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Gulf Marine Services PLC
Annual Report 2022
HIGHLIGHTS
In this report
Strategic Report
Highlights
2022 Financial Highlights
2022 Operational Highlights
2023 Highlights and Outlook
Non-Financial Information Statement
Chairman’s Review
People and Values
IFC
IFC
1
1
1
2
4
Business Model and Strategic Objectives 16
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
20
22
24
32
34
36
38
40
42
47
50
53
Directors’ Remuneration Policy Report 55
Annual Report on Remuneration
Directors’ Report
Statement of Directors’ Responsibilities
Financial Statements
Independent Auditor’s Report
Group Consolidated
Financial Statements
Company Financial Statements
Glossary
Other Definitions
Corporate Information
63
68
72
73
80
127
139
141
143
Also online at
https://www.gmsplc.com/Results-and-
Presentations.aspx
Our Vision
To be the best SESV operator
in the world
2022 Overview
Revenue
US$ 133.2m
(2021: US$ 115.1m)
Adjusted EBITDA
US$ 71.5m
(2021: US$ 64.1m)
Adjusted net profit for the year
US$ 17.6m
(2021: US$ 18.0m)
Utilisation
88%
(2021: 84%)
Underlying G&A as
percentage of revenue
10%
(2021: 11%)
2022 Financial Highlights
— Revenue increased by 15.7% to US$ 133.2 million (2021: US$ 115.1 million)
driven by increased utilisation mainly on E-class vessels and higher average
day rates across all vessel classes.
— Increased adjusted EBITDA1 to US$ 71.5 million (2021: US$ 64.1 million)
driven by an increase in revenue. Adjusted EBITDA margin decreased
to 54% (2021: 56%), which is due to the recognition of a charge for the
bankruptcy of a client as well as other one-off costs and an increase
in professional fees.
— Cost of sales excluding depreciation, amortisation and the reversal of
impairment/impairment charge was US$ 51.2 million (2021: US$ 41.2 million)
driven by increase in utilisation, the recognition of a charge for the
bankruptcy of a client, as well as other one-off costs.
— General and administrative expenses increased to US$ 13.2 million (2021:
US$ 12.3 million), driven by an increase in professional fees; however
underlying general and administrative costs5 as a percentage of revenue
had decreased to 10% (2021: 11%).
— US$ 7.8 million net reversal of impairment compared to US$ 15.0 million
in 2021.
— For a second year in a row, the Group generated profit: US$ 25.4 million
in 2022 (2021: US$ 31.2 million). Adjusted net profit2 of US$ 17.6 million
(2021: US$ 18.0 million).
— Finance expenses have increased to US$ 20.1 million (2021: US$ 14.5
million) during the year. This is driven by an increase in LIBOR rates from
0.2% in 2021 to 4.7% during the year, as well as an increase in the fair value
of the embedded derivatives of US$ 2.5 million (2021: US$ 0.3 million).
— Net bank debt3 reduced to US$ 315.8 million (2021: US$ 371.3 million).
Net leverage ratio4 reduced to 4.4 times (2021: 5.8 times).
2022 Operational Highlights
— Average fleet utilisation increased by 4 percentage points to 88% (2021: 84%) with a notable improvement in
E-Class vessels at 82% (2021: 72%). Average utilisation for K-Class vessels improved marginally to 87% (2021: 86%),
whilst there was a small decrease in average utilisation for S-Class vessels to 97% (2021: 98%).
— Average day rates increased notably to US$ 27.5k (2021: US$ 25.7k) with improvements across all vessel classes,
particularly for E-class and K-class vessels.
— New charters and extensions secured in the year totalled 19.4 years (2021: 9.6 years).
— Operational downtime increased to 2.2% (2021: 1.5%).
2023 Highlights and Outlook
— Utilisation for 2023 currently stands at 95% (84% being
secured) against actual utilisation of 88% in 2022.
— Anticipate continued improvement on day rates as our
vessel demand outstrips supply on the back of a strong
pipeline of opportunities.
— Average secured day rates of over 6% higher than 2022
actual levels.
— Reversal of impairment recognised with a value of
US$ 7.8 million indicative of continuing to improve
long-term market conditions.
— Group anticipates net leverage ratio to be below
4.0 times before the end of 2023.
See Glossary.
1 Represents operating profit/(loss) after adding back depreciation, amortisation
and the reversal of impairment in 2022 and 2021. This measure provides
additional information in assessing the Group’s underlying performance that
management can more directly influence in the short term and is comparable
from year to year. A reconciliation of this measure is provided in Note 31.
2 Represents net profit after adding back depreciation, amortisation the reversal
of impairment and adjusting items in 2022 and 2021. This measure provides
additional information in assessing the Group’s total performance that
management can more directly influence and is comparable from year to year.
A reconciliation of this measure is provided in Note 31.
3 Represents total bank borrowings less cash.
4 Represents the ratio of net bank debt to adjusted EBITDA.
5 Represents general and administrative costs excluding depreciation and
amortisation expenses.
NON-FINANCIAL INFORMATION STATEMENT
The Group has complied with the requirements of s414CB of the Companies Act 2006 by including certain non-financial information within
the strategic report.
The table below sets out where relevant information can be found within this report*:
Reporting requirement and policies and standards which govern our approach:
Information necessary to understand our business and its impact,
policy due diligence and outcomes:
Environmental matters
• Greenhouse Gas (GHG) Emissions Policy
• Climate change strategy
• Carbon emission reporting
• Taskforce on Climate-related Financial Disclosures (TCFD)
• GHG emissions, page 11
• People and values section, page 4
• Carbon emission reporting, page 11
• TCFD, page 4
Employees
• Anti-Corruption and Bribery Policy
• Social Responsibility Policy
• Whistleblowing Policy
• Health and safety standards
• Diversity and equal opportunities
• Employee engagement and welfare
Human rights
• Disability Policy
• Anti-Slavery Policy
• Code of Conduct Policy
• Ethical practises, page 12
• Ethical practises, page 12
• Ethical practises, page 12, and Audit and
Risk Committee report page 47
• Health and safety, page 13
• Diversity, page 11, Directors’ Report, page 68
• Employee engagement and welfare, page 12
• Employees and policies, Directors’ Report, page 70
• Ethical practises, page 12
• Ethical practises, page 12, Risk management page 29
Principal risks and impact on business activity
• Risk management, pages 24 to 31
Remuneration Policy
Description of the business model
Key Performance Indicators (KPIs)
• Remuneration Policy, page 55
• Our business model, page 16
• KPIs, page 32
* Further details on policies and procedures are available on our corporate website: www.gmsplc.com
Annual Report 2022
1
Strategic Report CHAIRMAN’S REVIEW
Value Transfer
to Shareholders
Benefiting from stronger demand for our vessels at increased rates and recognising the strategic
importance to lower its debt, the Group maintained its focus on de-leveraging during the year.
Group Performance
Revenue increased by 15.7% to US$ 133.2
million (2021: US$ 115.1 million) with an
increase in utilisation of 4 percentage points
to 88% (2021: 84%). There was a notable
improvement in E-Class vessels utilization
at 82% (2021: 72%), while both S-Class
and K-Class utilization remained stable at
97% (2021: 98%) and 87% (2021: 86%)
respectively. Average day rates across the
fleet increased by 7% to US$ 27.5k (2021:
US$ 25.7k). As these are averages for the
fleet with some contracts carried over from
previous years at lower rates, the actual
increase for new contracts was higher than
the average.
Vessel operating expenses increased by
24.3% to US$ 51.2 million (2021: $41.2 million),
as a result of the increase in utilisation, and
the recognition of a charge for the bankruptcy
of a client, as well as other one-off costs.
General and administrative expenses as a
percentage of revenue decreased from 11%
to 10% despite an increase of US$ 0.9 million
to US$ 13.2 million, driven by an increase in
professional fees.
Adjusted EBITDA was US$ 71.5 million,
increasing 11.5% from the previous year
(2021: US$ 64.1 million) mainly driven by
improved utilisation and the increase in
daily rates.
During the year there was a net reversal
of previous impairment charges of US$ 7.8
million (2021: US$ 15 million), indicative of
further improvement to long-term market
conditions despite an increase in the
weighted average cost of capital driven
by a higher cost of debt.
The Group continued to be profitable for the
year at US$ 25.4 million (2021: US$ 31.2
million) and an adjusted net profit of US$ 17.6
million (2021: US$ 18.0 million) as the increase
in financial costs from US$ 14.5 million in
2021 to US$ 20.1 million in 2022 wiped out
the gains from other operational metrics.
2
Gulf Marine Services PLC
Capital Structure and Liquidity
Net bank debt reduced to US$ 315.8 million
(2021: US$ 371.3 million). During the year,
the Group repaid US$ 51.5 million towards
its debt, of which US$ 26.0 million were an
obligation as per the agreement with the
Lenders. This combination of reduced
debt and improved adjusted EBITDA led
to a reduction in the net leverage ratio from
5.8 times at the end of 2021 to 4.4 times at
the end of 2022. The Group will continue its
focus on reducing its leverage going forward.
As the Group didn’t raise US$ 50.0 million
of equity by the end of 2022, it issued,
on 2 January 2023, 87.6 million warrants
giving potential rights to 137 million shares if
exercised, as per the terms of its agreement
with the Lenders. The strike price was
determined by an external Calculation Agent
to be at 5.75 pence per share.
During the year, the interest rates on the
loan went up from 3% at end of 2021 to 7.7%
at the end of 2022 (being 3% plus LIBOR)
and as LIBOR increased from 0.2% to 4.7%.
Going forward, the interest rates will go up to
4.0% + LIBOR and a PIK margin of 2.5% will
apply for as long as leverage remains above
4.0 times EBITDA.
Commercial and Operations
The Group secured six new contracts in
the year, worth US$ 271.0 million (2021: nine
contracts worth US$ 66.0 million). The revenue
recognised for these new contracts during
the year was US$ 7.4 million.
The Group continued to be profitable for
a second consecutive year. In 2022, the
Group achieved its best year for financial
performance for many years. Average
utilisation, particularly for K-Class vessels,
has remained at its highest level since 2016.
New charters and extensions secured in
the year totalled 19.4 years in aggregate.
Operational downtime increased slightly
to 2.2% (2021: 1.5%).
Governance
As a board, we have continued to put
emphasis on the development of effective
risk management and internal control
systems, including regular audits and
reporting to ensure accountability and
transparency. Demonstrated by over
50 meetings with investors and other
stakeholders, we had open lines of
communication on relevant information
coupled with active listening to feedback.
We conducted sessions on transparent and
ethical business practices, including a code
of conduct review for employees and
stakeholders, and ensuring compliance with
relevant regulations and laws. As an example
of our continuous commitment towards
environmental, social, and governance (ESG)
initiatives, including sustainability practices
and community engagement, we organized
our annual offsite meeting in the Al Jubail
Mangroves where every share-based
employee present had the opportunity to
plant a tree.
I currently hold the position of Chairman
and Chief Executive, 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, at this stage in the Group’s
turnaround process, this continues to be
appropriate. This recognises both the level
and pace of change necessary for the Group
and its relatively small scale. This will be
regularly assessed by the Board as the Group
progresses through its turnaround process.
Removal of Material Uncertainty
The Group is again operating as a Going
Concern without any material uncertainties.
Revenue
Gross profit/(loss)
Adjusted EBITDA1
Impairment reversal/(impairment)
Net profit/(loss) for the year
Adjusted net profit/(loss)2
2022
US$m
133.2
60.5
71.5
7.8
25.4
17.6
2021
US$m
115.1
60.6
64.1
15.0
31.2
18.0
2020
US$m
102.5
(55.5)
50.4
(87.2)
(124.3)
(15.3)
1 Represents operating profit/(loss) after adding back depreciation, amortisation and the reversal of impairment in 2022, 2021 and 2020.This measure provides additional
information in assessing the Group’s underlying performance that management can more directly influence in the short term and is comparable from year to year.
A reconciliation of this measure is provided in Note 31.
2 Represents net profit/(loss) after adding back depreciation, amortisation the reversal of impairment and adjusting items in 2022, 2021 and 2020. This measure provides
additional information in assessing the Group’s total performance that management can more directly influence and is comparable from year to year. A reconciliation of
this measure is provided in Note 31.
Outlook
We started 2023 with a backlog level not
seen in many years at US$ 369m. The Group
anticipates seeing continued improvements
in day rates and utilisation levels in 2023,
even though most of its vessels are already
under contract for the remainder of the year.
Secured utilisation for 2023 currently stands
at 86% (equivalent in 2022: 80%).
Secured backlog stands at US$ 341.7 million
as at 1 April 2023, of which US$ 258.6 million
are firm (US$ 179.2 million as at 1 April 2022
of which US$ 122.2 million were firm). The
average of secured day rates for 2023 are
US$ 29.9k, which is over 6% higher than
2022 actual average day rates. Given the
current high levels of utilisation secured,
combined with higher day rates, the Group
expects the financial performance to
continue to improve and reiterates its
Adjusted EBITDA guidance of between
US$ 75-US$ 83 million for 2023.
Mansour Al Alami
Executive Chairman
23 April 2023
Safety
The Group maintained the same loss injury
of 0.1 in 2022 vs 2021 as there was only one
Lost Time Injury which happened in the
middle of the fourth quarter of the year with
no other recordable injuries. However,
because there was no other recordable
injury, our Total Recordable Injury Rate (TRIR)
improved from 0.2 (2021) to 0.1 (2022). These
levels continue to be significantly below
industry average and in both cases have
since returned to zero in early 2023. We
continue to look at areas of improvement in
our systems and processes and engaging
our employees to ensure that our offshore
operations continue to be as safe as possible
in line with the expectations of our customers
and stakeholders.
Taskforce on Climate-related
Financial Disclosures
In 2021 we committed to complying with
LR 9.8.6(8)R requirements by including
climate-related financial disclosures
consistent with Task Force on Climate
related Financial Disclosures (TCFD)
recommendations and recommended
disclosures. This is a new requirement for
premium listed companies on the London
Stock Exchange. This 2022 TCFD report
explains how GMS now complies with all
eleven of the recommendations.
The TCFD recommendations focus on
how companies respond to the risks and
opportunities associated with climate change.
Consistent with the recommendations,
climate scenario analysis was used to
understand the potential climate-related
transition and physical risks to our operations
over the short, medium, and long term.
Climate change is now integrated into our
enterprise risk assessment process. Risk
management workshops are held at least
bi-annually between myself, as Executive
Chairman, and the senior management
team. Full details are provided in our TCFD
report on page 4.
Annual Report 2022
3
Strategic Report PEOPLE AND VALUES
Delivering on
our Responsibility for
a Sustainable Future
Environmental, Social
and Governance Factors
Recognising the Group’s principal activities
continues to be the provision of vessels to the
offshore oil, gas and renewable energy sectors.
We are continuously seeking methods to
reduce our impact on the environment. Below
are some of the most recent initiatives that
we have implemented to reduce emissions
across the business, refer to page 10 for
further details.
In 2022, GMS measured itself against the
“The global standards for sustainability
reporting” or “GRI Standards” to enable it
to report consistently and transparently on
progress. As a premium listed FTSE firm, the
Group is required under the UK Listing Rules
to adopt the Task Force on Climate-related
Financial Disclosures (TCFD) and included
below the assessment and plan going forward.
The mandatory report of Greenhouse Gas
Emissions is also provided below.
Environment
TCFD Compliance Statement
Gulf Marine Services (GMS) plc has complied
with LR 9.8.6(8)R requirements by including
climate-related financial disclosures
consistent with the Taskforce on Climate-
Related Financial Disclosures (TCFD)
recommendations and recommended
disclosures. The current regulations require
reporting on a ‘comply or explain’ basis.
This year we have complied with all eleven
of the recommendations.
Introduction – About TCFD
TCFD provides a framework for assessing
and reporting how climate change will impact
our business. Its recommendations are
divided into four areas, aligned with existing
business processes (governance, strategy,
risk management and metrics and targets).
We welcome the introduction of LR 9.8.6(8)
R, which requires premium companies like
GMS, to include TCFD statements in their
annual reports. It provides a structure to
assess and report our climate-related risks.
We classified climate change as an
4
Gulf Marine Services PLC
emerging risk in 2019 and moved it to a
principal risk in 2021.
As a business focused on supporting the
offshore oil, gas and renewable energy
sectors, we are aware of our impact on the
environment and the potential risks of climate
change to our operations. We believe we
have a responsibility to ensure a sustainable
future. GMS are constantly researching
opportunities to reduce our impact on the
environment. To date, this has focused on
Scope 1 and 2 emissions, which are within
our direct control. In 2022, we calculated
our Scope 3 emissions for the first time,
which are associated with our value chain.
Based on this, we are proud to have set an
ambitious net-zero target of 2050 and interim
targets to guide our progress (refer to the
Metrics & Targets section for further details).
Governance – Integrating
Climate Change Into Our
Governance Processes
Climate change is an area of interest and
importance for our Board, Executive Team
and stakeholders. Our overall climate-related
risks are assessed as low likelihood and low
impact. We do not believe climate change
will significantly impact demand for our
vessels in the near term. This is because
demand for oil and gas production in the
Group’s core market of the Gulf Cooperation
Council (GCC) is forecasted to continue. We
can mobilise more of the fleet in offshore
renewables, without significant additional
capital expenditure. However, we want to
ensure that we are aware of future
developments in the potential risks and
opportunities posed by climate change.
Therefore, we have designated it a
principal risk.
The Board and Its Committees
The Board has overall responsibility for
ensuring that all risks are effectively
managed. It discusses the risk profile at
every principal meeting and formally reviews
it annually. Climate change has been
integrated into the regular risk assessment
procedures since 2019, when climate
change was classified as an emerging risk.
Since 2021 (when climate change was
classified as a principal risk), the Board has
been presented with annual climate scenario
analysis and climate-related risk assessment
updates in a workshop session.
Responsibility for reviewing the effectiveness
of the Group’s system of internal control and
procedures has been delegated to the Audit
and Risk Committee. It meets throughout the
year to discharge its duties, including before
any Board meetings where financial
documentation must be approved. Where
appropriate, it receives reports from external
advisors to ensure it has the required level of
insight on specific business matters,
including engaging a third party to assess
the Group’s climate-related risks. A climate
risk workshop was held in September 2022
to present and discuss the risks. This two
hour workshop was presented by a third
party who specialised in ESG and attended
by the Executive Team and relevant
senior managers.
The Remuneration Committee is responsible
for designing remuneration policies and
practices for the Chair of the Group,
executive directors, company secretary and
senior executives. The remuneration plan
must support the Group’s long-term strategy,
purpose, and values. The Committee
ensures that the incentive structure does not
inadvertently undermine the Group’s
climate-related ambitions.
Executive Team
The Executive team consists of the Executive
Chairman, Chief Financial Officer, Chief
Operations Officer, Business Development
Director and Chief Shared Services Officer.
Together, they are responsible for identifying,
managing and mitigating potential risks,
including those associated with climate
change and the transition to a low-carbon
economy. The Executive team provides
reports to the Board and the Audit and Risk
Committee. It meets with the Executive
Chairman at least twice a year to conduct
risk management workshops.
Figure 1 below provides an overview of the delegation of responsibilities between the Board, the Audit and Risk Committee and the
Executive team.
Figure 1: Structure of risk management within GMS
Board of Directors
The Board has overall responsibility for the Group’s strategy
and ensuring effective risk management.
The Audit and Risk Committee
Responsibilities include reviewing the Group’s internal control and risk management
systems as well as monitoring the effectiveness of the Group’s internal audit function.
Internal Audit
There are clear reporting lines from
the internal audit function to the
Audit and Risk Committee and
the Senior Management team.
Senior Management
The Senior Management team implements the risk management process
from risk identification to management and mitigation.
Strategy – Ensuring Our Strategy
is Resilient to Climate Change
GMS wants to ensure the long-term
sustainable success of the Group, which
requires responding appropriately to all
relevant risks and adapting our business
strategy, as necessary. As the risks of
climate change become more apparent and
are of increasing interest to our stakeholders,
we have developed how we assess
climate-related risks. We have added climate
change to our principal risk register and
have a separate climate risk register, which
provides detail on the nineteen associated
risks, guided by the TCFD recommendations.
Climate Scenario Analysis
To understand the risks associated with
climate change risks, both physical and
transitional, we conduct an annual climate
scenario analysis. Physical risks are those
associated with the physical impacts of climate
change, for example, increased average
temperatures and rising sea levels. Transitional
risks arise from the shift to a lower carbon
economy, including increased regulation,
moving to lower emissions technology and
changing consumer demands.
Climate scenario analysis uses possible
future outlooks, to model these potential
impacts and the changes that will need to
be made to limit global warming and reach
net zero. We have rerun the climate scenario
analysis on our key sites and operations this
financial year and have started to consider
their financial impacts. Further financial
modelling will be conducted during the
next financial year, as we research the
medium and long-term actions in our
net-zero strategy.
The Scenarios
Three warming pathways were modelled
using data from several established models,
including CORDEX (Coordinated Regional
Climate Downscaling Experiment), CLIMADA
(Climate Adaptation) and IAM (Integrated
Assessment Models). The pathways
represent a broad range of potential
futures, to ensure that all risks are
considered. Ten climate indicators were
modelled for each site and scenario, for
example, precipitation, aridity, temperature
and water stress. Outlined below are the
three-warming pathways.
<2°C by 2100: aligned with the Paris
Agreement target of a maximum 1.5°C of
warming above pre-industrial levels. This
scenario requires coordinated efforts by
governments and businesses, to rapidly
reduce carbon emissions through policy
and operational changes, leading to high
levels of transitional risks, but limited
physical risks.
Annual Report 2022
5
Strategic Report PEOPLE AND VALUES
continued
2-3°C by 2100: this scenario is envisaged
as the outcome of reactive action from
governments, with policies being introduced
on an ad-hoc basis, whilst only the most
committed businesses take serious action.
It is associated with the highest level of
transitional risks, due to the uncoordinated
approach, and some physical risks.
>3°C by 2100: this scenario will occur if
limited action is taken over the next few
decades. Although, this limits the transitional
risks, particularly in the short and medium
term, it has the highest degree of physical
risk, due to increased global temperature
rise. Under this scenario, climate tipping
points are projected to be breached, leading
to irreversible damage to our planet.
The Time Horizons
The impacts of climate change expand
beyond our traditional risk scope. Therefore,
to align with our net zero strategy, we have
decided to use the time horizons outlined in
table 1, to assess our climate-related risks
and opportunities. The long-term deadline
aligns with our net-zero target and those of
the UK and UAE governments.
Table 1: Time Horizons Used for
Climate Scenario Analysis
Short-term: Medium-term:
Long-term:
2022-2025
2025-2035
2035-2050
The Results
Overall, the risk level is considered low for
GMS offices and vessels. As most of the
Group’s operations are already in extreme
climate conditions, the infrastructure that
we own and use has been built accordingly.
Our office buildings and vessels in the Gulf
region, are already exposed to temperatures
above 40°C for consecutive days. Therefore,
the region’s infrastructure design and our
working schedules, already consider these
extreme weather conditions.
Our risk management process, categorises
risks with an overall rating of red, amber
or green. This is based on a combination of
the inherent risk and the associated control
rating. Across all timelines and scenarios,
there are no red ratings assigned to
climate-related risks in table 2. Most risks
were determined to have a green rating.
The number of risks rated amber increases
over time. Table 2 highlights the scenario
and timeline, when an Amber rating is first
assigned. No physical risks were assigned
an amber risk rating.
6
Gulf Marine Services PLC
Further details on all the risks assessed and
our mitigation actions are provided in our
2022 TCFD Report. We submitted our first
Carbon Disclosure Project (CDP) in 2022,
which provides information on our response
to climate change.
Transitional Risks
In the short term, GMS has identified three
key risks to the business: increasing UK
policy requirements, changing investor
sentiment, and wider stakeholder concern.
As a premium listed company on the London
Stock Exchange, we are subject to UK
reporting regulations, including anything related
to climate change and the environment. The
UK government has set a target of reaching
net zero by 2050 and is introducing
regulations to help it achieve this. Therefore,
we foresee increasing reporting obligations
in the short term under the <2°C and 2-3°C
scenarios. We have engaged an external
consultancy, to help us manage and monitor
this risk. We do not expect a substantial
increase in climate-related requirements
in the GCC in the short term, but we
continuously monitor legislative changes
to ensure compliance.
Climate change is of increasing interest to
investors and wider stakeholders, particularly
those outside the GCC region. This TCFD
summary and our 2022 TCFD Report, provide
the information these stakeholders require to
assess our response to the challenges and
opportunities associated with climate change.
Based on even the most ambitious energy
transition scenario, demand for oil and gas is
expected to continue to account for over half
of the energy mix by 2040 (Westwood Global
Energy Group report, issued in February
2022). Additionally, all but one of our clients
are based in the GCC region, which produces
a considerable amount of the world’s oil
production. Therefore, the board considers
the risk of investor and stakeholder sentiment
changing within this region as relatively low
(table 2) in the short term. However, we
recognise the likelihood of this risk will
increase in the medium to long-term, under
the <2°C and 2-3°C scenarios. We will
continue to monitor this risk and provide
relevant disclosures. For example, this
summary, our TCFD Report and CDP
disclosure, to inform our stakeholders, about
how we are responding to climate change.
A climate-related opportunity for GMS,
is the ability to use our existing vessels
to support the renewable sector. We are
pleased to announce that we have signed
a six-year contract for one of our vessels,
on a long-term renewables project,
commencing in 2023. This option provides
versatility to GMS’s strategy, as the Board
reviews the potential impacts of the transition
to a low-carbon global economy.
Physical Risks
All the physical risks considered have been
assigned a green rating, due to our existing
controls. Therefore, the impact is expected
to be low. Although physical impacts are
expected from climate change, our offices
and most vessels are in the Gulf region, which
is already adapted to an extreme climate with
high temperatures, low precipitation, and
high-water stress. Infrastructure and workers’
rights regulations have already been designed
to manage this.
The climate scenario analysis suggests
that more frequent sandstorms will occur,
due to increased temperatures and
decreased precipitation. Our vessels are
prepared for sandstorms. They are equipped
with specialised filtration devices that
reduce the risk of sediment damaging the
vessels’ engines.
Decreased precipitation will exacerbate
water stress in the region. Our vessels are
equipped with desalination equipment, to
mitigate water stress. Two vessels have
been fitted with two air-to-water machines,
which can produce water from the air.
In 2024 we intend to install these machines
in more vessels.
Climate-related Opportunities
Responding to climate change offers two
major opportunities to GMS. From an
operational perspective, improving our
efficiency reduces our operating costs,
improves our resilience to potential new laws
around energy use and carbon emissions
and demonstrates our commitment to being
a sustainable business. In terms of business
strategy, there is the opportunity to mobilise
our vessels in the renewables sector. We
already have a proven track record in this
area and are keen to maintain an ongoing
presence in Europe to enable us to continue
accepting offshore wind farm contracts.
Engaging with Our Clients
and Supply Chain
We need to engage with our clients and
supply chain in the future, to manage our
climate-related risks and reduce our carbon
emissions. For example, we will start
engaging with our suppliers on their carbon
footprint, initially asking whether they
already collect data on their Scope 1 and 2
emissions. This will feed into our Scope 3
emissions. In the medium term, we could
consider introducing additional social and
environmental screening criteria for our
suppliers and, subsequently, work with our
suppliers to reduce these emissions.
We must collaborate with our clients,
to reduce the emissions associated with
our vessels. For example, during 2022,
we conducted a trial on two vessels, to
determine the effectiveness of installing
an atmospheric water generator (AWG). This
has been implemented to reduce the number
of plastic water bottles used on board. It was
used for our staff, who form about 10% of
the crew on our vessels. At this use level,
there is not a sufficient return on investment,
to justify further rollout of this technology.
However, in the next financial year, we will
liaise with our clients, to reduce onboard
environmental impacts. We will begin
engaging with our top supplier, a caterer who
supplies food to our vessels, and our client in
the European renewables market. These will
provide a framework that can be rolled out to
our other clients and suppliers. This will be
key to managing our Scope 3 emissions and
climate-related risks within our supply chain.
In 2023, we will start considering the risks
associated with our largest suppliers. These
will cover three key areas: food, fuel and
vessel parts. As part of our commitment
to local sourcing and due to the in-country
value schemes endorsed by our major
clients, our top suppliers are all located
in the GCC region. They are subject to
similar transitional and physical risks as
the Group. As with GMS, they are already
prepared to cope with extreme conditions
and transitional risks are expected to be
limited in the short to medium term.
Our largest supplier by spend is a caterer,
with a global supply chain. Severe weather
events, which are predicted to increase due
to climate change, could have various
impacts on this supplier, and its supply
chain, including price fluctuations and
supply chain disruptions. However, being
part of a global corporation with a large,
geographically diverse supply chain, enables
us to be resilient and to minimise impacts.
Where our supplies are delivered from
abroad, this is primarily delivered by air. We
are assessing the feasibility of increasing the
amount of product delivered by sea, as this
will assist in reducing our carbon footprint
and meeting our net-zero targets. We are
aware of the potential impacts of climate
change on both delivery methods. In the
GCC region, sandstorms can cause airport
disruption, and our climate modelling shows
an increase in frequency in the long term.
Shipping ports can be damaged or disrupted
by extreme weather events (for example,
storms), which climate modelling indicates
may increase in severity over the long term.
Increasing the proportion of deliveries by
ship, would diversify our supply chain and
reduce our operational costs.
Planning for Net-zero
In 2022 we established our net-zero strategy
and targets. This is an important part of
mitigating our climate-related risks. It ensures
that we prepare for a lower carbon economy,
including potential future legislation, the
transition to reduce emissions technology
and responding to our investor and
stakeholder concerns.
Our strategy includes actions we will
implement immediately and further options
requiring more research and financial
modelling. During 2023, we will start
factoring in carbon emissions when booking
flights for business travel. For example,
where multiple flights are available for a
comparable price, the lower carbon option
will be used, unless this requires an overnight
stay, which is associated with additional
carbon emissions and would negate the
difference. We will research whether we can
increase the number of deliveries received by
ship, rather than by air. Approximately 95%
of our deliveries are by air. We will assess if it
is possible to reduce this to 80% in the next
few years. Together, these actions could
save us around 1,331 tCO2e (gross carbon
emissions) per year, approx. 2% of our
annual carbon footprint (Scope 1, 2 and 3).
Annual Report 2022
7
Strategic Report PEOPLE AND VALUES
continued
Table 2: Transitional Risks with an Amber Rating, with the Scenario and Timeline in Which an Amber Rating
Is First Assigned.
Risk
Category
Climate-related
Risk
Scenario
Potential
Likelihood
and Impact
Context
Short-term risks
Policy &
Legal
Increased policy and
reporting requirements
in the UK
<2°C
Almost certain,
Moderate
Reputation Changing investor
<2°C
Possible, Significant
sentiment
<2°C;
2-3°C
Possible, Significant;
Possible, Significant
Reputation Wider stakeholder
concern; reduced
revenue from negative
impacts on workforce
management and
planning (for example,
employee attraction
and retention)
Medium-term risks
Policy &
Legal
Increased policy
and reporting
requirements
in the GCC
<2°C;
2-3°C
Possible, Significant;
Possible, Significant
GMS is listed on the London Stock Exchange and is subject to UK
climate change and environmental reporting regulations. Changes to
policy and reporting requirements are almost certain to occur in the
short term. However, along with it’s employees, most of the Group’s
vessels are in the GCC region (with only one of the Group’s vessels
currently located in Europe). Therefore, the potential operational/
financial impact of these changes would be limited to Moderate.
The Group aims to mitigate this risk, by carefully monitoring
legislative developments, to minimise instances of non-compliance
with all relevant laws in the UK and the GCC region.
There is an increasing concern over fossil fuel use in the UK/EU,
as the demand for oil and gas is predicted to grow. As a result,
new investors may become more challenging to find. However,
current shareholders are heavily invested in the Group’s existing
strategy and business model. Therefore, the likelihood of a
Significant impact is only considered Possible in the short term.
Our TCFD Report informs investors about our response to
climate-related risks and opportunities.
In the short term, stakeholder concern regarding company
environmental action and preparedness may increase. This
could impact the Group’s revenue and employee retention.
This concern would be greater in a <2°C scenario, where there
is great awareness, and more action is required. It would be lower
in a 2-3°C scenario, where action is sporadic. However, given that
the Group’s workforce requirement is concentrated in its core
market in the GCC, where the expectation is that the economy
will continue to be reliant upon and supportive of oil and gas
production for many years, it is not anticipated that the Group
will be unable to attract suitably experienced/qualified employees
to avoid any operational disruption.
Our TCFD Report informs stakeholders about our response
to climate-related risks and opportunities.
Fewer climate-related policy obligations are anticipated for
operational Gulf sites (as compared to the UK reporting regulations
noted above), in the short term. Hence, the potential likelihood of this
risk is deemed to be lower (Possible as compared to Almost certain)
than that noted above for the UK. However, if such policies and
increased regulations were to be introduced over a longer time
period, then the concentration of GMS’ fleet in the GCC, would
result in a higher (Significant) potential impact.
8
Gulf Marine Services PLC
Risk
Category
Climate-related
Risk
Scenario
Potential
Likelihood
and Impact
Context
Technology Costs to transition to
lower emissions
technology
<2°C;
2-3°C
Possible, Major;
Unlikely, Major
Policy &
Legal
Introduction of carbon
pricing and taxes
<2°C;
2-3°C
Likely, Significant;
Possible, Major
<2°C
Possible, Significant
Market
Changing consumer
preference, reduced
demand for goods and
services due to a shift
in consumer
preferences
Long-term risks
Policy &
Legal
Increased costs and/or
reduced demand for
products and services
resulting from fines
and judgments
2-3°C
Likely, Significant
It is possible in the medium term, under a <2°C scenario, that a
transition to lower emissions technology becomes a requirement
which could increase the costs for GMS. The cost impact would
be the same in a 2-3°C scenario, but this is considered unlikely.
The likelihood of this risk will increase over time.
In the future, we will be researching the options for upgrading
vessels’ engines and other equipment, using lower carbon
emission alternatives.
It is likely that in a <2°C scenario, carbon pricing and taxes could
be introduced in the medium term, and the potential cost impacts
could be significant. The likelihood is considered Possible for a
2-3°C scenario, and the impact could be Major, as pricing may
be introduced more gradually. Changes in tax legislation will be
closely monitored, and internal models can be used to factor this
into the business strategy.
In a <2°C scenario, where urgent action is being taken, it is
possible that there could be changing customer preferences,
resulting in reduced demand for goods and services. This could
have a significant impact in the medium term. The Group will
continue to monitor any shift in consumer demand across the
regions it operates. However, oil & gas has always been the
mainstay of our business, and in recent years, the percentage of
revenue brought in from the GCC region has increased (from 75%
in 2019 to 89% in 2021).
GMS has a proven track record in the renewables sector, which
provides versatility in our business model. In 2022, it constituted
11% of Group revenue, and vessels are suitable for use in this
sector, without major additional capital expenditure. We are
pleased to have signed a six-year contract, for one of our vessels
on a renewables project in Europe. The Board is therefore
confident that the Group will not face any significant impact
on the demand for its vessels, due to climate change implications,
beyond the extent reflected in management’s assumptions
and sensitivities.
Given that the Group’s core market is in the GCC region,
management does not expect this to have a major impact in the
short or medium term. Oil & gas has always been the mainstay
of our business, and in recent years, the percentage of revenue
brought in from the GCC region has increased (from 86% in 2019
to 89% in 2022).
However, if legislative developments are not carefully monitored to
ensure full compliance, it is possible that there may be increased
costs, due to fines and potentially reduced demand for products.
This is considered likely in the long term of the 2-3°C scenario, and
the impact could be significant. The Group mitigates this risk, by
closely monitoring compliance with current and future legislation,
to reduce the likelihood of receiving fines for non-compliance.
Market
Additional abrupt and
unexpected shifts in
energy costs as a result
of climate policies
<2°C
Almost certain, Minor This is considered low risk with only minor financial impact for the
Group as our clients pay for fuel costs.
However, we are always working to improve the efficiency of our
vessels to meet our clients' expectations, as they expect value for
money in the services received.
Annual Report 2022
9
Strategic Report PEOPLE AND VALUES
continued
Risk Management – Embedding
Climate-related Risks Into Our
Enterprise Risk Assessment
Process
The Group must be aware of business risks
and opportunities, to manage them
appropriately. GMS has an established
enterprise risk assessment process, which
climate-related risk management has been
integrated. This is in response to the
increasing importance placed on climate
change by the public, clients, investors
and employees.
The first step in the risk management
process, is identifying and assessing risks,
which is generally conducted through
reviews by individual departments. Mitigating
controls are then determined. In the case of
climate-related risks, we have engaged with
a third party to ensure a thorough and
informed understanding of the potential
risks and opportunities, guided by the
TCFD framework.
The Executive team consolidates identified
risks, into an overall heatmap for principal
risks. The Audit and Risk Committee, review
the risk profile at least quarterly. The Board
discusses the Group’s risk register at its
principal meetings and formally reviews
the risk profile on an annual basis.
The following steps were taken to assess
climate-related risks through climate
scenario analysis:
Step 1 – Identifying the Risks:
External specialists used climate scenario
analysis to assess sixteen potential
transitional and physical risks to the
business, over three climate warming
pathways and three timelines. These
were presented to the Executive team
and the Board in September 2022 for
their input on the potential impact on the
business operations and strategy.
Step 2 – Assessing the Risks:
These provisional risks were presented
to the Executive team and the Board. The
provisional risks were presented at Group
and site levels. Following our existing
enterprise risk assessment process and
drawing on the relevant expertise of the
Executive team, each provisional climate-
related risk and opportunity was given a
likelihood and impact rating, which were
combined to provide the inherent risk
rating for each scenario and timeline.
10
Gulf Marine Services PLC
Step 3 – Addressing the Risks:
Each potential risk is appraised to determine
the current mitigation measures and the
most appropriate approach for managing
residual risk. A provisional control
effectiveness rating was assigned, combined
with the inherent risk rating, allowed each
provisional risk to be given an overall rating
of Red, Amber or Green for each scenario
and timeline. There were no changes to
this assessment from last year’s ratings.
Therefore, there are currently ten risks
assigned as an Amber rating in at least
one scenario and timeline. Risk management
workshops are held at least bi-annually
between the Executive Chairman and the
Executive team, where principal risks,
including climate change, are assessed,
and monitored for impact and likelihood.
This year, we have developed our net-zero
strategy which will help mitigate some of
the transitional risks as outlined in Table 2.
See our full TCFD report for more details.
Metrics & Targets
While we anticipate the oil and gas sector will
continue to grow over the next few decades,
we still have a responsibility to reduce our
environmental impact, as far as possible,
while delivering sustainable business growth.
In 2022, we engaged external specialists to
calculate our full Scope 3 emissions for the
first time. This was conducted for 2021 and
2022 and will be recalculated annually in the
future. These are the emissions associated
with our value chain, including purchased
goods and services, waste and business
travel. Data were collected for categories
1-8, which are those applicable to GMS.
Our data collection for 2022 improved,
providing a more accurate representation
of our impacts, including more precise data
on flights taken as business travel. Overall,
our Scope 3 emissions have reduced by
22.5% since 2021, which aligns with the
Group’s commitment to reaching net-zero
Scope 3 emissions by 2035.
Our metrics currently focus on our carbon
emissions. During 2022, we have developed
a carbon balance sheet, which classifies
emissions into Scope 1 and 2 and the
15 categories of Scope 3. This level of
granularity allows us to be targeted in
our approach to reducing emissions.
Our net-zero targets and strategy have
considered our largest emissions categories
and determined how we can begin to
reduce these, allowing for current limitations,
particularly around vessel fuels.
We are proud to have set an ambitious
target to be net zero by 2050. This requires
us to reduce our CO2 emissions by 90%
or more from our baseline year of 2021.
To track our progress, we have set the
following short-term targets:
• 2025: engage with the top 10 suppliers
by spend on their carbon emissions
and reporting.
• 2030: assessing the feasibility of
upgrading vessels’ engines and other
equipment, with lower carbon emission
alternatives. This will form an important
part of our long-term strategy, as it is
essential to reducing our Scope 1
emissions (those associated directly with
our operations, primarily vessel fuel).
• 2035: net-zero in Scope 3 emissions from
purchased goods and services, upstream
transport and distribution, waste
generated in operations, business travel
and employee commuting.
• 2050: net-zero in Scope 1 and Scope 3
(for emissions from capital goods and
fuel-related emissions).
Reducing our Scope 1 emissions will depend
on decarbonising the bunker fuel we use and
upgrading vessels. Since jack-up barges
have long natural lifetimes, upgrading the
equipment onboard all 13 vessels will be
capital-intensive and occur slowly. Therefore,
a net-zero Scope 1 target of 2050 is
reasonable. Given that Scope 3 Category 2
(Capital Goods) and Category 3 (Fuel-related
Emissions) are dependent on upgrading
the equipment onboard vessels and
decarbonisation of fuel, these categories will
reach net-zero in 2050, rather than the more
ambitious Scope 3 target of 2035. Our
Scope 2 emissions account for 0.04% of
total emissions and are considered de-
minimis. Therefore, Scope 2 emissions have
been excluded from these net-zero targets.
Carbon Emissions
In compliance with the UK government’s
Streamlined Energy and Carbon Reporting,
we have included our emission figures for
this financial reporting year. Understanding
these emissions is vital to our net zero goal
and highlights areas where we can improve.
We have included our emissions from the
previous reporting period to provide a
year-on-year comparison.
Scope 1 emissions result from the direct
combustion of gaseous and transportation fuels
used by the Group during the reporting year.
Scope 2 refers to the emissions associated
with purchased electricity used in our offices.
Scope 3 emissions are the indirect emissions
associated with the products and services
we purchase to deliver our services.
Although we do not have direct control over
these emissions, we are taking steps to work
with our supply chain to develop an emission
reduction strategy.
Table 3: GHG Emissions (tCO2e) for 2022 and 2021
Emissions Scope
Gross Emissions (tCO2e) - 2022
Gross Emissions (tCO2e) - 2021
Percentage change in total emissions
(vs previous year)
Scope 1
Scope 2
Scope 3
Total
51,860
28
26,205
78,093
47,247
31
33,827
81,105
9.8%
9.7%
22.5%
3.7%
Our carbon emissions have been calculated in line with the GHG Protocol Corporate Value Chain (Scope 3) Reporting Standard and the 2019
UK Government environmental reporting guidance. Our full carbon balance sheet is available in our 2022 TCFD Report.
Carbon Intensity
Our carbon intensity metric is provided as tCO2e/$m revenue. Our UK carbon intensity is based on Scope 1 and 2 location-based emissions.
Table 4: Our 2020-2022 Carbon Intensity Metrics
Year
UK Intensity
(Scope 1 & 2 tCO2e/$m revenue)
Global Intensity
(Scope 1 & 2 tCO2e/$m revenue)
Global Intensity
(Scope 1, 2 & 3 tCO2e/$m
revenue)
2022
0*
389.47
586.48
2021
34.76
398.78
700.84
2020
45.60
402.15
**
* Due to the nature of our operations, the vessel locations can mean that there are no UK emissions in a reporting year. This was the case in 2022. The only operational
buildings in the UK were closed in 2020, therefore, there are no Scope 1 or 2 emissions in the UK in 2022. Should a UK base be reopened, this will be recorded as
required.
** Scope 3 emissions were calculated for the first time for our 2021 financial year and therefore a 2020 Scope 1, 2 and 3 intensity metric cannot be provided.
Social
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
GMS is committed to the Health and Safety
of its employees, subcontractors, clients
and partners and behave 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 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.
Excellence
The Group 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 challenging targets to itself to
deliver superior performance and exceed
stakeholder expectations, including clients.
The reputation and integrity of the business
are important. Therefore, GMS works with
rigour and transparency to ensure it is the
preferred contractor of choice.
Relationships
The Group 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.
GMS Organisation Structure
In 2022, a new Shared Services Department
was introduced which consolidated and
centralised common administrative functions
such as human resources, procurement,
and IT to streamline processes, improve
communication, and achieve greater
cost savings. GMS remains committed
to continuously improve the operations,
and the Shared Services Department will
play a pivotal role in supporting our growth
and success in the years to come.
Turnover
Employee turnover increased to 16%
in 2022 versus 14% in 2021. This increase
in the turnover trend was seen post-COVID
and are in line with the pre-COVID levels of
staff turnover.
Diversity
The Group’s workforce consists of 594
personnel recruited from 36 countries.
GMS has expanded its geographical reach
compared to that of 2021 with 545 employees
from 34 countries. The significant experience
and skills of individuals help it conduct
its business globally. GMS recognises
its talented and diverse workforce as
a competitive advantage and ensures that
Annual Report 2022
11
Strategic Report 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 are dependent on staff putting
the Code into practice 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
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 the Executive team 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.
PEOPLE AND VALUES
continued
diversity is maintained across
all areas by implementing an Equal
Opportunities Policy.
The information on page 13 provides details
of the gender diversity and country of origin
of our personnel as of 31 December 2022.
GMS has a zero-tolerance toward
discrimination either directly or indirectly
on the grounds of gender, race, colour,
nationality, ethnic or racial origins, marital
status, religion or disability. GMS is an equal
opportunities employer committed to
seeking out and retaining the calibre of
human talent that is strategically aligned with
our business growth and performance. Our
business success is a reflection of the quality
and skills of our people. Details of our Equal
Opportunities Policy can be found in the
Governance section of our website.
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 GCC, stipulate that women cannot
work in an inappropriate environment and
hazardous jobs/industries, meaning the
Group 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
The annual employee engagement survey
was rolled out for the year 2022 for the entire
GMS workforce. The survey had an 82%
completion rate which is consistent with the
last 2 surveys that were conducted in 2019
and 2021. The areas where employees
scored as needing attention are the
frequency of communication, as a Group
and between departments, and lack of
development and training opportunities.
An HSE pulse survey was also rolled out in
2022 for our offshore crew to get insights on
health and safety practices at the workplace.
The results showed that more than 97%
of the survey respondents felt that ‘Safety
is a priority at GMS’. A series of awareness
communications were sent offshore to
reiterate the importance of Safety and
adherence to the Safety protocols.
To improve work-life balance and drive
efficiencies, GMS aligned the working
week in accordance with the UAE ministry
announcement for 4.5 days working week.
This was in addition to the Flexible Working
Hours that was introduced in 2021.
12
Gulf Marine Services PLC
GMS Annual 2022 event was hosted
at Jubail Mangrove Park which is an
educational, nature and leisure destination.
At the event, 2 Teams, 5 onshore employees
and 15 Offshore employees were recognised
for their contributions in 2022 while
15 employees including onshore and
offshore received Long Service Awards
for completing either 10, 15, 20 or 25 years
of service with GMS.
Share Ownership
The Group has operated a long-term
incentive plan since 2014. Please see
pages 64 to 65 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. There is no guaranteed
variable pay awards at GMS, with all pay
being performance-based. The 2022 STIP
measures for employees are set out on
page 14.
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 Group has
a succession planning process in place for
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. In 2022, GMS
promoted 37 employees as compared to
22 employees who were promoted in 2021.
In 2022, 23% of our onshore female
employees got promoted and took expanded
roles within the organisation.
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 training in areas such
as, but not limited to, offshore safety and
awareness and emergency response.
People As At 31 December 2022
Total number of employees
Offshore
594
(2021: 545)
539
(2021: 490)
Onshore
55
(2021: 55)
Voluntary turnover
16%
(2021: 14%)
Total number of Direct Reports
to Senior Managers
Total number
of Senior Managers
21
(2021: 13)
4
(2021: 3)
Nationalities
36
(2021: 34)
GMS Employees – By Region 2022
Offshore
Onshore
0
5
21
99
3
3
7
10
414
32
MENA
Asia
Europe
Africa
Others (Canada, Venezuela, New Zealand)
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.
Risks arising from operations and activities
are regularly assessed to ensure that
mitigation procedures are implemented
and communicated to all employees.
All employees are made aware of the risks
associated with operations through regular
extensive training and employee engagement.
Training programs are developed annually
and reviewed periodically.
The Group implemented a remote healthcare
system for all of its offshore workforce in
2021, providing access to onshore Doctors
and mental health support 24/7.
In 2022, the Group implemented a company-
wide Marine Enterprise Resources Planning
System to modernise and digitalise its vessel
operations. The system integrates all aspects
of vessel management through one
web-based platform hosted on the cloud
and accessed onshore and offshore.
Management now has access to a
centralised database used to enhance
efficiency and improve decision-making.
There was one Lost Time Injury which
happened in the middle of the fourth quarter
of the year with no other recordable injuries.
As a result, we maintained the same Lost
Time Injury rate of 0.1 since last year (2021 vs
2022). However, because there was no other
recordable injury, our Total Recordable Injury
Rate (TRIR) improved considerably from 0.2
(2021) to 0.1 (2022). These levels continue to
be significantly below industry average and
in both cases have since returned to zero in
early 2023. We continue to look at areas of
improvements in our systems and processes
and engaging our employees to ensure that
our offshore operations continue to be as
safe as possible in line with the expectations
of our customers and stakeholders.
* Air Travel Emissions for 2019 and 2020 calculated solely in-house.
Annual Report 2022
13
Strategic Report
PEOPLE AND VALUES
continued
The information below is intended to provide an overview of the Health and Safety performance over the reporting period.
Number of
work-related fatalities
Number of
recordable work-related injuries
Number of
high-consequence work-related injuries
0
(2021: 0)
1
(2021: 1)
Number of hours worked
1,934,340
(2021: 1,962,081)
0
(2021: 1)
Governance
For Governance related considerations, please refer to the Governance section of this Annual Report.
Measure
EBITDA
EBITDA margin
Securing contract % of 2023
budget revenue
Securing contract % of 2024
budget revenue
Total
1
1
3
4
EBITDA*
Score
120 days
US’000
Number of days past due
Trade receivables
Less: Allowance for trade receivables
Net trade receivables 2022
Trade receivables
Less: Allowance for trade receivables
Net trade receivables 2021
30,166
(2,003)
28,163
32,215
(169)
32,046
4,216
(10)
4,206
3,183
(8)
3,175
–
–
–
–
–
–
2,323
(6)
2,317
1,175
(3)
1,172
30
–
30
672
(2)
670
Total
US’000
35,198
(2,019)
33,179
786
(6)
780
2,575
(7)
42,143
(195)
2,568
41,948
Nine customers (2021: eight) account for 99% (2021: 97%) of the total trade receivables balance (see revenue by segment information in Note
30). When assessing credit risk, ongoing assessments of customer credit and liquidity positions are performed.
106 Gulf Marine Services PLC
10 Prepayments, Advances and Other Receivables
Accrued revenue
Prepayments
Deposits*
Advances to suppliers
Other receivables
At 31 December
2022
US$’000
2021
US$’000
1,303
3,137
85
3,197
–
7,722
1,170
3,663
406
808
922
6,969
* Deposits include bank guarantee deposits of US$ 39K (2021: US$ 39K). Guarantee deposits are paid by the Group for employee work visas under UAE labour laws.
Other receivables disclosed above are measured at amortised cost.
11 Derivative Financial Instruments
Embedded Derivatives – Contract to Issue Warrants
Under the terms of the Group’s loan facility, the Group is required to issue warrants to its lenders if GMS had not raised US$ 50.0 million of
equity by 31 December 2022.
On 2 January 2023, as the US$ 50.0 million equity raise did not take place, therefore 87,621,947 warrants were issued to the lenders. Based
on the final report prepared by a Calculation Agent, the warrants give right to their holders to acquire 137,075,773 shares at an exercise price
of 5.75 pence per share for a total consideration of GBP £7.9 million. Warrant holders will have the right to exercise their warrants up to the
end of the term of the loan facility being 30 June 2025 (or earlier if a refinance takes place).
As the terms of the loan facility contained separate distinguishable terms with a contingent 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 simulation considers sensitivity by building models of possible results by substituting a range of values.
This represents a Level 3 fair value measurement under the IFRS 13 hierarchy. The fair value of the derivative as at 31 December 2022 was
US$ 3.2 million (31 December 2021 US$ 0.7 million). As the warrants were issued in January 2023, the balance is recognised as a current
liability as at 31 December 2022.
Interest Rate Swap
The Group has an Interest Rate Swap (IRS) arrangement, originally in place, to hedge a notional amount of US$ 50.0 million. The remaining
notional amount hedged under the IRS as at 31 December 2022 was US$ 23.1 million (31 December 2021: US$ 30.8 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 2022 was an asset value of US$ 0.4 million (31 December 2021: liability of US$ 1.1 million). In 2020 cash flows of the hedging
relationship for the IRS were not highly probable and, therefore, hedge accounting was discontinued from this point. The remaining balance in
the cash flow hedge reserve relates to the balance to be recycled to the profit and loss following the occurrence of the underlying cash flow.
The fair value measurement of the interest rate swap was determined by independent valuers with reference to quoted market prices,
discounted cash flow models and recognised pricing models as appropriate. They represent Level 2 fair value measurements under the
IFRS 13 hierarchy.
IFRS 13 Fair Value Hierarchy
Apart from the contract to issue warrants, the Group has no other financial instruments that are classified as Level 3 in the fair value hierarchy
in the current year that are determined by reference to significant unobservable inputs. There have been no transfers of assets or liabilities
between levels of the fair value hierarchy. There are no non-recurring fair value measurements.
Derivative financial instruments are made up as follows:
At 1 January 2022
Settlement of derivatives
Net gain on changes in fair value of interest rate swap *
Initial recognition of embedded derivative
Net loss on changes in fair value of embedded derivative
As at 31 December 2022
*
The fair value of the interest rate swap is included under assets in the current year (2021: included in liabilities).
Interest rate
swap
US$’000
Embedded
derivative
US$’000
(1,076)
384
1,078
–
–
386
(717)
–
–
–
(2,481)
(3,198)
Total
US$’000
(1,793)
384
1,078
–
(2,481)
(2,812)
Annual Report 2022
107
Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
11 Derivative Financial Instruments continued
IFRS 13 Fair Value Hierarchy continued
At 1 January 2021
Settlement of derivatives
Net gain on changes in fair value of interest rate swap
Derecognition of embedded derivative warrants
Initial recognition of embedded derivative
Net loss on changes in fair value of embedded derivative
As at 31 December 2021
Interest rate
swap
US$’000
Embedded
derivative
US$’000
(2,387)
1,033
278
–
–
–
(1,076)
(1,449)
–
–
1,890
(926)
(232)
(717)
Total
US$’000
(3,836)
1,033
278
1,890
(926)
(232)
(1,793)
These statements include the cost of hedging reserve and cash flow hedge reserve which are detailed further in the consolidated statement
of changes in equity. These reserves are non-distributable.
The balance in the cashflow hedging reserve as at 31 December 2022 was US $0.28 million (2021: US $0.56 million).
12 Cash and Cash Equivalents
Interest bearing
Held in UAE banks
Non-interest bearing
Held in UAE banks
Held in banks outside UAE
Total cash at bank and in hand
13 Share Capital and Other Reserves
Ordinary shares at £0.02 per share
At 1 January 2022
As at 31 December 2022
At 1 January 2021
Placing of new shares
Capital reorganisation
As at 31 December 2021 and 31 December 2022
Deferred shares at £0.08 per share
At 1 January 2022
Buyback and cancellation of deferred shares
As at 31 December 2022
Capital redemption reserve
At 1 January 2022
Placing of new shares
As at 31 December 2022
108 Gulf Marine Services PLC
2022
US$’000
2021
US$’000
1,209
639
2,824
8,242
12,275
778
6,854
8,271
Number of
ordinary shares
(Thousands)
1,016,415
1,016,415
Number of
ordinary shares
(Thousands)
350,488
665,927
–
1,016,415
Number of
ordinary shares
(’000)
350,488
(350,488)
–
Number of
ordinary shares
(Thousands)
–
350,488
350,488
Ordinary
shares
US$’000
30,117
30,117
Ordinary
shares
US$’000
58,057
18,505
(46,445)
30,117
US$’000
46,445
(46,445)
–
US$’000
–
46,445
46,445
Share premium
At 1 January 2021
Placing of new shares*
As at 31 December 2021 and 2022
*
net of issue costs of US$ 3,228,000.
Number of
ordinary shares
(Thousands)
Share premium
account
US$’000
350,488
665,927
1,016,415
93,080
6,025
99,105
Prior to an equity raise on 28 June 2021 the Group underwent a capital reorganisation where all existing ordinary shares with a nominal
value of 10 pence per share were subdivided and re-designated into 1 ordinary share with a nominal value of 2 pence and 1 deferred share
with a nominal value of 8 pence each. The previously recognised share capital balance relating to the old 10p ordinary shares was allocated
pro rata to the new subdivided 2p ordinary shares and 8p deferred shares. The deferred shares had no voting rights and no right to the
profits generated by the Group. On winding-up or other return of capital, the holders of deferred shares had extremely limited rights if any.
The Group had the right but not the obligation to buyback all of the deferred shares for an amount not exceeding £1.00 in aggregate, which
with the shareholders approval, was completed on 30 June 2022. Accordingly, 350,487,787 deferred shares were cancelled. Following the
cancellation of the deferred shares on 30 June 2022, a transfer of $46.4 million was made from Share capital – Deferred to a Capital
redemption reserve. There was no dilution to the shares ownership as a result of the share reorganisation.
Under the Companies Act a share buy-back by a public company can only be financed through distributable reserves or the proceeds of
a fresh issue of shares made for the purpose of financing a share buyback. The Company had sufficient reserves to purchase the Deferred
shares for £1.00.
The Group has Long Term Incentive Plans (“LTIPs”) granted to senior management, managers, and senior offshore officers and which may
result in increase in issued share capital in future (refer Note 28).
14 Restricted Reserve
The restricted reserve of US$ 0.3 million (2021: US$ 0.3 million) represents the statutory reserves of certain subsidiaries. As required by the
Commercial Companies Law in the countries where those entities are established, 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 the year ended 31 December 2022 (2021: US $nil).
15 Group Restructuring Reserve
The Group restructuring reserve arose on consolidation under the pooling of interests (merger accounting) method used for the Group restructuring.
Under this method, the Group was treated as a continuation of GMS Global Commercial Investments LLC (the predecessor parent Company)
and its subsidiaries. At the date the Company became the new parent company of the Group via a share-for-share exchange, the difference
between the share capital of GMS Global Commercial Investments LLC and the Company, amounting to US$ 49.7 million (2021: US $49.7
million), was recorded in the books of Gulf Marine Services PLC as a Group restructuring reserve. This reserve is non-distributable.
16 Share Based Payment Reserve
Share based payment reserve of US$ 3.6 million (2021: US$ 3.6 million) relates to awards granted to employees under the long-term incentive plans.
17 Capital Contribution
The capital contribution reserve is as follows:
At 31 December
2022
US$’000
9,177
2021
US$’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.
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
2022
US$’000
1,912
76
1,988
2021
US$’000
1,694
218
1,912
Annual Report 2022
109
Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
20 Provision for Employees’ end of Service Benefits
In accordance with Labour Laws of some of the countries where the Group operates, it 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
21 Trade and Other Payables
Trade payables
Due to a related party (Note 24)
Accrued expenses*
Deferred revenue
VAT payable
Other payables
No interest is payable on the outstanding balances. Trade and other payables are all current liabilities.
* Accrued expenses include US$ 3,826,000 (2021: US$ 1,051,000) relating to drydock accruals.
22 Bank Borrowings
Secured borrowings at amortised cost are as follows:
Term loans
Working capital facility (utilised)
2022
US$’000
2,322
270
(452)
2,140
2022
US$’000
12,618
2,841
11,169
628
365
358
27,979
2021
US$’000
2,190
678
(546)
2,322
2021
US$’000
8,767
197
9,023
593
875
–
19,455
2022
US$’000
328,085
–
328,085
2021
US$’000
358,026
21,500
379,526
Interest paid on bank borrowings were US$ 17.5 million (2021: US$ 12.9 million). Interest charged on bank borrowings was US$ 17.2 million
(2021: US$ 17.5 million).
Bank borrowings are split between hedged and unhedged amounts as follows;
Hedged bank borrowing via Interest Rate Swap*
Unhedged bank borrowings
2022
US$’000
23,077
305,008
328,085
2021
US$’000
30,769
348,757
379,526
*
This is an economic hedge and not accounted for in accordance with IFRS 9, Financial Instruments. The Group uses an IRS to hedge a portion of the Group’s floating
rate liability by converting LIBOR to a fixed rate. Refer to Note 27 for further details.
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
2022
US$’000
2021
US$’000
298,085
353,429
30,000
328,085
26,097
379,526
110
Gulf Marine Services PLC
The principal terms of the outstanding facility as at 31 December 2022 are as follows:
• The facility’s main currency is US$ and is repayable with a LIBOR plus margin at 3% up to 31 December 2022 at which point margin is
based on a ratchet depending on leverage levels. In 2023, the Group expects the margin to be 3.1% if leverage is below 4.0, 4.0% if
leverage is between 4.0 and 4.5 and 4.5% if leverage is higher than 4.5 but lower than 5.
• The revolving working capital facility amounts to US$ 45.0 million (2021: US$ 50.0 million). US$ 25.0 million (2021: US$ 25.0 million) of the
working capital facility is allocated to performance bonds and guarantees and US$ 20.0 million (2021: US$ 25 million) is allocated to cash
which was repaid in full during the year (31 December 2021 US$ 21.5 million was drawn), leaving US$ 20.0 million available for drawdown
(31 December 2021: US$ 3.5 million). The working capital facility expires alongside the main debt facility in June 2025.
• The facility remains secured by mortgages over its whole fleet with a net book value at 31 December 2022 of US$ 549.7 million
(31 December 2021: US$ 560.9 million) (Note 5). Additionally, gross trade receivables, amounting to US$ 35.2 million (31 December 2021:
US$ 42.1 million) have been assigned as security against the loans extended by the Group’s banking syndicate (Note 9).
• The Group has also provided security against gross cash balances, being cash balances amounting to US$ 12.3 million (31 December
2021: US$ 8.3 million) (Note 12) before the restricted amounts related to visa deposits held with the Ministry of Labour in the UAE which
are included in other receivables. These have been assigned as security against the loans extended by the Group’s banking syndicate.
• As per the amended terms’ contingent conditions that if an additional equity raise of US $50.0 million did not take place by 31 December
2022, 87.6 million warrants were issued on 2 January 2023, giving right to 137,075,773 million shares at a striking price of 5.75 pence
per share.
• Also, as the results of the Group in 2022 show a leverage ratio higher than 4.0, a 2.5% PIK interest will accrue as of 1 January 2023.
Also and as part of the ratchet mechanism, the margin rate on the loan will change on 1 January 2023 from 3.0% to 4.0%.
• Refer to Note 11 for details of the valuation of the contract to issue warrants.
The facility is subject to certain financial covenants including: Debt Service Cover, Interest Cover, and Net Leverage Ratio, which are tested
bi-annually in June and December. As at 31 December 2022 the Group was required to achieve a net leverage ratio lower than 6.1x, interest
cover with a minimum ratio of 2.25x and debt service cover with a minimum ratio of 1.2x. There are also additional covenants relating to
general and administrative costs, capital expenditure and Security Cover (loan to value) which are tested annually in December. In addition,
there are restrictions to payment of dividends until the net leverage ratio falls below 4.0 times. As at the year end, there was no breach of
covenant and on 2 January 2023 warrants were issued (Note 11). All applicable financial covenants assigned to the Group’s debt facility
were met as of 31 December 2022.
The Group appointed a calculation agent who has reported the final exercise price of the warrants to be 5.75 pence per share, and
137,075,773 ordinary shares that would be issued to the Lenders. As at 31 December 2022, the Group did not raise an additional US$ 50.0
million of equity, resulting in the issuance of warrants on 2 January 2023.
31 December 2022:
Term loan – scheduled repayments within one year
Term loan – scheduled repayments within more than one year
Working capital facility – scheduled repayment more than one
Outstanding amount
Current
US$’000
Non-current
US$’000
Total
US$’000
Security
Maturity
30,000
–
–
298,085
30,000
298,085
Secured
Secured
June 2025
June 2025
year
–
–
Secured
June 2025
30,000
298,085
328,085
31 December 2021:
Term loan – scheduled repayments within one year
Term loan – scheduled repayments within more than one year
Working capital facility – scheduled repayment within one
year
26,097
–
–
26,097
–
331,929
21,500
353,429
26,097
331,929
21,500
379,526
Secured
Secured
June 2025
June 2025
Secured
June 2025
Annual Report 2022
111
Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
23 Lease Liabilities
As at 1 January
Recognition of new lease liability additions
Interest on finance leases (Note 35)
Principal elements of lease payments
Interest paid
As at 31 December
Maturity analysis:
Year 1
Year 2
Year 3–5
Onwards
Split between:
Current
Non-current
2022
US$’000
2,924
3,122
170
(2,524)
(170)
3,522
1,845
834
692
151
3,522
1,845
1,677
3,522
2021
US$’000
3,311
1,955
147
(2,342)
(147)
2,924
1,817
736
206
165
2,924
1,817
1,107
2,924
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 2022, there were 2.6 million shares held by Directors (31 December 2021: 2.2 million). Refer to the Governance Report on
page 66.
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 70. 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.
Partner in relation to UAE Operations
National Catering Company Limited WLL
Partner in relation to UAE Operations
Sigma Enterprise Company LLC
Partner in relation to UAE Operations
Aman Integrated Solutions LLC
Affiliate of a significant shareholder of the Company
Relationship
Affiliate of a significant shareholder of the Company
Relationship
Affiliate of a significant shareholder of the Company
The amounts outstanding to Abdulla Fouad Energy Services Company as at 31 December 2022 was US $0.2 million (2021: US $0.1 million),
refer to Note 21.
The amounts outstanding to National Catering Company Limited WLL as at 31 December 2022 was US $0.8 million (2021: US $0.1 million)
included in trade and other payables (Note 21).
The amounts outstanding to Sigma Enterprise Company LLC as at 31 December 2022 was US 1.8 million (2021: US $nil) included in trade
and other payables (Note 21).
The amounts outstanding to Aman Integrated Solutions LLC as at 31 December 2022 was US nil (2021: US $nil) included in trade and other
payables (Note 21).
During 2022, there were no transactions with Seafox international or any of its subsidiaries (2021: US $nil).
Significant transactions with the related party during the year:
112
Gulf Marine Services PLC
Rentals of property from Abdulla Fouad
Rentals of breathing equipment from Abdulla Fouad
Catering services for Vessel Pepper from National Catering Company Limited WLL
Sigma Enterprise Company LLC
Aman Integrated Solutions LLC
Compensation of Key Management Personnel
The remuneration of Directors and other members of key management personnel during the year were as follows:
Short-term benefits
End of service benefits
2022
US$’000
2021
US$’000
50
521
1,232
1,930
7
54
452
289
–
–
2022
US$’000
2021
US$’000
617
24
641
915
7
922
Compensation of key management personnel represents the charge to the profit or loss in respect of the remuneration of the executive and
non-executive Directors. At 31 December 2022, there were four members of key management personnel (2021: five members). Further details
of Board remuneration and the termination of key management personnel relating to 2021 are contained in the Directors’ Remuneration Report
on pages 64 to 66.
25 Contingent Liabilities
At 31 December 2022, the banks acting for Gulf Marine Services FZE, one of the subsidiaries of the Group, had issued performance bonds
amounting to US$ 18.0 million (31 December 2021: US$ 11.6 million), all of which were counter-indemnified by other subsidiaries of the Group.
26 Commitments
Capital commitments
2022
US$’000
6,221
2021
US$’000
6,832
Capital commitments comprise mainly capital expenditure, which has been contractually agreed with suppliers for future periods for
equipment or the upgrade of existing vessels.
27 Financial Instruments
Categories of Financial Instruments
Financial assets:
Current assets at amortised cost:
Cash and cash equivalents (Note 12)
Trade receivables and other receivables (Note 9,10)*
Current assets recorded at FVTPL:
Interest rate swap (Note 11)
Total financial assets
*
Trade and other receivables excludes prepayments and advances to suppliers
Financial liabilities:
Derivatives recorded at FVTPL:
Interest rate swap (Note 11)
Embedded derivative (Note 11)
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)
Non-current bank borrowings – scheduled repayments more than one year (Note 22)
Total financial liabilities
*
Trade and other payables excludes amounts of deferred revenue and VAT payable.
2022
US$’000
2021
US$’000
12,275
34,567
386
47,228
8,271
44,446
–
52,717
2022
US$’000
2021
US$’000
–
3,198
1,076
717
26,986
3,522
30,000
298,085
361,791
17,987
2,924
26,097
353,429
402,230
Annual Report 2022
113
Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
27 Financial Instruments continued
Categories of Financial Instruments continued
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 assets:
Recognised at level 2 of the fair value hierarchy:
Interest rate swap (Note 11)
Financial liabilities:
Recognised at level 2 of the fair value hierarchy:
Interest rate swap (Note 11)
Recognised at level 3 of the fair value hierarchy:
Embedded derivative (Note 11)
2022
US$’000
2021
US$’000
386
–
–
3,198
1,076
717
The following table provides information about the sensitivity of the fair value measurement to changes in the most significant inputs:
Description
Valuation
technique
Significant
unobservable input
Embedded derivative Monte-Carlo simulation
Equity raise or warrant issue
technique
Sensitivity of the fair value measurement to input
As of 2 January 2023, the warrants have been vested. The
valuation technique used a Monte Carlo simulation with
5,000 iterations for Group’s future market capitalisation.
The fair value of financial instruments classified as level 3 are, in certain circumstances, measured using valuation techniques that incorporate
assumptions that are not evidenced by the prices from observable current market transactions in the same instrument and are not based on
observable market data.
The fair value of the Group’s embedded derivative at 31 December 2022 has been arrived at on the basis of a valuation carried out at that
date by a third-party expert, an independent valuer not connected with the Group. The valuation conforms to International Valuation
Standards. The fair value was determined using a Monte-Carlo simulation.
Favourable and unfavourable changes in the value of financial instruments are determined on the basis of changes in the value of the
instruments as a result of varying the levels of the unobservable parameters, quantification of which is judgmental. There have been no
transfers between Level 2 and Level 3 during the years ended 31 December 2022 and 31 December 2021.
The Group uses interest rate swap derivatives to hedge volatility in interest rates. These were previously formally designated into hedge
accounting relationships. As the cash flows of the hedging relationship subsequent to 31 December 2020 were not highly probable, the
hedge accounting was discontinued in 2020 and the interest rate swap was reclassified to fair value through profit and loss. As a result,
a gain of US$ 0.3 million (2021: loss of US$ 0.3 million) was recognised in profit or loss in the current year in relation to the change in fair
value of the interest rate swap (Note 35).
Capital Risk Management
The Group manages its capital to support its ability to continue as a going concern while maximising the return on equity. The Group does
not have a formalised optimal target capital structure or target ratios in connection with its capital risk management objectives. The capital
structure of the Group consists of net bank debt and total equity. The Group continues to take measures to de-lever the Company and intends
to continue to do so in the coming years.
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, and one of our UK offices 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 risk 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 cash and cash equivalents.
The Group has adopted a policy of dealing when possible with creditworthy counterparties while keen to maximize utilization for its vessels.
114
Gulf Marine Services PLC
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$ 12.3 million (2021: US$ 8.3 million), deposited with banks
with Fitch short-term ratings of F2 to F1+ (Refer to Note 12).
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 8 companies in the Middle
East and 2 companies in Europe, including NOCs and engineering, procurement and construction (“EPC”) contractors. At 31 December
2022, 7 companies in specific regions accounted for 99% (2021: 8 companies in specific regions accounted for 96%) 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.
The Group considers cash and cash equivalents and trade and other receivables which are neither past due nor impaired to have a low credit
risk and an internal rating of ‘performing’. Performing is defined as a counterparty that has a strong financial position and which there are no
past due amounts.
Liquidity Risk Management
Ultimate responsibility for liquidity risk management rests with the Board of Directors. The Group manages liquidity risk by seeking to maintain
sufficient facilities to ensure availability of funds for forecast and actual cash flow requirements.
The table below summarises the maturity profile of the Group’s financial liabilities. The contractual maturities of the Group’s financial liabilities
have been determined on the basis of the remaining period at the end of the reporting period to the contractual maturity date. The maturity
profile is monitored by management to assist in ensuring adequate liquidity is maintained. Refer to Going Concern in Note 3.
The maturity profile of the assets and liabilities at the end of the reporting period based on contractual repayment arrangements was
as follows:
Interest rate
Total
US$’000
1 to 3
months
US$’000
4 to 12
months
US$’000
2 to 5
years
US$’000
31 December 2022
Non-interest bearing financial assets
Cash and cash equivalents – non-interest bearing
Trade receivables and other receivables*
Interest bearing financial assets
Cash and cash equivalents – interest bearing
Interest rate swap
Non-interest bearing financial liabilities
Trade and other payables**
Interest bearing financial liabilities
Bank borrowings – principal
Interest on bank borrowings
Lease liabilities
Interest on lease liabilities
Interest rate
31 December 2021
Non-interest bearing financial assets
Cash and cash equivalents – non-interest bearing
Trade and other receivables*
Interest bearing financial assets
Cash and cash equivalents – interest bearing
11,066
34,567
1,209
386
47,228
11,066
33,751
1,209
–
44,003
–
30
–
386
416
–
786
–
–
2,809
3.0%–7.7%
26,986
26,986
–
–
328,079
40,395
3,522
148
399,130
Total
US$’000
7,632
44,446
639
52,717
7,500
2,656
462
20
37,624
1 to 3
months
US$’000
7,632
41,208
639
49,479
22,500
7,603
1,383
42
31,528
4 to 12
months
US$’000
298,079
30,136
1,677
86
329,978
2 to 5
years
US$’000
–
670
–
2,568
670
2,568
Annual Report 2022
115
Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
27 Financial Instruments continued
Liquidity Risk Management continued
Non-interest bearing financial liabilities
Trade and other payables**
Interest bearing financial liabilities
Bank borrowings – principal
Interest on bank borrowings
Lease liabilities
Interest on lease liabilities
Interest rate swap
Interest rate
Total
US$’000
1 to 3
months
US$’000
4 to 12
months
US$’000
2 to 5
years
US$’000
3.0%–3.3%
17,987
17,987
–
–
379,526
34,907
2,205
104
1,076
435,805
6,524
2,898
440
20
–
27,869
19,573
8,378
925
42
–
28,918
353,429
23,631
840
42
1,076
379,018
* Trade and other receivables excludes prepayments and advances to suppliers.
** Trade and other payables excludes amounts of deferred revenue and VAT payable.
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 million (2021: US$ 50.0 million). The remaining amount of notional hedged from
the IRS as at 31 December 2022 was US$ 23.1 million (2021: US$ 30.8 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 2022 was an asset value of US$ 0.4 million
(2021: liability value US$ 1.1 million), (see Note 11 for more details). As noted above the hedge accounting was discontinued on 1 January
2020 and the interest rate swap was reclassified to fair value through profit and loss.
Interest Rate Benchmark Reform
The key risks for the Group arising from the transition are:
Interest rate basis risk: There are two elements to this risk as outlined below:
•
If the bilateral negotiations with the Group’s counterparties are not successfully concluded before the cessation of IBORs, there are
significant uncertainties with regard to the interest rate that would apply. This gives rise to additional interest rate risk that was not
anticipated when the contracts were entered into and is not captured by our interest rate risk management strategy. For example, in some
cases the fallback clauses in IBOR loan contracts may result in the interest rate becoming fixed for the remaining term at the last IBOR
quote. The Group is working closely with all counterparties to avoid this from occurring, however, if this does arise, the Group’s interest
rate risk management policy will apply as normal and may result in closing out or entering into new interest rate swaps to maintain the mix
of floating rate and fixed rate debt. The Secured Overnight Financing Rate (SOFR) is a secured interbank overnight interest rate which is
intended to replace the LIBOR in future financial contracts.
Interest rate risk basis may arise if a non-derivative instrument and the derivative instrument held to manage the interest risk on the
non-derivative instrument transition to alternative benchmark rates at different times. This risk may also arise where back-to-back
derivatives transition at different times. The Group will monitor this risk against its risk management policy which has been updated to
allow for temporary mismatches of up to 12 months and transact additional basis interest rate swaps if required.
•
Liquidity risk: There are fundamental differences between IBORs and the various alternative benchmark rates which the Group will be
adopting. IBORs are forward looking term rates published for a period (e.g. 3 months) at the beginning of that period and include an inter-
bank credit spread, whereas alternative benchmark rates are typically risk free overnight rates published at the end of the overnight period
with no embedded credit spread. These differences will result in additional uncertainty regarding floating rate interest payments which will
require additional liquidity management. The Group’s liquidity risk management policy has been updated to ensure sufficient liquid resources
to accommodate unexpected increases in overnight rates.
Litigation risk: If no agreement is reached to implement the interest rate benchmark reform on existing contracts, (e.g. arising from differing
interpretation of existing fallback terms), there is a risk of prolonged disputes with counterparties which could give rise to additional legal and
other costs. The Group is working closely with all counterparties to avoid this from occurring.
Operational risk: Our current treasury management processes are being updated to fully manage the transition to alternative benchmark
rates and there is a risk that such upgrades are not fully functional in time, resulting in additional manual procedures which give rise to
operational risks. The Group has developed workstreams to ensure the relevant updates are made in good time and the Group has plans
in place for alternative manual procedures with relevant controls to address any potential delay.
Progress towards implementation of alternative benchmark interest rates
The Group has been in ongoing discussions with its lenders in relation to transition to alternative benchmark rates. This is the case for both
its bank borrowings and interest rate swap.
116
Gulf Marine Services PLC
Foreign Currency Risk Management
The majority of the Group’s transactions are denominated in US Dollars, UAE Dirhams, Euros and Pound Sterling. As the UAE Dirham,
Saudi Riyal and Qatari Riyal are pegged to the US Dollar, balances in UAE Dirham, Saudi Riyal and Qatari Riyal 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 has not had any material impact on Group operations nor did it have impact on transactions in Pound Sterling. Management continue
to monitor changes in legislation and future policies and will develop suitable mitigants if required.
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
2022
US$’000
26,556
283
10,332
31
4,535
6,237
2
26
48,002
2021
US$’000
35,097
87
7,688
4,189
89
3,264
–
–
50,414
2022
US$’000
13,146
1,110
–
1,218
–
317
–
–
15,791
2021
US$’000
4,889
2,092
553
948
196
86
2
1
8,767
At 31 December 2022, if the exchange rate of the currencies other than the UAE Dirham, Saudi Riyal and Qatari Riyal had increased/
decreased by 10% against the US Dollar, with all other variables held constant, the Group’s profit for the year would have been higher/lower
by US$ 0.9 million (2021: higher/lower by US$ 0.6 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 employment condition attached to the Groups LTIP’s is that each eligible employee of the Company must remain in employment during
the three-year vesting period. LTIP awards granted in 2019 and 2020 were aligned to Company’s share performance. The release of these
shares was conditional upon continued employment and market vesting conditions. There were no LTIP awards granted during 2021.
During the year ended 31 December 2022, additional LTIPs awards were granted to the Chairman and Senior Management. The awards
would vest over three years subject to the same employment conditions described above and performance conditions being met in 2024
based on defined ranges. There was an underpin condition such that no awards would vest if the debt leverage in the Group exceeded
4.0 times EBITDA at 31 December 2022. As this criteria had not been met all LTIP awards issued in 2022 were forfeited.
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 performance conditions, 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 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.
Annual Report 2022
117
Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
28 Long Term Incentive Plans continued
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
Cash settled in the year
Forfeited in the year
Lapsed
At the end of the year
2022
000’s
2,499,714
9,460,000
(921,311)
(9,862,390)
2021
000’s
6,573,229
–
(1,854,298)
(2,219,217)
–
1,176,014
2,499,714
The weighted average remaining contractual life for the vesting period outstanding as at 31 December 2022 was 0.1 years (31 December
2021: 0.5 years). The weighted average fair value of shares granted during the period to 31 December 2022 was US$ 0.057 million
(31 December 2021: US$ nil).
Grant date
Share price
Exercise price
Expected volatility
Risk-free rate
Expected dividend yield
Vesting period
Award life
LTIP
LTIP
LTIP
14 Jun 2022
£0.06
£0.00
102%
2.17%
0.00%
3 years
3 years
29 May 2020
£0.09
£0.00
120%
0.01%
0.00%
3 years
3 years
15 Nov 2019
£0.08
£0.00
102.79%
0.48%
0.00%
3 years
3 years
The expected share price volatility of Gulf Marine Services PLC shares was determined by considering 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.
On 15 March 2021, the Remuneration Committee determined that awards granted on 28 March 2018 which were due to vest on 28 March 2021
would be settled in cash, not by the issue of shares as was contractually stipulated, subject to the achievement of the original performance
conditions. For the purposes of IFRS 2, this represented a reclassification of these awards from equity-settled to cash-settled. In accordance
with IFRS 2, at the date of reclassification a balance of US$ 0.1 million equal to the fair value of the awards at the modification date was
deducted from equity. As the fair value at the modification date was lower than the cumulative equity-settled share-based payment charge
at that date, no adjustment was made to profit or loss as a result of the modifications.
On 9 June 2021, the Company’s Ordinary Shares of 10p each were split into Ordinary Shares of 2p each and deferred shares of 8p each.
A consequence of this change will be that the share options issued in prior years will be modified to such that the recipients are granted
Ordinary Shares of 2p each, not Ordinary Shares of 10p each. All of the deferred shares will be subject to a right of repurchase by the
Company for an aggregate sum of £1 following admission. These shares were cancelled when repurchased.
29 Dividends
There was no dividend declared or paid in 2022 (2021: nil). No final dividend in respect of the year ended 31 December 2022 is to be
proposed at the 2023 AGM.
30 Segment Reporting
The Group has 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, and (iii) E-Class vessels, which include the
Endeavour, Endurance, Enterprise and Evolution vessels.
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.
118
Gulf Marine Services PLC
K-Class vessels
E-Class vessels
S-Class vessels
Less:
Depreciation charged to cost of sales
Amortisation charged to cost of sales
Amortisation charged to cost of sales
Reversal of impairment/(impairment loss)
Gross profit
Finance expense
Other general and administrative expenses
Foreign exchange loss, net
Other income
Finance income
Profit for the year before taxation
Revenue
Segment adjusted
gross profit/(loss)
2022
US$’000
48,036
51,135
33,986
133,157
2021
US$’000
43,027
38,680
33,420
115,127
2022
US$’000
27,827
30,200
23,899
81,926
(23,567)
(5,613)
(13,192)
20,980
60,534
20,137
(13,212)
(138)
68
11
27,126
2021
US$’000
26,214
25,104
22,590
73,908
(22,738)
(5,503)
–
14,959
60,626
(14,463)
(12,272)
(1,002)
28
9
32,926
The total revenue from reportable segments which comprises the K, S and E-Class vessels was US$ 133.2 million (2021: US$ 115.1 million).
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, four customers (2021: four) 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$ 9.0 million, US$ 22.1 million, US$ 43.1 million and US$ 22.4 million
(2021: US$ 13.4 million, US$ 16.6 million, US$ 42.0 million and US$ 18.6 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
Total – Europe
Worldwide Total
2022
US$’000
22,645
51,848
44,259
118,752
14,405
133,157
2021
US$’000
58,019
21,376
22,591
101,986
13,141
115,127
Annual Report 2022
119
Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
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
Renewables
Total
2022
US$’000
118,752
14,405
133,157
2021
US$’000
101,986
13,141
115,127
An impairment charge of US $ 4.6 million and reversal of impairment of US$ 12.4 million (2021: reversal of impairment of US$ 15.0 million) was
recognised in respect of property and equipment (Note 5) attributable to the following reportable segments:
K-Class vessels
S-Class vessels
E-Class vessels
2022
US$’000
(9,100)
4,631
(3,319)
(7,788)
2022
Depreciation charged to cost of sales
Amortisation charged to cost of sales
Impairment charge/(reversal of impairment charge)
2021
Depreciation charged to cost of sales
Amortisation charged to cost of sales
Reversal of impairment charge
K-Class vessels
US$’000
S-Class vessels
US$’000
E-Class vessels
US$’000
Other vessels
US$’000
5,044
2,472
(9,100)
4,739
2,759
(4,852)
5,829
839
4,631
5,842
848
–
12,575
2,302
(3,319)
12,037
1,896
(10,107)
119
–
–
120
–
–
2021
US$’000
(4,852)
–
(10,107)
(14,959)
Total
US$’000
23,567
5,613
(7,788)
22,738
5,503
(14,959)
120 Gulf Marine Services PLC
31 Presentation of Adjusted Non-GAAP Results
The following table provides a reconciliation between the Group’s adjusted non-GAAP and statutory financial results:
Revenue
Cost of sales
– Cost of sales before depreciation,
amortisation and impairment
– Depreciation and amortisation
Reversal of impairment/(impairment loss)*
Gross profit
General and administrative
– Amortisation of IFRS 16, Leases
– Depreciation
– Other administrative costs
Operating profit
Finance income
Finance expense
Cost to acquire new bank facility**
Fair value adjustment on recognition of new
debt facility***
Other income
Foreign exchange loss, net
Profit before taxation
Taxation charge
Profit for the year
Profit attributable to:
Owners of the Company
Non-controlling interests
Gain per share (basic)
Gain per share (diluted)
Supplementary non statutory information
Operating profit
Add: Depreciation and amortisation
Adjusted EBITDA
Year ended 31 December 2022
Year ended 31 December 2021
Adjusted
non-GAAP
results
US$’000
133,157
Adjusting
items
US$’000
Statutory
total
US$’000
Adjusted
non-GAAP
results
US$’000
–
133,157
115,127
Adjusting
items
US$’000
–
Statutory
total
US$’000
115,127
(51,230)
(29,181)
–
52,746
(2,635)
(128)
(10,449)
39,534
11
(20,137)
–
–
68
(138)
19,338
(1,724)
17,614
17,538
76
1.73
1.71
39,534
31,944
71,478
–
–
7,788
7,788
–
–
–
7,788
–
–
–
–
–
–
7,788
–
7,788
7,788
–
0.76
0.76
7,788
–
7,788
(51,230)
(29,181)
7,788
60,534
(2,635)
(128)
(10,449)
47,322
11
(20,137)
–
–
68
(138)
27,126
(1,724)
25,402
25,326
76
2.49
2.47
47,322
31,944
79,266
(41,219)
(28,241)
–
45,667
(2,410)
(78)
(9,784)
–
–
14,959
14,959
–
–
–
(41,219)
(28,241)
14,959
60,626
(2,410)
(78)
(9,784)
33,395
14,959
48,354
9
(12,737)
–
–
28
(1,002)
19,693
(1,707)
17,986
17,768
218
2.57
2.55
33,395
30,729
64,124
–
–
(3,165)
1,439
–
–
13,233
–
13,233
13,233
–
1.91
1.91
14,959
–
14,959
9
(12,737)
(3,165)
1,439
28
(1,002)
32,926
(1,707)
31,219
31,001
218
4.48
4.46
48,354
30,729
79,083
* The reversal of impairment credit/impairment charge on certain vessels and related assets have been added back to gross profit/(loss) to arrive at adjusted gross profit
for the year ended 31 December 2022 and 2021 (refer to Note 5 for further details). Management has adjusted this due to the nature of the transaction which it believes
is not directly related to operations management are able to influence. This measure provides additional information on the core profitability of the Group.
** Costs incurred to arrange a new bank facility have been added back to loss before taxation to arrive at adjusted profit/(loss) for the year ended 31 December 2021.
Management has adjusted this due to both the nature of the transaction and the incidence of these transactions occurring. Costs incurred to arrange a new bank facility
are not related to the profitability of the Group which management are able to influence and are typically only incurred when a refinance takes place. 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 pages 32-33 for further details.
*** The fair value adjustment on recognition of the new loan has been added back to profit/(loss) before taxation to arrive at adjusted loss for the year ended 31 December
2021. The Group has adjusted this due to them being one off in nature. 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.
Annual Report 2022
121
Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
31 Presentation of Adjusted Non-GAAP Results continued
Cashflow reconciliation:
Profit for the year
Adjustments for:
(Reversal of impairment)/impairment loss
(Note 5)*
Cost to acquire new bank facility**
Fair value adjustment on recognition of new
debt facility***
Finance expenses
Other adjustments (Note 37)
Cash flow from operating activities before
movement in working capital
Change in trade and other receivables
Change in trade and other payables
Cash generated from operations (Note 37)
Income tax paid
Net cash flows generated from
operating activities
Net cash flows used in investing
activities
Payment of issue costs on bank borrowings
Other cash flows used in financing activities
Net cash flows used in financing
activities
Net change in cash and cash
equivalents
Year ended 31 December 2022
Year ended 31 December 2021
Adjusted
non-GAAP
results
US$’000
Adjusting
items
US$’000
Statutory
total
US$’000
Adjusted
non-GAAP
results
US$’000
Adjusting
items
US$’000
Statutory
total
US$’000
17,614
7,788
25,402
17,986
13,233
31,219
–
–
20,137
35,276
73,027
5,610
5,005
83,642
(1,077)
82,565
(6,304)
(148)
(72,109)
(72,257)
4,004
(7,788)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(7,788)
–
–
20,137
35,276
73,027
5,610
5,005
83,642
(1,077)
–
–
–
12,737
32,576
63,299
(17,090)
(4,849)
41,360
(849)
82,565
40,511
(6,304)
(148)
(72,109)
(11,498)
(450)
(20,925)
(14,959)
3,165
(1,439)
–
–
–
–
–
–
–
–
–
(3,165)
–
(14,959)
3,165
(1,439)
12,737
32,576
63,299
(17,090)
(4,849)
41,360
(849)
40,511
(11,498)
(3,615)
(20,925)
(72,257)
(21,375)
(3,165)
(24,540)
4,004
7,638
(3,165)
4,473
*
The reversal of impairment credit/impairment charge on certain vessels and related assets have been added back to Cash flow from operating activities before
movement in working capital for the year ended 31 December 2022 and 2021 (refer to Note 5 for further details).
** Costs incurred to arrange a new bank facility have been added back to Cash flow from operating activities before movement in working capital for the year ended
31 December 2021.
*** The fair value adjustment on recognition of the new loan has been added back to Cash flow from operating activities before movement in working capital for the year
ended 31 December 2021.
32 Earnings Per Share
Profit for the purpose of basic and diluted earnings per share being profit for the year attributable to Owners of
the Company (US$’000)
Profit for the purpose of adjusted basic and diluted earnings per share (US$’000) (Note 31)
Weighted average number of shares (‘000)
Weighted average diluted number of shares in issue (‘000)
Basic earnings per share (cents)
Diluted earnings per share (cents)
Adjusted earnings per share (cents)
Adjusted diluted earnings per share (cents)
2022
2021
25,326
17,538
1,016,415
1,024,124
2.49
2.47
1.73
1.71
31,001
17,768
691,661
695,753
4.48
4.46
2.57
2.55
Basic earnings per share is calculated by dividing the profit 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 earnings per share is calculated on the same basis but uses the profit for the purpose of basic earnings 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. The adjusted earnings per share is presented as the Directors consider it provides an additional indication of the
underlying performance of the Group.
122 Gulf Marine Services PLC
Diluted earnings per share is calculated by dividing the profit 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.
Adjusted diluted earnings per share is calculated on the same basis but uses adjusted profit (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 effect of LTIP’s
Weighted average diluted number of shares in issue
2022
’000s
1,016,415
7,709
1,024,124
2021
’000s
691,661
4,092
695,753
The warrants are anti-dilutive and therefore not included in the calculation of weighted average number of dilutive shares.
33 Revenue
Charter hire
Lease income
Messing and accommodation
Manpower income
Mobilisation and demobilisation
Sundry income
Revenue recognised – over time
Revenue recognised – point in time
2022
US$’000
70,295
44,543
12,746
3,516
1,281
776
133,157
131,958
1,199
133,157
2021
US$’000
63,525
38,824
7,971
2,865
1,077
865
115,127
113,931
1,196
115,127
Included in mobilisation and demobilisation income is an amount of US$ 0.6 million (2021 US$ 0.1 million) that was included as deferred
revenue at the beginning of the financial year.
Lease Income:
Maturity analysis:
Year 1
Year 2
Year 3–5
Onwards
Split between:
Current
Non-current
Further descriptions on the above types of revenue have been provided in Note 3.
2022
2021
57,665
36,696
32,947
–
127,308
57,665
69,643
127,308
47,994
21,306
4,305
–
73,605
47,994
25,611
73,605
Annual Report 2022
123
Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
34 Finance Income
Bank interest
35 Finance Expense
Interest on bank borrowings (Note 22)
Net loss on changes in fair value of embedded derivative for contract to issue warrants
Gain on IRS reclassified to profit or loss
Net gain on changes in fair value of interest rate swap (Note 11)
Interest on finance leases (Note 7)
Cost to acquire new bank facility*(Note 22)
Recognition of embedded derivative for contract to issue warrants (Note 11)
Net gain on revision of debt facility (Note 22)
Derecognition of embedded derivative for contract to issue warrants (Note 11)
Other finance expenses
* Costs incurred to acquire new loan facility including arrangement, advisory and legal fees.
36 Profit for the Year
The profit for the year is stated after charging/(crediting):
Total staff costs (see below)
Depreciation of property and equipment (Note 5)
Amortisation of dry-docking expenditure (Note 6)
Depreciation of right-of-use assets (Note 7)
Movement in ECL provision during the year (Note 9)
Auditor’s remuneration (see below)
Net foreign exchange loss
Other income*
Recovery of ECL provision (Note 9)
Expense relating to short term leases or leases of low value assets (Note 7)
(Reversal of impairment)/impairment loss (Note 5)
* Other income relates to sale of equipment and other sundry income.
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
2022
US$’000
11
2021
US$’000
9
2022
US$’000
2021
US$’000
17,231
2,481
279
(1,078)
170
–
–
–
–
1,054
20,137
2022
US$’000
27,350
23,695
5,613
2,635
1,921
787
138
(68)
(97)
965
(7,788)
17,545
232
278
(278)
147
3,165
926
(6,332)
(1,890)
670
14,463
2021
US$’000
31,761
22,816
5,503
2,411
62
1,141
1,002
(28)
–
525
(14,959)
2022
Number
2021
Number
539
28
567
499
35
534
The total number of full time equivalent employees (including executive Directors) as at 31 December 2022 was 594 (31 December 2021:
545). The number of full time employees increased in the year due to an increase in offshore headcount from the second half of the year.
Their aggregate remuneration comprised:
Wages and salaries
End of service benefit (Note 19)
Share based payment charge
Employment taxes*
2022
US$’000
26,845
270
45
190
27,350
2021
US$’000
31,039
678
26
18
31,761
* Employment taxes include US $0.17 million (2021: US $ nil) in respect of social security costs for our crew working in France.
124 Gulf Marine Services PLC
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
Audit-related assurance services – equity raise review
Total fees
37 Notes to the Consolidated Statement of Cash Flows
Operating activities
Profit for the year
Adjustments for:
Depreciation of property and equipment (Note 5)
Finance expenses (Note 35)
Amortisation of dry-docking expenditure (Note 6)
Depreciation of right-of-use assets (Note 7)
Income tax expense (Note 8)
Movement in ECL provision during the year (Note 9)
End of service benefits charge (Note 20)
Impairment loss (Note 5)
Reversal of impairment (Note 5)
End of service benefits paid (Note 20)
Recovery of ECL provision (Note 9)
Share-based payment charge (Note 16)
Interest income (Note 34)
Other income
Cash flow from operating activities before movement in working capital
Decrease/(increase) in Trade and other receivables*
Increase/(decrease) in Trade and other payables**
Cash generated from operations
Taxation paid
Net cash generated from operating activities
excludes the movement in allowance for ECL, Bad and doubtful debts, prepayments and other non-cash items within other receivables
*
** excludes movement in non-cash accruals
2022
US$’000
2021
US$’000
520
100
620
167
–
787
631
62
693
240
170
1,103
2022
US$’000
2021
US$’000
25,402
31,219
23,695
20,137
5,613
2,635
1,724
1,921
270
13,192
(20,980)
(452)
(96)
45
(11)
(68)
73,027
5,610
5,005
83,642
(1,077)
82,565
22,816
14,463
5,503
2,411
1,707
62
678
–
(14,959)
(546)
–
(18)
(9)
(28)
63,299
(17,090)
(4,849)
41,360
(849)
40,511
Annual Report 2022
125
Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
37 Notes to the Consolidated Statement of Cash Flows continued
Changes in Liabilities Arising from Financing Activities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes.
Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s
consolidated statement of cash flows as cash flows from financing activities.
At 1 January 2021
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 35)
Interest on bank borrowings (Note 35)
Gain on revision of debt facility (Note 35)
Net gain on change in fair value of IRS (Notes 11, 35)
Loss on fair value changes on the embedded derivative (Note 11)
Total non cash changes
At 31 December 2021
Financing cash flows
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 35)
Interest on bank borrowings (Note 35)
Net gain on change in fair value of IRS (Note 11)
Loss on fair value changes on the embedded derivative (Note 11)
Total non cash changes
At 31 December 2022
Derivatives
(Note 11)
US$’000
Lease
liabilities
(Note 23)
US$’000
Bank
borrowings
(Note 22)
US$’000
3,836
3,311
410,033
–
–
–
(1,033)
–
(1,033)
–
–
–
–
(278)
(732)
(1,010)
1,793
–
–
(384)
–
(384)
–
–
–
(1,078)
2,481
1,403
2,812
–
–
(2,342)
–
(147)
(2,489)
1,955
147
–
–
–
–
2,102
2,924
–
(2,524)
–
(170)
(2,694)
3,122
170
–
–
–
3,292
3,522
2,000
(30,983)
–
–
(12,737)
(41,720)
–
–
17,545
(6,332)
–
–
11,213
379,526
(51,445)
–
–
(17,227)
(68,672)
–
–
17,231
–
–
17,231
328,085
38 Events After the Reporting Period
Administration of a Customer
During January 2023, a customer of Gulf Marine Service (UK) Limited entered administration. The Company has traded with this customer
during the year and the Group has ascertained that the impact of this administration is not going to affect the ability of the Group to operate
as a going concern. The Company has recognized a provision for bad and doubtful debts of US $1.92 million. Further details are disclosed
in Note 9.
Issue of Warrants
Under the terms of the Group’s loan facility, the Group is required to issue warrants to its lenders if GMS had not raised US$ 50.0 million of
equity by 31 December 2022.
On 2 January 2023, as the US$ 50.0 million equity raise did not take place, therefore 87,621,947 warrants were issued to the lenders. Based
on the final report prepared by a Calculation Agent, the warrants give right to their holders to acquire 137,075,773 shares at an exercise price
of 5.75 pence per share for a total consideration of GBP £7.9 million. Warrant holders will have the right to exercise their warrants up to the
end of the term of the loan facility, being 30 June 2025 (or earlier if a refinance takes place).
126 Gulf Marine Services PLC
COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
Non-current assets
Investments in subsidiaries
Other receivables
Total non-current assets
Current assets
Other receivables
Cash and cash equivalents
Total current assets
Creditors: Amounts falling due within one year
Other payables
Derivatives
Net current liabilities
Total assets less current liabilities
Creditors: Amounts falling due after more than one year
Derivatives
Net assets
Equity
Share capital – Ordinary
Share capital – Deferred
Capital redemption reserve
Share premium account
Share based payment reserve
Retained earnings
Total equity
Notes
2022
US$’000
2021
US$’000
5
7
7
6
9
10
10
11
11
11
11
11
248,580
67,663
316,243
229,806
43,591
273,397
159
2
161
61,631
3,198
64,829
216
−
216
36,172
–
36,172
251,575
237,441
–
717
251,575
236,724
30,117
–
46,445
99,105
3,631
72,277
30,117
46,445
–
99,105
3,647
57,410
251,575
236,724
The Company reported a profit for the financial year ended 31 December 2022 of US$ 14.9 million (2021: loss US$ 18.3 million).
The financial statements of Gulf Marine Services PLC (registered number 08860816) were approved by the Board of Directors and authorised
for issue on 23 April 2023. Signed on behalf of the Board of Directors.
Rashed Al Jarwan
Senior Independent Director
Mansour Al Alami
Executive Chairman
The attached Notes 1 to 14 form an integral part of these financial statements.
Annual Report 2022
127
Financial Statements COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
At 1 January 2021
Loss for the year/Total comprehensive
expense
Share based payment credit (Note 11)
Capital reorganisation (Note 11)
Issue of share capital (Note 11)
Share issue costs
Cash settlement of share based
payments (Note 13)
At 31 December 2021
Profit for the year/Total comprehensive
income
Share based payment charge (Note 11)
Capital reorganisation (Note 11)
Cash settlement of share based
payments (Note 13)
At 31 December 2022
Share capital
– Ordinary
US$’000
Share capital
– Deferred
US$’000
58,057
−
−
−
(46,445)
18,505
−
−
−
−
46,445
−
−
−
30,117
46,445
Capital
redemption
reserve
US$’000
−
−
−
−
−
−
−
−
Share
premium
account
US$’000
93,080
−
−
−
9,253
(3,228)
−
Share based
payment
reserve
US$’000
Retained
earnings
US$’000
Total equity
US$’000
3,739
75,737
230,613
−
(18)
−
−
−
(74)
(18,327)
−
−
−
−
(18,327)
(18)
(46,445)
74,203
(3,228)
−
(74)
99,105
3,647
57,410
236,724
−
−
−
−
30,117
−
−
(46,445)
−
–
−
−
46,445
−
−
−
−
−
−
45
−
(61)
14,867
−
−
14,867
45
–
−
(61)
46,445
99,105
3,631
72,277
251,575
The attached Notes 1 to 14 form an integral part of these financial statements.
128 Gulf Marine Services PLC
NOTES TO COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
1 Corporate Information
Gulf Marine Services PLC (“the Company”) is a public company limited by shares in the United Kingdom under the Companies Act 2006
and is registered in England and Wales. The address of the registered office of the Company is 107 Hammersmith Road, London, United
Kingdom, W14 0QH. The registered number of the Company is 08860816. The Company is the parent company of the Gulf Marine Services
PLC Group comprising of Gulf Marine Services PLC and its underlying subsidiaries (“the Group”). The consolidated Group accounts are
publicly available.
2 Accounting Policies
Currency
The functional and presentational currency of the Company is US Dollars (“US$”).
Going Concern
The Company’s ability to continue as a going concern is premised on the same assessment as the Group.
The Group’s Directors have assessed the Group’s financial position for a period through to June 2024 and have a reasonable expectation
that the Group will be able to continue in operational existence for the foreseeable future.
The Group has reported a profit for the second consecutive year and is expected to continue to generate positive operating cash flows for the
foreseeable future especially considering a better market outlook.
The Group was in a net current liability position as at 31 December 2022 amounting to US$ 15.8 million (31 December 2021: net current
assets of US$ 4.2 million). Despite the reduction in the current asset ratio from 31 December 2021 to 31 December 2022, the Group closely
monitors its liquidity and is confident to meet its short term liabilities obligations. The Group made a loan prepayment of US$3.8m in Q4 2022
which reduced the current assets (Cash) and the non-current liabilities (Bank loan) at the year end, leading to a reduction in the current ratio.
The loan prepayment was made after taking into account the forecast cash inflows in Q1 2023, being sufficient to meet Group’s short-
term obligations.
The Group has also fully repaid its Working Capital Facility (Non-Current Liability) during the year, with payments of US$21.5m. The Working
Capital Facility expires alongside the main debt facility in June 2025 and was accordingly classified as non-current liability in prior period.
The forecast used for Going Concern reflects management’s key assumptions including those around utilisation and vessel day rates on
a vessel-by-vessel basis. Specifically, these assumptions are:
• average day rates across the fleet are assumed to be US$ 30.7k for the 18-month period to 30 June 2024;
• 92% forecast utilisation for the 18-month period to 30 June 2024;
• strong pipeline of tenders and opportunities for new contracts that would commence during the forecast period.
A downside case was prepared using the following assumptions:
• no work-to-win in 2023;
• an 11 percent reduction in work to win utilisation in H1 2024;
• a reduction in day-rates for a K-Class vessel assumed to have the largest day rate, by 10 percent commencing from May 2023; and
•
increase in forecast interest rate by 10 percent in H1 2024.
Based on the above scenario, the Group would not be in breach of its term loan facility. The downside case is considered to be severe but
plausible and would still leave the Group with US$ 15.5 million of liquidity and in compliance with the covenants under the Group’s banking
facilities throughout the assessment period.
In addition to the above reasonably plausible downside sensitivity, the Directors have also considered a reverse stress test, where profit has
been sufficiently reduced to breach the net leverage ratio as a result of a combination of reduced utilisation and day rates, as noted below:
• no work-to-win in 2023;
• a 16% reduction in work to win utilisation in H1 2024;
• a reduction in day-rate for a K-Class vessel assumed to have the largest day rate after expiry of the current secured period; and
•
increase in forecast interest rate by 10 percent in H1 2024.
Based on the above scenario there will be covenant breaches as Finance Service Cover and Interest Cover ratios would exceed the permitted
levels at 30 June 2024. Should circumstances arise that differ from the Group’s projections, the Directors believe that a number of mitigating
actions can be executed successfully in the necessary timeframe to meet debt repayment obligations as they become due (refer to Note 21
for maturity profiles) and in order to maintain liquidity. Potential mitigating actions include the following:
• vessels off hire for prolonged periods could be cold stacked to minimise operating costs on these vessels at the rate of US$ 35,000/month
for K-Class and US$ 50,000/month for S-Class/E-Class;
reduction in overhead costs, particularly, bonus payments estimated at US$ 125k per month.
•
Annual Report 2022
129
Financial Statements NOTES TO COMPANY FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
2 Accounting Policies continued
Going Concern continued
GMS continues to remain 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 impact of climate change is expected to be insignificant in the going concern assessment period.
During January 2023, a customer of the Group entered administration. Management has ascertained that the impact of their administration
is not going to affect the ability of the Group to operate as a Going Concern. As at the reporting date, the Group has provided for 50% of the
receivable balance amounting to US $1.92 million. See Note 14.
The Group’s forecasts, having taken into consideration reasonable risks and downsides, indicate that its current bank facilities along with
higher utilisation secured at increased day rates and a strong pipeline of near-term opportunities for additional work will provide sufficient
liquidity for its requirements for the foreseeable future and accordingly the consolidated financial statements for the Group for the current
period have been prepared on a going concern basis.
Basis of Accounting
The separate financial statements of the Company are presented as required by the Companies Act 2006. These have been prepared
under the historical cost convention, modified to include certain items at fair value, and in accordance with Financial Reporting Standard 102
(FRS 102) issued by the Financial Reporting Council.
The Company has elected to take the exemption under Section 408 of the Companies Act 2006 (the ‘Act’) to not present the Company
Income Statement nor the Company Statement of Comprehensive Income. The result for the Company for the year was a profit of US$ 13.7
million (2021: loss of US$ 18.3 million). The principal accounting policies are summarised below. They have all been applied consistently
throughout both years.
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 the presentation of a statement of profit or loss and other comprehensive income,
cash flow statement, remuneration of key management personnel, and financial instrument disclosures.
Investments
Investments in subsidiaries 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.
Derivative liability
The Company considers whether a contract contains a derivative liability when it becomes a party to the contract. Derivatives are initially
recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting
date. The resulting gain or loss is recognised in profit or loss immediately.
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.
130 Gulf Marine Services PLC
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.
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.
Critical Judgements in Applying the Company’s Accounting Policies
Critical accounting judgements are those which management make 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.
Management has not made any critical judgements in applying the Company’s accounting policies for the year ended 31 December 2022.
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.
Annual Report 2022
131
Financial Statements NOTES TO COMPANY FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
3 Critical Accounting Judgements and Key Sources of Estimation Uncertainty continued
Recoverability of investments
As noted above, 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 and cashflows related to the Group’s debt facility.
The projection of cash flows related to vessels and debt facility requires the use of various estimates including future day rates, vessel utilisation
levels, and discount rates, in which the estimate is most sensitive. 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 reversal of US$ 18.8 million (2021: impairment charge US$ 17.0 million) on the investment in subsidiaries (see Note 5). As at
31 December 2022, the Company had investments of US$ 248.6 million (2021: US$ 229.8 million).
4 Dividends
There was no interim dividend declared or paid in 2022 (2021: Nil).
No final dividend in respect of the year ended 31 December 2022 (2021: Nil at the 2022 AGM) is to be proposed at the 2022 AGM.
5 Investment in Subsidiaries
Gross investments in subsidiaries as at 01 January
Capital (reduction)/contribution in subsidiary in relation to derivative liability (Note 9)
Gross investments in subsidiaries as at 31 December
Impairments as at 1 January
Impairment reversal/(charge) of investments in year
Impairments as at 31 December
Carrying amount as at 31 December
2022
US$’000
574,472
–
574,472
(344,666)
18,774
2021
US$’000
574,995
(523)
574,472
(327,670)
(16,996)
(325,892)
(344,666)
248,580
229,806
Based on the impairment reviews performed in previous years, management recognised impairment losses of US$ 327.67m and US$ 17.0m
for the year ended 31 December 2020 (“FY20”) and for the year ended 31 December 2021 (“FY21”) respectively.
As at 31 December 2022, and in line with the requirements, management concluded that a formal impairment assessment was required.
Factors considered by management included favourable indicators, including an improvement in utilization rates, daily chartered rates and an
increase in market values of vessels, and unfavourable indicators including a rise in interest rates as well as the market capitalization of the
group remaining below the book value of the groups equity.
As at 31 December 2022, the market capitalisation of the GMS Group continued to be lower than the carrying value of investments in the
Company’s investments in its subsidiary undertakings. As such management decided to perform a formal impairment assessment to determine
the 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. The net bank debt of the GMS Group was then deducted from the value in use of the investments, which was based on the
combined value in use of vessels within the Group.
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. The risk adjusted cash flows were discounted using the post-tax discount rate of 12.1% (2021: 12.1%),
which is based on the Group’s weighted average cost of capital. The cost of equity incorporated in the computation of the discount rate is
based on the industry sector average betas, risk-free rate of return as well as Group specific risk premium reflecting any additional risk factors
relevant to the Group. A post tax discount rate was used as the cashflows to derive the value in use of investments in subsidiaries includes
the impacts of tax as described above.
The review led to the recognition of an aggregate impairment reversal of US$ 18.77 million (2021: Impairment charge of US$ 17.0 million) on
the investment in subsidiaries. The assessment described above takes into account complete profitability of underlying investments which
also included implications of tax and debt.
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 day rates over the remaining useful economic life of vessels included in investments.
A second sensitivity modelled a 10% increase/reduction to utilisation rates. Management would not expect an assumption change of more
than 10% across all vessels within the next financial year, and accordingly believes that a 10% sensitivity to day rates and utilisation
is appropriate.
132 Gulf Marine Services PLC
A third sensitivity was modelled where a 1% increase/decrease was applied to the post-tax discount rate mentioned above. Following
consultations with external advisors in 2021, management reviewed and narrowed down the peer companies used to compute the discount
rate and measured the overall impact of existing and additional risks related to the Group. The same companies are used in 2022 as these
are deemed to be more specific to GMS’s capital structure and management still consider a 1% sensitivity on discount rate to be appropriate.
The results of the first sensitivity indicated that a 10% decrease to day rates would lead to decrease the impairment reversal by US$ 18.77 million
to US$ nil and an additional impairment charge of US$ 108.79 million. In comparison, a 10% increase to day rates would increase the impairment
reversal by US$ 93.41 million. The total carrying amount of investments would be US$ 138.01 million and US$ 358.98 million, respectively.
The results of the second sensitivity indicated that a 10% decrease to utilisation would lead to decrease the impairment reversal by US$ 18.77 million
to US$ nil and an additional impairment charge of US$ 108.79 million. In comparison, a 10% increase to utilisation would increase the impairment
reversal booked by US$ 42.11 million. The total carrying amount of investments would be US$ 138.01 million and US$ 307.68 million, respectively.
The results of the third sensitivity indicated that a 1% decrease to the post-tax discount rate would lead to an increase in impairment reversal
booked by US$ 23.45 million whereas a 1% increase to the post-tax discount rate would lead to an decrease to the impairment reversal
charge booked during the period of US$ 18.77 million to zero and an additional impairment of US$ 34.02 million. The total carrying amount
of investments would be US$ 289.03 million and US$ 212.79 million, respectively.
Annual Report 2022
133
Financial Statements NOTES TO COMPANY FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
5 Investment in Subsidiaries continued
The Company has investments in the following subsidiaries:
Proportion of
Ownership Interest
Name
Place of Registration Registered Address
2022
2021
Type of Activity
Gulf Marine Services W.L.L.
United Arab
Emirates
Offshore Holding Invt SA
Panama
Offshore Logistics Invt SA
Panama
Office 403, International Tower, 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
100%
100% Marine contractors
100%
100% Holding Company
100%
100% Dormant
Offshore Accommodation
Invt SA
Panama
Bloc Office Hub, Fifth Floor, Santa Maria
Business District, Panama, Republic of Panama
100%
100% Dormant
Offshore Jack-up Invt SA
Panama
Bloc Office Hub, Fifth Floor, Santa Maria
Business District, Panama, Republic of Panama
100%
100% Owner of barge “Kamikaze”
Offshore Craft Invt SA
Panama
Bloc Office Hub, Fifth Floor, Santa Maria
Business District, Panama, Republic of Panama
100%
100% Owner of barge “GMS
Endeavour”
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
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
100%
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”
Gulf Marine Services (UK)
Limited
United Kingdom
14 Carden Place, Aberdeen, AB10 1UR
100%
100% Operator of offshore barges
Gulf Marine Saudi Arabia Co.
Limited
Saudi Arabia
King Fahad Road, Al Khobar, Eastern Province,
P.O. Box 31411 Kingdom Saudi Arabia
75%
75% Operator of offshore barges
Gulf Marine Services (Asia)
Pte. Ltd.
Singapore
1 Scotts Road, #21-07, Shaw Centre,
Singapore, 228208
100%
100% Operator of offshore barges
GMS Enterprise Investment
SA
Panama
Bloc Office Hub, Fifth Floor, Santa Maria
Business District, Panama, Republic of Panama
100%
100% Owner of barge “Enterprise”
GMS Sharqi Investment SA
Panama
Bloc Office Hub, Fifth Floor, Santa Maria
Business District, Panama, Republic of Panama
100%
100% Owner of barge “Sharqi”
GMS Scirocco Investment
SA
Panama
Bloc Office Hub, Fifth Floor, Santa Maria
Business District, Panama, Republic of Panama
100%
100% Owner of barge “Scirocco”
GMS Shamal Investment SA Panama
Bloc Office Hub, Fifth Floor, Santa Maria
Business District, Panama, Republic of Panama
100%
100% Owner of barge “Shamal”
GMS Jersey Holdco. 1
Limited*
GMS Jersey Holdco. 2
Limited
Jersey
Jersey
12 Castle Street, St. Helier, Jersey, JE2 3RT
100%
100% General investment
12 Castle Street, St. Helier, Jersey, JE2 3RT
100%
100% General investment
GMS Marine Middle East
FZE
United Arab
Emirates
ELOB, Office No. E-16F-04, P.O. Box 53944,
Hamriyah Free Zone, Sharjah
100%
100% Operator of offshore barges
GMS Global Commercial Invt
LLC
United Arab
Emirates
GMS Keloa Invt SA
Panama
GMS Pepper Invt SA
Panama
GMS Evolution Invt SA
Panama
Office 403, International Tower, 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
100%
100% General investment
100%
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
Mena Marine Limited
Singapore
Ugland House, Grand Cayman, KY1-1104,
Cayman Islands, P.O. Box 309
100%
100%
100% Marine contractor
100% General investment
GMS Phoenix Investment SA
* Held directly by Gulf Marine Services PLC.
134 Gulf Marine Services PLC
Bloc Office Hub, Fifth Floor, Santa Maria
Business District, Panama, Republic of Panama
100%
100% Dormant
6 Cash and Cash Equivalents
Interest bearing
Cash at bank
Total cash at bank and in hand
7 Other Receivables
Non-current assets
Amounts receivable from Group undertakings
Current assets
Prepayments
2022
US$’000
2021
US$’000
2
2
–
–
2022
US$’000
2021
US$’000
67,663
67,663
159
159
43,591
43,591
216
216
67,822
43,807
Amounts receivable from Group undertakings are interest-free, unsecured and have no fixed repayment terms.
8 Deferred Tax Asset
At the reporting date, the Company has unused tax losses of US$ 18.4 million available for offset against future profits (2021: US$ 12.8 million).
These UK tax losses may be carried forward indefinitely. The company is not expected to have any future taxable profits to be able to utilise the
deferred tax assets and therefore no deferred tax asset has been recognised in the current year (2021: US$ Nil).
9 Other Payables
Amounts falling due within one year
Amounts owed to Group undertakings
Accruals
2022
US$’000
2021
US$’000
60,801
830
61,631
35,606
566
36,172
Amounts owed to Group undertakings are current, interest-free, unsecured and have no fixed repayment terms. Balances with related parties
are repayable on demand. The present value of the liability is deemed to equal the undiscounted cash amount payable. No interest charge is
therefore imputed on these amounts.
10 Derivative Financial Instruments
Derivative Liability – Contract to Issue Warrants
Under the terms of the Group’s loan facility, the Group is required to issue warrants to its lenders if GMS had not raised US$ 50.0 million of
equity by 31 December 2022.
On 2 January 2023, as the US$ 50.0 million equity raise did not take place, therefore 87,621,947 warrants were issued to the lenders. Based
on the final report prepared by a Calculation Agent, the warrants give right to their holders to acquire 137,075,773 shares at an exercise price
of 5.75 pence per share for a total consideration of GBP £7.9 million. Warrant holders will have the right to exercise their warrants up to the
end of the term of the loan facility being 30 June 2025 (or earlier if a refinance takes place).
As the terms of the loan facility contained separate distinguishable terms with a contingent 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 simulation considers sensitivity by building models of possible results by substituting a range of values. This represents
a Level 3 fair value measurement under the IFRS 13 hierarchy.
The fair value of the derivative as at 31 December 2022 was US$ 3.2 million (31 December 2021: US$ 0.7 million). As the derivative was
settled in January 2023, the balance is recognised as a current liability as at 31 December 2022.
Annual Report 2022
135
Financial Statements NOTES TO COMPANY FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
10 Derivative Financial Instruments continued
Derivative Liability – Contract to Issue Warrants continued
The movement in the derivative financial statements is as follows:
As at 1 January
Net loss on changes in fair value of derivative liabilities
Derecognition of derivative liability warrants
Initial recognition of derivative liability
As at 31 December
11 Share Capital and Reserves
The share capital of Gulf Marine Services PLC was as follows:
Ordinary shares at £0.02 per share
At 1 January 2021
Placing of new shares
Capital reorganisation
As at 31 December 2021 and 31 December 2022
Deferred shares at £0.08 per share
At 1 January 2022
Buyback and cancellation of deferred shares
As at 31 December 2022
Deferred shares at £0.08 per share
At 1 January 2021
Capital reorganisation
As at 31 December 2021
Capital redemption reserve
At 1 January 2022
Placing of new shares
As at 31 December 2022
Share premium
At 1 January 2021
Placing of new shares*
As at 31 December 2021 and 2022
*
net of issue costs of US$ 3,228,000.
136 Gulf Marine Services PLC
2022
US$’000
(717)
(2,481)
–
–
(3,198)
Number of
ordinary shares
(Thousands)
350,488
665,927
–
1,016,415
Number of
ordinary shares
(Thousands)
350,488
(350,488)
–
Number of
ordinary shares
(Thousands)
–
350,488
350,488
Number of
ordinary shares
(Thousands)
–
350,488
350,488
Number of
ordinary shares
(Thousands)
350,488
665,927
1,016,415
2021
US$’000
(1,449)
(232)
1,890
(926)
(717)
Ordinary
shares
US$’000
58,057
18,505
(46,445)
30,117
US$’000
46,445
(46,445)
–
Ordinary
shares
US$’000
–
46,445
46,445
Capital
redemption
reserve
US$’000
–
46,445
46,445
Share premium
account
US$’000
93,080
6,025
99,105
Prior to an equity raise on 28 June 2021 the Group underwent a capital reorganisation where all existing ordinary shares with a nominal value
of 10 pence per share were subdivided and re-designated into 1 ordinary share with a nominal value of 2 pence and 1 deferred share with
a nominal value of 8 pence each. The previously recognised share capital balance relating to the old 10p ordinary shares was allocated pro
rata to the new subdivided 2p ordinary shares and 8p deferred shares. The deferred shares had no voting rights and no right to the profits
generated by the Group. On winding-up or other return of capital, the holders of deferred shares had extremely limited rights if any. The
Group had the right but not the obligation to buyback all of the Deferred Shares for an amount not exceeding £1.00 in aggregate, which
with the shareholders approval, was completed on June 30, 2022. Accordingly, 350,487,787 deferred shares were cancelled. Following
the cancellation of the Deferred shares on 30 June 2022, a transfer of $46.4 million was made from Share capital – Deferred to a Capital
redemption reserve. There was no dilution to the shares ownership as a result of the share reorganisation.
Under the Companies Act a share buy-back by a public company (such as the Company) can only be financed through distributable reserves
or the proceeds of a fresh issue of shares made for the purpose of financing a share buyback. The Company had sufficient reserves to
purchase the Deferred shares for £1.00.
The Company has one class of ordinary shares, which carry no right to fixed income.
The share premium account contains the premium arising on issue of equity shares, net of related costs.
The Company’s share-based payment reserve of US$ 3.6 million (2021: US$ 3.6 million) relates to the cumulative charge for awards granted
to employees of a subsidiary undertaking under a long-term incentive plan, details of which are provided in Note 13. The share-based
payment charge during the year was US$ 0.05 million (2021: share-based payment credit of US$ 0.02 million).
The retained earnings represent cumulative profits or losses net of dividends paid and other adjustments.
12 Staff Numbers and Costs
The average monthly number of employees (including executive directors) was:
Administration
Their aggregate remuneration comprised:
Wages and salaries
2022
Number
2021
Number
3
3
4
4
2022
US$’000
256
256
2021
US$’000
241
241
13 Long Term Incentive Plans
The Company has Long Term Incentive Plans (“LTIPs”) which were granted to senior management, managers and senior offshore officers.
The employment condition attached to the Company LTIP’s is that each eligible employee of the Company must remain in employment during
the three-year vesting period. LTIP awards granted in 2019 and 2020 were aligned to Company’s share performance. The release of these
shares was conditional upon continued employment and market vesting conditions. There were no LTIP awards granted during 2021.
During the year ended 31 December 2022, additional LTIPs awards were granted to the Chairman and Senior Management. The awards
would vest over three years subject to the same employment conditions described above and performance conditions being met in 2024
based on defined ranges. There was an underpin condition such that no awards would vest if the debt leverage in the Group exceeded 4.0
times EBITDA at 31 December 2022. As this criteria had not been met all LTIP awards issued in 2022 were forfeited.
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 performance conditions, 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 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 Company’s subsidiaries without charge, the share-based payment
is capitalised as part of the cost of investment in subsidiaries.
Annual Report 2022
137
Financial Statements NOTES TO COMPANY FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2022
13 Long Term Incentive Plans continued
During the year cash settlements amounting to US$ 0.06 million (2021: US$ 0.07 million) were made to employees in respect of share options.
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
Cash settled in the year
Forfeited in the year
Lapsed
At the end of the year
2022
000’s
2,499,714
9,460,000
(921,311)
(9,862,390)
2021
000’s
6,573,229
–
(1,854,298)
(2,219,217)
–
1,176,014
2,499,714
The weighted average remaining contractual life for the vesting period outstanding as at 31 December 2022 was 0.1 years (31 December
2021: 0.5 years). The weighted average fair value of shares granted during the period to 31 December 2022 was US$ 0.057 million
(31 December 2021: US$ nil).
Grant date
Share price
Expected volatility
Risk-free rate
Expected dividend yield
Vesting period
Award life
LTIP
LTIP
LTIP
14 Jun 2022
£0.06
102%
2.17%
0.00%
3 years
3 years
29 May 2020
£0.09
120%
0.01%
0.00%
3 years
3 years
15 Nov 2019
£0.08
103%
0.48%
0.00%
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.
On 15 March 2021, the Remuneration Committee determined that awards granted on 28 March 2018 which were due to vest on 28 March 2021
would be settled in cash, not by the issue of shares as was contractually stipulated, subject to the achievement of the original performance
conditions. For the purposes of IFRS 2, this represented a reclassification of these awards from equity-settled to cash-settled. In accordance
with IFRS 2, at the date of reclassification a balance of US$ 0.1 million equal to the fair value of the awards at the modification date was
deducted from equity. As the fair value at the modification date was lower than the cumulative equity-settled share-based payment charge
at that date, no adjustment was made to profit or loss as a result of the modifications.
On 9 June 2021, the Company’s Ordinary Shares of 10p each were split into Ordinary Shares of 2p each and deferred shares of 8p each.
A consequence of this change will be that the share options issued in prior years will be modified to such that the recipients are granted
Ordinary Shares of 2p each, not Ordinary Shares of 10p each. All of the deferred shares will be subject to a right of repurchase by the
Company for an aggregate sum of £1 following admission. These shares were cancelled when repurchased.
14 Events After the Reporting Period
Administration of a Customer
During January 2023, a customer of Gulf Marine Service (UK) Limited entered administration. The Company has traded with this customer during
the year and management has ascertained that the impact of their administration is not going to affect the ability of the Group to operate as a
Going Concern. The Company has provided for a provision for bad and doubtful debts of US $1.92 million. Further details are disclosed in Note
9 of the consolidated financial statements.
Issue of Warrants
Under the terms of the Group’s loan facility, the Group is required to issue warrants to its lenders if GMS had not raised US$ 50.0 million of
equity by 31 December 2022.
On 2 January 2023, as the US$ 50.0 million equity raise did not take place, therefore 87,621,947 warrants were issued to the lenders. Based
on the final report prepared by a Calculation Agent, the warrants give right to their holders to acquire 137,075,773 shares at an exercise price
of 5.75 pence per share for a total consideration of GBP £7.9 million. Warrant holders will have the right to exercise their warrants up to the
end of the term of the loan facility, being 30 June 2025 (or earlier if a refinance takes place).
138 Gulf Marine Services PLC
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 earnings/loss per share – represents the adjusted earnings/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 earnings/loss attributable to equity shareholders of the Company is used for the
purpose of basic gain/loss per share adjusted by adding back impairment charges (deduction of reversal of impairment during the year 2022),
and any exceptional costs. 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 32.
Adjusted EBITDA – represents operating profit after adding back depreciation (deduction for reversal of impairment during 2022),
amortisation, non-operational items and impairment charges. 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/loss after deducting reversal of impairment/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 net profit/(loss) – represents net profit/(loss) after adding back net impairment reversals. 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.
Cost of sales excluding depreciation and amortisation – represents cost of sales excluding depreciation and amortisation.
This measure provides additional information of the Group’s cost for operating the vessels. A reconciliation is shown below:
Statutory cost of sales
Less: depreciation and amortisation
2022
US$’000
80,411
(29,181)
51,230
2021
US$’000
69,460
(28,241)
41,219
EBITDA – represents earnings before interest, tax, depreciation and amortisation, which represents operating profit after adding back
depreciation and amortisation. 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 cost of sales before depreciation, amortization and impairment as identified in Note 31 of the consolidated
financial statements.
Annual Report 2022
139
Financial Statements
GLOSSARY continued
Net bank debt – represents the total bank borrowings less cash and cash equivalents. This measure provides additional information of the
Group’s financial position. A reconciliation is shown below:
Statutory bank borrowings
Less: cash and cash equivalents
2022
US$’000
328,085
(12,275)
315,810
2021
US$’000
379,526
(8,271)
371,255
Finance leases are excluded from net bank debt to ensure consistency with definition of the Group’s banking covenants.
Net cash flow before debt service – the sum of cash generated from operations and investing activities.
Net leverage ratio – the ratio of net bank debt at year end to adjusted EBITDA which is further adjusted for items including but are not
limited to reversal of impairment credits/(impairment charges), restructuring costs, exceptional legal costs and non-operational finance related
costs in alignment with the terms of our bank facility agreement. This has no impact for the current or prior periods. The reconciliation is
shown below:
A: Net bank debt, as identified above
B: Adjusted EBITDA, as disclosed in Note 31
Net leverage ratio (A/B):
2022
US$’000
315,810
71,478
4.42
Non-operational finance expenses – this pertains to the following items below as disclosed in Note 35, Finance expense.
Cost to acquire new bank facility
Fair value adjustment on recognition of new debt facility
Operational downtime – downtime due to technical failure.
2022
US$’000
–
–
–
2021
US$’000
371,255
64,124
5.78
2021
US$’000
(3,165)
1,439
(1,726)
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 performance – day to day trading performance that management are directly able to influence in the short term
140 Gulf Marine Services PLC
OTHER DEFINITIONS
Average day rates
We calculate the average day rates by dividing total charter hire revenue per month by total hire days per month
throughout the year and then calculating a monthly average.
Backlog
Represents firm contracts and extension options held by clients. Backlog equals (charter day rate x remaining days
contracted) + ((estimated average Persons On Board x daily messing rate) x remaining days contracted) +contracted
remaining unbilled mobilisation and demobilisation fees. Includes extension options.
Borrowing rate
LIBOR plus margin.
Calendar days
Takes base days at 365 and only excludes periods of time for construction and delivery time for newly constructed
vessels.
Costs capitalised
Represent qualifying costs that are capitalised as part of a cost of the vessel rather than being expensed as they meet
the recognition criteria of IAS 16 Property, Plant and Equipment.
Day rates
Rate per day charge to customers per hire of vessel as agreed in the contract.
Demobilisation
Fee paid for the vessel re-delivery at the end of a contract, in which client is allowed to offload equipment and
personnel.
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
Finance service
Engineering, procurement and construction.
Environmental, social and governance.
The aggregate of
a) Net finance charges for that period; and
b)
All scheduled payments of principal and any other schedule payments in the nature of principal payable by the
Group in that period in respect of financing:
i) Excluding any amounts falling due in that period under any overdraft, working capital or revolving facility
which were available for simultaneous redrawing under the terms of that facility;
ii) Excluding any amount of PIK that accretes in that period;
iii) Including the amount of the capital element of any amounts payable under any Finance Lease in respect of
that period; and
iv) Adjusted as a result of any voluntary or mandatory prepayment
Debt Service Cover
Represents the ratio of Adjusted EBITDA to debt service.
GCC
Gulf Cooperation Council.
GMS core fleet
Consists of 13 SESVs, with an average age of twelve years.
Interest Cover
Represents the ratio of Adjusted EBITDA to Net finance charges.
IOC
KPIs
Independent Oil Company.
Key performance indicators.
Lost Time Injuries
Any workplace injuries sustained by an employee while on the job that prevents them from being able to perform their
job for a period of one or more days.
Lost Time Injury Rate
(LTIR)
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.
Mobilisation
Fee paid for the vessel readiness at the start of a contract, in which client is allowed to load equipment and personnel.
Net finance charges
Represents finance charges as defined by the terms of the Group’s banking facility for that period less interest income
for that period.
Net leverage ratio
Represents the ratio of net bank debt to Adjusted EBITDA.
NOC
National Oil Company.
Annual Report 2022
141
Financial Statements OTHER DEFINITIONS continued
OSW
PIK
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.
Restricted work day
case (RWDC)
Any work-related injury other than a fatality or lost work day case which results in a person being unfit for full
performance of the regular job on any day after the occupational injury.
Secured 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.
Secured day rates
Day rates from signed contracts firm plus options held by clients.
Secured utilisation
Contracted days of firm plus option periods of charter hire from existing signed contracts.
Security Cover
(loan to value)
The ratio (expressed as a percentage) of Total Net Bank Debt at that time to the Market Value of the Secured Vessels.
SESV
Self-Elevating Support Vessels.
SG&A spend
Means that the selling, general and administrative expenses calculated on an accruals basis should be no more than
the SG&A maximum spend for any relevant period.
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, and exceptional
related costs.
Utilisation
The percentage of calendar days in a relevant period during which an SESV is under contract and in respect of which
a customer is paying a day rate for the charter of the SESV.
Vessel operating
expense
Warrants
Cost of sales before depreciation, amortisation and impairment, refer to Note 31.
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. All warrants to expire on 30 June 2025
(maturity date of the facilities).
142 Gulf Marine Services PLC
Board of Directors
Mansour Al Alami
Executive Chairman
Hassan Heikal
Deputy Chairman, Non-Executive Director
Rashed Saif Al Jarwan
Senior Independent Non-Executive Director
Lord Anthony St John of Bletso
Independent Non-Executive Director
Charbel El Khoury
Non-Executive Director
Jyrki Koskelo
Independent Non-Executive Director
CORPORATE INFORMATION
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
Company Secretary
Tony Hunter
Corporate Brokers
Panmure Gordon
One New Change,
London EC4M 9AF
Arden Partners plc
125 Old Broad Street
London
EC2N 1AR
Legal Advisers
Shearman and Sterling LLP
9 Appold Street
London EC2A 2AP
Auditors
KPMG
1 Stokes Place
St Stephen’s Green
Dublin 2
D02 DE03
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
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
Annual Report 2022
143
Financial Statements
OUR CLIENTS
144 Gulf Marine Services PLC
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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