CGGYY - CGG. (CGGYY) Q1 2023 Earnings Call Transcript

2023-05-06 09:43:05 ET

CGG. (CGGYY)

Q1 2023 Earnings Conference Call

May 03, 2023, 12:00 PM ET

Company Participants

Christophe Barnini - SVP of CGG

Sophie Zurquiyah - Chief Executive Officer\

Jerome Serve - Group CFO

Conference Call Participants

Jean-Luc Romain - CIC

Kevin Roger - Kepler Cheuvreux

Guillaume Delaby - SG

Daniel Thomson - BNP Paribas

Baptiste Lebacq - ODDO

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to CGG Q1 2023 Financial Results. [Operator Instructions] I would now like to turn the conference over to the CGG team. Please go ahead.

Christophe Barnini

Thank you. Good morning, and good afternoon, ladies and gentlemen. Welcome to this presentation of CGG's first quarter 2023 results. The call today is hosted from Paris where Ms. Sophie Zurquiyah, our Chief Executive Officer; and Mr. Jerome Serve, our Group CFO, will provide an overview of the quarter results as well provide comments on our outlook.

Let me remind you that some of the information contains forward-looking statements subject to risks and uncertainties that may change at any time, and therefore, the actual results may differ materially from those that were expected. Following the overview of the quarter, we will be pleased to take your questions.

And now I will turn the call over to Sophie.

Sophie Zurquiyah

Thank you, Christophe. Good morning, and good afternoon, ladies and gentlemen, and thank you for participating in this Q1 2023 conference call.

We move now to Slide 5. Let me start with some general comments on the evolution of our businesses and market environment during the quarter. Overall, commercial activity was strong across all our businesses and geographic locations this quarter. Exploration activities are picking up as clients are increasingly looking for new advantaged reserves with lower breakeven prices and lower emissions, including IUCs, which we haven't seen much of in 2022.

To respond to projected supply-demand balance, our clients are also continuing to accelerate their field development programs. Many of our clients today are starting to face lack of resource challenges after downsizing their organizations and losing geoscientists to low-carbon divisions. We have seen the strongest increase of activity in the Gulf of Mexico, Norway and the Middle East, which all have been very active, and we all started to see increases in other parts of the world, including Asia-Pacific.

Offshore, particularly offshore deepwater, is attracting a larger share of E&P investments, and as such, high-end Geoscience is increasingly required to derisk sub-services and operational risks. We are well positioned to support our clients with our high-end technology and integrated capabilities.

Looking at CGG in Q1, I am pleased to report that our core business and technology development efforts as well as our investments in our Beyond the Core business initiatives have paid off. We saw the recent award of 3 very large integrated imaging projects for NOCs and also achieved our first signature for a commercial HPC and cloud solutions services contract outside of the energy industry and academic world, which is a real milestone in the establishment of this new business. We also delivered our first Gulf Coast U.S. CCUS screening study during the quarter.

Overall, Q1 was a solid start to the year with improving performance across 3 business lines. Geoscience's revenue was $79 million, up 5% year-on-year on external revenue. The level of order intake at the end of the quarter was up 31% year-on-year, and this doesn't include the large integrated projects that we were awarded in April. Earth Data had a good quarter, thanks to stable after sales of $13 million and higher prefunding at $35 million.

On a pro forma basis, adjusting for the sale of our U.S. land library, after sales were up 36%. Sensing & Monitoring had a better quarter, thanks to the early delivery of a set of streamers in a market environment that tends to be lumpy and still driven by significant one-off orders. Large tenders in the Middle East and North Africa for land and OBN equipment are positive signals for active Q2 and Q3 quarters. Overall, our Q1 revenue reached $210 million, up 37% year-on-year. Segment EBITDA was $66 million, a 31% margin and up 71% year-on-year. Net cash flow was $1 million.

Now on Slide 7. DDE segment revenue was solid this quarter at $144 million, up 21% year-on-year with growth in both Geoscience and Earth Data. Profitability was impacted by our compensation for underutilization of vessels.

Moving on to Geoscience on Slide 8. Geoscience external revenue was $79 million in Q1, up 5% with growth coming from all regions. The market is strengthening with a high level of bid submissions worldwide. Backlog is up 22% year-on-year. Hence, the order intake value being up 31% from Q1 last year, tracking back to 2019 levels. As mentioned, this increase in backlog doesn't include the 3 large multiyear integrated projects that were recently awarded to CGG by 3 different national oil companies.

Overall, we see the size and content of projects significantly increasing with more demand for advanced imaging technologies together with integrated Geoscience services. Historically, NOCs have asked for higher levels of integrated services in their projects, but we are starting to see a similar trend with independents and INCs who are short of resources and just a highly data-driven product.

The total production per head KPI continues to strengthen and is now above 2019 levels. While we also are looking to increase our headcount to respond to higher demand for our services, we have gained inefficiencies and are increasingly using advanced AI-driven algorithms to perform some of the previously people-intensive task.

Moving on to Slide 9. In Geoscience, CGG has always pioneered new and disruptive technologies like today with our unique elastic full-waveform inversion. It is interesting to realize that today, demand for these technologies is utilized more overly by all customer profiles and across all locations such as offshore advanced technologies have been most required, but also now more and more in shallow water and even on land where precision matters.

These advanced algorithms enable our clients to significantly improve their understanding of subsurface, reduce risk and increase their drilling success. The image you see here from Southern Mexico is a clear example of improvements that technology can bring. The image offers a seamless view of the subsurface from shallow water to transition zone and land with many critical details. The project includes both onshore and offshore areas covered by multiple ocean bottom cable and landfill. Then a transition zone at Full Waveform Inversion is very challenging due to the limitation of input data. This is where CGG excel with our advanced technology and expertise.

The finance statement provides a significant uplift over the 2021 legacy data set. In Beyond the Core, CCUS screening and monitoring design are 2 areas with increasing demand, and we just completed a study in the Gulf of Mexico, which, again, as mentioned earlier, saw first deliveries in Q1. I am particularly pleased with the signature of our contracts with Biosimulytics. Biotechnology is one of our target verticals for offering our specialized HPC and cloud services solutions. I will comment more on a later slide.

Now going on to Slide 10. In UAE during the quarter, we completed nearly all the processing of the largest ever OBN acquisition program. This OBN acquisition project covered a total area of more than 26,000 square kilometer. More than 2 million sensors were deployed, resulting in approximately 700 billion recorded seismic traces. This was a technological challenge that we stepped up to and addressed, thanks to our outstanding people and technology, supported by the largest HPC capacity in the industry. The project led to CGG winning another challenging imaging project, which entails the processing of the densest multicomponent survey acquired in the world.

On Slide 11. Back to our new contract with Biosimulytics. CGG will be the exclusive HPC cloud partner of Biosimulytics, a pharma software company that uses artificial intelligence to accelerate drug development. CGG will be providing Biosimulytics with a fully customized cloud HPC solution.

Thanks to our experience of designing, developing, hosting and optimizing scientific workflows on specialized HPCs at an industrial scale, we are very well positioned and have the unique expertise to optimize the required IT infrastructure and software to run more efficiently, allowing Biosimulytics to scale up faster as well as increase their focus on their expertise while not being distracted by HPC optimization. We have other similar opportunities in our pipeline in biotechnology, generative AI and with industrial companies faced with new or increasing HPC requirements.

Moving on to Slide 12 now with Earth Data. Earth Data cash CapEx was $28 million this quarter, down 15% year-on-year. In Brazil, we partnered with TGS in the Foz do Amazonas basin. In the U.S. GOM, our reimaging projects continue to draw increased interest and prefunding, and we continued the reprocessing of our stack-size program.

Prefunding revenue was solid at $35 million and came mainly from Norway and Brazil projects. After sales were $30 million this quarter, stable year-on-year, even with the divestiture of our U.S. land library in Q4 2022 and were mainly driven by the U.S. Gulf of Mexico.

The Gulf of Mexico is clearly attracting interest from an increasing number of clients, including the deeper and more complex areas that have been quite slow in the last few years. The basin does offer a secure and reasonably stable environment with a relatively lower emission profile and a clear go-to market, and hence remained a priority for many of our clients.

Going on to Slide 13 now. The Earth Data team had a very active quarter with a few high-profile business initiatives, including the 2D Guyana reprocessing project, which is fully prefunded by clients [Ph]. The Suriname project, which we completed this quarter and is filling a data gap in the compelling deepwater area and preparing for the start of our North Viking Graben East West acquisition project, a continuation of this successful program. We also started preparations for the highly funded Heimdal Terrace OBN project.

On Slide 14. In the context of extending our current data library, our teams are building a unique, comprehensive database of wells covering offshore Guyana, Suriname and Equatorial Margin. 30 wells offshore Brazil, 7 wells offshore French Guyana, 17 wells offshore Guyana are including in this program, as shown on this map. Thanks to our expertise and business best practices, data rights have been agreed with the local [indiscernible] from each country and then cleaned, processed, interpreted and integrated.

This type of product has been welcomed by our clients as they do not have the resources to secure the data, clean it comprehensively and then analyze it with advanced ML and Geoscience technology. But this is key for their interpreters to gain the most accurate understanding of the new basins.

Our Guyana Suriname GeoWells database is part of the global program to gather relevant well data from around the globe to complement on geology and geophysical products and continue to build expertise for our integrated projects.

We'll move to Sensing & Monitoring with Slide 15. Our Sensing & Monitoring segment revenue was stronger this quarter at $66 million, up 95% year-on-year. This was mainly supported by marine sales at $34 million, which were higher than previous quarters as we delivered a set of streamers to research vessel in Asia-Pacific.

Sales from Beyond the Core, which includes Geocomp and the active defense sector were also up at $12 million, mainly driven by our structural health monitoring business. At this level of sales, EBITDA of the Sensing & Monitoring business was breakeven.

Slide 16. During the quarter in land, we delivered seismic equipment in North Africa, West Africa and Asia. We see significant potential for our GPR 300 nodes, especially in the Middle East, where demand for marine node systems and high-end processing continues to accelerate. During the quarter, we also acquired a small French startup, Morphosense, which complements the structural health monitoring product portfolio of SMO with the cable system and a digital twin offering.

Let me now give the floor to Jerome for financial comments.

Jerome Serve

Thank you, Sophie. Good morning, and good afternoon, ladies and gentlemen. I will now comment on our Q1 2023 financial results.

Let me start with the overall Q1 activities. As mentioned by Sophie, our segment revenue was up 37% year-on-year at $210 million, driven by higher SMO sales. You may remember that SMO sales for the [indiscernible] at 71 as well as higher EDA sales coming from solid prefunding revenues from Norway and Brazil.

Overall, the respective sales contribution from the businesses were 38% from Geoscience, 31% from DDA, totaling 69% for our DDA segment and 31% from the SMO segment. SMO representing last year only 22% of our Q1 revenue.

Segment EBITDA was $66 million or 31% margin. This is up 71% year-on-year. However, note that as expected, they first grew from increased revenues to EBITDA was negatively impacted by the revenue mix. Higher SMO sales bringing lower EBITDA margin than DDA. EBITDA was also negatively impacted by a higher compensation for underutilization of vessels versus last year in DDA.

Regarding segment operating income, Q1 was $30 million or 6% margin. After IFRS 16 adjustment, Q1 operating income was $7 million. Finally, net income was negative at $16 million this quarter.

Moving on to our cash flow. Q1 2023 segment free cash flow was $2 million after a negative change in working capital of $4 million and CapEx of $52 million versus last year. Working capital was impacted by lower collection of Q4 revenues as well as higher end of the quarter sales to be collected in Q2.

CapEx was $52 million, up $10 million versus last year or 23% year-on-year, mainly from higher industrial CapEx related to the construction of the new HPC data center in the U.K. for $18 million.

Research and development capitalized costs were $6 million, almost stable versus last year. And multi-client cash CapEx was $28 million with a prefunding ratio of 126%.

Moving to segment free cash flow, main cash item included plus $14 million of asset financing from the new U.K. data center, minus $12 million of lease repayments and minus $6 million of cash costs linked to the Shearwater Eidesvik compensation.

Operator

Sorry for the interruption. We're just having connection -- we will back shortly. Thank you.

[Technical Difficulty]

Jerome Serve

I will -- I guess, I will start back with the cash flow. So Q1 2023 segment free cash flow was $2 million after a negative change in working capital of $4 million and CapEx of $52 million versus last year. The working capital was impacted by lower collection of Q4 revenues as well as higher end of the quarter sales to be collected in Q2.

CapEx was $52 million, up $10 million or 23% year-on-year. This is mainly coming from higher industrial CapEx related to the construction of the new HPC data center in the U.K. for $18 million. Research and development costs, which are capitalized for $6 million pretty stable versus last year and multi-client cash CapEx was $28 million with a prefunding ratio of 126%.

Below the segment free cash flow, the 3 main cash items were $14 million of asset financing for the new U.K. data center, minus $12 million of lease repayments and minus $6 million of cash costs linked to the Shearwater Eidesvik compensation. Overall, we ended up Q1 with a net cash flow at plus $1 million.

Moving on to the group balance sheet. The group liquidity amounted to $301 million at the end of March, excluding $95 million of undrawn RCF. Below IFRS 16 gross debt -- before IFRS 16, sorry, gross debt was $1.2 billion, and net debt was $905 million. After IFRS 16, net debt was $994 million. At the end of March 2023, the segment leverage ratio of net debt to EBITDA was 2.4 times.

I will now hand the floor back to Sophie for an outlook of 2023.

Sophie Zurquiyah

Thank you, Jerome, and we are now on Slide 22 with business trends. In Q1 2023, it became clear that the oil and gas industry's multiyear up cycle was starting to reach CGG's markets. Until recently, it was not certain whether exploration would benefit from increased industry spending.

The latest research numbers for offshore exploration now show that exploration spend will increase both in absolute value of the number above 20% and as a proportion of the total E&P spend, which is the first since 2015. IOCs, although more modestly, are starting to increase their exploration spend and in general, are being limited by resource availability to ramp up work.

With the highest-end technology comparing with the largest Geoscience workforce across the industry, including a broad range of disciplines and our leading imaging technology, CGG is the best positioned as a partner of choice to our clients.

Recent fluctuations in oil price is not expected to impact this favorable cycle, especially as fears of significant underinvestment. Our clients have all lowered their breakeven oil price, which allows them to take a longer-term view.

After the GOM that was the first to pick up, we see a substantial increase in activity in Norway and more recently in the Middle East. National oil companies have deployed ambitious seismic acquisition projects amongst the most advanced in the world and look for best-in-class technology to extract the most value from the investments, which CGG can provide.

Geoscience activity is trending towards 2019 levels with higher demand for advanced technologies, OBN processing and large integrated projects. Demand for our Earth Data should continue to be solid, sustained by big brands and clients looking to secure new positions as well as demand for our new portfolio as we continue to expand our CCUS library.

The Sensing & Monitoring business should grow significantly in 2023, driven by solid demand for land equipment, node system and the promising Beyond the Core SHM business. I'm very pleased with the progress of our Beyond the Core initiative, especially CCUS and SHM, and also by the continued development of our HPC and cloud solutions business and the recent award of the HPC contract with Biosimulytics.

In this context, I am confident in our ability to deliver our 2023 financial objectives, and I am increasingly positive in the longer-term outlook for CGG. Thank you for your interest, and we're now ready to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question from Jean-Luc Romain from CIC. Please go ahead. Your line is open.

Jean-Luc Romain

Good afternoon. I have 2 questions, if it's possible. The first is on SMO. Do you think the start of the increase in deliveries for land products to the big Middle East land surveys will start in Q2 or is it more a second half story? That's the first question.

And the second question is about the Earth Data investment in carbon capture. Would you accept to iterate what was dedicated to the investment which was dedicated to CCUS characterization? And how do you see it evolving as we are seeing large companies purchase a lot of rights especially for we think in the recent advance?

Sophie Zurquiyah

Good evening, Jean-Luc. So first, the question on SMO in terms of the Middle East land surveys, I think you're referring to the Saudi tender, which still haven't been awarded. And right now, our provisions are for equipment deliveries to be between Q2 and Q3. But if you remember, there are 2 land crews and 3 OBN crews to be delivered. And of course, we'll be competing on some of those with the competitors. But we have right now are planning for deliveries in Q2 and Q3, but it should have been awarding by now, and it's still getting delayed.

On the Earth Data side, in terms of CCUS investment, call it a single digit, right? It's in the million dollars. So it's not hugely significant. And also keep in mind that we can sell our data, our seismic data as it is. And this is what we did last year. Most of our sales last year were really relative to existing seismic data we had. So for now, we're constructing data packages with data that we already have, and that's really a single-digit number in terms of million dollars.

Jean-Luc Romain

Thank you very much.

Operator

Thank you for your question. We are now taking the next question. Please standby. The next from Kevin Roger from Kepler Cheuvreux. Please go ahead. Your line is open.

Kevin Roger

Yes, good evening. Thanks for taking the question. Sophie, see if I missed it, but I joined the call late. Would you be able to provide you the backlog that you have maybe at the end of the quarter or maybe sooner at the end of April and maybe some granularity on it? How much of this backlog will be converted into revenue in 2023? And the level of commitments that you have currently on your multi-client CapEx plan? So any color on that side.

And you concluded the conference call saying that you are more and more optimistic about the, let's say, the sort to midterm earnings probably and basically, the Q1. How much better than what you guided you are expecting to be in line with Q1 last year? You arrived well above that. So does it change a bit -- not to sound too optimistic, but beat your expectation for the full year, meaning that you will not expect to arrive in the high end of the range that you are preventing us before? So any color also for the expectation for the full year, please?

Sophie Zurquiyah

Yes. Thank you, Kevin, for your question. I'll take the second question, and then I'll give the first question on the backlog to Jerome. I think it's really too early a quarter. As you seen, remember, last year, we were quite volatile from quarter-to-quarter. So we had a slow quarter then followed by a good quarter, and that's related to the lumpiness of the business, which is now actually in SMO and Earth Data. But 2 of our businesses tend to be lumpy now.

So I wouldn't draw a conclusion just on the first quarter, and that's why we are reiterating our guidance. I think it's a bit too early to really draw a conclusion and make a trend. But definitely, in terms of a longer, mid- to longer-term view, I'm getting more confident. And as I was saying, the IOCs are definitely resuming more exploration, which was a bit of a question mark even a year ago. So there are some positive trends that we're seeing in a market that finally the cycle seems to be climbing our way. And unlike previous cycle that we're starting with exploration, this is a different cycle where our clients have been more cautious to run exploration.

So it's coming our way. A bit early to draw a conclusion. I would say, men wait Q2 to have a better view. For now, we're sticking to our full year.

Kevin Roger

Okay.

Jerome Serve

Kevin, regarding the backlog, at the end of March, we are at $420 million, which is a 33% increase year-on-year. And out of this 420 - about $300 million should convert into revenues by end of the year.

Kevin Roger

Okay. And that basically most be the first sale equipment without the [indiscernible] in terms of our final investment decision from the client and the commitments for presenting on investment, right?

Jerome Serve

See the overall CGG backlog that I gave you, which does not include the aftersales obviously. And indeed, the backlog does not take into account the [indiscernible]. It's not been awarded yet.

Sophie Zurquiyah

So there was what's not in there and the 3 large budgets that we won from NOCs on Geoscience that came into April. We had orders as well that came into April. So, of course, that's not into it. But yes, that's at the end of March. And keep in mind that the -- as much as I think on Geoscience, the backlog is really a good indicator of how the year is turning out, and that's why we're publishing it, and it's definitely up, and it's tracking to 2019 levels.

In SMO, typically, we don't have a long visibility in backlog. We have about 3 months, 4 months. And then Earth Data is a little bit of the same story. It's a little bit lumpy. So it's difficult to predict. But in general, we're certainly seeing some of the highest level of backlog that we've had in many years.

Kevin Roger

Okay. Thanks a lot.

Operator

Thank you for your question. We are now taking the next question. Please standby. And the next question is from the line of Guillaume Delaby from SG. Please go ahead. Your line is open.

Guillaume Delaby

Yes, good afternoon. Maybe I would like to come back on your comments regarding exploration spending. Basically, during the Q1 call from SLB, they mentioned that what was new versus just a few months ago, that exploration was basically recovering. Could you maybe -- because I missed some of the data points you provide -- and also, if you can maybe give some color, maybe 1 or 2, let's say, maybe clients anecdote that struck you, I would say, over the last maybe a few months or few weeks which basically confirm what you are seeing on exploration? Thank you.

Sophie Zurquiyah

Good evening, Laume. Yes, I've been, of course, watching and listening to SLB comments carefully. I remember they made a comment in Q2 last year as well. And I remember my response was where we're not really seeing the same thing. And keep in mind that they have a much broader exposure to the oil field service than we have. And as I suspected last year, the investments starting in the drilling. So the clients started to drill the exploration well because they wanted to keep their commitments and make sure they were able to keep their blocks. So that's how exploration started.

And by the way, the numbers I was mentioning come from Rystad and Rystad has been increasing their view on exploration spend offshore pretty much every month between January, February and March of this year because they weren't even 3 months ago acknowledging the increase. So that's good news.

So in terms of why we think it's coming our way finally, one of the indicators is the percentage of the mix in our Earth Data sales. So this is something we have been monitoring since the COVID because definitely, our mix of clients has changed. We had to feel for it. But when you look at numbers, what's striking without giving a precise number, the IOCs were divided by 2 in our client mix.

So basically, it was NOCs, it was independent, we're losing by half the IOCs. Now I wouldn't say they've come back to that same proportion, but they're definitely up somewhere halfway to where they were. So divided by 2, so they've increased a significant portion in the mix of our data sets. I suspect the same would be true with our peers.

Another one that perhaps you would see the activity in the Gulf of Mexico. So there was that big round in March. A lot more active higher-resolution, definitely another sign, how much companies were willing and the kind of blocks that they choose. And then the other one as well is another one with some clients that haven't been active in years in the Gulf of Mexico, for example, are coming back.

And another final data point is we're seeing more interest in our more frontier data from IOCs and clients in general. So we have data in Gabon, in Zambique, and we haven't had much requests, and we're starting to see requests and might be making deals over there. Does that help?

Guillaume Delaby

Yes.

Operator

Thank you for your question. We are now taking the next question. Please standby. The next question comes from Daniel Thomson from BNP Paribas. Please go ahead. Your line is open.

Daniel Thomson

Hi, good evening. Yes, I just wanted to confirm the share order charge during the quarter and what that charge is expected to be for the full year. And then just a delta in the net debt quarter-on-quarter as well just wasn't quite clear given the net cash flow was relatively neutral while there was a bit of an increase in net debt quarter-on-quarter.

Sophie Zurquiyah

Can't hear anybody. So sorry. We're waiting to see if we're going to reconnect.

[Technical difficulty]

Operator

We have now Mr. Thomson from BNP Paribas. Please go ahead.

Daniel Thomson

Good evening. Can you hear me now?

Sophie Zurquiyah

Yes.

Daniel Thomson

Perfect. Okay. Yes, I just want to confirm on the call what the charge was for the Shearwater agreement this quarter and the expectation of that charge for the full year? And then just what was going into the increase in net debt quarter-on-quarter given the net cash flow was kind of neutral? Just a bit of color on that, please.

Jerome Serve

So the Shearwater for the quarter between the penalty and the compensation for Eidesvik is about $20 million.

Daniel Thomson

Okay. And the expectation expectation for the full year?

Jerome Serve

Expectations for the full year is more around $50 million. It's just the cash impact --

Unidentified Company Representative

Daniel, this is the total cash impact, including $21 million for IBC, [indiscernible] Compensation, which has...

Jerome Serve

Already been provided for at the time of the deal. So it will not impact the net income.

Unidentified Company Representative

Yes, yes. And then the $30 million raw cash cost which are in the operation of cash cost of business lines.

Jerome Serve

And on the EBITDA, if you took on --

Sophie Zurquiyah

Yes. So Daniel, of course, this is what we're planning on, but obviously, we're going to do everything to not have to spend money. So we're really working actively on projects and balancing whether we can find a good project towards the intent. Eidesvik compensation is a number that's there and it's going to be there until the end of the contract in about 1.5 years, and that's been provisioned for. And then we have to deal with the -- it's the penalty for not using the 24 vessel months, depending on the quality of the projects that we're looking at.

Jerome Serve

Regarding the net debt, it was only increased by the asset financing that we have for the construction of our new data center in the U.K. So top of my mind, I think it's around $27 million.

Daniel Thomson

Okay, got it. Thank you.

Operator

Thank you for your question. We are now taking the next question. Please standby. The next question is from Baptiste Lebacq from ODDO. Please go ahead. Your line is open.

Baptiste Lebacq

Good evening. I have two questions. The first one is regarding the prefunding rate, which was very impressive in the first quarter. What could be the best bet or guess for Q2 and the rest of the year, I try to question.

And the second one is regarding your investments for the U.K. HPC data center. You had $19 million of CapEx, industrial CapEx, in Q1. Can you give us an idea regarding when this data center will be on the start-up mode? And are you still comfortable with your industrial CapEx budget of $70 million for 2023. Thank you.

Sophie Zurquiyah

Okay good evening guys. Thank you for the question. So on prefunding rate, it's very difficult to look at on a quarter-to-quarter basis. So really, it has to be a full year. And if you remember, we always said 70% to 75% budget-wise is what we're targeting. And of course, we were trying to get as much as we can. And typically, we've been getting 80-plus percent. And that would be our ambition. But in terms of commitment, we're saying we want to reach that 75% prefunding.

And we're taking this year a bit more cautious approach in terms of quality of the project and prefunding. And that's why you're seeing our CapEx a little lower on the Q1 and really pushing hard on the prefunding. On the U.K. HPC data center, the project is pretty much going per plan. So there isn't any surprises on that project, and we're looking at the go live in September. So it's very advanced. I actually have visited it in January. It looks very impressive, and it can add for us about 100 petaflops. Remember, we're at 350 petaflops. So yes, no surprises on the budget. So we'll stick to our budget numbers. Then there is another number. Was there another question on how much or…

Baptiste Lebacq

$70 million.

Sophie Zurquiyah

Just confirmed, yes. It's within the envelope that was planned. And it is a very large infrastructure investment and the kind of investment that you do every 20 years. And we haven't done any such investment actually during my time. And so we've been living off really aging infrastructure and pushing it hard. So its infrastructure is different from actually the compute itself. And so what we're investing in is in an infrastructure that will allow us to grow significantly our computing power.

Baptiste Lebacq

Okay, thank you very much.

Operator

Thank you for your question. We are now taking the next question. Please standby. The next question is from Daniel Thomson from BNP Paribas. Please go ahead. Your line is open.

Daniel Thomson

Sorry, I just had another one here. On your sort of recovery in demand that we spoke about in terms of data from the IOCs and your other clients, is there any sort of shape to late sales that we should anticipate going through the rest of the year? I know 4Q is normally a high point. Should we be assuming a gradual increase over 2Q and 3Q with 4Q, the high point again? Thanks.

Sophie Zurquiyah

Yes. Thanks for that question. I guess this is what you ask -- the question you're asking is the most difficult one to predict. If I look back at Q1, even some of those late sales appeared literally a few days before the end of the quarter. And a lot of it was driven by the Gulf of Mexico activity. So it really depends on where we or where the data is and where the client's interest is.

Now at the macro level, I would expect that the clients spend more money on aftersales overall. Now where does the money go, it will depend a little bit on the areas of interest from the client. I think we'll get a fair share of it because of our footprint and our position in some of the key basins where the clients will currently invest. So at the macro level, over the full year, I would expect that we would see a good outcome.

You have to -- if you're going to look at year-on-year growth, at least the way we look at it, this last year, there was a bit of exceptional associated with transfer fee. And in the specific case of CGG, we have land and the land was about $18 million of aftersales, right? But within that, it's kind of correct for some of the exceptional and the land; we definitely should see some growth.

And the other data point I can give you is typically historically DDE, used to be tracking more or less the E&P CapEx dynamics. So we will be sort of -- the 2 of them together would kind of tend to follow E&P CapEx dynamics. And I see no reason it should be different.

But the quarterly view is actually very difficult to predict. And right now, I don’t have, for example, the visibility on Q2 aftersales. I have the visibility on prefunding because of a certain level of backlog. And possibly, it will get more prefunding for the quarter on some of our on-going projects. But typically, the aftersales are just more difficult to predict.

Daniel Thomson

Yes, no, I appreciate that. Thanks for providing what you can. Thanks.

Operator

Thank you for your question. There are no further questions at the moment. [Operator Instructions] There are no further questions. I will hand back the conference to the CGG team for closing remarks.

Sophie Zurquiyah

Yes. Thank you very much. Thank you for attending and apologies for the complexities, the difficulties we've had with the connection. I hope you haven't missed too much of our talk. But yes, and I look forward to seeing you one-on-one, and thank you for attending, and have a good evening. Thank you, a good rest of your day, if you're not in your Thank you.

Operator

That concludes the conference for today. Thank you.

For further details see:

CGG. (CGGYY) Q1 2023 Earnings Call Transcript