Xero adopts an ‘investment mindset’
Cloud accounting software company Xero hopes to attract new institutional investors to its share register, as it prepares to enter a new growth phase when it consolidates onto the Australian Securities Exchange on February 5.
Founder and chief executive Rod Drury said he could see the business achieving the status in Australia that Xero had reached in the New Zealand market, where it was one of the top 10 largest listed businesses in the country.
‘‘We’ve just hit earnings before interest, tax, depreciation and amortisation break-even, but there is still massive growth potential. Before you get to break-even you have to do a good job managing cash,’’ he said.
‘‘When we start generating free cash, we will start thinking about the best use for it to create shareholder value. We’ve been slightly constrained to date in that we have had to get to a point where we generated free cash, but now we’re moving to an investment mindset.’’
Xero, which is still loss-making, has more than 500,000 Australian subscribers and 1.2 million globally. It processed A$640 billion (NZ$70 billion) of transactions through its platform in the year to June 2017.
When Xero announced it would be delisting from the NZX, it surprised and angered New Zealand fund managers who saw the move as a red flag for their exchange, with Xero making up a significant percentage of trading volume.
But Drury said a consolidated listing was key for the business to increase liquidity and attract new investors.
‘‘We’ve become such a big part of the daily trading volume in New Zealand – that’s what drove the emotional reaction.
‘‘Unfortunately there isn’t a lot of diversity because there haven’t been many successful tech companies behind us to pick up the slack on the exchange.
‘‘But we’re seeing amazing support form the global funds … this is putting us on the radar of a whole lot of new funds which we didn’t have exposure to when we were dual listed. We needed to have our liquidity in one market because they want to be able to make larger bets.’’
Looking forward, Drury said the business would be launching more machine learning products in 2018, following its first foray into this area in 2017 when it automated the coding of invoices and bank transactions. ‘‘The really big thing for us now is to make it as easy as possible for all businesses to be on the platform.’’