Xero : Annual Report FY22 (PDF - single pages)

XERO LIMITED

Annual Report

2022

Contents

About this report	3
Highlights	4
About Xero	5
Chair's review	9
CEO's review	12
Strategy	18
How Xero creates value	20
Material matters	22
Key risks	23
Inputs
	People and culture	29
	Customers, partners and ecosystem	41
	Platform, technology and data	47
	Social and environmental	55
	Financial	61
Governance	65
Our Performance	71
Audit Report, Financial Statements and Notes	88
Directors' Responsibilities Statement	132
Remuneration Report	133
Disclosures	156
Corporate Directory	164

Xero Annual Report 2022	3

About this report

Xero's Annual Report for 2022 has been prepared, for the first time, with reference to the Value Reporting Foundation's International Integrated Reporting Framework, and has been structured around five key inputs into our business, or capitals as referred to by the framework:

People and culture

Customers, partners and ecosystem

Platform, technology and data

Social and environmental

Financial

At Xero, we understand the deep connection between our social and environmental impact, organisational culture and our long-term financial performance. While we are still early in our journey towards a holistic vision of how value is created at Xero and our adoption of the Framework, we are excited to be able to provide an insight into how we are integrating additional perspectives into our performance, beyond the traditional focus on results, by including non- financial elements.This report covers matters material to value creation as identified through stakeholder consultation and a materiality assessment conducted in accordance with the Framework. For information about the material matters identified and our stakeholder engagement process, please refer to material matters on page 22.

Xero's Annual Report 2022 should be read in conjunction with the other reports that comprise our 2022 Annual Reporting suite. These are available at Xero's Investor Centre:

Investor Presentation at www.xero.com/about/investors/financial-info

Leadership and Governance at www.xero.com/about/ investors/governance, where full copies of Xero's Corporate Governance Statement, charters and key governance policies can be found.

Additional information about Xero's Sustainability activities and performance, including information available to download, can be found at www.xero.com/sustainability

Throughout this report we have hyperlinked other websites and documents the reader may find useful. To download

a hyperlinked copy of this report, please visit our Investor Centre at www.xero.com/about/investors/

Xero is listed on the Australian Securities Exchange (ASX) and is a New Zealand incorporated and domiciled company. This means that while the ASX Listing Rules apply to Xero, certain provisions of the Australian Corporations Act 2001 do not.

As a New Zealand company, Xero's Annual Report is primarily governed by the Companies Act 1993 (New Zealand). The Remuneration report is not intended to fully replicate

the statutory disclosure requirements of an Australian company's remuneration report, as these requirements do not apply to Xero. However, the information provided goes beyond what is required by New Zealand incorporated companies to provide greater transparency and insight into our remuneration practises.

This report covers the activities of the Xero Group's global operations. Except where otherwise specified, statements should be read as pertaining to the activities of Xero Limited and its subsidiaries (Xero Group).

Some parts of this report include information regarding Xero's plans and strategy, and include forward-looking statements about Xero and the environment in which it operates 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 this report. All amounts are in New Zealand dollars (NZD) except where indicated.

Non-Generally Accepted Accounting Principles (non-GAAP) measures have been included as Xero believes they provide useful information for readers to assist in understanding the Xero Group's financial performance. Non-GAAP financial measures should not be viewed in isolation or considered as substitutes for measures reported in accordance with

New Zealand equivalents to International Financial Reporting Standards (NZ IFRS).

References to the year, period or FY22 are to the financial year ended 31 March 2022. References to the comparative period or FY21 are to the financial year ended 31 March 2021. Xero Group (Xero) means Xero Limited and its subsidiaries. References to H1 FY22, or the first half, refer to the six month period ended 30 September 2021. References to H2 FY22, or the second half, refer to the six month period ended 31 March 2022.

4	Xero Annual Report 2022

Highlights

Operating revenue

$1,096.8m

Up 29% YoY

Subscribers

3.271m

Up 530,000 YoY

Annualised monthly recurring revenue

$1,231.1m

Up 28% YoY

Total subscriber lifetime value

$10.9b

Up 3.3b YoY

Gross margin percentage

87.3%

Up 1.3pp YoY

Free cash flow

$2.1m

$54.9m YoY

Total available liquidity

$1.1b

Cash on hand, short-term deposits and undrawn committed debt facilities

EBITDA

$212.7m

In a challenging global hiring market, Xero increased overall FTEs by 31%

Xero's average	44% of Xero's
employee Net	employees
Promoter Score	are women
(eNPS) was 41	including 63%
	of the CEO's
	direct reports

Xero established its first climate strategy and its roadmap to align with the Taskforce on Climate- related Financial Disclosures (TCFD)

Xero was included in the DowJones Sustainability Index for the

first time

Xero's total global community contribution was over $2.2 million

Up $21.4m YoY

Xero Annual Report 2022	5

About Xero

Xero was founded in 2006 to change the game for small business. Our accounting software introduced a new 'cloud accounting' category, which meant accountants and bookkeepers could collaborate with their small business customers in real time via a single ledger to manage their business, monitor their financials and simplify

core compliance.

Since then, Xero has grown into a global small business platform that includes a core accounting solution, payroll, expenses, payments, projects and an ecosystem of more than 1,000 connected apps and more than 300 connections to banks and other financial institutions. Through our open platform, small businesses can seamlessly connect to solutions that help them to confidently run their business and manage their finances.

In FY22 Xero had total operating revenue of $1.1 billion, and ended the financial year with 3.3 million global subscribers and a team of 4,784 employees around the world.

Looking to the future, our vision is to be the most insightful and trusted small business platform. This is about offering our customers access to a fully integrated platform that gives them powerful insights about their business, drives more meaningful engagement with their advisors and helps them to make more informed choices about running their business. Our vision is supported by our three strategic priorities, outlined on pages 18-19.

Our people

Our team is driven by our purpose to make life better for people in small business, their advisors and communities around the world. We enable our people to do the best work of their lives by aligning and embedding our purpose, values and culture within all our business activities.

Our values and accompanying 'Xero Way behaviours' (as shown to the right) reflect not only how our people treat each other, but also how we interact with people and organisations outside of Xero.

Our values

#Human

Xeros are authentic, inclusive and really care

• Kind and assume best intent
• Inclusive, approachable and show empathy
• Are willing to be vulnerable, share fears, failures and learnings

#Challenge

Xeros dream big, lead and embrace change

• Are curious and think big
• Welcome challenging conversations and do it with respect
• Lead and embrace change, seeking new and better ways

#Team

Xeros are great team players

• Champion Xero's purpose and priorities
• Work together to do what's best for Xero and our customers
• Appreciate and celebrate each other and success

#Ownership

Xeros deliver on our commitments

• Do what we say we will do
• Own our mistakes and take positive action
• Move fast to get the right things done

#Beautiful

Xeros create experiences that people love

• Create experiences that inspire and delight
• Do high-quality work
• Go the extra mile

"Xeros" is a term used to refer to Xero

employees internallyABOUT XERO