GR ENGINEERING SERVICES LIMITED

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ANNUAL FINANCIAL REPORT

30 June 2017

ABN 12 121 542 738

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ANNUAL FINANCIAL REPORT

CORPORATE DIRECTORY


CORPORATE DIRECTORY	3
DIRECTORS’ REPORT	4
FINANCIAL REPORT :
AUDITOR’S INDEPENDENCE DECLARATION	22
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME	23
CONSOLIDATED STATEMENT OF FINANCIAL POSITION	24
CONSOLIDATED STATEMENT OF CASH FLOWS	25
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY	26
NOTES TO THE FINANCIAL STATEMENTS	27
DIRECTORS’ DECLARATION	65
INDEPENDENT AUDITOR’S REPORT	66
CORPORATE GOVERNANCE STATEMENT	72
ADDITIONAL ASX INFORMATION	80

CALENDAR

Annual General Meeting 14 NOVEMBER 2017

ANNUAL FINANCIAL REPORT

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CORPORATE DIRECTORY

GR ENGINEERING SERVICES LIMITED

ACN 121 542 738 ABN 12 121 542 738

DIRECTORS

Geoff Jones (Managing Director) Phillip Lockyer (Non-Executive Chairman) Tony Patrizi (Executive Director) Barry Patterson (Non-Executive Director) Terrence Strapp (Non-Executive Director) Peter Hood (Non-Executive Director)

COMPANY SECRETARY & CHIEF FINANCIAL OFFICER

Giuseppe (Joe) Totaro

REGISTERED OFFICE

179 Great Eastern Highway 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

AUDITOR

Deloitte Touche Tohmatsu Tower 2, Brookfield Place, 123 St Georges Terrace PERTH WA 6000

SOLICITORS TO THE COMPANY

Zafra Legal Level 10, 105 St Georges Terrace PERTH WA 6000

SHARE REGISTRY

Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace PERTH WA 6000

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

Your Directors present their report together with the financial statements of GR Engineering Services Limited (“GR Engineering” or “consolidated entity”) for the financial year 1 July 2016 to 30 June 2017 and the independent auditor’s report thereon.

The names of the consolidated entity’s Directors in office during the financial year ended 30 June 2017 and until the date of this report are as below. Directors were in office for this entire period unless otherwise stated.

DIRECTORS

Geoffrey (Geoff) Michael JONES (Managing Director) Phillip (Phil) LOCKYER (Non-Executive Chairman) Appointed 21 December 2016 Peter John HOOD (Non-Executive Chairman) Tony Marco PATRIZI (Executive Director) Barry Sydney PATTERSON (Non-Executive Director) Terrence John STRAPP (Non-Executive Director)

COMPANY SECRETARY

Giuseppe (Joe) TOTARO (B.Comm, CPA, CTA)

Joe is a co-founder of GR Engineering and has been Company Secretary since 4 September 2006. He was appointed Chief Financial Officer on 19 April 2011. Joe is a certified practicing accountant (CPA) with over 30 years’ experience in commercial and public practice specialising in mining and mining services. He was formerly company secretary of and business consultant to JR Engineering. Joe’s experience includes corporate advisory services having consulted on and managed numerous corporate transactions involving private and publicly listed companies.

PRINCIPAL ACTIVITIES

During the financial period the consolidated entity’s activities have been the provision of high quality process engineering design and construction services to the mining and mineral processing industry and the provision of operations, maintenance and well management services to the oil and gas sector.

DIVIDENDS PAID DURING THE YEAR

Fully franked dividend of 5.00 cents per share paid on 28 September 2016
Fully franked dividend of 5.00 cents per share paid on 30 March 2017

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

REVIEW OF OPERATIONS

The year under review saw the completion of several important projects and the award of six significant engineering, design and construction contracts involving precious and base metals. Four of these contracts, with a combined value of approximately $223 million, were awarded during the second half of FY17.

An additional feature of FY17 was the growing contribution made to the consolidated entity’s financial performance by Upstream Production Solutions (Upstream PS) which generated revenue of $68.9 million ($37.7 million FY16) and EBITDA of $6.4 million ($3.3 million FY16).

With the award of new contracts in the minerals processing business in the second half of FY17 and a high proportion of Upstream PS’s revenue already contracted, the consolidated entity has clear visibility as to earnings for FY18.

Mineral Processing

Design and construction projects completed during FY17 include Independence Group NL’s $136 million Nova Nickel Project which was executed under an engineering procurement and construction (EPC) contract model. Practical completion on this project was achieved in November 2016, on time and on budget.

Awarded and completed in FY17 was work under the $37 million EPC contract for the completion and upgrade of Auctus Resources Pty Ltd’s Mungana zinc, lead, copper and gold concentrator facility located at Chillagoe, Northern Queensland.

In Indonesia, the consolidated entity completed the Wetar Copper Project for PT Batutua Tembaga Raya, awarded in November 2014 and in Greece, work was successfully completed on Hellas Gold SA’s Olympias Project in the second half of FY17. Both the Wetar Copper Project and the Olympias Project were executed under engineering, procurement and construction management (EPCM) contracting arrangements. The successful completion of these projects helped to further establish GR Engineering’s credentials in EPCM contract execution and its ability to meet the additional challenges of undertaking overseas construction projects.

In April 2017, GR Engineering entered into a $107 million EPC contract for the design, construction and commissioning of the mineral processing plant associated with Dacian Gold Limited’s Mt Morgans Gold Project. GR Engineering’s scope of works under this contract involves the design and construction of a new 2.5 million tonne per annum carbonin-leach treatment facility and certain supporting infrastructure for the Mt Morgans Project, located 25 kilometres southwest of Laverton in Western Australia. Work is scheduled for completion during the first quarter of 2018. As at 30 June 2017, GR Engineering was mobilised to site and works were well underway.

Also in April 2017, the Company received approval to recommence work on Western Areas Limited’s Cosmic Boy Mill Recovery Enhancement Project. Initial work on this $24 million engagement commenced in July 2015, with engineering design and procurement of long lead time items, however construction work of approximately $17.5 million was subsequently deferred. These construction works recommenced in May 2017 and are scheduled for completion in January 2018.

In June 2017, the Company entered into the $31.3 million EPC contract with Anglogold Ashanti Australia Limited to undertake the design and construction of a brownfields upgrade to processing facilities at the Sunrise Dam Gold Mine, located 55 south of Laverton Western Australia. Under this contract, GR Engineering has been engaged to design and construct a new flotation and ultra-fine grind processing facility with associated services upgrades to operate within the existing processing infrastructure that is currently in operation at Sunrise Dam.

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

Subsequent to the end of FY17, GR Engineering announced the entry into a $66.5 million contract with GNT Resources Pty Ltd, a wholly owned subsidiary of Gascoyne Resources Limited. As announced on July 5 2017, this contract provides for the design and construction of a 2.5 million tonne per annum mineral processing plant and associated infrastructure for the Dalgaranga Gold Project located in the Murchison gold mining region of Western Australia.

The award of this contract followed the entry of a Letter of Intent arrangement in March 2017 pursuant to which the Company commenced front end engineering design and early initiating activity. As with all projects underway as at 30 June, this work is proceeding on time and on budget.

In addition to the above projects, the Company was engaged on a number of smaller but nevertheless important contracts. These included the provision of engineering design, construction and site support services to Ma’aden Barrick Copper Company Limited’s Jabal Sayid underground paste backfill plant located in Saudi Arabia and the engagement by Gold Road Resources Limited to assist with early works design and the management of the construction of the accommodation camp and construction of the site water supply facilities at its Gruyere Gold Project in Western Australia.

With the continuation of a historically strong gold price and favourable exchange rates, projects commenced in FY17 were dominated by Western Australian gold projects. Over its history, GR Engineering’s has developed experience and established a solid track record of designing and building processing facilities associated with a broad range of base metals, precious metals and industrial minerals. This broad expertise has provided GR Engineering with a natural hedge against commodity price movements, particularly in volatile economic climates where precious metals have outperformed.

Experience with a broad range of commodities is also reflected in the Company’s study activity. During FY17 GR Engineering completed 32 studies and as at year end was engaged on a further 25. Commodities the subject of these studies included gold, copper, graphite, uranium, zinc, lead, mineral sands and nickel.

Oil and Gas

The year under review was also notable for the increased contribution to the consolidated entity’s operational and financial outcomes made by Upstream Production Solutions (Upstream PS). During FY17, Upstream PS focussed on growing its operations in Western Australia and Queensland and to establish a presence in the South Australian market, including the opening of an Adelaide office in May 2017.

In Queensland, Upstream PS continued to win and deliver new work packages for wellsite and balance of plant maintenance and additional services to leading gas producers in the Bowen and Surat Basins. In Victoria, Upstream PS has also continued to deliver operations, maintenance and other project services to CO2CRC’s carbon capture and storage facility in the Otway Basin.

In Western Australia, Upstream PS continued to operate and maintain a number of oil and gas assets in the Perth Basin for AWE Limited (Waitsia Field, Xyris and the Dongara Processing Facilities). In addition Upstream PS continued to deliver operations and maintenance services to the Cliff Head unmanned offshore production platform and its associated onshore Arrowsmith processing facility. Also in Western Australia, Upstream PS continued to successfully deliver operations and maintenance services to Empire Oil and Gas NL at its Red Gully facility, approximately 150 kilometres north of Perth.

In September 2016, Upstream PS became the registered operator of the Northern Endeavour floating production, storage and offloading (FPSO) facility in the Timor Sea on behalf of Northern Oil and Gas Australia (NOGA). This important milestone was completed after a six month transition period during which the required operating and business systems were developed and implemented and personnel were recruited to facilitate the transfer of the operation of the asset from the previous owner and operator.

On 1 March 2017, the consolidated entity announced the award by Eni Australia of a three year maintenance services contract for the Blacktip gas field and associated infrastructure, also located in the Timor Sea. Upstream PS’s scope of services includes the administration and execution of maintenance activities, logistics, procurement, engineering and operations support in relation to the unmanned Blacktip well head platform and the associated onshore Yelcherr gas plant.

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

Safety

GR Engineering’s operational success can only be fully measured having regard to safety performance and in particular the achievement of a zero harm objective. The consolidated entity achieved a Total Reportable Injury Frequency Rate (TRIFR) of 3.15 in FY17 (FY16 5.89). While this compares favourably to FY16 performance, management continues to engender a culture and instil work practices aimed at achieving total safety on all jobs at all locations.

Outlook

As the consolidated entity moves into FY18, it is buoyed by a strong order book dominated by Australian gold projects. As at 30 June 2017, contracted revenue for the consolidated entity expected to be received in FY18 is approximately $240 million. Together with opportunities for additional work, the consolidated entity expects revenue for FY18 to be in the range of $300 million to $330 million.

FINANCIAL POSITION

The consolidated entity generated revenue of $238.7 million and net operating cash outflows of ($13.5) million for the year ended 30 June 2017. During FY17 the consolidated entity paid dividends of $15.3 million and as at 30 June held cash totalling $34.9 million.

As at the end of FY17, the consolidated entity held trade debtors of $66.2 million, trade creditors of $62.2 million and short and long term debt of $0.7 million.

As noted in more detail under Significant Changes in the State of Affairs below, action taken by Wolf Minerals (UK) Limited and uncertainty relating to the timing of the recovery of the debt owed by Eastern Goldfields Limited has resulted in the consolidated entity taking the prudential measure of not declaring a final FY17 dividend.

During FY17, the consolidated entity has utilised its cash reserves to secure competitive advantage by funding early procurement for significant design and construction projects awarded late in FY17. While reducing cash holdings in FY17, these measures are expected to contribute to strong cash generation through FY18, particularly in the first half, resulting in the likely reinstatement of the consolidated entity's dividend policy in 1H18.

GROWTH STRATEGY

The consolidated entity’s growth strategy is based on the following key elements:

Extend geographic reach;
Seek to form strategic alliances and make strategic investments;
Extend and diversify commodities for which processing solutions are provided;
Develop and maintain strong client relationships;
Focus on securing larger scale projects;
Acquisition of complementary businesses;
Extend services to include Build, Own, Operate (BOO) and Build, Own, Operate and Transfer (BOOT) project delivery and operations.

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

The consolidated entity’s shares were suspended from trade on the Australian Securities Exchange on 18 August 2017 until prior to the release of this report whilst the consolidated entity sought to update the market on :

(a) the Supreme Court of Western Australia proceedings between GR Engineering and Eastern Goldfields Limited ( Eastern Goldfields ), details of which GR Engineering announced to the ASX on 11 July 2017 and the impact to those Proceedings of the appointment and subsequent removal of a liquidator to Eastern Goldfields between 16 and 17 August 2017; and
(b) GR Engineering receiving from Wolf Minerals (UK) Ltd (a wholly owned subsidiary of Wolf Minerals Limited ( Wolf ) on 17 August 2017 a contractual notice of claim and intention to call on a performance bond that GR Engineering provided Wolf pursuant to the EPC contract for the design and construction of the Hemerdon Tungsten & Tin Project.

Eastern Goldfields

GR Engineering notes the ASX release made by Eastern Goldfields on 17 August 2017 that the liquidator appointed to Eastern Goldfields on 16 August 2017 had been removed. Should Eastern Goldfields have remained in liquidation, GR Engineering would have been prevented from progressing the proceedings announced on 11 July 2017.

Following the removal of the liquidator, GR Engineering will continue to vigorously pursue the Proceedings to seek recovery of progress claims in relation to the Davyhurst EPC Contract totalling approximately $9.9 million, plus interest and costs. GR Engineering will closely monitor any developments in relation to Eastern Goldfields' financial position.

Wolf Minerals

On 5 March 2013, Wolf and GR Engineering Services (UK) Ltd ( GRES UK ), a wholly owned subsidiary of GR Engineering, entered into a contract for the design, construction and commissioning of a mineral processing facility at the Hemerdon Tungsten and Tin project located near Plympton in Devon, United Kingdom ( Contract ). The mineral processing facility was taken over by Wolf on 13 October 2015.

GRES UK agreed to provide performance bonding under the Contract, which included a £7.5 million (approximately A$12.2 million) unconditional bank guarantee ( Bank Guarantee ). Wolf has retained the Bank Guarantee pending the achievement of plant performance test outcomes under the Contract.

Wolf has publicly disclosed on numerous occasions since March 2016 that it is addressing the presence of low frequency noise ( LFN ) emanating from the processing plant site.

On 17 August 2017, GRES UK received from Wolf a notice of claim and notice of intention to call on the Bank Guarantee within 21 days of the notice where GRES UK failed to rectify an alleged LFN defect in relation to the works under the Contract ( Claim Notice ). GRES UK considers that the Claim Notice is without merit and that Wolf has no grounds to pursue recourse to the Bank Guarantee. GRES UK notes that there has been no call on the Bank Guarantee and has sought to engage with Wolf to address the Claim Notice in the short term. GRES UK has notified its insurers at Wolf’s request and denies all liability in respect of the Claim Notice.

Uncertainty relating to Wolf’s stated intention to have recourse to the Bank Guarantee and uncertainty as to the timing of the recovery of the Eastern Goldfields debt, requires a prudent approach to capital management until further clarity is obtained. Accordingly, the Company has elected to not pay a final dividend in FY17. The board will seek to reinstate the payment of a dividend at the earliest possible opportunity, likely to be by way of an interim dividend in FY18.

FUTURE DEVELOPMENTS

Information regarding likely developments in the operations of the consolidated entity in future financial years is referred to in the Review of Operations and Growth Strategy in above sections of this Directors' Report.

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

EVENTS AFTER BALANCE SHEET DATE

Refer to the above section on Significant Changes in the State of Affairs for information on events after balance sheet date.

BOARD OF DIRECTORS

Phillip (Phil) LOCKYER - Non-Executive Chairman (Appointed to the Board 04 October 2016 and appointed NonExecutive Chairman 21 December 2016)

BAppSc (Mech Eng)

Phil Lockyer is a Mining Engineer and metallurgist who has over 50 years experience in the mineral industry, with a focus on gold and nickel in both underground and open pit operations. He was employed by WMC Resources for 20 years and as General Manager for Western Australia was responsible for WMC's nickel division and gold operations. Mr Lockyer also held the position of Director Operations for Dominion Mining Limited and Resolute Limited. He holds a Diploma of Metallurgy from the Ballarat School of Mines, an Associateship of Mining Engineering from the Western Australian School of Mines and a Masters of Mineral Economics from Curtin University.

Phil Lockyer has formerly served on the Boards of Perilya Limited, Focus Minerals Limited and CGA Mining Limited. He is currently a Non-Executive Director of Swick Mining Services Limited and RTG Mining Inc.

Interests in ordinary shares in GR Engineering - 26,500
Interests in other securities in GR Engineering - None
Special Responsibilities: - Non-Executive Chairman
Directorships in other listed entities in the last 3 years: - Swick Mining Services Limited (ASX:SWK) 2008 - Present - RTG Mining Inc. (ASX:RTG) 2013 - Present

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

Peter has considerable board experience and is currently Chairman of Matrix Composites and Engineering Ltd, Immediate Past Deputy President of the Australian Chamber of Commerce and Industry, Past President of the Chamber of Commerce and Industry of Western Australia and former Chairman of Apollo Gas Ltd.

Peter was appointed as a Non-Executive Director of the Company on 10 February 2016.

Interests in ordinary shares in GR Engineering – 500,000
Interests in other securities in GR Engineering - None
Special Responsibilities:
Member of the Audit and Risk Committee
Member of the Remuneration and Nominations Committee
Directorships in other listed entities in the last 3 years:
Matrix Composites & Engineering Limited (ASX:MCE) 2011 - Present

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

Geoffrey (Geoff) Michael JONES – Managing Director

BE (Civil), FIEAust, CPEng

Geoff is a Civil Engineer with over 30 years’ experience in construction, engineering, minerals processing and project development in Australia and overseas. Geoff previously worked for Baulderstone Hornibrook, John Holland, Minproc Engineers and Signet Engineering before serving over six years as Group Project Engineer for Resolute Mining Limited.

Prior to joining GR Engineering Services Limited in 2011, Geoff was the General Manager of Sedgman Limited’s metals engineering business and also responsible for the strategic development of the metals engineering division internationally.

Geoff is currently the Non-executive Chairman of Marindi Metals Limited (previously Brumby Resources Limited), and a Non-Executive Director of Azumah Resources Limited, Energy Metals Limited and Ausgold Limited.

Interests in ordinary shares in GR Engineering – 634,705
Interests in other securities in GR Engineering :
Share Appreciation Rights - 1,363,334
Special Responsibilities: - Managing Director
Directorships in other listed entities in the last 3 years: - Marindi Metals Limited (ASX:MZN) 2006 – Present
Azumah Resources Limited (ASX:AZM) 2009 – Present
Energy Metals Limited (ASX:EME) 2008 – February 2017
Ausgold Limited (ASX:AUC) 29 July 2016 – Present

Tony Marco PATRIZI – Executive Director

BE (Mech Eng)

Tony co-founded GR Engineering. Tony is a Mechanical Engineer with over 30 years’ experience in the mining and minerals processing industries as a company director, operations manager, and 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 – 9,795,000
Interests in other securities in GR Engineering - None
Directorships in other listed entities in the last 3 years: - Primary Gold Limited (ASX:PGO) from 8 March 2016 - present

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

Barry Sydney PATTERSON – Non-Executive Director ASMM, MIMM, FAICD

Barry is a Mining Engineer with over 50 years’ experience in the mining industry and is a co-founder 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.

Barry has served as a director of a number of public companies across a range of industries. He was formerly a nonexecutive chairman of Sonic Healthcare Limited and Silex Systems Limited and is currently a Non-Executive Director of Dacian Gold Limited.

Interests in ordinary shares in GR Engineering – 7,500,000
Interests in other securities in GR Engineering - None
Special Responsibilities:
Chairman of the Remuneration and Nominations Committee
Member of the Audit and Risk Committee
Directorships in other listed entities in the last 3 years: - Dacian Gold Limited (ASX:DCN) 2012 - Present

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 a non-executive director of The Mac Services Group Limited (resigned 2010).

Terry is a non-executive director of Ausdrill Limited.

Interests in ordinary shares in GR Engineering – 380,000
Interests in other securities in GR Engineering - None
Special Responsibilities:
Chairman of the Audit and Risk Committee
Member of the Remuneration and Nominations Committee
Directorships in other listed entities in the last 3 years: - Ausdrill Limited (ASX:ASL) 2005 - Present

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

MEETINGS OF DIRECTORS

The number of Meetings of the Board of Directors held during the year ended 30 June 2017 and the number attended by each director are as follows:

	FULL MEETINGS OF DIRECTORS	FULL MEETINGS OF DIRECTORS
	Eligible	Attended
Barry Patterson	11	8
Phil Lockyer	9	9
Geoff Jones	11	11
Tony Patrizi	11	9
Terrence Strapp	11	11
Peter Hood	11	10

A meeting of the Audit and Risk Committee was held on 23 August 2016. It was attended by Terry Strapp and Peter Hood. No separate meetings of the Nominations and Remuneration Committee were held during the year with the Board electing to address matters for its consideration within the context of meetings of the full Board of Directors.

OPTIONS

As at the date of this report, there were no unissued ordinary shares of GR Engineering under option.

SHARE APPRECIATION RIGHTS

As at the date of this report, Share Appreciation Rights granted are as follows:

		Vesting &
	Grant Date	Exercise Date	Exerciseprice	Quantity
12	November 2013	30 June 2018	Nil	213,334
15	November 2016	30 June 2019	Nil	650,000
15	November 2016	30 June 2020	Nil	500,000

For full particulars of the Share Appreciation Rights issued to Directors as remuneration, refer to the Remuneration Report.

PERFORMANCE RIGHTS

As at the date of this report, the unissued ordinary shares of GR Engineering which are the subject of unvested Performance Rights are as follows:

	No. Performance
Vesting Date	Rights	Expiry Date	Exerciseprice
31 March 2018	127,500	31 March 2018	-
31 March 2019	127,500	31 March 2019	-
31 March 2018	60,000	31 March 2018	-
31 October 2020	100,000	31 October 2020	-

The Performance Rights holders do not have any right to participate in any issues of shares or other interests in the consolidated entity or any other entity.

During the financial year ended 30 June 2017 187,500 ordinary shares were issued due to the vesting of Performance Rights.

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

INDEMNIFYING OFFICERS OR AUDITORS

During the financial year, the consolidated entity 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 proceedings on behalf of the consolidated entity or intervene in any proceedings to which the consolidated entity is a party for the purpose of taking responsibility on behalf of the consolidated entity for all or any part of those proceedings.

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 2017 fees amounting to $43,212 were paid to Deloitte Touche Tohmatsu for non-audit services including taxation and corporate finance advice.

AUDITOR’S INDEPENDENCE DECLARATION

The Auditor’s Independence Declaration for the year ended 30 June 2017 has been reviewed and can be found at page 22 of the annual financial report.

ENVIRONMENTAL ISSUES

In conducting its business, the consolidated entity 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 consolidated entity observes all relevant licences in good standing. The consolidated entity has not been made aware of any areas of non-compliance in this regard.

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

REMUNERATION REPORT – AUDITED

The remuneration report details the amount and nature of the remuneration for the consolidated entity’s key management personnel.

Directors

Geoff Jones (Managing Director)
Phil Lockyer (Non-Executive Chairman) - Appointed 21 December 2016
Tony Patrizi (Executive Director)
Barry Patterson (Non-Executive Director)
Terrence Strapp (Non-Executive Director)
Peter Hood (Non-Executive Director)

Executives

David Sala Tenna (General Manager - EPC)
Joe Totaro (Chief Financial Officer & Company Secretary)
Rodney Schier (Engineering Manager)
Paul Newling (General Manager – EPCM)

Unless otherwise stated the named persons held their current position for the whole financial year and since the end of the financial year. At the consolidated entity’s 2016 Annual General Meeting, 99.8% of eligible shareholders voted in favour of the remuneration report. No specific comments were made regarding the remuneration report at the meeting.

REMUNERATION POLICY

The consolidated entity’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 consolidated entity and therefore shareholders. This will be achieved by:

Staying abreast of labour market forces thereby ensuring remuneration offered by the consolidated entity is competitive and remains so through a process of annual review.
Devising performance based remuneration programmes.
Utilising the consolidated entity’s Equity Incentive Plan and / or Employee Share Option Plan.

NON-EXECUTIVE DIRECTORS

The consolidated entity’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 consolidated entity by way of remuneration for services such sums as may from time to time be determined by the consolidated entity 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 consolidated entity to align their personal objectives with the growth and profitability of the consolidated entity.

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

EXECUTIVE DIRECTORS

Executive Directors' pay and reward is comprised of a competitive base salary. To the extent that executive directors are shareholders in the consolidated entity, their personal objectives are aligned with the performance of the consolidated entity.

SENIOR EXECUTIVES

Executives' remuneration is comprised of a competitive base salary, performance bonuses and share based incentive payments (at the discretion of the board). The Managing Director, Geoff Jones is also incentivised through the issue of performance based Share Appreciation Rights and is eligible to participate in the GR Engineering Services Limited Equity Incentive Plan.

All executive remuneration packages are reviewed annually to ensure they remain competitive and reflect performance. Remuneration paid to directors and executives is valued at cost to the consolidated entity. Options, Performance Rights and Share Appreciation Rights are valued using the Black Scholes and Monte Carlo methods.

EMPLOYMENT DETAILS OF MEMBERS OF KEY MANAGEMENT PERSONNEL

Name	Title	Contract Details	Non Salary Cash Incentives	Shares/ Units	Options/ Rights	Fixed Salary	Total
Tony Patrizi	Executive	Termination: 3 months notice by	-	-	-	100%	100%
	Director	the consolidated entity or
		employee
Barry Patterson	Non-Executive	By rotation and re-election	-	-	-	100%	100%
	Director
Terrence Strapp	Non-Executive	By rotation and re-election	-	-	-	100%	100%
	Director
Peter Hood	Non-Executive	By rotation and re-election	-	-	-	100%	100%
	Director
Phillip Lockyer	Non-Executive	By rotation and re-election	-	-	-	100%	100%
	Chairman
Geoff Jones	Managing	Fixed term to 30 June 2018.	8.4%	-	18.9%	72.7%	100%
	Director	Termination: 6 months notice by
		the consolidated entity and 3
		months notice by the employee
David	General Manager	Termination: 3 months notice by	-	-	-	100%	100%
Sala Tenna	- EPC	the consolidated entity or
		employee
Joe Totaro	Company	Termination: 3 months notice by	-	-	-	100%	100%
	Secretary / Chief	the consolidated entity or
	Financial Officer	employee
Rodney Schier	Engineering	Termination: 3 months notice by	-	-	-	100%	100%
	Manager	the consolidated entity or
		employee
Paul Newling	General Manager	Termination: 3 months notice by	-	-	-	100%	100%
	- EPCM	the consolidated entity or
		employee

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

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

REMUNERATION DETAILS FOR THE YEAR ENDED 30 JUNE 2017 - BOARD OF DIRECTORS

	Short Term Benefits	Short Term Benefits			Post Employment Benefits	Equity Based Payments	Equity Based Payments
		Non Cash							%
	Cash Salary	Payments	Other		Super-				Performance
	& Fees	*	**	Sub Total	annuation	Equity	Options	Total	Based
	$	$	$	$	$	$	$	$
EXECUTIVE DIRECTORS
Tony Patrizi
2017	296,330	14,753	-	311,083	28,151	-	-	339,234	0.0%
2016	296,331	19,308	-	315,639	28,151	-	-	343,790	0.0%
Geoff Jones
2017	589,738	14,945	72,000	676,683	19,615	162,160	-	858,458	27.3%
2016	507,476	23,055	-	530,531	19,307	49,197	-	599,035	8.2%
NON-EXECUTIVE DIRECTORS
Joe Ricciardo ***
2017	39,343	-	-	39,343	-	-	-	39,343	0.0%
2016	50,148	5,418	-	55,566	4,764	-	-	60,330	0.0%
Barry Patterson
2017	57,000	-	-	57,000	5,415	-	-	62,415	0.0%
2016	57,000	-	-	57,000	5,415	-	-	62,415	0.0%
Terrence Strapp ****
2017	62,700	-	-	62,700	5,415	-	-	68,115	0.0%
2016	62,700	-	-	62,700	5,415	-	-	68,115	0.0%
Peter Hood
2017	65,931	-	-	65,931	6,263	-	-	72,194	0.0%
2016	57,000	-	-	57,000	5,415	-	-	62,415	0.0%
Phillip Lockyer
2017	52,933	-	-	52,933	5,028	-	-	57,961	0.0%
2016	-	-	-	-	-	-	-	-	0.0%
TOTAL DIRECTORS
2017	1,163,975	29,698	72,000	1,265,673	69,887	162,160	-	1,497,720	15.6%
2016	1,030,655	47,781	-	1,078,436	68,467	49,197	-	1,196,100	4.1%

“Non-Cash payments” refer to reportable fringe benefits (fuel for personal vehicles and novated leases)
** “Other” amounts relate to performance based bonus payments, as approved by the board
*** Retired April 2016. Benefits in the 2017 year are payments of leave balances.
**** Paid to SDG Nominees Pty Ltd, an entity controlled by Terrence Strapp

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

REMUNERATION DETAILS FOR THE YEAR ENDED 30 JUNE 2017 - EXECUTIVES

	Short Term Benefits	Short Term Benefits			Post Employment Benefits	Equity Based Payments	Equity Based Payments
		Non Cash							%
	Cash Salary	Payments	Other		Super-				Performance
	& Fees	*	**	Sub Total	annuation	Equity	Options	Total	Based
	$	$	$	$	$	$	$	$
SENIOR EXECUTIVES
David Sala Tenna - General Manager - EPC
2017	331,193	4,839	5,479	341,511	31,983	-	-	373,494	1.5%
2016	331,193	5,037	5,479	341,709	31,984	-	-	373,693	1.5%
Joe Totaro – Company		Secretary & Chief Financial		Officer
2017	260,869	9,481	5,479	275,829	25,303	-	-	301,132	1.8%
2016	260,869	8,571	5,479	274,919	25,303	-	-	300,222	1.8%
Rodney	Schier – Engineering Manager
2017	261,468	6,483	5,479	273,430	25,359	-	-	298,789	1.8%
2016	261,468	5,439	5,479	272,386	25,359	-	-	297,745	1.8%
Paul Newling – General		Manager EPCM
2017	419,390	-	6,000	425,390	19,615	-	-	445,005	1.3%
2016	419,697	-	11,416	431,113	20,391	6,408	-	457,912	3.9%
TOTAL SENIOR EXECUTIVES
2017	1,272,920	20,803	22,437	1,316,160	102,260	-	-	1,418,420	1.6%
2016	1,273,227	19,047	27,853	1,320,127	103,037	6,408	-	1,429,572	2.4%
GRAND TOTAL
2017	2,436,895	50,501	94,437	2,581,833	172,147	162,160	-	2,916,140	8.8%
2016	2,303,882	66,828	27,853	2,398,563	171,504	55,605	-	2,625,672	3.2%

“Non-Cash payments” refer to reportable fringe benefits (fuel for personal vehicles and novated leases)
** “Other” amounts relate to performance based bonus payments, as approved by the board

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

LONG TERM INCENTIVES

Employee Share Option Plan

The consolidated entity has established an employee share option plan (ESOP). The consolidated entity may offer options to subscribe for shares in the consolidated entity to eligible persons subject to the ESOP rules. Options offered under the ESOP 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).

Equity Incentive Plan

The GR Engineering Services Limited 2015 Equity Incentive Plan ( Plan ) was adopted by the Board on 8 October 2015. In accordance with the Listing Rules of the Australian Securities Exchange (ASX), shareholder approval of the Plan was obtained at the consolidated entity’s Annual General Meeting held on 10 November 2015. Under the ASX Listing Rules and Corporations Act 2001 (Cth), the issue of securities under the Plan to directors will be subject to separate shareholder approval. Eligible participants in the Plan include those defined in ASIC Class Order 14/1000 ( CO ) or as determined by the Board to be eligible to participate in the Plan from time to time.

The Plan is designed to align the interests of executives and employees with the interests of shareholders by providing an opportunity to receive an equity interest in the consolidated entity and therefore direct participation in the benefits of future consolidated entity performance over the medium to long term.

This is achieved by awarding both or either:

Performance Rights (PR), with each PR being a right to acquire one fully paid ordinary share of the consolidated entity and vesting upon the satisfaction of certain performance conditions; and
Share Appreciation Rights (SARs), being rights to receive a future payment in shares, based on to the amount of increase in market value of one share in the consolidated entity in a specified period between the grant of the SAR and exercise of that SAR.

Securities issued under the Plan will be subject to vesting criteria as determined by the Board and have a term of 3 years (or such term as otherwise agreed by the Board).

The GR Engineering Services Limited Equity Incentive Plan adopted in 2012 ( 2012 Plan ) was superseded by the Plan, but remains in place for the same purposes and on similar terms and conditions to the Plan to govern the unvested securities issued under the 2012 Plan.

During the year ended 30 June 2017 160,000 Performance Rights were issued in accordance with the terms and conditions of the Plan. A total of 415,000 Performance Rights were on issue as at 30 June 2017.

Grant Date	Vesting Date	Expiry Date	Exercise Price	Number	Fair Value
30 Apr 2014	31 Mar 2018	31 Mar 2018	Nil	127,500	$0.458
30 Apr 2014	31 Mar 2019	31 Mar 2019	Nil	127,500	$0.410
31 Mar 2017	31 Mar 2018	31 Mar 2018	Nil	60,000	$1.415
3 Apr 2017	31 Oct 2020	31 Oct 2020	Nil	100,000	$1.059

The Performance Rights issued or lapsed in the current financial year do not relate to key management personnel.

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

A total of 1,363,334 Share Appreciation Rights are on issue pursuant to the Plan, with 940,253 vesting prior to 30 June 2016 and 194,452 vesting during the year.

The following share-based payment compensation relates to Share Appreciation Rights issued to directors and senior management:

									% of
									Compensation
									for the Year
					Number of				Consisting of
					Shares Issued	Exercise			Share
				Date	on Vesting	Price		Fair Value	Appreciation
Name		Grant Date	VestingDate	Exercised	Date	$	Quantity	$	Rights
	12	November 2013	30 June 2017	30 June 2017	194,452	Nil	296,297	$0.1619	18.9%
	12	November 2013	30 June 2018			Nil	213,334	$0.1508
	15	November 2016	30 June 2019			Nil	650,000	$0.5969
	15	November 2016	30 June 2020			Nil	500,000	$0.5826

RELATIONSHIP BETWEEN COMPANY PERFORMANCE AND REMUNERATION POLICY

The table below sets out summary information about the consolidated entity’s earnings and movements in shareholder wealth for the 5 years to 30 June 2017:

	2013	2014	2015	2016	2017
Revenue ($000's)	114,695	114,183	216,893	255,292	238,691
Net profit before tax ($000's)	11,476	16,787	17,196	25,406	16,287
Net profit after tax ($000's)	7,539	14,164	12,938	19,340	12,865
Share price at year end	$0.46	$0.70	$0.90	$0.99	$1.47
Dividend ($000's)	9,000	9,000	12,785	15,158	15,287
EPS (cents)	5.03	9.44	8.60	12.71	8.41
Diluted EPS(cents)	4.97	9.26	8.42	12.64	8.35

Tony Patrizi, a Non-Executive Director, three senior executives and two key employees hold significant shareholdings in the consolidated entity. As a result the performance of the consolidated entity and the personal and financial interest of its executive and management team are aligned.

The consolidated entity has issued Share Appreciation Rights to its Managing Director Geoff Jones which are designed to incentivise the Managing Director and align his interests with those of all shareholders.

The ESOP and Plan have been adopted by the consolidated entity and will be implemented as the Nomination and Remuneration Committee identify the need to remunerate either existing or future employees, key employees, executives or executive directors on a performance basis.

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

SHAREHOLDING

The number of shares in the parent entity held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below:

2017	Balance at the start of theyear Received as part of remuneration Additions / other Disposals / other Balance at the end of theyear
*Ordinary shares* Tony Patrizi Barry Patterson Terry Strapp Peter Hood Geoff Jones David Sala Tenna Joe Totaro Rodney Schier Phillip Lockyer	9,795,000 - - - 9,795,000 10,500,000 - - (3,000,000) 7,500,000 380,000 - - - 380,000 500,000 - - - 500,000 940,253 194,452 - (500,000) 634,705 13,825,000 - - (1,500,000) 12,325,000 9,500,000 - - (1,500,000) 8,000,000 8,100,000 - - - 8,100,000 - - 26,500 - 26,500
	53,540,253 194,452 26,500 (6,500,000) 47,261,205

2016	Balance at the start of theyear Received as part of remuneration Additions / other Disposals / other Balance at the end of theyear
*Ordinary shares* Tony Patrizi Barry Patterson Terry Strapp Peter Hood Geoff Jones David Sala Tenna Joe Totaro Rodney Schier	9,795,000 - - - 9,795,000 10,500,000 - - - 10,500,000 380,000 - - - 380,000 500,000 - - - 500,000 1,182,531 207,722 - (450,000) 940,253 13,825,000 - - - 13,825,000 9,500,000 - - - 9,500,000 8,100,000 - - - 8,100,000
	53,782,531 207,722 - (450,000) 53,540,253

OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL

During the year ended 30 June 2017 the consolidated entity leased office space at 71-73 Daly Street from Ashguard Pty Ltd. Directors of the consolidated entity, Tony Patrizi and Barry Patterson, each have a non controlling interest in Ashguard Pty Ltd. The total amount invoiced by Ashguard Pty Ltd in the year ended 30 June 2017 amounted to $327,325 including GST (2016: $314,019). The balance payable at 30 June 2017 is $50,994 (2016: $46,860). During the year ended 30 June 2017 the consolidated entity procured items for Ashguard Pty Ltd. The total amount invoiced to Ashguard Pty Ltd in the year ended 30 June 2017 was $9,446 including GST (2016: $1,225). The balance outstanding at 30 June 2017 is nil (2016: nil).

The terms and conditions of the transactions and the associated agreements to which they relate (where applicable) that have been set out above are at arms length and on normal commercial terms.

This marks the end of the remuneration report.

ANNUAL FINANCIAL REPORT

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DIRECTORS’ REPORT

CORPORATE GOVERNANCE

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

The consolidated entity’s Board of Directors has adopted a comprehensive corporate governance policy and manual based on ASX guidelines. The Board continually seeks to review and develop additional structures to be implemented as the consolidated entity’s activities develop in size, nature and scope.

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

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

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Geoff Jones Managing Director

Date : 24 August 2017

ANNUAL FINANCIAL REPORT

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AUDITOR’S INDEPENDENCE DECLARATION

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ANNUAL FINANCIAL REPORT

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2017

Notes

Revenue 5 Other income 6 Expenses Employee benefits expense 7 Superannuation expense 7 Depreciation and amortisation expense Workers compensation expense Equity based payments Finance costs 7 Direct materials and subcontractor costs Accountancy & audit fees Marketing Bad debts 10 Occupancy Administration Profit before income tax expense Income tax expense 8 Profit after income tax expense for the year attributable to the owners of GR Engineering Services Limited 21 Other comprehensive income for the year, net of income tax Items that may be reclassified subsequently to profit or loss : Fair value gain/(loss) on available for sale financial assets Exchange differences on translating foreign operations Other comprehensive income for the year, net of income tax Total comprehensive income for the year attributable to the owners of GR Engineering Services Limited Profit attributable to owners of the parent Basic earnings per share 31 Diluted earnings per share 31 Total comprehensive income attributable to the owners of the parent	2017 2016 $ $ 238,690,534 255,291,729 1,382,624 3,791,701 (79,075,485) (69,120,391) (6,547,039) (5,413,273) (1,392,211) (1,789,325) (594,837) (459,201) (270,931) (394,651) (56,080) (131,566) (128,574,678) (149,311,065) (279,974) (317,935) (96,838) (52,454) - (9,900) (2,443,873) (2,480,489) (4,454,405) (4,197,463) 16,286,807 25,405,717 (3,421,894) (6,065,734) 12,864,913 19,339,983 (1,154,489) 662,567 174,999 (1,970,215) (979,490) (1,307,648) 11,885,423 18,032,335 12,864,913 19,339,983 11,885,423 18,032,335 Cents Cents 8.41 12.71 8.35 12.64 Consolidated	2017 2016 $ $ 238,690,534 255,291,729 1,382,624 3,791,701 (79,075,485) (69,120,391) (6,547,039) (5,413,273) (1,392,211) (1,789,325) (594,837) (459,201) (270,931) (394,651) (56,080) (131,566) (128,574,678) (149,311,065) (279,974) (317,935) (96,838) (52,454) - (9,900) (2,443,873) (2,480,489) (4,454,405) (4,197,463) 16,286,807 25,405,717 (3,421,894) (6,065,734) 12,864,913 19,339,983 (1,154,489) 662,567 174,999 (1,970,215) (979,490) (1,307,648) 11,885,423 18,032,335 12,864,913 19,339,983 11,885,423 18,032,335 Cents Cents 8.41 12.71 8.35 12.64 Consolidated
		25,405,717
		(6,065,734)
		19,339,983
		662,567 (1,970,215)
		(1,307,648)
		18,032,335

		19,339,983

		18,032,335
		Cents 12.71 12.64

The accompanying notes form part of these Financial Statements

ANNUAL FINANCIAL REPORT

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2017

Notes

Assets Current assets Cash and cash equivalents 9 Trade and other receivables 10 Inventories 11 Prepayments Current tax assets 8 Total current assets Non-current assets Property, plant and equipment 12 Financial assets 13 Intangible assets 14 Deferred tax 8 Total non-current assets Total assets Liabilities Current liabilities Trade and other payables 15 Borrowings 16 Income tax 8 Provisions 17 Unearned revenue 18 Total current liabilities Non-current liabilities Borrowings 16 Provisions 17 Total non-current liabilities Total liabilities Net assets Equity Issued capital 19 Reserves 20 Retained profits 21 Total equity	2017 2016 $ $ 34,868,758 64,923,175 66,183,661 29,909,363 19,783,118 4,409,364 497,293 503,561 2,212,666 - 123,545,496 99,745,463 2,716,545 3,613,480 3,129,121 3,712,539 - 34,765 1,025,438 3,028,018 6,871,104 10,388,802 130,416,600 110,134,265 62,217,046 28,356,507 458,403 401,450 - 643,876 8,834,547 10,891,708 7,135,911 15,034,068 78,645,907 55,327,609 226,612 522,418 2,681,091 2,290,471 2,907,703 2,812,889 81,553,610 58,140,498 48,862,990 51,993,767 30,388,000 30,225,436 (538,355) 332,768 19,013,345 21,435,563 48,862,990 51,993,767 Consolidated	2017 2016 $ $ 34,868,758 64,923,175 66,183,661 29,909,363 19,783,118 4,409,364 497,293 503,561 2,212,666 - 123,545,496 99,745,463 2,716,545 3,613,480 3,129,121 3,712,539 - 34,765 1,025,438 3,028,018 6,871,104 10,388,802 130,416,600 110,134,265 62,217,046 28,356,507 458,403 401,450 - 643,876 8,834,547 10,891,708 7,135,911 15,034,068 78,645,907 55,327,609 226,612 522,418 2,681,091 2,290,471 2,907,703 2,812,889 81,553,610 58,140,498 48,862,990 51,993,767 30,388,000 30,225,436 (538,355) 332,768 19,013,345 21,435,563 48,862,990 51,993,767 Consolidated
		99,745,463
		3,613,480 3,712,539 34,765 3,028,018
		10,388,802
		110,134,265
		28,356,507 401,450 643,876 10,891,708 15,034,068
		55,327,609
		522,418 2,290,471
		2,812,889
		58,140,498
		51,993,767
		30,225,436 332,768 21,435,563
		51,993,767

The accompanying notes form part of these Financial Statements

ANNUAL FINANCIAL REPORT

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CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2017

Notes Cash flows from operating activities Receipts from customers Payments to suppliers and employees Income tax paid Interest received Net cash flows (used in)/provided by operating activities 9 Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Investment in financial assets Proceeds from sale of financial assets Net cash flows used in investing activities Cash flows from financing activities Payment of finance lease liabilities Dividends paid Net cash flows used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of period Effects of exchange rate changes of balances of cash held in foreign currencies Cash and cash equivalents at end of period 9	2017 2016 $ $ 192,863,083 278,863,188 (203,382,079) (253,635,286) (3,781,074) (8,249,071) 820,561 1,199,099 (13,479,509) 18,177,930 (456,108) (944,184) 28,484 - (396,666) (1,248,595) - 1,964,235 (824,290) (228,544) (752,045) (606,614) (15,287,131) (15,157,931) (16,039,176) (15,764,545) (30,342,975) 2,184,841 64,923,175 64,582,994 288,558 (1,844,660) 34,868,758 64,923,175 Consolidated	2017 2016 $ $ 192,863,083 278,863,188 (203,382,079) (253,635,286) (3,781,074) (8,249,071) 820,561 1,199,099 (13,479,509) 18,177,930 (456,108) (944,184) 28,484 - (396,666) (1,248,595) - 1,964,235 (824,290) (228,544) (752,045) (606,614) (15,287,131) (15,157,931) (16,039,176) (15,764,545) (30,342,975) 2,184,841 64,923,175 64,582,994 288,558 (1,844,660) 34,868,758 64,923,175 Consolidated
		18,177,930
		(944,184) - (1,248,595) 1,964,235
		(228,544)
		(606,614) (15,157,931)
		(15,764,545)
		2,184,841 64,582,994 (1,844,660)
		64,923,175

The accompanying notes form part of these Financial Statements

ANNUAL FINANCIAL REPORT

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2017

Balance as at 30 June 2015 Profit for the period Other comprehensive income for the period Total comprehensive income for the period Dividends Issue of shares Share based payments Balance as at 30 June 2016 Profit for the period Other comprehensive income for the period Total comprehensive income for the period Dividends Issue of shares Share based payments Balance as at 30 June 2017	Issued capital Share Option Reserve Performance Rights Reserve Share Appreciation Rights Reserve Foreign Currency Translation Reserve Investment Revaluation Reserve Retained Earnings Total $ $ $ $ $ $ $ $
	28,918,256 584,497 984,762 79,978 699,712 203,996 17,253,511 48,724,712
	- - - - - - 19,339,983 19,339,983 - - - - (1,970,215) 662,567 - (1,307,648)
	- - - - (1,970,215) 662,567 19,339,983 18,032,335
	- - - - - - (15,157,931) (15,157,931) 1,307,180 - (1,175,848) (76,132) - - - 55,200 - - 290,257 49,194 - - - 339,451
	30,225,436 584,497 99,171 53,040 (1,270,503) 866,563 21,435,563 51,993,767
	- - - - - - 12,864,913 12,864,913 - - - - 174,999 (1,154,489) - (979,490)
	- - - - 174,999 (1,154,489) 12,864,913 11,885,423
	- - - - - - (15,287,131) (15,287,131) 162,564 - (114,597) (47,967) - - - - - - 108,771 162,160 - - - 270,931
	30,388,000 584,497 93,345 167,233 (1,095,504) (287,926) 19,013,345 48,862,990

The accompanying notes form part of these Financial Statements

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 1. General information

The financial report covers GR Engineering Services Limited as a consolidated entity consisting of GR Engineering Services Limited and the entities it controlled during the year. The financial report is presented in Australian dollars, which is GR Engineering Services Limited's functional and presentation currency.

The financial report consists of the financial statements, notes to the financial statements and the directors' declaration.

GR Engineering Services Limited is a listed public company limited by shares, incorporated and domiciled in Australia. The registered office and principal place of business of GR Engineering Services Limited is located at 179 Great Eastern Highway, Belmont, Western Australia.

A description of the nature of the consolidated entity's operations and its principal activities are included in the directors' report, which is not part of the financial report.

The financial report was authorised for issue, in accordance with a resolution of directors, on 22 August 2017. The directors have the power to amend and reissue the financial report.

Note 2. Significant accounting policies

The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

New, revised or amending Accounting Standards and Interpretations adopted

Adoption of new and revised Accounting Standards

The consolidated entity 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 2016.

New and revised Standards and amendments thereof and Interpretations effective for the current year that are relevant to the consolidated entity included:

AASB 1057 ‘Application of Australian Accounting Standards’ and AASB 2015-9 ‘Amendments to Australian Accounting Standards – Scope and Application Paragraphs’
AASB 2014-3 ‘Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations’
AASB 2014-4 ‘Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of Depreciation and Amortisation’
AASB 2014-9 ‘Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements’
AASB 2015-1 ‘Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012-2014 Cycle’
AASB 2015-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101’
AASB 2015-5 ‘Amendments to Australian Accounting Standards – Investment Entities: Applying the Consolidation Exception’

The adoption of these standards and interpretations did not have a material impact on the consolidated entity.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 2. Significant accounting policies (continued)

New Accounting Standards and Interpretations not yet mandatory or early adopted

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 consolidated entity for the year ended 30 June 2017.

Standard/Interpretation	Effective for annual reporting periods beginning on or after	Expected to be initially applied in the financial year ending
 AASB 9 ‘Financial Instruments’, and the relevant amending standards	1 January 2018	30 June 2019
 AASB 15 ‘Revenue from Contracts with Customers’, AASB 2014-5 ‘Amendments to Australian Accounting Standards arising from AASB 15’, AASB 2015-8 ‘Amendments to Australian Accounting Standards – Effective Date of AASB 15’, and AASB 2016-3 ‘Amendments to Australian Accounting Standards – Clarifications to AASB 15’	1 January 2018	30 June 2019
 AASB 16 ‘Leases’	1 January2019	30 June 2020
 AASB 2014-10 ‘Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture’ and AASB 2015-10 ‘Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and AASB 128’	1 January 2018	30 June 2019
 AASB 2016-1 ‘Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses’	1 January 2017	30 June 2018
 AASB 2016-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107’	1 January 2017	30 June 2018
 AASB 2016-5 Amendments to Australian Accounting Standards - Classification and Measurement of Share-based Payment Transactions	1 January 2018	30 June 2019
 AASB 2017-2 Amendments to Australian Accounting Standards – Further Annual Improvements 2014-2016	1 January 2017	30 June 2019
 Interpretation 22 Foreign Currency Transactions and Advance Consideration	1 January 2018	30 June 2019

At the date of authorisation of the financial statements, there were no new IASB Standards or IFRIC Interpretations (for which Australian equivalent Standards and Interpretations have not yet been issued) which were applicable to the consolidated entity.

Management are currently undertaking an assessment of the impact of these recently issued or amended standards and interpretations.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 2. Significant accounting policies (continued)

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.

The financial statements comprise the consolidated financial statements of the consolidated entity. For the purposes of preparing the consolidated financial statements, the consolidated entity is a for-profit entity. Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the company and the consolidated entity comply with International Financial Reporting Standards (‘IFRS’).

Basis of preparation

Historical cost convention

The consolidated 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.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the consolidated entity takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of AASB 2, leasing transactions that are within the scope of AASB 117, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in AASB 2 or value in use in AASB 136.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 2. Significant accounting policies (continued)

Critical accounting estimates

The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3.

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.

Principles of consolidation

The consolidated financial statements incorporate the financial statements of the consolidated entity and entities (including structured entities) controlled by the consolidated entity and its subsidiaries. Control is achieved when the consolidated entity:

has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee; and
has the ability to use its power to affect its returns.

The consolidated entity reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the consolidated entity has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The consolidated entity considers all relevant facts and circumstances in assessing whether or not the consolidated entity's voting rights in an investee are sufficient to give it power, including:

the size of the consolidated entity's holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
potential voting rights held by the consolidated entity, other vote holders or other parties;
rights arising from other contractual arrangements; and
any additional facts and circumstances that indicate that the consolidated entity has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 2. Significant accounting policies (continued)

Consolidation of a subsidiary begins when the consolidated entity obtains control over the subsidiary and ceases when the consolidated entity loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the consolidated entity gains control until the date when the consolidated entity ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the consolidated entity and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the consolidated entity and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Operating segments

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 Managing Director of the consolidated entity.

Foreign currency translation

The financial report is presented in Australian dollars, which is GR Engineering Services Limited's functional and presentation currency.

Foreign currency transactions

Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

Foreign operations

The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity.

The functional currency of GR Engineering Services (UK) Limited is Great British pounds. The functional currency of Upstream Production Solutions Malaysia Sdn. Bhd. is Malaysian Ringgit. The functional currency of GR Engineering Services (Greece) is Euro. The functional currency of other foreign subsidiaries of the consolidated entity is United States dollars.

The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of.

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.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 2. Significant accounting policies (continued)

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.

Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the consolidated entity and the revenue can be reliably measured.

Sales revenue

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

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.

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.

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 profit or loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The consolidated entity’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 for 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.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 2. Significant accounting policies (continued)

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.

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 profit or loss and other comprehensive income.

Unearned income

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

Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other shortterm, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

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.

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.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 2. Significant accounting policies (continued)

Investments and other financial assets

Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. They are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of the acquisition and subsequent reclassification to other categories is restricted. The fair values of quoted investments are based on current bid prices. For unlisted investments, the consolidated entity establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models.

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the asset is derecognised or impaired.

Available for sale financial assets

Listed shares and listed redeemable notes held by the consolidated entity that are traded in an active market are classified as available for sale and are stated at fair value.

Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investments revaluation reserve, with the exception of impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses on monetary assets, which are recognised in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss.

Dividends on available for sale equity instruments are recognised in profit or loss when the consolidated entity's right to receive the dividends is established.

Impairment of financial assets

The consolidated entity assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial asset; or observable data indicating that there is a measurable decrease in estimated future cash flows.

When an available for sale financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 2. Significant accounting policies (continued)

The amount of the impairment allowance for loans and receivables carried at amortised cost is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. If there is a reversal of impairment, the reversal cannot exceed the amortised cost that would have been recognised had the impairment not been made and is reversed to profit or loss.

Property, plant and equipment

Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

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

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 pretax 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 profit or loss 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 profit or loss in the period the item is derecognised.

Leases

Finance leases, which transfer to the consolidated entity 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.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 2. Significant accounting policies (continued)

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 profit or loss on a straight-line basis over the lease term.

Impairment of non-financial assets

At each reporting date, the consolidated entity assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the consolidated entity 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.

Trade and other payables

These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.

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 profit or loss when the liabilities are derecognised as well as through the amortisation process.

Provisions

Provisions are recognised when the consolidated entity 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 consolidated entity 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 profit or loss net of any reimbursement.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 2. Significant accounting policies (continued)

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.

Employee benefits

Wages and salaries, annual leave and sick leave

A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered.

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 consolidated entity in respect of services provided by employees up to reporting date.

Defined contribution superannuation expense

Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred.

Share-based payments

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 share based payments is expensed on a straight-line basis over the vesting period, based on the consolidated entity’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the consolidated entity 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.

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.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 2. Significant accounting policies (continued)

Issued capital

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.

Dividends

Dividends are recognised when declared during the financial year and no longer at the discretion of the company.

Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to the owners of GR Engineering Services Limited, 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 financial 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.

De-recognition of financial instruments

The de-recognition of a financial instrument takes place when the consolidated entity 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.

Goods and Services Tax ('GST') and other similar 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.

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.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 2. Significant accounting policies (continued)

Intangible assets

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straightline basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Note 3. Critical accounting judgements, estimates and assumptions

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below.

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.

Because the consolidated entity predominantly 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 consolidated entity. As such the consolidated entity is responsible for the total “make-good” of any defects of underperformance.

The consolidated entity includes a project completion and close out provision (liability) in design and construction project cost forecast reports of 3% of the project costs, or such other amount as assessed by management having regard to specific project requirements.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 4. Operating segments

Operating segments have been identified on the basis of internal reports of the consolidated entity 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 Managing Director. 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.

The Managing Director has chosen to classify the operations of the consolidated entity by reference to presence in an industry. The segments identified on this basis are "mineral processing" and "oil and gas".

Segment revenues and results

The following table shows the revenue and results of the consolidated entity summarised under these segments.

Segment revenue

Mineral processing Oil and gas Total revenue Segment profit before tax Mineral processing Oil and gas Corporate - gain on sale of securities Total profit before tax	2017 $ 169,826,934 68,863,600 238,690,534 2017 $ 10,766,446 5,520,361 - 16,286,807	2016 $ 217,561,538 37,730,191
		255,291,729
		2016 $ 22,339,174 2,022,724 1,043,819
		25,405,717

Segment revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the current year (2016: nil).

Segment assets and liabilities

Segment assets Mineral processing Oil and gas Corporate - securities available for sale Total assets Depreciation and amortisation Mineral processing Oil and gas Total depreciation and amortisation Segment liabilities Mineral processing Oil and gas Total liabilities	2017 $ 96,606,076 30,681,403 3,129,121 130,416,600 2017 $ 443,936 948,275 1,392,211 2017 $ 65,704,791 15,848,819 81,553,610	2016 $ 85,655,784 20,765,942 3,712,539
		110,134,265
		2016 $ 474,874 1,314,451
		1,789,325
		2016 $ 49,038,015 9,102,483
		58,140,498

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 4. Operating segments (continued)

Geographical information

The following table shows the revenue from external customers of the consolidated entity summarised by location.

Revenue Australia Overseas Total revenue	2017 $ 222,306,462 16,384,072 238,690,534	2016 $ 230,712,841 24,578,888
		255,291,729

Non-current assets

All non-current assets of the consolidated entity are held in Australia.

Information about major customers

During the financial year four customers individually provided more than 10% of total revenue each for the consolidated entity (2016: 2 customers).

Note 5. Revenue

Rendering of services - construction contracts Rendering of services - operations and maintenance contracts Total revenue	2017 2016 $ $ 169,826,934 217,561,538 68,863,600 37,730,191 238,690,534 255,291,729 Consolidated	2017 2016 $ $ 169,826,934 217,561,538 68,863,600 37,730,191 238,690,534 255,291,729 Consolidated
		255,291,729

Note 6. Other income

Net foreign exchange gain/(loss) Net gain/(loss) on disposal of property, plant and equipment Subsidies and grants Interest revenue Gain on sale of investment securities Other revenue Total other income	2017 2016 $ $ (23,748) 1,240,673 32,887 - 34,509 99,113 820,561 1,199,099 - 1,043,819 518,415 208,997 1,382,624 3,791,701 Consolidated	2017 2016 $ $ (23,748) 1,240,673 32,887 - 34,509 99,113 820,561 1,199,099 - 1,043,819 518,415 208,997 1,382,624 3,791,701 Consolidated
		3,791,701

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 7. Expenses

Note 7. Expenses
Profit before income tax includes the following specific expenses: Finance costs Interest and leasing charges on finance leases Employee benefits Employee benefits expense excluding superannuation Defined contribution superannuation expense Total employee benefits	2017 2016 $ $ 56,080 131,566 79,075,485 69,120,391 6,547,039 5,413,273 85,622,524 74,533,664 Consolidated
		69,120,391 5,413,273
		74,533,664

Note 8. Income tax expense

Major components of income tax expense for the years ended 30 June 2017 and 2016 are:

Income tax recognised in the Consolidated statement of profit or loss

Current income tax Current income tax charge Adjustments in respect of current income tax of previous years Deferred income tax Relating to origination and reversal of temporary differences Adjustments in respect of previous deferred income tax Income tax expense reported in statement of profit or loss Income tax recognised in statement of changes in equity Deferred income tax Revaluation of shares Income tax expense reported in equity Accounting profit before income tax At the statutory income tax rate of 30% (2016: 30%) Add: Non-deductible expenses Adjustments in respect of previous current income tax Impact to tax expense arising from foreign tax rate differential Other At effective income tax rate of 21.0% (2016: 23.9%) Income tax expense reported in statement of profit or loss 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 consolidated entity’s effective income tax rate for the years ended 30 June 2017 and 2016 is as follows:	2017 2016 $ $ 3,554,953 8,804,963 (2,630,422) (1,683,392) 1,428,345 (1,024,457) 1,069,018 (31,380) 3,421,894 6,065,734 (494,781) 283,957 (494,781) 283,957 16,286,807 25,405,717 4,886,042 7,621,715 144,901 280,518 (1,561,404) (1,683,392) (47,645) (283,532) - 130,425 3,421,894 6,065,734 3,421,894 6,065,734 Consolidated	2017 2016 $ $ 3,554,953 8,804,963 (2,630,422) (1,683,392) 1,428,345 (1,024,457) 1,069,018 (31,380) 3,421,894 6,065,734 (494,781) 283,957 (494,781) 283,957 16,286,807 25,405,717 4,886,042 7,621,715 144,901 280,518 (1,561,404) (1,683,392) (47,645) (283,532) - 130,425 3,421,894 6,065,734 3,421,894 6,065,734 Consolidated
		6,065,734
		283,957
		283,957
		25,405,717 7,621,715 280,518 (1,683,392) (283,532) 130,425
		6,065,734

		6,065,734

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 8. Income tax expense (continued)

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 warranty Lease termination Payables - Upstream Production Solutions subsidiary Accrued employee entitlements - Upstream Production Solutions subsidiary Shares in listed entity Plant and equipment Accrued Bonus Deferred income tax liabilities Prepayments Accrued interest Other accrued income Unrealised foreign exchange gain Prepayments - Upstream Production Solutions subsidiary Customer contracts - Upstream Production Solutions subsidiary Plant and equipment - Upstream Production Solutions subsidiary Work in progress Net deferred tax asset Current tax assets and liabilities Current tax (assets)/liabilities Income tax receivable/payable	2017 2016 $ $ 78,948 66,324 17,534 17,322 13,050 17,126 (54,962) (74,520) - 77 104,784 94,686 1,439,605 2,322,493 48,165 96,331 94,806 94,806 973,959 776,241 123,397 (371,384) 43,465 50,725 247,758 - 3,130,509 3,090,227 (25,632) (3,555) - (10,941) (44) (4,081) (7,980) (23,184) (200) - - (10,429) (5,009) (10,019) (2,066,206) - (2,105,071) (62,209) 1,025,438 3,028,018 (2,212,666) 643,876 Consolidated	2017 2016 $ $ 78,948 66,324 17,534 17,322 13,050 17,126 (54,962) (74,520) - 77 104,784 94,686 1,439,605 2,322,493 48,165 96,331 94,806 94,806 973,959 776,241 123,397 (371,384) 43,465 50,725 247,758 - 3,130,509 3,090,227 (25,632) (3,555) - (10,941) (44) (4,081) (7,980) (23,184) (200) - - (10,429) (5,009) (10,019) (2,066,206) - (2,105,071) (62,209) 1,025,438 3,028,018 (2,212,666) 643,876 Consolidated
		3,090,227
		(3,555) (10,941) (4,081) (23,184) - (10,429) (10,019) -
		(62,209)

		3,028,018
		643,876

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 9. Current assets - cash and cash equivalents

Note 9. Current assets - cash and cash equivalents
Cash on hand Cash at bank Cash on deposit	2017 2016 $ $ 51,557 119,698 34,817,201 40,303,477 - 24,500,000 34,868,758 64,923,175 Consolidated
		64,923,175

The fair value of cash and cash equivalents is $34,868,758 (2016: $64,923,175).

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 consolidated entity, and earn interest at the respective short-term deposit rates.

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 on hand Cash on deposit	2017 2016 $ $ 34,868,758 40,423,175 - 24,500,000 34,868,758 64,923,175 Consolidated	2017 2016 $ $ 34,868,758 40,423,175 - 24,500,000 34,868,758 64,923,175 Consolidated
		64,923,175

Reconciliation from the net profit after tax to the net cash flow from operating activities

Net profit after tax Adjustments for : Depreciation and amortisation Profit/loss on sale of asset Share based employee payments Net foreign exchange (gain)/loss Acquisition of shares as consideration for services Net (gain)/loss arising on sale of financial assets 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 (Decrease)/increase in unearned income Net cash from operating activities	2017 2016 $ $ 12,864,913 19,339,983 1,392,211 1,789,325 (32,887) - 270,931 394,651 (113,559) (125,554) (669,185) (374,591) - (1,043,819) (35,754,837) (3,721,532) (3,121,794) (1,587,852) 2,497,361 (1,240,276) 33,905,970 (7,075,721) (1,711,974) 3,148,498 (2,856,542) (943,060) (20,150,117) 9,617,878 (13,479,509) 18,177,930 Consolidated	2017 2016 $ $ 12,864,913 19,339,983 1,392,211 1,789,325 (32,887) - 270,931 394,651 (113,559) (125,554) (669,185) (374,591) - (1,043,819) (35,754,837) (3,721,532) (3,121,794) (1,587,852) 2,497,361 (1,240,276) 33,905,970 (7,075,721) (1,711,974) 3,148,498 (2,856,542) (943,060) (20,150,117) 9,617,878 (13,479,509) 18,177,930 Consolidated
		18,177,930

Non-cash transactions

During the year ended 30 June 2017 and year ended 30 June 2016, the following non-cash investing and financing activities occurred, which are not reflected in the consolidated statement of cash flows:

during the year ended 30 June 2017 the consolidated entity acquired equipment under finance lease of $38,659 (2016: $410,530)

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 10. Trade and other receivables

Current assets – trade and other receivables

Note 10. Trade and other receivables Current assets – trade and other receivables
Trade receivables Less: Allowance for impairment of receivables Other receivables Accrued revenue	2017 2016 $ $ 65,513,894 29,225,861 - - 65,513,894 29,225,861 407,415 229,038 262,352 454,464 66,183,661 29,909,363 Consolidated
		29,225,861
		229,038 454,464
		29,909,363

Trade receivables are non-interest bearing and are normally settled on 30 to 90 day terms.

Impairment of receivables

Movements in the allowance for impairment of receivables are as follows: Opening balance Receivables written off during the year as uncollectable Closing balance	2017 2016 $ $ - - - - - - Consolidated	2017 2016 $ $ - - - - - - Consolidated
		-

Bad debts written off during the year as uncollectable amount to nil (2016: $9,900).

Past due but not impaired

Customers with balances past due but without allowance for impairment of receivables amount to $32,391,074 as at 30 June 2017 ($8,687,141 as at 30 June 2016).

The ageing of the past due but not impaired receivables are as follows: 0 to 3 months overdue 3 to 6 months overdue Over 6 months overdue	2017 2016 $ $ 24,589,480 3,093,929 4,119,674 274,265 3,681,920 5,318,947 32,391,074 8,687,141 Consolidated	2017 2016 $ $ 24,589,480 3,093,929 4,119,674 274,265 3,681,920 5,318,947 32,391,074 8,687,141 Consolidated
		8,687,141

In determining the recoverability of a trade receivable, the consolidated entity considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of the reporting period. The concentration of credit risk is limited due to the fact that the customer base is large and unrelated.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 11. Current assets - inventories

Note 11. Current assets - inventories
Consumables - at cost Work in progress - oil and maintenance contracts Work in progress - construction contracts	2017 2016 $ $ 643,800 643,800 6,887,358 3,765,564 12,251,960 - 19,783,118 4,409,364 Consolidated
		4,409,364

For information on construction contracts in progress, refer to note 18.

Note 12. Non-current assets - property, plant and equipment

Plant and equipment - at cost Less: Accumulated depreciation Plant and equipment under lease Less: Accumulated depreciation	2017 2016 $ $ 7,543,054 7,007,559 (5,727,154) (4,637,788) 1,815,900 2,369,771 3,088,318 3,335,365 (2,187,673) (2,091,656) 900,645 1,243,709 2,716,545 3,613,480 Consolidated	2017 2016 $ $ 7,543,054 7,007,559 (5,727,154) (4,637,788) 1,815,900 2,369,771 3,088,318 3,335,365 (2,187,673) (2,091,656) 900,645 1,243,709 2,716,545 3,613,480 Consolidated
		2,369,771
		3,335,365 (2,091,656)
		1,243,709
		3,613,480

Reconciliations

Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:

Balance at 30 June 2015 Additions Disposals, Write off of assets Depreciation expense Balance at 30 June 2016 Additions Disposals, Write off of assets Transfers in/(out) Depreciation expense Balance at 30 June 2017	Plant & Equipment Under Lease $ 1,225,340 385,472 - (367,103) 1,243,709 38,659 - (109,520) (272,203) 900,645	Plant & Equipment $ 2,289,251 984,851 - (904,331) 2,369,771 544,362 (122,509) 109,520 (1,085,244) 1,815,900	Total $ 3,514,591 1,370,323 - (1,271,434)
			3,613,480
			583,021 (122,509) - (1,357,447)
			2,716,545

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 13. Financial assets

Available for sale financial assets held at fair value

Shares in listed entities

Consolidated	Consolidated
2017	2016
$	$
3,129,121	3,712,539

Shares and options in listed entities are measured at fair value at the end of the reporting period, using quoted market share prices. Refer to note 23 for movement during the year.

Note 14. Intangible assets

Note 14. Intangible assets
Customer contracts acquired on purchase of business Less: Accumulated amortisation Total intangible assets	2017 2016 $ $ 4,247,863 4,247,863 (4,247,863) (4,213,098) - 34,765 Consolidated
		34,765

The acquisition of the business of Upstream Production Solutions included seven projects in place at the acquisition date 23 April 2014. The fair value of each contract is amortised over the life of that contract. The lives of the seven contracts range between 2 and 4 years.

Note 15. Current liabilities - trade and other payables

Note 15. Current liabilities - trade and other payables
Trade payables Accrued expenses GST payable Prepaid revenue Other payables	2017 2016 $ $ 38,357,008 18,853,239 17,381,052 3,074,800 556,319 380,920 2,985,996 2,883,781 2,936,671 3,163,767 62,217,046 28,356,507 Consolidated
		28,356,507

Refer to note 23 for further information on financial instruments.

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.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 16. Borrowings

Current liabilities - borrowings

Lease liability Non-current liabilities - borrowings Lease liability	2017 2016 $ $ 458,403 401,450 2017 2016 $ $ 226,612 522,418 Consolidated Consolidated

Lease liability Refer to note 23 for further information on financial instruments.

Total secured liabilities

The total secured liabilities (current and non-current) are as follows:

Lease liability	2017 2016 $ $ 685,015 923,868 Consolidated

Assets pledged as security

The lease liabilities are effectively secured as the rights to the leased assets, recognised in the statement of financial position, revert to the lessor in the event of default.

Note 17. Provisions

Current liabilities - provisions

Annual leave Warranties 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 Additional provisions/(reduction in provisions) recognised Amounts used Balance at end of year	2017 2016 $ $ 4,035,862 3,150,066 4,798,685 7,741,642 8,834,547 10,891,708 2017 2016 $ $ 3,150,066 2,847,178 3,483,853 2,905,735 (2,598,057) (2,602,847) 4,035,862 3,150,066 7,741,642 5,115,160 (197,821) 6,241,778 (2,745,136) (3,615,296) 4,798,685 7,741,642 Consolidated Consolidated	2017 2016 $ $ 4,035,862 3,150,066 4,798,685 7,741,642 8,834,547 10,891,708 2017 2016 $ $ 3,150,066 2,847,178 3,483,853 2,905,735 (2,598,057) (2,602,847) 4,035,862 3,150,066 7,741,642 5,115,160 (197,821) 6,241,778 (2,745,136) (3,615,296) 4,798,685 7,741,642 Consolidated Consolidated
		3,150,066
		5,115,160 6,241,778 (3,615,296)
		7,741,642

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017

Note 17. Provisions (continued)

Non-current liabilities - provisions

Long service leave Movement in provisions Provision for long service leave Balance at beginning of year Additional provisions recognised Amounts used Balance at end of year Note 18. Unearned revenue Unearned revenue - Current liabilities Contracts in progress Progress billings Construction costs to date plus recognised profits	2017 2016 $ $ 2,681,091 2,290,471 2017 2016 $ $ 2,290,471 2,111,213 547,780 376,044 (157,160) (196,786) 2,681,091 2,290,471 2017 2016 $ $ 7,135,911 15,034,068 2017 2016 $ $ 386,684,581 404,854,458 (391,800,630) (389,820,390) (5,116,049) 15,034,068 Consolidated Consolidated Consolidated Consolidated	2017 2016 $ $ 2,681,091 2,290,471 2017 2016 $ $ 2,290,471 2,111,213 547,780 376,044 (157,160) (196,786) 2,681,091 2,290,471 2017 2016 $ $ 7,135,911 15,034,068 2017 2016 $ $ 386,684,581 404,854,458 (391,800,630) (389,820,390) (5,116,049) 15,034,068 Consolidated Consolidated Consolidated Consolidated
		15,034,068

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 19. Equity - issued capital

Note 19. Equity - issued capital
Ordinary shares - fully paid Opening balance Additional shares issued : Services rendered Ordinary shares - fully paid Exercise of performance rights Exercise of share appreciation rights	2017 2016 Shares Shares 152,871,308 150,732,531 187,500 1,871,055 194,452 207,722 - 60,000 153,253,260 152,871,308 Consolidated	2017 2016 $ $ 30,225,436 28,918,256 114,597 1,175,848 47,967 76,132 - 55,200 30,388,000 30,225,436 Consolidated
			30,225,436

Ordinary shares

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

Share appreciation rights

As at 30 June 2017, the consolidated entity had on issue a total of 1,363,334 share appreciation rights to Geoff Jones, Managing Director, as part of the consolidated entity's equity incentive plan (as at 30 June 2016: 509,631).

				Performance
				condition
Number of shares under				share price
share appreciation rights	Grant date	Vesting date	Exercise price	targets
213,334	12/11/2013	30/06/2018	$0.50	$1.24
650,000	15/11/2016	30/06/2019	$0.89	$1.36
500,000	15/11/2016	30/06/2020	$0.89	$1.50

Performance rights

As at 30 June 2017, the consolidated entity had on issue a total of 415,000 performance rights (as at 30 June 2016: 442,500):

Number of
performance rights	Grant date	Expiry date	Exercise price
127,500	30/04/2014	31/03/2018	Nil
127,500	30/04/2014	31/03/2019	Nil
60,000	31/03/2017	31/03/2018	Nil
100,000	03/04/2017	31/10/2020	Nil

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 20. Equity - reserves

Foreign currency reserve Performance rights reserve Share options reserve Share appreciation rights reserve Investment revaluation reserve Foreign currency reserve Balance at beginning of year Additional amounts recognised Balance at end of year	2017 2016 $ $ (1,095,504) (1,270,503) 93,345 99,171 584,497 584,497 167,233 53,040 (287,926) 866,563 (538,355) 332,768 2017 2016 $ $ (1,270,503) 699,712 174,999 (1,970,215) (1,095,504) (1,270,503) Consolidated Consolidated	2017 2016 $ $ (1,095,504) (1,270,503) 93,345 99,171 584,497 584,497 167,233 53,040 (287,926) 866,563 (538,355) 332,768 2017 2016 $ $ (1,270,503) 699,712 174,999 (1,970,215) (1,095,504) (1,270,503) Consolidated Consolidated
		(1,270,503)

The above foreign currency reserve represents foreign exchange differences resulting from translation of foreign currency amounts held in subsidiaries of the consolidated entity.

Performance rights reserve Balance at beginning of year Additional amounts recognised Amount exercised Balance at end of year	2017 2016 $ $ 99,171 984,762 108,771 290,257 (114,597) (1,175,848) 93,345 99,171 Consolidated	2017 2016 $ $ 99,171 984,762 108,771 290,257 (114,597) (1,175,848) 93,345 99,171 Consolidated
		99,171

The above performance rights reserve relates to performance rights granted and vested by the consolidated entity to its employees under its equity incentive plan.

Share options reserve Balance at beginning of year Additional amounts recognised Balance at end of year	2017 2016 $ $ 584,497 584,497 - - 584,497 584,497 Consolidated	2017 2016 $ $ 584,497 584,497 - - 584,497 584,497 Consolidated
		584,497

The above share options reserve relates to share options granted and vested by the consolidated entity to its employees under its employee share option plan.

Share appreciation rights reserve Balance at beginning of year Additional amounts recognised Amount exercised Balance at end of year	2017 2016 $ $ 53,040 79,978 162,160 49,194 (47,967) (76,132) 167,233 53,040 Consolidated	2017 2016 $ $ 53,040 79,978 162,160 49,194 (47,967) (76,132) 167,233 53,040 Consolidated
		53,040

The above share appreciation rights reserve relates to share appreciation rights granted and vested by the consolidated entity to its employees under its equity incentive plan.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 20. Equity - reserves (continued)

Investment revaluation reserve Balance at beginning of year Gain realised on sale of investment Additional amounts recognised Less tax effect of additional amount recognised Balance at end of year	2017 2016 $ $ 866,563 203,996 - (672,329) (1,649,270) 1,881,394 494,781 (546,498) (287,926) 866,563 Consolidated	2017 2016 $ $ 866,563 203,996 - (672,329) (1,649,270) 1,881,394 494,781 (546,498) (287,926) 866,563 Consolidated
		866,563

The above investment revaluation reserve relates to the revaluation of shares held in listed entities to fair value at the end of the reporting period. The fair value is determined using the quoted share price at 30 June 2017.

Note 21. Equity - retained profits

Retained profits at the beginning of the financial year Profit after income tax expense for the year Payment of dividends Retained profits at the end of the financial year	2017 2016 $ $ 21,435,563 17,253,511 12,864,913 19,339,983 (15,287,131) (15,157,931) 19,013,345 21,435,563 Consolidated	2017 2016 $ $ 21,435,563 17,253,511 12,864,913 19,339,983 (15,287,131) (15,157,931) 19,013,345 21,435,563 Consolidated
		21,435,563

Note 22. Equity - dividends

Dividends
Year ended 30 June 2016
Dividend paid 25 September 2015 (fully franked at 30% tax rate):
5 cents per ordinary share
Dividend paid 30 March 2016 (fully franked at 30% tax rate):
5 cents per ordinary share
Year ended 30 June 2017
Dividend paid 28 September 2016 (fully franked at 30% tax rate):
5 cents per ordinary share
Dividend paid 30 March 2017 (fully franked at 30% tax rate):
5 cents per ordinary share
Franking credits
Franking (debits)/credits available for subsequent financial years based on a tax rate
of 30%

2017
2016
$
$
7,536,627
7,621,304
7,643,565
7,643,565
15,287,130
15,157,931
2017
2016
$
$
(487,101)
1,762,045
Consolidated
Consolidated

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 23. Financial instruments

Financial risk management objectives

The consolidated entity 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, liquidity risk and equity risk.

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

Financial assets Cash and cash equivalents Trade and other receivables Available for sale securities Total financial assets Financial liabilities Trade and other payables Finance lease liabilities Total financial liabilities	2017 2016 $ $ 34,868,758 64,923,175 66,183,661 29,909,363 3,129,121 3,712,539 104,181,540 98,545,077 62,217,046 28,356,507 685,015 923,868 62,902,061 29,280,375 Consolidated	2017 2016 $ $ 34,868,758 64,923,175 66,183,661 29,909,363 3,129,121 3,712,539 104,181,540 98,545,077 62,217,046 28,356,507 685,015 923,868 62,902,061 29,280,375 Consolidated
		98,545,077
		28,356,507 923,868
		29,280,375

Capital management

The consolidated entity manages its capital to ensure the ability to continue as a going concern while maximising the return to stakeholders. The capital structure of the consolidated entity 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.

Market risk

Foreign currency risk

The consolidated entity and the parent entity undertakes certain transactions denominated in foreign currency and are exposed to foreign currency risk through foreign exchange rate fluctuations.

The carrying amounts in Australian dollars (AUD) of the consolidated entity’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows.

United States Dollars Great British Pounds Euro	2017 2016 AUD $ AUD $ 2,148,332 3,844,603 5,244,243 3,629,317 836,907 - 8,229,482 7,473,920 Assets	2017 2016 AUD $ AUD $ (3,452,866) (45,189) (293,159) (1,939,545) (149,476) - (3,895,501) (1,984,734) Liabilities	2017 2016 AUD $ AUD $ (3,452,866) (45,189) (293,159) (1,939,545) (149,476) - (3,895,501) (1,984,734) Liabilities
			(1,984,734)

Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting.

The consolidated entity holds balances in United States dollars, these balances are translated into Australian dollars at the prevailing exchange rate at 30 June 2017 of AUD $1 = USD $0.77 (2016: AUD $1 = USD $0.74).

The consolidated entity holds balances in Great British pounds, these balances are translated into Australian dollars at the prevailing exchange rate at 30 June 2017 of AUD $1 = GBP £0.59 (2016: AUD $1 = GBP £0.55).

The consolidated entity holds balances in Euro, these balances are translated into Australian dollars at the prevailing exchange rate at 30 June 2017 of AUD $1 = EUR €0.67 (2016: AUD $1 = EUR €0.67).

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017

Note 23. Financial instruments (continued)

The following table details the consolidated entity’s sensitivity to a 10% increase and decrease in the value of the Australian dollar against the currencies in which monetary assets are held:

Effect on profit before tax Effect on equity $ $ 118,747 118,747 (450,098) (450,098) (62,367) (62,367) (393,718) (393,718) Effect on profit before tax Effect on equity $ $ (345,349) (345,349) (153,616) (153,616) - - (498,965) (498,965) Effect of 10% increase in exchange rate Effect of 10% increase in exchange rate	Effect of 10% decrease in exchange rate	Effect of 10% decrease in exchange rate
	Effect on profit before tax Effect on equity $ $ (144,761) (144,761) 550,120 550,120 76,536 76,536 481,895 481,895 Effect of 10% decrease in exchange rate	Effect on equity $ (144,761) 550,120 76,536
		481,895
Effect on profit before tax $ (345,349) (153,616) - (498,965)	Effect on profit before tax $ 422,221 187,753 - 609,974	Effect on equity $ 422,221 187,753 -
		609,974

Interest rate risk

The board has considered the consolidated entity’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:

Effect on profit before tax Effect on equity $ $ 314,562 314,562 (3,421) (3,421) 311,141 311,141 Effect on profit before tax Effect on equity $ $ 384,536 384,536 (3,577) (3,577) 380,959 380,959 Effect of 1% increase in interest rate Effect of 1% increase in interest rate	Effect of 1% decrease in interest rate	Effect of 1% decrease in interest rate
	Effect on profit before tax Effect on equity $ $ (314,562) (314,562) 3,421 3,421 (311,141) (311,141) Effect of 1% decrease in interest rate	Effect on equity $ (314,562) 3,421
		(311,141)
Effect on profit before tax $ 384,536 (3,577) 380,959	Effect on profit before tax $ (384,536) 3,543 (380,993)	Effect on equity $ (384,536) 3,543
		(380,993)

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 23. Financial instruments (continued)

Equity price risk

The consolidated entity is exposed to equity price risks arising from equity investments.

The sensitivity analysis below has been determined based on the exposure of the consolidated entity to a 5% increase or decrease in equity prices at the end of the reporting period.

profit for the year ended 30 June 2017 would have been unaffected as the equity investments are classified as available-for-sale; and
other comprehensive income for the year ended 30 June 2017 would increase by $156,456 (2016: $185,627) as a result of an increase of 5% in equity prices, and decrease by $156,456 (2016: $185,627) as a result of a decrease of 5% in equity prices.

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations, resulting in financial loss to the consolidated entity. The consolidated entity has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The consolidated entity 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 credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.

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

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 consolidated entity’s short-, medium- and long-term funding and liquidity management requirements. The consolidated entity 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.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 23. Financial instruments (continued)

Liquidity and interest rate risk tables

The following tables detail the consolidated entity's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position.

Less than 6 months 6 to 12 months Over 12 months $ $ $ 62,217,046 - - 276,068 182,335 226,612 62,493,114 182,335 226,612 Less than 6 months 6 to 12 months Over 12 months $ $ $ 28,356,507 - - 182,835 218,615 522,418 28,539,342 218,615 522,418 Remaining contractual maturities Remaining contractual maturities	Less than 6 months 6 to 12 months Over 12 months $ $ $ 62,217,046 - - 276,068 182,335 226,612 62,493,114 182,335 226,612 Less than 6 months 6 to 12 months Over 12 months $ $ $ 28,356,507 - - 182,835 218,615 522,418 28,539,342 218,615 522,418 Remaining contractual maturities Remaining contractual maturities	Total $ 62,217,046 685,015
		62,902,061
		Total $ 28,356,507 923,868
Less than 6 months $ 28,356,507 182,835 28,539,342	6 to 12 months $ - 218,615 218,615
		29,280,375

Fair value of financial instruments

The fair values of financial assets and liabilities, together with their carrying amounts in the statement of financial position, for the consolidated entity are as follows:

Consolidated Assets Cash at bank Cash on deposit Trade receivables Available for sale securities Liabilities Trade payables Lease liability	Carrying amount Fair value $ $ 34,868,758 34,868,758 - - 66,183,661 66,183,661 3,129,121 3,129,121 104,181,540 104,181,540 62,217,046 62,217,046 685,015 685,015 62,902,061 62,902,061 2017	Carrying amount Fair value $ $ 40,423,175 40,423,175 24,500,000 24,500,000 29,909,363 29,909,363 3,712,539 3,712,539 98,545,077 98,545,077 28,356,507 28,356,507 923,868 923,868 29,280,375 29,280,375 2016	Carrying amount Fair value $ $ 40,423,175 40,423,175 24,500,000 24,500,000 29,909,363 29,909,363 3,712,539 3,712,539 98,545,077 98,545,077 28,356,507 28,356,507 923,868 923,868 29,280,375 29,280,375 2016
			98,545,077
			28,356,507 923,868
			29,280,375

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 23. Financial instruments (continued)

For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.

The financial assets and liabilities of the consolidated entity are classified into these categories below:

Fair value hierarchy - 2017 Financial assets Trade receivables Available for sale securities Financial liabilities Trade payables Lease liability Fair value hierarchy - 2016 Financial assets Trade receivables Available for sale securities Financial liabilities Trade payables Lease liability	Level 1 $ - 3,129,121 3,129,121 - - - Level 1 $ - 3,712,539 3,712,539 - - -	Level 2 $ 66,183,661 - 66,183,661 62,217,046 685,015 62,902,061 Level 2 $ 29,909,363 - 29,909,363 28,356,507 923,868 29,280,375	Level 3 $ - - - - - - Level 3 $ - - - - - -	Total $ 66,183,661 3,129,121
				69,312,782
				62,217,046 685,015
				62,902,061
				Total $ 29,909,363 3,712,539
				33,621,902
				28,356,507 923,868
				29,280,375

The fair values of the financial assets and financial liabilities included in the level 2 and level 3 categories above have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties.

Reconciliation of Level 1 fair value measurements:

Reconciliation of Level 1 fair value measurements:
Available for sale equity securities Opening balance Additions Disposals Net revaluations in other comprehensive income Closing balance	2017 2016 $ $ 3,712,539 2,347,202 1,065,852 1,339,228 - (1,592,745) (1,649,270) 1,618,854 3,129,121 3,712,539 Consolidated
		3,712,539

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 24. Key management personnel disclosures

Directors

The following persons were directors of GR Engineering Services Limited during the financial year:

Executive directors

Geoff Jones Managing Director Tony Patrizi Executive Director

Non-executive directors

Phil Lockyer Non-Executive Chairman - Appointed 21 December 2016 Peter Hood Non-Executive Chairman - 1 July to 21 December 2016 Peter Hood Non-Executive Director - 21 December 2016 to 30 June 2017 Barry Patterson Non-Executive Director Terry Strapp Non-Executive Director

Other key management personnel

The following persons also had the authority and responsibility for planning, directing and controlling the major activities of the consolidated entity, directly or indirectly, during the financial year:

Executives

David Sala Tenna General Manager EPC Division Paul Newling General Manager EPCM Division Joe Totaro Chief Financial Officer and Company Secretary Rodney Schier Engineering Manager

Remuneration of key management personnel

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

The aggregate compensation made to key management personnel of the consolidated entity is set out below:

Short term benefits Post employment benefits Share based payments Other	2017 2016 $ $ 2,487,396 2,370,710 172,147 171,504 162,160 55,605 94,437 27,853 2,916,140 2,625,672 Consolidated	2017 2016 $ $ 2,487,396 2,370,710 172,147 171,504 162,160 55,605 94,437 27,853 2,916,140 2,625,672 Consolidated
		2,625,672

Note 25. Remuneration of auditors

During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tohmatsu, the auditor of the company, and its network firms:

Audit services - Deloitte Touche Tohmatsu Audit or review of the financial statements - Deloitte Touche Tohmatsu Australia Audit or review of the financial statements - Deloitte Touche Tohmatsu UK Other services - Deloitte Touche Tohmatsu Tax compliance - Deloitte Touche Tohmatsu Australia Other services - Deloitte Touche Tohmatsu Australia	2017 2016 $ $ 132,009 122,911 9,311 9,574 24,150 22,575 19,062 - 184,532 155,060 Consolidated	2017 2016 $ $ 132,009 122,911 9,311 9,574 24,150 22,575 19,062 - 184,532 155,060 Consolidated
		155,060

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 26. Contingent liabilities

The consolidated entity has bank guarantees in place as at 30 June 2017 of $35,164,531 (2016: $30,697,308).

In May 2017, the consolidated entity converted $15,000,000 of its $85,000,000 bank guarantee facility to a standby multioption overdraft facility with the effect of reducing its bank guarantee facility from $85,000,000 to $70,000,000. The standby multi-option overdraft facility remains undrawn. The facilities are secured by a fixed and floating charge over all the assets of the consolidated entity. The amount of bank guarantees issued under this facility at 30 June 2017 is $34,258,841 (2016: $29,791,618). The consolidated entity has a bank guarantee facility with National Australia Bank to provide guarantees for the security of rental properties to the value of $905,690 (2016: $905,690). The amount of bank guarantees issued under this facility at 30 June 2017 is $905,690 (2016: $905,690).

The consolidated entity has a $30,000,000 insurance bond facility with Assetinsure Pty Ltd (2016: $30,000,000). This facility has been utilised to provide retention and off site materials bonds in connection with certain projects. The amount of insurance bonds issued under this facility at 30 June 2017 is $6,408,123 (2016: $10,033,027).

GR Engineering Services Limited, the parent company, has provided guarantees and indemnities in relation to certain contracts entered into by its subsidiaries. Liability under these guarantees and indemnities is limited to the relevant subsidiaries' contracted limits of liability under the contracts.

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

Note 27. Commitments

The consolidated entity has leased certain items of its equipment under finance leases. The average lease term is 4 years (2016: 3 years). The consolidated entity has options to purchase the equipment for a nominal amount at the end of the lease terms. The consolidated entity’s obligations under finance leases are secured by the lessors’ title to the leased assets.

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	2017 2016 $ $ 475,573 430,815 231,617 539,570 - - 707,190 970,385 (22,176) (46,517) 685,014 923,868 Consolidated	2017 2016 $ $ 475,573 430,815 231,617 539,570 - - 707,190 970,385 (22,176) (46,517) 685,014 923,868 Consolidated
		970,385 (46,517)
		923,868

The consolidated entity has operating leases that relate to leases of office buildings with lease terms of between 1 and 5 years. All operating lease contracts contain clauses for market rental reviews.

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	2017 2016 $ $ 1,452,354 1,738,202 591,814 1,257,555 - - 2,044,168 2,995,757 Consolidated	2017 2016 $ $ 1,452,354 1,738,202 591,814 1,257,555 - - 2,044,168 2,995,757 Consolidated
		2,995,757

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 28. Related party transactions

The terms of these arrangements are at arms length and at normal commercial terms.

Other than transactions with parties related to key management personnel mentioned above and in the remuneration report, there have been no other transactions with parties related to the consolidated entity in the financial year ending 30 June 2017.

Note 29. Parent entity information

The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the same as those applied in the consolidated financial statements.

Set out below is the supplementary information about the parent entity.

Statement of profit or loss and other comprehensive income

Profit after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Performance rights reserve Share options reserve Share appreciation rights reserve Investment revaluation reserve Retained profits Total equity	2017 2016 $ $ 7,722,574 16,894,564 6,568,085 17,577,131 2017 2016 $ $ 98,474,757 85,709,362 104,148,971 92,642,855 66,340,738 46,386,507 66,340,738 46,386,507 30,388,000 30,225,436 93,345 99,171 584,497 584,497 167,233 53,040 (287,926) 866,563 6,863,084 14,427,641 37,808,233 46,256,348 Parent Parent	2017 2016 $ $ 7,722,574 16,894,564 6,568,085 17,577,131 2017 2016 $ $ 98,474,757 85,709,362 104,148,971 92,642,855 66,340,738 46,386,507 66,340,738 46,386,507 30,388,000 30,225,436 93,345 99,171 584,497 584,497 167,233 53,040 (287,926) 866,563 6,863,084 14,427,641 37,808,233 46,256,348 Parent Parent
		92,642,855
		46,386,507
		46,386,507
		30,225,436 99,171 584,497 53,040 866,563 14,427,641
		46,256,348

The contingent liabilities and commitments of the parent entity are the same as those of the consolidated entity, as set out in notes 26 and 27.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 30. Events after the reporting period

(a) the Supreme Court of Western Australia proceedings between GR Engineering and Eastern Goldfields Limited ( Eastern Goldfields ), details of which GR Engineering announced to the ASX on 11 July 2017 and the impact to those Proceedings of the appointment and subsequent removal of a liquidator to Eastern Goldfields between 16 and 17 August 2017; and
(b) GR Engineering receiving from Wolf Minerals (UK) Ltd (a wholly owned subsidiary of Wolf Minerals Limited ( Wolf ) on 17 August 2017 a contractual notice of claim and intention to call on a performance bond that GR Engineering provided Wolf pursuant to the EPC contract for the design and construction of the Hemerdon Tungsten & Tin Project.

Eastern Goldfields

Wolf Minerals

Wolf has publicly disclosed on numerous occasions since March 2016 that it is addressing the presence of low frequency noise ( LFN ) emanating from the processing plant site.

No other matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years.

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 31. Earnings per share

Basic earnings per share Diluted earnings per share Profit after income tax attributable to the owners of GR Engineering Services Limited Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Weighted average number of employee performance rights and share appreciation rights issued Weighted average number of ordinary shares used in calculating diluted earnings per share	2017 2016 $ $ 12,864,913 19,339,983 Number Number 152,919,101 152,151,265 1,216,745 907,090 154,135,846 153,058,355 Cents Cents 8.41 12.71 8.35 12.64 Consolidated	2017 2016 $ $ 12,864,913 19,339,983 Number Number 152,919,101 152,151,265 1,216,745 907,090 154,135,846 153,058,355 Cents Cents 8.41 12.71 8.35 12.64 Consolidated
		Number 152,151,265 907,090
		153,058,355
		Cents 12.71 12.64

Note 32. Share-based payments

An Equity Incentive Plan was adopted by the consolidated entity on 28 March 2012, and was updated on 8 October 2015. At the discretion of the Board, all eligible employees of the consolidated entity or eligible consultants may participate in the Plan. Non-executive directors are not eligible to participate in the Plan.

The consolidated entity has issued a total of 3,045,000 performance rights to employees and long term contractors under the Plan. Each right entitles the employee to acquire one fully paid share in the consolidated entity for nil consideration, subject to the employees meeting a service term of three years from the date of grant. Of this total, 160,000 performance rights were issued during the financial year ending 30 June 2017 (2016: 60,000).

During the financial year a total of 187,500 performance rights vested (2016: 1,871,055). A total of 571,445 performance rights have lapsed due to resignations and redundancies of entitled employees since the date of issue of the first tranche of rights. Of this total nil have lapsed in the financial year ending 30 June 2017 (2016: 41,445).

A summary of performance rights on issue at 30 June 2017 follows:

Number issued Number lapsed Grant date Exercise price Vesting date Expiry date Vesting period (years) Vesting conditions Fair value	Tranche 6 Tranche 7 Tranche 9 Tranche 10
	127,500 127,500 60,000 100,000 - - - - 30 Apr 2014 30 Apr 2014 31 Mar 2017 3 Apr 2017 Nil Nil Nil Nil 31 Mar 2018 31 Mar 2019 31 Mar 2018 31 Oct 2020 31 Mar 2018 31 Mar 2019 31 Mar 2018 31 Oct 2020 4 5 1 3 Nil Nil Nil Nil $0.458 $0.410 $1.415 $1.059

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 32. Share-based payments (continued)

The fair value of performance rights granted during the year was calculated using a Black-Scholes pricing model applying inputs as follows:

Grant date share price Exercise price Expected volatility Term (years) Dividend yield Risk free interest rate Movement in performance rights Consolidated Balance at beginning of year Granted during the year Vested during the year Forfeited during the year Balance at end of year	Tranche 6 Tranche 7	Tranche 9 Tranche 10	Tranche 9 Tranche 10
	$0.705 $0.705 - - 60% 60% 4 5 11% 11% 3.33% 3.33% Number of Weighted performance average rights exercise price 442,500 - 160,000 - (187,500) - - - 415,000 - 2017	$1.580 $1.570 - - 50% 50% 1 3 11% 11% 1.76% 1.88% Number of Weighted performance average rights exercise price 2,295,000 - 60,000 - (1,871,055) - (41,445) - 442,500 - 2016
			-

The weighted average fair value of performance rights granted at 30 June 2017 is $0.73. The weighted average exercise price of these performance rights at 30 June 2017 is nil. The weighted average remaining contractual life of performance rights outstanding at 30 June 2017 is 614 days.

The consolidated entity has issued a total of 4,419,337 share appreciation rights to Geoff Jones, Managing Director, as part of the consolidated entity's equity incentive plan. Of this total, 296,297 vested during the financial year ending 30 June 2017 (2016: 432,433). The share appreciation rights are subject to vesting conditions, namely the participant being employed by the consolidated entity as Managing Director and the share price being equal to or greater than the exercise price at the vesting date.

					Performance
					condition	Fair value
	Number of share	Grant	Vesting	Exercise	share price	at grant
Class	appreciation rights	date	date	price	targets	date
A	1,600,000	12 Nov 2013	30 Jun 2014	$0.50	$0.60	$0.18
B	727,273	12 Nov 2013	30 Jun 2015	$0.50	$0.72	$0.18
C	432,433	12 Nov 2013	30 Jun 2016	$0.50	$0.86	$0.18
D	296,297	12 Nov 2013	30 Jun 2017	$0.50	$1.04	$0.16
E	213,334	12 Nov 2013	30 Jun 2018	$0.50	$1.24	$0.15
F	650,000	15 Nov 2016	30 Jun 2019	$0.89	$1.36	$0.60
G	500,000	15 Nov 2016	30 Jun 2020	$0.89	$1.50	$0.58

The fair value of share appreciation rights still on issue was calculated using a Monte Carlo pricing model applying inputs as follows:

Grant date share price Exercise price Expected volatility Vesting period (years) Dividend yield Risk free interest rate	Class E Class F Class G
	$0.67 $1.63 $1.63 $0.50 $0.89 $0.89 60% 50% 50% 4 2 3 11% 8% 8% 3.48% 1.84% 1.84%

ANNUAL FINANCIAL REPORT

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

Note 32. Share-based payments (continued)

Movement in share appreciation rights

Movement in share appreciation rights
Consolidated Balance at beginning of year Granted during the year Vested and exercised during the year Balance at end of year	Number of Weighted share average appreciation exercise rights price 509,631 - 1,150,000 - (296,297) - 1,363,334 - 2017	Number of Weighted share average appreciation exercise rights price 942,064 - - - (432,433) - 509,631 - 2016
			-

The weighted average fair value of share appreciation rights granted at 30 June 2017 is $0.52. The weighted average exercise price of these share appreciation rights at 30 June 2017 is $0.83. The weighted average remaining contractual life of share appreciation rights outstanding at 30 June 2017 is 807 days.

Note 33. Subsidiaries

The consolidated financial statements incorporate the following subsidiaries at the end of the reporting period.

	Country of	Equity	holding
Name of subsidiary	incorporation	2017	2016
GR Engineering Services (Indonesia) Pty Limited	Australia	100%	100%
GR Engineering Services (Argentina) Pty Limited	Australia	100%	100%
PT GR Engineering Services Indonesia *	Indonesia	100%	100%
GR Engineering Services (Africa)	Mauritius	100%	100%
GR Engineering Services (UK) Limited	United Kingdom	100%	100%
GR Engineering Services (Ghana) Limited **	Ghana	100%	100%
GR Engineering Services (Côte D’Ivoire) **	Côte D’Ivoire	100%	100%
GR Engineering Services (Mali) **	Mali	100%	100%
GR Engineering Services (Tengrela) ***	Côte D’Ivoire	100%	100%
GR Engineering Services Peru S.A.	Peru	100%	100%
GR Engineering Services (Greece)+	Greece	100%	100%
GR Engineering Services (Tanzania) Limited	Tanzania	100%	100%
Upstream Production Solutions Pty Ltd	Australia	100%	100%
Upstream Production Solutions (Malaysia) Sdn. Bhd.	Malaysia	100%	100%

PT GR Engineering Services Indonesia is 90% owned by GR Engineering Services Limited and 10% owned by GR Engineering Services (Indonesia) Pty Limited

** GR Engineering Services (Ghana) Limited, GR Engineering Services (Côte D’Ivoire) and GR Engineering Services (Mali) are 100% owned by GR Engineering Services (Africa).

*** GR Engineering Services (Tengrela) is dormant.
- GR Engineering Services (Greece) is 100% owned by GR Engineering Services (UK) Limited.

ANNUAL FINANCIAL REPORT

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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 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 consolidated entity; 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

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Name: Geoff Jones Managing Director Date: 24 August 2017

ANNUAL FINANCIAL REPORT

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INDEPENDENT AUDITOR'S REPORT

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ANNUAL FINANCIAL REPORT

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INDEPENDENT AUDITOR'S REPORT

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ANNUAL FINANCIAL REPORT

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INDEPENDENT AUDITOR'S REPORT

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ANNUAL FINANCIAL REPORT

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INDEPENDENT AUDITOR'S REPORT

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ANNUAL FINANCIAL REPORT

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INDEPENDENT AUDITOR'S REPORT

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ANNUAL FINANCIAL REPORT

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INDEPENDENT AUDITOR'S REPORT

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ANNUAL FINANCIAL REPORT

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CORPORATE GOVERNANCE STATEMENT

Approach to Corporate Governance

GR Engineering Services Ltd ABN 12 121 542 738 ( Company ) has established a corporate governance framework, the key features of which are set out in this statement. In establishing its corporate governance framework, the Company has referred to the recommendations set out in the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations 3rd Edition ( Principles & Recommendations ).

The Company has followed each recommendation where the Board has considered the recommendation to be an appropriate benchmark for its corporate governance practices. Where the Company's corporate governance practices follow a recommendation, the Board has made appropriate statements reporting on the adoption of the recommendation. In compliance with the "if not, why not" reporting regime, where, after due consideration, the Company's corporate governance practices do not follow a recommendation, the Board has explained it reasons for not following the recommendation and disclosed what, if any, alternative practices the Company has adopted instead of those in the recommendation.

The following governance-related documents can be found on the Company's website at www.gres.com.au, under the section marked "Corporate Governance":

Charters

Board Audit and Risk Committee Nomination and Remuneration Committee

Policies and Procedures

Process for Performance Evaluations Policy and Procedure for the Selection and (Re)Appointment of Directors Induction Program Diversity Policy (summary) Code of Conduct (summary) Policy on Continuous Disclosure (summary) Compliance Procedures (summary) Shareholder Communication and Investor Relations Policy Securities Trading Policy Policy and Procedure for Directors Risk Management Policy Selection, Appointment and Rotation of External Auditors Equity Incentive Plan Rules

The Company reports below on whether it has followed each of the recommendations during the 2016/2017 financial year ( Reporting Period ). The information in this statement is current at 22 August 2017. This statement was approved by a resolution of the Board on 22 August 2017.

Cross-references to the Company’s Annual Financial Report in this statement are references to the Company’s Annual Financial Report for the year ended 30 June 2017, which is, or will be, disclosed on the Company’s website www.gres.com.au, under the section marked "News”.

Principle 1 – Lay solid foundations for management and oversight

Recommendation 1.1

The Company has established the respective roles and responsibilities of its Board and management, and those matters expressly reserved to the Board and those delegated to management and has documented this in its Board Charter .

ANNUAL FINANCIAL REPORT

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CORPORATE GOVERNANCE STATEMENT

Recommendation 1.2

The Company undertakes appropriate checks before appointing a person or putting forward to shareholders a candidate for election as a director and provides shareholders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director.

The checks which are undertaken, and the information provided to shareholders are set out in the Company’s Policy and Procedure for the Selection and (Re) Appointment of Directors .

Recommendation 1.3

The Company has a written agreement with each director and senior executive setting out the terms of their appointment. The material terms of any employment, service or consultancy agreement the Company, or any of its child entities, has entered into with its Managing Director, any of its directors, and any other person or entity who is related party of the Managing Director or any of its directors has been disclosed in accordance with ASX Listing Rule 3.16.4 (taking into consideration the exclusions from disclosure outlined in that rule).

Recommendation 1.4

The Company Secretary is accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board as outlined in the Company’s Board Charter.

Recommendation 1.5

The Company has a Diversity Policy, which includes requirements for the Nomination and Remuneration Committee to set measurable objectives for achieving gender diversity and to assess annually both the objectives and the Company’s progress in achieving them. A summary of the Company’s Diversity Policy is disclosed on the Company’s website.

The following measurable objective for achieving gender diversity has been set by the Nomination and Remuneration Committee in accordance with the Diversity Policy:

“Subject to the identification of suitable qualified candidates, to increase the percentage of professional and senior executive positions occupied by women to 15% by 30 June 2017.”

The Board continues to work towards meeting this objective and continues to foster a workplace environment and recruitment policies designed to achieve greater female participation in the Company’s workforce.

The respective proportions of men and women on the Board, in senior executive positions and across the whole organisation are set out in the following table. “Senior executive” for these purposes means a person who is a Key Management Employee, a General Manager or a member of Senior Management:

	Proportion of women
Whole organisation	54 out of 410(13%) (15% as at 30 June 2016)
Senior executivepositions	6 out of 35(17%) (15% as at 30 June 2016)
Board	0 out of 6(0%)(0% as at 30 June 2016)

ANNUAL FINANCIAL REPORT

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CORPORATE GOVERNANCE STATEMENT

Recommendation 1.6

The Chair is responsible for evaluation of the Board and, when deemed appropriate, Board committees and individual directors. The Chair is also responsible for evaluating the Managing Director.

The Chair evaluates the performance of the Managing Director and other Board members through a series of discussions held throughout the year. These discussions include an assessment of the Company’s state of affairs, the risks facing the Company and its economic objectives. The Chair evaluates the extent to which each director has contributed to the efficient utilisation of resources, the identification of risk and the achievement of economic objectives. During these discussions the Chair also elicits confidential feedback from each Director on their view of the interpersonal dynamics between Board members and the quality of the Board’s decision making.

During the Reporting Period the Chair evaluated the performance of all Directors, including the Managing Director, in accordance with the above process.

Recommendation 1.7

The Managing Director is responsible for evaluating the performance of senior executives in accordance with the process disclosed in the Company’s Process for Performance Evaluations .

During the Reporting Period the Managing Director conducted performance evaluations of Senior Executives. Where these evaluations resulted in the identification of areas where the Senior Executive’s technical or interpersonal skills could be strengthened, appropriate training or remedial action was formulated and agreed.

Principle 2 – Structure the board to add value

Recommendation 2.1

The Board has established a Nomination and Remuneration Committee comprising Barry Patterson (Chair), Terrence Strapp and Peter Hood. All members of the Nomination and Remuneration Committee are non-executive directors and all members are independent directors. Accordingly, the Nomination and Remuneration Committee is structured in accordance with Recommendation 2.1.

The Board has adopted a Nomination and Remuneration Committee Charter which describes the role, composition, functions and responsibilities of the Nomination and Remuneration Committee and is disclosed on the Company’s website.

The Nominations and Remuneration Committee held no separate meeting during the year electing instead to address matters for its consideration within the context of meetings of the full Board of Directors.

Recommendation 2.2

The mix of skills and diversity that the Board currently has is a Board comprised of 5 qualified engineers and 1 qualified accountant. The matrix of skills held by the Board is weighted towards those skills which are required to identify, assess, quantify and manage those risks which are most relevant to and prevalent in the Company’s business and the industry in which it operates.

All of the Company’s directors hold, or have held, positions on the boards of other publicly listed companies and all have extensive experience in the management of organisations across a range of industries.

When necessary, the Board engages the services of external experts and consultants to augment its capacity to consider and assess matters which fall outside the domain of its collective expertise.

ANNUAL FINANCIAL REPORT

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CORPORATE GOVERNANCE STATEMENT

Recommendation 2.3

The Board considers the independence of directors having regard to the relationships listed in Box 2.3 of the Principles & Recommendations. The independent directors of the Company are Messrs Lockyer, Patterson (deemed independent), Strapp and Hood.

Mr Patterson is a substantial shareholder of the Company. Notwithstanding that he is a substantial shareholder the Board considers Mr Patterson to be an independent director because he is not a member of management and is otherwise free of any interest, position, association or relationship (including those listed in Box 2.3 of the Principles & Recommendations) that might influence in a material respect, his capacity to bring an independent judgement to bear on issues before the Board and to act in the best interests of the Company and its members generally. Further, Mr Patterson’s interests as a substantial shareholder are considered by the Board to be in line with the interests of all other shareholders.

The length of service of each director is set out in the Directors’ Report of the Company’s Annual Financial Report.

Recommendation 2.4

The Board has a majority of directors who are independent.

The Board is comprised of 6 directors four of whom are or are deemed to be independent. The two nonindependent directors are Tony Patrizi and Geoff Jones. Tony Patrizi is a founding shareholders of the Company and Geoff Jones has been employed by the Company since 2011, initially as Chief Operating Officer and since 01 July 2013, as Managing Director. Messrs Patrizi and Jones have thorough knowledge of the Company’s business and extensive experience in managing the risks it faces. Their continued presence on the Board is therefore highly valued.

The Board is of a size commensurate with the size and nature of the Company. Should the number of Board members increase, it is the intention of the Company to appoint an additional independent director thereby preserving a majority of independent directors.

Recommendation 2.5

The Chair of the Board is Phillip Lockyer. Mr Lockyer is an independent director and is not the Chief Executive Officer.

Recommendation 2.6

The Company has an induction program for new directors and senior executives. The goal of the program is to assist new directors to participate fully and actively in Board decision-making at the earliest opportunity and to assist senior executives to participate fully and actively in management decision-making at the earliest opportunity. The Company’s Induction Program is disclosed on the Company’s website.

The Nomination and Remuneration Committee regularly reviews whether the directors as a group have the skills, knowledge and familiarity with the Company and its operating environment required to fulfil their role on the Board and the Board committees effectively using a Board skills matrix. Where any gaps are identified, the Nomination and Remuneration Committee considers what training or development should be undertaken to fill those gaps. In particular, the Nomination and Remuneration Committee ensures that any director who does not have specialist accounting skills or knowledge has a sufficient understanding of accounting matters to fulfil his or her responsibilities in relation to the Company’s financial statements. Directors also receive ongoing briefings from the Company Secretary and Chief Financial Officer on developments in accounting standards.

ANNUAL FINANCIAL REPORT

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CORPORATE GOVERNANCE STATEMENT

Principle 3 – Act ethically and responsibly

Recommendation 3.1

The Company has established a Code of Conduct for its directors, senior executives and employees, which is disclosed on the Company’s website.

Principle 4 – Safeguard integrity in corporate reporting

Recommendation 4.1

The Board has established an Audit and Risk Committee. The members of the Audit and Risk Committee are Messrs Strapp (Chairman), Patterson and Hood. All members of the Audit and Risk Committee are independent non-executive directors and the Audit and Risk Committee is chaired by Mr Strapp who is not also Chairman of the Board. Accordingly, the Audit and Risk Committee is structured in compliance with Recommendation 4.1.

Terrence Strapp (CPA, FFin, MAICD) is a Certified Practicing Accountant and has extensive experience in banking, finance and corporate risk management. Mr Strapp has extensive experience in the preparation and interpretation of financial statements and information.

Peter Hood (BE (Chem), MAustIMM, FChemE, FAICD) is a Chemical Engineer and was formerly the Chief Executive Officer of Coogee Chemicals and Coogee Resources. He is currently the Chairman of the Australian Chamber of Commerce and Industry and Immediate Past President of the Chamber of Commerce and Industry Western Australia. Peter is currently Chairman of Matrix Composites and Engineering Limited. His broad based commercial experience includes the interpretation of financial statements and information.

Barry Patterson (ASMM, MIMM, FAICD) is a mining engineer with over 50 years’ experience in mining and mining services. He was formerly non-executive Chairman of Sonic Healthcare Limited and Silex Systems Limited and is a non-executive director of Dacian Gold Limited. His broad based commercial experience includes the interpretation of financial statements and information.

The Company has also established a Procedure for the Selection, Appointment and Rotation of its 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. Candidates for the position of external auditor must demonstrate complete independence from the Company through the engagement period. The Board may otherwise select an external auditor based on criteria relevant to the Company's business and circumstances. The performance of the external auditor is reviewed on an annual basis by the Board.

The Audit and Risk Committee held no separate meeting during the year electing instead to address matters for its consideration within the context of meetings of the full Board of Directors.

The Board has adopted an Audit and Risk Committee Charter which describes the Audit and Risk Committee’s role, composition, functions and responsibilities, which is disclosed on the Company’s website.

Recommendation 4.2

Before the Board approved the Company financial statements for the half year ended 31 December 2016 and the full-year ended 30 June 2017, it received from the Managing Director and the Chief Financial Officer a declaration that, in their opinion, the financial records of the Company for the relevant financial period have been properly maintained and that the financial statements for the relevant financial period comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the Company and the consolidated entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively.

ANNUAL FINANCIAL REPORT

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CORPORATE GOVERNANCE STATEMENT

Recommendation 4.3

Under section 250RA of the Corporations Act, the Company’s auditor is required to attend the Company’s annual general meeting at which the audit report is considered, and to be represented by a person who is a suitably qualified member of the audit team that conducted the audit and is in a position to answer questions about the audit. Each year, the Company writes to the Company’s auditor to inform them of the date of the Company’s annual general meeting.

In accordance with section 250S of the Corporations Act, at the Company’s annual general meeting where the Company’s auditor or their representative is at the meeting, the Chair allows a reasonable opportunity for the members as a whole at the meeting to ask the auditor (or its representative) questions relevant to the conduct of the audit; the preparation and content of the auditor’s report; the accounting policies adopted by the Company in relation to the preparation of the financial statements; and the independence of the auditor in relation to the conduct of the audit. The Chair also allows a reasonable opportunity for the auditor (or their representative) to answer written questions submitted to the auditor under section 250PA of the Corporations Act.

A representative of the Company’s auditor, Deloitte Touche Tohmatsu attended the Company’s annual general meeting held on 15 November 2016.

Principle 5 – Make timely and balanced disclosure

Recommendation 5.1

The Company has established written policies and procedures for complying with its continuous disclosure obligations under the ASX Listing Rules. A summary of the Company’s Policy on Continuous Disclosure and Compliance Procedures are disclosed on the Company’s website at www.gres.com.au.

Principle 6 – Respect the rights of security holders

Recommendation 6.1

The Company provides information about itself and its governance to investors via its website at www.gres.com.au as set out in its Shareholder Communication and Investor Relations Policy .

Recommendation 6.2

The Company has designed and implemented an investor relations program to facilitate effective two-way communication with investors. The program is set out in the Company’s Shareholder Communication and Investor Relations Policy .

Recommendation 6.3

The Company has in place a Shareholder Communication and Investor Relations Policy which outlines the policies and processes that it has in place to facilitate and encourage participation at meetings of shareholders.

Recommendation 6.4

Shareholders are given the option to receive communications from, and send communications to, the Company and its share registry electronically. This is facilitated through the Company’s website which provides access to the Company’s and its share registry’s full range of contact details, including email address.

ANNUAL FINANCIAL REPORT

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CORPORATE GOVERNANCE STATEMENT

Principle 7 – Recognise and manage risk

Recommendation 7.1

As noted above, the Board has established a combined Audit and Risk Committee. The Audit and Risk Committee is structured in accordance with Recommendation 7.1. Please refer to the disclosure above in relation to Recommendation 4.1 in relation to the Audit and Risk Committee.

Recommendation 7.2

The Audit and Risk Committee reviews the Company’s risk management framework annually to satisfy itself that it continues to be sound, to determine whether there have been any changes in the material business risks the Company faces and to ensure that the Company is operating within the risk appetite set by the Board.

Recommendation 7.3

The Company does not have an internal audit function. To evaluate and continually improve the effectiveness of the Company’s risk management and internal control processes, the Board relies on ongoing reporting and discussion of the management of material business risks as outlined in the Company’s Risk Management Policy .

Recommendation 7.4

The Company provides engineering and construction services to the mining industry and operations and maintenance services to the oil and gas industry, including producers of coal seam gas. These activities expose the Company, directly and indirectly to environmental, social and economic sustainability risks, which may materially impact the Company’s ability to create or preserve value for shareholders over the short, medium or long term.

In relation to the provision of goods and services, these risks are mitigated by virtue of the Company entering a project’s life cycle at a stage where all environmental, social and economic requirements of the relevant jurisdiction have been met by the client. The Company does not provide goods and services in circumstances where this is not the case and to that extent, the Company is in a position to continue its business activities in an environmentally, socially and economically sustainable manner.

In relation to the Company’s suppliers, the Company takes due care to ensure that the goods and services required for the conduct of its business are sourced from entities which act fairly and responsibly within the environments, societies and economies in which they operate thereby mitigating sustainability risks in relation to these factors.

The Company aims to operate in a socially sustainable way by engaging with the local communities and wherever possible providing employment and training opportunities to members of the local community. In doing so, the Company operates within the framework of local norms and customs and endeavours to ensure that its clients do likewise. The Company will not participate in any activity where it is likely to receive either directly or indirectly, economic benefit through the exploitation of others.

ANNUAL FINANCIAL REPORT

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CORPORATE GOVERNANCE STATEMENT

Principle 8 – Remunerate fairly and responsibly

Recommendation 8.1

As noted above in relation to Recommendation 2.1, the Board has established a Nomination and Remuneration Committee. The Nomination and Remuneration Committee is structured in compliance with Recommendation 8.1. Please refer to the disclosure above in relation to Recommendation 2.1 in relation to the Nomination and Remuneration Committee.

Recommendation 8.2

Details of remuneration, including the Company’s policy on remuneration, are contained in the “Remuneration Report” which forms of part of the Directors’ Report in the Company’s Annual Financial Report. This disclosure includes a summary of the Company’s policies regarding the deferral of performance-based remuneration and the reduction, cancellation or clawback of the performance-based remuneration in the event of serious misconduct or a material misstatement in the Company’s financial statements.

Under the terms of the GR Engineering Services Limited Equity Incentive Plan ( Plan ), if in the opinion of the Board a participant acts fraudulently or dishonestly or wilfully breaches his or her duties to the Company, the Board may in its absolute discretion determine that all unvested or unexercised performance rights or share appreciation rights held by the participant will lapse.

In addition to the provisions under the Plan, the Board has adopted a clawback policy in relation to any cash bonuses or shares issued pursuant to the Plan. Under this policy the Board reserves the right to take action to reduce, recoup or otherwise adjust the employees performance based remuneration in circumstances where in the opinion of the Board, an employee has acted fraudulently or dishonestly or has wilfully breached his or her duties to the Company.

Recommendation 8.3

The Company's Remuneration Committee Charter includes a statement of the Company's policy on prohibiting participants in the Plan entering into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the Plan.

ANNUAL FINANCIAL REPORT

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ADDITIONAL ASX INFORMATION

The shareholder information set out below was applicable as at 22 August 2017:

the twenty largest shareholders held 82.76% of the Ordinary Shares; and
there were 1,674 ordinary shareholders.

Distribution of securities

Analysis of number of equity security holders by size of holding:

1,000,001 - 9,999,999,999 Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - 1,000,000	Total 252 565 337 466 37 17 1,674	Units 148,659 1,676,262 2,691,129 13,674,132 10,821,862 124,242,216 153,254,260	% of shares issued 0.10% 1.09% 1.76% 8.92% 7.06% 81.07%
			100.00%

The number of shareholders holding less than a marketable parcel of ordinary shares is 59.

Equity security holders

Top 20 Shareholders as at 22 August 2017

Name 1. Citicorp Nominees Pty Ltd 2. Mr David Joseph Sala Tenna + Ms Jane Frances Sala Tenna 3. Joley Pty Ltd 4. Paksian Pty Ltd 5. Quintal Pty Ltd 6. Kingarth Pty Ltd 7. J P Morgan Nominees Australia Limited 8. Ms Beverley June Schier 9. Mr Giuseppe Totaro 10. Polly Pty Ltd 11. Ledgking Pty Ltd 12. National Nominees Pty Ltd 13. Ms Barbara Ann Woodhouse 14. Mr Stephen Paul Kendrick 15. HSBC Custody Nominees (Australia) Limited 16. Kendrick Investments Pty Ltd 17. BNP Paribas Noms Pty Ltd 18. Mr Cono Antonino Angelo Ricciardo 19. Bond Street Custodians Ltd 20. Mr Michael Gerald Woodhouse + Mrs Barbara Ann Woodhouse	Number of shares held 16,454,140 12,325,000 11,333,334 9,798,578 9,500,000 9,025,000 8,835,553 8,100,000 8,000,000 7,500,000 6,000,000 5,635,093 3,500,000 3,491,000 2,120,936 1,384,000 1,176,968 1,000,000 832,456 813,950 126,826,008	% of shares issued 10.74% 8.04% 7.40% 6.39% 6.20% 5.89% 5.77% 5.29% 5.22% 4.89% 3.92% 3.68% 2.28% 2.28% 1.38% 0.90% 0.77% 0.65% 0.54% 0.53%
		82.76%

Substantial shareholders	Substantial shareholders
		Number of	% of shares
	Name	shares held	issued
1.	Commonwealth Bank of Australia (and its related bodies corporate)	15,007,914	9.79%
2.	Mr David Joseph Sala Tenna + Ms Jane Frances Sala Tenna	12,325,000	8.04%
3.	Joley Pty Ltd	11,333,334	7.40%
4.	Paksian Pty Ltd	9,798,578	6.39%
5.	Kingarth Pty Ltd	9,795,000	6.39%
6.	Quintal Pty Ltd	9,500,000	6.20%
7.	Ms Beverley June Schier	8,100,000	5.29%
8.	Eley Griffiths Group Pty Limited	8,022,194	5.23%
9.	Mr Giuseppe Totaro	8,000,000	5.22%
10.	Polly Pty Ltd	7,500,000	4.89%

ANNUAL FINANCIAL REPORT

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ADDITIONAL ASX INFORMATION

Voting rights

The voting rights attached to ordinary shares are set out below:

Ordinary shares

On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

Options over ordinary shares

There are no voting rights attached to Options over the consolidated entity’s shares.

Performance rights

There are no voting rights attached to Performance Rights over the consolidated entity’s shares.

Share appreciation rights

There are no voting rights attached to Share Appreciation Rights over the consolidated entity’s shares.

Options on issue

There are nil options on issue at 30 June 2017.

Performance rights

The following performance rights are on issue:

Number Vesting date 187,500 31 Mar 2018 127,500 31 Mar 2019 100,000 31 Oct 2020 20,000 13 Jul 2018 30,000 15 Jun 2020

Share appreciation rights

The following share appreciation rights are on issue:

Number	Grant date	Expiry date	Exercise price
213,334	12 Nov 2013	30 Jun 2018	$0.50
650,000	15 Nov 2016	30 Jun 2019	$0.89
500,000	15 Nov 2016	30 Jun 2020	$0.89

Company secretary

Mr Giuseppe (Joe) Totaro

Registered office

179 Great Eastern Highway BELMONT WA 6104

Principal place of business

179 Great Eastern Highway BELMONT WA 6104 Telephone: (61 8) 6272 6000 Facsimile: (61 8) 6272 6001

Share registry

Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace PERTH WA 6000

On-market buyback

The consolidated entity has no current on-market buy back scheme.

Restricted securities

There are no securities subject to any voluntary escrow or any transfer restrictions.

AI assistant

GR ENGINEERING SERVICES LIMITED — Annual Report 2017

65003_rns_2017-08-23_d2fb6be4-7395-4fa7-b869-ee9f68c2fafa.pdf

GR ENGINEERING SERVICES LIMITED

ANNUAL FINANCIAL REPORT

30 June 2017

ANNUAL FINANCIAL REPORT

TABLE OF CONTENTS

CALENDAR

CORPORATE DIRECTORY

GR ENGINEERING SERVICES LIMITED

DIRECTORS

COMPANY SECRETARY & CHIEF FINANCIAL OFFICER

REGISTERED OFFICE

PRINCIPAL PLACE OF BUSINESS

ASX CODE

AUDITOR

SOLICITORS TO THE COMPANY

SHARE REGISTRY

DIRECTORS’ REPORT

DIRECTORS

COMPANY SECRETARY

PRINCIPAL ACTIVITIES

DIVIDENDS PAID DURING THE YEAR

DIRECTORS’ REPORT

REVIEW OF OPERATIONS

Mineral Processing

DIRECTORS’ REPORT

Oil and Gas

DIRECTORS’ REPORT

Safety

Outlook

FINANCIAL POSITION

GROWTH STRATEGY

DIRECTORS’ REPORT

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Eastern Goldfields

Wolf Minerals

FUTURE DEVELOPMENTS

DIRECTORS’ REPORT

EVENTS AFTER BALANCE SHEET DATE

BOARD OF DIRECTORS

Peter John HOOD – Non-Executive Director

DIRECTORS’ REPORT

Geoffrey (Geoff) Michael JONES – Managing Director

BE (Civil), FIEAust, CPEng

Tony Marco PATRIZI – Executive Director

BE (Mech Eng)

DIRECTORS’ REPORT

Barry Sydney PATTERSON – Non-Executive Director ASMM, MIMM, FAICD

DIRECTORS’ REPORT

MEETINGS OF DIRECTORS

OPTIONS

SHARE APPRECIATION RIGHTS

PERFORMANCE RIGHTS

DIRECTORS’ REPORT

INDEMNIFYING OFFICERS OR AUDITORS

LEGAL PROCEEDINGS

NON AUDIT SERVICES

AUDITOR’S INDEPENDENCE DECLARATION

ENVIRONMENTAL ISSUES

DIRECTORS’ REPORT

REMUNERATION REPORT – AUDITED

Directors

Executives

REMUNERATION POLICY

NON-EXECUTIVE DIRECTORS

DIRECTORS’ REPORT

EXECUTIVE DIRECTORS

SENIOR EXECUTIVES

EMPLOYMENT DETAILS OF MEMBERS OF KEY MANAGEMENT PERSONNEL

DIRECTORS’ REPORT

REMUNERATION DETAILS FOR THE YEAR ENDED 30 JUNE 2017 - BOARD OF DIRECTORS

DIRECTORS’ REPORT

REMUNERATION DETAILS FOR THE YEAR ENDED 30 JUNE 2017 - EXECUTIVES

DIRECTORS’ REPORT

LONG TERM INCENTIVES

Employee Share Option Plan

Equity Incentive Plan

DIRECTORS’ REPORT

GR ENGINEERING SERVICES LIMITED Annual Report 2017