CGG : Transcript T4 2020

Full Year 2020 & Q4 Results Conference Call

Friday, 5th March 2021

Introduction and Agenda

Christophe Barnini

Group Communications and Investor Relations

Good morning, ladies and gentlemen. Welcome to this presentation of CGG's Q4 and Full-Year 2020 results. The call today is hosted from Paris, where Mrs Sophie Zurquiyah, our CEO, and Mr Yuri Baidoukov, our Group CFO, will provide an overview of the Q4 and full-year results as well as provide comments on our outlook.

As a reminder, some of the information contains forward-looking statements subject to risk and uncertainties 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 and of the full-year results, we will be pleased to take your questions.

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

Full-Year Results Overview

Sophie Zurquiyah

CEO

Yes, thank you, Christophe and good morning, ladies and gentlemen. Thank you for participating in this Q4 2020 conference call. Our presentation will cover our Q4 and full-year 2020 operational and financial results. So I am on slide 5 now, and I will start with a few remarks on 2020.

2020 was a year of an extremely difficult business environment

During the year, we faced one of the worst crises, based on its brutality, speed and magnitude, that the industry has ever seen. Our clients reacted very rapidly to the COVID pandemic, and by the end of Q1, had started to cut CAPEX dramatically. This led to around 30% reductions for the full year, which is, in fact, closer to 50% if we just look at Q2, Q3, Q4 combined.

Throughout 2020 most of our large international oil and gas company clients focused on reorganising and reassessing the oil and gas portfolio for cost reductions and postponements. The activity was paused, and only critical projects moved forward. In Europe, we also saw many reposition themselves as energy providers, strengthening the development of their renewable energy roadmap.

Our business continuity at CGG across the challenging year was exceptional. Our processing centres and manufacturing plants continue to operate without interruptions, and we executed all of our multiclient programmes offshore and onshore thanks to continued client interest, our business continuity plans and our strong acquisition partners.

2020 was a true test of the resilience of the newly repositioned CGG out of acquisition and onto its leading and differentiated businesses, which I would call quite successful.

CGG's response to 2020 crisis

Moving on to slide 6, looking at how CGD responded, along with our excellent efforts to maintain business continuity. First, I am very pleased with our timely completion of the exit from the acquisition business in the first quarter of 2020 and our focus on our core business lines. In 2020, in a shrinking market, we reinforced our market share in all core businesses.

In geoscience, as demand for reservoir development and production optimisation was accelerating, our unique best-in-class technology geared towards high-density data sets was well-positioned. In multiclient, all our 2020 surveys were focused on mature producing sedimentary basins and had good client support, and in equipment we delivered over 360,000 land channels and enlarged our installed base.

In 2020 we also quickly adjusted our costs, adapted to our clients' rapidly changing activity levels, while preserving our differentiated capabilities. Our segment-free cash flow was positive at $50 million before change in working capital.

Overall, the past year validates our strategic roadmap and now as markets gradually strengthen, we can look forward to building the future. I believe that CGG's new strategic rationale and value in our industry were confirmed in 2020 and remain strong looking forward.

Operational Review

Q4 & FY key highlights

After a low Q2 and Q3, the last quarter saw a seasonal uptick of 41% compared to the average of Q2, Q3. This came from strong multiclient and equipment sales. Full-year segment revenue was $955 million, down 32% compared to last year and in line with our clients' reductions of E&P CAPEX.

I know one of the concerns of our investors is our exposure to exploration, which has now reduced to less than 25% of our revenue. Most of our activity is driven by development and production, and our revenue dynamics are a proof of that. Adjusted segment EBITDA margin was 43% for the quarter and 42% for the full year, which again demonstrates our resilience.

With a very high-level of revenue in December and an increasing inventory of land equipment for the two large mega crews awarded to our equipment division, change in working capital was highly negative at minus $88 million in Q4. The full year, segment-free cash flow was positive that $15 million before highly negative $89 million negative change in working capital. This puts our liquidity at $385 billion at the end December, which allows us to operate comfortably.

Q4 2020 operations by reporting segment

I will now cover our Q4 2020 operations by reporting segment, starting with GDR on slide 9. In Q4 2020, GDR revenue was $176 million, up 18% sequentially but down 36% from the previous year. Despite a significant decrease in revenue, GDR delivered a solid 63% adjusted EBITDA margin.

Geoscience key business indicators

Now, slide 10, in geoscience. In Q4, geoscience revenue was $75 million, down 2% quarter-on-quarter. As expected, geoscience production was more resilient than our other businesses because of its backlog coming into the crisis. The business was supported bymore stable activity for large independents and national oil companies along with a sequential increase in geo-software sales.

We also continued to experience sustained demand for our products and services for our client's reservoir development and optimisation activities. While we are privatised, most offshore development projects are continuing and require advanced imaging to optimally position production wells.

Our geo-software business was successful in retaining maintenance revenue, which also supported our performance. The business continuity of our geoscience division has been excellent. All projects throughout the pandemic were delivered on time with excellent quality and the total production per head was fairly stable at 238,000.

Geoscience operational highlights

Slide 11, for geoscience operational highlights. Advances in acquisition technology, particularly ocean-bottom nodes can provide the added data that is required for advanced processing to image complex subsurface structures, and this can make a big difference in the ultimate economics of a development project.

CGG's significant lead in imaging technology provides value to our clients, and it is why they tend to privilege CGG solutions when the stakes are high or in complex subsurface environments.

Our market share increased in 2020 to 41% thanks to our geoscience leading technology that continues to be recognised by our key clients and is also consistently rated number one in their supplier evaluations. As our clients reconsider reduction in their geoscience teams and reconsider the boundaries between internal and external imaging work, we see more interest in dedicated centre models in which they can secure a dedicated pool of people and access CGG's latest innovations.

We currently have seven such long-term contracts that allow a stronger partnership with our clients and provide visibility into future revenue streams. The most recent win was a three-year extension of our old mine, PDO centre, until 2024, and we have been providing value in this centre in that country since 1994.

Cloud masking of satellite imagery with deep learning

Slide 12. Looking at our technology this quarter, I would like to highlight satellite mapping, where through our unique capabilities, to harness the data from earth observation satellites to address a diverse range of challenges faced by the energy, mining, engineering, environment and defence sectors. In that case year[?], clouds can fully or partially mask the ground in satellite imagery. So most applications need to be identified and excluded from processing, which is a very time-intensive process.

Applying a deep-learning approach, we achieved results that outperformed the existing benchmark, allowing us to provide more accurate results from algorithms run on this type of data.

Barents Sea gas cloud imaging

Now onto slide 13. Still with geoscience technology. And that second example of technology is about the application of our latest imaging algorithms to resolve the subsurface under gas clouds. Takehavet is a large field in the Barents Sea surrounded by complex gas clouds,