Viridien S/Adr

Thank you, thank you. Good morning, ladies and gentlemen. Welcome to this presentation of CGG's second quarter 2021 results. The call today is hosted from Paris, where Mrs. Sophie Zierkia, Chief Executive Officer, and Yuri Baidukov, Group Chief Financial Officer, will provide an overview of the second quarter and after year 2021. And we will also provide comments on our outlook. Some of the information contains forward-looking statements that are subject to risk and uncertainties and 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.

Yes, thank you, Christophe, and good morning, ladies and gentlemen, and thank you for participating in this Q2 2021 conference call. So I'll start with general comments on our market environment on the slide five. Overall, during the second quarter, activity of our clients remained similar to the first quarter, with the international oil companies maintaining capital discipline, while national oil companies and large independents remain more active. However, the macro environment has clearly strengthened, with Brent oil price remaining over $70. This is triggering an increase in short cycle investments, mostly targeting development and production. We are not yet seeing in our geoscience space significant changes in behavior, even though there are positive signals. In 2021, the IUCs will generate significantly higher cash flows and deleverage quickly. Even if financial discipline, dividend payouts, and decarbonization remain their priorities, we expect they will start accelerating spending to meet hydrocarbon demand recovery and compensate for the depletion of their existing reservoirs. For all the activity of our clients to optimize production from their current reservoirs and to meet growing hydrocarbon demand, CDG's high-end technology will be a key component of the value chain. Already, we see geoscience progressively recovering thanks to increased demand for our superior technologies and services. Multi-client was particularly slow during the quarter due to delayed pre-funding and the slow decision-making processes from our clients, mainly the IUCs. Since the end of June, we have finalized agreements for more than $35 million of pre-funding for our 2021 streamer vessel programs. Those agreements were expected in Q2 but slipped into July. It was a slow quarter as planned for our equipment business due to the timing of deliveries. CERCEL was recently awarded a major contract for 18,000 DPR 300 shallow water nodes, which are currently in manufacturing and will be delivered in Q3 and Q4. CERCEL is also in advanced discussion for significant land equipment deliveries in Q4. Overall, after a very low first half of the year, we anticipate an acceleration of our top line and profitability in H2 2021 and into 2022. Earlier this year, I highlighted our business initiatives to dispose of a few assets and divest non-core businesses. During Q2, we hit several milestones. First, the Headquartered Building Sale and Leaseback Initiative is progressing well, with closing anticipated in Q4. Second, the sale of the GeoSoftware business is progressing as planned and we're confident to close this sale in Q4. At the end of June, our physical asset storage business has been put for sale. This is a non-core business for CDD for the storage of physical assets in large warehouses. These two divestitures enable CDD to further focus on the continuous strengthening of the differentiation of our core businesses and our growth beyond the core. With the expected solid second half of the year, the monetization of assets and disposal of the businesses held for sale, as well as the full impact of our savings, CDG should deliver a positive net cash flow in 2021. Moving on to slide six now. Our Q2 revenue of $157 million was down 22% year-on-year. Group segment EBITDA was 42 million, with a 26% margin, mainly due to the business mix. Segment free cash flow was negative minus 3 million, and net cash flow this quarter was negative at minus 56 million, before 39 million of core premium and fees related to the refinancing. Our H1 segment revenue of 370 million was down 22% year-on-year, and segment EBITDA was 78 million in H1 with a low 21% margin mainly due to the business mix. Segment free cash flow was 57 million and the net cash flow for the semester was negative at minus 27 million before the 39 million of called premium and refinancing fees. A segment free cash flow in H1 2021 was higher than last year despite the significant drop in EBITDA due to an 87 million positive change in working capital and significantly reduced multi-client capex. Moving on to slide 7 now, with the headcount reduction. I'd like to show you an update on the savings we have achieved from the effort launched in March last year at the beginning of the pandemic. The reductions, which are in line with business and legal requirements, would amount to a reduction of around 900 employees by the end of 2021. And this represents a 21% reduction for the 4,200 employees we had at the end of 2019 in CDG, excluding discontinued operations. Most of the reductions come from our support functions and geoscience. Compared to 2019, the associated savings will represent $90 million of reduced personnel costs by annum by the end of 2021. In parallel, we also hired around 100 new talents, mainly in geoscience, to support our growth beyond the core initiative. The $19 million in savings does not include additional savings associated with cost control and the reduction of our geographical footprint. I'll now cover our Q2 2021 operations by reporting segment, starting with GDR on slide 9. GDR segment revenue was low this quarter at $110 million, down 24% year-on-year, but slightly up sequentially at 10%, thanks to the progressive recovery in June signs. Adjusted EBITDA margin was impacted by the revenue mix, with less multi-client sales than last year. Adjusted opening was positive as a result of improved geoscience revenue and our lower cost base. On slide 10, Q2 geoscience external revenue was $73 million, down 12% year-on-year and up 11% sequentially. Geoscience saw the start of a progressive recovery during the quarter. Backlog at the end of July 1st stands at $222 million. up 4% year-on-year. In H1 2021, order intake more than doubled year-on-year, and we are anticipating further significant awards during H2 in the major active basins. The renewed focus from our clients on field development is driving demand for OBN, especially for our leading processing and imaging technology, which is critical to providing the most detailed understanding of the subsurface to de-risk investment. Our top priority in geoscience is to remain the undisputed technology leader, and this was confirmed by the recent 2021 Kimberlite survey. On slide 11, the Kimberlite survey is a third-party biannual survey of sectors within the E&P industry. Their recent report on subsurface imaging shows that CDD has a clear market leadership position in both technology and the service that we deliver. The chart shows us in the premium offering quadrant where our clients are willing to pay for the better image quality, state-of-the-art technology, and turnaround time that we deliver. Moving on to slide 12. The same Kimberlite survey compares the different subsurface imaging competitors on a number of criteria. CBD consistently performs well above the industry average and better than any other competitor. The largest gaps in this chart are around the technology and quality of the image we deliver. And I want to show you now an example on slide 13. The use of ocean bottom node seismic is on the increase. with increasingly larger-scale surveys designed to provide greater interpretation certainty in areas of complex geology. Around the world, OBN technology is being adopted where business decisions require superior subsurface imaging to reduce risk, as the technical advantages of the ToadStreamer dataset are clear, especially with differentiated processing capabilities. And this is very much the case in the Gulf of Mexico, North Sea, and Brazil, and also in the Middle East as well. The uplift from nodes, combined with our best-in-class imaging technology in this Gulf of Mexico comparison, provides an excellent example of how dramatic the improvements can be. The new insights that we delivered enabled our clients to de-risk their well locations, both from an HSE and project economy standpoint. So moving on to the next slide, multi-client key business indicators. Multi-client revenue was 37 million, down 40% year-on-year. Q2 remains similar to Q1. The IUCs play an essential role in our multi-client business, and they have remained very disciplined in the first half of 2021, given the macro-environment volatility and their focus on the energy transition and restoring financial performance. Sales were also impacted by the lack of bid rounds in the Gulf of Mexico and in Brazil. We have significantly reduced multi-client cash capex from last year. In Q2, we had two vessels working on multi-client programs, as we started to work on a five-month 3D multi-client program in the Norwegian North Sea, in addition to our ongoing Brazil project. Pre-funding revenue on our multi-client project was at 17 million with a pre-funding rate of 39%, as targeted pre-funding slipped into Q3 2021. As I mentioned earlier, since the end of June, we have finalized agreements for more than 35 million of pre-funding for our 2021 Stream of Vessel program. And I'm confident that we will catch up on pre-funding in the second half of the year. Multi-client after-sales were at 20 million this quarter, up 28% year-on-year, but still lower than expected. The segment library net book value was 297 million at the end of June 2021, split 85% offshore and 15% onshore. Looking now at the multi-client footprint, we continue to expand our library in the most resilient basins, And indeed, we have made a conscious effort to increase our participation in development and production successfully and have avoided those frontier areas that we believe would be less robust. Brazil and Norway receive most of our investments, and we also look for those well-prefunded reprocessing projects that leverage our imaging technologies. I'll also point out that we are starting to see new players in the carbon storage space come to us with interest in our data, especially in the North Sea and around the potential development of future major CCUS hubs. I could see where a data library will be very valuable in that new space. Moving on to equipment. Equipment segment revenue was low as planned this quarter at 48 million, down 19% year-on-year. we are anticipated a solid H2 supported by large GPR 300 node deliveries and land equipment deliveries in the last quarter. At this low volume of activity, equipment adjusted EBITDA and operating income were negative at 8 million negative and 16 million negative respectively. Looking at the equipment overview, land equipment sales represented 60% of total sales as we delivered in Q2 to various geographies, mostly spare parts for our install base. Activity for the vibrators was strong with over 25 Nomad vehicles delivered. Marine equipment sales represented 25% of total sales. As an important milestone, equipment was awarded a major contract with BGP for the delivery of 18,000 GPR-300 nodes. It is the first and significant sale of this new, unique technology that features our patented QuietSize sensor. And it will be the first large-scale marine application of our QuietSize sensor that allows broadband recording down to very low frequencies. On the photo on the slide, it features our GPR300 shallow water node, and our manufacturing teams are currently producing it around the clock to meet the challenging delivery schedules. I'm pleased also to report that during the quarter, we made the first sales of our structural health monitoring system, S-LINK. I'll now give the floor to Yuri to promote financial highlights.

Thank you, Sophie. Good morning, ladies and gentlemen. I will comment the Q2 2021 financial results. Looking at the consolidated P&L for 2021 on slide 19, Segment revenue amounted to 157 million, down 22% versus the second quarter of 2020. It is a very low quarter for CEG Group. Geoscience performed better than anticipated. Equipment was low as planned and multi-client sales were disappointing as some pre-funding and after sales slipped to Q3 and the second half of the year. GGR revenue was 110 million, a 24% decrease year-on-year with 70% weight. Geoscience revenue was $73 million, down 10% year-on-year, but up 11% sequentially. And multi-client sales were at $37 million, down 40% year-on-year, on significantly lower capex and delayed pre-funding and after sales, and up 8% sequentially. Equipment revenue was low at $48 million as planned, down 19% year-on-year with 30% weight. Segmented EBITDA was $42 million, and adjusted segmented EBITDA was $35 million with a 22% margin due to unfavorable revenue mix and release of excess provision for severance under the French PEC plan. Segment operating income was negative $7 million, and adjusted segment operating income was negative $15 million. Cost of financial debt was $33 million. Net loss from continuing operations was $44 million, and net loss from discontinued operations was $7 million. Group net loss was $61 million, significantly less than $147 million lost in Q2 of 2020. simplified cash flow on slide 20. Despite significantly lower EBITDA, U2 2021 segment free cash flow improved at negative 3 million versus negative 8 million in the second quarter of 2020 on lower capex and higher positive change in working capital. Total capex was 57 million, 36% down year on year, with industrial capex at 6 million, Research and development capex at $8 million and multi-client cash capex at $43 million, 40% down year on year. Net paid cost of debt was at $30 million and lease repayments were at $15 million. 2021 plan cash costs were at $8 million and continue to reduce. Overall and before the impact of the refinancing, net cash flow was negative at $56 million this quarter. the impact of the refinancing on the cash flow in the second quarter was overall 67 million it included 39 million of refinancing fees and call premiums and 28 million net reduction in gross debt moving on to slide 21 group balance sheet and capital structure at the end of june 2021 Group liquidity amounted to 385 million, including 100 million of ungrown RCF. Group gross debt before IFRS 16 was at 1.22 billion and net debt was at 935 million. Group gross debt after IFRS 16 was at 1.35 billion and net debt was at 1.07 billion with the following breakdown. 1.195 billion of high-yield bonds due in 2027, 24 million of accrued interest and 134 million of lease liabilities. At the end of June 2021, our capital employed was at 2.18 billion versus 2.17 billion at the end of 2020. Net working capital after IFRS 15 was at 161 million, decreasing from 212 million at year end, primarily driven by reduction in net accounts receivable. Goodwill was stable at 1.19 billion, corresponding to 56% of total capital employed. Multi-client library net book value after IFRS 15 was up at 516 million, including $454 million of marine and $62 million of land net book value. Other non-current assets were $385 million, including $228 million of property, plant, and equipment, down $60 million from year-end, including $139 million of IFRS 16 right-of-use assets, of which $64 million related to Galileo financial lease, and $99 million of other intangible assets, down $17 million from year end. Other non-current liabilities were at $129 million, down $20 million from the end of last year. Shareholder's equity was at $1.04 billion, including $44 million of minority interest, mainly related to Yunsang JV. As Sophie already mentioned, our asset monetization and disposal of businesses for sale program is progressing well. The sale and leaseback of our headquarter building in Marcy is progressing as planned, and the closing of this transaction is anticipated in the fourth quarter of this year. In addition to net cash proceeds, it will result in reduction of lease liabilities and operating costs. The sale of GeoSoftware business is also progressing as planned and closing of this transaction is anticipated early Q4 this year. During the second quarter, the physical asset storage business has been put for sale and is now accounted for as an asset held for sale. This is a non-core business for CDG where we store documents, tapes and other physical assets for our clients in various warehouses. We're making good progress in our sales process and will make relevant announcements in due course. Now I hand the floor back to Sophie for an outlook for 2021 market environment and our financial guidance.

Thank you, Yuri. So we're on the slide 2021 business outlook. At the macro environment level, we see the early effects of several years of reduced investments. which are translating into high commodity prices. Yet, there is also a de-correlation between all price and E&P investments from our clients, especially the IOTs, who remain particularly cautious when it comes to longer-term opportunities to replace reserves and maintain production. This is the impact of the investors' pressure for returns and energy transition commitments. However, I have no doubt that renewable energies will play an increasing role in the energy mix, but it is also clear that the demand for oil and gas will recover to pre-COVID levels and more and will continue to grow in the short to medium term. In this timeframe, it is the only source of affordable and flexible energy. The current level of investment is unsustainable and will need to pick up to address the current and growing oil and gas supply constraints. In line with the larger integrated OSS companies, we believe that we are progressively entering a positive cycle with customers increasing their spending in our markets in the latter part of this year and into 2022. With our high-end geoscience and equipment technologies and superior quality multi-client data in the world's most attractive basins, TDD is well positioned to provide our clients with the solution they require to increase the effectiveness of their activities while meeting their ESG goals. We are also actively pursuing our new business opportunities adjacent to our core capabilities and now have over 100 people working on minerals and mining, carbon and energy storage, digital services, environmental science, geothermal science and structural health monitoring. While it's still early, I am optimistic based on what I see so far from our current and potential new clients. Along with the topics already addressed earlier today, including the first sales of our structural health monitoring system, growing interest in sales of our multi-client data for CCUS, during the quarter, we also launched C-Scope, an innovative pollution monitoring solution. We announced our work with DecarbonX for the subsurface assessment of its operated clean energy projects offshore. and were selected by the European Space Agency Space Solutions Initiative to undertake a consortium-led study aimed at developing environmental monitoring technology. Looking at the near-term outlook, we anticipate geoscience to continue its progressive recovery based on solid demand for a unique technology and strengthening commercial activity. Verbal awards at the end of June were up 175% year-on-year. We also anticipate demand for our multi-client programs and data to strengthen from a very low first half of the year, and I'm pleased to start the third quarter with finalized pre-funding agreement. Equipment after a low Q2 should deliver a solid GH2 second half of the year, driven mainly by deliveries of the new GPR300 nodes and continued activity in the Middle East and North Africa. So thank you very much for your interest, and we're now ready to take your questions.

Thank you. We'll now take a question. As a reminder, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. To cancel your request, kindly press the hash key. Once again, star 1 if you have any questions. First question is from the line of Jevin Roger from Kapler Shabru.

You may ask your question.

Yes, good morning. Thanks for the conference call. I have two questions mostly. The first one, and sorry if you already missed the part. Can you please give us a bit of information regarding the current level of discussion that you had with clients regarding the late sales? Do you expect a pickup, let's say, by the end of the year? What is the magnitude that we can expect on that side? If you can give us a bit of information regarding the discussion that you have with the clients right now, it would be great, please. And the second question is related to the new business that has been put for sale. Would it be possible to give us an idea of what could be the value that you could expect from it, please?

Bonjour, Céline. Thanks for those questions. As you know, the multi-client is always difficult to predict, and very often the sales do happen in the last two weeks of the quarter. However, we have, you know, coming into the second half of the year, I would say a reasonable level of visibility on a number of deals. that, you know, we think will provide us a significant improvement from the first half of the year on the multi-client side. Now, you know, we did see in Q2 we had a number of deals that we were working on that flipped over to the third quarter. So, you know, perhaps some of that will happen to you. But clients really haven't purchased much. I mean, as you know, just not us and, you know, from our competitors as well. So the market has shrunk significantly. But yet, you know, they need this data to be working on their fields and, you know, to continue their activities. So I do think the first half was really slow on the back of some uncertainty about, you know, their prioritization. I said in the past that clients are repricing, but the month of May with all this pressure, increased pressure on energy transition, I think it's pushing our clients to revisit one more time their plans, and that's creating further delay. So I'd say the conversations are good. We've got a long list of identified deals for Q3. Q4 is a bit further out. That looks encouraging, and that's just what I can say. And the point I want to add as well there is that we've been suffering from the lack of lease rounds, and I did mention the Gulf of Mexico and Brazil. Brazil has announced that they're restarting those bid rounds, and that should definitely drive data sales in Brazil in the last part of the year. So that's a positive external element. In terms of the new business, I think it's a bit early, but we have, I would say, a couple of large deals in the pipe that we're hoping to announce in the next, it's hard to know, but in the next couple months. And those are linked to digitalization. where it's a priority for our clients to digitalize, and I think we have opportunities there. So right now, the level of business, I would say, is in the – we're starting to measure and get granularity. Let's say around 5-ish percent, 4-5-ish percent of our revenue comes from these other activities. But we're hoping to see some acceleration, and we'll certainly make some announcements when that happens. But there are deals identified in the pipe that we're working on. for, let's say, you know, talking in the 20-plus dollar range.

Okay, thanks a lot for that, Sophie. And just for the second question, sorry, maybe I did not ask the question well, but it was related to the physical asset storage business that has been put for sale. I was wondering if you can give an idea in terms of what you can get from that.

Ah, okay. Sorry, I misunderstood. I thought you were talking about new businesses.

No, my fault. Sorry for that. My fault.

Yes, Kevin. Good morning. So this is a small business. The carrying value of this business in our accounts, and you will see it is about $15 million. One-five.

Okay. Okay, very good. Thanks a lot for that. Have a very good day.

Yes, thank you. You too.

You too.

Thank you. Our next question is from the line of Andre Colts from Jefferies. Thank you.

Hi. Thanks a lot for taking my question. Someone fairly new to the story, I mean, just a few, I guess, questions around sort of your confidence level on this outlook, the confidence level on this outlook, simply because You know, it implies a pretty significant ramp-up in Q3 and Q4. I mean, just averaging it out, we're talking about $115 million of EBTA per quarter. So just trying to understand, you know, great that you have some sales already done for Q3, it sounds like, but it obviously implies a pretty nice ramp-up for Q4. So just trying to understand, I guess, confidence level and visibility on that.

Yes, thank you. Hello, and nice to talk to you. I'm sure from my comments you've inferred that we feel fairly safe on the geoscience recovery, and so it's not the ramp-up and that we've touched the bottom. We feel reasonably confident on the equipment side because we have visibility on orders and commercial discussion. The unknown is always the multi-client. Now, we have a few data points. First of all, we have the visibility on the deals for Q3. And we have, I'd say, some visibility into Q4. We've got this, as I mentioned, the Brazil lease rounds that are upcoming. And I guess the other data point is, conversely, as much as we're looking forward to ramp up, our clients are not spending their budgets today. So they're really behind budget spending in our space. So I do expect from Q4, the client standpoint, some level of acceleration of their spending too. So I do expect the market will actually improve in the second half of the year. But multi-client is difficult to predict. Like I mentioned, the after sales usually get done in the last two weeks of the quarter. But coming into Q3, having a view on the deals that we need to close to make the quarter is actually, I would say, encouraging news.

Thank you. One last question for me, if I may. And look, I realize it's always tough to compare to competitors and comment on competitors. But I mean, one key competitor that you do have has posted quite good Q2 and very strong outlook for the second half, which obviously is a good read across. I guess the question is just to understand maybe what hurt you in Q2 and maybe why you're seeing a little bit less activity there. Is it really driven by a sort of the Gulf of Mexico, Latin exposure, national oil company exposure, would you say is the key weakness, or just to try and understand a bit more color around that?

I think some of it is timing and exposure and where the library is. I think, you know, we are in the two hot places, Brazil and Norway. I think our competitor has definitely a larger library in Norway, and there were lease runs. The APA lease runs do happen on a regular basis there, and they never stop, and that drove business. I'd say it's just perhaps timing and data library footprint. Okay, great. One is done better, but one is less, right? So we're somewhat in the middle because of our position. We're less frontier than others. we're in the right places, but then I mentioned the lack of Brazil is around, it's hurt us.

Okay, great. Thank you so much.

Sure. Once again, if you have any questions, please press star one. And we do not have any questions at this moment, so please continue.

Okay, well, if there isn't any question, I look forward to talking to you in person and, you know, hope you have a good rest of the day. Thank you very much for attending.