Arotahi ki ngā tukuhanga Focused on delivery Z ENERGY ANNUAL REPORT For the year ended 31 March 2021 Te pūrongo a te Hēmana me Te Taiurungi: Arotahi ki ngā tukuhanga Pg 1 Z ENERGY ANNUAL REPORT 2021 REPORT ANNUAL Chair and CEO report: Focused on delivery Covid-19 delivered a momentous Commercial fuel volumes (primarily challenge to New Zealand, and to Z. It’s marine and jet fuel) are still affected had a real impact on our business, but, in by continued Covid-19 disruptions and the face of this challenge, we have built a with repeated short regional lockdowns stronger, leaner, more resilient business. impacting Retail volumes. Additionally, trading conditions in the final quarter Through Covid-19 Z has focused squarely of FY21 were challenging: intense retail on two things: the safety and wellbeing of competition has continued and crude our people, customers and communities; oil prices have increased substantially, Our strategy is: and delivering against the commitments further compressing margins. we have made to shareholders. Assuming no further Covid-19 lockdowns, To solve what matters for a moving world It has been a year of markedly different we expect to increase earnings in FY22 halves: the first half was a period as we continue to reduce structural costs, of concerted crisis management, by optimising our core business so we can hold our market share, optimise the use recapitalising our balance sheet and of our terminals to improve returns and establishing a new way of working through transition to a low carbon future. deliver new customer offers. At the same time we will manage capital carefully. With this financial result we have resumed dividend payments six months earlier We are tightly focused on: We expect to increase earnings than forecast. We will continue to focus on paying down debt and will further in FY22 as we continue to reduce strengthen Z’s balance sheet. Reducing costs structural costs, hold our market We have continued to build our Holding market share customer-focused strategy. share, optimise the use of our Through enhancing our customer experience (CX) and digital capabilities Monetising scale terminals to improve returns and we have increased revenue by introducing innovative, digital-enabled Managing capital deliver new customer offers. offers for our customers and improving the customer experience. Over FY21 we lockdown conditions. The second half has have built a lower-cost business that focused on cutting costs, optimising the is more flexible and future-focused. core business and setting the company In terms of improving current up to benefit financially from structural performance, Z remains tightly focused industry changes. on four areas of continued improvement: At the end of this year Z’s staff engagement Reducing costs is at an all-time high, and we are proud Holding market share Resumed to be just below the top 10 percent of Monetising scale organisations globally, as measured by Managing capital dividends our engagement service provider, Peakon. Through this very challenging year we Reducing costs Z has returned to paying dividends 6 months ahead of schedule have collectively improved our resilience, Over the year we made strategic and FY21 strengthened our culture and our business structural changes to our operating and we have delivered for our customers. expenditure base without compromising We have delivered Replacement Cost the integrity of our operations, our Earnings Before Interest, Taxation, capabilities or our strategy. Depreciation, Amortisation and Fair value We reduced structural, annually recurring movements of $238 million, (guidance of costs by $49 million, and one-off costs of $235–$245 million), as rising oil prices $14 million as a result of Covid-19 — for and retail discounting affected margins example, through suspended marketing in the second half of the year. and reduced fuel delivery costs. CHAIR AND CHIEF EXECUTIVE’S REVIEW ANNUAL REPORT 2021 REPORT ANNUAL Z ENERGY Pg 3 Pg 2 Z ENERGY ANNUAL REPORT 2021 REPORT ANNUAL In FY22 we will deliver a further Z has the largest network of fuel Z’s changing context $21 million in structural, ongoing cost storage assets in the country and will reductions, building on reductions from introduce terminal gate pricing across The liquid fuels industry is going through FY21. Z will continue to focus on cost the country over the next year. Z expects a period of significant structural change. reduction opportunities as we optimise the efficiency and scale of its national Through our previous investments in our core business and leverage our fuel terminal network to begin to deliver our assets, network and capabilities Z is We are facing scale to ensure a competitive, resilient fair commercial returns from assets well-positioned to lead these changes. business that will sustain returns which have historically underperformed In February 2021, as part of ensuring the future with to shareholders. because of long-standing Z has the right people in the right roles industry arrangements. to respond to a rapidly changing context, Holding market share confidence in our These industry arrangements have the company announced changes to its With a leaner, focused operation, Z backs discouraged investment and encouraged Executive team. itself to deliver convenience, dynamic ability to deliver. companies to rely on the assets of customer offers and competitive pricing Julian Hughes has moved from the others. Z will drive a more independent, across the country. We will preserve and General Manager, Strategy and Risk to a commercial approach to its fuel terminal build on the economies of our scale and new role as General Manager, Transition. management that better serves While work needs to be completed and The Climate Change Commission has compete vigorously in our core markets. In this role Julian will be accountable Conclusion New Zealand’s economic interests. for ensuring Z is well-positioned in a agreements reached, moving to a fuel published and consulted on New Zealand’s We thank our investors, customers and Over the year Z has competed for changing industry, for example through import terminal will generate a one-off first draft pathway to meeting the Managing capital our own people for their commitment volume in all markets and has flattened developing a reliable biofuels supply working capital release of approximately country’s 2030 and 2050 climate change and support over FY21. the decline in its fuel market share. We have a strong balance sheet chain and supporting the transition to $150 million. It may also improve the commitments. We welcomed this work Z has a strong customer proposition: following a well-supported $347 million an import-only supply chain. resilience and security of fuel supply and note that the core scenario in the Our actions over the past three years competitive pricing, a superior network equity capital raise announced in and ensure a fair, competitive playing proposed pathway is closely aligned have ensured we are well-positioned Nicolas Williams has moved from of commercial and retail refuelling May/June 2020. We thank our investors field across all market participants. with Z’s own scenario modelling. to manage through any future the position of General Manager, stations, an increasingly dynamic set for their strong support. Covid-19-like events. We will continue Commercial, to the position of General Discipline in operations In late January, the Government of digitally enabled customer offers, to build resilience in our business and Z used the equity raise proceeds to Manager, Strategy and Risk, reflecting a announced a biofuels sale mandate. a refreshed loyalty programme, and the We will continue to be disciplined in remain focused on creating value for pay down bank debt. Z is committed focus on longer-term business strategy. When implemented, this is expected clear commitment to be a part of the choosing where we want to compete, and shareholders and customers through to paying down $150 million of debt in Nicola Law has moved into the position to create mass demand for low climate change solution. we will exit operations that do not generate ensuring our core business is optimised November of this year, which will see of General Manager, Commercial. emissions fuels for use in existing sufficient returns or provide too much risk. to respond to structural changes in our Monetising scale debt reduced by $330 million over an internal combustion engine vehicles. 18-month period. These changes took effect on 1 April 2021. Over the last year Z ended its charter Biofuel mandates are common globally industry and the global economy. Z’s supply chain objective is to be of the marine fuel oil barge Awanuia and Z has been advocating strongly for a appropriately rewarded for its scale In response to the uncertainty of In addition to the above changes, on FY21 has been a hugely challenging in Auckland Harbour. The business mandate policy across the industry. and resulting efficiency. Covid-19, Z cut its final dividend for FY20 1 February 2021, Z appointed Figen Ulgen year for everyone and the recovery is generated inadequate return and and, as a part of the financing agreement as Chief Customer Officer, following Subject to favourable conditions, just starting. There will be challenging A number of significant changes detracted from the focus on running with our banking partners and debt the departure of Jane Anthony in Z expects to be well-positioned to realise times ahead. But we have made change occurring in New Zealand’s fuel industry the core business safely and profitably. providers, agreed to pause dividend December 2020 after 11 years in senior value from its currently hibernated where change was required and we face may provide opportunities for Z to realise payments to shareholders until after management roles. Over the period Z also moved to a Te Kora Hou biodiesel plant in Wiri, the future with confidence in our ability more value.