Xero avoids targets amid ‘crazy’ pricing
Shareholder group fears FMA investigation now pointless
Xero has given investors at its annual meeting in Sydney no hints about how fast it expects to grow in the year ahead.
However, it did bury any lingering expectations that listing in the United States could be likely in the near term.
Xero has in the past often used its annual meetings to set growth targets.
But it backed away from very specific commitments last year, when chief executive Rod Drury reiterated a goal of notching up a million customers without setting a specific deadline. It achieved that target in March.
Xero said only at its annual meeting yesterday that its ‘‘operating metrics’’ would improve this year, and that it would consume less cash than in the year to March – assuming exchange rates remained constant.
Those messages were the same as in the outlook it provided at its annual meeting last year.
Drury told investors that Xero had seen some ‘‘pretty crazy stuff’’ by competitors in the cloud accounting software market in terms of pricing.
‘‘There is a lot of buying of customers going on, we think, in the market.’’
Drury has in past questioned the revenues that US rival Intuit has been earning from its sales drive in Britain, which Drury said was ‘‘probably the most important market’’ for Xero at the moment.
Responding to a question from the floor on whether Xero might list in the US, chief financial officer Sankar Narayan said the company still saw the US ‘‘as a potential long-term home’’.
‘‘But for the short to medium term we are happy with our listing position,’’ he said.
Drury, who spoke after other executives at the meeting, focused on what had been achieved under the hood at the software firm, the potential to move into new markets beyond accounting, and the scale Xero had achieved.
Xero was now earning its place as one of Australasia’s top technology companies ‘‘not just in potential but in actual numbers’’, he said.
One of its dilemmas had been how to run a global business from the region without subjugating ‘‘great people’’ outside Australasia under layers of management, he said.
The solution it had taken was to flatten its structure, he said.
Drury said Xero was feeling positive about the US market, but would not beat Intuit in the US just ‘‘by building a better mousetrap’’.
Instead, it needed to fundamentally change the experience customers had using accounting software, he said.
Switching Xero’s software to cloud hosting company Amazon Web Services had laid the platform for that, he said.
The company’s shares were little changed during lunchtime trading on the NZX, down 4 cents at $25.85.
Xero’s board looks certain to have secured approval from shareholders at the AGM for a big boost to directors’ fees.
Chairman Graham Smith said Xero was a ‘‘significantly smaller company’’ in 2014 when the maximum pool for directors’ fees was increased to $850,000.
The new cap will take that ceiling up by nearly 65 per cent to $1.4 million.
Smith said the rise would ‘‘enable Xero to attract and retain directors of the highest calibre in different countries’’.
Xero planned to recruit two to three additional directors in key markets such as the United Kingdom or the US, he said.
‘‘There are no current plans to materially increase the remuneration of the current directors,’’ he said. An investigation by the Financial Markets Authority (FMA) into suspicious share trading in Xero has now entered its third year.
Shareholders Association chairman John Hawkins said the investigation had taken a ridiculous amount of time and was probably now pointless, but he did not necessarily blame the regulator.
In June 2015, the New Zealand stock exchange asked the FMA to look into purchases of Xero shares that took place during the run-up to a $147 million capital raising by Xero the previous February.
Xero shares rose sharply in the run-up, sparking a ‘‘please explain’’ letter from the NZX and resulting in subsequent speculation that word of the capital raising might have leaked.
There has been no suggestion of any wrongdoing by Xero itself.
FMA adviser Edwin Mitson said the investigation was complex and spanned different jurisdictions.
‘‘Regulatory authorities and companies in other jurisdictions have co-operated with our inquiry,’’ he said in a statement.
‘‘The FMA has received a large amount of information from overseas and is considering all relevant material. The FMA will issue an update when the investigation process is complete.’’ Hawkins said the time the investigation had taken was ‘‘extraordinary’’ and exposed the weaknesses of international law.
‘‘It certainly doesn’t help market confidence when things take a very long time,’’ he said.
‘‘Even if something was to be proven at this point, the stable door is shut after the horse has bolted.’’
He believed it was highly unlikely that any extraditable offence would have been committed, questioning whether anyone would be held account whatever was found.
‘‘In this case, if the FMA has managed to achieve a degree of co-operation with overseas regulators and people within them, they have probably done better than many. But it does seem after this length of time that it is a slightly pointless exercise.’’