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Repositioning
for the future
Gulf Marine Services PLC
Annual Report 2019
2019 OVERVIEW
In this report
Strategic Report
2019 Highlights
Chairman’s Review
People and Values
Our Strategy
Our Business Model
Section 172 Statement
Market Analysis
Risk Management
Key Performance Indicators
Financial Review
Governance
Chairman’s Introduction
Board of Directors
Report of the Board
Report of the Audit and Risk Committee
Report of the Nomination Committee
Report of the Remuneration Committee
Directors’ Report
Financial Statements
Independent Auditor’s Report
Group Consolidated
Financial Statements
Company Financial Statements
Glossary
Corporate Information
Also online at gmsuae.com/ar2019
2020 commentary is as at 30 April 2020.
1
2
6
12
14
16
18
20
26
28
32
34
36
42
47
50
74
80
89
131
146
148
See Glossary.
Our vision
To be the best SESV operator
in the world
2019 Overview
Revenue
US$ 108.7m
Utilisation
69%
Adjusted EBITDA
Annualised cost savings
US$ 51.4m
US$ 13.0m
Loss for the year
Employee engagement
US$ (85.5m)
82%
2019 Financial Highlights
— Adjusted EBITDA at US$ 51.4 million was ahead of the August Guidance
of US$ 45-48 million1. While 11% lower than in 2018, this reflects lower
revenues, partially offset by the impact of cost savings.
— Net cash flow before debt service2 rose to US$ 41.9 million (US$ 2018:
US$ 5.9 million) due to disciplined management of capex and working
capital, in the second half of the year.
— Significant progress was made in reducing costs. The 2019 cost saving
programme delivered US$ 13.0 million on an annualised basis during the
period, significantly exceeding the original target of $6m set in March 2019.
2019 results reflect a saving of US$ 5.6 million, split between opex, capex
and administrative expenses. The remaining savings will flow into the
2020 results.
— Revenue fell by 12% to US$ 108.7 million (2018: US$ 123.3 million)
reflecting lower rates and shifts in the utilisation mix.
— Loss for the year before adjustment was US$ 85.5 million, mainly
arising from the impact of impairment charges totalling US$ 59.1 million,
on two of our E-Class vessels, the Naashi and a S-Class cantilever,
and US$ 6.3 million of restructuring costs.
— Average day rates decreased by 14% across all classes of vessel, as 2017/18
legacy contracts expired. Market rates have been broadly flat over the last
twelve months.
— The Group is considered to be a Going Concern, but subject to a material
uncertainty relating to the need to complete documentation relating
to the restructuring of facilities announced on 31 March 2020 and the
management of a tight short-term liquidity position. This is explained
in further detail below.
2019 Operational Highlights
— HSE Performance was stable with Lost Time Injury Rate
at 0.19 (2018: 0) at the end of 2019. Total recordable
injury rate was 0.29 (2018: 0).
— Operational downtime remained low at 2018
equivalent levels.
— Average fleet utilisation stable at 69% (2018: 69%) with
underlying changes in the mix by vessel class. Average
E-Class utilisation reduced, reflecting soft market
conditions in North West Europe. S-Class and K-Class
utilisation improved, reflecting strengthening demand
in Middle East and North Africa (MENA).
— Eleven new contracts were awarded, with a combined
charter period of 13 years (including options), rising to
15 years including contract extensions.
2019 Governance Highlights
— Board and Senior Management overhaul.
— New Chairman, Tim Summers (appointed April).
— Two new Independent Non-Executive Directors
(appointed June).
— New Non-Executive Director (appointed March).
— New Chief Financial Officer (CFO), Steve Kersley
(appointed June).
— Chief Executive Officer (CEO) replaced with
Executive Chairman, Tim Summers (August).
— Remuneration Policy revised to align with
management performance.
— Requisitioned General Meeting held on 18 March 2019
at the instigation of a shareholder. Resolutions to appoint
their nominees and remove certain existing directors were
rejected by substantial majorities of shareholders.
2020 Highlights and Outlook
— The cost savings programme has delivered further gains
during 2020 and is currently running ahead of plan.
— Secured backlog is US$ 240 million, as at 31 March 2020,
an increase of US$ 20 million since March 2019.
— Nine of the total fleet of 13 vessels already fully contracted
for 2020. Utilisation for 2020 currently stands at 76%
(with 100% of our available capacity deployed at work for
clients at 30 April 2020). Contracted utilisation for 2021
stands at 49%.
— Two E-Class vessels relocated from Europe to Middle East
in Q1 2020, arriving safely and on schedule in February.
— Non-binding term sheet agreed with lender syndicate
in March 2020 to restructure the existing debt facilities,
including access to new working capital and bonding
facilities, underpinning liquidity. The term sheet also
covers the restructuring of repayment profiles, term,
and covenant levels.
— A waiver, for deferral of the March 2020 term loan
amortisation payments and December 2019 Financial
Covenant tests, has also been received, each until
30 June 2020. The Group’s working capital facilities
have also been rolled over until 30 June 2020.
— Full documentation is expected to be completed such that
new facilities are available to the Group by 30 June 2020.
COVID-19
— The combination of COVID-19 and low oil prices brings
significant operational and financial risks that are being
experienced by all businesses across the energy sector. It is
not possible to quantify the impact in the current constantly
changing environment, however the high level of contracted
utilisation (76% for 2020) and supply chain flexibility,
provides some risk mitigation to GMS.
— Downside scenarios are regularly assessed, and further
cost saving measures are in place to ensure that the
business is in a position to operate successfully while
maintaining adequate liquidity. Current year-to-date3
adjusted EBITDA for Q1 2020 is slightly better than
the Company’s 2020 Business Plan.
— The Group is closely monitoring potential counter-party
risks and resultant liquidity and pricing pressures, with
particular focus on the impact of the current situation
on suppliers and customers.
Material Uncertainty Statement
— Should full loan documentation not be agreed with
Lenders by 30 June 2020, they 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.
— The Group’s short- term liquidity position is currently tight.
This will continue to require careful management until the
loan documentation is completed and access is obtained
to additional working capital facilities.
— The need to complete the refinancing of the Group’s
banking facilities by the end of June and the Group’s tight
short-term liquidity position indicate 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 there is good reason
to believe that final loan documentation will be completed
in a timely fashion and that liquidity can be managed until
such time as the refinancing of the Group’s banking facilities
completes. Accordingly, the going concern basis of
accounting has been adopted in preparing the 2019
consolidated financial statements.
1 Guidance of US$ 45-48 million was issued in August 2019 at the time of replacement of Chief Executive. This was later upgraded to US$ 48-50 million in December 2019.
2 Net cash flow before debt service is the sum of cash generated from operations and investing activities.
3 3 months to 31 March 2020.
Annual Report 2019
1
Strategic Report The Long-Term Incentive Plans have similarly
been restructured to tie share-based
compensation to our Total Shareholder
Return in comparison to oilfield services
peers and the wider stock market.
Group performance
Adjusted EBITDA at US$ 51.4 million was
11% below that achieved in the previous
year. This was mainly driven by a 14%
reduction in average charter rates, compared
to 2018 as legacy contracts have expired,
to be replaced by new contracts negotiated
in current market conditions.
Average utilisation, at 69%, was the same as
in 2018. However, there has been a reduction
in utilisation of our most profitable E-Class
vessels, offset by increases in utilisation of
the remainder of the fleet. This put further
pressure on overall margins and therefore
adjusted EBITDA.
While the Adjusted EBITDA outturn for
the year has fallen since 2018, it exceeds
the US$ 45–48 million guidance offered
in August 2019, at the time of leadership
change1. This reflects the impact of additional
cost savings delivered in the second half
of the year. The cost saving programme
is running ahead of plan and is expected
to deliver further savings to the Group’s
bottom line in 2020. This has been achieved
by the delivery of further reductions in
headcount, with a focus on eliminating
Senior Management positions, the closure
of offices and redundant facilities, and
the reduction in costs of the supply
chain through competitive tendering
and contract renegotiation.
CHAIRMAN’S REVIEW
Repositioning the business
for the future
2019 was a year of substantial change at
GMS. Governance has been fundamentally
overhauled at both Board and Senior
Management level. Significant progress has
been made in driving cost savings while at
the same time improving vessel utilisation
and backlog. Agreement has been reached
in principle with our lenders to restructure
our banking facilities to give the business a
stable platform, on which we can complete
our business turnaround and recapitalise
the business. During this time, we have
continued to deliver safe and reliable
operations for our customers.
The advent of COVID-19 has brought fresh
challenges, in conjunction with low oil prices.
Those risks to the business are being actively
managed with formal processes in place at
both Board and Senior Management levels.
The progress made over the last twelve
months has placed GMS in a much stronger
position to meet these challenges.
Governance
On 18 March 2019, the Group held a
Requisitioned General Meeting at the request
of a shareholder at which the resolutions
to appoint their nominees and remove
certain existing directors were rejected
by substantial majorities of shareholders.
This meeting took place in the context of
the disappointing financial results of the
Company. Following feedback from
shareholders more generally and from
shareholder advisory bodies, substantial
changes were made to Governance
and Management.
The entire Board has been replaced over
the last 18 months. I joined as Chairman
of the Board in April 2019, shortly after
the appointment of Mo Bississo as Non-
Executive Director in March. David Blewden
and Mike Turner then joined the Board in
June, along with Steve Kersley, as Chief
Financial Officer.
In August it was announced that the Chief
Executive Officer would be leaving GMS.
Until his replacement has been appointed,
I have taken on his executive responsibilities
in addition to my role as Chairman. All of the
prior Senior Management team have now
been replaced, and internal management
processes and financial forecasting have
been substantially overhauled.
The new Board is fully engaged with the
business. Remuneration policies have been
changed fundamentally. The STIP is now
fully at risk, 100% performance-based and
are linked to a Business Scorecard which
is driven solely by financial and operational
metrics tied to the delivery of shareholder
value. Its metrics apply in the same way
for all eligible members of staff. This
alignment underpins the drive towards
a more performance-based culture focused
on financial and commercial success.
Driving
efficiencies
2019 was a difficult year for GMS, and we took decisive
action on all fronts. Governance processes were reformed,
the Board reshaped, and a new Senior Management team
put in place. We made material reductions in our cost base,
while at the same time delivering significant new contract wins.
We ended 2019 with adjusted EBITDA levels slightly ahead
of our guidance.
1 Guidance given at the time of leadership change in August 2019 was a range of US$ 45-48 million. Updated
guidance was given in December 2019 at US$ 48-50 million reflecting additional cost savings delivered.
2
Gulf Marine Services PLC
COVID-19 and Outlook
Given the developments in the world at
present, it is hard to comment accurately
on market outlook and developments. The
Board reviews COVID-19 actions, impacts
and forward plans as a standing Board
agenda item, and Senior Management have
daily (virtual) meetings to assess risks and
adapt to the changing situation.
COVID-19 has been recorded on two
separate GMS vessels, one of which is
on a short term contract. Both vessels are
currently quarantined, as we await final test
results. They remain on hire and we expect
any financial impact to be small. There are
likely to be other cases in the future, and
procedures are in place to handle them.
There have been no material impacts on
operations, although some government
agencies and suppliers are operating more
slowly than normal which is to be expected.
A variety of measures have been put in place
to respond to the challenge of COVID-19,
and the associated fall in oil prices. All travel
has been stopped. Crew changes have been
restricted offshore, and onshore staff are
working virtually. Further reductions have
The position on backlog is also improving.
GMS secured 11 new contracts in 2019 and
these have added a total expected charter
period of 13 years (including options) to
the backlog. Contracted utilisation for
2020 is already in excess of levels actually
delivered in 2019. Contract wins through
the autumn have rebuilt confidence in the
ability to deliver, in what remains a very
competitive environment.
Capital structure and liquidity
We have agreed a non-binding term sheet
with the Group’s lenders to restructure our
existing debt facilities. Once implemented,
it will enable access to our new working
capital facilities to support both short term
cash flow and bonding requirements. It will
also establish a loan repayment and financial
covenant profile that is better suited to the
current market environment. We are in
the process of completing the detailed loan
documentation which we expect to have
completed by the end of June. Over that
period, we have received waivers for both
our covenant and payment obligations
under the existing agreements.
Whilst the absence of binding loan
agreements and the Group’s tight short-
term liquidity position represent a material
uncertainty, that has been highlighted in our
Financial Statements2, the Directors believe
that, based on the progress made to date,
there is good reason to believe that final loan
documentation will be completed in a timely
fashion; and that the Group’s working capital
and liquidity position can be managed
effectively during that period.
Once this is completed, it will give the
business a solid financial platform, which
will allow us to focus on the business
turnaround and reposition the business
sustainably. The next phase is to complete
the legal documentation over the coming
months and prepare the Company to be
ready for an equity injection as and when
market conditions allow.
Commercial and operations
We remain committed to providing all
personnel and our customers with a high
quality, safe working environment at all times
and continue to maintain a focus on safe,
reliable operations. The Lost Time Injury
rate increased to 0.19, from zero in the
previous year.
In 2019 there were no environmental
incidents across our operations. We are
taking measures to reduce our emissions
going forward as part of a broader goal to
align with the Paris Agreement objectives, by,
for example, changing our refrigerant usage
across all of our vessels and reducing our
office and facilities footprint. All our vessels
are already configured to run on low sulphur
marine diesel.
Demand in Europe, where three of our
Large Class Vessels were situated, has
been disappointing. This has been reflected
in utilisation levels, which, for our E-Class
vessels fell to 51% (2018: 73%). This reflects
the phasing of renewables work, and a
pause in oil and gas activity, as upstream
customers reassessed their
development plans.
By comparison, demand in the Middle East
has remained firm. For our S-Class and
K-Class vessels, utilisation has therefore
improved as outlined below, balancing
the decline in North West Europe, such
that overall utilisation has remained flat.
These disparities in market conditions
underpinned our decision to relocate two of
our E-Class vessels to the MENA region at
the end of December. Both vessels arrived
successfully in February. One is in the field
already working on short-term operations,
and the other is mobilising in the next
few weeks.
& maintaining
quality
2 See Note 3 in the consolidated financial statements.
Annual Report 2019
3
Strategic Report CHAIRMAN’S REVIEW
continued
“After a year’s negotiations, in
principle agreement has been reached
with lenders on the key terms of
restructuring our bank debt which will
give GMS renewed access to liquidity
and a firm financial platform to move
the business forward through 2020
and beyond.”
been made in the organisation size and remaining
onshore staff are also working shorter hours on reduced
salaries (75% of normal). Directors have also volunteered
a 25% reduction in fees. I have taken a further 15%
cut for a total of a 40% reduction in base pay whilst the
office operates remotely. Cash bonus payments due to
be paid in Q2 2020 for 2019 performance have been
deferred. Critical supplier availability has been analysed
to minimise the risk of disruption to operations.
The Group is also closely monitoring potential counter-
party risks and resultant liquidity and pricing pressures,
with particular focus on the impact of the current
situation on suppliers and customers.
Notwithstanding the current environment, major
National Oil Companies are continuing to pursue
multiple long-term tender offerings. Having safely and
successfully relocated two E-Class vessels, from North
West Europe to MENA, we are well placed to participate
in these opportunities. Contracted utilisation for 2020,
at 76%, is already in excess of that delivered in the
previous year. Financial performance to the end of
March 2020 remains slightly better than the 2020
Business Plan. 80% of the 2020 Business Plan revenues
are covered by firm contracts, and this rises to 83%
if contracted options are exercised.
Strong preventive measures are in place to manage
the operational and financial impact of COVID-19
(and its impact on oil prices). The Company is acting
to manage financial risks and preserve liquidity.
The repositioning of the business to be resilient
through difficult market conditions continues.
Conclusion
Our business has been through a challenging twelve
months, but we are now beginning to see the benefits of
restructuring: driving cost savings, improving operational
efficiency and securing additional business. The
provisional agreement reached with our lenders would,
upon execution of binding documentation, provide much
needed stability to our organisation as we move forward.
2020 has brought additional and profound challenges,
with the global impact of COVID-19 and significant oil
price reduction. Despite the tight short-term liquidity
position, GMS is now in a much stronger position to
face these uncertainties.
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 during this challenging period.
I would also like to thank our stakeholders, including
customers, suppliers, lenders and shareholders for
their support during the past year.
4
Gulf Marine Services PLC
GMS
How would you describe the performance
of GMS during 2019?
It was clearly a difficult year, and as a result, 2019
has seen a tremendous amount of change. We cannot
hide from that fact. This change was necessary in
order to reposition the business in a highly competitive
environment. The adjusted EBITDA guidance reset
in August was disappointing, but the business has
responded positively since then. Through driving further
cost savings and efficiencies, winning new business
and relocating of our vessels, we have positioned
the business to manage the current uncertainties
from a position of relative strength.
How has COVID-19 impacted the business?
This unprecedented scenario presents severe and
far-reaching challenges across the industry and for our
business. GMS has already made changes to protect
the health and well-being of employees, contractors
and communities, putting clear preventative measures in
place, while fully adopting the latest guidelines and advice
from the government authorities in each of the countries
where we operate. We’ve also taken steps to further
reduce costs, to help manage the economic challenges.
The potential impact of COVID-19 is difficult to predict
with any degree of certainty. The high level of committed
contracts that we have secured, and the strong preventive
measures, that we have put in place, provide some
mitigation, but this will continue to be a significant issue
for companies across our business sector for some time.
What metrics are used when assessing
the performance of GMS?
Safe and reliable operations for our customers
underpin everything we do. So HSSEQ and high-quality
maintenance management systems are key to the
ongoing health of the Group. Our KPIs on pages 26
to 27 show the principal metrics we use at GMS to
track performance.
What quick wins achieved in the past year
would you particularly highlight?
We’ve delivered a material reduction in our cost base,
at the same time preserving the safety and efficiency
of our operations and our delivery to customers.
The changes that we have made to our remuneration
policy have also promoted greater alignment within
the organisation, towards driving shareholder value.
Q&A
This has obviously been a tough year for GMS.
What motivates the team to drive the Group forward?
GMS has a long history in high quality operations driven
by the passion and dedication of our people. This has
remained strong throughout our current difficulties and
we are learning to be open about past failures and to
learn from them to deliver this service more efficiently.
We needed to be honest with ourselves about the
overdue need for change and the cultural change that
was required. The task for the new leadership has been
to define a clear roadmap to meet the challenges that
we face and we have broad alignment across the
organisation to that roadmap.
Where is the team based and
what countries do you visit in your work?
The team is based primarily at the Group’s headquarters
in Abu Dhabi, with smaller operational offices in key
markets. We regularly make visits to our customers,
investors and other stakeholders in our core markets
within the Middle East region and North West Europe.
And we also constantly look at other potential markets
for our services.
What is your view of the employees working for GMS?
Well firstly, I would like to thank all of them for their
dedication and hard work in what has been a challenging
period. We’ve had to make some hard and frankly
overdue decisions, as we’ve reduced headcount and
changed the culture to deliver a competitive cost base
for the business. I have been impressed at how our
people have been open to change and have stepped up
to meet these challenges, delivering for customers in
often difficult circumstances.
Governance
How has the governance changed over
the last 12 months?
The entire Board (both Executive and Non-Executive)
has been replaced in the last 18 months, reflecting
feedback from shareholders. The new Board has a
balance of industrial, financial and commercial knowledge
within the regions in which we operate, to take the
business forward. The Board is now engaged, having
spent considerable time getting to know the business
and its employees.
We’ve also completely restructured our remuneration
policy to bring it in line with best practice for UK-listed
public entities. Both long and short-term incentive plans
have been restructured to tie them more effectively to
shareholder value drivers, with all variable pay now being
at risk, if performance targets are not met for the
business as a whole.
How have the new Directors added value to the Group?
The commitment of our new Directors has been critical
to enabling the transformation that was necessary. They
each bring unique skills and perspective which have been
invaluable as we guide the Group through this difficult
phase and they have devoted significant time to GMS,
reflecting the situation facing the Group.
Market
What is the biggest challenge facing GMS today?
Our biggest challenge in the short term is to manage
the issues that have arisen due to COVID-19 and the
resultant impact on oil price. However, once we’ve worked
through that we need to recognise that we will still be
operating in a highly competitive environment. We will
therefore need to continue to provide excellent service
to our customers at a competitive cost. This requires
a relentless focus on operating costs and efficiencies;
ensuring swift and effective mobilisations and vessel
maintenance; looking for opportunities to provide
complementary, value added services to customers,
and seeking out new customers. The agreement of
a non-binding term sheet with our banks to re-set the
capital structure of the Group, reached in Q1 2020,
is a major step forward.
Where are the opportunities
for growth in the medium term?
Until the recent outbreak of COVID-19, our core market
in the Middle East was showing growing signs of demand,
evidenced by the number of tender opportunities across
all markets. Notwithstanding the current uncertainties,
these tenders are continuing and this was a key
consideration behind relocating two of our E-Class
vessels from North West Europe.
A key strength of our fleet, though, is its ability to operate
in a variety of locations and industries. We are confident
in the medium term prospects for the renewables market
in North West Europe, as the next round of wind farm
developments move forward. We are constantly
looking at other markets in Africa and Asia for growth
opportunities. We also see opportunities to grow
revenues by expanding our service offering to existing
customers.
Successor
Is there an update on
the appointment of the Chief Executive?
Our current focus is on navigating the current challenges
thrown up by COVID-19, stabilising the business and
achieving a sustainable capital structure through
completing the restructuring of our debt facilities. It is
important that we find the right candidate to take the
business forward. We are working hard to ensure we are
able to attract the right person into the business, to whom
I can hand over responsibilities at the appropriate time.
Annual Report 2019
5
Strategic Report
PEOPLE AND VALUES
Our culture
is evolving to
support our
business
DAY IN THE LIFE AT GMS
05:30
Shamal
Breakfast is served onboard for
the crew.
06:00
6
Gulf Marine Services PLC
Headcount
Total number of employees
Offshore
457
(2018: 536)
377
(2018: 423)
Onshore
80
(2018: 113)
Voluntary turnover
18%
(2018: 14%)
Responsibility
Excellence
Relationships
We are committed to the health and safety of
our employees, subcontractors, clients and
partners, and to behaving with environmental
responsibility. We focus on assuring the safety
of everything we design, construct, operate
and maintain.
We are cost-conscious and manage our risks
effectively. We continually seek opportunities
to grow our business and to create value for
our shareholders.
We behave responsibly in all our business
relationships.
Values
We incorporate our core values of
Responsibility, Excellence and Relationships
into all aspects of our business. We are
committed to ensuring the health and safety
of our employees, subcontractors, clients
and partners and to upholding high
ethical standards.
Turnover
2019 saw material change in the business,
with the organisational structure simplified
and posts removed. Despite this, voluntary
employee turnover was stable relative to
2018, and the move towards a more
transparent performance-based culture
will help nurture our existing talent. In 2019
GMS has promoted 56 employees.
Diversity
Our workforce consists of 457 personnel
recruited from 36 countries, and the
significant experience and skills they bring
to GMS helps us to conduct our business
from a global perspective.
The information below and to the right
provides details of the gender diversity
and country of origin of our personnel as
at 31 December 2019.
For cultural and legal reasons, the extent
to which we can increase the number of
offshore female personnel is limited. For
example, we cannot employ women offshore
in the countries in which we currently operate
in the Middle East due to local labour laws
which stipulate that women cannot work in
an inappropriate environment and hazardous
jobs/industries. As the provisions of the UK
Government’s Equality Act 2010 relating to
gender pay gap disclosure are not applicable
to GMS, this information has not been
provided.
We always look for better ways to meet
our clients’ needs through continuous
improvement. We build on our past
experiences and embrace innovation.
We set ourselves challenging targets to deliver
a superior performance and to exceed our
stakeholders’ and clients’ expectations.
Reputation and integrity are important to us.
We work with rigour and transparency to
ensure we are the preferred contractor
of choice.
We build trust with our clients, partners,
subcontractors, suppliers, investors and
the communities in which we work.
We aim to attract and retain premium staff for
our business and ensure they are empowered
to carry out their duties safely and effectively.
We value the diversity of our employees,
provide an environment where everyone can
perform to their full potential and be rewarded
for delivering excellence.
Number of offshore employees
Number of onshore employees
80
49
(2018: 78 male/35 female)
31
Nationalities
36
(2018: 37)
1
2017
2018
2019
DAY IN THE LIFE AT GMS
06:00
Enterprise
The crew meet to discuss the
planned operations and work
scope for the day. Permit to
works and risk assessments are
reviewed and discussed before
they go onto the deck and
commence working.
6
08:30
Annual Report 2019
7
377
377
(2018: 421 male/2 female)
Total number of Directors
6
2017
5
2018
(2018: 4 male/1 female)
2019
Total number of Senior Managers
(includes the Executive Chairman and
CFO who are also included in the Board)
4
2017
2018
2019
4
(2018: 8 male)
Total number of Direct Reports
to Senior Managers
17
2017
2018
2019
11
(2018: 18 male/4 female)
Male
Female
2017
2018
2019
Strategic Report
PEOPLE AND VALUES
continued
Employee engagement
We launched our first employee engagement
survey at the end of 2019 with an 82%
completion rate which is consistent with
the global benchmark completion rate of
80% for all companies.
The areas where our employees scored
us as needing attention are communicating
more often as a Group and between
departments and creating opportunities
to provide constructive ideas on how to
improve our processes. In 2020 we launched
our internal ‘Bright Ideas’ campaign,
but we know we still have work to do.
During the year Dr Shona Grant was
appointed as the designated Non-Executive
Director, responsible for ensuring engagement
with the workforce is included in Board
discussions and decisions. Read more about
Shona’s role in the interview on page 11.
Employees who feel safe at GMS
Employees who feel their job is secure
96%
72%
Employees who believe GMS’ Core Values
are relevant within their role
Employees who feel fairly rewarded
for their job
92%
68%
What our people say
“GMS is a great place to work
and I feel lucky to be part
of the team. I feel respected
and valued for what I bring
to the Group. Working with
professionals I continuously
learn from and who always help
me to tackle any challenging
task is really important to me.“
“GMS has provided me
with the opportunity to work
in a friendly multicultural
environment. I’m grateful to
have had a chance to develop
my career here and am looking
forward to many more years
with GMS.”
Employees who are proud to work
at GMS
Employees who see opportunities for
their own career advancement at GMS
What our customers say
90%
77%
DAY IN THE LIFE AT GMS
08:30
Kikuyu
Daily operations meeting
conference call to GMS office
HQ in Abu Dhabi, to discuss
any issues and challenges that
have occurred in the last 24hrs,
planned operations and sharing
information.
10:00
8
Gulf Marine Services PLC
Larsen & Toubro are an existing EPC client
who we have supported in Saudi Arabia,
where they have a significant presence.
“We are happy with GMS’s
safety performance and reliable
offshore support. The 40
years’ experience that GMS
has in the Middle East helps
in tackling many issues without
delay due to their processes
and systems developed in
the way the local business
is carried out. The Company’s
track record and ability to
provide solutions for our
operational needs from flexible
vessels remains one of our
key considerations in working
with GMS. Their prices are
competitive too.”
What our suppliers say
Aramark are our largest supplier and have
been providing catering and hospitality
services to GMS since 2009. This includes
cooking, serving, cleaning and laundry
across our fleet in the countries we
operate in.
“Aramark has been working
with Gulf Marine Services
(GMS) for over ten years across
the Middle East and North Sea
and has recently agreed
a new five year term through
competitive tender.
Aramark and GMS share very
similar core values which lends
itself to successful and safe
operations both offshore and
onshore. The evolution of the
GMS business over the past
18 months has encouraged
further and deeper partnering
to identify means to drive
cost efficiencies and whilst
maintaining service excellence
and safe operating practices.
We look forward to our
continued relationship during
the next term of our
agreement.”
KenzFigee provide cranes on our S-Class
vessels and have been supplying GMS since
2015 including ongoing maintenance repairs.
“KenzFigee has been working
with GMS in the Middle East
since the installation of our
offshore cranes on their vessels
in 2015. We partner very
closely with the GMS team in
Abu Dhabi to keep the cranes
in top condition. Their care,
dedication and technical skills,
have resulted in the cranes
being operational without any
malfunction over the past
5 years. A great achievement
of everyone involved!”
Share ownership
We encourage employee share ownership
and have operated a long-term incentive plan
since 2014. Please see pages 50 to 73 in the
Remuneration Report for further details.
Ethical practice
The Group operates responsibly in
accordance with the formal legal and
regulatory disclosure requirements expected
of a UK listed Company.
Performance
The Short-Term Incentive Plan (STIP) structure
was completely redesigned during 2019 so
that all employees including Executive Directors
are working towards the same transparent
targets. There are no guaranteed variable
pay awards in GMS, with all pay being
performance-based. This aligns with
shareholder interests and encourages
a performance-based culture to achieve
Group objectives.
Succession planning
Given the situation in the Group, as well as
the small size of GMS, it is a reality that many
posts will be filled by external hires. A basic
succession planning process is in place but
is rudimentary in nature and has not been
the priority of Management in 2019.
Learning and Development
We ensure all of our people maintain the relevant
technical and regulatory training required to fulfil
their job roles. As seafarers, all crew maintain
their relevant STCW (Standards of Training,
Certification and Watchkeeping – a worldwide
convention that ensures a lateral standard
of training is achieved across all countries
in the world) qualifications that licenses
them to operate our barges in accordance
with International Maritime Organisation
requirements. For barges operating within
the offshore Oil & Gas Sector, we also ensure
all crew complete additional required training
in areas such as, but not limited to, offshore
safety and awareness training and emergency
response training. As we reposition the
business, we have had to temporarily stop
discretionary development training. This will
be reviewed in 2020.
Our Code of Conduct sets out the basic
rules of the Group and its purpose is to ensure
we work safely, ethically, efficiently and within
the laws of the countries in which we operate.
All our staff receive Code of Conduct training
as part of their induction and our reputation
and success is dependent on our staff putting
the Code into practice in all our dealings with
our stakeholders.
GMS also maintains an awareness of
human rights issues, which is reflected
in our suite of Group policies including our
Anti-Corruption and Bribery Policy, Anti-
Slavery Policy, Social Responsibility Policy
and Whistleblowing Policy.
Whistleblowing reporting service
There were no whistleblowing cases reported
in 2019. In January 2020, an independent
reporting service for whistleblowing was
introduced. It operates confidentially, is
available 24 hours a day and is staffed by
highly skilled professional call handlers.
This service:
• Gives a voice to our employees,
contractors, suppliers and supply chain
and other stakeholders;
• Helps maintain a culture of openness;
• Demonstrates that GMS takes
malpractice seriously;
• Provides Senior Management with an
overall temperature of the business; and
• Supports employees who speak up.
The Whistleblowing policy also has a strict
non-retaliation commitment to support
any employees who speak up.
DAY IN THE LIFE AT GMS
10:00
Enterprise
Testing takes place on one of
the Diesel Generators after
routine maintenance completed.
11:00
Annual Report 2019
9
Strategic Report PEOPLE AND VALUES
continued
Environmental, Social and
Governance Factors
During the year the Group has implemented
the following initiatives which will reduce
our carbon footprint:
Closure of UK and Mina port offices
The Group closed UK and Mina port offices
as a part of restructuring activities at the
end of 2019. This will lead to electricity and
energy consumption efficiencies in 2020.
Shut down of construction activities
GMS shut down all construction facilities
at the end of 2018. This has had a major
impact on scope 2 emissions, with the
eradication of other gas use, and a
reduction in electricity consumption.
Decrease in business travel
The Group has taken conscious measures to
reduce unavoidable business travel, therefore
reducing the related carbon footprint.
Change in refrigerant
The Group has changed the refrigerant used
on vessels for the cooling process to R407
which reduces global warming emissions
into the environment by approximately half
as compared to the previous refrigerant. This
is a measure we expect to be able to report
on in 2020.
The Group has consulted an independent
third-party verifier- Energy and Carbon
Management (“ECM”) to report environmental
performance on the Greenhouse Gas
(GHG) emissions during the year ended
31 December 2019. Their report summarises
the organisational and operational
boundaries, associated emissions, annual
reporting figures and methodologies for
GMS, in accordance with the regulatory
obligation Part 7 of the Companies Act 2006
(Strategic Report and Directors’ Report)
Regulations 2013.
In calculating the GHG emissions, ECM
has used the GHG Protocol Corporate
Accounting and Reporting Standard
(revised edition) emission factors from
the UK Government Conversion Factors
for Company Reporting 2019, Version 1.01.
The table below shows the data points that
are required under the UK Government
regulatory requirements.
Global GHG Emissions data for period 1st January 2019 to 31st December 2019
Emissions from:
Combustion of fuel and operation of facilities
Electricity, heat, steam and cooling purchased
for own use
Total
Total Revenue in the reporting period (US$)
Company’s chosen intensity measurement:
Emissions reported above normalised
to the ratio of tonnes of CO2e per
US$ 1,000,000 of Group revenue
Tonnes of CO2e
Current reporting year
2019
46,573
580
47,153
Comparison year
2018
42,930
819
43,749
108,721,000
123,335,000
433.77
354.72
The total emission (tCO2e) figures for all Scope 1 and Scope 2 emissions reportable by GMS are as follows:
2019 UK and Global
Consumption
(tCO2e)
2018 UK and Global
Consumption
(tCO2e)
3,554
580
43,018
47,152
228
819
42,702
43,749
Difference
(tCO2e)
+3,326
-239
+316
+3,403
Difference
%
+1,459%
-29.2%
+0.7%
+7.8%
A 0.7% increase in transport emissions (fuel oil consumption) even though vessel utilisation
remained flat, is mainly due to increased vessel movements during the on-hire period.
The consumption of fuel oil during the operation of the vessels is the largest contributor
to the Group’s GHG emissions for the 2019 reporting year. Although the vessels are leased
to clients on a long-term basis, we have chosen to account for their GHG emissions within
our footprint, in accordance with the operational control approach to developing this GHG
footprint. Fugitive emissions from refrigerant gases (R404) topped up on the vessels have
also been included in reporting for the year ended 31 December 2019 but not 2018. GMS
is continually looking for ways to positively impact climate change. As such the 2019 results
include these fugitive emissions resultant from refrigerant topped up on our vessels in this
year’s report with an aim to introduce targets for reduction in future.
Utility and Scope
Scope 1 emissions
(building and process)
Scope 2 emissions
(buildings and process)
Scope 1 emissions (transport)
Total
DAY IN THE LIFE AT GMS
11:00
Head office
Meeting between Finance,
Commercial and Operations
to discuss latest management
reporting pack inputs.
12:00
10
Gulf Marine Services PLC
Q&A
Workforce Engagement Director Q&A with
Independent Non-Executive Director Dr Shona Grant
During 2020, I also expect to continue to
meet with workforce representatives from
across the Group when opportunities arise,
and to meet regularly with the HR department.
How do you intend to integrate the
knowledge gained from workforce
engagement into the work of the Board?
This will also evolve over time. As a minimum
we anticipate a standing “People” item on
the Board agenda, much as we do with HSE
today. During the first half of 2020 one of the
“People” agenda items was for the Board to
review the feedback and recommendations
from the workforce engagement survey. I also
anticipate that any key strategic decisions
being considered by the Board will include
a “workforce” component in the decision
making process that is more formal that
it perhaps was previously.
What have you done on employee
engagement elsewhere (if applicable)?
I have been leading people for most of
my career and frankly you can’t lead anyone
anywhere if you don’t engage with them
in a meaningful way.
What does the role involve?
The role was created in response to the
changes to the UK Corporate Governance
code. Different ways of complying with the
Code were considered by the Board and it
was decided to create this role. However, this
should not be seen as just a paper exercise.
The Board recognises that more needs be
done to engage with the workforce, not least
because of the substantial amount of change
that has taken place within GMS during 2019.
We also believe it is vital to engage all staff
in our efforts to improve GMS’s profitability
going forward, and in maintaining a productive
and safe work environment where everyone’s
contribution is valued.
Why has the Board decided to create this role?
We fully anticipate that the role will evolve
over time. During 2019 the work has focused
on creating a baseline on where GMS is today
when it comes to staff engagement, including
what the workforce considers the Group “does
well” and the “not so well”. This has involved
meetings with staff representatives and
culminated in the preparation of a workforce
engagement survey that went “live” in
December with results received in early 2020.
I envisage participating in follow-up meetings
with the GMS HR department to review the
feedback from this survey. This will then lead
to the development of recommendations
for the Management of GMS and the Board.
DAY IN THE LIFE AT GMS
12:00
Kamikaze
Crew conduct routine
watchkeeping rounds
in the engine room On Board.
14:00
Annual Report 2019
11
Strategic Report OUR STRATEGY
Generate
long-term
shareholder value
Our objective is to create
long-term shareholder
value through the delivery
of modern, innovative and
sustainable solutions to
our clients in the offshore
energy sector, maximising
the advantage our operational
flexibilities provides. In order
to achieve this, we focus on
the four strategic priorities
set out here.
DAY IN THE LIFE AT GMS
14:00
Endurance
Lifeboat Drill.
15:00
12
Gulf Marine Services PLC
Strategic priority
What it means
2019 progress
Future priorities
& challenges
#1
Drive Revenue
Maximise utilisation through best in
class operations.
Continually enhance the fleet, offering new
and improved offshore support solutions
to anticipate client needs.
Optimise the fleet to ensure deployment
matches demand.
11 contracts announced with a combined
Securing backlog.
charter period of 13 years including options,
rising to 15 years including contract
extensions.
At the end of the year, management decided to
relocate two E-Class vessels from North West
Europe to the Middle East to better match
supply with demand.
Getting the two E-Class vessels on contract.
Exploring further opportunities to diversify
our market exposure.
Identify and participate in longer term
opportunities in North West Europe where
we see sustainable revenue streams.
Continue to monitor potential counter-party risks
and resultant liquidity and pricing pressures driven
by COVID-19 and resultant oil price drop.
#2
Manage Cost
Deliver safe and cost effective operations.
Annualised cost savings of US$ 13.0 million
Continual focus on efficiency.
Continual cost efficiencies throughout the
business and reduce our working capital.
Ensure delivery of remaining annualised
cost savings.
delivered. Cost savings of US$ 5.6 million
realised in 2019.
General and Administrative expenses reduced
by US$ 2.4 million.
Supply chain optimisation.
#3
Establish and operate
within an appropriate
financial framework
Establish appropriate long-term sustainable
capital structure.
On 31 March 2020, lenders signed a non-
Deliver legally binding loan documentation to
binding term sheet restructuring the debt.
reflect the commercial terms agreed in principle
execution of binding agreements will grant
with the banks in the term sheet.
covenant flexibility, a reduced amortisation
profile, and access to working capital and
bonding facilities.
Having delivered a stable debt foundation,
work with equity investors to inject fresh equity
capital into the business.
#4
Ensure people in
the right role with
the right skills
Attract and retain talented people
with the right range of skills, expertise
and potential in order to maintain an
agile and diverse workforce that can
safely deliver our flexible offshore
support services.
Train our staff to the highest operational
standards.
Fundamental governance and management
Appointing a new CEO.
overhaul with the replacement of the Chairman,
the CFO and all but the most recently
appointed Non-Executive Directors.
talent pool.
Building and developing a core management
Organisational reduction and simplification
with a completely new leadership team.
Improved communication and cross-
functionality among departments.
Strategic priority
What it means
2019 progress
#1
Drive Revenue
Maximise utilisation through best in
class operations.
Continually enhance the fleet, offering new
and improved offshore support solutions
to anticipate client needs.
Optimise the fleet to ensure deployment
matches demand.
#2
Manage Cost
Deliver safe and cost effective operations.
Continual cost efficiencies throughout the
business and reduce our working capital.
11 contracts announced with a combined
charter period of 13 years including options,
rising to 15 years including contract
extensions.
At the end of the year, management decided to
relocate two E-Class vessels from North West
Europe to the Middle East to better match
supply with demand.
Annualised cost savings of US$ 13.0 million
delivered. Cost savings of US$ 5.6 million
realised in 2019.
General and Administrative expenses reduced
by US$ 2.4 million.
Supply chain optimisation.
Future priorities
& challenges
Securing backlog.
Getting the two E-Class vessels on contract.
Exploring further opportunities to diversify
our market exposure.
Identify and participate in longer term
opportunities in North West Europe where
we see sustainable revenue streams.
Continue to monitor potential counter-party risks
and resultant liquidity and pricing pressures driven
by COVID-19 and resultant oil price drop.
Continual focus on efficiency.
Ensure delivery of remaining annualised
cost savings.
#3
Establish and operate
within an appropriate
financial framework
Establish appropriate long-term sustainable
capital structure.
On 31 March 2020, lenders signed a non-
binding term sheet restructuring the debt.
execution of binding agreements will grant
covenant flexibility, a reduced amortisation
profile, and access to working capital and
bonding facilities.
Deliver legally binding loan documentation to
reflect the commercial terms agreed in principle
with the banks in the term sheet.
Having delivered a stable debt foundation,
work with equity investors to inject fresh equity
capital into the business.
#4
Ensure people in
the right role with
the right skills
Attract and retain talented people
with the right range of skills, expertise
and potential in order to maintain an
agile and diverse workforce that can
safely deliver our flexible offshore
support services.
Train our staff to the highest operational
standards.
Fundamental governance and management
overhaul with the replacement of the Chairman,
the CFO and all but the most recently
appointed Non-Executive Directors.
Organisational reduction and simplification
with a completely new leadership team.
Improved communication and cross-
functionality among departments.
Appointing a new CEO.
Building and developing a core management
talent pool.
DAY IN THE LIFE AT GMS
15:00
Endeavour
Helicopter lands on the helideck
and drops off 8 passengers
to join the vessel.
17:30
Annual Report 2019
13
Strategic Report BUSINESS MODEL
The business model to create value is centred on a
commitment to providing a flexible and cost-effective solution
for customers operating in the offshore oil, gas and renewable
energy sectors using a modern fleet of self-propelled
Self-Elevating Support Vessels (SESVs).
Our resource
Our operations
Safety culture
Safety is the top priority and is underpinned
by an HSSEQ management system and
strong safety-focused culture.
Young and modern fleet
With an average age of nine years the fleet of
13 SESVs is one of the youngest in the industry.
This is especially important in the tendering
process for new contracts as increasingly
clients are demonstrating a preference for
modern vessels that can bring significant cost
and operational efficiencies to their projects.
Highly skilled workforce
A multi-cultural workforce is recruited from
more than 35 countries and has extensive
experience in the global SESV sector. GMS
trains operations people to the highest
standards through the GMS Training
Academy so they can develop and reach
their full potential and contribute to the
long-term success of the business.
Flexibility
GMS works in different industries and in different
locations. The flexibility of the fleet allows service
delivery across a broad geographical footprint to
a diverse range of clients. Maintaining a market
footprint in a diversity of business sectors and
geographies is a key competitive strength,
providing resilience for the business in times
of fluctuating demand.
DAY IN THE LIFE AT GMS
17:30
Kamikaze
The Master conducts his daily
safety tour of the vessel to
ensure all work being safely
conducted.
18:00
14
Gulf Marine Services PLC
Operates a modern fleet
of self-propelled SESVs
GMS owns and operate a fleet of modern
SESVs, which are chartered to global clients,
providing cost-effective and safe offshore
support solutions. With an average age of
only nine years, the majority of the vessels
will generate revenue for the next 25 years.
GMS currently supports oil, gas and renewable
energy clients in the MENA region and North
West Europe.
Expands capability
through innovation
GMS leads the field in technological
innovation, using skills and experience
to enhance vessels capability and to
expand the service offering. This helps
to broaden our markets and to maintain
a competitive edge.
Operational
excellence
GMS strives for excellence in all operations
and offers a broad range of services to clients,
allowing them to achieve greater operational
efficiency and significant time and cost
savings. GMS maintains the highest levels
of safety performance to protect clients,
employees and contractors, and minimise
impact on the environment.
Drives performance
through reportable metrics
GMS assesses productivity across the
Group by ensuring metrics are clear, aligned,
communicated and regularly reported. The
annual Short Term Incentive Plan corporate
scorecard was overhauled during 2019 to
better focus on performance and thereby
productivity for all employees. See page 66
for further details on the metrics and the
outcome of the 2019 assessment.
What we deliver
Shareholders
An emerging track record of delivery on
improved governance, contract awards,
cost management and improved
operational practices.
Customers
Safe, reliable and cost-effective services
that allow clients to maximise their
operations. The safety focus means that
GMS has outperformed industry peers.
People
An engaged workforce focusing on
performance in a positive and open
environment.
Suppliers
Long-term partnerships focusing on
maximising local content.
DAY IN THE LIFE AT GMS
18:00
Kamikaze
Operations of the Power
Generation System from the
Main Switchboard.
Annual Report 2019
15
Strategic Report SECTION 172 STATEMENT
The Directors have acted in a way that they considered, in good faith, to be most likely to promote the success of the Group
for the benefit of its members as a whole, and in doing so had regard, amongst other matters, to:
•
•
•
•
•
•
the likely consequences of any decision in the long term;
the interests of the Group’s employees;
the need to foster the Group’s business relationships with suppliers, customers and others;
the impact of the Group’s operations on the community and the environment;
the desirability of the Group maintaining a reputation for high standards of business conduct; and
the need to act fairly as between members of the Group.
During the year the Board have maintained an approach to decision-making that promotes the long-term success of the business
and is in line with the expectations of Section 172. The disclosures set out here demonstrate how GMS deals with the matters
set out in Section 172(1)(a) to (f). Cross-references to other sections of the report for more information are also included.
How we engage with
our stakeholders
Shareholders
Their
Objectives
Our Board’s Involvement
and Decisions Taken
GMS shareholders are mainly institutional investors
and private shareholders located across the world.
The Executive Chairman and/or Chief Financial
Officer met with major shareholders after the
Half-Year and Full-Year Results and at investor
meetings. The Executive Chairman has interacted
with shareholders on 63 occasions since starting
the position at the beginning of April 2019. The
number of trading updates in the year increased to
provide more transparency in the business through
a regular flow of information.
Investors are concerned with a
broad range of issues including,
but not limited to, financial and
operational performance,
strategic execution, management
of corporate risk, and capital
allocation (including bonus
payments for management
and dividends for investors).
The Directors of GMS receive a report on the Group’s
major shareholders from the registrar in line with the
Corporate Governance and results calendar.
The Executive Chairman and Senior Independent
Director also meet with institutional investors at
least annually to discuss governance, strategy
and remuneration or at the request of a particular
shareholder. During 2019 there was a General Meeting
requisitioned by a shareholder which was held
after 18 March 2019. Following the vote against the
Remuneration Report at the 2019 AGM, shareholder
consultations were undertaken and, as a result, the
Remuneration Policy was updated, (refer to pages
50 to 73 for details).
GMS’ current financial situation has resulted in
suspended dividend payments.
Clients
GMS works closely with customers to deliver an
industry-leading offering. Senior Management
engage regularly via face to face meetings to ensure
GMS fully understands operational performance;
client service and safety are the key drivers of
meetings. Through this engagement, GMS learns
about current activity levels of competitor vessels,
immediate and ongoing tender requirements and
future demand and changes to strategy and/or
technical or operational requirements. This informs
critical business decisions associated with fleet
deployment, prioritising future business development
activity and resource and local content investment
(HR, Procurement and Local Partnerships). It also
helps with overhead sizing and allocation and capital
expenditure planning, while meeting client needs.
Lenders
Clients are mainly concerned
with ensuring value for money
in the services received. They
also wish to ensure that services
meet their specifications and are
delivered efficiently and safely.
The Board is informed of all tender activity at each
Board meeting.
Currently capital allocation decisions are limited
to keeping vessels in class and equipment in good
condition and meeting specific client requirements.
In the longer term capital allocation will be reviewed
when resources are available. Total Group spend on
capex in 2019 was US$ 10.2 million. See pages 28
to 31 for more details.
2019 saw an extensive amount of dialogue between
the Executive Chairman and Chief Financial Officer,
our financial advisors and our legal counsel, as well
as with lenders and their advisors and legal counsel
as part of the capital structure negotiations.
As a result of this dialogue, a non-binding term sheet
restructuring the debt facilities was agreed, to the
benefit of both parties. We anticipate the associated
loan documentation to be complete by 30 June 2020.
Lenders are primarily concerned
with ensuring that the capital
value of their loans are protected,
and that interest is paid. For
highly leveraged businesses,
where risk to lenders increases,
they will take a close interest
in financial performance,
cost control and cash flow.
16
Gulf Marine Services PLC
The Board is briefed at every Board Meeting about
the status of the ongoing discussions with lenders by
management, and supported regularly by its Financial
Advisor and Legal Counsel.
How we engage with
our stakeholders
Suppliers
GMS’ supply chain is fundamental to the ability
to deliver reliable operations. The Group has
a strategy of long term partnerships with key
suppliers based on regular and transparent
communication with suppliers through site visits,
calls and surveys.
People
The quality of the workforce is vital to the success
of GMS. 2019 saw increased communication to
both on and offshore staff via town hall meetings,
regular updates and video communication from
the Executive Chairman to all offshore staff.
In December GMS launched the first employee
engagement survey. Refer to page 7 for more
details on our people and values.
Their
Objectives
Our Board’s Involvement
and Decisions Taken
In 2019 as part of the cost savings programme major
supply contracts were retendered or renegotiated
to improve efficiency and reduce costs. The Board
received regular updates on this during the year.
Suppliers are primarily focused
on fair and timely payment
terms as well a collaborative
approach and open terms
of business.
GMS works together to
maximise in country spending
which is a requirement from
NOC clients.
Employees are concerned with
job security, opportunities for
training, a culture of fairness,
inclusion and communication,
compensation and benefits.
During the year, as part of compliance with the 2018
UK Corporate Governance Code, GMS appointed
Dr Shona Grant as the designated Non-Executive
Director for employee engagement issues. Dr Grant
has visited the head office in Abu Dhabi several times
in 2019.
In December 2019, the Board approved the 2020
Annual Budget, which included the Short Term
Investment Plan targets. Further, the Board reviewed
the work of the Remuneration Committee, which gave
consideration to the fixed and variable incentives to
the Executive Directors, and other relevant plans for
Group-wide employee remuneration.
Environment
GMS is committed to responsible environmental
policies and the system is compliant with the
globally recognised ISO 14001 (Environment)
standard. The versatility of the vessels has allowed
GMS to build a strong reputation in the
Renewables sector.
Minimisation of pollution
and spills. Minimisation of
harmful emissions, particularly
greenhouse gases.
The Board receives HSSEQ updates at each
Board meeting.
Environment and climate change related risks are
discussed in the Audit and Risk Committee.
GMS strictly monitors and report greenhouse
gas emissions, which are disclosed on page 10.
GMS is committed to managing risk associated
with climate change and as such has taken the
decision to implement the Task Force on Climate-
related disclosures (TFCD) framework by 2022.
Communities
As a Group with significant financial difficulties
to grapple with, over the last twelve months, it is
important that GMS’s work in this space is carried
out pragmatically, given the level of financial
resources and the need for total focus across
the organisation to protecting the viability of the
business. Focus has therefore been primarily on
insuring GMS actively maximises local content
across the core countries, in which it operates.
In most of our core markets
in the Gulf, where the
diversification of economic
activity away from oil and
gas production is paramount,
the promotion of local
industries is seen as a prime
community objective.
The issue will be discussed at Board Meetings
as and when relevant to a material commitment
requiring Board Review.
Annual Report 2019
17
Strategic Report MARKET ANALYSIS
2019 saw increased activity levels among NOCs in the Middle East, which improved utilisation
for our S- and K-Class vessels. In North West Europe, where three of our E-Class vessels were
until the end of the year, softened market conditions for renewables work meant utilisation for
our E-Class decreased to 51%. Rates remained under pressure and were lower in 2019 across
all vessel classes.
S-Class
K-Class
During the year GMS prequalified with an
NOC on a manpower services contract,
which led to the first successful award in
early 2020, demonstrating the ability to
diversify our value proposition to meet client
needs. This contract is for the provision
of all trades and supervision required to
support an NOC with maintenance of
offshore platforms.
North West Europe
Market conditions in the North Sea have
been challenging. We therefore decided
to relocate two E-Class vessels from North
West Europe to MENA. One vessel remains
in the North Sea to meet future demand
anticipated as the next phase of wind farm
projects gather pace.
HSSEQ
HSSEQ continues to be a top priority.
In 2019 more than 2 million working hours
were accumulated across our operations
(2018: 4.1 million) with no spills or unintended
releases that cause damage to the
environment. In 2018 man-hours were
calculated using a 24-hour working day.
In 2019 the way man-hours are calculated
was changed to a 12-hour working day to
align with standard industry practice. Like for
like hours in 2019 would be 4.1 million hours.
Three employees were injured in separate
incidents over the same period (2018: Nil),
two Lost Time Injuries and one Medical
Treatment case with 18 man-days lost.
There were no serious near misses or
high potential incidents in 2019 or 2018.
Map legend
E-Class
Markets
MENA
There has been a significant shift to opex-
led activities as GMS has been securing
long-term contracts with National Oil
Companies, thus providing more stability
for revenues in the medium term.
MENA revenue in 2019 was 75% of
total revenue (2018: 66%). We secured
11 contracts with a combined charter
period of 13 years including options. During
the year, seven of the Group’s nine vessel
mobilisations were to new contracts in the
Middle East. In response to increased market
activity within the region, at the end of 2019
we decided to relocate two of our E-Class
vessels from the North West Europe
to MENA. At the same time, we have
strengthened our presence in Qatar,
creating an operational presence in
country to respond to market demands
and client requirements.
The increasing importance placed by MENA
NOCs on local content requirements as
part of their tender processes has become
increasingly pronounced. These requirements
are designed to give preference to suppliers
that commit to improving their local content
and levels of spend and investment
in-country. GMS fully embraces these
programmes and now with established offices
in each of the key locations in MENA that we
operate in, is well positioned for winning future
work, whilst at the same time looking at how
to continue to improve in-country content
and the likelihood of success when tendering
work for NOC clients in these countries.
Revenue by vessel class
Revenue by geographical location
Revenue by customer base
34%
29%
33%
14%
55%
33%
29%
33%
42%
33%
K-Class
S-Class
E-Class
44%
8%
34%
30%
12%
25%
UÆ
KSA
Qatar
North West Europe
25%
19%
23%
9%
11%
25%
NOC
EPC
IOC
OSW
2019
2018
2019
2018
2019
2018
18
Gulf Marine Services PLC
United Kingdom
Endurance
Evolution
Endeavour
Germany
Endurance
Qatar
Kikuyu
Enterprise
UAE
Kawawa
Keloa
Scirocco
Shamal
Pepper
KSA
Shamal
Sharqi
Enterprise
Kudeta
Annual Report 2019
19
Strategic Report RISK MANAGEMENT
The effective identification, management and mitigation of business risks and opportunities
is integral to the successful delivery of the Group’s strategic objectives. A risk management
system is in place to support the identification, analysis, evaluation, mitigation and ongoing
monitoring of risks as shown in the framework below.
Board of Directors
The Board has overall responsibility for the Group’s strategy and ensuring effective risk management.
Audit and Risk Committee
Responsibilities include reviewing the Group’s internal control and risk management systems
as well as monitoring the effectiveness of the Group’s internal audit function.
Senior Management
The Senior Management team implements the risk management process from risk identification
to management and mitigation.
Internal Audit
There are clear
reporting lines
from the internal
audit function
to the Audit and
Risk Committee
and the Senior
Management team.
The framework encompasses the policies,
culture, organisation, behaviours, processes,
systems and other aspects of the Group that,
taken together, facilitate its effective and
efficient operation. Business risks across the
Group are addressed in a systematic way
through the framework, which has clear lines
of reporting to deal with the management of
risks, and improvement of internal controls
where appropriate.
The Board has overall responsibility for ensuring
that risks are effectively managed. The Audit
and Risk Committee has been delegated the
responsibility for reviewing the effectiveness
of the Group’s system of internal control and
procedures as a practical matter. There were no
significant weaknesses identified by the Board
as part of their review during the year. The
process begins with identifying risks through
quarterly reviews by individual departments.
This contains an assessment of the principal
risks facing the Group. Mitigating controls are
then identified.
The departmental reviews are then consolidated
by the Senior Management team to identify
an overall heatmap. Emerging risks are also
identified through these discussions and
included in reporting to the Audit and Risk
Committee, who review the risk profile at least
quarterly. The Board reviews the risk profile
formally on an annual basis (see page 44
for details of the Board’s actions as part of
their review).
COVID-19
The management of risk across the
organisation has clearly been significantly
impacted with the arrival of the COVID-19
pandemic across our major markets, and its
resultant impact on oil prices. While this is
a constantly changing environment, robust
controls have been put in place to mitigate
these risks. These are subject to weekly review
and update by Senior Management. The Board
and the Audit and Risk Committee are briefed
on these issues on a regular basis and are
given the opportunity to offer challenge and
steer on how these issues should be managed.
Our approach to managing these risks is
summarised in the detailed risk management
framework set out below.
20
Gulf Marine Services PLC
Residual Risk Heat Map
1 Liquidity and debt servicing
2
Inability to secure an appropriate
capital structure – Equity
3 Oil and Gas Market
4 Operations: inability to deliver safe
and reliable operations
5 Customer concentration
6 Legal, economic, and political conditions
of operating in the Middle East
7 People
8 Cyber crime – security and integrity
9 Compliance and regulation
10 Failure to meet customers’ requirements
11 COVID-19 pandemic
11
6
4
2
5
3
1
T
C
A
P
M
I
9
10
7
8
LIKELIHOOD
Principal risks and uncertainties
The rating of the principal risks facing the Group in the short to medium term are set out below, together with the mitigation measures.
These risks are not intended to be an exhaustive analysis of all risks.
Risk
Mitigating factors and actions
1 Liquidity and debt servicing
Due to the Group’s current level of debt, relative
to cash flow and EBITDA, it faces the risk that:
1. It might be unable to service capital and interest
obligations as they fall due.
2. It might fail to meet its covenant obligations
at the relevant testing dates.
Renegotiation of bank facilities
The Group has agreed a non-binding term sheet to amend and extend bank
facilities with its Lending Group. If the documentation is completed by 30 June 2020
as expected, this will reduce the severity of existing covenant tests, while extending
the tenor for the repayment of principal. It will also deliver access to adequate
working capital facilities and bonding.
This would precipitate an event of Default under the
Loan Agreements, which would, in turn, give lenders
the right to accelerate repayment of the outstanding
loans, and then exercise security over the Group’s
assets, should immediate payment not be made.
This would trigger an insolvency.
In that context, the business is highly exposed
to short-term liquidity management risks arising
from potential:
1. Increases in interest rates, which further
increase debt service obligations.
2. Unexpected increases in working capital
(particularly through inability to collect receivables).
3. Supplier disruption due to high level of
supplier overdues.
If access to bonding facilities is restricted, precipitated
by the current funding difficulties, then our cash flows
will be impacted, either through the requirement to cash
collateralise bonds or turn away business.
Liquidity management
The Group has significantly reduced overdue receivables and continues to manage
liquidity carefully through focusing on receivables collections and managing the timing
of supplier payments. Short term cash flow, through to the finalisation of the loan deal,
is tight.
The need to complete binding loan documentation in respect of the Group’s
restructured banking facilities and the Group’s tight short-term liquidity position
indicate 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 in this regard, there is good
reason to believe that final loan documentation will be completed in a timely fashion;
and that the Group’s working capital and liquidity position can be managed effectively.
Refer to Note 3 of the consolidated financial statements.
Cost management
The Group has implemented a comprehensive cost reduction programme, removing
over US$ 13 million of annualised costs in order to generate higher EBITDA and
increased cash to service debt. Continual review of costs and search for further
efficiencies is ongoing.
Hedging strategies
The Group has taken out hedges to help mitigate the risk of volatility of interest
rates. See Note 10 of the consolidated financial statements for further details.
Annual Report 2019
21
Strategic Report RISK MANAGEMENT
continued
Risk
Mitigating factors and actions
2 Inability to secure an appropriate capital structure – equity
A continuing low share price driven by not having a
suitable long-term debt profile may prevent GMS from
raising sufficient levels of equity to get an acceptable
capital structure solution.
Renegotiation of the debt facilities (discussed above) will provide a platform
for rebuilding confidence in equity holders by giving the business time to deliver
its turnaround plan, without the risk of lenders precipitating an insolvency.
Beyond that, the delivery of lower operating costs and higher utilisation,
through improved efficiencies, safe and reliable operations and building strong
customer/stakeholder relationships, will be key to driving improved profitability
and cash flow, which is expected to deliver shareholder confidence and
a higher share price.
3 Oil and Gas Market
Despite the current drop in global oil demand arising
from COVID-19, the Middle East Oil and Gas market
is active, with new vessels entering the market from
Far Eastern shipyards offering attractive financing
structures in order to reduce high levels of inventory
of completed vessels. An increase in supply could
lead to lost opportunities to charter our vessels.
This in turn could reduce our ability to secure contracts.
MENA NOCs have introduced local content
requirements as part of their tender processes
designed to giving preference to suppliers that commit
to improving their local content and levels of spend
and investment in-country. This may prevent GMS
from winning contracts or lead to financial loss and/or
reduction in margins on existing contracts which
will ultimately impact cash flows and profitability.
The change in ownership/structures for North Sea oil
and gas businesses could lead to changes in client
requirements or demand for our services, which we
may not be able to meet and therefore our customer
base may reduce, and contracts may be lost.
Business segment and geographical diversity
The Group has established businesses outside its core Middle Eastern markets
(particularly in the North Sea), and outside of oil and gas (renewables).
Targeting
We target contracts that align with availability of vessel spec and that comply
with client requirements.
Market knowledge and operational expertise
The Group has a track record of established long-term relationships in the MENA
region and North West Europe, which provides an understanding of our clients’
requirements and operating standards.
Modification flexibility for clients
Our vessels are built to be as flexible as possible allowing us to compete for a wide share
of the market, helping us to maximise utilisation levels and charter day rates. The Group
is capable of modifying assets to satisfy client requirements and can do so in its own
yard where appropriate.
We embrace local content requirements with a long history of operating for NOCs in the
Middle East.
4 Operations: inability to deliver safe and reliable operations
The Group may suffer commercial and reputational
damage from an environmental or safety incident
involving our employees, visitors or contractors.
Inadequate preparation for emergency situations such
as pandemics, natural disasters, geopolitical instability,
could have a negative impact on our business.
Insufficient insurance coverage may lead to financial
loss. This is generally relevant but also specifically
in relation to the relocation of our vessels.
Safety awareness
Safety and reliability are top priorities and are underpinned by our HSEQ
management system and strong safety-focused culture. Management ensures
appropriate safety practices and procedures; disaster recovery plans and the
insurance coverage of all commercial contracts are in place.
Training and compliance
Our employees undergo continuous training on operational best practices.
Scheduled maintenance
The Group follows regular maintenance schedules on its vessels and the condition
of the vessels is consistently monitored.
Business continuity plan
The Group has in place a business continuity management plan which it
regularly maintains.
Insurance
The Group regularly liaise with insurance brokers to ensure sufficient coverage.
22
Gulf Marine Services PLC
Risk
Mitigating factors and actions
5 Customer concentration
The Group is reliant on a limited number of NOCs, IOCs
and international EPC clients. If one of our clients were
to move away from us to a competitor, this would lead
to changes in our contract profile and pipeline and
expose us to losses.
6 Legal, economic, and political conditions
Political instability in the regions in which we operate
(and recruit from) may adversely affect our operations.
Continuing uncertainty surrounding trade arrangements
following the UK’s exit from the European Union
(‘Brexit’) and potential legislative changes results
in increased uncertainty over future policy, and
regulation in the United Kingdom, which could
impact Group operations.
7 People
Attracting, retaining, recruiting and developing a skilled
workforce is key.
Losing skills or failing to attract new talent to our
business has the potential to undermine performance.
Inadequate succession planning and lack of
identification of critical roles may result in disruption
if the related personnel leave the Group.
Continuous communication with clients
The Group maintains strong relationship with its clients though continuous
communication and a history of providing safe and reliable services.
Business Segment and Geographical Diversity
The Group has established businesses outside its core Middle Eastern markets
(particularly in the North Sea), and outside of oil and gas (renewables). It is actively
looking to diversify its market footprint.
Emergency response planning and insurance
For all our major assets and areas of operation, the Group maintains emergency
preparedness plans. We regularly review the insurance coverage over the Group’s
assets to ensure adequate cover is in place.
Workforce planning and monitoring
Workforce planning and demographic analysis is completed in order to
increase diversity.
Brexit
We support the free movement of goods, services and people. Management
continue to monitor the status of the UK Government’s negotiations, changes
in legislation and future policies.
Communication
Communication aligns towards our common goals. Feedback from employees
is actively sought, using employee surveys. A Board member is explicitly tasked
with monitoring the level of engagement and alignment across the organisation.
Remuneration Policy
The Short Term Incentive Plan (STIP) has been restructured around a single
Business Scorecard to ensure all staff are incentivised around a single set of
common goals. In December 2019 we completed the first formal Employee Survey
and results are being evaluated and appropriate actions are being implemented.
Equal opportunities
GMS are engaged in fair and transparent recruitment practices. We have a
zero-tolerance policy towards discrimination and we provide equal opportunities
for all employees.
Resource planning
The Group is in the process of identifying critical roles and preparing plans to
ensure smooth transition in case of changes in personnel.
8 Cyber crime – security and integrity
Phishing attempts result in inappropriate transactions,
data leakage and financial loss. The Group is at risk of
loss through financial cybercrime.
Cybersecurity monitoring and defence
GMS operates multi-layer cybersecurity defences which are monitored for
effectiveness to ensure they remain up to date.
We engage with 3rd party specialists to provide security services.
Annual Report 2019
23
Strategic Report RISK MANAGEMENT
continued
Risk
Mitigating factors and actions
9 Compliance and regulation
Non-compliance with anti-bribery and corruption
regulations could damage stakeholder relations and
lead to reputational and financial loss.
Failure to appropriately identify and comply
with laws and regulations and other regulatory
statutes in new and existing markets could lead to
regulatory investigations.
10 Failure to meet customers’ requirements
There is a risk that the Group’s fleet capabilities
no longer match with changing client requirements.
Failure to deliver the specifications and expected
performance could lead to reputational damage
and impact our ability to win work.
Code of conduct
The Group has a Code of Conduct which includes anti-bribery and corruption
policies and all employees are required to comply with this Code when conducting
business on behalf of the Group. Employees are required to undergo in-house
training on anti-corruption. All suppliers are pre-notified of anti-bribery and corruption
policies and required to confirm compliance with these policies.
Regulations
A central database is maintained which documents all our policies and procedures
which comply with laws and regulations within the countries in which we operate.
On specialist topics, we make use of external advisors, where appropriate. In 2019
we appointed a dedicated Company Secretary to help monitor compliance,
in particular, with regard to UK legal and corporate governance obligations.
External Review
Our Internal Audit function helps ensure compliance with GMS policies,
procedures, internal controls and business processes. The Group’s vessels are
also audited by external bodies such as the American Bureau of Shipping (ABS).
Flexibility and innovation
We respond directly to client feedback, which allows us to bid on a wide range
of contracts.
Vessel monitoring
The Group has procedures in place such as the Planned Maintenance System to
ensure that the vessels undergo regular preventative maintenance. The Group’s robust
operating standards result in minimal downtime.
11 COVID-19 pandemic
There is a health and safety risk to staff, both
onshore and offshore, who come in contact with
confirmed cases.
There is the risk that offshore staff will be unable
to board or leave Group vessels, given restrictions
on movement placed by the countries in which
we operate.
There is the risk that onshore staff will be unable to
work as normal due to mandatory health and safety
restrictions, placed by Government, including
quarantine and travel restrictions.
Disruption might be caused to the supply chain,
caused by the impact of COVID-19 on our
suppliers’ operations.
The impact of COVID-19 and the resultant adverse
impact on oil prices, on our client’s financial position
might lead to loss of new business development
opportunities, the re-negotiation of existing contracts,
or failure of clients to pay.
Hygiene measures
We have implemented extensive hygiene control and prevention measures across
the fleet and for our onshore staff. Our clients have adopted similar measures, in many
cases in compliance with strict Government directives in force across the countries
in which we operate.
Offshore rotations
Crew change restrictions are in place to protect offshore staff from exposure
to infection.
Remote working
Onshore staff are working virtually from their homes, with only a skeleton workforce
in our main office.
Supply chain
We have reviewed our supply chain to ensure we can make alternative
arrangements, in the event of supply disruption. In most critical cases we have
UAE based alternatives.
Customer base
76% utilisation has already been secured on committed contracts in 2020. Demand
in the Middle East remains robust with core customers continuing with extensive
tender programmes. 12 of our 13 vessels are now based in the Middle East. Most
of our major customers are well capitalised National or International Oil Companies.
24
Gulf Marine Services PLC
Emerging risks
GMS operates an emerging risk framework as
a tool for horizon scanning with developments
reported to the Audit Committee on a routine
basis. Emerging risks are defined as a systemic
issue or business practice that has either not
previously been identified, has been identified
but dormant for an extended period of time
(five years); or has yet to rise to an area of
significant concern. There is typically a high
degree of uncertainty around the likelihood
of occurrence, severity and/or timescales.
Climate change is a wide-ranging and complex
topic that interconnects to a number of the
Group’s principal risks including customer
concentration, requirements and compliance
and regulation. While the immediate focus is on
the challenges facing GMS, the Group remains
cognisant of the wider context in which we
operate and, in particular, the impact of
climate change.
As an SESV operator in both the oil and gas
and renewables industries, we recognise the
extent to which it has risen up the agendas
of the general public, clients, investors and
employees. As outlined on page 10 GMS aims
to comply with all environmental laws and
regulations in the countries where we operate
and to introduce target emissions reductions in
the future. While the fleet is currently primarily
in the Middle East, our strong track record
with our renewables clients means we are well
positioned. The Board will continue to monitor
climate change as an emerging risk and
assess the appropriateness of its risk
mitigation strategies.
Viability Statement
In accordance with provisions of the 2018
revision of the UK Corporate Governance
Code, the Board has assessed the prospects
and the viability of the Group over a longer
period than the 12 months required to
determine the going concern basis of
preparation of the financial statements of a
business. The Board assessed the business
over a number of time horizons for different
reasons, including the following: Annual
Business Plan (2020), and Five-year Business
Plan. The assessment took into consideration
the potential impact that the Group’s principal
risks and uncertainties detailed above could
have on the business model, liquidity and
future performance within the review period.
The Directors have determined that a period
of three years from the balance sheet date is
appropriate for the purposes of conducting
this review. This period was selected with
reference to the current backlog and business
development pipeline, both of which offer
limited visibility beyond three years, particularly
in light of current macro-economic volatility.
A three-year period is also aligned with industry
peers. The Board reviews annually and on a
rolling basis the strategic plan for the business
which management progressively implements.
The Group has agreed a non-binding term
sheet with the bank syndicate to restructure
the existing debt facilities. GMS and the banks
are working to finalise full loan documentation
by 30 June 2020. To allow this process
time to conclude, the banks have granted
GMS relief under its existing bank facilities
in the form of (i) the rollover of certain loans,
(ii) the waiver of applicable financial covenant
tests and (iii) the deferral of the principal
payments due thereunder, in each case
from 31 March 2020 until 30 June 2020.
For the purposes of this viability assessment,
the Group believes that the loan documentation
will be finalised by 30 June 2020 and that
tight short-term liquidity can be managed
as drafting of the documentation with
lenders is already underway and is
progressing according to the planned
timetable. Accordingly the Directors have
assessed the business plan against the
new covenants.
The Group’s forecasts have been stress
tested against a number of severe but plausible
scenarios that could potentially impact the
Group’s ability to deliver its operations and
adhere to its banking covenants, including:
• a 14 percentage point reduction in
utilisation in 2021 and 2022;
• a 15% reduction in day rates across all
vessel classes; and
• a worst case scenario where adjusted
EBITDA is sufficiently reduced to
breach covenants.
In considering the impact of these stress test
scenarios, the Board has reviewed realistic
mitigating actions that could be taken to
reduce or minimise the impact or occurrence
of the underlying risks. These include cold
stacking our vessels and cost reductions, and
careful management of debtors and suppliers.
While the current unprecedented situation
regarding COVID-19 and its impact on oil price
remain uncertain, the Directors believe the
potential impact is considered in the scenarios
above. The Group has implemented a set of
measures to prevent any major impact of
COVID-19 and continues to monitor the
situation for our people and our clients/
suppliers. Brexit is not expected to have a
significant effect on the Group’s operations
as 12 of 13 vessels are in the MENA region.
For more information on Brexit impact, please
refer to the consolidated financial statements
on the page 121.
Whilst the principal risks all have the potential
to affect future performance, none of them
are considered likely either individually or
collectively to threaten the viability of the
business over the assessment period. Based
on the results of this detailed assessment, the
Directors have a reasonable expectation that
the Group will be able to continue in operation
and meet its liabilities as they fall due over the
next three years.
Annual Report 2019
25
Strategic Report KEY PERFORMANCE INDICATORS
We monitor Key Performance Indicators, or KPIs, to monitor
our performance against our strategic priorities. The KPIs
comprise financial and operational measures and each links
to the four pillars of our strategy.
KPI
Description
2019 Performance
Revenue and utilisation
2019
2018
2017
2016
2015
US$ 109m
69%
US$ 123m
69%
US$ 113m
58%
US$ 179m
69%
US$ 220m
90%
% – SESV utilisation Bars – Revenue
Revenue reflects the cash received or receivable
from clients, from operating activities during the
year. It is driven mainly by charter day rates and
utilisation levels.
The decrease in revenue is mainly
attributable to a reduction in average
charter day rates, and utilisation mix.
Utilisation is the percentage of days that vessels
within the fleet of SESVs are chartered on a day
rate out of total calendar days. It is the main revenue
driver that GMS controls.
Utilisation based on calendar days in
the year was stable at 69% (2018: 69%),
E-Class vessels fell to 51% (2018: 73%),
while S- and K-Class increased to 97%
(2018: 78%) and to 68% (2018: 65%)
respectively.
Adjusted EBITDA and
Adjusted EBITDA margin
2019
US$ 51m
47%
2018
US$ 58m
47%
2017
US$ 59m
52%
2016
2015
US$ 107m
60%
US$ 139m
63%
% – Adjusted EBITDA Margin Bars – Adjusted EBITDA
Adjusted EBITDA (Earnings before Interest,
Tax, Depreciation and Amortisation), excluding
adjusting items (restructuring costs and non-cash
impairments). It is a key measure of the underlying
profitability of GMS’s operations.
Adjusted EBITDA reduced by 11%,
driven by lower revenues driven, in turn,
by a combination of rates and utilisation
mix, offset by reduced costs.
Adjusted EBITDA margin demonstrates the Group’s
ability to convert revenue into profit.
Adjusted EBITDA margins were flat
at 47% reflecting lower revenues,
offset by the impact of cost savings.
Adjusted net loss/profit and
Adjusted DLPS/DEPS
2019
-20
US$ (20)m (DEPS US$ 0.24)
Adjusted net profit or loss measures the net
profitability of the business excluding adjusting
items (restructuring costs and non cash
impairments).
2018
2017
2016
2015
-5
US$ (5)m (DEPS US$ 0.02)
5
US$ 5m (DEPS US$ 0.01)
Net profit/loss for the year.
51
85
DEPS – Adjusted DEPS Bars – Adjusted net profit
Net debt to proforma EBITDA
2019
2018
2017
2016
2015
4.40
5.69
5.55
3.39
2.88
* The figures shown for 2016 are based on the historic
covenant levels of net debt to EBITDA and have not
been restated using the Proforma EBITDA method
(see definition in Glossary) now applicable.
26
Gulf Marine Services PLC
Net debt to proforma EBITDA is the ratio of net
debt at year end to earnings before interest, tax,
depreciation and amortisation, excluding adjusting
items (see Glossary for details), as reported under
the terms of our bank facility agreement.
Maintaining this covenant below levels set out
in the GMS’s lending facilities is necessary to avoid
an Event of Default.
Adjusted net loss rose, reflecting lower
revenues, offset by cost savings, and
their impact on adjusted EBITDA.
The increased net loss for the year
reflects lower adjusted EBITDA,
mentioned above, together with
a non-cash impairment charge of
US$ 59.1 million on two E-Class vessels
(and two small non-core assets), and
also a charge of US$ 6.3 million relating
to restructuring costs.
The net debt to proforma EBITDA ratio
increased in 2019 primarily on account
of a decrease in adjusted EBITDA
(described above), partially offset by
a decrease in net debt. The Group
was in technical breach of its covenants
at the 31 December 2019 testing date,
for which a waiver has been received.
Description
2019 Performance
Backlog shows the total order book of contracts
(comprising firm and option periods) at the relevant
date. This is a leading indicator of future revenue
and utilisation levels.
Backlog is broadly comparable
with 2019.
Employee retention shows the percentage of
staff who continued to be employees in the year.
The percentages shown do not take into account
retirements or redundancies.
The Group has maintained a relatively
constant level of staff retention despite
the significant amount of change
in 2019.
Average FTEs (Full Time Equivalent employees)
throughout the year which provides an indication
of the Group’s service capacity, scale of operations,
and manpower cost base.
Average FTEs over the year have
reduced due to redundancies as part
of the business restructuring. Total
Group headcount decreased from
536 at 31 December 2018 to 457
at 31 December 2019.
KPI
Backlog
2019
2018
US$ 240m
US$ 220m
2017
US$ 189m
2016
2015
US$ 258m
US$ 427m
The backlog figures shown above are as at 1 April for
the following year rather than 31 December of the year.
Average FTE retention
(Onshore and Offshore)
482
83%
494
84%
495
89%
565
89%
581
89%
2019
2018
2017
2016
2015
% – Staff Retention
Bars – Average FTEs
TRIR and LTIR
0.30
0.20
0.18
0.20
0.10
0.05
0.03
TRIR is the total recordable injury rate per
200,000 man hours, which provides a measure
of the frequency of recordable injuries.
0.29
0.19
LTIR is the lost 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.
The Group had three incidents
therefore the TRIR and LTIR rose to
0.29 and 0.19 respectively, from zero
in the previous two years. In absolute
terms it remains at a low level.
0
0.00
0.00
Offshore man hours are calculated based
on a 12-hour working period per day.
2015
2016
2017
2018
2019
= TRIR
= LTIR
G&A as percentage of revenue
2019
2018
2017
2016
2015
US$ 14m
13%
US$ 17m
14%
US$ 15m
14%
US$ 20m
11%
US$ 20m
9%
G&A excludes depreciation and amortisation.
% – G&A to revenue
Bars – G&A
The sales to G&A expense ratio compares revenue
to the amount of expenses incurred in onshore
support operations.
The ratio fell by 1% to 12% compared to
the previous year. Lower costs incurred
more than offset a 12% fall in revenues.
Annual Report 2019
27
Strategic Report
FINANCIAL REVIEW
Revenue
Gross (loss)/profit
Adjusted gross profit
Adjusted EBITDA1
Asset Impairment
Loss for the year
Adjusted net loss1
Net cash flow before debt service2
Introduction
Adjusted EBITDA, at US$ 51.4 million, was
lower by US$ 6.6 million (11%) compared
to the previous year. This was driven by lower
revenues driven, in turn, by a combination
of rates and utilisation mix, offset by reduced
costs. It does, however, represent a
significant improvement on forward guidance
offered at the time of the half year results
(US$ 45-48 million), due to further cost
reduction initiatives, executed in the second
half of the year.
Revenue reduced by 12%, mainly arising
from the E-Class (US$ 16.1 million decrease)
offset by an increase in revenue earned by the
K-Class (US$ 1.5 million increase). Although
average utilisation across the fleet remained
stable in 2019 at 69% there has been a
significant “mix effect” by vessel class.
Utilisation of E-Class vessels fell to 51%
compared to 73% in 2018. This reflects the
challenging market conditions faced in the oil
and gas sector in North West Europe as well
as the phasing of renewable energy projects.
Three of our four E-Class vessels were located
in North West Europe and, of those, two were
off hire for much of the latter part of 2019.
Against that, market demand in the Middle
East has been relatively stable. There has
therefore been an increase in utilisation across
S-Class vessels to 97% (2018: 75%) and
K-Class to 68% (2018: 64%), with five of the
vessels now mobilised for long term2 contracts.
Overall average day rates deteriorated in 2019
across each class of vessel. E-Class has
reduced by 11%, S-Class by 18% and K-Class
by 4%. In the Middle East, this results from
three legacy contracts which were secured
before the market downturn. In North West
Europe, there was only a modest fall (less
than 5%) reflecting the seasonal mix of work
obtained on one of our vessels. Market rates
themselves have been largely flat over the last
12-18 months.
2019
US$m
108.7
(25.0)
34.2
51.4
(59.1)
(85.5)
(20.0)
41.9
2018
US$m
123.3
47.0
47.0
58.0
–
(5.1)
(5.1)
5.9
In March 2019 the Group introduced a cost
saving programme as part of its repositioning
plan, with an original savings target of
US$ 6.0 million in annualised savings. The
programme has so far delivered annualised
savings of over US$ 13.0 million. Of this,
US$ 5.6 million has flowed into 2019
financial results: US$ 2.7 million into operating
expenses, US$ 0.5 million into capital
expenditures and US$ 2.4 million into
general and administrative expenses.
The remaining savings are expected to
flow through into 2020 EBITDA.
Operating costs decreased by 10% to
US$ 43.3 million (2018: US$ 48.0 million).
This has been driven by the implementation
of the cost saving programme, and, in
particular, the retendering or renegotiation
of supplier contracts, the closure of
redundant facilities and offices. General
and administrative expenses, excluding
depreciation and amortisation, decreased
by 18% to US$ 14.1 million (2018: US$
17.3 million). This has been through the
reduction in onshore headcount to 80 at the
end of the year, compared to 111 employees
in the previous year.
The loss for the year was US$ 85.5 million
(2018: US$ 5.1 million) with the increase
being primarily the non-cash impairment
charge of US$ 59.1 million, from two of our
E-Class vessels and two smaller charges
on non-core assets, the Naashi and S-Class
cantilever, the charge of US$ 6.3 million
relating to restructuring costs and the lower
EBITDA described above and depreciation
described below.
Total capital expenditure for 2019 reduced
to US$ 10.2 million (2018: US$ 23.2 million)
as the business focused on essential capital
expenditure only, whilst ensuring that all
vessels remained operationally effective
and met class requirements.
Total depreciation and amortisation
increased to US$ 35.0 million (2018: US$
29.5 million) primarily as a result of a full
year’s depreciation on Evolution which was
introduced to the fleet in 2018 and also a full
year of depreciation relating to modifications
on Endeavour.
Agreement has been reached in principle
with lenders to restructure the Group’s debt
facilities. Negotiations have commenced
on detailed loan documentation which
are expected to be completed by the end
of June 2020. Over that period, waivers
have been received for both covenant and
payment obligations under the existing
agreements. Once complete, the new
structure will re-establish access to
our working capital facilities to support
both short term cash flow and bonding
requirements. It will also establish a loan
repayment and financial covenant profile that
is better suited to the current environment.
As an incentive to raise equity, if by
31 December 2020 the Group has not
successfully concluded an equity capital
raise of at least US$ 75 million, the term
sheet provides for the issuance of warrants,
subject to vesting over a number of years,
which could result in the Banks owning
a minority interest in the outstanding shares
of GMS, as well as the incurrence of PIK
interest from 1 January 2021.
Should final loan documentation not be put
in place, Lenders would retain the right to
call default on the loans, as at 30 June 2020,
when the next set of amortisation payments
fall due. 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 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 business.
1 The Group presents adjusted results, in addition to the statutory results, as the Directors consider that they provide a useful indication 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 In 2019 the
adjusting items are a non-cash impairment charge on property, plant and equipment of US$ 59.1 million and restructuring costs of US$ 6.3 million. There were
no adjusting items in 2018. For details and further information on Alternative Performance Measures, refer to the Glossary.
2 Between three and five years.
28
Gulf Marine Services PLC
The following sections discuss the Group’s adjusted results as
the Directors consider that they provide a useful indicator of
the Group’s underlying performance. The adjusting items are
discussed below in this review and a reconciliation between
the adjusted and statutory results is contained in Note 31
of the consolidated financial statements.
The Group’s short-term liquidity position
is currently tight. This will continue to require
careful management until such time as the
Group’s banking facilities are restructured
(currently anticipated in the scenario
described above to be no later than
30 June 2020), and access is obtained to
new working capital and bonding facilities.
The need to complete binding loan
documentation in respect of the Group’s
restructured banking facilities and the
Group’s tight short-term liquidity position
indicate 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 in this regard,
there is good reason to believe that final
loan documentation will be completed in a
timely fashion; and that the Group’s working
capital and liquidity position can be managed
effectively. They have therefore adopted the
going concern basis of accounting in preparing
the consolidated financial statements.
The impact of COVID-19 and the low oil price
environment has been fully considered in
making this judgement. While circumstances
are continually evolving, the risks are mitigated
by the high level of committed contracts
underpinning current forecasts; preventive
measures taken by management to mitigate
operational risks; continued evidence of
demand in core Middle Eastern markets;
further cost cutting measures taken to improve
financial resilience in the current environment.
Revenue and segmental profit
The table on the right shows the contribution
to revenue and segment adjusted gross
profit or loss (being gross profit excluding
depreciation, amortisation and impairment)
made by each vessel class during the year.
There has been a significant drop in the
average utilisation of E-Class vessels. This
reflects market conditions in the North Sea.
The major reductions were attributable to
Evolution and Endurance, with the vessels
recording utilisation levels of 22% (2018:
93%) and 54% (2018: 92%) respectively.
Vessel Class
E-Class vessels
S-Class vessels
K-Class vessels
Other vessels
Total
* See Glossary.
Revenue
(US$’000)
Adjusted gross profit/(loss)*
(US$’000)
2019
35,984
35,422
37,313
2
2018
52,077
35,407
35,847
4
108,721
123,335
2019
2,737
17,462
14,449
(497)
34,151
2018
17,769
17,344
12,657
(752)
47,018
Enterprise, which is the only vessel located
in the MENA region, experienced an increase
in utilisation of 12%. Average E-Class day
rates reduced by 11%; in North West Europe
there was a 4% reduction reflecting the
seasonal mix of work obtained on one of
our vessels.
There has been a significant increase in
average S-Class utilisation at 97% (2018:
75%) with two of the three vessels now
on long-term charter. This has, however,
been offset by a reduction in rates, as legacy
contracts negotiated before the market
downturn expired during 2018 to be replaced
by contracts that reflect current market
conditions. Rates have been broadly flat
for the past 12-18 months.
Utilisation for K-Class vessels has marginally
increased from 64% in 2018 to 68%, and
rates have stayed relatively stable, thus
leading to marginal increases in both revenue
and gross profit, for these vessels.
During the year, the share of total Group
revenue derived from customers located
in the MENA region increased to 75% (2018:
66%) with National Oil Companies (NOCs)
being the principal client (over 50% of
total 2019 revenue generated from NOCs).
This trend is expected to continue, with the
relocation of two vessels from North West
Europe to MENA completing in early 2020.
There has been a switch in the revenue mix
within the MENA region with the UAE now
being responsible for 33% (2018: 14%) of
total revenue, slightly more than KSA (30%),
which was the biggest revenue contributor
in 2018 at 44%.
Revenue in North West Europe has declined,
and the region contributed 25% to total
revenue compared to 34% in 2018.
Cost of sales, general and
administrative expenses,
restructuring costs
Cost of sales excluding depreciation
and amortisation decreased by 10% to
US$ 43.3 million (2018: US$ 48.0 million).
The decrease of US$ 4.7 million is mainly
attributable to the cost savings programme
implemented during the year.
General & administrative costs are 18%
lower in the year at US$ 14.1 million (2018:
US$ 17.3 million) due to the implementation
of the cost savings programme, and
organisational simplification.
As at December 2019 the Group had
incurred US$ 6.3 million of restructuring
costs that were not directly related to our
principal business activities and therefore
have been excluded from Adjusted
EBITDA. They comprise redundancy costs,
professional and consultancy fees and
expenses relating to the closure of office
and port facilities.
Depreciation and amortisation included in
cost of sales increased to US$ 31.3 million
(2018: US$ 28.3 million) with 2019 including
the full year effect of Evolution which was
introduced into the fleet during 2018 and
additional depreciation on modifications
completed on Endeavour in 2018 for
a long-term contract.
Annual Report 2019
29
Strategic Report FINANCIAL REVIEW
EBITDA1 and Adjusted EBITDA
EBITDA and EBITDA margin for the year
were US$ 14.1 million and 12.9% respectively
(2018: EBITDA US$ 58.0 million/EBITDA
margin 47%).
Along with the reduction in revenue,
operating costs and general and
administrative expenses, there was
an impairment charge in 2019 of US$
59.1 million. The Group has recognised
an impairment charge of US$ 1.7 million on
the sale of Naashi (37 years old) to reduce
its estimated recoverable amount and
an amount of US$ 2.8 million on vessels
under construction.
In addition, as a result of prolonged
deteriorating market conditions in North
West Europe two E-Class vessels were
impaired by US$ 54.6 million in total. This
reflected the higher cost of these vessels
relative to the rest of the fleet. The remaining
vessels in the fleet have reasonable
impairment headroom.
Adjusted EBITDA was US$ 51.4 million (2018:
US$ 58.0 million) with the Adjusted EBITDA
margin remaining steady at 47% (2018: 47%).
Restructuring costs of US$ 6.3 million were
mainly due to changes in the organisational
structure during the period.
Finance costs and
foreign exchange
Finance costs increased slightly in 2019
to US$ 32.1 million (2018: US$ 31.3 million).
Total debt was slightly lower, reflecting
amortisation of term debt, but was more
than offset by slightly higher interest rates.
During the period there was a net foreign
exchange loss of US$ 1.2 million (2018:
US$ 0.3 million gain). The loss mainly arises
from the movement in exchanges rates of
the Pound Sterling and Euro against the
US Dollar, with both experiencing declines
in 2019 due to Brexit.
Taxation
Net tax charge for the year was US$ 3.7
million (2018: US$ 2.7 million). This reflects
a US$ 1.8 million deferred tax charge with
the Group no longer recognising a deferred
tax asset due to insufficient future taxable
profits expected to be generated in the UK.
An unrecognised deferred tax asset of
US$ 2.4 million based on cumulative losses
of US$ 12.3 million is disclosed in the
consolidated financial statements.
Earnings
The net loss for the year was higher than
2018 at US$ 85.5 million (2018: US$ 5.1 million)
mainly reflecting lower EBITDA, an increased
depreciation charge (including a US$ 59.1
million impairment) and an adjustment for
restructuring costs of US$ 6.3 million. After
adjusting for exceptional items (impairment
and restructuring costs) the Group incurred
an adjusted net loss of US$ 20.0 million
(2018: adjusted net lost US$ 5.1 million).
Capital expenditure
The Group’s capital expenditure during
the year was US$ 10.2 million (2018:
US$ 23.2 million). The reduction in spending
reflects a combination of disciplined capital
expenditure control, coupled with higher
than usual client driven capital expenditures
in the previous year.
Cash flow and liquidity
Despite lower EBITDA levels and significant
restructuring costs, during the year the
business has delivered increased operating
cash flows, which, at US$ 51.3 million in 2019,
are substantially higher than that generated
in the previous year (2018: US$ 28.9 million).
This has been driven by lower costs as well
as rigorous working capital management.
Renewed focus during the second half
of 2019 on cash collections and effective
management of supplier payments has
resulted in a working capital inflow of US$
11.2 million in 2019 (compared to an outflow
of US$ 24.7 million in the previous year).
The net cash outflow from investing activities
decreased in 2019 to US$ 9.4 million (2018:
net outflow of US$ 23.0 million), primarily
as a result of lower capital expenditure. This
has driven a significant increase in net cash
flow available to service debt2 which at US$
41.9 million is significantly higher than in the
previous year (2018: US$ 5.9 million). This
has enabled the business to service term
debt and amortisation, with only minimal
draw on its working capital facilities.
Liquidity remains tight, reflecting the decline
in run rate Adjusted EBITDA in the second
half of 2019, the incremental costs of vessel
relocation, and legal/advisory costs of
negotiating the debt restructuring. As
underlying run rate EBITDA builds over
the next six months, liquidity is expected
to improve. To navigate the short-term
challenges, the following measures and
mitigants are in place:
• Cash forecasts are reviewed on a weekly
basis, at both an operational level and
at Senior Management meetings.
• Liquidity is formally reviewed on a routine
basis as a standing item by the Board.
• Over the last nine months, management
have been successful in optimising terms
with trade debtors and creditors using
the strength of its business relationships.
• The Group has a high level of committed
contracts for its vessels that underpins
Management current revenue forecasts
for the next twelve months. These
contracts provide the Group with relatively
high EBITDA margins from a core base
of customers that typically have a strong
credit profile and a reliable payment
track record.
• The Group has been successful in
implementing a package of cost
reductions measures in recent months
that will reduce the Group’s cost basis
over the foreseeable future.
• Liquidity over the next twelve months has
been rigorously tested against a range of
hypothetical downside scenarios, mainly
driven by the potential market risks to
rates and the delivery of additional
business. Future cash flows and liquidity
were found to be robust against the
crystallisation of a series of risks that
Management believe to be remote, when
aggregated together.
GMS believes that the material uncertainty
in respect of going concern that is described
further below can be managed effectively
and accordingly the going concern basis
has been adopted in the consolidated
financial statements.
Balance sheet
Total current assets at 31 December
2019 were US$ 47.9 million (2018: US$
52.5 million). Cash and cash equivalents
decreased to US$ 8.4 million (2018: US$
11.0 million), reflecting the timing of working
capital payments and the lower draw down
on the working capital facility drawdown
compared to 2018 and careful capital spend
management. Trade and other receivables
decreased from US$ 40.9 million in 2018 to
US$ 39.2 million as at 31 December 2019.
Trade receivables are mainly with NOC, IOC
and international EPC companies, with over
96% of debt being aged between 0-60 days.
Total current liabilities increased to US$
438.3 million at 31 December 2019 (2018:
US$ 436.6 million), primarily as a result of
the amortisation of term loan debt, which
has more than offset fluctuations in trade
creditors and a US$ 5.0 million draw on
our working capital facility. Term loan debt
is currently included in current liabilities,
split between payments due within one year
and greater than one year while the Group
is in breach of its loan covenants. It will be
reclassified as a non-current liability, once
formal loan documentation with lenders
is executed.
1 EBITDA: Earnings Before Interest Tax Depreciation and Amortisation.
2 Defined as net cash flow from operating activities less cash used in investing activities.
30
Gulf Marine Services PLC
Total non-current assets at 31 December
2019 were US$ 722.3 million (2018: US$
802.9 million). This decrease is primarily due
to the US$ 84.4 million decrease in the net
book value of property, plant and equipment
arising from depreciation which has more
than offset capital expenditure. In addition,
an impairment charge of US$ 59.1 million
has been recognised (see above).
Net bank debt and borrowings
Net borrowings were US$ 390.1 million as at
31 December 2019 (2018: US$ 400.5 million),
mainly reflecting the amortisation of term
loan debt, which has more than offset
reduced cash balances.
On 31 March 2020, the Group’s banking
syndicate granted GMS relief under its
existing bank facilities in the form of (i) the
rollover of certain loans, (ii) the waiver of
applicable financial covenant tests and (iii)
the deferral of the principal payments due
thereunder, in each case from 31 March
2020 until 30 June 2020. Until the Group
is able to successfully amend and extend
the terms of its banking facilities including
financial covenants, all bank debt continues
to be classified as a current liability.
Going Concern
The Group has been in negotiation, with
lenders, on a longer-term solution to its
capital structure for the last twelve months.
On 31 March 2020, it agreed a non-binding
term sheet for the restructuring of its existing
facilities. This seeks to address both
covenant levels and amortisation profile
going forward. It would also give the Group
access to working capital and bonding
facilities. Drafting of the detailed loan
documentation with lenders is already
underway, and the new facilities are
expected to be fully in place by the end of
June 2020. While the term sheet is not legally
binding it reflects the commitment of our
lenders to restructure the debt facilities
in a way that will support the business
as a Going Concern.
Should final loan documentation not be put
in place, the lenders would retain the right to
call default on the loans, as at 30 June 2020,
when the next set of amortisation payments
fall due. This would allow a majority of the
lenders, representing at least 66.67% of
total commitments, to exercise their rights
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 business.
The need to complete binding loan
documentation in respect of the Group’s
restructured banking facilities and the
Group’s tight short-term liquidity position
(described in the Cash Flow and Liquidity
section above) indicate 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 in this regard,
there is good reason to believe that final loan
documentation will be completed in a timely
fashion, and that the Group’s working capital
and liquidity position can be managed
effectively to ensure that the Group can
continue to continue to realise its assets and
discharge its liabilities in the normal course
of business. Please refer to Note 3 of the
consolidated financial statements for
further details.
COVID-19
The impact of COVID-19 and the low oil price
environment has been fully considered in
making this judgement. While circumstances
are continually evolving, the risks are
mitigated by the high level of committed
contracts underpinning current forecasts;
preventive measures taken by management
to mitigate operational risks; continued
evidence of demand in core Middle East
markets; further cost cutting measures
taken to improve financial resilience in the
current environment.
Non-binding proposal to
acquire the Company by Seafox
International Limited (“Seafox”)
As announced in the RNS released by the
Company on 30th April 2020, Seafox has
announced that it made a non-binding
proposal to the Board of GMS on 26 April
2020 regarding a possible cash offer for the
entire issued and to be issued share capital
of GMS by a wholly owned subsidiary of
Seafox, at a value of US$ 0.09 per GMS
ordinary share (the “Proposal”). The Board
has considered the existence of the Proposal
in its assessment of going concern and has
concluded that it does not alter the nature
of the material uncertainties or the Board’s
conclusion in respect of the Group
continuing to be a going concern that
have been disclosed further in Note 3.
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$ 1.0 million. These transactions were
at usual commercial terms.
Steve Kersley
Chief Financial Officer
30 April 2020
Annual Report 2019
31
Strategic Report CHAIRMAN’S INTRODUCTION
GMS has had a very active year improving the quality of
corporate governance, as well as its business more generally.
We have made good progress over the past year. Indeed, the
greater integration of the governance structures with the Group
more generally has been and will continue to be an important
part of achieving our aim of protecting and generating value
for our stakeholders.
Prior to the AGM in 2019, the actions necessary to bring the
Company into compliance with the 2018 updates to the UK Corporate
Governance Code (the ‘Code’) were yet to be undertaken. And yet,
other than that in relation to the Chairman and Chief Executive roles
temporarily being held by the same person (on which more later),
by the time we closed the year under the new Board, GMS was
compliant with all of the provisions of the Code. Importantly, the
underlying change in culture, approach to governance, and the way
that the Group is now managed has been fundamentally changed.
The significant governance developments during this period, include:
1. Following the developments of the Group over recent years,
the previous Senior Independent Director, Simon Batey, led the
search for a new Chairman with the assistance of Spencer Stuart,
a leading executive recruitment firm. This led to my appointment
as Chairman of the Board and Nomination Committee in April
2019. Whilst Simon and I had only a short opportunity to work
together before he stepped down from the Board at the AGM
in May 2019, I would like to thank him for his contribution
to the Company.
2. The Company’s AGM took place on 28 May 2019. At this meeting,
shareholders rejected the advisory vote on the Company’s
remuneration report by a vote of 85%. This was a clear public
indication that much work needed to be done in the area of
governance. Further comment on the 2019 AGM is given in the
Board report on page 41.
3. Following my appointment, both David Blewden and Mike Turner,
each experienced Directors of other companies, were appointed
to the GMS Board as Chairmen of our Audit and Risk and
Remuneration Committees respectively at the beginning of
June 2019. Mike Turner also took up the role of Senior
Independent Director.
7. In October, Shona Grant agreed to take on the role of Designated
Non-Executive Director for Workforce Engagement (“Workforce
Engagement Director”) under the Code. This was an area where
the Board believed much value could be added and Shona is able
to bring her extensive relevant experience to this role. Further
details of Shona’s work are set out on page 11.
8. Also in October, we reconstituted the memberships of the
standing Committees of the Board to bring them into full
compliance with the Code.
9. In November, and following on from the rejection of the prior
year’s remuneration report by shareholders, Mike Turner in
his roles both as Senior Independent Director and Chairman
of the Remuneration Committee personally made contact with
shareholders representing approximately 75% of the shares
in issue, and key proxy advisors. He also arranged for briefings
to the advisors of the Group’s banks. Mike updated these
stakeholders on governance matters generally and sought
support for the Company’s new Director’s Remuneration Policy.
Further details of this are given in the report of the Remuneration
Committee on pages 50 to 73.
10. In December, we commenced an evaluation of the newly
constituted Board, the results of which are set out on page 48.
This Corporate Governance Report, including the sections that
follow, sets out how the Group has applied the main principles of
governance contained in the Code. The Board considers that the
Group complied with the relevant Code provisions that applied
during the year except those provisions set out in the table on
page 40 until the dates shown in that table. We will come into
full compliance in due course with the one provision which remains
outstanding on the appointment of a new permanent Chief Executive.
4. The Board at the same time engaged the services of an
experienced UK based Company Secretary (such role previously
having been held by the former CFO in the UAE).
Tim Summers
Executive Chairman
30 April 2020
5. Also in June, Steve Kersley was appointed to the Board as
Chief Financial Officer. Although this position had not previously
been a Board appointment in GMS, the new Board considered
it essential to recruit the calibre of individual able to assist in the
assessment and turnaround of the GMS business.
6. In August, Duncan Anderson, the CEO, stepped down from the
Board, and I was appointed as Executive Chairman on an interim
basis. A search for a new permanent CEO is underway, with
timing as a practical matter likely to be linked to re-setting the
capital structure of the Group.
32
Gulf Marine Services PLC
Governance calendar for 2019
The overall calendar of meetings of the Board and its Committees for 2019 is shown below.
Governance calendar for 2019
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Board
Further
information
Page 34
Audit and Risk Committee
Page 42
Remuneration Committee
Page 50
Nomination Committee
Page 47
Annual General Meeting
Page 41
Principal meetings
Non-scheduled meetings
The attendance of the Directors at the meetings of the Board and its Committees during 2019 is shown below.
Meeting attendance by Directors in 2019
Director
Tim Summers1
Steve Kersley2
Mo Bississo3
David Blewden4
Dr Shona Grant
Mike Turner5
Simon Heale6
Duncan Anderson7
Simon Batey8
W. Richard Anderson9
Board meeting
(scheduled meetings)
Board meeting
(additional)
Audit and
Risk Committee
Remuneration
Committee
Nomination
Committee
10
11
12
14
12
13
Attended
Attended all or part of meeting as an invitee
Apologies or recused
1 Tim Summers was appointed as Independent Non-Executive Chairman with effect from 1 April 2019 and was appointed Interim Executive Chairman with effect from 21 August 2019.
2 Steve Kersley was appointed as Chief Financial Officer with effect from 9 June 2019.
3 Mo Bississo was appointed as a Non-Executive Director with effect from 1 March 2019.
4 David Blewden was appointed as an Independent Non-Executive Director with effect from 1 June 2019.
5 Mike Turner was appointed as Senior Independent Non-Executive Director with effect from 1 June 2019.
6 Simon Heale, who was previously Chairman, stepped down from the Board with effect from 26 March 2019.
7 Duncan Anderson who was previously Chief Executive Officer, resigned with effect from 20 August 2019.
8 Simon Batey did not stand for re-election at the Annual General Meeting held on 28 May 2019.
9 W. Richard Anderson, who was previously an Independent Non-Executive Director resigned with effect from 29 April 2019.
10 Mo Bississo was prevented from attending as this meeting was arranged on short notice at a time when he was not available although he participated in a discussion of the matters
of the meeting separately.
11 Duncan Anderson recused himself from this meeting as it related to matters in relation to him stepping down from the Board.
12 Mo Bississo was prevented from attending as this meeting was arranged on short notice at a time when he was not available although he participated in a discussion of the matters
of the meeting separately.
13 Simon Batey recused himself from this meeting.
14 Tim Summers recused himself from the meeting as he had a potential interest in the discussions that took place which resulted in his appointment as Interim Executive Chairman.
Annual Report 2019
33
Governance
BOARD OF DIRECTORS
Tim Summers
Executive Chairman
Steve Kersley
Chief Financial Officer
Mike Turner
Senior Independent
Non-Executive Director
Dr Shona Grant
Independent
David Blewden
Independent
Non-Executive Director
Non-Executive Director
Mo Bississo
Non-Executive Director
Appointed to the Board
1 April 2019 as Non-Executive Chairman and
appointed Executive Chairman 21 August 2019
Relevant skills and experience
Tim Summers has over thirty years’
experience in oil & gas, oilfield services and
the manufacturing and engineering sectors.
He has held a variety of Executive and Board
roles with BP, TNK-BP, Renova AG, and
Sulzer AG. He was Chairman of KCA-Deutag,
Chairman of Swiss listed engineering firm
Oerlikon AG, and Chairman of the privately-
held oil & gas independent New Age Limited.
He brings relevant experience to GMS, having
successfully led businesses through phases
of operational transition and financial
restructuring, and is using his industry
knowledge and leadership skills to work
with the Board to implement the Company’s
repositioning plan. Tim has overseen
significant changes to the composition of the
GMS Board and Senior Management. Regular
engagement with stakeholders is a priority;
the insight he has gained from numerous
meetings with major shareholders since he
joined GMS has been invaluable.
Tim is a Chartered Engineer with a BSc (Hons)
in Chemical Engineering from the University
of Manchester. He is a Fellow of the Institute of
Chemical Engineers and the Institute of Mining,
Metallurgy and Minerals, and is a Member
of the Society of Petroleum Engineers.
External appointments
None
9 June 2019
1 June 2019
22 October 2018
June 2019
1 March 2019
Steve Kersley joined GMS in June 2019. He
brings energy sector experience gained in over
35 years in the industry. He was previously
Chief Financial Officer (CFO) of Tervita
Corporation, a Canadian oilfield services
business. Prior to that he spent three years as
CFO of Abu Dhabi National Energy Company
PJSC (TAQA). In both companies he led the
financial restructuring of highly indebted
businesses. Before these roles, Steve spent
24 years with Royal Dutch Shell, 10 as a Vice
President, working in Asia, Europe and the
Middle East. Steve’s sound knowledge of
corporate finance, capital restructuring and
strong industry experience, and, importantly,
his understanding of the energy sector and
banking in the Middle East, has equipped him
with the right skills to understand and address
the challenges facing the Company both
financially and operationally.
Steve is a Member of the Institute of Chartered
Accountants for England and Wales (ICAEW)
and has a BA (Hons) degree in Law from
Birmingham University.
Mike Turner is the former Chief Executive Officer
of the aerospace and defence company BAE
Systems, after having spent over 40 years at
the family of companies holding various roles
including, but not limited to; Chief Operating
Officer, Executive Chairman, and Managing
Director & Chairman of British Aerospace
Regional Aircraft. He is also former Chairman
of GKN and Babcock International. At GKN,
he also held the role of Senior Independent
Non-Executive Director. In addition, he has sat
on the boards of Barclays Bank PLC and Lazard
Limited. Mike’s strong track record in relevant
industries, and comprehensive listed company
experience, ensures he is a key contributor
as the Company’s Senior Independent
Non-Executive Director. His strong strategic
vision is invaluable as he works with the Board
to reinforce the Company’s governance and
operational efficiency during a time of major
transformational change within the business.
Mike joined Hawker Siddeley as an apprentice
in 1966 and spent his whole career within the
BAE Systems family. He has a BA (Hons) degree
from Manchester Metropolitan, and honorary
degrees from Manchester Metropolitan,
Cranfield and Loughborough Universities.
None
None
Shona is currently the Chairman of qWave
David is the CFO of Sunny Hill Energy Ltd,
Mo currently co-heads Kasamar Holdings,
AS and also a Non-Executive Director on the
a UK private E&P company
N
NA
R
NA
R
NA
R
N
Indicates Committee Chair A Member of the Audit and Risk Committee N Member of the Nomination Committee R Member of the Remuneration Committee
34
Gulf Marine Services PLC
Dr Shona Grant’s extensive career in
David Blewden is a Chartered Accountant
Mo spent over six years at Gulf Capital,
the oil and gas industry includes 21 years
who brings financial and operational
one of the leading investments firms, based
with BP, where she held key roles in
experience from senior financial roles at a
in Abu Dhabi, UAE. He managed a number
the areas of exploration, research and
number of E&P and listed companies. He was
of portfolio companies, including Gulf Marine
development and upstream operations.
the CFO of Sterling Resources Ltd, a TSX-V
Services. In this role for the Company, he held
Shona also held non-executive positions
listed Canadian E&P company, and has held
an observer board seat, helped lead a series
with CapeOmega AS & CapeOmega Holding
CFO positions at several start-up and private
of refinancings, and was involved in listing the
AS, and Norwegian Energy Company ASA.
E&P companies. He was the Head of
Company. His extensive knowledge of the
Shona’s broad commercial and operational
Corporate Finance at Yukos Oil Company,
UAE financial sector enhances the expertise
knowledge of the oil and gas sector and
and was Non-Executive Chairman of Intelligent
of the Board.
Mo has a BSc in Computer Science from the
University of California Irvine, and an MBA
from Duke University.
her strong non-executive board experience
Energy Holdings plc, a UK fuel cell company.
brings a high level of expertise to the GMS
He also brings significant in-depth industry
Board. Her comprehensive understanding
knowledge as he started his career as a
of the Company’s operations and markets
petroleum engineer at Shell and, following that,
enables her to contribute constructively
held various investment banking roles focusing
across all three Board committees.
on the oil and gas sector. Joining the Board
Shona holds a PhD in Geology from the
University of Leicester.
in June 2019, David brings a fresh perspective
to the Board and Audit and Risk Committee
which is invaluable during this time of change.
David has a BA and MA in Natural Sciences
from the University of Cambridge and is a
member of the ICAEW.
Boards of Bluware Corporation, Hydrawell,
and Canrig Drilling Technology (Norway). She
is also a co-owner and Non-Executive Director
at Wellwork Innovation AS and Khangela
Consulting AS.
NA
R
an Abu Dhabi based family office, that has
a shareholding in GMS through Castro
Investments Ltd, which he also co-heads.
He is a member of the Boards of a number
of privately owned companies in the UAE.
Appointed to the Board
1 April 2019 as Non-Executive Chairman and
9 June 2019
appointed Executive Chairman 21 August 2019
Relevant skills and experience
Tim Summers has over thirty years’
Steve Kersley joined GMS in June 2019. He
Mike Turner is the former Chief Executive Officer
experience in oil & gas, oilfield services and
brings energy sector experience gained in over
of the aerospace and defence company BAE
the manufacturing and engineering sectors.
35 years in the industry. He was previously
Systems, after having spent over 40 years at
He has held a variety of Executive and Board
Chief Financial Officer (CFO) of Tervita
the family of companies holding various roles
roles with BP, TNK-BP, Renova AG, and
Corporation, a Canadian oilfield services
including, but not limited to; Chief Operating
Sulzer AG. He was Chairman of KCA-Deutag,
business. Prior to that he spent three years as
Officer, Executive Chairman, and Managing
Chairman of Swiss listed engineering firm
CFO of Abu Dhabi National Energy Company
Director & Chairman of British Aerospace
Oerlikon AG, and Chairman of the privately-
PJSC (TAQA). In both companies he led the
Regional Aircraft. He is also former Chairman
held oil & gas independent New Age Limited.
financial restructuring of highly indebted
of GKN and Babcock International. At GKN,
He brings relevant experience to GMS, having
businesses. Before these roles, Steve spent
he also held the role of Senior Independent
successfully led businesses through phases
24 years with Royal Dutch Shell, 10 as a Vice
Non-Executive Director. In addition, he has sat
of operational transition and financial
President, working in Asia, Europe and the
on the boards of Barclays Bank PLC and Lazard
restructuring, and is using his industry
Middle East. Steve’s sound knowledge of
Limited. Mike’s strong track record in relevant
knowledge and leadership skills to work
corporate finance, capital restructuring and
industries, and comprehensive listed company
with the Board to implement the Company’s
strong industry experience, and, importantly,
experience, ensures he is a key contributor
repositioning plan. Tim has overseen
his understanding of the energy sector and
as the Company’s Senior Independent
significant changes to the composition of the
banking in the Middle East, has equipped him
Non-Executive Director. His strong strategic
GMS Board and Senior Management. Regular
with the right skills to understand and address
vision is invaluable as he works with the Board
engagement with stakeholders is a priority;
the challenges facing the Company both
to reinforce the Company’s governance and
the insight he has gained from numerous
financially and operationally.
meetings with major shareholders since he
joined GMS has been invaluable.
Steve is a Member of the Institute of Chartered
operational efficiency during a time of major
transformational change within the business.
Accountants for England and Wales (ICAEW)
Mike joined Hawker Siddeley as an apprentice
Tim is a Chartered Engineer with a BSc (Hons)
and has a BA (Hons) degree in Law from
in 1966 and spent his whole career within the
in Chemical Engineering from the University
Birmingham University.
BAE Systems family. He has a BA (Hons) degree
from Manchester Metropolitan, and honorary
degrees from Manchester Metropolitan,
Cranfield and Loughborough Universities.
of Manchester. He is a Fellow of the Institute of
Chemical Engineers and the Institute of Mining,
Metallurgy and Minerals, and is a Member
of the Society of Petroleum Engineers.
External appointments
None
None
None
Tim Summers
Executive Chairman
Steve Kersley
Chief Financial Officer
Mike Turner
Senior Independent
Non-Executive Director
Dr Shona Grant
Independent
Non-Executive Director
David Blewden
Independent
Non-Executive Director
Mo Bississo
Non-Executive Director
1 June 2019
22 October 2018
June 2019
1 March 2019
Dr Shona Grant’s extensive career in
the oil and gas industry includes 21 years
with BP, where she held key roles in
the areas of exploration, research and
development and upstream operations.
Shona also held non-executive positions
with CapeOmega AS & CapeOmega Holding
AS, and Norwegian Energy Company ASA.
Shona’s broad commercial and operational
knowledge of the oil and gas sector and
her strong non-executive board experience
brings a high level of expertise to the GMS
Board. Her comprehensive understanding
of the Company’s operations and markets
enables her to contribute constructively
across all three Board committees.
Shona holds a PhD in Geology from the
University of Leicester.
David Blewden is a Chartered Accountant
who brings financial and operational
experience from senior financial roles at a
number of E&P and listed companies. He was
the CFO of Sterling Resources Ltd, a TSX-V
listed Canadian E&P company, and has held
CFO positions at several start-up and private
E&P companies. He was the Head of
Corporate Finance at Yukos Oil Company,
and was Non-Executive Chairman of Intelligent
Energy Holdings plc, a UK fuel cell company.
He also brings significant in-depth industry
knowledge as he started his career as a
petroleum engineer at Shell and, following that,
held various investment banking roles focusing
on the oil and gas sector. Joining the Board
in June 2019, David brings a fresh perspective
to the Board and Audit and Risk Committee
which is invaluable during this time of change.
David has a BA and MA in Natural Sciences
from the University of Cambridge and is a
member of the ICAEW.
Mo spent over six years at Gulf Capital,
one of the leading investments firms, based
in Abu Dhabi, UAE. He managed a number
of portfolio companies, including Gulf Marine
Services. In this role for the Company, he held
an observer board seat, helped lead a series
of refinancings, and was involved in listing the
Company. His extensive knowledge of the
UAE financial sector enhances the expertise
of the Board.
Mo has a BSc in Computer Science from the
University of California Irvine, and an MBA
from Duke University.
Shona is currently the Chairman of qWave
AS and also a Non-Executive Director on the
Boards of Bluware Corporation, Hydrawell,
and Canrig Drilling Technology (Norway). She
is also a co-owner and Non-Executive Director
at Wellwork Innovation AS and Khangela
Consulting AS.
David is the CFO of Sunny Hill Energy Ltd,
a UK private E&P company
Mo currently co-heads Kasamar Holdings,
an Abu Dhabi based family office, that has
a shareholding in GMS through Castro
Investments Ltd, which he also co-heads.
He is a member of the Boards of a number
of privately owned companies in the UAE.
N
NA
R
NA
R
NA
R
NA
R
N
Annual Report 2019
35
Governance REPORT OF THE BOARD
Dear Shareholders,
The Board’s role is to promote the long-term success of the Company and to generate value for shareholders and other stakeholders on
a sustainable basis over the long-term. 2019 was a pivotal year for GMS, with profound change in leadership, and the Board underwent
significant change, with new members and refreshed governance. This has involved all Directors, both Executive and Non-Executive,
becoming more engaged with the business.
Board Calendar for Main Meetings in 2019
Review and discussion of:
• Health, safety and the environment
• Fleet performance and operational matters
• Discussions regarding the progress of negotiations with the Group’s
banks on resetting its capital structure and going concern.
• Competitive landscape and market
• Legal and corporate governance matters
•
Investor relations and feedback
• Finance and accounting matters
• Human Resources
• Risk management and key risks facing the Group
• Trading and forecast updates.
Review of reports from Board
Committees as relevant
January
March
May
August
September
October
December
Succession
planning.
Discussions
regarding
shareholder
relations.
Review and
approval of the
2018 annual
results and
Annual Report,
including impact
of Brexit.
Appointment of
new Chairman.
Review of the
membership
of the Board’s
Committees and
changes were
approved.
Appointment
of new Chief
Financial Officer.
Resignation of
Chief Executive
Officer.
Review and
approval of
half-year results.
Board
Committees
changes
approved.
Discussion of
budget and
longer-term plans
for the Group.
Appointment of
Interim Executive
Chairman.
Outline of key
areas in relation
to the 2020
business plan.
Review of
Enterprise Risk
Management
Appointment
of new Non-
Executive
Directors.
i
g
n
i
t
e
e
m
n
a
m
h
c
a
e
t
A
s
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t
e
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The role of the Board and its Committees is summarised in the table below.
Board of Directors
Responsible for the effective oversight of the Company and management of the Group.
Audit and Risk Committee
Remuneration Committee
Nomination Committee
Monitors the integrity of the Group’s
financial statements, financial and
regulatory compliance, and the systems
of internal control and risk management.
Reviews the effectiveness of the internal
and external audit processes.
See pages 42 to 46 for the Report
of the Audit and Risk Committee.
Determines the reward strategy for the
Executive Directors, Senior Management
and Chairman to attract and retain
appropriate individuals and to align their
interests with those of shareholders.
Considers and recommends
appointments to the Board taking into
account the appropriate skills, knowledge
and experience to operate effectively and
to determine the Group’s strategy.
See pages 50 to 73
for the Report of the
Remuneration Committee.
See pages 47 to 49 for the Report
of the Nomination Committee.
Executive Management
36
Gulf Marine Services PLC
Board membership
The Board has reviewed the composition, qualifications, experience and balance of skills of the current Directors to ensure there is the right
mix on the Board and its Committees, and that these are working effectively. The current members of the Board have a wide range of
appropriate skills and experience and their biographies can be found on pages 34 to 35.
Non-Executive Director independence
The Non-Executive Directors are a key source of expertise and contribute to the effectiveness of the Board. The Board considers and reviews
the independence of each Non-Executive Director at least annually. In carrying out the review, consideration is given to factors such as their
character, judgement, commitment and performance on the Board and relevant Committees and their ability to provide objective challenge
to management.
Following the annual review for 2019, the Board concluded that each of the Non-Executive Directors demonstrate those qualities. They are
all considered by the Board to be independent other than Mo Bississo due to him having been nominated to the role by one of our major
shareholders. They all provide significant value in their roles.
Division of responsibilities
The Chairman encourages a culture of openness and debate both within the Board’s proceedings and when engaging with management.
Part of this has been the provision of improved management reporting and briefings to the Board as a whole and this has been embraced
by management presenting directly to the Board when appropriate.
As a Board, we operate in a collegiate manner ensuring that each of the Directors is able to make an active contribution to the Board’s
decision-making. Whilst the roles of Chairman and Chief Executive Officer are currently held by one individual, we are satisfied that the robust
debate within the Board ensures that there remains a division between the responsibilities of the Board and those of management. This is
achieved through Non-Executive Directors devoting ample time to meet their Board responsibilities as well as providing constructive
challenge and strategic guidance to both encourage and hold management to account.
The Board is assisted by an experienced UK based Company Secretary ensuring that the appropriate policies, processes, information,
time and resources are provided for the Board to function efficiently and effectively.
How the Board operates
The roles of the Board and its Committees
The Board determines the strategic direction and governance structure that will help achieve the long-term success of the Company and maximise
shareholder value. The Board takes the lead in areas such as strategy, financial policy, annual budgeting, significant potential acquisitions, risk
management and the overall system of internal controls. The Board’s full responsibilities are set out in the matters reserved for the Board.
The Board is assisted in certain responsibilities by its Committees which carry out certain tasks on its behalf, so that it can operate efficiently and give
the right level of attention and consideration to relevant matters. The composition and role of each Committee is summarised on pages 34 to 35
and their full terms of reference are available on the Company’s website.
The Board processes
The Chairman along with the Company Secretary, has established processes designed to maximise Board performance. Key aspects of
these are shown below:
• The Chairman and the Company Secretary agree an overall calendar of subjects to be discussed by the Board during the year;
• Board meetings are scheduled to ensure adequate time for open discussion of each agenda item allowing for questions, scrutiny,
constructive challenge and full debates on key matters for decisions to be taken by consensus (any dissenting views are minuted accordingly);
• Main Board meetings generally take place at the Company’s headquarters in Abu Dhabi with the Board visible and accessible to
management and staff. During the COVID-19 outbreak, as a result of which travel restrictions are in place, the Board is continuing to meet
regularly and will continue to do so by means of telephone and/or video conference arrangements to ensure that it is able to discharge
its duties during this exceptional period;
• The development of Group strategy is led by the Chairman, with input, challenge, examination and ongoing testing and review by
the Non-Executive Directors;
• Good working relationships exist between Non-Executive Directors and Non-Board members of the Senior Management team;
• Members of the Senior Management team draw on the collective experience of the Board, including its Non-Executive Directors;
• Comprehensive reporting packs, which are designed to be clear, accurate and analytical, are normally distributed in advance of Board
meetings allowing sufficient time for their review, consideration and clarification or amplification of reports in advance of the meeting;
• Once goals have been set and actions agreed, the Board receives regular reports on their implementation;
• Comprehensive management accounts with commentary and analysis are distributed to the Board on a monthly basis;
• The Board reviews the Group’s risk register at each of its main meetings and challenges it where appropriate;
• The Board visits the Group’s major business locations both to review its operations and to meet with local management; and
• All Directors have open access to the Group’s key advisers, including management and the Company Secretary, and are also entitled
to seek independent professional advice at the Group’s expense where appropriate.
Annual Report 2019
37
Governance REPORT OF THE BOARD
continued
Director induction and training
The training needs of the Directors are reviewed as part of the annual evaluation of the Board. The Board and its Committees receive regular
briefings on matters of importance including corporate governance developments.
Arrangements are in place for any newly appointed Directors to undertake an induction designed to develop their knowledge and
understanding of the Company. The induction includes briefing sessions during regular Board meetings, visits to the Company’s head office
and vessels, modification and maintenance yard, meetings with members of the wider management team and discussions on relevant
business issues.
Re-election of Directors
Following recommendations from the Nomination Committee, the Board considers that all Directors continue to be effective, have
the required skills, knowledge and experience, are committed to their roles and have sufficient time available to perform their duties.
In accordance with the provisions of the Code, all Directors are being proposed for re-election at the Company’s 2020 Annual General
Meeting (“AGM”) as set out in the Notice of AGM being sent to shareholders.
Conflicts of interest
Directors have a statutory duty to avoid situations in which they have or may have interests that conflict with those of the Company, unless
that conflict is first authorised by the Directors. This includes potential conflicts that may arise when a Director takes up a position with
another company. The Company’s Articles of Association allow the other Directors to authorise such potential conflicts, and a procedure is in
place to deal with any actual or potential conflicts of interest. The Board deals with each actual or potential conflict of interest on its individual
merit and takes into consideration all the circumstances.
All potential conflicts approved by the Board are recorded in an Interests Register, which is reviewed by the Board at the beginning of each
main Board meeting to ensure that the procedure is operating at maximum effectiveness.
Board evaluation and effectiveness
Critical to the success of our Board and its Committees in achieving their aims is the effectiveness with which they operate. The Board
believes that these evaluations can provide a valuable opportunity to highlight recognised strengths and identify any areas for development.
2019 Board evaluation process
A summary of the evaluation undertaken by the Board is included in the Nomination Committee Report on page 48.
Engagement with shareholders and other stakeholders
The Chairman along with the Chief Financial Officer, is responsible for shareholder relations, ensuring that there is effective communication
with shareholders on matters such as performance, governance and strategy.
As part of our investor relations programme, a combination of presentations, Group calls and one-to-one meetings are arranged to discuss
the Company’s half year and full year results with current and prospective institutional shareholders and analysts. Additional meetings are
held in the intervening periods to keep existing and prospective investors updated on our latest performance.
In addition, during 2019 the Senior Independent Director was in contact with our largest shareholders representing approximately 75% of
our share capital and with three of the major proxy advisors in the UK, on remuneration matters.
The Company’s website provides stakeholders with comprehensive information on our business activities and financial developments,
including copies of our presentations to analysts and regulatory news announcements.
38
Gulf Marine Services PLC
Roles and responsibilities of Directors
Further details of the division of responsibilities are found in the table below.
Division of responsibilities
•
In compliance with the UK Corporate Governance Code, a clear written division of responsibilities between the roles of Chairman
and Chief Executive Officer has been agreed by the Board. Currently, these roles are held by the same individual.
• The Chairman is responsible for the leadership and effectiveness of the Board, chairing Board meetings, ensuring that agendas
are appropriate and is responsible for ensuring that all Directors actively contribute to the determination of the Group’s strategy.
• The Chairman is currently also responsible for the day-to-day management of the Group and implementing the Group’s strategy,
developing proposals for Board approval and ensuring that a regular dialogue with shareholders is maintained.
• The separation of authority between the Board and management is ensured by key decisions being referred to the Board and
Non-Executive Directors taking an active role in decision making between as well as at main Board meetings.
• The Senior Independent Director acts as a sounding board and confidante to the Chairman and is available to shareholders.
• The Non-Executive Directors are primarily responsible for constructively challenging all recommendations presented to the Board,
where appropriate, based on their broad experience and individual expertise.
Summary of individual responsibilities
*Chairman
*Chief Executive Officer
• Providing strategic insight from wide-ranging business experience
and contacts built up over many years.
• Ensuring that the Board plays a full and constructive role in the
determination and development of the Group’s strategy.
• Meeting major shareholders as an alternate point of contact from the
Chief Executive Officer.
• Bringing matters of particular significance or risk
to the Chairman for discussion and consideration
if appropriate.
• Representing the Group to its shareholders and
other stakeholders such as its clients and
suppliers, and the general industry.
• Providing a sounding Board for the Chief Executive Officer and other
• Leading the business and the rest of the
Senior Management on key business decisions, challenging proposals
where appropriate.
management team and ensuring effective
implementation of the Board’s decisions.
• Agreeing with executive Directors subjects for particular consideration
• Driving the successful and efficient achievement
by the Board during the year at Board meetings, ensuring that adequate
time is available to discuss all agenda items.
of the Group’s KPIs and objectives.
• Leading the development of the Group’s strategy
• Leading the Board in an ethical manner and promoting effective relations
with input from the rest of the Board.
between the Non-Executive Directors and Senior Management.
• Building a well-balanced Board, considering Board composition and
Board succession planning.
• Overseeing the annual Board evaluation process and acting on
its results.
• Meeting with the Non-Executive Directors without the Executive
management team present, at least annually.
• Working with the Chairman in agreeing subjects
for particular consideration by the Board during
the year.
• Providing strong and coherent leadership of the
Company and effectively communicating the
Company’s culture, values and behaviours
internally and externally.
* Currently the roles of Chairman and Chief Executive Officer are held by the same individual until such time as a new permanent Chief Executive Officer has been
appointed. During this period, to ensure a delineation between the Board and Executive management can be maintained in the context of the Chairman’s dual role,
the Non-Executive Directors are holding private sessions led by the Senior Independent Director in the absence of the Chairman and Chief Financial Officer on the day
of each main Board meeting. These sessions allow the Non-Executive Directors to discuss any matters they think may require further consideration outside the normal
forum of the Board. Any such matters can then be discussed with and addressed by the Board as a whole. This process is working well in confirming that no significant
issues are arising in the operation of the Board.
Senior Independent Director
Company Secretary
• Acting as a sounding board for the Chairman.
• Available to shareholders (and contactable via the Company
Secretary) if they have concerns on matters that cannot
be addressed through normal channels.
• Ensuring a balanced understanding of major shareholder
issues and concerns.
• Secretary to the Board and each of its Committees.
• Assisting in the administration of the Board and its
Committees to ensure that Board papers are clear,
accurate, timely, and of sufficient quality to enable the
Board to discharge its duties effectively.
• Providing advice to the Board and each of its Committees
• Meeting with the other Non-Executive Directors without the
regarding governance matters.
Chairman present, at least annually, in order to help appraise
the Chairman’s performance.
• Serving as an intermediary for the other Directors and the
Chairman if necessary.
Annual Report 2019
39
Governance REPORT OF THE BOARD
continued
Compliance with the 2018 UK Corporate Governance Code (“the Code”)
The table below shows the provisions of the Code with which the Group was not in compliance during 2019.
Code Provision
Period of non–compliance Reasons for non-compliance
5.
9.
11.
12.
17.
24.
32.
36.
A designated Director for engagement with the
workforce.
Until 7 October 2019
Transition period following substantial
Board changes.
The roles of Chair and Chief Executive should not be
exercised by the same individual.
From 21 August 2019
Pending recruitment of a new permanent
Chief Executive Officer.
At least half the Board, excluding the Chair, should be
Non-Executive Directors whom the Board considers
to be independent.
28 May 2019 – 1 June 2019
The Board should appoint one of the Independent
Non-Executive Directors to be the Senior Independent
Director.
28 May 2019 – 1 June 2019
Period between former Directors stepping
down at the 2019 Annual General Meeting
and new Directors taking up office.
Period between former Senior
Independent Director (SID) stepping down
at the 2019 Annual General Meeting and
new SID taking up office.
A majority of members of the Nomination Committee
should be Independent Non-Executive Directors.
28 May 2019 – 7 October 2019 Transition period following substantial
Board changes.
The Board should establish an Audit and Risk
Committee of Independent Non-Executive Directors,
with a minimum membership of three. Or in the case
of smaller companies, two.
The Board should establish a Remuneration
Committee of Independent Non-Executive Directors
with a minimum membership of three, or in the case
of smaller companies, two.
In normal circumstances, share awards should be
subject to a total vesting and holding period of five
years or more.
The Remuneration Committee should develop a
formal policy for post-employment shareholding
requirements encompassing both unvested and
vested shares.
28 May 2019 – 7 October 2019 Transition period following substantial
Board changes.
28 May 2019 – 7 October 2019 Transition period following substantial
Board changes.
Until 15 November 2019
Previous LTIP grant had not incorporated
these provisions.
Until 6 November 2019
This was developed following changes
to the Remuneration Committee
membership.
40
Gulf Marine Services PLC
Annual General Meeting (AGM) in 2020
Notice of the 2020 Annual General Meeting will be issued to shareholders and posted on the Company’s website.
Updates on General Meetings in 2019
In accordance with the Code, we provide a final summary on the votes of 20% or more cast against resolutions at the General Meetings
in 2019.
Requisitioned Meeting on 18 March 2019
Seafox and Ithmar Capital Partners Limited made proposals under Resolutions 3 and 4 for the appointment of new Directors. Although
unsuccessful, shareholders who voted in favour of these resolutions wanted to see a change at Board level following disappointing financial
performance. The Non-Executive Directors engaged with shareholders and following feedback four new appointments were made to the
Board as shown below:
• Tim Summers, Chairman (1 April 2019) and Interim Executive Chairman (21 August 2019)
• Mike Turner CBE, Senior Independent Non-Executive Director (1 June 2019)
• David Blewden, Independent Non-Executive Director (1 June 2019)
• Steve Kersley, Chief Financial Officer (9 June 2019)
In addition, the following Directors stepped down from the Board as shown below.
• Simon Heale, former Independent Non-Executive Chairman (26 March 2019)
• W. Richard Anderson, former Independent Non-Executive Director (29 April 2019)
• Simon Batey, former Senior Independent Non-Executive Director (28 May 2019)
• Duncan Anderson, former Chief Executive Officer (20 August 2019)
AGM on 28 May 2019
In relation to Resolution 2 (to approve the 2018 Directors Remuneration Report) the Board and Remuneration Committee have consulted
with the Company’s largest shareholders representing approximately 75% of our share capital as well as three of the major proxy advisers.
The feedback received was used by the Remuneration Committee in its development of Executive remuneration. Further information is given
in the Report of the Remuneration Committee on pages 50 to 73.
In relation to Resolution 4 (the re-election of Duncan Anderson as a Director) during the year the Company has been in the process
of a fundamental governance and management overhaul. This has taken account of feedback from investors.
In relation to Resolution 11 (to authorise the Directors to allot shares) and Resolution 12 (to authorise the Directors to allot shares on a
non-pre-emptive basis) shareholders approved these resolutions by a substantial majority with 79% of the Company’s shares voted were
in support of these resolutions. These are routine authorities common amongst listed companies and the Company intends to continue
to follow The Investment Association’s share capital management guidelines.
Tim Summers
Chairman
30 April 2020
Annual Report 2019
41
Governance REPORT OF THE AUDIT AND RISK COMMITTEE
Dear Shareholders,
This is my first report as Chair of the Audit and Risk Committee (“the Committee”) having taken over from Simon Batey, who departed
the Committee in May 2019 after not standing for re-election to the Board. I am pleased to set out in this report an update on the main
activities of the Committee in 2019 and up to the date of this report.
Membership
Echoing the change in the Board during the year, we have had several changes at the Committee level. As well as Simon Batey, Richard
Anderson also departed the Committee after not standing for re-election to the Board. Mo Bississo and I joined Dr Grant as members
from June, and in October Mo Bississo stood down and was replaced by Mike Turner. All of the Committee members are now Independent
Non-Executive Directors and each brings a wide knowledge and significant business experience. Our combined experience enables us to
fulfil our duties appropriately. More information about the experience of the Committee members in the biographies can be found on pages
34 to 35.
As part of my transition into the Board and Committee, I have spent time with management reviewing the significant areas of judgement and
internally reported information, reviewed previous Committee packs and minutes and have held discussions with the external auditor. I have
also visited the Head Office in Abu Dhabi on several occasions in 2019.
Meetings
The Committee has played an important governance role and supported the Board in fulfilling its oversight responsibilities relating to financial
reporting, internal control and risk management. The Committee met five times during 2019 with an agenda linked to events in the Company’s
financial calendar and other important events which fall under the remit of the Committee for consideration. The Committee regularly reports
to the Board on how it has discharged its responsibilities. The Company Secretary acts as Secretary to the Committee.
The Terms of Reference, which are available on the Company’s website, include all the matters required under the Code and are reviewed
annually by the Committee.
The Committee receives reports from external advisers and from the Senior Management team as required, to enable it to discharge its
duties and to be given a deeper level of insight on certain business matters. The Chief Financial Officer and senior members of the finance
team routinely attend meetings and the Chairman of the Board sometimes attends the meetings as an invitee. The internal and external
auditor attend and present at meetings when required. The external auditor receives copies of all relevant Committee papers (including
papers that were considered at meetings when they were not in attendance) and minutes of all Committee meetings.
Main activities
Over the course of 2019, the Committee’s work focused on the following areas: financial reporting, internal control and risk management,
internal audit and external audit. The following sections provide more detail on our specific items of focus under each of these headings,
explaining the work we, as a Committee, have undertaken and the results of that work.
A) Financial reporting
Our principal responsibilities in this area enable us to provide advice to the Board on whether the Annual Report and accounts, taken as
a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s position
and performance, business model and strategy.
Significant issues
The Committee pays specific attention to matters it considers important based on their potential impact on the Group’s results, or based
on the level of complexity, judgement or estimation involved in their application. The Committee considered the matters shown below as
significant issues in 2019 and up to the date of the report. These include certain issues that are, or have the potential to be, material to the
Group’s results for the year and closing balance sheet position. The Committee was satisfied that the judgements made by management
were reasonable and that appropriate disclosures have been included in the financial statements.
The ultimate responsibility for reviewing and approving the Annual Reports and the half-yearly reports, remains with the Board. The
Committee gives due consideration to laws and regulations, the provisions of the Code, and the requirements of the Listing Rules and
makes its recommendations on these reports to the Board.
42
Gulf Marine Services PLC
Recurring items
Area of focus and issue
Going concern
IAS 1 requires management to make an assessment
of an entity’s ability to continue as a going concern.
If management has significant concerns about
the entity’s ability to continue as a going concern,
the uncertainties must be disclosed.
Long term viability statement
In accordance with provision 31 of the UK Corporate
Governance Code, the Directors have assessed the
prospects of the Group over a three-year period to
December 2022.
How addressed and conclusion
The Group has been in negotiation with lenders on a longer-term solution to its
capital structure for the last twelve months. On 31 March 2020, a non-binding
term sheet was agreed with the lender syndicate to restructure the existing
debt facilities, including access to new working capital and bonding facilities,
underpinning liquidity. The term sheet also covers the restructuring of repayment
profiles, term, and covenant levels. All banks agreed to work to complete the
necessary loan documentation by 30 June 2020. Drafting of such documentation
with lenders is already underway, and based on progress to date, Management
currently expects to have the new facilities fully in place by the end of June 2020.
In addition the Group’s short-term liquidity position is currently tight. This will
continue to require careful management until such time as the Group’s banking
facilities are restructured.
The application of the going concern basis for the preparation of the consolidated
financial statements required careful judgement. Discussions were held with the
external auditor regarding the level of disclosures on the material uncertainty
arising from the need to complete binding loan documentation in respect of the
Group’s restructured banking facilities and the Group’s tight short-term liquidity
position. Notwithstanding this material uncertainty, the Directors believe that based
on the progress made to date in this regard, there is good reason to believe that
final loan documentation will be completed in a timely fashion; and that the Group’s
working capital and liquidity position can be managed. Accordingly, they have
adopted the going concern basis of accounting in preparing the consolidated
financial statements.
The impact of COVID-19 and the low oil price environment has been fully
considered in making this judgement. Refer to Note 3 of the consolidated financial
statements for the full disclosures.
The period under review is three years, consistent with previous assessments.
This period was selected with reference to the current backlog and business
development pipeline, both of which offer limited visibility beyond three years,
particularly in light of current macro-economic volatility. A three-year period is also
aligned with industry peers. The Group’s forecasts have been stress tested against
a number of severe but plausible scenarios that could potentially impact the Group’s
ability to deliver its operations and adhere to its banking covenants, including:
– a 14 percentage point reduction in utilisation in 2021 and 2022
– a 15% reduction in day rates across all vessel classes
– a worst case scenario where EBITDA is sufficiently reduced to breach covenants
While the current unprecedented situation regarding COVID-19 and its impact on
oil price remain uncertain, the Directors believe the potential impact is considered
in the scenarios above. This was also discussed with the external auditor and the
statement drafted accordingly.
Impairment of property, plant and equipment
The Committee evaluated management’s approach in determining the recoverable
IAS 36 requires that a review for impairment be carried
out if events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Expected utilisation levels, day rates, current backlog
and the Group’s weighted average cost of capital
may also impact the value in use of vessels.
value of the Group’s vessels.
The assumptions used in the computation of the value in use of the vessels were
assessed. Consideration was given to both the feasibility of the long-term business
plan and the appropriateness of the weighted average cost of capital which
formed an initial basis for determining the discount rate.
Discussions were held with the external auditor and the Committee evaluated the
audit testing procedures that had been conducted.
Impairment assessments are judgemental and
careful consideration of the assumptions used in
the determination of the value in use of the assets
is required.
The Committee was satisfied with management’s approach and agreed with
the conclusion to impair the Evolution and Endeavour vessels, the non-core
vessel Naashi and the S-class cantilever included in assets under construction.
Total impairment recognised is US$ 59.1 million.
Annual Report 2019
43
Governance REPORT OF THE AUDIT AND RISK COMMITTEE
continued
Current year items
Area of focus and issue
How addressed and conclusion
New accounting Standards
The main change to the consolidated financial statements was the adoption of
The introduction of new accounting standards has
required changes in accounting policy, treatment and
disclosures.
Refer to Note 2 of the consolidated financial statements
for more details.
Restructuring costs
Restructuring costs in 2019 are a new classification
within the consolidated statement of profit or loss and
are treated as an adjusting item to EBITDA.
Refer to Note 34 of the consolidated financial statements
for more details.
Drydocking
Following a review of the dry docking policy,
Management considered if a change in accounting
estimate requiring prospective application was required
to be made during the year ended 31 December 2019, to
better reflect the directly related drydocking expenditure.
Corporate Code compliance
The UK Corporate Governance Code (“the Code”)
updated in July 2018 to reflect the requirements of section
172 of the Companies Act effective for accounting periods
on or after 1 January 2019. The new Code has required
changes in practices and additional disclosures.
IFRS 16. The Committee first considered this during 2018 when detailed reporting
on the matter was provided by the Chief Financial Officer, covering both the impact
and disclosures. The Committee also considered the disclosures in the 2018
Annual Report. The conclusion, impact and disclosures were signed off by the
external auditor as part of their 2018 audit and 2019 interim review.
In 2019 management reassessed the list of leases and identified further
qualifying assets under IFRS 16. These were certain operating equipment and
communications hardware. Discussions were held with the external auditor
and the Committee evaluated the judgements documented by Management.
The Committee agrees with the assessment of the adoption of IFRS 16 and the
associated disclosures.
The Committee were provided with a paper from Management summarising the
nature of the restructuring costs and why they are considered to be non-routine.
The amounts were also audited by the external auditor.
The Committee supports the presentation of the amounts of US$ 6.3 million in the
consolidated financial statements.
The Committee was provided with a detailed paper from management covering
the current policy on drydocking alongside IAS 16 and treatment of drydocking
expenditure in comparative companies.
The matter was also raised by the external auditor in their review.
The Committee is satisfied that the change in accounting estimate relating
to drydocking is appropriate – with an additional US$ 2.8 million capitalised.
The Committee has monitored progress against identified changes to be
implemented (refer to the Introduction on pages 32 and 40 for further details).
The Committee is satisfied that the comply or explain requirements of the Code
have been met within this Annual Report.
Brexit
Continuing uncertainty surrounding negotiations
on the UK’s exit from the European Union (“Brexit”)
results in increased uncertainty over future policy,
and legislation in the United Kingdom, which could
impact Group operations.
The Committee received a summary paper from management considering the
potential impact on trade arrangements following Brexit.
The risks relating to Brexit are included in the overall risk register of the Group and
so have been considered as part of risk assessment procedures.
The Committee is satisfied that Brexit continues to be appropriately considered
by management.
B) Internal control and risk management
The Group’s systems of internal control and in particular our risk management process have been designed to support our strategic and
business objectives as well as our internal control over financial reporting. Any system of internal control is designed to manage rather than
eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material
misstatement or loss.
During the year, the Board carried out a robust assessment of the principal and emerging risks facing the Company (see pages 20 to 25).
The Committee assists the Board in fulfilling its responsibilities relating to the adequacy and effectiveness of the control environment and risk
identification and management through regular reviews of the risk heatmap and associated controls. Following the Committee’s review and
recommendation, the Board agreed that GMS’ system of internal control (including risk management) continues to be effective.
The Committee has also been delegated the responsibility for reviewing the effectiveness of the Company’s financial reporting process,
which is principally assessed in relation to the timely identification and resolution of areas of accounting judgement, the quality and timeliness
of papers analysing those judgements.
44
Gulf Marine Services PLC
C) Internal audit
KPMG performs an internal audit role. The development of the 2019 plan was based on an assessment of the Group’s risks, and approved
during the 2018 Committee cycle. During 2019 audits were carried out in the following areas: Saudi Arabia operations and the Group Finance
Procedure Manual. In addition, there were follow up audits on UK Operations and HR/Crewing. The Committee received reports on internal
controls which provide an update on progress against the internal audit plan, including the status of actions and management responses,
key improvement themes and recommended areas of business focus.
In addition to the internal audit function, the Group is regularly audited by certain clients and industry bodies, with any significant findings
reported to the Committee who assess these findings and ensure that appropriate action is taken by management as deemed necessary.
During the year there were no significant findings to report to the Committee.
D) External audit
Appointment and independence
The Committee considers formally the re-appointment of the external auditor each year, as well as assessing their independence on an
ongoing basis. Deloitte LLP (“Deloitte”) have been appointed as external auditor since 2014 and the audit has not been put out to tender
since that date. During the financial year, the Company has complied with the mandatory audit processes and the Committee has complied
with the provisions set out in the Competition and Markets Statutory Audit Services Order 2014.
In accordance with UK regulations and to help ensure independence, our external auditor adheres to a rotation policy based on the FRC’s
Ethical standard that requires the Group audit partner to rotate every five years. As discussed in the 2017 Annual Report, the previous lead
audit partner had completed his rotation cycle following the completion of the 2017 audit. Accordingly, the new Audit Partner Graham Hollis
was introduced and has taken over as the role since 2018.
Assessment of external audit process
The Committee has an established framework to assess the effectiveness of the external audit process. This includes but is not limited to:
• A review of the audit plan including the materiality level set by the external auditor and the process they have adopted to identify financial
statement risks.
• A review of the Audit Quality Inspection (AQI) Report on our external auditor published by the Financial Reporting Council with particular
emphasis on those key messages applicable to the Company.
• A review of the final audit report, noting key areas of auditor judgement and the reasoning behind the conclusions reached (summarised
in the Independent Auditor’s Report on pages 80 to 88.
• Regular communications through formal papers submitted and presentations by the external auditor to the Committee.
• Discussions within Committee meetings with senior members of the finance team without the external auditor present, at least annually,
in order to appraise the work of the external auditor.
• A review of the independence of the external auditor.
As part of the Committee’s assessment of the objectivity and independence of the external auditor, the Committee met privately with the
external auditor without management being present and received confirmation of their compliance with auditor independence requirements.
In addition, I met privately with the external audit Engagement Partner on several occasions.
The Committee has determined that Deloitte was effective in providing its services to the Group. A resolution to re-appoint Deloitte as the
Company’s Auditor will be put to shareholders at the forthcoming AGM.
Provision of non-audit services
To ensure the continued objectivity and independence of the external auditor are not compromised, the Committee requires specific approval
for the provision of any non-audit services above the value of US$ 50,000 and, in the unlikely event that the non-audit services have resulted
in a cumulative total of 70% or more of the overall Group audit fee in any financial year, then any further non-audit services carried out by the
external auditor would be regarded as exceptional and will require the Committee’s prior approval. The Committee receives quarterly reports
of any non-audit services undertaken. The Committee must be satisfied that the external auditor’s objectivity and independence would not
be compromised in any way as a result of being instructed to carry out those services.
Total 2019 audit fees were US$ 371,838 (2018: US$ 316,000). The total non-audit services provided by the Group’s external auditor
Deloitte for the year ended 31 December 2019 were US$ 320,000 (2018: US$ 103,000) which comprised 46% (2018: 25%) of total audit and
non-audit fees. The most significant non-audit fee was US$ 320,000 (2018: US$ 103,000) in relation to the interim review. The Committee
is satisfied that the quantum and nature of the non-audit services provided by Deloitte during the current year are such that the objectivity
and independence of the external auditor have been safe guarded. Further details of the remuneration paid to the Group’s external auditor
in respect of both audit and non-audit work is provided in Note 37 to the financial statements.
Annual Report 2019
45
Governance REPORT OF THE AUDIT AND RISK COMMITTEE
continued
Audit and Risk Committee effectiveness review
The effectiveness of the Audit and Risk Committee was reviewed as part of the Board evaluation commented on page 48.
Ethical conduct and compliance
Our Whistleblowing Policy encourages all employees to report any potential improprieties in relation to any aspect of the Group’s activities.
The Group operates a confidential, externally-managed whistleblowing hotline and all reports received are communicated to this Committee.
To date no cases have been reported. The Committee is satisfied that arrangements are in place for the proportionate and independent
investigation of possible improprieties and for appropriate follow-up action. Where appropriate, our internal audit team or other third party
specialist may be asked to investigate issues and report to us on the outcome. Code of Conduct training is included as part of the Company
induction process for all new employees who join the Group.
The Group has in place a comprehensive set of Anti-Corruption and Bribery policies and is satisfied that appropriate policies and training
are in place to ensure compliance with applicable law and to uphold the Group’s high standards of ethical business behaviour.
David Blewden
Audit and Risk Committee Chairman
30 April 2020
46
Gulf Marine Services PLC
REPORT OF THE NOMINATION COMMITTEE
Dear Shareholders,
I am pleased to present the report of the Nomination Committee, which details the work we have completed over the course of the year.
The Committee met four times during the year, following my appointment as Chairman. Prior to my appointment, the Committee’s then
members also met informally in connection with the recruitment process for the replacement of the former Chairman which involved
consideration of a number of candidates selected with the assistance of Spencer Stuart, a leading executive recruitment firm.
The primary role of the Committee is to promote effective succession planning for the Board and Senior Management and align
the Board composition with the Group’s culture, values and strategy. As part of this role we ensure the Board and its Committees
have the right balance of skills, experience, diversity, independence and knowledge to effectively discharge their duties.
Membership
The Nomination Committee comprises of three Independent Non-Executive Directors, Shona Grant, Mike Turner and David Blewden,
one non-independent Non-Executive Director, Mo Bississo and myself (Tim Summers) as Chairman of the Committee.
This composition is in compliance with the Corporate Governance Code which provides that Independent Non-Executive Directors should
comprise the majority of the Committee.
regularly reviewing the composition, structure and size of the Board and its Committees;
Key responsibilities
The Nomination Committee’s responsibilities include:
•
• evaluating the balance of skills, knowledge, experience, personal attributes and diversity on the Board of Directors;
•
•
reviewing succession planning for the Board and Senior Management; and
leading the process for Board appointments and making recommendations to the Board in respect of new appointments.
Board changes
During 2019, the Committee oversaw significant changes to the Board. This is in line with the Company’s fundamental governance and
management overhaul with the replacement of the Chairman, Chief Financial Officer and a number of Non-Executive Directors.
In 2019, Simon Heale (former Independent Non-Executive Chairman), Duncan Anderson (former Chief Executive Officer) and W. Richard
Anderson (former Independent Non-Executive Director) stepped down from the Board. In addition, Simon Batey did not stand for re-election
at the 2019 Annual General Meeting.
As noted in last year’s Annual Report, Dr Shona Grant was appointed Independent Non-Executive Director in October 2018 and we also
welcomed Mo Bississo to the Board as a Non-Executive Director in March 2019.
Following a formal and transparent recruitment process, I joined the Board in April 2019 as Chairman. In August, at the request of the
Board following the recommendation of the other members of the Nomination Committee, I agreed to take on the role of Interim Executive
Chairman. In June 2019, Steve Kersley joined the Board as Chief Financial Officer and David Blewden and Mike Turner commenced their
roles as Independent Non-Executive Directors. On his appointment, Mike Turner also took on the additional role of Senior Independent
Director. The recent appointments referred to above benefit the effectiveness of the Board greatly as each individual brings with them
a wealth of skills, knowledge and experience which together enable the Board to provide appropriate leadership to the Company.
Further details of the Directors are included in their biographies on pages 34 to 35.
In line with the recommendations of the Code, the recent appointments to the Board were undertaken with the assistance of Spencer Stuart,
a leading external recruitment firm. This firm has no other connection with the Company or any of the individual directors.
Annual Report 2019
47
Governance REPORT OF THE NOMINATION COMMITTEE
continued
Workforce engagement
During the year, the Committee discussed and considered the requirements of the new 2018 UK Corporate Governance Code in relation to
proposals for workforce engagement. After taking into account the size and structure of the Company, the Committee and the Board agreed
that the most effective way of ensuring engagement with the workforce would be to entrust responsibility for workforce engagement to an
Independent Non-Executive Director. Dr Shona Grant was appointed to this role in light of her extensive experience in this area during her
career. With input from Dr Grant, an employee survey was carried out and its results reported to the Board. In addition, Dr Grant has met
with onshore and offshore staff. Further comment on this area is included on page 11.
In 2019, an internally facilitated evaluation of the Board, its Committees, individual Directors and the Interim Executive Chairman was
conducted. The evaluation followed the process set out below:
Board and Committee evaluation
Questionnaire
Each of the Directors and the Company Secretary completed a questionnaire on a confidential basis. The questionnaire was structured
to provide Directors with an opportunity to express their views on a range of matters including:
• Strategy and risk;
• Succession planning and talent development;
• Board dynamics and operation;
•
• Effectiveness of the Board and each of its Committees;
• Director self-assessment and training needs; and
• Any other general observations.
Interim Non-Executive Chairman’s effectiveness;
Results
The results of the 2019 Board evaluation questionnaire were collectively discussed by the Board. As a result of the findings, the Board
have concluded that the performance of each of the Directors standing for re-election continues to be effective and that these Directors
demonstrate commitment to their roles, including commitment of time for Board and Committee meetings and any other duties.
The Board concluded that in the short term, it should continue to focus on the turnaround of the Group’s business and resolution of the
capital structure of the Company whilst planning for the future strategy and management of the Group in the longer term.
The performance of the Chairman was evaluated by the other Non-Executive Directors. The evaluation, led by the Senior Independent
Director, is carried out at least annually and also takes into account the views of the Senior Management team.
Chairman review
Re-election of Directors
The biographical details of Directors can be found on pages 34 to 35. All of the Company’s Directors will stand for re-election at the 2020
Annual General Meeting. The terms and conditions of appointment of the Directors, are available for inspection at the Company’s registered
office and at the venue of the Company’s Annual General Meeting during that meeting.
Diversity
The Company is committed to a culture that promotes diversity, including gender diversity, and to achieving a working environment
which provides equality of opportunity. The Board continues to be diverse in terms of nationalities, international experience and gender
of its members. The Board has a broad range of experience and expertise covering relevant technical, operational, financial, governance,
legal and commercial expertise as well as the valuable experience of operating in the energy industry on an international basis.
The Company aspires to diversify its Board further as part of its succession planning process. It has commenced further development
of this whilst continuing to ensure future recruitment continues to be of the best candidates for the role. The People and Values section
on pages 6 to 10 provides further information on the Group’s workforce.
48
Gulf Marine Services PLC
Succession planning
The Committee has reviewed succession planning for Senior Management across the Group to enable, encourage and facilitate the
development of individuals, including internal career progression opportunities as they arise. As a practical matter, given the size of
the Company, the Committee recognises that many senior posts are likely to be sourced from external hires.
I am currently acting as interim Executive Chairman of the Company. In order to achieve full compliance with the Code, the Nomination
Committee is actively considering the appointment of a permanent Chief Executive Officer at the appropriate time and has engaged the
services of Spencer Stuart to assist in this recruitment. The other members of the Nomination Committee and Board have requested
that I continue in the interim Executive Chairman position during the Company’s current period of transition following which a permanent
Chief Executive Officer is expected to be appointed.
In the longer term, consideration will be given to future Board appointments, whilst recognising that the current Directors have all been
appointed to the Board relatively recently.
Selection Process for key Board appointments
Select suitable recruitment consultants
External executive search consultants are chosen to assist.
Candidate specification
A specification for candidates is prepared identifying the desired key skills, qualifications and character profile being
sought taking into account the current membership and dynamics of the Board.
Consider potential candidates
A range of candidates meeting the specification is identified from a diverse range of backgrounds.
Interviews and selection
The Nomination Committee selects a shortlist of candidates for interview.
Recommendations and confirmation of appointment
The Nomination Committee considers and discusses the shortlisted candidates and recommends the preferred
candidates to the Board.
Candidates meet with other Directors on the Board as appropriate prior to Board approval
for the appointment to be made.
Tim Summers
Nomination Committee Chairman
30 April 2020
Annual Report 2019
49
Governance REPORT OF THE REMUNERATION COMMITTEE
Dear Shareholders,
As in many other aspects of governance, it has been a busy year for the members of the Remuneration Committee (the “Committee”).
In this report, we set out key areas of activity, along with the rationale for actions taken, as well as the results.
The specific circumstances of GMS during 2019 necessarily demanded particular approaches to remuneration. We sought to find the
right solutions for the challenges that the Company is facing, within the overall framework of good governance. This has not always been
straightforward, and I am grateful to the shareholders with whom we were in touch during the year, and indeed our creditors, for the
support they have shown as we developed our thinking during 2019 as set out in this report.
Firstly, though, I report on more recent developments in 2020 – our response to the economic effects of the COVID-19 pandemic in
terms of adjustments in remuneration. For clarity, other parts of this report are based on the remuneration arrangements in place at the
start of the year (without having taken account of these later adjustments).
(a) Response to COVID-19 Pandemic
As reported upon in the Strategic Report, the Group has taken action and has plans in place to manage the economic effects of the
COVID-19 pandemic on its business. These actions have included onshore staff moving to home working and reducing staff costs in line
with the reductions in activity required by the business. Our executive Directors have of course been part of this effort albeit their roles and
responsibilities remain unchanged. In line with other onshore staff, the salaries of executive Directors and Non-Executive Directors have been
reduced by 25% with effect from 16 April. In addition, Tim Summers has taken a further reduction of his salary (including non-executive fees)
of 15% so that his overall base salary is reduced by 40% in total. These reductions will remain in place until normal working is resumed.
Calculation of any STIP payable for 2020 performance will be based on the amounts of salary actually earned in the year (i.e. the
reduced amount).
In addition, payment of all STIP for 2019 has been deferred. These will only be paid when the financial position of the Company makes
it appropriate to do so, on the recommendation of the Remuneration Committee.
(b) Remuneration at last year’s Annual General Meeting
At the Company’s Annual General Meeting in May 2019, 85.5% of the votes cast on the Remuneration Report were against the resolution with
only 14.5% in favour. Whilst this vote predates my own appointment to the Board I, along with the rest of the new Committee (David Blewden
and Shona Grant), have carefully reviewed the input from shareholders and proxy advisors received.
The main reasons for the rejection of the 2018 Remuneration Report included:
• The 2018 bonus outcome of 50% of the maximum entitlement for the former Chief Executive Officer was not considered appropriate in the
context of the very significant decline in the Company’s performance; and
• Poor disclosure of the achievement of the strategic targets under the STIP framework which determined 40% of the overall award and paid
out at 75% of the maximum under that element.
The newly constituted Committee fully recognises the need for remuneration structures to clearly and demonstrably reflect Group performance
and be aligned with shareholders’ interests. Our review of the compensation and reward structures in GMS is guided by these principles.
In this context, we undertook a review of remuneration policy to address these and other matters.
(c) Updates to remuneration in 2019
As first steps in our remuneration review:
The Committee overhauled the Short Term Incentive Plan (“STIP”). This is now based around clear and challenging financial targets which,
for 2019, are set out on page 66. Ultimately, the STIP out-turn of the year was 51.59% of target, where target for challenging performance is
100% of base salary. In the context of his appointment, service and performance during the year, the Committee did not apply any discretion
(negative or positive) to the STIP outturn of the CFO. In the case of the former CEO, the Committee recommended to the Board a downward
revision, with the result that zero STIP was awarded. This downward revision, in line with current policy, was arrived at after careful
deliberation over the performance of the Group under his leadership.
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Gulf Marine Services PLC
(1) Salaries within the Senior Management team were kept unchanged, in line with a policy across the wider group, and with a significant
number of senior roles eliminated from the organisation in the second half of the year.
(2) LTIP awards were granted subject to the performance condition of Relative Total Shareholder Return compared against two groups:
(a) As to the first 50% of the total award, the FTSE 250 excluding financial services; and
(b) As to the second 50% of the total award, a group of comparator companies.
(3) In addition, and as detailed further in the proposed policy (and subject to shareholder approval), given the specific nature of the short-term
strategic imperatives of the Group, the CFO in 2019 (his year of appointment) is eligible for an additional special bonus (referred to as the
“Special Additional CFO Bonus”) based on the following targets:
(a) amend and extend refinancing agreement with the Group’s banks; and
(b) successful completion of a new capital structure for the Group;
each:
(i) accounting for up to 15% of base salary,
(ii) with the extent of achievement assessed by the Remuneration Committee (which will retain the ability to apply an overriding
general discretion) and measured over a period spanning up to 31 December 2020 as well as part of 2019 (given that achievement
of these targets is dependent on agreements with the Group’s banks which the Committee recognised could take some time),
(iii) with Committee discretion to satisfy some or all of any amount earned in deferred bonus shares (which the Committee currently
intends to do for at least half the award) subject to and after approval of a new Deferred Bonus plan by shareholders.
This Special Additional CFO Bonus is a separate, additional and one-off bonus opportunity distinct from the STIP. Additionally, the Executive
Chairman had a special bonus opportunity for 2019 as described further below.
(d) Consultation with shareholders
As part of the process of listening and responding to the views of shareholders and finalising the remuneration for the coming year, the
Committee consulted with the Company’s ten largest shareholders representing approximately 75% of the Company’s share capital together
with the three main proxy advisors. All shareholders who responded directly in the consultation were supportive of the proposals. Some
suggestions were received from the proxy advisors and, except in so far as impractical or inadvisable in the specific circumstances of the
Group to do so, these have been taken into account in the final proposals.
(e) Updates to the Directors’ Remuneration Policy this year
Due to the vote on the Remuneration Report at the 2019 Annual General Meeting, we are required to put the Directors’ Remuneration Policy
to a vote at the 2020 Annual General Meeting. Reflecting input from shareholders and good practice more generally, the following updates
are proposed to the Directors’ Remuneration Policy:
(1) Inclusion of discretion to override formulaic outcomes for incentive arrangements;
(2) Introduction of a mandatory two-year deferral into share awards of any annual STIP (for 2020 and subsequent years) in excess of 100%
of base salary (and such additional amounts as the Committee may determine), subject to approval of a new deferred STIP plan to be
proposed to shareholders at the forthcoming AGM;
(3) Extension of malus and clawback provisions to Long-Term Incentive Plan (“LTIP”) grants made in and to be made after November 2019
to include serious misconduct, reputational harm and corporate failure, in addition to any material misstatement of the Group’s financial
results or an error in the calculation of performance targets. Similar malus provisions will apply to Deferred Bonus awards;
(4) Reduction of the LTIP threshold vesting from 30% to 25%;
(5) Introduction of a two-year post-vesting holding period for LTIP awards granted in 2019 and going forward (vesting will continue
to take place only after completion of the three year performance period subject to the Rules of the LTIP);
(6) Increase in share ownership requirements for all Executive Directors to 200% of base salary to better align them with
shareholder experience;
(7) Introduction of a post cessation shareholding policy requiring Executive Directors ceasing in their role to retain their then shareholding,
up to their minimum in-service requirement in the first year and 50% of that in the second year (subject to the discretion of the Committee
to vary the level or length of these requirements if it considers that to be appropriate in the circumstances at the time); and
(8) The Special Additional CFO Bonus and the Executive Chairman Share Award discussed below.
Annual Report 2019
51
Governance REPORT OF THE REMUNERATION COMMITTEE
continued
We also consulted on maintaining the maximum STIP at 150% of base salary though increasing flexibility through the removal of the
distinction between “normal” (100%) and “exceptional” (150%). This would allow continuation of the structure that had been adopted by the
Company for 2019, which set maximum bonus opportunity at 120% of base salary (ignoring the Special Additional CFO Bonus). Whilst all
shareholders who responded directly in our consultation indicated support for the proposal, some proxy advisors questioned the increase
to 150%. We have therefore held the normal maximum to 120% of salary (for strong performance at the uppermost level) to allow the current
structure under which management operates to be maintained, while being clear the new Committee normally will not consider paying
more than this amount even for particularly exceptional performance. The Committee will only consider utilising the higher maximum STIP
potential up to 150% of base salary in exceptional circumstances. In line with the results of the consultation, we are also confirming that
targets (for a minority of the total of the potential STIP) can straddle more than one financial year where considered justified (as we are
proposing for the targets set for the Special Additional CFO Bonus).
The Committee does not intend to increase the remuneration of any Director until after the Group’s capital structure has been resolved.
This is consistent with the treatment of the workforce more generally. Both the Chairman and the CFO were appointed during 2019 and
their remuneration was set at levels appropriate taking account of the specific roles they were to undertake in the context of the particular
requirements of the Group, and market data for other comparable companies and roles.
(f) LTIP share awards
The Company’s LTIP currently restricts total dilutive share awards granted under the LTIP and any other executive share plans in a ten-year
period (excluding any that have lapsed) to 5% of the Company’s issued share capital. In the context of the current share price, averaged over
10 years, this would give the Committee capacity to grant annual share awards with a total face value of less than £120,000 based on the
share price at the date of this report. As we seek to drive the business forward, this is insufficient to motivate, incentivise and retain key
people in the Group.
We are accordingly proposing an increase in the ‘ten-year’ limit under the LTIP or 10% of the share capital. This would cover all share awards
to be satisfied by the issue of new shares within the Company over any ten-year period for any other executive share plan. This is in line
with the Investment Association’s overall guidance for share plans. Whilst this would mean that total share awards can exceed 5% in a
ten-year period, such awards under the LTIP are awarded not simply to executives, but widely across our land-based employees for whom
(due to their international location) typical all-employee plans are not best suited, and to whom the LTIP is the only share scheme available.
The Committee intends that this wide distribution of awards will continue in the future.
Proposals for amendment to the LTIP rules to effect this change will be brought to the forthcoming AGM.
(g) Executive Chairman
At the request of the Board, Tim Summers agreed to take on the role of Executive Chairman on the departure of the Chief Executive.
The rest of the Board and I are hugely grateful to Tim for doing so.
As well as his clear commitment to the Company, Tim has undertaken a considerable personal commitment as well. Previously having been
based in the United Kingdom, Tim has stepped down from his other main business commitment and now resides in the Middle East based
in Abu Dhabi and visiting customers, elsewhere in the region as well as in the United Arab Emirates. His approach is both highly strategic
and deliberately hands-on. This is driving the business forward in a way that I believe has never been done before. It is also saving substantial
costs through the elimination of unnecessary Senior Management positions and the restructuring of the business without the expense of
engagement of external management consultants which might otherwise be required.
Given the current circumstances of the Company and the difficulties in recruiting a suitable Chief Executive on a permanent basis until
matters are better set for the future, Tim’s appointment has continued into this year and is now expected to continue further into the year.
In this context, and in line with the input received from shareholders, the Committee determined the following remuneration structure at the
time of Tim’s appointment as Executive Chairman:
(1) Executive uplift base salary set at £300,000 per annum (pro rata for the period of appointment and in addition to the flat fee of £200,000
per annum as Non-Executive Chairman). Following that appointment, Tim has had to relocate to the UAE where labour law requires that
he be paid in AED. Accordingly such amounts were converted to AED 1,426,024 and AED 950,683 totalling AED 2,376,708 per annum
for the period of his appointment as Executive Chairman. The Executive uplift base salary is 6% lower than the salary of the former
Chief Executive for the permanent CEO role;
52
Gulf Marine Services PLC
(2) A special bonus opportunity (the “Executive Chairman Special Bonus”) of up to AED 681,323. This is 11% lower than the maximum annual
STIP potential of 150% of base salary for a CEO under the current Directors’ Remuneration Policy. Payment of this bonus, no part of which
was guaranteed, was to be based on targets for the following measures:
(a) Operating expense reduction (for 30% of the total potential);
(b) General and administrative expenses reduction (for 15% of the total potential);
(c) Generation of new business/contracts (for 40% of the total potential);
(d) Organisation change (for 7.5% of the total potential); and
(e) Cultural change (for 7.5% of the total potential);
in each case over the term of the interim assignment and subject to the discretion of the Committee to defer 50% or more of any amount
ultimately becoming payable into share awards (under a Deferred Bonus plan to be proposed to shareholders at the forthcoming AGM).
It was initially intended that the Executive Chairman Special bonus would reward performance spanning both 2019 and 2020. After we
entered 2020, it became clear that the role of Executive Chairman would continue for significantly longer than had been anticipated when
the Executive Chairman Special Bonus was put in place. Accordingly the Remuneration Committee determined that in 2020 the Executive
Chairman should instead participate in the STIP on the same terms as other Management team members subject to any payments under
this being based on his uplift only (not the part of his remuneration relating to his non-executive Chairman fees).
Accordingly, it became appropriate to end the Executive Chairman Special Bonus early and measure achievement of targets as at
31 December 2019. Details of both the targets and the outurns against these are shown on page 66. Rather than adjusting the financial
targets pro rata to 31 December (on which basis the targets would all have been achieved in full), the Committee considered it appropriate
instead to measure achievement against the original nine-month targets. This resulted in achievement below the maximum amount and
therefore only partial payout against them (which is currently deferred and which may be further deferred under the Deferred Bonus Plan
as set out earlier).
(3) A share award of 2,000,000 shares conditional on shareholder approval at the forthcoming AGM (the “Executive Chairman Share Award”).
At the date of this report this represents approximately £125,000, the face value of which at the current share price is materially below
the maximum LTIP grant for Executive Directors of 200% of salary (or 300% of salary in exceptional circumstances) under the Directors’
Remuneration Policy. The award would vest subject to the performance conditions referred to below:
(a) as to 60% of the total award, on successful completion of a new capital structure for the Group by 31 December 2020 or such other
date as the Remuneration Committee determines to be appropriate; and
(b) as to 40% of the total award, on successful onboarding of the new permanent Chief Executive Officer securing the future management
of the Group by 31 December 2020 or such other date as the Remuneration Committee determines to be appropriate;
in each case subject to the satisfaction of the Committee (which will retain the ability to apply an overriding general discretion) and subject
to the same malus and clawback provisions being introduced into the LTIP (as described above). The capital restructuring performance
condition is intended to be achieved by around the time the new CEO is onboarded to ensure independence is not compromised by ongoing
performance conditions for any significant period after Tim returns to the role of Non-Executive Chairman.
Although this Executive Chairman Share Award would vest on the achievement of performance conditions, any shares delivered (net of tax)
would normally be subject to a holding period totalling three years from the date of grant. Other conditions would be similar to those under
the LTIP.
As the Executive Chairman Share Award is a bespoke award, as well as this being accommodated within the proposed remuneration policy,
it is subject to a specific vote by shareholders at the forthcoming 2020 AGM.
Conclusion
I trust that shareholders will support the proposals at the AGM, given the ground-up review and significant changes made during 2019, and
the actions since taken in 2020 in response to the COVID-19 pandemic. I am available to discuss matters if any shareholder or proxy advisor
has any remaining questions and I am contactable through the Company Secretary.
Mike Turner
Remuneration Committee Chairman
30 April 2020
Annual Report 2019
53
Governance REPORT OF THE REMUNERATION COMMITTEE
continued
DIRECTORS’ REMUNERATION POLICY REPORT
This part of the report, which is not subject to audit, sets out the remuneration policy for the Company and has been prepared in accordance
with the provisions of the Companies Act 2006, the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008. The policy has been developed taking into account the principles of the UK Corporate Governance Code, the guidelines published
by institutional advisory bodies and the views of our major shareholders. Normally, the Company is only required to prepare and seek
shareholder approval for an updated Directors’ Remuneration Policy at least once every three years. It is, though, doing so this year
because of the rejection of the remuneration report at last year’s Annual General Meeting. The Directors’ Remuneration Policy will be
put to a shareholder vote at the Company’s Annual General Meeting and is detailed below.
Policy overview
The Committee assists the Board in its responsibilities in relation to remuneration, including making recommendations to the Board on the
Company’s policy on executive remuneration.
The Company’s policy is to provide remuneration to executives to reflect their contribution to the business, the performance of the Group,
the complexity and geography of the Group’s operations and the need to attract, retain and incentivise executives. The Committee seeks
to provide remuneration packages that are simple, transparent and aligned with best UK and local UAE market practice, whilst providing
an appropriate balance between fixed and variable pay that supports the delivery of the Group’s strategy.
In its development of the new policy, the Committee took account of the six factors set out in the UK Corporate Governance Code
summarised below:
• Clarity
– The proposed Policy seeks to be transparent to shareholders and clear for Directors.
• Simplicity
– The proposed Policy seeks to follow a standard easy to understand structure for ongoing remuneration with one-off variations only
where appropriate for the Group’s specific circumstances.
• Risk
– The proposed policy seeks to balance opportunity with risk in relation to the specific circumstances of the Group.
• Predictability
– The proposed policy seeks to quantify potential outcomes from achievement of both shorter and longer-term objectives as well as
quantifying fixed remuneration.
• Proportionality
– The proposed policy is structured to incentivise and reward targets to benefit the Group whilst fairly rewarding directors for working
towards those targets and retaining overriding discretion to override formulaic outturns where it considers appropriate.
• Alignment to culture
– The proposed policy is intended to be aligned with the culture being developed in the Group of empowerment to achieve Group
objectives coupled with reward for doing so within an environment of integrity.
The Committee was able to consider corporate performance on ESG issues when setting executive directors’ remuneration. The Committee
has ensured that the incentive structure for Senior Management does not raise ESG risks by inadvertently motivating irresponsible behaviour.
54
Gulf Marine Services PLC
The following table sets out the Directors’ Remuneration Policy.
Element of pay
Purpose and link
to strategy
Operation
Maximum
opportunity
Performance criteria
No changes are proposed to the current approved policy
Base salary
• To attract, and
retain talented
people with the
right range of
skills, expertise
and potential in
order to maintain
an agile and
diverse workforce
that can safely
deliver our
flexible offshore
support services
• Normally reviewed annually
by the Committee or, if
appropriate, in the event of
a change in an individual’s
position or responsibilities
• The level of base salary reflects
the experience and capabilities
of the individual as well as the
scope and scale of the role
• Any increases to base salary
will take into account individual
performance as well as the pay
and conditions in the workforce
• N/A
• Any increases in base
salary will not take the
level of base salary
above the level justified
in the Committee’s
opinion by the factors
set out below
• When determining
the level of any change
in compensation, the
Committee takes into
account:
– Remuneration levels
in comparable
organisations in the
UAE and the GCC
– Remuneration levels
in the international
market
– Increases for the
workforce generally
– Changes to an
individual’s role,
including any
additional
responsibilities
Annual Report 2019
55
Governance REPORT OF THE REMUNERATION COMMITTEE
continued
Element of pay
Purpose and link
to strategy
Operation
Maximum
opportunity
Performance criteria
Changes are proposed to the current approved policy to maintain overall cap though provide additional flexibility by increasing
the normal maximum from 100% of salary to 120% of salary; to confirm that financial and non-financial or strategic targets not
linked to a set of annual results can straddle two financial years; and to allow deferral under the Deferred Bonus Plan
STIP
• To encourage and
reward delivery
of the Group’s
annual strategic,
financial and
operational
objectives
• Performance measures and
targets are reviewed annually
by the Committee and are
linked to the Group’s key
strategic and financial
objectives
• STIP will normally be paid
wholly in cash up to 100%
of base salary
• STIP in excess of 100%
of base salary will normally
be deferred in GMS shares
for up to two years
• The Committee has the
discretion to defer a greater
proportion of the STIP
in GMS shares
• Deferral will be under the
Deferred Bonus Plan. Any
dividends that accrue during
the deferral period may be paid
in cash or shares at the time
of vesting of the award
• Clawback and/or malus can
be applied for three years from
the end of the financial year to
which a payment relates, in the
event of serious misconduct,
reputational harm, corporate
failure, a material misstatement
of the Company’s financial
results or an error in the
calculation of performance
targets
• Additionally, up to 100% of
the Executive Chairman’s 2019
bonus and/or the Special
Additional CFO bonus may, at
the discretion of the Committee,
be deferred under the new
Deferred Bonus Plan into GMS
shares (rather than paid in
cash). Dividends that accrue
during the deferral period may
be paid in cash or shares at the
time of vesting of the award
• Maximum opportunity of
120% or, in exceptional
circumstances
150% of base salary
(in the case of the
Executive Chairman
calculated on the uplift
base salary)
• The STIP will be based
on Group financial
performance, other
than where the
Committee deems
appropriate to include
additional specific
measures
• The Committee has
discretion to vary STIP
payments downwards
or upwards if it
considers the
outcome would not
otherwise be a fair
and complete
reflection of the
performance achieved
by the Group and/or
the Executive Director.
Performance below
threshold results
in zero payment.
Payments increase
from 0% to 100%
of the maximum
opportunity for levels
of performance
between threshold
and maximum
performance targets.
If financial and/or
(for a minority of the
total) non-financial or
strategic targets not
linked to a set of
annual results are
used, these can
straddle more than
one financial year
where considered
justified
56
Gulf Marine Services PLC
Element of pay
Purpose and link
to strategy
Operation
Maximum
opportunity
Performance criteria
No changes are proposed to the current approved policy other than reducing the threshold vesting level from 30% to 25%
and the introduction of the two year holding period
Long Term Incentive
Plan (LTIP)
• To incentivise
and reward the
achievement
of key financial
performance
objectives and
the creation
of long-term
shareholder value
• To encourage
share ownership
and provide
further alignment
with shareholders
• Annual awards of nil-cost
• Normal maximum
• Performance is
options or conditional shares
with the level of vesting subject
to the achievement of
stretching performance
conditions measured over
a three-year period
• Performance targets are
reviewed annually by the
Committee and are set at
such a level to motivate
management and incentivise
out-performance
If the Committee decides it
to be appropriate at the time,
awards may be cashed out
instead of being satisfied
in shares
•
• Dividends that accrue during
the vesting period may be paid
in cash or shares at the time
of vesting, to the extent that
shares vest
• Malus and clawback provisions
apply in the event of serious
misconduct, reputational harm,
corporate failure, a material
misstatement of the Company’s
financial results or an error in
the calculation of performance
targets. Clawback can be
applied for three years from
the end of the financial year
in which an award vests
• A two-year post vesting holding
period will normally apply
opportunity of 200% of
base salary (exceptional
limit of 300% of base
salary)
assessed against
metrics which will
normally include a
financial measure,
such as earnings per
share (EPS), and/or
a measure linked to
the Company’s total
shareholder return
(TSR) against an
appropriate group
of peers. Measures
are captured
independently
• 25% of an award
will vest for achieving
threshold
performance,
increasing pro-rata
to full vesting for
achievement of
maximum
performance targets
• The Committee has
discretion to vary
the level of vesting
downwards or
upwards if it
considers the
outcome would not
otherwise be a fair
reflection of the
performance
achieved by the
Company
Annual Report 2019
57
Governance REPORT OF THE REMUNERATION COMMITTEE
continued
Element of pay
Purpose and link
to strategy
Operation
Maximum
opportunity
Performance criteria
No changes are proposed to the current approved policy
End of service gratuity • To provide an end of
• End of service gratuity
service gratuity as
required under UAE
Labour law
contributions are annually
accrued by the Company after
an employee served for more
than one year
• The calculation is based on basic
salary, duration of service and
type of the contract: limited or
unlimited. The Committee has
no discretion on the amount.
It is set and regulated by UAE
Labour Law
• The maximum pay out to
an employee is limited by
UAE Labour Law to two
years’ base salary
• N/A
No changes are proposed to the current approved policy
Benefits
• To provide
• Private medical insurance for
competitive and
cost-effective
benefits to attract
and retain
high-calibre
individuals
the executive and close family,
death in service insurance,
disability insurance,
accommodation and payment
of children’s school fees
No changes are proposed to the current approved policy
• N/A
• Actual value of benefits
provided which would
not exceed those
considered appropriate
by the Committee
Allowances
• Allowances set
to cover living and
travel costs where
the director serves
outside their home
country and is
in line with local
market practice
• N/A
• Any increases to allowances
will take into account local
market conditions as well as
the allowances provided to
the workforce
• Allowances relating to air travel
and transport
58
Gulf Marine Services PLC
Element of pay
Purpose and link
to strategy
Operation
Maximum
opportunity
Performance criteria
Changes are proposed to the current approved policy to increase the level to be held and introduce a post cessation policy
Share ownership
guidelines
• To encourage
alignment with
shareholders
• Executive Directors
• N/A
• N/A
are required to build and
maintain a shareholding
equivalent to at least 200%
salary through the retention
of vested share awards
or through open market
purchases
• A new appointment will
be expected to reach this
guideline in three to five
years post-appointment
• Executive Directors are
required to retain 50% of the
shares (net of tax) vesting
under the incentive schemes
until the guideline has
been achieved
• Executive Directors ceasing
in their role are required to
retain their then shareholding,
up to their minimum in-service
requirement in the first year
and 50% of that in the second
year, subject to the discretion
of the Committee to vary
the level or length of these
requirements if it considers
that to be appropriate in the
circumstances at the time
These are new, exceptional elements
Special Additional
CFO Bonus
Executive Chairman
Share Award
• As set out in the
• This element of pay will be
• 30% of salary as at date
• As set out in the
Chairman’s Letter
on page 51
operated on a one-off basis
for 2019/2020 and may be
operated under the Deferred
Bonus Plan
of appointment
Chairman’s Letter
on page 51
• As set out in the
• This element of pay will be
• 2,000,000 shares
• As set out in the
Chairman’s Letter
on pages 52 to 53
operated on a one-off basis
under a bespoke share plan
arrangement based on the
rules of the LTIP
Chairman’s Letter
on pages 52 to 53
Annual Report 2019
59
Governance REPORT OF THE REMUNERATION COMMITTEE
continued
NOTES TO THE TABLE
STIP performance measures
The STIP reflects key financial performance indicators linked to the Group’s strategic goals. Financial targets are set at the start of the
financial year with reference to internal budgets and taking account of market expectations.
LTIP performance measures
The LTIP performance measures will reward long-term financial growth and significant long-term returns to shareholders. Targets are set
by the Committee each year on sliding scales that take account of internal strategic planning and external market expectations for the Group.
Only 25% of rewards are available for achieving threshold performance with maximum rewards requiring substantial out-performance of
challenging strategic plans approved at the start of each year.
For 2020, the LTIP performance measures will be relative total shareholder return (TSR) in relation to (a) a peer group of comparable
companies selected by the Remuneration Committee at the time of grant of LTIP awards (for half of each award) and (b) the FTSE 250
excluding financial services (for the other half of each award) with threshold achievement at median performance and full achievement
at upper quartile performance. These measures have been selected as they directly relate to the generation of shareholder value. Flexibility
is reserved to change these measures in future years within the terms of the Policy Table above.
Discretion
The Committee operates annual short term and long term incentive arrangements for the executive Directors in accordance with their
respective rules, the Listing Rules and the HMRC rules where relevant. The Committee, consistent with market practice, retains discretion
over a number of areas relating to the operation and administration of the plans. These include the following:
• who participates;
•
•
•
• discretion relating to the measurement of performance and adjustments to performance measures and vesting levels in the event
the timing of the grant of award and/or payment;
the size of an award (up to policy and plan limits) and/or a payment;
the annual review of performance measures, targets and weightings for the STIP and LTIP from year to year;
of a change of control or restructuring;
• determination of a good leaver (in addition to any specified categories) for incentive plan purposes;
• adjustments required in certain circumstances (e.g. rights issues, corporate restructuring and special dividends); and
•
the ability to adjust existing performance conditions for exceptional events so that they can still fulfil their original purpose.
Payments under previous policies
Any remuneration payment or payment for loss of office to which a director became entitled under a previous directors’ remuneration policy
or before the person became a director (unless the payment was in consideration of becoming a director) may be paid out even though
it may not be consistent with this policy.
Remuneration scenarios for the Executive Chairman
The chart below shows an estimate of the potential future remuneration payable for the Executive Chairman in 2020 at different levels of
performance. The chart highlights that the performance-related elements of the package comprise a significant portion of the Executive
Chairman’s total remuneration at on-target and maximum performance.
The table below sets out notional remuneration of the Executive Chairman to the Executive element of his salary on the basis that he acts as
Executive Chairman for the entire first year of the policy. This is, though, an interim appointment only until a new CEO is appointed after which
the Chairman will revert to his Non-Executive remuneration, which is not included in this analysis.
Executive Chairman (US$'000)
$1,500
$1,000
$168
$399
$168
$479
$252
$479
$500
$551
$551
$551
$551
$0
Minimum
On-Target
Maximum
Maximum
+ 50%
share price growth
Fixed Pay
STIP
Executive Chairman Special Share Award
1
Tim Summers’s contractual entitlement is expressed in UAE Dirhams and is shown above in US$ using an exchange rate of US$ 1/AED 3.655. Minimum remuneration
represents uplift base salary, allowances and benefits (such as accommodation and insurance) on the basis of a full year of executive service.
2 Minimum performance assumes no award is earned under STIP and no vesting is achieved under the Executive Chairman Share Award. At on-target,
100% of the STIP, and 100% of the Executive Chairman Share Award are earned; and at maximum, 120% of the base uplift salary, and 100% Executive Chairman Share
Award are earned. As the Executive Chairman Share Award partially covers 2020 performance as well, for the calculation above full amounts of the award were taken
into account.
60
Gulf Marine Services PLC
3 Share awards were calculated based on the share price on the date of the report (30 April 2020) which was GBP 0.0632 at a rate of US$ 1/GBP 0.75.
The righthand column shows the maximum amount achievable under the Executive Chairman Share Award, assuming share price growth of 50% in the
period between grant and vesting.
4 The figures above do not reflect a 40% temporary salary cut and proportionate reduction in the bonus potential as described in the Chairman’s letter.
Remuneration scenarios for the CFO
The chart below shows an estimate of the potential future remuneration payable to the CFO in 2020 for minimum, on-target, and maximum
performance. The chart highlights that the performance-related elements of the package comprise a significant portion of the CFO’s total
remuneration at on-target and maximum performance.
CFO (US$'000)
$1,500
$1,000
$500
$0
$85
$108
$361
$85
$108
$433
$128
$108
$433
$427
$427
$427
$427
Minimum
On-Target
Maximum
Maximum
+ 50%
share price growth
Fixed Pay
STIP
Special Additional CFO Bonus
LTIP
1 Steve Kersley’s remuneration is currently paid in UAE Dirhams and shown above in US$ using an exchange rate of US$ 1/AED 3.655.
2 Minimum remuneration represents base salary (pro rated to full year) and allowance levels are based on those paid in 2019. It also includes benefits
such as accommodation and insurance (on the basis of the cost of those paid in 2019).
3 Minimum performance assumes no award is earned under the STIP and Special Additional CFO Bonus and no vesting is achieved under the LTIP award. At on-target,
100% of the STIP and Special Additional CFO Bonus are earned; and at maximum 120% of base salary, 100% Special Additional CFO Bonus and 100% LTIP award
are earned. This assumes no deferral of STIP or Special Additional CFO Bonus.
4 The maximum 2020 LTIP award is assumed to be equal to the 2019 award. The LTIP awards were calculated based on the report date (30 April 2020) share price
which was GBP 0.0632 at a rate of US$ 1/GBP 0.75. The righthand column shows the maximum amount achievable assuming share price growth of 50% in the period
between grant and vesting.
How remuneration of the Executive Directors differs from employees generally, and how their views are
taken into account in setting remuneration policy
When considering the structure and levels of Executive Director remuneration, the Committee reviews base salary, STIP and LTIP
arrangements for the management team, to ensure that there is a coherent approach across the Group. The STIP plan and LTIP operate
on a similar basis across the Senior Management team. The key difference in the Executive Directors Policy is that remuneration is more
heavily weighted towards variable pay than that of other employees. This ensures that there is a clear link between the value created for
shareholders and the remuneration received by the Executive Directors. Because of the lack of visibility and influence over achievement of
performance measures, the pay of employees outside the management team is much less linked to performance and is mostly in the form
of salary and benefits.
The Committee does not formally consult with employees in respect of the design of the Directors’ Remuneration Policy, however the
Executive Chairman is available to discuss issues relating to the wider employee population.
Consideration of shareholder views
The Committee engages directly with major shareholders and their representative bodies on any major changes planned to the Directors’
Remuneration Policy or how the policy will be implemented. It consulted with the Company’s ten largest shareholders representing
approximately 75% of the Company’s share capital together with the three main proxy advisors. All shareholders who responded directly
in the consultation were supportive of the proposals. Some suggestions were received from the proxy advisors and, except in so far as
impractical or inadvisable in the specific circumstances to do so, these have been taken into account in the final proposals.
Following the Company’s AGM in 2020, details of votes cast for and against the resolutions to approve the Directors’ Remuneration Policy
and Annual Report on Remuneration will be included in the next Annual Report on Remuneration published following the AGM.
Annual Report 2019
61
Governance REPORT OF THE REMUNERATION COMMITTEE
continued
Executive Directors’ recruitment and promotions
The policy on the recruitment or promotion of an executive Director takes into account the need to attract, retain and motivate the best
person for each position, while at the same time ensuring a close alignment between the interests of shareholders and management,
as follows:
Base salary
The base salary for a new appointment will be set taking into account the skills and experience of the
individual, internal relativities and the market rate for the role as identified by any relevant benchmarking
of companies of a comparable size and complexity.
If it is considered appropriate to set the base salary for a new executive Director at a level which is below
market (for example, to allow them to gain experience in the role) their base salary may be increased to
achieve the desired market positioning by way of a series of phased above inflation increases. Any increases
will be subject to the individual’s continued development in the role.
End of service gratuity,
benefits and allowances
End of service gratuity, benefits and allowances will be set in line with the policy above, reflective of typical
market practice and the Labour Law for the UAE.
In the event of an executive Director being recruited to work outside the UAE, alternative benefits, pension
provision and/or allowances may be provided in line with local market practice.
Recognising the international nature of the Group’s operations, where appropriate to recruit, promote or
transfer individuals to a different location of residence, the Committee may also, to the extent it considers
reasonable, approve the payment of one-off relocation and repatriation related expenses. It may also
approve legal fees appropriately incurred by the individual in connection with their employment by the Group.
STIP and LTIP
The Company’s incentive plans will be operated, as set out in the policy table above, albeit with any payment
pro-rata for the period of employment and with the flexibility to use different performance measures and
targets, depending on the timing and nature of the appointment.
Remuneration foregone
The Committee may offer cash and/or share-based elements to compensate an individual for remuneration
and benefits that would be forfeited on leaving a former employer, when it considers these to be in the best
interests of the Group (and therefore shareholders).
Such payments would take account of remuneration relinquished and would mirror (as far as possible)
the delivery mechanism, time horizons and performance requirement attached to that remuneration and
would not count towards the limits on STIP and LTIP in the remuneration policy.
Where possible this will be facilitated through existing share plans as set out in the policy table above,
but if not, the Committee may use the provisions of 9.4.2 of the Listing Rules.
Internal appointments
In the case of an internal appointment, any variable pay element awarded in respect of the prior role will
be allowed to pay out according to its original terms stipulated on grant or adjusted as considered desirable
to reflect the new role.
Directors’ service agreements and payments for loss of office and provision for Change of Control
The Committee seeks to ensure that contractual terms of the executive Director’s service agreement reflects best practice.
Notice period
Executive Directors’ service agreements are terminable on no more than 12 months’ notice. The Chief
Financial Officer’s service agreement is terminable by the Company on 12 months’ notice and by the
Chief Financial Officer on 9 months’ notice. The Executive Chairman’s service agreement is terminable
by either the Company or the Executive Chairman on 6 months’ notice (and automatically reverts to the
Non-Executive Chairman terms on appointment of a new CEO). In circumstances of termination on notice
the Committee will determine an equitable compensation package, which may be comprised by some
or all of the items set out below together with legal fees and repatriation expenses having regard to the
particular circumstances of the case. The Committee has discretion to require notice to be worked,
to make payment in lieu of notice or to place the Director on gardening leave.
The Company may terminate the appointment summarily with immediate effect if the Director is guilty
of gross misconduct in accordance with relevant provisions of the UAE labour law.
Payment in lieu of notice
In case of payment in lieu, base salary (ignoring any temporary reduction), allowances, benefits and end
of service gratuity will be paid for the period of notice served or paid in lieu.
If the Committee believes it would be in shareholders’ interests, payments would be made either as one lump
sum or in equal monthly instalments and in the case of payment in lieu will be subject to be offset against
earnings elsewhere.
62
Gulf Marine Services PLC
STIP
LTIP
STIP may be payable in respect of the period of the STIP year worked by the Director; there is no provision
for an amount in lieu of STIP to be payable for any part of the notice period not worked. In determining
the amount of any STIP to be paid, the Committee will have regard both to the extent to which relevant
performance measures have been achieved and to any other circumstances of departure or the directors’
performance which the Committee considers relevant. Unless exceptionally the Committee determines
otherwise, the policy provisions in relation to the deferral of bonuses would be applied. Any bonus previously
deferred would normally continue to be deferred under the terms of that plan.
Deferral of bonus under the Deferred Bonus Plan will normally continue for the deferred period after leaving
and will then vest in full but will lapse if the director has left in circumstances in which their employment could
have been terminated without notice. The deferral will vest in full on death.
Outstanding share awards under the LTIP normally lapse on leaving employment but are subject to the rules
which contain discretionary provisions setting out the treatment of awards where a participant leaves for
designated reasons (i.e. participants who leave early on account of injury, disability or ill health, death, a sale
of their employer or business in which they were employed, statutory redundancy, retirement or any other
reason at the discretion of the Committee).
In these circumstances a participant’s awards will not be forfeited on cessation of employment and instead
will continue to vest on the normal vesting date or earlier at the discretion of the Committee, subject to
the performance conditions attached to the relevant awards. The awards will, other than in exceptional
circumstances, be scaled back pro-rata for the period of the incentive term worked by the Director.
Performance and circumstance of departure would be assessed by the Remuneration Committee
as part of any decision to treat a person as a good leaver and/or to vary pro-rating.
Special Additional CFO Bonus/
Executive Chairman
Share Award
If the Executive Chairman leaves employment for one of designated reasons described above or if there is
a change of control, the Executive Chairman Share Award will vest on or after leaving or on the change of
control, to the extent that the Committee determines, in its discretion, that the performance conditions have
then been satisfied and, as to some or all of the balance, having regard, amongst other things, to the extent
to which progress had been made toward achieving the conditions. Vesting will not be scaled back pro-rata.
Other payments
Change of control
The Committee would otherwise deal with these matters on a similar basis to the STIP and LTIP set out
above. However, the Executive Chairman will not be treated as leaving employment when he returns to his
Non-Executive role.
In addition to the above payments, the Committee may make any other payments determined by a court
of law or to settle any legal claim in respect of the termination of a Director’s contract.
In the event of a change of control or a demerger, special dividend or other similar event affecting the share
price, the Committee shall, in terms of the share plan rules in its absolute discretion, determine whether
an unvested Award will vest. To the extent that it determines that the performance conditions have been
satisfied. The Committee may also decide that the award will vest to a greater or lesser extent having
regard to the Director’s or the Group’s performance or such other factors it may consider appropriate.
The Committee may decide that awards will vest pro-rata to take account of early vesting. Alternatively,
the award may be exchanged for equivalent awards over shares in an acquiring company.
The date of the Chief Financial Officer’s Service Agreement is 20 May 2019. Steve Kersley’s service agreement provides that he is entitled
to an additional 6 month’s notice if terminated following a change of control, on or before 9 June 2020. The date of the Executive Chairman’s
Service Agreement is 1 October 2019. These Service Agreements are available for inspection during normal business hours at the
Company’s registered office and will be available for inspection at the AGM.
External appointments
The Committee recognises that an Executive Director may be invited to become a Non-Executive Director in another company and that
such an appointment can enhance knowledge and experience to the benefit of the Group. It is policy that Board approval is required before
any external appointment may be accepted by an Executive Director. An Executive Director would normally be permitted to retain any fees
paid for such services. The current Executive Directors do not hold any such external appointments in public companies.
Annual Report 2019
63
Governance REPORT OF THE REMUNERATION COMMITTEE
continued
Non-Executive Directors’ Remuneration Policy and terms of engagement
The following table sets out the components of the Non-Executive Directors’ remuneration package.
Element of pay
Purpose and link to strategy
Operation
Maximum opportunity
Performance criteria
Non-Executive
Directors’ fee
• Set to attract, reward
and retain talented
individuals through the
provision of market
competitive fees
• Reviewed periodically
by the Board or,
if appropriate, in the
event of a change in
an individual’s position
or responsibilities
• Fee levels set by
reference to market
rates, taking into
account the individual’s
experience,
responsibility and
time commitments
• N/A
• Total Non-Executive
Director fees must
be within any limit
prescribed by the
Company’s Articles of
Association (currently
£750,000) and
individual fees will take
account of the factors
set out in this table.
The Board takes into
account external
market practice,
pay increases within
the Group, wider
economic factors
and any changes in
responsibilities when
determining fee
increases
Non-Executive Directors’
benefits
• Travel to the
• Travel to the
• Costs of travel,
• N/A
Company’s registered
office and operational
headquarters
Company’s registered
office and operational
headquarters may
in some jurisdictions
be recognised as
a taxable benefit
grossed-up where
taxable
Non-Executive Directors are appointed by letter of appointment for an initial period of three years (but are subject to annual re-election),
which are terminable by three months’ notice by the Director or the Company. In relation to a Chairman, the Company retains flexibility
to set a notice period of up to six months.
The dates of the letters of appointment of the Chairman and Non-Executive Directors are:
Mo Bississo1
David Blewden2
Dr Shona Grant
Tim Summers3
Mike Turner4
Non-Executive Director
1st March 2019
Independent Non-Executive Director
1st June 2019
Independent Non-Executive Director
19th October 2018
Non-Executive Chairman
Independent Non-Executive Director
1st April 2019
1st June 2019
W. Richard Anderson5
Independent Non-Executive Director
27th February 2017
Simon Batey6
Simon Heale7
Independent Non-Executive Director
27th February 2017
Non-Executive Chairman
27th February 2017
1 Mo Bississo was appointed a Non-Executive in March 2019 and resigned from the Remuneration Committee in December 2019.
2 David Blewden was appointed Independent Non-Executive Director in June 2019.
3 Tim Summers became Executive Chairman on 21 August 2019.
4 Mike Turner was appointed a Non-Executive with effect from June 2019.
5 Richard Anderson resigned from the Board in April 2019.
6 Simon Batey did not stand for re-election at the AGM and retired from the Board in May 2019.
7 Simon Heale stood down from the Board in March 2019.
The letters of appointment are available for inspection during normal business hours at the Company’s registered office. For the appointment
of a new Chairman or Non-Executive Director, the fee arrangement would be set in accordance with the approved remuneration policy
in force at that time.
64
Gulf Marine Services PLC
ANNUAL REPORT ON REMUNERATION
This part of the report has been prepared in accordance with Part 3 of the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008 and 9.8.6R of the Listing Rules. The Annual Report on Remuneration will be put to an advisory shareholder vote
at the 2020 AGM. Sections of this report that are subject to audit have been indicated.
Shareholder voting at AGM
The 2019 Annual Report on Remuneration will be subject to an advisory shareholder vote at the 2020 AGM. Votes cast by proxy and at the
2019 AGM in respect of the Directors’ Remuneration Report and at the 2018 AGM in respect of the Directors Remuneration Policy were
as follows:
Resolution
Votes for
% of votes for
Votes against
% of votes
against
Votes withheld
Total votes cast
To approve the Directors’
Remuneration Report for the year
ended 31 December 2018
To approve the Directors’
Remuneration Policy
39,173,417
14.51
230,732,947
85.49
8,006
269,906,364
201,055,052
77.90
57,028,909
22.10
36,836
258,083,961
The Directors’ Remuneration Report received a 85.49% vote against at our 2019 AGM, primarily in relation to the lack of alignment between
Executive remuneration and Group financial performance under the previous Board. The reconstituted Committee has now set targets under
Executive remuneration arrangements that more closely align with Group financial performance and the generation of shareholder value.
External advice received
In carrying out their responsibilities, the Committee seeks external advice as necessary. In 2019, given the extensive engagement with
shareholders, the Committee did not seek the advice of external advisors in its deliberations.
Executive Directors’ single total figure of remuneration earned in 2019 (audited)
The table below summarises Directors’ remuneration in respect of 2019.
Fixed element of pay
Pay for performance
Base salary
US$’000
Allowances
and benefits1
US$’000
End of service
gratuity2
US$’000
STIP3
US$’000
Long-Term
Incentives4
US$’000
Other
US$’000
Total
remuneration
US$’000
Executive Director
Steve Kersley5
Executive Chairman
Tim Summers6
Executive Director
Duncan Anderson7
2019
2018
2019
2018
2019
2018
361
–
399
–
416
416
57
–
69
–
142
162
–
–
–
–
35
35
104
–
163
–
–
209
–
–
–
–
–
–
–
–
–
–
–
–
522
–
631
–
592
822
1 Allowances include fixed cash allowances for air travel and transport. Other benefits include accommodation, private medical insurance for the executive and immediate
family, death in service insurance, disability insurance. The amounts are shown as per actual expenditures.
2 End of service gratuity is the provision accrued for in the year in accordance with UAE Labour Law. Please refer to page 58 for more information. Pension provision
is not a feature of Executive Director remuneration packages. Under the current policy of the Company US$ 35,000 was paid to Duncan Anderson in January 2019
on account of the end of service gratuity.
3 Short term Incentive plan for the financial year. As explained in the Chairman’s letter, these amounts have been deferred and may be paid later in 2020 at the
Committee’s discretion.
4 Share plans vesting represent the value of LTIP awards where the performance period ends in the year. No awards vested in the year for the LTIP granted on
22 March 2016 as the performance conditions were not achieved during the period.
5 Steve Kersley was appointed as a Chief Financial Officer effective 9 June 2019. His basic pay has been pro-rated to full year to aid compatibility. The actual amount
paid in 2019 for basic salary was US$ 202,000. The remuneration was paid in UAE Dirhams and reported in US$ using an exchange rate of US$ 1/AED 3.655.
6 Tim Summers became Executive Chairman effective 21 August 2019. His base pay is split for two roles – Executive Director and Chairman. Only the Executive Director
portion is shown in the table above. The pay has been pro-rated to full year to aid compatibility. The actual amount paid for the uplift base salary in 2019 was
US$ 143,000. From 1 October 2019 he transferred to the UAE and his remuneration is paid in UAE Dirhams and reported in US$ using an exchange rate of
US$ 1/AED 3.655.
7 Duncan Anderson stepped down from the role of CEO and as a Board Director on 21 August 2019 and was placed on a garden leave for 12 months. The remuneration
was paid in UAE Dirhams and reported in US$ using an exchange rate of US$ 1/AED 3.655.
Annual Report 2019
65
Governance REPORT OF THE REMUNERATION COMMITTEE
continued
Performance against STIP targets for 2019 (audited)
The STIP structure was completely redesigned during 2019 so that all employees including Executive Directors are working towards the same
transparent targets (this redesign took place prior to the appointment of the Executive Chairman). For 2019 the STIP opportunity was set at
100% of base salary. The STIP was assessed against the following Group objectives:
Measure
EBITDA
Securing contract % of 2020
Budget revenue
2021 backlog
Subtotal
Annualised cost savings
Cost control (EBITDA margin)
Total
Performance range
(from zero to
full pay-out*)
Less than US$ 50m –
greater than
US$ 58m
Less than 60% –
greater than 75%
Less than 35% –
greater than 45%
Greater than
US$ 5m – US$ 6m
Less than 40% –
greater than 44.6%
Weighting
60%
15%
5%
10%
10%
100%
Result
% of base salary
payable
US$ 51.375m
85.2%
44.55%
US$ 13m
47.25%
6.83%
17.04%
4.76%
28.63%
12%
10.96%
51.59%
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