GMS
Annual Report 2020

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G U L F M A R I N E S E R V I C E S P L C A n n u a l R e p o r t 2 0 2 0 Gulf Marine Services PLC Annual Report 2020 HIGHLIGHTS In this report Strategic Report Highlights Chairman’s Review People and Values Business Model & Strategic Objectives Section 172 Statement Market Analysis Risk Management Key Performance Indicators Financial Review Long-term Viability Statement Governance Chairman’s Introduction Board of Directors Report of the Board Audit and Risk Committee Report Nomination Committee Report Remuneration Committee Report Directors’ Report Financial Statements Independent Auditor’s Report Group Consolidated Financial Statements Company Financial Statements Glossary Other Definitions Corporate Information Also online at gmsplc.com/ar2020 2021 commentary is as at 20 May 2021 1 2 4 10 14 18 20 26 28 32 34 36 38 44 49 51 70 76 86 130 142 143 144 Our vision To be the best SESV operator in the world 2020 Overview Revenue US$ 102.5m (2019: US$ 108.7m) Utilisation 81% (2019: 69%) Adjusted EBITDA Annualised cost savings US$ 50.4m (2019: US$ 51.4m) US$ 20.7m (2019: US$ 13.0m) Loss for the year US$ (124.3m) (2019: US$ (85.5m)) 2020 Financial Highlights — Revenue fell by 6% to US$ 102.5 million (2019: US$ 108.7 million). Utilisation improved to 81% from 69% in 2019, with improvements in both of our core markets of MENA and North West Europe. This helped to offset the decrease in average rates of 18%, arising from the COVID-19 operating environment where delayed contract awards meant that two of our E-Class fleet were working at K-Class rates in order to meet demand. — Cost of sales reduced to US$ 70.9 million (2019: US$ 74.6 million) despite higher utilisation and incurring costs associated with relocating two vessels from Europe to the Middle East and costs arising from the impact of COVID-19 totalling US$ 6.8 million and US$ 2.3 million respectively. — Adjusted EBITDA1 at US$ 50.4 million was 2% lower than in 2019, while net cash flow before debt service2 reduced to US$ 31.9 million (2019: US$ 41.9 million). — Our cost structure has fundamentally changed, with the cost saving programme now having delivered US$ 20.7 million on an annualised basis, helping to improve underlying trading performance. — Impairment charges totalled US$ 87.2 million, on two of our E-Class vessels and five of our K-Class. — Loss for the year rose to US$ 124.3 million from US$ 85.5 million following the impairment, further restructuring and exceptional costs of US$ 5.6 million and the total write-off of US$ 16.2 million relating to the renegotiation of bank facilities in June 2020. 2020 Operational Highlights — HSE Performance improved with Lost Time Injury Rate at 0 (2019: 0.19) at the end of 2020. Total recordable injury rate was 0 (2019: 0.29). — Successful first-time deployment of cantilever system on GMS Evolution, a technology designed and developed by GMS. The vessel is now on a long-term contract with the same client. — Operational downtime remained low at less than 2%. — Average fleet utilisation increased to 81% (2019: 69%) with marked improvements in both E- and K-Class vessels to 65% (2019: 51%) and 86% (2019: 68%) respectively, reflecting increased demand in Middle East and North Africa (MENA) following the relocation of two E-Class to MENA at the beginning of the year. S-Class declined slightly at 92% (2019: 97%). — New charters and extensions secured in the year totalled just under seven years. 2020 Governance Highlights — Four Requisitioned General Meetings held during 2020 resulted in complete Board overhaul. — New Executive Chairman, Mansour Al Alami (appointed November 2020). — Rashed Al Jarwan joined as an Independent Non- Executive Director (appointed November 2020). — Saeed Abdullah Khoory joined as an Independent Non-Executive Director in November 2020 and sadly passed away in February 2021. — Hassan Heikal joined as Non-Executive Director (appointed November 2020). In February 2021 Mr Heikal was appointed Deputy Chairman. — Tim Summers resigned as Executive Chairman in November 2020. — Steve Kersley, Chief Financial Officer (CFO) removed from Board in June 2020 and resigned in November. Andy Robertson appointed his successor in February 2021. — Jyrki Koskelo joined the Board as an Independent Non- Executive Director in February 2021. 2021 Highlights and Outlook — Secured backlog was US$ 199.0 million as at 6 May 2021 (US$ 240 million as at 31 March 2020) with the decrease reflecting delays in some contract awards arising from COVID-19. — Seven of the fleet of 13 vessels are fully contracted for 2021. Secured utilisation for 2021 currently stands at 80% and 41% for 2022. — Following appointment of the new Board, the agreement reached with banks in 2021 offers a significant saving in interest costs and an extension of time in which to carry out an equity raise to prevent GMS having to issue warrants or apply PIK3 to its borrowings. — Current year-to-date4 unaudited EBITDA is in line with the Group’s 2021 Business Plan. See Glossary. 1 Represents operating loss after adding back depreciation and amortisation, impairment charges and exceptional items in 2020. A reconciliation of this measure is provided in Note 31. 2 Net cash flow before debt service is the sum of cash generated from operations and investing activities. 3 PIK is calculated at 5.0% per annum on the total term facilities outstanding amount and would have reduced to: a. 2.5% per annum when Net Leverage reduces below 5.0x b. Nil when Net Leverage reduces below 4.0x. 4 Three months to 31 March 2021. COVID-19 — Significant operational and financial risks experienced by all businesses across the energy sector persist. Four vessels reported COVID-19 cases during the year. — Restrictions on travel and quarantine periods proved the biggest challenge to the Company in the year. To overcome this, crew rotations have been temporarily increased to minimise the number of crew changes required. This measure will remain in place for the time being. — Temporary delays in contract awards, with some client projects unable to commence due to supply chain delays or inability to mobilise manpower. — Incurred US$ 2.3 million of additional costs relating to COVID-19 in the year, which were mainly in relation to crew quarantine requirements. Changes to operating practices implemented at end of the year should minimise these costs going forward. Material Uncertainty Statement — As part of the renegotiation of bank facilities agreed in March 2021, the Company is required to obtain approval from shareholders and raise a minimum of US$ 25 million of new equity (net) by 30 June 2021. Seafox and Mazrui Investments LLC (Mazrui) are related parties under the Listing Rules, and therefore their respective votes would not be counted on a shareholder vote on a related party transaction to which they were party. A fully pre-emptive offering would not involve such a related party transaction. Both have informally agreed to take up their prorated share of an equity raise. If the Company fails to meet these requirements then lenders would retain the right to call default on the loans. This would allow a majority of banks, representing at least 66.67% of total commitments, to exercise their rights to demand immediate repayment and/ or enforce security granted by the Company as part of this facility at the asset level and/or by exercising the share pledge to take control of the Group. — This indicates a material uncertainty that may cast significant doubt as to the Group’s ability to continue as a going concern. Notwithstanding this material uncertainty, the Directors believe that based on progress to date, shareholder approval will be obtained and US$ 25 million of equity will be raised by 30 June 2021. Accordingly, the going concern basis of accounting has been adopted in preparing the 2020 consolidated financial statements. Annual Report 2020 1 Strategic Report CHAIRMAN’S REVIEW New debt arrangements provide a strong platform for future growth 2020 saw the Group make solid progress, despite the impact of the COVID-19 pandemic. During the year, GMS recorded a high level of utilisation, on the back of a series of contract wins, whilst we continued to drive efficiencies to improve our margin1 and deliver operations safely and securely. The improved terms to GMS’ debt arrangements, as recently announced, combined with progress in two other key areas, maximising utilisation and cost control, places the Company in a good position to deliver further progress in the year ahead. We ended 2020 with vessel utilisation of 81% and already have 80% of 2021 utilisation locked in through secured contracts. Work continues in streamlining our cost base and since my appointment we have implemented a further US$ 3.0 million of annualised savings. Capital Structure and Liquidity In November 2020 a new Board was appointed, and I assumed the role of Executive Chairman. A key focus since has been the renegotiation of the terms of the Group’s debt facilities. I am delighted to say that we concluded negotiations with our lenders on an improved structure, which will see a significant reduction when compared to the previous arrangements agreed in 2020 and a deferment to the application of PIK interest which was to apply from 1 January 2021. Under the revised agreement, the tenor and size of facility remain unchanged but certain key structural changes to the facility will give significant benefit to GMS. As well as greatly reducing the cost of borrowings through the 40% reduction in margin in 2021 and 2022, the Company has been granted an extension to the requirement to raise the previously required equity of US$ 75 million. Now a minimum of US$ 25 million of new equity is required to be raised by 30 June 2021 and a further US$ 50 million by the end of 2022. Subject to successfully raising US$ 25 million (net) by 30 June 2021, GMS will no longer be required to issue warrants to its lenders or be charged PIK interest on the loan facilities in 2021 (as was required under the agreement negotiated in June 2020). Seafox and Mazrui are related parties under the Listing Rules, and therefore their respective votes would not be counted on a shareholder vote on a related party transaction to which they were party. A fully pre-emptive offering would not involve such a related party transaction. Both have informally agreed to take up their prorated share of an equity raise. The requirement to obtain approval from our shareholders and raise US$ 25 million of equity (net) by 30 June 2021, to avoid an event of default, represents a material uncertainty that may cast significant doubt as to the Group’s ability to continue as a going concern, that has been highlighted in our consolidated financial statements. Despite this, the Directors consider there is good reason to believe that the equity raise will be successfully completed in a timely fashion. This is based on the progress made to date, and two of our existing shareholders, representing 42% of the share capital of the Company, having already informally committed their prorated share of the US$ 25 million. The Board would like to thank the two shareholders for their extensive work and support to deliver this improved debt deal, which is a milestone for the business. The reduced cost of the debt facilities, combined with a planned equity raise, will see a significant improvement to GMS’ future leverage levels. The positive impact this will have on the business cannot be understated. It frees up capital that would otherwise have been tied up in managing the Company’s debts and gives us the greater flexibility needed to drive the business forward. Governance In November 2020, I joined as Executive Chairman as part of a new Board, following resolutions passed by shareholders at a General Meeting. In light of Tim Summers having stepped down from the Board, I was appointed Chairman, and subsequently Executive Chairman, a role which I continue to hold in leading the business and the Board. Whilst holding the positions of both Chairman and Chief Executive is not recommended by the 2018 UK Corporate Governance Code (the Code), the Board has concluded that this continues to be appropriate in the Group. This recognises both the level and pace of change necessary for the Group and its relatively small scale. The Board also believes that I am the best person to chair the Board and lead the management of the business for the foreseeable future. The new Board combines strong relationships with key clients and banks in the MENA region, with a high level of industry knowledge. These strengths have already benefitted the business through the delivery of the recent new banking terms. They will also play a key role in helping deliver on the planned equity raise and the future direction and growth of the business. Andy Robertson was appointed to the role of Chief Financial Officer, in February this year. He has been with GMS for 13 years, having previously held the positions of Finance Director and Head of Business Development. With his industry knowledge, understanding of our business and the relationships he has developed with key stakeholders over the years, I am sure that Andy will continue to add great value to GMS going forward. 1 Margin is defined as revenue less operating expenses (refer to Note 31). At 31 December 2020 this was 59% (2019: 60%). GMS has sought to lessen the impact of reduced revenue through cost efficiencies. 2 Gulf Marine Services PLC “The progress GMS has continued to make, regardless of the unprecedented circumstances created by the COVID-19 pandemic, is a credit to the business and the people within it and provides a firm footing to look to the future.” Group Performance Revenue reduced by 6% to US$ 102.5 million in 2020. While vessel utilisation increased to 81% from 69% in 2019, average day rates decreased by 18% arising from the COVID-19 operating environment where delayed contract awards meant that two of our E-Class fleet were available and were contracted at K-Class rates where short-term opportunities existed. Cost management remained a key focus, such that operating costs decreased by US$ 1.0 million (detailed in Note 31), despite the 12 percentage point increase in utilisation. This decrease is largely down to headcount reductions, and accordingly general and administrative expenses similarly decreased by 24% from US$ 24.1 million to US$ 18.2 million. Since the inception of our cost saving programme in 2019, over US$ 20 million of annualised costs have been removed from our operations. Adjusted EBITDA was US$ 50.4 million (2019: US$ 51.4 million), while the loss for 2020 was US$ 124.3 million (2019: US$ 85.5 million), with a non-cash impairment charge of US$ 87.2 million (2019: US$ 59.1 million) on five of our K-Class and two of our E-Class vessels being the driving factor. The Group also incurred US$ 16.2 million in finance expenses relating to the earlier renegotiation of bank facilities in June 2020. Capital expenditure was allocated to ensure vessels were kept in class, equipment was well maintained and able to meet specific client requirements. GMS’ priority is to deleverage the balance sheet, meaning capital allocation will likely remain limited until that is achieved. Commercial and Operations COVID-19 has fundamentally changed the global landscape in which we operate and, whilst those risks remain, they are actively managed at both Board and Senior Management levels. Operations are continuing without material disruption and processes have been put in place to mitigate additional COVID-19 related costs going forward, mainly relating to periods of quarantine for crew. In 2020, all business travel for onshore personnel was stopped and, for a time, our staff were working remotely as part of enhanced safety procedures. The phased reopening of the Head Office began in the second half of the year, with regular COVID-19 tests provided to all our onshore staff. Four vessels reported confirmed or suspected COVID-19 cases and effective measures were put in place to manage the impact. Our biggest challenge operationally has been to effect timely crew changes, due to travel restrictions and quarantine requirements, resulting in extended durations of time that crew were required to be at sea. I would like to extend my personal thanks to each crew member impacted by this. GMS’ UAE based employees have chosen to take advantage of the COVID-19 vaccination programme, supporting their health and the health of contractors and clients. We fully support their decision, as well as the ongoing campaign by the UAE Government to vaccinate all its residents and protect against COVID-19. In July 2020, GMS announced its first contract utilising the unique Cantilever Workover System, installed on the self-propelled vessel, GMS Evolution. Under contract to a National Oil Company (NOC) in the MENA region, this was the first occasion that the cantilever system, a technology designed and developed by GMS, has been used on a live well. The system successfully completed operations on 13 wells, proving the technology concept and providing the client with enhanced safety and lower-cost operations. Following this successful trial, the client agreed to improved commercial terms through a new contract running in direct continuation to Q4 2022. In the autumn, GMS relocated from its out-dated base at Musaffah to new facilities within Abu Dhabi. The move reduces the combined office & yard costs by around 40% annually. Environment and Safety Once again, we have delivered safe and reliable operations to our customers and it is pleasing to report that the TRIF (Total Recordable Injury Frequency) returned to zero during the year, from 0.19 in the previous year. GMS remains committed to providing all personnel and our customers with a high quality, safe working environment at all times and continues to maintain a focus on safe, reliable operations. In 2020 there were no environmental incidents across our operations, and we are continuing to take measures to reduce our emissions going forward, as part of a broader goal to align with the Paris Agreement objectives. We recognise that all of us have an increased level of responsibility on climate change. The new Board will be overseeing GMS’ response to climate related challenges and opportunities in our operating model. Outlook GMS is well placed to benefit from the improving market cycle in oil & gas in the Middle East and renewables in Europe. In recent years, the Company has traded through a period of subdued demand, which now looks set to change. This change is reflected in GMS’ vessel utilisation, combined with the greater pipeline of future activity, which is also expected to feed into higher day rates, albeit because of increased supply these are unlikely to recover to day rates experienced pre-2015. This increase in market activity is being driven by increased demand from our core NOC and EPC clients in the MENA region with NOCs offering long term contracts having committed to increases in production levels and EPC clients catching up on project delays incurred in 2020 as a result of the COVID-19 pandemic. The Middle East is the largest region for shallow water oil production, ideal for SESVs to operate, with extensive offshore infrastructure, requiring regular maintenance. The Company now has 12 of its 13 vessel fleet based in the MENA region, following the decision to relocate two vessels from Europe last year. Utilisation and days rates are also expected to benefit from the market tightening in the Middle East, as competitor vessels are relocated to support the development of the offshore wind market in China. We began 2021 with an improved secured utilisation position over last year, which is encouraging and gives us added comfort for the year ahead. Secured day rates for 2021 have remained relatively flat on K- and S-Class however we have seen an increase in day rates on E-Class of just over 9% on 2020 average rates through contracts awarded in 2021. The Group’s financial performance to the end of March 2021 remains in line with our business plan. With 80% of vessel utilisation already secured, the Board is confident of delivering further improved results. Mansour Al Alami Executive Chairman Annual Report 2020 3 Strategic Report PEOPLE AND VALUES Employee safety remains our priority Environmental, Social and Governance Factors E-Class vessels, that could significantly extend the life of lube oils. The results of the trial are expected to be published this year. Environment During the year, the Group has implemented the following initiatives, aimed at reducing GMS’ carbon footprint: Closures of offices and facilities During 2020, the Group relocated its office and other facilities, leading to a reduction in its geographical footprint, which led to a 17% decrease in electricity consumption. The relocation included closing the Musaffah offices and onsite construction base. The Group opened a new office, at International Tower, in Abu Dhabi, which has impressive sustainability credentials, having been developed in-line with the US Green Building Council LEED® rating system. Decrease in business travel (COVID-19) All business travel was suspended in 2020, due to COVID-19. In 2021, the Group has continued to restrict non-essential business travel, with positive developments in video conferencing reducing the need for face to face interactions. GMS expects this trend to continue for the foreseeable future, and will continue to encourage all employees to minimise non-essential business travel. Change in refrigerant The Group changed the refrigerant used on its vessels, for the cooling process, resulting in a 30% decrease in refrigerant emissions. GMS is continuing to evaluate other alternative refrigerants, with the aim of further reducing emissions. Other emission reductions projects As part of the Group’s drive to reduce it overall emissions, it is evaluating a number of measures aimed at reducing its carbon footprint. Included in these is the trialling of a lube oil filtration system on one of the 4 Gulf Marine Services PLC Carbon emission reporting To monitor the impact of the Group’s operations on the environment, the Group collates Greenhouse Gas (“GHG”) data. The Group consulted an independent third-party assurer, Net Zero Compliance (a division of Energy & Carbon Management), to report on its environmental performance in GHG emissions. Their report summarises the organisational and operational boundaries, associated emissions, annual reporting figures and methodologies for GMS, in accordance with the UK Government policy, Streamlined Energy & Carbon Reporting (SECR), as implemented by the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations, 2018. The figures outlined on the right make up the baseline reporting for GMS, with 2020 being the first year the Group has been required to report this information. The 2019 totals have been included from the Mandatory Greenhouse Gas reporting that preceded it. Scope 1 consumption and emissions relate to gas and fuels’ direct combustion or consumption, utilised for the Group’s vessel operations. Scope 2 consumption and emissions relate to indirect emissions, relating to the consumption of purchased electricity, in day to day business operations. SECR requires the Group to report consumption in kWh as well as overall emissions. Refrigerant consumption does not convert to Kwh and is therefore excluded from the table below. The Group’s carbon footprint is derived primarily from the transportation of our fleet. The Group’s Scope 1 direct emissions for this first year of reporting are 42,893 tCO2e. This is a reduction of 0.5% from the previous year, while in the same period, vessel utilisation (the primary source of direct emissions) increased by 17%. In 2020, the Group’s total Scope 1 and 2 emissions were 45,891 tonnes of carbon dioxide equivalent compared to 47,152 tonnes in 2019. The decrease is predominantly related to reduced electricity and refrigerant emissions arising from the changes implemented described above. The intensity metric increased slightly as revenue was 6% lower in 2020 compared to 2019. Financial disclosures International treaties, such as the Paris Agreement, combined with changing patterns of energy demand have fundamentally changed the regulatory environment and reporting requirements. Transparency on climate-related risks and opportunities in the industry in which GMS operates must be improved and climate change is an increasingly important area of focus to the Board and Senior Management. GMS has already committed to adopting the recommendations published by the Task Force for Climate-related Financial Disclosures (TCFD) by 2022 and have published measures implemented to reduce the Group’s Greenhouse Gas emissions as outlined above. The emissions metrics demonstrate that the Group’s carbon footprint has already reduced as a result of changes implemented. The new Board intends to oversee climate-related risks and opportunities through the current framework of assessing risk more thoroughly so that targets on emission reduction will be in place by the end of 2021. It is the Group’s expectation that the requirements of TCFD will be in place in 2022 with an audit to obtain an unqualified assurance opinion to follow in future years. The total consumption (kWh) figures for energy supplies, reportable by GMS, are as follows: Utility and Scope Grid-Supplied Electricity (Scope 2) Gaseous and other fuels (Scope 1) Transportation (Scope 1) Total 2019 Consumption 2020 Consumption 2020 UK Consumption (kWh) 988,254 0 (kWh) 815,940 0 (kWh) 0 0 2020 Global (excluding UK) Consumption (kWh) 815,940 0 160,657,371 166,036,232 18,089,737 147,946,495 161,645,625 166,852,172 18,089,737 148,762,435 The total emission (tCO2e) figures for energy supplies reportable by GMS are as follows: Utility and Scope Grid-Supplied Electricity (Scope 2) Gaseous and other fuels (Scope 1) Transportation (Scope 1) Refrigerants (Scope 1) Total 2019 Consumption (tCO2e) 2020 Consumption (tCO2e) 2020 UK Consumption (tCO2e) 580 0 43,108 5,554 47,152 479 0 42,893 32,520 45,891 0 0 4,674 0 4,674 An intensity metric of tCO2e per US$m Total Revenue has been applied for the annual total emissions of GMS: Intensity Metric tCO2e/US$m Social 2019 Intensity Metric 2020 Intensity Metric 2020 UK Intensity Metric 433.77 433.75 45.60 2020 Global (excluding UK) Consumption (tCO2e) 479 0 38,219 2,520 41,217 2020 Global (excluding UK) Intensity Metric 402.15 Values Core values of Responsibility, Excellence and Relationships are incorporated into all aspects of the business. GMS is committed to ensuring the health and safety of its employees, subcontractors, clients and partners and to upholding high ethical standards. Responsibility Excellence Relationships GMS is committed to the health and safety of its employees, subcontractors, clients and partners, and to behaving with environmental responsibility. The Group’s focus is on ensuring the safety of everything it designs, constructs, operates and maintains. The Group believes it has a responsibility across all business relationships. As part of that, it is continually seeking opportunities to grow the business and to create value for shareholders. This includes being cost-conscious and managing its risks effectively. The Company is always looking for ways to better meet client needs, through continuous improvement. It aims to build on past experiences and to embrace innovation. GMS sets itself challenging targets to deliver superior performance, and to exceed stakeholder expectations, including that of clients. The reputation and integrity of the business are important. GMS works with rigour and transparency to ensure it is the preferred contractor of choice. The Company aims to attract and retain premium staff and ensure they are empowered to carry out their duties safely and effectively. GMS values employee diversity, the provision of an environment where employees can perform to their full potential and be rewarded for delivering excellence. Core values of Responsibility, Excellence and Relationships are incorporated into all aspects of the business. GMS is committed to ensuring the health and safety of its employees, subcontractors, clients and partners and to upholding high ethical standards. Annual Report 2020 5 Strategic Report PEOPLE AND VALUES continued Social continued Health and safety The Group operates its vessels to the highest international health and safety standards. Management systems, that govern all Company activities and operations, are voluntarily accredited to ISO 9001, ISO 14001 and ISO 45001. All vessels operate in compliance with the International Safety Management (ISM) Code, meaning the International Management Code for the Safe Operation of Ships and for Pollution Prevention, which is a legal requirement. advice is required, arrangements are in place for consultations. Employees have access to consultation facilities, either in person or through telemedicine arrangements. All employee health data is managed in accordance with the General Data Protection Regulations and is maintained as strictly confidential. The information at the bottom of the page is intended to provide an overview of the Health and Safety performance, over the reporting period. Risks arising from operations and activities are routinely assessed to ensure that mitigation measures are implemented and communicated to all employees. All employees are made aware of the risks associated with operations, through extensive training and employee engagement. Training programs are developed annually and reviewed periodically. GMS carries out reviews of all safety-critical tasks and competency assessments, to ensure employees and subcontractors are competent to perform hazardous activities. A culture of proactive workforce engagement is fostered, by empowering all employees to report unsafe occurrences and, if required, intervening to stop unsafe work altogether. Turnover Voluntary employee turnover decreased to 8% in 2020, versus 18% in 2019. This was despite material change in the business, with the organisational structure simplified and posts removed through redundancy. During 2020, GMS also promoted 36 employees. Diversity The Group’s workforce consists of 532 personnel, recruited from 35 countries. The significant experience and skills individuals bring to GMS helps it to conduct its business globally. The information to the right provides details of the gender diversity and country of origin of our personnel as at 31 December 2020. Incidents and accidents that may occur at our work sites or on our vessels are reported and investigated thoroughly. Investigations are carried out by multidisciplinary teams, independent of the area where an incident has occurred. Incident reporting procedures also ensure the relevant regulatory bodies are notified should an incident occur. Occupational health risks, such as those arising from noise, vibration, fatigue and hazardous substances, are managed in-house by the Health and Safety Team. The team draws on specialist consultants when required. If specialist medical or clinical GMS has a zero-tolerance policy towards discrimination for all employees, and provides equal opportunities for all onshore employees. For cultural and legal reasons, the extent to which the number of offshore female personnel can be increased is limited. Local labour laws, for example, in the countries in which GMS currently operates in the Middle East, stipulate that women cannot work in an inappropriate environment and hazardous jobs/industries, meaning the Company is unable to employ them offshore. 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. Employee engagement and welfare We launched our first employee engagement survey at the end of 2019, with an 82% completion rate. This is consistent with the global benchmark completion rate of 80%1 for all companies. The areas employees scored as needing attention are the frequency of communication, as a Group and between departments, and creating opportunities to provide constructive ideas on how to improve processes. In 2020, the primary focus was on employee safety, due to the potential risks arising from COVID-19. From March until July, onshore staff worked remotely. Following this, there was a phased return to the office, underpinned by regular COVID-19 onsite testing and other precautionary measures. All employees are actively encouraged to receive the vaccine where it is available. Weekly communication from the Executive Chairman on the impact of COVID-19 on our business continued during the peak of the pandemic, with other regular communication throughout the remainder of the year. Offshore employees unable to commence their rotations due to the travel restrictions were provided salary advances, while those who remained onboard and unable to rotate for more than 120 days, were provided 10% extra compensation. Onshore employees are able to discuss items they feel relevant with management at Head Office and offshore employees have regular meetings with Operations to discuss any issues that affect them. While the COVID-19 pandemic continues, this is our primary focus, but we know we still have work to do on improving employee engagement. In 2021, Rashed Al Jarwan was appointed as the new dedicated Workforce Engagement Director with a Town Hall style meeting for onshore staff to be held later in 2021 and a follow up engagement survey is planned for the end of the year. Number of work-related fatalities as a result of a work-related injury Number of recordable work-related injuries Number and rate of high-consequence work-related injuries 0 (2019: 2) 0 (2019: 0) 0 (2019: 4) (Rate @1 million work hours – 0.96) (Rate @1 million work hours – 1.44) Total number of hours worked 2,030,955 (2019: 2,081,525) 1 What is a good employee survey response rate? – Culture Amp Blog 6 Gulf Marine Services PLC People Total number of employees Offshore 532 (2019: 457) 479 (2019: 377) Onshore 53 (2019: 80) Voluntary turnover 8% (2019: 18%) Number of offshore employees Number of onshore employees Total number of Directors 479 53 4 479 (2019: 377 – all male) 33 (2019: 80 – 49 male/31 female) 20 4 (2019: 6 – 5 male/1 female) Total number of Direct Reports to Senior Managers Total number of Senior Managers Nationalities 14 2017 2018 2019 3 2017 2018 2019 10 (2019: 14 – 10 male/4 female) 4 3 (2019: 4 all male) Male Female 35 (2019: 36) 2017 2018 2019 GMS Employees – By Region 2020 GMS Employees – By Region 2019 Offshore Onshore Offshore Onshore 2017 2018 7 6 2019 96 2017 2 3 2 2018 2019 4 1 4 94 13 2 3 2 22 370 33 274 51 Africa Asia Europe MENA Other (Canada, Venezuela, New Zealand) Annual Report 2020 7 Strategic Report PEOPLE AND VALUES continued Social continued Share ownership Employee share ownership is encouraged and the Group has operated a long-term incentive plan since 2014. Please see pages 62 to 63 in the Remuneration Report for further details. Performance The Short-Term Incentive Plan (STIP) structure was redesigned during 2019, so that all participants, including Executive Directors, are working towards the same transparent targets, albeit in 2020 with different weightings. There are no guaranteed variable pay awards at GMS, with all pay being performance-based. The 2020 STIP measures for employees are set out at the bottom of the page. This aligns with shareholder interests and encourages a performance-based culture to achieve Group objectives. Succession planning GMS seeks to promote from within, where possible and to manage this the Company has a succession planning process in place for offshore employees based on years of experience and qualifications, however due to the size of the business external hires will be made where a post cannot be filled internally. The Group is engaged in fair and transparent recruitment practices. Learning and development GMS aims to ensure that all employees maintain the relevant technical and regulatory training required to fulfil their 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 license them to operate the Group’s vessels, in accordance with International Maritime Organisation requirements. For vessels operating within the offshore Oil & Gas Sector, all crew also complete additional required training, in areas such as, but not limited to, offshore safety and awareness and emergency response. While the business is repositioned, discretionary development training has been temporarily stopped. Discretionary development training remained discontinued in 2020 due to COVID-19. The delivery of some mandatory compliance training has also moved online to ensure employee safety. Ethical practice The Group operates responsibly, in accordance with the formal legal and regulatory disclosure requirements expected of a UK listed company. GMS’ Code of Conduct sets out the basic rules of the Group. The Code’s purpose is to ensure work is undertaken safely, ethically, efficiently, and within the laws of the countries in which GMS operates. All staff receive Code of Conduct training, as part of their induction, and the Group’s reputation and success is dependent on staff putting the Code into practise, in all dealings with stakeholders. GMS maintains an awareness of human rights issues, which is reflected in its suite of Group policies, including the Anti- Corruption and Bribery Policy, Anti-Slavery Policy, Social Responsibility Policy and Whistleblowing Policy. Whistleblowing reporting service There were no whistleblowing cases reported in 2020. An independent reporting service for whistleblowing is in place. It operates confidentially, is available 24 hours a day and is staffed by highly skilled professional call handlers. This service: • gives a voice to 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 has a strict non-retaliation commitment to support any employees who speak up. Governance For Governance related considerations, please refer to the Governance section of this Annual Report. Measure EBITDA Securing contract % of 2021 budget revenue Securing contract % of 2022 budget revenue Cash generation (unlevered) EBITDA Margin Total Weighting Performance range (from zero to full pay-out*) 60% 15% 5% 10% 10% 100% Less than US$ 50m – greater than US$ 70m Less than 60% – greater than 90% Less than 40% – greater than 60% Less than US$ 30m – greater than US$ 37.4m Less than 44% – greater than 52.5% 1 2 3 4 5 EBITDA* Score Securing contracts % of 2021 budget revenue* Score Securing contracts % of 2022 budget revenue* Score 120 days US$’000 1,829 (4) 1,825 11 − 11 728 (2) 726 634 (2) 632 – – – − − − 3 – 3 − − − 2,311 (47) 2,264 941 (72) 869 Total US$’000 24,207 (133) 24,074 25,107 (128) 24,979 Six customers (2019: eight) account for 99% (2019: 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. Annual Report 2020 111 Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued FOR THE YEAR ENDED 31 DECEMBER 2020 10 Derivative financial instruments Embedded derivative – contract to issue warrants In June 2020, the Group restructured the terms of its borrowings with its lenders. These terms include warrants to be issued under the following conditions: If GMS has not raised US$ 75.0 million of equity, GMS shall issue warrants to its lenders, by no later than 31 December 2020, in accordance with the following terms: • Strike price at 9p • Number of warrants that would give the lenders collectively 20% ownership of GMS • Vesting: (i) 50% vest on 31 December 2021 and (ii) 50% vest on 30 June 2023, unless the Net Leverage ratio is below 4.0x • • Upon vesting, the warrants are (i) exercisable in whole or in part, (ii) allocated pro rata to each lender and exercisable singly and separately (i.e. not as a syndicate), (iii) payable either in cash or in the form of settling the PIK outstanding at the time of exercise, and (iv) freely tradable If, at any time, GMS raised US$ 100 million of equity any warrant not yet vested at such date will cease to exist • Warrants to expire on 30 June 2025 (maturity date of the facilities) The balance represents the fair value outstanding at 31 December 2020 with a value of US$ 1.4 million. As the derivative was expected to be settled after 12 months, the balance was recognised as a non-current liability. As the terms of the loan facility contained separate distinguishable terms with a requirement to issue warrants to banks, management determined the debt facility to contain an embedded derivative. The Group was required to recognise the embedded derivative at fair value. Management commissioned an independent valuation expert to measure the fair value of the warrants, which was determined using Monte Carlo simulations. The fair value based on the valuation carried out as at 31 December 2020 was US$ 1.5 million. The valuation of the contract to issue warrants is dependent on a number of estimates, including the Company’s share price, the Company’s share price volatility and the Group’s ability to raise equity. The weighted average risk-free rate was 0.10%. The valuation of fair value of the contract to issue warrants is more sensitive to changes to market capitalisation. A 10% increase in the assumed market capitalisation required to raise equity would result in a US$ 1.4 million increase in the fair value of warrants. A 10% decrease would result in a US$ 1.4 million decrease in their fair value. During the year no warrants were issued. Interest Rate Swap The Group uses an interest rate swap to hedge the risk of variability in interest payments by converting a floating rate liability to a fixed rate liability. As discussed in the 2019 annual report, the Group’s banks agreed to waive the testing requirement of all covenants for the December 2019 testing date. As cashflows of the hedging relationship were not highly probable in 2020, the hedge discontinued and the interest rate swap was reclassified to fair value through profit and loss. The IRS was expected to be settled after 12 months, therefore the balance as at 31 December 2019 was reclassified to non-current liabilities, refer to Note 3. Cross Currency Interest Rate Swap The Group uses a 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. During the year the CCIRS expired. Derivative financial statements are made up as follows: As at 1 January 2019 Loss on fair value changes of hedging instruments Net hedging gain/(loss) on interest hedges reclassified to the profit or loss As at 31 December 2019 As at 1 January 2020 Gain on fair value changes of hedging instruments Net hedging gain/(loss) on interest hedges reclassified to the profit or loss Net loss on changes in fair value of interest rate swap (Note 37) Initial recognition and subsequent revaluation of embedded derivative (Note 37) As at 31 December 2020 Interest rate swap US$’000 Cross currency interest rate swap US$’000 Embedded derivative US$’000 (781) (1,245) 289 (1,737) (1,737) – 901 (1,551) – (2,387) 543 (16) (530) (3) (3) 21 (18) – – – – – – – – – – – (1,449) (1,449) Total US$’000 (238) (1,261) (241) (1,740) (1,740) 21 883 (1,551) (1,449) (3,836) These statements include the cost of hedging reserve and cashflow hedge reserve which are detailed further in the Statement of Changes in Equity. These reserves are non-distributable. Derivative financial instruments represent level 2 value measurements as defined by the fair value hierarchy according to IFRS 13. 112 Gulf Marine Services PLC 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 2020 US$’000 2019 US$’000 55 47 1,026 2,717 3,798 2020 US$’000 – 3,798 3,798 10,966 12 11,025 2019 US$’000 2,621 8,404 11,025 12 Vessel held for sale During 2019, Naashi, a non-core vessel and the oldest in the GMS fleet at 37 years was reclassified from Vessels to a Non-current asset held for sale. In January 2020 the vessel was sold for US$ 0.6 million and the associated mortgage of the vessel was released. Cost At 1 January Disposals Reclassification from property, plant and equipment At 31 December Accumulated depreciation At 1 January Disposals Reclassification from property, plant and equipment At 31 December Carrying amount 2020 US$’000 2019 US$’000 35,195 (35,195) – – 34,895 (34,895) – – – – – 35,195 35,195 – – 34,895 34,895 300 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. Annual Report 2020 113 Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued FOR THE YEAR ENDED 31 DECEMBER 2020 13 Share capital (continued) 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 2020 Authorised share capital Issued and fully paid At 31 December 2019 Authorised share capital Issued and fully paid Number of ordinary shares (thousands) Ordinary shares US$’000 350,488 350,488 58,057 58,057 Total US$’000 58,057 58,057 350,488 350,488 58,057 58,057 58,057 58,057 Issued share capital and share premium account movement for the year were as follows: At 1 January 2019 Shares issued under LTIP schemes At 31 December 2019 Shares issued under LTIP schemes At 31 December 2020 Number of ordinary shares (thousands) 349,968 520 350,488 Ordinary shares US$’000 57,992 65 58,057 Share premium account US$’000 93,080 – 93,080 Total US$’000 151,072 65 151,137 – – – – 350,488 58,057 93,080 151,137 14 Restricted reserve Restricted reserve of US$ 0.3 million (2019: 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 was 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 based payment reserve Share based payment reserve of US$ 3.7 million (2019: US$ 3.6 million) relates to awards granted to employees under the long-term incentive plans (Note 28). A charge of US$ 0.2 million (2019: US$ nil) in the year is included in restructuring and US$ nil, (2019: US$ 0.4 million) in the year is included in cost of sales and, general and administrative expenses in the statement of comprehensive income. 17 Capital contribution The capital contribution reserve is as follows: At 31 December 2020 US$’000 9,177 2019 US$’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 earnings include the accumulated realised and certain unrealised gains and losses made by the Group. 114 Gulf Marine Services PLC 19 Non-controlling interests The movement in non-controlling interests is summarised as follows: At 1 January Share of profit for the year At 31 December 2020 US$’000 1,659 35 1,694 2019 US$’000 1,346 313 1,659 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 2020 US$’000 2019 US$’000 2,280 527 (617) 2,190 2,722 537 (979) 2,280 During the year, US$ nil (2019: 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 * Refer to Note 3 for details of prior year restatement. 2020 US$’000 12,251 188 8,424 357 – 943 1,207 23,370 2019 US$’000 Restated* 11,500 136 12,084 3,359 658 289 94 28,120 The average credit period on purchases is 152 days (2019: 151 days). No interest is payable on the outstanding balances. Trade and other payables are all current liabilities. 22 Bank borrowings Secured borrowings at amortised cost are as follows: Term loans Working capital facility Bank borrowings are split between hedged and unhedged amounts as follows: Hedged bank borrowings from IRS Hedged bank borrowings from CCIRS Unhedged bank borrowings 2020 US$’000 388,558 21,500 410,058 2020 US$’000 38,462 – 371,596 410,058 2019 US$’000 Restated* 377,167 25,000 402,167 2019 US$’000 Restated* 46,154 2,513 353,500 402,167 Annual Report 2020 115 Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued FOR THE YEAR ENDED 31 DECEMBER 2020 22 Bank borrowings (continued) 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 * Refer to Note 3 for details of prior year restatement. 2020 US$’000 2019 US$’000 Restated* 379,009 − 31,049 – 410,058 92,949 309,218 402,167 In June 2020, the Group amended the terms of its loan facility. The principal terms of the outstanding facility as at 31 December 2020 are as follows: • The facilities main currency is US$ and is repayable with a margin at 5% and final maturity in June 2025 (2019: December 2023). • The revolving working capital facility amounts to US$ 50.0 million. US$ 25.0 million of the working capital facility is allocated to performance bonds and guarantees and US$ 25.0 million is allocated to cash of which US$ 21.5 million was drawn as at 31 December 2020, leaving US$ 3.5 million available for drawdown (31 December 2019: US$ nil). • The facility remains secured by mortgages over its whole fleet, with a net book value at 31 December 2020 of US$ 558.6 million (2019: US$ 662.7 million). Additionally, gross trade receivables, amounting to US$ 24.2 million (2019: US$ 25.1 million) have been assigned as security against the loans extended by the Group’s banking syndicate. • The Group has also provided security against gross cash balances, being cash balances before restricted amounts included in trade and other receivables, amounting to US$ 3.8 million which have been assigned as security against the loans extended by the Group’s banking syndicate. • The amended terms contained contingent conditions such that if an equity raise of US$ 75.0 million did not take place by 31 December 2020, PIK interest would accrue and warrants would be due to the banking syndicate, refer to Note 10 for details of warrants valuation. • The facility is subject to certain financial covenants including; Debt Service Cover; Interest Cover; Net Leverage Ratio; and Security Cover (loan to value). There was also an additional covenant relating to general and administrative costs, and restrictions to payment of dividends until leverage falls below 4.0 times. On 31 December 2020, the Group’s banking syndicate agreed to extend certain obligations on the Group, which it was otherwise required to have met including the requirement to issue warrants to the banks and accrue PIK interest. This meant the Group was not in an event of default as at 31 December 2020. This was further extended in January 2021 and February 2021. As the waiver received in December led to a revision to timing of payments, management assessed the fair value of remaining cashflows as at 31 December 2020. As at 31 December 2020, the loan facility was remeasured with a gain of US$ 1.5 million (2019: nil) being recognised in the profit and loss (Note 37). The remeasurement of the bank borrowings was determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, using appropriate effective interest rates. In March 2021, the Group signed a term sheet with its bank agreeing significantly improved terms. The amendment was finalised and loan documentation signed in April 2021. Improved terms include the following: • Reduction in margin from 5% to 3%. Capital payments increased corresponding to any interest saved from the margin reduction. • Requirement of US$ 25 million equity to be raised by 30 June 2021 and a further US$ 50 million by 31 December 2022. Please see Note 40 for further details. 31 December 2020: Term loan – scheduled repayments within one year Term loan – scheduled repayments within more than one year Working capital facility – scheduled repayment within one year 31 December 2019 Restated: Term loan – scheduled repayments within one year Term loan – scheduled repayments within more than one year Working capital facility – scheduled repayment more than one year Outstanding amount Current US$’000 Non-current US$’000 Total US$’000 Security Maturity 9,549 – 21,500 31,049 67,949 309,218 25,000 402,167 – 379,009 – 9,549 379,009 21,500 Secured Secured Secured June 2025 June 2025 June 2025 379,009 410,058 – – – – – – 67,949 309,218 25,000 402,167 Secured December 2023 Secured December 2023 Secured December 2023 – – 116 Gulf Marine Services PLC 23 Lease liabilities As at 1 January Recognition of new lease liabilities on adoption of IFRS 16 Recognition of new lease liability additions Derecognition of lease liabilities Interest on finance leases (Note 37) Principal elements of lease payments Interest paid As at 31 December Maturity analysis: Year 1 Year 2 Year 3 – 5 Onwards Split between: Current Non-current 2020 US$’000 2019 US$’000 1,954 – 3,239 – 182 (1,871) (193) 3,311 1,739 826 746 3,311 1,739 1,572 3,311 – 6,122 860 (1,593) 284 (3,433) (286) 1,954 1,204 355 395 1,954 1,204 750 1,954 24 Related party transactions Related parties comprise the Group’s major shareholders, Directors and entities related to them, companies under common ownership and/ or common management and control, their partners and key management personnel. Pricing policies and terms of related party transactions are approved by the Group’s Board. Balances and transactions between the Group and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Key management personnel: As at 31 December 2020, there were nil shares held by Directors (31 December 2019: nil). Related parties The Group’s principal subsidiaries are outlined in Note 3. The related parties comprising of the Group’s major shareholders are outlined in the Directors Report on page 72. The other related party during the year was: Partner in relation to Saudi Operations Relationship Abdulla Fouad Energy Services Company Minority shareholder in GMS Saudi Arabia Ltd. Refer to Note 21 for details of the amount due to the related party. Significant transactions with the related party during the year: Rentals property from Abdulla Fouad Rentals of breathing equipment from Abdulla Fouad Compensation of key management personnel The remuneration of Directors and other members of key management personnel during the year were as follows: Short-term benefits Termination payments End of service benefits Share based payment charge (LTIPs) 2020 US$’000 54 524 2019 US$’000 112 927 2020 US$’000 2019 US$’000 1,165 1,161 94 141 2,561 2,902 582 125 21 3,630 Annual Report 2020 117 Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued FOR THE YEAR ENDED 31 DECEMBER 2020 24 Related party transactions (continued) Compensation of key management personnel (continued) Compensation of key management personnel represents the charge to the profit or loss in respect of the remuneration of the executive and non-executive Directors. At 31 December 2020, there were four members of key management personnel (2019: four members). During 2020 the Board was replaced; the previous Board’s remuneration is included in the disclosure above. During 2019, the previous Board was also replaced; their remuneration is included in the 2019 comparatives. Further details of Board remuneration and the termination of key management personnel are contained in the Directors’ Remuneration Report on page 61. 25 Contingent liabilities At 31 December 2020, the banks acting for Gulf Marine Services FZE, one of the subsidiaries of the Group, had issued bid bonds, performance bonds and labour guarantees amounting to US$ 15.9 million (2019: US$ 17.4 million) all of which were counter-indemnified by other subsidiaries of the Group. 26 Commitments Contractual capital commitments 2020 US$’000 7,470 2019 US$’000 3,582 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: Current assets at amortised cost: Cash and cash equivalents (Note 11) Trade receivables and other receivables (Note 9) Total financial assets Financial liabilities: Derivatives recorded at FVTPL: Interest rate swap (Note 10) Cross currency interest rate swap (Note 10) Embedded derivative (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) Non-current bank borrowings – scheduled repayments more than one year (Note 22) Total financial liabilities * Refer to Note 3 for details of prior year adjustment. 2020 US$’000 2019 US$’000 3,798 26,517 30,315 2020 US$’000 2,387 – 1,449 21,882 3,311 31,049 – 379,009 439,087 8,404 29,341 37,745 2019 US$’000 Restated* 1,737 3 – 24,336 1,954 92,949 309,218 – 430,197 The following table combines information about the following; • Fair values of financial instruments (except financial instruments when carrying amount approximates their fair value); and • Fair value hierarchy levels of financial liabilities for which fair value was disclosed. Financial liabilities: Recognised at level 2 of the fair value hierarchy: Interest rate swap (Note 10) Cross currency interest rate swap (Note 10) Embedded derivative (Note 10) Total recognised at level 2 of the fair value hierarchy: * Refer to Note 3 for details of prior year adjustment. 118 Gulf Marine Services PLC 2020 US$’000 2019 US$’000 Restated* 2,387 – 1,449 3,836 1,737 3 – 1,740 Capital risk management The Group uses interest rate swap derivatives to hedge volatility in exchange rates and in interest rates. These were previously formally designated into hedge accounting relationships. As disclosed in the 2019 annual report, the Group’s banks agreed to waive the testing requirement of all covenants for the December 2019 testing date. As the cashflows of the hedging relationship subsequent to 31 December 2019 were not highly probable, the hedge discontinued in 2020 and the interest rate swap was reclassified to fair value through profit and loss. As a result, US$ 1.6 million was recognised in relation to the loss on change in fair value of the interest rate swap in the current year (Note 37). 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, however under the revised banking terms signed in March 2021, a minimum of US$ 75 million has to be raised prior to 31 December 2022 in order to accelerate payments towards term debt. This along with maximising cash wherever possible, the Group looks to delever the Company over the coming years. 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. 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. In December 2020 an agreement was reached between the United Kingdom (“UK”) and the European Union (“EU”) for the UK to exit the EU (“Brexit”). The Group has considered the risks arising from Brexit and on amounts presented in these consolidated financial statements. As the majority of the Group’s operations and our lending syndicate are in the Middle East, our UK office was closed at the end of 2019 and there is currently one vessel working in North West Europe, 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 counterparty 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 information available 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. At the year-end, cash at bank and in hand totalled US$ 3.8 million (2019: US$ 11.0 million), deposited with banks with Fitch short-term ratings of F2 to F1+ (Refer to Note 11). 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 ten Middle East and two international companies, including international oil companies and engineering, procurement and construction (“EPC”) contractors. At 31 December 2020, these 10 companies accounted for 99% (2019: 16 companies accounted for 100%) 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. 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. Annual Report 2020 119 Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued FOR THE YEAR ENDED 31 DECEMBER 2020 27 Financial instruments (continued) Liquidity risk management (continued) 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 2020 Non-interest bearing financial assets Interest bearing financial assets Non-interest bearing financial liabilities Interest bearing financial liabilities 31 December 2019 Restated Non-interest bearing financial assets Interest bearing financial assets Non-interest bearing financial liabilities Interest bearing financial liabilities Interest rate 5.2%–7.0% Interest rate 7.1%–7.8% 1 to 3 months US$’000 30,260 55 30,315 21,882 29,618 51,500 1 to 3 months US$’000 35,077 47 35,124 26,290 406,118 432,408 4 to 12 months US$’000 2 to 5 years US$’000 – – – – 24,428 24,428 4 to 12 months US$’000 2,621 − 2,621 − 19,441 19,441 – – – – 493,603 493,603 2 to 5 years US$’000 − − − − 50,897 50,897 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 IRS to hedge a notional amount of US$ 50.0 million (2019: US$ 50.0 million). The remaining amount of notional hedged from the IRS as at 31 December 2020 was US$ 38.5 million (2019: US$ 46.2 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 2020 was a liability value of US$ 2.4 million (2019: US$ 1.7 million), (see Note 10 for more details). As noted above the hedge discontinued on 1 January 2020 and the interest rate swap was reclassified to fair value through profit and loss. 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 on the unhedged portion of debt and assumes the amount of liability outstanding at the end of the reporting period was outstanding for the whole year. A 20 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 20 basis points higher/lower (2019: 50 basis points higher/lower) and all other variables were held constant, the Group’s loss for the year ended 31 December 2020 would decrease/increase by US$ 0.7 million (2019: decrease/increase US$: 2.0 million). This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings. Foreign currency risk management The majority of the Group’s transactions are denominated in UAE Dirhams, Euros, US Dollars and Pound Sterling. As the UAE Dirham and Saudi Riyal are pegged to the US Dollar, balances in UAE Dirham and Saudi Riyals are not considered to represent significant currency risk. Transactions in other foreign currencies entered into by the Group are short-term in nature and therefore management considers that the currency risk associated with these transactions is limited. Brexit could impact Group operations and our exposure to transactions in pound sterling, creating foreign currency risk for transactions entered into by the Group in pound sterling. Management continue to monitor changes in legislation and future policies and will develop suitable mitigants as developments unfold. During the year ended 31 December 2018, the Group entered into a CCIRS to hedge a notional amount of US$ 36.7 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. As at 31 December 2020, the amount of notional hedged from the CCIRS was US$ nil (2019: US$ 2.5 million) and the fair value of the CCIRS was US$ nil (2019: US$ nil), as the CCIRS expired during the year (see Note 10 for more details). 120 Gulf Marine Services PLC The carrying amounts of the Group’s significant foreign currency denominated monetary assets include cash and cash equivalents and trade receivables and liabilities include trade payables. The amounts at the reporting date are as follows: US Dollars UAE Dirhams Saudi Riyals Pound Sterling Euros Qatari Riyals Norwegian Krone Others Assets 31 December Liabilities 31 December 2020 US$’000 19,193 103 6,719 315 23 1,652 – – 28,005 2019 US$’000 20,923 2,923 5,216 10 2,184 2,255 – – 33,511 2020 US$’000 2019 US$’000 6,239 3,347 738 1,054 535 210 126 2 6,011 3,070 285 1,644 412 54 22 2 12,251 11,500 At 31 December 2020, 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 nil (2019: higher/ lower by US$ 0.1 million) mainly as a result of foreign exchange loss or gain on translation of Euro and Pound Sterling denominated balances. 28 Long term incentive plans The Group has Long Term Incentive Plans (“LTIPs”) 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 63. From 2019 onwards the employment condition is that each eligible employee of the Company must remain in employment during the three year vesting period. 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 in awards since 2019. 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 awards that eventually vest. Any market vesting conditions were factored into the fair value of the share-based payment granted. To the extent that share-based payments are granted to employees of the Group’s subsidiaries without charge, the share-based payment 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: 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 2020 No 8,768,294 2,661,388 – (4,856,453) – 2019 No 9,814,485 3,425,775 (519,909) (1,424,494) (2,527,563) 6,573,229 8,768,294 – – The weighted average remaining contractual life for the vesting period outstanding as at 31 December 2020 was 1.0 years (2019: 1.9 years). The weighted average fair value of shares granted during the year was US$ 0.10 (2019: US$ 0.70). Annual Report 2020 121 Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued FOR THE YEAR ENDED 31 DECEMBER 2020 28 Long term incentive plans (continued) 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 Expected volatility Risk-free rate Expected dividend yield Vesting period Award life LTIP LTIP LTIP 29 May 2020 £0.09 120% 0.01% 0.00% 3 years 3 years 15 November 2019 £0.08 102.79% 0.48% 0.00% 3 years 3 years 23 March 2018 £0.37 52.89% 1.04% 1.00% 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. 29 Dividends There was no dividend declared or paid in 2020 (2019: nil). No final dividend in respect of the year ended 31 December 2020 is to be proposed at the 2021 AGM. During the year ended 31 December 2017 and 31 December 2018, the Group’s subsidiaries declared a dividend of US$ 0.3 and US$ 0.3 million respectively to non-controlling interests. Both these dividends were paid during 2020. 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 does not form part of the K-, S- or E-Class vessels segments. The composition of the Other vessels segment, which are non-core assets, was amended in 2018, following the reclassification of the vessel Naashi from K-Class vessels to Other vessels. In 2019, Naashi was reclassified from Other vessels to a non-current asset held for sale. The sale was completed in January 2020 (refer to Note 12 for further details). 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. 122 Gulf Marine Services PLC 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 Restructuring costs Exceptional legal costs Other general and administrative expenses Finance income Finance expenses Other income (Loss)/gain on disposal of property, plant and equipment Gain on disposal of assets held for sale Foreign exchange loss, net Loss for the year before taxation Revenue Segment adjusted gross profit/(loss) 2020 US$’000 40,947 32,136 29,407 2 2019 US$’000 37,313 35,422 35,984 2 102,492 108,721 2020 US$’000 25,349 22,210 12,676 (10) 60,225 (25,524) (3,073) (87,156) (55,528) (2,492) (3,092) (12,632) 15 (46,740) 257 (2,073) 259 (993) (123,019) 2019 US$’000 23,200 23,578 18,779 (87) 65,470 (29,045) (2,274) (59,125) (24,974) (6,322) – (17,788) 16 (32,063) 529 14 – (1,181) (81,769) The total revenue from reportable segments which comprises the K-, S- and E-Class vessels was US$ 102.5 million (2019: US$ 108.7 million). The Other vessels segment does not constitute a reportable segment per IFRS 8 Operating Segments. Segment revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the years. Segment assets and liabilities, including depreciation, amortisation and additions to non-current assets, are not reported to the chief operating decision makers on a segmental basis and are therefore not disclosed. Information about major customers During the year, two customers (2019: three) individually accounted for more than 10% of the Group’s revenues. The related revenue figures for these major customers, the identity of which may vary by year was US$ 39.3 million and US$ 17.7 million (2019: US$ 32.7 million, US$ 24.5 million and US$ 18.4 million). The revenue from these customers is attributable to the E-Class vessels, S-Class vessels and K-Class vessels reportable segments. Geographical segments Revenue by geographical segment is based on the geographical location of the customer as shown below. United Arab Emirates Saudi Arabia Qatar Total – Middle East and North Africa United Kingdom Rest of Europe Total – Europe Worldwide Total 2020 US$’000 53,363 17,745 19,047 90,155 5,353 6,984 12,337 102,492 2019 US$’000 35,671 32,476 13,411 81,558 20,498 6,665 27,163 108,721 Annual Report 2020 123 Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued FOR THE YEAR ENDED 31 DECEMBER 2020 30 Segment reporting (continued) Type of work The Group operates in both the oil and gas and renewables sector. Oil and gas revenues are driven from both client operating cost expenditure and capex expenditure. Renewables are primarily driven by windfarm developments from client expenditure. Details are shown below. Oil and Gas – Client Opex Oil and Gas – Client Capex Renewables Total 2020 US$’000 74,889 15,307 12,296 102,492 2019 US$’000 73,587 7,971 27,163 108,721 Impairment losses of US$ 87.2 million (2019: US$ 59.1 million) were recognised in respect of property, plant and equipment (Note 5). These impairment losses were attributable to the following reportable segments: K-Class vessels S-Class vessels E-Class vessels Other vessels 2020 Depreciation charged to cost of sales Amortisation charged to cost of sales Impairment charge 2019 Depreciation charged to cost of sales Amortisation charged to cost of sales Impairment charge 2020 US$’000 61,130 – 26,026 – 87,156 2019 US$’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$’000 7,432 1,863 61,130 7,317 1,434 – 5,807 605 – 5,776 340 2,845 12,092 605 26,026 15,541 500 54,564 193 – – 411 – 1,716 25,524 3,073 87,156 29,045 2,274 59,125 124 Gulf Marine Services PLC 31 Presentation of adjusted non-GAAP results The following table provides a reconciliation between the Group’s adjusted non-GAAP and statutory financial results: Revenue Cost of sales – Operating expenses – Depreciation and amortisation Impairment charge* Gross profit/(loss) General and administrative – Depreciation – Amortisation of IFRS 16 Leases – Other administrative costs Restructuring costs** Exceptional legal costs*** Operating profit/(loss) Finance income Finance expenses Cost to acquire new bank facility**** Expensing of unamortised issue costs in relation to previous loan***** Other income (Loss)/gain on disposal of property plant and equipment Gain on disposal of assets held for sale Foreign exchange loss, net Loss before taxation Taxation charge Loss for the year Loss attributable to Owners of the Company Non-controlling interests Loss per share (basic and diluted) Year ended 31 December 2020 Year ended 31 December 2019 Adjusted non-GAAP results US$’000 102,492 Adjusting items US$’000 Statutory total US$’000 Adjusted non-GAAP results US$’000 Adjusting items US$’000 Statutory total US$’000 – 102,492 108,721 – 108,721 (42,267) (28,597) – – – (87,156) (42,267) (28,597) (87,156) 31,628 (87,156) (55,528) (313) (2,543) (9,776) – – – – – (2,492) (3,092) (313) (2,543) (9,776) (2,492) (3,092) 18,996 (92,740) (73,744) 15 (30,495) – – 257 (2,073) 259 (993) (14,034) (1,285) – – (15,797) (448) – – – – 15 (30,495) (15,797) (448) 257 (2,073) 259 (993) (108,985) – (123,019) (1,285) (15,319) (108,985) (124,304) (15,354) 35 (4.38) (108,985) – (31.10) (124,339) 35 (35.48) (43,251) (31,319) – 34,151 (804) (2,889) (14,095) – – 16,363 16 (32,063) – – 529 14 – (1,181) (16,322) (3,696) (20,018) (20,331) 313 (5.80) – – (59,125) (59,125) – – – (6,322) – (43,251) (31,319) (59,125) (24,974) (804) (2,889) (14,095) (6,322) – (65,447) (49,084) – – – – – – – – (65,447) – (65,447) (65,447) – (18.68) 16 (32,063) – – 529 14 – (1,181) (81,769) (3,696) (85,465) (85,778) 313 (24.48) Supplementary non statutory information Operating (loss)/profit Add: Depreciation and amortisation Non-GAAP EBITDA 18,996 31,453 50,449 (92,740) – (73,744) 31,453 (92,740) (42,291) 16,363 35,012 51,375 (65,447) − (65,447) (49,084) 35,012 (14,072) * The impairment charge on certain vessels and assets have been added back to gross loss to arrive at adjusted gross profit for the year ended 31 December 2020 and 2019 (refer to Note 5 for further details). This measure provides additional information on the core profitability of the Group. ** Restructuring costs incurred are not considered part of the regular underlying performance of the business and so have been added back to arrive at adjusted loss for the year ended 31 December 2020 and 2019 (refer to Note 34 for further details). This measure provides additional information in assessing the Group’s total performance that management is more directly able to influence and on a basis comparable from year to year. See KPI section on page 26 for further details. *** Exceptional legal costs incurred are not considered part of the regular underlying performance of the business and so have been added back to arrive at adjusted loss for the year ended 31 December 2020 (refer to Note 35 for further details). This measure provides additional information in assessing the Group’s total performance that management is more directly able to influence and on a basis comparable from year to year. See KPI section on page 26 for further details. **** Costs incurred to arrange a new bank facility have been added back to loss before taxation to arrive at adjusted loss for the year ended 31 December 2020. This measure provides additional information in assessing the Group’s total performance that management is more directly able to influence and on a basis comparable from year to year. See KPI section on page 26 for further details. ***** The expensing of unamortised issue costs in relation to previous loan has been added back to loss before taxation to arrive at adjusted loss for the year ended 31 December 2020. This measure provides additional information in assessing the Group’s total performance that management is more directly able to influence and on a basis comparable from year to year. See KPI section on page 26 for further details. Annual Report 2020 125 Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued FOR THE YEAR ENDED 31 DECEMBER 2020 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 Company (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) 2020 2019 (124,339) (15,354) 350,488 350,488 (35.48) (35.48) (4.38) (4.38) (85,778) (20,331) 350,357 350,357 (24.48) (24.48) (5.80) (5.80) Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company (as disclosed in the statement of comprehensive income) by the weighted average number of ordinary shares in issue during the year. Adjusted loss per share is calculated on the same basis but uses the loss for the purpose of basic loss per share (shown above) adjusted by adding back the non-operational items, which were recognised in the consolidated statement of profit or loss and other comprehensive income in the prior year. The adjusted loss per share is presented as the Directors consider it provides an additional indication of the underlying performance of the Group. Diluted loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, adjusted for the weighted average effect of share-based payment charge outstanding during the year. As the Group incurred a loss in 2020 and 2019, diluted loss per share is the same as loss per share, as the effect of share-based payment charge 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 Maintenance service Sundry income Maintenance 2020 ’000s 350,488 350,488 2020 US$’000 60,797 33,252 5,506 1,030 1,267 640 – 2019 ’000s 350,357 350,357 2019 US$’000 59,060 39,144 7,724 1,639 – 832 322 102,492 108,721 Included in mobilisation and demobilisation income is an amount of US$ 0.3 million (2019 US$ 0.1 million) that was included as deferred revenue at the beginning of the financial year. Further descriptions on the above types of revenue have been provided in Note 3. 126 Gulf Marine Services PLC 34 Restructuring costs During 2019, the organisational structure was simplified with a number of management posts removed and not replaced. In addition, the operational footprint was reviewed and certain operations in the UK and MENA were closed. Consultancy costs incurred mainly relate to legal advice on restructuring and Board changes. In 2020, further restructuring occurred. The total estimated restructuring costs is expected to be US$ 9.1 million, of which US$ 6.3 million was incurred in 2019 and US$ 2.5 million was incurred in 2020. At 31 December 2020 the remaining provision was US$ 0.3 million (31 December 2019: US$ 1.9 million), which is expected to be fully utilised over the next 12 months. Staff costs Consultancy fees Business travel Office/port closures 2020 US$’000 2019 US$’000 1,862 403 82 145 2,492 4,269 1,489 197 367 6,322 35 Exceptional legal costs During the year, as a result of the non-binding proposed offer to buy the share capital of the Company from our largest shareholder, several requests for General Meetings, and legal advice for Director disputes, additional fees have been incurred totalling US$ 3.1 million (2019: US$ nil). 36 Finance income Bank and other income 37 Finance expenses Interest on bank borrowings (Note 22) Loss on settlement of derivatives reclassified through profit or loss Interest on finance leases Bank commitment fees Bank arrangement fees Other finance expenses Recognition of embedded derivative for warrants (Note 10) Net loss on changes in fair value of interest rate swap (Note 10) Revaluation gain on revision of debt cash flows as at 31 December 2020 (Note 22) Cost to acquire new bank facility* (Note 22) Expensing of unamortised issue costs in relation to previous loan (Note 31) * Costs incurred to acquire new loan facility including arrangement, advisory and legal fees. 38 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) Impairment charge (Note 5) Amortisation of dry docking expenditure (Note 6) Amortisation of Right-of-use assets (Note 7) Movement in ECL provision during the year (Note 9) Recovery of ECL provision (Note 9) Foreign exchange loss, net Loss/(Gain) on disposal of property plant and equipment Gain on disposal of assets held for sale (Note 12) Auditor’s remuneration (see below) 2020 US$’000 15 2020 US$’000 27,626 904 182 (187) 115 373 1,449 1,551 (1,518) 15,797 448 46,740 2020 US$’000 28,264 25,837 87,156 3,074 2,543 69 (64) 993 2,073 (259) 1,025 2019 US$’000 16 2019 US$’000 31,107 259 284 249 164 – – – – – – 32,063 2019 US$’000 35,926 29,849 59,125 2,275 2,891 (16) – 1,181 (14) – 771 Annual Report 2020 127 Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued FOR THE YEAR ENDED 31 DECEMBER 2020 38 Loss for the year (continued) 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 2020 Number 2019 Number 467 29 496 426 56 482 The total number of full time equivalent employees (including executive Directors) as at 31 December 2020 was 533 (31 December 2019: 461). Their aggregate remuneration comprised: Wages and salaries Employment taxes End of service benefit (Note 20) Share based payment charge 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 2020 US$’000 27,692 38 527 7 28,264 2019 US$’000 35,025 138 537 226 35,926 2020 US$’000 2019 US$’000 784 95 879 146 1,025 287 164 451 320 771 * The Group audit fee in 2020 includes overruns in respect of the 2019 audit amounting to US$ 84k which were agreed subsequent to the issuance of the 2019 Annual Report. For further information on the Group’s policy in respect of Auditor’s remuneration see page 47 of the Report of the Audit and Risk Committee. 39 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) Movement in ECL provision during the year (Note 9) Provision for doubtful debts on accrued revenue (Note 9) Recovery of ECL provision (Note 9) Share based payment charge (Note 16) Interest income (Note 36) Finance expenses (Note 37) Loss/(gain) on disposal of property, plant and equipment (Note 38) Gain on disposal of assets held for sale (Note 38) Hedging revenue adjustment (Note 10) Unrealised forex loss Other income Cash flow from operating activities before movement in working capital Decrease in trade and other receivables (Decrease)/increase in trade and other payables Cash generated from operations Taxation paid Net cash generated from operating activities 128 Gulf Marine Services PLC 2020 US$’000 2019 US$’000 (124,304) (85,465) 25,837 3,074 87,156 2,543 1,285 527 (617) 69 – (64) 168 (15) 46,740 2,073 (259) (21) – (257) 43,935 4,866 (3,770) 45,031 (763) 44,268 29,849 2,275 59,125 2,891 3,696 537 (979) (16) (530) – 227 (16) 32,063 (14) – – 77 (513) 43,207 2,875 8,320 54,402 (3,058) 51,344 Changes in liabilities arising from financing activities The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s consolidated statement of cash flows as cash flows from financing activities. At 1 January 2019 Financing cash flows Bank borrowings received Repayment of bank borrowings Principal elements of lease payments Settlement of derivatives Interest paid Total financing cashflows Non-cash changes: Recognition of new leases on adoption of IFRS 16 Recognition of new lease additions Derecognition of lease liabilities Interest on leases (Note 37) Interest on bank borrowings (Note 37) Bank commitment fees (Note 37) Loss on fair value changes of hedging instruments (Note 10) Other movements Total non cash changes At 31 December 2019 Financing cash flows Bank borrowings received Repayment of bank borrowings Principal elements of lease payments Settlement of derivatives Interest paid Total financing cashflows Non-cash changes: Recognition of new lease liability additions Interest on leases (Note 37) Interest on bank borrowings (Note 37) Bank commitment fees (Note 37) Gain on fair value changes of hedging instruments (Note 10) Net loss on change in fair value of IRS (Note 10) Loss on fair value changes on the embedded derivative (Note 10) The expensing of unamortised issue costs in relation to previous loan (Note 37) Revaluation gain on revision of debt cash flows at the date of modification (Note 37) Total non cash changes At 31 December 2020 Derivatives (Note 10) US$’000 Lease liabilities (Note 23) US$’000 Bank borrowings (Note 22) US$’000 238 – – – 241 – 241 – – – – – – 1,261 – 1,261 1,740 – – – (883) – (883) – – – – (21) 1,551 1,449 – – 2,979 3,836 – 411,515 – – (3,433) – (286) (3,719) 6,122 860 (1,593) 284 – – – – 5,673 1,954 – – (1,871) – (193) (2,064) 3,239 182 – – – – – – – 3,421 3,311 5,000 (18,329) – – (27,663) (40,992) – – – – 31,107 249 – 288 31,644 402,167 21,500 (12,075) – – (27,903) (18,478) – – 27,626 (187) – – – 448 (1,518) 26,369 410,058 40 Events after the reporting period Extension to waiver to renegotiate banking terms On 27 January 2021, the Group’s banking syndicate agreed an extension of certain obligations on the Group, which it was otherwise required to have met by 31 January 2021, including the requirement to issue warrants to the banks to 28 February 2021. These obligations were further extended on 25 February to 31 March 2021 at which point they were superseded. New bank deal On 31 March 2021, the Group together with its banking syndicate executed an amendment to its common terms agreement and related loan documentation, delivering significantly improved terms, which were consistent with the term sheet announced on 16 March 2021. The revised deal provides additional time needed to seek to complete an equity raise, with a requirement to raise US$ 25 million by 30 June 2021 and a further US$ 50 million by 31 December 2022. Provided the Company meet these requirements then no PIK shall be charged or warrants issued. It also reduces interest cost during 2021 and 2022 with the cash saving being utilised to accelerate repayment of the loans. Please refer to Note 22 for further details. Appointment of new Director As announced on 16 March 2021, Jyrki Koskelo was appointed as an Independent Non-Executive Director to the Board of Directors in February 2021. Annual Report 2020 129 Financial Statements COMPANY STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2020 Fixed assets Investments in subsidiaries Total fixed assets Current assets Other receivables Cash and cash equivalents Total current assets Creditors: Amounts falling due within one year Other payables Net current liabilities Total assets less current liabilities Creditors: Amounts falling due after more than one year Derivatives Net assets Equity Share capital Share premium account Share based payment reserve Retained earnings Total equity Notes 5 2020 US$’000 2019 US$’000 247,325 247,325 573,546 573,546 48 64 112 14 1 15 15,375 15,375 12,998 12,998 232,062 560,563 1,449 – 230,613 560,563 58,057 93,080 3,739 75,737 230,613 58,057 93,080 3,569 405,857 560,563 7 8 9 9 9 The Company reported a loss for the financial year ended 31 December 2020 of US$ 330.1 million (2019: US$ 2.8 million). The financial statements of Gulf Marine Services PLC (registered number 08860816) were approved by the Board of Directors and authorised for issue on 21 May 2021. Signed on behalf of the Board of Directors Mansour Al Alami Executive Chairman Andy Robertson Chief Financial Officer The attached Notes 1 to 13 form an integral part of these financial statements. 130 Gulf Marine Services PLC COMPANY STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2020 At 1 January 2019 Loss for the year Share based payment charge (Note 9) Shares issued under LTIP schemes (Note 9) Share capital US$’000 57,992 – – 65 Share premium account US$’000 93,080 – – – Share based payment reserve US$’000 Retained earnings US$’000 Total equity US$’000 3,410 408,646 563,128 – 224 (65) (2,789) – – (2,789) 224 – At 31 December 2019 58,057 93,080 3,569 405,857 560,563 Loss for the year Share based payment charge (Note 9) At 31 December 2020 – – – – 58,057 93,080 – 170 3,739 (330,120) – (330,120) 170 75,737 230,613 The attached Notes 1 to 13 form an integral part of these financial statements. Annual Report 2020 131 Financial Statements NOTES TO COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 1 Corporate information Gulf Marine Services PLC (“the Company”) was a private company limited by shares, incorporated in the United Kingdom under the Companies Act 2006 and is registered in England and Wales. On 7 February 2014, the Company re-registered as a public limited company. The address of the registered office of the Company is 6th Floor, 65 Gresham Street, London, EC2V 7NQ. The registered number of the Company is 08860816. The Company is the parent company of the Gulf Marine Services Group comprising of Gulf Marine Services PLC and its underlying subsidiaries (“Group”). The consolidated group accounts are publicly available. 2 Accounting policies Currency The functional and presentational currency of the Company is US Dollars (“US$”). Going concern The Company’s ability to continue as a going concern is premised on the same assessment as the Group. The Company’s Directors have assessed the Group’s and therefore 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 Group and the Company will be able to continue in operational existence for the foreseeable future. On 31 December 2020, the Group’s banking syndicate agreed to extend certain obligations on the Group, which it was otherwise required to have met including the requirement to issue warrants to the banks. This meant the Group was not in an event of default as at 31 December 2020. This was subsequently extended on two further occasions through to 31 March 2021 at which point the Company entered into a new agreement with its lenders, delivering significantly improved terms, which were consistent with the term sheet announced on 16 March 2021. The revised deal provides additional time needed to complete an equity raise with a lower initial quantum and now includes a requirement of US$ 25 million of equity to be raised by 30 June 2021 and a further US$ 50 million by 31 December 2022. This must be put to the Company’s shareholders to approve. Seafox and Mazrui Investments LLC (Mazrui) are related parties under the Listing Rules, therefore their respective votes would not be counted on a shareholder vote on a related party transaction to which they were party. A fully pre-emptive offering would not involve such a related party transaction. Both have informally agreed to take up their prorated share of an equity raise. Failure to obtain the necessary shareholder approval and raise US$25 million of new equity by 30 June 2021 will result in an event of default and indicates a material uncertainty that may cast significant doubt as to the Group’s and the Company’s ability to continue as a going concern. Notwithstanding this material uncertainty, the Directors believe that based on the progress made to date and an informal commitment from these two shareholders representing 42% of the share capital of the Company to take up their prorated share, that the equity raise will be successfully completed prior to 30 June 2021. Accordingly, they have adopted the going concern basis of accounting in preparing the consolidated financial statements, and also in preparing these Company financial statements. If shareholder approval is not obtained and US$ 25 million of new equity is not placed by 30 June 2021 the banks would retain the right, under the existing loan terms, to call default on the loans as of that date. This would allow a majority of banks, representing at least 66.67% of total commitments, to exercise their rights to recall all credit facilities, demand immediate repayment and/ or enforce its rights over the security granted by the Company as part of this facility either through enforcing security over assets and/or exercising the share pledge to take control of the Group. GMS remains cognisant of the wider context in which it operates and the impact that climate change could have on the financial statements of the Group. The Board’s view is that the transition risk associated with climate change remains an emerging risk with no appreciable impact in the going concern forecast period. The impact of COVID-19 has also been considered with vessel downtime, as a contingency, for 2021. The forecast has been amended to allow for additional hotel and testing costs for offshore crew whilst in quarantine. Terms and conditions of crew rotations have also been amended and costs updated to reflect this. Rotations have been extended for all crew to limit the number of times in quarantine and the number of changeouts on the crew which increases the risk of infection each time it occurs. All policies are in line with Government and client guidelines for offshore activities. Brexit GMS supports the free movement of goods, services and people. On 24 December 2020 agreement was reached between the UK and EU. As our UK office was closed at the end of 2019 and there is currently one vessel owned by the Company’s subsidiaries, working in North West Europe, the impact of Brexit is not considered to be a principal risk to the Company. GMS will continue to monitor the status of implementation, including changes in legislation and future policies. 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 applied the amendments to FRS 102 issued by the FRC in December 2017 with effect from 1 January 2019. The transitional provisions relating to the triennial review amendments have not resulted in any restatements of comparative information by the Company. 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$ 330.1 million (2019: loss of US$ 2.8 million). The principal accounting policies are summarised below. They have all been applied consistently throughout both years. 132 Gulf Marine Services PLC The Company meets the definition of a qualifying entity under FRS 102 and has therefore taken advantage of the disclosure exemptions available to it. Exemptions have been taken in relation to presentation of a cash flow statement and remuneration of key management personnel. Investments Investments in subsidiaries and associates are recognised at cost 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 the transaction price, 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 interest rate, 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. Embedded Derivatives The Company considers whether a contract contains an embedded derivative when it becomes a party to the contract. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the entire instrument is not measured at fair value with changes in fair value recognised in the profit or loss. 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 Basic financial assets including other receivables and cash and bank balances are initially measured at transaction price, plus transaction costs. Such assets are subsequently carried at amortised cost using the effective interest method. Interest income is recognised by applying the effective interest rate method, except for short-term receivables when the recognition of interest would be immaterial. Other financial assets are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss. 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. 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. Annual Report 2020 133 Financial Statements NOTES TO COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 2 Accounting policies (continued) Taxation (continued) 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 following are the critical accounting judgements and key sources of estimation, 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. Critical judgements in applying the Company’s accounting policies Management has not made any critical judgements in applying the Company’s accounting policies for the year ended 31 December 2020. Key source of estimation uncertainty The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The key assumptions concerning the future, and other key sources of estimation uncertainty that may have a significant risk of causing a material adjustment to the carrying value of assets and liabilities within the next financial year, are outlined below. Recoverability of investments Investments in subsidiary undertakings are included in the statement of financial position of the Company at 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. 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 recoverability of investments is primarily impacted by the cash flows of the vessels owned by the Group’s subsidiary undertakings. The projection of cash flows related to vessels requires the use of various estimates including future day rates, vessel utilisation levels and discount rates. These estimates are based on a number of key assumptions including asset replacement cost, ongoing maintenance and repair costs and estimated asset usage over the relevant period. For further details on analysis of the sensitivities of these estimates, refer to Note 5. The Company undertook a full impairment review of its investments during the year. The review led to the recognition of an aggregate impairment of US$ 327.7 million (2019:US$ nil) on the investment in subsidiaries (see Note 5). As at 31 December 2020, the Company had investments of US$ 247.3 million (2019: US$ 573.5 million). 4 Dividends There was no interim dividend declared or paid in 2020 (2019: Nil). No final dividend in respect of the year ended 31 December 2020 (2019: Nil at the 2020 AGM) is to be proposed at the 2021 AGM. 134 Gulf Marine Services PLC 5 Investment in subsidiaries Investments in subsidiaries Capital contribution in subsidiary in relation to embedded derivative (Note 8) Impairment of investments 2020 US$’000 573,546 1,449 (327,670) 247,325 2019 US$’000 573,546 – – 573,546 As at 31 December 2020, the net assets of the Company exceed the net assets of the Group prior to any impairment by US$ 351.4 million (2019: US$ 230.9 million). This and the continued low market capitalisation were identified as indicators of impairment and accordingly the Company undertook a full assessment of recoverable amount of its investments in subsidiaries at the reporting date. The review was done by identifying the value in use of each vessel in the fleet as the underlying cash generating units of the investments in subsidiaries. This assessment is based on management’s projections of utilisation and day rates and associated cash flows and adjusted to include full overheads and future tax charges. Projections used to derive future cashflows reflect the ongoing COVID-19 pandemic and oil price environment. The risk adjusted cash flows have been discounted using a nominal post-tax discount rate of 9.86% (2019: 9.25%), which reflects the current market assessment of the time value of money and is based on the Group’s weighted average cost of capital. The discount rate has been calculated using industry sector average betas, risk free rates of return as well as specific adjustments for country risk and tax regimes in the countries in which the Group operates and a size premium. For further details of the Group’s impairment assessment, refer to Note 5 of the consolidated financial statements. The review led to the recognition of an aggregate impairment of US$ 327.7 million (2019: US$ nil) on the investment in subsidiaries. The Company has conducted an analysis of the sensitivity of the impairment test to reasonably possible changes in the key assumptions (day rates, utilisation and nominal post-tax discount rates) used to determine the recoverable amount of investments. The first sensitivity modelled a 10% increase/reduction to projected revenue for the remaining useful economic life. A further sensitivity was modelled where a 1% increase/ decrease was applied to the post-tax discount rate mentioned above. The results on the first sensitivity indicated that a 10% decrease to revenue would lead to an additional impairment charge of US$ 129.9 million. In comparison, a 10% increase to revenue would reduce the impairment charge booked in the period by US$ 127.3 million. The total carrying amount of investments would be US$117.4 million and US$ 374.6 million respectively. The results on the second sensitivity indicated that a 1% decrease to the nominal post-tax discount rate would lead to a reduction of the impairment charge booked during the period of US$ 58.8 million and a 1% increase to the nominal post-tax discount rate would lead to an increase to the impairment charge booked during the period of US$ 51.2 million. The total carrying amount of investments would be US$ 188.5 million and US$ 298.5 million respectively. The Company has investments in the following subsidiaries: Name Place of Registration Registered Address Gulf Marine Services W.L.L. United Arab Emirates Office 403, International Tower, Proportion of Ownership Interest 2020 100% 2019 Type of Activity 100% Marine Contractors Offshore Holding Invt SA Panama Offshore Logistics Invt SA Panama Offshore Accommodation Invt Panama SA Offshore Jack-up Invt SA Panama Offshore Craft Invt SA Panama 24th Karama Street, P.O. Box 46046, Abu Dhabi, United Arab Emirates Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama 100% 100% Holding Company 100% 100% Owner of Barge “Naashi” 100% 100% Holding Company 100% 100% Owner of Barge “Kamikaze” 100% 100% Owner of Barge “GMS Endeavour” Annual Report 2020 135 Financial Statements NOTES TO COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 5 Investment 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 Gulf Marine Services (UK) United Kingdom Limited Gulf Marine Saudi Arabia Co. Saudi Arabia Limited Gulf Marine Services (Asia) Pte. Singapore Ltd. GMS Enterprise Investment SA Panama GMS Sharqi Investment SA Panama GMS Scirocco Investment SA Panama GMS Shamal Investment SA Panama GMS Jersey Holdco. 1 Limited* Jersey GMS Jersey Holdco. 2 Limited Jersey Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama c/o MacKinnon’s, 14 Carden Place, Aberdeen, AB10 1UR King Fahad Road, Al Khobar, Eastern Province, P.O. Box 31411 Kingdom of Saudi Arabia 1 Scotts Road, #21-07, Shaw Centre, Singapore, 228208 Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama 12 Castle Street, St. Helier, Jersey, JE2 3RT 12 Castle Street, St. Helier, Jersey, JE2 3RT Proportion of Ownership Interest 2020 100% 2019 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% Operator of Offshore Barges 75% 75% Operator of Offshore Barges 100% 100% Operator of Offshore Barges 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% General Investment 100% 100% General Investment GMS Marine Middle East FZE United Arab Emirates ELOB, Office No. E-16F-04, P.O. 100% 100% Operator of Offshore Box 53944, Hamriyah Free Zone, Sharjah Barges GMS Global Commercial Invt United Arab Emirates Office 403, International Tower, 100% 100% General Investment LLC 24th Karama Street, P.O. Box 46046, Abu Dhabi, United Arab Emirates 136 Gulf Marine Services PLC Name Place of Registration Registered Address GMS Keloa Invt SA Panama GMS Pepper Invt SA Panama GMS Evolution Invt SA Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama Proportion of Ownership Interest 2020 100% 2019 Type of Activity 100% Owner of Barge “Keloa” 100% 100% Owner of Barge “Pepper” 100% 100% Owner of Barge “Evolution” Gulf Marine Services LLC Qatar Qatar Financial Centre, Doha 100% 100% Marine Contractor Mena Marine Limited Singapore GMS Phoenix Investment SA * Held directly by Gulf Marine Services PLC. Ugland House, Grand Cayman, KY1-1104, Cayman Islands, P.O. Box 309 Bloc Office Hub, Fifth Floor, Santa Maria Business District, Panama, Republic of Panama 100% 100% General Investment and Trading 100% 100% Dormant 6 Deferred tax asset At the reporting date, the Company has unused tax losses of US$ 12.1 million available for offset against future profits (2019: US$ 9.6 million). These UK tax losses may be carried forward indefinitely. The Company had insufficient future taxable profits to justify the recognition of a deferred tax asset and therefore no deferred tax asset has been recognised in the current year (2019: US$ Nil). 7 Other payables Amounts owed to Group undertakings Other payables 2020 US$’000 14,648 727 15,375 2019 US$’000 12,321 677 12,998 Amounts owed to Group undertakings have no fixed terms of repayment and are repayable on demand. Therefore the present value of the liability is deemed to equal the undiscounted cash amount payable, reflecting the lender’s right to demand immediate repayment. No interest charge is therefore imputed on these amounts. 8 Derivative financial instruments Embedded derivative – contract to issue warrants In June 2020, the Group restructured the terms of its borrowings with its lenders. These terms include warrants to be issued under the following conditions: If GMS has not raised US$ 75.0 million of equity by no later than 31 December 2020, GMS shall issue warrants to its lenders, in accordance with the following terms: • Strike price at 9p • Number of warrants that would give the lenders collectively 20% ownership of GMS • Vesting: (i) 50% vest on 31 December 2021 and (ii) 50% vest on 30 June 2023, unless the Net Leverage ratio is below 4.0x • • Upon vesting, the warrants are (i) exercisable in whole or in part, (ii) allocated pro rata to each lender and exercisable singly and separately If, at any time, GMS raised US$ 100 million of equity any warrant not yet vested at such date will cease to exist (i.e. not as a syndicate), (iii) payable either in cash or in the form of settling the PIK outstanding at the time of exercise, and (iv) freely tradable • Warrants to expire on 30 June 2025 (maturity date of the facilities) As the terms of the loan facility contained separate distinguishable terms with a requirement to issue warrants to banks, management determined the debt facility to contain an embedded derivative. The Group were required to recognise the embedded derivative at fair value. The loan facility was a tri-partite agreement between the Company, a subsidiary of the Group and the Groups banking syndicate. As the embedded derivative was over the Company’s equity, the balance has been recorded on the Company’s balance sheet. Annual Report 2020 137 Financial Statements NOTES TO COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 8 Derivative financial instruments (continued) Embedded derivative – contract to issue warrants (continued) The balance represents the fair value outstanding at 31 December 2020 with a value of US$ 1.4 million. As the derivative was expected to be settled after 12 months, the balance was recognised as a non-current liability. Management commissioned an independent valuation expert to measure the fair value of the warrants, which was determined using Monte Carlo simulations. The fair value based on the valuation carried out as at 31 December was US$ 1.5 million. The valuation of the contract to issue is dependent on a number of estimates, including the Company’s share price, the Company’s share price volatility and the Group’s ability to raise equity. The weighted average risk-free rate was 0.10%. The valuation of fair value of the contract to issue warrants is more sensitive to changes to market capitalisation. A 10% increase in the assumed market capitalisation required to raise equity would result in a US$ 1.4 million increase in the fair value of warrants. A 10% decrease would result in a US$ 1.4 million decrease in their fair value. During the year no warrants were issued. Derivative financial statements are made up as follows: As at 1 January 2019 and 1 January 2020 Initial recognition and subsequent revaluation of embedded derivative As at 31 December 2020 9 Share capital and reserves The share capital of Gulf Marine Services PLC was as follows: At 31 December 2020 Authorised share capital Issued and fully paid At 31 December 2019 Authorised share capital Issued and fully paid At 1 January 2020 Shares issued under LTIP schemes At 31 December 2020 Embedded derivative US$’000 – 1,449 1,449 Ordinary shares US$’000 58,057 58,057 Total US$’000 – 1,449 1,449 Total US$’000 58,057 58,057 Number of ordinary shares (thousands) 350,488 350,488 350,488 350,488 58,057 58,057 58,057 58,057 Number of ordinary shares (thousands) 350,488 – 350,488 Ordinary shares US$’000 Share premium account US$’000 58,057 – 58,057 93,080 – 93,080 Share based payment reserve US$’000 3,569 170 3,739 Total US$’000 154,706 170 154,876 The Company has one class of ordinary shares, which carry no right to fixed income. 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 share premium account contains the premium arising on issue of equity shares, net of related costs. 138 Gulf Marine Services PLC The Company’s share based payment reserve of US$ 3.7 million (2019: US$ 3.6 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-based payment charge during the year was US$ 0.2 million (2019: US$ 0.2 million). The retained earnings represent cumulative profits or losses net of dividends paid and other adjustments. 10 Staff numbers and costs The average monthly number of employees (including executive directors) was: Administration Their aggregate remuneration comprised: Wages and salaries Employment taxes 2020 Number 2019 Number 3 3 5 5 2020 US$’000 2019 US$’000 931 11 942 1,301 69 1,370 11 Long term incentive plans The Company has Long Term Incentive Plans (“LTIPs”), performance shares and share-based payments 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 63. From 2019 onwards the employment condition is that each eligible employee of the Company must remain in employment during the three year vesting period. 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 were 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 Company 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 share-based payments that eventually vest. Any market vesting conditions were factored into the fair value of the share-based payments granted. To the extent that share-based payments are granted to employees of the Company’s subsidiaries without charge, the share-based payment charge is capitalised as part of the cost of investment in subsidiaries. The number of share awards granted by the Company during the year is given in the table below: 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 2020 No. 2019 No. 8,768,294 2,661,388 – (4,856,453) – 9,814,485 3,425,775 (519,909) (1,424,494) (2,527,563) 6,573,229 8,768,294 – – The weighted average remaining contractual life for the vesting period outstanding as at 31 December 2020 was 1.0 years (2019: 1.9 years). The weighted average fair value of shares granted during the year was US$ 0.10 (2019: US$ 0.07). Annual Report 2020 139 Financial Statements NOTES TO COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 11 Long term incentive plans (continued) 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 Expected volatility Risk-free rate Expected dividend yield Vesting period Award life LTIP LTIP LTIP 29 May 2020 £0.09 120% 0.01% 0.00% 3 years 3 years 15 November 2019 £0.08 102.79% 0.48% 0.00% 3 years 3 years 23 March 2018 £0.37 52.89% 1.04% 1.00% 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 9. 12 Financial instruments The Company applies Sections 11 and 12 of FRS 102 in respect of financial instruments. Further 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). The Company has the following financial instruments: Financial assets: Financial assets at amortised cost: Other receivables Cash and cash equivalents Total financial assets Financial liabilities at FVTPL: Embedded derivative (Note 8) Financial liabilities at amortised cost: Other payables (Note 7) Total financial liabilities All financial liabilities are repayable upon demand. 2020 US$’000 2019 US$’000 48 64 112 14 1 15 2020 US$’000 2019 US$’000 1,449 15,375 16,824 – 12,998 12,998 Capital risk management The Company manages its capital to support its ability to continue as a going concern while maximising the return on equity. The Company does not have a formalised optimal target capital structure or target ratios in connection with its capital risk management objectives, however under the revised banking terms signed in March 2021, a minimum of US$ 75 million of equity has to be raised prior to 31 December 2022 in order to accelerate payments towards term debt. This along with maximising cash wherever possible, the Group looks to delever the Company over the coming years. 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 9. The Company was not subject to any externally imposed capital requirements other than a requirement to issue warrants to its lenders if US$ 75 million equity was not raised by 31 December 2020, refer to Note 8 for further details. 140 Gulf Marine Services PLC Financial risk management objectives and policies 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. Management actively monitors and manages risks relating to the Company and policies implemented to mitigate risk exposures. 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 counterparties. 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. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence for a reduction in the recoverability of the cash flows. 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. Cash balances held at year end were deposited with banks with Fitch short-term ratings of F2 to F1+. Cash flow and liquidity risk The Company currently has sufficient cash to fund its activities. However, in the event that additional liquidity is required for ongoing operations and future developments, the Company has access to additional funding from other Group entities which it controls. Foreign currency risk management The majority of the Company’s transactions are in either UAE Dirhams or US$. Transactions in other foreign currencies entered into by the Company are short term in nature and therefore management considers that the currency risk associated with these transactions is limited and consequently this risk is not hedged. Interest rate risk management The Company’s financial assets and financial liabilities are interest-free; accordingly, the Company is not subject to any interest rate risk. Fair value of financial assets and liabilities The Company’s management considers that the fair value of financial assets and financial liabilities approximates their carrying amounts. 13 Events after the reporting period Appointment of new Director As announced on 16th March 2021, Jyrki Koskelo was appointed as an Independent Non-Executive Director to the Board of Directors in February 2021. New bank deal On 31 March 2021, the Group together with its banking syndicate executed an amendment to its common terms agreement and related loan documentation, delivering significantly improved terms, which were consistent with the term sheet announced on 16 March 2021. The revised deal provides additional time needed to seek to complete an equity raise, with a requirement to raise US$ 25 million by 30 June 2021 and a further US$ 50 million by 31 December 2022. Provided the Company meet these requirements then no PIK shall be charged or warrants issued. It also reduces interest cost during 2021 and 2022 with the cash saving being utilised to accelerate repayment of the loans. The Company will be required to recognise an embedded derivative in relation to the terms of the warrants contained in the new loan facility. As the loan facility is a tri-partite agreement between the Company, a subsidiary of the Group and the Group’s banking syndicate, and the warrants will be over the Company’s equity, the embedded derivative will be recorded on the balance sheet. Annual Report 2020 141 Financial Statements GLOSSARY 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 attributable to equity holders of the Company for the period divided by the weighted average number of ordinary shares in issue during the period, adjusted for the weighted average effect of share options outstanding during the period. The adjusted loss attributable to equity shareholders of the Company is used for the purpose of basic loss per share adjusted by adding back impairment charges, restructuring charges, exceptional legal costs and costs to acquire new bank facilities. This measure provides additional information regarding earnings per share attributable to the underlying activities of the business. A reconciliation of this measure is provided in Note 31. Adjusted EBITDA – represents operating profit after adding back depreciation, amortisation, impairment charges, restructuring costs and exceptional legal costs in 2020. This measure provides additional information in assessing the Group’s underlying performance that management is more directly able to influence in the short term and on a basis comparable from year to year. A reconciliation of this measure is provided in Note 31. Adjusted EBITDA margin – represents adjusted EBITDA divided by revenue. This measure provides additional information on underlying performance as a percentage of total revenue derived from the Group. Adjusted gross profit/(loss) – represents gross profit after adding back impairment charges. This measure provides additional information on the core profitability of the Group. A reconciliation of this measure is provided in Note 31. Adjusted loss – represents loss after adding back impairment charges, restructuring costs, exceptional legal costs and finance expenses relating to the renegotiation of the bank facilities in 2020. This measure provides additional information in assessing the Group’s total performance that management is more directly able to influence and on a basis comparable from year to year. A reconciliation of this measure is provided in Note 31 of these results. Average fleet utilisation – represents the percentage of available days in a relevant period during which the fleet of SESVs is under contract and in respect of which a customer is paying a day rate for the charter of the SESVs. Average fleet utilisation is calculated by adding the total contracted days in the period of each SESV, divided by the total number of days in the period multiplied by the number of SESVs in the fleet. EBITDA – represents Earnings before Interest, Tax, Depreciation and Amortisation, which represents operating loss after adding back depreciation and amortisation in 2020. This measure provides additional information of the underlying operating performance of the Group. A reconciliation of this measure is provided in Note 31. Margin – revenue less operating expenses as identified in Note 31 of the consolidated financial statements. Net bank debt – represents the total bank borrowings less cash. This measure provides additional information of the Group’s financial position. A reconciliation is shown below: Statutory bank borrowings Less cash and cash equivalents 2020 US$’000 410,058 (3,798) 406,260 2019 US$’000 402,167 (8,404) 393,763 Net cash flow before debt service – the sum of cash generated from operations and investing activities. Net debt to EBITDA – the ratio of net debt at year end to earnings before interest, tax, depreciation and amortisation as reported under the terms of our bank facility agreement. Operational downtime – downtime due to technical failure. Segment adjusted gross profit/loss – represents gross profit/loss after adding back depreciation, amortisation and impairment charges. This measure provides additional information on the core profitability of the Group attributable to each reporting segment. A reconciliation of this measure is provided in Note 30. Underlying trading performance – day to day trading excluding vessel relocation and COVID-19. 142 Gulf Marine Services PLC OTHER DEFINITIONS Backlog represents firm contracts and extension options held by clients. Backlog equals (charter day rate x remaining days contracted) + ((estimated average Persons On Board x daily messing rate) x remaining days contracted) + contracted remaining unbilled mobilisation and demobilisation fees. Includes extension options. Borrowing rate LIBOR plus margin. Calendar days Costs capitalised 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. DEPS/DLPS Diluted earnings/losses per share. Employee retention percentage of staff who continued to be employed during the year (excluding retirements and redundancies) taken as number of resignations during the year divided by the total number of employees as at 31 December. EPC ESG engineering, procurement and construction. environmental, social and governance. Finance Service Cover represents the ratio of Adjusted EBITDA to Finance Service (being Net finance charges plus scheduled repayments plus capital payments for finance leases adjusted for voluntary or mandatory prepayments), in respect of that relevant period. Interest Cover represents the ratio of Adjusted EBITDA to Net finance charges. IOC KPIs LTIR Independent Oil Company. Key performance indicators. 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. LIBOR London Interbank Offered Rate. Net finance charges represents finance charges for that period less interest income for that period. Net leverage ratio represents the ratio of net bank debt to Adjusted EBITDA. NOC OSW PIK Security Cover (loan to value) National Oil Company. Offshore Wind. Payment In Kind. Under the banking documents dated 17 June 2020 and 31 March 2021, PIK is calculated at 5.0% per annum on the total term facilities outstanding amount and reduces to: a 2.5% per annum when Net Leverage reduces below 5.0x b Nil when Net Leverage reduces below 4.0x Under the documents dated 31 March 2021, PIK accrues on either 1 July 2021 if the US$ 25 million equity is not raised by 30 June 2021, or from 1 January 2023 if the US$ 50 million is not raised by 31 December 2022. PIK stops accruing at the date on which all loans are paid or discharged in full. 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. Underlying G&A Underlying General and Administrative (G&A) expenses excluding depreciation and amortisation, exceptional and legal costs. Utilisation Warrants 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. Under the banking documents dated 17 June 2020, if GMS had not satisfied the US$ 75 million Equity Condition, GMS shall issue warrants to the Banks, by no later than 31 December 2020, in accordance with the following terms: • Strike price at the lower of (i) average price over the 90 trading days preceding execution of documents, or (ii) exercise price of the stock options granted to Senior Management • Number of warrants that would give the Banks collectively 20% ownership of GMS • Vesting: (i) 50% vest on 31 December 2021 and (ii) 50% vest on 30 June 2023, unless the Net Leverage ratio is • below 4.0x If, at any time, GMS satisfies the US$ 100 million Equity Condition any warrant not yet vested at such date will cease to exist • Upon vesting, the warrants are (i) exercisable in whole or in part, (ii) allocated pro rata to each Bank and exercisable singly and separately (i.e. not as a syndicate), (iii) payable either in cash or in the form of settling the PIK outstanding at the time of exercise, and (iv) freely tradable • Anti-dilution mechanism • Price adjustment mechanism • Warrants to expire on 30 June 2025 (maturity date of the facilities) Under the banking documents date 31 March 2021, if Warrants are issued on 1 July 2021 because of the failure to raise US$ 25 million by 30 June 2021, half of the issued warrants vest on that date. The other half will only vest on 2 January 2023 if there is a failure to raise US$ 50 million. If warrants are issued on 2 January 2023 because of the failure to raise US$ 50 million all of the issued warrants vest on the same date. If the US$ 50 million equity raise is successful but the US$ 25 million is unsuccessful, the balance of the unvested warrants issued on 1 July 2021 will lapse. All warrants to expire on 30 June 2025 (maturity date of the facilities). Annual Report 2020 143 Financial Statements Board of Directors Mansour Al Alami Executive Chairman Hassan Heikal Deputy Chairman, Non-Executive Director Rashed Saif Al Jarwan Senior Independent Non-Executive Director Saeed Mer Abdulla Khoory Independent Non-Executive Director Jyrki Koskelo Independent Non-Executive Director CORPORATE INFORMATION Corporate Broker Panmure Gordon One New Change, London EC4M 9AF Legal Advisers Shearman and Sterling LLP 9 Appold Street London EC2A 2AP Auditors Deloitte LLP 2 New Street Square London EC4A 3BZ Public Relations Advisers Celicourt Communications Limited Orion House 5 Upper St Martin’s Lane London WC2H 9EA Registrar Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA Registered Office Gulf Marine Services PLC Masters House 107 Hammersmith Road London W14 0QH Head Office Gulf Marine Services P.O. Box 46046 Abu Dhabi, UAE T: +971 (2) 5028888 F: +971 (2) 5553421 E: IR@gmsplc.com Gulf Marine Services P.O. Box 46046 Abu Dhabi, UAE T: +971 (2) 5028888 F: +971 (2) 5553421 E: IR@gmsplc.com www.gmsplc.com 144 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. G U L F M A R I N E S E R V I C E S P L C A n n u a l R e p o r t 2 0 2 0 Gulf Marine Services P.O. Box 46046 Abu Dhabi, UAE T: +971 (2) 5028888 F: +971 (2) 5553421 E: IR@gmsplc.com www.gmsplc.com

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