Good day, thank you for standing by and welcome to the CGG Q3 2021 results conference call. Currently, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and one on your telephone. Please be advised that today's conference is being recorded. I would like to hand the conference now to your first speaker today, Mr. Christophe Barnini. Please go ahead, sir.
Thank you. Good morning, ladies and gentlemen. Good evening. Welcome to this presentation of CGG's third quarter 2021 results. The call today is 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. Starting today, CGG is changing its financial communication schedule. We will release our financial results after market close at 5:45 P.M. Paris time. This new financial communication schedule should be an opportunity for U.S. and U.K. investors and European investors to participate more largely in the conference call with the management. Let me remind you the forward-looking statements. 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 risks 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. Now I will turn the call over to Sophie.
Thank you, Christophe. Good morning, ladies and gentlemen, and thank you for participating in this Q3 2021 conference call. I'm on slide five now. Let me start with some general comments on our market environment. 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 are initiating some discussions around various shorter-term, lower carbon, lower cost exploration opportunities. National oil companies and independents remain more active in general and continue to gradually increase their activities. We operate today in a favorable macro environment as Brent oil price has stabilized 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 focused historically on upgrading their portfolios to reduce their break-even oil price. 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 favorable macro market environment that we see at current. Also, as the energy transition continues to move forward, we're seeing a regained interest in gas-producing areas. Overall, while our market is still challenging, we're 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 efficiencies into their value chains. These trends should support increased activity as we move into 2022 and onwards.
We see already that Geoscience is progressively recovering thanks to increased demand for our superior technologies and services. While sales in multiclient and equipment are lumpy by nature, they were both particularly stronger this quarter, driven by higher multiclient pre-funding and solid equipment deliveries in our new OBN system. Looking forward, we're expecting a solid Q4 for our three core businesses. Overall, and as anticipated, after a very low first half of the year, we're seeing both improved revenue and profitability in H2 2021 and expect this trend to continue forward. As you'll see in our numbers, we managed through the pandemic effectively, improving our profitability for the same revenue levels based on our cost reduction plans.
Earlier this year, I highlighted our initiatives focused 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. In early October, we sold our GeoSoftware business for a total cash consideration of EUR 95 million, and the sale of the physical asset storage business, along with the sale and leaseback of our headquarters building, are both progressing well. With expected solid fourth quarter activity, CGG is well-positioned to deliver its 2021 financial targets. Moving on to slide six. Our Q3 revenue of EUR 270 million was up 35% year-on-year and up 71% sequentially. Group segment EBITDA was EUR 118 million, a 44% margin due to solid business activities and sales mix.
At this level, we delivered a solid EUR 33 million operating income, representing a 12% margin. Segment free cash flow was EUR 2 million due to lower collections of receivables during the quarter after the weak second quarter revenue in 2021. It is a significant improvement from last year. Now let's look at our Q3 2021 operations in more detail by reporting segment. GGR segment revenue was stronger this quarter at EUR 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 operating margin also improved to 18% thanks to the sales mix and our cost saving measures, which continue to generate a positive impact. Going on to slide nine now. Q3 geoscience external revenue of EUR 77 million was flat year-on-year and up 5% sequentially.
Geoscience continued to show progressive recovery during the quarter, and some projects that we'd worked on pre-COVID came back in for reprocessing in anticipation of client production optimization 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 10. 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're gearing up to grow and track those businesses with KPIs. Inside Geoscience, we classify these new opportunities under digital, energy transition, and environmental geoscience. One of our key initiatives in energy transition is to leverage our geology and geophysics database to offer services around the identification and characterization of CCUS and geothermal sites, and we're seeing increasing interest in sales in this area. We are also involved in several digital and environmental projects aimed at digital transformation, cloud services, and pollution monitoring.
Recent projects include several digital transformation pilots with our Data Hub services and environmental projects, which included a study focused on the identification and quantification of microplastics pollution on the summit of Snowdon, the highest mountain in Wales. Going on to Slide 11. 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. The geoscience industry is fascinating, as 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's unique Full-Waveform Inversion imaging. CGG's Full-Waveform Inversion provides very detailed structural information that wasn't discernible historically, as you can see on this Barents Sea image. Next one, which is 12. Interest in our new beyond the core businesses is significantly increasing, and they represented more than 10% of our total bid spending at the end of September. Today, I'd like to highlight one of our business solutions which is related to the mining industry. With our technologies, combining satellite imaging and multiphysics processing, we can characterize and monitor tailing storage areas, which are a potential hazard and a liability for the mining companies.
We successfully applied our technology on a landmark project for a global mining company using airborne electromagnetic 3D imaging over an area with 15 mine sites in Brazil, which enabled a clear delineation of the dam and storage areas, providing a baseline for monitoring. Our S-Links sensor technology can be combined with our satellite and multiphysics capabilities to provide a robust long-term monitoring and real-time risk reduction solution. Moving on to multi-client now. Multi-client cash CapEx was EUR 57 million this quarter, stable year-on-year and dedicated to marine multi-client programs. In Q3, we had three vessels working on multi-client programs, two on a five-month 3D multi-client project in the Norwegian North Sea and one in Brazil on our ongoing Nebula project.
We had five multi-client reprocessing projects this quarter, including a new one in the Gulf of Mexico. The increase in revenue this quarter was partially driven by a catch-up in prefunding, taking our year-to-date prefunding rate to 70%. Now on slide 15. In Brazil, we secured significant prefunding for the ongoing Nebula program. In the North Sea, we had two vessels and one node crew active this quarter in the North Viking Graben, which is expected to drive Q3-Q4 prefunding. U.S. land activity this quarter was supported by client M&A activity, and we're seeing growing interest in U.S. onshore gas assets. This could drive further after sales. In the Gulf of Mexico, CGG is mainly focused on re-imaging projects, which in the absence of new acquisition, provide a cost-effective way to improve the understanding of the subsurface to enhance production and new step out exploration.
I move on to equipment now on slide 17. Equipment segment revenue was $101 million, significantly up year-on-year and sequentially, which is mainly driven by high volume of deliveries of our new GPR300 ocean bottom nodes. At that level of activity, EBITDA and OpEx substantially improved to 17% and 9% respectively. Next one. Land equipment sales represented 40% of the total in Q3 as we delivered systems in various geographies like China, Russia, North Africa and India. Marine equipment sales were $55 million, representing 54% of total sales due to the scheduled delivery of 18,000 GPR300 nodes. Our equipment division continues to innovate and recently launched the TPS Tuned Pulse Source. This is a purpose-built acoustic source designed to further protect marine wildlife from high frequency emissions while maintaining highly accurate and reliable results for seismic acquisition.
Finally, I'm pleased to report that during the quarter, we also made the first commercial sales of our new structural health monitoring system, S-Links. I'll now give the floor to Yuri for more financial highlights.
Thank you, Sophie. Good morning, good afternoon, and good evening, ladies and gentlemen. I will comment on the third quarter 2021 financial results. Looking at the consolidated P&L on slide 20, our segment revenue was EUR 270 million, up 35% year-on-year and up 71% sequentially. It was a very solid quarter for CGG Group, driven by continuing recovery in geoscience, significant increase in multi-client sales, and strong equipment deliveries. GGR segment revenue was EUR 168 million, up 12% year-on-year and up 53% sequentially. Geoscience revenue was EUR 77 million, stable year-on-year and up 5% sequentially. Multi-client revenue was EUR 92 million, up 26% year-on-year and up 149% sequentially.
Refunding revenue of our multi-client projects was EUR 59 million, up 51% year-on-year with refunding rate of 103%. Multi-client after sales were EUR 32 million this quarter, slightly down year-on-year. Equipment segment revenue was $101 million, up 105% year-on-year and up 113% sequentially. The respective contributions from the group's businesses were 28% from geoscience, 34% from multi-client, 62% for GGR segment, and 38% from equipment. Segmented EBITDA was EUR 118 million this quarter, up 127% year-on-year with a solid 44% margin. Adjusted segmented EBITDA of EUR 118 million was up 48% year-on-year.
Segment operating income was EUR 33 million, up EUR 71 million year-on-year with a 12% margin, while adjusted segment operating income of EUR 33 million was up EUR 37 million year-on-year. After IFRS 15 adjustment of EUR 13 million, cost of debt of EUR 27 million, taxes of EUR 7 million, and net loss from discontinuing operations of EUR 3 million, group net loss was EUR 17 million, significantly less than 93 million net loss in the third quarter of 2020. Moving to slide 21, simplified cash flow, and looking at Q3 2021 segment free cash flow, it was positive at EUR 3 million, including negative EUR 48 million change in working capital.
Again, a significant improvement from -EUR 59 million in the third quarter of 2020, due to this quarter's solid increase in EBITDA. Total CapEx was EUR 74 million, stable year-on-year. Industrial CapEx was EUR 8 million, capitalized development costs were EUR 7 million, and multi-client cash CapEx was EUR 57 million, flat year-on-year. After EUR 14 million of lease repayments, 0 cash cost of debt, EUR 7 million of CGG 2021 Plan cash costs, and -EUR 15 million free cash flow from discontinued operations, group net cash flow was -EUR 34 million, significantly improving compared with -EUR 92 million in the third quarter of 2020. Moving to slide 21, group balance sheet and capital structure. At the end of September 2021, group liquidity amounted to EUR 340 million, including EUR 100 million on drawn RCF.
Group gross debt before IFRS 16 was EUR 1.22 billion, and net debt was EUR 987 million. Group gross debt after IFRS 16 was EUR 1.35 billion, and net debt was EUR 1.11 billion. Group debt after IFRS 16 included EUR 1.18 billion high yield bonds due 2027, EUR 49 million of other items, and EUR 127 million lease liabilities. Capital employed was EUR 2.14 billion, down EUR 28 million from the end of December 2020. Net working capital after IFRS 15 was at EUR 153 million, decreasing from EUR 212 million at the end of December 2020, primarily driven by reduction in net accounts receivable, inventories, and the current provisions.
Goodwill was stable at EUR 1.19 billion, corresponding to 56% of total capital employed. Multi-client library net book value after IFRS 15 was up at EUR 556 million, including EUR 495 million of marine and EUR 60 million of land net book value. Other non-current assets were at EUR 376 million, including EUR 221 million of property, plant, and equipment, down EUR 47 million from year-end, which included EUR 131 million of IFRS 16 right of use assets and EUR 96 million of other intangible assets, down EUR 20 million from year-end. Other non-current liabilities were at EUR 136 million, down EUR 29 million from year-end. Shareholders' equity was EUR 1.027 billion, including EUR 44 million of minority interests, mainly related to INFRAGEM JV.
Now I hand the floor back to Sophie for an outlook of 2021 market environment and our financial guidance.
Yeah, thank you, Yuri. Now we're on slide 24. Overall, the Q3 was a solid quarter, and we expect a solid Q4 as anticipated earlier in the year. In this context, we confirm our 2021 financial objectives. Looking forward, geoscience should continue its gradual recovery. Multi-client has been the most affected by the current cautious clients environment, where clients, especially the IOCs, continue to delay decisions for the future. However, we do see the early signs of improvement as there is a need for our clients to constantly review their portfolios for economics and now for their carbon footprint. I think this will drive a bit more geographical positioning and acreage grabbing, and we do see interest in our data for Q4. In equipment, Q4 will see significant land equipment deliveries in North Africa.
While it's too early to provide a perspective for 2022, it's fair to say that our clients are organizing to increase their activity levels, even if they remain cautious, especially when it comes to exploration. Technology and digital will remain high on their agendas, and I believe the current trends will be supportive to CGG's core and growth beyond the core businesses. Our unique technologies, sophisticated algorithms, high performance computing, Earth Data, and industry-leading sensors will play a key role in supporting the industry and its ambition through the energy transition. Thank you for your interest, and we're now ready to take your questions.
Okay, ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. Okay, we will now take our first question that comes from the line of Jean-Luc Romain. Your line is now open.
Sorry about that. [Non-English content] Yes, hello. Sorry. Yes. I didn't recognize the pronunciation of my name. My question relates to marine sales equipment. It's quite impressive to see those increases in ocean bottom devices. On streamers, what's your prospect? Do you think the market, what the... Given the age of the streamers equipping the vessels now, there should be, at some point, a large replacement of the streamers. What's your vision on that?
Thank you, Jean-Luc, for your question. You're absolutely right in saying that the streamers are getting older and older, so probably getting into the 10-year anniversary. I think I haven't changed my view that the replacement cycle will be starting more into end of 2022 to 2023. I don't think the streamer replacement cycle will drive significant improvements in the marine streamer numbers in equipment for 2022. I would say generally speaking, the prices for marine acquisitions seem to be on the way up. Although in this Q4, you know, you don't see marine acquisition companies aren't that busy. Prices are heading in the right direction, which will eventually allow those companies to make investments to replace the streamers. There is a need for that.
It's just right now they don't have the CapEx or the visibility in their business to make those investments. I think this will come in 2023 for sure.
Thank you very much.
Sure.
Okay. We'll now take our next question, and it comes from the line of Kévin Roger. Your line is now open.
Yes, good evening. I think it's me, it's Kévin from Kepler Cheuvreux. Can you hear me?
Yes.
Yes, Kévin.
Yeah. Okay, perfect. That's me. Sorry for that. I have two questions, please. The first one is related to the working capital movements that you had in Q3. I guess it's related to Sercel and the fact that you are delivering nodes this quarter, and you are expecting to deliver stronger volumes of equipment to Algeria in Q4. I was wondering if you can give us the magnitude of this working capital movement related to Sercel and how much we should expect to get back in Q4. That's the first question. The second one is related to the EBITDA of Sercel. Are the nodes having a positive mix effect on your EBITDA?
Because, let's say the performance was better than what I think everyone was anticipating in terms of margin. Is the nodes a positive mix effect? The last one is on the free cash flow from discontinued operation. Can you give us some details on that? Is it related to the boats and the engagement that you have with your partner when the vessel arrives, et cetera? If you can explain me the free cash flow from discontinued operation. Thanks a lot.
Yes, Kévin, good evening. I will take your questions. You'll see in our financial statements that indeed this quarter we had a negative change in working capital of overall EUR 48 million. The reason for that is of course the. Well, actually it's two things. One you already mentioned. Yes, indeed, obviously we had strong deliveries of equipment in the third quarter, primarily GPR nodes. And with that, of course, accounts receivable in equipment business went up. But the second element is around the or relates actually to the sequential significant increase in multi-client sales as well. Multi-client sales increased from EUR 37 million to EUR 92 million.
Of course, with that's what drove overall the increase in accounts receivable. In other words, again, it's both businesses. It's multi-client and equipment. We expect, of course, this trend to change, well, like kind of again into the fourth quarter. The receivables likely will become collected most of them during the fourth quarter of the year. Now, regarding the EBITDA from the sale, again, there is definitely a positive impact from the sale of nodes. Why? Because of course, it's electronics.
As you well know, in the kind of revenue mix of Sercel, the mechanical products like vibrators obviously have lower gross margin, while anything electronics has a higher one. Nodes, ocean bottom nodes fall into this kind of higher gross margin category. Therefore, yes, we had a positive impact. Your third question was what, Kévin, again?
The free cash flow from discontinued operation, Yuri.
Oh, right. Yeah. Sorry. Free cash flow from discontinued operations. Actually, it's kind of the usual story. Primarily it relates to the idle vessel compensation, but also in the third quarter in CGG 2021, we had an impact of a legacy tax settlement in Mexico of EUR 14 million.
Let's say vast majority of the EUR 15 million is related to legacy tax settlement, and it's not related to the compensation that you have to pay to Shearwater for the idle net-
No. Because they, if and when we pay compensation to Shearwater, it doesn't go through discontinued operations.
It will go into the PF-
You know, multi-client. Yeah.
Yeah.
Oh, okay. Thanks for that.
Sure. Thank you, Kévin.
Thank you, Kévin.
See you tomorrow.
Okay, sure. We will now take our next question, and it comes from the line of Mick Pickup from Barclays. Your line is now open.
Hi, good evening, everybody. Couple questions if I may. Firstly, obviously, you've made a couple of announcements this quarter where you've been investing jointly with some of your peers. Can you just talk about investing in cooperation with others? Does that signal what we're gonna see going forward? Is it a sign of capital tightness in the industry, or what exactly is driving that trend?
They are actually, you're absolutely right. There is more collaboration and I do believe the future will be more collaborative. If you look at our clients, they've been collaborating for a long time, and especially when it came to activities that were more risky in exploration, particularly, you know, they'd come and form consortium. I think we've not been good at mimicking that from our space. One of the announcement that we made is in Suriname, and that's gonna be three of us investing, and that's about risk management. The second one that you would have seen is around Versal, and that's a bit of a different one. It's recognizing it's about delivering the data in an efficient way to our clients, multi-client data, and giving them access to their entitlements.
Recognizing that, if you want, is a bit of a backbone for multi-client, but it's not a differentiator. It's not something that we believe, you know, TGS, PGS or us should differentiate on. Rather we should join forces to just do the best product to serve our clients. It's more about putting together resources to better serve our clients, which want, you know, efficient data delivery into their platforms. The other one you would have seen is the collaboration on CCUS with PGS. We felt that it would make sense to join forces with them in the North Sea because we're the two companies that have, if you want, the largest datasets. It was easier to collaborate on something new like the CCUS.
We thought, "Okay, why don't we do something together and see what we can provide to the industry together, knowing that we've got the best datasets to do that." It's a bit of a different drivers, but generally speaking, risk management, efficiency, and I guess, business synergies, would be the drivers, but different angles.
Okay. Very clear. Another question.
Yeah.
Can I just ask about conversations you're having with your clients? Obviously, the gap between breakeven and the oil price is as big as we've ever seen at the moment. My U.S. colleague today put out a note with the word supercycle. Going into fourth quarter, obviously it was usually a seasonal spend at year-end. Are you getting the sense that that's much more likely now with the current environment, and workload is coming back?
I would say it's really strange times because oil price is super high. All of our clients are generating a very profitable and generating very strong cash flows. I don't have a sense that they're gonna be moving from their capital discipline. Now, you have to keep in mind they're well below their guided guidance on CapEx spend, which means they have a lot of sort of quote-unquote "spare money" when it comes to year-end. I would say there are some signals that they wanna discuss, you know, year-end deals because they've been into the discipline of gathering the needs from various departments and various groups and assets geographically into year-end and trying to negotiate a larger deal. I think that will certainly happen, and I mentioned that like positive signal.
I just don't know the magnitude of it and how much of that money they will actually release, because they, again, they're well below the run rates of spending. So that means they've got a lot of money, but I don't know if they will spend it all or if they will keep some under their, you know, their shoulders and/or keep it to just give back through to the shareholders through other forms.
Got you. A quick one, if I just finish off. Pre-funding of above 100% obviously is very good. Is that just prudence on what you're investing or is that reprocessing comes with higher pre-funding? What's driving that 100% plus?
We should never look at it on a quarter-to-quarter basis. I did mention last quarter that there was a sort of a deal that we were working on that had moved into Q3. In reality, that pre-funding should have come in earlier in Q2, which would have made H1 stronger and this one more normal. It's just sometimes a bit lumpy and the sequencing makes it happen that way. Typically there is some level of catch up on pre-funding when it comes to more, you know, the later month of the year, which is what's happening. You shouldn't read into this particular quarter. It was driven by a catch up of pre-funding that should have really come last quarter.
What it does say though is our pre-funding at, you know, year to date is 70% and will probably go better than that in Q4. It shows that we're investing in the right places and that there is interest in our projects, which is essentially Norway and Brazil.
Got you. I'm very clear. Thank you very much.
Sure.
Okay. We will now take our next question, and it comes from the line of Jean-Luc Romain from CIC Market Solutions. Your line is now open.
Okay. My question relates to CCUS. You mentioned that in terms of diversification away from oil and gas, and that's something oil companies are mostly Americans are pointing to very seriously. What kind of services would it involve in terms of, you mentioned reservoir identification, but once it does, would there be a need of camera monitoring and that sort of services for CCUS?
Yeah. Yeah. Thank you for that question. You'll find in the CCUS very similar ingredients to the exploration and production. Exploration is gonna be similar ingredients, and that's what we aim to do with our data sets in in the North Sea particularly, that's gonna be very active in CCUS, identification and characterization. You could do this using geoscience at large, definitely will involve geology and geophysics. That geophysics will either be acquired on a proprietary basis or will be on a multi-client basis. It will involve data sales one way or another, or data acquisition and processing activities. Then there will be a perhaps more important component of monitoring because that will be driven by regulatory requirements.
Of course, you know, if you think about it, you're injecting CO2 perhaps at high rates, and you have a risk of fracking the rock or breaking the integrity of the reservoir or the storage area. Therefore, there will have to be mechanisms to monitor. I would think some permanent perhaps combined with the likes of the 4D that we see in the oil and gas industry. But there will be definitely a component of permanent monitoring, which we intend to position on.
Thank you.
Thank you.
Okay. We will now take our next question, and it comes from the line of Maila Bilemu Kameto from BlackRock. Your line is now open.
Yes. Hi. Good afternoon. Thank you for taking my question. Just one from my side. I just wanted to check on your non-recurring charges. I seem to have a number of EUR 32 million for 2021, as an adjustment to EBITDA, well, to EBITDA, from EUR 42 million in 2020. Would you confirm if that's still the number I should be looking for? Because I think year to date, obviously there were no adjustments this quarter, so year to date were, I think, at EUR 3 million total. So how should I think about that? Thank you.
Maila, good afternoon. Are you looking at cash flow or P&L?
Sorry, that's P&L.
Yeah. On the P&L side, we had a credit actually from early in the year from the reassessment of provisions for social plan in France, right? Basically, we don't have the significant kind of difference between the EBITDA and adjusted segment EBITDA.
Yeah. I would say, I mean, this year is a fairly clean year in terms of non-recurring costs because last year we took all the provision or the cash costs for the reductions of essentially headcount, large headcount reductions. We had the non-recurring on some adjustments, I guess, on more client data library. Since the beginning of the year, we haven't made any adjustment. Actually, if anything, like, Yuri mentioned, we got a credit because we took a larger provision for a social plan in France, and you don't know the exact number until the people actually leave because it includes, you know, it depends on how long actually people take to find another job. We actually had a fairly significant credit that we took, and so it hits us.
Our adjusted EBITDA is actually lower than our EBITDA.
Basically, yes, the difference between the two on the nine-month year-to-date basis is EUR 2 million. 195 million EBITDA and 193 million adjusted EBITDA. When it comes to operating income, we have basically an operating income of EUR 14 million for the first nine months versus adjusted operating income of EUR 6 million. In other words, again, there is a net EUR 9 million kind of positive or credit effectively related to the provisions and charges that we took last year.
Got it. I shouldn't expect any meaningful adjustments in Q4 or in 2022?
No, not when it comes to P&L. Then on the cash flow, you will see that obviously we continue kind of to pay those severance costs, and they go through the reduction in liability, yeah. In other words, the flowing-
Okay.
The change in working capital.
Would you mind to those are?
Again, on the cash flow statement, basically we see over the first nine months the change in NRC liability of -EUR 19 million. Basically that's what happened on the year-to-date basis.
Sorry, for the 2021 in total and 2022, what are your expectations?
Well, 2022 should be close to zero because basically, there might be a small tail end in France, but pretty much all of those severance costs are paid this year.
Okay. A similar number to Q3 and Q4, I assume, or slightly lower, but not increasing.
No, it's not increasing. Yeah, exactly.
Okay. Great. Thank you very much.
In fact, it's kind of gradually decreasing. Yeah, that's what's happening.
Got it. Thank you.
Okay, our next question comes from the line of Baptiste Lebacq. Your line is now open from ODDO BHF.
Yes, good afternoon. Thanks for taking my question. Very quick question from me. In today's environment, we see some bottlenecks like in semiconductors, but also in some different raw materials. For you, is it a risk for your equipment divisions? What's the most, let's say, risky equipment for you we should focus on? Second question, still linked to this point, there is also some increase of raw materials costs. Do you think that it's possible for you to preserve your margin in this context? I always think about the equipment division. Thank you.
Yes. Thank you, Baptiste. Very good question, and it is something that we're looking at very carefully as we're planning into 2021. I'll just say, generally speaking, on the equipment side, we plan probably a year ahead. We place the orders for critical parts quite early in the cycle. That's why we've been, I mean, we haven't felt any issues this year of this, bottleneck on semiconductors or increases in raw materials. We're starting to see some tension on, electronic equipment, not necessarily the raw materials. That's not a concern to us. It's something we're working to resolve. We do think that if we get affected for a period of time next year, it would be a short period and that we would be able to catch up during the year.
We're not planning right now. We're planning to be able to deliver what we need to deliver next year, basically. That is mainly because we've anticipated a lot of the orders. Does that answer your question?
Yes. Thank you. Regarding the increased cost of input and your margin, and your ability to preserve your level of margin and speaking with clients, do you see any tension or like
Yeah, we're not seeing yet. I mean, again, this is like I said, we place the order quite ahead of time. So we haven't seen any inflation on the raw materials on what we buy. It's more about the issues being more about the availability of some electronic, electrical components, and that we've been working on. So I would think, yeah, we're not. I mean, right now, we're not seeing impact on our margin, and our margins are more dependent on the mix of products that we deliver. As Kévin pointed out earlier, or someone asked the question on the GPR, the GPR is good margin. It really depends on what we're selling rather than the inflation on the raw materials.
Thank you.
Sure. We're in the process, by the way, of doing our budgeting, so I'll definitely know more on the next call. Yeah, directionally, we're not seeing a big deal around the inflation of the raw material.
Okay. Any additional questions?
Yes, sir. Our next question comes from the line of Matt Suheki from Morgan Stanley. Your line is now open.
Hey, thank you very much. I have a quick question about cash flow generation and deleveraging in the remaining part of 2021 and 2022. Should we assume that EUR 95 million you're gonna receive from Geoscience will go towards deleveraging? That's the first question. The second question would be going into the future and going into 2022 as the activity, as you mentioned, is picking up, how should we think about cash flow generation, i.e., the prefunding levels are relatively low at the moment, and do you expect them to go back quickly towards the 95%, 100% levels? That would obviously help a little bit. I mean, that's basically the key question.
Yes. Thank you for your question. I'll take the question on pre-funding. If you remember historically, we've always committed to sort of a 75% pre-funding, which we felt offered the right balance of finding projects, the best projects. Because the best projects aren't necessarily the ones that are the most pre-funded in early stages. We wanted to make sure we had the mix. The high pre-funding is not necessarily a sign of a good performance of multi-client. It needs to be, I believe, about over that 75%, but 100% might actually be too high, meaning you're not taking enough risk on the projects and on your portfolio, or you're not investing enough.
Now of course, what we want and what we need is more after sales, and that's what we've been short on from, I guess, it started last year because of the COVID crisis and into this year. That's where you're seeing the discipline of our IOCs and our clients play, is they're just not buying data that's on the shelf. If we do see when or if we see that after sales pick up, obviously this is a direct cash generation, and they will be falling through all the way into cash. I'd say this year, we've committed to be sort of cash positive, and so that will not unfortunately allow us to deleverage. 2022, I think it's too early to say which way it's gonna pan out. Do you wanna add anything?
Well, we will, under the new bonds kind of covenants and terms and conditions, have up till April of next year to decide whether to apply basically generated cash against the 10% repayment that we built into the bonds, right? The 10% repayment at 103. As Sophie rightfully said, we'll be looking at next year, and once we have more visibility, then we will make those decisions. It will apply to deleveraging us indirectly. In other words, obviously, the cash on hand reduces our debt.
Yeah. That's what I meant. Thank you very much. That's helpful.
Thank you.
Thank you.
Okay. Once again, if you wish to ask a question, please press star and one.
Charles, if there is no additional question, then we hand the floor back to Sophie for the conclusion.
Yeah.
Okay.
No questions at the moment, sir.
Okay.
All right. Well, thank you very much. It's been a great call. Many more questions than in previous calls. I think we were right to change the time and the scheduling. Thank you very much for your questions. Thank you for the interest in CGG, and I look forward to meeting some of you in the next few days.
Thank you, everybody.
Thank you. Have a good evening.
Have a good evening, and, good afternoon.
Okay. That does conclude our conference for today. Thank you for participating. You may all disconnect.
Goodbye. Thank you. Charles, goodbye.
Thank you, sir. Have a good day.