NZX shock – Xero to delist

Rod Drury thanked the NZX for providing a valuable platform to support Xero’s first decade as a public company

Tim Hunter says Xero's delisting is "a major blow for the NZX."

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Sharemarket darling Xero is to delist from the NZX in February, ending a stellar 10-year run that built its value to $4.7 billion.

In a statement to the stock exchange this morning, the accounting software company said the decision was made after “an extensive strategic process which thoroughly canvassed all available options.”

Xero shares fell 4.29% to $32.59 following the announcement.

Its founder and chief executive Rod Drury said Xero was an ambitious company.

“We will remain headquartered in Wellington and domiciled in New Zealand. We thank the NZX for providing a valuable platform to support Xero’s first decade as a public company. Our success wouldn’t be possible without the support of the NZX and our shareholders.

“While more than half of Xero’s people live and work in New Zealand, 80% of our revenue now comes from outside New Zealand. Our strategy is to drive further growth in markets like UK, North America and Southeast Asia.

“As Xero continues to grow, gaining enhanced access to deeper capital markets, increased liquidity and a broader base of potential investors is critical to fulfilling our ambition to be the leading global small business platforms serving millions of customers."

NZX chief executive Mark Peterson is in Singapore and was unavailable for comment.

In a statement, the NZX said it was proud of Xero’s achievements over the past decade.

“Its strong performance and support from the New Zealand market has generated opportunities and wealth for local investors. 

“Xero’s listing on the NZX has extended beyond the benefits of solely raising capital. It has supported Xero’s growth aspirations, with the company successfully leveraging its local listing to reinforce its brand and compete globally. NZX is pleased to have played a pivotal role in this. 

“We are naturally disappointed that Xero has decided to leave the local market.” 

Xero breaks even
Xero has passed breakeven at the operating profit level much quicker than expected as subscriber numbers hit nearly 1.2 million.

The accounting software company reported $5.4 million in earnings before interest, tax, depreciation and amortisation (ebitda) for the six months ended September.

Operating revenue rose 37% in the six months to $187.8 million compared with the same period a year earlier.

Cashflow from operating activities was also positioned at $6.1 million for the six months.

Its bottom line was still negative to the tune of a $21.1 million net loss compared to a loss of $43.9 million in the same six months last year.

“Xero delivered another strong half-year result, achieving positive ebitda for the first time and is emerging as one of the largest and fastest growing technologies in Australasia,” Mr Drury says.

“We continue to cement our position as the cloud accounting leader in Australia, New Zealand and the UK, with more than half a million subscribers in Australia and a quarter of a million subscribers in each of the New Zealand and UK markets.”

RELATED VIDEO: NZX chief executive Mark Peterson talks about the stock exchange's plan to grow the capital markets (Jun 16)


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70 Comments & Questions

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Xero loyalty

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Sucked NZ dry and no loyalty to those who helped make it happen

Or designed to distance itself from home base if it all turns out all hype and only held together by continued growth - ie once it stops growing the model isn't profitable

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Made tonne of local investors a fortune - and will continue to do the same from the ASX.

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Lost a tonne of local investors a fortune as well!

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Nothing stopping NZ investors continuing to own shares via Australia. Probably will result in improvements in liquidty which will be valuable to shareholders and maybe more investor demand so upwards pressure on price.

Nothing at this stage about shifting people / jobs out of NZ, but for any company that is growing internationally you need people in market so I would expect to see some of the key appointments being made in market.

Finally I think their latest result shows that they are getting to the point where they can generate profits while still growing at a signifcant rate. The caveat on this is if they start to get some real traction in the US then they will have to start pouring money in to get that growth, but as they shown in NZ and Aussie as growth "stablises" then earnings pick up.

so far they have done most things right and have made investors a very good / great return for taking the risk.

A real STAR amongst most of the dross being funded by the Angel and VC funds in NZ.

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Tell us Scribe, how did Xero suck NZ dry? I was under the impression that XRO's gain in value since IPO have made enormous wealth gains for NZ domiciled investors?

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And has employed and will continue to employ many New Zealanders directly and indirectly. The only one missing out here is the NZX.

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Harsh and also untrue. For years Xero has been wooed by a number of other exchanges (ASX, NASDAQ. and even rumoured the LSE etc), but has been very loyal to the NZX.

We should be celebrating that Xero, and Rod Drury who have brought hundreds of high paying jobs to Wellington and Auckland, and made huge fortunes for many investors who backed them. Rod Drury should be knighted, ahead of many others who have already been acknowledged, with a quarter of the achievements !

Xero hasn't always been supported by local markets and investors. If you read through some of the comments of 5-6 years ago on the NBR comments and you will find plenty of detractors and trolls. I hope some of those trolls are today also feeling a bit guilty.

However NZX, the FMA, and MBIE should take serious note, and get their heads out of the sand that in a small country, with a small exchange and small capital markets, if you are going to bind up markets with rules, restrict participation and apply in some cases silly regulation, and over zealous application of that regulation, then there will be consequences, and the end result will be loss of those businesses to the NZ Capital Markets. There is a direct link here and how long are regulators and the NZX going to be in denial of this ? While there is a natural progression of Companies to leave NZ when they are big enough anyway, I would strongly suggest that if the NZX, and the broking community had been able to, and wanted to, give more support to Xero earlier then this decision would have been delayed, perhaps by another decade. Instead all the good work done by Xero in creating jobs in NZ will probably be undone by the continued reduction of jobs in the financial services sector, which in part is due to technology but in part due to the trend of giving up on NZ Capital Markets, by major participants and companies such as Xero and others.

We have to accept that the NZX is a "kindergarten exchange" applying regulations on its clients and participants that are more suited for "Post Graduate Tertiary Institutions". And while you want and expect companies to grow, succeed and progress, you don't want them lost to NZ too early or permanently.

The issue to address now, and urgently, is the NZX structure, the financial industry structure, and some of the unintended outcomes and consequent failures of the Capital Markets Taskforce of a decade ago. Why has there not been a review of the many unintended terrible consequences of that Taskforce ? The outcomes are now restricting the support that all listed Companies are getting and will get in the future, and more importantly the amount of support the "next Xero" will get. It is inconceivable that there will be another Xero in NZ in the next decade, under the current regulatory structure, with the current industry structure without a complete review of the industry, and the lack of support for small companies. I would encourage the new government to consider such a review with urgency, and to side line self interested regulators in such a review. Many who have tried to encourage NZX and others to change have been ignored.

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Great post.

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Yep. Put this post up as an NBR piece in itself.

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Nonsense. We had the wild wild west back in the 80s on the NZX, which is what you are essentially proposing. That worked out well, didn't it? In fact, we are still suffering the consequences of it to this very day.

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Andrew, you win comment of the month with that one. Kudos!

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Is this the same Andrew McDouall as the one who's firm featured in Friday's NBR owing $800k to its staff? If so probably best served to sort your own shop out first before passing judgement or comment on others.

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GeoOp will follow Xero once it breaks even and delists from the NZAX.

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They tried to leave but no one wants them..........maybe the Fijian Stock Exchange

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Would anyone notice if GeoOP left?

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The only way GeoFlop is delisting is via insolvency. Xero turned into a true NZ hero. Night and day - you backed the wrong horse, get over it and move on.

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hahahaha!! What a great Tui ad!

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Xero can list here, *and* overseas capital markets.

Is it we're so rule-bound (reporting on sustainability, gender on board, all the bullshit) that the cost of being on NZX no longer outweighs advantages? NZX is too small.

A significant blow to NZX. Back to the drawing board (and the exchange as a capital market in a free market, not this regulation-bound, post-modernist touchy-feely market, I think).

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Can't be that - the reporting requirements of a full ASX listing are considerably more than NZX requirements.

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Yes, but the Oz capital market is also magnitudes bigger, so costs are spread.

NZX is a minnow market: costs are way too high for benefits.

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Interesting to see if they look to list in the US or another market or if they see Aussie is being ok.

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A MASSIVE wake-up call to the NZX - start hauling some serious weight and get with the times or face a true exodus of companies.

Shocking...

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Perhaps the ultimate solution is NZX joins the exodus - merge with ASX in some form!! The rational (commercial/financial) debate has to be had.

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I have in the past also thought, "Why not an "ANZX" there could be considerable savings"
But as I have AUS shares and other nations shares, it is "no biggy", as trading off shore shares are not a problem.
I do have to admit, the "homework" on off shore shares is more difficult.
But that would not change if the exchanges merged.
There has to be a good reason they haven't merged. I hope it is not just a case of people protecting their patch.

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Haven’t you already noticed , the next big crash coming .. They never say they have the real reasons .. might be something to do with accountability ... IN NZ Market also other due to folllow watch that space !

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You don't know it's going to crash. Your just another scaremonger.

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Business cycles in the US run usually between 5.5 and 11 years. The GFC was 2007/2008 do your math....

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Stupid statement. As stupid has Crashxpert's one.

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Since when is a statement of fact "stupid"?

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Better stick to your job as a mechanic

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I wonder what Mr. Winston Peters thinks...??

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Who cares what a person that doesn't even know the correct box to tick on a questionnaire thinks.

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And of course the Board wants to get out before the company can be valued on a multiple of earnings. Thanks NZX shareholders (suckers!) for letting us raise money at such high prices - we are outta here...

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ten years of losses? how many company's have sustained losses for so long and gone on to long term success? Xero must be up for a gong for that one, either that or they are running a gong show.

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Amazon, Twitter, Spotify, Uber.

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10 years? Errr...wrong.

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If success is defined as profitability only Amazon can make that claim.
The other 3, only time will tell.

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New Zealand shareholders and the NZX have been extremely supportive of Xero - providing liquidity again and again and valuing Xero extremely highly; probably higher than it might have achieved in the USA because of Kiwi's love affair with the company.

This is a slap in the face.

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just goes to show nzx is not running a good exchange - thats why they are leaving

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I'm not a shareholder, but I'd be interested in a summary of the mechanism (or fate) of NZ shareholders on delisting next February. Will they be bought out? Who could fund that? Will there be an unofficial secondary market set up?

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Hang on. Forget my last comment ... they're still traded on ASX :)

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There's a lot of humbug being printed here about loyalty to NZ.

Xero will continue to employ the same number of sales people and developers on 1 Feb as they do today. The only staff changes likely will be a change of NZX focused directors and investor relations to ASX focused, eg a likely change of maybe a dozen people all up.

The NZX listing was a commercial contract. If the value of the NZX relationship has diminished to the point that Xero doesn't need to be listed on the NZX anymore, then the question is "what must the NZX do top improve its value proposition?", not "Why is Xero disloyal?".

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What are the tax implications for NZ shareholders if this makes Xero an FIF investment once it is not listed in NZ?

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I would assume it will be added to the excluded list of ASX stocks that are carved out from FIF.

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I assume nothing as Xero will still be a NZ company, the listing in Aussie should have no impact. That is merely a trading platform.

Of course if they were to shift incorporation to another location --- big difference. Very rarely done because of the all of the legal and tax issues.

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The most telling thing is that the NZX didn't see this coming despite multiple discussions from Xero about listing elsewhere.

Surely the NZX needs to be getting alongside other larger exchanges (TSX, AIM, etc) to provide a more formal migration/capital expansion opportunity for these types of businesses as opposed to geographically bound ones like Fletchers.

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Following this move, it's only a matter of time before the company is taken over by a foreign company and moved in its entirety offshore. We've been down this road before. Recently with Diligent, and going as far back as the 70s/80s with Allflex New Zealand - the company started in Palmerston North that makes ear tags for livestock that underwent rapid growth and established a global market, all from a product made in Palmy, but was then brought out by the French in 1989. It's now the leading company in the world for animal identification systems with factories in multiple countries from Brazil, Canada to Turkey but nothing in Palmerston North or New Zealand for that matter.

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I stand to be corrected but Diligent was a US company that choose to list in NZ. Not sure how many people employed in NZ verses overseas. So in fact xero in reverse maybe.

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Thousands of Nzers have shares on the asx it's no big deal.

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Just sore local fund managers who have NZ mandates. No impact for anyone else. And most of those local fund managers weren't there in the early stages of Xero anyway... I can't remember how many times I read a disparaging report or comment from brokers/analysts/fund managers when Xero was growing.

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Right on every point.

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Xero would not exist if it were not for the local exchange and this is how they say thank you. There are billions of local dollars looking to invest in enterprising New Zealand businesses, and instead of bringing along local investors Rod Drury pulls the pin on the country that supported them when they nothing. This is a really bad and unnecessary move that will essentially signal to the market, that if you have a successful business that has the prospects of scaling globally, you can forget about being listed here. Terrible example for aspiring New Zealand start ups. The idea of NZ becoming a kind of small Pacific Silicon Valley also seems dead in the water with a dumb move like this. The most disappointing headline for NZ business in many years if you ask me.
[Edited]

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Yes, I feel the same. This is a terrible signal for NZ capital markets generally. NZ can never get ahead on global stage if our banking profits and global-scale companies need to list offshore ... for whatever reasons. What are we doing wrong here, we have the best and brightest all around the world running finance and stock exchanges.

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Maybe the shift has nothing to do with cost, regulation, or disloyalty?

Maybe it's got more to do with one broker controlling >40-60% of the market; or a small number of large institutions moving share prices at a whim and acting as collective gatekeepers for the market; or that same small number of large institutions unable or unwilling to place a large number of small bets ($1-5m) outside of the NZX10 that is needed to create some depth and original thought; or the shift in the retail broker industry from trading/brokering to "funds management" and a tendency to avoid any semblance of risky stocks so as to not risk their client moving their entire portfolio and the associated 1% annual fee that comes with it; or perhaps the large number of off-market trades that occur that don't go through the exchange?

Perhaps all of those factors translate to questionable trading depth and therefore valuation discovery?

How many legitimate overseas exchanges share those factors, or in fact would have allowed those factors to have arisen over the last 10+ years? Perhaps the market participants (not the exchange) need to consider whether, over that period, they've acted in the best long-term interests for developing and fostering a thriving domestic exchange?

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Maybe they just got sick of Jenny Ruth bagging them? In which case Fletcher Building might be next? Haha

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Just speculating this could be part of a planned move. Xro has ambitions to be size of 5 - 10 billion market cap. Either they have to print shares which will devalue existing holders or delisted in nzx and relist in NASDAQ or LSE. It is impractical to comply 3 exchanges in different countries while running business. For a long time there was a chatter about this listing. Just guessing.

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Soak these things up from the NZ fund managers selling while you get the chance.

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Don't blame them - they need to be on a reputable exchange

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It seems to be for XERO a straightforward decision based on their weighing the risks and complexities of managing the dual NZX/AZX listing against the potential benefits, and then deciding that the larger capital market (ASX) will be more beneficial to their growth and future capital raising than the smaller capital market (NZX). I believe XERO’s NZ investors should be supportive of the company as it has greatly enriched them, and they can continue to hold or buy more shares when it’s listed solely on the ASX.

The question that this issue brings up is whether the NZ investment community would be better off with the NZX as a stand alone exchange or as part of the ASX.

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A complete waste of shareholders money Now you just want to go from a fish tank with 2 fish to another with 5 fish. if you want to aim high, should choose wall street, listing with nasdaq.

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Drury couldnt have listed on the ASX or any other exchange when he listed on NZX. And thats a fact. So as soon as company posted its first EBITDA yes thats right its FIRST Drury cuts and runs.

Remember Black Heart. Well may be XERO is the NZX Black Heart.

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EBIT negative 20 million - Xero always has been and remains a totally disengenius in their press releases

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Huge bottom line loss spends its amortisation through capex . Woeful reporting NBR

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Only a few NZ staff will be left in NZ within the next 18 months to 2 years.

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I'd much rather invest in the likes of a manufacturing business making widgets that the world wants, and creating true wealth.

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1.2 million customers paying them every month, from all aroudn the world ---- all because the they are making things the world DOES NOT want.....yeah right. You go back to investing in horse and buggy whips - they might come back into fashion.

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Horses have been be around much longer than Xero have ever been and will be around much longer than Xero ever will. Whips will still be required thousands of years from now. I rest my case.

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No one thinks anti capitalism comments by the incoming government had any influence?

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Xero has done nothing other than changing a service provider that facilitates trading in shares. They are still a NZ company, they still pay tax on NZ, they still employ people in NZ.

It is like you or I switching bank accounts because we think one bank is better than the next.

The only business that will suffer is the NZX and related businesses. Maybe this will wake them up to be more innovative and supportive of NZ business.

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