Viridien S/Adr

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the first quarter 2020 resource call. At this time, all participants are now listening only mode. There will be a presentation for the question and answer session, at which time, if you wish to ask a question, you will need to press star and one on your telephone keypad. I must advise you that this telephone conference is being recorded today, and I would now like to hand the conference over to your host for today. Thank you. Please go ahead.

Thank you. Good morning, ladies and gentlemen. Welcome to this presentation of CGG's first quarter 2020 results. The call today is hosted from France, where Mrs. Sophie Zierkia, Chief Executive Officer, and Mr. Yuri Baidukov, Chief Financial Officer, will provide an overview of the first quarter 2020 results, as well as provide comments on our outlook. As a reminder, some of the information contains forward-looking statements, including, without limitation, statements about CDG plans, strategies, and prospects. These forward-looking statements are subject to risk and uncertainties that may change at any time. And therefore, the actual results may differ materially from those that were expected. Following the overview of the quarter, we will be pleased to take your questions. And now, I will turn the call over to Sophie.

Thank you, Christophe. Good morning, ladies and gentlemen, and thank you for participating in this Q1 2020 conference call. Our presentation will cover our first quarter 2020 operational and financial results, our market environment, the unprecedented crisis that we are experiencing, and our action plan to adapt to this new reality. On March 6, we released our Q4 results and our 2020 guidance. At that time, we were still envisaging relative stability in the market and were shaping up CDG for a year of further development with recruiting plans, a healthy pipeline of new geoscience technology, well-prefunded multi-client programs and new equipment products. Since then, two compounding crises dramatically affected the global economies and especially the oil and gas industry, severely degrading our business environment. The first crisis was triggered by the global COVID-19 pandemic. The second was caused by the rapid drop of oil price by more than 50% to the current levels of around $30 per barrel, which resulted from the combined impact of the significant decline in all demand caused by the COVID-19 and the market share war, which was led by Saudi Arabia and Russia increasing their supply. In just a few weeks, our business environment totally changed. At current, as we navigate through these unprecedented crises, we have little visibility on how long the oil prices will remain at these levels. Most forecasters are experiencing it to remain low for the next 12 to 18 months. And of course, these market conditions and outlook are having a significant impact on all our clients. On average, oil and gas companies have announced reductions in their planned 2020 capital spending of around 25 to 30%. In this business environment, we have changed our plans and are preparing and adapted for our businesses to effectively manage through what we currently expect to be a challenging 2020. I'm glad that we made significant progress well ahead of our plans last year towards the strategic objective to become an asset light, people, data, and technology company with a much leaner organization. A key part of the rationale behind our CGD 2021 strategy that we launched in 2018 was to prepare the company to better position to manage through the cycles. I am encouraged now that we are asset light. Most of the subsurface imaging projects that we deliver are linked to development and production. Our multi-client library is positioned in proven, developed, and mature sedimentary basins. And our equipment business has the largest install base. is strong in the world's most resilient locations and has a flexible manufacturing organization. I'm also pleased that we built a strong backlog in 2019 and that CDD has $624 million of cash in the bank at the end of March and no debt to reimburse before 2023. I'll start the presentation with slide five. During the ongoing COVID-19 pandemic, the CDG priority for CDG remains to focus on the health, safety, and well-being of our employees and all stakeholders. At the global and local level, we are constantly monitoring the evolution of the situation and ensuring that measures mandated by the government and recommended by experts are in place. This enables us to combat the spread of the virus and ensure that our work environment is as safe as possible for our employees who need to be at the workplace. We have been able to ensure strong business continuity through the proactive measures that we implemented in our facilities, operations, and to enable the vast majority of our employees to work effectively from home. In Geoscience, we continue to deliver projects on time, and all our data centers are operational. Our multi-client programs in Brazil, North Sea, US and Australia are all ongoing and did not experience any significant interruptions. Equipment manufacturing plants in France and in the US were shut down in mid-March and are gradually ramping up, while our plant in China resumed normal production after closing for two weeks in January. As countries around the world consider reopening, we are implementing our back-to-work plans, which includes most of our employees continuing to work from home where possible. As the situation changes daily, we continue to monitor it closely globally and locally, updating our plans as appropriate and encouraging all teams to work within local health authority updates and guidelines. I'll now move to slide six. We delivered a good Q1 with solid business performance in geoscience and multi-client, while equipment saw lower demand than Q1 last year, which, if you remember, had strong deliveries in the Middle East. Equipment was also impacted by COVID-19, which created some delays in supply, manufacturing, and logistics. Our revenue in Q1 was down 4% year-on-year compared to Q1 2019. Our EBITDA was higher than last year, and more importantly, we generated a positive 17 million net cash flow this quarter, despite a 50% increase in capex, mainly in multi-client. The group net loss for the quarter was 98 million, including 17 million impairment mainly related to our multi-client library that were based on deteriorating market conditions as a result of the pandemic and 27 million loss from discontinued operation. I will now cover our Q1 2020 operational achievements by reporting segment. We're moving on to slide seven. GGR had a good start of the year as we benefited from a solid backlog in geoscience and from a healthy pipeline of well-prefunded multi-client programs. Overall GGR top line increased 9%, EBITDA increased 17%, and the EBITDA margin was high at 62%. Going on to slide eight. Geoscience total production was 125 million in Q1, quite stable year on year. Backlog was 256 million, not including the recent Repsol dedicated center award. And our HPC capacity has now reached 250 petaflops. Continuing on to slide nine, market demand for geoscience was solid across all regions at the beginning of the year, as very high resolution images of the reservoir were required for near field exploration, development, and reservoir management. I have pointed out in earlier calls our technical leadership in marine and ocean bottom nodes imaging. We are now seeing more and more clients requiring higher quality land imaging as well. Land data can be much more difficult to process than marine data because it is much noisier and is impacted by near surface effects. Again, based on our technical leadership, we can provide significant improvements with our advanced technology for high-density datasets, such as in the Middle East. Recently, we are making good progress here, and it can provide our clients with the ability to see important details in the subsurface that could not be seen before. Looking at 2020, we know that our clients will spend less and postpone some of their plans, but they will keep working on their most important projects to high-grade their portfolios One interesting data point is that most of the projects we deliver in subsurface imaging are related to producing fields and fields undergoing development. These projects are important to our clients, even in the current environment, and our technology provides a much better understanding of the subsurface and therefore is of significant value to them as they decide on drilling locations, development opportunities, or producing plans. Our top priority in geoscience is to maintain our technology leadership. I move on to slide 10 now with a focus on dedicated imaging centers. Around 15% of our geoscience revenue comes from our dedicated imaging centers. This is a long-term business model where CGG provides a dedicated team of experienced geoscientists and experts together with access to our leading technology and global expertise to one client on its premises. With this win-win business approach, the procurement process is streamlined and clients secure on-demand access to our advanced seismic imaging, while CDG gains stable revenue and visibility in both good and challenging times. The dedicated processing centers provide our clients with a strong technological edge and accelerate project turnaround times, both of which help them meet their business objectives. More importantly, this creates a long-term collaboration environment where we gain a deep understanding of our clients' challenges and objectives. Together with their G&G teams, we build relationships based on trust and superior service performance. Today, we operate eight dedicated centers worldwide, And for example, we've been in Oman for more than 25 years working inside PDO's offices. And we recently renewed two dedicated centers, one in France for Total and the other in Spain for Repsol. I'll now go to slide 11 to cover the multi-client. Q1 numbers reflect the fact that we started the year with a healthy pipeline of multi-client projects with good pre-fundings. We were quite active this quarter with multi-client capex increasing to 67 million with an 86% pre-funding rate. After sales were 47 million this quarter, stable year-on-year and solid across regions. Towards the end of March, we started to see the effect of clients reprioritizing their investments. And following the collapse of oil price at the end of March, we performed an impairment review of our multi-client library which resulted in a non-cash charge of $69 million. Going on site 12 now. We had four ongoing multi-client projects during the quarter, including two land surveys, Bayou Buff and Central Basin Platform in the U.S. Despite the announced reduction of capex by U.S. independents, these two U.S. land projects are well pre-funded. One has now been completed, and we have no plans for additional projects in U.S. land this year. In marine, there are two ongoing streamer surveys, Nebula in Brazil, a 15,000-square-kilometer program in the Santos Basin that attracted high interest from clients, and Gippsland in Australia, the program in the Gippsland Mature Producing Basin. At the end of March, we started a new ocean bottom node survey in the cornerstone area of the U.K. North Sea, This program also has good pre-funding. After a solid Q1, we have a strong portfolio of ongoing committed projects. Looking at the rest of 2020 and given the current downturn, we reviewed our project pipeline and decided not to pursue projects that had not secured an acceptable level of pre-funding. This translates into a 60 million reduction of 2020 multi-client capex versus our original guidance for around 225 million multi-client capex in 2020 with a solid pre-funding rate of more than 75%. Moving on to slide 13 with equipment. Equipment segment revenue was 75 million, down 29% compared to last year. Land equipment sales represented 71% of total sales. Marine equipment sales represented 17% of total sales, mainly spare parts. and downhaul equipment sales were 7 million on lower demand for artificial lift from unconventional projects in the US lower 48. After the month of March, when two of our manufacturing plants were shut down due to COVID-19, work is gradually resuming in order to manufacture and ship our active orders. Equipment segment EBITDA was 8 million and 11% margin. Equipment segment operating income was at break-even which is consistent with this break-even point. I'll move on to slide 14 now. During the quarter, equipment delivered over 80,000 508 cross-tech land data acquisition channels, mainly in Russia, India, and North Africa. At this time, the tendered mega-cruise in the Middle East could be delayed until near the end of the year or perhaps into 2021, but none have been canceled. Demand for marine equipment, both streamers and nodes, is expected to remain low in 2020. In our non-oiling gas segments, fuel tests continue to progress well for CESEL's new structural health monitoring node prototype designed for the growing high-end infrastructure monitoring market. I will now give the floor to Yuri for more financial highlights.

Thank you, Sophie. Good morning, ladies and gentlemen. Looking at the consolidated P&L on slide 16 for our Q1 2020 results, segment revenue from our new profile amounted to $271 million, down 4% year-on-year. GGR contribution was $197 million, a 10% increase year-on-year with 73% weight compared to 64% weight in Q1 2019. Geoscience revenue was $93 million, a 2% increase year-on-year, and multi-client sales were at $104 million, increasing 17% year-on-year, driven by a solid pipeline of well-prefunded projects. Equipment revenue contribution was $75 million, down 29% year-on-year, with 27% weight versus 37% weight last year. A segment to deduct was $123 million, up 3% year-on-year with 45% margin versus 42% margin in Q1 2019. Segment operating income was negative $31 million, including $70 million impairments primarily related to our multi-client library in frontier exploration areas in Africa, as the surveys will be less attractive to new players in current low oil price environments. Excluding these impairments, our segment operating income was positive $34 million with 14% margin compared to $11 million with 4% margin in Q1 2019. IFRS adjustment at operating income level was negative $9 million and IFRS operating income after IFRS 15 adjustment was negative $40 million. Looking at our OPEX costs, R&D net costs were $4 million lower by 26%, G&A costs were 19 million, lower by 11%, and marketing and sales costs were stable at 9 million, lower by 8% year-on-year on cost reductions and favorable Euro-USD exchange rate. Cost of financial debt was 33 million with a non-cash peak component of 11 million and was flat year-on-year. Income taxes were 5 million, Net loss from continuing operation was 72 million, including impairments, and net loss from discontinued operations was 27 million. Group net loss was 98 million. Moving to slide 17, cash flow statement. In Q1 2020, segment operating cash flow generation decreased to 145 million compared to 204 million in Q1 2019, due to a much lower positive change in working capital and provisions. Our multi-client cash capex of 67 million was 68% higher than last year on the back of solid portfolio of ongoing well-prefunded projects, also Brazil and Australia, and onshore U.S. Q1 2020 cash refunding rate was 86%. Industrial cash capex and R&D costs in our geoscience and equipment business were slightly up year on year at $21 million. Q1 2020 cash cost of debt was flat year-on-year at $7 million. Net cash flow from discontinued operations was positive at $9 million, a significant improvement from last year. Q1 2020 cash costs related to the implementation of CSG 2021 plan were $28 million. Overall, we generated a $17 million positive group net cash flow this quarter. Our liquidity increased to $624 million from $611 million at the end of December 2019. At the end of March 2020, our gross debt was $1,329,000,000 or $1,164,000,000 before FRS 16 with the following breakdown. $607,000,000 of first lien dollar and euro bonds maturing in April 2023, 529 million of second lien dollar and euro bonds maturing in February 2024, 28 million of other items mainly accrued interest, and 165 million of lease liabilities under FRS 60. Our financial leverage net debt to shareholder equity was at 49%, or 37% before IFRS 16, versus 46% at the end of 2019. And segment leverage was at 0.8 times net debt to LTM EBITDA at March end 2020, before IFRS 16. Looking at the group balance sheet on slide 18, at the end of March of 2020, our capital employed was 2.2 billion, down 121 million from the end of last year. Networking capital after IFRS 15 was at 197 million, up 49 million from 148 million at the end of December 2019. Receivables were at 315 million, down 121 million from 436 million at December 2019. And inventories were at 207 million slightly up by 7 million at the end of December last year. Goodwill was flat at 1.2 billion, corresponding to 55% of total capital employed and 83% of shareholders' equity. Our multi-client library net book value, after FRS 15, was at 475 million, with segment MDD at 318 million. This included 69 million impairments, And the library was down from 531 million at December end 2019. Multi-client segment amortization rate was at 55% into one 2020. Other assets at 516 million were up 25 million from 419.1 million at the end of December 2019 with property plant and equipment net book value at 288 million down from $300 million at December end 2019, including IFRS 16 right of use. Other intangible assets at $158 million were slightly down versus $160 million at December end 2019. And other non-current assets at $70 million were up $40 million from December end 2019 mostly from 49 million of Sharewater-related vendor notes. Other current liabilities were at 199 million, up by 137 million from 62 million at December 8, end 2019, with recognition of liabilities related to capacity agreement following the closing of Marine Strategic Partnership transaction with Sharewater in January 2020. 139 million of these liabilities were outstanding at the end of March 2020. Shareholder equity and minority interest was at 1.5 billion, including 46 million minority interest, mainly related to Yunfeng Joint Venture. In those turbulent and uncertain times of crisis, preservation of liquidity is becoming more imperative than ever. This is why we continue to stay focused on generating cash and preserving our liquidity. Now I hand the floor back to Sophie for an update on our business outlook and conclusions.

Thank you, Yuri. Now we're going on to slide 20. While it's still too early to fully estimate the impact of this severe and unprecedented crisis for CVG's business in 2020, the recent announcements from our clients indicate upstream capex cuts in the range of 25% to 30% in 2020. In both terms, the COVID-19 pandemic has significantly reduced consumption of hydrocarbons, at least temporarily, as the world's economies were hit hard by the forced activity slowdowns in most countries. As a result, there is a large unbalance between oil demand and supply, which has resulted in a very low oil price environment. We expect the situation to take time to balance. and anticipate it would largely depend on how successful countries are in dealing with the pandemic and the level of support to the economies. Of course, this outlook has significant impact on the actions of our clients, the oil and gas companies. At current, we expect a much more significant reduction in the U.S. land market, but we have a fairly low exposure, while international capex will drop less. We also expect the Middle East national oil companies to take a longer-term view and therefore their spending should be more resilient. Moving on to slide 21 for the business outlook. We are continuing to speak with our clients to gain more visibility around their plan reductions in spend and how these reductions will ultimately affect their geoscience and data purchase plans for GGR. Equipment is also assessing the response from the geophysical acquisition contractors. In previous cycles, the acquisition contractors sharply decreased their capex as they went into survival mode. Overall, looking at business activity and outlook in 2020, we expect that geoscience should experience a gradual reduction in revenue, benefiting from its current backlog. As a reminder, in geoscience, we focus on the high-end segments of the market. Multi-client, as mentioned earlier, has a healthy pipeline of well-identified and pre-funded programs in proven, developed, and mature sedimentary basins. These will carry us through the year. This year was different from the previous as we had less unallocated capex to spend. We also expect the current market environment to impact after sales, and we have already seen the first signs of this in March. The equipment business is expected to be impacted by reduced demand for land equipment. The marine streamer replacement cycle and demand for our new OBN offering is expected to be delayed at least the second half of 2021. We don't have as much visibility in equipment, but there is typically only a few months of backlog. But as I mentioned earlier, at current, the mega crew tenders in Middle East are maintained, and we could have the opportunity to make sales in Q4 this year. Moving on to 2022, on slide 22, sorry. It's clear that the CBD business will be significantly impacted this year, given the current environment. Therefore, we are reacting fast and focusing on what we can control. We will continue managing the company for cash with a focus on its preservation. And to achieve this, we are reducing our 2020 capex by around 75 million, or 25% compared to our original guidance, with reduction in multi-client cash capex by 16 million to around 225 million, and industrial and development capex to 17 million. We are reducing our 2020 cash costs across the entire organization by 15% to 20% annualized. This will be achieved by implementing a linear organization, finishing the implementation of our CGD 2021 cost reduction plan, and reducing our discretionary spend across the board. At the same time, we will preserve our key R&D and CapEx investments that are core to maintaining the technological leadership of our businesses. we are also pursuing ongoing monetization of the remaining data acquisition assets. As we are evolving in a rapidly changing and volatile environment, we are continuing to monitor the situation closely and are preparing further plans that we will communicate and implement depending on the evolution. Now in slide 23 and in conclusion, the business environment is expected to be much more difficult and volatile in 2020. Fortunately, CDG is in much better shape to weather this storm. We have transitioned to an AstroSlight model, which removes the burden of reduced activity in the proprietary acquisition market. We have good backlog, which gives us more time to adapt and size our response. We are well positioned in the more resilient segments of our market. And more importantly, we have $624 million in cash on hand and no debt repayments before 2023. Our technology remains fundamental to our client's success as we play a significant part in the efficiency and effectiveness of their business. They are still looking for those hard-to-image hydrocarbons and how to produce them, and we provide significant value. And finally, I know that in every crisis, there is an opportunity, and we are taking the necessary actions to ensure that this crisis is not wasted. Thank you for your interest, and we are now ready to take your questions.

Thank you, ladies and gentlemen. We will now begin the question-and-answer session. And as a reminder, if you wish to ask a question, you will need to press star and 1 on your telephone keypad. Thank you. And your first question comes from the line of John . Your line is now open.

Good morning. I hope you are . I have two questions, if that's possible. The first is regarding the depreciations of the multi-client library. What were the regions most affected by those depreciations? The second is, you gave recently an update of the order book at the 1st of April. The backlog was 278 million. How did it evolve since then for geoscience?

So Yuri, I'll let you comment on those.

Yes, sure. So the, good morning. And we also hope that everybody is well and healthy. So regarding the impairment of multi-client libraries, the main regions were the regions of frontier exploration. And we looked at the, and impaired the surveys in Africa as well as Ireland. So these were the main regions related to the impairment. Now, regarding the backlog, so as you could see on slide eight, so the backlog went down from 278 million to 256 million in our geoscience business as of the end of March.

Thank you very much.

This backlog did not include, as Sufi mentioned, this backlog did not include the recent award of extension of our dedicated data processing center with Repsol in Spain.

Okay. Thank you so much.

Thank you. And your next question comes from the line of Jim Roger. Your line is now open. Hello, excuse me, Mr. Jim Roger, your line is now open.

Yes, hi, it's Kevin Roger from Kepler Shriver. One question on the multi-client activities, please. You say that basically you reduced the activity by 60 million in terms of budget for this year. Can you precise, please, let's say the region where the survey is scheduled for 2020? have been, if not canceled, postponed. Where, basically, are you canceling some activities? And for the equipment, the follow-up, please. It's just, basically, you mentioned the last survey that are scheduled in the Middle East, and there is especially, from what I think, three very large surveys in Saudi Arabia that were scheduled to be awarded in May. I was just wondering if with the visibility that you have, is it postponed or is it still possible to see those awards, those survey awards in May? Thanks.

Bonjour. Yeah, thanks to the questions. I'll take those. So on the multi-client side, as I mentioned when we introduced the year, there we had much higher backlog than than usual and this is pretty much what we're delivering right now with all this ongoing surveys the only essentially if i look at large number the main flexibility we had was with the summer surveys in the in the norway so we always have a large pipeline of different opportunities but we always generally do a survey during the summer in the North Sea region, and this year we had plans in Norway, and so far we've just decided not to push the button just because we're not sure that we will get the refunding. Now, if the clients that we're targeting were coming back with signed contracts, perhaps, and if there was a vessel available, perhaps we would reconsider that position, but for now we've decided to not pursue that survey. So that's the multi-client one. And of course, here and there, we've just cancelled just a few projects here and there, but this is the big chunk. Now, on the equipment side, you are correct. The main surveys that we're targeting are the mega-cruise in Saudi Arabia. So far, the bids have been submitted. Now, what we don't know is when they plan to respond to those bids. and in turn when that could trigger orders. But I mentioned during the, in my notes, that I do believe that there is still a chance that we see some orders this year and into Q1 next year. At least that's what we see so far.

Okay, thanks a lot for that.

And it might decide to cut it in half, right? So we reviewed the numbers a bit lower, right? Because they've got three tenders, so perhaps the decision might be that only one goes on, or two, maybe not the three. So we've kind of toned down our ambitions, let's say, but we're still counting perhaps on some of that happening in Q4.

Okay, but at the end, it means that at your knowledge, there is no official delay. It's a possibility, but there is nothing official.

No.

Okay. Thanks a lot for that.

Thank you. And your next question comes from the line of Sarah Roslund. Your line is now open.

Good morning. Thank you for taking my questions. One, to begin with for you, Sophie, if that's okay, please. Would you mind commenting on pricing in geoscience and equipment and whether you're seeing some pricing pressure there with your recent conversations from clients? And then secondly, for Yuri, would you mind giving us a bit of color on your expectations for net cash flow in 2020 and how long discontinued operations will contribute like it did in 1Q, please? Thank you.

Yeah. Of course. Good morning, Sara. This is an interesting question because what we're seeing in this crisis is a different response from clients and a different response from the oilfield service industry in general. So in that respect, the clients have reacted very fast because they've been ready always with different scenarios and always with the scenario with the low price. So the reaction has been very quick. And their reaction is actually more of concern to their supplier base, and especially in the geoscience world, recognizing that we've been really through difficult times. The speak has been more around, you know, we want to make sure this ecosystem continues to survive. And how can we work collaboratively and how do we work together to, of course, with the results to be more efficient and eventually get the cost efficiencies there. But it's not been as much a direct... you know, we need 20% down or 30% down, we need prices down, because I think they recognize that the price concessions have been given, and there's not much more to give. And now, if you look at an OFS response, or field service companies, they're responding by removing capacities, right? You're seeing vessels being stacked. And for us, we don't have vessels anymore, but our response would be similar. We're not going to be ready to give any significant price concessions, because just we can't afford it. And we would rather shrink and reduce, you know, reduce our scope rather than give those price concessions. So that's for geoscience. A bit of a different speak and conversation, other than Middle East, where the procurement is more traditional. So we did receive the letters, blanket letters saying like, you need to reduce your prices by 30% or something like that. But then it just starts, it's the beginning of a conversation. On the equipment side, I wouldn't say we've seen any pressure on pricing, to be honest. It's a different, it's either the clients need the equipment or they don't need the equipment. And for now, I think they're just absorbing the news and deciding what to do. So there is much less, much more quiet, I would say. So we haven't had any indications of pricing issues there. So I'll leave the floor to Yuri. Do you want to address the net cash?

Yes, sure. Good morning, Sarah. Like all other companies in our sector or business and industry, we still have very low visibility for the rest of this year. So that's why we are not providing any specific guidance, as you saw, we're focusing on what we can control. And of course, our focus remains on generating cash as much as we can, and reducing our cash costs and capex to the extent we can, and obviously preserving our liquidity. So with that in mind, Basically, we cannot give any specific targets, but again, our objective remains the same, our focus remains the same, preserving liquidity and generating as much cash as we can, and reducing cash costs. Now, there is one specific item which we've been talking about, and this is the implementation of CEG 2021 plan. and the cash costs related to that. So for that particular element, and it's part of discontinued operations, of course, we're looking this year at the cash costs of between $70 to $80 million, which is broadly in line with the previous guidance that we gave.

Yeah, I'd like to, Yuri, I'd like for you, Sahar, just to point an element that I think was very favorable last year, which is the Working Cup. We had a very favorable Working Cup, and then we pointed out, I think, that this year the Working Cup will be less favorable just because of the cyclicality of what we'll see last year. If you remember in 2019, it was a year that was very front loaded, we had a lot of very strong equipment says early in the year, we had very strong multi client cells in q3, which is quite unusual. And as a result of that our q4 cells were not as high. So we're entering 2020 with a with a sort of a more normal cycle. But we're not benefiting this year so much of the the cells, the multi client cells from q4. and equipment is going back into a more, and multi-client, a more normal Q4 backloading, if you want. So this whole sequence of the revenue is resulting in an unfavorable working cap this year.

Yeah. Thank you. Just if I could clarify quickly on the discontinued operations comment you already made. That cost of $70 to $80 million, Is that the total cost? So for example, the 9 million positive we saw this morning, we should at the end of the expect to be at a negative 70 to 80 all in discontinued operations cash.

Yes, so this is this is just the CGG 2021 cash costs related to the implementation of the plan. We of course, we already completed the exit from marine acquisition and land acquisition business. we still have a small multi-physics business. So in other words, again, the cash burned from operationally from this business, small business, will be fairly low. So in other words, this $70 to $80 million range would be, I guess, more or less sufficient to absorb everything.

Really helpful. Thank you very much.

Now, I'll point out to Sahar, in addition to that, we'll have more, you know, it's not CDD 2021, but we'll have non-recurring costs associated with some of the reductions that we're going to be implementing this year, but to lower number.

Okay, great. Thank you.

Thank you. And your next question comes from the line of . Your line is still open.

Yes, good morning. To be honest, all my questions have been already answered. So basically, I turn it over. But congratulations for your very solid Q&A results.

Merci, Guillaume.

Yeah, thank you, Guillaume.

Thank you. And your next question comes from the line of Thank you. And your next question comes from the line of Christopher Mololocan. Your line is now open.

Yes, good morning. This is Christopher Mololocan in Carnegie. Could you please describe the current situation for the factories you have in Cercel globally? Are they up and running? Have they been closed by COVID-19? How do you view that business going forward? Thank you.

Yes, sure. Thank you, Christopher, and good morning. So we have essentially big factories in France. Larger manufacturing comes from France, from the U.S. for the marine side. So France is more on the land side. And then we have our geophones in in China. The Chinese factory was closed a couple weeks in January and was resumed fairly quickly for production. France and U.S. were more or less shut down mid-March for, I'd say, three weeks. And during the month of April, we were gradually going back to work. So we're probably right now at around 30 percent capacity overall, and we are prioritizing our current orders. But now if you read the news in France, the sort of de-confinement has started as of yesterday, so we could definitely continue to ramp up and ensure we deliver our backlog, which is a priority. And as I said, the order intake in April, which is not going to be a surprise to any of you, has been very low because clients are just digesting across the board. They're digesting the new information, the new budgets and everything. So the backlog that we got into April was really things that were almost done. We didn't see many new things. But I do expect things will start to go back to a more normal mode towards the end of this quarter.

Second question. There has been attention on the crude changes in the seismic industry given the significant travel restrictions. You're out of marine acquisitions, but you're obviously chartering vessels when you do multi-climbs. Have you seen any impact on your operations that there's been difficulties changing crews globally?

It's a good question, but I've been super impressed and I did share this with Sharewater that I was quite impressed in how they're dealing with the COVID pandemic and especially given the additional challenge of having to rotate the crews across different frontiers, which is now becoming more difficult. So, no, we haven't seen any interruption. And with those, I mean, across the board, pretty much in the U.S., we were able to continue. The Marines are uninterrupted. And we even started the ocean bottom node, and that's with MaxEye's. in the North Sea during the pandemic, during the shutdown, and they've done a great job too. So quite impressed.

And final question. Geographically, where will you invest in multi-client in the second quarter?

The multi-client is pretty much the projects that we've described. So we're not going to really add any big projects. So we've got Brazil, which is a continuation from Master. So we'll continue to invest in Brazil. We've got our North Sea Nodes project, which we'll finish. We've got the U.S. land project, which is about 70% completed, that we'll finish. And then we'll finish our Australian project. In terms of new startup projects, probably some reprocessing that we're looking at. We did launch a reprocessing project in the Gulf of Mexico. This is where we have high-end, if you want, data sets that will benefit from really perhaps more than other data sets from these latest technologies. We're looking at perhaps reprocessing small bits and pieces of stack size, of our stack size surveys, which, I mean, again, it all depends on the level of interest of our clients. But this is going to be more marginal in small projects. Of course, in the meantime, we continue discussing with clients if we do see more interest in Brazil, for example, perhaps we could do more or more interest in for the no way I was mentioning right now, we don't have it in our plan, but let's say clients come up with pre-funding, decent, I mean, high level of pre-funding, we might reconsider that position. Of course, it would now require being able to access the vessel, which is going to be more and more difficult as the acquisition companies are starting to stack their vessels.

Thank you. But

Thank you. And your next question comes from the line of Jean-Francois. Your line is now open.

Yes, Jean-Francois Vanjon from OdoBHS. Three questions, please. Could you come back on the write-off on the PlayStation? Do you see any risk to see another write-off during the next quarter? The second question, regarding the geoscience business, you mentioned a gradual decrease during the year. after a pretty good Q1 with 2% growth for the sales and 11% for the treatment. Could you give us or could you quantify the decrease expected for this business? Could you reintegrate the decrease in the same magnitude as the decrease of the CAPEX in PCAPEX or not? And the last question, could you give us a trend for the business in April in April for each division. Thank you.

Okay. Perhaps I'll comment on the geoscience business trends and the trends in April, and I'll let afterwards Yuri comment on other depreciation. So in the geoscience business, typically we have six months of coverage, and that gives us a lot more resilience than typically when we enter a quarter, we're covered I mean, like 80, 90%. And of course, as you look at upcoming quarters, that number decreases. I mean, I'm not going to give you sort of the coverage for the full year, but it is a number that decreases. Of course, the Q4, we're not as covered as we are for Q2. Now, the typical business dynamic of DGR, which includes geoscience and multi-client, is to more or less track the trends of the E&P CapEx of our clients. So here, more of course, the E&P CapEx international or outside the U.S. land, which is a bit of a different thing where we don't play too much. But typically, with different time lags, geoscience, ends up seeing the same kinds of decreases, but with a bit of lag because of that backlog, where the multi-client sees it earlier because of the short fuse of the aftersales. But on aggregate, GGR has been at least seeing a similar trend for the last, let's say, 8 to 10 years of the E&P capex. Now, the trend in April, I don't think are meaningful because we can't judge a business on a month-to-month. Typically, again, in geoscience and multi-client pre-funding, we have a very strong backlog, and that's not going away. Perhaps I should have mentioned the good news is that we haven't seen any order cancellation. So we can consider that that backlog is secure, and we're focused on delivering it. And so we've got that now in terms of new ordering take April has been very quiet across the board, pretty much as everyone is digesting all of our clients are digesting information reprioritizing their projects. We're talking at different levels and trying to understand how the capex cuts actually translate to do science, but things go hand in hand. So for example, you have a client decides to not do a feed or just to delay an FID for a big project now that FID was associated perhaps with an ocean bottom node survey. So what that does is that just delays the ocean bottom node survey, and perhaps we were going to process the data, so we're not going to process the data. I think just the organizations need time to understand how those high-level decisions to postpone big projects or just to cancel them, really impacts the different bits and pieces in drilling, in geoscience, in wells, and across the board. So we haven't seen the full extent of that. What we've continued to see come in is just whatever was really already at the finish line, that Repsol contract had been ongoing for a month. So this is something that we just finished. But I was quite pleased to see that those clients just decided to still move on. Now, an equipment is, as you know, is the most volatile part of our business. However, it is still carried by a different range of countries. You know, you've got Russia, you've got North Africa, you've got India. So it's a really large install base. And so far, activity is still keeping on, a bit strangely. And so we're still delivering orders for spare parts. Now, of course, large systems and large capex investment will for sure be delayed, other than this Middle East I was pointing to. Now, on the depreciation, and I'll let Yuri comment, but quickly, you have part of your answer in the net book values. It's a very recent and fresh data library as a result of our write-off. But go ahead, Yuri.

Yes, sure. Good morning, Jean-Francois. Regarding the multi-client library itself, we performed the impairments in Q1, and basically you already see the results. What we will do, though, at the end of H1 is perform the impairment testing of our goodwill. Still remains to be seen what comes out of it, but At year-end 2019, we had significant room in all our cash generating units, but of course we have to and we will perform the impairment testing of our goodwill at the end of the second quarter. Okay, thank you very much.

Thank you.

Thank you, Jean-Francois. Thank you. And our next question is from the line of Mick Pickup. Your line is now open.

Good morning, everybody. It's Mick here from Barclays. A couple of questions, if I may. Firstly, can you just talk about your commitments to Shearwater for capacity versus your current spending plans? How do those two match up and what impacts can we see? And secondly, you talked about opportunities at the end of the conversation, Sophie. Is that opportunities in for advancement of technological offering or are you actually looking at inorganic bolt-ons, which may become apparent as we go through this crisis?

Okay, well, good morning, Mick.

Good morning.

I see you've caught that comment at the end, which was open-ended. So the commitment to share water, yes, we are committed to using 24 vessel months with some level of flexibility for months that we can ship from one year to the other. If we do the level of capex that I mentioned earlier, we would not be able to do this for 20 months, and as a result, we would be paying a penalty. But again, and that's why we're always doing that trade-off of what's the best for CGG, right? Is there a project with good pre-funding that would avoid that penalty, and in front of that, we would have data? But it is, I can guarantee you, it is not the same amount of pressure that we... from when we had the vessels. When you carry the weight of the vessels, the pressure is much higher on your multi-client to doing surveys that aren't necessarily the best surveys. But now we don't put ourselves a lot of pressure to be able to find those surveys. If we do, we do. If we don't, we don't. This is something we can manage. But as it is today, we wouldn't be able to fulfill the full commitment for 2020 with the current CAPEX I mentioned. We were just missing a bit. Now, on the opportunities, I think we have the capability to maintain, I would say the first opportunity is organic and to consolidate our position in the market. If you look at the landscape, we're leading. I mean, we're perhaps not the leaders in every of our business, but we're kind of leading. And we have the capability to continue to invest in R&D and technology to advance it. So we'll continue advancing our geoscience technology. We'll continue investing in multi-client. We'll continue investing in R&D. We've got a very strong R&D pipeline of projects for equipment because we need to have the products in the nodes, in the land nodes, in offshore nodes, and the marine streamer. And so we have the capability to invest, which is not going to be the case for all of our players in the marketplace. Now, of course, we're looking as well at inorganic, but we're very mindful with our cash situation. So we wouldn't be doing anything large, I would expect, but if there's opportunity here and there to invest, grab on some technology, perhaps also on the diversification side on the SHM. We're continuing that investment too. We're just on the lookout. But I would say the main opportunity is to come out of that crisis further culturally dated in our market position.

Okay. And then just to follow on, for the penalty payments on commitment to Shearwater, how does that run through the results? Does that count as part of the capex that you have to pay anyhow for the multi client or does it come through as a loss within GGR?

Let's say you comment on that it is not capex we don't capex that.

Good morning, Mike. Yeah, this this goes through the P&L through the income statement of GGR. Okay, good.

Perfect. Thank you.

Sure. You're welcome.

Thank you. Your next question comes from the line of Clint Ravine. Your line is now open. Hello, Mr. Ravine. Your line is now open.

Hello.

Hello. Hello, James. Yes, hello, James. Yes, hi. It's James Evans here from ACOM. Hi, I hope you're both well. Just a very couple of quick follow-ons, please. Sophie, just on pre-funding for this year, do you actually have enough secure now to get you that 75% or do you sort of rely on either commitments to existing surveys or things that are in the processing stage? And then secondly, I just want to quickly follow up on Nick's question about the commitments. You know, are we talking about a relatively low amount of potential penalties here, less than 10 million or something like that? And if you have any idea of sort of the, I guess, the penalties relative to how much you would spend if you were using the boats, is it a lower drop through? Obviously, there won't be a lot of project costs.

associated with anything if you are doing it anything that can help reassure on that potential liability and I guess the questions are coming from that worry that conditions persist into 2021 obviously we all help hope that's certainly not the case thank you yeah hi James I'd say they were fairly comfortable with that 75% I don't think and we started the year with a very large backlog in multi client which was quite unusual in terms of our mix of projects so typically When we, at the start of a given year, we would have, you know, a certain percentage, you know, of new projects to find during the year, to start during the year. And this year was a different. We started the year with all these projects I mentioned were already identified, committed, and associated with pre-commitment. Now, of course, we didn't have, we don't have at this stage all the pre-commitment that we think we will get. But the I would say it's, it's the number the number that we have in our bag, if you want in our backlog is high enough that we're comfortable with that 70 75 75% number. And that's one reason why we always stuck to this 70 75% number because it's a number that we think we can sustain through the cycle. Of course, When things are really great, we could do a lot better like we did last year, but I think it's kind of a floor that we put ourselves in terms of cash outlay, right? The cash outlay is how we manage the multi-client, which is essentially the pre-funding minus the cash capex, and that number has to fit within a certain range, and that's how we look at our portfolio and we look at betting new projects. So little uncertainty, that's your question, little uncertainty on the pre-funding. The uncertainty is essentially on the after sales. Yuri, you want to talk about the commitment?

Yes, sure. So again, good morning, James. The range that you gave actually, yes, is meaningful, I would say. So in other words, again, this penalty that we envisioned for this year based on our reduced multiplying capex should be in the range of, I would say, up to $10 million with the capex and the projects that we have in place. And, of course, this is significantly lower should we utilize a vessel, say, with zero very limited pre-funding.

Okay, thanks. And would I be right in thinking if you spent about $250, $270 million, that's the sort of level at which there wouldn't be any... any necessary sort of penalty payments. Is that the right way to think about it?

Not necessarily. Sorry.

I know the land marine mix will matter in that sense.

Right, exactly, because we've got this year, we've got this enormous, it's a big survey in the node side. So we do expect, we'd like to do nodes every year, but if we didn't do the nodes, you know, we need to, we could, do the 24 months without spending necessarily the same amount of capex. Perhaps if, you know, one good reference point for you to look at is the surveys, right? Because we talk about our surveys, Nebula, we've been there, you know, we do expect to be on that survey for most of this year. You have Gippsland. So if you could count, you know, you could see that we're not too far from the 20 vessel months because I told you that we have four-month flexibility.

Okay. Understood. Thanks for your help. Good luck.

Thank you.

Thank you, James.

Thank you. And your next question comes from . Your line is still open.

Yes, hello. It's John from DMV here. I think we had a few questions on this share water deal, and those have mostly been related to the two vessels you're using. My question is on the three vessels where you have guaranteed for utilization, and you have a liability now of $79 million. Could you just explain what are the utilization assumptions in that liability, what is the maximum liability, and what's the cash flow profile on this?

Yes. Sofia, I will take this question then.

Sure.

So, good morning. As we explained in the notes to our financial statements, as a result of exit from marine acquisition business and our agreements with Sharewater, yes, we do have... a liability which is called idle vessel compensation. This is the compensation for the three idle vessels. It's not a compensation related to the 24 vessel months. Basically, the amount of liability that you see is based on our forecast of those vessels, how long those vessels are staying idle. This is also part of the same five-year commitment. So basically, this is the net present value of this liability that you see on the balance sheet. And at the end of March, this liability was $74 million.

Okay, just to clarify.

And sorry, on the cash flow side, the annual payment that we make for the cycle vessel compensation is included in the 2021, CGG 2021 plan or cash costs related to exit from acquisition. In other words, this year it's in the $70 to $80 million of cash costs related to CGG 2021 plan.

And just to clarify this $74, $79 million or $74 at the end of March. that is on all three vessels not working, or could this liability be significantly larger? That's basically my question.

No, actually it's based on all three vessels, yes.

Okay, thank you.

Thank you, Daniel. Further questions at this time? Please continue.

Sophie? Yeah. Your conclusion? Sure.

Yes. Okay. All right. Well, thank you very much. I think it's been an eventful start of the year, for sure. I recognize that we don't have a lot of visibility, so as soon as things clarify, we'll be able to share more information about the outlook and what we think will happen for CGG. But thank you very much for your time. I appreciate it, and we'll be in touch, and we'll look forward to speaking with you on the different interactions and one-on-ones. Thank you very much again. Bye.

Thank you. Bye-bye.

Thank you. That does conclude our conference for today.

Thank you all for participating. You may now disconnect. Speaker, please stand by.