Last week, Xero reported their full year earnings to 31 March 2020 (FY20) delivering top-line growth with a positive free cash flow and net profit outcome.
The effect of COVID-19 on the global business environment, and associated social distancing measures that commenced in March, fell late in FY20 and had a relatively modest impact on Xero’s operating and financial performance for the year.
However, the impact of COVID-19 on March trading did result in some reduction in annualized monthly recurring revenue (AMRR) progress in that month. This outcome, along with the ongoing COVID-19 environment, will be reflected in Xero’s FY21 financial performance. Xero does not anticipate significant changes to its long-term strategy, and it believes strongly in the value Xero can bring to small businesses and their advisors.
Xero’s FY20 & COVID-19
Xero achieved its first full year net profit after tax of $3.3 million, an improvement of $30.5 million compared to a $27.1 million loss in FY19. The net profit result was driven by ongoing growth in operating revenue, improved gross margin, and disciplined management of operating costs. However, the global environment changed significantly in March as the impact of COVID-19 escalated around the world. Unquestionably, this is a difficult time for many people in small business.
Xero has focused on maintaining the quality and continuity of its 100% cloud-based products and services while moving swiftly to roll out a range of new customer and partner support services. This includes a focus on immediate customer information needs, targeted product development (specifically, cash flow insights, in-product prompts and reminders and access to information, in-application data and preparation for government stimulus packages), and collaboration with governments and banks on the impacts to small business and how assistance is provided.
CEO Steve Vamos said: “Many of our customers and partners are having to adapt the way they operate, while investing enormous effort to survive at this difficult time. Helping them is our immediate priority.”
“While COVID-19 brings uncertainty, our long-term strategic ambitions are unchanged and we remain committed to our three strategic priorities: to drive cloud accounting around the world, grow the small business platform, and to continue to build for global scale and innovation. Now more than ever, small businesses are recognizing the benefit of being able to use the cloud to run their businesses and manage their finances.”
“In FY20 we continued to execute our strategy, delivering operational revenue growth of 30 percent driven by subscriber growth in all markets, while staying focused on financial and operating discipline. Digitization of tax and compliance remains a significant driver of demand for our cloud accounting solutions during the financial year.”
Performance highlights FY20 (All figures in NZD as at 31 March 2020. Comparisons are made against FY19)
- 30% growth in operating revenue to $718.2 million (29% in constant currency (CC))
- 29% growth in AMRR to $820.6 million
- 26% growth in total subscribers to 2.285 million
- Rest of World and North America contributed almost one in four subscriber additions in H2 FY20
- Total subscriber lifetime value grew by 27% (25% in CC) to $5.5 billion
- Free cash flow was $27.1 million, taking total available liquid resources to $686.1 million
- Net profit of $3.3 million, an improvement of $30.5 million over a net loss of $27.1 million
- EBITDA of $137.7 million, an improvement of 88% compared to $73.2 million