Annual
Review 2012
Welcome to the
very first Z review
We’re a New Zealand company based in New Zealand,
staffed by New Zealanders, for New Zealanders.
We want Z to represent what New Zealanders can
achieve when they put their minds to the things
that matter – things like putting the service into
service stations, fuelling New Zealand to get ahead,
supporting local neighbourhoods, and rewarding
our investors and bondholders for their belief in us.
This Annual Review is structured according to Z’s
five brand and organisational values. Our values
underpin everything that we do, so we thought it
only right to report on our activities against them.
At Z, great work is all about having the energy to do
what matters. And, really, we’re just getting started.
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Contents
Be straight up
Z highlights for 2011/12
CEO’s Report
Chairman’s Report
Who’s on our Board
Meet our Executive Team
Have the passion
Building a brand people rave about
Building the trust
More in store
Loyalty deserves rewards
Be bold
Taking responsibility
Working smarter, saving smarter
Thinking further than fuel
Price vs security
We back people
The power of people
Healthy, safe, secure and intact
Rethinking what we do for neighbourhoods
Z is for Canterbury
Share everything
Guest column by Rod Oram
Fuelling New Zealand business
Investing in our future
A good chat – Z on Facebook and Twitter
Financial reporting
So how did we get on financially?
Z Energy Group’s financial performance
Our shareholders
This is why we love New Zealand
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WelcomeBe straight upHave the passionBe boldWe back peopleShare everythingFinancial reporting
4 Z ENERGY 2012 ANNUAL REVIEW
What this means
As far as we’re concerned there’s only one
way to do business, and that’s the New
Zealand way. So we make it our mission to
be honest, open, transparent and real.
Be straight up
As New Zealanders we call it the way we see it. Our view
is that you have a right to know what we’ve been up to, and
we’re only too happy to share.
We take this approach in everything we do. Being straight up,
honest and transparent really matters to us. So here’s our view
on the 12 months to 31 March 2012, including what we’ve done,
what went well, and where we have room to improve.
6
Z ENERGY 2012 ANNUAL REVIEW
Z highlights for 2011/12
Good gains lift earnings
Earnings before interest, tax, depreciation,
amortisation and financial instruments
(EBITDAF) lifted from $157 million to
$172 million in a volatile market.
$172m
$157m
Second bond issue successful
Our second bond issue, this one for seven years and
seeking to raise $100 million, again closed over-
subscribed and raised $150 million. Over 6,000
Kiwis now have a direct stake in Z through retail
bonds, shifting debt from banks to local investors.
Our brand
The Z brand is already highly recognisable, with
brand tracking showing that the vast majority of
New Zealanders are aware of Z and know we’re a
Kiwi company.
Marketing maestros
We were a finalist in the NZ Marketing Awards,
and were awarded eight awards, including two
gold, at the Fly Buys Marketing Awards.
$18 million paid into the NZ Superannuation Fund
$18 million in dividends was paid into the New Zealand
Superannuation Fund, benefiting future generations
of Kiwis.
‘Z’ing the nation
We embarked on one of the largest rebranding
programmes in New Zealand. By 31 March 2012,
over half our service station and truckstop network
was successfully rebranded as Z, with the rest
expected to be completed by June 2012.
We are “excellent” – it’s official!
Z was awarded New Zealand Energy
Company of the Year in the Deloitte
Energy Excellence Awards.
More tanks, secured supply
Three new 10-million-litre fuel storage
tanks were successfully commissioned at the
Port of Lyttetlon – a $25 million investment
towards securing supply in Canterbury through
much more robust national fuel infrastructure.
Z is for Zealand
Neighbourhood investment programmes enjoyed
huge support locally, as we donated $5,000 per
re-branded Z site to each neighbourhood’s
favourite charities. By the end of the rollout
in June 2012, we’ll have contributed $1.2 million
to New Zealand neighbourhoods.
Z is for Canterbury
Our investment in post-quake Christchurch tops
$3 million. Two sites in Christchurch, Shirley and
Linwood, were completely rebuilt this year as
flagship Z sites, the first two in the South Island.
The premium fuel
The launch of ZX premium fuel gives New
Zealanders a new premium fuel choice, with an
engine cleaning and friction modifier additive that
helps improve engine efficiency.
Real-life Kiwi heroes
Kevin Milne, Sarah Gibbs, Al Brown, Sir Peter Leitch
and the Very Reverend Peter Beck feature as our
real-life Kiwi heroes and helped launch our values
by bringing them to life.
For New Zealand, even in the bad times
Awanuia and her crew worked wonders at the
site of the Rena grounding to safely remove
1,300 tonnes of fuel oil safely off the ship,
preventing a much larger environmental tragedy.
Jobs for Kiwis
Over 3,500 local jobs were created as part of the
national brand rollout and refit.
Connecting with the nation
Our Facebook page, launched in May 2011,
is now one of the most popular pages in
the country with almost 50,000 fans.
We’re in it for the long haul
We’ve made some significant
commitments to being a
sustainable company by 2015.
Technology that saves you money
We signed an agreement with E-ROAD to
help commercial fleets better manage their
fuel spend – a first step in our bid to diversify
our business and help our customers use less
fuel and reduce their emissions.
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8
Z ENERGY 2012 ANNUAL REVIEW
CEO’s report
It’s our commitment to accountability and transparency
that leads us to publish an Annual Review. We gladly
do it because we know you have higher expectations
of a local company. You believe we have the resources
to deal with issues and you trust us to act more
responsibly than an international company. The research
we undertook clearly stated that you are willing to go
on a journey with us provided we operate safely and
reliably; are straight up; look after our customers and
community; and play to win. This Annual Review should
speak to each of those expectations.
The most visible change we made in the last year was
launching the Z brand. A great deal of thought and
research went into the decision to change brands, as
well as into the name, logo, colours and positioning that
are now in the market.
Before I began drafting these
comments I went back to what I said
a year ago in our first ever Annual
Review. The contrasts between then
and now are quite stark – back then we
spoke as Greenstone Energy, still used
the Shell logo on our service stations
and had just completed a year of
transitioning from the previous owners.
Our customer offers were pretty much
the same as on the day we bought the
company and we had no social media
presence. Much has changed in the
past 12 months and it is time that we
made ourselves accountable to you by
reporting on what has happened.
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It has been great to receive all the feedback we’ve had
since May 2011, when we announced the launch of Z.
The feedback hasn’t all been positive, but we really
appreciate people taking the time to let us know what’s
on their minds, and how well, or not, we’re doing.
As gatekeepers to the fuel user, our industry is seen as
the problem. We market products that can contribute
up to 90% of our commercial customers’ carbon
footprints and an estimated 25% of an individual’s
carbon footprint.
Getting better at listening is fundamental for Z, and
that shows up in our ongoing customer research, how
we participate in social media, and our focus on the
customer. In the past year we renovated our head
office to feel more like Z, and it is now full of images of
customers so that the people most removed from the
customer interface are continually reminded of what our
business is all about. It’s not about selling oil products,
it’s about helping our customers get through their busy
days and run successful businesses. This is what we call
the energy to do what matters.
There are things happening in our sector, the
downstream oil industry, that cause us concern.
Things like declining customer choice and offers,
capital investment well below depreciation, a less
resilient supply chain than ever before, and low returns
to shareholders. Much of that has happened over the
past decade in a way that wasn’t always clear to
New Zealanders.
There is a need for wider debate about the economic
and environmental sustainability of our industry.
Speaking about these issues may make us unpopular –
as is anyone who raises the difficult issues that no one
else will.
Nevertheless, we will speak about these issues and
we will do our very best to ensure everyone has the
opportunity for a basic understanding of our industry,
the context we operate in, and the strategic issues that
both the industry and Z are facing.
New Zealand needs substantial companies that are
committed to this country, invested in by Kiwis and
that will invest in resources and infrastructure to
ensure New Zealand keeps moving forward. A steadily
declining downstream oil industry is bad news for Kiwi
consumers and businesses as there are few transport
fuel alternatives and we are a long way from supply
sources. Our strategy gives us a way to deal with this
decline in a responsible manner by first improving our
financial performance as the foundation from which to
make the much-needed investments in customer offers
and supply chain infrastructure.
Environmental sustainability is a strange thing for a
“dirty” fossil fuel company to be talking about but it’s
something Z can provide leadership on. We believe we
have a unique set of circumstances that provide us with
an opportunity to make a difference towards a more
environmentally sustainable future on a scale
few companies within New Zealand have.
Here are two thoughts that may surprise you. First, we
genuinely want to be in the middle of the solution and
not the middle of the problem. Second, success for our
company does not have to come from selling more. In
the high fixed cost, low margin business we’re in, if we
sold 20% less volume we would only have to increase
prices by 3% to be financially neutral. If we help our
customers save 20% on their fuel bills then I’m sure they
would be ok with giving 3% back to Z.
We have made a stand on sustainability and published
our commitments on our website – z.co.nz. In this
Annual Review we take the first steps in making
ourselves more accountable by reporting on our
medium-term sustainability goals. In future Annual
Reviews we will tell you more about the progress we’re
making against these goals.
We haven’t got it all worked out yet but the next steps
are quite obvious and what comes beyond that is
becoming clearer. One of our first steps was to shift
our entire company car fleet to hybrids as of May this
year as the current leases progressively came to an
end. This does little to help with carbon emissions but it
does help us understand the customer’s perspective on
hybrid vehicles and could open up ideas on how to help
get the country’s vehicle fleet transitioning away from
its almost 100% reliance on fossil fuels.
I would like to close with a sincere thank you to our local
shareholders, the 6,000 retail investors who hold our
bonds, our ever-growing customer base and the people
of Z Energy – from our head office to those in the front
line managing our 65 million customer interactions a
year and ensuring 2.6 billion litres of our products are
made available to our customers.
For an industry that spans decades, it seems a little odd
to be celebrating a second anniversary. In those two
years lots has changed and some has stayed the same.
This Annual Review is an update on our progress and I
look forward to hearing whether you think we are going
in the right direction, at the right pace and in a manner
that really shows Z is for New Zealand.
Mike Bennetts
CHIEF EXECUTIVE OFFICER
Be straight up 10 Z ENERGY 2012 ANNUAL REVIEW
Chairman’s report
The launch of Z into the New Zealand
fuels market this year marks much more
than the introduction of another brand
at the pumps. It is a clear example of
our commitment to invest in a market
that we see as having significant
potential if it is managed well.
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Our work this year opening new stations, upgrading
existing sites, investing in additional fuel storage
infrastructure, and rethinking our commercial offering
has shown our willingness to address what we see
as the lack of customer choices, sustained under-
investment and an industry under pressure. The fuel
supply chain is critical infrastructure, as important as
electricity or telecommunications, and as such requires
significant ongoing investment.
As a proud New Zealand company we are doing things
differently. The extensive research we did before we
launched Z told us that New Zealanders were unhappy
with what they were receiving and genuinely interested
in dealing with a local company that felt much more like
one of them. This explains why our new retail offering
and the continuing work in our commercial business
have been so well received.
We’ve set the pace and added new urgency to the case
for reinvestment. We believe that as the brand that is
“for New Zealand”, and with one of the largest market
shares, we have to meet these challenges head on.
Mike and his team are doing that with energy, clarity
and consistency, and the response from customers
has been encouraging.
Reinvestment will of course impact our returns in the
short term, but overall it will add considerably to the
long-term health of the business and the industry. We
also hope our actions will reinforce our view that a
reliable and responsive downstream oil industry is an
important part of New Zealand’s future success – and
one that requires strong leadership.
On behalf of the Board, my thanks to Mike, his
leadership team and everyone who has strategised,
operated, communicated and delivered the Z promise
this year. You can be proud of all your achievements.
Thanks too to the thousands of New Zealanders who
have chosen to back us in our quest by investing in our
bonds. And most of all, thank you to our customers,
who have chosen to support a new Kiwi company.
Two years in, we are on track. The Board is satisfied
with returns and Z is in good health.
Marko Bogoievski
CHAIRMAN
‘As a proud
New Zealand
company we
are doing things
differently’
WelcomeBe straight upHave the passionBe bold 12 Z ENERGY 2012 ANNUAL REVIEW
Who’s on our Board?
As a Kiwi company, it’s only right that Z Energy is governed locally.
Meet our Board of Directors.
Marko Bogoievski
CHAIRMAN
Marko is Chief Executive of Infratil, and Infratil’s manager, Morrison & Co. He is
also a director of Infratil Limited, TrustPower Limited and various Z Energy Group
companies. He was previously Chief Financial Officer of Telecom New Zealand,
responsible for corporate finance, mergers and acquisitions and group strategy.
He is a member of the New Zealand Institute of Chartered Accountants.
Paul Fowler
DIRECTOR
Paul has primary industries in his blood. He was the founding Chief Executive
Officer of Nyrstar NV, the world’s largest producer of zinc metal. Before that
he was Chief Operating Officer of Zinifex, an Australian zinc and lead mining and
smelting company. He has also been Chief Executive Officer of Fletcher Challenge
Forests and Carter Holt Harvey Forests and spent 15 years with BP in crude oil
trading, strategic planning, refining and retail marketing. Paul has served on the
boards of Refining NZ and Evergreen Forests.
Lib Petagna
DIRECTOR
Lib is an executive director and the Chief Investment Officer of Morrison & Co
and has led the purchase and sale of airport, energy and transport assets
in New Zealand, Australia and Europe. Lib is also a director at NZ Bus and
Infratil Property.
Alan Dunn
DIRECTOR
Al knows all about retail and business leadership. He was Chief Executive Officer
and Chairman of McDonald’s New Zealand from 1993 to 2004 before heading
to Chicago to become Vice President Operations, then Regional Vice President
in the Nordic region and Managing Director of McDonald’s Sweden. These days
he manages his own business, Trumpeter Consulting, specialising in business
leadership and development. He is also a director of NZ Post, Burger Fuel
Worldwide and a number of private companies.
Peter Griffiths
DIRECTOR
Peter is an oil industry veteran. He has been General Manager BP Papua New
Guinea and Commercial Manager for BP New Zealand’s fuel and LPG interests.
For the last 10 years he was Managing Director of BP New Zealand Limited
and also Chairman of BP South West Pacific Limited. Peter has served on the
boards of Refining NZ, Liquigas and Bitumix. He is a director of Wanganui Gas,
New Zealand Oil and Gas, and New Zealand Diving and Salvage.
Welcome
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Meet our
Executive Team
and hear what
matters to them
Mike Bennetts
Chief Executive Officer
What matters to me for Z
is that we grow into being
a world-class Kiwi company,
but that it’s something that
other people describe us
as rather than us declaring
for ourselves.
For me a world-class Kiwi
company is one that is
focused on customers, delivers
returns for its shareholders,
and has options for growth in
the future. It’s a company that
has a great brand, one that
is easily recognised and that
people can identify with.
It is a company that provides
leadership to the business
community and the issues
that face New Zealand. And
most importantly, it’s a place
where our employees can
grow and succeed.
Rob Freeman
General Manager Supply
and Distribution
What matters to me is
delivering great products to
our customers every day so
they can get on with doing
what matters to them.
Mark Forsyth
General Manager Retail
There are two things that
matter the most to me: the
first is to make our sites and
our business the safest places
they can possibly be for our
people, our site teams, our
retailers and our customers.
The second thing is really
‘wowing’ our customers, and
that means every customer
leaving our site with a smile
on their face.
Lindis Jones
General Manager Commercial
What matters to me is that
my team really know our
customers and know what
matters to them, take action,
and cause some great
things to happen.
Mark Edghill
Chief Financial Officer
What matters to me is
providing value for money
to our customers and a
competitive and sustainable
return to our shareholders.
Huma Farqui
General Manager Capability
and Organisational
Development
There are lots of things that
matter, but what really matters
to me the most is enabling
people to be extraordinary, at
work and in the contribution
they make to Z, but also at
home and in their personal
lives and in all the areas that
really matter to them.
Rob Wiles
General Manager Corporate
What matters to me is having
an extraordinary team which
together delivers some
extraordinary results. By this
I mean we are doing some
really big things in the areas
of acquisitions, sustainability
and in how we interact with
New Zealanders.
Meredith Ussher
General Counsel and
Company Secretary
What matters to me is making
sure that Z gets the best legal
and commercial results in
everything it does.
Be straight up
14 Z ENERGY 2012 ANNUAL REVIEW
14 Z ENERGY 2012 ANNUAL REPORT
What this means
It’s impossible to be the best unless you are
absolutely passionate about what you
are doing and you take ownership of it.
Our business helps to keep the country
running. And we intend to do it better than
anyone and to bring more benefits to New
Zealand, and New Zealanders, as a result.
Have the
passion
We’re passionate about putting our customers first, so we
asked 17,000 New Zealanders to tell us what they wanted
to see from a fuel company.
Your feedback led to Z, and it continues to influence every
aspect of what we’re doing. It gave us the confidence to
develop our own unique brand, to bring back service to
our forecourts and to debate the things that really matter.
Your feedback, which you continue to give us, has helped
us work out what matters and what we stand for. We say
it simply as “Z is for New Zealand”.
16 Z ENERGY 2012 ANNUAL REVIEW
Building a brand
people rave about
Back in May, we sent a big signal to the
country at large: here comes Z. The
decision to replace Shell with a new
Kiwi brand wasn’t just a sign that there
was a new local owner in the market.
It also told every New Zealander that
there was going to be a big shake-up
of the New Zealand fuel industry.
Rent or build?
The decision to develop, build and own the company’s
identity, rather than ‘rent’ it from Shell, goes to the heart
of our passion to be a world-class Kiwi company. A
number of people have asked “why did we bother?”
It’s a good question. We had a vision, but we wanted to
make sure that we had it right, and we wanted to really,
truly, understand what New Zealanders wanted from
their local fuel company and how we could make the
experience of refuelling more enjoyable and rewarding.
So we set about trying to understand what Kiwis
actually wanted from a service station, how they felt
about this sector and the companies operating in it. This
became the biggest piece of industry-specific consumer
research carried out in New Zealand in a decade,
touching 17,000 Kiwis. The insights we gained from
listening to our customers and those of our competitors
saw us radically rethink our business.
Four phases to launch
1Z is for New Zealand
We launched our
story and told everyone
of our aspiration
to be a world-class
Kiwi company.
2The Z Trial
We asked
New Zealanders to
give us feedback on
what we were doing
across 10 trial sites.
3
Z Neighbourhoods
This was our big
local launch, all
about supporting
neighbourhoods by
supporting what matters
to them, rather than
through traditional
corporate sponsorships.
4.
The Z Promise
Finally, our national
roll-out campaign,
which was all
about welcoming
New Zealanders
to the Z they
had helped design.
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‘Here comes
something you’ll
never forget.’
The research was overwhelming in reinforcing the
desire of New Zealanders to support world-class Kiwi
companies, celebrate success, take on the world and
win. The Shell brand was a credible and trusted brand
in New Zealand, but it didn’t represent who we were
as a local company and where we wanted to take the
business. New Zealanders struggled to see how we
could tell a New Zealand story and reflect our local
ownership while trading under an international brand.
Added to this was the fact that we had to pay a
licensing fee to continue using the Shell brand. Aside
from re-branding working out as cash positive after a
reasonably short amount of time, the opportunity to
truly reflect our own identity was even more compelling.
Our search for a modern, Kiwi brand eventually led us to
Z – which we describe as the first letter of the last word
of the country to which we are absolutely committed.
We saw a new name as a strong symbol of change. It
declares our New Zealandness, but it also says “we see
the world differently” and “we’re going to do things
differently”. But as a basic starting point, we needed to
earn some credibility and respect.
Have the passion 18 Z ENERGY 2012 ANNUAL REVIEW
Welcome
Building
the trust
So, a new brand, a new service promise
and a commitment to New Zealand and
our local neighbourhoods …
How is it being received?
In September 2011, we asked
New Zealanders how we were
going. For a 16-week-old brand
that was still only in the early phases
of its roll-out, the results were very
encouraging. Our brand tracking
showed a high level of brand
recognition and overwhelmingly
positive customer experience
feedback. 82 per cent of the Kiwis
we asked said that they knew Z
Energy ran the Shell service station
sites. What really pleased us was
that, so early on, Z already owned
the “New Zealand owned and
operated” association.
Additionally, over two thirds of
people we asked found our new
retail offer to be just what they
were looking for.
By January 2012, the majority
of the people we polled were
saying we would be their first
choice or they would seriously
consider us. We were also quickly
gaining a reputation for our
customer service, coming up with
new ideas and supporting our
local neighbourhoods.
Z visually represents what we want
to stand for. We want to be famous
for our speed and great service,
for our accessibility and being
straight up. We stand for supporting
the things that matter to local
people, doing what we can to
protect our planet and making
sustainable returns.
But we’re not about to rest on our
laurels; it’s still early days. To ensure
that we continue to grow our brand
we will carry on listening to our
customers and bringing them on
the journey with us.
Be straight upHave the passionBe boldWe back peopleShare everythingFinancial reporting 20 Z ENERGY 2012 ANNUAL REPORT
More in store
Our retail offer is based on what
you told us you wanted – fast and
friendly service, great food, café-
quality coffee, hotel-style toilets,
easy parking, a layout that lends
itself to a quick turnaround and a
completely revamped car wash that
makes your vehicle sparkle. Our vision
was for our customers to have a
friendly, enjoyable experience, instead
of the usual drab forecourt experience.
This is our journey so far ...
Rolling out across the country
The Z brand was announced in May. Over the next
six months, 10 Z pilot sites were launched across the
country. These stores all featured elements of our new
Z offer for top tier sites. We asked people for feedback
and when we got it, we used it to make changes that
mattered to our customers. The coffee, for example,
got stronger, we got rid of some products people
didn’t want and we added a few that were missing.
We changed the layout again to make it even easier, and
we put our forecourt concierges through their paces.
On 3 November 2011, we announced the full roll-out
of the Z brand across the country. We are now seeing
that come to life. Up to 100 of our larger retail sites are
receiving a full shop refit that hosts all elements of the Z
offer. And we are putting plans in place to tidy up some
of our older, smaller shops too. All Z sites, big or small,
have a forecourt concierge in place, with a forecourt
service promise for those who want it between 10am
and 5pm, every day. Guaranteed. Internally, we report
on how often we fail to deliver what we guarantee so
we keep ourselves honest.
Most of our 208 service stations, 93 truck stops and
50 airfields have now been converted to Z. The rest
will be done by the end of July. All up, this is one of the
largest rebranding programmes ever undertaken in New
Zealand, and it’s all about reflecting our local ownership
and our commitment to this country.
Keeping it local
We could have got an overseas company to make all
the signage. It probably would have been faster and
possibly cheaper. But it just didn’t feel right. Instead,
we tendered the work to local manufacturers,
all overseen by our expert Kiwi-owned project
management company, Harkess-Ord.
Thirty crews have already been working around the
country. By the time we’re finished, 36,000 cubic
metres of old Shell signage will have been recycled, and
this whole project will have seen 3,500 Kiwis involved
in the work in some way or other. That’s what we mean
about investing in New Zealand. It may not always be
the quickest or most convenient way, but it’s definitely
the right thing to do.
It hasn’t all been plain sailing. It’s been a struggle at times
to get everything done exactly when we needed it, but in
every case our contractors have pulled out the stops.
A huge thanks to the teams at Harkess-Ord, Allan’s
Sheet Metals in Dunedin, Classique Plastics in Napier,
MAG Asssembly and Rodiers in Auckland, and a bunch
of installation contractors up and down New Zealand.
We reckon you guys have done us proud.
To top it all off, we are using another Kiwi company,
RHPage, to complete our shop upgrade program.
Talk about keeping it local!
Z factor service
We’ve done a lot more than just change the corporate
colours. Guaranteed forecourt service on every Z site
between 10am and 5pm every day of the year is proof of
our commitment to put the service into service stations.
When we looked around for great service role models
to emulate in New Zealand, we found them few and far
between. We were very clear in our own minds that being
a world-class Kiwi company means having world class
service. Great service means different things to different
people, but when it comes down to it, we think that it
boils down to a quick, easy experience, help when you
need it, and friendly faces throughout your visit. We’re not
content seeking to be number one for service in the fuel
industry. We want to be number one for service in New
Zealand. We want to be world famous for it.
We want our customers to feel individually important.
Part of our commitment to this is empowering staff to
treat each person that way and not just hit them with a
service “formula”. For example, you told us you hated
being prompted with counter “specials”. The result?
You won’t be asked again.
To bring our service levels up to where we want them
to be, we’re putting all site staff through the “Z factor”
wface-to-face training on customer service and another
500 get three days’ training on delivering consistently
outstanding food and coffee. The programme to deliver
Z factor service will be completed alongside the rebrand.
The service programme is accompanied by a new customer
feedback tool which gives us direct, real time feedback from
customers on how well our service is working. We know we
won’t always get it right, but that doesn’t stop us trying!
So far, what we’ve heard is you love how we are looking
after you. The real challenge of course will be keeping the
magic alive – so that our service is just as great one, two or
five years from now.
What can you expect to
find at our larger sites?
Fancy a latte or hot chocolate?
Our freshly made Rainforest Alliance
Certified™ Arabica coffee beans are
roasted in New Zealand especially for us.
Non-coffee drinkers can enjoy a decadent
hot chocolate or grab a fluffy for the kids.
Let them eat cupcakes
After our research showed people wanted
something small and sweet to have on the
run, we invited cupcake supremo Laurel
Watson to add her magic to our offering.
Some customers buy them six at a time
to share with their workmates!
Let the good times roll
Iconic Kiwi piemaker and pie judge
Phil Pollett, makes our Goodtime Pies,
which go down a treat with customers.
They’re made in the Hawke’s Bay, and
the bacon and egg pies are extra
special, all made by hand and featuring
not one, but two eggs, in every pie.
Why dry when you can Dyson?
Our hotel-style bathrooms feature these
great Dyson Airblade driers. Not only
are they pretty cool, they are much more
environmentally friendly than paper
towels or the usual noisy hand dryers.
No station left untouched
It costs about $350,000 to completely
revamp each major site, and we’ve
identified up to 100 stores for a total shop
refit. We’re also sorting out our smaller
stores, particularly in the provinces.
A new concept store has opened in Taradale,
giving a sneak peek at what the offering at
our smaller sites will look like.
• Architectural and retail design: RCG
• Store refits: RHPage
• Physical rebranding: Harkess-Ord
• Creative partners in developing the brand
and our Z campaigns: Assignment and Cato
Roll the credits
WelcomeBe straight upHave the passionBe boldWe back peopleShare everythingFinancial reporting 22 Z ENERGY 2012 ANNUAL REPORT
Loyalty deserves
rewards
Z owns a 25% share in Loyalty
New Zealand, the company behind
Fly Buys – a great Kiwi success
story in its own right. The Fly Buys
programme currently has 2.55 million
cardholders. Hundreds of thousands
of people use Fly Buys every day
to get rewards on all sorts of
purchases, including of course the
fuel, food, drinks and other products
they buy from us.
72% of New Zealand households have a Fly Buys
card and are actively using it – that’s the highest
active household penetration in the world for any
loyalty programme – and we’re the only fuel
company involved.
Our customers love Fly Buys, and no wonder.
With over $71 million worth of rewards collected
last year alone, Fly Buys is the best at rewarding
customer loyalty. For our regular customers, it
offers another great reason to shop at Z. It is also
a tempting reason for those who don’t buy from
us so often to choose to switch to Z.
To give people an even wider choice of rewards,
Loyalty NZ recently teamed up with Air New Zealand
to allow those on the Airpoints programme to use
a co-branded Airpoints/Fly Buys card to gain their
points. So now it’s even easier for people to benefit
from Fly Buys and choose the reward most relevant
to them.
Welcome
Be straight up
Be bold We back people
Share everything
Financial reporting
Fly Buys’ vital statistics
100%
Brand recognition
in New Zealand.
53
Partner businesses,
including Z and other
major retailers such as
New World and BNZ.
3,000
Almost 3,000 outlets
nationwide – including
all Z stations.
750,000+
Rewards received in
the past year alone.
2.55 million
Customers collect Fly Buys
points in New Zealand.
7,000,000+
Rewards earned since
Fly Buys began in 1996.
Have the passion 24 Z ENERGY 2012 ANNUAL REVIEW
24 Z ENERGY 2012 ANNUAL REPORT
What this means
There’s no point being in this business to
be just another fuel company. We intend to
be the best. We can only do that by taking
the initiative, challenging the status quo,
being bold and courageous and backing
ourselves. So that’s exactly what we do.
Photo courtesy of Joanne Horne
Be bold
You don’t become a world-class Kiwi company by doing
what everyone else does. We’re a company that looks to
lead in what we say, what we do and what we think.
We’ll speak up for a more sustainable future, new ways
of thinking about how we do our business and what we
think we should get back for the hard yards we put in.
These aren’t always the easiest things to talk about, but
we’re determined to tell it like it is, even if sometimes it
isn’t what people want to hear.
26 Z ENERGY 2012 ANNUAL REVIEW
Taking responsibility
The blunt reality is that the
fuels business we are in will be
profoundly different in 30 years’
time. We can whinge about that,
preach doom and gloom or deny
its inevitability – or we can do the Z
thing and commit to finding every
opportunity we can to evolve this
business into an organisation that is
both environmentally and
economically sustainable.
We don’t have too much to crow about yet, but we’ve
got to start somewhere. We’ve put a sustainability
strategy in place, we’re making headway with reducing
waste and we’re improving our supply chain efficiency,
but to be frank those things are just about getting our
house in order. They are about us being a commercially
and socially responsible entity.
We need to go a lot further than that. Our view is
that if we don’t set out to do something so ambitious
that it feels impossible, we won’t do enough.
How about we sell less fuel?
So we’ve set ourselves a goal to successfully sell
less fuel to our customers. We want to help our retail
customers improve their fuel efficiency so they get
further on less fuel. Reducing carbon emissions is
important to New Zealand businesses, as are the
benefits of fuel efficiency, so we’ll be actively working
with New Zealand’s big fleets to reduce their fuel use
and increase their efficiency.
We’ll also walk the talk by using less fuel ourselves.
Our distribution team is focused on reducing the
distance we travel to deliver the fuel you need by
15% between now and 2015.
Choosing option B
Our view is that:
A) you can talk about sustainability; or
B) you can roll your sleeves up and get
on with doing the things that matter.
We’re going for option B.
Option B is about doing things like
moving more of our customers to biofuels.
Through our wholly owned subsidiary,
Mini Fuels, we’re already selling 1 million
litres of B20 (is a biodiesel blend that
contains 20% biofuel) a year. This is not
enough to really impact the carbon cycle –
but it’s a start.
It’s also about working with customers and
agencies to start to change behaviours.
For example, this year we worked with
the Energy Efficiency and Conservation
Authority (EECA) on a tyre pressure
campaign for customers designed to
increase everyday fuel efficiency. You can
save the equivalent of 16 cents a litre on
your fuel bill just by keeping your tyres
inflated to the correct tyre pressure, and
of course better fuel efficiency means
lower emissions.
As you can see from the graphic below, our emissions
profile shows that no matter how hard we work to
reduce our carbon emissions in our business and our
supply chain (and we have some ambitious aims there
as well), the overall differences are relatively small.
The vast bulk of emissions come through our customers’
use of our products. If we could lower the carbon
intensity of our customers and their reliance on fossil
fuels, then New Zealand would see real differences.
The CO2 emissions profile in kilo tonnes of Z’s operations and
the product emissions of our customers using Z products
1. Z offices + retail sites
2. Z + NZ supply chain
13.5 kT
26.9 kT
3. NZ supply chain + share of refinery
371 kT
4. Z + total supply chain
(including transportation
of fuel to and within NZ)
5. Z product emissions
from our customers
1,014 kT
6,325 kT
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28 Z ENERGY 2012 ANNUAL REVIEW
We’ve got to start somewhere so we’re starting here
We take our responsibilities seriously. We’re determined to see Z have a game-changing, leading or active
position in four key sustainability areas by 2015. They are:
1.Using less and
wasting less in our
own business
2.
Reducing the
carbon intensity
of our customers
3.
Reducing the
reliance on
fossil fuels
4.
Supporting
New Zealand
businesses and
communities
The table below outlines the goals we plan to achieve by 2015 in each of the sustainability areas we have
committed to. True to our aim of always being straight up, we will track our progress against these goals and
starting from next year, we will tell you how we are tracking against them.
1. Use less waste less for 2015
3. Fossil fuel reduction for 2015
Through our embedded operational processes we
have reduced our energy demands and outgoing
waste streams
Z uses 10% less electricity across the retail network
Z uses 50% less water in retail network operations
Z’s retail operation waste to landfill has reduced by 70%
Z’s head office is a zero waste operation because Z people
understand the impacts of the waste we generate and play
an active role to reduce it
By working with other organisations, investing
in new technologies and researching and
commercialising alternative fuels, Z has reduced
New Zealand’s reliance on fossil fuels
We are the leading New Zealand supplier of fuel products
and services that minimise the environmental impact of our
customers’ businesses by:
Becoming New Zealand’s leading biofuel supplier by 2014
Using more than 10% biodiesel in our business
Becoming the leading implementer of emergent transport
energy in New Zealand
2. Carbon intensity for 2015
4. Support New Zealand for 2015
In the way that we conduct our business and
the tools we have provided to our customers
we have reduced the carbon emissions of Z
and our customers
The carbon footprint of Z’s head office (already reduced by
25%) is held or reduced further for the next five years
In New Zealand, Z has reduced the distance it travels
to deliver fuel by an average of 15% for every litre of
fuel delivered
Delivery emissions are reduced by 25% independent
of the reduction of kilometres travelled
Z reduces the carbon footprint of our convenience store
operations by 10%
Z works with 10 significant suppliers to reduce the
carbon intensity of our activities together by 25%
With Z’s help, customers have reduced their fuel
consumption and been rewarded for their efficiency
As a business, Z has demonstrated its commitment
to New Zealand through its community
programmes, sharing its skills and safety culture
Every Z employee is trained as a safety at home ambassador
Our safety performance is best in class and other
New Zealand companies seek us out to improve their
own safety performance
Z shares 365 skilled worker days, pro bono, with
New Zealand every year
Z is recognised in New Zealand for developing the skills
of our own team and the people we work with
Our neighbourhood investment continues to help people
who need it in the communities we are connected to
Working smarter,
saving smarter
Sustainable returns begin with ensuring our unit cost is as low as possible
for the value we provide. So right across the business, how we do things
smarter has been a real focus over the last year.
We’ve been sourcing our products
from alternative sources, which is
already starting to save us money.
We’ve also changed how we
distribute fuel by increasing the
efficiency of our trucking routes,
so that we get fuels to our network
more quickly and more cost
efficiently. When you’re one of the
largest fuel supplier in the country,
such changes quickly mount up in
terms of savings.
Productivity has also been a key
focus. We’ve recognised that
changing how people work is critical
to removing cost and improving
what gets done every day.
Part of building a world-class Kiwi
company is instigating a technology
platform that integrates all aspects
of our business, helping people to
work more efficiently and freeing
them up to get on with the many
tasks at hand instead of raging at
the machines.
To our knowledge, no other
company in New Zealand has
embarked on a project of this scale,
depth and with this much impact on
organisational culture, speed and
productivity.
Turning point of sale into point of speed
No one likes to linger any longer
than necessary at a service station.
People want to get in and out and
get on with their busy lives. That’s
why we’re currently working to
significantly cut the time you queue
in our stores. We’re in the process of
replacing our old POS (point of sale)
system at over 300 service stations
and truckstops, enabling us to serve
the 170,000 customers who pass
through those outlets every day
more quickly.
This new $15 million state-of-the-
art investment will cut electronic
transaction times by more than
two thirds, and give us the fastest
electronic POS system in the
industry. We are piloting it right now
and the new system will be at a Z
near you over the next few months.
Another great reason, alongside our
forecourt service, to make a beeline
for Z.
WelcomeBe straight upHave the passionBe boldWe back peopleShare everythingFinancial reporting 30 Z ENERGY 2012 ANNUAL REVIEW
Thinking further
than fuel
Two years into our strategy, things
are on track and we’re feeling pretty
good about the direction we’re taking.
The development of our retail business
is the most obvious expression of
this, and soon all our service stations
will be rebranded.
Our commercial customers will also be noticing
changes in the way we deal with them, in particular
our commitment to the continuity of their businesses
by making sure they never run out of any of the fuels
we provide them with.
An important part of a robust supply chain is making
sure that the industry is sent the right investment
signals. We are leading conversations with government
about investing in essential supply infrastructure.
We expect further industry consolidation as competitors
look for better returns rather than making long overdue
investments in New Zealand infrastructure. For our part,
we will continue to find ways to increase efficiencies,
make the most of our existing capabilities and invest
where it makes sense to do so.
But the wider reality of Z is that the whole business
we are in has a finite life expectancy. Per capita
consumption of petrol is already declining in most
western economies and society is looking for cost-
effective alternatives to conventional liquid fuels.
We’re well aware of the long-term trend, and alive
to the opportunities that will be created as the world
starts to shift away from fossil fuels.
We’re looking long and hard at the options and
initiatives available to us. We’re thinking about how
to consolidate the business we have, while extending
what we do. The key for us is to work with our Board to
methodically shift into new areas that will align with our
business and sustain it in the long-term, whether or not
our core offering is still conventional liquid fuels.
Share everything
Financial reporting
WelcomeBe straight upHave the passionBe boldWe back people 32 Z ENERGY 2012 ANNUAL REVIEW
Thinking further than fuel
Beyond the coreWorld-class companies innovate. This industry is not famous for its innovations, but Z is committed to turning this around. It’s all about ‘do-learn-do’. Initiate a shift, learn from it, and take further actions based on those learnings. It’s also about understanding what we are not interested in doing – and why. For example, we won’t be leasing oil drilling rigs any time in the future. Z is currently exploring a number of interesting opportunities. Our aim is to continue to find and develop products and services in areas relevant to our core business. These could be from doing something new ourselves, a partnership such as that with EROAD, or even an equity investment in a company that is doing something cutting edge. This pipeline of opportunities should provide us with a range of options that we can progress as we learn more about the future we face. Our decision to enter into an alliance agreement with EROAD is a solid example of partnering with a company similarly focused on innovation and efficiency. EROAD started out with the goal of modernising New Zealand’s paper-based road user charge (RUC) regime with a solution that combines a GPS/cellular product with an online RUC management and payment system. They’ve since developed a formidable suite of web-based services for commercial transport operators to monitor business drivers such as fuel consumption, driver compliance, fleet maintenance and road safety. Since forming the alliance we’ve worked with EROAD to take their expertise into new markets, particularly to some of our larger and more complex bulk commercial customers. Teaming up with EROAD opens up a range of opportunities. CEO Steven Newman was previously the CEO of Navman – so not only does this agreement bring together Kiwis with world-class ambitions, it also sits very well with Z’s commitment to innovation, sustainability, adding value to customers and helping New Zealanders cut their fuel bills. We are committed to bringing biofuels to our customers. If you were CEO of Z, what are some of the questions you would need to consider? Support
domestic
production
of 2nd gen
biofuels
What biofuel supply
chain expertise did
you gain from your
first generation
activity?
What financial
benefits are available
from selling biofuels
because of carbon
taxes/ETS prices?
Invest in
feedstock
Are feedstocks a
by-product of another
process (e.g. tallow,
plantation wood waste)?
What is the correlation
of biofuel feedstocks
prices to crude oil prices?
Invest in
production
What technology risk
are you willing to take?
Are you willing to bear
the risk on the value
differential between
biofuel feedstock
prices and biofuel
selling price?
Would you rather
“rent” plant capacity
to customers and
avoid commodity
price risk altogether?
Supply
agreement
What specialised
tankage or
distribution hardware
is required?
Which customers
are you going to
sell biofuels to?
Import
1st gen
biofuels
What is the import cost
of biofuels compared
to domestic production?
Which customers
are you going to
sell biofuels to?
Skip
1st gen
biofuels
Do second generation
biofuel feedstocks
displace food
production?
Do second generation
biofuel feedstocks
result in net loss of
biodiversity?
Invest in
feedstock
What capability, if any,
did you build as a result
of your experience in
first generation biofuels?
Are feedstocks a by-
product of another
process (e.g. tallow,
plantation wood waste)?
What is the correlation
of biofuel feedstock prices
to crude oil prices?
Invest in
production
What capability, if any,
did you build as a result
of your experience in
first generation biofuels?
What technology risk
are you willing to take?
Are you willing to bear
the risk on the value
differential between
biofuel feedstock prices
and biofuel selling price?
Would you rather
“rent” plant capacity
to customers and
avoid commodity
price risk altogether?
Supply
agreement
What capability, if any,
did you build as a result
of your experience in
first generation biofuels?
What specialised
tankage or distribution
hardware is required?
Which customers are you
going to sell biofuels to?
Import
2nd gen
biofuels
What capability, if any,
did you build as a result
of your experience in first
generation biofuels?
What is the import cost
of biofuels compared to
domestic production?
Which customers are you
going to sell biofuels to?
Do
nothing
Do you believe that fossil
fuels will continue to be
the dominant energy
source for transport for
the foreseeable future?
If not, what alternative
energy sources will
you investigate?
Electric vehicles?
Hydrogen? Bicycles?
Upstream
Support
domestic
production
of 1st gen
biofuels
What government
subsidies/duty
exemptions are
available for
domestically
produced biofuels?
How much domestic
or imported feed-
stock can you
secure by contract?
At what price?
Current
state
Do customers want
biofuels now?
Are customers willing
to pay a premium for
biofuels?
What is the difference
in value between biofuel
feedstocks and the
biofuel selling price?
Do first generation
biofuel feedstocks
displace food
production?
Do first generation biofuel
feedstocks result in net
loss of biodiversity?
Downstream
Inaction
WelcomeBe straight upHave the passionBe boldWe back peopleShare everythingFinancial reporting
34 Z ENERGY 2012 ANNUAL REVIEW
Price vs
security
Most New Zealanders don’t understand
how this industry works, which is
hardly surprising given the way it has
communicated with its customers to
date. As a result, there are a number
of myths and misconceptions in the
minds of consumers, not least around
pricing and profitability.
We make surprisingly little from every litre of fuel we
sell: our portion comes in at around 15–17 cents. By
the time we take out increasing operating and storage
costs, including the costs of funding and holding our
substantial inventory (3.5 million barrels), we’re down
to a net profit of 2–3 cents a litre. The last time we
reported, we were closer to the 3 cent mark. This year,
with sustained high crude prices and stronger price
competition, we earned closer to 2.1 cents per litre.
Crude and pump prices
NZD/barrel
160
140
120
100
80
$/litre
2.30
2.10
1.90
1.70
1.50
0
1
R
A
M
0
1
Y
A
M
0
1
L
U
J
0
1
T
C
O
0
1
C
E
D
1
1
B
E
F
1
1
R
P
A
1
1
N
U
J
1
1
G
U
A
1
1
T
C
O
1
1
C
E
D
2
1
B
E
F
DUBAI CRUDE NZD
PUMP PRICE: REGULAR PETROL (RHS)
Since deregulation in 1988, the downstream fuels
industry has continued to cut costs and downsize its
capital base, including through long-overdue deferred
capital expenditure. This relentless drive for capital
efficiency is reducing the industry’s effectiveness and
placing ageing infrastructure under stress. We reckon
this is not in the best interests of New Zealand.
Terminals and sites continue to be closed; petrol
storage mothballed or switched to diesel because of
the lower compliance costs. There were around 3,000
service stations in New Zealand in 1985. Today there
are only about 1,200.
The supply chain in the South Island is particularly
tight. Fuel is regularly transported by road all the way
from Canterbury into Bluff and Dunedin because there
is not enough storage in parts of the South Island. It
is south Canterbury businesses feeling the brunt of
this through shortage of supply during peak demand
times and regular threats of industry-wide stock outs.
Because of the recent closure of petrol storage tanks in
New Plymouth, all the petrol sold in Taranaki is trucked
from Wellington or Mount Maunganui. This means more
trucks on the roads, higher carbon emissions and higher
transport costs.
In the mid-1980s, importer margins on fuel were
around 50 cents per litre. But since then, costs have
escalated significantly. The underlying commodity
price alone has changed from its long-run average
of US$20 per barrel to consistently more than US$100
per barrel since February 201 1.
The industry has been operating in an unsustainable
manner, characterised by sub-optimal returns on assets
and the resulting underinvestment in capital.
Industry capex is trending below depreciation
140m
120m
100m
80m
60m
40m
2005
2006
2007
2008
2009
2010
NET CAPEX
DEPRECIATION
Source: BP, Mobil, Caltex & Z Statutory accounts
The contrast with Z couldn’t be greater. We’re not
an oil producer, so we depend on our business in
New Zealand to make a commercial return, and this
means investing where it matters. This year, we spent
tens of millions on upgrading fuel storage systems,
but much more is needed.
With such poor returns, overseas decision makers are
– unsurprisingly – often taking the “pass” option and
putting their capital to better use elsewhere where
they know they will get a better return. Oil producing
companies have a return on average capital employed
(ROACE) of approximately 20%. By contrast, it’s about
8% in the downstream fuels sector.
We say it’s time to come clean on the real cost of
running fuel infrastructure, and to give New Zealanders
and New Zealand businesses the security of supply they
expect and deserve.
We think that there has been significant under-
investment in infrastructure due to poor returns on
those assets. We are actively reviewing our asset
valuations and returns, to make sure that efficient
investment decisions are being made.
the price of
1 litre
15-17c
our portion
operation &
storage costs
2-3c
our net profit
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36 Z ENERGY 2012 ANNUAL REVIEW
36 Z ENERGY 2012 ANNUAL REPORT
We back
people
New Zealanders have a thing about fairness. Nothing gets under
our collective skin faster than people who don’t care and who
are only interested in making a profit. At Z, we believe that people
deserve kindness and support, and businesses should support
the neighbourhoods that support them.
We’re also committed to making Z a great place to work, and
a safe place to work. We’re pulling out the stops to support
the neighbourhoods we operate in, and to being the neighbour
people want. And we’re totally inspired by those who live and
work in Christchurch. We can all learn a great deal from them.
What this means
We back our employees to grow
and succeed. We give back to
the neighbourhoods we work in.
We back our customers by
knowing what they want and
how we can support them.
38 Z ENERGY 2012 ANNUAL REVIEW
The power
of people
A fundamental element of Z’s
approach is that our success will be
people-powered. It will be supported
by New Zealanders as customers and
suppliers. But it will also be made
possible by rethinking and revitalising
the role that our own people play in
the evolution of the business. In fact,
one of our five organisational priorities
is to develop extraordinary people
that will be a source of competitive
advantage for Z.
Leadership principles
Two people-focused principles underpin our intention
to be a world-class Kiwi company. The first is that
leadership can, and should, come from anywhere in the
company. The second is that extraordinary leadership
is what generates extraordinary results.
We’ve reinforced these principles this year through a
three-level programme tailored to the three levels of
leadership within our company: senior leaders, people
leaders and leaders of self.
It’s been a substantial investment, but we are already
seeing some of the fruits of our labour. The enthusiasm
that staff at every level of the organisation bring to work
every day and the confidence they have in their own
ability to contribute to Z’s success indicates exciting
things ahead for us.
Our values personified
People are such a fundamental part of who we are and
what we’re about that we’ve made backing them one
of our values. Having deep-seated values at the
epicentre of our culture influences every aspect of how
we do business at Z. There’s a lot more to that than
just feel-good factor. Research shows that having
a system of beliefs and values that are shared and
reinforced through behaviours and learning can
improve employee commitment by 19%. Increased
staff commitment translates directly into increased
performance and retention.
As the new Z brand was rolled out over the last
year, we took our people on a values-based journey.
If our values are to truly help unleash potential, people
must own them, believe in them and practise them in
their daily working lives. Part of bringing Z’s values alive
was introducing “heroes” to Z who embodied the very
things we want to stand for.
So we asked ex-Fair Go frontman Kevin Milne to come
in and tell us about being straight up. Entrepreneur
Sarah Gibbs was our Kiwi hero for being bold.
Restaurateur and chef Al Brown personified sharing
everything. The Mad Butcher, the wonderfully
energising Sir Peter Leitch, came in and showed us what
having passion was all about and the Very Reverend
Peter Beck spoke to us about backing people.
Looking ahead
Behaving in a Z way doesn’t end at our doors.
Our internal organisational values are also our brand
values, so over the next year, we’ll look to take the
values, behaviours and leadership principles we’ve
been working on out into our wider network and
partnerships, including to our retail sites. The aim is
to inspire and motivate people right across our wider
Z community to deliver a Z quality of experience,
every time.
WelcomeBe straight upHave the passionBe boldWe back peopleShare everythingFinancial reporting 40 Z ENERGY 2012 ANNUAL REVIEW
Healthy, safe,
secure and intact
We pay a lot of attention to Health,
Safety, Security and the Environment
(HSSE) and keeping people safe
because we want our staff and
contractors to go home to their loved
ones in the same healthy state that
they arrived at work in.
As a general rule, fuel companies have global HSSE
programmes that spell out the company’s views on
health, safety, security and the environment. Since
taking over the business, we’ve been systematically
working on an HSSE programme that meets our
needs, aligns with what we believe, addresses our
specific risks and, therefore, sets the standard for
New Zealand.
We’ve made good progress on safety. We’re
committed to being a Zero Harm workplace which
means we take personal responsibility for making
health and safety a vital part of the business, and
creating a workplace where everyone views health
and safety as being as natural and important as quality,
profit and customer service.
Our chemicals manufacturing plant in Gracefield
continued to be a stellar example of what can be
achieved when businesses are genuinely committed
to keeping their people safe. The Gracefield plant just
celebrated 20 years since their last lost time injury.
As part of our safety commitment, this financial
year, we’ll be moving to certify Z to NZS/AS4801, a
recognised Australasian occupational health and safety
management system. We’re doing this because while
others rely on their global business system processes
for managing risk, we want assurance that the systems
we have in place are formally recognised as prudent
ways of assessing and managing safety. We’re doing
this because it really matters to us, and we want
everyone who works at Z to know that the systems
there to protect them are world class.
Welcome
Be straight up
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In terms of the environment, we’ve been focusing on
our underground storage assets. We are continuing
a programme to upgrade our older tanks and therefore
reduce the overall age of our tank network to help
ensure that we remove any risk of product seeping into
the ground.
A healthy team is a productive team, so this year we
introduced a Wellness programme to help keep staff
healthy and engaged. That programme includes onsite
and online health assessments, MoleMaps, and our
10,000 Steps walking programme as well as a men’s
health programme. In some cases, it’s helped us identify
health problems for people and refer them to their GP.
The 10,000 Steps programme has been a big hit,
giving people a chance not just to get out and walk
as individuals and in teams but also, along the way,
to talk about their health and work. The Men’s Health
initiative too got people talking, about things that guys
generally would prefer not to discuss, like prostate
health. During Movember, for example, a number of men
at Z were sponsored to grow moustaches. Others sold
their established moustaches, shaving them off to
raise money.
Our goal is still to encourage people to do the right
thing for themselves and others not because of rules
that say they have to, but because of a genuine desire to
keep themselves, their colleagues and their environment
safe. We are building a culture of safety where everyone
looks out for each other.
Whenever you have staff in situations where there
is a security risk, it’s vital to do everything humanly
possible to keep them safe. The conventional approach
teaches compliance to a set of protocols. We’ve taken
that deeper, with our Human Factors programme that
helps people understand the psychology of individuals
and teams in everyday situations and interactions with
their work. It’s a very different approach that focuses on
why smart people do some dumb things.
We back people 42 Z ENERGY 2012 ANNUAL REVIEW
Healthy, safe,
secure and intact
HSSE key performance indicators
We’ve been building a benchmark against key
measures in the HSSE area. It’s still evolving, but as
part of our commitment to ongoing reporting, here
is the scorecard to date:
For the year ending 31 March 2012
FY11
FY12
Exposure hours (millions)
Compliance with HSSE plan
HSSE actions close out rate
Overdue external/internal audit actions
Life saving rules infringements
Safety critical maintenance completed on time
Lost time injuries (LTI)
Lost time injury frequency (LTIF)
Total recordable cases (TRC)
Total recordable cases frequency (TRCF)
Number of spills (loss of containment)
Quantity of spills (kg)
Security incidents (robberies)
Product quality incidents
Food quality incidents
Control or compliance breaches
3.7128
98%
100%
N/A
21
100%
4
1.08
10
2.69
10
234.6
9
0
1
0
3.6734
99%
100%
0
31
100%
9
2.45
14
3.81
7
126
7
0
4
2
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This is Rhett’s story
Rhett Brown was the guest speaker
at our Safety Day, Z’s company-wide
HSSE conference, this year. From his
wheelchair, Rhett tells the story of
the instant that changed his life. We
thought we’d share his message with
you as it really drives home why HSSE
is so important.
“It was July 2004. I was standing on two planks on an
unframed deck. Somehow I turned to walk across them
but I fell … I fell 2.2 metres. I landed on my head. The
initial impact broke my neck.”
In the moments following the accident, as he lay on
the ground, Rhett says it was impossible to take in the
enormity of instantly being paralysed, of realising that he
was going to live the rest of his life like this. How was he
going to cope? Who was going to look after him? What
was he going to do? Where was he going to live?
It would take two years to rationalise all those things
out and to find answers, he says.
In many ways, Rhett’s view is that the accident was
inevitable. If it hadn’t happened to him, there was a
very high chance it would have happened to someone
around him. “At the time of my accident I was working in
an industry that was totally and utterly unregulated for
safety concerns. We had no toolbox meetings. We had
no hazard registers. We had no safety instructors
on site. We never had lectures about hazards. We had
no learning of tools or how to use them. We had nothing.
We were simply expected to turn up and work.
“We worked without safety equipment like standing
platforms or handrails, full restraints and so on …
There was none of that. And the higher you worked,
the more dangerous the situation, the bigger man
you were. If you complained to your mates about the
dangerous working environment, you got a reputation
as a wuss. It was terrible. You had no-one to complain
to. The bosses weren’t interested. Your mates weren’t
interested. That was the culture.”
He looks straight at the audience. “So my appeal to
you administrators and supervisors who are in charge of
staff is that you recognise that you have an obligation –
I’ll go further and say, you have a moral obligation – to
ensure that your staff adhere to your rules, regulations
and protocols.”
At the end of the day, Rhett says, all of those things
are there for one reason, and that is to see that staff
go home the same way they came to work - not by
ambulance, helicopter or even in a hearse.
“These rules and regulations [are more than just] bits
of paper or verbal instructions. They are real. They save
lives. And they prevent injuries. So please, put them in
place and see that they’re followed.”
He looks at us again. “Thank you,” he says quietly.
We back people 44 Z ENERGY 2012 ANNUAL REVIEW
Rethinking
what we do for
neighbourhoods
Over the course of the 2011/2012
financial year, Z donated $554,200
to not-for-profit organisations
and community groups throughout
New Zealand.
When we asked New Zealanders what you expected
from a truly Kiwi company, you told us you expected
a lot more than you did from a multi national. You said
we should be straight up, we should put things right
quickly when they go wrong and we should give back
to local neighbourhoods.
We’re very aware that what matters to the community
in Whangamata is quite different to what matters
to the people of Dunedin. So we take a unique, localised
approach to community investment and we don’t do
conventional “sponsorship”. We decided that the best
people to ask about where money should be allocated
in a community were the communities themselves.
So in every neighbourhood where we are rebranding a
Z site, we asked people to vote for one of four charities
or community organisations in the area. $5,000 was
then allocated to these organisations in proportion to
the number of customer votes they received.
That means that by the end of our Z brand rollout,
New Zealand neighbourhoods will have received $1.2
million in donations from Z – and every cent of that
money will have gone to charities that local people
chose – charities that are helping fellow Kiwis who
need it, in their own neighbourhoods.
It may not be as easy as throwing a sum of money
at a national organisation, a stadium or a rugby team,
but we think it’s a good way to give back to the
neighbourhoods that support us. A little innovation
never hurt anyone, we don’t think, especially when
it’s done in a spirit that gets to the heart of what we
believe New Zealand is all about.
Being a good neighbour is important to us, and is
part of delivering on “Z is for New Zealand”. There
are so many organisations doing great things in New
Zealand, and while we can’t support them all, we do
our best to contribute where we think we can make
a tangible difference.
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Here are some examples of where
you decided you wanted the money
to go, New Zealand:
CLOCKWISE FROM TOP: Salvation Army Linwood, Happiness House Community Support Centre Queenstown,
Turangi Search and Rescue, Waiuku Food Bank, Mangere Plunket, Bellyful Porirua, Taihape Volunteer Fire Brigade,
Riding for the Disabled Taupo, Totara House Hospice South Auckland
We back people 46 Z ENERGY 2012 ANNUAL REVIEW
Z is for
Canterbury
We are in awe of the determination
demonstrated by the people of
Christchurch. We not only have our
own staff and site staff there, but also
many commercial and retail customers.
Other Z people who don’t currently
work in the city have lived there in
the past, were born there or have
family there. So thoughts of what
Christchurch people are going through
are never far from our minds.
Since the first big jolt in September 2010, we’ve poured
millions of dollars into the Canterbury economy through
the initial recovery effort, donations and participation in
community initiatives to try and keep things moving and
spirits elevated. We’ll keep doing all we can to help get
Christchurch back on its feet.
Almost a year on from the first earthquake, we re-
opened our sites in Shirley and Linwood as flagship
Z sites. Both sites had been extensively damaged by
the February earthquakes and closed, meaning a long
trek for already-stressed residents to find fuel. We
effectively rebuilt, re-tanked and reconsented the sites,
and made a conscious decision to have them as two of
our first 10 pilot sites. A real note of thanks to all our
contractors who worked through difficult conditions
and appalling weather to get both stations opened.
APRIL 18
Customers at every Z-owned
service station across the
country were able to
choose to contribute to the
Christchurch Earthquake
Appeal with every purchase
they made.
JUNE 13
Post the large after-shock and subsequent
strong demand for petrol, Z reported its fuel
stock position in the Christchurch region and
across the South Island was strong. The vast
majority of our retail sites across the region
(19 of 24) were still operating, with fuel
trucked from Z’s terminal in Timaru.
JULY 29
Z arrived in one of
the worst-hit areas
of Christchurch, when
we opened Z Shirley,
our first Z-branded
flagship site in the
South Island.
18
13
29
Feb
2011
Mar
Apr
May
Jun
Jul
Aug
17
5
JUNE 17
Z completed its donation
of 68 laptops to community
organisations, charities and
individuals in need in the
city of Christchurch.
AUGUST 5
Z’s second Christchurch
site opened in Linwood.
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In September, there was support of a different
kind when Z Energy shareholder Infratil made a $1
million donation to help pay for the reconstruction
of the country’s largest tennis centre in Christchurch.
Construction of what will be known as the Z Energy
Wilding Park Tennis Centre is now underway, with the
facilities progressively reopening over the next year.
In December, we joined forces with Air New Zealand
to turn one of their 777-200ER aircrafts into a unique
Christmas “sleigh” for the children of Christchurch.
150 young Cantabrians were taken with a parent or
guardian on a one-hour round trip down to the majestic
Aoraki Mt Cook and back. We donated the fuel for
“Christmas Cheer in the Air” and gave away a number
of seats to worthy Christchurch kids. Surprises on board
included the Christchurch City Chorus singing carols
throughout the flight and an unexpected drop-in from
Santa and six little helpers who distributed sack-loads
of goodies. It was a really fun and exciting day and
children and adults alike had a fantastic time. Thanks
to the Air New Zealand team for making it happen.
We will of course continue to lend support in a range
of ways to what happens in the city. No one company
can do everything, but we’re absolutely determined
to work alongside others where we can to be part of
Christchurch’s successful resurgence.
In keeping with our local approach, our team in
Christchurch have been actively engaging with their
community and figuring out where Z could make
the most difference. The timeline below shows what
we’ve done to help over the last financial year:
SEPTEMBER 9
The country’s largest tennis
centre in Christchurch became
known as the Z Energy Wilding
Park Tennis Centre following a
$1 million donation from Z Energy
shareholder, Infratil, to help pay for
the reconstruction of the complex.
DECEMBER 20
More than 150 young Cantabrians
experienced some early Christmas
cheer with a special ‘Christmas
Sleigh’ ride to Aoraki Mt Cook and
back. Z supported the Air New
Zealand flight by providing the
fuel for the flight.
JANUARY 28
We donated $10,000 towards
the rebuilding of classrooms at
St Bede’s School.
9
20
28
Sep
Oct
Nov
Dec
Jan
2012
Feb
Mar
OCTOBER 26
Z commissioned
30 million litres of bulk
fuel storage at the Port
of Lyttelton at a cost of
$25 million.
26
15
15
NOVEMBER 15
We donated $5,000 worth
of fuel gift cards to cover the
large number of volunteers
involved in a project run
by the National Council of
Women to record and archive
the experiences of women
during the earthquake.
DECEMBER 15
Z gave Phillipstown School, a decile
1 school in central/east Christchurch,
their own school van. The school had
been badly affected by the earthquake
losing its school hall, playground,
heating, and some classrooms.
48 Z ENERGY 2012 ANNUAL REVIEW
48 Z ENERGY 2012 ANNUAL REPORT
Share
everything
To date, fuel companies have done a pretty poor job of explaining what they
do, how the industry works and why it really matters. As a result, there’s a lack
of trust in, and understanding of, the industry.
We’re committed to opening the doors of our business and inviting you in.
We’ll tell you what we’re doing, how well we’re going and where we’re hitting
speed bumps. We’ll admit it when we get it wrong, and we’ll provide all the
information to enable people to make up their own minds about us.
So, if there’s something that needs to be said, we’ll say it. If something really
matters, we’ll get it done. If we need to listen, we will. And considering that so
many of you have invested in Z through our bond issues or as our customers,
you should know where we stand financially.
What this means
We believe that so much more can be achieved if we
are united. If we share our thoughts, our knowledge
and our passion then we’ll all share the success.
50 Z ENERGY 2012 ANNUAL REPORT
Creative
transformation
By Rod Oram
Rod Oram has
more than 30 years’
experience as
an international
business journalist.
He has worked for
various publications
in Europe and North
America, including the Financial Times
of London. He is currently a columnist
for the Sunday Star Times; a regular
broadcaster on radio and television;
and a frequent public speaker
on business, economics, innovation,
creativity and entrepreneurship, in
both New Zealand and global contexts.
For more than a decade, Rod
has been helping fast-growing
New Zealand companies through
his involvement with Icehouse,
the entrepreneurship centre
at the University of Auckland’s
Business School.
Like all countries, New Zealand must adapt quickly
to keep up with a rapidly advancing world. The sheer
scale and speed of change in technology, markets,
values and a host of other drivers of progress has
never been so great in human history.
Unlike most countries, though, New Zealand depends
heavily on its few large companies to lead its response
to the revolution. We have some innovative small
companies but they struggle to grow and survive in
global markets.
Other small countries have the same challenge,
which is why Nokia’s rapid evolution from a maker
of forestry and industrial products to global leader
in mobile phones was so crucial to Finland’s
economic transformation.
Large companies are vital to small countries
because of the depth of their skills, their ability to
handle complexity and their opportunity to rapidly
scale up new products and markets to make an
economic impact.
But can they adapt to those incipient trends and
emerging opportunities? Can they achieve the
elusive and often contradictory combination of
scale and agility?
No, is the blunt answer for the vast majority of them.
Young companies rapidly oust old companies. Most
of the fastest-growing over recent decades have been
high technology companies such as Google and Apple.
This is creative destruction, in the memorable phrase
coined by Joseph Schumpeter, the Austrian economist.
The story is starkly told by the Standard & Poors
500 index. In 1958, constituent companies enjoyed
an average 61-year tenure in the index. By 1980
it was 25 years. Today it is 18 years. Only 25% of
today’s companies will be in the index in 2027, says
Richard Foster, a senior fellow at the Yale School of
Management and a former senior partner in McKinsey
& Co., the management consultants.
Our stock exchange shows a similarly quick turnover
of companies but a very different pattern of new
entrants, according to analysis by Brian Gaynor of
Milford Asset Management. In 1981 eight of the 12
largest companies were private sector, export-oriented
enterprises such as Fletcher Challenge, NZ Forest
Products, Wattie’s, Carter Holt and Feltex.
Today, there are only two such companies in the
top dozen. Once the three state-owned electricity
generators are partially floated, 10 of the top 12
companies will have come from the public sector and
six of those 12 will be companies devoted almost entirely
to generating electricity for domestic consumption.
Yet not all large companies ossify and die. IBM, for
example, celebrated its 100th birthday last June.
It has thrived because it has made three audacious
leaps in technology from its origins in tabulating
machines: to mainframe computers in the 1960s; to
distributed systems built around PCs in the 1980s;
and to services and consulting from the mid-1990s.
This was a remarkable feat, says Michael Cusumano,
a professor in the Sloan School of Management at the
Massachusetts Institute of Technology. Such dramatic
shifts challenge everything a company stands for,
particularly its technical skills, how it makes money,
and its brand.
Indeed, IBM spent US$5 billion developing its ground-
breaking System/360, more than the US government
spent on the Manhattan Project to deliver the first
atomic bomb. Launched in 1964, it became the first
dominant computer range in the industry’s history.
The second, late, shift to PCs almost killed the company;
and it was in parlous state when it exited hardware to
focus on services.
Arguably the key ingredient in IBM’s success was its
sense of itself. It built itself around the idea that it was
packaging technology for business – not exploiting
a particular technology. Thus, it was able to morph with
business and technology. In the process it advanced
through three main business models: a US company; a
US-based multinational; and today’s “globally integrated
enterprise.”
The Living Company is one of the best analyses of the
attributes of these large companies that survive by
transforming. Its author, Arie de Geus worked for 38
years for one of them, Royal Dutch Shell, ending up as
its head of strategic planning.
Here are four of the main concepts outlined in the book:
1. Sensitivity to its external environment represents
a company’s ability to learn and adapt.
2. Cohesion and identity are aspects of a company’s
innate ability to build a community and a persona
for itself.
3. Tolerance and decentralisation are symptoms of a
company’s ability to build constructive relationships
with other entities, within and outside itself.
4. Conservative financing is one element in a very
critical corporate attribute: the ability to govern its
own growth and evolution effectively.
Another view of transformation comes from The Only
Sustainable Edge, written by Seely Brown and John
Hagel, veterans of Xerox’s Palo Alto research centre.
They argue a company’s only enduring advantage is to
learn and build capability faster than its competitors.
By doing so, it shifts from managing continuity
to managing discontinuity out on the edge of its
enterprise, industry, country, technology and society.
The people in the company learn to see, and learn to
unlearn, knowing that the edge transforms the core.
Those are the challenges for us all in New Zealand if
we are to make the most of the abundant opportunities
created by this breath taking acceleration of change in
the world.
Yet, a small country like ours is too thinly resourced
in people and capital to cope with the wastefulness
of creative destruction. Instead we need creative
transformation by existing businesses. Every company
and organisation can play its part. But the largest, like
Z Energy, have the skills, scale and capital to deliver
the biggest benefits.
WelcomeBe straight upHave the passionBe boldWe back peopleShare everythingFinancial reporting 52 Z ENERGY 2012 ANNUAL REVIEW
Fuelling
New Zealand
business
Half of Z’s total fuel volume is sold
to businesses operating across
the economy. We sell a range of
products to these businesses, including
marine fuel, aviation fuel, diesel,
petrol and chemicals. This year has
seen us expand our participation
into sectors that we see as having
enormous potential.
The cruise ship industry, for example, represents a big
opportunity for our marine business (we’re already the
largest supplier of marine fuels in the country.)
New Zealand is a hot destination right now, with
the numbers of boats cruising in our waters likely to
double over the next five years. While that represents
a relatively small shift in commitment for the big cruise
operators like Carnival, it has exciting implications for
New Zealand, and for Z.
Mini-Tankers is New Zealand’s largest on-site diesel
refuelling and lubricant supply operation. Wholly owned
by Z, it supplies diesel directly to diverse customers,
most of whom operate in infrastructure (such as road
building) or forestry. Mini-Tankers have a great offer that
reduces risk and cost from our customers’ businesses.
They supply fuel directly to customer sites and
machinery, which helps increase customers’ productivity.
Mini-Tankers have about 53 trucks on the road delivering
diesel on a day-to-day basis. In Christchurch, our
local Mini-Tankers team have been invaluable in the
recovery effort. From fuelling the fire service and civil
defence operations and topping up back-up generators
for utilities to fuelling road and infrastructure repair
operations, Mini-Tankers have continued to play a
significant role in the rebuilding of Christchurch.
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Share everything 54 Z ENERGY 2012 ANNUAL REPORT
We’re not just another commodity supplier
We may sell a commodity product but how we get
that product into our customers’ tanks is anything but
a commodity – it’s a two to three month end-to-end
supply chain that is dependent on the best people
and the best infrastructure. We have invested heavily
in our ability to provide security of supply to our
customers, and we will continue to do so. As an example
of this, as of 31 March 2012, out of the 84 million litres
of diesel storage at ports in the South Island, Z owns
39.5 million litres. More detail on our infrastructure
investments can be found on page 56.
Understanding our business customers, their needs and
Z’s own approach to pricing for their sectors is vital to
delivering the best value we can for each organisation
we do business with. We’ve been working with
commercial partners to explore new possibilities for
them as commercial customers together – really finding
out how we can add value to their business in new and
innovative ways.
One of the reasons for doing this is that we’re simply
not making anything like the returns that shareholders
would expect. We import, refine and sell approximately
660 million litres of diesel a year to our commercial
customers. By the time we have paid all the associated
costs with delivery and funding the investment in
working capital, we are sometimes selling that fuel
at a loss.
It doesn’t make sense for us to be selling millions of
litres of fuel at a loss. We’d much rather reduce our
customers’ consumption and make a better return.
By working with companies to help them use less fuel,
we’ll be more valuable as a partner and less onerous
as a cost. After all, with many of our customers, we
calculate that every percentage point we can save them
in actual fuel use reduces their total fuel bill by more
than a million dollars.
The cost of paying us a small amount more for
the fuel they do buy will be well worth it if we can
help our customers significantly reduce their
overall consumption.
At the same time as we’re looking to cut emissions,
we’re also committed to helping our customers
achieve their own environmental targets. Z DEF,
our newest commercial fuel product, is an example
of how we believe this can be achieved. This New
Zealand-made diesel exhaust fluid works with selective
catalytic reduction (SCR) technology to reduce vehicle
emissions. Nitrous oxide is a major contributor to air
pollution, and SCR technology can cut up to 85% of
nitrous oxide exhaust emissions. Many major engine
manufacturers have chosen this SCR technology as a
way forward for the future, and we have decided to help
by supplying it. We’re encouraging those customers of
ours who don’t already use it to get involved as well, as
part of a joint commitment to sustainability, innovation
and supporting the future of commercial road transport.
We’re confident that through a combination of
commercial realism, responsible savings and Kiwi
initiative, we can deliver a situation where
everyone wins.
Great work, Awanuia crew
One event that we are particularly proud to have
been involved with was the salvage operation on
the Rena. When the container vessel ran aground
on the Astrolabe Reef off Tauranga in October, an
environmental catastrophe loomed. The initial leak
of around 350 tonnes of heavy fuel oil was devastating
enough, but with more than 1,300 tonnes of oil
remaining onboard the Rena, offloading that oil safely
was a priority. Fortunately, as part of our marine
fuel business, we have the exclusive charter for the
marine refuelling barge, Awanuia.
The barge ferries around four million litres of product
and diesel from the Marsden Point refinery to Ports
of Auckland and is the only sea-based refuelling
capability at the Ports. Her role is vital for large vessels
such as cruise liners. Seeing that the Awanuia could
play an important role in transferring oil from the Rena,
we released the barge to the salvage crews.
For more than a month, the Awanuia and her crew
pumped heavy fuel oil from the grounded ship into
safe storage tanks within the Awanuia. On 13 November,
the final fuel oil was successfully pumped aboard the
Awanuia and she was released from service, just in the
nick of time for the start of the cruise liner season.
None of this would have been possible without the
immediate and unanimous consent of our marine
customers, who, although they were inconvenienced
by not having the barge available, showed incredible
patience and understanding in allowing us to
release the barge to help prevent a much greater
environmental disaster. Our admiration and thanks
also go to the Awanuia’s crew who put up with
incredibly difficult conditions to make such a
nationally important contribution.
WelcomeBe straight upHave the passionBe boldWe back peopleShare everythingFinancial reporting 56 Z ENERGY 2012 ANNUAL REVIEW
Investing in
our future
New Zealanders get through over 50
million barrels of refined oil every year.
Quite a bit of our fuel comes through
Refining NZ at Marsden Point, New
Zealand’s only oil refinery. Refining
NZ’s high level of reliability makes it
a top quartile performer of refineries
worldwide, but we actually need more
than the refinery can deliver us.
This year, we signed a contract to ensure the supply
of the additional products we need. It’s a sign of our
gathering confidence and our determination to be
a world-class Kiwi company that we’re increasingly
sourcing finished products ourselves. We’re buying
from other sources overseas and we’re buying well.
We’re already starting to see savings in what we
pay. We think that’s an important step to be taking
given what’s happening in Europe and as tensions
in the Middle East make pricing and sourcing of fuel
increasingly volatile.
Closer to home, what continues to concern us is the
run-down state of fuel storage infrastructural assets
in New Zealand. Historically, the industry’s bulk
fuel storage assets were shared among four main
participants, but the capital costs of those assets were
not properly recovered. Over time, the arrangements,
and the commitments to upkeep, have slipped.
We need to see these infrastructure assets operating on
a realistic and transparent commercial footing, because
that’s the only way to enable reinvestment and increase
New Zealand’s security of supply. Not having a highly
efficient and commercially run distribution system to
effectively store and distribute fuel throughout the
country, is a problem waiting to happen.
This year, we brought three new 10-million-litre tanks
into service at the Port of Lyttleton. It cost us $25
million. And we’ll invest around $40 million more in
new fuel storage assets across the country over the
next couple of years, provided we make decent
returns on our investment.
It’s vital that the country has reliable fuel stores
at points that can be easily accessed.
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On the road
Today, fuel products are imported, refined, piped
and shipped to bulk storage terminals at the country’s
main ports and Auckland’s Wiri terminal, and delivered
via trucks to commercial customers, truck stops and
retail outlets.
That makes road transport a vital part of the distribution
equation. As these numbers show, getting fuel from the
depots to all our stations in a timely and safe way is a
complex task.
At Z we have:
120 drivers
TREND: Expect increases in our driver numbers with
higher travel demand or shorter shift times (as a means
of better managing fatigue).
50 trucks
TREND: The number of trucks are likely to increase
unless more storage terminals become available.
Z has pledged to reduce its kilometres while our
competitors will likely be increasing theirs.
8,100,000 km driven
That’s the same as over 10
round trips to the Moon
TREND: Upward from 6.4 million km in 2009 to
7.2 million km in 2010.
1.8 billion litres of
fuel delivered
That’s enough fuel that an average car
could drive to Neptune and back twice
TREND: Relatively flat in total.
Fuels we deliver
Frequency of delivery
diesel
petrol
avgas
jet fuel
fuel oils
TREND: Likely to increase slightly, for example through
the addition of biofuels.
Frequency varies substantially, from several loads
to a site each day to once a year.
TREND: The range in frequency is likely to remain the
same, however, in some cases drop sizes will increase
due to more efficient scheduling and consequently the
number of deliveries to a given site may reduce.
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58 Z ENERGY 2012 ANNUAL REVIEW
A good chat – Z on
Facebook and Twitter
We Kiwis say what we think, and
here at Z, we like to listen. At Z,
we’re very aware of that real sense
of ownership that New Zealanders
have in us through the New Zealand
Superannuation Fund’s shareholding.
We want to engage with our customers and the public
on their terms – we will go to them instead of expecting
them to come to us. This is the main reason why we
are on Facebook and Twitter. People will talk about us
whether we know about it or not. We figure we might
as well participate in the conversation and find out what
people really think.
Social media, particularly our Facebook page, is our
forum for New Zealanders to have their say. It’s also a
place for us to chat, respond and learn. We understand
that the best way to improve is to keep up with what
Kiwis are talking about amongst themselves. We get
that you wouldn’t bother if you didn’t care and if you
didn’t want to see changes. So please keep giving us
your feedback, and we’ll keep responding.
Z is the only energy company in the country with a
significant Facebook presence. Launched in May 2011,
it’s now one of the biggest brand pages on Facebook
in the country.
Welcome
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Be bold We back people
Financial reporting
Courtesy of Charmayne Featherston
Courtesy of Suzy Atkin
Courtesy of Claire Lambert
Courtesy of Salvatore Elias-Drago
Courtesy of Dannielle Noqnoa
All images copyright © 2012 (courtesy of Z
customers using the Z Energy Facebook page)
Share everything 60 Z ENERGY 2012 ANNUAL REVIEW
Financial
reporting
The information in this Annual Review relates to Aotea Energy
Holdings Limited (AEHL), which is the company owned by
Infratil and the New Zealand Superannuation Fund.
The bonds are guaranteed by Aotea Energy Limited (AEL),
a separate entity that is 100% owned by AEHL through
a subsidiary and has a different set of financial results.
Bondholders can find more information on the structure and
AEL financial results at z.co.nz/about-z/investor-centre/
62 Z ENERGY 2012 ANNUAL REVIEW
So how did we get
on financially?
We have a five-year plan to deliver
our shareholders the returns they
deserve, and we are making progress
with our strategy to deliver this.
Z plans to be in business for a long time, and the
decisions we have made in the last year reflect a longer
term view than just one financial year. Our shareholders
Infratil and the New Zealand Superannuation Fund are
similarly future focused: they’re in this business for the
long game too.
Management and capital providers focus on current
cost earnings before interest, tax, depreciation,
amortisation and financial instruments (EBITDAF) which
lifted from $157 million last year to $172 million this year
with improved margins. Some of the increased earnings
were reinvested in our infrastructure improvement
programme and our retail roll-out. The investments we
have made in New Zealand’s infrastructure will generate
earnings in the future, but in the short term this has
meant that our return on assets is still not at a level that
would encourage reinvestment in the industry. We need
to improve our current returns if we are to continue to
invest in the security of fuel supply in New Zealand.
Investing for the long game
Investing in assets that we know will benefit New
Zealand industry and consumers has seen our capital
expenditure climb to roughly three times what our
predecessor was spending per annum. Everything that
we are investing in right now is designed to generate
a greater return than the core business we inherited.
Increased volume is nice – it’s a good sign of popularity –
but at the end of the day it’s a responsible rate of return
on capital that we need. We’ll continue to push for
New Zealanders to see the value of great service
and reliability of supply, and that good value is not
always indicated by the lowest price. In the meantime,
we need to be patient while our investments and
our efforts start generating returns. Fortunately,
our shareholders, Infratil and the New Zealand
Superannuation Fund, understand that.
New Zealanders continue to bond
with us
This year, we announced a second bond issue of seven
years which raised $150 million. Like its $147 million
predecessor, this was popular with Kiwi investors and
oversubscribed. We’ve used the money to repay bank
debt, spreading our debt obligations over time and
diversifying our risk.
We’ve also expanded our working capital facility from
$250 million to $350 million to fund the higher cost
of oil and the greater volume of fuel we are keeping in
storage, and extended our current bank facilities by
another year to 2014.
The important news for our bondholders is that our
bank covenants ratios, which were already comfortably
within agreed limits, have further improved. That’s a
sure sign that we are generating sufficient liquidity to
fund working capital and that our debt is manageable.
So, everything is on track and we have access to the
funds we need to reasonably expect to trade safely
through a period of continued volatility in the global
economy, as well as to expand and invest when the
circumstances are right.
More bondholder information
The information in this annual review relates to Aotea
Energy Holdings Limited (AEHL), which is the company
owned by Infratil and the New Zealand Superannuation
Fund. The bonds are guaranteed by Aotea Energy
Limited (AEL) which is a separate entity that is 100%
owned by AEHL, through a subsidiary, and has a
different set of financial results. Bondholders can find
more information on the structure and AEL financial
results at z.co.nz/about-z/investor-centre/.
Five factors influencing our earnings
1.
2.
3.
4.
5.
Changes in oil prices impact our
reported earnings mainly through
changes in consumer demand.
Pump prices have again lagged behind
upward shifts in the crude oil price.
Changes in the USD:NZD exchange
rate impact what we pay. These
fluctuations are largely hedged but
there is still some volatility in earnings
because of timing mismatches in
the revaluation of receivables and
payables.
Refining margins are influenced by
global supply of, and demand for,
refining capacity. This year, the margin
we pay for our refined product from
Refining NZ has fallen with the decline
in global demand.
Fluctuations in the gross fuel margin
impact cash earnings. New Zealand
fuel companies continue to engage
in a “fight to the bottom” market
strategy that means pricing has
further deteriorated this year. Last
year we earned around 3 cents current
cost net profit after tax (NPAT CCS)
for every litre of fuel bought by
consumers. This year that figure is
closer to 2.1 cents NPAT CCS per litre.
Operating costs also affect earnings,
and this year we have continued
to invest in our brand and our
service offer.
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Financial
performance
The first year of operation as a local
company was focussed on ensuring
a smooth transition. The second year
has been focussed on building a new
brand and implementing Z’s strategy.
These two elements in partnership
are the cornerstone of being a local
company and have enabled Z to post
strong results in very competitive
market conditions.
The petrol market in New Zealand is in decline though
the diesel market is growing at a rate slightly less than
GDP. Z is outperforming both these markets, reflecting
the strength of the Z brand.
Indexed annual motor spirit sales
104
102
100
98
96
94
92
0
1
N
A
J
0
1
R
A
M
0
1
Y
A
M
0
1
L
U
J
0
1
P
E
S
0
1
V
O
N
1
1
N
A
J
1
1
R
A
M
1
1
Y
A
M
1
1
L
U
J
1
1
P
E
S
1
1
V
O
N
2
1
N
A
J
2
1
R
A
M
Z
INDUSTRY (EXCL. Z)
Indexed annual diesel sales
125
120
115
110
105
100
95
0
1
N
A
J
0
1
R
A
M
0
1
Y
A
M
0
1
L
U
J
0
1
P
E
S
0
1
V
O
N
1
1
N
A
J
1
1
R
A
M
1
1
Y
A
M
1
1
L
U
J
1
1
P
E
S
1
1
V
O
N
2
1
N
A
J
2
1
R
A
M
Z
INDUSTRY (EXCL. Z)
Gross refining margin
Return on average capital employed
20%
15%
10%
5%
0%
2005
2006
2007
2008
2009
2011
2012
Return on average capital employed (ROACE) is a
measure of how effective we are in using our assets.
We have delivered an improvement in our ROACE while
also increasing our asset base, however, the returns
being generated are still not at the point that would
enable widespread investment in the industry.
NZD/barrel
25
20
15
10
5
-
2005
2006
2007
2008
2009
2011
2012
The gross refining margin (GRM) is the difference in
value between the products produced by a refinery
and the crude oil used to produce them. The GRM is
affected by international crude and product prices and
foreign exchange rates. The GRM forms part of our
result through volume we process through Refining NZ,
and further through our 17.14% holding in Refining NZ.
GRM has declined in the last two years due to global
over supply of refining capacity.
Current cost EBITDAF
$m
200
150
100
50
–
2005
2006
2007
2008
2009
2011
2012
The Z Energy Group provides information on its
earnings based on both current costs and historic costs.
Management and capital providers focus on current
cost as these reflect the underlying profitability of
the business. This differs from the statutory disclosed
historic cost earnings which take into account changes
in the value of inventory. Fluctuations in oil prices
change the value of the Z Energy Group’s inventory and
consequently also the historic cost reported results.
Current cost EBITDAF has improved in the two years of
local ownership. For further detail on our results, please
refer to the Z Energy Group’s financial performance
section of this report.
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66 Z ENERGY 2012 ANNUAL REVIEW
Z Energy Group’s
financial performance
The financial information in this section
relates to the Z Energy Group, being
Aotea Energy Holdings Limited and its
subsidiaries. All tables are extracted
from the audited financial statements
of Aotea Energy Holdings Limited and
should be read in conjunction with the
complete NZ International Financial
Reporting Statements.
Our statutory reporting conforms to accounting
standards which require cost of sales to reflect the
historic cost of the fuel sold. However, in reality, Z
constantly sells fuel and buys product to replenish
its inventory. Consequently current cost earnings
(which excludes the impact of oil prices on inventory)
are a better measure of the company’s underlying
performance and management and capital providers
focus on this. Over time, the two measurements should
be approximately the same, but there will be differences
in any one accounting period and generally historic cost
earnings will be more volatile.
Statement of comprehensive income for the year ended 31 March 2012
Total revenue
Cost of sales of goods
Gross profit
Share of earnings of Associate Companies (net of tax)
Sales and administration expenses
Distribution expenses
Other operating expenses
Total operating expenditure
Operating surplus before financing, derivatives, realisations, impairments and gain on acquisition
Net (loss)/gain on commodity, foreign exchange and interest rate derivatives
Results from operating activities
Interest income
Interest expense
Net financing expense
Gain on acquisition
Net surplus/(loss) before taxation
Taxation expense
Net surplus/(loss) for the year
Net surplus/(loss) attributable to owners of the company
Other comprehensive income, after tax
Actuarial gains/losses on defined benefit plan
Income tax on other comprehensive income relating to RBO
Share of other comprehensive income from associates (net of income tax)
Other comprehensive income for the year, net of income tax
Total comprehensive income for the year
Total comprehensive income attributable to owners of the company
Audited
2012
2011
$Millions
$Millions
3,179.3
(2,727.9)
451.4
4.3
(188.7)
(50.5)
(39.0)
(278.2)
177.5
(0.6)
176.9
7.2
(75.9)
(68.7)
-
108.2
(31.2)
77.0
77.0
(2.5)
0.7
(4.9)
(6.7)
70.3
70.3
2,794.6
(2,323.4)
471.2
9.8
(203.5)
(47.3)
(27.9)
(278.7)
202.3
(10.0)
192.3
1.0
(59.5)
(58.5)
121.4
255.2
(51.9)
203.3
203.3
(0.9)
0.3
-
(0.6)
202.7
202.7
For the year ended 31 March 2012, net profit after tax
was $77 million, down by $126 million on the 2011 result.
However, the 2011 result included the recognition of fair
value on acquisition of $121 million which relates to the
revaluation of Z Energy’s assets.
Management and capital providers focus on current
cost earnings before interest, tax, depreciation,
amortisation and financial instruments (EBITDAF).
Current cost earnings reflect the underlying profitability
of the business and take out fluctuations associated in
oil price changes. On a current cost basis the Z Energy
Group achieved operating EBITDAF of $172 million, up
10% on the previous year.
Sales revenue (excluding tax and levies on fuel) of
$3,179 million was up 14% on the prior period, mainly
reflecting the increased cost of refined product. This
also impacted cost of sales of $2,728 million, which
was up 17% on the previous year.
Operating costs of $278 million were consistent with
the previous year despite increased depreciation costs
associated with increased capital expenditure and
increased costs associated with the brand roll-out.
The first year of operation as a local company was
focused on ensuring a smooth transition. The second
year has been about building a new brand and
implementing the company’s strategy. These two
elements are the cornerstone of being a local company
and have enabled Z to post strong results in very
competitive market conditions.
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68 Z ENERGY 2012 ANNUAL REVIEW
Statement of financial position as at 31 March 2012
Cash and cash equivalents
Trade, accounts receivable and prepayments
Derivative financial instruments
Inventories
Current assets
Property, plant and equipment
Intangible assets
Investments in associates
Other non-current assets
Other investments
Non-current assets
Total assets
Accounts payable, accruals and other liabilities
Provisions
Derivative financial instruments
Bank debt
Income tax payable
Total current liabilities
Bank debt
Other liabilities
Provisions
Derivative financial instruments
Deferred tax
Loan from shareholders
Redeemable preference shares
Bonds
Non-current liabilities
Attributable to owners of the company
Total equity
Total equity and liabilities
Audited
2012
2011
$Millions
$Millions
16.5
246.4
0.3
671.0
934.2
469.8
25.3
194.1
0.2
2.3
691.7
1,625.9
469.6
4.9
10.4
32.5
14.0
531.4
107.0
-
20.8
0.5
21.6
244.5
115.0
292.2
801.6
293.0
293.0
1,625.9
8.4
226.5
-
548.7
783.6
431.0
38.1
200.3
0.5
-
669.9
1,453.4
392.7
7.7
6.0
15.0
23.4
444.8
196.5
6.8
18.0
4.0
26.0
244.5
115.0
144.2
755.0
253.7
253.7
1,453.4
Major movements in the balance sheet are disclosed
below:
• Trade, accounts receivable and prepayments are
largely made up of amounts due from customers
that have been extended credit for sales made to
them in the last 30 days. The higher receivables
balance as at 31 March 2012 reflects increasing
commercial fuel sales and higher refined fuel prices.
•
Inventories of $671 million, recorded at historic
cost, comprise $288 million of crude oil and $383
million of refined products, which cover between
two and three months’ sales. At 31 March 2012, the
Z Energy Group had 605 million litres of inventory
on hand, which was up on 524 million litres at 31
March 2011. Inventory levels were increased at year
end to accommodate an impending maintenance
shut down at Refining NZ.
• Property, plant and equipment of $470 million of
property, plant and equipment includes:
– freehold and leasehold land and buildings used
as retail service stations and truck stops;
– plant and equipment for use in retail service
stations and truck stops;
– storage and distribution infrastructure assets,
which include port storage facilities, airport
storage and refuelling equipment and pipelines;
and
The increase in value of land, buildings, plant and
equipment for the year ended 31 March 2012 is reflective
of the increased capital spending of Z Energy.
•
•
Intangible assets including but not limited to,
carbon credits purchased for the settlement of
carbon obligations and the right to participate in
the Fly Buys loyalty programme.
Investments in associates mainly represents
Z Energy Group’s 17.14% holding (or 48 million
shares) in Refining NZ. The carrying value is the
original purchase price, less dividends received,
plus equity earnings. For the year ended 31 March
2012, Refining NZ posted a loss reflected in other
comprehensive income which reduced the value
of the holding in the Refining NZ. We note that
at 31 March 2012, the share price closed at $2.87,
27% below the carrying value of $3.94. As a result
we have assessed that there is an indicator of
impairment. However, based on a value in use (VIU)
calculation using a discounted cashflow model, we
have assessed
that the VIU is higher than the carrying value.
As such no impairment of the investment was
made. Z also has investments in Loyalty New
Zealand Limited, New Zealand Oil Services
Limited, Wiri Oil Services Limited, Penagree
Limited, and Coastal Oil Logistics Limited.
• Accounts payable, accruals and other liabilities
is largely comprised of amounts owing to the Z
Energy Group’s suppliers of crude oil and refined
products for which title has been received but for
which the due date for payment is in the future.
Payables are significantly influenced by the timing
of crude and product shipments.
• Bank core debt represents a $203 million revolving
core debt facility representing bank borrowing
other than working capital and hedging facilities.
This fluctuates depending on transactions and at
year end totalled $107 million.
• Bank working capital debt represents funds drawn
down to fund the day-to-day operation of the
company. The Z Energy Group has working capital
facilities provided by its banks amounting to $350
million. This fluctuates depending on transactions
and at year end totalled $32.5 million.
• Provisions include environmental and
decommissioning and restoration provisions.
Decommissioning and restoration costs expected
to be settled within one year are classified as
current liabilities and those expected to be
settled between one and 30 years are classified
as non-current.
• Bonds represent the value of the Group’s two
existing series of bonds (maturing in 2016 and
2018). The increase in the value of the bonds is
as a result of Z Energy Limited issuing a second
series of bonds on 9 August 2011 with a face
value of $150 million.
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Statement of cash flows for the year ended 31 March 2012
Cash flows from operating activities
Cash was provided from:
Receipts from customers
Dividends received
Interest received
Cash was disbursed to:
Payments to suppliers and employees
Interest paid
Taxation paid
Net cash inflow/(outflow) from operating activities
Cash flows from investing activities
Cash was provided from:
Proceeds from sale of property, plant and equipment
Cash was disbursed to:
Purchase of intangible assets
Acquisition of subsidiary (net of cash acquired)
Settlement of pre-acquisition liability
Purchase of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Cash was provided from:
Bank funding
Shareholder loan
Shareholder redeemable preference shares
Shareholder equity
Issue of bonds
Cash was disbursed to:
Repay bank debt
Dividends paid to owners of the company
Net cash inflow from financing activities
Cash acquired on business combination
Net increase in cash
Cash balances at beginning of year
Cash at end of year
Audited
2012
2011
$Millions
$Millions
3,165.1
6.6
5.9
3,177.5
2,703.8
5.8
0.9
2,710.4
(3,039.3)
(2,592.7)
(62.7)
(44.5)
(37.6)
(21.4)
(3,146.5)
(2,651.7)
31.1
58.7
12.7
12.7
(18.6)
-
-
(64.1)
(82.7)
(70.0)
-
-
-
-
150.0
150.0
(71.9)
(31.0)
(102.9)
47.1
-
8.1
8.4
16.5
1.8
1.8
(30.9)
(890.7)
(8.8)
(24.0)
(954.4)
(952.6)
497.6
244.5
115.0
60.0
147.0
1,064.1
(279.6)
(9.0)
(288.6)
775.5
126.7
8.4
-
8.4
Cash received from customers increased due to the
increased cost of finished product. This also flowed
through to cash disbursed to payments to suppliers as
the cost of crude and finished product increased.
However the amount being spent on the purchase
of property, plant and equipment increased to $64.1
million, reflecting Z Energy’s commitment to the brand
roll-out and investment in its infrastructure.
Cash from investing activities increased due to the sale
and leaseback of eight retail sites. Cash outflows from
investing activities decreased due to the first year’s
operations including the original acquisition of business.
Cashflows from financing activities included the issue
of a second series of bonds which occurred during the
financial year and had a face value of $150 million.
Our shareholders
Z Energy is 50% owned by the New Zealand Superannuation Fund
and 50% owned by Infratil.
New Zealand Superannuation Fund
Infratil
The Government-owned New Zealand Superannuation
Fund aims to smooth the tax burden of the rising
cost of New Zealand Superannuation, by investing
money today to pay for superannuation entitlements
in the future.
Withdrawals from the Fund are not scheduled to begin
until 2029/30. This means that the Fund has a long-
term investment horizon, and is focused on maximising
its growth to benefit future generations.
At the end of March 2012 the Fund had NZ$19.46
billion in assets, including its stake in Z Energy.
Infratil is a New Zealand infrastructure investment
company listed on the NZX and ASX.
Infratil owns businesses that operate in the energy
and transport sectors, predominantly in New Zealand
and Australia: TrustPower (in partnership with
Tauranga Energy Consumers Trust), Infratil Energy
Australia/Lumo, Perth Energy, Wellington Airport
(in partnership with Wellington City), NZ Bus and
Z Energy (in partnership with the New Zealand
Superannuation Fund).
Infratil is a long term investor that creates value
for its shareholders by creating value for the people
who use its facilities and services and by having its
businesses well regarded by the communities in
which they operate.
nzsuperfund.co.nz
infratil.co.nz
WelcomeBe straight upHave the passionBe boldWe back peopleShare everythingFinancial reporting Alicia and Gemma with Lil Crazy Man, their pet lamb
Courtesy of Kim Keay
Leilani having fun in the surf in Piha
Courtesy of Martin Hoffman
Playing beach cricket barefooted by
the bach in Ohawini Bay, Oakura
Courtesy of Pippa Bourke
Marlborough Sounds, Courtesy of Martin Halford
Katherine enjoying the
autumn leaves near Cromwell
Courtesy of Di Lewis
Woodcutter
Courtesy of Sharon Cooper
This is why
we love
New Zealand
Chasing seagulls in Cathedral Cove
Courtesy of Peter O’Caroll
Learning to surf at Great Barrier
Courtesy of Gerard Murphy
All images copyright © 2012 (courtesy of Z
customers using the Z Energy Facebook page)
The Auckland night-scape
Courtesy of Yufeng
Castlepoint
Courtesy of Denise Gunn
“Doghug” featuring little
Clara and Henry the dog
Courtesy of Mia Palmgren, of
Mia DeLight Photos
18
Andy batting at 20/20 school cricket
Courtesy of Marion Bailey
Holly at Whangamata harbour
Courtesy of Jamie Anderson
“Stop laughing I am rowing!” - Purakanui
Courtesy of Bernadette Hay
Awaiting caption
Courtesy of Alex Bon
Chloe, Rachel and Brian enjoying an
autumn day at Waitarere beach
Courtesy of Vivian Grapentin
Jared thinks
the tractor is
still good
Courtesy of
Chrissy Mason
Quinn and his little friend
Jasper at Hillend, Otago
Courtesy of Emma Moore
MORE ABOUT Z
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