EVZ LIMITED — Annual Report 2009

Aug 23, 2009

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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

24 August 2009

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

Financial Highlights

Year ended 30 June 2009 $,000 Year ended 30 June 2008 $,000 Operating Revenue $80,179 $88,141 EBITDA $6,402 $9,509 EBIT $5,451 $8,703 Impairment – National Engineering (1,453) - Net Profit Before Tax $2,736 $6,853 Tax Expense $717 $1,848 Net profit After Tax $2,019 $5,005 NET DEBT TO EQUITY RATIO 17% 21 % Dividends An interim fully franked dividend (paid April 2009) 0.25 cents 0.5 cents A final fully franked dividend (declared) Dividend payout ratio 0.25 cents 51.5% 0.75 cents 51.9%

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The financial year to 30 June 2009 has been an extremely difficult economic period and the prevailing economic conditions have impacted on the profit performance of Envirozel Limited (EVZ). Despite this backdrop it is pleasing to report that EVZ has remained profitable during the financial year whilst also retaining relative market share. During the year, operating revenues fell by only 9% despite the significant competitive pressures and contract delays the Group has faced. However, in order to maintain market share, margins have suffered. EVZ believes the strategy of retaining its market presence will stand the Group in good stead as economic conditions and confidence improve.

The EVZ Group has throughout the year continued its ethos of servicing its existing customers by providing appropriate engineering solutions accompanied with excellent quality work, competitive prices and delivery in a timely and efficient manner.

Further, EVZ has continued to pursue its strategy of broadening its customer base via geographic and product expansion. During the 2008/2009 year EVZ significantly invested in its front end or business development strategy. Business development managers have been employed in all operations throughout the Group. Their primary objectives are to increase the Group’s; customer, geographic and product bases. Strategies have been put in place to ensure this market expansion is undertaken in a co-ordinated and timely manner. In addition, each business development manager is entrusted with promoting the Group capabilities, especially in the steel, power and water arenas. By investing in this business development thrust now, EVZ has set the foundations for future growth in profitability. The additional costs of this strategy have however, impacted the EBIT performance for the current year.

The broader customer and product base will not only increase the Group’s revenues and profitability but significantly reduce business risks associated with a concentrated customer base.

Throughout the year EVZ has faced greater lead times in contract acceptance/approval and once won, a number of contracts were then either delayed, deferred or even cancelled. In addition, the engineering services industry has witnessed unsustainable industry pricing which has seen EVZ’s competitors seeking to win work on negative to minimal margins. Despite this, both Syfon Systems and Brockman Engineering continued to perform well during the year. Their strong positions in their respective markets have ensured they contributed in line with expectations to the Group as a whole. Both of these operations will be seeking further organic growth in the new financial year into new territories. TSF Engineering continues to expand having recently won contracts in Victoria and NSW for co-generation and tri-generation projects. These “Green Power” projects represent exciting growth opportunities for EVZ.

Danum Engineering faced a significant hurdle in the financial year having lost the Shell maintenance contract effective 30 June 2008. This contract had previously contributed approximately 75% of Danum‘s sales. It is pleasing to report that Danum’s sales for the year were 98% of previous year sales. In addition, despite very tight margins Danum continues to trade at acceptable profit levels. Its turnaround has been realised by an escalation of its product and geographic markets. Specifically, Danum has successfully completed significant works in both the mining and woodchip sectors.

National Engineering is the business most severely impacted by prevailing economic conditions. The Global credit crisis effectively stalled the retail construction market, which National Engineering was exposed too. At half year the Directors reported to the market that they had impaired the carrying value of National Engineering’s Goodwill by $1,453,487 or 50%. Management had also completed an extensive review and reorganisation of the business. Management had anticipated, with a refocusing and rationalising of its cost base that National Engineering would return to a break even position on a month by month basis by June 2009. This has been achieved. However, the accumulated negative EBIT contribution from National has greatly influenced the Group result.

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Whilst trading conditions still remain tight, the Directors believe that National Engineering is now better positioned to operate profitably. Therefore, as at balance date no further impairment of the carrying value of National Engineering’s Goodwill is considered necessary.

During the year several projects were completed in which a number of EVZ businesses jointly contributed. The Group will continue to seek out those opportunities which can utilise the Group’s significant array of capabilities.

The Group’s liquidity remains robust and is able to support its planned organic expansion. This strong financial position has been underpinned by the significant improvement in the Group’s cash flow from operations. Minimal bad or doubtful debts and the collection of outstanding receivables remains a focus. Working capital has and will continue to be closely monitored. Additionally, the Group’s debt is at a manageable level and debt levels will be reduced from operating cash flows over the new financial year.

The Directors are therefore pleased to declare a final dividend of 0.25 cents per share. The Group’s cash reserves, debt levels and trading position support the continuance of a dividend distribution to shareholders. The record date for the final fully franked dividend will be 16[th] October 2009 and the payment date will be 6[th] November 2009. The Dividend Reinvestment Plan will be suspended for this dividend payment.

For the financial year ending 30 June 2010, EVZ, in line with current economic forecasting, anticipates market conditions will gradually improve. Based on this assumption EVZ has targeted an improvement in both Revenue and EBIT. An update on the 2010 expectations will be presented at the Company’s Annual General Meeting.

The Directors of EVZ are confident of the Group’s future. EVZ has and will continue to maintain a relatively low level of debt. The majority of businesses in the EVZ stable are niche businesses and are well positioned to take advantage of the expected improving economic conditions. EVZ will continue to pursue the maximisation of growth opportunities with sustained emphasis in business development into existing and new markets.

The Appendix 4E - Preliminary Final Report is attached.

Yours faithfully

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Ian Wallace Company Secretary

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For further information, please contact:

Max Findlay Non-Executive Chairman Envirozel Limited Tel: +61 3 9670 4545 E: max.findlay @envirozel.com

Andrew Powis Chief Executive Officer Envirozel Limited Tel: +61 3 9670 4545 E: andrew.powis @envirozel.com

About Envirozel Limited

EVZ is an emerging industrial group with a portfolio of specialist businesses in the engineering services sector. EVZ operates in the areas of power, steel and water through their established 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 organically through product and geographic expansion. Future acquisitions will target businesses which will consolidate the capabilities and market presence of the existing group 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 2009

Results for announcement to the market

				$
Revenue from ordinary activities	Down	9%	to	80,178,539
Profit from ordinary activities before tax and	Down	39%	to	4,189,693
impairment attributable to members
Profit from ordinary activities before tax	Down	60%	to	2,736,206
attributable to members
Profit from ordinary activities after tax	Down	60%	to	2,019,305
attributable to members
Net Profit for the period attributable to	Down	60%	to	2,019,305
members
Amount per security and franked amount				0.25cents per
per security of final and interim dividends				share fully
				franked
Record date for determining entitlements to				16th October
dividends				2009

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 2009

INCOME STATEMENT For the year ended 30 June 2009

Revenue Expenses: Marketing expense Cost of sales Corporate and administration Finance costs Business development costs Share based payments Impairment expense – Goodwill Profit before income tax Income tax expense 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 and Diluted earnings per share Continuing operations Basic and Diluted earnings per share	Economic Entity 2009 $ Economic Entity 2008 $ 80,178,539 88,140,861 (1,056,986) (548,361) (62,944,886) (66,992,194) (10,704,307) (11,434,647) (1,268,487) (1,247,954) (14,180) (759,679) - (305,383) (1,453,487) -
	2,736,206 6,852,643 716,901 1,847,883
	2,019,305 5,004,760 - -
	2,019,305 5,004,760 - -
	2,019,305 5,004,760
	Cents per share Cents per share 0.97 2.46 0.97 2.46

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2009

BALANCE SHEET As at 30 June 2009

CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Financial assets 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 2009 $ Economic Entity 2008 $ 6,095,348 3,138,980 18,710,419 18,706,149 3,004,499 2,179,571 11,715 -
	27,821,981 24,024,700
	256,585 714,290 - 11,433 6,270,209 6,063,293 2,211,431 1,994,387 29,342,776 30,796,263
	38,081,001 39,579,666
	65,902,982 63,604,366
	13,853,124 12,088,879 (4,717) 1,511,823 2,175,400 99,283
	16,023,807 13,699,985
	11,667,892 12,691,202 9,048 3,576 60,756 96,260
	11,737,696 12,791,038
	27,761,503 26,491,023
	38,141,479 37,113,343
	46,023,159 46,023,159 213,998 165,469 (8,095,678) (9,075,285)
	38,141,479 37,113,343

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2009

STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2009

Economic Entity

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 Balance at 1 July 2008 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 2009	Issued Capital Accumulated Losses $ Capital Reserves $ Foreign Currency Translation Reserve $ Total $ $ 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
	46,023,159 (9,075,285) 198,700 (33,231) 37,113,343 - - - - - - 2,019,305 - - 2,019,305 - - - 48,529 48,529
	46,023,159 (7,055,980) 198,700 15,298 39,181,177 - (1,039,698) - - (1,039,698)
	46,023,159 (8,095,678) 198,700 15,298 38,141,479

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2009

STATEMENTS OF CASH FLOWS For the year ended 30 June 2009

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 2009 $ Economic Entity 2008 $ 87,954,770 88,400,421 (80,824,874) (85,766,367) (2,470,587) (1,207,506) 185,811 460,320 (1,268,487) (1,247,954)
	3,576,633 638,914
	- (21,641,555) 41,156 103,618 (1,194,379) (1,203,172)
	(1,153,223) (22,741,109)
	(519,849) (2,310,916) - 12,001,300 700,000 11,300,000 - (4,950,000) 144,979 121,419 (85,153) (46,520)
	239,977 16,115,283
	2,663,387 (5,986,912) - 822,984 3,111,196 8,275,124
	5,774,583 3,111,196

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2009

BASIS OF PREPARATION OF PRELIMINARY FINANCIAL STATEMENTS

The preliminary report has been prepared on an accruals basis and is based on historical costs modified, where appropriate, by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

The accounting policies applied in this preliminary report are the same as those applied by the Economic Entity in the financial report as at and for the year ended 30 June 2008. The principal accounting policies have been consistently applied to the periods presented, unless otherwise stated.

(a) 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.

During the year, the carrying value of the Goodwill of National Engineering Pty Ltd was assessed given the current economic conditions. Following this assessment, the Goodwill was impaired by $1,453,487. At 30 June 2009 there was no further impairment of Goodwill required with respect to the remaining Goodwill of the economic entity. No impairment has been recognised in respect of plant and equipment for the year ended 30 June 2009.

PROFIT (a) REVENUE Sales Interest Received or Receivable Sundry Income (b) PROFIT FOR THE YEAR Expenses: Movement in Employee Benefits Bad Debts Doubtful Debts Operating Lease Payments Finance Costs - External Depreciation - Plant & Equipment Impairment Expense – Goodwill	Economic Entity 2009 $ Economic Entity 2008 $ 79,765,253 87,513,967 185,811 460,320 227,475 166,574
	80,178,539 88,140,861
	113,507 (445,831) 3,022 4,715 10,360 - 1,227,391 970,845 1,268,487 1,247,954 951,685 805,937 1,453,487 -

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2009

INCOME TAX a. The prima facie tax on profit before income tax is reconciled to income tax as follows: Profit before Income Tax Income tax calculated at 30% (2008: 30%) Tax effect of permanent differences Under provision/(over provision) in prior years Taxation expense/paid by offshore subsidiaries Prior year tax losses not previously brought to account Income Tax Expense The applicable weighted average effective tax rates are as follows: b. The components of tax expense comprise: Current tax Deferred tax Under provision/(over provision) in prior years Prior year tax losses not previously brought to account Income Tax Expense	Economic Entity 2009 $ Economic Entity 2008 $ 2,736,206 6,852,643
	820,862 2,055,793 (129,307) (123,185) (18,231) (99,710) 43,577 20,480 - (5,495)
	716,901 1,847,883
	26% 27%
	1,099,840 1,961,977 (364,708) (8,889) (18,231) (99,710) - (5,495)
	716,901 1,847,883

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2009

ISSUED CAPITAL Issued and Paid Up 207,348,755 ordinary shares (2008: 207,348,755 ordinary shares) 590,659 fully paid employee shares (2008: 590,659 ordinary shares) DIVIDENDS Interim fully franked ordinary dividend of 0.25 cents per share (2008: 0.5 cents) franked at the tax rate of 30% - Paid April 2009 Final fully franked ordinary dividend of 0.25 cents per share (2008: 0.75 cents) franked at the tax rate of 30% - Declared ACCUMULATED LOSSES Accumulated losses at the beginning of the financial year Net Profit Dividends paid/declared Accumulated losses at the end of the financial year EARNINGS PER SHARE Weighted average number of ordinary shares outstanding during the year used in calculation of Basic Earnings Per Share and Diluted Earnings Per Share	Economic Entity 2009 $ Economic Entity 2008 $ 45,720,208 45,720,208 302,951 302,951
	46,023,159 46,023,159
	519,849 1,037,303 519,849 1,559,548
	1,039,698 2,596,851
	(9,075,285) (11,483,194) 2,019,305 5,004,760
	(7,055,980) (6,478,434) (1,039,698) (2,596,851)
	(8,095,678) (9,075,285)
	207,939,414 203,215,315

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2009

SEGMENT REPORTING

Primary Reporting

The economic entity has determined that all business operations in the Envirozel Limited Economic Entity operate in the Engineering Services Industry segment.

In making this determination, the economic entity has amended its segment reporting disclosure compared to the previous Annual Report as at 30 June 2008.

Secondary Reporting
	Australia	Australia	Asia	Asia	Economic	Economic
					Entity	Entity
Geographical Segment	2009 $	2008 $	2009 $	2008 $	2009 $	2008 $
External Segment Revenue	77,859,594	86,295,443	2,318,945	1,845,418	80,178,539	88,140,861
Segment assets by location of
assets	62,537,781	61,700,155	3,365,201	1,904,211	65,902,982	63,604,366
Acquisition of non current
assets	1,168,586	17,672,866	25,793	48,069	1,194,379	17,720,935

INTANGIBLE ASSETS

Goodwill: Cost Accumulated impairment Net carrying value	Economic Entity 2009 $ Economic Entity 2008 $ 30,796,263 30,796,263 (1,453,487) -	Economic Entity 2009 $ Economic Entity 2008 $ 30,796,263 30,796,263 (1,453,487) -	Economic Entity 2009 $ Economic Entity 2008 $ 30,796,263 30,796,263 (1,453,487) -
		29,342,776	30,796,263

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2009

	Economic	Economic
	Entity	Entity
	2009 $	2008 $
STATEMENT OF CASH FLOWS
(i)Cash balances comprise:
Cash on Hand	6,095,348	3,138,980
Bank overdraft	(320,765)	(27,784)
Closing Cash Balance	5,774,583	3,111,196
(ii)Reconciliation of the Operating Profit
after Tax to Net Cash flows from
Operations:
Operating profit after tax	2,019,305	5,004,760
Loss on sale of property, plant and	7,159	79,468
equipment
Depreciation - plant and equipment	951,685	805,937
Share based payments	-	305,383
Impairment – Goodwill	1,453,487	-
Foreign currency translation	35,992	(22,817)
Impairment - stock	62,910	-
Impairment - receivables	10,360	-
Changes in assets and liabilities
adjusted for effects of acquisition/disposal	of
operations during financial year
Increase / (Decrease) in provisions for
employee entitlements	113,507	(445,831)
(Increase) / Decrease in inventories	(887,838)	416,663
(Increase) / Decrease in trade and other
receivables	442,793	(4,342,876)
(Increase) / Decrease in deferred tax assets	(217,044)	261,308
Increase / (Decrease) in payables	1,095,385	(1,781,429)
Increase / (Decrease) in current tax payable	(1,516,540)	358,589
Increase / (Decrease) in deferred tax	5,472	(241)
liabilities
Net Cash provided by Operating	3,576,633	638,914
Activities

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2009

ACQUISITION / DISPOSAL OF BUSINESSES

Acquisition of Business

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

Details of the acquisitions are as follows:

Consideration is comprised of: 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 Goodwill on acquisition	2009 $ 2008 $ - 15,026,250 - (822,984)
	- 14,203,266
	- 5,148,279 - (3,411,366) - 577 - 415,945 - 75,422 - (3,591,466) - (251,405) - 15,817,280

SUBSEQUENT EVENTS

There has not been any matters or circumstances, other than that referred to in the financial statements or notes thereto, that has 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 2009

Additional Information:

30 June 30 June 2009 2008 Net tangible assets per ordinary share 4.23 cents 3.04 cents

An increase of 39%.

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

Name of entity Not applicable Control gained/lost Date of gain/loss of control Where material,

• contribution of entity to the reporting entity’s profit from ordinary activities before tax during the period

• profit/(loss) of entity during the whole of the previous corresponding period

Dividends and Distributions

Date on which each dividend or distribution is payable Record Date: 16[th] October 2009 Payment Date: 6[th] November 2009 Amount per security of foreign sourced dividend or distribution Not applicable Details of dividend or distribution The DRP will be suspended with respect reinvestment plans to the final dividend

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Envirozel Limited Appendix 4E Preliminary final report Year Ended 30 June 2009

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 corresponding period	Current period $A	Previous corresponding 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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