Since the end of 2013, the CGG Group, like all the other players in the seismic industry, has experienced an unprecedented crisis, which has led it to undertake an ambitious industrial transformation plan aimed essentially at rebalancing its business portfolio towards Geoscience activities (GGR: Multi-Client surveys and Imaging) and production of seismic equipment, while sharply reducing its exposure to the contractual data acquisition market (offshore, onshore and airborne).
More specifically, the last phase in this industrial transformation plan, announced in the fall of 2015, consisted – among other measures we took to adapt – in right-sizing our operated fleet to only five vessels, that are mainly focused on our own Multi-Client survey needs, and in reducing the share of contractual data acquisition in the Group’s overall activities to less than 15-20%.
The cost of implementing this last restructuring phase was estimated at more than $300m, which we decided to finance (see December 7, 2015 press release) through a rights issue, considering this to be a preferable solution for shareholders compared to an alternative solution which would have been to allow minority interests to take a stake the Group’s core activities. There was also no guarantee that we would have been able to achieve this (we would have had to find investors, reach an agreement on the entry price, exit conditions, and obtain the prior consent of some creditors in parallel, etc.).
The size of this rights issue (around €350m gross, corresponding to $338m of net proceeds for the company) was determined based on an estimate of Group’s the industrial restructuring costs and its liquidity needs.
At the time, our forecasts were:
– the price per barrel would rebound to within a range of $65 to 70 by the end of 2017-mid 2018;
– after a decline in annual revenue of nearly 20% in 2014 and almost 30% in 2015, revenue was expected to fall by around 25% in 2016, then recover in 2017 to close to the figure for 2015, and increase in 2018;
– on this basis, the Group’s debt was to be contained, with a leverage (net debt to EBITDA ratio) of less than 5x throughout 2016 and then decrease and fall below 3x by mid-2018.
However, the unfavorable market conditions have ultimately proven to be far worse than forecast:
– the 2016 decline in revenue was finally close to 45% (instead of 25%) ;
– 2016 EBITDA was well below expectations;
– leverage ratio reached 7.1x at the end of 2016;
– overall, over the 2016-2018 period, the Group estimates that it lost in total, compared to forecasts, nearly $2bn of turnover, corresponding to almost $1bn less EBITDA over the period and an equivalent decrease in liquidity.
Due to this profound and irreparable imbalance in the Group’s financial situation, CGG decided to embark on this financial restructuring process.