Impairments widen loss but signs good

AUCKLAND: Accounting software company Xero widened its annual loss while growing operating revenue 36% and subscriber numbers by 31%.

Xero reported a $27.1 million net loss for the 12 months ended March, up from the previous year’s $24.9 million loss, but said it made a profit of $1.4 million in the second half.

It also had positive free cash inflow of $6.45 million, for the first time, 1.2% of revenue, in the year compared with a $28.5 million outflow the previous year.

‘‘A number of financial metrics point to Xero’s improving profitability and increasing cash generation in fullyear 2019,’’ the company said.

‘‘Gross margin percentage improved in FY19 by 2.1 percentage points to 83.6%, contributing to a 4.4 percentage point increase in ebitda — excluding impairments — to 16.6% due to improving efficiencies in sales, marketing and product design and development costs,’’ it said.

The net loss for the year is primarily due to impairments taken in the first half. Ebitda excluding impairments rose 84% to $91.8 million in the year.

Average revenue per user rose to $29.25 a month from $29.13 and lifetime value per subscriber rose 3% to $2398.

Subscriber numbers rose to 1.82 million from 1.39 million the previous year. Those in Australasia passed a million and were up 22%, British subscribers rose 48% to 151,000 and North American subscribers rose 48% to 195,000 — excluding Hubdoc, the increase was 44,000, or 33%.

Xero is challenging the US incumbent Intuit, which is due to report its thirdquarter results next week. Intuit had nearly 3.9 million subscribers to its online QuickBooks product at January 31, of which 2.9 million were in the US.

Xero raised $US300 million from convertible notes in October last year, ‘‘demonstrating investor confidence in the business. Funds raised provide the flexibility to execute acquisitions and investments that will enhance and extend Xero’s small business platform and ecosystem,’’ it said.

The company had $121.5 million in cash at March 31, up from $21 million a year earlier.

During the past year, it bought Hubdoc, a data capture solution, and Instafile, a British tax filing and compliance tool.

‘‘As we head into FY20 and beyond, we’re making great progress towards our strategic priority of driving cloud accounting adoption globally,’’ chief executive Steve Vamos said.

‘‘We have a genuine competitive edge by prioritising investment in growth and partnering closely with accountants and bookkeepers to deliver a humancentred technology experience for small business communities across the world.’’

The company expected free cash flow in the current financial year to be similar, as a proportion of revenue, to that in the past year.