CGG : Transcript T3 2021

Q3 2021 Results

Conference Call

Analyst Coverage

Wednesday, 3rd November 2021

Q3 2021 Results Conference Call Analyst Coverage

Wednesday, 3rd November 2021

Introduction

Christophe Barnini

SVP Investor Relations

Welcome

Thank you. Good morning, ladies and gentlemen. Good evening, welcome to the presentation of CGG's third quarter 2021 results. We come today from Paris, where Mrs Sophie Zurquiyah, our Chief Executive Officer, and Mr Yuri Baidoukov, our Group CFO will provide an overview of the third quarter results as well as provide comments on our outlook.

Change of Financial Communication Schedule

Starting Q3, starting today, CGG is changing its financial communication schedule. We will release our financial results after market close at 17.45 Paris Time. This new financial communication schedule should be an opportunity for US and UK investors and European investors to participate more largely in the conference call with the management.

Forward-looking Statements

Let me remind you of the forward-looking statement as some of the information contains forward-looking statements, including without limitation statements about CGG's plans, strategy 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.

This being said, now I just want to remind you that following the overview of the third quarter, we will be pleased to take your questions.

And now, I will turn the call over to Sophie.

Business Overview

Sophie Zurquiyah

Chief Executive Officer, CGG

Introduction

Thank you, Christophe, and good morning, ladies and gentlemen, and thank you for participating in this Q3 2021 conference call.

I am on slide five now.

Q3 2021 Business Overview

Let me start with some general comments on our market environment.

Market trends

Overall, during the third quarter the activity of our clients continued to show signs of a gradual recovery, with international oil companies increasing their production-related and near-field exploration activities. We also started to see this quarter IOCs initiating some discussion around various shorter term low carbon low-cost exploration opportunities.

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National oil companies and independents remain more active in general and continue to gradually increase their activities. We operate today in a favourable macro-environment as Brent oil price has stabilised above $75 a barrel, and is expected to continue growing from that level onwards. This should continue to stimulate activity aimed at maintaining or increasing production in the near-future.

As we know, E&P companies have focussed historically on upgrading their portfolios to reduce their breakeven oil price. And now there is the additional dimension of lowering carbon intensity of reserves which should also trigger increased activity in exploration down the road and especially in the favourable macro-market environment that we currently see.

Also, as the energy transition continues to move forward, we are seeing a regained interest in gas producing areas.

Overall, while our market is still challenging, we are clearly seeing positive signals that our clients have defined their priorities and have started to resume pending activity. Along with their energy plans, digital initiatives remain at the heart of our client strategy as a source to drive increased efficiency into their value chain. These trends should support increased activity as we move into 2022 and onwards.

Business Performance

We see already that Geoscience is progressively recovering, thanks to increased demand for our superior technologies and services. While sales in Multi-client and Equipment are lumpy by nature, they were both particularly stronger this quarter, driven by higher multi-client pre- funding and solid equipment delivered of our new OBN system.

Looking forward, we are expecting a solid Q4 for our three core businesses. And overall, and as anticipated, after a very low first half of the year, we are seeing both improved revenue and profitability in H2 2021 and expect this trend to continue forward.

As you will see in our numbers, we managed through the pandemic effectively, improving our profitability for the same revenue level based on our cost reduction plan.

Earlier this year, I highlighted our initiatives focussed on divesting non-core businesses to both further streamline performance through the pandemic and ensure we could focus investment on our strategic growth and core business initiatives.

Balance Sheet

In early October, we sold our GeoSoftware business for a total cash consideration of $95 million. And the sale of the Physical asset storage business along with the sale and leaseback of our Headquarter building are both progressing well.

With expected solid fourth quarter activity, CGG is well-positioned to deliver its 2021 financial target.

Moving on to slide six.

Q3 / 9m 2021 Key Financial Highlights

Our Q3 revenue of $270 million was up 35% year-on-year and up 71% sequentially. Group segment EBITDA was $118 million, a 44% margin, due to solid business activity and sales mix. At this level, we delivered a solid $33 million operating income, representing a 12% margin. Segment free cash flow was $2 million due to lower collections of receivables during

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the quarter after the weak second revenue in 2021. It is a significant improvement from last year.

And now let us look at our Q3 2021 operation in more detail by reporting segment.

Operational Review

GGR key financial indicators

GGR segment revenue was stronger this quarter at $168 million, up 12% year-on-year, thanks to the progressive recovery in Geoscience and solid Multi-client sales in Q3. EBITDA margin improved to 63% and OPIN margin also improved to 18%, thanks to sales mix and our cost-saving measures which continue to generate a positive impact.

Going on to slide nine now.

Geoscience key business indicators

Q3 Geoscience external revenue of $77 million was flat year-on-year and up 5% sequentially. Geoscience continued to show progressive recovery during the quarter. Some projects that we worked on pre-COVID came back in for re-processing in anticipation of client production optimisation work. Our clients continue to value our premium products and services in complex areas and as budget constraints start to moderate, these key activities come back to us.

Backlog is up 8% year-on-year and productivity per head has increased as we get busier and more efficient.

Now, on slide ten.

Geoscience operational highlights

The recovery in Geoscience is led mainly by high-end processing of offshore marine streamer and Ocean Bottom Node data mostly in producing areas such as the Gulf of Mexico and Brazil. Seabed projects require more detailed advanced imaging for increased accuracy, and we capture a higher percentage of that market, thanks to our technology differentiation.

We have now identified a portfolio of new business opportunities beyond the core. These are maturing inside our three divisions. We have assigned dedicated resources to develop our commercial offering and we are gearing up to grow and track those businesses with KPIs.

Inside Geoscience, we classify these new opportunities under digital, energy transition, and Environmental Geoscience. And one of our key initiatives in energy transition is to lever that geology and geophysics database to offer services around the identification and characterisation of CCUS and geothermal science. And we are seeing increasing interest and sales in this area.

We are also involved in several digital and environment projects aimed at digital transformation, crowd services, and pollution monitoring. Recent projects include several digital transformation pilots with our data hub services and environmental projects which included a study focussed on the identification and quantification of micro plastic pollution on the summit of Snowdon, the highest mountain in Wales.

Going on to slide 11.

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Geoscience order intake

This slide is actually an interesting zoom into Geoscience order intake which is made of high- end imaging of marine streamer and seabed data. In a CAPEX constrained environment, it is critical to our clients to have access to the more precise images that CGG imaging can provide to increase their opportunities for success.

Beyond the core, our order intake grew by 18% year-on-year, and we are excited to see traction forming around these new businesses.

Slide 12.

Advanced FWI algorithm providing superior image resolution

The Geoscience industry started in 2018, and every few years we bring a new breakthrough technology that drives the reprocessing of historical data. These breakthroughs are thanks to our unique capabilities and expertise in sophisticated algorithms and ultra-high-performance computing. Today the must-have technology is our industry unique full waveform inversion (FWI) imaging. And CGG's FWI provides very detailed structural information that was not discernible historically, as you can see this Barents Sea image.

Next one, which is 12.

Critical insight for mine waste management

Interest in our new beyond the core businesses is significantly increasing and represented more than 10% of our total bids pending at then end of September.

Today, I would like to highlight one of our business solutions which is related to the mining industry.

With our technologies combining satellite imaging and multi-physics processing we can characterise and monitor tailings storage areas which are a potential hazard and a liability for the mining company.

We successfully applied our technology on a landmark project for a global mining company using airborne electromagnetic 3D imaging over an area with 15 mining sites in Brazil which enabled the clear delineation of the dam and storage areas, providing a baseline for monitoring, as the cell sensor technology can be combined with our satellite and multi-physics capabilities to provide a robust long-term monitoring and real-time risk reduction solution.

Moving on to Multi-client now.

Multi-client Key Business Indicators

Multi-client cash CAPEX was $57 million this quarter, stable year-on-year and dedicated to marine multi-client programmes. In Q3, we had three vessels working on multi-client programmes, two on a five-month 3D multi-client programme in the Norwegian North Sea and one in Brazil on our ongoing Nebula project. We also had five reprocessing projects this quarter, including a new one in the Gulf of Mexico. The increase this quarter was partially driven by a catch up in pre-funding, taking our year-to-datepre-funding rate to 70%.

Now, on slide 15.

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