GMS Annual Report 2019 | Quarterlytics

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FY2019 Annual Report · GMS

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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.

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

Strategic ReportThe 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.

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

Strategic ReportCHAIRMAN’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.

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

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

Gulf Marine Services PLC

Headcount

Total number of employees

Offshore

457

(2018: 536)

377

(2018: 423)

Onshore

(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

49
(2018: 78 male/35 female)

Nationalities

(2018: 37)

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.

08:30

Annual Report 2019

377

377
(2018: 421 male/2 female)

Total number of Directors

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)

2017

2018

2019

4
(2018: 8 male)

Total number of Direct Reports
to Senior Managers

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

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

Strategic ReportPEOPLE 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

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

Strategic ReportOUR 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

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

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.

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.

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.

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

Strategic ReportBUSINESS 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

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

Strategic ReportSECTION 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.

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

Strategic ReportMARKET 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%

11%

25%

NOC
EPC
IOC
OSW

2019

2018

2019

2018

2019

2018

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

Strategic ReportRISK 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.

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

T
C
A
P
M

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

Strategic ReportRISK 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.

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

Strategic ReportRISK 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.

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

Strategic ReportKEY 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)

US$ 5m (DEPS US$ 0.01)

Net profit/loss for the year.

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.

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.

0.00

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

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

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

58.0

–

(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.

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

2018

52,077

35,407

35,847

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

Strategic ReportFINANCIAL 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.

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

Strategic ReportCHAIRMAN’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.

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

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

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

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

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

Indicates Committee Chair A Member of the Audit and Risk Committee N Member of the Nomination Committee R Member of the Remuneration Committee

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.

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

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.

Annual Report 2019

GovernanceREPORT 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.

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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

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

GovernanceREPORT 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.

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

GovernanceREPORT 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

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.

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

GovernanceREPORT 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.

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

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

GovernanceREPORT 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.

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

GovernanceREPORT 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

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

GovernanceREPORT 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.

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

GovernanceREPORT 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.

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.

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

GovernanceREPORT 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;

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);

(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

GovernanceREPORT 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.

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

GovernanceREPORT 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

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

GovernanceREPORT 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

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

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

GovernanceREPORT 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

Minimum

On-Target

Maximum

Maximum
+ 50%
share price growth

Fixed Pay

STIP

Executive Chairman Special Share Award

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.

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

$85
$108

$361

$85

$108

$433

$128

$108

$433

$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

GovernanceREPORT 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.

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

GovernanceREPORT 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

• 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.

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

–

142

162

–

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

GovernanceREPORT 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%

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%

120 days
US$’000

−

634

(2)

−

632

−

941

(8)

(64)

869

Total US
$’000

25,107

(64)

24,979

Trade receivables
Less: Allowance for expected
credit losses
Less: Allowance for doubtful
receivables

19,296

7,296

1,993

1,380

1,274

1,770

33,009

(48)

(3)

(20)

(11)

(5)

−

(7)

−

(3)

−

(11)

(36)

(94)

(50)

Net trade receivables 2018

19,245

7,265

1,988

1,373

1,271

1,723

32,865

Eight customers (2018: ten) account for 99% (2018: 99%) of the total trade receivables balance (see revenue by segment information in
Note 30); however, credit risk is considered to be limited due to historical performance and ongoing assessments of customer credit and
liquidity positions.

114

Gulf Marine Services PLC

10 Hedging reserve and cost of hedging reserve
The disaggregation of changes of Other Comprehensive Income (OCI) by each type of reserve in equity is shown below:

At 31 December 2019
Cross currency interest rate swap
Interest rate swap

At 31 December 2018
Cross currency interest rate swap
Interest rate swap

Cash flow
hedge
reserve
US$’000

2,258
(1,738)

520

1,466
(781)

685

Cost of
hedging
reserve
US$’000

(2,260)
–

(2,260)

(923)
–

(923)

Total

US$’000

(2)
(1,738)

(1,740)

543
(781)

(238)

Derivative financial instruments represent level 2 value measurements as defined by the fair value hierarchy according to IFRS 13.

11 Cash and cash equivalents

Interest bearing
Held in UAE banks

Non-interest bearing
Held in UAE banks
Held in banks outside UAE

Total cash at bank and in hand

Presented as:
Restricted cash included in trade and other receivables (Note 9)
Cash and cash equivalents

Total

2019

US$’000

2018

US$’000

10,966
12

11,025

9,177
2,448

11,651

2019

US$’000

2018

US$’000

2,621
8,404

11,025

605
11,046

11,651

The carrying value of these cash assets is approximately equal to their fair value. These represent level 1 fair value measurements as defined
by the fair value hierarchy according to IFRS 13.

12 Vessel held for sale
Naashi is a non-core vessel and the oldest in the GMS fleet at 37 years. Naashi was last in operation in 2016 and since then and until the end
of the year was fully cold stacked at the port of Mussafah, in the UAE.

During the year, a Letter of Intention for sale of the vessel was signed to sell the vessel for proceeds amounting to US$ 0.6 million. In January
2020 the associated mortgage was released and the sale completed.

Cost
At 1 January
Reclassification from property, plant and equipment

At 31 December

Accumulated depreciation
At 1 January
Reclassification from property, plant and equipment

At 31 December

Carrying amount

2019

US$’000

2018

US$’000

–
35,195

35,195

–
34,895

34,895

300

–
–

–

Annual Report 2019

115

Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019

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

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

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

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

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

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

At 31 December 2019
Authorised share capital
Issued and fully paid

At 31 December 2018
Authorised share capital
Issued and fully paid

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

Number
of ordinary
shares
(thousands)

Ordinary
shares

US$’000

350,488
350,488

58,057
58,057

Total

US$’000

58,057
58,057

349,968
349,968

57,992
57,992

At 1 January 2018
Shares issued under LTIP schemes

At 31 December 2018

Shares issued under LTIP schemes

At 31 December 2019

Number
of ordinary
shares
(thousands)

349,704
264

349,968

Ordinary
shares

US$’000

57,957
35

57,992

Share
premium
account
US$’000

93,075
5

93,080

Total

US$’000

151,032
40

151,072

520

–

350,488

58,057

93,080

151,137

14 Restricted reserve
Restricted reserve of US$ 0.3 million (2018: US$ 0.3 million) represents the statutory reserve of certain subsidiaries. As required by the UAE
Commercial Companies Law, 10% of profit for the year is transferred to the statutory reserve until the reserve equals 50% of the share capital.
This reserve is not available for distribution. No amounts were transferred to this reserve during either of the years shown.

15 Group restructuring reserve
The Group restructuring reserve arises on consolidation under the pooling of interests (merger accounting) method used for the Group
restructuring. Under this method, the Group is treated as a continuation of GMS Global Commercial Investments LLC (the predecessor parent
company) and its subsidiaries. At the date the Company became the new parent company of the Group via a share-for-share exchange,
the difference between the share capital of GMS Global Commercial Investments LLC and the Company, amounting to US$ 49.7 million,
was recorded in the books of Gulf Marine Services PLC as a Group restructuring reserve. This reserve is non-distributable.

16 Share option reserve
Share option reserve of US$ 3.6 million (2018: US$ 3.4 million) relates to awards granted to employees under the long-term incentive plans
(Note 28). The charge of US$ 0.4 million (2018: US$ 1.0 million) in the year is included in cost of sales and, general and administrative
expenses in the statement of comprehensive income.

116

Gulf Marine Services PLC

17 Capital contribution
The capital contribution reserve is as follows:

At 31 December

2019

US$’000

9,177

2018

US$’000

9,177

During 2013, US$ 7.8 million was transferred from share appreciation rights payable to capital contribution as, effective 1 January 2013,
the shareholders have assumed the obligation to settle the share appreciation rights. An additional charge in respect of this scheme of
US$ 1.4 million was made in 2014. The total balance of US$ 9.2 million is not available for distribution.

18 Translation reserve and Retained earnings
Foreign currency translation reserve represents differences on foreign currency net investments arising from the re-translation of the net
investments in overseas subsidiaries.

Retained profits include the accumulated realised and certain unrealised gains and losses made by the Group.

19 Non-controlling interests
The movement in non-controlling interests is summarised as follows:

At 1 January
Share of profit for the year
Dividends declared during the year (Note 29)

At 31 December

2019

US$’000

2018

US$’000

1,346
313
–

1,659

598
1,023
(275)

1,346

20 Provision for employees’ end of service benefits
In accordance with UAE and Saudi Arabia Labour Laws, the Group is required to provide for end of service benefits for certain employees.
The movement in the provision for employees’ end of service benefits during the year was as follows:

At 1 January
Provided during the year
Paid during the year

At 31 December

2019

US$’000

2018

US$’000

2,722
537
(979)

2,280

3,188
592
(1,058)

2,722

During the year, US$ 0.1 million (2018: US$ 0.1 million) was pre-paid in relation to accrued end of service benefits to certain employees.

21 Trade and other payables

Trade payables
Due to a related party (Note 24)
Accrued expenses
Deferred revenue
Dividend payable (Note 29)
VAT payable
Other payables

2019

US$’000

2018

US$’000

11,500
136
15,749
3,359
658
289
94

31,785

8,900
85
8,783
224
658
−
183

18,833

The average credit period on purchases is 90 days (2018: 90 days). No interest is payable on the outstanding balances.

Trade and other payables are all current liabilities and the Directors consider that the carrying amount of trade and other payables is
approximately equal to their fair value due to the short time between inception and maturity. These represent level 2 fair value measurements
as defined by the fair value hierarchy according to IFRS 13.

Annual Report 2019

117

Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019

22 Bank borrowings
Secured borrowings at amortised cost are as follows:

Term loans
Working capital facility

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

Non–current portion
Bank borrowings

Current portion
Bank borrowings – scheduled repayments within one year
Bank borrowings – scheduled repayments more than one year

2019

US$’000

373,502
25,000

398,502

2018

US$’000

391,515
20,000

411,515

2019

US$’000

2018

US$’000

–

−

89,284
309,218

398,502

20,338
391,177

411,515

The principal terms of the outstanding bank loan facility are as follows:
• The facility is repayable with final maturity in December 2023 (2018: December 2023);
• The revolving working capital facility has lapsed as at 31 December 2019 and as a result no undrawn facility is available. (2018: US$ 30.0

million was available for drawdown until December 2023);

• The facility remains secured by mortgages over certain Group vessels, with a net book value at 31 December 2019 of US$ 662.7 million

(2018: US$ 679.5 million);

• The facility is subject to certain financial covenants including; Finance Service Cover, Interest Cover, Net Leverage Ratio, and Security

Cover (loan to value).

On 31 December 2019, the Group agreed covenant relief with reference to the 30 June 2019 testing dates. During 2020, this relief was
extended again. On 31 March 2020, the Group agreed heads of terms with its syndicate of banks for the restructuring of its debt facilities,
including access to existing term loan facilities and new working capital facilities. While legally non-binding, the heads of terms has received
approval from the credit committees of all of the syndicate. The Group and syndicate are working to finalise the documentation by 30 June
2020. To allow this process time to conclude, the syndicate 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. 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.

Outstanding amount

Current
US$’000

Non
–current
US$’000

Total
US$’000

Unused
facility
US$’000

64,284

309,218

25,000

398,502

20,338

371,177

−

–

−

Security

Maturity

Secured

December 2023

Secured

December 2023

–

Secured

December 2023

Secured

December 2023

20,000

30,000

Secured

December 2023

411,515

30,000

31 December 2019:
Term loan – scheduled repayments within one year
Term loan – scheduled repayments more than
one year
Working capital facility – scheduled repayment within
one year

31 December 2018:
Term loan – scheduled repayments within one year
Term loan – scheduled repayments more than one
year
Working capital facility – scheduled repayment more
than one year

64,284

309,218

25,000

398,502

20,338

371,177

20,000

411,515

−

118

Gulf Marine Services PLC

23 Lease liabilities

Maturity analysis:
Year 1
Year 2
Year 3 – 5
Onwards
Less: unearned interest

Non–current
Current

Total

US$’000

1,204
355
395
–
–

1,954

750
1,204

1,954

The Group also has certain leases of staff accommodation with lease term of 12 months or less and with low value. The Group applies
the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases. During the year ended 31 December 2019,
lease expense recognised for short term leases and leases of low value amounts to US$ 0.5 million. In addition, certain property leases
were derecognised as part of the restructuring of the business (Note 34).

24 Related party transactions
Related parties comprise the Group’s major shareholders, Directors and entities related to them, companies under common ownership and/
or common management and control, their partners and key management personnel. Pricing policies and terms of related party transactions
are approved by the Group’s Board.

Balances and transactions between the Group and its subsidiaries, which are related parties, have been eliminated on consolidation and are
not disclosed in this note.

Key management personnel:
As at 31 December 2019, there were no ordinary shares held by Directors (31 December 2018: 2,697,062 ordinary shares).

Related parties
The Group’s principal subsidiaries are outlined in Note 3. The related parties comprising of the Group’s major shareholders are outlined in the
Directors Report on page 76. Other related party during the year:

Partner in relation to Saudi Operations
Abdulla Fouad Energy Services Company

Relationship
Minority shareholder in GMS Saudi Arabia Ltd.

Refer to Note 21 for details of the amount due to the related party.

Significant transactions with the related party during the year:

Rentals – breathing equipment and property
Management fees

These rentals were at comparable rates obtained from third parties.

Compensation of key management personnel
The remuneration of Directors and other members of key management personnel during the year were as follows:

Short-term benefits
End of service benefits
Share based payment charge (LTIPs)

2019

US$’000

1,039
–

2018

US$’000

1,295
838

2019

US$’000

2018

US$’000

2,902
125
21

3,048

3,092
106
312

3,510

Compensation of key management personnel represents the charge to the income statement in respect of the remuneration of the executive
and non-executive Directors and certain members of the senior management team. At 31 December 2019, there were four members of key
management personnel (2018: nine members).

Annual Report 2019

119

Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019

25 Contingent liabilities
At 31 December 2019, the banks acting for Gulf Marine Services FZE, one of the subsidiaries of the Group, had issued bid bonds,
performance bonds and labour guarantees amounting to US$ 17.4 million (2018: US$ 0.6 million) all of which were counter-indemnified
by other subsidiaries of the Group.

26 Commitments
Capital commitments

Contractual capital commitments

2019

US$’000

3,582

2018

US$’000

1,397

Capital commitments comprise mainly capital expenditure, which has been contractually agreed with suppliers for future periods for
equipment or the refurbishment of existing vessels.

27 Financial instruments
Categories of financial instruments

Financial assets:
Derivatives designated as hedging instruments:
Cross currency interest rate swap (Note 10)

Current assets at amortised cost:
Cash and cash equivalents (Note 11)
Trade receivables and other receivables (Note 9,11)

Total financial assets

2019

US$’000

2018

US$’000

–

543

8,404
29,341

37,745

11,046
36,671

48,260

Derivatives designated as hedging instruments reflect the positive change in the fair value of cross currency interest rate swaps, designated
as cash flow hedges to hedge highly probable volatility in exchange rates and in interest rates.

Financial liabilities:
Derivatives designated as hedging instruments:
Interest rate swap (Note 10)

Financial liabilities recorded at amortised cost:
Trade and other payables (Note 21)
Lease liabilities (Note 23)
Current bank borrowings – scheduled repayments within one year (Note 22)
Current bank borrowings – scheduled repayments more than one year (Note 22)

Total financial liabilities

2019

US$’000

2018

US$’000

1,740

781

28,001
1,954
89,284
309,218

430,197

18,609
–
20,338
391,177

430,905

As described in Note 22, total loan amounts have been presented as a current liability as the Group did not have an unconditional right at that
date to defer repayment of these loans beyond twelve months.

Derivatives designated as hedging instruments reflect the negative change in the fair value of interest rate swaps, designated as cash flow
hedges to hedge highly probable volatility in exchange rates and in interest rates.

Capital risk management
The Group manages its capital to support its ability to continue as a going concern while maximising the return on equity. The Group does
not have a formalised optimal target capital structure or target ratios in connection with its capital risk management objectives. The Group’s
overall strategy in this regard remains unchanged throughout the years ended 31 December 2019 and 2018. The capital structure of the
Group consists of net bank debt and total equity.

Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the
basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are
disclosed in Note 3 to the financial statements.

120 Gulf Marine Services PLC

Financial risk management objectives
The Group is exposed to the following risks related to financial instruments – credit risk, liquidity risk, interest rate risk and foreign currency
risk. Management actively monitors and manages these financial risks relating to the Group. The Group has considered the risks arising from
the uncertainty surrounding negotiations on the United Kingdom’s (“UK”) exit from the European Union (“Brexit”) on amounts presented in
these consolidated financial statements. From 2020 there is one vessel operating in North West Europe and no UK-based employees or
operations, therefore the exposure is not considered to be significant beyond the foreign currency described later.

Credit risk management
Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the Group, and arises
principally from the Group’s trade and other receivables and bank balances. The Group has adopted a policy of only dealing with creditworthy
counterparties which have been determined based on credit checks and other financial analysis, such that significant revenue is generated
by dealing with high profile well known customers, for whom the credit risk is assessed to be suitably low. The Group attempts to control
credit risk by monitoring credit exposures, limiting transactions with specific non-related counterparties, and continually assessing the
creditworthiness of such non-related counterparties.

Cash balances held with banks are assessed to have low credit risk of default since these banks are highly regulated by the central banks
of the respective countries.

Concentration of credit risk arises when a number of counterparties are engaged in similar business activities, or activities in the same
geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected
by changes in economic, political or other conditions. Concentration of credit risk indicates the relative sensitivity of the Group’s performance
to developments affecting a particular industry or geographic location. During the year, vessels were chartered to twelve Middle East and
four international companies, including international oil companies and engineering, procurement and construction (“EPC”) contractors.
At 31 December 2019, these sixteen companies accounted for 100% (2018: thirteen companies accounting for 92%) of the outstanding
trade receivables. The credit risk on liquid funds is limited because the funds are held by banks with high credit ratings assigned by
international agencies.

The amount that best represents maximum credit risk exposure on financial assets at the end of the reporting period, in the event
counterparties failing to perform their obligations generally approximates their carrying value. Trade and other receivables and cash balances
held with banks are not secured by any collateral.

Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, The Group manages liquidity risk by seeking to maintain
sufficient facilities to ensure availability of funds for forecast and actual cash flow requirements.

The table below summarises the maturity profile of the Group’s financial liabilities. The contractual maturities of the Group’s financial liabilities
have been determined on the basis of the remaining period at the end of the reporting period to the contractual maturity date. The maturity
profile is monitored by management to assist in ensuring adequate liquidity is maintained. Refer to Going Concern in Note 3.

The maturity profile of the assets and liabilities at the end of the reporting period based on contractual repayment arrangements was
as follows:

31 December 2019
Non–interest bearing financial assets
Interest bearing financial assets

Non–interest bearing financial liabilities
Interest bearing financial liabilities

31 December 2018
Non–interest bearing financial assets
Interest bearing financial assets

Non–interest bearing financial liabilities
Interest bearing financial liabilities

Interest rate

5%–6%

7.1%–7.8%

Interest rate

4-5%

6.2-7.4%

1 to 3

months
US$’000

4 to 12
months
US$’000

2 to 5
years
US$’000

After 5
years
US$’0000

35,077
47

35,124

29,955
398,502

428,457

1 to 3

months
US$’000

47,085
26

47,111

18,609
411,515

430,124

2,621
−

2,621

−
1,740

1,740

−
−

−

−
−

−

−
−

−

−
−

−

4 to 12
months
US$’000

2 to 5
years
US$’000

After 5
years
US$’0000

606
543

1,149

−
781

781

−
−

−

−
−

−

−
−

−

−
−

−

Management believe that the difference between fair value and carrying value is negligible.

Annual Report 2019

121

Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019

27 Financial instruments (continued)
Interest rate risk management
The Group is exposed to cash flow interest rate risk on its bank borrowings which are subject to floating interest rates.

The Group uses an Interest Rate Swap (“IRS”) to hedge a notional amount of US$ 50.0 million (2018: US$ 50.0 million). The remaining amount
of notional hedged from the IRS as at 31 December 2019 was US$ 46.2 million (2018: US$ 48.7 million). The IRS hedges the risk of variability
in interest payments by converting a floating rate liability to a fixed rate liability. The fair value of the IRS as at 31 December 2019 was a liability
value of US$ 1.7 million (2018: US$ 0.8 million), (see Note 10 for more details).

The sensitivity analysis below has been determined based on the exposure to interest rates for non-derivative instruments at the end of the
reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the end of the reporting
period was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key
management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s loss for the year ended
31 December 2019 would decrease/increase by US$ 2.0 million (2018: decrease/increase US$: 2.1 million). This is mainly attributable
to the Group’s exposure to interest rates on its variable rate borrowings.

Foreign currency risk management
The majority of the Group’s transactions are denominated in UAE dirhams, euros, US dollars and pound sterling. As the UAE dirham and
Saudi riyal are pegged to the US dollar, balances in UAE dirham and Saudi riyals are not considered to represent significant currency risk.
Transactions in other foreign currencies entered into by the Group are short-term in nature and therefore management considers that the
currency risk associated with these transactions is limited.

Brexit could impact Group operations and our exposure to transactions in pound sterling, creating foreign currency risk for transactions
entered into by the Group in pound sterling. Management continue to monitor changes in legislation and future policies and will develop
suitable mitigants as developments unfold.

During the year ended 31 December 2018, the Group entered into a Cross Currency Interest Rate Swap CCIRS to hedge a notional amount
of US$ 36.7 million. As at 31 December 2019, the amount of notional hedged from the CCIRS was US$ 2.5 million (2018: US$ 22.4 million).
The CCIRS hedges the volatility in GBP to USD exchange rates as well as variability in interest rate payments by converting a USD floating
rate loan with USD repayments to a GBP fixed rate loan wherein both the GBP notional and coupon payments are fixed and matched to
actual GBP receivables of highly probable forecast sales. The fair value of the CCIRS as at 31 December 2019 was an asset value of US$ nil
(2018: US$ 0.5 million), (see Note 10 for more details).

The carrying amounts of the Group’s significant foreign currency denominated monetary assets and liabilities at the reporting date are
as follows:

UAE Dirhams
Saudi Riyals
Pound Sterling
Euro
Qatari Riyals
Norwegian Krone
Others

Assets 31 December

Liabilities 31 December

2019

US$’000

2018

US$’000

2019

US$’000

2018

US$’000

2,923
5,216
10
2,184
2,255
−
−

12,588

4,523
5,196
10,626
5,029
−
−
−

25,374

6,765
1,537
3,202
−
132
−
−

11,636

2,248
585
1,491
1,039
−
6
27

5,396

At 31 December 2019, if the exchange rate of the currencies other than the UAE Dirham and Saudi Riyal had increased/decreased by 10%
against the US Dollar, with all other variables held constant, the Group’s loss for the year would have been higher/lower by US$ 0.1 million
(2018: higher/lower by US$ 1.3 million) mainly as a result of foreign exchange loss or gain on translation of Euro and Pound Sterling
denominated balances.

122 Gulf Marine Services PLC

28 Long term incentive plans
The Group has Long Term Incentive Plans (“LTIPs”), performance shares and share options which were granted to senior management,
managers and senior offshore officers. The details of the senior management LTIPs are contained in the Directors’ Remuneration Report
on page 67.

From 2019 onwards LTIPs no longer have any employment conditions. LTIPs have been aligned to the company’s share performance
therefore only financial metrics will be applied. The time-dependent element of the LTIPs has been removed. EPS (“Earnings Per Share”)
has been dropped as the financial metric and TSR (“Total Shareholder Return”) is now the sole financial metric.

In the prior years, the release of these shares was conditional upon continued employment, certain market vesting conditions and in the case
of senior management LTIP awards; performance against three-year target EPS compound annual growth rates. Equity-settled share-based
payments were measured at fair value at the date of grant. The fair value determined, using the Binomial Probability Model together with
Monte Carlo simulations, at the grant date of equity-settled share-based payments, is expensed on a straight-line basis over the vesting
period, based on an estimate of the number of shares that will ultimately vest. The fair value of each award was determined by taking into
account the market performance condition, the term of the award, the share price at grant date, the expected price volatility of the underlying
share and the risk-free interest rate for the term of the award.

Non-market vesting conditions, which for the Group mainly related to the continual employment of the employee during the vesting period,
and in the case of the senior management LTIP awards the achievement of EPS growth targets, were taken into account by adjusting the
number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the
vesting period was based on the number of options that eventually vest. Any market vesting conditions were factored into the fair value of
the options granted.

To the extent that share options are granted to employees of the Group’s subsidiaries without charge, the share option charge is capitalised
as part of the cost of investment in subsidiaries.

The number of share awards granted by the Group during the year is given in the table below together with their weighted average exercise
price (“WAEP”).

At the beginning of the year
Granted in the year
Exercised during the year
Forfeited in the year
Lapsed

At end of the year

Exercisable at the end of the year

2019

No.

WAEP

2018

No.

WAEP

9,814,485
3,425,775
(519,909)
(1,424,494)
(2,527,563)

8,768,294

–

–
–
–
–
–

–

5,897,948
8,420,379
(263,905)
(2,612,718)
(1,627,219)

9,814,485

−

−
−
−
−
−

−

The weighted average remaining contractual life for the vesting period outstanding as at 31 December 2019 was 1.9 years (2018: 1.5 years).
The weighted average fair value of shares granted during the year was US$ 0.70 (2018: US$ 0.38 ).

Outlined below is a summary of the assumptions which have been used to determine the fair value of the share awards:

Grant date
Share price
Exercise price
Expected volatility
Risk-free rate
Expected dividend yield
Vesting period
Award life

LTIP

15 November 2019
£0.08
£0.00
102.79%
0.48%
0.00%
3 years
3 years

23 March 2018
£0.37
£0.00
52.89%
1.04%
1.0%
3 years
3 years

The expected share price volatility of Gulf Marine Services PLC shares was determined taking into account the historical share price
movements for a three year period up to the grant date (and of each of the companies in the comparator group).

The risk free return was determined from similarly dated zero coupon UK government bonds at the time the share awards were granted,
using historical information taken from the Bank of England’s records.

The charge arising from share-based payments is disclosed in Note 16.

Annual Report 2019

123

Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019

29 Dividends
There was no dividend declared or paid in 2019. No final dividend in respect of the year ended 31 December 2019 is to be proposed at the
2020 AGM.

During the year ended 31 December 2018, the Group declared a dividend of US$ 0.28 million to non-controlling interests. This dividend
remained unpaid at 31 December 2019 (refer to Note 21).

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

The operating and reportable segments of the Group are (i) K-Class vessels, which include the Kamikaze, Kikuyu, Kawawa, Kudeta, Keloa
and Pepper vessels (ii) S-Class vessels, which include the Shamal, Scirocco and Sharqi vessels, (iii) E-Class vessels, which include the
Endeavour, Endurance, Enterprise and Evolution vessels, and (iv) Other vessels, considered non-core assets, which includes one 37-year old
vessel (Naashi- for further details refer to Note 12), which does not form part of the K, S or E Class vessels segments. The composition of the
Other vessels segment, which are non-core assets, was amended in 2018, following the reclassification of the vessel Naashi from K-Class
vessels to Other vessels. In 2019, Naashi was reclassified from Other vessels to a non-current asset held for sale, refer to Note 12 for further
details. The sale was completed in January 2020.

All of these operating segments earn revenue related to the hiring of vessels and related services including charter hire income, messing and
accommodation services, personnel hire and hire of equipment. The accounting policies of the operating segments are the same as the
Group’s accounting policies described in Note 3.

Revenue

Segment adjusted
gross profit/(loss)

K–Class vessels
S–Class vessels
E–Class vessels
Other vessels

Less:
Depreciation charged to cost of sales
Amortisation charged to cost of sales
Impairment charge

Gross (loss)/profit

General and administrative expenses
Restructuring costs
Finance income
Finance expenses
Other income
Foreign exchange gain, net

Loss for the year before taxation

2019
US$’000

37,313
35,422
35,984
2

2018

US$’000

35,847
35,407
52,077
4

108,721

123,335

2019

US$’000

23,200
23,578
18,779
(87)

65,470

(29,045)
(2,274)
(59,125)

(24,974)

(17,788)
(6,322)
16
(32,063)
543
(1,181)

(81,769)

2018

US$’000

20,836
22,960
31,563
(58)

75,301

(26,083)
(2,200)
−

47,018

(18,556)
−
22
(31,301)
146
266

(2,405)

The total revenue from reportable segments which comprises the K-, S- and E-Class vessels was US$ 108.7 million (2018: US$ 123.3 million).
The Other vessels segment does not constitute a reportable segment per IFRS 8 Operating Segments.

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

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

Information about major customers
During the year, three customers (2018: five) individually accounted for more than 10% of the Group’s revenues. The related revenue
figures for these major customers, the identity of which may vary by year, were US$ 32.7 million, US$ 24.5 million and US$ 18.4 million
(2018: US$ 25.2 million, US$ 23.6 million, US$ 16.7 million, US$ 14.9 million and US$ 13.2 million). The revenue from these customers is
attributable to the E-Class vessels, S-Class vessels and K-Class vessels reportable segments.

124 Gulf Marine Services PLC

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

United Arab Emirates
Saudi Arabia
Qatar

Total – Middle East and North Africa

United Kingdom
Rest of Europe

Total – Europe

Worldwide Total

2019

US$’000

2018

US$’000

35,671
32,476
13,411

81,558

20,498
6,665

27,163

17,262
54,850
9,788

81,900

41,435
–

41,435

108,721

123,335

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

K–Class vessels
S–Class vessels
E–Class vessels
Other vessels

2019
Depreciation charged to cost of sales
Amortisation charged to cost of sales
Impairment charge

2018
Depreciation charged to cost of sales
Amortisation charged to cost of sales
Impairment charge

2019

US$’000

2018

US$’000

–
2,845
54,564
1,716

59,125

–
–
–
–

–

K-Class vessels
US$’000

S-Class vessels
US$’000

E-Class vessels
US$’000

Other vessels
US$’000

Total

US$’000

7,317
1,434
–

7,198
981
–

5,776
340
2,845

5,549
67
–

15,541
500
54,564

12,642
1,152
–

411
–
1,716

694
–
–

29,045
2,274
59,125

26,083
2,200
–

Annual Report 2019

125

Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019

31 Presentation of adjusted non-GAAP results
The following table provides a reconciliation between the Group’s adjusted non-GAAP and statutory financial results:

Year ended 31 December 2019

Year ended 31 December 2018

Adjusted
non-GAAP
results
US$’000

108,721

Adjusting
items

US$’000

Statutory
total

US$’000

Adjusted
non-GAAP
results
US$’000

Adjusting
items

US$’000

–

108,721

123,335

Revenue
Cost of sales
– Operating expenses
– Depreciation and amortisation
– Impairment charge*

Gross (loss)/profit

General and administrative
– Depreciation
– Amortisation of IFRS 16 Leases
– Other administrative costs
Restructuring costs**

Operating (loss)/profit

Finance income
Finance expenses
Other income
Foreign exchange gain, net

Loss before taxation
Taxation charge

Loss for the year
Loss attributable to
Owners of the Company
Non-controlling interests
Loss per share (basic and diluted)

(43,251)
(31,319)
-

–
–
(59,125)

(43,251)
(31,319)
(59,125)

34,151

(59,125)

(24,974)

(804)
(2,889)
(14,095)
-

–
–
–
(6,322)

(804)
(2,889)
(14,095)
(6,322)

16,363

(65,447)

(49,084)

16
(32,063)
543
(1,181)

(16,322)
(3,696)

–
–
–
–

(65,447)
–

16
(32,063)
543
(1,181)

(81,769)
(3,696)

(20,018)

(65,447)

(85,465)

(20,331)
313
(5.80)

(65,447)
–
(18.68)

(85,778)
313
(24.48)

(48,034)
(28,283)
−

47,018

(1,229)
−
(17,327)
–

28,462

22
(31,301)
146
266

(2,405)
(2,698)

(5,103)

(6,126)
1,023
(1.75)

Statutory
total

US$’000

123,335

(48,034)
(28,283)
−

47,018

(1,229)
−
(17,327)
–

28,462

22
(31,301)
146
266

(2,405)
(2,698)

(5,103)

(6,126)
1,023
(1.75)

−

−
−
−

−

−
−
−
–

−

−
−
−
−

−
−

−

−
−
−

Year ended 31 December 2019

Year ended 31 December 2018

Adjusted
non-GAAP
results
US$’000

Adjusting
items

US$’000

Statutory
total

US$’000

Adjusted
non-GAAP
results
US$’000

Adjusting
items

US$’000

Statutory
total

US$’000

Supplementary non-statutory information
Operating (loss)/profit
Add: Depreciation and amortisation

Non-GAAP EBITDA

16,363
35,012

51,375

(65,447)
−

(49,084)
35,012

(65,447)

(14,072)

28,462
29,512

57,974

−
−

−

28,462
29,512

57,974

* The impairment charge on certain vessels and assets has been added back to operating loss to arrive at adjusted loss for the year ended 31 December 2019.
** Restructuring costs incurred are not considered part of the regular underlying performance of the business and so have been added back to arrive at adjusted operating

loss for the year ended 31 December 2019.

126 Gulf Marine Services PLC

32 Loss per share

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

Loss for the purpose of adjusted basic and diluted loss per share (US$’000) (Note 31)

Weighted average number of shares (‘000)

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

Basic loss per share (cents)
Diluted loss per share (cents)
Adjusted loss per share (cents)
Adjusted diluted loss per share (cents)

2019

2018

(85,778)

(20,331)

350,357

(24.48)
(24.48)
(5.80)
(5.80)

(6,126)

349,895

(1.75)
(1.75)
(1.75)
(1.75)

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

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

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

Adjusted diluted loss per share is calculated on the same basis but uses adjusted loss (Note 31) attributable to equity holders of
the Company.

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

Weighted average basic number of shares in issue

Weighted average diluted number of shares in issue

33 Revenue

Charter hire
Lease income
Messing and accommodation
Mobilisation and demobilisation
Sundry income
Maintenance

Further descriptions on the above types of revenue have been provided in Note 3.

2019
’000s

350,357

2018
’000s

349,895

2019

US$’000

2018

US$’000

59,060
39,144
7,724
1,639
832
322

67,218
41,659
11,871
777
1,611
199

108,721

123,335

Annual Report 2019

127

Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019

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

The restructuring costs charged to profit or loss consist of the following:

Staff costs
Consultancy fees
Business travel
Office/port closures

2019

US$’000

2018

US$’000

4,269
1,489
197
367

6,322

–
–
–
–

–

The total estimated restructuring costs to be incurred are US$ 6.3 million (2018: nil) and these costs were fully provided for in the current
period. During the year US$ 4.4 million (2018: nil) was incurred and the remaining provision of US$ 1.9 million (2018: nil) is expected to be fully
utilised over the next 12 months.

35 Finance income

Bank and other income

36 Finance expenses

Interest on bank borrowings
Interest on finance leases
Amortisation of issue costs and commitment fees

37 Loss for the year
The loss for the year is stated after charging/(crediting):

Total staff costs (see below)
Depreciation of property, plant and equipment (Note 5)
Amortisation of dry docking expenditure (Note 6)
Provision for ECL on 31 December 2017 balance (Note 9)
Movement in ECL provision during the year (Note 9)
Provision for doubtful debts on trade receivables (Note 9)
Provision for doubtful debts on accrued revenue (Note 9)
Recovery of doubtful debts (Note 9)
Foreign exchange gain, net
Gain on disposal of asset
Operating leases rentals
Auditor’s remuneration (see below)

The average number of full time equivalent employees (excluding non-executive directors) by geographic area was:

Middle East and Northern Africa
Rest of the world

128 Gulf Marine Services PLC

2019

US$’000

2018

US$’000

2019

US$’000

31,366
284
413

32,063

2018

US$’000

30,601
−
700

31,301

2019

US$’000

2018

US$’000

31,657
29,849
2,275
−
(30)
14
−
−
1,181
(14)
−
771

33,207
27,312
2,200
31
63
50
530
(563)
(266)
(6)
2,080
419

2019

Number

2018

Number

426
56

482

388
107

495

The total number of full time equivalent employees (including executive directors) as at 31 December 2019 was 461 (31 December 2018: 536).
Their aggregate remuneration comprised:

Wages and salaries
Employment taxes
End of service benefit (Note 20)
Share based payment charge (Note 28)

The analysis of the auditor’s remuneration is as follows:

Group audit fees
Subsidiary audit fees

Total audit fees
Audit-related assurance services – interim review

Total fees

2019

US$’000

2018

US$’000

30,756
138
537
226

31,657

31,490
140
592
985

33,207

2019

US$’000

2018

US$’000

287
164

451
320

771

248
68

316
103

419

For further information on the Group’s policy in respect of Auditor’s remuneration see page 45 of the Report of the Audit and Risk Committee.

38 Notes to the consolidated statement of cash flows

Operating activities
Loss for the year
Adjustments for:
Depreciation of property, plant and equipment (Note 5)
Amortisation of dry docking expenditure (Note 6)
Impairment charge (Note 5)
Amortisation of IFRS 16 leases (Note 7)
Income tax expense (Note 8)
End of service benefits charge (Note 20)
End of service benefits paid (Note 20)
Provision for ECL on 31 December 2017 balances (Note 9)
Movement in ECL provision during the year (Note 9)
Provision for doubtful debts on trade receivables (Note 9)
Provision for doubtful debts on accrued revenue (Note 9)
Recovery of doubtful debts (Note 9)
Share options rights charge (Note 16)
Interest income (Note 35)
Interest expense (Note 36)
Interest on finance leases
Gain on disposal of assets
Unrealised forex loss
Other income
Amortisation of issue costs (Note 36)

Cash flow from operating activities before movement in working capital
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables

Cash generated from operations
Taxation paid

Net cash generated from operating activities

2019

US$’000

2018

US$’000

(85,465)

(5,103)

29,849
2,275
59,125
2,891
3,696
537
(979)
−
(30)
14
(530)
−
227
(16)
31,366
284
(14)
77
(513)
413

43,207
2,875
8,320

54,402
(3,058)

51,344

27,312
2,200
−
−
2,698
592
(1,058)
31
63
50
530
(563)
985
(22)
30,601
−
(6)
–
(140)
700

58,870
(22,593)
(4,821)

31,456
(2,580)

28,876

Annual Report 2019

129

Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019

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

At 1 January 2018
Financing cash flows*
Non-cash changes:
Amortisation of discount on financial liabilities

At 31 December 2018
Financing cash flows*
Non-cash changes:
Amortisation of discount on financial liabilities

At 31 December 2019

Bank Borrowings
(Note 22)
US$’000

411,783
(653)

385

411,515
(13,329)

316

398,502

* The cash flows from bank borrowings and obligations under finance leases make up the net amount of repayment of bank borrowings, payment of issue costs and

payment on finance leases in the statement of cash flows.

39 Events after the reporting period
Sale of Naashi
In January 2020 the sale of Naashi which had previously been classified as an asset held for sale completed. A gain of US$ 0.3m has been
realised upon disposal.

Refinancing update
On 31 March 2020, the Group agreed with its lenders 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. In addition, 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. Refer to Note 3 for more details.

COVID-19 and oil price
GMS continues to monitor the Coronavirus pandemic, which is causing macro-economic risks which may impact our performance.
There has been an unprecedented drop in global demand for energy and while OPEC+ have already taken steps to mitigate this by agreeing
to reduce supply by 10% in April 2020, GMS cannot ignore the current challenges. Like many other businesses, the Group has taken steps
to maintain short-term liquidity. The magnitude and financial impact of this remains uncertain at present but could have a significant impact
on future earnings, cash flow and financial position.

Non-binding proposal to acquire the Company by Seafox International Limited (‘Seafox’)
As announced 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 is currently considering the Proposal as of the date of this
report. 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.

These consolidated financial statements were approved by the Board of Directors and authorised for issue on 30 April 2020.

130 Gulf Marine Services PLC

COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019

Non-current assets
Investments in subsidiaries
Deferred tax asset

Total non-current assets

Current assets
Other receivables
Cash and cash equivalents

Total current assets

Total assets

Current liabilities
Other payables

Net assets

Equity
Share capital
Share premium account
Share option reserve
Retained earnings

Total equity

Notes

2019
US$’000

2018
US$’000

5
6

8
8
8
8

573,546
–

573,546

573,546
575

574,121

14
1

21
559

580

573,561

574,701

12,998

560,563

11,573

563,128

58,057
93,080
3,569
405,857

560,563

57,992
93,080
3,410
408,646

563,128

The Company reported a loss for the financial year ended 31 December 2019 of US$ 2.8 million (2018: US$ 2.4 million).

The financial statements of Gulf Marine Services PLC (registered number 08860816) were approved by the Board of Directors and authorised
for issue on 30 April 2020.

Signed on behalf of the Board of Directors

Tim Summers
Interim Executive Chairman

Stephen Kersley
Chief Financial Officer

The attached Notes 1 to 13 form an integral part of these financial statements.

Annual Report 2019

131

Financial Statements

COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019

At 1 January 2018

Loss for the year
Share options rights charge (Note 8)
Shares issued under LTIP schemes (Note 8)

At 31 December 2018
Loss for the year
Share options rights charge (Note 8)
Shares issued under LTIP schemes (Note 8)

At 31 December 2019

Share
capital

US$’000

57,957

−
−
35

57,992
–
–
65

58,057

Share
premium
account
US$’000

93,075

−
−
5

93,080
–
–
–

93,080

Share
option reserve

US$’000

2,465

−
985
(40)

3,410
–
224
(65)

Retained
earnings
US$’000

411,088

(2,442)
−
−

408,646
(2,789)
–
–

Total
equity

US$’000

564,585

(2,442)
985
−

563,128
(2,789)
224
–

3,569

405,857

560,563

132 Gulf Marine Services PLC

COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2019

Net cash used in operating activities

Financing activities
Increase in intercompany payables

Net cash generated from financing activities

Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

The attached Notes 1 to 13 form an integral part of these financial statements.

Notes

2019
US$’000

(2,286)

2018
US$’000

(1,554)

1,728

(558)
559

1,572

18
541

559

Annual Report 2019

133

Financial StatementsNOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019

1 Corporate information
Gulf Marine Services PLC (“the Company”) is a private limited company incorporated in the United Kingdom under the Companies Act.
On 7 February 2014, the Company re-registered as a public limited company. The address of the registered office of the Company is
6th Floor, 65 Gresham Street, London, EC2V 7NQ. The registered number of the Company is 08860816.

The Company is the parent company of the Gulf Marine Services Group comprising of Gulf Marine Services PLC and its underlying
subsidiaries (“Group”). The consolidated group accounts are publicly available.

These separate financial statements were approved and authorised for issue by the Board of Directors of the Company on 30 April 2020.

2 Accounting policies
Adoption of new and revised International Financial Reporting Standards (IFRS)
The accounting policies and methods of computation adopted in the preparation of these financial statements are consistent with those
followed in the preparation of the annual financial statements for the year ended 31 December 2018, other than as listed below.

New and revised IFRSs applied with no material effect on the financial statements
The following new and revised IFRSs have been adopted in these financial statements. The application of these new and revised IFRSs has
not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions
or arrangements.

New and revised IFRSs

IFRS 16 Leases (as issued by the IASB in January 2016).

The standard replaces the existing guidance on leases, including IAS 17 “Leases”, IFRIC 4
‘Determining whether an Arrangement contains a Lease”, SIC 15 “Operating Leases – Incentives”
and SIC 27 “Evaluating the Substance of Transactions in the Legal Form of a Lease”.

IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant
changes to the lessee accounting by removing the distinction between operating and finance leases and requiring
the recognition of a right-of-use asset and a lease liability at the lease commencement for all leases, except
for certain short-term leases and leases of low value asset. In contrast to lessee accounting, the requirements
for lessor accounting have remained largely unchanged. Therefore, IFRS 16 does not have an impact for leases
where the Company is the lessor.

Amendments to IFRS 9 Prepayment Features with Negative Compensation and Modification
of financial liabilities
The amendments to IFRS 9 clarify that for the purpose of assessing whether a prepayment feature meets the Solely
Payment of Principal and Interest (“SPPI”) condition, the party exercising the option may pay or receive reasonable
compensation for the prepayment irrespective of the reason for prepayment. In other words, prepayment features
with negative compensation do not automatically fail SPPI.

The amendment applies to annual periods beginning on or after 1 January 2019, with earlier application permitted.
There are specific transition provisions depending on when the amendments are first applied, relative to the initial
application of IFRS 9.

Annual Improvements to IFRSs 2015-2017 Cycle Amendments to IFRS 3 Business Combinations,
IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs
The Annual Improvements include amendments to four Standards.

IAS 12 Income Taxes
The amendments clarify that an entity should recognise the income tax consequences of dividends in profit or loss,
other comprehensive income or equity according to where the entity originally recognised the transactions that
generated the distributable profits. This is the case irrespective of whether different tax rates apply to distributed and
undistributed profits.

IAS 23 Borrowing costs
The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its
intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the
capitalisation rate on general borrowings.

IFRS 3 Business Combinations
The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, the entity
applies the requirements for a business combination achieved in stages, including re-measuring its previously held
interest (“PHI”) in the joint operation at fair value. The PHI to be re-measured includes any unrecognised assets,
liabilities and goodwill relating to the joint operation.

134 Gulf Marine Services PLC

Effective for annual
periods beginning

on or after

1 January 2019

New and revised IFRSs

IFRIC 23 Uncertainty over Income Tax Treatments
The interpretation addresses the determination of taxable profit (tax loss), tax bases, unused tax losses,
unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12.
It specifically considers:
• Whether tax treatments should be considered collectively;
• Assumptions for taxation authorities’ examinations;
• The determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits

and tax rates; and

• The effect of changes in facts and circumstances.

Effective for annual
periods beginning

on or after

1 January 2019

New and revised IFRSs in issue but not yet effective
At the date of authorisation of these financial statements, the following new and revised IFRSs were in issue but not yet effective:

New and revised IFRSs

Definition of Material – Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors
The new definition states that, ‘Information is material if omitting, misstating or obscuring it could reasonably
be expected to influence decisions that the primary users of general purpose consolidated financial statements
make on the basis of those consolidated financial statements, which provide financial information about a specific
reporting entity.’

Definition of a Business – Amendments to IFRS 3 Business Combinations
The amendments clarify that to be considered a business, an integrated set of activities and assets must include,
at a minimum, an input and a substantive process that together significantly contribute to the ability to create output.
IASB also clarify that a business can exist without including all of the inputs and processes needed to create outputs.
That is, the inputs and processes applied to those inputs must have ‘the ability to contribute to the creation of outputs’
rather than ‘the ability to create outputs’.

Amendments to References to the Conceptual Framework in IFRS Standards
Amendments to References to the Conceptual Framework in IFRS Standards related IFRS 2, IFRS 3, IFRS 6,
IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32 to update those
pronouncements with regard to references to and quotes from the framework or to indicate where they refer
to a different version of the Conceptual Framework.

IFRS 7 Financial Instruments: Disclosures and IFRS 9 – Financial Instruments
Amendments regarding pre-replacement issues in the context of the IBOR reform

IFRS 17 Insurance Contracts
IFRS 17 requires insurance liabilities to be measured at a current fulfilment value and provides a more uniform
measurement and presentation approach for all insurance contracts. These requirements are designed to achieve
the goal of a consistent, principle-based accounting for insurance contracts. IFRS 17 supersedes IFRS 4 Insurance
Contracts as at January 1, 2022.

Effective for annual
periods beginning

on or after

1 January 2020

1 January 2021

Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and
Joint Ventures (2011) relating to the treatment of the sale or contribution of assets from and investor to its associate
or joint venture.

Effective date deferred
indefinitely. Adoption
is still permitted.

Management anticipates that these new standards, interpretations and amendments will be adopted in the financial statements as and when
they are applicable and adoption of these new standards, interpretations and amendments may have no material impact on the financial
statements of the Company in the period of initial application.

Currency
The functional and presentational currency of the Company is US Dollars (“US$”).

Annual Report 2019

135

Financial StatementsNOTES TO THE COMPANY FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019

2 Accounting policies continued
Going concern
The Company’s Directors have assessed the Company’s financial position for a period of not less than 12 months from the date of approval
of the full year results.

The Group had committed credit facilities in place at 31 December 2019 (see Note 22 to the consolidated financial statements), comprising an
existing Term Loan facility with a balance of US$ 373.5 million and a Cash Working Capital Facility of US$ 25.0 million which was fully drawn.

On 31 March 2020, the Group’s banks agreed to waive the testing requirement of all covenants for the 31 December 2019 test date. While
the Group was able to service Term Loan interest and amortisation repayments through 2019, it was unable to continue to meet the capital
repayment schedule from March 2020 onwards, when the repayments materially increased. A waiver for the US$ 15.5 million amortisation
payment on the term loan as at 31 March 2020 was also received on 31 March 2020.

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 reached agreement in principle on a draft Term Sheet for the restructure of its existing debt facilities. 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.

Should final loan documentation not be put in place by 30 June 2020, when the next set of the current amortisation payments fall due, the
banks would retain the right, under the existing loan terms, to call default on the loans, as of that date. This would allow a majority of banks,
representing at least 66.67% of total commitments, to exercise their rights to recall all credit facilities, demand immediate repayment and/or
enforce its rights over the security granted by the Company as part of this facility either through enforcing security over assets and/or
exercising the share pledge to take control of the Group.

The Directors consider that if the Group’s debt were to be restructured in line with the proposed Term Sheet, it would address the current
challenges it currently faces in being able to comply with both the covenant terms and the amortisation profile under the existing banking
facilities. It would also give the Group access to working capital and bonding facilities each totalling US$ 25.0 million, which are important
for GMS to conduct its business efficiently.

In addition, and in particular subsequent to the Group having repaid the interest payment of US$ 7.0 million that fell due under the terms of
the Group’s existing bank facilities on 31 March 2020, 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 further access is obtained to additional working capital facilities.

Notwithstanding the above, the Directors are confident that they can successfully manage the risks around maintaining the Group’s liquidity
over the period until its debt facilities are expected to be restructured. This confidence is based on a number of factors and/or mitigating
actions available to them to do so, including:
• 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.

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 Company’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 Company can continue to continue to realise its assets and discharge its liabilities in the normal
course of business. Accordingly, they have adopted the going concern basis of accounting in preparing the 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 associated risks are mitigated to a substantial degree by the high level of committed contracts underpinning current
forecasts; preventive measures taken by management to mitigate operational risks; continued evidence of demand in our core Middle Eastern
market; further cost cutting measures taken to improve financial resilience in the current environment.

This matter is further discussed in the Group’s Long Term Viability Statement on page 25.

Seafox International Limited has announced that it made a non-binding proposal to the Board of GMS on 26 April 2020 (see Note 39 for
details). The Board has considered the existence of the Proposal in its assessment of going concern and has concluded that it neither alters
the nature of the material uncertainties, nor the Board’s conclusion in respect of the adoption of the going concern basis in these
consolidated financial statements.

136 Gulf Marine Services PLC

Basis of accounting
The separate financial statements of the Company are presented as required by the Companies Act 2006. They have been prepared under
the historical cost convention, modified to include certain items at fair value, and in accordance with Financial Reporting Standard 102
(FRS 102) issued by the Financial Reporting Council.

The Company has elected to take the exemption under Section 408 of the Companies Act 2006 (the ‘Act’) to not present the Company
Income Statement nor the Company Statement of Comprehensive Income. The result for the Company for the year was a loss of
US$ 2.8 million (2018: loss of US$ 2.4 million).

The principal accounting policies are summarised below. They have all been applied consistently throughout the year.

Investments
Investments in subsidiaries and associates are recognised at cost, which is the previous GAAP carrying value at the transition date,
less impairment.

Financial instruments
Financial assets and financial liabilities are recognised in the Company’s statement of financial position, when the Company becomes a party
to the contractual provisions of the instrument.

Financial liabilities
Financial liabilities are classified as either financial liabilities at Fair Value Through Profit or Loss (“FVTPL”) or ‘other financial liabilities’.

Other payables are classified as “other financial liabilities”. Other financial liabilities, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest rate (“EIR”) method, with interest expense
recognised on an effective yield basis, except for short-term payables or when the recognition of interest would be immaterial.

The EIR method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period.
The EIR is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where
appropriate, a shorter period.

Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire.

Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Financial assets
All financial assets are recognised and derecognised on a trade date basis where the purchase or sale of a financial asset is under a contract
whose terms require delivery of the asset within the timeframe established by the market concerned. They are initially measured at fair value,
plus transaction costs, except for those financial assets classified as at FVTPL account, which are initially measured at fair value.

Financial assets are classified into the following specified categories: financial assets at FVTPL, ‘held-to-maturity’ investments, ‘available-for-
sale’ (AFS) financial assets and ‘loans and receivables’. The classification of financial assets at initial recognition depends on the nature and
purpose of the financial assets and is determined at the time of initial recognition.

Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective
evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows
of the investment have been affected.

Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand form an integral part
of the Company’s cash management and are included as a component of cash at bank and in hand for the purpose of the statement of
cash flows.

Loans and receivables
Loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and
receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income
is recognised by applying the effective interest rate method, except for short-term receivables when the recognition of interest would
be immaterial.

Annual Report 2019

137

Financial StatementsNOTES TO THE COMPANY FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019

2 Accounting policies continued
Taxation
Current tax, including UK Corporation tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have
been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the reporting date where transactions
or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the reporting date.
Deferred tax is measured on a non-discounted basis. Timing differences are differences between the Company’s taxable profits and its
results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessment periods different from those
in which they are recognised in the financial statements.

Unrelieved tax losses and other deferred tax assets are recognised only to the extent that, on the basis of all available evidence, it can be
regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences
can be deducted.

Deferred tax is measured using the tax rates and laws that have been enacted or substantively enacted by the reporting date that are
expected to apply to the reversal of the timing difference.

Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the contracted rate or the rate of exchange ruling at the balance sheet date and the
gains or losses on translation are included in the profit or loss account.

Share-based payments
The fair value of an equity instrument is determined at the grant date based on market prices if available, taking into account the terms and
conditions upon which those equity instruments were granted. If market prices are not available for share awards, the fair value of the equity
instruments is estimated using a valuation technique to derive an estimate of what the price of those equity instruments would have been at
the relevant measurement date in an arm’s length transaction between knowledgeable, willing parties.

Equity-settled share-based payments to employees are measured at the fair value of the instruments, using a binomial model together with
Monte Carlo simulations as at the grant date, and is expensed over the vesting period. The value of the expense is dependent upon certain
key assumptions including the expected future volatility of the Company’s share price at the date of grant.

The fair value measurement reflects all market based vesting conditions. Service and non-market performance conditions are taken into
account in determining the number of rights that are expected to vest. The impact of the revision of the original estimates, if any, is recognised
in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

3 Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company’s accounting policies, which are described in Note 2, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results
may differ from these estimates.

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

The following is the key sources of estimations and judgements which management have made in the process of applying the Company’s
accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Key sources of estimation uncertainty
Recoverability of investments
Investments in subsidiary undertakings are included in the statement of financial position of the Company at deemed cost less any provision
for impairment. The Company performs impairment reviews in respect of investments whenever events or changes in circumstance indicate
that the carrying amount may not be recoverable. In 2019 impairments totalling US$ 59.1 million were recognised on three vessels and some
equipment, driven by challenging market conditions in North West Europe, the fall in share price of the Company and the intention to dispose
of a non-core non-operating vessel (the Naashi). Refer to the consolidated financial statements for further details on all. These assets are
held in the Company’s subsidiaries. Accordingly, the investments in subsidiaries were assessed for impairment. The assessment was done
by comparing the carrying value of the investments with the recoverable amount, being the value in use of the vessels held in the Group’s
subsidiaries less debt held in the Group. An impairment loss is recognised when the recoverable amount of an asset, which is the higher of
the asset’s net realisable value and its value in use, is less than its carrying amount. The resulting recoverable amount for each investment
exceeded its carrying value and therefore no impairment was recognised as at 31 December 2019, and the carrying value remained at
US$ 573.5 million (2018: US$ 573.5 million).

138 Gulf Marine Services PLC

Critical accounting judgements
Going concern
As disclosed in Note 2, the Company’s Directors’ have assessed the Company’s financial position for a period of not less than 12 months
from the date of approval of the full year results and have a reasonable expectation that the Company will be able to continue in operational
existence for the foreseeable future. Specifically, notwithstanding the material uncertainties in respect of going concern with regard to the
need to complete binding loan documentation for the Group’s restructured banking facilities and the Group’s tight short-term liquidity
position, the Directors’ consider there to be a reasonable prospect of the documentation being completed in a timely fashion and that the
Group’s working capital and liquidity position can be managed. Accordingly the going concern basis of accounting in preparing the financial
statements has been adopted. The impact of COVID-19 and the low oil price environment has been fully considered in making this key
judgement.

4 Dividends
There was no interim dividend declared or paid in 2019 (2018: Nil).

No final dividend in respect of the year ended 31 December 2019 (2018: Nil at the 2019 AGM) is to be proposed at the 2020 AGM.

5 Investments in subsidiaries

Investments in subsidiaries

The Company has investments in the following subsidiaries:

Name

Gulf Marine Services
W.L.L.

Place of
Registration

United Arab
Emirates

Gulf Marine Services
W.L.L. – Qatar Branch

United Arab
Emirates

GMS Global
Commercial Invt LLC

GMS Marine
Middle East FZE

Gulf Marine Saudi Arabia
Co. Limited

United Arab
Emirates

Saudi Arabia

Registered Address

MN1 Mussafah Base,
Mussafah Industrial Area Abu Dhabi,
P.O. Box 46046 United Arab Emirates

Al Mariah Island, Al Sowwa Square,
Abu Dhabi United Arab Emirates

ELOB, Office No. E-16F-04, P.O. Box
53944, Hamriyah Free Zone, Sharjah

P. O. Box 257, Dammam 31411
Saudi Arabia

Gulf Marine Services LLC Qatar

Qatar Financial Centre, Doha

United Kingdom c/o MacKinnon’s, 14 Carden Place,

Gulf Marine Services (UK)
Limited

GMS Jersey Holdco.
1 Limited*

GMS Jersey Holdco.
2 Limited

Jersey

Offshore Holding Invt SA

Panama

Offshore Logistics Invt SA Panama

Offshore Accommodation
Invt SA

Panama

Offshore Jack-up Invt SA Panama

Offshore Craft Invt SA

Panama

Aberdeen, AB10 1UR

43/45 La Motte Street, St Helier,
Jersey, JE4 8SD

Salduba Building, 53rd East Street,
Urbanización Marbella Panama City,
Republic of Panama

2019
US$’000

573,546

2018
US$’000

573,546

Proportion of
Ownership Interest

2019

100%

2018

Type of Activity

100% Marine Contractors

100%

100% Marine Contractors

100%

100% General Investment

100%

100% Operator of Offshore Barges

75%

75% Operator of Offshore Barges

100%

100% Marine Contractor

100% Operator of Offshore Barges

100%

100% General Investment

100%

100% General Investment

100%

100% Holding Company

100%

100% Owner of Barge “Naashi”

100%

100% Special Purpose Vehicle

(Dormant)

100%

100% Owner of Barge “Kamikaze”

100%

100% Owner of Barge
“GMS Endeavour”

Annual Report 2019

139

Financial StatementsNOTES TO THE COMPANY FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019

5 Investments in subsidiaries continued

Name

Place of
Registration

Registered Address

Offshore Structure Invt SA Panama

Offshore Maritime Invt SA Panama

Offshore Tugboat Invt SA Panama

Offshore Boat Invt SA

Panama

Offshore Kudeta Invt SA

Panama

GMS Endurance Invt SA

Panama

GMS Enterprise
Investment SA

GMS Sharqi
Investment SA

GMS Scirocco
Investment SA

GMS Shamal
Investment SA

Panama

GMS Keloa Invt SA

Panama

GMS Pepper Invt SA

Panama

GMS Evolution Invt SA

Panama

Salduba Building, 53rd East Street,
Urbanización Marbella Panama City,
Republic of Panama

Proportion of
Ownership Interest

2019

100%

2018

Type of Activity

100% Owner of Barge “Kikuyu”

100%

100% Owner of “Helios” – Dormant

100%

100% Owner of “Atlas” – Dormant

100%

100% Owner of Barge “Kawawa”

100%

100% Owner of Barge “Kudeta”

100%

100% Owner of Barge “Endurance”

100%

100% Owner of Barge “Enterprise”

100%

100% Owner of Barge “Sharqi”

100%

100% Owner of Barge “Scirocco”

100%

100% Owner of Barge “Shamal”

100%

100% Owner of Barge “Keloa”

100%

100% Owner of Barge “Pepper”

100%

100% Owner of Barge “Evolution”

Mena Marine Limited

Cayman Islands Ugland House, Grand Cayman, KY1-1104,

100%

Cayman Islands, P.O. Box 309

100% General Investment
and Trading

Gulf Marine Services
(Asia) Pte. Ltd.

Singapore

1 Scotts Road, #21-07, Shaw Centre,
Singapore, 228208

100%

100% Operator of

Offshore Barges

* Held directly by Gulf Marine Services PLC.

140 Gulf Marine Services PLC

6 Deferred tax asset
At the reporting date, the Company has unused tax losses of US$ 4.8 million available for offset against future profits (2018: US$ 3.4 million).
A deferred tax asset arises from the difference in the accounting value of an asset and tax value of an asset pertaining to the difference in
the capital allowances and depreciation or trading losses. The deferred tax asset related to trading losses from Gulf Marine Services (UK)
Limited and Gulf Marine Services PLC which are expected to be utilised in the future. Deferred tax is only applicable in the UK and on vessels
operating in the UK. In assessing forecasts of future profits affecting the amount recognised for a deferred tax asset, management exercises
judgement. As part of the process for determining future profitability, judgements are made on utilisation of the vessels operating within the
United Kingdom Continental Shelf (“UKCS”), achievable day rates and operating costs of the vessel.

In 2019, the Group relocated two E-Class vessels from the UK to the Middle East and Northern Africa (MENA) region. As a result the current
year assessment was on the remaining E-Class vessel. Based on the projections of UK activity for 2020 to 2024, there are insufficient future
taxable profits to justify the recognition of a deferred tax asset. On this basis the deferred tax asset has been derecognised during the year
ended 31 December 2019 (2018: US$ 0.6 million).

7 Other payables

Amounts owed to Group undertakings (Note 9)
Other payables

2019
US$’000

12,321
677

12,998

2018
US$’000

10,593
980

11,573

The amounts outstanding are unsecured and have no special conditions attached to them. No guarantees have been given or received.

8 Share capital and reserves
The share capital of Gulf Marine Services PLC was as follows:

At 31 December 2019
Authorised share capital
Issued and fully paid

At 31 December 2018
Authorised share capital
Issued and fully paid

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

Number of
ordinary shares
(thousands)

Ordinary
shares

US$’000

350,488
350,488

349,968
349,968

58,057
58,057

57,992
57,992

Total

US$’000

58,057
58,057

57,992
57,992

Total
US$’000

151,032
40

151,072

Total
US$’000

151,072

Number of
ordinary shares
(thousands)

Ordinary
shares

US$’000

Share premium
account
US$’000

349,704
264

349,968

57,957
35

57,992

93,075
5

93,080

Number of
ordinary shares
(thousands)

Ordinary
shares

US$’000

Share premium
account
US$’000

349,968

520

57,992

93,080

–

350,488

58,057

93,080

151,137

At 1 January 2018
Shares issued under LTIP schemes

At 31 December 2018

At 1 January 2019

Shares issued under LTIP schemes

At 31 December 2019

The Company has one class of ordinary shares, which carry no right to fixed income.

Annual Report 2019

141

Financial StatementsNOTES TO THE COMPANY FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019

8 Share capital and reserves (continued)
On 6 July 2017, the Company issued a total of 176,169 ordinary shares at a par value of 10 pence per share in respect of the Company’s 2014
long-term incentive plan.

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

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

The share premium account contains the premium arising on issue of equity shares, net of related costs.

The Company’s share option reserve of US$ 3.5 million (2018: US$ 3.4 million) relates to awards granted to employees of a subsidiary
undertaking under a long-term incentive plan, details of which are provided in Note 11. The share option charge during the year was
US$ 0.2 million (2018: US$ 1.0 million).

The retained earnings represent cumulative profits or losses net of dividends paid and other adjustments.

9 Related party transactions
The Company has taken advantage of the exemption from disclosing related party transactions with other wholly owned Group companies
as provided by paragraph 33.1A of FRS 102. The Company and all companies with whom related party transactions took place in the year
are wholly owned Group companies, the consolidated accounts of which are publicly available.

Remuneration of key management personnel during the year comprised short-term benefits of US$ 879,840 (2018: US$ 548,458).

10 Net cash used in operating activities

Operating activities
Loss for the year before taxation
Adjustment for:
Share based payment expense

Cash outflow from operating activities before movement of working capital
Increase/(decrease) in other receivables
(Decrease)/increase in other payables

Net cash used in operating activities

2019
US$’000

2018
US$’000

(2,214)

(2,741)

224

(1,990)
7
(303)

(2,286)

985

(1,756)
(2)
204

(1,554)

11 Long term incentive plans
The Company has Long Term Incentive Plans (LTIPs), performance shares and share options which were granted to senior management,
managers and senior offshore officers. The details of the senior management LTIPs are contained in the Directors’ Remuneration Report on
page 67. The release of these shares is conditional upon continued employment, certain market vesting conditions and in the case of senior
management LTIP awards; performance against three-year target EPS compound annual growth rates. Equity-settled share-based payments
are measured at fair value at the date of grant. The fair value determined, using the Binomial Probability Model together with Monte Carlo
simulations, at the grant date of equity-settled share-based payments, is expensed on a straight-line basis over the vesting period, based
on an estimate of the number of shares that will ultimately vest. The fair value of each award is determined by taking into account the market
performance condition, the term of the award, the share price at grant date, the expected price volatility of the underlying share and the
risk-free interest rate for the term of the award.

Non-market vesting conditions, which for the Company mainly relate to the continual employment of the employee during the vesting period,
and in the case of the senior management LTIP awards the achievement of EPS growth targets, are taken into account by adjusting the
number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting
period is based on the number of options that eventually vest. Any market vesting conditions are factored into the fair value of the
options granted.

To the extent that share options are granted to employees of the Company’s subsidiaries without charge, the share option charge is
capitalised as part of the cost of investment in subsidiaries.

142 Gulf Marine Services PLC

The number of share awards granted by the Company during the year is given in the table below together with their weighted average
exercise price (‘WAEP’).

At the beginning of the year
Granted in the year
Exercised during the year
Forfeited in the year
Lapsed

At end of the year

Exercisable at the end of the year

2019

No.

WAEP

2018

No.

WAEP

9,814,485
3,425,775
(519,909)
(1,424,494)
(2,527,563)

8,768,294

–

–
–
–
–
–

–

5,897,948
8,420,379
(263,905)
(2,612,718)
(1,627,219)

9,814,485

−

−
−
−
−
−

−

The weighted average remaining contractual life for the share options outstanding as at 31 December 2019 was 1.9 years (2018: 1.5 years).
The weighted average fair value of options granted during the year was US$ 0.70 (2018: US$ 0.38).

Outlined below is a summary of the assumptions which have been used to determine the fair value of the share awards:

Grant date
Share price
Exercise price
Expected volatility
Risk-free rate
Expected dividend yield
Vesting period
Award life

LTIP

15 November 2019
£0.08
£0.00
102.79%
0.48%
0.00%
3 years
3 years

23 March 2018
£0.37
£0.00
52.89%
1.04%
1.0%
3 years
3 years

The charge arising from share-based payments is disclosed in Note 8.

12 Financial instruments
Capital risk management
The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders.

The capital structure of the Company consists of cash and short-term deposits and equity attributable to equity holders of the Company,
comprising issued capital, reserves and loss for the period as disclosed in Note 8.

The Company is not subject to any externally imposed capital requirements.

Significant accounting policies
Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement and
the bases for recognition of income and expenses) for each class of financial asset, financial liability and equity instrument are disclosed
in the accounting policies to the financial statements (see Note 2).

Annual Report 2019

143

Financial StatementsNOTES TO THE COMPANY FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019

12 Financial instruments (continued)
Categories of financial instruments

Financial assets:
Financial assets at amortised cost:
Other receivables
Cash and cash equivalents

Total financial assets

Financial liabilities:
Financial liabilities at amortised cost:
Other payables (Note 7)

Total financial liabilities

All financial liabilities are repayable upon demand.

2019
US$’000

2018
US$’000

14
1

21
559

580

2019
US$’000

2018
US$’000

12,998

11,573

Financial risk management objectives and policies
The Group/Company has considered the risks arising from Brexit on amounts presented in these financial statements. From 2020 there
is one vessel operating in North West Europe and no UK-based employees or operations, therefore the exposure is not considered to be
significant. The Company is exposed to the following risks related to financial instruments – credit risk, cash flow and liquidity risk, foreign
currency risk and interest rate risk. The management actively monitors and manages these financial risks relating to the Company.

Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company, and arises
principally from the Company’s other receivables. The Company has adopted a policy of only dealing with creditworthy counterparties, for
whom the credit risk is assessed to be low. The Company attempts to control credit risk by monitoring credit exposures, limiting transactions
with specific non-related counterparties, and continually assessing the creditworthiness of such non-related counter-parties. Balances with
banks are assessed to have low credit risk of default since these banks are highly regulated by the central banks of the respective countries.

The amount that best represents maximum credit risk exposure on financial assets at the end of the reporting period, in the event
counterparties failing to perform their obligations generally approximates their carrying value. Other receivables are not secured by
any collateral.

The Company’s principal financial assets are bank balances, and intercompany and other receivables. The Company’s main credit risk is
primarily attributable to its key intercompany receivables. The Company has no other significant concentration of credit risk. For receivables,
the Company has applied the simplified approach in IFRS 9 to measure the loss allowance at lifetime expected credit loss (ECL). There is no
ECL required as at 31 December 2019.

Cash flow and liquidity risk
The Company does not have significant cash flow or liquidity risk, however is exposed to the liquidity risk of the Group, especially as current
liabilities exceed current assets by US$ 12,983k and the liabilities are predominantly amounts owed to members of the Group. The Group’s
liquidity challenges are outlined in Note 2.

Foreign currency risk management
The majority of the Company’s transactions are in either UAE Dirhams or US$. Transactions in other foreign currencies entered into by the
Company are short term in nature and therefore management considers that the currency risk associated with these transactions is limited
and consequently this risk is not hedged.

Interest rate risk management
The Company’s financial assets and financial liabilities are interest-free; accordingly, the Company is not subject to any interest rate risk.

Fair value of financial assets and liabilities
The Company’s management considers that the fair value of financial assets and financial liabilities approximates their carrying amounts.

144 Gulf Marine Services PLC

13 Events after the reporting period
Sale of Naashi
In January 2020 the sale of Naashi which had previously been classified as an asset held for sale completed. A gain of US$ 0.3m has been
realised upon disposal.

COVID-19 and oil price
GMS continues to monitor the Coronavirus pandemic, which is causing macro-economic risks which may impact our performance. There
has been an unprecedented drop in global demand for energy and while OPEC+ have already taken steps to mitigate this by agreeing to
reduce supply by 10% in April 2020, GMS cannot ignore the current challenges. Like many other businesses, the Group has taken steps
to maintain short-term liquidity. The magnitude and financial impact of this remains uncertain at present but could have a significant impact
on future earnings, cash flow and financial position.

Annual Report 2019

145

Financial StatementsGLOSSARY

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

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

Adjusted diluted loss per share – represents the adjusted (loss)/profit attributable to equity holders of the Company for the period divided
by the weighted average number of ordinary shares in issue during the period, adjusted for the weighted average effect of share options
outstanding during the period. The adjusted loss attributable to equity shareholders of the Company is earnings used for the purpose of basic
loss per share adjusted by adding back impairment charges and restructuring costs in 2019. This measure provides additional information
regarding earnings per share attributable to the underlying activities of the business. A reconciliation of this measure is provided in Note 31.

Adjusted EBITDA – represents operating loss after adding back depreciation and amortisation, impairment charges and restructuring costs
in 2019. This measure provides additional information in assessing the Group’s underlying performance that management is more directly
able to influence in the short term and on a basis comparable from year to year. A reconciliation of this measure is provided in Note 30.

Adjusted EBITDA margin – represents adjusted EBITDA divided by revenue. This measure provides additional information on underlying

performance as a percentage of total revenue derived from the Group.

Adjusted gross profit/(loss) – represents gross profit after adding back impairment charges in 2019. This measure provides additional

information on the core profitability of the Group. A reconciliation of this measure is provided in Note 30.

Adjusted net loss – represents net loss after adding back impairment charges and restructuring costs in 2019. This measure provides
additional information in assessing the Group’s total performance that management is more directly able to influence and on a basis
comparable from year to year. A reconciliation of this measure is provided in Note 31 of these results.

EBITDA – represents Earnings before Interest, Tax, Depreciation and Amortisation, which represents operating profit after adding back

depreciation and amortisation in 2019. This measure provides additional information of the underlying operating performance of the Group.
A reconciliation of this measure is provided in Note 31.

Group’s net bank debt (total bank borrowings less cash) – represents the total bank borrowings less cash. This measure provides

additional information of the Group’s financial position. A reconciliation is shown below;

Statutory bank borrowings
Less cash and cash equivalents

2019

US$’000

398,502
(8,404)

390,098

2018

US$’000

411,515
(11,046)

400,469

Net debt to proforma EBITDA – the ratio of net debt at year end to earnings before interest, tax, depreciation and amortisation, excluding

adjusting items, as reported under the terms of our bank facility agreement.

Segment adjusted gross profit/loss – represents gross profit/loss after adding back depreciation, amortisation and impairment
charges in 2019. This measure provides additional information on the core profitability of the Group attributable to each reporting
segment. A reconciliation of this measure is provided in Note 5.

146 Gulf Marine Services PLC

OTHER DEFINITIONS

Backlog

Borrowing rate

Calendar days

Costs capitalised

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

LIBOR plus margin.

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

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

EPC

engineering, procurement and construction.

Finance Service Cover

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

Interest Cover

represents the ratio of Adjusted EBITDA to Net finance charges.

IOC

LTIR

LIBOR

Independent Oil Company.

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.

London Interbank Offered Rate.

Net finance charges

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

Net leverage ratio

represents the ratio of net bank debt to Adjusted EBITDA.

Net cash flow before debt service

the sum of cash generated from operations and investing activities.

NOC

OSW

Proforma EBITDA

National Oil Company.

Offshore Wind.

represents EBITDA for covenant testing purposes being EBITDA (see definition above) for the trailing
12 months plus EBITDA contribution from new contracts, of at least six months in duration that commence
during a covenant testing period, with the EBITDA contribution from these contracts annualised
(unless contract duration is less than 12 months when total contract EBITDA contribution is applied).

Security Cover (loan to value)

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

Total Recordable Injury Rate (TRIR) calculated on the injury rate per 200,000 man hours and includes all our onshore and offshore personnel

and subcontracted personnel. Offshore personnel are monitored over a 24-hour period.

Utilisation

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

Annual Report 2019

147

Financial StatementsBoard of Directors
Tim Summers
Executive Chairman

Steve Kersley
Chief Financial Officer

Mike Turner
Senior Independent Non-Executive Director

David Blewden
Independent Non-Executive Director

Dr Shona Grant
Independent Non-Executive Director

Mo Bississo
Non-Executive Director

CORPORATE INFORMATION

Registered Office
Gulf Marine Services PLC
107 Hammersmith Road
London W14 0QH
United Kingdom
T: +44 (0) 20 7603 1515
F: +44 (0) 20 7603 8448

Company Secretary
Tony Hunter

Head Office
Gulf Marine Services
P.O. Box 46046
Abu Dhabi, UAE
T: +971 (2) 5028888
F: +971 (2) 5553421
E: IR@gmsuae.com

Website
www.gmsuae.com

Joint Corporate Broker
Bank of America Merrill Lynch
2 King Edward Street
London EC1A 1HQ

Joint Corporate Broker
Investec Bank
30 Gresham Street
London EC2V 7QP

Legal Advisers
Linklaters LLP
One Silk Street
London EC2Y 8HQ

Auditors
Deloitte LLP
2 New Street Square
London EC4A 3BZ

Public Relations Advisers
Brunswick Group LLP
16 Lincoln’s Inn Fields
London WC2A 3ED

Registrar
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA

148 Gulf Marine Services PLC

OUR CLIENTS

This publication was printed with vegetable oil-based inks by
an FSC-recognised printer that holds an ISO 14001 certification.
The outer cover of this report has been laminated with a biodegradable film.
Around 20 months after composting, an additive within the film will initiate
the process of oxidation.

Gulf Marine Services
P.O. Box 46046
Abu Dhabi, UAE
T: +971 (2) 5028888
F: +971 (2) 5553421
E: IR@gmsuae.com