COMMERCIAL E-NEWSLETTER | NOVEMBER 2012

Greetings, At Z were proud to be transparent when it comes to sharing our financial results, so wed like to share with you how were getting on this year. So far weve managed a solid underlying performance in whats a very competitive market. The industry itself has slowed and volumes throughout New Zealand are lower than they were this time last year. Given the current state of the fuel industry, were doing okay and fully intend on hitting our performance guidance target for the year. Whats going better than okay is our brand. Independent brand tracking now shows the Z brand is growing from strength to strength and has taken the lead as New Zealands preferred and recommended brand in its category. Id like to take this opportunity to thank you for supporting Z on this journey to becoming a world class Kiwi company. Until next time, Lindis Jones General Manager, Commercial

Zs half year results

We were pleased to be able to announce a solid performance for the first six months of the 2013 financial year, particularly given the vigorous competition and a stubbornly slow domestic economy. Zs recorded Current Cost Operating EBITDAF for the six months was $96.8 million, up 17 per cent from $82.8 million for the previous corresponding period. Mike Bennetts said at the announcement he was particularly pleased with how Zs ongoing strategy implementation and the evolving Z brand was helping deliver consistent earnings despite these challenges. Independent brand tracking now shows Z as New Zealands most preferred and recommended brand in its category, with increasing customer loyalty. Zs new convenience offer is also landing well, with shop sales in reformatted Z stores delivering a 5.5 per cent growth in sales year on year. Theres an expectation that conditions will remain challenging over the remainder of the financial year, with the volatility that has characterised the first half continuing. However, we fully expect to meet our forecast budget for the full year. If youd like more information on our results and the implementation of our strategy to date go to z.co.nz/about-z/news/media-news/z-energyresults-announcement-for-the-six-months-to-30september-2012/

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COMMERCIAL E-NEWSLETTER | NOVEMBER 2012

Crude vs. refined

Most New Zealanders dont understand how this industry works, which is hardly surprising given the way it has communicated in the past. As a result, there are a number of myths and misconceptions in the minds of consumers, not least around pricing and profitability. We want to ensure there is more transparency and understanding around this topic. In the August 2012 edition of the energy drop z.co.nz/ about-z/news/the-energy-drop/august-2012/, we told you about what makes up the price of a litre of fuel. We pointed out that our prices are based on the cost of finished petrol and diesel on the international market. Crude oil is an influencing factor, but our pump price is primarily set based on the price of finished or refined petrol and diesel on the Singapore market. People dont often realise that crude oil, petrol and diesel are all independently and internationally traded commodity products. They often move roughly along the same lines but not always, as each product has slightly different supply and demand drivers. This is why if the price of crude drops, it doesnt necessarily mean the price you see at the pump will also drop. For example, the US summer driving season tends to push up demand for petrol, and the more something is in demand, the higher the price. But this wont necessarily affect the price of other fuels you get from crude, so the price of refined petrol could go up markedly while the price of crude remains unchanged or only increases slightly. Roughly 60% of the petrol we sell in New Zealand is imported as crude from the Middle East and South East Asia. 10% comes from the coast off Taranaki and both are refined at Refining NZ at Marsden Point. The rest has to be imported as already refined product which we currently source from South Korea. Refining NZ is an NZX listed company, in which we have a 17% shareholding. We pay them a fee to refine crude into the products we want, which is referred to as the Gross Refining Margin (GRM). This fee is set based on the price of the refined products (such as petrol, diesel, jet fuel and so on) on the international market. So the cost of refining/producing petrol for example, basically moves up or down depending on the difference between the price a barrel of crude oil is trading for, and the price a barrel of petrol is selling for, minus the cost of the of the additional materials (referred to as feedstock such as naptha) that is required to make finished petrol. The diagram below gives a snapshot of the gross refining margin.

The Gross Refining Margin (GRM, or margin for short) is basically the difference between: Cost of the crude and feedstock, and Value of the products that it yields. INPUT/CRUDE REFINERY OUTPUT/REFINED PRODUCTS
Petrol - 33 bbl 129 US$/bbl Jet - 18 bbl 142 US$/bbl Diesel - 32 bbl 145 US$/bbl Bitumen - 2 bbl 105 US$/bbl Sulphur - 0.5 bbl 75 US$/bbl Fuel Oil - 10 bbl 110 US$/bbl

100 bbl 120 US$/bbl

GRM = Value of products Cost of feed = 12,800 12,000 = 800 US$ (or 8.0 US$/bbl)

Refinery operating fuel - 4.5 bbl 0 US$/bbl

Taking off with Z General Aviation

At Z were committed to making a difference for our customers, and we reckon we have the best people to make it happen. We want to welcome Barry Griffin back into the role of General Aviation Account Manager. For those of you that dont know, general aviation is responsible for the servicing of a number of regional and provincial airfields which support aviation customers from helicopter contractors to top dressers. Barry has a couple of passions looking after his customers and the aviation industry (especially helicopters) are some of them, so this role is almost tailor made for him! Barry looks forward to hearing your feedback over the next 12 months as Z redefines how we service our Z aviation customers. You can contact Barry (Griff) directly on 027 277 1103 or barry.griffin@z.co.nz
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COMMERCIAL E-NEWSLETTER | NOVEMBER 2012

Changes to the aviation network

Over the next 12 months you will see a number of changes to Zs general aviation network, as Z pursues its strategy to be a world class business in New Zealand, delivering world class service. When Infratil and the New Zealand Superannuation Fund purchased this business it also purchased a number of aging aviation facilities that were in need of replacement or removal. Now, more than two years on as a stand alone Kiwi company, Z has just committed $1.7 million dollars for airfield tank replacements. What does it mean for the South Island? Invercargill, Alexandra, Timaru and Rangiora will all get new Avgas tanks. Invercargill and Alexandra will get new Jet A1 tanks. Timaru Jet will also get a new refuelling island off the mail terminal for easier access for small aircraft and helicopters. What does it mean in the North Island? Wellington Airport has a couple of aging tanks that will be removed so we will be changing one of our two Jet to Avgas. This means the customer can choose between Jet and Avgas. Dargaville and Whitianga will receive new Avgas tanks. Bridge Pa in Hawkes Bay will get new Jet tanks. So as you can see, this is a big programme of work which reflects our commitment to our Kiwi aviation customers. In the interests of being straight up, there are some locations which we can no longer afford to keep through a combination of very low fuel volumes and aging tanks.
Haast Franz Josef Motueka Nelson Wellington

We will be exiting sites at Greymouth Jet, Masterton Avgas, Taumarunui Jet, and Whakatane Avgas. There are a smaller number of projects across the country that youll see on your travels, but these are all designed to make it easier for you, our customer. Z is also currently working on a project to upgrade the card readers which will also be designed to make your Z experience a better one. This will be subject to a further announcement, but until then happy and safe flying.

Kaitaia

Kerikeri

Dargaville Albany Mechanics Bay Auckland International Ardmore Whitianga Thames Tauranga Rotorua Hospital Te Kuiti Taumarunui New Plymouth Taihape Stratford Wanganui Feilding Palmerston North Paraparaumu Napier Bridge Pa Rotorua Taupo Whakatane Gisborne Wairoa Opotiki

Greymouth Hokitika

Rangiora Christchurch International Tekapo Timaru Omarama Oamaru

Wanaka

Alexandra Dunedin Taieri Invercargill

People profile

Z career: Ive been at Z for nearly four years. Ive only just come into the Commercial team from the scheduling team, where I was responsible for co-ordinating deliveries in the South Island. Favourite part of the job:
The customer support side. I like dealing directly with our customers as well as my colleagues across the business, but mostly its the customer interactions.

Vision for future of Z Energy:

Being a leader in alternative fuels, biofuels, electric power and other energy innovations.

Meet Sean Hayes

Z position: Big Jet and Commercial Support

Hobbies/interests outside work:

Sports! Rugby, soccer, cricket, just all sports really. I also like DIY home renovations.

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COMMERCIAL E-NEWSLETTER | NOVEMBER 2012

Cutting fuel consumption and your costs is our aim

Weve made an active stand to support New Zealand to use less fuel. As weve said before, if your business operates a fleet of ten or more heavy vehicles or uses 700,000 litres or more of fuel per year, wed like to work with you to help you spend less on fuel. We want everyone to be Fuelwise. We can now start to put some real numbers around what can be accomplished. Below is a real case study with real figures only the name of the company has been changed to protect their privacy. We looked at Go Hard Logistics Limiteds (fictional name) transport activity, which includes an annual fuel spend of $4.5m. Following a review with our heavy vehicle driver expert, a number of savings were identified. Take a look at the savings Go Hard could achieve by following ourrecommendations: Scheduling: Implement an advanced scheduling system. This will reduce unnecessary distance travelled by the fleet. Savings achieved: 5% including fuel ($225,000) and other transport costs ($1,275,000) Fuel efficient driver training: Tanker delivery drivers completed Safe and Fuel Efficient Driving New Zealand (SAFEDNZ) in 2010 and improved average fleet fuel consumption from 2.1km/l to 2.31km/l. Research shows continuous training in fuel efficient driving works and further improvement to 2.36km/l is achievable. Savings achieved: 2% on fuel ($90,000) Driver incentive scheme: Share vehicle and driver fuel consumption data each week. Driver league tables are proven to create competition amongst drivers and keep them focused on safe and fuel efficient driving practices and behaviours. Savings achieved: 2% on fuel ($90,000) Monitoring: Go Hard have excellent monthly monitoring of fuel use and distance travelled. However, there is benefit in digging into the detail further, to vehicle and driver levels, in particular idle time. Savings achieved: 1% on fuel ($45,000) Maintenance & tyre management: Trial done on optimising pressures for load and vehicle type. Savings achieved: 2% on tyres ($14,000) and 0.5% on fuel ($22,000) Overall savings achieved: Fuel: $472,000 and other transport costs, $1,289,000 annually.

Waste not want not: Bulk tank reconciliations

We all have a responsibility to manage the petroleum products on our premises. Recently weve sent a letter to all our customers who have bulk tanks on site reminding them of their responsibilities. At Z we want to ensure our customers businesses are safer, more sustainable, use less fuel and have less waste. We send this letter out on an annual basis because we want to make these responsibilities top-of-mind all the time. The reason management of your petroleum products is so important is: Theres a legal obligation within legislation to manage your stock and tank conditions. Fuel is a cost to your business and no one wants to see it leaking away. We care whether or not fuel is contaminating your home and our country. Leaky tanks seeping fuel into the ground is cause for real concern. While the process can be very slow eventually the fuels toxic vapours will make their way to the surface; which are harmful to humans and animals. While the onus is on you to manage the petroleum products on your site, if you have any questions on the contents of the letter or if you have not yet received it please dont hesitate to call your account manager or our customer service centre on 0800 474 355.

The dos and donts

The approved codes of practice for storage and handling obligations in relation to below and above the ground container systems for petroleum can be found at: epa.govt.nz/Publications/Below-GroundStationary-Container-Systems-for-PetroleumOperations.pdf epa.govt.nz/Publications/Above-ground-fuelstorage-on-farms.pdf More information is also available from the occupational safety and health division of the Ministry of Business, Innovation and Employment: osh.dol.govt.nz/index.asp

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