Source - LSE Regulatory
RNS Number : 6555Y
Gulf Marine Services PLC
14 May 2021
 

14 May 2021

 

Gulf Marine Services PLC

('Gulf Marine Services', 'GMS', 'the Company' or 'the Group')

Financial Results (unaudited)

 

Gulf Marine Services PLC ("GMS" or the "Company"), a leading provider of advanced self-propelled, self-elevating support vessels serving the offshore oil, gas and renewables industries, is pleased to announce its full year unaudited financial results for the year to 31 December 2020.

 

2020 Financial Highlights

·      Revenue fell by 6% to US$ 102.5 million (2019: US$ 108.7 million). Utilisation improved to 81% from 69% in 2019, with improvements in both of our core markets of MENA and North West Europe. This helped to offset the decrease in average rates of 18%, arising from the COVID-19 operating environment where delayed contract awards meant that two of our E-Class fleet were working at K-Class rates in order to meet demand.

·      Cost of sales reduced to US$ 70.9 million (2019: US$ 74.6 million) despite higher utilisation and incurring costs associated with relocating two vessels from Europe to the Middle East and costs arising from the impact of COVID-19 totalling US$ 6.8 million and US$ 2.3 million respectively.

·      Adjusted EBITDA[1] at US$ 50.4 million was 2% lower than in 2019, while net cash flow before debt service[2] reduced to US$ 31.9 million (2019: US$ 41.9 million).

·      Our cost structure has fundamentally changed, with the cost saving programme now having delivered US$ 20.7 million on an annualised basis, helping to improve underlying trading performance.

·      Impairment charges totalled US$ 87.2 million, on two of our E-Class vessels and five of our K-Class.

·      Loss for the year rose to US$ 124.3 million from US$ 85.5 million following the impairment, further restructuring and exceptional costs of US$ 5.6 million and the total write-off of US$ 16.2 million relating to the renegotiation of bank facilities in June 2020. 

 

2020 Operational Highlights

·      HSE Performance improved with Lost Time Injury Rate at 0 (2019: 0.19) at the end of 2020. Total recordable injury rate was 0 (2019: 0.29).

·      Successful first-time deployment of cantilever system on GMS Evolution, a technology designed and developed by GMS. The vessel is now on a long-term contract with the same client.

·      Operational downtime remained low at less than 2%.

·      Average fleet utilisation increased to 81% (2019: 69%) with marked improvements in both E- and K-Class vessels to 65% (2019: 51%) and 86% (2019: 68%) respectively, reflecting increased demand in Middle East and North Africa (MENA) following the relocation of two E-Class to MENA at the beginning of the year. S-Class declined slightly at 92% (2019: 97%).

·      New charters and extensions secured in the year totalled just under seven years.

 

2020 Governance Highlights

·      Four Requisitioned General Meetings  held during 2020 resulted in complete Board overhaul.

·      New Executive Chairman, Mansour Al Alami (appointed November 2020).

·      Rashid Al Jarwan joined as an Independent Non-Executive Director (appointed November 2020).

·      Saeed Abdullah Khoory joined as an Independent Non-Executive Director in November 2020 and sadly passed away in February 2021.

·      Hassan Heikal joined as Non-Executive Director (appointed November). In February 2021 Mr Heikal was appointed Deputy Chairman.

·      Tim Summers resigned as Executive Chairman in November 2020.

·      Steve Kersley, Chief Financial Officer (CFO) removed from Board in June 2020 and resigned in November. Andy Robertson appointed his successor in February 2021.

·      Jyrki Koskelo joined the Board as an Independent Non-Executive Director in February 2021.

 

 

COVID-19

·      Significant operational and financial risks experienced by all businesses across the energy sector persist. Four vessels reported COVID-19 cases during the year.

·      Restrictions on travel and quarantine periods proved the biggest challenge to the Company in the year. To overcome this, crew rotations have been temporarily increased to minimise the number of crew changes required. This measure will remain in place for the time being.

·      Temporary delays in contract awards, with some client projects unable to commence due to supply chain delays or inability to mobilise manpower. 

·      Incurred US$ 2.3 million of additional costs relating to COVID-19 in the year, which were mainly in relation crew quarantine requirements. Changes to operating practices implemented at end of the year should minimise these costs going forward.

 

Material Uncertainty Statement

·      As part of the renegotiation of bank facilities agreed in March 2021, the Company is required to obtain shareholder approval from shareholders other than Seafox and Mazrui (as they are likely related parties to the transaction under the Listing Rules and have informally agreed to take up their prorated share of an equity raise) and raise a minimum of US$ 25 million of new equity by 30 June 2021. If the Company fails to meet these requirements then lenders would retain the right to call default on the loans. This would allow a majority of banks, representing at least 66.67% of total commitments, to exercise their rights to demand immediate repayment and/or enforce security granted by the Company as part of this facility at the asset level and/or by exercising the share pledge to take control of the Group.

·      This indicates a material uncertainty that may cast significant doubt as to the Group's ability to continue as a going concern. Notwithstanding this material uncertainty, the Directors believe that based on progress to date, shareholder approval will be obtained and US$ 25 million of equity will be raised by 30 June 2021.  Accordingly, the going concern basis of accounting has been adopted in preparing the 2020 consolidated financial statements.

 

2021 Highlights and Outlook

·      Secured backlog was US$ 199.0 million as at 6 May 2021 (US$ 240 million as at 31 March 2020) with the decrease reflecting delays in some contract awards arising from COVID-19.

·      Seven of the fleet of 13 vessels are fully contracted for 2021. Secured utilisation for 2021 currently stands at 80% and 41% for 2022.

·      Following appointment of the new Board, the agreement reached with banks in 2021 offers a significant saving in interest costs and an extension of time in which to carry out an equity raise to prevent GMS having to issue warrants or apply PIK[3] to its borrowings.

·      Current year-to-date[4] unaudited EBITDA is in line with the Company's 2021 Business Plan.

 

 

Mansour Al Alami, Executive Chairman said:

"GMS has been able to successfully navigate the challenges of 2020 and is now well positioned for 2021 and beyond. We are maximising the return on our assets through improving utilisation with a reduced cost base against a backdrop of strengthening market dynamics. This, combined with improved bank facility terms, means that GMS is well on the way to long-term recovery and growth. These are important steps in maximising cash generation and deleveraging GMS' balance sheet over time. We are confident of completing the US$ 25 million equity raise by the end of June this year as another key milestone.

 

On behalf of the Board, I would like to thank all our staff for a year of hard work and for their continued commitment to GMS. I would also like to thank our stakeholders, including customers, suppliers and lenders for their support during the past year."

 

 

    

Enquiries

 

For further information please contact:

 

Gulf Marine Services PLC

Mansour Al Alami Executive Chairman

Tony Hunter Company Secretary

Tel: +44 (0) 207 603 1515

 

Celicourt Communications

Mark Antelme

Philip Dennis

Tel: +44 (0)20 8434 2643

 

Notes to Editors:
 

Gulf Marine Services PLC, a company listed on the London Stock Exchange, was founded in Abu Dhabi in 1977 and has become a world leading provider of advanced self-propelled self-elevating support vessels (SESVs). The fleet serves the oil, gas and renewable energy industries from its offices in the United Arab Emirates, Saudi Arabia and Qatar. The Group's assets are capable of serving clients' requirements across the globe, including those in the Middle East, South East Asia, West Africa, North America, the Gulf of Mexico and Europe.
 

The GMS fleet of 13 SESVs is amongst the youngest in the industry, with an average age of eight years. The vessels support GMS's clients in a broad range of offshore oil and gas platform refurbishment and maintenance activities, well intervention work and offshore wind turbine maintenance work (which are opex-led activities), as well as offshore oil and gas platform installation and decommissioning and offshore wind turbine installation (which are capex-led activities).

 

The SESVs are categorised by size - K-Class (Small), S-Class (Mid) and E-Class (Large) - with these capable of operating in water depths of 45m to 80m depending on leg length. The vessels are four-legged and are self-propelled, which means they do not require tugs or similar support vessels for moves between locations in the field; this makes them significantly more cost-effective and time-efficient than conventional offshore support vessels without self-propulsion. They have a large deck space, crane capacity and accommodation facilities (for up to 300 people) that can be adapted to the requirements of the Group's clients.
 

Evolution Cantilever Capability

 

GMS Evolution and her cantilever work over system has been designed and built to enable heavier work over scopes from a self-propelled jack up barge. The optimised design enables execution of Heavy Well Intervention (HWI) benefitting from the efficiencies of our 4-Legged self-propelled jack up barges provide. The type of HWI work that can be carried out include:
 

Electrical Submersible Pump (ESP) change out

Plug and abandonment:

Re-completion

Side-tracks

Slot Recovery

Work Overs

Coil Tubing

 

And the benefits include:
 

Significant time savings moving between locations resulting in workover programmes being completed significantly quicker therefore allowing clients to maximise production levels

No requirement to hire tugs to assist with drilling rig moves

 

Gulf Marine Services PLC's Legal Entity Identifier is 213800IGS2QE89SAJF77

www.gmsuae.com
 

Disclaimer

 

The content of the Gulf Marine Services PLC website should not be considered to form a part of or be incorporated into this announcement.

 

Cautionary Statement
 

This announcement includes statements that are forward-looking in nature. All statements other than statements of historical fact are capable of interpretation as forward-looking statements. These statements may generally, but not always, be identified by the use of words such as 'will', 'should', 'could', 'estimate', 'goals', 'outlook', 'probably', 'project', 'risks', 'schedule', 'seek', 'target', 'expects', 'is expected to', 'aims', 'may', 'objective', 'is likely to', 'intends', 'believes', 'anticipates', 'plans', 'we see' or similar expressions. By their nature these forward-looking statements involve numerous assumptions, risks and uncertainties, both general and specific, as they relate to events and depend on circumstances that might occur in the future.
 

Accordingly, the actual results, operations, performance or achievements of the Company and its subsidiaries may be materially different from any future results, operations, performance or achievements expressed or implied by such forward-looking statements, due to known and unknown risks, uncertainties and other factors. Neither Gulf Marine Services PLC nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. No part of this announcement constitutes, or shall be taken to constitute, an invitation or inducement to invest the Company or any other entity and must not be relied upon in any way in connection with any investment decision. All written and oral forward-looking statements attributable to the Company or to persons acting on the Company's behalf are expressly qualified in their entirety by the cautionary statements referred to above.

 

Chairman's Review

 

New debt arrangements provide a strong platform for future growth

2020 saw the Company make solid progress, despite the impact of the COVID-19 pandemic. During the year, GMS recorded a high level of utilisation, on the back of a series of contract wins, whilst we continued to drive efficiencies to improve our margin[5] and deliver operations safely and securely.

 

The improved terms to GMS' debt arrangements, as recently announced, combined with progress in two other key areas, maximising utilisation and cost control, places the Company in a good position to deliver further progress in the year ahead. We ended 2020 with vessel utilisation of 81% and already have 80% of 2021 utilisation locked in through secured contracts. Work continues in streamlining our cost base and since my appointment we have implemented a further US$ 3.0 million of annualised savings.

 

 

Capital Structure and Liquidity

In November 2020 a new Board was appointed, and I assumed the role of Executive Chairman. A key focus since has been the renegotiation of the terms of the Group's debt facilities. I am delighted to say that we concluded negotiations with our lenders on an improved structure, which will see a significant reduction when compared to the previous arrangements agreed in 2020 and a deferment to the application of PIK interest which was to apply from 1 January 2021. 

 

Under the revised agreement, the tenor and size of facility remain unchanged but certain key structural changes to the facility will give significant benefit to GMS.  As well as greatly reducing the cost of borrowings through the 40% reduction in margin in 2021 and 2022, the Company has been granted an extension to the requirement to raise the previously required equity of US$ 75 million. Now a minimum of US$ 25 million of new equity is required to be raised by 30 June 2021 and a further US $50 million by the end of 2022. Subject to successfully raising US$ 25 million, GMS will no longer be required to issue warrants to its lenders or be charged PIK interest on the loan facilities in 2021 (as was required under the agreement negotiated in June 2020).

 

The requirement to obtain shareholder approval from our shareholders other than Seafox and Mazrui who are likely to be considered related parties to the transaction and raise US$ 25 million of equity by 30 June 2021, to avoid an event of default, represents a material uncertainty that may cast significant doubt as to the Group's ability to continue as a going concern, that has been highlighted in our consolidated financial statements. Despite this, the Directors consider there is good reason to believe that the equity raise will be successfully completed in a timely fashion. This is based on the progress made to date, and two of our existing shareholders, representing 42% of the share capital of the Company, having already informally committed their prorated share of the US$ 25 million. The Board would like to thank the two shareholders for their extensive work and support to deliver this improved debt deal, which is a milestone for the business.

 

The reduced cost of the debt facilities, combined with a planned equity raise, will see a significant improvement to GMS' future leverage levels. The positive impact this will have on the business cannot be understated. It frees up capital that would otherwise have been tied up in managing the Company's debts and gives us the greater flexibility needed to drive the business forward.

 

Governance

In November 2020, I joined as Executive Chairman as part of a new Board, following resolutions passed by shareholders at a General Meeting. In light of Tim Summers having stepped down from the Board, I was appointed Chairman, and subsequently Executive Chairman, a role which I continue to hold in leading the business and the Board. Whilst holding the positions of both Chairman and Chief Executive is not recommended by the 2018 UK Corporate Governance Code (the Code), the Board has concluded that this continues to be appropriate in the Group. This recognises both the level and pace of change necessary for the Group and its relatively small scale.

 

The Board also believes that I am the best person to chair the Board and lead the management of the business for the foreseeable future.

 

The new Board combines strong relationships with key clients and banks in the MENA region, with a high level of industry knowledge. These strengths have already benefitted the business through the delivery of the recent new banking terms. They will also play a key role in helping deliver on the planned equity raise and the future direction and growth of the business.  We are continuing to look to strengthen the Board and in 2021 and are adding two Independent Non-Executive Directors, whose wealth of experience adds further value to the Board.

 

Andy Robertson was appointed to the role of Chief Financial Officer, in February this year. He has been with GMS for 13 years, having previously held the positions of Finance Director and Head of Business Development. With his industry knowledge, understanding of our business and the relationships he has developed with key stakeholders over the years, I am sure that Andy will continue to add great value to GMS going forward.

 

Group performance

Revenue reduced by 6% to US$ 102.5 million in 2020. While vessel utilisation increased to 81% from 69% in 2019, average day rates decreased by 18% arising from the COVID-19 operating environment where delayed contract awards meant that two of our E-Class fleet were available and were contracted at K-Class rates where short-term opportunities existed.

 

Cost management remained a key focus, such that operating costs decreased by US$ 1.0 million (detailed in note 11), despite the 12 percentage point increase in utilisation. This decrease is largely down to headcount reductions, and accordingly general and administrative expenses similarly decreased by 24% from US$ 24.1 million to US$ 18.2 million . Since the inception of our cost saving programme in 2019, over US$ 20 million of annualised costs have been removed from our operations.

Adjusted EBITDA was US$ 50.4 million (2019: US$ 51.4 million), while the loss for 2020 was US$ 124.3 million (2019: US$ 85.5 million), with a non-cash impairment charge of US$ 87.2 million (2019: US$ 59.1 million) on five of our K-Class and two of our E-Class vessels being the driving factor. The Group also incurred US$ 16.2 million in finance expenses relating to the earlier renegotiation of bank facilities in June 2020.

 

Capital expenditure was allocated to ensure vessels were kept in class, equipment was well maintained and able to meet specific client requirements. GMS' priority is to deleverage the balance sheet, meaning capital allocation will likely remain limited until that is achieved.

 

Commercial and Operations

The progress GMS has continued to make, regardless of the unprecedented circumstances created by the COVID-19 pandemic, is a credit to the business and the people within it and provides a firm footing to look to the future.

 

COVID-19 has fundamentally changed the global landscape in which we operate and, whilst those risks remain, they are actively managed at both Board and Senior Management levels. Operations are continuing without material disruption and processes have been put in place to mitigate additional COVID-19 related costs going forward, mainly relating to periods of quarantine for crew.

 

In 2020, all business travel for onshore personnel was stopped and, for a time, our staff were working remotely as part of enhanced safety procedures. The phased reopening of the Head Office began in the second half of the year, with regular COVID-19 tests provided to all our onshore staff.

 

Four vessels reported confirmed or suspected COVID-19 cases and effective measures were put in place to manage the impact. Our biggest challenge operationally has been to effect timely crew changes, due to travel restrictions and quarantine requirements, resulting in extended durations of time that crew were required to be at sea. I would like to extend my personal thanks to each crew member impacted by this.

 

GMS' UAE based employees have chosen to take advantage of the COVID-19 vaccination programme, supporting their health and the health of contractors and clients. We fully support their decision, as well as the ongoing campaign by the UAE Government to vaccinate all its residents and protect against COVID-19.

 

In July 2020, GMS announced its first contract utilising the unique Cantilever Workover System, installed on the self-propelled vessel, GMS Evolution. Under contract to a National Oil Company (NOC) in the MENA region, this was the first occasion that the cantilever system, a technology designed and developed by GMS, has been used on a live well.

The system successfully completed operations on 13 wells, proving the technology concept and providing the client with enhanced safety and lower-cost operations. Following this successful trial, the client agreed to improved commercial terms through a new contract running in direct continuation to Q4 2022.

 

In the autumn, GMS relocated from its out-dated base at Musaffah to new facilities within Abu Dhabi. The move reduces the combined office & yard costs by around 40% annually.

 

Environment and Safety

Once again, we have delivered safe and reliable operations to our customers and it is pleasing to report that the TRIF (Total Recordable Injury Frequency) returned to zero during the year, from 0.19 in the previous year. GMS remains committed to providing all personnel and our customers with a high quality, safe working environment at all times and continues to maintain a focus on safe, reliable operations.

 

In 2020 there were no environmental incidents across our operations, and we are continuing to take measures to reduce our emissions going forward, as part of a broader goal to align with the Paris Agreement objectives. We recognise that all of us have an increased level of responsibility on climate change. The new Board will be overseeing GMS' response to climate related challenges and opportunities in our operating model.

 

Outlook

GMS is well placed to benefit from the improving market cycle in oil & gas in the Middle East and renewables in Europe. In recent years, the Company has traded through a period of subdued demand, which now looks set to change. This change is reflected in GMS' vessel utilisation, combined with the greater pipeline of future activity, which is also expected to feed into higher day rates, albeit because of increased supply these are unlikely to recover to day rates experienced pre-2015.

 

This increase in market activity is being driven by increased demand from our core NOC and EPC clients in the MENA region with NOCs offering long term contracts having committed to increases in production levels and EPC clients catching up on project delays incurred in 2020 as a result of the COVID-19 pandemic.

 

The Middle East is the largest region for shallow water oil production, ideal for SESVs to operate, with extensive offshore infrastructure, requiring regular maintenance. The Company now has 12 of its 13 vessel fleet based in the MENA region, following the decision to relocate two vessels from Europe last year.

 

Utilisation and days rates are also expected to benefit from the market tightening in the Middle East, as competitor vessels are relocated to support the development of the offshore wind market in China. We began 2021 with an improved secured utilisation position over last year, which is encouraging and gives us added comfort for the year ahead. Secured day rates for 2021 have remained relatively flat on K- and S-Class however we have seen an increase in day rates on E-Class of just over 9% on 2020 average rates through contracts awarded in 2021.

 

The Group's financial performance to the end of March 2021 remains in line with our business plan. With 80% of vessel utilisation already secured, the Board is confident of delivering further improved results.

 

 

Mansour Al Alami

Executive Chairman

 

 

 

Financial Review

 

2020

US$m

2019

US$m

Revenue

102.5

108.7

Gross loss

(55.5)

(25.0)

Adjusted EBITDA1

50.4

51.4

Asset impairment

(87.2)

(59.1)

Loss for the year

(124.3)

(85.5)

Adjusted loss6

(17.3)

(20.0)

Net cash flow before debt service7

31.9

41.9

 

Introduction

Revenue reduced by 6% from US$ 108.7 million in 2019 to US$ 102.5 million in 2020. Vessel utilisation increased to 81% (2019: 69%). Delays in contract awards as a result of COVID-19 meant that some of our available E-Class vessels were deployed on to contracts that would have normally been fulfilled by our smaller K-Class vessels. This meant that while utilisation improved, average day rates decreased by 18%.

 

Adjusted EBITDA was broadly in line with the previous year, at US$ 50.4 million. Cost of sales reduced to US$ 70.9 million (2019: US$ 74.6 million) despite incurring costs associated with relocating two vessels from Europe to the Middle East and costs arising from the impact of COVID-19 totalling US$ 6.8 million and US$ 2.3 million respectively. A continued focus on cost optimisation led to improved underlying trading performance and increased Adjusted EBITDA margins of 49% (2019: 47%).

 

E-Class utilisation improved from 51% in 2019 to 65% in 2020. Our K-Class utilisation levels also saw a significant increase to 86% (2019: 68%). S-Class utilisation dropped slightly in 2020, to 92% (2019: 97%), all three vessels in this class were fully contracted for the year but two were required to be taken out of service for maintenance work. There was a total of four vessels where COVID-19 was suspected or confirmed during the year over short periods of time, resulting in reduced revenue for the period of US$ 1.7 million. While utilisation improved, rates were lower than 2019 across all three classes, with the E-Class showing the most significant drop at 24% as two of our E-Class fleet were available and contracted at K-Class rates to meet short-term demand. S-Class rates were 3% lower due to a specific contract negotiation that resulted in a 16 month extension of a contract and K-Class 5% lower, primarily from two long-term contracts negotiated in 2019 at lower rates.

 

Operating costs decreased by US$ 1.0 million in the year (see note 11), despite the 12 percentage point increase in utilisation as the focus on managing our cost base continued. Included within operating costs are the relocation and COVID-19 costs mentioned above. The COVID-19 costs primarily relate to additional quarantine periods required for our crew. Processes have been changed to mitigate a significant amount of these costs going forward by changing the policy on rotation to reduce quarantine periods for our offshore crew.

 

General and administrative expenses decreased by US$ 5.9 million (24%), down to US$ 18.2 million compared to the prior year. Restructuring costs were lower by US$ 3.8 million at US$ 2.5 million as the majority of the restructuring took place in 2019. In 2020 legal costs of US$ 3.1 million (2019: nil) were incurred in relation to the Seafox proposed bid offer and governance and management changes. Underlying G&A reduced by US$ 5.2 million, reflecting headcount reduction throughout the organisation in 2020. Since the inception of our cost saving programme in 2019, over US$ 20 million of annualised cost savings have been implemented across the business. The Group continues to look for additional opportunities to implement further reductions to our cost base.

 

The loss for the year was US$ 124.3 million (2019: US$ 85.5 million). The increase is primarily related to a non-cash impairment charge of US$ 87.2 million (2019: US$ 59.1 million) relating to the value of our K-Class fleet, along with two of our E-Class vessels. The Group expensed the total amount of US$ 16.2 million incurred in fees and fair value movements relating to the renegotiation of our bank facilities in June 2020. This arose primarily from an error in judgement on whether or not an equity raise was the more likely outcome at the 30 June reporting date. The Board's view is that the level of shareholder support at the time meant that it was unreasonable to assume that US$ 75 million of equity would be raised; and that obtaining the required shareholder support for the issue of warrants was the more likely outcome, therefore the accounting modification test should have been reflected to apply PIK interest to the debt from 1 January 2021 with warrants subsequently issued to the banks. The H1 2021 results will show a restated H1 2020 to reflect the correction of this error in judgement.

 

Net cash flow before financing activities reduced compared to the prior period from US$ 41.9 million to US$ 31.9 million, reflecting the US$ 6.8 million of vessel relocation costs and the US$ 2.3 million of COVID-19 costs as well as additional drydocking costs paid (up US$ 2.8 million from 2019 at US$ 7.6 million) and the timing of movements in working capital.

 

Considerably better terms to the Group's bank facilities were agreed on 31 March 2021. Under the terms of the new agreement the margin payable reduces in 2021 and 2022 with the cash savings from reduced interest being used to accelerate repayment of the outstanding principle. The new terms also defer PIK interest, previously required to be charged from 2021 onwards, and defer the requirement to issue any warrants. As part of the new agreement more time has been granted to raise equity of US$ 75 million with a requirement to raise at least US$ 25 million by 30 June 2021 and a further US$ 50 million by the end of 2022. This is subject to shareholder approval, excluding Seafox and Mazrui Investments LLC (Mazrui) as these shareholders would likely be treated as related parties in the voting. Failure to obtain necessary shareholder approval and raise the required equity would be an event of default under the bank facilities. Given the proximity of the deadline to raise the first US$ 25 million and its uncommitted nature, this indicates a material uncertainty that may cast significant doubt as to the Group's ability to continue as a going concern. Notwithstanding this material uncertainty, the Directors believe that based on progress to date and an informal commitment from these two shareholders representing 42% of the share capital of the Company to take up their prorated share there is good reason to believe that the equity raise will be successfully completed and have therefore adopted the going concern basis of accounting in preparing the consolidated financial statements.

 

 

COVID-19

During the year, a total of four vessels reported suspected or confirmed COVID-19 cases. In three of these cases the vessel was placed in quarantine until all personnel on board tested negative. Overall, we experienced 2% downtime in the year as a result of COVID-19 resulting in US$ 1.7 million of lost revenue and US$ 2.3 million in additional costs which were mainly incurred in crew quarantine.

 

Our biggest pandemic related challenge in 2020 was the curtailment of international travel or, in some cases, border closures in the countries we operate in. This often prevented the Group from changing out offshore crew at the end of their rotations. Where GMS was able to change out personnel, delays were caused as crew were required to go through a quarantine period prior to joining the vessel. Crew rotation durations have been temporarily amended to mitigate both the financial and operational impact experienced to date.

 

Some potential clients facing supply chain or logistic issues deferred contract awards in 2020. The majority of these awards are still live, with some having been already awarded and the remainder expected to be awarded in 2021.

 

Revenue and segmental profit/loss

The table below shows the contribution to revenue and segment gross profit or loss made by each vessel class during the year.

 

Vessel Class

Revenue                 (US$ '000)

Gross Profit/(Loss)               (US$ '000)

Adjusted Gross Profit/(Loss)         

(US$ '000)*

 

2020

2019

2020

2019

2020

2019

 

E-Class

29,407

35,984

(26,047)

(51,826)

(22)

2,737

 

S-Class

32,136

35,422

15,797

14,617

15,797

17,462

 

K-Class

40,947

37,313

(45,076)

14,449

16,055

14,449

 

Other

2

2

(202)

(2,214)

(202)

(497)

 

Total

102,492

108,721

(55,528)

(24,974)

31,628

34,151

 

*See Glossary and note 10 of the consolidated financial statements

 

Despite the impact of COVID-19 on the industry during the year, the Company's average utilisation across its fleet increased from 69% in 2019 to 81% in 2020. The Group experienced less than 2% of operational downtime. 

 

Utilisation levels in North West Europe (where there is now one vessel operating) improved significantly to 92% in the year (2019: 49%) whilst serving contracts solely related to the Offshore Renewables market.

 

The Group's MENA region also saw a rise in utilisation levels, increasing to 80% (2019: 75% in 2019). This was despite two vessels being off hire, whilst relocating from North West Europe in the early part of the year, and delays in awards of new work, due to COVID-19.

 

E-Class vessel utilisation increased from 51% in 2019 to 65% in 2020. The greater number opportunities in the MENA region available to the two relocated vessels resulted in a small increase in their utilisation in the year, from 38% in 2019 to 42% in 2020. This was despite the vessels being relocated and both being unavailable for hire in the first three months of the year.

 

Utilisation on the K-Class vessels increased from 68% in 2019 to 86% in 2020, primarily as a result of two long term contracts secured in 2019. Three vessels mobilised for new contracts in the early part of 2020 and there was a gradual increase to utilisation over the remainder of the year. One vessel was also taken out of service, for a prolonged period, in order to complete its five year special survey.

 

S-Class utilisation decreased from 97% in 2019 to 92% in 2020. The drop in utilisation was caused by two vessels requiring to be taken out of services for maintenance work.

 

Overall, average day rates were lower in 2020 across each vessel class. E-Class average rates dropped by 24%, mainly as a result of securing two contracts which would normally be fulfilled by the smaller K-Class vessels, all of which were already on charter hire. One of these contracts allowed the Company to demonstrate the use of the Cantilever System installed on GMS Evolution and following its successful trial last year lead to a long term contract being awarded for the vessel in 2021 at a significantly higher day rate.

 

K-Class average day rates dropped by 5%, mainly driven by two longer-term contracts secured in 2019 at lower rates and an outbreak of COVID-19 on board one vessel where a lower standby rate was applicable whilst the vessel was in quarantine. There was a marginal drop in S-Class day rates of 3%, which was negotiated with one client on a contract that was due to finish in August 2020 but then extended through to the end of 2021.

During the year, the share of total Group revenue derived from customers located in the MENA region increased to 88% (2019: 75%) following the relocation of two E-Class vessels.  National Oil Companies (NOCs) were the principal client representing 68% of 2020 total revenue, compared to 55% in 2019.

 

The UAE remains the largest revenue contributor in the MENA region, now generating 52% of total revenue (2019: 33%). Qatar has seen an increase in revenue contribution (19% compared to 12% in 2019) reaffirming the capability of our vessels in that region for the future. 

 

Cost of sales, impairment  and administrative expenses

Cost of sales decreased from US$ 74.6 million in 2019 to US$ 70.9 million in 2020. Impairment totalled US$ 87.2 million (2019: US$ 59.1 million) on five K-Class and two E-Class vessels. Total depreciation and amortisation included in cost of sales amounted to US$ 28.6 million in 2020 (2019: US$ 31.3 million).

 

Despite increased utilisation and US$ 9.1 million of costs incurred through a combination of relocating two vessels to the MENA region and COVID-19, cost of sales excluding depreciation and amortisation reduced by 2% to US$ 42.3 million (2019: US$ 43.3 million).

 

Overall general and administrative costs reduced from US$ 24.1 million to US$ 18.2 million. The majority of this reduction is due to the continued effort to reduce the cost base. General and administrative costs excluding depreciation, amortisation, exceptional legal costs and restructuring costs reduced by 31% in the year, US$ 14.1 million down to US$ 9.8 million.

 

Adjusted EBITDA

Adjusted EBITDA was US$ 50.4 million (2019: US$ 51.4 million), with the Adjusted EBITDA margin increasing to 49% (2019: 47%), despite vessel relocation and COVID-19 costs, as the annualised impact of 2019 cost reductions and further reductions made in 2020 took effect.

 

Finance costs, foreign exchange and disposal of assets

Finance costs comprise the cost of borrowings and costs in relation to the renegotiations of our bank facilities in June 2020. These costs increased from US$ 32.1 million in 2019 to US$ 46.7 million in 2020 as a result of US$ 16.2 million of finance expenses incurred in restructuring of the banking facilities earlier in the year. This is discussed in further detail below. Finance costs excluding this adjustment reduced to US$ 29.3 million (2019: US$ 32.1 million), as a result of a reduced average LIBOR rates which during the period averaged 1.0%, compared to 2.5% in 2019.

 

A net foreign exchange loss of US$ 1.0 million (2019: US$ 1.2 million) was recognised in the period, mainly relating to our forex exposure on contracts in Europe, which were denominated in either Sterling or Euros.

 

Following the downsizing and relocation of the Group's Headquarters in Abu Dhabi, a loss on disposal of assets of US$ 2.1 million was incurred on fixtures and fittings and obsolete plant and machinery.

 

Taxation

The net tax charge for the year was US$ 1.3 million (2019: US$ 3.7 million). This reflects an increase to profits in the United Arab Emirates where corporation tax is not charged following the relocation of two E-Class vessels from a higher tax jurisdiction. Unused tax losses of US$ 20.0 million (2019: US$ 12.3 million) arising from UK operations are available for offset against future profits with an indefinite expiry period. Based on the projections of the Group's activity in North West Europe where there is now one vessel remaining following the relocation of the two E-Class at the end of 2019, there are insufficient future UK taxable profits to justify the recognition of a deferred tax asset. On this basis the deferred tax asset was derecognised during the year ended 31 December 2019 and no deferred tax asset has been recognised in 2020.

 

Earnings 

The loss for the year was higher than 2019 at US$ 124.3 million (2019: US$ 85.5 million), as a consequence of the impairment charge in 2020 being US$ 28.0 million higher than the one recorded last year, US$ 16.2 million of finance expenses relating to the renegotiation of our bank facilities and US$ 2.1 million of asset disposals. The loss was offset by a US$ 3.2 million saving on depreciation, US$ 2.4 million reduction to tax charges and reduced foreign exchange losses of US$ 0.2 million.

 

After adjusting for exceptional items (impairment, debt facility costs and legal and restructuring costs) the Group incurred an adjusted loss of US$ 17.3 million, reducing from US$ 20.0 million in 2019. Refer to Note 11 for more details.

 

Capital expenditure

The Group's capital expenditure during the year was US$ 14.2 million (2019: US$ 10.2 million) which covered dry docking costs and upgrades on vessels to meet client requirements.

 

The Company will look to minimise capital expenditure going forward, as it focuses on maximising cash generation in order to continue reducing bank debt. Until the Company's leverage position is normalised, capital expenditure will be limited to maintaining the fleet, to a level that ensures safe operations and meets client requirements.

 

Cash flow and liquidity

During the year the Group delivered operating cash flows of US$ 44.6 million (2019: US$ 51.3 million). This reduction is primarily as a result of costs relating to the relocation of two vessels to the MENA region and COVID-19 costs incurred in the year, neither of which occurred in 2019, offset by the effect of cost savings implemented.  Other movements include increased payments for drydocking costs (up US$ 2.8 million from 2019 at US$ 7.6 million) and the timing of movements in working capital.

 

Balance sheet

Total non-current assets at 31 December 2020 were US$ 618.8 million (2019: US$ 722.3 million), following an impairment charge on some of the Group's vessels of US$ 87.2 million. Total current assets at 31 December 2019 were US$ 35.6 million (2019: US$ 47.9 million).

 

Cash and cash equivalents decreased to US$ 3.8 million (2019: US$ 8.4 million). Trade and other receivables decreased from US$ 39.2 million in 2019 to US$ 31.8 million as at 31 December 2020. Trade receivables are primarily with NOC, IOC and international EPC companies, with over 85% being aged between 0-60 days.

 

Total current liabilities reduced to US$ 61.0 million, at 31 December 2020 (2019: US$ 435.8 million). In the year, US$ 309.2 million was reclassified from current liabilities to amounts falling due in more than one year, following the renegotiation of our bank facilities in June 2020. Trade payables increased from US$ 11.5 million at 31 December 2019 to US$ 12.3 million as at 31 December 2020. Other payables reduced by US$ 5.5 million to US$ 11.1 million, following release of accruals and deferred income carried in 2019.

 

Net bank debt and borrowings

Net bank debt was US$ 406.3 million, as at 31 December 2020 (2019: US$ 393.8 million). In June 2020, the terms of the Group's bank facilities were renegotiated with a rescheduling of repayments and increased covenant headroom put in place, and a requirement for the issue of US$ 75 million of new equity or issue warrants (plus PIK interest) by the end of 2020. Based on this amendment the Group assessed the present value of the cashflows under the new terms compared to the original loan to determine whether this represented a substantial modification under IFRS 9. Where this is the case then the related refinancing costs are expensed rather than being deferred in the carrying value of the debt. This judgement, as required by IFRS 9, fundamentally came down to whether or not, as at 16 June 2020, the issue of warrants and the accrual of PIK interest were more likely than the issuance of equity. At the time of signing the 2020 interim financial results, management made the judgement that raising US$ 75 million was the more likely outcome and therefore did not apply PIK interest to the cashflow comparison between the old and new facility. As a result the amendment to the terms of the bank loan did not represent a substantial modification and US$ 15.8 million of related costs were initially deferred in the carrying value of the debt.

 

The Board have subsequently reassessed the judgement made in June 2020 when the debt terms were modified. The Board has concluded that the previous judgement in which a successful equity raise of US$ 75 million was the more likely outcome was erroneous based on facts that should have been taken into account at the time. Specifically, that the level of shareholder support as of 16 June 2020 for the US$ 75 million equity raise meant that it was unreasonable to assume that such an equity raise would be achieved; and that obtaining the required shareholder support for the issue of warrants was the more likely outcome, therefore the accounting modification test should have been reflected to apply PIK interest to the debt from 1 January 2021 with warrants subsequently issued to the banks. The H1 2021 results will show a restated H1 2020 to reflect the correction of this error in judgement.  

 

As a consequence of this revised judgement, the previous conclusion that the modification did not meet the definition of a "substantial modification" under IFRS 9 has also been revised.  The effect of this has been that the debt held immediately prior to the modification has been extinguished and de-recognised from the balance sheet, and the costs to acquire the new bank facility in June 2020 totalling US$ 15.8 million have been expensed to the profit or loss account as an exceptional item under finance expenses.

 

Going Concern

The Group's Directors have assessed the Group's financial position for a period of not less than 12 months from the date of approval of the full year results and have a reasonable expectation that the Group will be able to continue in operational existence for the foreseeable future.  

 

On 31 December 2020, the Group's banking syndicate agreed to extend certain obligations on the Group, which it was otherwise required to have met including the requirement to issue warrants to the banks. This meant the Group was not in an event of default as at 31 December 2020. This was subsequently extended on two further occasions through to 31 March 2021 at which point the Company entered into a new agreement with its lenders, delivering significantly improved terms, which were consistent with the term sheet announced on 16 March 2021.

 

The revised deal provides additional time needed to complete an equity raise with a lower initial quantum and now includes a requirement of US$ 25 million of equity to be raised by 30 June 2021 and a further US$ 50 million by 31 December 2022. This must be put to the Company's shareholders to approve, noting that Seafox and Mazrui's votes may not be counted as they are related parties to the transaction. Failure to obtain the necessary shareholder approval and raise US$25 million of new equity by 30 June 2021 will result in an event of default and indicates a material uncertainty that may cast significant doubt as to the Group's ability to continue as a going concern. Notwithstanding this material uncertainty, the Directors believe that based on the progress made to date and an informal commitment from these two shareholders representing 42% of the share capital of the Company to take up their prorated share, that the equity raise will be successfully completed prior to 30 June 2021. Accordingly, they have adopted the going concern basis of accounting in preparing the consolidated financial statements.

 

If shareholder approval is not obtained and US$ 25 million of new equity is not placed by 30 June 2021 the banks would retain the right, under the existing loan terms, to call default on the loans as of that date. This would allow a majority of banks, representing at least 66.67% of total commitments, to exercise their rights to recall all credit facilities, demand immediate repayment and/ or enforce its rights over the security granted by the Company as part of this facility either through enforcing security over assets and/or exercising the share pledge to take control of the Group.

 

GMS remains cognisant of the wider context in which it operates and the impact that climate change could have on the financial statements of the Group. The Board's view is that the transition risk associated with climate change remains an emerging risk with no appreciable impact in the going concern forecast period.  

The impact of COVID-19 has also been considered with vessel downtime, as a contingency, for 2021. The forecast has been amended to allow for additional hotel and testing costs for offshore crew whilst in quarantine. Terms and conditions of crew rotations have also been amended and costs updated to reflect this. Rotations have been extended for all crew to limit the number of times in quarantine and the number of changeouts on the crew which increases the risk of infection each time it occurs. All policies are in line with Government and client guidelines for offshore activities.

 

Related party transactions

During the year there were related party transactions with our partner in Saudi for leases of breathing equipment for some of our vessels and office space totalling US$ 0.6 million. These transactions were at usual commercial terms.

The Group has never had transactions with its largest shareholder, Seafox International and has agreed with its banks, in its latest agreement signed in March 2021, restrictions on any future transactions with them or their affiliates.

 

Adjusting items

The Group presents adjusted results, in addition to the statutory results, as the Directors consider that they provide a useful indication of underlying performance. A reconciliation between the adjusted non-GAAP and statutory results is provided in note 11 of the consolidated financial statements with further information provided in the Glossary.

 

Andy Robertson

Chief Financial Officer

14 May 2021

 

 

 

Consolidated statement of profit or loss and other comprehensive income as at 31 December 2020

 

 

Notes

 

2020

 

2019

 

 

 

US$'000

 

US$'000

 

 

 

 

 

 

Revenue

13

 

102,492

 

108,721

 

 

 

 

 

 

Cost of sales

 

 

(70,864)

 

(74,570)

Impairment

6

 

(87,156)

 

(59,125)

 

 

 

 

 

 

 

 

 

 

 

 

Gross loss

 

 

(55,528)

 

(24,974)

 

 

 

 

 

 

Restructuring costs

14

 

(2,492)

 

(6,322)

Exceptional legal costs

15

 

(3,092)

 

-

Other general and administrative expenses

 

 

(12,632)

 

(17,788)

General and administrative expenses

 

 

(18,216)

 

(24,110)

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(73,744)

 

(49,084)

 

 

 

 

 

 

Finance income

 

 

15

 

16

Finance expense

 

 

(46,740)

 

(32,063)

Other income

 

 

257

 

529

(Loss)/gain on disposal of property, plant and equipment

 

 

(2,073)

 

14

Gain on disposal of fixed assets held for sale

 

 

259

 

-

Foreign exchange loss, net

 

 

(993)

 

(1,181)

 

 

 

 

 

 

Loss for the year before taxation

 

 

(125,019)

 

(81,769)

 

 

 

 

 

 

Taxation charge for the year

 

 

(1,285)

 

(3,696)

 

 

 

 

 

 

Loss for the year

 

 

(124,304)

 

(85,465)

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive expense - items that may be reclassified to profit or loss:

 

 

 

 

 

 

 

 

 

 

 

Net gain/(loss) on changes in fair value of hedging instruments

 

 

21

 

(1,261)

Net hedging gain/(loss) reclassified to the profit or loss

 

 

883

 

(241)

Exchange differences on translating foreign operations

 

 

425

 

164

 

 

 

 

 

 

Total comprehensive loss for the year

 

 

(122,975)

 

(86,803)

 

 

 

 

 

 

(Loss)/profit attributable to:

 

 

 

 

 

 

 

 

 

 

 

Owners of the Company

 

 

(124,339)

 

(85,778)

Non-controlling interests

 

 

35

 

313

 

 

 

 

 

 

 

 

 

(124,304)

 

(85,465)

 

 

 

 

 

 

Total comprehensive (loss)/profit attributable to:

 

 

 

 

 

 

 

 

 

 

 

Owners of the Company

 

 

(123,010)

 

(87,116)

Non-controlling interests

 

 

35

 

313

 

 

 

 

 

 

 

 

 

(122,975)

 

(86,803)

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

 

 

 

 

 

 

Basic (cents per share)

 

 

(35.48)

 

(24.48)

Diluted (cents per share)

 

 

(35.48)

 

(24.48)

 

 

 

 

 

 

All results are derived from continuing operations in each year.

                                                                                                                                                             

 

Consolidated statement of financial position as at 31 December 2020

 

 

 

Notes

2020

 

2019

(Restated*)

 

 

US$'000

 

US$'000

 

 

 

 

 

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

6

605,077

 

714,234

Dry docking expenditure

 

10,391

 

5,454

Right-of-use assets

 

3,340

 

2,644

 

 

 

 

 

Total non-current assets

 

618,808

 

722,332

 

 

 

 

 

Current assets

 

 

 

 

Trade and other receivables

 

31,834

 

39,185

Cash and cash equivalents

7

3,798

 

8,404

Vessel held for sale

 

-

 

300

 

 

 

 

 

Total current assets

 

35,632

 

47,889

 

 

 

 

 

Total assets

 

654,440

 

770,221

 

 

 

 

 

EQUITY AND LIABILITIES

 

 

 

 

Capital and reserves

 

 

 

 

Share capital

8

58,057

 

58,057

Share premium account

 

93,080

 

93,080

Restricted reserve

 

272

 

272

Group restructuring reserve

 

(49,710)

 

(49,710)

Share based payment reserve

 

3,740

 

3,572

Capital contribution

 

9,177

 

9,177

Cash flow hedge reserve

 

(836)

 

520

Cost of hedging reserve

 

-

 

(2,260)

Translation reserve

 

(1,995)

 

(2,420)

Retained earnings

 

93,385

 

217,724

 

 

 

 

 

Attributable to the owners of the Company

 

205,170

 

328,012

Non-controlling interests

 

1,694

 

1,659

 

 

 

 

 

Total equity

 

206,864

 

329,671

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

23,370

 

28,120

Current tax liability

 

4,811

 

4,289

Bank borrowings - scheduled repayments within one year

9

31,049

 

92,949

Bank borrowings - scheduled repayments more than one year

9

-

 

309,218    

Lease liabilities

 

1,739

 

1,204

 

 

 

 

 

Total current liabilities

 

60,969

 

435,780

 

 

 

 

 

Non-current liabilities

 

 

 

 

Provision for employees' end of service benefits

 

2,190

 

2,280

Bank borrowings - scheduled repayments more than one year

9

379,009

 

-

Lease liabilities

 

1,572

 

750

Derivative financial instruments

 

3,836

 

1,740

Total non-current liabilities

 

386,607

 

4,770

 

 

 

 

 

Total liabilities

 

447,576

 

440,550

 

 

 

 

 

Total equity and liabilities

 

654,440

 

770,221

* Refer to note 3 for further details of the balance sheet reclassifications made in the comparative financial information.

 

Consolidated statement of changes in equity as at 31 December 2020

 

 

Share capital

 

Share premium

account

 

Restricted reserve

 

Group restructuring reserve

 

Share based payment reserve

 

Capital contribution

 

Cash flow hedge reserve

 

Cost of hedging reserve

 

Translation reserve

 

Retained earnings

 

Attributable to the Owners of the Company

 

Non-controlling interests

 

Total equity

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

57,992

 

93,080

 

272

 

(49,710)

 

 3,410

 

9,177

 

685

 

(923)

 

(2,584)

 

303,502

 

414,901

 

1,346

 

416,247

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

 

 

 

 

 

 

 

 

(85,778)

 

(85,778)

 

313

 

(85,465)

Loss on fair value changes of hedging instruments

 

 

 

 

 

 

(453)

 

(808)

 

 

 

(1,261)

 

 

(1,261)

Net hedging gain/(loss) on hedges reclassified to the profit or loss'

 

 

 

 

 

 

288

 

(529)

 

 

 

(241)

 

 

(241)

Exchange differences on foreign operations

 

 

 

 

 

 

 

 

164

 

 

164

 

 

164

Share options rights charge

 

 

 

 

 227

 

 

 

 

 

 

227

 

 

227

Shares issued under LTIP schemes

65

 

 

 

 

 (65)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

58,057

 

93,080

 

272

 

(49,710)

 

 3,572

 

9,177

 

520

 

(2,260)

 

(2,420)

 

217,724

 

328,012

 

 1,659

 

329,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

 

 

 

 

 

 

 

 

(124,339)

 

(124,339)

 

 35

 

(124,304)

Gain on fair value changes of hedging instruments

 

 

 

 

 

 

 

21

 

 

 

21

 

 

21

Net hedging gain/(loss) on interest hedges reclassified to the profit or loss

 

 

 

 

 

 

901

 

(18)

 

 

 

883

 

 

883

Gain/loss on currency hedges reclassified to profit or loss

 

 

 

 

 

 

(2,257)

 

2,257

 

 

 

 

 

Exchange differences on foreign operations

 

 

 

 

 

 

 

 

425

 

 

425

 

 

425

Share options rights charge

 

 

 

 

 168

 

 

 

 

 

 

168

 

 

168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2020

58,057

 

93,080

 

272

 

(49,710)

 

 3,740

 

9,177

 

(836)

 

-

 

(1,995)

 

93,385

 

205,170

 

 1,694

 

206,864

 

 

 

Consolidated statement of cash flows for the year ended 31 December 2020

 

 

Notes

2020

 

2019

 

 

US$'000

 

US$'000

 

 

 

 

 

Net cash generated from operating activities

16

44,268

 

51,344

 

 

 

 

 

Investing activities

 

 

 

 

Payments for property, plant and equipment

 

(5,623)

 

(4,641)

Proceeds from disposal of property, plant and equipment

 

299  

 

14  

Proceeds from disposal of assets held for sale

 

559

 

-

Dry docking expenditure incurred

 

(7,600)

 

(4,813)

Interest received

 

15

 

16

 

 

 

 

 

Net cash used in investing activities

 

(12,350)

 

(9,424)

 

 

 

 

 

Financing activities

 

 

 

 

Bank borrowings received

 

40,750

 

5,000

Repayment of bank borrowings

 

(31,325)

 

(18,329)

Principal elements of lease payments

 

(1,871)

 

(3,433)

Payment of issue costs on bank borrowings

 

(14,449)

 

(92)

Settlement of derivatives

 

(883)

 

241

Dividends paid

 

(650)

 

-

Interest paid on leases

 

(193)

 

(286)

Interest paid on bank borrowings

 

(27,903)

 

(27,663)

 

 

 

 

 

Net cash used in financing activities

 

(36,524)

 

(44,562)

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(4,606)

 

(2,642)

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

8,404

 

11,046

 

 

 

 

 

Cash and cash equivalents at the end of the year

7

3,798

 

8,404

 

Non - cash transactions

 

 

 

 

Shares issued under LTIP schemes

 

-

 

65

Recognition of right of use asset

 

3,239

 

860

 

 

Notes to the consolidated financial information for the year ended 31 December 2020

1              Basis of preparation

Gulf Marine Services PLC ("GMS" or "the Company") is a Company which registered in England and Wales on 24 January 2014. The Company is a public limited company with operations mainly in the Middle East and North Africa, and Europe. The address of the registered office of the Company is 6th Floor, 65 Gresham Street, London, EC2V 7NQ. The registered number of the Company is 08860816.

The principal activities of GMS and its subsidiaries (together referred to as the "Group") are chartering and operating a fleet of specially designed and built vessels. All information in the notes relate to the Group, not the Company unless otherwise stated.

The Company and its subsidiaries are engaged in providing self-propelled, self-elevating support vessels, which provide the stable platform for delivery of a wide range of services throughout the total lifecycle of offshore oil, gas and renewable energy activities and which are capable of operations in the Middle East, South East Asia, West Africa and Europe.

The financial information for the year ended 31 December 2019 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The independent auditors' report on the full financial statements for the year ended 31 December 2019 was unqualified, however included a material uncertainty in relation to the company's ability to continue as a going concern.  No other statement was made under section 498 of the Companies Act 2006.

 

This preliminary announcement does not constitute the Group's full financial statements for the year ended 31 December 2020. The Group's full financial statements will be approved by the Board of Directors and reported on by the auditors in May 2021. Accordingly, the financial information for 2020 is presented unaudited in the preliminary announcement.

The 2020 Annual Report will be posted to shareholders in advance of the Annual General Meeting.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRSs‟), this announcement does not itself contain sufficient information to comply with the disclosure aspects of IFRSs.

The consolidated preliminary announcement of the Group has been prepared in accordance with EU Endorsed IFRSs, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRSs. The consolidated financial information has been prepared under the historical cost convention, as modified by the revaluation of certain financial assets and financial liabilities, including derivative instruments, at fair value.

Error of judgement made in 2020

Borrowings

On 16 June 2020 the terms of the Group's bank facilities were renegotiated and under IFRS 9 each time borrowings are modified a test is required to compare the present value of the cashflows under the new terms against the original loan terms to determine whether there is a 'substantial modification' (greater than ten per cent difference in the net cashflows between the old and new facility). When there are contingent cash flows to be considered as part of the 10 per cent test, an accounting policy choice is required to be made when making a judgement on those contingent cash flows. The contingent cash flows were based on the more likely outcome occurring before 31 December 2020 between:

·      a US$ 75 million equity raise; or

·      warrants to be issued for 20% of the Group's ordinary share capital and Payments in Kind (PIK) interest to be accrued.

 

The Board at the time of 16 June 2020, made a judgement that raising US$ 75 million equity was the more likely scenario and PIK interest would not apply in future cashflows. The Board, as at signing the 2020 financial statements, believe this was an error in judgement as it failed to take fully into account all factors described in note 5. As a result there will be a restatement in the half year 2021 financial statements.

 

Vessel Relocation Costs

The Board reviewed the judgement made in relation to certain costs to transfer vessels to geographical locations previously recorded as exceptional in the first half of 2020 and therefore included in the Adjusted EBITDA calculation. The Board has concluded that these costs of approximately US$ 6.8 million are more appropriately treated as a normal cost of operations as the Group markets the fleet worldwide, therefore the strategic decision to relocate a vessel could recur if a profitable opportunity presented itself. As a result there will be a restatement in the half year 2021 financial statements.

2              Going concern

The Company's Directors have assessed the Group's financial position for a period of not less than 12 months from the date of approval of the full year results and have a reasonable expectation that the Group will be able to continue in operational existence for the foreseeable future.  

On 31 December 2020, the Group's banking syndicate agreed to extend certain obligations on the Group, which it was otherwise required to have met, including the requirement to issue warrants to the banks. This meant the Group was not in an event of default as at 31 December 2020. This was subsequently extended on two further occasions through to 31 March 2021 at which point the Company entered into a new agreement with its lenders, delivering significantly improved terms, and consistent with the term sheet announced on 16 March 2021, refer to Note 17 for further details.

The revised deal provides additional time needed to complete an equity raise with a lower initial quantum and now includes a requirement of US$ 25 million of equity to be raised by 30 June 2021 and a further US$ 50 million by 31 December 2022. The US$ 25 million equity raise must be put to the Company's shareholders to approve, noting that Seafox and Mazrui's votes may not be counted as they are likely related parties to the transaction. Failure to obtain the necessary shareholder approval and raise US$25 million of new equity by 30 June 2021 will result in an event of default and indicates a material uncertainty that may cast significant doubt as to the Group's ability to continue as a going concern. Notwithstanding this material uncertainty, the Directors believe that based on the progress made to date and a non binding commitment from these two shareholders representing 42% of the share capital of the Company to take up their prorated share, that the equity raise will be successfully completed prior to 30 June 2021.

Accordingly, they have adopted the going concern basis of accounting in preparing the consolidated financial statements.

If a US$ 25 million equity raise is not approved by shareholders and placed by 30 June 2021 the banks would retain the right, under the existing loan terms, to call default on the loans as of that date. This would allow a majority of banks, representing at least 66.67% of total commitments, to exercise their rights to recall all credit facilities, demand immediate repayment and/ or enforce its rights over the security granted by the Company as part of this facility either through enforcing security over assets and/or exercising the share pledge to take control of the Group.

GMS remains cognisant of the wider context in which it operates and the impact that climate change could have on the financial statements of the Group. The Board's view is that the transition risk associated with climate change remains an emerging risk with no appreciable impact in the going concern forecast period.

The impact of COVID-19 has also been considered with vessel downtime as a contingency for 2021. The forecast has been amended to allow for additional hotel and testing costs for offshore crew whilst in quarantine. Terms and conditions of crew rotations have also been amended and costs updated to reflect this. Rotations have been extended for all crew to limit the number of times in quarantine and the number of changeouts on the crew which increases the risk of infection each time it occurs. All policies are in line with Government and client guidelines for offshore activities.

3              Prior year reclassification

In the current year, Group's management noted the following adjustments as required by IAS 8 "Accounting policies, changes and accounting estimates and errors". The correction of the below resulted in a retrospective reclassification of the comparative amounts for the year ended 31 December 2019. The impact of the below corrections is not material for 2018.

 

 

31 December 2019 as reported

Adjustments

 

31 December 2019 as restated

 

 

US$'000

US$'000

 

US$'000

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

(1)

31,785

(3,665)

 

28,120

Current tax liability

 

4,289

-

 

4,289

Bank borrowings - payments within one year

(1)

89,284

3,665

 

92,949

Bank borrowings - payments more than one year

 

309,218

-

 

309,218

Lease liabilities

(2)

1,954

(750)

 

1,204

Derivative financial instruments

(3)

1,740

(1,740)

 

-

 

 

 

 

 

 

Total current liabilities

 

438,270

(2,490)

 

435,780

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Provisions for employees' end of service benefits

 

2,280

-

 

2,280

Lease liabilities

(2)

-

750

 

750

Derivative financial instruments

(3)

-

1,740

 

1,740

 

 

 

 

 

 

Total non-current liabilities

 

2,280

2,490

 

4,770

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

440,550

-

 

440,550

 

 

 

 

 

 

(1) In the prior year, accruals for bank interest of US$ 3.7 million were included as accrued expenses in trade and other payables. In accordance with IFRS 9 this should have been included as bank borrowings and therefore the balance has been reclassified.

(2) In the prior year, lease liabilities were presented as current on the face of consolidated statement of financial position. However, per the corresponding disclosure note, US$ 0.8 million related to lease payments due after one year. Therefore, this has been reclassified to non-current liabilities.

(3) In the prior year, total derivative financial instruments were recognised as current liabilities on the face of the consolidated statement of financial position. As the derivative was expected to be settled after 12 months, the balance has been reclassified to non-current liabilities.

4              Significant accounting policies

The significant accounting policies and methods of computation adopted in the preparation of this financial information are consistent with those followed in the preparation of the Group's consolidated annual financial statements for the year ended 31 December 2019, except for the adoption of new standards and interpretations effective as at 1 January 2020.

5              Key sources of estimation uncertainty and critical accounting judgements

In the application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The following are the critical accounting judgements and key sources of estimation, which management have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial information.

Critical accounting judgements

The following are the critical judgements that the Directors have made in applying the Group's accounting policies that have the most significant effect in the amounts recognised in the financial statements.

Accounting treatment of the new loan facility

On 16 June 2020 the terms of the Group's bank facilities were renegotiated and under IFRS 9 each time borrowings are modified a test is required to compare the present value of the cashflows under the new terms against the original loan terms to determine whether there is a 'substantial modification' (greater than ten per cent difference in the net cashflows between the old and new facility). Where this is the case, the old facility should be extinguished and the related refinancing costs expensed rather than being deferred in the carrying value of the debt.

Under the renegotiated facility agreement signed on 16 June 2020, either US $75 million of new equity was required to be raised by 31 December 2020, or warrants for up to 20% of the equity of the Company would need to be issued to the lenders and PIK interest would apply to the outstanding balance of the loan from 1 January 2021 or the facility would be in default. In order to model the expected cash flows after modification, a judgement is therefore required to be made at the inception of the renegotiated facility as to whether the more likely outcome was that the Company would successfully raise US $75 million prior to 31 December 2020 or that PIK interest would apply and warrants issued.  

To determine the more likely scenario, management considered evidence and facts available to them at June 2020 which included:

Lack of support from major shareholders - Seafox the Company's largest shareholder, holding 29.9% of the shares of the Company, had stated publicly that they would not support a US $75 million equity raise. Other major shareholders, prior to finalising the renegotiated deal on 16 June 2020 were approached however only a minority representing 38% of the share capital of the Company actually offered their support of an equity raise, with some of these shareholders subsequently selling their shareholding shortly after offering support.

Dilution of existing shareholders that did not support an equity raise - If a shareholder agreed to the Company increasing the share capital sufficiently but did not actually partake in the equity raise themselves then due to the low market capitalisation of the Company at the time and the quantum of new equity required, they would have suffered significant dilution to their investment to such an extent that it would be unlikely that they would agree to such and that issuing warrants and paying PIK interest would be a more attractive alternative.

No further financial outlay - The PIK interest and warrants option offered existing shareholders an alternative that meant that they were not required to provide any financial support to the Company. The Company would still have relatively high leverage if they successfully raised US $75 million and there would be no guarantee that shareholders could be asked in the future for further support if the recovery of the Company did not go as planned.

Based on the points above, management believe that the assumption that PIK interest would apply and warrants be issued was the more likely outcome and therefore any contingent cashflows associated with them should be factored into the debt modification test carried out when the renegotiated facility was put in place. As a result of which a substantial modification existed resulting in the extinguishment of the old facility and the US$ 15.8 million of costs incurred in renegotiating the new facility expensed.

 

This represents a change in judgement from the position previously taken for the interim reporting for the period ended 30 June 2020. The Board believe this was an error in judgement as it failed to fully take into account the factors above, as further described in note 1.

Key sources of estimation uncertainty

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The key assumptions concerning the future, and other key sources of estimation uncertainty that may have a significant risk of causing a material adjustment to the carrying value of assets and liabilities within the next financial year, are outlined below.

Impairment of property, plant and equipment

In accordance with the requirements of IAS 36 - Impairment of Assets (IAS 36), the Group, in circumstances in which indicators of impairment are identified, performs a formal impairment assessment to evaluate the carrying amounts of the Group's vessels to determine whether there is any indication that those vessels have suffered an impairment loss.  Indicators of impairment can either be from internal or external sources.  A vessel is considered impaired if the carrying amount of the vessel exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use.

The market capitalisation of the Group continues to be lower than the net asset value as the Group has been unable to achieve the recovery previously anticipated following ongoing challenging market conditions and uncertainty in respect of the Group's capital structure. These conditions and specifically the continued low share price were identified as indicators of impairment and in accordance with IAS 36 the Group performed an impairment assessment which led to a charge of US$ 87.2 million being recognised at 31 December 2020 (31 December 2019: US$ 59.1 million) (Note 6). 

Management have obtained an independent broker valuation of its vessels as at 21 February 2021 for the purpose of its banking covenant compliance requirements. However, Management do not consider these broker valuations to represent a reliable estimate of the fair value for the purpose of assessing the recoverable value of the Group's vessels, noting that there have been limited "willing buyer and willing seller" transactions in the current offshore vessel market on which such values could reliably be based. Due to these inherent limitations as to the accuracy of these valuations, management have concluded that the most reliable basis of the vessels' recoverable amount to be value in use.

The projection of cash flows related to vessels is complex and requires the use of a number of estimates, the primary ones being future day rates and vessel utilisation and discount rates. In assessing value in use, the estimated future cash flows are discounted to their present value using a nominal pre-tax discount rate of 10.56% (2019: 9.25%).  The discount rate reflects risk free rates of returns as well as specific adjustments for country risk in the countries the Group operates in, adjusted for a size premium, to determine an appropriate discount rate. 

The near term assumptions used to derive future cash flows reflect the ongoing COVID-19 pandemic and current oil price environment. In the long term the Group's core market is expected to remain in the Middle East which is expected to continue to benefit from the low production costs for oil and gas in the region, the current appetite of NOCs to increase production and the reliance the local governments have on revenues derived from oil and gas. Balanced against these factors, it is considered unlikely that demand for the Group's vessels will be significantly impacted by either the increased focus on climate change or energy transition beyond the extent reflected in Management's assumptions and sensitivities below.

As at 31 December 2020, the total recoverable amount of the fleet as at 31 December 2020 was US$ 664.0 million (2019: US$ 714.2 million). Refer to Note 6 for further details including sensitivity analysis.

 

6                     Property, plant and equipment

 

Vessels

 

Capital work-in-progress

 

Land, building and improvements

 

Vessel spares, fitting and other equipment

 

Others

 

Total

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

908,851

 

12,765

 

10,469

 

60,774

 

3,700

 

996,559

 

 

 

 

 

 

 

 

 

 

 

 

Additions

 

4,913

 

 

 

 

4,913

Transfers

12,438

 

(12,821)

 

19

 

285

 

79

 

Disposals

 

 

 

(37)

 

(49)

 

(86)

Write off

(1,597)

 

 

 

(279)

 

(60)

 

(1,936)

Reclassification to vessel held for sale

(35,195)

 

 

 

 

 

(35,195)

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

884,497

 

4,857

 

10,488

 

60,743

 

3,670

 

964,255

 

 

 

 

 

 

 

 

 

 

 

 

Additions

−  

 

6,208  

 

 

 

 

6,208

Transfers

5,695

 

(7,138)

 

−  

 

1,163

 

280

 

Disposals

(180)

 

 

(5,387)

 

 

(1,660)

 

(7,227)

Write off

 

 

(5,101)

 

(2,004)

 

(323)

 

(7,428)

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2020

890,012  

 

3,927

 

−  

 

59,902 

 

1,967

 

955,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vessels

 

Capital work-in-progress

 

Land, building and improvements

 

Vessel spares, fitting and other equipment

 

Others

 

Total

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

176,274

 

 

7,167

 

11,002

 

3,521

 

197,964

 

 

 

 

 

 

 

 

 

 

 

 

Eliminated on disposal of assets

 

 

 

(37)

 

(49)

 

(86)

Write off

(1,597)

 

 

 

(279)

 

(60)

 

(1,936)

Depreciation expense)

25,743

 

 

847

 

3,137

 

122

 

29,849

Impairment*

56,280

 

2,845

 

 

 

 

59,125

Reclassification to vessel held for sale

(34,895)

 

 

 

 

 

(34,895)

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

221,805

 

2,845

 

8,014

 

13,823

 

3,534

 

250,021

 

 

 

 

 

 

 

 

 

 

 

 

Eliminated on disposal of assets

 

 

(3,269)

 

-

 

(1,586)

 

(4,855)

Write off

 

 

(5,101)

 

(2,004)

 

(323)

 

(7,428)

Depreciation expense

22,444

 

 

356

 

2,955

 

82

 

25,837

Impairment*

87,156

 

 

 

 

 

87,156

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2020

331,405

 

2,845

 

 

14,774

 

1,707

 

350,731

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2020

558,607

 

1,082

 

 

45,128

 

260

 

605,077

At 31 December 2019

662,692

 

2,012

 

2,474

 

46,920

 

136

 

714,234

Depreciation amounting to US$ 25.5 million (2019: US$ 29.0 million) has been allocated to cost of sales (note 11). The balance of the depreciation charge is included in general and administrative expenses.

Vessels with a total net book value of US$ 558.6 million (2019: US$ 662.7 million), have been mortgaged as security for the loans extended by the Group's banking syndicate (Note 9).

 

Impairment

The market capitalisation of the Group continues to be lower than the net asset value as the Group has been unable to achieve the recovery previously anticipated following ongoing challenging market conditions and uncertainty in respect of the Group's capital structure. These conditions and specifically the continued low share price were identified as indicators of impairment and accordingly the Group undertook a full assessment of the recoverable amount of its assets as at 31 December 2020.

Management have obtained an independent broker valuation of its vessels as at 21 February 2021 for the purpose of its banking covenant compliance requirements. However, Management do not consider these broker valuations to represent a reliable estimate of the fair value for the purpose of assessing the recoverable value of the Group's vessels, noting that there have been limited "willing buyer and willing seller" transactions in the current offshore vessel market on which such values could reliably be based. Due to these inherent limitations as to the accuracy of these valuations, management have concluded that the most reliable basis of the vessels' recoverable amount to be value in use.

The review was performed for each cash-generating unit (being vessels) by identifying the value in use of each vessel and associated spares fittings and CWIP in the fleet, based on management's projections of future utilisation, day rates and associated cash flows.

The near term assumptions used to derive future cash flows reflect the ongoing COVID-19 pandemic and current oil price environment. In the long term the Group's core market is expected to remain in the Middle East which is expected to continue to benefit from the low production costs for oil and gas in the region, the current appetite of NOCs to increase production and the reliance the local governments have on revenues derived from oil and gas. Balanced against these factors, it is considered unlikely that demand for the Group's vessels will be significantly impacted by either the increased focus on climate change or energy transition beyond the extent reflected in Management's assumptions and sensitivities below. 

The most difficult and subjective judgements made by management in the estimation of value in use include longer term forecasts of day rates and utilisation (i.e. after the expiry of existing contracts) including the degree of improvement in the market from recent lows and the nominal pre-tax discount rate.

The below table details the movement in day rate and utilisation assumptions from those currently secured against the long term assumptions used to forecast future cash flows from 2025 for the remainder of each vessels useful economic life:

Vessel class

Utilisation change % on 2021 levels

 

Day rate increase % on 2021 levels

 

 

 

 

E-Class

12

 

39

S-Class

-

 

22

K-Class

(9)

 

22

Management's longer term forecasts take account of the outlook for each vessel having regard to their specifications relative to expected customer requirements, as well as broader longer term trends including climate change, as described above.

Management's forecast of long term day rates from 2025 onwards for K-Class vessels that were impaired are 7% lower than the Company's prior year assumptions. Forecast long term utilisation is 79% (2019: 94% average across the K-Class vessels). Management's forecast of long term rates for E-Class vessels are 14% lower than the Company's prior year assumptions and forecast long term utilisation is 84% on average across E-Class vessels (2019: 80% average).

The risk adjusted cash flows have been discounted using a nominal pre-tax discount rate of 10.56% (2019: 9.25%), which reflects the current market assessment of the time value of money and is based on the Group's weighted average cost of capital. The discount rate has been calculated using industry sector average betas, risk free rates of return as well as any specific adjustments for country risk and tax regimes in the countries in which the Group operate and a size premium to reflect the Group's current low market capitalisation.

This review led to the recognition of an aggregate impairment charge of US$ 87.2 million on five K-Class vessels and two E-Class vessels. Details of the impairment charge by cash-generating unit, along with the associated recoverable amount reflecting its value in use, are provided below:

 

 

Cash generating Unit

Impairment charge

 

Recoverable amount

 

US$'000

 

US$'000

 

 

 

 

Endurance

25,472

 

56,605

Enterprise

554

 

77,322

Keloa

24,740

 

12,463

Kudeta

13,722

 

14,230

Kikuyu

13,401

 

12,050

Kawawa

9,009

 

12,891

Kamikaze

258

 

19,124

 

 

 

 

Total

87,156

 

204,685

 

The impairment recognised on the Group's K-Class fleet (excluding Pepper) reflect a decline in forecast utilisation for these vessels and only a modest recovery of day rates as the market recovers.  The NOCs have indicated a preference for vessels that are larger, and in some cases, particularly in Qatar and Saudi Arabia, able to work in deeper water than the K-class are capable of. As a result the main use of these vessels is now expected to be on contracts for EPC clients, which are typically shorter in duration which is likely to impact utilisation with short gaps expected between contracts and only modest improvement in day rates as the market recovers due to a smaller pipeline of future opportunities.  

The impairments recognised on the two E-Class vessels reflect the fact that both vessels, which were built and previously priced for operating in harsh environments (including the UKCS), are now located in the MENA region where this capability is not a requirement for clients based there. Consequently, whilst Management continue to expect the vessels to remain in demand and for an improvement in day rates as the market recovers, they are unlikely to achieve the rate premium previously assumed.

No impairment or reversals have been identified for the remaining six cash-generating units i.e. one K-Class vessel, three S-Class vessels and two E-Class vessels (both of which were previously impaired in 2019).

An aggregate impairment of US$ 54.6 million was recognised on two E-Class vessels: US$ 23.0 million on Endeavour and US$ 31.6 million on Evolution in the year ended 31 December 2019. These two E-Class vessels were not further impaired in 2020, nor was any of the previous impairment reversed, as there was immaterial headroom on both vessels when comparing their recoverable amounts to their carrying amounts such headroom was eliminated by a small change in the underlying assumptions. Refer to note 4 for further details.

The total recoverable amount of the fleet as at 31 December 2020 was US$ 664.0 million.

Key Assumption Sensitivities

The Group has conducted an analysis of the sensitivity of the impairment test to reasonably possible changes in the key assumptions (day rates, utilisation and nominal pre-tax discount rates) used to determine the recoverable amount for each vessel. The first sensitivity modelled a 10% increase/reduction to projected revenue for the remaining useful economic life. A further sensitivity was modelled where a 1% increase/decrease was applied to the pre-tax discount rate mentioned above.

The results on the first sensitivity indicated that a 10% decrease to revenue would lead to an additional impairment charge of US$ 78.0 million, consisting of US $ 46.4 million on the vessels already impaired during the period, US$ 28.9 million on the other two E-Class vessels and US$ 2.7 million on one S-Class vessel. In comparison, a 10% increase to revenue would reduce the impairment charge booked in the period by US$ 30.9 million, consisting of US$ 19.7 million on the five K-Class vessels and US$ 11.2 million on Endurance and Evolution. The remaining cash generating units would have sufficient headroom under this scenario and therefore no impairment was identified.

In addition a 10% improvement on revenue would lead to a potential reversal of impairment taken in 2019 on two vessels totalling US $26.8 million, on  Endeavour (US $13.5 million) and Evolution (US $13.2 million)  The total recoverable amounts of the fleet under the reduced revenue sensitivity as at 31 December 2020 would have been US$ 541.2 million and US$ 784.3 million for the increased revenue sensitivity.

The results on the second sensitivity indicated that a 1% decrease to the nominal pre-tax discount rate would lead to a reduction of the impairment charge booked during the period of US$ 10.1 million, consisting of US$ 4.6 million on the five K-Class vessels and US$ 5.5 million on the two E-Class vessels. In comparison, a 1% increase to the nominal pre-tax discount rate would lead to an increase to the impairment charge booked during the period of US$ 26.1 million, consisting of US$ 14.8 million on the K Class vessels and US$ 11.3 million on the two E-Class vessels. The total recoverable amounts of the fleet under the reduced nominal pre-tax discount rate sensitivity as at 31 December 2020 would have been US$ 721.2 million and US$ 614.1 million for the increased nominal pre-tax discount rate sensitivity.

 

7              Cash and cash equivalents

 

2020

 

2019

 

US$'000

 

US$'000

 

 

 

 

Interest bearing

 

 

 

Held in UAE banks

55

 

47

 

 

 

 

Non-interest bearing

 

 

 

Held in UAE banks

1,026

 

10,966

Held in banks outside UAE

2,717

 

12

 

 

 

 

Total cash at bank and in hand

3,798

 

11,025

 

 

 

2020

 

2019

 

US$'000

 

US$'000

Presented as:

 

 

 

 

 

 

 

Restricted cash included in trade and other receivables

-

 

2,621

Cash and cash equivalents

3,798

 

8,404

 

 

 

 

Total

3,798

 

11,025

 

8              Share Capital

The Company was incorporated on 24 January 2014 with a share capital of 300 million shares at a par value of £1 each. On 5 February 2014, as part of a Group restructuring, the Company undertook a capital reduction by solvency statement, in accordance with s643 of the Companies Act 2006. Accordingly, the nominal value of the authorised and issued ordinary shares was reduced from £1 to 10p.

On 19 March 2014, the Company completed its initial public offering ("IPO") on the London Stock Exchange. A total of 49,527,804 shares with a par value of 10 pence per share were issued at a price of 135 pence (US$ 2.24) per share.

On 6 July 2017, the Company issued a total of 176,169 ordinary shares at a par value of 10 pence per share in respect of the Company's 2014 long-term incentive plan.

On 12 April 2018, the Company issued a total of 263,905 ordinary shares at par value of 10 pence per share in respect of the Company's 2015 long-term incentive plan.

On 2 April 2019, the Company issued a total of 519,909 ordinary shares at par value of 10 pence per share in respect of the Company's 2016 long-term incentive plan.

The movement in issued share capital and share premium is provided below. The share capital of Gulf Marine Services PLC was as follows:

 

Number of ordinary shares

 

Ordinary shares

 

Total

 

(thousands)

 

US$'000

 

US$'000

At 31 December 2020

 

 

 

 

 

 

 

 

 

 

 

Authorised share capital

350,488

 

58,057

 

58,057

Issued and fully paid

350,488

 

58,057

 

58,057

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

Authorised share capital

350,488

 

58,057

 

58,057

Issued and fully paid

350,488

 

58,057

 

58,057

 

Issued share capital and share premium account movement for the year were as follows:

 

Number
of ordinary shares

 

Ordinary shares

 

Share premium account

 

Total

 

(thousands)

 

US$'000

 

US$'000

 

US$'000

 

 

 

 

 

 

 

 

At 1 January 2019

349,968

 

57,992

 

93,080

 

151,072

 

 

 

 

 

 

 

 

Shares issued under LTIP schemes

520

 

65

 

-     

 

65

At 31 December 2019

350,488

 

58,057

 

93,080

 

151,137

 

 

 

 

 

 

 

 

Shares issued under LTIP schemes

-

 

-

 

-

 

-

At 31 December 2020

350,488

 

58,057

 

93,080

 

151,137

9              Bank borrowings

 

Secured borrowings at amortised cost are as follows:

 

2020

 

2019

 

US$'000

 

US$'000

 

 

 

Restated*

Term loans

388,588

 

377,167

Working capital facility

21,500

 

25,000

 

 

 

 

 

 

402,167

Bank borrowings are split between hedged and unhedged amounts as follows;

 

 

2020

 

2019

 

US$'000

 

US$'000

 

 

 

Restated*

Hedged bank borrowings from IRS

38,462

 

46,154

Hedged bank borrowings from CCIRS

-

 

2,513

Unhedged bank borrowings

371,596

 

353,500

 

 

 

 

 

 

402,167

 

Bank borrowings are presented in the consolidated statement of financial position as follows:

 

2020

 

2019

 

US$'000

 

US$'000

 

 

 

Restated*

Non-current portion

 

 

 

Bank borrowings

379,009

 

 

 

 

 

Current portion

 

 

 

Bank borrowings - scheduled repayments within one year

31,049

 

92,949

Bank borrowings - scheduled repayments more than one year

-

 

309,218

 

 

 

 

 

410,058

 

402,167

* Refer to note 3 for details of prior year restatement

In June 2020 the Group amended the terms of its loan facility. The principal terms of the outstanding facility as at 31 December 2020 are as follows:

·      The facilities main currency is US$ and is repayable with a margin at 5% and final maturity in June 2025 (2019: December 2023);

·      The revolving working capital facility amounts to US$ 50.0 million. USD$ 25.0 million of the working capital facility is allocated to performance bonds and guarantees and US$ 25.0 million is allocated to cash of which US$ 21.5 million was drawn as at 31 December 2020, leaving US$ 3.5 million available for drawdown (31 December 2019: US$ nil).

·      The facility remains secured by mortgages over its whole fleet, with a net book value at 31 December 2020 of US$ 558.6 million (2019: US$ 662.7 million). Additionally, gross trade receivables, amounting to US$ 24.2 million (2019: US$ 25.1 million) have been assigned as security against the loans extended by the Group's banking syndicate.

·      The Group has also provided security against gross cash balances, being cash balances before restricted amounts included in trade and other receivables, amounting to US$ 3.8 million, which have been assigned as security against the loans extended by the Group's banking syndicate.

·      The amended terms contained contingent conditions such that if an equity raise of US $75.0 million did not take place by 31 December 2020, PIK interest would accrue and warrants would be due to the banking syndicate.

·      The facility is subject to certain financial covenants including; Debt Service Cover; Interest Cover; Net Leverage Ratio; and Security Cover (loan to value). There was also an additional covenant relating to general and administrative costs, and restrictions to payment of dividends until leverage falls below 4.0 times.

On 31 December 2020, the Group's banking syndicate agreed to extend certain obligations on the Group, which it was otherwise required to have met including the requirement to issue warrants to the banks and accrue PIK interest. This meant the Group was not in an event of default as at 31 December 2020. This was further extended in January 2021 and February 2021. As the waiver received in December led to a revision to timing of payments, management assessed the fair value of remaining cashflows as at 31 December.

As at 31 December 2020 the loan facility was remeasured with a gain of US$ 1.5 million (2019: nil) being recognised in the profit and loss. The remeasurement of the bank borrowings were determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, using appropriate effective interest rates.

 

·      In March 2021 the Group signed a term sheet with its bank agreeing significantly improved terms. The amendment was finalised and loan documentation signed in April 2021. Improved terms include the following;

·      Reduction in margin from 5% to 3%. Capital payments increased corresponding to any interest saved from the margin reduction.

·      Requirement of US$ 25 million equity to be raised by 30 June 2021 and a further US$ 50 million by 31 December 2022.

Please see note 17 for further details.

 

 

 

 

Outstanding amount

 

 

 

 

 

 

Current

 

Non-current

 

Total

 

 

Security

 

Maturity

 

US$'000

 

US$'000

 

US$'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term loan - scheduled repayments within one year

9,549

 

-

 

9,549

 

 

Secured

 

June 2025

Term loan - scheduled repayments more than one year

-

 

379,009

 

381,009

 

 

Secured

 

June 2025

Working capital facility - scheduled repayment within one year

21,500

 

-

 

21,500

 

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

31,049

 

379,009

 

412,058

 

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

31 December 2019 Restated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term loan - scheduled repayments within one year

67,949

 

-

 

67,949

 

 

Secured

 

December 2023

Term loan - scheduled repayments more than one year

309,218

 

-

 

309,218

 

 

Secured

 

December 2023

Working capital facility - scheduled repayment more than one year

25,000

 

-

 

25,000

 

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

402,167

 

-

 

402,167

 

 

-

 

-

 

 

 

10           Segment reporting

Management have identified that the Directors and senior management team are the chief operating decision makers in accordance with the requirements of IFRS 8 'Operating Segments'. Segment performance is assessed based upon adjusted gross profit/(loss), which represents gross profit/(loss) before depreciation and amortisation and loss on impairment of assets. The reportable segments have been identified by Directors and senior management based on the size and type of asset in operation.

The operating and reportable segments of the Group are (i) K-Class vessels, which include the Kamikaze, Kikuyu, Kawawa, Kudeta, Keloa and Pepper vessels (ii) S-Class vessels, which include the Shamal, Scirocco and Sharqi vessels, (iii) E-Class vessels, which include the Endeavour, Endurance, Enterprise and Evolution vessels, and (iv) Other vessels, considered non-core assets, which does not form part of the K, S or E Class vessels segments. The composition of the Other vessels segment, which are non-core assets, was amended in 2018, following the reclassification of the vessel Naashi from K-Class vessels to Other vessels. In 2019, Naashi was reclassified from Other vessels to a non-current asset held for sale. The sale was completed in January 2020.

All of these operating segments earn revenue related to the hiring of vessels and related services including charter hire income, messing and accommodation services, personnel hire and hire of equipment. The accounting policies of the operating segments are the same as the Group's accounting policies.

 

 

 

Revenue

 

Segment adjusted gross profit/(loss)

 

 

2020

 

2019

 

2020

 

2019

 

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

K-Class vessels

40,947

 

37,313

 

25,349

 

23,200

 

S-Class vessels

32,136

 

35,422

 

22,210

 

23,578

 

E-Class vessels

29,407

 

35,984

 

12,676

 

18,779

 

Other vessels

2

 

2

 

(10)

 

(87)

 

 

102,492

 

108,721

 

60,225

 

65,470

 

Less:

 

 

 

 

 

 

 

 

Depreciation charged to cost of sales

 

 

 

 

(25,524)

 

(29,045)

Amortisation charged to cost of sales

 

 

 

 

(3,073)

 

(2,274)

Impairment charge

 

 

 

 

(87,156)

 

(59,125)

Gross loss

 

 

 

 

(55,528)

 

(24,974)

 

 

 

 

 

 

 

 

Restructuring costs

 

 

 

 

(2,492)

 

(6,322)

Exceptional legal costs

 

 

 

 

(3,092)

 

-

Other general and administrative expenses

 

 

 

 

(12,632)

 

(17,788)

Finance income

 

 

 

 

15

 

16

Finance expenses

 

 

 

 

(46,740)

 

(32,063)

Other income

 

 

 

 

257

 

529

(Loss)/gain on disposal of property, plant and equipment

 

 

 

 

(2,073)

 

14

Gain on disposal of assets held for sale

 

 

 

 

259

 

-

Foreign exchange loss, net

 

 

 

 

(993)

 

(1,181)

Loss for the year before taxation

 

 

 

 

(123,019)

 

(81,769)

                           

 

The total revenue from reportable segments which comprises the K, S and E-Class vessels was US$ 102.5 million (2019: US$ 108.7 million). The Other vessels segment does not constitute a reportable segment per IFRS 8 Operating Segments.

Segment revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the years.

Segment assets and liabilities, including depreciation, amortisation and additions to non-current assets, are not reported to the chief operating decision makers on a segmental basis and are therefore not disclosed.

Information about major customers

During the year, two customers (2019: three) individually accounted for more than 10% of the Group's revenues. The related revenue figures for these major customers, the identity of which may vary by year was US$ 39.3 million and US$ 17.7 million (2019: US$ 32.7 million, US$ 24.5 million and US$ 18.4 million). The revenue from these customers is attributable to the E-Class vessels, S-Class vessels and K-Class vessels reportable segments.

Geographical segments

Revenue by geographical segment is based on the geographical location of the customer as shown below.

 

2020

 

2019

 

US$'000

 

US$'000

 

 

 

 

United Arab Emirates

53,363

 

35,671

Saudi Arabia

17,745

 

32,476

Qatar

19,047

 

13,411

 

 

 

 

Total - Middle East and North Africa

90,155

 

81,558

 

 

 

 

United Kingdom

5,353

 

20,498

Rest of Europe

6,984

 

6,665

 

 

 

 

Total - Europe

12,337

 

27,163

 

 

 

 

Worldwide Total

102,492

 

108,721

 

Type of work

The Group operates in both the oil and gas and renewables sector. Oil and gas revenues are driven from both client operating cost expenditure and capex expenditure. Renewables are primarily driven by windfarm developments from client expenditure. Details are shown below.

 

2020

 

2019

 

US$'000

 

US$'000

 

 

 

 

Oil and Gas - Client Opex

74,889

 

73,587

Oil and Gas - Client Capex

15,307

 

7,971

Renewables

12,296

 

27,163

 

 

 

 

Total

102,492

 

108,721

 

 

Impairment losses of US$ 87.2 million (2019: US$ 59.1 million) were recognised in respect of property, plant and equipment. These impairment losses were attributable to the following reportable segments:

 

 

2020

 

2019

 

US$'000

 

US$'000

 

 

 

 

K-Class vessels

61,131

 

-

S-Class vessels

-

 

2,845

E-Class vessels

26,025

 

54,564

Other vessels

-

 

1,716

 

87,156

 

59,125

 

 

 

K-Class vessels

S-Class vessels

E-Class vessels

Other vessels

Total

 

 

US$'000

US$'000

US$'000

US$'000

US$'000

 

 

 

 

 

 

2020

 

 

 

 

 

Depreciation charged to cost of sales

7,432

5,807

12,092

193

25,524

Amortisation charged to cost of sales

1,863

605

605

-

3,073

Impairment charge

61,131

-

26,025

-

87,156

 

 

 

 

 

 

2019

 

 

 

 

 

Depreciation charged to cost of sales

7,317

5,776

15,541

411

29,045

Amortisation charged to cost of sales

1,434

340

500

-

2,274

Impairment charge

-

2,845

54,564

1,716

59,125

 

 

 

 

 

 

 

 

 

 

11                  Presentation of adjusted non-GAAP results

The following table provides a reconciliation between the Group's adjusted non-GAAP and statutory financial results:

 

 

Year ended 31 December 2019

 

 

Adjusted non-GAAP results

Adjusting items

 

Statutory total

 

Adjusted non-GAAP results

 

Adjusting items

 

Statutory total

 

US$'000

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

 

 

 

 

 

 

 

 

 

 

Revenue

102,492

-

 

102,492

 

108,721

 

-  

 

108,721

Cost of sales

 

 

 

 

 

 

 

 

 

 

- Operating expenses

(42,267)

-

 

(42,267)

 

(43,251)

 

-  

 

(43,251)

- Depreciation and amortisation

(28,597)

-

 

(28,597)

 

(31,319)

 

-  

 

(31,319)

Impairment charge*

-

(87,156)

 

(87,156)

 

-  

 

(59,125)

 

(59,125)

Gross profit/(loss)

31,628

(87,156)

 

(55,528)

 

34,151

 

(59,125)

 

(24,974)

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

 

 

 

 

 

 

 

 

- Depreciation

(313)

-

 

(313)

 

(804)

 

-  

 

(804)

- Amortisation of IFRS 16 Leases

(2,543)

-

 

(2,543)

 

(2,889)

 

-  

 

(2,889)

- Other administrative costs

(9,776)

-

 

(9,776)

 

(14,095)

 

-

 

(14,095)

Restructuring costs**

-

(2,492)

 

(2,492)

 

-

 

(6,322) 

 

(6,322) 

Exceptional legal costs***

-

(3,092)

 

(3,092)

 

-

 

-

 

-

Operating profit/(loss)

18,996

(92,740)

 

(73,744)

 

16,363

 

(65,447)

 

(49,084)

 

 

 

 

 

 

 

 

 

 

 

Finance income

15

-

 

15

 

16

 

-  

 

16

Finance expenses

(30,495)

-

 

(30,495)

 

(32,063)

 

-  

 

(32,063)

Cost to acquire new bank facility****

-

(15,797)

 

(15,797)

 

-

 

-

 

-

Expensing of unamortised issue costs in relation to previous loan *****

-

(448)

 

(448)

 

-

 

-

 

-

Other income

257

-

 

257

 

529

 

-  

 

529

(Loss)/gain on disposal of property plant and equipment

(2,073)

-

 

(2,073)

 

14

 

-

 

14

Gain on disposal of assets held for sale  

259

-

 

259

 

-

 

-

 

-

Foreign exchange loss, net

(993)

-

 

(993)

 

(1,181)

 

-

 

(1,181)

Loss before taxation

(14,034)

(108,985)

 

(123,019)

 

(16,322)

 

(65,447)

 

(81,769)

 

 

 

 

 

 

 

 

 

 

 

Taxation charge

(1,285)

-

 

(1,285)

 

(3,696)

 

-  

 

(3,696)

Loss for the year

(15,319)

(108,985)

 

(124,304)

 

(20,018)

 

(65,447)

 

(85,465)

 

 

 

 

 

 

 

 

 

 

 

Loss attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owners of the Company

(15,354)

(108,985)

 

(124,339)

 

(20,331)

 

(65,447)

 

(85,778)

Non-controlling interests

35

-  

 

35

 

313

 

-  

 

313

 

 

 

 

 

 

 

 

 

 

 

Loss per share (basic and diluted)

(4. 385)

(31.10)

 

(35.48)

 

(5.80)

 

(18.68)

 

(24.48)

                         

 

 

 

Year ended 31 December 2020

 

Year ended 31 December 2019

 

Adjusted non-GAAP results

 

Adjusting items

 

Statutory total

 

Adjusted non-GAAP results

 

Adjusting items

 

Statutory total

 

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplementary non

statutory information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss)/profit

18,996

 

(92,740)

 

(73,744)

 

16,363

 

(65,447)

 

(49,084)

 

Add: Depreciation and

amortisation

31,453

 

-

 

31,453

 

35,012

 

 

35,012

 

Non-GAAP EBITDA

50,449

 

(92,740)

 

(42,291)

 

51,375

 

(65,447)

 

(14,072)

 

                           

* The impairment charge on certain vessels and assets have been added back to gross loss to arrive at adjusted gross profit for the year ended 31 December 2020 and 2019 (refer to note 6 for further details). This measure provides additional information on the core profitability of the Group.

** Restructuring costs incurred are not considered part of the regular underlying performance of the business and so have been added back to arrive at adjusted loss for the year ended 31 December 2020 and 2019 (refer to note 14 for further details). This measure provides additional information in assessing the Group's total performance that management is more directly able to influence and on a basis comparable from year to year.

*** Exceptional legal costs incurred are not considered part of the regular underlying performance of the business and so have been added back to arrive at adjusted loss for the year ended 31 December 2020 (refer to note 15 for further details). This measure provides additional information in assessing the Group's total performance that management is more directly able to influence and on a basis comparable from year to year.

**** Costs incurred to arrange a new bank facility have been added back to loss before taxation to arrive at adjusted loss for the year ended 31 December 2020. This measure provides additional information in assessing the Group's total performance that management is more directly able to influence and on a basis comparable from year to year.

***** The expensing of unamortised issue costs in relation to previous loan has been added back to loss before taxation to arrive at adjusted loss for the year ended 31 December 2020. This measure provides additional information in assessing the Group's total performance that management is more directly able to influence and on a basis comparable from year to year.

12           Loss per share

 

2020

 

2019

 

 

 

 

Loss for the purpose of basic and diluted loss per share being loss for the year attributable to Owners of the Parent (US$'000)

(124,339)

 

(85,778)

 

 

 

 

Loss for the purpose of adjusted basic and diluted loss per share (US$'000) (Note 8)

(15,354)

 

(20,331)

 

 

 

 

Weighted average number of shares ('000)

350,488

 

350,357

 

 

 

 

Weighted average diluted number of shares in issue ('000)

350,488

 

350,357

 

 

 

 

Basic loss per share (cents)

(35.48)

 

 (24.48)

Diluted loss per share (cents)

(35.48)

 

 (24.48)

Adjusted loss per share (cents)

(4.38)

 

(5.80)

Adjusted diluted loss per share (cents)

(4.38)

 

(5.80)

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company (as disclosed in the statement of comprehensive income) by the weighted average number of ordinary shares in issue during the year.

Adjusted loss per share is calculated on the same basis but uses the loss for the purpose of basic loss per share (shown above) adjusted by adding back the non-operational items, which were recognised in the consolidated statement of profit or loss and other comprehensive income in the prior year. The adjusted loss per share is presented as the Directors consider it provides an additional indication of the underlying performance of the Group.

Diluted loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, adjusted for the weighted average effect of share options outstanding during the year. As the Group incurred a loss in 2020 and 2019, diluted loss per share is the same as loss per share, as the effect of share options is anti-dilutive.

Adjusted diluted loss per share is calculated on the same basis but uses adjusted loss (note 8) attributable to equity holders of the Company.

The following table shows a reconciliation between the basic and diluted weighted average number of shares:

 

2020

 

2019

 

'000s

 

'000s

 

 

 

 

Weighted average basic number of shares in issue

350,488

 

350,357

 

 

 

 

Weighted average diluted number of shares in issue

350,488

 

350,357

13           Revenue

 

 

2020

 

2019

 

US$'000

 

US$'000

 

 

 

 

Charter hire

60,797

 

59,060

Lease income

33,252

 

39,144

Messing and accommodation

5,506

 

7,724

Mobilisation and demobilisation

1,030

 

1,639

Maintenance service

1,267

 

-

Sundry income

640

 

832

Maintenance

-

 

322

 

 

 

 

 

102,492

 

108,721

Included in mobilisation and demobilisation income in an amount of (US$ 0.3 million) 2019 (US$ 0.1 million) that was included as deferred revenue at the beginning of the financial year.

14           Restructuring costs

During 2019, the organisational structure was simplified with a number of management posts removed and not replaced. In addition, the operational footprint was reviewed and certain operations in the UK and MENA were closed. Consultancy costs incurred mainly relate to legal advice on restructuring and Board changes. In 2020, further restructuring occurred.

The total estimated restructuring costs is expected to be US$ 9.1 million, of which US$ 6.3 million was incurred in 2019 and US$ 2.5 million was incurred in 2020. At 31 December 2020 the remaining provision was US$ 0.3 million (31 December 2019: US$ 1.9 million), which is expected to be fully utilised over the next 12 months.

 

2020

 

2019

 

US$'000

 

US$'000

 

 

 

 

Staff costs

1,862

 

4,269

Consultancy fees

403

 

1,489

Business travel

82

 

197

Office/port closures

145

 

367

 

 

 

 

 

2,492

 

6,322

15           Exceptional legal costs

During the year, as a result of the non-binding proposed offer to buy the share capital of the Company from our largest shareholder, several requests for General Meetings, and legal advice for Director disputes, additional fees have been incurred totalling US$ 3.1 million (2019: US$ nil).

 

16           Notes to the consolidated statement of cash flows

 

2020

 

2019

 

US$'000

 

US$'000

 

 

 

 

Operating activities

 

 

 

Loss for the year

(124,304)

 

(85,465)

Adjustments for:

 

 

 

Depreciation of property, plant and equipment (Note 6)

25,837

 

29,849

Amortisation of dry docking expenditure

3,074

 

2,275

Impairment charge (Note 6)

87,156

 

59,125

Amortisation of IFRS 16 leases

2,543

 

2,891

Income tax expense

1,285

 

3,696

End of service benefits charge

527

 

537

End of service benefits paid

(617)

 

(979)

Movement in ECL provision during the year

69

 

(16)

Provision for doubtful debts on accrued revenue

-

 

(530)

Recovery of ECL provision

(64)

 

-

Share options rights charge

168

 

227

Interest income

(15)

 

(16)

Finance expenses

46,740

 

32,063

Loss/(gain) on disposal of property, plant and equipment

2,073

 

(14)

Gain on disposal of assets held for sale

(259)

 

-

Hedging revenue adjustment

(21)

 

-

Unrealised forex loss

-

 

77

Other income

(257)

 

(513)

 

 

 

 

Cash flow from operating activities before movement in working capital

43,935

 

43,207

 

 

 

 

Decrease in trade and other receivables

4,866

 

2,875

(Decrease)/increase in trade and other payables

(3,770)

 

8,320

Cash generated from operations

45,031

 

54,402

 

 

 

 

Taxation paid

(763)

 

(3,058)

 

 

 

 

Net cash generated from operating activities

44,268

 

51,344

 

Changes in liabilities arising from financing activities

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated statement of cash flows as cash flows from financing activities.

 

Derivatives

US$' 000

 

Lease liabilities

US$' 000

 

Bank Borrowings

(Note 9)

 

 

 

 

 

US$'000

At 1 January 2019

238

 

-

 

411,515

Financing cash flows

 

 

 

 

 

Bank borrowings received

-

 

-

 

5,000

Repayment of bank borrowings

-

 

-

 

(18,329)

Principal elements of lease payments

-

 

(3,433)

 

-

Settlement of derivatives

241

 

-

 

-

Interest paid

-

 

(286)

 

(27,663)

Total financing cashflows

241

 

(3,719)

 

(40,992)

 

 

 

 

 

 

Non-cash changes:

 

 

 

 

 

Recognition of new leases on adoption of IFRS 16

-

 

6,122

 

-

Recognition of new lease additions

-

 

860

 

-

Derecognition of lease liabilities

-

 

(1,593)

 

-

Interest on leases

-

 

284

 

-

Interest on bank borrowings

-

 

-

 

31,107

Bank commitment fees

-

 

-

 

249

Loss on FV changes of hedging instruments

1,261

 

-

 

-

Other movements

-

 

-

 

288

Total non cash changes

1,261

 

5,673

 

31,644

 

 

 

 

 

 

At 31 December 2019

1,740

 

1,954

 

402,167

 

 

 

 

 

 

Financing cash flows

 

 

 

 

 

Bank borrowings received

-

 

-

 

40,750

Repayment of bank borrowings

-

 

-

 

(31,325)

Principal elements of lease payments

-

 

(1,871)

 

-

Settlement of derivatives

(883)

 

-

 

-

Interest paid

-

 

(193)

 

(27,903)

Total financing cashflows

(883)

 

(2,064)

 

(18,478)

 

 

 

 

 

 

Non-cash changes:

 

 

 

 

 

Recognition of new lease liability additions

-

 

3,239

 

-

Interest on leases

-

 

182

 

-

Interest on bank borrowings

-

 

-

 

27,626

Bank commitment fees

-

 

-

 

(187)

Gain on FV changes of hedging instruments

(21)

 

-

 

-

Net loss on change in fair value of IRS

1,551

 

-

 

-

Loss on fair value changes on the embedded derivative  

1,449

 

-

 

-

The expensing of unamortised issue costs in relation to previous loan

-

 

-

 

448

Revaluation gain on revision of debt cash flows as at 31 December 2020

-

 

-

 

(1,518)

Total non cash changes

2,979

 

3,421

 

26,369

 

 

 

 

 

 

At 31 December 2020

3,836

 

3,311

 

410,058

 

 

17        Events after the reporting period

Extension to waiver to renegotiate banking terms

On 27 January 2021, the Group's banking syndicate agreed an extension of  certain obligations on the Group, which it was otherwise required to have met by 31 January 2021 including the requirement to issue warrants to the banks to 28 February 2021. These obligations were further extended on 25 February to 31 March 2021 at which point they were superseded.

New bank deal

On 1 April 2021, the Group together with its banking syndicate executed an amendment to its common terms agreement and related loan documentation, delivering significantly improved terms, which were consistent with the term sheet announced on 16 March 2021.

The revised deal provides additional time needed to seek to complete an equity raise, with a requirement to raise US$ 25 million by 30 June 2021 and a further US$ 50 million by 31 December 2022. Provided the Group meets these requirements then no PIK shall be charged or warrants issued. It also reduces interest cost during 2021 and 2022 with the cash saving being utilised to accelerate repayment of the loans.

Appointment of new Director

As announced on 16 March 2021, Jyrki Koskelo was appointed as an Independent Non-Executive Director to the Board of Directors in February 2021.

 

 

 

GLOSSARY

 

Alternative Performance Measure (APM) - An APM is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework.

 

APMs are non-GAAP measures that are presented to provide readers with additional financial information that is regularly reviewed by management and the Directors consider that they provide a useful indicator of underlying performance. Adjusted results are also an important measure providing useful information as they form the basis of calculations required for the Group's covenants.  However, this additional information presented is not uniformly defined by all companies including those in the Group's industry. Accordingly, it may not be comparable with similarly titled measures and disclosures by other companies. Additionally, certain information presented is derived from amounts calculated in accordance with IFRS but is not itself an expressly permitted GAAP measure. Such measures should not be viewed in isolation or as an alternative to the equivalent GAAP measure. In response to the Guidelines on APMs issued by the European Securities and Markets Authority (ESMA), we have provided additional information on the APMs used by the Group.

 

Adjusted diluted loss per share - represents the adjusted loss attributable to equity holders of the Company for the period divided by the weighted average number of ordinary shares in issue during the period, adjusted for the weighted average effect of share options outstanding during the period. The adjusted loss attributable to equity shareholders of the Company is used for the purpose of basic loss per share adjusted by adding back impairment charges, restructuring charges, exceptional legal costs and costs to acquire new bank facilities.This measure provides additional information regarding earnings per share attributable to the underlying activities of the business. A reconciliation of this measure is provided in Note 11.

 

Adjusted EBITDA - represents operating profit after adding back depreciation, amortisation, impairment charges, restructuring costs and exceptional legal costs in 2020. This measure provides additional information in assessing the Group's underlying performance that management is more directly able to influence in the short term and on a basis comparable from year to year. A reconciliation of this measure is provided in Note 11.

 

Adjusted EBITDA margin - represents adjusted EBITDA divided by revenue. This measure provides additional information on underlying performance as a percentage of total revenue derived from the Group.

 

Adjusted gross profit/(loss) - represents gross profit after adding back impairment charges. This measure provides additional information on the core profitability of the Group. A reconciliation of this measure is provided in Note 11.

 

Adjusted loss - represents loss after adding back impairment charges, restructuring costs, exceptional legal costs and finance expenses relating to the renegotiation of the  bank facilities in 2020. This measure provides additional information in assessing the Group's total performance that management is more directly able to influence and on a basis comparable from year to year. A reconciliation of this measure is provided in Note 11 of these results.

 

Average fleet utilisation - represents the percentage of available days in a relevant period during which the fleet of SESVs is under contract and in respect of which a customer is paying a day rate for the charter of the SESVs.

Average fleet utilisation is calculated by adding the total contracted days in the period of each SESV, divided by the total number of days in the period multiplied by the number of SESVs in the fleet.

 

EBITDA - represents Earnings before Interest, Tax, Depreciation and Amortisation, which represents operating loss after adding back depreciation and amortisation in 2020. This measure provides additional information of the underlying operating performance of the Group. A reconciliation of this measure is provided in Note 11.

 

Margin - revenue less operating expenses as identified in Note 11.

 

Net bank debt - represents the total bank borrowings less cash. This measure provides additional information of the Group's financial position. A reconciliation is shown below:

 

 

 

 

2020

2019

 

US$'000

US$'000

 

 

 

Statutory bank borrowings

410,058

402,167

Less cash and cash equivalents

(3,798)

(8,404)

 

406,260

393,763

 

              

              

 

Net cash flow before debt service -  the sum of cash generated from operations and investing activities.

 

Net debt to EBITDA - the ratio of net debt at year end to earnings before interest, tax, depreciation and amortisation as reported under the terms of our bank facility agreement.

Operational downtime - downtime due to technical failure.

Segment adjusted gross profit/loss - represents gross profit/loss after adding back depreciation, amortisation and impairment charges. This measure provides additional information on the core profitability of the Group attributable to each reporting segment. A reconciliation of this measure is provided in Note 10

.

Underlying trading performance - day to day trading excluding vessel relocation and COVID-19.

 

OTHER DEFINITIONS

Backlog - represents firm contracts and extension options held by clients. Backlog equals (charter day rate x remaining days contracted) + ((estimated average Persons On Board x daily messing rate)) x remaining days contracted) + contracted remaining unbilled mobilisation and demobilisation fees. Includes extension options.

Borrowing rate - LIBOR plus margin.

Calendar days - takes base days at 365 and only excludes periods of time for construction and delivery time for newly constructed vessels.

Costs capitalised - represent qualifying costs that are capitalised as part of a cost of the vessel rather than being expensed as they meet the recognition criteria of IAS 16 Property, Plant and Equipment.

DEPS/DLPS - Diluted earnings/losses per share.

Employee retention - percentage of staff who  continued to be employed during the year (excluding retirements and redundancies) taken as number of resignations during the year divided by the total number of employees as at 31 December.

EPC - engineering, procurement and construction.

ESG - environmental, social and governance.

Finance Service Cover - represents the ratio of Adjusted EBITDA to Finance Service (being Net finance charges plus scheduled repayments plus capital payments for finance leases adjusted for voluntary or mandatory prepayments), in respect of that relevant period.

Interest Cover - represents the ratio of Adjusted EBITDA to Net finance charges.

IOC - Independent Oil Company.

KPIs - Key performance indicators.

LTIR - the loss time injury rate per 200,000 man hours which is a measure of the frequency of injuries requiring employee absence from work for a period of one or more days.

LIBOR - London Interbank Offered Rate.

Net finance charges - represents finance charges for that period less interest income for that period.

Net leverage ratio - represents the ratio of net bank debt to Adjusted EBITDA.

NOC - National Oil Company.

OSW - Offshore wind.

PIK - Payment In Kind. Under the banking documents dated 17 June 2020 and 31 March 2021, PIK is calculated at 5.0% per annum on the total term facilities outstanding amount and reduces to:

2.5% per annum when Net Leverage reduces below 5.0x

-    Nil when Net Leverage reduces below 4.0x

Under the documents dated 31 March 2021, PIK accrues on either 1 July 2021 if the US$ 25 million equity is not raised by 30 June 2021, or from 1 January 2023 if the US$ 50 million is not raised by 31 December 2022.

PIK stops accruing at the date on which all loans are paid or discharged in full.

Security Cover (loan to value) - the ratio (expressed as a percentage) of Total Net Debt at that time to the Market Value of the Secured Vessels.

Total Recordable Injury Rate (TRIR) - calculated on the injury rate per 200,000 man hours and includes all our onshore and offshore personnel and subcontracted personnel. Offshore personnel are monitored over a 24-hour period.

Utilisation - the percentage of available days in a relevant period during which an SESV is under contract and in respect of which a customer is paying a day rate for the charter of the SESV.

Warrants - Under the banking documents dated 17 June 2020, if GMS had not satisfied the US$ 75 million Equity Condition, GMS shall issue warrants to the Banks, by no later than 31 December 2020, in accordance with the following terms:

●     Strike price at the lower of (i) average price over the 90 trading days preceding execution of documents, or (ii) exercise price of the stock options granted to Senior Management

●     Number of warrants that would give the Banks collectively 20% ownership of GMS

●     Vesting: (i) 50% vest on 31 December 2021 and (ii) 50% vest on 30 June 2023, unless the Net Leverage ratio is below 4.0x

●     If, at any time, GMS satisfies the USD100m Equity Condition any warrant not yet vested at such date will cease to exist

●     Upon vesting, the warrants are (i) exercisable in whole or in part, (ii) allocated pro rata to each Bank and exercisable singly and separately (i.e. not as a syndicate), (iii) payable either in cash or in the form of settling the PIK outstanding at the time of exercise, and (iv) freely tradable

●     Anti-dilution mechanism

●     Price adjustment mechanism

●     Warrants to expire on 30 June 2025 (maturity date of the facilities)

Under the banking documents date 31 March 2021, if Warrants are issued on 1 July 2021 because of the failure to raise US$ 25 million by 30 June 2021, half of the issued warrants vest on that date. The other half will only vest on 2 January 2023 if there is a failure to raise US$ 50 million. If warrants are issued on 2 January 2023 because of the failure to raise US$ 50 million all of the issued warrants vest on the same date. If the US$ 50 million equity raise is successful but the US$ 25 million is unsuccessful, the balance of the unvested warrants issued on 1 July 2021 will lapse. All warrants to expire on 30 June 2025 (maturity date of the facilities).

 

 

[1] Represents operating loss after adding back depreciation and amortisation, impairment charges and exceptional items in 2020. A reconciliation of this measure is provided in Note 11.

[2] Net cash flow before debt service is the sum of cash generated from operations and investing activities.

[3] PIK is calculated at 5.0% per annum on the total term facilities outstanding amount and would have reduced to:

a.        2.5% per annum when Net Leverage reduces below 5.0x

b.        Nil when Net Leverage reduces below 4.0x

[4] Three months to 31 March 2021

[5] Margin is defined as revenue less operating expenses (refer to Note 11). At 31 December 2020 this was 59% (2019: 60%). GMS has sought to lessen the impact of reduced revenue through cost efficiencies.

6 Represents loss after adding back impairment charges and exceptional items in 2020. A reconciliation of this measure is provided in Note 11.

7 Represents the sum of cash generated from operations and investing activities.

 

 
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
FR EASSLFFKFEEA
Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account.