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23[rd] August 2011 90038 1496:P.mto

The Manager Company Announcements Australian Securities Exchange Limited Level 8 Exchange Plaza 2 The Esplanade PERTH WA 6000

2011 ANNUAL FINANCIAL REPORT

The Directors of GR Engineering Services Limited (ASX:GNG) (the Company) are pleased to announce the Company’s 2010/2011 Financial Report to the market.

These financial Statements are the first released to the market subsequent to the Company’s shares being admitted for quotation on the Official List of the Australian Securities Exchange on 19 April, 2011.

HIGHLIGHTS

Net profit after tax of $ 21.1 million an increase of 18.5% over the previous financial year and 12.2 % over Prospectus forecast.
Revenue of $142.5 million, an increase of 11.1 % over the previous financial year and 2.7% over Prospectus forecast.
Final fully franked dividend of 4.0 cents per share per Prospectus forecast.
A capital raising of $30.0 million strengthening the Company’s Balance Sheet, which with retained earnings, resulting in cash on hand as at 30 June, 2011 of $ 36.0 million and an increase in Net Tangible Asset backing from 8.5 cents per share to 27.2 cents per share, year over year.

The results for the financial year ended 30 June, 2011 represented a record for the Company assisted by a commodity sector which remained strong throughout the year. The results were consistent with the Company’s growth strategy which will be further supported by the raising of $30.0 million in new capital which will provide the additional working capital and bonding capacity required for larger construction projects.

GR ENGINEERING SERVICES LIMITED ABN 12 121 542 738 Tel: +61 8 6272 6000 Fax: +61 8 6272 6001 Email: [email protected] Website: www.gres.com.au PO Box 258, Belmont WA 6984 179 Great Eastern Highway, Belmont WA 6104

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Increased earnings for the year arose from continued success in winning EPC (fixed price, lump sum) contracts on acceptable margins and the ongoing effort of management to contain overhead costs within budget parameters.

Consistent with the Company’s Prospectus forecast and stated dividend policy, the Directors have resolved to declare a fully franked dividend of 4.0 cents per share, payable on 10 November 2011 for all shareholders of record on 16 September 2011. This dividend payment, together with the increase in the Company’s share price since listing on 19 April 2011 represents a substantial increase in shareholder value over that time.

During 2010/2011 GR Engineering Services Limited continued to focus on further strengthening its reputation as a market leader in providing quality engineering design and construction services to the mining and mineral processing industries. Services were delivered to a range of existing and new clients for plants relating to a number of commodities including gold, nickel, copper, lead and zinc and iron ore.

The Company was also engaged on an historically high number of feasibility studies on a broad range of precious metals, base metals and industrial minerals. These studies relate to projects located throughout Australia, Africa, South America and the Pacific Rim.

The historically high number of feasibility studies supports the Company’s strategy of organic growth as studies mature and convert into design and construction projects thereby presenting opportunities for the Company’s core business of project delivery on an EPC basis. In addition, the geographical spread of the projects to which these studies relate will help underpin the Company’s strategy of growth through overseas expansion.

During the year, the Company significantly expanded its Brisbane office to establish a stronger market presence on the east coast of Australia, create a base from which to win and execute projects around the Pacific Rim and the Eastern States and to establish a capacity for overflow of engineering and design effort from the Perth office.

The Company remains focused on maintaining its reputation as a leading provider of quality engineering design and construction services to the mining and mineral processing industries and pursuing its strategy for growth. By observing the Company’s Risk Management Policy, the Directors will ensure that such growth is pursued with an eye to financial sustainability, cash flow, cost control and the integrity of management control so as to protect and ultimately increase the value of the shareholders’ stake in the Company.

The Directors welcome to the share register all new shareholders of the Company, many of whom have been on the share register since the Company’s shares were admitted for quotation on the Official List of the Australian Securities Exchange. The Directors are pleased to report to them and to the market on a record year of revenue and profitability. The Directors also take this opportunity to express gratitude to all our customers, employees and contractors for their loyalty and invaluable contribution to these record results.

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Joe Ricciardo Managing Director

Reference: 90038 1496:P.mto

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Appendix 4E

Preliminary Final Report to the Australian Securities Exchange

GR Engineering Services Limited ABN 12 121 542 738

For the Year Ended 30 June 2011

(corresponding period year ended 30 June 2010)

RESULTS FOR ANNOUNCEMENT TO THE MARKET

RESULTS FOR ANNOUNCEMENT TO THE MARKET
	$’000	Percentage Increase/ (decrease) From 30/6/10
Revenue from ordinary activities	142,512	11.15%
Profit from ordinary activities after tax attributable to members	21,098	18.29%
Net profit for the year attributable to members	21,098	18.29%

DIVIDENDS

DIVIDENDS
	2011 cents per share	2010 cents per share
Interim dividend (fully franked)	7.50	12.50
Interim dividend (unfranked)	3.33	-
Final dividend (fully franked)	4.00	5.00

The record date for determining entitlements to dividends will be 16[th] September, and will be paid on 10[th] November 2011

NET TANGIBLE ASSET BACKING

	30 June 2011	30 June 2010
Net tangible asset backing per ordinary security	27.22 cents	8.49 cents

Note – for comparative purposes, the number of shares assumed to be issued in year ending 30 June 2010 is 120,000,000. This is based on shareholdings resulting from a share split in the year ended 30 June 2011.

The Annual Financial Report dated 22[nd] August 2011 forms part of and should be read in conjunction with this Preliminary Final Report (Appendix 4E).

This report is based on accounts which have been audited. The audit report is included in the Annual Financial Report.

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GR ENGINEERING SERVICES LIMITED

ANNUAL FINANCIAL REPORT

30 June 2011

ABN 12 121 542 738

ANNUAL FINANCIAL REPORT

• • •

CORPORATE DIRECTORY ...................................................................................................................... 3 DIRECTORS’ REPORT ............................................................................................................................. 4 AUDITOR’S INDEPENDENCE DECLARATION ..................................................................................... 17 STATEMENT OF COMPREHENSIVE INCOME ..................................................................................... 18 STATEMENT OF FINANCIAL POSITION ............................................................................................... 19 STATEMENT OF CASH FLOWS ............................................................................................................ 20 STATEMENT OF CHANGES IN EQUITY ............................................................................................... 21 NOTES TO THE FINANCIAL STATEMENTS ......................................................................................... 22 DIRECTORS’ DECLARATION ................................................................................................................ 45 INDEPENDENT AUDITOR’S REPORT ................................................................................................... 46 CORPORATE GOVERNANCE STATEMENT ........................................................................................ 48

CALENDAR

FINAL DIVIDEND:

EX-DIVIDEND DATE RECORD DATE PAYMENT DATE ANNUAL GENERAL MEETING

12 SEPTEMBER, 2011 16 SEPTEMBER, 2011 10 NOVEMBER, 2011 10 NOVEMBER, 2011

ANNUAL FINANCIAL REPORT

• • •

CORPORATE DIRECTORY

GR ENGINEERING SERVICES LIMITED

ACN 121 542 738 ABN 12 121 542 738

DIRECTORS

Barry Patterson (Non-Executive Chairman) Joe Ricciardo (Managing Director) Tony Patrizi (Executive Director) Peter Hood (Non-Executive Director) Terrence Strapp (Non-Executive Director)

COMPANY SECRETARY & CHIEF FINANCIAL OFFICER

Giuseppe (Joe) Totaro

REGISTERED OFFICE

71-73 Daly Street BELMONT WA 6104

PRINCIPAL PLACE OF BUSINESS

179 Great Eastern Highway BELMONT WA 6104 Telephone: (61 8) 6272 6000 Facsimile: (61 8) 6272 6001 Email: [email protected] Website: www.gres.com.au

ASX CODE

GNG

CORPORATE ADVISER

Argonaut Capital Limited Level 30, 77 St Georges Terrace PERTH WA 6000

AUDITOR

Deloitte Touche Tohmatsu Level 14, 240 St Georges Terrace PERTH WA 6000

SOLICITORS TO THE COMPANY

Gilbert + Tobin 1202 Hay Street WEST PERTH WA 6005

SHARE REGISTRY

Computershare Investor Services Pty Limited Level 2, 45 St Georges Terrace PERTH WA 6000

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ANNUAL FINANCIAL REPORT

• • •

DIRECTORS’ REPORT

Your Directors present their report together with the financial statements of GR Engineering Services Limited (“GR Engineering” or “the Company”) for the period 1[st] July 2010 to 30[th] June 2011 and the independent auditor’s report thereon.

The names of the Company’s Directors in office during the year ended 30[th] June 2011 and until the date of this report are as below. Directors were in office for this entire period unless otherwise stated.

DIRECTORS

Barry Sydney PATTERSON (Chairman) Appointed 3[rd] January 2007 Joseph Mario Paul RICCIARDO (Managing Director) Appointed 4[th] September 2006 Tony Marco PATRIZI (Executive Director) Appointed 4[th] September 2006 Terrence John STRAPP (Non-Executive Director) Appointed 10[th] February 2011 Peter John HOOD (Non-Executive Director) Appointed 10[th] February 2011

During the year, the following persons ceased to be directors of the Company:

Stephen Paul KENDRICK Ceased 20[th] January 2011 George Gregory BOTICA Ceased 20[th] January 2011 Rodney Douglas SCHIER Ceased 20[th] January 2011 David Joseph SALA TENNA Ceased 20[th] January 2011 Michael Gerald WOODHOUSE Ceased 20[th] January 2011 Teodoro Giuseppe CONDIPODERO Ceased 20[th] January 2011 Giuseppe TOTARO Ceased 2[nd] February 2011

COMPANY SECRETARY

Giuseppe (Joe) TOTARO

Appointed 4[th] September 2006

Joe has been Company Secretary since 4[th] September 2006 and was appointed Chief Financial Officer on 19[th] April 2011. Joe is a co-founding shareholder of GR Engineering.

PRINCIPAL ACTIVITIES

During the year the Company’s activities have been the provision of high quality process engineering design and construction services to the mining and mineral processing industry.

DIVIDENDS PAID DURING THE YEAR

Fully franked dividend of 5.00 cents per share paid on 5[th] July 2010
Fully franked dividend of 7.50 cents per share paid on 27[th] October 2010
Unfranked dividend of 3.33 cents per share paid 4[th] January 2011
Subsequent to 30 June 2011 (August 2011), a fully franked dividend of 4.00 cents per share was recommended by the Directors to be paid on 10[th] November 2011.

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ANNUAL FINANCIAL REPORT

• • •

REVIEW OF OPERATIONS AND FINANCIAL PERFORMANCE

During the year ended 30 June 2011 the Company continued to capitalise on its excellent reputation and proven business model by winning new contracts and delivering on existing projects.

A record amount of construction work was undertaken during the year both in Australia and overseas resulting in record revenue of $142.5 million and record net profit after tax of $21.1 million. The Company was successful in winning new contracts during the year providing a solid basis of activity moving into the 2011/2012 financial year. By 30 June 2011 work had commenced on construction projects involving lead, zinc and gold. These construction projects will result in a significant contribution to the financial year ended 30 June 2012.

The Company’s performance through the year was supported by historically high commodity prices. The price of gold increased substantially, particularly towards the end of the financial year which the Directors believe augers well for the Company’s future prospects as gold related studies mature and convert into construction projects. During 2010/2011, the Company either completed or was engaged on 17 studies relating to gold projects throughout Australia, Africa, the Pacific Rim and South America. The Company was also engaged on studies on a broad range of base metals and industrial minerals in Australia and overseas.

The historically high number of studies supports the Company’s strategy of organic growth as studies mature and convert into design and construction projects thereby presenting opportunities for the Company’s core business of project delivery on an Engineering, Procurement & Construction (EPC) basis. In addition, the geographical spread of the projects to which these studies relate will help underpin the Company’s strategy of growth through overseas expansion.

Corporately, the highlight of the year was the admission of the Company’s shares on the Official List of the Australian Securities Exchange on 19[th] April 2011. The public listing of the Company’s shares was accompanied by a raising of $30.0 million by the issue of 30 million new shares at $1.00 each which substantially bolstered the Company’s Statement of Financial Position and provided it with additional capital required to execute larger construction projects.

Also in April 2011, the Company significantly expanded its Brisbane office to establish a stronger market presence on the east coast of Australia, create a base from which to win and execute projects around the Pacific Rim and the Eastern States and to establish a capacity for overflow of engineering and design effort from the Perth office.

With an historically high number of studies on hand, solid carryover of projects into the 2011/2012 financial year, growing international exposure, growing workforce and strengthened Statement of Financial Position, the Directors believe the Company has built a solid platform from which to achieve its objectives for growth in 2011/2012 and beyond.

FINANCIAL POSITION

During the year, the Company’s net asset position increased by $30.65 million due to continued profitability and retained earnings and the raising of $30.0 million in new capital pursuant to the Company’s Initial Public Offering. The Company’s shares were admitted for listing on the Official List of the Australian Securities Exchange on 19[th] April 2011.

As at 30 June 2011 the Company had cash on hand of $36.0 million and its working capital position remained strong as evidenced by a working capital ratio of 2.33 to 1.00.

STRATEGIES FOR CONTINUED REVENUE AND EARNINGS GROWTH

In order to continue to grow the Company’s revenue and earnings base and therefore add value to our shareholders investment in the Company, the Board and Management aim to:

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ANNUAL FINANCIAL REPORT

• • •

Capitalise on the historically high number of feasibility studies on which the Company is presently engaged;
Capitalise on the Company’s excellent reputation and growing profile in relation to the many engineering and construction opportunities in Australia and abroad;
Maximise the utilisation of the Company’s increased capital base to secure larger construction contracts while staying within the Company’s area of expertise;
Continue to foster excellent employee relations through appropriate incentive schemes, training and professional development and to maintain the Company’s high staff retention rate; and
Assess opportunities to acquire other businesses to the extent that they will be consistent with and complimentary to the Company’s existing business model, with the primary focus being organic growth.

SIGNIFICANT CHANGE IN THE STATE OF AFFAIRS

On 22[nd] February 2011 the Company changed its corporate status from a Proprietary Limited Company to a Limited Company, i.e. from GR Engineering Services Pty Ltd to GR Engineering Services Limited.

On 19[th] April 2011 the Company completed the raising of $30.0 million of new capital by way of an Initial Public Offering (IPO) of 30 million shares at the issue price of $1.00, and listed on the Australian Securities Exchange.

EVENTS AFTER THE BALANCE START DATE

On 22 August 2011, the Company declared a fully franked dividend of 4.0 cents per share, an aggregate of $6,000,000. The record date of the dividend is 16 September 2011 and the proposed payment date is 10 November 2011.

Since the end of the financial year, the Company has entered into a lease for office space at 183 Great Eastern Highway, Belmont, commencing 7 October 2011 and expiring on 6 October 2016. The annual rent for these premises is $260,625.

There has been no other matter or circumstance, 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 Company, the results of those operations, or the state of affairs of the Company in future financial years.

BOARD OF DIRECTORS

Barry Sydney PATTERSON – Non Executive Chairman ASMM, MIMM, FAICD

Barry is a Mining Engineer with over 50 years’ experience in the mining industry and is a cofounder of GR Engineering. He co-founded contract mining companies Eltin, Australian Mine Management and National Mine Management. Barry was also a co-founder of JR Engineering Services Pty Ltd (“JR Engineering”).

Barry has served as a director of a number of public companies across a range of industries. He was formerly a non-executive director of Sonic Healthcare Limited and Silex Systems Limited.

Interests in Ordinary shares in GR Engineering Services Limited - 12,000,000
Interests in Options in GR Engineering Services Limited - None

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ANNUAL FINANCIAL REPORT

• • •

Special Responsibilities: - Chairman of the Remuneration and Nomination Committee - Member of the Audit and Risk Committee
Directorships in other listed entities in the last 3 years:

Sonic Healthcare Limited 1992 - 2010 (ASX:SHL) Silex Systems Limited 1993 – 2010 (ASX:SLX)

Joseph (Joe) Mario Paul RICCIARDO – Managing Director BAppSc(Mech Eng)

Joe co-founded GR Engineering. He is a Mechanical Engineer with over 32 years’ experience in feasibility studies, design, construction, maintenance and operation of mineral processing facilities.

In 1986 Joe lead the founding of JR Engineering, as Managing Director, Joe successfully grew JR Engineering into a leading engineering services provider before its sale to a major ASX listed Mining Services Group in 2001.

In 2006, Joe was instrumental in regrouping the former key executives from JR Engineering to establish GR Engineering.

Joe is a non-executive director of Mineral Resources Limited and has been on its Board since its public listing in 2006.

Interests in Ordinary shares in GR Engineering Services Limited - 12,000,000
Interests in Options in GR Engineering Services Limited - None
Special Responsibilities - Managing Director
Directorships in other listed entities in the last 3 years:

Mineral Resources Limited 2006 – Present (ASX:MIN)

Tony Marco PATRIZI – Executive Director BE(Mech Eng)

Tony co-founded GR Engineering. Tony is a Mechanical Engineer with over 20 years’ experience in the mining and minerals processing industries as a company director, operations manager, project manager and maintenance engineer. Tony was previously the operations manager of JR Engineering which had over 300 personnel and provided workshop, maintenance, engineering and construction services to mining and mineral processing projects in Western Australia and interstate.

Interests in Ordinary shares in GR Engineering Services Limited - 12,000,000
Interests in Options in GR Engineering Services Limited - None
Special Responsibilities - Operations Director
Directorships in other listed entities – None

Terrence (Terry) John STRAPP – Non-Executive Director CPA, FFin., MAICD

Terry has extensive experience in banking, finance and corporate risk management and has over 30 years’ experience in the mining and resource industry. He was formerly Chairman of Mercator Gold Plc and non-executive director of The Mac Services Group Limited.

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ANNUAL FINANCIAL REPORT

• • •

Terry is a Chairman of Oakvale Capital and a non-executive director of Ausdrill Limited.

Interests in Ordinary shares in GR Engineering Services Limited - 300,000
Interests in Options in GR Engineering Services Limited - None
Special Responsibilities: - Chairman of the Audit and Risk Committee
- Member of the Remuneration and Nomination Committee
Directorships in other listed entities in the last 3 years:

Ausdrill Limited for 3 years to present (ASX:ASL)

Peter John HOOD – Non-Executive Director BE(Chem), MAusIMM, FlChemE, FAICD

Peter is a Chemical Engineer and has over 40 years’ experience in the resource and energy sectors.

He formerly served in senior management and project development roles for WMC in nickel and gold production. Peter was formerly the chief executive officer of Coogee Chemicals and then oil and gas operator, Coogee Resources.

Peter has considerable board experience and is currently President of the Chamber of Commerce and Industry of Western Australia and former Chairman of Apollo Gas Limited.

Interests in Ordinary shares in GR Engineering Services Limited 500,000
� Interests in Options in GR Engineering Services Limited None
Special Responsibilities - Member of the Audit and Risk Committee
Member of the Remuneration and Nomination Committee
Directorships in other listed entities in the last 3 years:

Apollo Gas Limited 2009 – 2010 (ASX:AZO)

MEETINGS OF DIRECTORS

The number of Meetings of the Board of Directors held during the year ended 30 June 2011 and the number attended by each director are as follows:

	FULL MEETINGS OF DIRECTORS	FULL MEETINGS OF DIRECTORS
	Eligible	Attended
Barry Patterson	10	5
Joe Ricciardo	10	10
Tony Patrizi	10	9
Terrence Strapp	5	5
Peter Hood	5	5
David Sala Tenna	5	5
Giuseppe Totaro	5	5
Rodney Schier	5	5
Stephen Kendrick	5	4
Teodoro Condipodero	5	5
Michael Woodhouse	5	2
George Botica	5	0

Of the 10 meetings of directors, 5 were held prior to the listing of the Company on the Australian Securities Exchange on 19[th] April 2011.

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ANNUAL FINANCIAL REPORT

• • •

No meetings of the Audit and Risk Committee or the Remuneration and Nominations Committee which were both formed by a resolution of the Board of Directors dated 4 March 2011, were held during 2010/2011.

OPTIONS

As at the date of this report, the unissued ordinary shares of GR Engineering Services Limited under option are as follows:

Grant Date	Date of Expiry	Exercise Price	No. Under Option
19 April 2011	19 April 2013	$1.25	500,000
19 April 2011	19 April 2014	$1.50	500,000
19 April 2011	19 April 2015	$1.80	750,000
19 April 2011	19 April 2016	$2.10	750,000

The option holder does not have any right to participate in any issues of shares or other interests in the Company or any other entity.

For full particulars of options issued to directors as remuneration, refer to the Remuneration Report.

No shares were issued during the financial year ended 30 June 2011 due to the exercise of options.

INDEMNIFYING OFFICERS OR AUDITORS

During the financial year, the Company paid insurance premiums relating to contracts insuring the directors and company secretary against liability which may arise in connection with them acting as Director or Company Secretary, to the extent permitted under the Corporations Act. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.

LEGAL PROCEEDINGS

No person has applied for leave of court to bring any material proceedings on behalf of the Company during the year ended 30 June 2011.

NON AUDIT SERVICES

The Board of Directors is satisfied that the provision of non-audit services during the year is consistent with the general standard of independence imposed by the Corporations Act 2001.

Non-audit services were reviewed by the Board to ensure they do not compromise the objectivity of the Auditor and to ensure the nature of services provided is not inconsistent with the principals of auditor independence. Set out in APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.

During the year ended 30 June 2011 fees amounting to $90,330 were paid to Deloitte Touche Tohmatsu for non-audit services including the preparation of the Investigating Accountants Report relating to the Company’s Initial Public Offering of its shares and taxation advise. A further $136,828 was paid to Deloitte Corporate Finance Pty Limited in connection with the Company’s Initial Public Offering.

AUDITOR’S INDEPENDENCE DECLARATION

The Auditor’s Independence Declaration for the year ended 30 June 2011 has been reviewed and can be found at page 17 of the financial report.

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ANNUAL FINANCIAL REPORT

• • •

ENVIRONMENTAL ISSUES

In conducting its business, the Company is required to obtain permits and licences from relevant state environment protection authorities. It is of paramount importance to management and the Board of Directors that as well as operating within its own Environmental Policies, the Company observes all relevant licences in good standing.

The Company has not been made aware of any areas of non-compliance in this regard.

The Company is not subject to the Energy Efficiency Opportunities Act 2006 as it does not meet the energy use threshold specified in Section 10 of that legislation. The Company’s energy consumption will be monitored and will register under the act if and when the energy use threshold is exceeded.

REMUNERATION REPORT – AUDITED

The report details the amount and nature of the remuneration for the Company’s directors and five highest paid executives.

Directors

Joe Ricciardo (Managing Director) Tony Patrizi (Executive Director) Barry Patterson (Non-Executive Chairman) Terrence Strapp (Non-Executive Director) Peter Hood (Non-Executive Director)

Executives

Geoffrey Jones (Chief Operating Officer) David Sala Tenna (General Manager) (Ceased to be a director 20[th] January 2011) Giuseppe Totaro (Chief Financial Officer & Company Secretary) (Ceased to be a director 2[nd] February 2011)

Sean Supanz (Engineering Manager) Peter Allen (Manager – Process)

The following were key management personnel prior to the Company changing status from a Proprietary Limited company to a Limited company on 22 February 2011:

Michael Woodhouse (Ceased to be a director 20[th ] January 2011) Rodney Schier (Ceased to be a director 20[th] January 2011) Teodoro Condipodero (Ceased to be a director 20[th] January 2011) Stephen Kendrick (Ceased to be a director 20[th] January 2011) George Botica (Ceased to be a director 20[th] January 2011)

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ANNUAL FINANCIAL REPORT

• • •

REMUNERATION POLICY

The Company’s remuneration policy has been designed to attract and retain high calibre key employees whose personal interests are aligned with success and growth of the Company and therefore shareholders.

This will be achieved by:

Staying abreast of labour market forces thereby ensuring remuneration offered by the company is competitive and remains so through a process of annual review.
Devising performance based remuneration programmes.
Activation of the Company’s Employee Share Option Plan.

NON-EXECUTIVE DIRECTORS

The Company’s policy is to remunerate non-executive directors according to market rates and to reflect the time dedicated to their position and special responsibilities involved.

GR Engineering’s Constitution provides that the Directors shall be paid out of the funds of the Company by way of remuneration for services as Directors such sums as may from time to time be determined by the Company in General Meeting, to be divided among the Directors in such proportions as they shall from time to time agree or in default of agreement, equally.

Directors are encouraged to hold shares in the Company to align their personal objectives with the growth and profitability of the Company.

EXECUTIVE DIRECTORS

Executive-Director pay and reward is comprised of a competitive base salary. To the extent that both executive directors are substantial shareholders in the Company, their personal objectives are aligned with the performance of the Company.

SENIOR EXECUTIVES

Executive remuneration is comprised of a competitive base salary and performance bonuses (at the discretion of the board). The Chief Operating Officer is also incentivised through the issue to him of performance based options.

All executive remuneration packages are reviewed annually to ensure they remain competitive. Remuneration paid to directors and executives is valued at cost to the Company. Options are valued using the Black Scholes method.

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ANNUAL FINANCIAL REPORT

• • •

EMPLOYMENT DETAILS OF MEMBERS OF KEY MANAGEMENT AND EXECUTIVES

		Contract Details	Non Salary Cash Incentives	Shares/ Units	Options/ Rights	Fixed Salary	Total
Joe Ricciardo	Managing Director	Fixed term to 31 Jan 2013. Termination: 3 months notice by the Company or employee	-	-	-	100%	100%
Tony Patrizi	Executive Director	Fixed term to 31 Jan 2013. Termination: 3 months notice by the Company or employee	-	-	-	100%	100%
Barry Patterson	Non-Executive Chairman	By rotation and re election	-	-	-	100%	100%
Terry Strapp	Non-Executive Director	By rotation and re election	-	-	-	100%	100%
Peter Hood	Non-Executive Director	By rotation and re election	-	-	-	100%	100%
Geoffrey Jones	Chief Operating Officer	Fixed term to 30 June 2016. Termination: 4 months notice by the Company and 3 months notice by the employee	-	-	36.1%	63.9%	100%
David Sala Tenna	General Manager	Fixed term to 31 Jan 2013. Termination: 3 months notice by the Company or employee	-	-	-	100%	100%
Joe Totaro	Company Secretary / Chief Financial Officer	Fixed term to 31 Jan 2013. Termination: 3 months notice by the Company or employee	-	-	-	100%	100%

The terms and conditions upon which key employees are employed are set out in contracts of employment. These contracts provide for minimum notice periods prior to termination and, in some cases restrictive covenants upon termination.

The Company can terminate the contract at any time in the case of serious misconduct and termination payments may be paid in lieu of notice period.

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ANNUAL FINANCIAL REPORT

• • •

REMUNERATION DETAILS FOR THE YEAR ENDED 30 JUNE 2011 - BOARD OF DIRECTORS

				Post
Short Term Benefits			Employment Benefits			Share Based Payments
Cash		Non Cash	Sub Total	Super-	Other	Equity	Options	Total	%
Salary &		Payments	annuation		*				Performance
Fees		**							Based
$		$	$	$	$	$	$	$
Executive Directors
Joe Ricciardo
2011 242,854		10,440	253,294	21,857	-	-	-	275,151	0%
2010 178,899		10,682	189,581	16,101	-	-	-	205,682	0%
Tony Patrizi
2011 223,800		13,350	237,150	21,492	-	-	-	258,642	0%
2010 142,202		14,915	157,117	12,798	-	-	-	169,915	0%
Rodney Schier
2011 258,557		4,922	263,479	23,270	-	-	-	286,749	0%
2010 240,314		4,266	244,580	21,628	-	-	-	266,208	0%
Michael Woodhouse
2011 248,765		4,523	253,288	22,389	-	-	-	275,677	0%
2010 225,940		5,220	231,160	20,335	-	-	-	251,495	0%
Stephen Kendrick
2011 250,353		7,754	258,107	22,532	-	-	-	280,639	0%
2010 226,712		6,372	233,084	20,404	-	-	-	253,488	0%
Teodoro Condipodero
2011 194,336		18,640	212,976	17,490	-	-	-	230,466	0%
2010 178,899		21,623	200,522	16,101	-	-	-	216,623	0%
Non-Executive Directors
Barry Patterson (appointed Chairman 10 February				2011)
2011 32,532		-	32,532	-	-	-	-	32,532	0%
2010 -		-	-	-	-	-	-	-	0%
Terrence Strapp ***	(appointed 10		February 2011)
2011 23,000		-	23,000	2,070	-	-	-	25,070	0%
2010 -		-	-	-	-	-	-	-	0%
Peter Hood (appointed		10 February 2011)
2011 22,385		-	22,385	2,015	-	-	-	24,400	0%
2010 -		-	-	-	-	-	-		0%
George Botica
2011 -		-	-	-	-	-	-	-	0%
2010 -		-	-	-	-	-	-	-	0%
Total Directors
2011 1,496,582		59,629	1,556,211	133,115	-	-	-	1,689,326	0%
2010 1,192,966		63,078	1,256,044	107,367	-	-	-	1,363,411	0%

“Other” amounts relate to performance based bonus payments, as approved by the board
** ”Non-Cash payments” refer to reportable fringe benefits (fuel for personal vehicles and novated leases)
*** Paid to SDG Nominees Pty Ltd, an entity controlled by Terrence Strapp

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ANNUAL FINANCIAL REPORT

• • •

EXECUTIVES

							Post
			Short Term		Benefits		Employ- ment			Share Based Payments
							Benefits
			Cash	Non Cash		Sub-	Super-		Other	Equity	Options	Total	%
			Salary &	Payments		Total	annuation		*			Performance
			Fees		**								Based
			$		$	$	$		$	$	$	$
Senior	Executives
Geoffrey		Jones – Chief Operating Officer (appointed 18 April						2011)
2011			82,127		-	82,127	7,391		-	-	50,622	140,140	36.1%
2010			-		-	-	-		-	-	-	-
David Sala Tenna – General Manager
2011			320,042	11,039		331,081	28,804		-	-	-	359,885	0%
2010			293,578		9,365	302,943	26,422		-	-	-	329,365	0%
Giuseppe			Totaro – Company Secretary & Chief Financial Officer
2011			177,664		5,887	183,551	15,990		-	-	-	199,541	0%
2010			130,381		6,598	136,979	11,734		-	-	-	148,713	0%
Sean Supanz – Engineering Manager (appointed							11 January	2010)
2011			316,314		8,250	324,564	-		15,000	-	-	339,564	4.4%
2010			146,880		-	146,880	-		-	-	-	146,880	0%
Peter Allen – Manager – Process
2011			267,388		3,800	271,188	24,064		50,000	-	-	345,252	14.5%
2010			237,650		-	237,650	21,388		20,000	-	-	279,038	7.2%
Total Senior Executives
2011			1,163,535	28,976		1,192,511	76,249		65,000	-	50,622	1,384,382	8.4%
2010			808,489	15,963		824,452	59,544		20,000	-	-	903,996	2.2%
GRAND TOTAL
2011			2,660,117		88,605	2,748,722	209,364		65,000	-	50,622	3,073,708	3.8%
2010			2,001,455		79,041	2,080,496	166,911		20,000	-	-	2,267,407	0.9%

“Other” amounts refer to performance based bonus payments, as approved by the board.

** ”Non-Cash payments” refer to reportable fringe benefits (fuel for personal vehicles and novated leases)

The company has established an employee share option plan. The company may offer options to subscribe for shares in the company to eligible persons. Options offered under the employee share option plan are to be offered on such terms as the board determines and the offer must set out specified information including the number of options, the period of the offer, calculation of the exercise price and any exercise conditions.

The exercise price is to be determined by the Board in its absolute discretion and set out in the offer provided that the exercise price is not less than the average market price on ASX on the five trading days prior to the day the Directors resolve to grant the Option(s).

The Company has issued a total of 2,500,000 Options to its Chief Operating Officer, Geoff Jones subject to vesting criteria and terms and conditions, namely that they will lapse if the employee ceases to become an eligible person, for any reason other than a specified reason as outlined in the terms of the option. Key elements of the Options are summarised in the following table:

					Fair Value
Grant Date	Vesting Date	Date of Expiry	Exercise Price	Number	at Grant Date
19 April 2011	19 April 2012	19 April 2013	$1.25	500,000	$0.1740
19 April 2011	19 April 2013	19 April 2014	$1.50	500,000	$0.2450
19 April 2011	19 April 2014	19 April 2015	$1.80	750,000	$0.2400
19 April 2011	19 April 2015	19 April 2016	$2.10	750,000	$0.2600

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ANNUAL FINANCIAL REPORT

• • •

The following grants of share-based payment compensation to directors and senior management relate to the current financial year:

						% of compensation
				% of	% of	for the year
		Number	Number	grant	grant	consisting of
Name	Option series	granted	vested	vested	forfeited	options
Geoff Jones	Issued 19 April 2011	2,500,000	0	0%	0%	36.1%

The following table summarises the value of options granted, exercised or lapsed during the year to directors and senior management:

	$ Value of options	$ Value of options exercised at the	$ Value of options lapsed at
Name	granted at thegrant date	exercise date	the date of lapse
Geoff Jones	584,500	0	0

RELATIONSHIP BETWEEN COMPANY PERFORMANCE AND REMUNERATION POLICY

The table below sets out summary information about the Company’s earnings and movements in shareholder wealth for the 5 years to 30 June 2011:

	2007	2008	2009	2010	2011
Revenue($000’s)	13,948	106,163	79,074	128,217	142,512
Net profit before tax($000’s)	(151)	13,276	22,111	24,427	29,247
Net profit after tax($000’s)	(11)	9,389	15,471	17,836	21,098
Share Price at year end	N/A	N/A	N/A	N/A	$1.95
Dividend*($000’s)		6,500	11,000	15,000	19,000
EPS*(cents)	(0.09)	7.8	12.9	14.9	16.76
Diluted EPS*(cents)	(0.09)	7.8	12.9	14.9	16.75

Note that for comparative purposes the number of shares assumed to be on issue for the financial years ended 30 June 2007 to 2009 inclusive is 120.0 million.

The Company’s two executive directors, the Non-executive Chairman, two senior executives and four key employees hold significant shareholdings in the Company. As a result the performance of the Company and the personal and financial interest of its executive and management team are aligned.

The Company has issued a series of options to its Chief Operating Officer which are designed to deliver increasing financial reward to the COO with increases in the Company’s share price and therefore shareholder wealth.

An Employee Share Option Plan has been adopted by the Company and will be implemented on an as required basis as the Nomination and Remuneration Committee identifieS the need to remunerate either existing or future employees, key employees, executives or executive directors on a performance basis.

This marks the end of the remuneration report.

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ANNUAL FINANCIAL REPORT

• • •

CORPORATE GOVERNANCE

The Directors of the Company are committed to the highest standards of corporate governance in all elements of the business of the Company including internal control, ethics, risk functions, policies and internal and external audit.

On 15 March 2011, the Company’s Board of Directors resolved to adopt comprehensive corporate governance policy and manual based on ASX guidelines. It was further resolved by the Board that corporate governance policies would be reviewed and additional structures implemented as the Company’s activities develop in size, nature and scope.

Please refer to the Corporate Governance Statement contained in this report.

This Report of the Directors, incorporating the Remuneration Report, is signed in accordance with a resolution of the Board of Directors.

This directors’ report is signed in accordance with a resolution of directors made pursuant to s.298(2) of the Corporations Act 2001.

On behalf of the Directors

JOSEPH MARIO PAUL RICCIARDO Managing Director

Date: 23[rd] August 2011

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==> picture [130 x 25] intentionally omitted <==

Deloitte Touche Tohmatsu ABN 74 490 121 060

Woodside Plaza Level 14 240 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia

The Board of Directors GR Engineering Services Limited 71- 73 Daly Street BELMONT WA 6104

DX: 206 Tel: +61 (0) 8 9365 7000 Fax: +61 (8) 9365 7001 www.deloitte.com.au

23 August 2011

Dear Board Members

GR Engineering Services Limited

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of GR Engineering Services Limited.

As lead audit partner for the audit of the financial statements of GR Engineering Services Limited for the financial year ended 30 June 2011, I declare that to the best of my knowledge and belief, there have been no contraventions of:

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

(ii) any applicable code of professional conduct in relation to the audit.

Yours sincerely

DELOITTE TOUCHE TOHMATSU

Conley Manifis Partner Chartered Accountants

Liability limited by a scheme approved under Professional Standards Legislation.

Member of Deloitte Touche Tohmatsu Limited

ANNUAL FINANCIAL REPORT

• • •

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2011

Notes Revenue Rendering of services Cost of sales Gross profit Finance income 3(b) Other income 3(a) Finance costs 3(b) Occupancy expenses Administrative expenses Depreciation 3(c) Profit before income tax Income tax expense 4 Net profit for the year Other comprehensive income Total comprehensive income for the year Profit attributable to : Owners of the Company Total comprehensive income attributable to : Owners of the Company Earnings per share Basic (cents per share) 15 Diluted (cents per share) 15	2011 2010 $ $ 142,511,568 128,217,354 105,753,367 99,661,044
	36,758,201 28,556,310 955,789 737,534 440,111 224,471 44,026 38,298 1,211,631 855,631 7,108,532 3,696,760 542,422 500,147
	29,247,490 24,427,479 8,149,564 6,591,842
	21,097,926 17,835,637
	- -
	21,097,926 17,835,637

	21,097,926 17,835,637

	21,097,926 17,835,637
	Cents per share Cents per share
	16.76 14.86
	16.75 14.86

The accompanying notes form part of these Financial Statements.

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ANNUAL FINANCIAL REPORT

• • •

STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2011

Notes ASSETS Current Assets Cash and cash equivalents 5 Trade and other receivables 6 Inventories 8 Current tax asset 4 Total Current Assets Non-Current Assets Deferred tax asset 4 Property, plant and equipment 7 Total Non-current assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables 9 Borrowings 11 Provisions 10 Unearned Income 12 Total Current Liabilities Non-Current Liabilities Borrowings 11 Provisions 10 Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Equity attributable to equity holders of the Company Issued capital 13 Reserves 16 Retained earnings 17 TOTAL EQUITY	2011 2010 $ $ 36,014,084 12,399,632 24,739,462 25,834,018 1,673,918 2,830,120 1,202,524 3,667,202
	63,629,988 44,730,972
	3,222,304 2,740,409 1,972,638 1,433,933
	5,194,942 4,174,342
	68,824,930 48,905,314
	14,760,281 12,994,065 526,904 267,548 6,486,824 8,519,429 5,586,776 16,555,389
	27,360,785 38,336,431
	401,581 383,785 228,370 -
	629,951 383,785
	27,990,736 38,720,216
	40,834,194 10,185,098
	28,501,548 1,000 50,622 - 12,282,024 10,184,098
	40,834,194 10,185,098

The accompanying notes form part of these Financial Statements

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ANNUAL FINANCIAL REPORT

• • •

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2011

Notes Cash flows from operating activities Receipts from customers Payments to suppliers and employees Income tax paid Interest received Net cash flows from operating activities 5 Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Net cash flows used in investing activities Cash flows from financing activities Proceeds from issue of shares Payment of capital raising costs Payment of finance lease liabilities (Payments) / Proceeds from borrowings Repayments of borrowings Dividends paid Net cash flows from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 5	2011 2010 $ $ 132,609,565 126,458,297 (112,480,692) (95,346,162) (5,524,159) (16,120,423) 955,789 737,534
	15,560,503 15,729,246
	(1,081,129) (443,169) - -
	(1,081,129) (443,169)
	30,000,000 - (2,142,074) - (134,065) (243,368) 411,217 206,266 - - (19,000,000) (15,000,000)
	9,135,078 (15,037,102)
	23,614,452 248,976 12,399,632 12,150,656
	36,014,084 12,399,632

The accompanying notes form part of these Financial Statements

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ANNUAL FINANCIAL REPORT

• • •

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2011

Balance as at 1 July 2009 Profit for the year Other Comprehensive income for the year Total Comprehensive income for the year Declared dividend Issue of capital Capital raising costs Issue of options Balance as at 30 June 2010 Profit for the year Other Comprehensive income for the year Total Comprehensive income for the year Declared dividend Issue of capital Capital raising costs Deferred tax asset (Capital raising costs) Issue of options Balance as at 30 June 2011	Issued capital Retained Earnings Total Reserves $ $ $ $ 1,000 - 7,348,461 7,349,461 - - 17,835,637 17,835,637 - - - -
	- - 17,835,637 17,835,637
	- - (15,000,000) (15,000,000) - - - - - - - - - - - -
	1,000 - 10,184,098 10,185,098
	- - 21,097,926 21,097,926 - - - -
	- - 21,097,926 21,097,926
	- - (19,000,000) (19,000,000) 30,000,000 - - 30,000,000 (2,142,074) - - (2,142,074) 642,622 - - 642,622 - 50,622 - 50,622
	28,501,548 50,622 12,282,024 40,834,194

The accompanying notes form part of these Financial Statements

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

1 CORPORATE INFORMATION

The financial report of GR Engineering Services Limited for the year ended 30 June 2011 was authorised for issue in accordance with a resolution of the directors on 22 August 2011.

GR Engineering Services Limited is a limited company incorporated and domiciled in Australia.

The registered office of GR Engineering Services Limited is located at 71-73 Daly Street, Belmont, Western Australia.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation

The financial statements have been prepared on the basis of historical cost, except for certain non-current assets and financial instruments that are measured at revalued amounts or fair values, as explained in the accounting policies below. Historical cost is generally based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted.

(b)

Statement of Compliance

These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and comply with other requirements of the law.

Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the Company comply with International Financial Reporting Standards (‘IFRS’).

(c) Accounting for Construction Contracts

Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the reporting date, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable.

Contract costs are recognised as expenses in the period in which they are incurred. Where construction contracts are still in the completion stage, they are included as work in progress.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

(d)

Foreign Currency Translation

Both the functional and presentation currency of GR Engineering Services Limited is Australian dollars ($AUD).

Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date.

All differences in the financial report are taken to the statement of comprehensive income.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the date of the initial transaction.

Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Page | 22

ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

(e) Property, Plant and Equipment

Plant and equipment is stated at cost less accumulated depreciation and any impairment in value.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:

Property, plant and equipment - over 2.5 to 20 years

Impairment

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Impairment losses are recognised in the statement of comprehensive income in the cost of sales line item.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued used of the asset.

Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statement of comprehensive income in the period the item is derecognised.

(f) Recoverable Amount of Assets

At each reporting date, the Company assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Company makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

(g) Trade and Other Receivables

Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.

An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

(h) Cash and Cash Equivalents

Cash and short-term deposits in the statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

(i)

Interest-Bearing Loans and Borrowings

All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in the statement of comprehensive income when the liabilities are derecognised and as well as through the amortisation process.

(j)

Provisions

Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Where the Company expects some or all of a provision to be reimbursed the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

(k) Leases

Finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments.

Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as the lease income.

Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term.

(l)

Unearned income

Unearned income classified as current liability consists of customer advances for construction work in progress. The Company recognises a liability upon receipt of customer advances and subsequently as revenue when earned.

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

(m) Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Rendering of services

Revenue from a contract to provide services is recognised by reference to the stage of completion.

Where the contract outcome cannot be measured reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable.

Sales revenue

Revenue from the sale of goods is recognised when the Company has transferred to the buyer the significant risks and rewards of ownership of the goods.

Interest

Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset.

(n) Income Tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for the financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences:

except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised;

except where the deferred income tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in the statement of comprehensive income.

(o)

Other Taxes

Revenues, expenses and assets are recognised net of the amount of GST except:

where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(p) De-recognition of Financial Instruments

The de-recognition of a financial instrument takes place when the Company no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party.

(q) Inventories

Inventories are valued at the lower of cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

(r)

Employee benefits

A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measured reliably.

Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Company in respect of services provided by employees up to reporting date.

Contributions to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions.

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

(s) Trade and other payables

These amounts represent liabilities for goods and services provided to the Company prior to the end of the financial year which are unpaid. The amounts are unsecured and are paid on normal commercial terms.

(t) Share based payments

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At the end of each reporting period until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognised in profit or loss for the period

(u) Earnings per share

Basic earnings per share

Basic earnings per share is determined by dividing net profit after income tax attributable to ordinary shareholders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(v) Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration.

If the entity reacquires its own equity instruments, for example as the result of a share buy back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity.

(w) Dividends

Provision is made for the amount of any dividend declared on or before the end of the reporting period but not distributed at the end of the reporting period.

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

(x) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of the Company.

(y) Significant accounting judgments, estimates and assumptions

In applying the Company's accounting policies management continually evaluates judgments, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Company. All judgments, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgments, estimates and assumptions.

Because the Company undertakes projects on an Engineering, Procurement & Construction (“EPC”) turnkey design and construction contract basis, all the risk associated with cost, time, plant performance and plant warranty (defects period) rests with the Company. As such the Company is responsible for the total “make-good” of any defects of underperformance.

The company includes a project completion and close out provision (liability) in design and construction project cost forecast reports, nominally being 5% of the project revenue for larger projects and 2% of the project revenue for smaller projects. These percentages have been assessed based on management’s best estimate.

(z) Adoption of new and revised Accounting Standards

The Company has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board that are relevant to their operations and are effective for the current financial reporting period beginning 1 July 2010.

Significant new and revised standards and interpretations effective for the current financial reporting period that are relevant to the Company are:

AASB 2009-5: Further Amendments to Australian Accounting Standards arising from the Annual Improvements Process;
AASB 2009-8: Amendments to Australian Accounting Standards – Group Cash-settled Sharebased Payment Transactions AASB 2;
AASB 2009-10: Amendments to Australian Accounting Standards - Classification of Rights Issues;
AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project;
Interpretation 19: Extinguishing Financial Liabilities with Equity Instruments.

The adoption of these standards has not had an impact on the Company.

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

(aa) Standards and Interpretations issued but not yet effective

The following Australian Accounting Standards and Interpretations have recently been issued or amended but are not yet effective and have not been adopted by the Company for the year ended 30 June 2011

Standard/Interpretation	Standard/Interpretation	Effective for annual	Expected to be initially
		reporting periods	applied in the financial
		beginning on or after	year ending
•	AASB 124 Related Party Disclosures
	(2009) and AASB 2009-12 Amendments to
	Australian Accounting Standards	1 January 2011	30 June 2012
•	AASB 9 Financial Instruments, AASB 2009-
	11 Amendments to Australian Accounting
	Standards arising from AASB 9 and AASB
	2010-9 Amendments to Australian
	Accounting Standards arising from AASB9
	(December 2010)	1 January 2013	30 June 2014
•	AASB 2010-4 Further Amendments to
	Australian Accounting Standards arising
	from Annual Improvements Project	1 January 2011	30 June 2012
•	AASB 2010-5 Amendments to Australian
	Accounting Standards	1 January 2011	30 June 2012
•	AASB 2010-6 Amendments to Australian
	Accounting Standards – Disclosures on
	Transfers of Financial Assets	1 July 2011	30 June 2012
•	AASB 2010-8 Amendments to Australian
	Accounting Standards – Deferred Tax:
	Recovery of Underlying Assets	1 January 2012	30 June 2013
•	AASB 2011-4 Amendments to Australian
	Accounting Standards to Remove Individual
	Key Management Personnel Disclosure
	Requirements	1 July 2013	30 June 2014
•	IFRS 10 Consolidated Financial Statements	1 January 2013	30 June 2014
•	IFRS 11 Joint Arrangements	1 January 2013	30 June 2014
•	IFRS 12 Disclosure of Interests in Other
	Entities	1 January 2013	30 June 2014
•	IFRS 13 Fair Value Measurement	1 January 2013	30 June 2014

The impact of these recently issued or amended standards and interpretations have not been determined as yet by the Company.

Page | 29

ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

3 REVENUES AND EXPENSES

(a) Other income

(a) Other income
Government rebates and subsidies Profit on disposal of inventories Sundry revenue (b) Finance (costs) / income Bank interest received Interest charges on finance leases (c) Depreciation and amortisation Depreciation (d) Employee benefits expense Wages and Salaries Workers’ compensation costs Superannuation costs Share based payments (e) Doubtful debts expense included in administration expenses Doubtful debts expense		2011 2010 $ $ 22,550 140,112 261,708 - 155,853 84,359
		440,111 224,471
		955,789 737,534 (44,026) (38,298) 542,423 500,147 28,286,351 24,113,702 167,500 163,331 1,922,696 1,641,540 50,622 -
		30,427,169 25,918,573
		1,525,000 -

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

4 INCOME TAX

Major components of income tax expense for the years ended 30 June 2011 and 2010 are:

Income tax recognised in the Statement of comprehensive income

Current income Current income tax charge Foreign tax on Gold Ridge project Foreign tax on other projects Adjustments in respect of current income tax of previous years Deferred income tax Relating to origination and reversal of temporary differences Income tax expense reported in statement of comprehensive income A reconciliation of income tax expense applicable to accounting profit before income tax at the statutory income tax rate to income tax expense at the Company’s effective income tax rate for the years ended 30 June 2011 and 2010 is as follows: Accounting profit before income tax At the statutory income tax rate of 30% (2010: 30%) Add: Non-deductible expenses Effect of different tax rates on branches operating in different jurisdictions Adjustments in respect of previous current income tax Less: Adjustments in respect of previous deferred income tax Non assessable Income At effective income tax rate of 27.8% (2010: 26.9%) Income tax expense reported in statement of comprehensive income Income tax recognised directly in equity Current tax Share issue costs Deferred tax Share issue expenses deductible over five years Deferred income tax Deferred income tax at 30 June relates to the following: Deferred income tax assets Accrued employee entitlements Accrued superannuation Accrued audit fees Leasing Section 40/880 deduction Provision for long service leave Provision for doubtful debts Provision for project returns IPO costs (included in equity) Provision for warranty Tax losses	2011 2010 $ $ 3,701,859 7,860,344 3,836,762 - 78,382 - 500,359 (773,154) 32,202 (495,348)
	8,149,564 6,591,842

	29,247,490 24,427,479
	8,774,247 7,328,244 20,999 18,546 (1,178,243) - 532,561 (773,154) - 18,206 - -
	8,149,564 6,591,842

	8,149,564 6,591,842
	- - 642,622 -
	642,622 -
	304,049 218,256 169,850 153,791 - 7,182 50,317 23,607 15,981 - 68,511 - 457,500 - 259,558 403,836 514,098 - 1,382,440 1,933,737 - -
	3,222,304 2,740,409

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

	2011	2010
Deferred income tax liabilities	$	$
Fuel tax credit	-	-
Other revenue	-	-
Net Deferred Tax Asset	3,222,304	2,740,409
Deferred tax balances are presented in the statement of financial position as follows:
Deferred tax assets	3,222,304	2,740,409
Deferred tax liabilities	-	-
	3,222,304	2,740,409
Current income tax assets and liabilities
Current tax assets
Tax refund receivable	1,202,524	3,667,202
	1,202,524	3,667,202

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

5 CASH AND CASH EQUIVALENTS

Cash at bank and in hand Short term deposits Cash at bank and in hand earns interest at floating rates based on daily bank rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Company, and earn interest at the respective short-term deposit rates.	2011 2010 $ $ 6,279,222 10,627,936 29,734,862 1,771,696
	36,014,084 12,399,632

The fair value of cash and cash equivalents is $36,014,084 (2010: $12,399,632).

Reconciliation of cash

For the purposes of the Statement of Cash Flows, cash and cash equivalents comprise the following at 30 June:

Cash at bank and in hand Short-term deposits Bank overdrafts Reconciliation from the net profit after tax to the net cash flows from operations Net Profit after tax Non-cash items Depreciation Doubtful debt expense Share based employee payments Changes in assets and liabilities (Increase)/decrease in trade and other receivables (Increase)/decrease in inventories (Increase)/decrease in deferred tax asset (Decrease)/increase in trade and other payables (Decrease)/increase in provisions (Decrease)/increase in tax liabilities Increase in unearned income Net cash from operating activities	6,279,222 10,627,936 29,734,862 1,771,696 - -
	36,014,084 12,399,632
	21,097,926 17,835,637 542,423 500,147 1,525,000 - 50,622 - (430,445) (16,930,963) 1,156,202 (1,080,002) 160,727 (495,348) 1,766,218 9,946,361 (1,804,235) 1,385,333 2,464,677 (9,033,232) (10,968,612) 13,601,313
	15,560,503 15,729,246

Non-cash transactions

During the year ended 30 June 2011, the Company entered into the following non-cash investing and financing activities which are not reflected in the consolidated statement of cash flows:

the Company acquired $411,217 of equipment under finance leases (2010: $206,266).

Page | 33

ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

6 TRADE AND OTHER RECEIVABLES (CURRENT)

Trade receivables Provision for doubtful debts Other receivables Trade receivables are non-interest bearing and are generally on 30 day terms. Age of receivable that are past due but not impaired 60-90 days 90-120 days Over 120 days Total Movement in the allowance for doubtful debts Balance at the beginning of the year Impairment losses recognised on receivables Amounts recovered during the year Balance at the end of the year	2011 2010 $ $ 25,923,621 25,734,612 (1,525,000) - 340,841 99,406
	24,739,462 25,834,018
	2011 2010 48,271 234,837 31,028 - - -
	79,299 234,837
	2011 2010 $ $ - - 1,525,000 - - -
	1,525,000 -

7 PROPERTY, PLANT AND EQUIPMENT

Year ended 30 June 2010 At 1 July 2009 Net of accumulated depreciation Additions Disposals Depreciation charge for the year At 30 June 2010, Net of accumulated depreciation Year ended 30 June 2011 At 1 July 2010 Net of accumulated depreciation Additions Disposals Depreciation charge for the year At 30 June 2011, Net of accumulated depreciation At 30 June 2010 Cost or fair value Accumulated depreciation and impairment Net carrying amount At 30 June 2011 Cost or fair value Accumulated depreciation and impairment Net carrying amount	Plant & Equipment Under Lease Plant and equipment Total $ $ $ 606,498 884,413 1,490,911 206,265 236,904 443,169 - - - (240,120) (260,027) (500,147)
	572,643 861,290 1,433,933
	572,643 861,290 1,433,933 411,217 670,332 1,081,549 - - - (223,097) (319,746) (542,843)
	760,763 1,211,876 1,972,638
	1,298,138 1,535,472 2,833,610 (725,495) (674,182) (1,399,677)
	572,643 861,290 1,433,933
	1,709,356 2,205,804 3,915,160 (948,593) (993,928) (1,942,521)
	760,763 1,211,876 1,972,638

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

8 INVENTORIES

8 INVENTORIES
Finished goods 9 TRADE AND OTHER PAYABLES (CURRENT) Trade payables Other payables & accruals	2011 2010 $ $ 1,673,918 2,830,120
	1,673,918 2,830,120
	2011 2010 $ $ 13,015,333 10,737,673 1,744,948 2,256,392
	14,760,281 12,994,065

Trade payables are non-interest bearing and are normally settled on 30 day terms. The net of GST payable and GST receivable is remitted to the appropriate tax body on a monthly basis.

10 PROVISIONS

Current liabilities Provision for annual leave Provision for warranty and defects liability Provision for project returns Non-current liabilities Provision for long service leave Movement in provisions Provision for annual leave Balance at beginning of year Additional provisions recognised Amounts used Balance at end of year Provision for warranty and defects liability Balance at beginning of year Reduction in provisions recognised Amounts used Balance at end of year Provision for project returns Balance at beginning of year Additional provisions recognised Amounts used Balance at end of year Provision for long service leave Balance at beginning of year Additional provisions recognised Amounts used Balance at end of year	2011 2010 $ $ 1,013,497 727,519 4,608,135 6,445,789 865,192 1,346,121
	6,486,824 8,519,429
	228,370 -
	228,370 -
	727,519 530,186 961,898 683,602 (675,920) (486,269)
	1,013,497 727,519
	6,445,789 6,603,910 (1,837,654) (158,121) - -
	4,608,135 6,445,789
	1,346,121 - 1,490,842 1,346,121 (1,971,771) -
	865,192 1,346,121
	- - 228,370 - - -
	228,370 -

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

11 BORROWINGS

Current Finance Lease Liabilities Non-Current Finance Lease Liabilities	2011 2010 $ $ 526,904 267,548
	526,904 267,548
	401,581 383,785
	401,581 383,785

Refer to note 14 for obligations under finance leases. These are secured by the assets leased.

12 UNEARNED REVENUE Unearned revenue on construction contracts 13 ISSUED CAPITAL Ordinary Shares Issued and fully paid		2011 2010 $ $ 5,586,777 16,555,388
		5,586,777 16,555,388
		2011 2010 No of shares No of shares
		150,000,000 1,000

Changes to the Corporation Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the Company does not have a limited amount of authorised capital and issued shares do not have a par value.

Issue of ordinary shares At 30 June 2009 At 30 June 2010 Share Split (120,000 : 1) (i) Issue of shares under prospectus (ii) Less Capital raising costs Deferred tax asset on Capital raising costs At 30 June 2011	No of shares $
	1,000 1,000
	1,000 1,000
	120,000,000 1,000 30,000,000 30,000,000 - (2,142,074) - 642,622
	150,000,000 28,501,548

(i) As approved on 10 February 2011, the board agreed to a share split of 120,000:1, becoming 120,000,000 shares on issue.

(ii) Under the prospectus issued by the Company on 18 March 2011, the Company issued 30 million shares at $1.00 per share, to raise $30,000,000. The company listed on the Australian Securities Exchange on 19 April 2011.

Fully paid ordinary shares carry one vote per share and carry a right to dividends.

Options

As at 30 June 2011, the unissued ordinary shares of the Company under option totalled 2,500,000 (as at 30 June 2010: nil):

Number of shares under option	Grant date	Expiry date	Exercise price
500,000	19/4/2011	19/4/2013	$1.25
500,000	19/4/2011	19/4/2014	$1.50
750,000	19/4/2011	19/4/2015	$1.80
750,000	19/4/2011	19/4/2016	$2.10

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

14 COMMITMENTS AND CONTINGENCIES

Finance Leases
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
Minimum lease payments
Less: future finance charges
Present value of minimum lease payments
Non-cancellable Operating Lease Commitments
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
Total lease payments
Bank guarantees
Bank guarantees issued

2011
2010
$
$
591,456
319,905
443,762
406,626
-
-
1,035,218
726,531
106,733
75,198
928,485
651,333
1,409,799
908,424
3,016,766
2,024,520
-
-
4,426,565
2,932,944
6,734,862
3,006,647

The company has a bank guarantee facility with the National Australia Bank to provide bank guarantees to support project performance in favour of certain clients of the Company. The facility has an approved limit of $4,413,503, with an expiry date of 30 November 2011. The facility is secured by a fixed and floating charge over all the assets of the Company and a term deposit letter of set-off over a $2,321,359 term deposit.

Certain claims arising out of engineering and construction contracts have been made by or against the company in the ordinary course of business, some of which involve litigation or arbitration. The Directors do not consider the outcome of any of these claims will have a material adverse impact on the financial position of the company.

15 EARNINGS PER SHARE

Basic earnings per share From continuing operations Total basic earnings per share Diluted earnings per share From continuing operations Total diluted earnings per share	2011 2010 Cents per Cents per share share 16.76 14.86
	16.76 14.86
	16.75 14.86
	16.75 14.86

The weighted average number of ordinary shares for the purposes of diluted earnings per share is calculated as follows:

calculated as follows:
Weighted average number of ordinary shares used in the calculation of basic earnings per share Weighted average number of employee share options issued Weighted average number of ordinary shares used in the calculation of diluted earnings per share	2011 2010 No of shares No of shares 125,917,808 120,000,000 14,252 -
	125,932,060 120,000,000

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

16 RESERVES

Equity settled employee benefits reserve Balance at beginning of year Additional amounts recognised Amounts used Balance at end of year	2011 2010 $ $ - - 50,622 - - -
	50,622 -

The above equity-settled employee benefits reserve relates to share options granted by the Company to its employees under its employee share option plan.

17 RETAINED EARNINGS

Retained earnings Balance at beginning of year Profit attributable to owners of the Company Payment of dividends Balance at end of year	2011 2010 $ $ 10,184,098 7,348,461 21,097,926 17,835,637 (19,000,000) (15,000,000)
	12,282,024 10,184,098

18

DIVIDENDS ON EQUITY INSTRUMENTS Year ended 30 June 2010 Fully paid ordinary shares Dividend paid 22 December 2009 (fully franked at 30% tax rate) Dividend paid 19 February 2010 (fully franked at 30% tax rate) Dividend paid 21 May 2010 (fully franked at 30% tax rate) Year ended 30 June 2011 Fully paid ordinary shares Dividend paid 5 July 2010 (fully franked at 30% tax rate) Dividend paid 27 October 2010 (fully franked at 30% tax rate) Dividend paid 4 January 2011 (unfranked) Dividend franking account balance	Cents per share $ 5.00 6,000,000 2.50 3,000,000 5.00 6,000,000
	12.50 15,000,000
	5.00 6,000,000 7.50 9,000,000 3.33 4,000,000
	15.83 19,000,000
	2011 2010 $ $ 208,058 6,767,321
	208,058 6,767,321

19 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT OBJECTIVES

Financial risk management objectives

The Company is exposed to risks in relation to its financial instruments. These risks include market risk (consisting of foreign currency risk and interest rate risk), credit risk and liquidity risk.

A summary of the Company’s financial instruments are as follows:

Financial Assets Cash and cash equivalents Trade and other receivables Total financial assets Financial Liabilities Trade and other payables Finance lease liabilities Total financial liabilities	2011 2010 $ $ 36,014,084 12,399,632 24,739,462 25,834,018 60,753,546 38,233,650 14,760,281 12,994,065 928,485 651,333 15,688,766 13,645,398

Page | 38

ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

Capital management

The Company manages its capital to ensure the ability to continue as a going concern while maximising the return to stakeholders. The capital structure of the Company consists of equity in the form of issued capital, reserves and retained earnings. There is no requirement for borrowings at this stage, as there are sufficient reserves of cash balances.

Foreign currency risk management

The company is not exposed to any material risks in relation to fluctuations in foreign exchange rates.

Interest rate risk management

The Company is exposed to interest rate risk in relation to financial assets and liabilities with variable interest rates. Exposures to fluctuations in interest rates are detailed in the liquidity risk section of this note.

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations, resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Company uses independent rating agencies, publicly available financial information and other trading records to rate its major customers. Legally binding contracts are entered into to determine payment terms in relation to major projects.

The Company does not have significant credit risk exposure to any single counterparty or group of counterparties.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the Company’s short-, medium- and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves and banking facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

Liquidity and interest rate risk tables

The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The table includes both interest and principal cash flows.

Weighted average 30 June 2011 interest rate Trade payables 0% Finance lease liability 9.96% 30 June 2010 Trade payables 0% Finance lease liability 9.86%	Less than 6 to 12 Over 12 6 months months months Total $ $ $ $ 14,760,281 - - 14,760,281 355,958 170,946 401,581 928,485
	15,116,239 170,946 401,581 15,688,766
	12,994,065 - - 12,994,065 134,827 132,721 383,785 651,333
	13,128,892 132,721 383,785 13,645,398

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

The following table details the Company’s expected maturity for its non-derivative financial assets. The table has been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets.

Weighted average 30 June 2011 interest rate Cash 5.64% Trade receivables 0% 30 June 2010 Cash 4.84% Trade receivables 0%	Less than 6 to 12 Over 12 6 months months months Total $ $ $ $ 36,014,084 - - 36,014,084 24,739,462 - - 24,739,462
	60,753,546 - - 60,753,546
	12,399,632 - - 12,399,632 25,834,018 - - 25,834,018
	38,233,650 - - 38,233,650

Interest rate sensitivity

The board has considered the Company’s exposure to interest rate risk by analysing the effect on profit and equity of an interest rate increase or decrease of one percentage point in the following table:

Change in total comprehensive income Interest revenue – effect of increase in interest rate by 1% Interest expense – effect of increase in interest rate by 1% Interest revenue – effect of decrease in interest rate by 1% Interest expense – effect of decrease in interest rate by 1% Change in equity Increase in interest rate by 1% Decrease in interest rate by 1%	2011 2010 $ $ 169,310 153,048 (1,238) (489)
	168,072 152,559
	(169,575) (151,946) 1,234 489
	(168,341) (151,457)

	168,072 152,559
	(168,341) (151,457)

Fair value of financial instruments

The directors consider that the carrying amounts of financial assets and financial liabilities recognised in the financial statements approximate their fair values.

20 SHARE BASED PAYMENTS

The company has established an employee share option plan. The company may offer options to subscribe for shares in the Company to eligible persons. Options offered under the employee share option plan are to be offered on such terms as the board determines and the offer must set out specified information including the number of options, the period of the offer, calculation of the exercise price and any exercise conditions.

The following share based payment arrangements existed at 30 June 2011:

The Company has issued a total of 2,500,000 Options to its Chief Operating Officer, Geoff Jones, which confer the right of one ordinary share for every option held. These options have exercise conditions attached, whereby they will lapse if the employee ceases to become an eligible person, for any reason other than a specified reason as outlined in the terms of the option.

					Fair
					Value at
Number of shares		Vesting		Exercise	Grant
under option	Grant date	date	Expiry date	price	Date
500,000	19/4/2011	19/4/2012	19/4/2013	$1.25	$0.1740
500,000	19/4/2011	19/4/2013	19/4/2014	$1.50	$0.2450
750,000	19/4/2011	19/4/2014	19/4/2015	$1.80	$0.2400
750,000	19/4/2011	19/4/2015	19/4/2016	$2.10	$0.2600

Page | 40

ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

Movement in share options during the year:
	Number of	Weighted avg	Number of	Weighted avg
	options	exercise price	options	exercise price
	2011	$	2010	$
Outstanding at beginning of year	-	-	-	-
Granted	2,500,000	1.72	-	-
Exercised	-	-	-	-
Outstanding at end of year	2,500,000	1.72	-	-
Exercisable at end of year	-	-	-	-
The fair value of options granted during the	year was calculated using a		Black-Scholes option pricing
model applying inputs as follows:
	Tranche 1	Tranche 2	Tranche 3	Tranche 4
Grant date share price	1.00	1.00	1.00	1.00
Exercise price	1.25	1.50	1.80	2.10
Expiry date	19/4/2013	19/4/2014	19/4/2015	19/4/2016
Expected volatility	50%	50%	50%	50%
Risk free interest rate	5.7%	5.7%	5.7%	5.7%
Time to expiration (years)	1.83	2.83	3.83	4.83
Dividend yield	4%	4%	4%	4%
Fair value of options	$0.1740	$0.2450	$0.2400	$0.2600
Value recorded in statement of
comprehensive income	$17,115	$12,066	$11,825	$9,616

21 SEGMENT INFORMATION

Operating segments have been identified on the basis of internal reports of the Company that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance. The chief operating decision maker has been identified as the Board of Directors. On a regular basis, the board receives financial information on a company basis similar to the financial statements presented in the financial report, to manage and allocate their resources.

22 EVENTS AFTER THE REPORTING DATE

23 RELATED PARTY DISCLOSURES

During the year ended 30 June 2011 the Company leased office space at 71-73 Daly Street from Ashguard Pty Ltd. Directors of the Company, namely Joseph Mario Paul Ricciardo, Tony Marco Patrizi, and Barry Sydney Patterson, each have a non controlling interest in Ashguard Pty Ltd. Total payments to Ashguard Pty Ltd amounted to $279,066 including GST (2010: $82,464). The balance payable at 30 June 2011 was $20,877 (2010: nil).

In previous financial years, the Company has hired plant and equipment from DK Crane Hire Pty Ltd, a company in which Terry Condipodero, a senior employee and previous director of the Company, holds 50% beneficial ownership. In the year ended 30 June 2011 there were zero transactions with DK Crane Hire Pty Ltd (in 2010 transactions totalled $126,500 including GST). The balance payable at 30 June 2011 was nil (30 June 2010: nil).

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

During the year ended 30 June 2011 the Company provided engineering services to Mineral Resources Limited, a company in which Joe Ricciardo is a non-executive director. The total amount invoiced to Mineral Resources Limited in the year ended 30 June 2011 was $83,600 including GST (2010: $263,821). The balance outstanding at 30 June 2011 was nil (2010: $78,562).

During the year ended 30 June 2011 the Company provided engineering services and procurement of materials for Crushing Services International Pty Ltd (a subsidiary of Mineral Resources Limited), a company in which Joe Ricciardo is a non-executive director. The total amount invoiced to Crushing Services International Pty Ltd in the year ended 30 June 2011 was $1,595,425 including GST (2010: $864,935). The balance outstanding at 30 June 2011 was $32,453 (2010: $314,935).

During the year ended 30 June 2011 the Company provided engineering services to Optiro Pty Ltd, a company in which Joe Ricciardo and Tony Patrizi each hold non-controlling interests. The total amount invoiced to Optiro Pty Ltd in the year ended 30 June 2011 was $29,593 including GST (2010: $49,777). The balance outstanding at 30 June 2011 was nil (2010: nil).

24 KEY MANAGEMENT PERSONNEL DISCLOSURES

The following were key management personnel of the Company at the end of the reporting period:

Executive directors

Joe Ricciardo (Managing Director) Tony Patrizi (Executive Director)

Non-executive directors

Barry Patterson (Non-Executive Chairman) Terry Strapp (Non-Executive Director) Peter Hood (Non-Executive Director)

Executives

Geoffrey Jones (Chief Operating Officer) David Sala Tenna (General Manager) Joe Totaro (Chief Financial Officer and Company Secretary)

The following were also key management personnel prior to the Company changing status from a Proprietary Limited company to a Limited company on 22 February 2011:

Michael Woodhouse Rodney Schier Terry Condipodero Stephen Kendrick George Botica

Remuneration of key management personnel

Information on remuneration of key management personnel is set out in the Remuneration Report in the Directors Report.

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

Option holdings of key management personnel

	Opening		Closing	Vested at	Vested but
	Balance 1		balance 30	30 June	not	Vested &
	July 2010	Granted	June 2011	2011	exercisable	exercisable
Joe Ricciardo	-	-	-	-	-	-
Tony Patrizi	-	-	-	-	-	-
Barry Patterson	-	-	-	-	-	-
Terry Strapp	-	-	-	-	-	-
Peter Hood	-	-	-	-	-	-
Geoffrey Jones	-	2,500,000	2,500,000	-	-	-
David Sala Tenna	-	-	-	-	-	-
Joe Totaro	-	-	-	-	-	-
Michael Woodhouse	-	-	-	-	-	-
Rodney Schier	-	-	-	-	-	-
Terry Condipodero	-	-	-	-	-	-
Stephen Kendrick	-	-	-	-	-	-
George Botica	-	-	-	-	-	-

As at 30 June 2010, no options were issued to key management personnel

Equity holdings of key management personnel

Equity holdings – year ended 30 June 2011:

	Opening				Closing
	balance 1		Net other		balance 30
	July 2010	Acquired	change*	Sold	June 2011
Joe Ricciardo	100	-	11,999,900	-	12,000,000
Tony Patrizi	100	-	11,999,900	-	12,000,000
Barry Patterson	100	-	11,999,900	-	12,000,000
Terry Strapp	-	300,000	-	-	300,000
Peter Hood	-	500,000	-	-	500,000
Geoffrey Jones	-	150,000	-	-	150,000
David Sala Tenna	140	-	16,799,860	-	16,800,000
Joe Totaro	100	-	11,999,900	-	12,000,000
Michael Woodhouse	80	-	9,599,920	1,000,000	8,600,000
Rodney Schier	80	-	9,599,920	-	9,600,000
Terry Condipodero	50	-	5,999,950	-	6,000,000
Stephen Kendrick	50	-	5,999,950	-	6,000,000
George Botica	100	-	11,999,900	-	12,000,000

*The net other change column represents a share split during the year of 120,000:1.

Equity holdings –year ended 30 June 2010:

	Opening				Closing
	balance 1		Net other		balance 30
	July 2009	Acquired	change	Sold	June 2010
Joe Ricciardo	100	-	-	-	100
Tony Patrizi	100	-	-	-	100
Barry Patterson	100	-	-	-	100
Terry Strapp	-	-	-	-	-
Peter Hood	-	-	-	-	-
Geoffrey Jones	-	-	-	-	-
David Sala Tenna	140	-	-	-	140
Joe Totaro	100	-	-	-	100
Michael Woodhouse	80	-	-	-	80
Rodney Schier	80	-	-	-	80
Terry Condipodero	50	-	-	-	50
Stephen Kendrick	50	-	-	-	50
George Botica	100	-	-	-	100

Other transactions with key management personnel

Other than the transactions described in note 23, there are no other transactions noted with key management personnel.

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ANNUAL FINANCIAL REPORT

• • •

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011

25 AUDITORS’ REMUNERATION

AUDITORS’ REMUNERATION
Amounts received or due and receivable by the former auditors, PKF Chartered Accountants, for audit or review of the financial report : • an audit or review of the financial report of the entity • tax compliance • other tax advice Amounts received or due and receivable by the current auditors, Deloitte Touche Tohmatsu, for audit or review of the financial report : • an audit or review of the financial report of the entity • tax compliance • Investigating Accountants’ Report Amounts received or due and receivable by Deloitte Corporate Finance Pty Ltd, for other non-audit services : • professional services in relation to Initial Public Offering	2011 2010 $ $ - 33,229 - 1,332 - 3,565
	- 38,126
	67,000 23,939 30,230 - 60,100 -
	157,330 23,939

	136,828 -

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ANNUAL FINANCIAL REPORT

• • •

DIRECTORS’ DECLARATION

The directors declare that:

(a) In the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable;
(b) In the directors’ opinion, the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 2 (b) to the financial statements;
(c) In the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Company; and
(d) The directors have been given the declarations required by s.295A of the Corporations Act 2001

Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.

On behalf of the Directors

Name : JOE RICCIARDO

Date : 23[rd] AUGUST 2011

Page | 45

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Deloitte Touche Tohmatsu ABN 74 490 121 060

Woodside Plaza Level 14 240 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia

Independent Auditor’s Report to the members of GR Engineering Services Limited

DX: 206 Tel: +61 (0) 8 9365 7000 Fax: +61 (8) 9365 7001 www.deloitte.com.au

Report on the Financial Report

We have audited the accompanying financial report of GR Engineering Services Limited, which comprises the statement of financial position as at 30 June 2011, the statement of comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration as set out on pages 18 to 45.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 2(b), the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that the financial statements comply with International Financial Reporting Standards.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the entity’s preparation of the financial report that gives a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited

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Auditor’s Independence Declaration

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001 . We confirm that the independence declaration required by the Corporations Act 2001 , which has been given to the directors of GR Engineering Services Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

Opinion

In our opinion:

(a) the financial report of GR Engineering Limited is in accordance with the Corporations Act 2001 , including:
(i) giving a true and fair view of the entity’s financial position as at 30 June 2011 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and
(b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 2(b).

Report on the Remuneration Report

We have audited the Remuneration Report included on pages 10 to 15 of the directors’ report for the year ended 30 June 2011. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Opinion

In our opinion the Remuneration Report of GR Engineering Services Limited for the year ended 30 June 2011, complies with section 300A of the Corporations Act 2001 .

DELOITTE TOUCHE TOHMATSU

Conley Manifis Partner Chartered Accountants Perth, 23 August 2011

ANNUAL FINANCIAL REPORT

• • •

CORPORATE GOVERNANCE STATEMENT

GR Engineering Services Ltd (" the Company ") has adopted comprehensive systems of control and accountability as the basis for the administration of corporate governance. The Board is committed to administering the policies and procedures with openness and integrity, pursuing the true spirit of corporate governance commensurate with the Company's needs. To the extent they are applicable, the Company has adopted the Corporate Governance Principles and Recommendations (“ Principles & Recommendations ”) as published by the ASX Corporate Governance Council. A summary of the Company's corporate governance practices is set out below.

Summary of Board Charter

The role of the Board is to provide leadership for and supervision of the Company’s senior management. The Board provides the strategic direction of the Company and regularly measures the progression by senior management of that strategic direction. The Board is responsible for promoting the success of the Company through its oversight role. The Board also reviews the Company's policies on risk oversight and management, internal compliance and control, its Code of Conduct, and legal compliance. There are mechanisms in place so that the Board can satisfy itself that senior management has developed and implemented a sound system of risk management and internal control in relation to financial reporting risk and material business risk. The Board monitors and reviews senior management's performance and implementation of strategy.

The Board Charter also sets out quantitative and qualitative materiality thresholds.

The Board delegates to senior management the responsibility of the day-to-day activities in fulfilling the Board's responsibility. Senior executives are responsible for supporting the Managing Director and assisting the Managing Director in the running of the general operations and financial business of the Company, in accordance with the delegated authority of the Board.

Senior executives are responsible for reporting all matters which fall within the Company's materiality thresholds at first instance to the Managing Director or, if the matter concerns the Managing Director then directly to the Chair or the lead independent Director, as appropriate.

The Board Charter describes the division of responsibilities between the Chair, the lead independent Director and the Managing Director.

The role of non executive and independent directors is also set out in the Board Charter.

Summary of Audit Committee Charter

The role of the audit committee is to monitor and review the integrity of the financial reporting of the Company and to review significant financial reporting judgments. The audit committee is also to review the Company’s internal financial control system and risk management systems and to monitor, review and oversee the external audit function.

The audit committee has the power to conduct or authorise investigations into any matters within the audit committee's scope of responsibilities. The audit committee has the authority, as it deems necessary or appropriate, to retain independent legal, accounting or other advisors.

The audit committee also assesses whether external reporting is consistent with audit committee members' information and knowledge and is adequate for shareholder needs and assesses the management processes supporting external reporting.

Summary of Nomination Committee Charter

The role of the nomination committee is to effectively examine the selection and appointment practices of the Company. The nomination committee regularly reviews the size and composition of the Board and makes recommendations to the Board on any appropriate changes. The nomination committee identifies and assesses necessary and desirable Director competencies with a view to enhancing the Board.

The nomination committee also regularly reviews the time required from non executive Directors and whether non executive Directors are meeting that requirement.

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ANNUAL FINANCIAL REPORT

• • •

CORPORATE GOVERNANCE STATEMENT

Initial Director appointments are made by the Board. Any new Director will be required to stand for election at the Company's next annual general meeting following their appointment.

Summary of Remuneration Committee Charter

The function of the remuneration committee is to review and make appropriate recommendations on remuneration packages of executive Directors, non executive Directors and senior executives. The remuneration committee is also responsible for reviewing any employee incentive and equity-based plans, including the appropriateness of performance hurdles and total payments proposed.

Summary of Remuneration Policy

Emoluments of Directors and senior executives are set by reference to payments made by other companies of similar size and industry, and by reference to the skills and experience of the Directors and executives.

The Company’s policy is to remunerate non executive Directors at a fixed fee for time, commitment and responsibilities. Remuneration for non executive Directors is not linked to individual performance. This policy is subject to annual review. From time to time, and subject to obtaining the relevant approvals, the Company may grant options to non executive Directors. The grant of options is designed to recognise and reward efforts as well as to provide non executive Directors with additional incentive to continue those efforts for the benefit of the Company.

Executive pay and reward consists of a base salary and performance incentives. Long term performance incentives may include options granted at the discretion of the Board and subject to obtaining the relevant regulatory and shareholder approvals. The grant of options is designed to recognise and reward efforts as well as to provide additional incentive and may be subject to the successful completion of performance hurdles.

Executives are prohibited from entering into transactions or arrangements which limit the economic risk of participating in unvested entitlements.

Summary of Code of Conduct

The Code of Conduct sets out the principles and standards which the Board, management and employees of the Company are encouraged to strive towards when dealing with each other, shareholders, other stakeholders and the broader community.

The Company is to comply with all legislative and common law requirements which affect its business. The Company will deal with others in a way that is fair and will not engage in deceptive practices. The Code of Conduct sets out directives for Directors, management and staff relating to conflicts of interests, protection of the Company's assets and confidentiality.

Summary of Policy and Procedure for Selection and (Re)Appointment of Directors

In considering new candidates, the nomination committee evaluates the range of skills, experience and expertise of the existing Board. In particular, the nomination committee is to identify the particular skills that will best increase the Board's effectiveness. In this process, consideration is also given to the balance of independent Directors on the Board, while reference is made to the Company's size and operations as they evolve from time to time. Any appointment made by the Board is subject to ratification by shareholders at the next general meeting.

All Directors are required to consider the number and nature of their directorships and calls on their time from other commitments.

Shareholders shall be informed of the names and details of candidates submitted for election as Directors, in order to enable shareholders to make an informed decision regarding the election.

Summary of Process for Performance Evaluation

The Chair evaluates the performance of the Board by way of an informal round-table discussion with all directors and through questionnaires completed by each director.

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ANNUAL FINANCIAL REPORT

• • •

CORPORATE GOVERNANCE STATEMENT

The Chair reviews the performance of the committees of the Board by way on an informal round-table discussion with all directors and through questionnaires completed by each director who is a member of the committee being evaluated.

Individual director's performance evaluations are completed by the Chair. The Chair meets with each individual director and reviews questionnaires completed by each director.

The Managing Director's performance evaluation is conducted by the Chair. The Chair conducts a performance evaluation of the Managing Director by way of meeting with the Managing Director and with an informal round-table discussion with all directors, and by reference to the Managing Director's key performance indicators which are set by the Nomination Committee.

The Managing Director reviews the performance of the senior executives. The Managing Director conducts a performance evaluation of the senior executives by way of on-going informal monitoring throughout each financial year and at an annual formal interview.

Summary of Policy for Trading in Company Securities

The Board has adopted a policy which prohibits dealing in the Company's securities by directors, officers, specified employees (including connected persons) and, contractors when those persons possess inside information. The policy also contains a blackout period within which directors, officers and employees are prohibited from trading. The policy prohibits short term or speculative trading of the Company's securities. Trading may be permitted in a blackout period in certain exceptional circumstances subject to obtaining prior written clearance. Directors, officers and specified employees are required to obtain clearance prior to trading at all times.

Summary of Diversity Policy

The Board has adopted a Diversity Policy which describes the Company's commitment to ensuring a diverse mix of skills and talent exists amongst its directors, officers and employees, to enhance Company performance. The Diversity Policy addresses equal opportunities in the hiring, training and career advancement of directors, officers and employees. The Diversity Policy outlines the process by which the Board will set measurable objectives to achieve the aims of its Diversity Policy. The Board is responsible for monitoring Company performance in meeting the Diversity Policy requirements, including the achievement of any diversity objectives.

Summary of Compliance Procedures

The Board has adopted Compliance Procedures to assist it to comply with the Listing Rules disclosure requirements. Under the Compliance Procedures, a responsible officer is appointed who is primarily responsible for ensuring the Company complies with its disclosure obligations. The duties of the responsible officer are set out in the Compliance Procedures. The Compliance Procedures provide guidelines as to the type of information that needs to be disclosed and encourages thorough recording of disclosure decision making. The Compliance Procedures contain information on avoiding a false market, safeguarding confidentiality of corporate information, and information on external communication for the purpose of protecting the Company's price sensitive information. The Compliance Procedures also provide guidance relating to potential disclosure material.

Summary of Procedure for the Selection, Appointment and Rotation of External Auditor

The Board is responsible for the initial appointment of the external auditor and the appointment of a new external auditor when any vacancy arises, as per the recommendations of the Audit Committee. Candidates for the position of external auditor of the Company must be able to demonstrate complete independence from the Company and an ability to maintain independence through the engagement period.

The Audit Committee will review the performance of the external auditor on an annual basis and make any recommendations to the Board.

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ANNUAL FINANCIAL REPORT

• • •

CORPORATE GOVERNANCE STATEMENT

Summary of Shareholder Communication Strategy

The Board aims to ensure that the shareholders are informed of all major developments affecting the Company. The Company provides shareholder materials directly to shareholders through electronic means. A shareholder may request a hard copy of the Company's annual report to be posted to them. The Company maintains a website on which the Company makes certain information available on a regular basis.

Summary of Risk Management Policy

The Board has adopted a Risk Management Policy. Under the policy, the Board delegates day-to-day management of risk to the Managing Director, with the assistance of senior management as required. The Policy sets out the role and accountabilities of the Managing Director. It also contains the Company's risk profile and describes some of the policies and practices the Company has in place to manage specific business risks.

The Managing Director is required to report on the progress of, and on all matters associated with risk management. The Managing Director is to report to the Board as to the effectiveness of the Company's management of its material business risks at least annually.

The Board is responsible for approving the Company's policies on risk oversight and management and satisfying itself at least annually that management has developed and implemented a sound system of risk management and internal control.

As the Company's activities develop in size, nature and scope, the size of the Board and the implementation of additional corporate governance structures will be given further consideration.

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ANNUAL FINANCIAL REPORT

• • •

CORPORATE GOVERNANCE STATEMENT

ASX Corporate Governance Council Principles and Recommendations

The Board sets out below its "if not, why not" report. Where the Company's corporate governance practices follow a recommendation, the Board has made appropriate statements reporting on the adoption of the recommendation. Where, after due consideration, the Company's corporate governance practices depart from a recommendation, the Board has offered full disclosure and a reason for the adoption of its own practice, in compliance with the "if not, why not" regime. The Company has not made an early transition to the amended 2[nd] edition Principles & Recommendations and the following "if not, why not" report reflects this. The Company will report against the 2[nd] edition Principles & Recommendations for its financial year commencing 1 July 2011.

ASX P & R1 If not, why not2 Recommendation 1.1 ✓ Recommendation 1.2 ✓ Recommendation 1.3³ n/a n/a Recommendation 2.1 ✓ Recommendation 2.2 ✓ Recommendation 2.3 ✓ Recommendation 2.4 ✓ Recommendation 2.5 ✓ Recommendation 2.6³ n/a n/a Recommendation 3.1 ✓ Recommendation 3.2 ✓ Recommendation 3.3³ n/a n/a Recommendation 4.1 ✓ Recommendation 4.2 ✓	ASX P & R1 If not, why not2 Recommendation 4.3 ✓ Recommendation 4.4³ n/a n/a Recommendation 5.1 ✓ Recommendation 5.2³ n/a n/a Recommendation 6.1 ✓ Recommendation 6.2³ n/a n/a Recommendation 7.1 ✓ Recommendation 7.2 ✓ Recommendation 7.3 ✓ Recommendation 7.4³ n/a n/a Recommendation 8.1 ✓ Recommendation 8.2 ✓ Recommendation 8.3³ n/a n/a

1 Indicates where the Company has followed the Principles & Recommendations.

2 Indicates where the Company has provided "if not, why not" disclosure.

3 Indicates an information based recommendation. Information based recommendations are not adopted or reported against using "if not, why not" disclosure – information required is either provided or it is not.

Principle 1: Lay solid foundations for management and oversight

Recommendation 1.1: Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose those functions.

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ANNUAL FINANCIAL REPORT

• • •

CORPORATE GOVERNANCE STATEMENT

Disclosure:

The Company has established the functions reserved to the Board and those delegated to seniors executives and has set out these functions in its Board Charter, summarised above in the section titled "Summary of Board Charter".

Recommendation 1.2: Companies should disclose the process for evaluating the performance of senior executives.

Disclosure:

Refer to the section titled "Summary of Process for Performance Evaluation" above.

Recommendation 1.3: Companies should provide the information indicated in the Guide to reporting on Principle 1.

Disclosure:

A summary of the Company's Board Charter is noted above under the section titled "Summary of Board Charter" and will also be made publicly available on the Company's website at www.gres.com.au under the section marked Corporate Governance.

The Company will from time to time conduct performance evaluations of its senior executives in accordance with the Company's Process for Performance Evaluation.

Principle 2: Structure the board to add value

Recommendation 2.1: A majority of the board should be independent Directors.

Disclosure:

The Board has a majority of Directors who are independent.

The independent Directors of the Company are Peter Hood, Terrence Strapp and Barry Patterson (deemed independent).

The Board deems Barry Patterson to be an independent director notwithstanding his substantial shareholding in the Company because he is not a member of management and is otherwise free of any business or other relationship (including those referred to in Box 2.1 of the Principles & Recommendations and the Company's Policy on Assessing the Independence of Directors) that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of his judgment. Furthermore, Barry Patterson's interests as a major shareholder are considered by the Board to be in line with the interests of all other shareholders.

The non independent Directors of the Company are Joseph Ricciardo and Tony Patrizi.

Recommendation 2.2: The Chair should be an independent Director.

Disclosure:

The independent Chair of the Board is Barry Patterson.

Recommendation 2.3: The roles of Chair and Chief Executive Officer should not be exercised by the same individual.

Disclosure:

The Managing Director is Joe Ricciardo who is not currently Chair of the Board.

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ANNUAL FINANCIAL REPORT

• • •

CORPORATE GOVERNANCE STATEMENT

Recommendation 2.4: The Board should establish a Nomination Committee.

Disclosure:

The Board has established a Nomination Committee.

Recommendation 2.5: Companies should disclose the process for evaluating the performance of the Board, its committees and individual Directors.

Disclosure: Refer to the section titled "Summary of Process for Performance Evaluation" above. Recommendation 2.6: Companies should provide the information indicated in the Guide to Reporting on Principle 2 .

Disclosure:

A profile of each Director containing their skills, experience, expertise and term of office is set out in the Directors Report.

As noted above, the independent Directors of the Company are Peter Hood, Terrence Strapp and Barry Patterson (deemed independent). These directors are independent as they are non executive Directors who are not members of management and who are free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgement.

Independence is measured having regard to the relationships listed in Box 2.1 of the Principles & Recommendations and the Company's materiality thresholds.

To assist Directors with independent judgement, it is the Board's policy that if a Director considers it necessary to obtain independent professional advice to properly discharge the responsibility of their office as a Director then, provided the Director first obtains approval for incurring such expense from the Chair, the Company will pay the reasonable expenses associated with obtaining such advice. The Board has established a Nomination Committee. Barry Patterson (chair), Peter Hood, Terrence Strapp and Joe Ricciardo are members of the Nomination Committee. The Company's Nomination Committee Charter is summarised above in the section titled "Summary of Nomination Committee Charter."

Performance evaluations of the Board, its Committees and the Directors will be conducted from time to time in accordance with the Company's Process for Performance Evaluation.

In determining candidates for the Board, the Nomination Committee (or equivalent) follows a prescribed procedure summarised in the section titled "Summary of Policy and Procedure for Selection and (Re)Appointment of Directors" above.

The Board recognises that Board renewal is critical to performance and the impact of Board tenure on succession planning. Each director other than the Managing Director, must not hold office (without reelection) past the third annual general meeting of the Company following the Director's appointment or three years following that Director's last election or appointment (whichever is longer). However, a Director appointed to fill a casual vacancy or as an addition to the Board must not hold office (without re-election) past the next annual general meeting of the Company. At each annual general meeting a minimum of one director or a third or the total number of Directors must resign. A Director who retires at an annual general meeting is eligible for re-election at that meeting. Re-appointment of Directors is not automatic.

Principle 3: Promote ethical and responsible decision-making

Recommendation 3.1: Companies should establish a Code of Conduct and disclose the code or a summary of the code as to the practices necessary to maintain confidence in the company's integrity, the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders and the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

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ANNUAL FINANCIAL REPORT

• • •

CORPORATE GOVERNANCE STATEMENT

Disclosure:

The Company has established a Code of Conduct as to the practices necessary to maintain confidence in the Company's integrity, practices necessary to take into account their legal obligations and the expectations of their stakeholders and responsibility and accountability of individuals for reporting and investigating reports of unethical practices. The Code of Conduct is summarised above in the section titled "Summary of Code of Conduct".

Recommendation 3.2: Companies should establish a policy concerning trading in company securities by Directors, senior executives and employees, and disclose the policy or a summary of that policy.

Disclosure:

The Company has established a policy concerning trading in the Company's securities by Directors, senior executives, specified employees and contractors. This policy is summarised above in the section titled "Summary of Policy for Trading in Company Securities".

Recommendation 3.3: Companies should provide the information indicated in the Guide to reporting on Principle 3.

Disclosure:

A summary of the Company's Code of Conduct and Policy for Trading in Company Securities is included above under the sections titled "Summary of Code of Conduct" and "Summary of Policy for Trading in Company Securities" respectively.

Principle 4: Safeguard integrity in financial reporting

Recommendation 4.1: The Board should establish an Audit Committee.

Disclosure:

The Company has established an Audit Committee

Recommendation 4.2: The Audit Committee should be structured so that it:

consists only of non executive directors
consists of a majority of independent directors
is chaired by an independent Chair, who is not Chair of the Board
has at least three members

Disclosure:

The Audit Committee comprises three directors, Terrence Strapp (Chair), Peter Hood and Barry Patterson all of whom are independent non executive Directors.

Recommendation 4.3: The Audit Committee should have a formal charter.

Disclosure:

The Company has adopted an Audit Committee Charter, which is summarised above in the section titled "Summary of Audit Committee Charter".

Recommendation 4.4: Companies should provide the information indicated in the Guide to reporting on Principle 4.

Disclosure:

As noted above, the Company has established a separate Audit Committee. The Audit Committee is comprised of the following members Terrence Strapp (chair), Peter Hood and Barry Patterson. The Company's Audit Committee Charter is summarised above in the section titled "Summary of Audit Committee Charter."

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ANNUAL FINANCIAL REPORT

• • •

CORPORATE GOVERNANCE STATEMENT

Details of each of the Director's qualifications are set out in the Directors Report. The Company has established procedures for the selection, appointment and rotation of its external auditor. These are summarised under the section titled "Summary of Procedure for the Selection, Appointment and Rotation of External Auditor" above.

Principle 5: Make timely and balanced disclosures

Recommendation 5.1: Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies.

Disclosure:

The Company has established written policies designed to ensure compliance with ASX Listing Rule disclosure and accountability at a senior executive level for that compliance. These are summarised under the section titled "Summary of Compliance Procedures" above.

Recommendation 5.2: Companies should provide the information indicated in the Guide to reporting on Principle 5.

Disclosure:

A summary of the Company's policy to guide compliance with ASX Listing Rule disclosure is included above under the section titled "Summary of Compliance Procedures."

Principle 6: Respect the rights of shareholders

Recommendation 6.1: Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy.

Disclosure:

The Company has designed a communications policy for promoting effective communication with shareholders and encouraging shareholder participation at general meetings. This is summarised under the section titled "Summary of Shareholder Communication Strategy" above.

Recommendation 6.2: Companies should provide the information indicated in the Guide to reporting on Principle 6.

Disclosure:

A summary of the Company's shareholder communication strategy is included above in the section titled "Summary of Shareholder Communication Strategy."

It is the Company's policy to require the external auditor to attend its annual general meeting and be available to respond to shareholder questions.

Principle 7: Recognise and manage risk

Recommendation 7.1: Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies.

Disclosure:

The Board has adopted a Risk Management Policy, which sets out the Company's risk profile. This policy is summarised under the section titled "Summary of Risk Management Policy" above.

Recommendation 7.2: The Board should require management to design and implement the risk management and internal control system to manage the Company's material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that

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ANNUAL FINANCIAL REPORT

• • •

CORPORATE GOVERNANCE STATEMENT

management has reported to it as to the effectiveness of the Company's management of its material business risks.

Disclosure :

The Board has required management to design, implement and maintain risk management and internal controls systems to manage the Company's material business risks. The Board also requires management to report to in confirming that those risks are being managed effectively.

Recommendation 7.3: The Board should disclose whether it has received assurance from the Chief Executive Officer (or equivalent) and the Chief Financial Officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.

Disclosure :

The Board will require the Chief Executive Officer (or equivalent) and the Chief Financial Officer (or equivalent) to provide a declaration to the Board in accordance with section 295A of the Corporations Act and to assure the Board that such declaration is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.

Recommendation 7.4: Companies should provide the information indicated in the Guide to reporting on Principle 7.

Disclosure:

A summary of the Company's Risk Management Policy is included above in the section titled "Summary of Risk Management Policy."

Principle 8: Remunerate fairly and responsibly

Recommendation 8.1: The Board should establish a Remuneration Committee.

Notification of departure:

The Company has established a Remuneration Committee.

Recommendation 8.2: Companies should clearly distinguish the structure of non executive Directors’ remuneration from that of executive Directors and senior executives.

Disclosure:

Refer to the section titled "Summary of Remuneration Policy" above.

Recommendation 8.3:

Companies should provide the information indicated in the Guide to reporting on Principle 8.

Disclosure:

As noted above, the Company has established a separate Remuneration Committee. The Remuneration Committee is comprised of the following members Barry Patterson (Chair), Terrence Strapp, Peter Hood and Joe Ricciardo. The Company's Remuneration Committee Charter is summarised above in the section titled "Summary of Remuneration Committee Charter."

There are no termination or retirement benefits for non-executive Directors (other than for superannuation).

The Company's Remuneration Committee Charter includes a statement of the Company's policy on prohibiting transactions in associated products which limit the risk of participating in unvested entitlements under any equity based remuneration schemes.

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AI assistant

GR ENGINEERING SERVICES LIMITED — Annual Report 2011

65003_rns_2011-08-22_089c0336-1d64-4bcf-95ec-a9977cc622db.pdf

2011 ANNUAL FINANCIAL REPORT

HIGHLIGHTS

Appendix 4E

Preliminary Final Report to the Australian Securities Exchange

For the Year Ended 30 June 2011

RESULTS FOR ANNOUNCEMENT TO THE MARKET

DIVIDENDS

NET TANGIBLE ASSET BACKING

GR ENGINEERING SERVICES LIMITED

ANNUAL FINANCIAL REPORT

30 June 2011

TABLE OF CONTENTS

CALENDAR

CORPORATE DIRECTORY

GR ENGINEERING SERVICES LIMITED

DIRECTORS

COMPANY SECRETARY & CHIEF FINANCIAL OFFICER

REGISTERED OFFICE

PRINCIPAL PLACE OF BUSINESS

ASX CODE

CORPORATE ADVISER

AUDITOR

SOLICITORS TO THE COMPANY

SHARE REGISTRY

DIRECTORS’ REPORT

DIRECTORS

COMPANY SECRETARY

PRINCIPAL ACTIVITIES

DIVIDENDS PAID DURING THE YEAR

REVIEW OF OPERATIONS AND FINANCIAL PERFORMANCE

FINANCIAL POSITION

STRATEGIES FOR CONTINUED REVENUE AND EARNINGS GROWTH

SIGNIFICANT CHANGE IN THE STATE OF AFFAIRS

EVENTS AFTER THE BALANCE START DATE

BOARD OF DIRECTORS

MEETINGS OF DIRECTORS

OPTIONS

INDEMNIFYING OFFICERS OR AUDITORS

LEGAL PROCEEDINGS

NON AUDIT SERVICES

AUDITOR’S INDEPENDENCE DECLARATION

ENVIRONMENTAL ISSUES

REMUNERATION REPORT – AUDITED

Directors

Executives

REMUNERATION POLICY

NON-EXECUTIVE DIRECTORS

EXECUTIVE DIRECTORS

SENIOR EXECUTIVES

EMPLOYMENT DETAILS OF MEMBERS OF KEY MANAGEMENT AND EXECUTIVES

REMUNERATION DETAILS FOR THE YEAR ENDED 30 JUNE 2011 - BOARD OF DIRECTORS

EXECUTIVES

RELATIONSHIP BETWEEN COMPANY PERFORMANCE AND REMUNERATION POLICY

CORPORATE GOVERNANCE

GR Engineering Services Limited

STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2011

STATEMENT OF CASH FLOWS

STATEMENT OF CHANGES IN EQUITY

1 CORPORATE INFORMATION

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation

(b)

Statement of Compliance

(c) Accounting for Construction Contracts

(d)

Foreign Currency Translation

• • •

(e) Property, Plant and Equipment

Impairment

(f) Recoverable Amount of Assets

(g) Trade and Other Receivables

(h) Cash and Cash Equivalents

(i)

Interest-Bearing Loans and Borrowings

(j)

Provisions

GR ENGINEERING SERVICES LIMITED Annual Report 2011