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CGG SA (NYSE:CGG)

Q1 2014 Earnings Conference Call

May 7, 2014 3:00 AM ET

Executives

Katrina Lowell

Jean-Georges Malcor – CEO

Stephane-Paul Frydman – Corporate Officer, Senior EVP, Finance and CFO

Benoît Ribadeau-Dumas – Senior EVP, Acquisition Division

Analysts

Sanath Shetty – Nomura

Fiona Maclean – Merrill Lynch

Julien Laurent – Natixis

Henry Tarr – Goldman Sachs

John Olaisen – ABG

Christopher Møllerløkken – SB1 Markets

Jean-Luc Romain – CMCIC Securities

Geoffroy Stern – Kepler Cheuvreux

Rob Pulleyn – Morgan Stanley

Bertrand Hodee – Raymond James

Mick Pickup – Barclays

Caroline Hickson – UBS

Jean-Francois Granjon – Oddo Securities

Jean-Francois Granjon – OBGG

Morten Nystrøm – Nordea

Operator

Good day and welcome to the CGG First Quarter 2014 Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to the company. Please go ahead.

Katrina Lowell

Thank you, and good morning. Katrina Lowell (ph) speaking. Welcome to the CGG first quarter 2014 financial results conference call. The quarterly financial information, including the press release, the presentation and a streaming audio webcast of this call, are available on our website at www.cgg.com.

Some of the information contains forward-looking statements, including, without limitations, statements about CGG plans, strategy 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.

The call today is being hosted from Paris, where Mr. Jean-Georges Malcor, Chief Executive Officer; and Mr. Stephane-Paul Frydman, Executive Vice President, Finance Strategy and Group CFO, will provide an overview of the first quarter as well as provide comments on our outlook. Also the call, Benoît Ribadeau-Dumas, Senior Executive President in-charge of Acquisition.

Following this overview of the full year, we’ll 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, Catherine, and good morning to all of you. I’m on slide 3 of the presentation. And as we have previously indicated during our last conference call, we operated this quarter in flattish seismic market and in the global context of reduced exploration and development spending.

In these difficult conditions, which have prevailed since the end of 2013, the first quarter of 2014 was in-line with our expectations. Total revenues were $806 million down 7% year-over-year, but equipment and acquisition were down but GGR was significant up.

This quarter can be characterized by first low level of land activity, both in equipment and acquisition, especially in North America. Second, still unbalanced supply-demand situation in contract marine acquisition but however, the level of activity in all segments of Geoscience, which remains sustained, with notably a high level of multi-client production.

Looking at the marine operational performance, it was strong this quarter with an availability rate at 94%, much higher than the Q4 rate at 83%, and the production rate at 93% also up versus last quarter at 90%.

Looking at our Q1 profitability. Operating income was at $35 million with 4.3% margin. This operating results was in line with our expectations based on the solid operational performance and this quarter the acquisition division was that to breakeven after heavy loss in Q4 2013.

On the EBIT side, the result was $18 million, including a negative contribution from the equity from investees, this was mainly related to Seabed Geosolutions JV, due to low obviously utilization as we probably know we’re currently mobilizing and also some issues in difficult operational circumstances.

The net income for the quarter was negative at minus $15 million. Our backlog as of April 1, reached $1.2 billion and looking forward, we have a reasonably good visibility into 2014, with marine fleet coverage at 97% in Q2, 60% in Q3 and 10% in Q4.

Now moving to slide 4, while we are still facing difficult market conditions, we remain focused on delivering the transformation plan and vigorously managing the financial debt. On those two fronts, we were very active this quarter and the SERCEL steps of the plan have been implemented.

As you remember, we announced in Q4, during the capital market day, the launch of this new strategy plan for the period 2014 to 2016. I’m pleased to report that this transformation plan is on track and progressing well.

In marine first, following the redelivery of the GeoAtlantic in October last year, and the conversion of two seismic vessels into source vessels, the symphony was duly as planned mid-February 2014.

The reduction of the marine fleet as structured along with the reduction of the associated step-up cost structure in every operational marine sites. We will rely on free regional appraisals of site worldwide and also transit the super functions will also be centralized. Work consisted consultations have started in all relevant countries and sites, and they will last until the end of June.

In land, more recently North America and as already mentioned, we had been facing one of the more difficult winter season for our land operation in this region. We immediately adapted our regional organization with employees in North America having already left the company.

In the Eastern this year, and in line with our agreement with our partner TAQA in the Middle East, the new organization has been proposed to refocus on IN and niche markets.

We were not only active on the operational side, but also on the financial side this quarter, as we successfully launched two refinancing operations in April to extend our debt maturity at very good market conditions. Stephane-Paul Frydman will give you more color later on that matter.

So, let’s have a look at our first quarter operations, division by division. First on page 6, and starting with equipment. The equipment showed resilience despite lower sales. Following high deliveries in Q4 2013, equipment, total equipment, so SERCEL total equipment sales declined in Q1 to $206 million.

External equipment sales were $163 million down 14%. Land equipment sales accounted for 49% and marine for 51%. This is a bit different from the usual part of two third land and one third marine, this quarter, land deliveries coming up to very strong deliveries in Q4, were low across all geographies.

Internal sales represented 21% of total revenue, this is 24% last year, as we are particularly downsizing the fleet. Despite the volumes were up, the equipment division managed to keep the sustained margin at 20%, thanks to efficient cost control and manufacturing efficiency and despite unfavorable Euro-dollar exchange rate.

We told you the capital market day, that surface as for every equipment manufacturer is highly sensitive to volume and product mix, which was unfavorable this quarter with particularly a lower electronic content.

Now, let’s move to slide 7 to the acquisition division. In acquisition, we still operated this quarter in difficult market conditions. Acquisition total revenue was down 6% at $559 million and acquisition external revenue was down 16% at $353 million.

Internal revenues were $206 million representing 37% of total revenue, versus 29% in Q1 2013. This increase in internal revenue is totally correlated to higher multi-client CapEx as 51% of the fleet was dedicated to multi-client program this quarter.

Now, if we look in more detail, in land and airborne, revenue was down 26% at $106 million due to a record low inter-campaign in North America. In Canada and in Alaska, we operated this winter only five land seismic cruise versus nine last year. This triggered immediate adaptation actions as already mentioned.

In airborne, we will audit some oil and gas contract and this is promising but the mining market remain under pressure.

Now moving to marine, marine revenue was stable year-over-year at $453 million and up 25% sequentially. As I mentioned earlier, the symphony was rigged as planned mid-February, and the marine fleet recorded a very solid quarterly operational performance, a great satisfaction during all difficult times.

Acquisition operating income was at breakeven this quarter, showing a strong improvement from Q4 2013, many driven by a solid marine operational performance. As still a negative Q4 2013, the marine contribution was positive this quarter.

Year-on-year, marine contribution benefited from better availability rate, 93% versus 88%, and better production rate 94% versus 93%. That’s the sale from lower price conditions and still from a high cost base at the transformation plan has just started.

Sequentially, and with very similar pricing condition than in Q4 2013, marine operating contribution showed a strong improvement in profitability driven by the favorable impact of the availability of the production rates.

If we look now at the land side, land acquisition operating contribution was much lower in year-on-year due to the record low inter-season in North America, which still penalized the contribution.

Sequentially however, land acquisition operating contribution was better this quarter but still loss making as we quickly implemented the restructuring measures in North America as mentioned already.

Overall, the acquisition EBIT contribution was negative at $60 million, the negative contribution from the equity from investees was mainly coming from the Seabed Geosolutions, due to lower utilization, different operational of second franchise, which are partly weather related and started difficulty start below fees.

Now, if we move on page 8, and going to GGR, GGR showed solid and sustained profitability. Q1 2014 GGR revenues were $290 million up 20%. Revenue from multi-client data was $127 million, up 18% showing the best Q1 performance since 2008 and was mainly driven by pre-funding revenue.

Multi-client cash CapEx was at $156 million, up 23% year-on-year and was primarily focused in Gulf of Mexico with the beginning of TWA, the final phase of our IBALT stacks-size program.

We also started to multiplying programs offshore Brazil, in first the Amazonas and Campos. And CCG also completed in non-multi-client in three 3D land program targeting the massive Shale Basin in the U.S.

Pre-funding sales, were at $80 million, corresponding to 51% pre-funding rate versus 48% last year and in line with our year-end target of 70% plus.

After sales with $47 million, down 9% year-on-year, but they were particularly strong in Canada and Brazil. Amortization rate was 61% as anticipated.

(Inaudible) activities stood at $163 million, they were up 7% due to a strong performance across the business lines, notably with the first commercial success of Geosoftware and Geoconsulting activities.

CGG and GGR use science and exclusive agreement for Rock Scan technology, the technology which is provided by CGG as part of our shale finance alliance.

GGR division profitability was stable year-on-year for the recurring activity, excluding the $20 million spectrum capital gain in Q1 last year. GGR EBIT reached $63 million showing a 21.8 EBIT margin in-line with our objectives.

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

Stephane-Paul Frydman

Thank you, Jean-Georges. I’m on slide 10, and let’s look first at the cash flow elements. So our cash generation in Q1 was in line with our expectations, showing a typical Q1 pattern, group EBITDA amounted to $188 million and 24% margin and resulted from equipment EBITDA margin of 25%, acquisition EBITDA margin at 14% and GGR EBITDA margin at 55%.

This EBITDA combined with paid tax and changing working capital led to $118 million cash flow from operation, 87% year-on-year, thanks notably to a tight working capital management.

Global CapEx was $258 million this quarter, made of initial CapEx at $86 million, this is in-line with our expectations for the whole year at $275 million range. R&D CapEx reached $16 million and notably related, notably related to SERCEL Geosoft to our businesses, and multi-client cash CapEx stood at $156 million being more than 90% marine.

This is in-line with our expectation for the full year within the range of $500 million to $550 million. And those multi-client cash CapEx were 51% presented this quarter, of this is 48% in 2013. And as usual, the company rate should improve all along the year to reach above 70% by year end.

The combination of the cash flow of our operation, the global CapEx and $12 million of interest paid, led to a negative $152 million of free cash flow this quarter. And the amount quite similar to the one of 2013, which was $148 million, due to a combination of usual working capital evaluation pattern in first quarters, and the high level of multi-client CapEx.

Moving to balance sheet items and structure of our capital employed among slide 11, you see that based on 1.38 Euro-dollar closing rate, the good capital employed amounted to $6.3 billion as of end of March, to be compared to $6.1 billion by year-end 2013.

On the asset side, the multi-client library net new value amounted to $916 million at March end, based on multi-client cash CapEx presented 51% as I said before and the 60% depreciation and as mentioned previous by Jean-Georges.

Once again, this increase is strongly correlated to our Gulf of Mexico strategy, and the building up of our tax library ahead of the future of ‘16 to ‘18 credit quarters licensing rounds.

On the liability side, the net debt amounted to $2.4 billion as the end of March, including €1 billion denominated debt. And it corresponds to net debt show at 65%. The growth of the net debt on $2.2 billion by year-end 2013 is consistent with our usual cash generation pattern throughout the year with a cash generation mostly consolidated in H2 Q4.

The average maturity of the net debt was down to full year at end of March, and looking at the period driven by a confirmation planning the 2014 to 2016 period. The moderate installment related to our gross debt were globally amounting to $875 million and were mainly made of the reimbursement of our 2016 convertible bond.

Based on such perspective, we decided post Q1 to actually hide the financing of our upcoming debt installments in the light of two main consideration, a, very favorable trade market conditions with accessible interest rate at lower level ever for the plus rated company and b, a stable outlook for the 18 months to come concerning CGG credit ratings.

So the slide 12 is showing what we made – the guidance what we made in terms of accelerated refinancing program. As said previously by Jean-Georges, we launched and closed in April, two significant refinancing operation on the high yield bond markets. First, we showed €400 million high yield bond due 2020 to repay currency to currency of 2016 converts. We obtained 57As coupon which is the lowest rate ever obtained for high yield bond issued by CGG.

We also issued a week later a $500 million high yield bond due to 2022 at 67As coupon to repay also currency to currency, co-label U.S. high yield bond trance. Altogether, the new notes will bear a 6.3% interest in average.

The net proceeds of those high yield bond issued, allowed us then to push forward 2016 to 2017 moderate installments to 2020 and 2022. We proposed then offer to repurchase 100% of the €360 million of convertible bonds due 2016. The standing approaches were closed on May again, and 98% of the convertible bond has been repurchased. So, we are going now to request for this squeeze-out of this outstanding convertible bond that should be completed by end of June.

And we call also, all the $235 million senior notes due May 2016, there were weighted 9.5% coupon and two third of the $400 senior notes due May 2017 that were weighted 7.75% coupon. So following those two refinancing transaction and the early repayment and debt repayments, the cash cost of our debt will remain at low level at 5.3% in average.

The P&L accounting cost of debt measured under pro forma basis and yearly basis, will be reduced from $190 million down to $175 million. And the average maturity of the debt as of the end of March, will be standard to six-year from four years, meaning we are earning two years of maturity in very good market conditions.

I’ll hand the floor back now to Jean-Georges, for the conclusion.

Jean-Georges Malcor

Thank you, Stephane-Paul. And slide 14, and looking at 2014, we are expecting the seismic market conditions to remain flattish in the global context of reduced exploration and development spending and assuming a more disciplined behavior from the marine seismic industry.

As mentioned before, we are anticipating the stronger H2 following the low H1. We are active on all fronts, remaining focused on commercial performance and operational efficiency.

First, globally, at a group level and across the board, we have launched cost reduction and cash management initiatives. Second, in equipment, we are right now producing our first 508 cross tech system for first customer and we are waiting for Viacom of the first Saudi Aramco high-channel account tender.

Third, in acquisition, we are right-sizing the fleet and the land activity. The first steps have been achieved, the next ones are well engaged and we will keep our – we will keep you regularly informed of progress made on this matter. We will see the 36 of those measures on our cost structure during H2.

Fourth, in GGR, we are seeing a strong interest from our clients stimulated by promising fast-track images for our IBALT program and Subsurface imaging and reservoir of the sustained activity in all parts of the world.

We also reiterate our objectives of positive cash generation and active debt management. 2014 industrial CapEx, should be in the range of $275 million to $300 million, and 2014 multi-client cash CapEx should be in the range between $500 million and $550 million, with a pre-funding level confirmed above 70%.

In this context, we are fully committed to implementing our 2014-2015 transformation plan, and we affirm our goal to rebounce our portfolio of activities and our firm commitment to meet our 2016 targets of revenue above $4 billion and improved EBIT margin by 400 basis points versus 2013 in unchanged market conditions. Thank you very much.

And now we are ready to answer your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question today comes from Sanath Shetty of Nomura.

Sanath Shetty – Nomura

Hi, good morning. Thanks for taking my questions. I think my first one would be on pricing. I think you’re saying that there is, U.S. witnessing some discipline from the seismic players on pricing. Given that demand might be slightly computed in H2, how confident are you that this trend will continue?

Second, on pre-funding, you’ve reported 50% pre-funding in Q1, whereas your overall yearly target is above 70%. I just wanted to know the drivers in Q2 and probably H2, from which regions do you expect pre-funding to be coming above 75% to 80% in order to reach your yearly target? Thank you.

Jean-Georges Malcor

Okay. On pricing, currently in current market condition, the marine contract prices have been under tension. The supply demand balance as you say these is fragile. However, we did see some discipline globally at industry level, for example, some of the seismic vessel have been transformed in source vessels. And globally, the market has been as I say, flattish, flattish minus perhaps.

Condition in Q1, have been weak as expected and communicated. And in this context, we are on our side clearly even more determined than before to implement our strategic roadmap, working on reducing the capacity as we said. Reducing our cost base, our exposure and providing always high end solution to our customers.

On the pre-funding side, we are at the end of Q1, 51%, which is a good level for Q1. Last year we were at 48% at the end of Q1, so we are in a pretty good situation there. Going forward, we are comfortable with the 70% plus objective of the end of the year as we indicated. And the reason is mainly driven by the Gulf of Mexico IBALT program. We are as you know, completing at the time being the last survey on these IBALT tax-size survey which is called TWA after year end.

And in parallel to this acquisition, we are also fast-tracking the images of the first surveys, we are one and two. We are showing those images to our customers and the feedback we have is extremely interesting. We are clearly bringing something new in the Gulf of Mexico. And we are comfortable that the take-up in the next two quarters and certainly before the end of the year, we will be at a level which will allow us to reach the 70% plus.

Sanath Shetty – Nomura

Sure, sure, thank you. That’s very comforting. Just on the first question, I think the follow-up would be, in terms of possibility that you can actually dispose off some of your other vessels as well, given that you already have a restructuring process in place. Do you think that you can reduce further down in your fleet?

Jean-Georges Malcor

No, at the time being we have indicated that we want to reach at the end of the restructuring, fleet size of first investors. This is our plan to date and for the time being we don’t anticipate to move out of this plan.

Sanath Shetty – Nomura

Sure, sure, thank you very much.

Operator

Our next question comes from Fiona Maclean of Merrill Lynch.

Fiona Maclean – Merrill Lynch

Thank you, yes, it’s Fiona Maclean at Merrill Lynch. The first question is in relation to your backlog, I know it’s standing at $1.2 billion at the moment. Could you give us a split of how much of that backlog relates to marine acquisition in terms of contract work?

And then, the second question is about the Seabed joint venture that you have, when do you expect that joint venture to actually start performing? And can you explain a bit further exactly what the problem is and why it’s been loss making since it started? Thank you.

Jean-Georges Malcor

Okay. On the backlog side, Fiona, we don’t display the detail between the various segments for the activity. But the fleet coverage that we have provided will give you a good indication of where we stand today. And as I say, we have a reasonably good visibility for the year, at this time of the year with 97% in Q2 and 60% in Q3.

On the Seabed side, I know that this topic has been largely debated yesterday in Fugro’s call, because I remind you that Fugro is impacting our business and I’m happy to give you some colors on that. The process in the JV which are linked to a combination of poor utilization and there we large contracts for the Seabed JV, and those large contracts are usually taking time, which is not abnormal.

And we have also some one-off, and that to come back to your comment we are seeing very good growth opportunity on the future of the JV. The priority is clearly to we saw profitability on the very short term, we will focus on growth, deliver the backlog which is big, okay. And we are in the JV practically when we stop large contract like that with a topic is usually probably finance and funded. And then after when efficiency kicking in, and we are comfortable where the JV will be able to withstand future.

Fiona Maclean – Merrill Lynch

Okay. And just a follow-up on my first question, maybe if I ask it a slightly different way. Of the fleet coverage that you have for the remainder of this year, so the 97%, 60% and 10%, over the next three quarters. What proportion of that fleet coverage relates to multi-client activity, and what proportion relates to marine acquisitions, marine contracts?

Jean-Georges Malcor

Now, we don’t display the split between multi-client and production. It varies a lot between quarters, Q1 has been very strong in multi-client with 51%. It will continue in Q2 with the IBALT program. And obviously this will fade out as we go and will be taken up by more contract and less multi-client 156 in Q1. And we said that long story short, in Q2 and Q1.

Fiona Maclean – Merrill Lynch

Okay. Thank you.

Operator

Our next question comes from Julien Laurent of Natixis.

Julien Laurent – Natixis

Yes. Good morning. Could you tell if there is any cost associated with the refinancing in Q2, and regarding sales side, what is the visibility towards the end of 2014 for the 508 system? And particularly are you comfortable to get to be awhile before, which would be delivered before the year-end?

Jean-Georges Malcor

Okay. So, perhaps Stephane-Paul, you can answer the first point and I will take the other one.

Stephane-Paul Frydman

So, Julien, you’re right to say that there would be obviously one-off cost related to our refinancing. Again, we still propose, obviously we have to pay the coal of our high-yield bond. But earlier it was paid by the savings we made on the interest side. And we’ll have also to pay the coal for the convert, the coal from the convert but that is mainly corresponding for two years of interest.

And the converts, so, all-in-all the cash cost, one-off cost we should have in our Q2 accounts should be in the range of $20 million, again covering for half-and-half, the U.S. high yield bond coal and the coal on the convert.

And that would be on top of that, probably a non-cash cost which is, we have the equity component related to the convert, so part of it will be wrote-off at the equity level. Part of it will have to be down at the P&L level. And here again, the order of penetration should be $40 million each at the P&L level. Again, non-cash cost, non-cash cost and probably a $20 million directly at the equity level. So, you have the three main component of the one-off item in Q2.

Julien Laurent – Natixis

Thank you.

Jean-Georges Malcor

Okay. Regarding SERCEL junior, I would offer the following comment. Q1 was clearly low in-line with our expectation. I remind you that Q4 was super strong in SERCEL, it was one of the record quarter. So, Q1 and by the way H1 was expected at this level.

We’ve some geographies being relatively quiet at the beginning of the year, particularly Russia and China and some delays in Middle East. However, we expect it to be stronger and driven by four elements.

First, we should get the answer of the first big Saudi tender, we’re expecting that any day but certainly before the end of June. So, this will clearly, the time to mobilize will be on H2 story, okay.

The production, second, the production of the 508 prospect as I mentioned is ongoing. And the equipment, the first coal will be delivered in July and will be in operation in September with one of our customers. Globally, the 508 to come back to your question, is attracting a lot of interest from the customer base. And we have a number of proposals which have been issued.

And finally, two other points I’d like to mention regarding SERCEL, the fact that our new set-up, with the U.S. gas and our partnership with TAQA, will be in place by the end of June, so again that would be an H2 story. And we should not forget also for SERCEL, the seasonality of the business which was as always a very strong Q4 as we demonstrated last year.

Perhaps, a last comment on SERCEL regarding the margin. This quarter, we demonstrate again that we are fully aligned with the volume margin curve that we give you back in the capital market day. When the volume is up, the margin will be up, so we are at the time being we’re actively comfortable with the SERCEL model.

Julien Laurent – Natixis

Okay, thank you.

Operator

Our next question comes from Henry Tarr of Goldman Sachs.

Henry Tarr – Goldman Sachs

Hi there, and thanks for taking my question. Just a couple of things, firstly, I guess, where do you see the drivers for late sales coming from this year and the outlook there? I know it’s always difficult sometimes to predict late sales, but any indication that would be great?

And then secondly, have you had any sort of pricing indications for 4Q or is it a little bit too early at this point to comment on that. I mean, then lastly, just any indications that you have from clients on the demands side and are you seeing any patents there, so is there any difference between IOCs and NOCs in sort of tender activities? Thank you.

Jean-Georges Malcor

Yes, okay. Thank you, okay. Driver on late sales, there are a number of points we have to – that we have to take into account. Gulf of Mexico is still active for us, Brazil is still active as well. We have quite a strong interest in the North Sea, particularly on the U.K. site, the list around have been active.

We have also some interesting demand in West Africa, so it’s not something where there is a big one standing up, but more general interest across the board for the library. By the way, including on the launch side, Canada and North America, okay, which was a little bit quiet in the last few years, which is waking up again.

So, it’s really across the board and the library we have today is pretty well positioned with our footprint to answer the mail on that.

4Q pricing clearly start too early because the big basins which are usually active in Q4, are just getting their act together now. The positive thing we can say is that on the Indian side, on the Indian Basin side, which is a very important growth really after the – not growth relay but relay after the North Sea campaign.

They are clearly getting their act together much earlier than last year. They are already discussing with industry, with us and I guess others, on how to best frame the coal tenders and they really want to get their act together and to have a full Indian season going this year, while last year it was truncated. So, far too early to give you prices for Q4.

Regarding your last point, you are quite right that we see different patterns between on the demand side between IOCs and NOCs. First point, we haven’t seen on the IOC side at the time being, cancellations, huge cancellations, okay. We have had a couple of example but on small contracts, globally – we have seen more delays and taking more time but no cancellations. And we still have a pretty good level of bidding activities around the world.

On the NOC side, it is very different. Clearly, the NOC, they are following their agenda which is much less driven by the quarterly results if you want and more their vision for developing their countries. And we are seeing particularly in the Middle East at the time being, a very high level of bidding activities in all countries in the Middle East, Kuwait, Saudi, UAE, Oman, also in Egypt, also in North Africa.

So, I would say that we don’t see any slowdown in NOCs. But obviously they are working on their agenda and they are on timing.

Henry Tarr – Goldman Sachs

That’s very helpful. Thank you.

Operator

Our next question comes from John Olaisen of ABG.

John Olaisen – ABG

Yes, good morning Paris. It looks, in a more declined book value which is rising fairly sharply between 6% year-on-year. Could you remind us what we should expect of our production rate going forward please?

Jean-Georges Malcor

Yes, Stephane-Paul will give you that. But a word to explain the rise, your coal price it has been going up lately. It’s totally related, and when I say totally, perhaps 98% related to the IBALT survey in the Gulf of Mexico, which is ongoing at the time being and for which we are shooting and processing at the time.

Stephane-Paul Frydman

Yes. And looking at our depreciation rate, the volume should be around the year of close to 65%, 65%. Last year we were at 63%, we could be 63%, 64%, 65% this year, but that’s the order of magnitude.

John Olaisen – ABG

And 65% going forward, is that sufficient to stop the book value from rising or should we expect the book value to continue rising over the next three to four quarters or throughout the rest of the year?

Stephane-Paul Frydman

You raised a very good point, which is just a fact. And we remind what we said at the capital market day, in terms of what is the strategy looking forward for the multi-client CapEx. We’re clearly at peak in 2014 that’s decreased – I said just by Jean-Georges, it’s deeply related to what we’re doing in Gulf of Mexico. We’re playing the 2016 to 2018 lease around, so that means that the peak of the multi-client is related to the Gulf of Mexico.

And looking forward, 2015, 2016, we should be back to a more I should say natural place of middle cash CapEx. Again, from the $418 million we made in 2013, we are guiding today in the range of $500 million to $550 million and we should be down to $415 million starting 2015 and 2015 horizon. And that’s – at that time that the book value will put start to go down.

John Olaisen – ABG

Yes. And then the question on the vessel coverage going forward, 60% for Q3 this year seemed to be quite a lot lower than most of the other seismic players are saying. And are you one of the guys have been having showing strongest base for this summer, with just such a low order backlog and is that a fair statement or what do you feel yourself, what is your backlog so low for Q3 that’s starting in two months?

Jean-Georges Malcor

First of all, I don’t know what my competitors will be publishing in the next few days. But from what we, the vessel count and looking, it’s a pretty transparent business. So, we know who is doing what and where. When we do the vessel count on our side and with our competitors, we don’t see backlog so different in Q3, between us and the competition.

So, we are seeing 60% and maybe 65% or 55% or 70% but it’s not so different. So it would be interesting to see what would be published in the next few days. But from just looking at the world of contracts and deployment of vessels, and it’s not so complex because you have to know how to count up to 65%. And that’s about it. e are not seeing ourselves so different from the competition. So that’s a global comment.

Second comment on your point, which is very true. We did try to be – to be very disciplined to put the price up. And particularly in the North Sea and the Barron Sea, we did lose something else in doing so, okay. But that price means that the vessels of orders are occupied.

And there are seeing some award which are expecting, which are in the pipe, which have not materialized yet, you have to keep that in mind, particularly in South East Asia, I was looking for the world and Russia.

John Olaisen – ABG

But would you say that 60% coverage for Q3 at this point in time, is it right or its normal – lower than it normally should have been for Q3?

Jean-Georges Malcor

It’s about, it’s roughly in line with, it varies between 60% and 70% usually at least some of the year.

John Olaisen – ABG

Okay. Thanks a lot. Thank you.

Jean-Georges Malcor

Our next question comes from Christopher Møllerløkken of SB1 Markets.

Christopher Møllerløkken – SB1 Markets

Yes, good morning gentlemen. Regarding Brazil, you late last year won the three large multi-client surveys they’re in. But so far you’ve only started up the total survey, now referring to the Northern Brazil work. Has this started in BG surveys being hit by permitting issues or when do you expect them to start-up?

Jean-Georges Malcor

No, we are currently shooting total. We are starting the Statoil already. And we’ll be mobilizing pretty soon for the last one. But Benoit, if you want to give more color?

Benoît Ribadeau-Dumas

Yes, we have to – as Jean-Georges said, as you know, we have started long-time ago, at the beginning of the year, the total full time survey, we are currently mobilizing for the second large survey for mainly for Statoil but other customers as well. And the last one, where BG is the main subscriber, Bahrainis has been slightly delayed by permitting issues. For let’s say a good reason as well, because the survey has been extended so there was a need to reapply for new permits.

Christopher Møllerløkken – SB1 Markets

In terms of the ROST network in Russian Barron Sea, Cara Sea, there was an issue earlier this year with ruble depreciating in value. Has the ROS net award now been awarded, what’s the status there currently.

Jean-Georges Malcor

We, Christopher, we cannot comment on that because it’s in evaluation phase at the time being, the award have not been published. So, I think you need to ask the question to ROS net on that because for the time being nobody has been notified of the outcome, even if everybody have some vibes. But it’s not official yet.

On our side, we are obviously extremely careful, not to be exposed to any actions rate and particularly to the rubles.

Christopher Møllerløkken – SB1 Markets

Of course, equity income negative in first quarter, could you give any guidance for equity income going forward, will it still be a loss in the second quarter? And what’s your view on the full-year?

Jean-Georges Malcor

Well, we will follow mainly the pattern of the Seabed invention that was the main contributor in Q1. And obviously, we will be – well, we will follow as it is, we’re taking 40% of the net income of the Seabed joint venture. It will impact anyway Q2 in the following year. So, please refer to what was said by few on the full-year, the vision on the full year for the Seabed joint venture.

Christopher Møllerløkken – SB1 Markets

Just two final questions. Did first quarter include any restructuring costs?

Jean-Georges Malcor

No.

Stephane-Paul Frydman

No, no.

Christopher Møllerløkken – SB1 Markets

And I know you don’t split the backlog on all the deals, but pretty obviously I was said indication on the SERCEL backlog, could you give any indication of the SERCEL backlog as of 1 April?

Jean-Georges Malcor

As you know, on the SERCEL side, the backlog is not a very good indicator because most of the sales particularly on the lump side are going directly, are not going for the backlog. But where we are today is pretty much in line of where we are normally at this time of the year on the backlog side.

Christopher Møllerløkken – SB1 Markets

Okay, thank you.

Operator

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

Jean-Luc Romain – CMCIC Securities

Good morning. My question relates to the contracts in cruise into the Middle East. You mentioned Saudi Arabia which should be awarded soon. Although what it is based on the region maybe?

Jean-Georges Malcor

There are certainly, unique opportunities in terms of bidding. There are lot of activities at the time being. There are bids in Kuwait, you’d probably know that there is one crew in Kuwait its public. And this was one in continuity with their current operation that they have.

But there are two more tenders in Kuwait, Kuwait B, which is under evaluation, which has been bid and under evaluation. And there is a greater bargain which is very, very big one, which should be tendered very soon.

So, this is for Kuwait. Then after, we have opportunities in Oman, to increase the number of channels in Oman, which is ongoing. And there will be – so it’s one opportunity. And the second opportunity will be two very large tenders, they’re talking about 250,000 channels each, so those are very, very big tenders. But it will be probably for really the end of the year for the big tenders, so it will be 2015 story.

We have also been bidding in UAE for the reluctant track and also, Egypt which is waking up again, and as well as North Africa.

Jean-Luc Romain – CMCIC Securities

Thank you.

Operator

Our next question comes from Geoffroy Stern of Kepler Cheuvreux.

Geoffroy Stern – Kepler Cheuvreux

Yes, good morning. I have couple of questions. Just wanted to come back first on SERCEL, following the 20% margin in Q1, I think you mentioned earlier in the call that you too should be pretty similar. I mean, is it assumption first and secondly to what extent in Q3 we should see a kind of improvement here, that’s my first question?

The second questions relate to again, to the backlog and the fleet coverage, which in my view is a bit soft I would say. I know that earlier on this year you were expecting the Russian market let’s say to improve your fleet coverage. Can you update on this and if Russia does not materialize quickly, it’s likely – do you think that is likely to be more 2015 story, in that case, what are the risks to the supply demand balance in the marine market?

And I have another question this time around on the tax rate, could you provide us with an underlying effective tax rate for this year? And the final one, on the restructuring targets, no restructuring charges in Q1 between the gates that you are in negotiation with employees in some countries and that would be concluded by June. Does it mean that we should expect restructuring charges in the second half of this year? Thank you.

Jean-Georges Malcor

Okay. I’ll start with the last one because it’s a straight forward answer and yes, we would expect restructuring charges in the second part of the year. We already indicated that in the Capital Market Day and earlier in the year, we have indicated that the restructuring charges for the plan, for the two-years plan or the 2014-2016 plan, will not exceed $100 million, okay. And we are totally within this – envelop at the time being.

So, just to be very clear with everybody, we are restructuring in major countries around the world, where we have to follow the referral and detailed process, legal process or social process. So this is ongoing. And the dialog with the unions and the employee representative is ongoing.

And as you know, very well in most of the countries, there is – there are delays and milestones to be respected. And this is why we say that this will be – that will bring us to the end of June.

And it’s already a very quick if we achieve that. So, yes, that will be restructuring charges to be taken later on in the year.

Geoffroy Stern – Kepler Cheuvreux

And just if I can follow-up on, if I can follow-up on Jean-Georges please, it sounds like given your previous comments you tend to accelerate the pace of the restructuring plan this year. So, is it fair to assume that the restructuring charge will be front-end loaded if we look at the 2014, 2016 period?

Jean-Georges Malcor

In fact, Geoffroy, we are doing the quicker we go in the restructuring, the better it is for everybody for the people, for the company, for what people hate is insecurity and unknown. So, we are trying to be as efficient as possible with our people.

We have started a very mature and very thorough social dialogue. And the quicker we can go with the restructuring, the better it will be particularly on the support function side, which is important because it’s not only the restructuring of the main division but it’s also globally at the group level. As I indicated, we are also taking cost reduction measures and cash management measures across the board.

So, coming back to your first point on SERCEL, as I said, you’re right to say that Q2 will be probably very similar to Q1 on the SERCEL pattern. And going forward, we are as I say expecting an H2 stronger than H1. Based on the foreign MN side, I indicated we’ll restate them again, because they are important.

First of all, we hope that SERCEL will be selected in some of the Middle East standards where we are expecting the outcome, pretty soon. And we are, obviously it’s lot of one, but we are relatively confident that SERCEL will be able to say some equipment in the Middle East, first point.

Second, the ramp up of the 508 cross tech, which is currently happening with the manufacturing of the first channels. I think SERCEL told me the other day that there have something like 30,000 channels already manufactured. They will be delivered in July and they will be filled and starting operation in September. So, you see a good, second good driver for H2.

Third driver, is the fact that our Middle East operations with our partner TAQA should be effective by the end of Q2 or beginning of Q3, let’s say June, July time frame. And this obviously will also position us in a good position to capture good market opportunities for SERCEL globally in the Middle East including Egypt.

And fourth, there is a seasonality matter that we should never forget in SERCEL, and look at the pattern of last year, where Q4 was super strong, with the winter campaign opening up, particularly with demand coming from Russia and China.

Geoffroy Stern – Kepler Cheuvreux

And just to be completely clear on this, I mean, excluding any large contracts or GGR business this year, do you still expect the sale to be in line with last year?

Jean-Georges Malcor

Yes. I mean, if we sort of – for me, it’s – that’s the kind of indication we gave. And as I say, H2 will be much stronger than H1 for SERCEL. And we were in the very similar pattern last year and I think we delivered last year. So, I don’t see any reason to see a different pattern at the moment. But Q4 is still very much, very far away at the time being.

Stephane-Paul Frydman

On the tax rate, maybe you’re taking good question Geoffroy. As usual, while currently you see that in Q1, our tax rate was charged despite the fact that we have EBIT minus interest expense negative. That’s again the weight of the foreign indexation.

The good news is that the foreign indexation is mainly related to the acquisition, so it should be looking forward, it should be reduced for the rightsizing of our position. And we will show this quarter, non-recognized disrupt as I said, notably in France, we’re quite prudent accounting ways that explained the minus 11.

Then, looking forward, again while this all of firm which is to look at the per division, and again GGR is a business that is exposed probably to and the sale or so, the equipment. Our business is that exposed to each year our 35% to 36% being mostly located either in France or in U.S. So that’s the national tax rate, those two I ask.

And then, on the acquisition, you have to take meaning to look at the external, the contractual part of the production and apply to a sale 25%, one third, 5% in average the indexation. So, and then that’s a way to conclude the tax rate to EBIT, the tax charges in your model.

Jean-Georges Malcor

And your final question Julien, sorry Geoffroy, on Russia, we are – we don’t see the contracts which were ear-marked for this year to be shifting 2015. We are confident that both contracts will happen this year, okay, even if they are not loaded yet. But we are confident that will happen this year.

As you know, the Russian season is very short and they are – they don’t want to take any additional delays on those prospect. But not only we are confident that that will happen this year but we are also strong believer that that will be even stronger in 2015.

Geoffroy Stern – Kepler Cheuvreux

Okay. Thank you for this.

Operator

Our next question is from Rob Pulleyn of Morgan Stanley.

Rob Pulleyn – Morgan Stanley

Yes, good morning gentlemen, just a few questions over from me. Apologies to hop on about the backlog by just get a fair amount on this. You said this is how backlog would be in line with where you are normally at this part of the year.

Last year I think you told us, it was $210 million, is that the similar number we should think for 1Q ‘14 and because obviously that’s quite a lot higher than the year-end number you gave on the last conference call of $160 million. Sorry, go ahead.

Stephane-Paul Frydman

No, no, no, go ahead, go ahead, go ahead.

Rob Pulleyn – Morgan Stanley

And the second question is I think you previously said the vessel pricing for 2014 on average over 2013 would be around about flat. Is that still the case? And then finally, a bit of a balance sheet question is, where do you expect net debt to become the end of the year? Thank you very much.

Stephane-Paul Frydman

Okay. On the backlog of SERCEL, you’re right that last year we had a very, very strong backlog at $200 million plus for memory. The backlog of SERCEL at the moment is not something we disclose usually but it is probably close to $170 million, which is where we are – where we should be normally at this time of the year.

Last year was super strong, we are right. We had the number of big orders linked to remember Russia and China at the beginning of the year.

Rob Pulleyn – Morgan Stanley

Okay. Thank you.

Stephane-Paul Frydman

Yes. For the I think your second question was on pricing?

Rob Pulleyn – Morgan Stanley

Yes, so I think previously you said that on average, pricing in 2014 would be similar to what it was on average in 2013. Is that still going to be the case or as what you’ve seen in terms of booking that fleet and obviously what’s been reported in 1Q sort of changed that somewhat? Thanks.

Jean-Georges Malcor

Yes. On the, I indicated that we expect indeed flattish seismic market during the year. We priced under pressure clearly. Q1 was slow, not very different from what we anticipated at the end of last year by the way. And within this condition, and taking into account the seasonality of the market as you know, we are not seeing any significant improvement or significant deterioration, but compared to where we were at the end of last year.

We are still seeing the price under pressure as I say, okay. And in this context we are even more comforted in our decision to adapt the size of our fleet to work very actively on our cost structure. And this is what we have started to do. Even if the results are not CBALT in Q1, we need the time to implement the decisions. But this will be clearly an impact on H2.

To continue to develop and to position ourselves on the high end solution to our customer, which is the season very important point as well. And so, we have a context which is by the way not at all the context we had in 2009, it’s not a market which is totally collapsing, it’s a market which is, which is under tension.

Rob Pulleyn – Morgan Stanley

Okay. Fair enough. Thank you. And just finally, on the net debt, I mean, do you expect it to be similar to where you are today by the end of the year or perhaps a bit lower?

Stephane-Paul Frydman

Yes, Rob, there is some elements on that matter. First, we refinanced the convert by the CBALT. So you know that the IFRS treatment of the convert is quite special, meaning there is special portion of the principle that is completed within the debt.

So, I had said that was my provision show on the one-off we’re expecting in Q2 but probably this refinancing will have an impact of 15, 16 on the net debt, just in terms of guaranteeing treatments. So, that’s a first element.

Second element, looking at the free cash flow, what we will generate towards the year, it will depend on the current free cash and be in-line to be, that far that branch we said that we – I’m not expecting a huge cash generation but not too low on either. But that being said, it will depend on all kind of assumption.

As you know, we’re in-line to be quite active in terms of asset management, I’m not talking about acquisition, I’m talking about potential disposal within our plan. And it will depend if it’s liable to monetize or not the assets and that could generate some cash proceeds. So that’s too early in the year but that will have obviously and impact on the net debt.

So, I’m seeing and that was our previous assumption from Jean-Georges, we are watching that we could have – we could endorse some restructuring cost, the weight of those restructuring costs, well it would depend on the – our final pace in our confirmation plan. And the weight of that into ‘14. So, again, we could have plus and minus, that will impact the net debt.

But what is for sure is, okay, we are 2.4, 2.5, and that’s again the usual pattern of the year where our interest is quite low. We would like to be not far from where we ended the year, at least in terms of leverage you reminded we end the year at the leverage around two times the EBITDA, while that’s clearly these kinds of targets we are looking for.

Rob Pulleyn – Morgan Stanley

Okay. That’s very helpful. Thank you.

Operator

Our next question comes from Bertrand Hodee of Raymond James.

Bertrand Hodee – Raymond James

Yes, hello. I have two questions if I may. The first question is probably going back in terms of pricing, which you witnessed in Q1 ‘14 and Q2 ‘14 compared to last year. So, if you can give us a bit more color on the I would say, the year-on-year decrease in terms of pricing for both quarters compared to last year?

And the second question is relating to SERCEL, just wanted to make sure I understood well your comments. It’s that if we exclude any mega crew royals in the Middle East in 2014?

Jean-Georges Malcor

Too early to give you any vision for SERCEL for the end of the year. We don’t master totally the timing of those awards. We are expecting for the time being the first feedback on Saudi Aramco. If we win that one and when we know the configuration of the tender, we’d be able to give you a bit more color on that.

Let’s first understand where we stand on that one. As you know, there are two options for re-standard, one is at 50,000 channels the other one is 200,000 channels, depending on the option which is chosen at the end. This will change significantly the profile of the revenue of SERCEL. So, let’s see what’s the outcome on that one first.

Bertrand Hodee – Raymond James

Okay. Just on SERCEL, so Jean-Georges, but my question was clearly relating to sales profile excluding mega cruise because I know obviously it’s depending on the configuration of the Saudi Arabia, it could make a big difference.

So, our thinking is, are we looking for $800 million, $900 million base revenues for SERCEL this year?

Jean-Georges Malcor

Again, I can’t comment on that. The two big, the two biggest customer of SERCEL which are usually kicking off extremely strongly in H2, and particularly Q4, are Russia and China, okay. At the time being, we are at the beginning of the year, it’s not too early. And on top of that, which is very sensitive commercial information that we don’t want to disclose to our competitors.

Bertrand Hodee – Raymond James

Okay.

Jean-Georges Malcor

You had another question?

Bertrand Hodee – Raymond James

Yes. And my first question related to marine placing indication comparison year-on-year both from what you witnessed in Q1 ‘14 and in?

Stephane-Paul Frydman

We told you already in Q1, last year, you have to remember that the pattern of last year was very strong H1 in Marine, you would remember we finished the year, at the end of June we were 10% increased in price. And all this increase was destroyed in the second part of last year, okay. So, if we compare year-on-year on the quarter, Q1 has been lower than Q1 last year, okay.

Bertrand Hodee – Raymond James

Can you quantify the year-on-year?

Stephane-Paul Frydman

It’s very difficult to quantify because if you want to quantify, you need to know the type of survey we are doing, okay. And for us, it’s very difficult because in Q1, we had developed 51% in multi-client this year, where we were very, very low, I don’t have the number in mind. But something like 36% last year at the same time.

So, this of course brings a lot of destruction in the price. But in contract price, clearly the contract price is lower obviously than in Q1 last year. It will be probably flattish minus in Q2, compared to last year as well, okay, because again Q2 last year was very high, okay. And the rest of the year will be to balance, as we said, the year would be flattish, we’ll be balancing the year in average compared to last year.

Bertrand Hodee – Raymond James

Okay. And just one last question if I may, what is your current, so you talked about current work capacity in marine so the market that is not balanced with 65 vessels, where do you think in terms of number of vessels to market should we balance again, so how many vessels roughly needs to be over tie as a whole for the market to rebalance given the markets you’re seeing?

Jean-Georges Malcor

At the time being, we’re not far from being in the balanced market, okay. It really depends on the tenders, it depends on the synchronicity of the tender. If all the tenders were coming at the same time, and awarded at the same time, okay, we would probably see much better pricing that we see today. But they are staggered, they’re some coming at the right time, some are coming at the different time.

The transit in the regions are not, is not ideally synchronized. So it’s again is very difficult to give an average level of that.

What we can see today is that what we can say today sorry, that we are on our side taking our step to reduce the format of the fleet. I would even say almost we are less of the market conditions, because at the end of the day, we want to transform the company towards the three active pillars which are well balanced, okay.

In doing so, we are doing our – we are doing our duty if you want on our side. We are expecting all the other to do the same. So it’s – to answer your question, it’s a global industry question, not only our question. We’re expecting the other to do the same. You know that they are new capacity coming in this year. We would be expected, we would be expecting sorry, to see that this new capacity being offset by capacity getting out.

The indication we have to-date and again I encourage you to watch the question to our competitors, that the industry is prepared to take such steps. But let’s see how it will work during the year.

Bertrand Hodee – Raymond James

Okay, thank you.

Operator

Our next question comes from Mick Pickup with Barclays.

Mick Pickup – Barclays

Good morning, gents. I have a couple of questions if I may. Firstly, just on the U.S. land and the Canadian land business, can you just tell me exactly what you’ve been doing there to try to get that back on track, I’ve seemed to have missed that earlier on?

And secondly, well then on renegotiating your debt further out to future, can you just talk about the covenants that are on that debt, I think I should be tracking those these days?

Jean-Georges Malcor

Okay. I’ll leave the second one to Stephane-Paul, I’ll answer the first one. It is, we have been immediately activating from redundancy and reducing the teams in order to not to carry a cost base which is two-way and not sustained by the level of activity in those countries. So, it’s a straight work on the structure and redundancy.

Mick Pickup – Barclays

And that’s just a reaction to short-term market conditions or you believe those market conditions are here structurally?

Jean-Georges Malcor

We believe Mick that there are probably for the long-run, okay. And we want to desensitize, it’s not the real meaning, but we want to remove the sensitivity of the company on this particular market. We have already indicated so we are reducing the footprints very significantly in order to be able to – to be profitable at the trough of the activity. And the five cruise this year was very low compared to 9 last year. And so, we had to adapt to these new market conditions.

Mick Pickup – Barclays

Okay, thank you. On the covenants?

Stephane-Paul Frydman

Yes, on terms of covenants, Mick, don’t really meaning we are benefiting from very, very large head-rooms. So we have absolutely covenant issue looking forward. I remember that we have two kind of covenants, a coverage one which is that EBITDA should be at least three times of the interest so you see that there is a huge headroom in that matter that’s related to our high yield bond.

And related to our high grade facility, we have covenant related to our GAAP on our leverage. We see strip on 25 times so you see that we are also by far from this kind of ceiling of cap. So, there is meaning, in that regards, it was quite covenant light and CQ and then there is no big constraint on us.

Mick Pickup – Barclays

And that’s just balance sheet net debt to EBITDA or is it there is no fun as about leases and things?

Jean-Georges Malcor

Yes, yes, based on balance sheet items usually.

Mick Pickup – Barclays

Okay, thank you.

Operator

Our next question comes from Caroline Hickson of UBS.

Caroline Hickson – UBS

Hi, there, just two questions from me. Firstly, operating costs and the elimination, sorry – the corporate cost and eliminations lining, your EBIT looks quite high. And higher than I think what other people were expecting. Is there anything driving this as it change in accounting and what should we expect going forward?

Jean-Georges Malcor

Stephane-Paul, this one is for you.

Stephane-Paul Frydman

Yes. Again, it’s the elimination meaning we mentioned in our 6-K that looking at the elimination, what is related to the corporate costs, meaning the sample cost which is always in the same order of magnitude for quarter around $15 million to $16 million. And then, so that means so that you have – the difference you have the elimination and corresponding to the revenue and hope – and hopefully related revenues.

You have here an average gross margin of 23% to 25%, 24%, which is meaning the equivalent of and lineated gross margin. And that’s a combination of what is lineated at such a level and not that much. And what is eliminated at the acquisition level, which is this type a strong level and an important level because more than 60% of our fleet is dedicated to a title position.

But you have all the elements for making the calculation and keeping in mind that the elimination is not made at the EBIT level or OPIN level, but at the gross margin level that they spend you with the importance of their rate.

Caroline Hickson – UBS

Okay, thanks. And I understand that you’ve said that the outlook for 2014 is still uncertain. But can you give any ideas about the second quarter, I mean, you said first half will be weak but will 2Q be better than 1Q?

Jean-Georges Malcor

No, at the time being we don’t give any guidance. We’ve indicated that. This is clearly strongly linked to the perimeters that we are operating. In current situation with the perimeters – that the perimeter that we are operating as is today, okay, we are relatively in-line with global conferences for the year.

Okay, for the obviously, we are waiting very actively to adapt our fleet, to adapt our acquisition footprint. This will have an impact on our revenues and obviously the consensus will have to adapt to this new perimeter, when it would be known.

Caroline Hickson – UBS

Okay, thanks.

Operator

Our next question comes from Jean-Francois Granjon of OBGG.

Jean-Francois Granjon – Oddo Securities

Yes, good morning, from Oddo Securities. Just few questions regarding, the first one, regarding the financial cost after the refinancing program. Could you give us the saving amount you expect for the full year in terms of financial costs?

The second question regarding the operating margin for the acquisition business in the first quarter, you have reached the breakeven but you’re having some losses for the land business, could you give us the amount of the loss coming from the land business, with the acquisition for the first quarter?

And for SERCEL business, I understand that you want – don’t want to indicate any volume of sales for the full year. But could you give us some trend for the margin, EBIT margin for the full year after the poor level for the first quarter at 20%?

And the last question, regarding SERCEL, could you give us the impact or the ForEx of currency impacts, you mentioned the press-release and the press-release sorry, ForEx impact on the SERCEL business and margin, could you give us some more color about the impact in terms of margin of SERCEL for the first quarter? Thank you.

Jean-Georges Malcor

Okay. I think that we have answered already a lot of weird questions Jean-Francois particularly on the cost of the debt, the cost of the interest of the debt and so on. But we can certainly give you a bit more.

On the, and I encourage you perhaps to talk to Catherine Katrina and Christophe as well if you want more detail. Do you want to comment on the exchange rate because this one we can answer?

Stephane-Paul Frydman

Sure, on the debt again, just I remind that we are the cost of debt of $189 million, $190 million for the whole year, a spread for the full quarter. And it will shift looking forward to a pattern of $175 million, so you can make the competition, again, it’s smooched the question of debt quarter-after-quarter. So, you have all the elements for the proposed calculation.

Looking at the fixed rate impact, keep in mind maybe two figures, first at the group level and again for the whole year, at the group level, we are exposed to €500 million cost basis. So, that means that it’s time well taking $0.10 sensitivity within the exchange rate (inaudible) income level for the whole group is $50 million. That’s the first point.

At SERCEL level, you can consider that the cost exposure is roughly €200 million to €250 million that means that the rate of $0.10 is an impact, a big impact of 20% to 25%. That’s the reason, why we said usually when we compare for example €138 which is a present exchange rate to project well, which is more €130 or the usual, which is more €130.

We used to say that it’s roughly $0.08 to $0.10 compared to what we have in mind but budgetary was. And that’s roughly 2% at the OPIN margin level for SERCEL.

Jean-Georges Malcor

And you had a question about the split of EBIT or OPIN between the marine and land, we don’t give this detail. What I can, the only thing I can tell you is that marine was positive in Q1 this year.

Jean-Francois Granjon – OBGG

Okay, thank you.

Operator

(Operator Instructions). The next question today is from Morten Nystrøm of Nordea.

Morten Nystrøm – Nordea

Yes, this is Morten from Nordea. I just have a question regarding the plan of de-rigging vessels. How many vessels do you have left to de-rig after what you did what you did on then in the first quarter?

Jean-Georges Malcor

We don’t comment on that, which is commercial and confidence, highly sensitive. We only think I can tell you is that we confirm our plan to go down to 13 vessels by 2016.

Morten Nystrøm – Nordea

Yes, but can you say how many vessels you have in the water now?

Jean-Georges Malcor

17.

Morten Nystrøm – Nordea

17, okay. Follow-up question on that, last year you saw one of your vessels which you de-rigged whilst taking on a new charter by a competitor. How can you be sure that this doesn’t happen with the vessels you’re planning to de-rig especially I would say the vessels which are owned by either this week? Is there any clause that prevent competitors for taking these vessels?

Jean-Georges Malcor

I mean, we are living in an open market. And once we de-rig the vessel, if somebody want to rig it again and operate it in the market, there is very little we can do. But what you have to keep in mind because I see where you’re coming from.

There is a feeling in the market that if we get rid of the vessels and the vessels are staying in the market, we are not solving the balance and supply-demand balance issue. First of all, we cannot be the only one to solve this balance, supply-balance issue, okay. We are prepared to take our share of the load, but no more, no less at this point. So you ever show to go and talk to your Norwegian friends, first.

Second, which is extremely important, okay. If in doing so, and if people wants to take a vessel which has been de-rigged to put it back in the market, if in doing so, we are delaying or cancelling or replacing the new-build. It is a contribution to the reduction of the fleet in the market. So, do your math from that one.

Morten Nystrøm – Nordea

Okay. Thanks. Another question, could you comment on the pricing in the backlog compared to what you executed in the first quarter on the marine side, is there any change in?

Jean-Georges Malcor

I can give you a copy of my next bid, let’s be serious. No, we don’t comment on that.

Morten Nystrøm – Nordea

Okay. Thank you.

Jean-Georges Malcor

Operator, this is the end of the call. Thank you.

Stephane-Paul Frydman

Jean-Georges, you want to make…

Jean-Georges Malcor

Okay. So, thank you very much for attending the call. I will express little bit of frustration that we had absolutely no comment on question on GGR. I suspect it because you believe that GGR has been doing well during the quarter, this is our belief at least. So thank you for attending the call. And we’ll see you next time. Bye-bye.

Stephane-Paul Frydman

Thank you, bye.

Operator

That will conclude today’s conference call. And thank you for your participation. And ladies and gentlemen, you may now disconnect.

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