Ko te mea nui... What matters most... Z ENERGY ANNUAL REPORT For the year ended 31 March 2020 Pg 1 Z ENERGY ANNUAL REPORT 2020 REPORT ANNUAL ...for our customers for our economy for our future To keep New Zealand ... mō tō tātou kiritaki moving mō tō tātou ōhanga mō tō tātou anamata Pg 3 Z ENERGY COVID-19 2020 REPORT ANNUAL AND THIS While any impact on Z in FY20 is limited by the timing of the COVID-19 crisis in New Zealand, we expect there will be material impacts on fuel demand ANNUAL in New Zealand across at least the first half of FY21. Again, there is a high level of uncertainty on this point and we will continue to update the market REPORT as required. The 2020 financial year was a challenging New Zealand economy, to protect people this report, readers should assume our Coinciding with the global spread of There will be challenging times one for Z across many areas of the and to protect shareholders’ interests. short- to medium-term strategic focus, COVID-19, over the last quarter of ahead and difficult decisions to This report is accurate over business. In the last week of our financial including cost and resource allocations, Z’s financial year, the price of crude oil make, but we will not shy away from the relevant reporting period The choices we make around where we year, conditions became markedly more will be driven by our response to COVID-19 dropped by about two-thirds as Russia making them. There will also be – the 12 months to the end of focus our efforts and resources are now challenging, complex and uncertain for the and the commitment for Z to emerge and Saudi Arabia entered an oil price war significant opportunities. We will March 2020. However, due to the more important than ever. Given the whole of New Zealand, including Z, with strongly from this crisis. and began to increase production at the take the appropriate decisions at COVID-19 economic impacts on the COVID-19 lockdown started right at the country entering an unprecedented same time as global demand dropped. the right times to support the return domestic and global economies, the end of our financial year, one of our There is much in this annual report that, lockdown and State of Emergency over We expect significant volatility in global to growth of our company and the and on Z’s business, some material choices was around areas of focus for the regardless of COVID-19, we are duty the COVID-19 global pandemic. oil markets to continue into the first New Zealand economy. issues have shifted since that date, Board and management. We elected not bound to report on. While we know there quarter of FY21. and we recommend reading this At the point of closing the financial to focus more time and effort on revisions will be significant impacts on the broader report together with the year end year and beginning to finalise this and amendments to reflect the possible New Zealand and global economy, and on COVID-19 represents one of the biggest results and disclosures available on annual report and its full year results, range of impacts of COVID-19 in this the Z business, there is currently a high challenges to the global and domestic the Z Energy Investor Centre which the Z Board and management was annual report. level of uncertainty on the scale of those economy that most of us have ever reference these issues at operating the company under the highest impacts. In the face of this uncertainty, experienced. Z has a unique role to play Rather, we will address how we have https://investors.z.co.nz/financials/ level in its crisis management plan. investors and stakeholders should know in supporting the New Zealand economy responded to COVID-19 directly here, results Z’s crisis management team had been that Z is focused on tight, disciplined and its customers through this period in this initial statement and over the operational since January to ensure Z was governance and management to ensure with safe, secure and reliable transport following two pages, and ask stakeholders well prepared for a range of possible Z comes through this crisis as strongly energy supplies. to read the remainder of the report, COVID-19 scenarios. as it possibly can. bearing in mind the choice we have made Our focus has been on managing the not to invest more time and resources company with great care – to protect rewriting the bulk of our annual report. its supply chain for the benefit of the Where we discuss strategy throughout ANNUAL REPORT 2020 REPORT ANNUAL Z ENERGY Z Energy and Covid-19: Supporting the New Zealand Pg 5 Pg 4 economy and building a Z ENERGY stronger business 2020 REPORT ANNUAL With the advent of COVID-19, Z Energy The most material step is to complete The implications of COVID-19 placed even There are also further options for one-off financial year and have now achieved Community, communication has taken a number of material steps to a successful equity raise primarily from greater importance on cost management. cost reductions under a scenario in which sufficient stability to transition and reputation ensure our ongoing contribution to the existing shareholders. In mid-May, we Significant cost reductions have been COVID-19-related impacts place greater COVID-19 workstreams back into Over this period, in which we have focused recovery of the New Zealand economy raised $290 million from our investor base identified and Z is committed to delivering stress on the company than is expected. the relevant business units. At the hard on running a safe and reliable and to ensure our business emerges via a placement. We also introduced a them in FY21. time of producing this report, we are While these reductions reflect a strong business, we have not wavered from our leaner, more competitive and more share purchase plan, seeking to raise an focused on operating in a ‘new normal’ Given the Board has exercised its commitment to operating off a much lower brand promise of ‘Z is for New Zealand’. resilient than it was before. additional $60 million. This will enable external environment with a materially discretion and decided not to pay a cost base, there is ongoing work underway This is evidenced by a continued growth Z to pay down $180 million of existing reduced core crisis management team Over the first five months of the 2020 full-year dividend, it was right that the to identify further structural cost in customer net promoter score for both debt and strengthen our balance sheet. overseeing coordination. calendar year, Z has worked very same discipline was applied inside the reductions that do not diminish capacity Z and Caltex over the January to April We welcomed the very strong support differently from how we’ve worked in the company. Senior management salaries and or capability to effectively compete. The focus of our crisis management period. We have continued to support from across our institutional and retail past: We have cut our discretionary costs director fees were frozen and $8 million in function is now on ensuring a strong not only our people, but our communities investor base and thank investors for their While we have only made one member significantly and we have strengthened staff bonuses were cancelled for the FY20 recovery for our company. and customers. continued support. of the Z team redundant because of our balance sheet as a prudent step in performance year. Fixed term contracts COVID-19, there have been 14 jobs that Over the lockdown period of Alert Level Our continued focus on the customer facing an uncertain future. We have strengthened our balance sheet have not been renewed, employees have have been lost through the decision to 4 and 3, we have been well served by experience is the right one for our future; through the equity raise, and remain been asked to take four weeks’ leave hibernate Te Kora Hou, our biodiesel our investments in technology. We had it is adaptable to whatever situation Strengthening our balance sheet committed to continuing to pay down before 31 December and vacancies from production plant in Wiri. This was a step trialled remote working in advance of and whatever experience our customer With Retail fuel demand dropping by debt: deleveraging remains a priority. any resignations over the past quarter that was being considered in advance the Alert Level 4 shutdown, ensuring needs. Right now, this means delivering 80 percent and Commercial fuel demand Our focus is on ensuring that in 18 months’ have not been filled. of COVID-19 as, without Government a smooth transition to remote working the quality fuel that customers need by 50 percent year-on-year during time, we have deleveraged to a ratio of Z plans to reduce employee and support for renewable transport fuels, while protecting productivity and and providing the assurance that we are the COVID-19 Alert Level 4 lockdown, between 2.0 and 2.5x debt to earnings on contractor costs by up to $14 million the economics of local manufacturing are interconnectedness. We will continue to leading the return to business-as-usual earnings were significantly impacted over a post IFRS16 basis. That coincides with with only one redundancy arising from too challenging at this time. We will likely maximise the use of digital technology operations with constant consideration the month of April in particular. the periods of the debt waivers and will COVID-19. Retaining people in jobs will retain a number of the team to operate into the future in service of cost reduction for their safety.