Gulf Marine Services Regulatory News (GMS)

Gulf Marine Services PLC

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

8 March 2019

Update on repositioning plan and response to Seafox's statement

Further to the announcements made on 22 February and 4 March 2019, Gulf Marine Services (LSE: GMS), the leading provider of advanced self-propelled self-elevating support vessels (SESVs) serving the offshore oil, gas and renewable energy sectors, announces an update on its repositioning plan and the publishing of a shareholder circular ("Second Circular") which includes a statement circulated at the request from Seafox International Limited ("Seafox") in relation to the Requisitioned General Meeting to be held on 18 March 2019 and the Company's response.

Update on repositioning plan

The Board is pleased to provide the following update on its plan to reposition the Company and optimise its future prospects.

(i) Operational Review

The previous two rounds of cost saving initiatives led by the Board have already achieved reductions of:

· 22% on daily opex across the Company's fleet;

· 12% on general and administrative expenses; and

· 91% on newbuild related personnel.

The Board and the Company's management have now completed the evaluation of the third round of cost savings and efficiency opportunities. This process has identified c. $6m of potential annualised savings. Implementation has already begun and the Board expects that the full $6m of savings will be realised by 2020.

As an example of the cost saving initiatives underway, the Company ran a competitive tendering exercise for its catering contract in H2 2018. The renegotiated rate represents an assumed estimated cost saving of c. $1.7m per annum based on current utilisation levels, the full benefit of which will be realised in 2019.

Further operational efficiencies continue to be implemented across the organisation including for example:

· Scaled back quayside facility in order to reduce costs;

· An organisational restructuring to allow further downsizing in headcount; and

· Effective management of discretionary capital expenditure across the Company and its group.

The Board will continue to review the Company's operations and implement appropriate strategies and initiatives, including in relation to utilisation and revenue.

(ii) Capital Structure

The Company and its management team have excellent long-standing relationships with the Company's banking syndicate. Many of the institutions who lend to the Company have supported the Company over the last decade and continued their participation through various refinancing activities. Following the successful amendment to the financial covenant schedule for the year ended 31 December 2018, the Company has continued its active dialogue with its banks and is reviewing, together with its financial advisors, a range of long term refinancing options.

(iii) Governance

The search process for a new Chair, run by Spencer Stuart, has progressed well and several high-quality candidates have been identified. The Board is actively considering these candidates and is targeting the announcement of the new Chair by the time of the company's Preliminary Results on Tuesday 26th March 2019.

As announced by the Company on 22 October 2018, 14 February and 25 February 2019, the Board has recently appointed Dr Grant as an independent non-executive director, Mr Jackson as Chief Financial Officer and, in accordance with standard UK market practice, an executive director of the Company, effective from early summer 2019 and Mr Bississo as a non-executive director.

Following the above Board appointments, the Board will have, excluding the Chair, three independent directors and three non-independent directors, such composition being in compliance with the UK Corporate Governance Code which requires at least half the Board, excluding the Chair, to be independent. The Board believes that this Board composition is the appropriate size for a company such as GMS. Further additions of non-independent non-executive directors would require the Board to appoint additional independent directors to remain compliant with the UK Corporate Governance Code. The Board believes that, in order to be effective and efficient, the number of directors should not be increased beyond the point at which the Board becomes unwieldy and expensive to operate and rapid decision-making is compromised.

As stated in the Circular, the Board expects to give further detail of the plan to reposition the Company and optimise its future prospects following the appointment of the new Chair, and in the interim will continue to update Shareholders of major developments as appropriate.

Statement circulated at the request of Seafox, update on requisitioned resolutions and response from GMS

Under the Companies Act 2006, Seafox is entitled (at its expense) to require the Company to circulate to Shareholders a statement, of not more than 1,000 words, with respect to the business to be dealt with at the Requisitioned General Meeting. Seafox supplied the Company with such a statement on 1 March 2019, and also with a longer-form statement of more than 1,000 words. This statement was released by Seafox via RNS on 1 March 2019. In the interest of ensuring that all Shareholders have access to the same information, the Company has agreed, at the request of Seafox (and at its expense), to circulate the longer-form statement (the "Seafox Statement") in the Second Circular. Shareholders should note that the Board is not responsible for the content of the Seafox Statement, and has not verified its accuracy.

In addition to the Seafox Statement, the Second Circular notes that Seafox has confirmed to the Company that it has withdrawn its support for Resolutions 1 and 2 (proposing to remove Simon Heale as a director and Chairman of the Company and proposing to appoint Andrew Knight as a director of the Company respectively) set out in the notice of meeting contained in the Company's circular dated 22 February 2019.

Furthermore, the Second Circular provides a detailed response from the Company to the Seafox Statement. As stated in the Company's announcement dated 4 March 2019, the Board believes that the Seafox Statement contains numerous inaccuracies, displays a lack of understanding of GMS's business and contains nothing to suggest that the nominees proposed by Seafox to be appointed to the Board, namely Abdullah Mazrui and Hisham Halbouny (together, the "Seafox Nominees") would be additive to the Company's governance.

The Board continues to consider that the resolutions 1 to 5 proposed by Seafox and the Ithmar Requisitionists are NOT in the best interests of the Company or its Shareholders as a whole. Accordingly, the Board unanimously recommend that Shareholders VOTE AGAINST all of the resolutions to be proposed at the Requisitioned General Meeting.

Further details regarding the above points can be found in the letter from the Senior Independent Non-Executive Director, the extract of which can be found at the end of this announcement.

The Second Circular is being posted to Shareholders today and will also be made available to view shortly on the Company's website, www.gmsuae.com.

The above summary should be read in conjunction with the full text of this announcement below and the Second Circular. Extracts from the letter from the Senior Independent Non-Executive Director are set out below. Defined terms used in this announcement have the meaning as set out in the Second Circular.

This announcement contains inside information and is provided in accordance with the requirements of Article 17 of the EU Market Abuse Regulation.

John Brown

Company Secretary (responsible for arranging the release of this announcement)

Gulf Marine Services PLC

8 March 2019

Enquiries

For further information please contact: 

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 the world's 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 and Europe.

The GMS core fleet of 13 SESVs is amongst the youngest in the industry, with an average age of eight years. The vessels support GMS' 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 - Small, Mid-Size and Large Class - 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. In addition, an innovative well workover cantilever system commissioned on a Large Class SESV in 2017 allows GMS to increase the well intervention activities carried out from the vessel and to supplant higher cost non-propelled drilling rigs. 

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

www.gmsuae.com

Disclaimer

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

Cautionary Statement

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

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

Extracts from the Second Circular

Letter from the Senior Independent Non-Executive Director

8 March 2019

To Shareholders and, for information only, to holders of share options and/or awards under any of the Company's employee share schemes

Dear Shareholder

Statement circulated at the request of Seafox International Limited ("Seafox")and response from GMS

1 Introduction

Further to the publication of a shareholder circular (the "Circular") on 22 February 2019 which included a notice of a general meeting requisitioned by several GMS shareholders to be held on 18 March 2019 (the "Requisitioned General Meeting"), the Board received a letter from Seafox on 1 March 2019 requiring the Directors to circulate to all Shareholders a statement in relation to the Requisitioned General Meeting.

Under the Companies Act 2006, Seafox is entitled (at its expense) to require the Company to circulate to Shareholders a statement, of not more than 1,000 words, with respect to the business to be dealt with at the Requisitioned General Meeting. Seafox supplied the Company with such a statement on 1 March 2019, and also with a longer-form statement of more than 1,000 words. On 1 March 2019, Seafox released the longer-form statement by RNS. In the interest of ensuring that all Shareholders have access to the same information, the Company has agreed, at the request of Seafox (and at its expense), to circulate the longer-form statement with this letter. That statement (the "Seafox Statement") is attached to this letter.

Shareholders should note that the Board is not responsible for the content of the Seafox Statement, and has not verified its accuracy.

As stated in the Company's announcement dated 4 March 2019, the Board believes that the Seafox Statement contains numerous inaccuracies, displays a lack of understanding of GMS's business and contains nothing to suggest that the nominees proposed by Seafox to be appointed to the Board, namely Abdullah Mazrui and Hisham Halbouny (together, the "Seafox Nominees"), would be additive to the Company's governance. Please refer to section 3 of this letter for a detailed response from your Board to the Seafox Statement.

2 Withdrawal of Seafox's support for resolutions 1 and 2

In the Seafox Statement, Seafox has stated that it has withdrawn its support for resolution 2 (proposing to appoint Andrew Knight as a director of the Company) set out in the notice of meeting contained in the Circular. Subsequently, on 4 March 2019, Seafox notified the Company that it has also withdrawn its support for resolution 1 (proposing to remove Simon Heale as a director and Chairman of the Company) set out in the notice of meeting contained in the Circular.

The Company therefore intends to seek the consent of the Requisitioned General Meeting to withdraw resolutions 1 and 2, and not put them to a vote. Further, Seafox has indicated that it intends to abstain on each of resolutions 1 and 2 at the Requisitioned General Meeting, should they be put to a vote.

Despite Seafox's withdrawal of its support for resolutions 1 and 2, the Board continues to urge Shareholders to continue to complete, sign and return forms of proxy to VOTE AGAINST all of the proposed resolutions, including resolutions 1 and 2, as indicated in the red boxes on the forms of proxy as soon as possible, but in any event so as to be received by post or, during normal business hours only, by hand, by the Registrar, Equiniti Limited, at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, by no later than 9.00 a.m. on Thursday, 14 March 2019.

3 Response from the Board to the statement from Seafox

Introduction

The Seafox Statement does not contain any information to change the Board's view of the resolutions requisitioned by Seafox.

As set out in the Circular, the Board has already initiated a repositioning plan to address the Company's operational performance, governance and capital structure. This process was underway before Seafox became a shareholder in GMS and we have already taken significant steps to address the issues identified. An update on the recent actions the Board has taken is set out in section 4 of this letter below.

In contrast, the Seafox Statement contains no tangible or deliverable proposals to address any of the issues facing the Company. In particular, the Board would like to draw Shareholders' attention to the following three key GMS responses to the Seafox Statement:

(i) Seafox's speculation about GMS's costs

Seafox's claims regarding the potential cost savings for SG&A reductions at GMS are made without any support being provided, and display both a lack of understanding of GMS's business, which has been operating through a prolonged oil price recession, and a lack of familiarity with GMS's operations.

Seafox's attempt to compare its own vessel operating costs to those of GMS is misleading for a number of reasons, including differing fleet composition, differing service provision in some assets and a differing approach to maintenance of assets.

While both companies can compete for the same contracts, GMS's vessels have a wider range of capabilities and technologies compared to those of Seafox. Our self-propelled vessels provide a flexible and holistic solution to clients without the need of costly support vessels to move and position assets. Less sophisticated, non-propelled assets, such as Seafox's will naturally have a lower operating cost due to the lack of thrusters, associated power plant and positioning technology, but financials will not capture the cost borne by the client to use these assets, making them less attractive to clients.

In addition, we provide a wider range of services and additional equipment, which typically run at a higher opex cost which usually translate into long-term multi-year contracts. Seafox's remaining two self-propelled assets are not directly comparable with any of the three classes of assets that GMS operates with regard to either the design or the ancillary services, such as well intervention, which GMS currently provides to its clients.

There is little information on Seafox in the public domain, with almost no public disclosure of its activities or performance. In particular, Seafox does not disclose any:

· audited or unaudited financial results or other financial performance data;

· details of its governance structure or the identity of its directors; or

· operational data or fleet ownership details.

The fact that Seafox does not publish audited financials prevents a comprehensive and objective comparison being made between the two companies' real underlying performance. We note that the limited and selective historical data disclosed by Seafox does not reflect the impact of the disposals of assets such as the announcement of the sale of their stake in the Seafox 5 vessel in December 2018, which we believe (based on our acquisition discussions with Seafox last year) will have had a material effect on their financial performance.

(ii) The Seafox Nominees

The Board notes the biographies of the Seafox Nominees included in the Seafox Statement. The Board believes these contain nothing to suggest that the Seafox Nominees would be additive to the Company's governance.

The Board continues to regard Seafox as a competitor and, far from adding value to the Company, the appointment of representative(s) of Seafox on the Board would raise significant concerns in relation to conflict of interests and potentially result in the sharing of sensitive commercial information with, and influence on the operations of, GMS by directors with a conflict of interest, which could be prejudicial to the performance of the Company. In this context, the Board notes the confirmation by Seafox that Mr Halbouny has been an active member of Seafox's board of directors for the past three years.

(iii) Seafox's proposals in relation to GMS's capital structure

The Board notes that the Seafox Statement contains no proposals in relation to a longer term solution to the Company's capital structure and no indication as to how Seafox believes it could be additive to the Company's plans to address this issue.

Conclusion

The Board is pleased to note that Institutional Shareholder Services Inc. (ISS), one of the leading independent proxy advisers, has published a report on the Requisitioned General Meeting with a recommendation for Shareholders to vote against all resolutions proposed by Seafox and the consortium of Shareholders represented by Ithmar Capital Partners Limited (together, the "Ithmar Requisitionists").

In light of all of the above, the Board continues to believe that the requisition from Seafox has caused unnecessary expense, uncertainty and disruption to the Company and unanimously recommends Shareholders to VOTE AGAINST all of the resolutions proposed to be considered at the Requisitioned General Meeting.

4 Update on repositioning plan

The Board is pleased to provide the following update on its plan to reposition the Company and optimise its future prospects.

(i) Operational review

The previous two rounds of cost saving initiatives led by the Board have already achieved reductions of:

· 22% on daily opex across the Company's fleet;

· 12% on general and administrative expenses; and

· 91% on newbuild related personnel.

The Board and the Company's management have now completed the evaluation of the third round of cost savings and efficiency opportunities. This process has identified c. $6m of potential annualised savings. Implementation has already begun and the Board expects that the full $6m of savings will be realised by 2020.

As an example of the cost saving initiatives underway, the Company ran a competitive tendering exercise for its catering contract in H2 2018. The renegotiated rate represents an assumed estimated cost saving of c. $1.7m per annum based on current utilisation levels, the full benefit of which will be realised in 2019.

Further operational efficiencies continue to be implemented across the organisation including for example:

· Scaled back quayside facility in order to reduce costs;

· An organisational restructuring to allow further downsizing in headcount; and

· Effective management of discretionary capital expenditure across the Company and its group.

The Board will continue to review the Company's operations and implement appropriate strategies and initiatives, including in relation to utilisation and revenue.

(ii) Capital structure

The Company and its management team have excellent long-standing relationships with the Company's banking syndicate. Many of the institutions who lend to the Company have supported the Company since before its IPO in 2014 and continued their participation through various refinancing activities. Following the successful amendment to the financial covenant schedule for the year ended 31 December 2018, the Company has continued its active dialogue with its banks and is reviewing, together with its financial advisors, a range of long term refinancing options.

(iii) Governance

The search process for a new Chair, run by Spencer Stuart, has progressed well and several high-quality candidates have been identified. The Board is actively considering these candidates and is targeting the announcement of the new Chair by the time of the company's Preliminary Results on Tuesday 26th March 2019.

As announced by the Company on 22 October 2018, 14 February and 25 February 2019, the Board has recently appointed Dr Grant as an independent non-executive director, Mr Jackson as Chief Financial Officer and, in accordance with standard UK market practice, an executive director of the Company, effective from early summer 2019 and Mr Bississo as a non-executive director.

Following the above Board appointments, the Board will have, excluding the Chair, three independent directors and three non-independent directors, such composition being in compliance with the UK Corporate Governance Code which requires at least half the Board, excluding the Chair, to be independent. The Board believes that this Board composition is the appropriate size for a company such as GMS. Further additions of non-independent non-executive directors would require the Board to appoint additional independent directors to remain compliant with the UK Corporate Governance Code. The Board believes that, in order to be effective and efficient, the number of directors should not be increased beyond the point at which the Board becomes unwieldy and expensive to operate and rapid decision-making is compromised.

As stated in the Circular, the Board expects to give further detail of the plan to reposition the Company and optimise its future prospects following the appointment of the new Chair, and in the interim will continue to update Shareholders of major developments as appropriate.

5 Action to be taken

Shareholders will find enclosed with the Circular dated 22 February 2019 a form of proxy for use in connection with the Requisitioned General Meeting. Whether or not you intend to be present at the Requisitioned General Meeting, you are urged to complete, sign and return the form of proxy in accordance with the instructions printed thereon as soon as possible, but in any event so as to be received by post or, during normal business hours only, by hand, by the Company's registrar, Equiniti Limited, at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, as soon as possible and by no later than 9.00 a.m. on Thursday, 14 March 2019 (or, in the case of an adjournment of the Requisitioned General Meeting, not later than 48 hours before the time fixed for the holding of the adjourned meeting (excluding any part of a day that is not a business day, being a day which is not a Saturday, Sunday or public holiday in England on which clearing banks are open for business in the City of London). If you are posting your completed form of proxy, you may do so using the pre-paid envelope provided.

Appointing a proxy in accordance with the instructions set out above will enable your vote to be counted at the Requisitioned General Meeting in the event of your absence. The completion and return of the form of proxy will not prevent you from attending and voting at the Requisitioned General Meeting, or any adjournment thereof, in person should you wish to do so.

If you have any questions on how to complete the form of proxy, please contact the Company's registrar, Equiniti Limited, on 0371 384 2030. If you are calling from overseas please call on +44 (0) 121 415 7047. Calls from outside the United Kingdom will be charged at the applicable international rate. The helpline is open between 8.30 a.m. - 5.30 p.m., Monday to Friday, excluding public holidays in England and Wales. Please note that Equiniti Limited cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes.

6 Recommendation of the Board

The Board continues to consider that the resolutions 1 to 5 proposed by Seafox and the Ithmar Requisitionists are NOT in the best interests of the Company or its Shareholders as a whole. Accordingly, the Board unanimously recommend that Shareholders VOTE AGAINST all of the resolutions to be proposed at the Requisitioned General Meeting.

Yours faithfully

Simon Batey

Senior Independent Non-Executive Director