GR ENGINEERING SERVICES LIMITED

ABN 12 121 542 738

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2018 ANNUAL REPORT

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CHAIRMAN’S LETTER	1
DIRECTORS’ REPORT	5
AUDITOR’S INDEPENDENCE DECLARATION	21
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME	22
CONSOLIDATED STATEMENT OF FINANCIAL POSITION	23
CONSOLIDATED STATEMENT OF CASH FLOWS	24
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY	25
NOTES TO THE FINANCIAL STATEMENTS	26
DIRECTORS’ DECLARATION	66
INDEPENDENT AUDITOR’S REPORT	67
CORPORATE GOVERNANCE STATEMENT	73
ADDITIONAL ASX INFORMATION	80
CORPORATE DIRECTORY	83

CALENDAR

Annual General Meeting 22 November 2018.

CHAIRMAN’S LETTER

Dear Shareholder,

It is with pleasure that I report to you on GR Engineering Services Limited’s (GR Engineering or the Company) performance for the year ended 30 June 2018 (FY18).

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As reported in the FY17 Annual Report, three important contracts were awarded to GR Engineering during the second half of FY17 with a further contract award in July 2017, heralding a strong start to FY18. These contracts were the $107 million contract awarded by Dacian Gold Limited for its Mt Morgan’s Gold Project (April 2017), the $17.5 million contract awarded by Western Areas Limited for its Cosmic Boy Mill Recovery Enhancement Project (April 2017), the $31.3 million contract awarded by Anglogold Ashanti Australia Limited for its upgrade to its Sunrise Dam Gold Mine (June 2017) and the $66.5 million contract awarded by GNT Resources Pty Ltd (a wholly owned subsidiary of Gascoyne Resources Limited) for its Dalgaranga Gold Project.

In a year characterised by excellent operational performance, it is pleasing to report that these projects were all delivered on time and on budget. I believe these outcomes further reinforce the Company’s reputation for dependability and reliability and again evidence its capacity to successfully deliver against clients’ financial and operational objectives.

Together with smaller, but nevertheless important engagements, and a solid contribution to group revenue by the Company’s oil and gas subsidiary, Upstream Production Solutions (Upstream PS), FY18 Revenue was a record for the group at $283.6 million (FY17 $238.7million). Underlying Earnings Before Interest, Tax Depreciation and Amortisation (EBITDA) for the period was $24.1 (FY17 $16.9 million).

PHILLIP LOCKYER Non-Executive Chairman

FY18 financial performance was adversely impacted by the write off of bad debts totalling $7.0 million. This included the write off of $4.8 million in receivables from Wolf Minerals (UK) Limited (Wolf) in connection with the full and final settlement of all claims arising from the contract for the design and construction of the Hemerdon tungsten and tin processing facility in the UK. On 13 August 2018 the Company entered into a settlement deed with Eastern Goldfields Limited (EGS) in full and final satisfaction of all claims in relation to the contract for the refurbishment of the Davyhurst gold processing facility. This settlement resulted in the Company incurring a bad debt of $1.8 million which although a subsequent event, impacted FY18 results. In September 2017 receivers and managers were appointed to Empire Oil (WA) Limited (Empire). As a result, the Company’s fully owned subsidiary, Upstream Production Solutions incurred a bad debt of $417,000 associated with work carried out on the Red Gully oil and gas production asset.

Taking into account the impact of this write off, reported Profit Before Tax for the period was $16.2 million (FY17 $16.3 million).

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

CONTINUED

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CHAIRMAN’S LETTER

The resolution of the dispute with Wolf has resulted in the return to the Company of all securities, including a Bank Guarantee in the sum of £7.6 million (approximately $AUD13.6 million).

While making a significant contribution to group revenue, reduced project KPI related margins and the write off of bad debts have resulted in lower than expected earning by Upstream PS. Upstream PS’s FY18 EBITDA was $2.1 million (FY17 6.4 million). Improvements in operational outcomes were already evident by the end of the financial year and this expected to result in an improvement in margins in FY19.

Upstream PS’s stature as a leading provider of operations and maintenance services to the oil and gas sector continues to grow and management is working hard to lever off this reputation to achieve further growth.

Despite the adverse impact on earnings and cashflow of the write-off of the Wolf and EGS receivables, the Company’s ability to continue to provide strong shareholder returns remains intact. Having regard to underlying earnings, cash available, anticipated working capital requirements and the overall sound state of the Company’s Balance Sheet, your Board has resolved to declare a final FY18 dividend of 5.0 cents per share, unfranked. The ex-dividend date for this dividend is 11 October 2018, the Record Date is 12 October 2018 and the Payment Date is 24 October 2018.

Looking ahead, I am buoyed by key indicators of future business activity, including the continued high level of study activity and pending contract awards. These included the contract with Sheffield Resources Limited for its Thunderbird Mineral Sands Project in Western Australia. I note that GR Engineering has been engaged on early works for this project since October 2017 and subject to contract award, work is expected to continue well into FY20.

In addition, and as announced on 23 April 2018, Capricorn Metals Limited appointed GR Engineering as Preferred Tenderer for its Karlawinda Gold Project also located in Western Australia. This project will involve the design and construction and of a 3.0 million tonne per annum carbon-in-leach mineral processing plant and associated infrastructure and the contract value is expected to be in the order of $93.1 million.

These awards together with additional near-term opportunities give rise to a sense of optimism for FY19 and FY20. Together with the Company’s human and financial resources to take on additional work, the Company is well placed to continue delivering strong shareholder returns into FY19 and beyond.

As always, I am grateful to our employees, suppliers and particularly our clients for their ongoing support throughout FY18. I would also like to thank my fellow Board members for their ongoing counsel and assistance.

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PHILLIP LOCKYER Non-Executive Chairman

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

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In a year characterised by excellent operational performance, it is pleasing to report that these projects were all delivered on time and on budget.

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GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

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DIRECTORS’ REPORT
CONTINUED
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CONTINUED
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GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

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 2017 to 30 June 2018 and the independent auditor’s report thereon.

The names of the consolidated entity’s Directors in office during the financial year ended 30 June 2018 and until the date of this report are as below. Directors were in office for this entire period unless otherwise stated.

DIRECTORS

Phillip (Phil) LOCKYER (Non-Executive Chairman) Geoffrey (Geoff) Michael JONES (Managing Director) Tony Marco PATRIZI (Executive Director) Barry Sydney PATTERSON (Non-Executive Director) Terrence John STRAPP (Non-Executive Director) Peter John HOOD (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 6.00 cents per share paid on 28 March 2018
Subsequent to 30 June 2018, an unfranked dividend of 5.00 cents per share was recommended by the Directors to be paid on 24 October 2018.

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GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

DIRECTORS’ REPORT

CONTINUED

REVIEW OF OPERATIONS

Mineral Processing

In the financial year ending 30 June 2018 (FY18), GR Engineering successfully delivered major greenfields and brownfields projects with a combined capital value exceeding $220 million. GR Engineering’s major projects were undertaken in Western Australia, with two major gold processing plants and two brownfields upgrades being successfully completed and commissioned in FY18.

Completed projects

Major projects completed in FY18 include:

Mt Morgans Project : the design and construction of the mineral processing facility for Dacian Gold Limited’s Mt Morgans Project, located 25 kilometres south-west of Laverton in Western Australia. This $107 million project involved the design and construction of a new 2.5Mtpa carbon-in-leach treatment facility and certain supporting infrastructure. Practical completion on this project was achieved in April 2018, approximately one year after its commencement.
Dalgaranga Gold Project : the design and construction of the 2.5Mtpa mineral processing facility for Gascoyne Resources Limited’s Dalgaranga Gold Project, located in the Murchison gold mining region of Western Australia. This $66.5 million project was successfully delivered with practical completion being achieved in May 2018, following commencement of the project in July 2017.
Sunrise Dam Upgrade Project : the upgrade of processing facilities at Anglogold Ashanti Australia Limited’s Sunrise Dam gold mine located 55 kilometres south of Laverton, Western Australia. This $31.3 million project involved the design and construction of a new flotation and ultra-fine grind processing facility with associated services upgrades within the existing processing infrastructure at Sunrise Dam.
Cosmic Boy Mill Recovery Enhancement Project : Initial work on the $24 million project commenced in July 2015, with engineering, design and procurement of long lead time items. Construction works of $17.5 million were deferred until to June 2017. Practical completion was achieved in January 2018.

New and ongoing projects

Significant new projects announced in FY18 include:

Thunderbird Mineral Sands Project: GR Engineering was engaged by Sheffield Resources Limited in October 2017 as preferred tenderer for the design and construction of a 7.5Mtpa processing facility for the Thunderbird Mineral Sands Project, located on the Dampier Peninsula in Western Australia. GR Engineering is undertaking engineering design and long lead procurement activities under an Early Works Agreement (EWA) whilst Sheffield continues to progress its offtake, permitting and financing activities.
The EWA contemplates a lump sum EPC contract with a scope of work comprising the design, construction and commissioning of a wet concentrator plant, concentrate upgrade plant, zircon processing plant, ilmenite processing plant, plant area civil works and process water systems, site administration buildings and other infrastructure. The anticipated delivery time for this project is approximately two years.
Karlawinda Gold Project: In April 2018, GR Engineering was appointed as preferred tenderer by Capricorn Metals Limited for the design and construction of a 3.0Mtpa carbon-in-leach processing plant and associated infrastructure for the Karlawinda Gold Project located near Newman in Western Australia. Under a letter of intent provided by Capricorn, GR Engineering has commenced early engineering works pending the entry into an EPC contract with an anticipated value of $93.1 million.

Studies and consulting

GR Engineering has been engaged on several engineering and consultancy assignments for international projects, with scopes extending to early engineering studies, process design, procurement support and site supervision services associated with new and existing operations. In FY18, this resulted in strong workflow out of Turkey and PNG on globally significant minerals projects.

A stable commodity price and capital markets environment continues to support capital expenditure on new projects, upgrades and optimisation works, which is evident from the high volume of studies being progressed by GR Engineering. During FY18, GR Engineering completed 47 studies and as at 30 June 2018, was engaged on a further 30 studies across a broad range of commodities for projects both in Australia and abroad.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

Oil and Gas

GR Engineering’s oil and gas services business, Upstream Production Solutions (Upstream PS) achieved sustained revenue contributions primarily from the provision of coal seam gas services in Queensland, where it has approximately 3,500 well heads under management and offshore and onshore operations and maintenance services in Western Australia.

In Queensland, Upstream PS’ demonstrated capacity to deliver reliable and cost effective operations and maintenance services has led to the award of growing work packages under existing contracts in the Bowen and Surat Basins. In Western Australia, Upstream PS continued to undertake operations and maintenance works on a number of oil and gas production assets in the Perth Basin for AWE (Waitsia Field, Xyris and the Dongara processing facilities).

Upstream PS continued to provide operations and maintenance services to the Northern Endeavour FPSO for Northern Oil & Gas Australia (NOGA) located offshore in the Timor Sea. Upstream PS is in the final year of the initial three year contract term, which has two one year extension options, exercisable by NOGA.

Work also continued under the three year maintenance services contract awarded in 2017 with Eni Australia for the provision of maintenance services on the Blacktip gas field production facilities in the Timor Sea. Upstream PS’ scope of services under this contract includes the administration and execution of maintenance activities, logistics, procurement, engineering and operations support in relation to the unmanned Blacktip wellhead platform and associated Yelcherr gas plant.

In September 2017, receivers and managers were appointed to Empire Oil (WA) Limited (Empire). As a result, Upstream PS incurred a bad debt of $417,000 associated with work carried out on the Red Gully oil and gas production asset.

Safety

The GR Engineering group’s Total Reportable Injury Frequency Rate (TRIFR) for FY18 was 8.62. The GR Engineering group pursues continuous improvement in its commitment to safety, with its primary objective being the achievement of a zero harm workplace environment on all jobs and at all locations.

FY19 Update and Outlook

Work has commenced on the $17.9 million contract announced by GR Engineering on 20 August 2018 for the design and construction of the Carosue Dam Paste Backfill Plant.

GR Engineering notes that its FY19 financial performance is likely to be dependent on the commence timing of both the Thunderbird Mineral Sands Project and Karlawinda Gold Project. As at the date of this report, GR Engineering notes that both of these projects are anticipated to commencement in the fourth quarter of calendar year 2018, subject to the achievement of financing and permitting outcomes.

GR Engineering intends to provide FY19 guidance ahead of its 2018 Annual General Meeting, to be held on 22 November 2018 when it is likely to have more certainty in relation to the timing of key projects. In the interim, it notes that FY19 financial performance is likely to be weighted to the second half.

FINANCIAL POSITION

The consolidated entity generated revenue of $283.6 million, profit before tax of $16.2 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $17.1 million.

Profitability was adversely impacted by bad debt expenses of $7.0 million, predominantly incurred as a result of the settlement with Wolf Minerals (UK) Limited on 20 April 2018.

As at 30 June the consolidated entity held cash totalling $21.8 million and had no interest bearing debt.

The most significant application of funds during FY18 was in the reduction of trade and other payables by $46.9 million versus a reduction in trade and other receivables of $20.5 million. In addition, GR Engineering paid $9.2 million in dividends.

DIVIDENDS

“The Board has resolved to declare a final FY18 dividend of 5.0 cents per share, unfranked. The ex-dividend date for this dividend will be 11 October 2018, the Record Date is 12 October 2018 and the Payment Date will be 24 October 2018.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

DIRECTORS’ REPORT

CONTINUED

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Wolf Minerals

On 20 April 2018, GR Engineering announced that its wholly owned subsidiary, GR Engineering Services (UK) Limited (GRES UK) had entered into a settlement agreement with Wolf Minerals (UK) Limited (Wolf) to fully and finally settle all claims without admission of liability in relation to the EPC contract for the design and construction of the Hemerdon tungsten and tin mineral processing plant located in Devon, England.

GRES UK and Wolf have now fully resolved this matter, with the confidential settlement sum having been paid and all securities held under or in connection with the contract being returned and cancelled. The net financial impact of the settlement with Wolf is approximately $4.8 million (being the primary contributor to the receivable impairment balance referred to in Note 10 of the Notes to the Financial Statements) in addition to some legal fees and administrative expenses also realised in the reporting period.

Insurance Bonds

On 22 June 2018, GR Engineering secured a $40 million insurance bond facility provided by Insurance Australia Limited, replacing the $30 million insurance bond facility previously provided by Assetinsure Pty Ltd.

Office Consolidation

In November 2017, GR Engineering consolidated its three Perth offices into one location at 71 Daly Street, Ascot Western Australia. At a cost of approximately $1.8 million, this relocation will result in substantial savings in rent and administration costs and generate significant operational efficiencies.

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.

EVENTS AFTER BALANCE SHEET DATE

On 2nd July 2018 GR Engineering entered into a Deed of Indemnity with Allianz Australia Insurance Limited in connection with a $20 million insurance bond facility. Together with the additional $40 million insurance bond facility provided by Insurance Australia Limited in June 2018 and the Company’s $70 million bank guarantee facility provided by National Australia Bank, the consolidated entity’s total bonding capacity increased from $110 million to $130 million.

On 13 August 2018, GR Engineering announced that it has entered into a settlement deed with Eastern Goldfields Limited and others to finally settle all claims in relation to the contract for the refurbishment of the Davyhurst Gold Project processing plant. The terms of the confidential settlement deed contemplate the payment to GR Engineering of $8.25 million, with the settlement sum payable in three instalments, with the last instalment payable by 3 October 2018.

On 20 August 2018, GR Engineering entered into a $17.9 million EPC contract with Saracen Gold Mines Pty Ltd for the design and construction of the Carosue Dam Paste Backfill Plant.

On 22 August 2018, the consolidated entity declared an unfranked dividend of 5.0 cents per share, an aggregate of $7,674,784. The Record Date of the dividend is 12 October 2018 and the proposed payment date is 24 October 2018.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

BOARD OF DIRECTORS

Phillip (Phil) LOCKYER – Non-Executive Chairman

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 Limited 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 – 50,000
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

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 – 772,134
Interests in other securities in GR Engineering:
Share Appreciation Rights – 1,150,000
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 – July 2018
Energy Metals Limited (ASX:EME) 2008 – February 2017
Ausgold Limited (ASX:AUC) 29 July 2016 – Present
Blackham Resources Limited (ASX:BLK) – 1 August 2018 – Present

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

DIRECTORS’ REPORT

CONTINUED

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 – 30 June 2018

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

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

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.

Peter was formerly the Chief Executive Officer of Coogee Chemicals and Coogee Resources. He is Chairman of the International Chamber of Commerce National Committee of Australia and is Past President of the Australian Chamber of Commerce and Industry and the Chamber of Commerce and Industry Western Australia. Peter is currently Chairman of Matrix Composites and Engineering Limited and Lead Independent Director of Cue Energy Resources Limited.

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
Cue Energy Resources Limited (ASX:CUE) February 2018 – Present

MEETINGS OF DIRECTORS

The number of Meetings of the Board of Directors held during the year ended 30 June 2018 and the number attended by each director are as follows:

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FULL MEETINGS OF DIRECTORS Eligible Attended
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Phil Lockyer	10	10
Geoff Jones	10	9
Tony Patrizi	10	9
Barry Patterson	10	7
Terrence Strapp	10	10
Peter Hood	10	10

No separate meetings of the Audit and Risk 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. A meeting of the Remuneration and Nomination Committee was held on 11 October 2017. It was attended by Phillip Lockyer, Peter Hood, Barry Patterson and Terrence Strapp.

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:

Grant Date	Vesting & Exercise Date	Exercise price	Quantity
15 November 2016 15 November 2016	30 June 2019 30 June 2020	Nil Nil	650,000 500,000

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

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

DIRECTORS’ REPORT

CONTINUED

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:

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Vesting Date No. Performance Rights Expiry Date Exercise price
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31 March 2019	127,500	31 March 2019	–
15 June 2020	30,000	15 June 2020	–
20 August 2020	1,870,000	20 August 2020	–
2 August 2020	60,000	2 August 2020	–
21 August 2020	50,000	21 August 2020	–
1 November 2020	35,000	1 November 2020	–
14 June 2021	60,000	14 June 2021	–

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 2018 55,000 ordinary shares were issued due to the vesting of Performance Rights.

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 2018 fees amounting to $27,300 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 2018 has been reviewed and can be found at page 21 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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

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

Geoff Jones (Managing Director) • Phil Lockyer (Non-Executive Chairman)

Tony Patrizi (Executive Director)
Barry Patterson (Non-Executive Director)
Terrence Strapp (Non-Executive Director)
Peter Hood (Non-Executive Director)

Executives

David Sala Tenna (Manager – Projects)
Joe Totaro (Chief Financial Officer & Company Secretary)
Rodney Schier (Engineering Manager)
• Paul Newling (General Manager – EPCM) – Resigned 7 February 2018
Stephen Kendrick (Manager – Projects) – Appointed as executive on 11 December 2017
Thomas Marshall (Manager – Eastern Region) – Appointed 1 August 2017

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 2017 Annual General Meeting, 85.75% 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.

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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

DIRECTORS’ REPORT

CONTINUED

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

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Non Salary
Cash Shares/ Options/ Fixed
Name Title Contract Details Incentives Units Rights Salary Total
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Phillip Lockyer	Non-Executive	By rotation and re-election	–	–	–	100%	100%
	Chairman
Geoff Jones	Managing Director	Termination: 6 months notice	3.6%	–	26.2%	70.2%	100%
		by the consolidated entity
		and 3 months notice by the
		employee
Tony Patrizi	Executive Director	Termination: 3 months notice	–	–	–	100%	100%
		by 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
David	Manager –	Termination: 3 months notice	–	–	–	100%	100%
Sala Tenna	Projects	by the consolidated entity or
		employee
Joe Totaro	Company	Termination: 3 months notice	–	–	–	100%	100%
	Secretary / Chief	by the consolidated entity or
	Financial Offcer	employee
Rodney Schier	Engineering	Termination: 3 months notice	–	–	–	100%	100%
	Manager	by the consolidated entity or
		employee
Thomas	Manager –	Termination: 4 weeks notice	–	–	14.9%	85.1%	100%
Marshall	Eastern Region	by the consolidated entity or
		employee
Paul Newling	General Manager	Termination: 3 months notice	–	–	–	100%	100%
- Resigned 7	– EPCM	by the consolidated entity or
February 2018		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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

REMUNERATION DETAILS FOR THE YEAR ENDED 30 JUNE 2018 - BOARD OF DIRECTORS

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Post
Employment Equity Based
Short Term Benefits Benefits Payments
Cash Non
Salary & Cash Super- Performance
Fees Payments Other Sub Total annuation Equity Options Total Based
$ $ $ $ $ $ $ $ %
NON-EXECUTIVE CHAIRMAN
Phillip Lockyer
2018 76,190 – – 76,190 7,237 – – 83,427 0.0%
2017 52,933 – – 52,933 5,028 – – 57,961 0.0%
EXECUTIVE DIRECTORS
Geoff Jones
2018 579,951 29,537 32,000 641,488 20,048 235,296 – 896,832 29.8%
2017 589,738 14,945 72,000 676,683 19,615 162,160 – 858,458 27.3%
Tony Patrizi
2018 296,331 15,620 – 311,951 28,151 – – 340,102 0.0%
2017 296,330 14,753 – 311,083 28,151 – – 339,234 0.0%
NON-EXECUTIVE DIRECTORS
Barry Patterson
2018 57,000 – – 57,000 5,415 - – 62,415 0.0%
2017 57,000 – – 57,000 5,415 - – 62,415 0.0%
Terrence Strapp
2018 62,700 – – 62,700 5,415 – – 68,115 0.0%
2017 62,700 – – 62,700 5,415 – – 68,115 0.0%
Peter Hood
2018 57,000 – – 57,000 5,415 – – 62,415 0.0%
2017 65,931 – – 65,931 6,263 – – 72,194 0.0%
TOTAL DIRECTORS
2018 1,129,172 45,157 32,000 1,206,329 71,681 235,296 – 1,513,306 17.7%
2017 1,124,632 29,698 72,000 1,226,330 69,887 162,160 – 1,458,377 16.1%
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“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.
*** Paid to SDG Nominees Pty Ltd, an entity controlled by Terrence Strapp.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

DIRECTORS’ REPORT

CONTINUED

REMUNERATION DETAILS FOR THE YEAR ENDED 30 JUNE 2018 - EXECUTIVES

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Post
Employment Equity Based
Short Term Benefits Benefits Payments
Cash Non
Salary & Cash Super- Performance
Fees Payments Other Sub Total annuation Equity Options Total Based
$ $ $ $ $ $ $ $ %
SENIOR EXECUTIVES
David Sala Tenna – Manager – Projects
2018 331,193 – 5,479 336,672 31,463 – – 368,135 1.5%
2017 331,193 4,839 5,479 341,511 31,983 – – 373,494 1.5%
Joe Totaro – Company Secretary & Chief Financial Officer
2018 260,869 7,872 5,479 274,220 24,872 – – 299,092 1.8%
2017 260,869 9,481 5,479 275,829 25,303 – – 301,132 1.8%
Rodney Schier – Engineering Manager
2018 261,468 5,748 5,479 272,695 24,839 – – 297,534 1.8%
2017 261,468 6,483 5,479 273,430 25,359 – – 298,789 1.8%
Stephen Kendrick – Manager – Projects
2018 261,468 4,649 5,479 271,596 24,839 – – 296,435 1.8%
2017 – – – – – – – – 0.0%
Thomas Marshall – Manager – Eastern Region
2018 260,791 – 3,653 264,444 25,389 50,634 – 340,467 1.1%
2017 – – – – – – – – 0.0%
Paul Newling – General Manager EPCM
2018 299,720 – – 299,720 14,126 – – 313,846 0.0%
2017 419,390 – 6,000 425,390 19,615 – – 445,005 1.3%
TOTAL SENIOR EXECUTIVES
2018 1,675,509 18,269 25,569 1,719,347 145,528 50,634 – 1,915,509 1.3%
2017 1,272,920 20,803 22,437 1,316,160 102,260 – – 1,418,420 1.6%
GRAND TOTAL
2018 2,804,681 63,426 57,569 2,925,676 217,209 285,930 – 3,428,815 10.0%
2017 2,397,552 50,501 94,437 2,542,490 172,147 162,160 – 2,876,797 8.9%
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“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

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

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 2018 2,155,000 Performance Rights were issued in accordance with the terms and conditions of the Plan. A total of 2,282,500 Performance Rights were on issue as at 30 June 2018.

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Grant Date Vesting Date Expiry Date Exercise Price Number Fair Value
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30 Apr 2014	31 Mar 2019	31 Mar 2019	Nil	127,500	$0.410
13 Jul 2017	13 Jul 2018	13 Jul 2018	Nil	20,000	$1.317
13 Jul 2017	15 Jun 2020	15 Jun 2020	Nil	30,000	$1.065
21 Aug 2017	20 Aug 2020	20 Aug 2020	Nil	1,870,000	$1.035
21 Aug 2017	2 Aug 2018	2 Aug 2018	Nil	30,000	$1.297
21 Aug 2017	2 Aug 2020	2 Aug 2020	Nil	60,000	$1.041
28 Aug 2017	21 Aug 2020	21 Aug 2020	Nil	50,000	$0.951
1 Nov 2017	1 Nov 2020	1 Nov 2020	Nil	35,000	$0.978
14 Jun 2018	14 Jun 2021	14 Jun 2021	Nil	60,000	$1.010

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

DIRECTORS’ REPORT

CONTINUED

Of the Performance Rights issued in the current financial year, 90,000 relate to key management personnel. Performance Rights which lapsed during the financial year do not relate to key management personnel.

A total of 1,150,000 Share Appreciation Rights are on issue pursuant to the Plan, with 1,135,705 vesting prior to 30 June 2017 and 136,429 vesting during the year.

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

Name	Grant Date	Vesting Date	Date Exercised	Number of Shares Issued on Vesting Date	Exercise Price $	Quantity	Fair Value $	% of Compensation for the Year Consisting of Share Appreciation Rights
Geoff Jones	12 Nov 2013 15 Nov 2016 15 Nov 2016	30 Jun 2018 30 Jun 2019 30 Jun 2020	30 Jun 2018	136,429	Nil Nil Nil	213,334 650,000 500,000	$0.1508 $0.5969 $0.5826	26.2%

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 2018:

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2014 2015 2016 2017 2018
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Revenue ($000's)	114,183	216,893	255,292	238,691	283,603
Net proft before tax ($000's)	16,787	17,196	25,406	16,287	16,202
Net proft after tax ($000's)	14,164	12,938	19,340	12,865	11,641
Share price at year end	$0.70	$0.90	$0.99	$1.47	$1.39
Dividend ($000's)	9,000	12,785	15,158	15,287	9,195
EPS (cents)	9.44	8.60	12.71	8.41	7.60
Diluted EPS (cents)	9.26	8.42	12.64	8.35	7.45

Tony Patrizi, a Non-Executive Director, four senior executives and a key employee 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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

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:

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Balance at Received Balance
the start of as part of Additions/ Disposals/ at the end
2018 the year remuneration other other of the year
Ordinary shares
Phillip Lockyer 26,500 – 23,500 – 50,000
Geoff Jones 635,705 136,429 – – 772,134
Tony Patrizi 9,795,000 – – – 9,795,000
Barry Patterson 7,500,000 – – – 7,500,000
Terry Strapp 380,000 – – – 380,000
Peter Hood 500,000 – – – 500,000
David Sala Tenna 12,325,000 – – – 12,325,000
Joe Totaro 8,000,000 – – – 8,000,000
Rodney Schier 8,100,000 – – – 8,100,000
Stephen Kendrick 4,875,000 – – – 4,875,000
52,137,205 136,429 23,500 – 52,297,134
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Balance at Received Balance
the start of as part of Additions/ Disposals/ at the end
2017 the year remuneration other other of the year
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Ordinary shares
Phillip Lockyer	–	–	26,500	–	26,500
Geoff Jones	940,253	195,452	-	(500,000)	635,705
Tony Patrizi	9,795,000	–	–	–	9,795,000
Barry Patterson	10,500,000	–	–	(3,000,000)	7,500,000
Terry Strapp	380,000	–	–	–	380,000
Peter Hood	500,000	–	–	–	500,000
David Sala Tenna	13,825,000	–	–	(1,500,000)	12,325,000
Joe Totaro	9,500,000	–	–	(1,500,000)	8,000,000
Rodney Schier	8,100,000	–	–	–	8,100,000
	53,540,253	195,452	26,500	(6,500,000)	47,262,205

OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL

During the year ended 30 June 2018 the consolidated entity leased office space at 71 Daly Street, Ascot WA 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 2018 amounted to $639,775 including GST (2017: $327,325). The balance payable at 30 June 2018 is $108,617 (2017: $50,994). During the year ended 30 June 2018 the consolidated entity procured items for Ashguard Pty Ltd. The total amount invoiced to Ashguard Pty Ltd in the year ended 30 June 2018 was $10,995 including GST (2017: $9,446). The balance outstanding at 30 June 2018 is nil (2017: 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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

DIRECTORS’ REPORT

CONTINUED

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

22 August 2018

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

AUDITOR’S INDEPENDENCE DECLARATION

22 August 2018

Deloitte Touche Tohmatsu ABN 74 490 121 060 Tower 2 Brookfield Place 123 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 www.deloitte.com.au

The Board of Directors GR Engineering Services Limited 71 Daly Street ASCOT WA 6104

Dear Directors

GR Engineering Services Limited

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

As lead audit partner for the audit of the financial statements of GR Engineering Services Limited for the year ended 30 June 2018, I declare that to the best of my knowledge and belief, there have been no contraventions of:

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

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

Yours sincerely

DELOITTE TOUCHE TOHMATSU

Nicole Menezes Partner Chartered Accountants

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

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2018

Notes	Consolidated 2018 $ 2017 $
REVENUE 5 Other income 6 EXPENSES Employee benefts 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 Impairment of fnancial assets Administration Proft before income tax expense Income tax expense 8 Proft after income tax expense for the year attributable to the owners of GR Engineering Services Limited 20 Other comprehensive income for the year, net of income tax Items that may be reclassifed subsequently to proft or loss: Fair value gain/(loss) on available for sale fnancial 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 Proft attributable to owners of the parent Total comprehensive income attributable to the owners of the parent Basic earnings per share 30 Diluted earnings per share 30	283,602,634 238,690,534 950,156 1,382,624 (87,569,885) (79,075,485) (7,024,520) (6,547,039) (1,369,289) (1,392,211) (654,695) (594,837) (774,750) (270,931) (62,894) (56,080) (155,278,257) (128,574,678) (469,214) (279,974) (65,088) (96,838) (7,034,243) – (2,143,979) (2,443,873) (810,321) – (5,093,766) (4,454,405)
	16,201,889 16,286,807
	(4,560,896) (3,421,894)
	11,640,993 12,864,913
	(789,563) (1,154,489) 366,843 174,999
	(422,720) (979,490)
	11,218,273 11,885,423
	11,640,993 12,864,913
	11,218,273 11,885,423
	Cents Cents 7.60 8.41 7.45 8.35

The accompanying notes form part of these Financial Statements.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2018

Notes	Consolidated 2018 $ 2017 $
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 Deferred tax 8 Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables 14 Borrowings 15 Income tax 8 Provisions 16 Unearned revenue 17 Total current liabilities Non-current liabilities Borrowings 15 Provisions 16 Total non-current liabilities Total liabilities Net assets EQUITY Issued capital 18 Reserves 19 Retained profts 20 Total equity	21,751,300 34,868,758 45,648,672 66,183,661 6,884,447 19,783,118 614,173 497,293 – 2,212,666
	74,898,592 123,545,496
	3,878,743 2,716,545 2,621,911 3,129,121 3,203,273 1,025,438 9,703,927 6,871,104
	84,602,519 130,416,600
	15,235,581 62,217,046 336,110 458,403 390,072 – 11,651,145 8,834,547 1,831,981 7,135,911
	29,444,889 78,645,907
	128,932 226,612 2,557,618 2,681,091
	2,686,550 2,907,703
	32,131,439 81,553,610
	52,471,080 48,862,990
	30,445,356 30,388,000 566,641 (538,355) 21,459,083 19,013,345
	52,471,080 48,862,990

The accompanying notes form part of these Financial Statements.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2018

Notes	Consolidated 2018 $ 2017 $
Cash fows from operating activities Receipts from customers Payments to suppliers and employees Income tax paid Interest received Net cash fows (used in)/provided by operating activities 9 Cash fows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Investment in fnancial assets Net cash fows used in investing activities Cash fows from fnancing activities Payment of fnance lease liabilities Dividends paid Net cash fows used in fnancing activities 9 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	343,066,602 192,863,083 (341,128,499) (203,382,079) (3,358,024) (3,781,074) 532,544 820,561
	(887,377) (13,479,509)
	(2,654,972) (456,108) – 28,484 (250,000) (396,666)
	(2,904,972) (824,290)
	(695,866) (752,045) (9,195,256) (15,287,131)
	(9,891,122) (16,039,176)
	(13,683,471) (30,342,975) 34,868,758 64,923,175
	566,013 288,558
	21,751,300 34,868,758

The accompanying notes form part of these Financial Statements.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2018

51,993,767	12,864,913 (979,490)	11,885,423	(15,287,131) – 270,931	48,862,990	11,640,993 (422,720)	11,218,273	(9,195,255) – 774,751	51,660,759
21,435,563	12,864,913 –	12,864,913	(15,287,131) – –	19,013,345	11,640,993 –	11,640,993	(9,195,255) – –	21,459,083
866,563	– (1,154,489)	(1,154,489)	– – –	(287,926)	– (789,563)	(789,563)	– – –	(1,077,489)
(1,270,503)	– 174,999	174,999	– – –	(1,095,504)	– 366,843	366,843	– – –	(728,661)
53,040	– –	–	– (47,967) 162,160	167,233	– –	–	– (32,166) 235,296	370,363
99,171	– –	–	– (114,597) 108,771	93,345	– –	–	– (25,190) 539,455	607,610
584,497	– –	–	– – –	584,497	– –	–	– – –	584,497
30,225,436	– –	–	– 162,564 –	30,388,000	– –	–	– 57,356 –	30,445,356

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

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 71 Daly Street, Ascot, 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 21 August 2018. 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 2017.

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

AASB 1048 ‘Interpretation of Standards’
AASB 2016-1 ‘Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses’
AASB 2016-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107’
AASB 2017-2 ‘Amendments to Australian Accounting Standards – Further Annual Improvements 2014-2016’

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

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

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 2018.

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Effective for annual Expected to be
reporting periods initially applied
beginning on in the financial
Standard/Interpretation or after 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 January 2019 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’,
AASB 2017-5 Amendments to Australian Accounting Standards – Effective
Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections 1 January 2022 30 June 2023
AASB 2016-5 'Amendments to Australian Accounting Standards -
Classification and Measurement of Share-based Payment Transactions' 1 January 2018 30 June 2019
AASB 2017-7 'Amendments to Australian Accounting Standards – Long-
term Interests in Associates and Joint Ventures' 1 January 2019 30 June 2020
AASB 2018-1 'Amendments to Australian Accounting Standards – Annual
Improvements 2015–2017 Cycle' 1 January 2019 30 June 2020
Interpretation 22 'Foreign Currency Transactions and Advance
Consideration' 1 January 2018 30 June 2019
Interpretation 23 Uncertainty over Income Tax Treatments, AASB 2017-4
Amendments to Australian Accounting Standards – Uncertainty over Income
Tax Treatments 1 January 2019 30 June 2020
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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.

Whilst AASB 15 has not yet been adopted, the consolidated entity does not anticipate a material impact for when this new standard is adopted, as the majority of contracts tend to be less than 1 year. A number of the consolidated entity’s major contracts were closed out during the current reporting period.

AASB 9 will impact the consolidated entity as it introduces the “expected credit loss” method. The consolidated entity has reviewed the new standard and it is not expected to materially impact the consolidated entity when initially adopted. Whilst some isolated bad debts have occurred this year, they represent less than 2% of the total revenue of the consolidated entity in the current year. Historically the consolidated entity has had a strong recovery of its receivables, so the future adoption of this new standard is likely to result in an immaterial provision to the trade receivables based on the “expected credit loss” method.

The consolidated entity is yet to undertake a formal assessment of the impact of the other accounting standards that are issued but not yet effective, but the impact on the consolidated entity is anticipated to be immaterial as the majority do not impact its current operations, other than the future impact of AASB 16. Whilst the formal assessment is not yet undertaken, the consolidated entity discloses in Note 26 that it has operating lease commitments. These are likely to appear on the Statement of Financial Position in the future when the new AASB 16 is initially adopted by the consolidated entity.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018 CONTINUED

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.

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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

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 consolidated entity’s accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the consolidated entity 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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

FOR THE YEAR ENDED 30 JUNE 2018 CONTINUED

NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)

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 GR Engineering Services Turkey is Turkish Lira. 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.

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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

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 short-term, 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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

FOR THE YEAR ENDED 30 JUNE 2018 CONTINUED

NOTES TO THE FINANCIAL STATEMENTS

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.

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

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)

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

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

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

Impairment losses are recognised in the 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.

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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

CONTINUED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

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.

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 straight-line 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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

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.

As disclosed in the trade and other receivables accounting policy, an estimate of doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. The allowance for doubtful debts assessment requires a degree of estimation and judgement. Where the estimation is different to actual results, carrying amounts are adjusted in the next financial period. Management continually evaluates these estimates based on historical experience, aging of receivables, historical collection rates and specific knowledge of the individual debtor situations. The directors have assessed their aged receivable balance at the reporting date and based on the information available, no allowance for doubtful debts has been made. .

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”.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 4. OPERATING SEGMENTS (continued)

Segment revenues and results

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

Segment revenue	2018 $ 2017 $
Mineral processing Oil and gas Total revenue Segment proft before tax Mineral processing Oil and gas Corporate - securities available for sale Total proft before tax	202,381,222 169,826,934 81,221,412 68,863,600
	283,602,634 238,690,534
	15,725,717 10,766,446 1,286,493 5,520,361 (810,321) –
	16,201,889 16,286,807

Segment revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the current year (2017: nil).

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GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 4. OPERATING SEGMENTS (continued)

Segment assets and liabilities

Segment assets and liabilities
Segment assets	2018 $ 2017 $
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	56,658,123 96,606,076 25,322,485 30,681,403 2,621,911 3,129,121
	84,602,519 130,416,600
	470,644 443,936 898,645 948,275
	1,369,289 1,392,211
	21,377,067 65,704,791 10,754,372 15,848,819
	32,131,439 81,553,610

Geographical information

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

Revenue Australia Overseas Total revenue	272,839,270 222,306,462 10,763,364 16,384,072
	283,602,634 238,690,534

Non-current assets

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

Information about major customers

During the financial year three customers individually provided more than 10% of total revenue each for the consolidated entity (2017: 4 customers).

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 5. REVENUE

	Consolidated 2018 $ 2017 $
Rendering of services – construction contracts Rendering of services – operations and maintenance contracts Total revenue NOTE 6. OTHER INCOME Net foreign exchange gain/(loss) Net gain/(loss) on disposal of property, plant and equipment Subsidies and grants Interest revenue Other revenue Total other income NOTE 7. EXPENSES Proft before income tax includes the following specifc expenses: Finance costs Interest and leasing charges on fnance leases Employee benefts Employee benefts expense excluding superannuation Defned contribution superannuation expense Total employee benefts Administration costs Net loss on disposal of inventories	202,381,222 169,826,934 81,221,412 68,863,600
	283,602,634 238,690,534
	382,153 (23,748) 26,515 32,887 76,080 34,509 532,544 820,561 (67,136) 518,415
	950,156 1,382,624
	62,894 56,080 87,569,885 79,075,485 7,024,520 6,547,039
	94,594,405 85,622,524

	150,000 –

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 8. INCOME TAX EXPENSE

Major components of income tax expense for the years ended 30 June 2018 and 2017 are:

Income tax recognised in the Consolidated statement of proft or loss	Consolidated 2018 $ 2017 $
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 proft or loss Income tax recognised in statement of changes in equity Deferred income tax Revaluation of shares Income tax expense reported in equity “A reconciliation of income tax expense applicable to accounting proft 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 2018 and 2017 is as follows: Accounting proft before income tax At the statutory income tax rate of 30% (2017: 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 29.1% (2017: 21.0%) Income tax expense reported in statement of proft or loss	7,220,465 3,554,953 (463,122) (2,630,422) (2,063,423) 1,428,345 (133,024) 1,069,018
	4,560,896 3,421,894
	18,612 (494,781)
	18,612 (494,781)
	16,201,889 16,286,807 4,860,567 4,886,042 297,686 144,901 (596,146) (1,561,404) (1,211) (47,645) – –
	4,560,896 3,421,894

	4,560,896 3,421,894

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 8. INCOME TAX EXPENSE (continued)

Deferred income tax	Consolidated 2018 $ 2017 $
Deferred income tax at 30 June relates to the following: Deferred income tax assets Accrued employee entitlements Accrued superannuation Accrued audit fees Leasing Provision for long service leave Provision for warranty Provisions - other Lease termination Payables – Upstream Production Solutions subsidiary Accrued employee entitlements - Upstream Production Solutions subsidiary Shares in listed entity Plant and equipment Accrued Bonus Bad debts not immediately deductible Deferred income tax liabilities Prepayments Accrued interest Other accrued income Unrealised foreign exchange gain 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	63,810 78,948 17,536 17,534 18,000 13,050 (54,962) (54,962) 102,598 104,784 1,720,707 1,439,605 468,734 – – 48,165 94,806 94,806 1,179,112 973,959 347,881 123,397 37,376 43,465 296,182 247,758 635,645 –
	4,927,425 3,130,509
	– (25,632) – (44) (21,298) (7,980) (135) (200) – (5,009) (1,702,719) (2,066,206)
	(1,724,152) (2,105,071)

	3,203,273 1,025,438
	390,072 (2,212,666)

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 9. CURRENT ASSETS – CASH AND CASH EQUIVALENTS

	Consolidated 2018 $ 2017 $
Cash on hand Cash at bank Cash on deposit	53,457 51,557 21,697,843 34,817,201 – –
	21,751,300 34,868,758

The fair value of cash and cash equivalents is $21,751,300 (2017: $34,868,758).

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	21,751,300 34,868,758 – –
	21,751,300 34,868,758

==> picture [395 x 254] intentionally omitted <==

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 9. CURRENT ASSETS – CASH AND CASH EQUIVALENTS (continued)

Reconciliation from the net proft after tax to the net cash fow from operating activities	Consolidated 2018 $ 2017 $
Net proft after tax Adjustments for: Depreciation and amortisation Proft/loss on sale of asset Share based employee payments Net foreign exchange (gain)/loss Acquisition of shares as consideration for services Interest expense on fnance leases 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	11,640,993 12,864,913 1,369,289 1,392,211 123,485 (32,887) 774,750 270,931 (199,171) (113,559) – (669,185) 62,894 – 22,128,833 (35,754,837) 1,561,627 (3,121,794) (1,399,866) 2,497,361 (48,298,379) 33,905,970 2,712,316 (1,711,974) 2,602,738 (2,856,542) 6,033,114 (20,150,117)
	(887,377) (13,479,509)

Reconciliation from the net proft after tax to the net cash fow
from operating activities

Consolidated
2018
$
2017
$

Net proft after tax
Adjustments for:
Depreciation and amortisation
Proft/loss on sale of asset
Share based employee payments
Net foreign exchange (gain)/loss
Acquisition of shares as consideration for services
Interest expense on fnance leases
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

11,640,993
12,864,913
1,369,289
1,392,211
123,485
(32,887)
774,750
270,931
(199,171)
(113,559)
–
(669,185)
62,894
–
22,128,833
(35,754,837)
1,561,627
(3,121,794)
(1,399,866)
2,497,361
(48,298,379)
33,905,970
2,712,316
(1,711,974)
2,602,738
(2,856,542)
6,033,114
(20,150,117)

(887,377)
(13,479,509)

NON-CASH TRANSACTIONS

During the year ended 30 June 2018 and year ended 30 June 2017, 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 2018 the consolidated entity acquired equipment under finance lease of $267,043 (2017: $38,659).

Reconciliation of liabilities arising from cash flows from financing activities

Borrowings - Finance leases Opening balance Repayments of principal Interest paid New non-cash hire purchase assets Closing Balance	685,015 923,868 (632,972) (752,042) (62,894) (56,080) 475,893 569,269
	465,042 685,015

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 10. TRADE AND OTHER RECEIVABLES

	Consolidated 2018 $ 2017 $
Current assets – trade and other receivables Trade receivables Less: Allowance for impairment of receivables Other receivables GST receivable Accrued revenue Trade receivables are non-interest bearing and are normally settled on 30 to 90 day terms. The net of GST payable and GST receivable is remitted to the appropriate tax body on a monthly basis. 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 Bad debts written off during the year as uncollectable amount to $7,034,203 (2017: nil). Past due but not impaired Customers with balances past due but without allowance for impairment of receivables amount to $18,341,993 as at 30 June 2018 ($32,391,074 as at 30 June 2017). 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 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. NOTE 11. CURRENT ASSETS – INVENTORIES Consumables – at cost Work in progress – oil and maintenance contracts Work in progress – construction contracts	40,906,582 65,513,894 – –
	40,906,582 65,513,894
	375,987 407,415 1,297,724 – 3,068,379 262,352
	45,648,672 66,183,661
	– – – –
	– –
	4,525,687 24,589,480 1,330,736 4,119,674 12,485,570 3,681,920
	18,341,993 32,391,074
	293,800 643,800 5,675,731 6,887,358 914,916 12,251,960
	6,884,447 19,783,118

For information on construction contracts in progress, refer to note 17.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 12. NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT

	Consolidated 2018 $ 2017 $
Plant and equipment – at cost Less: Accumulated depreciation Plant and equipment under lease Less: Accumulated depreciation	10,029,619 7,543,054 (6,885,543) (5,727,154)
	3,144,076 1,815,900
	3,003,855 3,088,318 (2,269,188) (2,187,673)
	734,667 900,645
	3,878,743 2,716,545

Reconciliations

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

==> picture [456 x 222] intentionally omitted <==

----- Start of picture text -----

Plant &
Equipment Plant &
Under Lease Equipment Total
$ $ $
Balance at 30 June 2016 1,243,709 2,369,771 3,613,480
Additions 38,659 544,362 583,021
Disposals, Write off of assets – (122,509) (122,509)
Transfers in/(out) (109,520) 109,520 –
Depreciation expense (272,203) (1,085,244) (1,357,447)
Balance at 30 June 2017 900,645 1,815,900 2,716,545
Additions 267,042 2,273,354 2,540,396
Disposals, Write off of assets – (8,909) (8,909)
Transfers in/(out) (173,882) 173,882 –
Depreciation expense (259,138) (1,110,151) (1,369,289)
Balance at 30 June 2018 734,667 3,144,076 3,878,743
----- End of picture text -----

NOTE 13. FINANCIAL ASSETS

	Consolidated 2018 $ 2017 $
Available for sale fnancial assets held at fair value Shares in listed entities	2,621,911 3,129,121

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 22 for movement during the year.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 14. CURRENT LIABILITIES – TRADE AND OTHER PAYABLES

	Consolidated 2018 $ 2017 $
Trade payables 9,261,816 38,357,008 Accrued expenses 2,525,906 17,381,052 GST payable – 556,319 Prepaid revenue 502,428 2,985,996 Other payables 2,945,431 2,936,671 15,235,581 62,217,046 Refer to note 22 for further information on fnancial 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.	9,261,816 38,357,008 2,525,906 17,381,052 – 556,319 502,428 2,985,996 2,945,431 2,936,671
	15,235,581 62,217,046

Consolidated
2018
$
2017
$

Trade payables
9,261,816
38,357,008
Accrued expenses
2,525,906
17,381,052
GST payable
–
556,319
Prepaid revenue
502,428
2,985,996
Other payables
2,945,431
2,936,671
15,235,581
62,217,046
Refer to note 22 for further information on fnancial 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.

9,261,816
38,357,008
2,525,906
17,381,052
–
556,319
502,428
2,985,996
2,945,431
2,936,671

15,235,581
62,217,046

NOTE 15. BORROWINGS

Current liabilities – borrowings Lease liability Non-current liabilities – borrowings Lease liability Refer to note 22 for further information on fnancial instruments. Total secured liabilities The total secured liabilities (current and non-current) are as follows: Lease liability Assets pledged as security	336,110 458,403
	128,932 226,612
	465,042 685,015

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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 16. PROVISIONS

	Consolidated 2018 $ 2017 $
Current liabilities – provisions Annual leave Warranties Project returns 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 Provision for project returns Balance at beginning of year Additional provisions/(reduction in provisions) recognised Amounts used Balance at end of year 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	4,404,077 4,035,862 5,735,691 4,798,685 1,511,377 –
	11,651,145 8,834,547
	4,035,862 3,150,066 3,521,404 3,483,853 (3,153,189) (2,598,057)
	4,404,077 4,035,862
	4,798,685 7,741,642 1,621,477 (197,821) (684,471) (2,745,136)
	5,735,691 4,798,685
	– – 1,511,377 – – –
	1,511,377 –
	2,557,618 2,681,091
	2,681,091 2,290,471 237,437 547,780 (360,910) (157,160)
	2,557,618 2,681,091

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 17. UNEARNED REVENUE

	Consolidated 2018 $ 2017 $
Unearned revenue - Current liabilities Contracts in progress Progress billings Construction costs to date plus recognised profts	1,831,981 7,135,911
	358,163,468 386,684,581 (357,246,403) (391,800,630)
	917,065 (5,116,049)

NOTE 18. EQUITY – ISSUED CAPITAL

	Consolidated Consolidated 2018 Shares 2017 Shares 2018 $ 2017 $
Ordinary shares – fully paid Opening balance Additional shares issued : Exercise of performance rights Exercise of share appreciation rights Ordinary shares – fully paid	153,254,260 152,871,308 30,388,000 30,225,436 55,000 187,500 25,190 114,597 136,429 195,452 32,166 47,967
	153,445,689 153,254,260 30,445,356 30,388,000

Ordinary shares

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

Share appreciation rights

As at 30 June 2018, the consolidated entity had on issue a total of 1,150,000 share appreciation rights to Geoff Jones, Managing Director, as part of the consolidated entity’s equity incentive plan (as at 30 June 2017: 1,363,334).

Number of shares under share appreciation rights	Grant date	Vesting date	Exercise price	Performance condition share price targets
650,000 500,000	15/11/16 15/11/16	30/6/19 30/6/20	$0.89 $0.89	$1.36 $1.50

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 18. EQUITY – ISSUED CAPITAL (continued)

Performance rights

As at 30 June 2018, the consolidated entity had on issue a total of 2,282,500 performance rights (as at 30 June 2017: 415,000):

==> picture [374 x 18] intentionally omitted <==

----- Start of picture text -----

Number of performance rights Grant date Expiry date Exercise price
----- End of picture text -----

127,500	30/4/14	31/3/19	Nil
20,000	13/7/17	13/7/18	Nil
30,000	13/7/17	15/6/20	Nil
1,870,000	21/8/17	20/8/20	Nil
30,000	21/8/17	2/8/18	Nil
60,000	21/8/17	2/8/20	Nil
50,000	28/8/17	21/8/20	Nil
35,000	1/11/17	1/11/20	Nil
60,000	14/6/18	14/6/21	Nil

NOTE 19. EQUITY – RESERVES

	Consolidated 2018 $ 2017 $
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 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	(728,661) (1,095,504) 607,610 93,345 584,497 584,497 370,363 167,233 (267,168) (287,926)
	566,641 (538,355)
	(1,095,504) (1,270,503) 366,843 174,999
	(728,661) (1,095,504)
	93,345 99,171 539,455 108,771 (25,190) (114,597)
	607,610 93,345

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

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 19. EQUITY – RESERVES (continued)

NOTE 19. EQUITY – RESERVES (continued)
	Consolidated 2018 $ 2017 $
Share options reserve Balance at beginning of year Additional amounts recognised Balance at end of year 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 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. Investment revaluation reserve Balance at beginning of year Movement in fair value Amount taken to proft or loss Tax effect of movement in fair value Balance at end of year 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 2018. NOTE 20. EQUITY – RETAINED PROFITS Retained profts at the beginning of the fnancial year Proft after income tax expense for the year Payment of dividends Retained profts at the end of the fnancial year	584,497 584,497 – –
	584,497 584,497
	167,233 53,040 235,296 162,160 (32,166) (47,967)
	370,363 167,233
	(287,926) 866,563 (868,006) (1,649,270) 810,321 – 78,443 494,781
	(267,168) (287,926)
	19,013,345 21,435,563 11,640,993 12,864,913 (9,195,255) (15,287,131)
	21,459,083 19,013,345

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 21. EQUITY – DIVIDENDS

	Consolidated 2018 $ 2017 $
Dividends 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 Year ended 30 June 2018 Dividend paid 28 March 2018 (fully franked at 30% tax rate): 6 cents per ordinary share On 22 August 2018, the consolidated entity declared an unfranked dividend of 5.0 cents per share, an aggregate of $7,674,784. The Record Date of the dividend is 12 October 2018 and the proposed payment date is 24 October 2018. Franking credits Franking (debits)/credits available for subsequent fnancial years based on a tax rate of 30%	7,643,565 7,643,565 9,195,255
	9,195,255 15,287,130 (448,346) (487,101)

Consolidated
2018
$
2017
$

Dividends
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
Year ended 30 June 2018
Dividend paid 28 March 2018 (fully franked at 30% tax rate):
6 cents per ordinary share
On 22 August 2018, the consolidated entity declared an unfranked
dividend of 5.0 cents per share, an aggregate of $7,674,784. The
Record Date of the dividend is 12 October 2018 and the proposed
payment date is 24 October 2018.
Franking credits
Franking (debits)/credits available for subsequent fnancial years
based on a tax rate of 30%

7,643,565
7,643,565
9,195,255

9,195,255
15,287,130
(448,346)
(487,101)

NOTE 22. 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

Financial assets
Cash and cash equivalents Trade and other receivables Available for sale securities Total fnancial assets Financial liabilities Trade and other payables Finance lease liabilities Total fnancial liabilities	21,751,300 34,868,758 45,648,672 66,183,661 2,621,911 3,129,121
	70,021,883 104,181,540
	15,235,581 62,217,046 465,042 685,015
	15,700,623 62,902,061

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 22. FINANCIAL INSTRUMENTS (continued)

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.

	Assets Liabilities 2018 AUD $ 2017 AUD $ 2018 AUD $ 2017 AUD $
United States Dollars Great British Pounds Euro	1,189,205 2,148,332 (53,274) (3,452,866) 21,754 5,244,243 (159,821) (293,159) 103,008 836,907 (3,589) (149,476)
	1,313,967 8,229,482 (216,684) (3,895,501)

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 2018 of AUD $1 = USD $0.74 (2017: AUD $1 = USD $0.77).

The consolidated entity holds balances in Great British pounds, these balances are translated into Australian dollars at the prevailing exchange rate at 30 June 2018 of AUD $1 = GBP £0.56 (2017: AUD $1 = GBP £0.59).

The consolidated entity holds balances in Euro, these balances are translated into Australian dollars at the prevailing exchange rate at 30 June 2018 of AUD $1 = EUR €0.63 (2017: AUD $1 = EUR €0.67).

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 22. 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:

Consolidated - 2018	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 proft before tax	Effect on equity	Effect on proft before tax	Effect on equity
	$	$	$	$
United States Dollars	(102,996)	(102,996)	126,545	126,545
Great British Pounds	12,556	12,556	(15,336)	(15,336)
Euro	(9,026)	(9,026)	11,062	11,062
	(99,466)	(99,466)	122,271	122,271
Consolidated - 2017 United States Dollars Great British Pounds Euro	118,747 (450,098) (62,367)	118,747 (450,098) (62,367)	(144,761) 550,120 76,536	(144,761) 550,120 76,536
	(393,718)	(393,718)	481,895	481,895

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:

Consolidated – 2018	Effect of 1% increase in exchange rate	Effect of 1% increase in exchange rate	Effect of 1% decrease in exchange rate	Effect of 1% decrease in exchange rate
	Effect on proft before tax	Effect on equity	Effect on proft before tax	Effect on equity
	$	$	$	$
Interest revenue	294,251	294,251	(294,251)	(294,251)
Interest expense	(5,170)	(5,170)	5,454	5,454
	289,081	289,081	(288,797)	(288,797)
Consolidated – 2017 Interest revenue Interest expense	314,562 (3,421)	314,562 (3,421)	(314,562) 3,421	(314,562) 3,421
	311,141	311,141	(311,141)	(311,141)

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 2018 would have been unaffected as the equity investments are classified as availablefor-sale; and
other comprehensive income for the year ended 30 June 2018 would increase by $131,096 (2017: $156,456) as a result of an increase of 5% in equity prices, and decrease by $131,096 (2017: $156,456) as a result of a decrease of 5% in equity prices.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 22. FINANCIAL INSTRUMENTS (continued)

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.

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.

Consolidated – 2018		Remaining contractual maturities	Remaining contractual maturities	Remaining contractual maturities
	Weighted average interest rate %	Less than 6 months $	6 to 12 months $	Over 12 months $	Total $
Non-derivatives
Non-interest bearing
Trade payables	–	15,235,581	–	–	15,235,581
Interest-bearing – fxed rate
Lease liability	3.94%	198,859	137,251	128,932	465,042
Total non-derivatives		15,434,440	137,251	128,932	15,700,623
Consolidated – 2017 Non-interest bearing Trade payables Interest-bearing – fxed rate Lease liability Total non-derivatives	– 3.75%	62,217,046 276,068	– 182,335	– 226,612	62,217,046 685,015
		62,493,114	182,335	226,612	62,902,061

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 22. FINANCIAL INSTRUMENTS (continued)

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	2018 2017 Carrying amount $ Fair Value $ Carrying amount $ Fair Value $	2018 2017 Carrying amount $ Fair Value $ Carrying amount $ Fair Value $
	Carrying amount $
Assets Cash at bank Cash on deposit Trade receivables Available for sale securities Liabilities Trade payables Lease liability		21,751,300 34,868,758 34,868,758 - - - 45,648,672 66,183,661 66,183,661 2,621,911 3,129,121 3,129,121
	21,751,300
	-
	45,648,672
	2,621,911
	70,021,883	70,021,883 104,181,540 104,181,540
		15,235,581 62,217,046 62,217,046 465,042 685,015 685,015
	15,235,581
	465,042
	15,700,623	15,700,623 62,902,061 62,902,061

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.

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GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 22. FINANCIAL INSTRUMENTS (continued)

Fair value of financial instruments (continued)

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

Fair value hierarchy – 2018	Level 1 $	Level 2 $	Level 3 $	Total $
Financial assets
Trade receivables	–	45,648,672	–	45,648,672
Available for sale securities	2,621,911	–	–	2,621,911
	2,621,911	45,648,672	–	48,270,583
Financial liabilities
Trade payables	–	15,235,581	–	15,235,581
Lease liability	–	465,042	–	465,042
	–	15,700,623	–	15,700,623
Fair value hierarchy – 2017 Financial assets Trade receivables Available for sale securities Financial liabilities Trade payables Lease liability	– 3,129,121	66,183,661 –	– –	66,183,661 3,129,121
	3,129,121	66,183,661	–	69,312,782
	– –	62,217,046 685,015	– –	62,217,046 685,015
	–	62,902,061	–	62,902,061

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:
	Consolidated 2018 $ 2017 $
Available for sale equity securities Opening balance Additions Disposals Net revaluations in other comprehensive income Closing balance	3,129,121 3,712,539 250,000 1,065,852 – – (757,210) (1,649,270)
	2,621,911 3,129,121

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 23. 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
Peter Hood	Non-Executive Director
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 Manager – Projects Joe Totaro Chief Financial Officer and Company Secretary Rodney Schier Engineering Manager Stephen Kendrick Manager – Projects (Appointed 11 December 2017) Paul Newling General Manager – EPCM (Resigned 7 February 2018) Thomas Marshall Manager – Eastern Region (Appointed 1 August 2017)

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:

	Consolidated 2018 $ 2017 $
Short term benefts Post employment benefts Share based payments Other	2,868,107 2,487,396 217,209 172,147 285,930 162,160 57,569 94,437
	3,428,815 2,916,140

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 24. 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:

auditor of the company, and its network frms:
	Consolidated 2018 $ 2017 $
Audit services - Deloitte Touche Tohmatsu dit or review of the fnancial statements - Deloitte Touche Tohmatsu Australia Audit or review of the fnancial statements – Deloitte Touche Tohmatsu UK Other services – Deloitte Touche Tohmatsu Tax compliance – Deloitte Touche Tohmatsu Australia Other services – Deloitte Touche Tohmatsu Australia	135,473 132,009 13,276 9,311 27,300 24,150 – 19,062
	176,049 184,532

NOTE 25. CONTINGENT LIABILITIES

The consolidated entity has bank guarantees in place as at 30 June 2018 of $13,093,965 (2017: $35,164,531).

The consolidated entity’s standby multi-option facility has a limit of $70,000,000. The facilities are secured by a fixed and floating charge over all the assets of the consolidated entity. The consolidated entity provides bank guarantees under this facility to support project performance in favour of certain clients. The amount of these bank guarantees at 30 June 2018 is $12,744,809 (30 June 2017: $34,258,841). 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 $349,156 (30 June 2017: $905,690). The amount of bank guarantees issued under this facility at 30 June 2018 is $349,156 (30 June 2017: $905,690).

The consolidated entity has an insurance bond facility to provide retention and off site materials bonds in connection with certain projects. The $40 million facility with Insurance Australia Limited was taken out on 22 June 2018. On 2 July 2018 the Company secured an additional $20 million insurance bond facility with Allianz Australia Insurance Limited. No bonds were on issue under the Insurance Australia Limited facility as at 30 June 2018.

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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 26. COMMITMENTS

The consolidated entity has leased certain items of its equipment under finance leases. The average lease term is 4 years (2017: 4 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.

	Consolidated 2018 $ 2017 $
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 fnance charges Present value of minimum lease payments The consolidated entity has operating leases that relate to leases of offce 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	349,379 475,573 132,608 231,617 – –
	481,987 707,190 (16,946) (22,176)
	465,041 685,014
	1,316,431 1,452,354 2,174,595 591,814 – –
	3,491,026 2,044,168

NOTE 27. RELATED PARTY TRANSACTIONS

During the year ended 30 June 2018 the consolidated entity leased office space at 71 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 2018 amounted to $639,775 including GST (2017: $327,325). The balance payable at 30 June 2018 is $108,617 (2017: $50,994). During the year ended 30 June 2018 the consolidated entity procured items for Ashguard Pty Ltd. The total amount invoiced to Ashguard Pty Ltd in the year ended 30 June 2018 was $10,995 including GST (2017: $9,446). The balance outstanding at 30 June 2018 is nil (2017: nil).

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 2018.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 28. 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.

Set out below is the supplementary information about the parent entity.
	Parent 2018 $ 2017 $
Statement of proft or loss and other comprehensive income Proft after income tax Total comprehensive income Statement of fnancial 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 profts Total equity	10,816,275 7,722,574
	10,026,712 6,568,085
	53,911,296 98,474,757
	61,990,997 104,148,971
	20,048,783 66,340,738
	21,812,327 66,340,738
	30,445,356 30,388,000 607,610 93,345 584,497 584,497 370,363 167,233 (313,259) (287,926) 8,484,103 6,863,084
	40,178,670 37,808,233

The contingent liabilities and commitments of the parent entity are the same as those of the consolidated entity, as set out in notes 25 and 26.

NOTE 29. EVENTS AFTER THE REPORTING PERIOD

On 20 August 2018, GR Engineering entered into a $17.9 million EPC contract with Saracen Gold Mines Pty Ltd for the design and construction of the Carosue Dam Paste Backfill Plant.

No other matter or circumstance has arisen since 30 June 2018 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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 30. EARNINGS PER SHARE

	Consolidated 2018 $ 2017 $
Proft 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 Basic earnings per share Diluted earnings per share	11,640,993 12,864,913
	Number Number 153,268,497 152,919,101 3,080,048 1,216,745
	156,348,545 154,135,846
	Cents Cents 7.60 8.41 7.45 8.35

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GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 31. 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 5,200,000 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, 2,155,000 performance rights were issued during the financial year ending 30 June 2018 (2017: 160,000).

During the financial year a total of 55,000 performance rights vested (2017: 187,500). A total of 803,945 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 232,500 have lapsed in the financial year ending 30 June 2018 (2017: nil).

A summary of performance rights on issue at 30 June 2018 follows:

	Tranche 7	Tranche 11	Tranche 12	Tranche 13	Tranche 14
Number issued Number lapsed Grant date Exercise price Vesting date Expiry date Vesting period (years) Vesting conditions Fair value	127,500 – 30 Apr 2014 Nil 31 Mar 2019 31 Mar 2019 5 Nil $0.410	20,000 – 13 Jul 2017 Nil 13 Jul 2018 13 Jul 2018 1 Nil $1.317	30,000 – 13 Jul 2017 Nil 15 Jun 2020 15 Jun 2020 3 Nil $1.065	1,870,000 – 21 Aug 2017 Nil 20 Aug 2020 20 Aug 2020 3 Nil $1.035	30,000 – 21 Aug 2017 Nil 2 Aug 2018 2 Aug 2018 1 Nil $1.297
	Tranche 15	Tranche 16	Tranche 17	Tranche 18
Number issued Number lapsed Grant date Exercise price Vesting date Expiry date Vesting period (years) Vesting conditions Fair value	60,000 – 21 Aug 2017 Nil 2 Aug 2020 2 Aug 2020 3 Nil $1.041	50,000 – 28 Aug 2017 Nil 21 Aug 2020 21 Aug 2020 3 Nil $0.951	35,000 – 1 Nov 2017 Nil 1 Nov 2020 1 Nov 2020 3 Nil $0.978	60,000 – 14 Jun 2018 Nil 14 Jun 2021 14 Jun 2021 3 Nil $1.010

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 31. 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:

	Tranche 7	Tranche 11	Tranche 12	Tranche 13	Tranche 14
Grant date share price Exercise price Expected volatility Term (years) Dividend yield Risk free interest rate	$0.705 – 60% 5 11% 3.33%	$1.470 – 50% 1 11% 1.77%	$1.470 – 50% 3 11% 1.94%	$1.440 – 50% 3 11% 1.95%	$1.440 – 50% 1 11% 1.78%
	Tranche 15	Tranche 16	Tranche 17	Tranche 18
Grant date share price Exercise price Expected volatility Term (years) Dividend yield Risk free interest rate	$1.440 – 50% 3 11% 1.95%	$1.320 – 50% 3 11% 1.99%	$1.360 – 50% 3 11% 1.99%	$1.410 – 50% 3 11% 2.14%

Movement in performance rights

Consolidated	2018 2017 Number of performance rights Weighted average exercise price Number of performance rights Weighted average exercise price
Balance at beginning of year Granted during the year Vested during the year Forfeited during the year Balance at end of year	415,000 – 442,500 – 2,155,000 – 160,000 – (55,000) – (187,500) – (232,500) – – –
	2,282,500 – 415,000 –

The weighted average fair value of performance rights granted at 30 June 2018 is $1.00. The weighted average exercise price of these performance rights at 30 June 2018 is nil. The weighted average remaining contractual life of performance rights outstanding at 30 June 2018 is 745 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, 213,334 vested during the financial year ending 30 June 2018 (2017: 296,297). 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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED

NOTE 31. SHARE-BASED PAYMENTS (continued)

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Performance
Number of share Exercise condition share Fair value at
Class appreciation rights Grant date Vesting date price price targets grant date
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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:

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

Movement in share appreciation rights

	2018 2017	2018 2017
Consolidated	Number of share appreciation rights	Weighted average exercise price Number of share appreciation rights Weighted average exercise price
Balance at beginning of year Granted during the year Vested and exercised during the year Balance at end of year	1,363,334	– 509,631 – – 1,150,000 – – (296,297) –
	–
	(213,334)
	1,150,000	– 1,363,334 –

The weighted average fair value of share appreciation rights granted at 30 June 2018 is $0.59. The weighted average exercise price of these share appreciation rights at 30 June 2018 is $0.89. The weighted average remaining contractual life of share appreciation rights outstanding at 30 June 2018 is 524 days.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

NOTE 32. SUBSIDIARIES

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

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Equity holding
2018 2017
Name of subsidiary Country of incorporation % %
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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%
GR Engineering Services Turkey Limited ++	Turkey	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.

++ GR Engineering Services (Turkey) Limited was incorporated on 22 November 2017.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

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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Geoff Jones Managing Director

22 August 2018

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GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

INDEPENDENT AUDITOR’S REPORT

CONTINUED

Deloitte Touche Tohmatsu ABN 74 490 121 060

Independent Auditor’s Report to the members of GR En ineerin Services Limited g g

Tower 2 Brookfield Place 123 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia

Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 www.deloitte.com.au

Report on the Audit of the Financial Report

Opinion

We have audited the financial report of GR Engineering Services Limited (the “Company”) and its subsidiaries (the “Group”), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration.

In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and

(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.

Basis for Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report.

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

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

INDEPENDENT AUDITOR’S REPORT

CONTINUED

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Key audit matter How the scope of our audit responded to the
Key Audit Matter
Recognition of revenue
As disclosed in Note 5, revenue recognised for the Our procedures included, but were not limited to:
year ended 30 June 2018 relating to both
construction contracts and operations and Evaluating management’s processes and controls in
maintenance contracts was $283,602,634. respect of the recognition of contract revenue. As part
of this process we tested key controls including:
As disclosed in Note 3, revenue and costs are
recognised by reference to the stage of completion  The preparation, review and authorisation of
of the contract activity. monthly contract status report for all
contracts;
The recognition of revenue requires significant  The estimation, review and monitoring of
management judgement in: costs to complete; and
 Determining the stage of completion;  The comprehensive project reviews that are
 Estimating total contract revenue and undertaken by Group management on a
contract cost including the estimation of monthly basis.
cost contingencies;
 Determining contractual entitlement and Selecting a sample of contracts for testing based on a
assessing the probability of customer number of quantitative and qualitative factors which
approval of variations and acceptance of may indicate that a greater level of judgement is
claims; and required in recognising revenue, including:
 Estimating the project completion date.
 Contract history;
 Significant unapproved claims and variations;
 Delay risk;
 High-value contracts; and
 Loss-making contracts.
In respect to our sample of contracts selected for
testing above, the following procedures were
performed:
 Obtained a detailed understanding of the
contract terms and conditions to evaluate
whether the individual characteristics of each
contract were reflected in management’s
estimate of forecast costs and revenue;
 Tested a sample of costs incurred to date and
agreed these to supporting documentation;
 Assessed the current programme status
against the original budgeted programme;
 Challenged the forecast costs to complete
through discussion and challenge of project
managers and finance personnel, as well as
inspection of supporting documentation for
contracted costs;
 Tested contractual entitlement, variations and
claims recognised within contract revenue
through agreement to supporting
documentation and by reference to the
underlying contract;
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GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

		H o w t h e s c o p e o f o u r a u d i t r e s p o n d e d t o t h e K e y A u d i t M a t t e r  Evaluated significant exposures to liquidated damages for late delivery of contract works; and  Evaluated contract performance in the period since year end to audit opinion date to reflect on year-end revenue recognition judgements. Assessing the appropriateness of the disclosures in Notes 3 and 5 to the financial statements. Our procedures included, but were not limited to: Obtaining an understanding of how management assesses the recoverability of trade debtors and therefore the allowance for impairment. Challenging the assessment of recoverability by:  Review of agreed payment plans with certain customers and testing of payments received against those payment plans;  Obtaining confidential settlement deeds to provide evidence as to the accuracy of the debtor balance recorded;  Obtaining correspondence with customers with significant balances past due to understand the cause of delays and the status of negotiation for settlement, if any; and  Assessing whether there are any circumstances which would indicate that the debtor would not be able to meet its obligations. Assessing the appropriateness of the disclosures in Note 10 to the financial statements. Our procedures included, but were not limited to: Obtaining an understanding of how management estimates their provision for warranty. Assessing the provision through:  Evaluating the contracts with applicable warranty obligations;  Reviewing historic claim outcomes and the accuracyof management’s estimate;and

	K e y a u d i t m a t t e r	H o w t h e s c o p e o f o u r a u d i t r e s p o n d e d t o t h e K e y A u d i t M a t t e r
		 Evaluated significant exposures to liquidated damages for late delivery of contract works; and  Evaluated contract performance in the period since year end to audit opinion date to reflect on year-end revenue recognition judgements. Assessing the appropriateness of the disclosures in Notes 3 and 5 to the financial statements.
	T r a d e a n d o t h e r r e c e i v a b l e s As disclosed in Note 10, the trade and other receivables as at 30 June 2018 was $44,350,948. The assessment of recoverability of the trade debtors as at 30 June 2018 required significant judgement given the long outstanding nature of certain receivable balances and the ability of the debtors to pay the amounts due.	Our procedures included, but were not limited to: Obtaining an understanding of how management assesses the recoverability of trade debtors and therefore the allowance for impairment. Challenging the assessment of recoverability by:  Review of agreed payment plans with certain customers and testing of payments received against those payment plans;  Obtaining confidential settlement deeds to provide evidence as to the accuracy of the debtor balance recorded;  Obtaining correspondence with customers with significant balances past due to understand the cause of delays and the status of negotiation for settlement, if any; and  Assessing whether there are any circumstances which would indicate that the debtor would not be able to meet its obligations. Assessing the appropriateness of the disclosures in Note 10 to the financial statements.
	P r o v i s i o n f o r w a r r a n t y As disclosed in Note 17, the warranty provision as at 30 June 2018 was $5,735,691. The assessment of the provision for warranty requires management to make an estimate of the likely future costs that may be incurred in relation to ongoing and completed contracts.	Our procedures included, but were not limited to: Obtaining an understanding of how management estimates their provision for warranty. Assessing the provision through:  Evaluating the contracts with applicable warranty obligations;  Reviewing historic claim outcomes and the accuracyof management’s estimate;and

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

INDEPENDENT AUDITOR’S REPORT

CONTINUED

Key audit matter

How the scope of our audit responded to the Key Audit Matter

 Assessing the consistency of assumptions applied. Assessing the appropriateness of the disclosures in Note 3 and 17 to the financial statements.

Other Information

The directors are responsible for the other information. The other information comprises the Directors’ Report, Corporate Directory, Corporate Governance Statement and Additional ASX Information, which we obtained prior to the date of this auditor’s report, and also includes the following information which will be included in the annual report (but does not include the financial report and our auditor’s report thereon): Chairman’s Letter, which is expected to be made available to us after that date.

Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read the Chairman’s Letter, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action.

Responsibilities of the Directors for the Financial Report

The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the director’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

INDEPENDENT AUDITOR’S REPORT

CONTINUED

Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report included in pages 13 to 19 of the Directors’ Report for the year ended 30 June 2018.

In our opinion, the Remuneration Report of GR Engineering Services Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001.

Responsibilities

The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

DELOITTE TOUCHE TOHMATSU

Nicole Menezes Partner Chartered Accountants Perth, 22 August 2018

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

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 2017/2018 financial year ( Reporting Period ). The information in this statement is current at 22 August 2018. This statement was approved by a resolution of the Board on 21 August 2018.

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 2018, 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.

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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

CORPORATE GOVERNANCE STATEMENT

CONTINUED

PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT (CONTINUED)

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 2019.”

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 Management:

Proportion of women

Whole organisation 54 out of 402 (13%) (13% as at 30 June 2017) Senior executive positions 10 out of 67 (15%) (17% as at 30 June 2017) Board 0 out of 6 (0%) (0% as at 30 June 2017)

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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT (CONTINUED)

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 Phillip Lockyer (Chair), Barry Patterson, 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.

Recommendation 2.2

The Board is 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.

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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

CORPORATE GOVERNANCE STATEMENT

CONTINUED

PRINCIPLE 2 – STRUCTURE THE BOARD TO ADD VALUE (continued)

Recommendation 2.4

The Board has a majority of directors who are independent.

The Board is comprised of 6 directors 4 of whom are or are deemed to be independent. The two non-independent 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.

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, SFFin, 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 Chairman of the International Chamber of Commerce National Committee of Australia and is Past President of the Australian Chamber of Commerce and Industry and the Chamber of Commerce and Industry Western Australia. Peter is currently Chairman of Matrix Composites and Engineering Limited and Lead Independent Director of Cue Energy Resources Limited. His broad based commercial experience includes the interpretation of financial statements and information.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

PRINCIPLE 4 – SAFEGUARD INTEGRITY IN CORPORATE REPORTING (CONTINUED)

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 two separate meetings during the year.

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 2017 and the full-year ended 30 June 2018, 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.

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 14 November 2017.

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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

CORPORATE GOVERNANCE STATEMENT

CONTINUED

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.

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.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

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.

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GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

ADDITIONAL ASX INFORMATION

The shareholder information set out below was applicable as at 1 October 2018:

the twenty largest shareholders held 85.62% of the Ordinary Shares; and
there were 1,414 ordinary shareholders

Distribution of securities

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

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Range Total Units % of shares issued
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1 – 1,000	238	125,109	0.08%
1,001 – 5,000	456	1,329,277	0.87%
5,001 – 10,000	281	2,225,344	1.45%
10,001 – 100,000	391	11,502,594	7.49%
100,001 – Over	48	138,313,365	90.11%
Total	1,414	153,495,689	100.00%

The number of shareholders holding less than a marketable parcel of ordinary shares is 76.

Equity security holders

Top 20 Shareholders as at 1 October 2018

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Number of % of shares
Name shares held issued
1. Citicorp Nominees Pty Ltd 19,298,599 12.57%
2. Mr David Joseph {Sala Tenna} + Ms Jane Frances {Sala Tenna}
12,325,000 8.03%
3. Joley Pty Ltd 10,524,000 6.86%
4. Paksian Pty Ltd 9,798,578 6.38%
5. Quintal Pty Ltd 9,500,000 6.19%
6. Kingarth Pty Ltd 9,025,000 5.88%
7. Ms Beverley June Schier 8,100,000 5.28%
8. Mr Giuseppe Totaro 8,000,000 5.21%
9. J P Morgan Nominees Australia Limited 7,887,635 5.14%
10. Polly Pty Ltd 7,500,000 4.89%
11. HSBC Custody Nominees (Australia) Limited 6,843,982 4.46%
12. Ledgking Pty Ltd 6,000,000 3.91%
13. National Nominees Limited 4,156,768 2.71%
14. Ms Barbara Ann Woodhouse 3,500,000 2.28%
15. Mr Stephen Paul Kendrick 3,491,000 2.27%
16. Sistaro Pty Ltd 1,486,000 0.97%
17. Kendrick Investments Pty Ltd 1,384,000 0.9%
18. Mr Cono Antonino Angelo Ricciardo 1,010,000 0.66%
19. Mr Michael Gerald Woodhouse + Mrs Barbara Ann Woodhouse
813,950 0.53%
20. Mr Cono Antonio Angelo Ricciardo + Mr Brett Alan Turner 772,109 0.5%
131,416,621 85.62%
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GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

Substantial shareholders

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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 2018.

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

ADDITIONAL ASX INFORMATION

CONTINUED

Performance rights

The following performance rights are on issue:

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Number Vesting date
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127,500	31 Mar 2019
30,000	15 Jun 2020
1,870,000	20 Aug 2020
60,000	2 Aug 2020
50,000	21 Aug 2020
35,000	1 Nov 2020
60,000	14 Jun 2021

Share appreciation rights

The following share appreciation rights are on issue:

Number	Grant date	Expiry date	Exercise price
650,000	15 Nov 2016	30 Jun 2019	$0.89
500,000	15 Nov 2016	30 Jun 2020	$0.89

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GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

CORPORATE DIRECTORY

ACN 121 542 738 ABN 12 121 542 738

AUDITOR

Deloitte Touche Tohmatsu

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

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)

SOLICITORS TO THE COMPANY

Zafra Legal

Level 10 105 St Georges Terrace PERTH WA 6000

SHARE REGISTRY

COMPANY SECRETARY & CHIEF FINANCIAL OFFICER

Computershare Investor Services Pty Limited

Level 11, 172 St Georges Terrace PERTH WA 6000

Giuseppe (Joe) Totaro

REGISTERED OFFICE

71 Daly Street ASCOT WA 6104

PRINCIPAL PLACE OF BUSINESS

71 Daly Street ASCOT WA 6104

Telephone: (61 8) 6272 6000 Facsimile: (61 8) 6272 6001 Email: [email protected] Website: www.gres.com.au

ASX CODE

GNG

GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018

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gres.com.au

AI assistant

GR ENGINEERING SERVICES LIMITED — Annual Report 2018

65003_rns_2018-10-11_a73153c6-f204-4a95-b55d-6e0bf2e57fc7.pdf

CONTENTS

CHAIRMAN’S LETTER

Dear Shareholder,

CHAIRMAN’S LETTER

DIRECTORS

COMPANY SECRETARY

Giuseppe (Joe) TOTARO

(B.Comm, CPA, CTA)

PRINCIPAL ACTIVITIES

DIVIDENDS PAID DURING THE YEAR

DIRECTORS’ REPORT

CONTINUED

REVIEW OF OPERATIONS

Mineral Processing

Completed projects

New and ongoing projects

Studies and consulting

Oil and Gas

Safety

FY19 Update and Outlook

FINANCIAL POSITION

DIVIDENDS

DIRECTORS’ REPORT

CONTINUED

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Wolf Minerals

Insurance Bonds

Office Consolidation

FUTURE DEVELOPMENTS

EVENTS AFTER BALANCE SHEET DATE

BOARD OF DIRECTORS

Phillip (Phil) LOCKYER – Non-Executive Chairman

BAppSc (Mech Eng)

Geoffrey (Geoff) Michael JONES – Managing Director

BE (Civil), FIEAust, CPEng

DIRECTORS’ REPORT

CONTINUED

Tony Marco PATRIZI – Executive Director

BE (Mech Eng)

Barry Sydney PATTERSON – Non-Executive Director

ASMM, MIMM, FAICD

Terrence (Terry) John STRAPP – Non-Executive Director

CPA, FFin., MAICD

Peter John HOOD – Non-Executive Director

MEETINGS OF DIRECTORS

OPTIONS

SHARE APPRECIATION RIGHTS

DIRECTORS’ REPORT

CONTINUED

PERFORMANCE RIGHTS

INDEMNIFYING OFFICERS OR AUDITORS

LEGAL PROCEEDINGS

NON AUDIT SERVICES

AUDITOR’S INDEPENDENCE DECLARATION

ENVIRONMENTAL ISSUES

REMUNERATION REPORT – AUDITED

Directors

Executives

REMUNERATION POLICY

NON-EXECUTIVE DIRECTORS

EXECUTIVE DIRECTORS

DIRECTORS’ REPORT

CONTINUED

SENIOR EXECUTIVES

EMPLOYMENT DETAILS OF MEMBERS OF KEY MANAGEMENT PERSONNEL

REMUNERATION DETAILS FOR THE YEAR ENDED 30 JUNE 2018 - BOARD OF DIRECTORS

DIRECTORS’ REPORT

CONTINUED

LONG TERM INCENTIVES

Employee Share Option Plan

Equity Incentive Plan

DIRECTORS’ REPORT

CONTINUED

RELATIONSHIP BETWEEN COMPANY PERFORMANCE AND REMUNERATION POLICY

SHAREHOLDING

OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL

DIRECTORS’ REPORT

GR ENGINEERING SERVICES LIMITED Annual Report 2018