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Executives

Christophe Barnini - Former Head of Investor Relations

Jean-Georges Malcor - Chief Executive Officer, President, Head of Strategy, Legal & Investor Relations Department and Member of Executive Committee

Stephane-Paul Frydman - Chief Financial Officer, Senior Executive Vice-President, Executive Vice-President of Finance, Member of Group Management Committee and Member of Executive Committee

Analysts

Tom Ackermans - Barclays Capital, Research Division

Robert Pulleyn - Morgan Stanley, Research Division

Peter Testa

Ryan W. Kauppila - Citigroup Inc, Research Division

Amy Wong - UBS Investment Bank, Research Division

David Phillips - HSBC, Research Division

Christopher Møllerløkken - Arctic Securities ASA, Research Division

Mick Pickup - Barclays Capital, Research Division

Compagnie Générale de Géophysique-Veritas SA (CGV) Q4 2012 Earnings Call February 28, 2013 9:00 AM ET

Operator

Good day, and welcome to the CGG Fourth Quarter and Year-End 2012 Conference Call. [Operator Instructions] Please note this event is being recorded. And I would now like to turn the conference over to Christophe Barnini, please go ahead.

Christophe Barnini

Thank you. Welcome to the CGG Fourth Quarter and Full-year 2012 Financial Results Conference Call. The quarterly results and the full-year financial information, including the press release, the presentation are available on our website. Some of the information contains forward-looking statements, including, without limitation, statements about CGG's plans, strategies and prospects. These forward-looking statements are subject to risks and uncertainties that may change at any time and, therefore, the actual results may differ materially from those that were expected. Figures provided today during the conference call do not include $48 million of non-recurring charges related to the acquisition of Fugro Geoscience Division.

The call today is being hosted from Paris, where Mr. Jean-Georges Malcor, our CEO; and Mr. Stephane-Paul Frydman, our CFO, will provide an overview of the fourth quarter and full-year research, as well as provide comments on our outlook. Following the overview of the quarter and the full year, we will be pleased to take your questions.

And now I will turn the call over to our CEO, Mr. Jean-Georges Malcor.

Jean-Georges Malcor

Thank you, Christophe. I refer on my presentation, during the presentation, to the package which has been posted. So if we go to Slide 3. And good afternoon, good morning to all of you. It's a pleasure to talk to you today.

So Slide 3, a year of solid financial performance of CGG. 2012 is indeed a year to remember for our group. The seismic market was rather well oriented all year-long. And 2012 was also the second year of our 2010 performance plan. It was a year of growth, of profitability with our net reserve back to black and a year of positive cash generation.

2012 was also the year of the acquisition of the Geoscience Division of Fugro and the formation of our new JV, Seabed Geosolutions, which is, of course, a major strategic move for our company.

In 2012, CGG grew 7%, with all division delivering solid growth but multi-client. We achieve key top line milestones with group revenue of above $3.4 billion, Sercel was above $1.2 billion and Services at $2.5 billion. Our operating income was $365 million, up 78% year-on-year and 11% operating margin. Our EBIT, including the contribution of equity from investees, was $403 million, up 82%, with a margin of 12%.

After a low minus $125 million end of September, net free cash flow was positive for the full year 2012 at $63 million, including a very strong cash generation in the fourth quarter of 2012. Finally, our net reserve was $123 million and the EPS was EUR 0.50.

Now going to Slide 4. And just looking at the way the performance plan has been working during the last 2 years, I am pleased to report that in 2012, our performance plan that we launched in 2010 has indeed delivered strong results. This plan has come to an end, and it is now very satisfying to see not only the other achievement of our cash management objective, but also the effects of the plan, both from an operational and financial perspective.

Looking at our operational performance, I would like to highlight 3 points: First, in 2012, our fleet availability rates and production rates were at 90% or above and on target. Again, the fleet was upgraded and modernized and it is now fully BroadSeis equipped. The upgrade will be extended to the Fugor vessel in H1 and we will follow on dock on the Phoenix by year end.

The third, as planned, also during our plan, our G&A has been reduced from 7.7% in 2010 to 5.4% of the revenue in 2012.

The second axis of the plan and very importantly, we managed to strengthen and keep growing and increase the technology differentiation during these 2 years. And I'd also like to highlight a few points. First of all, BroadSeis, our broadband marine solution, confirmed success and is now shaping the Marine market. StagSeis, our new marine acquisition solution, which provides full wide azimuth coverage and unrevolved long offsets designed to eliminate the complex subsalt geologies is a success and is deployed in the Gulf of Mexico. Sercel launched the new Sentinel RD, reduced diameter, offering a 15% weight reduction and providing reduced cable drag and increased storage capacity on both seismic vessels. We also signed this year, in 2012, an agreement with Saudi Aramco to develop together SpiceRack, which is an innovative solution for Seabed acquisition. And finally, we signed also technological and the preferred supplier agreement with Fugro.

In the commercial differentiation front, we have been also on the track and doing well. In March, we finalized a joint venture with PetroVietnam, and we contributed Amadeus. In July, we signed an agreement with SMNG in Russia and CIS to address the growing Marine seismic market. In November, we signed a commercial agreement with Baker Hughes in the shale plays to help oil and gas companies to drill more positive wells.

Overall, the performance plan has delivered the 2-year goal that we set for ourselves in December 2010.

Now I will leave the floor to Stephane-Paul Frydman, who will give you a bit more detail on Q4 and full year financial performance, and I will come back to comment the operational performance and give you an outlook for the years to come.

Stephane-Paul Frydman

Thank you, Jean-Georges. I'm on Slide 6. Let's start first by the corporate division. As said by Jean-Georges, a solid underscored performance in the first quarter 2012 and strong cash generation led to an improved financial situation in all compared to last quarter and last year. Group revenue for the quarter was $938 million, up 4% year-on-year as a combination of equipment sales down 11% year-on-year and Services up 10% year-on-year despite the 22% year-on-year decrease of the multi-client sales.

Operating income for the quarter was $113 million, a 12% margin. Sercel reached 28% margin unitably to increase R&D expenses, a trend that should continue in 2013. Services operating margin was 8% for both the 2% margin we set above the 2% margin originated last year, thanks mainly to the contract activities, both acquisition and processing imaging that compensated disappointing low multi-client after sale this quarter following a delayed Brazil licensing round.

Including the contribution from equity in nonconsolidated subsidiaries, our EBIT amounted to $124 million, a 13% margin. Two comments have to be made here. The graph on the right of the slide is showing both the seasonality of our Mings generation and the improvement from H2 2011 to H2 2012. And second, given the importance of those state in co-managed companies, up 49% in our Saudi joint venture Argas; 49% in our Vietnamese joint venture with SPVN and since February 16, 40% in the Seabed Solutions joint venture we build up, which we goal [ph]. We will commonly use this search indicator starting 2013 to figure out the financial performance and the location of the company.

Last, concerning our Q4 P&L bottom line, you see that our net income was positive $45 million, in line with our Q3 and higher than Q4 last year.

Moving to the financial indicator in the fourth quarter on Slide 7. We see that group EBITDA was high at $294 million, a 31% margin, with both Sercel and Service EBITDA margin at 32%. Cash flow from operation was $454 million, up 43% year-on-year. Total CapEx was $160 million, with notably multi-client cash CapEx at $81 million, highly prefunded at 108%.

Thanks to that and to the tight management of our working capital requirements, free cash flow was very strong at $238 million for this quarter, turning to a positive in terms of cash generation as targeted.

Looking now at the whole picture over the year 2012 on Slide 9, you can see that with revenue at $3,411 million, the group showed this year again nice goal growth, at 7%, following the 2011-2010 growth at 10%. Sercel growth compared with the delivery of our 2010 performance plan and notably as highlighted previously by Jean-Georges, coupled with a tight management of our cost structure, our G&A ratio moving down to 5.4% of the revenues this year versus 6.4% last year and 7.7% in 2010, allowed us to almost double our EBIT from 2010 to '11 level up to 2012 at $403 million back to 12% margin.

On search basis, our net income went up at $123 million this year, corresponding to an EPS of EUR 0.50 per share from a net loss in 2011.

Moving on Slide 10, and concerning the financial balance of the company this year and the main financial indicators, you see that we delivered a high 4-digit EBITDA at $1,011,000, a 23% growth year-on-year, higher than the 7% revenue growth and the 30% margin.

The total CapEx at $737 million were in line with the guidance we provided to Streetwise. Looking at the Industrial CapEx, they amounted to $345 million, which was within the $325 million-$355 million range we mentioned. Same thing for the multi-client cash CapEx at $164 million, which are within the 50% to 75% range we indicated. Those multi-client cash CapEx were prefunded at 72%, again as we said during our previous communication.

Based on such level of CapEx, we skipped cash flow from operations at $921 million, boosted by our high EBITDA and a tight management of our working capital requirements, we were able to generate $63 million free cash flow this year as targeted, leading to a very healthy and improved financial situation by year end 2012, which can be seen on Slide 11, showing the structure of our capital employed, which are at $5,377 million, quite stable compared to year 2011. On the asset side, goodwill is down at $2.4 billion following the covet of our land Seabed business. That means that we reduced it by $300 million. Those $300 million are presently reclassified in assets for sale within the net current asset amount and as you see was disposed the when we close the Seabed joint venture in mid-February.

The multi-client net book value is up to $604 million, it is split 20% onshore, 80% offshore, and it has to be noted that search labor is very fresh and young, with 46% of its value corresponding to solve in progress. On the liability side, the situation is obviously positive as of year-end 2012 after the financial resources needed for the Fugro's production were raised, but not yet disbursed. The equity at $4,493 million embedded the $520 million of proceeds of October write issues and for $64 million, the equity covenant of our November convertible bond. To better understand the $785 million of net debt we'll benefit from by year end 2012, let's first go to Slide 12 to try to reconcile figures.

Starting from the blue block of $785 million and moving to the left of the slide, you can see that not including the impact of the Fugro production financing, net debt would have amounted to $1,410 million at the end of December with a net debt-to-equity ratio of 36%, stable year-on-year and at the level originally targeted, and the leverage ratio decreasing at 1.4x EBITDA from 1.7x EBITDA by end of 2011.

Moving now to the right of the slide, you see that on a pro forma basis, including all the elements related to the Fugro Operation, and in particular, the EUR 975 million net cost of production before fees, the pro forma group net debt at the end of 2012 would have been $2,105 million for a net debt to equity ratio at 47%, meaning around lower than 50% which was the level we are looking for and we announced last September notably for the purpose of keeping as is our credit ratings, which was to be confirmed by S&P and still on hold by Moody's.

I will now turn the floor back to Jean-Georges for the operational overview and the 2013 outlook.

Jean-Georges Malcor

Thanks, Stephane-Paul. And I'm on Slide 14 for the 2012 operational overview. And starting with Sercel, Sercel delivered an excellent performance in 2012. External Revenue was up 7%, 36% of total sales were related to Marine Equipment and 64% related to Land Equipment. Marine revenue were stable year-on-year despite very low OBC sales. Land sales were up 14% year-on-year, driven by high channel counts deliveries for megacrews, mainly the Middle East and increasing sales for UNITE wireless systems.

During our last industry convention, Sercel launched the Sentinel RD, the last generation of solid streamers. It is fully compatible with Sercel C428 and Sentinel. It has a reduced diameter and a 15% weight reduction and, therefore, to reduce -- able to reduce fuel consumptions and provide also reduced cable drag and increased storage capacity on both seismic vessels. Soft [ph] deliveries started in June 2012.

Internal sales represented 21% of total sales in 2012. Operating income was $380 million and margin was 32%. The R&D and product qualification CapEx were higher as Sercel is preparing the future development of new products in 2013. This trend has already impacted the fourth quarter as the margin have stabilized at 28%. This level is probably very close to where we expect Sercel to be in 2013.

Now moving in Slide 15, for services. In Marine, revenue was up 3% year-on-year from contract Marine, while more vessels were dedicated to multi-client activity. Global Marine production including multi-client improved by 22% in 2013. Fleet performance was on target, with a 90% rate achieved both for the availability and production rate as expected. 80% of the free fleet is now operating with 12 streamers or more, and the fleet is fully equipped with BroadSeis capability, our broadband marine solution. In 2012, more than 1/3 of our operations were BroadSeis, which is a significant increase year-on-year and illustrates the increasing demand for this technology, which was launched in May 2010.

In Land, revenue was up 34% year-on-year, very close to our $500 million top line, which is a recalled year. In 2012, we operated 24 crews in average, including 5 on multi-clients. Activity was at a record level in Middle East and in North America, including Lower 48, Canada and Alaska, especially during the winter season. In Saudi Arabia, with our equity invested subsidiary, Argas, will share bottom cable operations, which recall production rates, each number of vibration points per day and revolve and setting new recalls every week. Our operation in North Africa have been developing nicely, and they represent a very strong operation and technology potential. They suffered throughout the year from the geopolitical situation in these countries, with a significant impact on our profitability. I must say as well that this situation will also impact our H1, as we are operating currently at reduced rates following the tragic In Amenas events.

On Slide 16, multi-client, total sales were below expectation, with revenue down 5% year-on-year. Prefunding revenue increased by 63% and multi-client CapEx were up 79%. Prefunding rate was 72% and on target. CapEx was concentrated offshore Brazil, Gulf of Mexico, North Sea, and Angola, and onshore Marcellus and in Alaska. Despite our sustained efforts during December and until the last moment, as you may remember, most of the aftersales in multi-client are traditionally done between Christmas and New Year. Revenue from aftersales decreased by 38% year-on-year after lower-than-expected fourth quarter aftersales, essentially due to the delay of the 11th Brazilian licensing round. A round which is now being announced, one for May and one in November.

Processing, Imaging & Reservoir revenue was up 8% year-on-year, and achieved record revenue of $478 million. Operational performance was excellent and significantly improved in 2012. The demand for our unique high-end sophisticated imaging algorithm and for high volume of marine BroadSeis acquisition testing this growth of activity, especially in our major international processing hubs.

Our continued advance in this domain further differentiates us in the minds of our clients, which are facing complex geology challenges.

Now going to Slide 18, and looking back at the acquisition of the Fugro Geoscience Division. I would like to take just a few minutes to recap what has happened on this front. In the announcement by Fugro of the decision to divest its marine business back in May, our priority has been to be active in order to remove uncertainty and to create value for our shareholders. And this is shown in 3 main points: The first one, the parameter which we acquired, notably in our aim to acquire or sell the Geoscience Division and create the Seabed JV, which was not included at the beginning. Second, the amount of the transaction. We paid this division based on multiples that we are not reflecting the peak of the cycle; and third, in the financing, which aim was to bring the net debt-equity ratio to 50% post-acquisition and favor our shareholders with a capital increase including preferred subscription rights.

As it is shown in the table, we were very active and we respected all our commitments. This transaction was rather complicated, a lot to do as we have acquired a lot of different assets, more than 80 different companies and sold our Seabed acquisition activities. Nevertheless, 9 months only after this announcement, the deal is closed, negotiated and fully financed. The Airborne activity will join CGG in H1 when the final authorization from the administration, we're talking about licenses, will be delivered.

Now going to Slide 19, our new organization. As a world leader in geoscience, CGG is now organized along 3 business segments: Equipment; Acquisition; and GGR, Geology, Geophysics & Reservoirs. Every division will have its own strategy and its own development. Equipment division include Sercel and its subsidiaries, Octoplan, Acquisition, GRC and Direct. The Acquisition division includes marine acquisition, land acquisition, airborne activity when integrated, electromagnetism, gravimetry and magnetism. Division will also represent our interest in the Seabed Geosolutions. The third division, GGR, includes multi-client; processing and imaging; Jason and Hampson-Russell, which are dealing with our reservoir characterization; Robertson, dealing with exploration & geology; and data management services.

Now only 1 month after the completion of the transaction, the organization is already in place, fully staffed and the integration process has been already launched.

Moving to Slide 20. Looking at the market trends with the presence of these 3 division. With the exploration and production spending expected to increase again by high single-digit this year, and sustained by new frontier area of exploration in complex geology, conditions should remain favorable in 2013. The evolution of exploration and production activities are demanding more and more geophysics and geoscience solutions. Our clients are more and more focused in [indiscernible] in the production cycle on the risk reductions, future positioning and the configuration of the drillings, as well as the optimization of production of existing reservoirs. All these require a better knowledge and understanding of geology, of the seismic tube and of the reservoir. This should lead to, first, increasing demand from our clients for higher resolution and for technological content of our seismic data in order to improve their knowledge early in the production cycle of reservoir characterization for structures and to ease the development of the future wells. And second, the more key role to play for seismic processing, but also for reservoir characterization and, overall, a strong expected evolution of seismic towards geoscience. As you can see, Geology, Geophysics & Reservoirs, our new and strengthened businesses, are becoming more and more crucial in our client organization. They are indeed the art of the market dynamic. Overall demand for seismic is expected to remain solid, driven by exploration of new frontier areas such as Barents Sea, Arctic, Angola, Gulf of Bengal, East Africa and more. And tendering activity for marine contracts is increasing. High licensing world activity is also expected in 2013 across the globe including Brazil.

Now going to Slide 21. Let's have a look at the market trends of every business segments and what it means for us. In Equipment, after years of strong growth, market is stabilizing. Land is still driven by launch of new high channel counts megacrews. Marine will benefit from an active reprice [ph] in the market, offsetting the limited increase in Marine supply overall. Marine Acquisition markets remain solid, with increasing demand for broadband technologies and the increasing 3D high-end Marine supply, limited and predictable.

Land Acquisition, this fleet [ph] is accelerating between the low-end commodity market and the high-end long-term seismic added value business, more oriented towards complex exploration and reservoir optimization, which is, of course, the one we are targeting. We will talk about the airborne to the suite when this activity will join the group during the second quarter of 2013. On Geology, Geophysics & Reservoirs markets are growing, driven by higher volume of data acquired, increasing resolution, better technological content, and high-end algorithm to better understand and characterize complex geologies. It should drive more with our characterization services and solutions, as well as more intelligent data storage.

In multi-client side, which will be driven by new frontier exploration and high licensing activity, especially in Brazil, where new licensing rounds have now just been announced.

Going to Slide 22 and looking at the 2013 revenue trends. What does it mean for our 3 business divisions? On Equipment, first. Overall in Equipment, we expect Sercel revenue to remain stable due to the uncertainty of the unknown timing of very large acquisition projects in the Middle East, whether they not materialize by the end of the year or in 2014. And it's also due to the decrease of internal sales that should be lower in 2013 as the great program of our fleet is over. R&D expenses will increase as in 2012 to support the launch and the qualification of new generation of products in the second half of 2013.

On acquisition, land revenue will decrease in 2013, as we expect a lower activity during the winter campaign in North America. We have 7 crews in Canada versus 10 in 2012, and a limited activity in Alaska. Activity should remain strong in the Middle East and also in North Africa, in Egypt, Tunisia and Nigeria where, nevertheless, the political uncertainty remains and does not enable us to fully deploy our operations at least for the time being.

Marine with the global fleet, including Fugro vessels, is well booked during the first 9 months of the year, with 90% booked for Q1, 80% booked into Q2 and 65% booked into Q3. The new contracts awarded in the North Sea include a daily price in the range between $280,000 and $330,000 per day. The current coverage supports continued testings of the price.

In the GGR side, processing revenue will continue to increase in 2013. Multi-client will increase in 2013, cash CapEx is expected to remain stable year-on-year between $350 million and $400 million with 80% in Marine and 20% in land.

Now in CapEx increase, we'll focus on Gulf of Mexico, with the pursuit of our IBALT program, but also with new regions, thanks to Fugro particularly, the search at Angola, Australia and the Barents Sea. Revenue rate should increase to 75%.

The level of characterization should continue to increase worldwide, although some revenue should remain stable waiting for synergies to be regenerated with multi-client activity. And data management should continue to go in line with the increase of volume of data acquisition.

Now going to Slide 23 and looking at the transformation of the group. After the completion of the transaction late January, we are accelerating the integration and the transformation of the group. The next 2 quarters will be transitional quarters, during which we will, in particular, finalize the BroadSeis upgrade and the operational processes of our newly acquired fleet and we expect to be fully operational by the end of H1.

During this year, we'll be reinforcing our growth, create value both for our clients and shareholders. CGG will focus on 3 following strategic axes deliver this transformation. The first axis is building the new CGG. With the new organization in place and with the integration plan on track, the new CGG could be fully operational by the end of the first semester. Operational performance, especially in HSC, and focus on cost base remain our key priorities. Second, to improve visibility of the financial performance to improve the understanding of our new business segments and to further externalize value for the company, CGG will report at the free division level and the EBIT level as soon as Q1 2013.

Our second strategic axis is becoming the partner of choice. In 2013, CGG will further accelerate the development of new products, new solutions, new technologies across all its business segments. In particular in Sercel, this year will be the year to strengthen the R&D effort and to launch the next-generation of products and to confirm the group technological leadership. Second, we're focusing on high end solutions, services and products. CGG want to become the partner of choice for our clients and to further develop strategic partnerships who extend our local presence and portfolio of activities in new countries, new clients and markets with high growth potential.

Third axis of the development is linked to increasing the return on capital employed. This transformation I'm talking about for the group will be conducted with the objective of managing the portfolio of assets and businesses of the group to optimize the capital employed and their return. Some focus will be put on the cash generation, the reduction of the cost of debt and on the appropriate financial leverage.

With these 3 strategic axes that we will be deploying in 2013, we should position CGG in a very good position to accelerate its growth in a wider portfolio of integrated activities and reinforced high-end expertise in key regions and markets. Second, to create value for the shareholders for better valuation of the 3 business segments and streamline financial profile. And third, create value for its clients and employees by continuing to operate safely and with integrity around the world to deliver a social responsible and sustainable performance.

Now turning back to -- going back to Slide 24 and to conclude on our financial objectives. Given the short period of time since the closing of the Fugro Geoscience Division acquisition, I cannot give you today too many precise figure for 2013. However, I like the fact that the assets we acquired are the ones that we have been analyzing during the 2 divisions process. And we didn't notice any significant discrepancies. Second, the backlog of the contributed assets is close to what was expected, and there was no change in September 2012 concerning market conditions except the confirmation of the solid market for our geoscience activities. The Fugro reserves will be equipped with our BroadSeis technology during their next shipyard standby time, which all of them or most of them are scheduled during H1. As it was clearly mentioned and according to market conditions, we will probably operate only 4 acquired vessels to C class on the Permian Basin, and we will, therefore, operate in 2013 the equivalent of only 11 months of Fugro Geoscience, with the correlation of [ph] Perimeter, 6 months of airborne, and 4 [ph] reserves or more depending on the market conditions. In this context, and we have multi-client cash CapEx in the range of $350 million to $400 million, with the prefunding rate above 75%, and industrial CapEx in the range of $350 million to $400 million, CGG is well positioned to achieve its objective in 2013, which is, first, to increase its revenue base by around 25%, to improve its EBIT margin and to improve its return on capital employed.

Thank you very much. And now I open up the floor for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from Tom Ackerman of Barclays.

Tom Ackermans - Barclays Capital, Research Division

I wanted to start with 2 short questions and then with one follow-up after that. Just wondering where we should be thinking Sercel margins are going to be in 2013. I think you said 28% was a good starting point in the presentation this morning. But I just want to confirm that. Secondly, should we still assume that Marine pricing in your business is going to be up around 7.5% in 2013?

Jean-Georges Malcor

Yes, okay. I'll take the 2 questions. Yes, 2 very simple and straightforward answer to your question, Tom. 28% is a good basis for Sercel margin for 2013, absolutely. And I confirm that in our model, we have 7.5% increase on the marine pricing. As I say this morning in a French presentation, the 7.5% is on our base -- 7.5% compared to our 2012 base, which was slightly higher than the competition and with this 7.5%, we are very comparable, if you want, in terms of rate per day or rate per day to the rest of the competition.

Tom Ackermans - Barclays Capital, Research Division

Okay. And I mean if I take into account...

Jean-Georges Malcor

Just one point, Tom, just on the Sercel margin, I answered 28% for 2013, which is a transitional year for Sercel because we are launching new products. We expect the margin to go back to 30% in 2014.

Tom Ackermans - Barclays Capital, Research Division

If I take into account both these answers and look at the group level, it seems pretty impossible to me that EBIT margins will be above 15% in 2013. Is that a fair conclusion or assumption from those answers?

Jean-Georges Malcor

At the group level?

Tom Ackermans - Barclays Capital, Research Division

Yes.

Jean-Georges Malcor

Yes, it's a fair assumption, yes.

Operator

Your next question comes from Rob Pulleyn of Morgan Stanley.

Robert Pulleyn - Morgan Stanley, Research Division

A few questions from me, if that's all right. First of all, with the change in the asset base, with Fugro acquisition, could you give us some guidance around how we should think about depreciation in 2013 and going forward? Secondly, could you give us an idea about the Marine contract profitability? I believe I remember you saying that you would be around about 0% to 5% for full-year 2012. Was that indeed the case and where could we see that going this year? And finally, could we get some utilized station guidance for the fleet as a whole for 2013 given, obviously, the acquisition of those new vessels?

Jean-Georges Malcor

Okay. Right. So I'll start with the last question on the fleet occupations and the combined fleet operation. The number I gave in the speech regarding the backlog is number including Fugro, so we have a backlog which is 90% plus for Q1, 80% coverage for Q2, and 65% coverage for Q3, which are pretty good number to where we stand. Bearing in mind that we are bringing into these numbers the Fugro fleet. It means that for, globally, for the year, we will be targeting to have availability rate and production rate close to 90% again this year, all in all. Do you want to take the depreciation?

Stephane-Paul Frydman

Well, global D&A, globally, should be in the range of 10%, meaning -- that means when talking of CapEx within the range of 350 to 400, it's roughly corresponding to pure D&A. Then on the multi-client acquisition which is another question, we are target -- we have a very high depreciation rate this year. But we think that this should be back to more normal level for us, meaning kind of 65% in 2013.

Robert Pulleyn - Morgan Stanley, Research Division

And on the contract profitability?

Jean-Georges Malcor

Okay, on the contract profitability, if you look back at the last, I think, it's a good reference to take the Q3, Q4 last year. We were, on the 2 quarter, between 5% and 10% profitability for the Marine business. So you know it's a good basis for next year, with similar utilization and production rate and increasing price, so you should be able to have a good idea of what could be the Marine profitability.

Robert Pulleyn - Morgan Stanley, Research Division

That's very helpful. I'm sorry, one follow-up, if I may. Also in terms of working capital with the change in the business and Fugro assets coming in, how should we think about working capital movements for 2013?

Jean-Georges Malcor

Well, on the working capital side, you know -- you're talking about capital employed or working capital?

Robert Pulleyn - Morgan Stanley, Research Division

Working capital.

Stephane-Paul Frydman

Okay. So in working capital, well, the addition of Fugro, by itself won't create each growth. So obviously were talking of revenue growth, 25%, but it won't create by itself an additional churn in working capital because we are also buying the existing the working capital. I'm betting in this 25% meaning that's way to calculate it, probably, well, when we are thinking of this such growth, it's mainly embedding, say, 10% growth of the organic parameter, 20% related to the acquired parameter, and while this put in part of our business, which is a minus 5%, that explains mainly the move -- the growth at the revenue level and there's no huge discrepancy between the kind of working capital related to those revenues.

Operator

And our next question comes from Peter Testa of One Investments.

Peter Testa

Just following on from that question on working capital. May be just looking at cash flow overall, you highlight an improved cash flow profile. Can you give us a sense where do you think that you will have positive free cash flow in H1. I mean, typically, it's been very seasonal, but do you think you now generate more evenly cash flow through the year, so even in H1? Then the second question please is just looking at multi-client capitalization versus amortization. This year just past capitalization was greater than amortization in 2012. Do you think that will stay that way in 2013 or swing the other direction? And the last question's on Sercel, where you're predicting a relatively stable results or sales for the year. Can you give a sense as to whether you think that will be down in H1 and up in H2, given the order backlog that you entered the year with? And then on the H2 increase, if that's the case, can you give us some thoughts as to what you think the drivers will be for bringing Sercel back into growth?

Jean-Georges Malcor

So I'll give you a bit of a global color, and then Stephane-Paul will go in more detail between H1, H2. On the first one, on the cash flow between H1, H2, we see a generation -- a good generation of cash globally for the year. But for this year, we will still have a strong seasonality between H1 and H2 for 2 reasons. Intrinsically, there is a seasonality in our business in the way the investments and the working capital is going globally year after year. So we always have a strong H2 and a lower H1, particularly with the multi-client at year end. Okay? But more importantly, this year, in H1, we are going to have a number of one-off cost, plus transitional costs for the first 2 quarters to integrate the fleet, which are not going to help the H1 cash flow level clearly. Okay? And on the Sercel side, there is also seasonality, with H2 being much stronger than H1. But perhaps, Stephane-Paul, you can give a bit more color on that.

Stephane-Paul Frydman

Yes. On the cash generation, again, it's also related to, you notice, seasonality of the budget of our customers [indiscernible]. And so we are back -- meaning, on Sercel's side, with the -- meaning being back to the more -- importance of the land equipment land [indiscernible] is quite seasonal with traditionally a strong Q4 preparing the year after. This year, it was meaning -- triggered in Q3, that explain the develop for -- the selling in Q4. And looking forward, for 2013, we will have this seasonality with a lower H1 compared to H2. When looking at the combination, which we will for sure, we -- and that's, meaning, part of the rationale behind on the financial side, obviously, we will concern the steady cash-generating part of the businesses, meaning all the deals with reservoir processing, they are more and more smooth all along the year. But we still remain exposed to this kind of seasonality with H1, which will be, well, imagine that in cash in H1 and is generating strong cash in H2 as usual. We don't show also -- your question on the multi-client capitalization. Maybe the best way to see that, to answer it, to say that we are $600 million of multi-client library by year end 2012, and we're targeting a kind of stability here, which is what we said that somewhere, the cash we are targeting -- cash multi-client CapEx at $350 million, $400 million. The non-cash portion is in the range of $50 million. And if you compute the 65% of targeted revenue, you see that it's quite balanced. So all in all, the solution of the equation is the stability of the book value somewhere.

Peter Testa

And sorry, just on the first one, my question was more looking at the year-over-year development. You're expecting a full year relatively flat in sales, and I was wondering whether that was consisting of a decrease in H1 and an increase in H2, just looking at the trend in the backlog. And if that was the case, if you could help us understand what you thought was going to happen in H2 this year, which would start to drive the growth again. Are you referring to the large Middle Eastern programs, which you believe will happen? Or what are you assuming?

Stephane-Paul Frydman

Yes. The point is -- meaning -- well, it's very likely that the H1 of Sercel will be lower than the H1 of Sercel in 2012 for a simple reason, which was the fact that H1 2012 at Sercel was loaded by the Chinese, Saudi crews, meaning it...

Jean-Georges Malcor

It was the exchange [indiscernible].

Stephane-Paul Frydman

Yes, the exchange, there was the 2-time 60,000 channel that we are delivering in H1 2012. And we are expecting -- looking at the Sercel budget, we are expecting this kind of animal more in H2, and it's mainly -- that's for a given...

Jean-Georges Malcor

H2 or beginning of H1 to [indiscernible].

Stephane-Paul Frydman

Yes. So meaning, that's -- well, those kind of mega crews, you can anticipate it, but it can delayed. And so we have clearly 1 of 2 mega crews in mind. And then after, it's -- well, it's dependent on the final decision of the award -- the award body somewhere, awarding body. So -- but in terms of seasonality, that's fair to say that there won't be any mega crew in H1 2013. There was one -- there was in fact 2 in H1 2012. And we're anticipating something -- that kind of flavor in H2. That will explain the seasonality we're talking about on Sercel.

Operator

Our next question is from Ryan Kauppila of Citigroup.

Ryan W. Kauppila - Citigroup Inc, Research Division

Just another quick one on Sercel. I understand the product ramp in '13's effect on margins, but -- even back to 30% in 2014, with the new processes below what you've delivered the past 2 years. Are you starting to see some increased competition in some areas? Or is this just a business mix effect?

Jean-Georges Malcor

No. There is a combination of business mix offshore and also competition. But to answer your equation, I need to be a bit more precise because it's a combination of the 2. On the classic Sercel business, the 428 and the new generation, the market share of Sercel is very high, and the competition is, although being present, is not really a big threat for Sercel. Having say so, we don't want to be complacent. But this is not where the thing is playing a lot. But on, for example, the wireless product that -- the UNITE system that we are providing to the market, we are actually in a reverse position where Sercel is a challenger on this market and gaining market share. In fact, the gain in market share has been very strong in 2012 on the wireless. But of course, the margin are not the same as on the traditional systems. So it's a combination of mix of products between traditional and wireless on one end. And second, market positioning between 2 segments, which is different, while on the wireless, Sercel is more a challenger than a leader; and on the main one, Sercel being a leader has also 2 -- every 3, 4, 5 years, renew its product base in order to keep this leadership. So it's a combination of the 2.

Operator

Our next question comes from Amy Wong of UBS.

Amy Wong - UBS Investment Bank, Research Division

I have a few questions here. Firstly, can you comment on the Brazil 11th round in May and November? Can you give us some color whether a lot of it is offshore, onshore and confirm that you actually have a data shot for the acreage under auction? Secondly, can you -- do you have some visibility on the winter season for 2013, 2014 and how that's shaping up and how that may affect your view on '13 and '14? And third one is a tax question, a bit boring, but you previously commented the tax rate will continue to be quite high because of -- potentially like non-earnings in some areas where there's a minimum tax requirement. But as you're now making profits now, that tax rate should trend lower. So how should we think about that tax rate going forward?

Jean-Georges Malcor

Okay. Thank you. I start with the Brazilian situation. As you know, there are 2 licensing rounds which have been announced for Brazil. The one in May is mainly on exploration and on the equatorial margins. And there is a level of activity, which is interesting on the timing in Brazil. But this is not the one which is going to generate the bigger sales. There will be some in Q1 on that one, but the one which will be really bringing the big-ticket items are the one in November, the one in November on the pre-salt on Santos and Campos basins. And those ones will be very significant in volume. But Christophe can give you a bit more color on that -- on the 2.

Christophe Barnini

Yes. On the first licensing round in May, CGG has 11,000 square kilometers of data available. And in Santos, which is for November, we have 69,000 square kilometers. We have the largest library, which is covering the full Santos basin, including north of Santos and also the cluster. Talking about answering your second question, which is about the way the winter season is shaping right now, the good news is mainly coming from Brazil. As you know, in Brazil, this winter -- or last winter, there were 4 vessels, and we expect probably 7 or 8 vessels now to operate in the coming winter season, 2013, 2014. Also, the good news will be coming from Bay of Bengali, where we expect good activity in Bangladesh and in Myanmar, which was not the case this year, following the settlement of the disputed waters between Bangladesh, Myanmar and India. So this is going to be good on top of that. Uruguay and South Africa, which are the 2 top peak areas for the last winter, is also going to continue. So all in all, as -- right now, when looking at the winter season, it should be okay given what we just talked about.

Stephane-Paul Frydman

Okay. Amy, concerning tax, a few comments. Well, first, we are -- as we are a French/U.S. company, we are in countries where the rates are either 36% or 35%. 35%, 36%. So that will be for Sercel. That has 2 legs, and those are [indiscernible]. The taxation of Sercel is mainly around this level of 35%. And that's same thing for the significant part of the services. But as you may know, we consider than 1/3 of the services is exposed to a deem taxation of, say, 5% of the revenues. That means that as long as the profitability of these 1/3 of revenue is below 15%, we will have an effective tax rate far higher than the 35%. So -- and when you compute 5% of the revenue -- of 1/3 of the revenue of services plus ETR at 35% in your bonnet, well, that's roughly our taxation. Obviously, looking forward to '13 and post the partial transition year to '14, as our profitability will increase, we hope that we will start to benefit from this deemed taxation. We could in summer become beneficial. Again, if you are taxed 5% and generating 20% margin, then the ETR is rather 25% rather than being 35%. So we hope that entering into an [indiscernible] the deem taxation will be interesting from the tax viewpoint. Then we will also look on some activities, there'll be services activities, to look how we can improve this effective tax rate to be below this 35% taken at the -- as a global level. So it will be more reachable in 2014 than in 2013, to be honest.

Amy Wong - UBS Investment Bank, Research Division

Just to follow-up on the winter season, have you guys started signing up vessels for that yet? And are you getting -- are you seeing rates similar to the summer season in 2013?

Jean-Georges Malcor

Can you say that again, Amy? Sorry.

Amy Wong - UBS Investment Bank, Research Division

Just -- on the winter 2013, 2014 season, have you guys started signing up vessels to the schedule yet? And are you seeing rates are similar to the summer 2013 season?

Jean-Georges Malcor

No. We -- for the winter season to come, there -- it's still a bit early, of course. It's still far away. But we have already a lot of questions being asked, requests for tenders or inquiry, at least for tenders. For example, Christophe was mentioning the Gulf of Bengali and India, and we know for a fact because we are already having a number of discussions with customers in this areas, that they will be looking to deploy a significant number of vessels in this area as well. So we see the winter season to be probably very similar to the one that we have had last year, probably a bit higher with a number of basins, which are active and which will remain active. But it's a year away, so it's too -- probably too early.

Stephane-Paul Frydman

In addition, Amy, you know well that there's a big seasonality effect, with the summer obviously heavily loaded by the North Sea season and the winter, which is between 2 North Sea seasons. So it's not totally the same rule of the game between the game Q4, Q1 and Q3 -- Q2, Q3.

Jean-Georges Malcor

Yes. But the important point to keep in mind is that the increased activity in West Africa and, to a certain extent, South Africa, is good news for this intermediate season because it's -- those areas can be -- it's areas where we can basically shoot almost all year long. I mean -- sorry, West Africa all year long and in South Africa during the winter season.

Operator

Our next question comes from David Phillips of HSBC.

David Phillips - HSBC, Research Division

I've got a few questions. Firstly, with the Seabed seismic joint venture, can you give us a bit of guidance as to what to think about that in terms of the contribution. I know -- historically, there was a comment from your partner that this could make $400 million revenues in its first full year. I daresay not one of you will have that in their numbers. But I just wondered what you could give us really as guidance on that. Secondly, on the land acquisition side, could you talk a bit more broadly about what's happening in the Middle East and what Argas could see this year as well in terms of growth and so on? And finally, just a quick question on -- you talked about managing your asset portfolio to optimize your capital employed and so on. Is there anything in that space we should be thinking about that it's maybe less core than it was a year ago but you think you could realize some cash inflows?

Jean-Georges Malcor

Okay. On the Seabed side, it's a little bit early to answer your question. And obviously, I think Fugro will be publishing in the next few days, and they may comment on that. The only thing I can say from our side and from the asset we have contributed into the JV, is that we're expecting the 2013 year to be very active on the Shallow Water, OBC side. There have been a lot of bids in the Middle East, in the Far East, in Brazil, in North America and in the North Sea as well. And we expect that to really translate in a pretty high level of activity, including the node business in Nigeria as well, what I should mention. So there are a number of very strong prospects in the year. And I would expect a big growth in this area for the JV. But I would prefer to leave the responsibility of giving the number to the majority owner, if you want. But in terms of activity, what I can tell is that the activity we contribute into the JV, where -- they were carrying by themselves a good level of activity going forward in 2013. Now on -- your second question was on -- one on -- was on Argas? Yes. Argas in the Middle East has been very busy this year with a very -- 2 large OBC contracts. And there is much more to come in Saudi with a lot of contracts being bid at the time being. Mega crews, medium crews and additional follow-on work on OBC. So we expect Argas to be very active next year and probably growing as well. It's a part of the world which is very active. And outside Saudi, it's also worthwhile mentioning what's happening in Kuwait, what's happening in Abu Dhabi and in Oman, where, on those 3 countries, we see not only sustained activity but also a very strong development program, which are announced. Now are they going to materialize fully in 2013 or early in 2014? That's probably the part of uncertainty that we have at this point of time. What is sure is that the programmation of these very large projects is ongoing, and we are talking about very big numbers. I think you had a third question, no?

David Phillips - HSBC, Research Division

Yes, just [indiscernible].

Jean-Georges Malcor

The management of the capital employed?

David Phillips - HSBC, Research Division

Yes, that's right. Yes.

Stephane-Paul Frydman

Yes, yes, on the management of the capital employed. Well, obviously, as you said, there's many ways to manage capital employed and the return and notably, to have the rightsizing of those capital employed. What we can say is that while following the Fugro's move, we have a sharing of our business that are still 45% acquisition, 30%, say, the new GGR activity and the 25% equipment. The move of -- Fugro's move was to increase the weight of GGR. And looking forward, we will probably continue to touch or to increase this component and probably to rightsize the acquisition part for some percent. So there are many ways to do so, but the trend is clearly this one, this one meaning having a Sercel contribution in the range of 25% to 30%, GGR at -- both 30%. And the acquisition, well, below 45% -- 40%, 45%. So there are many ways to do so, but that's the target we have in mind.

Operator

And our next question comes from [indiscernible] of Nomura.

Unknown Analyst

Just one number on the pre-funding rate, you're guiding to around 75% for 2013. But for the Marine multi-client activity, you saw close to 62% only in 2012. Where do you think -- which regions in particular do you think led to that? And what risk do you see to this pre-funding rate of 75% in 2013?

Stephane-Paul Frydman

Yes. In 2012, we made 72%, meaning the -- when you look at the cash CapEx versus pre-funding, it was 72%. We said to the Street that we were targeting something in the range of 70% to 80%. Eventually, we delivered 72%. And for 2013, we said we should be above 75%. So it's quite in line with 2012, the idea here being that -- while following the Fugro's move, we will try to leverage on the new team we are acquiring and trying to develop ourselves in an area where we're not present enough to our mind. But with this rule of having a reasonably pre-funded project, that means 75% at least.

Jean-Georges Malcor

Yes. Just following on that, on your question and the number you were mentioning just for Marine in 2012, you have to remember that in 2012, we started our big multi-client Ybor survey, which is a technological survey in the Gulf of Mexico with a low level of pre-funding, unusual low level of pre-funding. And the recent poll is that as it was a very new technology in acquisition techniques, we wanted to have a -- our customers wanted to have the first track -- what we call a first track result before coming in. And in fact, when we look at the rate of people joining, when we have been able to show at the end of September, early October, the first result is very encouraging. So the 62% from Marine alone in 2012 was a little bit unusual for us.

Unknown Analyst

Actually, yes, I was referring to the 62% in Marine

[indiscernible] it's helpful.

Operator

Our next question comes from Christopher Møllerløkken of SB 1 Markets.

Christopher Møllerløkken - Arctic Securities ASA, Research Division

What consensus for 2013 would you be comfortable with?

Jean-Georges Malcor

I would prefer to answer differently, Christopher, on that one. From the type of conferences we see in suites as I say in my presentation, H1 is a bit of a transition semester. Okay? There are a lot of things will happening, we'll have to upgrade the fleet. There will be one-off costs to carry, and we have to, of course, take care of the full backlog of the new fleet of Fugro. So to answer your question, if you were to take H2 2013 plus H1 2014, i.e., neutralizing the transitional phase or the first H1 this year, we will be comfortable with the conferences, which is in the straight, which is about -- between $700 million and $750 million EBIT for an equivalent full year. I don't know if I'm clear. I state it again, H2 plus H1, rather than H1 plus H2. We'll be comfortable with that.

Christopher Møllerløkken - Arctic Securities ASA, Research Division

The reason why I'm asking, the -- the upgrade you do plan to do with the fleet, what cost -- or what's the [indiscernible] do you expect to use on that for this year?

Jean-Georges Malcor

Well, the Fugro research coming in, they had their own [indiscernible], which are programmed already. And some of them -- most of them are actually occurring in H1. I think all of them actually are occurring in H1. Okay? So there is no reason for us to delay our [indiscernible]. And what we'll do is that we will take this opportunity to extend the [indiscernible] by a week, 10 days for each vessel in order to upgrade this vessel with BroadSeis and to the -- everything we need to do on the vessel is not only the BroadSeis. It's the IT, it's the operational mode, some transformation of the back deck to have a consistent operation throughout the fleet. Okay? They are -- we're not talking about major upgrades, but they have to be done. And so we take the benefit of the [indiscernible] to be happening in H1 to do that. If we have to put a number of it, I don't have the exact number, but we're talking about $20 million for this -- kind of $20 million ticket for this service activity. Yes. And maybe [indiscernible]

Christopher Møllerløkken - Arctic Securities ASA, Research Division

And that is the total or is it per vessel?

Stephane-Paul Frydman

Total.

Jean-Georges Malcor

No, no, no. Total. Total. Total.

Stephane-Paul Frydman

Total. But, Christopher, the difficulty is the following one, and that was the one -- Jean-George is thinking about H2 to H1. What we want to -- also, to give information on Israel, the 2013 accounts we will have. And the 2013 accounts we will have are not exactly the one-day on the consensus rules because we are for -- most of the business acquired we are leaving with 11 months for -- even for your bonds, only 6 months. And we have transitional period to address. We are also -- meaning -- and on an Israel viewpoint, we have also the same thing to address, meaning our baseline looking forward, and we were vocal on that matter, what will be probably only 4 vessels. But in the meantime, we will have 2 vessels in operation. In fact, half and half, meaning roughly in average -- a vessel that will last -- mainly in H1 and part to H2. So that was the one when we are talking about -- our 25% revenue growth is mainly the revenue we think we will generate in 2013, and we tried to give indication on that. But if you want to see really the -- what could be the non-material, then you have to be back to something like H2, which is where most of the adjustment will be behind, and plus H1 2014.

Christopher Møllerløkken - Arctic Securities ASA, Research Division

Okay. Just on Technical at the end there, will Argas be included in the Fugro joint venture? Or will it continue as a standalone?

Jean-Georges Malcor

No. Argas will continue as a part of the consolidation within the CGG perimeter, as an equity investee. What will be -- what will go into the JV is the Shallow Water and OBC part of Argas, will be consolidating within the JV. But Argas is not doing only OBC. It's doing a lot of things in land and in R&D as well.

Christopher Møllerløkken - Arctic Securities ASA, Research Division

Okay. Multi-client onshore, fairly low investments in Q4. And what do you plan for 2013 in terms of multi-client onshore?

Jean-Georges Malcor

Multi-client onshore will stay very, very focused on the shale play in North America and will be stable for that. I mean, we don't intend to -- stable all over. We don't want to overspend in onshore multi-client.

Stephane-Paul Frydman

But within our program, we're talking of 20%, 20% to [indiscernible].

Jean-Georges Malcor

Yes, 20% max of the global multi-client CapEx.

Christopher Møllerløkken - Arctic Securities ASA, Research Division

And finally, internal sales in Sercel. I think I heard you said they were expected to be lower in 2013 versus 2012. But shouldn't they come up because acquisition of Fugro?

Jean-Georges Malcor

Yes. Of course, the acquisition of Fugro is removing part of the external sales and transforming them into internal sales for the streamers, but it's a reverse of the OBC. Because the OBC, we were selling a lot of the OBC on the SWOBS internally. Now they will be sold externally. So all in all, it's probably very balanced between the 2.

Stephane-Paul Frydman

Yes. In addition, in 2012, you remember that there was a significant one-off, which was the Champion, meaning which was last vessel, or part of our 2010 -- a great program that was delivered in Q1 and meaning it was something big and non-recurring somewhere.

Operator

Our next question is from Mick Pickup of Barclays.

Mick Pickup - Barclays Capital, Research Division

Two questions first. Firstly, when you answered Tom's question earlier, I think you said your pricing is up 7.5% in 2013 because you're coming from a higher level than your competitors. That doesn't fall out of any of the calculations I've ever done. Can you just tell me what metric you used for that? And if you could give me the data you used behind it? And I have a follow-up question.

Jean-Georges Malcor

Ah, it's very simple, Mick. It's that when we look at the rates we are bidding today in average for the year, which are between $280,000 and $330,000 per day, and we compare to the average rate we had last year for similar circumstances, we see an increase of about 7.5%.

Mick Pickup - Barclays Capital, Research Division

Yes, that's very well. But you said, I think in the answer to the question, that, that's only 7.5% because you're coming from a higher base than your competitors.

Jean-Georges Malcor

Yes. Because when we look at the $380,000 and to the -- sorry, the $280,000 to the $330,000 this year being equal to the one that our competitors are bidding, I deduct that if they say it's 15% increase, their base was lower than us last year.

Mick Pickup - Barclays Capital, Research Division

Okay. Then how come I look at the historical numbers and backout your revenue on a unit basis, you're 10% below PGS and 10% below Polarcus and have been now for the last 18 months?

Jean-Georges Malcor

Yes. Mick, you may be right...

Mick Pickup - Barclays Capital, Research Division

So that's the reason why your margins are so much lower than anybody else's.

Jean-Georges Malcor

Yes. After that, you need to look at what makes the structure, of course, as well on their side. They are more vessel in property, D&A is different. But I think that's probably something Christophe can take offline and discuss in detail, unless you want to do it now.

Mick Pickup - Barclays Capital, Research Division

Okay. No, it's okay. Second question, you mentioned it a couple of times early door [ph], that your performance partner delivered. If I look at what your operating profit was in 2010, and that was in the main aim of your performance plan, you were going to have the $150 million of operating income positive impact. You did $90 million in 2010, plus the non-recurring was about $230 million. But do the same exercise for 2012, it's about $380 million. You've made an extra $200 million off pricing in the Marine business, so where do I see the $150 million you delivered in savings?

Jean-Georges Malcor

We didn't make $200 million in pricing in Marine.

Mick Pickup - Barclays Capital, Research Division

You did $800 million in 2010, and pricing is up 20-odd percent since then. And you should have dropped 90% through to the bottom line.

Jean-Georges Malcor

No. No.

Stephane-Paul Frydman

No, no...

Mick Pickup - Barclays Capital, Research Division

Something doesn't add up here.

Stephane-Paul Frydman

Mick, on that matter, we can redo together the math. And one thing is for sure. In our industry -- because when we talk about the model and so on, one thing is for sure, is when we have a price increase, the tendency of the modality is to say, okay. Price increase equal or big increase. That's totally wrong. That's totally wrong. Because facing that, you have -- meaning, the trend in this industry is to -- for the contractor to generate productivity and for the customer to grasp part of this productivity. And part of this productivity? That means that what was -- meaning, for a square kilometer in 4 years ago, well, there was a given price for 10 streamers, and that was same price we have to do it for 11 streamers or 12 streamers. That means you have higher cost for the same square kilometer. So we can -- you can redo the math, but the first approach, which was this we say, 5% increase equal 5% margin. It's just wrong. The cost structure we are playing, or the cost structure we have -- this industry is generating a huge productivity. We are generating a huge productivity. The part of it is given to the best of the customer. And meaning -- that means that on a same square kilometer, we are paid maybe higher. But our cost, we are more intense seismic to shoot, and there's a kind of loss somewhere. But we can -- it will be interesting to spend time on it, Mick. But what I can tell you is just...

Mick Pickup - Barclays Capital, Research Division

So what do you think the drop-through is?

Stephane-Paul Frydman

Just a simple math. Just a simple math, just to say plus 5% top line equal plus 5% bottom line. This is not the way the equation is working.

Mick Pickup - Barclays Capital, Research Division

Okay. Then let's put it another way. Your target on your performance plan was to generate positive cash flow at cycle low. You've just done $63 million at 20% top to bottom. Would you generate price? If your pricing in Marine was down 25% from here, would you be cash flow positive?

Jean-Georges Malcor

Well we -- in 2010, I don't have the number on top of my mind, but I think we were cash flow negative of about $200 million. Something like that?

Stephane-Paul Frydman

Minus $100 million.

Jean-Georges Malcor

Minus what?

Stephane-Paul Frydman

Minus $100 million.

Mick Pickup - Barclays Capital, Research Division

Yes, $110 million.

Jean-Georges Malcor

Minus $110 million? And we will -- plus $90 million last year and plus $63 million this year?

Stephane-Paul Frydman

Yes. Mick, honestly, we can do that. We changed our financial structure. We -- meaning, we have -- the tax are different. The change of working capital are playing so meaning -- you can't just say, okay. You said this number. 2 years after, just looking at bottom line and the cash flow, okay, let's spend an afternoon on that because, honestly, we have the bridge, we are quite clear with that, but that is simply not directly with a plus and minus on this kind of calculation.

Mick Pickup - Barclays Capital, Research Division

No, I'm just -- I'm trying to get to the bottom. Your stated [indiscernible] performance plan has delivered, and I just can't reconcile it.

Jean-Georges Malcor

Yes, but it's worth for us spending a bit of time because -- look also at the -- what we have -- the saving we had on the G&A. This one is quite clear. We went down from 7.7% to 5.4%. There is a [indiscernible].

Mick Pickup - Barclays Capital, Research Division

Your target was on SG&A?

Jean-Georges Malcor

The multi-client mix is very different also.

Stephane-Paul Frydman

Yes. Mick, on that matter, well, it also should -- just look to the -- if you are focusing on that, the bridge 2011 to 2012 on the services side. You see that, okay, you have the improvement, but you will see that the OPINC contribution of the multi-client business is $95 million less. So meaning the performance plan was mainly focused on contract activities, obviously, and mainly on Marine activities and the contribution of -- the turnaround of the contract activity is quite huge, again, just 2 numbers just to keep that in mind. You look at the OPINC, operating income of the services, we jumped from $9 million in 2011, up to $130 million. Out of that, the contribution of the multi-client was $95 million lower. That means that from 2011 to 2012, the operating income from the contract -- services contract activities moved up close to $240 million. So -- and then if you just look at that, you'll see that you will find back a figure. In addition to that, when we said we completed the implementation of our 2010 plan, that doesn't mean that it was fully operational in year 2012. We were always vocal about saying run rates with the range of points by end of 2012.

Operator

And our next question is a follow-up from Rob Pulleyn of Morgan Stanley.

Robert Pulleyn - Morgan Stanley, Research Division

There was not a question on margins. Can you give some sort of clarity on what sort of goodwill you are going to recognize from the Fugro acquisition if you had any thoughts on that. And also, can you just clarify on the depreciation? I was a little bit confused by the answer. Does that mean depreciation will be about 10% higher in 2013 versus 2012? Or were you referring to something else?

Stephane-Paul Frydman

Okay. On the first point of the goodwill, all in all, meaning in the acquisition, in the Fugro's acquisition, I guess, the goodwill -- a rough [ph] number, eh? The question I have in mind is globally, the EBITDA goodwill should be in the range of $600 million. But again, we get rid of $300 million through the swaps disposals. So all in all, compared to an original goodwill of $2.7 million, we should land something at $3 billion. So I'm passing by your at 2.4 by year end 2012. So that's mainly [indiscernible]. Okay. And second, when I was talking of 10%, I was not talking of 10% increase. I was talking of 10% of revenues, meaning -- which is a way to -- looking at the global group revenues. So you take $3.4 billion, which are the revenue of 2012. You're at 25%, which is -- so you reach the point of what we have in mind for 2013, say, 4.3%. And...

Jean-Georges Malcor

$4.3 billion.

Stephane-Paul Frydman

$4.3 billion. And out of that -- well, the order of magnitude for the D&A -- the group D&A should be 10% of that. [indiscernible] 400 plus, just talking of underscaled [indiscernible] obviously, that you have to add to that the multi-client amortization, which are again 65% of the expected sales.

Operator

And our next question is from Christopher Møllerløkken of SB 1 Markets.

Christopher Møllerløkken - Arctic Securities ASA, Research Division

And just a quick follow-up regarding Brazil. In the fleet uptake in January, you mentioned that you -- main loss, main [indiscernible] in Q4 was Brazil multi-client sales of $100 million. It seems like in -- mostly targeting November around this year [indiscernible] the multi-client library. So did you expect to sell just earlier? Or is it something I'm missing? How's the...

Jean-Georges Malcor

Yes. No, on the -- globally, yes, it's -- we are in the right ballpark with $100 million plus. Okay? This will be done in 2x, in 2 slots, if you want. There will be a part of it, but a small part of it for this round, the one coming in May. So probably, I don't know, $10 million, $15 million is probably around that for this round. And then the big part will come later on in the year for the November round when the -- and this activity will really kick, starts when the blocks, which will be offered for bidding, will be known. And we expect that to work by the entry of the summer.

Stephane-Paul Frydman

Again, that's not exactly the same of the rule of the game. The equatorial margin is more exploration matter.

Jean-Georges Malcor

Exactly.

Stephane-Paul Frydman

So meaning lower budget and a more long-term approach. Whereas Santos, Santos basin, is really development matter. So it has the same phase of -- from the expenses of the customer. That's not the same stage for [indiscernible].

Operator

Having no further questions, this concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Jean-Georges Malcor

Okay. Thank you very much. Well, it was good to talk to you again this afternoon. All of you, thank you for your questions. We'll be conducting as usual roadshows in the next few days. Tomorrow, we'll be in Paris. Then next week, we'll be in New York, Boston and London. So we'll have the opportunity to go deeper into detail and will prepare a bridge for mix so -- that we'll be sharing with all of you to make sure that you are comfortable with our commitment. But enjoy the afternoon and the discussion. We are, of course, available for more questions, as you wish. Contact Christophe or myself or Stephane-Paul. And we'll see you in the next few days. Bye for now.

Stephane-Paul Frydman

Bye.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Source: Compagnie Générale de Géophysique-Veritas SA Management Discusses Q4 2012 Results - Earnings Call Transcript

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