Xero posts small profit as coronavirus crisis starts to bite

Xero chief executive Steve Vamos. Photo / Supplied

Xero turned in a $3.3 million annual net profit as subscriber numbers grew 26 per cent to nearly 2.3 million and revenue rose 30 per cent, but it expects the coronavirus crisis will have an impact in the 2021 financial year.

The accounting software company's net profit for the year ended March 31 compares with the net loss of $27.1m the previous year.

Chief executive Steve Vamos said the Covid-19 crisis had only a modest impact on the latest results but the company is expecting a more significant impact in the current year. Xero's customers are small businesses, many of which are likely to go out of business as a result of the crisis.

"Unquestionably, this is a difficult time for many people in small business," the company said in its results announcement.

"The impact of Covid-19 on March trading did result in some reduction in annualised monthly recurring revenue progress in that month," it said.

AMRR for the year was up 29 per cent at $820.6m.

"This outcome, along with the ongoing Covid-19 environment, will be reflected in Xero's full-year 2021 financial performance."

It said the first few months of the current year have been impacted, but "the continuing 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 in 2021."

Xero shares fell 3.2 per cent to A$81.08 ($87.30) in early trading on the ASX today, trimming their gain so far this year to 1.7 per cent.

Xero said all regions have been impacted by Covid-19 with Britain the worst. Subscriber numbers in the UK were up 32 per cent at 613,000.

In other regions, Australian subscribers were up 26 per cent at 914,000, New Zealand was up 12 per cent at 392,000 and North America was up 24 per cent at 241,000. The rest of the world was up 51 per cent at 125,000.

Net subscriber additions rose to 467,000, up 8 per cent on the 432,000 gained during the previous financial year.

The company said initial analysis of Australian subscribers was that the sectors most impacted by the crisis were hospitality, arts and entertainment.

Customer surveys showed most had been significantly impacted, "with many foreseeing a negative business outlook," it said.

Managing cash flow, the need to rapidly upskill and use digital tools, and work-life balance were customers' main concerns.

"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 advisers."

The company's earnings before interest, tax, depreciation and amortisation rose 88 per cent to $137.7m in the period from $73.2m the previous year.

Vamos said helping customers is Xero's immediate priority but that its strategic ambitions are unchanged.

"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," he said.

"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."