Financial Results (unaudited)

14 May 2021

 

Gulf Marine Services PLC

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

Financial Results (unaudited)

 

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

 

2020 Financial Highlights

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

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

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

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

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

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

 

2020 Operational Highlights

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

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

·      Operational downtime remained low at less than 2%.

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

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

 

2020 Governance Highlights

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

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

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

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

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

·      Tim Summers resigned as Executive Chairman in November 2020.

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

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

 

 

COVID-19

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

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

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

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

 

Material Uncertainty Statement

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

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

 

2021 Highlights and Outlook

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

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

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

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

 

 

Mansour Al Alami, Executive Chairman said:

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

 

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

 

 

    

Enquiries

 

For further information please contact:

 

Gulf Marine Services PLC

Mansour Al Alami Executive Chairman

Tony Hunter Company Secretary

Tel: +44 (0) 207 603 1515

 

Celicourt Communications Mark Antelme Philip Dennis

Tel: +44 (0)20 8434 2643

 

Notes to Editors:
 

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

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

 

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

Evolution Cantilever Capability

 

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

Electrical Submersible Pump (ESP) change out

Plug and abandonment:

Re-completion

Side-tracks

Slot Recovery

Work Overs

Coil Tubing

 

And the benefits include:
 

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

No requirement to hire tugs to assist with drilling rig moves

 

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

www.gmsuae.com
 

Disclaimer

 

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

 

Cautionary Statement
 

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

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

 

Chairman's Review

 

New debt arrangements provide a strong platform for future growth

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

 

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

 

 

Capital Structure and Liquidity

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

 

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

 

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

 

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

 

Governance

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

 

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

 

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

 

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

 

Group performance

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

 

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

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

 

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

 

Commercial and Operations

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

Environment and Safety

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

 

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

 

Outlook

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

 

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

 

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

 

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

 

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

 

 

Mansour Al Alami

Executive Chairman

 

 

 

Financial Review

	2020 US$m	2019 US$m
Revenue	102.5	108.7
Gross loss	(55.5)	(25.0)
Adjusted EBITDA1	50.4	51.4
Asset impairment	(87.2)	(59.1)
Loss for the year	(124.3)	(85.5)
Adjusted loss6	(17.3)	(20.0)
Net cash flow before debt service7	31.9	41.9

 

Introduction

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

COVID-19

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

 

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

 

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

 

Revenue and segmental profit/loss

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

 

Vessel Class	Revenue                 (US$ '000)		Gross Profit/(Loss)               (US$ '000)		Adjusted Gross Profit/(Loss)          (US$ '000)*
	2020	2019	2020	2019	2020	2019
E-Class	29,407	35,984	(26,047)	(51,826)	(22)	2,737
S-Class	32,136	35,422	15,797	14,617	15,797	17,462
K-Class	40,947	37,313	(45,076)	14,449	16,055	14,449
Other	2	2	(202)	(2,214)	(202)	(497)
Total	102,492	108,721	(55,528)	(24,974)	31,628	34,151

*See Glossary and note 10 of the consolidated financial statements

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

Cost of sales, impairment  and administrative expenses

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

 

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

 

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

 

Adjusted EBITDA

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

 

Finance costs, foreign exchange and disposal of assets

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

 

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

 

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

 

Taxation

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

 

Earnings 

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

 

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

 

Capital expenditure

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

 

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

 

Cash flow and liquidity

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

 

Balance sheet

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

 

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

 

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

 

Net bank debt and borrowings

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

 

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

 

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

 

Going Concern

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

 

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

 

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

 

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

 

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

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

 

Related party transactions

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

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

 

Adjusting items

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

 

Andy Robertson

Chief Financial Officer

14 May 2021

 

 

 

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

 

	Notes		2020		2019
			US$'000		US$'000
Revenue	13		102,492		108,721
Cost of sales			(70,864)		(74,570)
Impairment	6		(87,156)		(59,125)
Gross loss			(55,528)		(24,974)
Restructuring costs	14		(2,492)		(6,322)
Exceptional legal costs	15		(3,092)		-
Other general and administrative expenses			(12,632)		(17,788)
General and administrative expenses			(18,216)		(24,110)
Operating loss			(73,744)		(49,084)
Finance income			15		16
Finance expense			(46,740)		(32,063)
Other income			257		529
(Loss)/gain on disposal of property, plant and equipment			(2,073)		14
Gain on disposal of fixed assets held for sale			259		-
Foreign exchange loss, net			(993)		(1,181)
Loss for the year before taxation			(125,019)		(81,769)
Taxation charge for the year			(1,285)		(3,696)
Loss for the year			(124,304)		(85,465)
Other comprehensive expense - items that may be reclassified to profit or loss:
Net gain/(loss) on changes in fair value of hedging instruments			21		(1,261)
Net hedging gain/(loss) reclassified to the profit or loss			883		(241)
Exchange differences on translating foreign operations			425		164
Total comprehensive loss for the year			(122,975)		(86,803)
(Loss)/profit attributable to:
Owners of the Company			(124,339)		(85,778)
Non-controlling interests			35		313
			(124,304)		(85,465)
Total comprehensive (loss)/profit attributable to:
Owners of the Company			(123,010)		(87,116)
Non-controlling interests			35		313
			(122,975)		(86,803)
Loss per share:
Basic (cents per share)			(35.48)		(24.48)
Diluted (cents per share)			(35.48)		(24.48)

All results are derived from continuing operations in each year.