Letter to Shareholders - 2013
After a promising start, 2013 proved both challenging and unpredictable. What can you tell us about CGG's performance?
2013 was indeed a year of contrasts. After a better than expected first semester, we suffered from the impact of a deteriorating seismic acquisition market in the second semester.
In these challenging market conditions, total Group revenue for 2013 rose 10% over 2012.
Although our Acquisition Division showed a healthy operational performance, as reflected by our fleet's high utilization rates, profitability remained modest in 2013 with an EBIT margin of only 2.5%. Thanks to our successful integration of Fugro's Geoscience activities and outstanding results in Subsurface Imaging, our Geology, Geophysics & Reservoir Division (GGR) generated a strong level of profitability, achieving a 25% EBIT margin. Our Equipment Division recorded an excellent 28% EBIT despite a decline in activity. The Division once again demonstrated its resilience and technological leadership with two significant product launches at Sercel: the Sentinel MS solid streamer and a new-generation land acquisition system, the 508XT.
What is your perspective on CGG's profile
since the creation of your new GGR Division?
Our clients rely on multiple technologies and services to identify new reservoirs and explore and produce them sustainably. With the integration of Fugro's Geoscience activities, GGR is now uniquely positioned to develop original integrated solutions in collaboration with our Acquisition and Equipment Divisions. Together they bring into play the full spectrum of geoscience expertise and technology across the entire E&P value chain: geology, geophysics, seismic imaging, reservoir modeling and rock property analysis as well as cutting-edge capabilities in engineering, petroleum economics and technological innovation.
You announced the launch of a new strategic phase for CGG.
Can you tell us more about it?
The next phase of our strategic roadmap will be fully implemented by 2016. The plan is designed to rebalance the Group in favor of high-end, more profitable, less volatile and less capital-intensive activities that generate stronger cash flow.
Our first priority is to resize the Acquisition Division by focusing activities on the most profitable segments of the acquisition market, making us more capable of withstanding market cycles while reducing overheads and capital outlay. In Marine Acquisition, we will be downsizing our fleet from 18 to 13 vessels by 2016. In Land Acquisition, we will be focusing our efforts on niche markets while continuing to develop partnerships and joint ventures in key regions. Equipment and GGR, our most profitable and least capital-intensive Divisions, will continue to grow while we pursue efforts to reduce costs and increase performance and cash flow.
What can you tell us about prospects for 2014?
Seismic market conditions deteriorated sharply in the second half of 2013, particularly in acquisition. Tough market conditions mean that we will have to remain vigilant, step up our efforts in innovation and operating excellence and pursue development in Equipment and GGR. We will continue to accompany our clients as they explore and produce by providing them with a complete portfolio of highly innovative geoscience technologies and services to meet their energy and environmental challenges.
I can say that we are confident in the future as we advance in 2014. The Group is remarkably mobilized to follow our strategic roadmap and transform CGG into a fully integrated and rebalanced geoscience Group by 2016.
Chief Executive Officer