XERO LIMITED — AGM Information 2020

Aug 12, 2020

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MARKET RELEASE

2020 Annual Meeting - Presentation

WELLINGTON, 13 August 2020 - Please see the attached Annual Meeting Presentation, which includes a COVID-19 subscriber update from 1 April to 31 July 2020 which shows total subscribers increased by 96,000 over this period reaching 2.38 million subscribers.

Authorised for release to the ASX by the Company Secretary.

Contact

Toby Langley - Investor Relations Mobile: +61 (450) 223 995 toby.langley@xero.com

Kate McLaughlin - Communications Mobile: +64 (27) 533 4529 kate.mclaughlin@xero.com

About Xero

Xero is a beautiful and easy-to-use cloud-based business platform for small businesses and their advisors around the world. Xero connects more than two million subscribers with an ecosystem of over 800 third-party apps and 200 plus connections to banks and financial service providers. The IDC MarketScape recognised Xero as a Leader in the Worldwide SaaS and Cloud-Enabled Small Business Finance and Accounting Applications 2020 Vendor Assessment. On the 2020 Financial Times’ High-Growth Companies Asia Pacific list, Xero was the largest company by revenue to come from New Zealand or Australia. Xero has also been included in the 2020 Bloomberg Gender-Equality Index.

About Subscribers

Xero measures subscribers as each unique subscription to a Xero-offered product that is purchased by an accounting partner or an end user (small business subscriber) which is (or is available to be) deployed. Subscribers that have multiple subscriptions to integrated products on the Xero platform are counted as a single subscriber.

Registered Address 19-23 Taranaki St Te Aro Wellington 6011 New Zealand

www.xero.com

Xero Limited (XRO) NZ Company no. 1830488 ARBN 160 661 183

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Xero Limited Annual Meeting

13 AUGUST 2020

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From top: KLAS Business + Accounting | AU CV Ledger | US, Evansdale Cheese | NZ

Important notice

This presentation is given on 13 August 2020 on behalf of Xero Limited (Xero) (ASX:XRO) (Company number NZ 183 0488, AU ARBN 160 661 183) Information in this presentation:

• is for general information purposes only, and is not an offer or invitation for subscription, or purchase of, or a recommendation to invest in, Xero securities

• should be read in conjunction with, and is subject to, Xero's latest and prior interim and annual reports, including Xero's annual report for the period ended 31 March 2020, and Xero's market releases on the ASX

• includes forward-looking statements about Xero and the environment in which Xero operates, which are subject to uncertainties and contingencies outside of Xero’s control – Xero’s actual results or performance may differ materially from these statements

• includes statements relating to past performance, which should not be regarded as a reliable indicator of future performance

• may contain information from third parties believed to be reliable, but no representations or warranties are made as to the accuracy or completeness of such information

• includes Non-GAAP measures as we believe they provide useful information for readers to assist in understanding Xero’s financial performance. Non-GAAP financial measures do not have a standardised meaning and should not be viewed in isolation or considered as substitutes for measures reported in accordance with NZ IFRS. These measures have not been independently audited or reviewed

All information in this presentation is current at 31 March 2020, unless otherwise stated.

All currency amounts are in NZ dollars, unless otherwise stated.

• See page 26 for a glossary of the key terms used in this presentation.

2

Board of Directors

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David Thodey, AO CHAIR OF THE BOARD INDEPENDENT NON-EXECUTIVE DIRECTOR People and Remuneration Committee Nominations Committee (Chair)

Mark Cross INDEPENDENT NON-EXECUTIVE DIRECTOR Audit and Risk Management Committee

Lee Hatton INDEPENDENT NON-EXECUTIVE DIRECTOR Audit and Risk Management Committee (Chair)

Susan Peterson INDEPENDENT NON-EXECUTIVE DIRECTOR People and Remuneration Committee (Chair) Nominations Committee

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Rod Drury XERO FOUNDER NON-EXECUTIVE DIRECTOR

Dale Murray, CBE INDEPENDENT NON-EXECUTIVE DIRECTOR Audit and Risk Management Committee Nominations Committee

Craig Winkler NON-EXECUTIVE DIRECTOR People and Remuneration Committee Nominations Committee

3

4

Chair’s CEO address 01 02 update David Thodey Steve Vamos CHAIR OF THE BOARD CHIEF EXECUTIVE OFFICER Financial Resolutions Q&A overview 04 05 Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER

Agenda

03

Using the online platform

Download the

Online Portal Guide at

xero.com/about/investors

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HELP NUMBER
Virtual Meeting (+61) 1800 990 363 Ask a Question Get a Voting Card
POWERED BY LINK MARKET SERVICES
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Questions

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Ask a Question
?
Ask a Question
Voting
Get a Voting Card
Get a Voting Card
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Help number

1 800 990 363 if you are calling from Australia +61 1800 990 363 if you are calling from outside Australia

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Chair’s
address
David Thodey
CHAIR OF THE BOARD
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Kaye Harding, Ecosystem & Simon Lofts, Marketing
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6
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CEO
update
Steve Vamos
CHIEF EXECUTIVE OFFICER
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Iyanna Vaughn | US Partner 7
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Working under COVID-19

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Supporting our people and maintaining productivity

• [Adapting to new ways ] of working

• [Staying productive and ] engaged

• [Xero On Air digital ] content series in September 2020

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Ok
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Continuing to help customers and partners

• [Targeted support on ] topics such as

• [Accessing small ] business loans

• [Online sales and ] marketing

• [Returning safely to ] the workplace

• [Deferral of price rise]

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Prioritised product development

• [Responding to changes ] in leave entitlements, wage subsidies, tax and other government initiatives

• [Financial dashboard ] and short term cash flow features rolled out to Business Edition customers

8

COVID-19 subscriber update

Operating conditions remain uncertain and we continue to anticipate an impact from COVID-19 on Xero’s FY21 results

96,000 2.38 m net subscriber total subscribers additions in the first as at 31 July 2020 four months of FY21 Gross subscriber Net subscriber additions and additions were churn trends have in Xero’s stronger varied, however Australia and New all geographies Zealand segment achieved positive compared to the net subscriber International segment additions

Net subscriber additions were in Xero’s stronger Australia and New Zealand segment compared to the International segment

9

Strategic trends

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Adoption of cloud technologies Digitisation of tax and compliance Innovation in financial services Post COVID-19 small business economy

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Areas of planned strategic investment
STRATEGIC Grow small
Build for global scale
Drive cloud accounting
PRIORITIES business platform and innovation
Attract, inspire and
Best-in-class cloud Small business needs
retain world class
accounting for small beyond accounting and
talent
business compliance
AREAS OF
Robust technology to
Extend access and
PLANNED
Payments and access to
drive innovation at
distribution to serve all
INVESTMENT capital
speed
small businesses
New applications Optimised operational
Serve small businesses
leveraging data, AI and and financial
with multi-lingual
editions machine learning structure
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Social and
environmental
impact
OUR
PEOPLE
&
RONM
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T
V E
N
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T
N N
O C
T
I
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C
P O
S L
P M
U
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M
S
U
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S N
V I
S I
E T
O
I
N I
E
D
I
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S
S
U
B
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Fishermans Bay Conservation Project
NEW ZEALAND
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12
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Financial overview

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Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER

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Apparition Media | Australia
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13
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Continued global growth drives FY20 results

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Financial performance highlights for the year ended 31 March 2020
SUBSCRIBERS ARPU AMRR TOTAL LIFETIME VALUE
$ $ $
2.285m 29.93 820.6m 5.5b
+ 467,000 YOY + 2% YOY (-1% in + 29% YOY (25% in + $1.2b YOY
constant currency) constant currency)
OPERATING REVENUE EBITDA NET PROFIT AFTER TAX FREE CASH FLOW
$ $ $ $
718.2m 137.7m 3.3m 27.1m
+ 30% YOY (29% in + $64.6m YOY + $30.5m YOY + $20.7m YOY
constant currency)
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14

Drive cloud accounting

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FY20 Subscribers Net additions Revenue	Australia 914k +26% 188k +31% $320m +23%	New Zealand 392k +12% 41k -18% $116m +19% adoption2	United Kingdom 613k +32% 150k -1% $184m +54%	North America 241k +24% 46k +5%1 $55m +25%	Rest of World 125k +51% 42k +68% $43m +43%
	>50% cloud			<20% cloud adoption2

1 Excludes acquired Hubdoc subscribers in FY19

2

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16

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Grow the small business platform
FY20 revenue FY20 revenue growth YOY
composition
82%
Group
operating revenue
$718.2m
30%
33%
Group
28%
operating
revenue 19%
growth
Core accounting
89%
Platform revenues1
2
WorkflowMax
Core Platform Non-
2
1 WorkflowMax 3
revenues
3 accounting recurring
[7%]
Non-recurring
2% [2%]
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1 Platform revenues include revenue derived from related services, including adjacent products (such as Hubdoc), add-ons with incremental revenue (such as payroll and expenses modules), payments and revenue share agreements with partners 2 Revenues relating to WorkflowMax, online workflow and job management software

• 3 Non-recurring includes revenue from events (such as Xerocons and roadshows), and other non-subscription or platform services

Unit economics and track record of value creation

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March 2020 Δ YOY
ARPU $29.93
MRR churn 1.13%
Gross margin 85%
LTV per subscriber $2,422 1% [1]
LTV/CAC 5.8
CAC months 14.0
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LTV grew 1.7x in the last 2 years

LTV CAGR FY16 to FY20 was 34% for ANZ and 52% for International

1 LTV per subscriber growth in nominal terms. 0.6% decrease in constant currency terms based on exchange rates at 31 March 2019

Value of a Xero subscriber at 31 March 2020

$2,500

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$2,000
LTV/CAC
$1,500 5.8
LTV
$1,000
$2,422
$500
CAC $0
$420
$-500
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
> [$] 1.1b
added
Total lifetime value
5.5b
$6b International
ANZ 4.4b
$4b
3.2b
2.2b
$2b 1.5b
$0b
FY16 FY17 FY18 FY19 FY20
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17

Total available liquid resources of $686 million

Positive free cash flow result in FY20 of $27.1m, equivalent to 3.8% of operating revenues Operating cash flow increased 46% to $166.6m for FY20, an improvement of $52.4m from $114.2m in FY19 Net cash position at 31 March 2020 was $111.5m (comprising cash and short-term deposits less term debt) compared to $100.6m at 31 March 2019 Total available liquid resources, inclusive of $150m of undrawn committed debt facilities, of $686m

	Movement in	FY19 ($000s) FY20 ($000s) YOY change ($000s) 121,527 108,027 (13,500) 336,819 428,052 91,233 458,346 536,079 77,733 (357,731) (424,587) (66,856) 100,615 111,492 10,877 net cash position
	Cash and cash equivalents Short-term deposits Total cash and short-term deposits Convertible notes – term debt liability Net cash

18

Outlook

The continuing uncertainty surrounding the COVID-19 environment means it remains speculative to comment further on the potential impact on our expected performance for FY21. Xero’s ambition is to be a long-term oriented, high-growth business. We continue to operate with disciplined cost management and targeted allocation of capital. This allows us to remain agile so we can continue to innovate, invest, support our customers, and respond to opportunities and changes in our operating environment.

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19

Resolutions Alex Falcon | UK Partner 20

RESOLUTION 1

• Fixing the remuneration of the auditor

of Ernst & Young as auditor for the ensuing year

For

101,582,181

98.66%

Against

1,293,393

1.26%

Discretionary

82,964*

0.08%

• 32,135 of which are held by the Chair of the Meeting who intends to vote in favour of the resolution

21

RESOLUTION 2

• Re-election of Lee Hatton as a director

That Lee Hatton, retiring from office as a director of Xero at the

Meeting, and being eligible, be re-elected as a director of Xero

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For

102,328,883

99.39%

Against

549,599

0.53%

Discretionary

82,606*

0.08%

• 31,777 of which are held by the Chair of the Meeting who intends to vote in favour of the resolution

22

RESOLUTION 3

• Re-election of Rod Drury as a director That Rod Drury, retiring from office as a director of Xero at the

Meeting, and being eligible, be re-elected as a director of Xero

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For

102,857,696

99.89%

Against

29,326

0.03%

Discretionary

81,857*

0.08%

• 31,028 of which are held by the Chair of the Meeting who intends to vote in favour of the resolution

23

RESOLUTION 4

Election of Mark Cross as a director That Mark Cross, appointed by the Board as a director of Xero on 1 April 2020, and who will retire at the Meeting in accordance with clause 20.4 of Xero’s Constitution, and being eligible, be elected as a director of Xero

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For

102,841,925 99.88%

Against 41,833 0.04%

Discretionary

82,516*

0.08%

• 31,687 of which are held by the Chair of the Meeting who intends to vote in favour of the resolution

24

Q&A

Moovaz | Singapore

25

Glossary

Subscribers

Subscriber means each unique subscription to a Xerooffered product that is purchased by an accounting partner or an end user (small business subscriber) which is (or is available to be) deployed. Subscribers that have multiple subscriptions to integrated products on the Xero platform are counted as a single subscriber

AMRR

Annualised monthly recurring revenue (AMRR) represents monthly recurring revenue at 31 March, multiplied by 12. It provides a 12 month forward view of revenue, assuming any promotions have ended and other factors such as subscriber numbers, transaction volumes, pricing and foreign exchange remain unchanged during the year

ARPU

Average revenue per user (ARPU) is calculated as AMRR at 31 March divided by subscribers at that time (and divided by 12 to get a monthly view)

Churn

Churn is the value of monthly recurring revenue (MRR) from subscribers who leave Xero in a month as a percentage of the total MRR at the start of that month. The percentage provided is the average of the monthly churn for the previous 12 months

Constant currency

Constant currency comparisons for revenue are based on average exchange rates for the 12 months ended 31 March 2019. Comparisons for ARPU, AMRR and LTV are based on exchange rates at 31 March 2019

Lifetime value (LTV)

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 churn) multiplied by ARPU, multiplied by the gross margin percentage. Group LTV is calculated as the sum of the individual segment LTVs, multiplied by their respective segment subscribers, divided by total Group subscribers

CAC months

Customer Acquisition Cost (CAC) months are months of ARPU to recover the cost of acquiring each new subscriber. The calculation is sales and marketing costs for the year excluding the capitalisation and amortisation of commissions paid to sales people, less conference revenue (such as Xerocon), divided by gross new subscribers added during the same period, divided by ARPU

Liquid resources

Liquid resources comprises cash and cash equivalents, short-term deposits including proceeds from convertible notes, and undrawn committed debt facilities

Free cash flow is defined as cash flows from operating activities less cash flows used for investing activities excluding cash used for acquisitions of, and investments into, businesses and strategic assets

SBP

Share-based payments

TAM

Total addressable market

GAAP

Generally accepted accounting principles

26

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Beautiful business xero.com/investors