CGG Announces its 2018 First Quarter Results

Paris, France | May 17, 2018

CGG (ISIN: FR0013181864 – NYSE: CGG), world leader in Geoscience, announced today its 2018 first quarter unaudited results.

2018 Q1: Strengthened Segment EBITDAs Margin in Gradual Market Improvement

• IFRS figures1: revenue at $246m, OPINC at $(67)m, net income at $647m
• Segment revenue2 at $295m, up 18% year-on-year
  • GGR: solid activity increase
  • Equipment: robust Land volume recovery
  • Contractual Data Acquisition: continued challenging market environment
• Segment EBITDAs2 at $53m, up 85% year-on-year, an 18% margin
• Segment OPINC2 at $(22)m

Financial Restructuring Plan Fully Implemented

• Financial restructuring plan implementation: Full success of the January 2018 rights issue and all new instruments delivered on February 21, 2018
• Restored capital structure with net debt of $659m at end of March, liquidity of $538m and leverage ratio at 1.7x

Reiterated 2018 Outlook

• Segment Revenue2 expected up at c. $1.5bn +/- 5%
• Segment EBITDAs2 margin within 35% to 40% range
• Multi-Client cash capex at $275/325m with cash prefunding rate above 70% (79% in Q1 2018)
• Industrial and R&D capex at $100/135m

1Based on transitory IFRS 15 first time application
2 Segment figures presented before IFRS 15 and Non-Recurring Charges (NRC)

Commenting on these results, Sophie Zurquiyah, CGG CEO, said:"Our first quarter results are in line with expectations, with solid revenue growth and an improvement in our EBITDAs margin compared to the first quarter of 2017. These results continue to confirm an upward trend initiated in 2017 that is bringing improved volumes to GGR and Equipment. Contractual Data Acquisition activities remain challenged by low demand and deteriorated price conditions.

In the current context of strengthening oil prices, we observe a gradual market improvement, even as the major oil companies remain very cautious in their spending. In this environment, we confirm our revenue growth and EBITDAs margin targets for 2018.

The restructuring of CGG was successfully completed at the end of February and our balance sheet has been restored. My ambition, as the new CEO, and with the commitment of all our teams, is to return CGG to a business of sustainable and profitable growth, paving a new path to success for all our shareholders, clients and employees."

Post-closing events

• April 24th: Completion of the first lien refinancing

CGG S.A. announced the issuance by its wholly-owned indirect subsidiary, CGG Holding (U.S.) Inc., of $300 million in aggregate principal amount of 9.000% First Lien Senior Secured Notes due 2023 and €280 million in aggregate principal amount of 7.875% First Lien Senior Secured Notes due 2023. These new first lien senior secured notes represent a total principal amount of $645m at a weighted average coupon of 8.40%. The cumulated savings related to such refinancing over the period running up to February 2021 (original non-call period) amount to c. $70m.

• April 26th: Renewal of the governance

CGG's Board of Directors, meeting on April 26, 2018, elected Philippe Salle as Chairman of the Board of Directors. Sophie Zurquiyah took up her position of CEO of the Group and was appointed director by the general meeting on the same day. Since the beginning of the year, CGG Board of Directors has completed the process of renewing its governance with the appointment of 6 new Directors.

Transitory first time application of IFRS 15

The application of IFRS 15 does not result in any significant change to the Group’s revenue recognition policies but for multi-clients pre-commitments. CGG’s preliminary interpretation of the new standard was that the historical method, relying on percentage of completion principles, was the best accounting solution to timely provide a fair vision of the industrial and financial performance of the Company and was compliant with the new IFRS standard. However, our auditors’ technical panel eventually concluded early 2018 that it was not the case.

Following this determination, CGG investigated the merits and the practicability of an alternative revenue recognition policy, based on two performance obligations: one service with revenues to be recognized over time and weighting on average between 80%-95% of total obligations, and one corresponding to the final processed data with revenues to be recognized only upon delivery. This alternative revenue recognition policy has, however, not been endorsed by the Group’s auditors and the regulators of the financial markets where the Group’s securities are listed. In addition, some other seismic players have decided to implement IFRS 15 in Q1 2018 through a revenue recognition policy for pre-commitments based on a single performance obligation and deferring the recognition of revenues upon delivery of final processed data.

In that context and in the absence of a finalized IFRS 15 accounting policy, CGG decided to present a dual approach in the Group’s first quarter 2018 results:
(i) one set of figures (the “Segment Figures”) corresponding to the figures used for internal management reporting purposes and produced in accordance with the Group’s historical method (percentage of completion) and
(ii) a second set of figures (the “IFRS” figures) in line with the accounting practice adopted by some other seismic players as described above, with pre-commitment revenue recognized in full only upon delivery of the final data.

CGG intends, through further discussions with its auditors and with the regulators, to continue advocating for the IFRS 15 compliance of the alternative revenue recognition policy described above based on the two distinct performance obligations contained in these contracts. This approach would allow the Company going forward to base its financial communication only on its IFRS accounts rather than on multiple sets of figures. The Company aims to fix a definitive approach with its auditors and the regulators prior to the release of the half-year 2018 financial statements.

*For full financial records, please reference the Investors section of this website.*