2020 Annual Report & Notice of 2021 AGM

Companies

Gulf Marine Services (GMS)

UK 100

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Risk	Mitigating factors and actions
1 Utilisation
Utilisation levels may be reduced by the following root causes: • Increasing competition as other market participants increase the supply of SESVs in the markets in which GMS operates; • Sustained lower expenditure and investment by the oil and gas industry may result in lower levels of maintenance being performed on existing platforms and facilities and lower levels of construction and capital expenditure in respect of new installations; • Reliance on a limited number of NOCs, IOCs and international EPC clients; • Fleet capabilities may no longer match with changing client requirements. Failure to deliver the specifications and expected performance could lead to reputational damage and impact GMS' ability to win work; and • Reduced utilisation may materially adversely affect our business, financial condition and results of operations.	Modification flexibility for clients GMS' vessels are built to be as flexible as possible allowing the Company to compete for a wide share of the market, helping it to maximise utilisation levels and charter day rates. The Group is capable of modifying assets to satisfy client requirements. Continuous communication with clients The Group maintains strong relationship with its clients through continuous communication and a history of providing safe and reliable services. Business segment and geographical diversity The Group has established businesses outside its core Middle Eastern markets (particularly in the North Sea), and outside of oil and gas (renewables). It is continually reviewing opportunities looking to diversify its market footprint through increasing the client base. Vessel monitoring The Group has procedures in place, such as the Planned Maintenance System, to ensure that the vessels undergo regular preventative maintenance. The Group's robust operating standards result in minimal downtime.
2 Inability to secure an appropriate capital structure - equity
Under the terms of the latest bank deal signed on 31 March 2021, GMS is required to raise US$ 25 million by 30 June 2021 and a total of US$ 75 million by 31 December 2022. Failure to do this would lead to an inadequate capital structure and a potential event of default.	Renegotiation of bank facilities The Group recently announced improved terms on its bank facilities and plans for raising a minimum of US$ 25 million of new equity (net) by 30 June 2021, with the remaining balance of up to US$ 75 million in total by the end of 2022. The need to obtain shareholder approval and raise the first tranche of US$ 25 million of equity by 30 June 2021 to avoid an event of default indicates a material uncertainty that may cast significant doubt as to the Group's ability to continue as a going concern. Notwithstanding this material uncertainty, the Directors believe that there is good reason to believe that there will be sufficient shareholder support to complete the first equity raise on time. Refer to Note 3 of the consolidated financial statements. Beyond that, the Board is focused on sustaining operational excellence while enhancing performance and utilisation of GMS' assets to explore and secure new opportunities. This will be key to driving improved profitability and cash flow, which is expected to deliver shareholder confidence and a higher share price.
3 Mena Oil and Gas Market
MENA NOCs have local content requirements as part of their tender processes designed to give preference to suppliers that commit to improving their local content and levels of spend and investment in-country. This may prevent GMS from winning contracts or lead to financial loss and/or a reduction in margins on existing contracts, which will ultimately impact cash flows and profitability.	Local content requirements GMS embraces local content requirements, with a long history of operating for NOCs in the Middle East and established offices in each of the MENA countries the Group operates. The Group actively manages its supply chain to ensure that they also are focused on maximising local content and where necessary will work with local partners in specific markets to ensure it positions itself in the best possible position to win work. Often during the tendering process companies with a higher audited local content score are given the offer of first refusal to price match any lower bids during tendering. Market knowledge and operational expertise The Group has a track record of established long-term relationships in the MENA region which provides an understanding of clients' requirements and operating standards.
4 Operations: inability to deliver safe and reliable operations
The Group may suffer commercial and reputational damage from an environmental or safety incidents involving employees, visitors or contractors. The physical risk of climate change, such as natural disasters or extreme weather events may impact our ability to operate. Inadequate preparation for emergency situations, such as pandemics, geopolitical instability, could have a negative impact on the business. Insufficient insurance coverage may lead to financial loss.	Safety awareness Safety and reliability are top priorities and are underpinned by the HSEQ management system and a strong safety-focused culture. Management ensures appropriate safety practices and procedures; disaster recovery plans and insurance cover of all commercial contracts in place. All of our vessels are designed to withstand extreme weather events as specified by the Class Society. Training and compliance Our employees undergo continuous training on operational best practices. Scheduled maintenance The Group follows regular maintenance schedules on its vessels and the condition of the vessels is consistently monitored. Business continuity plan The Group has in place a business continuity management plan which it regularly maintains. Insurance The Group regularly liaises with insurance brokers to ensure sufficient coverage is in place.
5 Liquidity and covenant compliance
The business is exposed to short-term liquidity management risks arising from potential increases in interest rates, which further increase debt service obligations, and unexpected increases in working capital (particularly through inability to collect receivables). In addition, the Group's bank facilities are subject to covenant tests based on the financial performance. Compliance with these covenants depends on GMS' ability to secure ongoing work for the fleet. If GMS is unable to do so the financial performance and position may be materially adversely affected and it may not comply with the covenants. In such a case, unless the banks agree otherwise this could lead to an event of default. This would give lenders the right to accelerate repayment of the outstanding loans, and then exercise security over the Group's assets.	Liquidity management The Group continues to manage liquidity carefully through focusing on receivables collections and managing the timing of supplier payments. Cost management The Group has implemented a comprehensive cost reduction programme, removing over US$ 20 million of annualised costs in order to generate higher EBITDA and increased cash to service debt. Continual review of costs and search for further efficiencies is ongoing. Minimising capital expenditure The Group is focused on restricting capital expenditure to essential spending only, to ensure the safe and reliable operations of its vessels. Covenant compliance The management team and Board regularly examine future covenant compliance based on the latest forecasts and take necessary actions to avoid any potential where a future breach of covenant is forecast.
6 People
Attracting, retaining, recruiting and developing a skilled workforce is key. Losing skills or failing to attract new talent to the business has the potential to undermine performance. Inadequate succession planning and lack of identification of critical roles may result in disruption if the related personnel leave the Group.	Communication and engagement Communication has remained a key practice of management, especially during the COVID-19 pandemic. During the year, the focus for employees has been on safety and wellbeing through working remotely, regular testing and enhanced cleaning procedures. In 2021, Rashed Al Jarwan was appointed as the new Workforce Engagement Director, explicitly tasked with monitoring the level of engagement and alignment across the organisation. Remuneration Policy The Short-Term Incentive Plan (STIP) is based on a single Business Scorecard to ensure all staff are incentivised around delivering a single set of common goals. Equal opportunities GMS is engaged in fair and transparent recruitment practices. It has a zero-tolerance policy towards discrimination, and provides equal opportunities for all employees. Resource planning The Group is in the process of identifying critical roles and preparing plans to ensure smooth transition in case of changes in personnel. Refer to the Governance Report on pages 34 to 37 for details of changes at the Board level and assessment of what skills the new Board brings to GMS.
7 Legal, economic, and political conditions
Political instability in the regions in which GMS operates (and recruit from) may adversely affect its operations.	Emergency response planning and insurance For all our major assets and areas of operation, the Group maintains emergency preparedness plans. It regularly reviews the insurance cover over the Group's assets to ensure adequate cover is in place. Workforce planning and monitoring Workforce planning and demographic analysis is completed in order to increase diversity.
8 Compliance and regulation
Non-compliance with anti-bribery and corruption regulations could damage stakeholder relations and lead to reputational and financial loss. GMS' operations are subject to international conventions on - and a variety of complex federal and local laws, regulations and guidelines relating to - health, safety and the protection of the environment. Compliance with these health, safety and environmental conventions, laws and regulations has become increasingly expensive, complex and stringent. Failure to appropriately identify and comply with laws and regulations, and other regulatory statutes in new and existing markets, could lead to regulatory investigations. It may result in GMS failing to win a new contract, the early termination of an existing contract or exclusion from future contracts.	Code of Conduct The Group has a Code of Conduct which includes anti-bribery and corruption policies, and all employees are required to comply with this Code when conducting business on behalf of the Group. Employees are required to undergo in-house training on anti-corruption. All suppliers are pre-notified of anti-bribery and corruption policies, and required to confirm compliance with these policies. Regulations A central database is maintained which documents all of GMS' policies and procedures which comply with laws and regulations within the countries in which we operate. On specialist topics, the Group makes use of external advisers, where appropriate. A dedicated Company Secretary is in place to help monitor compliance, in particular with regard to UK legal and corporate governance obligations. External review The Internal Audit function helps ensure compliance with GMS policies, procedures, internal controls and business processes. The Group's vessels are also audited by external bodies such as the American Bureau of Shipping (ABS).
9 COVID-19 pandemic
The COVID-19 pandemic has presented a number of challenges. Measures introduced in jurisdictions where GMS operates, include closing of international borders and strict quarantine requirements for crew, which could lead to further increased cost. These measures can change at short notice, maintaining the risk that offshore staff will be unable to crew change. There is a health risk to staff, both onshore and offshore, who come into contact with confirmed cases. COVID-19 restrictions on travel may impact GMS' ability to allow third parties to travel to its vessels to inspect, maintain or certify equipment onboard, which increases the risk of equipment failure and being put off hire. Existing or future contracts are delayed by our clients as a result of interruptions in their supply chains resulting in them being unable to carry out work as planned.	Hygiene measures GMS implemented extensive hygiene control and prevention measures across the fleet and onshore offices. Clients have adopted similar measures, in many cases in compliance with strict government directives in force across the countries in which the Group operates. COVID-19 vaccinations COVID-19 vaccines are available in some of the countries where GMS operates and have been made available to staff, both onshore and offshore. Offshore rotations Crew rotations have been extended as a temporary measure to minimise impact of quarantine requirements of some clients. Vessel maintenance The Group has in place a strict management of change process, which ensures where it has been unable to have equipment tested, inspected or certified offshore, due to the availability of suitably qualified personnel offshore, that an appropriate risk management process is in place. Contract delays Through strong relationships with its client base, GMS is in regular communication around any operational delays that are expected that could impact the Group. In such circumstances and with client agreement, GMS will seek other opportunities to utilise the fleet and minimise the financial impact on all parties.
10 Cyber-crime - security and integrity
Phishing attempts result in inappropriate transactions, data leakage and financial loss. The Group is at risk of loss and reputational damage through financial cyber-crime.	Cybersecurity monitoring and defence GMS operates multi-layer cyber-security defences which are monitored for effectiveness to ensure they remain up to date. GMS engages with third party specialists to provide security services.

Enquiries: GMS Mansour Al Alami, Executive Chairman			+44 (0) 207 603 1515

Celicourt Communications Mark Antelme Philip Dennis			+44 (0)20 8434 2643