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Special Shareholders’ Meeting Outcome

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Another great night at the NZX for Xero and our shareholders. Roughly 100 shareholders joined the Xero Board, Executive and staff at the Special Shareholders’ Meeting to vote in favour of Craig Winkler and associated parties issuance of 20,000,000 ordinary shares.

The resolution was passed with a show of hands and was a unanimous vote by all shareholders present at the Meeting.

Thanks again to the NZX for having us and thanks to Capitol Catering for their delicious canapes.

 

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3 comments

Amusis
19 May 2009 #

Congratulations on an excellent and continually improving product. I’m particularly impressed with the Fixed Assets and Multicurrency initiatives. They indicate that Xero is focused on being a serious business accounting tool.

However, looking at your financial results, I can’t help but be a little worried. Expenses (mainly due to staff costs) are growing much faster than revenue, cash flows are heavily negative, equity is shrinking and the picture would be even worse if development costs were not capitalised rather than expensed.

Any customer would be concerned about the long-term financial viability of a key vendor, especially of a critical service like accounting.

So- what’s the plan to profitability of Xero? When is the anticipated break-even date?

One thought: a study of the price elasticity of your demand would indicate whether it is possible to actually increase revenues by reducing prices.

Xero is still expensive relative to direct rivals like Kashflow, Winweb, etc, all of which retail for crica £15 per month. If the percentage increase in customers is greater than the pecentage price cut, then total revenue would grow.

Sometimes, in a new market like saas, entering with a low price to build massive volume early is a better strategy than entering with a premium price.

Customers need an incentive to switch from their current desktop accounting systems, paticularly as many still think of online accounting software as fairly risky.

What are your thoughts/strategy to profit?

Rod Drury
19 May 2009 #

Hi Amusis, We’re very comfortable with our plan and strategy. We’ll have more detailed information on our annual report.

You’ll see in our recent announcements that customers and revenue are going strongly and we have the funding to take a long term strategic view.

First focus is the platform, then customers, then revenue, then profitability.

It’s still early days for us but things are going to plan.

Rod

[...] It is difficult to quantify the cost of expansion into new markets and building partnerships without more data, and the company has provided no guidance, but it’s possible that Xero’s annual operating expenses (before depreciation and amortisation and excluding capitalised costs) could exceed $11 million this financial year. What are the implications for existing shareholders? The $29 million placement/SPP provides certainty for existing shareholders (and customers) that Xero will have sufficient cash to continue to execute their strategy for the next two to three years. The placement/SPP involves issuing 32 million new shares at $0.90, so will dilute the ownership stake of existing shareholders. For example, a shareholder who purchased 10,000 shares in the 2007 IPO held 0.018% of the company after the IPO. This shareholder would now own 0.012% of the shares if they did not participate in the SPP and 0.017% if they purchased 5,000 shares in the SPP.  The ownership percentage of shareholders who did not participate in the SPP would have decreased by approximately 35%. It’s important to note that the reduced ownership percentage does not translate directly into a dilution of value. Although less than the $1.00 IPO price the $0.90 placement price is consistent with the share price prior to the announcement of the placement. The view here should be that existing shareholders now own a smaller slice of a larger pie. This view is supported by the significant increase in the Xero share price following the announcement of the placement. Sources of this increased value include the certainty provided by the additional capital, the potential of the US market and the strategic input of MYOB founder and new board member Craig Winkler. [...]

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