Xero Annual Accounts 2016

Xero Annual Accounts 2016 showing remarkable growth
About manojranaweera

Founder of UnifiedVU and Venture 9. Previously Founder and CEO of edocr.com

Help companies with digital and business transformation via process optimisation and system design, especially in the areas of bringing everything together for increased productivity and revenue growth.
year revenue operate revenue year end Financial Statement March
Xero Annual Accounts 2016 showing remarkable growth
About manojranaweera

year revenue operate revenue year end Financial Statement March
<p>99
Xero Limited 
2016 Annual Report
100
Cover image – Chow // Xero customer  
Inside image – Proffer Ltd // Xero customer
1
Contents
Highlights
Chairman and Chief Executive’s Report
Management Commentary
Auditor’s Report 
Financial Statements
Notes to the Financial Statements
Directors’ Responsibilities Statement
Corporate Governance
Disclosures
Corporate Directory
2
6
10
18
19
23
43
44
49
54
$184.0 million 
$257.9 million 
$207.1 million 
717,000
Cash and cash equivalents and short-term deposits at 31 March 2016
Annualised committed monthly revenue at 31 March 2016
Paying subscribers at 31 March 2016
Total operating revenue for year ended 31 March 2016: 67% growth 
Highlights
2
HIGHLIGHTS
Regional subscribers at 31 March 2016*
2015 // 475,000
2011 // 36,000
2013 // 157,000
2009 // 5,000
2014 // 284,000
2010 // 17,000
2012 // 78,000
2016 // 717,000 paying subscribers
Operating revenue growth of 67% and subscriber growth of 51%  
in the 2016 financial year
Australia
2015 // 203,000
2014 // 109,000
312,000
New Zealand
2015 // 138,000
2014 // 102,000
186,000
2015 // 35,000
2014 // 18,000
North America
62,000
United Kingdom
2015 // 83,000
2014 // 47,000
133,000
3
(US and Canada)
*Rest of World subscribers of 24,000 at 31 March 2016
4
Strong global revenue and subscriber growth
Paid subscribers hits 717,000 globally, with 242,000 
subscribers added in the 12 months to 31 March 2016
Annualised committed monthly revenue of $257.9 million, a 
year-on-year increase of 62%
Operating revenues of $207.1 million, an increase of 67% on the 
previous year
Global year-on-year revenue growth of 95% in international 
markets, and 57% in Australia and New Zealand
Improvement in operating metrics
Gross margin increased by six points to 76% year-on-year
Net loss of $82.5 million for the year, an increase of $12.9 million 
over the previous year, as Xero continues to invest in scaling its 
global business
EBITDA margin FY16 improved to -29% in the year from -46% in 
the previous year
EBITDA margin (excluding share-based compensation) 
improved to -22% from -38% in the previous year
Continuing to execute on strong global growth with improving 
operating metrics
Highlights
5
HIGHLIGHTS
Reducing cash usage1
Operating and investing cash usage for the second half of the 
year of $39.1 million, an improvement of $9.3 million from $48.5 
million for the same period in the previous year
Cash usage from operating and investing activities (including 
FX) was $86.1 million for FY16, lower than the cash usage of 
$88.2 million in the previous year 
Closing cash and cash equivalents and short-term deposits 
position of $184.0 million
1    Net movement in cash and short-term deposits excluding financing activities
6
Chairman and  
Chief Executive’s 
Report
Dear shareholder,
Following strong subscriber growth of 242,000 to 
717,000 over the past 12 months, Xero is the 
market-leading small business cloud accounting 
software in Australia, New Zealand and the United 
Kingdom, based on number of subscriptions. We 
have made good progress in the competitive 
United States market where the accounting 
industry is at an early stage in its migration to 
cloud technologies. Our global experience and 
platform investment benefits us, as the transition 
to cloud-based business software continues its 
momentum. 
Our prudence in raising capital last year 
protected us from the correction in the global 
technology markets earlier this calendar year, 
allowing Xero to continue its global growth 
strategy while driving margin improvement.  
We have applied discipline in the deployment of 
capital to drive value-enhancing growth.  
This is most evident in the increase of $685 million 
in the Life-Time Value (LTV) of our subscriber  
base in the past year to $1.5 billion. Gross margins 
and EBITDA margins improved while cash  
usage reduced. 
Based on current projections and growth plans, 
we have sufficient capital on hand to drive the 
business towards cash flow break-even. 
Annualised committed monthly revenue 
surpassed quarter of a billion and our team is 
focused becoming a $1 billion+ revenue 
generating business.
Performance highlights
The company has continued its improvement in 
operating metrics. We improved cash flow 
performance through the 12 months ended  
31 March 2016. Operating revenues increased 
67% year on year to $207.1 million while 
annualised committed monthly revenues also 
grew to $257.9 million, a year-on-year increase of 
$98.6 million, up from the year-on-year increase 
of $66.3 million in the previous year.
Gross margins increased six points to 76% 
year-on-year, while EBITDA margins improved  
by 17 points year on year.
We achieved cost efficiencies across the company 
over the past 12 months and delivered on 
commitments to continue investing in growth, 
with a greater proportion funded out of revenue.
Global growth
The success of our global growth strategy is 
evidenced by our cloud accounting software 
market leadership in Australia, New Zealand and 
the United Kingdom. We will continue to build in 
the important market of the United States and 
establish ourselves in other markets including 
South Africa, Canada, and South East Asia where 
we recently opened an office in Singapore to 
oversee our growth in the region.
“Based on current projections and growth plans, we 
have sufficient capital on hand to drive the business 
towards cash flow break-even.”
7
CHAIRMAN AND CHIEF EXECUTIVE’S REPORT
Our global focus means we are pursuing a large 
market of tens of millions of small businesses, 
most of which have yet to experience the cloud 
and mobility revolution enjoyed by consumers 
and large enterprises. By focusing on small 
businesses around the world, Xero has the 
potential to grow its customer base and market 
share for many years to come.
Being an accounting platform means that 
although we can replicate our core product 
globally, we must provide unique solutions for 
regions in which we, our small business 
customers and their accounting partners, 
operate. This work is a key task for our regional 
development teams globally.
It has also led to localised innovations. Not only 
have we developed and rolled out more than 
1,200 customer-facing features and updates, but 
we have also produced market-specific software 
that helps our customers’ businesses grow. For 
instance, we released Xero Tax in Australia, and 
more recently Xero TaxTouch in the United States 
– unique cloud-based tax solutions built 
specifically for their respective markets. Xero Tax 
has been embraced widely in Australia – in just 18 
months, we have seen more than 1,400 firms 
adopt the platform and submit more than 1.4 
million lodgements to the Australian Taxation 
Office. Xero TaxTouch has only been in the market 
since early March 2016, but we’ve already had 
positive feedback, including receiving an award at 
the Barlow Research’s 2016 Monarch Innovation 
Awards for the app.
We have developed similar strategies and 
products in each of our core markets and will 
continue to do so as we build out our capabilities 
across the world. That’s why in the United States 
we are pursuing a strategy of carefully managed 
growth as we add critical banking integrations, 
expand our suite of products to include simple tax 
filing and payroll for more states, and attract 
more accountants and bookkeepers.
A unique view into the small 
business economy
In the past 12 months, the Xero platform recorded 
more than $1 trillion across more than 450 million 
incoming and outgoing transactions. The Xero 
platform is providing unique and real-time 
insights into the importance of small business in 
economies that has not been available before.
In addition, cloud accounting is transitioning from 
distributing a software product to using software 
to rewire the small business economy. Enterprises 
are now automating their supply chains by 
connecting to Xero. Xero is connected to 
government agencies across our markets and 
connects small businesses across our platform.
The initial work we did connecting banks to Xero 
has expanded to become a financial web. By 
allowing small business owners to control and 
connect their accounting ledger to their bank, 
financial institution or a financial services 
provider, they can access services that were once 
primarily only offered to large enterprises, giving 
small businesses the ability to potentially obtain 
loan approvals more quickly, benefit from 
accessing more competitive foreign exchange 
rates, and more payment options.
“Our global focus means we are pursuing a large 
market of tens of millions of small businesses, 
most of which have yet to experience the cloud 
and mobility revolution enjoyed by consumers and 
large enterprises.”
8
We currently have relationships with more than 
80 financial institutions around the world to help 
small businesses save time and administration in 
managing their finances and accessing services. 
In the future, intelligent data matching in Xero will 
automatically code banking transactions, making 
accounting even easier for small businesses.
Pace of innovation
Xero’s focus on constant product and platform 
innovation has been core to our growth strategy. 
Over the past 12 months, we have delivered 
significant customer-facing updates and new 
features to our subscribers, providing them with 
new tools and ways of conducting their business 
more beautifully and efficiently.
We continued to expand our solutions ecosystem, 
helping small businesses connect to more than 
500 solution partners who work with Xero to 
extend the functionality of the core accounting 
platform to meet customer needs and 
requirements.
Across the year we also expanded the ecosystem 
to include partnerships with major global 
technology companies. We integrate more closely 
with popular devices like the iPad and iPhone, as 
well as widely-used tools like Google Apps for 
Work, Android and Microsoft Power BI, to make 
collaboration between small businesses and their 
accounting partners easier and more efficient.
As we continue to grow our customer base, we 
are mindful of the need to scale our platform to 
provide customers with fast, secure and reliable 
access to their Xero data anytime, from any 
device. With that in mind, we are at the 
deployment stage of a two-year project to 
migrate our core cloud platform to Amazon Web 
Services (AWS). With our accounting engine 
largely complete and with such a large volume of 
transactions being processed on our global 
platform, AWS gives us access to new big data 
technologies such as machine learning and 
artificial intelligence. This provides the 
foundations for a new wave of innovation that will 
benefit Xero customers in the years to come and 
allow us to further differentiate our platform from 
those of legacy software providers.
People
Our success has been in large part thanks to the 
team of exceptional development, marketing, 
sales and support staff that contribute to Xero’s 
success every day. We now have more than 1,450 
employees across 20 offices around the world 
and are continuing to grow our skills and attract 
top talent globally. 
CHAIRMAN AND CHIEF EXECUTIVE’S REPORT
“In the past 12 months, the Xero platform recorded 
more than $1 trillion across more than 450 million 
incoming and outgoing transactions.”
9
Chris Liddell 
Chairman
Rod Drury 
Chief Executive
Our performance demonstrates the strength of 
our management team. Recent appointments to 
support our growth demonstrate our ability to 
attract top talent. Xero successfully transitioned 
the Chief Financial Officer role to Sankar Narayan, 
a seasoned CFO, public company executive, and 
technology leader.  Andrew Lark assumed the role 
of Chief Marketing and Business Officer, 
responsible for all go-to-market functions.
We appointed Tony Stewart as Chief Data Officer, 
Rachael Powell as Chief People Officer, and Kirsty 
Godfrey-Billy as Chief Accounting Officer to  
boost the Xero management team in key areas. 
Most recently, Chief Platform Officer Duncan 
Ritchie resumed responsibility of the product 
team now that the migration to Amazon Web 
Services is underway.
At a local leadership level, we managed 
successful appointments of the Australia 
Managing Director, Trent Innes and New Zealand 
Managing Director Anna Curzon, to establish the 
next phase of growth in these key local markets. 
We also appointed Alex Campbell as Regional 
Managing Director to lead growth in Asia, 
focusing on Hong Kong, Malaysia and Singapore. 
While we have grown quickly, our outstanding 
culture, sense of purpose and urgency remains as 
strong as ever.
Closing comments
This is a long journey. Though we have reached 
several remarkable milestones to date, in a 
market of tens of millions of potential customers, 
we have only just begun. 
Xero has the resources and substantial revenues 
to continue focusing long-term on global growth 
and leadership while delivering the right financial 
results for our shareholders. 
Our strategic priorities are to:
 
– continue to evolve our technology platform, 
extending our core accounting offering to 
meet the full needs of small businesses and 
provide new revenue opportunities
 
– outpace competitors through rapid product 
innovation, continuous improvement, and a 
strong customer service model
 
– continue the sales momentum that’s driving 
high revenue growth in all our core markets
 
– grow the financial web through integrations 
with major banks and financial institutions
 
– grow our ecosystem of partners, and 
alliances with global brands, to create new 
value for both Xero and its customers.
Thank you to all our shareholders for your 
continued support. 
CHAIRMAN AND CHIEF EXECUTIVE’S REPORT
“Xero has the resources and substantial revenues 
to continue focusing long-term on global growth 
and leadership while delivering the right financial 
results for our shareholders.”
10
You should read the following commentary with the consolidated financial statements and the related notes in this report. Some parts of this 
commentary include information regarding the plans and strategy for the business, and include forward-looking statements that involve risks and 
uncertainties. Actual results and the timing of certain events may differ materially from future results expressed or implied by the forward-looking 
statements contained in the following commentary. All numbers are presented in New Zealand dollars (NZD), except where indicated.
BUSINESS RESULTS
The information below compares the results for the year ended 31 March 2016 with the year end 31 March 2015. 
Year ended 31 March 
2016
($000s)
2015
($000s)
 change
Subscription revenue
201,986
121,098
67%
Other operating revenue
5,074
2,922
74%
Total operating revenue
207,060
124,020
67%
Cost of revenue
49,881
36,708
36%
Gross profit
157,179
87,312
80%
Percentage of operating revenue
76%
70%
6%
Total operating expenses
248,791
162,868
53%
Percentage of operating revenue
120%
131%
-11%
Other income and foreign exchange
2,538
412
NM*
Operating deficit
(89,074)
(75,144)
19%
Percentage of operating revenue
-43%
-61%
18%
Net interest income
8,122
7,688
6%
Income tax expense
(1,512)
(2,078)
-27%
Net loss
(82,464)
(69,534)
19%
Percentage of operating revenue
-40%
-56%
16%
*NM stands for not meaningful.
The growth in operating revenue was driven by subscriber growth in all markets. Average revenue per user (ARPU) held steady despite the 
subscriber growth. The total operating expenses and the net loss after tax have increased as Xero continues to invest in scaling its global  
business and delivering significant revenue growth. As a percentage of operating revenue, the net loss and all expenses for the year ended  
31 March 2016 are lower than for the previous year.
Management 
Commentary
11
MANAGEMENT COMMENTARY
EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION (EBITDA)
EBITDA disclosures (which are non-GAAP financial measures) have been included, as we believe they provide useful information for readers to 
assist in understanding Xero’s financial performance. Non-GAAP financial measures should not be viewed in isolation nor considered as substitutes 
for measures reported in accordance with NZ IFRS. EBITDA is calculated by adding back depreciation, amortisation, net interest income, and tax 
expense to net losses. 
Year ended 31 March
2016
($000s)
2015
($000s)
 change
Net loss
(82,464)
(69,534)
19%
Add back: net interest income
(8,122)
(7,688)
6%
Add back: depreciation and amortisation
29,143
17,990
62%
Add back: income tax expense
1,512
2,078
-27%
EBITDA
(59,931)
(57,154)
5%
Percentage of operating revenue
-29%
-46%
17%
EBITDA, as a percentage of operating revenue, improved compared to the year ended 31 March 2015, despite being affected by the deterioration 
of the NZD. The primary reason for this improvement was operating efficiencies across all expense areas.
EBITDA excluding the impact of non-cash share-based payments (a non-GAAP financial measure) is also provided as we believe it provides 
useful information to analyse trends in cash-based expenses.
Year ended 31 March
2016
($000s)
2015
($000s)
 change
EBITDA
(59,931)
(57,154)
5%
Add back: non-cash share-based payments expenses
15,147
10,518
44%
EBITDA excluding non-cash share-based payments
(44,784)
(46,636)
-4%
Percentage of operating revenue
-22%
-38%
16%
EBITDA excluding non-cash share-based payments margins improved on a basis consistent to EBITDA margins.
OPERATING REVENUE
Subscription revenue is recurring monthly fees from customers who subscribe to Xero’s online accounting software services. Within a subscription, 
customers also receive support services, data backup and recovery, and system updates.
Operating revenue also includes revenue from other related services such as education and the implementation of online accounting software 
services and conference income. However subscription revenue comprises around 98% of operating revenue.
Year ended 31 March
2016
($000s)
2015
($000s)
 change
Subscription revenue
201,986
121,098
67%
Other operating revenue
5,074
2,922
74%
Total operating revenue
207,060
124,020
67%
The 67% increase in subscription revenue during the year was primarily driven by year-on-year subscriber growth of 51% from 475,000 to 
717,000 at 31 March 2016. Other operating revenue increased by 74% primarily due to increased conference revenue.
12
OPERATING REVENUE – BY GEOGRAPHY
Year ended 31 March
2016
($000s)
2015
($000s)
 change
Australia
96,686
58,456
65%
New Zealand
46,708
32,873
42%
Australia and New Zealand (ANZ) total
143,394
91,329
57%
United Kingdom
37,437
19,948
88%
North America
16,850
7,794
116%
Rest of World
9,379
4,849
93%
International total
63,666
32,591
95%
Corporate
-
100
NM*
Total operating revenue
207,060
124,020 
67%
Operating revenue grew in all of Xero’s geographies, with stronger growth of 95% in the earlier stage International markets compared to the more 
established ANZ markets. 
OPERATING REVENUE – CONSTANT CURRENCY
As more than 77% of Xero’s operating revenue is denominated in foreign currencies, the weakened NZD during the year affected reported revenue. 
On a constant currency basis, subscription and operating revenue grew by 60% compared to the year ended 31 March 2015.
Year ended 31 March 
2016
($000s)
2015
($000s)
 change
Subscription revenue – constant currency
193,393
121,098
60%
Operating revenue – constant currency
198,259
124,020
60%
This analysis is a non-GAAP financial measure, which has been provided to assist in understanding and assessing Xero’s financial performance 
during the year, excluding the impact of foreign currency fluctuations. The constant dollar revenue translates revenue for the year ended 31 
March 2016 at the effective exchange rates used for the year ended 31 March 2015.
SUBSCRIBER NUMBERS
Subscribers means each unique subscription to a Xero offered product that is purchased by an accounting partner or an end user and which is, 
or is available to be, deployed.
At 31 March
2016
2015
 change
Australia
312,000
203,000
54%
New Zealand
186,000
138,000
35%
Australia and New Zealand (ANZ) total
498,000
341,000
46%
United Kingdom
133,000
83,000
60%
North America
62,000
35,000
77%
Rest of World
24,000
16,000
50%
International total
219,000
134,000
63%
Total paying subscribers
717,000
475,000
51%
Subscribers at 31 March 2016 grew by 242,000, or 51%, to 717,000 over the 12 months from 31 March 2015.
ANZ grew by 157,000 subscribers representing 46% growth in the 12 month period, evidence of strong growth in Xero’s mature markets. 
International subscribers grew by 85,000 or 63% from the previous period.
MANAGEMENT COMMENTARY
13
MANAGEMENT COMMENTARY
ANNUALISED COMMITTED MONTHLY REVENUE 
Annualised committed monthly revenue (ACMR) represents monthly recurring revenue at 31 March, multiplied by 12. Accordingly, it provides 
a twelve-month forward view of revenue, assuming any promotions have ended and other factors such as subscriber numbers, pricing and 
foreign exchange remain unchanged during the year.
At 31 March
2016
($000s)
2015
($000s)
  change
ANZ
177,863
113,754
56%
International
80,062
45,584
76%
Total
257,925
159,338
62%
The growth in ACMR across both segments is, as previously outlined, largely driven by subscriber growth with a higher ARPU having a positive 
effect. ACMR at 31 March 2016 was $98.6 million or 62% higher than the prior year balance. With 76% growth in ACMR, the International 
markets grew faster than the more established ANZ markets. However, 56% year-on-year growth in Xero’s more mature ANZ markets 
represents strong growth in absolute dollars, contributing nearly two thirds of Group ACMR growth. 
GROSS PROFIT
Gross profit represents operating revenue less cost of revenue. Cost of revenue consists of expenses directly associated with securely hosting 
Xero’s services, sourcing relevant customer data from banks and providing support to customers. The costs include hosting and content 
distribution costs, bank feed costs, personnel and related expenses (including salaries, benefits, bonuses and share-based compensation) 
directly associated with cloud infrastructure and customer support, contracted third-party-vendor costs, related depreciation and 
amortisation, and allocated overheads.
Year ended 31 March 
2016
($000s)
2015
($000s)
 change
Operating revenue
207,060
124,020 
67%
Cost of revenue
(49,881)
(36,708)
36%
Gross profit
157,179
87,312
80%
Gross margin percentage
76%
70%
6%
Cost of revenue for the year ended 31 March 2016 increased by $13.2 million, or 36% to $49.9 million. The primary reasons for the change were 
increases in hosting costs and personnel costs related to an increased headcount in Xero’s customer support teams. Operating revenue growth 
of 67% resulted in gross profit increasing by $69.9 million or 80%, to $157.2 million. 
Cost of revenue has decreased as a percentage of operating revenue compared with the previous year due to efficiencies in the hosting and 
customer support teams, and reductions in bank feed costs per subscriber. This drove an improved gross margin of 76% in the current period. 
Cost of revenue for the second half of the year was 22% of operating revenue compared to 26% in the first half of the year, demonstrating 
continued improvement in gross margins throughout the year. 
SALES AND MARKETING
Sales and marketing expenses consist of personnel and related expenses (including salaries, benefits, bonuses, commissions and share-based 
compensation) directly associated with the sales and marketing teams, the cost of educating and onboarding both partners and small business 
customers, and costs in the implementation of our subscription services. Other costs included are external advertising, marketing costs and 
promotional events including Xerocon conferences and roadshows, as well as allocated overheads.
Year ended 31 March
2016
($000s)
2015
($000s)
 
 change
Sales and marketing
148,284
92,900
60%
Percentage of operating revenue
72%
75%
-3%
Sales and marketing costs increased by $55.4 million or 60% to $148.3 million in the year ended 31 March 2016. The majority of sales and 
marketing costs are incurred in acquiring new subscribers and are expensed in the period, in contrast to the associated revenue from those 
subscribers that is recognised over the life of the subscriber (currently 7 years on average).
As a percentage of operating revenues, sales and marketing costs decreased from 75% to 72% in the current year compared to the prior year. 
The second half of the year saw improvement with sales and marketing costs reducing from 76% of operating revenue in the first half of the year 
to 68% in the second half of the year.
14
PRODUCT DESIGN AND DEVELOPMENT
Product design and development costs consist primarily of personnel and related expenses (including salaries, benefits, bonuses and share-
based compensation) directly associated with our product design and development employees, as well as allocated overheads.
Under New Zealand equivalents to International Financial Reporting Standards, the proportion of product design and development expenses 
that create a benefit in future years is capitalisable as an intangible asset and is then amortised to the Income Statement over the estimated 
life of the asset created. The amount amortised relating to the Xero product and platform is included as a product design and development 
expense.
Year ended 31 March 
2016
($000s)
2015
($000s)
change
Total product design and development costs (including capitalised development costs)
99,001
67,258
47%
Percentage of operating revenue
48%
54%
-6%
Less capitalised development costs
(44,948)
(30,256)
49%
Product design and development expense excluding amortisation of capitalised 
development costs
54,053
37,002
46%
Less government grants
(3,472)
(2,946)
18%
Add amortisation of capitalised development costs
19,083
11,476
66%
Product design and development expense
69,664
45,532
53%
Percentage of operating revenue
34%
37%
-3%
Total product design and development expenses were $99.0 million in the period ended 31 March 2016, $31.7 million higher than the previous 
year. Of this, $44.9 million was capitalised, with the balance of $54.1 million included as an expense in the Income Statement. The amortisation 
of capitalised product design and development expenditure of $19.1 million was also included as an expense in the Income Statement giving a 
total net expense (after government grants) for the year of $69.7 million.
Total product design and development costs increased 47% due to increasing headcount and the associated personnel costs. Non-cash 
amortisation of previously capitalised development costs also increased due to comparably higher intangibles balances than in the prior year. 
As a proportion of operating revenue, product design and development expenses decreased to 34% in the year ended 31 March 2016 from 37% 
for the previous year.
GENERAL AND ADMINISTRATION
General and administration expenses consist of personnel and related expenses (including salaries, benefits, bonuses and share-based 
compensation) for our executive, finance, billing, legal, human resources and administrative employees. It also includes legal, accounting and 
other professional services fees, insurance premiums, other corporate expenses and allocated overheads.
Year ended 31 March 
2016
($000s)
2015
($000s)
 change
General and administration
30,843
24,436
26%
Percentage of operating revenue
15%
20%
-5%
General and administration costs were $30.8 million for the year ended 31 March 2016, $6.4 million or 26% higher than in the previous year. 
The increase is primarily due to increased personnel-related costs as a result of headcount growth to support the other business functions and 
higher merchant bank fees from increased subscriber numbers.   
General and administration costs have decreased as a proportion of operating revenue from 20% of operating revenue in the previous year to 
15% in the year ended 31 March 2016. 
HEADCOUNT
At 31 March
2016
2015
 change
Total group
1,454
1,161
25%
Headcount increased by 293 or 25% in the year ended 31 March 2016 (taking the total headcount to 1,454) compared with a 51% increase in 
subscribers and 67% increase in operating revenue. The slower growth reflects the benefits of economies of scale and operating efficiencies, 
notwithstanding continued investment in product design and development, and the sales and marketing function.
MANAGEMENT COMMENTARY
15
MANAGEMENT COMMENTARY
OTHER INCOME, EXPENSES AND INTEREST
Year ended 31 March 
2016
($000s)
2015
($000s)
 change
Foreign exchange and other income
Sublease income
758
423
79%
Other foreign exchange gains/(losses)
1,780
(11)
NM
Total foreign exchange and other income
2,538
412
NM
Interest
Interest income
8,177
7,713
6%
Interest expense
(55)
(25)
120%
Net interest income
8,122
7,688
6%
Foreign exchange gains and losses from effective cash flow hedging relationships are now recognised in the Income Statement category being 
hedged (see note 2 of the financial statements for more detail). 
Interest income in the period ended 31 March 2016 was $8.2 million, an increase of $0.5 million or 6% on the previous year, due to higher cash 
and short-term deposits balances throughout the year following the $147.2 million capital raise in March 2015. This was partially offset by lower 
interest rates as the New Zealand official cash rate reduced over the year.
CASH FLOWS
Year ended 31 March
2016
($000s)
2015
($000s)
 change
Net cash provided from (used in):
Receipts from customers
199,737
119,566
67%
Other operating cash flows
(234,507)
(158,189)
48%
Total cash flows from operating activities
(34,770)
(38,623)
-10%
Investing activities
(53,820)
(49,758)
8%
Total operating and investing cash flows
(88,590)
(88,381)
0%
Currency revaluation 
2,507
207
NM
Subtotal 
(86,083)
(88,174)
-2%
Receipts from customers increased 67% or $80.2 million to $199.7 million in line with operating revenue growth. Other net operating cash 
outflows increased 48% or $76.3 million, to an outflow of $234.5 million in line with increases in operating expenses. 
Net cash outflows from investing activities increased by $4.1 million or 8%, as a result of continued investment in product development as well 
as investment in a number of internal systems to drive efficiency and scalability.
Operating and investing cash outflows remained relatively flat compared to the previous year, despite the deterioration of the NZD adversely 
impacting the current cash flows by $6.8 million compared with the previous period.
After revaluation of foreign currency bank accounts, operating and investing cash flows for the year ended 31 March 2016 was an outflow of 
$86.1 million, or $2.1 million (2%) less than the previous year, due to receipts from customers growing faster than expenses and the benefits 
from the revaluation of foreign currency bank accounts.
16
SEGMENT INFORMATION
 ANZ 
($000s)
International 
($000s)
Total  
($000s)
Year ended 31 March 2016
Operating revenue
143,394
63,666
207,060
Expenses
(93,982)
(104,183)
(198,165)
Other income
–
758
758
Segment contribution
49,412
(39,759)
9,653
Year ended 31 March 2015
Operating revenue
91,329
32,591
123,920
Expenses
(68,328)
(61,280)
(129,608)
Other income
–
423
423
Segment contribution
23,001
(28,266)
(5,265)
Operating revenue is allocated to a segment depending on where the subscriber resides. Expenses include cost of revenue, sales and marketing 
costs incurred directly in-region, and an allocation of centrally-managed costs and overheads, such as hosting and customer support costs.
ANZ – Operating revenue for the year ended 31 March 2016 grew by 57% compared to the previous period as subscribers increased by 46%. 
This, along with cost efficiencies, resulted in the contribution improving as a percentage of operating revenue from 25% to 34% for the year 
ended 31 March 2016. The improvement was largely due to the performance in Australia, which added 109,000 subscribers in the year to finish 
with 312,000 paying subscribers, and revenue growth for the year of 65% to $96.7 million. 
International – Operating revenue grew by 95% based on subscriber growth of 63% and a weaker NZD. Although the contribution margin 
improved, it reflects the investment to accelerate growth in both the United Kingdom as Xero builds brand recognition and in North America 
given the stage of Xero’s entry into this market.
KEY SAAS METRICS
ARPU is calculated as annualised committed monthly revenue (ACMR) at 31 March divided by subscribers at that time (and divided by 12 to get a 
monthly view).
CAC months or months of ARPU to recover CAC (cost of acquiring subscribers) represent the number of months of revenue required to recover 
the cost of acquiring each new subscriber. The calculation is sales and marketing costs for the year less conference revenue (such as Xerocon) 
divided by new subscribers added (gross) during the same period, divided by monthly ARPU.
CMR churn is the value of committed monthly revenue (CMR) from subscribers who leave Xero in a month as a percentage of the total CMR at 
the start of that month. The percentage provided is the average of the monthly churn for the year. The calculation for calculating churn has 
been changed from subscriber churn reported previously to CMR churn, as management believes this better reflects the impact of churn on the 
customer base. 
Lifetime value (LTV) is the gross margin expected from a subscriber over the lifetime of that subscriber. This is calculated by taking the average 
subscriber lifetime (1 divided by CMR churn) multiplied by ARPU multiplied by the gross margin percentage. Group LTV is calculated as the sum 
of the individual segments LTV multiplied by segment subscribers, divided by total Group subscribers.  
MANAGEMENT COMMENTARY
17
MANAGEMENT COMMENTARY
Lifetime value/CAC is the ratio between the lifetime value (described above) and the cost to acquire that subscriber, e.g. the gross margin 
derived from a subscriber in ANZ is currently on average 9.1 times the cost of acquiring that subscriber.
The table below outlines key metrics across Xero’s segments:  
31 March 2016
ANZ International
Total
ARPU ($)
29.8
30.5
30.0
CAC months
9.1
23.5
14.5
CMR churn 
0.9%
1.8%
1.2%
Lifetime value per subscriber ($) 
2,454
1,305
2,103
Lifetime value/CAC
9.1
1.8
4.8
31 March 2015
ARPU ($)
27.8
28.3
28.0
CAC months
8.7
22.9
13.5
CMR churn 
1.0%
2.0%
1.2%
Lifetime value per subscriber ($) 
2,001
1,051
1,733
Lifetime value/CAC
8.3
1.6
4.6
ANZ – ARPU increased by 7% due to a higher portion of new and existing subscribers in New Zealand adding higher ARPU products, and due to 
the weakened NZD against the Australian dollar. This along with an improved gross margin led to a higher LTV. 
International – ARPU increased by 8% due to a shift to higher ARPU products in the United Kingdom and due to the weakened NZD against the 
United States dollar and British pound. The increase in ARPU and improvement in churn led to a higher LTV in the current year. 
18
REPORT ON THE FINANCIAL STATEMENTS
We have audited the group financial statements of Xero Limited and its subsidiaries (“the Group”) on pages 19 to 42, which comprise the statement 
of financial position of the Group as at 31 March 2016, and the statement of comprehensive income, income statement, statement of changes in 
equity and statement of cash flows for the year then ended of the Group, and a summary of significant accounting policies and other explanatory 
information.
This report is made solely to the company’s shareholders, as a body. Our audit has been undertaken so that we might state to the company’s 
shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, 
we do not accept or assume responsibility to anyone other than the company and the company’s shareholders as a body, for our audit work, for this 
report, or for the opinions we have formed.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The directors are responsible on behalf of the company for the preparation and fair presentation of the financial statements in accordance with  
New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards, and for such internal 
control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, 
whether due to fraud or error.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International 
Standards on Auditing (New Zealand). These auditing standards require that we comply with relevant ethical requirements and plan and perform 
the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves 
performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend 
on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In 
making those risk assessments, we have considered the internal control relevant to the entity’s preparation and fair presentation of the financial 
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion 
on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the 
reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. 
We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.
Other than in our capacity as auditor and providing remuneration market benchmark data and tax compliance services we have no relationship 
with, or interest in, the Group. Ernst & Young, its Partners and employees may deal with the Group on normal terms within the ordinary course of 
trading activities of the business of the Group.
OPINION
In our opinion, the financial statements on pages 19 to 42 present fairly, in all material respects, the financial position of the Group as at 31 
March 2016 and the financial performance and cash flows of the Group for the year then ended in accordance with New Zealand Equivalents to 
International Financial Reporting Standards and International Financial Reporting Standards.
ERNST & YOUNG
12 May 2016 
Wellington
Independent Auditor’s Report to  
the Shareholders of Xero Limited
19
Financial Statements
Income statement
Year ended 31 March
Notes
2016
($000s)
2015
($000s)
Subscription revenue
 201,986 
 121,098 
Other operating revenue
 5,074 
 2,922 
Total operating revenue
4
 207,060 
 124,020 
Cost of revenue
6
 49,881 
 36,708 
Gross profit
 157,179 
 87,312 
Operating expenses
Sales and marketing
 148,284 
 92,900 
Product design and development
 69,664 
 45,532 
General and administration
 30,843 
 24,436 
Total operating expenses
6
 248,791 
 162,868 
Foreign exchange gains/(losses)
 1,780 
 (11)
Other income
 758 
 423 
Operating deficit
 (89,074)
 (75,144)
Net interest income
5
 8,122
 7,688
Net loss before tax
 (80,952)
 (67,456)
Income tax expense
7
 (1,512)
 (2,078)
Net loss
 (82,464)
 (69,534)
Earnings per share
Basic and diluted loss per share
8
 ($0.60)
 ($0.55)
Statement of comprehensive income
Year ended 31 March
Note
2016
($000s)
2015
($000s)
Net loss
 (82,464)
 (69,534)
Other comprehensive income*
 Movement in cash flow hedges (net of tax) 
18
 (5,800)
 2,175 
 Translation of international subsidiaries 
 2,079 
 (646)
Total other comprehensive income/(loss) for the year
 (3,721)
 1,529 
Total comprehensive loss for the year
 (86,185)
 (68,005)
* Items of other comprehensive income may be reclassified to the Income Statement
The accompanying notes form an integral part of these financial statements
20
Statement of changes in equity
Notes
Share 
capital
($000s)
Treasury 
shares
($000s)
Share-
based 
payment 
reserve
($000s)
Accumulated 
losses
($000s)
Foreign 
currency 
translation 
reserve
($000s)
Cash  
flow 
hedge 
reserve
($000s)
Total 
equity
($000s)
Balance at 1 April 2015
 504,570 
 (12,565)
 7,705 
 (155,474)
 (758)
 2,175 
 345,653 
Net loss
 – 
 – 
 – 
 (82,464)
 – 
 – 
 (82,464)
Other comprehensive loss
 – 
 – 
 – 
 – 
 2,079 
 (5,800)
 (3,721)
Total comprehensive loss
 – 
 – 
 – 
 (82,464)
 2,079 
 (5,800)
 (86,185)
Transactions with owners:
Share-based payments – employee  
restricted share plan
20
 9,443 
(254)
 620 
 – 
 – 
 – 
 9,809 
Share-based payments – restricted  
stock units 
20
1,242
 – 
 5,434 
 – 
 – 
 – 
 6,676 
Share-based director fees and options
20
 70 
 – 
 844 
 – 
 – 
 – 
 914 
Share-based payments – employee  
share options
20
 – 
 – 
 548 
 – 
 – 
 – 
 548 
Exercising of director share options
14
 209 
 – 
 (43)
 – 
 – 
 – 
 166 
Exercising of employee share options
14
 631 
 – 
 (96)
 – 
 – 
 – 
 535 
Share-based payments – employee schemes 
arising on acquisition
 – 
 – 
 973 
 – 
 – 
 – 
 973 
Balance at 31 March 2016
 516,165 
 (12,819)
 15,985 
 (237,938)
 1,321 
 (3,625)
 279,089 
Balance at 1 April 2014
 341,436 
 (5,128)
 4,682 
 (85,940)
 (112)
 – 
 254,938 
Net loss
 – 
 – 
 – 
 (69,534)
 – 
 – 
 (69,534)
Other comprehensive income
 – 
 – 
 – 
 – 
 (646)
 2,175 
 1,529 
Total comprehensive loss
 – 
 – 
 – 
 (69,534)
 (646)
 2,175 
 (68,005)
Transactions with owners:
Issue of shares (net of issue costs)
 144,275 
 – 
 – 
 – 
 – 
 – 
 144,275 
Share-based payments – employee  
restricted share plan
20
13,033
(7,208)
 1,650 
 – 
 – 
 – 
 7,475 
Share-based payments – restricted  
stock units 
20
885
 – 
652
 – 
 – 
 – 
 1,537 
Share-based director fees and options
20
35
 – 
 1,346 
 – 
 – 
 – 
 1,381 
Share-based payments – employee  
share options
20
 – 
 – 
 475 
 – 
 – 
 – 
 475 
Exercising of director share options
14
 443 
 – 
 (112)
 – 
 – 
 – 
 331 
Exercising of employee share options
14
 476 
 – 
 (99)
 – 
 – 
 – 
 377 
Issue of shares – purchase of Monchilla, Inc.
 3,987 
 (1,993)
 – 
 – 
 – 
 – 
 1,994 
Share-based payments – employee schemes 
arising on acquisition
 – 
 1,764 
 (889)
 – 
 – 
 – 
 875 
Balance at 31 March 2015
 504,570 
 (12,565)
 7,705 
 (155,474)
 (758)
 2,175 
 345,653 
The accompanying notes form an integral part of these financial statements
FINANCIAL STATEMENTS
21
FINANCIAL STATEMENTS
Statement of financial position
At 31 March
Notes
 2016
($000s)
2015
($000s)
Assets
Current assets
Cash and cash equivalents
 39,024 
 58,866 
Short-term deposits
 145,000 
 210,000 
Trade and other receivables
9
 27,098 
 21,499 
Short-term derivative assets
18
 358 
 3,151 
Total current assets
 211,480 
 293,516 
Non-current assets
Property, plant and equipment
10
 15,462 
 16,631 
Intangible assets
11
 97,779 
 65,112 
Deferred tax asset
7
 1,376 
 1,427 
Other receivables
 2,004 
 1,712 
Total non-current assets
 116,621 
 84,882 
Total assets
 328,101 
 378,398 
Liabilities
Current liabilities
Trade and other payables
12
 21,634 
 13,937 
Employee entitlements
 20,783 
 14,040 
Income tax payable
7
 311 
 2,218 
Short-term provisions
13
 63 
 26 
Short-term derivative liabilities
18
 3,983 
 130 
Total current liabilities
 46,774 
 30,351 
Non-current liabilities
Deferred tax liability
7
 755 
 1,453 
Long-term provisions
13
 972 
 828 
Other long-term liabilities
 511 
 113 
Total non-current liabilities
 2,238 
 2,394 
Total liabilities
 49,012 
 32,745 
Equity
Share capital
14
 503,346 
 492,005 
Share-based payment reserve
20
 15,985 
 7,705 
Accumulated losses
 (237,938)
 (155,474)
Foreign currency translation reserve
 1,321 
 (758)
Cash flow hedge reserve
18
 (3,625)
 2,175 
Total equity
 279,089 
 345,653 
Total liabilities and shareholders’ equity
 328,101 
 378,398 
The accompanying notes form an integral part of these financial statements
22
Statement of cash flows
Year ended 31 March
Note
 2016
($000s)
2015
($000s)
Operating activities
Receipts from customers
 199,737 
 119,566 
Other income
 4,144 
 2,580 
Interest received
 9,852 
 7,950 
Payments to suppliers and employees
 (245,288)
 (166,724)
Income tax paid
 (3,215)
 (1,995)
Net cash flows from operating activities
15
 (34,770)
 (38,623)
Investing activities
Purchase of property, plant and equipment
 (4,749)
 (10,315)
Capitalised development costs
 (47,749)
 (32,994)
Business acquisitions
 - 
 (5,349)
Other intangible assets
 (1,192)
 (174)
Rental bonds
 (130)
 (926)
Net cash flows from investing activities
 (53,820)
 (49,758)
Financing activities
Exercising of share options
 701 
 709 
Share issue
–
 147,200 
Repayment of management loan
 540 
 2,090 
Cost of share issue
– 
 (2,845)
Payments for short-term deposits 
 (145,000)
 (418,000)
Proceeds from short-term deposits
 210,000 
 403,000 
Net cash flows from financing activities
 66,241 
 132,154 
Net increase/(decrease) in cash and cash equivalents
 (22,349)
 43,773 
Foreign currency translation adjustment
 2,507 
 207 
Cash and cash equivalents at the beginning of the year
 58,866 
 14,886 
Cash and cash equivalents at the end of the year
 39,024 
 58,866 
The accompanying notes form an integral part of these financial statements
FINANCIAL STATEMENTS
23
1. REPORTING ENTITY AND STATUTORY BASE
Xero Limited is a company registered under the Companies Act 
1993 and is listed on the New Zealand Stock Exchange (NZX) and 
the Australian Securities Exchange (ASX). The Company is an FMC 
reporting entity under Part 7 of the Financial Markets Conduct Act 
2013. The financial statements of the Group have been prepared in 
accordance with the requirements of Part 7 of the Financial Markets 
Conduct Act 2013 and the NZX Main Board Listing Rules. 
In accordance with the Financial Markets Conduct Act 2013, because 
Group financial statements are prepared and presented for Xero 
Limited and its subsidiaries, separate financial statements for Xero 
Limited are not required and therefore have not been presented.
The consolidated financial statements of the Group for the year 
ended 31 March 2016 were authorised for issue in accordance with  
a resolution of the Directors on 12 May 2016.
The Group’s principal activity is the provision of a platform for  
online accounting and business services to small businesses and 
their advisors.
2. BASIS OF ACCOUNTING
(a) Basis of preparation The consolidated financial statements 
of the Group have been prepared in accordance with Generally 
Accepted Accounting Practice in New Zealand (NZ GAAP). The Group 
is a for-profit entity for the purposes of complying with NZ GAAP. 
The consolidated financial statements comply with New Zealand 
equivalents to International Financial Reporting Standards (NZ IFRS), 
other New Zealand accounting standards and relevant authoritative 
notices that are applicable to entities that apply NZ IFRS. The 
consolidated financial statements also comply with International 
Financial Reporting Standards.
Other than where described below or in the notes, the consolidated 
financial statements have been prepared using the historical  
cost convention.
The consolidated financial statements are presented in New Zealand 
dollars ($) (NZD) (the ‘presentation currency’). Items included in the 
financial statements of each of the Group’s entities are measured 
using the currency of the primary economic environment in which the 
entity operates (the ‘functional currency’).
(b) Changes in accounting policies and disclosures Apart from the 
changes noted below, the accounting policies adopted are consistent 
with those of the previous year.
During the year, the Group’s operating segments were redefined  
based on the way in which the Global Executive Team reviews 
performance. The change results in two reportable segments, namely 
Australia and New Zealand (ANZ) and International.
Grant income previously recorded in other income is now recognised 
contra product design and development expenses in order to more 
appropriately reflect the nature of the grant income. Comparative 
amounts in the consolidated Income Statement were reclassified for 
consistency, which resulted in $2.9 million being reclassified from 
other income to product design and development expenses for the 
year ended 31 March 2015. 
Hedging gains and losses previously recorded as part of other 
income is now allocated and recognised within the operating 
revenue or expense line item to which the underlying hedged item 
relates. Comparative amounts in the consolidated Income Statement 
were reclassified for consistency, which resulted in an increase to 
subscription revenue of $170,000, and decreases to cost of revenue, 
sales and marketing, product design and development, and general 
and administration expense categories of $695,000, $578,000, 
$481,000 and $112,000 respectively.
Certain other comparative information has also been reclassified to 
conform with the current period’s presentation.
(c) Standards or interpretations issued but not yet effective and 
relevant to the Group The International Accounting Standards  
Board has issued a number of standards, amendments and 
interpretations which are not yet effective and which may have an 
impact on the Group’s financial statements. These are detailed 
below. The Group has not applied these in preparing these financial 
statements and will apply each standard in the period in which it 
becomes mandatory:
 
– (a) NZ IFRS 9 – Financial Instruments – Classification and 
Measurement This standard addresses the classification, 
measurement and de-recognition of financial assets, financial 
liabilities, impairment of financial assets and hedge accounting, 
and will be effective for the year ended 31 March 2019.
 
– (b) NZ IFRS 15 – Revenue from Contracts with Customers  
This standard establishes the framework for revenue recognition, 
and will be effective for the year ended 31 March 2019.
 
– (c) NZ IFRS 16 – Leases This standard requires a lessee to 
recognise a lease liability reflecting the future lease payments 
and a ‘right-of-use asset’ for substantively all lease contracts, 
and will be effective for the year ended 31 March 2020.
The Group has not yet assessed the potential impact of the above 
standards.
(d) Critical accounting estimates In applying the Group’s accounting 
policies, management continually evaluates judgements, estimates 
and assumptions based on experience and other factors, including 
expectations of future events that may have an impact on the Group. 
All judgements, estimates and assumptions made are believed to be 
reasonable based on the most current set of circumstances available 
to the Group. Actual results may differ from the judgements, 
estimates and assumptions.
The significant judgements, estimates and assumptions made by 
management in the preparation of these financial statements are 
outlined below.
Deferred tax assets The Group recognises a deferred tax asset in 
relation to tax losses, only to the extent of the Group’s deferred 
tax liabilities. The Group has not recognised a deferred tax asset in 
respect of additional losses or other temporary differences given 
the uncertainty of the timing of profitability and the requirement 
for ownership continuity. Deferred tax assets and deferred tax 
liabilities are recognised in the subsidiaries in respect of temporary 
differences; assets are only recognised to the extent that it is 
probable the assets will be utilised.
NOTES TO THE FINANCIAL STATEMENTS
Notes to  
the financial  
statements
24
Capitalised development costs The Group capitalises a proportion of employee costs related to software development. The Group regularly 
reviews the carrying value of capitalised development costs to ensure they are not impaired. The development costs are amortised over three to 
five years, the expected useful life of the assets, with limited exceptions to this for assets specifically identified as having shorter useful lives.
At 31 March 2016, if capitalisation rates had been 10% higher/lower with all other variables held constant, the impact on operational expenses 
would have been $9.9 million lower/higher.
3. SEGMENT INFORMATION
The Group operates in one business segment, providing online solutions for small businesses and their advisors.
Xero has two operating segments. These segments have been determined based on reports reviewed by the Global Executive Team (the chief 
operating decision-maker). Segment operating expenses represent sales and marketing costs and service delivery costs, including both in-country 
costs and an allocation of centrally managed costs. 
 
Segment contribution
 ANZ
($000s)
 International
($000s)
Total
($000s)
Year ended 31 March 2016
Operating revenue
 143,394 
 63,666 
 207,060 
Expenses
 (93,982)
 (104,183)
 (198,165)
Other income
– 
 758 
 758 
Segment contribution
 49,412
 (39,759)
 9,653 
Year ended 31 March 2015
Operating revenue
 91,329 
 32,591 
 123,920 
Expenses
 (68,328)
 (61,280)
 (129,608)
Other income
–
 423 
 423 
Segment contribution
 23,001 
 (28,266)
 (5,265)
Reconciliation from segment result to consolidated operating revenue
Year ended 31 March 2016
 2016
($000s)
2015
($000s)
Segment revenue
 207,060 
 123,920 
Corporate revenue
 – 
 100 
Total operating revenue
 207,060 
 124,020 
Reconciliation from segment result to consolidated net loss before income tax
Year ended 31 March 2016
 2016
($000s)
2015
($000s)
Segment contribution
 9,653 
 (5,265)
Corporate revenue
–
 100 
Product design and development
 (69,664)
 (45,532)
General and administration
 (30,843)
 (24,436)
Foreign exchange gains/(losses)
 1,780 
 (11)
Net interest income
 8,122 
 7,688 
Net loss before tax
 (80,952)
 (67,456)
NOTES TO THE FINANCIAL STATEMENTS
25
NOTES TO THE FINANCIAL STATEMENTS
At 31 March 2016 $104.0 million, or 92%, of the Group’s property, plant and equipment and intangible assets were domiciled in New Zealand  
(2015: $71.7 million). 
Depreciation and amortisation by segment
Year ended 31 March
 2016
($000s)
2015
($000s)
ANZ
 1,984 
 1,667 
International
 3,263 
 1,136 
Corporate (not allocated to a segment)
 23,896 
 15,187 
Total
 29,143 
 17,990 
Employee entitlements: share-based payments by segment
Year ended 31 March
 2016
($000s)
2015
($000s)
ANZ
 3,666 
 2,404 
International
 4,380 
 1,538 
Corporate (not allocated to a segment)
 6,691
 5,230 
Total
 14,737 
 9,172 
4. REVENUE
Subscription revenue Subscription revenue comprises the recurring monthly fees from subscribers to Xero’s online accounting software 
services. Subscribers are invoiced monthly in arrears, with no set contractual term. Revenue is recognised as the services are provided to the 
subscribers. Unbilled revenue at year end is recognised in the Statement of Financial Position as accrued income and included within trade and 
other receivables.
Other operating revenue Other operating revenue comprises revenue from related services such as education and implementation of the online 
accounting software services, along with conference income. Revenue is recognised as the services are provided to customers.
Revenue by geographic region 
Year ended 31 March
 2016
($000s)
2015
($000s)
Australia
96,686
58,456
New Zealand
46,708
32,873
United Kingdom
37,437
19,948
North America
16,850
7,794
Rest of World
9,379
4,849
Corporate
–
100
Total
207,060
124,020
5. NET INTEREST INCOME
Interest income is recognised as it is accrued using the effective interest method. The effective interest method calculates the amortised cost 
of the financial asset and allocates the interest income over its expected life.
Year ended 31 March
 2016
($000s)
2015
($000s)
Interest income – cash and short-term deposits
 8,172 
 7,616 
Interest income – loans to key management personnel
 5 
 97 
Interest expense
 (55)
 (25)
Total net interest income
 8,122 
 7,688 
26
6. EXPENSES
Sales tax The Income Statement and the Statement of Cash Flows have been prepared so that all components are stated exclusive of sales 
tax, except where sales tax is not recoverable. All items in the Statement of Financial Position are stated net of sales tax with the exception 
of receivables and payables, which include the sales tax invoiced. Sales tax includes Goods and Services Tax, and Value Added Tax, where 
applicable.
Overhead allocation The presentation of the Income Statement by function requires certain overhead costs to be allocated to functions.  
These allocations require management to apply judgement. Facilities, internal information technology costs, and depreciation and amortisation 
not relating to product software development have been allocated to each function on a headcount basis. Recruitment costs have been 
allocated according to the number of employees hired in each function during the period. The amortisation of product-related software 
development is included in product design and development.
Year ended 31 March
 2016
($000s)
2015
($000s)
Cost of revenue and operating expenses
Employee entitlements
 159,210 
 106,153 
Employee entitlements – share-based payments
 18,563 
 15,263 
Employee entitlements capitalised
 (42,690)
 (28,504)
IT infrastructure costs
 18,277 
 10,909 
Advertising and marketing
 53,781 
 29,683 
Consulting and subcontracting
 13,082 
 7,138 
Rental costs
 9,909 
 7,425 
Travel-related costs
 6,453 
 5,609 
Communication and office administration
 4,123 
 3,589 
Staff recruitment
 2,064 
 2,565 
Superannuation costs
 5,085 
 3,803 
Computer equipment and software
 4,547 
 2,970 
Directors' fees
 796 
 515 
Auditors remuneration
460
 627 
Other operating expenses
 15,869 
 13,841 
Total cost of revenue and operating expenses excl. depreciation and amortisation*
 269,529 
 181,586 
* Includes grant income of $3.5 million (2015: $2.9 million)
Depreciation and amortisation
Relating to:
Amortisation of development costs
 22,019 
 12,947 
Amortisation of other intangible assets
 698 
 346 
Depreciation of property, plant and equipment
 6,426 
 4,697 
Total depreciation and amortisation
 29,143 
 17,990 
Total cost of revenue and operating expenses
 298,672 
 199,576 
Depreciation and amortisation included in function expenses as follows:
Cost of revenue
2,348
 1,279 
Sales and marketing
2,898 
 1,982 
Product design and development
 23,145 
 14,284 
General and administration
 752 
 445 
Total depreciation and amortisation
 29,143 
 17,990 
NOTES TO THE FINANCIAL STATEMENTS
27
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 March
 2016
($000s)
2015
($000s)
Audit and review of financial statements – EY
 205 
 – 
Taxation services – EY 
 42 
 – 
Other services* – EY
15
 – 
Audit and review of financial statements – PwC
 – 
 205 
Other assurance services** – PwC
 198 
 354 
Taxation services – PwC
 – 
 27 
Other services*** – PwC
 – 
 41 
Total fees paid to auditors 
460
 627 
* Services relate to provision of remuneration market data
** Services relate to assurance services in relation to the preparation of US GAAP-compliant financial statements, audit of the Company’s share register and compliance 
engagement in respect of a grant application
*** Services relating to global mobility, and other services in respect of IT change management and disaster recovery advice
7. CURRENT AND DEFERRED INCOME TAX
Tax expense comprises current and deferred tax. Income tax is recognised in the Income Statement except when it relates to items recognised 
directly in other comprehensive income, (in which case the income tax is recognised in other comprehensive income). Income tax is based on 
tax rates and regulations enacted, or substantially enacted, in the jurisdictions in which the entity operates.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting 
purposes and the amounts used for taxation purposes. The amount of deferred tax is based on the expected manner of realisation of the 
carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the end of the reporting period.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can 
be utilised. 
Current income tax The tax on the Group’s loss before tax differs from the theoretical amount that would arise using the weighted average tax 
rate applicable to the profits or loss of the consolidated entities as follows:
Year ended 31 March
 2016
($000s)
2015
($000s)
Accounting loss before income tax
 (80,952)
 (67,456)
At the statutory income tax rate of 28%
 (22,667)
 (18,888)
Non-deductible expenditure
 1,317 
 723 
Prior period adjustment
 (490)
 467 
Impact of R&D credit claims made in current year
 (510)
–
Tax rate variance of subsidiaries
166
 416 
Total tax losses not recognised
 23,696 
 19,360 
Income tax expense
 1,512 
 2,078 
Comprising:
Income tax payable 
 2,788 
 3,589 
Prior period adjustment 
 (490)
 467 
Impact of R&D credit claims made in current year
 (510)
–
Deferred tax 
 (1,228)
 (1,132)
Tax losses utilised
 846 
 (846)
Effect of changes in foreign currency
 106 
–
Income tax expense 
 1,512 
 2,078 
Auditor’s remuneration
28
Income tax payable
At 31 March 
 2016
($000s)
2015
($000s)
Opening balance
 2,218 
 732 
Prior period adjustment 
 (1,165)
 (209)
Impact of R&D credit claims processed in current year
 (510)
–
Income tax liability for the year
2,788
 3,589 
Income tax paid
 (3,215)
 (1,995)
Effects of changes in foreign currency
 195 
 101 
Current tax payable
311
 2,218 
Deferred income tax
The analysis of deferred tax assets and deferred tax liabilities is as follows:
Derivatives
($000s)
Provisions 
& employee 
benefits
($000s)
Tax 
depreciation
($000s)
Tax losses
($000s)
Total
($000s)
Year ended 31 March 2016
Deferred tax asset balances:
At 1 April 2015
–
1,247
180
–
1,427
Prior period adjustment
–
(882)
(191)
–
(1,073)
Charged to Income Statement
–
1,231
(302)
–
929
Foreign currency adjustment 
–
93
–
–
93
At 31 March 2016
–
1,689
(313)
–
1,376
Deferred tax liability balances:
At 1 April 2015
(846)
1,691
(4,650)
2,352
(1,453)
Prior period adjustment
–
99
77
223
399
Charged to Income Statement
–
438
(2,419)
2,280
299
Charged to other comprehensive income 
1,861
–
–
(1,015)
846
Tax losses utilised
–
–
–
(846)
(846)
At 31 March 2016
1,015
2,228
(6,992)
2,994
(755)
Year ended 31 March 2015 
Deferred tax asset balances:
At 1 April 2014
–
1,089
(1,497)
894
486
Prior period adjustment
–
(301)
(98)
(217)
(616)
Charged to Income Statement
–
460
1,774
(677)
1,557
Foreign currency adjustment 
–
(1)
1
–
–
At 31 March 2015
���
1,247
180
–
1,427
Deferred tax liability balances:
At 1 April 2014
–
–
–
–
–
Charged to Income Statement
–
1,514
(3,445)
1,506
(425)
Charged to other comprehensive income 
(846)
–
–
–
(846)
Tax losses utilised
–
–
–
846
846
Acquisition of Monchilla. Inc
–
–
(1,056)
–
(1,056)
Foreign currency adjustment 
–
177
(149)
–
28
At 31 March 2015
(846)
1,691
(4,650)
2,352
(1,453)
NOTES TO THE FINANCIAL STATEMENTS
29
NOTES TO THE FINANCIAL STATEMENTS
The Group’s deferred tax asset and deferred tax liability are expected to be recovered by $0.3 million and $0.3 million respectively within the 
next 12 months. Deferred tax assets and liabilities have been offset where the balances are due to/receivable from the same counterparties. 
Deferred income tax assets are recognised for carried forward tax losses to the extent of the Company’s deferred tax liabilities. The Company has 
unrecognised New Zealand tax losses available to carry forward of $241,082,000 (2015: $144,945,000) subject to sha</p>