Abby Foote: Z Energy Chair of the Board

Kia Ora everyone. Welcome to the 2020 Z Energy Annual Shareholder Meeting. My name is Abby Foote, and I'm Chair of the Board for Z Energy.

It's my pleasure to welcome everyone who's joining us virtually over the Internet for this shareholder meeting. A virtual-only shareholder meeting is a first for Z and is just one example of how COVID-19 has impacted our world and Z's business since the beginning of the year.

I can see from the laptop in front of me the participation numbers of the virtual meeting. I'm really pleased to have so many shareholders join us today online. While we've tested and retested the technology used to deliver this virtual annual shareholder meeting, please bear with us as we use this technology for the first time.

I'm pleased to say that the meeting has been properly called, and there is a quorum present.

We'll be using some slides during the meeting. For those of you online, you'll be able to see these and follow along. They'll also be posted to the NZX and ASX and available on Z's investor website.

It's my pleasure to introduce my colleagues on the Board. As I introduce them, we should be able to see them in the meeting window. I'm joined today by Blair O'Keeffe, Julia Raue, Mark Cross, Mark Malpass and Steve Reindler. We're also joined by Mike Bennetts, our CEO; members of the Z leadership team; our legal advisers and our auditors here in the Z Wellington office.

I'll begin this shareholder meeting by making some remarks on what we, as a Board, have been most focused on throughout the year. I'll focus particularly on the last five months and the effects of the COVID pandemic on our business along with the actions we took to mitigate those impacts. I'll then hand over to Mike for his review of the year and ask him to provide an update on current trading conditions and Z's strategy in action. After Mike has addressed the meeting, we will be happy to take your questions.

There will be instructions posted online on how to address your questions to the meeting, and some questions have been submitted in advance that we will answer. I then intend to move us on to the formal part of the meeting. We have two resolutions to consider today. First, the authority to approve remuneration for the auditors, KPMG; and second, the election of Mark Malpass who joined the Board of Z during the year.

I'm pleased to say that Mark has the unanimous support of his Board colleagues. Mark brings to Z his extensive experience in the fuels industry, having been a director of Mobil Oil New Zealand, Refining New Zealand and Waitomo Group Limited.

When the time comes, I'll ask Mark to address the meeting, and you're welcome to address any questions to him directly.

If you've not already voted, your notice of meeting contains instructions on how to cast your vote. We've received a large number of postal and online votes, and the results of these will be displayed via the virtual meeting website at the appropriate time.

I and other Z directors hold over 300 million votes which we'll cast during the meeting. The final results of the voting will be posted on both the NZX and ASX stock exchanges later today. Again, there will be an opportunity for questions from our virtual participants before I put each resolution to the meeting.

Before I hand over to Mike, I'd like to make a few remarks. I'd like to start with some thankyous. For Z, this year presented a number of challenges for the Board to work through, including revisions to earnings guidance, government oversight of our industry through the Commerce Commission Market study, a challenging refining environment, intense competition in the retail market and finally, COVID-19. Each of these events would have tested the resilience of any company. Having them all show up in one year presented a big ask, and our response speaks to the world-class operational capability inside Z.

I'd like to thank my fellow directors for their engagement and focus over the last year and for their support during my first year as Chair. I'd also like to acknowledge the significant contribution made by Al Dunn, who left the Board at the end of April, following over 10 years with Z.

Responding to the challenges of 2020 was undoubtedly a team effort, and I'd like to acknowledge Mike and the executive team for their leadership of the organisation. I also want to thank all of Z's employees and those in our wider funnel for their hard work and commitment throughout the last year and most markedly over the last five months as we responded to the COVID crisis.

At the last shareholder meeting, I suggested that our 2019 financial year was one of the most difficult on record for Z., but this year, managed to surpass that.

Finally, the Board also recognises that the challenges we have faced have tested the support we rely on from you, our owners, throughout the year. We thank you for your continued support. And we do not take it for granted.

I'd like to look back on our 2020 financial year and some of those challenges we confronted in a bit more detail. I would like to acknowledge upfront that our results for the year were disappointing. We did not meet our earnings commitments to you, our owners, or the targets that we had set ourselves. While many of the reasons that we did not achieve those goals were as a result of significant factors outside our control, we know that we need to do better. Prior to the COVID crisis, we completed a thorough review of our strategy and operations to ensure that we start this next decade in Z's journey as a leaner, more agile and focused company.

The 2020 financial year was also marked by clear evidence of the increasing challenge we face in managing the competing demands of our different stakeholder groups. And we will not shy away from that challenge. Z continues to operate in a highly competitive and challenging environment, which in terms of Z's history as a listed company, peaked in the middle of last year. The exit of Caltex from the AA Smartfuel program and the launch of our Pumped! loyalty program sparked a period of fierce competition, which significantly impacted retail prices, with new-to- industry and unmanned sites competing aggressively for volume at the expense of margin for a sustained period.

We saw price competition reduce towards the end of the financial year and retail margins stabilise, although they continue to track at levels beneath those seen in 2017 and 2018. We're beginning to see signs of change in the retail market with early signals that the appetite for additional investment has diminished and that firms are delaying expansion plans or shelving them altogether. We've seen this from our own experiences through the Caltex and Challenge networks where economically marginal sites have closed or are in the process of closing.

While we're not forecasting a decline in retail intensity over the short term, as an industry, we must also acknowledge the long-term demand headwinds that we face. It is important Z finds a suitable and sustainable level of supply, which optimises our investment in the supply chain infrastructure and New Zealand's future demands for transport fuels.

In the midst of one of the most intensely competitive periods we have experienced, in December 2019, the Commerce Commission delivered its final report into the New Zealand retail fuel market. Z has previously stated that it disagrees with the Commerce Commission's profitability analysis. However, we have been quick to enact the recommendations proposed by the commission, including displaying premium prices on price boards and moving towards greater pricing transparency at the terminal gate. The Board understands that as shareholders, you expect a reasonable return on the capital you invest with us, and that return should reward shareholders for the operational risk we take to supply New Zealand. The Board and management will continue to engage with government and regulators to advocate for a fair reward for Z's shareholders.

As we all know, the last quarter of the year saw unprecedented disruption to the global economy from the COVID-19 pandemic, Z was quick to react to the early signs, standing up its crisis management team in late January to evaluate the potential risks we saw around our supply chain and ensure continuity of supply for New Zealand. The speed of our response and the performance of our supply chain over the last five months highlights the excellence of our ongoing operational resilience.

We reviewed our business continuity plans over those early months, and the company was ready to respond quickly to the escalation to Level 4 shutdown in March. Our retail service stations were moved to a closed-door policy a few hours before the midnight decree from government. Our operational and terminal staff altered the way they worked to reduce COVID-19-related risks and Z started social distancing in its offices in March before the Level 4 lockdown and supported our office-based workers with technology to allow for remote working.

The Board and I are very proud of the way in which the whole Z team and our business partners have responded to these incredibly trying circumstances. It speaks to the resilience, the professionalism and the high standards for safety and well-being that we all have here at Z.

We have begun FY '21 with the COVID-related lockdown severely impacting volumes in all areas of our business. At Level 4, we saw declines of around 80% in retail volume, around 50% in commercial volume, excluding Jet and over 90% in Jet.

While New Zealand has seen a relatively stable and steady move from Level 4 to Level 1 knockdown, we continue to observe declines in retail volume, and the decline in Jet remains around 80% below the prior year with an uncertain future at this time.

This is both reinforced and increased the work already underway to cut costs from the business to ensure that Z is a lean and focused organisation following the shift in retail margins. Z has therefore undertaken several self-help initiatives to retain cash inside the business. We are targeting expense reductions of over $70 million on an annual basis for the current year. Through the support of our banking syndicates and other long-term debt providers, we have successfully sought waivers on our debt obligations for the next 12 months, and we have completed a $350 million equity raise to give strength and flexibility to our balance sheet.

In the last quarter of the 2019 calendar year, the Board recognised the impact that the loss of retail margin and reduced earnings had hit on our leverage ratios and started work looking at our capital structure. This work became more critical at the beginning of the 2020 calendar year as we assess the additional impact on our business of the weak global refining margins, the Russian-Saudi Arabia oil price war and COVID, making an equity raise important to protect our business for the long term.

While New Zealand has escaped relatively lightly from COVID-19 in terms of the loss of human life, it is the Board's view that the economic impacts of COVID-19 are yet to be fully felt in New Zealand. It seems highly unlikely that economic activity within New Zealand will get back to normal until there is a vaccine or something nearing global immunity.

When sizing the equity raise at Z, the Board felt it prudent to ensure that we raised enough cash to provide balance sheet flexibility to cover all reasonable and plausible outcomes from the COVID-19 pandemic. While the steady progression from Level 4 to Level 1 lockdown in New Zealand has been a testament to the team of five million, we were conscious of several global examples where an economy has opened too quickly and a relapse has occurred.

The size and timing of the equity raise provides the Board confidence that Z will be able to navigate any current short-term market choppiness and exit the current trading conditions stronger and even better equipped for the industry competition ahead.

In May, Z successfully completed the $290 million fully underwritten placement and follow-on $60 million share purchase plan, raising approximately $350 million. Shares were allocated to existing shareholders and new investors at a price of $2.90 per share, representing a discount of 7.6% to the last trading day close price. The small relative discount is indicative of the strong support we received from shareholders during the book-build process. Over 95% of the new shares issued under the placement were allocated to existing shareholders in accordance with Z's allocation policy and no shareholder that bids sufficiently at pro rata or above into the process was diluted. The proceeds of the equity raise will be used to pay down our existing bank term debt, enhancing Z's balance sheet and providing greater resilience to Z's business for the foreseeable future.

The Board continues to target a prudent debt ratio of between 2.0 and 2.5x gross debt-to- EBITDA and intends to restart distributions to shareholders under the current dividend policy in FY '22.

We enter FY '21 with the necessary building blocks in place for a resilient future, a focus on disciplined implementation of our strategy and a readiness to face the challenges ahead.

Thank you for your attendance today at this virtual shareholder meeting, and thank you once again for your support for Z Energy over the past year.

It is not taken for granted. And with that, I'd like to hand over to our CEO, Mike, for a few words.

Mike Bennetts - Z Energy Chief Executive

Thank you, Abby. Kia ora e te whānau Z. I'm very pleased to be able to be accountable to you and report back to you on the CEO's perspective on the year in addition to what Abby has said is the governance view.

It's obviously very important to start with the whole COVID-19 response given that it is front and centre for the way in which we look at things right now. As always, in any form of crisis that we have inside the company, it's very important that we actually focus on our people first, the integrity of our assets and then what our role is in providing whatever essential service we need to for New Zealand.

What we were able to do there is make sure that we had that focus from the very, very beginning. And what I would stress here is that our focus was both a physical focus as well as a psychological focus, as I'm sure you could experience through your own experience in your own families and perhaps even in your own workplaces that actually the psychological aspects of COVID-19 were just as critical as the physical ones the longer the crisis went on.

There was clearly demand destruction within New Zealand, and at the time that COVID happened and the time New Zealand went into a lockdown, it was very difficult for us to actually determine what was going to be the impact on our business. We could clearly see that from the impact on jet fuel sales with airlines being locked down in terms of their schedules, that was quite easy to predict. But the impact on petrol and diesel, marine fuel, and the bitumen that we sell was much harder to predict. So, what we did is we actually looked overseas into other foreign markets who were a few weeks ahead of New Zealand in terms of their experience of a lockdown to see what we could learn. And what we learned from that is the ability we had to forecast reasonably within a range of levels under which we would see various elements of volume decline. And what I mean by that is at Level 4, we could reasonably predict what we would see for retail fuel sales at Level 3 and so on. So that gave us some confidence around what the future might look like. Of course, the key variable was how long New Zealand would spend in any particular alert level. That was very, very difficult for us to forecast and was an important part of the decision-making aspects we had around the whole capital raise.

We were fortunate given the impacts of COVID-19 that we already had come into this financial year with plans to reduce our cost base, the operating expenses inside the company by $35 million. We knew we had about $9 million worth of inflation. And to offset that, we had already had plans, actions and accountability already set for $35 million worth of cost reductions. So, what we were able to do was build off the back of the work that we had already done there. And so, by the time we finished the work, and we're able to announce that with our results announcement and the equity raise, we had identified a sum of about $74 million worth of cost reductions. $48 million of those were what we call structural in the sense that they are taken out and those costs do not reoccur. And there was an additional $26 million of costs that would come out of the business that were -- what we would class as one-off.

About $15 million of those relate to our operating expenses, those are choices we would make for ourselves. For example, reducing our marketing, as we have done over the last couple of months given there was not much attention for people to listen to advertising and promotional material from our sector. And there was about $11 million that came from what we would call demand-driven cost savings.

A good example of that would be the refinery to Auckland pipeline. We clearly were not using that to push jet fuel down to the terminal. Therefore, we don't have to pay the fee for that. So collectively, we identified $74 million worth of costs that we could reasonably take out. As I said, $48 million of that is structural and recurring, and it actually run rates to a level of $55 million for the following financial year.

And on top of the $74 million, we had also identified about another $22-odd million of cost reductions that if New Zealand was to remain in Level 4 and 3 for an extended period of time, we would go to that level of severity in terms of one-off cost reductions we could make inside our business. So we were fortunate that we already had plans so we could maintain that momentum.

We were also very quick and active to engage with our debt funders, as Abby indicated, and that gave us the opportunity to negotiate waivers on our debt covenants for the next 2 test periods, those being September of this year and March of the following year. And we're very, very pleased with the promptness of the support that we received, particularly by our banking syndicate here in New Zealand.

As we came into this year as well, we had recognised we were coming out of the worst period we have experienced certainly in my 10 years with the company in terms of the intensity of retail fuels and the way in which they'd affected margins, particularly in the period from July of last year through to December of 2019, that 6-months period. And so we recognised this looked like it was a fundamental shift in the marketplace in the way in which competition was playing out and that prompted us to do those cost reductions.

And the plans we had set for this year were on the assumption that the intensity of that July to December period would remain mostly with us for the next 12 months of FY '21.

We consider that would obviously have impacts on the market, as Abby has indicated, whether competitors would choose to invest or not, and it could cause some uneconomic or marginally economic sites to close given what that would mean for the particular earnings at a site-by-site level.

So we factored into the approach that we took for the year, and we have set the company up from a cost-based perspective on a lower margin, and we are managing the volume margin optimization or the balance of those two variables in our business, we've continued to manage that on the basis that things will remain as tough as they were for that six-month period of the last calendar year.

What we are seeing, and I can only speak for our business or the ones -- the customers that we have the closest relationship with, like our distributors or our Caltex retailers, it does appear that the -- through our experience of working with them that there is a very strong margin focus in our industry right now. That's not surprising given the severe volume declines that we experienced, 80% down in retail fuels for Level 4, 50% down for a Level 3.

So we are expecting that there will remain a margin focus where our competitors of all sizes and shapes will continue to be very focused on what they can do to obviously improve their business through cost reductions and the volume margin optimization approach that we all have to balance off between what's the right amount of volume to sell at the right price.

And as I said earlier, we have anticipated this, and we have set the company up to be balanced around the difficult margin environment we expected, or actually experienced in the last six months of last year.

If I was then to move on to address actually, what are we doing about last year? And I'm very mindful of my role in that. I am the Chief Executive of this company, and here to quote the old cliché, "the buck does stop with me. " So, I've spent substantial time evaluating my own performance. I've had the opportunity to share that and had input to that with Abby and the Board as a whole, and I went and sought some help around that.

So like I say, if I use the metaphor of a sports player, I think players can be good, bad or great. If I consider myself to be in the good category, I clearly have had a bad season in terms of my role in the leadership that I provided to the firm. I've identified and I've understood what those gaps were, and I sought some coaching help around that. So, I come into this year at a personal level, much clearer around what I need to be doing to improve my own performance. And equally, myself, along with the executive team, we've had a good hard look at Z to try to understand if our strategy is sound, as Abby had indicated in her opening remarks, what is it that is leading to the fact that we're not actually delivering on the results that we anticipated.

As we think about that, we think it's an execution issue. And some of that is self-inflicted in the sense Z has got larger and at one level, more complex, and we have not been smart enough and I have not been smart enough in the way in which we have managed the growth of our business over time. So, we have got slower at doing things than what we should really be doing. And clearly, there have been some changes in the outside world.

As I look to what happened last year, we clearly missed our original guidance range by quite a large sum. $33 million of that was related to the COVID-related provisions that we took in the March accounts. So therefore, in the FY '20 financial year, about $40 million of that comes from industry fuel margins for retail, our share of the reduction in margins across the industry. That was $40 million for us. There's about $35 million less refinery margin that we were able to achieve as well, which is clearly because refinery margins are based on global activity. So about $100 million hole turned up inside our earnings last year as a result of things that one could argue are outside of our control.

That said, I and the team need to be accountable for that. So we've had a look about what are the ways in which we're executing that meant we weren't able to mitigate that to the extent that we could have, and indeed, as we look forward to the next couple of financial years, what do we need to be doing much better? So, we focus very much on execution. I could talk to you about all sorts of fancy management phrases or strategy buzzwords that get used, I'm not going to get into the jargon of it all. But I would like to assure you, we have made a number of fundamental changes to the way in which we execute inside of the firm.

An example of that would be that we have moved bonuses when they are payable for performance to a team-based element rather than an individual bonus or a bonus that's based upon individual performance and a blend of company performance. It is now solely built around the company performance as a way to make sure that our people are focused on what's best for Z rather than what's best for their own performance.

The other example I would speak to is we actually have moved our activity set or the way in which we plan our activity instead of planning on an annual basis, where a lot of things can change across a financial year, we have moved to 90-day or quarterly cycles. So, what that means is, if something actually happens during any particular period, i.e., a quarter, we're able to respond much quicker to that and then reset and get after a new set of activities for the following quarter. That's one of the benefits of annual planning as you're able to get good momentum under the downsizes that when things need to change and that momentum needs to shift, you can't shift quick enough. And that's clearly an outcome that we weren't happy with from last year.

We remain focused on our customer experience. We do think we have some elements of that that we do very well. And as always, there are areas for further improvement. But the key point here is we have spent substantial amounts of money over the last two to three years building out foundations or to use a more common phrase platforms like our Caltex and ZX, for example, and the ways in which we've done that has given us a very, very good foundation from which we do not need to go and spend any more money building a bigger or broader foundation.

The focus as we go into the next financial year or what is now the current financial year is to make sure we get value out of those past investments. But to give you an example of that, prior to COVID, on our Z App, if customers wanted to order coffee, they could actually pre-order that through the app. And about 6% to 8% of our sales pre-COVID were done through the app. As we got into alert Level 2, those pre-order sales rose to be 25% of our weekly coffee sales. To me, that's a really good example of having built the foundation in the past, it's a much better match for the way in which customer preferences are changing as we move into this post-COVID world and move into a good old-fashioned recession.

We have been incredibly frustrated over the last two years that we have not been able to move on a number of strategic actions that we had planned, particularly around our infrastructure as a result of the period leading into the Commerce Commission review, the 1 year that, that review took and then the period since as we have the opportunity to work with the government around shaping and inputting to the -- whatever laws they may pass or whatever regulations may come into effect. We have parked a number of initiatives for a two-year period. And as I said, we are more than a little bit frustrated about that. We now think that there is enough evidence and boundaries within which we can work, such that we can now start to enact some of those strategic initiatives. Indeed, we've already done that at our Nelson terminal, and that is moving in the right direction around what we would call Terminal Gate Pricing, which was a recommendation coming from the Commerce Commission, and we are working with the government to make sure the way in which we are doing that is fit and appropriate for the way in which they consider the final regulations and/or legislation may shape up. So it's really, really good for us after two years of frustrations to actually be able to put into place the actions that we'd identified that enabled us to ensure that the scale that we have, the significant investment that we have and the operational risks that we run, we are getting suitably rewarded for those in an appropriate competitive context.

Some of you may be very much aware because you may indeed be shareholders of Refining New Zealand yourself that Refining New Zealand had announced a strategic review. As I mentioned earlier, the performance of the refinery last year for reasons outside of their control left a $35 million hole in our actuals compared to guidance, which was a number that was very similar to the year before. So, we're very, very pleased that Refining New Zealand has announced this review, and we're very pleased to be able to have a chance to have our say and input to that. And our team, our supply team are meeting with members of the Refining New Zealand team on a regular basis, exchanging data and exchanging perspectives on the various options that they have disclosed to the market, and we look forward to their anticipated announcement of what they consider their way for to be, which I think is timed for later this month. So that gives us, again, an element of our supply chain or an element of which our strategy has been limited to have some clarity, or we would expect to have clarity from that. It may not be there at the end of June, that's very much a Refining New Zealand decision. But I would think that whatever they have to say at the end of June will enable us to shape our response, and we'll be able to actually move forward in a way that rewards us, as I said, for the risks that we take on your behalf and the scale that we have developed over the last five to 10 years.

Bottom line from all of this is -- we are working very, very carefully and mindfully and at pace to make sure that we have a much more lean, customer-focused and responsive company than what we have been in the past. We've learned the painful lessons around that. And unfortunately, we've had to share some of the impact of that with you, but I want to assure you that we've had a good hard look at ourselves from an execution perspective. We are now able to move forward on some of the strategy that has been frustrating for us over the last two years, and you would expect to see that show up in improved performance going forward. Of course, the caveat on that is, yes, we still are going to be going into a good old-fashioned recession, and we have to manage our way out of the COVID-19 impacts in terms of alert levels and particularly what it means for jet fuel sales because clearly, that's an important element of our overall portfolio.

I then move to a bit of a view on our current trading conditions, and this is the last slide that I do want to speak to is, we have taken -- yes, it was a tough decision, but we did withdraw guidance as we announced our results for the last financial year. It was extremely difficult for us to actually forecast with confidence, the amount of time that New Zealand would spend at any alert level. We had -- as I said earlier, we thought we had a good understanding of what the impact on our sales would be for any particular product or indeed our store sales at any alert level New Zealand might be in. But the amount of time within which New Zealand would spend at those alert levels was very much an unknown when we first came out with our results announcement a number of weeks ago now. There are extremely volatile trading conditions. Refinery margins continue to be extremely depressed. This is something we first went into in December of the last year, and it has continued for a period of time that I've never seen in my many decades of working in the global oil markets. So very, very difficult to provide guidance. However, we are very, very committed to make sure that all of our investors, whether they be a fund manager or a retail investor are suitably well informed, such that they can make their own judgments about their position on Z, whether they like it, whether they want to increase it or reduce it in some way.

So that's one reason why we moved to weekly reporting of our volumes, and we have a quarterly operating update that is due at the end of this month. So it will come out sometime in perhaps the first or second week of July and will be much more fulsome and provide more data in that quarterly operating update than we normally would acknowledge, and we don't have any guidance in the marketplace right now.

The last thing I want to reassure you on is the big variables that affect our performance. And clearly, the last bullet point on this slide speaks to that. We are very committed to the cost-out. We track this on a weekly basis. It gets reported to the Board. They have availability for themselves, those weekly reports. It is obviously formally reported on a monthly basis. We're very confident about our ability to take out those costs. We are less confident but somewhat confident about our ability to optimise the volume and margin mix in our -- particularly our retail business over the next period of time. We are seeing some very positive signs in our retail business. We're not sure yet whether that just means overall, New Zealand is doing very well relatively to the expectations around the COVID impacts or whether or not we may actually be improving our market share off the back of a very consistent pricing activity or pricing tactic, as we call it, since September of last year. We do know that we are seeing improvements in our customers' Net Promoter Score. So that's the way in which we measure customer feedback. So, we're very focused on the cost-out. That's the bit that we can control. We are very focused on making sure that we optimise volumes and margins with a mindset that we're in that tough conditions of what we saw in the second half of that sort of July-December period of last year. We're very focused on making sure that for the $33 million worth of cost provisions that we took last year, that was our best estimate of what the impacts of COVID would be. Some of that, for example, depends upon how much bad debt we may have from our commercial customers. So that again is something that we can control by making sure we work closely with our customers, giving them additional support by way of extended credit when needed and making sure we manage any exposure to bad debt there. So that's another element of cost reduction we're equally focused on. Just because we booked it last year does not mean to say that we've actually considered it to be something that is past based.

Overall, we need to get much better at execution. I have seen some examples of that over the last 5 months, as Abby spoke about. If we could execute our day-to-day operational activity in the same way that we executed our COVID-19 response, then I think you as shareholders could have a certain elevated degree of confidence in our company's ability to deliver to your satisfaction going forward.

With that said and done, I would also like to thank you for your support during the last financial year, and then I'll hand you back to Abby for the questions.

Abby Foote: Z Energy Chair of the Board

Thanks very much, Mike. We're now going to move to answer some questions. This year, we've received 13 questions and comments from shareholders in advance of the meeting. And some of these are two-part questions. Thank you to everyone who submitted questions this year. It's a record number of questions for Z. It's too early to tell, but I hope that this reflects the growing confidence that shareholders have in the virtual meeting format.

As there are a few questions to answer, we're going to split these answers between Mike and myself. We're then going to take questions from our online audience. In the interest of efficiency, we've grouped the pre-submitted questions into three areas: around operating results, public policy and longer-term trends surrounding our industry, and finally, shareholder remuneration and Board-related governance questions. For the questions around operating results and strategy, I'd like to ask Mike to answer these, and I'll answer the questions on public policy, industry trends and governance-related questions. We've chosen to repeat the questions that shareholders have asked us without any moderation to the language used, consistent with the way in which those questions will be received, if posed in a physical meeting.

So I'm now going to hand over to Mike to address the operating questions.

Mike Bennetts - Z Energy Chief Executive

Thanks, Abby. In the interest of time, I won't read the questions because you can clearly see them there on your screen in the same way that I can. The first question there, what I would acknowledge is that is the cheesy photos, if I can imagine that occurs to you as being cheesy, it was a very awkward moment for those of us that had to have those photos taken as well. We felt equally cheesy sitting on the stools.

To address the more substantive part of the question being asked, I would risk of repeating myself somewhat. There are four things that we're focused on to make sure that we are doing more than just deliver the cost-out. So clearly, $74 million worth of year-on-year cost reductions, acknowledging there's $9 million worth of inflation. We have the opportunity and are very committed to making sure that we monetise our past investments and customer experience, as I spoke about earlier. The third point to make is that we are going to be improving our execution. I gave you examples around that. And the fourth point to make is, actually, we are going to be getting much more active because we are now able to -- we have enough direction around what I call those strategic responses in our supply chain. So improved execution, monetizing our customer experience, getting this the costs out as we've committed to and making sure our scale works for us in a suitable way given the dynamics of how competition works here in New Zealand.

If I was to address the second question. In terms of -- effectively, you're asking what assurance can you have about our future? The point I'd make there is that, yes, we do exist within a competitive industry. We exist within a global marketplace for commodity prices and refining margins, and competition in New Zealand is extremely fierce, as we have alluded to, with regards to the remarks that Abby made or that I made.

And what I'm able to say there is that the way in which we want to ensure we are competitive at all times is how we price to our customers, and we've made some changes on that, particularly in retail in September of last year and to be focused such that we have the lowest unit costs within the industry. So, what that means, when things get tough, we're able to make sure that it is tougher for our other competitors, larger or smaller than it would be for us. So lowest cost becomes a very important element to how we measure our performance. We look at that in terms of our year-on-year performance, and we equally benchmark ourselves against our competitors because some of the cost information about our competitors is public domain knowledge. And I can assure you based on last year's financial accounts, so this is a year before the recent closure of FY '20, we had the lowest costs within our industry compared to the likes of BP and Mobil given our scale. I think the other thing to mention here is we are very, very focused on optimizing our core business. There are some things that we have done to prepare us for a different type of future, one which is less about fossil fuels and more about alternatives like hydrogen or biofuels or indeed, how can we make more money out of our stores. We are acknowledging that right now, it is very, very important that we focus on optimizing the core business that we have, and we are going to be spending less time and attention and resource on the things that relate much more to our future. It's not to say we're doing none of that, but we're equally just slightly changing the balance to make sure that we -- when we've done the core stuff very, very well, that is so we can get after things and start to transition to a low-carbon future. So let's do that, so we can do that rather than do that and do that at the same time.

Well, as I move to the third question in terms of, as electric vehicles change, et cetera, what are we doing to remain relevant to the future? We actually have already made an investment in an electricity retailing company called Flick. We announced that about two years ago almost. That was not particularly well timed. We entered into that investment, and then within a month, the marketplace around wholesale pricing for electricity changed considerably, and it made it very, very tough for that particular company to grow its retail customer base. That said, we have made some adjustments to that over time, and we had a number of electricity-related initiatives that we have pursued that are in the public domain. So, for example, we have about 10 electric vehicle charging stations across New Zealand, and we have some offers that are related to our relationship with Flick that will be coming to market in the foreseeable future. So we acknowledge that that's a legitimate place for us to be doing some stuff, and there is some more thinking to be done there before we commit to doing anything more than what we have already done.

Do I regret not raising additional equity at the time of the Caltex purchase?

Well, in hindsight, I would say I have some regrets around that. One of the benefits of being around for a long time as I was actually the person who was in the current seat that I hold at the time, and we had some extremely strong shareholder feedback that the most appropriate thing for us to do from a shareholder value perspective was to use about $100 million of cash that we had on hand and fund the balance of the purchase price through debt. As time has gone on, clearly, things have been quite different on a couple of fronts. The probably one that's most impactful is actually the impact on earnings that we've seen.

We had -- as I said, we had $35 million of refinery margins that didn't turn up in FY '19 that we expected. And I've already given you the breakdown of the $100 million worth of earnings that did not turn up in the last 12 months that we expected as well. And that does 2 things. It impacts our ability to repay our debt, and it does impact the leverage calculations that Abby referred to earlier in terms of our EBITDA to a gross debt. Obviously, if we've got $100 million less, and we're targeting something around $2 million to $2.5 million, that limits our debt by about $200 million to $250 million. So, do I have regrets? Yes, I do. If I knew what I knew now at that time, I would have done things differently, but we were being very shareholder responsive in a responsible way that there was a very, very strong preference that we did not borrow and/or did fund that transaction at the time.

In terms of the outlook for Z Energy, we've been reasonably transparent around this in terms of what we had disclosed, as what I'm referring to there is the matrix we have around what the impact is on our year-on-year volumes or the comparison of this year's volumes to last year as we go up or down through the alert levels. We've been consistent around that and the weekly volume reporting enables you to get a good understanding of where the forecast we put in place consistent with that or not. We pretty well had it bang on through both good luck and good management for alert Levels 4, 3 and 2 what we are seeing at alert Level 1 is our retail sales have been slightly better than we anticipated, and that's reflected in the weekly volumes that we do share with you.

In terms of the biodiesel manufacturing plant, again, this has been a very big disappointment for us. We've had a reasonable amount of customer support for this. We haven't had enough customers to support. What I mean by that is the customers who have signed up has been very, very well received. The premium that is now required to make that plant profitable is beyond the willingness of some of our customers to pay. And there's certainly been an absence of government policy, whether it be by way of incentives or mandates that create a more favourable environment within which our customers can commit to taking more biofuels. We have lots of customers that would like to take as much biofuels as we could make or far more than we could actually produce, but the economics do not work for them. And on your behalf, we are not a charity. So we have to make sure that we do things in a way that is suitably economic.

So what we have done is, we have hibernated the plant for 12 months, that allows us to do two things. And as weird as this may sound, please, please, hear it. We are exploring the ways in which we could manufacture locally and export to a market like the U.S., which has substantial incentives or subsidies that exist for biofuels. One of the reasons we are exploring that is because somebody in Singapore comes to New Zealand and buys the feedstock that we use, they take it to Singapore, they manufacture it under biofuels and they send it off to the U.S. So, they can do that economically because they are actually selling into a subsidised market. And the second aspect of the hibernation, it does give us time for an election to be held for government policy to come into effect. And I would not be surprised if whichever side of the house wins that there might be a more favourable outlook for biofuels going forward. So, it didn't make sense to run the plant at a loss for a further 12-month period. So we had hibernated it in such a way that if the conditions were to change either through an export option or a more favourable domestic market that we could turn it back on again sometime next year when conditions are such that we're very confident we could be economic and profitable in how we do that.

I would like to acknowledge the point around our idealism, perhaps getting in the way of what we do and how other companies may be sticking to the good old filthy fossil fuel approach to things. This is an important part of balancing off the short term and the long term, I think. We acknowledge that by doing some of the things that Z does, that there's a certain amount of financial and reputation risk associated with that. We think that's being taken all the way in which we're doing that either through the decisions I make or the decisions that get made by the Board that we make recommendations for, that we're taking reasonable steps around that.

We researched this thoroughly. We have lots of feedback around the way in which New Zealand's sentiments and attitudes are changing to either the use of fossil fuels or companies that have a strong and proven environmental or sustainability agenda. We do think we're swimming with the tide on this one. The fact that some of our -- or perhaps all of our competitors don't do anything about this, we think as long as we take sensible risks, we're doing the right thing.

With that said, I would now hand you back to Abby who can handle the rest of the questions that were pre-submitted.

Abby Foote: Z Energy Chair of the Board

Thanks, Mike. So, the first two questions are effectively the same in relation to dividends. The decision to cancel the FY '20 dividend and then to stop the '21 dividends was not made lightly. The Board took the view that that was the prudent approach for us to take given the need for balance sheet flexibility and strengthening of the balance sheet. The shareholders are not the only ones who hurt by some of those cost-cutting decisions. There was no bonus for staff in FY '20, and we have cut costs in a number of places across the organisation. We do have, I guess, the ability to renegotiate with our banks and debt holders, but we'll only do that based on strict criteria around our competitive environment that we're in and the earnings that we're able to achieve at that time. So we are confident that based on the current forecast, we will be able to reinstate the current dividend policy in the first half of FY '22.

The next question that we've received, or I guess, it's more of a comment, is that we hope the cost of shares gets to $8.50 and not less. I guess my response to that would be most people on the call would probably hope that, too. The Board, a number of the Board members hold shares in Z and participated in the recent share purchase plan. We do believe that the current share price doesn't reflect fair value for the Z business. But both as a management team and the Board, we don't comment on what we think the fair value is for Z shares.

The next question is, have we been approached or are we in any negotiations around a possible takeover offer with Caltex Australia or any other entity?

The Board would have a duty to report that if we have, and we have not received any formal or informal takeover offers or approaches during my time as Chair.

The next question relates to the fossil fuel exemption mandates that a number of fund managers have including the KiwiSaver default mandate.

So we're really aware of the use of ESG screens by different investors. Most of those screens are focused on upstream oil and gas majors. We've made commitments to reduce our operational emissions by 20% from 2017 levels. By the end of 2021 is our intention to meet that target. We've made good progress, but we are currently off track, but we do continue to work towards achieving that. We've also adopted TCFD, which is the task force of climate change related financial disclosure in this year's annual report. That's a globally recognised reporting standard that tracks our corporate reporting against the goals that we've set for ourselves. I'd also note that the social and governance aspects of the ESG mandate is something that we aim to achieve at a very high standard. And we've improved our reporting scores in that regard over previous years with internationally recognised advisory firms like ISS.

The next question relates to the strategy to deal with the government petrol energy policy.

And I guess there's quite a few aspects to that policy. So, I'll go through some of them. We don't comment on government tax policy. We simply pass through any tax that the government chooses to place on petrol or diesel. We have, as we've discussed during the presentations, actively engaged with the Commerce Commission during the last few years in relation to the fuel market study. And based on the outcomes of that study, we have also already got into action on some of the key findings from that, and we've referred to premium pricing on the price boards and also preparing for the move to Terminal Gate Pricing. We haven't seen any movement from the government so far on the introduction of a retail fuel bill as envisaged by that study.

But we fully appreciate that the government had to deal with COVID-19. And it has lost a significant amount of housesitting time within which to introduce that legislation. So, we do remain committed to a fair and competitive retail fuel market in New Zealand, and we trust that the Commerce Commission report hasn't been shelved and that we'll see some regulatory certainty in that regard in the near future. We're certainly supportive of the move to Terminal Gate Pricing as per the Commerce Commission recommendations. We're also on record as having welcome changes to the emissions trading scheme to provide more regulatory certainty around the price of carbon. And as Mike's alluded to, we would welcome energy policy around biofuels, particularly around creating a mandate for biofuel that immediately and materially reduced emissions into the atmosphere.

The next question or comment is in relation to the election of Mark. We've seen a significant decline in share prices and shareholder dilution with the recent SPP, dividends have been cancelled, and the company has posted an eye-watering loss. The fossil fuel industry itself is experiencing a paradigm shift. And in those times, how is Mr. Mark Malpass, who has had lessened stellar track record at Steel & Tube will change the prospects of Z?

So I'd like to answer in part this question now, and then I'd like to ask Mark to address it when he comes to address the meeting later on in the meeting time. So first to address the comment about an eye-watering loss. I note that consistent with the way in which we talk about financial performance in our annual report each year, the Board and management of Z focus on replacement cost earnings rather than historical cost earnings, which are impacted by the volatility of the oil price. This approach is common in the industry and is consistent with the form in which we give guidance to the market. Our replacement cost earnings for FY '20 was $366 million. We also generated net operating cash flow of $159 million.

So just turning to Mark. Mark's been a significant addition to the Board of Z and has already made considerable contributions with his broad petroleum industry experience. He has the full backing of the Board. His directorships outside of his executive role at Steel & Tube is ultimately a matter for the Board of Steel & Tube, but I do note that he has had an external board position for several years.

So I'd like to thank shareholders who have sent in those questions. And hopefully, you find those answers satisfactory. I'm now going to bring us back to the virtual platform. I wonder if anybody has any questions that they'd like to ask either Mike or me from the online audience.

So the first question that we have online is, in recent times, many companies, including Z, have -- are likely to raise capital to strengthen their balance sheets. Z has a significant holding in New Zealand Refining. Should NZR seek to raise further capital, is Z likely to contribute to avoid dilution? And if so, could it do so without asking Z shareholders for further capital support? I suggest, Mike, you might like to take that question?

Mike Bennetts - Z Energy Chief Executive

Yes, very happy to, Abby, and thank you very much, Bruce, for asking that question. We've been reasonably clear with the refining company even as a result of recent discussions that we would be highly unlikely to participate in any capital raise for the company, whatever its future might be. We say that for the most obvious reason and that being that if our shareholders, people like yourself want to actually have exposure to Refining New Zealand, you can do so directly, and that's by far the most efficient thing to do.

The comment that I just made around not participating should not come as a surprise. We actually passed on the opportunity to invest in the capital raise from a number of years ago to support the upgrade that took place, the last substantial upgrade of plant at the refinery. So, we are being consistent with what we've done in the past. So, for good capital management reasons from our own perspective, we would not be participating, and we recognise that you could do that yourself directly.

Abby Foote: Z Energy Chair of the Board So, we have a substantial number of questions, which is great. So the next one, I think I'll leave with you as well, Mike, but it's, what plans, if any, does the Board have to install electric charging points at all Z retail stations throughout New Zealand?

Mike Bennetts - Z Energy Chief Executive

As I said earlier, we have 10 stations that already have charging points on them. Those have been growing reasonable amount in terms of the throughput that they have, the number of people charging every day. We track very carefully. In actual fact, we track it every month, the number of electric vehicles coming on to New Zealand and even on my phone, I've got an app that tells me of all the charging points that exist around New Zealand. For where the electric vehicle fleet is right now, we don't think it makes economic sense for us to roll out charging points on all of our service stations. That said, we do pay very careful attention to what's happening in overseas markets. About 18 months ago, some of the management team and then shortly after that, the Board also visited Europe to see what was happening there. And we consider Norway to be a very comparable market in New Zealand and the way in which the electric fleet has gone there, only about 10% of recharging is actually done by people on the road in the way that you would currently, say, refuel. A good chunk of it is done, obviously, at home, overnight when electricity prices are cheap, and the rest of it is actually done when you're at a destination point like your office, car park or perhaps a shopping mall, where you're going to spend some time for an extended period. So right now, it's not an economic thing to do, and we are watching how the market evolves very carefully. We do think there are some things that we could do to participate in that space that does not require us to outlay investment into infrastructure at our service stations.

Abby Foote: Z Energy Chair of the Board

Thanks, Mike. The next question is whether it is appropriate for Z to be spending so much money on children's education when the company is doing so poorly? Is school children's education part of Z's brief?

Mike Bennetts - Z Energy Chief Executive

We've had a focus in really two parts in the way in which we support the community, and we are a large company and obviously, understand where the question comes from. It's very important to us that we make sure we meet our corporate social responsibility to sort of use the catch phrase that often gets used. So, we do put aside a very modest amount of our profits, and we choose wisely about where we invest. We had invested in things like the general sustainability space, sort of environmental initiatives. We obviously had our Good in the Hood program, which rewards charities on a neighbourhood basis. We think that's very consistent with our brand. And for the last two years, we've had a particular focus on empowering youth. We think that's something that's aligned with our brand values and again, reinforces the neighbourhood aspects of the way in which we participate or show up as part of your community. So, it's a modest amount of money, and we think it's a sensible thing to do. And in a COVID world, I do believe customers and stakeholders judge companies on how they make those sensible decisions about what's the best way to save costs, while at the same time, the best way to continue to support communities that are in need. That's a choice that we will face as we go throughout this year, but we are very committed to making sure that we find the right way to empower the youth of New Zealand.

Abby Foote: Z Energy Chair of the Board

The next question that we've received asked how is Z Energy currently helping small to medium shareholders economically to recover during COVID-19? Since $0.40 dividend was stopped by Z Energy Board and small shareholders is affected. So how is the Z Board helping during the economic downturn?

So I think to some extent, we have answered that question. As I said, we certainly don't take lightly the decision that we made to cancel the dividend. And the decision to not pay dividends next year was part of the negotiations that we reached with our lenders. So, we're certainly working hard to ensure that it's not only our shareholders who are affected and that we return to a profitable situation shortly that enables us to return to paying dividends to shareholders. And as we said, that our intention is in the first half of FY '22.

The next question that we have received is, says, your report and presentation talk about the increase in competitiveness in the fuel market, what are the key strategic changes that Z has or will make to create greater value for shareholders? And why won't this also be diluted by the high level of competition? So, I might turn that one to you, Mike.

Mike Bennetts - Z Energy Chief Executive

Thanks, Abby. That's a really, really insightful question. So, it's important that we do a number of things. First of all, we've got to make sure we have a very, very competitive cost base that enables us to compete and enables us to offset the margin decline that we have seen to ensure that we're able to pay out dividends based on a level of earnings certainly from FY '22 onwards.

Second thing, we have to make sure that we do that is our pricing is competitive, both in our commercial markets, but particularly in those retail service stations on a neighbourhood basis. And we have -- as I said earlier, we've changed the way in which we price there to make sure that the competition is not going to get any price advantage, or when a customer drives down the road, they will see that the Z price is just as competitive and in some cases, cheaper than any other alternative, if you were to, say, use the Pumped discount card that we have out there.

The third aspect of this is to make sure that all of the infrastructure and the supply chain that we have invested in over many years is being suitably rewarded and that we're not inadvertently giving our competitors some form of advantage by allowing them to use our infrastructure in places or markets or in ways in which don't reflect the investment required to get a decent return on that. So, it's a mixture of taking those costs out to ensure that we are able to be competitive. It's pricing appropriately to make sure we generate the right volume margin mix, and it's making sure we get a better return, in other way, saying that, more margin from our supply chain to reward us for the efforts that we've made around scale and the operating risk that we take every day, frankly.

Abby Foote: Z Energy Chair of the Board

Thanks, Mike. The next question says, have you considered adding more electric vehicle charge points at your fuel sites? I do not believe that fossil fuels is a sustainable business, and I personally believe this is a good opportunity to start transitioning to electric vehicle charge stations. I would recommend reaching out to EV manufacturers like Tesla to help make this rollout more streamlined.

So I think Mike's addressed that question already. And I would just add in relation to your view on the fossil fuel market that while we certainly see that there's likely to be an increase in electric vehicles over time, we would also note that the heavy-duty vehicle task is one that electric vehicles still struggle with.

The next question is, can you comment on the sale of the Caltex Rimutaka site in the Wellington region by its current franchisee? Is Z considering buying out the site and taking control? I understand that the site is the busiest in the region and holds great value, both in fuel and retail. So, I give that one to you, Mike.

Mike Bennetts - Z Energy Chief Executive Yes. Thanks, Abby, and thank you, Rowan, for asking the question. I wouldn't want to comment particularly or specifically about any particular arrangements we may be in or not in. What I would say, go back to some of the comments that I made earlier on is that we do see the market being under stress from COVID and a recession that follows. So, if there are opportunities for us to sensibly invest in assets by buying a Caltex service station or indeed some other branded service station, if that makes sense, we would look to consider that. We would want to make sure that we pay a good price for that from our shareholders' perspective, and we will also be very, very mindful of the way in which we're using cash. We would -- I would not want us to be in a situation where we have a lot of cash in the bank at the moment, and we go and do a bunch of things to acquire new assets, and then that does not give us the resilience on the balance sheet that Abby spoke about earlier. So, we'll be, frankly, very mean in the way in which we spend capital on growth over the next 12 months and purchasing service stations is just one of the options we have to grow the business. That will be very mean with the way in which we use your cash.

Abby Foote: Z Energy Chair of the Board

Thanks, Mike. The next question is, are Z selling coffee or gas?

Mike Bennetts - Z Energy Chief Executive

We're selling both. What I mean by this? It makes a lot of sense for us to do both. We already have real estate, we already have a property overhead that's paid for, we have a labour overhead that's paid for. So anything we can do to sell more of anything sensibly at one of our service stations, in some respects, , often we're able to capture that gross margin, it flows all the way down to the EBITDA line because there's no additional cost in being able to do that. We currently sell about 90,000 cups of coffee a week. If I go back to, say, 10 years ago when we took over the assets from Shell, Shell was selling around about 2,000 cups of coffee a week, and I'd use the expression cups of coffee quite generously. They're selling stuff that people could buy at about the level of 2,000 a week. What we really like about coffee is coffee is typically a daily habit for many people. So, it means if they're coming to us to buy their coffee, it means they are highly likely to buy their fuel from us on that particular day of the week when they need to be buying their fuel. So, we are in the convenience store business. And our nonfuel income is a substantial part of our bottom line profits because, as I said earlier, the margin that we get from that does not have a heck of a lot of costs to cover because those costs have already been used to cover the fuelling aspects of our service stations.

Abby Foote: Z Energy Chair of the Board

The next question is what steps are you taking to mitigate the long-term effects of the electrification of the New Zealand vehicle fleet and the introduction by airlines of more fuel efficient aircraft?

So again, I might give that one to you, Mike.

Mike Bennetts - Z Energy Chief Executive

Yes, the fuel-efficient aircraft is something we've been, if you like, dealing with for over 10 years now. And clearly, there's been a significant disruption to that to get fuel efficiency just from the COVID impact. If I went back to the GFC in 2008, it took 7 years for New Zealand's jet fuel sales to recover to the level of the 2008 sales because of the impact of the global financial crisis back in 2008. So, in terms of the electricity markets, as I mentioned earlier, we watch very carefully the number of electric vehicles in the marketplace. We want to have some understanding of how that market grows. But the market at this point in time is not of a sufficient size that we should be spending capital on either electrifying or making charging stations available with all of our service stations. We keep a very strong watching brief on this, and there are some ideas that we have. Now the market is not at the scale that we should be executing any of those ideas. And it wouldn't be wise for me to share those ideas with you right now because that may give our competitors, whether they be fuel competitors or electricity provider competitors, any ideas about our ideas.

Abby Foote: Z Energy Chair of the Board

Thanks, Mike. The next question is bonus to staff, is it fair when results are poor for shareholders, performance has been poor.

And I guess my comment on that would be that we share that sentiment and in fact, no bonus was paid to any staff this year because of that.

The next question is, do you have any future plans on production and distribution of hydrogen for hydrogen cars? So, Mike, perhaps you might talk to that.

Mike Bennetts - Z Energy Chief Executive

We do have some plans. We've actually published a paper, it's on z.co around our view of the hydrogen markets going forward. We have some relationships with some players in New Zealand who are considering hydrogen investments. There's a company called 8 Rivers, which is an idea for the Taranaki region. We've had some discussions with Hiringa, who are also a hydrogen provider. We're looking to develop a market in the Taranaki region as well. So, we are engaged at both the commercial level, and we continue to share our thoughts and ideas with government on that one as well. We' actually quite like hydrogen. Hydrogen is something that should flatter what Z is good at. It's a liquid. It gets to customers through a distributed network, and it's actually quite difficult to manage from a safety perspective. Those will play the capabilities that we have. So, we do like hydrogen for that reason. That said, we have to think very carefully, or New Zealand has to think very carefully about the way in which it wants to develop a hydrogen market. And again, we'll be looking forward to what the election throws up by way of policy leading into the election and then who actually wins and what they may or may not do around hydrogen. But we've certainly said we're open for business in terms of the hydrogen market.

Abby Foote: Z Energy Chair of the Board

Thanks, Mike. The next question says I love the fact that you are focusing on becoming leaner and allowing yourselves to pivot when the market changes. You definitely don't want to become big oil. So how does the focus on leaner play out in staff numbers, in head office or the back office? So, Mike, again, I might ask you for that one.

Mike Bennetts - Z Energy Chief Executive

A. Yes, sure. Thank you very much for the question, Harry. We came off -- the last couple of years, as I mentioned earlier, we've come off the back of some substantial investments in some very, very big programs of work, and that was mostly staffed by contractors, or we were using companies that would come in and provide their employees to do the work for us. So, what it has meant is, we have been able to reduce our headcount substantially. So, from December of last year to where we are now, we have about 100 less headcount. And we have even way more than that in terms of the number of contractors we no longer are employing. So, we're very fortunate from that. We've only had one COVID-related redundancy at this point in time, and we see in terms of our future, we think we're able to manage things with the current headcount. We're running with about 10% vacancies at the moment. So, we are asking everybody to work a little bit harder than they normally would, or frankly, to stop some things that don't add as much value as the work we are asking them to do. So, 10% vacancies, and we have come down in headcount by about 15% between December of last year and where we are today. So, we think we're about right sized. That said, there are still opportunities for improvement in the way in which we work. So, we might perhaps have the right number of people, but I think what those people can get done, could be more or certainly could be done much quicker.

Abby Foote: Z Energy Chair of the Board

Thanks, Mike. The next question is, is Z right sized to make a fair return at present sales levels? And I think in some respects, we've covered a number of aspects of that question in terms of staffing and also our expectations in terms of sales levels. So we certainly believe that the cost- cutting that we are planning to do over the next year will make sure that we are rightsized, and that remains a focus for us.

The next question says, the stock price has fallen in recent years. It is indicating that the market is not very satisfied with the company's operations. We removed the impact of coronavirus. Do the company's leadership, have any idea to solve it or let the stock continue to fall down. Mike, do you want to (inaudible) add?

Mike Bennetts - Z Energy Chief Executive

Yes. Well, certainly, I'll share your sentiment around the stock price. I'm a substantial shareholder of Z. I've got about 400,000 shares. I participated fully in the recent SPP. I bought about $100,000 worth of stock in December of last year as well. So, I'm an active shareholder from that perspective. What I would say, come back to the simple formula that I mentioned earlier, we need to improve our execution, we need to reduce our costs, we need to get value out of the past investments we've made over the last 2 to 3 years, and we have to make our scale work for us. We haven't been able to do all of those things over the last couple of years, partly because in terms of the customer experience, what we've done, those platforms weren't built or the way in which we try to leverage our scale, we'll take -- get a fair return on the investments we've made was not possible given the Commerce Commission study, we now have enough direction to be able to go after that. So improve execution, get our costs down, monetise the past investments that we made and make our scale work for us, it's a 4-point plan to do that, and we report that to the Board on a regular basis that they have transparency about how we're tracking on that.

Abby Foote: Z Energy Chair of the Board

Thanks, Mike. The next question, and we have 2 more to go after those. So, we're getting to the end. What are your contingency plans for unexpected things such as the new COVID-19 cases from yesterday and today, please?

And so I think I'd broadly say in relation to that, that Z's crisis management has been proven to be -- -- proven out our case in terms of operational excellence and executing on that. So, we have confidence in relation to that plan. We've certainly reflected on any learnings that there are in terms of things that we could perhaps have done better around that. And we will make sure that that's embedded into our processes going forward. And the other thing I'd say is that, as discussed already, the equity raising and the cost-cutting measures that we've put in place along with the agreements that we've reached with our debt providers gives us a balance sheet flexibility and strength with something additional to happen.

Next question is where do we see the future demand in New Zealand for biodiesel with the technological and pricing improvements in heavy-duty battery electric vehicles and hydrogen fuel cell electric vehicles? Will there be a big enough long-term market to make a sufficient return on that investment? Do you want that one, Mike?

Mike Bennetts - Z Energy Chief Executive Excellent question, Peter. I don't think there's necessarily going to be a long-term market for biofuels. And I should say that my view of long term is sort of a 20-year horizon. I think biofuels is an important and necessary part of the transition to a low-carbon economy. We can put biofuels into cars, to replace petrol or biofuels into trucks to replace diesel, that could happen tomorrow, and that would immediately allow people to get the benefits of a lower-carbon economy without having to wait for technology to come along like hydrogen trucks or to be able to replace cars by way of electric vehicles. The average vehicle in New Zealand, a passenger car is about 13 years old, and the average age of a truck is about 18 years old. So, biofuels are a great way to actually enable the existing vehicles to be able to transition to low carbon. As I said earlier, I'm very, very keen to see how the policy development takes place leading into the election. So, I don't think biofuels is a long-term solution for trucks and vehicles. Biofuels could be a long-term and very necessary solution for jet aircraft. There's some really good work that's being done that says you can have an electric plane that may sort of fly within the New Zealand domestic market, but the remoteness of New Zealand to markets even as close as Australia and further afield mean that there would need to be a liquid fuel that would have to go into that and a biofuel or a bio jet would be the right solution around that. So, one way or another, I do think there is a role for biofuels. But I don't think it's a long-term solution for cars and trucks, not at scale anyway.

Abby Foote: Z Energy Chair of the Board

The next question relates to an earlier question and asks, are Z shares being excluded from these mandates, and that's in relation to the mandates around investment in fossil fuels by fund managers, and it says, is this lowering the demand for these shares.

So I think in that regard, it falls to each fund manager really on a case-by-case basis often to determine exactly how that mandate is implemented. And we are in a bit of a grey zone in relation to some of those. We certainly look to engage with significant fund managers and other shareholders in relation to that and relevant to the answer that I gave last time is, we also try to ensure that we are getting both points, if you like, in terms of what we're doing in other aspects of our business to ensure that that makes us a clear investment for those fund managers where there is some doubt.

Abby Foote: Z Energy Chair of the Board

So that's the end of our online questions. And with that, I suggest we now proceed to the next part of the meeting. As I mentioned earlier, the vote on both of these resolutions will be by poll. For everyone online, you'll need to follow the instructions on the screens. Your votes will be recorded, and the results will be released to both the NZX and ASX markets and posted on our investor website as soon as they are available later today.

The first resolution is that the Board be authorized to fix the fees and expenses of KPMG as auditor for the next year. If anyone has any questions regarding this resolution, please ask these now.

So we have no questions in relation to that resolution. So, I'm going to suggest then that we -- do I need to wait while people vote? What's the usual practice team? No. Okay. We keep moving.

The next resolution concerns the election of directors. Resolution 2 is that Mr. Mark Malpass who was appointed during the year be elected as a Director of Z Energy. And I'm now going to invite Mark to briefly address the meeting.

Mark Malpass - Z Energy Independent Director

Thank you, Abby, Kia Ora and welcome, everyone. I thank you for the opportunity to talk to you today. My name again is Mark Malpass. I'm an engineer. I started out my career with Wilkins and Davies in the mid-80s. I then went to Auckland University to complete an engineering degree, then joined Mobil Oil plus completed an MBA at Victoria University. I spent the next 20 years or almost 20 years with ExxonMobil corporation. I've worked in many roles in the refining and marketing businesses within ExxonMobil, both in New Zealand here and overseas, where I spent about 10 years collectively in Australia, America and Singapore.

Key roles I've had during my time at ExxonMobil were Managing Director of Mobil Oil in New Zealand. I've worked in the global planning function in the U.S., Asia Pacific regional leadership roles. During my experiences with ExxonMobil, initially, my roles were in engineering and operational focused areas. I then moved through P&L management. My executive roles included leading fuel businesses to grow in the highly competitive markets. So, I've been responsible for pricing in some very difficult markets. I've also been responsible for implementing some large- scale convenience store retail programs in the New Zealand market. We have also implemented new fuel grades of products. Working in global planning, leading up to the global financial crisis, I gained first-hand experience in transitioning businesses through a significant change. I've also had a lot of experience in capital management, running M&A programs, I've been involved in $1 billion acquisitions as well as leading the Asia Pacific divestment M&A activities. So, I'm returning to New Zealand in late 2011. My family wanted to come home. My executive roles in New Zealand have been more focused around heavy construction materials businesses.

These type of businesses are quite similar to the experiences that I gained in refining and marketing and that the large capital-intensive and operational businesses with a strong focus on safety and supply chains. I joined -- on returning back to New Zealand, I joined our Fletcher Building and ran their largest division, the Infrastructure Products division, which was a collection of heavy construction materials businesses across Australia and New Zealand. I ran those businesses for about three years. I also was group executive at Fulton Hogan, working with their Board of Management. And more recently, I'm the Chief Executive at Steel & Tube Holdings. I've been in this role for about two and a half years. Steel & Tube is a midsized publicly listed company. We're involved in steel distribution and steel processing.

My governance experience in the fuels industry includes the Board of New Zealand Refining company about 15 years ago. I've also been a Director of Waitomo Group for about two and a half years.

I've joined Z Energy because I'm passionate about the fuels industry. I'm a strong believer in Z's business strategy that's been well honed over 10 years. The company has excellent retail and commercial good strength. It also has outstanding terminal positions, which are present in the wholesale markets.

My observation of Z also has a very strong Board and management team. The company has very strong prospects in a market that's undergoing, a change. Change In terms of the energy sector itself, customer expectations and also the competitive landscape. These changes with my time in the industry are not new changes, but what is important is the careful navigation and understanding of what to expect to ensure that we protect shareholder value through those changes. I think my skills and experience, particularly in the fuel sector, will help complement the Board's already diverse skill matrix. So, I take my directorship responsibility very seriously. I've purchased stock in the company. And I will strive to make sure that I make a strong contribution to the Board and act in the interest of shareholders. So, I appreciate you considering my appointment to the Board, and I will add value to your company and represent your interests.

Okay. I also wanted to turn to the question that was posed a bit earlier. The second part of the question, which relates to my capacity to perform and act on behalf of Z shareholders while also running Steel & Tube. Firstly, I'm absolutely committed to my CEO role at Steel & Tube and continuing the turnaround that the company is going through. The Z Energy directorship is not additional workload, I am effectively swapping one directorship for another. The Z directorship is a very similar time commitment. It's also a company with excellent governance through the Chair and my fellow directors. I'm very comfortable at managing my time commitments to ensure that I serve on both shareholders of Z Energy and Steel & Tube. I would also point out that it's very common practice for chief executives to have Board roles and existent -- -- alongside their existing executive responsibilities. And fortunately, for me, Z is operating in the sector that -- an industry that I know well. I've spent almost 20 years with ExxonMobil Corporation, was a Director of New Zealand Refining Company and also a Director of Waitomo Group.

I also believe that my experience as a chief executive of an existing publicly listed company adds to the mix of skills around the Board table and that I have a good understanding of the challenges that Mike faces on a daily basis. Z and Steel & Tube both play important roles in the New Zealand economy. We operate across many common customer segments. We're both very customer-centric businesses with strong values. So, I hope that answers the question posed. And again, thank you for your consideration. I hand back to you, Abby.

Abby Foote: Z Energy Chair of the Board

Thanks very much, Mark. It was a great response to that question that I put to you. So, thank you. We have received a question in relation to this resolution. If anybody does have questions, they should ask them now. The question is, is there any conflict of interest regarding Mark's involvement with Waitomo?

And perhaps I'd just respond to that, Mark, on your behalf, which is to say that's something that we were conscious of. Mark finished his position at Waitomo some months before he started and took up his position with Z, and we are very careful to ensure that information that he may have had in relation to his time on the Board at Waitomo is not information that he shares with Z.

There are no additional questions in relation to that resolution. So, if you could please record your vote online. Thank you.

(Voting)

Abby Foote: Z Energy Chair of the Board

That brings us to the end of the 2020 Annual Shareholders meeting. I'd like to thank you for your attendance and participation today online. The results will be posted to the NZX, ASX and Z Investor Centre as soon as they're available.

Before I formally close this meeting, I'd like to add that this virtual meeting has been a great experience for myself, the directors and management of Z. The virtual meeting increases productivity and reduces complexity and cost, and we've certainly had a number of questions that have been posed by shareholders more than we have received in the past. However, we are really keen to receive feedback from shareholders about the virtual format.

Please feel free to contact our Investor Relations manager or our Chief Governance Officer if you would like to provide us with feedback on your experience today.

With that, I declare this meeting formally closed. Thank you, everyone, for your attendance today.