Plain-text annual report
Ko te
mea nui...
What
matters
most...
Z ENERGY ANNUAL REPORT
For the year ended 31 March 2020
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...for our customers
for our economy
for our future
... mō tō tātou kiritaki
mō tō tātou ōhanga
mō tō tātou anamata
To keep
New Zealand
moving
COVID-19
AND THIS
ANNUAL
REPORT
While any impact on Z in FY20 is
limited by the timing of the COVID-19
crisis in New Zealand, we expect there
will be material impacts on fuel demand
in New Zealand across at least the
first half of FY21. Again, there is a high
level of uncertainty on this point and
we will continue to update the market
as required.
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The 2020 financial year was a challenging
one for Z across many areas of the
business. In the last week of our financial
year, conditions became markedly more
challenging, complex and uncertain for the
whole of New Zealand, including Z, with
the country entering an unprecedented
lockdown and State of Emergency over
the COVID-19 global pandemic.
At the point of closing the financial
year and beginning to finalise this
annual report and its full year results,
the Z Board and management was
operating the company under the highest
level in its crisis management plan.
Z’s crisis management team had been
operational since January to ensure Z was
well prepared for a range of possible
COVID-19 scenarios.
Our focus has been on managing the
company with great care – to protect
its supply chain for the benefit of the
New Zealand economy, to protect people
and to protect shareholders’ interests.
The choices we make around where we
focus our efforts and resources are now
more important than ever. Given the
COVID-19 lockdown started right at
the end of our financial year, one of our
choices was around areas of focus for the
Board and management. We elected not
to focus more time and effort on revisions
and amendments to reflect the possible
range of impacts of COVID-19 in this
annual report.
Rather, we will address how we have
responded to COVID-19 directly here,
in this initial statement and over the
following two pages, and ask stakeholders
to read the remainder of the report,
bearing in mind the choice we have made
not to invest more time and resources
rewriting the bulk of our annual report.
Where we discuss strategy throughout
this report, readers should assume our
short- to medium-term strategic focus,
including cost and resource allocations,
will be driven by our response to COVID-19
and the commitment for Z to emerge
strongly from this crisis.
There is much in this annual report that,
regardless of COVID-19, we are duty
bound to report on. While we know there
will be significant impacts on the broader
New Zealand and global economy, and on
the Z business, there is currently a high
level of uncertainty on the scale of those
impacts. In the face of this uncertainty,
investors and stakeholders should know
that Z is focused on tight, disciplined
governance and management to ensure
Z comes through this crisis as strongly
as it possibly can.
Coinciding with the global spread of
COVID-19, over the last quarter of
Z’s financial year, the price of crude oil
dropped by about two-thirds as Russia
and Saudi Arabia entered an oil price war
and began to increase production at the
same time as global demand dropped.
We expect significant volatility in global
oil markets to continue into the first
quarter of FY21.
COVID-19 represents one of the biggest
challenges to the global and domestic
economy that most of us have ever
experienced. Z has a unique role to play
in supporting the New Zealand economy
and its customers through this period
with safe, secure and reliable transport
energy supplies.
There will be challenging times
ahead and difficult decisions to
make, but we will not shy away from
making them. There will also be
significant opportunities. We will
take the appropriate decisions at
the right times to support the return
to growth of our company and the
New Zealand economy.
This report is accurate over
the relevant reporting period
– the 12 months to the end of
March 2020. However, due to the
COVID-19 economic impacts on the
domestic and global economies,
and on Z’s business, some material
issues have shifted since that date,
and we recommend reading this
report together with the year end
results and disclosures available on
the Z Energy Investor Centre which
reference these issues at
https://investors.z.co.nz/financials/
results
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Z Energy and Covid-19:
Supporting the New Zealand
economy and building a
stronger business
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With the advent of COVID-19, Z Energy
has taken a number of material steps to
ensure our ongoing contribution to the
recovery of the New Zealand economy
and to ensure our business emerges
leaner, more competitive and more
resilient than it was before.
Over the first five months of the 2020
calendar year, Z has worked very
differently from how we’ve worked in the
past: We have cut our discretionary costs
significantly and we have strengthened
our balance sheet as a prudent step in
facing an uncertain future.
Strengthening our balance sheet
With Retail fuel demand dropping by
80 percent and Commercial fuel demand
by 50 percent year-on-year during
the COVID-19 Alert Level 4 lockdown,
earnings were significantly impacted over
the month of April in particular.
During the shift to Alert Level 3 in
New Zealand, volumes recovered to
approximately half of normal volumes
and we took the step to keep the market
informed by disclosing weekly volume
updates. We expect fuel volumes to
continue to recover as the country moves
down through the Alert Level responses.
There will be an obvious impact on jet fuel
volumes well into FY21 and potentially
beyond, but it should be noted that jet fuel
is the lowest margin product we sell.
Given the impact on the first two
months of the new financial year, and
the continued uncertainty facing our
business and the economy, we have taken
important steps to strengthen our balance
sheet and protect our business for the
long term.
Our debt providers have been
understanding of the one-off nature of this
impact, and have waived or amended the
usual covenant tests for September 2020
and March 2021, providing Z with flexibility
in the face of significant uncertainty.
The most material step is to complete
a successful equity raise primarily from
existing shareholders. In mid-May, we
raised $290 million from our investor base
via a placement. We also introduced a
share purchase plan, seeking to raise an
additional $60 million. This will enable
Z to pay down $180 million of existing
debt and strengthen our balance sheet.
We welcomed the very strong support
from across our institutional and retail
investor base and thank investors for their
continued support.
We have strengthened our balance sheet
through the equity raise, and remain
committed to continuing to pay down
debt: deleveraging remains a priority.
Our focus is on ensuring that in 18 months’
time, we have deleveraged to a ratio of
between 2.0 and 2.5x debt to earnings on
a post IFRS16 basis. That coincides with
the periods of the debt waivers and will
enable us to resume dividends consistent
with our Distribution Policy in FY22.
We also took the unprecedented step of
choosing not to pay a full-year dividend
for FY20, again in service of strengthening
our balance sheet and ensuring our
company is in the best possible shape
to face an uncertain short-term future.
We have agreed with our debt providers
to not pay dividends until September 2021.
These were not steps the Board took
lightly, acknowledging the importance of
the dividend to investors.
We also provisioned $33 million of
COVID-19-related expenses in FY20.
Cutting our costs
Cutting costs from our business and
ensuring Z is a lean, focused organisation
has been an area of focus following
the sustained shift in fuel margins –
particularly over the last six months
of FY20. Pre COVID-19, Z was already
planning cost reductions for FY21, as
previous investments in some customer
experience, digitisation and data
capability are now complete.
The implications of COVID-19 placed even
greater importance on cost management.
Significant cost reductions have been
identified and Z is committed to delivering
them in FY21.
Given the Board has exercised its
discretion and decided not to pay a
full-year dividend, it was right that the
same discipline was applied inside the
company. Senior management salaries and
director fees were frozen and $8 million in
staff bonuses were cancelled for the FY20
performance year. Fixed term contracts
have not been renewed, employees have
been asked to take four weeks’ leave
before 31 December and vacancies from
any resignations over the past quarter
have not been filled.
Z plans to reduce employee and
contractor costs by up to $14 million
with only one redundancy arising from
COVID-19. Retaining people in jobs will
ensure Z is well-positioned to rebound
from COVID-19 in terms of capability.
Z’s primary distribution costs and
operating expenses in FY20 were just
above $450 million. In response to the
material fall in revenues, Z has targeted
to reduce these costs by $74–$96 million
over FY21. At the bottom of the cost
reduction range, the reductions come in
two key areas:
• A net $48 million of structural and
recurring cost reductions after
allowing for inflation of $9 million.
These cost reductions reflect the
completion of a range of internal
projects and reduced procurement and
supplier spend. The annualised FY22
impact of these structural reductions is
expected to be $55 million;
• $26 million of one-off cost reductions
that are unlikely to continue in FY22
unless market conditions remain
depressed – for example, a reduction
in discretionary marketing in the first
half of FY21. Included in this number is
$18 million of demand-driven costs –
for example, lower fuel delivery costs
and pipeline fees.
There are also further options for one-off
cost reductions under a scenario in which
COVID-19-related impacts place greater
stress on the company than is expected.
While these reductions reflect a strong
commitment to operating off a much lower
cost base, there is ongoing work underway
to identify further structural cost
reductions that do not diminish capacity
or capability to effectively compete.
While we have only made one member
of the Z team redundant because of
COVID-19, there have been 14 jobs that
have been lost through the decision to
hibernate Te Kora Hou, our biodiesel
production plant in Wiri. This was a step
that was being considered in advance
of COVID-19 as, without Government
support for renewable transport fuels,
the economics of local manufacturing are
too challenging at this time. We will likely
retain a number of the team to operate
the plant as a biodiesel import terminal
and are actively investigating importing
cheaper biofuels for supply to ongoing
customers of biofuel products.
In taking these steps we have protected
our core capabilities and sources of
advantage. We have also sharpened our
focus and retained a balanced business
with a focus on productivity and delivering
for our customers.
New ways of working
Back in 2015, Z commissioned a major
piece of work to understand the potential
global and domestic supply chain impacts
of a major pandemic. This informed our
planning for a crisis such as COVID-19.
We were very mindful of the escalating
COVID-19 global crisis and convened our
crisis management team in January of
this year. Working in this way ensured
a tight, focused group of experienced
and capable leaders considering both
the day-to-day operational and logistical
challenges as well as the longer-term
strategic considerations.
We have operated in a crisis response
mode for the last quarter of the
financial year and have now achieved
sufficient stability to transition
COVID-19 workstreams back into
the relevant business units. At the
time of producing this report, we are
focused on operating in a ‘new normal’
external environment with a materially
reduced core crisis management team
overseeing coordination.
The focus of our crisis management
function is now on ensuring a strong
recovery for our company.
Over the lockdown period of Alert Level
4 and 3, we have been well served by
our investments in technology. We had
trialled remote working in advance of
the Alert Level 4 shutdown, ensuring
a smooth transition to remote working
while protecting productivity and
interconnectedness. We will continue to
maximise the use of digital technology
into the future in service of cost reduction
and enhanced productivity.
We worked hard on ensuring we
communicated clearly and consistently
with our people throughout this crisis
and that we kept people connected.
Our overall employee net promoter
score improved from +17 in April 2019 to
+36 in March 2020, despite no bonuses
being paid.
We need to acknowledge that while most
of our staff could work remotely, Z has
also been a critically important ‘essential
service’. We want to take this opportunity
to thank those people who worked in
Z and Caltex service stations during a very
unsettling period, providing an essential
service to our communities and economy.
We also want to thank those people in
operational roles who make our business
work: the 20 percent of our employees
plus our partners and contractors.
These are the men and women in fuel
terminals and airports, the people
who refine, ship and truck our fuel to
customers. These behind-the-scenes
people are the definition of ‘essential’.
Thanks for your commitment
and professionalism.
Community, communication
and reputation
Over this period, in which we have focused
hard on running a safe and reliable
business, we have not wavered from our
brand promise of ‘Z is for New Zealand’.
This is evidenced by a continued growth
in customer net promoter score for both
Z and Caltex over the January to April
period. We have continued to support
not only our people, but our communities
and customers.
Our continued focus on the customer
experience is the right one for our future;
it is adaptable to whatever situation
and whatever experience our customer
needs. Right now, this means delivering
the quality fuel that customers need
and providing the assurance that we are
leading the return to business-as-usual
operations with constant consideration
for their safety.
Within the broader business community,
we have waived account fees for small to
medium-sized businesses and donated
a month of free fuel to our partners,
St John Ambulance and Wellington Free
Ambulance, as part of supporting the
frontline response. We have supported
the Student Volunteer Army with fuel
to enable them to deliver essential
supplies to elderly or vulnerable people
during lockdown. We have shared
our experiences of working in a crisis
response mode freely and frankly and we
have continued to be transparent with the
financial markets and with the media.
In what has been an incredibly complex,
challenging and downright hard financial
year, it has been pleasing to see our
efforts rewarded with a slight increase
in the Colmar Brunton Reputation Index,
coming in at number 14 of the country’s
most trusted brands, up one from the
last survey.
We’re committed to building on this
as we continue to play our part in
New Zealand’s economic recovery.
Our business is in good shape to lead
this recovery.
Rārangi
ūpoko
Contents
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None of these reporting frameworks
are compulsory. We believe choosing
to use these frameworks together
enables us to produce an annual
report of integrity – a report with
high standards of transparency,
which delivers the information that is
most material to our business and to
our readers.
This document constitutes Z Energy Limited’s
2020 Annual Report to Shareholders. It exceeds
the requirements of the NZX Corporate
Governance Code and Environmental, Social and
Governance Guidance Note.
2 COVID-19 and this Annual Report
6 How we report
8 A letter from Mike and Abby
16 Our numbers
18 A decade in review
20 Our values
22 Our business model
24 Determining what really matters…
27
28
How we create value for
our shareholders
How past and present strategy
drives our future
30 What matters for our customers
46 What matters for our economy
52 Why what we stand for matters
78 Corporate governance statement
80 Our Board
88 Our executive team
116 Additional disclosures
121 Financial statements
152 Auditor’s report
158 TCFD Index
161 GRI Index
IBC Company directory
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Te ara tuku
pūrongo
How we
report
How we choose to report
on our commitments
There is a growing number of different
annual reporting frameworks against
which companies can choose to
report. It can become confusing and
complicated for readers to compare the
different methodologies, frameworks
and reports.
How Z Energy chooses to report
reflects our commitment to focusing
on the issues that really matter – for
our customers, our investors, our own
people and our increasing universe
of stakeholders with an interest in
our business.
We choose to report against the
Integrated Reporting Framework.
We believe this framework sets the
highest standards of transparency and
disclosure. It also requires us to consult
multiple stakeholders to ensure that what
we report against are indeed the issues
that matter most, and not just from our
own perspective.
Both frameworks require us to clearly
articulate our business model and how
we create value.
Integrated reporting is a much more
future-focused framework than the
traditional ‘year in review’ approach.
This is our fourth year of Integrated
Reporting and, as issues such as climate
change become of increasing concern
to our stakeholders, our commitment
to reporting on how we think about our
future, including our strategy, is now
critical to how we choose to report.
Integrated Reporting is our primary
reporting framework. Supporting
this framework, we also choose to
use the Global Reporting Initiative
(GRI) Standards: Core option and
the Financial Stability Board’s Task
Force on Climate-related Financial
Disclosures (TCFD).
The Financial Stability Board is an
independent global organisation that
makes recommendations to protect
global financial security.
Given the industry Z is in, and the
growing global concern around climate
change, we believe that using the
recommended TCFD framework is the
right thing to do. We will begin this year
and progressively report against all
of the new recommendations over the
next three years. This report provides
a roadmap of what we will deliver in
terms of our climate-related financial
disclosures over this period.
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He reta nā
Mike me Abby
A letter from
Mike and Abby
On 1 April 2020, Z Energy marked its first decade
as New Zealand’s leading integrated transport
energy company.
While the primary focus of this report is
not on the past, there is much we must
apply to our future and our strategy
through what we have learned over
the last decade.
Z’s purpose is ‘solving what matters
for a moving world’. What matters
today to our world – our customers,
stakeholders, investors and staff – has
changed materially from a decade ago;
indeed it continues to change at a pace
we have never before experienced.
This report is themed around focusing
on what really matters – right now
and into our future. It makes for some
challenging reading because the
relationship between our world’s use
of energy and the future of our planet
is the biggest challenge we have ever
collectively faced.
Z is at the centre of this challenge
and it’s one we will not shy away from.
Facing
into paradox
Our
performance
The 2020 financial year (FY20) was the
most challenging in Z’s history for a
wide range of reasons, not least for the
multiple conflicting demands we faced on
a daily basis.
FY20 was a year characterised by
paradox: we saw school children
blockading roads in protest over climate
change while their parents demanded
ever cheaper fuel; Z was taken to court
by a climate-change activist while we
actively invested in projects to cut our
own and our customers’ emissions; the
Commerce Commission determined that
historic industry profit levels had been
higher than expected at the same time
competition reached unprecedented
levels and retail fuel margins sank to
their lowest level in eight years.
Parliament unanimously passed a
Zero Carbon Bill and established
an independent Climate Change
Commission while current policy
settings saw New Zealand’s fossil fuel
consumption continue largely unabated.
All of this is simply an acknowledgement
of how our context changed: Z must
increasingly manage competing demands
from all of its stakeholders. With energy
and climate change now so inextricably
linked, we must operate and thrive in
what we call ‘the world of both’.
Our strategy for the future is designed
to ensure we do.
Our financial results were disappointing.
We did not meet our earnings
commitments to our investors or to
ourselves. We are accountable for this
and have taken swift action. The Z Board
and Executive Team has completed
a thorough review of the company’s
strategy and operations, including its
cost and capital bases, to ensure we start
our next decade as a leaner, more agile
and focused company.
We reported a Historic Net Profit after
Tax (HC NPAT) loss of $88 million,
compared with a profit of $186 million
for the previous corresponding period
(PCP). However, on a Replacement Cost
basis, we delivered Replacement Cost
EBITDAF of $366 million against our
original guidance at the start of the year
of $450–$490 million. We had previously
reduced our original dividend guidance
from 48-50 cents per share to 40 cents
per share in December 2019. With the
pressures emerging in the last week of
the year associated with COVID-19 and
the lockdown of the country, the Board
has taken the decision to suspend the
FY20 dividend in favour of preserving
balance sheet strength and preparing for
what promises to be a highly challenging
and uncertain FY21.
Many of the reasons for Z’s full-year
financial performance were from
significant factors outside of our control;
some were from our responses to
changing market conditions. Of greatest
impact was the compression of retail fuel
margins from July 2019 – a consequence
of four years of industry investment
in new service stations and a rapidly
changing loyalty landscape.
The performance of Refining
New Zealand negatively impacted Z.
Weak global refining margins meant
that Z only received limited financial
benefit from using the refinery, and
we had to pay the refinery to process
fuel on its behalf. This resulted in
$35 million less EBITDAF, relative to
our original guidance.
In terms of where we have not
responded effectively to changing
market conditions, we mis-read
the impact of Caltex’s exit from the
AA Smartfuel loyalty programme,
which negatively impacted our fuel
margin and market share.
We were not fast enough to roll out
new customer offers and innovative ways
for customers to receive value in new
ways. Against an environment in which
there have been ever greater levels
of competition and consumer choice,
this contributed to loss of both margin
and volume.
On top of challenging and volatile market
conditions, over the course of the year
Z managed a complex interface with
Central Government, including a full
12-month Commerce Commission inquiry
and subsequent legislation, an inquiry
into the 2017 Refinery-to-Auckland
Pipeline (RAP) failure and consultations
and legislation directly concerning
our business.
We also took the decision to write
down $35 million from the value of the
Flick Electric business, and $61 million
from some Caltex fuel supply contracts.
CHAIR AND CHIEF EXECUTIVE’S REVIEW
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Retail competition
and fuel margins
The Commerce
Commission
So where to from here?
Our strategy and capabilities
While Z robustly challenged the flaws
in the Commission’s methodology
and calculations on profitability, we
also fronted up with ideas to further
improve competition. We were open
to providing Terminal Gate Pricing –
where the industry would sell fuel to our
competitors from our own bulk storage
assets – and this ended up being the
most material recommendation from
the Commission.
Z has invested in an unrivalled network
of bulk fuel storage terminals that we
directly own and operate and we are
committed to commercialising their
operations. So long as the true costs
of the terminal operation, including its
capital costs, are fairly reflected in the
Terminal Gate Price, we’re happy to sell
the fuel to whoever wants it.
It’s another example of both paradox
and irony that this competitive dynamic
was playing out so vigorously while the
Commerce Commission was conducting
a market study into historic levels
of competition in the New Zealand
fuels industry.
Unfortunately, because the Commission’s
work was primarily backwards-looking
from 2018, in our view, it did not
sufficiently account for the current
market context that has emerged over
the last 18–24 months. As a result,
its assessment of profitability was
seriously flawed.
Regardless of the findings, we do
not think the subsequent legislative
interventions were disproportionate.
We believe they support our strategy
and bring some much-needed change
to embedded industry structures.
Z had been supporting calls for the
Commerce Commission’s work for some
time. There needed to be independent
and real-time analysis of the sector and
the levels of competition within it to
take the politics out of the industry and
to give consumers and all stakeholders
clarity. For Z, the regulatory uncertainty
has been a major drag on the confidence
of the company’s investors.
While the headlines might have told
another story, we’re proud of the way
Z engaged with this process.
We have clearly entered a new phase
of the margin cycle in which retail fuel
margins have peaked (for Z, profitability
peaked at 5.5 cents per litre in 2013).
Z’s profitability over FY20 was 2.3 cents
per litre – down 59 percent from its peak.
There are now 21 retail fuel companies
supplying Kiwi consumers and
competitive retail pressure has never been
higher. Over the last two years, 54 new
retail service stations have been built by
competitors across New Zealand and they
are all competing on price for volume.
How these new sites and the estimated
300 existing lower-volume industry
sites will fare under the pressures of the
current retail fuel margin environment,
not to mention the pressures associated
with COVID-19, remains to be seen.
However, we expect there to be
further activity as the industry adjusts,
consolidates and responds to what is
now a very challenging retail fuel market
– particularly for any highly leveraged
new entrants, or those lower volume
legacy sites.
This is a case study in structural
change: A decade ago there were only
about 17 companies supplying Kiwi
motorists and price discounting was
almost unheard of. Over FY20, almost
100 percent of Z’s total fuel volume was
discounted. There are now 21 companies
competing for customers in the
retail market.
While there has been a structural margin
shift in the industry, Z has the quality and
strength of assets across terminals, retail
sites and commercial truck stops to offer
an unparalleled customer offer.
3,837 million
litres
Total fuel volume (litres)
4,172 million litres
Over the year, we have, as a Board and
management team, thoroughly and
formally reviewed Z’s strategy, our range
of operations and markets in which we
participate and our capabilities to deliver
our strategy. While we have a range of
strategic options available to us, we have
satisfied ourselves that we have the right
strategy for the right time and that we
now have the capability to execute it.
In reviewing our strategy in the context
of this year’s performance and the
structural shifts in the industry, we
have also focused on ensuring that
Z’s cost and capital structures are
appropriate for the next phase of our
journey and that we can also continue
to de-risk the business through ongoing
debt reduction.
Our focus on executing strategy
will be underpinned by careful cost
management and reduction, and
constant review of all elements of
the business to ensure they are
adequately contributing to our financial
performance. These elements are all
increasingly important as we face
the significant uncertainty that will
come with the global response to the
COVID-19 pandemic, including how it
impacts the New Zealand economy.
While we are disappointed with our
financial result, the review the Board
has led into FY20 sees us start our next
decade with clarity and focus. We are
excited about our future and the options
we are generating.
FY20 was an important year in that a
number of uncertainties, challenges
and issues have been addressed
and resolved.
There is no longer a regulatory
overhang on the company and sector.
The Commerce Commission review
is complete and the requirements on
Z are manageable.
We were given notice of the requirement
to exit the AA Smartfuel loyalty
programme and have fully implemented
a robust loyalty programme of our
own. ‘Pumped’ is performing well and
resonating with customers. We now have
an integrated loyalty offer which, through
our digitisation work, will enable us to
deliver highly targeted individual offers
to customers and communicate directly
with them. We believe Pumped can now
deliver retail volume and the value that
customers seek in a highly competitive
and increasingly price-focused market.
On top of this, we remain partnered
with two of the country’s leading loyalty
programmes – Airpoints and FlyBuys
– and offer customers unparalleled
loyalty reward.
We have successfully executed a
strategically important technology
project which sees all Z and Caltex
Commercial customers able to use a
single card for access to what is now
the most extensive and convenient
refuelling network available to
customers nationwide.
We are delivering strong performance
in the commercial markets. We have
completed a pricing review of the
Commercial business and have an
integrated customer offer which reflects
our scale and delivers convenience and
value for our customers. We are now also
able to reduce costs through bringing
the Caltex and Z networks together
for Commercial customers who have
demonstrated they are prepared to pay
for the unrivalled benefits from accessing
two networks with one fuel card.
The same is true in the Z fuel terminal
network where our investments now
provide us with opportunities to generate
improved commercial returns from the
reliable operation of the supply chain
infrastructure side of the business.
We have been reliably producing
biodiesel from our Wiri production
facility. This has provided a valuable offer
to customers in the commercial markets,
which is helping us win and retain key
accounts. However, producing biodiesel
does not stack up financially without any
form of subsidy and the economics are
highly challenging. While our customers
value the choices that our biodiesel gives
them to reduce their own emissions,
we cannot continue to lose money on
producing it. This goes further to the
paradox we face – we can produce
high-quality biodiesel that significantly
cuts emissions, but it consistently loses
money. Decisions were taken on future
operations of the biodiesel production
facility subsequent to preparation of
this annual report; see page 5 for detail.
As a result, we face very tough choices
around ongoing biodiesel production in
New Zealand.
At the heart of the execution challenges
that have been highlighted over the last
year lies our commitment to building
capability. We need to move faster and
with greater focus. We must innovate
and bring new products and offers to
customers first and scale up fast.
CHAIR AND CHIEF EXECUTIVE’S REVIEW
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Our strategy choices will
see us using our unique
capabilities to earn the
loyalty of customers
and to delight them with
innovative experiences.
We have seen some evidence of this
already occurring in the Commercial
business which has delivered improved
financial performance, completed a major
technology transformation project and
won new customers through an integrated
offer and approach.
We have introduced a commitment
to agile, and we are actively applying
this approach in which cross-business
teams rapidly develop and deploy new
initiatives across Z – whether they are
customer-facing or not.
We have built new digital capabilities
which we are now applying across all
of our operations – from using artificial
intelligence (AI) to deliver more accurate
and cost-effective fuel forecasting,
to streamlining safety and wellbeing
reporting processes, to protecting
our customers’ data, to delivering new
customer offers through better targeting.
We are also now uncovering process
automation opportunities that support
more efficient, effective operations and
expect to see this digital capability
reflected in reduced operating costs into
the future.
Over the year, we have continued to
invest in our capability in delivering
both customer experience (CX) and
innovation. Our people are increasingly
well-equipped for rapidly executing new
products and offers and our culture
is increasingly open, innovative and
receptive to change.
All of these initiatives are driven by clear
strategy and we have reorganised a
number of our functions over the year
to ensure we deliver it. Over the last
decade Z has had three distinct and
deliberate phases of strategy: The launch
of Z, its brand and offer; the IPO of Z; the
acquisition and integration of Chevron
New Zealand. We are now launching our
fourth phase of strategy which is focused
on optimising our core business while
developing options for the future.
We are now taking the necessary steps
to get our own house in order, given the
structural changes that have occurred in
retail fuel margins (see COVID-19-related
commentary on page 4). This requires
us to focus on our core assets, drive
more productivity from our cost and
capital bases, and then sensibly invest in
the customer experience that matches
changing consumer and business needs
over the next decade.
Where there are opportunities for more
contributions from any part of the
business, expect us to move faster to
seize the opportunity and advantage.
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He oati ki te
manaaki i te taiao
Our promise on
climate change
The products that we sell and our
customers use are at the heart of the
climate change problem; we have choices
as to our role and contribution to the
solutions our planet needs.
We’re committed to running a safe,
reliable and increasingly efficient core
business that gives customers what
they want and need, while leading
and supporting the transition to a
low carbon economy. We will look for
sensible opportunities to generate
returns from the growing commitment
to low carbon technologies. We will
continue to innovate and look to build
partnerships with our customers, with
Government and with our stakeholders
to find new ways to bring our country’s
emissions down.
Our promise is to work with anyone in
the service of new ideas, products and
offers that cut emissions. By way of just
one example, Z has introduced a feature
in the Z Application (App) that enables
the carbon emissions from every litre of
fuel purchased to be voluntarily offset
through permanent New Zealand forests.
Every customer – even those that don’t
buy fuel from us – now has this option to
offset via our App. We will be increasingly
promoting this as just one way that we
can all do our bit to minimise our impact
on climate change.
Over the last decade, climate change
has become the issue of our time.
Our promise is to deliver shareholder
returns while meeting our customers’
needs and moving from being a part of
the climate change problem to being at
the heart of the solution.
This is a highly distinctive promise
in this industry that gives fuel
consumers – and investors – very clear,
values‑based choices of their own
to make.
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CHAIR AND CHIEF EXECUTIVE’S REVIEW
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Te anamata
Nga Pūrākau
Our future
Our stories
Over the last year, Z has been impacted
by many elements that have required
its response and reaction. Again, that’s
business, but it’s been a unique year.
On reflection, we struggled to maintain
focus in an environment with so many
competing and conflicting demands.
Our ability to execute strategy suffered
and so too did our ability to maintain
the leadership position we have earned
over the last decade. We have, rightly
or wrongly, let others tell our story as
they see it, and we lost some of the
confidence that has characterised Z.
With the closing of one decade and the
beginning of another, you should expect
to see much greater focus from Z in
the coming years – both on disciplined
implementation of strategy and on
generating options for our future.
Expect to see more of Z leading the
conversations that matter, regardless
of how polarising or unpopular the
topic. Expect to see us celebrating
success, taking calculated risks and
innovating beyond what people could
expect. You should expect to see us
encouraging the diversity of our people,
to drive diversity of thinking. We will call
ourselves out when we get things wrong
as well as hold ourselves to account for
delivering against our performance.
The following decades will almost
certainly be characterised by continued
volatility, uncertainty and ambiguity,
but we have the assets, the scale, the
diversity of people and thinking, and the
financial resources to enable the Z of the
next decade to thrive.
We aim to consistently and reliably
reward our investors with reliable returns,
delight our customers with new products
and offers, and continue to support the
New Zealand economy with safe, secure,
reliable transport energy – even as we
stand for a new energy future and a
low carbon economy for all of us.
Thank you for your support of Z.
Abby and Mike
YEAR AT A GLANCE
Ngā
raraunga
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Our
numbers
FY20
Annual results comparison
FY19
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$44m
Replacement cost net profit after tax
$178m
1.1cpl
Replacement cost net profit after tax per litre
4.3cpl
$102m
Capital expenditure
$86m
3,837 million
litres
Total fuel volume (litres)
4,172 million litres
56.6m
Total transactions on Z-branded retail sites
56.7m
-$88m
Historical net profit after tax
$186m
2,451
Z’s direct employees, contractors and retail
network members
2,656
100%
Safety and wellbeing actions complete rate
99.5%
16.5c
Total dividend per share
43c
11c
Replacement cost net profit after tax
per share
45c
-49.71%
Total shareholder return
-5.2%
$366m
Replacement Cost EBITDAF
$434m
+36
Employee net promoter score
+17
+9
Business net promoter score
+15
+38
Retail net promoter score
+41
12.1
million
tonnes
Total carbon footprint – carbon dioxide
equivalent (tCO2e)
11.9m tonnes
Please refer to our notes about a restatement of
our annual Greenhouse gas emissions on page 59
40,000 tonnes
CO2-e
Carbon emissions offset
58,559 tonnes CO2-e
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He tirohanga
ki te tekau tau
A decade
in review
Z’s first decade saw our company
achieve some remarkable milestones.
Greenstone Energy
purchases Shell NZ’s
downstream assets
Z brand
introduced to NZ
Z lists on NZX
and ASX (ZEL)
Forecourt
concierge
Z Espress
launched
Acquisition
of Card Plus
Investment in
BioDiesel plant
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Innovation
Refinery
is launched
SHARETANK®
Sharetank
is launched
Started refinery
optimisation project
Chevron NZ
acquisition including
Caltex brand
Fastlane @ Z
launched
Pumped
is launched
Z Business
launched – our
new fuel card
Founding
member
Biojet
Consortium
Investment in
Mevo, a car share
service
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Our first
HSSE Day
Good in the Hood
is launched
Health, Safety, Security
& Environment (HSSE)
Stand introduced
Z Why
foundation
document
WHY
Z’s first
Sustainability
policy is
launched
Strategy
Customer
Stand
Z’s first decade saw our company achieve
some remarkable milestones. From market
listings, the launch of a distinctive Kiwi brand,
capital raisings, major corporate acquisitions,
the building of a network of advantaged
strategic assets and years of very strong
and consistent financial performance… the
list of traditional measures of our company’s
success over a decade is strong.
But reflecting on these traditional measures
of past success doesn’t help us to win in what
is a highly uncertain future. We’re only as
good as our last result and the options we’re
generating for our future.
So we have chosen to take a look back at the
last decade – what we have delivered that
makes us distinctive and that will directly
contribute to our future success – and we’ve
decided to focus on elements of our strategy,
our stands and our customers.
Z introduces
EV Charging
stations to
forecourts
Z Contributes
to BEC2050
Kayak & Waka
future Energy
Scenario's
Accredited as one
of Aon Hewitt’s Best
Employers
Introduced
Pay at Pump
at 120 sites
Z launches
Diversity
& Inclusion
Stand
RAP outage
management
First House
View on
Electric
Vehicles
published
Fly Buys
Pumped
launched
Z achieves
Rainbow
Tick
Certification
International
HSE
Certification
received
Bring terminals to
in-house operations
Z purchases 70%
of Flick Electric
Pre-order
Coffee
available via
Z App
Launch of
customer
carbon
offsetting via
Z app
Climate
Leaders
Coalition
launched
Z partners with Drylandcarbon
+
Launch of
We’ve got your
back Campaign
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Ō tātou
uara
Our
values
Z is a values-based business.
Before we even get to our
business model or our strategy,
our bedrock foundations have
always been our values.
Our values are what we believe in.
They are reflected in how we do
business, the decisions we make and the
way we behave. They are woven tightly
together and are deeply interconnected.
They are also non-negotiable. If people
can’t stand for or share our values, then
Z isn’t the right place for them.
Z’s first set of organisational values
served us well as we transitioned from a
globally-owned, integrated oil company
to a stand-alone, independent transport
energy company.
As we draw a line under our first decade
and prepare to thrive in a future with new
opportunities and significant challenges,
the time has been right to review and
reset the foundations of our company.
In choosing to state what we stand
for so publicly, we are inviting people
to hold us to account for living these
values. For our staff, our customers and
our stakeholders, this is how you will
see us behave, act and make decisions.
Z’s ambition is simply ‘to be a world-
class Kiwi company’. Our purpose is
to ‘solve what matters for a moving
world’ and we choose to be distinctive
in standing for four critically important
areas for our company: Safety and
Wellbeing, Environmental Sustainability,
Community, and Diversity and Inclusion.
This report is focused around the theme
of ‘what really matters’ and material from
each of our four ‘stands’ will be covered
in depth in this report.
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In an increasingly complex world, we
have chosen to simplify what we stand
for. We start our next decade standing
for the following three things:
In an increasingly complex and uncertain
world, we have chosen to simplify what
we stand for. We start our next decade
standing for the following three things:
Tū kaha
Stand out
Tū māia
Speak up
Tū kotahi
Side by side
We believe we can build a better
business and a better world
We are distinctive where it really matters.
We challenge the status quo by being
bold, innovative and passionate. We
work relentlessly to be a force for good
for our communities, our economy, and
our planet.
We believe extraordinary
outcomes are fuelled by active
participation and dialogue
We believe learning and
growing together delivers
unlimited potential.
We speak up with courage around what’s
important to us and encourage others to
do the same. In doing so, we will create
new possibilities together.
We’re better together – holding each
other up as well as challenging ourselves
to grow and develop. Side by side with
our people, our customers and our
communities.
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Tō tātou
anga pakihi
Our
business
model
The Integrated Reporting framework adds particular value by requiring an
organisation to explain its business model in terms of its inputs, the outputs it
generates and how the organisation creates value.
This report will expand on a number of the following points in more detail,
but here is a short summary of our outcomes over FY20
2. Our finances
Z did not deliver against the financial
guidance we provided to the market
in May 2019. We have reviewed our
cost and capital bases, as well as the
company’s operations and begin the
2020 calendar year with a commitment
to a leaner, focused and more efficient Z.
Over the year we have taken steps to
protect and begin to grow our retail and
commercial fuel market positions in an
increasingly competitive market – such
as the successful implementation of
the Pumped retail loyalty offer and the
streamlining of single card access to both
the Caltex and Z-branded commercial
refuelling network.
Given Z’s scale and strength of balance
sheet, we are committed to a reliable
level of returns to investors.
1. Our assets
We now have an unparalleled network
of high-quality retail service stations,
commercial truck stop facilities and
bulk fuel storage terminals across
New Zealand. These assets provide
unrivalled convenience of access
and are a source of enduring value
and advantage for both Z and our
Commercial and Retail customers.
Z derives value from operations across its
entire supply chain, particularly from the
refinery through primary distribution, bulk
storage and then secondary distribution
of fuel products to customers.
The strength of our refuelling network,
particularly for Commercial customers
who can now use a single card to access
both Z and Caltex-branded networks,
provides us with an advantaged position
with which to compete for commercial
fuel accounts.
Z directly owns and operates its own
bulk fuel terminals and is committed to
commercialising access to them. In this
context, the Commerce Commission’s
recommendation that bulk fuel
terminals should provide Terminal Gate
Pricing of fuel to competitors provides
Z with opportunity to generate more
commercial returns from these terminals.
3. Our capabilities
Our strategy – the way we will win in
the future – will be delivered through
bringing unique capabilities to focus
on optimising the operation of our
core business. In service of this, we
are deliberately building capabilities
across the business in three key areas:
The customer experience, digital
technology and innovation. We will
deliver a leaner, more efficient and more
agile Z to deliver this strategy.
During 2020, we intend to launch a
new leadership framework based on
the principles of ‘connecting, taking
action and learning’. The leadership
and the culture we seek to foster inside
Z enable us to thrive in an increasingly
volatile, uncertain and ambiguous future.
We continue to evolve how we are
working through the adoption of Agile
and design-thinking methods in service
of increasing our execution capability.
Our commitments to building new
capabilities are in service of efficiency,
delighting our customers, optimising
costs, and delivering with speed.
These capabilities set us up to deliver
our strategy and are already resulting
in a more open and inquisitive culture.
They help us generate options and
enable us to run a more productive core
business at the same time as preparing
us for what comes next.
Z prioritises the following
six inputs and outcomes
we call them our ‘capitals’
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Our inputs
Our assets
Our finances
Our capabilities
Our people and culture
Our environment
Our place in New Zealand
Te pūtake
Our purpose
Solving what matters
in a moving world.
Te whiriwhiri he aha ngā
āhuatanga matua ki te ao
nekeneke
Our outcomes
Our assets
Our finances
Our capabilities
Our people and culture
Our environment
Our place in New Zealand
4. Our people and culture
A challenging financial year, in which
targets were not hit and bonus payments
reflected this, was a meaningful test for
an organisation’s engagement levels and
culture. Z’s staff engagement remains
high and its employment brand strong,
with the ability to attract leading talent.
Z’s workforce diversity is fostered
through a commitment to integrating
diversity into all organisational
processes and decisions, rather than via
one-off programmes. There is a strong
alignment between the personal values
of the people that make up Z and the
organisational values that have just
been reset.
5. Our environment
The state of the world’s natural
environment as a result of climate
change is of huge concern to all of our
stakeholders – and to Z.
Z seeks to be distinctive in working
relentlessly to reduce and offset its own
emissions and to provide our customers
with opportunities to reduce and offset
their own.
Z has been selling biodiesel into
commercial markets, has just launched
a customer emissions offsetting
option, and has contracted the use of
energy-efficient, refined-fuel import
vessels to further cut business emissions.
Z currently offsets all of its operational
emissions and, in 2017, committed to
reducing its operational emissions by
30 percent between the end of FY17 and
FY21. At the end of FY20, Z has reduced
its operational emissions by 12 percent off
baseline in three years. We recognise the
challenge ahead to reduce a significant
portion of emissions over a short time
frame. What is not reduced will continue
to be offset in permanent forests.
Z has formed a partnership with
Permanent Forests New Zealand
and in March 2019 was confirmed as
a foundation joint venture partner
in the forest offsetting company,
Drylandcarbon Limited.
6. Our place in New Zealand
Z is a proudly Kiwi company that has,
for the last decade, sought to contribute
not only to the communities of which
we are a part, but to start a discussion
and debate around the things that
matter most.
On top of a range of other community
investment initiatives, over the last
decade Z has contributed $7 million
to community organisations that our
customers and neighbourhoods tell us
are doing the work that matters most via
our Good In The Hood programme.
We never lose sight of the fact that
what we do underpins the entire
New Zealand economy. As such, we are
committed to the highest standards of
operational safety, transparency and
care, not only for people, but for our
natural environment.
We believe there are few other
companies that play such a critical
role in the day-to-day running of the
New Zealand economy that are so
committed to playing their part in
transitioning this economy to one with
low carbon emissions. Our commitment
to both of these outcomes is stronger
than ever.
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Te whakatau
i ngā aronga matua...
Determining what
really matters…
Integrated Reporting requires us
to report on ‘material’ matters.
To us, that means the things that
really matter to our stakeholders.
Some things that matter to certain
stakeholders – politicians, for example
– are blindingly obvious to everyone
because their comments are reported
publicly. As a high-profile public company
that values engagement, by the end of a
year we generally have a pretty good feel
for what’s on people’s minds, but we also
take the time to ask via regular electronic
engagement surveys.
The following are the main external
stakeholder groups Z engaged with
over the year:
Central Government
It was a very big year for engagement with
Central Government. The government
requested the Commerce Commission
undertake a market study of the fuels
industry, which Z supported. This was
an intensive, 12-month process that
required public hearings, multiple
submissions and continued engagement
with the Commission. It culminated in the
commitment to passing legislation before
the end of the 2020 calendar year.
At the same time, the Ministry of Business,
Innovation and Employment (MBIE)
conducted an inquiry into the 2017
Refinery-to-Auckland Pipeline (RAP)
failure which also required intensive
engagement.
Alongside ongoing political conversations
around fuel prices, retail competition
and security of supply, Z also engaged
consistently on a wide range of issues
around climate change policy, most
significantly in support of the Zero Carbon
Bill. Z also engaged in the Government’s
Electricity Price Review in service of
trying to secure changes to deliver a fairer
wholesale electricity market.
While we have had different perspectives
on matters of fuel pricing and retail
competition, these issues are largely
resolved. This leaves Z to focus
on continuing to support areas of
common interest – namely how to meet
the commitment to New Zealand’s
international climate change obligations
and build a low carbon economy.
At the very back end of the financial year,
Z was actively engaged in workstreams to
support the Government’s response to the
COVID-19 pandemic.
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In response to the tragic Christchurch
mosque shootings in which 51 people were
killed, a national discussion kicked off
around racism in New Zealand. Z’s Retail
operations is staffed by an incredibly
diverse team which are all too frequently
the subject of racial comments and abuse.
As part of making a small contribution to
the national discussion, we launched our
‘We’ve got your back’ internal campaign
in which our people shared their own
stories of racism and discrimination – all in
service of ending racism in New Zealand
and building healthy, resilient communities
and workplaces.
The business community
Z’s Chief Executive has also chaired
the Climate Leaders Coalition – a group
of what has become over 120 leading
businesses all committed to measuring
and publicly reporting their greenhouse
gas emissions, setting a public emissions
reduction target, and working with
suppliers to reduce their emissions.
Through this role, Z has, indirectly, been in
constant conversations with New Zealand’s
broader business community and political
stakeholders around mitigating the risks of
climate change. The Coalition committed
to limiting global climate change to
1.5 degrees Celsius – more ambitious
than the 2 degrees Celsius in the Paris
Agreement – and to actively expressing
support for the Zero Carbon Bill which
was passed in November 2019.
Investors
Z’s Board and management engages with
its investors on an ongoing – sometimes
daily – basis. Z holds multiple investor
roadshows and typically holds an annual
investor day focused on strategy, as well
as an Annual Shareholders Meeting (ASM).
Z is always mindful that its shareholders
are the owners of the company and seeks
to engage openly and transparently at
all times.
Key issues on the minds of investors over
the year have been company strategy, fuel
demand and margins, capital management
decisions, dividend policy, regulatory
issues and Z’s approach to environmental
sustainability in the face of growing
concern about climate change.
The media
Z is committed to fronting up and
responding to issues of public concern.
The media, in all of its increasingly diverse
forms, is an important stakeholder to Z,
enabling us to tell our stories and lead
conversation and debate. Over the course
of the year, Z engaged widely with all types
of media – often when nobody else in this
industry would.
Issues which dominated Z’s media
engagement over the year, including its
own social media channels, tended to
follow the political processes and inquiries
over fuel pricing, security of supply and
climate change.
Our customers and communities
Z serves a diverse range of customers
across equally diverse communities, right
across New Zealand. We’re constantly
seeking feedback around what our
customers want and building that into new
offers and experiences.
Z’s Good In The Hood community
investment programme seeks input from
customers and communities as to the
kinds of services they value the most and
then helps support them. Over the year,
as part of our commitment to making
sure we’re acting as a force for good, we
reviewed Good In The Hood, asking the
Ākina Foundation to undertake a Social
Community Impact Assessment of the
programme.
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Our material topics
Summary of material topics discussed
in stakeholder engagement, grouped
by value outcome areas
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Market Transparency & Fairness
Climate Change
Government
& Stewardship
Strategy Assurance
Capital Strategy
Environmental Sustainability
Resilient Communities
Cyber Security & Data Privacy
Economic Sustainability
Responsible Consumption
& Production
Competition & Market Share
Safety & Wellbeing
Wholesale
Asset Profitability
Customer Experience
Future Fuels
Security of Supply
Diversity & Inclusion
Organisational Capability
Brand Values
Product Quality
Important
Key
Importance to Z
Material
Our
assets
Our
finances
Our
capabilities
Our people
and culture
Our
environment
Our place
in New Zealand
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Kia puta he hua
ki ngā kaiwhakangao
How we create
value for our
shareholders
Z’s strategy is focused on delivering
strong, reliable returns for shareholders.
We will create value for shareholders
by focusing on our core business
and operating a safe, reliable fuels
business. We will ensure we generate fair
commercial returns for our scale, network
strength and the essential infrastructure
we own and operate. We will manage our
capital and balance sheet with discipline
at the same time as we deliver returns to
shareholders, generate options for our
future, and ensure we are advantaged
under a range of future scenarios.
Z has a strong, long‑term future
ahead of it. Shareholders should
expect Z to…
Optimise 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
Pursue 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
Allocate 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
Remain 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
Do 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
WHAT WE STAND FOR NOW
Titiro ki muri kia
tika ai a mua
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How past
and present
strategy
drives our
future
The first decade of Z’s strategy
– delivered over three deliberate
and distinctive phases – not only
delivered very strong shareholder
returns, but also steadily built the
asset and offer base from which
we will grow and serve customers
for the coming decades.
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All of these initiatives have been borne
from the three previous iterations of
strategy over the last decade. Our new,
fourth phase of strategy will drive results
from a highly distinctive customer
experience (CX), supported by efficient,
agile operations. We are building
new capability in innovation, CX and
digitisation and have carefully built the
diversity and culture we need to succeed.
Over FY20, our strategy was
comprehensively reviewed and
challenged by both the Board and
management. The Board’s review
covered strategy and Z’s capability to
execute it, as well as reviewing Z’s costs
and capital structures. The Board
concluded that Z has the right current
strategy and that a leaner, more focused
Z will be required to deliver it with
rigorous and competitive processes
for resources internally.
Management used Z’s Assurance
function to thoroughly review our
approach to strategy. The review
focused on the development, execution,
monitoring and measurement of our
current strategy.
Throughout our last strategy phase
we consolidated the industry, realising
the synergy value of the acquisition of
Caltex New Zealand. In bringing Caltex’s
commercial truck stop and retail service
station network together with Z’s, we
have created the most accessible,
convenient and comprehensive refuelling
network in the country. Similarly, we have
invested in building and integrating an
unrivalled bulk fuel terminal network of
quality, scale and geographic reach from
which to serve our customers.
We have invested in establishing a
leadership position in convenience
food and coffee across our retail
operations, built our own loyalty
programme, partnered with our preferred
supermarket chain and delivered the
ultimate ease of access for Commercial
customers to the integrated Z and Caltex
networks with a single fuel card.
This was an important, insightful
exercise that taught us valuable and
timely lessons. We learned that our
strategy execution could be enhanced
by consistency in the way we articulated
and understood exactly what our
strategy was and wasn’t. We learned
that we could be more efficient both in
terms of how we prioritise and allocate
resources, and in how we monitor and
measure execution against strategy.
At the end of this year, the review has
identified the gaps and plans are in
place to ensure they are remedied.
One example of this in action is through
the introduction of a 90-day competitive
resource allocation process to ensure
resources strictly line up against
strategic priorities and mirror the
Agile way we now work.
We have articulated our strategy internally in fewer than 100 words:
“Our ultimate goal is to solve what matters for a moving
world by optimising our core business so we can transition
to a low carbon future. Our strategic priorities are to:
always be safe and reliable, deliver awesome customer
experiences, generate heaps of free cash flow,
and grow our non-fossil fuels income.”
WHAT WE STAND FOR NOW FOR OUR CUSTOMERS
Ko te mea nui
mō ō tātou kiritaki
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What
matters
for our
customers
91
My Sharetank
$419.80
200L
200L
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Kia harikoa
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Delighting our
Retail customers
There’s now a full range of choices for
customers in terms of what they want
from a refuelling experience. Over the
last few years there’s been a boom of
unstaffed retail service stations on
out‑of‑the‑way or difficult‑to‑access
sites ,selling basic fuels – such as
without engine cleaning additives.
This offer suits some customers and
we welcome this choice.
Over the year, Z developed two unstaffed
retail sites (one Z and one Caltex),
acknowledging the importance of a
diverse offer. We will experiment with
more in terms of providing offers across
the market, but Z will continue to deliver
a value-added offer, while competing on
price. We have the most comprehensive
network of high-quality retail sites in the
country. Our sites are typically covered,
staffed, well-lit, in convenient locations
and they are generally easy to get in and
out of safely.
We offer a wide range of high-quality
food and beverages, bathrooms and a
wide and growing range of convenience
products, food and beverages. The vast
majority of customers prefer this offer
and this experience which we are
unrivalled in our ability to provide.
With our investment in capability in CX, we
are now set to continue to innovate and
provide more of what our customers want.
Price
A lot of things matter for retail fuel
customers, and price is definitely one
of them.
One of the challenges that come with the
boom in levels of competition across the
industry over the last five years has been
that with very different offers has come
very different prices. It’s not uncommon
for there to a price spread per litre
between towns and cities, and even
within the same region.
While this is a very healthy competitive
dynamic, it’s also confusing and at times
frustrating for customers. With the
efficiency that comes with our reach,
scale and diversity of assets and
operations, we can and will meet the
market and compete hard on price, while
also innovating to help our customers
better control their fuel spend.
Sharetank
The best evidence of our commitment
to competition and helping our
customers get the best price is in
our new Sharetank App.
This is an offer that’s never been seen
before – in New Zealand or, as far
as we can tell, anywhere else in the
world. Sharetank is the best example
of a product involving all of our
innovation, digitisation and customer
experience capabilities.
Sharetank lets customers pre-purchase
fuel when they think the price is right.
Find a price you really like or, if you
are concerned that prices might rise,
you can lock in the current price for up
to 1,000 litres at a time. Furthermore,
given the current price spreads, the App
scans every Z service station within
30 kilometres of your location and tells
you the very best price.
With the price you like locked in, you
can now get that price at any Z service
station anywhere in the country, simply
by using the App. You can also share
your pre-purchased fuel with friends and
family, and, for small business owners,
with staff. It’s the ultimate in choice,
convenience and ensuring the very best
competitive price.
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WHAT WE STAND FOR NOW FOR OUR CUSTOMERS
Delighting our
Retail customers
(continued)
The ultimate in refuelling
convenience
Imagine driving into a retail service
station with a priority lane, so you don’t
have to wait. A friendly attendant is there
to help refuel your car – you don’t even
have to get out. You don’t even have to
pay – the fuel purchase is automatically
deducted from your account via
technology that recognises your number
plate. Before you know it you’re on
your way.
Dreamed up by Z’s Innovation team
and delivered harnessing Z’s digital
and customer experience capabilities,
Fastlane delivers exactly that
offer. It’s the ultimate in speed and
convenience for customers that really
value it.
We now have 41 sites with Fastlane
operating, with four of these sites
allowing customers to experience
Fastlane at every lane. We’ve already
seen nearly 125,000 transactions through
Fastlane, pointing at a distinctive offer
that is catching on with busy customers.
The evolution of fresh food
and coffee
The way customers think about and
make food choices is starting to change.
In the past, what our customers have told
us they wanted and what they bought
were different. We’ve come to call it
‘think thin, buy fat’ – and we can all relate
to it at some time or another!
We’re noticing this is now starting
to change, with increased buying
preferences for healthier, fresh food
from across our customer segments.
Over the last couple of years we have
been actively experimenting with fresh,
healthier food options, including two
Habitual Fix sites in our flagship Z sites
at Bombay and Royal Oak.
We’ve been preparing and building the
capability to roll out a fresh food offer
– one in which salads, sandwiches and
smoothies are made with the highest
quality ingredients directly in front of
the customer. This, in turn, will provide
the base for Z to experiment with
high-quality to-go dinner options.
Customers in certain Z sites can already
see innovative new options like this and
over the coming two years, expect to
see these offers rapidly deployed and
well promoted. We’ll still offer the classic
Kiwi pies for which we’re famous but
our customers are now telling us they
want more choice and more balance,
and we’re responding.
Coffee remains core to our offer and
is a part of the Z habit. This year we
sold 4.4 million cups of coffee which
is not bad given that a decade ago we
sold almost none. We are now one of
New Zealand’s largest coffee retailers
and we’re committed to continuing to
evolve the offer.
As another example of our developing
CX, innovation and digitisation
capabilities, this year more than
354,000 cups of coffee were ordered
over a new function on the Z App, and
we’re not yet scratching the surface.
Without giving too much away, we’re
seeing high and steadily increasing levels
of repeat use, telling us that pre-order
coffee is driving loyalty; the product
is scaleable, meaning we can roll this
out to more sites for more products;
and reviews on the app store are
overwhelmingly positive.
Expect to see our coffee offer continue
to evolve over the coming years, in line
with our commitment to a fresh, healthy
food offer. We’re looking at introducing
less automated and more manually-
driven espresso machines as part of our
commitment to continually refining the
offer and experience. Z was one of the
first to introduce compostable coffee
cups and site recycling in 2016 and the
environmental commitment around our
food and coffee offer remains a core
element of the offer.
As we enter a new decade, we expect the
customer focus on healthy, high-quality
food and beverage options to increase.
We’ve done the work and are prepared
to capture the benefits of this shift in
consumer attitude at scale. Continuing
to evolve and grow what we can offer
customers through our retail stores is
a critical part of building and holding
overall retail margins, particularly in an
environment of significantly reduced
retail fuel margins.
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4.4million
Cups of coffee sold at Z stations
FY20
WHAT WE STAND FOR NOW FOR OUR CUSTOMERS
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Loyalty – choosing to own it
Z spent its first decade in a range of
loyalty products and offers. We’ve
been in the AA Smartfuel partnership
with the Caltex brand, FlyBuys and
Airpoints with the Z brand, a partnership
with Progressive Enterprises (of the
supermarket chains, Woolworths and
Countdown) and increasingly various
discount offers.
We start our next decade having
developed our own proprietary loyalty
offer – Pumped. This offer brings
together the best of what we’ve had
in the past and we own it; we are not
dependent on others for our offer.
It allows our FlyBuys and Airpoints
customers to receive fuel discounts and
earn a range of other rewards simply by
scanning their card – across both the
Z and Caltex networks. It’s integrated,
easy, delivered at scale, and is resonating
with customers tired of overly complex
loyalty schemes.
With increasingly sophisticated
treatment of digital data, we are now
beginning to develop highly-targeted
individual customer offers based on what
we can tell matters to them.
Currently more than 580,000 customers
have downloaded either the Z or Caltex
Apps. As we continue to add more
innovative products and experiences
through these apps, we expect our
apps to become drivers of increased
loyalty. This is another example of why
building digital and customer experience
capabilities across Z is so integral to our
future success.
Giving customers climate
change choices
We know that many customers find it
really hard to know where to start in
reducing their own carbon footprints.
For many small businesses, individuals
and families, this is really hard.
We don’t profess to have all the answers,
but we’re committed to working with our
customers and giving them their own
choices to make.
We’ve taken the choice to offset all of
our operational emissions via permanent
forests and to target emissions
reductions by 30 percent off 2017 levels
by 2021. We have the resources and
the expertise to make these choices,
but for individuals worried about their
own impact on our climate, in the area
of mobility there are limited choices
to be made.
In our Environmental Sustainability
stand, we commit to “provide leadership
and a range of solutions to enable our
customers… to join us on the journey to
a low carbon future”.
In February 2020, we gave our customers
some very distinctive choices on
how they might like to respond to
climate change in a personal capacity.
Our customers can now choose to offset
their own carbon emissions generated by
fuel they purchase from us – or indeed
any other fuel provider.
Through the Z App, customers can view
their fuel purchases and associated
carbon emissions. They can then choose
whether to offset their impact, in part
or in full, via permanent forestry offsets.
This enables all drivers, regardless of
where they purchased their fuel, to
understand their carbon contribution and
make informed decisions on how they
might reduce that impact.
580,000
Customers have downloaded either the Z or Caltex apps
FY20
We don’t know how many customers will
choose to take up this option and we’re
not going to push it, but it’s a new, highly
distinctive choice. It’s just another way
we’re preparing for our future, leading on
what matters and taking our customers
on the journey with us.
We’ve also extended this choice to our
Commercial customers, recognising that
particularly in trucking and logistics
industries, there are precious few levers
to pull to reduce current emissions. For a
Commercial customer wishing to offset
their carbon emissions, we’re providing
choices and simple solutions.
WHAT WE STAND FOR NOW FOR OUR CUSTOMERS
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Kia whai hua
ki ngā kiritaki ūmanga
Delivering
for Commercial
customers
It’s a privilege to serve the engine
of the New Zealand economy – our
Commercial customers. From road
builders to airlines, trucking
companies to fishing fleets, our dairy
and agriculture sectors to the small
businesses which alone make up nearly
a third of national GDP.
We refuel helicopters and small planes,
directly refuel cruise liners with
ship-to-ship fuel transfers and take fuel
into the heart of New Zealand’s massive
forestry estate. We supply major airlines
and provide the bitumen that builds
our roads.
Chances are, if it moves, we’re behind
it. Half of our total fuel volume goes
to keeping our Commercial customers
moving and it’s a market we’re serious
about serving and growing.
Opening up the most
comprehensive fuel network
in New Zealand
For our Commercial customers, time is
literally money. You see couriers running?
There’s a reason why.
Much of the transport, freight and
logistics industries are ultra-efficient,
low-margin businesses in which fuel is
a major cost and time really matters.
The time taken to detour a truck and
trailer unit well off a major route for
refuelling can set a whole schedule
back, compromise service to clients
and ultimately cost money.
Our vision has always been to bring
together the most comprehensive
nationwide commercial truck stop
network and, combined with our
retail operations, make this easy and
convenient for our customers to access.
This was part of the strategy promise
behind the acquisition of the Caltex
business in 2017 and over this year we
made it a reality.
Until this year, customers had to use
either a Z fuel card or a Caltex fuel
card to access our networks. Now, from
a customer perspective, there’s only
the brand difference – all Z, Caltex
and Challenge-branded sites can be
accessed by one integrated fuel card.
It sounds simple, and in many ways, it is.
But behind this simple commitment to
our customers was a complex technology
and data project that required and
received the best from our team. We shut
down two digital card purchasing
platforms at the same time as seamlessly
moving 34,685 customers to a new single
card and platform.
This required massive data transfers,
efficient and effective customer
communication and the use of automated
data processes to make this streamlined
and efficient. While the work behind the
offer quite rightly makes no difference to
our customers, our new offer really does.
Our customers now enjoy easy access
to by far the largest national refueling
network across New Zealand. They can
use one card for all purchases at any Z or
Caltex truck stop (151) or retail site (334)
and receive the one invoice. It is an
offer that saves our customers time and
money, and it cannot be replicated.
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Northland
Auckland
Waikato
Bay of Plenty
Manawatu
& Whanganui
Gisborne &
Hawke’s Bay
Wellington
Taranaki
Nelson,
Marlborough
& West Coast
Canterbury
Opening up
the most
comprehensive
fuel network
in New Zealand.
Southland
Otago
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WHAT WE STAND FOR NOW FOR OUR CUSTOMERS
DRIVE YOUR
BUSINESS
FURTHER
With Z Business Plus
Adding real commercial value
The use of a single card to access the
entire Z/Caltex network is also one that
Commercial customers value. In the very
early days of an integrated card and
network offer, 10 percent of customers
were accessing both networks.
Customers are prepared to recognise
the increasing efficiency gains open to
them via the price they pay. We have
seen record-level acquisitions through
our new Online Application system
and are forecasting value uplift in our
Commercial Fuels business as customers
recognise the productivity gains of the
new network.
Over the year, Z has used its scale,
security of supply, flexibility and unique
offers to win and retain key commercial
accounts right across the commercial
portfolio; one account in particular is the
largest Z has won in a decade. For some
accounts, Z has been able to integrate a
staff offer, enabling staff of Commercial
customers favourable terms to access
the Z and Caltex networks.
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The advent of Terminal Gate Pricing
promises further change in commercial
markets but it is one we welcome.
Terminal Gate Pricing (see page 51)
will bring greater equity and fairness
to the fuel markets and reward those
who invest. As a company that, through
previous phases of strategy, has invested
in unrivalled assets, Z is well positioned
for this change and will continue to
actively promote its offer, its network
and the value that Z can add to the
commercial markets.
For other major customers, namely
Fonterra and Fletcher Building, Z’s BioD
offer has proved distinctive and highly
valued as a way to demonstrate the
commitment of these leading Kiwi
companies to lower carbon operations.
We’re proud to be in partnership with
these two companies on something so
important for New Zealand and thank
them for their support and leadership.
For others, Z’s Mini-Tankers machinery
refuelling offer is essential to continued
operation, efficiency and cost
management. We also continued to
compete in delivering profitable and
safe operations in the bitumen market.
We acquired a major new account in the
general aviation market and retained key
clients and improved our efficiency in the
marine fuel market.
The Lubricants team won a record
amount of new business, often in
collaboration with the Commercial
Fuels team.
The year ahead
Z is committed to vigorously defending
and building its market position,
particularly in commercial diesel and
jet fuel, to ensure its scale is protected.
Z’s Commercial business has performed
strongly over the last year and, through
harnessing digital and CX capabilities, is
advantaged in creating continued value
for both current and future customers.
The commercial markets always, to some
extent, reflect the general performance
of the economy. While there appeared
to be a slowdown in economic activity in
the second quarter of FY20, economic
conditions improved in the third quarter
and into the fourth. We have seen jet
fuel demand decrease this year by
5.6 percent on a year-on-year basis as
a result of route consolidation and the
impact of Coronavirus reducing air travel,
but we also expect economic stimulation
from the Government’s infrastructure
construction policy commitments.
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WHAT WE STAND FOR NOW FOR OUR CUSTOMERS
Ko te mea nui
i te ara tuku
What matters
in our supply chain
We have never drilled or explored for oil.
Rather, we source, buy and sell the fuel
products our customers need.
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Key
Biodiesel plant
Depot
Imported crude
Pipeline
Refinery
1
Service Station
Terminal – Z owned
Terminal – jointly owned
Truck Stop
Nelson &
Tasman
Takaka
60
60
Motueka
Wakefield
Rai Valley
Nelson
7
Richmond
6
6
5
Linkwater
Picton
1
1
Blenheim
6
6
63
63
Marlborough
Westport
Murchison
West Coast
6
6
7
7
1
1
Kaikoura
Greymouth
4
Hokitika
Hanmer Springs
7
7
Culverden
Cheviot
1
1
Arthurs Pass
Bay of Plenty
Northland
Awanui
Taipa
Waipapa
Kaitaia
5
1
1
Kaikohe
15
15
Kerikeri
Paihia
Kawakawa
1
1
5
Whangarei
Dargaville
Marsden Point
Auckland
Ruawai
Maungaturoto
Kaiwaka
Wellsford
Helensville
Warkworth
Whangaparaoa
Waiheke Island
73
Pukekohe
Waiuku
Clevedon
Bombay
6
Maramarua
Ngatea
1
1
Paeroa
Pokeno
Huntly
Te Aroha
Ngaruawahia
Hamilton
Taupiri
17
Cambridge
Otorohanga
3
3
Waikato
Whitianga
Kopu
Whangamata
Waihi
2
2
Katikati
Morrinsville
Waharoa
Matamata
3
Tauranga
Papamoa
Te Puke
1
1
Tirau
Edgecumbe
Putaruru
Whakatane
Awakeri
Opotiki
Tokoroa
Rotorua
Galatea
Kaingaroa
Murupara
Reporoa
Taranaki
Te Kuiti
Kinleith
Piopio
Waitara
New Plymouth
7
Pungarehu
Rahotu
Opunake
Kapuni
Inglewood
Stratford
Kaponga
Eltham
Hawera
Waverley
Whanganui
Manawatu
& Whanganui
Taumarunui
Taupo
7
Turangi
Raetihi
Waiouru
3
Hunterville
Marton
Sanson
Fielding
13
Palmerston
North
Woodville
Pahiatua
Napier
Hastings
11
Havelock North
Waipukurau
Matamau
Dannevirke
3
Gisborne
Wairoa
3
Gisborne
& Hawke’s Bay
Shannon
Levin
Otaki
Paraparaumu
4
Masterton
Pauatahanui
Porirua
23
Wellington
Carterton
Greytown
Featherston
Wellington
94
94
Te Anau
Mossburn
6
6
Wanaka
Cromwell
Queenstown
Clyde
4
Alexandra
Riversdale
6
6
Gore
Winton
98
98
Mataura
Wyndham
Invercargill
5
Bluff
73
73
Springfield
Amberley
Oxford
Rangiora
Waikuku
Kaiapoi
27
Lincoln
Christchurch
Kirwee
Darfield
Burnham
Leeston
1
1
Southbridge
Ashburton
6
6
Tekapo
8
8
Fairlie
8
8
Cave
Pleasant
Point
Methven
Mayfield
Geraldine
Winchester
10
Temuka
Timaru
Tai Tapu
Little River
Canterbury
8
8
8
8
1
1
83
83
Kurow
1
1
Waimate
82
82
85
85
Ranfurly
Oamaru
Alma
4
1
1
8
8
Palmerston
Outram
7
Mosgiel
Dunedin
Otago
Milton
Balclutha
Southland
Domestic
supply chain
Everything we do starts with operating
a safe, secure and efficient supply
chain. The supply chain starts with
shipments of crude oil from the
Middle East – although sometimes from
Asia and the USA as well – before, up
to 90 days later, ending with the fuel in
a customer’s car, plane, ship, tractor,
truck, train… again, almost anything
that moves.
Z’s supply chain is comprehensive
and supported by the best people and
the best assets. The strength of our
supply chain is a direct reflection of our
commitment to our customers and the
New Zealand economy.
Our supply chain is also a distinctive
source of enduring competitive
advantage. We will continue to optimise
it, using our people and technology, and
drive greater efficiency and value from it.
Given the critical role of Z’s infrastructure
and assets to our various stakeholders
and our economy, our supply chain
features in much of the commentary
within this report and is not necessarily
contained in this section.
SECTION HEADING
WHAT WE STAND FOR NOW FOR OUR CUSTOMERS
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Faster, more accurate
fuel forecasting
For a company that, through its long
heritage, has been selling fuel in
New Zealand for well over 100 years,
we thought we were pretty good at
forecasting fuel demand. We were good
at comparing days, weeks and months
of fuel demand against previous years,
but what our commitment to digital
capability taught us this year is that
there is a much better way.
We’re a company of people and believe
it is human relationships and our ability
to collaborate and share that makes us
successful. But in the case of forecasting
fuel demand, machines simply do a
better job.
This year we introduced artificial
intelligence into our system-wide
fuel forecasting. We now use artificial
intelligence (AI) to forecast our fuel
demand and the increases in accuracy
have surprised us. Given the length of
our supply chain, small efficiencies make
a big difference across it. With AI we
now run a more efficient, cost-effective
and reliable fuel supply chain that
costs us less to run and is less prone to
human error.
Our fuel supply chain has been ripe
for digitisation. Over the year we have
also optimised our scheduling and
logistics operations, again delivering
significant gains in efficiency, accuracy
and customer reliability. We have further
ground to take in realising the benefits
of digital technology across our supply
chain and doing so remains a priority.
By way of
a snapshot,
for FY20, Z:
18.7m
Imported 18.7 million barrels of crude oil into
Refining NZ, producing 2,864 million litres of
finished petrol, diesel, aviation fuel and marine
fuel oil
FY20
2,294m
Provided 2,294 million litres of fuel to
Commercial customers
FY20
6.3m
Imported 6.3 million barrels of refined fuel
FY20
192.9m
Directly owns and operates 10 bulk fuel storage
terminals with total storage of 192,918 million
litres representing just over 50% of
New Zealand tankage
FY20
1,543m
Provided 1,543 million litres of fuel to
Retail customers via 199 Z-branded and
135 Caltex-branded service stations
FY20
151
Sold fuel through a network of 151 truck stops
across New Zealand
FY20
843m
Provided 843 million litres of aviation fuel
FY20
131m
Provided 131 million litres of bitumen
FY20
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WHAT WE STAND FOR NOW FOR OUR CUSTOMERS
Refining NZ Operational Data
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Mar-Apr 18
May-Jun 18
Jul-Aug 18
Sep-Oct 18
Nov-Dec 18
Jan-Feb 19
Mar-Apr 19
May-Jun 19
Jul-Aug 19
Sep-Oct 19
Nov-Dec 19
Jan-Feb 20
Gross Refining Margin (USD per barrel)
Throughput (million barrels)
Note:
Data for this graph is from Refining NZ Operational Updates available on the Refining NZ website Investors centre.
Each data point spans two months, and are not aligned with Z’s financial year.
Refining a double hit
on earnings
In choosing to process fuel at Northland’s
biggest employer and New Zealand’s
only refinery, Refining NZ, Z shares in
the margin created between the price of
crude oil and the price of refined fuel that
the refinery produces.
This margin is designed to cover the
costs of fuel distribution from the
refinery and to allow users of the refinery
to match prices from choosing to only
import refined fuel, which some of
Z’s competitors do.
While AI is helping us forecast
fuel demand in the supply chain,
unfortunately it can’t help us predict
global refining margins which are set
by global benchmarks. Refining margins
have been highly volatile over FY20
and have contributed to 21 percent
of Z’s earnings shortfall against its
original guidance.
By way of example, Refining NZ
processed record volume levels over
some parts of the year, and very low
levels over other parts. The margin
it earned dropped by 19 percent on
average over the year and negatively
impacted Z’s results by $18 million.
In November/December 2019,
refining margins dropped from
US$6.16 per barrel in the previous two
months to US$2.62 per barrel. At times
the actual margin dropped below
this level.
This severe volatility has been driven
by a range of factors: Most materially,
the pending changes to global fuel
specifications for marine fuel oil, which
have been disruptive across the global
fuel industry and have driven margin
volatility, but also power cuts at the
refinery impacting production and high
fuel shipping rates as a result of the
US – China trade war.
As a user of the refinery, Z earns a
margin when margins exceed the
refinery’s fixed operating costs – called
‘the floor’. However, we also effectively
underwrite the refinery when margins
are below this level, effectively paying
for the refinery to produce fuel for us.
This has only happened three times in
the last 20 years, but this year was one
of those times.
While clearly beyond Z’s ability to control,
the impact of oil refining on Z’s earnings
has been frustrating, particularly given
the decline in retail fuel margins at
exactly the same time (see above graph)
and the significant advantage enjoyed
by some competitors who do not use the
New Zealand refinery.
Refining NZ is making decisions to
request a broader range of crude oils
for processing to minimise the impact
of marine fuel oil specification changes.
Refining NZ is a small, geographically
isolated refinery operating in a small
market. Z is committed to working with
the refinery and the industry to ensure
any opportunity to further optimise its
operations are realised.
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Fuel efficient
tanker, the
Silver Philippa
(image used with permission)
Cutting the carbon out
of getting fuel here
The Supply team considers our carbon
intensity in all of the decisions we take.
By way of a good example, in January
2020, we re-signed our contract with our
Korean supplier of refined fuel for import
to New Zealand. This time we broadened
the negotiations beyond the obvious
elements of price, product quality and
reliability to include carbon.
Globally, shipping is estimated to
contribute up to four percent of all
carbon emissions. In our contract
negotiations, we secured agreement to
use a new shipping berth which allows
us to request new, fuel-efficient ships to
deliver our fuel to New Zealand ports.
This will cut 7,500 tonnes
of carbon dioxide per annum
from our supply chain on an ongoing
basis. That reduction is in addition to a
reduction of 12 percent in average daily
fuel consumption from shipping refined
product since 2017. It’s also roughly
the equivalent of taking approximately
3,000 petrol or diesel cars off our
roads – permanently. It’s an example of
being distinctive where it matters and
our commitment to operating the most
efficient supply chain we can.
3000
7,500t
7,500 tonnes of carbon dioxide cut from our
supply chain on an ongoing basis, or the
equivalent of 3,000 passenger vehicles
FY20
WHAT WE STAND FOR NOW FOR OUR ECONOMY
Ko te mea nui mō
tō tātou ōhanga
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What matters
for our economy
Over the course of this year, Z continued
to lead and participate in conversations
around the importance of secure,
reliable supplies of transport fuels to
the economy, the importance of fair
pricing and competition, and the need
for continued investment in critical
infrastructure.
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Z’s operations are critically important
to the continued operation of the
national economy. Without the supply
chain and assets we operate and the
fuels and services we safely provide
every minute of every day and night,
our economy would very quickly grind
to a halt. Planes wouldn’t fly, ships
wouldn’t sail, trucks wouldn’t travel.
Industry, commerce, construction,
agriculture and tourism would not
be able to function. And you’d find
it hard to get to work.
Most people don’t think about any of this,
and that’s fine – that’s our job. But we
never forget the responsibility to our
country and economy that comes with
supplying half of all the transport energy
that New Zealand is currently completely
dependent on.
We’re also committed to the role of our
strategy in assisting and enabling the
transition to a low carbon economy.
When it comes to our economy,
infrastructure is critical. One of the
first conversations Z ever had with
Government, back in 2010 was to remind
politicians of the very high levels of
economic reliance upon certain pieces
of infrastructure – particularly the
Refinery-to-Auckland-Pipeline (RAP).
It would be fair to say there was little
interest in these topics at the time,
but that has now changed.
WHAT WE STAND FOR NOW FOR OUR ECONOMY
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Inquiry into Refinery‑to‑
Auckland‑Pipeline (RAP) failure
Infrastructure is one of those paradoxical
things: Nobody thinks about it when
it’s working, everyone wants it fixed
immediately when it’s not, and nobody
ever wants to pay for it.
New Zealand is a long country with a very
low population density, meaning we often
rely on single pieces of infrastructure for
running essential industries and services
– electricity, gas, fuel, roads etc.
Like most pieces of critical national
infrastructure, very few people ever
really thought about the fact that all of
Auckland International Airport’s jet fuel
– some 1,500 million litres per year – is
produced at the Whangarei refinery and
then pumped down one 10-inch thick,
170-kilometre-long pipe to a single fuel
terminal, and from there to the Airport.
That is, until the pipe was broken by a
digger in September 2017, grounding
a number of flights in and out of
Auckland for several days. The country’s
economic reliance on this single piece of
infrastructure is one of the issues that
has mattered most to Z since the day
the company was formed. In just one
example, in 2012, the company wrote
to the Government about the need for
fuel infrastructure investment, including
around the pipeline:
“… there is a role for Government in
the management of intergenerational
resilience issues where infrastructure
failure can so profoundly impact the
national economy. Z believes there is
an opportunity, and indeed a need, for
government and industry to work in
partnership to build greater resilience
into the supply chain through a
model which works for all parties and
which affords greater protection to
New Zealand customers, industry and
the national economy.
Z believes that the consequential costs
of a major disruption will be severe and
that industry and Government need to
also work together to have an agreed
and regularly refreshed back-up plan for
major scenarios, such as an extended
RAP failure”.
From the start of the company, Z warned
the Government that the risk of a failure
of this asset was higher than estimated
by officials, but that the likelihood of
anybody choosing to invest hundreds
of millions of dollars in a hypothetical
insurance policy was nil – hence the
recommendation for a partnership
approach to ensuring investment in
‘socially optimal’ infrastructure.
Nearly two years after the
September 2017 rupture of the RAP,
a Government inquiry was held into
the event. Its final report found that
urgent investment was needed in jet
fuel infrastructure and that government
and the industry must work together to
ensure Auckland was better served in
any future disruption.
Consistent with our commitment to
New Zealand’s economy, Z is already in
action on preparing to invest in enabling
more jet fuel to be delivered at the
Airport. However, this investment will not
guarantee fuel supplies to the Airport.
Jet fuel margins are razor thin and while
the suppliers of jet fuel to the Airport all
support the initial investments, there will
be challenges in ensuring subsequent
investments deliver value to the
economy, airlines and shareholders.
We’re committed to working with our
airline customers to ensure appropriate
investments are made in the jet fuel
supply chain.
Replacement cost net profit after tax in cents per litre
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FY14
FY15
FY16
FY17
FY18
FY19
FY20
Profits, competition and the
Commerce Commission
In both an economic and customer
context, no review of FY20 would be
complete without discussing the first
Market Study run by the New Zealand
Commerce Commission into levels of
profitability and competition within the
fuels industry.
Quite rightly, political interest in
all forms of energy is always high.
We acknowledge that access to
energy, the price of energy and the
environmental impact of energy choices
affect almost every element of society:
our natural environment, our economy,
our individual health and wellbeing.
We have always acknowledged that fuel
margins increased over much of the last
decade, from the point in 2010 at which
industry returns were lower than the cost
of capital, leading to major international
companies progressively exiting, or
attempting to exit, New Zealand.
With the recovery of fuel margins over
2010–2018, investment again began to
be made in the fuels sector. Since 2012,
the number of competitors in the
retail market increased from 17 to 21
and the number of service stations
across New Zealand increased by 169.
Three bulk fuel terminals were built
and multiple pricing offers and levels
of discounting began to be introduced
into the market as competition for fuel
volumes increased.
Z welcomed the decision to hold a
12-month inquiry into the levels of
profitability and competition within
the fuels industry and participated
thoroughly and constructively in it
over the 2019 calendar year.
Disappointingly, the inquiry focused only
on fuel margins and profitability up to
2018, and did not factor in market and
competitive changes over much of the
last two years.
On top of the inquiry’s failure to
reflect relevant current context, it also
failed to reflect capital investments in
profitability calculations. For example,
of the $785 million of cash Z paid for
the Chevron business, the Commerce
Commission’s analysis deemed that
$591 million was not relevant to
Z’s capital base for the purposes of
profitability analysis on Z’s returns.
Z has always been the only company
to disclose precisely how much profit
it makes for every litre of fuel it sells.
The above graph shows why effectively
ignoring the 2019 and 2020 years
resulted in a finding inconsistent with
the current state of profitability and
competition in the market.
This graph also highlights the role
that declining retail fuel margins
have had on Z’s profitability and
financial performance over this year.
Approximately 60 percent of our
financial performance shortfall against
our original earnings guidance was due
to declining retail margins driven by one
thing: intense competition.
WHAT WE STAND FOR NOW FOR OUR ECONOMY
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Profits, competition and the
Commerce Commission
(continued)
So while the Commerce Commission
missed the opportunity to reflect
the full, current context around
profitability and competition, we
nonetheless welcome and fully support
its recommendations, which were:
• For the owners of bulk fuel terminals
to sell fuel from those terminals to
all competitors at a commercial price
(known as Terminal Gate Pricing)
• To publish the price of all grades of
fuel on the prime signs outside every
service station
• To ensure wholesale supply contracts
allow resellers of fuel the opportunity
to compare prices from different
suppliers and to limit the use of long-
term exclusive supply contracts.
These were outcomes Z advocated for
and were consistent with our previous
strategic decisions. Z had already
ordered the new prime signs to display
all fuel grades before the Commerce
Commission had reported back.
The rollout started prior to Christmas
and will continue for the first six months
of 2020.
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50%
Z has just over 45 percent fuel market share in
New Zealand, but just over 50 percent of terminal storage.
FY20
Commercialising our terminal
network – the advent of
Terminal Gate Pricing
Since acquiring the Caltex business
in 2016, Z has owned the most
comprehensive and strategically
important bulk fuel storage assets in
New Zealand. Z operates a network of
these terminals across New Zealand, with
total fuel storage of over 192 million litres.
It is from these terminals that imported
fuel is received via international import
shipments and via domestic production
from Refining NZ at Whangarei. It is from
these terminals that the New Zealand
economy receives its lifeblood.
In 2017, Z made the strategic decision
to exit joint venture arrangements
with competitors in the operation of
our fuel terminals. We decided that we
had invested in them, we owned and
maintained them and we should operate
them ourselves, with our own people
and capabilities. In 2018, this move was
completed and terminals are now an
integrated part of our business.
It has always been Z’s view that the
traditional model of operating terminals
was failing to reward investment in them.
Choosing to share access to terminals
with our competitors has led to the
situation in which competitors who
choose not to invest in these assets are
advantaged, in that they can continue to
use assets owned by another company.
We’ve effectively been rewarding our
competitors – and international oil
companies at that – for failing to invest
in New Zealand.
That’s changing. Z is committed to
commercialising its fuel terminal
network, being fairly rewarded for its
investments and ending the ‘free ride’
some competitors have enjoyed for
many decades.
The core recommendation of the
Commerce Commission Market Study
into the fuels industry was to establish
Terminal Gate Pricing by which terminal
operators like Z will sell fuel via their
terminals to any buyers at an advertised
wholesale price. This is an outcome we
have been preparing for and which is an
important element of our strategy.
Z has just over 45 percent fuel market
share in New Zealand, but just over
50 percent of terminal storage.
We’re more than pulling our weight.
Progressively, expect Z to continue
to step back from the established
fuel industry sharing arrangements in
which fuel and terminals were shared
and move much more onto a solid
commercial footing.
We’ve already started. We have exited
the industry sharing arrangements
at Nelson, as a starting point. If fuel
companies, including new wholesale fuel
suppliers, want fuel at Nelson, we will
sell it to them on commercial terms at a
price that reflects the capital costs of the
terminals. That’s fair and reasonable.
What we don’t want to do anymore is
provide fuel to competitors with no
assets in an area at zero margin for
them, to then on-sell to distributors
at a cost we can’t even provide to
our own retail/commercial networks.
That’s distorting the operation of a
proper market, rewarding a lack of
investment and failing to see investments
adequately rewarded.
We are increasingly reconsidering how
we treat our assets and provide access
to them in order to ensure they are
fairly rewarded by those that benefit
from them.
WHAT WE STAND FOR NOW FOR OUR FUTURE AND CHANGE
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Te pūtake
o tō tātou tū
Why what
we stand
for matters
Z’s people stand for
extraordinary things.
Standing for extraordinary results,
focusing on what really matters and
being prepared to deliver customer and
shareholder value while transitioning to
a lower carbon energy future is what it
means to a be a part of Z. But discipline
and focus also matters. Z is a company
of innovative, creative and committed
people, but we’re also a company of
scale that keeps New Zealanders and
our economy moving.
So we choose to focus on four key
areas that we think really matter –
areas where we look to maximise our
contribution, change the game and
be distinctive.
These four areas are what we stand
for so, somewhat creatively, we call
them ‘our stands’.
Environmental
Sustainability
Z will move from being a
part of the climate change
problem to the heart of
the solution.
Community
A resilient and healthy
Aotearoa New Zealand
that empowers our youth,
neighbourhoods, and
Z whanau.
Diversity
and inclusion
Being successful being
ourselves and reflecting
Aotearoa New Zealand.
Safety
and wellbeing
Enhancing our people’s
wellbeing and enabling
their success.
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Our aspirations in these four areas can
have the greatest impact on the following
10 UN Sustainable Development Goals:
Our commitments within these stands
and the progress we make on them are
constantly evolving. This section of the
report looks at each of the four stands and
provides a snapshot as to what we’re doing
and how we’re going.
WHAT WE STAND FOR NOW FOR OUR FUTURE AND CHANGE
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Te tiaki taiao
Environmental
Sustainability
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“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.”
Energy and climate change are different
sides of the same coin: you cannot
discuss one without discussing the
other. The choices we all make every day
around how we use energy is directly
contributing to the world we live in and
which future generations will inherit.
In terms of scale and consequence, there
is no more material issue for Z than the
impact on our climate of the use of the
fuel we sell.
How we think about carbon and climate
change directly impacts our strategy,
the decisions we make every day and
the choices we make around our own
activities and what we offer customers.
Either directly or indirectly, climate
change is the most common thread that
underpins the bulk of our conversations
with stakeholders. The products we
sell contribute roughly 10 percent of
New Zealand’s total carbon emissions
and we expect the focus on climate
change to continue to grow as we
increasingly experience the impact
of a warming planet and as the world
struggles to transition its economies
and energy systems.
We’re committed to reporting fully,
honestly and transparently on issues
around climate change. We’re going
to set ambitious targets, and we will
continue to work with our customers in
finding new solutions. We will not back
away from our commitment to moving
from being part of the climate change
problem to the heart of the solution.
One of the most distinctive choices
that makes us Z is how we choose to
lead on this issue, particularly within an
industry not renowned for speaking out
or fronting up when it matters. We start
with how we choose to report, including
beginning to adopt the reporting
recommendations from the Taskforce
on Climate-related Financial Disclosures
(TCFD) this year – see page 60.
“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 low carbon future.”
WHAT WE STAND FOR NOW FOR OUR FUTURE AND CHANGE
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Our own backyard
We can’t invite our customers to consider
offsetting their carbon emissions if our
own house isn’t in order.
We’ve committed to reducing our
operational emissions – excluding the
fuel our customers use – by 30 percent
from 2017 levels by the end of the 2021
financial year, and we’re the first to
admit that this is tough. We made good
initial progress, cutting emissions by
12 percent, but we’re not currently on
track to hit our target.
What we have not reduced, we offset.
We choose to offset all of our own
operational emissions via permanent
forest planting and last year we spent
$1.16 million doing so.
32%Mevo shareholding
Now cleared to enter the Auckland Market
We have also elected to join a forestry
carbon joint venture in New Zealand –
Drylandcarbon Limited – that this year
started to acquire marginal farmland to
plant in both permanent and rotation
forestry to generate carbon credits.
The potential for this partnership to
deliver positive outcomes for our climate,
for our broader natural environment
and for our economy are very real
and we welcome the way this joint
venture has committed to working
constructively to protect the interests
of rural communities.
The future of mobility
While we focus on cutting our own
impacts, we also actively investigate
the future of transport energy. We
have a 32 percent shareholding in the
Wellington-based ride-sharing company,
Mevo, which, prior to COVID-19 Alert
Level 4 restrictions, had its best year
in terms of growth in demand for
its services.
Mevo was also cleared to enter the
much bigger Auckland market in
December 2019, paving the way for the
offer to be more appealing to a wider
range of customers and investors.
Understanding
our energy futures
One of the ways we seek to contribute
to informed discussion and debate
around what our energy future might
look like is to actively support the
BusinessNZ Energy Council’s scenario
planning work, which plots two different
energy directions out to 2060 as
captured here, for more detail refer:
https://www.bec2060.org.nz
Kea Scenario
Tūī Scenario
Under the ‘Kea’ scenario – named after
the social, collaborative and innovative
native parrot – New Zealanders work
together in a concerted way to respond
to the threat of climate change.
Carbon prices are significantly higher
than the global average, governments
are active in facilitating new energy
technologies, public transport is widely
adopted and our economy is transformed
by Kiwis’ willingness to be a global leader.
There is risk to economic stability as the
economy restructures.
Under the ‘Tūī’ scenario – reflecting
the territorial and competitive nature
of the bird – climate change is not such
a pressing issue; rather it is just one
of several priorities. Economic growth
is prioritised over decarbonisation,
New Zealand opts to follow the rest of
the world and the overall approach is
based around the individual rather than
the community. The economy and the
overall population grow faster than under
the Kea scenario.
This modelling is based on highly
sophisticated global technology and
methodologies. We choose to partner
in the development of these scenarios to
inform our own strategic thinking around
transitioning the New Zealand energy
mix, managing risk from climate change,
realising opportunities and stimulating
valuable discussion with stakeholders
on how we can work together in
service of New Zealand’s successful
energy transition.
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WHAT WE STAND FOR NOW FOR OUR FUTURE AND CHANGE
Progress against our
sustainability targets
To make good on what we stand for means we must act. Our sustainability goals and
targets were developed using the UN Sustainable Development Goals as a framework.
Three outcomes were set, leading us on a pathway to contribute authentically to the
welfare of New Zealand’s natural environment and its people. In addition, recognising
our size and scale in New Zealand, our goals and targets cover Z’s operations and those
of our key suppliers. The table below outlines our progress against these goals.
Key
We’re 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
Outcome
Progress
Status
Use less and waste less in our operations
Reduce carbon emissions
Reduce waste to landfill
We have reduced our carbon emissions by 12% since FY17 against a target of 30% by
2020. We voluntarily offset those emissions we cannot avoid through planting local
permanent forests (see below).
Waste to landfill is 25% below last year. Nationwide waste, recycling and composting
infrastructure challenges, coupled with our own data integrity issues, have
contributed towards fluctuating waste data since FY17.
Our commitment to reduce waste continues, in addition to working closely with
our suppliers and waste management companies. We have signed the NZ Plastics
Packaging Declaration, committing to having 100% of our Z Espress branded food
and drink in re-usable, recyclable or compostable packaging by 2025 or earlier.
Reduce retail electricity
We are currently 1% below our 2012 baseline, and have reduced retail electricity
5% year on year since FY18 with a focus on efficiency.
Making purchasing decisions that support sustainability
Supply Chain
Our Supplier Code of Conduct is embedded in all of Z’s Standard Supplier
Agreements. This year contracts for Print and Logistics, Z Espress Packaging and
Shipping of Refined Product specifically focused on waste and carbon reduction,
with 7,500 tonnes of CO2 annual savings from contracted shipping services.
Customers reduce fossil fuel use
Annual biodiesel production reached 1.9 million litres of 100 percent biodiesel and
was sold at a B5 blend to our supply chain partners.
Lower‑carbon products and services
Our investment in climate positive car-sharing company Mevo continues. Our staff
increasingly use Mevo in Wellington with 3.3 tonnes CO2-e offset from Z business trips.
Enable others to reduce their impact
Customers experience emerging transport
technologies
Z’s EV chargers continue to grow in popularity with 15,921 charges in the past year –
an 11% increase on FY18.
Carbon offsets
Our customers can now choose to offset their emissions from their fuel use through
the Z App. Launched in 2020, App use and offsets will be continuously monitored.
Partnerships for a low emission economy
Local permanent forests
Policy and Leadership
Z’s continued relationship with Trees That Count has led to 52,865 native trees being
planted, supporting 58 planting communities, removing CO2 from the atmosphere
and enhancing local biodiversity.
In addition to our ETS obligations (see p 140) Z is committed to offsetting our
operational emissions with Permanent Forests NZ at a cost of over $1 million per year.
We continue to advocate and lead for the development of policy, such as the
Zero Carbon Act, to move New Zealand to a low emissions economy. Through our
membership with the Climate Leaders Coalition, Sustainable Business Council and
Sustainable Business Network, we take a leadership position to inspire and enable
Kiwis to take action and reduce their environmental impact.
Full details can be found at https://z.co.nz/about‑z/what‑matters/sustainability
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Greenhouse gas emissions
Scope
Scope 1 – Z Offices & Retail
Scope 2 – Z Offices & Retail
Scope 3 – Z Offices & Retail
Scope 3 – NZ Supply Chain
Total operational emissions*
% change from FY17
Scope 3 – Share of refinery
Scope 3 – Rest of supply
Base Year (FY17)
3,907
4,045
3,339
34,247
45,250
–
634,848
807,542
FY18
3,853
4,223
3,875
31,041
42,992
‑6%
618,483
983,939
FY19
3,837
4,195
4,495
28,530
29,303
‑10%
555,892
902,215
FY20
4,127
3,371
3,506
29,785
39,742
‑12%
520,708
1,031,309
Scope 3 – Z product emissions from our customers
9,488,277.00
10,330,585.00
10,459,103.70
10,531,782
Total emissions**
10,976,205
11,975,999
11,958,268
12,124,589
* Total operational emissions exclude emissions from line losses and upstream electricity which are included in the sum totals above for Scope 3 – Z Offices & Retail
and NZ Supply Chain. Total operational emissions intensity has decreased by 17 percent from FY17 per litre of fuel sold.
** There has been a restatement to annual total emissions due to a significant data set error; for Scope 3 – NZ Supply Chain emissions from FY17, and
FY19 Scope 3 – Z product emissions from our customers. This has been resolved and progress against the baseline re-calculated as identified above.
Emissions are reported in line with the GHG Protocol Corporate Standard. MfE Emissions Factors are used in all cases where available for data sets.
Retail waste data
35%
1,651
Recycling – cardboard and paper
FY19: 2,523 tonnes
tonnes
25%
1,893
Waste to landfill
tonnes
5%
404
Composting and organics
FY19: 385 tonnes
3%
882
24%
4,830
Total Waste
FY19: 6,343 tonnes
tonnes
tonnes
tonnes
Recycling – plastics, can and glass
FY19: 2,523 tonnes
FY19: 912 tonnes
Waste figures are based on a combination of actual
and estimated waste data from waste management
companies on 90 percent of retail sites. Where no
data is available an uplift is applied.
1.9B100 produced (biofuels)
million
litres
FY19: 50,000 litres B100 produced
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WHAT WE STAND FOR NOW FOR OUR FUTURE AND CHANGE
The Task Force on Climate-related
Financial Disclosures (TCFD)
Reporting against the TCFD recommendations is a natural progression from the integrated
sustainability reporting approach we have taken since 2017. As such, this report includes full
disclosures against five of the recommended 11 disclosures in the four key areas: Governance,
Strategy, Risk, and Metrics and Targets (see TCFD Index on page 158).
We have developed a staged approach for integrating and enhancing our assessment of
climate-related risks and opportunities across the business. Our TCFD roadmap to FY23 outlines
the key steps we will take to manage the physical and transitional risks and opportunities and
effectively disclose the most material information.
Z Energy TCFD Roadmap
FY2020
FY2021
FY2022
FY2023
Conducted a gap analysis of the
11 TCFD disclosures. This gap
analysis was used to inform the
TCFD Index table on page 158
Identify, assess and manage
physical risks using the findings of
the natural hazard exposure review
Review performance against
revised climate-related metrics
and targets
Review results of scenario analysis
and management of related risks
and opportunities to fully integrate
into strategic and financial plans
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The paper found that while there are
no technology barriers to the use
of hydrogen in transport energy, it
currently has significant economic and
affordability challenges.
We also hosted international energy and
climate change expert Michael Liebreich,
and international climate scientist
Professor Will Steffen to New Zealand for
a series of public talks on climate change
in June and October 2019 respectively.
Backing change…
Z’s position is that policy makers must
set and drive the agenda in order for
the New Zealand energy sector and
the economy to transition in such a
way that New Zealand’s international
climate change commitments are met.
We have seen some particularly
promising developments over the last
year, particularly in the bipartisan
political support for the Zero Carbon
Bill which sets up the frameworks
for reducing New Zealand’s carbon
emissions. We welcomed this Bill and our
submission in support of it is here:
https://z.co.nz/assets/Uploads/Z-Energy-
Submission-on-the-Climate-Change-
Response-Act-2019-FINAL.pdf
We also welcomed the appointment
of the independent Climate Change
Commission and supported a
consultation process around
amendments to the Emissions Trading
Scheme which will likely result in
increasing carbon prices across
the economy.
While we support strong regulatory
and policy frameworks to drive action
on climate change, we also use our
experience and resources to drive
discussion and debate.
In the past, we have issued Z ‘house
views’, or white papers, on emerging
technologies such as electric vehicles.
This year we published a paper exploring
the potential for hydrogen to be widely
harnessed in our transport energy mix:
https://z.co.nz/assets/Uploads/Z-House-
View-Hydrogen2.pdf
Achieved Executive alignment.
Established a team across
Governance, Finance, Risk &
Sustainability to define scope,
approach and roadmap for TCFD
Documented current approach
to identify, assess and
manage climate-related risk
management into governance
and risk processes, at Board
and management level
Review climate-metrics
and targets
Integrated the 2-degrees
scenario analysis into business
decision-making process
Conduct and document a
robust risk assessment of
transitional risks
Carry out risk review of how
climate-related risks and
opportunities are integrated into
overall risk management
Formalised the impact of
carbon on business decisions
through making this an
explicit consideration when
planning initiatives
Provide guidance to the
organisation on how to
integrate climate risks and
opportunities into the overall
risk management process
Carry out quality assurance
Used BEC Kea and Tūī Scenarios
as proxy to inform decisions and
Z’s capital strategy
Expand scenario analysis to
include at least a 2-Degree
scenario and one other comparison
Achieved Board approval of
TCFD approach
Prepared for quality assurance
Key
Complete
In Progress
Planned
WHAT WE STAND FOR NOW FOR OUR FUTURE AND CHANGE
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Bringing business
on board on
climate change
Since 2017, Z’s Chief Executive,
Mike Bennetts, has been the foundation
chair of the Climate Leaders Coalition –
now consisting of over 120 businesses
from across New Zealand united in their
commitment to cut carbon emissions.
This is a world-first collaboration,
bringing together the companies that,
directly or indirectly, are associated with
60 percent of New Zealand’s carbon
emissions. It is also a clear demonstration
of living our values: standing for
something, speaking up and encouraging
others to join us.
In this capacity Mike has led this group
of leading businesses in service of the
following pledge that chief executives
from all organisations have signed…
2019 Statement
As signatories to the Climate Leaders Coalition, we are acting on climate
change now, to create a future that is low-emissions, positive for our
businesses and the economy, and inclusive for all New Zealanders.
We are committed to the Paris Agreement target to keep warming below
2 degrees and to further pursue efforts to limit the temperature increase to
1.5 degrees
By being a signatory to the Coalition, our organisations are actively:
- Measuring our greenhouse gas footprint, having the data independently
verified by a third party and making the information publicly available;
- Adopting targets grounded in science that will deliver substantial
emissions reductions so our organisations contribute to New Zealand
being carbon neutral by 2050. These targets will be considered in
current planning cycles;
- Assessing our climate change risks and publicly disclosing them;
- Proactively supporting our people to reduce their emissions, and
- Proactively supporting our suppliers to reduce their emissions.
As indeed we are, many of these
businesses are finding it highly
challenging to cut emissions.
But that doesn’t detract from
the strength and resolve of our
commitment.
Taking climate change to court
Being taken to court is no fun, but
sometimes it can help to have the
conversations that really matter.
In August 2019, Mike Smith, Climate
Change spokesperson for the Iwi
Chairs Forum, issued legal proceedings
against seven New Zealand companies,
including Z. The claim states that
the courts should impose orders for
Z and the six other named defendants
to cease emissions activities under a
court-imposed timeline and supervision.
Given our shared concerns, we had
engaged constructively with Mike Smith
prior to his legal action. While we believe
the case is not an appropriate issue for
the courts to determine or supervise, we
nonetheless welcome the conversation.
Yes, the products we sell cause
emissions. Yes, we’d like them to be lower.
We’ve taken the decision to offset all of
our own operational emissions and we’re
now offering our customers – including
those that buy from competitors – the
choice to offset their emissions from the
fuel they buy.
However, if the orders were granted,
demand would simply shift to our
competitors who do not have the
investment in, or commitment to,
New Zealand’s energy transition that
Z does. We believe it is a matter of public
policy to determine the right balance
between New Zealand’s current and
future energy requirements, and we’re
active in this conversation.
We’ve invested in a biodiesel production
plant, bought an electricity retailer and
contributed time, effort and resources to
leading the conversations in service of
building a low carbon economy.
We accept that none of this is enough,
but it’s a start and we want to work
with other interested parties to
collaborate in bringing emissions down.
We acknowledge tangata whenua as
important stakeholders in the climate
change issue as kaitiakitanga of our
land and water, and will work to deepen
partnership opportunities to drive carbon
emissions down with iwi.
While the Court case is another
opportunity to discuss climate change
and our various responsibilities in a
public forum, we don’t think it’s the right
way to drive change.
A Court case is adversarial and seeks
to make somebody wrong when, in this
case, we almost certainly have much
in common with the complainant and
his aspirations. The key to unlocking
our climate change challenge is in
finding common ground and working
together. Our standing invitation to
Mike Smith is to come and talk to us
any time and discuss how we can drive
change together.
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Hapori
Community
We stand for a resilient and healthy
Aotearoa that empowers our youth,
neighbourhoods, and Z whānau.
This is both encouraging and
disappointing. It means some 16 percent
of our Retail team – approximately
320 individual people – think we need
to do better. We agree. We must do
better to more actively and effectively
support our people against unacceptable
behaviour, and we will. We will
report again on this measure in next
year’s report.
We are committed to more effectively
having each other’s backs.
In response to the tragedy in
Christchurch, we wanted to contribute
to the conversation against racism in
Aotearoa. Weaving our commitments
to Safety and Wellbeing, Community,
and Diversity and Inclusion together
under one umbrella, we ran an internal
campaign simply featuring a sample of
our Retail people talking openly and
honestly about their experiences of
racism on a Z forecourt, how it made
them feel and the impact it has.
These stories are a moving reminder
to all New Zealanders as to what we
must stand against. We have shared
our people’s experiences within the
broader retail industry on effective ways
to deal with verbal racial abuse and
our retailers have trespassed verbally
abusive customers.
As a distinctively Kiwi company, Z has
always recognised that we are a part
of diverse communities right across
our country. We seek to be a force for
good in these communities, with a focus
on empowering young people and a
commitment to speaking up when it
really matters.
There are multiple ways in which every
one of Z’s 199 retail sites engages in
its own community, including through
discretionary funding support. Here
we look at two of the higher profile and
more topical national programmes run
by Z this year.
The Z whanau that delivers our retail
offer is an incredibly diverse group
of people – from many countries,
backgrounds and religious beliefs.
The 15 March 2019 Christchurch mosque
attacks left 51 people dead in a tragic
case of race-based terrorism. It impacted
every New Zealander and was deeply
felt by the Z team, particularly many
in our retail operations, our team
in Christchurch and those of the
Muslim faith.
This tragedy kicked off a national
conversation around racism and what
we stand for as a country. We also took
the time to reflect deeply on this as,
unfortunately, our Retail site staff are
all too frequently the subject of racial
insults and abuse.
We’re committed to creating a culture
that does not discriminate, respects
human rights, and is inclusive of all
New Zealanders. So we asked our Retail
team how we are going about delivering
that. Sixty-two percent of our Retail team
reported that verbal abuse (including
racial, religious, or sexual references)
on site is treated seriously “to a great
extent” by Z and our Retailers, and
22 percent “to a moderate extent”.
#wevegotyourback
View clips on the
Z YouTube channel
Watch the clips
https://www.youtube.com/zenergynz
WHAT WE STAND FOR NOW FOR OUR FUTURE AND CHANGE
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Good In The Hood reviewed
For seven years now, Z has run
its pioneering ‘Good In The Hood’
community investment programme
in which staff and customers at every
Z retail site choose which organisations
working in the heart of their local
communities should receive funding
support from Z.
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Powering up future generations
Z chooses to partner with the Graeme
Dingle Foundation on its commitment
to “powering up future generations”.
For 25 years the Foundation has been
working with young people to ensure
their potential is realised. Unfortunately,
due to a lack of resources and
opportunity, many young people never
really think about their futures, let
alone careers.
Z provides financial support to the
programme and its people work with the
Foundation on the ground to support
young people realise their potential
through building self-belief and life skills.
With almost 30,000 children in its
programmes, this partnership is making
a difference where it really matters.
Over the last seven years, Z has
contributed over $7 million to a wide
range of community organisations that
traditionally struggle for funding, yet
make the most profound differences to
people in their communities. This year we
donated $1 million to 539 groups across
199 Z service stations. Victim Support
was the most widely supported by our
customers, followed by Bellyful – the
organisation providing free meals to
parents of newborn babies. Groups that
participated in Good In The Hood this
year rated their experience as 4.7 out of
five stars.
The feedback we receive on Good
In The Hood is always positive and
moving, but it was time for a proper
independent review of the programme
and its impact. So we commissioned the
Ākina Foundation to conduct a social
impact assessment of Good In The Hood.
The summary findings were that Good
In The Hood is successful in building
community connections, increasing the
profiles and opening doors for many
charitable organisations. The money
makes a real difference.
The Ākina Foundation recommended
that Good In The Hood could be
improved by investing more money to
the same number of recipients, being
more targeted to improve the impact
of donations on certain sectors and
providing more guidance to site retailers
in allocating funding and enabling
community connection.
This feedback will be factored into the
design of next year’s programme.
WHAT WE STAND FOR NOW FOR OUR FUTURE AND CHANGE
Ngā rerekētanga
me te whakaurutanga
Diversity and inclusion
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We are committed to reflecting the
diversity of New Zealand with an
inclusive culture so that diversity can
be fully expressed and manifest in
tangible benefits. We will lead the way
in developing a Kiwi firm that has our
people being successful, being ourselves.
We have retained
three key focus areas:
1 Te Ao Māori
2 Women in leadership and
operational roles
3 Rainbow community
The last two words of this stand are its
essence: ‘Being ourselves’. This is the
ultimate goal behind our commitment to
a diverse and inclusive workplace and
culture. We are committed to this not just
because it is the right thing to do, but
because achieving this workplace and
culture will drive our future success.
Perhaps never before has there been
an industry in which genuine diversity
and creative thinking has been more
urgently needed. Z will lead in this space
and, in doing so, create the options, the
partnerships, the experiences and the
solutions our customers expect, our
shareholders deserve and our world so
desperately needs.
This year we’ve taken a ‘kaituitui’
approach to diversity and inclusion –
weaving our diversity and inclusion work
into our business rather than having a
large number of stand-alone initiatives.
Our commitment to diversity and
inclusion is simply the way we do things
at Z.
WHAT WE STAND FOR NOW FOR OUR FUTURE AND CHANGE
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Let’s start by looking at Z as
if we were a village of 100 people:
5
Maori
FY19: 3
3
Other
FY19: 2
14
Asian
FY19: 14
2
Pacific Islander
FY19: 1
60
NZ European
FY19: 66
2
Middle Eastern, Latin American or African
FY19: 2
79
Have a Tertiary Education
1
Rainbow Community
FY19: 69
FY19: 1
37
Female
FY19: 37
52
Have dependants
FY19: 51
13
European
FY19: 12
1
Prefer not to say
63
Male
FY19: 60
1
Has a disability
FY19: 1
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Gen Z
FY19: 53
22
34
25
15
Millennials
FY19: 22
Xennials
FY19: 31
Gen X
FY19: 26
Baby Boomers
FY19: 26
23
Auckland
FY19: 19
59
Wellington
FY19:58
18
Rest of NZ
FY19:58
Another shift we have noticed at Z
is the increasing willingness of men
to take parental leave, with four
men in the Z team choosing to do so
over FY20. We believe this reflects
Z’s commitment to a gender‑balanced
approach to parental leave and has
removed any female bias that used
to exist with parental leave.
Z is committed to building a culture in
which people are comfortable to express
their true selves.
Currently, one person in 100 prefers
not to state an ethnic identity. This is
neither a good nor a bad thing, however,
we know that many Kiwis are from
multiple ethnicities and the current
categorisation tools are outdated and
overly prescriptive. We will shortly look
at this in more detail with a view to
ensuring we understand our workforce
more accurately through the way we ask
people about themselves.
One person in 100 at Z now chooses a
non-binary gender identity which we see
as evidence of removing barriers to our
people expressing their true selves.
WHAT WE STAND FOR NOW FOR OUR FUTURE AND CHANGE
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Gender, age and ethnic diversity
We’re not on track to reach our ideal
target of balanced gender diversity,
primarily because of the increase in
operational roles – such as in terminals
– and also in digital roles in which men
have traditionally dominated. Women in
operational roles at Z is seven percent.
At the other end of the spectrum, Z is
now one of a relatively small number
of NZX companies with a female chair
and 40 percent of the Z executive team
are women.
Our focus on building digital capability
across the company has contributed
to 60 percent of new hires being men
in FY20 but also to increasing ethnic
diversity. Similarly, we are starting to see
more employees on working visas filling
operational roles to fill persistent skills
gaps in the labour market.
The average age of a Z employee is 42.
Unsurprisingly, we are seeing growth in
Generation Z, Millennials and Xennials
(born between 1977–1983) and declines
in Generation Xers and Baby Boomers
across the Z workforce.
The gender pay gap
Across the Z team there is currently a
4.6 percent pay gap in favour of men over
women. While of course we pay women
well, this gap exists due to most of our
larger roles currently being filled by men.
Job for job and career level to career
level, Z’s people are paid at parity
regardless of gender. We publish this
information internally every year so our
people can be confident of this.
We are highly mindful of gender and
pay during our recruitment, talent and
performance review processes. We have
received the Gender tick, which replaces
the Pay Compaq accreditation, in 2021.
Honouring our Māori heritage
and building capability
We have continued our journey to
better reflect Māori heritage, culture
and identity at Z. Z believes we cannot
respect and be genuinely inclusive of all
cultures and heritages if we don’t cherish
and reflect our own distinct Māori
heritage first.
Our Te Ao Māori plan is centred around
embracing Te Ao Māori as part of
strengthening the diversity, inclusion and
capability of every person at Z. We have
focused on weaving Māori tikanga
into our formal rituals in a way that is
authentic and respectful and are seeing
increasing levels of comfort at using
Te Reo across our company for all kinds
of occasions and circumstances.
We piloted Te Reo night classes and held
Te Kaa workshops in which participants
learned about Māori culture with the
intention of helping bring Te Ao Māori to
life at Z. We continued our partnership
with TupuToa in which pathways into
working careers are provided through
internships for Māori and Pasifika youth.
Five percent of the Z team in our offices
identify as Māori. We are committed
to increasing this representation and
welcome particularly high levels of
engagement from Māori, particularly in
relation to inclusion.
We also foster diversity through being
genuinely inclusive of other cultures
in our day-to-day routines, including
celebrating major cultural events
including Lunar New Year and Diwali.
Leadership and capability
Diversity of capability is also a focus for
how we start our next phase of strategy
at Z. Almost every person in Z has now
experienced training in the philosophy
and application of CX, and we continue
to invest in building our capability to
innovate and change quickly, and digital
capability is now rapidly growing across
the business.
At Z, we view everyone as a leader.
We have recently launched a new
leadership framework setting out
the expectations we have for our
people, which is focused on three
core principles: connect, take action,
and learn. Leadership matters for our
people, customers and our investors
and using these simple principles are
critical to harnessing and developing our
emerging capabilities.
We are also reviewing our approach
to remuneration to more tightly focus
reward on company performance and the
creation of shareholder value.
We will report on this process in next
year’s report.
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As Simon Sinek says, customers
will never love a company until the
employees love it first. We agree.
Engagement
A tough year in which we haven’t hit
our financial targets and in which we
transition to a new phase of strategy and
way of working is a test for engagement
and culture.
Using the Peakon engagement
measuring tool, we now monitor staff
engagement via online monthly surveys
as opposed to an annual survey.
We are now able to act on real-time
staff feedback in the same way as we
monitor our customer experience.
Bringing together the way we measure
both of these measures will ultimately
enhance our customers’ experience.
Participation in these surveys sits
at a solid 79 percent. Our current
employee net promoter (eNPS) scores
are consistently meeting or exceeding
our overall targets. Currently we are
delivering an eNPS of +36 – an all-time
high – against a target of +21 and the
prior year of 17.
Celebrating
Z’s Rainbow community
One of the things we perhaps wish
we’d done earlier, is achieve the
Rainbow Tick, which we received in
2018. This accreditation is a source of
huge pride across the Z team and is a
key part of building a culture in which
all people are safe, included and free
to express themselves.
We are currently developing a gender
transitioning policy to support our
commitment to the diverse Rainbow
community. We will report on this next
year. We welcome the increasing trust
placed in Z as an employer by the
Rainbow community and pledge to
continue to earn it.
WHAT WE STAND FOR NOW FOR OUR FUTURE AND CHANGE
Haumarutanga
me te hauora
Safety and wellbeing
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Reviewing our safety stand
Z has talked about Health, Safety,
Security and the Environment (HSSE)
since the company was formed in 2010,
when it was a brand new offspring of a
global oil company.
When engaging people on matters
as critical to Z’s business as safety,
language matters: ‘Health, Safety,
Security and the Environment’ was a
mouthful. People didn’t fully understand
what it meant and the term had become
a barrier to the emotional connection
essential to building a generative
safety culture.
As Z has changed and made steady
progress towards a generative safety
culture, we needed to find a new
way to reconnect the principles and
commitments behind our HSSE stand
with a more diverse workforce – age,
gender, backgrounds, experiences and
personal priorities.
We needed to overhaul this foundational
stand upon which everything we do
is anchored.
The word ‘safety’ was non-negotiable.
As the country’s largest fuel company,
we must continue to explicitly, directly
and consistently focus on safety and
our performance and measurement of it.
But we needed to better acknowledge
the relationship between personal
wellbeing, including mental health,
and safety outcomes.
Our systems are delivering levels
of redundancy in operational safety
or, put another way, we have more
slices of cheese in the Swiss cheese
model making it harder and harder
for all the holes to line up. By way of
example, we introduced an industry-first
‘ship-to-shore’ valve shutoff programme
at port terminals to further reduce the
risk of bulk tanks being overfilled during
ship discharges. This initiative has
already proved its value.
Over the year, we’ve introduced
telemetric monitoring in all company
vehicles, introduced a new driver
training programme, introduced new
fatigue management plans for all bulk
fuel storage terminals and implemented
new Environmental Risk Management
and Emergency Management plans for
our bulk fuel terminals. We’ve adopted a
new ‘permit to work’ system covering all
high-risk work on Z sites.
Z’s Operational Risk
Management System
Z’s Operational Risk Management
System (ZORM) is fully implemented
and embedded across the business
to manage safety and wellbeing risks.
This system is vitally important in
enabling Z to meet its responsibilities
as a Person Conducting a Business
or Undertaking (PCBU) under
New Zealand Law.
ZORM is certified to ISO45001 and is
confirmed by independent audit.
So we chose to drop the terms ‘security’
and ‘environment’ from our stand:
‘security’ was poorly understood and
our environmental aspirations are well
covered in a separate stand. We now
stand for Safety and Wellbeing.
It’s simple, and easy to understand with
more room for personal connection.
It’s more inclusive and more real for our
team and enables us to start to measure
more, not less.
Integrating safety, risk
and strategy
Over the year, we reorganised Z’s Safety
and Wellbeing, Risk and Assurance,
Environmental Sustainability, and
Strategy functions, bringing them
together in a new integrated team.
These functions are all inter-related and
having them work tightly together is
important in ensuring greater integration
and focus across them.
In the third quarter, we also reorganised
the new Safety and Wellbeing function
to ensure it is fit for purpose as the
organisational capability in this area
continues to increase. Z continues to
make solid progress towards our goal
of building a generative safety culture
in which accountability for safety
is devolved across every person in
the organisation.
Ongoing investment in safety
systems, processes, capabilities
As Z transitions in terms of who we are
and how we operate, we’re continuing
to invest in our safety systems and
processes. Things are always going to
go wrong from time to time, because
humans are fallible. But when we do fail,
we’re failing ‘safer’.
Main types of work-related injury: slips and trips
FY19: Manual handling, slips and trips
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4.1 million
Number of hours worked (Z employees, retail sites,
Mini Tankers)
FY19: 4.1 million
Zero
Work-related fatalities
FY19: Zero
3,255
Hazardous waste disposal
tonnes
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600%
Number of spills (loss of containment)
FY19: Zero
We now stand for Safety and
Wellbeing. It’s simple and easy
to understand with more room
for personal connection.
100%
2
Motor vehicle incidents
FY19: 1
100%
1
Tier 1 and Tier 2 process safety incidents
FY19: Zero
70%
1.33
FY19: 1.84
Total recordable case frequency
Z employees:
FY19: 0.48
Retailers and Mini-Tankers franchisees: FY19: 1.56
80%
1.18
FY19: 1.44
Lost time injury frequency*
Z employees:
FY19: 0.24
Retailers and Mini-Tankers franchisees: FY19: 1.43
* TCRF and LTIF are based on 200,000 hours worked.
FY20: 0.48
FY20: 1.56
FY20: 0.24
FY20: 1.43
WHAT WE STAND FOR NOW FOR OUR FUTURE AND CHANGE
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Z has committed to providing leadership and a high
level of health and wellbeing support for its people
as New Zealand entered the COVID‑19 lockdown and
State of Emergency in the last week of Z’s financial year.
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Protecting the health
of the Z team
Protecting physical safety and avoiding
harm to our people and communities
through robust risk management
processes is critically important at Z.
So too is ensuring our people’s access
to a range of other broader medical
and wellbeing support services and
processes – including outside of
the workplace.
These initiatives include free influenza
vaccines, anonymous Employee
Assistance Programme counselling
support for staff and their families, free
mole map skin cancer checks and the
ability to anonymously report wellbeing
concerns through frequent staff surveys
via the Peakon engagement tool.
Additionally, Z has a range of policies,
processes and reporting tools to
protect staff from bullying, harassment,
workplace stress and fatigue.
Z acknowledges that running a safe,
secure operation requires employees to
be at their best and has built its ZORM
system and its policies and procedures to
support the overall wellbeing of its team.
Z staff participate in the New Zealand
Workplace Barometer survey to provide
broader benchmarking and external
reference points on workplace safety
and wellbeing performance.
1.92%
Absenteeism rate
FY19: 1.36%
Wellbeing through COVID‑19
Z has committed to providing leadership
and a high level of health and wellbeing
support for its people as New Zealand
entered the COVID-19 lockdown and
State of Emergency in the last week of
Z’s financial year.
While protecting the health and wellbeing
of its people, Z seeks to come out of the
pandemic having learned more about
effectively managing health, wellbeing
and organisational resilience.
Z has made a huge amount of information
and resources available to its people
during the early stages of the COVID-19
outbreak in New Zealand, including
subject matter experts. Materials and
staff sessions have focused on stress
management, mental wellbeing, why
isolation matters, safe working practices
and the use of PPE.
We have also worked to ensure the
sense of connection that is important to
Z’s people is protected through the ways
we work while working remotely.
Managing psychosocial risks
Over FY20, Z trialled a new wellness
reporting tool as part of an experiment
to assess whether a confidential/
anonymous approach would promote
better psychosocial risk reporting.
A Mini-Tankers programme has started in
two areas: addressing fatigue work-risk
factors directly, such as shift scheduling
and workload; and improving leadership
and worker engagement practices.
Fatigue management improvements
have been made within the Bulk Fuels
team. The anonymous reporting of
fatigue related incidents and events is
being trialled at our Terminals with some
early success.
Bringing safety into the
digital age
As we build our strategy around new
capabilities, we are using new skills to
make some of our core safety processes
more effective and efficient.
The bulk of safety incidents occur in
retail service stations: Minor spills, near
misses, trips and falls, and threatening
and abusive behaviour from customers.
Logging each incident has been a
constant pain point for our Retail team,
requiring them to log on to a computer
system and manually input data and
detail or, even worse, to manually
record incidents on paper and fax
them. It’s slow, inefficient, and acts as a
deterrent to accurate safety reporting.
Any deterrent to accurate reporting must
be addressed because if we don’t have
data, we can’t act on it.
Bringing robberies down
The biggest direct safety risk our
Retail site teams face is that of robbery.
This has been a massive challenge for
Z over the last five years and we have
invested heavily in training, technology
and infrastructure to deter robberies and
keep our staff safe.
While there is no place whatsoever for
complacency, and zero robberies being
the only target, we’ve made progress
towards that goal. From a peak of 23
robberies per year in FY17 and FY18, we
closed FY20 with 14, and in all but two of
these robberies, staff were able to make
it safely to a secure room.
In an environment where the steadily
increasing price of tobacco products
continues to generate risk. We are
committed to continuing to invest in
and develop innovative solutions to
keep our people safe.
So we found a better way. Using the Agile
approach and our digital capabilities, we
built a new incident reporting app for
our frontline Retail teams. It’s immediate,
intuitive and easy and our teams love
it. It stops staff from having to ‘save up’
incidents and dedicate time at the end
of the day to record them. Using the app
enables fresh insights to be immediately
recorded and shared, including between
sites. It uses simple images where
possible and is transforming the safety
data we receive from sites.
As a result of the introduction of digital
technology to incident reporting, we
have noticed the following things:
Productivity at sites is up as a result
of an eight-minute time saving per
incident report, the CX is up, site staff are
happier and incident reporting is up by
50 percent.
We are now fully digitising Z’s Operational
and Enterprise Risk Management
Frameworks and integrating all risk
management practices into a single
piece of software. We expect significant
improvements in efficiency and risk
management outcomes and will report
on this next year.
14
Robberies
FY19: 14
GOVERNANCE
GOVERNANCE
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Te Poari Whakahaere
Corporate
governance
statement
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Introduction
As an organisation with inherent risks
across all of its operations, and that
makes such a material contribution
to the national economy, we set high
standards of corporate governance
at Z. Our customers, shareholders
and our investors deserve this.
We take this really seriously.
It is a privilege to represent Z as its
directors – particularly at this stage in our
evolution when our operating context is
changing rapidly. We stand for ensuring
safe, reliable operations, reliable returns
for shareholders and for positioning our
company to succeed under a range of
future scenarios.
We are committed to reporting to high
standards, particularly against those
issues that are most material. Our adoption
of the Task Force on Climate-related
Financial Disclosures (TCFD) framework
reflects not only this commitment,
but our commitment to responding to
the challenge of climate change in an
integrated way at the Board table. As a
core function of the Board, we now actively
and deliberately consider the risks of a
changing climate to our operations, our
assets, the national economy and the
communities of which we are all a part.
This part of the report seeks to go well
beyond a compliance exercise, which is
why we are publishing it in its entirety in
this annual report. How our company is
governed, how decisions are made and
how risks are managed is a critical part of
the Z story.
This corporate governance statement
seeks to illustrate how, as a Board,
we engage with challenging issues and
seek a diverse range of perspectives
to inform our thinking, decision making
and risk management. It provides insight
into what, as directors, we actually do
and why.
It also seeks to establish a dialogue.
Z’s management is highly accessible and
our Board is too. If any readers of this
report want to engage with the Z Board
on any matters, including to provide
feedback or suggestions on this report,
we welcome you getting in touch.
GOVERNANCE
Our Board
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2
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5
6
7
The Z Board and how we recruit
In order to build a sustainable company,
particularly during a period of structural
industry change, we must be disciplined
around identifying the diversity of specific
skills and experience the Board needs and
taking action to ensure we have them.
Over the year, we welcomed
Mark Malpass to the Z Board. Mark’s
appointment demonstrates the
Board’s approach to seeking the
right combination of skills to build a
balanced Board.
Mark brings extensive experience in the
fuels industry to Z. He has previously
been a director of Waitomo Fuels and
Refining NZ and was a former Managing
Director at Mobil Oil NZ. He also brings
extensive experience in the construction
and infrastructure fields to Z, with a
background in roles at Steel and Tube,
Fletcher Building and Fulton Hogan.
Mark has no conflicts of interest and will
seek shareholder confirmation of the
appointment by election at Z’s Annual
Shareholder Meeting in June 2020.
Z Directors (as pictured above)
1.
Steve Reindler joined 1 May 2017
2. Mark Malpass joined 30 October 2019
Flick Directors
• Marcel van den Assum (Chair)
• Matthew Todd
• Lindis Jones
• Amelia (“Aimee”) McCammon
• Scott Bishop
• Aaron Snodgrass
3. Abby Foote joined 15 May 2013
(alternate for Matthew Todd)
4. Blair O’Keeffe joined 1 August 2018
5. Mark Cross joined 28 August 2015
6. Alan Dunn joined 2 April 2010, leaves
30 April 2020
7. Julia Raue joined 15 February 2016
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Number of Directors
with high and moderate
capability
Sufficient
capability
Focus for
future
succession
Area of
ongoing
Board
learning
GOVERNANCE
How we appoint
the board
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“Boards are basically a black box,
and it would be great to know what
they actually do”.
Taking into account our operating context,
market dynamics and our strategy,
we then identify the skills we need.
Where there is a gap, we seek to fill those
gaps either through appointment of the
right skills or gaining those skills through
learning and personal development.
Over the last two years, the Board
focused on ensuring it had the right skills
around effective capital management,
including dividend policy and the
company’s commitments to deleveraging
its balance sheet and filling the skills
gaps around the fuels industry and
infrastructure management that were
created following the departure of former
Chair Peter Griffiths.
The commitment to ensuring core
industry experience led to the
appointment of both Mark Malpass and
Blair O’Keeffe. The Board acknowledges
that ensuring continued industry
experience meant the Board was unable
to advance further towards its goal of
gender balance in FY20. The Board,
however, remains committed to ensuring
a balanced and diverse Board.
Over FY21, the Board will continue to
focus on closing the skills gap in data
and customer experience, as per the
following skills matrix.
As you can see in the matrix, the areas
of Customer Insight, Data and Brand as
well as Digitisation are areas of focus
for future Board succession as well
as areas of ongoing Board learning
and development.
Sustainability and Clean Energy remains
an area of focus in which the Board would
like greater capabilities.
It’s worth noting that Z has been seeking
an appropriately skilled and qualified new
director with skills in digital technology,
data and customer experience since
June 2019. The market is incredibly
tight for people with these skills and
experience, and we continue the search.
The Z Board also measures itself on
how diverse we are as a group, using a
‘Diversity of Thought’ measurement tool.
Using this tool, we map the diversity of
both the Board and Z Executive team so
we fully understand how we think and
work together and so we can be highly
strategic in the recruitment processes
for each group.
Board Committee membership
The Z Board makes use of a number
of Committees to ensure a clear focus
on particular areas of the business.
The following section references these
Committees at various points and the
table under Principle 2, requirement
2.4 outlines membership of Z’s Board
Committees as at the end of FY20.
So, what have we been doing?
A few years ago, one of Z’s biggest
institutional shareholders shared their
observation with us that generally,
“Boards are basically a black box, and
it would be great to know what they
actually do”.
It’s a simple statement, but if one of
New Zealand’s biggest investors finds
it hard to work out what boards actually
do, then chances are companies can do
a better job of telling people.
We’ve taken this feedback on board
and, every year, we try to provide our
investors and stakeholders with more
colour and context around what we
actually do and why we do it. Over the
course of FY20, we broke the Board’s
programme of activity into three
groupings: Business performance;
staying one step ahead/looking for
external views; and testing existing
structures and approaches. These three
groupings highlight where our focus
and our work has been, what we’ve been
doing beyond the traditional Board
meetings and, perhaps most importantly,
they provide insight into what the Board
and management focus on and think
hard about.
Directors’ skills matrix
as at 31 March 2020
Strategic context aligned to Director capability
Creating value for
investors by focusing
on a safe and profitable
core fuel business
Strategic knowledge for scale oil
Brings extensive experience in the fuels industry
with an emphasis on integrated downstream oil.
Operating model transformation – balancing
legacy and growth
Former CEO, ideally brings large scale turnaround
experience in an entity that has gone through
significant change.
Heavy industry business (or similar)
Extensive experience in engineering, construction
and infrastructure and/or transport and logistics.
Finance and capital markets
Former CFO or senior executive with extensive
knowledge of financial strategy, cost optimisation
and commercial acumen.
Delivering outstanding
customer experiences
while positioning
ourselves for future
disruption
Retail transformation
Deep understanding of the retail business including
value chain, customer experience transformation,
supply and distribution.
Customer insight, data, and brand
Brings extensive capability in customer innovation,
brand and systems including data driven marketing.
Digitisation – back office and field
Application of digital technology in physical retail.
Expertise in customer-based app development and
internet of things.
Remaining a people and
values‑based company
committed to future
generations
Listed company governance
Experience driving best practice in corporate
governance, regulation, risk and compliance,
and ESG.
HSE (Health and safety)
Experience in workplace health and safety including
knowledge of legal obligations and regulations.
Sustainability and clean green energy
Sustainability strategies to limit environmental
impact including experience with alternative
energy sources.
Key
High Capability
Moderate Capability
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4
GOVERNANCE
Over the year, Z’s Board and management came
together to conduct a broad-ranging review
of Z’s operations, business activities, financial
performance by business units, and
the company’s capital and cost bases.
The Board has now completed its
review and has made decisions based
on it. We have satisfied ourselves that
Z’s strategy is appropriate for our
current context and that gaps in
capability and execution have either
been closed or have clear action plans in
place to quickly close those gaps.
In particular, the Board acknowledges
that investments into new activities,
such as the Flick business, have not
been executed effectively. The Board
has agreed to significantly tighten its
approach to any future investments
in adjacent businesses, operations
or industries.
The focus areas requiring Board
decisions are around ensuring
Z’s cost base reduces appropriately
for a markedly different operating
environment, that Z’s capital structure
continues to reduce risk and reward
investors, and whether or not discreet
business units within the Z business are
performing adequately.
The Board and management are
aligned on the requirement for each
part of Z’s business to be performing
financially. Where we are not satisfied
on such performance, we will look to
divest certain operations and we will
be monitoring performance against
this standard.
Staying one step ahead/looking
for external views
One of the Board’s skills gaps highlighted
in the FY19 annual report was in the
area of clean energy and sustainability.
Over FY20, we were active in building
our capability in this area, and for very
good reason.
In our industry, we must continue to
evolve and innovate as the world around
us moves ever more rapidly around
issues of carbon emissions and climate
change. Over the year, not only did the
New Zealand Government pass a Zero
Carbon Bill and introduce an independent
Climate Change Commission but it also
announced a ban on default KiwiSaver
providers from investing in fossil fuel
producers. At the time of preparing this
report, we’re not yet clear on how this
will be applied but, regardless, the capital
markets have also started to move to
limit investment in fossil fuel producers.
In January 2020, BlackRock, the
world’s largest asset manager with
approximately US$7.4 trillion of assets
under management, wrote to CEOs
linking climate risk with the way fund
managers think about investment risk
and noting that BlackRock would:
Business
performance
Missing initial earnings guidance by
$104 million from the original mid-point
of guidance for FY20 has caused
the Board’s focus over the year to
be squarely on assuring itself as to
Z’s strategy and ability to execute it.
It has become clear that changes in the
industry – particularly strong increases
in competitive pressures from multiple
new entrants and reduced fuel margins
– are structural and will be here for
some time.
In response to a changing context,
Z has significant strategic choices
available to it. We have developed these
choices over time and we review them
periodically. Over the year, Z’s Board and
management came together to conduct
a broad-ranging review of Z’s operations,
business activities, financial performance
by business units, and the company’s
capital and cost bases.
In October 2019, the Z Board
and its committees conducted a
two-day ‘deep dive’ session to test
Z’s strategy against performance
and capability. This review was
supplemented by a management
review from the Z Assurance function
on the development, execution and
measurement of Z’s strategy.
As a result of all of this work, a
‘management strategy action plan’ was
developed that focused on prioritising
the allocation of resources and accurate
measurement of strategy initiatives.
One of the outcomes of this work was
the introduction of competitive resource
allocation inside Z to ensure resources
directly support strategy.
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“… place sustainability at the center of
our investment approach, including:
making sustainability integral to portfolio
construction and risk management;
exiting investments that present a
high sustainability-related risk, such as
thermal coal producers; launching new
investment products that screen fossil
fuels; and strengthening our commitment
to sustainability and transparency in our
investment stewardship activities”.
This is a perspective the Z Board is
highly cognisant of. We share the view
that investor concern around climate
change is a structural change in the
capital markets that is not going away.
It is now a critical part of our operating
context which we must reflect in the
Board’s decision making and capabilities.
In service of building our own capabilities
and generating conversation and debate
around climate issues, over FY20, the
Z Board sponsored two significant
international climate change experts
to New Zealand: Michael Liebreich, a
clean energy and automation expert and
advocate, and Professor Will Steffen,
scientist and Climate Councillor at the
Climate Council of Australia.
The Board used these visits to learn a
great deal about international climate
change and climate policy, as well as
the future of clean energy and the
possibility of developing a low carbon
global economy.
These guests not only spent time with
the Z Board, but spoke with Z staff, held
public talks and engaged with a range
of Z’s external stakeholders, including
with Government.
The global perspective these guests
provided, particularly around the
transition to a low carbon economy,
was particularly helpful to the Board.
These visits ensured all of the Board have
a very clear, consistent understanding
of global climate and energy-related
challenges and opportunities.
More detail on these visits is contained in
Principle 2.6 below.
As part of ensuring the Z Board is a
step ahead and actively engaged with
the latest thinking and developments,
the Board also invited Rob Everett, the
Chief Executive of the Financial Markets
Authority, to speak with the Board
around corporate governance.
Rob’s presentation was based around an
article he has previously published titled
‘the Death of the Milton Friedman model’.
You can find copies of speeches Rob has
made on this subject on the FMA website,
but the essence of the presentation
and the ensuing conversation was
around the evolving roles of Boards
and the changing nature of corporate
governance, away from a singular focus
on maximising shareholder returns at all
costs to a broader focus on stakeholder
engagement and providing leadership
on issues such as climate change and
social issues.
The most consistent and frequent
engagement the Z Board and
management has is with the owners of
the company – our shareholders.
Z’s directors are the shareholders’
representatives and both the Board and
management seek to engage frequently
and constructively with shareholders.
From daily phone conversations with
institutional investors, to streaming
results presentations, to international
investor roadshows, to annual
meetings that encourage retail investor
participation, to face-to-face meetings,
Z actively encourages engagement
with shareholders.
Typically our retail and institutional
shareholders hold shares in other
companies and the conversations we
have with them almost always give us
cause to consider and to learn.
It is important, particularly for
institutional investors, that they can
speak directly with a company’s
directors, separate from management,
and we facilitate this on an
annual basis with the Z Chair and
institutional investors.
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The following section steps
through how Z is complying
with the principles set out in the
NZX Corporate Governance Code.
GOVERNANCE
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6
Testing existing structures
and approaches
One of the areas of focus for the Z Board
over FY20 was to challenge ourselves
against best practice governance,
examining what we do as a Board and
how we are preparing for the future.
There was no shortage of external
material to prompt the right
conversations and challenges around
governance best practice over the FY20
year. The Z Board took the opportunities
to dive deeply into the issues raised in
these reports and to reflect on how and
where it can continue to improve its
governance of Z and management of risk.
We held structured ‘deep dive’ Board
conversations around the changing
role of governance and used current
developments in the broader markets
to challenge our own thinking and
approaches. In particular, the Z Board
used the Australian ‘Hayne’ Royal
Commission into Misconduct in the
Banking, Superannuation and Financial
Services Industry alongside the
Australian Securities and Investment
Commission’s October 2019 Corporate
Governance Taskforce’s report into
governance oversight of non-financial
risk, and the New Zealand Institute of
Directors’ Report ‘Always on duty – the
Future Board’ to drive conversations
around best practice governance at Z,
particularly around risk management.
The corporate governance and
management failings identified in the
Hayne Royal Commission have been
extensively covered in the media.
However, so clear were these failings that
they provided the Z Board with important
opportunities to reflect on our own
performance, including the rigour with
which we interact with management and
our approach to risk management.
The Institute of Directors’ ‘Always on
duty’ report also provided significant
opportunity to reflect not only on the
current Z governance function, but how it
will need to evolve.
It makes the following comment,
which gives some indication as to the
conversations the report generated
around the Z Board table and some of the
activities that have already been covered
in this section:
Boards should “embrace an activist
mindset and seek third-party data about
future business, talent, revenue models
and transformation opportunities.
This data will help the board
constructively challenge biases, identify
blind spots and unknown unknowns,
and bring an objective perspective and
new ideas to the strategic planning
process” [source: EY – Top priorities for
Boards 2019).
The report noted that the top five
risks in the World Economic Forum’s
2019 Global Risks Report are now
completely different than from a
decade ago, highlighting the need for
continuous director learning, education
and succession.
The report also covered the importance
of trust and transparency, the
importance of a clear purpose, rapidly
evolving technology and increasing
levels of Board accountability and
responsibility. It noted that the traditional
model of Board meetings has not evolved
significantly over the last 50 years, and
made a number of recommendations
which Z is actively working to implement,
particularly around management’s
reporting to the Board.
GOVERNANCE
Our Executive Team
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Mandy Simpson
Chief Digital Officer
Joined 19 February 2019
Nicolas Williams
General Manager,
Commercial
Joined 7 June 2011
David Binnie
General Manager, Supply
Joined 8 September 2014
Helen Sedcole
Chief People Officer
Joined 29 January 2018
Lindis Jones
Chief Financial Officer
Joined 10 May 2010
Mike Bennetts
Chief Executive Officer
Joined 1 April 2010
Debra Blackett
General Counsel and
Chief Governance Officer
Joined 2 June 2015
Julian Hughes
General Manager,
Strategy and Risk
Joined 16 February 2015
Jane Anthony
Chief Customer Officer
Joined 1 April 2010
Andy Baird
General Manager Retail
Joined 1 April 2019
GOVERNANCE
The NZX Corporate
Governance Principles
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The NZX Corporate Governance Code
was launched in 2017 and covers
eight principles that issuers are
‘encouraged’ to adopt. According to
the NZX, these principles seek to
“reflect internationally accepted
corporate governance practices,
which are intended to protect the
interests of and provide long-term
value to shareholders while also
seeking to reduce the cost of capital
for issuers”.
The Z Board seeks to go well beyond
these eight principles in its disclosure
and reporting to shareholders
and stakeholders. While much of
this content has been covered
elsewhere in this report, we also
report briefly against each principle
for completeness and to provide
summary compliance information for
those that seek it.
How we meet
these conditions
Over FY20, Z has complied with the
NZX Corporate Governance Code.
During the period, no significant fine or
monetary sanction has been imposed
against Z by any government authority.
Nor has Z been made aware that it had
broken any material law.
Z is not aware of any non-compliance
with environmental laws and/or
regulations.
Over the period, Z’s Board approved
changes to Z’s Market Disclosure Policy
and Constitution in April 2019, effective
1 July 2019, following endorsement by
shareholders at the 20 June 2019 ASM.
These changes were made to ensure
full compliance with changes to the
NZX Listing Rules. The Listing Rule
changes relevant to Z include ensuring
that directors stand for re-election every
three years, changing the name of the
updated NZX Rules and minor wording
and numbering changes.
Effective 30 October 2019, Mark Malpass
was appointed as a new independent
director. Mark has no conflicts of interest
and will seek shareholder confirmation of
the appointment by election at Z’s ASM
in June 2020. More information on the
skills Mark brings to Z is contained on
page 81.
No NZX Board waivers were sought over
the period.
The following section refers frequently
to Z Board Charters and the charters
for Board Committees, as well as codes,
policies and other core corporate
documents. All of these documents can
be found in the Corporate Governance
section of the Z Energy Investor Centre
at https://investors.z.co.nz/corporate-
governance/governance-overview
PRINCIPLE 1
CODE OF ETHICAL BEHAVIOUR:
1.1 – The board should document
minimum standards of ethical
behaviour to which the issuer’s
directors and employees should
adhere to (a code of ethics).
The following section steps
through how Z is complying with
the principles set out in the NZX
Corporate Governance Code.
1.2 – An issuer should have a financial
product dealing policy which applies
to all employees and directors.
1
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“Directors should set a high standard of ethical behaviour,
model this behaviour and hold management accountable
for these standards being followed throughout
the organisation.”
Z has a clearly articulated Code of Conduct, which is one of Z’s foundation documents.
This is our code of ethical behaviour, but it goes well beyond ethics.
It sets clear standards of ethical and appropriate behaviour. All staff, including directors
and the leadership of Z, are expected to hold each other to account for the standards set
in this document.
Our Code of Conduct can be found in the Corporate Governance section of the Z Energy
Investor Centre at https://investors.z.co.nz/corporate-governance/governance-overview
The Code of Conduct also applies to secondees, contractors, consultants,
100 percent-owned subsidiaries and all directors, which we define as “Z People”.
The Code outlines Z’s values, our policies, the responsibilities of Z as the employer
and those of all individual line managers of people.
The Code also sets out Z’s obligations to our neighbourhoods; stakeholders and
Government; and contractors and suppliers. Additionally, the Code outlines some of
our obligations related to financial reporting, commercial conduct, and company assets,
information and equipment.
The Code of Conduct also provides a range of escalation procedures for reporting
ethical breaches, including the assurance of anonymity for whistleblowers, consistent
with the Protected Disclosures Act 2000.
It indicates the expectations of all Z people in relation to conflicts of interest,
acceptance of gifts, bribery and corruption, and confidentiality. All Z people are provided
with training and become familiar with the Code when starting at Z. All Z people are
expected to adhere to the Code of Conduct. It is a condition of entering Z’s employment.
In April 2019, partially in response to the issues raised by the #metoo movement, the
Board approved and adopted an updated Discrimination, Bullying and Harassment
Policy. This policy adds informal processes to existing formal processes, allowing issues
to be raised by third parties rather than just the complainant. The policy clarifies what
bullying and harassment is and is not (ensuring no unintended consequences where
legitimate performance processes are followed). The use of social media and any other
form of cyber bullying discrimination or harassment is clearly covered, and prevention
is emphasised.
Z’s Board and management are committed to the integrity of financial markets and to
ensuring compliance with all the regulatory market requirements upon it.
Z’s Insider Trading Policy is a critical part of this commitment. The Policy aims to ensure
that every member of the Z team is aware of their obligations and legal requirements
in relation to the trading in Z securities. The Policy applies to all directors, officers,
employees and contractors to Z who intend to deal in Z Restricted Securities.
The Insider Trading Policy can be found in the Corporate Governance
section of the Z Energy Investor Centre at https://investors.z.co.nz/corporate-
governance/governance-overview
GOVERNANCE
How we appoint
the board
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PRINCIPLE 2
BOARD COMPOSITION
AND PERFORMANCE:
“To ensure an effective board, there should be a
balance of independence, skills, knowledge, experience
and perspectives.”
2.1 – The board of an issuer should
operate under a written charter which
sets out the roles and responsibilities
of the board. The board charter should
clearly distinguish and disclose the
respective roles and responsibilities of
the board and management.
2.2 – Every issuer should have a
procedure for the nomination and
appointment of directors to the board.
The Z Board seeks to ensure it is balanced with a diverse and complementary set of
skills, backgrounds, experience and thinking, The Board makes appointments using a
rigorous process, and partners in international director recruitment, to ensure the right
skills are on the Z Board and that it actively manages Board succession.
The Board seeks to provide high-quality governance on behalf of shareholders and
stakeholders and places a high value on its performance. It reviews and assesses its own
performance thoroughly and regularly using independent processes and personnel.
Z’s Board operates under a written Charter. Z’s Board Charter sets out how the Board
exercises and discharge its powers and responsibilities in relation to Z’s business
and affairs. The Charter sets out the role, composition, responsibilities and duties,
procedures, powers and authority, and review and accountability of the Board, the
Chief Executive Officer and the Executive team.
This Charter is important in clarifying the functions of governance and management.
It enables general Board oversight, including of management’s implementation of
Z’s strategic objectives and performance.
The Charter can be found in the Corporate Governance section of the Z Energy Investor
Centre at https://investors.z.co.nz/corporate-governance/governance-overview
Z’s Board Charter describes the procedure for nomination of potential candidates for
appointment as directors.
Potential candidates are recommended by Z’s People and Culture Committee following
consultation with external recruiters and are then considered by the Board.
A candidate must demonstrate appropriate qualities and experience, be able to commit
the time needed to their role and meet certification requirements of the NZX and ASX.
They must be free of conflicts of interest.
Assessments of overall Board diversity and thinking styles, including the fit of potential
new directors is an integral part of this process.
The Board maintains a live skills matrix which records the mix of experience and
expertise of the current Board and the future strategy and business needs to be
considered for future appointments. For more information on this skills matrix, see
page 83.
Directors are appointed depending on the specific needs of the Board at the time of
appointment. Their independence, qualifications, skills and experience are all actively
considered and reviewed.
All new directors must undergo induction, familiarise themselves with the Z Board
Charter, charters of the Z Board Committees and other key governance policies
and documents. Directors are also expected to continuously educate themselves to
effectively perform their role.
The Charter can be found in the Corporate Governance section of the Z Energy Investor
Centre at https://investors.z.co.nz/corporate-governance/governance-overview
2.3 – An issuer should enter into
written agreements with each newly
appointed director establishing the
terms of their appointment.
Z enters into written agreements with all new directors. These agreements establish
the terms and conditions of their appointment, including compliance with the
Z Constitution, the Board and Committee Charters, and Board policies.
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2.3 – (continued)
Directors also undergo a structured induction and training process which includes an
introduction to Z’s foundation document, the “Z Why”, and one-to-one engagement with
each of the CEO and executive team.
Z currently has seven directors and typically manages the number of directors
between six and eight. While eight is a maximum under the constitution, Z’s Board will
occasionally stretch to eight for short periods of time to ensure a handover period at
times between experienced directors who are leaving the Board, and new directors
coming on.
While there is no formal requirement around maximum director tenure, Z actively
monitors this and plans for succession. Z is very mindful around directors ‘staying for
too long’ and seeks a mix of levels of experience across the Board to ensure the right
balance between fresh thinking and strong industry knowledge and experience.
2.4 – Every issuer should disclose
information about each director in
its annual report or on its website,
including a profile of experience,
length of service, independence and
ownership interests and director
attendance at board meetings.
There are currently seven directors that serve on the Z Board. There are no
non-executive directors on the board. Z has never had any non-executive directors.
There are currently two women on the Board, one of whom is Chair of the Board, the
other is Chair of the People and Culture Committee.
Board profiles can be found in the Corporate Governance section of the Z Energy
Investor Centre https://investors.z.co.nz/corporate-governance/board-of-directors
For details on directors’ interests in shares and bonds, see page 118.
Attendance at board meetings
Directors attended the following board and committee meetings during the year.
Director
Total number of meetings held
Peter Griffiths*
Alan Dunn
Abby Foote
Mark Cross
Julia Raue***
Stephen Reindler
Blair O’Keeffe
Mark Malpass****
Board
meetings
7
2/2
7/7
7/7
7/7
6/7
7/7
7/7
3/3
ARC
4
-
-
3/3**
4/4
-
4/4
-
1/1
PCC
HSSEC
4
-
4/4
-
-
3/4
-
4/4
-
6
1/1
6/6
6/6
6/6
4/6
6/6
5/6
2/2
* Peter Griffiths retired from Z’s board on 2 May 2019.
** Abby retired from ARC on appointment of Mark Malpass on 30 October 2019.
*** Julia had an approved absence from three meetings (Board and two Committees) due to the death of her
mother. The other committee absence was a clash with another board the Chair was aware of in advance.
**** Mark Malpass joined Z’s board on 30 October 2019.
Please refer to the Director remuneration table on page 104 for more information on
Board and Board Committee membership.
The standard deviation of director age is 7.26 years.
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GOVERNANCE
PRINCIPLE 2
BOARD COMPOSITION
AND PERFORMANCE: (continued)
2.4 – (continued)
Other Z subsidiary directors
2.5 – (continued)
Z Subsidiary
Names of Directors
Z Energy LTI Trustee Limited
Z Energy ESPP Limited
Z Energy 2015 Limited
Ben Rodgers
Julia Raue
Alan Dunn (retired 29 October 2019)
Ben Rodgers
Julia Raue
Alan Dunn (retired 29 October 2019)
Abby Foote
Mark Cross
Mark Malpass
Julia Raue
Stephen Reindler
Blair O’Keeffe
Peter Griffiths (retired 2 May 2019)
2.5 – An issuer should have a written
diversity policy which includes
requirements for the board or
relevant committee of the board to set
measurable objectives for achieving
diversity (which, at a minimum, should
address gender diversity) and to assess
annually both the objectives and the
entity’s progress in achieving them.
The issuer should disclose the policy or
a summary of it.
Z is committed to a culture that promotes and values diversity and inclusiveness within
a meritocracy. This is reflected in our Diversity policy which applies to all Z people and
sets out processes for annual review of the organisation’s performance against the
policy and how it will be measured. Please refer to pages 68-73 for more information on
Z’s commitments in the Diversity and Inclusion space. Z’s Diversity and Inclusion policy
can be read here: https://investors.z.co.nz/corporate-governance/governance-overview
Total number of employees by employment contract (permanent and temporary)
by gender.
Employee Type
Female
Male
Non Binary/
Not Disclosed
Permanent
Fixed Term
181
10
314
13
2
1
Total
486
35
Total number of employees by employment contract (permanent and temporary), by region.
Region
Auckland
Canterbury
Otago
Mini-Tankers Driver
Bay of Plenty
Hawkes Bay
Nelson
Wellington
Home Office
Female
Male
Non Binary/
Not Disclosed
Total
40
2
1
0
2
0
1
144
1
79
45
3
10
9
3
9
162
7
0
0
0
1
0
0
0
2
0
119
47
4
11
11
3
10
308
8
Total number of employees by employment type (full-time and part-time), by gender.
Employee Type
Full Time
Part Time
On Parental Leave
Female
Male
Non Binary/
Not Disclosed
157
24
10
323
3
1
3
0
0
Total
483
27
11
5
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2
0
2
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A
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N
N
A
Gender pay ratios
The ratios of female to male average pay for Z’s permanent employees at 31 March 2020
are set out below.
Significant locations of operation are those regions where at least 20 males and females
are employed.
Ratio of basic salary and remuneration of women to men.
By significant location of operation
Wellington
Auckland
Average base salary woman to man
Pay gap
0.86:1
14%
0.92:1
8%
Ratio of basic salary and remuneration of women to men for each employee category
By role
Leader of Self
Senior Leader
People Leader
Exec
Wellington
Auckland
0.92:1
0.9:1
0.91:1
0.65:1
0.99:1
0.79:1
1.12:1
n/a
The age groups of Z’s permanent employees and Board at 31 March 2020.
Age
Under 30 years
30–50 years
Above 50 years
% Employees
% Board
15%
62%
23%
0%
29%
71%
The ethnicities of Z’s permanent employees and Board at 31 March 2020.
Ethnicity
% Employees
% Board
NZ European/Pakeha
European
Asian (including Indian and Pakistan)
Other Ethnicity
Information Not Provided
Middle Eastern/Latin American/African
Maori
Pacific Islander
60%
13%
14%
3%
1%
2%
5%
2%
The percentage of Z’s permanent employees and Board at 31 March 2020.
Dependents
No
Yes
Not disclosed
100%
0%
0%
0%
0%
0%
0%
0%
Number
194
272
55
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
9
6
GOVERNANCE
PRINCIPLE 2
BOARD COMPOSITION
AND PERFORMANCE: (continued)
2.5 – (continued)
Parental Leave
Total number of employees that were entitled to parental leave, by gender.
Female
191
Male
327
Non Binary/
Not Disclosed
3
Total number of employees that took parental leave, by gender.
Female
10
Male
4
Non Binary/
Not Disclosed
0
Total
521
Total
14
Total number of employees that returned to work in the reporting period after
parental leave ended, by gender.
Female
11
Male
4
Non Binary/
Not Disclosed
0
Total
15
Total number of employees that returned to work after parental leave ended
that were still employed 12 months after their return to work, by gender.
Female
14
Male
1
Non Binary/
Not Disclosed
0
Total
15
Return to work and retention rates of employees that took parental leave, by gender.
Return to work rate
Retention rate
Female
79%
63%
Male
100%
100%
Non Binary/Not
Disclosed
NA
NA
Number of employees by education level
Education Level
Tertiary
Post Graduate
Secondary
None or Unknown
Number
301
112
58
50
Z’s capability-led strategy relies on all people developing their capability in Customer
Experience (CX), innovation and digitisation. A CX-blended learning pathway is available
for all staff, and over 80 percent have completed it so far. We have partnered with
Microsoft to imbed Windows 365 and upskill our people in digital capabilities via a
scenario-based learning programme.
Z built an Innovation Masterclass which has been completed by over 40 percent of
the company, including eight of the executive team. The Masterclass alumni rate is
4.78/5 in terms of satisfaction. Our Masterclass work was recognised with a Silver Pin
at the Best Awards (the most recognised design awards in Australasia) in the Value of
Design category.
2.5 – (continued)
7
9
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0
2
0
2
T
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A
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N
N
A
Z delivers multiple “immersion days” and coaching sessions across the business each
quarter to reinforce and build confidence in the new way of work and to accelerate
business impact. This includes internal teams and external retail partners.
Z created a Manager of Organisational Learning role in March 2019 with a focus on
building the workforce of the future by developing our people. In addition, a Capability
Manager role in the Customer Team is focused on CX capability.
Ways of Working (WOW) principles have been developed and implemented, with Z WOW
coaches building agile, lean and human capital development capability, alongside
18 employees trained in leading Scaled Agile Framework (SAFe), eight Scrum Masters,
eight SAFe Product Owners and 11 employees trained in SAFe for Teams.
Z’s delivers training and programmes through online learning modules using SAP’s
Litmos learning management system.
Z’s Leadership Framework has been revised and updated to reflect changing
expectations of leadership. Everyone at Z is a Leader, and a Learning and Development
programme which supports all employees to develop these skills will be rolled out
in FY21.
Blended learning programmes have been tailored for frontline operations staff at
Terminals and the Biodiesel plant. Z has partnered with Otago Polytech Edubits to add
micro credentials to Terminals training for the Wharf Attendant role, and intends to
expand the programme if this is successful.
EAP Services Limited provides career coaching and is available to all staff and their
immediate families.
Outplacement and career coaching services are provided by CDL Insight Consulting.
Diversity of governance bodies and employees
Percentage of individuals by gender, age and ethnicity.
% Employees
% Exec
% Board
Gender
Female
Male
Non Binary/Not Disclosed
Age Group
Under 30 years
30–50 Years
Above 50 years
Ethnicity
NZ European/Pakeha
European
Asian (including Indian and Pakistan)
Other Ethnicity
Information Not Provided
Middle Eastern/Latin American/African
Maori
Pacific Islander
37%
63%
1%
15%
62%
23%
60%
13%
14%
3%
1%
2%
5%
2%
40%
60%
0%
0%
50%
50%
80%
20%
0%
0%
0%
0%
0%
0%
29%
71%
0%
43%
57%
0%
100%
0%
0%
0%
0%
0%
0%
0%
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
9
8
GOVERNANCE
PRINCIPLE 2
BOARD COMPOSITION
AND PERFORMANCE: (continued)
2.5 – (continued)
New Employee hires and employee turnover
Total number and rate of new employee hires during the reporting period, by age group,
gender and region.
Number
Rate
2.5 – (continued)
Gender
Female
Male
Non Binary/Not Disclosed
Region
Auckland
Canterbury
Otago
Mini-Tankers Driver
Bay of Plenty
Hawkes Bay
Nelson
Wellington
Home Office
Age Groups
Under 30 years
30–50 Years
Above 50 years
49
75
2
23
3
1
7
0
1
2
89
0
42
76
8
39%
60%
2%
18%
2%
1%
6%
0%
1%
2%
71%
0%
33%
60%
6%
Total number and rate of employee turnover during the reporting period, by age group,
gender and region.
Number
Rate
Gender
Female
Male
Non Binary/Not Disclosed
Region
Auckland
Canterbury
Otago
Mini-Tankers Driver
Bay of Plenty
Hawkes Bay
Nelson
Wellington
Home Office
Age Groups
Under 30 years
30–50 Years
Above 50 years
43
41
1
21
1
0
2
0
1
0
60
0
10
56
19
51%
48%
1%
25%
1%
0%
2%
0%
1%
0%
71%
0%
12%
66%
22%
9
9
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P
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G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Information on employees and other workers*
Total number of employees by employment contract (permanent and temporary), by gender.
Employee Type
Permanent
Fixed Term
Female
181
10
Male
314
13
Non Binary/Not
Disclosed
2
1
Total
486
35
Total number of employees by employment contract (permanent and temporary), by region.
Region
Auckland
Canterbury
Otago
Mini-Tankers Driver
Bay of Plenty
Hawkes Bay
Nelson
Wellington
Home Office
Female
40
2
1
0
2
0
1
144
1
Male
79
45
3
10
9
3
9
162
7
Non Binary/Not
Disclosed
0
0
0
1
0
0
0
2
0
Total
119
47
4
11
11
3
10
308
8
Total number of employees by employment type (full-time and part-time), by gender.
Employee Type
Full Time
Part Time
On Parental Leave
Female
157
24
10
Male
323
3
1
Non Binary/Not
Disclosed
3
0
0
Total
483
27
11
*Notes
1. Seventy nine contractors were engaged in the year, predominantly to provide additional digital capabilities.
2. Variations across the numbers above are due to the operational side of the business, with more males employed
in those roles which are predominantly based in regions outside of the main centres.
3. This data has been extracted from Z’s payroll system.
A
N
N
U
A
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R
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P
O
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T
2
0
2
0
Z
E
N
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Y
P
g
1
0
0
GOVERNANCE
PRINCIPLE 2
BOARD COMPOSITION
AND PERFORMANCE: (continued)
2.6 – Directors should undertake
appropriate training to remain current
on how to best perform their duties as
directors of an issuer.
Z is committed to the continuous education of the Board. According to the Z Board
Charter, all Directors are expected to continuously educate themselves to ensure
they have the appropriate expertise to perform their duties effectively. Meetings and
briefings are arranged for the Board, involving key management and industry/safety
experts and advisers. Educational and stakeholder visits are routinely held in service of
this commitment.
Over the period, the Z Board engaged in a range of professional development activities
including: a ‘deep dive’ session discussing modern governance and in particular the
NZ Institute of Directors report, ‘Always on Duty – the Future Board’, and a range of
governance reviews coming out of the Australian banking royal commission, including
the ASIC report by the Corporate Governance Taskforce on director and officer
oversight of non-financial risk. For more information see page 86.
The Board also hosted two international climate change and clean energy experts
to New Zealand over the year for Board discussions, staff presentations and a range
of public and stakeholder engagements. For more information see page 85.
2.7 – The board should have a
procedure to regularly assess director,
board and committee performance.
The Z Board’s People and Culture Committee is responsible for overseeing the annual
evaluation process of the Z Board and Board Committees. As a condition of the Z Board
Charter, the Board annually reviews and evaluates the performance of the Board,
Committees and individual Directors.
2.8 – A majority of the board should
be independent directors.
2.9 – An issuer should have an
independent chair of the board. If the
chair is not independent, the chair and
the CEO should be different people.
The Z Board seeks to assess its own performance in line with best practice and to assess
real time board dynamics to ensure the Board is working optimally. The Board is planning
its next review during the 2020 calendar year including with independent experts.
One hundred percent of the Board is independent.
In accordance with Z’s Board Charter and Constitution, the Board must be formed by
between three to eight Directors. The Board has agreed that a majority of Directors,
including the Chair, must meet independence requirements.
In order for a Director to be considered independent, the Board must affirmatively
determine that the Director does not have a disqualifying relationship or material
relationship with Z Energy. Additionally, the Chair’s other commitments must not be such
that they are likely to hinder the Chair’s effective performance of the role.
Abby Foote is Z’s independent Chair of the Board. Z’s Chair and the CEO are two
different people. On 22 February 2019, it was announced that Abby would be
Peter Griffiths’ successor as Chair. Abby started her role as Chair in May 2019.
Abby is a professional director with over 12 years’ governance experience in
publicly-listed and Crown-owned companies. Abby holds qualifications in both law and
accounting and her career has covered both disciplines, focusing on corporate finance,
treasury and commercial transactions.
Z’s Board used an external consultancy to provide independent advice and review of
this internal appointment to ensure that the Chair had the requisite skills, leadership
capabilities, competencies and industry knowledge to support the future strategic
requirements of Z as outlined in the Superdiversity Institute’s Diverse Thinking Criteria.
PRINCIPLE 3
BOARD COMMITTEES:
“The board should use committees where this will
enhance its effectiveness in key areas, while still
retaining board responsibility.”
1
0
1
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0
2
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A
U
N
N
A
3.1 – An issuer’s audit committee
should operate under a written charter.
Membership on the audit committee
should be majority independent and
comprise solely of non‑executive
directors of the issuer. The chair of
the audit committee should be an
independent director and not the chair
of the board.
3.2 – Employees should only attend
audit committee meetings at the
invitation of the audit committee.
3.3 – An issuer should have a
renumeration committee which
operates under a written charter
(unless this is carried out by the whole
board). At least a majority of the
remuneration committee should be
independent directors. Management
should only attend remuneration
committee meetings at the invitation of
the remuneration committee.
3.4 – An issuer should establish a
nomination committee to recommend
director appointments to the board
(unless this is carried out by the whole
board), which should operate under a
written charter. At least a majority of
the nomination committee should be
independent directors.
The Z Board has a number of committees, providing specialist areas of focus on core
parts of the business, such as safety and wellbeing, people and culture, and risk.
Z’s Audit and Risk Committee (ARC) operates under a written charter. All members
(100 percent) of the ARC are independent directors and the Chair of the ARC is not the
Chair of the Board.
The ARC Charter can be found in the Corporate Governance section of the Z Energy
Investor Centre at https://investors.z.co.nz/corporate-governance/governance-overview
Z’s employees only attend ARC meetings at the invitation of the Committee.
Committee meeting procedure is outlined in the ARC Charter.
Z’s People and Culture Committee (PCC) performs the duties of a remuneration
committee and it operates under a written charter.
The PCC guides and reviews Z’s People and Culture and Remuneration strategies.
This involves reviewing short- and long-term incentive offers, and Z’s structures and
policies to ensure they support the delivery of Z’s strategy and business plans.
The PCC subsequently makes recommendations to the Board. The PCC also approves
Z’s annual remuneration budget.
The PCC agrees on remuneration of the CEO, the Board and the Executive. This element
of the PCC’s role involves approving performance criteria for the CEO. The Board Chair
is responsible for the CEO’s performance review.
The PCC approves CEO remuneration and recommends incentive payments or other
adjustments to CEO remuneration to the Board, considering the CEO’s performance
review with the Board Chair.
The PCC establishes, develops and oversees a formal and transparent process for the Board
to review and evaluate the performance of the overall Board, the Board Committees, and
individual Directors, and to determine appropriate Board remuneration subject to approval
by shareholders as required by the NZX Main Board and Debt Market Listing Rules.
Management only attend PCC meetings if invited by the Committee.
The PCC Charter can be found in the Corporate Governance section of the Z Energy
Investor Centre at https://investors.z.co.nz/corporate-governance/governance-overview
The People and Culture Committee (PCC) assists the Board with succession planning
and recruitment for the Board, CEO, Executive and other agreed key people.
The PCC directly designs and implements Z’s succession planning for the Board,
including the Chair of the Board, and the CEO. The succession planning strategy
addresses: continued effective composition, necessary and desirable skills, experience,
knowledge, diversity and judgment and appropriate size of the Board.
The PCC identifies and recommends individuals for nomination to be members of the
Board and Board Committees to ensure the effective composition of both. The PCC
considers factors such as skills, experience, qualification, tenure (if applicable), diversity,
judgement’, the ability to work with other directors, fit with the culture of Z, and current
and future ability to lead and support Z’s strategy.
A
N
N
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2
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2
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1
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2
GOVERNANCE
PRINCIPLE 3
BOARD COMMITTEES: (continued)
3.4 –Continued
3.5 – An issuer should consider
whether it is appropriate to have any
other board committee as standing
board committees. All committees
should operate under written charters.
An issuer should identity the members
of each of its committees, and
periodically report member attendance.
3.6 – The board should establish
appropriate protocols that set out the
procedure to be followed if there is as
takeover offer for the issuer including
any communication between insiders
and the bidder. The board should
disclose the scope of independent
advisory reports to shareholders.
These protocols should include the
option of establishing an independent
takeover committee, and the likely
composition and implementation of an
independent takeover committee.
The PCC consults as required with the CEO over appointments to the Executive.
Over FY20 the following changes were made to the Executive: Z appointed
Mandy Simpson into a new Executive role as Chief Digital Officer. Within existing
members of the Executive Team, Lindis Jones was appointed as CFO following the
resignation of Chris Day; Andy Baird was appointed as the General Manager for Retail
following the resignation of Mark Forsyth; Julian Hughes was appointed as the General
Manager for Strategy and Risk; and Jane Anthony’s position as the General Manager
of Marketing was redeveloped as the General Manager, Customer.
These Executive team changes reflect Z’s strategic focus, without making the Executive
team larger. In particular, Mandy Simpson brings depth in digital experience and
governance to Z; Andy Baird brings extensive retail and brand building experience
to Z, including in the fuels marketing space; Jane Anthony’s role has been changed
to reflect the strong strategic focus on customer experience; and Lindis Jones brings
strong operational and corporate experience from across Z’s business to the CFO role.
The PCC Charter can be found in the Corporate Governance section of the Z Energy
Investor Centre at https://investors.z.co.nz/corporate-governance/governance-overview
The Board has appointed three standing Board Committees to assist in carrying out its
responsibilities and has accordingly delegated responsibilities, powers and authority
to those Committees.
These Committees assist the Board by focusing on specific responsibilities in greater
detail than is possible for the Board as a whole. The Board ensures that each Committee
has access to adequate resources to perform its functions effectively and efficiently.
The Audit and Risk Committee (ARC) has the responsibility of assisting the Board in
ensuring oversight of all matters relating to risk management, including verification that
there are appropriate processes to identify and manage risk, financial management and
controls, and the financial accounting, audit and reporting of Z.
The People and Culture Committee (PCC) guides and reviews the People and Culture
Strategy and policies. It provides assurance to the Board that the strategy and policies are
designed and implemented effectively and are fully compliant with all legislative and listing
requirements. The PCC also oversees all people policies including remuneration frameworks.
The Health, Safety, Security and Environment Committee (HSSEC) assists the
Board to ensure it provides direction, assurance, and tightly monitors and reports on
performance on health, safety, security and environment matters.
The Board Committee charters can be found in the Corporate Governance section of the
Z Energy Investor Centre at:
https://investors.z.co.nz/corporate-governance/governance-overview
Z adopted its Takeovers Response Policy in 2019 to assist the Board and management
if Z receives an offer or an approach by a potential acquirer for a controlling stake in Z.
The purpose of the Policy is to ensure that Z is well prepared for any approach and
therefore will be better able to control the takeover response process, and respond
to any approach in a professional, timely and co-ordinated manner. Such a response
will ensure that any approach is properly managed in the best interests of Z and
its shareholders.
The Policy sets out specific obligations that apply to directors, the CEO and the CFO,
as well as certain other employees who may be involved in the response process.
In the event of an offer or approach occurring, the material contained in the Policy would
be supplemented by Z’s management and external advisers at the time.
The Takeovers Response Policy can be found in the Corporate Governance section of
the Z Energy Investor Centre at:
https://investors.z.co.nz/corporate-governance/governance-overview
PRINCIPLE 4
REPORTING AND
DISCLOSURE:
“The board should demand integrity in financial and
non‑financial reporting, and in the timeliness and
balance of corporate disclosures.”
3
0
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
4.1 – An issuer’s board should have a
written continuous disclosure policy.
4.2 – An issuer should make its code of
ethics, boards and committee charters
and the policies recommended in the
NZX Code, together with any other key
governance documents, available on
its website.
4.3 – Financial reporting should be
balanced, clear and objective. An
issuer should provide non‑financial
disclosure at least annually, including
considering environmental, economic
and social sustainability factors
and practices. It should explain how
operational or non‑financial targets
are measured. Non‑financial reporting
should be informative, include forward
looking assessments, and align with
key strategies and metrics monitored
by the board.
This report seeks to demonstrate the Z Board’s commitment to high quality disclosure
and reporting to shareholders and stakeholders. Z places a high value on transparency
and seeks to make appropriate market disclosures in a timely fashion.
Z’s Market Disclosure Policy ensures the company keeps Z’s investors and markets
informed through a clear and balanced approach that communicates both positive
and negative developments. The Board is committed to providing timely, consistent,
accurate, and credible information to the market.
Z’s standing Disclosure Committee is ultimately responsible for ensuring Z’s compliance
with its disclosure obligations. The Committee consists of: the Board Chair, the ARC
Chair, the CEO, the CFO, Z’s Corporate Communications and Investor Relations Manager,
the General Counsel and Chief Governance Officer.
The CEO and the Executive team are required to provide all material information to the
Disclosure Officers. The Disclosure Committee also monitors external markets to ensure
it is complying with external requirements.
The Market Disclosure Policy can be found in the Corporate Governance section of the
Z Energy Investor Centre at:
https://investors.z.co.nz/corporate-governance/governance-overview
Z’s Investor Centre on its website (www.z.co.nz/investor) contains a Corporate
Governance section which holds the Z Board Charter and the Charters for
Z’s Sub-Committees. This section also includes Z’s Code of Conduct and other
Z policies for public consumption. All key governance documents and disclosures
are available on the Z Investor Centre website.
The executive team is responsible for implementing and maintaining appropriate
accounting and financial reporting principles, policies, and internal controls designed to
ensure compliance with accounting standards and applicable laws and regulations.
Z’s external auditor is KPMG. KPMG is responsible for planning and carrying out each
external audit and review in line with applicable auditing and review standards. They are
accountable to shareholders through the ARC and the Board respectively.
The Z Board retains overall responsibility for financial reporting.
The ARC makes sure that it and the full Board are sufficiently informed about best-practice
financial reporting and Z’s operations to know whether financial reporting is fit for purpose.
The ARC reviews Z’s risk-management systems and receives quarterly reports relating
to risk management from Z’s risk and assurance function and from management.
Additionally, two certifications from Z’s risk and assurance function are generated every
year, providing assurance to the Board that Z’s financial records have been properly
maintained, and that the financial statements comply with generally accepted accounting
principles and give a true and fair view of Z’s financial position and performance.
Non‑financial reporting
Z is committed to best practice reporting and transparency at all levels of the organisation. This currently includes sustainability
reporting against the Global Reporting Initiative (GRI) and Integrated Reporting guidelines. Both frameworks are recognised by the
Sustainable Stock Exchanges Initiative and they form the basis for this annual report. Z also complies with NZX’s Environmental, Social
and Governance guidance and reports against the United Nations Sustainable Development Goals.
The Audit and Risk Committee makes sure that it and the full Board are sufficiently informed about good practice financial and non-
financial reporting.’
This is the first year that Z is reporting against the TCFD framework.
For more information on how Z chooses to report, please see page 6.
GOVERNANCE
A
N
N
U
A
L
R
E
P
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T
2
0
2
0
Z
E
N
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Y
P
g
1
0
4
PRINCIPLE 5
REMUNERATION:
“The remuneration of directors and executives should
be transparent, fair and reasonable.”
5.1 – An issuer should recommend
director remuneration to shareholders
for approval in transparent manner.
Actual director remuneration should
be clearly disclosed in the issuer’s
annual report.
Directors’ fees
In response to shareholder feedback, Z no longer participates in market benchmarking
surveys as a prime means of setting its directors’ fees. We are continuing to take advice
on alternative options for assessing director fees. In the interim, this year there was no
increase to the approved directors’ fees pool, and directors chose not to seek a bonus
for FY20.
None of the directors is entitled to any remuneration from Z other than directors’ fees
and reasonable travel, accommodation, and other expenses incurred in the course of
performing duties or exercising powers as directors.
No directors are entitled to any retirement benefits. In addition to directors’ fees,
additional fees are paid to the Chair and members for work carried out by directors
on various board committees to reflect the additional time involved and responsibilities
of these positions.
The current total remuneration pool for Z’s non-executive directors at 31 March 2020
is $1,100,000 per annum.
Board fees
ARC fees
PCC fees
$16,411
HSSEC
fees
Total remu‑
neration
$887
$17,298
$177,430
$5,806.45
$10,860
$194,096
$97,000
$13,521
$10,000
$120,521
$97,000
$20,000
$10,000
$127,000
$97,000
$18,521
$10,000
$125,521
$97,000
$10,000
$19,140
$126,140
$97,000
$10,000
$10,000
$117,000
$40,677
$4,194
$4,194
$49,065
Peter Griffiths*
Chair, Board of Directors
Member, HSSEC
Abby Foote**
Chair, Board of Directors
Member, ARC
Member, HSSEC
Alan Dunn
Board of Directors
Member, PCC
Member, HSSEC
Mark Cross
Board of Directors
Chair, ARC
Member, HSSEC
Julia Raue
Board of Directors
Chair, PCC
Member, HSSEC
Stephen Reindler
Board of Directors
Member, ARC
Chair, HSSEC
Blair O’Keeffe
Board of Directors
Member, PCC
Member, HSSEC
Mark Malpass***
Board of Directors
Member, ARC
Member, HSSEC
* Peter Griffiths retired from Z’s Board on 2 May 2019.
** Abby became chair of Z’s Board on 2 May 2019, subsequently her HSSEC chair membership transferred to
Steven Reindler, and her ARC membership transferred to Mark Malpass on 30 October 2019.
*** Mark Malpass joined Z’s Board on 30 October 2019.
5.2 – An issuer should have a
remuneration policy for remuneration
of directors and officers, which
outlines the relative weightings of
remuneration components and relevant
performance criteria.
Flick Energy Limited director
remuneration received in FY20
Marcel van den Assum
Scott Bishop
Matt Todd
Aimee McCammon
Lindis Jones
Total
5
0
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Board Fees
$81,000
$-
$54,000
$45,000
$-
$180,000
Approved director remuneration for FY20
Board of Directors
Audit and Risk Committee (ARC)
People and Culture Committee (PCC)
Health, Safety, Security, Environment
(HSSE) Committee
Position
Chair
Non-executive director
Chair
Member
Chair
Member
Chair
Member
Fees
(per annum)
$185,000
$97,000
$20,000
$10,000
$20,000
$10,000
$20,000
$10,000
CEO and senior officer total remuneration for FY20
We believe in creating a clear link between performance and reward. We report on
remuneration earned for the respective year of performance rather than remuneration
paid as a more appropriate way of illustrating how pay relates to performance. While this
reporting would normally include cash bonuses earned over the course of the year but paid
in the next financial year, no bonuses were awarded for any member of staff for FY20.
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.
CEO and senior officer remuneration
Position
Chief Executive Officer
GM Retail
GM Supply
GM Commercial
Chief Financial Officer
Salary
and fees
$1,180,000
$440,000
$420,000
$420,000
$510,000
Fixed
taxable
benefits
$60,908
$23,908
$22,908
$22,908
$25,500
Subtotal
$1,240,908
$463,908
$442,908
$442,908
$535,500
Pay for performance
STI
paid FY21 for FY20
Performance
Gross LTI
paid in FY21 for
2017‑20 period
$ –
$ –
$ –
$ –
$ –
$ –
$ –
$ –
$ –
$ –
Subtotal
Total
remuneration
$ –
$ –
$ –
$ –
$ –
$1,240,908
$463,908
$442,908
$442,908
$535,500
Notes
1. Gross LTI – no payment as performance hurdles were not met.
2. Gross STI – excludes any KiwiSaver contribution.
3. Total remuneration excludes variances based on previous 12 months accumulative annual leave
hourly rates, and loan repayment and tax deduction for LTI.
4. Fixed benefits are 5% employer KiwiSaver contribution and medical insurance.
A
N
N
U
A
L
R
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P
O
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2
0
2
0
Z
E
N
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1
0
6
GOVERNANCE
PRINCIPLE 5
REMUNERATION: (continued)
5.2 – (continued)
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 Short-term Incentive
(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.
Every permanent Z employee’s remuneration package comprises a base salary, an
STI component, and health insurance (with Southern Cross) for themselves and their
immediate family. Z also makes a five percent employer contribution to KiwiSaver.
One hundred percent of Z employees had regular performance and career development
reviews during the reporting period.
The base-salary model is informed and adjusted each year based on data from
independent remuneration specialists. An employee’s base salary is determined
from a matrix of their own performance and their current position in the market and
reviewed annually.
Our STI model is focused on articulating performance goals, driving for outcomes,
differentiating high performance, and rewarding delivery.
STI values are calculated as a percentage of base salary and determined based on the
complexity of the roles. Employees’ STI payments are determined following a review of
the individual’s performance and may be paid out at a multiplier of zero to three times
an individual’s STI target, depending on the company’s performance.
The executive team and selected senior employees are also eligible for participation in a
Performance Rights Long-Term Incentive Plan (PRLTIP). This is a share-based incentive
scheme which 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, there are both individual and
company targets.
For shares to be issued 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.
Thirty percent of executives’ salary (excluding the CEO) is subject to stock ownership
requirements or guidelines. There are no stock ownership requirements or guidelines
for the CEO.
Loans are not provided to executives.
Performance measures for long-term equity and cash awards granted in the last fiscal
year are published in our annual report each year.
5.2 – (continued)
Short‑term Incentive (STI) scheme at Z FY20
7
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N
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A
The CEO Target bonus amounts for Z Energy meeting expectations for both company
and individual performance is 50% of base salary. If the individual and/or the company’s
overall performance is below or exceeds expectations a multiplier is applied.
STI multiplier matrix based on individual and company performance.
Individual
Performance
Extraordinary
Exceeds
Expectations
Meets
Expectations
Below
Expectations
Unacceptable
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
1
0
3
2.5
2
1.5
0
Notes
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
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 payment
of STI bonuses and may determine that no bonus will be paid in a given year. The Board
exercised this discretion not to pay a staff bonus in FY20.
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
A
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0
2
0
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8
GOVERNANCE
PRINCIPLE 5
REMUNERATION: (continued)
5.2 – (continued)
Restricted Share Long‑Term Incentive Plan
The executive team and selected senior employees were eligible for the Restricted Share
Long-Term Incentive Plan (RSLTIP) that ran from April 2017 to March 2020. The RSLTIP
was a share-based incentive scheme, not a cash bonus payment. The RSLTIP focused 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.
For the 2017 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 #37,
and the Board have determined that no pay-out 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.
RSLTI 2017–2020
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
CEO STI FY20 — 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.
• CEO’s annual bonus cap – 3 × target percent of bonus
• None of the annual bonus for the CEO is or can be deferred
• Our senior officers must meet individual performance targets that are direct subsets
of the above-listed company STI FY20 measures
• Executives annual bonus (excluding CEO) cap – 3 × target percent of bonus
• None of the annual bonus for executives can be deferred
• No part of the bonus is granted or will be granted guaranteed
9
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0
2
0
2
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A
U
N
N
A
5.2 – (continued)
CEO pay for performance scenario FY20
Remuneration policy and disclosures
The figures in the two graphs below 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.
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
FY20 Fixed Rem
(unacceptable, below)
FY20 On-plan
(meets)
FY20 Maximum
(extraordinary)
Fixed
STI
LTI
Five‑year summary CEO remuneration
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
FY16 actual
FY17 actual
FY18 actual
FY19 actual
FY20 actual
Fixed
STI
LTI
A
N
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0
2
0
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0
GOVERNANCE
PRINCIPLE 5
REMUNERATION: (continued)
5.2 – (continued)
Five‑year summary — TSR performance
5.2 – (continued)
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.
Total Shareholder Return (TSR)
200
160
120
80
40
0
141.57
90.26
M ar-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jul-16
Sep-16
Nov-16
Jan-17
M ar-17
M ay-17
Jul-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Aug-18
Oct-18
Jan-19
M ar-19
M ay-19
Jul-19
Sep-19
Nov-19
Z Energy
New Zealand NZX 50 9TSR)
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.
The numbers in the table above indicate the multiplier applied to an employee’s bonus
depending on company and individual performance.
Required disclosures
• 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: none
• 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
Z granted one payment to an executive member to be made in April 2020, rewarding
for additional governance work in FY20.
The notice period for the CEO if the Z Board was to terminate the employment contract
is four weeks.
1
1
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G
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E
Z
0
2
0
2
T
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O
P
E
R
L
A
U
N
N
A
Z employees remuneration
The total number of corporate employees is 521, of which 497 are permanent.
310 Z employees (or former employees) received remuneration and other benefits over
$100,000 in their capacity as employees during FY20, as set out in the table below.
This includes salary, settlement payments and redundancy payments for all permanent
employees. It also includes short- and long-term performance bonuses which were
awarded at the end of FY19 and paid at the commencement of FY20. This disclosure
is based on actual amounts received in the year and differs from the disclosure on
Executive Remuneration that reflects performance in FY20, not all of which is received
during the current year. Z notes the high proportion of employees (60%) earning above
$100,000 reflects Z’s business model decisions. For example, traditionally lower earning
employee roles (like call centre staff) are presently outsourced.
Amount of remuneration
$100,000 to $110,000
$110,000 to $120,000
$120,000 to $130,000
$130,000 to $140,000
$140,000 to $150,000
$150,000 to $160,000
$160,000 to $170,000
$170,000 to $180,000
$180,000 to $190,000
$190,000 to $200,000
$200,000 to $210,000
$210,000 to $220,000
$220,000 to $230,000
$230,000 to $240,000
$240,000 to $250,000
$250,000 to $260,000
$260,000 to $270,000
$270,000 to $280,000
$280,000 to $290,000
$290,000 to $300,000
$300,000 to $310,000
$330,000 to $340,000
$350,000 to $360,000
$360,000 to $370,000
$390,000 to $400,000
$400,000 to $410,000
$410,000 to $420,000
$450,000 to $460,000
$460,000 to $470,000
$490,000 to $500,000
$500,000 to $510,000
$510,000 to $520,000
$520,000 to $530,000
$600,000 to $610,000
$1,230,000 to $1,240,000
Total
Employees
38
33
35
26
30
30
25
12
11
17
8
8
4
5
4
1
1
3
1
2
1
1
1
1
2
1
1
1
1
1
1
1
1
1
1
310
A
N
N
U
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P
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2
0
2
0
Z
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2
GOVERNANCE
PRINCIPLE 5
REMUNERATION: (continued)
5.2 – (continued)
Flick employee remuneration
The data in this table relates to Flick Energy permanent employees only and the figures
include all remuneration and benefits.
6.1 – (continued)
Amount of remuneration
$100,001 to $110,000
$110,001 to $120,000
$120,001 to $130,000
$130,001 to $140,000
$150,001 to $160,000
$180,001 to $190,000
$190,001 to $200,000
$320,001 to $330,000
Total
Employees
2
3
1
2
1
1
3
1
14
5.3 – An issuer should disclose the
remuneration arrangements in place
for the CEO in its annual report. This
should include disclosure of the
base salary, short term incentives
and long‑term incentives and the
performance criteria used to determine
performance‑based payments.
We report on the CEO’s income for the year of performance, as opposed to the date
of payment. For the year ending March 2020, the CEO did not receive an incentive
payment. This aligns with the overall company performance scorecard, and value
delivered to shareholders.
The Board completed a review of the CEO’s base remuneration in April 2019 and
approved a market-related adjustment to ensure his base salary remained appropriate
for the role and skills required.
Further details about CEO remuneration and benefits are available under Principle 5,
requirement 5.2.
PRINCIPLE 6
RISK MANAGEMENT:
6.1 – An issuer should have a risk
management framework for its
business and the issuer’s board should
receive and review regular reports. An
issuer should report the material risks
facing the business and how these are
being managed.
“Directors should have a sound understanding of the
material risks faced by the issuer and how to manage
them. The Board should regularly verify that the issuer
has appropriate processes that identify and manage
potential and material risks.”
Given the nature of Z’s business, there are a range of risks that require proactive and
vigilant management. One of the principal functions of the Z Board is to assure itself that
risk is being appropriately managed inside Z. A range of functions and processes are in
place to manage risks effectively at Z and to provide the Board with assurance on these.
Z considers that it has undertaken a robust risk assessment programme during the
reporting period.
Z has developed an overall enterprise Risk and Assurance system, designed to ensure
a proactive, consistent, and systematic approach to identifying and managing risk, and
ensuring independent and objective views on the design and operational effectiveness
of internal controls.
Z’s Risk and Assurance system recognises two principal functions: Risk and Assurance,
and Safety and Wellbeing. Risk and Assurance has a primary focus on enterprise risk
(strategic, reputational, people, culture and climate-related) and business risk (insurance
and financial risk, including core financial controls, treasury, delegated authorities, and
suspicious transactions). Safety and Wellbeing has a primary focus on operational and
infrastructure risk.
6.2 – An issuer should disclose how it
manages its health and safety risks and
should report on its health and safety
risks, performance and management.
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A
In identifying climate-related risks, Z assesses common risks across multiple areas
of the business, including at the business unit and enterprise levels, to determine the
likelihood and severity of those risks and, subsequently, whether they are a concern for
the whole of Z.
Z’s Risk Management Policy provides clarity on roles and responsibilities for risk and
assurance. The Board is responsible for the overall effectiveness of Z’s risk management
and internal control systems, setting enterprise-risk appetite, and annually reviewing
enterprise risk.
The Risk Management Policy can be found in the Corporate Governance
section of the Z Energy Investor Centre at https://investors.z.co.nz/corporate-
governance/governance-overview
The Audit and Risk Committee (ARC) is responsible for oversight, monitoring, and
reviews. In February each year, it approves and monitors the annual risk and assurance
plan on behalf of the Board. The review is designed to establish an integrated
perspective on the entire risk landscape for the short, medium and long-term. It takes
into account the internal and external environment, changes in the likelihood and
consequence ratings of existing enterprise risks, and the individual business-unit
risk profiles. The review considers both specific risks and broader linkages between
those specific risks. If a risk is not deemed to have the right level of control in place, a
treatment plan is enforced to manage the risk, as is the case for climate-related risks.
The CEO is responsible for promoting a culture of proactively managing risks, reporting
to the ARC and managing any changes to the rating of enterprise-wide risks. Z’s General
Manager, Strategy and Risk is responsible for providing a single framework for risk
management at Z, consistent with Z’s Risk Management Policy and the Board’s risk
appetite, including facilitating regular reviews and updates to the CEO and the ARC.
Because of the nature of Z’s business, safety and wellbeing risks are an area of
continuous focus. The HSSE Committee oversees HSSE risk and is responsible for all
risks that could cause harm to people or the environment arising from Z’s operations
and activities. More information on Z’s approach to Safety and Wellbeing is available
on page 74.
The committee approves an annual HSSE enterprise plan, receives assurance and
performance reports, monitors implementation of Z’s Operational Risk Management
system, and oversees the management of major hazard facilities.
Z discloses its HSSE indicators quarterly to the market in its quarterly operational data,
which is available on Z’s Investor Centre. These indicators are: lost time injuries; spills to
ground; robberies; fuel quality incidents; process safety incidents; food safety incidents;
Z’s total recordable case frequency; and motor vehicle incident frequency.
A
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2
0
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4
GOVERNANCE
PRINCIPLE 7
AUDITORS:
7.1 – The board should establish a
framework for the issuer’s relationship
with its external auditors. This should
include procedures:
a. for sustaining communication with
the issuer’s external auditors;
b. to ensure that the ability of the
external auditors to carry out their
statutory audit role is not impaired
or could reasonably be perceived to
be impaired.;
c. to address what, if any, services
(whether by type or level) other than
their statutory audit roles may be
provided by the auditors to the issuer;
and
d. to provide for the monitoring and
approval by the issuer’s audit
committee of any service provided
by the external auditors to the issuer
other than in their statutory audit role.
7.2 – The external auditor should
attend the issuer’s Annual Meeting to
answer questions from shareholders in
relation to the audit.
7.3 – Internal audit functions should
be disclosed.
“The board should ensure the quality and independence
of the external audit process.”
The oversight of Z’s external audit arrangements is the responsibility of the ARC.
The key roles of the ARC are ensuring that the independence of the external auditors
is maintained, and that Z’s external financial reporting is highly reliable and credible.
The ARC Charter states that one of the responsibilities of the ARC is to sustain
communication with Z’s external auditors by providing a formal forum for free and
open communication between the Board, Z’s Risk and Assurance function, the external
auditors and management. The ARC Charter indicates the different ways in which
communication occurs with Z’s external auditors.
Z’s External Auditor Independence Policy outlines the framework for the relationship
with its external auditors. The policy will undergo review in FY21.
The Policy outlines the requirements for approval of external auditors.
A firm may only be approved if it is considered to have full knowledge of the relevant
facts and has impartial judgment on issues related to the engagement.
The external auditor must not have held a management position at Z within two years
prior to the engagement that involved financial oversight. The firm must not allow the
direct compensation of its audit partners for selling other services to Z.
The Policy also outlines the guidelines for ensuring that any other assurance services
provided by Z’s external auditor do not conflict with the independence element of the
role. A general set of principles to be applied is provided.
ARC must pre-approve all statutory and regulatory audit and related assurance services
provides by the external auditor.
Aside from core audit services relating to the statutory and regulatory audit, there are
other assurance services by the external auditor that are permitted as long as these
are pre-approved. The Policy also clarifies other services that are not appropriate or
permitted for the external auditor to carry out.
Z trusts and relies on KPMG’s internal processes and declarations.
The External Auditor Independence Policy can be found in the Corporate
Governance section of the Z Energy Investor Centre at https://investors.z.co.nz/
corporate-governance/governance-overview
In the past, Z’s external auditors have attended the Annual Shareholders’ Meeting (ASM),
where they have been available to answer shareholders’ questions about the audit.
Z expects the auditor to attend the 2020 ASM
The Enterprise Risk and Control Committee is a management committee chaired by the
Chief Financial Officer (CFO). This committee has oversight of the implementation and
operation of Z’s enterprise risk management system, and considers general risk and
control matters consistent with the Board’s risk appetite.
Z’s Enterprise Risk and Assurance function reviews and reports on the effectiveness
of internal control systems and procedures. It has full access to the Audit and Risk
Committee. Each year, the Audit and Risk Committee determines the scope and
activities of Z’s Risk and Assurance function.
The Head of Risk and Assurance reports to the Audit and Risk Committee, the executive,
and the CEO for functional risk and assurance purposes, and the CFO for other purposes.
5
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A
PRINCIPLE 8
SHAREHOLDER RIGHTS
AND RELATIONS:
“The board should respect the rights of shareholders and
foster constructive relationships with stakeholders that
encourage them to engage with the issuer.”
Z’s starting position is that shareholders are the owners of the company. Z respects its
shareholders and is committed to communicating with them openly and transparently.
With that commitment comes a commitment to listening, and Z seeks to understand
shareholders’ views, perspectives and ideas on a continuous basis.
8.1 – Issuer should have a website
where investors and interested
stakeholders can access financial
and operational information and key
corporate governance information
about the issuer.
Z has a comprehensive Investor Centre at www.z.co.nz/investor via which shareholders
and stakeholders can access a wide range of disclosures, reports, policies and charters
as have been referenced throughout this Corporate Governance section.
Z seeks to be open and accessible to shareholders, and travels domestically and
internationally every year to ensure face-to-face engagement with institutional investors.
Z’s annual meeting provides a form for retail investors to engage with both management
and the Board.
8.2 – An issuer should allow investors
the ability to easily communicate with
the issuer, including providing the
option to receive communications from
the issuer electronically.
8.3 – Quoted equity security holders
should have the right to vote on major
decisions which may change the nature
of the issuer in which they are invested.
8.4 – If seeking additional equity
capital, issuers of Quoted Equity
Securities should offer further equity
security holders to existing equity
security holders of the same class
on a pro rata basis, and on no less
favourable terms, before further equity
securities are offered to investors.
8.5 – The board should ensure that the
notices of annual or special meetings
of quoted equity security holders is
posted on the issuer’s website as soon
as possible and at least 20 working days
prior to the meeting.
Z provides multiple channels through which shareholders can easily contact the
company. All of Z’s reporting and corporate information is available electronically
through its website but Z will also provide information in other ways when that better
suits an investor.
We’re always happy to talk to shareholders. Z’s Investor Centre website contains contact
information for direct access to our Corporate Communications and Investor Relations
Manager, Z’s Board of Directors and Z’s General Counsel and Chief Governance Officer.
Contact information, frequently asked questions, and options to receive alerts and
request information from Z can be found under the Shareholder Services section of
Z’s Investor Centre at investors.z.co.nz/shareholder-services/investor-faqs
Major decisions that may change the nature of Z’s business would be presented as
resolutions at the ASM and voted on by shareholders.
Z has not sought any additional capital in the reporting period. However, in May 2020, as
a consequence of the impacts of COVID-19, Z Energy raised an additional $350 million
of capital to strengthen its balance sheet. $290 million was generated via a capital raise
and $60 million via a share purchase plan. The offer was made to existing equity holders,
who exercised rights to the bulk of these offers.
Each year, the Annual Shareholders Notice of Meeting is sent to shareholders by mail
and email at least 28 days before the meeting. Notices are also made available in the
Announcements section of the Z Investor Centre website at
https://investors.z.co.nz/announcements/annual-shareholder-meeting
A
N
N
U
A
L
R
E
P
O
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2
0
2
0
Z
E
N
E
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G
Y
P
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1
1
6
GOVERNANCE
Additional disclosures:
Disclosure of directors’ interests
Z directors:
Director
Abby Foote
Positions
Director
Alan Dunn
Director
Blair O’Keeffe
Director
Julia Raue
Chair
Shareholder
Director
Mark Cross
Shareholder
Director
Mark Malpass
Member
Shareholder
Director
Stephen Reindler
Member
Power of Attorney
Director
Chair
Independent Advisor
Shareholder
Company
Z Energy 2015 Limited
Television New Zealand Limited
Sanford Limited
Freightways Limited
Z Energy 2015 Limited
Burger Fuel Worldwide Limited
Nelson Regional Development Agency Limited
Z Energy 2015 Limited
Endzone Commercial Limited
Central Economic Development Agency
Napier Port Holdings Limited
Port of Napier Limited
Central Air Ambulance Rescue Limited
Hawke’s Bay Rescue Helicopter Trust
BP Plc
Z Energy 2015 Limited
Z Energy ESPP Trustee Limited
Z Energy LTI Trustee Limited
Jade Software Corporation Limited
Television New Zealand Limited
The Warehouse Group Limited
Southern Cross Health Society
Southern Cross Pet Insurance Limited
Air New Zealand
Z Energy 2015 Limited
MFL Mutual Fund Limited
Milford Asset Management Limited
Milford Funds Limited
Superannuation Investments Limited
Chorus Limited
Xero Limited
Investment Committee of Te Puia Tapapa Private Equity Fund
Milford Asset Management Limited
Z Energy 2015 Limited
Candesco Limited
Steel & Tube New Zealand Limited
Steel & Tube subsidiaries
Auckland Grammar School Board of Trustees
Steel & Tube Holdings Limited
Z Energy 2015 Limited
Yachting New Zealand
Pearl Coast Properties Pty Limited
Broome International Airport Pty Limited
Broome Shared Services Pty Limited
Steel and Tube Limited
Waste Disposal Services (unincorporated joint venture)
D & H Steel Construction Limited
Clearwater Construction Limited
Massey University/AgResearch Joint Food Science Centre Steering Committee
Air New Zealand development at Auckland Airport
Auckland International Airport Limited
Air New Zealand
Meridian Energy Limited
Contact Energy Limited
Vector Limited
Z’s subsidiary directors i.e. Flick:
Director
Positions
Company
7
1
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P
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G
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E
N
E
Z
0
2
0
2
T
R
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P
E
R
L
A
U
N
N
A
Matthew Peter Todd
Group Chief Executive
Director
Marcel Peter van den Assum
Beneficiary of a Deed of Indemnity provided by
Shareholder
Director and shareholder
Director
Shareholder
Nigel Lindis Jones
Member
Beneficiary of a Deed of Indemnity provided by
Chief Financial Officer
Director
Beneficiary of a Deed of Indemnity provided by
Amelia Jane ("Aimee") McCammon Managing Director
Scott Kenneth Bishop
Aaron Peter Snodgrass
(Alternate for Matthew Peter Todd)
Advisory board member
Beneficiary of a Deed of Indemnity provided by
Chief Innovation Officer
Beneficiary of a Deed of Indemnity provided by
Chief Financial Officer
Director
Trustee and Chairman
Board Trustee and Chairman
Beneficiary of a Deed of Indemnity provided by
Eastland Group
Eastland Energy Solutions Limited
Eastland Debarking Limited
Eastland Generation Limited
Eastland Port Debarking Limited
Geothermal Developments Limited
Northland Debarking Limited
Eastech Limited
Inner Harbour Marina Limited
Te Ahi O Maui GP Limited
Plus Business Limited (former Matt Todd
Holdings Limited)
Gisvin Limited
Flick Energy Limited
Flick Energy Limited
Guam Nominee Limited
Regen Limited
Merlot.Aero Limited
Education Payroll Limited
Wipster Independent Shareholders Limited
Wip App Limited
CropX (NZ) Limited
Sprout Agritech Limited
Yonix Limited
Cogo Connecting Good Limited
Angel Association
Flick Energy Limited
Z Energy Limited
The New Zealand Refining Company Limited
Flick Energy Limited
Augusto Group (Augusto, Augusto
Entertainment, Corner Store, New Ventures)
Pic's Peanut Butter
Flick Energy Limited
Z Energy Limited
Flick Energy Limited
Eastland Group Limited
Eastland Energy Solutions Limited
Eastland Debarking Limited
Eastland Generation Limited
Eastland Port Debarking Limited
Geothermal Developments Limited
Northland Debarking Limited
Eastech Limited
Eastland Investment Properties Limited
Inner Harbour Marina Limited
AP Snodgrass Limited
Te Ahi O Maui General Partnership Limited
Te Ahi O Maui Limited Partnership
Dilworth Trust
The Dilworth Foundation
Flick Energy Limited
GOVERNANCE
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
1
8
Directors’ interests in share transactions
The following directors disclosed an acquisition or disposal of relevant interest in Z shares or bonds during the year to 31 March 2020:
Director
Abby Foote
Julia Raue
Mark Cross
Stephen Reindler
Number of shares or bonds in
which a relevant interest is held
Z Energy Limited - 37,785 shares
Z Energy Limited - 42,500 shares
Z Energy Limited - 8,000 shares
Z Energy Limited - 7,500 shares
Acquired shares for the
year to March 2020
11,500 shares
10,000 shares
Senior officers’ interests in shares and bonds
The senior officers disclosed the following relevant interests in shares at 31 March 2020:
Executive
Team Member
Interest as registered holder of shares
Z RSL TIP interests
Mike Bennetts
Lindis Jones
Z Energy Limited - 350,457 shares (of which
349,259 shares are held by Kammjam Trust)
102,597 shares
Nicolas Williams
34,984 shares
Andrew Baird
David Binnie
69,351 shares for the period
ended 31 March 2021
19,401 shares for the period
ended 31 March 2021
17,143 shares for the period
ended 31 March 2021
Nil
17,946 shares for the period
ended 31 March 2021
Z PRLTIP interests
185,535 shares for the period
ended 31 March 2022
48,113 shares for the period
ended 31 March 2022
39,623 shares for the period
ended 31 March 2022
41,509 shares for the period
ended 31 March 2022
39,623 shares for the period
ended 31 March 2022
Z ESPP
interests
Nil
Nil
Nil
Nil
Nil
Note: the Performance Rights Long Term Incentive Plan (PRLTIP) is a new long term incentive plan
Donations
For the year ended 31 March 2020, Z made donations of $874,551 (2019: $1,315,075.30). Other than donations made by
Flick Energy Limited of $1,496 (2019: $1,055.62), Z’s subsidiaries made no donations during the period.
Indemnity and insurance disclosure
As permitted by its constitution, Z has entered into a deed to indemnify its directors and its personnel who serve as directors of
related companies for potential liabilities or costs they may incur for acts or omissions in their capacity as directors of Z or its related
companies. Z has a Directors’ and Officers’ Liability Insurance Policy in place. This provides insurance for the liabilities of the directors
and employees of Z for acts or omissions in their capacity as directors or employees. Neither the indemnity nor the insurance policies
cover dishonest, fraudulent, malicious, or wilful acts or omissions. The directors have disclosed entry into the deed of indemnity and the
directors’ and officers’ liability insurance in its interests register.
As permitted by its constitution, Flick has entered into a deed to indemnify its directors for potential liabilities or costs they may incur
for acts or omissions in their capacity as directors of Flick. Z has a Directors’ and Officers’ Liability Insurance Policy in place that covers
Flick’s directors. This provides insurance for the liabilities of the directors of Flick for acts or omissions in their capacity as directors.
The insurance policies do not cover dishonest, fraudulent, malicious, or wilful acts and omissions. The directors have disclosed entry
into the deed of indemnity and the directors and officers liability insurance in its interests register.
Payments to an auditor
Z audit fees are set out in note 7 of the Financial statements.
None of Z Energy 2015 Limited, Z Energy ESPP Trustee Limited, or Z Energy LTI Trustee Limited paid any amounts to an auditor,
for audit fees or otherwise, during the period.
Flick Energy Limited paid its auditors (KPMG) a fee of $35,000 plus disbursements.
9
1
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Substantial Product holders
According to notices given under the Financial Markets Conduct Act 2013, the following were substantial product holders of the company
at 31 March 2020.
Substantial product holders
Investment Services Group Limited
(formerly Devon Funds Management Limited)
Accident Compensation Corporation
Lazard Asset Management LLC
Commonwealth Bank of Australia
Number of voting products in substantial
holding (ordinary Z shares)
Percentage of shares held
at date of notice
Date of
notice
20,397,957
24,410,626
26,797,767
24,296,540
5.100%
6.103%
6.699%
6.074%
6/11/19
11/09/19
7/05/19
18/01/18
The total number of Z ordinary shares on issue at 31 March 2019 was 400,000,000.
Distribution of ordinary shares and shareholders
At 31 March1 2020
Size of holding
1–1000
1001–5000
5001–10000
10001–50000
50001–100000
100001 and over
Totals
Number of shareholders
3,581
6,964
2,008
1,329
99
68
14,049
%
25.49
49.57
14.29
9.46
0.70
0.48
100
Number of shares
2,126,222
18,537,910
14,780,197
25,772,942
7,007,905
331,774,824
400,000,000
%
0.53
4.63
3.70
6.44
1.75
82.94
100
Distribution of ordinary bonds and bondholders
At 31 March 2020
ZEL 040
Size of holding
1–1000
1001–5000
5001–10000
10001-50000
50001–100000
100001 and over
Totals
ZEL 050
Size of holding
1–1000
1001–5000
5001–10000
10001–50000
50001–100000
100001 and over
Totals
ZEL 060
Size of holding
1–1000
1001–5000
5001–10000
10001–50000
50001–100000
100001 and over
Totals
Number of bondholders
0
107
270
604
88
63
1,132
Number of bondholders
0
86
223
569
79
41
998
Number of bondholders
0
134
193
386
41
50
804
%
0
9.45
23.85
53.36
7.77
5.57
100
%
0
8.62
22.34
57.01
7.92
4.11
100
%
0
16.67
24.00
48.01
5.10
6.22
100
Number of bonds
0
535,000
2,618,000
16,774,000
7,265,000
122,808,000
150,000,000
Number of bonds
0
430,000
2,162,000
16,119,000
6,490,000
44,799,000
70,000,000
Number of bonds
0
670,000
1,830,000
9,954,000
3,320,000
109,226,000
125,000,000
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
2
0
GOVERNANCE
Our 20 largest shareholders
At 31 March 2020
Rank Holder Name
HSBC Custody Nominees (Australia) Limited
1
HSBC Nominees (New Zealand) Limited
2
Accident Compensation Corporation
3
Citibank Nominees (Nz) Ltd
4
JPMORGAN Chase Bank
5
HSBC Nominees (New Zealand) Limited
6
J P Morgan Nominees Australia Pty Limited
7
Cogent Nominees Limited
8
New Zealand Superannuation Fund Nominees Limited
9
JBWERE (Nz) Nominees Limited
10
11
FNZ Custodians Limited
12 National Nominees Limited
13
14 Citicorp Nominees Pty Limited
15
16 New Zealand Depository Nominee
17 New Zealand Permanent Trustees Limited
18
19
20
Tea Custodians Limited
Bnp Paribas Nominees Pty Ltd
Bnp Paribas Nominees NZ Limited
Bnp Paribas Nominees NZ Limited Bpss40
Forsyth Barr Custodians Limited
Our 20 largest bondholders
At 31 March 2020
Rank Holder Name
Forsyth Barr Custodians Limited
FNZ Custodians Limited
Custodial Services Limited
Citibank Nominees (Nz) Ltd
Investment Custodial Services Limited
Custodial Services Limited
Custodial Services Limited
JBWERE (Nz) Nominees Limited
HSBC Nominees (New Zealand) Limited
Bnp Paribas Nominees NZ Limited Bpss40
New Zealand Permanent Trustees Limited
Custodial Services Limited
Custodial Services Limited
Pt (Booster Investments) Nominees Limited
Tea Custodians Limited
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16 Mmc Limited
17
18
19
20 Custodial Services Limited
Private Nominees Limited
Forsyth Barr Custodians Limited
FNZ Custodians Limited
Account
1-CUSTODY
4
C
3
2
NZ RESIDENT
18
1
1 E
DTA NON RESIDENT
16
1
2
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Z Energy Limited and Subsidiaries
Financial Statements
For the year ended 31 March 2020
Holding
38,710,055
31,198,507
29,535,166
26,917,649
22,624,088
19,060,389
16,788,126
13,548,261
9,320,247
8,965,650
8,742,557
7,97v,856
7,567,152
7,371,761
7,199,962
6,586,076
5,978,636
5,392,107
4,831,335
4,269,621
%
9.68
7.8
7.38
6.73
5.66
4.77
4.2
3.39
2.33
2.24
2.19
1.99
1.89
1.84
1.8
1.65
1.49
1.35
1.21
1.07
Total Units
44620000
32709000
22666000
19068000
18193000
16321000
13347000
11179000
9006000
8915000
8881000
6450000
6057000
5242000
4919000
3818000
3595000
3549000
3251000
2215000
% Issued
Capital
12.93%
9.48%
6.57%
5.53%
5.27%
4.73%
3.87%
3.24%
2.61%
2.58%
2.57%
1.87%
1.76%
1.52%
1.43%
1.11%
1.04%
1.03%
0.94%
0.64%
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
2
2
Statement of comprehensive income
for the year ended 31 March 2020
Statement of changes in equity
for the year ended 31 March 2020
3
2
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Revenue
Expenses
Purchases of crude, product and electricity
Excise, carbon and other taxes
Primary distribution
Operating expenses
Share of loss of associate companies (net of tax)
Depreciation and amortisation
Net financing expense
Impairment
Net lease expenses
Fair value movements in interest rate derivatives
Gain on sale of property, plant and equipment
Increase in decommissioning and restoration provision
Total expenses
Net (loss)/profit before taxation
Taxation (benefit)/expense
Net (loss) profit for the year
Net (loss) 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 reclassified 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 (loss) income for the year
Total comprehensive (loss) income attributable to owners of the company
Total comprehensive loss attributable to non‑controlling interest
Basic and diluted earnings per share (cents)
Notes
3, 6
3, 7
12, 13
8
13
10
17
9
15
2020
$m
4,987
3,093
1,150
50
484
‑
144
50
96
35
3
(2)
9
5,112
(125)
(37)
(88)
(72)
(16)
14
(63)
2
‑
(47)
4
(43)
(131)
(115)
(16)
(18)
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
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
Balance at 31 March 2019
Balance at 1 April 2019
Adjustment on initial
application of NZ IFRS 16
Adjusted balance at 1 April
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:
Share based payments and
own shares acquired
Dividends to equity holders
Supplementary dividends to
equity holders
Tax credit on supplementary
dividends
Total transactions with owners
recorded directly in equity
Capital
$m
429
-
-
-
-
-
-
‑
-
-
-
-
-
‑
429
429
-
429
-
-
-
-
-
-
‑
1
-
-
-
1
Balance at 31 March 2020
430
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
188
188
(1)
9
1
4
(13)
188
-
-
(138)
(14)
14
(138)
238
238
1
239
(72)
-
-
4
-
-
(68)
-
(188)
(15)
15
(188)
(17)
(4)
-
-
(9)
-
-
-
(9)
-
-
-
-
-
‑
(13)
(13)
-
(13)
-
-
(63)
-
-
-
(63)
-
-
-
-
‑
(76)
(4)
-
-
-
-
-
-
‑
(1)
-
-
-
-
(1)
(5)
(5)
-
(5)
-
-
-
-
-
-
‑
(1)
-
-
-
(1)
(6)
(2)
-
(3)
-
-
-
-
(3)
-
-
-
-
-
‑
(5)
(5)
-
(5)
-
4
-
-
-
-
4
-
-
-
-
‑
250
-
-
-
(1)
(4)
13
8
-
-
-
-
-
‑
258
258
-
258
-
-
-
(2)
-
14
12
-
-
-
-
‑
(1)
270
-
(2)
-
-
-
-
-
(2)
-
20
-
-
-
20
18
18
-
18
(16)
-
-
-
-
-
(16)
-
-
-
-
‑
2
857
186
(4)
-
-
-
-
182
(1)
20
(138)
(14)
14
(119)
920
920
1
921
(88)
4
(63)
2
-
14
(131)
-
(188)
(15)
15
(188)
602
Z Energy Limited and Subsidiaries Year end report 31 March 2020
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
2
4
Statement of financial position
at 31 March 2020
Statement of cash flows
for the year ended 31 March 2020
Shareholders’ equity
Equity attributable to owners of the company
Non-controlling interest
Total equity
Represented by:
Current assets
Cash and cash equivalents
Accounts receivable and prepayments
Income tax receivable
Inventories
Derivative financial instruments
Assets held for sale
Total current assets
Non‑current assets
Property, plant and equipment
Right of use assets
Goodwill
Intangible assets
Investments
Derivative financial instruments
Other non-current assets
Total non‑current assets
Total assets
Current liabilities
Accounts payable, accruals and other liabilities
Income tax payable
Provisions
Short-term borrowings
Derivative financial instruments
Lease liability
Total current liabilities
Non‑current liabilities
Other liabilities
Provisions
Derivative financial instruments
Deferred tax
Long-term borrowing
Lease liability
Total non‑current liabilities
Total liabilities
Net assets
Approved on behalf of the board on 10 May 2020
Abigail Kate Foote
Chair
Andrew Mark Cross
Chair, Audit and Risk Committee
Notes
9
11
19
12
12
10
13
13
15
19
9
17
18
19
10
17
19
9
18
10
2020
$m
600
2
602
19
297
24
565
32
4
941
819
282
158
628
48
153
16
2,104
3,045
748
‑
19
70
91
14
942
10
74
26
74
1,032
285
1,501
2,443
602
2019
$m
902
18
920
111
499
-
578
9
27
1,224
830
-
193
475
105
17
3
1,623
2,847
677
19
23
135
13
-
867
20
68
26
143
803
-
1,060
1,927
920
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 assets held for sale
Proceeds from sale of property, plant and equipment
Lease payments received from leases
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
Payment of lease liabilities
Net cash (outflow) from financing activities
Net (decrease)/increase in cash
Cash balances at beginning of year
Cash at end of year
Notes
9
10
18
18
22
21
18
10
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
Impairment
Share of loss/(earnings) of associate companies (net of tax)
Fair value of derivatives
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
5
2
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
2020
$m
5,156
1
43
(3,889)
(985)
(104)
(63)
159
2
24
1
(51)
(5)
(51)
(80)
182
‑
‑
(203)
(135)
(15)
(171)
(92)
111
19
2020
$m
(88)
144
96
‑
3
(253)
14
202
13
71
(43)
159
2019
$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
2019
$m
186
122
1
4
120
(5)
(162)
64
(19)
(42)
269
Z Energy Limited and Subsidiaries Year end report 31 March 2020
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
2
6
Notes to the financial statements
for the year ended 31 March 2020
(1) Basis of accounting
Reporting entity
Z Energy Limited is a profit-oriented company registered in New Zealand under the Companies Act 1993 and an FMC Reporting
Entity for the purposes of the Financial Markets Conduct Act 2013. Z Energy Limited is listed, its ordinary shares quoted on the
NZX main board equity security market (‘NZX Main Board’), on the Australian Stock Exchange (‘ASX’) and has bonds quoted on
the NZX debt market.
The financial statements presented are those of Z Energy Limited (the Company, Parent) together with its subsidiaries, interests
in associates and jointly controlled operations (‘Z’ or ‘the Group’).
Basis of preparation
These financial statements have been prepared in accordance with generally accepted accounting practice in New Zealand
(‘NZ GAAP’) and part 7 of the Financial Markets Conduct Act 2013. They comply with the New Zealand equivalents to
International Financial Reporting Standards (‘NZ IFRS’) as appropriate for profit-oriented entities and with International Financial
Reporting Standards (‘IFRS’). Z has reported as a Tier 1 entity under the External Reporting Board (‘XRB’) Accounting Standards
Framework, as a listed entity.
The measurement basis adopted in the preparation of these financial statements is historical cost, modified by the revaluation
of certain assets, investments and financial instruments as identified in the accompanying notes. The functional and reporting
currency used to prepare the financial statements is New Zealand dollars, rounded to the nearest million ($m), unless otherwise
stated. The financial statements have been prepared on a GST-exclusive basis except billed receivables and payables, which
include GST.
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.
(2) Changes in accounting policies
Except for the adoption of NZ IFRS 16, the accounting policies have been applied consistently to all years presented in these
Group financial statements.
Adoption status of relevant new financial reporting standards and interpretations
Leases (Note 10)
The Group adopted NZ IFRS 16 Leases on 1 April 2019. Z has applied NZ IFRS 16 using the modified retrospective approach,
under which the cumulative effect of initial application of $1m is recognised in retained earnings at 1 April 2019. Refer to
Note 10 for the changes applied to leases and the financial impact on the Statement of financial position and Statement of
comprehensive income.
7
2
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(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 17)
Liabilities are estimated for decommissioning and restoration (‘D&R’) of certain sites of operation.
Measurement of fair value (notes 12, 15 and 19)
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 12.
Goodwill (note 13)
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.
COVID‑19 Pandemic
On 11 March 2020 the World Health Organisation declared a global pandemic as a result of the outbreak and spread of COVID-19.
Following this, on Wednesday 25 March 2020 the New Zealand Government raised its Alert Level to 4 (full lockdown of
non-essential services) for an initial 4 week period. Following the level 4 alert, Z experienced a loss in demand for both fuel and
convenience store goods. As a result, Z has:
• Taken a number of actions within the supply chain due to falling demand. Z has been able to reduce its supply of crude and
product through a combination of cancellation/selling whole or partial refined product imports, slowing down or stopping RNZ
production and using floating storage and vessel demurrage. The longer-term effects of COVID-19 on the Z business remain
uncertain and the potential impacts of the pandemic continue to evolve rapidly.
• Revised provisions for losses that will be incurred throughout Z’s supply chain including expected losses to be realised in
Z’s trade receivables.
Z Energy Limited and Subsidiaries Year end report 31 March 2020
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
2
8
(3)
Critical accounting estimates and judgements
(continued)
An assessment of the impact of COVID-19 on the Z balance sheet is set out below, based on information available at the time of
preparing these financial statements:
Balance Sheet Item
COVID-19 Assessment
Note
Cash
Accounts receivable and
Prepayments
Income Tax
Inventories
Derivatives financial
instruments
Assets held for sale
& Property plant and
equipment
Right of use assets
Goodwill
Intangibles
Investments
Accounts payable, accruals
and other liabilities
Provisions
Leases
Borrowings
No impact to the carrying value of cash on hand.
Z has updated the provisions for doubtful debts for the increase in expected credit losses.
The decrease in commodity prices driven by COVID-19 has resulted in Z overpaying provisional
tax. Refund recorded at amount to be received.
The decrease in commodity prices driven by COVID-19 has resulted in a net realisable value write
down to Z’s inventory on hand at balance date.
COVID-19 has impacted commodity markets. Derivatives are recorded at fair value, the carrying
value reflects quoted prices at balance date.
Z’s land and buildings are held at fair value. Given the alert level 4 restrictions have not been
in place long enough at report date, there is insufficient property transactions to draw any
conclusions on the impact of COVID-19 on the market at balance date.
Terminals and plant & machinery are held at depreciated replacement cost. Z has no evidence
that there has been a decline in the value of these assets post COVID-19 as they remain critical
infrastructure to provide an essential service.
Z is not currently seeking any rent relief from landlords or considered any changes to extension of
leases within the lease portfolio resulting from COVID-19.
Z has reconsidered the carrying value of the goodwill based on the expected COVID-19 impacts.
Z has reconsidered the carrying values of intangibles as a result of COVID-19 including
recognising a provision for the carrying value of the Caltex customer contracts.
Investments are equity or fair value accounted for. The carrying value of RNZ represents the
share price at balance date.
Z has accrued for costs related to the expected impact of COVID-19.
The material provision is the decommissioning and restoration provision which is driven by the
expected cost to exit a site, the remaining life of the site/asset and the risk-free rate used to
discount future cashflows. Z does not anticipate any change to these key assumptions as a result
of COVID-19.
Lease recorded as per lease contract (refer to right of use assets above).
Borrowings are held at amortised cost and the Group’s USPP is exchanged to NZD using the
exchange rate at balance date. The impact on the NZD v USD exchange rate driven by COVID-19
is incorporated in the USPP carrying value.
3
9
11
19
12
10
13
13
15
3
17
10
18
COVID‑19 Provisions
The Group has recorded the following provisions to account for the impacts of the COVID-19 pandemic on the 31 March 2020
financial results:
Recognition in Statement of comprehensive income
Operating expenses
Operating expenses
Cost of goods sold
Provision
Doubtful debts
Convenience stores
Finished product costs
Total provisions relating to COVID‑19
Doubtful debts
Commercial customers
Z has performed an assessment of credit risk on its largest commercial customers and provided for these based on a risk
weighting. The criteria for the risk weightings includes:
• whether it is an essential service
• whether it has access to capital markets and other sources of finance
• Z’s understanding and experience with the customer
2020
$m
17
7
9
33
9
2
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Retail customers and sub‑tenants
Given the estimated impact of COVID-19, an assessment of the credit default risk of Z’s retailers and Z sub-tenant’s at Z’s retail
sites has been made for the upcoming 3-month horizon. Z has recorded provisions to account for the estimated financial impact
of any defaults.
Convenience stores
Z convenience store sales have been significantly reduced as a result of the COVID-19 pandemic and Z has taken the view that
sales will not return to normal levels for 3 months. A provision has been made for costs committed at year end to Z retailers over
this period.
Finished product costs
Z typically orders crude and finished products 3 months in advance of when they will be required for sale because of the length
of time needed to import to New Zealand. Z’s supply chain has been impacted by the significant and immediate reduction in
demand for transport fuels. This has required Z to cancel or divert incoming cargos at a cost to Z. These cancellations have been
recorded as onerous contracts on the basis that the costs incurred exceed the economic benefit expected to be received.
(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, 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 expenses (net of foreign exchange and commodity gains on fuel purchases)
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
Impairment
Lease depreciation
Lease interest income
Lease interest 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 (benefit)/expense
RC net profit for the year
2020
$m
4,987
3,005
1,150
50
416
4,621
366
‑
366
144
50
96
19
(1)
17
3
(2)
9
335
31
(13)
44
2019
$m
5,450
3,471
1,091
48
405
5,015
435
(1)
434
122
51
-
-
-
-
4
-
18
195
239
61
178
* 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’).
Z Energy Limited and Subsidiaries Year end report 31 March 2020
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
3
0
1
3
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(4) Replacement cost reconciliation (continued)
Reconciliation from statutory net profit after tax to RC net profit after tax
Statutory net profit after tax
COSA
Net foreign exchange and commodity gains on fuel purchases
Tax benefit on COSA
Replacement cost net profit after tax
2020
$m
(88)
88
68
(24)
44
2019
$m
186
(21)
8
5
178
(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.
(5) Non-controlling interest
Z consolidates 100% of Flick’s results and presents the portion of profit/(loss) and other comprehensive income attributable to
non-controlling interest (NCI).
NCI Percentage
Assets
Cash
Other current assets
Intangible assets
Other non-current assets
Total assets
Liabilities
Trade payables
Deferred tax
Provisions
Other non-current liabilities
Total liabilities
Net assets
Net assets attributable to NCI (30%)
Revenue
Net loss
Other comprehensive income
Total comprehensive income
Total comprehensive income attributable to NCI (30%)
Flick goodwill write-down attributable to NCI
Other losses attributable to NCI on consolidation
Total comprehensive loss attributable to NCI
Flick
2020
$m
30%
Flick
2019*
$m
30%
4
2
2
1
9
(1)
‑
‑
(1)
(2)
7
2
39
(7)
‑
(7)
(2)
(11)
(3)
(16)
11
-
2
-
13
-
-
-
-
-
13
4
28
(5)
-
(5)
(2)
-
-
(2)
* On 1 September 2018, Z acquired 70% of the share capital and control of Flick Energy Limited. The 2019 comparatives represent seven months of results.
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
Agreed upon procedures – covenants and trustee reporting
Agreed upon procedures – licence fee return
Cost of stock adjustment review
Total audit and audit‑related fees
(8) Net financing expenses
Financing income
Interest income from derivatives
Interest income from cash
Other finance income
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
2020
$m
4,870
64
53
4,987
2020
$m
332,000
12,000
6,000
10,000
360,000
2019
$m
5,342
63
45
5,450
2019
$m
297,000
12,000
6,000
10,000
325,000
2020
$m
2019
$m
40
1
1
42
20
42
5
19
1
5
92
50
50
2
-
52
25
51
4
16
3
4
103
51
Z Energy Limited and Subsidiaries Year end report 31 March 2020
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
3
2
(9) Taxation
Taxation expense or benefit is determined as follows:
Net (loss)/profit before taxation
Less share of loss of associate companies (net of tax)
Net (loss)/profit before taxation excluding share of earnings from associates
Taxation (benefit)/expense on profit for the year at the corporate income tax rate of 28% (2019: 28%)
Taxation adjustments:
Non-deductible expenditure
Reinstatement of depreciation on buildings
Over-provision in prior periods
Taxation (benefit)/expense
Comprising:
Current taxation
Deferred taxation
Taxation (benefit)/expense
2020
$m
(125)
‑
(125)
(35)
11
(12)
(1)
(37)
32
(69)
(37)
2019
$m
252
1
253
71
-
-
(5)
66
84
(18)
66
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.
In March 2020, the Government re-introduced the deductibility of depreciation on buildings for tax purposes, for buildings
not primarily used for residential accommodation. This amendment applies from 1 April 2020 and the depreciation rate is 2%
diminishing value. The impact of this change increases the tax base for these assets, giving rise to a reduced difference between
the carrying cost and tax base and results in a reduction in deferred tax liability and reduction in tax expense of $12m.
Property,
plant and
equipment
$m
Intangible
assets
$m
Employee
benefits
$m
Finance
lease
$m
Other
provisions
$m
Derivative
financial
instruments
$m
Balance at 1 April 2018
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 2019
Balance at 1 April 2019
Recognised in the Statement
of comprehensive income
Over-provision in prior
periods in the Statement of
comprehensive income
Reinstatement of
depreciation on Buildings
Balance at 31 March 2020
(54)
(116)
14
(1)
-
(41)
(41)
12
(2)
12
(19)
6
-
(5)
(115)
(115)
28
‑
‑
(87)
1
(1)
-
-
-
‑
1
‑
‑
1
4
-
-
-
4
4
(1)
‑
‑
3
2
-
-
-
2
2
5
‑
‑
7
4
2
-
-
6
6
11
‑
‑
17
Other
items
$m
3
(2)
-
-
1
1
4
(1)
‑
4
Total
$m
(156)
19
(1)
(5)
(143)
(143)
60
(3)
12
(74)
3
3
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
2020
$m
(12)
(62)
(74)
2019
$m
(1)
(142)
(143)
Deferred tax expected to be settled within 12 months
Deferred tax expected to be settled after 12 months
Deferred tax
Imputation credits available for use in subsequent reporting periods are $118m (2019: $115m).
(10) Leases
Leases as a Lessee – Modified retrospective approach
Z previously classified leases as operating or finance leases based on whether all the risk and rewards incidental to ownership
of the underlying asset were transferred to Z. Under NZ IFRS 16, Z recognises right of use assets and lease liabilities for most
property leases.
Leases previously classified as operating leases under NZ IAS 17, on transition were measured using the present value of the
future lease payments and discounted using Z’s incremental borrowing rate. The right of use assets were measured at an amount
equal to the lease liability, and are depreciated over the estimated remaining lease term on a straight-line basis. Z presents the
right of use assets and lease liabilities separately on the face of the statement of financial position.
Z applied the following practical expedients when applying NZ IFRS 16 to leases previously classified as operating leases under
NZ IAS 17:
• A single discount rate to a portfolio of leases with similar characteristics;
• Exemption to not recognise right of use assets for low-value leases; and
• Exemption to not recognise right of use assets for leases with less than 12 months remaining.
For leases previously classified as finance leases under NZ IAS 17, on transition the right of use asset and lease liability were
determined as the leased asset and liability under NZ IAS 17 at 31 March 2019.
Financial impact for transition to NZ IFRS 16
On transition to NZ IFRS 16 the opening balances were measured using the weighted average incremental borrowing rate of
5.59% and recognised in the statement of financial position as follows:
Increase
Right of use assets
Sublease receivables (Other current assets)
Lease liability (current)
Lease liability (non-current)
Equity adjustment (Retained earnings)
1 April 2019
$m
277
12
12
276
1
If NZ IFRS 16 had been applied to the comparative period presented the following profit and loss impact would have occurred:
Increase/(decrease)
Revenue
Operating expenses
Lease depreciation expense
Lease interest income
Lease interest expense
31 March 2019
$m
(1)
(28)
11
1
17
Z Energy Limited and Subsidiaries Year end report 31 March 2020
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
3
4
(10) Leases (continued)
Nature of lease payments as a lessee
The Group as the lessee has various non-cancellable leases predominantly for the lease of land and buildings. The leases have
varying terms, escalation clauses and renewal rights. On renewal, the terms of the lease are renegotiated.
Information about leases for which Z is a lessee is presented below:
31 March 2020
$m
Right‑of‑use assets
Balance at 1 April 2019
Depreciation charge for the year
Additions to right-of-use assets
Adjustments to existing right-of-use assets
Derecognition of right-of-use assets
Balance at 31 March 2020
Right-of-use assets related to leased properties that do not meet the definition of investment property are represented as
property, plant and equipment.
Amounts recognised in profit or loss
2020 – Leases under NZ IFRS 16
Lease depreciation
Interest expense on lease liabilities
Lease expense on short-term leases
2019 – Operating leases under NZ IAS 17
Operating lease payables as lessee
Maturity analysis
Lease liabilities as lessee
Between 0 to 1 year
Between 1 to 5 years
More than 5 years
Lease liabilities as lessee
Leases as a Lessor
Z has assessed leases where it is a lessor and determined that no adjustments were required as a result of NZ IFRS 16.
Z has assessed subleases where Z acts as a lessor for subleases on sites that Z leases. Z has assessed each sublease based on
the right of use asset and expected useful life of the head lease and where a sublease is for a significant part of the expected life
of the lease, Z has derecognised part of the right of use asset and recorded this as sublease receivable. At transition, sublease
receivables were measured using the present value of the future sublease income, discounted using Z’s incremental borrowing
rate. Subleases which are not classified as being for a significant part of the expected life of the lease or of marginal costs have
been classed as operating leases and will continue to be accounted for as they have been prior to transition to NZ IFRS 16.
The Group has receivables from leases as a lessor relating to the lease of premises as shown below:
Operating lease income as a lessor
Income from subleasing right-of-use assets
Total lease expenses/(income) as lessor and lessee
Lease interest income
Lease depreciation
Lease interest expense
Net lease expenses
31 March 2020
$m
1
31 March 2020
$m
(1)
19
17
35
285
(19)
6
10
‑
282
$m
19
17
3
36
2020
$m
13
74
212
299
5
3
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(11) Inventories
Inventory is stated at the lower of cost or net realisable value (NRV). The cost of inventories is based on the first-in-first-out
principle. NRV is the estimated selling price in the ordinary course of business less applicable variable selling expenses.
The impact of COVID-19 drove a significant fall in commodity prices resulting in a $53m write down of the closing value of crude
and refined products as NRV fell below cost for certain products. The write down is recorded in cost of goods sold.
(12) 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.
An independent revaluation of all land and buildings (including terminal plants) 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 Z to assess the underlying assumptions for each asset
class and determine whether any revaluation is required. Additions to PPE after the most recent valuation are recorded at cost.
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
Year ended 31 March 2020
Cost/valuation
Balance at beginning of year
Additions
Disposals
Transfers between asset classes
Right of use asset
Assets held for sale
Valuation adjustment
Balance at end of year
25
51
-
(42)
-
-
-
34
Accumulated depreciation and impairment
-
Balance at beginning of year
-
Depreciation
-
Disposals
Balance at end of year
Carrying amounts
At 1 April 2019
At 31 March 2020
‑
25
34
Constr‑
uction
in progress
$m
Buildings
$m
Land and
improve‑
ments
$m
Plant and
machinery
$m
Terminal
plant
$m
122
-
(1)
2
(5)
-
-
118
(22)
(8)
1
(29)
100
89
311
-
-
1
(3)
(4)
14
319
(10)
(3)
-
(13)
301
306
393
-
(11)
23
-
-
-
405
(161)
(37)
9
(189)
232
216
195
-
-
16
-
-
-
211
(23)
(14)
-
(37)
172
174
2020
Total
$m
1,046
51
(12)
‑
(8)
(4)
14
1,087
(216)
(62)
10
(268)
‑
819
2019
Total
$m
1,027
47
(14)
-
-
(27)
13
1,046
(157)
(65)
6
(216)
830
Included in buildings ($16m) and plant and machinery ($1m) are assets held under finance leases (2019: land $3m, buildings $23m
and plant and machinery $1m).
Z Energy Limited and Subsidiaries Year end report 31 March 2020
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
3
6
(12) 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 $48m (2019: $50m); land and improvements $132m (2019: $138m); terminals $145m (2019: $143m); plant and
machinery $191m (2019: $201m).
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
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).
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%
Cost estimates sourced
from contracting
machinery suppliers
and cost analysis of
recent projects.
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.
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.
Assessed for
impairment.
Assessed for
impairment.
The estimated fair value
would increase (decrease) if:
- cost was higher (lower);
- remaining useful life was
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).
Z notes COVID-19 is expected to have an impact on fuel throughput margin (within land and buildings) and fuel throughput
(through Z’s terminal plant and machinery) in the short term under the government’s COVID-19 Alert Levels and the associated
restrictions on both businesses’ and consumers’ fuel buying habits. Z has considered the impact on the carrying value of land
and buildings and concluded the short-term demand disruption will be recovered through active management of fuel throughput
margin until volumes recover as the Alert Levels are reduced. In the case of terminal plant and machinery in addition to fuel
volumes recovering as Alert Levels reduce, Z notes there is no evidence of technical or functional obsolescence which would
impact a depreciated replacement cost valuation. As a result, there has been no reduction in the fair value of land and buildings
or terminal plant and machinery.
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 four land bank sites. The sites were classified as PPE with a carrying value
of $4m (land). $1m is held in the revaluation reserve for the sites held for sale. Fair value is $4m.
7
3
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(13) Intangible assets
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.
Chevron acquisition goodwill
On 1 June 2016, Z acquired 100% of the share capital of Chevron New Zealand (renamed Z Energy 2015 Limited), an importer,
distributor and seller of transport fuel and related products. The acquisition has strengthened the Group’s fuel network within
New Zealand. Z recognised $158m of goodwill as part of the purchase price allocation. As at 31 March 2020 an annual impairment
test of the goodwill was undertaken. The impairment test considered the expected impacts of COVID-19 on the carrying amount
of the 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). This was calculated using a Z Board approved
20 year discounted cash flow valuation (‘DCF’). Significant assumptions within the DCF include:
• Discount rate of 6.3% (real terms)
• Terminal value growth rate of -2%
• Future sales volumes which have been extrapolated using the growth rate assumptions within the Tui and Kea Energy forecast
fuel use scenarios developed by the BusinessNZ Energy Council for the period to 2060 (‘BEC2060 Scenarios’)
A 20 year DCF has been used instead of a 5 year DCF due to the industry life-cycle. The headroom between the carrying amount
and the recoverable amount of the CGU has decreased due to the current market conditions however, there is still sufficient
headroom to conclude that no impairment is required. The discounted cashflows are most sensitive to the following assumptions:
Change in key assumptions
Discount Rate [+/-0.50%]
Retail Margins [-/+ 1cpl]
Capital Expenditure [+/- $10m]
Market Demand change [Kea/Tui]
Reduction in valuation
$m
Increase in valuation
$m
Would the indicated
sensitivity result in
impairment?
74
112
123
374
78
112
123
866
No
No
No
No
Z will continue to monitor market conditions on an ongoing basis and make necessary judgement on the need for impairment
of the goodwill.
Flick acquisition goodwill
Z acquired Flick on 1 September 2018 recognising the acquired assets and liabilities at fair value and resulting goodwill of $35m.
As at 31 March 2019 an impairment test of the goodwill was undertaken because of unexpected changes in the wholesale
electricity market in October 2018, primarily driven by gas shortages. This had a material impact on retail electricity pricing and
resulted in lower than anticipated customer growth. In order to restore historical customer growth trajectories Flick introduced a
new product (Fixie) to mitigate the impact of high wholesale electricity prices on customer growth. Z also considered the market
would return to previous operating conditions.
At 31 March 2019 there was insufficient information available to conclude whether the downturn experienced in October 2018
represented a permanent change in the market and whether Flick’s new product would restore customer growth as forecasted,
therefore no impairment was recorded.
As at 30 September 2019, the market had not returned to normal operating conditions pre-October 2018 which made customer
acquisition challenging and as a result customer growth had stagnated since March 2019. Flick’s Fixie product has not seen
customer growth return to levels experienced prior to October 2018. In addition, there were increased signs of structural
supply/demand change in the market.
Given expected customer growth had not materialised, Z undertook an impairment test of goodwill at 30 September 2019.
An updated DCF was prepared to estimate the recoverable amount of the CGU, with a resulting valuation range of $19m - $38m.
The DCF supports the $35m goodwill impairment.
Z Energy Limited and Subsidiaries Year end report 31 March 2020
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
3
8
(13) Intangible assets (continued)
Flick acquisition goodwill (continued)
The following key assumptions were applied in the value in use calculation:
• 10 year DCF supplied by Flick (31 March 2019: 10 year DCF). A 10 year DCF was favoured over a 5 year DCF given Flick’s start
up nature and strong customer acquisition targets.
• Post-tax discount rate of 14.5% (31 March 2019: 15%). The discount rate reflects Z’s view that Flick is a medium risk investment.
• Terminal growth rate of 3.6% (31 March 2019: 2%). The terminal growth rate is aligned to the individualistic profile within the
NZ Energy Scenarios for residential electricity growth (BEC2060 Scenarios). The previous estimate was aligned to long term
GDP expectations.
• The customer growth has been adjusted for historically observed metrics and reasonable expectations of future growth
of customer numbers in year 10, a 25% decrease compared to 31 March 2019. The decrease in customer numbers reflects
Z’s view that customer acquisition will be more challenging as a result of changes in the market.
• The customer acquisition costs increased by 50% - 67% from March 2019. The increase in costs reflect Z’s view that customer
acquisition will be more challenging as a result of changes in the market.
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.
As at 31 March 2020, Z undertook an impairment test on the current value of both the Flick and Chevron customer contracts
as per the requirements of NZ IAS 36 Intangible Assets. Despite the challenging market conditions as a result of COVID-19,
no adjustment was deemed necessary for the Flick customer contracts as these were appropriately supported by the DCF at
31 March 2020.
Chevron customer contracts
On 1 June 2016, Z acquired the Caltex NZ business from Chevron. Included in this purchase was an allocation of $345m for the
intangible assets relating to the Caltex retail customer contracts. These were valued at the net present value of future cash flows
and amortised over 21 years on a straight-line basis.
Under NZ IAS 36 Impairment of Assets, contracts acquired are finite life intangible assets that have a measurable life which can
be amortised over a measurable period. Accordingly, accounting standards require this type of asset to be tested for impairment
when there is an indicator of impairment due to triggering of a significant event, for example a decline in performance. If this
indication is present, an entity is required to make a formal estimate of recoverable amount.
The Board concluded the decline in Caltex financial performance together with the revised BEC2060 Scenarios, prompted the
need to perform an impairment test on the carrying value of these contracts. As such an impairment test was carried out as at
31 March 2020 using the method and assumptions set out below.
Cash flow projections are based on Z’s forecasts for the year ending 31 March 2021 (‘FY21 Plan’), adjusted for the expected
COVID-19 impacts which are modelled using stress case analysis. The analysis provides for a material decline on FY20
(for further details on the financial impacts of COVID-19 see note 3).
In estimating the cash flow projections beyond FY21, Z has extrapolated the volumes by overlaying the growth rate assumptions
within the Tui and Kea BEC2060 Scenarios. The Tui Scenario is most consistent with evidence observable today and likely to
determine medium term (5-10 year) volumes. Z’s view is that there will be various societal and technology changes beyond this,
that will cause a reversion to Kea Scenario in the middle of this decade. The Kea Scenario provides for a more pessimistic view on
fuel demand.
9
3
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
The revised assumptions for the 31 March 2020 calculation are as follows:
• 20 year DCF (previously 31 years). The change in DCF period is aligned to the updated BEC scenarios.
• Retail gross margin based on FY21 forecast.
• Discount rate of 6.5% (real terms), which is the current weighted average cost of capital (WACC) estimated by Z. (Z has moved
from a nominal WACC to a real WACC to align with a change in forecasting methodology. The change in WACC methodology
does not impact the valuation.)
• Volume scenarios being Z’s FY21 Plan adjusted for the expected impacts of COVID-19 and the Tui and Kea BEC2060
Scenarios, formerly the Waka/Kayak Scenarios midpoint from the BEC 2050 report.
Using the revised assumptions, the recoverable amount as at 31 March 2020 was determined to be $209m, which is lower than
the carrying amount of $270m, therefore a $61m impairment has been recorded in the Statement of comprehensive income.
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 14 for the 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.
Year ended 31 March 2020
Balance at beginning of year
Additions
Transfers from PPE in
progress
Transfers between asset
classes
Utilised
Leased
Impairment
Amortisation
Balance at end of year
Cost
Accumulated impairment
Accumulated amortisation
Balance at end of year
Software in
progress
$m
Goodwill
$m
Brands
$m
Contracts
acquired
$m
Emissions
units
$m
Other
$m
37
46
(79)
-
-
-
-
-
4
4
-
-
4
193
-
-
-
-
-
(35)
-
158
193
(35)
-
158
20
-
-
-
-
-
-
(6)
14
37
-
(23)
14
380
-
-
(4)
-
-
(61)
(34)
281
445
(61)
(103)
281
8
290
-
-
-
(37)
-
-
261
261
-
-
261
30
-
79
4
-
-
-
(45)
68
184
-
(116)
68
2020
Total
$m
668
336
‑
‑
‑
(37)
(96)
(85)
786
1,124
(96)
(242)
786
2019
Total
$m
750
180
-
-
(90)
(115)
-
(57)
668
839
-
(171)
668
Z Energy Limited and Subsidiaries Year end report 31 March 2020
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
4
0
(14) 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.
Stock of units
Balance at beginning of year
Units acquired and receivable
Units (leased)/reacquired
Units utilised
Balance at end of year
Obligation
Obligation payable at 31 March
2020
Units millions
2019
Units millions
‑
6
4
‑
10
7
3
(5)
(5)
-
2020
Units millions
2019
Units millions
10
8
The Emissions Trading Scheme obligation of $246m (2019: $209m) 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 2020 prior to Z’s obligation falling due.
(15) Investments
The Group’s investment in Refining NZ is recognised at the NZX-listed share price at 31 March 2020 of $0.78 (2019: $2.10) giving
rise to a $63m reduction in the fair value for the financial year which is accounted for in other comprehensive income. During the
year, Z paid processing fees, customs and excise duties to Refining NZ of $791m (2019: $732m) and payables due to Refining NZ
at the end of the period were $52m (2019: $55m).
Investment in NZ Refining (fair value hierarchy level 1)
Investment in associates
Total investments
The Group wholly owns or has a partial interest in the below associates and subsidiaries:
Associates and subsidiaries
Drylandcarbon One Limited Partnership
Mevo Limited
Loyalty NZ Limited
Wiri Oil Services Limited (WOSL)
Coastal Oil Logistics Limited (COLL)
Flick Energy Limited
Z Energy 2015 Limited (formerly Chevron New Zealand)
Z Energy ESPP Trustee Limited
Z Energy LTI Trustee Limited
2020
$m
38
10
48
2019
$m
101
4
105
2020
% Holding
2019
% Holding
Associate
Associate
Associate
Associate
Associate
Subsidiary
Subsidiary
Subsidiary
Subsidiary
37%
32%
25%
44%
50%
70%
100%
100%
100%
37%
32%
25%
44%
50%
70%
100%
100%
100%
1
4
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(16) 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 2020,
there were no contingent liabilities for the jointly controlled operations (2019: nil). The value of assets in these interests is $13m
(2019: $14m).
Joint User Hydrant Installation
Joint Interplane Fuelling Services
Jointly Owned Storage Facility
Joint Ramp Service Operations Agreement
Wiri to Auckland Airport Pipeline
Principal activity
Fuel storage
Fuel distribution
Fuel storage
Fuel distribution
Fuel distribution
2020
% Holding
2019
% Holding
33%
50%
50%
50%
40%
33%
50%
50%
50%
40%
(17) Provisions
Decommissioning and restoration (D&R) 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. For the majority of assets, the
discount rate applied is the Treasury 30 year risk free rate (currently 2.12%) and the inflation rate is the Treasury 30 year CPI rate
(currently 1.72%). Exceptions to this are the Caltex Retailer-owned Retailer-operated (‘RORO’) sites which use the 6 year risk free
rate and the 6 year CPI rate, and Caltex Truckstops which use the 12 year risk free rate and the 12 year CPI rate. These rates are
revised annually in February each year.
D&R costs expected to be settled within one year are classified as current liabilities. D&R costs expected to be settled between
1 and 30 years are classified as non-current liabilities.
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.
Z has updated the D&R provision for the Bio Diesel plant to reflect the updated costs of disposing contaminated waste and return
the plant back to a greenfield site.
Z engages a third party to provide an estimate of the D&R obligations for Z. Estimates are reviewed every 3 years, with the next
review due in February 2022. The current D&R obligations are between $40k – $45k for above ground tanks and $65k – $75k for
below ground tanks.
Other provisions include people-related costs and general business provisions.
For the year ended 31 March 2020
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
83
9
(2)
(1)
3
92
18
74
92
8
2
(6)
(3)
-
1
1
-
1
91
11
(8)
(4)
3
93
19
74
93
Z Energy Limited and Subsidiaries Year end report 31 March 2020
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
4
2
(18) Borrowings
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 securities and operate within defined performance and gearing ratios.
The arrangements also include restrictions over the sale or disposal of certain assets without lender agreement. The Group has
complied with all debt covenant requirements imposed by lenders for the year ended 31 March 2020. The impacts of COVID-19
have resulted in Z forecasting a significant loss in demand for both fuel and convenience store goods under alert levels 3 and 4.
As a result Z has modelled certain scenarios where a breach in certain covenants may occur at the next three measurement
dates being 30 September 2020, 31 March 2021 and 30 September 2021, without corrective action being undertaken.
Z is currently undertaking an underwritten equity placement of $290m and a share purchase plan (not underwritten) (refer to
note 25 Events after balance date) and in addition has worked with its debt providers (including the Bond Supervisor) in advance
of these measurement dates to agree a combination of temporary waivers and temporary adjustments to covenant definitions.
This gives Z greater confidence that there will be no default event in respect of its financial covenants through this period.
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 method.
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 1.5% to 3.0% (2019: 2.8% to 3.2 %).
Secured bank facilities available
Balance at end of year (facilities drawn down)
Current
Non-current
Balance at end of year
2020
$m
530
250
70
180
250
2019
$m
530
68
-
68
68
The facilities comprise a $180m revolving term debt facility drawn to $180m plus a $350m working capital facility drawn to $70m,
both maturing in December 2021.
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
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
3
4
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
2020
$m
477
‑
‑
(135)
1
343
‑
343
343
340
2020
$m
393
60
56
509
‑
509
509
574
2019
$m
502
125
(1)
(150)
1
477
135
342
477
510
2019
$m
357
12
24
393
-
393
393
452
Z Energy Limited and Subsidiaries Year end report 31 March 2020
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
4
4
(19) 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.
Summary of the Group’s exposure to financial risk and the management of those:
Financial risk Exposure
Product
Management of risk
Market risk
Foreign
exchange
risk
Movement in foreign
exchange rates
Bills Libor
(Basis swap)
Forward
exchange
contract
Cross currency
interest rate
swaps (CCIRS)
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.
Reduce price fluctuations risk of foreign currency commitments, mainly
associated with purchasing hydrocarbons.
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
Interest
rate risk
Sensitivity to
interest rate
Commodity
price and
timing risk
Liquidity risk
Credit risk
Foreign-currency – At 31 March 2020, 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 $16m higher/$20m lower (2019: $1m higher/$3m lower) and the change in other comprehensive
income for the year would be $2m higher/$1m lower (2019: $5m higher/lower).
Movement in
interest rates
Minimise the cost of debt (interest) and manage the volatility to the
Groups earnings.
The CCIRS is designated into a fair value hedge and cash flow hedge
relationship to mitigate profit or loss volatility.
Reduce exposure on the basis cost of the CCIRS.
Interest rate
swaps (IRS)
Cross currency
interest rate
swaps
Bills Libor
(Basis swap)
At 31 March 2020, 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 $4m higher/$3m lower (2019: $8m higher/$5m lower) and the change
in other comprehensive income for the year would be $2m higher/$3m lower (2019: $1m higher/lower).
Changes in crude and
product prices
Match commodity purchase and sales.
Commodity
swaps
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 7% of the Groups receivables
are overdue (2019: 2%).
Bank facilities are maintained with A or above rated financial institutions,
with a syndicate of five bank counterparties to ensure diversification.
The CCIRS is classified as level 2 in fair value hierarchy and are 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.
5
4
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
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 2020
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
Non‑derivative financial liabilities
Working capital loan
Accounts payable
Lease liabilities
Long-term loan
Bonds
USPP notes
Non‑derivative
financial liabilities
Derivative financial instruments
IRS
Commodity hedges
CCIRS
Basis swap
Derivative
financial instruments
70
304
15
1
7
9
406
(3)
37
4
-
38
-
-
15
1
7
9
32
(4)
-
4
(17)
(17)
-
-
29
182
163
18
392
-
-
86
-
213
54
353
(7)
(12)
-
7
2
2
-
21
6
15
-
-
336
-
-
503
839
-
-
43
27
70
70
304
481
184
390
593
70
304
299
180
343
509
2,022
1,705
(26)
37
79
18
108
(25)
(37)
130
‑
68
At 31 March 2019
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
Non‑derivative financial liabilities
Accounts payable
Finance leases
Long-term loan
Bonds
USPP notes
Non‑derivative
financial liabilities
272
1
1
11
8
293
Derivative financial instruments
IRS
Commodity hedges
CCIRS
Basis swap
Derivative
financial instruments
(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)
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.
Z Energy Limited and Subsidiaries Year end report 31 March 2020
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
4
6
(19) Financial risk management (continued)
Interest rate risk analysis
At 31 March 2020
Interest-rate exposure borrowing
Cross-currency swaps
Interest-rate swaps
Net interest‑rate exposure
At 31 March 2019
Interest-rate exposure borrowing
Cross-currency swaps
Interest-rate swaps
Net interest‑rate exposure
Less than
1 year
$m
‑
378
(130)
248
Less than
1 year
$m
135
378
(130)
383
1 to 2
years
$m
330
‑
‑
330
1 to 2
years
$m
-
-
-
-
2 to 5
years
$m
195
‑
5
200
2 to 5
years
$m
288
-
75
363
5+
years
$m
378
(378)
125
125
5+
years
$m
503
(378)
55
180
Total
Notional
$m
903
‑
‑
903
Total
Notional
$m
926
-
-
926
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 assets
Derivative liabilities
Derivative financial assets/(liabilities)
Derivative
position
2020
$m
Amount after
applying rights of
offset under ISDA
agreements
$m
Derivative
position
2019
$m
Amount after
applying rights of
offset under ISDA
agreements
$m
185
(117)
68
69
(1)
68
26
(39)
(13)
-
(12)
(12)
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.
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.
• 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.
7
4
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
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.
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.
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 2020 are recognised in the balance sheet within derivative financial instruments and borrowings as follows:
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
At 31 March 2020
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%
90
90
90
Total
270
(165)
(170)
(174)
(509)
(14)
(19)
(24)
(57)
39
44
47
130
39
44
48
131
‑
‑
(1)
(1)
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 2020 was $0m (2019: $2m).
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
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%
90
90
90
Total
270
(131)
(131)
(131)
(393)
-
1
1
2
5
4
4
13
5
5
5
15
-
(1)
(1)
(2)
Z Energy Limited and Subsidiaries Year end report 31 March 2020
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
4
8
(20) Share capital and distributions
Ordinary shares (fully paid)
Total authorised and issued capital at beginning of year
Movements in issued and fully paid ordinary shares
Total authorised and issued capital at end of year
Issued capital
Total issued capital at end of year
The par value of one share is $1.
2020
$m
429
‑
429
2020
Shares
millions
400
2019
$m
429
-
429
2019
Shares
millions
400
Z Energy LTI Trustee Limited holds 811,823 shares at a cost of $4m for Z’s restricted share long-term incentive plan
(2019: 762,263, $6m). Z holds Treasury stock of 339,884 shares.
Dividends
2018 Final dividend (paid May 2018)
2019 Interim dividend (paid December 2018)
2019 Final dividend (paid May 2019)
2020 Interim dividend (paid December 2019)
$m
cents per share
88
50
122
66
21.9
12.5
30.5
16.5
The Z Board has determined that no final dividend will be paid out for the second half of this financial year (Note 25).
(21) Share-based payments
Z Energy Restricted Share Long‑Term Incentive Plan (RSLTIP) & Z Energy Limited – Performance Rights
Long Term Incentive Plan (PRLTIP)
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. Z stopped making new offers under the RSLTIP after the year ended 31 March 2019. In the year ended 31 March 2020
the Group has moved to a new stock settled share rights scheme for selected senior employees (PRLTIP). Under the scheme
performance rights have been granted at no cost to the holder. For each performance share right that vests, one share will
be issued.
Under the RSLTIP 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. Under the PRLTIP 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 shares are then transferred to the employee.
9
4
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
Plan
type
Grant date
Vesting date
Exercise
price
Number of
shares
Number of
shares
Number of
shares
Number of
shares
Number of
shares
Number of
shares
Balance at
the start of
year
Granted
during year
Exercised
during year
Forfeited
during year
Balance at
the end of
year
Vested and
exercisable
at end of year
2020
RSLTIP 22 May 2017 31 March 2020
RSLTIP 22 May 2018 31 March 2021
PRLTIP 11 April 2019 31 March 2022
$6.99
$6.93
$6.25
181,293
219,590
‑
‑
‑
590,644
400,883
590,644
‑
‑
‑
‑
(181,293)
(7,270)
(6,041)
‑
212,320
584,603
(194,604)
796,923
Weighted average exercise price
$0.00
$6.96
$6.43
2019
RSLTIP 29 May 2015 31 March 2018
RSLTIP 23 May 2016 31 March 2019
RSLTIP 22 May 2017 31 March 2020
RSLTIP 22 May 2018 31 March 2021
$5.98
$8.20
$6.99
$6.93
235,681
206,361
223,787
-
-
-
-
266,384
(235,681)
-
-
-
-
(206,361)
(42,494)
(46,794)
-
-
181,293
219,590
Weighted average exercise price
$5.98
$7.83
$6.96
665,829
266,384
(235,681)
(295,649)
400,883
‑
‑
‑
‑
-
-
-
-
-
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 – 2020. For the RSLTIP and PRLTIP schemes vesting after 2020 a Monte Carlo Simulation has
been used.
Weighted average share price at grant date
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
Correlation between Z share price and NZX50
Correlation between Z’s TSR and peers’ TSR (average)
Estimated fair value per share
PRLTIP
Plan type
RSLTIP
RSLTIP
Vesting date of scheme
RSLTIP
31 March
2022
31 March
2021
31 March
2020
31 March
2019
$6.18
2.77 Years
1.0%
-
19%-22%
-
9%-48%
-
0.12-0.15
$2.52
$7.45
2.85 Years
2.0%
-
25%-27%
-
18%-21%
-
0.15-0.16
$3.78
$8.00
2.86 years
2.1%
-
18%-25%
-
20%-22%
-
0.16-0.19
$4.22
$8.20
3.00 years
2.1%
20%-25%
-
9.0%
-
0.32-0.40
-
$3.48
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 2020 was $11,000 (2019: $0.2m).
The expense relating to the PRLTIP in the year ended 31 March 2020 was $0.5m (2019: nil).
An employee share purchase programme (ESPP) vested in December 19, which does not have a material impact on these
financial statements. The ESPP no longer holds any shares.
Employee benefits payable are $7.6m (2019: $11m).
Z Energy Limited and Subsidiaries Year end report 31 March 2020
1
5
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
(25) Events after balance date
Dividend
On 2 April 2020 the Z Board determined that no final dividend will be paid out for the second half of this financial year
(2019: 30.5 cents per share, $122m).
COVID‑19 – Equity raise and covenant relief
As noted within the financial statements the impacts of COVID-19 have resulted in Z forecasting a significant loss in demand
for both fuel and convenience store goods under alert levels 3 and 4. As a result Z has modelled certain scenarios where a
breach in certain covenants may occur at the next three measurement dates being 30 September 2020, 31 March 2021 and
30 September 2021, without corrective action being undertaken. As a result, Z has taken the following corrective actions:
• On 11 May Z will announce a fully underwritten equity placement of $290m and Share Purchase plan (not underwritten).
• Z has agreed a combination of temporary covenant waivers and temporary adjustments to covenant definitions with
its debt providers.
As a result of these corrective actions Z has greater confidence that there will be no default event in respect of its financial
covenants through this period.
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
5
0
(22) Related parties
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 (2019: $1m).
Transactions with related parties received/(paid)
Associates – sale of goods and services
Associates – purchase of goods and services
Coastal Oil Logistics Ltd – distribution
Wiri Oil Services Ltd
Loyalty Ltd
Key management personnel
- Short-term employee benefits
- Termination benefits
2020
$m
‑
(34)
(11)
(7)
(6)
‑
(23) Commitments
Commitments relate to property, plant and equipment of $19m (2019: $32m).
(24) Contingent liabilities
Z currently guarantees a total potential exposure relating to Flick Energy Ltd of up to $12m as per the below.
Counterparty
Westpac
Mercury
Genesis
Total exposure
2020
$m
5
4
3
12
2019
$m
1
(36)
(11)
(5)
(5)
(1)
2019
$m
-
-
-
-
The Group has also guaranteed an exposure of up to USD1m ($2m) to a financier of one of the Group’s associate companies
(2019: USD2m ($3m)). This guarantee reduces by USD1m annually.
Z Energy Limited and Subsidiaries Year end report 31 March 2020
Auditors Report
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
5
2
3
5
1
g
P
Y
G
R
E
N
E
Z
0
2
0
2
T
R
O
P
E
R
L
A
U
N
N
A
2 recognised on acquisition of Chevron New Zealand, together with an assessment of any impacts of the COVID-19 pandemic. 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. The key audit matter How the matter was addressed in our audit Impairment of the carrying value of retail customer contracts recognised on acquisition of Chevron New Zealand Refer to Note 3 and Note 13 of the consolidated financial statements. The impairment of the group’s retail customer contracts is a Key Audit Matter due to the complexity of auditing the judgements used by the group to determine the recoverable amount of these assets. Our consideration of the group’s assessment of the carrying value of the retail customer contracts has focussed on the significant assumptions and judgements the group applied in determining the recoverable amounts of these assets. These assumptions and judgements relate to short-term forecasted sales volumes, long-term retail demand for fuel in New Zealand, retail gross margin per litre, and a relevant discount rate. Such judgements and assumptions carry a Our audit procedures included: —We assessed the integrity of the value in use calculation model, including the accuracy of the underlying calculation formulae. —We checked the consistency of short-term forecasted sales to past performance of the group, and our experience regarding the feasibility of these in the industry in which they operate. This also included an adjustment for the impact of COVID-19 and the associated Level 4 lockdown enforced by the New Zealand Government. —We challenged the assumptions around long-term retail demand for fuel in New Zealand by comparing to published information on industry trends and the historical accuracy of relevant forecasts. We used our knowledge of the group, their past performance, business and customers, and our industry experience. —We worked with our valuation specialists to analyse the group’s discount rate by comparing to an independently developed discount rate using publicly available market data for comparable entities, adjusted by risk factors specific to the group and the industry it operates in. —We considered the sensitivity of the model by varying key assumptions, such as long-term retail demand for fuel in New © 2020 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. Independent Auditor’s Report To the shareholders of Z Energy Limited Report on the audit of 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 122 to 151: i.present fairly in all material respects the Group’s financial position as at 31 March 2020 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 2020; —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 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. Scoping The scope of our audit is designed to ensure that we perform adequate work to be able to give an opinion on the consolidated financial statements as a whole, taking into account the structure of the group, the financial reporting systems, processes and controls, and the industry in which it operates. The context for our audit is set by the group's major activities in the financial year ended 31 March 2020, which included the impairment of goodwill relating to Flick Energy and the impairment of retail customer contracts
Auditors Report
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
Z
E
N
E
R
G
Y
P
g
1
5
4
5
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4 The key audit matter How the matter was addressed in our audit New Zealand acquisition, and the impairment charge recognised for goodwill relating to Flick Energy. Financing – basis of preparation Refer to Note 18 and Note 25 of the consolidated financial statements. The Directors have determined that the use of the going concern basis of accounting is appropriate in preparing the consolidated financial statements. Their assessment of going concern was based on debt covenant compliance forecasts. The preparation of these forecasts incorporated a number of assumptions and actions undertaken subsequent to balance date. In assessing this Key Audit Matter, we involved senior audit team members who understand the group’s business, industry, and the economic environment in which it operates. Our audit procedures included: —We reviewed agreements with financiers to understand the actions the group had taken subsequent to balance date including renegotiation of existing debt facilities and agreeing waivers in meeting financial loan covenants in future periods. —We read minutes of meetings of Directors and relevant correspondence with the group’s advisors to understand the group’s ability to raise additional shareholder funds. —We reviewed documentation relating to the underwritten equity placement which occurred subsequent to balance date. —We evaluated the group’s going concern disclosures in the consolidated financial statements by comparing them to our understanding of the matter, the events or conditions incorporated into the cash flow projection assessment, the group’s plans to address those events or conditions, and accounting standard requirements. We found the group has appropriately considered the impacts of current and future financial performance on the going concern assumption, and disclosures made appropriately describe actions undertaken to support the use of the going concern assumption. Transition to NZ IFRS 16 Leases Refer to Note 2 of the consolidated financial statements. The group has adopted NZ IFRS 16 effective from 1 April 2019, using the modified retrospective approach. The new standard requires the group to recognise its lease commitments as a liability in the consolidated statement of financial position, along with an associated right of use asset. The group’s adoption of NZ IFRS 16 is a Key Audit Matter due to the complexity of auditing the judgements and assumptions involved in the calculation of the right of use assets and associated lease liabilities. Our audit procedures included: —We assessed the group’s process relating to the recording, recognition, and measurement of leases. —We assessed the group’s judgements made in applying practical expedients against the requirements of NZ IFRS 16. —We worked with our valuation specialist to analyse the incremental borrowing rate (IBR) applied by the group to the lease portfolio by comparing to an independently developed IBR using publicly available market data for comparable entities, adjusted by risk factors specific to the group and the industry in which they operate. —We selected a sample of leases and examined the calculation of the associated lease liability and right of use asset. For each lease selected we performed the following: -Agreed key inputs such as commencement date, expiry date, rent amount, and rent payment frequency to the underlying lease agreement. -Recalculated the lease liability and right of use asset based on the key inputs noted above and the IBR as assessed by our 3 The key audit matter How the matter was addressed in our audit higher risk of bias and error which required additional scrutiny by us. Zealand and retail gross margin per litre. 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 calculation of the recoverable amount of the retail customer contracts to be appropriate. We consider the group has appropriately considered those key assumptions that support the impairment charge recognised. Assessment of goodwill Refer to Note 3 and Note 13 of the consolidated financial statements. The group’s testing of goodwill for impairment is a Key Audit Matter due to the complexity of auditing the judgements used by the group to determine the recoverable amount of the relevant cash generating units (CGU’s). The relevant CGU’s are Flick Energy and the Z Energy group. The group used complex models to perform their assessment of the recoverable amount. The models used a range of external and internal inputs, including assumptions made by the group. Complex modelling using forward-looking assumptions are 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 consistent application. In addition to the above, the group recorded an impairment charge of $35 million against goodwill relating to Flick Energy, resulting from a sustained downward trend in customer acquisition numbers. This further increased our audit effort in this key audit area. Our audit procedures included: —We considered the appropriateness of the valuation methods applied by the group to each CGU to perform the test of goodwill for impairment against the requirements of the accounting standards. —We assessed the accuracy of previous group forecasts to inform our evaluation of forecasts incorporated in the models. —We checked the consistency of forward-looking assumptions to the group’s stated plan and strategy, past performance of the group, published information on industry trends, and our experience regarding the feasibility of these in the industry in which they operate. The key forward-looking assumptions we checked for each CGU are as follows: Flick Energy CGU: -Customer acquisition numbers and growth rates -Terminal growth rate Z Energy Group CGU: -Retail fuel market share -Retail fuel market demand -Retail gross margin per litre —We worked with our valuation specialists to analyse the group’s discount rates used in the valuation models by comparing to independently developed discount rates using publicly available market data for comparable entities, adjusted by risk factors specific to the group and the industry in which they operate. —We considered the sensitivity of the model by varying key assumptions, such those listed above. We did this to identify those assumptions at higher risk of bias or inconsistency in application and to focus additional procedures, particularly in the context of the COVID-19 pandemic. —We assessed the disclosures in the consolidated financial statements using our understanding of the issue obtained from our testing and against the requirements of the accounting standards. We found the valuation methodology and inputs used in the calculation of the recoverable amount of the CGU’s to be appropriate. We consider the group has appropriately considered those key assumptions that support both the carrying value for goodwill relating to the Chevron
Auditors Report
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6 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 10 May 2020 5 The key audit matter How the matter was addressed in our audit valuation specialist, and compared our recalculation to the balances recorded by the group. -Checked the appropriateness of the classification of the lease liability between current and non-current based on the remaining term of the lease. —We assessed the disclosures in the consolidated financial statements against the requirements of NZ IFRS 16. We found the methodology used by the group in transitioning to NZ IFRS 16 to be appropriate. We consider the group has appropriately considered those key assumptions that underly the calculation of the associated balances. The Directors, on behalf of the group, are responsible for the other information included in the entity’s Annual Report. Other information may include 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. The Annual Report is expected to be made available to us after the date of this Independent Auditor’s Report. Our responsibility is to read the Annual Report when it becomes available and consider whether the other information it contains is materially inconsistent with the consolidated financial statements, or our knowledge obtained in the audit, or otherwise appears misstated. If so, we are required to report such matters to the Directors. 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; —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. Other information
TCFD Index
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Te Kuputohu TCFD
Task Force on Climate-related Financial Disclosures
(TCFD) Index
Disclosure
Governance
Page
Information
Describe the Board’s oversight
of climate-related risks and
opportunities
79, 82-83,
84-85
Disclose the organisation’s governance around climate‑related risks
and opportunities
The Z Board has committed to responding to the challenge of climate change in an
integrated way and approved Z’s Sustainability Stand in 2017. A core function of the
Board is oversight of Z’s Enterprise Risk Management System (ERMS), including
monitoring all of Z’s enterprise risks, including climate change, and systems of
internal control.
Monitoring of risks, controls and opportunities is performed through Board
sub-committees, specifically the Audit and Risk Committee; the Health, Safety,
Security and Environment Committee; and the People and Culture Committee.
Describe management’s role
in assessing and managing
climate-related risks and
opportunities
13, 26, 62,
112-113
Climate change is identified as a material topic that is important to internal and
external Z stakeholders. The Chief Executive has overall responsibility for the
management of Z. Day-to-day management of Z’s operations are delegated to the
respective General Managers who make up the Executive Leadership Team (ELT).
The ELT is responsible for directing and assuring on Z’s ERMS, with each principal
risk assigned to an ELT member. Z’s General Manager, Strategy and Risk, is the
responsible Business Owner for managing climate-related risks and opportunities
identified within the ERMS. The ELT as a whole approves climate-related risks and
opportunities identified within Z’s business strategy.
Describe the impact of
climate-related risks and
opportunities on the organisation’s
businesses, strategy and
financial planning
Key
Complete disclosure
Partial dislosure
On Road Map
60
Describe the resilience of the
organisation’s strategy, taking
into consideration different
climate-related scenarios, including
a 2-degrees or lower scenario
Disclosure
Strategy
Describe the climate-related risks
and opportunities the organisation
has identified over the short-
medium- and long-term
23, 27-29,
54-63
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Page
Information
Disclose the actual and potential impact of climate‑related risks and
opportunities on the organisation’s business, strategy and financial planning
where such information is material
Z’s climate-related risks and opportunities are outlined under its Sustainability
Stand – specifically in its commitment to ‘move from being part of the climate
change problem to the heart of the solution’. Further, to help identify risks and
opportunities across the energy sector, Z joined a cross-sector group alongside the
Business NZ Energy Council (BEC) to map out scenarios for the future of energy
in New Zealand. The resulting ‘Tūī’ & ‘Kea’ energy demand scenarios are used as
a proxy from which to understand climate change risks (increasing carbon prices
and declining demand for hydrocarbons) and opportunities (increasing demand for
biofuels and EVs). The scenarios feed into Z’s capital strategy analysis from 2020,
2040 and through to 2060 alongside its strategic objective to transition to a low
carbon future.
45, 54-63,
125, 140
The overarching impact of climate-related risks and opportunities are encapsulated
in Z’s Strategy. The forecast increasing price of carbon is included in financial
planning on an annual basis through our Emissions Trading Scheme (ETS)
obligations in addition to our voluntary offsetting commitments.
Partnerships with the Dryland Carbon Group and Permanent Forests NZ ensure
our carbon exposure needs are planned for and met.
The impact of increased extreme weather events resulting from climate change will
be reviewed in FY21 under a Natural Perils Assessment to be carried out by Marsh
Risk Consulting, a practice of Marsh Pty Ltd. The resulting information will assist in
assessing the suitability of our current insurance limits, and will assist Z and Marsh
with stability of access to Natural Hazard insurance cover.
Z uses the BEC scenarios to inform the organisation’s strategies, which takes into
account the impacts of climate change on the price of carbon and demand for
various energy sources. Z’s strategy does not specifically include a 2-Degree or
lower scenario, which is planned for completion in FY21.
Risk Management
Disclose how the organisation identifies, assesses and manages climate
related risks
Describe the organisation’s
processes for identifying and
assessing climate-related risks
112-113
Z carries out the risk assessment process by identifying risks from a ‘top-down’
or enterprise perspective and from a ‘bottom-up’ perspective. For example, an
enterprise risk assessment, in this case an ‘Ineffective Response to Climate Change’,
would assess common risks across multiple business units, but also considers those
material risks identified at a business unit or operational level to determine if, given
their severity, they are an enterprise level concern.
Z uses standardised risk terminology and categories to ensure emerging and
currents risks are identified and assessed consistently across operational activities,
business units and the enterprise. Risk terminology and categories are detailed
within Z’s Enterprise Risk Analysis Matrix (RAM) which is the tool for evaluating the
severity of individual risks in terms of the consequences of the risk and likelihood
of the consequences occurring.
The identified climate-related enterprise risk has a residual risk rating of ‘Likely’
with a ‘Major’ severity and ‘High’ impact rating.
TCFD Index
Te Kuputohu TCFD
TCFD Index (continued)
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Disclosure
Page
Information
Risk Management (continued)
Describe the organisation’s
processes for managing
climate-related risks
26, 54,
57, 61,
112-113
60
Describe how processes for
identifying, assessing and managing
climate-related risk are integrated
into the organisation’s overall
risk management
The Chief Executive is responsible for promoting a culture of proactively
managing risks.
The principle underpinning Z’s ERMS model is that risk management is an integral
part of the management function across Z and, as such, is the clear responsibility of
management. Management at each level have the responsibility to evaluate their risk
environment, including their response to climate change, to put in place appropriate
controls and to monitor the effectiveness of these controls.
Approval pathways have been defined for the six different risk categories defined
as part of Z’s ERMS:
• Strategic, Innovation and Beyond the Core;
• Stakeholder and Customer Confidence/Reputation;
• Financial/Commercial;
• Operational/Performance of the core business;
• Regulatory and Compliance;
• Health, Safety, Security and Environment.
These pathways are used in conjunction with Z’s defined risk appetite and tolerance
when a potential risk is being assessed. The pathway sets out the relevant key
decision makers who needs to either accept or reject a risk or recommend further
controls or treatments.
Z’s Risk and Assurance function also conducts a risk-based assurance programme
to provide assurance that controls are well-designed and working effectively.
The function reports independently to the Board’s Audit and Risk Committee on the
effectiveness of controls and any recommendations that are made for improvement.
The integration of climate-related risks and opportunities into the ERMS process has
been identified on Z’s TCFD Road Map for FY21. This will be in the form of Risk and
Assurance providing guidance to the organisation on how to consider climate risks
and opportunities when making decisions.
Metrics and Target
Disclose the metrics and targets used to assess climate‑related risks and
opportunities where such information is material
Disclose the metrics used by
the organisation to assess
climate-related risks and
opportunities in line with its strategy
and risk management process
17, 59,
140
Metrics highlighted in this report include a combination of quantitative data
including greenhouse gas emissions, carbon intensity, litres of biodiesel produced
and the cost of carbon for Z’s obligatory and voluntary offsets; and qualitative
data, including an assessment of Z’s ‘What is Next’ strategy and risk management
reviews. These are due for review in FY21 to more closely align with the risk
management process.
Disclose Scope 1, Scope 2 and, if
appropriate, Scope 3 greenhouse
gas (GHG) emissions and the
related risks
Describe the targets used by
the organisation to manage
climate-related risks and
opportunities and performance
against targets
17, 59
Scope 1, Scope 2, and Scope 3 greenhouse gas emissions are disclosed.
23, 56,
58-59
Z is targeting a 30 percent reduction in operational greenhouse gas emissions from
FY17–FY21.
Te Kuputohu GRI
Global Reporting Initiative (GRI) Index
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GRI Disclosures: Description
General Standard Disclosures
102 - 1 Name of the organisation
102 - 2 Activities, brands, products, and services
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
102 - 8 Information on employees and other workers
102 - 9 Supply chain
102 - 10 Significant changes to the organization and its
supply chain
102 - 11 Precautionary principle or approach
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, Values & Integrity
102 - 16 Values, principles, standards, and norms of behaviour
Governance
102 - 18 Governance structures
Stakeholder engagement
102 - 40 List of stakeholder groups
102 - 41 Collective bargaining agreements
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
102 - 53 Contact point for questions regarding the report
102 - 54 Claims of reporting in accordance with the
GRI Standards
102 - 55 GRI content index
102 - 56 External Assurance
Material Topic Standard Disclosures
Economic Sustainability: 103 - Management Approach
201 - 1 Direct economic value generated and distributed
201 - 2 Financial implications and other risk and opportunities
due to climate change
Climate Change: 103 - Management Approach
305 - 1 Direct (Scope 1) GHG emissions
305 - 2 Energy indirect (Scope 2) GHG emissions
305 - 3 Other indirect (Scope 3) GHG emissions
Page
Supporting Details
Operates in New Zealand only
Front cover
11, 18-19, 28-51
Inside back cover
36-39, 40-41
126
28-51
16-17, 43, 122
94-99
40-45
2-5, 30-51, 123
54, 62
53, 62, 72, 73, 90, 146, 152
58, 62
8-15
22-29
20-21
78-120
24-25
N/A
24-25
24-25
24-26
121, 126
6, 22-23
26
17, 59
24-26, 126, 155-156
Front cover
6
6
Inside back cover
6
161-162
152-157
22-26, 103
122-151
125, 140, 158-160
22-26, 58
17, 59
17, 59
17, 59
None
31 March 2019
Financial year from 1 April to 31 March
Section 4.3 of Corporate Governance Statement
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GRI Index
Te Kuputohu GRI
GRI Index (continued)
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GRI Disclosures: Description
Page
Supporting Details
Material Topic Standard Disclosures (continued)
305 - 4 GHG emissions intensity
305 - 5 Reduction of GHG emissions
Fossil Fuel Substitutes (Future Fuels):
103 - Management Approach
GRI G4-DG14
Environmental Sustainability:
103 - Management Approach
306 - 2 Waste by type and disposal method
306 - 2 Significant Spills
Responsible consumption & production:
103 - Management Approach
308 - 1 New suppliers that were screened using
environmental criteria
308 - 2 Negative environmental impacts in the supply chain
and actions taken
People & Culture: 103 - Management Approach
401 - 1 New Employee hires and employee turnover
401 - 2 Benefits provided to full-time employees that are not
provided to temporary or part-time employees
401 - 3 Parental leave
Occupational Health, Safety & Wellbeing:
103 - Management Approach
403 - 2: Hazard identification, risk assessment, and incident
investigation
403 - 6: Promotion of worker health
403 - 9: Work-related injuries
Asset Integrity and Process Safety:
103 - Management Approach
G4 - OG13: Process Safety Events
Organisational Capability: 103 - Management Approach
404 - 2 Programmes for upgrading employee skills and
transition assistance programs
404 - 3 Percentage of employees receiving regular
performance and career development reviews
Diversity & Inclusion: 103 - Management Approach
405 - 1 Diversity of governance bodies and employees
405 - 2 Ratio of basic salary and remuneration of women
to men
Resilient Communities: 103 - Management Approach
413 - 1 Operations with local community engagement, impact
assessments, and development programmes
Cyber Security & Data Privacy:
103 - Management Approach
418 - 1 Substantiated complaints concerning breaches of
customer privacy and losses of customer data
Market Transparency & Fairness:
103 - Management Approach
419 - 1 Non-compliance with laws and regulations in the social
and economic area
Customer Experience: 103 - Management Approach
Own measure – Customer NPS Score
59
56, 59
22-26
58-59
22-26
58-59, 75
75
22-26
58
45, 58
22-26
98
104-112
71, 96
Volume of biofuels produced and meeting
Sustainability Criteria
No supplier relationships were terminated due to
negative environmental impacts
Z corporate employees. This excludes retail
site staff
Section 5.2 of Corporate Governance Statement
Section 6.2 of Corporate Governance Statement
22-26, 74-77, 113
74
ZORM
76
75
22-26
75
22-26
96-97
106
22-26, 68
97
95
22-26
66
22-26
13
22-26
90
22-26
17
Number of process safety events by business
activity
All (100%) retail sites take part in ‘Good In
The Hood’
No substantiated complaints or data breaches
See also p10 Commerce Commission review &
p63 for our response to climate change legal
proceedings
Business & Retail net promoter scores
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This report printed on FSC® certified paper using vegetable-based inks.
Company Directory
Ngā Pārongo
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
Abigail Kate Foote (Chair)
(Appointed as Chair 2 May 2019)
Peter Ward Griffiths
(Resigned 2 May 2019)
Andrew Mark Cross
Alan Michael Dunn
(Resigning 30 April 2020)
Blair Albert O’Keeffe
Julia Margaret Raue
Mark Roy Malpass
(Appointed 30 October 2019)
Stephen Reindler
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
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
Executive team
Mike Bennetts
Chief Executive Officer
Lindis Jones
Chief Financial Officer
Jane Anthony
Chief Customer Officer
Andy Baird
General Manager, Retail
David Binnie
General Manager, Supply
Debra Blackett
General Counsel and
Chief Governance Officer
Julian Hughes
General Manager, Strategy and Risk
Helen Sedcole
Chief People Officer
Mandy Simpson
Chief Digital Officer
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 NSW1235
Australia
+61 2 8280 7111
Auditor
KPMG
Maritime Tower
10 Customhouse Quay
PO Box 996
Wellington 6140
z.co.nz
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