CGG Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb.27.14 | About: CGG (CGG)

CGG (NYSE:CGG)

Q4 2013 Earnings Call

February 27, 2014 3:00 am ET

Executives

Christophe Barnini - Senior Vice President of Group Communications

Jean-Georges Malcor - Chief Executive Officer, Senior Executive Vice President of Acquisition Division, Director and Member of Corporate Committee

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

Benoît Ribadeau-Dumas - Deputy Senior Executive Vice President of Acquisition Division & Marine Business Line and Member of Corporate Committee

Analysts

Bertrand Hodee - Raymond James Euro Equities

James Evans - Exane BNP Paribas, Research Division

David Phillips - HSBC, Research Division

Geoffroy Stern - Kepler Cheuvreux, Research Division

Robert Pulleyn - Morgan Stanley, Research Division

Guillaume Delaby - Societe Generale Cross Asset Research

Caroline Hickson - UBS Investment Bank, Research Division

Ryan W. Kauppila - Citigroup Inc, Research Division

Christopher Møllerløkken

Steffen Rødsjø - Pareto Securities AS, Research Division

Jean-Luc Romain - CM-CIC Securities, Research Division

Morten Nystrøm - Fearnley Securities AS, Research Division

Jean-Francois Granjon - Oddo Securities, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the CGG Fourth Quarter and Year-End 2013 Conference Call. Today's conference is being recorded. At this time, I would now like to turn the conference over to Christophe Barnini. Please go ahead, sir.

Christophe Barnini

Thank you, and good morning. Welcome to the CGG Fourth Quarter and Full Year 2013 Financial Results Conference Call. The quarterly financial information, including the press release, the presentation, also streaming audio webcast of this call, are available on our website.

Some of the information contains forward-looking statements, including, without limitations, statements about CGG 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. 2012 and 2013 figures mentioned during this call are presented before nonrecurring items and before impairment and write-off.

The call today is being hosted from Paris, where Mr. Jean-Georges Malcor, Chief Executive Officer; and Mr. Stephane-Paul Frydman, Group Chief Financial Officer, will provide an overview of the fourth quarter and of the full year, as well as provide comments on our outlook. Also the call, Benoît Ribadeau-Dumas, Senior Executive Vice President in charge of Acquisition; and the Investor Relation team. Following this overview of the full year, we will be pleased to take your questions.

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

Jean-Georges Malcor

Thank you, Christophe, and good morning to all of you. So I'll start on the presentation on slide -- Page 4. Starting with the 2013 year. 2013 has been a contrasted year for CGG. After the solid H1, H2, as announced mid-December, was disappointing.

But let me address first our 2013 key achievements. First, on Fugro Geoscience activities. We have been successful in integrating within CGG. This integration has been well managed, and this is a great success for us. We have the new division, Geology, Geophysics & Reservoirs, which has been created and which delivered a record profitability with a 25% margin in 2013.

Our fleet, including the 4 Fugro's C-Class vessels, in difficult market conditions, particularly late in the year, delivered a record production rate at 92%, up from the 90% production rates in 2012 and up from the 87% production rate in 2011. This can be considered from an operational point of view as a very good achievement for our fleet of 21 vessels.

As expected, SERCEL launched on time, the new generation of marine streamer and the new generation of land acquisition systems. Both the Sentinel MS multi-sensor and the 508 cross tech are designed to significantly improve the definition and the resolution of seismic images in complex geologies. BroadSeis is now a technological breakthrough with more than 100 surveys delivered.

At the end of the year, we have successfully awarded 5 out of the 7 large marine tenders offshore, Mexico, Angola and Brazil. And now backlog as of 5th January stood at $1.35 billion. In terms of financial performance, SERCEL delivered 28% margin, GGR was at 25%, our multi-client CapEx were 69% refunded and we generated positive net free cash flow as targeted.

Now going to Page 5. As I said, 2013 was contrasted with difficult market condition at year end. H1 was strong, above expectation and was driven by good level of Equipment sales, high multi-client revenue and solid subsurface imaging activity. H2 was very low as Middle East channel-count crew shifted to 2014 and seismic acquisition market suddenly deteriorated in Q3, translating into depressed winter season in land and in marine and resulting into lower marine prices. The Q4 difficult conditions in Acquisition, both onshore and offshore, confirmed our strategic vision. And we decided late in the year to accelerate our new strategic roadmap during the period 2014, 2016 to achieve our objective of a rebalance group by 2016.

Now moving to next slide and looking back at the our Q4. As anticipated, we operated in more difficult market condition in Q4. The total revenues were $955 million, up 2% year-on-year, with Equipment significantly up, which demonstrated again the seasonality of our business. EBIT was low at $73 million with the Acquisition division losing $61 million while Equipment and GGR delivered solid profitability at, respectively, 32% and 23% EBIT margin. Acquisition lost money, both in marine and land. Land was weak due to low activity in North America and marine suffered, as announced, from the deferred awards of large programs of offshore Brazil, but also from the overall weak market demand.

Net income for the quarter was negative at $17 million. These trends were anticipated early in mid-December and already announced at our CMD. Our free cash flow, as anticipated, was positive at a very high level for the quarter at $179 million.

Now moving to the next slide and looking at the year 2013 and, first, at the revenue level. Revenue was $3.8 billion, up 10% year-on-year. And this 10% growth breakdown in plus 17% favorable contribution from the Fugro Geoscience activities, a 4% decrease due to the SWOBS carve-out revenue into the Seabed JV and minus 3% decrease in organic revenue despite very solid GGR performance in multi-client and imaging and reservoir.

2013 revenue growth was, however, 15% lower than initially targeted, and the difference comes from 3 main equal factors: first, the substandard external revenue; second the depressed market condition in land and lower marine prices in H2, and more particularly in Q4; and also, more vessels dedicated to multi-client activity, where we are 28% versus the 23% originally anticipated.

Moving to the next page and looking at our profitability in 2013. EBIT for the full year 2013 was at $423 million, corresponding to an 11% margin versus a 12% margin in 2012, and we manage to maintain the resilient profitability despite deteriorating market conditions. This result is fully in line and even slightly above, with the range given mid-December at our Capital Market Day where we gave a $400 million to $420 million EBIT.

Corporate cost were stable year-on-year. The nonrecurring items related to the integration of Fugro were negative at $17 million. Throughout the year 2013, the capital gain of the sales of the SWOBS business was more than offset by the nonrecurring charges linked to the Fugro Geoscience acquisition.

The cost of debt was $192 million, and the interest paid in 2013 were $137 million. The net income before impairment was $101 million.

Now for the year and in the double context of the change of acquisition. Market outlook on one end, and on the other end, our decision to operate, in the future, reduced perimeter in the downsized Acquisition business. The group has decided to book in its 2013 accounts Acquisition asset write-off and Fugro goodwill impairment for a combined one-off amount of $800 million. Stephane-Paul Frydman, our CFO, will come back on this point with more detail later on.

So let's have a look now at our 2013 operation, division by division and moving to the next slide. Equipment, first, showed very good resilience despite lower revenues. Total sales declined last year in 2013 to $1.045 billion. External sales were down 13% as consequence of no deliveries to land -- of land equipment for mega crews in 2013 compared to 2012.

And land revenue accounted for 57% in marine -- sorry, land revenue accounted for 57% and marine for 43%. SERCEL delivered in 2013 a high level of equipment to Russia while deliveries of seismic equipment to China were down year-on-year. R&D cost increased year-on-year and represented almost 6% of the division revenue in 2013, and this is also to be put in front of the very good resilience in margin. We didn't cut in R&D.

Despite lower volumes, increased R&D spending, increased marketing spending for the launches of our Sentinel MS and 508 cross tech, the Equipment division managed to keep a high level of profitability at 28% EBIT margin, thanks to, particularly, an efficient cost control. As you can see on the graph, Q4 sales were high at $317 million and the Q4 margin increased sequentially by 920 basis points, reflecting the high sensitivity of SERCEL profitability to volume.

Now going on the Acquisition side. Acquisition external revenue was up 19% year-on-year at $2.2 billion.

Land and Airborne were down 27%, mainly as a consequence of the shallow water carve-out, on one end, with the creation of the Seabed Geosolutions JV early this year and also, remember, that Airborne joined early September only. All along the year, land acquisition suffered from difficult market and even [ph] environmental conditions lately, more particularly, in North America with the current weak winter activity, but also in North Africa, where our crews operated in very difficult safety context.

Marine contract revenue was up 36% year-on-year at $1.8 billion. During the year, the Geo Barents was converted into a source vessel. The Geo Atlantic was returned to its shipowner and the Geo Voyager and the Vantage were temporarily converted as source vessels at year end. Marine prices increased in H1, but were down in H2. With low deterioration rate in Q4 as we experienced low activity in West Africa and in the Gulf of Bengal, but also delayed projects offshore Brazil, translating into another capacity situation and commercial standby.

The Acquisition EBIT margin was low in 2013 at 2.5%, although better than last year, after a very weak fourth quarter with negative EBIT both in land and in marine.

Now moving to GGR. GGR showed solid and sustained profitability. Q4 total 2013 with GGR revenue were -- sorry, the total 2013 GGR revenue were $1.3 billion and up 36%.

Revenue from multi-client data was $585 million, up 24%, with multi-client CapEx at $468 million, up 29% year-on-year. Prefunding rate was 69%, quasi stable year-on-year and in line with our expectations. After sales were high in first half, the lower than expected in H2 as some of our client deferred some of their spending into 2014. Global amortization rate was 62% as expected.

Subsurface imaging and other GGR activities stood at $711 million and were up 49%. Profitability increased year-on-year, driven by increase in volumes and sustained demand for high-end imaging and for reservoir activity. Robertson, Jason and Data Management joined CGG early February. Their contributions were solid as expected.

GGR EBIT reached $317 million, a 74% increase year-on-year, and EBIT margin was 24.5%, 25%. The strong financial performance of GGR confirms the rationale of our strategy moving to the Geosciences.

Now I hand the floor to Stephane-Paul to comment in more detail the financial figures.

Stephane-Paul Frydman

Thank you, Jean-Georges. I'm on Slide 13. So our cash generation in 2013 was in line with our expectation, thanks to tight management of our capital employed, meaning the management of our CapEx and the management of our working capital.

Group EBITDA amounted to $1,160 million, corresponding to a solid 15% growth, higher than the 10% revenue growth. The group EBITDA margin was then 31% as a combination of 32% margin for Equipment, 17% for Acquisition and 60% for GGR. This EBITDA, combined with paid tax and change in working capital, led to a $908 million cash flow from operations, stable year-on-year.

Global CapEx amounted to $834 million in 2013, made of: industrial CapEx at $298 million, following a declining trend compared to 2011 and 2012, as targeted; R&D CapEx at $57 million, the year-on-year increase being linked to the payments or extending in the acquisition of the Fugro businesses and the preparation of SERCEL's new products; and last, multi-client cash CapEx, as said by Jean-Georges, stood at $468 million, well prefunded at 69%, as targeted.

The combination of the cash flow from operations, the global CapEx and $137 million of interest paid led to a positive $5 million free cash flow before NFRI, as targeted, and again thanks to the usually strong Q4 in terms of cash generation.

So moving on Slide 14 and looking at the balance sheet. As Jean-Georges told you before, in the double context of the change of acquisition market outlook and of our decision to further downsize the perimeter of our operated Acquisition businesses, the group has to book in its 2013 accounts, so much at high turf and the triggered goodwill impairment, for a combined one-off amount of $800 million.

On the land side, the one-off cost was $79 million and was the direct consequence of, overall, more difficult market conditions, mostly in North America. On the marine side, the one-off costs were twofold, $139 million related to the fair value rebasement of vessel to reflect the future utilization and $582 million related to the marine goodwill impairment, again, as a consequence of the perceived change of market outlook and of the downsizing of operated fleet, we are targeting looking forward.

Based on a $1.38 euro-dollar exchange rate at closing date, as of end of December, and remembering that part of our debt is euro denominated, the group capital employed amounted globally to $6.1 billion, post impairment and write-off. Per segment, the Acquisition capital employed stands at $2.4 billion, corresponding exactly to the fair value as a result of the impairment process. While on the GGR side, the capital employed stand at $2.8 billion push towards PPA, corresponding to a minimum for the fair value of those businesses.

Looking at the liability side. Based on $530 million available cash as of the end 2013 and $2,748 million of gross debt, the net debt amounted to $2,218,000,000, corresponding to a net debt-to-equity ratio at 58% and the leverage at 1.9x EBITDA.

Taking of the characteristic -- taking into account of the characteristic of indebtedness is -- was to remind that we are very active in our debt management in 2013 by notably renewing our French and U.S. revolving credit facilities from $208 million, up to $490 million. We then manage to extend our average debt maturity, amounting to 4.5% year-by-year on 2013, the level we were by year-end 2012, and to maintain also a global cash cost of debt below 5%.

I hand the floor back now to Jean-Georges to cover in more detail the outlook.

Jean-Georges Malcor

Thank you, Stephane-Paul. Move to the next slide. I reiterate today the strategic rationale of our company, which already prevailed early last year and was beyond our move to integrate Fugro Geoscience activities. We remain focused on the promotion of high-end solutions for technological differentiation and further geoscience knowledge, on the rebalancing of our assets portfolio towards less capital-intensive activities and on the continued improvements in our operational efficiency, profitability and cash generation.

CGG is now entering into the first phase of its strategy roadmap, targeting the rebalancing of the portfolio towards high-end, less capital-intensive, most -- more cash-generating activities, coupled also with a robust cash and profitability plan, which is really focused on management cost reduction and operation efficiency.

The geological and geophysical challenges our clients are facing require new geoscience solutions. From the very early exploration phase to re-optimization of the existing reservoir and throughout the entire development and production cycle, the demand for improved understanding of complex subsurface structure is increasing. This requires higher technology content, higher resolution, better illumination and, overall, better imaging.

CGG benefits from its unique scope of geoscience activities from the unrivaled expertise of its imaging team, from its high-end fleet, from the cutting-edge leadership of SERCEL and the equipment market and very strong commercial position in key multi-client areas. So as a unique integrated geoscience group, CGG is indeed ideally positioned for the future.

So moving to next slide. Since our CMD, we have activated the first steps of our strategy 2014, 2016 plan. First, and I want to insist on that, we confirm our 2016 objective to generate under unchanged market conditions revenue above $4 billion and our objective to deliver an EBIT margin improvement by 400 basis points versus 2013.

The rebalancing of our activities should be achieved by the downsizing of the Acquisition business, not only marine, and the organic development for both the Equipment and GGR. The 400 basis points EBIT margin improvement should be achieved by maintaining and increasing the good profitability profile in GGR and Equipment that are so -- also for the implementation of the land and marine downsizing plan that I will describe in the next slide. And that should bring back our Acquisition division to a 9% to 10% margin.

Going to the next slide. In land, and following the sharp North American market downturn, leading to one of the lowest winter season ever, our footprint in this region is already under restructuring and will be aligned to a lower level of activity. It is not a decision for the future. It is something which is happening now.

In the Middle East, our long-term and historical partnerships with TAQA has been extended. We issued a press release last week to create and certify and strengthen new Argas, ultimately reinforcing our competitive positioning on the critical mega crews or high channel-count crews market segment.

Our further creation of the Seabed JV, it is another step towards a partnership business model, which is, in our view, the best avenue to address this very capital-intensive market segment. The rightsizing of our operated perimeter, along with the development of both new business models, are 2 critical sets to ensure that we turn to profitability of our land business.

Now moving to marine on the next slide. The Geowave Voyager and the Vantage have already been temporarily converted into source vessels in December 2013. And in early February, we also decided to cold stack the CGG Symphony. She will be derigged in the near future.

So the downsizing of the fleet is underway. Between today and 2016, we will downsize our fleet and operate on the high technology market segment, only 13 high-end vessels. I remind you we have 18 today, Symphony, minus 1, 17. And we will go to 13 vessels at the end of 2016. This reduction in size of our operated fleet will lead to significant reduction in exposure, in fixed cost, in investments and then to reduce the volatility of the marine revenues and earnings and improve cash generation throughout the cycle.

This plan to recycle fleet is well designed and quantified. For obvious commercial and socially sensitive reasons, we will keep our scenario confidential and that we'll not be specific on the name of the vessels that will be retired, nor will I disclose the timing in advance. But we will keep you regularly informed as we progress in this plan. This fleet resizing and land restructuring will translate into less than $100 million on nonrecurring cash items over the period 2014, 2016.

Now moving into the slide the conclusions. Looking at 2014, we anticipate stable market conditions. We are starting the year with a good backlog, a good coverage of the fleet and strong multi-client activity, particularly we buy boat [ph] [indiscernible]. As previously disclosed, Q1 will be weak due to low level of demand for seismic acquisition, both in land and marine.

Our management priorities will be focused on commercial performance, on cost reduction and on operational efficiency. Our industrial CapEx are anticipated to be between $275 million and $300 million. Our multi-client CapEx with large offshore programs should increase year-on-year and be between $500 million and $550 million.

We will finish this year our IBALT program in the Gulf of Mexico. And you will remember that we also secured in December, 3 well-prefunded multi-client programs offshore project. We anticipate the global prefunding rate to remain high and above 70%.

Our 2014 priorities will also be focused on the implementation of our strategic roadmap, i.e., the rebalancing of our portfolio, of the cost reduction and tight cash management, to be able to deliver our confirmed 2016 objective to generate under unchanged market conditions revenue above $4 billion and to deliver an EBIT margin improvement by 400 basis points versus 2013.

Thank you very much, and we are now ready to answer your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We will now take our first question from Bertrand Hodee of Raymond.

Bertrand Hodee - Raymond James Euro Equities

Bertrand Hodee at Raymond James. Two questions, if I may. When I look at your marine fleet coverage for Q3, it looks quite low at just 35%. Can you give us some outlook on your view for the upcoming North Sea season? And also, is this new Norwegian Petroleum Directorate multiply and survey, do you think, a disturbing factor? And what are your thoughts around that? And second question is given the -- your commitment to reduce fleets over the next 3 years, can you give us guidance on what is your industrial CapEx that you could reach on a normalized basis with, let's say, 13 vessels instead of the 18 vessels currently?

Jean-Georges Malcor

Okay. All right. So I'll start answering the first point on the coverage of Q3. We are, first of all, little bit more color on the year. We say that we see a Q1 low. We see North Sea season which will be quite active again. There are, of course, you mentioned, the big group shoot or whatever we want to call it, the new big group shoot, which is, of course, coming up, which should absorb a lot of vessels, whether with that, doesn't really matter. It would be a huge vessel absorption. But there are also other leads, of course, in the North Sea. Despite that, this really on the balance side, okay? But we are also seeing and expecting for Q3, most probably why we are 35% covered. News are very, very -- should be coming very soon, and news in this, in Russia and Vietnam, which have not yet detailed in the book. So that's the main reason why we are 35% in Q3. So we see Q2, Q3 probably more volume. Q4 is still far away. And we'll -- as usual, it's going to be depend on the activity in West Africa and in India, Bengal East Coast. The only thing we can say that India seems to get their act together better this year than last year in preparing well in advance of the call-for tender. On the CapEx, on a -- the normalized basis, we can't -- I don't know if you want to give any guidance at this stage. It's probably a bit early, but [indiscernible] your indication.

Stephane-Paul Frydman

Yes. It's a bit early. But clearly, we'll be in line with the -- on the unusual CapEx side, we will be on -- obviously in line with the downsizing of our -- both businesses, meaning -- so in line with the typical reduction we mentioned, meaning 35%. On the multi-client cash CapEx side, we said that -- to the Capital Market Day, that we'll be in the -- what, in the range we mentioned for 2014, which will be the high point. And looking to '16, we should be down to -- in the area of $400 million plus, also in line with the downsizing of the fleet.

Jean-Georges Malcor

Absolutely. Remember that the IBALT program will be finished by this year. So of course, this is a big CapEx investment, which will disappear later on.

Operator

Our next question comes from James Evans of Exane BNP Paribas.

James Evans - Exane BNP Paribas, Research Division

James Evans at Exane here. Just one question for me and really on Equipment. And can you just maybe update on the latest on the mega crew trend? Because I think you are hoping for something maybe early Q2. Has there been any news there that we should be aware of?

Jean-Georges Malcor

Okay. Yes, I can certainly update you on where we are. The bids went in late January for Saudi Aramco. That's the one which has been bid. The evaluation is ongoing, so I mean, no particular news at this stage. Saudi Aramco is very thorough in the process and don't give an indication before the end of the -- or before the final results, if you want. The only thing I can mention is that there are 2 options, which have been bid. One for the 50,000 channel crew, and the other one with a single sensor with 200,000 channels, okay? So that's the one which is being -- at the time being, evaluated and for which we should expect decision within the next few weeks. They said that they want to be quick. We see -- we may have something going in March. If we take the normal delay, it would be rather at the end of Q2. Second, we have 2 big tenders that we are plugging almost as we speak. I have a bid review this afternoon on -- for Kuwait. One which is called Kuwait Bay and the other one which is called the Great...

Stephane-Paul Frydman

[French]

Jean-Georges Malcor

[French] Great Dun [ph].

James Evans - Exane BNP Paribas, Research Division

Great. Could I just ask a follow-up on the Equipment side? Just generally, how are you looking at the rest of the business into 2014? Do you expect a rebound in China, or can we see Russia pushing up from the record levels of last year?

Jean-Georges Malcor

Yes. I think Russia will stay active, actually, very active. You remember, it's a trend that we flagged already few years ago with the Russian team on the land side, moving up from a very low level of China crew to a more normal well countdown level of -- in channel crews. So this will continue. That's, one point. On the China side, 2013 has been slow. Some of the operation were kind of nonstop, but delayed. And we should see some good rebound in China as well. So 2 markets for SERCEL, which are important market and which have been very active.

Operator

Our next question is from David Phillips of HSBC.

David Phillips - HSBC, Research Division

I just got a few questions here. A couple of quick clarifications first. In your comments about 2014, do you assume a positive contribution from the Seabed JV? And that's, I guess, a quick short one. And after that, I guess a rather broader one. Do you -- just remind us how management variable pay is linked to your 2016 target in terms of the main drivers in KPIs along the way? And last, just a little bit of techie one, I guess. Heard some comments that you're getting some good results in BroadSeis, even some shallow water work in the North Sea. Could you talk about that and how BroadSeis is developing now that it sort of really got its foot on the market?

Jean-Georges Malcor

Yes. Can you repeat your second point, David? I didn't hear your question, your second question.

David Phillips - HSBC, Research Division

Yes. About management and variable pay. How the management variable pay is linked to your main drivers and KPIs along the way? What drives that?

Jean-Georges Malcor

Okay, okay. You're talking about the bonuses, the variable pay? Okay. All right. Okay, fine. So first of all, on the Seabed Geosolutions, you know that 2013 was a year of -- start on the Seabed and has been a little bit of a rocky start at the beginning of the year. The Seabed had got excellent booking by year end. That was not very probably largely communicated, but they won some very large SWOBS contract in PEMEX, in -- I will not allow to say PEMEX, okay, in the Gulf of Mexico to make, too bad, and also in Asia, okay, 2 very large contract, another one in West Africa. And all of that was very good sign at the end of the year for, first of all, the activity of the market of these market segments, which is a strong. And second, the ability of the JV to win some good contracts in this market. So that will be the main part of the year. Mobilization is happening as we speak, and this is for the OBC business. The node business is active also with a good backlog. And so we anticipate the Seabed JV to be a positive contributor at the EBIT level for 2014. On the bonus side, we have -- in our structural bonus for the people in CGG, including myself, we have a bonus structure which is linked to -- on top of the base salary. The part which is a personal part and the part which is the financial part. The financial part is, of course, totally in line with our objectives, global and financial objectives, in terms of cash, in terms of EBIT, in terms of growth. That's one part. And on the personal part, we have in the personal part most of the objective perhaps to -- we keep a 10% or 15% linked to very, very personal objectives, development objectives. But all the other ones are fully aligned with our KPIs. One big one is on objectives for example, in terms of global performance, and the other one are totally aligned with the strategic objectives and the guidelines that we are giving for the years to come. On the BroadSeis side, the rest I can hand the floor to Benoît. He will give you a little bit more color.

Benoît Ribadeau-Dumas

Yes. On the BroadSeis side, just to mention, but I think the figure has already been published, that we are now shooting 60%. We are allocating 60% of our fleet capacity to BroadSeis survey, which is -- I mean, the significant ramp-up since we deployed this activity 3 years ago now -- 3.5 years ago now. And you mentioned shallow water, which actually had very good results in Vietnam, in the North Sea. So together with the BroadSource, the new BroadSource that we are deploying, we are quite happy with the result that we have to brought to our customers, especially in shallow water. And we are expecting additional success here on this matter, thanks to the technology.

Jean-Georges Malcor

Yes. David, sorry, I take back the floor again because I gave you not the fully complete answer on the KPIs and the alignment with the management. We have also, on the longer term, of course, some stock option for the management, which are directly linked to the performance of the stock of the market. But we have also -- we put also in place the 3 -- a 3-year cash management plan, okay, which is totally in line with the objective of the company, '14, '15, '16. So in this plan, we are really mirroring, if you want, the objective of the company in -- and aligning the incentives and the motivation of our people towards this plan.

David Phillips - HSBC, Research Division

Well, okay. And just one quick follow-up that I forgot to ask initially. On the marine side of SERCEL, what's the plan in terms of the speed of rollout of Sentinel MS across the fleet and also externally?

Jean-Georges Malcor

Okay. On speed of rollout of -- it's likely all the new technology, we are you using, if you want, there are 2 -- I would say, 2 growth engine or rollout engine behind the scenes. The first one is natural replacement of existing streamers that we will replace regularly with the latest technology. This is an ongoing business. And then we may target specific vessel for specific surveys where we may decide to go full MS in targeting a particular customer or particular survey. So it's a combination of, I would say, ad hoc decision to go and target a particular survey and the natural replacement of the aging fleet -- of the aging part, if you want, of streamers.

Operator

Our next question comes from Geoffroy Stern of Kepler.

Geoffroy Stern - Kepler Cheuvreux, Research Division

I have several questions. Actually, right, it's good to see concerning the 2016 target. It would be really helpful to have a bit more color on your expectation for 2014, so any range in terms of EBIT there will be helpful, I guess. And if you could also give us a bit more color on -- by division, especially for SERCEL, marine, the kind of expectation you anticipate? Because in your -- in the press release, you talked about stable market condition, that it called for flat EBIT. And I also wanted to know -- I mean, with regard the roadmap for the downsizing of the marine fleet. I understand that you could not communicate precisely. But when do you expect to be in a position to communicate on this?

Jean-Georges Malcor

Now, Geoffroy, I was very clear we will not communicate, not on the name of the vessels nor the timing of the vessel. This is commercially sensitive. We don't want to jeopardize our commercial position. This is my duty as a manager to maintain that close to the chest, okay? I'm not going to go on the open and explain to my competitor how I'm going to do it. This is our privilege. This is our people privilege. So you will know when we will take the action.

Geoffroy Stern - Kepler Cheuvreux, Research Division

All right, okay.

Jean-Georges Malcor

That's the best I can say. I mean, when Total decide to sell assets somewhere, they don't tell you in advance where they are going to sell that. It's exactly the same for us. As far as the market condition, we are, as we say at the beginning of the year, in a very contrasting market. We are starting the year with a weak Q1 as we say. We have action in place, which will contribute all of them to achieve our 2016 objective. It's far too early to give anything on EBIT for 2014.

Operator

Our next question comes from Rob Pulleyn of Morgan Stanley.

Robert Pulleyn - Morgan Stanley, Research Division

A couple of questions for me, if I could. First of all, in terms of the multi-client library, obviously, that actually grew 30% over the last 12 months and you're guiding for further investment or higher investment in 2014. Could we expect to see the multi-client library continue to grow, or do you expect multi-client sales to keep track and, therefore, you amortize it as you go? And are you worried about the ability to actually get those sales away in multi-client? That's the first question. The second question, a bit sort of housekeeping-related. Could you give us an idea of what the SERCEL value is in the group backlog, and how much of the fleet will be allocated to multi-client this year?

Jean-Georges Malcor

Okay. On the multi-client, I'll -- Stephane-Paul will step in. But I just like to remind you that as we said early in the call that we are, at the time being, shooting a very large multi-client in the Gulf of Mexico called IBALT, which is a very big investment that the company has decided to do, started 1.5 years ago. Going on this year into -- the data is being processed as well, and we're targeting these big investments. So the very, very specific objective is to be ready toward the fully processed data, the state-of-the-art and breaking ground data for the big lease round coming in the Gulf of Mexico in '16, '17 or '15, '16, '17, okay? There is a big lease round coming. So if you look at the average we are shooting today and you look at the blocks which will be put for sales in this big lease round and the type of turnover that we're expecting on the blocks, there is a very strong match on that. So there is a strong effort short term on multi-client, which explain also the high level of investment that we are making today. Stephane-Paul?

Stephane-Paul Frydman

Yes, yes, yes. Robert, as said by Jean-Georges, again, we -- roughly, we went from library of 630 up to 800. So clearly, the growth is 90% related to our StagSeis program in Gulf of Mexico. We will have the same kind of reports in 2015, and that's the reason why we guide the street with cash multi-client between $500 million to $550 million. Again, it was $490 million in 2013. So probably the growth in absolute terms of the library should be quite comparable when you have in mind that the depth of sale from this library should come mostly starting 2015, after the full publishing of this letter. But again, when you take the net book value of the library, coupled with the $500 million, $550 million cash multi-client CapEx, we guide the structure with -- and with the prefunding rate that should be above 70%, you are exactly being back to this kind of level -- ending level by 2014.

Geoffroy Stern - Kepler Cheuvreux, Research Division

Okay, that's clear. And on the SERCEL component in the backlog?

Jean-Georges Malcor

Yes. On SERCEL, we are at a few million, very similar to where we are last year. We where last year is probably -- from memory, is something $165 million, $170 million in the backlog, which is typical for this time of the year, particularly after the strong Q4 that we have with SERCEL, so typical for the year. And I remind you that in SERCEL, the land -- some of the land sales are never going for the backlog. So -- and the land is a big component of SERCEL. Of course, the big crews we move for the backlog, but they are not of land activities, which doesn't go for the backlog.

Stephane-Paul Frydman

And you're right. I'm taking your third question, which was related to the weight of the multi-client production compared to the total capacity. We said that -- meaning given this bigger effort on the multi-client cash CapEx side, obviously, the weight of the multi-client production will be heavier than year -- this year compared to last year, which, in addition, due to the fact that we are reducing the capacity. So I have a few figures in mind. Last year of -- in 2013, the weight of the multi-client production was something at 27% over the year. In 2014, we are seeing that probably in the -- above 35%. And you see that in Q4, we are seeing this pump up because the weight of the multi-client production in Q4 was 34%, so higher than the 20% in Q3. And looking within 2014, meaning looking at the sequence H1 and H2, even in H1, the weight of the multi-client production should be even heavier, probably above 40%, 45%. And that's related to the fact that we are shooting presently at the IBALT survey in Gulf of Mexico.

Jean-Georges Malcor

And the Brazilian ones.

Stephane-Paul Frydman

And the Brazilian ones.

Operator

[Operator Instructions] Our next question comes from Guillaume Delaby of Societe Generale.

Guillaume Delaby - Societe Generale Cross Asset Research

Yes. Just questions on your balance sheet and the free cash flow generation. So investment is likely to remain quite substantial in 2014, i.e., that free cash flow generation in 2014 is likely to be, let's say, small. Could we have a little bit more color on that? And going forward, could we have, not a guidance, but maybe a route or a road map about what might be net debt over the next 2 or 3 years?

Jean-Georges Malcor

So, Guillaume, I will -- well, I will confirm your statement on 2014. So you're right that we need a stabilization of the cash flow generation in 2014. The organic one should be close to the one we delivered in 2013, meaning that to be balanced first. And then looking forward, I just want to repeat what we said, looking at the vision 2015, 2016 at the Capital Markets Day, which is obviously the EBIT improvement we are hunting will have a cash consequence, so you can compute, meaning the problem at this point of margin improvement will be concentrated into cash generation improvement. And again, on the other side, on the CapEx side, we are targeting a reduced CapEx of -- cash flow of 25% downsizing of our fleet. We're also targeting probably several multi-client revenue facing lower cash multi-client cash CapEx. As I said, we are in the range of $500 million, $550 million in 2014, and we are still looking forward in 2016 probably in the range of $400 million. So all together, we said at the Capital Market Day that, globally, the cash generation should be improved within this plan by $200 million plus, when you combine everything. So -- and we stick again on that vision.

Operator

Our next question comes from Caroline Hickson of UBS.

Caroline Hickson - UBS Investment Bank, Research Division

I know you said you can't talk much about that sort of the timing given commercial sensitivities. But at the Capital Markets Day, you were clear in that you didn't want to take the heat to the industry and probably the sort of maybe sell the vessels rather than retire them. Can you just give an update on where you're feeling about that because it looks like some of your peers are assuming you're just taking this out of service.

Jean-Georges Malcor

Yes, I understand. I'm about to give you a general comment. What I don't want to returning to, and I'm sure you appreciate is that they take plan vessel by vessel, we drive our vessels and the exact timing of the retirement. What I can tell you is that will be privileging 2 things in the plan. The first one is the monetization of the asset. It is to find a way to monetize the assets if we can and the best way to monetize all the assets. That's the first point. And the second one that we'll be privileging are solutions, which are affecting both our sensor out of the seismic market, okay. And this is something which is -- this is very clear. So far what we do with the Symphony today, okay. It's a clear decision where we are taking the Symphony out of the market, and why we decided to [indiscernible] Symphony because Symphony was reaching a respectable age for a vessel. And in order to continue to operate the vessel in the next few years, we would have had to invest in yard, in CapEx, in streamers, in order to keep the vessel going. And we decided, all in all, that it's a better one from a -- cash-wise to stop the vessel now and, by the way, creates a little bit more tension on the market. So this is exactly the type of decision that we'll be taking as we go, okay, vessel by vessel. We had a clear plan, but again, I cannot be more specific on each of the vessels.

Caroline Hickson - UBS Investment Bank, Research Division

And again I understand you don't want to give guidance in 2014. But in previous quarters, you had guided sort of a $300 million to $400 million, sorry 300 to 400 basis points improvement in the acquisition margin and also an improvement in SERCEL margins in 2014. Should we just assume those comments no longer apply?

Jean-Georges Malcor

Well, I would like -- I would not like to comment today on the EBIT level, either on a global level or per division. Particularly, during the year, there will be quite a lot of action, which are going to be taken, which will have an impact, could be negative on the revenue, for example, positive on the EBIT. The synchronization, we are saying, by 2016, that we'll be rebalancing our portfolio and in a way swapping assets, which are currently are swapping activities, which are currently in the Acquisition division to go into GGR and SERCEL, okay. But you will understand that in time, this is not going to be synchronous, okay. We might be in a position to first decrease the acquisition, and it may take a little bit more time to grow the GGR. Conversely, we may have a good opportunity to go faster in the growth in GGR. So the dynamic will be strong during the year in 2014.

Caroline Hickson - UBS Investment Bank, Research Division

And just one final one. You mentioned that North American Land Acquisition is very weak, that one of your peers have sort of been increasing their investments in both multi-client and the land in North America and I was just wondering how that squares off with the different business models?

Jean-Georges Malcor

No, actually, I'm glad you asked the question because I have not completed that in the speech. What we say is that we are restructuring our Land Acquisition business in North America, okay. We have -- I'm talking really about the Acquisition. We are keeping the strong interest in multi-client land business in the States. We have a good library, we want to keep extending the library, growing the library, it's a good business, okay. I'm here talking about the Acquisition business.

Operator

Our next question comes from Ryan Kauppila of Citigroup.

Ryan W. Kauppila - Citigroup Inc, Research Division

For Acquisition, depreciation in 2014, is the 4Q level decent working assumptions? And then secondly, for the planned retirements and given the impairment to-date, without any specific, can we assume that those vessels are now being carried at close to 0?

Jean-Georges Malcor

I don't know if you want to comment on that, Stephane-Paul?

Stephane-Paul Frydman

The second question, I really didn't get the first one. The second question is we didn't put asset at 0. We put the asset at fair value, meaning that we have, for example, some vessel we consider that we will use looking forward more as a short [ph] vessel than the broad streamer [ph] vessel, and so it has not exactly the same economic value, so we rebase the sale value. I'm not saying at all the sale value, the result is 0.

Ryan W. Kauppila - Citigroup Inc, Research Division

Yes, okay, fair enough. And just ...

Jean-Georges Malcor

What was your first question?

Ryan W. Kauppila - Citigroup Inc, Research Division

The first question was just any guidance you can provide on depreciation in 2014 for the Acquisition division.

Stephane-Paul Frydman

Okay. Call Catherine or Christophe on that matter, I will call you, some technical information.

Operator

Our next question comes from Christopher Møllerløkken of XC1.

Christopher Møllerløkken

Just a quick question here. In a recent industry article, there has been an article that you were currently acquiring a multi-client survey, the IBALT in Gulf of Mexico, which was in the same area as one of your competitors. Could you comment if that is the case? And also there were some mentioning of the pre-funding part of that, could you also comment on the pre-funding on the current Gulf of Mexico survey?

Stephane-Paul Frydman

Yes, we started acquiring the IBALT in July 2012. Recently, it's an ongoing program. It's a 3 years program including the processing, which is going on. I mean, i.e. the responsibility to my competitor to come on the same patch as they wish. On our side, we are very confident that the technology we are providing is a real breakthrough technology to improve significantly the image under the soil and remove some of the ambiguity of the velocity model in the complex areas. And this is reflected in the level of pre-funding that we'll attract from this very technological surveys. So at the time being, we are quite satisfied with the level of pre-funding that we have, including our -- on the next one that we started back in December.

Operator

Our next question comes from Steffen Rødsjø of Pareto.

Steffen Rødsjø - Pareto Securities AS, Research Division

I have a question on your impairments, the rightsizing. It doesn't say here, this but does any of the vessel fair value that include any provision for future years in terms of cash flow?

Jean-Georges Malcor

Technically, when taking about the write-offs, you would see that we have 2 kind of things. The vessel we owned and we are looking at the value we are on our balance sheet and technically it's accelerated depreciation of book value and then you will see that on the other side, we have also, well, unfavorable [indiscernible] given the future use of the vessel and you see that the technically a provision for onerous contract.

Steffen Rødsjø - Pareto Securities AS, Research Division

But if I understand it right, then I think the provision that you take on your lease payment?

Stephane-Paul Frydman

Exactly, exactly. Exactly, a partial one. Exactly, it's 27.

Steffen Rødsjø - Pareto Securities AS, Research Division

Okay, okay. And the second question is on the management restructuring cost in the reportable, below $100 million. What is the staging of that?

Jean-Georges Malcor

Okay. We are restructuring and downsizing the good fleet and the Land business. We are -- the $800 million that we are slugging was a clear question that we are doing our Capital Market Day to say what would be cost of the plan going forward over the period. So the $800 million is the cap, it's not to exceed the price, which covers the cost of the restructuring, the global cost of restructuring for both Marine and Land.

Steffen Rødsjø - Pareto Securities AS, Research Division

By the way, will it be more than in 2014 and in 2016 in terms of pacing on that?

Stephane-Paul Frydman

No, it will follow, it will follow the pace of and the scenario that we are implementing on our plans. So it will follow the pace of the plan.

Operator

Our next question comes from Jean-Luc Romain of CM-CIC Securities.

Jean-Luc Romain - CM-CIC Securities, Research Division

My question relates to SERCEL and the sales of 2 to Russian and Chinese teams. Are they buying the new satellite technology or the older 428? Or is the satellite frequency more geared to mega crews?

Jean-Georges Malcor

Yes. At the time being, in Russia and China, we have been selling the 428 technology, particularly on the back of the 2013 and Q4, obviously. We made 2 sales of the 508 already, only a few months after launching the product.

Stephane-Paul Frydman

Two orders.

Jean-Georges Malcor

Two orders, sorry, not sales. Two orders. We received two orders. Different weights will be delivered soon. The 508 is mainly targeted originally for the high channel crews and the mega crews in the Middle East. Having said so, it is already attracting a lot of interest in China and in Russia, okay, but the SERCEL, will probably be in Middle East.

Stephane-Paul Frydman

And for example, Jean-Luc, we don't serve the Saudi Aramco bid, we swap to wait, not with 508 because it was too early.

Jean-Georges Malcor

And an option on the 508.

Operator

Our next question comes from Morten Nystrøm of Nordea.

Morten Nystrøm - Fearnley Securities AS, Research Division

A lot of the questions have been answered. But just to clarify one thing. You state that you were downsizing your feet to 13 hiring vessels, just by looking at Page #19, you stated that you have 12. Does this mean that you're considering up selling [indiscernible] vessels or considering a new build. That's my first question. And also, [indiscernible], I think you actually answered but didn't actually hear what you said. There seem some -- well, the rest are taken out of the last year, they are actually still in the market. I'm just thinking about your strategy when you actually are taking these next vessels out, in terms of giving them away to the owners, should we expect them to enter into the seismic market, et cetera?

Jean-Georges Malcor

Okay. I will just make the first comments. High-end capacity or high-end segment for us that not necessarily means the number of streamers is also the technology that we can deploy and we may wish to keep a very agile BroadSeis vessels capable [indiscernible] capable vessel in order to attack part of the segment. The second one, all the rights is really commercial and confidential, but I'm sorry, I cannot give you any detail on the vessel that we are targeting today.

Operator

Our next question comes from Jean-Francois Granjon of Oddo Securities.

Jean-Francois Granjon - Oddo Securities, Research Division

It's Jean-Francois Granjon from Oddo Securities. Two short questions. For 2014, you expect some improvement for the contribution of the EBIT coming from the Acquisition business, probably with some less losses from Land. So do you expect some improvement for the EBIT contribution coming from Acquisition? And the second question, could you give us some color regarding the trend for the price on this seismic business? Do we expect, as you mentioned during the Capital Markets Day, of establishing the prices for this year or probably some or some improvements?

Jean-Georges Malcor

Okay. I'll start with the price. As we say, we are really anticipating a general stability in the global seismic pricing for the year. As usual some differences from quarter-to-quarter, okay. But we don't see -- we really [indiscernible] unchanged market conditions for the time being for the year. Your first question was on the Acquisition EBIT, of course, we would like to improve the EBIT on the Acquisition side. We are telling you that by 2016, we will be 8% to 10% margin on the Acquisition side in the revamp or in the re-balance activity. Keep in mind also for 2014, that we are we have the -- we will have probably in H1, H2 sequence, which will be low H1 and a stronger H2, which is a bit of an inversion compared to where we are last year.

Jean-Francois Granjon - Oddo Securities, Research Division

Yes, but the -- could we consider that we -- for mechanical reasons or perhaps with low [indiscernible] for your own business, we can anticipate some improvements compared with the EUR 56 million growth last year?

Jean-Georges Malcor

Jean-Francois, on that matter, obviously, there was fee became losses made in 2013 on the Land side, that won't repeat. But on the other side, on the other side, we -- the capacity we look in 2014 will be already reduced compared 2013, probably 15% reduction already. In line with what we already decided, meaning, the Symphony out, some vessel used vessel that means that the capacity will operate this year will be lower than last year. So as you see, there are plus and there are minus in the bridge from 2013 to 2014.

Operator

[Operator Instructions] Your next question comes from Ben Williams of GSA Capital.

Unknown Analyst

Just a quick question in terms of understanding your decision-making process about reducing the Marine acquisition fleet. Can I just understand, if you do succeed in creating a bit more tension in the market, to use your language, then is it possible that, that should be the number of vessels which you retire will be lower than that, which you plan now?

Stephane-Paul Frydman

Well, I'm not doing this downsizing also for the simple cause of the money market. It's also a matter of strategic decision to rebalance or globally rebalance our portfolio of activities between form Acquisition towards GGR and SERCEL. So it's obviously, it's a matter of improving the way we operate the -- our Marine production. But also, definitely, we want to have an Acquisition businesses waiting later in the global portfolio of the group. So it's part of the -- it's twofold. The decision we're taking are clearly are those 2 origins. First, what we're doing on the Marine side and also on the Acquisition side. And then second, rebalance the way the group is helping EBIT at group level.

Jean-Georges Malcor

And also to create a different vision for the group, which is at the time being, seen and compare and benchmark towards pure Marine players, while acquisition in Marine will represent a lesser part of our revenue and EBIT later on. And the rebalance and also to stay totally in line with the strategy journey that we started with the SERCEL Acquisition in order to reinforce ourself into the GGR and the geoscience parts.

Stephane-Paul Frydman

So it's a [indiscernible] transformation of the group.

Operator

Our next question comes from Geoffroy Stern of Kepler.

Geoffroy Stern - Kepler Cheuvreux, Research Division

I just have a couple of follow-ups actually. Just looking at your shop wise, I mean the stock is now down 7%, so I think people are wondering to what extent you could have some financing issues or that you could contemplate kind of capital increase. Can you please confirm that, that you totally ruled out such a move and remind us of your debt covenant. And then second question is about your comment about the cash flow generation for 2014. Can you -- just want to clarify, are you talking about cash flow before CapEx and then the cash flow from a variation will be flat before CapEx?

Jean-Georges Malcor

Okay. So the first question. Clearly, we have absolutely nowhere in kind or terms of capital increase of this in the scheme of things. We are at ease with our balance sheet. Obviously, we are highly leveraged, but we have nice maturity looking forward. We renewed our revolving credit facility and we raised $0.5 billion last summer so we have absolutely no financing or even refinancing issue to address in the short term. So clearly, we have not tool that in mind to -- given the level of [indiscernible] to dilute our shareholder or even with an equity link insurance to be clear. So that's the first point. And again, look at the maturity of our debt, there's absolutely no issue about that. Second, when talking about the free cash flow and where we are clearly talking about cash from operations, first, after the weight of CapEx are all included and what we delivered this year again before item related to Fugro was plus $5 million, taking into account the cash provided by the operation including the tax payments, changing working capital, multi-client cash CapEx, initial CapEx, well, payment of the interest of our debt, altogether, it leads to plus $5 million I'm looking forward in 2014, it will lead -- it should lead to plus something. So we are clear on that so far.

Operator

Ladies and gentlemen, that concludes today's question-and-answer session. I will now hand you back to your host for any additional or closing remarks.

Jean-Georges Malcor

Okay. Thank you very much. Okay. Thank you for attending the call this morning, and thank you for your questions. We'll be regularly communicating to you on the progress of our plan. It is an ambition that were starting today in rebalancing the activities of the group. We are confident that these actions that we've starting, but we have started, will lead us to a very balanced growth by 2016.

Again, we have an objective of $4 billion revenue, and an EBIT with 400 basis points more, so we should take the 11% today, we'll be close to 15% we'll get 16% in 2016. Thank you very much. Have a good day.

Stephane-Paul Frydman

Thanks a lot.

Operator

Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation, and you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!