Z Energy Limited Annual Report 2014

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FY2014 Annual Report · Z Energy Limited

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z.co.nz

ANNUAL REPORT 2014

Z ENERGY

Welcome
to Z’s

Annual report

for the year ended 31 March 2014

As part of our commitment to being straight up and sharing everything,
each year we’ve released an annual review so that everyone can see what we’ve been up to.

Now that we’re a listed company, our focus has moved from this being an annual review to an annual
report. So what’s in a word? All it means is that there’ve been a few tweaks to ensure we meet
our reporting obligations to our 10,000 new shareholders.

Z ENERGY

ANNUAL REPORT 2014

Z ENERGY

An introduction with CEO
Mike Bennetts

And a quick summary of what you can expect in this year’s annual report.

Hi, I’m Mike Bennetts, Z’s1 chief executive. Welcome to our 2014
annual report. This year, we’ve structured the report around
our leadership framework. This is how we describe what great
leadership looks like inside Z.

That’s the sort of leadership that I or anyone in Z brings to our daily
jobs, in what we do personally, or the sort of leadership we bring
to the industry. So, it’s really important to reinforce that we believe
extraordinary results flow from extraordinary leadership – that’s
why we’ve restructured the report this year, in that way.

... we believe extraordinary results
flow from extraordinary leadership ...

We also continue to talk about our evolution as a brand; a uniquely
Kiwi brand that is very much at the heart of what we do here in
New Zealand.

We talk about our commitment to sustainability, we update you on
our progress, we talk about our customer offers, and we talk about
how we continue to be listening to what customers have to say
about us, our brand, our offers and all the things we do inside
New Zealand.

And finally, I’d just like to thank you for showing interest. I deeply
appreciate, as does everybody in Z, the interest you show in our
company and the support we get from you, whether you’re a
shareholder or some other form of stakeholder.

Thank you very much for that ongoing support, and I wish you
well on the journey through our 2014 annual report.

This is a transcript.
You can watch the video at z.co.nz/annual-report-2014

This report is dated 23 May 2014 and is signed on behalf of the
Board of Z Energy Limited:

Peter Ward Griffiths

Abigail Kate Foote

1 This annual report relates to the consolidated group of which Z Energy Limited ARBN 164 438 448 is parent. Z Energy is incorporated in New Zealand under the Companies Act 1993 (NZ).

Z ENERGY

ANNUAL REPORT 2014

When Z started as a stand-alone company in 2010, one of our most important and
urgent jobs was setting up an effective local leadership model. We agreed on six
differentiating leadership competencies to guide the way the company behaves
and operates.

This year, we’ve structured our annual report according to those leadership
competencies, so you can learn more about how they drive our company to
achieve the results we strive for.

Our six leadership competencies are:

Create what matters

Make things happen

Grow capability

Generate new ideas, take risks
and solve problems.

Plan for and deliver results, communicate
clear expectations, hold others to account.

Challenge, support and develop
team members.

Act as one team

Inspire people

Think commercially

Work collaboratively and challenge
during debates, speak with one voice once
decisions have been made.

Set goals, empower others to make
decisions, communicate constantly.

Focus on growing returns, think like an
entrepreneur, identify opportunities.

ANNUAL REPORT 2014

Z ENERGY

Site staff go to the top of the class

Leading the conversations that matter

Being good neighbours all year round

Engaging our people

Thinking commercially

We signed a new contract for imported
refined fuel

Where our oil comes from

The value of each drop

Our alternative energy strategy

Thinking commercially

Corporate governance

Remuneration

Our financial results

What’s in the report?

Creating what matters

Z performance snapshot

The best of Z 2013/14

CEO’s report

Chairman’s report

Meet Z’s Board

Meet Z’s executive team

Acting as one team

Doing even more Good in the Hood

Waging a war on waste

The faces of Z

How safe were we?

Keeping our people safe

We bring Mini-Tankers on board

Making things happen

Inspiring others

Our supply chain

Helping Refining NZ work better for everyone

Keeping things simple for Kiwi businesses

Guest columnist

We’re on track to become New Zealand’s
leading biofuel producer

Helping Kiwis fill up faster

Giving our customers more of what they want

Where to next for the Z brand?

We’ve started winning at word-of-mouth

Driving customer service

CO2 emissions

Switching on sustainability

Growing capability

Helping New Zealanders drive smarter

Fuelwise

More places to fill up with Z

Inspiring great leadership

Building a Sensing City

Z ENERGY

ANNUAL REPORT 2014

Z Brand Manager, Rhys Musson, and Z Sustainability Manager, Gerri Ward, out for a run on the Wellington waterfront.

ANNUAL REPORT 2014

Z ENERGY

Creating
what matters

A snapshot of our performance and
other highlights from 2013/14.

Z ENERGY

Z performance snapshot
for the year ended 31 March 2014 (NZ$) 3

$219m

$95m

$101m

Replacement Cost1 Operating EBITDAF2

Historical Cost Net Profit After Tax

Replacement Cost Net Profit After Tax

22�

Dividends per share

25�

Replacement Cost earnings per share

$73m

Capital expenditure

Z Energy replacement cost gross margin through time ($m)

600

500

400

300

200

100

Other

Refining margin

Non-fuels margin

Fuels margin

FY11

FY12

FY13

FY14

Replacement cost fuels margin through time

Non-fuels margin through time

450
400
350
300
250
200
150
100
50
0

FY11

FY12

FY13

FY14

FY11

FY12

FY13

FY14

Fuels margin ($m)

Non-fuels margin ($m)

1 Z’s replacement cost earnings adjust the cost of sales as if inputs had been procured at the time of sale. For FY14 the replacement cost approach to valuing stock sold has resulted in a reduction in cost
of goods sold of $8 million. This is not reflected in Z’s statutory earnings. Z’s management focuses on (and Z provides guidance on) replacement cost operating earnings, which Z considers better reflect
the underlying trading performance of the business.

2 Replacement Cost Operating Earnings Before Interest, Taxation, Depreciation (including gains and losses on the disposal of fixed assets), Amortisation and Fair Value movements on interest rate
derivatives (RC Operating EBITDAF).

3 All amounts are New Zealand dollars (NZ$) unless stated otherwise.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Key financial results

Revenue
Replacement Cost gross margin
Operating Cost (excluding primary distribution costs)
Replacement Cost Operating EBITDAF
Share of earnings in associates
Replacement Cost EBITDAF
Depreciation and amortisation
Net financing income/expense
Profit and loss on sale of assets
Other
Taxation (including tax on COSA)
Replacement Cost Net Profit After Tax

Z Energy, in delivering its first full year result as a listed company,
earned a statutory Historical Cost Net Profit After Tax for the
year ended 31 March 2014 of $95 million. These financial results
have been delivered in a year of significant accomplishment for Z,
including our successful Initial Public Offering (IPO) listing on
the NZX and ASX in August 2013.

Z Energy’s financial performance was in line with the forecasts
we made to prospective investors at the time of our IPO. We have
delivered a Replacement Cost Operating EBITDAF of $219 million
which has exceeded our IPO forecast of $207 million.

Z Energy’s Replacement Cost EBITDAF of $218 million has been
impacted by the performance of our equity stake in New Zealand
Refining Company Limited (Refining NZ). Gross Refining Margin
continues to be volatile over the period as it is driven by global
oil prices and regional supply and demand variables across the
Asia-Pacific region. The resurgence in refining activity in the United
States due to shale oil production has impacted refining margins
on a global basis.

Z Energy’s FY14 financial results show our ability to continue
momentum in earnings growth, as well as the ability of the
company to manage volatility in different parts of the business.

Highlights of our 2014 financial performance include:

• We continued to grow both fuel and non-fuel gross

margin contributions.

• Our replacement cost fuel gross margin increased by 5% on
the FY13 year and reflects the benefits of our volume/margin
trade off across the marketing businesses. This meant lower

FY14
Pro forma actual
$m

FY13
Pro forma actual
$m

3,371
500
(281)
219
(1)
218
(39)
(33)
(4)
(1)
(40)
101

3,558
485
(289)
196
6
202
(39)
(39)
41
4
(31)
138

Var
%

(5)
3
3
12
<>
8
-
15
<>
<>
(29)
(27)

volumes than in the previous corresponding period. However,
this was a conscious choice by the business.

• Our food and coffee offer continues to deliver strong results,
with revenue growth of 45% against the 2013 financial year.

• The business invested in five new to industry sites (NTIs)

during this financial year, which are delivering new earnings
and fuel volume.

• We have generated further momentum in our supply chain
through both our improved procurement of refined product
and increased value to be generated through our supply
optimisation with BP and Refining NZ.

Z Energy also invested $73 million in capital expenditure during the
period. Capital expenditure was less than what we forecast at the
time of our IPO of $99 million, which is a result of our decision to
defer some supply chain investments as well as delays completing
our FY14 retail build programme.

FY14 was the final year of the current three-year program with
benefits delivered in line with plan. In addition, during FY14 the
business completed its second iteration of the company’s strategy.
This outlines the future direction and growth initiatives for the
business over the next five years and builds on our successes to
date. Our strategy remains focussed on our core business with
$40–$50m of EBITDAF uplift targeted over this period.

Z ENERGY

ANNUAL REPORT 2014

The best of Z 2013/14

Z Energy goes public

$88 million declared
to shareholders

One of the most significant undertakings in Z’s four-year history
was our initial public offering (IPO) and listing of our shares on the
New Zealand and Australian stock exchanges (NZX and ASX) in
August 2013.

Through having a listed shareholder and listed bond debt on the
NZX Debt Market, we’ve always endeavoured to operate like a
public company, especially when it comes to sharing our results
and being held accountable for our actions.

So while it was a significant amount of work to go through the
IPO, it wasn’t a dramatic change in how we do business – rather
than two shareholders, we’re now privileged to have approximately
10,000. And that includes our own people: around 50% of our
employees now own shares in Z.

From the date of our listing to the year ended 31 March 2014,
Z has declared to its shareholders $88 million in dividends.

Bringing you more places
to fill up with Z

We continue to lead the way when it comes to investing in our
industry – this year another five Z stations arrived on the scene.
At a cost of up to $3.5 million each, this is a significant investment
in our future growth.

Earnings continue to grow

Z fever is spreading

On an operating replacement cost basis EBITDAF lifted from
$196 million in 2013 to $219 million in 2014. This was achieved in
an increasingly competitive market. Since 2010, we’ve increased
earnings by 39% and replacement cost net profit after taxation
(NPAT) by 51%.

More than 35% of Z’s retail customers are now what we call
‘raving fans’ – up from 31% last year. This means they rate Z
higher than any other company across all areas that we measure.

ANNUAL REPORT 2014

Z ENERGY

We’ve struck a new deal
on imported refined fuel

Doing more Good in the Hood

Z’s neighbourhood investment programme, Good in the Hood,
has been incredibly popular with our customers and our local
neighbourhoods. In March 2014, Z customers voted again for
the community groups they wanted us to support and again we
gave more than $1 million to around 500 unique groups across
New Zealand that are actively supporting people who need it.

In addition, in August 2013, Good in the Hood took home the
Sponsorship category at the TVNZ NZ Marketing Awards.

Customer satisfaction increase

We measure how our commercial customers think we’re doing by
asking them if they would recommend us to a friend or colleague.
The industry as a whole does terribly in this area, due to years of
underinvestment and poor customer service.

We’ve put a tonne of effort into doing a whole lot better for our
commercial customers, which is now showing up in feedback
from our customers.

Now that we’ve been around for a good few years, we’ve got the
skills and experience to directly negotiate our imported refined
fuel contracts. This year we cut out the middle man and signed a
very competitive 12-month deal with a South Korean refiner for the
supply of around 500 million litres of refined fuel.

We’re keeping Kiwis moving

Z’s forecourt concierges are known for great service, and now we
reckon we’re also the place to go to for the fastest fill-up in town.
Forty-nine Z stations now offer pay-at-pump facilities, which means
you can get your fuel and get back on the road quick smart.

Z site staff graduate
top of the class

This year 1,450 Z site staff graduated with a New Zealand
Qualifications Authority-accredited Certificate in Retail, a
Level 2 tertiary qualification. This was a win–win way of equipping
our people to deliver the Z factor to our customers, and also
enabling them to be recognised for their skills and achievements
in the employment market.

ANNUAL REPORT 2014

Mike Bennetts
CEO’s report

Ko mihi nui ki a koutou. Ko tēnei tau he wā whakahirahira mō Z Energy.
Ko te tumanako kia whakapai tō tātou herenga ki mua.
Na reira, tēnā koutou katoa.

As shareholders you can assess the performance of Z’s team
through the financial results contained in this document. These
clearly operate as the ‘scoreboard’ for what we have done over
the past 12 months and, more importantly, since you decided to
invest in Z.

As much as the score is clear and obvious, I think it is equally
important that we let you know how we have played the game.
Don’t get me wrong – the score really matters and is the ultimate
measure of our performance, but you should equally assess how
we played the game and whether it was consistent with the sort of
company we say we are, and with your expectations as an investor.

That is why our annual reports do more than just give you the
financial results. We want to be held accountable for both the score
and how we played the game. This is entirely consistent with our
values as a company and the way we position Z as a brand. We do
this to provide a platform and forum for you to feed back how you
reckon we are performing. That is one of the reasons why you can
access our annual report through a digital platform and provide
feedback and ask questions through it, including directly to me.

In the past year, we have transitioned to a publicly listed company
and delivered on our forecasts, for the year ending March 2014, that
we outlined in our investment statement and prospectus. We also
have sufficient momentum to re-affirm the forecasts we provided
through to September 2014 – the end of the first half of our 2015
financial year.

We can do that because we have integrity in our operational
activities and are realising the benefits from our past investments
in our assets, customer offers and our people. In fact, Z’s employees
are some of the most engaged employees in New Zealand. Staff
engagement matters because it is a measure of the discretionary
emotional energy an employee is willing to commit, i.e., going
the extra mile. Given the clear link between engagement and
performance, we benchmark this annually, and this year’s result
has Z in the upper quartile of workplaces across Australasia.

As for our operational activities, we have lowered our imported
fuel costs through our new agreement with a South Korean refiner.
While refining is a tough business at the moment, we are growing
our underlying refinery margin performance by working more
efficiently than ever before with Refining NZ in Whangarei. We
continue to support the initiatives of their management to improve
the efficiency of refinery operations, including the Te Mahi Hou
expansion, which is scheduled for completion at the end of the 2015
calendar year.

In the past year, we invested to keep our supply chain assets safe
and reliable so our operating costs are competitive and we are not
wasting time and money covering operational inefficiencies.

In both our retail and commercial markets, we continue to optimise
our volume and margins. This is the strategist’s way of saying we
trim out the unprofitable customers, work with our customers
to reduce unnecessary costs of doing business together, and

ANNUAL REPORT 2014

Z ENERGY

We remain focused every single day on optimising
our volume and margin decisions in order to
deliver the best value to our customers and our
shareholders, while maintaining an appropriate
competitive position.

consciously choose how and where to compete. In doing so, we
are very mindful of the economies of scale we need within our
supply chain.

That means we have sold fewer litres this year than any year since
we took over the business in 2010, and I appreciate that raises
questions for shareholders. However, in deliberately choosing
to sell less fuel at a better return and to focus on delivering real
customer value to those customers we seek, we have delivered
the best profit performance to date and (our analysis predicts)
our highest share of the industry profit pool, i.e., we are making
both more absolute and relative profits. This is how we play the
game within the New Zealand market structure.

We know that our competitors are focused on price-based and
discount-driven offers, whereas we are building long-term, value-
based relationships with both our retail and commercial customers.

We remain focused every single day on optimising our volume
and margin decisions in order to deliver the best value to our
customers and our shareholders, while maintaining an appropriate
competitive position.

Customer satisfaction matters to all of Z’s employees. We actually
stood the whole company down for half a day in December to
spend time together to remind ourselves about why we are here,
what is important about our brand and how each of us has a role
to play in satisfying our customers.

Depending on the actual measure, we survey our retail customers
(and those of our competitors) on a daily, monthly, quarterly and
half-yearly basis. We have data that goes back for a few years now,
so we are clear about what we do well, where our performance
varies and what we still need to do. This enables us to remain
consistently focused on the things that matter to our customers
– doing more of what our customers like and addressing gaps and
areas where we’re not meeting their expectations.

We are deliberately giving more profile in our various market
disclosures to our performance in health, safety, security and the
environment (HSSE). HSSE matters because it is about the safety
and well-being of all our people and our planet, while sustaining the
long term future of our company.

We know we operate in an industry that has more operational
hazards and risks than most, and in a country that has
comparatively poor HSSE outcomes and results. For the past
decade, per capita workplace injuries and fatalities in New Zealand
are well beyond those of comparable countries like Australia,
Canada, the United States and the United Kingdom.

In that context, companies like Z need to take a leading position on
the changes needed to further improve workplace health and safety.
At the simplest level this means having people go home to their
families in good shape at the end of their working day. We
are already working on the changes we will need to make in response
to new health and safety legislation that will come into effect in 2015.

In the sustainability space, we are doing very well in some areas,
are on track in others and are coming up against the inevitable
speed bumps with a few of the targets we have set for ourselves.

When we originally set our sustainability goals, we didn’t have
a clear pathway to their achievement for about half of them.
That didn’t and still doesn’t diminish our commitment. I’m very
pleased that we have announced our plans for development of a
commercial-scale plant capable of producing 20 million litres of
sustainable biodiesel per annum. Initiatives like this help us start
to change the fossil fuels paradigm. In the future we will also be
reporting our sustainability performance more fully and against
international best practice frameworks.

As an entire transport fuels industry, the products Z and
our competitors collectively sell account for about 20% of
New Zealand’s greenhouse gas emissions. So we continue to

Z ENERGY

One of the benefits of being a public company
is that I now receive more feedback from a wider
group of people, even to the extent of being given
specific advice on how to run the company!

work hard to be in the middle of the greenhouse gas solution
rather than being seen as the centre of the problem.

We will provide specific guidance as to what this means for
future earnings at the appropriate time, as is current practice.

In our investment statement and prospectus (pages 80/81) we
spoke of the opportunities for growth, some of which would be
delivered in the forecast period to the end of September 2014,
and some of which could materialise in the years beyond that.

In the past few months, we have presented our Board with a
range of options – what we call Strategy 2.0. This is the next
iteration of our strategy following the successful completion
of our first three-year strategic programme, which completed
in March 2014. These are projects and initiatives that further
strengthen our core business and are a natural evolution from
where our business is today.

This will include investing in new service stations and car
washes, upgrading another 50 of our convenience stores beyond
the current 100-store network, enhancing the retail customer
experience (like pay-at-pump technology), using information
technology to make it easier and cheaper for our commercial
customers to buy from us and getting the lowest cost products
from a dual supply chain of local refining and imported fuels.

There are also opportunities for us to go beyond our core business
into areas that are a natural extension from what we do today. This
is how many other Kiwi companies grow in equally mature sectors.

If you would like to see how we speak about this strategy, you
can read the pack and view the video from a session we held
with institutional investors on our strategy in April this year here:
z.co.nz/assets/Uploads/Consolidated-Master-Pack-as-
at-02042014.pdf

In addition, there remains the potential for further industry merger
and acquisition activity, as there has been in the past, such as when
Shell chose to exit part of their New Zealand assets in 2010. We
believe we are well placed to participate in any such activity and
see it as an opportunity for further growth.

Having growth options is important, but the key to success lies in
execution. We have a strong balance sheet and a stable leadership
team, most of whom have international experience with a good
blend of oil industry backgrounds and diversity from a variety of
other sectors. We continue to invest in the personal development
of all our employees to ensure that they are always capable of
doing what is asked of them and have the confidence to innovate
and expand what is possible around operational excellence and the
customer experience.

One of the benefits of being a public company is that I now receive
more feedback from a wider group of people, even to the extent
of being given specific advice on how to run the company! I would
like to thank all of you who have taken the time to call, email, text
or write a letter to me or anyone within Z. We work hard at listening
and respect all of what we hear. That is entirely consistent with how
we started this company and our core values.

I look forward to reporting back to you in a year’s time if I don’t
have the opportunity to meet with you before then.

Mike Bennetts, CEO

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Peter Griffiths
Chairman’s report

Delivering what matters
for a moving world

At Z, our purpose is simply ‘solving what matters for a moving world’.
This focuses our decisions on delivering value to our customers and our
shareholders and is a theme that you will find runs throughout this report
– our first as a publicly listed company.

This year, we have delivered on our key commitments made
in the prospective financial information and set in place the
strategic framework for Z’s future operations and growth.

Z has delivered Replacement Cost Operating EBITDAF of
$219 million, which is slightly above our guidance range.

Given the nature of our industry and its inherent hazards,
I am particularly pleased that we have delivered strong
financial performance from safe operations.

This has been achieved in the face of challenging market
conditions and demonstrates the ability of the business to
manage volatility and unexpected change.

While we welcome the improving domestic economy, a number
of factors such as improving vehicle efficiency and even the
increasing penetration of broadband connectivity are resulting
in a sluggish demand in our markets.

Our focus remains on delivering increasing value and distinctive
performance. We have strengthened our market-leading brand
and further developed our retail offer, and worked to support
commercial customers and deliver what mattered most to them.
Over the 2014 financial year this has enabled us to grow our gross
margin and deliver 10% growth in underlying RC NPAT earnings
despite lower total sales when compared with 2013.

The 2014 financial year has been as eventful and challenging as
it has been rewarding, and I would like to thank every member
of the Z team for their commitment to the company. In less than
three short years, Z has gone from being simply the last letter
of the alphabet to one of New Zealand’s most iconic and widely
recognised brands. The Z brand emphasises our commitment
to New Zealand as the only market in which we operate and, in
particular, to the customers who are at the heart of our business
and our brand.

The IPO and listing on both the New Zealand and Australian stock
exchanges in August 2013 placed a heavy demand on members of
the Z team. The success of the IPO and its delivery consistent with
Z’s values is a tribute to those efforts.

You will be seeing even more of the Z brand over the coming
years as an important part of the company’s growth will flow from
increasing the network of Z retail sites, each with an improved
onsite offer.

While the Z network is the most visible part of our business, Z’s
success is underpinned by the quality of its supply system. During
the year we have strengthened and built greater efficiency into
our supply chain by negotiating better contractual terms for
imported fuel and strengthening our local partnership to ensure
we receive better value from processing crude oil at the Marsden
Point refinery.

Z ENERGY

We plan to continue to safely deliver quality fuels
and convenience to New Zealanders while providing
a reliable financial return to our shareholders.

Z’s good safety performance maintains the company’s licence to
operate. Z is wholly committed to minimising its impact on people
and the environment.

In service of best-in-class health and safety performance, the
quality and maintenance of equipment and the training and
development of people are essential. However, nothing is more
important than the fostering of a culture in which safety is
paramount, in which leaders set an example and in which people
are encouraged to intervene, report incidents and actively
contribute to safer workplaces.

You will see in this report that Z reports a range of health and
safety and environmental performance data, including spills to
ground, robberies and lost time injuries. We are proud of our
record to date, and we publish these statistics every quarter to
encourage scrutiny and to hold ourselves publicly accountable
for our performance.

Z has focused on reducing the carbon intensity and waste from its
own operations and on supporting customers to get the best value
from the fuel they buy. I’m pleased with our efforts in achieving our
sustainability goals and the progress being made.

Growth and shareholder value is the focus of the second phase of
Z’s strategy. We will be focused on delivering greater value from the
current business through flawless supply chain execution, improved
cost efficiency and bringing a quality customer experience to more
retail and commercial customers.

neighbourhoods. Z’s Good in the Hood programme has set a new
standard in terms of community participation and has actively
supported hundreds of community organisations to deliver what
matters in their neighbourhoods.

So what does financial year 2015 hold?

With continued economic growth across the New Zealand economy,
we expect this to be reflected in heightened demand for diesel,
while industry petrol sales will remain flat to slightly declining.

It’s a brave person who predicts oil prices or exchange rates too far
into the future but Z’s view is that oil is likely to remain within the
current range of US$100 – $110 per barrel and for the USD-NZD
exchange rate to remain relatively high. Z has a strong balance
sheet and financial facilities to cope with a wide range of oil and
exchange rate scenarios and also to enable the company to pursue
strategic opportunities as they might arise.

We plan to continue to safely deliver quality fuels and convenience
to New Zealanders while providing a reliable financial return to our
shareholders.

On behalf of the Z Board, I would like to thank all of Z’s
shareholders for their support of Z during our market listing and to
Mike Bennetts and the whole team at Z for their commitment and
contribution to our company.

The 2015 year will be an exciting one for Z, and I look forward
to sharing our successes with you over the course of the year.

The company will invest in growth options both within the core
business, such as expansion of the retail network, and into first-
mover opportunities such as the recently announced biofuel
production facility.

Z is a local company that is unique in this market. Z has the
flexibility to make the investment decisions that determine
its future here in New Zealand, and the way that, as a part
of our community, it interacts with and actively supports its

Peter Griffiths, Chairman

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Paul Fowler
Director

Justine Munro
Director

Marko Bogoievski
Director

Dr Bruce Harker
Director

Abby Foote
Director

Peter Griffiths
Chairman

Alan Dunn
Director

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Meet Z’s Board

Peter Griffiths Chairman
BSc (Hons)

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. Until 2009, he was Managing
Director of BP New Zealand and also Chairman of BP South West
Pacific. 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.

Marko Bogoievski Director
BCA, MBA, ACA

Marko is Chief Executive Officer of Infratil and H.R.L. Morrison & Co.
He was previously Chief Financial Officer of Telecom New Zealand,
responsible for corporate finance, mergers and acquisitions, and
group strategy. He is a director of Infratil and Trustpower. Marko
holds a Master of Business Administration from Harvard University.

Alan Dunn Director
Member, Institute of Directors

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 New Zealand
Post, Burger Fuel Worldwide and a number of private companies.

Abby Foote Director
LLB (Hons), BCA

Abby is an experienced director of both publicly listed and
Crown companies. Based in Christchurch, she has worked in a
range of corporate, treasury and legal roles over the last 20 years.
Abby holds a number of directorships, including director of
Transpower New Zealand and of New Zealand Local Government
Funding Agency.

Paul Fowler Director
BS (Marine Engineering), ME (Nuclear Engineering), MBA,
Fellow of Australian Institute of Company Directors

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.

Justine Munro Director
LLB (Hons) (Vic), MLitt (Law) (Oxon)

Justine Munro is a New Zealand Rhodes Scholar who is globally
recognised in the fields of corporate social responsibility and
business, community and government partnerships. Justine has
returned to Auckland from Sydney where she was Executive
Director, Education at Social Ventures Australia. Justine was the
founding CEO of the New Zealand Centre for Social Innovation and
helped to establish New Zealand Global Women in 2008. She has
also worked in Australia and New Zealand as a lawyer and strategic
management consultant.

Dr Bruce Harker Director (from 19 February 2014)
BE (Elect) (Hons), PhD (Elect Eng), FIPENZ

Dr Harker has extensive experience in corporate governance and
energy markets, with a particular focus on renewable electricity
developments. He is the Director of H.R.L. Morrison & Co’s Energy
Group and is Chairman of NZX listed renewable electricity company
Trustpower. He has previously chaired the Australian hydro
business Southern Hydro Partnership and was Deputy Chair of ASX
listed Energy Developments Ltd. Also in Australia, Bruce chaired
start-up electricity retailer Victoria Electricity between 2004
and 2012, from its first signed customer through to having over
400,000 customers.

Z ENERGY

ANNUAL REPORT 2014

Rob Freeman
GM Supply & Distribution

Rob Wiles
GM Corporate

Chris Day
CFO

Lindis Jones
GM Commercial

Mark Forsyth
GM Retail

Meredith Ussher
General Counsel &
Company Secretary

Mike Bennetts
CEO

Huma Faruqui
GM Capability &
Organisational
Development

ANNUAL REPORT 2014

Z ENERGY

Meet Z’s executive team

Mike Bennetts CEO
BBS and Diploma in Corporate Management
Member, Institute of Directors

Mark Forsyth GM Retail
BCom, Member, Institute of Directors

Mike became CEO of Z Energy after 25 years with BP in a variety of
downstream roles in New Zealand, China, South Africa, the United
Kingdom and Singapore. His last role was as CEO of BP’s Eastern
Hemisphere supply and trading business.

Mark has held management positions with Shell in New Zealand, the
United Kingdom and Ireland. He oversees Z Energy’s 200+ service
stations and nearly 100 truck stops, as well as marketing, brand and
asset management. Mark is a director of Loyalty New Zealand.

Rob Wiles GM Corporate
BE (Hons), MsC (Finance), Postgraduate Diploma in Banking

Rob has had an international career in corporate finance,
infrastructure, treasury management, mergers and acquisitions,
strategy and business development. He also has experience in
the development of start-up businesses. Rob has held senior
positions with the National Australia Bank, Bank of New Zealand,
South Pacific Merchant Finance and National Bank of New Zealand.

Chris Day CFO
BBS, CA, CTP, Member, Institute of Directors

Before moving to Z Energy, Chris has held general management,
chief financial officer and financial controller roles in a range of
listed and commercial companies, most recently as Financial
Controller for Contact Energy and before that as Chief Financial
Officer for AXA New Zealand. He is a member of the New Zealand
Institute of Chartered Accountants and is a director of Landcorp
Farming Ltd.

Meredith Ussher General Counsel
& Company Secretary
LLB, BA

Previously with Todd Energy and the New Zealand Racing Board/
TAB, Meredith is an experienced corporate lawyer in both the
energy and retail network industries. She also has a strong private
practice history, having worked at Minter Ellison Rudd Watts as a
senior associate. Within Z, she has responsibility for all group legal
risks as well as relevant strategic and legal advice in respect of all
operational matters including major contracts with key suppliers
and customers. Meredith is also responsible for Z’s Company
Secretariat and advises on governance matters.

From 23 May 2014 Meredith will take 12 months’ maternity leave
and will be replaced by John Conlan, a Senior Associate from
Minter Ellison Rudd Watts.

Rob Freeman GM Supply & Distribution

Before moving to New Zealand, Rob held senior management roles
in Shell Australia in commercial marketing, services, distribution
and logistics. He is Chair of New Zealand Oil Services and a director
of Wiri Oil Services, Coastal Oil Logistics and Penagree Ltd. Rob is
responsible for the fuel supply distribution chain, from sourcing in
international markets to domestic distribution and supply.

Lindis Jones GM Commercial
BCom (Hons), BSc, Masters in Finance

Before joining Z, Lindis was the Head of Property at ANZ National
Bank. Prior to that he was with Shell for 13 years, primarily in retail
operations and strategy in Europe, Asia and New Zealand. Lindis
became the General Manager of Commercial in September 2011
after joining Z in the role of General Manager Corporate in May
2010 and is responsible for all our business-to-business activity
including Z Card.

Huma Faruqui GM Capability
& Organisational Development
Assoc CIPD, BA (Hons) Financial Services, MHRINZ, PG Cert
Management Studies, MBTI certification, SHL certification, MECI
UK, IMUK Certificate in Management

Before moving here from the United Kingdom in late 2003, Huma
worked in human resources roles for Deutsche Bank, Cater Allen/
Abbey National Bank and Deloitte. In New Zealand, she has held
human resources leadership roles with Vero Insurance and, most
recently, Telecom.

Z ENERGY

ANNUAL REPORT 2014

Making
things happen

The continued evolution of the Z brand, the decisions
we’ve taken to strengthen our supply chain and
bring more sustainable fuels to our customers.

ANNUAL REPORT 2014

Z ENERGY

Z Technical Fuels Manager David Jacobson and the Norske Skog team at the sawdust plant in Kawerau.

Z ENERGY

ANNUAL REPORT 2014

Our supply chain

Crude Oil

Refined Oil

It arrives

Crude oil arrives at Marsden Point where
the crude is refined into petrol, diesel, jet
fuel, fuel oil and bitumen. Refined products
are shipped and piped straight to terminals
around New Zealand.

It’s extracted

Crude oil is extracted from beneath the
earth’s surface via oil wells from all over
the world. Z does not explore or drill for
oil, so we have to purchase it on the
international oil market.

We distribute it

The refined products are shipped,
trucked or piped to terminals
around New Zealand.

ANNUAL REPORT 2014

Z ENERGY

We buy it

We buy crude oil and refined products
(petrol and diesel) on the international oil
market. Most of the crude oil Z imports is
from the Middle East and Asia. The refined
products we buy are imported from Asia.

You use it

The fuel products are then trucked
to service stations, truck stops,
aviation pumps and commercial
customers around New Zealand,
ready for our customers to use.

It’s shipped

Crude oil and refined
products are then shipped
from international ports to
New Zealand.

Z ENERGY

Helping Refining NZ work
better for everyone

Around 75% of the fuel we sell each year starts as crude oil that
we import and then refine at New Zealand’s only oil refinery,
Refining NZ, at Marsden Point in Whangarei. This makes Refining
NZ a critical piece of the country’s energy and transport fuel
infrastructure.

As a shareholder in Refining NZ, as well as one of its major
customers, we are committed to ensuring that the refinery is as
efficient as possible, thereby securing its long-term success and
competitiveness. Globally it’s a tough time for refineries the size
of Marsden Point. Although they are modern and efficient, they
are competing against refineries that are up to 10 times bigger.

Now our focus is on working with Refining NZ and another major
refinery customer to optimise the refinery’s operations to ensure
it is able to turn crude oil into refined fuel more efficiently and
cost-effectively.

By working more closely with Refining NZ we can jointly deliver
the most optimal plans that will allow refining efficiency gains to
be realised and, in doing so, deliver better financial results for Z
and the refinery. While efficiency-improvement projects such as
these can take time to co-ordinate and get off the ground, they
help Refining NZ stay competitive against imported refined fuels
from world-scale refineries in the Asia-Pacific region.

In early 2012, Z voted to support Refining NZ’s $365 million
expansion project, Te Mahi Hou, which will improve the efficiency
of the refinery and is due for completion in December 2015.

Smarter manufacturing planning arrangements with Refining NZ
and other crude oil importers substantially cut Z’s cost of
doing business.

Keeping things simple
for Kiwi businesses

Our main aim is to help Kiwi businesses
get on with their day-to-day work, so
we’re continually looking for ways to
make refuelling a smoother and more
efficient exercise. So when trucking-
engine manufacturers introduced a new
technology (selective catalytic reduction,
or SCR) to help reduce diesel vehicle
emissions that required customers to use
a separate diesel exhaust cleaning fluid,
we saw an opportunity.

In 2014, we launched Z DEC (the DEC
stands for diesel emission cleaner), an
exhaust fluid that is added directly into
the vehicle at the time of refuelling, saving
the customer from purchasing and carrying
separate containers of the fluid and using
the product themselves.

We trialled our Z DEC offer in two truck
stop sites in 2013, and the level of use
among our customer base straight away
exceeded our expectations and confirmed
the value of the offer. As well as creating a
single, convenient stop for customers with
a SCR vehicle, Z DEC can also be put on Z
Card, meaning there is just one payment
system for diesel and diesel emission fluid
fills – we think that couldn’t be any easier.

It’s better for the environment and our
customers if they can fill up with Z DEC
from our truck stops instead of buying
their diesel emission cleaner in separate
containers. The ammonia content in
diesel emissions cleaners means that if
containers are spilt or residue is washed
down waterways, it can be toxic for the

environment; filling at the pump means one
less thing to worry about.

Z DEC matters because when used with
SCR technology, it reduces the level of
emissions from heavy diesel vehicles.
Increasingly, New Zealand’s heavy vehicle
fleet will require this product to run and we
have now committed to rolling Z DEC out to
selected truck stops across the country. We
anticipate this will be completed in the next
few months, meaning a faster fill-up for
customers nationwide and cleaner diesel
fuel emissions to benefit everyone.

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Z ENERGY

Bunny McDiarmid, CEO Greenpeace
Guest columnist

The greatest business challenge of our time is how we respond to
the threat of climate change. The science is certain: burning fossil
fuels like oil is the major cause and we can no longer ignore the
urgent need to act.

Climate change is causing more extreme weather, which hits
food production, threatens scarce water resources and damages
energy security and is having a massive financial impact on global
economies. Flooding in China, attributed to a warming world, cost
its economy nearly US$70 billion in 2013 alone, and this is just one
small part of a global picture.

In response, we are witnessing a global shift in the way we
power our economies. Huge opportunities are emerging as we
develop technologies that reduce pollution by doing things in
a cleaner, smarter way. The status quo is being disrupted as
innovation drives investment in the business solutions that
solve our environmental problems.

And there is no better place to look than the innovation that is
emerging in the energy sector.

With the beginning of the end of easy-to-reach conventional
fossil fuels, exploration costs are escalating and success rates
diminishing. High carbon investments are becoming less
predictable and financial institutions are starting to become uneasy
about the liability of extracting high polluting resources. Smart
investors can see that investing in companies that rely solely on
fossil fuels is becoming risky.

And this means that energy-technology innovators are taking
advantage of developments in areas such as solar, wind and

biofuels to improve how the world produces and consumes energy.
Indeed, according to Bloomberg New Energy Finance nearly
US$300 billion was spent last year on clean energy technologies.
As renewable energy is scaled up and deployed more widely, the
costs are falling and becoming more competitive with fossil fuels.

Huge opportunities are emerging as
we develop technologies that reduce
pollution by doing things in a cleaner,
smarter way.

Over the next decade, advances in energy storage technology
could make electric vehicles (hybrids, plug-in hybrids and
all-electrics) cost competitive with vehicles based on internal-
combustion engines and will revolutionise the way we travel to
work and move products through our economy. According to
McKinsey and Co, the cost of batteries is dropping precipitously
making electric vehicles – once the cause celebre of A-list
Hollywood stars – more affordable, with improved fuel economy
more viable in replacing high-cost, mostly imported oil,
transforming our vehicle fleets.

Z ENERGY

And the win-win in all of this is that
it will help significantly reduce the
country’s carbon pollution.

And this presents both risks and opportunity for businesses like Z
Energy. It’s a case of adapt or die as those companies that neglect
what is happening on the margins today put themselves at risk of
being pushed to the margins tomorrow.

In New Zealand, conventional transport has been the fastest
growing source of carbon pollution and leaves us dependent
on the global supply of oil. To build a smart, modern and low
environmental impact economy, there is a need to shift away
from energy intensive transport modes and increase greater use
of public transport, electric and hybrid vehicles and sustainable
transport fuels.

In 2013, Greenpeace released a report, ‘The Future is Here’,
documenting the huge potential for job creation and economic
benefit from shifting almost entirely to clean energy sources.
It was based on modelling from one of the world’s leading energy
market analysts at the German Aerospace Centre. The report
showed that with the right policies and investment decisions,
road transport could be virtually oil free within 22 years, creating
up to 27,000 jobs in the bio-energy sector and saving over
NZ$7 billion per year in oil imports. Once the gains have been
made in improving efficiency and electrification, the remaining
road transport energy needs in 2035 could be met by home-grown
liquid fuels from production forestry.

This is why Greenpeace has welcomed Z Energy’s move into
the biofuel sector with the ‘Stump to Pump’ programme, which
is investigating the viability of turning woody waste from the
forest industry into ‘green crude’. Domestically produced fuels
are less vulnerable to price volatility and free of exchange rate risk.
They could provide a major economic advantage to the economy
while boosting regional development and providing much-needed
employment in rural communities.

And the win-win in all of this is that it will help significantly
reduce the country’s carbon pollution.

By understanding how cleaner, smarter innovation and technology
will shape the world’s economies, business must make the right
decisions to invest in new forms of infrastructure and be part of
these solutions. In New Zealand, we are blessed with a wealth of
innovators and pioneers as well as renewable natural resources.
The challenge now is whether we can transform our businesses
to become the drivers of a cleaner, more prosperous future, or
whether they continue to be part of the problem.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

We’re on track to become
New Zealand’s leading
biofuel producer

Sustainability is becoming one of the biggest issues facing New Zealand
companies. Customers are increasingly judging businesses on their position
on environmental and sustainability related issues, so work done now will
contribute to the long-term viability of our company.

For Z, this means not just ensuring that our own practices are
efficient but also working to create new alternative energy options
to help solve what matters for New Zealand. We’re a transport
energy company, not a fossil-fuel company, so we have the freedom
to explore options beyond traditional fuels. In last year’s annual
review, we introduced some exciting developments in the world
of biofuels, and we’ve been continuing our work in this area in
the last financial year.

Biodiesel

Z has spent the last four years actively investigating, analysing
and developing a new, highly sustainable biodiesel project
that will use inedible tallow – a by-product from New Zealand’s
substantial meat industry – as its principal feedstock, or primary
manufacturing ingredient.

During that time, we have purchased a pilot-phase manufacturing
process and the intellectual property to produce this biodiesel,
tested the patented technology and developed the process
to commercial-scale production of biodiesel that meets
New Zealand and European quality standards and specifications.
Z’s biodiesel is completely safe, with substantially fewer toxic
emissions than mineral diesel.

As at the date of writing this report, we have critically examined
the business case, are in the process of securing construction
contracts with experienced and well-respected companies, have
found an ideal location for the plant in South Auckland that will
create 12 new jobs and are in the process of securing a reliable
supply of tallow, which will ensure the long-term resilience of the
project. Crucially, we’ve also talked with our major commercial
customers, and we’re comfortable that we have the support and
demand to bring our biodiesel to the market.

Z ENERGY

... we have critically examined the business case,
are in the process of securing construction
contracts with experienced and well-respected
companies, have found an ideal location for the
plant in South Auckland that will create 12 new jobs
and are in the process of securing a reliable supply
of tallow, which will ensure the long-term resilience
of the project ...

In April 2014, after more than three years of painstaking work,
we decided to proceed with this biodiesel project and will start
construction in the coming months. We plan to be in production
of a high-quality, sustainable biodiesel by June 2015.

We are hugely excited by this biodiesel production facility. It’s
an ambitious and innovative way of delivering an alternative fuel
option for a large chunk of our customer base.

The biodiesel production will be based at a new facility in South
Auckland, near our fuel terminal at Wiri – an area of increasingly
high growth and fuel demand. This location will initially allow us
to supply our commercial customers in the upper half of the North
Island with a diesel blend, with the possibility of supplying our retail
customers in the future.

Watch this space for more updates!

While not the first biodiesel plant to be constructed in New Zealand,
it will be the first built at a commercial scale (production capacity
of 20 million litres per year) and, with domestic production, will
deliver greater resilience into New Zealand’s security of fuel supply.
The plant is capable of being built and operated without taxpayer
subsidy or grants. Establishing a market-leading position in
biofuels meets the changing needs of our customers and is exactly
what Z’s brand purpose is all about – solving what matters for
a moving world.

Our discussions with commercial customers show there is strong
demand for a sustainable alternative to mineral diesel as it becomes
increasingly important for businesses to contribute to carbon-
reduction targets and for councils to improve air quality in high-
density urban cities.

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Z ENERGY

Stump to pump

Z is currently partnering with multinational paper manufacturer
Norske Skog to investigate the feasibility of developing a new
biofuel that uses forestry waste as its feedstock. It’s a real
partnership, with Norske Skog supplying the woody biomass
expertise and Z providing fuel industry knowledge, access to
transport fuels infrastructure and a pathway to the market.

In July 2013, the Ministry for Primary Industries approved co-
funding of $6.8 million for an economic feasibility study into the
project. Norske Skog and Z will together match the government
funding, bringing the project’s total funding to $13.5 million. The
goal of the programme is to determine the commercial viability,
engineering and design of a test plant to process New Zealand
forest waste into sustainable transport fuel.

It’s an exciting and innovative project that has the potential to cut
New Zealand’s transport carbon emissions and reduce our reliance
on imported fossil fuels, and it’s renewable and sustainable. And
in financial terms, if the technology can be commercialised, the
estimated economic benefit for New Zealand in the next 20–25
years is an annual gross domestic product increase of up to $1
billion and 1,200 new jobs. However, it’s crucial for Z and Norske
Skog that the project is economic in the long term, hence the
detailed commercial evaluation being undertaken at this stage.
We’ll continue our focused work in this area and keep our
stakeholders informed of progress and developments.

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Z ENERGY

ANNUAL REPORT 2014

Making biodiesel
An alternative energy future

Lindis Jones, Steve Alesech and David Jacobson talk about
turning tallow into biodiesel.

Lindis Jones, GM Commercial:

At Z there are a few things that we hold to be true. The first is that
the world has a limited ability to actually absorb the waste and
emissions that humans produce. The second thing is that over time
resources will become more and more scarce and more and more
expensive. But why does that matter to a fossil fuels company?
Well the first thing that we realised is that we aren’t just a fossil
fuels company. What do I mean by that? First of all, we don’t have a
link to upstream oil; we don’t have biases or incentives to sell more
oil just because we drill it out of the ground. So, we can then focus
on doing the right thing for New Zealanders.

The problem

In my role as the GM Commercial I spend a lot of my time with
customers and I see the angst and the frustration that they have
in not being able to express either their personal commitment to
sustainability or their corporate commitment to sustainability. Part
of the reason for that is because a lot of the waste and emissions
that my customers create through their own businesses is actually
caused by the fuel that we sell them or the fuel that they consume,
and without us playing a part in this or being part of the solution

they have got nowhere to go. So for someone in the industry to
actually front up and cause something to be different (without
asking for a hand-out) is something that I am immensely proud
of as a New Zealander but also as a member of the Z team.

The project

Steve Alesech, Biofuels Manager:

This project requires a level of investment that is around
$22 million in total. We’ve spent around $2 million to date getting
through the feasibility stage. The next stage we’ll implement is the
construction, which will cost us around $15 million to build the plant
and another $3 million to build our blending and storage facilities
at Mount Maunganui and Wiri oil terminal. From a financial returns
perspective, our Board is very comfortable with the proposition
we put in place and I guess the real risk comes when we bring
product to market and how acceptable our product is going to be
to our customers. What gives us a lot of confidence at this stage
is the level of acceptance and commitment that our customers,
particularly our large commercial customers, have given us in their
passion and desire to see us succeed and bring this product to
market, producing a sustainable and viable option for them to offset

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Z ENERGY

What is the opportunity?

New Zealand’s got access to a significant tallow resource. If we
can convert that into a biodiesel locally (using a locally developed
process), to me we’ve got a significant opportunity to reduce our
carbon footprint and to reduce the impact of burning fossil fuels on
the environment. So you have the health benefits around reducing
particulate matter produced in the diesel exhaust as well as a
significant reduction in CO2 produced.

Being part of the solution

Lindis Jones, GM Commercial:

Right at the beginning of Z, we said we would be New Zealand’s
largest biofuel supplier. What I’m most excited about is that
we’re right on the verge of delivering on that commitment. To
be honest, three years ago we had no idea how we were going
to deliver on that promise; we just knew it was important to us
personally and our customers had told us it was very important
to them. We get that dealing with climate change is tough – what
are individuals, organisations, or even countries to do? I don’t
think that’s been sorted. This is a real start for New Zealand in the
New Zealand context. The scale of the plant will actually make
a difference for our customers, result in better environmental
outcomes and provide one way for every motorist to actually make
a difference on their own as well.

This is a transcript.
You can watch the video at z.co.nz/annual-report-2014

their carbon commitments and to be able to produce something
that really is a good fit for New Zealand.

Where’s the project at?

We’re at a point now where we’re very close to making a start on
constructing the plant. We’re just waiting on satisfying a couple of
conditions and most of those are around resource consents and
contractual arrangements. So we expect to be complete by the
middle of next year and in full production shortly thereafter, which
will be around 20 million litres per annum of biodiesel. We can then
expand that production to 40 million litres, but that’ll be purely
based on what sort of customer demand we get at that time.

The product

David Jacobson, Technical Fuels Manager:

To manufacture biodiesel from tallow, we take tallow from
New Zealand (which is a by-product from the meat industry), put
it into a big pot, a big reactor vessel, add a couple of chemicals,
add a catalyst to speed up the reaction, then heat and stir that mix
and that converts the tallow into a tallow methyl ester. We then
allow the reaction to finish and settle, which separates out a by-
product called glycerol. Then we take the biodiesel, run it through
several clean-up processes and finish up with the final product.

We don’t sell anything in our market unless it meets and complies
completely with all regulations. As well as complying with the
New Zealand regulations, our biodiesel will also meet the European
biodiesel specification EM14214. A lot of vehicle manufacturers
require that specification to be met before the fuel is deemed to
be acceptable for use in those vehicles.

A lot of studies that have been done and a lot of feedback from
customers is that they don’t notice any difference in the power
available when using biodiesel compared with mineral diesel.

What are the benefits to the environment?

Biodiesel is deemed to have zero contribution to atmospheric CO2,
because it is deemed to be a renewable source. So you’ve got a
cycle if you like; you get biodiesel produced from tallow, it makes
CO2 in the environment, but it’s a renewable cycle – so it’s zero
rated. Every litre or kilogram of mineral diesel that you don’t burn or
replace with biodiesel, results in a three kilogram reduction in CO2
to the atmosphere.

Z ENERGY

ANNUAL REPORT 2014

Helping Kiwis
fill up faster

When we spoke to 17,000 New Zealanders back in 2010 about what
they wanted from a Kiwi fuel company, we learned a lot! However,
one resounding answer was ‘excellent service and great food’. So
we delivered that with our forecourt concierges, our commitment
to awesome service and our brand-new espresso coffee and bakery
food line.

Our customers also told us that speed matters a lot, so we’re
working hard to be faster, to help our customers get in and out as
quickly as possible. We’re in the middle of introducing a range of
new technologies to our sites solely to make things faster, easier
and more efficient for our customers.

Giving our customers
more of what they want

When we spoke to Kiwis before we
launched Z, we heard loud and clear that
being able to pick up top-quality food
and drinks when they fill up their tanks
was a must-have. We listened, and we’ve
upgraded our top sites to make sure they
can churn out a perfect espresso and
piping hot pies every day. We must have
got it right because from the beginning,
we found that this stuff literally flies out the
door. Lots of our customers tell us we have
the best pies in the country and we agree!

In 2013, our food service range was as
popular as ever: this year we sold more than
3 million pies (or enough to go up and down
the Sky Tower 770 times) and made a fresh,
hot cup of coffee every 13 seconds.

But as always, we’re not about to sit back
and rest on our laurels. Currently, our
gourmet pies and coffee are available at
around 100 Z retail sites, but now that
we know we’re onto a winner, we’re going
to up the ante by extending this to a lot
more stores over the next couple of years.
We also know that our customers want

more from us, so we’re planning to roll out
more food and drink choices. Of course,
when it comes to exactly what food we’ll
be introducing, we’re not flying blind here;
we’re always listening to exactly what our
customers want.

Z’s successful new in-store retail offer has
been proven to deliver real value, with like-for-
like sales getting a significant boost when the
new offer has been rolled out. So that’s great
news for our hungry and thirsty customers,
and great news for our shareholders!

ANNUAL REPORT 2014

Z ENERGY

After our $12 million point-of-sale upgrade in the last financial year,
which slashed transaction times by more than two thirds, we’ve
installed longer hoses that reach both sides of the car, and put
diesel on just about all pumps at our top 100 sites, so that filling up
is a breeze every time. We’ve got our customers covered no matter
what fuel they want, and they no longer have to remember which
side their petrol tank is on! We’ve also rolled out our pay-at-pump
technology at 49 service stations so far. Our customers told us they
love the speed and the hassle-free experience, so we’re rolling it out
to our top 100 sites.

If that wasn’t enough, customers can save even more valuable
seconds each day by paying with Visa PayWave. We’re excited
about these developments, which will help Kiwis fill up with Z
and get back on the road, pronto. We want Z to be famous for fast,
friendly and hassle-free service. Each contactless transaction helps
to reduce queues and makes Z a speedier place to fill up. And we’re
not done yet: we’re always keeping an eye out to see what our
customers reckon would make their lives easier.

Every drop counts

We love rewarding our customers with Fly Buys points, but we’ve learned through talking
to them that our customer value proposition (how customers collect points with Z) was too
confusing. We agreed that it was a bit complex, so we simplified it. Now customers collect
one standard Fly Buys point for every 20 litres of fuel they purchase, and every drop over
20 litres (or multiples of 20 litres) goes towards their next point. Or, as we say, every drop
counts! We’re also working with our friends at Fly Buys to make sure our customers keep
getting what’s important to them, like a great range of rewards, more instant choices and
awesome service. And we know that Fly Buys is still New Zealand’s largest rewards scheme.
Customers at Z alone collected more than 40 million points last year, enough for 2,600
return trips to London!

Z ENERGY

ANNUAL REPORT 2014

Where to next for the Z brand?

When we talk about our brand, we don’t mean our logo or name, or our television
ads (though they all form a part of it). What we really mean is the full picture of Z
– what we care about, how we talk to our customers (and equally important, how
we listen to them), what we stand for and who we work alongside.

In other words, it’s the entire experience, and this comes from the
whole company, not just the frontline staff who talk to customers
each day. When managed well, a brand is a distinctive business
asset that can create customer loyalty.

This time last year we reported that our brand metrics – we
measure them each month – were two years ahead of schedule.
We’ve continued on this path, but we’ve also spent the last year
developing our brand strategy for the next few years as we move
beyond the establishment phase. The Z brand has been hugely
successful – according to Colmar Brunton’s Brand Tracker Survey

it is the most preferred retail fuel brand in this industry when
compared with our competitors, and is now well known and liked
by New Zealanders. But we plan on being around for the long haul,
so we needed to develop a strategy that was future-focused and
would help us deliver on our goal of becoming an iconic brand.

Our new brand purpose is an aspirational one for a fuel company:
‘solving what matters for a moving world’. This embodies our desire
to go beyond being a supplier to being a company that is part
of Kiwis’ everyday lives, and that anticipates people’s needs and
provides solutions. Everything we do needs to be in service of that
purpose and to get there, we need some principles to guide us.

ANNUAL REPORT 2014

Z ENERGY

We believe that establishing these principles for everything
we do will put us in a strong position to be an iconic, enduring
New Zealand brand. It also enables people to hold us to account
when what we do might be inconsistent with these principles.

What do you Reckon?

Listening to New Zealanders has underpinned the Z brand since
day one, and in 2013, we made it official and started asking Kiwis
what they reckon we should do next. It turns out that people all
over the country are having light-bulb moments every day, and
they’ve posted hundreds of suggestions on our Facebook page
for how Z could be even better.

After suggestions have been posted, other Kiwis can weigh
in and vote on the ideas they’d like to see at Z. Then, we start
reviewing them, keeping people posted on whether an idea is under
consideration, can’t be done, needs some further investigation or
has been done. As we expected, there are some great ideas, and
we’ve already implemented a handful of them, including adding
potato-top pies to our in-store food range, putting recycling bins
on our forecourts and checking customers’ oil and tyre pressure
as part of our service commitment.

Be nimble
We need to stay alert and agile with our eyes and ears open –
spotting trends, following a hunch, being intuitive about what’s
happening around us, anticipating what’s needed and finding the
best way to achieve it. We aim to innovate by delivering the big
solutions and continually improving what we’re doing to provide
day-to-day solutions our customers need.

Live neighbourhood
We will be both a vital and active part of our neighbourhoods,
as well as a good neighbour. By creating opportunities and
solving what matters locally, we can have a positive impact
in our neighbourhoods and across the country.

Outside in
We’re a small company, and we know that solutions and good ideas
can come from anywhere. We ensure we understand the needs of
our customers, both big and small, and the challenges they face.
Then we look outside to develop solutions – with our customers,
partners and other great Kiwi businesses to deliver value to our
customers and our business.

Freedom in a framework
We have the freedom to try new ideas and take some risks.
If they don’t work we fail fast, adjust our thinking, learn and
move on. Freedom to think, make decisions and take action
is good but freedom within guidelines is even better. It saves
time, helps us focus and doesn’t lead us on a wild goose-chase.

Lead the way
We have an opinion on the things that matter, make decisions
faster, front-foot our actions and put in place innovations and fresh
thinking that enable us to lead on the things that Kiwis expect from
a company like us.

Z ENERGY

We’ve started winning
at word-of-mouth

When it comes to the commercial fuel market, our focus in the last year has been
on doing our job better so that our customers can get on with theirs. On the whole,
New Zealand businesses that buy fuel have been woefully under-serviced by their
fuel providers. And, quite predictably, they’ve been dissatisfied as a result.

We’ll admit that the service wasn’t just average; it was bad. Hearing
about customers who didn’t get their fuel on time, and when it did
arrive, it was the wrong amount, was an all-too-frequent occurrence.
Customers running out of fuel, meaning they couldn’t go about their
business, was happening far too often, and incorrect invoices were
a daily occurrence.

There was no way we wanted to carry on like this, so a couple of
years ago, we started talking to our customers about how we could
stop getting in the way of their day-to-day business and start
helping out with what matters. The feedback was straightforward:
‘fuel is your business not ours; keep it simple and enable me to get
on with my business’.

Our approach hasn’t been to do anything flashy; rather we’ve made
significant investment in systems and focused on getting the basics
right so that refuelling is something that lets our customers do their
job with minimal fuss. This means that when a customer needs a
new fuel card, it’ll now be in their hands in as little as 48 hours. Or
where in the past our truck stops could be unavailable to customers

for many hours each month due to fuel outages, electronic failure
or unscheduled maintenance, they are now down for only a matter
of minutes each month, across our network of more than 90 truck
stops. We’ve also reduced the error rate with our invoices by more
than 90%.

However, while we’re thrilled to be making progress, we’ve got a
long way to go – and plenty of ideas on how to get there. We’re
also now in a position to think beyond just the basics and look to
the future. For example, we’re currently securing what we call our
‘foundation biofuels customers’ – those organisations that support
our work in this area, and are showing us their commitment to come
with us on the journey. Not only is biodiesel an exciting new product
to make available to our customers, but the fact that they’re keen
to partner with us in the long term is also a vote of confidence that
we’re doing things better.

Customer commitment

Over the next financial year, we will continue to focus on where and
how we sell to customers. Doing business where we have the right
infrastructure and capability ensures that we can stand behind our
commitment to our customers and create value for ourselves. Our
industry has a track record of under-investing and not delivering on
its commitments. Investing in our systems and infrastructure and
entering only mutually beneficial relationships with customers will
enable us to break this cycle.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Peter Baker Transport
Driving customer service

Operations Manager Nafiz Ali talks about the benefits of a partnership approach.

PBT was started in 1972 by Peter Baker, who is the current
CEO and managing director of the group. PBT comprises PBT
Transport, PBT Couriers and PBT Bulk, the three main operating
entities of the group.

We specialise in transport, couriers and containers. We have 450
staff members, 500 contractors and just over 500 vehicles on the
road at any given point in time. We’re a nationwide freight services
provider and have locations from Kaitaia to Bluff.

Z is very customer driven and as a customer of Z, we love that.
At PBT we value customer service highly and felt really good
receiving a dedicated relationship manager as a contact point
for all PBT couriers.

The proactive nature of annual reviews, showing our volume
and span, where we are filling up most and what can be done to
reduce costs shows that Z is very proactive and always offering
new ideas and solutions.

When Euro 5 vehicles were introduced last year (which require
AdBlue cleaner to be added to diesel), Z introduced Z DEC at
Sylvia Park and Palmerston North truck stops, two of our main
truck stop usage points, to enable us to fill using Z DEC. We
appreciated this approach. Z understand our business needs
and provide solutions that are tailored to the requirements of
our business.

Our relationship with Z has been one of partnership, and we have
enjoyed a great working relationship with Z over the past five years.

Z is very customer driven and
as a customer of Z, we love that.

This is a transcript.
You can watch the video at z.co.nz/annual-report-2014

Z ENERGY

CO2 emissions

So what has changed for Z and
carbon in the last 12 months?

Well our product and its combustion still makes up the lion’s share
of our carbon footprint at 99%. So rather than looking the other
way, we’re starting conversations about fuel-efficient driving with
New Zealanders, including our retail and commercial customers,
and have begun eco-driver training programmes, but that’s really
just the beginning.

Inside our own back yard, we struggled this year. Travel is almost
80% of our corporate carbon footprint, and while we managed a
6% decrease from 2012 that was only after a bumper increase the
year before. Facing this challenge has meant asking ourselves hard
questions about how we do business and what we are committed
to for our people and our environment. We won’t be the first or
the last company in New Zealand to say that we struggle with the
balance between our sustainability aspirations and our desire to
be connected with our customers and our business by being there
in person.

From March 2016, we will be holding ourselves to account for our
progress across all sustainability pillars. Right now, we don’t use an
external framework to assess our progress, but we’re in the process
of choosing a framework that will give us a clear picture and help
us make better choices for Z, and ultimately for the environment.

Z offices and retail sites
1 seat or 10.9 kt

NZ supply chain
37 seats or 410.5 kt

Share of the refinery
39 seats or 430.3 kt

Our customers using Z products
522 seats or 5731.7 kt

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Switching on sustainability

Changing a light bulb might seem like sustainability small change compared
with developing ground-breaking biofuel technology, but when you switch
forecourt canopy lights in 171 Z retail stations around the country to
LED bulbs, the effect starts to add up.

Our sustainability strategy is three-pronged: as well as helping
customers use fuel more efficiently and developing alternative
sustainable energy sources, we need to make sure we have
our own business running as sustainably as possible. And this
project certainly delivers: making the switch to LED lights will
save 490 tonnes of CO2 emissions each year for the 10 years of
the project, meaning a 16% reduction in our annual operating
emissions. The LED lights also bring a raft of other benefits:
our annual electricity bill will likely be cut by about 11%; better
forecourt lighting means increased safety for site staff and
customers, and we’ll have fewer outages and maintenance costs.

Z invested $3.1 million in the six-month LED replacement project,
and was supported by a $580,000 business grant from the Energy
Efficiency and Conservation Authority (EECA), contingent on the
achievement of energy savings and targets. EECA got behind us,
not just because of the real reduction in carbon emissions that
comes from working at the scale of Z’s network of stations, but
because of the leadership opportunity to showcase a large-
scale business undertaking a nationwide project that works
from sustainability, energy conservation and financial bottom-
line perspectives.

Making the switch to
LED lights will save

490

tonnes

of CO2 emissions each
year for the 10 years of the
project, meaning a

16%

reduction in our annual
operating emissions.

Z ENERGY

ANNUAL REPORT 2014

Growing
capability

Becoming a world-class Kiwi company requires
a commitment to leadership and innovation.

ANNUAL REPORT 2014

Z ENERGY

Z prime sign being constructed at Z Stadium prior to opening.

Z ENERGY

Helping New Zealanders
drive smarter

We’re sometimes told that our sustainability strategy seems
counter-intuitive. After all, a fuel company that encourages people
to use less fuel makes about as much sense as a butcher trying to
convert people to vegetarianism. But, on the basis of the logic that
the fossil-fuel industry in its current form isn’t sustainable in the
long term, and that if we want to be around in 40 or 50 years’ time
as a profitable business, some changes must be made. So, we’ve
made a commitment that by 2015, ‘with Z’s help, customers have
reduced their fuel consumption and been rewarded for
their efficiency’.

By simply changing how they drive their car, drivers can save
up to 40 cents per litre on their fuel bill and reduce their carbon
emissions. So showing New Zealanders how to drive in an efficient
way (or ‘eco-driving’) not only demonstrates leadership in the
sustainability space but also delivers real value to our customers,
which we know they appreciate.

The government’s EECA publishes great tips on efficient driving
that we’re always happy to help promote, but we wanted to take it
up a notch and create an innovative and compelling way to share
these tips with drivers. We partnered with Kiwi company eDrive to
create the Z Eco-Driving Tool, an online driving simulator with six
different driving trials to test just how efficient your driving really is,
and with some easy tips on how to improve it.

The Eco-Driving Tool was launched by Z at the Sustainable
Business Network Showcase in Auckland in October 2013, and
we’ve promoted it widely on Facebook and through the Internet.
We’ve been thrilled to see thousands of Kiwis using the tool and
learning more about efficient driving, and our customers have been
pleasantly surprised to see us talking to them about using less fuel,
not more.

The next step in helping customers to use less fuel was a national
eco-driver training programme, launched in February. Eco-driving
trainer (and winner of the EnergyWise Rally) Mark Whittaker is
helping self-nominated drivers in six cities around New Zealand to
learn and practise the rules of driving more efficiently. They’ll each
have an hour’s lesson in their own cars, followed by a repeat session
a couple of months later to see how they’ve done. Not only will this
help reduce fuel use and spread the word on efficiency tips, but
importantly, it’ll give us some great case studies on how real Kiwi
drivers relate to the how-to’s of driving more efficiently.

Showing New Zealanders how to drive
in an efficient way (or ‘eco-driving’)
not only demonstrates leadership
in the sustainability space but also
delivers real value to our customers,
which we know they appreciate.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Fuelwise

There are 4 million vehicles in New Zealand
– one of the highest vehicle ownership rates
in the world – and Z wants to help ensure
that every one of them is driven in a safer
and more sustainable way. It’s a big goal,
and as always, we’re starting by getting our
own house in order. We have set ourselves
an ambitious target: by 2015, we want to
save 900 tonnes of CO2 (a target reduction
of 25%) through more efficient fuel use by
our own tanker drivers and another 400
tonnes through more efficient scheduling
of our fuel deliveries across the country.

To help bring this about, we have
Domenico Kalasih, our own in-house
expert on the impact transport has on our
environment. Dom has undertaken training

in fuel-efficient driving run by EECA, and
as well as helping Z’s own contracted fleet
drive smarter, he’s sharing that knowledge
with our commercial customers, working
with them to analyse their fuel use, come
up with a fuel-efficiency plan and help them
implement the plan and monitor the results.

Our Fuelwise team also assist drivers – both
within Z and the companies we work with –
to drive more safely. The principles of fuel-
efficient driving – accelerate modestly, don’t
speed, don’t brake excessively and don’t
idle your engine unnecessarily – all mirror
those of safe driving.

Beyond this, our highest priorities are
driver fatigue and truck rollovers. Our

tankers run 24 hours a day, 365 days
a year and collectively travel around 8
million kilometres per year to ensure Kiwi
businesses get the fuel they need. However,
it’s well understood that the human body
is not designed to function at full capacity
around the hours of 2am–4am, thereby
creating a risk period each day. We are
currently modelling the effect on our
business – and yours – of taking all our
drivers off the roads during that period.
It’s a shocking truth that New Zealand has
the highest rate of truck rollovers in the
world, and Z is looking at how we can help
change this.

More places to
fill up with Z

There are about 1,200 service stations around New Zealand, a
tiny fraction of the 6,000 New Zealand boasted 20 years ago.
Add to the mix a rapidly growing population, changing population
centres and a developing national roading network, and it
becomes clear that some Kiwis no longer have service stations
where they need them. Z is committed to filling gaps in our network
and bucking the continuing trend of industry site closures. We’re
building new sites where they’ll be most convenient and investing
in improving our existing sites so that they truly meet the needs of
today’s customers.

It’s fair to say that Z is fairly unique in this approach; in terms of
new site builds (based on the number of new sites opened in
New Zealand over the past 12 months), we’re out-investing our
nearest competitor by about three or four sites a year. It’s a
significant investment of resource and capital, but when we talk

to our customers, we hear that location and convenience are
crucial: easily as important as speed and service. In the 2014
financial year, we built new or upgraded existing Z stations
in Auckland, Wellington, Hamilton, New Plymouth, Taupo and
Whangarei. And the good news for our shareholders is that they
pay off quickly.

We’ve got no plans to slow down either: our build programme is
set to continue for the foreseeable future, and we already have
new sites planned for Auckland, Christchurch, Whanganui and
Palmerston North in the 2015 financial year.

Z ENERGY

Inspiring great leadership

Leadership is one of the fundamentals of our organisation. We spend significant
time and resources developing and maintaining our leadership capability on the
belief that distinctive leadership is necessary to deliver distinctive results.

Twenty-five per cent of each Z manager’s annual performance
assessment is devoted to their effectiveness as a leader, and our
leadership competencies even form the structure of this annual
report. But, of course, we can’t expect great leadership to just
happen without equipping our people with the skills to be great
leaders, and in this realm, we put our money where our mouth is.

In previous years, we invested significantly in leadership
development for all staff at Z. First, our leadership team of 25
people spent 15 days on a transformational leadership development
programme. Then there was the 12-day programme for all our
people leaders and a three-day-long workshop that followed the
first two but focused on effective leadership for the remainder of
our employees.

Last year, we extended the leadership programmes to our 23 Z
retailers. The feedback from our retailers was excellent and, even
before the programme was finished, they were telling us how much
their site leaders and operations managers would benefit from
the training. We agreed, and thought it would be a great way to
contribute to their growth and development. In February this year,
we began a six-day tailor-made pilot programme for our site leaders
and operations managers, and will roll out the full programme over
the next 24 months – which is how long it’ll take to get around 230
staff through the programme.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Building a Sensing City

Imagine a city where you can get real-time information about where resources
are flowing. Imagine a city where people can interact with their environment to
understand better what’s important to them – water quality, air quality and traffic
flows, for example. Imagine a ‘sensing city’ that attracts global investment and
becomes a hub for innovation... Now imagine this city as Christchurch.

In May 2013, Z was approached by Roger
Dennis, a passionate Christchurch local,
about supporting his ‘Sensing City’ concept.
Since the earthquakes of September 2010
and February 2011, Z has been helping
Christchurch get back on its feet at a
community and grassroots level, in keeping
with our commitment to backing New Zealand
neighbourhoods. When Roger spoke to us about
his vision for turning Christchurch into a Sensing City,
it struck us as quite a different approach to what we had
done so far, but also one that excited us because of the potential
it has to contribute genuinely to a self-sustaining recovery for the
city. To us, it sounded very much like solving what matters for a
moving world, so we grabbed the opportunity to be involved.

The Sensing City project positions Christchurch as a world-leading
city by incorporating an integrated network of digital sensors
into the physical infrastructure (utilities and buildings) of the
Christchurch CBD that generate real-time granular data for multiple
uses and benefits. It’s a unique opportunity that Christchurch is
ideally positioned to take advantage of as it embarks on a $30
billion rebuild of the city.

There are two main objectives for the Sensing

City initiative: to be the catalyst in the creation
of new information-based services and
solutions to benefit citizens, improving
quality of life and enhancing the way people
work, live and play in Christchurch; and to
kick-start a new data-focused export industry
in New Zealand, encouraging inward investment

and skills, stimulating growth, fostering the
development of local expertise and attracting talent

to the Canterbury region.

The initiative is already producing valuable data, with two projects
launched to date – the first around water quality and the second
around understanding the relationship between air quality and
respiratory illness.

Z is a main sponsor of the water-quality project, which Sensing
City is undertaking in collaboration with the Massachusetts
Institute of Technology. It takes a bottom-up community approach
to understanding the health of the rivers in Christchurch and
encouraging school children to take an interest in how we interact
with, and preserve, our natural environment and resources.

To see how this project will actually work, watch the short video at sensingcity.org for an insight
into the water-quality project and how Christchurch is beginning to take shape as a Sensing City.

Z ENERGY

ANNUAL REPORT 2014

Acting as
one team

Meet some of our people and see what
we’re up to within our local communities.

ANNUAL REPORT 2014

Z ENERGY

One of Z’s many forecourt concierges offering a great service experience while customers fill up.

Z ENERGY

ANNUAL REPORT 2014

Doing even more
Good in the Hood

Good in the Hood is the name of our well-loved programme that lets our
customers choose which of their local neighbourhood groups we’ll support.

ANNUAL REPORT 2014

Z ENERGY

Through it we contribute more than $1 million each year to
hundreds of neighbourhood groups and projects throughout
New Zealand and it has been so successful that we’ve seen
similar initiatives from other companies, which is all the better
for New Zealand neighbourhoods. But it also extends far beyond
that to our overall strategy of corporate social responsibility –
what we in Z call ‘community’. We try to ensure that everything
we do is contributing something positive and constructive to our
local neighbourhoods, and we’re seeing this have a real impact
on the way other Kiwi organisations think about their presence
in communities.

An example of this is the enduring and meaningful relationships
our retail sites have had with groups that have come through the
Good in the Hood programme. The Z sites run by Dave and Lynette
Gillies in the Bay of Plenty are strong allies of the Dream Chaser
Foundation, which supports children with cancer and their families
and received $1,600 through Good in the Hood in 2013. Each year,
the Gillies’ retail sites run Sunshine Week, where the staff dress up
and fundraise for the Dream Chaser Foundation. Taking 50 cents
for every cup of coffee sold and other collections last year sent just
over $10,000 to the foundation, which it put towards Christmas
gifts for children with cancer.

We try to ensure that everything
we do is contributing something
positive and constructive to our local
neighbourhoods, and we’re seeing
this have a real impact on the way
other Kiwi organisations think about
their presence in communities.

In 2012, the first year we ran Good in the Hood, the customers
of the Z site on Fenton Street in Rotorua chose to give $1,000
to the Rotorua Salvation Army. This was the beginning of a
closer relationship between the two organisations, and when
The Salvation Army was burgled just before Christmas last year,
Glen Carlson and the Fenton Street team stepped in with a $1,500
cheque to replace the stolen food that had been prepared for
Christmas parcels for families in need.

These are just a couple of stories. All over New Zealand, our
retailers are working with hundreds of groups and businesses in
their communities. We’re delighted to have created a platform that
moves beyond cash contributions to meaningful deeds that form
enduring connections between Z, and the people of Z, with their
local neighbourhoods.

Of course, the relationships with community groups don’t always
start from such a positive beginning. Z retailers in Auckland and
Hamilton now have strong connections with local schools that had
originally made submissions against two service stations being
constructed in the first place. Part of the relationship-building
initially involved ensuring the school groups were happy with
the submission process and doing further work to allay specific
concerns. We’ve also collaborated with the schools on projects:
at Onewa Road in Auckland, the primary school students were
involved in selecting native trees for us to plant near the site;
and at Mill Street, Hamilton, we found out what mattered to local
students and included them in our last round of Good in the Hood.
Funding has provided them with new cultural nodes, areas where
they can relax and socialise with other students and feel a sense of
responsibility for a portion of their school environment.

Whatever the starting point, or on whatever foot a relationship
starts, when it comes to our neighbours, we’re committed to getting
it right and doing some good in our hoods.

Z ENERGY

Waging a war on waste

As part of our sustainability strategy, we have a pretty ambitious goal of reducing
waste to landfill from our retail sites by 70% by 2015. We got a long way towards that
goal this year, thanks to some real enthusiasm from Z site staff.

We commissioned research in 2012 to
see what we were really throwing away
and learned that our sites produced almost
6,000 tonnes of waste each year, of which 57% went
straight to landfill and 43% was cardboard that was recycled.
While that was a good start to our recycling mission, we reckoned
we must be able to do a whole lot more. We mentioned our
ambitions at a Z retailer conference in February 2013, unaware
that Anton Hutton, the operations manager at one of our clusters
of retail sites in Christchurch, was listening closely. We must have
hit a nerve, because Anton went back to Christchurch inspired.
Within the next 36 hours, he had set up a waste-reduction plan
with his local provider to ensure a 70% reduction in waste to landfill
from the Z Carlton Corner site, installed the necessary recycling
and food waste bins, and put together a presentation to get the
rest of the team involved.

Anton’s response was outstanding, and
an example of what can be achieved with
the combination of strong leadership, committed

suppliers and solid systems. We wanted to find Antons
all over the country, and so we launched the Z Waste Warriors
competition. Each Z retailer nominated a recycling champ from
their cluster of sites, and we pitted them against each other in a
three-month competition to see who could recycle the most. Our
winner was another clued-up Cantabrian, Colin Lippert from Z
Belfast (unsurprisingly from the same Z cluster as Anton), who got
the team there recycling 85% of all their waste – a result beyond
our wildest dreams.

Spurred on by our Waste Warriors, we’ve now started rolling out
recycling bins on all of our forecourts, so our customers can get
in on the action too. Since our retail recycling initiative began,
we reckon we’re about halfway to our goal of a 70% reduction.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Christchurch’s own waste warrior
Anton Hutton

Talks about his journey tackling waste at Z retail sites.

Hi, my name is Anton Hutton; I’m the manager of operations for
Hattrick Services Limited. We operate eight Z stations in the east
of Christchurch.

The mechanics behind tackling waste were relatively easy to put
into place with really good people. The tougher part of the journey
came around how we implemented it onsite to make sure that the
waste was correctly separated back of house.

We picked a pilot site, here at Z Carlton Corner, and we broke down
what we were going to need internally. We needed paper bins,
co-mingled recycling bins, waste, actual rubbish bins and food bins.

So we went out and bought bins that matched the colours we had.
Green for food, red for rubbish and yellow for recycling. Our people
talked about it being great to be proud of where they worked.
Their energy made life really, really easy and we nominated a head
Waste Warrior. At this site, we had Deb (who was super passionate
about it) and she worked with Ursula, the site leader, to bring it to

life onsite every day. That’s when Matt, our forecourt concierge,
came into play. He was out there every day trying to educate our
customers about what waste could go into what bin to maximise
our recycling potential on the forecourt and again, minimise the
amount of waste. I think at last count, around 83% of all our waste
is now recycled.

Being a Kiwi company, we’re about keeping New Zealand beautiful
realistically. It’s something that I saw as really low hanging fruit,
that I could easily achieve, and that made a difference with very,
very little effort. It’s very much a maintenance-free programme,
other than at the time of inducting new team members. Every
reason you can give a team member to be proud of where they
work is a positive one.

This is a transcript.
You can watch the video at z.co.nz/annual-report-2014

Z ENERGY

The faces of Z

Z is famous for its customer service, and we couldn’t be prouder of the people
who deliver this service every day. We’d like to introduce you to a few Z retailers
from around the country.

Meet John Lambert from West Auckland

Western Gas, with John Lambert at the helm, operates 11 of
the Z sites in West Auckland, from Kumeu all the way down to
Hillsborough. John, who’s been there for nine years, is joined by
a team of about 100 staff members to keep the 11 sites running
each day.

John comes from a varied background of senior management and
marketing positions with leading local and international firms in
the retailing, pharmaceuticals and food industries. But he gave all
that up and chose to work with Z because of the company’s values,
its involvement with the community and the regular contact with a
variety of people that his role involves.

Like all Z retailers, Western Gas is committed to giving back to its
local communities and is currently making a real difference in the
West Auckland community by addressing youth unemployment,
working with community groups, making a difference to the
environment, and supporting and growing its own staff. As John

says, “It’s about caring for and contributing to the community
that supports your business and creating the opportunity for
employment, as well as learning and having fun in everything that
we do.” This company is a family with shared goals and dreams.

Western Gas has strong relationships with the Foundation for
Youth Development for whom they provide youth mentors; Hospice
West Auckland, who they support through numerous fundraising
events and Vision West Trust, who provide outstanding community
services and programmes throughout West Auckland.

John can’t get enough of interacting with customers and staff and
spends much of the day supporting Z’s concept of surprising and
delighting customers. He is passionate about any sport in which
New Zealand competes and loves travelling.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

The faces of Z

Meet Lynette and Dave Gillies from the Bay of Plenty

Lynette and Dave Gillies are no strangers to the fuel business,
having clocked up 55 years of industry experience between the pair
of them. Together, and along with their 90 fantastic staff members,
they run 12 Z sites in the Bay of Plenty. The cluster is known as
the Gillies Cluster Family, and they have a culture of fun, backing
each other, and being empowered to make decisions – the Gillies’
philosophy is ‘if it is safe and appropriate, then go for it’. This
results in a cluster of sites that are regularly running fundraising
projects or organising themed days. The Gillies’ team supports a
range of local organisations, including Homes of Hope, the Dream
Chaser Foundation, Merivale Community Centre, Tauranga Breast
Cancer Support Service, Bay of Plenty Foster Care Association and
the Foundation for Youth Development.

Lynette and Dave say that they work with Z, not for Z. They share
Z’s focus on developing their people and having fun and say that
creating a great customer experience – along with a fantastic
espresso from one of their sites – is what gets them out of bed in
the morning. Their favourite part of being a retailer is watching
their staff members develop and achieve their personal goals, and
outside of work, the exercise-mad pair can be found mountain
biking, road cycling, doing martial arts or working out at the gym.
They also love travelling and enjoying friendships.

Z ENERGY

ANNUAL REPORT 2014

Meet one of the faces of Z
Jonathan Usher

Hear him talk about his cluster of retail sites and life
as a professional comedy magician.

Hi there, my name is Jonathan Usher and I’m a retailer in the
Dunedin and North Otago region. I look after Z retail sites
in Dunedin, Palmerston and Oamaru.

I employ 61 people across the six retail sites that I operate.
The main thing that stands out about Z is the fact that it is
a New Zealand organisation, so it likes to do things in its own
communities and neighbourhoods. I think that’s fantastic,
and I’m really pleased to be a part of it.

I’m involved in the Saddle Hill community board, the Malcam
Trust, the J.R. Mckenzie Trust and Rotary. I love doing things
in our local community, which is such a great fit with what Z does.

For fun, I’m actually a professional comedy magician, so I perform
shows at functions and conferences all over New Zealand, Australia
and even some international gigs around the Pacific. So, one of
the things I encourage in my team is to have fun every day, both
with the team and with our customers. The more fun we have, the
better it shows in the service that we deliver.

This is a transcript.
You can watch the video at z.co.nz/annual-report-2014

ANNUAL REPORT 2014

Z ENERGY

How safe were we?

Workplace safety has been a focus around the country this year as
businesses have started preparing for the Health and Safety Reform Bill,
which is expected to come into force from around April 2015.

We support this much-needed legislation
and believe that every company in
New Zealand – including Z – could stand
to lift their game in this area. We’re also
proud to be participating in this process,
and members of our staff are on several
industry working groups facilitated by
the Ministry for Business, Innovation and
Employment. At Z, we’ve been preparing
ourselves and our key contractors for the
new legislation, updating our policies and
processes, and investing in our contractor
management system.

In 2014, the areas on which we focused
our efforts have seen improvements. And
while the results are no better or worse
than previous years, we have captured
better information that has helped give
us a fuller picture of our performance and
the areas we can do better in. We firmly
believe that numbers can give a snapshot
of our performance, but they give only half
the story: it’s more important to thoroughly
assess our culture of safety and determine
whether and how our people demonstrate
safe behaviour every day.

Health, Safety, Security and the Environment (HSSE)

Key performance indicators – financial year ending 31 March 2014a

Exposure hours (millions)
Compliance with HSSE plan (%)
HSSE actions close out rate (%)
Life-saving rules infringements (total number)
Safety critical maintenance completed on time
Lost-time injuries (LTIs) (number)
Lost work days (number)
Lost time injury frequency (LTIF)
TRCbc (number)
TRCFb
Number of spills (loss of containment)

FY2011

FY2012

FY2013

FY2014

3.7
98%
100%
21
100%
4
N/A
1.08
10
2.69
10

3.7
99%
100%
31
100%
9
N/A
3.81
14
3.81
7

4.6
97%
100%
32
100%
8
66
3.28
15
3.26
8

4.5
100%
100%
12
100%
13
50
4.72
21
4.72
1

Note:
a April 2013 – March 2014
b NT – Tracked and trended but no targets set for these measures
c TRC – Total Recordable Cases include Medical Treatment Case (MTC), Restricted Work Case (RWC), Lost Time Injury (LTI)

Z ENERGY

When looking at the number of Lost Time Injuries (LTIs) in FY2014,
it may appear that our performance in this area hasn’t improved.
However, the actual number does not provide the overall picture of
our performance.

Ten of the 13 injuries were associated with a slip (five), a trip (three)
or a twist (two). This is where the individual either lost their footing
while walking, stumbled over an obstacle or an injury occurred as a
result of their body position and/or movement.

While the number of LTIs has increased from eight in FY2013 to 13
in FY2014, the number of Lost Work Days has decreased over the
same period (from 66 in FY2013 to 50 in FY2014).

Eleven of the 13 injuries occurred to employees working at a retail
site. The other two injuries occurred to contractors who slipped
while working on a Z aviation site.

The longest recovery period for an injury was 13 days – for a person
to recover from a twisted ankle sustained while walking through the
retail store (no obstacle was involved). In eight of the injury cases,
the individual was back to work within two days.

While it is not acceptable that 13 people were hurt while they were
working for Z, the impact of their injuries was relatively short term.
We remain committed to a zero-harm working environment, and are
continually investigating ways to keep our people safe.

Keeping our people safe

Keeping our site teams, staff and customers safe is a top priority for Z, and an unfortunate
but undeniable threat to that safety is service station break-ins and robberies.

We’ve worked hard over several years to drastically
reduce the number of robberies we experience
every year. We’re down to about five robberies
a year, and our existing IntelliSafe technology
limits access to cash on premises, so the
financial cost to us is very low. However, when
you consider the psychological and physical
harm that could come to our people and
customers, every robbery is a potential tragedy
and is one too many.

So we’re committed to zero robberies on our sites.

This year we’ve invested heavily in technology to help make our
sites as difficult a target as possible. To start with, we embarked
on a four-year, $8 million project to update our old analog closed-
circuit television (CCTV) to state-of-the-art digital CCTV in every
station. We also bumped up the number of cameras to more than
a dozen at each site. If you’re on our sites, we’re not going to
miss you!

CCTV is recognised internationally as one of the very best ways
of protecting a site, and the recommended first port of call when it

comes to robbery prevention. The new cameras
will be dotted around each site, and the high-
definition footage they provide will be both
recorded and instantly broadcast on large
screens in the station. The big-screen
footage will be a highly visible deterrent to
would-be offenders, and if anyone does try to
rob a Z service station, their chances of going
unrecognised when the image is released will

be close to zero. We’ve also been using our
crystal-clear new images to read licence plate
numbers in the case of petrol drive-offs, with a high

level of success.

In addition, we’ve gone really high-tech and have started trialling a
new spray technology that will help identify criminals after the fact.
The SelectaDNA spray unit is discreetly installed at the service
station and automatically activates in the event of a robbery or
after-hours burglary. It is then impossible for an offender to leave
the site without being sprayed by a fine mist that is unique to
each location. It stays on the skin for up to 10 days and glows blue
under ultraviolet light, giving police an irrefutable link between the
offender and the location.

ANNUAL REPORT 2014

Z ENERGY

We bring Mini-Tankers on board

When Z first began, we inherited a relationship with Mini-Tankers,
formerly a 100%-owned subsidiary of Shell.

Mini-Tankers is a nationwide onsite diesel refuelling system, which
means it saves businesses time and money by bringing the fuel
directly to the customer at, say, a forestry or construction site. It’s
a unique offering that reduces the health and safety risks of storing
fuel on site, increases productivity and reduces waste – it’s easy to
see why commercial customers love this extra level of service.

For the first year of business, we maintained the status quo: two of
our executive team sat on the Mini-Tankers board and that was the
extent of our involvement. However, as we learned more about their
business, in particular, the value of having franchisees operating
within their own community and areas, we gained an appreciation
for Mini-Tankers’ niche and high-value offer and areas where the
company could benefit from some new investment. We felt that by
making Mini-Tankers a closer part of the Z business, we could share
resources and ultimately help it deliver more value to customers.

So from 1 April 2013, Mini-Tankers became fully integrated into Z
Energy. The integration has created a range of internal operational
efficiencies, which has contributed to an even smoother and more
efficient service for customers. The integration meant Mini-Tankers
could draw more heavily on the expertise within the wider Z team,
and that we could offer an integrated approach to support our
customers’ businesses. The ultimate goal is always to make the
process of getting fuel to our customers as seamless as possible
so that they can get on with their job uninterrupted.

Of course, while an integrated and efficient company was the end
goal, in the short term there was a significant amount of work to be
done integrating the Mini-Tankers business model into Z, as well as
integrating their systems and people. We had a dedicated human
resources manager take care of the transition, which included
everything from new and improved employee contracts and
performance plans to an introduction to the Z working environment
and company values.

Z ENERGY

ANNUAL REPORT 2014

Z Fuelwise Manager, Hayley Jones, engaging staff in what it means to solve what matters for a moving world.

ANNUAL REPORT 2014

Z ENERGY

Inspiring others

See how we’re becoming distinctive through the
support and opportunities we’re offering our people
and our communities.

Z ENERGY

Site staff go to the
top of the class

We think Richard Branson is a pretty switched on guy!
In his autobiography, he says the correct pecking order in a business
is employees first, customers next and shareholders last.

This may sound worrying in a report to
shareholders, but his logic is compelling:
if your employees are happy, they’ll
look after your customers, who will then
take care of the bottom line, ensuring
shareholders are rewarded.

We recognise that staff on our retail sites
are the face of the company for many Kiwis,
and they’re the ones we rely on to deliver
awesome customer service day in and
day out.

This year, we found a way of giving
something back to our service station
staff. When we put together our new retail
training course ‘Getting Famous’, we worked
alongside the New Zealand Qualifications
Authority (NZQA) to ensure it matched up

with NZQA unit standards. This means that
all site staff who complete the course – and
this year that was 1,450 – will graduate
with an NZQA-recognised Certificate in
Retail, a Level 2 tertiary qualification that
is recognised by employers nationwide.
In 2013, a further 152 site staff added the
Certificate in Retail to their existing NZQA
credits to achieve their first National
Certificate of Educational Achievement
(NCEA) – some at Level 3, which equates
to UE (university entrance).

The response from site staff to opt in
to the course was staggering, and we’re
receiving new applications each day. For
some staff, including Jeff Waghorn, our
Christchurch North retailer, this is their first

formal qualification. We’ve heard that the
site staff in Jeff’s cluster find it inspiring
that their boss is taking the same course
and achieving the same qualifications
as they are. In fact, two of his team have
been so buoyed by their new qualifications
that they’ve left Z to undertake tertiary
education: Rebecca Stanley is heading
to the University of Canterbury to start
a Bachelor of Commerce this year, while
Jordan Wells is looking into enrolment
options at the same university. While
we’re always sad to lose great team
members, we couldn’t be prouder that
getting those qualifications through their
Z training helped them on their way to
further their education.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Leading the conversations
that matter

We make no secret of our ambition to be a world-class Kiwi company, and in our
mind that includes leading the discussion and debate around things that matter
– not just within our company or our industry but for the whole country.

Being Kiwis means we have a tendency to avoid patting ourselves
on the back too often. However, we think it’s important to recognise
where we have separated ourselves from the rest and taken some
unexpected actions. In 2013, we did this in a few key areas, some of
which were very much connected to our industry, whereas others
were a bit broader in scope.

One of the most significant pieces of work we’ve done in the last
few years is around transparency of fuel margins and ensuring
people understand how this sometimes contentious area actually
works. It’s a common misconception that fuel retailing is hugely
profitable; while that can certainly be true for the companies
involved in oil and gas exploration and production, it’s a different
proposition when you have to buy from the market what you then
sell to your customers.

Z has taken the previously unheard of step to disclose how much
money we make on every single litre of fuel we sell. We also talk
freely about the kind of returns we target in order to deliver a
financially sustainable industry and to enable the investments
this industry needs. No other competitors do this.

We like to think that through being prepared to front up and share
everything, we’ve helped ensure a much higher level of information
and understanding about the financial performance of our company
and industry.

Z staff weigh in on drink driving

In 2013, Z made a submission on the Land Transport Amendment
Bill supporting the lowering of the adult legal alcohol limit from
400 micrograms per litre of breath to 250 micrograms – the same
as in Australia. This was the result of a company-wide piece of
work that saw the New Zealand Police join Z staff to discuss the
relationship between driver safety and alcohol consumption.

The police spent an afternoon with Z staff, and after a one-
hour presentation, 15 Z staff members took part in a two-hour
experiment whereby they consumed alcohol and were breath-
tested between drinks. It soon became evident that the breath
alcohol readings were varied and at times disturbing: of the 15
staff who took part, 12 consumed five drinks and were still under
the current breath alcohol limit, and two consumed six drinks and
were still under the limit. Without exception, everyone participating
in the trial reported feeling so impaired that they would not have
driven well before they reached the legal limit.

After the experiment and presentation, we asked Z staff whether
Z should advocate for maintaining the current limit or for lowering
it. The results were unanimous: Z staff thought that the current
level was too high, posed an unacceptable public safety risk and
was inconsistent with our commitment to best practice in health
and safety.

Z’s submission reflects the fact that Z’s contracted fuel tankers
travel approximately 8 million kilometres every year distributing
hazardous products and as a result we care deeply about road
safety. You can read our submission:
z.co.nz/assets/FINAL-drink-driving-submission.pdf

Z ENERGY

ANNUAL REPORT 2014

Being good neighbours
all year round

It’s really important to us at Z that we don’t just support our local
neighbourhoods through cash contributions but that we contribute
time and energy as well. In 2013, a large number of Z Shed staff
rolled up their sleeves and washed windows, painted walls and
weeded gardens at four organisations we supported – The Hospice,
Riding for the Disabled, The Nelson School of Music and the SPCA.

And while we’re always happy to pitch in and paint fences, we
reckon we can also make a more valuable contribution if we used
the specific expertise of each Z staff member. So next year, we’ll be
matching people to skilled volunteering opportunities, which could
see our Head of Marketing helping the local food bank with their
marketing strategy or our GM Retail advising the neighbourhood
kindergarten on their fundraising. Being good neighbours all year
round is what Z is all about, and we want to ensure we’re always
making the best contribution we can.

Skilled volunteering

From 2014, Z staff will be able to volunteer
their time and their expertise in a Z skilled
volunteering programme as part of the
Good in the Hood programme.

There’s evidence that contributing skills adds significantly more
value to community organisations than unskilled volunteering.
We’ll continue to do both: many of our teams enjoy the team
building and sense of contribution through unskilled volunteering –
such as cutting tracks, for example – but we’ll also supplement that
by harnessing the considerable skills and expertise of our people.

ANNUAL REPORT 2014

Z ENERGY

Engaging our people

When we talk about engagement, we simply mean the level of emotional
commitment that an employee has to the organisation they work for
and how that translates into the effort they put into their work
(going beyond just getting the job done).

It’s widely accepted that there is a direct and significant correlation
between the engagement of the employee and the success –
financial or otherwise – of the business.

When we ran our first full engagement survey in July 2012, we were
delighted with our 98% participation rate and our overall result of
66% engagement (putting Z in the high-performance zone), but
we were most interested in looking beyond the numbers and into
the details. We learned that we were rated highly when it came to
strategy and innovation – our people can clearly see how Z’s overall
strategy connects to the part they play, and they love helping to
do things in new and better ways. We also discovered we could
improve in the areas of career opportunities and leadership. We
rate leadership as being hugely important, so we were pleased to
see that our team agreed and had high expectations.

So we didn’t muck about and got to work. We got a team from
across the organisation to work out a plan for how we could lift our
game in those areas. When it came to careers, an important thing
was to simply give our people more information.

We clarified our procedures for promotions and internal
recruitment, and now regularly publish recruitment stats on
our intranet. And now, every time someone is hired, we encourage
the person doing the hiring to share all the reasons behind the
appointment with the rest of the team.

We also explained what we were doing with succession plans and
talent development through a company-wide presentation. It can
be a controversial topic, and most businesses don’t share this
information, but we’ve learned that the more we share and the more
people can ask questions, the more comfortable they feel about it.

We rate leadership as being hugely
important, so we were pleased to see
that our team agreed and had high
expectations.

Z ENERGY

We want everyone to understand
that leadership is not an extra
bit of work to do alongside
everything else; rather, it’s the
cornerstone of our company, and
if you lead well, everything else
will take care of itself.

We also realised we needed to work harder at assisting our people
with thinking about their careers. So in June 2013, we set up an
online platform of career-planning tools and invited our team to
take part – around 130 people logged in and answered questions
about their career values, talents and motivations, their preferred
ways of working and their career goals. At the same time, we
trained up all our people managers on career coaching so that
employees could take their results from the planning platform
and use them to have conversations with their manager about
their five-year plans, and what steps to take this year. The
feedback we’ve had from those who have used the process
has been positive.

When it came to leadership, we realised we’d been a victim of our
own success: we had been so focused on our large-scale work
on developing leadership capability across Z, that we’d actually
lost focus on doing the basics consistently, like making sure each
employee gets regular one-on-one meetings with their manager.
We believe that leadership is fundamental to our company’s
success, so we’ve taken some big steps to show it: leadership is
now a standard performance measure for all Z managers and it
forms 25% of a manager’s overall performance rating. We want
everyone to understand that leadership is not an extra bit of
work to do alongside everything else; rather, it’s the cornerstone
of our company, and if you lead well, everything else will take
care of itself.

And when we said that the numbers weren’t the important bit?
Well it’s not entirely the case: just before this annual report went
to print, the results of our latest engagement survey arrived, and
we’re thrilled that our engagement score is now 69%, putting us in
the top quartile for all employers. This is a three-percentage-point-
increase on our 2012 results, meaning we’re inching closer to our
ultimate goal of 79%, Aon Hewitt’s Best Employer benchmark. We
know that this is where the going gets tough – getting incremental
gains is harder the higher engagement climbs. We reckon that’s a
challenge worth taking on.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

ANNUAL REPORT 2014

Z terminal team on the ground at Mount Maunganui terminal.

ANNUAL REPORT 2014

Z ENERGY

Thinking
commercially

See some of our strategy in action and how
we run our business.

Z ENERGY

We signed a new contract
for imported refined fuel

A quarter of all fuel sold by Z is directly imported refined petrol and diesel
(the remaining 75% comes from imported crude oil that is refined by
Refining NZ at Marsden Point in Whangarei).

Part of our maturing as a Kiwi company means we are now in the
position of negotiating our refined fuel supply contracts directly,
rather than through an intermediary, as we did previously, or through
an off shore parent company, as some other fuel businesses do.

For that 25% of our fuel we can’t manufacture locally, Z is now a
sought-after purchasing partner for international refiners and we’ve
developed a reputation as a trustworthy business in a country with
a stable political system. The experience we’ve gained and the
relationships we’ve built over the last few years mean we now have
the unique expertise required for directly buying large volumes of
refined fuel products. We know what a competitive price looks like –
and this year we negotiated a competitive supply contract that utilises
these skills.

In January 2014, we signed a contract for the supply of approximately
500 million litres of refined petrol with a South Korean refiner. We’ve
worked with them under different commercial terms (negotiated on
our behalf by a third party) for the 19 months prior to this, and know
them to be a reliable refiner making a top-quality product that meets
New Zealand’s high fuel specifications. As you’d expect, cutting out
the middle man and negotiating the contract ourselves meant a much
better price than we’d been paying previously – the improved figures
being consistent with those we forecasted in our prospectus.

The 500 million litres of fuel from the new arrangement started
arriving in New Zealand in February 2014, and will be delivered on
a roughly monthly basis directly to Z’s import terminals around
New Zealand.

Where our oil comes from

Sourcing, buying and safely importing crude
oil can be a tricky business, with a myriad
of factors to be worked through. Our aim is
to find the best-quality crude at the lowest
price, and closest to home.

Refining NZ is a tolling refinery, which means
that it refines the crude oil that is supplied by
each of its four main oil company customers.
Refining NZ provides us with a model that
shows the characteristics of each crude
oil and which ones they can refine into the
products we need. We use this model to plan
what crudes we buy and what products we
ask the refinery to make for us. For many
years, each of the refinery’s four customers
had individually selected their own crudes
which resulted in the refinery operating in a
less than optimal manner.

Now, working with another of the refinery’s
customers in a new collaborative relationship,
we jointly procure and process crude
oil through the refinery to better match
crude cargoes to the refinery’s production
requirements and to enable the refinery to
run more efficiently.

Sometimes we’ll fill a ship up with single or
multiple crudes at one port and come straight
to New Zealand, but at other times, if it is
better to bring in crudes from different ports
on the same ship, then the ship will start at
the port farthest away and stop off at others
to load more stock before arriving here.

Importing refined products is a different sort
of challenge, as almost all the refined fuel
that Z imports comes from a single South
Korean refiner.

Once the most optimal crudes have been
selected and purchased, the complications
then begin: not all crudes are sold in full
shipments (due to availability) and not every
type of crude is sold in every region of the
world. Furthermore, at the same time as we
try to buy crudes, other companies are also
trying to buy them, driving prices up. Then
there’s shipping: we need to find the right
ship at the right time with the right size
window of availability for our planned voyage.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Far East
15-20 days

Middle East
29-33 days

South Korea
17-20 days

Far East
15-20 days

United States
30 days

Australia
5-10 days

Crude Oil

Refined Oil

Did you know?

• Of the 200-plus types of crude oil in

the world, Z uses only 15.

• A typical crude oil shipment is about
100 million litres, whereas a finished,
refined fuel shipment is about
50 million litres.

• Some crude oils can’t be used in
New Zealand at all, as they only
start to flow as a liquid above
30 degrees Celsius.

• The world uses 90 million barrels
of crude oil each day, of which
New Zealand takes only about
24 million litres, or around 0.1%.

• When ships travel near Somalia and

India, precautions are taken against the
very real threat of pirates. This involves
having armed guards on board or
simply speeding up to get through the
high-risk zone as quickly as possible.

•

In the last financial year, our crude oil
was imported from Malaysia, Brunei,
Saudi Arabia, Kuwait, the United Arab
Emirates and Russia. Almost all our
imported fuel (including petrol, diesel
and jet fuel) comes from South Korea,
with some aviation fuel coming from
Australia and specialist-grade bitumen
from the United States.

•

Last financial year, we imported
1.9 billion litres of crude oil and
550 million litres of refined fuels.

Z ENERGY

The value of each drop

Striking the right balance between how much fuel we sell and how much
we sell it for is an intricate art.

In the last year, we have continued our strategy to manage volumes
for the best overall dollar – an approach we think is much more
sustainable in the long term and enables us to secure a greater
share of the value in this industry, in which competitors are relying
on discounting to try and attract customers.

Rather than using sporadic discounts to try to attract opportune
customers, we think Kiwis are increasingly looking for value. Our
approach focuses on quality, service, supporting communities
and delivering against what our customers want. In addition, the
majority of the money we make stays in New Zealand rather than
being shipped offshore.

We believe this approach provides a stronger value proposition to
our customers and is more likely to deliver more loyal customers.

It also means we can deliver superior shareholder value and
continue our programme of leading the investment in infrastructure
and things that matter, ensuring that we’ll be around – and in good
condition – for the long haul. After all, we’re a Kiwi company, and
this is the market we care about – if the going gets tough, we won’t
simply back out of this territory and focus on the rest of the world.

So how much do we make on every drop of petrol? By the time our
fuel products have been refined or purchased, and we’ve paid our
levies and taxes to the government, Z receives around 17 cents per
litre on its fuel marketing volume. After all of our operating and
financing costs (staff salaries, transport, energy costs, interest and
so on) have been covered, we earn a net profit of 4.2 cents per litre.

The price of 1 litre of petrol

Cost of product

Government taxes & levies

Operating costs
Our net profit

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Our alternative energy strategy

As a downstream fuel company that’s not an oil producer, we don’t have to rely on
fossil fuels. We believe that alternative sources of energy will be part of the way
forward, and we’re excited about having the flexibility to move from being part of
the climate change problem to being at the heart of a solution.

While fossil fuels are highly likely to provide the backbone
of transport fuels for the next 20 or 30 years, there are other
emerging options for fuelling New Zealand in a more sustainable
way. As a transport fuel company committed to delivering customer
and shareholder value for the long term, we need to understand
these technologies and work out where we can lead and add
additional value.

Over the last 18 months, Z has seriously considered 15 alternative
transport energy sources according to their technological
and economic maturity and how well they would fit with the
New Zealand market. We’ve come to the conclusion that the
most viable options for the next decade are all liquid technologies,
which is the perfect fit with Z’s business. This helps inform us
that it makes sense for Z to be an industry leader in this realm.

We’re committed to developing top-quality biofuels that reduce
the environmental impacts of the transport fuels industry, but
that’s not our only criteria: biofuels also need to be economically
sustainable and ideally deliver superior value to our customers
compared with conventional fuels. Developing new energy
technologies is an intensive and expensive undertaking, and we’re
only prepared to invest in those that have the potential to be truly
robust, long-term alternatives. Assessing the possibilities according
to these criteria has given us five options that we think could be
implemented in New Zealand in the next five to 10 years, and
we’re focusing our efforts on two of them: woody biomass and
inedible tallow.

Rather than wait for other companies to sort out all the nuts and
bolts of these technologies, we’re getting in there from the start
and putting in the hard yards ourselves. We’re leading the action,
engaging with government and other stakeholders and leading the
conversations on alternative fuels.

Z ENERGY

Future transport energy options for New Zealand

> 30

> 20

)
s
r
a
e
y
(
e
m
T

Battery
Electric
Vehicles

Plug-in
Hybrids

2nd Gen
Biofuels

Algae and
Bacteria

Hydrogen

Fuel Cell
Vehicles

Hydrogenerated
Biodiesel

LPG

CNG

1st Gen
Biofuels

High

Emulsified
Diesel

Synthetic
Diesel

Sustainability for New Zealand

Low

Stump to Pump is a development project that involves turning
residual wood-processing waste into high-quality transport fuel
and is a joint project between Norske Skog and Z Energy, with
support from the Ministry for Primary Industries. It’s an innovative
technology that uses existing forestry waste such as sawdust
and harvest residue that otherwise has little or no value. It’s a
strong fit for New Zealand, with its extensive forestry industry.

Tallow-based biodiesel is another excellent match for
New Zealand, given that it draws on by-products from the
country’s meat industry, using inedible tallow as the primary
feedstock. This biodiesel product would be truly sustainable
and it does not impact on biodiversity, alternative land-use or
diversion of food production.

Z’s alternative energy strategy

•

Focus on technologies that could be commercially
viable in New Zealand within the next five to 10 years

• Prioritise options that offer superior value to the customer

• Prefer fuels created in local production facilities over

imported options

• Develop and maintain capability to review new options

and act on those that are, or that become, financially and
technically viable

• Secure options where local feedstock is readily available.

While we’ve got our work cut out for us with Stump to Pump and
biodiesel, our doors are wide open to new ideas: we welcome
proposals for sustainable biofuel models to pursue (and receive
them regularly). Indeed, part of our alternative energy strategy is
to develop and maintain capability to review new options and act
on those that are, or that become, financially and technically viable.

ANNUAL REPORT 2014
ANNUAL REPORT 2014

Z ENERGY

Thinking commercially

As we went through the transition period to a stand-alone Kiwi company,
it became clear that a high level of sound commercial thinking among all staff
would be crucial to the new company’s success. In fact, after leadership, what
we call ‘commercial thinking’ became – and still is – our top organisation-wide
development focus.

By ‘commercial thinking’, we mean business
acumen or nous, or a level of understanding
as to how the company makes money, our
opportunities and risks, as well as how best
to use our resources to achieve our goals.

Why is it so important?

We have no international head office to
buffer us through any commercial missteps.
We’re a pretty small company, considering
our responsibility to New Zealanders in
keeping their businesses moving each
day (as well as to our shareholders), which
means that every single one of us makes
a real contribution to how the company
performs and that meeting our commercial
objectives doesn’t happen by accident.
All the smaller decisions made every day
by people across Z can have as much effect
on the company’s bottom line as one big
decision made by a senior leader.

So we decided that everyone at Z needs
to know how we make money, what our
commercial objectives are, how we win
commercially in a competitive market and
how they can make everyday decisions
that will support those goals. Our mid-level
staff also need to understand how best to
process information, gain insight and make
decisions quickly, and the senior leadership
team needs all of that capability plus an
understanding of long-term profitability,
strategy and decisions that impact
shareholder value.

In the 2013 financial year, we put together
Commercial Thinking Phase 1, an e-learning
module for all staff that covered all of the
above. This year we began to build on this
and have developed a series of face-to-
face workshops targeted at smaller groups,
especially within the Commercial, Retail

and Supply and Distribution units – those
people who manage money-making teams
and budgets.

We unequivocally believe that the
development we’ve done in this area has
had a positive effect on our company’s
performance. Our regular 360 feedback
process gives an insight into where we
have improved in this area and where
we can do better. We regularly receive
anecdotal results, such as while we
are doing the same amount of travel
each year, our total flight expenditure is
much less, indicating some savvy ticket
purchasing by our people.

All the smaller decisions made every
day by people across Z can have as
much effect on the company’s bottom
line as one big decision made by a
senior leader.

Z ENERGY

Corporate governance

The Board and management are committed to
ensuring that Z Energy maintains best practice
governance structures and adheres to high
ethical standards.

Our approach to
corporate governance

• HSSE and Reputation Committee Charter

• ASX Corporate Governance Statement

Z Energy Limited is incorporated in New Zealand and is not
subject to Chapters 6, 6A, 6B and 6C of the Australian Corporations
Act 2001. The acquisition of securities in Z Energy may be limited
under New Zealand law by the Takeovers Code (which restricts
the acquisition of control rights of more than 20% of Z Energy
other than via a takeover offer under the Code) or the effect of
the Overseas Investment Act 2005 (which restricts the acquisition
of New Zealand assets by overseas persons).

Framework

Z Energy shares are listed on the New Zealand Main Board (NZSX)
and on the Australian Securities Exchange (ASX). Z Energy has also
issued three series of retail bonds, which are quoted on the NZX
Debt Market (NZDX), and as a result must comply with the NZDX
listing rules.

Z Energy’s investor relations website z.co.nz/investor-centre/
governance/ contains copies of the following corporate
governance documents referred to in this section:

• Director Code of Ethics

• Z Energy Constitution

• Z Energy Board Charter

• Audit and Risk Committee Charter

• Human Resources and Nominations Committee Charter

• Disclosure Policy

• Diversity Policy

• External Auditor Independence Policy

• Risk Management Policy

• Shareholder Communication Policy

• Code of Conduct

•

Insider Trading Policy

The Board is responsible for establishing and implementing Z
Energy’s corporate governance frameworks and is committed to
doing so according to recommendations issued by NZX Limited,
ASX Limited and the New Zealand Securities Commission, including
the NZX Corporate Governance Best Practice Code and the
Corporate Governance Principles and Recommendations issued
by the ASX Corporate Governance Council.

This section sets out our commitment to good corporate
governance and measures our compliance with the eight
fundamental principles of the ASX Recommendations throughout
the financial year ended 31 March 2014 (and through that, our
compliance with the NZX code). Z Energy considers that during
the reporting period, the corporate governance principles adopted
and followed by it did not materially differ from NZX’s Corporate
Governance Best Practice Code.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Principle 1
Lay solid foundations for
management and oversight

The Board has the final responsibility for all decision making within
Z Energy, having a core objective to represent and promote the
interests of shareholders with a view to adding long-term value to
the company.

The performance of the CEO and the senior management team is
reviewed annually in accordance with formal review procedures
disclosed in Z Energy’s Corporate Governance Statement given
to ASX on listing.

The Board Charter describes the Board’s role and responsibilities
and internal procedures. The Board has delegated some of its
powers to sub-committees and to the CEO. This framework also
establishes the authority levels for decision making within the
management team.

The Board directs the business and supervises the management
of Z Energy including:

In the financial year ended 31 March 2014, each member of the
senior management team participated in a formal performance
review process in accordance with these formal review procedures,
which formed the basis of a review by the CEO. The performance
review included assessment against targeted key performance
indicators and company values. The performance of the CEO was
also reviewed in accordance with these procedures with the review
being undertaken by the Chair of the Board.

•

ensuring that the company’s goals are clearly established
and that strategies are in place for achieving them

The performance of the senior management team was reviewed
in the previous financial year in accordance with this process.

ensuring that performance is reviewed against these
strategic objectives

approving transactions relating to acquisitions and divestments
and capital expenditure above delegated authority limits

ensuring that business risks are regularly assessed and that
there are appropriate control and accountability systems in
place to manage them

establishing policies aimed at strengthening the performance
of the company, including through innovation, initiative,
technology, new products and the development of its
business capital

• monitoring the performance of management.

Z ENERGY

ANNUAL REPORT 2014

Principle 2
Structure the Board
to add value

The Board’s structure and its governance arrangements are set out
in its Board Charter. The Board, including the skills, experience and
expertise of each director, are set out in the profiles of all directors
on page 18.

The Board actively seeks to ensure that it has an appropriate
mix of diversity, skills and expertise to enable it to effectively
discharge its responsibilities and be well equipped to provide
the range of knowledge, views and experiences relevant to
the company’s business. Matters relating to Board (and Board
committee) composition are considered by the Human Resources
and Nominations Committee as set out in the next section.

The directors as at the date of this annual report and the dates of their appointment are:

Peter Griffiths
Chair – Independent
2 April 2010

Marko Bogoievski
1 April 2010

Alan Dunn
2 April 2010

Abby Foote
Independent
15 May 2013

Paul Fowler
2 April 2010

Justine Munro
Independent
15 May 2013

Bruce Harker
19 February 2014

ANNUAL REPORT 2014

Z ENERGY

Liberato Petagna retired as a director, and Bruce Harker was
appointed as a director, during the financial year ended 31 March 2014.

The Board has determined that for the purposes of the NZX
Main Board Listing Rules and the ASX Principles:

• Peter Griffiths, Abby Foote and Justine Munro, are independent

directors; and

Risk management and internal audit (assurance) are critical
governance and management functions within the company.
Robust policy and compliance assurance in both risk management
and financial audit is important for investors in Z Energy, financial
markets more generally and for internal assurance as to the
transparent, safe and financially responsible management of
the company.

• Marko Bogoievski, Paul Fowler, Alan Dunn and Bruce Harker,

Chair – Abby Foote

are not independent directors,

In order for a director to be considered independent, the Board
must affirmatively determine that the director does not have a
disqualifying relationship (other than solely as a consequence of
being a director). The basis for determining whether a director has
a disqualifying relationship is set out in the Board Charter available
on the Z Energy website. In accordance with the Board Charter, only
relationships that are material will be considered for the purposes
of assessing director independence. Materiality will be considered
having regard to the materiality to Z Energy, the director and the
person or organisation with which the director is related (e.g., the
customer, supplier or adviser).

The ASX Principles recommend that the majority of the Board
should be independent directors. Z Energy does not comply with
this recommendation as the Board does not consist of a majority
of independent directors. The Board’s composition was originally
established to provide further assurance that change of control
risks, detailed in Section 4 of its Investment Statement and
Prospectus, were not triggered. These risks are unlikely to remain,
but the Board considers that its composition is appropriate as the
current skills and experience of the Board meet Z Energy’s needs.

Board access to independent professional advice

The Board has adopted a procedure under which it may take
independent professional advice at Z Energy’s expense as
described in the Board Charter.

Members – Paul Fowler, Marko Bogoievski, Peter Griffiths and
Justine Munro

Human Resources and Nominations Committee (HRN)

The Human Resources and Nominations Committee helps the
Board oversee people policies and strategies and promotes
the continual improvement of good corporate governance, as
expected of a NZX Main Board, NZX Debt Market and ASX listed
organisation, in accordance with the framework set out in the
Human Resources and Nominations Committee Charter.

The committee is responsible for developing and recommending to
the Board for its approval an annual evaluation process of the Board
and its committees. This includes identifying and recommending
individuals for nomination (including rotation and re-appointment)
to membership of the Board and Board committees, taking into
account such factors that it considers are appropriate. These
factors will include skills, experience and expertise in transport
fuels, marketing, retail and sales, finance and legal, as well as
relevant qualifications, judgements, the ability to work with other
directors and fit with the culture of Z Energy.

The Committee also approves annual remuneration increase guides
and budgets.

Chair – Alan Dunn

Members – Justine Munro and Marko Bogoievski

Board committees

The Board has three standing committees to assist in carrying out
its responsibilities:

Audit and Risk Committee (ARC)

The Audit and Risk Committee helps the Board oversee all matters
relating to risk management and financial management, accounting,
audit and reporting.

Health, Safety, Security, Environment (HSSE)
and Reputation Committee

The HSSE and Reputation Committee provides a specific
governance focus on risks arising from the company’s physical (not
financial) operations, HSSE policy and risk mitigation programmes,
and any matters that may affect the company’s reputation outside
of the financial risks addressed by the Audit and Risk Committee.

Chair – Paul Fowler

Members – Alan Dunn, Abby Foote and Bruce Harker.

Z ENERGY

Review of Board and director performance

The performance evaluation for the Board, its committees and directors has taken place in the reporting period and was done so in
accordance with the process disclosed in the Board Charter.

Attendance at Board meetings

The table below sets out attendance at the Board and Board Committee meetings in the year ended 31 March 2014.

Director

Board meetings

ARC

HRN

HSSE and Reputation

Total number of meetings held

Peter Griffiths
Marko Bogoievski
Alan Dunn
Abby Foote
Paul Fowler
Justine Munro
Liberato Petagna
Bruce Harker

13/15
15/15
13/15
11/12
14/15
11/12
12/15
0/0

1/3
4/5
-
3/3
4/5
3/3
2/2
-

-
8/8
7/8
-
-
4/4
-
-

1/2
-
4/4
4/4
6/6
-
2/4
-

Note 1: This table reflects that Liberato Petagna resigned from the Board on 20 February 2014.
Bruce Harker was appointed to the Board on 19 February 2014, Justine Munro and Abby Foote were both appointed to the Board on 15 May 2013.

Note 2: This table shows the number of meetings Board members attended while they were a Board and Board Committee member.
If they were not a member of the relevant Board Committee at the time of the relevant Board Committee meetings a “-“ has been recorded.

Principle 3
Promote ethical
and responsible
decision making

The Board maintains high standards
of ethical conduct, and the CEO is
responsible for ensuring these standards
are maintained by all staff. The Code of
Conduct (which can be found on Z Energy’s
website) is a cornerstone of expected
behaviour and company culture.

This Code is designed to help guide and
inform the choices that Z staff make on
a daily basis and ensure they do the right
thing. It is designed to help Z’s people
succeed through making choices that
are consistent with two key parts of
the company’s foundations: Z’s values
and policies.

Z’s values

Be straight up
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.

Have the passion
It is impossible to be the best unless you
are absolutely passionate about what you
are doing and you take ownership of it.
We are and we do. Our business helps to
keep the country running. Literally. And we
intend to do it better than anyone and bring
more benefits to the whole of New Zealand.

Share everything
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.

Back people
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 making it happen for them.

Be bold
There’s no point in this business to be just
another energy company. We intend to
be the best. We can only do that by taking
the initiative, by challenging the status
quo, by being bold and courageous and
by backing ourselves.

Each year, awards are issued in relation
to these values which encourage the use
and spirit of each value. Z requires all of
its employees, contractors, secondees
and directors to comply with the Code of
Conduct and with all company policies.
All employees and contractors representing
Z are required to take an online test to
acknowledge their understanding and
acceptance of the Code of Conduct.

ANNUAL REPORT 2014

Z ENERGY

Diversity at Z

The Board is committed to a culture that promotes diversity and
inclusiveness. At Z Energy we believe that a diverse workforce
is better able to understand our broad-ranging customer and
stakeholder needs and to respond effectively to them. In practice,
this means that we actively seek out people with a variety of
thinking styles, backgrounds and abilities. This enables Z to
increase the breadth of the recruitment pool and for Z Energy
people to be the best they can be at work. A copy of our Diversity
Policy is available on our website.

Consistent with our values, we want to make sure that diversity
and inclusion is central to our policies and practices throughout
our organisation. Z Energy believes that embracing diversity in
its workforce contributes to the achievement of its corporate
objectives and enhances its reputation. It enables Z Energy to:

•

recruit the right people based on merit from a diverse
pool of talented candidates

• make more informed and innovative decisions; drawing

on the wide range of ideas, experiences, approaches and
perspectives that employees from diverse backgrounds,
with differing skill sets, bring to their roles and so better
represent the diversity of its stakeholders and markets.

The ASX Principles recommend establishing measurable objectives
for achieving gender diversity. While at present Z Energy has not
established measurable objectives for achieving gender diversity,
it is working towards implementing such objectives for the
following financial year. Since the listing of Z Energy last August,
other matters have had priority over the adoption of measureable
objectives for gender diversity. The principal criteria for selection
and promotion in Z Energy are an individual’s relative prospects for
adding value to Z Energy and his or her probability of contributing
to its objectives.

Z Energy gender composition

The gender composition at various levels of the Z Energy workforce as at 31 March 2014
is outlined below, alongside comparable figures for the past four years.

Female

Board
Senior management
Overall organisation

FY2014

FY2013

FY2012

FY2011

FY2010

#
2
2
95

%
29%
25%
39%

#
0
2
96

%
0
25%
37%

#
0
2
91

%
0
25%
38%

#
0
1
88

%
0
14%
39%

#
0
1
68

%
0
14%
35%

Male

Board
Senior management
Overall organisation

FY2014

FY2013

FY2012

FY2011

FY2010

#
5
6
150

%
71%
75%
61%

#
5
6
161

%
100%
75%
63%

#
5
6
147

%
100%
75%
62%

#
5
6
136

%
100%
86%
61%

#
5
6
128

%
100%
86%
65 %

Z ENERGY

Principle 4
Safeguard integrity
in financial reporting

Financial reporting

The Board is committed to a transparent system of auditing and
reporting on the company’s financial performance. The Audit and
Risk Committee is central to achieving this.

The Audit and Risk Committee’s principal functions are:

•

to assist the Board in ensuring that appropriate accounting
policies and internal controls are established and followed

to assist the Board in producing accurate financial statements
that comply with all applicable legal requirements and
accounting standards

to ensure the efficient and effective management of
business risks.

The external auditors are invited to attend meetings when the
committee considers it appropriate. The committee comprises
five non-executive directors, three of which are independent
directors, and is chaired by an independent director who is not
the Chair of the Board. A full description of the Audit and Risk
Committee’s role is contained in its Charter, which can be found
on the Z Energy website.

Principle 5
Make timely and balanced disclosure

Z Energy is committed to maintaining a fully informed market
through effective communication and complying with the NZX
Main Board and ASX Listing Rules. Our Market Disclosure Policy
is available on the Z Energy website. This policy assists the
Board with keeping Z Energy’s investors and markets informed
in a timely, clear and balanced way that includes both positive
and negative news.

The General Counsel and Company Secretary is the Market
Disclosure Officer, and in this capacity has created a Disclosure
Committee (made up of the Board Chair, the Chair of the Audit
and Risk Committee, the CEO, the Chief Financial Officer and
the Communications and Investor Relations Manager) who are
ultimately responsible for ensuring that Z Energy complies with
its disclosure obligations. All market disclosures are made to
the NZX Main Board, ASX and Z Energy’s website.

Z and Women’s Empowerment Principles

In 2012, Z signed up to the Women’s Empowerment Principles.
Through Z’s commitment to these principles, the Board evaluates
the company’s performance as having met the objectives of the
Diversity Policy. The Women’s Empowerment Principles are a set
of principles for business offering guidance on how to empower
women in the workplace, marketplace and community. They are the
result of collaboration between UN Women and the United Nations
Global Compact. The development of the principles included an
international multi-stakeholder consultation process, which was
launched in March 2009.

The principles are:

• Establish high-level corporate leadership for gender equality

• Treat all women and men fairly at work – respect and support

human rights and non-discrimination

• Ensure the health, safety and well-being of all women and

men workers

• Promote education, training and professional development

for women

•

Implement enterprise development, supply chain and marketing
practices that empower women

• Promote equality through community initiatives and advocacy

• Measure and publicly report on progress to achieve

gender equality.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Principle 6
Respect the rights of shareholders

Z Energy is committed to high standards of communication with its
shareholders and other stakeholders and to ensuring they have all
information required to make informed assessments of Z Energy’s
value and prospects. Z Energy believes effective communication
is achieved by providing equal access to timely, accurate and
complete information. Z Energy’s Shareholder Communication
Policy shows how we ensure shareholders and other stakeholders
have access to all relevant information.

The Board encourages active participation by shareholders
at the annual meeting of the company, and shareholders can
submit questions for the Board prior to or at the meeting.

The 2014 Annual General Meeting will be held at Shed 6,
Wellington Waterfront, on Wednesday 25 June 2014, 2pm–4pm.

Principle 7
Recognise and manage risk

The identification and effective management of Z Energy’s risks
is a priority of the Board.

The Board is responsible for overseeing and approving risk
management strategy and policies, as well as ensuring effective
audit, risk management and compliance systems are in place. The
Audit and Risk Committee assists the Board in fulfilling its risk
assurance and audit responsibilities.

Z Energy has in place an overarching Enterprise Risk Framework
supported by a suite of risk management policies, including a Risk
Management Policy (available on Z Energy’s website), a Treasury
Policy and a Manual of Authorities. The framework aims to embed
within Z Energy a group-wide capability in risk management and a
consistent method of identifying, assessing, controlling, monitoring
and reporting existing and potential risks faced by Z Energy. The
Risk Management Policy sets out the risk management objectives
and requirements and from there Z Energy management conducts
structured risk management.

As a New Zealand company, section 295A of the Australian
Corporations Act is not applicable to the company. However,
the company’s CEO and Chief Financial Officer have provided
equivalent assurances to the Board as part of the annual external
audit process, which confirm Z Energy’s financial statements are
based on a sound system of risk management and internal control,
and that the system is operating effectively in all material respects
in relation to financial reporting risks.

Z Energy’s management has provided the Board reports as to the
effectiveness of our management of our material business risks.

Principle 8
Remunerate fairly and responsibly

Human Resources and Nominations Committee

Z Energy’s remuneration framework and policies are managed by
the Human Resources and Nominations Committee in accordance
with the Human Resources and Nominations Committee Charter
(available from the Governance section of Z Energy’s website).
The purpose and roles of the committee are described under
Principle 2, where attendances at the meetings of the committee
are also disclosed.

As set out under Principle 2, the current members of the Human
Resources and Nominations Committee are Alan Dunn (Chair),
Justine Munro and Marko Bogoievski. As only Justine Munro is
independent, Z Energy does not comply with the recommendation
that the Human Resources and Nominations Committee should be
chaired by an independent director and that the committee should
comprise a majority of independent directors. However, Z Energy
considers the composition of the committee to be appropriate,
considering director workloads and that the Z Energy Board has
only three independent directors.

The remuneration of senior executives and the leadership team
is made up of three components: fixed remuneration, short-term
performance incentives and a long-term incentive plan (with grants
that vest up until 31 March 2015), which has now been replaced
with a Restricted Share Long-Term Incentive Plan – which vests
over three years resulting in the first payment potentially being
made in April 2016.

No directors are entitled to any retirement benefits.

Transactions in associated products

Z Energy’s Insider Trading Policy prohibits directors, officers,
employees, contractors or secondees of Z Energy or any of
its subsidiaries, where they are entitled to participate in any
equity-based remuneration scheme, from entering into any
transaction that would limit the economic risk of participating
in any unvested entitlement that they are eligible for under that
remuneration scheme.

Z ENERGY

Remuneration

The Z Energy Board and management are committed to a remuneration
framework that aims to achieve a high-performance culture, linking pay to the
achievement of the company strategy and business objectives.

As part of ensuring management is motivated to create sustainable
shareholder wealth, the Board has established a Human Resources
and Nominations Committee, which operates under the delegated
authority of the Board. The role and membership of the committee
is set out under Principle 2 in the Corporate Governance section.

Z Energy’s remuneration strategy aims to attract, retain and
motivate high-calibre employees to all levels of the organisation,
in turn driving performance, a strong customer focus and personal
growth. Underpinned by a company-wide philosophy of paying
for performance, this strategy supports and promotes strategic
business objectives, behaviours and values and is based on a
practical set of guiding principles that provide consistency, fairness
and transparency.

All Z Energy employees have a fixed remuneration and Short
Term Incentive (STI) component in their remuneration packages.
A limited number of employees are also entitled to participate in
a Restricted Share Long Term Incentive Plan (RSLTIP).

Fixed remuneration

The fixed remuneration model is informed and adjusted each year
based on data from multiple independent remuneration specialists.
Employees’ fixed remuneration is based on a matrix of their own
performance and their current position in the market range.

Short-Term Incentive scheme

STI values are calculated as a percentage of fixed remuneration
and determined based on the complexity of the roles. Employees’
STI payments are determined following a review of the company
performance and individual performance and may be paid out
at a multiplier of 0x to 3x. This model is focused on articulating
performance goals, driving for outcomes, differentiating high
performance and rewarding delivery.

Long-Term Incentive scheme

Z Energy has historically operated a cash-based long-term
incentive (LTI) scheme for selected employees who have been
classified as Senior Executive or Leadership Team (currently, this
covers 17 of our head office employees). The long-term incentive
scheme was designed to reward and retain our key talent, align
those employees’ interests with the interest of our shareholders
and encourage longer-term decision making and performance.
The final date in which the cash-based LTI scheme may vest is
April 2015.

Restricted Share Long-Term
Incentive Plan

Following listing, Z Energy replaced its long-term incentive scheme
with a restricted share, long-term incentive plan (RSLTIP) for
selected employees who have been classified as Senior Executive
or Leadership Team (collectively, executives). The RSLTIP
is intended to incentivise executives to achieving long-term
shareholder returns by providing a proportion of the executives’
remuneration on an “at-risk” basis aligned to the achievement of
defined performance targets. The first time this scheme may vest
is April 2016.

Employee Share Purchase Plan

Post listing, Z Energy established an employee share purchase
plan for eligible employees of Z Energy to buy and hold shares
in the company at a discount to the listing price. The plan is an
IRD approved DC12 plan and has a three-year vesting period on
the shares purchased. One hundred and forty-two employees are
currently participating in the plan.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Chief executive remuneration

Remuneration of directors

Mike Bennetts’s employment agreement for his role as CEO
commenced on 1 April 2010.

The key terms of Mike’s employment are as follows:

None of the directors are entitled to any remuneration from
Z Energy other than by way of directors’ fees and reasonable
travelling, accommodation and other expenses incurred in the
course of performing duties or exercising powers as directors.

• Mike currently has a base salary of $639,600 per annum, which

is reviewed annually with effect from 1 April each year.

•

In addition to his base salary, Mike may also be paid an annual
short-term incentive payment with an on-target value of 50%
of his base salary and a maximum payment of up to 150%
of his base salary. Payment of a short-term incentive is fully
discretionary and is assessed in the first quarter of each
financial year, based on the business’s performance in the
previous financial year and Mike’s performance in reference to
certain key performance indicators. If Mike is made redundant,
then he will be entitled to a proportional short-term incentive-
based performance payment up to his departure.

• Mike may also be entitled to long-term incentive payments

calculated against his base salary. Mike’s potential entitlements
to long-term incentive payments (which include the RSLTIP)
may be paid in 2015 and 2016, based on the business’s
performance against specific financial objectives for each
year. The maximum payments to which Mike may be entitled
under the LTI are $750,000 in 2014, and $858,000 in 2015.
The maximum entitlements to which Mike may be entitled in
2016 under the RSLTIP is $458,532.

• Z Energy has also agreed to pay Mike’s reasonable

accommodation and living expenses in Wellington, and the
reasonable travel expenses for national travel (particularly
between Wellington and Auckland).

• Either Z Energy or Mike can terminate his employment on three
months’ notice. Z Energy can also terminate his employment
for redundancy or for ill health (in both cases, also on three
months’ notice).

• Mike has also agreed to non-solicitation commitments

(applying to Z Energy’s suppliers and staff) and a restraint of
trade (restricting him from involvement in the downstream oil
industry in New Zealand). Both of these generally apply for
12 months after the end of his employment as CEO, but the
restraint of trade does not apply if Mike is made redundant.

The total remuneration pool for Z Energy’s non-executive
directors was set at $900,000 per annum for the period
1 April 2013–1 April 2015. This pool enables flexibility to deal
with any changes in the Board.

The directors’ remuneration is paid in the form of directors’ fees.
Additional fees are paid to the Chair and members in respect
of work carried out by directors on various Board committees
to reflect the additional time involved and responsibilities of
these positions.

Details of the total remuneration of each director of Z Energy
(including the value of all benefits received) during the financial
year ended 31 March 2014 are as follows:

Director

Peter Griffiths

Marko Bogoievski

Paul Fowler

Alan Dunn

Liberato Petagna

Abby Foote

Justine Munro

Bruce Harker

Fee

$146,146

$126,042

$113,795

$112,448

$80,000

$76,607

$68,021

Note: This table reflects that Liberato Petagna resigned from the Board on
20 February 2014, Bruce Harker was appointed to the Board on 19 February 2014,
Justine Munro and Abby Foote were both appointed to the Board on 15 May 2013.

Z ENERGY

Employee remuneration

There were 126 Z Energy Employees (or former employees) who received remuneration and other benefits in
excess of $100,000 in their capacity as employees during the year ended 31 March 2014, as set out in the table below.

Amount of remuneration

Employees

Amount of remuneration

Employees

$100,000 to $110,000
$110,001 to $120,000
$120,001 to $130,000
$130,001 to $140,000
$140,001 to $150,000
$150,001 to $160,000
$160,001 to $170,000
$170,001 to $180,000
$180,001 to $190,000
$190,001 to $200,000
$200,001 to $210,000
$210,001 to $220,000
$230,001 to $240,000
$240,001 to $250,000

20
11
12
10
13
5
9
4
7
3
6
4
1
2

$250,001 to $260,000
$290,001 to $300,000
$300,001 to $310,000
$320,001 to $330,000
$330,001 to $340,000
$410,001 to $420,000
$420,001 to $430,000
$430,001 to $440,000
$440,001 to $450,000
$510,001 to $520,000
$540,001 to $550,000
$600,001 to $610,000
$2,050,001 to $2,060,000

2
1
2
1
1
3
1
1
1
2
1
2
1

This includes salary, short and long term performance bonuses, settlement payments and redundancy
payments for all permanent employees.

Disclosure of directors’ interests

The following disclosures of interests have been made by directors in terms of section 140(2) of the Companies Act 1993:

Director

Position

Company

Peter Griffiths

Director

New Zealand Oil and Gas Limited
New Zealand Diving and Salvage Limited
NZDS Properties (No 2) Limited
Shoman Limited
Hemnestral Limited
Kupe Royalties Limited
National Petroleum Limited
Nephrite Enterprises Limited
NZOG Services Limited
Petroleum Equities Limited
Stewart Petroleum Co Limited
Northland Port Corporation (NZ) Limited
Island Leader Limited
Z Energy Limited
Civil Aviation Authority

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Director

Position

Company

Marko Bogoievski

Director

Zig Zag Farm Limited
Morrison & Co International Limited
Infratil No. 5 Limited
NZ Airports Limited
Infratil Gas Limited
Infratil Energy Limited
Swift Transport Limited
Infratil Australia Limited
Morrison & Co. Ventures Limited
Morrison & Co Funds Management Limited
Infratil 1998 Limited
Morrison & Co Infrastructure Management Limited
Infratil Securities Limited
Infratil No. 1 Limited
H.R.L. Morrison & Co Limited
Woodward Capital Limited
Infratil Ventures Limited
Infratil UK Limited
H.R.L. Morrison & Co Offshore Limited
Morrison & Co Wealth Management Limited
H.R.L. Morrison & Co Group Limited
Infratil Infrastructure Property Limited
Morrison & Co Property Group Limited
Morrison Leasing Limited
Infratil Europe Limited
North West Auckland Airport Limited
Infratil Insurance Co Limited
Woodward Funds Management Limited – (this company owns 36.3m Infratil shares)
Infratil Investments Limited
Morrison Asian Investments Limited
Infratil Limited
Morrison Capital Limited
Infratil Energy New Zealand Limited
Z Energy LTI Trustee Limited
Infratil Asia Limited
Infratil Outdoor Media Limited
Morrison & Co PIP Limited
Trustpower Limited
Aotea Energy Holdings Limited
Aotea Energy Holdings No 2 Limited
Aotea Energy Limited
Z Energy Holdings Limited
Z Energy ESPP Trustee Limited
Infratil Finance Limited
Z Energy Limited

Alan Dunn

Director

Burger Fuel Worldwide Limited
DPA Technologies Limited
New Zealand Post Limited
Z Energy Limited
Z Energy ESPP Trustee Limited
Z Energy LTI Trustee Limited

Z ENERGY

Director

Position

Company

Abby Foote

Director

Transpower New Zealand Limited
New Zealand Local Government Funding Agency Limited
BNZ Life Insurance Limited
BNZ Insurance Services Limited
Z Energy Limited

Paul Fowler

Director

Z Energy Limited

Justine Munro

Director

Liberato Petagna

Director

Bruce Harker

Director

Z Energy ESPP Trustee Limited
Z Energy LTI Trustee Limited
Z Energy Limited
Maia Consulting Limited
Munro Crockett Trustees Limited

Envoy Investments Limited
Morrison & Co International Limited
Morrison Nominees Limited
Morrison & Co. Ventures Limited
Morrison & Co Funds Management Limited
Morrison & Co Infrastructure Management Limited
H.R.L. Morrison & Co. Trustee No. 2 Limited
H.R.L. Morrison & Co Limited
Woodward Capital Limited
H.R.L. Morrison & Co Offshore Limited
Adair Investments Limited
Morrison & Co Wealth Management Limited
H.R.L. Morrison & Co Group Limited
JML Capital Limited
Infratil Infrastructure Property Limited
Hettinger Nominees Limited
Morrison Leasing Limited
Terrace Nominees Limited
Woodward Funds Management Limited –
(this company owns 36.3 m Infratil Limited shares)
Lakeview Rural Holdings Limited
Fisher Funds Management Limited
Morrison Asian Investments Limited
Sapphire Rural Holdings Limited
T R Rural Holdings Limited
JML Trustee Company Limited
JML Bloodstock Limited
Mana Capital Holdings Limited
Morrison Capital Limited
Woodward Infrastructure Limited
Morrison & Co PIP Limited
New Zealand Bus Limited
New Zealand Bus Finance Company Limited
Z Energy Limited

IKEGPS Group Limited
Trustpower Metering Limited
Trustpower Limited
Z Energy Limited

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Directors’ interests in share transactions

Directors disclosed, pursuant to section 148 of the New Zealand Companies Act 1993, the following
acquisitions and disposals of relevant interests in shares during the period to 31 March 2014.

Director

Peter Griffiths

Abby Foote

Number of shares
purchased/(sold)

42,857 shares
purchased

Consideration

Date of transaction

Interest

$3.50

21 August 2013

14,285 shares
purchased

$3.50

21 August 2013

Shares acquired as
part of the Initial
Public Offer of Shares
in Z Energy

Directors’ interests in shares

Directors disclosed the following relevant interests in shares as at 31 March 2014.

Director

Peter Griffiths

Paul Fowler

Bruce Harker

Number of shares in which a relevant interest is held

Shareholder:
Z Energy Limited – 42,857 shares
New Zealand Refining – 18,744 shares

Shareholder:
Caltex Australia Limited – 500 subordinated notes

Bondholder of:
ZEL010 – $300,000
ZEL030 – $125,000
Both Bonds are held by the BJ & JS Harker Trust

Z ENERGY

NZX Main Board and ASX waivers

Z Energy has no waivers from the requirements of the NZX
Main Board Listing Rules.

As part of its application to list on the ASX, Z Energy applied for
and was granted waivers from the ASX Listing Rules that are
standard for a New Zealand company listed on both the NZX
Main Board and the ASX:

• A waiver from ASX Listing Rule 6.10.3 to the extent necessary
to permit Z Energy to set the specified time to determine
whether a security holder is entitled to vote at a shareholders’
meeting in accordance with the requirements of the relevant
New Zealand legislation.

• A waiver from ASX Listing Rule 7.1 to permit Z Energy to issue
securities without security holder approval, subject to the
following conditions:

- Z Energy remains subject to, and complies with, the

NZX Main Board Listing Rules with respect to the issue
of new securities

- Z Energy certifies to ASX on an annual basis (on or about

30 June each year) that it remains subject to, has complied
with, and continues to comply with, the requirements of the
NZX Main Board Listing Rules with respect to the issue of
new securities

if Z Energy becomes aware of any change to the application
of NZX Main Board Listing Rules with respect to the
issue of new securities, or that Z Energy is no longer in
compliance with the requirements of the NZX Main Board
Listing Rules with respect to the issue of new securities,
it must immediately advise ASX

• Without limiting ASX’s right to vary or revoke its decision

pursuant to ASX Listing Rule 18.3, ASX reserves the right to
revoke this waiver if:

- Z Energy fails to comply with any of the above conditions

there are changes to the NZX Main Board Listing Rules in
respect of the issue of new securities such that, in ASX’s
opinion, the regulation of the issue of new securities
under those NZX Main Board Listing Rules ceases to be
comparable to the regulation of the issue of new securities
under the ASX Listing Rules.

• A waiver from ASX Listing Rule 15.7 to permit Z Energy to

provide announcements simultaneously to both ASX and NZX.

• A waiver from ASX Listing Rules 15.13, 15.13A and 15.13B to the
extent necessary to permit Z Energy to divest shareholders of
less than a minimum holding in accordance with the procedure
set out in Z Energy’s Constitution.

Donations

For the year ended 31 March 2014, Z Energy made donations
of $859,968.

Restricted Security Agreement

Z Energy has entered into a Restricted Security Agreement with
Aotea Energy Investments Limited (formerly Z Energy Holdings
Limited) and NZSF Aotea Limited, under which they have agreed
they will not transfer any of the shares they own in Z Energy
following completion of Z Energy’s Initial Public Offer (for a period
up until the date of the announcement of Z Energy’s financial
results for the period ending 30 September 2014), other than in
certain limited circumstances. See section 6.3, pages 211–212
of Z Energy’s Investment Statement and Prospectus for
further information.

The total number of Z Energy’s restricted securities is 160,000,000
Z Energy shares.

Indemnity and insurance disclosure

As permitted by its constitution, Z Energy has entered into a deed
of indemnity indemnifying its directors and its personnel who serve
as directors of related companies for potential liabilities or costs
they may incur for acts or omissions in their capacity as directors
of Z Energy or its related companies. Z Energy has a directors’ and
officers’ liability insurance policy in place. This provides insurance
for the liabilities of the directors and employees of Z Energy for acts
or omissions in their capacity as directors or employees. Neither the
indemnity nor the insurance policies cover dishonest, fraudulent,
malicious or wilful acts or omissions.

ANNUAL REPORT 2014
ANNUAL REPORT 2014

Z ENERGY

12 months to
31 March 2014
($m)

3,371
95
95

% change

(5)
(31)
(31)

Amount per security
(cents)

Imputed amounts per
security (cents)

7.7

14.3

2.9944
22 November 2013
4 December 2013

5.5611
23 May 2014
4 June 2014

Results disclosure

The reporting period for this annual report relates to the 12 months to 31 March 2014.
The previous reporting period relates to the 12 months to 31 March 2013.

Operational results

Revenues from ordinary activities
Profit (loss) from ordinary activities after tax attributable to security holders
Net profit (loss) attributable to security holders

Dividend disclosure

Dividends – Ordinary shares

2014 Interim dividend
Record date
Payment date

2014 Final dividend
Record date
Payment date

Professional fees disclosure

Net tangible assets per security

Total fees paid to KPMG in their capacity as auditors
for the year ended 31 March 2014 was $246,030.

Net tangible assets per security as at 31 March 2014 67 NZ cents
(132 NZ cents: 31 March 2013).

Total fees paid to KPMG for other professional services
for the year ended 31 March 2014 was $520,918.

The Audit report is based on the audited group financial
statements. KPMG has provided an Audit report on the
financial statements.

Z ENERGY

Group disclosures – Subsidaries

Harbour City Property Investments Limited (HCPIL)
Directors: Michael John Bennetts and Mark Andrew Forsyth.
During the period of this report, Gail Anne Calder was also a
director but ceased to be a director on 9 April 2014. Mark Edghill
resigned as a director of HCPIL during the reporting period.

The directors of HCPIL are employees of Z Energy and do
not receive any remuneration in their capacity as directors.

Disclosure of directors’ interests – HCPIL

Director

Position

Company

Michael John Bennetts

Director

Loyalty New Zealand Limited
Auckland Iron Works Limited
The New Zealand Refining Company Limited

Mark Andrew Forsyth

Director

Loyalty New Zealand Limited

Gail Anne Calder

Director
Shareholder

Calder Properties Investments Limited

Z Energy ESPP Trustee Limited
Directors: Marko Bogoievski, Alan Dunn, Justine Munro

The directors of Z Energy ESPP Trustee Limited and Z Energy LTI
Trustee Limited do not receive any remuneration.

Z Energy LTI Trustee Limited
Directors: Marko Bogoievski, Alan Dunn, Justine Munro

The directors’ interests of Z Energy ESPP Trustee Limited and
Z Energy LTI Trustee Limited are disclosed at page 87-88.

Shareholder information

Z Energy shares are quoted on the NZX Main Board and on the
ASX. Z Energy trades under the ticker ZEL (NZSX) and ZNZ (ASX).

Z Energy has registered with the Australian Securities and
Investment Commission (ASIC) as a foreign company. Z Energy
has been issued an Australian Registered Body Number (ARBN)
of 164 438 448.

As at 11 April 2014, there were 400,000,000 fully paid ordinary
shares in Z Energy (Z Energy Shares) on Issue. Each Z Energy
Share confers on its holder the right to attend and vote at a
meeting of Z Energy, including the right to cast one vote on a
poll on any resolution.

The date that the content of the Shareholder Information section
was prepared (11 April 2014) was not more than six weeks before
the release of the annual report.

Shareholders holding less
than a marketable parcel

As at 11 April 2014, there were six shareholders holding between
one and 99 Z Energy Shares (less than a minimum holding number
according to the NZX Main Board Listing Rules) and, based on the
market price of A$3.60, there were eight holders that held less than
a marketable parcel of A$500 of Z Energy Shares under the ASX
Listing Rules.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Distribution of ordinary shares and shareholders
As at 11 April 2014

Size of holding

Number of Shareholders

Number of Shares

1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Totals

1,357
5,567
1,835
1,028
130
9,917

13.68%
56.14%
18.50%
10.37%
1.32%
100%

1,082,111
14,316,965
12,910,635
18,581,003
353,109,286
400,000,000

0.27%
3.58%
3.23%
4.65%
88.28%
100%

Substantial security holders

As at 11 April 2014, Z Energy had received notices under Section 26 of the Securities Markets Act 1988
that the following shareholders were substantial security holders in respect of Z Energy shares:

Substantial security holders

Number of voting securities

% of shares held
at date of notice

Date of notice

NZSF Aotea Limited
Aotea Energy Investments Limited
Cooper Investors Pty Limited

80,000,000
80,000,000
24,937,044

20%
20%
6.23%

28 February 2014
28 February 2014
20 September 2013

20 largest shareholders
As at 11 April 2014

Rank

Holder name

Holding

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Z Energy Holdings Limited
New Zealand Superannuation Fund Nominees Limited
National Nominees Limited
National Nominees New Zealand Limited
Accident Compensation Corporation
HSBC Nominees (New Zealand) Limited
JPMorgan Chase Bank
Cogent Nominees Limited
RBC Investor Services Australia Nominees Pty Limited
FNZ Custodians Limited
HSBC Custody Nominees (Australia) Limited
Custodial Services Limited
J P Morgan Nominees Australia Limited
Forsyth Barr Custodians Limited
BNP Paribas Noms Pty Ltd
HSBC Nominees (New Zealand) Limited
Tea Custodians Limited
Citibank Nominees (NZ) Ltd
UBS Nominees Pty Ltd
Forsyth Barr Custodians Limited

80,000,000
80,000,000
17,391,261
16,961,255
15,639,829
12,591,187
10,002,113
8,088,605
7,911,998
7,122,902
6,835,177
6,806,751
6,394,777
6,122,902
5,967,508
5,334,221
5,129,467
3,595,369
3,311,036
3,302,086

20.00%
20.00%
4.35%
4.24%
3.91%
3.15%
2.50%
2.02%
1.98%
1.78%
1.71%
1.70%
1.60%
1.53%
1.49%
1.33%
1.28%
0.90%
0.83%
0.83%

In the above table, the shareholding of New Zealand Central Securities Depository Limited (NZCSD) has been re-allocated to the
applicable members of NZCSD.

Z ENERGY

ANNUAL REPORT 2014

Z Business Development Manager, Alana Pollock giving a helping hand to the site staff at Z Harbour City.

ANNUAL REPORT 2014

Z ENERGY

Our
financial results

Our key numbers and financial performance
for the 2013/14 financial year.

Z ENERGY

Statement of comprehensive income
for the year ended 31 March 2014

Total Revenue
Excise and carbon expense
Purchases of crude and product
Primary distribution expenses
Operating expenses
Share of earnings of associate companies (net of tax)

Earnings before interest, taxation, depreciation (including gains
and (losses) on sale of fixed assets), amortisation and fair value
movements in interest rate derivatives (EBITDAF)

Depreciation and amortisation
Impairment
(Loss)/gain on sale of fixed assets
Net financing (expense)/income
(Loss) on interest rate derivatives
Net profit before taxation

Taxation expense
Net profit for the year

Net profit attributable to owners of the company

Other comprehensive income that will not be reclassified
to profit or loss
Asset revaluation reserve after tax
Share of associate other comprehensive income after tax
Other comprehensive income net of tax

Total comprehensive income for the year

Total comprehensive income attributable to owners of the company

The accompanying notes form part of these financial statements.

Notes

5
13

10,11
10

Group

Parent

2014
$m

3,371
(546)
(2,311)
(25)
(281)
(5)

2013
$m

3,558
(569)
(2,511)
(24)
(289)
-

2014
$m

3,371
(546)
(2,311)
(25)
(281)
-

2013
$m

3,547
(569)
(2,511)
(24)
(279)
-

203

165

208

164

(39)
1
(4)
(25)
(2)
134

(39)
95

143
1
144

239

(39)
-
41
3
-
170

(33)
137

137

-
-
-

137

(39)
1
(4)
(25)
(2)
139

(39)
100

100

142
-
142

242

(39)
-
41
3
-
169

(33)
136

136

-
-
-

136

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Notes

Group

2014
$m

Parent

2013
$m

2014
$m

2013
$m

591

597

593

9
6
8
21

10
11
13,14
21

7
15
16
21

16
21
20
15

178
227
479
1
-
885

511
35
96
12
1
-
-
655
1,540

424
12
11
2
449

17
21
10
430
22
500
949
591

115
961
482
-
2
1,560

311
27
1
-
2
1
4
346
1,906

824
4
4
5
837

18
24
-
430
-
472
1,309
597

178
229
479
1
-
887

506
35
105
12
1
-
-
659
1,546

424
12
11
2
449

17
21
10
430
22
500
949
597

114
966
481
-
2
1,563

306
25
6
-
2
1
3
343
1,906

828
4
4
5
841

18
24
-
430
-
472
1,313
593

Statement of financial position
as at 31 March 2014

Shareholders’ equity
Represented by:
Current assets
Cash and cash equivalents
Trade, accounts receivable and prepayments
Inventories
Derivative financial instruments
Assets held for sale
Total current assets

Non current assets
Property, plant and equipment
Intangible assets
Investments in associates and subsidiaries
Derivative financial instruments
Other non-current assets
Other investments
Deferred tax
Total non current assets
Total assets

Current liabilities
Accounts payable, accruals and other liabilities
Income tax payable
Provisions
Derivative financial instruments
Total current liabilities

Non current liabilities
Other liabilities
Provisions
Derivative financial instruments
Bonds
Deferred tax
Total non current liabilities
Total liabilities
Net assets

Approved on behalf of the Board on 7 May 2014

Peter Griffiths
Chairman

Abigail Foote
Director

The accompanying notes form part of these financial statements.

Z ENERGY

Statement of cash flows
for the year ended 31 March 2014

Cash flows from operating activities
Cash was provided from:
Receipts from customers
Dividends received
Proceeds from insurance recoveries
Interest received

Cash was disbursed to:
Payments to suppliers and employees
Excise and carbon paid
Interest paid
Taxation paid

Notes

Group

2014
$m

Parent

2013
$m

2014
$m

2013
$m

3,387
1
2
24
3,414

(2,714)
(546)
(44)
(29)
(3,333)

3,564
-
3
30
3,597

(2,605)
(569)
(28)
(28)
(3,230)

3,387
1
2
24
3,414

(2,714)
(546)
(44)
(29)
(3,333)

3,469
1
3
30
3,503

(2,512)
(569)
(28)
(28)
(3,137)

Net cash inflow from operating activities

367

366

Cash flows from investing activities
Cash was provided from:
Proceeds from sale of investments
Proceeds from sale of property, plant and equipment

Cash was disbursed to:
Purchase of intangible assets
Purchase of Refining NZ
Purchase of property, plant and equipment

Net cash (outflow) from investing activities

Cash flows from financing activities
Cash was provided from:
Issue of bonds
Issue of shares
Cash from intercompany

Cash was disbursed to:
Cash to intercompany
Purchase of shares
Dividends paid to owners of the company

Net cash inflow/(outflow) from financing activities

Net increase in cash
Amalgamation of subsidiary
Cash balances at beginning of year
Cash at end of year

The accompanying notes form part of these financial statements.

13,14
10

1
7
8

(10)
(100)
(63)
(173)

(165)

-
422
162
584

(324)
(2)
(111)
(437)

147

63
-
115
178

1
87
88

(5)
(2)
(68)
(75)

135
-
-
135

(350)
-
(67)
(417)

(282)

98
-
17
115

1
7
8

(10)
(100)
(63)
(173)

(165)

-
422
160
582

(322)
(2)
(111)
(435)

147

63
1
114
178

1
87
88

(5)
(2)
(67)
(74)

135
-
-
135

(350)
-
(67)
(417)

(282)

98
-
16
114

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

Group

2014
$m

Parent

2013
$m

2014
$m

2013
$m

39
(1)
5
1
2
4
(1)

14
3
(90)
10
81

137

100

136

39
-
-
1
(6)
(41)
2

4
190
36
5
367

39
(1)
-
1
2
4
(1)

14
3
(90)
10
81

39
-
-
1
(6)
(41)
(3)

4
190
41
5
366

Reconciliation of net profit for the year to cash flows from operating activities

Net profit for the year

Adjusted for items not involving cash flows:
Depreciation and amortisation
Impairment
Equity accounted earnings and income of associates
Movement in bad and doubtful debt provisions
Fair value of derivatives
Gain/(loss) on sale of fixed assets
Other

Movements in working capital
Change in trade, accounts receivable and prepayments
Change in inventories
Change in accounts payable, accruals and other liabilities
Change in taxation
Net cash flow from operating activities

The accompanying notes form part of these financial statements.

100

Z ENERGY

Statement of changes in equity
for the year ended 31 March 2014

Group – for the year ended 31 March 2014

Capital
$m

Retained
earnings
$m

Employee
share
reserve
$m

Asset
revaluation
reserve
$m

Total equity
$m

Balance at beginning of year

587

Net profit for the year
Other comprehensive income
Disposal of revalued assets
Total comprehensive income for the year

Transactions with owners recorded directly in equity:
Change in share capital
Own shares acquired
Dividends to equity holders
Total transactions with owners recorded directly in equity

Balance at end of year

Group – for the year ended 31 March 2013

-
-
-
-

422
-
-
422

432

95
1
2
98

-
-
(665)
(665)

-
-

-
(2)
-
(2)

(2)

-
143
(2)
141

-
-
-
-

141

597

95
144
-
239

422
(2)
(665)
(245)

591

Capital
$m

Retained
earnings
$m

Employee
share
reserve
$m

Asset
revaluation
reserve
$m

Total equity
$m

-
-
-

-
-

517

137
-
137

(67)
(67)

587

-
-
-

-
-

-
-
-

-
-

527

137
-
137

(67)
(67)

597

Balance at beginning of year

Net profit for the year
Other comprehensive income
Total comprehensive income for the year

Transactions with owners recorded directly in equity:
Dividends to equity holders
Total transactions with owners recorded directly in equity

Balance at end of year

The accompanying notes form part of these financial statements.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

101

Statement of changes in equity
for the year ended 31 March 2014

Parent – for the year ended 31 March 2014

Balance at beginning of year

Net profit for the year
Other comprehensive income
Disposal of revalued assets
Total comprehensive income for the year

Transactions with owners recorded directly in equity:
Change in share capital
Amalgamation of subsidiary
Own shares acquired
Dividends to equity holders
Total transactions with owners recorded directly in equity

Balance at end of year

Parent – for the year ended 31 March 2013

Balance at beginning of year

Net profit for the year
Other comprehensive income
Total comprehensive income for the year

Transactions with owners recorded directly in equity:
Dividends to equity holders
Total transactions with owners recorded directly in equity

Balance at end of year

The accompanying notes form part of these financial statements.

Capital
$m

Retained
earnings
$m

Employee
share reserve
$m

Asset
revaluation
reserve
$m

Total equity
$m

-
-
-
-

422
-
-
-
422

432

583

100
-
2
102

-
5
-
(665)
(660)

-
-
-
-

-
-
-
-
-

-
142
(2)
140

-
-
-
-
-

140

593

100
142
-
242

422
5
-
(665)
(238)

597

Capital
$m

Retained
earnings
$m

Employee
share reserve
$m

Asset
revaluation
reserve
$m

Total equity
$m

-
-
-

-
-

514

136
-
136

(67)
(67)

583

-
-
-

-
-

-
-
-

-
-

524

136
-
136

(67)
(67)

593

102

Z ENERGY

Notes to the financial statements
For the year ended 31 March 2014

(1) Basis of accounting

Reporting entity
Z Energy Limited (the Parent), is registered in New Zealand under the
Companies Act 1993 and is an issuer for the purposes of the Financial
Reporting Act 1993. The Parent is party to listing agreements with NZX
Limited (NZX) and ASX Limited (ASX), with its ordinary shares quoted on
the NZX Main Board and ASX and three series of bonds quoted on the NZX
Debt Market. The Group financial statements of the Parent (referred to
as Z or the Group) at, and for the year ended 31 March 2014, comprise the
Parent, its subsidiaries and the Group’s interests in associates and jointly
controlled operations.

On 19 August 2013, the Parent issued $422 million of new shares on the
NZX Main Board and ASX. The cash proceeds from the initial public offer
were not retained by the Parent and were used to repay intercompany debt
and to settle the transfer of shares in The New Zealand Refining Company
Limited (Refining NZ).

The Group is primarily involved in the marketing of petroleum based
products, is profit orientated and has its operations in New Zealand.
The address of its registered office is 3 Queens Wharf, Wellington 6011,
New Zealand.

Basis of preparation
The financial statements have been prepared in accordance with
New Zealand Generally Accepted Accounting Practice (NZ GAAP) and
the Financial Reporting Act 1993. They comply with the NZ equivalents
to International Financial Reporting Standards (NZ IFRS) as appropriate
for profit-oriented entities, and with International Financial Reporting
Standards (IFRS).

The functional and reporting currency used in the preparation of the
financial statements is New Zealand dollars, rounded to the nearest million
($m). The financial statements have been prepared on a GST exclusive
basis except billed receivables and payables which include GST.

The financial statements are prepared on the basis of historical cost,
except certain financial derivatives which are valued in accordance with the
accounting policy in note 21 and Property, Plant and Equipment (PPE) which
is valued in accordance with the accounting policy in note 10 Property, Plant
and Equipment and is recorded at fair value.

Basis of Consolidation
A list of subsidiaries and associates is shown in notes 13 and 14. Consistent
accounting policies are employed in the preparation and presentation of
the Group financial statements. Intra-group balances and any unrealised
income or expenses arising from intra-group transactions are eliminated in
preparing the Group financial statements.

Subsidiaries
Subsidiaries are those entities controlled, directly or indirectly, by the
Parent. The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Parent. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date, irrespective of
the extent of any minority interest. The financial statements of subsidiaries
are included in the Group financial statements from the date control
commences to the date control ceases.

Associates
Associates are entities in which the Group has significant influence, but
not control, over the operating and financial policies. The Group financial
statements include the Group’s share of the net surplus of associates on an
equity accounted basis from the date significant influence commences to
the date significant influence ceases.

Jointly controlled operations
Joint operations are those entities over whose activities the Group has joint
control, established by contractual agreement and requiring unanimous
consent for strategic financial and operating decisions. The Group financial
statements includes the Group’s proportionate share line by line.

ANNUAL REPORT 2014
ANNUAL REPORT 2014

Z ENERGY

103

(2) Changes in accounting policies

On 1 April 2013 Z adopted a fair value policy for its property, plant and
equipment. At this date all relevant assets have been valued by an
independent valuer in accordance with the requirements of NZ IAS 16
Property, Plant and Equipment and NZ IFRS 13 Fair value measurement.
An assessment of fair value will be performed annually to assess the drivers
of each asset class to determine whether a further revaluation is required.
At a minimum, a full revaluation will be performed every five years.

In accordance with the transitional provisions of NZ IFRS 13, the Group
has applied the new fair value measurement guidance prospectively,
which primarily relates to the measurement of financial instruments and
has not provided any comparative information for new disclosures. The
change had no significant impact on the measurement of the Group’s
assets and liabilities.

Presentational changes
Certain amounts in the comparative information have been reclassified
to ensure consistency with the current period’s presentation.

During the year, the Group modified the Statement of Comprehensive
Income classification to show Revenue gross with a separate Excise and
carbon expense. Comparative amounts have also been reclassified for
consistency and have resulted in a $569m increase in Revenue and Excise
and carbon expense. A corresponding change in presentation has also
been made in the Statement of Cash Flows which has resulted in a $569m
increase in Receipts from customers and Excise and carbon payments in the
comparative amounts. This reclassification has not had any net impact on
EBITDAF, Net Profit After Tax or on cash flows from operating activities.

(3) Critical accounting estimates
and judgements

The preparation of financial statements requires management to make
judgements, estimates and assumptions that affect the application
of policies and reported amounts of assets and liabilities, income and
expenses. Actual results may differ from these estimates.

The principal areas of judgement in preparing these financial statements
are set out below.

Provisions
Liabilities are estimated for the decommissioning and restoration of certain
sites of operation. Such estimates are valued at the net present value of the
expenditure expected to settle the obligation. Key assumptions have been
made as to the expected amount and timing of expenditure to remediate
based on the expected lives of the assets employed on the sites, discounted
using a market-based risk-free interest rate.

Valuation of investments in associates and subsidiaries
Management performs an assessment of the carrying value of investments
at least annually and considers objective evidence for impairment on each
investment taking into account observable data on the investment, the fair
value, the status or context of capital markets, its own view of investment
value and its long term intentions. For more detail refer to note 13 and 14.

Measurement of fair value
A number of the Group’s accounting policies and disclosures require the
measurement of fair values, for PPE assets and liabilities.

For further information about the assumptions made in measuring fair
values refer to the notes.

Adoption status of relevant new financial reporting standards
and interpretations
The following new standards, amendments to standards and interpretations
have been issued, but are not effective for application for the year ended
31 March 2014 and have not been early adopted. The adoption of these
standards are not expected to have a material impact on the financial
statements.

• Amendments to NZ IAS 32: Offsetting Financial Assets and

Financial Liabilities (effective for annual periods beginning on
or after 1 January 2014).

• Amendments to NZ IFRS 10, NZ IFRS 12 and NZ IAS 27:

Investment Entities (effective for annual periods beginning on
or after 1 January 2014).

• Amendments to NZ IAS 36: Recoverable Amount Disclosures for
Non-Financial Assets (effective for annual periods beginning on
or after 1 January 2014).

• NZ IFRS 9 Financial Instruments: Classification and measurement
(effective for annual periods beginning on or after 1 January 2017).

104

Z ENERGY

(4) Revenue

Revenue comprises the fair value of consideration received or receivable for the sale of goods in the ordinary course of the Group’s activities. Sales of goods
are recognised when a Group entity has supplied products to the customer, the customer has accepted the products and the collectability of the related
receivables is reasonably assured. The Group has recorded Revenue gross with a separate Excise and carbon expense in accordance with the changes
referred to in note 2.

Fuel
Non-Fuel
Chemicals
Total revenue

(5) Operating expenses

On-site expenses
Selling commissions
Secondary distribution
Employee benefits
Storage and handling
Insurance
Administration and other expenses
Realised/unrealised gains/(losses) on foreign exchange and commodity transactions
Total operating expenses

Group

Parent

2014
$m

3,287
59
25
3,371

2013
$m

3,465
56
37
3,558

2014
$m

3,287
59
25
3,371

Group

Parent

2014
$m

(46)
(56)
(46)
(50)
(18)
(8)
(64)
7
(281)

2013
$m

(40)
(59)
(47)
(41)
(20)
(8)
(64)
(10)
(289)

2014
$m

(46)
(56)
(46)
(50)
(18)
(8)
(64)
7
(281)

2013
$m

3,454
56
37
3,547

2013
$m

(40)
(59)
(39)
(39)
(20)
(8)
(64)
(10)
(279)

Included in Administration and other expenses are fees paid to auditors. These include audit and audit related fees of $246,030 (2013: $168,500) and other
services of $520,918 (2013: $420,391). Audit and audit related fees comprise $172,000 (2013: $150,500) for the audit and review of financial statements, fees
for audit of bank covenants and trustee reporting of $12,000 (2013: $12,000), technical accounting opinions of $37,608 (2013: nil), agreed upon procedures
for license fee return $6,000 (2013: $6,000) and carbon emission reporting review of $18,422 (2013: nil). Other Services comprise tax compliance $6,628
(2013: nil), financial model review $14,385 (2013: nil) and continuous improvement initiative $499,905 (2013: $420,391).

Included in Employee benefits are directors’ fees of $0.7m (2013: $0.5m).

(6) Trade, accounts receivable and prepayments

Receivables, classified as loans and receivables, are initially recognised at fair value. Thereafter they are measured at amortised cost less any provision
for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect the amount due.

Trade receivables
Provision for doubtful debts
Prepayments
Other receivables
Intercompany balances (within the group)
Intercompany balances (with ultimate parent group)

Group

2014
$m

211
(1)
9
8
-
-
227

2013
$m

225
(2)
5
13
-
720
961

Parent

2014
$m

211
(1)
9
8
2
-
229

2013
$m

225
(2)
5
13
-
725
966

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

105

(7) Accounts payable, accruals and other liabilities

Accounts payable
Accruals and other liabilities
Employee benefits payable
Intercompany balances (with ultimate parent group)

(8) Inventories

Group

Parent

2014
$m

397
13
14
-
424

2013
$m

484
15
10
315
824

2014
$m

397
13
14
-
424

Inventory is stated at the lower of cost or net realisable value. The cost of inventories is based on the first-in-first-out principle.
Net realisable value is the estimated selling price in the ordinary course of business less applicable variable selling expenses.

Raw materials and consumables
Finished goods/trading products

Group

Parent

2014
$m

147
332
479

2013
$m

101
381
482

2014
$m

147
332
479

During the year, the write down of inventories to net realisable value amounted to $4m (2013: $1m).
The write down is included in ‘purchase of crude and product’.

(9) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, cash at banks, financial institutions and investments in money market instruments,
excluding outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the Statement of Financial Position.

2013
$m

488
15
10
315
828

2013
$m

101
380
481

106

Z ENERGY

(10) Property, plant and equipment

Cost includes expenditure that is directly attributable to the acquisition of the item, including the cost of all materials, direct labour, resource management
consent costs, and an appropriate portion of variable and fixed overheads. An assessment of fair value will be performed annually to assess the drivers of
each asset class to determine whether a further revaluation is required. At a minimum, a full revaluation will be performed every five years.

Depreciation is provided on a straight line basis. The major depreciation periods (in years) are:

Buildings

Plant and machinery

Land improvements

10–35

5–35

15–35

Property, plant and equipment – for the year ended 31 March 2014
The Parent property, plant and equipment balances are equal to Group other than subsidiary land and buildings with a carrying value of $5m.

March 2014

Cost/valuation
Balance at beginning of year
Offset of accumulated depreciation on revaluation
Additions
Disposals
Revaluation adjustment
Transfers between asset classes
Balance at end of year

Accumulated depreciation and impairment losses
Balance at beginning of year
Offset of accumulated depreciation on revaluation
Depreciation
Impairment
Disposals
Transfers between asset classes
Balance at end of year

Carrying amounts
At 1 April 2013
At 31 March 2014

Group

Construction
in progress
$m

Buildings
$m

Land and
Improvements
$m

Plant and
machinery
$m

33
-
71
-
-
(57)
47

-
-
-
-
-
-
-

33
47

108
(80)
-
(1)
20
5
52

(80)
80
(4)
-
-
-
(4)

28
48

107
(30)
-
(4)
77
4
154

(30)
30
(1)
-
-
-
(1)

77
153

351
(177)
-
(5)
77
43
289

(178)
177
(27)
1
-
1
(26)

173
263

Total
$m

599
(287)
71
(10)
174
(5)
542

(288)
287
(32)
1
-
1
(31)

311
511

Included in buildings $9m and plant and machinery $1m are assets held under finance leases (2013: buildings $1m and plant and machinery $1m).
During the year, assets with a cost of $5m and accumulated depreciation of $1m previously classed as Plant and machinery were transferred to Intangibles.

ANNUAL REPORT 2014

Z ENERGY

107

Property, plant and equipment – for the year ended 31 March 2013

March 2013

Cost
Balance at beginning of year
Additions
Disposals
Transfers between asset classes
Balance at end of year

Accumulated depreciation and impairment losses
Balance at beginning of year
Depreciation
Impairment
Disposals
Balance at end of year

Carrying amounts
At 1 April 2012
At 31 March 2013

Group

Construction
in progress
$m

Buildings
$m

Land and
Improvements
$m

Plant and
machinery
$m

78
65
-
(110)
33

-
-
-
-
-

78
33

154
-
(3)
(43)
108

(118)
(3)
-
41
(80)

36
28

123
-
(29)
13
107

(32)
(2)
-
4
(30)

91
77

261
-
(50)
140
351

(160)
(25)
-
7
(178)

101
173

Total
$m

616
65
(82)
-
599

(310)
(30)
-
52
(288)

306
311

Measurement of fair value
On 1 April 2013, Z adopted a fair value policy for its property, plant and equipment (PPE). At this date, all relevant assets have been valued by an
independent valuer in accordance with NZ IAS 16 Property, Plant and Equipment. An assessment of fair value will be performed annually to assess the
drivers of each asset class to determine whether a further revaluation is required. At a minimum, a full revaluation will be performed every five years.

The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall
responsibility for overseeing all significant fair value measurements, including level 3 fair values (the fair value hierarchy is explained in note 21),
and reports directly to the CFO and Audit Risk Committee (ARC).

Level 3 fair value
PPE is valued using a level 3 fair value measurement in accordance with the fair value hierarchy. There were no transfers between levels during the year.

The following table shows the valuation technique used in measuring the fair value of PPE, as well as the significant unobservable inputs used.

Valuation techniques

Significant unobservable inputs

Inter-relationship between
key unobservable inputs and
fair value measurement

Land is valued using the direct capitalisation approach. This
method involves striking a sustainable market rental, which is
capitalised at an appropriate rate of return or yield derived from
an analysis of sales of comparable assets. The market rental is
built up from:
- fuel throughput margin (adjusted downward for loyalty
participation rate where a percentage of throughput is deemed
to be derived from the Fly Buys loyalty scheme) and
- estimated shop rental (for non-fuel sales)
A total value for land and buildings is determined by this
approach. The value ascribed to the land is then the residual
value after deducting the building value which is determined
using the depreciated replacement cost approach below.

Throughout rental rate (cents/litre)
1.20 – 1.75 (Retail)
Throughput rental rate (cents/litre)
0.70 – 0.80 (Truck stop)
Loyalty participation rate 5% – 15%
Shop rental $150 – $450 per square metre
Capitalisation rate 6.50% – 10.25%

The estimated fair value would increase
(decrease) if:
• throughput margin was higher (lower);
• loyalty participation rate was lower
(higher);
• shop rental rates were higher (lower);
• capitalisation rate was lower (higher).

108

Z ENERGY

Valuation techniques

Significant unobservable inputs

Buildings, plant and machinery is valued using the depreciated
replacement cost approach. This approach is based on the
gross current replacement cost, reduced by factors providing
for age, physical depreciation and technical and functional
obsolescence taking into account an assets total estimated
useful life and anticipated residual value (if any).

Cost estimates sourced from: Contracting
machinery suppliers and cost analysis of
recent projects.

Inter-relationship between key
unobservable inputs and fair value
measurement

The estimated fair value would increase
(decrease) if: cost was higher (lower);
remaining useful life were higher (lower);
technical and functional obsolescence
were lower (higher).

Highest and best use
Z holds properties where the current market value in use is lower than the highest and best alternative use, however, Z holds these properties as part of its
strategic network and therefore does not currently intend to change the use of these assets. The assets are recorded at their highest and best alternative
use valuation.

(11) Intangible assets

Emissions trading scheme

Units acquired are carried at cost less any accumulated impairment as they
are held for settlement of emissions obligations. Currently, overseas units
have a finite life and NZ units an indefinite life.

Computer software

Acquired computer software licences are capitalised on the basis of
the costs incurred to acquire and bring to use the specific software.
These costs are amortised over three years on a straight line basis.

Other intangibles

Other intangible assets that are acquired by the Group that have indefinite
useful lives are measured at cost less accumulated impairment losses.
Intangible assets that have a finite life are measured at cost or fair value less
accumulated amortisation and accumulated impairment losses. Intangible
assets with indefinite lives and intangible assets not yet available for use are
tested for impairment annually and whenever there is an indication that the
asset may be impaired. Other intangibles includes software, franchise rights,
domain name and occupation rights.

Intangible assets – emissions units
Balance at beginning of year
Additions at cost
Utilised
Balance at the end of year

Intangible assets – other
Balance at beginning of year
Amalgamation of subsidiary
Additions at cost
Disposals
Amortisation
Balance at the end of year

Total intangible assets

Group

2014
$m

Parent

2013
$m

2014
$m

2013
$m

16
46
(42)
20

11
-
11
-
(7)
15

3
64
(51)
16

14
-
6
-
(9)
11

16
46
(42)
20

9
2
11
-
(7)
15

3
64
(51)
16

12
-
6
-
(9)
9

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

109

(12) Emissions trading scheme

The Group is required to deliver emission units to a government agency to be able to sell products that emit pollutants. A provision is recognised in the
Statement of Financial Position and is measured at the average cost of units acquired to satisfy the emission’s obligation.

Stock of units

Balance at beginning of year
Plus units acquired and contracted for
Units utilised
Balance at end of year

Obligation

Obligation payable as at 31 March

(13) Investments in associates

Group

2014
Units
millions

2013
Units
millions

7
1
(3)
5

7
2
(2)
7

Group

2014
Units
millions

2013
Units
millions

The Group is considered to have significant influence over its investment in Refining NZ due to the fact that it has representation on the Board of
Directors and therefore has equity accounted this investment. Based on it’s closing share price of $1.75, the fair value of the Group’s investment in
Refining NZ is $84m (2013: nil).

Carrying amounts

Listed
The New Zealand Refining Company Limited
Unlisted
Loyalty New Zealand Limited
New Zealand Oil Services Limited
Wiri Oil Services Limited
Penagree Limited
Coastal Oil Logistics Limited
Carrying amount at end of year

Movements in carrying amounts

Carrying amount at beginning of year
Dividends received / receivable
Share of profits from associate
Share of other comprehensive income from associate
Purchase of investment
Return of investment
Carrying amount at end of year

Group

2014
$m

Parent

2013
$m

2014
$m

2013
$m

1
-
-
-
-
96

-
-
-
-
1
1

Group

2014
$m

2013
$m

1
(1)
(5)
1
100
-
96

1
-
-
-
-
-
1

100

-
-
-
-
-
100

Parent

2014
$m

1
(1)
-
-
100
-
100

-
-
-
-
1
1

2013
$m

1
-
-
-
-
-
1

110

Z ENERGY

Summary financial information for equity accounted investments, not adjusted for the percentage ownership held by the Group
(all with a reporting date of 31 December, except for Loyalty NZ, which has a 31 March reporting date):

2014

Listed
The New Zealand Refining Company
Limited
Unlisted
Loyalty New Zealand Limited
New Zealand Oil Services Limited
Wiri Oil Services Limited
Penagree Limited

Coastal Oil Logistics Limited

2013

Ownership

Principal
activity

Total
assets
$m

Total
liabilities
$m

Income
$m

Profit / (loss)
$m

Other
Comprehensive
income
$m

15%

Refinery

1,064

473

223

(5)

Marketing
25%
50% Fuel Storage
28% Fuel Storage
Ship
25%
Charterer
Shipping
Operator

25%

92
7
2
13

89
7
2
13

83
45
16
2

2
-
-
-

-
-
-
-

Ownership

Principal
activity

Total
assets
$m

Total
liabilities
$m

Income
$m

Profit / (loss)
$m

Other
Comprehensive
income
$m

Unlisted
Loyalty New Zealand Limited
New Zealand Oil Services Limited
Wiri Oil Services Limited

Penagree Limited

Coastal Oil Logistics Limited

Marketing
25%
50% Fuel Storage
28% Fuel Storage
Ship
25%
Charterer
Shipping
Operator

25%

91
4
2
15

90
4
2
14

83
32
15
3

2
-
-
-

-
-
-
-

ANNUAL REPORT 2014

Z ENERGY

111

(14) Investments in subsidiaries and joint operations

The significant subsidiaries of the Group and their activities are shown below:

The financial statements of the subsidiaries are included in the Group’s financial statements. The financial year-end of all the significant subsidiaries
is 31 March. From 1 April 2013, Mini Fuels & Oils Limited has been fully amalgamated into the Parent.

Subsidiaries

Mini Fuels & Oils Limited

Harbour City Property Investments Limited
Z Energy ESPP Trustee Limited
Z Energy LTI Trustee Limited

2014
Holding

2013
Holding

Principal
activity

Country of
incorporation

100%
100%
100%

100%

100%
0%
0%

Fuel
Distribution
Property
Trustee
Trustee

New Zealand

New Zealand
New Zealand
New Zealand

The Group has participating interests in three unincorporated jointly controlled operations relating to the storage and distribution of petroleum products.
The revenues and expenses are allocated on a performance/usage basis rather than the share of the joint arrangement. The Group has rights to the assets
and obligations for the liabilities relating to the jointly controlled operations. As at 31 March 2014, there were no contingent liabilities in respect of the jointly
controlled operations. The value of assets in these interests is $9m (2013: $5m).

Joint operations

Joint User Hydrant Installation (JUHI)
Joint Interplane Fuelling Services (JIFS)
Jointly Owned Storage Facility (JOSF)

2014
Holding

2013
Holding

Principal
activity

25%
50%
50%

Fuel Storage
Fuel Distribution
Fuel Storage

112

Z ENERGY

(15) Taxation

Taxation expense comprises both current and deferred tax. Current tax is
the expected tax payable on the taxable income for the year, using tax rates
enacted or substantively enacted at the balance date, and any adjustment
to tax payable in respect of previous years. Deferred tax is recognised
in respect of the differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for
taxation purposes. The following temporary differences are not provided for:
goodwill and the initial recognition of assets or liabilities that affect neither
accounting nor taxable profit.

The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the balance date.

Taxation expense is determined as follows:

A deferred tax asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised. Additional income
taxes that arise from the distribution of dividends are recognised at the
same time as the liability to pay the related dividend.

Income tax is recognised as an expense or income in the Income Statement,
except when it relates to items credited or debited directly to other
comprehensive income or equity, in which case the deferred tax is also
recognised directly in other comprehensive income or equity.

Net profit before taxation
Less share of earnings of associate companies (net of tax)
Net profit before taxation excluding share of earnings from associates

Taxation on profit for the year at the corporate income tax rate of 28% (2013: 28%)

Plus taxation adjustments:
Over provision in prior periods
Non-taxable gain on sale of PPE
Taxation expense
Comprising:
Current taxation
Deferred taxation
Taxation expense

Group

2014
$m

Parent

2013
$m

2014
$m

2013
$m

134
5
139

(39)

-
-
(39)

(44)
5
(39)

170
-
170

(48)

3
12
(33)

(30)
(3)
(33)

139
-
139

(39)

-
-
(39)

(44)
5
(39)

169
-
169

(47)

3
12
(32)

(30)
(3)
(33)

ANNUAL REPORT 2014

Z ENERGY

113

Deferred tax
Deferred tax assets and liabilities are offset on the face of the Statement of Financial Position and presented as a net deferred tax asset/(liability).
The movement in deferred tax assets and liabilities is provided below:

Group

Property,
plant and
equipment
$m

Intangible
assets
$m

Employee
benefits
$m

Finance
lease
$m

Other
provisions
$m

Derivative
financial
instruments
$m

Other
items
$m

Total
$m

Balance at 1 April 2012

Recognised in the Income Statement

Under/(Over) provision in prior periods in
the Income Statement
Balance at 31 March 2013
Balance at 1 April 2013
Recognised in the Income Statement
Recognised in other comprehensive income
Under/(Over) provision in prior periods in
the Income Statement
Balance at 31 March 2014

(2)

(6)

(8)
(8)
2
(31)

(34)

(4)

(1)
(1)
-
-

(1)

2
2
(1)
-

-
-
-
-

2
2
-
-

(1)

2
2
(1)
-

7
7
1
-

(4)

4
4
1
(31)

(22)

Parent

Property,
plant and
equipment
$m

Intangible
assets
$m

Employee
benefits
$m

Finance
lease
$m

Other
provisions
$m

Derivative
financial
instruments
$m

Other
items
$m

Total
$m

Balance at 1 April 2012

Recognised in the Income Statement

Under/(Over) provision in prior periods in
the Income Statement
Balance at 31 March 2013
Balance at 1 April 2013
Recognised in the Income Statement
Recognised in other comprehensive
income
Under/(Over) provision in prior periods in
the Income Statement
Balance at 31 March 2014

(2)

(6)

(8)
(8)
2

(31)

(34)

(4)

(1)
(1)
-

(1)

2
2
(1)

-
-
-

2
2
-

(1)

2
2
(1)

7
7
1

(4)

4
4
1

(31)

(4)

(22)

Imputation credits available for use in subsequent reporting periods are $17m (2013: nil). Upon listing, the Parent ceased to be a member of the Aotea Energy
Limited Imputation Group and the Group’s imputation credit balance remained with the Aotea Energy Limited Imputation Group.

114

Z ENERGY

(16) Provisions

A provision is recognised in the Statement of Financial Position when
the Group has a present legal or constructive obligation as a result of a
past event, and it is probable that an outflow of economic benefits will be
required to settle the obligation.

equated to be the New Zealand 10-year bond rate. Decommissioning and
restoration costs expected to be settled within one year are classified as
current liabilities. Decommissioning and restoration costs expected to be
settled between one and 30 years are classified as non-current.

Estimated decommissioning and restoration costs are recognised at
the estimated future cost. The estimated future cost is calculated using
amounts discounted over the estimated useful economic life of the assets.
The discount rate applied is the risk free rate of return which has been

Estimated remediation costs of sites are recognised on an accrual basis at
the time there is a formal plan or obligation, legal or constructive, in place.
The remediation costs are expected to be settled between one and 30 years
depending on the location.

For the year ended 31 March 2014

Balance at beginning of year
Provisions made
Provisions used
Provisions reversed
Unwind of discount
Balance at end of year

Current
Non-current
Balance at end of year

For the year ended 31 March 2013

Balance at beginning of year
Provisions made
Provisions used
Provisions reversed
Unwind of discount
Balance at end of year

Current
Non-current
Balance at end of year

Group and Parent

Decommissioning
and restoration
$m

Remediation
$m

Other
$m

Total
$m

20
2
(1)
-
(1)
20

4
16
20

4
1
(1)
-
-
4

1
3
4

4
5
(1)
-
-
8

6
2
8

28
8
(3)
-
(1)
32

11
21
32

Group and Parent

Decommissioning
and restoration
$m

Remediation
$m

Other
$m

Total
$m

21
1
(2)
-
-
20

2
18
20

2
2
-
-
-
4

-
4
4

2
4
(1)
(1)
-
4

2
2
4

25
7
(3)
(1)
-
28

4
24
28

ANNUAL REPORT 2014

Z ENERGY

115

(17) Share capital and distributions

Ordinary shares (fully paid)

Group

Parent

Total issued capital at beginning of year
Movements in issued and fully paid ordinary shares
Shares issued
Total issued capital at end of year

2014
$m

422
432

Ordinary shares (fully paid) in millions of shares

Group

Total issued capital at beginning of year
Movements in issued and fully paid ordinary shares
Shares issued
Total issued capital at end of year

2014

395
400

2013
$m

-
10

2013

-
5

2014
$m

422
432

Parent

2014

395
400

2013
$m

-
10

2013

-
5

All fully paid ordinary shares have equal voting rights and share equally in dividends and equity. The issued shares have no par value. All authorised shares
are issued.

498,108 shares at a cost of $1.8m are held by Z Energy LTI Trustee Limited for Z’s restricted share long-term incentive plan.

Dividend

2012 Final dividend (Paid May 12)
2013 Interim dividend (Paid November 12)
2013 Final dividend (Paid June 13)
2014 Special dividend (Paid June 13)
2014 Non-cash dividend to settle intercompany balances
2014 Interim dividend (Paid December 13)

Group and Parent

2014
$m

2014
cents per share

2013
$m

2013
cents per share

35
32

700
649

29
50
555
31

580
1,000
11,100
8

Final dividend declared subsequent to balance date not provided (refer to note 29).

116

Z ENERGY

(18) Earnings per share

Group and Parent

2014

95
244
39

2013

137
5
2,740

Profit after tax attributable to shareholders of the parent company ($m)
Weighted average number of shares (million)
Basic and diluted earnings per share (cents)

(19) Interest-bearing loans and borrowings

This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings.

For more information about the Group’s exposure to interest rate and foreign currency risk, see note 21.

Facilities not utilised at reporting date
Secured bank facilities

Financing arrangements
The Group’s debt includes bank facilities secured against certain assets of
the Group. The facilities require Z to maintain certain levels of shareholder
funds and securities and operate within defined performance and gearing
ratios. The arrangements also include restrictions over the sale or disposal
of certain assets without bank agreement.

Throughout the year, the Group has complied with all debt covenant
requirements as imposed by lenders.

At 31 March 2014, the Group had secured bank debt facilities of $400m
(2013: $400m). No amounts were drawn on the $350m facility or the $50m
working capital and revolving term debt facility. Both facilities mature
4 July 2016.

Group

Parent

2014
$m

400
400

2013
$m

400
400

2014
$m

400
400

2013
$m

400
400

The bank debt facilities are able to be drawn-down as required subject
to Z being in compliance with undertakings in respect of those facilities.
Working capital loans and revolving term debt loans must be repaid on the
relevant due dates. Interest rates are determined by reference to prevailing
money market rates at the time of draw-down plus a margin. Interest rates
paid during the year ranged from 3.7% to 3.9% (2013: 3.9% to 5.9%).

Borrowings are recorded initially at fair value, net of transaction costs.
Subsequent to initial recognition, borrowings are measured at amortised
cost with any difference between the initial recognised amount and the
redemption value being recognised in profit or loss over the period of
the borrowing using the effective interest rate. Bond and bank debt issue
expenses, fees and other costs incurred in arranging finance are capitalised
and amortised over the term of the relevant debt instrument or debt facility
using the effective interest rate method.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

117

Group and Parent

2014
$m

438
-
438
(5)
(3)
430
-
430
430

149
148
133
430

2013
$m

303
135
438
(6)
(2)
430
-
430
430

149
148
133
430

(20) Bonds

Balance at the beginning of the year
Issued
Balance of bonds at end of year
Transaction costs to be amortised
Unwind of fair value loss on substitution
Balance at end of year
Current
Non current
Balance at end of year
Repayment terms and interest rates:
Maturing on 15 October 2016, 7.35% per annum fixed coupon rate
Maturing on 15 August 2018, 7.25% per annum fixed coupon rate
Maturing on 15 November 2019, 6.50% per annum fixed coupon rate
Balance at end of year

Fixed coupon
The fixed coupon bonds Z has on issue are at a face value of $1.00 per bond. Interest is payable bi-annually on the bond maturing 15 October 2016,
and quarterly on the bonds maturing 15 August 2018 and 15 November 2019.

The bonds require the borrowers to maintain certain levels of performance, security and gearing and get the indirect benefits of bank covenants
through cross default provisions.

(21) Financial risk management

The Group has exposure to the following risks from its use of
financial instruments:

• Credit risk

• Liquidity risk

• Market risk (interest rates, foreign exchange and oil commodity prices)

The Board of Directors has overall responsibility for the establishment
and oversight of the Group’s risk management framework. The Board has
established an Audit and Risk Committee with responsibilities that include
reviewing treasury practices and policies. The Group has established a
Treasury Management Committee to review and set treasury strategy within
policy guidelines and report on market risk positions and exposures. The
Group has developed a comprehensive, enterprise wide risk management
framework, which guides management and the Board in the identification,
assessment and monitoring of new and existing risks. Management report
to the Audit and Risk Committee and the Board on the relevant risks and
the controls and treatments for those risks.

In accordance with the Group’s risk management policies, the Group does
not hold or issue derivative financial instruments for speculative purposes.
Derivatives are not hedge accounted and are required to be accounted
for at fair value through profit or loss. Derivative financial instruments
are recognised initially at fair value at the date they are entered into.
Subsequent to initial recognition, derivative financial instruments are stated
at fair value at each Statement of Financial Position date. The resulting gain
or loss is recognised in profit or loss immediately.

Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations, resulting in financial loss to the Group. The Group
is exposed to credit risk in the normal course of business including those
arising from trade receivables with its customers, financial derivatives and
transactions (including cash balances) with financial institutions. The Group
has adopted a policy to assure the credit-worthiness of Z’s counterparties,
as a means of mitigating the risk of financial loss from defaults. The
Group minimises its exposure to credit risk of trade receivables through
the adoption of counterparty credit limits and standard payment terms.
Derivative counterparties and cash deposit transactions are limited to
high-credit-quality financial institutions and organisations in the relevant
industry. The Group’s exposure and the credit ratings of counterparties are
monitored, and the aggregate value of transactions concluded are spread
amongst approved counterparties. The carrying amounts of financial assets
recognised in the Statement of Financial Position best represent the Group’s
maximum exposure to credit risk at the reporting date. Generally no security
is held on these amounts. Concentration of credit risk with respect to trade
receivables is limited due to the Group’s large customer base. Less than 2%
of the Group’s receivables are more than 30 days overdue.

Liquidity risk
Liquidity risk is the risk that assets held by the Group cannot readily be
converted to cash to meet the Group’s contracted cash flow obligations.
Liquidity risk is monitored by continuously forecasting cash flows and
matching the maturity profiles of financial assets and liabilities. The
Group’s approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its liabilities when due,
under both normal and stress conditions. The Group manages liquidity
risk by maintaining an adequate amount of committed credit facilities and
spreading debt maturities in accordance with policy.

118

Z ENERGY

The tables below analyse the Group and Parent financial liabilities into relevant maturity groupings based on the earliest possible contractual maturity date
at the year end. The amounts in the tables below are contractual undiscounted cash flows, which include interest through to maturity.

For the year ended 31 March 2014

Non-derivative financial liabilities
Accounts payable
Finance leases
Bank overdraft
Secured bank facilities
Bonds

Derivative financial instruments (liabilities)/assets
Foreign exchange contracts
Interest rate swaps
Commodity hedges

For the year ended 31 March 2013

Non-derivative financial liabilities
Accounts payable
Finance leases
Bank overdraft
Secured bank facilities
Bonds

Derivative financial instruments liabilities
Foreign exchange contracts
Commodity hedges

Group and Parent

6-12
months
$m

1 to 2
years
$m

2 to 5
years
$m

5 years
+
$m

Contractual
cash flows
$m

Statement
of financial
position
$m

-
(1)
-
-
(15)
(16)

-
-
-
-

-
(2)
-
-
(30)
(32)

-
(1)
-
(1)

-
(7)
-
-
(361)
(368)

-
(2)
-
(2)

-
(13)
-
-
(142)
(155)

-
8
-
8

(397)
(24)
-
-
(564)
(985)

-
5
(1)
4

(397)
(13)
-
-
(430)
(840)

-
2
(1)
1

Group and Parent

6-12
months
$m

1 to 2
years
$m

2 to 5
years
$m

5 years
+
$m

Contractual
cash flows
$m

Statement
of financial
position
$m

-
(1)
-
-
(15)
(16)

-
-
-

-
(2)
-
-
(30)
(32)

-
-
-

-
(6)
-
-
(228)
(234)

-
-
-

-
(16)
-
-
(306)
(322)

-
-
-

(484)
(26)
-
-
(594)
(1,104)

-
(5)
(5)

(484)
(13)
-
-
(430)
(927)

-
(5)
(5)

6
months
or less
$m

(397)
(1)
-
-
(15)
(413)

-
-
(1)
(1)

6
months
or less
$m

(484)
(1)
-
-
(15)
(500)

-
(5)
(5)

The Parent balances are equal to Group other than subsidiary accounts payable with a value of $4 million aged six months or less.

There are no differences between the expected and contractual maturities for the Parent’s financial liabilities.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

119

Market risk
Interest rate
Interest rate risk (cash flow and fair value) – Z’s primary interest risk arises
from its issued bonds (see note 20) which are sourced at fixed interest
rates. In accordance with the treasury policy, Z manages its exposure to
interest rate risk by entering into Interest Rate Swaps (IRS). By managing
the interest rate risk, Z aims to minimise the cost of debt and manage the
impact of interest rate volatility on the Group’s interest income and expense
cash flow and earnings. The aggregate notional principal amount of the
outstanding IRS at 31 March 2014 is $590m (2013: $295m). The fair value
of the IRS is $2m (2013: $4m).

Sensitivity analysis
At 31 March 2014, if bank interest rates at that date had been 100 basis
points higher/lower with all other variables held constant, it would change
post-tax profit for the year by $0.2m lower/higher (2013: $0.5m).

Foreign currency
The Group has exposure to currency risk on the value of its sales contracts,
commodity/product supply purchases, other transaction flows and assets/
liabilities denominated in foreign currencies.

The Group enters into forward exchange contracts under the terms of its
treasury policy to reduce the risk from price fluctuations of foreign currency
commitments mainly associated with the purchase
of hydrocarbons.

Transactions in foreign currencies are translated to the functional currency
of the Group at exchange rates at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies at the reporting
date are translated to the functional currency at the exchange rate at that
date. The foreign currency gain or loss on monetary items is the difference
between amortised cost in the functional currency at the beginning of
the period, adjusted for interest and payments during the period, and
the amortised cost in foreign currency translated at the exchange rate at
the end of the period. The resulting gain or loss is recognised in profit or
loss immediately.

The aggregate notional principal amount of the outstanding forward foreign
exchange contracts at 31 March 2014 was $17m (2013: $224m). At balance
date, the fair value of forward foreign exchange contracts outstanding was
nil (2013: nil).

Sensitivity analysis
At 31 March 2014, if the New Zealand dollar had strengthened/weakened
by 10% per cent against the currencies with which the Group has foreign
currency risk with all other variables held constant, post-tax profit for the
year would change by $21m higher/$22m lower (2013: $25m).

Commodity hedges
The Group has exposure to purchase timing risk on commodities. This
is defined as the difference in timing of when purchases of crude and
product are priced, and when volumes of product are sold each month.

The Group enters into commodity swap contracts under the terms of its
treasury policy to reduce the risk from price fluctuations by matching
purchase and sales volumes in a particular month. All hedging is within a
six month duration. At 31 March 2014 the fair value of commodity hedges
was $(1)m (2013: $5m).

Sensitivity analysis
At 31 March 2014, if the oil commodity price had weakened/strengthened
by 10% per cent in which the Group has commodity price risk with all other
variables held constant, the value of commodity derivatives would change
post-tax profit for the year by $0.2m lower/higher (2013: $9.9m).

120

Z ENERGY

Fair value measurement in the financial statements
The carrying amount of financial assets and financial liabilities recorded
in the financial statements is their amortised cost, with the exception of
derivatives which are held at fair value.

The fair values of derivatives are calculated using observable market rates
based on discounted cash flow analysis. The fair values determined capture
the applicable credit risk of the counterparties and are a level 2 fair value
measurement per the requirements of NZ IFRS 7 (explained below).

Where the fair value of a derivative is calculated using discounted cash flow
analysis, the two key types of variables used by this valuation technique are
as follows:

•

forward price curve (for the relevant underlying interest rates, foreign
exchange rates or commodity prices); and

• discount rates.

The selection of variables requires judgement, and therefore, there is a
range of reasonably possible assumptions in respect of these variables that
could be used in estimating the fair value of these derivatives.

2014 Asset and liability fair value classification

Group and Parent

Assets

Cash and cash equivalents
Other investments
Derivatives
Trade receivables
Total assets

Liabilities

Bonds
Secured bank facilities
Derivatives
Bank overdraft
Finance leases
Accounts payable
Total liabilities

Held for trading
at fair value
$m

Available for
Sale
$m

Loans and
receivables
$m

Total carrying
amount
$m

Fair value
$m

-
-
13
-
13

-
-
-
-
-

178
-
-
211
389

178
-
13
211
402

Held for trading
at fair value
$m

Financial
liabilities at
amortised cost
$m

Total carrying
amount
$m

Fair value
$m

-
-
(12)
-
-
-
(12)

(430)
-
-
-
(13)
(397)
(840)

(430)
-
(12)
-
(13)
(397)
(852)

(451)
-
(12)
-
(13)
(397)
(873)

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

121

2013 Asset and liability fair value classification

Group

Assets

Cash and cash equivalents
Other investments
Trade receivables
Total assets

Liabilities

Bonds
Derivatives
Bank overdraft
Accounts payable
Total liabilities

Available for
Sale
$m

Loans and
receivables
$m

Total carrying
amount
$m

Fair value
$m

-
1
-
1

115
-
225
340

115
1
225
341

Held for trading
at fair value
$m

Financial
liabilities at
amortised cost
$m

Total carrying
amount
$m

-
(5)
-
-
(5)

(430)
-
(13)
(484)
(927)

(430)
(5)
(13)
(484)
(932)

Fair value
$m

(469)
(5)
(13)
(484)
(971)

2013 Asset and liability fair value classification

Parent

Assets

Cash and cash equivalents
Other investments
Trade receivables
Total assets

Liabilities

Bonds
Derivatives
Bank overdraft
Accounts payable
Total liabilities

Available for
Sale
$m

Loans and
receivables
$m

Total carrying
amount
$m

Fair value
$m

-
1
-
1

114
-
225
339

114
1
225
340

Held for trading
at fair value
$m

Financial
liabilities at
amortised cost
$m

Total carrying
amount
$m

-
(5)
-
-
(5)

(430)
-
(13)
(488)
(931)

(430)
(5)
(13)
(488)
(936)

Fair value
$m

(469)
(5)
(13)
(488)
(975)

122

Z ENERGY

NZ IFRS 7 requires disclosure of fair value measurements using the
following fair value measurement hierarchy:

Capital management
The key factors in determining Z’s optimal capital structure are:

• Quoted prices (unadjusted) in active markets for identical assets or

liabilities (level 1)

•

Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices) (level 2)

Inputs for the asset or liability that are not based on observable market
data (that is, unobservable inputs) (level 3).

At 31 March 2014, the fair value of bonds disclosed in the table above was
a level 1 measurement (2013: level 1) and the fair value of derivatives was
a level 2 measurement (2013 level 2). The fair value disclosed for bonds is
the quoted price of the bonds on the NZDX as at 31 March 2014. The fair
value disclosed for derivatives is calculated using observable market rates
based on discounted cash flow analysis and for the remaining financial
instruments recorded in the Statement of Financial Position, carrying value
approximates fair value.

• Nature of activities

• Forecast of earnings and cash flows

• Capital needs over the forecast period

• Available sources of capital and relative cost.

The Group’s capital includes share capital and retained earnings. The
Group’s borrowings are subject to certain compliance ratios relevant
to the facility agreements or the trust deed applicable to the borrowings.
The Group will seek to spread the maturities of its debt with no more
than 50% of core debt facilities maturing in any forward 12 month period.
Discussions on refinancing of bank debt facilities will normally commence
at least six months before maturity with facility terms agreed at least three
months prior to maturity. Bank facilities are maintained with AA- or above
rated financial institutions, with a syndicate of four bank counterparties to
ensure diversification.

(22) Leases

Operating leases
Operating lease payments, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased items, are charged to the
profit or loss on a straight line basis over the period of the lease term.

The Group has receivables from operating leases relating to the lease of premises. These receivables expire as follows:

Operating lease receivables as lessor
Between 0 to 1 year
Between 1 to 5 years
More than 5 years

Group

2014
$m

3
12
27
42

2013
$m

3
13
29
45

Parent

2014
$m

3
12
27
42

2013
$m

3
13
29
45

The Group has various non-cancellable operating leases. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the
leases are renegotiated. The lease payables are predominantly for the lease of land and buildings.

Operating lease payables as lessee
Between 0 to 1 year
Between 1 to 5 years
More than 5 years

Group

Parent

2014
$m

20
77
79
176

2013
$m

20
85
112
217

2014
$m

20
77
79
176

2013
$m

20
85
112
217

Lease costs expensed and sub-lease income received through profit or loss during the year were $23m (2013: $17m) and $1m (2013: $1m) respectively.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

123

Finance leases as lessee
Finance leases, which transfer to the Group substantially all the risks and
benefits incidental to ownership of the leased items, are capitalised at the
lower of fair value or present value of the minimum lease payments. The
leased assets and corresponding liabilities are therefore recognised and
the assets are depreciated in line with the Group’s depreciation policy to
reflect the estimated useful lives. Each lease payment is allocated between
the liability and finance charges so as to produce a constant periodic rate of
interest on the remaining balance of the liability for each year.

The Group has finance leases arising from the sale and leaseback of
buildings and plant and machinery with a carrying amount of $10m
(2013: $2m). These lease contracts expire within six to twelve years and
have additional terms of renewal. The Group also receives some sub-lease
income on these assets but this does not have a significant impact on
the profit or loss.

Present value of minimum lease payments
Between 0 to 1 year
Between 1 to 5 years
More than 5 years
Present value of minimum lease payments

Lease liability under finance leases
Between 0 to 1 year
Between 1 to 5 years
More than 5 years
Minimum lease payments
Less interest attributable to future years
Present value of minimum lease payments

Present value of minimum lease payments – short term
Present value of minimum lease payments – long term

Group and Parent

2014
$m

1
3
9
13

2013
$m

-
2
11
13

Group and Parent

2014
$m

2013
$m

2
9
13
24
11
13

1
12

2
8
16
26
13
13

-
13

124

Z ENERGY

(23) Share based payments

Z Energy Limited Restricted Share Long Term Incentive (LTI) Plan

The restricted share LTI was introduced for selected senior Z employees
on 19 August 2013 and will run until 31 March 2016. Under the LTI plan,
ordinary shares in the Parent are issued to Z Energy LTI Trustee Limited
(the Trustee), a subsidiary. Participants purchase shares from the Trustee
with funds lent to them by the Parent company. The shares vest after a
three-year period if total shareholder return, hurdles and performance
targets are met, although a reduced period may be used in some cases.
If the individual is still employed by the Parent at the end of the vesting
period, the employee is provided a cash bonus which must be used to
repay the loan and the shares are then transferred to the individual.

Measurement of fair values

The fair value of the LTI plan has been determined using the framework
of the Black-Scholes and Margrabe option pricing models.

The inputs used in the measurement of the fair values at grant date were
as follows.

Weighted average share price at grant date

$3.71

Contractual life

Risk free rate

2.61 years

3.7%

Standard deviation of Z share price

17.5%–22.5%

Standard deviation of NZX50

Correlation between Z share price and NZX50

0.28–0.57

The volatility and correlation measures were derived from measuring
the standard deviation of Z’s share price with reference to the standard
deviation of returns for listed companies that operate in the NZ and
Australian petroleum and retail sectors. There was insufficient historical
data to base the measures on Z’s share price alone. The standard deviation
of NZX50 was based on historical returns for the NZX50 Gross Index over a
three-year period. The risk free rate was based on annualised government
bond yield for the term.

Assumptions have been made that the participants will remain employed
with Z and will achieve the minimum performance levels in each period to
the vesting date. Dividends paid on shares are not material to the value of
the shares granted under the plan.

The estimate of the fair value per share is in the range of $1.00 to $1.40 with
a point estimate of $1.26. The grant date fair value of equity settled share
based payment awards is recognised as an expense, with a corresponding
increase in equity, over the vesting period of the plan. The expense relating
to the LTI plan in the year ended 31 March 2014 is $0.2m (2013: nil). The
unamortised fair value of the remaining shares at 31 March 2014 is $0.5m
(2013: nil).

Number of shares

Shares granted during the year ended 31 March 2014: 498,108 (2013: nil).

Outstanding shares at 31 March 2014: 498,108 (2013: nil). Outstanding
shares have a remaining contractual life of two years and are grant date
fair valued at $1.26 each. No shares were exercised, forfeited or have
expired during the year.

An employee share purchase programme also exists which does not have a
material impact on these financial statements.

ANNUAL REPORT 2014

Z ENERGY

125

(24) Related parties

a) Ultimate parent entities

b) Transactions with key management personnel

From 1 April 2013 until 19 August 2013, the ultimate parent group of Z was
Aotea Energy Holdings Limited (AEHL). As a result of the initial public offer
on 19 August 2013, AEHL’s shareholding reduced to 40%. From 1 March
2014, AEHL control ceased as a result of change in the shareholding.

Key management personnel have been defined as the directors, the chief
executive and the executive team for the Group.

Key management personnel compensation comprised the following

Short-term employee benefits
Other long-term benefits
Termination benefits

Executive members also participate in the Group’s restricted share LTI Plan (see note 23).

Group

2014
$m

4
2
1
7

Parent

2013
$m

2014
$m

2013
$m

4
1
-
5

4
2
1
7

4
1
-
5

c) Other related party transactions

Included in profit or loss are sales and expenses that arise from transactions
between group and associated companies. Such transactions mainly
comprise sales and purchases of goods and services in the ordinary course
of business on normal trading terms, but also include dividends and interest.

During the year Z purchased the investment in Refining NZ from the
ultimate parent group (refer to note 1), settled related party balances with
companies within the ultimate parent group (as shown in the Statement of
Cash Flows) and received interest of $8m from the ultimate parent group.

The following transactions occurred with related parties:

Certain Z directors have relevant interests in a number of companies
with which Z has transactions in the normal course of business. A number
of Z directors are also non-executive directors of other companies. Any
transactions undertaken with these entities have been entered into as part
of the ordinary business of Z and are not included below.

Sales of goods and services
Subsidiaries
Associates
Infratil Group
Companies with common directorship

Purchases of goods and services
Associates
Infratil Group
Companies with common ownership

Group

2014
$m

Parent

2013
$m

2014
$m

-
2
1
4
7

482
1
-
483

-
3
1
5
9

48
1
441
490

-
2
1
4
7

482
1
-
483

2013
$m

83
3
1
5
92

48
1
441
490

126

Z ENERGY

The following other balances are outstanding at the reporting date in relation to transactions with related parties:

Current receivables
Associates
Infratil Group
Companies within AEHL Group
Companies with common directorship

Current payables
Associates
Companies within AEHL Group
Companies with common ownership

Group

2014
$m

Parent

2013
$m

2014
$m

-
-
-
1
1

43
-
-
43

-
-
720
-
720

3
315
38
356

-
-
-
-
-

1
-
-
1

2013
$m

-
-
720
-
720

3
315
-
318

(25) Commitments

Capital commitments relate to property, plant and equipment and contracts for the purchase of ETS units.

Contracted but not provided for

Group

2014
$m

Parent

2013
$m

2014
$m

2013
$m

(26) Contingent liabilities

The Group has guaranteed an exposure of up to $5m (2013: $5m) to a financier of one of the Group’s associate companies.

(27) Contingent assets

The Group has submitted insurance claims of $2m (2013: $3m) relating to the Christchurch earthquake, but there is no certainty these will be paid so an
asset has not been recognised.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

127

(28) Comparison against prospectus forecast

The forecast numbers for the year ended 31 March 2014 formed part of the Investment Statement and Prospectus dated 25 July 2013. An adjusted forecast
has been included, where appropriate, to incorporate the presentation change for revenue, Excise and carbon expense (see note 2). In addition forecast
commodity and foreign exchange gains and losses have been reclassified.

The Group’s primary basis of evaluating business performance is replacement cost operating EBITDAF. This is a non GAAP measure. Refer to the
Investment Statement and Prospectus dated 25 July 2013 for more detail on this measure. In addition refer to the Group’s management discussion
and analysis material.

Statement of comprehensive income vs. prospectus forecast

Group

Total revenue
Excise and carbon expense
Purchases of crude and product
Primary distribution expenses
Operating expenses
Share of earnings of associate companies (net of tax)

EBITDAF

Depreciation and amortisation
Impairment
(Loss) on sale of fixed assets
Net financing expense
(Loss) on interest rate derivatives
Net profit before taxation

Taxation expense
Net profit for the year

Net profit attributable to owners of the company

Other comprehensive income that will not be reclassified through profit or loss
Asset revaluation reserve after tax
Share of associate other comprehensive income after tax
Other comprehensive income net of tax

Total comprehensive income for the year

Actual
2014
$m

Adjusted forecast
2014
$m

Forecast
2014
$m

3,371
(546)
(2,311)
(25)
(281)
(5)

203

(39)
1
(4)
(25)
(2)
134

(39)
95

143
1
144

239

3,548
(580)
(2,427)
(26)
(296)
6

225

(36)
-
(1)
(24)
(1)
163

(45)
118

118

140
-
140

258

2,968
-
(2,432)
(26)
(291)
6

225

(36)
-
(1)
(24)
(1)
163

(45)
118

118

140
-
140

258

Revenue and purchases of crude and product were below the adjusted forecast due to lower volumes. Operating costs were $10m lower than forecast
principally due to foreign exchange gains in the year, which were not forecast. Refining margins were lower than forecast due to the challenging refining
market conditions impacting associate company’s earnings.

128

Z ENERGY

Statement of financial position vs. prospectus forecast

Group

Shareholders’ equity
Represented by:
Current assets
Cash and cash equivalents
Trade, accounts receivable and prepayments
Inventories
Derivative financial instruments
Other assets
Total current assets

Non-current assets
Property, plant and equipment
Intangible assets
Investments in associates and subsidiaries
Other non-current assets
Total non-current assets
Total assets

Current liabilities
Accounts payable, accruals and other liabilities
Income tax payable
Provisions
Derivative financial instruments
Total current liabilities

Non current liabilities
Other liabilities
Provisions
Derivative financial instruments
Bonds
Deferred tax
Total non-current liabilities
Total liabilities
Net assets

Actual
2014
$m

591

178
227
479
1
-
885

511
35
96
13
655
1,540

424
12
11
2
449

17
21
10
430
22
500
949
591

Forecast
2014
$m

612

146
223
513
-
4
886

547
25
107
3
682
1,568

439
15
-
1
455

16
29
-
430
26
501
956
612

Refer below to analysis on cash flows and cash on hand. Inventory levels were lower than forecast due to the unplanned March 2014 refinery shutdown at
Refining NZ. Property, plant and equipment was lower than forecast mainly due to the carry over of build programme projects into the subsequent financial year.

Statement of changes in equity vs. prospectus forecast

Group

Equity at 1 April 2013
Net profit for the year
Other comprehensive income
Changes in share capital
Own shares acquired
Distributions to new and existing equity owners
Total equity at end of year

Actual
2014
$m

597
95
144
422
(2)
(665)
591

Forecast
2014
$m

597
119
140
422
-
(665)
612

Net profit after tax differences to forecast have been explained above and are the main driver of the change in equity against forecast.

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

129

Adjusted forecast
2014
$m

Forecast
2014
$m

3,552
-
-

(2,835)
(580)
(32)
(29)
76

-
-

-
(100)
(99)
(199)

160
422

(4)
(1)
(101)
(322)
-
154

31
115
146

3,552
-
-

(3,415)
-
(32)
(29)
76

-
-

-
(100)
(99)
(199)

160
422

(4)
(1)
(101)
(322)
-
154

31
115
146

Actual
2014
$m

3,387
1
2

(2,714)
(546)
(20)
(29)
81

1
7

(10)
(100)
(63)
(165)

162
422

-
-
(111)
(324)
(2)
147

63
115
178

Statement of cash flows vs. prospectus forecast

Group

Cash was provided from:
Receipts from customers
Dividends received
Proceeds from insurance recoveries
Cash was disbursed to:
Payments to suppliers and employees
Excise and carbon paid
Net interest paid
Taxation paid
Net cash inflow from operating activities

Cash flow from investing activities
Cash was provided from:
Sale of investments
Sale of property, plant and equipment
Cash was disbursed to:
Purchase of intangible assets
Purchase of investments
Purchase of property, plant and equipment
Net cash (outflow) from investing activities

Cash flows from financing activities
Cash was provided from:
Cash from intercompany
Cash from share capital
Cash was disbursed to:
Repay financial instruments
Finance lease
Dividends paid
Cash to intercompany
Share purchase for share scheme
Net cash inflow from financing activities

Net increase in cash
Cash balances at beginning of year
Cash at end of year

Net cash outflows from investing activities were $34m lower than forecast due to lower than forecast spend on purchases of property, plant and equipment.

(29) Events after balance date

Dividend

Subsequent to 31 March 2014, the Directors have approved a fully imputed dividend of $0.143 per share, which is equal to $57.2m to be paid on 4 June 2014
(2013: $29.1m, $5.82 per share).

130

Z ENERGY

Independent auditor’s report
To the shareholders of Z Energy Limited

Report on the company and group financial statements
We have audited the accompanying financial statements of Z Energy
Limited (‘’the company’’) and the group, comprising the company and
its subsidiaries, on pages 96 to 129. The financial statements comprise
the statements of financial position as at 31 March 2014, the statements
of comprehensive income, changes in equity and cash flows for the year
then ended, and a summary of significant accounting policies and other
explanatory information, for both the company and the group.

Directors’ responsibility for the company and group
financial statements
The directors are responsible for the preparation of company and group
financial statements in accordance with generally accepted accounting
practice in New Zealand and International Financial Reporting Standards
that give a true and fair view of the matters to which they relate, and for
such internal control as the directors determine is necessary to enable
the preparation of company and group financial statements that are free
from material misstatement whether due to fraud or error.

Auditor’s responsibility
Our responsibility is to express an opinion on these company and group
financial statements based on our audit. We conducted our audit in
accordance with International Standards on Auditing (New Zealand).
Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance about
whether the company and group financial statements are free from
material misstatement.

An audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the company and group financial
statements. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the company
and group’s preparation of the financial statements that give a true and fair
view of the matters to which they relate in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company and group’s
internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates,
as well as evaluating the presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.

Our firm has also provided other services to the company and group in
relation to taxation, advisory and general accounting services. Partners and
employees of our firm may also deal with the company and group on normal
terms within the ordinary course of trading activities of the business of the
company and group. These matters have not impaired our independence as
auditor of the company and group. The firm has no other relationship with,
or interest in, the company and group.

Opinion
In our opinion the financial statements on pages 96 to 129:

• comply with generally accepted accounting practice in New Zealand;

• comply with International Financial Reporting Standards;

• give a true and fair view of the financial position of the company and the
group as at 31 March 2014 and of the financial performance and cash
flows of the company and the group for the year then ended.

Report on other legal and regulatory requirements
In accordance with the requirements of sections 16(1)(d) and 16(1)(e) of the
Financial Reporting Act 1993, we report that:

• we have obtained all the information and explanations that we have

required; and

•

in our opinion, proper accounting records have been kept by Z Energy
Limited as far as appears from our examination of those records.

7 May 2014
Wellington

ANNUAL REPORT 2014 ANNUAL REPORT 2014

Z ENERGY

131