Xero CEO Sukhinder Singh Cassidy. Photo / Getty Images
It has been a year of big milestones for homegrown tech firm Xero, the 2023 Deloitte Top 200 Company of the Year.
The cloud accounting heavyweight has seen founder Rod Drury formally step down as a director and new chief executive Sukhinder Singh Cassidy take the reins.
“We have this big history, which is fantastic, but I think it’s fair to say this has been a year in which we are starting a new chapter,” says Singh Cassidy.
“It has been a year of big change.”
After a difficult year in 2022, Xero has completed a significant restructuring and seen a payoff with strong revenue, subscriber and share price growth.
At the company’s annual result in May, Singh Cassidy announced a $34.7 million restructure to reduce headcount by 15 per cent, impacting up to 800 roles, and $126.4m worth of write-downs on two businesses.
It blew out the company’s annual loss to $113.5m, from a previous loss of $9.1m.
Under Singh Cassidy, Xero has also chosen to exit the cloud-based lending platform Waddle, which it bought in 2020.
Xero wrote $25.9m off Waddle’s value when it announced its first-half results last November.
At the time Singh Cassidy phrased the restructuring and consolidation as short-term pain for long-term financial gain.
“This gives us greater ability to deliver better value for all stakeholders and take advantage of the significant opportunity ahead,” she said in May.
Canadian Singh Cassidy, an experienced Silicon Valley veteran, is already making good on that promise.
Last month Xero delivered a strong bottom line result for the half year to September 30.
It reported a revenue rise of 21 per cent to $799.5m.
The ASX-listed company reported a 90 per cent increase in earnings before interest, taxes, depreciation and amortisation (EBITDA) of $206.1m and free cashflow of $106.7m.
Xero’s net profit increased to $54.1m, compared to a net loss of $16.1m in the first half of the previous financial year.
While subscriber growth slowed, it still added 204,000 new subscribers for the period.
For the same period in the 2022 financial year, Xero added 225,000 subscribers. It had 3.95 million subscribers.
Speaking ahead of the Deloitte Top 200 Awards this month, Singh Cassidy said this year had been about adaptability, resilience and getting ready to innovate in the next phase of its evolution.
She described it as a period of sharpening focus for the company. It was about delivering balanced growth and profitability, she said.
“We delivered 21 per cent growth and more free cashflow and EBITDA than the company has ever produced. And we started talking about the company’s evolution going forward. We just implemented our first-gen AI.”
While the company started the year with some tough decisions in the first quarter it was now looking forward “with excitement”, she said.
“We’re are not all the way there. I think we are in evolution but I think that is something worth celebrating.”
In an industry of rapid change the “anchor point” for Xero was its values, Singh Cassidy said.
It was a company that strived to be “caring, strong and high-performing.”
Singh Cassidy, who joined Xero in November 2022, is an experienced Silicon Valley executive with more than 25 years’ global experience.
She started her career in investment banking at Merrill Lynch in New York and moved to the firm’s London office in 1994. She then worked as an analyst for British Sky Broadcasting before moving to Silicon Valley in 1998.
She has been president for Asia, Pacific and Latin America for Google, president at StubHub and founder of TheBoardlist and Joyus
Her company TheBoardlist - a talent-listing platform to promote women and underrepresented minorities on company boards - started using Xero eight years ago, after being introduced to the service by its accounting firm in Denver, Colorado.
“We manage our small amount of cash very tightly ... and Xero is a pretty essential part of that journey for us,” she said.
TheBoardlist is one of three businesses Singh Cassidy has started and exited.
She co-founded Yodlee, a financial data aggregating platform, almost 20 years ago, and Joyus, a video shopping channel, which she later sold to an e-commerce company.
“I think what I wear proudly as a badge of honour is I have lived the life of a founder and entrepreneur.
“So I feel very personally the journey of our customers.”
At the company’s annual meeting in August, Xero founder Drury gave his final speech to shareholders
“Even after all this time, it feels like we’re still at the beginning of an amazing opportunity, and in a strong position as we help to power the global small business economy,” he said.
”I look forward to continuing to contribute to Xero’s innovation in an advisory role, working deeply with our product teams. I’m especially passionate about product innovation and category expansion as we build from cloud accounting.”
Drury was one of New Zealand’s great entrepreneurs, Craigs Investment Partners’ head of institutional research Stephen Ridgewell, told NZME at the time.
Drury created a New Zealand-headquartered global software company that competes in a major market.
“That is very, very rare. He’s the only one who has achieved that,” Ridgewell said.
A Xero only comes along every once in a blue moon, he said.
Drury spotted the opportunity, took the risks, executed them well, has been focused, energetic and passionate, and created not only a global business but an eco-system of surrounding businesses - and is continuing to contribute to New Zealand’s tech scene as former Xero staffers start their own companies, he said.
Xero is New Zealand’s Google or Microsoft, according to Ridgewell.
Xero still has a big base in New Zealand, but it is growing faster overseas and Drury’s exit from the board severed another link with New Zealand, he said.
But Drury has stayed connected to Xero as an adviser to its product development teams.
His departure from the board didn’t in and of itself represent a big change in direction for the company, Singh Cassidy said.
“What Rod enjoys least is governance and what he loves most is product and ideas. Rod is still an adviser to the company and the place he is most connected right now is product and in the ideas he still has for Xero. What comes off is that governance burden”
“Xero is an extraordinary Australasian high-tech success story,” said Deloitte Top 200 judge Jonathan Mason.
“Its current market capitalisation of over $15 billion makes it the most valuable New Zealand company and one of top 20 companies on the ASX.”
Xero had achieved this success through a combination of strong revenue growth of 25-30 per cent per year, which had been driven by achieving leading market positions in New Zealand and Australia, with new and growing positions in the UK and US.
“Many prominent high-tech companies have grown revenue with low or negative margins, or have struggled to keep costs under control,” Mason said.
“Xero has avoided these pitfalls by maintaining strong margins, and keeping a disciplined focus on costs, an effort given special attention by the new CEO [Singh Cassidy]. This resulted in adjusted EBITDA up by 44 per cent in 2023 over 2022 and a share uplift of 44 per cent for the year ended September 30, 2023.”
Other changes in 2023 have included Lee Hatton stepping down from the board after nine years as a non-executive director.
He said it was a privilege to be part of the team overseeing Xero’s growth during his time on the board.
San Francisco-based Anjali Joshi has been appointed to the board after standing at Xero’s annual election.
Joshi is “an experienced technology and product leader and professional director”, the ASX release said.
She said she was excited to bring her technology expertise to help Xero deliver on its potential.
“I’ve worked for many large and scaling global companies and I’m passionate about how technology can be used to drive better business outcomes.”
Xero celebrated its 17th birthday this year - it was founded by Drury and Hamish Edwards in 2006 in Wellington. It is still headquartered in Wellington although it listed on the ASX in 2012.
Trading on the ASX at around A$100 a share (as of late November), its market capitalisation has grown by more than 40 per cent year to date - a strong performance, especially for a company managing significant consolidation and change.
“It’s a pretty special company,” Singh Cassidy said. “I think customer focus and bringing ourselves back to the customer is one of the big themes for the coming years.”
But the goal was to stay anchored in the values that made it “a place where people truly can do the best work of their lives.”
Drury was awarded the Deloitte Top 200 Visionary Leader title in 2017 and Xero won the Deloitte Top 200 Xero Best Growth Strategy award in 2020.
Thanks to the pandemic and border closures it has been a turbulent few years for leading listed tourism operator Tourism Holdings (THL).
Chief executive Grant Webster describes the business as still “very much in that recovery mode and adapting to a new way of operating around all of the things that have changed around the world”.
It was an honour for everyone in the business to be a finalist in the Company of the Year category after the tough period they had been through, he said.
“Our crew, we’ve got somebody working 24/7 and they deal with all sorts of different issues around the world and it’s been a really challenging period. So to have that external recognition is a real validation for the effort and energy that’s gone into making the merger work, to recovering from Covid and getting out in front.”
THL completed the merger with Australia’s Apollo Tourism & Leisure 12 months ago.
To get over the line with regulators, Apollo and THL sold some of Apollo’s newest vehicles to independent campervan hire company Jucy for $45m.
THL now has RV businesses across New Zealand, Australia, the US and Canada.
The Deloitte Top 200 judges noted New Zealand is its fourth largest market by revenue, underlining its position as a true Kiwi-based multinational.
THL has had a challenging period through 2020-22, with Covid materially dropping demand for rental vehicles.
“Rather than waiting for demand to return, THL changed its business model and used RV sales to partly compensate for rental shortfalls, followed by strategic acquisition of a large competitor, Apollo,” said judge Jonathan Mason.
“The result has been a stellar 2023, backed by a revenue close to doubling, EBIT increasing from $7m to $89m and total shareholder return up by 40 per cent for the 12 months ending September 30.”
With tourism rebounding at a steady but not rapid pace, the company still faced some challenges, Webster said.
“In the New Zealand context, demand has outstripped supply in recent times, we reduced our fleet by about 50 per cent in New Zealand. We’re on the rebuild of that right now.
“So that has been a little bit challenging in peak summer and going from nothing to being full and busy has been a real operational challenge, but the team have just sort of stood up and dealt with that. They’re reviewing what they do all the time and taking it on.”
But it was the right kind of challenge to have.
“We actually see that growth is going to continue,” he said. “We’re seeing in the US and Canada bookings into calendar 24 looking really positive and we think that tourism is going to be that economic driver that people are looking for and hoping for over the next couple of years.”
Further ahead more expansion was possible, Webster said.
“We’re a company that’s lived and breathed M&A for a long period of time in different ways and different ways around the world, different locations. So, we’re keen to keep exploring opportunities around the world. We’ve got a number of irons in the fire and we’ll see what comes out of that over the next couple of years.”
It has been a busy year for Infratil in 2023, bedding down some major investments and consolidating a shift towards becoming a high-tech 21st infrastructure company.
Chief executive Jason Boyes highlights acquiring the other half of One NZ, the international investment in Hong Kong Telecom and the “penny-drop moment” for investors at an open day for Infratil’s Arizona Solar Farms.
Infratil has been recognised by the Deloitte judges because of its expertise in selecting investments to which it can add value, followed by strong execution to realise value, Deloitte Top 200 judge Jonathan Mason said.
The company has succeeded with its investments in New Zealand and internationally, he said.
In 2023, improvements in cash flow and valuations of its data centre and international renewable investments drove shareholder returns of 21 per cent, among the market leaders in generally weak equity markets. Over a longer 10-year horizon, Infratil’s annual shareholder return of 22 per cent places it in the top decile of the New Zealand equity market.
Infratil’s interim profit doubled to $1.2b in the six months to September 30, driven by a $1.1b increase in One NZ’s valuation.
Infratil’s share of the operating earnings generated by each of the companies in which it owns a stake rose 45 per cent to $400m.
Full-year operating earnings guidance narrowed and increased from $800m-$840m to $820m-$850m.
The result has underlined how much tech has come to dominate Infratil’s stable of assets.
In June, the infrastructure company took near full control of One NZ, buying out Brookfield to boost its stake from 49.95 per cent to 99.9 per cent (the balance of shares is owned by One NZ CEO Jason Paris and other executives). The buyout and the valuation rise combined to nearly triple One NZ’s valuation to $3b.
Infratil had already upped the valuation of its 48 per cent stake in CDC Data Centres, which in October got a $467m boost to $4.2b.
“CDC is experiencing an unprecedented surge in demand for cloud and generative AI workloads, from both new and existing customers,” Boyes said.
“This demand has seen CDC embark on an accelerated development plan, bringing forward 223 megawatts of development across Canberra, Sydney, Melbourne and Auckland.”
The first half also saw Infratil increase its stake in UK data-centre operator Kao Data from 40 to 53 per cent and its valuation upped from $256m to $280m.
And in July, Infratil entered into a conditional agreement to take an 80 per cent stake in Hong Kong telco HKT’s Console Connect business for US$160m ($257m). In November Infratil said the deal was still waiting on regulatory approvals.
The period also included the largest equity raise in Infratil’s history, raising $935m at $9.2 a share.
Boyes describes it as a real endorsement from the market for Infratil’s growth strategy.
In the year ahead, Infratil would be looking to bed down these new investments and maintain solid growth, he said.
While it wasn’t necessarily targeting any new acquisitions the company would “continue to look further afield for new opportunities”, he said.
“It’s thinking about what infrastructure looks like for a modern economy,” he said.
Infratil shares are trading at around $10 and stock is up around 16 per cent in the past year.
Industrial projects dominate new supply, the study found, comprising 65% of new stock.