Xero $XRO.AX has NZ$720.9m of software sitting on its balance sheet. Built at historical labour rates. Historical productivity. Their own annual report says AI tools let them rebuild a product that took 6 months in 10 weeks. That is a 75% productivity improvement. Apply that to the NZ$720.9m and the replacement cost of the same software today is NZ$180m. Implied writedown: NZ$541m. But here is the thing. That writedown does not happen. Not today. Not under the accounting standards. NZ IAS 36 uses the higher of replacement cost and value in use. Value in use is the discounted cash flows from 4.92 million customers paying NZ$51 a month. That DCF is approximately NZ$4.4 billion. Against a book value of NZ$720.9m. The cash flows bury the replacement cost argument completely. For the asset to actually be impaired on a value in use basis, Xero would need to lose 1.2 to 1.5 million customers. That does not happen overnight. So there is no writedown today. The accounting is technically correct. The risk is not a writedown. It is useful life compression. Xero amortises capitalised software over 3 to 7.5 years. That assumption was made when the relevant question was how long before a competitor could build something better. Digits built a competing general ledger in less time than Xero spends capitalising development costs in a single year. Pennylane built a profitable USD$115m ARR business from scratch in five years. If AI-native architecture makes existing software architecturally obsolete faster than the amortisation schedule assumes and the evidence suggests it does the useful life needs shortening. Not impairment. Just faster amortisation. Shorten the useful life to 3 years across the portfolio. The incremental annual P&L charge is NZ$103m. Against true distributable FCF of NZ$277m. That is 37% of distributable earnings consumed by accelerated amortisation. The key is whether the useful life assumptions still hold at the next audit.

Aluminium is on a tear right now. We squeeze 30 yrs of history into this conversation with (in our opinion) the world's leading ali market expert, Alan Clark 🔗 youtu.be/wir7BEamDrU • Bauxite > Alumina > Aluminium • China's rise and depleting reserves • Guinea addiction fragility • Where we are now

ondirectorship.com/ondirecto… Part 13 in the Millennia Challenge Series - If a board can't count to 1 don't count on the company surviving.

"Banks will move into the background because customers want individual and contextual banking." @solarisBank CCO Marko Wenthin at #M2020EU