Gulf Marine Services Regulatory News (GMS)

Risk profile

Mitigation, monitoring and assurance

FINANCIAL

Failure of the Group to service its debts and comply with debt covenants could result in severe negative repercussions for the Group such as demand for repayment or restriction of further funding, which may cause liquidity issues for the Group or reputational damage.

Macro and micro economic events, such as a sustained low oil price, may impact our ability to raise finance, achieve forecast, effectively manage our working capital and service our financial obligations.

A sustained reduction in charter day rates and/or utilisation levels or an increase in borrowing costs, could lead to a breach in certain debt covenants or an impairment of Group vessels.

Banking covenants which place restrictions on capital expenditure and other uses of funding, could restrict commercial and investment opportunities for the Group in the near term.

The Group's continuing operations and future growth, including strategic investments, may be dependent on the ability to fund the business, either through its balance sheet or through the availability of funding. A lack of funds could ultimately threaten the long-term viability of the business.

Robust monitoring

The Group has robust procedures in place for financial planning and forecasting. Management and the Board regularly monitor the Group's debt obligations and funding requirements which enables careful ongoing assessment of liquidity levels and covenant headroom.

Availability of funding

We maintain a close working relationship with our banking syndicate and in 2019 the Group agreed with its banking syndicate an amendment to its banking covenants. The Group has an unused working capital facility of US$ 30.0 million. The Group's near term focus is on reducing leverage levels. Please see page 68 of the Director's Report for details of going concern.

Key performance indicators (KPIs)

Transparent KPIs are used for reporting to track progress. The KPIs are reviewed regularly to ensure management has all the necessary information to make timely financial decisions.

Policies and procedures

We adhere to Group-wide financial and accounting policies which underpin our approach to risk management.

Hedging strategies

The Group takes out hedges to help mitigate the risk of volatility of exchange rates and interest rates. See Note 34 of the consolidated financial statements for further details.

STRATEGIC

Levels of expenditure by oil & gas companies and those involved in renewable energy, which is influenced by the macroeconomic environment including global oil prices, could influence the levels of investment or operating expenditures within the industry which may adversely affect demand for the Group's services. This could lead to lower utilisation or lower charter day rates which may lead to a reduction in profit margins or an impairment of Group vessels.

Demand for GMS vessels is affected by the number of vessels in the market and the competitive landscape. The actions of competing companies or the entrance of new competitors could increase the availability of SESVs, which could jeopardise our market share or adversely affect utilisation levels or charter day rate levels.

GMS operates in a number of different countries. Being over exposed to any one geographic market or the loss of a major client or a reduction in activity of a major client could impact our performance.

Market sentiment towards our sector and the Company, could result in our share price not reflecting the intrinsic value of the business. This could limit opportunities for strategic transactions by the Group, which could restrict growth.

Opex v capex

The Group provides cost-effective services mainly in the opex phase of oil companies' budgets, supporting long-term oil production which historically has tended to be less cyclical than capex phase work.

Focus on low cost of production areas such as MENA

The majority of the Group's revenue is generated in the MENA region where there are a relatively high number of well-established oil fields requiring maintenance, and where the cost of oil production is generally lower than in other parts of the world.

Cost management

The Group continues to focus on managing its cost base in order to help achieve appropriate profit margins whilst having the ability to offer competitive pricing to clients.

Growth and expansion

We lead the field in technological innovation and continually seek to expand the range of activities our vessels can perform and offer innovative solutions to our clients. This helps us to retain market share.

We strive to have a geographical balance of our operations by not limiting our portfolio of clients to one country or region.

Construction and modification flexibility for clients

Our vessels are built to be as flexible as possible allowing us to compete for a wide share of the market, helping us to maximise utilisation levels and charter day rates. The Group is capable of modifying assets to satisfy client requirements and can do so in its own yard where appropriate.

Counterparty risk

We monitor the risk on contractual counterparties to avoid over dependency on any one customer or business partner.

PEOPLE

As the market recovers the Group may incur challenges in recruiting and retaining the required calibre of staff which could lead to an increase in operating costs or influence effectiveness.

The implementation and execution of our strategy depends on our ability to attract, motivate and retain sufficiently qualified and experienced personnel, particularly at senior management levels.

Failure to attract, develop and retain sufficient competent senior offshore staff to support our clients' needs could result in serious gaps within the Group's knowledge base and lead to operational issues on-board vessels, and could lead to reductions in utilisation.

Succession planning

The Group maintains detailed management succession plans for key personnel which are monitored by the Group HR team. The current macroeconomic environment has resulted in a wider external talent pool available for certain roles within the Group.

Key technical personnel who were involved in previous vessel construction projects were integrated within the Operations Department to assist in vessel modification and maintenance projects. This has enabled the Group to retain key technical skills and expertise in our fleet of high quality vessels.

Learning and development

The Group is committed to providing bespoke training and development paths for key personnel and invests heavily in learning and development with a major focus on regular training for our safety critical, senior operational and management roles.

Competitive remuneration packages

The Group has a competitive remuneration structure that aims to attract, motivate and retain suitably qualified personnel through performance-based reward practices.

COMMERCIAL

The reliance of the Group on a limited number of NOCs, IOCs and international EPC clients may expose us to losses in the event of client relationship disruptions.

The Group may not be able to win new contracts or retain existing contracts including clients not opting to exercise contractual option periods because of the actions of competitors. This could lead to lower vessel utilisation or lower charter day rates, causing profit margins to fall.

The Group may not be able to secure long-term contracts or certain clients could cancel contracts, which may lead to commercial downtime between contracts and lower overall average utilisation.

A reduction in average charter day rates, arising from discounted pricing in the industry, could lead to reduced margins or operating losses.

Challenging and protracted client requirements, NOC tendering and award requirements or local government requirements, in certain markets, could affect our ability to win contracts, could lead to cost escalations or could impact utilisation, Group profitability and impact our ability to meet our covenant requirements

Flexibility and innovation

We seek to continually improve our offering through innovation including new vessel designs and specification improvements by responding directly to client feedback, which allows us to bid on a wider range of contracts.

Market knowledge and operational expertise

The Group has a clear record of established long-term relationships in the MENA region and North West Europe, which helps provide a clear understanding of our clients' requirements and operating standards. We believe that the Group continues to have a competitive edge over most other alternative providers of vessels through our operational expertise and the high quality specifications of our offshore solutions.

Tender approach

We compete in tenders for all vessels nearing the end of their firm contracts, ensuring that, if a client chooses not to exercise their option, other opportunities should not be missed. The Group has built strong relationships with potential clients and continues to work with them to ensure tenders are completed in an appropriate timeframe prior to contracts being executed. The Group continually monitors and tracks its pipeline of new contract opportunities, and prioritises bidding on the most suitable contracts with appropriate margins.

The Group's robust operating standards result in minimal downtime which helps ensure that clients are not given cause to cancel contracts through non-performance.

Commercial Review Board (CRB)

The Group has in place a CRB comprising members of the senior management team to review contract requirements and consider risks and rewards, prior to bidding for and/or entering into any material contracts.

INVESTMENTS

Delays in completion or errors in assessing the impact of new strategic expansion projects could result in decreased margins and market share.

Board oversight

The Board has oversight of approving and monitoring strategic projects.

Project management

Extensive project management controls and processes are adhered to throughout project life cycles.

COMPLIANCE AND REGULATION

Non-compliance with anti-bribery and corruption regulations could damage stakeholder relations and lead to reputational and financial loss.

Failure to appropriately identify and comply with laws and regulations and other regulatory statutes in new and existing markets could lead to regulatory investigations.

Code of conduct

The Group has a Code of Conduct which includes anti-bribery and corruption policies and all employees are required to comply with this Code when conducting business on behalf of the Group.

Due diligence

The Group performs substantial due diligence work prior to venturing into new markets and obtains an understanding of any governing laws and regulations. Group legal and external counsel support are utilised as necessary.

HEALTH, SAFETY, SECURITY, ENVIRONMENT AND QUALITY

The Group may suffer commercial and reputational damage from an environmental or safety incident involving our employees, visitors or contractors.

Our operations have an inherent safety risk due to our offshore operations. We have a fundamental obligation to protect our people and recognise the implications of poor safety procedures.

Safety awareness

Safety and assurance continues to be a top priority and is underpinned by our HSSEQ management system and strong safety-focused culture. Management ensures appropriate safety practices and procedures, disaster recovery plans and the insurance coverage of all commercial contracts are in place both prior to acceptance and during contract delivery.

Training and compliance

Our employees undergo continuous training on operational best practices.

Scheduled maintenance

The Group follows regular maintenance schedules on its vessels and the condition of the vessels is consistently monitored.

BREXIT

Continuing uncertainty surrounding negotiations on the UK's exit from the European Union ('Brexit') results in increased uncertainty over future policy, and legislation and the United Kingdom, which could impact Group operations.

Monitoring Brexit

Our exposure to specific market turbulence in the UK is limited as most of our clients are in the MENA region. Our offshore workforce operate on internationally accepted documents so we do not anticipate mobility issues. Our supply chain is predominantly MENA and mainland Europe based, and there are no major items manufactured in the UK. We have some exposure to foreign currency fluctuation on our unhedged contract options, however even if the Sterling volatility that has been experienced since the leave vote continues, this is not expected to have a significant impact. Although it remains unclear what the position will be for the UK on 29 March 2019, based on our understanding we have not identified any unmanageable risk to our operations arising from Brexit. Management continue to monitor the status of the UK Government's negotiations, changes in legislation and future policies.

OPERATIONAL

There is a risk that the Group's assets may not be fit for purpose or may fail to operate in the manner intended by management. Failure to deliver the expected operational performance could result in reputational damage, litigation, reduced profit margins or loss of clients.

Changes in the political regimes, civil and political unrest or sanctions in the jurisdictions in which we operate could adversely affect our operations.

The Group may not be able to deploy stacked vessels timely for new contracts which could limit operational readiness. Also deployment costs of previously stacked vessels could be significant.

There is a risk that cybersecurity incidents including loss or misuse of sensitive information could damage our operations, or lead to financial loss and reputational damage due to a breach of confidential data or technology disruption caused by an internal or external attack.

Vessel monitoring

The Group regularly monitors the condition of the vessels and other equipment which undergo mandatory dry docking within the specified timeframes. The Group has policies and procedures in place such as the Planned Maintenance System to ensure that the vessels undergo regular preventative maintenance.

Emergency plans and insurance

For all our major assets and areas of operation, the Group maintains emergency preparedness plans. We regularly review the insurance coverage over the Group's assets to ensure adequate cover is in place.

Constant review

The Group remains vigilant to potential changes and risks and may engage with governments and legal counsel to ensure a comprehensive view of our stakeholders is presented. The Group constantly monitors the ever-changing political landscape in the regions that are considered volatile or unpredictable.

Readiness for deployment

The Group carefully plans the stacking of vessels and maintains detailed deployment plans to ensure vessels can be brought back into operation efficiently.

Cybersecurity monitoring and defence

GMS operates multi-layer cybersecurity defences which are monitored for effectiveness and to ensure they remain current. Extensive monitoring of attempts to breach IT systems take place with detailed analysis to help ensure potential threats are identified and effectively mitigated.

Business continuity plan

The Group has in place a robust business continuity management plan which it regularly maintains to support the management of any critical incidents.

Gulf Marine Services PLC

Duncan Anderson

John Brown

Tel: +971 (2) 5028888

Anne Toomey

Tel: +44 (0) 1296 622736

Brunswick

Patrick Handley - UK

Will Medvei - UK

Tel: +44 (0) 20 7404 5959

Jade Mamarbachi - UAE

Tel: +971 (0) 50 600 3829