growth
rate of the business. The discount rate was determined by an
external valuation specialist. A sensitivity analysis was
performed over the key inputs to the value in use valuation
being the discount rate, terminal growth rate and cash flow
forecasts. With all other variables held constant a 1.0
percentage point increase in discount rate, or a 1.0
percentage point decrease in terminal growth rate would
have resulted in an additional impairment of $4.1 million and
$3.0 million, respectively. A 10% reduction in forecasted cash
flows would have resulted in an additional $5.5 million
impairment.
As the recoverable amount determined using the value in use
valuation methodology was less than the carrying amount of
the Waddle CGU of $49.8 million, an impairment of $25.9
million was recognised in the current year. Of this
impairment, $17.0 million, $2.2 million and $6.8 million was
recognised against goodwill, customer contracts and
software development, respectively. The impairment charge
is recorded within asset impairments and disposals in the
Income Statement for the year ended 31 March 2023.
For the year ended 31 March 2022, the recoverable amount of
the Waddle CGU of $48.0 million was calculated on the basis
of fair value less costs of disposal. The peer company revenue
multiple used in determining the recoverable amount under
the fair value less cost of disposal valuation approach was 5.7,
inclusive of a control premium of 20%. As the fair value less
costs of disposal was less than the carrying value of the CGU
of $68.4 million, an impairment of $20.4 million was
recognised. With all other variables held constant, a 10%
decrease in the peer company revenue multiple would have
resulted in an increase to the impairment loss of $4.9 million.
With all other variables held constant, a 10% decrease in the
control premium would have resulted in an increase to the
impairment loss of $0.8 million.
Xero Annual Report 2023
103
NOTES TO THE FINANCIAL STATEMENTS
12. Trade and other payables
At 31 March
2023
($000s)
2022
($000s)
Trade payables
17,819
15,297
Accrued expenses
27,629
30,359
Sales tax payable
6,756
9,805
Total trade and other payables
52,204
55,461
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.
13. Other current liabilities
At 31 March
Note
2023
($000s)
2022
($000s)
Income in advance
27,961
25,968
Contingent consideration
16
271
10,399
Other current liabilities
9,587
3,636
Total other current liabilities
37,819
40,003
The Group recognises other current liabilities, excluding contingent consideration and acquisition holdbacks payable included in
other current liabilities, initially at fair value and subsequently at amortised cost, using the effective interest method. Contingent
consideration and acquisition holdbacks payable are recognised initially at the present value of expected future cash flows and
subsequently at fair value. 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.
14. Provisions
At 31 March 2023
Restructuring
provision
($000s)
Onerous contracts
($000s)
Other provisions
($000s)
Total
($000s)
Opening balance
–
–
6,223
6,223
Provisions made during the year
32,114
5,575
8,636
46,325
Provisions utilised during the year
–
–
(36)
(36)
Provisions reversed during the year
–
–
(415)
(415)
Unwinding of discount
–
–
275
275
Foreign exchange adjustment
(349)
(20)
193
(176)
Closing balance
31,765
5,555
14,876
52,196
Current
31,765
3,071
8,089
42,925
Non-current
–
2,484
6,787
9,271
Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable
that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated.
Restructuring provisions relate to the estimated costs of employee termination benefits and other exit costs related to a program
announced to streamline the Group’s operations and realign the business. The provision for restructuring has been recognised as
the Group has approved a detailed and formal restructuring plan, and the restructuring has commenced and been announced
publicly. Future operating costs are not provided for. Estimation uncertainty relates to the specific employees who will exit the
business, and timing of the plan being carried out.
Non-current provisions are included in other non-current liabilities in the Statement of Financial Position.
Xero Annual Report 2023
104
NOTES TO THE FINANCIAL STATEMENTS
15. Lease liabilities
At 31 March
2023
($000s)
2022
($000s)
Balance at 1 April
136,218
94,530
Leases entered into during the period
8,361
43,600
Principal repayments
(16,547)
(13,599)
Change in future lease payments
(8,046)
4,897
Foreign exchange adjustment
3,435
(1,683)
Acquisitions
–
8,473
Balance at 31 March
123,421
136,218
Current
17,258
14,292
Non-current
106,163
121,926
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. The majority of the Group's leases relate to buildings.
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. The expense relating to short-term leases for the year ended 31 March 2023 was $3.2 million (2022:
$2.7 million). 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 2023 was $5.2 million (2022: $4.8 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 if there is a change in future lease payments arising from a change in an index or market rate, if
there is a change in the Group's estimate of the amount expected to be payable, or if the Group changes its assessment of whether
it will exercise a renewal or termination option.
At lease commencement, the Group assesses whether it expects to exercise renewal or termination options included in contracts.
Where it is reasonably certain that such options will be exercised, these are included in the determination of the lease term. The
lease term is reassessed if there is a significant event or change in circumstances, that is within the Group's control, which affects
whether the Group is reasonably certain to exercise an option.
Xero Annual Report 2023
105
NOTES TO THE FINANCIAL STATEMENTS
16. Contingent consideration
At 31 March
2023
($000s)
Balance at 1 April
24,216
Unwinding of discount
992
Contingent consideration payments
(15,879)
Change in fair value estimate
(8,921)
Foreign exchange adjustment
1,015
Balance at 31 March
1,423
Current
271
Non-current
1,152
Contingent consideration comprises the Group’s probability-weighted assessment of discounted amounts payable to vendors in
respect of business acquisitions. Payments of contingent consideration during the year comprised payments to the previous
shareholders of Waddle and Tickstar for the completion of a number of product development and business integration milestones.
Changes in fair value estimates for the year ended 31 March 2023 includes revaluation gains relating to expected payments for
revenue and product milestones. The revenue milestone revaluations result from updated revenue forecasts, while revaluations
relating to product milestones result from changes in probability of achievement of product development milestones.
$0.7 million of the balance at 31 March 2023 is expected to be settled in cash, with the remaining expected to be settled in shares
of Xero Limited. The non-current portion of contingent consideration is expected to become payable following the achievement of
specified revenue milestones by June 2024.
17. Term debt
Convertible notes and conversion feature derivative
On 2 December 2020, Xero Investments Limited, a wholly owned subsidiary of the Company, issued USD700 million of convertible
notes. The notes are listed on the SGX-ST.
The notes have a zero coupon interest rate, are unsubordinated, unsecured obligations of Xero, and will redeem at par at the final
maturity date of 2 December 2025. The noteholders have the right to redeem the notes at any time, in cash or in ordinary shares at
the election of Xero. The cash settlement amount will be calculated based on the number of reference shares multiplied by the
volume-weighted average price of the ordinary shares over the preceding 75-day trading period. The number of reference shares is
determined by the face value of the notes divided by the conversion price of the notes (USD134.72 per ordinary share at 31 March
2023), rounded down to the nearest share.
The conversion feature of the notes is required to be separated from the notes and is accounted for as a derivative financial
liability. The principal amount, unamortised debt discount, unamortised issue costs, and net carrying amount of the liability
component of the convertible notes at 31 March are as follows:
At 31 March
2023
($000s)
2022
($000s)
Principal amount
1,117,711
1,003,721
Unamortised debt discount
(88,605)
(107,576)
Unamortised issuance costs
(9,312)
(11,306)
Term debt
1,019,794
884,839
Amortisation of discount and debt issuance costs for the year ended 31 March 2023 was $34.6 million (2022: $29.7 million).
Xero Annual Report 2023
106
NOTES TO THE FINANCIAL STATEMENTS
Call spread options
In connection with the issuance of the convertible 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 upper strike call options are accounted for as equity, and are recognised at their initial fair value, less transaction costs. On
initial recognition, the upper strike call options were recognised at a fair value of $63.7 million and were not subsequently revalued.
18. 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 2023 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 within the table below.
At initial recognition, the fair value of the convertible 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
notes at 31 March 2023 was $919.1 million (2022: $826.7 million).
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
acquired entity's weighted average cost of capital.
Xero Annual Report 2023
107
NOTES TO THE FINANCIAL STATEMENTS
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)
At 31 March 2023
Assets
Cash and cash equivalents
230,624
–
–
230,624
Term deposits
886,563
–
–
886,563
Trade and other receivables
42,548
–
–
42,548
Derivative assets (foreign currency derivatives)*
–
6,267
–
6,267
Derivative assets (call spread options)
–
31,156
–
31,156
Other current assets
7,104
–
–
7,104
Other non-current assets
812
–
–
812
Total financial assets
1,167,651
37,423
–
1,205,074
Liabilities
Trade and other payables
–
–
17,819
17,819
Derivative liabilities (foreign currency derivatives)*
–
5,949
–
5,949
Derivative liabilities (conversion feature on convertible notes)
–
27,742
–
27,742
Term debt
–
–
1,019,794
1,019,794
Other current liabilities
–
9,370
–
9,370
Other non-current liabilities
–
1,285
–
1,285
Total financial liabilities
–
44,346
1,037,613
1,081,959
At 31 March 2022
Assets
Cash and cash equivalents
404,192
–
–
404,192
Term deposits
531,866
–
–
531,866
Trade and other receivables
33,479
–
–
33,479
Derivative assets (foreign currency derivatives)*
–
6,594
–
6,594
Derivative assets (call spread options)
–
55,908
–
55,908
Other current assets
7,538
–
–
7,538
Other non-current assets
577
–
–
577
Total financial assets
977,652
62,502
–
1,040,154
Liabilities
Trade and other payables
–
–
15,297
15,297
Derivative liabilities (foreign currency derivatives)*
–
2,876
–
2,876
Derivative liabilities (conversion feature on convertible notes)
–
56,259
–
56,259
Term debt
–
–
884,839
884,839
Other current liabilities
–
10,399
2,692
13,091
Other non-current liabilities
–
22,464
–
22,464
Total financial liabilities
–
91,998
902,828
994,826
* 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 2023
108
NOTES TO THE FINANCIAL STATEMENTS
Capital management
For the purposes of capital management, the Group's capital primarily consists of equity raised by the issue of ordinary shares in
the Company and issued debt. Xero manages its capital in order to maintain 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.
As part of ongoing capital management Xero reduced its short-term debt facilities during the period. This reflected a decision to
cancel its undrawn NZD150 million standby facility in July 2022 and to replace the AUD30 million facility in place to support the
Waddle direct lending portfolio with a smaller AUD10 million facility to provide short-term liquidity. The AUD10 million facility was
cancelled in March 2023.
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 the 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 five foreign currencies, being Australian dollars (AUD), United States dollars (USD),
Great British pounds (GBP), Canadian dollars (CAD), and Euros (EUR) with exposures to other currencies to a lesser degree. The
material exposures are USD, CAD and EUR 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' net USD and CAD cash flows, and
24 months’ net AUD and GBP cash flows, to be hedged with forward exchange contracts and vanilla options (outright purchased
options and vanilla collars).
Xero Annual Report 2023
109
NOTES TO THE FINANCIAL STATEMENTS
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 2023
Exposures
Cash and cash equivalents, and short-term deposits
61,705
762,857
17,247
980
594
Trade and other receivables
2,167
7,977
2,903
1,931
100
Other current assets
6,667
–
–
–
–
Trade and other payables
(2,254)
(3,944)
(6,612)
(88)
(103)
Other current liabilities
(140)
–
–
–
–
Other non-current liabilities
–
(2,710)
–
(6,451)
–
Lease liabilities
(37,259)
(7,379)
(27,791)
(1,044)
(168)
Term debt (including conversion feature)
–
(1,117,711)
–
–
–
Derivative financial instruments (foreign currency
derivatives)
136,617
(68,556)
168,663
(25,064)
(4,320)
Total foreign currency exposure
167,503
(429,466)
154,410
(29,736)
(3,897)
At 31 March 2022
Exposures
Cash and cash equivalents, and short-term deposits
16,772
691,917
10,963
3,878
174
Trade and other receivables
5,063
1,938
2,929
1,645
159
Other current assets
6,681
–
–
–
–
Trade and other payables
(5,407)
(708)
(1,974)
(589)
(68)
Other current liabilities
(6,427)
–
–
–
–
Other non-current liabilities
(511)
–
–
(6,044)
(3,066)
Lease liabilities
(41,466)
(11,110)
(27,345)
(1,291)
–
Term debt (including conversion feature)
–
(1,003,721)
–
–
–
Derivative financial instruments (foreign currency
derivatives)
134,530
(55,871)
125,264
(1,980)
(4,320)
Total foreign currency exposure
109,235
(377,555)
109,837
(4,381)
(7,121)
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:
10% decrease
10% increase
2023
($000s)
2022
($000s)
2023
($000s)
2022
($000s)
Impact on:
Net loss before income tax (increase/(decrease))
(5,849)
7,682
4,786
(6,286)
Equity (before income tax) (increase/(decrease))
(1,601)
(2,967)
1,311
2,427
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.
Xero Annual Report 2023
110
NOTES TO THE FINANCIAL STATEMENTS
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 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 with high credit quality counterparties. 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 ended 31 March 2023 had been 1.0% higher/lower with all other variables held constant, the impact on
the interest income would have been $10.0 million higher/lower, net loss of the Group $10.0 million lower/higher and accumulated
losses $10.0 million lower/higher (2022: $9.3 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.
Xero Annual Report 2023
111
NOTES TO THE FINANCIAL STATEMENTS
(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 2023 the Group held cash and cash equivalents of $230.6 million and term deposits of $886.6 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 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 2023
Non-derivative financial liabilities
Trade and other payables
17,819
–
–
–
17,819
17,819
Lease liabilities
24,721
23,383
54,820
52,857
155,781
123,421
Other current liabilities
9,211
–
–
–
9,211
9,099
Other non-current liabilities
–
–
133
–
133
133
Term debt
–
–
1,117,711
–
1,117,711
1,019,794
Contingent consideration
150
678
–
–
828
712
Contractual cash flows
51,901
24,061
1,172,664
52,857
1,301,483
1,170,978
Derivative financial liabilities
Forward exchange contracts
–
–
–
–
–
(5,949)
Inflows
150,576
23,747
–
–
174,323
–
Outflows
(150,827)
(23,436)
–
–
(174,263)
–
Contractual cash flows
(251)
311
–
–
60
(5,949)
At 31 March 2022
Non-derivative financial liabilities
Trade and other payables
15,297
–
–
–
15,297
15,297
Lease liabilities
18,361
19,359
54,930
68,458
161,108
136,218
Other current liabilities
2,692
–
–
–
2,692
2,692
Other non-current liabilities
–
8,916
–
–
8,916
8,647
Term debt
–
–
1,003,721
–
1,003,721
884,839
Contingent consideration
3,926
7,715
1,365
–
13,006
12,108
Contractual cash flows
40,276
35,990
1,060,016
68,458
1,204,740
1,059,801
Derivative financial liabilities
Forward exchange contracts
–
–
–
–
–
(2,877)
Inflows
102,894
35,657
–
–
138,551
–
Outflows
(101,505)
(34,754)
–
–
(136,259)
–
Contractual cash flows
1,389
903
–
–
2,292
(2,877)
Xero Annual Report 2023
112
NOTES TO THE FINANCIAL STATEMENTS
(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, 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.
Group financial assets subject to credit risk at balance date are as follows:
At 31 March
2023
($000s)
2022
($000s)
Cash and cash equivalents
230,624
404,192
Short-term deposits
886,563
531,866
Trade and other receivables
42,548
33,479
Derivative financial assets
37,423
62,502
Other current assets
7,104
7,538
Non-current assets
812
577
Total financial assets subject to credit risk
1,205,074
1,040,154
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
2023
($000s)
2022
($000s)
Cash and cash equivalents and short-term deposits
AAAm
95,794
227,485
A-1+
785,408
561,855
A-1
231,757
119,668
A-2
4,228
27,050
Total cash and cash equivalents and short-term deposits
1,117,187
936,058
Derivative assets
A-1+
4,945
698
A-1
32,478
46,431
A-2
–
15,373
Total derivative assets
37,423
62,502
Total exposure to credit risk
1,154,610
998,560
$19.4 million of the Group’s trade and other receivables, other current assets, and non-current assets, are with counterparties with
an A-1 external credit risk rating (2022: $15.9 million with counterparties with an A-2 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.
Xero Annual Report 2023
113
NOTES TO THE FINANCIAL STATEMENTS
19. 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
2023
($000s)
2022
($000s)
Current derivative assets
Foreign exchange contracts
5,555
6,233
Foreign exchange options
15
–
Non-current derivative assets
Call spread options
31,156
55,908
Foreign exchange contracts
697
361
Total derivative assets
37,423
62,502
Current derivative liabilities
Foreign exchange contracts
(5,544)
(2,511)
Non-current derivative liabilities
Conversion feature of convertible notes
(27,742)
(56,259)
Foreign exchange contracts
(405)
(365)
Total derivative liabilities
(33,691)
(59,135)
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 derivatives have been designated as a hedging instrument in a cash flow hedge of a highly probable
forecast transaction under NZ IFRS 9. 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 as hedging instruments based on a hedge ratio of 1:1. Ineffectiveness arises if there is a change in the forecasted timing
or amount of cash flows of hedged items.
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 in 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 gain of $3.6 million (before taxation) was recognised in other comprehensive income (2022: gain of
$11.7 million). During the year, a gain of $7.0 million (before taxation) was reclassified out of other comprehensive income to the
Income Statement (2022: gain of $2.5 million). The remaining balance will be reclassified to the Income Statement in future
reporting periods as the relevant hedging instruments mature.
Xero Annual Report 2023
114
NOTES TO THE FINANCIAL STATEMENTS
Hedge position
The Group’s financial instruments designated as hedging instruments are as follows:
At 31 March
2023
Average
forward price
2023
Fair value
($000s)
2023
Notional amount
hedged (NZD)
($000s)
2022
Average
forward price
2022
Fair value
($000s)
2022
Notional amount
hedged (NZD)
($000s)
Derivative assets
Buy USD – Sell NZD
0.6537
1,904
42,836
0.7100
1,315
50,702
Buy CAD – Sell NZD
0.8550
42
2,339
0.8837
39
1,980
Buy NZD – Sell AUD
0.8988
3,958
131,284
0.9192
97
33,726
Buy NZD – Sell GBP
0.4987
337
42,106
0.4989
4,985
125,264
Total
6,241
6,436
Derivative liabilities
Buy USD – Sell NZD
0.5825
(1,994)
30,041
0.6644
(661)
17,309
Buy CAD – Sell NZD
0.7921
(1,351)
22,725
–
–
–
Buy NZD – Sell AUD
0.9377
(23)
5,332
0.9326
(1,630)
104,541
Buy NZD – Sell GBP
0.5136
(2,062)
126,557
–
–
–
Total
(5,430)
(2,291)
Conversion feature and call option derivatives
The conversion feature derivative liability of the 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 2023, the Group recognised a $37.9 million
revaluation gain in the Income Statement relating to the conversion feature derivative (2022: gain of $65.4 million).
In connection with the issue of the 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 2023, the Group recognised a
$33.8 million revaluation loss in the Income Statement relating to the lower strike call options (2022: loss of $67.7 million).
20. Changes in financial assets and liabilities arising from financing activities
Year ended 31 March 2023
At 1 April
2022
($000s)
Proceeds
($000s)
Payments
($000s)
Amortisation
expense
($000s)
Foreign
exchange
movement
($000s)
Fair value
movements
($000s)
At 31 March
2023
($000s)
Short-term deposits
531,866
(1,427,144)
1,742,659
–
39,182
–
886,563
Call spread option derivative assets
55,908
–
–
–
9,019
(33,771)
31,156
Term debt and conversion feature
(941,098)
–
–
(34,640)
(109,697)
37,899
(1,047,536)
Other current liabilities
(2,692)
(2,146)
4,888
–
(50)
–
–
Year ended 31 March 2022
At 1 April
2021
($000s)
Proceeds
($000s)
Payments
($000s)
Amortisation
expense
($000s)
Foreign
exchange
movement
($000s)
Fair value
movements
($000s)
At 31 March
2022
($000s)
Short-term deposits
452,814
(963,878)
1,044,173
–
(1,243)
–
531,866
Call spread option derivative assets
122,123
–
–
–
1,443
(67,658)
55,908
Term debt and conversion feature
(979,810)
–
(5,455)
(29,682)
8,465
65,384
(941,098)
Other current liabilities
(826)
(4,279)
2,433
–
(20)
–
(2,692)
Xero Annual Report 2023
115
NOTES TO THE FINANCIAL STATEMENTS
21. Share capital
Note
2023
AUD Price*
2023
(000s)
2022
AUD Price*
2022
(000s)
Balance at 1 April
–
149,547
–
146,964
Issue of ordinary shares – exercising of employee share options
25
42.39
677
41.27
832
Issue of ordinary shares – restricted stock unit schemes
25
86.98
841
115.19
512
Issue of ordinary shares – acquisition of Planday
–
–
120.87
908
Issue of ordinary shares – acquisition of TaxCycle
–
–
137.86
159
Issue of ordinary shares – acquisition of LOCATE Inventory
–
–
138.73
110
Issue of ordinary shares – acquisition of Tickstar
–
–
123.63
37
Issue of ordinary shares – deferred consideration for acquisition
of Waddle
–
–
130.83
24
Issue of ordinary shares – deferred consideration for acquisition
of Tickstar
–
–
111.72
1
Ordinary shares on issue at 31 March
–
151,065
–
149,547
Treasury shares
–
(31)
–
(62)
Ordinary shares on issue at 31 March excluding treasury shares
–
151,034
–
149,485
*Prices shown for acquisition-related payments and restricted stock units are the weighted average issue prices. The price shown for options is the weighted
average exercise price
All shares have been issued, are fully paid, and have no par value.
22. Group entities
Consolidation subsidiaries are all entities over which the Group has control. The Group controls an entity when it 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.
The table below contains the significant subsidiaries of the Group, along with any subsidiaries where control was lost or gained
during the period. The Group also has operations in other jurisdictions to a lesser extent.
Xero Annual Report 2023
116
NOTES TO THE FINANCIAL STATEMENTS
Country of
incorporation
Balance date
Interest
2023 (%)
Interest
2022 (%)
Xero (NZ) Limited
New Zealand
31 March
100
100
Xero (UK) Limited
United Kingdom
31 March
100
100
Xero Australia Pty Limited
Australia
31 March
100
100
Xero, Inc.
United States
31 March
100
100
Xero Software (Canada) Ltd
Canada
31 March
100
100
Xero Investments Limited
New Zealand
31 March
100
100
Planday A/S
Denmark
31 March
100
100
Trilogy Software Inc.*
Canada
31 December
–
100
Hubdoc Pty Limited**
Australia
31 March
–
100
Xero Software Solutions (India) Private Limited***
India
31 March
100
–
* Amalgamated with Xero Software (Canada) Ltd June 2022
** Voluntarily deregistered June 2022
*** Incorporated November 2022
23. Current and deferred 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 Group operates.
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 net 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
2023
($000s)
2022
($000s)
Accounting profit/(loss) before income tax
(75,677)
2,363
At the New Zealand statutory income tax rate of 28%
(21,190)
662
(Non-taxable)/non-deductible (income)/expenditure
25,267
(4,035)
Prior period adjustment
6,166
2,261
R&D benefit
(279)
(2,955)
Tax rate variance of subsidiaries and revaluations of deferred tax
6,492
(3,922)
Current year tax losses/deferred expenditure not recognised
21,399
19,466
Income tax expense
37,855
11,477
Comprising:
Current tax expense
35,456
28,464
Deferred tax expense
2,399
(16,987)
Income tax expense
37,855
11,477
Xero Annual Report 2023
117
NOTES TO THE FINANCIAL STATEMENTS
Income tax expense/(credit) charged to equity and other comprehensive income
Year ended 31 March
2023
($000s)
2022
($000s)
Current tax
Share-based payments
8,049
16,406
Fair value movement on financial instruments
8,964
6,626
Total
17,013
23,032
Deferred tax
Share-based payments
(3,086)
(18,087)
Fair value movement on cash flow hedges
934
(369)
Total
(2,152)
(18,456)
Deferred tax
Derivatives
($000s)
Provisions and
employee benefits
($000s)
Tax depreciation
($000s)
Tax losses and
R&D expenditure
($000s)
Total
($000s)
Year ended 31 March 2023
Net deferred tax balances
At 1 April 2022
(1,161)
41,894
(51,165)
94,124
83,692
Prior period adjustment
–
(2,808)
(4,566)
4,298
(3,076)
Charged to Income Statement
–
3,713
(8,287)
5,542
968
Charged to equity
934
(3,086)
–
–
(2,152)
Impact of change in tax rates
–
412
(369)
(334)
(291)
At 31 March 2023
(227)
40,125
(64,387)
103,630
79,141
Comprising:
Deferred tax asset
(227)
37,931
(49,334)
103,630
92,000
Deferred tax liability
–
2,194
(15,053)
–
(12,859)
Year ended 31 March 2022
Net deferred tax balances
At 1 April 2021
(792)
51,470
(34,653)
80,942
96,967
Prior period adjustment
–
1,227
(417)
(4,565)
(3,755)
Recognition of deferred tax on
business combination
–
–
(11,805)
–
(11,805)
Charged to Income Statement
–
6,673
(3,970)
17,751
20,454
Charged to equity
(369)
(18,087)
–
–
(18,456)
Impact of change in tax rates
–
611
(320)
(4)
287
At 31 March 2022
(1,161)
41,894
(51,165)
94,124
83,692
Comprising:
Deferred tax asset
(1,161)
40,543
(36,047)
93,734
97,069
Deferred tax liability
–
1,351
(15,118)
390
(13,377)
Xero Annual Report 2023
118
NOTES TO THE FINANCIAL STATEMENTS
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’s recognised deferred tax asset and deferred tax liability are expected to be recovered and realised by $32.1 million
and $1.6 million, respectively within the next 12 months (2022: $21.4 million and $1.6 million, respectively). 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 $100.7 million (2022: $85.6 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 $368.4 million (2022: $246.5 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.
24. Reconciliation of operating cash flows
Year ended 31 March
2023
($000s)
2022
($000s)
Net loss
(113,532)
(9,114)
Adjustments:
Depreciation
30,099
27,854
Amortisation
188,097
142,833
Share-based payments
80,862
61,057
Amortisation of discount and debt issuance costs on term debt and contingent consideration
35,632
34,794
Deferred tax and current taxes recognised in equity
14,861
(4,576)
Asset impairments and disposals
122,680
24,695
Revaluation of contingent consideration
(8,921)
(38,874)
Bad debts
4,358
2,432
Other non-cash items
(11,834)
(260)
Changes in working capital:
Decrease/(increase) in receivables and prepayments
2,824
(16,097)
Increase in interest receivable
(7,333)
(1,154)
Increase/(decrease) in trade payables and other related items
(3,954)
12,788
Increase/(decrease) in provisions
44,049
(912)
Increase/decrease in current tax receivable and payable
7,356
(7,355)
Increase in employee entitlements
4,040
4,295
Increase in income in advance
1,165
3,965
Net cash flows from operating activities
390,449
236,371
Xero Annual Report 2023
119
NOTES TO THE FINANCIAL STATEMENTS
25. 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.
Restricted stock units
On the allocation 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 is determined using the
volume-weighted average share price. The RSUs are conditional on the employees completing a specified period of service (the
vesting period) and are, for the most part, converted to shares in equal amounts over the vesting period. The weighted average
vesting period for RSUs granted in the year was 1.35 years (2022: 1.9 years). The Group has no legal or constructive obligation to
repurchase or settle RSUs in cash.
Movements in the number of RSUs outstanding and their weighted average grant prices are as follows:
2023 Weighted
average grant date
fair value (AUD)
2023 RSUs
(000s)
2022 Weighted
average grant date
fair value (AUD)
2022 RSUs
(000s)
Opening balance
128.37
450
84.36
351
Granted
81.96
1,197
137.64
727
Forfeited
102.47
(136)
112.33
(114)
Converted to shares
86.98
(841)
115.19
(512)
Surrendered to settle payroll withholding obligations
–
–
69.08
(2)
Closing balance
102.68
670
128.37
450
Share options scheme
Options granted 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 ninth anniversary of
the final vesting date. There were 58 holders of options at 31 March 2023 (2022: 73). 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:
2023
Weighted average
exercise price (AUD)
2023
Options
(000s)
2022
Weighted average
exercise price (AUD)
2022
Options
(000s)
Opening balance
74.45
1,606
55.27
2,277
Granted
78.93
639
137.33
283
Forfeited/expired
123.79
(140)
88.58
(122)
Exercised
42.39
(677)
41.27
(832)
Closing balance
85.80
1,428
74.45
1,606
Exercisable at 31 March
61.92
381
49.73
347
The weighted average share price on date of exercise for options exercised in the year ended 31 March 2023 was AUD86.49 (2022:
AUD137.32). The weighted average remaining contractual term of options outstanding at 31 March 2023 is 4.5 years (2022: 2.3 years).
Xero Annual Report 2023
120
NOTES TO THE FINANCIAL STATEMENTS
Options outstanding at 31 March fall within the following ranges:
Granted
Exercise price
2023
Options
(000s)
2022
Options
(000s)
2017–18
NZD25.75 – NZD32.48
–
14
2018–19
AUD34.00 – AUD48.33
98
603
2019–20
AUD51.82 – AUD83.04
241
389
2020–21
AUD79.50 – AUD138.28
250
331
2021–22
AUD121.39 – AUD146.99
205
269
2022–23
AUD 71.09 – AUD88.88
634
–
1,428
1,606
The weighted average fair value of options granted during the year, determined using the Black-Scholes valuation model, was
AUD29.89 per option (2022: AUD41.11).
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 40.3% and 45.3%, a dividend yield of 0%, an expected option life of between two and six years,
and an annual risk-free interest rate of between 2.6% and 3.3% (2022: volatility of between 36.7% and 38.5%, dividend yield of 0%,
expected option life of between three and five years, risk-free rate of between 0.5% and 1.4%).
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. The risk-free rate is measured using
Australian Government bond rates, and applying linear interpolation over a period consistent with the options’ expected life.
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. No new restricted shares were granted during the period. The
weighted average grant date fair value of restricted shares granted during the year ended 31 March 2022 was AUD146.46. Shares
with a grant date fair value of AUD2.9 million vested during the year (2022: AUD5.6 million). The Group has no legal or constructive
obligation to repurchase or settle the shares for cash.
Movements in the number of restricted shares outstanding are as follows:
2023
Number of shares
(000s)
2022
Number of shares
(000s)
Outstanding restricted shares at 1 April
36
126
Granted
–
1
Forfeited
(6)
(20)
Vested
(30)
(71)
Outstanding restricted shares at 31 March – allocated to employees
–
36
Forfeited shares not yet reallocated – held by Trustee
31
26
Total outstanding at 31 March
31
62
Percentage of total ordinary shares
0.0%
0.0%
All unvested shares at 31 March 2022 were due to vest within one year.
Xero Annual Report 2023
121
NOTES TO THE FINANCIAL STATEMENTS
26. Key management personnel and related parties
Key management personnel
Key management personnel (KMP) 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 Officer*, and the Chief
Financial Officer.
The following table summarises remuneration paid to key management personnel:
Year ended 31 March
2023
($000s)
2022
($000s)
Directors' fees
2,291
1,820
Short-term employee benefits
3,398
2,961
Share-based payments – options
4,008
1,869
Share-based payments – restricted stock units
1,439
654
*KMP includes the new Chief Executive Officer, Sukhinder Singh Cassidy, from the date she commenced employment with the Xero Group. More specifically she
is included as KMP for the periods she held both the CEO and CEO Designate positions
Related party transactions
Other than remuneration paid to key management personnel above, there have been no other related party transactions,
outstanding balances or commitments during the period ending 31 March 2023. During the year ended 31 March 2022 Atomic.io
Limited, a related party, provided product development and support services to the Group of $151,000.
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 as detailed above.
No amounts with any related parties have been written off or foregone during the year (2022: nil).
27. Commitments and contingencies
Capital commitments
Capital commitments of $0.9 million for building fit-outs were contracted for but not yet incurred at 31 March 2023 (2022: nil).
Contingent liabilities
There were no contingent liabilities at 31 March 2023 (2022: nil).
28. Events after the balance sheet date
There were no significant events between balance date and the date these financial statements were authorised for issue.
Xero Annual Report 2023
122
DIRECTORS’ RESPONSIBILITIES STATEMENT
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 2023, 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 18 May 2023.
For and on behalf of the Board
David Thodey
Chair
Xero Limited
18 May 2023
Mark Cross
Director
Xero Limited
18 May 2023
Xero Annual Report 2023
123
DISCLOSURES
Disclosures
All financial figures in this section of the Annual Report are in New Zealand dollars except where indicated otherwise. References
to FY23 are to the financial year ended 31 March 2023. References to FY22 are to the financial year ended 31 March 2022. Xero
Group means Xero Limited (Xero) and its subsidiaries.
Equity holdings of directors, CEO and CFO
The table below sets out the equity of Xero’s directors, CEO and CFO, held nominally and through their associates or related parties.
At 31 March 2023
Number of ordinary shares
(shares)
Number of unlisted options
(Options)
Number of restricted stock
units (RSUs)
Non-executive directors
David Thodey
10,000
–
–
Steven Aldrich
-
–
–
Mark Cross
4,300
–
–
Rod Drury
9,914,789
–
–
Lee Hatton
5,378
–
–
Brian McAndrews
2,994
–
–
Dale Murray
1,636
–
–
Susan Peterson
3,340
–
–
CEO and CFO
Sukhinder Singh Cassidy
–
445,697
46,752
Kirsty Godfrey-Billy
10,202
29,761
12,127
Former CEO
Steve Vamos
25,813
55,880
23,922
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 FY23.
Director/Entity
Relationship
David Thodey
Tyro Payments Limited
ceased to be chair and director
Steven Aldrich
Semrush Holdings, Inc.
director
Mark Cross
Chorus Limited
chair
Z Energy Limited
ceased to be director
Milford Asset Management Limited
ceased to be director
Susan Peterson
Property For Industry Limited
ceased to be director
Mercury NZ Limited
director
Xero Annual Report 2023
124
DISCLOSURES
Share dealings of directors
No directors disclosed acquisitions or disposals of interests in Xero shares during FY23.
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 all directors of 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.
Remuneration reporting
Xero’s remuneration policy and practices are summarised on pages 131 to 154 of this Annual Report.
Shareholder information
The shareholder information set out below is current as at 6 April 2023, unless otherwise specified.
Issued capital The total number of issued shares in Xero was 151,065,416, of which 31,081 shares were held on a restricted basis in
connection with Xero’s share-based compensation plans.
Distribution of shareholdings
Range
Number of holders
%
Shares
%
1 to 1,000
47,887
94.14
7,458,019
4.94
1,001 to 5,000
2,544
5.00
5,205,193
3.45
5,001 to 10,000
249
0.49
1,766,675
1.17
10,001 to 100,000
158
0.31
3,961,546
2.62
100,001 and over
31
0.06
132,673,983
87.82
Total
50,869
100
151,065,416
100
There were 1,546 holders of less than a marketable parcel of shares as at 6 April 2023, based on a market price of AUD $91.03 per
share.
Xero Annual Report 2023
125
DISCLOSURES
Distribution RSUs and Options There were 58 individuals holding a total of 1,428,176 Options and 2,421 individuals holding a total
of 669,661 RSUs. RSUs are a conditional contractual right to be issued an equivalent number of shares in Xero.
Distribution of Options
Range
Number of holders
%
Shares
%
1 to 1,000
0
0.00
0
0.00
1,001 to 5,000
18
31.03
53,976
3.78
5,001 to 10,000
10
17.24
73,031
5.11
10,001 to 100,000
29
50.00
855,472
59.90
100,001 and over
1
1.73
445,697
31.21
Total
58
100.00
1,428,176
100.00
Distribution of RSUs
Range
Number of holders
%
Shares
%
1 to 1,000
2,320
95.83
160,044
23.90
1,001 to 5,000
78
3.22
190,302
28.42
5,001 to 10,000
12
0.50
84,907
12.68
10,001 to 100,000
11
0.45
234,408
35.00
Total
2,421
100.00
669,661
100.00
On-market purchases No securities were purchased on-market for the purposes of an employee incentive scheme or to satisfy
the entitlements of securities holders to acquire securities granted under an employee incentive scheme during FY23.
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. Any such
notices Xero receives during the year are available through the ASX website and Xero’s investor centre.
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.
Xero Annual Report 2023
126
DISCLOSURES
Top 20 holders The names of the 20 largest holders of Xero shares as at 6 April 2023 are listed below.
Name
Number of shares held
% of issued capital
1. HSBC Custody Nominees (Australia) Limited
48,987,029
32.43
2. J P Morgan Nominees Australia Pty Limited
27,518,132
18.22
3. Citicorp Nominees Pty Limited
20,138,245
13.33
4. Ms Anna Margaret Clare Stuck & Rodney Kenneth Drury & Scott Moran
9,914,789
6.56
5. National Nominees Limited
5,571,438
3.69
6. BNP Paribas Noms Pty Ltd
4,273,818
2.83
7. Givia Pty Limited
2,773,045
1.84
8. Citicorp Nominees Pty Limited
2,110,244
1.40
9. Custodial Services Limited
1,926,798
1.28
10. Mr Nelson Nien Sheng Wang & Ms Pei-Chun Ko
1,036,088
0.69
11. BNP Paribas Nominees Pty Ltd
1,032,554
0.68
12. HSBC Custody Nominees (Australia) Limited
924,829
0.61
13. Australian Foundation Investment Company Limited
890,500
0.59
14. Solium Nominees (Australia) Pty Ltd
778,219
0.52
15. Solium Nominees (Australia) Pty Ltd
598,452
0.40
16. HSBC Custody Nominees (Australia) Limited
553,456
0.37
17. BNP Paribas Nominees Pty Ltd
501,510
0.33
18. HSBC Custody Nominees (Australia) Limited - A/C 2
480,658
0.32
19. BNP Paribas Noms (NZ) Limited
422,763
0.28
20. BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd
397,308
0.26
Top 20 holders of fully paid shares (total)
130,829,875
86.60
Other shareholders (balance on register)
20,235,541
13.40
Grand total
151,065,416
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 by 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. There are no voting rights attached to RSUs or Options.
On-market buy-back There is no current on-market buy-back for Xero shares.
Voluntary escrow Voluntary escrow provisions apply to the securities set out in the following table. 688 fully paid ordinary shares
were released from voluntary escrow on 10 February 2023.
Securities
Issue date
Restriction ends
84,080
30 December 2021
1 November 2023
Xero Annual Report 2023
127
DISCLOSURES
Company information
Donations The Xero Group made charitable donations totalling $90,077 during FY23. The Xero Group made no donations to
political parties during FY23.
Company directors The following persons held office as directors of Xero Limited during FY23.
Directors
David Thodey (Chair)
Steven Aldrich
Mark Cross
Rod Drury
Lee Hatton
Brian McAndrews
Dale Murray
Susan Peterson
No directors of Xero ceased to hold office during FY23.
Xero Annual Report 2023
128
DISCLOSURES
Company subsidiaries and directors Xero has 30 wholly owned subsidiaries as shown in the table below. The following persons
held office as directors of Xero’s subsidiary companies during FY23.
Jurisdiction
Subsidiary
Directors
Directors who ceased to
hold office during FY23
Australia
Planday Australia Pty Ltd
Anders Frederiksen
Kirsty Godfrey-Billy
Rachael Powell
Waddle Holdings Pty Limited
Simon Creighton
Kirsty Godfrey-Billy
Chaman Sidhu (resigned
effective 22 August 2022)
Waddle IP Pty Ltd
Simon Creighton
Kirsty Godfrey-Billy
Chaman Sidhu (resigned
effective 22 August 2022)
Waddle Loans Pty Ltd
Simon Creighton
Kirsty Godfrey-Billy
Chaman Sidhu (resigned
effective 22 August 2022)
Waddle SaaS Pty Ltd
Simon Creighton
Kirsty Godfrey-Billy
Chaman Sidhu (resigned
effective 22 August 2022)
Waddle Servicing Pty Ltd
Simon Creighton
Kirsty Godfrey-Billy
Chaman Sidhu (resigned
effective 22 August 2022)
Xero (Australia) Holdings Pty
Limited
Kirsty Godfrey-Billy
Rachael Powell
Chaman Sidhu (resigned
effective 22 August 2022)
Xero Australia Pty Limited
Kirsty Godfrey-Billy
Joseph Lyons (appointed
1 November 2022)
Rachael Powell
Chaman Sidhu (resigned
effective 22 August 2022)
Canada
Hubdoc Inc.
Kirsty Godfrey-Billy
Faye Pang
Andrew Burner (resigned
effective 6 May 2022)
Xero Software (Canada) Ltd
Kirsty Godfrey-Billy
Faye Pang
Andrew Burner (resigned
effective 6 May 2022)
Denmark
Planday A/S
Kirsty Godfrey-Billy
Chris Micklethwaite
Chris O’Neill (appointed
21 September 2022)
Simona Turin (resigned
effective 31 July 2022)
Damien Tampling (resigned
effective 31 January 2023)
Christian Brondum (resigned
effective 30 March 2023)
Gary Turner (resigned
effective 30 March 2023)
Xero Denmark A/S
Kirsty Godfrey-Billy
Birgitte Pihl
Alexander Von Schirmeister
(appointed
30 December 2022)
Christian Brøndum (resigned
effective 30 December 2022)
Germany
Planday GmbH
Kirsty Godfrey-Billy
Chris O’Neill (appointed
6 February 2023)
Christian Brøndum (resigned
effective 6 February 2023)
Gary Turner (resigned
effective 6 February 2023)
Hong Kong
Xero (HK) Limited
Kirsty Godfrey-Billy
Koren Wines (appointed
31 January 2023)
Damien Tampling (resigned
effective 31 January 2023)
Xero Annual Report 2023
129
DISCLOSURES
Jurisdiction
Subsidiary
Directors
Directors who ceased to
hold office during FY23
India
(Incorporated 19 October 2022)
Xero Software Solutions
(India) Private Limited
Colin Brown
Kirsty Godfrey-Billy
Kumar Iyer
(non-executive Indian resident
director)
New Zealand
Waddle Loans Limited
Kirsty Godfrey-Billy
Chris O’Neill (appointed
31 March 2023)
Damien Tampling (resigned
effective 31 January 2023)
Anna Curzon (resigned
effective 31 March 2023)
Xero (NZ) Holdings Limited
Kirsty Godfrey-Billy
Chris O’Neill (appointed
31 March 2023)
Craig Hudson (resigned
effective 30 August 2022)
Anna Curzon (resigned
effective 31 March 2023)
Xero (NZ) Limited
Kirsty Godfrey-Billy
Craig Hudson (resigned
effective 30 August 2022)
Anna Curzon (resigned
effective 31 March 2023)
Xero Investments Limited
Kirsty Godfrey-Billy
Craig Hudson (resigned
effective 26 May 2022)
Anna Curzon (resigned
effective 31 March 2023)
Xero Trustee Limited
Kirsty Godfrey-Billy
Norway
Planday Norway AS
Kirsty Godfrey-Billy
Clarence Willard
(appointed 30 January 2023)
Christian Brøndum (resigned
effective 30 January 2023)
Gary Turner (resigned
effective 30 January 2023)
Poland
Planday Sp ZO.O
Chris O’Neill (appointed
2 February 2023)
Christian Brøndum (resigned
effective 2 February 2023)
Singapore
Xero (Singapore) Pte. Ltd
Kirsty Godfrey-Billy
Koren Wines (appointed
31 January 2023)
Damien Tampling (resigned
effective 31 January 2023)
South Africa
Xero South Africa Proprietary
Limited
Kirsty Godfrey-Billy
Colin Timmis
Sweden
Tickstar AB
Hans Berg
Anna Curzon
Kirsty Godfrey-Billy
Ake Oberg
United Kingdom
Planday Limited
Kirsty Godfrey-Billy
Chris O’Neill (appointed
31 December 2022)
Christian Brøndum (resigned
effective 31 December 2022)
Gary Turner (resigned
effective 31 December 2022)
Xero (UK) Limited
Kirsty Godfrey-Billy
Alexander Von Schirmeister
(appointed 1 June 2022)
Damon Anderson (resigned
effective 3 June 2022)
Xero Annual Report 2023
130
DISCLOSURES
Jurisdiction
Subsidiary
Directors
Directors who ceased to
hold office during FY23
United States
Xero CA Acquisitions Inc.
Chris O’Neill
(appointed 30 August 2022)
Anthony Ward (resigned
effective 30 August 2022)
Planday, Inc.
Kirsty Godfrey-Billy
Chris O’Neill (appointed
31 August 2022)
Anthony Ward (resigned
effective 31 August 2022)
Christian Brøndum (resigned
effective 31 December 2022)
Xero, Inc.
Kirsty Godfrey-Billy
Chris O’Neill (appointed
30 August 2022)
Andrew Burner (resigned
effective 5 May 2022)
Anthony Ward (resigned
effective 30 August 2022)
Directors of Xero’s subsidiaries disclosed the following relevant interests, or cessations of interest, during FY23.
Director/Entity
Relationship
Chris O’Neill
Gap Inc.
director
Kumar Iyer received total remuneration of US$8,250 in his role as non-executive director of Xero Software Solutions (India) Private
Limited during FY23. Kumar Iyer received no other benefits from Xero or any Xero subsidiary company during FY23.
No employee appointed as a director of Xero’s subsidiary companies receives any remuneration or other benefits from Xero in their
role as a director. The remuneration and other benefits of such employees, received as employees, are included in the relevant
bandings for employee remuneration disclosed on page 153 and 154 of this Annual Report.
Xero Annual Report 2023
131
REMUNERATION REPORT
Sections 1 – 7
1.
People and Remuneration Committee
Chair Letter............................................................................................................132
2.
Remuneration highlights.......................................................................134
3.
Directors and senior leadership team....................................134
4.
Remuneration governance...................................................................135
5.
Remuneration strategy............................................................................136
6.
Key remuneration components for
the CEO, former CEO, and CFO........................................................139
7.
Xero’s performance......................................................................................147
Sections 8 – 13
8.
CEO, former CEO, and CFO realised
remuneration......................................................................................................148
9.
Short-Term Incentive outcomes in detail...........................149
10. CEO, former CEO, and CFO equity holdings.....................150
11.
CEO and CFO employment conditions...................................150
12. Non-executive director remuneration.....................................151
13. Our team’s remuneration......................................................................153
Remuneration Report
Xero Annual Report 2023
132
REMUNERATION REPORT
1. People and Remuneration Committee
Chair Letter
Xero has delivered a strong operating result in FY23, within
another year of challenging macroeconomic conditions. This
includes operating revenue growth of 28%, subscriber growth
of 14%, and operating expenses excluding restructuring
costs as a percentage of operating revenue reducing by 3.3
percentage points to 80.7%. This performance highlights
the value our customers place in their Xero subscription (as
demonstrated through the double-digit subscriber growth in
all regions and growth in Average Revenue Per User (APRU))
and also the dedicated commitment from our talented team
from all across the world.
Xero’s operating income grew strongly to $57.3 million, up
61%. Excluding restructuring costs of $34.7 million, operating
income would have been $92.0 million representing an
operating income margin of 6.6%, more than double the
3.2% margin in FY22. Xero’s FY23 EBITDA of $158.4 million
decreased 26% compared to FY22. This reduction mainly
reflected the impacts of a non-cash impairment to Planday
($77.9 million), non-cash impairments and other costs
related to exiting the Waddle business ($48.5 million),
restructuring charges ($34.7 million), and other non-cash
revaluations ($17.9 million). (See Financial Statements for
further detail).
We remain committed to providing an environment where
our people, customers, and communities can thrive. Xero
continues to operate above global industry benchmarks for
employee Net Promoter Score (eNPS) with a 12-month rolling
average of 32 and engagement of 7.9. Our culture is pivotal to
our success as is evident in our eNPS outcome in what was a
challenging year for our people.
Xero is set up to drive better value for our customers,
people, shareholders, and communities and we enter FY24
in a stronger position to deliver on our purpose of making
life better for people in small business, their advisors, and
communities around the world.
Farewelling Steve Vamos
After serving nearly five years as Xero’s CEO, Steve Vamos
retired on 31 January 2023. Steve remains available as
an advisor to the business until 31 May 2023. We are very
grateful to Steve for his dedication and commitment to all
things Xero and wish him all the very best for his future.
Steve’s FY21 options and FY22 deferred Short-Term
Incentive (STI) will vest 100% as per the schedule. The cash
component of his FY23 STI will be paid in May as scheduled.
The Board has exercised its discretion to allow his deferred
STI (FY23) and his Long-Term Equity and Incentives (LTE and
LTI) to remain on foot, pro-rating his FY22 options and FY23
Restricted Stock Units (RSUs) for the period of employment,
and any vested options to be exercised within two years of
the applicable vesting date.
Appointment of Sukhinder Singh Cassidy
Xero is one of only a few technology companies of its size
and global reach listed on the ASX. As Xero expands globally,
the skills and experience required of our management team
also evolve. Following a rigorous global recruitment process,
where the Board considered a number of exceptional
candidates, we were delighted to appoint Sukhinder Singh
Cassidy as CEO on 1 February 2023.
Sukhinder is an experienced technology executive with
more than 25 years of global leadership experience. She has
held various leadership positions, including President, Asia
Pacific & Latin America at Google, and has extensive public
and private board experience with multiple companies. Her
expertise in building products and scaling go-to-market
businesses will be critical in leading Xero to its next stage of
growth globally, particularly in North America and the UK.
Sukhinder’s remuneration reflects a market competitive
package for a US-based technology executive. The
benchmark data used to determine this package reflects
the median of a group of listed US technology companies
with similar characteristics to Xero, based on Software as a
Service (SaaS) industry peers, revenue, EBITDA and market
capitalisation.
Xero has become a global organisation with offices in more
than ten countries, and generating more than 40% of its
revenue from outside of Australia and New Zealand. We have
found that the remuneration structures of most ASX-listed
peers, which are domestic corporations or international
businesses managed from Australia, have not been
appropriate to secure the talent and experience required
for some of our most senior roles that have an international
remit. It is important that we adjust our frameworks as
required to ensure that we can attract and retain the talent
required to successfully execute on our global strategy.
Overview of the year
We were pleased with our strong operating revenue and
AMRR growth for FY23. Operating revenue was up 28% YoY
to $1.4 billion, while AMRR was up 26% YoY to $1.6 billion.
Subscriber growth was also strong, up 14% YoY to 3.7 million
subscribers. Gross margin remained steady at 87.3%.
Xero has been recognised as one of the best workplaces in
the regions we operate in, including being named one of the
best workplaces for wellbeing in the UK1 and featuring among
Built In’s Best Places to Work in Colorado, New York City, and
San Francisco (Large Places to work). You can read about our
full list of accolades on www.xero.com/media/awards.
Xero continues to exceed global industry benchmarks for
eNPS with a 12-month rolling average of 32 (41 in FY222) and
voluntary turnover of 15.7% (16.1% in FY223).
The wellbeing of our people is a key priority, and we are
always looking for ways to improve it. That’s why we have
introduced new and enhanced benefits, such as Xtra Leave
1 UK’s Best Workplaces™ for Wellbeing 2023
2 eNPS excluded Planday in FY22
3 Voluntary turnover excluded Planday in FY22
Xero Annual Report 2023
133
REMUNERATION REPORT
globally (five days additional paid leave), as well as health/
medical, life, trauma, and salary continuance insurances
across New Zealand, Australia, and the UK. In FY23, we
launched an organisation-wide program called Time Well
Spent, which focuses on optimising factors that reduce
stress, increase control, and improve performance.
While our overall representation of women remains
unchanged from FY22, we have made good progress towards
our gender diversity target for senior leaders with 38.7% (up
from 33.9% in FY22) and people leaders with 45.0% (up from
43.7% in FY22). We have also made good progress towards
reducing our median gender pay gap, down 1.5 percentage
points to 9.5% (from 11% in FY22). You can read a more
detailed summary on page 25 of the Annual Report.
Xero has been named on the Bloomberg Gender-Equality
Index for the fourth consecutive year and was named
the top global technology company for gender equity by
Equileap. In FY23, we introduced an ‘Inclusive Communities’
program to support our people and leaders to have inclusive
conversations, using inclusive language, and fostering
inclusive communities. We also expanded our network of
Employee Resource Groups (ERGs) supporting a range
of communities across the world, including LGBTQI+,
neurodiverse, women, disability, carers, and race.
Outcomes for the year
We take performance and accountability seriously, especially
when it comes to delivering value to our shareholders. Our
incentive plans are specifically designed to motivate our
most senior leaders to strive for sustainable success through
a carefully selected set of measures. These measures not
only reflect the financial performance of the company but
also consider the quality of earnings achieved through
practices that support our employees and customers. We
aim to further refine our incentive plan designs to support
our focus on balancing growth and profitability.
Despite having delivered a strong operating result for
FY23 (growth in operating revenue, operating income and
subscriber growth, and a reduction in operating expenses
as a percentage of operating revenue), EBITDA achievement
was below target. EBITDA forms part of the STI plan (along
with Net Promoter Score (NPS) and eNPS, both of which
were also below target). Consequently the STI outcomes
for FY23 were between 56.9% and 62.2% of maximum for
the three executive KMPs. Further detail on STI outcomes is
available on page 149 of the Annual Report.
The final tranche of legacy options vested to the former CEO,
and the CFO in June 2022. A new RSU-based equity plan
was introduced from FY23, with the LTE value contingent
on service and LTI value contingent on performance targets
over a three-year period (ending 31 March 2025). LTI
measures are operating revenue growth (weighted 75%) and
relative total shareholder return (weighted 25%). LTE and LTI
granted for FY23 will vest, once tested, on or around 31 May
2025. Further detail on the LTE and LTI plan is available on
page 144 and legacy equity arrangements on page 146 of the
Annual Report.
Resetting for the future
In March 2023, we announced a program to better balance
growth and profitability and to strengthen Xero for the
future.
We are realigning Xero to create greater clarity for our
people and better prioritise resources to improve how we
execute for our customers. As we aspire to build a higher
performing global SaaS company, we will work in ways that
empower and enable our people to deliver better outcomes
for our customers. Execution against a disciplined growth
framework will also enable us to be more efficient and
build greater operating leverage. The program included the
difficult decision to reduce by 700-800 roles across Xero.
These changes will improve our ability to take advantage
of the significant growth opportunity presented by cloud
accounting. We remain purpose driven and focused on
developing and protecting our culture and cultivating our
talent, as well as supporting those employees who have
been impacted by the changes.
The majority of the impact of the reshaping of our
organisational structure and the way we work across
functions – to operate with greater clarity, speed and
effectiveness – will take effect in FY24. This report details
the position at the end of FY23.
We hope you find this Remuneration Report useful. We
intend to further evolve it as we move forward and welcome
your feedback on how you believe we’re progressing.
Yours sincerely
Susan Peterson
Chair
People and Remuneration Committee
Disclosures: This report is not intended to fully replicate the
statutory disclosure requirements of an Australian-domiciled
company’s remuneration report as these requirements do not
apply to Xero. We have sought to include information that
provides a good understanding around how we prioritise the work
to support our culture and connect our reward and recognition
frameworks with the successful execution of our strategy. The
information provided therefore exceeds the requirements for a
New Zealand-domiciled company.
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2. Remuneration highlights
Xero’s values are fundamental to everything we do, including our approach to remuneration and this report. We continue to seek
feedback on our approach to remuneration and voluntary disclosure in this report and consider it in light of what is right for Xero
and our shareholders. The remuneration highlights for FY23 are:
• Performance targets in executive Long-Term Incentive: Introduction of a new Restricted Stock Unit (RSU) based equity
plan with a Long-Term Incentive (LTI) component contingent on performance targets (operating revenue growth and relative
total shareholder return (TSR)) over a three-year period) and Long-Term Equity (LTE) component contingent on service further
aligning executive remuneration with shareholder outcomes
• CEO remuneration reweighted for performance: Review of the CEO’s remuneration package, resulting in a higher weighting
towards variable (performance-based) pay, with equity in particular, making up a significant proportion of target total
remuneration compared to the former CEO’s package
• Executive accountability: The Short-Term Incentive (STI) plan is designed to align the financial interests of Xero’s senior
leadership team with those of our shareholders, customers and employees, and recognise them for meeting company and
individual performance objectives. Overall STI outcomes for FY23 were between 56.9% and 62.2% of maximum for the three
executive KMPs reflecting a balance between strong operating results for FY23 and accountability for the factors that led to
below target achievement on EBITDA, NPS and eNPS measures
3. Directors and senior leadership team
This report focuses on the FY23 remuneration of Xero’s CEO, former CEO, CFO, and non-executive directors as identified in the
table below. Broader details of Xero’s remuneration framework and structure are also included in this report and those details
relate to Xero’s broader leadership team – executives who report directly to the CEO.
Country of
residence
Position
Period position was held during the year
Senior leaders
Sukhinder Singh Cassidy
United States
CEO
Joined Xero 28 November 2022
Commenced as CEO 1 February 2023
Kirsty Godfrey-Billy
New Zealand
CFO
Full year
Former senior leader
Steve Vamos1
New Zealand
CEO
Ceased as CEO 31 January 2023
Departing Xero 31 May 2023
Non-executive directors
David Thodey, AO
Australia
Independent non-executive Chair
Full year
Steven Aldrich
United States
Independent non-executive director
Full year
Mark Cross
New Zealand
Independent non-executive director
Full year
Rod Drury
New Zealand
Founder, non-executive director
Full year
Lee Hatton
Australia
Independent non-executive director
Full year
Brian McAndrews
United States
Independent non-executive director
Full year
Dale Murray, CBE
United Kingdom
Independent non-executive director
Full year
Susan Peterson
New Zealand
Independent non-executive director
Full year
1 FY23 includes a period of time for which Steve Vamos remained CEO (1 April 2022 - 31 January 2023) and a period of time for which Steve Vamos was no
longer the CEO (1 February 2023 - 31 March 2023)
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4. Remuneration governance
Xero’s remuneration governance framework is overseen by the People and Remuneration Committee (P&R Committee) on behalf
of the Board. The P&R Committee is tasked with ensuring that Xero’s people strategy including our remuneration framework,
policies and practices are aligned with Xero’s purpose, values, strategic objectives, risk appetite, and good governance principles
and practice. This includes supporting the Board in representing Xero’s shareholders and promoting and protecting the interests
of the company in the short and long term. The P&R Committee considers the interplay between remuneration structures and risk
when reviewing remuneration frameworks and outcomes.
4.1 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:
• People and culture, including Xero’s code of conduct, whistleblower policy, and policies relating to health, safety and wellbeing
• Remuneration and benefits
• Executive performance and development
• Succession planning for Xero’s executive leadership team other than the CEO (succession planning for the CEO is managed by
the Nominations Committee)
• Diversity and inclusion
The P&R Committee’s overall objective is to oversee the implementation of principles and frameworks aimed at:
• Attracting and retaining high quality directors and employees and ensuring they are fairly, reasonably and transparently
remunerated
• Ensuring our people are motivated to perform to the best of their abilities in the interests of Xero and in alignment with Xero’s
desired culture
• Ensuring conduct is only rewarded where it aligns with Xero’s code of conduct, values and risk appetite
The P&R Committee reviews and makes recommendations to the Board regarding Xero’s remuneration framework, policies and
practices, remuneration budgets, employee incentive plans, material employee benefits, non-executive director remuneration, and
diversity objectives.
The P&R Committee’s oversight of the remuneration of the CEO, and leadership team, involves close scrutiny of remuneration
amounts and performance outcomes, including recommending to the Board the remuneration outcomes for the CEO and any
changes to the CEO’s remuneration. The P&R Committee also supports the Chair of the Board to evaluate the CEO’s performance
and make recommendations to the Board to set the performance objectives for the CEO. The P&R Committee approves and
informs the Board of the remuneration of the CFO and other members of the leadership team, including the vesting of incentives,
and oversees their performance.
4.2 People and Remuneration Committee independence
Consistent with the ASX Corporate Governance Principles and Recommendations and the P&R Committee charter, the P&R
Committee consists of four members, all of whom are independent non-executive directors, including the Chair. The current
membership comprises:
All directors have a standing invitation to attend P&R Committee meetings. Members of management may be invited to attend
meetings of the P&R Committee where appropriate.
Susan Peterson (Chair)
Mark Cross
Steven Aldrich
David Thodey, AO
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4.3 External and independent advice
Xero engages external consultants for market data on salary benchmarking and relevant pay practices.
During the year, external consultants were engaged to provide guidance on Xero’s remuneration framework having regard to our
growth ambitions. This included reviewing the leadership team’s remuneration structures against relevant industry peer groups,
reviewing Xero’s incentive plan structures, and researching market practice on performance-based long-term incentive plans.
As well as seeking input from management, the P&R Committee may obtain independent advice directly from external advisers
to support the performance of its role on behalf of the Board. No formal ‘remuneration recommendations’ (as defined in the
Australian Corporations Act) were received during FY23.
4.4 No dealing or protection arrangements
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.
Employees, internally referred to as “Xeros”, are not permitted to deal with their RSUs or options. All dealing of shares received on
vesting of RSUs or exercise of options is subject to the Share Trading Policy.
A copy of Xero’s Share Trading Policy is available on Xero’s website at www.xero.com/about/investors/governance
5. Remuneration strategy
5.1 Our purpose, values and remuneration principles
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 rewards:
As a global technology company, Xero is dependent on highly skilled, specialist team members who demonstrate these values to
execute our strategy. Our ability to attract, retain, reward, and motivate our people is fundamental to our long-term success. In
order to achieve this, our leadership team’s remuneration is made up of the following components:
• Fixed remuneration
• STI based on individual and company-wide targets, with a deferred equity component in the form
of RSUs
• A new LTI plan that is contingent on performance targets over a three-year period and awarded in RSUs
• A new LTE plan that is contingent on service and awarded in RSUs
• Options may be granted to acquire ordinary shares in Xero (on a 1:1 basis). These are occasionally used for one-off purposes
such as initial equity grants for new hires
Xeros dream big,
lead and embrace
change
Are curious and
think big
Welcome challenging
conversations and do
it with respect
Lead and embrace
change, seeking new
and better ways
Xeros create
experiences that
people love
Create experiences
that inspire and
delight
Do high-quality
work
Go the extra mile
Xeros are great
team players
Champion Xero’s
purpose and
priorities
Work together to do
what’s best for Xero
and our customers
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 are authentic,
inclusive and
really care
Kind and assume
best intent
Inclusive,
approachable and
show empathy
Are willing to be
vulnerable, share fears,
failures and learnings
#Human
#Challenge
#Team
#Ownership
#Beautiful
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Xero’s remuneration structure reflects the following principles:
Principle
Remuneration structure
Alignment
A significant proportion of the leadership team’s remuneration is aligned with shareholder interests. Equity
forms 80.2% and 40.4% of target total remuneration for the CEO and CFO, respectively
In addition, the new LTI plan includes performance measures that further align the leadership team’s
remuneration with shareholder outcomes. Two performance measures (operating revenue growth and
relative total shareholder return rTSR)) have been selected in light of Xero’s long-term strategy
Fairness
Domicile-based market competitive, up-front cash-based remuneration is balanced by equity remuneration
with significant potential upside
Collaboration
Performance conditions attached to STI and LTI are largely company-wide to reflect the importance of
teamwork and collaboration across the business
Simplicity
STI performance measures are clear, easily assessed and aligned with the voices of the shareholder,
customer, and employee
The LTE plan is simple to understand, being 100% service contingent and using RSUs which are a common
equity vehicle in our Australia/United States peers and the wider ASX300
Flexibility
Xero’s STI and LTI performance measures provide flexibility for Xero to respond to changing needs and
circumstances, recognising that each role, market, and team member is unique, while always having regard
to Xero’s strategy, purpose, and long-term value creation
Incentivising appropriate risk-taking and risk-management further underpins our remuneration principles and structure. This
approach to managing risk is borne out in a number of ways including (but not limited to) P&R Committee review and approval,
the use of at-risk remuneration, malus and clawback rules, and available Board discretion. Sections 6.3 and 6.4 contain further
information about risk-taking and risk management as it relates to Xero’s STI, LTE and LTI arrangements.
5.2 Remuneration structure
To foster alignment between the interests of the leadership team and shareholders, Xero’s leadership team remuneration structure
is deliberately weighted to have a substantial proportion of target total remuneration at risk. A large part of this at-risk component
consists of LTE and LTI awards, providing an effective multi-year incentive aligned with Xero’s long-term strategy.
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FR comprises
base salary and
other benefits
including pension
(superannuation/
KiwiSaver or local
equivalent)
STI comprises 50%
cash
STI comprises 50%
deferred equity in the
form of 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
LTE is 100%
contingent on service
in alignment with the
global pay practices of
similar organisations
based in the US where
our CEO is based and
where we compete for
broader senior talent
LTI is 100% contingent
on service and
performance measures
Performance measures
are operating revenue
growth and rTSR
over the three-year
performance period
LTI metrics and
composition will be
reviewed each year (for
future year grants)
The rTSR is based on
a bespoke SaaS peer
group, which includes
a blend of best-in-class
and broader SaaS
companies that are
both smaller and larger
than us. This allows
for a benchmark of
Xero’s performance
against companies
who are seeking similar
investors and talent
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
Rewards delivery against longer-term
strategy and sustained shareholder value
creation. Fosters alignment between
shareholder, customer, and leadership team
outcomes
FR
Fixed Remuneration
STI
Short-Term Incentive
LTE & LTI
Long-Term Equity & Incentive
Equity
Cash
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)
An at-risk component set as a percentage
of base salary and granted annually in the
form of RSUs to participating executives,
which entitles the executive to Xero shares
on vesting
RSUs vest over a three-year performance
period on the third May following grant
New hires/promotions may be invited to
participate in the LTE and LTI plans, with a
pro-rata allocation to reflect their entry into
the plans part way through the year
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5.3 Use of discretion
The Board has discretion in relation to granting and testing variable remuneration, including in relation to assessing whether
the performance hurdles for STI (cash and equity) and LTI have been satisfied. The Board also has discretion in relation to how
variable remuneration is treated in a change of control or cessation of employment scenario. The treatment of the CEO’s variable
remuneration has already been determined in certain cessation of employment scenarios. Further information about variable
remuneration and change of control and cessation of employment is in sections 6.3 and 6.4.
In addition, all leadership team variable remuneration is subject to malus and clawback provisions, which apply to vested and
unvested equity awards and incentive payments. These provisions give Xero’s Board broad discretion to adjust, lapse/forfeit, or
require repayment of equity award or incentive payments to ensure no unfair benefit is obtained by a member of the leadership
team. This is one of the ways that Xero embeds risk management into its remuneration framework.
Malus and clawback provisions will be relevant in a range of potential award adjustment events, for example where:
• A leadership team member has acted fraudulently, dishonestly, or is in breach of their obligations to Xero
• Xero becomes aware of a material misstatement or omission in Xero’s financial statements
• A leadership team member has failed to act consistently with Xero’s risk appetite and risk management priorities
• In any other circumstances where the Board determines in good faith there is an unfair benefit to the leadership team member,
e.g. relating to behaviour or conduct
5.4 Remuneration benchmarking and review
Xero is a truly global organisation with 33% of all employees now residing outside of New Zealand and Australia, across more than
ten countries. Xero is one of only a few multinational technology companies listed on the ASX of its size and reach competing in a
global market for talent.
Leadership team remuneration is benchmarked against ASX listed and US peer groups (referencing market data of Australia and
US-based executives with the capabilities needed for leadership roles).
Each year, Xero engages an independent consultant to review and update the peer groups and perform a comparative analysis
of the leadership team’s remuneration against reported roles within those identified peer groups (Australia/US as considered
appropriate for the respective leadership team member’s location). Xero’s aim is to always pay competitively.
The ASX and US peer groups were selected from technology companies, listed on the ASX or in the US, with similar size and reach
globally. The peer group selection had regard to market cap, total/net assets, revenue, EBITDA, business activity and operational
scale. Xero is uniquely positioned as a global technology company of its size listed on the ASX.
Following that review, changes to the leadership team’s remuneration structure or amounts may be proposed, to ensure they
remain appropriate and market competitive. Details of the FY23 review are outlined in sections 6.2, 6.3 and 6.4.
6. Key remuneration components for the CEO, former CEO, and CFO
Further detail is outlined below on how the remuneration structure described in section 5.2 applies to the CEO, former CEO,
and CFO.
6.1 CEO, former CEO, and CFO remuneration mix
CEO (and all leadership team) remuneration is deliberately weighted to have a substantial proportion of target total remuneration
at risk in order to align executive remuneration with shareholder outcomes and ensure that Xero can continue to attract, motivate
and retain talented executives in the global talent landscape to deliver on Xero’s strategic objectives.
Sukhinder Singh Cassidy was appointed by the Board as CEO, replacing Steve Vamos on 1 February 2023. The CEO has a much
higher weighting towards variable pay compared to the former CEO, with equity in particular, making up a significant proportion of
target total remuneration.
• The CEO’s remuneration mix is as follows: Variable pay forms 86.7% of target total remuneration (89.1% of maximum total
remuneration); and equity forms 80.2% of target total remuneration (82.2% of maximum total remuneration)
• The former CEO’s remuneration mix is as follows: Variable pay forms 63.5% of target total remuneration (68.9% of maximum
total remuneration); and equity forms 47.6% of target total remuneration (51.3% of maximum total remuneration)
• The CFO’s remuneration mix is as follows: Variable pay forms 53.8% of target total remuneration (59.8% of maximum total
remuneration); equity forms 40.4% of target total remuneration (44.5% of maximum total remuneration)
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6.2 Fixed annual remuneration
Leadership team remuneration is benchmarked against ASX/US peer groups. The ASX and US peer groups were selected from
ASX/US listed technology companies with similar size and reach globally. The peer groups were selected with regard to market
cap, total/net assets, revenue, EBITDA, business and operational scale.
Fixed annual remuneration is set in the context of Xero’s wider, growth-orientated remuneration strategy and considers an
individual’s skills, experience, accountabilities, performance, leadership, and behaviours.
The outcome of the FY23 remuneration benchmarking review highlighted that fixed remuneration for the former CEO, and CFO
was considerably lower than the median of our peer group. As a result of the review, the following changes were made, bringing
both the former CEO’s, and CFO’s fixed remuneration closer to the median of the peer group:
• The former CEO’s base salary increased to $1,485,000 from $1,350,000, effective 1 April 2022
• The CFO’s base salary increased to $800,000 from $718,750, effective 1 July 2022
The CEO was appointed 1 February 2023. Target median remuneration was based on the US benchmarked peer group. The
peer group was selected from US listed technology companies with similar size and reach globally. The CEO’s base salary is
US$700,000 (NZ$1,121,435).
CEO
Target
Maximum
former CEO
Target
Maximum
CFO
Target
Maximum
Fixed annual remuneration (13.3%)
STI equity (6.5%)
STI cash (6.5%)
LTE: three-year rights based
service plan (36.9%)
LTE: three-year rights based
performance plan (36.9%)
Fixed annual remuneration (10.9%)
STI equity (6.9%)
STI cash (6.9%)
LTE: three-year rights based
service plan (30.2%)
LTE: three-year rights based
performance plan (45.2%)
Fixed annual remuneration (36.5%)
STI equity (15.9%)
STI cash (15.9%)
LTE: three-year rights based
service plan (15.9%)
LTE: three-year rights based
performance plan (15.9%)
Fixed annual remuneration (31.1%)
STI equity (17.6%)
STI cash (17.6%)
LTE: three-year rights based
service plan (13.5%)
LTE: three-year rights based
performance plan (20.3%)
Fixed annual remuneration (46.2%)
STI equity (13.5%)
STI cash (13.5%)
LTE: three-year rights based
service plan (13.5%)
LTE: three-year rights based
performance plan (13.5%)
Fixed annual remuneration (40.2%)
STI equity (15.2%)
STI cash (15.2%)
LTE: three-year rights based
service plan (11.7%)
LTE: three-year rights based
performance plan (17.6%)
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6.3 At risk – Short-Term Incentive (STI)
STI is an at-risk component of remuneration structured to reward achievement against Xero’s strategic and financial objectives
in the financial period. The selected objectives reward delivery of key strategic and financial objectives, in line with the annual
business plan, and reward outcomes aligned to Xero’s goals for growth and operational discipline.
We review our STI measures and weightings each year to ensure they are reflective of, and linked to, strategic outcomes including
customer NPS, eNPS and engagement. STI opportunities are set as a percentage of base salary, based on level of responsibility
and country of residence.
The STI performance measures have been chosen to focus the CEO and CFO on growing global revenue and creating customer
value and engaged teams, while maintaining disciplined operational and financial outcomes. Vesting outcomes also have regard to
whether the leadership team member has acted in accordance with Xero’s values.
• The CEO was appointed 1 February 2023. Her target STI is 100% of her base salary at US$700,000 (NZ$1,121,435). This has been
pro-rated 33% for FY23 due to the CEO’s start date
• For the former CEO, the FY23 remuneration review process resulted in his target STI increasing to $1,336,500 (90% of base
salary) from $1,080,000 (80% of base salary), with effect from 1 April 2022
• For the CFO, the FY23 remuneration review process resulted in her target STI increasing to $480,000 (60% of base salary) from
$359,375 (50% of base salary), with effect from 1 April 2022
The following table provides an overview of the key features of the STI structure.
Element
Details
Purpose
Focus participants on delivery of business objectives over a one-year period
Target opportunity (% base salary)
CEO 100%, former CEO 90%, CFO 60%
Maximum opportunity (% base salary)
CEO 130%, former CEO 117%, CFO 78%
Performance period
Performance is measured from 1 April to 31 March
Performance measures
Performance metrics measure success in relation to our key stakeholders, reflecting the
voices of shareholders, customers and employees
Financial objectives (60%)
Financial objectives reflect the voice of shareholders – EBITDA and net new monthly
recurring revenue (MRR) targets
Non-financial objectives (40%)
Non-financial metrics are based on:
•
voice of the customer – partner and direct NPS targets
•
voice of the employee – employee NPS and engagement targets
•
individual objectives – operational objectives including a global adjacents target and
leadership attributes targets
Target setting
Measures, weightings and targets set at the beginning of each financial year are reviewed
by the P&R Committee and approved by the Board annually. Performance measures
are calibrated to ensure they are aligned to our values, longer-term strategic priorities
and risk appetite. They are set thoughtfully and fairly and, depending on expected
performance, may increase, decrease or stay the same from the previous year
Evaluation of performance
Performance against financial and non-financial objectives is determined at the end of the
financial year. Financial outcomes are only confirmed after audited results are finalised.
Leadership team performance, including acting in accordance with Xero’s values, is
reviewed by the CEO, in consultation with the P&R Committee (and in the case of the CEO,
by the Board)
Pay vehicle
50% of STI awarded is paid in cash with the remaining 50% issued in RSUs under the
terms of the Xero Limited Restricted Stock Unit and Option Plan or the Xero Limited USA
Incentive Scheme (as relevant)
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Grant date
RSUs are typically granted annually in or around May
For FY23, RSUs will be granted in May 2023
Vesting conditions
RSUs vest one year from grant date, subject to continued service and confirmation from
the P&R Committee that no award adjustment events have occurred
Cessation of employment
Unless the Board determines otherwise, if the leadership team member ceases
employment, all unvested RSUs lapse and all STI awards not yet paid are forfeited
CEO: The CEO’s cash and equity STI will be forfeited if they are dismissed for cause or
resign (other than for good reason or genuine retirement) unless the Board determines
otherwise. If the CEO terminates their employment for good reason or their employment
is terminated without cause, the cash component will be pro-rated and the equity
component will remain on foot and be eligible to vest in the ordinary course (as if
employment had not ceased). If the CEO ceases for any other reason (e.g. genuine
retirement) the cash component will be pro-rated and the equity component will remain
on foot and be eligible to vest (as if employment had not ceased), unless the Board
determines otherwise
Sale of vested shares
Our people are subject to Xero’s Share Trading Policy and dealing restrictions as outlined
in section 4.4. Shares cannot be sold during a closed period for share trading
Change of control
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 RSUs 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 and clawback provisions
Adjustment, delay or withholding may occur in, but is not limited to, circumstances where:
•
an employee has acted fraudulently or dishonestly or is in material breach of their
obligations
•
where Xero becomes aware of a material misstatement or omission in the financial
statements of the Xero Group
•
where an executive has failed to act consistently with Xero’s risk appetite and risk
management priorities
•
in any other circumstances where the Board determines in good faith there is an
unfair benefit to the employee, e.g. relating to behaviour or conduct, such as risk
management
Dividends and voting
RSUs do not carry an entitlement to dividends or voting prior to vesting
Amendments and adjustments
Other than as set out above, the Board has discretion to make changes to the terms of
RSUs, the Xero Limited Restricted Stock Unit and Option Plan, and the Xero Limited
USA Incentive Scheme subject to the law and ASX Listing Rules applicable from time to
time. The Board also has power to make adjustments to the number of RSUs in certain
circumstances
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6.3.1 Link between remuneration, strategy and value creation
The following table outlines the STI measures and weightings that applied to the CEO’s, former CEO’s, and CFO’s FY23 STI awards.
Performance measure
Weighting
Rationale for choice of measure
Voice of the shareholder (60% of total)
Group Net New Monthly
Recurring Revenue (MRR)
45%
•
Key indicator of financial performance driving AMRR
•
Supports execution on growth objectives
•
Drives value creation through Xero’s Financial key outcomes – ‘Strong balance sheet,
revenue growth, gross margin contribution and strong cash flows to provide options
for reinvestment to support our strategy and vision and create long-term value for
shareholders’
•
Aligns with our ‘Challenge’, ‘Team’, and ‘Ownership’ values
EBITDA
15%
•
Key indicator of financial performance
•
Ensures continued focus on disciplined allocation of capital
•
Rewards appropriate balance between return generation and reinvestment in growth
•
Drives value creation through Xero’s Financial key outcomes – ‘Strong balance sheet,
revenue growth, gross margin contribution and strong cash flows to provide options
for reinvestment to support our strategy and vision and create long-term value for
shareholders’
•
Aligns with our ‘Challenge’, ‘Team’, and ‘Ownership’ values
Voice of the customer (10% of total)
Partner and Small
Business NPS
10%
•
Key indicator of customer and partner satisfaction
•
Ensures continued focus on customer retention
•
Drives value creation through Xero’s Customers, Partners and Ecosystem key outcome
– ‘Greater stakeholder trust and customer advocacy through a product experience that
exceeds expectations. Improved brand awareness, perception and value, including
trust in the reliability and security of data’
•
Aligns with our ‘Human’, ‘Challenge’, ‘Team’, ‘Ownership’, and ‘Beautiful’ values
Voice of the employee (10% of total)
Employee NPS and
Engagement
10%
•
Key indicator of employee satisfaction
•
Ensures continued focus on employee engagement
•
Drives value creation through Xero’s People and Culture key outcome – ‘Attraction,
development and retention of top talent is enhanced. Targeted initiatives and flexible
ways of working to promote diversity, pay equity and an inclusive environment.
Improved health, safety and wellbeing performance’
•
Aligns with our ‘Human’, ‘Challenge,’ and ‘Team’ values
Individual objectives (20% of total)
Individual objectives
including a global
adjacents target and
leadership attributes
targets
20%
•
Key indicator of individual leadership team performance
•
Ensures continued focus on individual goals
•
Rewards individual performance
•
Drives value creation through all of Xero’s key outcomes
•
Aligns with our ‘Challenge’ and ‘Ownership’ values
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REMUNERATION REPORT
6.4 Long-Term Equity (LTE) and Long-Term Incentive (LTI)
LTE and LTI are at-risk components of leadership remuneration that are structured to reward the effective execution of Xero’s
strategic plan and sustained shareholder value creation.
Xero is one of only a few technology companies listed on the ASX of both its size and reach globally. As we continue to grow our
global footprint, the skills and experience required of our management team also evolves.
The CEO’s target median remuneration was based on the US benchmarked peer group (market data of US-based executives with
the capabilities needed for the CEO role). The peer group was selected from US listed technology companies with similar size and
reach globally. The lower base salary and higher variable remuneration weighting (LTE and LTI) was driven by the typical package
breakdown of a US-based CEO.
The CEO’s target LTE and LTI is 571% of base salary at US$4,000,000 (NZ$6,408,202). This was set having regard to peer
benchmarking as noted earlier in this report. The CEO’s LTE and LTI has been pro-rated 50% for FY23 due to her start date (1
February 2023). For FY23, this was US$2,500,000 (being a pro-rated opportunity based on a full year maximum of US$5,000,000)
and representing a 40% LTE and 60% LTI split. The CEO’s initial LTE and LTI grant was made in January 2023 and vests in May
2025.
For the former CEO, the FY23 remuneration review process resulted in his target LTE and LTI increasing to $1,336,500 (90% of
base salary) from $1,080,000 (80% of base salary) as of 1 April 2022.
For the CFO, the FY23 remuneration review process resulted in her target LTE and LTI increasing to $480,000 (60% of base salary)
from $359,375 (50% of base salary) as of 1 July 2022.
The following table provides an overview of the key features of the LTE and LTI structure.
Element
Details
Purpose
Rewards delivery against longer-term strategy and sustained shareholder value creation.
Provides alignment between shareholder, customer, and leadership team outcomes and
time-based retention through multi-year vesting
Target opportunity (% base salary)
CEO 571.4%, former CEO 90%, CFO 60%
Maximum opportunity (% base salary)
CEO 714.3%, former CEO 112.5%, CFO 75%
Pay vehicle
LTE and LTI are provided in the form of RSUs under the Xero Limited Restricted Stock
Unit and Option Plan or the Xero Limited USA Incentive Scheme (as relevant). The number
of RSUs granted is calculated by reference to the LTE and LTI value (% of base salary)
divided by the 30-day volume-weighted-average-price (VWAP) of Xero shares on the grant
date
Grant date
RSUs are typically granted annually in or around July
For FY23, RSUs were granted in July 2022 for the former CEO, and CFO, and in January
2023 for the CEO1
Vesting conditions
LTE – value is contingent on service (being employed and not having resigned on the vest
date)
LTI – value is contingent on performance targets over a three-year period (commencing 1
April 2022 and ending 31 March 2025) as well as service
Performance contingent component measures and weightings:
•
Operating revenue growth – 75%
•
Relative total shareholder return (TSR) – 25%
RSUs typically vest in the third May following the grant
LTE and LTI granted for FY23 will vest on or around 31 May 2025
1 To correct for a miscalculation in the number of RSUs granted, 1,841 RSUs will be granted to the CEO in May 2023. The original offer terms continue to
apply to all RSUs
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REMUNERATION REPORT
Cessation of employment
Former CEO, and CFO: in the event of termination all unvested RSUs are forfeited
CEO: The CEO’s LTI will be forfeited if they are dismissed for cause or resign (other than
for good reason or genuine retirement) unless the Board determines otherwise. If the CEO
terminates their employment for good reason or their employment is terminated without
cause, a pro-rata amount of LTI will remain on foot and be eligible to vest in the ordinary
course (as if employment had not ceased). If the CEO ceases for any other reason (e.g.
genuine retirement) a pro-rata amount of LTI will remain on foot and be eligible to vest
in the ordinary course (as if employment had not ceased), unless the Board determines
otherwise
Sale of vested shares
Employees are subject to Xero’s Share Trading Policy and dealing restrictions as outlined
in section 4.4. Shares cannot be sold during a closed period for share trading
Change of control
The Board has broad discretion to determine the appropriate treatment of vested shares
and 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 RSUs 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
Adjustment, delay or withholding may occur, but is not limited to, circumstances where:
•
an employee has acted fraudulently or dishonestly or is in material breach of their
obligations
•
where Xero becomes aware of a material misstatement or omission in the financial
statements of the Xero Group
•
where an executive has failed to act consistently with Xero’s risk appetite and risk
management priorities
•
in any other circumstances where the Board determines in good faith there is an
unfair benefit to the employee, e.g. relating to behaviour or conduct, such as risk
management
Dividends and voting
RSUs do not carry entitlement to dividends or voting prior to vesting
Amendments and adjustments
Other than as set out above, the Board has discretion to make changes to the terms of
RSUs, the Xero Limited Restricted Stock Unit and Option Plan, and the Xero Limited
USA Incentive Scheme subject to the law and ASX Listing Rules applicable from time to
time. The Board also has power to make adjustments to the number of RSUs in certain
circumstances
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REMUNERATION REPORT
6.4.1 CEO initial equity grant
The CEO received a one-off initial equity grant of US$10,000,000 (NZ$16,020,506) in the form of options. Details of the CEO’s
initial equity grant are outlined below.
Element
Details
Purpose
One-off initial equity grant for CEO 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
Pay vehicle
Options with an exercise price based on the 30-day VWAP leading up to grant date.
Options lapse ten years from grant date. This expiry date is intended to apply for options
granted from January 2023 onwards. Previous grants had an expiry period of five years
from grant. This change was made to align option expiry with typical US market practice
Grant details
445,697 options were granted in January 20231
Vesting conditions
Options vest in three equal tranches on the first, second and third anniversaries of the
employment date (November 2022). Vesting is contingent upon continued service and
subject to malus and clawback. The exercise price acts as a built-in hurdle to drive longer-
term strategy and sustained shareholder value creation
Outcome
No options have yet vested. The first tranche of options will vest in November 2023
Change of control
If the Company is subject to change of control, the Board may decide how to treat options
at its discretion
Cessation of employment
The CEO’s unvested options will be forfeited if the CEO is dismissed for cause or
resigns (other than for good reason or genuine retirement) unless the Board determines
otherwise. If the CEO terminates their employment for good reason or their employment is
terminated without cause or the CEO ceases for any other reason (e.g. genuine retirement)
all unvested options remain on foot and are eligible to vest in the ordinary course (as if
employment had not ceased)
Amendments and adjustments
Other than as set out above, the Board has discretion to make changes to the terms of
RSUs and options, the Xero Limited Restricted Stock Unit and Option Plan, and the Xero
Limited USA Incentive Scheme subject to the law and ASX Listing Rules applicable from
time to time
1 As disclosed in November 2022, the CEO was entitled to receive options in three equal tranches, each valued at USD$3,333,333 at grant. Xero has
identified that a miscalculation impacted the options issued to the CEO (to the CEO’s disadvantage). Xero is assessing the miscalculation and its impact
and will disclose the steps taken to remedy the error in the 2024 Remuneration Report
6.5 Legacy former CEO, and CFO equity arrangements
Details of equity grants for the former CEO, and CFO before the current LTE and LTI plans were adopted are outlined below. This
legacy grant was offered in 2018 as a one-off plan with the final tranche vesting in FY23.
6.5.1 Legacy former CEO options
Element
Details
Purpose
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
Pay vehicle
Options with an exercise price based on the 20-day VWAP leading up to grant date
Options lapse five years from grant date
Grant details
Under the FY19 executive block options grant, 180,000 options were granted in August 2018
Vesting conditions
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
The final tranche of 90,000 options vested in June 2022 with a value at vesting of $4.79 million
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REMUNERATION REPORT
6.5.2 Legacy CFO options arrangements
Element
Details
Purpose
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
Pay vehicle
Options with an exercise price based on the 20-day VWAP leading up to grant date
Options lapse five years from grant date
Grant details
Under the FY19 executive block options grant, 80,000 options were granted in June 2018,
and a further 20,000 options were granted in October 2018
Vesting conditions
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
Outcome
The final grant of 33,334 options vested in June 2022 with a value at vesting of
$1.69 million
7. Xero’s performance
Xero’s financial results over the last five years are shown below, along with STI outcomes:
Measure
FY19
FY20
FY21
FY22
FY23
Subscribers
1,818,000
2,285,000
2,741,000
3,271,000
3,741,000
Annualised Monthly
Recurring Revenue ($000s)
$638,179
$820,557
$963,597
$1,231,087
$1,553,803
Operating Revenue ($000s)
$552,819
$718,231
$848,782
$1,096,819
$1,399,884
Free Cash Flow ($000s)
$6,451
$27,105
$56,946
$2,073
$102,340
Average STI received as % of
maximum
79%
56%
90%
85%
59%
Xero’s share price, Xero share price movement, Xero total shareholder return and average STI outcomes over the last five years are
shown below:
Measure
FY19
FY20
FY21
FY22
FY23
Xero Share Price (AU$)*
48.65
67.91
126.53
102.75
89.42
Xero Share Price Movement
(AU$)
15.21
19.26
58.62
-23.78
-13.33
Xero Total Shareholder
Return
45.5%
39.6%
86.3%
-18.8%
-13.0%
Average STI received as % of
maximum
79%
56%
90%
85%
59%
* Closing price for the last trading day in the financial year
Xero Annual Report 2023
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REMUNERATION REPORT
8. CEO, former CEO, and CFO remuneration
The following table provides details of the actual remuneration received by the CEO, former CEO, and CFO during FY23 and
FY22. This represents the ‘take home pay’ of the CEO, former CEO, and CFO during those years, rather than the accounting values
recognised by applicable accounting standards. The CEO, former CEO, and CFO received no other monetary benefits, other than
those stated below.
Actual remuneration received by the CEO, former CEO, and CFO disclosed in the table below for FY23 is based on the following:
• Fixed annual remuneration earned between 1 April 2022 and 31 March 2023
• Realisable cash and deferred RSU STI based on FY22 and FY21 performance, respectively. Cash was received in May 2022.
Deferred RSUs were granted in May 2021 and vested in May 2022. The number of RSUs granted is dependent on the share
price at grant: 110.2 percent of target STI (90.0 percent of maximum) was awarded to the former CEO, and CFO based on FY21
performance
• Value of the former CEO’s options that vested during FY23: 90,000 options from the FY19 executive block options grant
• Value of the CFO’s options that vested during FY23: 33,334 options from the FY19 executive block options grant
Fixed remuneration
Variable remuneration1
Accounting value of grants vested
during the year, in the form of:
Additional
value of all
grants vested
in the year,
attributable
to share price
appreciation
($000s)
Total
remuneration
received
inclusive of
share price
appreciation
($000s)
Salary
($000s)
Pension
($000s)
Other²
($000s)
Cash STI
($000s)
Option/
share
grants
($000s)
RSU
grants
($000s)
S Singh Cassidy
FY23
3883
11
-
-
-
-
-
399
S Vamos
FY23
1,485
53
52
564
2,182
379
2,506
7,221
S Vamos
FY22
1,350
54
31
379
2,182
549
8,500
13,045
K Godfrey-Billy
FY23
780
18
10
188
707
147
944
2,794
K Godfrey-Billy
FY22
695
16
9
147
707
90
2,910
4,574
1 Includes the value of options and RSUs granted in prior years that vested in the year
2 Relates to payout of annual leave under New Zealand requirements, which includes STI received in calculation of payments
3 Xero’s FY23 Annual Report filed on the ASX on 18 May 2023 has 348 rather than the correct number, being 388
Further details on STI outcomes for the CEO, former CEO, and CFO are outlined in section 9.
Further details on other remuneration elements and outcomes for the FY23 year for the CEO, former CEO, and CFO are outlined in
section 10.
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REMUNERATION REPORT
9. STI outcomes in detail
The annual outcomes achieved for the CEO, former CEO, and CFO are based on Xero’s FY23 performance as below. Voices of the
shareholder, customer, and employee are formulaic.
Objectives
Weighting
Commentary
Outcome
(% of
target)
Outcome
(% of max)
Voice of the shareholder
60%
Net new MRR was $24.1m for FY23.
This exceeded target
EBITDA was $158.4m for FY23.
This was below target
93%
62%
Voice of the customer
10%
Accountant/Bookkeeper (Partner) NPS was
below target for FY23
Small Business (Direct) NPS was below
target for FY23
The targets must be met for payment to be
made
0%
0%
Voice of the employee
10%
Employee NPS was above global industry
benchmarks with a 12-month rolling average
of 32 for FY23 but did not reach 100% of
target
Employee Engagement was 7.9 for FY23.
This exceeded target. There is no stretch
(payment is at 100% if target is achieved)
50%
50%
Individual objectives
20%
Individual objectives comprise a global
adjacents target, leadership attributes
targets and individual OKRs. Individual
objectives achievement for the three
executive KMPs were: 100% for the CEO,
66% for the former CEO, and 73.5% for
the CFO
66%–100%
66%–100%
Total outcome (CEO)
80.8%
62.2%
Total outcome (former CEO)
74.0%
56.9%
Total outcome (CFO)
75.5%
58.1%
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REMUNERATION REPORT
10. CEO, former CEO, and CFO equity holdings
The following tables present current at-risk equity and holdings for the CEO, former CEO, and CFO.
At-risk equity as at 31 March 2023
Opening
balance1
Granted during
the year
Vested
Exercised
Lapsed/
forfeited
Closing
balance1
Options
CEO
-
445,697 2
-
-
-
445,697
Former CEO
145,880
-
90,000
90,000
-
55,880
CFO
50,593
12,502
33,334
33,334
-
29,761
RSUs
CEO
-
46,752 3
-
-
-
46,752
Former CEO
2,740
23,922
2,740
-
-
23,922
CFO
1,062
12,127
1,062
-
-
12,127
¹ For options, includes all vested/unvested options that have not been exercised. For RSUs, only includes what has not vested
2 As disclosed in November 2022, the CEO was entitled to receive options in three equal tranches, each valued at USD$3,333,333 at grant. Xero has
identified that a miscalculation impacted the options issued to the CEO (to the CEO’s disadvantage). Xero is assessing the miscalculation and its impact
and will disclose the steps taken to remedy the error in the 2024 Remuneration Report
3 To correct for a miscalculation in the number of RSUs granted, 1,841 RSUs will be granted to the CEO in May 2023. The original offer terms continue to
apply to all RSUs
Total equity holdings at 31 March 2023
Options
RSUs
CEO
445,697
46,752
Former CEO
55,880
23,922
CFO
29,761
12,127
11. CEO and CFO employment conditions
The following tables outline the employment conditions pertaining to the CEO and CFO.
11.1 CEO employment conditions
Item
Details
Basis of contract
Ongoing (no fixed term)
Notice period
Twelve months by either party
Shorter notice may apply by agreement
Base salary
Subject to annual review (but no adjustments to base salary are guaranteed)
Incentive opportunities
Eligible to participate in short-term incentive arrangements, long-term incentive arrangements, and a one-
off initial equity grant. FY23 opportunities are outlined in this report. For FY24, and future years, a full year
short-term (target) opportunity of 100% of base salary will be available. For FY24, a full year (maximum)
long-term opportunity of not less than USD$5,000,000 will be available
Payment in lieu of
notice period
Xero may pay the CEO in lieu of all or part of her notice period or require her to work for part of her notice
period and pay her in lieu of the balance
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REMUNERATION REPORT
11.2 CFO employment conditions
Item
Details
Basis of contract
Ongoing (no fixed term)
Notice period
Three months by either party
Shorter notice may apply by agreement
Base salary
Subject to annual review (but no adjustments to base salary
are guaranteed)
12. Non-executive director remuneration
The total remuneration available to non-executive directors is fixed by shareholders.
The annual total aggregate non-executive director remuneration is capped at $2.7 million, as approved by shareholders at Xero’s
Annual Meeting in August 2021.
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.
The fees paid to non-executive directors are structured to reflect time commitment, responsibilities, and workloads. Fees are
benchmarked to the local market and set accordingly reflecting 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 FY23. Directors’ fees are paid in New Zealand dollars in
order to avoid exchange rate fluctuations impacting the annual fee cap.
Country of residence
Chair
($000s)
Director
($000s)
Audit & Risk
Management
Committee Chair¹
($000s)
Audit & Risk
Management
Committee
member¹
($000s)
People &
Remuneration
Committee Chair¹
($000s)
People &
Remuneration
Committee
member¹
($000s)
New Zealand
450
190
38
19
38
19
Australia
450
190
38
19
38
19
United States
500
360
38
19
38
19
United Kingdom
650
190
38
19
38
19
1 No additional fees are currently paid for the Chair or members of the Nominations Committee. The Board Chair does not receive any additional fees for
serving on committees
Fees are reviewed every two years, with the last review concluding in 2021. Fees are currently under review and any proposed
resolution to change the non-executive directors’ fee pool cap will be put to shareholders at Xero’s annual meeting in August 2023.
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REMUNERATION REPORT
The total remuneration1 of, and the value of other benefits received by, each non-executive director during FY23 was:
Director
Country of
residence
Role
Committee Chair
FY23
Base fees
($000s)
FY23
Committee
fees ($000s)
FY23
Total fees
($000s)
David Thodey,
AO
Australia
Chair
Nominations
Committee
450
-
450
Rod Drury
New Zealand
NED
-
190
-
190
Lee Hatton
Australia
Independent NED
-
190
19
209
Dale Murray,
CBE
United
Kingdom
Independent NED
-
190
19
209
Susan
Peterson
New Zealand
Independent NED
P&R Committee
190
38
228
Mark Cross
New Zealand
Independent NED
ARM
Committee
190
57
247
Steven
Aldrich
United States
Independent NED
-
360
19
379
Brian
McAndrews
United States
Independent NED
-
360
19
379
Total
2,120
171
2,2911
1 Total remuneration is presented based on accounting expense and may include amounts earned, but not yet received
The total remuneration1 of, and the value of other benefits received by, each non-executive director during FY22 was:
Director
Country of
residence
Role
Committee Chair
FY22
Base fees
($000s)
FY22
Committee
fees ($000s)
FY22
Total fees
($000s)
David Thodey,
AO
Australia
Chair
Nominations
Committee
404
-
404
Rod Drury
New Zealand
NED
-
168
-
168
Lee Hatton
Australia
Independent NED
-
168
19
187
Dale Murray,
CBE
United
Kingdom
Independent NED
-
168
19
187
Susan
Peterson
New Zealand
Independent NED
P&R Committee
168
38
206
Mark Cross
New Zealand
Independent NED
ARM
Committee
168
47
215
Brian
McAndrews2
United States
Independent NED
-
59
3
62
Steven
Aldrich
United States
Independent NED
-
305
19
324
Former
directors
Craig Winkler3
Australia
NED
-
53
14
67
Total
1,661
159
1,8201
1 Total remuneration is presented based on accounting expense and may include amounts earned, but not yet received
2 Appointed director 2 February 2022
3 Ceased as director 12 August 2021
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REMUNERATION REPORT
13. Our team’s remuneration
The following table shows the number of current and former employees of Xero whose remuneration and benefits for FY23 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
283
480,000 to 489,999
2
110,000 to 119,999
306
490,000 to 499,000
7
120,000 to 129,999
315
500,000 to 509,999
7
130,000 to 139,999
299
510,000 to 519,999
4
140,000 to 149,999
309
520,000 to 529,999
3
150,000 to 159,999
294
530,000 to 539,999
3
160,000 to 169,999
268
540,000 to 549,999
1
170,000 to 179,999
223
550,000 to 559,000
2
180,000 to 189,999
161
560,000 to 569,000
7
190,000 to 199,999
144
580,000 to 589,999
3
200,000 to 209,999
112
590,000 to 599,999
3
210,000 to 219,999
108
600,000 to 609,999
3
220,000 to 229,999
100
610,000 to 619,999
1
230,000 to 239,999
96
630,000 to 639,999
2
240,000 to 249,999
59
650,000 to 659,999
1
250,000 to 259,999
55
660,000 to 669,999
1
260,000 to 269,999
59
680,000 to 689,999
2
270,000 to 279,999
59
690,000 to 699,999
3
280,000 to 289,999
47
700,000 to 709,999
1
290,000 to 299,999
37
720,000 to 729,999
2
300,000 to 309,999
32
760,000 to 769,999
1
310,000 to 319,999
20
800,000 to 809,999
1
320,000 to 329,999
38
830,000 to 839,999
1
330,000 to 339,999
21
850,000 to 859,999
1
340,000 to 349,999
23
870,000 to 879,999
1
350,000 to 359,999
23
880,000 to 889,999
3
360,000 to 369,999
13
890,000 to 899,999
2
370,000 to 379,999
19
900,000 to 909,999
1
380,000 to 389,999
14
910,000 to 919,999
3
390,000 to 399,999
10
940,000 to 949,999
1
400,000 to 409,999
11
950,000 to 959,999
2
410,000 to 419,999
7
980,000 to 989,999
1
420,000 to 429,999
12
1,000,000 to 1,000,999
1
430,000 to 439,999
13
1,050,000 to 1,050,999
2
440,000 to 449,999
6
1,100,000 to 1,100,999
1
450,000 to 459,999
9
1,140,000 to 1,140,999
2
460,000 to 469,999
9
1,160,000 to 1,169,999
2
470,000 to 479,999
8
1,190,000 to 1,199,999
1
Xero Annual Report 2023
154
REMUNERATION REPORT
Remuneration including share-
based remuneration
Number of employees
Remuneration including share-
based remuneration
Number of employees
1,350,000 to 1,359,999
1
2,460,000 to 2,469,999
1
1,550,000 to 1,559,999
1
2,790,000 to 2,799,999
1
1,670,000 to 1,679,999
1
2,820,000 to 2,829,999
1
2,120,000 to 2,129,999
1
3,030,000 to 3,039,999
1
2,200,000 to 2,209,999
1
3,500,000 to 3,509,999
1
2,230,000 to 2,239,999
1
7,220,000 to 7,229,999
1
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, former 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, former CEO, and CFO remuneration disclosures detailed above.
Xero Annual Report 2023
155
Registered offices
New Zealand
19-23 Taranaki Street
Te Aro, Wellington 6011
New Zealand
Australia
Level 3, 260 Burwood Road
Hawthorn, Vic 3122
Australia
Contact:
www.xero.com/about/contact
Directors
David Thodey, AO
(Chair)
Steven Aldrich
Mark Cross
Rod Drury
Lee Hatton
Brian McAndrews
Dale Murray, CBE
Susan Peterson
Company
secretary
Damien Coleman
Leadership team
Sukhinder Singh Cassidy
Chief Executive Officer
Damien Coleman
Acting Chief Legal Officer
Kirsty Godfrey-Billy
Chief Financial Officer
Diya Jolly
Chief Product Officer
Chris O’Neill
Chief Growth Officer
Rachael Powell
Chief Customer Officer
Mark Rees
Chief Technology Officer
Nicole Reid
Chief People Officer
Angad Soin
Chief Business Operations &
Strategy Officer
Other company
information
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
Tower 4, 727 Collins Street
Melbourne, Vic 3008
Australia
Telephone: +61 1300 554 474
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