EVZ LIMITED — Annual Report 2008

Aug 25, 2008

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ENVIROZEL LIMITED ABN 87 010 550 357 ACN 010 550 357 Level 7, 410 Collins Street Melbourne VIC 3000 Australia PO Box 237 Collins Street West Melbourne VIC 8007 Tel: +61 3 9670 4545 Fax: +61 3 9670 6670 www.envirozel.com

26 August 2008

The Manager Company Announcements Office Australian Stock Exchange Limited 20 Bridge Street Sydney NSW 2000

Dear Sir / Madam

ENVIROZEL LIMITED – PROFIT ANNOUNCEMENT Appendix 4E - Preliminary Final Report

Envirozel Limited (ASX: EVZ) announces that the Company has exceeded its EBIT forecast for the year ended 30[th] June 2008. The Company has reported an EBIT of $8.7 million, compared to its EBIT forecast of $8.6 million. This represents a 40% increase over the previous years EBIT of $6.2 million

Financial Highlights

	Year ended 30 June	Year ended 30 June	% Increase
	2008	2007
	$,000	$,000
Operating Revenue	$88,141	$48,362	82%
EBITDA	$9,509	$6,613	44%
EBIT	$8,703	$6,217	40%
Net Profit Before Tax	$6,853	$5,500	25%
Tax Expense/(Benefit)	$1,848	($459)*
Net profit After Tax	$5,005	$5,959

*In the prior year the tax benefit of previously unrecognised carry forward tax losses were brought to account

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	Year ended 30 June	Year ended 30 June
	2008	2007
NET DEBT TO EQUITY	21 %	17 %
RATIO
Dividends
An interim fully franked
dividend (paid January
2008)	0.5 cents	0.0 cents
A final fully franked
dividend (paid May 2008)	0.75 cents	0.0 cents

Recently appointed Chairman, Mr Max Findlay, commented on the annual results and stated:

“The continued growth in EVZ is reflected in the significant increase in the Revenue and EBIT lines compared to the prior year. The Company achieved a number of milestones during the year under review. Notably:

• The Company has set the foundations for its next stage of growth. As a whole EVZ has recognised the need to increase its market presence, both in revenue and market capitalisation. To assist with this Mr Andrew Powis was appointed Chief Executive Officer, Mr Ian Wallace was appointed Chief Financial Officer and I took on the position of NonExecutive Chairman. This more formal corporate structure is vital to achieving future growth and improved shareholder wealth.

• The Company has now established a comprehensive strategy for organic growth within all existing operating businesses, including geographic expansion.

In addition, the acquisition of businesses which are complimentary to our existing operations and strategy will be actively pursued.

• Acquisition of the TSF Engineering business has been completed. This acquisition was by far the most difficult of all of EVZ’s acquisitions, which reduced the impact of this business on Group results for the year. However, the Company is now confident that TSF Engineering has been fully integrated into the EVZ Group and will be a significant contributor to the Company in coming years. The future for TSF Engineering is very positive particularly in the emerging areas of co-generation and tri-generation power supply systems.

TSF Maintenance (a subsidiary of TSF Engineering) is involved in the maintenance of backup diesel generator systems and has contributed strong profit performance to the EVZ Group. This business will continue to be an excellent source of recurring revenues.

• The Company’s syfonic roof drainage business, Syfon Systems, opened an office in Brisbane (also shared with TSF Engineering) which has had an immediate impact with the winning of a number of additional Queensland based contracts.

• Syfon Systems has successfully pushed into the Singapore market winning several contracts in the region including preliminary advice that they have been successful in a major portion of the construction of a prestigious Singapore entertainment/conference facility.

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• EVZ now has a presence along the Australian eastern seaboard, Malaysia and Singapore and will continue to seek suitable markets for its products and services and for acquisition opportunities throughout Australia and other Asian regions.

• The Company has recently entered into an exclusive licence agreement for Australia to manufacture and distribute “cellular” steel beams. A cellular beam is the modern version of the traditional ‘castellated’ beam. When a steel beam is “cellularized” it results in a beam approximately 40-60% deeper and therefore stronger than its parent section for the same weight. In the current market of ever increasing steel prices (80% price increases in the last six months), Builders and Engineers can achieve significant savings by utilising this technology. Whilst this technology will not have a significant impact in the new financial year, it is expected to impact on the construction market in the coming years. This technology has provided the EVZ Group with another significant niche market opportunity.

• The Company commenced paying Dividends for the first time in its history. In May 2008 the Company paid a final dividend in advance of the completion of the financial year bringing the total franked dividends paid for the year to 1.25 cents per share. This represents a payout of 52% of NPAT”.

The timing of future dividend payments will be determined in line with profits with dividend payments to be made at half year and at the end of the financial year.

Continuing his commentary of the EVZ’s performance, Mr Findlay stated:

“Syfon Systems continued to perform strongly for the Group. Brockman Engineering, our specialist tank business, also returned a strong performance even though it faced delays from the renewal of a major tank construction and maintenance contract. This contract has since been successfully renegotiated.

Whilst the 2007/08 result reflects the continued growth in performance and financial stability of EVZ, the year proved to be more difficult than previous years. In particular, the Danum Engineering business was unsuccessful in retaining its direct contractor status with the Shell Oil Refinery in Geelong.

Despite this set back Danum Engineering has successfully sought and obtained significant replacement work with a number of blue chip high profile customers. As a result Danum has significantly expanded its geographical and customer base, thus reducing risks associated with reliance on a large local client.

National Engineering, the Group’s steel fabrication business operated in market circumstances which continued to be extremely challenging. The combined effects of large steel price rises and tightening in the credit market resulted in the deferral of a number of construction projects, particularly shopping centre construction, which impacted on the financial performance of National Engineering in the second half of the financial year”.

Finally Mr Findlay stated

‘‘Whilst there appears to be a general tightening in economic forecasts, the Company is confident of the future. The Company maintains a relatively low level of debt. The majority of businesses in the EVZ stable are niche businesses or have a point of difference which should provide a degree of insulation to further deterioration in market conditions”.

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The Appendix 4E - Preliminary Final Report is attached.

Yours faithfully

Ian Wallace

Company Secretary

For further information, please contact:

Max Findlay Andrew Powis Non-Executive Chairman Chief Executive Officer Envirozel Limited Envirozel Limited Tel: +61 3 9670 4545 Tel: +61 3 9670 4545 E: max.findlay @envirozel.com E: andrew.powis @envirozel.com

About Envirozel Limited

EVZ is an emerging industrial group with a portfolio of specialist businesses operating in the engineering services industry. The company’s operations currently encompass five successful businesses; Syfon Systems , Brockman Engineering, Danum Engineering, National Engineering and TSF Engineering These businesses have strong positions in their respective markets with exceptional growth opportunities.

The company’s strategy is to grow via organic growth accompanied with an acquisition strategy which targets entities that can consolidate market penetration of existing businesses and established profitable niche businesses.

For further information, please visit: www.envirozel.com.au

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

Results for announcement to the market

				$
Revenue from ordinary activities	Up	82%	to	88,140,861
Profit from ordinary activities before tax	Up	25%	to	6,852,643
attributable to members
Profit from ordinary activities after tax	Down	16%	to	5,004,760
attributable to members
Net Profit for the period attributable to	Down	16%	to	5,004,760
members
Amount per security and franked amount				Not applicable
per security of final and interim dividends
Record date for determining entitlements to				Not applicable
dividends

Brief explanation of any of the above figures necessary to enable the figures to be understood

Refer to preceding letter

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

INCOME STATEMENT

For the year ended 30 June 2008

Revenue Other income Expenses: Marketing expense Cost of sales Corporate and administration Finance costs Business development costs Share based payments Profit/(loss) before income tax Income tax expense/(benefit) Profit from continuing operations Profit from discontinued operations Profit for the year Profit attributable to minority interest Profit attributable to members of the parent entity Overall operations Basic earnings per share Diluted earnings per share Continuing operations Basic earnings per share Diluted earnings per share	Economic Entity 2008 $ Economic Entity 2007 $ 88,140,861 48,362,408 - 237,600 (548,361) (454,302) (66,992,194) (36,218,761) (11,434,647) (5,264,256) (1,247,954) (518,275) (759,679) (643,942) (305,383) -
	6,852,643 5,500,472 1,847,883 (459,181)
	5,004,760 5,959,653 - -
	5,004,760 5,959,653 - -
	5,004,760 5,959,653
	Cents per share Cents per share 2.46 3.56 2.46 3.55 2.46 3.56 2.46 3.55

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

BALANCE SHEET As at 30 June 2008

CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Financial Assets Plant and Equipment Deferred Tax Assets Intangible Assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Current tax liabilities Short-term borrowings TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Long-term borrowings Deferred tax liabilities Other long term provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued Capital Reserves Accumulated losses TOTAL EQUITY	Economic Entity 2008 $ Economic Entity 2007 $ 3,138,980 8,275,124 18,706,149 13,017,676 2,179,571 2,566,334
	24,024,700 23,859,134
	714,290 338,730 11,433 25,000 6,063,293 5,439,545 1,994,387 2,180,273 30,796,263 14,769,867
	39,579,666 22,753,415
	63,604,366 46,612,549
	12,088,879 17,071,151 1,511,823 961,333 99,283 304,938
	13,699,985 18,337,422
	12,691,202 6,032,864 3,576 3,817 96,260 96,467
	12,791,038 6,133,148
	26,491,023 24,470,570
	37,113,343 22,141,979
	46,023,159 33,430,541 165,469 194,632 (9,075,285) (11,483,194)
	37,113,343 22,141,979

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 June 2008

ECONOMIC ENTITY

Balance at 1 July 2006 Shares issued during the year Profit attributable to members of parent entity Adjustments from translation of foreign controlled entities Sub-total Dividends paid or provided for Balance at 30 June 2007 Balance at 1 July 2007 Shares issued during the year Profit attributable to members of parent entity Adjustments from translation of foreign controlled entities Sub-total Dividends paid or provided for Balance at 30 June 2008	Issued Capital $ Accumulated Losses $ Capital Reserves $ Foreign Currency Translation Reserve $ Total $ 24,279,368 (17,442,847) 198,700 24,243 7,059,464 9,151,173 - - - 9,151,173 - 5,959,653 - - 5,959,653 - - - (28,311) (28,311)
	33,430,541 (11,483,194) 198,700 (4,068) 22,141,979 - - - - -
	33,430,541 (11,483,194) 198,700 (4,068) 22,141,979
	33,430,541 (11,483,194) 198,700 (4,068) 22,141,979 12,592,618 - - - 12,592,618 - 5,004,760 - - 5,004,760 - - - (29,163) (29,163)
	46,023,159 (6,478,434) 198,700 (33,231) 39,710,194 - (2,596,851) - - (2,596,851)
	46,023,159 (9,075,285) 198,700 (33,231) 37,113,343

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

STATEMENTS OF CASH FLOWS For the year ended 30 June 2008

CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) Payments to Suppliers & Employees (inclusive of GST) Income tax paid Interest received Finance costs NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Payment for controlled entities Proceeds from sale of plant and equipment Purchase of plant and equipment NET CASH FLOWS USED BY INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Dividends Paid by Parent Entity Proceeds from Shares Issued Proceeds - Loans Repayment of Loans Proceeds from Lease Financing Payments for Lease Financing NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES NET INCREASE /(DECREASE) IN CASH HELD Net Cash Balance Acquired Cash at beginning of financial year CASH AT END OF FINANCIAL YEAR	Economic Entity 2008 $ Economic Entity 2007 $ 88,400,421 50,082,633 (85,766,367) (42,544,686) (1,207,506) (17,696) 460,320 158,587 (1,247,954) (518,275)
	638,914 7,160,563
	(21,641,555) (11,232,056) 103,618 14,091 (1,203,172) (439,417)
	(22,741,109) (11,657,382)
	(2,310,916) - 12,001,300 7,851,173 11,300,000 5,200,000 (4,950,000) (3,100,000) 121,419 95,480 (46,520) (32,179)
	16,115,283 10,014,474
	(5,986,912) 5,517,655 822,984 1,029,069 8,275,124 1,728,400
	3,111,196 8,275,124

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the material accounting policies adopted by the economic entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

Basis of Preparation

The accounting policies set out below have been consistently applied to all years presented.

The financial report has been prepared on an accruals basis and is based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities.

Accounting Policies

(a) Principles of Consolidation

A controlled entity is any entity Envirozel Limited has the power to control the financial and operating policies of so as to obtain benefits from its activities. All controlled entities have a June financial year-end.

All inter-company balances and transactions between entities in the economic entity, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity.

Where controlled entities have entered or left the economic entity during the year, their operating results have been included/excluded from the date control was obtained or until the date control ceased.

Minority equity interests in the equity and results of the entities that are controlled are shown as a separate item in the consolidated financial report.

(b) Income Tax

The charge for current income tax expense is based on the profit for the year adjusted for any nonassessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(b) Income Tax (continued)

Envirozel Limited and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. Each entity in the group recognises its own current and deferred tax liabilities, except for any deferred tax liabilities resulting from unused tax losses and credits which are immediately assumed by Envirozel Limited. The current tax liability of each group entity is then subsequently assumed by Envirozel Limited. The group notified the Australian Taxation Office that it had formed an income tax consolidated group to apply from 7 June 2004. The tax consolidated group has entered a tax sharing arrangement whereby each company in the group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated group.

(c) Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of weighted average costs.

(d) Construction Contracts and Work in Progress

Construction work in progress is valued at cost, plus profit recognised to date less any provision for anticipated future losses. Cost includes both variable and fixed costs relating to specific contracts, and those costs that are attributable to the contract activity in general and that can be allocated on a reasonable basis.

Construction profits are recognised on the stage of completion basis and measured using the proportion of costs incurred to date as compared to expected actual costs. Where losses are anticipated they are provided for in full. Construction revenue has been recognised on the basis of the terms of the contract adjusted for any variations or claims allowable under the contract.

(e) Plant and Equipment

Each class of plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment is measured on the cost basis.

The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

The cost of fixed assets constructed within the economic entity includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

• (e) Plant and Equipment (continued)

Increases in the carrying amount arising on revaluation of land and buildings are credited to a revaluation reserve in shareholders' equity. Decreases that offset previous increases of the same asset are charged against fair value reserves directly in equity; all other decreases are charged to the income statement. Each year the difference between depreciation based on the revalued carrying amount of the asset charged to the income statement and depreciation based on the asset's original cost is transferred from the revaluation reserve to retained earnings.

Depreciation

The depreciable amount of all fixed assets including buildings and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over their useful lives to the economic entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Depreciation Rate  Leasehold improvements 5 to 30%  Plant and equipment 5 to 30%

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement.

(f) Leases

Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that are transferred to entities in the economic entity are classified as finance leases.

Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.

Leased assets are depreciated on a straight-line basis over their estimated useful lives.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.

Lease incentives under operating leases are recognised as a liability and amortised on a straightline basis over the life of the lease term.

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(g) Financial Instruments

Recognition and Initial Measurement

Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention.

Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below.

Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.

Financial assets at fair value through profit and loss

A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management and within the requirements of AASB 139: Recognition and Measurement of Financial Instruments. Derivatives are also categorised as held for trading unless they are designated as hedges. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the income statement in the period in which they arise.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method.

Held-to-maturity investments

These investments have fixed maturities, and it is the group's intention to hold these investments to maturity. Any held-to-maturity investments held by the group are stated at amortised cost using the effective interest rate method.

Available-for-sale financial assets

Available-for-sale financial assets include any financial assets not included in the above categories. Available-for-sale financial assets are reflected at fair value. Unrealised gains and losses arising from changes in fair value are taken directly to equity.

Financial liabilities

Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation.

Derivative instruments

Derivative instruments are measured at fair value. Gains and losses arising from changes in fair value are taken to the income statement unless they are designated as hedges.

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(g) Financial Instruments (continued)

Fair value

Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm's length transactions, reference to similar instruments and option pricing models.

Impairment

At each reporting date, the group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the income statement.

(h) Impairment of Assets

At each reporting date, the group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the income statement.

Impairment testing is performed annually for goodwill and intangible assets with indefinite lives.

Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

(i) Intangibles

Goodwill

Goodwill and goodwill on consolidation are initially recorded at the amount by which the purchase price for a business or for an ownership interest in a controlled entity exceeds the fair value attributed to its net assets at date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

(j) Foreign Currency Transactions and Balances Functional and presentation currency

The functional currency of each of the group's entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity's functional and presentation currency.

Transaction and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(j) Foreign Currency Transactions and Balances (continued)

Exchange differences arising on the translation of monetary items are recognised in the income statement, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the income statement.

Group companies

The financial results and position of foreign operations whose functional currency is different from the group's presentation currency are translated as follows:

• assets and liabilities are translated at year-end exchange rates prevailing at that reporting date;

• income and expenses are translated at average exchange rates for the period; and

• retained profits are translated at the exchange rates prevailing at the date of the transaction.

Exchange differences arising on translation of foreign operations are transferred directly to the group's foreign currency translation reserve in the balance sheet. These differences are recognised in the income statement in the period in which the operation is disposed.

(k) Employee Benefits

Provision is made for the economic entity’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits.

(l) Provisions

Provisions are recognised when the group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

(m) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other shortterm highly liquid investments with original maturities of two months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet.

(n) Revenue

Revenue from the sale of goods is recognised upon the delivery of goods to customers. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Dividend revenue is recognised when the right to receive a dividend has been established. Revenue from the rendering of a service is recognised upon the delivery of the service to the customers.

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(o) Borrowing Costs

• Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in the income statement in the period in which they are incurred.

(p) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

(q) Comparative Figures

• When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

(r) Critical accounting estimates and judgments

• The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group.

Key estimates — Impairment

The group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. No impairment has been recognised in respect of goodwill and plant and equipment for the year ended 30 June 2008.

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

PROFIT (a) REVENUE Sales Interest Received or Receivable Sundry Income (b) OTHER INCOME Gain on sale of Investments (c) PROFIT FOR THE YEAR Expenses: Movement in Employee Benefits Bad Debts Operating Lease Payments Finance Costs - External Depreciation of Plant & Equipment	Economic Entity 2008 $ Economic Entity 2007 $ 87,513,967 48,147,725 460,320 158,587 166,574 56,096
	88,140,861 48,362,408
	- 237,600
	- 237,600
	(445,831) 200,533 4,715 82,000 970,845 380,421 1,247,954 518,275 805,937 396,109

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

INCOME TAX a. The prima facie tax on profit from ordinary activities before income tax is reconciled to income tax as follows: Profit/(Loss) before Income Tax Income tax calculated at 30% (2007: 30%) Tax effect of permanent differences Under provision/(over provision) in prior years Taxation paid by offshore subsidiary Deferred tax assets not previously brought to account Prior year tax losses not previously brought to account Income Tax Expense/(Benefit) The applicable weighted average effective tax rates are as follows: b. The components of tax expense comprise: Current tax Deferred tax Deferred tax assets not previously brought to account Under provision/(over provision) in prior years Prior year tax losses not previously brought to account Income Tax Expense/(Benefit)	Economic Entity 2008 $ Economic Entity 2007 $ 6,852,643 5,500,472
	2,055,793 1,650,142 (123,185) 70,206 (99,710) - 20,480 17,696 - (7,538) (5,495) (2,189,687)
	1,847,883 (459,181)
	27% (8%)
	1,961,977 1,797,966 (8,889) (59,922) - (7,538) (99,710) - (5,495) (2,189,687)
	1,847,883 (459,181)

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

ISSUED CAPITAL Issued and Paid Up 207,348,755 ordinary shares (2007: 181,558,894 ordinary shares) 590,659 fully paid employee shares (2007 Nil ordinary shares) (a) Issued and Fully Paid Up Ordinary Shares Opening balance Shares Issued During the year 2 July 2007 30 August 2007 5 September 2007 15 November 2007 9 January 2008 Closing balance Opening balance Shares Issued During the year 2 July 2007 30 August 2007 5 September 2007 15 November 2007 9 January 2008 Closing balance	Economic Entity 2008 $ Economic Entity 2007 $ 45,720,208 33,430,541 302,951 -
	46,023,159 33,430,541
	Economic Entity 2008 $ 33,430,541 335,000 9,600,000 2,002,500 66,300 285,867 45,720,208 Economic Entity 2008 No. 181,558,894 705,694 20,000,000 4,005,000 600,000 479,167 207,348,755

(b) Fully paid employee shares

During the year the Company issued fully paid ordinary shares under the Envirozel Limited Division13A Exempt Share Plan. Shares issued to each participating employee under this plan rank equally with all other ordinary issued shares in all respects including voting rights and entitlement to participate in dividends, future rights and bonus issues. The participating employee must not sell or dispose of the employee shares until the earlier of the third anniversary of the date on which the shares were allocated and the date on which the employee has ceased employment.

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

ISSUED CAPITAL (Continued)

(c) Share Options:

The following table shows the movement in share options to subscribe for ordinary shares in the Company for the year ended 30 June 2008.

Opening Options on issue Class Expiry Date Ordinary Shares Entitlements Exercise Price Exercised During Year Lapsed / Cancelled Options Not Yet Exercised 600,000 ordinary 31/12/2007 600,000 $0.1105 600,000 - - 600,000 600,000 - - Economic Entity 2008 $ Economic Entity 2007 $ DIVIDENDS Interim fully franked ordinary dividend of 0.5 cents per share (2007: Nil) franked at the tax rate of 30% - Paid January 2008 1,037,303 - Final fully franked ordinary dividend of 0.75 cents per share (2007: Nil) franked at the tax rate of 30% - Paid May 2008 1,559,548 - 2,596,851 -	Opening Options on issue Class Expiry Date Ordinary Shares Entitlements Exercise Price Exercised During Year Lapsed / Cancelled Options Not Yet Exercised 600,000 ordinary 31/12/2007 600,000 $0.1105 600,000 - - 600,000 600,000 - - Economic Entity 2008 $ Economic Entity 2007 $ DIVIDENDS Interim fully franked ordinary dividend of 0.5 cents per share (2007: Nil) franked at the tax rate of 30% - Paid January 2008 1,037,303 - Final fully franked ordinary dividend of 0.75 cents per share (2007: Nil) franked at the tax rate of 30% - Paid May 2008 1,559,548 - 2,596,851 -	Opening Options on issue Class Expiry Date Ordinary Shares Entitlements Exercise Price Exercised During Year Lapsed / Cancelled Options Not Yet Exercised 600,000 ordinary 31/12/2007 600,000 $0.1105 600,000 - - 600,000 600,000 - - Economic Entity 2008 $ Economic Entity 2007 $ DIVIDENDS Interim fully franked ordinary dividend of 0.5 cents per share (2007: Nil) franked at the tax rate of 30% - Paid January 2008 1,037,303 - Final fully franked ordinary dividend of 0.75 cents per share (2007: Nil) franked at the tax rate of 30% - Paid May 2008 1,559,548 - 2,596,851 -
		600,000 - -
		Economic Entity 2007 $ - - -
	2,596,851

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

Economic Economic Entity Entity 2008 $ 2007 $ ACCUMULATED LOSSES Accumulated losses at the beginning of the financial year (11,483,194) (17,442,847) Net Profit 5,004,760 5,959,653 (6,478,434) (11,483,194) Dividends paid/declared (2,596,851) - Accumulated losses at the end of the financial year (9,075,285) (11,483,194) Economic Economic Entity Entity 2008 No. 2007 No. EARNINGS PER SHARE (a) Weighted average number of ordinary shares outstanding during the year used in calculation of Basic Earnings Per Share 203,215,315 167,350,405 (b) Weighted average number of ordinary shares outstanding during the year used in calculation of Diluted Earnings Per Share 203,215,315 167,950,405

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

SEGMENT REPORTING

Primary Reporting Business Segments REVENUE Revenue - external Total revenue Depreciation and Amortisation Impairment Costs RESULT Segment Result pre tax Net Profit ASSETS Segment Assets LIABILITIES Segment Liabilities ACQUISITION OF NON CURRENT ASSETS	Roof Drainage Roof Drainage Tank Construction Tank Construction Engineering Services Engineering Services Steel Fabrication Steel Fabrication 2008 $ 2007 $ 2008 $ 2007 $ 2008 $ 2007 $ 2008 $ 2007 $ 11,071,658 11,145,640 19,038,645 18,561,855 43,113,370 17,635,043 14,878,879 958,480
	11,071,658 11,145,640 19,038,645 18,561,855 43,113,370 17,635,043 14,878,879 958,480
	122,734 88,257 165,493 141,470 283,731 147,418 219,024 15,365
	- - - - - - - -
	2,314,469 2,171,582 2,106,503 2,802,214 4,512,519 1,726,895 338,479 (38,475) 5,991,707 6,361,476 7,969,832 7,943,209 37,660,145 20,355,532 7,707,018 6,916,253
	1,693,430 1,757,572 5,857,257 5,881,338 35,072,206 19,146,870 7,750,307 6,943,185
	333,135 222,501 393,413 176,696 16,423,794 10,360,340 502,365 4,273,286

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

SEGMENT REPORTING (continued) Primary Reporting Business Segments Water Treatment Water Treatment Corporate 2008 $ 2007 $ 2008 $ REVENUE Revenue - external - 319 38,309 Total revenue - 319 38,309 Depreciation and Amortisation - - 14,955 Impairment Costs - - - RESULT Segment Result (235,334) (479,737) - Unallocated Corporate Expenses (2,183,993) Profit from ordinary activities Income Tax Expenses Net Profit ASSETS Segment Assets 182,865 55,277 44,083,570 LIABILITIES Segment Liabilities 1,277,310 1,258,909 14,292,054 ACQUISITION OF NON CURRENT ASSETS - - 68,228	SEGMENT REPORTING (continued) Primary Reporting Business Segments Water Treatment Water Treatment Corporate 2008 $ 2007 $ 2008 $ REVENUE Revenue - external - 319 38,309 Total revenue - 319 38,309 Depreciation and Amortisation - - 14,955 Impairment Costs - - - RESULT Segment Result (235,334) (479,737) - Unallocated Corporate Expenses (2,183,993) Profit from ordinary activities Income Tax Expenses Net Profit ASSETS Segment Assets 182,865 55,277 44,083,570 LIABILITIES Segment Liabilities 1,277,310 1,258,909 14,292,054 ACQUISITION OF NON CURRENT ASSETS - - 68,228	Corporate Eliminations 2007 $ 2008 $ 61,071 -	Eliminations 2007 $ -	Economic Entity Economic Entity 2008 $ 2007 $ 88,140,861 48,362,408
	- 319 38,309	61,071 -	-	88,140,861 48,362,408
	- - 14,955	3,599 -	-	805,937 396,109
	- - -	- -	-	- -
	(235,334) (479,737) - (2,183,993) 182,865 55,277 44,083,570	- (682,007) 28,053,524 (39,990,771)	(23,072,722)	9,036,636 6,182,479 (2,183,993) (682,007)
				6,852,643 5,500,472 1,847,883 (459,181)
				5,004,760 5,959,653
				63,604,366 46,612,549
	1,277,310 1,258,909 14,292,054	11,941,177 (39,451,541)	(22,458,481)	26,491,023 24,470,570
	- - 68,228	4,602 -	-	17,720,935 15,037,425

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

SEGMENT REPORTING (Continued)

Secondary Reporting Geographical Segment External Segment Revenue Segment assets by location of assets Acquisition of non current assets	Australia Australia Malaysia Malaysia Economic Entity Economic Entity 2008 $ 2007 $ 2008 $ 2007 $ 2008 $ 2007 $ 86,295,443 46,550,862 1,845,418 1,811,546 88,140,861 48,362,408 61,700,155 45,280,270 1,904,211 1,332,279 63,604,366 46,612,549 17,672,866 14,977,449 48,069 59,976 17,720,935 15,037,425

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

		Economic	Economic
		Entity	Entity
		2008 $	2007 $
	STATEMENT OF CASH FLOWS
**(i) **	Cash balances comprise:
	Cash on Hand	3,138,980	8,275,124
	Bank overdraft	(27,784)	-
	Closing Cash Balance	3,111,196	8,275,124
**(ii) **	Reconciliation of the Operating Profit after
	Tax to Net Cash flows from Operations:
	Operating profit after Tax	5,004,760	5,959,653
	Gain/loss on sale of property, plant and
	equipment	79,468	36,064
	Depreciation
	- plant and equipment	805,937	396,109
	Share based payments	305,383	-
	Foreign Currency Translation	(22,817)	(22,966)
	Changes in assets and liabilities
	adjusted for effects of acquisition/disposal of
	operations during financial year
	Increase / (Decrease) in provisions for
	employee entitlements	(445,831)	200,533
	(Increase) / Decrease in inventories	416,663	(142,220)
	(Increase) / Decrease in trade and other
	receivables	(4,342,876)	(3,664,087)
	(Increase) / Decrease in deferred tax assets	261,308	(1,438,210)
	Increase / (Decrease) in payables	(1,781,429)	4,878,996
	Increase / (Decrease) in current tax payable	358,589	956,972
	Increase / (Decrease) in deferred tax liabilities	(241)	(281)
	Net Cash provided by Operating Activities	638,914	7,160,563

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

ACQUISITION / DISPOSAL OF BUSINESSES

Acquisition of Business

During the year the Economic Entity acquired the business and certain net assets from TSF Engineering. The acquisition was effective 1 September 2007.

During the prior year the Economic Entity acquired the businesses and certain net assets from Danum Engineering and from National Engineering. The acquisition of Danum Engineering was effective 1 January 2007. The acquisition of National Engineering was effective 1 June 2007.

Details of the acquisitions are as follows:

Consideration is comprised of: Deferred consideration Shares Issued Outflow of cash Cash Acquired Consideration Fair Value of net assets acquired: Trade and other receivables Inventories and Work In Progress Other current assets Property, plant and equipment Deferred tax assets Trade and other payables Employee Entitlements Lease Payables Goodwill on acquisition	2008 $ 2007 $ - 6,409,100 - 1,300,000 15,026,250 11,232,056 (822,984) (1,029,069)
	14,203,266 17,912,087
	5,148,279 3,143,213 (3,411,366) 1,302,995 577 1,379,237 415,945 3,358,680 75,422 429,426 (3,591,466) (1,029,118) (251,405) (1,431,420) - (54,032) 15,817,280 10,813,106

SUBSEQUENT EVENTS

There have not been any matters or circumstances, other than that referred to in the financial report or notes thereto, that have arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the economic entity, the results of those operations, or the state of affairs of the economic entity in future financial years after the financial year.

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

Additional Information:

Net tangible assets per ordinary share

30 June 30 June 2008 2007 3.04 cents 4.06 cents

Details of entities over which control has been gained or lost during the period

Name of entity

T.S.F.Engineering Pty Ltd Group.

Control gained/lost

Gained

Date of gain/loss of control 1 September 2007 Where material,  contribution of entity to the reporting entity’s profit from ordinary activities before tax during the period T.S.F.Engineering Pty Ltd Group - $3,011,253

• profit/(loss) of entity during the whole of the Not applicable previous corresponding period

Dividends and Distributions

Not applicable

Date on which each dividend or distribution is payable Amount per security of foreign sourced dividend or distribution

Details of dividend or distribution

Not applicable

reinvestment plans

27

Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2008

Additional Information:

Material interests in entities which are not controlled entities

Name of entity	Percentage of ownership interest held at end of period or date of disposal	Percentage of ownership interest held at end of period or date of disposal	Contribution to net profit (loss)	Contribution to net profit (loss)
Equity accounted associates and joint venture entities	Current period	Previous correspon ding period	Current period $A	Previous correspond ing period - $A
Total
Other material interests
Total	Nil	Nil	Nil	Nil

Compliance Statement:

The accounts are in the process of being audited.

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