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Z Energy
Annual Report
2019
Ka
kite
anō
About this report
This is our third integrated report as defined
by the Integrated Reporting Framework.
It covers the financial year 1 April 2018 to
31 March 2019 and focuses on the following
capitals: people and culture, capability,
environment, assets, our place in New Zealand,
and finances. We also use the Global Reporting
Initiative (GRI) Standards: Core option.
We continue to report on remuneration and
corporate governance more broadly than
required in response to shareholder requests
for greater transparency around how we operate
and how we reward our people. We have been
guided by the New Zealand Shareholders
Association CEO Remuneration Reporting
Framework in this area.
Finally, in consultation with policy think tank
the McGuinness Institute, we have chosen
for the first time to include a Climate Change
Statement that gives an overview of our
approach to managing and reporting on climate
change risks. The McGuinness Institute believes
that all listed issuers should report on climate
change in a standardised and comparable
way. We support this, so we have used its
recommended framework in our report.
This document, in conjunction with Z Energy’s Corporate Governance
Statement 2019, constitutes the 2019 Annual Report to shareholders of
Z Energy Limited. It complies with the NZX Corporate Governance Code
and the NZX Environmental, Social and Governance Guidance Note.
Contents
3
Menu
MenuZ Energy Annual Report 2019 Introduction
4
It’s a
moving world out
there
MenuZ Energy Annual Report 2019 Introduction
5
Every day we connect
with thousands of
New Zealanders.
MenuZ Energy Annual Report 2019 Introduction
6
No matter where you are, there’s
a good chance we are close by.
That’s because 80 percent of
New Zealanders are within 5km
of one of our service stations
at some point in their day.
MenuZ Energy Annual Report 2019 Introduction
7
We supply nearly half of
New Zealand’s fuel. Every
year around 55 million retail
transactions take place
across the Z network.
MenuZ Energy Annual Report 2019 Introduction
8
This puts us in a special place
to offer more of what you’re
looking for. Understand you
better and deliver what matters
most. At work, on the way
home, on the way anywhere.
MenuZ Energy Annual Report 2019 Introduction
9
We are also on a journey.
This year we encountered
new experiences and became
more resilient. We will
continue to evolve as the
world around us changes.
Bring on the road ahead.
MenuZ Energy Annual Report 2019 Where we are right now
10
Where
we are
right now
An overview of our achievements
against our commitments as a business
MenuZ Energy Annual Report 2019 Where we are right now
11
The year at a glance
FY19
Annual results comparison
FY18
29%
$ 186m
Historical cost net profit after tax
13%
$ 178m
Replacement cost net profit after tax
$263m
$205m
3%
$ 434m
Replacement cost EBITDAF
$449m
0.65%
4,172 million
litres
Total fuel volume (retail and commercial)
4,145 million litres
33%
43 cents
Total dividend per share
32.3 cents
0.35%
56.7mTotal transactions on Z-branded retail sites
56.9 million transactions
MenuZ Energy Annual Report 2019 Where we are right now
12
12%
45 cents
Replacement cost net profit after tax per share
-5.2%
Total shareholder return
51 cents
+3.4%
5%
$ 86m
Capital expenditure
$91m
2%
2,656
Z direct employees, contractors
and retail network members
2,611
0.5%
99.5%
Health, Safety, Security and
Environment actions close-out rate
100%
12m tonnes
Employee Net Promoter Score+17
12%
4.3 cents
Replacement cost net profit after tax per litre
4.9 cents
8%
13.1
Total carbon footprint,
carbon dioxide equivalent (tCO2e)
million
tonnes
MenuZ Energy Annual Report 2019 Chair’s report
13
Z is focused on
maintaining its market position,
continuing to improve the
operational efficiency of its
asset base and building a
strong, capability-led team
with clear focus on our strategy
and performance goals.
Peter Griffiths
Chair, Z Energy
Kia ora tātou
The 2019 financial year was one of the
most challenging on record for Z Energy.
Significant market volatility returned, with
the Brent indicator trading between US$51
and US$84 per barrel in the last six months
of FY19. It reinforced that our business
is based on a global commodity where
prices can move quickly and unpredictably.
The volatile trading conditions tested the Z
team. I’d like to acknowledge Mike, the executive
team and all of Z’s employees who have worked
diligently in uncertain market conditions to
deliver a result that was slightly below the lower
end of our initial earnings guidance for the year.
MenuZ Energy Annual Report 2019Where we are right now 14
Focus on our core
While the future for fossil fuels is a source of
much debate, Z is focused on maintaining its
market position, continuing to improve the
operational efficiency of its asset base and
building a strong, capability-led team with clear
focus on our strategy and performance goals.
Our operating environment continues to be
increasingly competitive which means we
must keep getting better at everything we do,
leveraging our brands, preserving the numerous
strengths in our supply chain, maintaining our
commercial relationships and optimising our
retail network.
Capital allocation for a capability-led strategy
Our strategy to invest in capabilities helps us
to limit the amount of capital deployed in our
traditional asset base. We already have a safe
and resilient supply chain and customer-facing
network of sufficient scale for the current
market demand.
We will maintain an appropriate level of capital
expenditure to ensure the integrity and safety
of our operations. Investment opportunities
that aim to grow the bottom line, will come
from ‘recycling’ our current capital employed.
By limiting the capital in our core business and
continuing to churn the least productive assets
to fund growth we will be able to maintain a
resilient balance sheet.
Investors should also expect continued modest
experimentation for the purpose of market and
product development in the three identified
areas of future fuels, mobility and the ‘last mile’.
A clear, simple and sustainable dividend
The increasingly mature nature of our industry
and the underlying strength of our business
means the Board regularly considers the ideal
sources and uses of capital. The Board balances
the immediate capital requirements for Z along
with the long-term desired level of debt on the
balance sheet and providing dividends to reward
our shareholders for their investment in Z.
In September 2017 Z announced a refreshed
dividend policy, setting a target pay-out range of
80 to 100 percent of Underlying Free Cashflow.
Underlying Free Cashflow being defined as the
net cash from operating activities less integrity
capex, principal debt repayments and any
adjustment for working capital fluctuations.
Due to the increased volatility experienced this
year we had to adjust our earnings and dividend
forecasts, which on top of the change in policy,
led to a level of uncertainty for our shareholders.
To simplify the dividend policy and provide
greater clarity for future dividends the Board
will seek to pay ordinary dividends of 70 to 85
percent of Operating Cashflow, where Operating
Cashflow is defined as RC EBITDAF less RC tax,
net financing costs and Integrity Capex. Integrity
Capex is defined as stay in business capex
including maintenance capex and IT expenditure.
For FY19 the Board has approved a final
dividend of 30.5 cents per share, which will
take our full year payment to 43.0 cents per
share. This is a 33 percent increase over FY18
and equates to a total cash dividend pay-out
of $172 million. This also represents a 95 percent
pay-out of Underlying Free Cashflow as defined
by the current dividend policy.
Our competitive reality
The competitive environment for retail fuels
in New Zealand has changed significantly
since Z’s inception.
The industry has seen a notable increase in
the number of retail outlets across the country,
reversing a long established declining trend.
In recent years, there has been a five percent
increase in the total number of truck stops and
service stations from 1,457 to 1,533 sites as
more recent entrants build out their networks
and seek to capture increased market share.
Independent operators are now present in all
New Zealand markets, for example more than
half of the retail outlets in the South Island do not
carry the brands of a traditional supplier operating
in New Zealand. There is an increasingly divergent
range of choices for customers with service-led
convenience experiences competing with simple,
price-led offers.
Z believes the retail fuel industry in New Zealand
is more competitive than ever. Z welcomes the
Commerce Commission market study into the
fuel industry and believes that the Commission
will find that the industry is competitive.
Competing against price-led competitors
We do not underestimate the challenges in our
market, automated sites now accounting for
around 14.9 percent of total industry volume. In
response we will continue to manage our costs,
focus on our customers and attempt to provide
exemplary service offers that are truly valued.
While new entrants continue to build their
operational footprints in the typical manner we
will continue to deliver competitive offers and
invest in our capability-led strategy. We will
make greater use of smart data and analytics
to identify our customers and attract them to
our extensive network.
We continue to make progress on our drive for
a more productive core business, delivering
operating efficiencies throughout the supply
chain, especially in those areas where we have
scale advantages. To date, we have delivered
our refinery optimisation strategy and brought
back in-house operational control of our fuel
storage terminals. We have simplified our
bulk fuel distribution under a new long-term
contract. In short, we are ensuring our existing
business is running effectively and efficiently.
MenuZ Energy Annual Report 2019Where we are right now 15
I am confident
that the future for
our company is a
good one.
Preparing for a lower carbon future
This year the Board travelled overseas to learn
how other countries and industry participants
are preparing for a lower carbon future. As a
result of the trip the Board is confident that we
will have adequate time to properly navigate
the expected market transition. We accept that
our industry faces long term disruption, but it
will not manifest as material demand destruction
in New Zealand for some considerable time.
While much of the current public debate
focuses on electrification of the light passenger
fleet, it would be remiss to not also consider
the changes that will have to occur to meet
commercial fuel demand which are principally
currently satisfied by diesel. We continue to
focus on alternatives for this fuel. As part of the
solution it is pleasing that Z’s biodiesel plant,
Te Kora Hou, is now producing and we are
making deliveries to our foundation customers.
While we keep an eye on the future, what
requires our immediate and on-going attention
is operating our existing business well, driving
operational efficiencies, and generating value
from the core asset base so we can effectively
manage an orderly transition to a lower
carbon future.
The Board also believes that New Zealand
will have to come up with a solution that is
right for New Zealand, our situation is unique,
and we cannot simply copy what has been
done in Singapore or Norway or California as
they are responding to their own particular
circumstances.
The fuel replacement for aviation and marine
remains challenging. The Board is interested
in understanding the potential of hydrogen
and think it should continue to be a part of
the debate around our future energy mix.
We welcome the comments made by the
government about the exploration of hydrogen
as a possible energy source for large-scale
commercial transport needs in New Zealand.
Z aims to make a meaningful contribution
to what is best for New Zealand’s energy
future and is actively engaged in the policy
debate with legislators, industry bodies,
market commentators and the public.
Signing off
This is my last letter to you, shareholders of
Z Energy as Chair. Being a member of the
Board since 2009 and being part of one of
New Zealand’s business success stories has
been one of the highlights of my career.
I am confident that the future for our company
is a good one. While we will have to lean into
headwinds from time to time, I believe that Z
will successfully navigate these and remain
a strong and relevant New Zealand company.
I wish the Board, with Abby as the new Chair,
and Mike and his management team all the
very best in their future endeavours.
Kia ora koutou a ka kite an-o
Peter Griffiths
Chair, Z Energy
MenuZ Energy Annual Report 2019Where we are right now CEO’s report
16
As a result of our work
over the past three years,
we now have competitively
advantaged infrastructure
and customer facing assets,
unrivalled scale in our supply
chain, and a customer base
with unmatched size and
geographic reach.
Mike Bennetts
CEO, Z Energy
Kia ora koutou o te whānau a Z Energy
Our experience in the first half of the financial
year was very different from that in past years.
Supply disruptions and significant price rises
beyond our control, combined with a vibrant
competitive landscape, signals of potential
regulatory review and growing consumer
frustration exacerbated by policies such as
the regional fuel tax, resulted in significant
changes in customer behaviour. We recovered
well in the second half as we learnt our lessons
and crude prices went through their more
typical up and down cycle.
MenuZ Energy Annual Report 2019Where we are right now 17
The
investment
in our five
organisational
capabilities
is critical to
us sustaining
competitive
advantage and
maintaining
market share.
The first half was certainly a new experience for
many of our employees and business partners.
Any new experience provides opportunities to
learn for next time and change the way some
things are done. That experience counts as
volatility and uncertainty grow.
Responding, and not simply reacting
Faced with the trading conditions we
experienced in the first half, we resisted
the impulse to react in a knee-jerk manner.
The Board challenged us to learn from the
challenges we were facing and to respond
with both care and speed. Much of what
was happening was transitory rather than
structural, and we looked past the things
we couldn’t control, such as record high fuel
prices and a longer-than-expected refinery
shutdown. We identified and considered risks
and responded in two ways: improving our
operational execution and reducing the time
to take new products to market. Responding,
rather than reacting, is easy to say now but it
was challenging when the pressure to perform
was on and financial results were well short
of expectations.
The new reality for all businesses today
is that planning is on shorter timeframes.
We must continue to change and adapt
to the things that affect us. So we took
opportunities to identify blind spots, get
into action on any weak signals across our
teams and increase the pace of our actions.
Strategy keeps us on course
As a result of our work in the past three
years, we have competitively advantaged
infrastructure and customer-facing assets,
unrivalled scale in our supply chain, and a
customer base with unmatched size and
geographic reach. Strategy 3.0 — our plan
for a more productive core business — is
about extracting the greatest benefits that we
can from our expanded scale and taking every
opportunity to do more with fewer resources
while always managing risk, acting safely
and working within our stands and values.
Rather than relying upon our competitively
advantaged assets, we now also focus on
five organisational capabilities that enable
us to have a more productive core business —
customer experience, productivity, innovation,
digitisation and brand. We have introduced an
assessment tool for each of these that now
provides quantitative and qualitative measures
of progress. That’s because it is way easier
and obvious to see the progress of an asset-
led strategy, such as that for building service
stations, than it is to see progress in customer
experience or innovation.
Making people more comfortable with innovation
hinges on our being more agile in the way we
work. We are changing how we think about
projects and customer offers and introducing
contained, cross-functional responses to
customer pain points. We have had the usual
growing pains around changing how we work,
and we have supported our people with training
and other development experiences so they
can grow both their confidence and capabilities.
For example, 159 of our people have completed
our Innovation Masterclass and are getting
into action with human-centred design.
During the year we also looked for ways
to demonstrate the diversity and inclusion
we value so deeply by practising inclusive
leadership and establishing diverse teams to
learn fast, stay focused on customer outcomes
and take every opportunity to prototype in
measured and deliberate ways.
Bringing people together through diversity
Productivity increasingly hinges on our ability
to respond to changing situations, so the skills
to navigate a volatile environment successfully
cannot sit in departments. Digitisation is not the
sole responsibility of IT; culture is not just the
domain of People and Culture. Rather, opportunities
and problems are owned across the business.
That’s been a huge opportunity and a challenge
for us, and it becomes more complicated as
new people and skills are added to Z. Facing
a tough trading environment this year, we
depended on our people to pull together and
recognise and manage our risks, execute our
strategy and transition these new skills right
across our business.
MenuZ Energy Annual Report 2019Where we are right now 18
When we brought in-house all our terminal
operations, we integrated the teams and
their skills and experience in line with our
values while encouraging them to still be
themselves. We saw that a safe and efficient
supply chain is about tapping in to diverse
backgrounds and experiences to gain new
perspectives that more fully inform what
we do. That’s how we will grow a learning
organisation with ever-expanding capabilities.
The most important things
in an increasingly risky world
Our paramount concern is health, safety,
security and the environment (HSSE).
Increasingly, we are building a generative culture
by empowering those closest to operational
risks to manage those risks. During the year
we developed a safety leadership programme
that broadened the scope of what we mean
by safety to include mental wellbeing.
Stakeholders naturally want to know that we
have identified risks that could potentially erode
value in environments that are volatile, uncertain,
complex and ambiguous. Because those risks
range from government regulation to electric
vehicles (EVs) to robberies, it’s important that
we are specific about where they exist, and
manage them astutely and efficiently.
Success will depend on our ability to manage
the risks we know about and build resilience to
prepare for the unknowns, or at least respond
to a higher level of volatility from that which is
already known. This year we did a good job of
seeing risks for what they were — transitional or
structural — and dealing with them accordingly,
albeit at times responding less quickly than we
should have.
Our emphasis on new capabilities will never
compromise or replace our focus on safety
and any of our other commitments. In fact,
quite the opposite — we continue to improve
our risk management systems and approach
our future with a consolidated view of our risks
according to varying time horizons.
People are integral to that. Risks tend to
be seen as mechanical but, in most cases,
vulnerabilities spring from human actions or a
lack of them. If we are to succeed in managing
our risks well, we need to make sure our people
are aware of risk and committed to mitigating it
personally. We’ve always said that the Z Why is
non-negotiable. The reason is simple — there’s
too much to lose if you put what you stand for
aside to deal with what’s bothering you at the
time. Our values link to our HSSE management
system and to our risks — because all three are
about acknowledging the importance and value
of humanity in our culture.
Strategy benefits are on track
At the September 2017 investor day presentation,
we said that operating at our new scale would
deliver investors $30–35 million of underlying
EBITDAF in the following three years through our
Strategy 3.0 initiatives, on top of the $39 million
of synergy benefits delivered by the end of FY18.
At FY19 year end, our Strategy 3.0 benefits
are $24 million of underlying EBITDAF, and we
remain on track to deliver on our commitment.
Throughout the year, the benefits mostly came
from actions in our supply chain — a new
refinery optimisation partner, bringing terminal
operations in-house, improved cost recoveries
on selected imports, and a lift in margin from
the shift in the jet fuel supply market to import
price parity.
The value from our investment in our five
organisational capabilities will be in addition
to that; they are critical to our sustaining
competitive advantage and maintaining market
share. From next year we will be able to point
to the value that comes from our investment
in the culture, technology and people that are
needed for these capabilities to develop.
It can be challenging to press forward with a
capability-led strategy when our competitors
are investing heavily in traditional asset-led
strategies. The advantaged scale of our
infrastructure, nationwide coverage and strong
locations provides a level of resilience to the
increased number of service stations being built.
On top of that we can point to new products
in the market (such as mobile pre-order
coffee), the roll-out of new Z and Caltex apps,
our partnership with Foodstuffs (NZ) Limited,
and the initial roll-out of Fastlane as tangible
examples of an improved customer experience.
There is more to come in the next year for
both our retail and commercial customers.
Bringing our capabilities together
The Fastlane initiative may not have been
rolled out widely yet, but it has shown that we
can innovate quickly to deliver a product that
customers love. It integrates with the increasing
digitisation of our business and fundamentally
changes the customer experience. And it
enables us to gather new insights about our
customers that will improve our understanding
while reducing our cost to serve.
Being great at Digital will become increasingly
important over time. Our customers are already
calling for market innovations that leverage
our capabilities and competitively advantaged
asset base, move us closer to them and their
expectations, and are typically Z. Much of this
comes from increasing digitisation through
both new and existing technology. That’s why
we have established a Digital business unit and
externally recruited a new Chief Digital Officer.
At first glance, our roll-out of Office 365 is simply
about improving our technology. We took the
opportunity to collaborate with Microsoft
and used human-centred design to focus on
unlocking capability and changing behaviours.
Giving our people new mobile ways of working
increases our overall digital capability by
freeing us to focus on what matters most — our
customers. It changes how we can work, enabling
us to involve people who might otherwise not
be included, meaning we can work faster and
more effectively. In doing so, it changes the
shape of Z by enabling geographically dispersed
MenuZ Energy Annual Report 2019Where we are right now 19
people to stay connected through technology
and provides scope to reduce our operational
carbon footprint through reduced travel.
The acquisition of 70 percent of Flick Energy
Limited (Flick) is part of our investment in
future growth opportunities. The near-term
opportunity is to leverage Z’s scale and reach
into this adjacent energy sector, pursuing joint
product development and transferring some of
Flick’s digital capability into Z. Longer term, Flick
provides options for growth in each of the three
market spaces we have identified for growth
post 2020 — future fuels, mobility and the ‘last
mile’. Having a scalable, digital first platform at
the centre of Z and Flick’s customer offers will
support the change of customers’ attitudes to
energy mobility. Shortly after the acquisition,
significant market events caused substantial
increases in spot power prices — a real challenge
for Flick’s business model. There were customer
losses during this period but the strategic
reasons for investing remain.
Climate Leaders Coalition
We remained active with our contribution to
a more sustainable agenda for New Zealand
business. We adopted a leadership role in the
business community with those who wanted
to take a more assertive stance on reducing
emissions. The Climate Leaders Coalition is
a signal to stakeholders that we care and that
we will look to make a collective difference.
I hope the coalition is seen as a signal to
New Zealanders, regulators and government
alike that business acknowledges that a new
sustainability conversation is needed. We will
work with legislators and government agencies
to introduce such changes to the New Zealand
markets in ways that, if I can mix my metaphors,
move the dial without spooking the horses.
Initial financial forecasts not met
At the half year our financial performance was
well below the expectations set in our original
guidance range. At year end, on the back of our
second-half recovery, we have delivered historical
cost net profit after tax of $186 million and
RC EBITDAF of $434 million. This RC EBITDAF
compared to our original guidance of $450–485
million, our last revision of $420–450 million
and compares to last year of $449 million.
Across our balanced scorecard — health and
safety, customer satisfaction, operations and
strategy — the Board assessed our performance
as ‘below expectations’. This was primarily driven
by the shortfall in profit performance arising
from our failure to deliver the volume and margin
combination we committed to. Quite rightly, this
performance rating greatly reduces the level of
at-risk pay our employees will receive. In some
cases there will be no at-risk pay at all, which is
entirely consistent with our principle of paying
for performance.
Evolution not revolution
As much as our current markets can be
volatile and the long term is hard to forecast,
we continue to evolve our business rather than
pursue some revolutionary pathway. We are clear
that our focus for this side of the next decade is
on a more productive core business by delivering
the benefits that can be achieved because of
our scale and reach. In preparing for the next
decade we are developing options and learning
from small-scale experiments in the three market
spaces — future fuels, mobility and the ‘last mile’.
Both have led large teams of people who have
made a significant contribution to the growth
of Z, and I wish them well.
Of course I need to acknowledge that Peter
Griffiths, our Chair, is retiring from the Board.
I’ve really appreciated all of Peter’s wisdom
and guidance in the past six years as we
have worked in partnership together. As much
as I will miss him personally, I am looking
forward to a similarly positive relationship
with Abby Foote as our new Chair.
With that in mind we have made changes within
our executive team. With the establishment of
our Digital business unit and the subsequent
reduction in his responsibilities, our CFO, Chris
Day decided that it was time to move on from Z,
having been here since just before our IPO in 2013.
Lindis Jones, a member of the executive team for
nine years, will take up the role of CFO. Mandy
Simpson joined us as our Chief Digital Officer,
clearly showing our commitment to improving
our digital capability through her unique skills
and experiences. At year end Mark Forsyth
stepped down after nine years in the role, and
we welcomed Andy Baird as our new General
Manager, Retail. Andy’s substantial international
experience will be valuable as we embrace
changing customer expectations.
My thanks go to both Chris and Mark for
their leadership and commitment to Z.
A final word of thanks
As I said earlier, it’s been a year of new
experiences and I would like to thank our
customers as well as all those people who
have worked so hard, including our employees,
business partners and suppliers. A big thank
you to the Board for its counsel, challenge
and guidance throughout.
To those joining us, welcome aboard at an
exciting time in our history as we continue to
pursue our purpose of solving what matters
for a moving world and our ambition to be a
world-class Kiwi company.
Nō reira, kia ora koutou
Mike Bennetts
CEO, Z Energy
MenuZ Energy Annual Report 2019Where we are right now Our business model
Our ambition
To be a world-class
Kiwi company
Our values
Share everything
Have the passion
Back our people
Be straight up
Be bold
Our stands
Health, Safety, Security
and Environment
Environmental Sustainability
Community
Diversity and Inclusion
Our inputs
1
2
3
4
5
6
Our assets
Our finances
Our capability
Our people and culture
Our environment
Our place in New Zealand
Our purpose
Solving what matters
for a moving world
20
Our outcomes
1
2
3
4
5
6
Our assets
Our finances
Our capability
Our people and culture
Our environment
Our place in New Zealand
For a breakdown on how our outputs
have worked towards achieving our
SDGs in 2019 see the next page.
The United Nations Sustainable
Development Goals set a global
context around sustainable
development. Our positive aspirations
and actions align closely with 10 of
the Sustainable Development Goals.
MenuZ Energy Annual Report 2019Where we are right now 1
4
Our assets
All of our terminals are now under our
operational control. We invested in innovative
technology for the roll-out of Fastlane, providing
customers with new ways of fuelling up without
leaving their vehicles. Investments in technology
are setting us up for a more digital future.
Our people and culture
Our staff engagement levels remain high.
Z appointed its first female Board Chair and
celebrated the first anniversary of attaining
the Rainbow Tick diversity and inclusion
certification.
2
5
21
Our finances
We achieved our revised earnings targets,
continued to reduce our debt and simplified
our dividend policy to provide increased clarity
and certainty to investors. We remain on track
to deliver the synergy benefits expected from
the Caltex acquisition.
3
Our capability
Our organisational capability strategy continues
to develop to align with our focus on customer
experience, innovation and digitisation under
Strategy 3.0. It is designed to ensure our people
have the skills they need to succeed for the
future. As part of this we have rolled out an
ambitious Innovation Capability Programme.
Our environment
Z’s greenhouse gas emissions decreased this
year compared to FY18, driven by reductions in
operational emissions from coastal shipping, ground
freight of fuel and retail electricity use. Our biodiesel
is now fuelling Fonterra’s North Island milk tanker
fleet. We have not made as much progress toward
our waste reduction targets as planned.
6
Our place in New Zealand
We remain committed to our Community
stand and to doing good in our neighbourhoods.
In the 2018 Good in the Hood programme we
ran a fuel discount day, raising extra funds
for community groups across the country.
To learn more about Sustainable Development Goals
visit www.un.org/sustainabledevelopment
MenuZ Energy Annual Report 2019Where we are right now
Reporting on
what matters
To determine our material
matters, we talked to a
diverse range of our internal
and external stakeholders
about all sorts of things
that mattered to them.
22
Central government
Our investors
We engaged with government agencies,
regulators, Ministers and Members of
Parliament about the macro-environment
in which we operate. We had constructive
conversations about fuel prices, industry
competition, alternative fuels and clean
energy, climate change, and the security
of energy supply.
We run regular domestic and international
investor roadshows. This year, key
material topics included capital allocation,
performance in Retail, the Flick acquisition
and our dividend policy.
Our customers
The media
We talked to customers about our latest
innovations and ways to improve our
customer service, such as through Fastlane
and the Good in the Hood programme.
This was through customer surveys and
face-to-face interviews conducted as part
of innovation projects.
We participated in public forums and media
interviews on a range of topics that matter
to New Zealanders. We are known for being
totally accessible and straight up when
speaking in public; through this approach,
we hope others will respond positively.
A diverse range
of organisations
Members
of the public
We engaged with local government, community
groups, not-for-profit organisations and the
sustainability sector about environmental and
sustainability issues, and how Z can best make
a difference in our local communities.
We remain active on social media and receive
feedback and comments from members of the
public. During the year we ran several prominent
campaigns, including one about removing single-
use plastic bags from our service stations and the
more lighthearted ‘What’s the name of your car?’
MenuZ Energy Annual Report 2019Where we are right now 23
Our material topics
This year we identified 22
material topics. We have
focused on those within the
orange box for this report.
Included
Volatility, uncertainty, complexity and ambiguity (VUCA)
Health and safety
Strong governance
Renewable energy
Sound financial management
Organisational capability
Resilient communities
Climate change
Process safety
Increased regulation
Fuel pricing and market share
Customer loyalty and competition
Responsible consumption and production
Merger and acquisition strategy
Ethical procurement
Supply chain resilience
Water use
Cyber security
Diversity and inclusion
Brand values
Importance to
stakeholders
Product quality
Compliance
Importance to Z
MenuZ Energy Annual Report 2019Where we are right now
Creating value
for our shareholders
Z Energy is committed to
creating value for investors
by focusing on a safe and
profitable core fuels business.
We aim to extract value from
our current asset base by
delivering outstanding customer
experiences, while positioning
ourselves for future industry
disruption.
Z aims to be an attractive
long-term investment by
providing high-quality, reliable
returns to our investors by:
24
Allocating capital with discipline
to maximise shareholder value
• Manage cashflows and capital to deliver
a sustainable dividend in line with
earnings growth
• Limit capital employed in our core
business to $2 billion by selling the least
productive assets to fund growth
• Maintain a strong balance sheet with
the capacity to leverage debt to fund
non-organic investments
Remaining a people and
values-based company
• Committed to our purpose ‘to solve what
matters for a moving world’ and our
ambition to be ‘a world class Kiwi company’
• Maintain high levels of employee
engagement and customer satisfaction
• Develop organisational capabilities and
individual talent for an uncertain future
Doing good in Aotearoa New Zealand
by recognising our heritage and being
committed to future generations
• Contribute to a sustainable future at a scale
that few other companies can by supporting
the transition to a lower carbon future
• Provide thought leadership where we
have a track record, especially in areas
like HSSE, Diversity and Inclusion, and
customer experience
• Actively support the communities in which
we operate on what really matters to them
Optimising our market-leading position
• Z’s unrivalled supply chain infrastructure
provides competitive advantage through
scale and reach
• Z is one of New Zealand’s most recognised
and trusted brands capable of extending to
adjacent markets
• Z’s scale provides options that allow us to
adapt and innovate in a market that will be
slowly disrupted by long-term trends
Pursuing a differentiated strategy that
generates long-term customer loyalty
• Focus on Z’s capabilities in customer experience,
productivity, innovation, digitisation and brand
• Deliver distinctive customer experiences that
drive loyalty
• Reduce time to market and lower investment
risk through human centred design, innovation
and experimentation
Delivering earnings growth
in a changing industry
• Continue to deliver moderate earnings
growth by operating a more efficient and
productive core business
• Invest in the core business with rigour; only
invest when discounted paybacks are less
than five years
• Experiment in three adjacencies for
alternative or replacement revenue streams
— future fuels, mobility and the ‘last mile’
MenuZ Energy Annual Report 2019Where we are right now The year that was
25
25
A few
twists and
turns
The year that was
How we saw our world this year
across the core parts of our business
MenuMenuZ Energy Annual Report 2019Z Energy Annual Report 2019 Working hard for our
commercial customers
Our strategy in Commercial is to combine
the best of our Caltex and Z heritages.
This means doing the hard work to keep
things simple for our customers and using
our scale to unlock value.
Currently, we serve more than 40,000 business
customers through 11 delivery channels to more
than 7,000 physical delivery points nationally.
In order to grow volume, we combine distinctive
assets and high levels of service across key
channels. This includes direct-to-ship refuelling
through our marine fuel barge in Auckland, our
market-leading bitumen offer and our national
Mini-Tanker fleet.
This year, commercial trading conditions were
affected by volatile crude prices. In a volatile
pricing environment, we worked hard to grow
volume across our diverse product and channel
portfolio. Overall for the year, we delivered a
material increase in the underlying profitability
of the commercial business and commercial
volumes increased by three percent.
Our aviation and marine businesses performed
well this year. Marine sales increased by 20
percent, with more cruise-ship customers using
the Awanuia fuel oil barge to refuel in port.
Our aviation refuelling business, which services
large commercial jet aircraft at Auckland
and Christchurch, continued to see growth,
albeit at a slower rate than in previous years.
We also increased our bitumen capacity by
39 percent using the new vessel MT Kokako,
which supported deliveries of increased
bitumen volumes this year.
The commercial diesel market continues
to be highly competitive. This year saw the
highest levels of customer change in many
years, in terms of both losses and wins. Our
volumes in this market grew by two percent
during the year, with growth concentrated in
our distributor and Mini-Tanker channels.
2626
Z
Caltex
+
= Value
MenuZ Energy Annual Report 2019The year that was Our commercial customers have told us they
want their lives to be simpler and ease of access
to our sites is important. We have an opportunity
to improve performance in this space by
maintaining competitive pricing while delivering
distinctive solutions to drive customer loyalty
in the long term.
Our immediate target is to unlock the Z and
Caltex truck stop and service station networks
for our business customers by combining them
into a single nationwide fuel card network. The
merging of Z Card and StarCard early in the
new financial year will mean our 40,000 business
customers and 300,000 cardholders can use a
single card across New Zealand’s largest single-
supplier fuel network. Over 25 percent of all
fuel sales through our Z service station network
take place on a fuel card. The new unified card
offer will help us to learn more about these
longstanding customers, what they need and
then recognise and reward them in ways that
reflect what they value.
In terms of our carbon footprint in this part
of the business, emissions from our offshore
refuelling ship the Awanuia fell by 19 percent
this year. We continue to explore alternative
fuels such as biojet, but viable products at
scale in this space are still some way off.
We made our first delivery of biodiesel to
Fonterra as well as five other public and
private truck stops. We are currently focused
on ramping up production and getting our
product into more truck stops in the Auckland,
Waikato and Bay of Plenty regions, with full
plant capacity expected to reach 20 million
litres. Replacing 20 million litres of ordinary
diesel with five percent biodiesel would
reduce New Zealand’s carbon footprint
by 37,000 tonnes each year.
2727
Commercial Net
Promoter Score +15
Business
customers
40,000
Growth in
commercial
fuels volume 2.3%
Growth in
aviation volume 3.5%
Growth in
bitumen volume 6.5%
The Commercial Net Promoter Score helps us to understand how likely someone is to recommend us to others.
MenuZ Energy Annual Report 2019The year that was Delivering new customer
experiences in Retail
Customer
satisfaction
Z Energy
28
Our strategy in Retail is to differentiate
our Caltex and Z brand positions,
segment the respective customer
bases, and grow rational (price based)
and emotional (brand based) loyalty.
In a highly competitive environment, we
will be relentlessly customer focused
and leverage our network strength to
maintain market share.
Our retail business had a lot to contend with
this year. Media interest in the fuels market
was significant. Customers became frustrated
with high and rising prices as well as new fuel
taxes. The competitive landscape intensified
as our competitors invested heavily in their
physical networks and targeted more price-
sensitive customers.
Retail margins recovered in the second half
after a poor start to the year; however, our
volume performance across all three networks
was below our expectations. Improving retail
volumes is a central focus for us. While our
competitors have been growing volume by
investing in sites, our strategy takes a longer-
term view and is all about leveraging our new
capabilities in brand, customer experience
and innovation to create new experiences for
our retail customers. This year we built the
foundations for these capabilities, with value
showing up from next year.
There are opportunities for us to position our
Z and Caltex brands to better meet customer
needs. We will pull aspects of the brands
together to take advantage of our scale. At the
same time, we will forge distinct value equations
that focus on Caltex providing local value
while Z is all about experiential service. For
Caltex, that means a quality service at the right
price in convenient locations. At Z, it’s about
a best-in-class convenience offer and superior
forecourt service. Both brands will continue to
be underpinned by a distinctive loyalty offer
and a solid network fit for the future.
Our store sales came under pressure this year;
however, our ongoing investment in high-quality
Z Espress food and drink offers resulted in
customers continuing to spend on these products.
We will continue to redefine our convenience
store offer to provide high-quality coffee and
fresh food in line with consumer demand. This
is all about driving habitual behaviour to keep
customers coming back to our sites. We have
two pilot stores trialling next-generation offers,
increasing to 10 stores next year, and options
to scale up after that.
%
90
88% FY18
Caltex
%
80
81% FY18
The customer satisfaction score shows how many of those
surveyed were very satisfied with their experience. This is part
of our commitment to listen and act on customer feedback
and directly informs the way we prioritise activity at Z.
MenuZ Energy Annual Report 2019The year that was We launched our Caltex mobile app in September.
Currently, we have more than 265,000 people
registered on the Z app and more than 117,000
registered on the Caltex app, with momentum
building across both. Our customers with apps are
more engaged, more likely to come to Z or Caltex
more often and more likely to spend a greater
amount than non-app customers. The app also
unlocks new experiences for our customers such
as mobile pre-order coffee and Fastlane.
We established an exclusive, nationwide fuel
partnership with Foodstuffs. Further work
is required to realise the full benefits of this
arrangement, however, it means customers
shopping at two of the most popular Kiwi
supermarket brands can now earn fuel discounts
and redeem them at any Z-branded service
station around the country. The partnership
also sees us supplying fuel to the country’s 53
New World- and PAK’nSAVE-branded fuel sites.
This is another means of differentiation in order
to maintain market share.
We launched Pumped, Z’s new proprietary
fuel discount programme that allows our Fly
Buys and Air New Zealand Airpoints customers
to receive fuel discounts as well as earn
rewards simply by scanning their card. This
shift gives us scope to engage with a broader
range of consumers, provides Z another point
of difference in the retail market and gives
our customers – both old and new – greater
choice over how to save and earn in a way
that’s important to them.
Our retail network was the frontline for many of
our successful sustainability initiatives this year.
• We worked with suppliers to reduce packaging
• We introduced energy-reduction performance
targets for service station operators and
updated our energy rating standards for chillers
and other equipment in service stations, to cut
our electricity consumption
• We introduced new recycling bins to
143 of our forecourts, boosting material
being recycled to around 24kg per week
for sites with forecourt recycling bins
• We banned the use of plastic bags at our
sites in June, stopping 2.5 million single-use
plastic bags per year from reaching landfill
• Our customers have been making greater
use of our EV charging stations with charges
up by 37 percent on last year.
Site staff within the Z network competed in
a nationwide ‘Z Waste Warriors’ competition,
diverting more than 343 tonnes — the equivalent
of more than three full Olympic swimming pools
— of waste away from landfill to recycling or
composting in three months. The competition
winner from Timaru, Chloe Witika, and her team
from Z Caroline Bay recycled 93 percent of their
waste over the course of the competition.
We increased our site security to keep
our frontline staff safer and to reduce the
opportunities for any direct contact in the event
of a robbery.
Many thanks to our Z and Caltex retailers
and their site teams who proved themselves
up for the challenges. It’s a tribute to them
and the huge goodwill they have built in their
communities that they continue to enjoy
record high customer satisfaction ratings.
29
People employed
across 201
Z service stations 2,000
Z Espress sites
with pre-order
coffee
117
Active users
of the Z app 82,700+
Active
users of the
Caltex app 53,600+
EV charges, a
37% increase
on the last year 12,000
MenuZ Energy Annual Report 2019The year that was Capturing the benefits
of scale in Supply
Our strategy in Supply is to leverage our scale
and geographic reach. We now have all we need
to deliver the most cost-effective and reliable
supply chain in the industry. By capturing the
benefits of scale and simplifying and optimising
what we source, we can produce the best mix
of products to meet our customer needs —
even more efficiently.
Performance in the first half was negatively
affected by the 15-yearly shutdown at Refining NZ.
This was much longer than anticipated due to a
number of complications. The flow-on effects of
the 24-day delay were material as all participants
worked hard to rebalance stock positions at the
time and in the months that followed. We actively
leveraged our product networks and reputation
when the industry needed it most. We went
above and beyond to source four of the six
additional cargoes required to ensure effective
fuel supply across New Zealand and ultimately
kept our customers moving through the extended
shutdown. The complexity of balancing our
physical position had financial implications
and continued to affect Supply performance
in stock position and coastal distribution.
This year we brought all our terminals in-house,
giving us the largest national network, with
storage capacity at all the major ports. Bringing
operations back into Z and incorporating them
with our aviation and biofuel capabilities added
new skills to Z, significantly lifted our operational
capability and delivered savings of $2 million.
Our refining and procurement optimisation
programme helps us to secure the right quality
crude at the right time and the right price.
This drove incremental earnings for Z this year,
and enabled improved processing efficiency at
the refinery.
We combined our road transport needs
under one partnership with Pacific Fuel Haul
Limited (PFH). This fleet, the largest of its
type in the country, simplifies our logistics
with one specialist partner and will allow us
to reduce our costs.
The PFH agreement targets an annual reduction
in fuel consumption of five percent in the short
term, and a reduction in CO2 emissions of 19
percent by 2024. In other parts of the business
we are already making headway to reduce our
carbon footprint.
3030
Barrels of crude
oil imported
18.5m
Barrels of
refined products
imported 9m
Optimised
capacity at
Marsden Point 75%
Fuel supplied
(retail and
commercial) 4,172m
MenuZ Energy Annual Report 2019The year that was Our resilient supply chain
Supply
Imported crude oil and fuel
Refinery
Terminals
3131
Te Kora Hou
biodiesel pant
Z’s supply chain
provides a distinctive
competitive advantage.
With the assets,
relationships, knowledge
and increased scale
from the combined
Z and Caltex businesses,
Z is well placed to
compete successfully
in a changing world.
For more information, see
What makes us Z on page 50
stic business
e
m
o
D
Distribution
In
t
e
r
n
a
t
i
o
n
a
l
b
u
s
i
n
e
s
s
Commercial
Z stations
Retail
Value busin e s s e s
Caltex sta t i o n s
MenuZ Energy Annual Report 2019The year that was
Imported crude and
refined products
Z does not explore or drill for
oil, so we need to purchase it
on the international market. In
FY19 Z imported over 18.5 million
barrels of crude oil (net, including
condensate from New Plymouth,
including adjustments with Mobil
as refinery optimisation partner)
and just over nine million barrels
of refined products.
Refinery
All crude oil imported into
New Zealand is refined by
Refining NZ — New Zealand’s only
oil refinery. Crude is refined into
petrol, diesel, jet fuel, fuel oil and
bitumen. Z uses nearly half of the
capacity of the Marsden Point
refinery and optimises around 75
percent of overall capacity through
its collaboration agreement with
Mobil. Z has a 15 percent
shareholding in the refinery.
Supplying our customers
From the terminal storage facilities,
refined product is distributed
in smaller amounts across
New Zealand by road tankers,
pipelines and marine barges to
retail service stations, truck stops
and commercial customers.
Commercial markets
Z provides around 2,568 million
litres of fuel to commercial
customers: jet fuel to airlines;
marine fuel oil to shipping, fishing
and cruise-ship customers; bitumen
to the road-building industry; and
diesel for trucks and tractors. Z has
the strongest truck stop network in
the country with 155 Z and Caltex
truck stops.
Retail service stations
Z provides around 1,604 million
litres of fuel to retail customers
through 343 retail service stations
in its network: 203 Z-branded sites
and 140 Caltex stations.
3232
Average sailing time for
crude cargo from the
Middle East — roughly
70 percent of our crude 30 days
Average sailing time for
crude and product cargo
from the Far East —
roughly 30 percent of our
crude and the vast majority
of finished product
20 days
Shipments via lower-
emission ships
41%
MenuZ Energy Annual Report 2019The year that was The year that was
33
Our aspirations in these areas
can have the greatest impact
on the following 10 United Nations
Sustainable Development Goals:
Our
stands
What we stand for matters, and we stand
for changing the game in New Zealand in:
HSSE
Environmental Sustainability
Includes our Climate Change Statement
Community
Diversity and Inclusion
Our stands are the lenses we look through to make decisions.
As such, they underpin our business and our aspirations.
They ensure we devote energy and thought leadership to
priorities that align with what we stand for.
MenuZ Energy Annual Report 2019 Health, Safety,
Security and the
Environment
HSSE matters because
it is about the safety and
wellbeing of our people
and planet, while sustaining
the long-term future of
our company.
Successfully managing changes in our
supply chain without a major incident
was a significant achievement.
We now have a common terminal network
and a single logistics provider, and we are
manufacturing biodiesel at Te Kora Hou in
South Auckland. Further work will be needed
to reduce operational risks; however, we have
established a solid base and built core capability.
34
100%
Motor vehicle incidents
FY18: 2
1
0%
Zero
Number of spills
(loss of containment)
FY18: Zero
114%
1.84
Total recordable
case frequency
FY18: 0.86
Z employees: FY19: 0.49 FY18: 0.26
Retailers and Mini-Tankers franchisees: FY19: 2.19 FY18: 1.00
4%
58
Executive safety ‘walk and talks’
FY18: 56
100%
Zero
Tier 1 and Tier 2 process
safety incidents
FY18: 1
122%
1.44
Lost time injury frequency
FY18: 0.65
Z employees: FY19 0.24 FY18 0.26
Retailers and Mini-Tankers franchisees: FY19 1.75 FY18 0.75
MenuZ Energy Annual Report 2019The year that was
35
64%14 Robberies
FY18: 23
Z’s Operational Risk
Management System (ZORM)
creates a framework for our
people to manage operational
risks effectively and keeps
our teams safer as they go
about our business.
We became one of the first
companies in the world to be
successfully certified to ISO 45001.
This standard is now the globally
accepted standard for health
and safety management, and we
successfully concluded our first
periodic audit in March 2019 to
maintain the certification.
During the year we further
increased the profile of ZORM
with line management as these
people are risk owners.
Our focus in the year ahead is to
digitise the system and make it
more predictive. This will assist us
to build a more generative culture
with individuals taking ownership
of showing leadership in HSSE.
In recent years we’ve made
important investments in our
Z retail sites and the training
we provide for our site teams
to keep them safer in the event
of robberies.
These measures have included
safe rooms to physically separate
staff from intruders, along with
improved CCTV, fog cannons,
reinforced glass, alarms, bollards
and tobacco units (dispensing
safes) at key sites. These efforts
are working. Robbery events have
reduced to almost half those in
previous years and, in the robbery
events this year, site staff were able
to get to safe areas and did not
suffer physical harm.
We have not lost sight of the
psychological impact that dramatic
events such as robberies can have.
This year we also boosted our post
incident assistance programmes
to support our people to recover
from dramatic events.
MenuZ Energy Annual Report 2019The year that was
We reduced the risk of a road
transport incident in our Mini-
Tankers business by focusing on
reducing fatigue and distraction,
and continuing to limit speed
across the fleet.
In-cab fatigue and distraction
monitoring cameras installed in all
our Mini-Tanker vehicles empower
our drivers and Mini-Tanker
franchisees (known as Zees) with
real-time information about fitness
to drive. The camera system is
also an important control against
mobile phone use when driving and
we now have quality data on this
for the first time. Although this has
resulted in an increase in recorded
‘Life Saver breaches’ within the year,
we are confident that the resulting
data-driven safety conversations
have already led to a significant
reduction in this unsafe activity,
compared to a previously unknown
‘pre-camera’ baseline.
Over the past 18 months we have
continued to reduce overspeed events
and have reduced average monthly
speed events by over 90 percent since
we began monitoring these events in
2016. This is an example of our HSSE
strategy in action — combining robust
safety systems with strong safety
leadership. However, there was a
significant loss of control event within
the Mini-Tankers fleet, which shows
there is further work to be done.
As well as continuing to reduce on road
transport risk, next year we will focus on
site risk and wellness as key enablers of
our commitment to zero harm.
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
3636
Monthly average speed events per 100km summary
FY19
FY18
r
p
A
y
a
M
e
n
u
J
l
y
u
J
g
u
A
p
e
S
t
c
O
v
o
N
c
e
D
n
a
J
b
e
F
r
a
M
618%
474
Lost work days
FY18: 66
123%
29
Lost-time injuries (LTIs)
FY18: 13
153%
38 Life Saver breaches
FY18: 15
Z employees: FY19: 0 FY18: 4
Retailers and Mini-Tankers franchisees: FY19: 474 FY18: 62
Z employees: FY19: 1 FY18: 1
Retailers and Mini-Tankers franchisees: FY19: 28 FY18: 12
118%
37
Total recordable cases
FY18: 17
1%
4.02
Exposure hours (millions)
FY18: 3.97
Z employees: FY19: 2 FY18: 1
Retailers and Mini-Tankers franchisees: FY19: 35 FY18: 16
Z employees: FY19: 0.82 FY18: 0.78
Retailers and Mini-Tankers franchisees: FY19: 3.20 FY18: 3.19
MenuZ Energy Annual Report 2019The year that was Environmental
Sustainability
Our Climate Change Statement
Our Environmental Sustainability
stand commits us to three
outcomes with targets to achieve
by 2020. We are making good
progress against many of the
targets, although some are
proving more challenging than
others. A summary is set out at
right. Full details on our targets
are available at z.co.nz.
Key
We are on track and doing well
We’ve made some good progress, but we need to do more
We are not on track and need to do more
3737
Outcome
Actions
Status
Use less and waste less in our operations
Reduce carbon
emissions
Reduce waste
to landfill
Reduce electricity use
Operational and New Zealand supply chain emissions decreased due to
lower emissions in Supply, for example in coastal shipping and ground
freight of fuel to our sites. We voluntarily offset 58,000tCO2e this year to
cover our operational emissions, including those from corporate travel,
retail electricity, coastal shipping and hauliers.
We measure and manage our waste. As a proportion of waste,
landfill volumes increased this year.
Electricity consumption is measured across our offices and retail
network. This year electricity consumption decreased at our retail sites.
Making purchasing decisions that support sustainability
Supply chain
Customers reduce
fossil fuel use
Lower-carbon
products
and services
Our supplier Code of Conduct is being used for procurement
decisions and contracts for major suppliers, including for ground
fleet distribution of fuel and refined imported products.
Our minimum energy standard for shipping was implemented,
increasing the use of the most energy efficient ships.
Biodiesel production is underway (500,000+ litres B100 in FY19)
and we are focusing on ramping up production and rolling out
delivery to our customers.
Our investment in climate-positive car sharing company Mevo is
consistent with a pathway to the future of mobility we foresee.
The Mevo team have established a strong presence in the Wellington
market and are well positioned to grow the unique free-floating
car sharing product with both consumers and businesses, with its
registered members up by more than 340% and monthly trips up by
more than 270%.
MenuZ Energy Annual Report 2019The year that was
We stand for an
environmentally sustainable
New Zealand that is an
example to the rest of the
world and an inspiration
to Kiwis. Z will move from
being a part of the climate
change problem to the
heart of the solution.
We will be bold and provide
leadership and a range of
solutions to enable our
customers, stakeholders
and communities to join us
on the journey to a lower
carbon future.
Key
We are on track and doing well
We’ve made some good progress, but we need to do more
We are not on track and need to do more
3838
Outcome
Actions
Status
Enable others to reduce their impact
Customers experience
emerging transport
technologies
Carbon offsets
Partnerships
for low-emission
economy
Local permanent
forest providers
Policy
A social media campaign allowed customers to try EVs in Wellington.
The Z network contains eight EV charging sites, providing around
12,000 charges in the past year. Our Z Vivian Street site is one
of the most used EV charging points in New Zealand.
We are actively looking at ways to enable customers to purchase
carbon offsets online and we continue to look actively at
ways to make this service available to all customers.
We continued to develop our association with Trees That Count.
In this year’s season, Z supported 30 planters establishing more than
20,000 trees. Z also joined forces with Air New Zealand, Contact
Energy and Genesis Energy to form Dryland Carbon to accelerate
afforestation and planting in New Zealand for carbon sequestration.
See the next page for more details on Dryland Carbon.
We are the largest single purchaser of voluntary carbon credits in
New Zealand, partnering with Permanent Forests NZ. At an average
cost of around $25 per tonne, this comes to an annual cost of about
$1.5 million per year. The credits are created through the protection
and covenanting of domestic forestry projects — these are a mixture
of exotics (blackwoods, eucalypts and pine) and native trees (mānuka,
kānuka and tōtara).
We were a founder and convener of the Climate Leaders Coalition, a
collaboration of major businesses in New Zealand with 86 signatories
representing over 50 percent of this country’s emissions. The coalition
was described as “globally significant” by Chris Stark, CEO, United
Kingdom Committee on Climate Change. No other country has
managed to do this. The initiative is in alignment with the thinking of
global investors like BlackRock and is a key part of using our leadership
position and those of others to influence New Zealand business overall.
MenuZ Energy Annual Report 2019The year that was
Measuring our emissions
We have been measuring our emissions since
2012, but reset our base year to FY17 following
the acquisition of Caltex. We follow the principles
of the Greenhouse Gas Protocol to measure our
greenhouse gas emissions. We measure direct
emissions, such as those from the vehicles
we own, and indirect emissions, such as the
electricity we consume, travel and waste, our
Z retail sites and Caltex operations. We include
emissions across the entire supply chain and
from the products we sell. Emissions from Flick
are not included. Information on the greenhouse
gas emissions profile of Flick is available
at FlickElectric.co.nz.
While Z continues to focus on lowering
operational emissions we are also committed to
reducing indirect emissions from our customers
through greater production of biodiesel and
supporting the growth of EV use in New Zealand.
Greenhouse gas emissions
Scope 1 — Z offices and retail sites
Scope 2 — Z offices and retail sites
Scope 3 — Z offices and retail sites
Scope 3 — New Zealand supply chain
Scope 3 — Share of refinery
Scope 3 — Rest of supply
Scope 3 — Z product emissions from our customers
Total emissions
3939
FY19
3,837
4,195
4,495
37,910
555,892
902,215
Calendar
year 2017
(base year)
3,907
4,045
3,339
40,031
634,848
807,542
11,640,509
9,488,277
13,149,051
10,981,989
We also have a liability under Liquid Fossil
Fuels in the New Zealand Emissions Trading
Scheme (ETS). We surrendered five million
units for obligations in the 2018 calendar year.
See note 13 in the financial statements.
Z invested in a long-term carbon farming and
afforestation partnership to produce a stable
supply of forestry-generated New Zealand Unit
(NZU) carbon credits to help Z meet a portion of
its ETS surrender obligation. Z will participate as
a limited partner, contributing capital in an initial
five-year period (subject to certain pre-agreed
investment criteria/hurdles being meet), but we
will not be involved in the day-to-day operations
of Dryland Carbon.
MenuZ Energy Annual Report 2019The year that was
Climate change risks
Forecasting future demand for fossil fuels
becomes more complex when considering
technology developments that may
emerge over time. We use the BusinessNZ
Energy Council scenarios as outlined on
page 46 of this report.
As a company selling around 45 percent of
New Zealand’s total transport fuel; or put
another way, primarily through the products
we sell, nine percent of New Zealand’s
total emissions, Z is at risk from both the
transition to a low-carbon economy and the
physical impacts of climate change. However,
as a downstream energy company, with no
exposure to upstream drilling and extraction
operations, we are well-placed to manage
the change to a low-carbon economy.
There are also valuable opportunities to
transition the company from fossil fuels to
a low-carbon future and to do it in a way
that’s good for all our stakeholders.
We’ve been more deliberate in linking our overall
risk profile to our direct and indirect exposure
to climate change risks. With climate change
being one of the material issues we focus on,
we are working on the impact of, and adaptation
to, climate change risks for Z. Our Sustainability
team recently merged with the Strategy and
Risk team in order to respond to these risks
more deliberately.
Close to half the material topics we’ve reported
on this year relate to management of our climate
change risks. These topics are: Flick purchase,
renewable energy, VUCA future, responsible
consumption and production, climate action,
increased regulation, supply chain resilience,
ethical procurement and brand value. These
topics are interrelated.
Waste measures
6%
2,523 tonnes
Recycling — cardboard and paper
FY18: 2,681 tonnes
18%
385 tonnes
Composting and organics
FY18: 471 tonnes
27%
912 tonnes
Recycling — plastics, cans and glass
FY18: 1,250 tonnes
18%
2,523 tonnes
Waste to landfill
FY18: 2,142 tonnes
4040
We manage risks associated with these topics
to reduce the negative impacts on our capitals
(our assets, our finances, our capability, our
people and culture, our environment, and our
place in New Zealand).
3%
6,343 tonnes
Total waste
FY18: 6,554 tonnes
These waste figures are estimated based
on actual volumes from 70% of retail sites.
MenuZ Energy Annual Report 2019The year that was 41
High schools
sponsored to empower
young Kiwis to better
understand themselves
and become job ready 5
Good in the Hood 550
Community groups
supported through
Community
At Z, we stand for a
resilient and healthy
Aotearoa New Zealand
that empowers our
youth, neighbourhoods
and Z whānau.
What this stand looks like in action
is focused in two areas: doing good
in our hoods, and powering up the
future generation.
Good in the Hood continues
to be loved by Kiwis and
community groups. This year,
around 550 community groups
received a share of the $1 million
in funding given away during the
Good in the Hood voting month
in May. Since 2012, more than
$6 million of Good in the Hood
funding has gone to community
groups and projects helping the
country’s neighbourhoods to
thrive. In addition to the $1 million,
this year we ran a fuel discount
day, with 6 cents per litre sold
on a day in May being donated
to the community groups in
that region. This day raised an
additional $190,000 funding
for groups.
We enlisted the Ākina Foundation
to do an assessment and report on
the actual social impact delivered
by the programme; this is due to
be completed in late May 2019.
This year we also completed a pilot
programme designed to lift the
potential of young people by giving
them the right tools to make informed
career choices with confidence. We
provided Mana College with the
funding required to implement Minded,
an edu-tech online platform that helps
young people better understand who
they are and the careers that might
suit them. Since witnessing first-hand
the inspiration and empowerment
experienced by the young people
using it, we’ve agreed to provide the
funding for Minded to a further six
low-decile schools across the country.
We ran two prototyping workshops,
tested our draft hypotheses and
protype with more than 400 young
people, and enlisted the help and
advice of dozens of educators and
sector experts across New Zealand.
Our innovation team is also running
a human-centred design process
to ensure these measures result in
tangible outcomes for young people
from disadvantaged backgrounds.
MenuZ Energy Annual Report 2019The year that was
Diversity
and Inclusion
We will lead the way in
developing an inclusive
Kiwi company that has our
people being successful
being themselves.
We are passionate about building an inclusive
business where our people are free to be
successful being themselves. We believe that our
business benefits from a diversity of perspectives.
That’s why we have built diversity and inclusion
into a number of our ways of working at Z, and
we continue to grow in this space.
In light of the tragic events in Christchurch
on 15 March 2019, we will be focusing more
intently on enabling a Z that reflects the
diversity of New Zealand at all levels, and
supports and empowers all of our Z whānau,
no matter where they come from. As part of
this, we will be taking measures to ensure
our site staff feel fully equipped to deal
with racial verbal abuse at any Z sites.
42
Engagement
Our retail network engagement score was 71
percent for the second year in a row.
We believe high employee engagement drives high
customer engagement so we now have the same
scoring system for both. In February 2019 our
Employee Net Promoter Score was +17. This places
us within the top quartile globally for all organisations
that use Peakon, our new provider for measuring
engagement.
Supporting
Te Ao Māori
We continued our commitment to Te Ao Māori
with te reo accreditation for site staff, integrating
respective practices into our onboarding,
Māori language classes and using te reo on
signage inside our corporate offices.
MenuZ Energy Annual Report 2019The year that was 43
2%1.36%
Absenteeism rate
FY18: 1.33%
Reflecting
New Zealand’s diversity
Gender balance
improves
We were proud to partner with TupuToa this
year — introducing its guided internship at Z, with
a three-year commitment to creating pathways
for Māori and Pasifika students into careers
in the corporate and professional sectors. Like
TupuToa, we aspire for our nation to have a nimble,
strengths-based economy that meets the needs
of culturally and ethnically diverse markets, both
here and overseas.
This year our gender balance went from
40 percent female to 39 percent female due
to the large intake of male staff following
the consolidation of our terminals business.
We still have a target of 50/50 gender at all
levels by 2020. We are also now close to pay
parity across the business, having reduced
the gap from 12 percent two years ago to
two percent now.
Rainbow Tick
Reverse mentoring
Z Energy is proud to be the only fuel retailer
in New Zealand to have attained Rainbow Tick
certification, signalling publicly that Z is an
employer that values, embraces and provides a
safe working environment for current and future
staff who identify as members of the Rainbow
Community. Support has ranged from increased
internal communication and training workshops
to external events such as supporting the
Wellington Pride Festival and our CEO being
a judge and panellist speaker at the inaugural
2019 New Zealand Rainbow Excellence Awards.
We introduced reverse mentoring, where
employees with more than 10 years’ experience
are paired with and mentored by newer
employees. We have found this helps both
groups to discover new perspectives.
Parental leave
We further enhanced our parental leave policies
to ensure that returning parents were not
disadvantaged if they took annual leave within
12 months of returning to work. We are also
starting to see some of our fathers taking paid
parental leave.
MenuZ Energy Annual Report 2019The year that was If Z were a village
of 100 people
1
67
Tertiary education
(diploma or above)
59
In Wellington
17
In other spots
24
In Auckland
35
Millennials
35
Gen X
1
Gen Z
11
Xennials
52
Have
dependants
44
18
Baby boomers
1
Disability
MenuZ Energy Annual Report 2019The year that was21613923661412MenWomenNZ EuropeanAsian (including Indian and Pakistani)EuropeanOtherMāoriMiddle Eastern Latin American AfricanPacific Islander 45
Up
ahead
The future we
see for ourselves
The capabilities we’re growing
to be the Z of the future
MenuZ Energy Annual Report 2019The future we see for ourselves The
next
20
years
To prepare for the future,
Z operates across two
timeframes. We think about
the short-term dynamics
that affect us today and
the long-term risks and
opportunities as we can
identify them.
In the short term, oil price volatility, signals
of potential regulatory review, changes in
customer behaviour and a highly competitive
landscape will continue to challenge how we
do business. That’s why our focus through to
the next decade is on continuing to build a more
productive core business and maximising the
benefits of Z’s scale and reach.
We also need to ensure the business is set
up to be successful for the future. We believe
demand for fossil fuels is likely to change, but at
the same time we don’t have a crystal ball; so we
use scenarios to support our decision-making in
the face of uncertainty. The BusinessNZ Energy
Council has developed two plausible scenarios
for energy supply and demand extending out
to 2050. We use these to test our existing
strategies, make sense of current trends and
feed into our foresight programme. Under both
scenarios, by 2030 total fossil fuel demand will
not be materially different from that of today,
but the product mix will have changed.
We believe the future disruption in fossil fuels
is being signalled with sufficient time for us to
react. In preparation for this disruption, we have
identified three future market spaces where Z is
well placed to explore options for future growth.
4646
2040
2030
2020
MenuThe future we see for ourselvesZ Energy Annual Report 2019 4747
The ability to get
to market quickly with
products that meet
real needs will be a
distinctive advantage
for Z and one that will
enable us to improve
customer loyalty
and retention.
These are areas in which we will continue to
engage in modest experimentation in order
to learn more about adjacent markets and to
inform market and product development.
The three market spaces we have identified are:
• future fuels: we anticipate and support
continued growth in the adoption of low-
to zero-carbon fuels as climate change
drives a lower-carbon economy. Along with
EVs, these include fuel options such as
biodiesel, hydrogen and biojet
• mobility as a service: we believe the
application of new technology to the
automotive sector will result in new services
changing the way people move and send and
receive goods and services. This should see
continued growth in on-demand mobility
such as car sharing and, ultimately, it will
mean the adoption of autonomous vehicles
• ‘last mile’: opportunities will continue
to arise to leverage our retail network to
deliver new goods and services.
What we do have is greater certainty about are
the capabilities that will help us to be successful
in the short term as well as the long term. That is,
leveraging our excellent nationwide network with
ruthless capital efficiency; building our innovation,
customer experience and digital capabilities;
and using experiments to generate new options.
These are activities that will create value within
the existing business but also enable us to
participate in different market spaces in future.
Short-term gains
Our investment in innovation is already
proving its worth. For example, we’ve learnt
that customers using Fastlane buy more fuel
compared to other ways of fuelling, and this
product is attracting new customers we’ve
never seen at our Z stations. So far we’ve
restricted the application of this product to
forecourt pumps, but the idea could easily
be applied to carwashes and, when combined
with the new card we’re developing for
commercial customers, it could be a game-
changer for our relationship with businesses.
Similarly, the roll-out of our pre-order mobile
coffee service to 117 sites means customers
can save time by paying in advance. Innovations
like this are all about responding to changing
customer needs and unlocking new customer
experiences.
The ability to get to market quickly with
products that meet real needs will be a
distinctive advantage for Z and one that will
enable us to improve customer loyalty and
retention. We now realise the importance of
being able to scale these opportunities quickly.
Our Business Accelerator Team, established
this year, has started challenging how we work
day to day as part of an internal ambition to
do things one-third faster.
Informed experiences
We established a Customer Experience Council
specifically focused on lifting our organisational
capability in customer experience and data.
Already we are gaining powerful insights into
our customers, finding new ways to solve their
problems and making their journeys easier.
With a data-driven understanding of customer
preferences, we will be able to create significant
opportunities to address those preferences.
For example, through Fastlane we have learnt
that the right technology at the pump can
change the rewards and experiences that
customers seek. Some people will always
prefer financial savings, but for others the
ability to save time may be more attractive.
It’s all about maximising the insights we have
into more than 1.5 million customers through
our loyalty partners (and increasingly through
our digital interactions), and delivering delightful,
personalised experiences that are win-win for
New Zealanders and for our business.
The market has become increasingly driven
by customers seeking discounts and we see
an opportunity to change this behaviour. By
tailoring rewards to the individual customer
based on their preferences, we can reward
their loyalty with offers they value more
highly than a discounted price.
MenuThe future we see for ourselvesZ Energy Annual Report 2019 4848
Building a digital
business starts with
changing the culture
by equipping our
people to become
digital leaders.
Moving to digital
We have an ambition to become a digitised
company because we believe it will enable us to
become more efficient and offer our customers
something distinctive. This year was all about
laying the foundations; we established new
partnerships, appointed a Chief Digital Officer
and set up a dedicated digital business unit.
Building a digital business starts with
changing the culture by equipping our people
to become digital leaders. Microsoft, one of
our newly established partners, has already
enabled our people to work faster and more
effectively with the roll-out of Office 365.
The implications of digitisation will be far-
reaching for Z. In Retail, this includes enabling
our customers to communicate and interact
with us using a wider range of options, including
new types of transactions via our mobile apps.
In Commercial, it’s about simplifying and
automating to make our services quicker and
easier to use. The use of artificial intelligence
technologies will also improve our ability to
predict and fulfil all our customers’ needs, while
reducing inefficiencies in our supply systems.
As we digitise the business, security and
privacy are increasingly critical. The more that
customers trust us with their data, the more
important it is that we manage and store it
appropriately. Regulators also want a detailed
understanding of what we know and how
we will use that information appropriately.
Following a data breach in the Z Card Online
system reported last year we made a number
of improvements: we appointed a Managed
Security Service Provider; we ensured continued
vigilance around our own and our customers’
digital assets; and we retained the services of
a specialist security organisation to help us
proactively identify security risks in our systems
so they can be mitigated in a timely manner.
MenuThe future we see for ourselvesZ Energy Annual Report 2019 4949
Investment in future
growth opportunities
Flick and our future
Our decision to invest in, and partner with,
Flick enables Z to access the digital capabilities
of Flick, and Flick the national scale of Z.
It’s also a unique opportunity for us to build
knowledge and learn about this adjacent
energy sector as we prepare for the future.
In the long term there is an opportunity for
Flick and Z to lead the way by being relentlessly
customer focused as this adjacent market
goes through its own transformation. Together,
we will be well placed to develop new products
and services that help customers to consume
energy differently, and minimise energy
consumption, in a digitally enabled way.
Mevo — changing how people move
Z first invested in Mevo, a Wellington-based
car sharing company, in May 2017. The Mevo
team have established a strong presence in
the Wellington market and are well positioned
to grow the unique free-floating car sharing
product with both consumers and businesses.
Given how attractive this mobility solution has
proven, Mevo now has options to expand to
new products and geographies.
Already, Z’s involvement with Mevo has allowed
us to understand more about the potential role
of shared mobility in New Zealand’s future.
MenuThe future we see for ourselvesZ Energy Annual Report 2019 What makes us Z
50
Clear
direction
What makes us Z
A little more about the things
that make us who we are
MenuZ Energy Annual Report 2019 Why
all
the
way
5151
We’re a New Zealand
company supplying
fuel to Kiwis up and
down the country. We
have two brands: Z and
Caltex. Our customers
include ordinary Kiwis as
well as large commercial
customers like airlines,
trucking companies,
shipping companies
and vehicle operators.
We also provide roading
contractors with bitumen
for New Zealand’s roads.
While we are insistent on sustainability, we
also acknowledge that we live and compete
in a world where oil is the transport fuel of
choice at the moment. No other energy source
has yet combined the availability, storability
and energy density of oil, and no other
company competes as comprehensively in
the New Zealand downstream fuels market as
Z does. Horizontally, we cover more grades, more
locations, more channels and more customer
segments than any of our competitors.
Our ambition is, and has always been, to be
a world-class Kiwi company. That’s about
delivering superior returns, being distinctively
and competitively advantaged and exploring
adjacent products and services as options
for the future. It’s also about being a thought
leader and using our voice to set the agenda
for progress and innovation, owning iconic
brands and being a place for personal
growth for our people.
Z has always been a distinctive company.
We want Z to represent what New Zealanders
can achieve when they put their minds to the
things that matter in a moving world. Our people
are different, the way we do stuff is different
and what we aspire to is different. Where
others see an industry whose participants look
pretty much the same, we see ourselves as a
locally focused solutions business that uses its
scale, experience and capabilities to compete
meaningfully in a dynamic and rapidly changing
industry with huge challenges, opportunities
and responsibilities.
We talk about the ‘Z Why’ as our philosophy
because, as we like to say, we’re a Why company
not a Way company. At our core we are values
based. Our values are: Share everything; Have
the passion; Back our people; Be straight up;
and Be bold. ‘Why we do things around here’
lies at the very heart of our identity, meaning,
values and beliefs, individually and collectively.
We focus on what matters, and because of that
stakeholders can have confidence that our
Board and management are having the right
conversations and working together to build
a potent culture where people feel engaged
and motivated to perform.
MenuZ Energy Annual Report 2019What makes us Z Z is for New Zealand
52
NZX/ASX
Publicly listed on
both stock exchanges
203 Z service stations
25% Stake in Loyalty
New Zealand
10,000+ Shareholders
140 Caltex service stations
2 Investments
in adjacencies
Flick and Mevo
4,370 Unique bondholders
11 Z terminals and five joint
venture terminals in nine ports
3 Loyalty schemes: Fly Buys,
Air New Zealand Airpoints
and AA Smartfuel
44% of New Zealand’s
total transport fuel
50% Stake in Coastal Oil
Logistics Limited
1 Discount fuel
partnership
via Foodstuffs
155 Truck stops
15% Stake in Refining NZ
MenuZ Energy Annual Report 2019What makes us Z Our Board
53
1
2
3
4
5
6
7
MenuZ Energy Annual Report 2019What makes us Z Our Board
Our Board combines proven
experience in governance with
the diversity of perspectives
that comes with appointing people
from a range of backgrounds.
1 Mark Cross
joined 28 August 2015
2 Peter Griffiths
joined 2 April 2010, leaves 2 May 2019
3 Abby Foote
joined 15 May 2013
4 Blair O’Keeffe
joined 1 August 2018
5 Steve Reindler
joined 1 May 2017
6 Julia Raue
joined 15 February 2016
7 Alan Dunn
joined 2 April 2010
Read more about Z’s Directors on our Investor Centre
5454
Heavy industry
business
(or similar)
including
engineering,
safety
Operating model
transformation —
balancing legacy
and growth
Directors’ skill matrix at 31 March 2019
Collective skills to take us forward
Z’s Board focuses on context, strategy, risk and assurance.
This year the Board continued to strengthen the links
between capital allocation (including the dividend policy
and deleveraging), the enterprise risk framework and
core strategy.
Ideal skill level
Current skill level
Sustainability
and clean energy
Strategic knowledge
for scale oil
Digitisation —
back office and
field for efficiency
and customer
experience
Finance and
capital markets
Listed
company
governance,
including regulation
Retail,
customer
insight, data
and brand
MenuZ Energy Annual Report 2019What makes us Z 5555
The Board
continues to evolve its
approach to reflect our
commitment to world-
class governance that
is responsive to the
increasingly dynamic
environment we are
operating in, while
continuing to provide
support and challenge
to the executive team.
Abby Foote
Director/Incoming Chair
2 May 2019, Z Energy
Key activities for our Board
Last year we reported on our compliance
with the New Zealand Stock Exchange (NZX)
Corporate Governance Code in a separate
statement and focused the annual report on
what the Board had been in action on during the
year. We received positive stakeholder feedback
and are continuing with the same approach this
year. Our Corporate Governance Statement is
posted on our Investor Centre website at z.co.nz,
together with our core corporate governance
documentation. We have renovated our Investor
Centre since last year in line with best practice,
including commentary on the NZX Corporate
Governance Guide, to improve access to open
and transparent information about Z.
Inside the boardroom
This year the Board tested and affirmed Z’s
strategy given changing market conditions,
noting that Z’s strategy is deliberately
differentiated from those of its competitors.
During the year the Board focused on
performance, core business and strategy,
including capabilities, as well as maintaining
last year’s focus on climate change both
globally and locally, including the establishment
of the Interim Climate Change Committee
and regulatory settings such as zero carbon
legislation and potential ETS frameworks.
The Board continued to monitor Z’s preparation
and organisational maturity for managing risk,
including learning from issues arising during
the year. The Board approved a refreshed view
on how Z thinks about and manages risk across
the company in order to provide a framework
for Z’s leaders to take the right levels of the right
risks. During the year the Board also participated
in structured learning, in particular on psycho-
social risk.
The Board worked with the Z team to ensure
the capability of the new internal terminals
team and to obtain assurance around the
management of the increase in major hazard
risks, following the successful project to bring
all Z terminal management in-house. The Board
also worked on understanding capability for
the convenience retail sector.
The Board discussed Board and executive team
succession planning. The Board also discussed
talent management, including the adoption of
the same engagement approach to measure
employee engagement as that currently used
to measure customer engagement, so the goal
of high employee engagement underpinning
high customer engagement can be measured,
tracked and worked on in a more deliberate
and joined-up manner.
MenuZ Energy Annual Report 2019What makes us Z 5656
A relentless
focus on our core
business is the
best thing we can
do to prepare for
a range of future
scenarios.
Outside the boardroom
The Board’s learning programme this year
included a deep dive into the future of the
industry, travelling to a range of markets to
investigate: advanced regulatory settings
focused on the future; new entrants to the
industry in core and adjacent businesses;
and consumers and their future needs.
The Board met with the Ministry of Transport
in Singapore to discuss autonomous vehicle (AV)
development and to walk through an AV testing
facility. In Germany, the Board met with BMW to
discuss mobility trends and visited a hydrogen
refuelling station. In Norway, the Board met with
Couche-Tard, a fuel business working in a market
with high EV penetration rates. The Board also
discussed retail developments in new energy
spaces with industry participants in London.
Following the trip, the Board formed the view
that the New Zealand response to changing
future fuel demand is likely to be unique, that
material decline is a medium- rather than short-
term risk, and importantly, that a relentless focus
on our core business is the best thing we can do
to prepare for a range of future scenarios.
Based on learnings from the trip, the Board
worked with Z’s executive team to ensure
a focus on: running the core business on a
best-in-class cost basis; operational excellence;
and leveraging the Flick shareholding for
joint product roadmaps. The Board asked
the executive team to investigate strategic
options for meeting the changing needs of
EV customers and to continue with clear and
transparent stakeholder communications.
The Board also approved the purchase of
Flick in August 2018, consistent with Z’s
‘What is next?’ strategy to make scalable
investments in adjacent sectors.
The Board was a sponsor of and participated
in the ‘Diverse Thinking Capability Audit of
New Zealand Board Rooms 2018’ conducted
by the Superdiversity Institute for Law, Policy
and Business. The Board participated in
Diversity and Inclusion Training with Rainbow
Tick. Rainbow Tick noted they normally
worked at executive level and it was a positive
development to be invited to engage directly
with a board. The Board also engaged in
Cultural Intelligence training.
Structured stakeholder engagement
also included:
• meeting political advisors to discuss
the (then) new Coalition Government
• meeting a niche investor in start-up
businesses to discuss the optimal
relationship settings for corporate
investors and start-ups
• meeting a member of the Interim
Climate Change Committee
• meeting shareholders to discuss
their views of Z’s performance,
strategy and risk
• training on Safety 2 leadership.
While the Board maintains a clear distinction
between matters of governance and matters
of management, exceptions are made where
the Board can add specific value, such
as working with management on issues,
participating in retail forums across the Z
and Caltex networks, taking safety walk and
talks across Z’s terminal networks, visiting
major suppliers’ premises, and providing
executive mentoring on specific issues.
MenuZ Energy Annual Report 2019What makes us Z Our executive team
Read more about Z’s executive
team on our Investor Centre
Our executive team combines strong industry experience
with the new skills and capabilities we need to move
forward under a capability-led strategy.
Mike Bennetts
Chief Executive Officer
Joined 1 April 2010
Debra Blackett
General Counsel and
Chief Governance Officer
Joined 2 June 2015
David Binnie
General Manager, Supply
Joined 8 September 2014
Nicolas Williams
General Manager,
Commercial
Joined 7 June 2011
5757
Lindis Jones
General Manager, Corporate
(until 31 March 2019)
Chief Financial Officer
(From 1 April 2019)
Joined 10 May 2010
Helen Sedcole
General Manager,
People and Culture
Joined 29 January 2018
Andy Baird
General Manager, Retail
Joined 1 April 2019
Mark Forsyth
General Manager, Retail
Joined 10 May 2010
Departed 31 March 2019
Julian Hughes
General Manager, HSSE
(Until 31 March 2019)
General Manager,
Strategy and Risk
(From 1 April 2019)
Joined 16 February 2015
Chris Day
Chief Financial Officer
Joined 31 July 2013
Departs 10 May 2019
Mandy Simpson
Chief Digital Officer
Joined 19 February 2019
Jane Anthony
General Manager, Marketing
Joined 10 May 2010
MenuZ Energy Annual Report 2019What makes us Z Performance
and remuneration
CEO and senior officer
total remuneration for FY19
We believe in creating a clear link between
performance and reward. In this report we show
remuneration earned for the respective year of
performance rather than remuneration paid as
a more appropriate way of illustrating how pay
relates to performance. For this reason, we’ve
included the cash bonus and long-term incentive
(LTI) earned for FY19. The Board has approved
the cash bonus, which will be paid in May 2019.
Although it is not required In New Zealand,
we have disclosed the remuneration for our
senior officers (as disclosed to the NZX) as
well as the CEO. This is consistent with our
commitment to an open and transparent
relationship with our shareholders who have
expressed increasing interest in remuneration
reporting in recent years. We have also
provided information on the performance
targets Z set for the CEO and senior officers
in this period.
This is our second year of reporting in this
way, and we welcome feedback on the
changes we’ve made.
5858
CEO and senior officer remuneration
Salary
and fees
Fixed
taxable
benefits
Subtotal
Pay for performance
Total
remuneration
Position
CEO
CFO
STI paid FY20
for FY19
performance
Gross LTI
paid in FY20
for 2016–19
period
$819,488
$40,974
$860,462
–
$455,235
$24,238
$479,473
$182,094
GM, Commercial
$360,500
$19,501
$380,001
$54,075
GM, Corporate
$408,000
$20,400
$428,400
$61,200
GM, Retail
$379,250
$20,439
$399,689
$113,775
GM, Supply
$377,400
$20,346
$397,746
$56,610
Subtotal
–
$860,462
$182,094
$661,567
$54,075
$434,076
$61,200
$489,600
$113,775
$513,464
$56,610
$454,356
–
–
–
–
–
–
Notes
1. Pay for performance is paid in the financial year following performance. The performance amounts shown will be paid
in FY20 for performance achievements in FY19. They have been approved by the Board at the time of publishing and
will be paid in May 2019.
2. Gross long-term incentive (LTI) — no payment as performance hurdles were not met.
3. Gross short-term incentive (STI) — includes agreed performance metrics for exiting executives, and excludes any
KiwiSaver contributions.
4. Total remuneration excludes payments that arise from calculating holiday pay in line with legislation, and loan
repayment and tax deduction for LTI. It is the estimated remuneration earned from performance in FY19.
5. Fixed benefits are five percent employer KiwiSaver contribution and medical insurance.
MenuZ Energy Annual Report 2019What makes us Z 5959
Short-term incentive scheme at Z
Z’s STI cash bonus is based on three things:
1. Individual performance ratings
2. Company performance ratings
3. Base salary and the on-target bonus
for career level.
In February/March, the CEO and the Board
agree on the company objectives to be achieved
in the following financial year. The Board assesses
them in April after year end. In determining an
overall performance rating, the Board assesses
the key result areas individually and considers
any additional achievements beyond plan.
Once the company objectives are set, individual
objectives for the CEO and each executive are
set and cascaded through the company.
An STI bonus will be paid only if 85 percent of
the annual company RC EBITDAF target has been
met. Once this threshold has been met, payment
is subject to both individual and company
performance ratings.
To qualify for any payment, individuals must
achieve a minimum overall performance rating
of ‘meets expectations’ against their individual
targets. To meet expectations, individuals must
deliver their individual commitments to a strong
standard and exhibit behaviour consistent with
Z’s values over the course of the year.
The STI bonus is paid only if both the company
and the individual achieve these threshold
levels of performance. The Board retains
complete discretion over paying STI bonuses
and may determine that no bonus will be paid
in a given year.
The Board considers the following areas of
performance when determining the overall
level of company performance.
• Significant HSSE incidents, such as fatalities
• Significant adverse reputational
incidents, such as customer reaction
to an operational failure
• The company’s reputational alignment
with being a world-class Kiwi company
Restricted Share Long-Term Incentive Plan
For the 2016 RSLTIP, the total shareholder returns
over a three year period have not met the required
entry level benchmark of #25 within the NZX50.
Z actually ranked #36, and the Board have
determined that no payout will be made. This is
consistent with the principle that there should be
strong alignment between shareholder interests
and those of Z’s senior managers.
The Board holds absolute discretion on
the cash bonuses paid to participants, which
are used to repay the participant loan balances
on the vested shares.
Further details about how we link pay
to performance and other more detailed
remuneration disclosures follow.
Breakdown of pay
for performance
Z’s remuneration position is to benchmark
total fixed remuneration (base pay) to the
upper quartile of the external market. This
means that with our STI annual bonus payment
(cash bonus), the total rewards we offer are
in the top 10 percent of the New Zealand
market when people deliver results above
plan. This includes both individual targets
and company-wide targets.
The executive team and selected senior
employees are also eligible for the Restricted
Share Long-Term Incentive Plan (RSLTIP).
The RSLTIP is a share-based incentive scheme,
not a cash bonus payment. The RSLTIP focuses
on alignment with long-term shareholder
interests by using a share-based incentive
over a three-year vesting period on an at-risk
basis aligned with the achievement of defined
performance targets. Again, these are both
individual and company targets.
For shares to vest under the scheme,
participants must meet their individual
performance targets and the company must
achieve a total shareholder return (TSR)
in the three-year period of at least 25th on
the NZX 50. Payment is also subject to the
discretion of the Board.
MenuZ Energy Annual Report 2019What makes us Z RSLTI 2016–2019
Pay for performance measures
6060
Key criteria
• Must achieve at least ‘meets expectations’
each year, otherwise pro-rated
• Continued employment on the vesting date
• Board discretion for significant
operational failures
• TSR must be higher than the 50th
percentile of NZX companies
• Outperformance to market is rewarded by
additional pay-out of up to 200 percent
for ranking of 5 or better
RSLTI leadership percentage
• CEO — maximum of 2 × 50 percent
of salary
• All senior officers — maximum of
2 × 30 percent of salary
Company STI FY19
• HSSE operational risk management
indicators, such as the total recordable
case frequency rate, the motor vehicle
incident frequency rate, the number
of Tier 1/2 process incidents, retailer
and Zee capability, safety leadership
programmes, safety walk and talks,
and incident close-out rate
• Financial performance indicators,
such as RC EBITDAF, capital
expenditure and leverage
• Organisational leadership indicators
such as brand positioning and
offer development, loyalty project
development, innovation capability
development and market share
• Strategic leadership such as
strategy 3.0 project delivery,
customer experience capability,
organisational development and
employee engagement.
CEO STI FY19 — 50 percent of
salary if Z meets company targets
and CEO meets individual targets
Meets all company targets above, plus
demonstrates personal leadership, staff
engagement, stakeholder management,
brand ambassadorship and thought
leadership.
Senior officers must meet individual performance targets and Z must meet company targets.
Enterprise
value
Be more
productive
Engage our
customers
Deliver
the future
Leadership
behaviours
STI targets for senior officers
CFO — 40% of salary
GM, Commercial — 30% of salary
GM, Corporate — 30% of salary
GM, Retail — 30% of salary
GM, Supply — 30% of salary
Notes
•
‘Enterprise value’ is underpinned by retaining operational momentum in the business and includes several financial,
behavioural and HSSE operational measures.
‘Be more productive’ includes project execution, organisational development, continuous improvement of ERP and technology,
and financial management.
‘Engage our Customers’ includes measures for our HSSE systems, customer experience capability and customer engagement.
‘Deliver the future’ includes measures for brand positioning, data management, organisation development roadmap,
innovation and strategies for the future.
‘Leadership behaviours’ include measures for staff engagement and demonstrating company values.
•
•
•
•
MenuZ Energy Annual Report 2019What makes us Z
Remuneration policy
and disclosures
The figures on the right are the
total of current-year salary and
fixed benefits paid in the year
noted, and performance payments
earned in that year and paid in the
following financial year.
Five-year summary — TSR performance
Z Energy Limited
New Zealand NZX 50 (TSR)
For measuring total company performance,
TSR is the metric for RSLTI. This determines
what proportion of shares vest.
Z’s relative TSR ranking is determined based
on where Z ranks against other companies in
the NZX 50 at the end of the three-year term
of the scheme.
CEO pay for performance scenario FY19
Five-year summary CEO remuneration
LTI
STI
Fixed
LTI
STI
Fixed
6161
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
0
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MenuZ Energy Annual Report 2019What makes us Z
6262
Explanation of remuneration policy and items in scenario charts
The CEO target bonus amount for Z meeting expectations for both company and individual performance is
50 percent of base salary.
Short Term Incentive Scheme at Z
e Extraordinary
c
n
a
m
r
o
f
r
e
p
y
n
a
p
m
o
C
Exceeds expectations
Meets expectations
Below expectations
Unacceptable
Individual performance
Unacceptable
Below
expectations
Meets
expectations
Exceeds
expectations
Extraordinary
0
0
0
0
0
0
0
0
0
0
2
1.5
1
0.5
0
2.5
2
1.5
0.75
0
3
2.5
2
1
0
The numbers in the table above indicate the multiplier applied to an employee’s bonus depending on
company and individual performance.
Performance evaluation descriptors are as follows.
• Below expectations: performance usually of a satisfactory standard but with inconsistencies
in delivery, or performance falls short of standards in a key area
• Meets expectations: consistently meets performance objectives in all key areas and is of an
acceptable standard for all others
• Exceeds expectations: exceeds expectations in most areas and delivers effectively against
all objectives; performance is consistently strong
• Exceptional: exceeds expectations in all key areas and has produced exceptional delivery
against highly challenging objectives
MenuZ Energy Annual Report 2019What makes us Z
Required disclosures
Directors’ fees
Corporate
governance
6363
As a result of feedback and Board reflection,
we have chosen not to participate in the
Ernst & Young Directors REM survey in 2019.
In the course of the FY20 year, we will consider
and take advice on alternative options for
assessing director fees. Z’s Directors will
not be seeking a fee increase in FY20.
• Pay gap: CEO fixed remuneration ratio
to Z permanent employee median fixed
remuneration is 8.1:1 (excludes STI and LTI)
• Explanation of key elements of TSR
methodology: as explained above
• Any information that has been omitted:
no material information is omitted
• Any benefits not included: variances in
pay based on annual leave paid out, based
on 12 months’ prior earnings, and termination
benefits for CFO and GM, Retail
• Key terms of any CEO benefits: Z has
agreed to pay Mike Bennetts’ reasonable
accommodation and living expenses in
Wellington, and reasonable travel expenses
for national travel (particularly between
Wellington and Auckland). Mike has agreed
to non-solicitation commitments (applying to
Z’s suppliers and employees) 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. The restraint of
trade does not apply if Mike is made redundant
• Any amounts withheld/clawed back: none
• Summary of any estimates used: none
• Remuneration that uses related parties: none
Once again, Z has created
a stand-alone document for
its Corporate Governance
Statement, which is linked
to this report.
Our Corporate Governance
Statement demonstrates Z’s
compliance with the NZX
Corporate Governance Code.
Z considers that we materially
complied with the NZX
Corporate Governance Code
during the reporting period.
MenuZ Energy Annual Report 2019What makes us Z 6464
Taking
it all in
The results
A closer look at
our financial results
MenuMenuZ Energy Annual Report 2019The resultsZ Energy Annual Report 2019 Statement of
comprehensive
income for
the year ended
31 March 2019
Revenue
Expenses
Purchases of crude, product and electricity
Excise, carbon and other taxes
Primary distribution
Operating
Share of loss/(earnings) of associate companies (net of tax)
Depreciation and amortisation
Net financing expense
Fair value movements in interest rate derivatives
(Gain) on sale of property, plant and equipment
Increase in decommissioning and restoration provision
Total expenses
Net profit before taxation
Taxation expense
Net profit for the year
Net profit attributable to the owners of the company
Net loss attributable to non-controlling interest
Other comprehensive income
Items that will not be reclassified to profit or loss
Valuation adjustment of land and buildings
Revaluation of investments
Disposal of revalued assets
Decommissioning and restoration provision increase
Total items that will not be reclassifiied to profit or loss
Items that are or may be reclassified subsequently to profit or loss
Cash flow hedge and cost of hedging
Other comprehensive (loss)/income net of tax
Total comprehensive income for the year
Total comprehensive income attributable to owners of the company
Total comprehensive (loss) attributable to non-controlling interest
Basic and diluted earnings per share (cents)
The accompanying notes form
part of these financial statements.
Notes
6
7
11, 12
8
9
65
2018 $m
4,570
2,579
1,011
56
397
(1)
102
52
9
(4)
3
4,204
366
103
263
263
–
20
(4)
–
–
16
(2)
14
277
277
–
66
2019 $m
5,450
3,450
1,091
48
413
1
122
51
4
–
18
5,198
252
66
186
188
(2)
13
(9)
(1)
(4)
(1)
(3)
(4)
182
184
(2)
47
MenuThe resultsZ Energy Annual Report 2019 Statement of
changes in equity
for the year ended
31 March 2019
The accompanying notes form
part of these financial statements.
Balance at 1 April 2017
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:
Own shares acquired
Share-based payment
Dividends to equity holders
Supplementary dividends to equity holders
Tax credit on supplementary dividends
Total transactions with owners recorded directly in equity
Balance at 31 March 2018
Balance at 1 April 2018
Net profit/(loss) for the year
Other comprehensive income
Revaluation of investment
Disposal of revalued assets
D&R tank provision increases
Revaluation of assets
Total comprehensive income for the year
Transactions with owners recorded directly in equity:
Own shares acquired
Flick non-controlling interest
Dividends to equity holders
Supplementary dividends to equity holders
Tax credit on supplementary dividends
Total transactions with owners recorded directly in equity
Capital
$m
430
–
–
–
–
–
(1)
–
–
–
(1)
429
429
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 March 2019
429
Retained
earnings
$m
Investment
revaluation
reserve
$m
Employee
share
reserve
$m
Hedging
reserve
$m
Asset
revaluation
reserve
$m
Non-
controlling
interest
$m
Total
equity
$m
66
40
263
–
5
268
2
–
(122)
(12)
12
(120)
188
188
188
(1)
9
1
4
(13)
188
–
–
(138)
(14)
14
(138)
238
–
–
(4)
–
(4)
–
–
–
–
–
–
(4)
(4)
–
–
(9)
–
–
–
(9)
–
–
–
–
–
–
(13)
(3)
–
–
–
–
(2)
1
–
–
–
(1)
(4)
(4)
–
–
–
–
–
–
–
(1)
–
–
–
–
(1)
(5)
–
–
(2)
-
(2)
–
–
–
–
–
–
(2)
(2)
–
(3)
–
–
–
–
(3)
–
–
–
–
–
–
235
–
20
(5)
15
–
–
–
–
–
–
250
250
–
–
–
(1)
(4)
13
8
–
–
–
–
–
–
(5)
258
–
–
–
–
–
–
–
–
–
–
–
–
–
(2)
–
–
–
–
–
702
263
14
–
277
–
–
(122)
(12)
12
(122)
857
857
186
(4)
–
–
–
–
(2)
182
–
20
–
–
–
20
18
(1)
20
(138)
(14)
14
(119)
920
MenuThe resultsZ Energy Annual Report 2019 Notes
2019 $m
2018 $m
Notes
2019 $m
2018 $m
67
Statement of
financial position
at 31 March 2019
Shareholders’ equity
Equity attributable to owners
of the company
Non-controlling interest
5
Total equity
Represented by:
Current assets
Cash and cash equivalents
Accounts receivable and prepayments
Inventories
Derivative financial instruments
Assets held for sale
Total current assets
Non-current assets
Property, plant and equipment
Goodwill
Intangible assets
Investments
Derivative financial instruments
Other non-current assets
Total non-current assets
Total assets
10
18
11
11
12
12
14
18
Approved on behalf of the board
on 1 May 2019
Current liabilities
Accounts payable, accruals
and other liabilities
Income tax payable
Provisions
Short-term borrowings
Derivative financial instruments
Total current liabilities
Non-current liabilities
Other liabilities
Provisions
Derivative financial instruments
857
-
857
72
337
642
4
9
902
18
920
111
499
578
9
27
1,224
1,064
Deferred tax
Long-term borrowing
Total non-current liabilities
Total liabilities
Net assets
830
193
475
105
17
3
1,623
2,847
870
158
592
113
5
3
1,741
2,805
16
17
18
16
18
9
17
677
19
23
135
13
867
20
68
26
143
803
1,060
1,927
920
696
61
26
150
17
950
16
47
33
156
746
998
1,948
857
The accompanying notes form
part of these financial statements.
Peter Ward Griffiths
Chair
Andrew Mark Cross
Chair, Audit and Risk Committee
MenuThe resultsZ Energy Annual Report 2019 Statement of cash
flows for the year
ended 31 March 2019
The accompanying notes form
part of these financial statements.
Cash flows from operating activities
Receipts from customers
Dividends received
Interest received
Payments to suppliers and employees
Excise, carbon and other taxes paid
Interest paid
Taxation paid
Net cash inflow from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Purchase of intangible assets
Purchase of investments
Purchase of property, plant and equipment
Net cash (outflow) from investing activities
Cash flows from financing activities
Net proceeds/(repayment) from bank facility
Issue of bonds and USPP notes
Purchase of shares
Dividends paid to owners of the company
Repayment of bonds
Net cash (outflow) from financing activities
Net increase in cash
Cash balances at beginning of year
Cash at end of year
68
Notes
2019 $m
2018 $m
5,431
4
53
(4,075)
(930)
(101)
(113)
269
19
(37)
(30)
(35)
(83)
31
125
(1)
(152)
(150)
(147)
39
72
111
4,524
12
2
(3,150)
(888)
(46)
(59)
395
19
(18)
(1)
(68)
(68)
(504)
376
(2)
(134)
–
(264)
63
9
72
17
17
21
20
17
MenuThe resultsZ Energy Annual Report 2019 Statement of cash
flows for the year
ended 31 March 2019
(continued)
Reconciliation of net profit for the year to cash flows from operating activities
Net profit for the year
Adjustments to reconcile profit to net cash inflow from operating activities
Depreciation and amortisation
Share of loss/(earnings) of associate companies (net of tax)
Fair value of derivatives
Dividends received
Change in ETS units
Other
Changes in assets and liabilities, net of non-cash, investing and financing activities
Change in accounts receivable and prepayments
Change in inventories
Change in accounts payable, accruals and other liabilities
Change in taxation
Net cash flow from operating activities
69
2018 $m
263
102
(1)
9
-
(45)
4
(61)
(178)
265
37
395
2019 $m
186
122
1
4
4
120
(9)
(162)
64
(19)
(42)
269
The accompanying notes form
part of these financial statements.
MenuThe resultsZ Energy Annual Report 2019 70
Basis of consolidation
Consistent accounting policies are employed
in preparing and presenting 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.
Notes to the
financial statements
for the year ended
31 March 2019
1. Basis of accounting
Reporting entity
Z Energy Limited is a profit-oriented company
registered in New Zealand under the Companies
Act 1993 and an FMC Reporting Entity for the
purposes of the Financial Markets Conduct Act
2013. Z Energy Limited is listed and its ordinary
shares quoted on the NZX main board equity
security market (‘NZX Main Board’) and on the
Australian Stock Exchange (‘ASX’) and has
bonds quoted on the NZX debt market.
The financial statements presented are those
of Z Energy Limited (the Company, Parent)
together with its subsidiaries, interests in
associates and jointly controlled operations
(‘Z’ or ‘the Group’).
Basis of preparation
These financial statements have been
prepared in accordance with generally
accepted accounting practice in New Zealand
(‘NZ GAAP’) and part 7 of the Financial Markets
Conduct Act 2013. They comply with the
New Zealand equivalents to International
Financial Reporting Standards (‘NZ IFRS’) as
appropriate for profit-oriented entities, and
with International Financial Reporting Standards
(‘IFRS’). Z has reported as a Tier 1 entity under
the External Reporting Board (‘XRB’) Accounting
Standards Framework, as a listed entity.
The measurement basis adopted in the
preparation of these financial statements is
historical cost, modified by the revaluation
of certain assets, investments and financial
instruments as identified in the accompanying
notes. The functional and reporting currency
used to prepare the financial statements is
New Zealand dollars, rounded to the nearest
million ($m), unless otherwise stated. The
financial statements have been prepared
on a GST-exclusive basis except billed
receivables and payables which include GST.
MenuThe resultsZ Energy Annual Report 2019 2. Changes in
accounting policies
The accounting policies have been applied
consistently to all years presented in these
Group financial statements. NZ IFRS 15
Revenue from Contracts with Customers,
which has been adopted from 1 April 2018,
has no financial impact on the
financial statements.
Adoption status of relevant new financial
reporting standards and interpretations
The Group has chosen not to early adopt NZ
IFRS 16 Leases (effective for annual periods
beginning on or after 1 January 2019). NZ IFRS
16 introduces a single lessee accounting model
and requires a lessee to recognise material
assets and liabilities for all leases with a term of
more than 12 months. Accounting by lessors is
unchanged under NZ IFRS 16. When adopted,
NZ IFRS 16 will impact the Group’s financial
statements. Based on leases held at 31 March
2019 it is estimated to increase property,
plant and equipment by $278m, sublease
receivables by $12m, liabilities by $289m and a
one-off equity adjustment of $1m. In addition,
adoption will increase interest expense by $13m,
depreciation expense by $18m, while operating
expenses will reduce by $26m, with a net profit
reduction of $5m.
71
3. Critical accounting
estimates and
judgements
The preparation of financial statements requires
management to make the following judgements,
estimates and assumptions that affect the
application of policies and reported amounts of
assets and liabilities, income and expenses.
Provisions (note 16)
Liabilities are estimated for decommissioning
and restoration (‘D&R)’ of certain sites of
operation. The D&R rates per tank have been
increased following a triennial independent
valuation review.
Measurement of fair value
(notes 11, 14 and 18)
Some of the Group’s accounting policies
and disclosures require the measurement
of fair values. Land and land improvements
are now adjusted based on a land inflation
index marker, see note 11.
Goodwill (note 12)
Goodwill is an indefinite-life intangible asset
and is tested annually for impairment by
estimating the future cash flows that the Group
is expected to generate. Estimating future cash
flows requires key judgements including expected
fuel volume growth or decline, expected future
margins, and the discount rate for valuing future
cash flows.
Business combinations (note 5)
The recognition of business combinations
requires the Group to make judgements and
estimates in relation to the fair value allocation
of the purchase price and goodwill.
MenuThe resultsZ Energy Annual Report 2019 72
4. Replacement cost
reconciliation
Replacement cost (‘RC’) is a non-GAAP measure
used by the downstream fuel industry to report
earnings. RC removes the impact of changes in
crude oil and refined product prices on the value
of inventory held by Z. Z manages the Group’s
performance based on RC. The difference
between HC earnings and RC earnings is a cost
of sales adjustment (‘COSA’), foreign exchange
and commodity gains and losses and the
associated tax impact.
Income statement on RC basis
Revenue
Expenses
Purchases of crude, product and electricity
Excise, carbon and other taxes
Primary distribution
Operating
Total expenses
RC operating EBITDAF*
Share of (loss)/earnings of associate companies (net of tax)
RC EBITDAF
Below RC EBITDAF expenses
Depreciation and amortisation
Net financing expense
Fair value movements in interest rate derivatives
(Gain) on sale of property, plant and equipment
Increase in decommissioning and restoration provision
Total below RC EBITDAF expenses
RC net profit before taxation
Taxation expense
RC net profit for the year
2019 $m
5,450
2018 $m
4,570
3,471
1,091
48
405
5,015
435
(1)
434
122
51
4
–
18
195
239
61
178
2,657
1,011
56
398
4,122
448
1
449
102
52
9
(4)
3
162
287
82
205
Reconciliation from statutory net profit after tax to RC net profit after tax
Statutory net profit after tax
COSA
* Earnings, before interest, taxation, depreciation
(including gains and (losses) on sale of fixed assets),
amortisation, impairment, fair value movements in
interest-rate derivatives and movements in
decommissioning and restoration provision (‘EBITDAF’)
Net foreign exchange and commodity losses/(gains) on fuel purchases
Tax benefit on COSA
Replacement cost net profit after tax
2019 $m
2018 $m
186
(21)
8
5
178
263
(78)
(1)
21
205
MenuThe resultsZ Energy Annual Report 2019 5. Business
combinations
On 1 September 2018, Z acquired 70%
of the share capital and control of Flick
Energy Limited (‘Flick’). Flick is a retail
electricity supplier that enables customers
access to the spot price of electricity. The
acquisition allows Z and Flick to maximise
the innovation potential of the energy sector
as it transitions to a lower carbon future.
Z acquired a 22% shareholding through
Flick issuing new securities for $16m, 48%
from existing shareholders for $30m and
0.1% from buying out the Flick Employee
Share Ownership Plan (‘ESOP’) for
$1m, post provisional accounting at
30 September 2018.
Z has elected to measure non-controlling
interest (‘NCI’) at fair value upon acquisition,
which means goodwill recognised includes
a portion attributable to ordinary NCI.
Cash paid for 70% investment
Gross up for 100% investment
(recognised in NCI)
Implied equity value
$m
47
20
67
Acquisition related expenses of less than
$1m are included in operating expenses in the
Statement of comprehensive income. Z acquired
$20m of cash in the opening Flick balance sheet.
The Group’s net cash outflow for the investment
of $27m has been included in investing cash
flows in the Statement of cash flows. In addition
to the initial investment Z has a combination
of put and call options which could enable
Z to acquire the NCI by 2025.
73
The assets and liabilities recognised as a result of the acquisition are shown below:
Finalised fair
value allocation
$m
Provisional
fair value
$m
Assets
Cash
Intangible assets
Total assets
Liabilities
Trade payables
Deferred tax
Provisions
Total liabilities
Net identifiable assets acquired
Assets to be identified (including goodwill)
Goodwill
Net assets acquired
20
21
41
1
6
2
9
32
–
35
67
18
2
20
1
–
2
3
17
49
–
66
Z consolidates 100% of Flick’s results and presents the portion of profit/(loss) and other
comprehensive income attributable to non-controlling interest. The impact on the Statement of
comprehensive income for the year ended 31 March 2019 is a decrease to net profit after tax of
$9m ($28m of revenue and $37m of expenses). If the acquisition had been at the start of the
reporting period, it is estimated Z would have recorded $21m of additional revenue, bringing the
combined revenue to $5,471m. It is estimated Z would have recorded $5m of additional losses,
bringing the consolidated net profit to $181m (total NCI portion $21m loss).
MenuThe resultsZ Energy Annual Report 2019 74
6. Revenue
Revenue from major business activities — fuel and convenience retail
Revenue comprises of the fair value consideration received or receivable for the sale of fuel,
convenience retail or other, which contains electricity income, in the ordinary course of the Group’s
activities. The Group’s performance obligations are typically satisfied when the Group has supplied
the product to the customer, the customer has accepted the product and the collectability of the
related receivable is reasonably assured.
Fuel invoices are raised following delivery and settled in accordance with agreed payment terms.
Some international customers are required to pay prior to delivery. Transaction price is based on
agreed contract rates and delivered volumes and is allocated on delivery. Convenience revenue is
recognised at the time of sale. Transaction price is based on the ticketed or contract price.
Fuel
Convenience retail
Other
Total revenue
7. Audit fees
Included in operating expenses are fees paid to the auditors:
Audit and review of financial statements
Audit of covenants and trustee reporting
Agreed upon procedures licence fee return
Cost of sales adjustment review
Total audit and audit-related fees
2019 $m
2018 $m
5,342
4,487
63
45
60
23
5,450
4,570
2019 $
2018 $
297,000
356,000
12,000
6,000
10,000
12,000
6,000
10,000
325,000
384,000
MenuThe resultsZ Energy Annual Report 2019 75
8. Net financing
expenses
Financing income
Interest income from derivatives
Interest income from cash
Total financing income
Financing expense
Interest expense on bonds
Interest expense on derivatives
Interest expense on secured bank facilities
Interest expense on USPP notes
Financing fees
Other finance expense
Total financing expense
Net financing expense
2019 $m
2018 $m
50
2
52
25
51
4
16
3
4
103
51
15
1
16
29
14
13
4
3
5
68
52
MenuThe resultsZ Energy Annual Report 2019 9. Taxation
Taxation expense or benefit is determined as follows:
2019 $m
2018 $m
76
Net profit before taxation
Less share of loss/(earnings) of associate companies (net of tax)
Net profit before taxation excluding share of
earnings from associates
Taxation expense on profit for the year at the corporate
income tax rate of 28% (2018: 28%)
Taxation adjustments:
Non-deductible expenditure
Over-provision in prior periods
Taxation expense
Comprising:
Current taxation
Deferred taxation
Taxation expense
252
1
253
71
–
(5)
66
84
(18)
66
366
(1)
365
102
4
(3)
103
109
(6)
103
MenuThe resultsZ Energy Annual Report 2019 9. Taxation
(continued)
Deferred tax
Deferred tax assets and liabilities are presented as a net deferred tax asset/(liability) in the
Statement of financial position. The movement in deferred tax assets and liabilities is provided below:
Property,
plant and
equipment
$m
Intangible
assets
$m
Employee
benefits
$m
Finance
lease
$m
Other
provisions
$m
Derivative
financial
instruments
$m
Other items
$m
Balance at 1 April 2017
(60)
(123)
Recognised in the Statement of
comprehensive income
Recognised in other comprehensive income
Over-provision in prior periods in the
Statement of comprehensive income
Balance at 31 March 2018
Balance at 1 April 2018
Recognised in the Statement of
comprehensive income
Over-provision in prior periods in the
Statement of comprehensive income
Acquired in business combinations
Balance at 31 March 2019
(1)
9
(2)
(54)
(54)
14
(1)
–
(41)
7
–
–
(116)
(116)
6
–
(5)
(115)
Deferred tax expected to be settled within 12 months
Deferred tax expected to be settled after 12 months
Deferred tax
1
(1)
–
1
1
1
(1)
–
–
–
4
–
–
–
4
4
–
–
–
4
2019 $m
2018 $m
(1)
(142)
(143)
(10)
(146)
(156)
Imputation credits available for use in subsequent reporting periods are $115m (2018: $40m).
2
(1)
–
1
2
2
–
–
–
2
3
1
–
–
4
4
2
–
–
6
3
1
–
(1)
3
3
(2)
–
–
1
77
Total
$m
(170)
6
9
(1)
(156)
(156)
19
(1)
(5)
(143)
MenuThe resultsZ Energy Annual Report 2019 78
10. Inventories
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.
11. Property, plant
and equipment
Property, plant and equipment (‘PPE’) is
measured at fair value based on periodic
valuations, less accumulated depreciation and
any impairment after the date of revaluation.
Z to assess the underlying assumptions for each
asset class to determine whether any revaluation
is required. Additions to PPE after the most
recent valuation are recorded at cost.
An independent revaluation of all Land
and Buildings (including Terminal Plant) is
undertaken by an independent valuer every
five years using a level 3 fair value movement
in line with the fair value hierarchy. In the years
between independent valuations, the carrying
value of Land is adjusted annually by a land
inflation index provided by an independent
valuer based on recent sales as considered by
the Directors, as underlying Land values are
considered the significant determinant of fair
value changes for Z. An assessment of other
PPE fair values is also performed annually by
The last independent revaluation was recorded
at 31 March 2017, with the next revaluation
scheduled for 31 March 2022.
Depreciation is provided on a straight-line basis.
The major depreciation periods (in years) are:
Buildings
Plant and machinery
Land improvements
Terminal plant
9 – 35
2 – 35
14 – 35
5 – 35
MenuThe resultsZ Energy Annual Report 2019
11. Property, plant
and equipment
(continued)
Year ended 31 March 2019
Cost/valuation
Balance at beginning of year
Additions
Disposals
Transfers between asset classes
Transfers to software in progress
Offset of accumulated depreciation
on revaluation
Reclassification to assets held for sale
Valuation adjustment
Balance at end of year
Construction
in progress
$m
Buildings
$m
Land and
improvements
$m
Plant and
machinery
$m
Terminal
plant
$m
2019 Total
$m
2018 Total
$m
79
33
47
–
(55)
–
–
–
–
25
–
–
–
–
–
33
25
118
–
(4)
8
–
–
–
–
122
(13)
(9)
–
–
(22)
105
100
324
–
(4)
5
–
–
(27)
13
311
(7)
(3)
–
–
(10)
317
301
369
–
(6)
30
–
–
–
–
183
–
–
12
–
–
–
–
1,027
47
(14)
–
–
–
(27)
13
1,012
61
(21)
–
(20)
(11)
(9)
15
393
195
1,046
1,027
(126)
(41)
6
–
(11)
(12)
–
–
(157)
(65)
6
–
(112)
(62)
6
11
(161)
(23)
(216)
(157)
243
232
172
172
–
830
870
–
Accumulated depreciation and impairment
Balance at beginning of year
Depreciation
Disposals
Offset of accumulated depreciation
on revaluation
Balance at end of year
Carrying amounts
At 1 April 2018
At 31 March 2019
Included in land ($3m), buildings ($23m) and plant and machinery ($1m) are assets held under finance leases
(2018: land $3m, buildings $22m and plant and machinery $1m).
MenuThe resultsZ Energy Annual Report 2019 11. Property, plant
and equipment
(continued)
For each revalued class, the carrying amount
that would have been recognised had the
assets been carried on a historical cost
basis are: buildings $50m (2018: $56m); land
and improvements $138m (2018: $172m);
terminals $143m (2018: $142m); plant and
machinery $201m (2018: $209m).
The following table shows the valuation
technique used in measuring the fair
value of PPE, as well as the significant
unobservable inputs used.
Asset class
Valuation techniques during full revaluation
Significant unobservable inputs
Throughput rental rate
(cents/litre) 1.15–2.35 (Retail)
Throughput rental rate
(cents/litre) 1.00 (Truck stop)
Shop rental $125–$450
per square metre
Capitalisation rate 5%–10%
Land and
Buildings
Terminal plant,
and plant and
machinery
Direct capitalisation approach based on
a sustainable market rental is capitalised
at an appropriate rate of return or yield
derived from comparable asset sales.
The market rental is built up from:
– fuel throughput margin
– estimated shop rental
(for non-fuel sales)
The value ascribed to the land is
allocated using a value estimated
based on recent comparable land
sales with the residual value being
allocated to buildings.
Depreciated replacement cost approach
is based on the gross current
replacement cost, reduced by factors
providing for age, physical depreciation,
and technical and functional
obsolescence considering an asset’s
total estimated useful life and anticipated
residual value (if any).
Finance Leases
(Buildings)
Net present value of contracted rental
cash flow at lease commencement
over the remaining term of the lease.
Discount rate 6.5%.
Rental payments are sourced
from lease agreements.
80
Inter-relationship between
key unobservable inputs
and fair value measurement
The estimated fair value
would increase (decrease) if:
– throughput margins
were higher (lower);
– shop rental rates
were higher (lower);
– capitalisation rates
were lower (higher).
Valuation adjustments
between full revaluation
Land and land improvements
are adjusted based on a land
inflation index marker.
Land and buildings are
assessed for impairment
annually.
Cost estimates sourced
from contracting machinery
suppliers and cost analysis
of recent projects.
The estimated fair value
would increase (decrease) if:
– cost was higher (lower);
– remaining useful life was
Assessed for impairment.
higher (lower);
– technical and functional
obsolescence was lower
(higher).
The estimated fair value
would increase (decrease) if:
– Discount rate was
lower (higher);
– Net rental of the lease
was higher (lower);
– Remaining term of the
lease was longer (shorter).
Assessed for impairment.
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.
Assets held for sale
During the year, Z has committed to a plan to sell two
retail sites. One site settled on 4 April 2019 and the other
site is expected to settle in September 2019. The sites
were classified as PPE with a carrying value of $27m (land
$26m and buildings $1m). $1m is held in the revaluation
reserve for the sites held for sale. Fair value is $27m.
MenuThe resultsZ Energy Annual Report 2019 12. Intangible assets
81
Goodwill
Goodwill is the excess of purchase consideration
and net identifiable assets acquired. Goodwill
is not amortised, but it is tested for impairment
annually or more frequently if events or
changes in circumstances indicate that it might
be impaired, by estimating future cashflow
considering expected fuel volumes, margin and
discount rates. Goodwill comprises of $158m
established on acquisition of Chevron New
Zealand (Chevron) and $35m established on
acquisition of Flick.
Chevron acquisition goodwill
The recoverable amount of the cash generating
unit (‘CGU’) containing the goodwill has been
calculated based on the present value of future
cash flows expected to be derived from the CGU
(value in use). The assumptions used included a
Z Board approved 20-year Discounted Cash Flow
(‘DCF’) with a post-tax discount rate of 9% and
a terminal value growth rate of -2%. A 20-year
DCF has been used instead of a 5-year DCF
due to the industry life-cycle. The recoverable
amount of the CGU was estimated to be higher
than its carrying amount and no impairment
was required. Management considers that no
reasonably possible change in assumptions
would cause the carrying amount to exceed
the recoverable amount.
Flick acquisition goodwill
Goodwill was tested both as part of Z’s annual
impairment testing and due to indicators of
impairment occurring during the financial year.
The indicator of impairment was a decline in
Flick’s financial performance against the annual
plan due to lower than expected customer
growth and higher than expected customer
churn as a result of an extended period of high
wholesale electricity spot prices. As a result,
Z has calculated the recoverable amount of the
CGU containing the Goodwill on the present
value of future cash flows expected to be
derived from the CGU (value in use). These
assumptions are based on a Flick Board approved
10-year DCF adjusted for customer growth rate
assumptions with a post-tax discount rate of
15% and a terminal growth rate of 2%. The key
assumptions are based off both experience and
future expectations of the CGU’s performance.
A 10-year DCF has been used instead of a 5-year
DCF given Flick’s start up nature and strong
customer acquisition targets. The value in use is
most sensitive to changes in customer numbers,
a 6% reduction in customer numbers would
result in the elimination of the $8m excess of
recoverable amount over the carrying amount
and a 36% reduction in customer numbers
would result in the write off of $35m of Goodwill.
Brands
Brands were acquired as part of the Chevron
acquisition and are amortised over 6 years on
a straight-line basis.
Contracts and customers acquired
Contracts acquired include customer contracts,
supply agreements and leases acquired as part
of the Chevron acquisition and Flick customers
as part of the Flick acquisition. These contracts
are amortised over 3 to 21 years on a straight-
line basis.
Emissions trading scheme
Units acquired are carried at cost less any
accumulated impairment as they are held for
settlement of emissions obligations. Refer to
note 13 for number of units held.
Other intangibles
Other intangibles include software, franchise
rights, domain name, and occupation rights.
Acquired computer software licences are
capitalised based on the costs incurred to
acquire and bring to use the specific software.
These costs are amortised over 3 years on
a straight-line basis. 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.
MenuThe resultsZ Energy Annual Report 2019
12. Intangible assets
(continued)
82
Year ended 31 March 2019
Balance at beginning of year
Additions
Transfers from PPE in progress
Transfers between asset classes
Utilised
Leased
Amortisation
Balance at end of year
Cost
Accumulated amortisation
Balance at end of year
Software
in progress
$m
Goodwill
$m
15
37
–
(15)
–
–
–
37
37
–
37
158
35
–
–
–
–
–
193
193
–
193
Brands
$m
26
–
–
–
–
–
(6)
20
37
(17)
20
Contracts
acquired
$m
Emissions
units
$m
Other
$m
2019 Total
$m
2018 Total
$m
384
19
–
–
–
–
(23)
380
445
(65)
380
128
85
–
–
(90)
(115)
–
8
8
–
8
39
4
–
15
–
–
(28)
30
119
(89)
30
750
180
–
–
(90)
(115)
(57)
668
839
(171)
668
693
133
20
–
(56)
–
(40)
750
864
(114)
750
MenuThe resultsZ Energy Annual Report 2019 13. 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 emissions obligation.
83
Stock of units
Balance at beginning of year
Units acquired and receivable
Units leased
Units utilised
Balance at end of year
Obligation
Obligation payable at 31 March
2019
Units
millions
2018
Units
millions
7
3
(5)
(5)
–
6
5
–
(4)
7
2019
Units
millions
8
2018
Units
millions
7
The Emissions Trading Scheme obligation of $209m (2018: $125m) is included within accounts
payable, accruals and other liabilities.
During the year Z entered into a contract to lease its Emissions Trading Scheme units to reduce its
working capital funding cost. The units will be returned in May 2019 prior to Z’s obligation falling due.
14. Investments
Investment in Refining NZ (fair value hierarchy level 1)
Investment in associates
Total investments
2019 $m
2018 $m
101
4
105
110
3
113
The Group’s investment in Refining NZ is recognised at the NZX-listed share price at 31 March 2019.
During the year Z acquired 37% of Drylandcarbon One Limited Partnership.
MenuThe resultsZ Energy Annual Report 2019 84
15. Investment in
joint operations
The Group has participating interests in five unincorporated jointly controlled operations relating to
the storage and distribution of petroleum products. The revenues and expenses are allocated in the
financial statements of a proportionate share 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. At 31 March 2019, there were no contingent liabilities for the jointly controlled operations
(2018: nil). The value of assets in these interests is $14m (2018: $12m).
Joint User Hydrant Installation
Principal activity
Fuel storage
Joint Interplane Fuelling Services
Fuel distribution
Jointly Owned Storage Facility
Fuel storage
Joint Ramp Service Operations Agreement
Fuel distribution
Wiri to Auckland Airport Pipeline
Fuel distribution
2019
Holding
2018
Holding
33%
50%
50%
50%
40%
33%
50%
50%
50%
40%
MenuThe resultsZ Energy Annual Report 2019 85
16. Provisions
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 a risk-free 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 1 and 30 years are classified as non-current.
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 1 and 30 years, depending on the location.
Other provisions include people-related costs, business development funds, onerous leases, customs
and duties, and general business provisions.
For the year ended 31 March 2019
Balance at beginning of year
Created
Utilised
Released
Unwind of discount
Balance at end of year
Current
Non-current
Balance at end of year
Decommissioning,
restoration and
remediation
$m
Other
$m
Total
$m
62
13
(2)
(2)
12
83
15
68
83
11
5
(6)
(2)
–
8
8
–
8
73
18
(8)
(4)
12
91
23
68
91
MenuThe resultsZ Energy Annual Report 2019 86
17. Borrowings
Banking facilities
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 2.8% to 3.2%
(2018: 2.8% to 3.3 %).
Secured bank facilities
530
530
2019 $m
2018 $m
Facilities drawn down
Balance at end of year
Current
Non-current
Balance at end of year
68
68
–
68
68
37
37
–
37
37
The facilities comprise a $180m revolving
term debt facility drawn to $68m plus a $350m
working capital facility drawn to nil, both
maturing in December 2021.
Financing arrangements
The Group’s debt includes bank facilities,
bonds and US Private Placement (‘USPP’) notes
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. The Group has complied with all debt
covenant requirements imposed by lenders.
Bank facilities and bonds are recorded initially
at fair value, net of transaction costs. After
initial recognition, bank facilities and bonds are
measured at amortised cost. Any difference
between the initial recognised amount and the
redemption value is recognised in the Statement
of comprehensive income over the period of the
borrowing. USPP notes are recorded initially
at fair value, net of transaction costs and are
revalued monthly for spot risk.
Bank facilities’, bonds’ and USPP notes’ 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.
MenuThe resultsZ Energy Annual Report 2019 87
17. Borrowings
(continued)
Bonds
Balance at beginning of year
New bonds issued
Issuance costs
Bonds repaid
Amortisation
Balance at end of year carrying value
Current
Non-current
Balance at end of year carrying value
Fair value of bonds
USPP notes
Balance at beginning of year
New USPP notes issued including issuance costs
Movement in fair value hedge
Movement in foreign-exchange revaluation
Balance at end of year carrying value
Current
Non-current
Balance at end of year carrying value
Fair value of USPP notes
2019 $m
2018 $m
502
125
(1)
(150)
1
477
135
342
477
510
501
–
–
–
1
502
150
352
502
539
2019 $m
2018 $m
357
–
12
24
393
–
393
393
452
–
376
(14)
(5)
357
–
357
357
400
MenuThe resultsZ Energy Annual Report 2019 18. Financial risk
management
The Group has 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 that guides management
and the board in identifying, assessing
and monitoring 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.
88
Summary of the Group’s exposure to financial risk and the management of those
The Group has exposure to the following risks:
Financial risk
Exposure
Product
Management of risk
Market risk
Foreign
exchange risk
Movement in foreign
exchange rates
Bills Libor
(Basis swap)
Quarterly resetting notional (based on the actual FX spot rate of the
NZD/USD) on the 8, 10 and 12-year basis swaps offset with the 1-year
basis swap, reviewed annually for renewal.
Forward exchange
contract
Reduce price fluctuations risk of foreign currency commitments,
mainly associated with purchasing hydrocarbons.
Cross currency interest
rate swaps (CCIRS)
Hedge variability risk in cash flows arising from price fluctuations of
foreign currency of the USD USPP notes.
To mitigate profit or loss volatility, the CCIRS is designated into a fair
value hedge and cash flow hedge relationship.
Sensitivity
to FX
Foreign-currency – At 31 March 2019, if the New Zealand dollar had strengthened/weakened by 10% against the currencies with which
the Group has foreign-currency risk (with all other variables held constant), after-tax profit would change by $1m higher/$3m lower
(2018: $5m higher/$13m lower) and the change in other comprehensive income for the year would be $5m higher/lower(2018: $5m).
Interest rate risk
Movement in
interest rates
Interest rate swaps (IRS) Minimise the cost of debt (interest) and manage the volatility to the
Cross currency
interest rate swaps
Groups earnings.
The CCIRS is designated into a fair value hedge and cash flow hedge
relationship to mitigate profit or loss volatility.
Bills Libor (Basis swap)
Reduce exposure on the basis cost of the CCIRS.
Sensitivity to
interest rate
At 31 March 2019, if bank interest rates at that date had been 100 basis points higher/lower (with all other variables held
constant), after-tax profit would change by $8m higher/$5m lower (2018: $12m higher/$15m lower) and the change in other
comprehensive income for the year would be $1m higher/lower (2018: $3m).
Commodity price
and timing risk
Changes in crude
and product prices
Liquidity risk
Commodity swaps
Match commodity purchase and sales.
Credit risk
Risk that the Group will
not be able to meet its
financial obligations as
they fall due
Risk of loss to the Group
due to customer or
counterparty default
Risk of derivative
counterparties and cash
deposits being lost
Active management of cash flow, access to committed funds and lines
of credit and the maturity profile of its financial obligations.
Limited exposure due to credit checks carried out on new customers,
credit terms and standard payment terms. Less than 1% of the Group’s
receivables are overdue (2018: 2%).
Bank facilities are maintained with A+ or above rated financial institutions,
with a syndicate of four bank counterparties to ensure diversification.
MenuThe resultsZ Energy Annual Report 2019 18. Financial risk
management
(continued)
The CCIRS is classified as level 2
in fair value hierarchy and is hedge
accounted. All other products are
level 2 and accounted for as fair
value through the Statement of
comprehensive income.
The fair value of the CCIRS and
IRS’s excludes accrued interest.
All other derivatives do not contain
interest components.
89
Recognition and measurement of derivatives
Derivative financial instruments are recognised initially at
fair value at the date they are entered into (trade date). After 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 the Statement of comprehensive income
immediately, unless the instruments are designated in an effective
hedge accounting relationship.
Liquidity risk
The following tables analyse the Group’s financial liabilities
into relevant maturity groupings based on the earliest possible
contractual maturity date at year end. The amounts in the
tables are contractual undiscounted cash flows, which include
interest through to maturity.
At 31 March 2019
Non-derivative financial liabilities
Accounts payable
Finance leases
Long-term loan
Bonds
USPP notes
Non-derivative financial liabilities
Derivative financial instruments
IRS
Commodity hedges
CCIRS
Basis swap
Derivative financial instruments
6 months
or less
$m
6 to 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
272
1
1
11
8
293
(2)
–
–
–
(2)
–
1
1
144
8
154
(2)
–
1
12
11
–
2
2
14
16
34
(6)
–
1
(1)
(6)
–
11
71
248
48
378
(14)
–
–
–
(14)
–
15
1
128
461
605
(2)
–
13
(2)
9
272
30
76
545
541
272
18
68
477
393
1,464
1,228
(26)
–
15
9
(2)
(25)
(1)
13
–
(13)
MenuThe resultsZ Energy Annual Report 2019
18. Financial risk
management
(continued)
At 31 March 2019
Non-derivative financial liabilities
Accounts payable
Finance leases
Long-term loan
Bonds
USPP notes
Non-derivative financial liabilities
Derivative financial instruments
IRS
CCIRS
Basis swap
Derivative financial instruments
6 months
or less
$m
6 to 12
months
$m
1 to 2
years
$m
2 to 5
years
$m
5+
years
$m
Contractual
cash flows
$m
90
Statement
of financial
position
$m
585
1
1
164
7
758
1
(1)
–
–
–
1
1
9
7
18
(2)
(1)
(5)
(8)
–
2
37
151
15
205
(3)
(3)
–
(6)
–
10
–
170
45
225
(6)
(14)
6
(14)
–
11
–
72
449
532
(7)
(37)
25
(19)
585
25
39
566
523
585
16
37
502
357
1,738
1,497
(17)
(56)
26
(47)
(18)
(22)
(1)
(41)
MenuThe resultsZ Energy Annual Report 2019 91
18. Financial risk
management
(continued)
Discussions on refinancing bank-debt facilities will normally begin at least 6 months
before maturity with facility terms agreed at least 3 months before maturity.
Interest rate risk analysis
At 31 March 2019
Interest-rate exposure borrowing
Cross-currency swaps
Interest-rate swaps
Net interest-rate exposure
At 31 March 2018
Interest-rate exposure borrowing
Cross-currency swaps
Interest-rate swaps
Net interest-rate exposure
Less than
1 year
$m
1 to 2
years
$m
135
378
(130)
383
Less than
1 year
$m
187
378
(120)
445
–
–
–
–
1 to 2
years
$m
135
–
(135)
–
2 to 5
years
$m
288
–
75
363
2 to 5
years
$m
150
–
75
225
5+
years
$m
503
(378)
55
180
5+
years
$m
448
(378)
180
250
Total
Notional
$m
926
–
–
926
Total
Notional
$m
920
–
–
920
Offsetting of financial instruments
Z enters into derivative transactions under International Swaps Derivatives Association (ISDA) master agreements.
The ISDA agreements do not meet the criteria for offsetting in the balance sheet for accounting purposes. This is
because Z does not have any current legally enforceable right to offset recognised amounts. Under the ISDA agreements
the right to offset is enforceable only on the occurrence of future events such as a default on the bank loans or other
credit events. The potential net impact of this offsetting is disclosed in ‘Amount after applying rights of offset under
ISDA agreements. Z does not hold and is not required to post collateral against its derivative positions.
Derivative position
2019
$m
Amount after applying
rights of offset under
ISDA agreements
$m
Derivative position
2018
$m
Amount after applying
rights of offset under
ISDA agreements
$m
Derivative assets
Derivative liabilities
Derivative financial liabilities
26
39
13
–
13
13
9
50
41
–
41
41
MenuThe resultsZ Energy Annual Report 2019 18. Financial risk
management
(continued)
Hedge accounting
The nature and the effectiveness of the
hedge accounting relationship will derive
where the gains and losses on re-measurement
are recognised. The CCIRS derivatives are
designated as either:
• Fair value hedges the derivative is used
to manage the variability in the fair value of
recognised liabilities, to hedge the interest-
rate risk (the hedged risk) arising from the
USD USPP notes (the hedged items).
The following changes are recognised in
profit or loss:
– The change in fair value of the hedging
instruments;
– The change in fair value of the
underlying hedged items attributable
to the hedged risk.
• Cash flow hedges derivatives are used to
manage the variability in cash flows of highly
probable forecast transactions, to hedge the
variability in cash flows arising from interest
rate and foreign currency exchange rate
movements of the USD USPP notes (the
hedged items).
The following changes are recognised
in profit or loss (interest costs):
– any gain or loss in relation to the
ineffective portion of the hedging
instrument,
– fair value changes in the hedging
instrument previously accumulated in
other comprehensive income, transfer
to profit or loss when the underlying
transactions are recognised in the
Statement of comprehensive income.
Once hedging is discontinued, the fair value
adjustments to the carrying amount of the
hedged item arising from the hedged risk is
amortised through profit or loss from that
date through to maturity of the hedged item.
Once hedging is discontinued, any cumulative
gain or loss previously recognised in other
comprehensive income is recognised in profit
or loss (interest costs) either:
– at the same time as the forecast
transaction, or
– immediately if the transaction no
longer expected to occur.
92
Hedge accounting is discontinued when
the hedge instrument expires or is sold,
terminated, exercised, or no longer qualifies
for hedge accounting.
Z designates the entire CCIRS to hedge its
foreign-currency risk and interest rate risk and
applies a hedge ratio of 1:1, except for the cross-
currency basis elements of the CCIRS that are
excluded from the designation and are separately
accounted for as a cost of hedging. This cost is
recognised in other comprehensive income in a
cost of hedging reserve. The Group’s Treasury
Policy is for the critical terms of the CCIRS
contracts to align with the hedged item.
Z determines the existence of an economic
relationship between the hedging instrument
and the hedged item based on the currency,
amount and timing of the respective cash
flows, reference interest rates, tenors, repricing
dates, maturities and notional amounts. Z
assesses whether the derivative designated
in each hedging relationship is expected to be
and has been effective in offsetting the changes
in cash flows of the hedged item using the
hypothetical derivative method.
In these hedge relationships, the main
source of ineffectiveness is the effect of the
counterparty and Z’s own credit risk on the
fair value of the CCIRS.
MenuThe resultsZ Energy Annual Report 2019
18. Financial risk
management
(continued)
The effect of Z’s hedge accounting policies in managing both its foreign-exchange risk and its
interest-rate risk related to borrowings denominated in foreign currency is presented in the tables
below. The details of the CCIRS hedging instruments and items at 31 March 2019 are recognised
in the balance sheet within derivative financial instruments and borrowings as follows:
93
At 31 March 2019
Cash flow hedge and fair value hedge
Interest-rate risk and foreign-currency risk
8 years, rate 3.83%
10 years, rate 4.04%
12 years, rate 4.14%
Total
Nominal
amount of
the CCIRS
(hedging
instrument)
USDm
Carrying
amount
of the USPP
(hedged
item)
$m
Accumulated
fair value
hedge
adjustment
to USPP
carrying amount
(hedge item)
$m
Carrying
value
of CCIRS
(hedging
instrument)
$m
Life to date
change in
value used for
calculating
hedge
ineffectiveness
$m
Accumulated
cost of
hedging
reserve
$m
90
90
90
270
(131)
(131)
(131)
(393)
–
1
1
2
5
4
4
13
5
5
5
15
–
(1)
(1)
(2)
The hedged item is recognised in Borrowings and the hedging instrument is recognised in Derivative financial instruments.
Hedge ineffectiveness for the year ended 31 March 2019 was $2m (2018: nil).
At 31 March 2018
Cash flow hedge and fair value hedge
Interest-rate risk and foreign-currency risk
8 years, rate 3.83%
10 years, rate 4.04%
12 years, rate 4.14%
Total
Nominal
amount of
the CCIRS
(hedging
instrument)
USDm
Carrying
amount
of the USPP
(hedged
item)
$m
Accumulated
fair value
hedge
adjustment
to USPP
carrying amount
(hedge item)
$m
Carrying
value
of CCIRS
(hedging
instrument)
$m
Life to date
change in
value used for
calculating
hedge
ineffectiveness
$m
Accumulated
cost of
hedging
reserve
$m
90
90
90
270
(120)
(119)
(118)
(357)
4
5
5
14
(7)
(7)
(8)
(22)
(7)
(7)
(8)
(22)
–
–
–
–
MenuThe resultsZ Energy Annual Report 2019 94
2019 $m
2018 $m
3
12
15
30
12
18
3
11
11
25
9
16
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
19. Leases
Operating leases
Operating leases, where the lessor
effectively retains substantially all the
risks and benefits of ownership of the
leased items, are recognised in the
Statement of comprehensive income
on a straight-line basis over the period
of the lease term.
The Group has receivables from operating leases
as a lessor relating to the lease of premises.
These receivables expire as follows:
2019 $m
2018 $m
Operating lease
receivables as lessor
Between 0 to 1 year
Between 1 to 5 years
More than 5 years
Operating lease
receivables as lessor
4
9
2
15
4
8
2
14
The Group as the lessee has various non-
cancellable operating leases. The leases
have varying terms, escalation clauses and
renewal rights. On renewal, the terms of the
lease are renegotiated. The lease payables are
predominantly for the lease of land and buildings.
2019 $m
2018 $m
Operating lease
payables as lessee
Between 0 to 1 year
Between 1 to 5 years
More than 5 years
Operating lease
receivables as lessee
36
120
118
32
106
116
274
254
Lease costs expensed, and sub-lease income
received through the Statement of comprehensive
income during the year were $36m (2018: $34m)
and $3m (2018: $3m) respectively.
Finance leases as lessee
Finance leases, which transfer to the lessee
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 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. These lease contracts expire
within 2 to 17 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 Statement
of comprehensive income.
2019 $m
2018 $m
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
2
8
8
1
7
8
18
16
MenuThe resultsZ Energy Annual Report 2019 95
20. Share capital
and distributions
Ordinary shares (fully paid)
2019 $m
2018 $m
Total authorised and issued capital
at beginning of year
Movements in issued and fully paid ordinary shares
Share-based payment
Total authorised and issued capital
at end of year
Ordinary shares (fully paid)
Total issued capital at end of year
The par value of one share is $1.
429
–
429
430
(1)
429
2019
Shares
millions
400
2018
Shares
millions
400
Z Energy LTI Trustee Limited holds 762,263 shares at a cost of $6m
for Z’s restricted share long-term incentive plan (2018: 747,420, $5m).
Z holds Treasury stock of 339,884 shares.
Dividend
2017 Final dividend (paid June 2017)
2018 Interim dividend (paid December 2017)
2018 Final dividend (paid May 2018)
2019 Interim dividend (paid December 2018)
$m cents per share
80
42
88
50
19.9
10.4
21.9
12.5
Final dividend declared after balance date not provided, refer to note 25.
MenuThe resultsZ Energy Annual Report 2019 21. Share-based
payments
Z Energy Restricted Share Long-Term Incentive Plan (RSLTIP)
Z provides the RSLTIP for selected senior employees. Under the RSLTIP, ordinary shares in the
Parent are purchased on-market by Z Energy LTI Trustee Limited (‘the Trustee’). Participants
purchase shares from the Trustee with funds lent to them by the Parent.
The number of shares that vest will depend on Z’s total shareholder return ranking within a peer
group of the NZX50 over a 3-year period, although a reduced period may be used in some cases.
If the individual is still employed 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 employee.
96
Grant date
Vesting date
Exercise price
Balance at the
start of year
Number of
shares
Granted
during year
Number of
shares
Exercised
during year
Number of
shares
Forfeited
during year
Balance at the
end of year
Vested and
exercisable at
end of year
Number of
shares
Number of
shares
Number
of shares
2019
29 May 2015
31 March 2018
23 May 2016
31 March 2019
22 May 2017
31 March 2020
22 May 2018
31 March 2021
Total
Weighted average exercise price
2018
20 May 2014
31 March 2017
29 May 2015
31 March 2018
23 May 2016
31 March 2019
22 May 2017
31 March 2020
Total
Weighted average exercise price
$5.98
$8.20
$8.00
$7.45
$3.84
$5.98
$8.20
$8.00
235,681
206,361
223,787
–
665,829
324,070
323,296
222,540
–
869,906
–
–
–
266,384
266,384
–
–
–
238,751
238,751
(235,681)
–
–
–
–
(206,361)
(42,494)
(46,794)
–
–
181,293
219,590
(235,681)
(295,649)
400,883
$5.98
$8.05
$7.70
(324,070)
–
–
–
(324,070)
$3.84
–
(87,615)
(16,179)
(14,964)
(118,758)
$6.54
–
235,681
206,361
223,787
665,829
$7.35
–
–
–
–
–
–
235,681
–
–
235,681
$5.98
MenuThe resultsZ Energy Annual Report 2019 97
21. Share-based
payments
(continued)
Measurement of fair values
The fair value of the RSLTIP has been determined using the framework of the Black-Scholes and Margrabe option pricing
models for the schemes vesting 2017–2019. For the scheme vesting 2020 a Monte Carlo Simulation has been used.
Vesting date of scheme
31 March 2021
31 March 2020
31 March 2019
31 March 2018
Weighted average share price at grant date
$7.45
$8.00
$8.20
$5.98
Contractual life
Risk-free rate
Standard deviation of Z share price
Standard deviation of Z’s TSR
Standard deviation of NZX50
Standard deviation of peers’ TSR
2.85 years
2.86 years
3.00 years
2.84 years
2.0%
–
2.1%
–
2.1%
3.1%
20%–25%
17.5%–22.5%
25%–27%
18%–25%
–
–
18%–21%
20%–22%
–
9.0%
–
–
8.0%
–
Correlation between Z share price and NZX50
–
–
0.32–0.40
0.32–0.40
Correlation between Z’s TSR and peers’ TSR (average)
0.15–0.16
0.16–0.19
Estimated fair value per share
$3.78
$4.22
–
$3.48
–
$2.24
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 RSLTIP.
The fair value of the share-based payments is recognised as an expense, with a corresponding increase in equity, over the
vesting period of the plan. The expense relating to the RSLTIP in the year ended 31 March 2019 was $0.2m (2018: $0.6m).
An employee share purchase programme also exists, which does not have a material impact on these financial statements.
The ESPP scheme holds 85,904 shares. The LTI plan also holds unallocated shares of 361,380.
Employee benefits payable are $11m (2018: $15m).
MenuThe resultsZ Energy Annual Report 2019 22. Related parties
98
Certain Z Directors have relevant interests in
several companies with which Z has transactions
in the normal course of business. Some Z
Directors are also non-executive directors of
other companies. Any transactions undertaken
with these entities have been entered into as
part of ordinary business.
Key management personnel have been defined
as the Directors, the CEO and the executive
team for the Group. Executive members also
participate in the Group’s Restricted Share
Long-Term Incentive Plan, refer to note 21.
Included in operating expenses are directors’
fees of $1m (2018: $1m).
Transactions with related parties received/(paid)
2019 $m
2018 $m
Refining NZ — sale of goods and services
Refining NZ — processing fees, Customs and excise duties
Associates — sale of goods and services
Associates — purchase of goods and services
– COLL — distribution
– NZOSL
– WOSL
– Other
Key management personnel
– Short-term employee benefits
– Other long-term benefits
– Termination benefits
Balances at the end of period
2
732
1
36
7
11
5
5
–
1
1
798
–
23
13
13
7
8
2
–
– Refining NZ — processing fees, Customs and excise duties
(55)
(59)
23. Commitments
Commitments relate to PPE, intangibles and
the Good in the Hood community programme
of $32m (2018: $30m).
24. Contingent
liabilities
25. Events after
balance date
The Group has guaranteed an exposure of up to
USD2m ($3m) to a financier of one of the Group’s
associate companies (2018: USD3m ($4m)).
This guarantee reduces by USD1m annually.
Dividend
On 1 May 2019 the directors approved a fully
imputed dividend of 30.5 cents per share, which
is equal to $122m, to be paid on 29 May 2019
(2018: 21.9 cents per share, $88m).
MenuThe resultsZ Energy Annual Report 2019 99
Independent Auditor’s Report
To the shareholders of Z Energy Limited
Report on the consolidated financial statements
Opinion
In our opinion, the accompanying consolidated financial statements of Z Energy Limited
(the company) and its subsidiaries (the group) on pages 65 to 98:
i. present fairly in all material respects the Group’s financial position as at 31 March
2019 and its financial performance and cash flows for the year ended on that date;
and
ii. comply with New Zealand Equivalents to International Financial Reporting Standards
and International Financial Reporting Standards.
We have audited the accompanying consolidated financial statements which comprise:
— the consolidated statement of financial position as at 31 March 2019;
— the consolidated statements of comprehensive income, changes in equity and cash
flows for the year then ended; and
— notes, including a summary of significant accounting policies and other
explanatory information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
We are independent of the group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing
and Assurance Standards Board and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our
other ethical responsibilities in accordance with these requirements and the IESBA Code.
Our responsibilities under ISAs (NZ) are further described in the auditor’s responsibilities for the audit of the consolidated financial statements section of our report.
Our firm has also provided other assurance services to the group in relation to a review of the cost of stock adjustment. Subject to certain restrictions, partners and employees of
our firm may also deal with the group on normal terms within the ordinary course of trading activities of the business of the group. These matters have not impaired our
independence as auditor of the group. The firm has no other relationship with, or interest in, the group.
© 2019 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity.
MenuThe resultsZ Energy Annual Report 2019 100
Scoping
The scope of our audit is designed to ensure that we perform adequate work to be able to give an opinion on the financial statements as a whole, taking into account the structure
of the financial reporting systems, processes and controls, and the industry in which it operates.
The context for our audit is set by the major activities in the financial year ended 31 March 2019, which included the acquisition of Flick Energy on 1 September 2018.
Materiality
The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the nature, timing and extent of our audit procedures and to evaluate
the effect of misstatements, both individually and on the consolidated financial statements as a whole. The materiality for the consolidated financial statements as a whole was set
at $15 million determined with reference to a benchmark of group total revenue. We chose the benchmark because, in our view, this is a key measure of the group’s performance.
The group also evaluates its own performance on replacement cost profit and we have benchmarked against this measure and historical cost profit.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements in the current period. We
summarise below those matters and our key audit procedures to address those matters in order that the shareholders as a body may better understand the process by which we
arrived at our audit opinion. Our procedures were undertaken in the context of and solely for the purpose of our statutory audit opinion on the consolidated financial statements as
a whole and we do not express discrete opinions on separate elements of the consolidated financial statements.
MenuThe resultsZ Energy Annual Report 2019
101
The key audit matter
How the matter was addressed in our audit
Acquisition of Flick Energy
Refer to Notes 5 and 12 in the Financial
Statements.
A key audit matter was the Group’s acquisition of
Flick.
The key judgement and estimation in the acquisition
is the allocation of purchase price to assets and
liabilities (and resulting goodwill) by estimating the
fair value of identifiable tangible assets, intangible
assets and liabilities.
Due to the downturn in the acquired business
operations after acquisition, another key judgement is
the testing of goodwill for impairment. The Group
uses complex models to perform their testing of
goodwill for impairment. The models use adjusted
historical performance, and a range of internal and
external inputs to the assumptions. Complex
modelling, using forward-looking assumptions tend to
be prone to greater risk for potential bias, error and
inconsistent application. These conditions necessitate
additional scrutiny by us, in particular to address the
objectivity of sources used for assumptions, and their
consistent application.
Working with our valuation specialists, our procedures included:
Purchase price allocation
• We read the sale and purchase agreement to understand the key terms and conditions of the agreement in
considering the accounting applied.
• We assessed the appropriateness of the valuation methodology adopted to identify and allocate purchase price to
intangible assets (e.g. customer contracts) by comparing to industry trends.
• We assessed the tangible assets and liabilities acquired and the method for determining the fair value allocated to
them.
• We recalculated goodwill as the difference between the purchase price and the acquired net assets.
We are satisfied that management undertook an appropriate process in determining the accounting for the acquisition of
Flick and we identified no evidence of management bias and influence.
Goodwill impairment testing
• We assessed the integrity of the value in use model used, including the accuracy of the underlying calculation
formulas.
• We checked the consistency of the customer growth rates to past performance of the Group, and our experience
regarding the feasibility of these in the industry in which they operate.
• We challenged the customer growth rates and terminal growth rates used, in light of the higher than expected
customer churn as a result of an extended period of high wholesale electricity spot prices, by comparing to published
information on industry trends, and considered differences and expected trends for the Group’s operations. We
used our knowledge of the Group, their past performance, business and customers, and our industry experience.
• We analysed the Group’s discount rate by comparing to an independently developed discount rate range using
publicly available market data for comparable entities, adjusted by risk factors specific to the Group and the industry
it operates in.
MenuThe resultsZ Energy Annual Report 2019
102
• We considered the sensitivity of the model by varying key assumptions, such as forecast growth rates, terminal
growth rates and discount rates. We did this to identify those assumptions at higher risk of bias or inconsistency in
application and to focus additional procedures.
We found the valuation methodology and inputs used in the testing of goodwill for impairment to be appropriate. We
consider the entity has appropriately considered those key assumptions that support the current carrying value of
goodwill given the industry impacts since the recent acquisition.
Other information
The Directors, on behalf of the group, are responsible for the other information included in the entity’s Annual Report. Other information includes the Chairman’s report, Chief
Executive’s report, disclosures relating to corporate governance and statutory information. Our opinion on the consolidated financial statements does not cover any other
information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements our responsibility is to read the other information and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears materially misstated. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Use of this independent auditor’s report
This independent auditor’s report is made solely to the shareholders as a body. Our audit work has been undertaken so that we might state to the shareholders those matters we
are required to state to them in the independent auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the shareholders as a body for our audit work, this independent auditor’s report, or any of the opinions we have formed.
Responsibilities of the Directors for the consolidated financial statements
The Directors, on behalf of the company, are responsible for:
— the preparation and fair presentation of the consolidated financial statements in accordance with generally accepted accounting practice in New Zealand (being New
Zealand Equivalents to International Financial Reporting Standards) and International Financial Reporting Standards;
MenuThe resultsZ Energy Annual Report 2019
103
— implementing necessary internal control to enable the preparation of a consolidated set of financial statements that is fairly presented and free from material misstatement,
whether due to fraud or error; and
— assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless they either intend to liquidate or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objective is:
— to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error; and
— to issue an independent auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs NZ will always detect a material misstatement when it
exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
A further description of our responsibilities for the audit of these consolidated financial statements is located at the External Reporting Board (XRB) website at:
http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our independent auditor’s report.
The engagement partner on the audit resulting in this independent auditor's report is Graeme Edwards.
For and on behalf of
KPMG
Wellington
1 May 2019
MenuThe resultsZ Energy Annual Report 2019
GRI Index
GRI standards:
Core option
CGS refers to the associated
Corporate Governance Statement
assessed at z.co.nz.
GRI Standard
Disclosure
General Disclosures
104104
Page number(s)
and/or URL(s)
Omissions and
explanations
GRI 102: General Disclosures 2016
102-1 Name of the organisation
70
102-2 Activities, brands, products, and services
26–31, 54–56
Operates in
New Zealand only
No significant changes
102-3 Location of headquarters
102-4 Location of operations
102-5 Ownership and legal form
102-6 Markets served
102-7 Scale of the organization
108
51
70
26–31
26–31
102-8 Information on employees and other workers
42–44, CGS 3–6
102-9 Supply Chain
102-10 Significant changes to the organization
and its supply chain
31–32
31–32
102-11 Precautionary Principle or approach
CGS 15–17
102-12 External initiatives
102-13 Membership of associations
Strategy
102-14 Statement from senior decision-maker
102-15 Key impacts, risks, and opportunities
Ethics and integrity
(a)
(b)
16–19
46–49
102-16 Values, principles, standards, and norms
of behaviour
20–21, 24, 33–44, 51, 56,
CGS 1–2
Governance
102-18 Governance structures
CGS 2–3, 7–9
Stakeholder engagement
102-40 List of stakeholder groups
22
102-41 Collective bargaining agreements
None
(a) Zero Harm workplace, NZX Corporate Governance Code, Women’s Empowerment Principles, Rainbow Tick Certification.
(b) Climate Change Coalition, Sustainable Business Council, Sustainable Business Network.
MenuGRI IndexZ Energy Annual Report 2019 GRI Index
(continued)
GRI Standard
Disclosure
General Disclosures (continued)
102-42 Identifying and selecting stakeholders
102-43 Approach to stakeholder engagement
102-44 Key topics and concerns raised
Reporting practice
102-45 Entities included in the consolidated financial
statements
102-46 Defining report content and topic Boundaries
102-47 List of material topics
102-48 Restatements of information
102-49 Changes in reporting
102-50 Reporting period
102-51 Date of most recent report
102-52 Reporting cycle
105105
Page number(s)
and/or URL(s)
Omissions and
explanations
22
22
23
70
23
23
73
23
2
2
2
Variations noted
below and with data
Flick acquisition
Fuel pricing and market
share, Mergers and
Acquisition Strategy
102-53 Contact point for questions regarding the report
108
102-54 Claims of reporting in accordance with the GRI
Standards
2
102-55 GRI content index
102-56 External Assurance
Material Topics GRI 200: Economic Standard Series
Economic Performance
GRI 103: Management Approach 2016
Z Group
GRI 201: Economic Performance 2016
201-1 Direct economic value generated and distributed
104–107
99–103, CGS 17
65–98
65–98
201-2 Financial implications and other risks and
opportunities due to climate change
15, 19, 20–21, 37–40,
56, 83
MenuGRI IndexZ Energy Annual Report 2019
GRI Index
(continued)
GRI Standard
Disclosure
GRI 300: Environmental Standards Series
GRI 103: Management Approach
Z Corporate & Z Retail plus supply chain emissions
GRI 305: Emissions 2016
305-1 Direct (Scope 1) GHG emissions
305-2 Energy indirect (Scope 2) GHG emissions
305-3 Other indirect (Scope 3) GHG emissions
305-4 GHG emissions intensity
Effluents and Waste
GRI 103: Management Approach 2016
GRI 306: Effluents and Waste 2016
306-2 Waste by type and disposal method
Environmental Compliance
GRI 103: Management Approach 2016
GRI 307: Environmental Compliance
2016
307-1 Non-compliance with environmental laws
and regulations
Supplier Environmental Assessment
GRI 103: Management Approach 2016
GRI 308: Supplier Environmental
Assessment 2016
308-1 New suppliers that were screened using
environmental criteria
106106
Page number(s)
and/or URL(s)
Omissions and
explanations
39
39
39
39
39
37
40
37
CGS 1
37
37
Includes Z Corporate
and Z Retail operations
308-2 Negative environmental impacts in the
supply chain and actions taken
20–21, 27, 32, 37–40
GRI 400 Social Standards Series
GRI 103: Management Approach 2016
Z Corporate only
31–32, 42–44
Include Z direct
employees
GRI 401: Employment 2016
401-1 New employee hires and employee turnover
CGS 5
401-2 Benefits provided to full-time employees that
are not provided to temporary or part-time employees
CGS 13–14
401-3 Parental leave
Occupational Health and Safety
GRI 103: Management Approach 2016
GRI 403: Occupational Health and
Safety
Hazard identification, risk assessment, and incident
investigation
CGS 6
34–36
34–36
MenuGRI IndexZ Energy Annual Report 2019 GRI Index
(continued)
GRI Standard
Disclosure
Training and Education
GRI 103: Management Approach 2016
GRI 404: Training and Education
404-3 Percentage of employees receiving regular
performance and career development reviews
107107
Page number(s)
and/or URL(s)
Omissions and
explanations
17, 35, 54
CGS 14
42
Includes Z direct
employees
Includes Z direct
employees and
directors only
Diversity and Equal Opportunity
GRI 103: Management Approach 2016
GRI 405: Diversity and Equal
Opportunities
Local communities
405-1 Diversity of governance bodies and employees
43, CGS 4–6
405-2 Ratio of basic salary and remuneration of women to men CGS 4
GRI 103: Management Approach 2016
Z Corporate only
GRI 413: Local Communities 2016
413-1 Operations with local community engagement,
impact assessments, and development programmes
Socioeconomic Compliance
GRI 103: Management Approach 2016
GRI 419: Socioeconomic Compliance
2016
419-1 Non-compliance with laws and regulations in the
social and economic area
Oil and Gas Sector Disclosures
Asset Integrity and Process Safety
GRI 103: Management Approach 2016
41
41
CGS 2
CGS 2
34
G4-0G13 Process Safety Events
Number of process safety events by business activity
34–36
Fossil Fuels Substitutes
GRI G4-DG14
Volume of biofuels produced
and meeting Sustainability Criteria
37
500,000 litres
MenuGRI IndexZ Energy Annual Report 2019
Company directory
Registered and head office
— New Zealand
3 Queens Wharf
Wellington 6011
z.co.nz
Contact us
For general enquiries
phone: 0800 474 355
and select ‘0’ or
email: general@z.co.nz
Facebook: Z Energy
LinkedIn: Z Energy
Directors
Peter Ward Griffiths (Chair)
Andrew Mark Cross
Alan Michael Dunn
Abigail Kate Foote
Blair Albert O’Keeffe
(Appointed 1 August 2018)
Julia Margaret Raue
Stephen Reindler
Executive team
Mike Bennetts
Chief Executive Officer
Chris Day
Chief Financial Officer
(Resigning 10 May 2019)
Mandy Simpson
Chief Digital Officer
(Appointed 19 February 2019)
Jane Anthony
General Manager, Marketing
Andy Baird
General Manager, Retail
(Appointed 1 April 2019)
David Binnie
General Manager, Supply
Debra Blackett
General Counsel and Chief
Governance Officer
Mark Forsyth
General Manager, Retail
(Resigned 31 March 2019)
108108
MUFG Bank
Level 22, 151 Queen Street
Auckland
Westpac Banking Corporation
188 Quay Street
Auckland
Registered office
— Australia
c/- TMF Corporate Services
(Aust) Pty Limited
Level 16, 201 Elizabeth Street,
Sydney NSW 2000, Australia
PO Box A2224,
Sydney South NSW 1235, Australia
+61 2 8988 5800
Australia registered
business number
164 438 448
Annual Shareholder
Meeting 2019
3–4pm
Thursday, 20 June 2019
Wellington
Julian Hughes
General Manager, Health, Safety,
Security, and Environment
(Until 31 March 2019)
General Manager, Strategy and Risk
(Appointed 1 April 2019)
Auditor
KPMG
Maritime Tower
10 Customhouse Quay
PO Box 996
Wellington 6140
Lawyers
Chapman Tripp
10 Customhouse Quay
Wellington 6140
Minter Ellison Rudd Watts
18/125 The Terrace
Wellington 6011
Bankers
ANZ Bank New Zealand Limited
215–229 Lambton Quay
Wellington
Bank of New Zealand
80 Queen Street
Auckland
Hong Kong and Shanghai
Banking Corporation
HSBC Tower
195 Lambton Quay
Wellington
Lindis Jones
General Manager, Corporate
(until 31 March 2019)
Chief Financial Officer
(Appointed 1 April 2019)
Helen Sedcole
General Manager, People
and Culture
Nicolas Williams
General Manager, Commercial
Share Registrar
Link Market Services —
New Zealand
PO Box 91976
Auckland 1142
New Zealand
+64 9 375 5998
linkmarketservices.co.nz
Link Market Services —
Australia
Locked Bag A14
Sydney South NSW 1235
Australia
+61 2 8280 7111
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