CGG : CGG Announces its 2018 Third Quarter Results

CGG Announces its 2018 Third Quarter Results

PARIS, France - November 7^th 2018 - CGG (ISIN: FR0013181864), world leader in Geoscience, announced today its 2018 third quarter unaudited results.

Commenting on these results, Sophie Zurquiyah, CGG CEO, said:

"Our third quarter revenue was up 4% year-on-year, confirming the gradual market recovery. Geoscience saw robust performance and Multi-Client delivered a high level of after-sales but was impacted by delayed pre-funding recognized in October. Equipment sales increased significantly for land achieving double digit operating income margin. Acquisition continues to suffer from low prices in a commoditized market.

In that context, we remain on track with our 2018 targets based on sizeable year-end Multi-Client opportunities and strong Equipment deliveries."

Transitory application of IFRS 15

CGG implemented IFRS 15 on January 1, 2018 with a modified retrospective application. The only change compared to Group historical practices is related to multi-clients prefunding revenues. These prefunding revenues are recorded at delivery of the final data while they were historically recorded based on percentage of completion. For internal reporting purposes, CGG continues using historical method with prefunding revenues recorded based on percentage of completion.

CGG, as other seismic players, presents then a dual approach in the Group's results including:

(i)   one set of figures (the "IFRS" figures) with pre-commitment revenue recognized in full only upon delivery of the final data and

(ii)  a second set of figures (the "Segment figures") produced in accordance with the Group's historical method, which correspond to the figures used for internal management reporting purposes and provide comparative information during the year 2018.

Key IFRS Figures - Third Quarter 2018

            *Previous periods are not restated as per IFRS 15 guidelines

Key Segment Figures - Third Quarter 2018

Key IFRS Figures - Year-to-Date 2018

            *Previous periods are not restated as per IFRS 15 guidelines

Key Segment Figures - Year-to-Date 2018

Key figures bridge: Segment to IFRS - Third Quarter 2018

*Non-recurring charges linked to Transformation Plan and Financial Restructuring

Key figures bridge: Segment to IFRS - Year-to-Date 2018

*Non-recurring charges linked to Transformation Plan and Financial Restructuring

Third Quarter 2018 Segment Financial Results

Geology, Geophysics & Reservoir (GGR)

GGR segment revenue was $192 million, up 3% year-on-year.

• Geoscience revenue was $93 million, up 16% year-on-year, with robust demand worldwide for advanced imaging and for reservoir delineation and production geoscience services. Geographically, market is gradually improving across all regions.
• Multi-Client revenue was $99 million, down 6% year-on-year. After-sales were strong in active basins, at $63 million up 78% year-on-year but prefunding sales were down 49% year-on-year at $36 million, impacted by regulatory delays. Three vessels were active for offshore multi-client surveys in the North Sea and in Brazil. We completed the Gini survey in West Texas and started the extension of our Chickasha survey in Oklahoma targeting US onshore unconventionals.

GGR segment EBITDAs was $113 million, up 11% with 59% margin.

GGR segment operating income was $59 million, with 31% margin. The multi-client depreciation rate was at 41% due to a higher mix of fully depreciated sales, leading to a library Net Book Value of $902 million at the end of September 2018, split 90% offshore and 10% onshore.

GGR capital employed was stable at $2.2 billion at the end of September 2018.

Equipment

Equipment segment revenue was $94 million, up 137% year-on-year. External sales were $89 million, up 147% year-on-year.

Land equipment sales represented 73% of total sales, compared to 63% last year, driven by strong land channels and geophones deliveries in Middle East and Asia. The well gauges demand remains strong on the back of unconventionals activity.

Marine equipment sales represented 27% of total sales, compared to 37% last year, in a weak data acquisition marine market.

Equipment segment EBITDAs was $18 million, with 19% margin.

Equipment segment operating income was $11 million, with double-digit margin of 11% due to favorable product mix and higher volumes.

Equipment capital employed was stable at $0.6 billion at the end of September 2018.

Contractual Data Acquisition

Contractual Data Acquisition segment revenue was $54 million, down 46% year-on-year.

• Marine Contractual Data Acquisition revenue was $24 million, down 67% year-on-year. This revenue decrease is explained by the different contract mix this year, as we conducted multi-source vessel operations at higher prices in Q3 2017. Two vessels worked on proprietary surveys, one in the North Sea and one in Brazil.
• Land and Multi-Physics Data Acquisition revenue was $30 million, up 9% year-on-year. The land data acquisition activity was mainly in North Africa and Asia. Multi-Physics benefited from the mining market recovery.

Contractual Data Acquisition segment EBITDAs was $(10) million.

Contractual Data Acquisition segment operating income was $(17) million as Contractual Data Acquisition activities continued to operate in a competitive market environment.

The $(5) million contribution from our JVs (equity from investments) is mainly related to new projects start-ups in SBGS and ARGAS this quarter.

Contractual Data Acquisition capital employed was stable at $0.3 billion at the end of September 2018.

Non-Operated Resources

The Non-Operated Resources segment comprises, in terms of EBITDAs and operating income, the costs relating to non-operated assets.

Non-Operated Resources segment EBITDAs was $(4) million.

Non-Operated Resources segment operating income was $(4) million.

The equity from investments includes the results of the Global Seismic Shipping (GSS), a 50/50 JV with Eidesvik. Seven vessels were transferred to GSS in Q2 2017 of which three are still cold-stacked.

Non-Operated Resources capital employed was stable at $0.1 billion at the end of September 2018.

Third Quarter 2018 Financial Results

Segment revenue was $333 million, up 4% year-on-year. The respective contributions from the Group's businesses were 58% from GGR, 27% from Equipment and 15% from Contractual Data Acquisition.

Segment EBITDAs was $109 million, a 33% margin.

Segment operating income was $40 million, a 12% margin.

Non-recurring charges (NRC) were $(5) million.

IFRS 15 adjustment at operating income level was $10 million.

IFRS operating income, after NRC and IFRS 15 adjustment, was $45 million.

Equity from investments contribution was $(8) million this quarter, mainly attributable to the negative contributions from the SBGS, ARGAS and GSS JVs this quarter.

Cost of financial debt was $(30) million. The total amount of interest paid during the quarter was $(7) million.

Other financial items were $(4) million.

Income taxes were $(4) million.

IFRS net income was $(2) million.

After minority interests, IFRS net income attributable to CGG shareholders was negative $(3) million / positive €5 million - such difference being explained by the currency translation methodology in consolidated accounts.

Cash Flow

Segment Operating Cash Flow was $79 million compared to $69 million for the third quarter of 2017. Including cash Non-Recurring Charges of $(13) million, the IFRS Operating Cash Flow was $67 million.

Total capex was $91 million, up 35% year-on-year:

• Industrial capex was $17 million, up 188% year-on-year
• Research & Development capex was $7 million, down 7% year-on-year
• Multi-client cash capex was $67 million, up 25% year-on-year, with a 54% cash prefunding rate

After paid cost of debt and capex, segment Free Cash Flow was at $(17) million compared to $(11) million for the third quarter of 2017. After cash NRC, IFRS Free Cash Flow was at $(30) million.

Year-to-Date 2018 Financial Results

Segment revenue was $966 million, up 5% compared to 2017. The respective contributions from the Group's businesses were 60% from GGR, 22% from Equipment and 18% from Contractual Data Acquisition.  

Segment EBITDAs was $272 million, up 14% with 28% margin.

Segment operating income was $58 million, up 161% with 6% margin.

• GGR operating income was $161m, up 139% with 28% margin.

Geoscience delivered a strong performance, with all businesses on track.

Multi-Client sales reached $294 million, offshore sales were highest in North Sea and Brazil. The depreciation rate was 42% leading to a library Net Book Value of $902 million at the end of September.

• Equipment operating income was back to black at $2 million, mainly due to strong land equipment sales.
• Contractual Data Acquisition operating income was negative at $(58) million due to overall weak market conditions. The fleet delivered a good operational performance with high availability rate at 94% and production rate at 97%. 54% of the fleet was dedicated to proprietary surveys over the first nine months of 2018.
• NOR operating income was at $(16) million.

Non-recurring charges (NRC) were $(42) million:

• $(15) million of professional fees mainly linked to the financial restructuring; and
• $(27) million of other costs related to our Transformation Plan.

IFRS 15 adjustment at operating income level was $(11) million.

IFRS operating income, after NRC and IFRS 15 adjustment, was $4 million.

Equity from investments contribution was $(5) million the first nine months, mainly explained by the negative contribution from the GSS JV.

Cost of financial debt was $(97) million. The total amount of interest paid during the first nine months was $(39) million.

Other financial income was positive at $824 million, split as follows:

• $771 million positive financial restructuring impact;
• $74 million one-offs, mainly linked to positive foreign exchange effect associated with the shift of EURO/US$ balance sheet exposure following on one hand, the financial restructuring and on the other hand, the first lien refinancing. EURO/US$ balance sheet exposure was significantly reduced by end of June; and
• $(21) million first lien refinancing costs.

Income taxes were $(32) million.

IFRS net income was $694 million.

After minority interests, IFRS net income attributable to CGG shareholders was $689 million / €576 million.

Cash Flow

Segment Operating Cash Flow was $237 million, compared to $156 million for the first nine months of 2017. Including cash Non-Recurring Charges of $78 million, the IFRS Operating Cash Flow was $159 million.

Total capex was $268 million, up 26% year-on-year:

• Industrial capex was $62 million, up 121% year-on-year
• Research & development capex was $23 million, up 5% year-on-year
• Multi-client cash capex was $183 million, up 13% year-on-year, with a cash prefunding rate of 59%

After paid cost of debt and capex, segment Free Cash Flow was at $(66) million, compared to $(109) million for the first nine months of 2017. After cash NRC, mainly linked to the payment of financial restructuring fees, IFRS Free Cash Flow was at $(145) million.

Balance Sheet 

Group gross debt was $1.181 billion at the end of September 2018. Available cash was $412 million and Group net debt was $769 million.

The Group's liquidity amounted to $412 million at the end of September 2018.

Q3 2018 Conference call

An English language analysts' conference call is scheduled today at 8:30 am (Paris time) - 7:30 am (London time)
             
             
To follow this conference, please access the live webcast:

A replay of the conference will be available via webcast on the CGG website at: www.cgg.com.

For analysts, please dial the following numbers 5 to 10 minutes prior to the scheduled start time:

About CGG:

CGG (www.cgg.com) is a fully integrated Geoscience company providing leading geological, geophysical and reservoir capabilities to its broad base of customers primarily from the global oil and gas industry. Through its three complementary business segments of Equipment, Acquisition and Geology, Geophysics & Reservoir (GGR), CGG brings value across all aspects of natural resource exploration and exploitation. CGG employs around 5,200 people around the world, all with a Passion for Geoscience and working together to deliver the best solutions to its customers.

CGG is listed on the Euronext Paris SA (ISIN: 0013181864).

Contacts

CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

___________________

(a)     Closing rates were US$1.1575 per €1.00 and US$1.1993 per €1.00 for September 30, 2018 and December 31, 2017, respectively.
(b)      

1. See note 2 of our interim financial statements for more information regarding the impact of our financial restructuring on February 21, 2018,
2. See note 1 and note 3 of our interim financial statements for more information regarding the impact of "IFRS 15 - revenues from contracts with customers".

UNAUDITED INTERIM CONSOLIDATED STATEMENT OF OPERATIONS

___________________

1. Refer to notes 1 and 3 of our interim financial statements for information regarding the impact of "IFRS 15 - revenues from contracts with customers".
2. Refer to note 2 of our interim financial statements for information regarding the impact of our financial restructuring.
3. Converted at the average exchange rates of US$1.1972 and US$1.1058 per €1.00 for the periods ended September 30, 2018 and 2017, respectively.
4. As a result of the February 21, 2018 CGG S.A. capital increase via an offering of preferential subscription rights to existing shareholders, the calculation of basic and diluted earnings per share for 2017 has been adjusted retrospectively. The number of ordinary shares outstanding has been adjusted to reflect the proportionate change in the number of shares.
5. As our 2017 net result was a loss, stock options and performance shares plans had an anti-dilutive effect; as a consequence, potential shares linked to those instruments were not taken into account in the diluted weighted average number of shares or in the calculation of diluted loss per share.

UNAUDITED INTERIM CONSOLIDATED STATEMENT OF OPERATIONS

___________________

1. Refer to notes 1 and 3 of our interim financial statements for information regarding the impact of "IFRS 15 - revenues from contracts with customers".
2. As a result of the February 21, 2018 CGG S.A. capital increase via an offering of preferential subscription rights to existing shareholders, the calculation of basic and diluted earnings per share for 2017 has been adjusted retrospectively. The number of ordinary shares outstanding has been adjusted to reflect the proportionate change in the number of shares.
3. As our 2017 net result was a loss, stock options and performance shares plans had an anti-dilutive effect; as a consequence, potential shares linked to those instruments were not taken into account in the diluted weighted average number of shares or in the calculation of diluted loss per share.
4. Corresponding to the nine months amount in euros less the half-year amount in euros.

(c)                       
UNAUDITED ANALYSIS BY SEGMENT 

1. Share of operating results of companies accounted for under equity method was US$5.0 million and US$5.7 million for the nine months ended September 30, 2018 and 2017, respectively.
    
2. For the nine months ended September 30, 2018, "eliminations and other" includes US$(26.4) million of general corporate expenses and US$(3.9) million of intra-group margin. For the nine months ended September 30, 2017, "eliminations and other" included US$(24.0) million of general corporate expenses and US$(4.9) million of intra-group margin.

3. Capital expenditures include capitalized development costs of US$(23.1) million and US$(22.1) million for the nine months ended September 30, 2018 and 2017, respectively. "Eliminations and other" corresponds to the variance of suppliers of assets for the period.

UNAUDITED ANALYSIS BY SEGMENT 

1. Share of operating results of companies accounted for under equity method was US$(3.9) million and US$3.0 million for the three months ended September 30, 2018 and 2017, respectively.
    
2. For the three months ended September 30, 2018, "eliminations and other" includes US$(8.1) million of general corporate expenses and US$(0.3) million of intra-group margin. For the three months ended September, 2017, "eliminations and other" included US$(7.6) million of general corporate expenses and US$(0.9) million of intra-group margin.

3. Capital expenditures include capitalized development costs of US$(7.0) million and US$(7.5) million for the three months ended September 30, 2018 and 2017, respectively. "Eliminations and other" corresponds to the variance of suppliers of assets for the period.

UNAUDITED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

1. See note 1 and note 3 of our interim financial statements for more information regarding the impact of "IFRS 15
2. Includes the non-cash impact on the statement of operations of our financial restructuring on February 21, 2018. See note 2 of our interim financial statements for more information.