REG - Gulf Marine Services - Half-year Report
RNS Number : 8646OGulf Marine Services PLC13 October 202113 October 2021
Gulf Marine Services PLC
('Gulf Marine Services', 'GMS', 'the Company' or 'the Group')
Interim results for the six months ended 30 June 2021
GMS, a leading provider of advanced self-propelled, self-elevating support vessels serving the offshore oil, gas and renewables industries, is pleased to announce its Interim Results for the six months ended 30 June 2021 (H1 2021).
Financial Overview
H1 2021
H1 2020 Restated (Refer to note 3)
H1 2020 as previously reported
US$ m
US$ m
US$ m
Revenue
51.4
49.8
49.8
Gross profit
16.4
14.4
14.4
General and Administrative Expenses
4.9
6.6
6.6
EBITDA1
26.5
22.9
22.9
Profit/(Loss) for the period after tax
2.0
(25.9)
(6.7)
Adjusted net profit/(loss) for the period1
3.7
(7.9)
1.8
H1 Highlights
· EBITDA forecast for 2021 set at US$ 63-67 million
o Secured utilisation of 92% for H2 supporting FY 21 EBITDA forecast
· H1 revenue increased 3% to US$ 51.4 million (H1 2020: US$ 49.8 million), reflecting:
o broadly flat utilisation and average day rates on established contracts, combined with additional revenue from a manpower services contract associated with an existing charter
· H1 EBITDA increased by 16% to US$ 26.5 million (H1 2020: US$ 22.9 million)
o EBITDA margin1 increasing to 52% (H1 2020: 46%), reflecting cost savings, despite COVID
· Annualised total cost saving increased to US$ 21 million, since 1 January 2020
· G&A administrative expenses reduced to US$ 4.9million (H1 2020: US$ 6.6million)
· Significant reduction in interest costs in 2021 / 22 through new bank deal
· Net debt1 reduction supported by successful US$ 27.8m equity raise in June 2021
· First reported profit since 2016 at US$ 2.0 million (H1 2020: Net Loss US$ 25.9 million)
· Technical downtime of 2% in vessels under contract in H1
1 This represents an Adjusted Performance Measure (APM) as defined in the Glossary which is included in Note 20 to the Financial Statements.
Outlook
· Contract awards announced in 2021, with a combined total charter period of 3.4 years
· Secured backlog is US$ 215.4 million as at 30 June 2021, (H1 2020 US$ 238.6 million)
· Strong pipeline of long-term contracts currently being tendered
Mansour Al Alami, Executive Chairman, GMS said:
"This solid performance in the first half, combined with higher rates of utilisation already secured for the second half, give us confidence that GMS will meet its full year EDITDA guidance. The first half performance is a reflection of legacy contracts. As we progress into the second half of the year and beyond, these contracts will increasingly unwind and we will realise the benefits of improved day rates achieved on more recently awarded contracts that better reflect the improved market conditions. This, combined with our continued focus on operational efficiency, on costs and the benefits of the new debt deal and equity raise, is expected to drive an improved performance in the second half and beyond and support the accelerated deleveraging of the company's balance sheet."
This announcement contains inside information and is provided in accordance with the requirements of Article 17 of the EU Market Abuse Regulation.
Andy Robertson
Chief Financial Officer
Gulf Marine Services PLC
13 October 2021
Enquiries:
Gulf Marine Services PLCMansour Al Alami
Executive Chairman
Tel: +44 (0)20 7603 1515
Celicourt Communications
Mark Antelme
Philip Dennis
Tel: +44 (0) 208 434 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.
Gulf Marine Services PLC's Legal Entity Identifier is 213800IGS2QE89SAJF77
www.gmsplc.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.
Chairman's Review
On the road to recovery
It was an exceptionally busy start to 2021 for GMS. We concluded a new bank deal in March which lead us straight into a successful equity raise during the second quarter. These two actions position the company well for the future where we expect improved market conditions to support an accelerated deleveraging of the company's balance sheet.
Despite some operational challenges, as a result of quarantine requirements and border closures restricting the movement of crew on our vessels, I am pleased to report that the company did not suffer any off-hire time as a result of the COVID-19 pandemic in the period. Extended periods of quarantine, particularly in the UAE, our largest market, did result in some additional costs being incurred as well as prolonging mobilisations time for vessels going onto new contracts. As restrictions now begin to ease, we anticipate these costs reducing going forward and discussions are ongoing with our clients around recovery of some of the additional costs incurred.
Group performance
EBITDA was 16% higher than the same period last year. This was driven by utilisation and day rates remaining broadly flat, combined with additional contract revenue relating to an existing charter for a K Class vessel and a reduction in General and Admin expenses, through cost saving initiatives.
Revenue increased to US$ 51.4 million, (H1 2021: US$ 49.8 million), mainly from an increase in income from a manpower contract linked to a K-Class vessel charter.
We anticipate a significant improvement to EBITDA in the second half of the year. This is underpinned by secured utilisation, at 92% for the second half of 2021, which brings overall secured utilisation for the year to 85%.
We also anticipate an improvement in day-rates going forward, with all vessels currently on hire and a strong pipeline of opportunities. This view is supported by two long-term contracts awarded in the period for our E-Class vessels, where average day rates were 40% or more than previous contracts.
GMS continued to benefit from cost savings implemented in the last twelve months, through our cost reduction programme. This helped mitigate an increase in costs as a result of quarantine requirements and border restrictions in the period.
Our general and administration expenses were 26% lower than the same period last year and the Company has now right sized its organisation to support its business going forward.
GMS reported a profit for the first time since 2016 at US$ 2.0 million (H1 2020: Net Loss US$ 25.9 million). This is the result of increased EBITDA and reduced finance expenses.
We secured 7 new contracts in the period with a combined value of US$ 46.4 million and our orderbook at 30 June stands at US$ 215.4 million.
Governance
We continued to strengthen the board in the year to date with the appointment of three new Non-Executive directors. This includes the appointment of two Independent Non-Executive Directors, Jyrki Koskelo and Lord Anthony St John of Bletso, as well as Charbel El Khoury, who is a representative of our second largest shareholder, Mazrui Investments LLC. We continue to identify further candidates for additional board positions going forward.
Outlook
The improvement in the Company's secured utilisation for the remainder of 2021 coupled with an overall improvement in utilisation being experienced within the wider market is leading to a reduction in the oversupply of vessels that we have seen in recent times. We believe that this positions us well to benefit from an improvement on day rates, as contracts from our strong pipeline of current tender opportunities are awarded.
Market demand is being supported by commodity prices, driving renewed interest in capex work, combined with maintenance activity. It is also being driven by windfarm installation and maintenance, particularly in China, which is drawing capacity away from regional markets, including our own. In the Middle East, there appears to be no new capacity coming into the market, with supply constraints being driven by legacy issues resulting from the downturn in the commodity cycle, which we are now coming out of.
The high level of revenue already secured for the remainder of 2021 is expected to drive a significant improvement from our H1 2021 EBITDA and our Full Year EBITDA guidance is set at US$ [63-67] million.
Financial Review
H1 2021
H1 2020 Restated
(Refer to Note 3)
H1 2020 as previously reported
US$ m
US$ m
US$ m
Revenue
51.4
49.8
49.8
Gross profit
16.4
14.4
14.4
General and Administrative Expenses
4.9
6.6
6.6
EBITDA1
26.5
22.9
22.9
Profit/(Loss) for the period after tax
2.0
(25.9)
(6.7)
Adjusted net profit/(loss) for the period1
3.7
(7.9)
1.8
Restatement of H1 2020 results
As previously reported in the Group's 2020 annual report, during the second half of 2020, the Group identified certain adjustments impacting the H1 2020 reported results. The comparatives for H1 2020 have been restated to reflect these adjustments. Details and the impact of these adjustments are included in Note 3 of the Condensed Consolidated Financial Statements. On the face of the Statement of comprehensive income there were no adjustments which impacted operating profit, however adjustments were made to finance expenses relating to the judgements made at the time of signing the June 2020 renegotiated bank terms. The adjustments increased the loss for the period after tax to US$ 25.9 million.
Summary
EBITDA increased by 16% to US$ 26.5 million, (H1 2020: US$ 22.9 million), with the EBITDA margin increasing to 52% (H1 2020: 46%). The increase to EBITDA comprises a 3% increase in revenue, a 1% reduction in operating expenses and a 26% reduction in general and administrative costs.
Revenue increased to US$ 51.4 million, (H1 2021: US$ 49.8 million), mainly due to an increase in income from a manpower contract linked to a K-Class vessel charter. Otherwise, fleet utilisation and day rates remained broadly flat in comparison with H1 2020 levels.
Utilisation in the first half remained stable at 77% (H1 2020: 78%). This was due to a 1% increase in E-Class utilisation, combined with a 3% increase in S-Class utilisation, which were both offset by a 4% decrease in K-Class utilisation. Border restrictions and quarantine requirements for crew delayed the mobilisation of certain vessels onto new contracts impacting utilisation in the period. All vessels in the fleet were under contract from August 2021. Secured utilisation for the second half of 2021 currently stands at 92%, leading to a forecast utilisation of 85% for the full year, driving an expected further improvement to EBITDA in the second half.
1 This represents an Adjusted Performance Measure (APM) as defined in the Glossary which is included in Note 20 to the Financial Statements.
Average day rates were US$ 25,474 for the period (H1 2020 US$ 25,638), with improved day rates secured following recent awards offsetting the continuing impact into 2021 of lower day rates contracted in 2020. As these legacy contracts end, improved rates will be realised from recent awards to further support an improvement to EBITDA in the second half of 2021.
Cost of Sales remained fairly flat at US$ 35.0 million (H1 2020: US$ 35.4 million). Extended periods of quarantine introduced during 2021 by our clients in the United Arab Emirates resulted in an increase to crew costs during the period, whereas H1 2020 included certain vessel relocation costs.
General and Administration expenses reduced by 26% to US$ 4.9 million (H1 2020: US$ 6.6 million). mainly as a result of headcount reductions over the last year as the Company right sized the organisation.
Net profit for the period was US$ 2.0 million (H1 2020: Net Loss US$ 25.9 million). This is the first reported profit by the company since 2016 and is the result of increased EBITDA, reduced finance expenses and reduced borrowing rates, offset by a foreign exchange loss of US$ 0.7 million (H1 2020: Gain US$ 0.2 million). Finance expenses reduced to US$ 8.0 million (H1 2020: US$ 33.3 million), reflecting revised banking terms following extinguishment of prior debt facilities, in both June 2020 and March 2021. We have therefore adjusted net profit to exclude the impact of them, resulting in the adjusted net profit of US$ 3.7 million (H1 2020 loss: US$ 7.9 million).
Improved terms to the Group's bank facilities were agreed on 31 March 2021. Under the terms of the new agreement there was a 40% reduction in margin payable in 2021 and 2022, with cash savings being used to accelerate the repayment of the outstanding principal amount. The new terms also deferred the application of Payment-in-Kind (PIK) interest, which under the previous bank deal was required to be charged from 2021 onwards. In addition, more time was granted to the company to raise equity across two tranches. The Company successfully met the equity raise requirement of US$ 25million for the first tranche in June 2021 and has until the end of 2022 to raise a further US$ 50 million to prevent the requirement to issue warrants1, representing 20% of the equity of the Company, vesting. The Group is also currently assessing if secondary alternatives to the equity raise exist to prevent the issuing of warrants if the second tranche of equity is not placed by the end of 2022. This initiative is supported by the opportunity to significantly reduce leverage levels, through improvements in underlying trading results driven by the positive outlook.
Improved trading performance has resulted in cash generated from operating activities of US$ 22.1 million (H1 2020: US$ 18.7 million). However, the net cash flow before debt service reduced to US$ 13.3 million (H1 2020: US$ 15.5 million) following an increase in capital expenditure, due to required upgrades on vessels entering new contracts.
COVID-19
Whilst the company did not suffer any off hire time during the period as a result of COVID-19. The Company did present some logistical challenges around the movement of crew due to border restrictions and increased quarantine requirements. The Company is in dialogue with certain clients around the recovery of these additional costs.
The awards of a number of tenders for long term contracts were delayed in 2020 as clients assessed the impact of COVID-19 on their operations. Whilst no awards have been made to date, these opportunities are still live and we anticipate the majority of awards will be made in the second half of 2021 with contracts commencing in 2022.
Revenue and segmental profit
The table below shows the contribution to revenue and segment gross profit or loss made by each vessel class during the period.
(US$'000)
Vessel Class
Revenue
Segmented gross profit/(loss)
H1 2021
H1 2020
H1 2021
H1 2020
E-Class vessels
15,000
13,186
1,821
(3,308)
S-Class vessels
16,168
16,200
7,174
8,160
K-Class vessels
20,225
20,407
7,449
9,627
Sundry rental income
-
1
(58)
(123)
Total
51,393
49,794
16,386
14,356
Revenue in H1 2021 was US$ 51.4 million (H1 2020: US$ 49.8 million) with utilisation and day rates remaining broadly flat
E-Class utilisation increased following the commencement in January 2021 of a new contract for GMS Evolution, whereas in H1 2020 two E-Class vessels were unavailable for a period of time as they relocated to MENA. S-Class utilisation increased from 92% to 95%, with all three vessels remaining under contract from 2020. Although K-Class utilisation reduced to 82% (H1 2020 86%), five of the six K-Class vessels were fully contracted in the period and the sixth has recently commenced a new contract.
Day rates on E- and K-Class remained broadly unchanged although we have seen an increase in E Class rates on more recent long term contract awards. S-Class day rates dropped 4% as a result of a discounted day rate offered on a contract extension during the second half of 2020.
Cost of sales and general and administrative expenses
Cost of sales were US$ 35.0 million (H1 2020: US$ 35.4 million). H1 2021 saw higher crew costs due to extended periods of quarantine introduced by clients in the United Arab Emirates, and a full period of costs, relating to the Manpower contract linked to a K-Class vessel charter which commenced in March 2020, whereas H1 2020 included one-off costs associated with mobilising two vessels to MENA.
General and Administration expenses reduced by 26% to US$ 4.9 million (H1 2020: US$ 6.6 million) mainly as a result of headcount reductions over the last year as the Company right-sized the organisation.
Other costs
Finance expenses in the period were US$ 8.0 million (H1 2020: US$ 33.3 million). Interest costs on borrowings reduced to US$ 11.4 million (H1 2020 US$ 13.5 million), following the renegotiation of the Company's debt facilities and lower Libor rates. Lower Libor rates also impacted the interest rate swap the Company has entered resulting in a net gain in the period of US$ 0.5 million (H1 2020: Loss US$ 1.6 million). Finance expenses also reduced compared to the prior period due to the lower costs to acquire the new bank facility in March 2021 of US$ 3.2 million compared to costs to acquire the previous bank facility in June 2020 of US$ 15.8 million.
A net foreign exchange loss of US$ 0.7 million in H1 2021 (H1 2020: Gain of US$ 0.2 million) arose from movements in exchange rates of the Pound Sterling against the US Dollar.
Tax expense remained flat at US$ 0.9 million (H1 2020: US$ 0.9 million) with almost the same mix of revenue per region as the prior period.
Cash flow and liquidity
The Group's net cash generated from operating activities increased to US$ 22.1 million (H1 2020: US$ 18.7 million). The net cash outflow from investing activities for H1 2021 increased to US$ 8.9 million (H1 2020: US$ 3.1 million) resulting from costs required to maintain the vessel classification and investment in upgrades for vessels entering new contracts.
The Group's net cash flow from financing activities during the period was an outflow of US$ 7.8 million (H1 2020: US$ 17.3 million) mainly comprising repayments to the bank of US$ 24.5 million and an interest charge of US$ 6.8 million, offset by proceeds from shares following the equity raise of US$ 27.8 million.
Balance sheet
Total current assets at 30 June 2021 were US$ 41.1 million (31 December 2020: US$ 35.6 million). This mainly reflects an increase to cash and cash equivalents of US$ 5.5 million. Total current liabilities reduced to US$ 45.7 million (31 December 2020: US$ 61.0 million) primarily as a result of the Group's working capital facility (US$ 21.5 million) now being recognised as a non-current liability as it is available for utilisation until the end of the term debt facility.
Total non-current assets at 30 June 2021 were US$ 612.6 million (31 December 2020: US$ 618.8 million) as a result of a depreciation and amortisation charges in the period of US$ 15.0 million, offset by capital expenditure of US$ 8.9 million for class surveys and upgrade requirements for new contracts. Total non-current liabilities reduced to US$ 374.6 million (31 December 2020: US$ 386.6 million) following the repayment of US$ 20.0 million from the equity raise proceeds against the debt facility and other accelerated payments following the revised debt terms. Both of these were offset by US$ 21.5 million of the working capital facility now being recognised as a non-current liability.
Total equity increased to US$ 233.5 million (31 December 2020: US$ 206.9 million), attributable to the issuance of new equity and movement in retained earnings during the period.
Going concern
The successful issuance of equity by 30 June 2021 removed a potential event of default on the Group's bank facilities which in turn removed the material uncertainty as to the Group's ability to continue as a going concern that was reported in the full year 2020 results.
The Group's forecasts indicate that its revised debt facility will provide sufficient liquidity for its requirements for at least the next twelve months and accordingly the condensed consolidated financial statements for the Group for the current period have been prepared on the Going Concern basis. For further details please refer to the Going Concern disclosure within the financial statements.
Related party transactions
During the period there were related party transactions with our Joint Venture partner in Saudi Arabia for the provision of safety equipment on some of our vessels and office space totalling US$ 0.3 million (H1 2020: US$ 0.3 million).
Adjusting items
The Group uses Adjusted net profit/(loss), which represents the net profit/(loss) after adding back impairment charges and the cost of renegotiating the bank terms on 31 March 2021. This measure provides additional information in assessing the Group's total performance that management is more directly able to influence, and on a comparable basis year on year. A reconciliation of this measure is provided in Note 5 of these results.
A reconciliation between the adjusted non-GAAP and statutory results is provided in Note 5.
Risks and uncertainties
There are a number of risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of 2021. The financial risks have been updated to reflect the successful completion of the amendment to the Group's debt and equity structure. Otherwise, the Directors do not consider that principal risks and uncertainties have materially changed since the last publication of the Annual Report for the year ended 31 December 2020. A detailed explanation of the risks summarised below, and how the Group seeks to mitigate the risks, can be found on pages 21 to 25 of the 2020 annual report which is available at www.gmsuae.com.
· Financial - A continuing low share price may prevent GMS from raising sufficient levels of equity to recapitalise the business.
· Strategic - Failure to secure contracts prevents GMS from deleveraging.
· People - Losing skills or failing to attract new talent to our business has the potential to undermine performance.
· Commercial - The Group relies on a limited number of blue-chip clients that may expose it to losses if these relationships breakdown. MENA NOCs have introduced local content requirements as part of their tender processes designed to giving preference to suppliers that commit to improving their local content and levels of spend which may prevent GMS from winning contracts. There is a risk that the Group's fleet capabilities no longer match with changing client requirements. Failure to deliver the specifications and expected performance could lead to reputational damage and impact our ability to win work.
· Compliance and Regulation - The Group has to appropriately identify and comply with laws and regulations and other regulatory statutes.
· Health, Safety, Security, Environment and Quality - The Group's operations have an inherent safety risk due to our offshore operations.
· Operational - Changes in political landscapes could adversely affect operations. The Group is at risk of loss through financial cybercrime.
· COVID-19 - There is a health and safety risk to staff, both onshore and offshore, who come in contact with confirmed cases. Offshore staff may be unable to board or leave Group vessels, given restrictions on movement placed by the countries in which we operate. Onshore staff may be unable to work as normal due to mandatory health and safety restrictions, placed by Government, including quarantine and travel restrictions. Disruption might be caused to the supply chain, caused by the impact of COVID-19 on our suppliers' operations. The impact of COVID-19 and the resultant adverse impact on oil prices, on our Clients' financial position might lead to loss of new business development opportunities, the re-negotiation of existing contracts, or failure of clients to pay on time.
RESPONSIBILITY STATEMENT
Financial information for the period ended 30 June 2021.
We confirm to the best of our knowledge:
a) the condensed set of financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of Gulf Marine Services plc and its undertakings, included in the consolidation as a whole as required by DTR 4.2.4R;
b) the interim management report includes a fair review of the information required by DTR 4.2.7R; and
c) the interim management report includes a fair review of the information required by DTR 4.2.8R.
By order of the Board
Mansour Al Alami Andy Robertson
Executive Chairman Chief Financial Officer
13 October 2021 13 October 2021
INDEPENDENT REVIEW REPORT TO GULF MARINE SERVICES PLC
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and related notes 1 to 20. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group will be prepared in accordance with United Kingdom adopted International Financial Reporting Standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with United Kingdom adopted International Accounting Standard 34, "Interim Financial Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 is not prepared, in all material respects, in accordance with United Kingdom adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
13 October 2021
GULF MARINE SERVICES PLC
Condensed Consolidated Statement of Comprehensive Income
for the period ended 30 June 2021
Six months period ended 30 June
Year ended
31 December
2021
Restated* 2020
2020
US$'000
US$'000
US$'000
Notes
(Unaudited)
(Unaudited)
(Audited)
Revenue
4
51,393
49,794
102,492
Cost of sales
(35,007)
(35,438)
(70,864)
Impairment charge
9
-
-
(87,156)
Gross profit/(loss)
16,386
14,356
(55,528)
Restructuring costs
-
(330)
(2,492)
Exceptional legal costs
-
(1,375)
(3,092)
Other general and administrative expenses
(4,883)
(4,944)
(12,632)
General and administrative expenses
(4,883)
(6,649)
(18,216)
Operating profit/(loss)
11,503
7,707
(73,744)
Finance income
6
7
15
Finance expenses
8
(7,986)
(33,260)
(46,740)
Other income
20
29
257
Loss on disposal of property, plant and equipment
-
(7)
(2,073)
Gain on disposal of assets held for sale
-
328
259
Foreign exchange (loss)/gain, net
(698)
183
(993)
Profit/(loss) for the period/year before taxation
2,845
(25,013)
(123,019)
Taxation charge for the period/year
6
(851)
(858)
(1,285)
Profit/(loss) for the period/year
1,994
(25,871)
(124,304)
Other comprehensive income/(loss) - items that may be reclassified to profit or loss:
Net gain on changes in fair value of hedging instruments
-
21
21
Net hedging gain/(loss) reclassified to the profit or loss
139
297
883
Exchange differences on translating foreign operations
89
(392)
425
Total comprehensive profit/(loss) for the period/year
2,222
(25,945)
(122,975)
Profit/(loss) attributable to:
Owners of the Company
1,882
(25,859)
(124,339)
Non-controlling interests
112
(12)
35
1,994
(25,871)
(124,304)
Total comprehensive income/(loss) attributable to:
Owners of the Company
2,110
(25,933)
(123,010)
Non-controlling interests
112
(12)
35
2,222
(25,945)
(122,975)
Earnings/(Loss) per share
Basic (cents per share)
7
0.52
(7.38)
(35.58)
Diluted (cents per share)
7
0.51
(7.38)
(35.58)
Results in each period/year are derived from continuing operations.
The accompanying notes form an integral part of these condensed consolidated financial statements.
*Details of prior period restatements can be found in Note 3
GULF MARINE SERVICES PLC
Condensed Consolidated Balance Sheet
as at 30 June 2021
30 June
31 December
Notes
2021
2020
US$'000
US$'000
ASSETS
Non-current assets
Property, plant and equipment
9
599,843
605,077
Right-of-use assets
2,642
3,340
Dry docking expenditure
10,142
10,391
612,627
618,808
Total non-current assets
Current assets
Trade and other receivables
10
31,813
31,834
Cash and cash equivalents
9,263
3,798
Total current assets
41,076
35,632
Total assets
653,703
654,440
EQUITY AND LIABILITIES
Capital and reserves
Share capital - Ordinary
11
30,117
58,057
Share capital - Deferred
11
46,445
-
Share premium account
99,105
93,080
Restricted reserve
272
272
Group restructuring reserve
(49,710)
(49,710)
Share based payment reserve
3,613
3,740
Capital contribution
9,177
9,177
Cash flow hedge reserve
(697)
(836)
Translation reserve
(1,906)
(1,995)
Retained earnings
95,267
93,385
Attributable to the Owners of the Company
231,683
205,170
Non-controlling interests
1,806
1,694
Total equity
233,489
206,864
Current liabilities
Trade and other payables
21,666
23,370
Current tax liability
5,214
4,811
Bank borrowings - scheduled repayments within one year
12
17,539
31,049
Lease liabilities
1,232
1,739
Total current liabilities
45,651
60,969
Non-current liabilities
Provision for employees' end of service benefits
2,185
2,190
Bank borrowings - scheduled repayments after more than one year
12
368,477
379,009
Lease liabilities
1,410
1,572
Derivative financial instruments
13
2,491
3,836
Total non-current liabilities
374,563
386,607
Total liabilities
420,214
447,576
Total equity and liabilities
653,703
654,440
The accompanying notes form an integral part of these condensed consolidated financial statements.
GULF MARINE SERVICES PLC
Condensed Consolidated Statement of Changes in Equity
For the period ended 30 June 2021
Share capital - Ordinary
Share premium account
Restricted
reserve
Group restructuring reserve
Share based payment reserve
Capital contribution
Cash flow hedge reserve
Cost of hedging reserve
Translation
reserve
Share capital - Deferred
Retained
earnings
Attributable to the owners of the Company
Non- controlling interests
Total
equity
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
As at 1 January 2021
58,057
93,080
272
(49,710)
3,740
9,177
(836)
-
(1,995)
-
93,385
205,170
1,694
206,864
Capital reorganisation (Note 11)
(46,445)
-
-
-
-
-
-
-
-
46,445
-
-
-
-
Issue of share capital (Note 11)
18,505
9,253
-
-
-
-
-
-
-
-
-
27,758
-
27,758
Share issue costs (Note 11)
-
(3,228)
-
-
-
-
-
-
-
-
-
(3,228)
-
(3,228)
Profit for the period
-
-
-
-
-
-
-
-
-
-
1,882
1,882
112
1,994
Net hedging gain on interest hedges reclassified to the profit or loss
-
-
-
-
-
-
139
-
-
-
-
139
-
139
Share based payment charge
-
-
-
-
(53)
-
-
-
-
-
-
(53)
-
(53)
Cash settlement of LTIPs
-
-
-
-
(74)
-
-
-
-
-
-
(74)
-
(74)
Exchange differences on foreign operations
-
-
-
-
-
-
-
-
89
-
-
89
-
89
As at 30 June 2021
30,117
99,105
272
(49,710)
3,613
9,177
(697)
-
(1,906)
46,445
95,267
231,683
1,806
233,489
As at 1 January 2020
58,057
93,080
272
(49,710)
3,572
9,177
520
(2,260)
(2,420)
-
217,724
328,012
1,659
329,671
Loss for the year
-
-
-
-
-
-
-
-
-
-
(25,859)
(25,859)
(12)
(25,871)
Gain on fair value changes of hedging instruments
-
-
-
-
-
-
-
21
-
-
-
21
-
21
Net hedging gain/(loss) on interest hedges reclassified to the profit or loss
-
-
-
-
-
-
315
(18)
-
-
-
297
-
297
Gain/loss on currency hedges reclassified to profit or loss
-
-
-
-
-
-
(2,257)
2,257
-
-
-
-
-
−
Exchange differences on foreign operations
-
-
-
-
-
-
-
-
(392)
-
-
(392)
-
(392)
Share based payment charge
-
-
-
-
(11)
-
-
-
-
-
-
(11)
-
(11)
As at 30 June 2020
58,057
93,080
272
(49,710)
3,561
9,177
(1,422)
-
(2,812)
-
191,865
302,068
1,647
303,715
The accompanying notes form an integral part of these condensed consolidated financial statements.
GULF MARINE SERVICES PLC
Condensed Consolidated Statement of Cash Flows
for the period ended 30 June 2021
Six month period ended 30 JuneYear ended
31 December
2021
Restated* 2020
2020
US$'000
US$'000
US$'000
Net cash generated from operating activities (Note 14)
22,114
18,674
44,268
Investing activities
Payments for property, plant and equipment
(6,130)
(1,273)
(5,623)
Proceeds from disposal of property, plant and equipment
-
173
299
Proceeds from disposal of assets held for sale
-
628
559
Dry docking expenditure incurred
(2,740)
(2,663)
(7,600)
Interest received
6
7
15
Net cash used in investing activities
(8,864)
(3,128)
(12,350)
Financing activities
Bank borrowings received
2,000
38,250
21,500
Repayment of bank borrowings
(24,492)
(27,326)
(12,075)
Proceeds from issue of shares
27,758
-
-
Share issue costs paid
(1,431)
-
-
Principal elements of lease payments
(1,087)
(782)
(1,871)
Cash settlement of LTIPs
(74)
-
-
Payment of issue costs on borrowings
(3,170)
(10,274)
(14,449)
Settlement of derivatives
(537)
(298)
(883)
Dividends paid
-
-
(650)
Interest paid
(6,752)
(16,890)
(28,096)
Net cash used in financing activities
(7,785)
(17,320)
(36,524)
Net increase/(decrease) in cash and cash equivalents
5,465
(1,774)
(4,606)
Cash and cash equivalents at the beginning of the period/year
3,798
8,404
8,404
Cash and cash equivalents at the end of the period/year
9,263
6,630
3,798
The accompanying notes form an integral part of these condensed consolidated financial statements.
*Details of prior period restatements can be found in Note 3
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021
1 Corporate information
Gulf Marine Services PLC ("GMS" or the "Company") is a Company which is registered and was incorporated in England and Wales on 24 January 2014. The Company is a public limited liability company with operations mainly in the Middle East, North Africa and Europe. The address of the registered office of the Company is 107 Hammersmith Road, London, W14 0QH. The registered number of the Company is 08860816.
The principal activities of GMS and its subsidiaries (together referred to as the "Group") are chartering and operating a fleet of specially designed and built vessels. All information in the notes relate to the Group, not the Company unless otherwise stated.
The Group is engaged in providing self-propelled, self-elevating support vessels (SESVs) that present a stable platform for delivery of a wide range of services throughout the total lifecycle of offshore oil, gas and renewable energy activities, and which are capable of operations in the Middle East and other regions.
The condensed consolidated financial statements of the Group for the six month period ended 30 June 2021 were authorised for issue on 13 October 2021. The condensed consolidated financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The condensed consolidated financial statements have been reviewed, not audited.
The Company issued statutory financial statements for the year ended 31 December 2020 which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Those financial statements were approved by the Board of Directors on 21 May 2021. The report of the auditor on those accounts was unqualified but referred to the Company's disclosures in respect of a material uncertainty relating to going concern. The report of the auditor on those accounts did not contain any statement under section 498(2) or 498(3) of the Companies Act 2006. The information for the year to 31 December 2020 contained in these condensed consolidated accounts has been extracted from the latest published audited financial statements. A copy of the statutory accounts for year ended 31 December 2020 has been delivered to the Registrar of Companies.
2 Significant accounting policies
The accounting policies and methods of computation adopted in the preparation of these condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2020 as disclosed in the Annual Report, except for the adoption of new standards and interpretations effective as of 1 January 2021.
The condensed consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at revalued amounts or fair values at the end of each reporting period. The Group's management considers that the fair value of financial assets, financial liabilities and lease liabilities approximates their carrying amounts.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
2 Significant accounting policies (continued)
Basis of preparation
The annual consolidated financial statements of the Group will be prepared in accordance with United Kingdom adopted International Financial Reporting Standards. The interim set of condensed consolidated financial statements included in this half-yearly financial report has been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with International Accounting Standard (IAS) 34 Interim Financial Reporting as adopted by the United Kingdom.
The condensed consolidated financial statements do not include all the information required for full annual consolidated financial statements and should be read in conjunction with the Group's audited consolidated financial statements for the year ended 31 December 2020. In addition, results for the six month period ended 30 June 2021 are not necessarily indicative of the results that may be expected for the financial year ending 31 December 2020. The condensed consolidated statement of comprehensive income for the six month period ended 30 June 2021 is not affected significantly by seasonality of results.
Going concern
The material uncertainty over going concern that existed when the 31 December 2020 financial statements were approved on 21 May 2021 no longer exists due to the successful issuance of equity in June 2021, which removed the potential event of default on the Group's revised bank facilities, as renegotiated in March 2021.
The Group is expected to continue to generate positive operating cash flows for the foreseeable future and has in place a committed working capital facility of US$ 50.0 million, of which US$ 25.0 million can be utilised to support the issuance of performance bonds and guarantees. The balance can be utilised to draw down cash. US$ 23.5 million of this facility was utilised as at 30 June 2021.
The renegotiation of bank facilities also resulted in a 40% reduction in margin payable in 2021 and 2022, with the surplus cash generated from these savings used to accelerate repayment of the loan principal.
The Group's forecasts, having taken into consideration reasonable risks and downsides, indicate that its revised bank facilities along with sufficient order book of contracted work and a strong pipeline of near-term opportunities for additional work will provide sufficient liquidity for its requirements for at least the next twelve months and accordingly the condensed consolidated financial statements for the Group for the current period have been prepared on the Going Concern basis.
New and amended standards adopted by the Group
The accounting policies and methods of computation adopted in the preparation of these condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2020 as disclosed in the Annual Report, except for the adoption of new standards and interpretations effective as of 1 January 2021.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
2 Significant accounting policies (continued)
New and amended standards adopted by the Group (continued)
The following new and revised IFRSs have been adopted in these condensed consolidated financial statements.
· Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
· COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)
The application of these new and revised IFRSs has not had any material impact on the amounts reported for the current and prior periods and did not require any retrospective adjustments but may affect the accounting for future transactions or arrangements. The full revised accounting policies applicable from 1 January 2021 will be provided in the Group's annual financial statements for the year ending 31 December 2021.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
3 Prior year restatements
As part of preparing the financial statements for the year ended 31 December 2020, the Group identified a number of errors in the already published results for the 6 months ended 30 June 2020. These errors related to management reassessing the accounting treatment for certain transactions that were subsequently fully reflected in the 2020 year end accounts. Details and the impact of these adjustments are shown below:
Impact to the Condensed Consolidated Statement of Comprehensive Income
6 months ended 30 June 2020
Adjustment 1
Adjustment 2
Adjustment 3
6 months ended 30 June 2020
US$'000
US$'000
US$'000
US$'000
US$'000
As reported
Restated
Revenue
49,794
-
-
-
49,794
Cost of sales
(35,438)
-
-
-
(35,438)
Gross profit
14,356
-
-
-
14,356
Restructuring costs
(330)
-
-
-
(330)
Exceptional legal costs
(1,375)
-
-
-
(1,375)
Other general and administrative expenses
(4,944)
-
-
-
(4,944)
Operating profit
7,707
-
-
-
7,707
Finance income
7
-
-
-
7
Finance expenses
(14,072)
(16,245)
(1,386)
(1,557)
(33,260)
Other income
29
-
-
-
29
Loss on disposal of property, plant and equipment
(7)
-
-
-
(7)
Gain on disposal of assets held for sale
328
-
-
-
328
Foreign exchange gain, net
183
-
-
-
183
Loss for the period before taxation
(5,825)
(16,245)
(1,386)
(1,557)
(25,013)
Taxation charge for the period
(858)
-
-
-
(858)
Loss for the period
(6,683)
(16,245)
(1,386)
(1,557)
(25,871)
Loss per share
Basic (Cents per share)
(1.90)
(4.64)
(0.40)
(0.44)
(7.38)
Diluted (Cents per share)
(1.90)
(4.64)
(0.40)
(0.44)
(7.38)
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
3 Prior year restatements (continued)
Impact to the Condensed Consolidated balance sheet
6 months ended 30 June 2020
Adjustment 1
Adjustment 2
Adjustment 3
6 months ended 30 June 2020
US$'000
US$'000
US$'000
US$'000
US$'000
As reported
Restated
TOTAL ASSETS
752,640
-
-
-
752,640
EQUITY AND LIABILITIES
Capital and reserves
Share capital
58,057
-
-
-
58,057
Share premium account
93,080
-
-
-
93,080
Cash flow hedge reserve
(2,979)
-
1,557
(1,422)
Other reserves
(39,512)
-
-
(39,512)
Retained earnings
211,053
(16,245)
(1,386)
(1,557)
191,865
Attributable to the Owners of the Company
319,699
(16,245)
(1,386)
-
302,068
Non-controlling interests
1,647
-
-
1,647
321,436
(16,245)
(1,386)
-
303,715
Bank borrowings
385,904
15,160
-
-
401,064
Lease liabilities
1,296
-
-
-
1,296
Provision for employees' end of service benefits
2,322
-
-
-
2,322
Derivative financial instruments
-
-
1,386
2,979
4,365
Total non-current liabilities
389,522
15,160
1,386
2,979
409,047
Current liabilities
Trade and other payables
24,593
578
-
-
25,171
Current tax liability
4,487
-
-
-
4,487
Lease liabilities
1,220
-
-
-
1,220
Bank borrowings
8,493
507
-
-
9,000
Derivative financial instruments
2,979
-
-
(2,979)
-
Total current liabilities
41,772
1,085
-
-
39,878
Total equity and liabilities
752,640
-
-
-
752,640
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
3 Prior year restatements (continued)
1) Adjustment 1 - Bank Borrowings
On 16 June 2020, the terms of the Group's bank facilities were renegotiated. Under IFRS 9 whenever borrowings are modified a test is required to compare the present value of cashflows under new terms against the original loan terms to determine whether there is a 'substantial modification' (greater than ten per cent difference in the net cashflows between the old and new facility).
When there are contingent cash flows to be considered as part of the 10 per cent test, an accounting policy choice is required to be made when making a judgement on those contingent cash flows. The contingent cash flows were based on the more likely outcome occurring before 31 December 2020 between:
· a US$ 75 million equity raise; or
· warrants to be issued for 20% of the Group's ordinary share capital and Payments in Kind (PIK) interest to be accrued.
The Board at the time of 16 June 2020, made a judgement that raising US$ 75 million equity was the more likely scenario and PIK interest would not apply in future cashflows. The Board, as at signing the 2020 financial statements, believed this was an error in judgement as it failed to take fully into account all relevant conditions existing at the time of signing this agreement. The prior period comparatives for H1 2020 have been restated in these financial statements to reflect the renegotiation of the Group's banking facilities as a substantial modification, and thus correct the error in judgement amounting to US$ 15.1 million.
Additional costs of US$ 0.6 million incurred prior to 30 June 2020, relating to the bank deal have also been accrued.
2) Adjustment 2 - Recognition of embedded derivative
Following the restructuring of debt discussed above, the modified debt terms included a requirement for GMS to issue warrants to its lenders if certain conditions had not been met. During the second half of the year, GMS determined that these terms were separate and distinguishable from the underlying debt terms and met the definition of a derivative to be separated and measured at fair value through profit or loss and therefore the comparatives for H1 2020 have been restated to reflect recognition of an embedded derivative as a non-current liability (Note 13).
3) Adjustment 3 - Interest rate swap derivative and hedging
The Group uses an interest rate swap derivative to hedge volatility in interest rates. This was previously designated into hedge accounting relationships. GMS determined in the second half of 2020 that cashflows of the hedging relationship were not highly probable from 01 January 2020 and the hedge relationship should have been discontinued in 2020. The comparative amounts for H1 2020 in relation to the interest rate swap have been reclassified to a derivative financial instrument recognised at fair value through profit and loss. The fair value movement during the year accordingly was posted through the statement of profit or loss as the hedge relationship was discontinued. The balance in equity reserve will be amortised over the life of the instrument.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
3 Prior year restatements (continued)
3) Adjustment 3 - Interest rate swap derivative and hedging (continued)
Additionally, as the interest rate swap held by the Group is due to be settled after 12 months, the balance has been reclassified to a non-current liability.
Derivative settlements are now also shown separately in financing activities in the condensed consolidated cashflow.
4) Adjustment 4 - Vessel relocation costs
During the second half of 2020 the Board reviewed a judgement in relation to certain costs to transfer vessels to geographical locations previously recorded as exceptional items in the first half of 2020 and therefore excluded in the Adjusted EBITDA calculation (non-statutory total).
The Board concluded that these costs were more appropriately treated as a normal cost of operations as the Group markets its fleet worldwide, therefore the strategic decision to relocate a vessel could recur if a profitable opportunity presented itself. As a result, vessel relocation costs previously excluded from adjusted EBITDA in the H1 2020 comparatives have now been included as follows:
Presentation of adjusted non-GAAP results
Six months ended 30 June 2020 previously reported
Six months ended 30 June 2020 restated
Adjusted
Non-GAAP results
Adjusting
Items
Statutory
total
Adjusted
Non-GAAP resultsAdjusting
items
Statutory
total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Revenue
49,794
-
49,794
49,794
-
49,794
Cost of sales
-Operating expenses
(13,837)
(6,794)
(20,631)
(20,631)
-
(20,631)
Segmented Gross profit
35,957
(6,794)
29,163
29,163
-
29,163
-Depreciation and amortisation
(14,807)
-
(14,807)
(14,807)
-
(14,807)
Gross profit
21,150
(6,794)
14,356
14,356
-
14,356
General and administrative
-Depreciation and amortisation
(404)
-
(404)
(404)
-
(404)
-Other administrative costs
(4,540)
-
(4,540)
(4,540)
-
(4,540)
Restructuring costs
-
(330)
(330)
-
(330)
(330)
Exceptional legal costs
-
(1,375)
(1,375)
-
(1,375)
(1,375)
Operating profit
16,206
(8,499)
7,707
9,412
(1,705)
7,707
Supplementary non-statutory information
Operating profit
16,206
(8,499)
7,707
9,412
(1,705)
7,707
Add: Depreciation and amortisation charges
15,211
-
15,211
15,211
-
15,211
Non-GAAP EBITDA
31,417
(8,499)
22,918
24,623
(1,705)
22,918
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
4 Segment reporting
The segment information provided to the chief operating decision makers for the operating and reportable segments for the period include the following:
Revenue
Segment adjusted
gross profit/(loss)*
6 months ended 30 June
31 December
6 months ended 30 June
31
December
Restated
Restated**
2021
2020
2020
2021
2020
2020
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
K-Class vessels
20,225
20,407
40,947
11,822
14,738
25,349
S-Class vessels
16,168
16,200
32,136
10,634
11,498
22,210
E-Class vessels
15,000
13,186
29,407
8,736
2,935
12,676
Other
-
1
2
-
(9)
(10)
_______
_______
_______
_______
_______
_________
Total
51,393
49,794
102,492
31,192
29,162
60,225
_______
_______
_______
_______
_______
________
Less:
Depreciation charged to cost of sales
(11,306)
(12,761)
(25,524)
Amortisation charged to cost of sales
(3,500)
(2,045)
(3,073)
Impairment charge
-
-
(87,156)
_______
_______
_________
Gross profit/(loss)
16,386
14,356
(55,528)
Restructuring costs
-
(330)
(2,492)
Exceptional legal costs
-
(1,375)
(3,092)
Other general and administrative expenses
(4,883)
(4,944)
(12,632)
Finance income
6
7
15
Finance expense
(7,986)
(33,260)
(46,740)
Other income
20
29
257
Loss on disposal of property plant and equipment
-
(7)
(2,073)
Gain on disposal of assets held for sale
-
328
259
Foreign exchange (loss)/gain, net
(698)
183
(993)
_______
_______
_________
Profit/(loss) before taxation
2,845
(25,013)
(123,019)
*See Glossary.
**Details of prior period restatements can be found in Note 3.
Segment revenue reported above represents revenue generated from external customers. There were no inter-segment sales in either of the periods. 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.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
5 Presentation of adjusted non-GAAP results
The following table provides a reconciliation between the statutory and non-statutory financial results:
Six months ended 30 June 2021
Restated Six months ended 30 June 2020
Adjusted
Non-GAAP results
Adjusting
Items
Statutory
Total
Adjusted
Non-GAAP resultsAdjusting
items
Statutory
total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Revenue
51,393
-
51,393
49,794
-
49,794
Cost of sales
-Operating expenses
(20,201)
-
(20,201)
(20,631)
-
(20,631)
Segmented Gross profit
31,192
-
31,192
29,163
-
29,163
-Depreciation and amortisation
(14,806)
-
(14,806)
(14,807)
-
(14,807)
Gross profit
16,386
-
16,386
14,356
-
14,356
General and administrative
-Depreciation and amortisation
(227)
-
(227)
(404)
-
(404)
-Other administrative costs
(4,656)
-
(4,656)
(4,540)
-
(4,540)
Restructuring costs1
-
-
-
-
(330)
(330)
Exceptional legal costs2
-
-
-
-
(1,375)
(1,375)
Operating profit
11,503
-
11,503
9,412
(1,705)
7,707
Finance income
6
-
6
7
-
7
Finance expense
(6,261)
-
(6,261)
(17,015)
-
(17,015)
Cost to acquire new bank facility3
-
(3,165)
(3,165)
-
(15,797)
(15,797)
Fair value adjustment on recognition of new debt facility 4
-
1,440
1,440
-
(448)
(448)
Other income
20
-
20
29
-
29
Loss on disposal of property, plant and equipment
-
-
-
(7)
-
(7)
Gain on disposal of assets held for sale
-
-
-
328
-
328
Foreign exchange (loss)/gain, net
(698)
-
(698)
183
-
183
Profit/(loss) before taxation
4,570
(1,725)
2,845
(7,063)
(17,950)
(25,013)
Taxation charge
(851)
-
(851)
(858)
-
(858)
Net profit/(loss) after tax
3,719
(1,725)
1,994
(7,921)
(17,950)
(25,871)
Profit/(loss) attributable to
Owners of the Company
3,607
(1,725)
1,882
(7,909)
(17,950)
(25,871)
Non-controlling interests
112
-
112
(12)
-
(12)
Profit/(loss) per share
1,00
(0.48)
0.52
(2.26)
(5.12)
(7.38)
Supplementary non-statutory information
Operating profit
11,503
-
11,503
9,412
(1,705)
7,707
Add: Depreciation and amortisation charges
15,033
-
15,033
15,211
-
15,211
Non-GAAP EBITDA
26,536
-
26,536
24,623
(1,705)
22,918
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
5 Presentation of adjusted non-GAAP results (continued)
1 Restructuring costs incurred are not considered part of the regular underlying performance of the business and so have been added back to arrive at adjusted loss for the period ended 30 June 2020. This measure provides additional information in assessing the Group's total performance that management is more directly able to influence and on a basis comparable from period to period.
2 Exceptional legal costs incurred are not considered part of the regular underlying performance of the business and so have been added back to arrive at adjusted loss for the period ended 30 June 2020. This measure provides additional information in assessing the Group's total performance that management is more directly able to influence and on a basis comparable from period to period. (Exceptional legal costs in the prior period were a result of the non-binding proposed offer to buy the share capital of the Company from the Group's largest shareholder, several requests for General Meetings, and legal advice for Director disputes. Additional fees had been incurred totalling US$ 1.4 million in HY 2020).
3Costs incurred to arrange a new bank facility have been added back to Profit/(loss) before taxation to arrive at adjusted loss for the period ended 30 June 2021 and 2020. This measure provides additional information in assessing the Group's total performance that management is more directly able to influence and on a basis comparable from period to period.
4The fair value adjustment on recognition of the new loan has been added back to loss before taxation to arrive at adjusted loss for the period ended 30 June 2021 and 2020. This measure provides additional information in assessing the Group's total performance that management is more directly able to influence and on a basis comparable from period to period.
6 Taxation
Tax is calculated at the rates prevailing in the respective jurisdictions in which the Group operates. The overall effective rate is the weighted average of the expected taxes to be paid in each jurisdiction. Income is subject to tax including withholding tax on Revenue and Corporation tax on Profit for the year in each taxable jurisdiction (being principally Qatar, the United Kingdom, and Saudi Arabia). The Group effective tax rate was 9.13% for the period ended June 2021 (Six months ended June 2020 1.3%). The increase in the effective tax rate is mainly the result of the Group incurring a loss in the prior period.
The current tax charge of US$ 0.9 million (six month period ended June 2020: US$ 0.9 million) included withholding tax amounting to US$ 0.6 million (six month period ended June 2020: US$ 0.8 million).
7 Earnings/(loss) per share
6 months ended 30 June
Restated 6 months ended 30 June
Year ended
31 December
2021
2020
2020
Earnings/(loss) for the purpose of calculating the basic and diluted earnings/(loss) per share being loss for the period attributable to Owners of the Company (US$'000)
1,882
(25,859)
(124,339)
Earnings/(loss) for the purpose of calculating the adjusted basic and diluted loss per share (US$'000) (Note 5)
3,607
(7,909)
(15,354)
Weighted average number of shares ('000)
361,525
350,488
350,488
Weighted average diluted number of shares ('000)
366,064
350,488
350,488
Basic earnings/(loss) per share (cents)
0.52
(7.38)
(35.48)
Diluted earnings/(loss) per share (cents)
0.51
(7.38)
(35.48)
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
7 Earnings/(loss) per share (continued)
Adjusted earnings/(loss) per share (cents)
1.00
(2.26)
(4.38)
Adjusted diluted earnings/(loss) per share (cents)
0.99
(2.26)
(4.38)
Basic earnings/(loss) per share is calculated by dividing the loss attributable to equity holders of the Company for the period (as disclosed in the condensed consolidated statement of comprehensive income) by the weighted average number of ordinary shares in issue during the period. Deferred shares are not included in the any of the Earnings/(loss) per share calculations as they do not have a right to dividends.
Adjusted earnings/(loss) per share is calculated on the same basis as basic earnings/(loss) but uses the adjusted profit/(loss) attributable to equity holders of the company for the period (see Note 5). The adjusted earnings per share is presented as the Directors consider it provides an additional indication of the underlying performance of the Group.
Diluted earnings/(loss) per share is calculated by dividing the loss attributable to owners of the Company for the period by the weighted average number of ordinary shares in issue during the period adjusted for the weighted average effect of LTIP's during the period. As the Group incurred a loss in 2020, diluted loss per share is the same as loss per share for comparative periods, as the effect of the share-based payment charge is anti-dilutive.
Adjusted diluted earnings per share is calculated on the same basis but uses adjusted profit (Note 5) attributable to the equity shareholders of the Company.
The contract to issue warrants has not been included in any of the Earnings/(loss) per share calculations as although these have been approved, they have not been issued as of 30 June 2021.
The following table shows a reconciliation between basic and diluted average number of shares:
Restated
30 June
2021
000's
30 June 2020
000's
31 December 2020
000's
Weighted average basic number of shares in issue
361,525
350,488
350,488
Weighted average effect of LTIP's
4,539
-
-
Weighted average diluted number of shares in issue
366,064
350,488
350,488
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
8 Finance expenses
30 June
2021US$'000
Restated 30 June
2020US$'000
Interest on bank borrowings
11,411
13,487
Interest on finance leases
77
92
Other finance expenses
334
174
Recognition of embedded derivative for contract to issue warrants*
926
1,386
Derecognition of embedded derivative for contract to issue warrants
(1,890)
-
Net loss on changes in fair value of embedded derivative for contract to issue warrants
256
-
Loss on derivatives reclassified through profit and loss
139
319
(Gain)/loss on revision of debt facility
(6,332)
448
Net (gain)/loss on changes in fair value of interest rate swap**
(100)
1,557
Cost to acquire new bank facility***
3,165
15,797
7,986
33,260
*Details of the prior period restatement relating to the recognition of the embedded derivative can be found in Note 3.
**Details of the prior period restatement relating to the (gain)/loss on changes in fair value of the interest rate swap can be found in Note 3.
*** Costs incurred to acquire new loan facility including arrangement, advisory and legal fees. Details of the prior period restatement can be found in Note 3.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
9 Property, plant and equipment
Vessels
Capital work-in-progress
Land, building and improvements
Vessel spares, fitting and other equipment
Others
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Cost
Balance as at 1 January 2021
890,012
3,927
-
59,902
1,967
955,808
Additions
-
6,119
-
-
-
6,119
Transfers
3,827
(3,994)
-
167
-
-
Balance as at 30 June 2021
893,839
6,052
-
60,069
1,967
961,927
Accumulated Depreciation
Balance at 1 January 2021
331,405
2,845
-
14,774
1,707
350,731
Depreciation expense
9,685
-
-
1,621
47
11,353
Balance as at 30 June 201
341,090
2,845
-
16,395
1,754
362,084
Net Book Value as at 30 June 2021
552,749
3,207
-
43,674
213
599,843
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
9 Property, plant and equipment (continued)
Vessels
Capital work-in-progress
Land, building and improvements
Vessel spares, fitting and other equipment
Others
Total
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Cost
Balance as at 1 January 2020
884,497
4,857
10,488
60,743
3,670
964,255
Additions
-
6,208
-
-
-
6,208
Transfers
5,695
(7,138)
-
1,163
280
-
Eliminated on disposal
(180)
-
(5,387)
-
(1,660)
(7,227)
Write off
-
-
(5,101)
(2,004)
(323)
(7,428)
Balance as at 31 December 2020
890,012
3,927
-
59,902
1,967
955,808
Accumulated Depreciation
Balance at 1 January 2020
221,805
2,845
8,014
13,823
3,534
250,021
Eliminated on disposal
-
-
(3,269)
-
(1,586)
(4,855)
Depreciation expense
22,444
-
356
2,955
82
25,837
Impairment charge
87,156
-
-
-
-
87,156
Write off
-
-
(5,101)
(2,004)
(323)
(7,428)
Balance as at 31 December 2020
331,405
2,845
-
14,774
1,707
350,731
Net Book Value as at 31 December 2020
558,607
1,082
-
45,128
260
605,077
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
10 Trade and other receivables
30 June
2021
31 December
2020
US$'000
US$'000
Trade receivables
27,011
24,207
Less: Allowances for trade receivables
(103)
(133)
Trade receivables, net
26,908
24,074
Accrued revenue
135
1,925
Prepayments
3,904
5,222
Deposits
40
95
Other receivables
826
518
31,813
31,834
11 Share capital
Ordinary shares at £0.02 per share
Number of ordinary shares
(Thousands)
US$'000
At 1 January 2020 and 1 January 2021
350,488
58,057
Capital reorganisation
-
(46,445)
Placing of new shares
665,927
18,505
As at 30 June 2021
1,016,415
30,117
Deferred shares at £0.08 per share
Number of ordinary shares
(Thousands)
US$'000
At 1 January 2020 and 1 January 2021
-
-
Capital reorganisation
350,488
46,445
As at 30 June 2021
350,488
46,445
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
11 Share capital (continued)
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 have 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 have extremely limited rights. The Group has the right but not the obligation to buy back all of the Deferred Shares for an amount not exceeding £1.00 in aggregate without obtaining the sanction of the holder or holders of the Deferred Shares. As there is no contractual obligation, management do not consider there to be a liability.
As part of the equity raise on 28 June 2021 the company issued 665,926,795 new ordinary shares with a nominal value of 2 pence per share at 3 pence per share with the additional pence per share being recognised in the share premium account. Issue costs amounting to US$ 3.2 million (31 December 2020: $nil) have been deducted from the share premium account.
12 Bank borrowings
Bank borrowings relate to the bank facility provided by a group of six banks, which comprises of term loans and amounts available under revolving working capital facilities. Secured borrowings at amortised cost are as follows:
30 June
2021US$'000
31 December
2020US$'000
Term loans
362,516
388,558
Working capital facility
23,500
21,500
386,016
410,058
Bank borrowings are split between hedged and unhedged amounts as follows:
30 June
2021US$'000
31 December
2020US$'000
Hedged bank borrowings
34,615
38,462
Unhedged bank borrowings
351,401
371,596
386,016
410,058
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
12 Bank Borrowings (continued)
Bank borrowings are presented in the condensed consolidated balance sheet as follows:
30 June
2021US$'000
31 December
2020
US$'000Non-current
Bank borrowings - scheduled repayments after more than one year
368,477
379,009
Current
Bank borrowings - scheduled repayments within one year
17,539
31,049
386,016
410,058
Net debt as at the end of the period/year was as follows:
30 June
202131 December
2020
US$'000
US$'000
Bank borrowings net of issue costs
386,016
410,058
Less: Cash and cash equivalents
(9,263)
(3,798)
Total
376,753
406,260
As noted in the 2020 annual report, on 31 December 2020, the Group's banking syndicate agreed to extend certain obligations on the Group, which it was otherwise required to have met, including the requirement to issue warrants to banks and accrue PIK interest.
This meant the Group was not in an event of default as at 31 December 2020. This was further extended on 27 January 2021 and 25 February 2021. As the waivers received led to revisions to the timing of payments, management assessed the fair value of the remaining cashflows.
On 31 March 2021, the Group amended the terms of its loan facility with its banking syndicate. The amended terms (see below) were significantly different compared to the original loan. Management determined that the Group's loan facility was substantially modified and accordingly the old loan facility was extinguished, and the new facility recognised.
A gain of US$ 6.3 million (2020: US$ 0.4 million) was recognised in the profit and loss (Note 8) reflecting the waiver of PIK interest otherwise payable during the first quarter of 2021, the remeasurement of the debt to fair value as at the date of the substantial modification, and the impact of a change in the forecast voluntary repayment of the debt. US$ 3.2 million of costs incurred in renegotiating the new facility were expensed.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
12 Bank Borrowings (continued)
The remeasurement of the bank borrowings was determined in accordance with generally accepted principles based on a discounted cash flow analysis, using appropriate effective interest rates.
The principal terms of the outstanding facility as at 30 June 2021 are as follows:
· The facility's main currency is US$ and is repayable with a margin at 3% up to 31 December 2022 at which point margin is based on a ratchet depending on leverage levels (2020: margin ratchet based on leverage levels) and final maturity in June 2025 (31 December 2020: June 2025).
· The revolving working capital facility amounts to US$ 50.0 million. USD$ 25.0 million of the working capital facility is allocated to performance bonds and guarantees and US$ 25.0 million is allocated to cash of which US$ 23.5 million was drawn as at 30 June 2021 (31 December 2020: US$ 21.5 million), leaving US$ 1.5 million available for drawdown (31 December 2020: US$ 3.5 million).
· The facility remains secured by mortgages over its whole fleet, with a net book value at 30 June 2021 of US$ 548.9 million (31 December 2020: US$ 558.6 million). Additionally, gross trade receivables, amounting to US$ 27.0 million (31 December 2020: US$ 24.2 million) have been assigned as security against the loans extended by the Group's banking syndicate.
· The Group has also provided security against gross cash balances, being cash balances amounting to US$ 9.3 million (31 December 2020: US$ 3.8 million) before the restricted amounts related to visa deposits held with the Ministry of Labour in the UAE of US$ 0.04 million (2020: US$ 0.09 million) included in trade and other receivables (see deposits in Note 10), which have been assigned as security against the loans extended by the Group's banking syndicate.
· The amended terms contain contingent conditions such that if an equity raise of US $75.0 million in aggregate does not take place by 31 December 2022, PIK interest would potentially accrue and warrants would be due to the banking syndicate, refer to Note 13 for details of the valuation of the contract to issue warrants.
The facility is subject to certain financial covenants including; Debt Service Cover; Interest Cover; Net Leverage Ratio; and Security Cover (loan to value). There are also additional covenants relating to general and administrative costs and capital expenditure. In addition, there are restrictions to payment of dividends until the net leverage ratio falls below 4.0 times.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
13 Derivative financial instruments
Embedded derivatives - contract to issue warrants
In June 2020, the Group restructured the terms of its borrowings with its lenders. These terms included warrants to be issued to its lenders if GMS had not raised US$ 75.0 million of equity by no later than 31 December 2020. As this term was not expected to be met, an embedded derivative liability was recognised for the obligation to issue the warrants. At 31 December 2020 these had a value of US$ 1.4 million, which had increased to US$ 1.8 million by March 2021.
In March 2021 the Group amended the terms of its loan facility, as described above, and additional time was granted to raise equity before warrants were required to be issued to its lenders. The previous obligation to issue warrants to the bank was waived, and a contingent requirement to issue warrants to banks was introduced. The amended terms required US$ 25.0 million of Equity to be raised by 30 June 2021 otherwise the Group would be in default, and a further US$ 50.0 million to be raised by 31 December 2022. GMS was subsequently successful with the requirement to raise the first tranche of equity (Refer to Note 11).
As the new 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 liability as at 30 June 2021 was US$ 0.7 million (31 December 2020 US$1.4 million). As the derivative was due to be settled after 12 months, the balance is recognised as a non-current liability.
Interest Rate Swap
The Group entered into an Interest Rate Swap (IRS) on 30 June 2018 to hedge a notional amount of US$ 50.0 million. The remaining notional amount hedged under the IRS as at 30 June 2021 was US$ 34.6 million (31 December 2020: US$ 38.4 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 30 June 2021 was a liability value of US$ 1.8 million (31 December 2020: US$ 2.4 million). As cashflows of the hedging relationship were not highly probable in 2020 hedge accounting was discontinued. The net revaluation gain in the period to 30 June 2021 of US$ 0.1 million was accordingly recognised in the income statement, together with a $0.1m loss in respect of amounts recycled from the cash flow hedge reserve (Note 8).
The fair value measurement of the interest rate swap was determined by independent valuers with reference to quoted market prices, discounted cash flow models and recognised pricing models as appropriate. They represent Level 2 fair value measurements under the IFRS 13 hierarchy.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
13 Derivative financial instruments (continued)
IFRS 13 fair value hierarchy
Apart from the contract to issue warrants, the Group has no other financial instruments that are classified as Level 3 in the fair value hierarchy in the current or previous period with fair values that are determined by reference to significant unobservable inputs. There have been no transfers of assets or liabilities between levels of the fair value hierarchy. There are no non-recurring fair value measurements.
Derivative financial instruments are made up as follows:
Interest rate swap
Cross currency interest rate swap
Embedded derivative
Total
US$'000
US$'000
US$'000
US$'000
At 1 January 2021
(2,387)
-
(1,449)
(3,836)
Net gain on changes in fair value of interest rate swap
100
-
-
100
Loss on settlement of derivatives
537
-
-
537
Derecognition of embedded derivative warrants
-
-
1,890
1,890
Initial recognition of embedded derivative
-
-
(926)
(926)
Net loss on changes in fair value of embedded derivative
-
-
(256)
(256)
As at 30 June 2021
(1,750)
-
(741)
(2,491)
Interest rate swap
Cross currency interest rate swap
Embedded derivative
Total
US$'000
US$'000
US$'000
US$'000
At 1 January 2020
(1,737)
(3)
-
(1,740)
Gain on fair value changes of hedging instruments
-
21
-
21
Net hedging gain/(loss) on interest hedges reclassified to the profit or loss
901
(18)
-
883
Net loss on changes in fair value of interest rate swap
(1,551)
-
-
(1,551)
Initial recognition of embedded derivative
-
-
(1,386)
(1,386)
Net loss on changes in fair value of embedded derivative
-
-
(63)
(63)
As at 31 December 2020
(2,387)
-
(1,449)
(3,836)
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
14 Notes to the Condensed Consolidated Statement of Cash Flows
Six month period ended 30 June
Year ended
31 December
2021
Restated* 2020
2020
US$'000
US$'000
US$'000
Profit/loss for the period
1,994
(25,871)
(124,304)
Adjustments for:
Depreciation of property, plant and equipment
11,353
12,907
25,837
Amortisation of dry docking expenditure
2,563
1,181
3,074
Amortisation of right-of-use asset
1,117
1,123
2,543
Impairment charge
-
-
87,156
Income tax expense
851
858
1,285
End of service benefits charge
350
289
527
End of service benefits paid
(355)
(247)
(617)
Movement in ECL provision during the period/year
(30)
13
69
Recovery of ECL provision
-
(64)
(64)
Share based payment charge
(53)
(11)
168
Interest income
(6)
(7)
(15)
Finance expenses
7,986
33,260
46,740
Loss on disposal of property, plant and
equipment
-
7
2,073
Gain on disposal of assets held for sale
-
(328)
(259)
Hedging revenue adjustment
-
(21)
(21)
Other income
(20)
(29)
(257)
Cash flow from operating activities before
movement in working capital
25,750
23,060
43,935
(Increase)/Decrease in trade and other receivables
(85)
(592)
4,866
Decrease in trade and other payables
(3,103)
(3,134)
(3,770)
Cash generated from operations
22,562
19,334
45,031
Taxation paid
(448)
(660)
(763)
Net cash generated from operating activities
22,114
18,674
44,268
*Details of prior period restatements can be found in Note 3.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
15 Contingent liabilities
At 30 June 2021, the banks acting for Gulf Marine Services FZE, one of the subsidiaries of the Group, had issued performance bonds amounting to US$ 11.6 million (31 December 2020: US$ 17.9 million).
16 Capital commitments
30 June
202131 December
2020
US$'000
US$'000
Contractual capital commitments
6,659
7,470
Capital commitments comprise mainly capital expenditure, which has been contractually agreed with suppliers for future periods for equipment or the refurbishment of existing vessels.
17 Long term incentive plans
The Group has Long Term Incentive Plans ("LTIPs") which were granted to senior management, managers and senior offshore officers.
From 2019 onwards the employment condition is that each eligible employee of the Company must remain in employment during the three-year vesting period. LTIPs have been aligned to the Company's share performance therefore only financial metrics will be applied. EPS ("Earnings Per Share") has been dropped as the financial metric and TSR ("Total Shareholder Return") is now the sole financial metric.
In the prior years, the release of these shares was conditional upon continued employment, certain market vesting conditions and in the case of senior management LTIP awards, performance against three-year target EPS compound annual growth rates. Equity-settled share-based payments were measured at fair value at the date of grant. The fair value determined, using the Binomial Probability Model together with Monte Carlo simulations, at the grant date of equity-settled share-based payments, is expensed on a straight-line basis over the vesting period, based on an estimate of the number of shares that will ultimately vest. The fair value of each award was determined by taking into account the market performance condition, the term of the award, the share price at grant date, the expected price volatility of the underlying share and the risk-free interest rate for the term of the award.
Non-market vesting conditions, which for the Group mainly related to the continual employment of the employee during the vesting period, and in the case of the senior management LTIP awards the achievement of EPS growth targets, were taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period was based on the number of awards that eventually vest. Any market vesting conditions were factored into the fair value of the share-based payment granted.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
17 Long term incentive plans (continued)
To the extent that share-based payments are granted to employees of the Group's subsidiaries without charge, the share-based payment is capitalised as part of the cost of investment in subsidiaries.
The number of share awards granted by the Group during the period is given in the table below:
30 June
2021
31 December
2020
At the beginning of the period
6,573,229
8,768,294
Granted in the period
-
2,661,388
Cash settled in the period
(1,854,298)
-
Forfeited in the period
(2,109,921)
(4,856,453)
Lapsed
-
-
At the end of the period
2,609,010
6,573,229
The weighted average remaining contractual life for the vesting period outstanding as at 30 June 2021 was 0.7 years (31 December 2020: 1.0 years). The weighted average fair value of shares granted during the period to 30 June 2021 was US$ nil (31 December 2020: US$ 0.10).
LTIP
LTIP
Grant date
29 May 2020
15 November 2019
Share price
£0.09
£0.08
Expected volatility
120%
102.79%
Risk-free rate
0.01%
0.48%
Expected dividend yield
0.00%
0.00%
Vesting period
3 years
3 years
Award life
3 years
3 years
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
17 Long term incentive plans (continued)
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 (31 December 2020: US$ nil) equal to the fair value of the awards at the modification date was transferred from equity to financial liabilities. 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.
This charge represented a modification of the share-based payments for the purposes of IFRS 2. However, as the modification did not result in a favourable change for the employees, no adjustments to the share-based payment charge was required as a result of the change to the Company's share capital.
18 Related party transactions
Significant transactions with related parties during the period were as follows:
30 June
2021US$'000
30 June
2020US$'000
Rentals of property from Abdulla Fouad
54
54
Rentals of breathing equipment from Abdulla Fouad
241
278
Abdulla Fouad is a partner and Minority shareholder in GMS Saudi Arabia Ltd, a subsidiary of the Group. Amounts due to Abdulla Fouad as at 30 June 2021 was US$ 0.3 million (31 December 2020: US 0.2 million).
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
19 Events after the reporting period
There were no subsequent events of impact to these Condensed Consolidated Financial Statements after the reporting period.
20 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 profit/(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 profit/(loss) attributable to equity shareholders of the Company is earnings used for the purpose of basic earnings/(loss) per share adjusted by adding back costs to acquire new bank facilities, refinancing items and impairment charges. 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 4.
Adjusted EBITDA - represents operating profit after adding back depreciation, 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 5.
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. A reconciliation of this measure is provided in note 5.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
20 Glossary (continued)
Adjusted gross profit - represents gross profit after adding back impairment charges. This measure provides additional information on the core profitability of the Group. A reconciliation of this measure is provided in note 5.
Adjusted net profit/(loss) - represents net profit/(loss) after adding back impairment charges and costs of renegotiating bank terms. 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 5 of these results.
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:
30 June
Restated
30 June
2021
2020
US$'000
US$'000
Statutory cost of sales
35,007
35,438
Less depreciation and amortisation
(14,806)
(14,807)
20,201
20,631
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 5.
Margin - revenue less operating expenses as identified in Note 5 of the condensed consolidated financial statements.
Net debt - represents the total bank borrowings less cash. This measure provides additional information of the Group's financial position. A reconciliation is shown below:
30 June
31 December
2021
2020
US$'000
US$'000
Statutory bank borrowings
386,016
410,058
Less cash and cash equivalents
(9,263)
(3,798)
376,753
406,260
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
20 Glossary (continued)
Net cash flow before debt service - the sum of cash generated from operations and investing activities.
Net debt to EBITDA - the ratio of net debt at year end to earnings before interest, tax, depreciation and amortisation as reported under the terms of our bank facility agreement.
Operational downtime - downtime due to technical failure.
Segment adjusted gross profit/loss - represents gross profit/loss after adding back depreciation, amortisation and impairment charges. This measure provides additional information on the core profitability of the Group attributable to each reporting segment. A reconciliation of this measure is provided in note 5.
Other Definitions
Backlog - represents firm contracts and extension options held by clients. Backlog equals (charter day rate x remaining days contracted) + ((estimated average Persons On Board x daily messing rate) x remaining days contracted) + contracted remaining unbilled mobilisation and demobilisation fees. Includes extension options.
Borrowing rate - LIBOR plus margin.
Calendar days - 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.
DEPS/DLPS - Diluted earnings/losses per share.
E&P - exploration and production
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 30 June.
EPC - engineering, procurement and construction.
ESG - environmental, social and governance.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
20 Glossary (continued)
Finance service - the aggregate of
a) Net finance charges for that period; and
b) All schedules 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
Finance service cover - represents the ratio of Adjusted EBITDA to finance service
GMS core fleet - consists of 13 SESVs, with an average age of ten years.
Interest Cover - represents the ratio of Adjusted EBITDA to Net finance charges.
IOC - International Oil Company.
KPIs - Key performance indicators.
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.
Net finance charges -- represents finance charges for that period less interest income for that period.
Net leverage ratio - represents the ratio of net bank debt to Adjusted EBITDA.
NOC - national oil company.
On hire daily vessel operating expenses - costs incurred to ensure a vessel is operationally ready and capable of carrying out work required to fulfil contract requirements. This excludes mobilisation costs and bad debt provisions
OSW - Offshore Wind.
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
20 Glossary (continued)
PIK - 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.
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.
Security Cover (loan to value) - the ratio (expressed as a percentage) of Total Net Debt at that time to the Market Value of the Secured Vessels.
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, exceptional and legal costs.
Utilisation - the percentage of available 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.
Warrants - Under the banking documents dated 17 June 2020, if GMS had not satisfied the US$ 75 million Equity Condition, GMS shall issue warrants to the Banks, by no later than 31 December 2020, in accordance with the following terms:
· Strike price at the lower of
o (i) average price over the 90 trading days preceding execution of documents, or
o (ii) exercise price of the stock options granted to Senior Management
· Number of warrants that would give the Banks collectively 20% ownership of GMS
GULF MARINE SERVICES PLC
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 June 2021 (continued)
20 Glossary (continued)
Warrants (continued)
· Vesting:
o (i) 50% vest on 31 December 2021 and
o (ii) 50% vest on 30 June 2023, unless the Net Leverage ratio is below 4.0x
· If, at any time, GMS satisfies the US$ 100 million Equity Condition any warrant not yet vested at such date will cease to exist
· Upon vesting, the warrants are
o (i) exercisable in whole or in part,
o (ii) allocated pro rata to each Bank and exercisable singly and separately (i.e. not as a syndicate),
o (iii) payable either in cash or in the form of settling the PIK outstanding at the time of exercise, and
o (iv) freely tradable
· Anti-dilution mechanism
· Price adjustment mechanism
· Warrants to expire on 30 June 2025 (maturity date of the facilities)
Terms agreed under 31 March 2021 Bank deal:
· Under the banking documents dated 31 March 2021, if Warrants are issued on 1 July 2021 because of the failure to raise US$ 25 million by 30 June 2021, half of the issued warrants vest on that date. The other half will only vest on 2 January 2023 if there is a failure to raise US$ 50 million. If warrants are issued on 2 January 2023 because of the failure to raise US$ 50 million all of the issued warrants vest on the same date. If the US$ 50 million equity raise is successful but the US$ 25 million is unsuccessful, the balance of the unvested warrants issued on 1 July 2021 will lapse. All warrants to expire on 30 June 2025 (maturity date of the facilities). Once issued and vested, should the Banks choose to exercise the warrants, they can do so by settling in cash or offsetting against the principal of the loan.
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.
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