Viridien S/Adr

Ladies and gentlemen, thank you for standing by and welcome to the CGG third quarter 2020 results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. And to ask a question during the Q&A session, you will need to press star and one in your telephone. I must advise you that this conference is being recorded today, Thursday, 5th of November, 2020. I'd now like to hand the conference over to the first speaker today. CGG, thank you. Have a great day.

Thank you. Thank you. Good morning, ladies and gentlemen. Welcome to this presentation of CGG's third quarter 2020 results. The call today is hosted from Paris, where Sophie Zierkia, our chief executive officer, and Mr. Yuri Baidukov, The group's chief financial officer will provide an overview of the third 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 plan 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, and good morning, ladies and gentlemen, and thank you for participating in this Q3 2020 conference call. Our presentation will cover our third quarter 2020 operational and financial results, And I would like to start with a quick update on COVID-19. Our focus has been on maintaining business continuity, and we are fortunate that through our IT expertise, combined with the CDGHVC cloud that supports our geoscience business, most of our employees have been able to work effectively from home. Over the last few months, we have progressively brought back staff into the office. And overall, we've had a very limited number of confirmed COVID-19 cases. we've had no fatality, and in addition, there has been no cross-contamination at our sites, thanks to strict social distancing, wearing of masks, and the overall protocols that we put in place. With this, along with the strong business continuity of our geoscience and multi-client business, our manufacturing sites have in general been able to maintain production and meet client demand. Moving on to slide four. Looking at the market, In Q3, crude oil prices stabilized, but the COVID-19 pandemic is still dramatically affecting global economies and severely suppressing our business environment. In 2020, we have seen some major strategic shifts from the integrated oil companies, especially in Europe, making firm commitments to decarbonize portfolios, increase renewable power generation, de-gear balance sheets, and support dividend commitments. Yet, most analysts report projects oil and gas as a fundamental source of energy through the energy transition and for a long time to come. As the required investments to maintain productions are delayed, this will eventually create an unbalance that will need to be addressed. During Q3 2020, CDG markets stabilized. However, visibility remains low with the second wave of lockdowns in Europe and the evolving geopolitical landscape in the U.S. We will monitor the situation closely and assess the implications, but at this stage, I do not see clients making additional capex cuts. Geoscience and multi-client markets are mainly driven by the large independents and NOCs, which have remained focused on their core business of producing oil and gas. IOCs are largely still reorganizing, cutting headcount, and right now in their 2021 budgeting process. I expect commercial activity with them will remain low through November. However, there should still be some year-end budgets available for data and software purchases. In general, as I expected, as expressed clearly by our clients, they are retrenching in their core areas, and they're prioritizing CapEx to the lower risk highest return project. In this environment, our geoscience imaging technology plays a key role as it enables our clients to make surgical choices to assign their capex. Reprocessing in particular is a cost-effective alternative to new data acquisition, and we have seen the balance between processing and reprocessing shift towards reprocessing. Our equipment business is also benefiting from NOCs, sustained activity in land in North Africa, Middle East, Russia, and India. And more recently in October, two of the three land 3D mega crews in Saudi and one land 2D crew have been awarded to geophysical contractors. TDD's strategic rationale remains strong. Our three differentiated businesses are well positioned with the best technology and increasingly working together to best serve our clients and to develop unique solutions. In parallel, CDD is reducing costs and quickly adapting to our clients' new activity levels while preserving our differentiated capabilities as activity is resuming. In addition, we continue to advance our new initiatives focused on leveraging our core capabilities in near step-up markets and following our clients in support of the energy transition. Moving on to slide six. Overall, Q3 was similar to Q2. Our Q3 revenue of $199 million was sequentially stable with GDR $150 million driven by increased multi-client revenues and equipment at $50 million. Group adjusted segment EBITDA before $28 million non-recurring severance cost was $80 million, up 6% sequentially and with a 40% margin. Group adjusted segment operating income before $30 million non-recurring charges was negative $4 million, not far from break even, and slightly better than our Q2 adjusted segment operating income. Ahead of increasing Q4 sales, especially in equipment, our change in working capital was especially high at minus $37 million as we started to ramp up inventory of land products. CDG also consumed this quarter $26 million of exceptional cash costs related to our saving plan, essentially severances. After the 37 million of negative change in working cap and 26 million of non-recurring charges, the net cash flow this quarter was negative 92 million. This puts our liquidity at 465 million at the end of September, which allows us to operate comfortably. I will now cover our Q3 2020 operations by reporting segment. On slide seven. Overall GDR top line increased sequentially 4% to $150 million, with an adjusted EBITDA margin of 57%. For the first nine months of the year, our year-on-year revenue drop of 28% is consistent with our clients' overall E&P capex reductions. While CDD has an important role to play in exploration, the majority of our work comes from development and production activities. OPINC before non-recurring charges was positive at 10 million, up 7% sequentially. Moving on to geoscience with the slide eight. Geoscience total production was 111 million in Q3, sequentially stable with higher internal production for our multi-client projects. Business remained solid in Europe, Africa, and Middle East, and Latin America. Commercial activity rebounded in Q3, after a very low Q2, and backlog only decreased by 10 million this quarter to 204 million at the end of September. We have been awarded several significant contracts in October, resulting in an increasing geoscience backlog. We are introducing a new quarterly KPI dedicated to our geoscience personnel, which we believe is relevant. Compute Power, which we reported earlier, is an enabler, but the unique profile of people at CDG makes the difference. The geoscience division at the end of September was around 1,900 employees. 15% are dedicated to R&D and 55% to production, which is essentially the data processing people. 27% of our production and R&D employees have a PhD. Now onto the operational highlights with slide nine. Geoscience activity remained resilient in Q3, driven by sustained activity in both our large imaging centers and dedicated centers, which offset reduced activity in our smaller processing centers regionally. Our Geosoftware business was successful in retaining maintenance revenue, which also supported our performance. Q3 total production was down 13% year-on-year and 2% sequentially. The business continuity of our geoscience division has been excellent. All projects throughout the pandemic were delivered on time with excellent quality. Cash preservation and profitability has been and continues to be the key focus. Geoscience has been able to quickly adapt to lower demand and we continue to reduce costs as required. CDG's geoscience leading technology continues to be recognized by our key clients and we are consistently rated number one in their supplier evaluations. We continue to see demand for high-end services that solve complex problems in difficult subsurface environments. On slide 10, as of recently, and in order to provide more visibility and clarity into our geoscience business, we have been increasingly sharing publicly via press releases our technology innovations and commercial achievements. Our technology advances are impressive and clients rely on us to resolve some of their complex challenges. Recent commercial awards range from a geothermal resources study for a major client and several high-end reprocessing projects to cloud computing software and data management. But we'll continue to update you in the future. Let's move on to multi-client with the slide 11. In the last two years, multi-client made a conscious effort to increase focus in development and production areas and use much more caution in frontier basins as they were believed to be less robust. This was a very successful and timely decision. A multi-client library today is very well positioned in proven, developing, and mature sedimentary basins. These unique positions in key basins globally provide us with visibility and opportunity in Brazil and Norway for 2021. We have opportunities to extend our footprint and reprocess our data by leveraging advances in technology. In Q3, multi-client revenue increased 20% sequentially, driven by solid pre-funding and increased after-sales. Pre-funding revenue was $39 million in Q3, a 68% pre-funding rate. after sales increased sequentially to 34 million, driven by Brazil and Gulf of Mexico. On slide 12. In multi-client, we also saw excellent continuity. Despite COVID-19, all of our operations in several countries progressed uninterrupted. We had five multi-client projects in acquisition during the quarter, including the Central Basin Platform, a land survey that was completed this quarter. Along with this, we also had four well-prefunded multi-client programs offshore. Nebula in Brazil, a 17,700 square kilometers program in the Santos Basin, which is attracting a high level of interest from clients. We announced last week Phase 2. Phase 2 will cover approximately 10,000 square kilometers on the northern side of the survey area. CDG's industry-leading subsurface imaging center in Rio de Janeiro will employ state-of-the-art processing technology to eliminate the pre-salt events. This quarter, we also completed the 8,700 square kilometer Gippsland program in a mature producing base in offshore Australia. The third program is an ocean bottom node survey in the cornerstone area of the UK North Sea that we are acquiring in partnership with MaxEyes. And finally, we extended our North Viking RABN data library in Norway and validated the value of a second azimuth in that area. Looking at the rest of the year, we expect 2020 multi-client cash capex of around 225 million, with a solid pre-funding rate of more than 75%. On to slide 13. In addition, we also commenced this quarter multiple reprocessing projects. The first is the reprocessing of our multi-client stack size marine survey in the GOM. The first phase of this re-imaging project is bringing new light to the data and major improvements in key areas. Clients are very interested in this as it has the potential to substantially de-risk this prolific area. We also launched our Walker Reach reprocessing program in the central GOM, covering 300 OCS blocks, which is around 7,000 square kilometers. And that's what's shown on this slide. And it's leveraging all of our existing data sets and the latest technologies. Several clients already joined the project, given the attractiveness of the area. And in general, for reprocessing projects, we look for opportunities where we can create significant uplift by new technology and bring to the market more cost-effective and quicker alternatives than new acquisitions. With our unique processing technology, we can extend the life of multi-client data sets by rejuvenating legacy fully depreciated data. On that picture, you can clearly see the improved definition of the structures below the salt on the images, as well as the continuity of the layers that were impossible to see before. Moving on to equipment now with the slide 14. Our business in equipment continues to be supported by the large installed base that we have in land and marine, and in particular by NOCs that have continued with their land exploration and development projects. This quarter equipment segment revenue was down 14% quarter to quarter at 50 million due to the continued reduced demand for land equipment and the general lumpiness of sales in equipment, the very weak marine market, and delays in some deliveries due to the pandemic situation in different countries. Marine equipment sales remain at the lowest levels as the total market fleet has been reduced to 14 3D vessels, and geophysical contractors continue to try and extend the use of their existing streamers past the typical lifespan. At this time, half of the active 3D fleet is equipped with Sercel equipment. Equipment segment EBITDA was at break-even, which shows our ability to adapt our structure to the market cycles. Moving on to slide 15. During the quarter, equipment delivered over 50,000 508 cross-tech channels, mainly to India and Russia. CERCEL also delivered its first node land wing system in North America, which is very positive news, demonstrating that we have a competitive land node product. After the award of the SICEMIC cruise in Saudi Arabia, we are in advanced discussions with the geophysical companies and are encouraged by the potential outcomes. Demand for marine equipment, both streamers and nodes, is expected to remain low throughout 2020 and into 2021, as geophysical contractors stack more vessels and try to reuse old streamers and extend their life as long as physically possible. In this context, due to the downturn in the oil and gas industry triggered by the COVID-19 pandemic, CDD and Shearwater have jointly agreed to suspend negotiations around creating a marine streamer equipment JV until visibility in the streamer replacement cycle improves. We are committed to continuing our mutually beneficial cooperation. In our non-oiling gas segment, we had a successful joint test with our partner for CELSA's new structural health monitoring node prototype designed for the growing high-end infrastructure monitoring market and we're now preparing for the commercial launch. I will now give the floor to Yuri for more financial highlights.