Cloud accounting software vendor Xero has achieved its first full year net profit after tax in the financial year ending March, booking NZ$3.3 million, an improvement of NZ$30.5 million compared to a NZ$27.1 million loss in FY19.
Xero told shareholders that the net profit result was driven by ongoing growth in operating revenue, improved gross margin, and disciplined management of operating costs.
However, the company conceded, 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,” it told shareholders in its latest annual financial report.
According to Xero, the effect of COVID-19 on the global business environment, and associated social distancing measures that commenced in March has had a “relatively modest” impact on Xero’s operating and financial performance for the year.
Specifically, the impact of COVID-19 on March trading resulted in some reduction in annualised 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,” the company said. “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.”
Broadly, the company saw a 30 per cent year-on-year growth in operating revenue for the year ending 31 March, to NZ$718.2 million and 26 per cent growth in total subscribers to 2.285 million.
Net profit, meanwhile, came to NZ$3.3 million, an improvement of NZ$30.5 million over a net loss of $27.1 million, and earnings before interest, tax, depreciation and amortisation (EBITDA) of NZ$137.7 million, an improvement of 88 per cent compared to NZ$73.2 million.
The company’s Australia subscribers grew by 26 per cent in the year, to reach 914,000; UK subscribers grew by 32 per cent, to 613,000; and New Zealand subscribers grew by 12 per cent in the year to 392,000, with 41,000 subscribers joining in FY20.
The all-important North American market subscriber numbers grew by 24 per cent in the year, to 241,000, while the ‘Rest of World’ subscriber numbers grew by 51 per cent, to 125,000.
In November, Xero revealed that the UK and ‘Rest of the World’ were proving to be the major growth engines for the company, as reflected by its H1 2020 results.
Operating revenue in the half year was up 32 per cent overall to NZ$338.7 million (33 per cent in constant currency) for the first half of the company's 2020 financial year, which ended 30 September.
According to CEO Steve Vamos, Xero has focused on maintaining the continuity of its core cloud-based products and services while moving swiftly to roll out a range of new customer and partner support services.
“Many of our customers and partners are having to adapt the way they operate, while investing enormous effort to survive at this difficult time,” Vamos said. “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 recognising the benefit of being able to use the cloud to run their businesses and manage their finances,” he added.
Looking ahead, Xero said that trading in the early stages of FY21 has been impacted by the COVID-19 environment.
“The continued uncertainty surrounding COVID-19 means it would be speculative for us to say anything more at this time on its potential impact on our expected performance for FY21,” the company told shareholders.