Strong Improvement in CGGVeritas Third Quarter 2012 Results

Strong Improvement in CGGVeritas Third Quarter 2012 Results

Acquisition of Fugro's Geoscience Division on Track

PARIS--(BUSINESS WIRE)-- Regulatory News:


CGGVeritas (Paris:GA) (NYS: CGV) announced today its non-audited third quarter 2012 consolidated1 results. All comparisons are made on a year-on-year basis unless stated otherwise.

Third quarter results

  • Revenue totaled $855 million, up 7%
  • Operating income increased by 17% to $114 million, a 13% margin
  • Services operating income was at $62 million, a 10% margin
  • Sercel operating income was at $93 million, a 33% margin

Acquisition of Fugro's Geoscience Division on track

  • The closing of the acquisition of Fugro's Geoscience Division is still expected by the end of the year or by early 2013
  • This acquisition remains currently subject to the approval of anti-trust authorities in the United Kingdom, in Norway, in Turkey and in Australia and to the work's council consultation
  • The Rights Issue of 414 million euros launched last September 26th was successful, having been 195% oversubscribed

Signature of a collaborative relationship agreement with Baker Hughes

  • CGGVeritas announces today a collaborative relationship agreement with Baker Hughes on the shale plays in order to develop a complete range of services using reservoir models with calibrated seismic data
  • This collaboration could help oil and gas companies to accurately pinpoint reservoir "sweet spots" and optimize well placement and completion design earlier in the asset lifecycle for more efficient well construction and more productive wells

CGGVeritas CEO, Jean-Georges Malcor, commented:

"As expected, quarter after quarter, CGGVeritas continues to strengthen its results, reflecting the improvement in our operational performance as well as the increase in marine prices.

The acquisition of Fugro's Geoscience Division is on track. Our capital increase with preferential subscription rights was favorably received by our shareholders who recognize that this operation will transform CGGVeritas into a fully integrated company in Geology, Geophysics and Reservoir.

We are also very pleased by the collaborative relationship agreement with Baker Hughes in the shale plays. This agreement is in line with our strategy of positioning our company on the entire value chain of Geoscience and to fully benefit from this favorable phase of the cycle.

For the end of the year, our multi-client activity should benefit from the recent announcement of lease sales in the Gulf of Mexico and Brazil and from the 27th round awards in the North Sea, after two exceptionally weak quarters. In this context, and with a fourth quarter expected to be strong across our activities, we confirm our 2012 objectives.

Looking forward, the current buoyant commercial climate bodes well for this favorable cycle continuing for the seismic industry in 2013. "

1 Effective January 1, 2012, CGGVeritas changed the presentation currency of its consolidated financial statements from the euro to the U.S. dollar to better reflect the profile of an industry with revenues, costs and cash flows primarily generated in U.S. dollars. The first, second and third quarter 2011 figures shown in this press release have been restated as if the change in the Group presentation currency had been effective since January 1, 2004 (IFRS transition). In the context of our new presentation of cash indicators, first, second and third quarter 2011 EBITDAs and multi-client Capex figures have been restated

Third Quarter 2012 Results

Third Quarter 2012 Key Figures

   
Third Quarter Third Quarter
In million $   2012   2011*
Revenue   855   797
EBITDAs   278   248
Operating Income   114   98
Net Income   48   40
Cash Flow from Operations   171   113
Free Cash Flow   -39   -66
Backlog   1 280   1 240
 

*Restated figures

  • Group revenue was $855 million, up 7% year-on-year and up 3% sequentially.
  • Group operating income was $114 million, up 17% year-on-year and up 35% sequentially and representing a 13% margin:
    • Sercel operating income totaled $93 million, which was stable sequentially and its margin stood at 33%.
    • Services operating income increased significantly to $62 million, mainly due to the increase in marine prices. This represented a 10% margin, the highest since the first quarter of 2009.
  • The contribution from equity investees was at $13 million, up 25% sequentially. This is mainly due to the strong performance of Argas, particularly the favorable start of the KJO contract, which was originally expected to be operated by Ardiseis.
  • Net income totaled $48 million, compared to $40 million in the third quarter of 2011.
  • Earnings Before Interest Tax Depreciation and Amortization (EBITDAs) was at $278 million, up 12% year-on-year and up 22% sequentially.
  • Cash flow from operations was $171 million, up 51% year-on-year.
  • Total Capex represented $196 million this quarter, Industrial Capex represented $70 million and Multi-Client Capex reached $126 million with 28% of the fleet being dedicated to multi-client programs. The level of multi-client prefunding was 71% this quarter.
  • After payment of interest and high capital expenditure especially in our multi-client activity, net free cash flow was negative at $39 million.
  • Backlog was at $1.280 billion at the end of September 2012, slightly up year-on-year, up in Services at $1.070 billion and down at Sercel at $210 million.

Third Quarter 2012 Financial Results

Third Quarter 2012 key figures

   
In million $   Second Quarter

2012

 

Third Quarter

2012

  2011*
Group Revenue   831   855   797
Sercel   285   283   275
Services   599   634   592
Group Operating Income   85   114   98
Margin   10%   13%   12%
Sercel   92   93   87
Margin   32%   33%   31%
Services   19   62   53
Margin   3%   10%   9%
Net Income   34   48   40
Margin   4%   6%   5%
Net Debt 1 600 1 660   1 543
Net Debt to Equity Ratio 42% 43% 41%
Net Debt to LTM EBITDAs Ratio   1.7x   1.7x   1.8x
 

*Restated figures

Revenue

Group revenue was up 7% year-on-year and up 3% sequentially. Services revenue was up 7% year-on-year, and Sercel revenue up 3%.

In million $   Second Quarter   Third Quarter
  2012   2012   2011*
Group Revenue   831   855   797
Sercel Revenue   285   283   275
Services Revenue   599   634   592
Eliminations   -54   -62   -70
Marine contract   288   257   291
Land contract   112   138   68
Processing   113   123   113
Multi-client   87   117   119
Marine MC   52   52   83
Land MC   35   64   36
 

*Restated figures

Sercel

Total revenue rose by 3% year-on-year and was stable sequentially. External revenue increased by 8%. Total equipment sales were well distributed between the Americas, Europe, CIS, China and Asia Pacific. 47% of total sales were dedicated to marine equipment driven by the delivery of a large number of Sentinel® solid streamer sections while land equipment sales remained at a high level. As of October 1st, Sercel backlog was down following strong marine sales during the month of September. Internal sales totaled $62 million and represented 22% of total revenue.

Services

Revenue was up 7% year-on-year and up 6% sequentially. This growth in revenue is mainly due to a strong operational performance, an increase in marine prices and a sustained level of activity in land and processing.

  • Marine contract revenue was down 12% year-on-year and down 11% sequentially due to a larger share of our fleet being dedicated to our multi-client activity. This quarter was characterized by the positive impact of price increases and by the continued improvement in our marine operating performance with our vessel production rate2 above or equal to 90% for the third consecutive quarter. During the quarter, four 3D vessels were operating in the North Sea on BroadSeisTM projects. Two vessels were operating in West Africa, four in Asia including one in the China Sea for a BroadSeisTM acquisition program. In America, the Alize vessel continued with its program in the Mexican waters of the Gulf of Mexico and one vessel was operating off French Guyana.
    Four vessels were dedicated to multi-client activities this quarter. The Viking ended its acquisition program in Brazil. The Oceanic Vega and Sirius began acquiring the first multi-client program deploying StagSeisTM, the new CGGVeritas marine acquisition solution offering full azimuth coverage and long-offsets for deep subsalt imaging, in the Mexican waters of the Gulf of Mexico. The Oceanic Endeavour completed a multi-client survey off Angola.
  • Land contract revenue was up 102% year-on-year and 23% sequentially.
    This quarter, eleven crews operated in North America including four crews operating on multi-client programs and thirteen in the rest of the world. Activity was sustained in Alaska and in the Lower 48. We continued with our strategy to focus on high-end land activity by leaving South America where we terminated our activities in Columbia. Our operations in North Africa have started-up in Tunisia and Algeria. In the Middle-East, our land and Ocean Bottom-Cable (OBC) operations maintained high productivity and we were awarded a contract for an acquisition program between Kuwait and Saudi Arabia ('the KJO contract'). Originally expected to be executed by Ardiseis, a majority-owned subsidiary, this contract is finally operated by Argas, the corresponding operating income - $3 million this quarter - being then recorded within the income of companies accounted for under equity method.
  • Processing, Imaging & Reservoir revenue was up 9% year-on-year and 9% sequentially. Demand for high-end processing is increasing, supported by high-resolution surveys and by the growth of BroadSeisTM surveys. The BroadSeisTM pricing premium is shared between marine and processing. This high level of activity in Processing, Imaging & Reservoirindicates our recent strategic decision to acquire of Fugro's Geoscience Division.
  • Multi-client revenue was almost stable year-on-year and up 35% sequentially. Capex was $126 million with a prefunding rate of 71%, despite some clients postponing formal commitments to the next quarter. With a depreciation rate averaging 80%, this quarter, the Net Book Value at the end of September 2012 totaled $613 million compared to $560 million at the end of June 2012.
    • Marine multi-client revenue was at $52 million, down 37% year-on-year. Prefunding revenue was $33 million and after-sales were at $20 million. Capex was $87 million and was concentrated on Brazil, Angola and the Gulf of Mexico where we started our IBALT multi-client program with our new StagSeisTM technology. With a depreciation rate at 73% this quarter, the Net Book Value at the end of September 2012 totaled at $476 million.
    • Land multi-client revenue significantly increased to $64 million, up 77% year-on-year. Prefunding revenue was at $57 million and after-sales were at $8 million. Capex was $39 million dedicated with the continuation of our Marcellus program where we registered a very strong operational performance. With a depreciation rate at 85%, the Net Book Value at the end of September 2012 totaled at $137 million.

2 - The, a metric measuring the effective utilization of the vessels once available; this metric is related to the entire fleet, and corresponds to the available time reduced by the operational downtime, all then divided by available time.

Group EBITDAs was $278 million, up 12% year-on-year and up 22% sequentially with a 32% margin.

  Second Quarter   Third Quarter
In million $   2012   2012   2011*
Group EBITDAs   228   278   248
Margin   27%   32%   31%
Sercel EBITDAs   103   105   100
Margin   36%   37%   36%
Services EBITDAs   150   210   187
Margin   25%   33%   32%
 

*Restated figures

Group Operating Income was $114 million, up 35% sequentially and up 17% year-on-year with a 13% margin.

  Second Quarter   Third Quarter
In million $   2012   2012   2011*
Group Operating Income   85   114   98
Margin   10%   13%   12%
Sercel Operating Income   92   93   87
Margin   32%   33%   31%
Services Operating Income   19   62   53
Margin   3%   10%   9%
 

*Restated figures

Financial Charges

Financial charges were $38 million and corresponded mainly this quarter to the sole Cost of Debt. The total amount of interest paid during the quarter was $7 million.

Taxes were at $41 million.

After the impact of income in companies accounted for under equity method totaling $13 million, Group Net Income stood at $48 million compared to $40 million in the third quarter of 2011.

Net Income attributable to the owners of CGGVeritas was at $44 million/€35 million after the impact of minority interests totaling $4 million/€3 million. EPS was positive at €0.23 per ordinary share and positive at $0.29 per ADS.

Cash Flow

Cash Flow from Operations

Cash flow from operations was at $171 million, up 51% compared to $113 million in the third quarter of 2011.

Capex

Global Capex stood at $196 million this quarter, up 13% year-on-year.

  • Industrial Capex was $70 million, down 33% year-on-year.
  • Multi-client Cash Capex was $126 million, up 83% year-on-year with a 71% prefunding rate.
In million $   Second Quarter   Third Quarter
  2012   2012   2011*
Capex   179   196   173
Industrial   97   70   104
Multi-client Cash 82 126   69
Marine MC 41 87 22
Land MC   41   39   46
 

*Restated figures

Free Cash Flow

After the payment of interest expenses during the quarter and particularly high Capex, especially in marine multi-client, net free cash flow was negative at $39 million compared to a negative free cash flow of $66 million in the third quarter of 2011.

Third Quarter 2012 Comparisons with Third Quarter 2011

Consolidated Income Statement   Second Quarter   Third Quarter
In million $   2012   2012   2011*
Exchange rate euro/dollar   1.298   1.249   1.439
Operating Revenue   831.0   855.0   796.7
Sercel   285.2   282.9   275.1
Services   599.4   633.9   591.8
Elimination   -53.6   -61.8   -70.2
Gross Profit   177.8   195.1   158.6
Operating Income   84.6   114.3   97.7
Sercel   91.7   92.5   86.5
Services   19.3   61.6   52.8
Corporate and Elimination   -26.4   -39.8   -41.6
Net Financial Costs   -34.0   -38.3   -32.3
Income Tax   -24.1   -41.0   -19.0
Deferred Tax on Currency Variations   -2.8   0.2   -7.7
Income from Equity Investments   10.1   12.6   1.8
Net Income   33.8   47.8   40.5
Earnings per share (€)   0.15   0.23   0.18
Earnings per ADS ($)   0.19   0.29   0.25
EBITDAs   228.0   277.5   248.0
Sercel   102.5   104.6   100.3

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