Viridien

Good day, and thank you for standing by, and welcome to the CGGQ3 2021 results conference call. Currently, all participants are in listen-on mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and 1 on your telephone. Please be advised that today's conference is being recorded, and I would like to hand the conference now to your first speaker today, Mr. Christophe Bernini. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen. Good evening. Welcome to this presentation of CDG's third quarter 2021 results.

The group today is from Paris.

We have Mrs. Sophie Zierkia, our chief executive officer, and Mr. Yuri Baidukov, our group CFO. We provide an overview of the third quarter results as well as provide comments on our outlook. Starting Q3, starting today, CDG is changing its financial communication schedule. We will release our financial results after market close at 5.45 p.m. Paris time. This new financial communication schedule should be an opportunity for U.S. and U.K. investors and European investors to participate more largely in the conference call with the management. Let me remind you of the forward-looking statements. Some of the information contains forward-looking statements, including without limitations, statements about the CDGs' plans, strategy, and prospects. These forward-looking statements are subject to risk and uncertainty that may change at any time, and therefore, the actual results may differ materially from those that were expected. This being said, Now I just want to remind you that following the overview of this sub-quarter, we will be pleased to take your questions. And now I will turn the call over to Sophie.

Thank you, Christophe, and good morning, ladies and gentlemen, and thank you for participating in this Q3 2021 conference call. I'm on slide five now. Let me start with some general comments on our market environment. Overall, during the third quarter, The activity of our clients continued to show signs of a gradual recovery, with international oil companies increasing their production-related and near-field exploration activities. We also started to see this quarter IOCs initiating some discussions around various shorter-term, lower-carbon, lower-cost exploration opportunities. National oil companies and independents remained more active in general and continued to gradually increase their activities. We operate today in a favorable macro environment as Brent oil price has stabilized above $75 a barrel and is expected to continue growing from that level onwards. This should continue to stimulate activity aimed at maintaining or increasing production in the near future. As we know, E&P companies have focused historically on upgrading their portfolios to reduce their break-even oil price. And now there is the additional dimension of lowering carbon intensity of reserves, which should also trigger increased activity and exploration down the road, and especially in the favorable macro market environment that we see at current. Also, as the energy transition continues to move forward, we're seeing a regain interest in gas-producing areas. And overall, while our market is still challenging, we're clearly seeing positive signals that our clients have defined their priorities and are starting to resume pending activity. Along with their energy plans, digital initiatives remain at the heart of our current strategy as a source to drive increased efficiencies into their value chains. These trends should support increased activity as we move into 2022 and onwards. We see already that uScience is progressively recovering thanks to increased demand for our superior technologies and services. While sales in multi-client and equipment are lumpy by nature, they were both particularly stronger this quarter, driven by higher multi-client pre-funding and solid equipment delivered of our new OBN system. Looking forward, we're expecting a solid Q4 for our three core businesses. And overall, and as anticipated, after a very low first half of the year, We're seeing both improved revenue and profitability in H2 2021 and expect this trend to continue forward. As you'll see in our numbers, we managed through the pandemic effectively improving our profitability for the same revenue levels based on our cost reduction plans. Earlier this year, I highlighted our initiatives focused on divesting non-core businesses to both further streamline performance through the pandemic and ensure we could focus investment on our strategic growth and core business initiatives. In early October, we sold our GeoSoftware business for a total cash consideration of $95 million, and the sale of the physical asset storage business, along with the sale and leaseback of our headquartered building, are both progressing well. With expected solid fourth quarter activity, CDD is well positioned to deliver its 2021 financial targets. Moving on to slide six. Our Q3 revenue of 270 million was up 35% year-on-year and up 71% sequentially. Group segment EBITDA was 118 million, a 44% margin due to solid business activities and sales mix. At this level, we delivered a solid 33 million operating income, representing a 12% margin. Segment-free cash flow was 2 million due to lower collections of receivables during the quarter after the weak second quarter revenue in 2021. It is a significant improvement from last year. And now let's look at our Q3 2021 operations in more detail by reporting segment. DDR segment revenue was stronger this quarter at 168 million, up 12% year-on-year, thanks to the progressive recovery in geoscience and solid multi-client sales in Q3. EBITDA margin improved to 63%, and open margin also improved to 18%, thanks to the sales mix and our cost-saving measures, which continue to generate a positive impact. Going on to slide nine now. Q3 geoscience external revenue of 77 million was flat year-on-year, and up 5% sequentially. Geoscience continued to show progressive recovery during the quarter. And some projects that we'd worked on pre-COVID came back in for reprocessing in anticipation of client production optimization work. Our clients continue to value our premium products and services in complex areas, and as budget constraints start to moderate, these key activities come back to us. Backlog is up 8% year-on-year, and productivity per head has increased as we get busier and more efficient. Now on slide 10. The recovery in geoscience is led mainly by high-end processing of offshore marine streamer and ocean bottom nodes data, mostly in producing areas such as the Gulf of Mexico and Brazil. Seabed projects require more detailed advanced imaging for increased accuracy and we capture a higher percentage of that market thanks to our technology differentiation. We have now identified a portfolio of new business opportunities beyond the core. These are maturing inside our three divisions. We have assigned dedicated resources to develop our commercial offering, and we are gearing up to grow and track those businesses with KPIs. Inside Geoscience, we classify these new opportunities under digital, energy transition, and environmental geoscience. And one of our key initiatives in energy transition is to leverage our geology and geophysics database to offer services around the identification and characterization of CCUS and geothermal sites, and we're seeing increasing interest in sales in this area. We are also involved in several digital and environmental projects aimed at digital transformation, cloud services, and pollution monitoring. Recent projects include several digital transformation pilots with our data hub services and environmental projects, which included a study focused on the identification and quantification of microplastics pollution on the summit of Snowdon, the highest mountain in Wales. Going on to slide 11. This slide is actually an interesting zoom into geoscience order intake, which is made of high-end imaging of marine streamer and seabed data. In a CapEx-constrained environment, it is critical to our clients to have access to the more precise images that CDG imaging can provide to increase the opportunities for success. Beyond the core, our order intake grew by 18% year-on-year, and we are excited to see traction forming around these new businesses. Slide 12. The geoscience industry is fascinating, as every few years we bring a new breakthrough technology that drives the reprocessing of historical data. These breakthroughs are thanks to our unique capabilities and expertise in sophisticated algorithms and ultra-high performance computing. Today, the must-have technology is our industry's unique four-way form inversion imaging. And CDDs away from eversion provides very detailed structural information that wasn't discernible historically, as you can see on the transparency image. Next one, which is 12. Interest in our New Beyond the Court businesses is significantly increasing, and they represented more than 10% of our total bid spending at the end of September. Today, I'd like to highlight one of our business solutions, which is related to the mining industry. With our technologies combining satellite imaging and multi-physics processing, we can characterize and monitor tailings storage areas, which are a potential hazard and a liability for the mining companies. We successfully applied our technology on a landmark project for a global mining company using airborne electromagnetic 3D imaging over an area with 15 mine sites in Brazil, which enabled a clear delineation of the dam and storage areas, providing a baseline for monitoring. Our CEL sensor technology can be combined with our satellite and multi-physics capabilities to provide a robust long-term monitoring and real-time risk reduction solution. Moving on to a multi-client now. Multi-client cash capex was 57 million this quarter, stable year-on-year, and dedicated to marine multi-client programs. In Q3, we had three vessels working on multi-client programs, two on a five-month 3D multi-client project in the Norwegian North Sea, and one in Brazil on our ongoing Nebula project. We also had five multi-client reprocessing projects this quarter, including a new one in the Gulf of Mexico. The increase in revenue this quarter was partially driven by a catch-up in pre-funding, taking our year-to-date pre-funding rate to 70%. Now on slide 15. In Brazil, we secured significant pre-funding for the ongoing Nebula program. In the North Sea, we had two vessels and one node crew active this quarter. In the North, Viking Rabin, which is expected to drive Q4 pre-funding. U.S. land activity this quarter was supported by client M&A activity, and we're seeing growing interest in U.S. onshore gas assets. This could drive further aftersales. In the Gulf of Mexico, CDD is mainly focused on re-imaging projects, which in the absence of new acquisition, provide a cost-effective way to improve the understanding of the subsurface for enhanced production and near-step-out exploration. I move on to equipment now on slide 17. Equipment segment revenue was $101 million, significantly up year-on-year and sequentially, which is mainly driven by a high volume of deliveries of our new GPR 300 ocean bottom nodes. At that level of activity, EBITDA and OPING substantially improved to 17% and 9% respectively. Next one. Land equipment sales represented 40% of the total in Q3 as we delivered systems in various geographies like China, Russia, North Africa, and India. Marine equipment sales were 55 million, representing 54% of total sales due to the scheduled delivery of 18,000 GPR-300 nodes. Equipment division continues to innovate and recently launched the TPS tuned pulse source. This is a purpose-built acoustic source designed to further protect marine wildlife from high-frequency emissions while maintaining highly accurate and reliable results for seismic acquisition. And finally, I'm pleased to report that during the quarter, we also made the first commercial sales of our new structural health monitoring system, S-LENX. I'll now give the floor to Yuri for more financial highlights.

Thank you, Sophie. Good morning, good afternoon, and good evening, ladies and gentlemen. I will comment the third quarter 2021 financial results. Looking at the consolidated P&L on slide 20, our segment revenue was $270 million, up 35% year-on-year, and up 71% sequentially. It was a very solid quarter for CEG Group, driven by continuing recovery in geoscience, significant increase in multi-client sales, and strong equipment deliveries. GGR segment revenue was $168 million, up 12% year-on-year and up 53% sequentially. Geoscience revenue was $77 million stable year-on-year and up 5% sequentially. Multi-client revenue was $92 million, up 26% year-on-year and up 149% sequentially. Refunding revenue of our multi-client projects was $59 million, up 51% year-on-year with refunding rate of 103%. Multi-client after sales were 32 million this quarter, slightly down year-on-year. The equipment segment revenue was 101 million, up 105% year-on-year and up 113% sequentially. The respective contributions from the group's businesses were 28% from geoscience, 34% from multi-client, 62% for GGR segments, and 38% from equities. Segmented EBITDA was $118 million this quarter, up 127% year-on-year with a solid 44% margin. Adjusted segmented EBITDA of $118 million was up 48% year-on-year. Segment operating income was $33 million, up $71 million year-on-year with a 12% margin, while adjusted segment operating income of 33 million was up 37 million year on year. After an adjustment of 13 million, cost of debt of 27 million, taxes of 7 million, and net loss from continuing, sorry, net loss from discontinuing operations of 3 million, group net loss was 17 million, significantly less than 93 million net loss in the third quarter of 2020. Moving to slide 21, simplified cash flow, and looking at Q3 2021 segment free cash flow, it was positive at $2 million, including $48 million negative change in working capital. Again, a significant improvement from negative $59 million in the third quarter of 2020 due to this quarter's solid increase in EBITDA. Total capex was $74 million stable year-on-year. Industrial capex was $8 million. Capitalized development costs were $7 million. And multi-client cash capex was $57 million flat year-on-year. After $14 million of lease repayments, zero cash cost of debt, $7 million of CEG 2021 plan cash costs, and negative $15 million free cash flow from discontinued operations, Group net cash flow was negative 34 million, significantly improving compared with negative 92 million in the third quarter of 2020. Moving to slide 21, group balances and capital structure. At the end of September 2021, group liquidity amounted to 340 million, including 100 million on drawn RCF. Group gross debt before IFRS 16 was $1.22 billion and net debt was $987 million. Group gross debt after IFRS 16 was $1.35 billion and net debt was $1.11 billion. Group debt after IFRS 16 included almost $18 billion in high-yield bonds due 2027 49 million of other items, and 127 million lease liabilities. Capital employed was 2.14 billion, down 28 million from the end of December 2020. Networking capital after FRS 15 was at 153 million, decreasing from 212 million at the end of December 2020, primarily driven by reduction in net accounts receivable, inventories, and current provisions. Goodwill was stable at $1.19 billion, corresponding to 56% of total capital employed. Multi-client library net book value after FRS 15 was up at $556 million, including $495 million of marine and $60 million of land net book value. Other non-current assets were at $376 million, including $221 million of property, plant, and equipment, down 47 million from year end, which included 131 million of our first 16 right of use assets, and 96 million of other intangible assets, down 20 million from year end. Other non-current liabilities were at 136 million, down 29 million from year end. Shareholder's equity was 1 billion 27 million, including 44 million of minority interests, mainly related to . Now I hand the floor back to Sophie for an outlook of 2021 market environment and our financial data.

Thank you, Yuri. Now we're on slide 24. Overall, the Q3 was a solid quarter, and we expect a solid Q4 as anticipated earlier in the year. In its context, we confirm our 2021 financial objectives. And looking forward, geoscience should continue its gradual recovery. Multi-client has been the most affected by the current cautious client's environment, where clients, especially the IOCs, continue to delay decisions for the future. However, we do see the early signs of improvement, as there is a need for our clients to constantly review their portfolios for economics and now for their carbon footprint. I think this will drive a bit more geographical positioning and acreage grabbing, and we do see interest in our data for Q4. In equipment, Q4 will see significant land equipment deliveries in North Africa. And while it's too early to provide a perspective for 2022, it's fair to say that our clients are organizing to increase their activity levels, even if they remain cautious, especially when it comes to exploration. Technology and digital will remain high on their agendas, and I believe the current trends will be supportive for CDG's core and growth beyond the core businesses. Our unique technologies, sophisticated algorithms, high-performance computing, earth data, and industry-leading sensors will play a key role in supporting the industry and its ambition through the energy transition. Thank you for your interest, and we're now ready to take your questions.

Okay, ladies and gentlemen, we will now begin the question and answer session. And as a reminder, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. Okay, we will now take our first question. It comes in the line of Durich Humau. Your line is now open.

Oh, yes, hello. Sorry, sir. Yes, yes, yes. I didn't even recognize the pronunciation of my name. My question relates to marine sales equipment. It's quite impressive to see the increasing in ocean-bottom devices. On streamers, what's your prospect? Do you think the market, given the age of the streamers equipping the devices now, there should be at some point a large replacement of streamers? What's your vision on that?

Thank you, Jean-Luc, for your question. You're absolutely right in saying that the streamers are getting older and older, so probably getting into the 10-year anniversary. But we don't see – I think I haven't changed my view that the replacement cycle will be starting more into end of 2022 to 2023. So I don't think the streamer replacement cycle will drive significant improvements in the marine streamer numbers in equipment for 2022. I would say generally speaking, the prices for marine acquisition seem to be on the way up, although in this Q4, you know, you don't see marine acquisition companies aren't that busy. But prices are heading in the right direction, which will eventually allow those companies to make investments to replace their streamers. There is a need for that. It's just right now they don't have the capex or the visibility in their business to make those investments. I think this will come in 2023 for sure.

Thank you very much.

Sure.

Okay, we'll now take our next question, and it comes from the line of Kevin Horry. Your line is now open.

Yes, good evening. I think it's me. It's Kevin from Kepler. Can you hear me?

Yes, Kevin.

Yeah, okay, perfect. That's me. Sorry for that. I have a few questions, please. The first one is related to the working capital movement that you had in Q3. I guess it's related to CERCEL and the fact that you are delivering nodes this quarter and you are expecting to deliver a stronger let's say, strong volumes of equipment to Algeria in Q4, I was wondering if you can give us the magnitude of this working cap movement related to CERCEL and how much we should expect to get back in Q4. So that's the first question. The second one is related to the EBDA of CERCEL. Is the, let's say, ARDO mode having a positive mix effect on your EBDA? Because the performance was better than what I think everyone was anticipating in terms of margin. So is the note a positive mix effect? And the last one is on the free cash flow from discontinued operation. Can you give us some details on that? Is it related to the boats and the engagement that you have with your partner when the vessel arrives, et cetera? So if you can explain me the free cash flow from discontinued operation. Thanks a lot.

Yes, Kevin, and good evening. I will take your questions. So you'll see in our financial statements that indeed this quarter we had a negative change in working capital of over $48 million. And the reason for that is, of course, the, well, actually two things. One, we already mentioned, yes, indeed, obviously, we had strong deliveries of equipment in the third quarter, primarily GPR nodes. And with that, of course, the accounts receivable in equipment business went up. But the second element is around the, or relates actually to the sequential significant increase in multi-client sales as well. So multi-client sales increased from 37 million to 92 million. And of course, with that, that's what drove overall the increase in accounts receivable. So in other words, again, it's both businesses, it's multi-client and equipment. And we expect, of course, this increase trend to change, well, kind of again into the fourth quarter. So the receivables will be collected most of them during the fourth quarter of the year. Now, regarding the EBITDA of CERCEL, again, there is definitely a positive impact from uh the sale of nose why because of course uh it's uh it's electronics so as as you well know in the kind of in the revenue mix of your cell uh the mechanical products like uh like uh uh vibrators obviously have lower gross margin while anything electronics uh has a higher one and nodes, ocean bottom nodes fall into this kind of higher gross margin category. Therefore, yes, we had the positive impact. And your third question was, was what?

The free cash flow from discontinued operations.

Oh, right. Yeah. Sorry. Free cash flow from discontinued operations. Actually, it's kind of the usual story primarily relates to the idle wealth of compensation, but also in the third quarter, in CEG 2021, we had an impact of tax, legacy tax settlement in Mexico of 14 million.

vast majority of the 15 million is related to legacy tax settlement and it's not related to the compensation that you have to pay to a shareholder for the island oh because they uh if and when we pay compensation to share what it doesn't go through discontinued operations it will go into the piano yeah okay okay okay thanks for that thanks for that sure thank you kevin thank you

But before we take our next question, and it comes from the line of Mick Pickup from Barclays, the line is now open.

Hi, good evening, everybody. A couple of questions, if I may. Firstly, obviously, you've made a couple of announcements this quarter where you've been investing jointly with some of your peers. Can you just talk about investing in cooperation with others? Does that signal what we're going to see going forward? Is it a sign of capital tightness in the industry? What exactly is driving that at the moment?

They are actually absolutely right. There is more collaboration, and I do believe the future will be more collaborative. If you look at our clients, they've been collaborating for a while, for a long time, and especially when it came to activities that were more risky, in exploration particularly, they'd come and form consortium. So I think we've not been good at mimicking that from our space. So one of the announcements that we made is in Suriname, and that's going to be three of us investing, and that's about risk management. The second one that you would have seen is around Verso, and it's a bit of a different one. It's about delivering the data in an efficient way to our clients, multi-client data, and giving them access to their entitlements. recognizing that, if you want, is a bit of a backbone for multi-client, but it's not a differentiator. It's not something that we believe TGS, PGS, or us should differentiate on, and rather we should join forces to just do the best product to serve our clients. So it's more about putting together resources to better serve our clients, which want efficient data delivery into their platforms. The other one you would have seen is the collaboration on CCUS with PGS, and we felt that it would make sense to join forces with them in the North Sea because we're the two companies that have, if you want, the largest data sets, and it was easier to collaborate on something new like the CCUS. So we thought, okay, why don't we do something together and see what we can provide to the industry together, knowing that we've got the best data sets to do that. It's a bit of a different driver, but generally speaking, risk management, efficiency, and I guess business synergies would be the drivers, but different angles.

Okay, very clear. Another question. Can I just ask about conversations you're having with your clients? But the gap between blankies and the oil price is as big as we've ever seen at the moment. And my US colleague today got to note with the word super cycle. So going into 4Q, obviously, there's usually a seasonal spend at the end. Are you getting the sense that that's much more likely now with the current environment and workload is coming back?

I would say it's really strange times because oil price is super high. all of our clients are very profitable and generating very strong cash flows, I don't have a sense that they're going to be moving from their capital discipline. Now, you have to keep in mind they're well below their guidance from CapEx stand, which means they have a lot of sort of quote-unquote spare money when it comes to your rent. I would say there are some signals that they want to discuss year-end deals because they've been into the discipline of gathering the needs from various departments and various groups and assets geographically into year-end and trying to negotiate a larger deal. So I think that will certainly happen, and I mentioned that positive signal. I just don't know the magnitude of it and how much of that money they will actually release because, again, they're well below the run rates of spending. So that means they've got a lot of money, but I don't know if they will spend it all or if they will keep some under their shoulders or keep it to just give back to the shareholders through other forms.

And a quick one if I just finish off. Pre-funding is above 100% obviously very good. Is that just prudence on what you're investing or is it that reprocessing comes with higher pre-funding? What's driving that 100% plus?

The pre-funding should never, we should never look at it on a quarter to quarter basis. I did mention last quarter that there was a sort of a deal that we were working on that had moved into Q3. So in reality, that pre-funding should have come in earlier in Q2, which would have made H1 stronger and this one more normal. So it's just sometimes it's a bit lumpy, and the sequencing makes it happen that way. There is some level of catch-up on pre-funding when it comes to more, you know, the later month of the year, which is what's happening. So you shouldn't read into this particular quarter. It was driven by a catch-up of pre-funding that should have really come last quarter. But what it does say, though, is our pre-funding at, you know, year-to-date is 70%, and we'll probably go better than that in Q4. It shows that we're investing in the right places and that there is interest in our projects. which is essentially Norway and Brazil.

Thank you very much.

Okay, we will now take our next question, and it comes from the line of George Hummel from CIC Market Solutions. Your line is now open.

Okay, my question relates to CCUS, you mentioned that in terms of diversification away from oil and gas, and that's something your companies are, you see your Americans are pointing to very seriously. What kind of services would it involve in terms of, you mentioned identification, but once it's done, would there be a need of monitoring and that sort of

Yeah, thank you for that question. You'll find in the CCUS very similar ingredients to the exploration and production. So exploration is going to be similar ingredients and that's what we aim to do with our data sets in the North Sea particularly that's going to be very active in CCUS is identification and characterization. You could do this using geoscience at large, so it definitely will involve geology and geophysics. And that geophysics will either be acquired on a proprietary basis or will be on a multi-client basis. So it will involve data sales, one way or another, or data acquisition and processing activities. And then there will be a perhaps more important component of monitoring because that will be driven by regulatory requirements. Of course, if you think about it, you're injecting CO2 perhaps at high rates, and you have a risk of fracking the rock or breaking the integrity of the reservoir or the storage area. And therefore, there will have to be mechanisms to monitor. I would think some permanent, perhaps combined with the likes of the 4Ds that we see in the oil and gas industry. But there will be definitely a component of permanent monitoring, which we intend to position on. Thank you. Thank you.

Okay, we will now take our next question, and it comes from the line of Mila. Belimu Klametho from BlackRock. Your line is now open.

Yes, hi. Hi, good afternoon. Thank you for taking my question. Just one from my side. I just wanted to check on your non-recurring charges. I seem to have a number of 32 million for 2021 as an adjustment to EBDA, well, to EBDA. um from 42 million in 2020 would you confirm that so the number i should be looking for because i think yesterday obviously there were no adjustments this quarter so yesterday so i think that's three million total um so how should i think about that thank you so mayla um yes uh good afternoon are you looking at cash flow or pnl oh sorry that's pnl yes

So on the P&L side, we... Yeah, we thought about... No. we had a credit actually from early in the year from the reassessment of provisions for Social Planet France, right? So basically, we don't have the significant kind of difference between the

I would say, I mean, this year is a fairly clean year in terms of non-recurring costs because last year we took all the provisions, either the provisions or the cash costs for the reductions of essentially headcount, large headcount reductions, and we had non-recurring on some adjustments, I guess, on our client data library. But since the beginning of the year, we haven't made any adjustment. Actually, if anything, like Yuri mentioned, we got a credit because we took a larger provision for a social plan in France. And you don't know the exact number until the people actually leave because it includes, you know, it depends on how long actually people take to find another job. And so we actually had a fairly significant credit that we took. And so it hit us. So our adjusted... EBITDA is actually lower than our EBITDA.

Yeah, and basically, yes, the difference between the two on the nine-month year-to-date basis is 2 million. So 195 million EBITDA and 193 million adjusted EBITDA. And when it comes to operating income, so we have basically operating income of 14 million... for the first nine months versus adjusted operating income of 6 million. So in other words, again, there is a plus 9 million kind of positive or credit effectively related to the provisions and charges that we took last year.

Got it. So I shouldn't expect any meaningful adjustments in Q4 or in 2022.

No, not when it comes to P&L. And then on the cash flow, you will see that obviously we continue kind of to pay those severance costs and they go through the reduction in liability. Okay.

Would you remind us of those?

Again, on the cash flow statement, Basically, we see over the first nine months, the change in NRC liability of negative 19 million. So basically, that's what happened on the year-to-date basis.

And so, yes, for the 21 in total and 2022, what are your expectations?

Uh, well, 22 should be close to 0, because basically there might be a small tail end in France, but pretty much all of those 7 costs are paid this year.

Okay, and then a similar number to Q3 and Q4, I see more slightly lower, but not not increasing.

No, it's not increasing. Yeah, exactly. So.

Okay. Great. Thank you very much.

In fact, it's kind of gradually decreasing.

Got it. Thank you.

Okay. Once again, if you wish to ask a question, please press star and one. Okay, our next question comes in the line of Lebac Bastiste, from Odoo.

Yes, good afternoon. Thanks for taking my question. Very quick question for me. In today's environment, we see some bottlenecks, like in semiconductors, but also in some different For you, is it a risk for your equipment divisions? And what is the most, let's say, risky equipment for you we should focus on? And second question still linked to this point. There is also some increase of ROMAP costs. Do you think that it's possible for you to your margin in this context. I always think about equipment division. Thank you.

Yes, thank you, Baptiste. Very good question and it is something that we're looking at very carefully as we're planning into 2021. So I'll just say generally speaking on the equipment side, we plan probably a year ahead and so we place the orders for critical parts quite early in the cycle and that's why we've been I mean, we haven't felt any issues this year of this bottleneck on semiconductors or increases in raw materials. So we might see – we're starting to see some tension on electronic equipment, not necessarily the raw materials. That's not a concern to us. And it's something we're working to resolve. We do think that if – we get affected for a period of time next year, it would be a short period and that we would be able to catch up during the year. So we're not planning right now, we're planning to be able to deliver what we need to deliver next year basically. And that is mainly because we anticipated a lot of the orders. Does that answer your question?

yes thank you and regarding the cost of the increased cost of input and your margin and your ability to preserve your level of margin and speaking with clients yeah we're not seeing um yet i mean again this is like i said we we place the order quite ahead

of time, so we haven't seen any inflation on the raw materials on what we buy. It's more about the issues being more about the availability of some electrical components, and that we've been working on. So I would think, yeah, we're not – I mean, right now, we're not seeing impact on our margins, and our margins are more dependent on the mix of products that we deliver. And as Kevin pointed out earlier, or someone asked the question on the GPR, the GPR is a good margin. So it really depends on what we're selling rather than the inflation on the raw materials.

Thank you.

Sure. And we're in the process, by the way, of doing our budgeting. So I'll definitely know more on the next call. But yeah, Directionally, we're not seeing a big deal of inflation of the raw material.

Carl, any additional questions?

Yes, sir. Our next question comes from the line of Matt Suheki from Morgan Stanley. Your line is now open.

Hey, thank you very much. So I have a quick question about cash flow generation and the leveraging in the remaining part of 2021 and 2022. So should we assume that $95 million you're going to receive from geoscience will go towards the leveraging? That's the first question. And the second question would be going into the future and going into 2022 as the activity, as you mentioned, is picking up. how should we think about cash flow generation, i.e., the pre-funding levels are relatively low at the moment, and do you expect them to go back quickly towards the 95%, 100% levels? That would obviously help a little bit. I mean, that's basically the key question.

Yes. Thank you for your question. I'll take the question on On pre-funding, if you remember, historically, we've always committed to sort of a 75% pre-funding, which we felt offered the right balance of finding projects, the best projects, because the best projects aren't necessarily the ones that are the most pre-funded in early stages. So we wanted to make sure we had the mix. So the hype of funding is not necessarily a sign of a good performance of Monte Carlo. It needs to be, I believe, over that 75%, but 100% might actually be too high, meaning you're not taking enough risk on the projects and on your portfolio, or you're not investing enough. Now, of course, what we want and what we need is more after sales, and that's what we've been short on from, I guess, started last year because of the COVID crisis and into this year. And that's where you're seeing the discipline of the IOTs and our clients play as they're just not buying data that's on the shelf. So if we do see the when or if we see that after sales pick up, obviously, this is a direct cash generation. and it will be falling through all the way into cash. So I'd say this year we've committed to be sort of cash positive, and so that will not unfortunately allow us to do leverage. And 2022, I think it's too early to say which way it's going to pan out. Do you want to add anything?

Well, we, we will, uh, under, under the ones, uh, uh, kind of confidence in terms of conditions, we have until April of next year to decide whether to apply, uh, uh, generated cash against the 10%, uh, uh, uh, repayment, uh, that we built into the bonds, right? 10% of the payment that one of three. So as Sophia Wright said, we'll be looking at next year, and once we have more visibility, then we will make those decisions. But it will apply to deleveraging us indirectly. In other words, obviously, the cast-on balance reduces .

Thank you very much. That's helpful.

Thank you. Thank you. Okay, once again, if you wish to ask a question, please press star and one.

Charles, if there is no additional questions, then we hand the floor back to Sophie for the conclusions. Yeah, no questions at the moment, sir.

All right. Well, thank you very much. It's been a great call. Many more questions than in previous calls, so I think we were right to change the time and the scheduling. So thank you very much for your questions. Thank you for the interest in CDG, and I look forward to meeting some of you in the next few days.

Thank you, everybody.

Thank you. Have a good evening.

Have a good evening and good afternoon.

Okay, that does include our conference for today. Thank you for participating. You may all disconnect.

Goodbye. Thank you, Tom. Goodbye.

Thank you, sir.

Have a good day.