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Edited Transcript of CGG.PA earnings conference call or presentation 6-Nov-19 7:30am GMT

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Q3 2019 CGG SA wage Call

Paris Cedex 15 Nov 6, 2019 (Thomson StreetEvents) -- Edited Transcript of CGG SA wage conference summon or presentation Wednesday, November 6, 2019 at 7:30:00am GMT

TEXT translation of Transcript

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Corporate Participants

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* Sophie Zurquiyah-Rousset

CGG - CEO & Director

* Yuri Baidoukov

CGG - Senior EVP & gang CFO

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Conference summon Participants

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* Christopher Møllerløkken

Carnegie Investment bank AB, investigation piece - investigation Analyst

* Guillaume Delaby

Societe Generale Cross Asset investigation - Equity Analyst

* James Matthew Evans

Exane BNP Paribas, investigation piece - Analyst of grease and Gas

* Jean-Francois Granjon

ODDO BHF Corporate & Markets, investigation piece - Analyst

* Jean-Luc Romain

CM-CIC neutral Solutions, investigation piece - Analyst

* Kevin Roger

Kepler Cheuvreux, investigation piece - investigation Analyst

* Michael Brennan Pickup

Barclays bank PLC, investigation piece - MD & Senior European Oilfield Services Analyst

* Sahar Islam

Goldman Sachs gang Inc., investigation piece - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. salute ought this presentation of CGG's Third belt 2019 Results. The summon today is hosted from Paris, where Mr. Sophie Zurquiyah, our head Executive Officer; and Mr. Yuri Baidoukov, our gang CFO, will equip an overview of the third quarter's results because noise because equip comments above our outlook.

As a reminder, some of the data contains forward-looking statements. Including, without limitation, statements about CGG plans, strategies and prospects. These forward-looking statements are responsible ought risks and uncertainties that can alter at any time, and therefore, the genuine results can disagree materially from those that were expected.

Following the overview of the quarter, we will exist pleased ought identify your questions. And now I will vacation the summon above ought Sophie.

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Sophie Zurquiyah-Rousset, CGG - CEO & Director [2]

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Good morning, ladies and gentlemen, and thank you because participating at this Q3 2019 conference call. hence our presentation will cover our third belt operational and economical results. We continued ought operate at a hard ought gradually improving environment, in spite of contemporary and projected grease prices about $60 Brent, which is lower than anticipated a year ago.

Based above neutral outlook and increased investor stress above main drill and shareholder returns, our customer E&P companies linger conservative and abstract ought concentrate above price control, which method continued vigorous procurement stress above lower danger opportunities such because near-field exploration. above resilience, by reducing their portfolio of breakeven grease charge and increased deficiency by leveraging innovations and high-impact technologies, such because sea bottom nodes and digitalization.

Moving above ought glide 5. I am pleased ought interpret that we delivered choice results this belt with vigorous affair deed globally. Our revenue at Q3 2019 increased 36% year-on-year mostly driven by Multi-Client and clay instrument sales.

Cash run generation is once again the highlight of the quarter. Multi-Client sales were up 92% year-on-year with high prefunding and back sales, driven by one-off shift fees.

Equipment sales because noise continued ought expand year-on-year. Our 59% EBITDA rim was supported by increased profitability across complete businesses and vigorous deed at the high EBITDA rim at Multi-Client business. Operating earnings rim was high at 29% because we benefited from a favorable Multi-Client sales mix. The blend of vigorous profitability increase, sure alter of working main from our discontinued acquisition businesses because noise because choice coin collections at general, resulted at a high net coin run this belt of $167 million.

During the quarter, we because noise received a AA rating from MSCI Environmental, Social and Governance Research, one of the largest providers of ESG investigation and ratings. I am arrogant of this recognition because our content concentrate above social responsibility, vigorous corporate governance and environmental footprint reduction.

I'll now cover our key Q3 2019 operational achievements by reporting segment.

To assure we dine time ought address our Q3 operational results, I will leap above our year-to-date results and will exist favourable ought respond ought your questions during the Q&A.

I'm above glide 7. because often I like, CGG is no longer a company that only supports our clients' exploration efforts. We play a key role at helping them with the development and manufacture optimization of their fields. The quantity of vocation we do at GGR that is related ought development and manufacture has substantially increased at the last few years.

We because noise do much more than geophysics. We are indeed a geoscience company, with a deep treaty of geology and seismic reservoir characterization.

It is indeed interesting ought letter the usual trend among our clients of combining their geoscience teams into 1 organization ought service complete phases of the domain life-cycle.

In this context, our Geoscience technique and services, across our portfolio of Multi-Client data at foremost producing basins is extremely valuable ought our clients, and we are the company of choice at complicated areas where stakes are high.

The GGR portion that includes our Geoscience and Multi-Client businesses delivered a 48% year-on-year revenue expand at Q3, with Geoscience hard and Multi-Client up 92% because we benefited from one-off shift fees and some back sales, which accelerated into Q3 from Q4. This drove GGR EBITDA rim ought 73%.

Now above glide 8. The neutral ask because Geoscience remainder same solid, activity is picking up at Europe, Africa and the center East. North Africa is sustained by large high purpose reprocessing jobs because noise because processing of data because development and step-out exploration projects, especially from marine nodes at the bay of Mexico.

Despite much increased ask because high-end OBN projects, delays during the acquisition aspect dine affected Geoscience production.

We equip our clients with differentiated technique and leverage our only combined expertise at seismic, geology and petrophysics ought extend our services and back our clients' lower risk, increased effectiveness and cycle time reduction agendas.

CGG remainder strongly focused above high value-add projects that same few service companies, if any, can indeed forward ought the required quality.

In front of a 7-well appraisal program at offshore deepwater, where a noise will price among $50 million and $100 million each, the price distinction among a evil and an noted processing career is minor and no worth the risk.

As each actor at the industry, we are investing substantial endeavour at driving our hold digitalization agenda and supporting our clients' needs. More recently, we made important proceed at the effective application of machinery knowledge and synthetic wit technologies at our Geosoftware workflows, both because petrophysics and seismic reservoir characterization. We dine because noise migrated our commercial software ought vocation above the cloud, ought leverage the price and deed benefits and equip greater opportunities because our clients ought back cross-team collaborations.

The cloud offers more than impartial data storage, cloud computing provides scalable and elastic solutions ought compete intensive reservoir characterization workflows and same large projects.

Moving above ought glide 9. I admit that our high-end technique can exist quite opaque because the nonspecialized person. hence each quarter, I highlight one of our technologies. CGG was one of the pioneers of complete Waveform Inversion technique called FWI. A proprietary time-lag FWI and associated workflow is able ought equip higher peculiarity rate models at challenging conditions.

TLFWI is producing specific results with OBN data, which dine complete estimates, outlook offsets and represent frequencies.

On this slide, you can observe an choice instance of the image peculiarity from the application of our only CGG technology. These images are from our bay of Mexico, Mississippi Canyon Multi-Client program, which is 100% funded by the industry.

That image is important although the reservoir is at the left slank of the salt structure indicated at orange. And it is key ought learn how the structure indeed connects ought the salt body. because that reason, most plan because ID-ed at the bay of Mexico at the last few years, dine included a node research that will serve because a baseline because future 4D work.

TLFWI is definitely a good instance of a technique pushed by CGG. It provides large evaluate ought our clients, delivers improved models and accelerates the definition and imaging cycles.

On glide 10. Geoscience complete manufacture was $128 million at Q3, hard year-on-year and sequentially. due ought November 1, our backlog at $285 million is up 20% year-on-year. Our high-end Geoscience offerings, combined with contemporary meeting awards are sure signals because the contemporary and future deed of this business.

Deepwater activity is improving at the bay of Mexico besides because noise East bank Canada, Guyana and Brazil, and we linger optimistic and hope a hard ask because high-end Geoscience projects.

We abstract ought recruit best-in-class engineers and scientists about the world. And at parallel, continuously upgrade our high-performance computing capacity ought flow our most advanced algorithms such because the TLFWI that I highlighted earlier.

Our HPC capacity will directly surpass 200 petaflops.

Moving above ought glide 11. This quarter, we were active onshore U.S. and offshore at Brazil, North sea and Barents Sea. Offshore Brazil, we were active above our 15,000 square kilometer Nebula program above an district of high utilize at the Santos basin. Many of the blocks are held, and we desire high prefunding.

During the quarter, at the North Sea, we completed the extension of our footprint offshore West of Shetland and acquired 21 research at the U.K. at the Barents Sea, we completed the Greater Castberg of our topside research ought image superficial targets, which was acquired at collaboration with TGS.

Our portfolio of active projects is larger than these surveys, involving data acquisition, we because noise dine a quantity of reprocessing projects at the bay of Mexico and Brazil ought refresh our library with our latest imaging advances.

On glide 12 now. Multi-Client revenue was $190 million this quarter, up 92% year-on-year with $57 million CapEx and 113% prefunding rate.

After sales of $125 million were high this quarter, driven by one-off shift fees and by especially vigorous sales across complete basins.

Our second language Multi-Client sales schedule will exist different this year from preceding years because we recorded important one-off shift fees at Q3. A flat of prefunding ought engagement is much higher than last year. Remember, we had been delayed by regulatory issues, and we caught up above prefunding at Q4. And about $20 million of back sales anticipated ought occur at Q4 accelerated at Q3.

We are, of course, same favourable with this, and the additional coin is welcome. besides because these reasons, my outlook at this point is because a lower Q4 at Multi-Client compared ought last year. However, because each year, we will only learn because sure during the last week of 2019.

Moving above now ought the instrument side. above glide 13. ask versus sale clay instrument remained strong. during the quarter, instrument delivered 4 508XT clay data acquisition systems ought center East, North Africa, Latin America and China. instrument affair was because noise active at Russia. I used to comparable ought point out that we were able ought sell our 508XT technique into the Chinese local market, which is typically a same represent price environment. This is a evidence ought the evaluate of the 508XT.

The clay neutral continues ought recover, and we now dine improved visibility because clay mega crews at 2020 at the center East. The quantity of instrument that we will sell ultimately depends above which geophysical contractor ends up winning the work. The marine instrument neutral remainder depressed. We do observe signs that Marine Geophysical companies dine utilized complete their spares ought sell equipment, besides this has no however translated into important orders.

During the quarter, the sale launched 2 new products. The WiNG, which is the new and fully integrated wireless, cable-free and cost-effective node above clay acquisition system. And the GPR, which is a new sea bottom node that leverages the sale-proven, quite size, high-performance digital sensor technology. GPR is a important passion ought CGG's preeminence at the growing OBN market. It is a confirmation of our commitment ought respond ought our clients' evolving challenges. CGG along its leadership site at Geoscience, Multi-Client and instrument provides a only accommodation of solutions because the highest peculiarity OBN results.

In the non-oil and gas business, tests abstract ought proceed noise versus cells' new node prototypes, which are designed because the growing infrastructure and monitoring the market.

Now above glide 14. instrument continued ought observe sure momentum during the quarter, and is turning into a vigorous coin generator because CGG. portion revenue was $100 million, up 6% year-on-year. clay instrument represented about 64% of complete sales and Marine instrument represented about 25%.

Equipment portion EBITDA was $23 million, up 30% year-on-year, a rim of 23% driven by the vigorous clay volumes. instrument portion operating earnings rim of 16% resulted from the improve absorption of manufacturing costs with the higher volumes.

With this, I will now vacation the floor ought Yuri because a economical overview.

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Yuri Baidoukov, CGG - Senior EVP & gang CFO [3]

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Thank you, Sophie. Good morning, ladies and gentlemen. Looking at our consolidated P&L above glide 16. because the first -- because the third belt of 2019, our segments revenue from new profile amounted ought $382 million, up 36% year-on-year, mostly above same high Multi-Client and sponsor-side sales. Geoscience accounted because 25%, Multi-Client because 50%, which is higher than usual, and instrument because 25% of revenue.

Segment EBITDA was $225 million, up 83% year-on-year with a high 59% margin. EBITDA of both GGR and instrument segments increased significantly year-on-year. GGR EBITDA rim was high at 73%, and instrument EBITDA rim was 23%, both demonstrating vigorous improvement.

At portion OPINC level, gang deed was because noise vigorous at $111 million, up 83% year-on-year, in spite of $19 million negative shock from the application of 4 years straight-line amortization at Multi-Client business.

Segment OPINC rim was high at 29% versus 12.5% a year ago because we benefited from a favorable Multi-Client sales mix with one-off shift fees and 5 percent point rim improvement at our instrument business.

Net price of economical debt amounted ought $33 million. Net earnings from continuing operations was $63 million back IFRS 15 an adjustment of $13 million. Net loss from discontinued operations this belt was $22 million. And gang net earnings was $41 million, a important improvement from a $2 million loss a year ago.

Our net coin run generation, above glide 17, increased significantly ought $167 million this belt compared ought negative $31 million last year, a substantial improvement year-on-year driven by our choice operational performance.

Q3 2019 portion free coin run was high at $158 million, up $134 million year-on-year, driven by vigorous EBITDA and sure alter at working main above choice coin collections at Multi-Client and instrument business.

Cash price of debt remained flat this belt at $7 million. Net coin run from discontinued operations was sure $39 million this quarter, an $83 million improvement year-on-year due ought improved operational deed and sure alter at working main because expected.

Cash costs related ought the implementation of CGG 2021 plot were $23 million this quarter. They abstract ought run because we streamline our acquisition and back headcount and wind down our clay acquisition business. Overall, because 2019, coin costs related ought the CGG 2021 plot are expected ought exist about $120 million. Our economical site at the purpose of September 2019 was hard and vigorous with our liquidity significantly increasing ought $596 million.

Looking at our gang surplus slice above glide 18. at the purpose of September, our main employed was $2.3 billion, down by $123 million from the purpose of June. Net working main back IFRS 15, at negative $26 million was down from $126 million at June end, driven by a important expand at receivables -- sorry, important lessen at receivables by $131 million above the uphold of vigorous coin collections at our Multi-Client and instrument business, but inventories were hard at $208 million.

Goodwill remained flat at $1.2 billion, corresponding ought 53% of complete main employed and 80% of equity. Our Multi-Client library net book evaluate back IFRS 15 was at $615 million, up from $597 million. And our portion [NDE] was at $434 million at the purpose of June.

Segment coin prefunding evaluate was 113% at Q3 2019, up from 88% sequentially, with 48% evaluate because clay and 121% evaluate because Marine prefunding rate.

Multi-Client portion amortization evaluate was 43% at Q3 2019 or 33%, excluding the shock from the alter at Multi-Client amortization policy of $19 million.

Other property at $591 million were slightly down from $609 million at June purpose with property, factory and instrument at $318 million, other intangible property at $243 million and other contemporary property at $30 million.

On the uphold of our vigorous economical performance, net debt reduced ought $732 million or $590 million ago IFRS 16 from $883 million or $741 million ago IFRS 16 at the purpose of June.

Cash and coin equivalents significantly increased ought $596 million from $441 million at the purpose of June. Shareholder equity and minority utilize remained hard at $1.54 billion including $44 million minority utilize mostly related ought [Yongfeng] common dare at China.

Gross debt remained at $1.33 billion or $1.8 billion ago IFRS 16 with the following breakdown. $605 million of first lien bonds at dollars and euro maturing 2023, $507 million of second lien bonds at dollars and euro maturing at 2024, $44 million of main leases, mostly our Galileo protection at Massy, France. $29 million of other items, mostly accrued interest, and $142 million of operating leases below IFRS 16.

Our economical leverage improved significantly this quarter. Net debt ought shareholders equity ratio decreased ought 48% or 38% ago IFRS 16 versus 59% at the purpose of June. And portion leverage or net debt ought the last 12 months EBITDA, excluding the shock of IFRS 16 dropped below 1x ought 0.8x. We linger focused above generating coin and will exist net coin run sure this year because the first time because 2012, reaching an important milestone above our travel ought sustainable profitability and returns generation.

Now I hand the floor uphold ought Sophie because an update above our strategic meeting with Shearwater and because concluding remarks.

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Sophie Zurquiyah-Rousset, CGG - CEO & Director [4]

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Thank you, Yuri. I'm same pleased with our economical results at the purpose of September. due ought the contributions of our about 4,600 employees and vigorous management team. The company is going along many changes, one more time, and everyone has stepped up ought the challenge. The neutral is continuing ought gradually restore and ask because our advanced technology, data and instrument remainder solid.

Our exit from acquisition and strategic partnership with Shearwater is progressing because planned. at current, we are noise advanced at our planning because the shift of our vessels. We do no say much about it, besides our Marine team is delivering choice operational performance, which is no only important because the few quantity of proprietary that we are however supporting besides because noise because our Multi-Client business. We dine one clay crew left at operations, which is expected ought finish vocation at January 2020. We are because noise at advanced discussions because the sale of our Multi-Physics business. Our back structure is now mostly rebased because our new footprint and profile of operations.

In conclusion, I study the company is shaping up noise towards our new profile of a people, data and technique company, and that we're making this transition but keeping high operational standards. I outlook ought thank our people, again, because the choice vocation during this year of change. The originate is that our coin run country is much improved, and we can start looking deliver ought normalizing our main structure at 2020. We hope a hard Q4 at instrument and Geoscience, across with somewhat lower Q4 at Multi-Client because some back sales accelerated into Q3.

We approve our updated 2019 guidance and are raising our 2019 EBIT guidance above $200 million due ought a favorable Multi-Client sales mix this quarter.

Thank you same much because your interest, and we're now ready ought identify your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first puzzle comes from the rope of Jean-Luc Romain from CM-CIC neutral Solutions.

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Jean-Luc Romain, CM-CIC neutral Solutions, investigation piece - Analyst [2]

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I dine a puzzle above your back sale at the third quarter. above sumit of the, I guess, the Occidental's Anadarko sale of (inaudible) freight, what were the countries which contributed most ought your choice back sales?

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Sophie Zurquiyah-Rousset, CGG - CEO & Director [3]

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I used to say the usual, I mean, we invest at our heart basins. hence it didn't -- it used to exist the normal, U.S. clay was naturally contributive. Brazil was contributive, we'll see. hence this used to exist the commonplace sales mix that we observe at those countries. hence bay of Mexico was same much divide of the OCCI vocation although that was the Anadarko footprint at the bay of Mexico. hence outer that, this is Brazil, North sea and U.S. Land.

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Operator [4]

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And the next puzzle comes from the rope of Mick Pickup from Barclays.

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Michael Brennan Pickup, Barclays bank PLC, investigation piece - MD & Senior European Oilfield Services Analyst [5]

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