CGGYY - CGG (CGGYY) Q4 2022 Earnings Call Transcript

CGG (CGGYY)

Q4 2022 Earnings Conference Call

March 2, 2023 12:30 PM ET

Company Participants

Christophe Barnini – Group Communications and Investor Relations

Sophie Zurquiyah – Chief Executive Officer

Yuri Baidoukov – Former Group Chief Financial Officer

Conference Call Participants

Kevin Roger – Kepler Cheuvreux

Haris Papadopoulos – Bank of America

Presentation

Operator

Good day, and thank you for standing by. Welcome to the CGG Q4 and Full Year 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to CGG. Please go ahead.

Christophe Barnini

Yes, thank you. Good morning and good afternoon, ladies and gentlemen. Welcome to this presentation of CGG's fourth quarter 2022 results. The call today is hosted from Paris, where Ms. Sophie Zurquiyah, Chief Executive Officer and Mr. Yuri Baidoukov, Former Group CFO will provide an overview of the quarter results as well as provide comments on our outlook. Also with us today, Jérôme Serve, our new Group CFO succeeding Yuri who is leaving CGG for family reasons.

Let me remind you that some of the information contains 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. 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 today in the Q4 2022 conference call. Before we start, I would like to thank Yuri for his time at CGG and for all his contributions. He provided outstanding support to CGG and to me through challenging times and it's been a pleasure to work with him.

Let me also welcome Jérôme Serve to the CFO role. Jérôme Serve has a broad and international background in finance and in the energy sector and most recently was the CFO of one of the large divisions of Faurecia. We look forward to the experience and expertise he will bring to CGG. The overlap will take place during the month of March and I am confident it will be a smooth transition.

Let me move on now to Slide 2. I would like to start with Q4 and full year review today with a few comments on ESG to highlight our strong profile. Our company's high-end technology business along with our low-carbon intensity footprint and our continued focus and excellent in ESG, have been consistently recognized by ESG rating agencies.

CGG is very well rated both by MSCI and by Sustainalytics due to a broad range of ESG considerations and in particular, our low-carbon footprint. In 2022, we further reduced our Scope 1 and 2 emissions respectively to two kiloton of CO2 and 39 kiloton of CO2 for the full year. But more importantly, our business brings a significant sustainability contributions to our clients, as our high-end technology and Earth Data in key bases around the world supports the optimization of their drilling and reservoir development plans, which in turn can substantially reduce the CO2 footprint.

Now in Slide 3, looking at our Q4 and full year financial performance, while the macro environment remains favorable with high oil and gas prices, our clients have continued to maintain reduced E&P spending levels, prioritizing return to shareholders. During 2022, IOCs and especially European IOCs focused on their energy transition agendas not growing E&P CapEx in line with the macro trends.

While Independence and IOC were the first to increase E&P activity to meet worldwide demand and address the type market. Energy security has risen as a key consideration and it is becoming clearer that demand for hydrocarbon will remain high for the foreseeable future. The overall macro trends translated into increased oilfield service activity, especially those sides to development and production such as drilling and completions.

Offshore and international activities also picked up significantly. However, products and services that were exposed to longer term return on hydrocarbon investments such as frontier explorations have been lagging mainly based on the lack of clarity at a 10 year horizon from a climate change and regulatory standpoint.

For CGG, this resulted in a volatile yet improving overall market in 2022. Looking now at our Q4 and full year results, our solid Q4 financial performance provides a good illustration of the high quarterly volatility that our businesses experienced in 2022.

Our Q4 revenue came in stronger than expected at $319 million due mainly to higher than anticipated EDA and SMO sales. Adjusted EBITDA was $159 million given the mix and net cash flow was $62 million, including $63 million proceeds from the sale of the U.S. land seismic data library. Thanks to our high Q4 results, we returned to policy net income for 2022. Full year revenue of $928 million was stable year-on-year. Despite the significant decrease of our SMO business which also highlights current market volatility. Our adjusted EBITDA of $395 million, mainly in line with our full year expectations and guidance, representing a 43% margin.

Net cash flow for the year of minus $3 million was close to break-even. Overall, our 2022 financial performance was solid as we operated in a complex environment while implementing and investing in our portfolio of Beyond the Core business initiatives that are focused on developing new profitable revenue streams for CGG as we move forward.

Going on to Slide 4, I would qualify 2022 as a year of transition for CGG as we address the volatility of our oil and gas businesses and invested in the future. The quarterly volatility that we experienced this year was probably the highest that we have ever seen, with the significant lumpiness in sales in both EDA and SMO. Variations were greater than 50% between some of the quarters. It was a year of transition. First in our coal markets, especially during the second half of the year, we started to see early signs of the projected multi-year or index of cycle.

In this environment, we continued to focus on the advance of our technology leadership positions in our core businesses and we increase investments in our new Beyond the Core businesses, which in 2022 now represents more than 8% of our revenue. As part of our BTC strategy, we acquired Geocomp to establish a stronger infrastructure monitoring market position in North America and acquired the ION Software business to strengthen both the differentiation of our core SMO business by accelerating our value-add cloud-based services and to further advance our BTC initiative by extending our expertise and giving us a position in the software to services market.

As an example, port management, we also updated our dual science organization to move our most mature BTC initiatives into the geographies to focus on commercial expansion and created a new HPC and cloud solutions organization to strengthen our strategy in the digital area. It was a year of investment looking ahead of the cycle as we are preparing for improving market conditions in oil and gas and accelerating our BTC businesses.

We invested in technology with the construction of a new HPC center in the UK, which will be operational later this year and significantly increase our compute capacity. We invested in significant modifying projects in key basis where we are well positioned for the future. And we continue to advance our market positions and technology leadership in our geoscience and SMO core businesses while developing a robust portfolio of Beyond the Core growth opportunities.

Now on Slide 5, our BTC business initiatives are focused around three main markets, digital, energy transition and infrastructure monitoring. We made concrete progress in 2022 in all areas. In digital, the creation of our HPC and cloud solutions business line was a major step in strengthening our processes and organization as we invested and prepared for growth in the specialized area. In our data hub business, which focuses on data transformation, delivery and visualization, we successfully completed several pilot projects and secured and our current leaders bring a full scale of project for BTC. In energy transition, we increased our participation in CCUS and minerals and mining and generated around $20 million of EDA sales, mainly focused on CCUS in Australia, Norway and the U.S.

We successfully demonstrated our structural health monitoring solutions in various settings within this rapidly growing market, resulting in our first sales in the U.S. where we are leveraging our acquisition of Geocomp. The new technology profile of CGG is developing in line with our expectation of our BTC businesses reaching the target of 20% of company revenue by 2025.

Now on Slide 6, a year ago, we were anticipating 18% revenue growth in our DDE segment. We delivered 21% revenue growth in 2022 consistent with offshore E&P spending increases. Our activity particularly strengthened in North America, but we also saw improvements in the North Sea while Asia remained relatively flat. Overall, the profitability of the DDE segment significantly improved in 2022 with adjusted EBITDA increasing by 23% to $406 million, a high 62% margin. This was driven by efficiency gains, better utilization of resources, a strengthening pricing environment and a much higher level of multi-client after sales.

Now going into each of the business line on Slide 7 Geoscience. While the market was solid in North America in 2022, it was still slow in the rest of the world, though we see now clear signs of increased activity looking forward. Geoscience revenue was sequentially stable this quarter due to delay start of key projects, which in general continue to be driven by strong demand for our high-end technology.

The revenue reduction compared to 2021 was in relation to a large one of software sales that we realized in Q4 of 2021. 2022 ended with a moderate 1% growth pro forma in the Geoscience production, which includes external and internal revenue and a 6% pro forma growth in external revenue, as we utilize less of our services for multi-client. With a 16% backlog increase year-on-year, we ended 2022 in a better position to start the year. Profitability of the Geoscience business continued to improve year-on-year as did – as we did our production per head ratio.

Now for operational highlights on Slide 8. At the end of 2022, Geoscience commercial activity was increasing worldwide and we saw a high level of bid submissions up 18% year-on-year driven by a 58% increase in OBN processing bids. This business continues to be driven by strong demand for high-end technology and Geoscience should continue to benefit from the accelerated use of advanced acquisition technologies such as ocean-bottom nodes or hybrid surveys that require more advanced imaging algorithms.

At the end of 2022, order intake in Geoscience was up 26% year-on-year and as mentioned earlier, we started 2023 with a backlog of $231 million, up 16% year-on-year. In 2022, our computing power was further extended by more than 20% as we added 61 petaflops. We continue to make significant upgrades to our data center infrastructure to support our increasingly advanced algorithms and further expand our differentiation and support the development of our new HPC and Cloud Solutions business. We increased our beyond the core revenue in 2022 in Geoscience by almost 50% and we expect continued strong growth in general and in digital specifically as industries are looking to gain efficiency and extract more insights from the data.

Now on Slide 9. The success of CGG is built on technology differentiation. Our unique elastic full waveform inversion, which was developed by our scientists for complex geology and challenging reservoir development is the most recent example of this differentiation and the commercial success it drives. CGG’s full waveform inversion technology and expertise provides the most advanced solution in the market today to assist our clients in reducing geologic consistency and accelerating interpretation of the subsurface as we continuously extract more and more information and insights with our unique Geoscience and data science technology. In this example, you can see clearly how our FWI technology provides an enhanced understanding of the compact metalization and remediation of the reservoir.

Moving on to Earth Data on Slide 10. In 2022, EDA revenues were up 36% sustained by a significant increase of after sales, which were up 90% year-on-year on the back of strong transfer fees and strong sales in Q4. Prefunding caught up in Q4 to land at 66% for the year. 2022 was still driven mainly by demand for new field exploration. Exploration is active, but focused on new oil and gas that is low cost, low risk and low carbon. So new field infrastructure led exploration is a natural choice, but towards the end of the year we have seen clients gaining interest in more frontier basins.

In 2022 aligned with our strategy CGG multi-client projects were mainly in our core regions in basins where government policies are stable and patrolling systems are proven. Beyond the core, the CGG rest industry is in its early stages and we have seen growing commercial interest for our EDA data mainly to support both the finding and assessing of the appropriate subsurface containers storing carbon.

We continue to gain experience by participating in various projects and have seen good opportunities to repurpose public and partner data in shallow water and land together with our geologic data for DDE revenue. With this, our current focus remains on building our expertise, licensing our existing data, packaging new data sets for screening and getting closer to our clients and potential clients in this rapidly growing business.

On Slide 11 now. In November of 2022, we completed the Antares acquisition offshore Brazil. Processing of this data is ongoing. In Q4 2022, we also commenced preparation for a new multi-client program in Foz do Amazonas including transferring a vessel in mid-December. The acquisition is expected to take around 200 days and processing should be complete in Q2 2024. In Q4, we divested our non-core U.S. land multi-client data library for a total amount of $63 million. Looking forward, two of these sales have been confirmed in 2023 in Gulf of Mexico, one at the end of March and another in September. Both should drive increasing activity.

On slide 12, I mentioned during our Q2 conference call that we continue to expand our data offering to address energy transition, especially for CCUS and mining. This Arizona project is the first multi-client project in the company for the mining industry and we already have one client commitment. The project has started as we can file information and airborne acquisition is planned for the March-April timeframe. Acquisition is expected to take approximately 12 months.

The purple outline shows the full project area which will be covered by multi-disciplinary data including multi-physics, satellite imagery, multispectral, well and geological data. The blue outline highlights where we will acquire airborne multi-physics data. This is a new business model for the minerals and mining industry and they will allow operators to request larger integrated data sets to better identify and characterize deposits.

Now on Slide 13 with sensing and monitoring. In 2022, our Sensing and Monitoring segment saw a significant reduction in sales down 24% year-on-year. This was linked to commercial restrictions in Russia and to the lumpiness of its business. Multiple large projects in the Middle East in particular were delayed from 2022 to 2023. At $269 million of sales for the year the SMO segment generated $16 million EBITDA, a 6% margin. In 2022, the SMO business acquired Geocomp and concept the ION Software business. The top line contribution of these two businesses was around $18 million. We are very pleased with the definition. They’re already equipped to SMO and the level of business synergy is more than we anticipated.

Now on Slide 14. Q4 SMO sales came in at $104 million, up 10% and above expectations with sales materializing in the last days of December. Land equipment sales represented 60% of total sales. Overall activity has been picking up this quarter mainly in North Africa and with our wind and land technology sales are also gaining momentum. Marine equipment sales represented 22% of total Q4 sales. OBN market for shallow water application remains access, especially in the mid-teens. Marine markets for streamers is still mostly limited to equipment upgrades and spare streaming section delivery.

Sales from beyond the core businesses were $14 million in Q4, significantly up year-on-year supporting mainly by an active defense sector. Our new infrastructure monitoring business is progressing well. We continue to pilot S-lynks technology and solution on several bridges, including a bridge in the New York area and we secured an order to perform baseline analysis from two bridges in Georgia. We won a cable measurement job in Texas as well and we performed several demonstrations of our earthworks monitoring solution S-scan in both Massachusetts and New York and one short-term monitoring job in the Paris suburban.

Overall, the BTC areas focus around SMO benefited in 2022 from increased interest from the defense sector and the addition of Geocomp structure helped monitoring business, especially in the second half of the year.

I will now give the floor to Yuri for more financial highlights.

Yuri Baidoukov

Thank you, Sophie. Good afternoon and good evening ladies and gentlemen. I will comment on the Q4 2022 financial results. Slide 15, Q4 2022 P&L. Let me comment on the overall Q4 activity. Q4 segment revenue was $319 million, up 6% and up 7% pro forma year-on-year. The respective contributions from the groups, the businesses were 22% from Geoscience, 46% from Earth Data, with 67% for the DDE segment and 33% from Sensing & Monitoring.

Segment EBITDA was $193 million, up 25% year-on-year, a 60% margin, and adjusted segment EBITDA, excluding $34 million gain on the sale of the U.S. land multi-client library was $159 million, a high 50% margin.

DDE segment EBITDA was $180 million, an 84% margin, and adjusted segment EBITDA was $147 million, a high 68% margin.

SMO segment EBITDA was $20 million, a 19% margin and adjusted segment EBITDA was also $20 million, a 20% margin.

Segment operating income was $94 million, a 29% margin and adjusted segment operating income was $66 million, a 21% margin.

IFRS 15 adjustment at operating income level was negative $10 million and IFRS operating income, after IFRS 15 adjustment, was $84 million.

Cost of financial debt was $24 million. The total amount of interest paid during the quarter was $45 million.

Taxes were at plus $9 million. And net income from continuing operations was $49 million. Group net income this quarter was $47 million, significantly up from a net loss of $28 million in Q4 2021.

After minority interests, Q4 2022 Group net income attributable to CGG shareholders was $46 million and €46 million.

Overall in 2022, CGG has significantly improved its financial performance. CGG segment revenue of $928 million was down 1% and up 3% pro forma compared to 2021.

Adjusted segment EBITDA was $395 million, up 17% year-on-year with 43% margin. In 2022, CGG returned to profitability with Group net income of $43 million, which was a significant improvement from a net loss of $180 million in 2021.

Moving to Slide 16 and looking at simplified cash flow. Q4 2022 segment operating cash flow was $103 million including $61 million negative change in working capital and provisions mainly related to the SMO business.

Total CapEx was $50 million, including industrial CapEx of $18 million. Research and development capitalized cost at $6 million and our data cash CapEx at $25 million.

Segment free cash flow was $115 million including $63 million proceeds from the sale of the U.S. land seismic library. After $2 million net lease repayments, $45 million cash cost of debt, $3 million of CGG 2021 plan cash costs and $2 million free cash flow from discontinued operations. Q4 net cash flow was positive $62 million. Overall, in 2022, CGG Group net cash flow was negative $3 million.

Moving to Slide 19 and looking at Group balance sheet and capital structure. Group liquidity amounted to $398 million at the end of December 2022 and included cash liquidity of $298 million and $100 million of undrawn RCF.

Group gross debt before IFRS 16 was $1.16 billion and net debt was $859 million and Group net debt after IFRS 16 was $1.25 billion and net debt was $951 million.

Our debt structure included $1.12 billion of higher bonds due in 2027, $93 million lease liabilities, $20 million accrued interest and $12 million bank loans.

Segment leverage ratio of net debt to adjusted segment EBITDA was 2.4 times at the end of December 2022, down from 2.9 times at the end of 2021. Capital employed was $2 billion, slightly up from the end of December 2021.

Networking capital after IFRS 15 was $225 million stable year-on-year. Goodwill was also stable at $1.1 billion, corresponding to 54% of total capital employed.

Multi-client library net book value after IFRS 15 was at $419 million. Noncurrent assets were at $340 million with $167 million of property, plant and equipment down from year end 2021 mainly due to the delay of sale and leaseback transaction and $84 million of capitalized development costs.

Noncurrent liabilities were at $31 million slightly down from year-end 2021. Shareholders’ equity was up at $1.06 billion, including $39 million of minority interests mainly related to the stamp duty.

Before I hand the floor back to Sophie for conclusion, I would like to thank her for the kind assessment of my work at CGG. It was a privilege to contribute to CGG’s transformation and work with CGG’s team and all of you, our analyst, shareholders, investors, and all the stakeholders over the last four and a half years.

Thank you all for your support.

Sophie Zurquiyah

Thank you, Yuri. Now we’re on Slide 18. We are entering 2023 with improved visibility thanks to steadily increasing client activity and our highly backlog. Geoscience will continue to be driven by advanced technology and by large projects in North America, mainly in the Gulf of Mexico, increasing activity in the North Sea and more generally the broader utilization of marine nodes for imaging.

As pressure on our client increases to meet global demand for energy, address the high oil price environment, lower their carbon footprint, and effectively transition to renewable energy all in the shortest timeframe possible. The use of our advanced imaging technologies has become a key enabler and has never been more important to support that decision.

Today, CGG’s technologies, including our full waveform inversion, are unique to us and this drives a large portion of the high end activity to CGG. In Earth Data confirmed by a solid Q4, we anticipate an increasing appetite towards exploration and OBN acquisition, which is now being used in a larger number of basins globally, including for exploration purposes.

Earth Data is linked to exploration CapEx, ILX, and frontier, as well as global mid-term [ph] activity, all of which are expected to increase in 2023. The SMO market is also expected to grow significantly in 2023 from the low in 2022.

The key driver will be large land seismic crews in the Middle East and North Africa that require new land and OBN equipment.

The development of our BTC businesses will remain the 2023 priority with digital science, CCUS, defense and infrastructure monitoring being the most immediate opportunities. Beyond the core businesses will benefit from the continued drive towards digitalization, including within the infrastructure monitoring sector along with an increasing focus on energy transition and security. We expect another year of significant growth in our BTC opportunities.

After years of underinvestment – now on Slide 19. After years of underinvestment, exploration focus is expected to increase in 2023, particularly offshore, but also in the Middle East. The macro environment continues to strengthen, but is expected to remain volatile for us. DDE and SMO businesses rely on large contracts that can move quarter-to-quarter.

Technology pays off for CGG and we will continue to invest in advancing our leadership. Digital energy transition, infrastructure monitoring and defense BTC markets will continue to mature and should see steady increasing demand moving forward.

In this context, CGG has the following outlook and financial objectives for 2023. 2023 segment revenue is expected to increase in the range of 15% to 20% with growth mostly coming from SMO. I want to point out that we expect to see a continued high level of quarterly volatility in revenue driven mainly by the timing of SMO equipment delivery and the usual EDA seasonality.

Q1 should be similar to last year and we expect to see a much higher revenue in Q2, especially for SMO. 2023 adjusted EBITDA, segment EBITDA margin is expected to be in the range of 39% to 41% given the business mix.

2023 EDA cash CapEx is expected to be around $200 million with pre funding about 75% of that loss coming into 2023 is healthy and stronger compared to the last two years.

2023 Industrial and R&D CapEx is expected to be up at around $17 million, primarily driven by a client increase in high performance computing capacity.

And finally, we’re anticipating a positive net cash flow before changing working capital in 2023. Going forward, our focus is to build on the growth that this upcycle brings to CGG while further advancing our BTC businesses. We expect to see improvements across our businesses in all of our business in 2023 and beyond, and will continue to focus on cash management and cash generation to pursue our path to deleveraging.

Thank you for your interest and we are now ready to take your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We will now take the first question. It comes from the line of Kevin Roger from Kepler Cheuvreux. Please go ahead. Your line is open.

Kevin Roger

Yes, good evening. Thanks for taking my question. I will limit myself to two. The first one is maybe for you Sophie. Several companies in the sector have already reported. And in the offshore, I think if there is one conclusion is that it appears that everyone is accelerating in terms of final investment decision with a commercial pipeline that continue to increase, et cetera. On your side, do you see the same kind of acceleration for appetite for late sale, because usually you are correlated to a CapEx in offshore, but with the things that are accelerating strongly. Did you turn a bit more optimistic basically on your late sale expectation over the past few weeks?

And the second question is maybe more for Yuri. An important element for investors would be the net cash flow. So you guide for positive net cash flow before working cap for 2023. But what should we expect in terms of working cap for 2023 because 2022 was negative. So should we expect a reversal? So positive net – positive working cap in 2023 or we should assume another deterioration, please?

Sophie Zurquiyah

Well, thank you. Good evening, Kevin. Thanks for your question. So in terms of what’s going on in sort of the offshore market? The main – what we’ve seen last year, as I was mentioning, it’s been more around accelerating. The cost have been accelerating basically decisions around getting production. So it’s been a lot around field development and production and we’ve seen it more through our Geocomp business around those acquisitions around high end in understanding the reservoirs. So a lot of the things that happened have been associated to a pretty high end seismic acquisition and we’ve done a lot of those processing jobs.

Now, the link between the increasing activity and offshore and the late challenge is not exactly that one. I think we might see more of that in 2023 because the – specifically, the offshore exploration CapEx is increasing, which I don’t think was so much the case. Last year what has been accelerating is the exploration and production CapEx. So the combination of the two mostly targeted as a development and production and I think now it’s starting to move into exploration, which should then translate in – probably [indiscernible]. But keep in mind that in 2022 we benefited from a large transfer fee, which was somewhat exceptional. So if you correct that, we should see an increase this year.

And maybe another data point that could be interesting to you. If I look at the mix of the volume data in after sales in 2022, very similar to 2021. The IOC portion is still low in the mix. It’s probably half of what it used to be pre 2019, meaning that we haven’t seen this group of clients come back in a meaningful way in the volume data.

Yuri Baidoukov

Yes. So Kevin, good evening. To answer your second question regarding working capital, we actually don’t expect any deterioration – further deterioration of working capital 2023. And of course, the main reason for that and you see it in our guidance, that we expect a significant growth of after-sales in 2023 versus 2022, which means that the inventory that we’re increasing throughout last year in manufacturing, the equipment for the deliveries of 2023 will be coming down. Now, the element, which as you well know, is always kind of variable rate or unknown is the level of after-sales at the end of the year, right? So again, obviously good after-sales, good news about collections in the following Q1. And also the sequence of SMO deliveries might be impacting receivable as well. But fundamentally again, we expect release of working capital, slightly positive working capital next year.

Kevin Roger

Okay, perfect. Thanks a lot.

Operator

Thank you. We will now take the next question, it comes from the line of Haris Papadopoulos from Bank of America. Please go ahead. Your line is open.

Haris Papadopoulos

Hello. Hi, thanks for taking my questions. I have three if I may. The first one is with respect to the delays we saw last year, could you give us an update of the stage of the tenders for the mega-crews in Saudi Arabia? Like what should we expect on announcement? And then what about the stage of the multi-client project in Brazil, which was shifted from last year to 2023? I believe that's with Petrobras. So that's my first question, please.

Sophie Zurquiyah

Yes. Hi. Thank you for your question. Good evening. So in terms of the tenders for the mega-crews have been out, the service companies have responded, and now they're in the award stage. So we are expecting, I would say there are two sets of tenders. There are tenders for land crews, the two land crews and three OBN crews in Saudi Arabia. And the land crew that they should be awarded fairly to at least we know they're in the final stages of negotiation with the service company.

Now, the OBN tenders, it's a bit unclear. I think it could be delayed another one month or two. I don't have as much visibility on those. They should be coming after basically the one on the land side. In terms of the multi-client data, we're planning to see some level of catch-up of pre-funding on projects that we did last year. Now I don't want to name, I can't name clients at this stage, but we have built in our budget some level of catch-up on those projects.

Haris Papadopoulos

Okay. Thank you very much for this. And then my second question is with respect to M&A and is it fair to assume that we shouldn't see any major M&A activity this year. And then what about any potential disposals, I remember the stake in the Saudi Arabia land data acquisition business was mentioned at some point, is there an intention to seek a buyer for this asset?

Sophie Zurquiyah

So in terms of M&A, we always on the lookout for what I would call the small bolt-on opportunities, which is exactly the kinds that we did last year. So that kind of $20 million range, $20 million to $30 million range. So right now, as it is today, there isn't one in the pipe, but it doesn't say that perhaps there would be one that appears during the year. So we want to be ready for that and take that opportunity that appears, especially if it helps us accelerate the Beyond the Core initiatives.

Now in terms of disposals, it is very clear that we're still looking for divesting that participation in oil and gas. I think the environment hasn't been conducive to doing that, but we always are looking for opportunities to do so.

Haris Papadopoulos

Okay. Thank you. And then my last question is, your liquidity is quite strong now and especially compared to your minimum cash level of 150. So I was thinking perhaps like is that intention perhaps to consider using your 10% special retention call for the bonds, given how high the companies versus the call premium? I mean, like it kind of makes sense. Is it something that you're considering right now?

Yuri Baidoukov

Yes. So we are always considering those opportunities as you all know, whereas we discussed previously. But again, at this particular point in time, we're still waiting on kind of de-risking of our business plan for SMO. So in other words, again, on the Saudi Aramco or the mega-crews and things like that so in other words, again once we get some of greater visibility than that option is on the table.

Haris Papadopoulos

Okay. Thank you very much. That's all my side.

Yuri Baidoukov

Thank you, Haris.

Operator

Thank you. [Operator Instructions] We will now take the next question, it comes from the line of Vikram Lopez [ph] from LGIM. Please go ahead. Your line is open.

Unidentified Analyst

Hello, can you all hear me?

Yuri Baidoukov

Yes, please.

Unidentified Analyst

I just wanted to, just to clarify firstly thanks for taking the question and congratulations on the results. Just wanted to clarify something that you said earlier, just on this issue of net cash flow for 2023. So you said positive net cash flow before changing working capital, but you expect working capital to not be agreeing on cash flow. Is that, have I understood with that correctly?

Yuri Baidoukov

Well, we were guiding that net cash flow will be positive before changing working capital, but what I was commenting is that most likely we'll see some of positive change in working capital as well. However and again within the working capital components, definitely inventories will be coming down because we're expecting significant growth in SMO sales and therefore deliveries of equipment which was built in 2022. However, there is an element that is kind of variable and difficulty predicted what will be the level of equipment deliveries, but more so per data for sales at end of the year. So basically as you might recall, that is a significant element that can create significant swing. But again, the more data we sell, the more we collect in Q1, so basically the usual story.

Unidentified Analyst

Okay. I mean, at worst you’d be expecting to be kind of breakeven net cash flow. Would that be right?

Yuri Baidoukov

Yes, break even to slightly positive.

Unidentified Analyst

Okay. I mean, this leads into the next question. I mean, so if I’m reading the numbers right? So, you’re talking about kind of 15% to 20% revenue growth, EBITDA margins range of 40%. So that kind of implies a kind of flat EBITDA year-on-year?

Yuri Baidoukov

No. It implies flat EBITDA margin year-on-year, but it doesn’t mathematically imply flat EBITDA gross.

Unidentified Analyst

Well, if you’re going up by 17.5% that you’d have revenue of $1.91 billion multiply that by 40% and you’d have $437 million, which is pretty much what you did.

Yuri Baidoukov

No, we’re talking about adjusted segment EBITDA. So in other words, which doesn’t include nonrecurring items, the adjusted segment EBITDA in 2022 was $395 million.

Unidentified Analyst

Sure. But from a cash perspective, you did get that cash, you were paid that amount of money. So you can say that it wasn’t a recurring part of the business, but you’ve got a cash inflow of $430-odd million from businesses plus disposal, and actually you have a cash inflow of $430-odd million. You won’t have any disposals. So still kind of $430 million coming in, $270 million going on cash, okay, working capital. Well, I guess, and then your interest costs. I mean, okay, so the wider point is at what point do we start seeing substantial cash regeneration internally and then not just flat to slightly positive, but kind of looking at – I don’t know just like 3%, 4% cash delivery though. Do we need to wait for revenue to be hitting the 1200, 1300 mark and how receivable is that?

Yuri Baidoukov

Well, we – first of all, we always kind we’re explaining that for us the net cash flow breakeven point in terms of revenue is roughly $1.1 billion, right? So we were growing next year, sorry, this year but obviously we expect to continue growth and recovery in 2024 as well. So that – and this is one element. Now, the other element is that we’ll be – yes, it depends also on the business mix, in other words, on the revenue mix because with significant increase in SMO sales, SMO EBITDA margins are lower than the margins of Geoscience and Earth Data combined.

And there is another element to keep in mind is that the end of our agreement with Shearwater will be basically January – at the beginning of January 2025. And with the scope line, which is about $22 million will disappear as well. In addition to, of course, us recovering full freedom when it comes to our EBA business and therefore no longer having capacity utilization agreement and commitment to use Shearwater less.

Unidentified Analyst

Okay. I think there’s a slight problem with the line doesn’t quite follow-up, but maybe we could take this offline just to go over those points in a little bit more detail. Thank you very much.

Sophie Zurquiyah

Sure.

Operator

Thank you. There are no further questions at this time. I would like to hand back over to CGG for final remarks.

Sophie Zurquiyah

Okay. Well, thank you very much. Thank you for attending. Thank you for the great questions. And we’ll get certainly follow-up offline if you have any other follow-up questions. So thank you very much. Have a great evening and we’ll be in touch.

Yuri Baidoukov

Yes. Thank you all. Have a good evening. Bye-bye.

Operator

That does conclude our conference for today. Thank you for participating. You may all disconnect.

For further details see:

CGG (CGGYY) Q4 2022 Earnings Call Transcript