Joint Statement by Baillieu Limited Chairperson David Trude and Managing Director Gavin Powell

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Profile: Xero (XRO) is a global cloud-based accounting software provider which focuses on the small business segment. It operates in over 180 countries. XRO provides an accounting platform to its users which includes features such as invoicing, payroll, performance reporting, an online dashboard, a mobile app and an app marketplace where users can access third party add-ons.

History: Xero was established in New Zealand in 2006. It was listed on the New Zealand Stock exchange (NZX) in June 2007 and then on the ASX in November 2012. 31 January 2018 was the last day XRO traded on the NZX, as it consolidated its listing on the ASX.

Earnings composition: In 1H20, the Australia and New Zealand segment produced NZ$211m (62%) of group operating revenue. The United Kingdom segment generated NZ$80m (24%) of revenue, while North America and Rest of World reported NZ$27m (8%) and NZ$19m (6%) respectively.

Most recent result – 1H20: Operating revenue increased 32% on the prior corresponding period to NZ$339m (33% on a constant currency basis). Annualised monthly recurring revenue – which is the recurring revenue during the last reporting month multiplied by 12 – increased 30% on the prior corresponding period (pcp) to NZ$764m. This was driven by subscribers increasing 30% on the pcp to 2.057m. Net profit after tax was NZ$1.3m, up from a loss of NZ$29m in 1H19. XRO highlighted “the increased use of cloud technology by small business, the digitalisation of tax and compliance systems” amongst global regulatory and technological trends driving XRO’s growth. Australian subscribers increased 28% on the pcp to 840,000, driving regional revenue up 26% on the pcp. XRO stated that the Australian Taxation Office’s Single Touch Payroll initiative contributed to the continued demand for its product in the Australian market. In the UK, subscribers grew 51% on the pcp to 536,000 and revenue increased 51% (52% in CC). NZ subscribers increased 13% on the pcp to 367,000. XRO currently does not pay a dividend.

Company outlook: XRO’s FY20 free cash flow as a proportion of revenue is expected to be at levels similar to that in FY19. XRO has indicated it intends to continue to reinvest cash generated for growth.

Important dates: FY20 results are scheduled for 14 May 2020.

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