Thank you all for standing by, and welcome to today's CGG Second Quarter 2021 Results Conference Call. Our presentation for today will be followed by a question and answer session. Please be advised that today's call is being recorded. And I would now like to hand the call over to your speaker, Mr. Tom Arnouni.
Thank you.
Thank you. Thank you. Good morning, ladies and gentlemen. Welcome to the presentation of CGG's Q2 2021 results. The call today is hosted from Paris where Mrs.
Sophie Serquier, Chief Executive Officer and Yuriy Baiducos, Group Chief Financial Officer will provide an overview of the Q2 and half year twenty twenty one. And we will also provide comments on our outlook. Some of the information contains forward looking statements That are subject to risks and uncertainties and 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, we would be pleased to take your questions. And now I will turn the call over to Sophie.
Yes. Thank you, Chris, and good morning, ladies and gentlemen, and Thank you for participating in this Q2 2021 conference call. So I'll start with general comments on our market environment on the Slide 5. Overall, during the Q2, activity of our clients remained similar to the Q1, With the international oil companies maintaining capital discipline, while national oil companies and large independents remain more active. However, the macro environment has clearly strengthened with Brent oil price remaining over $70 This is triggering an increase in short cycle investments, mostly targeting development and production.
We are not yet seeing in our geoscience base Significant changes in behavior, even though there are positive signals. In 2021, the IOCs will generate significantly higher cash And deleverage quickly, even if financial discipline, dividend payouts and decarbonization remain their priorities, We expect they will start accelerating spending to meet hydrocarbon demand recovery and compensate for the depletion of their existing reservoirs. For all the activities of our clients to optimize production from their current reservoirs and to meet growing hydrocarbon demand, CTG's high end technology will be a key component of the value chain. Already, we see geoscience progressively Thanks to increased demand for our superior technologies and services. MultiClient was particularly slow during the quarter due to delayed prefunding and the slow decision making processes from our clients, mainly the IOCs.
Since the end of June, we have finalized agreements for more than $35,000,000 of pre funding for our 2021 streamer vessel programs. Those agreements were expected in Q2, but It was a slow quarter as planned for our equipment business due to the timing of deliveries. Sussal was recently awarded a major contract for 18,000 DPR-three 100 shallow water nodes, which are currently in manufacturing and will be delivered in Q3 and Q4. We anticipate an acceleration of our top line and profitability in H2 2021 and into 2022. Earlier this year, I highlighted our business initiatives to dispose of few assets and divest non core businesses.
During Q2, we hit several milestones. 1st, the headquarter building sale and leaseback initiative is progressing well with closing anticipated in Q4. 2nd, the sale of the Geo Software business is progressing as planned, and we're confident to close this sale in Q4. At the end of June, our physical asset storage business has been put for sale. This is a non core business for CJD for the storage of physical assets in large warehouses.
These two divestitures enable CDG to further focus on the continued strengthening of the differentiation of our core businesses and our growth beyond the core. With the expected solid second half of the year, the monetization of assets and disposal of the businesses held for sale As well as the full impact of our savings, CDG should deliver a positive net cash flow in 2021. Moving on to Slide 6 now. Our Q2 revenue of $157,000,000 was down 22% year on year. Group segment EBITDA was $42,000,000 with a 26% margin, mainly due to the business mix.
Segment free cash flow was negative minus $3,000,000 and net cash flow this Quarter was negative at minus $56,000,000 before $39,000,000 of gold premium and fees related to the refinancing. Our H1 segment revenue of $370,000,000 was down 22% year on year and segment EBITDA was $78,000,000 in H1 with a low 21% margin mainly due to the business mix. Selling cash flow was 57,000,000 And the net cash flow for the semester was negative at minus $27,000,000 before the $39,000,000 of core premium and refinancing fee. Our segment free cash flow in H1 2021 was higher than last year despite the significant drop in EBITDA due to an $87,000,000 positive change in working capital and significantly reduced multiclient CapEx. Moving on to Slide 7 now with the headcount reduction.
I'd like to show you an update on savings I've achieved from the efforts launched in March last year at the beginning of the pandemic. The reductions, which are in line with business and legal requirements, would amount to of around 900 employees by the end of 2021. And this represents a 21% reduction for the 4,200 employees we had at the 2019 in CDG, excluding discontinued operations. Most of the reductions come from our support functions and geoscience. Compared to 2019, the associated savings will represent $90,000,000 of reduced personnel costs by annum by the end of 2021.
In parallel, we also hired around 100 new talents, mainly in geoscience, to support our growth beyond the core initiative. The $19,000,000 in savings does not include additional savings associated with cost control and the reduction of our geographical footprint. I'll now cover our Q2 2021 operations by reporting segments, starting with GDR on Slide 9. GGR segment revenue was low this quarter at $110,000,000 down 24% year on year, but slightly up sequentially at 10%, thanks to the progressive recovery in geoscience. Adjusted EBITDA margin was impacted by the revenue mix with less multiclient sales than last year.
Adjusted opening was positive as a result of improved geoscience revenue and our lower cost base. On Slide 10. Q2 Geoscience external revenue was $73,000,000 down 12% year on year and up 11% sequentially. Geoscience saw the start of a progressive recovery during the quarter. Backlog at the end of July 1 stands at $222,000,000 up 4% year on year.
In H1 2021, order intake more than doubled year on year, and we are anticipating further significant awards during H2 in the major active basins. The renewed focus from our clients on field development is driving demand for OBM, especially for our leading processing and imaging technology, which is critical to providing the most detailed understanding of the subsurface to derisk investments. Our top priority in geoscience is to remain the undisputed technology leader, and this was confirmed by 2021 Kimberlite survey. On Slide 11, the Kimberlite survey is a 3rd party biannual survey of sectors within the E and P industry. Their recent report on subsurface Imaging shows that CDG has a clear market leadership position in both technology and the service that we deliver.
The chart shows us in the premium offering quadrant, where our clients are willing to pay for the better image quality, state of the art technology and turnaround time that we Moving on to Slide 12. The same Kimberlite survey compares the different subsurface imaging competitors on a number of criteria. CTG consistently performs well above the industry average and better than any other competitor. The largest gaps chart are around the technology and quality of the image we deliver. And I want to show you now an example on Slide 13.
The use of ocean bottom node seismic is on the increase, including the larger scale surveys designed to provide greater importation As the technical advantages over towed stream datasets are clear, especially with differentiated processing capabilities. And this is very much the case in the Gulf of Mexico, North Sea and Brazil and also in the Middle East as well. The uplift from nodes combined with our best in class imaging technology in this Gulf of Mexico comparison provides an excellent example of how dramatic the improvements can be. The new insights that we delivered enabled our clients to derisk their well locations, both from an HSE and project economic standpoint. So moving on to the next slide, MultiClient key business indicators.
MultiClient revenue was $37,000,000 down 40% year on year. Q2 remains similar to Q1. The IOCs play an essential role in our multiclient business, and they have remained very disciplined in the first half of twenty twenty one given the macro environment volatility and their focus on the energy transition and during financial performance. Sales were also impacted by the lack of bid rounds in the Gulf of Mexico and in Brazil. We have significantly re multiplaned cash CapEx from last year.
In Q2, we had 2 vessels on MultiClient programs has started to work on a 5 month 3 d MultiClient program in the Norwegian North Sea in addition to our ongoing bridge project. Prefunding revenue on our MultiClient project was at $17,000,000 with a prefunding rate of 39% as targeted prefunding slipped into Q3 2021. As I mentioned earlier, since the end of June, we have finalized agreements for more than $35,000,000 of pre funding for our 2021 streamer vessel program. And I'm confident that we will catch up funding in the second half of the year. MultiClient aftersales were $20,000,000 this quarter, up 28% year on year, but still lower than expected.
The segment library net book value was $297,000,000 at the end of June 2021, with 85% offshore and 15% onshore. Looking now at the MultiClient footprint. We continue to expand our library in the most resilient basins. And indeed, we have made a conscious effort to Brazil and Norway received most of our investments, and we also look for those well pre funded reprocessing projects that leverage our imaging technology. I'll also point out that we are starting to see new players in the carbon storage space come to us with interest in our data, especially in the North Sea and around the potential development of future major CCUS hubs.
I could see where data library will be very valuable in that new space. Moving on to equipment. Equipment segment revenue was low as planned this quarter at 48,000,000 down 19% year on year. We are anticipating a solid H2 supported by large GPR 300 node deliveries and land equipment deliveries in the last quarter. At this low volume of activity, equipment's adjusted EBITDA and operating income were negative at 8,000,000 Negative and $16,000,000 negative, respectively.
Looking at equipment overview. Land equipment sales represented 60% of total sales as we delivered in Q2 to various geographies, mostly spare parts for our installed base. Activity for the vibrators was strong with over 25 nomad vehicles delivered. Marine equipment sales represented 25 percent of total sales. As an important milestone, equipment was awarded a major contract with BGP for the delivery of 18,000 GPR 300 nodes, it is the first and significant sale of this new unique technology that that allows broadband recording down to very low frequencies.
On the
photo on the slide, It features our GPR-three hundred shallow water node and our manufacturing teams are currently producing it around the clock to meet the challenging delivery schedule. I'm pleased also to report that during the quarter, we made the first sales of our structural health monitoring system, Sling. I'll now give the floor to Yuri for more financial highlights.
Thank you, Sophie. Good morning, ladies and gentlemen. I will comment the Q2 2021 financial results. Looking at the consolidated P and L for 2021 on Slide 19, Segment revenue amounted to $157,000,000 down 22% versus the Q2 of 2020. It is a very low quarter for CDG Group.
Geoscience performed better than anticipated. The equipment was low as planned MultiClient sales were disappointing as some prefunding and after sales slipped through Q3 and the second half of the year. JGI revenue was $110,000,000 a 24% decrease year on year with 70% weak. Geoscience revenue was $73,000,000 down 10% year on year, but up 11% sequentially, And MultiClient sales were $37,000,000 down 40% year on year on significantly lower CapEx and delayed refunding and aftersales and up 8% sequentially. The equipment revenue was low at $48,000,000 as planned, down 19% year on year with 30% weak.
Segment EBITDA was $42,000,000 And adjusted segment EBITDA was $35,000,000 with a 22% margin due to unfavorable revenue mix and release of excess provisions for severance under the French PC plan. Segment operating income was negative 7,000,000 Adjusted segment operating income was negative $15,000,000 Cost of financial debt was 33,000,000 Net loss from continuing operations was $44,000,000 and net loss from discontinued operations was 7,000,000 Group net loss was $51,000,000 significantly less than $147,000,000 loss in Q2 of 2020. Simplified cash flow on Slide 20. Despite significantly lower EBITDA, Q2 2021 segment free cash flow improved at negative $3,000,000 versus negative $8,000,000 in the Q2 of 2020. On lower CapEx and higher positive change in working capital.
Total CapEx was $57,000,000 36 percent down year on year With industrial CapEx at $6,000,000 research and development CapEx at $8,000,000 and multiclient cash CapEx at $43,000,000 40 percent down year on year. Net paid cost of debt was at $30,000,000 and lease repayments were at 15,000,000 2021 plan cash costs were at $8,000,000 and continue to reduce. Overall and before the impact of the refinancing, Net cash flow was negative at $56,000,000 this quarter. The impact of the refinancing on the cash flow in the second quarter was overall $67,000,000 It included $39,000,000 of refinancing fees and core premiums And $28,000,000 net reduction in gross debt. Moving on to Slide 21, group balance sheet and capital structure.
At the end of June 2021, group liquidity amounted to $385,000,000 including $100,000,000 of undrawn RCF. Group gross debt before IFRS 16 was at $1,220,000,000 and net debt was at $935,000,000 Gross debt after IFRS 16 was at 1 point $35,000,000,000 and net debt was at $1,070,000,000 with the following breakdown. $1,195,000,000 of higher bonds due in 2027, $24,000,000 of accrued interest and $134,000,000 of lease liabilities. At the end of June 2021, our capital employed was at $2,180,000,000 versus 2,170,000,000 at the end of 2020. Net working capital after IFRS 15 was at 161 $1,000,000 decreasing from $212,000,000 at year end, primarily driven by reduction in net accounts receivable.
Google was stable at $1,190,000,000 corresponding to 56% of total capital employed. MultiClient library net book value after IFRS 15 was up at 516,000,000 including $454,000,000 of marine $62,000,000 of land net book value. Other non current assets were $385,000,000 including $228,000,000 of property, plant and equipment, down $60,000,000 from year end, Including $139,000,000 of IFRS 16 right of use assets, of which $64,000,000 related to Verideo financial lease and $99,000,000 of other intangible assets, down $17,000,000 from year end. Other non current liabilities were at 1 $229,000,000 down $20,000,000 from the end of last year. Shareholders' equity was at 1 $400,000,000 including $44,000,000 of minority interest mainly related to Yungfeng JV.
As Sophie already mentioned, our asset monetization and disposal of businesses for sale program is progressing well. The sale and leaseback of our headquarter building in Massey is progressing as planned and the closing of this transaction is anticipated in the Q4 of this year. In addition to net cash proceeds, it will result in reduction of lease liabilities and operating costs. The sale of Geo Software business is also progressing as planned And closing on this transaction is anticipated early Q4 this year. During the Q2, the physical asset storage business has been put for sale and is now accounted for as an asset held for sale.
This is a non core business for CDG where we store documents, tapes and other physical assets for our clients in various warehouses. We're making good progress in our sales process and we'll make relevant announcements in due course. Now I hand the floor back to Sophie for an outlook for 2021 market environment and our financial guidance.
Thank you, Yuri. So we're on the Slide 2021 business outlook. At the macro environment level, we see the Early effects of several years of reduced investments, which are translating into high commodity prices. Yet, there is also a decorrelation between oil price and E and P investments from our clients, especially the IOCs, We remain particularly cautious when it comes to longer term opportunities to replace reserves and maintain production. This is the impact of the investors' pressure for returns and energy transition commitments.
However, I have no doubt that renewable energies will will continue to grow in the short to medium term. In this time frame, it is the only source of affordable and flexible energy. The current level of investment is unsustainable and will need to pick up to address the current and growing oil and gas supply constraints. In line with larger integrated OSS companies, we believe that we are progressively entering a positive cycle with customers increasing their spending in our markets in the latter part of this year and into 2022. With our high end geoscience and We are also actively pursuing our new business opportunities adjacent to our core capabilities We now have over 100 people working on minerals and mining, carbon and energy storage, digital services, environmental science, geothermal science and structural health monitoring.
While it's still early, I am optimistic based on what I see so far from our current and potential new clients. Along with the topics I already addressed earlier today, including the first sales of our structural health monitoring system, Growing interest in sales of our multiclient data to CCUS. During the quarter, we also launched CSCOPE, an innovative pollution monitoring solution. We announced our work with Decarbon S for the subsurface assessment of its operated clean energy projects offshore, And we're selected by the European Space Agency Space Solutions Initiative to undertake a consortium led Looking at the near term outlook, we anticipate Geoscience to continue its progressive recovery Based on solid demand for our unique technology and strengthening commercial activity, verbal awards at the end of strengthened from a very low first half of the year, and I'm pleased to start the Q3 with finalized prefunding agreement. Equipment after a low Q2 should deliver a solid H2 second half of the year, driven mainly by delivery of the new GPR-three hundred nodes and continued activity in the Middle East and North Africa.
So thank you very much for your interest, and we're now ready to take your questions.
Thank you. We'll now take First question is from the line of Jevon Roger from Kepler Cheuvreux. You may ask your question.
Yes. Good morning. Thanks for the conference call. I have two questions mostly, please. The first Can you please give us a bit of information regarding the Current level of discussion that you had with clients regarding the late sales.
Do you expect a pickup, let's say, by The end of the year, what is the magnitude that we can expect from that side? If you can give us a bit of information regarding the discussion that you have with Clients right now, it would be great, please. And the second question is related to the new business that had been put for sale. Would it be possible to give us an idea of what could be the value that you could expect from it, please?
Kevin, thanks for those questions. As you know, the multiclient is always difficult to predict, And very often, the sales do happen in the last 2 weeks of the quarter. However, we have coming into the second half I would say reasonable level of visibility on a number of deals that We think will provide us a significant improvement from the first half of the year on the multi client side. Now We did see in Q2, we had a number of deals that we were working on that slipped over to the 3rd quarter. Perhaps some of that will happen too.
But clients have really haven't purchased Much, I mean, as you know, just not us and from our competitors as well. So the market has shrunk significantly. But yes, they need to this data to be working on their fields and then just to continue their activities. So I do think the first half was really slow on the back of some uncertainty about Their prioritization, I said in the past that clients are reprioritizing, but that the month of May with all This pressure increased pressure on energy transition, I think, is pushing our clients to revisit one more time their plans, and that's creating further delay. So I'd say the conversations are good.
We've got a list, a long list of identified deals for Q3. Q4 is a bit further out. That looks encouraging and that's just what I can say. On the yes, and Point I want to add as well there is that we've been suffering from the lack of lease rounds, and I did mention the Gulf of Mexico and Brazil. Brazil has announced that they're restarting those bid rounds and that should definitely drive data sales in Brazil in the last part of the year.
So that's a positive external element. In terms of the new business, I think it's a bit early, but we have, I would say a couple of large deals in the pipe that we're hoping to announce, I would say, in the next It's hard to know, but in the next couple of months. And those are linked to digitalization, where it's a priority for our clients to digitalize, and I think we have opportunities there. So Right now, the level of business, I would say, is in the we're starting to measure and get granularity, let's say, around 5 ish percent, 4%, 5 ish percent of our revenue comes from this other activity. But we're hoping to see some acceleration and we'll certainly make some announcement When that happens.
But there are deals identified in the pipe that we're working on for, let's say, You're talking in the 20 plus double range.
Okay. Thanks a lot for that, Sophie. And just for the second question, sorry, maybe I did not ask the question well, but it was related to the Physical asset storage business that has been good for sale. I was wondering if you can give an idea in terms of what you can get from that?
Okay. Sorry, I misunderstood. I thought you're talking about new businesses.
Sorry for that, Michael.
Yes, Kevin. Good morning. So this is a small business. The carrying value of this business in our accounts And you will see it is about $15,000,000, $15,000,000
Okay. Okay. Very good. Thanks a lot for that. Have a very good day.
Yes. Thank you.
Thank you. Our next Question is from the line of Andre Koltz from Jefferies.
Hi, thanks a lot for taking my questions. Somewhat fairly new to the Sorry, I mean just a few, I guess, questions around sort of your confidence level on this outlook, Simply because it implies a pretty significant ramp up in Q3 and Q4. I mean, just averaging it out, we're talking About $150,000,000 of EBITDA per quarter. So just trying to understand, great that you have Some sales already done for Q3, it sounds like, but it obviously implies a pretty nice ramp up of Q4. So just trying to understand, I guess, confidence level and visibility on
Beth? Yes. Thank you. Hello, and nice to talk to you. I'm sure from my comments, you've inferred That we feel fairly safe on the geoscience recovery, and so it's not the ramp up and that we've touched the bottom.
We feel reasonably confident on the equipment side because we have visibility on orders and commercial discussion. The unknown is always the multi client. Now the we have a few data points. So first of all, we have the visibility on the deals for Q3. And we have, I'd say, some visibility into Q4.
We've got this, as I mentioned, the Brazil lease runs that are upcoming. And I guess the other data point is conversely as much as like we're looking forward to ramp up, Our clients are not spending their budgets today. So they're really behind budget spending in our space. So I do expect from the client standpoint some level of acceleration of their spending too. So I do expect the market will actually improve in the second half of the year.
But MontyCloud is difficult to predict. Like I mentioned, the aftersales usually get done in the last 2 weeks of the quarter. But coming into Q3, having a view on the deals that we need to close To make the quarter is actually, I would say, encouraging news.
Thank you. One last question for me, if I may. And look, I realize it's always tough to compare to competitors Comment on competitors, but I mean one key competitor that you do have has posted quite good Q2 and very strong outlook for The second half, which obviously is a good read across. I guess the question is just to understand maybe what hurt you in Q2 and maybe why you're seeing a little bit less activity. Is it really driven by a sort of Gulf of Mexico, LatAm exposure, National Oil Company exposure, would you say is key weakness or just to try and understand a bit more color around that?
I think some of it is timing and exposure and where the library is. I think we are in the 2 hot places, Brazil and Norway. I think our competitor has Definitely a larger library in Norway and there were lease rounds, the APA lease rounds do happen on a regular basis there and they never stopped and that drove Business, I'd say it's just perhaps timing and data library footprint.
Okay, great. Thanks.
1 has done better, but one is less, right? So we're somewhat in the middle because of our position. We're less frontier Than others. We're in the right places, but then I mentioned the Brazil the lack of Brazil is around has hurt us.
Okay, great. Thank you so much.
Sure.
And we do not have any questions as of this moment, sir. Please continue.
Okay. Well, if there isn't any question, I look forward to talking to you in person and
Thank you. And that concludes our conference for today. You may all disconnect. Thank you all for participating.