CGG : Announces its 2015 Fourth Quarter & Full-Year Results

CGG Announces its 2015 Fourth Quarter & Full-Year Results

In difficult market conditions:

High Q4 multi-client sales

Solid 2015 EBITDA at $661m

Successful €350m capital increase

FY 2015: Positive Operating Income¹ and solid EBITDAs¹

driven by a strong Q4

• Revenue at $2,101m
• EBITDAs¹ at $661m driven, as expected, by a strong Q4 at $282m
• Group Operating Income¹ at $19m
  • GGR: solid operational margin at 22.2% with resilient multi-client volumes and a strong cash prefunding rate of 102%
  • Contractual Data Acquisition: (25)% operating margin impacted by severe marine market conditions
  • Equipment: a 6% operating margin with low volumes
• Net income at $(1,446)m after $(1,177)m impairment and non-recurring charges
• Capex down 52% y-o-y, at $415m and Free Cash Flow¹ at $(9)m
• Net debt at $2,500m corresponding to a leverage ratio at 3.8x

Transformation Plan: Implementation on track
Refinancing completed and successful capital increase

• Transformation Plan on track: Marine fleet reduced to 8 vessels end-2015. Total reduction since 2013 year-end of (64)% in marine costs, (54)% in G&A expenses, Capex divided by two and departure of 3,700 employees
• Successfully issued a $342 m secured 2019 Term Loan to refinance 94% of HYB 2017 and Fugro Loan
• Full reset of Financial Covenant and extension of French RCF to mid-2018
• Successful completion of €350m rights offering leading to a year-end 2015 Group Liquidity at $791m, on a pro-forma basis   

2016 Outlook: Focus on cash management in a still difficult environment

• GGR to represent over 60% and Contractual Data Acquisition down to less than 15% of future Group revenue, with a fleet down to 5 vessels by end of Q1
• 2016 capex: Industrial at $100/125m and cash multi-client at $325m/$375m with prefunding rate above 70%
• Year-end net debt targeted below $2.4bn

  1Figures before Non-Recurring Charges related to the Transformation Plan

    

PARIS, France - March 3^rd 2016 - CGG (ISIN: 0000120164 - NYSE: CGG), world leader in Geoscience, announced today its 2015 fourth quarter and full-year results.

Commenting on these results, Jean-Georges Malcor, CGG CEO, said:

"In a very difficult market environment, CGG has delivered a satisfactory level of EBITDAs in the fourth quarter of 2015, due to the strong performance of its multi-client library and the resilience of its Equipment segment.
In 2015, with a sustained level of EBITDAs at 661 million dollars and good discipline in Capex spending, free cash-flow generation improved significantly compared to 2014, underlining our consistent efforts to preserve cash throughout the year.
At the same time, the Group refinanced its debt and successfully completed a capital increase of 350 million euros in February 2016. This enables CGG to start 2016 with $791m liquidity on a pro-forma basis.
2016 will remain difficult with a very weak start of the year. In this context, the Group is resolutely implementing its Transformation Plan, particularly with the reduction in its fleet to 5 vessels by the end of the first quarter of 2016. Contractual Data Acquisition will gradually decline to less than 15% of Group revenue, while GGR will represent more than 60 %. By implementing very rigorous cash management, we target a net debt of less than 2.4 billion dollars by the end of the year.

CGG is refocusing on its high-added value Geoscience businesses while reducing its exposure in its cash-burning activities. In the current, strongly deteriorated market conditions, I would like to emphasize the strong mobilization of all our employees to even better serve our clients and provide solutions to their new challenges, with the same standards of reliability and excellence."

Fourth quarter 2015 results

• Revenue at $589m, up 25% sequentially
• Operating income, before Non-Recurring Charges (NRC), at $21.1m
• EBITDAs at $281.6m, and positive Free Cash Flow before NRC at $52m
• Following the strong deterioration in market conditions and our implementation of the new step in our Transformation Plan announced in November 2015, Non-Recurring Charges of $(187)m were booked in Q4 as restructuring costs, mainly related to redundancies
• Net Income at $(256)m after NRC

Post-closing events

Successful completion of a €350m rights offering on February 5^th 2016 related to the new step in our Transformation Plan. CGG capital is now made up of 708,260,768 shares.

Following the completion of the rights offering, effectiveness of the amendment and restatement of the US and French Revolving Credit signed on January 10^th 2016.

Fourth Quarter 2015 Key Figures

Before Non-Recurring Charges (NRC)

Full-Year 2015 Key Figures

Before Non-Recurring Charges (NRC)

Fourth Quarter 2015 Financial Results by Operating Segment and before non-recurring charges

Equipment

Equipment Total Revenue was $103 million, down 53% year-on-year and stable sequentially. The level of Q4 sales was similar to the previous quarter as the usual seasonal rebound did not take place this year. Land and marine equipment sales were still impacted by low volumes in a still difficult market. Marine equipment sales represented 26% of total sales, compared to 29% in the third quarter of 2015. Internal sales are nearly stable sequentially, representing 8% of total sales this quarter compared to 7% in the third quarter of 2015. External sales were $94 million, slightly down compared to $96 million in the third quarter of 2015.

Equipment EBITDAs was $11 million, a margin of 10.4%.

Equipment Operating Income was at equilibrium, due to an unfavorable product mix with a low electronic content.

Equipment Capital Employed was $0.6 billion at the end of December 2015.

Contractual Data Acquisition

*Restated under the new reporting format announced on November 5^th 2015

Contractual Data Acquisition Total Revenue was $114 million, down 45% year-on-year and 25% sequentially.

• Contractual Marine Acquisition revenue was $70 million, down 59% year-on-year and 36% sequentially. Our vessel availability rate was 92%. This compares to a 84% availability rate in the third quarter of 2015 and a 87% rate in the fourth quarter of 2014. Our vessel production rate was 89%. This compares to a 92% production rate both in the third quarter of 2015 and the fourth quarter of 2014.
   
• Land and Multi-Physics Acquisition revenue was $44 million, up 13% year-on-year and 6% sequentially.

Contractual Data Acquisition EBITDAs was $(29) million, a margin of (25.3)%.

Contractual Data Acquisition Operating Income was $(53) million. Land and Multi-physics broke even this quarter and Marine continued to suffer from a very difficult market. Cost-cutting efforts were partially able to compensate for falling prices.

The contribution from Investments in Equity was $(5) million and can be mainly explained by the negative contribution from the Seabed Geosolutions and Argas JVs.

Contractual Data Acquisition Capital Employed was $0.7 billion at the end of December 2015.

Geology, Geophysics & Reservoir (GGR)

*Restated under the new reporting format announced on November 5^th 2015

GGR Total Revenue was $385 million, down 21% year-on-year and up 70% sequentially.

• Multi-client revenue was $243 million, down 19% year-on-year and up 190% sequentially. 27% of the fleet was dedicated to multi-client programs compared to 36% in Q4 2014 and 33% in Q3 2015.
   
  • Prefunding revenue was $108 million, down 52% year-on-year and up 91% sequentially. Multi-client cash capex was at $66 million, down 35% year-on-year and 3% sequentially. The cash prefunding rate was at 164% versus 83% in Q3 2015 and 222% in Q4 2014.
  • After-sales revenue was $135 million, up 82% year-on-year and 394% sequentially.
     
• Subsurface Imaging & Reservoir revenue was $142 million, down 26% year-on-year and 1% sequentially. Some delays in Capex spending were still impacting Subsurface Imaging and Reservoir revenues. However GeoSoftware and GeoConsulting benefited from the usual year-end catch up.

GGR EBITDAs was $312 million, a 81.1% margin.

GGR Operating Income was $101 million, a 26.3% margin. The multi-client depreciation rate totaled 62%, leading - after the sale of the Canadian Library completed by October-end 2015 - to a library Net Book Value of $927 million at the end of December, split 12% onshore and 88% offshore.

GGR Capital Employed was $2.5 billion at the end of December 2015.

Non-Operated Resources

*Restated under the new reporting format announced on November 5^th 2015

The Non-Operated Resources Segment comprises the costs relating to non-operated Marine assets as well as transformation costs. The capital employed for this segment includes the non-operated Marine assets and the provisions relating to the Group Transformation Plan.

Non-Operated Resources EBITDAs was nil.

Non-Operated Resources Operating Income was $(14) million. The gradual cold-stacking of vessels is negatively impacting the contribution of this segment.

Non-Operated Resources Capital Employed was close to nil at the end of December 2015, the book value of non-operated assets being largely balanced out by the provisions relating to the Transformation Plan.

Fourth Quarter 2015 Financial Results

Group Total Revenue was $589 million, down 35% year-on-year and up 25% sequentially. The respective contributions from the Group's businesses were 16% from Equipment, 19% from Contractual Data Acquisition and 65% from GGR.

Group EBITDAs was $282 million, a margin of 47.8%. After NRC, Group EBITDAs was $111 million.

Group Operating Income was $21 million, a margin of 3.6%. After NRC, Group Operating Income was $(166) million.

Equity from Investments contribution was $(6) million and can be mainly explained by the negative contribution this quarter from the Seabed Geosolutions and Argas JVs.

Total non-recurring charges were $187 million:

• $171m of other restructuring costs, mainly related to redundancies
• $16m of asset impairments

Net financial costs were $90 million:

• Cost of debt was $45 million. The total amount of interest paid during the quarter was $52 million
• Other financial items were a negative contribution of $45 million, mainly due to the depreciation of our financial stake in Geokinetics

Total Income Taxes were positive at $5 million.

Group Net Income was $(256) million after NRC.

After minority interests, Net Income attributable to the owners of CGG was a loss of $(259) million / €(239) million. EPS was negative at $(1.46) / €(1.35).

Cash Flow

Cash Flow from operations was at $167 million compared to $382 million for the fourth quarter of 2014. After NRC, the cash flow from operations was $118 million.

Global Capex was $96 million, down 39% year-on-year and up 1% sequentially.

• Industrial capex was $17 million, down 59% year-on-year and 24% sequentially
• Research & Development capex was $13 million, down 11% year-on-year and up 61% sequentially
• Multi-client cash capex was $66 million, down 35% year-on-year and 3% sequentially

After the payment of interest expenses and Capex and before Non-Recurring Charges, free cash flow was positive at $52 million compared to $187 million for the fourth quarter of 2014. After NRC, Free Cash Flow was positive at $3 million.     

Comparison of Fourth Quarter 2015 with Third Quarter 2015 and Fourth Quarter 2014

*Restated under the new reporting format announced on November 5^th 2015

Full-Year 2015 Financial Results

Group Total Revenue was $2.101 billion, down 32% compared to 2014 due to weakening market conditions and perimeter effects. The respective contributions from the Group's businesses were 19% from Equipment, 28% from Contractual Data Acquisition and 53% from GGR.

Group EBITDAs was $661 million, down 34% and representing a 31.4% margin. After NRC, Group EBITDAs was $453 million.

Group Operating Income was $19 million, a margin of 0.9%. After NRC, Group Operating Income was $(1,158) million. Market conditions deteriorated over the year with a slowdown in client Capex spending and a continued postponement of projects.

• The Operating Income margin for Equipment was at 5.9%. The Equipment segment showed some resilience to the market downturn and lower volumes, notably increasing its market-share. This was due to very efficient cost management and manufacturing flexibility.
   
• The Operating Income margin for Contractual Data Acquisition was at (25.3)% (excluding NRC), despite a high production rate at 92% and a good operational performance. The financial performance of our Contractual Data Acquisition segment was impacted by very difficult pricing conditions in marine and a lower vessel availability rate at 83% compared to 92% in 2014.
   
• The Operating Income margin for GGR was at 22.2% with a solid performance shared by all the businesses. Multi-Client activity reached $546 million with a cash prefunding rate of 102%. Offshore multi-client sales were split between 25% in the Gulf of Mexico, 25% in the North Sea, 20% in Brazil, and 30% in the rest of the world. The multi-client depreciation rate totaled 60%, leading to a Net Book Value of $927 million at the end of December. Subsurface Imaging delivered a good performance, particularly in North America, despite some delays in clients' Capex spending.

Equity from Investments contribution was $21 million and can be mainly explained by the positive contributions this year from the Seabed Geosolutions and Argas JVs.

Total non-recurring charges were $1,177 million including:

• $804m goodwill impairment
• $208m of other restructuring costs, mainly related to redundancies
• $165m of asset impairments, mainly vessel-related

Net financial costs were $233 million:

• Cost of debt was $179 million. The total amount of interest paid was $154 million
• Other financial items showed a loss of $54 million, mainly due to the depreciation of our financial stake in Geokinetics

Total Income Taxes were $77 million, including $48m depreciation of our French deferred tax assets on past losses.

Group Net Income was $(1,446) million after NRC.

After minority interests, Net Income attributable to the owners of CGG was a loss of $(1,450) million / €(1,302) million. EPS was negative at $(8.19) / €(7.35).

Cash Flow

Cash Flow from operations was $529 million before NRC and $408 million after NRC.

Global Capex was $415 million, down 52% year-on-year.

• Industrial capex was $89 million, down 60% year-on-year
• Research & Development capex was $41 million, down 27% year-on-year
• Multi-client cash capex was $285 million, down 51% year-on-year

After the payment of interest expenses and Capex and before Non-Recurring Charges, free cash flow was negative at $(9) million compared to $(76) million for the year of 2014. After NRC, Free Cash Flow was negative at $(130) million.              

Balance Sheet 

Net Debt to Equity Ratio:

Group gross debt was $2.885 billion at the end of December 2015. Available cash was $385 million and Group net debt was $2.500 billion.

Net debt to shareholders equity ratio, at the end of December 2015, was 191% compared to 90%, at the end of December 2014.

The Group's liquidity, corresponding to the sum of the cash balance and the undrawn portion of the revolving credit facilities, amounted to $421m at the end of December 2015.

At December-end 2015 Net Debt/EBITDAs ratio was at 3.8x.

Full-Year 2015 Comparisons with Full-Year 2014

*Restated under the new reporting format announced on November 5^th 2015

Other information

• Q4 and Full-year 2015 consolidated financial statements were approved by the Board on March 2, 2016. As of today, the audit procedures of the financial statements were carried out and the auditors' report will be issued in connection with the filing of the 20-F with the SEC.
   
• On March 2, 2016, CGG received notice from the New York Stock Exchange, Inc. (NYSE) that it is no longer in compliance with the NYSE's continued listing standards because the average per share closing price of CGG's American Depositary Shares (ADS) for the consecutive 30 trading-day period ending on March 1, 2016 was below the NYSE's price requirement of $1.00 per security.

The company intends to notify the NYSE of its intention to cure the deficiency within the prescribed time frame of six months from receipt of the NYSE notice on March 2, 2016. The company's ADSs will continue to be listed and traded on the NYSE, subject to compliance with the other NYSE continued listing standards and oversight by the NYSE. The NYSE notification does not affect the company's business operations or its legal and regulatory reporting requirements.

Q4 & FY 2015 Conference call

An English language analysts' conference call is scheduled today at 9:00 am (Paris time) - 8:00 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 over 7,000 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: 0000120164) and the New York Stock Exchange (in the form of American Depositary Shares. NYSE: CGG).

Contacts

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

CONSOLIDATED STATEMENTS OF OPERATIONS

______________

1. Converted at the average exchange rate of US$ 1.1138 and US$ 1.3328 per € for the periods ended December 31, 2015 and 2014, respectively.
2. As our net result was a loss, stock-options, performance shares plans and convertible bonds had an accretive effect; as a consequence, potential shares linked to those instruments were not taken into account in the dilutive weighted average number of shares, or in the calculation of diluted loss per share.

CONSOLIDATED STATEMENTS OF OPERATIONS

______________

1. Corresponding to the full year amount in euros less the nine months amount in euros.
2. As our net result was a loss, stock-options, performance shares plans and convertible bonds had an accretive effect; as a consequence, potential shares linked to those instruments were not taken into account in the dilutive weighted average number of shares, or in the calculation of diluted loss per share.

ANALYSIS BY SEGMENT 

 ___________________

1. Share of operating results of companies accounted for under equity method were U.S.$38.3 million and U.S.$(68.2) million for the year ended December 31, 2015 and 2014, respectively.
    
2. At the Group level, Operating Income and EBIT before costs related to the Transformation Plan amounted to U.S.$19.1 million and U.S.$40.5 million, respectively, for the year ended December 31, 2015, compared to U.S.$241.9 million and U.S.$160.2 million, respectively, for the year ended December 31, 2014.

For the year ended December 31, 2015, Contractual Data Acquisition EBIT includes:
             (i)      U.S.$(365.0) million of  marine goodwill depreciation;
             (ii)     U.S.$(110.0) million relating to impairment of marine equipment;
             (iii)    U.S.$(33.0) million relating to other intangible assets impairment;
             (iv)   U.S.$(10.9) million relating to tangible assets impairment.

For the year ended December 31, 2014, Contractual Data Acquisition EBIT included:

1. U.S.$(415.0) million of marine goodwill depreciation;
2. U.S.$(64.7) million relating to tangible assets impairment;
3. U.S$(107.0) million impairment of our investment in the SBGS JV (Seabed Geosolutions BV) accounted for under equity method.

For the year ended December 31, 2015 and 2014, respectively, Non-Operated Resources EBIT included U.S.$(207.8) million and U.S.$(218.0) million related to the Transformation Plan.

For the year ended December 31, 2015, GGR EBIT also includes:
             (i)      U.S.$(438.8) million related to GGR CGUs goodwill depreciation;
             (ii)     U.S.$(41.8) million impairment of multi-client surveys;
             (iii)    U.S.$(11.2) million impairment of intangibles assets.

For the year ended December 31, 2014, GGR EBIT included a U.S.$(113.0) million impairment of multi-client surveys notably in Brazil (2007-2009 surveys) and North Sea.

For the year ended December 31, 2014, Equipment EBIT included a U.S.$(21.7) million impairment of intangible assets.

For the year ended December 31, 2015, "eliminations and other" includes U.S.$(38.6) million of general corporate expenses and U.S.$(30.6) million of intra-group margin. For the year ended December 31, 2014, "eliminations and other" included U.S.$(65.5) million of general corporate expenses and U.S.$(101.0) million of intra-group margin.

3. Capital expenditures included capitalized development costs of U.S.$(41.5) million and U.S.$(56.8) million for the year ended December 31, 2015 and 2014, respectively. "Eliminations and other" corresponds to the variance of suppliers of assets for the period.

1. Share of operating results of companies accounted for under equity method were U.S.$4.2 million and U.S.$(36.3) million for the three months ended December 31, 2015 and 2014, respectively.
    
2. At the Group level, Operating Income and EBIT before costs related to the Transformation Plan amounted to U.S.$21.1 million and U.S.$15.5 million, respectively, for the three months ended December 31, 2015, compared to U.S.$110.8 million and U.S.$69.0 million, respectively, for the three months ended December 31, 2014.

For the three months ended December 31, 2015, Contractual Data Acquisition EBIT includes U.S.$(16.3) million relating to impairment of marine equipment and other intangible assets.

For the three months ended December 31, 2014, Contractual Data Acquisition EBIT included:
         (i)       U.S.$(415.0)  million of  marine goodwill depreciation;
         (ii)      U.S.$(38.6) million relating to impairment of marine equipment mainly;

For the three months ended December 31, 2015, and 2014, respectively, Non-Operated Resources EBIT included U.S.$(170.4) million and U.S.$(113.6) million related to the Transformation Plan.

For the three months ended December 31, 2015, and 2014, respectively, GGR EBIT included U.S.$(41.8) million and  U.S.$(76.2) related to impairment of multi-client surveys.

For the three months ended December 31, 2015, "eliminations and other" includes U.S.$(11.6) million of general corporate expenses and U.S.$(1.5) million of intra-group margin. For the three months ended December 31, 2014, "eliminations and other" included U.S.$(22.0) million of general corporate expenses and U.S.$(9.4) million of intra-group margin.

3. Capital expenditures included capitalized development costs of U.S.$(12.4) million and U.S.$(13.8) million for the three months ended December 31, 2015 and 2014, respectively. "Eliminations and other" corresponds to the variance of suppliers of assets for the period.

CONSOLIDATED STATEMENTS OF CASH FLOWS