TIDMGMS
RNS Number : 0486O
Gulf Marine Services PLC
30 September 2019
30 September 2019
Gulf Marine Services PLC
('Gulf Marine Services', 'GMS', 'the Company' or 'the
Group')
Interim results for the six months ended 30 June 2019
BUILDING GMS FOR THE FUTURE
Gulf Marine Services (LSE: GMS), a leading provider of advanced
self-propelled self-elevating support vessels (SESVs) serving the
offshore oil, gas and renewable energy sectors, today announces its
interim results for the six months ended 30 June 2019.
Executive Chairman Tim Summers said:
"Since April, GMS has made considerable progress overhauling
governance and leadership, reducing costs and stabilising our
financial position, and we continue to deliver safe and reliable
services for our customers. Markets have remained challenging
overall in 2019 and we are addressing this through our previously
announced comprehensive repositioning plan.
"The entire Board has been replaced over the last 12 months,
following shareholder feedback. Subsequent to the announcement of
the CEO's departure in August, a search process is ongoing for a
permanent replacement.
"The Group is on track to meet its forward guidance. On costs,
the target of US$ 6.0 million in annualised cost savings will be
exceeded by year end, with an improved target set at US$ 8.5
million of annualised savings, underpinning 2020 delivery. We are
also pursuing other opportunities to further improve operating
efficiency.
"On 29 September 2019 we received a waiver of our anticipated
covenant breaches with reference to our 30 June 2019 financial
results, obtained a rollover of the committed portion of our
working capital facility and secured access to performance bonding
facilities that will underpin the Group's liquidity and support the
growth of its business, in each case until 31 December 2019.
The Group is continuing its constructive dialogue with its
lenders on a long-term solution to its capital structure, which
will require binding agreements to be in place by the end of 2019
for an amendment and extension to its existing facilities,
comprising the term loan, the working capital facility and the
performance bond facility (the "banking facilities"). This will
seek to address the Group's future loan repayment profile, as well
as its continued access to working capital and performance bonds,
and its financial covenant tests going forward.
"While the current financial conditions facing the Group are
challenging, our business is stable and demand in the Middle East,
our principal market, is strengthening, as evidenced by a much
stronger forward order book than twelve months ago. We fully expect
to achieve a successful outcome to our negotiations with our
banking syndicate, and are committed to improving the Group's
financial performance over the coming years."
Financial Overview
US$ million H1 2019 H1 2018
=========
Revenue 55.0 56.1
========= =======
Adjusted gross profit* 14.1 21.3
========= =======
Adjusted EBITDA* 22.3 25.4
========= =======
Loss for the period after tax (16.9) (4.4)
========= =======
Adjusted loss for the period* (12.3) (4.4)
========= =======
Basic and diluted loss per share (US cents) (4.88) (1.42)
========= =======
Adjusted basic and diluted loss per share
(US cents)* (3.58) (1.42)
========= =======
*Alternative performance measure. Refer to Glossary for further
detail and definitions.
Financial Highlights
-- Revenue remained broadly flat at US$ 55.0 million (H1 2018: US$ 56.1 million).
-- Adjusted EBITDA fell to US$ 22.3 million with an adjusted
EBITDA margin of 41% (H1 2018: 45%), mainly arising from pressure
on vessel day rates. Average rates were US$ 30k (H1 2018: US$
36k).
-- General and administrative expenses excluding depreciation
and amortisation fell to US$ 7.5 million (H1 2018: US$ 8.4
million), reflecting the Group's ongoing cost-saving programme. The
Group will exceed the targeted US$ 6.0 million in annualised cost
savings by the end of 2019, with an improved target set at US$ 8.5
million.
-- Loss after tax was US$ 16.9 million (H1 2018: US$ 4.4
million) reflecting both a decrease in adjusted EBITDA margin and
higher depreciation. The loss also includes a non-cash impairment
charge of US$ 4.6 million on non-core assets and equipment.
-- As announced on 21 August 2019, the Group's full year 2019
adjusted EBITDA forecast was reset from US$ 58.0 million to a range
US$ 45.0 million - US$ 48.0 million.
-- Subsequent to the period end, the Group received a waiver of
its anticipated breaches on covenants attached to the term loan and
working capital facilities, with reference to its 30 June 2019
financial results as well as confirmation of continued access to
the US$ 25.0 million committed portion of its working capital
facility and access to US$ 10.0 million of performance bonding
facilities that will underpin the Group's liquidity and support the
growth of its business, in each case until the end of the year. As
noted above, the Group is now required to secure a long-term
solution to its capital structure by entering into binding
agreements to amend and extend its banking facilities before the
end of 2019. While the Directors are confident about the Group's
ability to meet this deadline, if it does not and the Group cannot
obtain a further extension to complete these negotiations, a
payment default under its working capital facility will be
triggered as at 31 December 2019 and access to the Group's
performance bond facility will immediately cease. Notwithstanding
the material uncertainty with regard to the negotiations, the
Directors continue to believe that a satisfactory outcome to the
restructuring of its banking facilities is likely and, accordingly,
have adopted the going concern basis of accounting in preparing the
Group's interim results.
Operational
-- Continued strong safety performance with zero lost time injuries incurred.
-- H1 2019 utilisation increased based on calendar days(1) for
the SESV fleet to 69% (H1 2018: 62%).
-- Seven new contract awards in the year to date with a combined
charter period of c. six and a half years (including options). Six
of our 13 vessels are already fully contracted for 2020. At this
point 12 months ago only 15% of utilisation was secured on firm
contracts.
-- Activity in the Middle East continues to strengthen with
significant clients in our core markets (including ADNOC and
Aramco) actively tendering.
-- Investment in E&P offshore activities 2019-23 in the
Middle East is expected to increase demand for GMS SESVs.
-- Secured backlog(2) is US$ 210.5 million as at 29 September
2019, up US$ 89.4 million since September 2018 (27 May 2019
backlog: US$ 218.8 million).
Outlook
While the immediate future remains challenging, we are confident
that demand for vessels in our largest market, the Middle East, is
strengthening. Charters for almost half of our fleet are already
fully secured for 2020, which is a significantly stronger position
than 12 months ago. In addition, the Group will participate
actively in the recent number of long-term tender opportunities
with NOCs in the region, the majority of which are expected to be
awarded in Q4 2019, and into next year. The increasing levels of
tender activity are expected to tighten the supply/demand balance
in the region.
In the near term, the market in NW Europe, where three of our
E-Class vessels are currently located, remains subdued. We
anticipate fewer opportunities in the renewables sector for the
remainder of 2019 and 2020, partly driven by seasonality but also
based on the technical requirements of current wind farm
installation phases.
In the North Sea, oil & gas sector opportunities for the
fleet have been limited, as a number of new independent exploration
and production companies have entered the market and are evolving
their development programmes. While opportunities may be
constrained through 2019 and 2020, we would expect offshore service
activity to increase in 2021 as these plans are executed.
Our focus this year in reducing costs will increasingly be
evident in 2020, as the annualised savings flow fully into our
income statement. We expect to deliver further savings through
continued focus on driving efficiencies throughout the
organisation.
We are working closely with our banking syndicate to negotiate
an amendment and extension to our existing banking facilities by
the end of 2019 to ensure the Group is financially secure. We are
confident that all parties to the negotiations are committed to
working constructively together to ensure that this is achieved. In
the meantime, the business is expected to continue to generate a
strong operating cash flow. GMS intends to optimise opportunities
for its young fleet, which has an expected operational lifespan of
more than 25 years, and to ensure the Group and its shareholders
benefit from the measures it is taking to improve both its business
and operations.
- Ends -
(1) Calendar days takes base days at 365 and only excludes
periods of time for construction and delivery time for newly
constructed vessels.
(2) 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. An updated schematic summary
of the backlog by vessel is available at:
http://www.gmsuae.com/investor-relations/results-and-presentations/
Analyst presentation:
A presentation to analysts will be given via a conference call
today, 30 September 2019, at 12:30 BST. For dial-in details,
analysts should please contact Leanne Liddiard at Brunswick:
lliddiard@brunswickgroup.com
The replay of the presentation to analysts will be available on
demand later today at:
http://www.gmsuae.com/investor-relations/results-and-presentations
This announcement contains inside information and is provided in
accordance with the requirements of Article 17 of the EU Market
Abuse Regulation.
Steve Kersley
Chief Financial Officer (responsible for arranging the release
of this announcement)
Gulf Marine Services PLC
30 September 2019
Enquiries
For further information please contact:
Brunswick
Gulf Marine Services Patrick Handley - UK
PLC Will Medvei - UK
Tim Summers Tel: +44 (0) 20 7404 5959
Executive Chairman Jade Mamarbachi - UAE
Tony Hunter Tel: +971 (0) 50 600 3829
Company Secretary
Tel: +44 (0) 207 603
1515
Anne Toomey
Investor Relations
Tel: +44 (0) 1296 622736
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 the United Kingdom. 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.gmsuae.com
Disclaimer
The content of the Gulf Marine Services PLC website should not
be considered to form a part of or be incorporated into this
announcement.
Executive Chairman's Review
Following engagement with our major shareholders, there has been
a fundamental overhaul of the GMS Board and leadership posts, with
five new Board appointments in the first half of 2019. Over the
past 12 months the entire Board has been replaced.
The SESV market remains challenging in 2019 and we have taken
measures to address this through implementation of a comprehensive
repositioning plan. We have made significant progress towards our
objectives of governance, leadership and cost improvement.
Negotiations are continuing with our banking syndicate, which
has been both supportive and constructive in its approach. We are
confident of achieving a long-term solution by 31 December 2019
that will deliver a stable borrowing base for the future.
As at 30 June 2019, the Group had delivered US$ 1.7 million of
savings. Our target of US$ 6.0 million in annualised cost savings
will be exceeded by year end, with an improved target set at US$
8.5 million of annualised savings reflecting the implementation of
further efficiencies across the business.
Operational Review
The Group continues to deliver safe and reliable operations with
another strong HSE performance in H1 2019. The total number of
hours worked was 2.0 million (H1 2018: 2.0 million hours). The
total recordable injury rate was 0.1 (H1 2018: zero) with zero lost
time injuries incurred (H1 2018: zero). There were no unintentional
environmental emission releases in the period .
Middle East
Demand in the region is continuing to improve with increased
fleet utilisation at 72% (H1 2018: 61%). A total of seven new
contracts have been awarded in the year to date, with five of these
in the Middle East.
Tender activity, particularly for long-term work, is
strengthening with a pipeline of opportunities from the NOCs in
Saudi Arabia, the UAE and Qatar. The award of these contracts
should see a tightening of supply in the region.
North West Europe
Three E-Class vessels are located in NW Europe where the market
has been disappointing, with utilisation levels for these vessels
lower for the six-month period to 30 June 2019 at 58% (H1 2018:
69%). Market conditions in NW Europe have been challenging through
H1 2019 and this is expected to continue in H2 2019. In the
renewables sector, there have been fewer tender opportunities and
an excess of vessel supply. In the longer term, the renewables
market for SESVs is expected to grow substantially with new
installation, maintenance and servicing requirements for the
installed capacity. Oil & gas activity in the North Sea has
also dipped, reflecting the changes in asset ownership of our
customers within the sector. Several new players have acquired
significant operations and are currently reassessing their field
development plans and tender activity has been affected by this
process.
Backlog
Notwithstanding the above, the overall backlog position has
improved. The secured backlog is US$ 210.5 million, comprising US$
136.1 million firm and US$ 74.4 million options as at 29 September
2019, slightly down from our last backlog announcement of US$ 218.8
million on 27 May 2019, but up by US$ 89.4 million from September
2018.
The order book for the coming financial year shows improvement,
with almost half of the Group's fleet already secured on firm
contracts fully for the year, which is a significantly stronger
position than at the same point 12 months ago.
I would like to thank the GMS workforce for their resilience
during this time of transformational change across the Group. Both
our onshore and offshore personnel are to be commended for their
dedication to delivering our services to clients efficiently,
reliably and safely. GMS's underlying business remains sound and
the new Board recognises the importance of building a track record
of delivery for our shareholders. This will be our priority as we
re-set the business.
Tim Summers
Executive Chairman
29 September 2019
Financial Review
US$ million H1 2019 H1 2018
---------------------------------------- -------- -------
Revenue 55.0 56.1
---------------------------------------- -------- -------
Adjusted gross profit* 14.1 21.3
---------------------------------------- -------- -------
Adjusted EBITDA* 22.3 25.4
---------------------------------------- -------- -------
Loss for the period after tax (16.9) (4.4)
---------------------------------------- -------- -------
Adjusted loss for the period after tax* (12.3) (4.4)
---------------------------------------- -------- -------
Basic and diluted loss per share (US
cents) (4.88) (1.42)
---------------------------------------- -------- -------
Adjusted basic and diluted loss per
share (US cents)* (3.58) (1.42)
---------------------------------------- -------- -------
*Alternative performance measure. Refer to Glossary for further
detail and definitions
Introduction
Market conditions continued to be challenging during the
six-month period to 30 June 2019. Revenue remained flat at US$ 55.0
million (H1 2018: US$ 56.1 million), with increased utilisation
rates at 69% based on calendar days (H1 2018: 62%) being offset by
continued pressure on vessel day rates. While offset by better
utilisation, lower day rates reduced margins and adjusted EBITDA
which fell in the period to US$ 22.3 million (H1 2018: US$ 25.4
million).
General and administrative expenses excluding depreciation and
amortisation decreased by 11% to US$ 7.5 million (H1 2018: US$ 8.4
million), reflecting cost savings achieved.
The cost savings programme achieved total savings of US$ 1.7
million through to 30 June 2019. We are on track to exceed the
targeted annualised savings of US$ 6.0 million by the end of 2019,
with a total of US$ 8.5 million expected to be achieved.
The loss for the period after tax was US$ 16.9 million (H1 2018:
US$ 4.4 million), reflecting the reduction in margins mentioned
above, as well as a non-cash impairment charge of US$ 4.6 million
on non-core assets, being the vessel Naashi and a cantilever. The
average age of our core fleet of 13 vessels is around eight years;
this excludes the 37-year-old Naashi. At the end of 2018, we had
planned to dispose of Naashi as the oldest vessel in our asset
base. In the first half of this year, previously expressed interest
in her reduced sufficiently such that we now believe the most
likely commercial option is to proceed with our plan to scrap the
vessel. The cantilever for our S-Class vessels was previously
included in capital work-in-progress, however, after a review of
future options and market appetite, disposal of this is now the
most likely outcome.
Depreciation and amortisation increased to US$ 16.8 million (H1
2018: US$ 13.1 million) and finance expenses increased to US$ 16.4
million (H1 2018: US$ 15.0 million). Depreciation and amortisation
increased by 28.2%, primarily as a result of an E-Class commencing
depreciation in May 2018, after being modified and delivered to the
client ready for use, as well as an accounting adjustment of US$
0.6 million as part of the implementation of IFRS 16 Leases, which
became effective 1 January 2019. Finance expenses increased by US$
1.4 million as a result of slightly higher borrowing rates due to
increases in LIBOR.
The adjusted diluted loss per share was 3.58 cents (H1 2018:
1.42 cents). Diluted loss per share was 4.88 cents (H1 2018: 1.42
cents). As announced on 21 August 2019, adjusted EBITDA will be
lower than in 2018, in an expected range of US$ 45.0 million - US$
48.0 million.
Total capital expenditure for H1 2019 reduced to US$ 4.2 million
(H1 2018: US$ 14.4 million) as the business focuses on essential
capital expenditure only. Total net borrowings were US$ 403.4
million at 30 June 2019 (31 December 2018: US$ 400.5 million).
Subsequent to the period end, the Group received a waiver for
covenants attached to the term loan and working capital facilities
for the 30 June 2019 testing date and secured continued access to
US$ 25.0 million of its US$ 50.0 million working capital, as well
as US$ 10.0 million of performance bonding facilities that will
underpin the Group's liquidity and support the growth of its
business, in each case until the end of the year. The Group,
together with its advisors, is continuing to negotiate a long-term
solution to its capital structure, by way of an amendment and
extension to its banking facilities. This will seek to address the
Group's future loan repayment profile, as well as provide continued
access to working capital and performance bonds, and reset its
financial covenant tests going forward. The Directors continue to
believe that a satisfactory outcome to the restructuring of its
banking facilities by 31 December 2019 is likely and, accordingly,
have adopted the going concern basis. Given the risk that such
negotiations with the banking group may not be successful, a
material uncertainty regarding the ability to continue as a going
concern has been disclosed in note 2 of the condensed consolidated
financial statements.
The following sections discuss the Group's results. The results
have been adjusted in certain places to reflect what the Directors
consider a more useful indicator of underlying performance. The
adjusting items are discussed below in this review and a
reconciliation between the adjusted and statutory results is
contained in note 4 of the condensed consolidated financial
statements.
Revenue and segmental profit
Revenue in H1 2019 was US$ 55.0 million (H1 2018: US$ 56.1
million). There was an improvement in SESV fleet utilisation to 69%
based on calendar days (H1 2018: 62%). Utilisation for the S-Class
vessel segment was particularly high, increasing to 96% (H1 2018:
74%).
Vessel day rates remained under pressure during the period to 30
June 2019, with the average decreasing to US$ 30k (H1 2018: US$
36k). The average day rate for E-Class vessels decreased to US$ 43k
(H1 2018: US$ 49k), for S-Class vessels to US$ 34k (H1 2018: US$
42k) and for K-Class vessels to US$ 21k (H1 2018: US$ 24k). We
continue to focus on balancing exposure to long-term contracts and
operating margins.
During the six-month period to 30 June 2019, 72% of total Group
revenue was derived from customers located in the Middle East (H1
2018: 72%) mainly from NOC clients in the oil & gas sector,
while the remaining 28% of revenue was earned from customers in
Europe (H1 2018: 28%).
The table below shows the contribution to revenue and segment
adjusted gross profit or loss (being gross profit excluding
depreciation, amortisation and impairment charge) made by each
vessel class during the period. E-Class vessels continue to be the
largest contributor to overall revenue. S-Class vessels were the
largest contributor to segment adjusted gross profit, compared to
E-Class vessels in H1 2018, following higher utilisation levels
mentioned above.
Segmented adjusted
gross profit/(loss)*
Revenue (US$'000)
---------------- -----------------------
(US$'000)
Vessel Class H1 2019 H1 2018 H1 2019 H1 2018
E-Class vessels 18,951 20,474 8,313 12,309
S-Class vessels 18,201 19,083 11,667 12,195
K-Class vessels 17,815 16,528 9,790 9,356
Sundry rental income 2 - (26) (71)
--------------------- ------- ------- ----------- ----------
Total 54,969 56,085 29,744 33,789
--------------------- ------- ------- ----------- ----------
*See Glossary.
Cost of sales and general and administrative expenses
The Group's target of US$ 6.0 million in annualised cost savings
will be exceeded by year end, with an improved target set at US$
8.5 million of annualised savings, as cost management continues to
be a core focus for the business. This has primarily been achieved
through headcount reductions, renegotiations on contracts with some
of our largest suppliers and by reducing our property costs. Cost
of sales excluding depreciation and amortisation was 13% higher at
US$ 25.2 million (H1 2018: US$ 22.3 million). This reflects the
impact on variable costs of higher vessel activity levels. Average
on hire daily vessel operating expenses across all vessel classes
was flat at US$ 9k for K-Class, US$ 12k for S-Class and US$ 15k for
E-Class.
Depreciation and amortisation included in cost of sales
increased to US$ 15.7 million (H1 2018: US$ 12.5 million),
primarily as a result of an E-Class commencing depreciation in May
2018 after being modified and delivered to the client.
General and administrative costs were 5% lower in the period at
US$ 8.6 million (H1 2018: US$ 9.1 million). General and
administrative expenses excluding depreciation and amortisation
were 11% lower at US$ 7.5 million (H1 2018: US$ 8.4 million),
reflecting implementation of the cost saving initiatives announced.
As at 30 June 2019, the Group had delivered US$ 1.7 million of
savings. Our target of US$ 6.0 million in annualised cost savings
will be exceeded by year end, with an improved target set at US$
8.5 million of annualised savings as the full benefit of headcount
reductions and further new initiatives will have crystallised.
The Group has recognised right-of-use-assets for property leases
previously expensed as a result of IFRS 16, a new Standard which
became effective 1 January 2019, resulting in US$ 0.6 million of
amortisation in the period.
During the period, the Group reviewed the book value of the
fleet and associated capital equipment. An impairment was
identified on Naashi of US$ 1.8 million, the Group's oldest SESV
that is not part of the core fleet and which has been out of work
since 2016. At the end of 2018 we had planned to dispose of this
vessel. In the first half of this year previously expressed
interest in her has reduced sufficiently such that we now believe
the most likely commercial option is scrap. As at year end, there
was an amount of US$ 3.0 million classified as capital work in
progress relating to the costs incurred as at that date relating to
the construction of an S-Class cantilever. After a review of
options as of the period end for the cantilever and taking into
consideration a lack of market appetite, the carrying value has
been transferred into equipment and written down by US$ 2.8 million
to its estimated scrap value.
EBITDA and Adjusted EBITDA
EBITDA for the period was US$ 17.7 million (H1 2018: US$ 25.4
million). Adjusted EBITDA for the period to 30 June 2019 was US$
22.3 million (H1 2018: US$ 25.4 million). The reduction compared to
H1 2018 primarily arises from the impact on margins of lower rates.
The Group's adjusted EBITDA margin in the period reduced to 41% (H1
2018: 45%). The Board has recently conducted a detailed review of
the Group's financial performance and forecast activity levels.
This review established that full year 2019 adjusted EBITDA will be
lower than previous guidance, in an expected range of US$ 45.0
million - US$ 48.0 million. This has mainly been driven by a
reduction in activity levels in NW Europe (mentioned above).
Finance costs
Finance costs in the period to 30 June 2019 were US$ 16.4
million (H1 2018: US$ 15.0 million), reflecting higher rates and
also additional interest as a result of increased borrowings. The
average borrowing rate in the period was 7.7% compared to 6.7% in
H1 2018. The cost of borrowings from banks is based on US$ LIBOR
(which increased from the same period in 2018) plus a variable rate
margin on our term loan linked to net leverage levels.
Foreign exchange losses
In H1 2019, there was a net foreign exchange loss of US$ 0.5
million (H1 2018: gain of US$ 0.3 million) arising from movements
in exchange rates of the Pound Sterling and Euro against the US
Dollar, the Group's presentational currency. Both the Pound
Sterling and Euro weakened against the US dollar following
continued uncertainty surrounding Brexit.
Taxation
The taxation expense decreased to US$ 1.0 million (H1 2018: US$
1.9 million), reflecting a reduction in withholding tax and
corporation tax, as a result of a decrease in Group revenue earned
in taxable jurisdictions.
Earnings
The Group incurred a loss after tax of US$ 16.9 million (H1
2018: US$ 4.4 million), including the non-cash impairment charge of
US$ 4.6 million described above. Adjusted net loss after tax
increased in H1 2019 to US$ 12.3 million from US$ 4.4 million in H1
2018. Diluted loss per share was 4.88 cents (H1 2018: 1.42 cents).
The adjusted diluted loss per share was 3.58 cents (H1 2018:
diluted loss per share of 1.42 cents).
Dividends
The Board has elected to continue the suspension of dividend
payments while we focus on addressing our capital structure.
Capital expenditure
Capital expenditure during the first half of the year reduced to
US$ 4.2 million (H1 2018: US$ 14.4 million) primarily relating to
ongoing fleet maintenance. Capital expenditure for the remainder of
2019 is expected to be less than US$ 3.0 million.
Cash flow and liquidity
The Group's net cash flow from operating activities was a net
inflow of US$ 18.9 million (H1 2018: net outflow of US$ 8.2
million) primarily resulting from lower working capital. In the
prior period, working capital was required to support vessel
modifications not repeated in the current period.
The net cash outflow from investing activities for H1 2019
reduced to US$ 6.0 million (H1 2018: US$ 11.9 million) as a result
of lower levels of capital expenditure discussed above. The Group's
net cash flow from financing activities during the period was an
outflow of US$ 21.1 million (H1 2018: US$ 8.4 million) relating to
debt repayment and interest payments offset by the US$ 5.0 million
working capital facility drawdown.
On 29 September 2019, the Group received a waiver to the
covenants attached to the term loan and working capital facilities
for the 30 June 2019 testing date and secured continued access to
US$ 25.0 million of its US$ 50.0 million working capital, as well
as US$ 10.0 million of performance bonding facilities that will
underpin the Group's liquidity and support the growth of its
business, in each case until the end of the year. Under the terms
of the Waiver Agreement signed, the Group is required to deliver an
agreed amendment and extension to the existing banking facilities
with its lenders by 31 December 2019, or the business will fall
into payment default on the US$ 25.0 million working capital
facility that has already been drawn and will immediately lose
access to its lines of credit to provide performance bonds to
secure new business. Through careful management of our liquidity
during persistent challenging market conditions, we expect to be
able to make our interest and principal repayments on our banking
facilities through the end of 2019, after which time an amended and
extended repayment schedule will be required. Absent a successful
resolution to negotiations to amend and extend the existing banking
facilities, the Group expects to be in breach of its financial
covenants attached to the term loan and working capital facilities
as at the 31 December 2019 and 30 June 2020 testing dates.
Balance sheet
Total current assets at 30 June 2019 were US$ 43.4 million (31
December 2018: US$ 52.5 million). Cash and cash equivalents
decreased to US$ 2.9 million (31 December 2018: US$ 11.0 million).
Trade and other receivables remain flat at US$ 40.0 million (31
December 2018: US$ 40.9 million), broadly in line with revenue.
Trade receivables are due from customers which are mainly NOC, IOC
and international EPC companies, with no balances being due for
more than 120 days as at 30 June 2019. Since the 30 June 2019
reporting date, US$ 23.2 million of trade receivables have been
collected.
Total current liabilities decreased to US$ 432.1 million at 30
June 2019 (31 December 2018: US$ 436.6 million), primarily as a
result of borrowings decreasing by US$ 5.2 million from a US$ 10.3
million principal repayment offset by the US$ 5.0 million which was
drawn down under the working capital facility in April 2019.
Total non-current assets at 30 June 2019 were US$ 790.7 million
(31 December 2018: US$ 802.9 million). This decrease is primarily
attributable to the decrease in the net book value of property,
plant and equipment arising from depreciation during the period of
US$ 15.2 million offset by capital expenditure amounting to US$ 4.2
million discussed above. In addition, impairments have been
recognised on Naashi and a cantilever totalling US$ 4.6 million. At
30 June 2019, the Group had a right-to-use asset of US$ 2.0 million
as a result of the adoption of IFRS 16 described above. Total
non-current liabilities increased to US$ 3.2 million (31 December
2018: US$ 2.7 million) mainly from the recognition of a long-term
lease liability of US$ 0.9 million, also as a result of the
adoption of IFRS 16.
Net debt
Total net borrowings as at 30 June 2019 were US$ 403.4 million
(31 December 2018: US$ 400.5 million), mainly attributable to a
decrease in cash and cash equivalents to US$ 2.9 million (31
December 2018: US$ 11.0 million) which was offset by a decrease in
bank borrowings to US$ 406.4 million (31 December 2018: US$ 411.5
million), both described above.
Assuming GMS is unable to successfully amend and extend the
terms of its banking facilities by the end of 2019, it does not
expect to meet interest cover and leverage financial covenants
under its term loan and working capital facilities with reference
to the 31 December 2019 and 30 June 2020 testing dates which would
trigger an event of default with all banking facilities becoming
immediately repayable upon request. Subsequent to the half year
reporting date, a waiver was received for the financial covenants
attached to the term loan for the 30 June 2019 testing date. As a
breach was expected with reference to the 30 June 2019 testing
date, all bank debt continues to be classified as a current
liability. See note 11 of the condensed consolidated financial
statements for details of the Group's facilities.
Equity
Total equity decreased from US$ 416.1 million at 31 December
2018 to US$ 398.8 million at 30 June 2019. The movement is mainly
attributed to the loss incurred during the period.
The number of ordinary shares issued in the Company increased to
350,487,787 following the issue of 519,909 shares on 2 April 2019
awarded under the Company's 2016 Long-Term Incentive Plan (LTIP).
No LTIP awards have been granted during the period.
Going concern
The Company's Directors have assessed the Group's financial
position for a period of not less than 12 months from the date of
approval of the interim results. The Group has committed credit
facilities in place at 30 June 2019 (see note 11 of the condensed
consolidated financial statements), comprising an existing term
loan facility with a balance of US$ 381.4 million and a working
capital facility of US$ 50.0 million, of which US$ 25.0 million has
been drawn.
Following active negotiations with its bank syndicate,
subsequent to the period end the Group received a waiver. This
waiver agreement is for anticipated breaches on covenants attached
to its existing term loan and working capital facilities with
reference to its 30 June 2019 financial results, as well as
continued access to the US$ 25.0 million committed portion of its
working capital facility and access to US$ 10.0 million of
performance bonding facilities that will underpin the Group's
liquidity and support the growth of its business, in each case
until the end of the year. As noted above, the Group is now
required to secure a long-term solution to its capital structure by
entering into binding agreements to amend and extend its banking
facilities before the end of 2019.
If it is unable to do so and cannot obtain a further extension
to complete its negotiations, a payment default under its working
capital facility will be triggered as at 31 December 2019 and the
Group will also immediately lose access to its current performance
bond facilities. In addition, with regard to its financial
covenants, absent a successful resolution to negotiations to amend
and extend the existing banking facilities, the Group expects to be
in breach of its financial covenants as at the 31 December 2019 and
30 June 2020 testing dates.
Subject to the agreement of a majority of banks representing at
least 66.67% of total commitments, a payment default could result
in the banks exercising their rights to recall all credit
facilities, demand immediate repayment and/or enforce their rights
over the security granted by the Group as part of this facility
either by enforcing security over assets and/or exercising the
share pledge to take control of the Group.
These conditions indicate the existence of a material
uncertainty that may cast significant doubt on the Group's ability
to continue as a going concern and therefore, that it may be unable
to realise its assets and discharge its liabilities in the normal
course of business.
Based on discussions to date, the Directors are confident in the
willingness of the lending group to support a long-term solution to
the Group's current banking facilities, which will address its
access to working capital and performance bonds, reset its covenant
levels and repayment profile going forward. Notwithstanding the
material uncertainty with regard to the outcome of these
negotiations, the Directors continue to believe that a satisfactory
outcome to the restructuring of its banking facilities is likely by
31 December 2019 and, accordingly, have adopted the going concern
basis of accounting in preparing the interim condensed consolidated
financial statements.
Related party transactions
There have been no related party transactions during the
period.
Adjusting items
The Group presents adjusted results, in addition to the
statutory results, as the Directors consider that they provide a
useful indication of underlying performance. In H1 2019 the
adjusting items are a non-cash impairment charge on non-core
property, plant and equipment of US$ 4.6 million (H1 2018: nil
adjustments).
A reconciliation between the adjusted non-GAAP and statutory
results is provided in note 4.
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 2019. Other than the financial risks, which have been
updated to reflect the need to successfully complete current bank
negotiations, the Directors do not consider that the principal
risks and uncertainties have materially changed since the last
publication of the Annual Report for the year ended 31 December
2018. A detailed explanation of the risks summarised below, and how
the Group seeks to mitigate the risks, can be found on pages 19 to
22 of the 2018 annual report which is available at
www.gmsuae.com.
-- Financial - Failure to enter into binding agreements that
amend and extend the terms of the banking facilities with lenders
by 31 December 2019 will lead to default on those facilities and
failure to meet covenant tests as at that date. This will trigger a
further payment default after cure periods in the loan agreement
are exhausted. Subject to the majority of banks representing at
least 66.67% of total commitments agreeing, a default could result
in the lenders exercising their rights to recall all banking
facilities, demand immediate repayment and/or enforce their rights
over the security granted by the Group as part of the banking
facilities either by enforcing security over assets and/or
exercising the share pledge to take control of the Group.
-- Strategic - The Group is subject to threats from competitor
actions or the entrance of new competitors in the market as well as
macroeconomic events, including the impact of a sustained period of
low oil prices on demand for the Group's services. Market sentiment
could reduce the share price and the intrinsic value of the
business.
-- People - The Group's success depends on its ability to
attract and retain suitably qualified and experienced
personnel.
-- Commercial - The Group relies on a limited number of
blue-chip clients that may expose us to losses if these
relationships breakdown. The Group may not be able to win contracts
or retain existing contracts, tenders may be unusually protracted
or contractual option periods may not be exercised. Contract
cancelations may lead to commercial downtime between contracts and
lower overall average utilisation. Discounted pricing in the
industry could reduce charter day rates, impacting margins and
utilisation.
-- 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.
-- Brexit - Continuing uncertainty surrounding the UK's exit
from the European Union and future legislation in the UK could
impact the Group's UK operations.
-- Operational - The Group's assets should operate in the manner
intended by management. Changes in political landscapes could
adversely affect operations. There may be cybersecurity incidents
which could impact operations or lead to a financial or
reputational loss.
RESPONSIBILITY STATEMENT
Financial information for the period ended 30 June 2019.
We confirm that to the best of our knowledge:
(a) the condensed set of consolidated financial statements has
been prepared in accordance with IAS 34 Interim Financial
Reporting;
(b) the interim management report includes a fair view of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
(c) the interim management report includes a fair view of the
information required by DTR 4.2.8R (disclosure of related party
transactions and changes therein).
By order of the Board
Tim Summers Stephen Kersley
Executive Chairman Chief Financial Officer
29 September 2019 29 September 2019
INDEPENT REVIEW REPORT TO GULF MARINE SERVICES PLC
We have been engaged by Gulf Marine Services plc (the "Company"
together with its subsidiaries, the "Group") to review the
condensed set of financial statements in the half-yearly financial
report for the six months ended 30 June 2019 which comprises the
condensed consolidated statement of comprehensive income, the
condensed consolidated balance sheet, and condensed consolidated
statement of changes in equity and the condensed consolidated
statement of cash flows and the related notes 1 to 17. 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.
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.
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 are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
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 2019 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Material uncertainty related to going concern
We draw attention to the Going concern paragraph in note 2 in
the condensed consolidated financial statements, which indicates
the anticipated breach of the Group's existing debt covenants as at
the 31 December 2019 and the 30 June 2020 testing dates; and the
requirement for the Group to have entered into binding agreements
with its lenders to amend and extend the Group's existing banking
facilities by 31 December 2019 in order to avoid an event of
default under the Group's term loan and working capital facilities
at that date and to ensure continued liquidity and access to its
performance bond facility. As stated in note 2, these events or
conditions indicate that a material uncertainty exists that may
cast significant doubt on the Group's ability to continue as a
going concern. Our conclusion is not modified in respect of this
matter.
Deloitte LLP
Statutory Auditor
Aberdeen, United Kingdom
29 September 2019
GULF MARINE SERVICES PLC
Condensed Consolidated Statement of Comprehensive Income
for the period ended 30 June 2019
Six months period ended Year ended
30 June 31 December
---------------------------
2019 2018 2018
US$'000 US$'000 US$'000
Notes (Unaudited) (Unaudited) (Audited)
Revenue 3 54,969 56,085 123,335
Cost of sales (40,903) (34,771) (76,317)
Impairment charge 7 (4,561) - -
Gross profit 9,505 21,314 47,018
General and administrative
expenses (8,596) (9,063) (18,556)
------------- ------------ -------------
Operating profit 909 12,251 28,462
Finance income 8 15 22
Finance expense (16,437) (15,027) (31,301)
Gain on disposal of
property, plant and
equipment 3 - 6
Other income/(loss) 75 (35) 140
Foreign exchange (loss)/gain,
net (474) 259 266
------------- ------------ -------------
Loss for the period/year
before taxation (15,916) (2,537) (2,405)
Taxation charge for
the period/year 5 (959) (1,867) (2,698)
------------- ------------ -------------
Loss for the period/year (16,875) (4,404) (5,103)
============= ============ =============
Other comprehensive
income/(loss) - items
that may be reclassified
to profit or loss:
Net (loss)/gain on cash
flow hedges (449) - 685
Net change in cost of
hedging (781) - (923)
Exchange differences
on translating foreign
operations 96 (176) (615)
Total comprehensive
loss for the period/year (18,009) (4,580) (5,956)
------------- ------------ -------------
(Loss)/profit attributable
to:
Owners of the Company (17,095) (4,973) (6,126)
Non-controlling interests 220 569 1,023
------------- ------------ -------------
(16,875) (4,404) (5,103)
Total comprehensive
(loss)/income attributable
to:
Owners of the Company (18,229) (5,149) (6,979)
Non-controlling interests 220 569 1,023
------------- ------------ -------------
(18,009) (4,580) (5,956)
------------- ------------ -------------
Loss per share
Basic (cents per share) 6 (4.88) (1.42) (1.75)
------------- ------------ -------------
Diluted (cents per share) 6 (4.88) (1.42) (1.75)
------------- ------------ -------------
Results in each period/year are derived from continuing
operations.
The accompanying notes form an integral part of these condensed
consolidated financial statements.
GULF MARINE SERVICES PLC
Condensed Consolidated Balance Sheet
as at 30 June 2019
30 June 31 December
Notes 2019 2018
US$'000 US$'000
ASSETS
Non-current assets
Property, plant and equipment 7 783,043 798,595
Right-of-use assets 2 2,032 -
Dry docking expenditure 3,417 2,401
Deferred tax asset 2,162 1,866
Total non-current assets 790,654 802,862
Current assets
Trade and other receivables 8 40,032 40,919
Cash and cash equivalents 2,924 11,046
Derivative financial instruments 439 543
--------- ------------
Total current assets 43,395 52,508
Total assets 834,049 855,370
========= ============
EQUITY AND LIABILITIES
Capital and reserves
Share capital 9 58,057 57,992
Share premium account 93,080 93,080
Restricted reserve 272 272
Group restructuring reserve (49,710) (49,710)
Share option reserve 10 4,055 3,410
Capital contribution 9,177 9,177
Cash flow hedge reserve 236 685
Cost of hedging reserve (1,704) (923)
Translation reserve (2,488) (2,584)
Retained earnings 286,224 303,319
--------- ------------
Attributable to the Owners of the
Company 397,199 414,718
Non-controlling interests 1,566 1,346
Total equity 398,765 416,064
--------- ------------
Non-current liabilities
Lease liabilities 2 870 -
Provision for employees' end of service
benefits 2,343 2,722
Deferred tax liability 13 13
Total non-current liabilities 3,226 2,735
--------- ------------
Current liabilities
Trade and other payables 17,431 18,833
Current tax liability 4,926 5,442
Lease liabilities 2 1,438 -
Bank borrowings - scheduled repayments
within one year 11 66,306 20,338
Bank borrowings - scheduled repayments
more than one year 11 340,050 391,177
Derivative financial instruments 1,907 781
--------- ------------
Total current liabilities 432,058 436,571
Total liabilities 435,284 439,306
Total equity and liabilities 834,049 855,370
--------- ------------
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 2019
Attributable
Group to the
Share Share premium Restricted restructuring Share option Capital Cash flow hedge Cost of hedging Translation Retained owners of Non-con-trolling Total
capital account reserve reserve reserve contribution reserve reserve reserve earnings the Company interests 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
As at 1
January 2019 57,992 93,080 272 (49,710) 3,410 9,177 685 (923) (2,584) 303,319 414,718 1,346 416,064
Total
comprehensive
(loss)/income
for the
period - - - - - - (449) (781) 96 (17,095) (18,229) 220 (18,009)
Share options
rights charge
(note 10) - - - - 710 - - - - - 710 - 710
Shares issued
under LTIP
schemes 65 - - - (65) - - - - - - - -
As at 30 June
2019 58,057 93,080 272 (49,710) 4,055 9,177 236 (1,704) (2,488) 286,224 397,199 1,566 398,765
As at 1
January 2018 57,957 93,075 272 (49,710) 2,465 9,177 - - (1,969) 309,445 420,712 598 421,310
Total
comprehensive
(loss)/income
for the
period - - - - - - - - (176) (4,973) (5,149) 569 (4,580)
Share options
rights charge - - - - 539 - - - - - 539 - 539
Shares issued
under LTIP
schemes 35 5 - - (40) - - - - - - - -
As at 30 June
2018 57,992 93,080 272 (49,710) 2,964 9,177 - - (2,145) 304,472 416,102 1,167 417,269
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 2019
Year ended
Six month period ended 31 December
30 June
--------------------------
2019 2018 2018
US$'000 US$'000 US$'000
Net cash generated from/(used in)
operating activities (note 13) 18,939 (8,202) 28,876
Investing activities
Payments for property, plant and equipment (3,954) (13,019) (21,190)
Proceeds from insurance claim - 1,710 -
Proceeds from disposal of property,
plant and equipment 3 - 80
Dry docking expenditure incurred (2,013) (616) (1,890)
Interest received 8 15 22
Net cash used in investing activities (5,956) (11,910) (22,978)
Financing activities
Bank borrowings received 5,000 20,000 20,000
Repayment of bank borrowings (10,327) (11,720) (20,653)
Payment of issue costs on borrowings (92) (416) (796)
Interest paid (15,607) (16,304) (32,357)
Principal elements of lease payments (79) - -
Net cash used in financing activities (21,105) (8,440) (33,806)
Net decrease in cash and cash equivalents (8,122) (28,552) (27,908)
Cash and cash equivalents at the beginning
of the period/year 11,046 38,954 38,954
Cash and cash equivalents at the end
of the period/year 2,924 10,402 11,046
Non-cash transactions
Share issued under LTIP schemes 65 40 35
The accompanying notes form an integral part of these condensed
consolidated financial statements.
GULF MARINE SERVICES PLC
Notes to the condensed consolidated financial statements
for the period ended 30 June 2019
1 Corporate information
Gulf Marine Services PLC ("GMS" or the "Company") is a Company
which was 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 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, South East Asia, West
Africa, North America, the Gulf of Mexico and Europe.
The condensed consolidated financial statements of the Group for
the six month period ended 30 June 2019 were authorised for issue
on 29 September 2019. 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 2018 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 25 March 2019. 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 was
unqualified and 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 2018 contained in these condensed consolidated
accounts have been extracted from the latest published audited
financial statements. A copy of the statutory accounts for year
ended 31 December 2018 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 2018 as disclosed in the Annual Report, except for the
adoption of new standards and interpretations effective as of 1
January 2019.
Basis of preparation
The annual consolidated financial statements of the Group are
prepared in accordance with IFRS as adopted by the European Union.
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
European Union.
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 2018. In addition, results for the six month period ended
30 June 2019 are not necessarily indicative of the results that may
be expected for the financial year ending 31 December 2019. The
condensed consolidated statement of comprehensive income for the
six month period ended 30 June 2019 is not affected significantly
by seasonality of results.
Going concern
The Company's Directors have assessed the Group's financial
position for a period of not less than 12 months from the date of
approval of the interim results. The Group has committed credit
facilities in place at 30 June 2019 (see note 11), comprising an
existing term loan facility with a balance of US$ 381.4 million and
a working capital facility of US$ 50.0 million, of which US$ 25.0
million has been drawn.
Following active negotiations with its bank syndicate,
subsequent to the period end the Group received a waiver. This
waiver is for anticipated breaches on covenants attached to its
existing term loan and working capital facilities with reference to
its 30 June 2019 financial results, as well as continued access to
the US$ 25.0 million committed portion of its working capital
facility and access to US$ 10.0 million of performance bonding
facilities that will underpin the Group's liquidity and support the
growth of its business, in each case until the end of the year. As
noted above, the Group is now required to secure a long-term
solution to its capital structure by entering into binding
agreements to amend and extend its banking facilities before the
end of 2019.
If it is unable to do so and cannot obtain a further extension
to complete its negotiations, a payment default under its working
capital facility will be triggered as at 31 December 2019 and the
Group will also immediately lose access to its current performance
bond facilities. In addition, with regard to its financial
covenants, absent a successful resolution to negotiations to amend
and extend the existing banking facilities, the Group expects to be
in breach of its financial covenants as at the 31 December 2019 and
30 June 2020 testing dates.
Subject to the agreement of a majority of banks representing at
least 66.67% of total commitments, a payment default could result
in the banks exercising their rights to recall all credit
facilities, demand immediate repayment and/or enforce their rights
over the security granted by the Group as part of this facility
either by enforcing security over assets and/or exercising the
share pledge to take control of the Group.
These conditions indicate the existence of a material
uncertainty that may cast significant doubt on the Group's ability
to continue as a going concern and therefore, that it may be unable
to realise its assets and discharge its liabilities in the normal
course of business.
Based on discussions to date, the Directors are confident in the
willingness of the lending group to support a long-term solution to
the Group's current banking facilities, which will address its
access to working capital and performance bonds, reset its covenant
levels and repayment profile going forward. Notwithstanding the
material uncertainty with regard to the outcome of these
negotiations, the Directors continue to believe that a satisfactory
outcome to the restructuring of its banking facilities is likely by
31 December 2019 and, accordingly, have adopted the going concern
basis of accounting in preparing the interim condensed consolidated
financial statements.
The following standard became applicable for the current
reporting period and the Group had to change its accounting
policies as a result.
New and amended standards adopted by the Group
IFRS 16 Leases
IFRS 16 Leases, introduces a comprehensive model for the
identification of lease arrangements and accounting treatments for
both lessors and lessees. The Group has adopted IFRS 16 using the
modified retrospective method of adoption, with the date of initial
application as at 1 January 2019, as permitted by transitional
provisions of the standard, and has not restated comparatives for
the annual period ended on 31 December 2018. The reclassifications
and the adjustments arising from the new leasing rules are
therefore recognised in the opening balance sheet on 1 January
2019.
Lessee accounting
IFRS 16 distinguishes leases and service contracts on the basis
of whether an identified asset is controlled by a customer.
Distinctions of operating leases (off balance sheet) and finance
leases (on balance sheet) are removed for lessee accounting and is
replaced by a model where a right-of-use asset and a corresponding
liability have to be recognised for all leases by lessees (i.e. all
on balance sheet) except for short-term leases and leases of
low-value assets.
The right-of-use asset is initially measured at cost and
subsequently measured at cost (subject to certain exceptions) less
accumulated depreciation and impairment losses, adjusted for any
remeasurement of the lease liability. The lease liability is
initially measured at the present value of the lease payments that
are not paid at that date. Subsequently, the lease liability is
adjusted for interest and lease payments, as well as the impact of
lease modifications, amongst others.
Furthermore, the classification of cash flows has changed as
operating lease payments under IAS 17 were presented as operating
cash flows; whereas under the IFRS 16 model, lease payments are
split into a principal and finance cost which will be presented as
financing and operating cash flows respectively. In contrast to
lessee accounting, IFRS 16 substantially carries forward the lessor
accounting requirements in IAS 17, and continues to require a
lessor to classify a lease either as an operating lease or a
finance lease. The standard includes two recognition exemptions for
lessees - leases of low-value assets and short-term leases (i.e.,
leases with a lease term of 12 months or less).
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the Group's incremental borrowing
rate as of 1 January 2019. The Group's weighted average incremental
borrowing rate applied to lease liabilities on 1 January 2019 is
7.8%.
The table below presents a reconciliation from operating lease
commitments disclosed at 31 December 2018 to lease liabilities
recognised at 1 January 2019
1 January
2019
US$' 000
Operating lease commitments disclosed as at 31 December 2018 1,346
Add: finance lease liabilities recognised as at 31 December 2018 1,095
Less: Discounting using the incremental borrowing rate of at the date of initial application (134)
Lease liability as at 1 January 2019 2,307
----------
Movement in the lease liability during the six month period
ended 30 June 2019 was as follows:
US$' 000
Lease liability as at 1 January 2019 2,307
Finance costs on leases during the period 80
Principal payments made during the period (79)
---------
Lease liability as at 30 June 2019 2,308
---------
The lease liability as at 30 June 2019 is presented in the
condensed consolidated financial statements as follows:
30 June
2019
US$' 000
Current 1,438
Non-current 870
---------
Total lease liability 2,308
---------
The associated right-of-use asset for property leases were
measured at the amount equal to the lease liability. There were no
onerous lease contracts that would have required an adjustment to
the right-of-use assets at the date of initial application. The
recognised right-of-use asset relates to office space and land and
buildings leased by the Group and is presented separately on the
face of the condensed consolidated balance sheet. During the period
ended 30 June 2019 US$ 0.1 million has been recognised as finance
costs on the lease liability, to the condensed consolidated
statement of comprehensive income.
The movement in the right-of-use asset during the six month
period ended 30 June 2019 was as follows:
US$' 000
Right-of-use-assets as at 1 January 2019 2,648
Amortisation on existing right-of-use assets during the period (278)
Amortisation on new right-of-use assets during the period (338)
---------
Right-of-use assets as at 30 June 2019 2,032
---------
During the period ended 30 June 2019, US$ 0.6 million has been
recognised in general and administrative expenses as amortisation
of the right-of-use-asset, to the condensed consolidated statement
of comprehensive income (refer to note 4).
The differences in the lease liability and the right-of-use
assets as at 1 January 2019 relate to movements since inception of
the leases recognised and the opening balance sheet date as at 1
January 2019.
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- the accounting for operating leases with a remaining lease
term of less than 12 months as at 1 January 2019 as short-term
leases.
-- the accounting for operating leases with a low value as at 1
January 2019 as low-value leases.
The Group leases various offices and a yard. Rental contracts
are typically made for fixed periods of one to five years. Lease
terms are negotiated on an individual basis and contain a wide
range of different terms and conditions. The lease agreements do
not impose any covenants, but leased assets may not be used as
security for borrowing purposes.
Until the year ended 31 December 2018, leases of property, plant
and equipment were classified as either finance or operating
leases. Payments made under operating leases (net of any incentives
received from the lessor) were charged to profit or loss on a
straight-line basis over the period of the lease.
From 1 January 2019, leases are recognised as a right-of-use
asset and a corresponding liability at the date at which the leased
asset is available for use by the Group. Each lease payment is
allocated between the liability and finance cost. The finance cost
is charged to profit or loss over the lease period so as to produce
a periodic rate of interest on the remaining balance of the
liability for each period.
The right-of-use asset is depreciated over the shorter of the
asset's useful life and the lease term on a straight-line
basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less any lease incentives receivable;
-- variable lease payments that are based on an index or a rate;
-- amounts expected to be payable by the lessee under residual value guarantees;
-- the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option; and
-- payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
lessee's incremental borrowing rate is used, being the rate that
the lessee would have to pay to borrow the funds necessary to
obtain an asset of similar value in a similar economic environment
with similar terms and conditions. As at 1 January 2019, the Group
used the incremental borrowing rate applicable on its leases.
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement date
less any lease incentives received;
-- any initial direct costs; and
-- restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets comprise
IT-equipment and small items of office furniture.
In contrast to lessee accounting, lessor accounting requirements
remain largely unchanged from IAS 17 and continue to require a
lessor to classify a lease as either an operating lease or a
finance lease.
The Group's revenue contracts with customers contain a lease
element as the Group's clients have the right to 'direct use' of
the assets within the parameters of a predetermined contract.
The pattern of income recognition is the same under IFRS 16 as
that under IFRS 15 Revenue from Contracts with Customers. However,
there is a requirement to disclose the leasing component separate
to contract revenue. For the period ended 30 June 2019, the Group
had lease income of US$ 16.8 million separate to revenue under IFRS
15 Revenue from Contracts with Customers.
The application of the other 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 2019
will be provided in the Group's annual financial statements for the
year ending 31 December 2019.
There were also a number of new or amended standards which
became applicable on 1 January 2019, which did not have any
material impact on the Group's accounting policies as follows:
-- IFRIC Interpretation 23 Uncertainty over Income Tax Treatment
-- Amendments to IFRS 9 Prepayment Features with Negative Compensation
-- IFRS 3 Business Combinations
-- IAS 12 Income Taxes
-- IAS 23 Borrowing Costs
-- Amendments to IAS 19 Employee Benefits
3 Segment reporting
The segment information provided to the chief operating decision
makers for the operating and reportable segments for the period
include the following:
Segment adjusted
Revenue gross profit/(loss)*
-------------------------------- ------------------------------------
6 months ended 31 December 6 months ended 31
30 June 30 June December
------------------ ------------ ------------------------ ----------
2019 2018 2018 2019 2018 2018
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Large Class vessels 18,951 20,474 52,077 8,313 12,309 31,563
Mid-Size Class vessels 18,201 19,083 35,407 11,667 12,195 22,960
Small Class vessels 17,815 16,528 35,847 9,790 9,356 20,836
Other 2 - 4 (26) (71) (58)
_______ _______ _______ _______ _______ _________
Total 54,969 56,085 123,335 29,744 33,789 75,301
_______ _______ _______ _______ _______ ________
Less:
Depreciation charged
to cost of sales (14,681) (11,182) (26,083)
Amortisation charged
to cost of sales (997) (1,293) (2,200)
Impairment charge (4,561) - -
_______ _______ _________
Gross profit 9,505 21,314 47,018
General and administrative
expenses (8,596) (9,063) (18,556)
Finance income 8 15 22
Finance expense (16,437) (15,027) (31,301)
Gain on disposal of
property plant and
equipment 3 - 6
Other income/(loss) 75 (35) 140
Foreign exchange (loss)/gain,
net (474) 259 266
_______ _______ _________
Loss before taxation (15,916) (2,537) (2,405)
*See Glossary.
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.
4 Presentation of adjusted non-GAAP results
The following table provides a reconciliation between the
statutory and non-statutory financial results:
6 months ended 30 June 6 months ended 30 June
2019 2018
Adjusted Adjusting Statutory Adjusted Adjusting Statutory
items total Non-GAAP Items total
results
non-GAAP
results
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue 54,969 - 54,969 56,085 - 56,085
Cost of sales
-Operating expenses (25,225) - (25,225) (22,296) - (22,296)
--------- ---------- ---------- ---------- ---------- ----------
Segmented Gross
profit 29,744 - 29,744 33,789 - 33,789
* Depreciation and amortisation (15,678) - (15,678) (12,475) - (12,475)
* Impairment charge* - (4,561) (4,561) - - -
Gross profit 14,066 (4,561) 9,505 21,314 - 21,314
General and administrative
-Depreciation (516) - (516) (631) - (631)
* Amortisation of right-of-use asset (615) - (615) - - -
* Other administrative costs (7,465) - (7,465) (8,432) - (8,432)
--------- ---------- ---------- ---------- ---------- ----------
Operating profit 5,470 (4,561) 909 12,251 - 12,251
Finance income 8 - 8 15 - 15
Finance expense (16,437) - (16,437) (15,027) - (15,027)
Gain on disposal
of asset 3 - 3 - - -
Other income/(loss) 75 - 75 (35) - (35)
Foreign exchange
(loss)/gain, net (474) - (474) 259 - 259
--------- ---------- ---------- ---------- ---------- ----------
Loss before taxation (11,355) (4,561) (15,916) (2,537) - (2,537)
Taxation charge (959) - (959) (1,867) - (1,867)
--------- ---------- ---------- ---------- ---------- ----------
Net loss after
taxation (12,314) (4,561) (16,875) (4,404) - (4,404)
(Loss)/profit attributable
to
Owners of the Company (12,534) (4,561) (17,095) (4,973) - (4,973)
Non-controlling
interests 220 - 220 569 - 569
Loss per share (3.58) (1.30) (4.88) (1.42) - (1.42)
Supplementary non-statutory
information
Operating profit 5,470 (4,561) 909 12,251 - 12,251
Add: Depreciation
and amortisation
charges 16,809 - 16,809 13,106 - 13,106
--------- ---------- ---------- ---------- ---------- ----------
Non-GAAP EBITDA 22,279 (4,561) 17,718 25,357 - 25,357
*The impairment charge on property, plant and equipment has been
added back to operating profit to arrive at the adjusted loss for
the period.
5 Taxation
Tax is charged at 6.0% for the six months ended June 2019 (June
2018: 73.6%) representing the best estimate of the average annual
effective tax rate expected to apply for the full year, applied to
the Group's pre-tax loss of the six month period. The decrease in
the effective tax rate is the result of a decrease in Group revenue
earned in taxable jurisdictions leading to a reduction in
withholding tax and corporation tax and an increase in losses
derived from non-taxable jurisdictions.
The withholding tax included in the current tax charge amounted
to US$ 1.0 million (six month period ended June 2018: US$ 1.4
million).
6 Loss per share
6 months ended 30 June 6 months ended 30 June
Year ended
31 December
2019 2018 2018
Loss for the purpose of basic and diluted loss
per share being loss for the period
attributable
to Owners of the Company (US$'000) (17,095) (4,973) (6,126)
Loss for the purpose of adjusted basic and
diluted loss per share (US$'000) (note 4) (12,534) (4,973) (6,126)
Weighted average number of shares ('000) 350,195 349,821 349,895
Weighted average diluted number of shares
('000) 350,195 349,821 349,895
Basic loss per share (cents) (4.88) (1.42) (1.75)
Diluted loss per share (cents) (4.88) (1.42) (1.75)
Adjusted loss per share (cents) (3.58) (1.42) (1.75)
Adjusted diluted loss per share (cents) (3.58) (1.42) (1.75)
Basic 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.
Adjusted loss per share is calculated on the same basis but uses
the loss for the purpose of basic earnings per share (shown above)
adjusted by adding back impairment charges on property, plant and
equipment (US$ 4.6 million) which has been charged to the income
statement (see note 7). The adjusted earnings per share is
presented as the Directors consider it provides an additional
indication of the underlying performance of the Group.
Diluted loss per share is calculated by dividing the loss
attributable to 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 share options
outstanding during the period. As the Group incurred a loss for the
periods ended 30 June 2019 and 30 June 2018 and for the year ended
31 December 2018, the diluted loss per share is the same as loss
per share, as the effect of share options is anti-dilutive.
Adjusted diluted earnings per share is calculated on the same
basis but uses adjusted loss (note 4) attributable to the equity
shareholders of the Company.
The following table shows a reconciliation between basic and
diluted average number of shares:
30 June 30 June 31 December
2018 2018
2019 000's 000's
000's
Weighted average basic number
of shares in issue 350,195 349,821 349,895
Weighted average diluted number
of shares in issue 350,195 349,821 349,895
--------------------------------- ---------- ---------- ------------
7 Property, plant and equipment
Vessel spares,
Capital Land, building and fitting and other
Vessels work-in-progress improvements equipment Others Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
Balance as at 1
January 2019 908,851 12,765 10,469 60,774 3,700 996,559
Additions - 4,206 - - - 4,206
Transfers 12,157 (15,442) 19 3,254 12 -
Eliminated on
disposal - - - - (49) (49)
Balance as at 30
June 2019 921,008 1,529 10,488 64,028 3,663 1,000,716
---------- -------------------- ------------------- ------------------- -------- ----------
Accumulated
Depreciation
Balance at 1
January 2019 176,274 - 7,167 11,002 3,521 197,964
Eliminated on
disposal - - - - (49) (49)
Depreciation
expense 13,028 - 522 1,571 76 15,197
Impairment charge 1,717 - - 2,844 - 4,561
Balance as at 30
June 2019 191,019 - 7,689 15,417 3,548 217,673
---------- -------------------- ------------------- ------------------- -------- ----------
Net Book Value as
at 30 June 2019 729,989 1,529 2,799 48,611 115 783,043
---------- -------------------- ------------------- ------------------- -------- ----------
Vessel spares,
Capital Land, building and fitting and other
Vessels work-in-progress improvements equipment Others Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
Balance as at 1
January 2018 909,973 10,398 10,425 48,435 3,649 982,880
Additions - 21,356 - - 51 21,407
Transfers 6,096 (18,989) 44 12,849 - -
Disposals (7,218) - - (510) - (7,728)
Balance as at 31
December 2018 908,851 12,765 10,469 60,774 3,700 996,559
-------- --------------------- -------------------- -------------------- -------- --------
Accumulated
Depreciation
Balance at 1 January
2018 161,905 - 6,194 7,180 3,101 178,380
Eliminated on
disposal of assets (7,218) - - (510) - (7,728)
Depreciation expense 24,530 - 973 1,389 420 27,312
Transfers (2,943) - - 2,943 - -
Balance as at 31
December 2018 176,274 - 7,167 11,002 3,521 197,964
-------- --------------------- -------------------- -------------------- -------- --------
Net Book Value as at
31 December 2018 732,577 12,765 3,302 49,772 179 798,595
-------- --------------------- -------------------- -------------------- -------- --------
Impairment Assessment
The Group undertook a full impairment review of its fixed assets
as at 30 June 2019. As a result, the Group recognised an impairment
charge of US$ 1.7 million on a 37-year old non-core vessel, the
oldest vessel in the fleet and US$ 2.8 million on other vessel
equipment to reduce their carrying amounts to their estimated
recoverable (scrap) amounts of US$ 0.3 million and US$ 0.2 million
respectively. In the first half of this year previously expressed
interest in the vessel has reduced sufficiently and the only viable
commercial option for her is scrap. The other vessel equipment was
previously included in capital work in progress. After a review of
future options and market appetite, disposal is now the most likely
outcome. The impairment charge has been expensed in the condensed
consolidated statement of comprehensive income through cost of
sales.
For the purpose of the impairment assessment, each vessel is
considered a separate cash-generating unit ("CGU") and management
has estimated the recoverable amounts of its vessels based on their
value in use, with the exception of the Naashi. The cash flow
projections used in determining the value in use of each CGU were
based on forecasts prepared by management taking into account past
experience.
8 Trade and other receivables
30 June 31 December
2019 2018
US$'000 US$'000
Trade receivables 31,206 33,009
Less: Allowance for expected credit losses
(ECL) (94) (94)
Less: Allowance for doubtful receivables (316) (50)
-------- ------------
Trade receivables, net 30,796 32,865
Accrued revenue, net 2,578 2,924
Prepayments and deposits 5,360 4,308
Advances to suppliers 1,055 441
VAT receivables - 103
Other receivables 243 278
40,032 40,919
-------- ------------
9 Share capital
Share capital as at 30 June 2019 amounted to US$ 58.1 million
(31 December 2018: US$ 58.0 million). On 2 April 2019, the Company
issued a total of 519,909 shares at par value of 10 pence per share
in respect of the Company's 2016 Long-Term Incentive Plan
(LTIP).
10 Share option reserve
Share based expenses for the period of US$ 0.7 million (31
December 2018: US$ 1.0 million) relate to awards granted to
employees under the Group's LTIP. The charge is included in cost of
sales and general and administrative expenses in the condensed
consolidated statement of comprehensive income.
11 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 31 December
2019 2018
US$'000 US$'000
Term loans 381,356 391,515
Working capital facility 25,000 20,000
406,356 411,515
--------- ------------
Bank borrowings are presented in the condensed consolidated
balance sheet as follows:
30 June 31 December
2019 2018
US$'000 US$'000
Current
Bank borrowings - scheduled repayments
within one year 66,306 20,338
Bank borrowings - scheduled repayments
more than one year 340,050 391,177
406,356 411,515
---------- ------------
The Group's facility amortises quarterly with final maturity in
December 2023.
The Group entered into an interest rate swap (IRS) in June 2018
converting variable interest rate exposure into fixed rate
obligations. The Group also entered into a Cross Currency Interest
Rate Swap (CCIRS) in July 2018 to hedge the volatility of variable
interest rates and exchange rates (see note 16).
The Group has undrawn loan facilities at the period/year end as
shown below:
30 June 31 December
2019 2018
US$'000 US$'000
Working capital facility 50,000 50,000
Less: Drawdown (25,000) (20,000)
Undrawn uncommitted/committed loan facility 25,000* 30,000
========= ============
*The undrawn loan facility as at 30 June 2019 has been
restricted and is therefore uncommitted while negotiations on the
wider capital structure of the Group are ongoing. Refer to note 2
for more details.
Net debt as at the end of the period/year was as follows:
30 June 31 December
2019 2018
US$'000 US$'000
Bank borrowings 406,356 411,515
Less: Cash at Bank and in hand (2,924) (11,046)
-------- ------------
Total 403,432 400,469
======== ============
The Group's term loan covenants include an interest cover ratio
which is calculated as the ratio of adjusted EBITDA to net finance
charges for the previous 12 months, and net leverage cover which is
calculated as the ratio of net bank debt as at the testing date to
adjusted EBITDA for the previous 12 months. As a breach was
anticipated on these covenants for the 30 June testing date, the
bank borrowings were classified as a current liability. On 27
September the Group received a waiver to the financial covenant
tests for the 30 June 2019 testing date. Until the Group is able to
successfully amend and extend the terms of its banking facilities
including financial covenants, all bank debt continues to be
classified as a current liability.
The term loan facility is secured by mortgages over certain
Group vessels, with a net book value of US$ 670.3 million (31
December 2018: US$ 679.5 million). As disclosed in the going
concern note above, failure to meet future debt obligations could,
subject to the majority of banks representing at least 66.67% of
total commitments agreeing to, result in the banks exercising their
rights to recall all banking facilities, demand immediate repayment
and or enforce its rights over the security granted by the Company
as part of this facility.
The Group and its financial advisors continue to be in active
and constructive discussions with its banking syndicate on the
amendment and extension of its banking facilities and access to the
US$ 25.0 million remaining of the working capital facility that has
been restricted.
12 Subsequent events
Subsequent to the period end, on 29 September 2019, the Group
received a waiver for the 30 June testing date for the financial
covenants attached to its term loan and working capital facilities,
as well as continued access to US$ 25.0 million of the US$ 50.0
million working capital facility and a US$ 10.0 million performance
bond facility. These amended terms and facilities are in place
until 31 December 2019. Refer to note 2 for further details.
In addition, subsequent to the year end, the Group has committed
to placing US$ 2.4 million in an escrow account and will be drawing
this down against cost associated to obtaining an appropriate
long-term capital structure. This cash has been sourced from the
same amount previously collateralised for two performance bonds
which will now be held under the new bonding facility.
13 Notes to the condensed consolidated statement of cash flows
Six month period ended Year ended
30 June 31 December
-------------------------
2019 2018 2018
US$'000 US$'000 US$'000
Loss for the period/year before
taxation (15,916) (2,537) (2,405)
Adjustments for:
Depreciation of property, plant
and equipment 15,197 11,813 27,312
Amortisation of dry docking expenditure 997 1,293 2,200
Amortisation of right-of-use asset 615 - -
Impairment charge 4,561 - -
Opening adjustment on adoption 87 - -
of IFRS 16
End of service benefits charge 236 333 592
End of service benefits paid (615) (974) (1,058)
Provision for ECL on 31 December
2017 balances - - 31
Movement in ECL provision during
the period/year - 120 63
Allowance for provision for doubtful
trade receivables 644 - 50
Allowance for provision for doubtful
accrued revenue - - 530
Recovery of doubtful debts on accrued (530) - -
revenue
Recovery of doubtful debts of trade
receivables (378) - (563)
Gain on disposal of property, plant
and
equipment (3) - (6)
Share options rights charge 710 539 985
Interest income (8) (15) (22)
Interest expense 16,141 14,504 30,601
Interest of IFRS 16 leases 80 - -
Other (income)/loss (75) 35 (140)
Amortisation of issue costs 216 - 700
Cash flow from operating activities
before
movement in working capital 21,959 25,111 58,870
Decrease/(increase) in trade and
other receivables 1,305 (25,758) (22,593)
Decrease in trade and other payables (2,492) (7,186) (4,821)
Cash generated from/(used in) operations 20,772 (7,833) 31,456
Taxation paid (1,833) (369) (2,580)
Net cash generated from/(used in)
operating activities 18,939 (8,202) 28,876
14 Capital commitments
Capital commitments as at 30 June 2019 were US$ 0.3 million (31
December 2018: US$ 1.4 million) comprising mainly of capital
expenditure which has been contractually agreed with suppliers for
future periods for new build vessels or contract specific vessel
modifications.
15 Contingent liabilities
During the reporting period the Group engaged the services of
advisers in relation to negotiating a sustainable capital structure
with the banking syndicate. The fee structure includes US$ 3.25
million, of which US$ 0.25 million is contingent on the amendment
to or waiver of financial covenant tests and US$ 3.0 million on the
amendment to the successful terms of existing debt and/or an equity
raise. As the negotiations are ongoing and both the outcome and
timing were uncertain at the reporting date, no provision has been
made.
16 Fair value measurement of financial instruments
The Group entered into an IRS on 30 June 2018 to hedge a
notional amount of US$ 50.0 million. The remaining notional amount
hedged from the IRS as at 30 June 2019 was US$ 47.4 million (2018:
US$ 48.7 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 2019
was a liability value of US$ 1.9 million (2018: US$ 0.8
million).
The Group entered into a CCIRS on 5 July 2018 to hedge a
notional amount of US$ 36.7 million. As at 30 June 2019, the amount
of notional hedged from the CCIRS was US$ 10.1 million (2018: US$
22.4 million). The CCIRS hedges the volatility in GBP to US$
exchange rates as well as variability in interest rate payments by
converting a US$ floating rate loan with US$ repayments to a GBP
fixed rate loan wherein both the GBP notional and coupon payments
are fixed and matched to actual GBP receivables of highly probable
forecast sales. The fair value of the CCIRS as at 30 June 2019 was
an asset value of US$ 0.4 million (2018: US$ 0.5 million).
For the purpose of applying hedge accounting, cash flow hedges
are defined as hedges of the exposure to variability in cash flows
that is attributable to a particular risk associated with a
recognised asset or liability or a highly probable transaction.
The effective portion of the gain or loss on the hedging
instrument is recognised in the condensed consolidated OCI in the
cash flow hedge reserve, while any ineffective portion is
recognised immediately in the condensed consolidated statement of
comprehensive income. The cash flow hedge reserve is adjusted to
the lower of the cumulative gain or loss on the hedging instrument
and the cumulative change in fair value of the hedged item.
The ineffective portion relating to cash flow hedges is
recognised in other operating income or other expenses.
The Group designates IRS and CCIRS as cash flow hedging
instruments. The Group designates the change in fair value of the
entire derivative contracts in its cash flow hedge relationships.
For a CCIRS derivative, upon adoption of the hedge accounting
requirements of IFRS 9, the Group designates forward points and
foreign currency basis points in other comprehensive income as a
separate component of equity and any fair value movement is
recognised in the cost of hedging reserve.
Hedge accounting is discontinued when the Group revokes the
hedging relationship, the hedging instrument expires or is sold,
terminated, or exercised, or no longer qualifies for hedge
accounting. If cash flow hedge accounting is discontinued, the
amount that has been accumulated in OCI must remain in accumulated
OCI if the hedged future cash flows are still expected to occur.
Otherwise, the amount will be immediately reclassified to profit or
loss as a reclassification adjustment. After discontinuation, once
the hedged cash flow occurs, any amount remaining in accumulated
OCI must be accounted for depending on the nature of the underlying
transaction as described above.
The fair value measurement of the derivative financial
instrument has been determined by independent valuers by 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 hierarchy.
The Group had no financial instruments in the current or
previous year with fair values that are determined by reference to
significant unobservable inputs i.e., those that would be
classified as level 3 in the fair value hierarchy, nor have there
been any transfers of assets or liabilities between levels of the
fair value hierarchy. There are no non-recurring fair value
measurements.
17 Glossary
Alternative Performance Measure (APMs) - An APM is a financial
measure of historical or future financial performance, financial
position, or cash flows, other than a financial measure defined or
specified in the applicable financial reporting framework.
APMs are non-GAAP measures that are presented to provide readers
with additional financial information that is regularly reviewed by
management, and the Directors consider that they provide a useful
indicator of underlying performance. Adjusted results are also an
important measure providing useful information as they form the
basis of calculations required for the Group's covenants. However,
this additional information presented is not uniformly defined by
all companies including those in the Group's industry. Accordingly,
it may not be comparable with similarly titled measures and
disclosures by other companies. Additionally, certain information
presented is derived from amounts calculated in accordance with
IFRS but is not itself an expressly permitted GAAP measure. Such
measures should not be viewed in isolation or as an alternative to
the equivalent GAAP measure. In response to the Guidelines on APMs
issued by the European Securities and Markets Authority (ESMA), we
have provided additional information on the APMs used by the
Group.
Adjusted diluted (loss)/earnings per share - represents the
adjusted (loss)/profit attributable to equity holders of the
Company for the period divided by the weighted average number of
ordinary shares in issue during the period, adjusted for the
weighted average effect of share options outstanding during the
period. The adjusted (loss)/profit attributable to equity
shareholders of the Company is earnings used for the purpose of
basic (loss)/earnings per share adjusted by adding back 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 and amortisation 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 4.
Adjusted EBITDA margin - represents adjusted EBITDA divided by
revenue. This measure provides additional information on underlying
performance as a percentage of total revenue derived from the
Group.
Adjusted gross profit - 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 4.
Adjusted net (loss)/profit - represents net (loss)/profit after
adding back impairment charges. 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 4 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 31 June
2019 2018
US$'000 US$'000
Statutory general and administrative expenses 40,903 34,771
Less depreciation and amortisation (15,678) (12,475)
25,225 22,296
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
4.
General and administrative expenses excluding depreciation and
amortisation -
represents general and administrative expenses excluding
depreciation and amortisation. This measure provides additional
information of the Group's real general and administrative expenses
excluding accounting entries for depreciation and amortisation. A
reconciliation is shown below:
30 June 31 June
2019 2018
US$'000 US$'000
Statutory general and administrative
expenses 8,596 9,063
Less depreciation (516) (631)
Less amortisation of right-of-use asset (615) -
7,465 8,432
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
4.
Total net borrowings - 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
2019 2018
US$'000 US$'000
US$'000 US$'000
Statutory bank borrowings 406,356 411,515
Less cash and cash equivalents (2,924) (11,046)
403,432 400,469
Other Definitions
Adjusted utilisation based on calendar days - actual number of
days a vessel is on hire divided by the number of calendar days in
a year.
Available days - the number of days during which an SESV is
available for hire. Periods during which the vessel is not
available for hire due to planned upgrade work, transit time for
long-term relocation to a new region or construction are excluded
from the available days. In calculating available days for each
SESV in a given year, we also subtract from a base of 365 days
those days spent on mobilisation and demobilisation, planned
refurbishment and, in the case of a newly constructed SESV,
delivery time.
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.
E&P - exploration and production
EPC - engineering, procurement and construction.
Finance Service Cover - represents the ratio of Adjusted EBITDA
to Finance Service (being Net finance charges plus scheduled
repayments plus capital payments for finance leases adjusted for
voluntary or mandatory prepayments), in respect of that relevant
period.
Interest Cover - represents the ratio of Adjusted EBITDA to Net
finance charges.
GMS core fleet - consists of 13 SESVs, with an average age of
eight years, which excludes the 37-year-old vessel Naashi. Naashi
has not generated revenue since 2017 when it was reclassified to
non-core vessels.
IOC - International Oil Company.
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.
Proforma EBITDA - represents EBITDA for covenant testing
purposes being EBITDA (see definition above) for the trailing 12
months plus EBITDA contribution from new contracts, of at least six
months in duration that commence during a covenant testing period,
with the EBITDA contribution from these contracts annualised
(unless contract duration is less than 12 months when total
contract EBITDA contribution is applied).
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
Stacked - a vessel taken out of service to reduce operating
costs when uncontracted.
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.
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.
Waiver Agreement - 27th September 2019 amendment to the common
terms agreement between, among others, the Gulf Marine Middle East
FZE and Abu Dhabi Commercial Bank PJSC which sets out the terms and
conditions of the banking facilities. The Waiver Agreement has been
consented to by the Group and the banking syndicate.
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BCGDCLXDBGCC
(END) Dow Jones Newswires
September 30, 2019 02:02 ET (06:02 GMT)
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