CGG: Third Quarter 2006 Results

Compagnie Generale de Geophysique (ISIN: 0000120164 - NYSE: GGY) published its unaudited consolidated results for the third quarter of 2006.

Q3 2006 highlights:

- Third quarter 2006 Group revenues of Euros 321 million, up 46% in Euros (54% in USD) compared to the third quarter of 2005.

- Group operating result of Euros 72 million, a 22% operating margin, compared to Euros 13 million (6% operating margin) in the third quarter of 2005.

- Geophysical Services: Revenues of Euros 201 million, up 40% in Euros (48% in USD) compared to the third quarter of 2005 and a 20% operating margin.

- Sercel: Revenues of Euros 134 million, up 38% in Euros (46% in USD) compared to the third quarter of 2005 and a 29% record operating margin.

- Group net result of Euros 45 million.

- Group backlog of USD 1.1 billion as of November 1st 2006, a 45% increase year on year.

Comments and Perspectives:

CGG Chairman & CEO, Robert Brunck, commented: "In a buoyant geophysical market, the very good financial results delivered this quarter and across the last nine months by both Geophysical Services and Sercel, illustrate the strong operating performance of the company and the good quality of our portfolio of activities.

The merger process with Veritas is progressing in line with our initial schedule and we are confident in the capacity of the new CGG-Veritas Group to very rapidly, as early as the beginning of 2007, fully reap the benefit of a broader geographical positioning and a reinforced technological profile in a favorable market".


                               Consolidated Statement of Earnings

    Million Euros                 End of September                Q 3
    IFRS                         2006       2005           2006       2005
    Operating revenues          955.6      607.5          321.1      220.5
    Gross profit                320.3      135.5          105.3       45.9
    Operating
    profit (loss)               217.6       45.0           71.5       12.9
    Equity in income (loss)
    of affiliates                 8.9        9.6            3.1        2.9
    Net cost of
    financial debt              (19.2)     (26.7)          (6.1)      (7.1)
    Variance on derivative
    on convertible bonds        (23.0)     (38.0)                    (23.3)
    Other financial
    income (loss)                (8.4)       1.3           (1.8)       0.6
    Income Taxes                (54.9)     (18.5)         (21.9)      (3.7)
    Net income                  121.0      (27.3)          44.8      (17.7)
    Net income (loss)
    per share / diluted
    in Euros                     6.78      (2.37)           2.49      (1.57)
    Weighted average
    number of shares
    outstanding             17 675 616 13 384 602     17 860 465 13 384 602


    

Group Revenues:

Group revenues for the third quarter of 2006 were Euros 321.1 million (USD 410.8 million), up 46% in Euros and 54% in USD compared to the third quarter of 2005.

Group revenues for the first 9 months of 2006 were Euros 955.6 million (USD 1,186.5 million) up 57% in Euros and 54% in USD compared to the same period of last year.

Q3 Revenues per segment:

Total revenues for Geophysical Services for the third quarter 2006 were Euros 201.0 million (USD 257.2 million), up 40% in Euros and 48% in USD compared to the third quarter of 2005.

Land revenues were Euros 23.3 million (USD 29.8 million), down 31% in Euros and 27% in USD compared to the third quarter of 2005.

Offshore revenues were Euros 144.1 million (USD 184.4 million), up 81% in Euros and 91% in USD compared to the third quarter of 2005.

Total revenues for multi-clients surveys were Euros 57.3 million, up 108% year on year. The net book value of the multi-clients data library at the end of September 2006 was Euros 70 million.

Processing and Reservoir revenues were Euros 33.6 million (USD 42.9 million), up 12% in Euros and 18% in USD compared to the third quarter of 2005.

Sercel total sales for the third quarter 2006, were Euros 134.3 million (USD 171.8 million), up 38% in Euros and 46% in USD compared to the same period of last year.

External sales for the third quarter of 2006 were Euros 120.1 million (USD 153.6 million) up 55% in Euros and up 64% in USD compared to third quarter of 2005.

Group Operating Income:

Group operating profit for the third quarter of 2006 was Euros 71.5 million representing a 22.3% operating margin, compared to Euros 12.9 million of operating profit for the third quarter 2005 and a 5.9% operating margin. This operating profit does not take into account the Euros 3.3 million contribution from Argas.

Group operating profit for the first 9 months of 2006 was Euros 217.6 million representing a 22.8% operating margin, compared to Euros 45.0 million of operating profit for the same period last year and a 7.4% operating margin. This operating profit does not take into account the Euros 9.0 million contribution from Argas.

Q3 Operating Income per segment:

Geophysical Services: Operating profit for the third quarter of 2006 was Euros 40.0 million, (not including the Argas contribution of Euros 3.3 million) representing a 20.0% operating margin compared to Euros 2.4 million operating profit (1.7% operating margin) for the third quarter of 2005.

During this quarter, the land acquisition activity was impacted by the completion of several projects and the start of new ones. At the end of September, 10 crews were in operation.

In marine acquisition, 7 of the 9 3D vessels worked on contracts. A second vessel, as anticipated, was dedicated to multi-clients work, on a program located in the deep offshore Gulf of Mexico, south of our current library.

Multi-client after-sales were Euros 33.3 million compared to Euros 24.1 million last year, a 38% increase due to a sustained demand in the Gulf of Mexico and in Brazil.

In processing and reservoir, a new center was opened in Moscow and a new dedicated center has been awarded in Madrid.

Sercel: Operating profit for the third quarter of 2006 was Euros 38.6 million, representing a 29% operating margin compared to Euros 19.5 million for the third quarter 2005, and a 20% operating margin. This quarter was characterized by a strong demand for offshore equipment and a growing demand for land equipment.

During the quarter, Sercel reinforced its technological portfolio with the acquisition of Vibtech, a company based in Scotland, specialized in wireless technologies for seismic data recording and with the acquisition of a 20% interest in Cybernetix, specialized in innovative solutions in robotics and automated machines for nuclear and oil services.

    Million Euros                End of September        Q 3
    IFRS                             2006   2005      2006    2005
    Operating revenues
    Services                        603.9    392.1  201.0     143.4
    Products                        421.5    256.0  134.3      97.1
    Elimination                    (69.8)   (40.6) (14.2)    (20.0)
    Total                           955.6    607.5 321 .1     220.5

    Operating profit (loss)
    Services                        129.7     14.0   40.0       2.4
    Products                        113.5     49.3   38.6      19.2
    Corporate & Elimination        (25.6)   (18.3)  (7.1)     (8.7)
    Total                           217.6     45.0   71.5      12.9


    

Net Result:

The Group net result for the third quarter of 2006 was a profit of Euros 44.8 million, a 14% net margin, compared to a net loss of Euros 17.7 million for the same period of last year, (which included Euros 23.3 million specific financial charges for the variance on derivative of the 2012 convertible bonds).

The Group net result for the first 9 months of 2006, including Euros 23.0 million specific charges for convertible bonds, was a profit of Euros 121.0 million compared to a Group net loss of Euros 27.3 million for the same period of last year (which included Euros 38.0 million for convertible bonds).

                                                Group Net Result

                               Million Euros       End of September        Q3
                               IFRS          2006     2005    2006    2005
    Net income before
    variance on derivative
    of CB                                   144.0     10.7     44.8    5.6
    Variance on derivative
    of the convertible
    bonds (CB)                              (23.0)   (38.0)          (23.3)
    Net income (loss)                       121.0    (27.3)    44.8  (17.7)

Operating Result Before Depreciation and Amortization:

The Operating Result before Depreciation and Amortization, "ORBDA", previously denominated "Adjusted EBITDA" in our former financial reports is defined as operating income (loss) excluding non-recurring revenues (expenses) plus depreciation, amortization and additions (deductions) to valuation allowances of assets and add-back of dividends received from equity companies.

The ORBDA for the third quarter 2006 was Euros 122.3 million, representing 38% of revenues and a 148% increase year on year.

    Million Euros                  End of September      Q 3
    IFRS                             2006     2005    2006 2005
    ORBDA                           359.9    148.9   122.3 49.3

    Summary of cash-flows:

    Million Euros                           End of September       Q 3
    IFRS                                      2006     2005     2006  2005
    Net Cash before change in working         296.0    121.2  100.5   39.0
    capital
    Net Cash provided by operating            194.3    109.3   52.3   31.4
    activities
    Total purchases of tangible and          (131.3)  (67.7)  (37.3) (30.9)
    intangible assets
    Investment in multi-clients surveys      (38.9)   (19.2)  (12.4)  (4.2)

    Balance Sheet items: As of September 30th 2006, net equity was Euros
850.5 million and net debt was Euros 273.0 million, representing a 32%
gearing ratio.

    Equity and Net Debt
    Million Euros
    IFRS                              30/09/2006   31/12/2005

    Shareholders' equity                 850.5       698.5
    Net debt                             273.0       297.2
    Gearing ratio                        32.1%       42.5%

Backlog:

The backlog as of November 1st 2006 was USD 1.1 billion, up 45% compared to November 1, 2005.

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