ABN 12 121 542 738
2014
ANNUAL
REPORT
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ChAirmAN’s Letter
DireCtors’ report
AuDitor’s iNDepeNDeNCe DeCLArAtioN
CoNsoLiDAteD stAtemeNt oF proFit or Loss
AND other CompreheNsiVe iNCome
CoNsoLiDAteD stAtemeNt oF FiNANCiAL positioN
CoNsoLiDAteD stAtemeNt oF CAsh FLows
CoNsoLiDAteD stAtemeNt oF ChANges iN equity
Notes to the FiNANCiAL stAtemeNts
DireCtors’ DeCLArAtioN
iNDepeNDeNt AuDitor’s report
CorporAte goVerNANCe stAtemeNt
ADDitioNAL AsX iNFormAtioN
CorporAte DireCtory
1
5
21
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24
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69
70
72
82
84
ChaiRman’S lEttER
Dear Shareholder
It is with pleasure that I present to you GR Engineering Services Limited’s (GR Engineering or the Company) Annual
Report for the financial year ended 30 June 2014 (FY14).
Although a challenging year in many respects, FY14 was also a rewarding period during which the Company continued to
benefit from the implementation of its overseas growth strategy, successfully executed work involving the application of
the Company’s renowned process engineering capability to iron ore processing and importantly, secured future growth
opportunities through its diversification into the oil and gas industry.
A prime example of the successful implementation of the Company’s international growth strategy is Wolf Minerals
(UK) Limited’s Hemerdon Tungsten Project in England. With a value of approximately $140 million this Engineering,
Procurement and Construction (EPC) contract is the largest project undertaken by GR Engineering to date. Site access at
Hemerdon was granted in February 2014 and I am pleased to report that this project is running on budget and on time.
In addition, the Company continues to manage the construction of the Syama gold processing facility in Mali. This project
is executed on an EPCM basis demonstrating the Company’s capacity to apply EPC contracting disciplines to EPCM
engagements and to execute large overseas projects adopting a range of contracting models.
Projects completed during FY14 included the refurbishment and upgrade of an iron ore processing facility in South
Australia for one of Australia’s leading steel producers. This brownfields project was also delivered on time and on budget
and was important in establishing GR Engineering’s credentials in delivering value add process engineering solutions to the
iron ore industry.
In June 2014, the Company was awarded an EPC contract by Rio Tinto associated with the Moisture Reduction Project
for Rio Tinto’s Greater Paraburdoo operations in Western Australia, further demonstrating GR Engineering’s expertise and
growing reputation in iron ore processing.
These positive operational outcomes were achieved despite another year of difficult trading conditions. Commodity prices
have remained subdued and in some cases volatile. Combined with a persistently strong Australian dollar, these factors
have contributed to a contraction in investment by miners generally and gold producers in particular. It is therefore
important to the long term growth of GR Engineering that it continues to apply its services to a wide range of
commodities in a range of jurisdictions and to seek merger and acquisition opportunities which meet the
Company’s investment criteria.
Such an acquisition was completed in April 2014 with the purchase of the Upstream Production
Solutions business (UPS). With approximately 125 employees, UPS is a leading independent
provider of specialist operations and maintenance and well management services to the
growing oil and gas sector across Australia and south-east Asia. The acquisition of UPS
will enable the Company to diversify its sector exposure while preserving the group’s
technical base. I would like to take this opportunity to welcome all employees
of Upstream Production Solutions into the GR Engineering group and I look
forward to being a part of that business’s development in coming years.
GR ENGiNEERiNG SERviCES LimiTED
ANNUAL REPORT 2014
1
ChaiRman’S lEttER
During FY14, GR Engineering completed 13 studies and as at 30 June was engaged on 14 studies of which 5 related to
overseas projects. These studies relate to a range of commodities including gold, manganese, copper, silver, bauxite, tin,
nickel and iron ore.
In presenting GR Engineering’s FY13 Annual Report I took great pride in advising that the Company had achieved three
consecutive years without incurring a Lost Time Injury (LTI). FY14 continued on a similar vein until May 2014 when
regrettably an LTI was sustained by a site worker at Hemerdon.
This incident highlighted the fact that irrespective of the strength of our safety culture, the potential for harm or injury in
any work environment but particularly industrial work environments is ever present and we must strive to manage work
practices and safety attitudes to the smallest of detail.
During FY14 the Company generated consolidated group revenue of $114.2 million a decrease of $0.5 million or 0.4%
against FY13. Despite relatively flat revenue, careful project management and cost reduction measures implemented
prior to the commencement of the year resulted a Profit Before Tax result of $16.8 million dollars, an increase of $5.3
million or 46.1% over FY 13. This result was assisted by a one off Gain on Acquisition of $3.04 million associated with the
acquisition of UPS.
As at 30 June 2014, GR Engineering held cash and receivables of $50.5 million, net of trade creditors and remained
virtually debt free. In March 2014, the Company was successful in renegotiating its bank guarantee facility resulting
in a doubling of its bonding capacity to $30 million and more importantly, more favourable terms in relation to security
requirements resulting in approximately $15 million in additional free cash.
Having regard to these factors and the Company’s financial performance in FY14, your Directors have resolved to declare a
fully franked dividend of 4.0 cents per share bringing the full year payment to 7.0 cents per share. The Record Date for this
dividend is 16 September 2014 and the Payment Date is 30 September 2014.
Your Board of Directors remains focused on overseeing the continuing development of the Company’s overseas growth
strategy, the pursuit of contract opportunities across a wide range of commodities, the preservation of a strong Balance
Sheet and above all ensuring that policies, procedures and practices for the safety and protection of our employees are
stringently adhered to.
Finally I would like to express my gratitude to my fellow Board members for their valued insight and support throughout
the year and to recognise the efforts of entire GR Engineering workforce, including our colleagues at UPS. To our valued
clients, may I take this opportunity to also thank you for your business and support throughout FY14.
JOE mARiO PAUL RiCCiARDO
executive Chairman
2
continued 56%
46%
eBitDA
FY14 $17.2 million
pBt
FY14 $16.8 million
89%
NpAt
FY14 14.2 million
88%
eps
FY14 9.4 cents
246%
Cash flow from operations
FY14 $18.7 million
GR ENGiNEERiNG SERviCES LimiTED
ANNUAL REPORT 2014
3
Upstream Production Solutions
is a leading provider of products
and services to the australian and
international Oil & Gas industry.
4
DiRECtORS’ REPORt
Your Directors present their report together with the financial statements of GR Engineering Services Limited
(“GR Engineering” or “Company”) for the financial year 1 July 2013 to 30 June 2014 and the independent
auditor’s report thereon.
The names of the Company’s Directors in office during the financial year ended 30 June 2014 and until the date
of this report are as below. Directors were in office for this entire period unless otherwise stated.
DIRECTORS
Geoffrey (Geoff) Michael JONES
(Managing Director)
Joseph Mario Paul RICCIARDO
(Executive Chairman)
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 28 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 year the Company’s activities have been the provision of high quality process engineering
design and construction services to the mining and mineral processing industry. On 23 April 2014,
the Company’s wholly owned subsidiary, Upstream Production Solutions Pty Ltd, completed the
acquisition of Production Solutions, a business engaged in delivering operations and maintenance
and well management services to the oil and gas industry.
DIVIDENDS PAID DURING THE YEAR
• Fully franked dividend of 3.00 cents per share paid on 1 October 2013
• Dividend of 3.00 cents per share franked to 40% paid on 28 March 2014
• Subsequent to 30 June 2014, a fully franked dividend of 4.0 cents
per share was recommended by the Directors to be paid on
30 September 2014.
GR ENGiNEERiNG SERviCES LimiTED
ANNUAL REPORT 2014
5
DiRECtORS’ REPORt
REVIEW OF OPERATIONS
The financial year ended 30 June 2014 saw the continuation of market conditions and sentiments experienced by the
mining industry in FY13. Faced with ongoing volatility in commodity prices and a persistently strong Australian dollar,
producers continued their focus on reducing operating costs and applying higher approval thresholds to investment
cases resulting in an overall reduction in capital investment.
Despite this difficult trading environment, GR Engineering was able to produce solid and consistent financial and
operational outcomes during FY14. This was predominantly the result of the greater contribution of overseas revenue,
a greater contribution to revenue by the iron ore sector, the successful execution of EPCM engagements, the winning
of repeat business and through the acquisition of the Upstream Production Solutions business.
It is pleasing to note that these outcomes arose from the roll out of the Company’s growth strategy being to pursue
growth through geographical expansion, to seek opportunities involving iron ore and subject to satisfying the Company’s
investment criteria, to pursue growth through acquisitions.
A prime example of the successful implementation of the Company’s geographical expansion strategy is the Hemerdon
Tungsten/Tin Project in the United Kingdom. The value of this Engineering, Procurement and Construction (EPC) project
is approximately $140 million and is the largest project undertaken by GR Engineering to date.
As at the date of this report, the Company had deployed senior project management, engineering staff and construction
personnel to England as the Hemerdon Tungsten/Tin Project commences construction and to coordinate the logistics
associated with the procurement of goods and services from countries worldwide. Together with locally sourced
contractors and employees, site management is dedicated to ensuring that the project continues to run on time and
on budget and above all to ensure the occupational health and safety of all personnel.
It is disappointing to note that in May 2014, after nearly four consecutive years of Lost Time Injury (LTI) free days, a
subcontractor’s employee engaged on the Hemerdon site sustained such an injury. This incident highlighted the need
to ensure that safety considerations precede and permeate every function performed by the Company and that this
mindset is continually reinforced to all personnel.
Additional overseas activity included the construction management of the Syama gold processing facility in Mali. This
project is being executed on an Engineering, Procurement and Construction Management (EPCM) basis demonstrating
GR Engineering’s capacity to apply EPC contracting disciplines to a range of contracting models on both domestic and
overseas projects.
An important aspect of GR Engineering’s growth strategy is to secure work involving iron ore processing. It is therefore
particularly pleasing to report that during FY14 work was completed on the upgrade of an iron ore processing facility
in South Australia for a leading Australian steel producer. This project brought with it particular operational challenges
as the work performed required meticulous scheduling to minimise disruption to the operation of the wider facility. In
addition the project was executed on a tight schedule to coordinate the progress of work with regular plant shutdowns.
Notwithstanding these challenges, this project was also completed on time and on budget. GR Engineering’s exemplary
safety performance on site was officially recognised with the award by the client of two Safety Excellence Awards.
The Company’s credentials in the provision of engineering and construction expertise to the iron ore industry were
further recognised with the award in June 2014 of an EPC contract by Rio Tinto to implement the Moisture Reduction
Project at its Greater Paraburdoo operations in Western Australia.
In October 2013, the Company was awarded Preferred Contractor status by MZI Resources Limited (MZI) for the
design and construction of the circa $55 million Keysbrook mineral sands processing facility in Western Australia.
Early engineering works for this project were commenced in FY14, with GR Engineering expecting to enter into an EPC
contract for full project design and construction upon, amongst other things, MZI making a final investment decision.
GR Engineering remains alert to potential project opportunities but recognises that economic conditions remain subdued
in the industry. With an experienced workforce, excellent reputation and strong balance sheet it remains well poised to
avail itself of opportunities arising from the eventual improvement in these conditions.
During FY14 the Company completed 13 studies of which 5 related to overseas projects. These studies related to
a range of minerals, precious metals, base metals and bulk commodities. As at 30 June 2014 GR Engineering was
involved on a further 14 studies also involving a wide range of commodities and many jurisdictions.
6
continued In April 2014 GR Engineering’s wholly owned subsidiary, Upstream Production Solutions Pty Ltd completed the
acquisition of Production Solutions a leading independent provider of specialist operations and maintenance and
well management services to the oil and gas sector in Australia and across South-East Asia. These assets now
form GR Engineering’s oil and gas services business unit, Upstream Production Solutions.
This acquisition involved integrating the UPS business, including its 125 employees, IT and financial reporting systems
into the GR Engineering group. This was largely achieved by 23 April 2014 when operational control of the business
transferred to GR Engineering. Since then UPS has generated operational and financial outcomes consistent with
budget expectations.
Looking ahead, GR Engineering intends to provide UPS’s experienced management team with the financial resources
and engineering expertise to pursue the many opportunities presented by the Australian and South-East Asian oil
and gas sector.
FINANCIAL POSITION
GR Engineering generated revenue of $114.2 million and net operating cash flow of $18.8 million for the year ended
30 June 2014.
During the year the Company paid $9.0 million in dividends and held cash, including term deposits to secure contingent
liabilities under its bank guarantee facilities, of $37.4 million as at 30 June 2014, an increase of $2.9 million over cash
held as at the close of the previous financial year.
GROWTH STRATEGY
GR Engineering remains alert to opportunities within Australia and at the same time will continue to seek overseas
opportunities. This strategy held the Company in good stead during FY14 and has provided GR Engineering with good
visibility into FY15. Excluding any potential revenue contribution from the design and construction of the $55 million
Keysbrook mineral sands processing facility which is expected to commence in FY15, GR Engineering has approximately
$110 million in contracted revenue in FY15. This forecast revenue is predominantly the result of contributions from the
Wolf Minerals Tungsten Project in the UK and the Moisture Reduction Project at Rio Tinto’s Greater Paraburdoo Iron Ore
Operations in Western Australia.
The Company continues to pursue opportunities involving the application of its process engineering skills to the iron
ore sector, building on the results achieved in FY14.
The acquisition of the Upstream Production Solutions (UPS) business has given the Company an additional avenue
for growth and it is the Company’s intention to provide UPS with the financial and management resources needed to
pursue operations and maintenance and well management opportunities in Australia’s and South-East Asia’s growing
oil and gas sector. Upstream Production Solutions has forecast revenues of $37 million of which approximately 70%
is contracted in FY15.
GR Engineering will continue to apply the systems and disciplines developed over many years as an EPC contractor to
a wider range of contracting models including EPCM engagements with the view to further broadening its revenue base.
With a strong balance sheet, excellent market reputation and available operational capacity, GR Engineering is well
positioned to take advantage of any strengthening in Australia’s mining industry.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Increase to Bank Guarantee Facility
On 5 March 2014 the Company entered into an agreement with National Australia Bank providing for an increase in the
Company’s bank guarantee facility to $30 million secured by letters of set-off against cash term deposits equating to
25% of the amount of bank guarantees on issue at any given time.
Purchase of Production Solutions
On 13 December 2013 the Company’s wholly owned subsidiary, Upstream Production Solutions Pty Ltd entered into
a contract for the purchase of Production Solutions, a provider of specialist operations and maintenance and well
management services to the oil and gas industry. Consideration for the business was $5,750,000. The transaction
was completed on 23 April 2014.
7
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 DiRECtORS’ REPORt
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 25 August 2014, the Company declared a fully franked dividend of 4.0 cents per share, an aggregate of $6,016,318.
The Record Date of the dividend is 16 September 2014 and the proposed payment date is 30 September 2014.
BOARD OF DIRECTORS
Joe Mario Paul RICCIARDO – Executive Chairman
BAppSc (Mech Eng)
Joe co-founded GR Engineering. He is a Mechanical Engineer with over 35 years’ experience in feasibility studies,
design, construction, maintenance and operation of mineral processing facilities.
In 1986 Joe lead the founding of JR Engineering. As Managing Director, Joe successfully grew JR Engineering into a
leading engineering services provider before its sale to a major ASX listed Mining Services Group in 2001.
In 2006, Joe was instrumental in regrouping the former key executives from JR Engineering to establish GR Engineering.
Joe is a non-executive director of Mineral Resources Limited and has been on its Board since its public listing in 2006.
• Interests in ordinary shares in GR Engineering – 9,798,578
• Interests in other securities in GR Engineering – None
• Special Responsibilities – Chairman
• Directorships in other listed entities in the last 3 years:
– Mineral Resources Limited (ASX:MIN) 2006 – 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 Brumby Resources Limited, a non-executive director of Azumah
Resources Limited and a non-executive director of Energy Metals Limited.
• Interests in ordinary shares in GR Engineering – 857,949
• Interests in other securities in GR Engineering – Share Appreciation Rights – 1,669,337
• Special Responsibilities – Managing Director
• Directorships in other listed entities in the last 3 years:
– Brumby Resources Limited (ASX:BMY) 2006 – Present
– Energy Metals Limited (ASX:EME) 2008 – Present
– Azumah Resources Limited (ASX:AZM) 2009 – Present
8
continued Tony Marco PATRIZI – Executive Director
BE (Mech Eng)
Tony co-founded GR Engineering. Tony is a Mechanical Engineer with over 31 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 – None
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 Services Pty Ltd.
Barry has served as a director of a number of public companies across a range of industries. He was formerly a
non-executive 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 – 10,500,000
• Interests in other securities in GR Engineering – None
• Special Responsibilities:
– Chairman of the Remuneration and Nominations Committee
– Member of the Audit and Risk Committee
– Non-Executive Director
• Directorships in other listed entities in the last 3 years:
– Dacian Gold Limited (ASX:DCN) 2012 – Present
9
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 DiRECtORS’ REPORt
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
Peter John HOOD – Non-Executive Director
BE(Chem), MAusIMM, FlChemE, FAICD
Peter is a Chemical Engineer and has over 40 years’ experience in the resource and energy sectors.
He was formerly the chief executive officer of Coogee Chemicals and then oil and gas operator, Coogee Resources.
Prior to that he served in senior management and project development roles for WMC Ltd in nickel and gold production.
Peter has considerable board experience and is currently Chairman of Matrix Composites and Engineering Ltd, President
of the Australian Chamber of Commerce and Industry, Immediate Past President of the Chamber of Commerce and
Industry of Western Australia and former Chairman of Apollo Gas Ltd.
• 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
MEETINGS OF DIRECTORS
The number of Meetings of the Board of Directors held during the year ended 30 June 2014 and the number attended by
each director are as follows:
FULL mEETiNGS OF DiRECTORS
Eligible
Attended
Joe Ricciardo
Geoff Jones
Tony Patrizi
Terrence Strapp
Peter Hood
Barry Patterson
10
10
10
10
10
10
9
10
10
10
9
5
Meetings of the Audit and Risk Committee were held on 21 August 2014 and 21 February 2014. These meetings were
attended by the Chairman of the Audit and Risk Committee Terrence Strapp, members of the Audit and Risk Committee
Barry Patterson and Peter Hood, and Chief Financial Officer Joe Totaro. No formal meeting of the Remuneration and
Nominations Committee was held during the year ended 30 June 2014.
10
continued OPTIONS
As at the date of this report, there were no unissued ordinary shares of GR Engineering under option. The following options
which had been issued to Geoff Jones pursuant to the Company’s Share Option Plan were cancelled by a resolution of
shareholders on 12 November 2013:
Date of Expiry
Exercise Price
No. Under Option
Grant Date
19/04/2011
19/04/2011
19/04/2011
19/04/2014
19/04/2015
19/04/2016
$1.50
$1.80
$2.10
No shares were issued during the financial year ended 30 June 2014 due to the exercise of options.
SHARE APPRECIATION RIGHTS
As at the date of this report, Share Appreciation Rights granted are as follows:
Grant Date
12/11/2013
12/11/2013
12/11/2013
12/11/2013
vesting &
Exercise Date
30/06/2015
30/06/2016
30/06/2017
30/06/2018
Exercise Price
Nil
Nil
Nil
Nil
500,000
750,000
750,000
Quantity
727,273
432,433
296,297
213,334
For full particulars of the Share Appreciation Rights issued to Directors as remuneration, refer to the Remuneration Report.
PERFORMANCE RIGHTS
As at the date of this report, the unissued ordinary shares of GR Engineering which are the subject of unvested
Performance Rights are as follows:
vesting Date
No. Performance Rights
Expiry Date
Exercise Price
21/09/2015
04/102015
31/03/2016
13/05/2016
31/03/2017
31/03/2018
31/03/2019
1,730,000
25,000
127,500
50,000
127,500
127,500
127,500
21/09/2015
04/10/2015
31/03/2016
13/05/2016
31/03/2017
31/03/2018
31/03/2019
-
-
-
-
-
-
-
The Performance Rights holders do not have any right to participate in any issues of shares or other interests in the
Company or any other entity.
No shares were issued during the financial year ended 30 June 2014 due to the vesting of performance rights.
INDEMNIFYING OFFICERS OR AUDITORS
During the financial year, the Company paid insurance premiums relating to contracts insuring the directors and company
secretary against liability which may arise in connection with them acting as Director or Company Secretary, to the extent
permitted under the Corporations Act. The contract of insurance prohibits disclosure of the nature of the liability and the
amount of the premium.
11
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 DiRECtORS’ REPORt
LEGAL PROCEEDINGS
No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings
to which the Company is a party for the purpose of taking responsibility on behalf of the Company 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 2014 fees amounting to $31,171 were paid to Deloitte Touche Tohmatsu for non-audit
services including taxation advice.
AUDITOR’S INDEPENDENCE DECLARATION
The Auditor’s Independence Declaration for the year ended 30 June 2014 has been reviewed and can be found at
page 21 of the annual financial report.
ENVIRONMENTAL ISSUES
In conducting its business, the Company is required to obtain permits and licences from relevant state environment
protection authorities. It is of paramount importance to management and the Board of Directors that as well as operating
within its own Environmental Policies, the Company observes all relevant licences in good standing. The Company has
not been made aware of any areas of non-compliance in this regard.
The Company is not subject to the Energy Efficiency Opportunities Act 2006 as it does not meet the energy use
threshold specified in Section 10 of that legislation. The Company’s energy consumption will be monitored and will
register under the act if and when the energy use threshold is exceeded.
REMUNERATION REPORT – AUDITED
The remuneration report details the amount and nature of the remuneration for the Company’s key management personnel.
Directors
Geoff Jones
Managing Director
Joe Ricciardo
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
General Manager – EPC
Joe Totaro
Chief Financial Officer and Company Secretary
Rodney Schier
Engineering Manager
Paul Newling
General Manager – EPCM
Unless otherwise stated the named persons held their current position for the whole financial year and since the end
of the financial year. At the Company’s 2013 Annual General Meeting, 99% of eligible shareholders voted in favour of
the remuneration report. No specific comments were made regarding the remuneration report at the meeting.
12
continued REMUNERATION POLICY
The Company’s remuneration policy has been designed to attract and retain high calibre key employees whose personal
interests are aligned with success and growth of the Company and therefore shareholders.
This will be achieved by:
• Staying abreast of labour market forces thereby ensuring remuneration offered by the Company is competitive
and remains so through a process of annual review.
• Devising performance based remuneration programmes.
• Utilising the Company’s Equity Incentive Plan and/or Employee Share Option Plan.
NON-EXECUTIVE DIRECTORS
The Company’s policy is to remunerate non-executive directors according to market rates and to reflect the time
dedicated to their position and special responsibilities involved.
GR Engineering’s Constitution provides that the Directors shall be paid out of the funds of the Company by way of
remuneration for services such sums as may from time to time be determined by the Company in General Meeting, to be
divided among the Directors in such proportions as they shall from time to time agree or in default of agreement, equally.
Directors are encouraged to hold shares in the Company to align their personal objectives with the growth and
profitability of the Company.
EXECUTIVE DIRECTORS
Executive Director pay and reward is comprised of a competitive base salary. To the extent that executive directors
are substantial shareholders in the Company, their personal objectives are aligned with the performance of the Company.
SENIOR EXECUTIVES
Executive remuneration is comprised of a competitive base salary, 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. Remuneration paid to directors and executives is valued at cost to the
Company. Options, performance rights and share appreciation rights
are valued using the Black Scholes and Monte Carlo methods.
13
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 DiRECtORS’ REPORt
EMPLOYMENT DETAILS OF MEMBERS OF KEY MANAGEMENT PERSONNEL
Name and Title
Contract Details
incentives
Non
Salary
Cash
Shares/
Units
Options/
Rights
Fixed
Salary
Total
Joe Ricciardo
Executive Chairman
Termination: 3 months notice
by the Company or employee
Tony Patrizi
Executive Director
Termination: 3 months notice
by the Company or employee
Barry Patterson
Non-Executive Director
Terrence Strapp
Non-Executive Director
Peter Hood
Non-Executive Director
Geoff Jones
Managing Director
David Sala Tenna
General Manager
– EPC
Joe Totaro
Company Secretary/
Chief Financial Officer
By rotation and re-election
By rotation and re-election
By rotation and re-election
Fixed term to 30 June 2018.
Termination: 6 months
notice by the Company
and 3 months notice by
the employee
Termination: 3 months notice
by the Company or employee
Termination: 3 months notice
by the Company or employee
Rodney Schier
Engineering Manager
Termination: 3 months notice
by the Company or employee
Paul Newling
General Manager
– EPCM
Termination: 3 months notice
by the Company or employee
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
48.1%
51.9%
100%
-
-
-
100%
100%
100%
100%
100%
100%
1.4%
98.6%
100%
The terms and conditions upon which key employees are employed are set out in contracts of employment. These contracts
provide for minimum notice periods prior to termination and, in some cases restrictive covenants upon termination.
The Company can terminate the contract at any time in the case of serious misconduct and termination payments may be
paid in lieu of notice period.
14
continued REMUNERATION DETAILS FOR THE YEAR ENDED 30 JUNE 2014 – BOARD OF DIRECTORS
Short Term
Benefits
Cash
Salary &
Fees
$
Non Cash
Payments
**
$
Post Employment
Benefits
Equity
Based Payments
Sub Total
$
Super-
annuation
$
Other*
$
Equity
$
Options
$
Total
$
Perfor-
mance
Based
%
443,580
25,996
469,576
38,787
50,000
157,762
716,125
29.0%
Executive Directors
Joe Ricciardo ***
2014
2013
70,663
312,642
Tony Patrizi ****
8,203
9,173
78,866
6,536
321,815
25,712
2014
2013
287,616
14,017
301,633
318,864
14,085
332,949
17,774
25,712
Geoff Jones
457,225
24,075
481,300
17,774
2014
2013
Non-Executive Directors
Barry Patterson
2014
2013
57,000
88,373
Terrence Strapp *****
2014
2013
57,000
59,739
Peter Hood
2014
2013
57,000
60,807
TOTAL DiRECTORS
-
-
-
-
-
-
57,000
88,373
57,000
59,739
57,000
60,807
5,272
-
5,272
5,377
5,272
5,472
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
85,402
347,527
319,407
358,661
0.0
0.0
0.0
0.0
366,098
96,904
962,076
48.1%
-
-
-
-
-
-
-
-
-
-
-
-
-
62,272
88,373
62,272
65,116
62,272
66,279
2014
986,504
46,295
1,032,799
57,900
-
366,098
96,904
1,553,701
2013
1,284,005
49,254
1,333,259
101,060
50,000
-
157,762
1,642,081
*
**
“Other” amounts relate to performance based bonus payments, as approved by the board
“Non-Cash payments” refer to reportable fringe benefits (fuel for personal vehicles and novated leases)
*** Reduction in benefits due to change in role to part-time Executive Chairman
**** Reduction in benefits due to overall reduction in salaries
***** Paid to SDG Nominees Pty Ltd, an entity controlled by Terrence Strapp
0.0
0.0
0.0
0.0
0.0
0.0
29.8
12.7
15
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 DiRECtORS’ REPORt
REMUNERATION DETAILS FOR THE YEAR ENDED 30 JUNE 2014 – EXECUTIVES
Short Term
Benefits
Cash
Salary &
Fees
$
Non Cash
Payments
**
$
Post Employment
Benefits
Equity
Based Payments
Super-
annua-
tion
$
Sub Total
$
Other*
$
Equity
$
Options
$
Total
$
Senior Executives
David Sala Tenna – General manager – EPC
2014
2013
343,224
356,862
7,551
5,968
350,775
17,774
362,830
28,253
Joe Totaro – Company Secretary & Chief Financial Officer
2014
2013
224,855
213,849
9,582
8,185
234,437
20,799
222,034
19,246
Rodney Schier – Engineering manager
2014
2013
261,468
278,934
8,288
8,574
269,756
24,185
287,508
25,104
Paul Newling – General manager EPCm
2014
2013
449,224
5,067
454,291
17,774
181,838
933
182,771
8,353
TOTAL SENiOR ExECUTivES
2014
1,278,771
30,488
1,309,259
80,532
2013
1,031,483
23,660
1,055,143
80,956
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,497
1,068
6,497
1,068
-
-
-
-
-
-
-
-
-
-
Perfor-
mance
Based
%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
1.4%
0.6%
368,549
391,083
255,236
241,280
293,941
312,612
478,562
192,192
1,396,288
1,137,167
0.5%
0.1%
GRAND TOTAL
2014
2,265,275
76,783
2,342,058
138,432
-
372,595
96,904
2,949,989
15.9%
2013
2,315,488
72,914
2,388,402
182,016
50,000
1,068
157,762
2,779,248
7.5%
*
**
“Other” amounts relate to performance based bonus payments, as approved by the board
“Non-Cash payments” refer to reportable fringe benefits (fuel for personal vehicles and novated leases)
LONG TERM INCENTIVES
Employee Share Option Plan
The Company has established an employee share option plan (ESOP). The Company may offer options to subscribe for
shares in the Company 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).
16
continued As at the commencement of the year ended 30 June 2014, the Company had 2,000,000 options on issue to its Managing
Director, Geoff Jones. Key elements of these options are summarised in the following table.
Grant Date
vesting Date
Date of Expiry
Exercise Price
Number
19/04/2011
19/04/2011
19/04/2011
19/04/2013
19/04/2014
19/04/2014
19/04/015
19/04/2015
19/04/2016
$1.50
$1.80
$2.10
500,000
750,000
750,000
Fair value at
Grant Date
$0.2450
$0.2400
$0.2600
Shareholders approved the cancellation of these options at the Annual General Meeting held on 12 November 2013.
At that Annual General Meeting, shareholders approved the granting of Share Appreciation Rights to Managing Director,
Geoff Jones. Key elements of these Share Appreciation Rights are summarised in the Equity Incentive Plan section below.
Equity Incentive Plan
The GR Engineering Services Limited Equity Incentive Plan (Plan) was adopted by the Board on 28 March 2012.
In accordance with the Listing Rules of the Australian Securities Exchange (ASX), shareholder approval of the Plan
was obtained at the Company’s Annual General Meeting held on 30 November 2012. 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. At the discretion of the Board, all eligible employees of the Company or eligible consultants may participate
in the Plan. Non-executive directors are not eligible to participate in the Plan.
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 Company and therefore direct participation in the benefits of future
Company 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 Company and
vesting upon the satisfaction of certain performance conditions; and
• Share Appreciation Rights (SARs), being rights to receive a future payment in shares, equal to the amount of increase in
market value of one share in the Company 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).
During the year ended 30 June 2014 510,000 Performance Rights were issued and 270,000 were forfeited in accordance
with the terms and conditions of the Plan. 2,315,000 Performance Rights were on issue as at 30 June 2014.
Grant Date
vesting Date
Date of Expiry
Exercise Price
Number
Fair value
11/09/2012
04/10/2012
13/05/2013
30/04/2014
30/04/2014
30/04/2014
30/04/2014
21/09/2015
21/09/2015
04/10/2015
04/10/2015
13/05/2016
13/05/2016
31/03/2016
31/03/2016
31/03/2017
31/03/2017
31/03/2018
31/03/2018
31/03/2019
31/03/2019
Nil
Nil
Nil
Nil
Nil
Nil
Nil
1,730,000
25,000
50,000
127,500
127,500
127,500
127,500
$0.637
$0.689
$0.459
$0.571
$0.511
$0.458
$0.410
The Performance rights issued or lapsed in the current financial year do not relate to key management personnel.
17
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 DiRECtORS’ REPORt
LONG TERM INCENTIVES (continued)
Equity Incentive Plan (continued)
The following share-based payment compensation relates to Share Appreciation Rights issued to directors and
senior management:
Name
Grant Date
vesting
Date
Date
Exercised
Num-
ber of
Shares
issued
on vest-
ing Date
Exercise
Price
$
Quantity
Fair
value
$
% of compen-
sation for
the year
consisting
of perfor-
mance rights
Geoff
Jones
12/11/2013
30/06/2014
30/06/2014
407,949
12/11/2013
30/06/2015
12/11/2013
30/06/2016
12/11/2013
30/06/2017
12/11/2013
30/06/2018
Nil
Nil
Nil
Nil
Nil
1,600,000
$0.1774
38.0
727,273
$0.1827
432,433
$0.1761
296,297
$0.1619
213,334
$0.1508
RELATIONSHIP BETWEEN COMPANY PERFORMANCE AND REMUNERATION POLICY
The table below sets out summary information about the Company’s earnings and movements in shareholder wealth
for the 5 years to 30 June 2014:
Revenue ($000’s)
128,217
142,512
152,838
114,695
114,183
2010
2011
2012
2013
2014
Net profit before tax ($000’s)
Net profit after tax ($000’s)
Share Price at year end ($)
Dividend ($000’s)
EPS (cents)
Diluted EPS (cents)
24,427
17,836
N/A
15,000
14.90
14.90
29,247
21,098
1.95
19,000
16.76
16.75
19,858
13,115
0.90
12,000
8.74
8.74
11,476
7,539
0.46
9,000
5.03
4.97
16,787
14,164
0.70
9,000
9.44
9.26
For comparative purposes, the number of shares assumed to be on issue for the financial year ended 30 June 2010
is 120 million. This period is prior to a share split performed at the time the Company listed in April 2011, which
resulted in the issue of a further 30 million shares.
Messrs Ricciardo and Patrizi, both Executive Directors of the Company, a Non-Executive Director, two senior
executives and four key employees hold significant shareholdings in the Company. As a result the performance
of the Company and the personal and financial interest of its executive and management team are aligned.
The Company has issued 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 Company 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.
18
continued
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:
Balance at the start
of the year
Received
as part of
remuneration
Additions/
other
Disposals/
other
Balance at
the end of
the year
2014
Ordinary shares
Joe Ricciardo
Tony Patrizi
Barry Patterson
Terry Strapp
Peter Hood
Geoff Jones
David Sala Tenna
Joe Totaro
Rodney Schier
Paul Newling
2013
Ordinary shares
Joe Ricciardo
Tony Patrizi
Barry Patterson
Terry Strapp
Peter Hood
Geoff Jones
David Sala Tenna
Joe Totaro
Rodney Schier
Paul Newling
9,798,578
9,795,000
10,500,000
300,000
500,000
400,000
13,825,000
9,500,000
8,100,000
-
-
-
-
-
-
-
-
-
80,000
-
407,949
50,000
-
-
-
-
-
-
-
-
62,718,578
407,949
130,000
9,025,000
9,025,000
10,500,000
300,000
500,000
150,000
13,825,000
9,000,000
8,100,000
-
60,425,000
-
-
-
-
-
-
-
-
-
-
-
773,578
770,000
-
-
-
250,000
-
500,000
-
-
2,293,578
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,798,578
9,795,000
10,500,000
380,000
500,000
857,949
13,825,000
9,500,000
8,100,000
-
63,256,527
9,798,578
9,795,000
10,500,000
300,000
500,000
400,000
13,825,000
9,500,000
8,100,000
-
62,718,578
19
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 DiRECtORS’ REPORt
OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
During the year ended 30 June 2014 the consolidated entity leased office space at 71-73 Daly Street from Ashguard
Pty Ltd. Directors of the consolidated entity, namely Joe Ricciardo, Tony Patrizi, and Barry Patterson, each have a
non controlling interest in Ashguard Pty Ltd. Total payments to Ashguard Pty Ltd in the year ended 30 June 2014
amounted to $300,847 including GST (2013: $302,626). The balance payable at 30 June 2014 is $22,570 (2013: $21,934).
In previous financial years the consolidated entity was provided engineering services by Optiro Pty Ltd, a company
in which Joe Ricciardo and Tony Patrizi each hold non-controlling interests. Total payments to Optiro Pty Ltd in the
year ended 30 June 2014 amounted to Nil (2013: $35,876). The balance payable at 30 June 2014 is Nil (2013: Nil).
During the year ended 30 June 2014 the consolidated entity provided engineering services and procurement of
materials for Crushing Services International Pty Ltd (a subsidiary of Mineral Resources Limited), a company in which
Joe Ricciardo is a non-executive director. The total amount invoiced to Crushing Services International Pty Ltd in the
year ended 30 June 2014 was $153,274 including GST (2013: $823,801). The balance outstanding at 30 June 2014
is Nil (2013: $46,640).
During the year ended 30 June 2014 the consolidated entity provided engineering services and procurement of materials
for PIHA Pty Ltd (a subsidiary of Mineral Resources Limited), a company in which Joe Ricciardo is a non-executive
director. The total amount invoiced to PIHA Pty Ltd in the year ended 30 June 2014 was $80,300 including GST
(2013: $56,482). The balance outstanding at 30 June 2014 is $48,180 (2013: Nil).
During the year ended 30 June 2014 the consolidated entity provided engineering services and procurement of materials
for Azumah Resources Limited, a company in which Geoff Jones is a non-executive director. The total amount invoiced
to Azumah Resources Limited in the year ended 30 June 2014 was $26,848 including GST (2013: $64,272). The balance
outstanding at 30 June 2014 is $19,750 (2013: 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.
CORPORATE GOVERNANCE
The Directors of the Company are committed to the highest standards of corporate governance in all elements of
the business of the Company including internal control, ethics, risk functions, policies and internal and external audit.
The Company’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
Company’s activities develop in size, nature and scope.
Please refer to the Corporate Governance Statement contained in this report.
This Report of the Directors, incorporating the Remuneration Report, is signed in accordance with a resolution of
the Board of Directors.
This directors’ report is signed in accordance with a resolution of directors made pursuant to s.298(2) of the
Corporations Act 2001.
On behalf of the Directors
GEOFF JONES
Managing Director
26 August 2014
20
continued aUDitOR’S inDEPEnDEnCE
DEClaRatiOn
21
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 COnSOliDatED StatEmEnt OF PROFit OR
lOSS anD OthER COmPREhEnSiVE inCOmE
FOR THE YEAR ENDED 30 JUNE 2014
REvENUE
Other income
ExPENSES
Employee benefits expense
Superannuation expense
Depreciation and amortisation expense
Workers compensation expense
Equity based payments
Finance costs
Direct materials and subcontractor costs
Accountancy and audit fees
Marketing
Bad debts
Occupancy
Administration
Profit before income tax expense
Income tax expense
Profit after income tax expense for the year attributable
to the owners of GR Engineering Services Limited
Other comprehensive income for the year,
net of income tax
Items that may be reclassified subsequently to profit or loss:
Fair value loss on available for sale financial assets
Exchange differences on translating foreign operations
Other comprehensive income for the year, net of income tax
Total comprehensive income for the year attributable to
the owners of GR Engineering Services Limited
Note
5
6
7
7
7
10
8
22
Consolidated
2014
$
2013
$
114,182,880
114,695,369
4,410,411
1,788,315
(29,320,690)
(35,457,023)
(2,252,373)
(1,639,164)
(185,877)
(759,823)
(81,029)
(2,673,625)
(974,792)
(274,952)
(451,187)
(104,036)
(60,993,558)
(57,557,030)
(430,849)
(62,017)
(146,340)
(1,951,214)
(3,983,782)
(260,222)
(36,461)
(906,933)
(1,975,472)
(4,335,971)
16,786,575
11,475,980
(2,622,989)
(3,936,509)
14,163,586
7,539,471
(142,852)
(414,488)
(557,340)
-
10,233
10,233
13,606,246
7,549,704
Profit attributable to owners of the parent
14,163,586
7,539,471
Total comprehensive income attributable to the owners
of the parent
13,606,246
7,549,704
Basic earnings per share
Diluted earnings per share
The accompanying notes form part of these Financial Statements.
32
32
Cents
9.44
9.26
Cents
5.03
4.97
22
COnSOliDatED StatEmEnt
OF FinanCial POSitiOn
AS AT 30 JUNE 2014
ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Financial assets
Intangible assets
Deferred tax
Total non-current assets
TOTAL ASSETS
LiABiLiTiES
Current liabilities
Trade and other payables
Borrowings
Income tax
Provisions
Unearned revenue
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Total non-current liabilities
Total liabilities
NET ASSETS
EQUiTY
Issued capital
Reserves
Retained profits
TOTAL EQUiTY
Note
Consolidated
2014
$
2013
$
9
10
11
12
10
13
14
15
8
16
17
8
18
19
17
18
20
21
22
32,193,955
16,218,685
34,674,786
29,003,868
2,355,304
738,393
648,345
158,752
69,962,438
46,029,650
3,891,099
2,040,901
601,704
3,647,664
13,231,115
2,671,952
-
-
546,612
1,627,036
10,727,980
17,530,103
80,690,418
63,559,753
21,609,153
5,208,885
287,966
1,889,743
4,873,459
3,818,279
370,725
2,247,969
3,195,243
10,146,686
32,478,600
21,169,508
247,412
1,407,585
1,654,997
537,632
661,861
1,199,493
34,133,597
22,369,001
46,556,821
41,190,752
28,785,355
28,501,548
670,930
752,254
17,100,536
11,936,950
46,556,821
41,190,752
23
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 COnSOliDatED StatEmEnt
OF CaSh FlOWS
FOR THE YEAR ENDED 30 JUNE 2014
The accompanying notes form part of these Financial Statements.
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Income tax paid
Interest received
Consolidated
2014
$
2013
$
Note
114,143,457
125,095,913
(93,543,588)
(118,907,104)
(3,070,409)
(2,177,460)
1,264,723
1,491,003
Net cash flows from operating activities
9
18,794,183
5,502,352
Cash flows from investing activities
Purchase of property, plant and equipment
(Investment)/divestment in term deposits for project security
Net cash outflow on acquisition of business
Investment in financial assets
Net cash flows used in investing activities
Cash flows from financing activities
Payment of finance lease liabilities
Dividends paid
Net cash flows from/(used in) financing activities
Net increase/(decrease) 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
(43,946)
(724,141)
13,026,944
(13,231,115)
34
(5,750,000)
(56,804)
-
-
7,176,194
(13,955,256)
(358,129)
(301,394)
(9,000,000)
(9,000,000)
(9,358,129)
(9,301,394)
16,612,248
(17,754,298)
16,218,685
33,861,242
(636,978)
111,741
Cash and cash equivalents at end of period
9
32,193,955
16,218,685
The accompanying notes form part of these Financial Statements.
24
COnSOliDatED StatEmEnt
OF ChanGES in EQUitY
FOR THE YEAR ENDED 30 JUNE 2014
issued
capital
$
Share
Option
Reserve
$
Perfor-
mance
Rights
Reserve
$
Share
Apprecia-
tion Rights
Reserve
$
Foreign
Currency
Translation
Reserve
$
investment
Revaluation
Reserve
$
Retained
Earnings
$
Total
$
Balance as at 30 June 2012
28,501,548
290,834
-
-
-
-
-
-
-
-
-
Profit for the period
Other Comprehensive income
for the period
Total Comprehensive income
for the period
Dividends
Share based payments
-
-
-
-
-
157,762
293,425
Balance as at 30 June 2013
28,501,548
448,596
293,425
Profit for the period
Other Comprehensive income
for the period
Total Comprehensive income
for the period
Dividends
Issue of shares
-
-
-
-
283,807
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 13,397,479 42,189,861
-
7,539,471
7,539,471
10,233
-
-
10,233
10,233
-
7,539,471
7,549,704
-
-
- (9,000,000)
(9,000,000)
-
-
451,187
10,233
- 11,936,950 41,190,752
-
- 14,163,586 14,163,586
-
(414,488)
(142,852)
-
(557,340)
-
-
(283,807)
(414,488)
(142,852) 14,163,586 13,606,246
-
-
-
- (9,000,000)
(9,000,000)
-
-
-
-
-
759,823
Share based payments
-
96,904
296,821
366,098
Balance as at 30 June 2014
28,785,355
545,500
590,246
82,291
(404,255)
(142,852) 17,100,536 46,556,821
The accompanying notes form part of these Financial Statements.
25
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014
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.
Its registered office and principal place of business are:
Registered office
Principal place of business
179 Great Eastern Highway
BELMONT WA 6104
179 Great Eastern Highway
BELMONT WA 6104
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 25 August 2014.
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
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 2013.
AASB 2011-4 ‘Amendments
to Australian Accounting
Standards to Remove Individual
Key Management Personnel
Disclosure Requirements’
This standard removes the individual key management personnel disclosure
requirements in AASB 124 ‘Related Party Disclosures’. As a result the consolidated
entity only discloses the key management personnel compensation in total and for
each of the categories required in AASB 124. In the current year the individual key
management personnel disclosure previously required by AASB 124 (Note 23 and 27
in the 30 June 2013 financial statements) is now disclosed in the remuneration report
due to an amendment to Corporations Regulations 2001 issued in June 2013.
AASB 2012-2 ‘Amendments
to Australian Accounting
Standards – Disclosures –
Offsetting Financial Assets
and Financial Liabilities’
The consolidated entity has applied the amendments to AASB 7 ‘Disclosures –
Offsetting Financial Assets and Financial Liabilities’ for the first time in the current
year. The amendments to AASB 7 require entities to disclose information about
rights of offset and related arrangements (such as collateral posting requirements)
for financial instruments under an enforceable master netting agreement or
similar arrangement. The amendments have been applied retrospectively. As
the consolidated entity does not have any offsetting arrangements in place,
the application of the amendments does not have any material impact on the
consolidated financial statements.
AASB 2012-9 ‘Amendment
to AASB 1048 arising from
the Withdrawal of Australian
Interpretation 1039’
This standard makes amendment to AASB 1048 ‘Interpretation of Standards’
following the withdrawal of Australian Interpretation 1039 ‘Substantive Enactment
of Major Tax Bills in Australia’. The adoption of this amending standard does not
have any material impact on the consolidated financial statements
AASB CF 2013-1 ‘Amendments
to the Australian Conceptual
Framework’ and AASB
2013-9 ‘Amendments
to Australian Accounting
Standards – Conceptual
Framework, Materiality and
Financial Instruments’ (Part A
Conceptual Framework)
This amendment has incorporated IASB’s Chapters 1 and 3 Conceptual Framework
for Financial Reporting as an Appendix to the Australian Framework for the
Preparation and Presentation of Financial Statements. As a result the Australian
Conceptual Framework now supersedes the objective and the qualitative
characteristics of financial statements, as well as the guidance previously available
in Statement of Accounting Concepts SAC 2 ‘Objective of General Purpose Financial
Reporting’. The adoption of this amending standard does not have any material
impact on the consolidated financial statements.
26
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014
AASB 10 ‘Consolidated
Financial Statements’ and
AASB 2011-7 ‘Amendments
to Australian Accounting
Standards arising from the
consolidation and Joint
Arrangements standards’
AASB 10 replaces the parts of AASB 127 ‘Consolidated and Separate Financial
Statements’ that deal with consolidated financial statements and Interpretation 112
‘Consolidation – Special Purpose Entities’. AASB 10 changes the definition of control
such that an investor controls an investee when a) it has power over an investee, b)
it is exposed, or has rights, to variable returns from its involvement with the investee,
and c) has the ability to use its power to affect its returns. All three of these criteria
must be met for an investor to have control over an investee. Previously, control was
defined as the power to govern the financial and operating policies of an entity so as
to obtain benefits from its activities. The adoption of this amending standard does
not have any material impact on the consolidated financial statements.
AASB 11 ‘Joint Arrangements’
and AASB 2011-7
‘Amendments to Australian
Accounting Standards arising
from the consolidation and
Joint Arrangements standards’
AASB 11 replaces AASB 131 ‘Interests in Joint Ventures’, and the guidance
contained in a related interpretation, Interpretation 113 ‘Jointly Controlled
Entities – Non-Monetary Contributions by Venturers’, has been incorporated in
AASB 128 (as revised in 2011). AASB 11 deals with how a joint arrangement of
which two or more parties have joint control should be classified and accounted for.
The adoption of this amending standard does not have any material impact on the
consolidated financial statements.
AASB 12 ‘Disclosure of
Interests in Other Entities’ and
AASB 2011-7 ‘Amendments
to Australian Accounting
Standards arising from the
consolidation and Joint
Arrangements standards’
AASB 13 ‘Fair Value
Measurement’ and AASB 2011-
8 ‘Amendments to Australian
Accounting Standards arising
from AASB 13’
AASB 12 is a new disclosure standard and is applicable to entities that have interests
in subsidiaries, joint arrangements, associates and/or unconsolidated structured
entities. In general, the application of AASB 12 has resulted in more extensive
disclosures in the consolidated financial statements
The consolidated entity has applied AASB 13 for the first time in the current year.
AASB 13 establishes a single source of guidance for fair value measurements and
disclosures about fair value measurements. AASB 13 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly
transaction in the principal (or most advantageous) market at the measurement
date under current market conditions. Fair value under AASB 13 is an exit price
regardless of whether that price is directly observable or estimated using another
valuation technique. Also, AASB 13 includes extensive disclosure requirements.
The adoption of this amending standard does not have any material impact on the
consolidated financial statements.
AASB 2012-10
‘Amendments to Australian
Accounting Standards –
Transition Guidance and
Other Amendments’
This standard amends AASB 10 and various Australian Accounting Standards
to revise the transition guidance on the initial application of those Standards.
This standard also clarifies the circumstances in which adjustments to an entity’s
previous accounting for its involvement with other entities are required and the
timing of such adjustments. The adoption of this amending standard does not
have any material impact on the consolidated financial statements.
AASB 119 ‘Employee Benefits’
(2011) and AASB 2011-10
‘Amendments to Australian
Accounting Standards arising
from AASB 119 (2011)’
In the current year, the consolidated entity has applied AASB 119 (as revised in 2011)
‘Employee Benefits’ and the related consequential amendments for the first time.
The adoption of this amended standard does not have any material impact on the
consolidated financial statements.
Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been
early adopted.
27
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014
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 2014.
Standard/interpretation
AASB 9 ‘Financial Instruments’ and the relevant
amending standards.
Final IFRS 9 ‘Financial Instruments’ has been issued
by IASB which has a mandatory effective date for
annual periods beginning on or after 1 January 2018.
AASB 1031 ‘Materiality’ (2013)
AASB 2012-3 ‘Amendments to Australian
Accounting Standards – Offsetting Financial Assets
and Financial Liabilities’
AASB 2013-3 ‘Amendments to AASB 136 – Recoverable
Amount Disclosures for Non-Financial Assets’
AASB 2013-4 ‘Amendments to Australian Accounting
Standards – Novation of Derivatives and Continuation
of Hedge Accounting’
AASB 2013-5 ‘Amendments to Australian Accounting
Standards – Investment Entities’
AASB 2013-9 ‘Amendments to Australian Accounting
Standards – Conceptual Framework, Materiality and
Financial Instruments’
AASB 2014-1 ‘Amendments to Australian Accounting
Standards’ Part A , B and C
AASB 2014-1 ‘Amendments to Australian Accounting
Standards’ Part D
AASB 2014-1 ‘Amendments to Australian Accounting
Standards’ Part E
INT 21 ‘Levies’
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
01/01/2018
01/01/2014
30/06/2019
30/06/2015
01/01/2014
30/06/2015
01/01/2014
30/06/2015
01/01/2014
30/06/2015
01/01/2014
30/06/2015
01/01/2014
30/06/2015
01/07/2014
30/06/2015
01/01/2016
30/06/2017
01/01/2015
01/01/2014
30/06/2016
30/06/2015
At the date of authorisation of the financial statements, the following International Accounting Standards Board (‘IASB’)
Standard, relevant to the Company, were also in issue but not yet effective, although Australian equivalent Standards
and Interpretations have not yet been issued:
Standard/interpretation
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
IFRS 15 ‘Revenue from Contracts with Customers’
01/01/2017
30/06/2018
The impact of these recently issued or amended standards and interpretations have not been determined as yet by the
consolidated entity.
28
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 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.
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.
29
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Principles of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities (including
structured entities) controlled by the Company and its subsidiaries. Control is achieved when the Company:
• 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 Company 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 Company 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 Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights
in an investee are sufficient to give it power, including:
• the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other
vote holders;
• potential voting rights held by the Company, other vote holders or other parties;
• rights arising from other contractual arrangements; and
• any additional facts and circumstances that indicate that the Company 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 Company obtains control over the subsidiary and ceases when the
Company 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 Company gains control until the date when the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and
to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company
and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into
line with the Group’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members
of the Group are eliminated in full on consolidation.
Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Managing Director of the consolidated entity.
Foreign currency translation
The financial report is presented in Australian dollars, which is GR Engineering Services Limited’s functional and
presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of
the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognised in profit or loss.
30
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 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 average
exchange rates, which approximate the rate at the date of the transaction, for the period. 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 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.
31
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
income tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the
statement of profit or loss because of items of income or expense that are taxable or deductible in other years and items
that are never taxable or deductible. The consolidated entity’s liability for current tax is calculated using tax rates that
have been enacted or substantively enacted by the end of the reporting period.
Deferred income tax is provided for on all temporary differences at the reporting date between the tax bases of assets
and liabilities and their carrying amounts for the financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences:
• except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss; and
• in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests
in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in the foreseeable future.
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.
32
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 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.
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.
33
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, plant and equipment
Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
– Property, plant and equipment – over 2.5 to 20 years
The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable.
For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the
cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed
the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.
The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value using a 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.
34
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 Trade and other payables
These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the
financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not
discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
Borrowings
All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue
costs associated with the borrowing.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using
the effective interest method.
Gains and losses are recognised in the profit or loss when the liabilities are derecognised as well as through the
amortisation process.
Provisions
Provisions are recognised when the consolidated entity has a present obligation (legal or constructive) as a result of
a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation.
Where the consolidated entity expects some or all of a provision to be reimbursed the reimbursement is recognised
as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is
presented in the statement of profit or loss net of any reimbursement.
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, long service
leave, and sick leave when it is probable that settlement will be required and they are capable of being measured reliably.
Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the
remuneration rate expected to apply at the time of settlement.
Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future
cash outflows to be made by the 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.
35
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 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.
36
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business
combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets
transferred by the consolidated entity, liabilities incurred by the consolidated entity to the former owners of the acquire
and the equity instruments issued by the consolidated entity in exchange for control of the acquiree. Acquisition-related
costs are recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value,
except that:
• deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and
measured in accordance with AASB 112 ‘Income Taxes’ and AASB 119 ‘Employee Benefits’ respectively;
• liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment
arrangements of the consolidated entity entered into to replace share-based payment arrangements of the acquire are
measured in accordance with AASB 2 ‘Share-based Payment’ at the acquisition date; and
• assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Non-current Assets Held for
Sale and Discontinued Operations’ are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling
interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any)
over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after
reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds
the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of
the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a
bargain purchase gain.
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.
37
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 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.
Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference
to the stage of completion of the contract activity at the reporting date, measured based on the proportion of contract
costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be
representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the
extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated
reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable.
Contract costs are recognised as expenses in the period in which they are incurred. Where construction contracts
are still in the completion stage, they are included as work in progress.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as
an expense immediately.
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, nominally being 3% of the project costs. This percentage has been assessed based
on management’s best estimate.
NOTE 4. OPERATING SEGMENTS
Operating segments have been identified on the basis of internal reports of the consolidated entity that are regularly
reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their
performance. The chief operating decision maker has been identified as the Managing Director. On a regular basis,
the board receives financial information on a company basis similar to the financial statements presented in the
financial report, to manage and allocate their resources.
The Managing Director has chosen to classify the operations of the consolidated entity by reference to presence
in an industry. The segments identified on this basis are “mineral processing” and “oil and gas”.
Segment revenues and results
The following table shows the revenue and results of the consolidated entity summarised under these segments.
Segment revenue
Mineral processing
Oil and gas
Total revenue
Segment profit before tax
Mineral processing
Oil and gas
Total profit before tax
2014
$
2013
$
109,945,226
114,695,369
4,237,654
-
114,182,880
114,695,369
2014
$
2013
$
14,353,376
11,475,980
2,433,199
-
16,786,575
11,475,980
Segment revenue reported above represents revenue generated from external customers. There were no inter-segment
sales in the current year (2013: Nil).
38
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 Segment assets and liabilities
Segment assets
Mineral processing
Oil and gas
Total assets
Depreciation and amortisation
Mineral processing
Oil and gas
Total depreciation and amortisation
Segment liabilities
Mineral processing
Oil and gas
Total liabilities
Geographical information
2014
$
2013
$
67,084,984
63,559,753
13,605,434
-
80,690,418
63,559,753
2014
$
2013
$
1,009,408
974,792
629,756
-
1,639,164
974,792
2014
$
2013
$
29,541,239
22,369,001
4,592,358
-
34,133,597
22,369,001
The following table shows the revenue from external customers of the consolidated entity summarised by location.
Revenue
Australia
Overseas
Total revenue
Non-current assets
2014
$
2013
$
46,871,453
86,124,889
67,311,427
28,570,480
114,182,880
114,695,369
All non-current assets of the consolidated entity are held in Australia.
information about major customers
During the financial year two customers individually provided more than 10% of total revenue each for the
consolidated entity.
39
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 5. REVENUE
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
Net gain on disposal of inventories
Subsidies and grants
Interest revenue
Gain on bargain purchase of business
Other revenue
Other income
NOTE 7. EXPENSES
Consolidated
2014
$
2013
$
109,945,226
114,695,369
4,237,654
-
114,182,880
114,695,369
143,706
(21,183)
-
495
94,891
368
99,882
836
1,264,723
1,491,003
3,035,549
-
(12,879)
101,335
4,410,411
1,788,315
Profit before income tax includes the following specific expenses:
Finance costs
Interest and leasing charges on finance leases
81,029
104,036
Employee benefits
Employee benefits expense excluding superannuation
Defined contribution superannuation expense
Total employee benefits
29,320,690
35,457,023
2,252,373
2,673,625
31,573,064
38,130,648
40
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 NOTE 8.
INCOME TAX EXPENSE
Major components of income tax expense for the years ended 30 June 2014 and 2013 are:
income tax recognised in the Consolidated statement of profit or loss
Current income
Current income tax charge
Foreign tax on Gold Ridge project
Foreign tax on other projects
Consolidated
2014
$
2013
$
5,215,891
3,913,457
-
-
884
-
Adjustments in respect of current income tax of previous years
(2,503,708)
(182,692)
Deferred income tax
Relating to origination and reversal of temporary differences
Adjustments in respect of previous deferred income tax
Income tax expense reported in statement of profit or loss
income tax recognised in statement of changes in equity
Deferred income tax
Revaluation of shares held in Mutiny Gold Limited
Income tax expense reported in equity
A reconciliation of income tax expense applicable to accounting profit
before income tax at the statutory income tax rate to income tax expense
at the consolidated entity’s effective income tax rate for the years ended
30 June 2014 and 2013 is as follows:
Accounting profit before income tax
At the statutory income tax rate of 30% (2013: 30%)
(767,821)
204,860
678,627
-
2,622,989
3,936,509
61,222
61,222
-
-
16,786,575
11,475,980
5,035,973
3,442,794
(610,670)
163,550
22,767
-
Non-deductible expenses
Foreign tax on projects
Add:
Less:
Adjustments in respect of previous current income tax
(1,890,726)
(293,555)
Expenses in relation to Gold Ridge project
Derecognition of prior year overseas losses
Adjustments in respect of previous deferred income tax
-
623,720
65,645
-
-
-
At effective income tax rate of 15.6% (2013: 34.3%)
2,622,989
3,936,509
Income tax expense reported in statement of profit or loss
2,622,989
3,936,509
41
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 8.
INCOME TAX EXPENSE (continued)
Deferred income tax
Deferred income tax at 30 June relates to the following:
Deferred income tax assets
Accrued employee entitlements
Accrued superannuation
Accrued audit fees
Leasing
Section 40/880 deduction
Provision for long service leave
Provision for doubtful debts
Provision for project returns
Provision for warranty
Construction Industry long service leave
Carry forward tax losses – overseas subsidiaries
Unrealised foreign exchange (gain)/loss
Lease termination
Payables – Upstream Production Solutions subsidiary
Accrued employee entitlements – Upstream Production Solutions subsidiary
Consolidated
2014
$
2013
$
40,993
16,079
19,500
(43,585)
347,080
215,625
12,750
(54,987)
133,001
268,745
64,654
198,558
-
-
-
28,810
804,968
582,683
-
-
10,125
9,965
94,806
547,490
61,222
6,587
65,645
(30,452)
-
-
-
-
Shares in listed entity (Mutiny Gold Limited)
1,759,218
1,641,044
Deferred income tax liabilities
Prepayments
Accrued interest
Other accrued income
Assets capitalised for tax
Net trade debtors – Upstream Production Solutions subsidiary
Prepayments – Upstream Production Solutions subsidiary
Customer contracts – Upstream Production Solutions subsidiary
Plant and equipment – Upstream Production Solutions subsidiary
(3,577)
-
(20,426)
(13,991)
(8)
(720)
(72,906)
(634)
(1,094,298)
(20,037)
(17)
-
-
-
-
-
(1,212,606)
(14,008)
Net deferred tax asset
546,612
1,627,036
Current tax asset and liabilities
Current tax liabilities
Income tax payable
1,889,743
2,247,969
42
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 NOTE 9. CURRENT ASSETS – CASH AND CASH EqUIVALENTS
Cash on hand
Cash at bank
Cash on deposit
The fair value of cash and cash equivalents is $32,193,955 (2013: $16,218,685).
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.
The consolidated entity also holds $5,239,431 (2013: $18,266,375) in term deposits
to secure bank guarantees for current projects. This amount is included in trade and
other receivables Note 10.
A summary of all cash including term deposits is as follows:
Cash at bank and on hand
Cash on deposit (Current asset)
Term deposits held for project security (Current asset)
Term deposits held for project security (Non-current asset)
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
Consolidated
2014
$
2013
$
42,129
64,612
12,651,826
8,154,073
19,500,000
8,000,000
32,193,955
16,218,685
12,693,955
8,218,685
19,500,000
8,000,000
1,348,332
5,035,260
3,891,099
13,231,115
37,433,386
34,485,060
12,693,955
8,218,685
19,500,000
8,000,000
32,193,955
16,218,685
43
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 9. CURRENT ASSETS – CASH AND CASH EqUIVALENTS (continued)
Reconciliation from the net profit after tax to the net cash flow from operations
Net Profit after tax
14,163,586
7,539,471
Consolidated
2014
$
2013
$
Non-cash items
Depreciation and amortisation
Profit/loss on sale of asset
Share based employee payments
Net foreign exchange (gain)/loss
Gain on bargain purchase of business
Acquisition of shares as consideration for services
Changes in assets and liabilities
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventories
(Increase)/decrease in deferred tax asset
(Decrease)/increase in trade and other payables
(Decrease)/increase in provisions
(Decrease)/increase in tax liabilities
Increase in unearned income
1,639,164
974,792
21,183
759,823
222,490
(3,035,549)
(748,974)
-
451,187
(101,508)
-
-
(3,087,761)
(3,552,479)
4,545
(69,882)
(89,195)
205,644
15,494,222
(5,043,128)
855,255
(500,696)
(358,226)
1,553,405
(7,046,380)
4,045,546
Net cash from operating activities
18,794,183
5,502,352
NON-CASH TRANSACTiONS
During the year ended 30 June 2014 and year ending 30 June 2013, 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 2014 the consolidated entity acquired Nil equipment under finance leases
(2013: $773,155).
44
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 NOTE 10. TRADE AND OTHER RECEIVABLES
Current assets – trade and other receivables
Trade receivables
Less: Provision for impairment of receivables
Term deposits held for project security*
Other receivables
Accrued revenue
Consolidated
2014
$
2013
$
33,250,872
23,783,582
-
-
33,250,872
23,783,582
1,348,332
5,035,260
25,266
50,316
156,134
28,892
34,674,786
29,003,868
Non-current assets – trade and other receivables
Term deposits held for project security*
3,891,099
13,231,115
* The consolidated entity holds $5,239,431 (2013: $18,266,375) in term
deposits to secure bank guarantees for current projects. The term deposits
remain in place for the life of the projects so although they are cash balances
they are classified as other receivables. Of this amount, $3,891,099 relates
to bank guarantees to be returned in the 2015-2016 financial year so this
term deposit is classed as non-current (2013: $13,231,115).
A summary of term deposits held for project security is as follows:
Term deposits held for project security (Current asset)
Term deposits held for project security (Non-current asset)
Impairment of receivables
Movements in the provision 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 $146,340
(2013: $906,933).
Past due but not impaired
Customers with balances past due but without provision for impairment
of receivables amount to $1,290,828 as at 30 June 2014 ($956,129 as at
30 June 2013).
1,348,332
5,035,260
3,891,099
13,231,115
5,239,431
18,266,375
-
-
-
1,525,000
(1,525,000)
-
45
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 10. TRADE AND OTHER RECEIVABLES (continued)
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
NOTE 12. CURRENT ASSETS – OTHER
Consolidated
2014
$
836,366
454,462
-
1,290,828
2013
$
749,127
65,649
141,353
956,129
643,800
648,345
1,711,504
2,355,304
-
648,345
Prepayments
738,393
158,752
NOTE 13. NON-CURRENT ASSETS – PROPERTY,
PLANT AND EqUIPMENT
Plant and equipment – at cost
Less: Accumulated depreciation
Plant and equipment under lease
Less: Accumulated depreciation
4,263,196
3,837,995
(2,902,953)
(2,255,340)
1,360,243
1,582,655
2,171,734
2,438,573
(1,491,076)
(1,349,276)
680,658
1,089,297
2,040,901
2,671,952
46
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set
out below:
Plant &
Equipment
Under Lease
$
638,749
773,155
-
(14,386)
Plant &
Equipment
$
Total
$
1,553,138
2,191,887
684,784
1,457,939
(3,083)
14,386
(3,083)
-
(308,221)
(666,570)
(974,791)
1,089,297
1,582,655
2,671,952
-
-
(73,413)
2,351
86,696
400,000
(5,400)
(2,351)
86,696
400,000
(78,813)
-
(337,577)
(701,357)
(1,038,934)
680,658
1,360,243
2,040,901
Balance at 1 July 2012
Additions
Disposals, Write off of assets
Transfers in/(out)
Depreciation expense
Balance at 30 June 2013
Additions
Transferred on acquisition of business
Disposals, Write off of assets
Transfers in/(out)
Depreciation expense
Balance at 30 June 2014
NOTE 14. FINANCIAL ASSETS
Available for sale financial assets held at fair value
Shares in listed entities
Consolidated
2014
$
601,704
Shares held in the listed entity Mutiny Gold Limited are measured at fair value at the end of the reporting period.
The number of shares held at 30 June 2014 is 23,142,464 (30 June 2013: Nil).
NOTE 15. INTANGIBLE ASSETS
Customer contracts acquired on purchase of business
Less: Accumulated amortisation
Total intangible assets
Consolidated
2014
$
4,247,863
(600,199)
3,647,664
2013
$
-
2013
$
-
-
-
The acquisition of the business of Production Solutions included seven projects in place at the acquisition date 23 April
2014. The fair value of each contract is amortised over the life of that contract. The lives of the seven contracts range
between 2 and 4 years.
47
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 16. CURRENT LIABILITIES – TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
GST payable
Other payables
8,930,874
3,699,455
7,861,469
282,737
2,912,194
472,709
1,904,616
753,984
21,609,153
5,208,885
Refer to Note 24 for further information on financial instruments.
Trade payables are non-interest bearing and are normally settled on 30 day terms.
The net of GST payable and GST receivable is remitted to the appropriate tax body on a monthly basis.
NOTE 17. BORROWINGS
Current liabilities – borrowings
Lease liability
Non-current liabilities – borrowings
Lease liability
Refer to Note 24 for further information on financial instruments.
Total secured liabilities
The total secured liabilities (current and non-current) are as follows:
Lease liability
Assets pledged as security
The lease liabilities are effectively secured as the rights to the leased assets,
recognised in the statement of financial position, revert to the lessor in the
event of default.
287,966
370,725
247,412
537,632
535,378
908,357
48
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014
NOTE 18. PROVISIONS
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
Consolidated
2014
$
2013
$
2,190,232
1,156,934
2,683,227
1,942,275
-
96,034
4,873,459
3,195,243
1,156,934
1,212,153
2,359,555
1,324,654
(1,326,257)
(1,379,873)
2,190,232
1,156,934
1,942,275
2,080,502
952,652
(138,227)
(211,700)
-
2,683,227
1,942,275
96,034
579,984
-
(291,868)
(96,034)
(192,082)
-
96,034
1,407,585
661,861
661,861
478,500
788,472
183,361
(42,748)
-
1,407,585
661,861
49
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 19. CURRENT LIABILITIES – UNEARNED REVENUE
Unearned Revenue
Contracts in progress
Progress billings
Construction costs to date plus recognised profits
NOTE 20. EqUITY – ISSUED CAPITAL
Ordinary shares – fully paid
Opening balance
Additional shares issued
Ordinary shares – fully paid
Ordinary shares
Consolidated
2014
$
2013
$
3,818,279
10,146,686
144,540,271
101,485,086
140,721,992
91,338,400
3,818,279
10,146,686
Consolidated
Consolidated
2014
Shares
2013
Shares
2014
$
2013
$
150,000,000
150,000,000
28,501,548
28,501,548
407,949
-
283,807
-
150,407,949
150,000,000
28,785,355
28,501,548
Fully paid ordinary shares carry one vote per share and carry a right to dividends.
Changes to the Corporation Law abolished the authorised capital and par value concept in relation to share capital from
1 July 1998. Therefore, the consolidated entity does not have a limited amount of authorised capital and issued shares
do not have a par value.
Options
As at 30 June 2014 there were Nil unissued ordinary shares of the consolidated entity under option (as at 30 June 2013:
2,000,000). A total of 2,000,000 options previously issued to Geoff Jones, Managing Director, were cancelled on
12 November 2013.
Share appreciation rights
As at 30 June 2014, the consolidated entity had issued a total of 1,669,337 share appreciation rights to Geoff Jones,
Managing Director, as part of the consolidated entity’s equity incentive plan (as at 30 June 2013: Nil).
Number of shares under
share appreciation rights
727,273
432,433
296,297
213,334
Grant date
12/11/2013
12/11/2013
12/11/2013
12/11/2013
vesting date
Exercise price
30/06/2015
30/06/2016
30/06/2017
30/06/2018
$0.50
$0.50
$0.50
$0.50
Performance
condition share
price targets
$0.72
$0.86
$1.04
$1.24
50
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 Performance rights
As at 30 June 2014, the consolidated entity had issued a total of 2,315,000 performance rights
(as at 30 June 2013: 2,075,000):
Number of performance rights
1,730,000
25,000
50,000
127,500
127,500
127,500
127,500
NOTE 21. EqUITY – RESERVES
Foreign currency reserve
Performance rights reserve
Share options reserve
Share appreciation rights reserve
Investment revaluation reserve
Foreign currency reserve
Balance at beginning of year
Additional amounts recognised
Balance at end of year
Grant date
11/09/2012
04/10/2012
13/05/2013
30/04/2014
30/04/2014
30/04/2014
30/04/2014
Expiry date
Exercise price
21/09/2015
04/10/2015
13/03/2016
31/03/2016
31/03/2017
31/03/2018
31/03/2019
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Consolidated
2014
$
2013
$
(404,255)
10,233
590,246
293,425
545,500
448,596
82,291
(142,852)
-
-
670,930
752,254
10,233
(414,488)
(404,255)
-
10,233
10,233
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
Balance at end of year
293,425
-
296,821
293,425
590,246
293,425
The above performance rights reserve relates to performance rights granted by the consolidated entity to its employees
under its equity incentive plan.
51
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 21. EqUITY – RESERVES (continued)
Share options reserve
Balance at beginning of year
Additional amounts recognised
Balance at end of year
Consolidated
2014
$
2013
$
448,596
290,834
96,904
157,762
545,500
448,596
The above share options reserve relates to share options granted 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
-
366,098
(283,807)
82,291
-
-
-
-
The above share appreciation rights reserve relates to share appreciation rights granted by the consolidated entity to its
employees under its equity incentive plan.
Investment revaluation reserve
Balance at beginning of year
Additional amounts recognised
Less tax effect of additional amount recognised
Balance at end of year
-
(204,074)
61,222
(142,852)
-
-
-
-
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 2014.
NOTE 22. EqUITY – RETAINED PROFITS
Retained profits at the beginning of the financial year
Profit after income tax expense for the year
Payment of dividends
Retained profits at the end of the financial year
11,936,950
13,397,479
14,163,586
7,539,471
(9,000,000)
(9,000,000)
17,100,536
11,936,950
52
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 NOTE 23. EqUITY – DIVIDENDS
Dividends
Year ended 30 June 2013
Dividend paid 28 September 2012 (fully franked at 30% tax rate):
4 cents per ordinary share
Dividend paid 18 March 2013 (fully franked at 30% tax rate):
2 cents per ordinary share
Year ended 30 June 2014
Dividend paid 1 October 2013 (fully franked at 30% tax rate):
3 cents per ordinary share
Dividend paid 28 March 2014 (franked to 40%):
3 cents per ordinary share
Consolidated
2014
$
2013
$
6,000,000
3,000,000
4,500,000
4,500,000
9,000,000
9,000,000
On 25 August 2014, the consolidated entity declared a fully franked dividend of 4.0 cents per share, an aggregate
of $6,016,318. The Record Date of the dividend is 16 September 2014 and the proposed payment date is
30 September 2014.
Franking credits
Franking credits available for subsequent financial years based on a tax rate of 30%
1,696,720
(79,040)
NOTE 24. FINANCIAL INSTRUMENTS
Financial risk management objectives
The consolidated entity is exposed to risks in relation to its financial instruments. These risks include market risk
(consisting of foreign currency risk and interest rate risk), credit risk, liquidity risk and equity risk.
A summary of the consolidated entity’s financial instruments are as follows:
Financial Assets
Cash and cash equivalents
Trade and other receivables
Available for sale securities
Total financial assets
Financial Liabilities
Trade and other payables
Finance lease liabilities
Total financial liabilities
32,193,955
16,218,685
38,565,885
42,234,983
601,704
-
71,361,544
58,453,668
21,609,153
5,208,885
535,378
908,357
22,144,531
6,117,242
53
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 24. 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.
United States Dollars
Great British Pounds
Assets
Liabilities
2014
AUD $
2013
AUD $
2014
AUD $
2013
AUD $
153,001
950,002
3,447,343
50,906
3,600,344
1,000,908
-
-
-
-
-
-
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 cash balances in United States dollars, these balances are translated into Australian dollars
at the prevailing exchange rate at 30 June 2014 of AUD $1 = USD $0.94 (2013: AUD $1 = USD $0.91).
The following table details the consolidated entity’s sensitivity to a 10% increase and decrease in the value of the
Australian dollar against the United States dollar :
Effect of increase in exchange rate
Effect of decrease in exchange rate
Change in
exchange
rate
Effect
on profit
before tax
Effect on
equity
Change in
exchange
rate
Effect
on profit
before tax
Effect on
equity
%
$
$
%
$
$
2014
Unrealised
Exchange
Gain/Loss
2013
Unrealised
Exchange
Gain/Loss
10%
Increase
10%
Increase
(13,839)
(13,839)
(86,364)
(86,364)
10%
Decrease
10%
Decrease
16,967
16,967
105,556
105,556
54
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 The consolidated entity holds cash balances in Great British pounds, these balances are translated into Australian dollars
at the prevailing exchange rate at 30 June 2014 of AUD $1 = GBP £0.55 (2013: AUD $1 = GBP £0.60).
The following table details the consolidated entity’s sensitivity to a 10% increase and decrease in the value of the
Australian dollar against the Great British pound:
Effect of increase in exchange rate
Effect of decrease in exchange rate
Change in
exchange
rate
Effect
on profit
before tax
Effect on
equity
Change in
exchange
rate
Effect
on profit
before tax
Effect on
equity
%
$
$
%
$
$
2014
Unrealised
Exchange
Gain/Loss
2013
Unrealised
Exchange
Gain/Loss
Interest rate risk
10%
Increase
10%
Increase
(313,393)
(313,393)
(2,014)
(2,014)
10%
Decrease
10%
Decrease
383,040
383,040
8,851
8,851
The board has considered the consolidated entity’s exposure to interest rate risk by analysing the effect on profit and
equity of an interest rate increase or decrease of one percentage point in the following table:
Effect of increase in interest rate
Effect of decrease in interest rate
increase
in interest
rate
Effect
on profit
before tax
Effect on
equity
Decrease
in interest
rate
Effect
on profit
before tax
Effect on
equity
%
$
$
%
$
$
Consolidated
– 2014
Interest revenue
Interest expense
Consolidated
– 2013
Interest revenue
Interest expense
Equity price risk
1
1
1
1
396,849
396,849
-
-
396,849
396,849
321,643
321,643
(3,130)
(3,130)
318,513
318,513
1
1
1
1
(396,849)
(396,849)
-
-
(396,849)
(396,849)
(321,643)
(321,643)
3,130
3,130
(318,513)
(318,513)
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 2014 would have been unaffected as the equity investments are classified as
available-for-sale and no investments were disposed of or impaired; and
– other comprehensive income for the year ended 30 June 2014 would increase by $30,085 (2013: Nil) as a result of an
increase of 5% in equity prices, and decrease by $30,085 (2013: Nil) as a result of a decrease of 5% in equity prices.
55
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 24. 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.
Remaining contractual maturities
Weighted
average
interest rate
%
Less than
6 months
$
6 to 12
months
$
Over
12 months
$
Total
$
-
21,609,153
-
-
21,609,153
9.23
134,646
153,320
247,412
535,378
21,743,799
153,320
247,412
22,144,531
-
5,208,885
-
-
5,208,885
9.14
178,937
5,387,822
191,788
191,788
537,632
908,357
537,632
6,117,242
Non-derivatives
Consolidated – 2014
Non-interest bearing
Trade payables
Interest-bearing – fixed rate
Lease liability
Total non-derivatives
Consolidated – 2013
Non-interest bearing
Trade payables
Interest-bearing – fixed rate
Lease liability
Total non-derivatives
56
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 Fair value of financial instruments
The fair values of financial assets and liabilities, together with their carrying amounts in the statement of financial
position, for the consolidated entity are as follows:
Consolidated
Assets
Cash at bank
Cash on deposit
Trade receivables
Available for sale securities
Liabilities
Trade payables
Lease liability
Carrying
amount
$
12,693,955
19,500,000
38,565,885
601,704
2014
2013
Fair value
$
Carrying
amount
$
Fair value
$
12,693,955
8,218,685
19,500,000
8,000,000
8,218,685
8,000,000
38,565,885
42,234,983
42,234,983
601,704
-
-
71,361,544
71,361,544
58,453,668
58,453,668
21,609,153
21,609,153
5,208,885
5,208,885
535,378
535,378
908,357
908,357
22,144,531
22,144,531
6,117,242
6,117,242
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.
57
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 24. FINANCIAL INSTRUMENTS (continued)
Fair value of financial instruments (continued)
The financial assets and liabilities of the consolidated entity are classified into these categories below:
Level 1
$
Level 2
$
Level 3
$
Total
$
Fair value hierarchy – 2014
Financial assets
Trade receivables
Available for sale securities
Financial liabilities
Trade payables
Lease liability
Fair value hierarchy – 2013
Financial assets
Trade receivables
Available for sale securities
Financial liabilities
Trade payables
Lease liability
-
38,565,885
601,704
-
601,704
38,565,885
-
-
-
-
-
-
-
-
-
21,609,153
535,378
22,144,531
42,234,983
-
42,234,983
5,208,885
908,357
6,117,242
-
-
-
-
-
-
-
-
-
-
-
-
38,565,885
601,704
39,167,589
21,609,153
535,378
22,144,531
42,234,983
-
42,234,983
5,208,885
908,357
6,117,242
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.
The consolidated entity holds available for sale equity securities of $601,704 (30 June 2013: Nil) which are classified
as fair value hierarchy Level 1, in which fair values are based on quoted prices in active markets. There have been no
transfers of fair value hierarchy levels during the period.
During the period, net losses of $204,074 (30 June 2013: Nil) have been included in other comprehensive income and
are reported in the investment revaluation reserve.
58
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 NOTE 25. KEY MANAGEMENT PERSONNEL DISCLOSURES
Directors
The following persons were directors of GR Engineering Services Limited during the financial year:
Executive directors
Joe Ricciardo
Executive Chairman
Tony Patrizi
Geoff Jones
Executive Director
Managing Director
Non-executive directors
Barry Patterson
Non-Executive Director
Terrence Strapp
Non-Executive Director
Peter Hood
Non-Executive Director
Other key management personnel
The following persons also had the authority and responsibility for planning, directing and controlling the major activities
of the consolidated entity, directly or indirectly, during the financial year:
Executives
David Sala Tenna
General Manager EPC Division
Paul Newling
General Manager EPCM Division
Joe Totaro
Chief Financial Officer and Company Secretary
Rodney Schier
Engineering Manager
Remuneration of key management personnel
Information on remuneration of key management personnel is set out in the Remuneration Report in the Directors Report.
The aggregate compensation made to key management personnel of the consolidated entity is set out below:
Short-term benefits
Post employment benefits
Share based payments
Other
Consolidated
2014
$
2013
$
2,342,058
2,388,402
138,432
469,499
-
182,016
158,830
50,000
2,949,989
2,779,248
59
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014
NOTE 26. REMUNERATION OF AUDITORS
During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tohmatsu, the
auditor of the company, and its network firms:
Audit services – Deloitte Touche Tohmatsu
Audit or review of the financial statements
Other services – Deloitte Touche Tohmatsu
Tax compliance
Other services
NOTE 27. CONTINGENT LIABILITIES
Consolidated
2014
$
2013
$
126,123
126,141
26,171
5,000
30,576
18,500
157,294
175,217
The consolidated entity has bank guarantees in place as at 30 June 2014 of $19,522,985 (2013: $20,368,209).
support project performance in favour of certain clients of the consolidated entity. The facility has an approved limit
of $30,000,000. The facility is secured by a fixed and floating charge over all the assets of the consolidated entity and
letters of set-off against cash term deposits equating to 25% of the amount of bank guarantees on issue at any given
time. The amount of bank guarantees issued under this facility at 30 June 2014 is $18,856,451 (2013: $7,012,655).
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 $666,534 (2013: $860,862). The amount of bank guarantees issued under this facility
at 30 June 2014 is $666,534 (2013: $860,862).
The consolidated entity has a $20 million insurance bond facility with Assetinsure Pty Ltd. This facility has been utilised to
provide Wolf Minerals (UK) Limited with retention and off site materials bonds in connection with the Hemerdon Tungsten
& Tin Project. The amount of insurance bonds issued under this facility at 30 June 2014 is $13,597,040 (2013: Nil).
60
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014
NOTE 28. COMMITMENTS
The consolidated entity has leased certain of its office equipment under finance leases. The average lease term
is 3 years (2013: 3 years). The consolidated entity has options to purchase the equipment for a nominal amount at
the end of the lease terms. The consolidated entity’s obligations under finance leases are secured by the lessors’
title to the leased assets.
Finance Leases
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
Minimum lease payments
Less: future finance charges
Present value of minimum lease payments
Consolidated
2014
$
315,737
257,332
-
2013
$
425,877
574,515
-
573,069
1,000,392
(37,692)
(92,036)
535,377
908,356
The consolidated entity has operating leases that relate to leases of office buildings with lease terms of between
1 and 5 years. All operating lease contracts contain clauses for market rental reviews.
Non-cancellable Operating Lease Commitments
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
Total lease payments
NOTE 29. RELATED PARTY TRANSACTIONS
1,612,634
1,844,059
1,843,515
3,890,934
-
-
3,456,149
5,734,993
During the year ended 30 June 2014 the consolidated entity leased office space at 71-73 Daly Street from Ashguard
Pty Ltd. Directors of the consolidated entity, namely Joe Ricciardo, Tony Patrizi, and Barry Patterson, each have a non
controlling interest in Ashguard Pty Ltd. Total payments to Ashguard Pty Ltd in the year ended 30 June 2014 amounted
to $300,847 including GST (2013: $302,626). The balance payable at 30 June 2014 is $22,570 (2013: $21,934).
In previous financial years the consolidated entity was provided engineering services by Optiro Pty Ltd, a company in
which Joe Ricciardo and Tony Patrizi each hold non-controlling interests. Total payments to Optiro Pty Ltd in the year
ended 30 June 2014 amounted to Nil (2013: $35,876). The balance payable at 30 June 2014 is Nil (2013: Nil).
During the year ended 30 June 2014 the consolidated entity provided engineering services and procurement of materials
for Crushing Services International Pty Ltd (a subsidiary of Mineral Resources Limited), a company in which Joe Ricciardo
is a non-executive director. The total amount invoiced to Crushing Services International Pty Ltd in the year ended 30 June
2014 was $153,274 including GST (2013: $823,801). The balance outstanding at 30 June 2014 is Nil (2013: $46,640).
During the year ended 30 June 2014 the consolidated entity provided engineering services and procurement of materials
for PIHA Pty Ltd (a subsidiary of Mineral Resources Limited), a company in which Joe Ricciardo is a non-executive
director. The total amount invoiced to PIHA Pty Ltd in the year ended 30 June 2014 was $80,300 including GST (2013:
$56,482). The balance outstanding at 30 June 2014 is $48,180 (2013: Nil).
During the year ended 30 June 2014 the consolidated entity provided engineering services and procurement of materials
for Azumah Resources Limited, a company in which Geoff Jones is a non-executive director. The total amount invoiced
to Azumah Resources Limited in the year ended 30 June 2014 was $26,848 including GST (2013: $64,272). The balance
outstanding at 30 June 2014 is $19,750 (2013: 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 2014.
61
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 30. PARENT ENTITY INFORMATION
The accounting policies of the parent entity, which have been applied in determining the financial information shown
below, are the same as those applied in the consolidated financial statements.
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Profit after income tax
Total comprehensive income
Statement of profit or loss and other comprehensive income
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Issued capital
Performance rights reserve
Share options reserve
Share appreciation rights reserve
Investment revaluation reserve
Retained profits
Total equity
Parent
2014
$
2013
$
10,903,101
7,758,287
10,903,101
7,758,287
50,098,295
46,280,145
57,325,565
63,810,248
12,273,240
21,831,370
13,364,248
22,369,002
28,785,355
28,501,548
590,246
545,500
82,291
(142,853)
293,425
448,596
-
-
14,100,778
12,197,677
43,961,317
41,441,246
The contingent liabilities and commitments of the parent entity are the same as those of the consolidated entity.
NOTE 31. EVENTS AFTER THE REPORTING PERIOD
Dividend declaration
On 25 August 2014, the consolidated entity declared a fully franked dividend of 4.0 cents per share, an aggregate
of $6,016,318. The Record Date of the dividend is 16 September 2014 and the proposed payment date is
30 September 2014.
No other matter or circumstance has arisen since 30 June 2014 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.
62
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 NOTE 32. EARNINGS PER SHARE
Profit after income tax attributable to the owners
of GR Engineering Services Limited
Weighted average number of ordinary shares used in calculating
basic earnings per share
Adjustments for calculation of diluted earnings per share:
Weighted average number of employee performance rights and
share appreciation rights issued
Weighted average number of ordinary shares used in calculating
diluted earnings per share
Basic earnings per share
Diluted earnings per share
Consolidated
2014
$
2013
$
14,163,586
7,539,471
Number
Number
150,001,118
150,000,000
2,879,512
1,569,315
152,880,630
151,569,315
Cents
9.44
9.26
Cents
5.03
4.97
Note: the options outstanding at 30 June 2013 were out of the money and therefore excluded from the weighted average
number of ordinary shares for the purpose of diluted earnings per share. Nil options were outstanding at 30 June 2014.
NOTE 33. SHARE BASED PAYMENTS
An Equity Incentive Plan was adopted by the consolidated entity on 28 March 2012. At the discretion of the Board, all
eligible employees of the Company or eligible consultants may participate in the Plan. Non-executive directors are not
eligible to participate in the Plan.
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 Company and therefore direct participation in the benefits of future
Company performance over the medium to long term.
The consolidated entity issued a total of 2,215,000 performance rights on 11 September 2012 to a total of 86 employees
and long term contractors under an Equity Incentive 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.
A further 50,000 rights were issued to two employees on 4 October 2012. A third tranche of 50,000 rights were issued
to an employee on 13 May 2013, these tranches of rights have a three year service term from the date of issue. On 30
April 2014 four further tranches of 127,500 rights each were issued to two employees. These tranches each have varying
service terms of 2, 3, 4 and 5 years from the date of issue.
A total of 510,000 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, 270,000 have lapsed in the financial year ending 30 June 2014.
63
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 33. SHARE BASED PAYMENTS (continued)
A summary of performance rights on issue at 30 June 2014 follows:
Number
issued
Number
lapsed
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
Tranche 7
2,215,000
50,000
50,000
127,500
127,500
127,500
127,500
(485,000)
(25,000)
-
-
-
-
-
Grant date
11/09/2012
04/10/2012
13/05/2013
30/04/2014
30/04/2014
30/04/2014
30/04/2014
Exercise price
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Vesting date
21/09/2015
04/10/015
13/05/2016
31/03/2016
31/03/2017
31/03/2018
31/03/2019
Expiry date
21/09/2015
04/10/2015
13/05/2016
31/03/2016
31/03/2017
31/03/2018
31/03/2019
Vesting period
(years)
Vesting
conditions
3
Nil
3
Nil
3
Nil
2
Nil
3
Nil
4
Nil
5
Nil
Fair value ($)
0.637
0.689
0.459
0.571
0.511
0.458
0.410
The fair value of performance rights granted during the year was calculated using a Black-Scholes pricing model applying
inputs as follows:
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
Tranche 7
Grant date
share price ($)
Exercise price
Expected
volatility (%)
Term (years)
Dividend yield
(%)
Risk free
interest rate (%)
0.86
0.86
0.58
0.705
0.705
0.705
0.705
-
50
3
10
-
50
3
10
-
50
3
10
-
60
2
11
-
60
3
11
-
60
4
11
-
60
5
11
2.55
2.49
2.57
2.73
2.95
3.33
3.33
64
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 movement in
performance rights
Balance at beginning of year
Granted during the year
Forfeited during the year
Balance at end of year
2014
2013
Number of
performance
rights
Weighted
average
exercise price
Number of
performance
rights
Weighted
average
exercise price
2,075,000
510,000
(270,000)
2,315,000
-
-
-
-
-
2,315,000
(240,000)
2,075,000
-
-
-
-
The weighted average fair value of performance rights granted at 30 June 2014 is $0.48. The weighted average exercise
price of these performance rights at 30 June 2014 is Nil. The weighted average remaining contractual life of performance
rights outstanding at 30 June 2014 is 616 days.
As at the commencement of the year ended 30 June 2014, the Company had 2,000,000 options on issue to its Managing
Director, Geoff Jones. Shareholders approved the cancellation of these options at the Annual General Meeting held on
12 November 2013, and approved the granting of Share Appreciation Rights to Geoff Jones. The options had a fair value
of Nil on cancellation.
On 12 November 2013, the consolidated entity issued a total of 3,269,337 share appreciation rights to Geoff Jones,
Managing Director, as part of the consolidated entity’s equity incentive plan. Of this total, 1,600,000 vested during the
financial year ending 30 June 2014. 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.
Number of share
appreciation
rights
1,600,000
727,273
432,433
296,297
213,334
Grant Date
vesting Date
12/11/2013
12/11/2013
12/11/2013
12/11/2013
12/11/2013
30/06/2014
30/06/2015
30/06/2016
30/06/2017
30/06/2018
Exercise
Price
Performance
condition share
price targets
Fair value at
Grant Date
$0.50
$0.50
$0.50
$0.50
$0.50
$0.60
$0.72
$0.86
$1.04
$1.24
$0.18
$0.18
$0.18
$0.16
$0.15
65
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 33. SHARE BASED PAYMENTS (continued)
The fair value of share appreciation rights granted during the year was calculated using a Monte Carlo pricing model
applying inputs as follows:
Grant date share price ($)
Exercise price ($)
Expected volatility (%)
Term (years)
Dividend yield (%)
Class A
Class B
Class C
Class D
Class E
0.67
0.50
60
0
11
0.67
0.50
60
1
11
0.67
0.50
60
2
11
0.67
0.50
60
3
11
0.67
0.50
60
4
11
Risk free interest rate (%)
2.80
2.80
3.06
3.06
3.48
movement in share
appreciation rights
Balance at beginning of year
Granted during the year
Vested and exercised during the year
Balance at end of year
Consolidated
2014
Consolidated
2013
Number of share
appreciation rights
Weighted
average
exercise price
Number of
performance
rights
Weighted
average
exercise price
-
3,269,337
(1,600,000)
1,669,337
-
-
-
-
-
-
-
-
-
-
-
-
On the date of exercise of 1,600,000 of the above share appreciation rights, 30 June 2014, the closing share price was
$0.70 per share.
The weighted average fair value of share appreciation rights granted at 30 June 2014 is $0.17. The weighted average
exercise price of these share appreciation rights at 30 June 2014 is $0.50. The weighted average remaining contractual life
of share appreciation rights outstanding at 30 June 2014 is 730 days.
NOTE 34. BUSINESS COMBINATIONS
Subsidiaries acquired
On 23 April 2014 the consolidated entity completed the acquisition of the business of Production Solutions. The
acquisition was effected through a wholly owned subsidiary, Upstream Production Solutions Pty Ltd. Production
Solutions is a leading independent provider of specialist operations and maintenance and well management services
to the oil and gas sector across Australia and South East Asia. The consideration transferred for this acquisition was
$5,750,000 in cash. No other acquisitions have occurred in previous financial years.
Acquisition related costs amounting to $163,589 have been excluded from the consideration transferred and have been
recognised as an expense in profit or loss in the current financial year.
Consideration transferred
Cash
Working capital adjustment to be returned to previous owners
$
5,750,000
609,137
6,359,137
66
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014 Tangible assets acquired and liabilities assumed at the date of acquisition
Current assets
Trade and other receivables
Work in progress
Non-current assets
Plant and equipment
Current liabilities
Trade and other payables
Provisions
Non-current liabilities
Provisions
$
6,849,724
993,531
400,000
(316,141)
(1,004,318)
(545,133)
6,377,663
The initial accounting for the acquisition of Production Solutions has only been provisionally determined at the end of the
reporting period. At the date of finalisation of these consolidated financial statements, the necessary market valuations
and other calculations had not been finalised and they have therefore only been provisionally determined based on the
directors’ best estimate.
Gain on bargain purchase on acquisition of subsidiary
Consideration transferred
Less fair value of identifiable tangible net assets acquired
Less fair value of identifiable intangible net assets acquired
Add deferred tax liability recognised
Net gain on bargain purchase
Net cash outflow on acquisition of subsidiaries
Consideration paid in cash
Less cash and cash equivalent balances acquired
$
6,359,137
(6,377,663)
(4,247,863)
1,230,840
(3,035,549)
$
5,750,000
-
5,750,000
impact of acquisitions on the results of the consolidated entity
Included in the profit before tax for the year is $166,439 attributable to the additional business generated by
Production Solutions. Revenue contributed by additional business generated by Production Solutions for the financial
year is $4,237,654.
Based on a linear extension of the above profit and revenue, had this business combination been effected at 1 July
2013, the revenue of the consolidated entity from continuing operations would increase by approximately $22,400,000,
and the profit for the year from continuing operations would increase by approximately $900,000. The directors of the
consolidated entity consider these ‘pro-forma’ numbers to represent an approximate measure of the performance of
the consolidated entity on an annualised basis and to provide a reference point for comparison in future periods.
67
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 NOTE 35. SUBSIDIARIES
The consolidated financial statements incorporate the following subsidiaries at the end of the reporting period.
Equity holding
Name of subsidiary
GR Engineering Services (Indonesia) Pty Limited
GR Engineering Services (Argentina) Pty Limited
PT GR Engineering Services Indonesia *
GR Engineering Services (Africa)
Country of
incorporation
2014
%
Australia
Australia
Indonesia
Mauritius
GR Engineering Services (UK) Limited
United Kingdom
GR Engineering Services (Ghana) Limited **
GR Engineering Services (Côte D’Ivoire) **
GR Engineering Services (Mali) **
GR Engineering Services (Tengrela) ***
Upstream Production Solutions Pty Ltd ****
Upstream Production Solutions (Malaysia) Sdn. Bhd. *****
Ghana
Côte D’Ivoire
Mali
Côte D’Ivoire
Australia
Malaysia
2013
%
100
100
100
100
100
100
100
100
100
-
-
100
100
100
100
100
100
100
100
100
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 as at 30 June 2014
****
Incorporation date 8 November 2013
*****
Incorporation date 14 April 2014
68
NOTES TO THE FINANCIAL STATEMENTScontinuedFoR tHe YeAR ended 30 June 2014
DiRECtORS’ DEClaRatiOn
The directors declare that:
a.
b.
c.
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;
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;
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
GEOFF JONES
Managing Director
26 August 2014
69
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 inDEPEnDEnt
aUDitOR’S REPORt
70
71
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 CORPORatE
GOVERnanCE StatEmEnt
GR Engineering Services Ltd (“the Company”) has adopted comprehensive systems of control and accountability
as the basis for the administration of corporate governance. The Board is committed to administering the policies and
procedures with openness and integrity, pursuing the true spirit of corporate governance commensurate with the
Company’s needs. To the extent they are applicable, the Company has adopted the Corporate Governance Principles
and Recommendations (“Principles & Recommendations”) as published by the ASX Corporate Governance Council.
A summary of the Company’s corporate governance practices is set out below.
Summary of Board Charter
The role of the Board is to provide leadership for and supervision of the Company’s senior management. The Board
provides the strategic direction of the Company and regularly measures the progression by senior management of
that strategic direction. The Board is responsible for promoting the success of the Company through its oversight role.
The Board also reviews the Company’s policies on risk oversight and management, internal compliance and control, its
Code of Conduct, and legal compliance. There are mechanisms in place so that the Board can satisfy itself that senior
management has developed and implemented a sound system of risk management and internal control in relation to
financial reporting risk and material business risk. The Board monitors and reviews senior management’s performance
and implementation of strategy.
The Board Charter also sets out quantitative and qualitative materiality thresholds.
The Board delegates to senior management the responsibility of the day-to-day activities in fulfilling the Board’s
responsibility. Senior executives are responsible for supporting the Managing Director and assisting the Managing
Director in the running of the general operations and financial business of the Company, in accordance with the
delegated authority of the Board.
Senior executives are responsible for reporting all matters which fall within the Company’s materiality thresholds at
first instance to the Managing Director or, if the matter concerns the Managing Director then directly to the Chair or
the lead independent Director, as appropriate.
The Board Charter describes the division of responsibilities between the Chair, the lead independent Director and the
Managing Director.
The role of non-executive and independent directors is also set out in the Board Charter.
Summary of Audit and Risk Committee Charter
The role of the audit and risk committee is to monitor and review the integrity of the financial reporting of the
Company and to review significant financial reporting judgments. The audit and risk committee is also to review the
Company’s internal financial control system and risk management systems and to monitor, review and oversee the
external audit function.
The audit and risk committee has the power to conduct or authorise investigations into any matters within the audit
and risk committee’s scope of responsibilities. The audit and risk committee has the authority, as it deems necessary
or appropriate, to retain independent legal, accounting or other advisors.
The audit and risk committee also assesses whether external reporting is consistent with audit and risk committee
members’ information and knowledge and is adequate for shareholder needs and assesses the management processes
supporting external reporting.
Summary of Nomination Committee Charter
The role of the nomination committee is to effectively examine the selection and appointment practices of the Company.
The nomination committee regularly reviews the size and composition of the Board and makes recommendations to the
Board on any appropriate changes. The nomination committee identifies and assesses necessary and desirable Director
competencies with a view to enhancing the Board.
The nomination committee also regularly reviews the time required from non-executive Directors and whether non-
executive Directors are meeting that requirement.
Initial Director appointments are made by the Board. Any new Director will be required to stand for election at the
Company’s next annual general meeting following their appointment.
72
Summary of Remuneration Committee Charter
The function of the remuneration committee is to review and make appropriate recommendations on remuneration
packages of executive Directors, non-executive Directors and senior executives. The remuneration committee is also
responsible for reviewing any employee incentive and equity-based plans, including the appropriateness of performance
hurdles and total payments proposed.
Summary of Remuneration Policy
Emoluments of Directors and senior executives are set by reference to payments made by other companies of similar
size and industry, and by reference to the skills and experience of the Directors and executives.
The Company’s policy is to remunerate non-executive Directors at a fixed fee for time, commitment and responsibilities.
Remuneration for non-executive Directors is not linked to individual performance. This policy is subject to annual review.
From time to time, and subject to obtaining the relevant approvals, the Company may grant options to non-executive
Directors. The grant of options is designed to recognise and reward efforts as well as to provide non-executive Directors
with additional incentive to continue those efforts for the benefit of the Company.
Executive pay and reward consists of a base salary and performance incentives. Long term performance incentives may
include options granted at the discretion of the Board and subject to obtaining the relevant regulatory and shareholder
approvals. The grant of options is designed to recognise and reward efforts as well as to provide additional incentive and
may be subject to the successful completion of performance hurdles.
Executives are prohibited from entering into transactions or arrangements which limit the economic risk of participating
in unvested entitlements.
Summary of Code of Conduct
The Code of Conduct sets out the principles and standards which the Board, management and employees of the
Company are encouraged to strive towards when dealing with each other, shareholders, other stakeholders and the
broader community.
The Company is to comply with all legislative and common law requirements which affect its business. The Company
will deal with others in a way that is fair and will not engage in deceptive practices.
The Code of Conduct sets out directives for Directors, management and staff relating to conflicts of interests, protection
of the Company’s assets and confidentiality.
Summary of Policy and Procedure for Selection and (Re)Appointment of Directors
In considering new candidates, the nomination committee evaluates the range of skills, experience and expertise of
the existing Board. In particular, the nomination committee is to identify the particular skills that will best increase the
Board’s effectiveness. In this process, consideration is also given to the balance of independent Directors on the Board,
while reference is made to the Company’s size and operations as they evolve from time to time. Any appointment made
by the Board is subject to ratification by shareholders at the next general meeting.
All Directors are required to consider the number and nature of their directorships and calls on their time from
other commitments.
Shareholders shall be informed of the names and details of candidates submitted for election as Directors, in order
to enable shareholders to make an informed decision regarding the election.
Summary of Process for Performance Evaluation
The Chair evaluates the performance of the Board by way of an informal round-table discussion with all directors and
through questionnaires completed by each director.
The Chair reviews the performance of the committees of the Board by way on an informal round-table discussion with
all directors and through questionnaires completed by each director who is a member of the committee being evaluated.
Individual director’s performance evaluations are completed by the Chair. The Chair meets with each individual director
and reviews questionnaires completed by each director.
73
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 CORPORatE
GOVERnanCE StatEmEnt
Summary of Process for Performance Evaluation (continued)
The Managing Director’s performance evaluation is conducted by the Chair. The Chair conducts a performance
evaluation of the Managing Director by way of meeting with the Managing Director and with an informal round-table
discussion with all directors, and by reference to the Managing Director’s key performance indicators which are set
by the Nomination Committee.
The Managing Director reviews the performance of the senior executives. The Managing Director conducts a
performance evaluation of the senior executives by way of on-going informal monitoring throughout each financial
year and at an annual formal interview.
Summary of Policy for Trading in Company Securities
The Board has adopted a policy which prohibits dealing in the Company’s securities by directors, officers, specified
employees (including connected persons) and, contractors when those persons possess inside information. The policy
also contains a blackout period within which directors, officers and employees are prohibited from trading. The policy
prohibits short term or speculative trading of the Company’s securities. Trading may be permitted in a blackout period
in certain exceptional circumstances subject to obtaining prior written clearance. Directors, officers and specified
employees are required to obtain clearance prior to trading at all times.
Summary of Diversity Policy
The Board has adopted a Diversity Policy which describes the Company’s commitment to ensuring a diverse mix of
skills and talent exists amongst its directors, officers and employees, to enhance Company performance. The Diversity
Policy addresses equal opportunities in the hiring, training and career advancement of directors, officers and employees.
The Diversity Policy outlines the process by which the Board will set measurable objectives to achieve the aims of
its Diversity Policy. The Board is responsible for monitoring Company performance in meeting the Diversity Policy
requirements, including the achievement of any diversity objectives.
Women comprise approximately 18% of the Company’s total workforce and approximately 10% of the Company’s
professionally qualified personnel. Women are not represented in the Company’s senior executive team.
The Board recognises the under representation by women in its professional and executive workforce. Therefore and
subject to identifying female candidates with the requisite qualifications and experience, it is the Board’s objective to
improve on this percentage and if possible increase it to 15% by 30 June 2017.
The Company will continue to facilitate flexible working hours to enable all employees to meet ongoing training and
education and in particular in enable female staff members to balance their professional and domestic commitments.
This is an important element of the Company’s strategy of attracting more professionally qualified women to its workforce.
The Company listed on ASX in April 2011 after an exhaustive search for Board members of suitable skills, experience
and qualifications. The Board is comprised of three male non-executive and three male executive directors. The Board
recognises that it would be beneficial to have on its Board an independent female non-executive director to widen
the Board’s skill set and to add experience and broadened perspective to the assessment of information and decision
making. However, the Company has not sought to expand its Board during the year under review and therefore has
not sought candidates for any Board position.
Subject to the Company achieving this strategy for growth, the Board will identify a suitable candidate for an additional
non-executive directorship. Consistent with its policy on gender diversity the Company will consider a female for this
position provided that the appointment satisfies Board composition requirements at the time.
Summary of Compliance Procedures
The Board has adopted Compliance Procedures to assist it to comply with the Listing Rules disclosure requirements.
Under the Compliance Procedures, a responsible officer is appointed who is primarily responsible for ensuring the
Company complies with its disclosure obligations. The duties of the responsible officer are set out in the Compliance
Procedures. The Compliance Procedures provide guidelines as to the type of information that needs to be disclosed
and encourages thorough recording of disclosure decision making. The Compliance Procedures contain information on
avoiding a false market, safeguarding confidentiality of corporate information, and information on external communication
for the purpose of protecting the Company’s price sensitive information. The Compliance Procedures also provide
guidance relating to potential disclosure material.
74
continued Summary of Procedure for the Selection, Appointment and Rotation of External Auditor
The Board is responsible for the initial appointment of the external auditor and the appointment of a new external
auditor when any vacancy arises, as per the recommendations of the Audit and Risk Committee.
Candidates for the position of external auditor of the Company must be able to demonstrate complete independence
from the Company and an ability to maintain independence through the engagement period.
The Audit and Risk Committee will review the performance of the external auditor on an annual basis and make any
recommendations to the Board.
Summary of Shareholder Communication Strategy
The Board aims to ensure that the shareholders are informed of all major developments affecting the Company.
The Company provides shareholder materials directly to shareholders through electronic means. A shareholder may
request a hard copy of the Company’s annual report to be posted to them. The Company maintains a website on
which the Company makes certain information available on a regular basis.
Summary of Risk management Policy
The Board has adopted a Risk Management Policy. Under the policy, the Board delegates day-to-day management of
risk to the Managing Director, with the assistance of senior management as required. The Policy sets out the role and
accountabilities of the Managing Director. It also contains the Company’s risk profile and describes some of the policies
and practices the Company has in place to manage specific business risks.
The Managing Director is required to report on the progress of, and on all matters associated with risk management.
The Managing Director is to report to the Board as to the effectiveness of the Company’s management of its material
business risks at least annually.
The Board is responsible for approving the Company’s policies on risk oversight and management and satisfying
itself at least annually that management has developed and implemented a sound system of risk management and
internal control.
As the Company’s activities develop in size, nature and scope, the size of the Board and the implementation of
additional corporate governance structures will be given further consideration.
75
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014
CORPORatE
GOVERnanCE StatEmEnt
ASx CORPORATE GOvERNANCE COUNCiL PRiNCiPLES AND RECOmmENDATiONS
The Board sets out below its “if not, why not” report. Where the Company’s corporate governance practices follow
a recommendation, the Board has made appropriate statements reporting on the adoption of the recommendation.
Where, after due consideration, the Company’s corporate governance practices depart from a recommendation,
the Board has offered full disclosure and a reason for the adoption of its own practice, in compliance with the
“if not, why not” regime.
The Company has not made an early transition to the amended 3rd edition Principles & Recommendations and
the following “if not, why not” report reflects this. The Company will report against the 3rd edition Principles &
Recommendations for its financial year commencing 1 July 2014.
Recommendation
ASx
P & R1
if not,
why not2
Recommendation
ASx
P & R1
if not,
why not2
1.1
1.2
1.3³
2.1
2.2
2.3
2.4
2.5
2.6³
3.1
3.2
3.3
3.4
3.5
n/a
n/a
n/a
n/a
n/a
4.1
4.2
4.3
4.4³
5.1
5.2³
6.1
6.2³
7.1
7.2
7.3
7.4³
8.1
8.2
8.3³
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1
Indicates where the Company has followed the Principles & Recommendations
2
Indicates where the Company has provided “if not, why not” disclosure
3
Indicates an information based recommendation. Information based recommendations are not adopted or reported
against using “if not, why not” disclosure – information required is either provided or it is not
PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
Recommendation 1.1: Companies should establish the functions reserved to the Board and those delegated to senior
executives and disclose those functions.
Disclosure:
The Company has established the functions reserved to the Board and those delegated to seniors executives and has set
out these functions in its Board Charter, summarised above in the section titled “Summary of Board Charter”.
Recommendation 1.2: Companies should disclose the process for evaluating the performance of senior executives.
Disclosure:
Refer to the section titled “Summary of Process for Performance Evaluation” above.
76
continued
Recommendation 1.3: Companies should provide the information indicated in the Guide to reporting on Principle 1.
Disclosure:
A summary of the Company’s Board Charter is noted above under the section titled “Summary of Board Charter”
and will also be made publicly available on the Company’s website at www.gres.com.au under the section marked
Corporate Governance.
The Company will from time to time conduct performance evaluations of its senior executives in accordance with
the Company’s Process for Performance Evaluation.
PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE
Recommendation 2.1: A majority of the board should be independent Directors.
Disclosure:
The Board has a majority of Directors who are independent.
The independent Directors of the Company are Peter Hood, Terrence Strapp and Barry Patterson (deemed independent).
The Board deems Barry Patterson to be an independent director notwithstanding his substantial shareholding in the
Company because he is not a member of management and is otherwise free of any business or other relationship
(including those referred to in Box 2.1 of the Principles & Recommendations and the Company’s Policy on Assessing
the Independence of Directors) that could materially interfere with, or could reasonably be perceived to materially
interfere with, the independent exercise of his judgment. Furthermore, Barry Patterson’s interests as a major
shareholder are considered by the Board to be in line with the interests of all other shareholders.
The non independent Directors of the Company are Joseph Ricciardo, Tony Patrizi and Geoff Jones.
Recommendation 2.2: The Chair should be an independent Director.
Disclosure:
The position of Chair of the Board was held by Barry Patterson prior to 26 June 2013, after this date this position
is held by Joseph Ricciardo.
Joseph Ricciardo holds a substantial shareholding in the Company so is not considered to be independent,
however the Board maintains that Mr Ricciardo applies independent judgement to any issues which come under the
role of the Chairman.
Recommendation 2.3: The roles of Chair and Chief Executive Officer should not be exercised by the same individual.
Disclosure:
The Managing Director is Geoff Jones who is not currently Chair of the Board.
Recommendation 2.4: The Board should establish a Nomination Committee.
Disclosure:
The Board has established a Nomination Committee.
Recommendation 2.5: Companies should disclose the process for evaluating the performance of the Board,
its committees and individual Directors.
Disclosure:
Refer to the section titled “Summary of Process for Performance Evaluation” above.
77
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 CORPORatE
GOVERnanCE StatEmEnt
PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE (continued)
Recommendation 2.6: Companies should provide the information indicated in the Guide to Reporting on Principle 2.
Disclosure:
A profile of each Director containing their skills, experience, expertise and term of office is set out in the Directors Report.
As noted above, the independent Directors of the Company are Peter Hood, Terrence Strapp and Barry Patterson
(deemed independent). These directors are independent as they are non executive Directors who are not members
of management and who are free of any business or other relationship that could materially interfere with, or could
reasonably be perceived to materially interfere with, the independent exercise of their judgement.
Independence is measured having regard to the relationships listed in Box 2.1 of the Principles & Recommendations
and the Company’s materiality thresholds.
To assist Directors with independent judgement, it is the Board’s policy that if a Director considers it necessary to
obtain independent professional advice to properly discharge the responsibility of their office as a Director then,
provided the Director first obtains approval for incurring such expense from the Chair, the Company will pay the
reasonable expenses associated with obtaining such advice.
The Board has established a Nomination Committee. Barry Patterson (chair), Peter Hood, Terrence Strapp and Joe
Ricciardo are members of the Nomination Committee. The Company’s Nomination Committee Charter is summarised
above in the section titled “Summary of Nomination Committee Charter.”
Performance evaluations of the Board, its Committees and the Directors will be conducted from time to time in
accordance with the Company’s Process for Performance Evaluation.
In determining candidates for the Board, the Nomination Committee (or equivalent) follows a prescribed
procedure summarised in the section titled “Summary of Policy and Procedure for Selection and (Re)Appointment
of Directors” above.
The Board recognises that Board renewal is critical to performance and the impact of Board tenure on succession
planning. Each director other than the Managing Director, must not hold office (without re-election) past the third
annual general meeting of the Company following the Director’s appointment or three years following that Director’s last
election or appointment (whichever is longer). However, a Director appointed to fill a casual vacancy or as an addition to
the Board must not hold office (without re-election) past the next annual general meeting of the Company. At each annual
general meeting a minimum of one director or a third or the total number of Directors must resign. A Director who retires
at an annual general meeting is eligible for re-election at that meeting. Re-appointment of Directors is not automatic.
PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING
Recommendation 3.1: Companies should establish a Code of Conduct and disclose the code or a summary of the
code as to the practices necessary to maintain confidence in the company’s integrity, the practices necessary to take
into account their legal obligations and the reasonable expectations of their stakeholders and the responsibility and
accountability of individuals for reporting and investigating reports of unethical practices.
Disclosure:
The Company has established a Code of Conduct as to the practices necessary to maintain confidence in the Company’s
integrity, practices necessary to take into account their legal obligations and the expectations of their stakeholders and
responsibility and accountability of individuals for reporting and investigating reports of unethical practices. The Code of
Conduct is summarised above in the section titled “Summary of Code of Conduct”.
Recommendation 3.2: Companies should establish a policy concerning diversity and disclose the policy or a summary
of that policy. The policy should include requirements for the Board to establish measureable objectives for achieving
gender diversity for the Board to assess annually both the objectives and progress in achieving them.
Disclosure:
A summary of the Company’s Diversity Policy is summarised above in the Section titled “Summary of Diversity Policy”.
78
continued Recommendation 3.3: Companies should disclose in each annual report the measureable objectives for achieving
gender diversity set by the Board in accordance with the diversity policy and progress towards achieving them.
Disclosure:
A summary of the Company’s Diversity Policy containing measureable objectives for achieving gender diversity
is summarised above in the section titled “Summary of Diversity Policy”.
Recommendation 3.4: Companies should disclose in each annual report the proportion of women employees
in the whole organisation, women in senior executive positions and women on the Board.
Disclosure:
A summary of the Company’s Diversity Policy disclosing the proportion of women employees in the organisation,
women in senior executive positions and women on the Board is summarised above in the section titled “Summary
of Diversity Policy”.
Recommendation 3.5: Companies should provide the information indicated in the Guide to reporting on Principal 3.
Disclosure:
A summary of the Company’s Gender Diversity Policy is summarised above under the section “Summary of
Diversity Policy”.
PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING
Recommendation 4.1: The Board should establish an Audit and Risk Committee.
Disclosure:
The Company has established an Audit and Risk Committee
Recommendation 4.2: The Audit and Risk Committee should be structured so that it:
• consists only of non-executive directors
• consists of a majority of independent directors
• is chaired by an independent Chair, who is not Chair of the Board
• has at least three members.
Disclosure:
The Audit and Risk Committee comprises three directors, Terrence Strapp (Chair), Peter Hood and Barry Patterson
all of whom are independent non-executive Directors.
Recommendation 4.3: The Audit and Risk Committee should have a formal charter.
Disclosure:
The Company has adopted an Audit and Risk Committee Charter, which is summarised above in the section titled
“Summary of Audit and Risk Committee Charter”.
Recommendation 4.4: Companies should provide the information indicated in the Guide to reporting on Principle 4.
Disclosure:
As noted above, the Company has established a separate Audit and Risk Committee. The Audit and Risk Committee
is comprised of the following members Terrence Strapp (chair), Peter Hood and Barry Patterson. The Company’s Audit
and Risk Committee Charter is summarised above in the section titled “Summary of Audit and Risk Committee Charter.”
Details of each of the Director’s qualifications are set out in the Directors Report.
The Company has established procedures for the selection, appointment and rotation of its external auditor.
These are summarised under the section titled “Summary of Procedure for the Selection,
Appointment and Rotation of External Auditor” above.
79
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 CORPORatE
GOVERnanCE StatEmEnt
PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURES
Recommendation 5.1: Companies should establish written policies designed to ensure compliance with ASX Listing
Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose
those policies or a summary of those policies.
Disclosure:
The Company has established written policies designed to ensure compliance with ASX Listing Rule disclosure
and accountability at a senior executive level for that compliance. These are summarised under the section titled
“Summary of Compliance Procedures” above.
Recommendation 5.2: Companies should provide the information indicated in the Guide to reporting on Principle 5.
Disclosure:
A summary of the Company’s policy to guide compliance with ASX Listing Rule disclosure is included above under
the section titled “Summary of Compliance Procedures.”
PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS
Recommendation 6.1: Companies should design a communications policy for promoting effective communication with
shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy.
Disclosure:
The Company has designed a communications policy for promoting effective communication with shareholders and
encouraging shareholder participation at general meetings. This is summarised under the section titled “Summary of
Shareholder Communication Strategy” above.
Recommendation 6.2: Companies should provide the information indicated in the Guide to reporting on Principle 6.
Disclosure:
A summary of the Company’s shareholder communication strategy is included above in the section titled “Summary of
Shareholder Communication Strategy.”
It is the Company’s policy to require the external auditor to attend its annual general meeting and be available to respond
to shareholder questions.
PRINCIPLE 7: RECOGNISE AND MANAGE RISK
Recommendation 7.1: Companies should establish policies for the oversight and management of material business
risks and disclose a summary of those policies.
Disclosure:
The Board has adopted a Risk Management Policy, which sets out the Company’s risk profile. This policy is summarised
under the section titled “Summary of Risk Management Policy” above.
Recommendation 7.2: The Board should require management to design and implement the risk management and
internal control system to manage the Company’s material business risks and report to it on whether those risks are
being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of
the Company’s management of its material business risks.
Disclosure:
The Board has required management to design, implement and maintain risk management and internal controls systems
to manage the Company’s material business risks. The Board also requires management to report to in confirming that
those risks are being managed effectively.
80
continued Recommendation 7.3: The Board should disclose whether it has received assurance from the Chief Executive Officer
(or equivalent) and the Chief Financial Officer (or equivalent) that the declaration provided in accordance with section
295A of the Corporations Act is founded on a sound system of risk management and internal control and that the
system is operating effectively in all material respects in relation to financial reporting risks.
Disclosure:
The Board will require the Chief Executive Officer (or equivalent) and the Chief Financial Officer (or equivalent) to provide
a declaration to the Board in accordance with section 295A of the Corporations Act and to assure the Board that such
declaration is founded on a sound system of risk management and internal control and that the system is operating
effectively in all material respects in relation to financial reporting risks.
Recommendation 7.4: Companies should provide the information indicated in the Guide to reporting on Principle 7.
Disclosure:
A summary of the Company’s Risk Management Policy is included above in the section titled “Summary of Risk
Management Policy.”
PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY
Recommendation 8.1: The Board should establish a Remuneration Committee.
Notification of departure:
The Company has established a Remuneration Committee.
Recommendation 8.2: The Remuneration Committee should be structured so that it consists of a majority of
independent directors, is chaired by an independent chair and has at least three members.
Disclosure:
The Company has established a Nomination and Remuneration Committee. The Remuneration Committee is
comprised of Barry Patterson (Chair), Terrence Strapp, Peter Hood and Joe Ricciardo. Messrs Patterson, Strapp
and Hood are independent directors.
Recommendation 8.3: Companies should clearly distinguish the structure of non-executive Directors’ remuneration
from that of executive Directors and senior executives.
Disclosure:
Refer to the section titled “Summary of Remuneration Policy” above.
Recommendation 8.4: Companies should provide the information indicated in the Guide to reporting on Principle 8.
Disclosure:
As noted above, the Company has established a separate Remuneration Committee. The Remuneration Committee
is comprised of the following members Barry Patterson (Chair), Terrence Strapp, Peter Hood and Joe Ricciardo. The
Company’s Remuneration Committee Charter is summarised above in the section titled “Summary of Remuneration
Committee Charter.”
There are no termination or retirement benefits for non-executive Directors (other than for superannuation).
The Company’s Remuneration Committee Charter includes a statement of the Company’s policy on prohibiting
transactions in associated products which limit the risk of participating in unvested entitlements under any equity
based remuneration schemes.
81
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014
aDDitiOnal aSx
inFORmatiOn
The shareholder information set out below was applicable as at 29 September 2014:
• the twenty largest shareholders held 86.02% of the Ordinary Shares; and
• there were 1,007 ordinary shareholders.
Distribution of securities
Analysis of number of equity security holders by size of holding:
Range
Total
Units
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001-1,000,000
1,000,001-9,999,999,999
73
327
222
344
35
17
Total
1,018
41,607
1,026,267
1,854,383
11,382,352
9,948,603
126,154,737
150,407,949
The number of shareholders holding less than a marketable parcel of ordinary shares is 42.
Equity security holders
Top 20 Shareholders as at 29 September 2014:
% of shares
issued
0.03
0.68
1.23
7.57
6.61
83.88
100.00
Number of
shares held
% of shares
issued
Citicorp Nominees Pty Ltd
Mr David Joseph Sala Tenna + Ms Jane Frances Sala Tenna
Joley Pty Ltd
Polly Pty Ltd
Quintal Pty Ltd
Paksian Pty Ltd
Kingarth Pty Ltd
Mr Giuseppe Totaro
Ms Barbara Ann Woodhouse
Ms Beverley June Schier
Ledgking Pty Ltd
National Nominees Limited
Mr Stephen Paul Kendrick
HSBC Custody Nominees (Australia) Limited
15,925,098
13,825,000
12,000,000
10,500,000
10,500,000
9,798,578
9,795,000
9,000,000
8,150,000
8,100,000
6,000,000
3,956,113
3,491,000
1,772,958
HSBC Custody Nominees (Australia) Limited - Commonwealth Super Corp
1,700,189
JP Morgan Nominees Australia Limited
Kendrick Investments Pty Ltd
Mr Cono Antonino Angelo Ricciardo
Mr Cono Antonino Angelo Ricciardo + Mr Brett Alan Turner
Totaro Investments Pty Ltd
1,646,397
1,384,000
980,000
772,109
500,000
10.59
9.19
7.98
6.98
6.98
6.51
6.51
5.98
5.42
5.39
3.99
2.63
2.32
1.18
1.13
1.09
0.92
0.65
0.51
0.33
129,381,657
86.02
Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
82
Substantial Shareholders
Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
Citicorp Nominees Pty Ltd
Mr David Joseph Sala Tenna + Ms Jane Frances Sala Tenna
Joley Pty Ltd
Polly Pty Ltd
Quintal Pty Ltd
Paksian Pty Ltd
Kingarth Pty Ltd
Mr Giuseppe Totaro
Ms Barbara Ann Woodhouse
10.
Ms Beverley June Schier
voting Rights
The voting rights attached to ordinary shares are set out below:
Number of
shares held
% of shares
issued
15,925,098
13,825,000
12,000,000
10,500,000
10,500,000
9,798,578
9,795,000
9,000,000
8,150,000
8,100,000
10.59
9.19
7.98
6.98
6.98
6.51
6.51
5.98
5.42
5.39
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 Company’s shares.
Performance Rights
There are no voting rights attached to Performance Rights over the Company’s shares.
Share appreciation rights
There are no voting rights attached to Share Appreciation Rights over the Company’s shares.
Options of issue
There are Nil options on issue at 30 June 2014.
Performance Rights on issue
The following performance rights are on issue:
Number
1,730,000
25,000
50,000
127,500
127,500
127,500
127,500
Grant Date
11/09/2012
04/10/2012
13/05/2013
30/04/2014
30/04/2014
30/04/2014
30/04/2014
Share appreciation rights
The following share appreciation rights are on issue:
Number
727,273
432,433
296,297
213,334
Grant Date
12/11/2013
12/11/2013
12/11/2013
12/11/2013
Expiry Date
Exercise Price
21/09/2015
04/10/2015
13/05/2016
31/03/2016
31/03/2017
31/03/2018
31/03/2019
Expiry Date
30/06/2015
30/06/2016
30/06/2017
30/06/2018
-
-
-
-
-
-
-
Exercise Price
-
-
-
-
83
GR EnGinEERinG SERvicES LimitEd AnnUAL REPORt 2014 CORPORatE
DiRECtORY
GR ENGINEERING SERVICES LIMITED
PRINCIPAL PLACE OF BUSINESS
ACN 121 542 738
ABN 12 121 542 738
DIRECTORS
Joe Ricciardo
Geoff Jones
Tony Patrizi
Barry Patterson
Peter Hood
Terrence Strapp
(Executive Chairman)
(Managing Director)
(Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
COMPANY SECRETARY &
CHIEF FINANCIAL OFFICER
Giuseppe (Joe) Totaro
REGISTERED OFFICE
179 Great Eastern Highway
BELMONT WA 6104
179 Great Eastern Highway
BELMONT WA 6104
Telephone: (+61 8) 6272 6000
(+61 8) 6272 6001
Facsimile:
gres@gres.com.au
Email:
Website: www.gres.com.au
ASX CODE
GNG
AUDITOR
Deloitte Touche Tohmatsu
Level 14, 240 St Georges Terrace
PERTH WA 6000
SOLICITORS TO THE COMPANY
Gilbert + Tobin
1202 Hay Street
WEST PERTH WA 6005
SHARE REGISTRY
Computershare investor Services Pty Limited
Level 2, 45 St Georges Terrace
PERTH WA 6000
Continuing to drive business
efficiencies whilst maintaining
renowned execution capability.
84
Safety is a key element of
GR Engineering’s operating
ethos - our people are
our greatest asset.
gres.com.au
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