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Edited Transcript of ZEL.NZ earnings conference call or presentation 30-Oct-19 9:00pm GMT

Half Year 2020 Z Energy Ltd Earnings Call

Wellington, Nov 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Z Energy Ltd earnings conference call or presentation Wednesday, October 30, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lindis Jones

Z Energy Limited - CFO

* Michael John Bennetts

Z Energy Limited - CEO

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Conference Call Participants

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* Andrew Rupert Pelham Harvey-Green

Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities

* Grant Swanepoel

Deutsche Bank AG, Research Division - Research Analyst

* Jeremy Kincaid

UBS Investment Bank, Research Division - Associate Analyst

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Presentation

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Unidentified Company Representative [1]

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Kia ora, everybody. Welcome to our webcast for Z's first half results for the FY '20 year. I'm very pleased to welcome those of you here in the room as well as those that are on the webcast, either watching the video or participating solely through the telephone. I would also like to welcome Lindis. We announced his role, put him in the role of CFO a number of months ago so this is his first half-year set of results. So we think it's not a coincidence that he's doing that on Halloween day. So we look forward to his contribution around what he has to say in terms of the numbers.

Just a quick moment to remind you about the disclaimer that we have inside our results pack. You've all read that before. There was no changes that are on there but I think it's important to be reminded of that from time to time. And now I'll hand over to Lindis who will talk you through some of the more important first slides.

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Lindis Jones, Z Energy Limited - CFO [2]

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So if we go straight into the headline numbers, so the top line result we'll see here as 80% decline in historic costs' net profit after tax. That's the number that we leave with, given the requirements to detail first and give prominence to the first guidance. I think the more informative headline number is the modest increase of NZD 7 million and the replacement costs EBITDA for the period-on-period.

It's important to note when we look at that comparison that looks relatively flat to actually investigate what happened in the prior comparable period. The numbers that were printed in that period reflected an operating period that was probably the toughest that this organization had experienced in terms of the extended refining outage and the margin compression that was driven by substantially and sustained increases in commodity and fuel oil prices. So it's a flat year-on-year performance and we need to reflect that the product (inaudible) was a very tough one.

I think two of the distinctive numbers that I'd like to draw people's attention to was the decision to impair our investment in Flick by NZD 35 million. That reflects a challenging period that we've had since we've made that investment, and also our view that some of those challenges will persist for the foreseeable future. More on that later. And the other distinctive number when you look down to the bottom of the table is the net operating cash flow of minus NZD 31 million. That reflects the decision, a significant decision that we made earlier this year, to settle our ETS obligations via purchase of a fixed-price option as opposed to submitting the [NZUs] that we'd accumulated ratably through the year.

The reason for making that decision was that there was some uncertainty about what the fixed-price option would be or the status of that fixed-price option and indeed what its price would be. And we didn't want to expose ourselves and our shareholders to a loss where potentially that price could have been changed mid-year and we were unable to recover it. And it points to the strength of the balance sheet that we were able to use it to protect us from that potential downside.

So moving on to the health and safety statistics, what these results reveal is a continued improvement both period-on-period but within the first half of this year. So the improvement we've seen has continued from Q1 to Q2, so for instance, our total reportable case frequency decreased from 1.4 to 0.6 in Q2. LTIs were 6 in Q1 and 3 in Q2 and our robberies declined from 4 to 2 over the same period.

So that's a result that's incredibly important to this organization given our commitment to zero harm to people and the environment, and that performance reflects investment over many years and people and assets to generate that outcome.

That said, the chronic unease that exists amongst all management teams who have any harm to the environment or people is very much alive in this organization.

I just point to the bottom of the page where we look at a couple of results there that are distinctive in the context of our past performance. So in previous periods we've had zero spills to ground and given the amount of refueling activities and the breadth of our operation, it's been an outstanding result. This year we've had three spills, loss of containment. Two of those loss of containment events were caught in the secondary containment, and for the third one there was no escape into the environment such that we were actually able to recover all the lost product. So an unfortunate result, but a safe one from an environmental perspective.

Moving onto the market which we're operating, and I think when we look at the left-hand chart, the monthly industry volumes, what we're seeing is a softness in volumes that is consistent with overall softness in the economy. So we've seen 0% growth in petrol volumes, down from 1%, and probably more importantly from a broad economic contextual perspective we've seen a decline in diesel volumes in that period of 2%. And what we know is over the years that we've been operating this firm, diesel sales at industry level are a strong indicator of GDP. So, some potential softening there.

Also we note that there's been very little or flat growth or flat performance in jet fuel. It was only three or four periods ago or two years ago they were experiencing north of 20% growth in jet fuel demand. So something's changed in that industry during this period.

When we look at Z's performance inside of the overall industry performance, what we see is that we've underperformed in regards market share. Also we haven't maintained market share for petrol, diesel or fuel oil. And when we look at the underperformance in the retail channel, the operating statistics at the back of the pack, you'll see that the majority of that volume decrease in market share has been driven out of the Caltex channel.

So moving on to just interrogate the EBITDA performance, in particular variances from FY '19 to FY '20, so if we look at the first two blue bars, what we've done there is restate FY '19 on a like-for-like basis and the two changes there, the IFRS lease standard where we've -- which increases the EBITDA figure by NZD 15 million on a comparable basis. And we now account for the lead lag impact on margins and our cost of sales adjustment below EBITDA. So actually, a flat result period-on-period on the underlying basis is exactly that. So 183 this period, pays 183 for the prior comparable period.

When we look at some of the movements between the years, one thing that I do want to call out is the fuel margin. So it looks like there's been an increase in the fuel margin of NZD 8 million. That increase in margin is entirely attributable to the higher costs that we incurred dealing with the extent of the refinery outage last year, when we had to bring in shipments of refined product at short notice. So that cost isn't in this year's accounts and has increased gross margin. It doesn't reflect -- there's no more ability to reflect margins in that number in the market.

Our refining margin, given the challenges that the refinery and the customers of the refinery had last year with the refinery outage, you would expect an improved performance period-on-period. And this, despite over a NZD 2 a barrel decrease in GRM. So what we've seen is, despite those environmental margins falling period-on-period, our ability to increase throughput through the refinery and the refinery running in an optimized state as opposed to how it was operating coming out of the refinery, means that the gross refining margin from that particular facility has enabled an increase in gross refining margins of NZD 10 million.

Other operating expenses adverse to previous period of NZD 13 million, is substantially explained by NZD 10 million of additional costs that we've chosen to incur about promoting various CX initiatives, in particular our launch of the Pumped program only 2 months ago.

Over to Mike.

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Michael John Bennetts, Z Energy Limited - CEO [3]

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Thanks, Lindis. And a little bit more detail about the fuel contributions. As Lindis said, we've lost market share in terms of what the table says by way of the volumes that are there. Key point I think we'd make around this, is we do see this as being a mix of what's happening competitively and the broader context of what looks like to be a softening economy. What we have noticed in terms of the margin, Lindis spoke about sort of the headline gross margin. When it comes to fuels in particular, a lot of that has been driven by what Lindis referred to by being high-cost environment that we had last year. There's also a sales mix element here, because we have lost volume proportionately more in the Caltex retail network than we have in the Z retail network because we get the wholesale and retail margin from Z, that actually means proportionately we're selling more Z liters than Caltex liters. So that's the other reason why that margin has gone from 15.5 cents to 16.5 cents.

What I would stress, and we've got a slide later on that evidences this, is that our underlying fuel margins are actually declining when you look at them from the perspective of a time series, rather than simply looking at a really bad first half of last year against what looks like an equally bad first half period for this year.

We are spending more on what we call loyalties, so these are the discounts that we provide post- the price board. Clearly that's been evidenced by the way in which we've gone to market with Pumped and there's been clearly a competitive response pre- and post- that launch on the first of July. So I would suggest that it's costing all of the industry more to actually promote those types of pricing options and loyalty options for our customers. And that is also equally reflected in our underlying margins being down, because we are spending more post- the price board to be and remain competitive.

Speaking of the price boards, there are two graphs we normally share with you. The one on the left, I think what's really distinctive there is what we are effectively seeing is there -- we've used this phrase, notional main port price, for a number of years now because proportionately more and more of our volume is not being paid, not being priced on a main port price basis. We now have well over 90% of our sales being priced at an individual level, reflecting what's happening in that trading area or that local neighborhood. So it was about sort of 70% in the last 12 to 18 months, so there's now well into the 90s which I think is one of the reasons why so many stakeholders get particularly frustrated about what we do with pricing. When they see a price movement, they would often ask, well, how can you justify that because nothing happened with the exchange rate or crude pricing last night? It really is because we are pricing 350-odd service stations between the Z and the Caltex network across the country based on local neighborhood trading economics as well as what's happening in that broader global macro perspective.

I know many of you follow the [MBIE] margins as some form of indicator of what you could expect to see us eventually print at the end of a period. The point I'd make here on the right-hand graph is, this has been a larger disconnect than normal between our actual margins and the [ MBIE] margins. I think clearly MBIE margin assessments are always lagging behind by about 3 months, but this reflects them updating that lag so it's -- for the period of -- in September it's their assessment what happened in the quarter. So it's up to date. But as you can see, the difference between the orange line and the indigo or purple line are quite significant. And that's why we continue to caution people in their relationships with the MBIE margin, as being, it's indicative rather than exact.

In terms of non-fuel margin, the headline here is that these have gone down which for many of you may be unexpected. What is actually has set inside the non-fuel margin is a set of [S6] some tanks that we had in New Plymouth that Chevron had sold to another party. That actually settled at the end of the last financial year. We were receiving a rent on that, so we reflected it as a non-fuel income. Given that Chevron had that long-term agreement in place and we are no longer receiving that rent, that's the reason for the underlying, or what looks like an underlying decline in non-fuel margin. But [we see it's] actually the underlying position, sort of the classic store and car wash income that we generate has actually grown despite our transaction count being down. We continue to have some really great successes with expanding the store range by the products we have in there as well as how people can access that.

So an example I would give is our preorder coffee platform which was launched in August of last year continues to grow. It now accounts for 7% of our total coffee sales are on that preorder platform. For the month of August, which is the last time I looked, are 68% of people using that platform were repeat users. So this is not a matter of a really attractive one-off offer to get people to use the platform. We've got lots of regularity that is now coming from people who are using our preorder.

So we continue to find ways to blend technical or technology mobile-type solutions with the way in which we arrange the store and the products that we sell.

In terms of refinery margin, very much a distinct difference between the two periods. Last year the refinery shutdown that Lindis referred to, what was actually different this year is our overall headline margin so the unit margin was less per unit. But actually we were able to process more volume because the refinery's up and operating very well for all of the 6 months and we did benefit from a decline in the exchange rate from NZD 0.69 down to NZD 0.66 I think it was. So both of those things went in our favor even though the overall macro unit margin was less than we expected. And we continue to see relative better benefits from our relationship with Mobil and the refinery optimization than we had with our previous partner, which clearly underlines the reason why we made that change in the first place.

So, really pleased with the performance around refining. We do note that volatility exists. The first quarter was not as strong as the second quarter and rely upon your crystal ball for where you think they're going in the second half of the year. But the margins remain volatile, but the good news is RNZ are running -- or NZR, you may know it that way, running a good, safe, reliable business. Production's up and we're getting the yields that we would expect from that facility.

I'll pass back to Lindis to talk about the balance sheet.

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Lindis Jones, Z Energy Limited - CFO [4]

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Moving on to our capital management, I think the headline there for us is -- that we'd like to share is the interim dividend that we've confirmed is consistent with DPS guidance that we provided at the start of the year of NZD 0.48 to NZD 0.52 per share. So the interim dividend we've confirmed as 16.5 cents payable in December.

Some other notable features in terms of capital management that I'd like to draw your attention to is the continued reduction in gross debt, so NZD 40 million of principal debt repayments over the last 12 months. When you translate that to the gross debt to EBITDA number using I guess the old terms previous for '16 of 2.1 times, we draw your attention to that's flattened by the fact that it's -- the EBITDA is on a rolling 12-months basis. So the fact that we had a very strong second half last year and incrementally lower gross debt means that that gross debt-to-EBITDA figure is, we expect that to rise in the coming months.

We can also continue to fund the growth CapEx in the firm by divestment, so there's NZD 30 million of proceeds secured in 1H this year. We expect to continue that trajectory and that activity to fund future growth CapEx, and there I think would confirm in terms of just the strength of the overall balance sheet is that funding of NZD 135 million worth of ETS units, or sorry, NZD 150 million of ETS units this year off our balance sheet and the ability to repay the domestic debt that's expiring in November this year.

So the ability to maintain that dividend, continue to pay debt-free payments, I think reflects the capital discipline and the inherent strength of this balance sheet. One thing that I know we were -- we've been asked previously in terms of going through challenging times from an operation and profit point of view, what does this mean for your covenants? Rather than go into the details of them we are well south of any obligations at all. So rather than go into the details I think we can assure you of that, given the strength of the balance sheet and the options that my team and my predecessors have frankly gifted this firm.

Moving on we'll talk about the Flick performance, particularly the impairment of the investment of NZD 35 million. And that reflects the performance to date and a challenging outlook. So that investment in September last year coincided almost immediately with what has proved to be a significant and sustained dislocation in pricing within the electricity business. So it was a risk that we foresaw and we did get some fairly strong responses to this investment when we made it last year. And I think it's -- Tom said it -- yeah, we did get some things wrong including underestimating the likelihood of that risk of electricity pricing and the dislocation of prices that we've seen.

We do have products in market now being trialed. You may in fact have received some of them. We continue to trial them at a fairly rapid rate using Z and Flex technology and we expect to be in market over the coming months with a variety of offers that we can utilize the Z channel with.

So the underlying impairment reflects the last 12 months which have been challenging from an environmental context point of view, the need to reset, reconfigure that business, but also an outlook with some positive signs we think will be an adverse environment for the months and potentially years to come. We do note positive news coming out of the EPR, the timing of that is uncertainty to whether it will actually flow through in terms of an economic benefit and to be on electricity retailers or indeed the price of electricity. So for that reason, we still have a degree of pessimism about the future of the structure of that industry.

None of that diminishes our resolve to make this work with the investment thesis as something we committed to, and it's hard.

Moving on to the slide, services for prosperity, this is very much looking backwards. So the key takeout from this slide is from the initiatives within Strategy 3.0 that we've previously spoken about. We expect that in our earnings this year that will include between NZD 40 million and NZD 43 million of Strategy 3.0 earnings.

That's above the expected guidance of NZD 30 million to NZD 35 million that we announced at the start of this program, and given we consider that a job done and done well by the team, we won't be reporting upon this in the future. So this is one for prosperity's sake, kind of job done and we'll move on.

Just before I hand it back to Mike for the rest of the slides, one thing -- rest of the presentation, one thing I do want to make sure I take time to do is thank the team. Earnings announcements and communicating with stakeholders is something that we place a lot of value on, and we are committed to doing it well and providing reliable and rigorous results. It takes a lot of work which I think my team do very well. So thank you to [Shirley], Ben, and team.

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Michael John Bennetts, Z Energy Limited - CEO [5]

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Thanks, Lindis. I echo that, as well.

This will be, again, as much as we've now retired the Strategy 3.0 slide, you can probably expect this one to be in the pack on an ongoing basis. So we want to give real transparency around how our net promoter score is going. This is what we would call to be a strategic performance metric, whatever you do in the month doesn't really drive NPS. It's the sustained accumulation of all the good things, all the bad things that you do, that affect how people relate to you as a company and as a brand. So we have three targets that we work to, so Z retail, Caltex retail, and then what we call Z Business.

You'll note that the trend downwards on a lot of these things, in our view this is less about actually how people are connecting with us on a day-to-day basis. It's more reflective of how they relate to the industry over the last [while]. So if you think about it in the period from sort of June, July onwards, you're sort of at the height of the RAP inquiry and results coming out, the commerce commission commentary being made by various stakeholders around the amount of profitability that exists within the industry, etc. We think our customers are human beings just like our employees are, so no one can be unaffected by the commentary that is being made. So we think a lot of what's happening in these trends right now is more about the overall industry rather than anything specific to Z.

We provide some examples there of what we have done in the first half to drive the four things or to enable the four things that we think drive net promoter score. A couple things I would point out is our continued investment and directing our customers to use the app. Many New Zealanders don't necessarily find the use of apps that easy or having a fuel app on their phone is not a priority for them. But we are seeing growth in app users, and it speaks very much to the future in the way in which more and more customers, whatever relationship they have with whatever company, want to do more and more through their mobile technology. So our building out the functionality of both the Z and the Caltex app.

The Airpoints launched so that was -- went into the Z network in April. It went into the Caltex network on the first of August when we brought the Pumped program together across both brands. That's been incredibly well-received. It's actually hitting or slightly exceeding the targets that we set for that program originally, and again, shows that there is a segment of the market that is actually driven by the loyalty points from whatever loyalty program they're part of. And our partnership with Air New Zealand we're very thankful for and we continue to find ways to add value to Air New Zealand's Airpoints loyalty card holders.

As Lindis I think referred to, we've launched Sharetank into the market. Some of you would have seen this when you joined us at investor day when we showed you a demo of that particular product. It's being tested with sort of friends and [far now] over the last 4 weeks to iron out any last-minute bugs, and we've now launched it into the market. When I last looked, we had 400 people sign up to it yesterday. It's getting quite a lot of coverage in all sorts of different ways. We've been working with say the media to get the story out there but I'm equally delighted to see that there is lots of internet traffic around people finding ways to break it or create arbitrage. We always knew that this was a risk when you launch a product like this, so we welcome people exploring that arbitrage. And we're very thankful that they talk about it because it enables us to understand how we might close it, or how we might further enable it, if it really does drive the customer experience and the empowerment that we're looking for our customers to have about the way in which they can better manage the cost of fuel for themselves.

So if you don't know anything about that I suggest you download the Z app and then put it on, have a look at the Sharetank module.

I think the other big thing that we've done, is it really comes in that box or the last row there around Z Business. This is where we took the legacy card platform for Caltex and Z and we put it onto a modern card platform so all on one platform. And we've gone out there with a card that enables our customers to have one card that enables them to access the Challenge network, the Z network and the Caltex network of service stations and truck stops. And this is a really, really big deal for our customers and it's a big deal for us because it takes away the operational risk of that legacy card platform but more importantly, it has enabled us to increase our margins.

So we are going to our customers, particularly the larger, more sophisticated customers and saying to them, we are -- by having -- by providing you with the access to this much larger network you are simply consuming less fuel, paying your drivers less, wasting less time driving between locations, and we have calculated how much that is worth to you, we think we should have some value-sharing arrangement around there. So those negotiations at one level are tough. Our people are normally used to negotiating at price where you're working very hard to defend your price as opposed to expand your price. But we are getting some very positive results from that.

We're well through the transition by way of customer count. The customers we're transitioning in November and December are the larger corporate fleet end of town so smaller number of customers, but a much larger number of actual card holders. So we expect to have this all fully completed by the time we get to Christmas. But overall, we think we're doing the right things around driving net promoter score and I would expect that as sort of the broader stakeholder or context that exists around the fuel sector diminishes over time, that we'll start to see trends upwards in all of those three net promoter scores.

A quick update on government relations and I think we've pretty well kept you informed around this one. But for those that are kind of hearing some things for the first time, we have and continue to have a productive engagement with the commerce commission, both publicly and privately. We fully participated in the hearings both public and private that were held in the month of October. We have provided our submissions to the commission post- those hearings, where they asked us a few more questions and we also thought there were a couple of other things we wanted to say based on what we heard through the public hearing process. We've now completed all of that. The commerce commission remain to the best of our knowledge committed to delivering a final report on the 5th of December.

We continue to encourage them to write it in such a way that they have clear recommendations for what needs to be changed as opposed to having recommendations for what someone else needs to work on. We think this has been on the go for quite an extended period of time. I don't think that's in anyone's interest, whether it be our sector, our company in particular, consumers or indeed the government, that we would like to see this one resolved in a way that we can do whatever's required to give people confidence around competition and then we can deal with what the effects of that are for us as a company.

In terms of the RAP inquiry, that report was made public by the minister around the same -- actually the day after the commerce commission issued their draft findings. The two bullet points at the bottom there I think are most important, where the government has made it very clear or the report made it very clear that these are the things that need to be done, about 21 recommendations in total. And the industry should be given time to frankly sort itself out. If that is not sorted out by June of next year, then the government should actually have things in place such as they can step in and regulate, in whatever form that might be.

We don't think we need the government to regulate around this. It's pretty clear in terms of the recommendations that apply to us what needs to be done. So we along with our partners in the joint ventures that exist along that supply chain are doing the work, the preliminary engineering work, required to understand what would we do or how would we go about boarding additional jet storage at WOSL so, if you like, one more tank with [Oneida] actually how would we use the space to build more tanks, should that be required. Well, clearly it is, but the timing of which is uncertain. And how would we improve the throughput or the flow through the [WEP]. The numbers that are indicated there are our preliminary estimates, so pre-feed estimates, of what the industry costs would be. So don't read that as being our cost. And we would expect to be able to accommodate that cost whenever it turns up, say over the next 1, 2, 3 years with a now-normal level of integrity budgets where we had previously guided that would be between NZD 40 million to NZD 50 million across the whole company in any given year.

Moving on from the government regulations pieces, we have had numerous inquiries from investors, media and stakeholders about our profitability and returns. And although Z is clearly as a public company very transparent and open about what our profitability and returns are because we've published our audited accounts, we thought it would make life easier for people if we put all of that on one slide on a historic cost basis. So what we've done here is we -- the orange bar shows you the net profit after tax adjusted for -- including non-fuel income, and then over the total number of liters that we sell. So you can see there from the time series that for the first half of this year that was down to 3.5 cents a liter which is the lowest that we've seen since FY '16.

We've calculated our return on capital two ways. We've used what we would consider to be the standard formula that we have always used or that is commonly used for our industry, and you can see there that our returns have reduced from 12% from 4 years ago down to 7% at the end of the first half. And we've done our best to understand the commerce commission way of calculating those returns, and then used what we thought their formulas were to put our numbers into. And you can see there a significant decline between the sort of the 24%, 23% that they spoke about in their draft findings, and what we've actually had delivered in the first half.

Now, we're not looking to make anyone wrong here, we're just simply providing this information from the perspective of transparency so that we don't need to answer a whole bunch of individual questions about, tell me about what happened here, or what does that mean. It's all there for one and all. And we have provided the detail about the way in which we have calculated our returns. If some of you calculate it slightly differently we certainly know how we calculate that.

Return on average capital deployed is something that's sort of the mother of all measures around capital effectiveness within the oil industry. It's a number that's quoted worldwide. It says nothing about Z's formula that we have used. It's inconsistent with what say any one of the global oil majors would be using when they report that number to their own investors.

If we sort of want to close out in terms of the formal presentation part of this morning, I think it's really important to identify that we are comparing a very tough first half of this year with what was an equally tough, but for different reasons, first half of last year. So it sort of looks like things are the same. Last year, a lot of stuff that was happening, we considered to be transitory in that we had a rise in crude prices and a one-off extended refinery shutdown, whereas none of that was happening here. So we don't expect to be just some miracle that's going to happen in the third quarter or second half of the year that sort of moderates what's happened in the first half. And hence that was the reason why we took the guidance down as we did a number of weeks ago.

90% of the gap that we have in terms of our original expectations for the year sits in retail, so the rest of the company is performing sufficiently well. Within that retail gap, 35% of it is volume-related and 65% of it is unit margin related. So we absolutely acknowledge that there has been a volume shortfall, and there's a big part here that is actually, one would argue, outside of our control given that margins are set through dynamic competitive forces. But 90% of the gap comes from retail.

What we have learned over the last 6 months is that the anticipated or forecasted effects of IMO or MAPOL as you may know, on the first of January 2020 things will be a lot less than what it was anticipated a year ago. When we did the year-end results announcement we talked a lot about we'd welcome feedback, and should we hedge that exposure or not. We chose not to based on our own decision, our making around that. That's proved to be at this point in time anyway, touch wood, a sensible thing to do but it does not look like there's going to be a significant dislocation of fuel oil pricing or a significant increase in distillate refining margins. They are widening out from where they have historically been, but I think nothing like what was anticipated and given that we are only something like 9 weeks away from this new global policy come in to effect, I think that's an indication that whatever impact there will be will not be as significant as was anticipated 12 to 24 months ago.

The other thing I point out here is we are continuing to evolve. And we talked about this at investor day. Our price positioning and our brand positioning, between Caltex and Z, we are further stretching those two brands apart. So what that really means, is we are increasingly looking to have Z compete if you like, head-to-head with BP and of course it's not quite as simple as that. There are many customers out there but in terms of positioning, Z is positioned against BP for brand and the way in which that manifests itself throughout our various offers. And Caltex is going to be increasingly positioned against Gull and Mobil.

Again, I wouldn't want you to relate to that too narrowly. I just want to make it sort of clear about directionally where we're going, and you can start to see a greater and greater difference between how we manage our activities at the Z network and at the Caltex network.

The major risks as we go into the second half of the year are pretty simple. What if IMO is way worse or way better than we think, and of course we have a duality there. For everything we see as downside on fuel oil pricing, we also see the upside that counts from refinery margins. But we just recognize that if that was to be greater than what the market consensus seems to be, that that's a risk to the up and the downsides, either way, volatility from that.

And we continue to be very, very focused on retail unit margins. We believe we have a good understanding of where we are with the volumes and the way in which we will moderate the gap that has opened up over the last 4 to 5 months, with accelerated -- acceleration of the gap that was already there. But those are the two biggest risks to the second half of the year, and that makes it quite difficult to forecast the second half of the year. When you think that IMO is a global issue, and who knows really where that one's going to go, and retail margins -- what we've seen in the last 120 days is significantly different by way of behavior and outcomes from what we've experienced certainly in my nearly 10 years of being here.

So what that means is we have left guidance unchanged for both earnings and dividend. And we are very, very confident that at the bottom end of the earnings range that we can pay the bottom end of the dividend range, and you can do your own formulas around that. We're a couple of million dollars short, if you applied the formula in a very, very clinical way. But we have actually divested more than we anticipated so we have the cash available to look through that and we recognize how important it is to our yield-focused investors for that.

The final bullet point is that sort of the caveat that goes on, given that's still quite a wide guidance range. If retail margins, the unit margins that we're experiencing don't change from what we've actually seen from that period of August through to October, that would indicate that we are at the bottom end or towards the bottom end of the range. If something was to change to the upside around that, that would indicate it would be more of a midpoint. And that's about as good as we can do in terms of trying to give you the best guidance that we can. So the clear message is, we're not changing guidance here for earnings or for dividend. We are pointing to some of the risks that exist in our second-half forecast, and if conditions continue or change that sort of indicates where we are likely to be within that range.

At that point I'll sort of pause, and we'll take questions. We'll start first in the room and then we'll go to the operator on the phone.

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Questions and Answers

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Unidentified Analyst [1]

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First question for me at least, in terms of operating cost, I guess we've seen savings from Strategy 3.0 which has advanced a little bit further for its final presentation. And the IFRS gains in there as well. So when I see the 202, versus the 191, should I be thinking that on a like-for-like basis those are actually quite a bit ahead? I wonder if you could explain that. And sort of what -- just as a further completion of that, what do you assume for operating costs in your guidance at the moment?

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Lindis Jones, Z Energy Limited - CFO [2]

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Yes, so in terms of the half-on-half comparison, the biggest driver of the increase is the one-off spend associated with marketing. We also have increased costs associated with people costs, and that was providing for bonus accruals that we previously didn't accrue last year. So they're the two big amounts. The marketing costs we can relate to as one-off, so the underlying run rate we don't expect to incur that one-off again in 2H or again.

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Unidentified Analyst [3]

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Are the difference changes included in the costs?

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Lindis Jones, Z Energy Limited - CFO [4]

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Yes, so they were. So those costs are net of the impact on --

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Michael John Bennetts, Z Energy Limited - CEO [5]

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Just about a NZD 14 million benefit.

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Lindis Jones, Z Energy Limited - CFO [6]

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About NZD 14 million so you've got 14 down plus the NZD 10 million worth of marketing one-off costs. The NZD 6 million for the people costs, and some other smaller amounts. But there, that's the big story there.

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Unidentified Analyst [7]

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And sort of a full-year guidance, can you kind of give us some guidance around that?

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Lindis Jones, Z Energy Limited - CFO [8]

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Yes, I think in terms of the number that we're assuming, and in terms of a thematically anyway the big difference there being the NZD 10 million, we don't expect to repeat in terms of the marketing one-off. So the rest of it is kind of repeatable.

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Unidentified Analyst [9]

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In the future if the retail competition sort of continues on the track it is, would you expect perhaps to lift the marketing spend and maybe incur costs in other parts of the business? To get a flavor of how the retail dynamic might influence cost?

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Lindis Jones, Z Energy Limited - CFO [10]

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The NZD 10 million was primarily associated with the launching of a new platform, which enables so many other things. So I think you'd see products that don't necessarily need that level of marketing spend, and those platforms are the underlying technology platform of the Pumped program, but also our mobile apps. So a lot of it's one-off to do with the platforms. The rest would be more product-led, so that wouldn't be my expectation.

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Unidentified Analyst [11]

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Great, thanks. And just in terms of the volume outlook, it seems a bit of a surprise to see diesel going down after industrial -- that sort of demand being quite a steady, reliable source of growth in the future. I mean, how concerned should we be about that, and perhaps jet fuel as well, to keep everything under the commercial fuel sort of segment? I mean, is there any kind of threat to that segment?

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Michael John Bennetts, Z Energy Limited - CEO [12]

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Perhaps I'd probably be the best one to answer that. So what we saw at the second quarter, is that average is minus 2% for the half. The second quarter was -- it wasn't like a flat trend. It was a declining trend. We excused some of that certainly in the month of August as being, August was a very, very wet month. So there's a lot of activity that slows down or doesn't take place, like bulldozers moving earth, for example, when things are very, very wet. We did not see any bounce back in September so we thought perhaps the wet did affect things in August. But something else is happening in the month of September.

So -- and there's lots of other indicators, like the truckometer and other things that sort of generally show that we think there's two things on the go here. One is, there's some sort of sector-specific decline, so logging would be one example that I would talk about. It's not particularly diesel-intensive. You'd like to chop down trees, but as you move the logs around it's a lot of trucks on the road. So we're seeing that in particular, down. But we are seeing across the whole economy, and almost across all regions without -- I'm probably going to make a liar of myself, I actually looked at the real regional data -- but we don't see any region in particular doing very, very badly or very, very positively other than what may be happening on a sector basis. So we think that is an indication.

The jet fuel we think is nothing, in some senses, as a surprise there given what the Auckland airport disclosed. Airlines are consolidating routes. They have reduced flight frequency more in the off season than they normally would so we think -- and then of course as planes become more fuel-efficient. But I think as Lindis said, the important thing there is we've gone from double-digit growth for a couple of years that caused issues around supply, to we expected that we would get about 4% to 5% this year. And we're clearly not going to get that unless there's a significant change in the second half of the year. And perhaps that's as much explained by a softening global economy and lower tourism numbers as it is by what's actually happening at Auckland airport in particular.

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Unidentified Analyst [13]

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Given the significance of those two categories for the commercial business, is there a reason to think maybe the volumes or margin might come to pressure there?

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Michael John Bennetts, Z Energy Limited - CEO [14]

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That's contained within our guidance for the second half of the year. As of the commercial business, the team work really, really hard to sell what they do. It's a way lower margin across all the different products than what we get out of retail. So the volume decline in commercial has much less of an impact, particularly when it comes to jet. Our jet margins are very thin at a marketing level. So it does have some impact. We are, as I said earlier, through Z Business we are seeing some expansions of margins. We would expect potentially the two of those to come off, but it's -- surely it's -- this is the softest time again, if I come back to my 10 years here, this is the softest economic New Zealand economic context that we've operated in since I've been here.

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Unidentified Analyst [15]

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Great, thank you.

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Michael John Bennetts, Z Energy Limited - CEO [16]

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So we'll now go to the operator to see if there's anyone on the call who would like to ask a question.

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Operator [17]

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(Operator Instructions) Your first question comes from Grant Swanepoel from Craigs Investment Partners.

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Grant Swanepoel, Deutsche Bank AG, Research Division - Research Analyst [18]

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First question is around your Strategy 3.0. Just contextualize that a little bit, particularly since you're not going to be reporting on it going forward. In FY '19, you delivered about NZD 24 million less the NZD 5 million cost to deliver that NZD 24 million. So net NZD 19 million. You're talking going up at the headline of NZD 16 million to NZD 19 million this year. Can you give some sort of idea of where that's going to turn up? Is it in the fuel margin? Is it in operating costs? And why aren't we seeing more movement in the operating costs if it is turning up on that front? I'll just start with that one, before I just follow on.

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Michael John Bennetts, Z Energy Limited - CEO [19]

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I'd be happy to take that one, Grant. It's a mixture of margin improvement and costs, and I can't quite get -- remember the numbers off the top of my head accurately but we can provide that to you subsequently. The margin stuff comes from things like Z Business that I spoke about. The cost stuff comes from as we consolidate the trucking fleet, as we did into one contract. We would have our secondary distribution cost would go down. So if you were to look down our P&L, you'd see some increases and some downs. But the -- the NZD 16 million to NZD 19 million you just referred to for this year, it is proportionately biased towards margin than costs, particularly when you think that some of it came from the Foodies relationship, which is a little bit of icing on top of the overall cake we outlined years ago. But there is, most of it sits in the margin side of things.

Yes, we've had -- come back to some slides we shared at investor day where our cost profile over the last three years in comparison to our major competitors has been largely flat compared to our competitors who are spending more. So we all face the same inflationary pressures. We have benefited from being able to do things to reduce our costs as a result of the deal that enables us to offset what have been largely increases in sort of marketing costs and the way in which competition is manifesting.

At the moment, Lindis is thinking very carefully about what we need to do as we go into the next financial year to deal with what is clearly what looks like a fundamental change in how the industry margin structures work. So don't interpret that as being we're calling that what has happened today is going to endure. But Lindis is going to be doing some work on that. We're partly through that and we'll tell you more about that when we give guidance for the next financial year. But I would not expect our cost profile to be flat going forward, Grant. I would expect it to start to decline as we do a lot more self-help and change our activity set rather than rely upon the benefits of putting two companies together.

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Grant Swanepoel, Deutsche Bank AG, Research Division - Research Analyst [20]

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Thanks. Next question is just on repositioning Caltex towards Mobil and Gull. Our estimates would indicate that's about a NZD 0.01 to NZD 0.02 per liter margin decline for that business. What proportion of that decline would you be covering and what would the site operators be covering?

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Michael John Bennetts, Z Energy Limited - CEO [21]

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The way in which that works is that generally Z bears all the costs of increased competition, the Caltex retailers mostly work on a fixed margin. In actual fact, we've expanded that margin as we came into this year, given that they are facing cost increases, like any small business in New Zealand. So pretty well it all sits on Z's side of the fence.

I wouldn't want you to necessarily think that -- I've got to be careful how I talk about this, because I'm not making any predictions on margins for the industry or talking about the way in which we're going to price. But we think we can be smart in the way in which we use technology, our loyalty offers, the app, etc., such that whatever we do by way of price positioning need not always show up as being detrimental to margin. We think margins are -- the evidence is that they are significantly lower than how we finished the average for last year, so I'm going beyond the half-on-half comparison. So we think we can be smart about that, Grant, however we choose to position it. It may not come at an overall net cost equal to the gross cost of doing it.

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Grant Swanepoel, Deutsche Bank AG, Research Division - Research Analyst [22]

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Mike, just in terms of the second -- this first half relative to last year, industry margins are at least NZD 0.05 plus off. Are you seeing any of your competitors coming under some serious cash flow pressure?

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Michael John Bennetts, Z Energy Limited - CEO [23]

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Yes, we are, Grant. That's a very easy answer. I'll give you some examples. We are taking inbound calls from competitor-supplied service stations that want to switch to our company because they think they can get a better deal than where they are. We're seeing some examples of site closures. We are seeing evidence of, and I don't want to be specific here, but evidence of distributors who are saying actually, I've enjoyed being able to expand my network on the back of margins that supported that, and that is no longer the case for me. And I could go on. There are enough weak signals there to say that things are significantly difficult across the sector for your major, major and smaller companies.

I think your NZD 0.05 a liter is not a bad number to use. If you multiplied that, or you run-rated that for the whole year, there's effectively hundreds of millions of dollars of profitability that has been taken out of the sector over the last 6 months, and that is likely to have some effect some way, somehow. We're very fortunate we're a large company, we've got a diverse portfolio, we've got a strong balance sheet. And a lot of the work that we've been doing over the last couple of years has been in anticipation of this -- that's our focus on data and analytics and our focus on customer experiences that we think for whatever pain there may be, we should be able to endure it longer or perhaps have less of it happening inside our company.

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Grant Swanepoel, Deutsche Bank AG, Research Division - Research Analyst [24]

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My final question is probably for Lindis. And it's the uncomfortable one around Flick. Flick's customers have dropped since you bought them, modestly from about 22,000 to 20,000 customers. So your revised valuation is now more what the industry would have expected, NZD 600 per customer. How have you changed your view on Flick? And that, it's not really exposed to a wholesale price. I know that they have moved to some fixed pricing products, but most of it is still the customer takes the risk on that. So what if wholesale prices have risen? TY could potentially shut, etc. Why the sudden massive change in your view on what Flick's worth relative to what you bought it at?

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Lindis Jones, Z Energy Limited - CFO [25]

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So in terms of the sudden change, we're obliged to form a view at a certain point in time and this has crystallized what we've become aware of. So it's -- there's nothing sudden per se about this. This is the right time to confirm it to all stakeholders.

In terms of your underlying query about the role of higher electricity prices or a structural difference, there are 50% of Flick's customers or slightly less that are on a wholesale-based product. The rest aren't. And what we've had to do is rearrange the firm to be able to compete and thrive and hopefully ultimately thrive, in an environment where we will have more customers on a fixed-price offer as opposed to a wholesale offer. We think in the fullness of time, price signals are very, very important. We want to retain that capability. But we have to be able to procure electricity competitively, market it at a sufficiently-lower cost required using the Z channels at scale so that we can get this business cash-positive. So all those things take time.

The sort of thing that we've invested and just rearranged in the firm is being able to be very accurate or price by customer, by network, by region, by offer type. So there's been something that's been very important to us and we haven't wanted to go out and frankly burn cash until we were confident we had that capability and the right offer to leverage the Z brand. So we're literally in the throes of testing potentially up to tens of brands, tens of offers across hundreds of customers to find the right one. So it's much about rebuilding the firm to compete another way, acknowledging a structural change in the market. Does that answer it, Grant?

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Grant Swanepoel, Deutsche Bank AG, Research Division - Research Analyst [26]

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Yes, thanks Lindis, and thanks for answering all the questions.

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Michael John Bennetts, Z Energy Limited - CEO [27]

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I'd add a couple of things to that, Grant. I don't think any one of you should feel awkward about asking us about Flick. We are commercial people. We make decisions. And we would welcome dialogue around it. So we want to be open around where we are with that. But a bit the CFO didn't mention, this is all driven by accounting rules and DCF. So if you think about it sort of contextually, we are starting from a lower basis than what we thought. We are starting later than we thought and we've moderated what we see as being growth over a 10-year period. So the starting point is lower, the end point is lower. You put that into a DCF, it says that whatever our previous version of valuation was is now lower. So from -- this is largely driven by accounting principles rather than us sort of making something up, if I can use that terrible expression.

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Lindis Jones, Z Energy Limited - CFO [28]

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Yes. We haven't turned dark on the thesis. There were some things we got wrong, Grant. And to some respect, your accounting methods crystallized some of that but they also constrain how you talk about value. But yes, it is. It's tougher than we thought or it has been tougher than we thought. Some of that will endure and that quite naturally shows up in a value.

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Operator [29]

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Your next question comes from Andrew Harvey-Green from Forsyth Barr.

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Andrew Rupert Pelham Harvey-Green, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [30]

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A few questions from me as well, probably no big surprise. First question is just around the trading performance, I guess, in September-October. I think at the time of the downgrade I read about half of it was due to the August performance being below expectations and a quarter of it in July. Are you able to give us a sense of, in sort of September and October, how they went relative to I guess original guidance?

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Michael John Bennetts, Z Energy Limited - CEO [31]

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September was better than August, and we haven't quite closed off October yet. But it looks like it's somewhere between August and September. So is that helpful enough, Andrew, without giving you the exact numbers, or numbers that we've shared previously? But we have not seen an improvement nor have we necessarily seen a material decline. We have -- I can give you some data but not on a public call, about actually what we've been doing around pricing and the response we've seen in the marketplace. It'd be unwise to make those comments publicly. But there's some really good examples we can share with you around what we're doing and how we're seeing competition manifest. We are stuck where we are, it seems to be, for now and we'll continue to find ways to improve the result.

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Andrew Rupert Pelham Harvey-Green, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [32]

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Next question is, I guess it's around Caltex and I guess continued retail volume decline in particular, and how close I guess some of those sites are potentially to closing. I think in the past you've seen a number of the sites certainly are under quite a bit of pressure, that certainly doesn't appear to have been going away. How close are some of those sites to actually closing?

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Michael John Bennetts, Z Energy Limited - CEO [33]

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I can't speak to all of them individually. As you can imagine, collectively the sum of the individuals, they are very concerned about the impact on their volume performance and what that means for their own individual profitability. There are actually some sites that are up year-on-year as a result of the changes that have taken place around loyalty programs, and there are some that are down by as much as I think sort of 40% to 50%. So we're working through each of those cases individually. This is part of how markets shake out, given changing competitive dynamics. So as I've mentioned, I think, in response to an earlier question, there are lots of people who are questioning, am I in the right business in terms of should I keep operating this, as well as should my business continue to operate.

I went back to what we said at investor day, we showed that graph around the long tail of sites. There were some Caltex sites that were in that volume band of this 2.5 million liters, so we would consider those to be more prone to this market structure than others. But the Caltex network is not overly exposed to that relative to some other brands that exist in the marketplace.

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Andrew Rupert Pelham Harvey-Green, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [34]

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Okay. The next question I had was just in relation to Slide 14 and your net promoter score. Can you give us a bit of a feel on how those targets are set? I guess you

(technical difficulty)

the business target and even the Caltex target. The net promoter scores were certainly just (inaudible) above that target. Why isn't the target, I guess, just continuously improve that net promoter score?

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Michael John Bennetts, Z Energy Limited - CEO [35]

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So when we set the targets -- I'll give you the short explanation. There's a longer one because there's a big more sophistication behind it than what I'm going to say. As we thought that there would be -- the target for Z was slightly up on what the actual was for last year. So we expected that we would trend up throughout the year and hit that plus 46 by the time we got to the end of the year, and as you see, we were on track towards doing that and then declined.

The Caltex target was set because we recognized some of the challenges around there and the reliance that a large proportion of Caltex customers put on the AA Smartfuel program. So we anticipated a decline in net promoter score there, which is why the target is below actually how we started the year. That was a reflection of what we thought would be happening.

Z Business, the target there is way more modest, but that's actually an outstanding result in the context of how the fuel sector is assist by that particular part of the business community. And that started off reasonably strong. There was quite a lot of change that was going to be taking place with Z Business, and we expected to actually probably see a decline because a lot of customers don't like changing things out. In actual fact that the real big spike you saw between June and July is that early flourish of wow, this is way better than I thought, coming back from our early transition customers which are mostly smaller fleets. And then that's moderated over time, I think as I said by the more macro situation. So Z was expected to go up a little bit, but we always anticipated that Caltex would go down. And I think the commercial team are delighted that they got off to a better start than they thought, and they've managed to sustain that for the Z Business score. Does that adequately answer?

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Andrew Rupert Pelham Harvey-Green, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [36]

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Yes, that's good color. Next question, and second to last one, just around Flick as well. Are you able to say what the current cash balance is with Flick, and I guess the key question being, is more capital required for Flick in the near future?

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Lindis Jones, Z Energy Limited - CFO [37]

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I'd prefer to stay away from that one, Andrew, because there's our number and there's choices in how we run the business that bring different meaning to that business. And there's other shareholders involved as well. So I'd prefer not to, actually, Grant. Sorry, Andrew.

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Michael John Bennetts, Z Energy Limited - CEO [38]

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And don't read any more into that than what Lindis said. We would never discuss that, given we don't own the company. We just own a proportion of it.

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Andrew Rupert Pelham Harvey-Green, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [39]

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All right. And last question is just around IFRS 16, so I think the gain is NZD 15 million for this half. Previous guidance was NZD 25 million for the full year, so I assume we just look at doubling NZD 15 million to get to NZD 30 million for the full year. Is that appropriate? Implicitly I guess -- I guess that is all a rounding an estimation there, but sort of half implies a slight downgrade in the other part of the business.

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Lindis Jones, Z Energy Limited - CFO [40]

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Yes. That's a fair assumption, Andrew, that you could double the IFRS impact half-on-half. There's inordinate levels of detail in implementing accounting standards, that accounting standard. And once you ask one question you go deeper and deeper in it. But that's the most efficient and effective way to -- level at which to answer the question, Andrew, yes. Double it.

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Andrew Rupert Pelham Harvey-Green, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [41]

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Yes. I want to keep it at a high level. I don't want to go into that detail. That's all for me, thanks.

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Operator [42]

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(Operator Instructions) Your next question comes from Jeremy Kincaid from UBS.

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Jeremy Kincaid, UBS Investment Bank, Research Division - Associate Analyst [43]

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I just have one question, and I was just wondering if you have done any work around the total number of retail sites coming online or maybe even offline for the market as a whole over the next 12 months, or maybe even further into the future.

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Michael John Bennetts, Z Energy Limited - CEO [44]

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Yes, we have. And Matt can supply that for you. We track fairly rigorously building consents and resource consents, so we have a good understanding of what the new-to-industry pipeline would look like for the next two to three years. So we can certainly provide that. To talk about what may come out of the system is way more difficult to forecast, so we couldn't give you a number on that. But we can certainly talk about what we would see coming onstream and we figured it would be around about the same level as it has been for the last few years, if I recall correctly, sort of in the range of 20 to 25 new service stations every year. Just given the way the market's going right now, I would genuinely think that there are some who are perhaps moderating their aspirations or thinking carefully about the pace at which they continue to roll out sites, because as Grant stated in his earlier comment, as sort of NZD 0.05 a liter disappears out of the industry, that is a significant bottom line impact for all participants, large or small.

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Jeremy Kincaid, UBS Investment Bank, Research Division - Associate Analyst [45]

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And actually, one other one. Could you just give a bit of an update on the progress on the rollout of Fastlane and the discounted price display on the pricing boards, what percentage of your sites are sort of through those two initiatives?

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Michael John Bennetts, Z Energy Limited - CEO [46]

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Yes. So it's roughly half the network for both Z and Caltex, are already out there and the balance happens before the end of the financial year. The constraint here has simply been how quickly can a manufacturer price -- put the panel together so they can stick it in, hasn't been a financial consideration or a physical installation issue at all. So that's on track. And then your first question or part of the question was --

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Jeremy Kincaid, UBS Investment Bank, Research Division - Associate Analyst [47]

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Just is it half complete for both Fastlane and for the price boards?

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Michael John Bennetts, Z Energy Limited - CEO [48]

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Sorry, I should have scribbled it down. So Fastlane, we've been constrained by a couple of things. One was bank-related in that each time a Fastlane customer got snapped by the CCTV there would be NZD 150 hold put on your account. That sounds fine and reasonable. Unfortunately that sits there for days, and if you drive around the forecourt and we snap your number plate a number of times, it's NZD 150 each snap. So we really needed to work with our banking provider to reduce that such that it was only snapped once, which was proven to be difficult. But we got the hold being taken from days, now, down to something like 20 minutes. So that should not get in the way of the customer experience. Because you know, a number of our customers don't have that flexibility on their card to have that sort of hold put on it.

And then there was some -- given the increased focus on discounting in the marketplace, we took the opportunity to build out the software such that Pumped discounts will now be on Fastlane transactions, whereas previously they weren't. And we've also now made the Z Business card discount available on Fastlane transactions as well. So that's a more complete customer experience. So we deliberately delayed it for that reason.

Where we see this going, is we've got all of that has now been solved. It's being put into market through some of the pilot sites at the moment and we expect to move from Fastlane to Fastpay. That's what we're actually testing. What I mean by that is, instead of it being a dedicated lane, you can just come up to any lane on the forecourt and that whole functionality would work for you. And we would expect to be able to scale that up at the existing pilot sites pre-Christmas, and then roll it out across the rest of the network post-Christmas should everything go according to plan. And as we indicated at investor day, there's significant benefits from share of wallet that come from both more frequent purchases as well as less frequent ones, that we think again, this is the sort of thing that would drive improved net promoter score but most importantly from your perspective, volume and margins.

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Operator [49]

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There are no further questions at this time. I'll now hand back to Mr. Bennetts.

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Michael John Bennetts, Z Energy Limited - CEO [50]

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We've just got one more in the room and then we'll close on out.

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Unidentified Analyst [51]

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Sorry, actually, it might be two. So just kind of a comment if you could offer it. In the past, a couple of years ago you were telling us retail margins were sort of top of cycle. That was as sort of a warning. Where would you put them now? Are they mid-cycle, bottom of cycle? Any -- care to comment?

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Michael John Bennetts, Z Energy Limited - CEO [52]

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Yes, just given the sensitivity around things right now I'd prefer not to make a public comment on that. That would be unwise. But I'd be very happy to give you a private view once we finish the call.

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Unidentified Analyst [53]

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Sure thing, great. And just one other question which was around Flick. You mentioned [past] moderation of targets and timing. We were talking 3 years, 100,000 customers. Can you give us what the new numbers are?

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Lindis Jones, Z Energy Limited - CFO [54]

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Yes. So one of those three years have gone, and we've kind of moderated it accordingly. And also the rate of growth has been moderated as well given we're competing on a different product that's somewhat more like-for-like, and there's probably different value vectors that we're going to rely on more like cost to acquire. So we've outlined that, and no -- but it's both a year later, and moderated the view. And the kind of proportionalities that are included in there are notes in the account.

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Michael John Bennetts, Z Energy Limited - CEO [55]

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Great. Looks like we're all done, then. So I thank you very much for your participation and your ongoing support, and we look forward to meeting as we are able to privately to talk about the things we can't talk about publicly. Thank you very much.