More annual reports from GR Engineering Services Limited:
2023 ReportABN 12 121 542 738
2018 ANNUAL REPORT
For personal use only CONTENTS
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
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CALENDAR
Annual General Meeting 22 November 2018.
For personal use only CHAIRMAN’S LETTER
Dear Shareholder,
It is with pleasure that I report to you on GR Engineering Services Limited’s (GR
Engineering or the Company) performance for the year ended 30 June 2018 (FY18).
As reported in the FY17 Annual Report, three important contracts
were awarded to GR Engineering during the second half of FY17
with a further contract award in July 2017, heralding a strong
start to FY18. These contracts were the $107 million contract
awarded by Dacian Gold Limited for its Mt Morgan’s Gold Project
(April 2017), the $17.5 million contract awarded by Western Areas
Limited for its Cosmic Boy Mill Recovery Enhancement Project
(April 2017), the $31.3 million contract awarded by Anglogold
Ashanti Australia Limited for its upgrade to its Sunrise Dam Gold
Mine (June 2017) and the $66.5 million contract awarded by
GNT Resources Pty Ltd (a wholly owned subsidiary of Gascoyne
Resources Limited) for its Dalgaranga Gold Project.
In a year characterised by excellent operational performance, it is pleasing to report
that these projects were all delivered on time and on budget. I believe these
outcomes further reinforce the Company’s reputation for dependability and reliability
and again evidence its capacity to successfully deliver against clients’ financial and
operational objectives.
Together with smaller, but nevertheless important engagements, and a solid
contribution to group revenue by the Company’s oil and gas subsidiary, Upstream
Production Solutions (Upstream PS), FY18 Revenue was a record for the group
at $283.6 million (FY17 $238.7million). Underlying Earnings Before Interest, Tax
Depreciation and Amortisation (EBITDA) for the period was $24.1 (FY17 $16.9 million).
FY18 financial performance was adversely impacted by the write off of bad debts
totalling $7.0 million. This included the write off of $4.8 million in receivables from
Wolf Minerals (UK) Limited (Wolf) in connection with the full and final settlement of
all claims arising from the contract for the design and construction of the Hemerdon
tungsten and tin processing facility in the UK. On 13 August 2018 the Company
entered into a settlement deed with Eastern Goldfields Limited (EGS) in full and
final satisfaction of all claims in relation to the contract for the refurbishment of the
Davyhurst gold processing facility. This settlement resulted in the Company incurring a
bad debt of $1.8 million which although a subsequent event, impacted FY18 results. In
September 2017 receivers and managers were appointed to Empire Oil (WA) Limited
(Empire). As a result, the Company’s fully owned subsidiary, Upstream Production
Solutions incurred a bad debt of $417,000 associated with work carried out on the
Red Gully oil and gas production asset.
Taking into account the impact of this write off, reported Profit Before Tax for the
period was $16.2 million (FY17 $16.3 million).
1
PHILLIP LOCKYER
Non-Executive Chairman
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 20181For personal use only CHAIRMAN’S LETTER
The resolution of the dispute with Wolf has resulted in the return to the Company of all securities,
including a Bank Guarantee in the sum of £7.6 million (approximately $AUD13.6 million).
While making a significant contribution to group revenue, reduced project KPI related margins and the
write off of bad debts have resulted in lower than expected earning by Upstream PS. Upstream PS’s
FY18 EBITDA was $2.1 million (FY17 6.4 million). Improvements in operational outcomes were already
evident by the end of the financial year and this expected to result in an improvement in margins in FY19.
Upstream PS’s stature as a leading provider of operations and maintenance services to the oil and
gas sector continues to grow and management is working hard to lever off this reputation to achieve
further growth.
Despite the adverse impact on earnings and cashflow of the write-off of the Wolf and EGS receivables,
the Company’s ability to continue to provide strong shareholder returns remains intact. Having regard to
underlying earnings, cash available, anticipated working capital requirements and the overall sound state
of the Company’s Balance Sheet, your Board has resolved to declare a final FY18 dividend of 5.0 cents
per share, unfranked. The ex-dividend date for this dividend is 11 October 2018, the Record Date is 12
October 2018 and the Payment Date is 24 October 2018.
Looking ahead, I am buoyed by key indicators of future business activity, including the continued high
level of study activity and pending contract awards. These included the contract with Sheffield Resources
Limited for its Thunderbird Mineral Sands Project in Western Australia. I note that GR Engineering has
been engaged on early works for this project since October 2017 and subject to contract award, work is
expected to continue well into FY20.
In addition, and as announced on 23 April 2018, Capricorn Metals Limited appointed GR Engineering
as Preferred Tenderer for its Karlawinda Gold Project also located in Western Australia. This project
will involve the design and construction and of a 3.0 million tonne per annum carbon-in-leach mineral
processing plant and associated infrastructure and the contract value is expected to be in the order
of $93.1 million.
These awards together with additional near-term opportunities give rise to a sense of optimism for
FY19 and FY20. Together with the Company’s human and financial resources to take on additional work,
the Company is well placed to continue delivering strong shareholder returns into FY19 and beyond.
As always, I am grateful to our employees, suppliers and particularly our clients for their ongoing
support throughout FY18. I would also like to thank my fellow Board members for their ongoing
counsel and assistance.
PHILLIP LOCKYER
Non-Executive Chairman
2
CONTINUEDGR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only In a year characterised by excellent operational
performance, it is pleasing to report that these
projects were all delivered on time and on budget.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 20183For personal use only Upstream PS’s stature as a leading provider of operations
and maintenance services to the oil and gas sector
continues to grow and management is working hard to
lever off this reputation to achieve further growth.
DIRECTORS’ REPORTCONTINUED4GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only DIRECTORS’ REPORT
Your Directors present their report together with the financial statements of GR Engineering Services Limited (“GR
Engineering” or “consolidated entity”) for the financial year 1 July 2017 to 30 June 2018 and the independent auditor’s
report thereon.
The names of the consolidated entity’s Directors in office during the financial year ended 30 June 2018 and until the date of
this report are as below. Directors were in office for this entire period unless otherwise stated.
DIRECTORS
Phillip (Phil) LOCKYER
Geoffrey (Geoff) Michael JONES
Tony Marco PATRIZI
Barry Sydney PATTERSON
Terrence John STRAPP
Peter John HOOD
(Non-Executive Chairman)
(Managing Director)
(Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
COMPANY SECRETARY
Giuseppe (Joe) TOTARO
(B.Comm, CPA, CTA)
Joe is a co-founder of GR Engineering and has been Company Secretary since 4 September 2006. He was appointed
Chief Financial Officer on 19 April 2011. Joe is a certified practicing accountant (CPA) with over 30 years’ experience in
commercial and public practice specialising in mining and mining services. He was formerly company secretary of and
business consultant to JR Engineering. Joe’s experience includes corporate advisory services having consulted on and
managed numerous corporate transactions involving private and publicly listed companies.
PRINCIPAL ACTIVITIES
During the financial period the consolidated entity’s activities have been the provision of high quality process engineering
design and construction services to the mining and mineral processing industry and the provision of operations,
maintenance and well management services to the oil and gas sector.
DIVIDENDS PAID DURING THE YEAR
• Fully franked dividend of 6.00 cents per share paid on 28 March 2018
• Subsequent to 30 June 2018, an unfranked dividend of 5.00 cents per share was recommended by the Directors to be
paid on 24 October 2018.
5GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
DIRECTORS’ REPORT
REVIEW OF OPERATIONS
Mineral Processing
In the financial year ending 30 June 2018 (FY18), GR Engineering successfully delivered major greenfields and brownfields
projects with a combined capital value exceeding $220 million. GR Engineering’s major projects were undertaken in
Western Australia, with two major gold processing plants and two brownfields upgrades being successfully completed and
commissioned in FY18.
Completed projects
Major projects completed in FY18 include:
• Mt Morgans Project: the design and construction of the mineral processing facility for Dacian Gold Limited’s Mt Morgans
Project, located 25 kilometres south-west of Laverton in Western Australia. This $107 million project involved the design
and construction of a new 2.5Mtpa carbon-in-leach treatment facility and certain supporting infrastructure. Practical
completion on this project was achieved in April 2018, approximately one year after its commencement.
• Dalgaranga Gold Project: the design and construction of the 2.5Mtpa mineral processing facility for Gascoyne
Resources Limited’s Dalgaranga Gold Project, located in the Murchison gold mining region of Western Australia.
This $66.5 million project was successfully delivered with practical completion being achieved in May 2018, following
commencement of the project in July 2017.
• Sunrise Dam Upgrade Project: the upgrade of processing facilities at Anglogold Ashanti Australia Limited’s Sunrise
Dam gold mine located 55 kilometres south of Laverton, Western Australia. This $31.3 million project involved the design
and construction of a new flotation and ultra-fine grind processing facility with associated services upgrades within the
existing processing infrastructure at Sunrise Dam.
• Cosmic Boy Mill Recovery Enhancement Project: Initial work on the $24 million project commenced in July 2015, with
engineering, design and procurement of long lead time items. Construction works of $17.5 million were deferred until to
June 2017. Practical completion was achieved in January 2018.
New and ongoing projects
Significant new projects announced in FY18 include:
• Thunderbird Mineral Sands Project: GR Engineering was engaged by Sheffield Resources Limited in October 2017 as
preferred tenderer for the design and construction of a 7.5Mtpa processing facility for the Thunderbird Mineral Sands
Project, located on the Dampier Peninsula in Western Australia. GR Engineering is undertaking engineering design and
long lead procurement activities under an Early Works Agreement (EWA) whilst Sheffield continues to progress its
offtake, permitting and financing activities.
• The EWA contemplates a lump sum EPC contract with a scope of work comprising the design, construction and
commissioning of a wet concentrator plant, concentrate upgrade plant, zircon processing plant, ilmenite processing plant,
plant area civil works and process water systems, site administration buildings and other infrastructure. The anticipated
delivery time for this project is approximately two years.
• Karlawinda Gold Project: In April 2018, GR Engineering was appointed as preferred tenderer by Capricorn Metals Limited
for the design and construction of a 3.0Mtpa carbon-in-leach processing plant and associated infrastructure for the
Karlawinda Gold Project located near Newman in Western Australia. Under a letter of intent provided by Capricorn,
GR Engineering has commenced early engineering works pending the entry into an EPC contract with an anticipated
value of $93.1 million.
Studies and consulting
GR Engineering has been engaged on several engineering and consultancy assignments for international projects, with
scopes extending to early engineering studies, process design, procurement support and site supervision services
associated with new and existing operations. In FY18, this resulted in strong workflow out of Turkey and PNG on globally
significant minerals projects.
A stable commodity price and capital markets environment continues to support capital expenditure on new projects,
upgrades and optimisation works, which is evident from the high volume of studies being progressed by GR Engineering.
During FY18, GR Engineering completed 47 studies and as at 30 June 2018, was engaged on a further 30 studies across a
broad range of commodities for projects both in Australia and abroad.
CONTINUED6GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
Oil and Gas
GR Engineering’s oil and gas services business, Upstream Production Solutions (Upstream PS) achieved sustained revenue
contributions primarily from the provision of coal seam gas services in Queensland, where it has approximately 3,500 well
heads under management and offshore and onshore operations and maintenance services in Western Australia.
In Queensland, Upstream PS’ demonstrated capacity to deliver reliable and cost effective operations and maintenance
services has led to the award of growing work packages under existing contracts in the Bowen and Surat Basins. In
Western Australia, Upstream PS continued to undertake operations and maintenance works on a number of oil and gas
production assets in the Perth Basin for AWE (Waitsia Field, Xyris and the Dongara processing facilities).
Upstream PS continued to provide operations and maintenance services to the Northern Endeavour FPSO for Northern Oil
& Gas Australia (NOGA) located offshore in the Timor Sea. Upstream PS is in the final year of the initial three year contract
term, which has two one year extension options, exercisable by NOGA.
Work also continued under the three year maintenance services contract awarded in 2017 with Eni Australia for the provision
of maintenance services on the Blacktip gas field production facilities in the Timor Sea. Upstream PS’ scope of services under
this contract includes the administration and execution of maintenance activities, logistics, procurement, engineering and
operations support in relation to the unmanned Blacktip wellhead platform and associated Yelcherr gas plant.
In September 2017, receivers and managers were appointed to Empire Oil (WA) Limited (Empire). As a result, Upstream PS
incurred a bad debt of $417,000 associated with work carried out on the Red Gully oil and gas production asset.
Safety
The GR Engineering group’s Total Reportable Injury Frequency Rate (TRIFR) for FY18 was 8.62. The GR Engineering group
pursues continuous improvement in its commitment to safety, with its primary objective being the achievement of a zero
harm workplace environment on all jobs and at all locations.
FY19 Update and Outlook
Work has commenced on the $17.9 million contract announced by GR Engineering on 20 August 2018 for the design and
construction of the Carosue Dam Paste Backfill Plant.
GR Engineering notes that its FY19 financial performance is likely to be dependent on the commence timing of both
the Thunderbird Mineral Sands Project and Karlawinda Gold Project. As at the date of this report, GR Engineering notes
that both of these projects are anticipated to commencement in the fourth quarter of calendar year 2018, subject to the
achievement of financing and permitting outcomes.
GR Engineering intends to provide FY19 guidance ahead of its 2018 Annual General Meeting, to be held on 22 November
2018 when it is likely to have more certainty in relation to the timing of key projects. In the interim, it notes that FY19
financial performance is likely to be weighted to the second half.
FINANCIAL POSITION
The consolidated entity generated revenue of $283.6 million, profit before tax of $16.2 million and earnings before interest,
tax, depreciation and amortisation (EBITDA) of $17.1 million.
Profitability was adversely impacted by bad debt expenses of $7.0 million, predominantly incurred as a result of the
settlement with Wolf Minerals (UK) Limited on 20 April 2018.
As at 30 June the consolidated entity held cash totalling $21.8 million and had no interest bearing debt.
The most significant application of funds during FY18 was in the reduction of trade and other payables by $46.9 million versus a
reduction in trade and other receivables of $20.5 million. In addition, GR Engineering paid $9.2 million in dividends.
DIVIDENDS
“The Board has resolved to declare a final FY18 dividend of 5.0 cents per share, unfranked. The ex-dividend date for this
dividend will be 11 October 2018, the Record Date is 12 October 2018 and the Payment Date will be 24 October 2018.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 20187For personal use only
DIRECTORS’ REPORT
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Wolf Minerals
On 20 April 2018, GR Engineering announced that its wholly owned subsidiary, GR Engineering Services (UK) Limited (GRES
UK) had entered into a settlement agreement with Wolf Minerals (UK) Limited (Wolf) to fully and finally settle all claims
without admission of liability in relation to the EPC contract for the design and construction of the Hemerdon tungsten and
tin mineral processing plant located in Devon, England.
GRES UK and Wolf have now fully resolved this matter, with the confidential settlement sum having been paid and all
securities held under or in connection with the contract being returned and cancelled. The net financial impact of the
settlement with Wolf is approximately $4.8 million (being the primary contributor to the receivable impairment balance
referred to in Note 10 of the Notes to the Financial Statements) in addition to some legal fees and administrative expenses
also realised in the reporting period.
Insurance Bonds
On 22 June 2018, GR Engineering secured a $40 million insurance bond facility provided by Insurance Australia Limited,
replacing the $30 million insurance bond facility previously provided by Assetinsure Pty Ltd.
Office Consolidation
In November 2017, GR Engineering consolidated its three Perth offices into one location at 71 Daly Street, Ascot Western
Australia. At a cost of approximately $1.8 million, this relocation will result in substantial savings in rent and administration
costs and generate significant operational efficiencies.
FUTURE DEVELOPMENTS
Information regarding likely developments in the operations of the consolidated entity in future financial years is referred to
in the Review of Operations and Growth Strategy in above sections of this Directors’ Report.
EVENTS AFTER BALANCE SHEET DATE
On 2nd July 2018 GR Engineering entered into a Deed of Indemnity with Allianz Australia Insurance Limited in connection
with a $20 million insurance bond facility. Together with the additional $40 million insurance bond facility provided by
Insurance Australia Limited in June 2018 and the Company’s $70 million bank guarantee facility provided by National
Australia Bank, the consolidated entity’s total bonding capacity increased from $110 million to $130 million.
On 13 August 2018, GR Engineering announced that it has entered into a settlement deed with Eastern Goldfields
Limited and others to finally settle all claims in relation to the contract for the refurbishment of the Davyhurst Gold Project
processing plant. The terms of the confidential settlement deed contemplate the payment to GR Engineering of $8.25
million, with the settlement sum payable in three instalments, with the last instalment payable by 3 October 2018.
On 20 August 2018, GR Engineering entered into a $17.9 million EPC contract with Saracen Gold Mines Pty Ltd for the
design and construction of the Carosue Dam Paste Backfill Plant.
On 22 August 2018, the consolidated entity declared an unfranked dividend of 5.0 cents per share, an aggregate of
$7,674,784. The Record Date of the dividend is 12 October 2018 and the proposed payment date is 24 October 2018.
CONTINUED8GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
BOARD OF DIRECTORS
Phillip (Phil) LOCKYER – Non-Executive Chairman
BAppSc (Mech Eng)
Phil Lockyer is a Mining Engineer and metallurgist who has over 50 years experience in the mineral industry, with a focus
on gold and nickel in both underground and open pit operations. He was employed by WMC Resources Limited for 20 years
and as General Manager for Western Australia was responsible for WMC’s nickel division and gold operations. Mr Lockyer
also held the position of Director Operations for Dominion Mining Limited and Resolute Limited. He holds a Diploma of
Metallurgy from the Ballarat School of Mines, an Associateship of Mining Engineering from the Western Australian School
of Mines and a Masters of Mineral Economics from Curtin University.
Phil Lockyer has formerly served on the Boards of Perilya Limited, Focus Minerals Limited and CGA Mining Limited. He is
currently a Non-Executive Director of Swick Mining Services Limited and RTG Mining Inc.
•
•
Interests in ordinary shares in GR Engineering – 50,000
Interests in other securities in GR Engineering – None
• Special Responsibilities:
– Non-Executive Chairman
• Directorships in other listed entities in the last 3 years:
– Swick Mining Services Limited (ASX:SWK) 2008 - Present
– RTG Mining Inc. (ASX:RTG) 2013 - Present
Geoffrey (Geoff) Michael JONES – Managing Director
BE (Civil), FIEAust, CPEng
Geoff is a Civil Engineer with over 30 years’ experience in construction, engineering, minerals processing and project
development in Australia and overseas. Geoff previously worked for Baulderstone Hornibrook, John Holland, Minproc
Engineers and Signet Engineering before serving over six years as Group Project Engineer for Resolute Mining Limited.
Prior to joining GR Engineering Services Limited in 2011, Geoff was the General Manager of Sedgman Limited’s metals
engineering business and also responsible for the strategic development of the metals engineering division internationally
Geoff is currently the Non-executive Chairman of Marindi Metals Limited (previously Brumby Resources Limited), and a
Non-Executive Director of Azumah Resources Limited, Energy Metals Limited and Ausgold Limited.
•
•
Interests in ordinary shares in GR Engineering – 772,134
Interests in other securities in GR Engineering:
– Share Appreciation Rights – 1,150,000
• Special Responsibilities:
– Managing Director
• Directorships in other listed entities in the last 3 years:
– Marindi Metals Limited (ASX:MZN) 2006 – Present
– Azumah Resources Limited (ASX:AZM) 2009 – July 2018
– Energy Metals Limited (ASX:EME) 2008 – February 2017
– Ausgold Limited (ASX:AUC) 29 July 2016 – Present
– Blackham Resources Limited (ASX:BLK) – 1 August 2018 – Present
9
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
DIRECTORS’ REPORT
Tony Marco PATRIZI – Executive Director
BE (Mech Eng)
Tony co-founded GR Engineering. Tony is a Mechanical Engineer with over 30 years’ experience in the mining and minerals
processing industries as a company director, operations manager, and project manager and maintenance engineer. Tony was
previously the operations manager of JR Engineering which had over 300 personnel and provided workshop, maintenance,
engineering and construction services to mining and mineral processing projects in Western Australia and interstate.
•
•
Interests in ordinary shares in GR Engineering – 9,795,000
Interests in other securities in GR Engineering – None
• Directorships in other listed entities in the last 3 years:
– Primary Gold Limited (ASX:PGO) from 8 March 2016 – 30 June 2018
Barry Sydney PATTERSON – Non-Executive Director
ASMM, MIMM, FAICD
Barry is a Mining Engineer with over 50 years’ experience in the mining industry and is a co-founder of GR Engineering. He
co-founded contract mining companies Eltin, Australian Mine Management and National Mine Management. Barry was also
a co-founder of JR Engineering.
Barry has served as a director of a number of public companies across a range of industries. He was formerly a 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 – 7,500,000
Interests in other securities in GR Engineering – None
• Special Responsibilities:
– Chairman of the Remuneration and Nominations Committee
– Member of the Audit and Risk Committee
• Directorships in other listed entities in the last 3 years:
– Dacian Gold Limited (ASX:DCN) 2012 – Present
Terrence (Terry) John STRAPP – Non-Executive Director
CPA, FFin., MAICD
Terry has extensive experience in banking, finance and corporate risk management and has over 30 years’ experience in the
mining and resource industry. He was formerly a non-executive director of The Mac Services Group Limited (resigned 2010).
Terry is a non-executive director of Ausdrill Limited.
•
•
Interests in ordinary shares in GR Engineering – 380,000
Interests in other securities in GR Engineering – None
• Special Responsibilities:
– Chairman of the Audit and Risk Committee
– Member of the Remuneration and Nominations Committee
• Directorships in other listed entities in the last 3 years:
– Ausdrill Limited (ASX:ASL) 2005 – Present
CONTINUED10GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
Peter John HOOD – Non-Executive Director
BE(Chem), MAusIMM, FlChemE, FAICD
Peter is a Chemical Engineer and has over 40 years’ experience in the resource and energy sectors.
Peter was formerly the Chief Executive Officer of Coogee Chemicals and Coogee Resources. He is Chairman of the
International Chamber of Commerce National Committee of Australia and is Past President of the Australian Chamber of
Commerce and Industry and the Chamber of Commerce and Industry Western Australia. Peter is currently Chairman of Matrix
Composites and Engineering Limited and Lead Independent Director of Cue Energy Resources Limited.
Peter was appointed as a Non-Executive Director of the Company on 10 February 2016.
•
•
Interests in ordinary shares in GR Engineering – 500,000
Interests in other securities in GR Engineering – None
• Special Responsibilities:
– Member of the Audit and Risk Committee
– Member of the Remuneration and Nominations Committee
• Directorships in other listed entities in the last 3 years:
– Matrix Composites & Engineering Limited (ASX:MCE) 2011 – Present
– Cue Energy Resources Limited (ASX:CUE) February 2018 – Present
MEETINGS OF DIRECTORS
The number of Meetings of the Board of Directors held during the year ended 30 June 2018 and the number attended by
each director are as follows:
FULL MEETINGS OF DIRECTORS
Eligible
Attended
Phil Lockyer
Geoff Jones
Tony Patrizi
Barry Patterson
Terrence Strapp
Peter Hood
10
10
10
10
10
10
10
9
9
7
10
10
No separate meetings of the Audit and Risk Committee were held during the year with the Board electing to address
matters for its consideration within the context of meetings of the full Board of Directors. A meeting of the Remuneration
and Nomination Committee was held on 11 October 2017. It was attended by Phillip Lockyer, Peter Hood, Barry Patterson
and Terrence Strapp.
OPTIONS
As at the date of this report, there were no unissued ordinary shares of GR Engineering under option.
SHARE APPRECIATION RIGHTS
As at the date of this report, Share Appreciation Rights granted are as follows:
Grant Date
15 November 2016
15 November 2016
Vesting & Exercise Date
Exercise price
30 June 2019
30 June 2020
Nil
Nil
Quantity
650,000
500,000
For full particulars of the Share Appreciation Rights issued to Directors as remuneration, refer to the Remuneration Report.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201811For personal use only
DIRECTORS’ 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
31 March 2019
15 June 2020
20 August 2020
2 August 2020
21 August 2020
1 November 2020
14 June 2021
No. Performance Rights
Expiry Date
Exercise price
127,500
30,000
1,870,000
60,000
50,000
35,000
60,000
31 March 2019
15 June 2020
20 August 2020
2 August 2020
21 August 2020
1 November 2020
14 June 2021
–
–
–
–
–
–
–
The Performance Rights holders do not have any right to participate in any issues of shares or other interests in the
consolidated entity or any other entity.
During the financial year ended 30 June 2018 55,000 ordinary shares were issued due to the vesting of Performance Rights.
INDEMNIFYING OFFICERS OR AUDITORS
During the financial year, the consolidated entity paid insurance premiums relating to contracts insuring the directors and
company secretary against liability which may arise in connection with them acting as Director or Company Secretary, to the
extent permitted under the Corporations Act. The contract of insurance prohibits disclosure of the nature of the liability and
the amount of the premium.
LEGAL PROCEEDINGS
No person has applied for leave of court to bring proceedings on behalf of the consolidated entity or intervene in any
proceedings to which the consolidated entity is a party for the purpose of taking responsibility on behalf of the consolidated
entity for all or any part of those proceedings.
NON AUDIT SERVICES
The Board of Directors is satisfied that the provision of non-audit services during the year is consistent with the general
standard of independence imposed by the Corporations Act 2001.
Non-audit services were reviewed by the Board to ensure they do not compromise the objectivity of the Auditor and to
ensure the nature of services provided is not inconsistent with the principals of auditor independence. Set out in APES 110:
Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.
During the year ended 30 June 2018 fees amounting to $27,300 were paid to Deloitte Touche Tohmatsu for non-audit
services including taxation and corporate finance advice.
AUDITOR’S INDEPENDENCE DECLARATION
The Auditor’s Independence Declaration for the year ended 30 June 2018 has been reviewed and can be found at page 21
of the annual financial report.
ENVIRONMENTAL ISSUES
In conducting its business, the consolidated entity is required to obtain permits and licences from relevant state
environment protection authorities. It is of paramount importance to management and the Board of Directors that as well as
operating within its own Environmental Policies, the consolidated entity observes all relevant licences in good standing. The
consolidated entity has not been made aware of any areas of non-compliance in this regard.
CONTINUED12GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
REMUNERATION REPORT – AUDITED
The remuneration report details the amount and nature of the remuneration for the consolidated entity’s key management
personnel.
Directors
• Geoff Jones
(Managing Director)
• Phil Lockyer
(Non-Executive Chairman)
• Tony Patrizi
(Executive Director)
• Barry Patterson
(Non-Executive Director)
• Terrence Strapp
(Non-Executive Director)
• Peter Hood
(Non-Executive Director)
Executives
• David Sala Tenna
(Manager – Projects)
• Joe Totaro
(Chief Financial Officer & Company Secretary)
• Rodney Schier
(Engineering Manager)
• Paul Newling
(General Manager – EPCM) – Resigned 7 February 2018
• Stephen Kendrick (Manager – Projects) – Appointed as executive on 11 December 2017
• Thomas Marshall
(Manager – Eastern Region) – Appointed 1 August 2017
Unless otherwise stated the named persons held their current position for the whole financial year and since the end of the
financial year. At the consolidated entity’s 2017 Annual General Meeting, 85.75% of eligible shareholders voted in favour of
the remuneration report. No specific comments were made regarding the remuneration report at the meeting.
REMUNERATION POLICY
The consolidated entity’s remuneration policy has been designed to attract and retain high calibre key employees whose
personal interests are aligned with success and growth of the consolidated entity and therefore shareholders. This will be
achieved by:
• Staying abreast of labour market forces thereby ensuring remuneration offered by the consolidated entity is competitive
and remains so through a process of annual review.
• Devising performance based remuneration programmes.
• Utilising the consolidated entity’s Equity Incentive Plan and / or Employee Share Option Plan.
NON-EXECUTIVE DIRECTORS
The consolidated entity’s policy is to remunerate non-executive directors according to market rates and to reflect the time
dedicated to their position and special responsibilities involved.
GR Engineering’s Constitution provides that the Directors shall be paid out of the funds of the consolidated entity by way
of remuneration for services such sums as may from time to time be determined by the consolidated entity in General
Meeting, to be divided among the Directors in such proportions as they shall from time to time agree or in default of
agreement, equally.
Directors are encouraged to hold shares in the consolidated entity to align their personal objectives with the growth and
profitability of the consolidated entity.
EXECUTIVE DIRECTORS
Executive Directors’ pay and reward is comprised of a competitive base salary. To the extent that executive directors are
shareholders in the consolidated entity, their personal objectives are aligned with the performance of the consolidated entity.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201813For personal use only
DIRECTORS’ REPORT
SENIOR EXECUTIVES
Executives’ remuneration is comprised of a competitive base salary, performance bonuses and share based incentive
payments (at the discretion of the board). The Managing Director, Geoff Jones is also incentivised through the issue of
performance based Share Appreciation Rights and is eligible to participate in the GR Engineering Services Limited Equity
Incentive Plan.
All executive remuneration packages are reviewed annually to ensure they remain competitive and reflect performance.
Remuneration paid to directors and executives is valued at cost to the consolidated entity. Options, Performance Rights and
Share Appreciation Rights are valued using the Black Scholes and Monte Carlo methods.
EMPLOYMENT DETAILS OF MEMBERS OF KEY MANAGEMENT PERSONNEL
Name
Title
Contract Details
Non Salary
Cash
Incentives
Shares/
Units
Options/
Rights
Fixed
Salary
Total
Phillip Lockyer
Non-Executive
Chairman
By rotation and re-election
–
Geoff Jones
Managing Director Termination: 6 months notice
3.6%
by the consolidated entity
and 3 months notice by the
employee
Tony Patrizi
Executive Director Termination: 3 months notice
by the consolidated entity or
employee
Barry Patterson Non-Executive
By rotation and re-election
Director
Terrence Strapp Non-Executive
By rotation and re-election
Peter Hood
David
Sala Tenna
Joe Totaro
Director
Non-Executive
Director
Manager –
Projects
By rotation and re-election
Termination: 3 months notice
by the consolidated entity or
employee
Company
Secretary / Chief
Financial Officer
Termination: 3 months notice
by the consolidated entity or
employee
Rodney Schier
Engineering
Manager
Thomas
Marshall
Manager –
Eastern Region
Paul Newling
- Resigned 7
February 2018
General Manager
– EPCM
Termination: 3 months notice
by the consolidated entity or
employee
Termination: 4 weeks notice
by the consolidated entity or
employee
Termination: 3 months notice
by the consolidated entity or
employee
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100% 100%
26.2% 70.2% 100%
–
–
–
–
–
–
–
100% 100%
100% 100%
100% 100%
100% 100%
100% 100%
100% 100%
100% 100%
14.9% 85.1% 100%
–
100% 100%
The terms and conditions upon which key employees are employed are set out in contracts of employment. These contracts
provide for minimum notice periods prior to termination and, in some cases restrictive covenants upon termination.
The consolidated entity can terminate the contract at any time in the case of serious misconduct and termination payments
may be paid in lieu of notice period.
CONTINUED14GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
REMUNERATION DETAILS FOR THE YEAR ENDED 30 JUNE 2018 - BOARD OF DIRECTORS
Short Term Benefits
Non
Cash
Payments* Other** Sub Total
Cash
Salary &
Fees
Post
Employment
Benefits
Equity Based
Payments
Super-
annuation
Equity
Options
Total
Performance
Based
$
$
NON-EXECUTIVE CHAIRMAN
Phillip Lockyer
2018
2017
76,190
52,933
–
–
EXECUTIVE DIRECTORS
Geoff Jones
$
–
–
$
$
76,190
52,933
7,237
5,028
$
–
–
579,951
29,537
32,000
641,488
20,048
235,296
589,738
14,945
72,000
676,683
19,615
162,160
2018
2017
Tony Patrizi
2018
2017
296,331
15,620
296,330
14,753
NON-EXECUTIVE DIRECTORS
Barry Patterson
2018
2017
57,000
57,000
Terrence Strapp ***
2018
2017
Peter Hood
2018
2017
62,700
62,700
57,000
65,931
TOTAL DIRECTORS
–
–
–
–
–
–
–
–
–
–
–
–
–
–
311,951
28,151
311,083
28,151
57,000
57,000
62,700
62,700
57,000
65,931
5,415
5,415
5,415
5,415
5,415
6,263
–
–
-
-
–
–
–
–
2018
2017
1,129,172
45,157
32,000
1,206,329
71,681
235,296
1,124,632
29,698
72,000
1,226,330
69,887
162,160
$
$
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
83,427
57,961
0.0%
0.0%
896,832
29.8%
858,458
27.3%
340,102
339,234
0.0%
0.0%
62,415
62,415
68,115
68,115
62,415
72,194
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
1,513,306
17.7%
1,458,377
16.1%
* “Non-Cash payments” refer to reportable fringe benefits (fuel for personal vehicles and novated leases).
** “Other” amounts relate to performance based bonus payments, as approved by the board.
*** Paid to SDG Nominees Pty Ltd, an entity controlled by Terrence Strapp.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201815For personal use only DIRECTORS’ REPORT
REMUNERATION DETAILS FOR THE YEAR ENDED 30 JUNE 2018 - EXECUTIVES
Short Term Benefits
Non
Cash
Payments* Other** Sub Total
Cash
Salary &
Fees
Post
Employment
Benefits
Equity Based
Payments
Super-
annuation
Equity
Options
Total
Performance
Based
$
$
$
$
$
$
$
$
%
SENIOR EXECUTIVES
David Sala Tenna – Manager – Projects
2018
2017
331,193
–
5,479
336,672
331,193
4,839
5,479
341,511
Joe Totaro – Company Secretary & Chief Financial Officer
2018
2017
260,869
7,872
5,479
274,220
260,869
9,481
5,479
275,829
Rodney Schier – Engineering Manager
2018
2017
261,468
5,748
5,479
272,695
261,468
6,483
5,479
273,430
Stephen Kendrick – Manager – Projects
31,463
31,983
24,872
25,303
24,839
25,359
2018
2017
261,468
4,649
5,479
271,596
24,839
–
–
–
–
–
Thomas Marshall – Manager – Eastern Region
–
–
–
–
–
–
–
–
2018
2017
260,791
–
–
–
Paul Newling – General Manager EPCM
2018
2017
299,720
419,390
–
–
TOTAL SENIOR EXECUTIVES
–
–
3,653
264,444
25,389
50,634
–
–
299,720
6,000
425,390
14,126
19,615
–
–
–
2018
2017
1,675,509
18,269
25,569
1,719,347
145,528
50,634
1,272,920
20,803
22,437
1,316,160
102,260
–
GRAND TOTAL
2018
2017
2,804,681
63,426
57,569
2,925,676
217,209
285,930
2,397,552
50,501
94,437
2,542,490
172,147
162,160
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
368,135
373,494
299,092
301,132
297,534
298,789
296,435
–
340,467
–
313,846
445,005
1,915,509
1,418,420
1.5%
1.5%
1.8%
1.8%
1.8%
1.8%
1.8%
0.0%
1.1%
0.0%
0.0%
1.3%
1.3%
1.6%
3,428,815
10.0%
2,876,797
8.9%
* “Non-Cash payments” refer to reportable fringe benefits (fuel for personal vehicles and novated leases)
** “Other” amounts relate to performance based bonus payments, as approved by the board
CONTINUED16GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
LONG TERM INCENTIVES
Employee Share Option Plan
The consolidated entity has established an employee share option plan (ESOP). The consolidated entity may offer options
to subscribe for shares in the consolidated entity to eligible persons subject to the ESOP rules. Options offered under the
ESOP are to be offered on such terms as the board determines and the offer must set out specified information including
the number of options, the period of the offer, calculation of the exercise price and any exercise conditions.
The exercise price is to be determined by the Board in its absolute discretion and set out in the offer provided that the
exercise price is not less than the average market price on ASX on the five trading days prior to the day the Directors resolve
to grant the option(s).
.
Equity Incentive Plan
The GR Engineering Services Limited 2015 Equity Incentive Plan (Plan) was adopted by the Board on 8 October 2015.
In accordance with the Listing Rules of the Australian Securities Exchange (ASX), shareholder approval of the Plan was
obtained at the consolidated entity’s Annual General Meeting held on 10 November 2015. Under the ASX Listing Rules
and Corporations Act 2001 (Cth), the issue of securities under the Plan to directors will be subject to separate shareholder
approval. Eligible participants in the Plan include those defined in ASIC Class Order 14/1000 (CO) or as determined by the
Board to be eligible to participate in the Plan from time to time.
The Plan is designed to align the interests of executives and employees with the interests of shareholders by providing an
opportunity to receive an equity interest in the consolidated entity and therefore direct participation in the benefits of future
consolidated entity performance over the medium to long term.
This is achieved by awarding both or either:
• Performance Rights (PR), with each PR being a right to acquire one fully paid ordinary share of the consolidated entity
and vesting upon the satisfaction of certain performance conditions; and
• Share Appreciation Rights (SARs), being rights to receive a future payment in shares, based on to the amount of increase
in market value of one share in the consolidated entity in a specified period between the grant of the SAR and exercise of
that SAR.
Securities issued under the Plan will be subject to vesting criteria as determined by the Board and have a term of 3 years (or
such term as otherwise agreed by the Board).
The GR Engineering Services Limited Equity Incentive Plan adopted in 2012 (2012 Plan) was superseded by the Plan, but
remains in place for the same purposes and on similar terms and conditions to the Plan to govern the unvested securities
issued under the 2012 Plan.
During the year ended 30 June 2018 2,155,000 Performance Rights were issued in accordance with the terms and
conditions of the Plan. A total of 2,282,500 Performance Rights were on issue as at 30 June 2018.
Vesting Date
Expiry Date
Exercise Price
Number
Fair Value
Grant Date
30 Apr 2014
13 Jul 2017
13 Jul 2017
31 Mar 2019
31 Mar 2019
13 Jul 2018
13 Jul 2018
15 Jun 2020
15 Jun 2020
21 Aug 2017
20 Aug 2020
20 Aug 2020
21 Aug 2017
21 Aug 2017
2 Aug 2018
2 Aug 2018
2 Aug 2020
2 Aug 2020
28 Aug 2017
21 Aug 2020
21 Aug 2020
1 Nov 2017
1 Nov 2020
1 Nov 2020
14 Jun 2018
14 Jun 2021
14 Jun 2021
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
127,500
20,000
30,000
1,870,000
30,000
60,000
50,000
35,000
60,000
$0.410
$1.317
$1.065
$1.035
$1.297
$1.041
$0.951
$0.978
$1.010
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201817For personal use only
DIRECTORS’ REPORT
Of the Performance Rights issued in the current financial year, 90,000 relate to key management personnel. Performance
Rights which lapsed during the financial year do not relate to key management personnel.
A total of 1,150,000 Share Appreciation Rights are on issue pursuant to the Plan, with 1,135,705 vesting prior to 30 June
2017 and 136,429 vesting during the year.
The following share-based payment compensation relates to Share Appreciation Rights issued to directors and senior
management:
Name
Grant
Date
Vesting
Date
Date
Exercised
Number
of Shares
Issued on
Vesting Date
Exercise
Price
$
Quantity
Fair
Value
$
% of Compensation
for the Year
Consisting of Share
Appreciation Rights
Geoff Jones
12 Nov 2013 30 Jun 2018 30 Jun 2018
136,429
15 Nov 2016 30 Jun 2019
15 Nov 2016 30 Jun 2020
Nil
Nil
Nil
213,334
$0.1508
26.2%
650,000
$0.5969
500,000
$0.5826
RELATIONSHIP BETWEEN COMPANY PERFORMANCE AND REMUNERATION POLICY
The table below sets out summary information about the consolidated entity’s earnings and movements in shareholder
wealth for the 5 years to 30 June 2018:
Revenue ($000's)
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)
2014
114,183
16,787
14,164
$0.70
9,000
9.44
9.26
2015
216,893
17,196
12,938
$0.90
12,785
8.60
8.42
2016
255,292
25,406
19,340
$0.99
15,158
12.71
12.64
2017
238,691
16,287
12,865
$1.47
15,287
8.41
8.35
2018
283,603
16,202
11,641
$1.39
9,195
7.60
7.45
Tony Patrizi, a Non-Executive Director, four senior executives and a key employee hold significant shareholdings in the
consolidated entity. As a result the performance of the consolidated entity and the personal and financial interest of its
executive and management team are aligned.
The consolidated entity has issued Share Appreciation Rights to its Managing Director Geoff Jones which are designed to
incentivise the Managing Director and align his interests with those of all shareholders.
The ESOP and Plan have been adopted by the consolidated entity and will be implemented as the Nomination and
Remuneration Committee identify the need to remunerate either existing or future employees, key employees, executives
or executive directors on a performance basis.
CONTINUED18GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
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:
2018
Ordinary shares
Phillip Lockyer
Geoff Jones
Tony Patrizi
Barry Patterson
Terry Strapp
Peter Hood
David Sala Tenna
Joe Totaro
Rodney Schier
Stephen Kendrick
2017
Ordinary shares
Phillip Lockyer
Geoff Jones
Tony Patrizi
Barry Patterson
Terry Strapp
Peter Hood
David Sala Tenna
Joe Totaro
Rodney Schier
Balance at
the start of
the year
Received
as part of
remuneration
Additions/
other
Disposals/
other
26,500
–
23,500
635,705
136,429
9,795,000
7,500,000
380,000
500,000
12,325,000
8,000,000
8,100,000
4,875,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
52,137,205
136,429
23,500
–
–
–
–
–
–
–
–
–
–
–
Balance at
the start of
the year
Received
as part of
remuneration
Additions/
other
Disposals/
other
Balance
at the end
of the year
50,000
772,134
9,795,000
7,500,000
380,000
500,000
12,325,000
8,000,000
8,100,000
4,875,000
52,297,134
Balance
at the end
of the year
–
–
26,500
–
26,500
940,253
195,452
9,795,000
10,500,000
380,000
500,000
13,825,000
9,500,000
8,100,000
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
(500,000)
635,705
–
9,795,000
(3,000,000)
7,500,000
–
–
380,000
500,000
(1,500,000)
12,325,000
(1,500,000)
8,000,000
–
8,100,000
53,540,253
195,452
26,500
(6,500,000)
47,262,205
OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
During the year ended 30 June 2018 the consolidated entity leased office space at 71 Daly Street, Ascot WA from
Ashguard Pty Ltd. Directors of the consolidated entity, Tony Patrizi and Barry Patterson, each have a non controlling interest
in Ashguard Pty Ltd. The total amount invoiced by Ashguard Pty Ltd in the year ended 30 June 2018 amounted to $639,775
including GST (2017: $327,325). The balance payable at 30 June 2018 is $108,617 (2017: $50,994). During the year ended
30 June 2018 the consolidated entity procured items for Ashguard Pty Ltd. The total amount invoiced to Ashguard Pty Ltd
in the year ended 30 June 2018 was $10,995 including GST (2017: $9,446). The balance outstanding at 30 June 2018 is nil
(2017: nil).
The terms and conditions of the transactions and the associated agreements to which they relate (where applicable) that
have been set out above are at arms length and on normal commercial terms.
This marks the end of the remuneration report.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201819For personal use only
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
The Directors of the consolidated entity are committed to the highest standards of corporate governance in all elements of
the business of the consolidated entity including internal control, ethics, risk functions, policies and internal and external audit.
The consolidated entity’s Board of Directors has adopted a comprehensive corporate governance policy and manual based
on ASX guidelines. The Board continually seeks to review and develop additional structures to be implemented as the
consolidated entity’s activities develop in size, nature and scope.
Please refer to the Corporate Governance Statement contained in this report.
This directors’ report is signed in accordance with a resolution of directors made pursuant to s.298(2) of the Corporations
Act 2001.
On behalf of the Directors
Geoff Jones
Managing Director
22 August 2018
CONTINUED20GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only AUDITOR’S INDEPENDENCE DECLARATION
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Tower 2
Brookfield Place
123 St Georges Terrace
Perth WA 6000
GPO Box A46
Perth WA 6837 Australia
Tel: +61 8 9365 7000
Fax: +61 8 9365 7001
www.deloitte.com.au
22 August 2018
The Board of Directors
GR Engineering Services Limited
71 Daly Street
ASCOT WA 6104
Dear Directors
GR Engineering Services Limited
In accordance with Section 307C of the Corporations Act 2001, I am pleased to provide the following
declaration of independence to the directors of GR Engineering Services Limited.
As lead audit partner for the audit of the financial statements of GR Engineering Services Limited for
the year ended 30 June 2018, I declare that to the best of my knowledge and belief, there have been
no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Nicole Menezes
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
21GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
CONSOLIDATED STATEMENT OF
PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2018
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 & audit fees
Marketing
Bad debts
Occupancy
Impairment of financial assets
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 gain/(loss) on available for sale financial assets
Exchange differences on translating foreign operations
Other comprehensive income for the year, net of income tax
Total comprehensive income for the year attributable to the
owners of GR Engineering Services Limited
Notes
5
6
7
7
7
10
8
20
Consolidated
2018
$
2017
$
283,602,634
238,690,534
950,156
1,382,624
(87,569,885)
(79,075,485)
(7,024,520)
(1,369,289)
(654,695)
(774,750)
(62,894)
(6,547,039)
(1,392,211)
(594,837)
(270,931)
(56,080)
(155,278,257)
(128,574,678)
(469,214)
(65,088)
(7,034,243)
(2,143,979)
(810,321)
(279,974)
(96,838)
–
(2,443,873)
–
(5,093,766)
(4,454,405)
16,201,889
16,286,807
(4,560,896)
(3,421,894)
11,640,993
12,864,913
(789,563)
366,843
(422,720)
(1,154,489)
174,999
(979,490)
11,218,273
11,885,423
Profit attributable to owners of the parent
11,640,993
12,864,913
Total comprehensive income attributable to the owners
of the parent
11,218,273
11,885,423
Basic earnings per share
Diluted earnings per share
The accompanying notes form part of these Financial Statements.
30
30
Cents
7.60
7.45
Cents
8.41
8.35
22GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
AS AT 30 JUNE 2018
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepayments
Current tax assets
Total current assets
Non-current assets
Property, plant and equipment
Financial 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
The accompanying notes form part of these Financial Statements.
Notes
Consolidated
2018
$
2017
$
9
10
11
8
12
13
8
14
15
8
16
17
15
16
18
19
20
21,751,300
34,868,758
45,648,672
66,183,661
6,884,447
19,783,118
614,173
497,293
–
2,212,666
74,898,592
123,545,496
3,878,743
2,621,911
3,203,273
9,703,927
2,716,545
3,129,121
1,025,438
6,871,104
84,602,519
130,416,600
15,235,581
62,217,046
336,110
390,072
11,651,145
1,831,981
458,403
–
8,834,547
7,135,911
29,444,889
78,645,907
128,932
2,557,618
2,686,550
226,612
2,681,091
2,907,703
32,131,439
81,553,610
52,471,080
48,862,990
30,445,356
30,388,000
566,641
(538,355)
21,459,083
19,013,345
52,471,080
48,862,990
23GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2018
Notes
Consolidated
2018
$
2017
$
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Income tax paid
Interest received
Net cash flows (used in)/provided by operating activities
9
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Investment in financial assets
Net cash flows used in investing activities
Cash flows from financing activities
Payment of finance lease liabilities
Dividends paid
Net cash flows used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effects of exchange rate changes of balances of cash held in
foreign currencies
Cash and cash equivalents at end of period
The accompanying notes form part of these Financial Statements.
9
9
343,066,602
192,863,083
(341,128,499)
(203,382,079)
(3,358,024)
(3,781,074)
532,544
(887,377)
820,561
(13,479,509)
(2,654,972)
–
(250,000)
(2,904,972)
(456,108)
28,484
(396,666)
(824,290)
(695,866)
(752,045)
(9,195,256)
(15,287,131)
(9,891,122)
(16,039,176)
(13,683,471)
(30,342,975)
34,868,758
64,923,175
566,013
288,558
21,751,300
34,868,758
24GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2018
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25GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
NOTE 1. GENERAL INFORMATION
The financial report covers GR Engineering Services Limited as a consolidated entity consisting of GR Engineering Services
Limited and the entities it controlled during the year. The financial report is presented in Australian dollars, which is GR
Engineering Services Limited’s functional and presentation currency.
The financial report consists of the financial statements, notes to the financial statements and the directors’ declaration.
GR Engineering Services Limited is a listed public company limited by shares, incorporated and domiciled in Australia. The
registered office and principal place of business of GR Engineering Services Limited is located at 71 Daly Street, Ascot,
Western Australia.
A description of the nature of the consolidated entity’s operations and its principal activities are included in the directors’
report, which is not part of the financial report.
The financial report was authorised for issue, in accordance with a resolution of directors, on 21 August 2018. The directors
have the power to amend and reissue the financial report.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
New, revised or amending Accounting Standards and Interpretations adopted
Adoption of new and revised Accounting Standards
The consolidated entity has adopted all of the new and revised Standards and Interpretations issued by the Australian
Accounting Standards Board that are relevant to their operations and are effective for the current financial reporting period,
beginning 1 July 2017.
New and revised Standards and amendments thereof and Interpretations effective for the current year that are relevant to
the consolidated entity included:
• AASB 1048 ‘Interpretation of Standards’
• AASB 2016-1 ‘Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for
Unrealised Losses’
• AASB 2016-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107’
• AASB 2017-2 ‘Amendments to Australian Accounting Standards – Further Annual Improvements 2014-2016’
The adoption of these standards and interpretations did not have a material impact on the consolidated entity.
26GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
New Accounting Standards and Interpretations not yet mandatory or early adopted
The following Australian Accounting Standards and Interpretations have recently been issued or amended but are not yet
effective and have not been adopted by the consolidated entity for the year ended 30 June 2018.
Standard/Interpretation
Effective for annual
reporting periods
beginning on
or after
Expected to be
initially applied
in the financial
year ending
AASB 9 ‘Financial Instruments’, and the relevant amending standards
1 January 2018
30 June 2019
AASB 15 ‘Revenue from Contracts with Customers’, AASB 2014-5
‘Amendments to Australian Accounting Standards arising from AASB
15’, AASB 2015-8 ‘Amendments to Australian Accounting Standards –
Effective Date of AASB 15’, and AASB 2016-3 ‘Amendments to Australian
Accounting Standards – Clarifications to AASB 15’
AASB 16 ‘Leases’
AASB 2014-10 ‘Amendments to Australian Accounting Standards – Sale
or Contribution of Assets between an Investor and its Associate or Joint
Venture’ and AASB 2015-10 ‘Amendments to Australian Accounting
Standards – Effective Date of Amendments to AASB 10 and AASB 128’,
AASB 2017-5 Amendments to Australian Accounting Standards – Effective
Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections
AASB 2016-5 'Amendments to Australian Accounting Standards -
Classification and Measurement of Share-based Payment Transactions'
AASB 2017-7 'Amendments to Australian Accounting Standards – Long-
term Interests in Associates and Joint Ventures'
1 January 2018
30 June 2019
1 January 2019
30 June 2020
1 January 2022
30 June 2023
1 January 2018
30 June 2019
1 January 2019
30 June 2020
AASB 2018-1 'Amendments to Australian Accounting Standards – Annual
Improvements 2015–2017 Cycle'
1 January 2019
30 June 2020
Interpretation 22 'Foreign Currency Transactions and Advance
Consideration'
1 January 2018
30 June 2019
Interpretation 23 Uncertainty over Income Tax Treatments, AASB 2017-4
Amendments to Australian Accounting Standards – Uncertainty over Income
Tax Treatments
1 January 2019
30 June 2020
At the date of authorisation of the financial statements, there were no new IASB Standards or IFRIC Interpretations
(for which Australian equivalent Standards and Interpretations have not yet been issued) which were applicable to the
consolidated entity.
Whilst AASB 15 has not yet been adopted, the consolidated entity does not anticipate a material impact for when this new
standard is adopted, as the majority of contracts tend to be less than 1 year. A number of the consolidated entity’s major
contracts were closed out during the current reporting period.
AASB 9 will impact the consolidated entity as it introduces the “expected credit loss” method. The consolidated entity
has reviewed the new standard and it is not expected to materially impact the consolidated entity when initially adopted.
Whilst some isolated bad debts have occurred this year, they represent less than 2% of the total revenue of the
consolidated entity in the current year. Historically the consolidated entity has had a strong recovery of its receivables,
so the future adoption of this new standard is likely to result in an immaterial provision to the trade receivables based
on the “expected credit loss” method.
The consolidated entity is yet to undertake a formal assessment of the impact of the other accounting standards that are
issued but not yet effective, but the impact on the consolidated entity is anticipated to be immaterial as the majority do not
impact its current operations, other than the future impact of AASB 16. Whilst the formal assessment is not yet undertaken,
the consolidated entity discloses in Note 26 that it has operating lease commitments. These are likely to appear on the
Statement of Financial Position in the future when the new AASB 16 is initially adopted by the consolidated entity.
27GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Statement of compliance
These financial statements are general purpose financial statements which have been prepared in accordance with the
Corporations Act 2001, Accounting Standards and Interpretations, and comply with other requirements of the law.
The financial statements comprise the consolidated financial statements of the consolidated entity. For the purposes of
preparing the consolidated financial statements, the consolidated entity is a for-profit entity.
Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures
that the financial statements and notes of the company and the consolidated entity comply with International Financial
Reporting Standards (‘IFRS’).
Basis of preparation
Historical cost convention
The consolidated financial statements have been prepared on the basis of historical cost, except for certain non-current
assets and financial instruments that are measured at revalued amounts or fair values, as explained in the accounting
policies below. Historical cost is generally based on the fair values of the consideration given in exchange for assets.
All amounts are presented in Australian dollars, unless otherwise noted.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date, regardless of whether that price is directly observable or estimated using
another valuation technique. In estimating the fair value of an asset or a liability, the consolidated entity takes into account
the characteristics of the asset or liability if market participants would take those characteristics into account when pricing
the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated
financial statements is determined on such a basis, except for share-based payment transactions that are within the scope
of AASB 2, leasing transactions that are within the scope of AASB 117, and measurements that have some similarities to
fair value but are not fair value, such as net realisable value in AASB 2 or value in use in AASB 136.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the
degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access
at the measurement date;
• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the consolidated entity’s accounting policies. The areas
involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the
financial statements, are disclosed in note 3.
Accounting for construction contracts
Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference
to the stage of completion of the contract activity at the reporting date, measured based on the proportion of contract
costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be
representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the
extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated
reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201828For personal use only
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Contract costs are recognised as expenses in the period in which they are incurred. Where construction contracts are still in
the completion stage, they are included as work in progress.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an
expense immediately.
Principles of consolidation
The consolidated financial statements incorporate the financial statements of the consolidated entity and entities (including
structured entities) controlled by the consolidated entity and its subsidiaries. Control is achieved when the consolidated entity:
• has power over the investee;
•
is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.
The consolidated entity reassesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control listed above.
When the consolidated entity has less than a majority of the voting rights of an investee, it has power over the investee
when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally.
The consolidated entity considers all relevant facts and circumstances in assessing whether or not the consolidated entity’s
voting rights in an investee are sufficient to give it power, including:
• the size of the consolidated entity’s holding of voting rights relative to the size and dispersion of holdings of the other
vote holders;
• potential voting rights held by the consolidated entity, other vote holders or other parties;
• rights arising from other contractual arrangements; and
• any additional facts and circumstances that indicate that the consolidated entity has, or does not have, the current
ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous
shareholders’ meetings.
Consolidation of a subsidiary begins when the consolidated entity obtains control over the subsidiary and ceases when the
consolidated entity loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of
during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date
the consolidated entity gains control until the date when the consolidated entity ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the consolidated entity and
to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the consolidated
entity and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line
with the consolidated entity’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of
the consolidated entity are eliminated in full on consolidation.
Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the
operating segments, has been identified as the Managing Director of the consolidated entity.
29GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currency translation
The financial report is presented in Australian dollars, which is GR Engineering Services Limited’s functional and
presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation
at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in
profit or loss.
Foreign operations
The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting
date. The revenues and expenses of foreign operations are translated into Australian dollars using the exchange rates
prevailing at the dates of the transactions. All resulting foreign exchange differences are recognised in other comprehensive
income through the foreign currency reserve in equity.
The functional currency of GR Engineering Services (UK) Limited is Great British pounds. The functional currency of
Upstream Production Solutions Malaysia Sdn. Bhd. is Malaysian Ringgit. The functional currency of GR Engineering Services
(Greece) is Euro. The functional currency of GR Engineering Services Turkey is Turkish Lira. The functional currency of other
foreign subsidiaries of the consolidated entity is United States dollars.
The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange
rates as at the date of the initial transaction.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when
the fair value was determined.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the consolidated entity and
the revenue can be reliably measured.
Sales revenue
Revenue from the sale of goods is recognised when the consolidated entity has transferred to the buyer the significant risks
and rewards of ownership of the goods.
Rendering of services
Revenue from a contract to provide services is recognised by reference to the stage of completion.
Where the contract outcome cannot be measured reliably, revenue is recognised only to the extent of the expenses
recognised that are recoverable.
Interest
Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts
estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the
financial asset.
Income tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the
statement of profit or loss because of items of income or expense that are taxable or deductible in other years and items
that are never taxable or deductible. The consolidated entity’s liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the end of the reporting period.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201830For personal use only
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred income tax is provided for on all temporary differences at the reporting date between the tax bases of assets and
liabilities and their carrying amounts for the financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences:
• except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that
is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or
loss; and
•
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint
ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that
the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and
unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences, and the carry-forward of unused tax assets and unused tax losses can be utilised:
• except where the deferred income tax asset relating to the deductible temporary differences arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction,
affects neither the accounting profit nor taxable profit or loss; and
•
in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in
joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will
reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset
is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the
reporting date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in the statement of profit or loss
and other comprehensive income.
Unearned income
Unearned income classified as a current liability consists of customer advances for construction work in progress. The
consolidated entity recognises a liability upon receipt of customer advances and then subsequently recognised as revenue
when earned.
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly
liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value.
Trade and other receivables
Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an
allowance for any uncollectible amounts.
An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off
when identified.
Inventories
Inventories are valued at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and
the estimated costs necessary to make the sale.
31GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments and other financial assets
Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial
measurement, except for financial assets at fair value through profit or loss. They are subsequently measured at either
amortised cost or fair value depending on their classification. Classification is determined based on the purpose of the
acquisition and subsequent reclassification to other categories is restricted. The fair values of quoted investments are based
on current bid prices. For unlisted investments, the consolidated entity establishes fair value by using valuation techniques.
These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same,
discounted cash flow analysis, and option pricing models.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been
transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised
in profit or loss when the asset is derecognised or impaired.
Available for sale financial assets
Listed shares and listed redeemable notes held by the consolidated entity that are traded in an active market are classified
as available for sale and are stated at fair value.
Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the
investments revaluation reserve, with the exception of impairment losses, interest calculated using the effective interest
method, and foreign exchange gains and losses on monetary assets, which are recognised in profit or loss. Where the
investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the
investments revaluation reserve is reclassified to profit or loss.
Dividends on available for sale equity instruments are recognised in profit or loss when the consolidated entity’s right to
receive the dividends is established.
Impairment of financial assets
The consolidated entity assesses at the end of each reporting period whether there is any objective evidence that a financial
asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the issuer or
obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower concessions
due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter
bankruptcy or other financial reorganisation; the disappearance of an active market for the financial asset; or observable data
indicating that there is a measurable decrease in estimated future cash flows.
When an available for sale financial asset is considered to be impaired, cumulative gains or losses previously recognised in
other comprehensive income are reclassified to profit or loss in the period.
The amount of the impairment allowance for loans and receivables carried at amortised cost is the difference between the
asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest
rate. If there is a reversal of impairment, the reversal cannot exceed the amortised cost that would have been recognised
had the impairment not been made and is reversed to profit or loss.
Property, plant and equipment
Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
• Property, plant and equipment - over 2.5 to 20 years
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201832For personal use only
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate
the carrying value may not be recoverable.
For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the
cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the
estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.
The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset.
Impairment losses are recognised in the profit or loss in the cost of sales line item.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected
to arise from the continued used of the asset.
Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and
the carrying amount of the item) is included in the statement of profit or loss in the period the item is derecognised.
Leases
Finance leases, which transfer to the consolidated entity substantially all the risks and benefits incidental to ownership of
the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present
value of the minimum lease payments.
Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance charges are charged directly against income.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating
leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset
and recognised over the lease term on the same bases as the lease income.
Operating lease payments are recognised as an expense in the statement of profit or loss on a straight-line basis over the
lease term.
Impairment of non-financial assets
At each reporting date, the consolidated entity assesses whether there is any indication that an asset may be impaired.
Where an indicator of impairment exists, the consolidated entity makes a formal estimate of recoverable amount. Where
the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its
recoverable amount.
Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset,
unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate
cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable
amount is determined for the cash-generating unit to which the asset belongs.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset.
Trade and other payables
These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the
financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not
discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
33GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Borrowings
All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs
associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at
amortised cost using the effective interest method.
Gains and losses are recognised in the profit or loss when the liabilities are derecognised as well as through the
amortisation process.
Provisions
Provisions are recognised when the consolidated entity has a present obligation (legal or constructive) as a result of a past
event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation.
Where the consolidated entity expects some or all of a provision to be reimbursed the reimbursement is recognised as a
separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in
the statement of profit or loss net of any reimbursement.
If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows
at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks
specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Employee benefits
Wages and salaries, annual leave and sick leave
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in
the period the related service is rendered.
Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the
remuneration rate expected to apply at the time of settlement.
Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future
cash outflows to be made by the consolidated entity in respect of services provided by employees up to reporting date.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred.
Share-based payments
Share based payments to employees and others providing similar services are measured at the fair value of the equity
instruments at the grant date.
The fair value determined at the grant date of the share based payments is expensed on a straight-line basis over the vesting
period, based on the consolidated entity’s estimate of equity instruments that will eventually vest. At the end of each reporting
period, the consolidated entity revises its estimate of the number of equity instruments expected to vest. The impact of the
revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised
estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.
Share based payment transactions with parties other than employees are measured at the fair value of the goods or services
received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the
equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.
.
34GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Issued capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in
equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares for
the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration.
If the entity reacquires its own equity instruments, for example as the result of a share buy back, those instruments are
deducted from equity and the associated shares are cancelled. No gain or loss is recognised in profit or loss and the
consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity.
Dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the company.
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of GR Engineering Services Limited,
excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares
outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account
the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the
weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential
ordinary shares.
De-recognition of financial instruments
The de-recognition of a financial instrument takes place when the consolidated entity no longer controls the contractual
rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows
attributable to the instrument are passed through to an independent third party.
Goods and Services Tax (‘GST’) and other similar taxes
Revenues, expenses and assets are recognised net of the amount of GST except where the GST incurred on a purchase of
goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense item as applicable.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables
in the statement of financial position.
Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from
investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating
cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
Intangible assets
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their
fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated
useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the
effect of any changes in estimate being accounted for on a prospective basis.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201835For personal use only
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 3. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the financial statements requires management to make judgements, estimates and assumptions that
affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates
in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates
and assumptions on historical experience and on other various factors, including expectations of future events, management
believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal
the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are
discussed below.
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 of 3% of the project costs, or such other amount as assessed by management having regard to
specific project requirements.
As disclosed in the trade and other receivables accounting policy, an estimate of doubtful debts is made when collection
of the full amount is no longer probable. Bad debts are written off when identified. The allowance for doubtful debts
assessment requires a degree of estimation and judgement. Where the estimation is different to actual results, carrying
amounts are adjusted in the next financial period. Management continually evaluates these estimates based on historical
experience, aging of receivables, historical collection rates and specific knowledge of the individual debtor situations. The
directors have assessed their aged receivable balance at the reporting date and based on the information available, no
.
allowance for doubtful debts has been made.
NOTE 4. OPERATING SEGMENTS
Operating segments have been identified on the basis of internal reports of the consolidated entity that are regularly
reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their
performance. The chief operating decision maker has been identified as the Managing Director. On a regular basis, the board
receives financial information on a company basis similar to the financial statements presented in the financial report, to
manage and allocate their resources.
The Managing Director has chosen to classify the operations of the consolidated entity by reference to presence in an
industry. The segments identified on this basis are “mineral processing” and “oil and gas”.
36GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
NOTE 4. OPERATING SEGMENTS (continued)
Segment revenues and results
The following table shows the revenue and results of the consolidated entity summarised under these segments.
Segment revenue
Mineral processing
Oil and gas
Total revenue
Segment profit before tax
Mineral processing
Oil and gas
Corporate - securities available for sale
Total profit before tax
2018
$
2017
$
202,381,222
169,826,934
81,221,412
68,863,600
283,602,634
238,690,534
15,725,717
10,766,446
1,286,493
(810,321)
5,520,361
–
16,201,889
16,286,807
Segment revenue reported above represents revenue generated from external customers. There were no inter-segment
sales in the current year (2017: nil).
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201837For personal use only NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 4. OPERATING SEGMENTS (continued)
Segment assets and liabilities
Segment assets
Mineral processing
Oil and gas
Corporate - securities available for sale
Total assets
Depreciation and amortisation
Mineral processing
Oil and gas
Total depreciation and amortisation
Segment liabilities
Mineral processing
Oil and gas
Total liabilities
Geographical information
2018
$
2017
$
56,658,123
96,606,076
25,322,485
30,681,403
2,621,911
3,129,121
84,602,519
130,416,600
470,644
898,645
443,936
948,275
1,369,289
1,392,211
21,377,067
65,704,791
10,754,372
15,848,819
32,131,439
81,553,610
The following table shows the revenue from external customers of the consolidated entity summarised by location.
Revenue
Australia
Overseas
Total revenue
Non-current assets
272,839,270
222,306,462
10,763,364
16,384,072
283,602,634
238,690,534
All non-current assets of the consolidated entity are held in Australia.
Information about major customers
During the financial year three customers individually provided more than 10% of total revenue each for the consolidated
entity (2017: 4 customers).
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201838For personal use only NOTE 5. REVENUE
Rendering of services – construction contracts
202,381,222
169,826,934
Rendering of services – operations and maintenance contracts
81,221,412
68,863,600
Total revenue
283,602,634
238,690,534
Consolidated
2018
$
2017
$
NOTE 6. OTHER INCOME
Net foreign exchange gain/(loss)
Net gain/(loss) on disposal of property, plant and equipment
Subsidies and grants
Interest revenue
Other revenue
Total other income
NOTE 7. EXPENSES
382,153
26,515
76,080
532,544
(67,136)
950,156
(23,748)
32,887
34,509
820,561
518,415
1,382,624
Profit before income tax includes the following specific expenses:
Finance costs
Interest and leasing charges on finance leases
62,894
56,080
Employee benefits
Employee benefits expense excluding superannuation
Defined contribution superannuation expense
Total employee benefits
Administration costs
Net loss on disposal of inventories
87,569,885
79,075,485
7,024,520
6,547,039
94,594,405
85,622,524
150,000
–
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201839For personal use only NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 8.
INCOME TAX EXPENSE
Major components of income tax expense for the years ended 30 June 2018 and 2017 are:
Income tax recognised in the Consolidated statement of profit
or loss
Current income tax
Current income tax charge
Adjustments in respect of current income tax of previous years
Deferred income tax
Relating to origination and reversal of temporary differences
Adjustments in respect of previous deferred income tax
Income tax expense reported in statement of profit or loss
Income tax recognised in statement of changes in equity
Deferred income tax
Revaluation of shares
Income tax expense reported in equity
“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 2018 and 2017 is as follows:
Consolidated
2018
$
2017
$
7,220,465
(463,122)
3,554,953
(2,630,422)
(2,063,423)
(133,024)
4,560,896
1,428,345
1,069,018
3,421,894
18,612
18,612
(494,781)
(494,781)
Accounting profit before income tax
At the statutory income tax rate of 30% (2017: 30%)
16,201,889
16,286,807
4,860,567
4,886,042
Add:
Non-deductible expenses
Adjustments in respect of previous current income tax
Impact to tax expense arising from foreign tax rate differential
Other
297,686
(596,146)
(1,211)
144,901
(1,561,404)
(47,645)
–
–
At effective income tax rate of 29.1% (2017: 21.0%)
4,560,896
3,421,894
Income tax expense reported in statement of profit or loss
4,560,896
3,421,894
40GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only 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
Provision for long service leave
Provision for warranty
Provisions - other
Lease termination
Payables – Upstream Production Solutions subsidiary
Shares in listed entity
Plant and equipment
Accrued Bonus
Bad debts not immediately deductible
Deferred income tax liabilities
Prepayments
Accrued interest
Other accrued income
Unrealised foreign exchange gain
Plant and equipment - Upstream Production Solutions subsidiary
Work in progress
Consolidated
2018
$
2017
$
63,810
17,536
18,000
(54,962)
102,598
78,948
17,534
13,050
(54,962)
104,784
1,720,707
1,439,605
468,734
–
94,806
347,881
37,376
296,182
635,645
–
48,165
94,806
973,959
123,397
43,465
247,758
–
4,927,425
3,130,509
–
–
(21,298)
(135)
–
(25,632)
(44)
(7,980)
(200)
(5,009)
(1,702,719)
(1,724,152)
(2,066,206)
(2,105,071)
Accrued employee entitlements - Upstream Production Solutions subsidiary
1,179,112
Net deferred tax asset
3,203,273
1,025,438
Current tax assets and liabilities
Current tax (assets)/liabilities
Income tax receivable/payable
390,072
(2,212,666)
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201841For personal use only NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
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 $21,751,300 (2017:
$34,868,758).
Cash at bank and in hand earns interest at floating rates based on
daily bank rates.
Short-term deposits are made for varying periods of between
one day and three months depending on the immediate cash
requirements of the consolidated entity, and earn interest at the
respective short-term deposit rates.
Reconciliation of cash
For the purposes of the Statement of Cash Flows, cash and cash
equivalents comprise the following at 30 June:
Cash at bank and on hand
Cash on deposit
Consolidated
2018
$
53,457
2017
$
51,557
21,697,843
34,817,201
–
–
21,751,300
34,868,758
21,751,300
34,868,758
–
–
21,751,300
34,868,758
42GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only NOTE 9. CURRENT ASSETS – CASH AND CASH EQUIVALENTS (continued)
Reconciliation from the net profit after tax to the net cash flow
from operating activities
Net profit after tax
Adjustments for:
Depreciation and amortisation
Profit/loss on sale of asset
Share based employee payments
Net foreign exchange (gain)/loss
Acquisition of shares as consideration for services
Interest expense on finance leases
Changes in assets and liabilities
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventories
(Increase)/decrease in deferred tax asset
(Decrease)/increase in trade and other payables
(Decrease)/increase in provisions
(Decrease)/increase in tax liabilities
(Decrease)/increase in unearned income
Consolidated
2018
$
2017
$
11,640,993
12,864,913
1,369,289
1,392,211
123,485
774,750
(199,171)
–
62,894
(32,887)
270,931
(113,559)
(669,185)
–
22,128,833
(35,754,837)
1,561,627
(1,399,866)
(3,121,794)
2,497,361
(48,298,379)
33,905,970
2,712,316
2,602,738
6,033,114
(1,711,974)
(2,856,542)
(20,150,117)
Net cash from operating activities
(887,377)
(13,479,509)
NON-CASH TRANSACTIONS
During the year ended 30 June 2018 and year ended 30 June 2017, the following non-cash investing and financing activities
occurred, which are not reflected in the consolidated statement of cash flows:
• during the year ended 30 June 2018 the consolidated entity acquired equipment under finance lease of $267,043
(2017: $38,659).
Reconciliation of liabilities arising from cash flows from
financing activities
Borrowings - Finance leases
Opening balance
Repayments of principal
Interest paid
New non-cash hire purchase assets
Closing Balance
685,015
(632,972)
(62,894)
475,893
465,042
923,868
(752,042)
(56,080)
569,269
685,015
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201843For personal use only
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 10. TRADE AND OTHER RECEIVABLES
Current assets – trade and other receivables
Trade receivables
Less: Allowance for impairment of receivables
Other receivables
GST receivable
Accrued revenue
Trade receivables are non-interest bearing and are normally settled
on 30 to 90 day terms.
The net of GST payable and GST receivable is remitted to the
appropriate tax body on a monthly basis.
Impairment of receivables
Movements in the allowance for impairment of receivables are as follows:
Opening balance
Receivables written off during the year as uncollectable
Closing balance
Bad debts written off during the year as uncollectable amount to
$7,034,203 (2017: nil).
Past due but not impaired
Customers with balances past due but without allowance for impairment of
receivables amount to $18,341,993 as at 30 June 2018 ($32,391,074 as at
30 June 2017).
The ageing of the past due but not impaired receivables are as follows:
0 to 3 months overdue
3 to 6 months overdue
Over 6 months overdue
In determining the recoverability of a trade receivable, the consolidated entity
considers any change in the credit quality of the trade receivable from the
date credit was initially granted up to the end of the reporting period. The
concentration of credit risk is limited due to the fact that the customer base is
large and unrelated.
NOTE 11. CURRENT ASSETS – INVENTORIES
Consumables – at cost
Work in progress – oil and maintenance contracts
Work in progress – construction contracts
For information on construction contracts in progress, refer to note 17.
Consolidated
2018
$
2017
$
40,906,582
65,513,894
–
–
40,906,582
65,513,894
375,987
1,297,724
3,068,379
407,415
–
262,352
45,648,672
66,183,661
–
–
–
–
–
–
4,525,687
1,330,736
12,485,570
18,341,993
24,589,480
4,119,674
3,681,920
32,391,074
293,800
5,675,731
914,916
6,884,447
643,800
6,887,358
12,251,960
19,783,118
44GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
NOTE 12. NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT
Plant and equipment – at cost
Less: Accumulated depreciation
Plant and equipment under lease
Less: Accumulated depreciation
Reconciliations
Consolidated
2018
$
2017
$
10,029,619
7,543,054
(6,885,543)
(5,727,154)
3,144,076
1,815,900
3,003,855
3,088,318
(2,269,188)
(2,187,673)
734,667
900,645
3,878,743
2,716,545
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set
out below:
Balance at 30 June 2016
Additions
Disposals, Write off of assets
Transfers in/(out)
Depreciation expense
Balance at 30 June 2017
Additions
Disposals, Write off of assets
Transfers in/(out)
Depreciation expense
Balance at 30 June 2018
NOTE 13. FINANCIAL ASSETS
Plant &
Equipment
Under Lease
$
Plant &
Equipment
$
Total
$
1,243,709
2,369,771
3,613,480
38,659
–
(109,520)
(272,203)
900,645
267,042
–
(173,882)
(259,138)
734,667
544,362
(122,509)
109,520
583,021
(122,509)
–
(1,085,244)
(1,357,447)
1,815,900
2,273,354
(8,909)
173,882
2,716,545
2,540,396
(8,909)
–
(1,110,151)
(1,369,289)
3,144,076
3,878,743
Consolidated
2018
$
2017
$
Available for sale financial assets held at fair value
Shares in listed entities
2,621,911
3,129,121
Shares and options in listed entities are measured at fair value at the end of the reporting period, using quoted market share
prices. Refer to note 22 for movement during the year.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201845For personal use only NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 14. CURRENT LIABILITIES – TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
GST payable
Prepaid revenue
Other payables
Consolidated
2018
$
9,261,816
2,525,906
–
502,428
2,945,431
2017
$
38,357,008
17,381,052
556,319
2,985,996
2,936,671
15,235,581
62,217,046
Refer to note 22 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 15. BORROWINGS
Current liabilities – borrowings
Lease liability
Non-current liabilities – borrowings
Lease liability
Refer to note 22 for further information on financial instruments.
Total secured liabilities
The total secured liabilities (current and non-current) are as follows:
336,110
458,403
128,932
226,612
Lease liability
Assets pledged as security
465,042
685,015
The lease liabilities are effectively secured as the rights to the leased assets, recognised in the statement of financial
position, revert to the lessor in the event of default.
46GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only NOTE 16. 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
2018
$
2017
$
4,404,077
5,735,691
1,511,377
4,035,862
4,798,685
–
11,651,145
8,834,547
4,035,862
3,521,404
3,150,066
3,483,853
(3,153,189)
(2,598,057)
4,404,077
4,035,862
4,798,685
1,621,477
7,741,642
(197,821)
(684,471)
(2,745,136)
5,735,691
4,798,685
–
1,511,377
–
1,511,377
–
–
–
–
2,557,618
2,681,091
2,681,091
2,290,471
237,437
(360,910)
547,780
(157,160)
2,557,618
2,681,091
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201847For personal use only NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 17. UNEARNED REVENUE
Unearned revenue - Current liabilities
1,831,981
7,135,911
Consolidated
2018
$
2017
$
Contracts in progress
Progress billings
Construction costs to date plus recognised profits
NOTE 18. EQUITY – ISSUED CAPITAL
358,163,468
386,684,581
(357,246,403)
(391,800,630)
917,065
(5,116,049)
Consolidated
Consolidated
2018
Shares
2017
Shares
2018
$
2017
$
Ordinary shares – fully paid
Opening balance
153,254,260
152,871,308
30,388,000
30,225,436
Additional shares issued :
Exercise of
performance rights
Exercise of share
appreciation rights
55,000
187,500
25,190
114,597
136,429
195,452
32,166
47,967
Ordinary shares – fully paid
153,445,689
153,254,260
30,445,356
30,388,000
Ordinary shares
Fully paid ordinary shares carry one vote per share and carry a right to dividends.
Share appreciation rights
As at 30 June 2018, the consolidated entity had on issue a total of 1,150,000 share appreciation rights to Geoff Jones,
Managing Director, as part of the consolidated entity’s equity incentive plan (as at 30 June 2017: 1,363,334).
Number of shares under
share appreciation rights
650,000
500,000
Grant date
Vesting date
Exercise price
Performance
condition share
price targets
15/11/16
15/11/16
30/6/19
30/6/20
$0.89
$0.89
$1.36
$1.50
48GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only NOTE 18. EQUITY – ISSUED CAPITAL (continued)
Performance rights
As at 30 June 2018, the consolidated entity had on issue a total of 2,282,500 performance rights (as at 30 June 2017: 415,000):
Number of performance rights
Grant date
Expiry date
Exercise price
127,500
20,000
30,000
1,870,000
30,000
60,000
50,000
35,000
60,000
30/4/14
13/7/17
13/7/17
21/8/17
21/8/17
21/8/17
28/8/17
1/11/17
14/6/18
31/3/19
13/7/18
15/6/20
20/8/20
2/8/18
2/8/20
21/8/20
1/11/20
14/6/21
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
NOTE 19. 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
The above foreign currency reserve represents foreign exchange
differences resulting from translation of foreign currency amounts
held in subsidiaries of the consolidated entity.
Performance rights reserve
Balance at beginning of year
Additional amounts recognised
Amount exercised
Balance at end of year
The above performance rights reserve relates to performance rights
granted and vested by the consolidated entity to its employees
under its equity incentive plan.
Consolidated
2018
$
2017
$
(728,661)
(1,095,504)
607,610
584,497
370,363
(267,168)
566,641
93,345
584,497
167,233
(287,926)
(538,355)
(1,095,504)
(1,270,503)
366,843
(728,661)
174,999
(1,095,504)
93,345
539,455
(25,190)
607,610
99,171
108,771
(114,597)
93,345
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201849For personal use only
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 19. EQUITY – RESERVES (continued)
Share options reserve
Balance at beginning of year
Additional amounts recognised
Balance at end of year
The above share options reserve relates to share options granted
and vested by the consolidated entity to its employees under its
employee share option plan.
Share appreciation rights reserve
Balance at beginning of year
Additional amounts recognised
Amount exercised
Balance at end of year
The above share appreciation rights reserve relates to share
appreciation rights granted and vested by the consolidated entity to
its employees under its equity incentive plan.
Investment revaluation reserve
Balance at beginning of year
Movement in fair value
Amount taken to profit or loss
Tax effect of movement in fair value
Balance at end of year
The above investment revaluation reserve relates to the revaluation
of shares held in listed entities to fair value at the end of the
reporting period. The fair value is determined using the quoted
share price at 30 June 2018.
NOTE 20. EQUITY – RETAINED PROFITS
Retained 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
Consolidated
2018
$
2017
$
584,497
584,497
–
–
584,497
584,497
167,233
235,296
(32,166)
370,363
53,040
162,160
(47,967)
167,233
(287,926)
(868,006)
810,321
78,443
(267,168)
866,563
(1,649,270)
–
494,781
(287,926)
19,013,345
21,435,563
11,640,993
12,864,913
(9,195,255)
(15,287,131)
21,459,083
19,013,345
50GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only NOTE 21. EQUITY – DIVIDENDS
Dividends
Year ended 30 June 2017
Dividend paid 28 September 2016 (fully franked at 30% tax rate):
5 cents per ordinary share
Dividend paid 30 March 2017 (fully franked at 30% tax rate):
5 cents per ordinary share
Year ended 30 June 2018
Dividend paid 28 March 2018 (fully franked at 30% tax rate):
6 cents per ordinary share
On 22 August 2018, the consolidated entity declared an unfranked
dividend of 5.0 cents per share, an aggregate of $7,674,784. The
Record Date of the dividend is 12 October 2018 and the proposed
payment date is 24 October 2018.
Franking credits
Consolidated
2018
$
2017
$
7,643,565
7,643,565
9,195,255
9,195,255
15,287,130
Franking (debits)/credits available for subsequent financial years
based on a tax rate of 30%
(448,346)
(487,101)
NOTE 22. FINANCIAL INSTRUMENTS
Financial risk management objectives
The consolidated entity is exposed to risks in relation to its financial instruments. These risks include market risk (consisting
of foreign currency risk and interest rate risk), credit risk, liquidity risk and equity risk.
A summary of the consolidated entity’s financial instruments are as follows:
Financial assets
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
21,751,300
34,868,758
45,648,672
66,183,661
2,621,911
3,129,121
70,021,883
104,181,540
15,235,581
62,217,046
465,042
685,015
15,700,623
62,902,061
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201851For personal use only
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 22. FINANCIAL INSTRUMENTS (continued)
Capital management
The consolidated entity manages its capital to ensure the ability to continue as a going concern while maximising the return
to stakeholders. The capital structure of the consolidated entity consists of equity in the form of issued capital, reserves and
retained earnings. There is no requirement for borrowings at this stage, as there are sufficient reserves of cash balances.
Market risk
Foreign currency risk
The consolidated entity and the parent entity undertakes certain transactions denominated in foreign currency and are
exposed to foreign currency risk through foreign exchange rate fluctuations.
The carrying amounts in Australian dollars (AUD) of the consolidated entity’s foreign currency denominated monetary assets
and monetary liabilities at the end of the reporting period are as follows.
United States Dollars
Great British Pounds
Euro
Assets
Liabilities
2018
AUD $
1,189,205
21,754
103,008
2017
AUD $
2,148,332
5,244,243
836,907
2018
AUD $
(53,274)
(159,821)
(3,589)
2017
AUD $
(3,452,866)
(293,159)
(149,476)
1,313,967
8,229,482
(216,684)
(3,895,501)
Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities
denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and
cash flow forecasting.
The consolidated entity holds balances in United States dollars, these balances are translated into Australian dollars at the
prevailing exchange rate at 30 June 2018 of AUD $1 = USD $0.74 (2017: AUD $1 = USD $0.77).
The consolidated entity holds balances in Great British pounds, these balances are translated into Australian dollars at the
prevailing exchange rate at 30 June 2018 of AUD $1 = GBP £0.56 (2017: AUD $1 = GBP £0.59).
The consolidated entity holds balances in Euro, these balances are translated into Australian dollars at the prevailing
exchange rate at 30 June 2018 of AUD $1 = EUR €0.63 (2017: AUD $1 = EUR €0.67).
52GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
NOTE 22. FINANCIAL INSTRUMENTS (continued)
The following table details the consolidated entity’s sensitivity to a 10% increase and decrease in the value of the Australian
dollar against the currencies in which monetary assets are held:
Effect of 10% increase in exchange rate
Effect of 10% decrease in exchange rate
Effect on profit
before tax
Effect
on equity
Effect on profit
before tax
$
$
(102,996)
(102,996)
12,556
(9,026)
(99,466)
118,747
(450,098)
(62,367)
(393,718)
12,556
(9,026)
(99,466)
118,747
(450,098)
(62,367)
(393,718)
$
126,545
(15,336)
11,062
122,271
(144,761)
550,120
76,536
481,895
Effect
on equity
$
126,545
(15,336)
11,062
122,271
(144,761)
550,120
76,536
481,895
Consolidated - 2018
United States Dollars
Great British Pounds
Euro
Consolidated - 2017
United States Dollars
Great British Pounds
Euro
Interest rate risk
The board has considered the consolidated entity’s exposure to interest rate risk by analysing the effect on profit and equity
of an interest rate increase or decrease of one percentage point in the following table:
Effect of 1% increase in exchange rate
Effect of 1% decrease in exchange rate
Effect on profit
before tax
Effect
on equity
Effect on profit
before tax
$
294,251
(5,170)
289,081
314,562
(3,421)
311,141
$
294,251
(5,170)
289,081
314,562
(3,421)
311,141
$
(294,251)
5,454
(288,797)
(314,562)
3,421
(311,141)
Effect
on equity
$
(294,251)
5,454
(288,797)
(314,562)
3,421
(311,141)
Consolidated – 2018
Interest revenue
Interest expense
Consolidated – 2017
Interest revenue
Interest expense
Equity price risk
The consolidated entity is exposed to equity price risks arising from equity investments.
The sensitivity analysis below has been determined based on the exposure of the consolidated entity to a 5% increase or
decrease in equity prices at the end of the reporting period.
• profit for the year ended 30 June 2018 would have been unaffected as the equity investments are classified as available-
for-sale; and
• other comprehensive income for the year ended 30 June 2018 would increase by $131,096 (2017: $156,456) as a result
of an increase of 5% in equity prices, and decrease by $131,096 (2017: $156,456) as a result of a decrease of 5% in
equity prices.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201853For personal use only
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 22. FINANCIAL INSTRUMENTS (continued)
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations, resulting in financial loss to the
consolidated entity. The consolidated entity has adopted a policy of only dealing with creditworthy counterparties as a
means of mitigating the risk of financial loss from defaults. The consolidated entity uses independent rating agencies,
publicly available financial information and other trading records to rate its major customers. Legally binding contracts are
entered into to determine payment terms in relation to major projects.
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by
international credit rating agencies.
The consolidated entity does not have significant credit risk exposure to any single counterparty or group of counterparties.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate
liquidity risk management framework for the management of the consolidated entity’s short-, medium- and long-term
funding and liquidity management requirements. The consolidated entity manages liquidity risk by maintaining adequate
reserves and banking facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity
profiles of financial assets and liabilities.
Liquidity and interest rate risk tables
The following tables detail the consolidated entity’s remaining contractual maturity for its financial instrument liabilities.
The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on
which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed
as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of
financial position.
Remaining contractual maturities
Weighted
average
interest rate
%
Less than
6 months
$
6 to 12
months
$
Over 12
months
$
Total
$
–
15,235,581
–
–
15,235,581
3.94%
198,859
15,434,440
137,251
137,251
128,932
465,042
128,932
15,700,623
–
62,217,046
–
–
62,217,046
3.75%
276,068
62,493,114
182,335
182,335
226,612
685,015
226,612
62,902,061
Consolidated – 2018
Non-derivatives
Non-interest bearing
Trade payables
Interest-bearing – fixed rate
Lease liability
Total non-derivatives
Consolidated – 2017
Non-interest bearing
Trade payables
Interest-bearing – fixed rate
Lease liability
Total non-derivatives
54GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only NOTE 22. FINANCIAL INSTRUMENTS (continued)
Fair value of financial instruments
The fair values of financial assets and liabilities, together with their carrying amounts in the statement of financial position,
for the consolidated entity are as follows:
Consolidated
Assets
Cash at bank
Cash on deposit
Trade receivables
2018
2017
Carrying amount
$
Fair Value
$
Carrying amount
$
Fair Value
$
21,751,300
21,751,300
34,868,758
34,868,758
-
-
-
-
45,648,672
45,648,672
66,183,661
66,183,661
Available for sale securities
2,621,911
2,621,911
3,129,121
3,129,121
70,021,883
70,021,883
104,181,540
104,181,540
Liabilities
Trade payables
Lease liability
15,235,581
15,235,581
62,217,046
62,217,046
465,042
465,042
685,015
685,015
15,700,623
15,700,623
62,902,061
62,902,061
For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which
the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in
its entirety, which are described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access
at the measurement date;
• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201855For personal use only
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 22. FINANCIAL INSTRUMENTS (continued)
Fair value of financial instruments (continued)
The financial assets and liabilities of the consolidated entity are classified into these categories below:
Fair value hierarchy – 2018
Financial assets
Trade receivables
Available for sale securities
Financial liabilities
Trade payables
Lease liability
Fair value hierarchy – 2017
Financial assets
Trade receivables
Available for sale securities
Financial liabilities
Trade payables
Lease liability
Level 1
$
Level 2
$
Level 3
$
Total
$
–
45,648,672
2,621,911
2,621,911
–
45,648,672
–
–
–
15,235,581
465,042
15,700,623
–
66,183,661
3,129,121
3,129,121
–
66,183,661
–
–
–
62,217,046
685,015
62,902,061
–
–
–
–
–
–
–
–
–
–
–
–
45,648,672
2,621,911
48,270,583
15,235,581
465,042
15,700,623
66,183,661
3,129,121
69,312,782
62,217,046
685,015
62,902,061
The fair values of the financial assets and financial liabilities included in the level 2 and level 3 categories above have been
determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with the most
significant inputs being the discount rate that reflects the credit risk of counterparties.
Reconciliation of Level 1 fair value measurements:
Available for sale equity securities
Opening balance
Additions
Disposals
Net revaluations in other comprehensive income
Closing balance
Consolidated
2018
$
2017
$
3,129,121
250,000
3,712,539
1,065,852
–
–
(757,210)
(1,649,270)
2,621,911
3,129,121
56GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only NOTE 23. KEY MANAGEMENT PERSONNEL DISCLOSURES
Directors
The following persons were directors of GR Engineering Services Limited during the financial year:
Executive directors
Geoff Jones
Tony Patrizi
Managing Director
Executive Director
Non-executive directors
Phil Lockyer
Peter Hood
Barry Patterson
Terry Strapp
Non-Executive Chairman
Non-Executive Director
Non-Executive Director
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
Manager – Projects
Chief Financial Officer and Company Secretary
Engineering Manager
David Sala Tenna
Joe Totaro
Rodney Schier
Stephen Kendrick Manager – Projects (Appointed 11 December 2017)
Paul Newling
Thomas Marshall
General Manager – EPCM (Resigned 7 February 2018)
Manager – Eastern Region (Appointed 1 August 2017)
Remuneration of key management personnel
Information on remuneration of key management personnel is set out in the Remuneration Report in the Directors Report.
The aggregate compensation made to key management personnel of the consolidated entity is set out below:
Short term benefits
Post employment benefits
Share based payments
Other
Consolidated
2018
$
2017
$
2,868,107
2,487,396
217,209
285,930
57,569
172,147
162,160
94,437
3,428,815
2,916,140
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201857For personal use only
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 24. REMUNERATION OF AUDITORS
During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tohmatsu, the
auditor of the company, and its network firms:
Audit services - Deloitte Touche Tohmatsu
dit or review of the financial statements - Deloitte Touche
Tohmatsu Australia
Audit or review of the financial statements – Deloitte Touche
Tohmatsu UK
Other services – Deloitte Touche Tohmatsu
Tax compliance – Deloitte Touche Tohmatsu Australia
Other services – Deloitte Touche Tohmatsu Australia
Consolidated
2018
$
2017
$
135,473
132,009
13,276
9,311
27,300
–
176,049
24,150
19,062
184,532
NOTE 25. CONTINGENT LIABILITIES
The consolidated entity has bank guarantees in place as at 30 June 2018 of $13,093,965 (2017: $35,164,531).
The consolidated entity’s standby multi-option facility has a limit of $70,000,000. The facilities are secured by a fixed and
floating charge over all the assets of the consolidated entity. The consolidated entity provides bank guarantees under this
facility to support project performance in favour of certain clients. The amount of these bank guarantees at 30 June 2018 is
$12,744,809 (30 June 2017: $34,258,841). The consolidated entity has a bank guarantee facility with National Australia Bank
to provide guarantees for the security of rental properties to the value of $349,156 (30 June 2017: $905,690). The amount of
bank guarantees issued under this facility at 30 June 2018 is $349,156 (30 June 2017: $905,690).
The consolidated entity has an insurance bond facility to provide retention and off site materials bonds in connection with
certain projects. The $40 million facility with Insurance Australia Limited was taken out on 22 June 2018. On 2 July 2018 the
Company secured an additional $20 million insurance bond facility with Allianz Australia Insurance Limited. No bonds were
on issue under the Insurance Australia Limited facility as at 30 June 2018.
GR Engineering Services Limited, the parent company, has provided guarantees and indemnities in relation to certain
contracts entered into by its subsidiaries. Liability under these guarantees and indemnities is limited to the relevant
subsidiaries’ contracted limits of liability under the contracts.
58GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only NOTE 26. COMMITMENTS
The consolidated entity has leased certain items of its equipment under finance leases. The average lease term is 4 years
(2017: 4 years). The consolidated entity has options to purchase the equipment for a nominal amount at the end of the
lease terms. The consolidated entity’s obligations under finance leases are secured by the lessors’ title to the leased assets.
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
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 27. RELATED PARTY TRANSACTIONS
Consolidated
2018
$
349,379
132,608
2017
$
475,573
231,617
–
–
481,987
(16,946)
465,041
707,190
(22,176)
685,014
1,316,431
2,174,595
1,452,354
591,814
–
–
3,491,026
2,044,168
During the year ended 30 June 2018 the consolidated entity leased office space at 71 Daly Street from Ashguard Pty Ltd.
Directors of the consolidated entity, Tony Patrizi and Barry Patterson, each have a non controlling interest in Ashguard
Pty Ltd. The total amount invoiced by Ashguard Pty Ltd in the year ended 30 June 2018 amounted to $639,775 including
GST (2017: $327,325). The balance payable at 30 June 2018 is $108,617 (2017: $50,994). During the year ended 30 June 2018
the consolidated entity procured items for Ashguard Pty Ltd. The total amount invoiced to Ashguard Pty Ltd in the year ended
30 June 2018 was $10,995 including GST (2017: $9,446). The balance outstanding at 30 June 2018 is nil (2017: nil).
The terms of these arrangements are at arms length and at normal commercial terms.
Other than transactions with parties related to key management personnel mentioned above and in the remuneration report,
there have been no other transactions with parties related to the consolidated entity in the financial year ending 30 June 2018.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201859For personal use only NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 28. PARENT ENTITY INFORMATION
The accounting policies of the parent entity, which have been applied in determining the financial information shown below,
are the same as those applied in the consolidated financial statements.
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Profit after income tax
Total comprehensive income
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Issued capital
Performance rights reserve
Share options reserve
Share appreciation rights reserve
Investment revaluation reserve
Retained profits
Total equity
Parent
2018
$
2017
$
10,816,275
10,026,712
7,722,574
6,568,085
53,911,296
98,474,757
61,990,997
104,148,971
20,048,783
21,812,327
66,340,738
66,340,738
30,445,356
30,388,000
607,610
584,497
370,363
(313,259)
8,484,103
93,345
584,497
167,233
(287,926)
6,863,084
40,178,670
37,808,233
The contingent liabilities and commitments of the parent entity are the same as those of the consolidated entity, as set out
in notes 25 and 26.
NOTE 29. EVENTS AFTER THE REPORTING PERIOD
On 2nd July 2018 GR Engineering entered into a Deed of Indemnity with Allianz Australia Insurance Limited in connection
with a $20 million insurance bond facility. Together with the additional $40 million insurance bond facility provided by
Insurance Australia Limited in June 2018 and the Company’s $70 million bank guarantee facility provided by National
Australia Bank, the consolidated entity’s total bonding capacity increased from $110 million to $130 million.
On 13 August 2018, GR Engineering announced that it has entered into a settlement deed with Eastern Goldfields
Limited and others to finally settle all claims in relation to the contract for the refurbishment of the Davyhurst Gold Project
processing plant. The terms of the confidential settlement deed contemplate the payment to GR Engineering of $8.25
million, with the settlement sum payable in three instalments, with the last instalment payable by 3 October 2018.
On 20 August 2018, GR Engineering entered into a $17.9 million EPC contract with Saracen Gold Mines Pty Ltd for the
design and construction of the Carosue Dam Paste Backfill Plant.
On 22 August 2018, the consolidated entity declared an unfranked dividend of 5.0 cents per share, an aggregate of
$7,674,784. The Record Date of the dividend is 12 October 2018 and the proposed payment date is 24 October 2018.
No other matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect
the consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future
financial years.
60GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
NOTE 30. EARNINGS PER SHARE
Profit after income tax attributable to the owners of GR Engineering
Services Limited
11,640,993
12,864,913
Consolidated
2018
$
2017
$
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
Number
Number
153,268,497
152,919,101
3,080,048
1,216,745
156,348,545
154,135,846
Cents
7.60
7.45
Cents
8.41
8.35
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201861For personal use only NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 31. SHARE-BASED PAYMENTS
An Equity Incentive Plan was adopted by the consolidated entity on 28 March 2012, and was updated on 8 October 2015.
At the discretion of the Board, all eligible employees of the consolidated entity or eligible consultants may participate in the
Plan. Non-executive directors are not eligible to participate in the Plan.
The Plan is designed to align the interests of executives and employees with the interests of shareholders by providing an
opportunity to receive an equity interest in the consolidated entity and therefore direct participation in the benefits of future
consolidated entity performance over the medium to long term.
The consolidated entity has issued a total of 5,200,000 performance rights to employees and long term contractors under
the Plan. Each right entitles the employee to acquire one fully paid share in the consolidated entity for nil consideration,
subject to the employees meeting a service term of three years from the date of grant. Of this total, 2,155,000 performance
rights were issued during the financial year ending 30 June 2018 (2017: 160,000).
During the financial year a total of 55,000 performance rights vested (2017: 187,500). A total of 803,945 performance rights
have lapsed due to resignations and redundancies of entitled employees since the date of issue of the first tranche of rights.
Of this total 232,500 have lapsed in the financial year ending 30 June 2018 (2017: nil).
A summary of performance rights on issue at 30 June 2018 follows:
Number issued
Number lapsed
Grant date
Exercise price
Vesting date
Expiry date
Tranche 7
Tranche 11
Tranche 12
Tranche 13
Tranche 14
127,500
–
20,000
–
30,000
1,870,000
–
–
30,000
–
30 Apr 2014
13 Jul 2017
13 Jul 2017
21 Aug 2017
21 Aug 2017
Nil
Nil
Nil
Nil
Nil
31 Mar 2019
13 Jul 2018
15 Jun 2020
20 Aug 2020
2 Aug 2018
31 Mar 2019
13 Jul 2018
15 Jun 2020
20 Aug 2020
2 Aug 2018
Vesting period (years)
Vesting conditions
5
Nil
1
Nil
3
Nil
3
Nil
1
Nil
Fair value
$0.410
$1.317
$1.065
$1.035
$1.297
Number issued
Number lapsed
Grant date
Exercise price
Vesting date
Expiry date
Tranche 15
Tranche 16
Tranche 17
Tranche 18
60,000
–
50,000
–
35,000
–
60,000
–
21 Aug 2017
28 Aug 2017
1 Nov 2017
14 Jun 2018
Nil
Nil
Nil
Nil
2 Aug 2020
21 Aug 2020
1 Nov 2020
14 Jun 2021
2 Aug 2020
21 Aug 2020
1 Nov 2020
14 Jun 2021
Vesting period (years)
Vesting conditions
3
Nil
3
Nil
3
Nil
3
Nil
Fair value
$1.041
$0.951
$0.978
$1.010
62GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only NOTE 31. SHARE-BASED PAYMENTS (continued)
The fair value of performance rights granted during the year was calculated using a Black-Scholes pricing model applying
inputs as follows:
Tranche 7
Tranche 11
Tranche 12
Tranche 13
Tranche 14
Grant date share price
$0.705
$1.470
$1.470
$1.440
$1.440
Exercise price
Expected volatility
Term (years)
Dividend yield
Risk free interest rate
–
60%
5
11%
3.33%
–
50%
1
11%
1.77%
–
50%
3
11%
1.94%
–
50%
3
11%
1.95%
–
50%
1
11%
1.78%
Grant date share price
$1.440
$1.320
$1.360
$1.410
Tranche 15
Tranche 16
Tranche 17
Tranche 18
Exercise price
Expected volatility
Term (years)
Dividend yield
Risk free interest rate
–
50%
3
11%
1.95%
Movement in performance rights
–
50%
3
11%
1.99%
2018
–
50%
3
11%
1.99%
–
50%
3
11%
2.14%
2017
Consolidated
Balance at beginning of year
Granted during the year
Vested during the year
Forfeited during the year
Balance at end of year
Number of
performance
rights
Weighted
average
exercise price
Number of
performance
rights
Weighted
average
exercise price
415,000
2,155,000
(55,000)
(232,500)
2,282,500
–
–
–
–
–
442,500
160,000
(187,500)
–
415,000
–
–
–
–
–
The weighted average fair value of performance rights granted at 30 June 2018 is $1.00. The weighted average exercise
price of these performance rights at 30 June 2018 is nil. The weighted average remaining contractual life of performance
rights outstanding at 30 June 2018 is 745 days.
The consolidated entity has issued a total of 4,419,337 share appreciation rights to Geoff Jones, Managing Director, as part
of the consolidated entity’s equity incentive plan. Of this total, 213,334 vested during the financial year ending 30 June 2018
(2017: 296,297). The share appreciation rights are subject to vesting conditions, namely the participant being employed by
the consolidated entity as Managing Director and the share price being equal to or greater than the exercise price at the
vesting date.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201863For personal use only NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUED
NOTE 31. SHARE-BASED PAYMENTS (continued)
Class
Number of share
appreciation rights
Grant date
Vesting date
Exercise
price
Performance
condition share
price targets
Fair value at
grant date
A
B
C
D
E
F
G
1,600,000
12 Nov 2013
30 Jun 2014
727,273
432,433
296,297
213,334
650,000
500,000
12 Nov 2013
30 Jun 2015
12 Nov 2013
30 Jun 2016
12 Nov 2013
30 Jun 2017
12 Nov 2013
30 Jun 2018
15 Nov 2016
30 Jun 2019
15 Nov 2016
30 Jun 2020
$0.50
$0.50
$0.50
$0.50
$0.50
$0.89
$0.89
$0.60
$0.72
$0.86
$1.04
$1.24
$1.36
$1.50
$0.18
$0.18
$0.18
$0.16
$0.15
$0.60
$0.58
The fair value of share appreciation rights still on issue was calculated using a Monte Carlo pricing model applying inputs
as follows:
Grant date share price
Exercise price
Expected volatility
Vesting period (years)
Dividend yield
Class F
Class G
$1.63
$0.89
50%
2
8%
$1.63
$0.89
50%
3
8%
Risk free interest rate
1.84%
1.84%
Movement in share appreciation rights
Consolidated
2018
2017
Number of share
appreciation
rights
Weighted
average
exercise price
Number of share
appreciation
rights
Weighted
average
exercise price
Balance at beginning of year
1,363,334
Granted during the year
–
Vested and exercised during
the year
Balance at end of year
(213,334)
1,150,000
–
–
–
–
509,631
1,150,000
(296,297)
1,363,334
–
–
–
–
The weighted average fair value of share appreciation rights granted at 30 June 2018 is $0.59. The weighted average
exercise price of these share appreciation rights at 30 June 2018 is $0.89. The weighted average remaining contractual
life of share appreciation rights outstanding at 30 June 2018 is 524 days.
64GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only NOTE 32. SUBSIDIARIES
The consolidated financial statements incorporate the following subsidiaries at the end of the reporting period.
Name of subsidiary
Country of incorporation
GR Engineering Services (Indonesia) Pty Limited
GR Engineering Services (Argentina) Pty Limited
PT GR Engineering Services Indonesia *
GR Engineering Services (Africa)
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) ***
GR Engineering Services Peru S.A.
GR Engineering Services (Greece) +
GR Engineering Services (Tanzania) Limited
GR Engineering Services Turkey Limited ++
Upstream Production Solutions Pty Ltd
Upstream Production Solutions (Malaysia) Sdn. Bhd.
Ghana
Côte D’Ivoire
Mali
Côte D’Ivoire
Peru
Greece
Tanzania
Turkey
Australia
Malaysia
Equity holding
2018
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2017
%
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.
+
GR Engineering Services (Greece) is 100% owned by GR Engineering Services (UK) Limited.
++ GR Engineering Services (Turkey) Limited was incorporated on 22 November 2017.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201865For personal use only
DIRECTORS’ DECLARATION
The directors declare that:
(a) in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and
when they become due and payable;
(b) in the directors’ opinion, the attached financial statements are in compliance with International Financial Reporting
Standards, as stated in note 2 to the financial statements;
(c) in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations
Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and
performance of the consolidated entity; and
(d) the directors have been given the declarations required by s.295A of the Corporations Act 2001.
Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.
On behalf of the Directors
Geoff Jones
Managing Director
22 August 2018
66GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only INDEPENDENT AUDITOR’S REPORT
CONTINUED
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Tower 2
Brookfield Place
123 St Georges Terrace
Perth WA 6000
GPO Box A46
Perth WA 6837 Australia
Tel: +61 8 9365 7000
Fax: +61 8 9365 7001
www.deloitte.com.au
Independent Auditor’s Report
to the members of
GR Engineering Services Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of GR Engineering Services Limited (the “Company”) and its
subsidiaries (the “Group”), which comprises the consolidated statement of financial position as at 30
June 2018, the consolidated statement of profit or loss and other comprehensive income, the
consolidated statement of changes in equity and the consolidated statement of cash flows for the year
then ended, and notes to the financial statements, including a summary of significant accounting
policies, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
Act 2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial
performance for the year then ended; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
given to the directors of the Company, would be in the same terms if given to the directors as at the
time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. These matters were addressed in the context
of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201867For personal use only
INDEPENDENT AUDITOR’S REPORT
Key audit matter
How the scope of our audit responded to the
Key Audit Matter
Recognition of revenue
As disclosed in Note 5, revenue recognised for the
year ended 30 June 2018 relating to both
construction contracts and operations and
maintenance contracts was $283,602,634.
As disclosed in Note 3, revenue and costs are
recognised by reference to the stage of completion
of the contract activity.
The recognition of revenue requires significant
management judgement in:
Determining the stage of completion;
Estimating total contract revenue and
contract cost including the estimation of
cost contingencies;
Determining contractual entitlement and
assessing the probability of customer
approval of variations and acceptance of
claims; and
Estimating the project completion date.
Our procedures included, but were not limited to:
Evaluating management’s processes and controls in
respect of the recognition of contract revenue. As part
of this process we tested key controls including:
The preparation, review and authorisation of
monthly contract status report for all
contracts;
The estimation, review and monitoring of
costs to complete; and
The comprehensive project reviews that are
undertaken by Group management on a
monthly basis.
Selecting a sample of contracts for testing based on a
number of quantitative and qualitative factors which
may indicate that a greater level of judgement is
required in recognising revenue, including:
Contract history;
Significant unapproved claims and variations;
Delay risk;
High-value contracts; and
Loss-making contracts.
In respect to our sample of contracts selected for
testing above, the following procedures were
performed:
Obtained a detailed understanding of the
contract terms and conditions to evaluate
whether the individual characteristics of each
contract were reflected in management’s
estimate of forecast costs and revenue;
Tested a sample of costs incurred to date and
agreed these to supporting documentation;
Assessed the current programme status
against the original budgeted programme;
Challenged the forecast costs to complete
through discussion and challenge of project
managers and finance personnel, as well as
inspection of supporting documentation for
contracted costs;
Tested contractual entitlement, variations and
claims recognised within contract revenue
through agreement to supporting
documentation and by reference to the
underlying contract;
CONTINUED68GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
Key audit matter
How the scope of our audit responded to the
Trade and other receivables
As disclosed in Note 10, the trade and other
receivables as at 30 June 2018 was $44,350,948.
The assessment of recoverability of the trade
debtors as at 30 June 2018 required significant
judgement given the long outstanding nature of
certain receivable balances and the ability of the
debtors to pay the amounts due.
Key Audit Matter
Evaluated significant exposures to liquidated
damages for late delivery of contract works;
and
Evaluated contract performance in the period
since year end to audit opinion date to reflect
on year-end revenue recognition judgements.
Assessing the appropriateness of the disclosures in
Notes 3 and 5 to the financial statements.
Our procedures included, but were not limited to:
Obtaining an understanding of how management
assesses the recoverability of trade debtors and
therefore the allowance for impairment.
Challenging the assessment of recoverability by:
Review of agreed payment plans with certain
customers and testing of payments received
against those payment plans;
Obtaining confidential settlement deeds to
provide evidence as to the accuracy of the
debtor balance recorded;
Obtaining correspondence with customers
with significant balances past due to
understand the cause of delays and the status
of negotiation for settlement, if any; and
Assessing whether there are any
circumstances which would indicate that the
debtor would not be able to meet its
obligations.
Assessing the appropriateness of the disclosures in
Note 10 to the financial statements.
Provision for warranty
As disclosed in Note 17, the warranty provision as at
30 June 2018 was $5,735,691.
Our procedures included, but were not limited to:
The assessment of the provision for warranty
requires management to make an estimate of the
likely future costs that may be incurred in relation to
ongoing and completed contracts.
Obtaining an understanding of how management
estimates their provision for warranty.
Assessing the provision through:
Evaluating the contracts with applicable
warranty obligations;
Reviewing historic claim outcomes and the
accuracy of management’s estimate; and
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201869For personal use only
INDEPENDENT AUDITOR’S REPORT
Key audit matter
How the scope of our audit responded to the
Key Audit Matter
Assessing the consistency of assumptions
applied.
Assessing the appropriateness of the disclosures in
Note 3 and 17 to the financial statements.
Other Information
The directors are responsible for the other information. The other information comprises the
Directors’ Report, Corporate Directory, Corporate Governance Statement and Additional ASX
Information, which we obtained prior to the date of this auditor’s report, and also includes the
following information which will be included in the annual report (but does not include the financial
report and our auditor’s report thereon): Chairman’s Letter, which is expected to be made available to
us after that date.
Our opinion on the financial report does not cover the other information and we do not and will not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed on the other information that we obtained prior
to the date of this auditor’s report, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
When we read the Chairman’s Letter, if we conclude that there is a material misstatement therein, we
are required to communicate the matter to the directors and use our professional judgement to
determine the appropriate action.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
CONTINUED70GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the director’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of
our auditor’s report. However, future events or conditions may cause the Group to cease to
continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in
a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group’s audit. We remain solely
responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201871For personal use only
INDEPENDENT AUDITOR’S REPORT
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 13 to 19 of the Directors’ Report for the
year ended 30 June 2018.
In our opinion, the Remuneration Report of GR Engineering Services Limited, for the year ended 30
June 2018, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the Remuneration Report, based on our audit conducted in accordance
with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
Nicole Menezes
Partner
Chartered Accountants
Perth, 22 August 2018
CONTINUED72GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only
CORPORATE GOVERNANCE STATEMENT
APPROACH TO CORPORATE GOVERNANCE
GR Engineering Services Ltd ABN 12 121 542 738 (Company) has established a corporate governance framework, the key
features of which are set out in this statement. In establishing its corporate governance framework, the Company has
referred to the recommendations set out in the ASX Corporate Governance Council’s Corporate Governance Principles and
Recommendations 3rd Edition (Principles & Recommendations).
The Company has followed each recommendation where the Board has considered the recommendation to be an
appropriate benchmark for its corporate governance practices. Where the Company’s corporate governance practices
follow a recommendation, the Board has made appropriate statements reporting on the adoption of the recommendation.
In compliance with the “if not, why not” reporting regime, where, after due consideration, the Company’s corporate
governance practices do not follow a recommendation, the Board has explained it reasons for not following the
recommendation and disclosed what, if any, alternative practices the Company has adopted instead of those in
the recommendation.
The following governance-related documents can be found on the Company’s website at www.gres.com.au, under the
section marked “Corporate Governance”:
Charters
Board
Audit and Risk Committee
Nomination and Remuneration Committee
Policies and Procedures
Process for Performance Evaluations
Policy and Procedure for the Selection and (Re)Appointment of Directors
Induction Program
Diversity Policy (summary)
Code of Conduct (summary)
Policy on Continuous Disclosure (summary)
Compliance Procedures (summary)
Shareholder Communication and Investor Relations Policy
Securities Trading Policy”
Policy and Procedure for Directors
Risk Management Policy
Selection, Appointment and Rotation of External Auditors
Equity Incentive Plan Rules
The Company reports below on whether it has followed each of the recommendations during the 2017/2018 financial year
(Reporting Period). The information in this statement is current at 22 August 2018. This statement was approved by a
resolution of the Board on 21 August 2018.
Cross-references to the Company’s Annual Financial Report in this statement are references to the Company’s Annual
Financial Report for the year ended 30 June 2018, which is, or will be, disclosed on the Company’s website www.gres.com.
au, under the section marked “News”.
PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
Recommendation 1.1
The Company has established the respective roles and responsibilities of its Board and management, and those matters
expressly reserved to the Board and those delegated to management and has documented this in its Board Charter.
Recommendation 1.2
The Company undertakes appropriate checks before appointing a person or putting forward to shareholders a candidate
for election as a director and provides shareholders with all material information in its possession relevant to a decision on
whether or not to elect or re-elect a director.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201873For personal use only CORPORATE GOVERNANCE STATEMENT
CONTINUED
PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT (CONTINUED)
The checks which are undertaken, and the information provided to shareholders are set out in the Company’s Policy and
Procedure for the Selection and (Re) Appointment of Directors.
Recommendation 1.3
The Company has a written agreement with each director and senior executive setting out the terms of their appointment.
The material terms of any employment, service or consultancy agreement the Company, or any of its child entities, has
entered into with its Managing Director, any of its directors, and any other person or entity who is related party of the
Managing Director or any of its directors has been disclosed in accordance with ASX Listing Rule 3.16.4 (taking into
consideration the exclusions from disclosure outlined in that rule).
Recommendation 1.4
The Company Secretary is accountable directly to the Board, through the Chair, on all matters to do with the proper
functioning of the Board as outlined in the Company’s Board Charter.
Recommendation 1.5
The Company has a Diversity Policy, which includes requirements for the Nomination and Remuneration Committee to set
measurable objectives for achieving gender diversity and to assess annually both the objectives and the Company’s progress
in achieving them. A summary of the Company’s Diversity Policy is disclosed on the Company’s website.
The following measurable objective for achieving gender diversity has been set by the Nomination and Remuneration
Committee in accordance with the Diversity Policy:
“Subject to the identification of suitable qualified candidates, to increase the percentage of professional and senior
executive positions occupied by women to 15% by 30 June 2019.”
The Board continues to work towards meeting this objective and continues to foster a workplace environment and
recruitment policies designed to achieve greater female participation in the Company’s workforce.
The respective proportions of men and women on the Board, in senior executive positions and across the whole
organisation are set out in the following table. “Senior executive” for these purposes means a person who is a Key
Management Employee, a General Manager or a member of Management:
Whole organisation
Senior executive positions
Board
Recommendation 1.6
Proportion of women
54 out of 402 (13%) (13% as at 30 June 2017)
10 out of 67 (15%) (17% as at 30 June 2017)
0 out of 6 (0%) (0% as at 30 June 2017)
The Chair is responsible for evaluation of the Board and, when deemed appropriate, Board committees and individual
directors. The Chair is also responsible for evaluating the Managing Director.
The Chair evaluates the performance of the Managing Director and other Board members through a series of discussions
held throughout the year. These discussions include an assessment of the Company’s state of affairs, the risks facing the
Company and its economic objectives. The Chair evaluates the extent to which each director has contributed to the efficient
utilisation of resources, the identification of risk and the achievement of economic objectives. During these discussions
the Chair also elicits confidential feedback from each Director on their view of the interpersonal dynamics between Board
members and the quality of the Board’s decision making.
During the Reporting Period the Chair evaluated the performance of all Directors, including the Managing Director, in
accordance with the above process.
74GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT (CONTINUED)
Recommendation 1.7
The Managing Director is responsible for evaluating the performance of senior executives in accordance with the process
disclosed in the Company’s Process for Performance Evaluations.
During the Reporting Period the Managing Director conducted performance evaluations of Senior Executives. Where these
evaluations resulted in the identification of areas where the Senior Executive’s technical or interpersonal skills could be
strengthened, appropriate training or remedial action was formulated and agreed.
PRINCIPLE 2 – STRUCTURE THE BOARD TO ADD VALUE
Recommendation 2.1
The Board has established a Nomination and Remuneration Committee comprising Phillip Lockyer (Chair), Barry Patterson,
Terrence Strapp and Peter Hood. All members of the Nomination and Remuneration Committee are non-executive directors
and all members are independent directors. Accordingly, the Nomination and Remuneration Committee is structured in
accordance with Recommendation 2.1.
The Board has adopted a Nomination and Remuneration Committee Charter which describes the role, composition,
functions and responsibilities of the Nomination and Remuneration Committee and is disclosed on the Company’s website.
Recommendation 2.2
The Board is comprised of 5 qualified engineers and 1 qualified accountant. The matrix of skills held by the Board is
weighted towards those skills which are required to identify, assess, quantify and manage those risks which are most
relevant to and prevalent in the Company’s business and the industry in which it operates.
All of the Company’s directors hold, or have held, positions on the boards of other publicly listed companies and all have
extensive experience in the management of organisations across a range of industries.
When necessary, the Board engages the services of external experts and consultants to augment its capacity to consider
and assess matters which fall outside the domain of its collective expertise.
Recommendation 2.3
The Board considers the independence of directors having regard to the relationships listed in Box 2.3 of the Principles &
Recommendations. The independent directors of the Company are Messrs Lockyer, Patterson (deemed independent),
Strapp and Hood.
Mr Patterson is a substantial shareholder of the Company. Notwithstanding that he is a substantial shareholder the Board
considers Mr Patterson to be an independent director because he is not a member of management and is otherwise free
of any interest, position, association or relationship (including those listed in Box 2.3 of the Principles & Recommendations)
that might influence in a material respect, his capacity to bring an independent judgement to bear on issues before the
Board and to act in the best interests of the Company and its members generally. Further, Mr Patterson’s interests as a
substantial shareholder are considered by the Board to be in line with the interests of all other shareholders.
The length of service of each director is set out in the Directors’ Report of the Company’s Annual Financial Report.
75GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only CORPORATE GOVERNANCE STATEMENT
CONTINUED
PRINCIPLE 2 – STRUCTURE THE BOARD TO ADD VALUE (continued)
Recommendation 2.4
The Board has a majority of directors who are independent.
The Board is comprised of 6 directors 4 of whom are or are deemed to be independent. The two non-independent directors
are Tony Patrizi and Geoff Jones. Tony Patrizi is a founding shareholders of the Company and Geoff Jones has been
employed by the Company since 2011, initially as Chief Operating Officer and since 01 July 2013, as Managing Director.
Messrs Patrizi and Jones have thorough knowledge of the Company’s business and extensive experience in managing the
risks it faces. Their continued presence on the Board is therefore highly valued.
The Board is of a size commensurate with the size and nature of the Company. Should the number of Board members
increase, it is the intention of the Company to appoint an additional independent director thereby preserving a majority of
independent directors.
Recommendation 2.5
The Chair of the Board is Phillip Lockyer. Mr Lockyer is an independent director and is not the Chief Executive Officer.
Recommendation 2.6
The Company has an induction program for new directors and senior executives. The goal of the program is to assist new
directors to participate fully and actively in Board decision-making at the earliest opportunity and to assist senior executives
to participate fully and actively in management decision-making at the earliest opportunity. The Company’s Induction
Program is disclosed on the Company’s website.
The Nomination and Remuneration Committee regularly reviews whether the directors as a group have the skills,
knowledge and familiarity with the Company and its operating environment required to fulfil their role on the Board and the
Board committees effectively using a Board skills matrix. Where any gaps are identified, the Nomination and Remuneration
Committee considers what training or development should be undertaken to fill those gaps. In particular, the Nomination
and Remuneration Committee ensures that any director who does not have specialist accounting skills or knowledge
has a sufficient understanding of accounting matters to fulfil his or her responsibilities in relation to the Company’s
financial statements. Directors also receive ongoing briefings from the Company Secretary and Chief Financial Officer on
developments in accounting standards.
PRINCIPLE 3 – ACT ETHICALLY AND RESPONSIBLY
Recommendation 3.1
The Company has established a Code of Conduct for its directors, senior executives and employees, which is disclosed on
the Company’s website.
PRINCIPLE 4 – SAFEGUARD INTEGRITY IN CORPORATE REPORTING
Recommendation 4.1
The Board has established an Audit and Risk Committee. The members of the Audit and Risk Committee are Messrs
Strapp (Chairman), Patterson and Hood. All members of the Audit and Risk Committee are independent non-executive
directors and the Audit and Risk Committee is chaired by Mr Strapp who is not also Chairman of the Board. Accordingly, the
Audit and Risk Committee is structured in compliance with Recommendation 4.1.
Terrence Strapp (CPA, SFFin, MAICD) is a Certified Practicing Accountant and has extensive experience in banking, finance
and corporate risk management. Mr Strapp has extensive experience in the preparation and interpretation of financial
statements and information.
Peter Hood (BE (Chem), MAustIMM, FChemE, FAICD) is a Chemical Engineer and was formerly the Chief Executive
Officer of Coogee Chemicals and Coogee Resources. He is Chairman of the International Chamber of Commerce National
Committee of Australia and is Past President of the Australian Chamber of Commerce and Industry and the Chamber of
Commerce and Industry Western Australia. Peter is currently Chairman of Matrix Composites and Engineering Limited
and Lead Independent Director of Cue Energy Resources Limited. His broad based commercial experience includes the
interpretation of financial statements and information.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201876For personal use only PRINCIPLE 4 – SAFEGUARD INTEGRITY IN CORPORATE REPORTING (CONTINUED)
Barry Patterson (ASMM, MIMM, FAICD) is a mining engineer with over 50 years’ experience in mining and mining services.
He was formerly non-executive Chairman of Sonic Healthcare Limited and Silex Systems Limited and is a non-executive
director of Dacian Gold Limited. His broad based commercial experience includes the interpretation of financial statements
and information.
The Company has also established a Procedure for the Selection, Appointment and Rotation of its External Auditor. The
Board is responsible for the initial appointment of the external auditor and the appointment of a new external auditor when
any vacancy arises. Candidates for the position of external auditor must demonstrate complete independence from the
Company through the engagement period. The Board may otherwise select an external auditor based on criteria relevant to the
Company’s business and circumstances. The performance of the external auditor is reviewed on an annual basis by the Board.
The Audit and Risk Committee held two separate meetings during the year.
The Board has adopted an Audit and Risk Committee Charter which describes the Audit and Risk Committee’s role,
composition, functions and responsibilities, which is disclosed on the Company’s website.
Recommendation 4.2
Before the Board approved the Company financial statements for the half year ended 31 December 2017 and the full-year
ended 30 June 2018, it received from the Managing Director and the Chief Financial Officer a declaration that, in their
opinion, the financial records of the Company for the relevant financial period have been properly maintained and that the
financial statements for the relevant financial period comply with the appropriate accounting standards and give a true and
fair view of the financial position and performance of the Company and the consolidated entity and that the opinion has been
formed on the basis of a sound system of risk management and internal control which is operating effectively.
Recommendation 4.3
Under section 250RA of the Corporations Act, the Company’s auditor is required to attend the Company’s annual general
meeting at which the audit report is considered, and to be represented by a person who is a suitably qualified member of
the audit team that conducted the audit and is in a position to answer questions about the audit. Each year, the Company
writes to the Company’s auditor to inform them of the date of the Company’s annual general meeting.
In accordance with section 250S of the Corporations Act, at the Company’s annual general meeting where the Company’s
auditor or their representative is at the meeting, the Chair allows a reasonable opportunity for the members as a whole at
the meeting to ask the auditor (or its representative) questions relevant to the conduct of the audit; the preparation and
content of the auditor’s report; the accounting policies adopted by the Company in relation to the preparation of the financial
statements; and the independence of the auditor in relation to the conduct of the audit. The Chair also allows a reasonable
opportunity for the auditor (or their representative) to answer written questions submitted to the auditor under section
250PA of the Corporations Act.
A representative of the Company’s auditor, Deloitte Touche Tohmatsu attended the Company’s annual general meeting held
on 14 November 2017.
PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE
Recommendation 5.1
The Company has established written policies and procedures for complying with its continuous disclosure obligations
under the ASX Listing Rules. A summary of the Company’s Policy on Continuous Disclosure and Compliance Procedures are
disclosed on the Company’s website at www.gres.com.au.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201877For personal use only CORPORATE GOVERNANCE STATEMENT
PRINCIPLE 6 – RESPECT THE RIGHTS OF SECURITY HOLDERS
Recommendation 6.1
The Company provides information about itself and its governance to investors via its website at www.gres.com.au as set
out in its Shareholder Communication and Investor Relations Policy.
Recommendation 6.2
The Company has designed and implemented an investor relations program to facilitate effective two-way communication
with investors. The program is set out in the Company’s Shareholder Communication and Investor Relations Policy.
Recommendation 6.3
The Company has in place a Shareholder Communication and Investor Relations Policy which outlines the policies and
processes that it has in place to facilitate and encourage participation at meetings of shareholders.
Recommendation 6.4
Shareholders are given the option to receive communications from, and send communications to, the Company and its
share registry electronically. This is facilitated through the Company’s website which provides access to the Company’s and
its share registry’s full range of contact details, including email address.
PRINCIPLE 7 – RECOGNISE AND MANAGE RISK
Recommendation 7.1
As noted above, the Board has established a combined Audit and Risk Committee. The Audit and Risk Committee is
structured in accordance with Recommendation 7.1. Please refer to the disclosure above in relation to Recommendation
4.1 in relation to the Audit and Risk Committee.
Recommendation 7.2
The Audit and Risk Committee reviews the Company’s risk management framework annually to satisfy itself that it
continues to be sound, to determine whether there have been any changes in the material business risks the Company
faces and to ensure that the Company is operating within the risk appetite set by the Board.
Recommendation 7.3
The Company does not have an internal audit function. To evaluate and continually improve the effectiveness of the
Company’s risk management and internal control processes, the Board relies on ongoing reporting and discussion of the
management of material business risks as outlined in the Company’s Risk Management Policy.
Recommendation 7.4
The Company provides engineering and construction services to the mining industry and operations and maintenance
services to the oil and gas industry, including producers of coal seam gas. These activities expose the Company, directly and
indirectly to environmental, social and economic sustainability risks, which may materially impact the Company’s ability to
create or preserve value for shareholders over the short, medium or long term.
In relation to the provision of goods and services, these risks are mitigated by virtue of the Company entering a project’s
life cycle at a stage where all environmental, social and economic requirements of the relevant jurisdiction have been met
by the client. The Company does not provide goods and services in circumstances where this is not the case and to that
extent, the Company is in a position to continue its business activities in an environmentally, socially and economically
sustainable manner.
In relation to the Company’s suppliers, the Company takes due care to ensure that the goods and services required for the
conduct of its business are sourced from entities which act fairly and responsibly within the environments, societies and
economies in which they operate thereby mitigating sustainability risks in relation to these factors.
The Company aims to operate in a socially sustainable way by engaging with the local communities and wherever possible
providing employment and training opportunities to members of the local community. In doing so, the Company operates
within the framework of local norms and customs and endeavours to ensure that its clients do likewise. The Company
will not participate in any activity where it is likely to receive either directly or indirectly, economic benefit through the
exploitation of others.
CONTINUED78GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 2018For personal use only PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY
Recommendation 8.1
As noted above in relation to Recommendation 2.1, the Board has established a Nomination and Remuneration Committee.
The Nomination and Remuneration Committee is structured in compliance with Recommendation 8.1. Please refer to the
disclosure above in relation to Recommendation 2.1 in relation to the Nomination and Remuneration Committee.
Recommendation 8.2
Details of remuneration, including the Company’s policy on remuneration, are contained in the “Remuneration Report”
which forms of part of the Directors’ Report in the Company’s Annual Financial Report. This disclosure includes a summary
of the Company’s policies regarding the deferral of performance-based remuneration and the reduction, cancellation or
clawback of the performance-based remuneration in the event of serious misconduct or a material misstatement in the
Company’s financial statements.
Under the terms of the GR Engineering Services Limited Equity Incentive Plan (Plan), if in the opinion of the Board a
participant acts fraudulently or dishonestly or wilfully breaches his or her duties to the Company, the Board may in its
absolute discretion determine that all unvested or unexercised performance rights or share appreciation rights held by the
participant will lapse.
In addition to the provisions under the Plan, the Board has adopted a clawback policy in relation to any cash bonuses
or shares issued pursuant to the Plan. Under this policy the Board reserves the right to take action to reduce, recoup or
otherwise adjust the employees performance based remuneration in circumstances where in the opinion of the Board, an
employee has acted fraudulently or dishonestly or has wilfully breached his or her duties to the Company.
Recommendation 8.3
The Company’s Remuneration Committee Charter includes a statement of the Company’s policy on prohibiting participants
in the Plan entering into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of
participating in the Plan.
GR ENGINEERING SERVICES LIMITED ANNUAL REPORT 201879For personal use only ADDITIONAL ASX INFORMATION
The shareholder information set out below was applicable as at 1 October 2018:
• the twenty largest shareholders held 85.62% of the Ordinary Shares; and
• there were 1,414 ordinary shareholders
Distribution of securities
Analysis of number of equity security holders by size of holding:
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – Over
Total
Total
238
456
281
391
48
1,414
Units
125,109
1,329,277
2,225,344
11,502,594
138,313,365
153,495,689
% of shares issued
0.08%
0.87%
1.45%
7.49%
90.11%
100.00%
The number of shareholders holding less than a marketable parcel of ordinary shares is 76.
Equity security holders
Top 20 Shareholders as at 1 October 2018
Name
1.
Citicorp Nominees Pty Ltd
2. Mr David Joseph {Sala Tenna} + Ms Jane Frances {Sala Tenna}
Number of
shares held
19,298,599
% of shares
issued
12.57%
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