Xero Limited (XRO) Earnings Call Transcript & Summary

Good morning from Sydney, Australia, and welcome to Xero's 2021 Annual Meeting. I'm David Thodey, and I am the Chair of Xero's Board of Directors. Before we begin, I'd like to acknowledge the traditional owners and custodians of the land, sea and waters from where I'm joining you today. For me, that is the Gadigal people of the Eora Nation. I would also like to acknowledge the traditional owners and custodians of the various lands from where you're all joining us today, and I wish to pay my respects to elders past, present and emerging. Firstly, thank you for attending today's meeting. As with last year's annual meeting, we are completely online today. I am with a small team broadcasting from our Sydney office and, I'd like to say, complying with government guidelines as Sydney is in lockdown. I hope you and those who you care about are keeping safe and well in these challenging and very uncertain times. While this online format may be familiar to those of you who joined our meeting last year or our other virtual meetings, I acknowledge that for many others, it might not be so. We have tried to design the procedures for this virtual meeting in a way that allows you the same opportunity to participate today as you would at a normal physical meeting. This includes being able to ask questions through the online platform and vote using an electronic voting card. I'll discuss this process shortly, but I would encourage you to download and refer to the online portal guide from Xero's website if you haven't already done so. Now in the event that we experience technical issues that impact the meeting, I'll assess the circumstances and communicate further with you. And if it isn't possible to get in touch with you, we'll e-mail instructions on just how you can rejoin the meeting. Okay. Well, I'm now informed by our company secretary that in accordance with the company's constitution, a quorum is present, and I now declare the meeting formally open. First of all, I'd like to spend a bit of time just introducing the Board, who are participating today from around the globe. I also want to introduce the members of Xero's leadership team. So joining from Wellington are our directors Mark Cross, Susan Peterson, Rod Drury. And also in Wellington, Xero's leadership team, we have our Chief Executive Officer, Steve Vamos; and our Chief Financial Officer, Kirsty Godfrey-Billy. Now joining the meeting remotely are a number of directors. Firstly, we've got Craig Winkler joining us from Melbourne; also Lee Hatton, who's also here in Sydney but at home. And we have Steven Aldrich from California; and all the way from London late in the night, Dale Murray. We also have our Chief Legal Officer and Company Secretary, Chaman Sidhu, who joins us from Brisbane. We're also joined by other members of Xero's leadership team and other Xero colleagues. Representatives from the company's auditors, Ernst & Young, are also online and available to answer any questions that apply to them throughout the meeting. Xero's Executive General Manager, Investor Relations, Toby Langley, will read out any questions submitted by shareholders during the meeting. Now I'd like to quickly just go through the agenda and the order of events for today. Firstly, I'm going to say a few words. And then we're going to hear from our CEO, Steve Vamos. Then we'll turn to the formal business of the meeting, and we have 4 resolutions today. After that, there will be an opportunity for any general shareholder questions before I close the meeting. So just before I give my address, I do want to go through a little bit about the administration of the online platform. Voting on the resolutions will be conducted by way of a poll using the electronic voting card you should have received after clicking that Get A Voting Card button. [Operator Instructions] I encourage shareholders who have questions to submit them as soon as possible, including if you have any questions about any of the resolutions. If you have any issues using the platform, please check the online guide on Xero's website or contact the phone help lines shown on this slide. So I think that covers off all the administration. So I'd like to now move to my address and give you a bit of an update on the company. Well, it surely has been a challenging year for so many people, businesses and governments around the world. So I can't help but start by acknowledging these disruptive and tragic circumstances that so many people around the world have experienced related to this global pandemic called COVID. While many economies have accepted and adapted well in this environment, we remain in the midst of a worldwide health pandemic. I have been incredibly inspired by the resilience, tenacity and enterprise of small businesses during this period right across the world. And I'm encouraged to see many of them navigating their way through these constantly changing market conditions and as they really try to adapt to the changing customer needs there of their own customers. We're continuing to see a significant shift in the way business is conducted. This digitization is accelerating right across nearly every industry in the world, and small businesses are adopting cloud technologies as part of their core business tool kit. And interestingly, it's now being supported by governments who are enacting measures to boost digitization because it's becoming such a key enabler of greater economic productivity. And there are a number of examples of this in every country, just about. In the U.K., we're seeing their push to digitize the U.K. tax system. They're digitally enabling small businesses through Making Tax Digital measures. Here in Australia where I am, there's been a lot of focus on the Digital Economy Strategy, which is aimed at lifting digital capability and adoption across the economy and supporting new ways to work and do business. And we've just seen recently in the U.S., President Biden signed an executive order, even just last month that appears likely to result in a move towards open banking, which is, as we all know, one of the largest markets in the world. Canada, the government has just announced last week a formal commitment and plan to adopt open banking by January 2023. And then in Singapore, there have also been a number of government initiatives that have sought to drive adoption of digital technologies for small and medium businesses through their Go Digital program. So there's enormous amount of activity around the world. And thankfully, Xero is so strongly positioned for this accelerating global trend. Xero operates at this intersection of technology and finance and with the opportunity to serve small businesses and that wonderfully large community. And I've been so encouraged by the Xero leadership team's continuing engagement with policymakers around the world as we seek to play our role in enabling small businesses to be, on the one hand, more productive, but also making their lives better. During the 2021 financial year, Xero did make strong progress as we -- and we're very pleased to report that we added a record number of new subscribers in the second half of the year. And I think that highlighted this incredible demand for cloud-based tools across all our markets. We do remain very positive about the market opportunity for our solutions. Our estimate suggests that cloud accounting adoption rates by small businesses remain low at around 20% globally. We see significant potential for future take-up of our platform and services from current levels. We continue to scale Xero to become a global platform provider for small businesses around the world. However, to realize this ambition, we really need to be very focused on a few important things. So let me just go through these. Firstly, we must continue to keep the customer at the heart of everything we do. We must remain disciplined in our capital allocation process to ensure that we add value for all our stakeholders, including customers, partners and shareholders. And we need to prioritize wisely where we invest as well as how we sequence our investments and execute our strategy. And we must continue to use M&A to add capabilities that enable our strategy and help us to achieve our ambitions. Also, our processes, systems, skills and operating model need to develop at pace and continue to scale effectively as we grow. And this is a very important focus for the Board. It's also important that we optimize Xero's operational and financial structure. A great example during full year '21 was our convertible note refinancing and then deploying some of these funds for the 3 acquisitions we made during the year. Strong risk management and understanding and awareness across all our people, partners and stakeholders is also a priority. This is particularly the case in the area of cyber risk, and the Board remains actively engaged to support management in addressing these cyber challenges. Importantly, we must maintain our unique culture and values as we expand our global presence, which includes innovation. So growing in a sustainable way is very important and a key consideration as it is a large part of who we are. It aligns very closely with our culture and values, and I just want to touch on the 4 areas that we believe are particularly relevant for Xero. And these are climate, supply chain, data privacy and diversity and inclusion. Firstly, on climate. In February this year, Xero was recognized as a certified carbon-neutral organization by the Australian government's Climate Active Program. This was a combination of a number of years' work as part of our environmental sustainability program, which we call Net Zero @ Xero. Each year, our business grows to serve more customers. As we do this, we remain mindful of Xero's impact on our climate and our environment. And we are pleased with our progress on carbon neutrality. And we continue to look at ways to better understand and minimize our carbon emissions. An important step we intend to take in financial year '22 is to formalize our emissions reduction plans and set science-based targets, which we think is so important. We have work underway in this area, and we are focused on ensuring our plans are appropriate and sustainable over the long term. We are developing an environmental road map aligned to the Task Force on Climate-related Financial Disclosures, most people know it as TCFD standard, to address any risks or opportunities in the short, medium and long term. So environment, critically important. Moving to diversity and inclusion. At Xero, this means acknowledging, appreciating and celebrating all the many ways that we are different. Diversity in the workplace is essential for a high-performing and healthy organization and team. We actively seek a diverse pool of candidates for roles at Xero and maintain a culture of inclusion to help our people feel valued and respected and to have a sense of real belonging and fairness. We are all accountable to create an inclusive culture, and we are committed to supporting flexible work and equal pay for equal work. We made good progress in financial year '21 with several initiatives and partnerships focusing on racial equality and diversity. Xero also maintained our inclusion in the Bloomberg Gender-Equality Index in 2021. At the same time, we do recognize there is more to do, and we look forward to creating a more diverse and inclusive organization in the facets of race, gender and other attributes. Now I do just want to mention the supply chain. We aim to really have a positive impact through our supply chain by working with socially conscious vendors. We understand and remain vigilant on our key modern slavery risks, and we have policies and process in place to help us monitor and mitigate them. And we regularly assess our effectiveness of our actions. And then to data use. Just last month, Xero launched our Responsible Data Use Commitments, one of the first organizations in Australia to do so. These commitments state our position and guide us to make decisions around the use of our customers' data. This data informs how we build our products through to how data is converted into insights to ultimately benefit small businesses, advisers and communities. We are taking responsible data use very seriously. These comments and commitments broadly outline our approach to keep data secure and protect the privacy of our customers' data at all times. We also expect our trusted partners to approach responsible data use in the same way that we do. We've also launched a long-term education program for our customers. We believe we have an opportunity, in fact, an obligation, to educate small businesses around -- about the power of data as well as highlighting the challenges and opportunities in an area that is constantly changing. So that's just a little bit on ESG. Steve is going to talk more about our business performance and how we're delivering on our strategic priorities. However, I would like to acknowledge the progress made during financial year '21 in executing on our financial and strategic objectives. We've also managed to maintain and build further operating discipline during a highly disruptive period. Turning to the Board. We are pleased to welcome Steven Aldrich as an Independent Nonexecutive Director, who joined us on the 1st of October 2020. Steven has already brought to the Board extensive product knowledge and experience, and he has a long history in technology and accounting software industries. And you'll be hearing from Steven later in the meeting. I'd also like to recognize and thank all my fellow directors for their contribution throughout the year. We continue to focus on how best to enable Xero to scale internationally while never losing our focus on great products and always great customer service. It is a sad responsibility to extend our thanks to Craig Winkler, as detailed within the Notice of Meeting. After completing over 12 years of service on the Board, Craig has not sought reelection today, having decided to retire from the Board at the end of today's meeting. Craig has made an extraordinary commitment of his time and energy during these last 12 years. As one of Xero's early directors and a significant long-term investor in Xero, Craig has been instrumental in helping to build Xero's success to date. He has made an incredible contribution through a period of enormous growth. So on behalf of the entire Board and I think all shareholders, I thank Craig for his thoughtful insights and significant contribution to Xero. We will miss Craig, and we wish him all the very best in the wonderful future that I'm sure he has going forward. The Board, I should quickly add, is recruiting for a new director. And as we embark on this next stage, we will be looking at what skills we need to really make sure that we deliver on the promise of this great company. Finally, and very importantly, on behalf of the Board, I'd like to thank Steve and the Xero leadership team for a strong performance in a very challenging year. We are also immensely grateful for the dedication and passion shown by all of Xero's people, which is fundamental to our continued success. I'd also like to thank you, our shareholders, for your ongoing support. So that brings me to the end of my address. Let me now throw to Steve, who's in Wellington, and he's going to take us through just a bit of an update on the business. And then we'll return to the formal business of the day. So Steve, over to you.

Well, thanks, David. Kia ora. [Foreign Language] from Wellington. As David described very clearly, the backdrop has continued to be challenging for our customers, partners, their communities. And our thoughts are with the many people who are continuing to experience the impacts of COVID-19. With that context, we continue to focus our efforts on doing what we can to support our customers' and partners' immediate needs while continuing to invest to pursue our long-term strategy. I'd like to summarize the financial year 2021 result and also briefly discuss the progress we've made executing our strategy. Now after the initial disruption of COVID-19 during the early stages of FY '21, it was pleasing to see growing momentum as the year progressed, and we entered FY '22 with confidence in our long-term strategy. Now overall, our performance in FY '21 reflected the value of Xero's subscription to our customers. We believe it also indicates that cloud accounting alongside other digital services is increasingly seen as essential by a growing number of small businesses and their advisers. Now turning to a quick summary of our FY '21 results. Xero's total subscribers increased by 456,000 to reach more than 2.7 million at the end of March. In the second half of the year, we added 288,000 subscribers, our strongest half year period ever. And our operating revenue climbed 18% year-on-year to $849 million. Alongside the top line measures, Xero delivered a strong set of profit outcomes, although the 2 halves of the year were very different. We reduced sales and marketing spend in response to the uncertainties around COVID-19 in the first half of FY '21, and this had a commensurate uplift in EBITDA. As conditions improved through the year, we increased our spending, which impacted EBITDA, but contributed to higher subscriber additions in the second half. I'll sum up by saying that while we had an unusual first half, momentum built during the year and the overall FY '21 result reflects the ongoing growth of our customer base and, as I mentioned, the value of a Xero subscription to our customers. If we move to the charts on the next slide, we can see indicators of customer engagement in the churn and other customer activity metrics that are shown. We saw a significant fall in churn in FY '21, and this was evident in all regions. Overall monthly churn dropped by 12 basis points to 1.01% over the course of the year. In terms of customer activity, we saw the number of employees paid on Xero increased 29% from the low point seen in May 2020. Monthly invoice payment value also grew by more than 50% from pre-COVID levels. All of this reflects the determination that small businesses continue to have, operating in an environment that remains challenging. I'd now like to talk about progress we've made executing our strategy. Our current 3-year strategy was developed with a 10-year lens. This is really important because it ensures we do as much as we can now to see the growth opportunities that over time will be substantial contributors to our future success. Now as a reminder, we have 3 strategic priorities, which are to drive cloud accounting adoption, to grow the small business platform and to build Xero for global scale and innovation. And we made good progress against each of these priorities in FY '21. On driving cloud accounting adoption, we've delivered strong subscriber growth across all our regions, and H2 FY '21 was a record half in terms of net additions for most geographies. On growing the small business platform, we continued to expand platform revenue. Growth in our adjacent products and service-driven income, which was largely in the form of payments, grew at just under 40%. We've also continued to build for global scale and innovation. Now as we grow, we think carefully about how we can scale effectively through the investment in people, systems and processes. We are disciplined about our investment decisions to ensure we add value for all our stakeholders, including, of course, our shareholders. In FY '21, we added a record number of net employee -- net new employees -- sorry, record net number of new employees with total FTEs increasing by more than 550. We continue to build and enhance our capabilities by recruiting and developing our people and teams and do that in an environment where there's particularly strong demand in our industry for key skills. COVID-19 has changed working styles forever, and we are evolving our strategy around remote working and other alternative resourcing opportunities. During FY '21, we made changes to our go-to-market model to implement a scalable and globally consistent approach to meeting the needs of our customers and adding new partners. Our global sales and customer functions have come together under our Chief Customer Officer, Rachael Powell. This structure helps to ensure that there's alignment of global and regional sales and customer teams as Xero's customer base continues to grow globally. As David has discussed, we are conscious of the need to grow sustainably and to consider our social and environmental impact while also upholding good governance. All of these factors help us build stakeholder trust as we continue to scale our business. Our progress on M&A has been supported in part by our second convertible note capital raise in late 2020. We raised USD 700 million via 0 coupon convertible notes in November 2020. After repaying Xero's existing 2023 convertible notes and associated transaction costs, total new capital raise amounted to USD 408 million. The proceeds give us flexibility to pursue strategic investments such as the 3 acquisitions we announced in the year: Waddle, a cloud-based lending platform; Planday, a workforce management solution; and Tickstar, an e-invoicing infrastructure business. Information about these acquisitions is summarized on the next slide. The acquisitions varied in size, from a consideration of up to $25 million for Tickstar, $87 million for Waddle and $305 million for Planday. The first of these transactions was Waddle, which completed in October 2020. Now Waddle helps to solve customers' financial needs by leveraging invoice financing as a means to access capital and help manage cash flow. In April, we completed the acquisition of Tickstar, a provider of e-invoicing infrastructure. We anticipate e-invoicing will be widely adopted by more governments and countries around the world with initial traction most marked in Singapore, Australia, New Zealand and the U.K. And lastly, Planday is our largest acquisition to date. Also completed in April, the purchase of Planday marks Xero's entry into workforce management as a new category. Planday also helps to extend the surface area of the Xero platform to better serve employers and, importantly, their employees. Now the capabilities that we add through acquisitions are important enablers of our strategy. But additionally, we continue to focus on and invest in product and partnerships. We rolled out pilot versions of short-term cash flow and business snapshot features to help customers plan during the early stages of the pandemic. Well, last month, we officially launched these features as a new AI-powered forecasting tool suite called Xero Analytics and introduced an advanced version called Xero Analytics Plus. Through patent matching and predictive algorithms, these tools provide powerful insights and enable more meaningful conversations between our customers and their advisers regarding their financial position. And this is done by analyzing cash flow trends and identifying areas for improvement in the business. In terms of core product, we've just announced that Xero's bank reconciliation feature has been enhanced with smarter matching algorithms and will leverage artificial intelligence to produce coding suggestions that reduce the data entry workload. We've also enhanced tax schedules and reporting in the U.S. and Canada and the ability to make end-to-end tax lodgments in South Africa. In the U.K., we invest in readiness for the next phases of Making Tax Digital, for VAT from April 2022 and income tax from April 2023. We refreshed the user interface for our Xero Me app, an app for employees that currently works with our payroll solution. And it's one of those apps that we've developed to help customers manage their business along with products like Xero Projects and Expenses. Now looking to partnerships in the small business platform. Waddle has just entered an agreement with the Commonwealth Bank of Australia back in June to support their new invoice financing offer. And Waddle now has 2 major banking partnerships, the other 1 being with NatWest and their Rapid Cash offer in the U.K. Last week, we launched the Xero App Store, a move towards a more commercial model for this crucial and growing part of our business and ecosystem which now offers over 1,000 apps connected to Xero. The Xero App Store provides an easier way for small businesses and accountants and bookkeepers to discover and purchase apps to help run their business. And at the same time, we're very keen to help our app partners grow on the Xero platform. So overall, FY '21 was a challenging year. But against this backdrop, we have demonstrated our ability to execute our strategy. We continue to deliver sustained growth, adding subscribers, enhancing our core product proposition and further activating growth opportunities in financial services and adjacent product categories. We've built a business that our customers and partners value, and you can see that in our total LTV, or lifetime value, of $7.6 billion. We are a business with a focus on sustainable, long-term growth. And given the opportunities we continue to identify, our intent remains to reinvest cash generated. We provided an outlook statement in our FY '21 investor briefing, and we're making no update today. But as a reminder, the key elements of the guidance provided for FY '22 were as follows. For FY '22, total operating expenses as a percentage of operating revenue, excluding acquisition integration costs, are expected to be in the range of 80% to 85%. Integration costs associated with acquisitions announced during FY '21 are expected to increase total operating expenses as a percentage of operating revenue by a further -- by up to a further 2% for FY '22. And lastly, Planday is expected to contribute approximately 3 percentage points of additional operating revenue growth in FY '22. The investments we are making today are crucial to the development of the long-term growth opportunities that we have. Our capacity to generate free cash flow, combined with our capital allocation framework and existing financial resources, put us in a strong position. When we see fit, this gives us the capacity to adapt quickly to changing conditions and vary the pace of our investment spend as we move towards our long-term objectives. It is fitting to note that we celebrated our first Xero Day last month on 6th of July. Now this marked the 15th anniversary of our establishment as a company on the 6th of July 2006 here in Wellington by our founder, Rod Drury, who's here to my right. Xero Day will be an annual event going forward celebrating and acknowledging all the people, partners and customers who've played and continue to play an important role in our journey. And among these, I do want to mention or highlight the contribution of Trent Innes, our former Managing Director of Australia and Asia; and Gary Turner, our Managing Director of U.K. and EMEA. Trent stepped down from his role at the end of June, while Gary announced last month he will retire later this calendar year. Now under Trent's leadership, the Australian business has grown from 300,000 to more than 1.1 million subscribers. And Trent has worked very closely in the succession process to Joseph Lyons, who previously led our global sales team and brings deep experience prior to Xero in senior leadership roles across the technology, financial services and health care sectors. In the U.K., Gary has been instrumental in building our presence leading the business from only a few hundred to 720,000 subscribers. And we've commenced an internal/external recruitment search. And Gary is very much involved in the process of finding his successor and will continue at Xero in an advisory role once a successor has been appointed and the transition completed. So before I conclude, I really want to thank you, our shareholders, for your support during the year. I also really want to thank David and the Board and, in particular, Craig Winkler, for his support and dedication to Xero over the last 12 years. And finally, I do want to acknowledge and thank the entire Xero team across the Xero world for their hard work this year. I'll now hand back to David for the formal business of today's meeting.

Thanks, Steve. I mean, that was a very wide-ranging presentation. And I hope that all our shareholders get a sense of the amount of activity and commitment there is across the organization both in delivering product and features, serving our customers, investing for the future. And the company remains very dynamic, and we just have to keep that pace and drive going forward. So thanks, Steve. That was great. Okay. Well, now it's time to move to the formal business of today's meeting. And after this, we're going to address any shareholder questions. So we'll do the resolutions, and then we'll move on and look at the -- any general questions. So our company secretary has confirmed that the Notice of Meeting had been sent out to all shareholders and other people who are entitled to receive it or organizations within the notice period. The matters requiring consideration today are outlined in detail in the Notice of Meeting. The notice will be taken as read. Xero's financial statements for the 2021 financial year, together with the auditor's report, are in our annual report, which is available on our website. I do want to stress all resolutions 1 through 4 are ordinary resolutions. This means that to pass, they require more than 50% of votes cast by shareholders entitled to vote and voting on the resolution. Xero's share registry provider, Link Market Services, will conduct the voting by way of poll. And Emma Jones of Link will act as the returning officer. Votes will be counted after the end of the meeting and results published on the ASX and also on our website. Shareholders or their proxy holder can cast their vote using the electronic voting card received after validating that online registration. Now to validate registration, you're going to be asked to either enter your securityholder reference number, your SRN, or your holder identification number, HIN or HIN, plus your postcode if you're in Australia. Or if you're offshore out of Australia, you have to enter the country where you are. To then cast your vote, click the Edit Card button, and then you should be all okay. Now if you're intending to vote, you'll be able to finalize and submit votes up until 5 minutes after the meeting ends. And rest assured, I'll remind you at the end of the meeting to do that if you haven't already done so. Proxy votes. The proxy votes that have been submitted prior to the meeting will be set out on the slide shown against each resolution. For some context, the current number of Xero's shares on issue is approximately 148.4 million shares. Shareholders have appointed the Chair of today's meeting, myself, as proxy for approximately 98 million shares voting either for, against or with discretion for all resolutions. As indicated on the proxy form and in the Notice of Meeting, my intention as Chair is to vote all discretionary or undirected proxies held by me in favor of each resolution. To questions. [Operator Instructions] To ensure questions reach us in time, look, please submit them now, if you've got any, and we'll be able to answer them. Again, any general shareholder questions submitted online during the meeting will be addressed after the formal business is completed. I will endeavor to address as many of the more frequently raised relevant questions as possible during the course of the meeting. Now if we do receive multiple questions that are similar, we'll try to amalgamate them into one or choose to answer the broadest question which will cover off the others. So let's now move to resolution 1, which relates to the authorization of the Board to fix the remuneration of Xero's auditor, Ernst & Young. If not already submitted, I'd like to invite shareholders to submit any questions regarding this resolution. And I'm going to pause for a moment to allow enough time to receive them from you and to check whether any questions have already been received. Toby, are there any questions regarding resolution 1?

Thank you, David. We have no questions for resolution 1 at this time.

Okay. Well, since we haven't received any questions, I now propose resolution 1 as set out in the Notice of Meeting and put the motion to a vote. Could you please cast your vote? I will pause for a few seconds while you do that before we move to resolution 2. [Voting]

Okay. Well, let's now move to resolution 2, which -- and 3, which will -- is involving the election and reelection of directors. This resolution, resolution 2, concerns the reelection of Dale Murray, CBE, as a Director of Xero. Dale retires at this meeting and offers herself for reelection. The Board, other than Dale, recommends Dale to you as a Xero Director and unanimously supports her reelection. I'm going to now ask Dale just to say a few words about herself and her role on the Board. So over to you, Dale.

Thank you, David. Hello, everybody, and thank you very much for the opportunity to discuss my credentials for reelection as an independent director at Xero. I've been a director of Xero since April 2018. In this time, I have served on the Audit and Risk Management Committee and Nominations Committee. I live in the U.K. and help provide a perspective on Xero's growth in this very important market, where cloud penetration for small business software still offers us a tremendous opportunity. Alongside my role on the Xero Board, I'm a Nonexecutive Director at the Cranemere Group, LendInvest plc and Rated People. I'm fortunate to sit on a number of boards around the world, which range across technology, small business platforms and private equity. So I track a diverse range of industries and geographies. All are harnessing the opportunity of technology to serve their customers in very competitive marketplaces. All are led and managed by exceptional people. Prior to my Board work, I was a technology entrepreneur. I cofounded the British mobile phone pioneer Omega Logic in 1999, which launched mobile prepaid top-ups in the U.K. and grew to GBP 450 million of gross revenue in 5 years. I've been an active investor in tech companies in Europe and sat on a number of company boards with the key challenges helping managing growth and scale. I've also served on 2 U.K. government boards as well as the British Prime Minister's Business TaskForce, so have some perspective on the shift in U.K. regulatory environment. I trained as a chartered accountant at PwC in Auckland, completed an MBA at the London Business School and was awarded a Commander of the British Empire honor by Her Majesty, The Queen, for services to business. Coming back to Xero. I thoroughly enjoy my role here as an independent director, and I'm very proud of the progress we have made during my time with the company. There have been many highlights. But as Xero has grown and matured, particularly over the past few years, I often reflect on how well the team have managed tremendous subscriber growth while improving cost efficiencies, increasing customer activity on the platform, all the while scaling everything from our product and engineering disciplines through to building our M&A capabilities. Seeing the work that goes on behind the scenes like the development of our new risk framework has been comforting. I use Xero many times each week. Each time I receive an alert about a new product feature that helps my businesses, I feel extremely satisfied, and our Xero teams are continuing to build on our beautiful, world-class customer experience. The launch of the new Xero App Store last week felt like a bit of a high as well. At a personal level, as someone raised in Auckland who left 25 years ago for London, to be able to spend so much time with people that deeply care about doing the best work of their lives is an absolute privilege. Of course, over the past year, COVID-19 has kept me from New Zealand and Australia, but I have learned how to stay focused through all the nighttime Board meetings I have due to the British time zone. I do hope, though, that I may come back very soon for an in-person Board meeting. There's nothing quite like being in the room working together with trusted colleagues. Thank you for your support for me to continue to serve on the Board. I remain committed to doing my very best to see Xero realize the next chapter of all our exciting opportunities ahead. Thank you. And I'll now pass back to David.

My thanks, Dale. And I do just want to remind everyone, it is 20 to 1 in the morning, and that is an incredible commitment. So I do want to also say, Dale has been a -- just a tremendous contributor to the Board. She is an active user of our product, and she brings enormous knowledge and experience of the U.K. market across Europe, which is a part of being a global organization. So now I need to invite shareholders to submit any questions regarding this resolution. Once again, I'm going to pause for a moment to receive your questions. So -- and I will turn to Toby to read out any questions we have on resolution 2. Toby?

Thank you, David. On resolution 2, we do not have any questions at this time.

Okay. Well, I would now like to propose resolution 2 as set out in the Notice of Meeting and put the motion to a vote. Please cast your vote now. And again, I'll just wait for a few seconds before we move on to resolution 3. [Voting]

Okay. Well, we now move on to the next resolution, which concerns the election of Steven Aldrich as a Director of Xero. Steven was appointed by the Board as a Director on the first of October last year and is now required to stand for election. And I do want to stress, the Board, other than Steven, of course, recommend Steven to you as a Xero Director and unanimously supports his election. I do want to stress out, Steven's based in California, in the Bay Area. He does support a U.S. football team, but that's okay. But I'm going to ask him to talk a little bit about that now. So over to you, Steven.

Thank you so much, David. I'd hope to be in person with the rest of our Board. But instead, I am coming to you from my home in California. Thank you all for the opportunity to seek your support for my election as an Independent Director of Xero. Xero is recognized as a world leader in cloud accounting by building on its success in Australia and New Zealand. And there's such a huge opportunity ahead of it. So it was a real privilege to be invited to join the Board. As a new Director, I'd like to briefly address how I got here, why I'm here and what I believe I can contribute as a Director of your company. Having identified the skill set required for this Board appointment, the Board undertook a director search through an external search firm. After what felt to me like a very thorough process of meeting management and fellow Board members, I was selected as the preferred candidate and started as a Director on the Board in October of 2020. Now why did I want to join the Board of Xero? Xero is a company focused on small business success, founded in New Zealand and growing into other geographies around the world and adding adjacent lines of business. I've been part of businesses that have been through that journey but started here in the U.S. and not in the Southern hemisphere. This is an opportunity for me to learn about going global from that viewpoint while also playing a role in Xero's future success. I found that joining a Board is as much about people and culture as it is about the business itself. I've been impressed both before and after joining Xero's Board with the people around the table and the strong shared sense of purpose at this organization. And what can I bring to the Xero Board? I've had more than 20 years of experience building products and growing technology companies on consumers -- focused on consumers and small businesses at both Intuit and GoDaddy. At GoDaddy, I was part of the management team that grew revenue from USD 1 billion to USD 3 billion and served as the Chief Product Officer there for my last 3 years before retiring in 2019. These experiences enabled me to support and challenge Xero's management in assessing the customer experience, laying out product strategy and contributing to decisions about growth. My experience spans organic and inorganic growth, expanding product lines and entering into new geographies. Xero's growth is dependent upon growing the core accounting products and keeping existing customers happy while also pursuing opportunities to meet our customers' needs, for example, payments and managing employees, being thoughtful about both short and long product road map direction, using all of the levers at the company's disposal to achieve these goals, something I've spent time doing at Intuit and GoDaddy. I serve on another public board and several private boards in the U.S. building a base of experience to tackle issues facing boards today. I'm currently a member of Xero's People and Remuneration Committee. I have the drive and capacity to keep up myself to being a high-performing Director of Xero on your behalf. Rest assured that my primary focus as a Director is aligned with yours as owners: for Xero to be the most insightful and trusted small business platform and to see Xero create value for its shareholders over time as the business delivers on its significant potential. With your support, I look forward to working with my fellow directors and all of the Xero team to achieve these objectives. Thank you. And back to you, David.

Thanks, Steven. And let me quickly say, Steven has not actually been to a face-to-face Board meeting. He's been virtual since he has begun, and he has just added enormous value. And just listening to Dale and to Steven, we're very privileged to have them both. So thank you, Steven. I'd like to invite shareholders now to submit any questions regarding this resolution. Once again, I'm going to pause for a moment to receive your questions. So Toby, do we have any questions?

Thank you, David. On resolution 3, we do not have any questions at this time.

Okay. Well, no questions today. Well, since there's none, I now propose resolution 3 as set out in the Notice of Meeting and put the motion to a vote. Again, I will just pause for a moment while you cast your vote. [Voting]

Okay. Well, moving on to resolution 4, which is concerning nonexecutive director fees. For the purpose of this resolution and -- all reference to dollar amounts is in New Zealand dollars. Resolution 4 proposes that the maximum annual fees that can be paid to all of the nonexecutive directors be increased by $0.5 million from $2.20 million to $2.7 million per annum. We review director fees every 2 years. As part of the most recent review that we completed, we did a benchmarking exercise that showed that the current fees are below median. That's when we compare to like companies. As such, the Board is determined that it was appropriate to increase the target director fees and seek an increase in the size of the director fee pool. Now I do want to stress that this enables flexibility around Board succession and director transitions, particularly regarding geographic composition and potentially increasing the number of U.S.-based directors because there are different remuneration structures in each country around the world. The increase would also ensure Xero remains competitive, and we are very focused on attracting and retaining really high-caliber directors in this globally competitive market. Approval of resolution 4 would allow the Board to consider incrementally increasing director fees, but it does not mean that directors will receive a fee increase or that the whole of the new maximum amount will be used. We will review that as we go forward. So the first table on the slide shows the new target director fees that would apply by region, as I mentioned before. The second table shows the current director fees. If shareholders do approve resolution 4, the total target fees for 8 Xero directors would be $2.121 million, assuming there's 3 Australian, 3 New Zealand, 1 U.K. and 1 U.S. Director. The current total fees as of today for Xero directors is $1.651 million. Increasing the fee cap will not necessarily mean that directors will receive a fee, as I just mentioned, or that the entire fee cap will be used. If you would like to study the intended changes in more detail, they're set out in the Notice of Meeting, which is available on the ASX and Xero's website. I note also the voting exclusions that apply to resolution 4 that's set out in the Notice of Meeting. So we will disregard any votes cast by nonexecutive directors or their associates, unless they are voting as a proxy for a person who is entitled to vote, and they vote in accordance with the direction of the proxy form. And on this final resolution, I'd now like to invite shareholders to once again submit any questions that you may have. So Toby, do we have any questions at all on resolution 4?

Thank you, David. On resolution 4, we do not have any questions at this time.

Okay. Well, since we don't have any more questions, I now propose resolution 4 as set out in the Notice of Meeting and put the motion to a vote. Could you please cast your votes now? I'll just wait a few moments. [Voting]

Okay. Well, resolution 4 was the final resolution. So that actually concludes the formal part of the business for the meeting. But I would like to take this opportunity to address any general questions that you have been -- want to ask, and they can either be directed to the Board or to Xero's leadership team. So please feel free to ask any questions. Hopefully, we'll be face-to-face maybe next year, but we would welcome any questions. So Toby, do we have any questions, if you could read them out?

Thank you, David. The first question is, "Congratulations on gender diversity on the Board. What steps are you taking on cultural and ethnic diversity?"

Well, I mean, in a way, it's a really easy question to answer because the culture at Xero is really quite unique, and I say that from being involved with a number of companies. The sense of inclusion and diversity is sort of palpable. It's just a part of who we are and both at the Board and the senior leadership team, but it goes right throughout the organization. We do obviously measure it, and we have active programs sitting behind the very culture that is about diversity and inclusion. So it is just part of who we are. And maybe I'll ask Steve to mention it because it is something that really does distinguish Xero from many other companies. So Steve, do you want to make a quick comment?

Yes. David, thanks. Look, it's really interesting because the energy for Xero to be what we want to be and need to be in the eyes of all stakeholders comes most strongly from our people. And when it comes to cultural diversity, people of different backgrounds and cultures within Xero have a very strong voice. And we -- all of us experience their insights and their view of the world. Now in terms of how we focus more on ethnic diversity, we believe that a big part of that is for us to really understand where we stand today. So we're really encouraging our people to help us get a real sense for where we stand on the different aspects of culture across the world because each of our markets has a different set of cultural aspects to it. So as we get better and better at understanding how we -- what our base is, and we've got a pretty good idea now, what we'll do is we'll be able to, from there, continue to make sure we've got the right emphasis on ethnic diversity and track the progress we have in each market to make sure that our people reflect the culture of the people and the diversity of the people they serve. So I think we have a great basis upon which to progress. There's obviously more we can do and will do as we continue to focus and drive the programs that already exist to other levels as we go forward.

Thanks, Steve. I should probably mention as well that for the first time, the Board reported on our ethnic origins, which was an interesting process we went through, in terms of transparency. And in every country around the world, I think there's really active programs in terms of including how we are really inclusive around ethnic diversity, racial differences and appreciating each other. And of course, we come from a great country in New Zealand, which -- that is such a big part of the culture in New Zealand. So thank you for the question. Toby, do we have any more questions?

We do. Thank you, David. The next question is, "Great work on the results this last financial year. Thanks, team. What are 3 key ways Xero will aim to be ahead of its competitors in the year ahead?"

Well, I thank you for the question because while we always are focused on serving our customers, we are also really aware of competitors. And the only way you can be better than your competitors is by serving your customers better, being more innovative, building great product and having a really committed group of people. But I'm going to throw to Steve because just the last Board meeting we had the last few days, we had a long session looking at where we're sitting on a global scale and global scene. And we never will stand still. But Steve, let me throw to you on that one.

Yes. Thanks, David. Look, I think putting competition in perspective is important, too, in that, obviously, important reference point. But I think it's really important to remember that we are in a sphere of opportunity that is significantly underpenetrated. I mean, around the world, the penetration of cloud accounting and cloud software in small business is really, in my view, in its very early stages. And so in a sense, all of us who are promoting this in -- to small business and encouraging usage of these tools is doing something very constructive and important. For us, we have to focus on our customers, and we have to execute our strategy. And if we execute our strategy, we believe that we'll be successful going forward and continue the success that we already have, and that's really around a number of key dimensions that I mentioned. One is really making sure we're effective in reaching new customers and helping them onboard and get use of these tools. So clearly, our collaboration with accountants and bookkeepers is deep and a very important part of our differentiation, that partnership that we've had and we continue to build. Making sure that we make it really easy for our customers to use more applications connected to the Xero platform and to extend the services and the functions of Xero itself to do more and to help our customers. And then by making sure that we really are investing with the long-term view around the tremendous opportunity we have in taking our customers' data and using real innovative thought around AI, machine learning and the use of data, their data, to help provide insights to them that make a huge difference to the way they run their business so that ultimately, it is about providing proactive, predictive insights and advice to their advisers and to the small business operator that help them every day. So that's the basis of our strategy. And if we execute the things we're doing, we'll continue to see great opportunity ahead.

Thanks, Steve. Yes, customers, great product innovation and partnership will always be a high priority for us while being conscious of what's going on in the market. So thank you for the question. Okay. Toby, next question.

Thank you, David. At this time, we have no further questions. But if there are any questions that shareholders would like to ask subsequent to the meeting, they can e-mail those through to companysecretary@xero, that's X-E-R-O, .com.

Okay. Well, thanks, Toby, and please do avail yourself of that opportunity. If you do have any questions, we enjoy talking to shareholders all the time. Okay. Well, I suppose it's now time to close the meeting and so comes to an end Xero's 2021 Annual Meeting. Before I formally close the meeting, a quick reminder that if you are intending to vote, as I mentioned before, on the formal business of the meeting, please finalize and submit your votes now. You do have that 5-minute grace period. But it does look like many people have voted. As mentioned earlier, the results of the voting will be released on the ASX once the votes will have been counted after this meeting. So it just leaves me to thank you, our shareholders, for attending today's annual meeting. We really do appreciate your support. And we do look forward, as we started the meeting, by saying we do want to be in person, but we just don't know what the future holds. So we do wish you and all the people that you love to keep safe. It's a difficult time, and we are very sincere in wanting you to keep safe but also for all our customers as well. But it now is my responsibility to draw this meeting to a close. Thank you for attending and until next year or before. Thank you.