Viridien S/Adr

Good morning, ladies and gentlemen, and good afternoon. Welcome to this presentation of CGG's sub-quarter 2022 results. The call today is hosted from Paris, where Mrs. Sophie Jurkia, our chief executive officer, and Mr. Yuri Baidukov, our group CFO, will provide an overview of the quarter results, as well as provide comments on our outlook. Let me remind you that some of the information contains forward-looking statements subject to risk and uncertainties. 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 and good afternoon ladies and gentlemen and thank you for participating in this Q3 2022 conference call. So let me start with a few comments on the macro environment. With the combination of continued underinvestment in exploration and production, strengthening of global energy demand, and the heightened level of geopolitical uncertainty that has emphasized the importance of energy security, we are seeing positive market signals worldwide and are increasingly confident that our industry is entering a favorable multi-year upcycle. As always, when entering an uphaul, all markets do not react at the same speed, and today's unique macro environment has created an unusually high degree of volatility across our client base and across the regions where we operate. In 2022, the North American market was strong, while Latin America, Europe, and Asia lagged. The Middle East began ramping up, but multiple seismic projects were delayed to 2023. We also saw similar variants across our client base. Independent and private companies reacted first, with a progressive increase in their exploration activity, while NOCs maintained their activity levels. In contrast, IOCs continue to focus on shorter-term shareholder returns, energy transition, production levels, and infrastructure-led exploration. Overall, they shaped 2022 into a year of transition for CGG, as we began to see the strengthening commercial activity around our core businesses and established our beyond-the-core technology and growth businesses with some key pilots and commercial successes. The underlying fundamentals are more and more clear, and I'm increasingly confident in our path forward. Energy transition will be a long process, with demand for energy and the requirement for energy security both increasing. With this, the responsible exploration, development and production of oil and gas must play a key role going forward. We see this in action as governments globally move forward with further developing their resources, including UK, North Sea, Norway, the US Gulf of Mexico, and Brazil. Offshore activity is picking up, again, worldwide. Middle East onshore is growing, and Asia Pacific is starting to recover. The underlying industry fundamentals are favorable to CDG, despite the business variability and volatility that we saw from our client in 2022, as they took different paths to address market conditions. Demand for our technologies and especially our subsurface imaging is becoming increasingly more important for energy companies to effectively optimize their investments, not only for traditional oil and gas prospects, but also for energy transition, including CCUS. Our core basins of the US Gulf of Mexico, Brazil, UK, Norway, and US land remain the priority for a majority of E&P companies, and will receive a big share of the budget increases. Acquisition contract prices, particularly marine, are going up, which should strengthen acquisition companies and allow them to renew their equipment. There is more visibility on long-term land contracts in North Africa, Middle East and Asia, supported by NOCs that will require new land equipment. Order intake for geoscience was up 37% year-on-year, And SMO order intake was down 6%, but the level of commercial bids is at a historically high level going back to 2016. So despite this high level of commercial interest and activity going forward, Q3 2022 was soft, mainly as our earth data and sensing and monitoring businesses saw several contracts and projects shift from Q3 to Q4 and to 2023. Our group 2022 top line is expected to remain flat year-on-year with 18% growth in DDE, offset by lower revenue in SMO. But our 2022 EBITDA should increase pro forma year-on-year by around 15%, with a higher margin, which is now expected to be around 42%. More importantly, 2022 free EBITDA is expected to be broadly in line with original guidance. As the market, industry and CDD have progressed through this year of transition, I have become increasingly confident that we're entering a multi-year upcycle and that CDD will benefit from the increased activity as we move forward. So we'll move now on slide five. After this general overview, let's review the third quarter in more detail. So in Q3, CDD saw volatility result in lower financial performance. Segment revenue was $217 million. Segment EBITDA was $77 million, a 35% margin. Q3 segment revenue was lower than anticipated as some EDA pre-funding revenue and SMO projects slipped to Q4 and into 2023. Q3 net cash flow before $19 million M&A cash cost was minus $59 million, including $14 million negative change in working capital. At the end of September, net cash flow was minus 65 million, including 37 million MNA. In 2022, our CAPEX . We have already invested 90% of our EDA CAPEX at the end of September. We also significantly increased the inventory of SMO products, consuming an additional 17 million cash since the beginning of the year. to be ready for the large upcoming tenders for land and OBM equipment that are expected to be delivered in 2023. So moving on to slide seven. Q3 DDE segment revenue was lower this quarter at 131 million, down 16% pro forma year-on-year, with growth in geoscience offset by a decrease in earth data due to lower pre-funding. At the end of September, our core businesses continued to gradually recover as markets strengthened. Year-to-date DDE revenue climbed 30% pro forma year-on-year. As a result, DDE profitability for the first nine months is up significantly, with a solid 58% EBITDA margin and a 29% operating income margin, driven mainly by a strong recovery in multi-client aftersales. Slide 8 with Geoscience. Geoscience external revenue was $69 million in Q3, up 8% pro forma, and year-to-date revenue was $214 million, up 19% pro forma compared to last year. We continue to anticipate high single-digit growth for Geoscience in 2022 and in line with our expectations. Overall, the geoscience KPIs are progressing as expected in the increasingly solid market worldwide with high demand for our technologies. We also see the full effect of efficiency gains in our revenue per head metric. Slide 9. Commercial activities increasing worldwide. Total geoscience dollar order intake was up 37% pro forma year on year. during the period of January to September 2022. While activity initially picked up in North America in the second half of last year, we now see increasing commercial activity in Europe, Middle East and Asia. In addition, Europe demand is also driven by our beyond the core businesses, including our data hub technology and earth data for CCUS projects. The picture on this slide is a horizontal depth slice through the subsurface. It shows ancient, buried river systems with greater precision than the industry has ever seen before. CDG's advanced four-way form inversion technology can resolve not only the larger river channels, but also the much smaller tributaries and streams that fed these rivers. Of course, these old rivers and streams are now filled with rock, which can sometimes be a hazard for drilling or an excellent target for hydrocarbons. Being able to see them this clearly brings significant benefit to our clients. Now on slide 10. The success of CGG is built on technology differentiation. Our unique elastic four-way form inversion, which was developed by our scientists for complex geology and challenging reservoir development, is the most recent example of this differentiation and the commercial success it drives. Four-way form inversion imaging not only gives improved resolution of shallow heterogeneities, but it also increases certainty with respect to their true locations in the subsurface. These finer details enable our clients to de-risk drilling and optimally position their wells. On this picture, it is important to note that the results between the left and the right side are coming from the exact same dataset recorded years ago. Initially developed to solve critical Gulf of Mexico challenges, elastic full waveform inversion is now applied outside North America. As an example, this picture is from offshore Brazil, where, as you know, pre-salt geology is complex, and the application of the most advanced technology can bring significant value. Looking forward, with recent advancement in elastic full waveform inversion, it may be possible soon quantitatively provide further rock property information directly to our clients reducing time frames and increasing the accuracy of interpretations moving on to slide 11. a highly specialized and therefore highly cost performance hpc capacity has been a key enabler for the continuous release of our new technologies often This technology advance and differentiation requires orders of magnitude more compute power and hence a unique and specialized solution. Today we operate three main data centers in Houston, London and Singapore that are interconnected and form ICDG Cloud. We continue upgrading HVC capabilities to mainly serve our geoscience activities but also to ensure our CGG Cloud can be leveraged by our clients as we continue to build our beyond the core businesses. At current, we're constructing a new HPC hub in Southeast England. It is progressing as planned and expected to be operational in the third quarter of 2023. The building of this new data center in the UK also gives us the opportunity to use 100% green renewable energy improving our electricity power usage efficiency ratio and contributing to our greenhouse gas emissions reduction. Our company's high-end technology business profile along with our low carbon intensity footprint and our continued reductions have been recognized by agencies. Only two all-field service companies including CDG have achieved a AA rating with MSCI. With an index of 17.9, CGG is also ranked number two by Sustainalytics among 113 energy service companies. And finally, Gaia Research recently further improved the rating of CGG from 54 last year to 65 in 2022. We're proud of our ESG leadership and achievements to date and are committed to reaching our goals. So we'll move now to slide 11 with Earth data. In Q3, as in Q2, we had a total of three vessels acquiring data on our programs. Two vessels were working in the Norwegian North Sea, and one vessel was working offshore Brazil. Pre-funding revenue was low at 19 million, as some pre-funding of our North Sea multi-client programs shifted to Q4. For the full year, we expect the pre-funding level to be in the range of 60 to 70%. lower than usual, but we're confident that we will catch up in 2023. Earth data after sales were 43 million this quarter, up 32% year-on-year, sustained by sales in South America, US Gulf of Mexico, and the North Sea. This is consistent with the overall trend during the year, with our year-to-date after sales increasing by 2.3 times versus 2021. Historically, after sales have been a good trend indicator for the business. Moving on to slide 13. Most of our CAPEX goes towards our core basins. In 2022, 90% of our annual CAPEX was already spent at the end of September compared to 78% last year. The acquisition phase of our Antares project offshore Brazil will be completed by the end of November. And the acquisition of our 2022 North Viking Raban East-West Plusnodes program offshore Norway is also completed. In addition, we made a modest investment in Suriname through a consortium to position in an emerging basin. The image on this slide shows the large footprint of our North Viking Rabban programs and the perimeter of our hybrid streamer node acquisition program. By adding nodes to streamer acquisition, we're able to build a much better velocity model in a much more cost-effective way. Interest remains high in the APA rounds, which supports our investment in Norway. The US government has restarted lease sales in the US of Gulf of Mexico, which is very positive news for our industry. Now on slide 14. I mentioned during our Q2 conference call that we continue to expand our data offering to address energy transition, especially for CCUS and mining. On this slide, you can see a map of our CCUS Gulf of Mexico program, which has industry funding. The study includes natural CO2 sources, well locations, and well logs. All data from the public domain. The CDG team of experts have applied machine learning and deep domain expertise to clean, process, interpret, and integrate the various data types to help our clients accelerate their understanding of the CO2 storage potential in this area. Moving on to slide 15 now with sensing and monitoring. Our sensing and monitoring segment revenue was 86 million, down 15% year-on-year. Thanks to a favorable product mix, EBITDA was at 15 million with a 17% margin, the same margin as Q3 2021 despite lower revenue. We anticipate Q4 2022 sales to be similar to Q3, as several orders and client projects, either in backlog or in negotiation, have slipped to 2023, including the Saudi mega cruise. During 2022, SMO manufacturing activity has been quite high, building a large inventory of land and OBM equipment in advance of the large land and OBM tenders planned for delivery in 2023 in the Middle East and North Africa. In 2023, SMO activity is anticipated to increase significantly on the back of orders in backlog, contribution from recently acquired companies, and large upcoming Middle East projects. Now on slide 16. During the quarter, land equipment sales represented 58% of total sales. We delivered land wing nodes and over 100,000 508 cross-step channels. Marine equipment sales represented 28% of total sales, driven by deliveries of GPR 300 OBN nodes. Sales from beyond the core businesses in SMO were 6 million, sustained mainly by the defense sector. Also during the quarter, we finalized the acquisition of the software division of Ion Geophysical for a total price of 19 million. After the acquisition of Geocomp at the beginning of June, which is a beachhead to our diversification into the high growth US market for infrastructure monitoring, the acquisition of Ion Software also brings diversification opportunities thanks notably to the Marlin Simultaneous Marine Operations Management software. Now on slide 17. Infrastructure monitoring is the largest opportunity for the beyond the core diversification strategy of SMO. It is a two billion market, which is expected to be growing at a CAGR of 14% for the next five years. The aim is to leverage SMO's high-definition wireless sensors and data aggregation and processing expertise to deliver full solutions for the monitoring of large infrastructures. Recently, SMO performed a very successful test of a cable state bridged in the U.S. that was instrumented with S-Link sensors and a system. As a result, the CERCEL S-Link system was technically validated by the client, which will open doors for future sales. I will now give the floor to Yuri for more financial highlights.

Thank you, Sophie. Good afternoon, ladies and gentlemen, and good morning. I will comment on the Q3 2022 financial results. Slide 19, Q3 2022 income statement. Let me comment on the overall Q3 activity. Segment revenue was $217 million, down 20% and down 16% per former year-on-year. The respective contributions from the group's businesses were 32% from geoscience, 28% from earth data, 60% for the DGE segment, and 40% from sensing and monitoring. Segmented data was $77 million, down 35% year-on-year, a 35% margin due to unfavorable business mix, and adjusted segmented data was $75 million. Data, digital, and energy transition segment to do that was 64 million, a 49% margin, and adjusted segment to do that was 66 million, a high 50% margin. SMO segment EBITDA was $18 million at 21% margin and adjusted segment EBITDA was $15 million at 17% margin. Segment operating income was $25 million at 12% margin and adjusted segment operating income was $24 million. IFRS 15 adjustment at operating income level was $2 million and IFRS operating income after IFRS 15 adjustment was $28 million. Costco financial debt was 24 million, taxes were 4 million, and net loss from continuing operations was 1 million, and group net loss this quarter was 2 million compared with the net loss of 16 million a year ago. After minority interest, group net income attributable to CDG shareholders was $2 million, 1 million euros. Simplify the cash flow on slide 20. Segment operating cash flow was $77 million before $40 million negative change in working capital and provisions, mainly related to the SMO business. Total capex was $82 million, with industrial capex at $6 million, research and development capex at $4 million, and earth data cash capex at $72 million. Segment free cash flow was negative 45 million before 19 million of acquisition cash cuts, mainly related to the acquisition of Ion Software business. After 16 million of M&A costs, 11 million of lease repayments, $1 million positive free cash flow from discontinued operations and $7 million negative cash flow related to CDG 2021 plan cash costs. The net cash flow was $78 million negative this quarter. Excluding M&A cash costs and change in working capital, it was negative $22 million. Slide 21, group balance sheet and capital structure. Group's liquidity amounted to $325 million at the end of September 2022 and included cash liquidity of $225 million and $100 million of undrawn RCN. Group gross debt before IFRS 16 was $1.11 billion and net debt was $889 million. And group gross debt after IFRS 16 was $1.2 billion and net debt was $976 million. Our debt structure had $1.7 billion of high-yield bonds during 2027, $87 million of lease liabilities, $41 million accrued interest, and $3 million bank loans. Segment leverage ratio of net debt to adjusted segmented debt was 2.5 times at the end of September 2022. Capital employed was 2 billion, slightly up from the end of December 2021. Networking capital after FRS 15 was 212 million, down from 229 million at the end of September 2021. Primarily driven by significant reduction in net accounts receivable, Lower deferred revenue liability from IFRS 15. Increase in accounts payable and reduction in personnel liability is partially offset by significant increase in inventories in SMO. Goodwill was stable at $1.1 billion, corresponding to 55% of total capital employed. Multi-client library net book value after ISRS 15 was up at $449 million, including $421 million of marine and $28 million of land net book value. Non-current assets were at $321 million, with property, plant, and equipment at $149 million, down $65 million from year-end 2021, mainly due to the sale and leaseback. And the capitalized development costs were at 87 million. Non-current liabilities were at 19 million, down 14 million from year end 2021. Shareholders' equity was up at 1 billion 30 million, including 37 million of minority interest, mainly related to . Now I hand the floor back to Sophie for conclusions.