Viridien Société anonyme (VIRI) Earnings Call Transcript & Summary

Good day, and thank you for standing by, and welcome to the CGG Q3 2021 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. And I would like to turn the conference now to your first speaker today, Mr. Christophe Barnini. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen. Good evening. Welcome to this presentation of CGG's Third Quarter 2021 results. The call today is hosted from Paris where Mrs. Sophie Zurquiyah, our Chief Executive Officer; and Mr. Yuri Baidoukov, our Group CFO, will provide an overview of the third quarter results as well as provide comments on our outlook. Starting Q3 -- starting today, CGG is changing its financial communication schedule. We will release our financial results after market close at 5:45 p.m. Paris time. This new financial communication schedule should be an opportunity for U.S. and U.K. investors and European investors to participate more largely in the conference call with the management. Let me remind you the forward-looking statements as some of the information contains forward-looking statements, including, without limitations, statements about the CGG's 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. This being said, now I just want to remind you that following the overview of the third quarter, we will be pleased to take your questions. And now I will turn the call over to Sophie.

Thank you, Christophe. And good morning, ladies and gentlemen and thank you for participating in this Q3 2021 conference call. I am on Slide 5 now. Let me start with some general comments on our market environment. Overall, during the third quarter, the activity of our clients continued to show signs of a gradual recovery with international oil companies increasing their production related and near-field exploration activities. We also started to see this quarter IOCs initiating some discussions around various shorter-term, lower carbon, lower-cost exploration opportunities. National oil companies and independents remain more active in general and continue to gradually increase their activities. We operate today in a favorable macro environment as Brent oil price has stabilized above $75 a barrel and is expected to continue growing from that level onwards. This should continue to stimulate activity aimed at maintaining or increasing production in the near future. As we know, E&P companies have focused historically on upgrading their portfolios to reduce their breakeven oil price. And now there is the additional dimension of lowering carbon intensity of reserves, which should also trigger increased activity in exploration down the road and especially in the favorable macro market environment that we see at current. Also as the energy transition continues to move forward, we are seeing a regained interest in gas producing areas. And overall, while our market is still challenging, we are clearly seeing positive signals that our clients have defined their priorities and have started to resume pending activity. Along with our energy plans, digital initiatives remain at the heart of our current strategy as a source to drive increased efficiencies into their value chain. These trends should support increased activity as we move into 2022 and onwards. We see already that Geoscience is progressively recovering, thanks to increased demand for our superior technologies and services. While sales in Multi-Client and equipment are lumpy by nature, they were both particularly stronger this quarter, driven by higher Multi-Client prefunding and solid equipment deliveries in our new -- of our new OBN system. Looking forward, we are expecting a solid Q4 for our 3 core businesses. And overall, and as anticipated, after a very low first half of the year, we are seeing both improved revenue and profitability in H2 2021 and expect this trend to continue forward. As you will see in our numbers, we managed through the pandemic effectively, improving our profitability for the same revenue levels based on our cost reduction plans. Earlier this year, I highlighted our initiatives focused on divesting non-core businesses to both further streamline performance through the pandemic and ensure we could focus investment on our strategic growth and core business initiatives. In early October, we sold our GeoSoftware business for a total cash consideration of $95 million and the sale of the physical asset storage business, along with the sale and leaseback of our headquarter building are both progressing well. With expected solid fourth quarter activity, CGG is well positioned to deliver its 2021 financial target. Moving on to Slide 6. Our Q3 revenue of $270 million was up 35% year-on-year and up 71% sequentially. Group segment EBITDA was $118 million, a 44% margin due to solid business activities and sales mix. At this level, we delivered a solid $33 million operating income, representing a 12% margin. Segment free cash flow was $2 million due to lower collections of receivables during the quarter after the weak second quarter revenue in 2021. It is a significant improvement from last year. And now let us look at our Q3 2021 operations in more detail by reporting segment. GGR segment revenue was stronger this quarter at $168 million, up 12% year-on-year, thanks to the progressive recovery in Geoscience and solid Multi-Client sales in Q3. EBITDA margin improved to 63% and opening margin also increased to 18%, thanks to the sales mix and our cost-saving measures, which continue to generate a positive impact. Going on to Slide 9 now. Q3 Geoscience external revenue of $77 million was flat year-on-year and up 5% sequentially. Geoscience continued to show progressive recovery during the quarter. And some projects that we have worked on pre-COVID came back in for reprocessing in anticipation of client production optimization work. Our clients continue to value our premium products and services in complex areas and as budget constraints start to moderate, these key activities come back to us. Backlog is up 8% year-on-year and productivity per head has increased as we get busier and more efficient. Now on Slide 10. The recovery in Geoscience is led mainly by high-end processing of offshore marine streamer and Ocean Bottom Nodes data, mostly in producing areas such as the Gulf of Mexico and Brazil. Seabed projects require more detailed advanced imaging for increased accuracy, and we captured a higher percentage of that market, thanks to our technology differentiation. We have now identified the portfolio of new businesses -- of new business opportunities beyond the core. These are maturing inside our 3 divisions. We have assigned dedicated resources to develop our commercial offerings, and we are gearing up to grow and track those businesses with KPIs. Inside Geoscience, we classify these new opportunities under digital, energy transition and environmental geoscience. And one of our key initiatives in energy transition is to leverage our geology and geophysics database to offer services around the identification and characterization of CCUS and geothermal site, and we are seeing increasing interest in sales in this area. We are also involved in several digital and environmental projects aimed at digital transformation, cloud services and pollution monitoring. Recent projects include several digital transformation pilots with our data hub services and environmental projects, which included a study focused on the identification and quantification of microplastics position on the submit of Snowdon, the highest mountain in Wales. Going on to Slide 11. This slide is actually an interesting zoom into Geoscience's order intake, which is made of high-end imaging of marine streamer and seabed data. In a capex-constrained environment, it is critical to our clients to have access to the more precise images that CGG imaging can provide to increase the opportunities for success. Beyond the core, our order intake grew by 18% year-on-year, and we are excited to see traction forming around these new businesses. Slide 12. The geoscience industry [ effective ] meeting, as every few years, we bring a new breakthrough technology that drives the reprocessing of historical data. These breakthroughs are thanks to our unique capabilities and expertise in sophisticated algorithms and ultra high-performance computing. Today, the must-have technology is our industry's unique Full Waveform Inversion imaging. And CGG's Full Waveform Inversion provides very detailed structural information that wasn't discernible historically, as you can see on this Barents Sea image. Next one, which is 12. Interest in our new Beyond the core businesses is significantly increasing, and they represented more than 10% of our total bid spending at the end of September. Today, I would like to highlight one of our business solutions, which is related to the mining industry. With our technologies, combining satellite imaging and Multi-Physics processing, we can characterize and monitor tailings storage areas, which are a potential hazards and a liability for the mining companies. We successfully applied our technology on a landmark project for a global mining company using Airborne Electromagnetic 3D imaging over an area with 15 mine sites in Brazil, which enabled a clear delineation of the diamond storage areas, providing a baseline for Monitoring. Our Sercel censor technology can be combined with our satellite and Multi-Physics capabilities to provide a robust long-term monitoring and real-time risk reduction solution. Moving on to our Multi-Client now. Multi-Client cash capex was $57 million this quarter, stable year-on-year and dedicated to Marine Multi-Client programs. In Q3, we had 3 vessels working on Multi-Client programs, 2 on a 5-month 3D Multi-Client project in the Norwegian North Sea and 1 in Brazil on our ongoing Nebula project. We also had 5 Multi-Client reprocessing projects this quarter, including a new one in the Gulf of Mexico. The increase in revenue this quarter was partially driven by a catch-up in prefunding, taking our year-to-date prefunding rate to 70%. Now on Slide 15. In Brazil, we secured significant prefunding for the ongoing Nebula program. In the North Sea, we had 2 and 1 Node crew active this quarter in the North Viking Robbin, which is expected to drive Q4 prefunding. U.S. land activity this quarter was supported by client M&A activity, and we are seeing growing interest in U.S. onshore gas assets. This could drive further after sales. In the Gulf of Mexico, CGG is mainly focused on reimaging projects, which in the absence of new acquisition, provide a cost-effective way to improve the understanding of the subsurface for enhanced production and new step-out exploration. I will move on to equipment now on Slide 17. Equipment segment revenue was $101 million, significantly up year-on-year and sequentially, which is mainly driven by a high volume of deliveries of our new GPR300 Ocean Bottom Nodes. At that level of activity, EBITDA and opening substantially improved to 17% and 9%, respectively. Next one. Land equipment sales represented 40% of the total in Q3 as we delivered systems in various geographies like China, Russia, North Africa and India. Marine equipment sales was -- were $55 million, representing 54% of total sales due to the scheduled delivery of 18,000 GPR300 Nodes. Equipment division continues to innovate and recently launched the TPS, Tuned Pulse Source. This is a purpose-built acoustic source designed to further protect marine wildlife from high frequency emissions while maintaining highly accurate and reliable results for seismic acquisition. And finally, I am pleased to report that during the quarter, we also made the first commercial sales of our new structural health monitoring system, S-lynks. I will now give the floor to Yuri for more financial highlights.

Thank you, Sophie. Good morning, good afternoon and good evening, ladies and gentlemen. I will comment the third quarter 2021 financial results. Looking at the consolidated P&L on Slide 20. Our segment revenue was $270 million, up 35% year-on-year and up 71% sequentially. It was a very solid quarter for CGG Group, driven by continuing recovery in Geoscience, significant increase in Multi-Client sales and strong equipment deliveries. GGR segment revenue was $168 million, up 12% year-on-year and up 53% sequentially. Geoscience revenue was $77 million, stable year-on-year and up 5% sequentially. Multi-Client revenue was $92 million, up 26% year-on-year and up 149% sequentially. Refunding revenue of our Multi-Client projects was $59 million, up 51% year-on-year, with refunding rate of 103%. Multi-Client after sales were $32 million this quarter, slightly down year-on-year. The equipment segment revenue was $101 million, up 105% year-on-year and up 113% sequentially. The respective contributions from the Group's businesses were 28% from Geoscience, 34% from Multi-Client, 62% for GGR segment and 38% from equipment. Segment EBITDA was $118 million this quarter, up 127% year-on-year with a solid 44% margin. Adjusted segment EBITDA of $118 million was up 48% year-on-year. Segment operating income was $33 million, up $71 million year-on-year with a 12% margin, while adjusted segment operating income of $33 million was up $37 million year-on-year. After IFRS 15 adjustment of $13 million, cost of debt was $27 million, taxes of $7 million, and that net loss from continuing -- sorry, net loss from discontinuing operations of $3 million. Group net loss was $17 million, significantly less than $93 million net loss in the third quarter of 2020. Moving to Slide 21, simplified cash flow. And looking at Q3 2021 segment free cash flow, it was positive at $2 million, including $48 million negative change in working capital. Again, a significant improvement from negative $59 million in the third quarter of 2020 due to this quarter sales increase in EBITDA. Total capex was $74 million, stable year-on-year. Industrial capex was $8 million. Capitalized development costs were $7 million and Multi-Client cash capex was $57 million, flat year-on-year. After $14 million of lease repayments, 0 cash cost of debt, $7 million of CGG 2021 planned cash costs and negative $15 million free cash flow from discontinued operations, Group net cash flow was negative $34 million, significantly improving compared with negative $92 million in the third quarter of 2020. Moving to Slide 21, Group balance sheet and capital structure. At the end of September 2021, Group liquidity amounted to $340 million, including $100 million undrawn RCF. Group gross debt before IFRS 16 was $1.22 billion, and net debt was $987 million. Group gross debt after IFRS 16 was $1.35 billion, and net debt was $1.11 billion. Group debt after IFRS 16 included 1. -- almost 18 billion higher bonds due 2027, $49 million of other items and $127 million lease liabilities. Capital employed was $2.14 billion, down $28 million from the end of December 2020. Net working capital after IFRS 15 was at $153 million, decreasing from $212 million at the end of December 2020, primarily driven by a reduction in net accounts receivable, inventories and the current provisions. Goodwill was stable at $1.19 billion, corresponding to 56% of total capital employed. Multi-Client library net book value after IFRS 15 was up at $556 million, including $495 million of marine and $60 million of land net book value. Other non-current assets were at $376 million, including $221 million of property, plant and equipment, down $47 million from year-end, which included $131 million of our IFRS 16 right-of-use assets and $96 million of other intangible assets, down $20 million from year-end. Other noncurrent liabilities were at $136 million, down $29 million from year-end. Shareholders' equity was $1.027 billion, including $44 million of minority interest mainly related to [ exercise duties ]. Now I hand the floor back to Sophie for an outlook of 2021 market environment and our financial guidance.

Yes. Thank you, Yuri. Now we are on Slide 24. Overall, the Q3 was a solid quarter, and we expect the solid Q4 as anticipated earlier in the year. In this context, we confirm our 2021 financial objectives. And looking forward, Geoscience should continue its gradual recovery. Multi-Client has been the most affected by the current cautious client environment where clients, especially the ILCs, continue to delay decisions for the future. However, we do see the early signs of improvement as there is a need for our clients to constantly review their portfolios for economics and now for the carbon footprint. I think this will drive a bit more geographical positioning and acreage grabbing, and we do see interest in our data for Q4. In equipment, Q4 will see significant land equipment deliveries in North Africa. And while it's too early to provide a perspective for 2022, it's fair to say that our clients are organizing to increase their activity levels even if they remain cautious, especially when it comes to exploration. Technology and digital will remain high on their agendas, and I believe the current trends will be supportive to CGG's core and growth beyond the core businesses. Our unique technologies, sophisticated algorithms, high-performance computing, earth data and industry-leading sensors will play a key role in supporting the industry and its ambition through the energy transition. Thank you for your interest, and we are now ready to take your questions.

[Operator Instructions] We will now take our first question that comes from the line of Jean-Luc Romain.

My question relates to Marine sales equipment. You -- it's quite impressive to see the increase in Ocean Bottom devices. On streamers, what's your prospect? Do you think the market given the age of the streamers equipping the -- now, there should be, at some point, a large replacement of streamers. What's your vision of that like?

Thank you, Jean-Luc, for your question. You are absolutely right in saying that the streamers are getting older and older, so probably getting into the 10 year anniversary. But we don't see -- I think I haven't changed my view that the replacement cycle will be starting more into end of '22 to 2023. So I don't think the streamer replacement cycle will drive significant improvements in the marine streamer numbers in equipment for 2022. I would say, generally speaking, the prices for marine acquisitions seem to be on the way up. Although in this Q4, you don't see marine acquisition companies aren't that busy but prices are heading in the right direction, which will eventually allow those companies to make investments to replace the streamers. There is a need for that. It's just right now, they don't have the capex or the visibility in their business to make those investments. I think this will come in 2023 for sure.

We will now take our next question, and it comes from the line of Kevin Hori (sic) [ Kevin Roger ].

Yes. I think it's me. It's Kevin from Kepler. Can you hear me?

Yes, Kevin.

I have a few questions, please. The first one is related to the working capital movements that you had in Q3, I guess it's related to Sercel and the fact that you are delivering Node this quarter and like making to deliver a stronger, let us say, strong volumes of equipment to Algeria in Q4. I was wondering if you can give us the magnitude of this working cap movement related to Sercel and how much we should expect to get back in Q4? So that's the first question. The second one is related to the EBITDA of Sercel. Is the -- let us say, [ auto nodes ] having a positive mix effect on your EBITDA because the performance was better than what I think everyone was anticipating in terms of margin. So is the Node a positive mix effect? And the last one is on the free cash flow from discontinued operations. Can you give us some details on that? Is it related to the boats and the engagement that you have with your partner in the vessel -- if you can explain me the free cash flow from this operation.

Yes, Karen, and good evening. I will take your questions. So you will see in our financial statements that indeed this quarter, we had a negative change in working capital of overall $48 million. And the reason for that is, of course, the -- well, actually, it's 2 things. One, you already mentioned, yes, indeed, obviously, we had strong deliveries of equipment in the third quarter, primarily GPR Nodes. And with that, of course, accounts receivable in equipment business went up. But the second element is around the -- or relates actually to the sequential significant increase in Multi-Client sales as well. So Multi-Client sales increased from $37 million to $92 million. And of course, with that -- that's what drove overall the increase in accounts receivable. So now there's again, it's both businesses, it's Multi-Client and equipment. And we expect, of course, this trend to change, well, kind of again into the fourth quarter. So the receivables like always will be collected most of them during the first quarter of the year. Now regarding the EBITDA of Sercel, again, the -- there is definitely a positive impact from the sale of Nodes. Why? Because, of course, it's electronics. So as you well know, with the kind of the revenue mix of the Sercel, the mechanical products like vibrators obviously have lower gross margin, while anything electronics has a higher one, and Nodes -- Ocean Bottom Nodes fall into this kind of higher gross margin category. Therefore, yes, we had a positive impact. And your third question was what?

Free cash flow from discontinued operation, Yuri.

Free cash flow from discontinued operations, actually, it's kind of the usual story primarily it relates to the idle vessel compensation. But also in the third quarter, in CGG 2021, we had an impact of tax -- legacy tax settlement in Mexico of $14 million.

Okay. So let us say, vast majority of the $15 million is related to legacy tax settlement and it's not related to the compensation that you have to pay to Sercel for the…

Because they -- if and when we pay compensation to Sercel it doesn't go through discontinued operations.

It will go into the P&L.

We will now take our next question, and it comes from the line of Mick Pickup from Barclays.

A couple of questions, if I may. Firstly, obviously, you have made a couple of announcements this quarter where you have been investing jointly with some of your peers. Can you just talk about investing in cooperation with others? Is that signal what we are going to see going forward? Is it a sign capital tightness in the industry or what exactly drives on that front?

They are actually absolutely right. There is no collaboration, and I do believe the future will be more collaborative. If you look at our clients, they have been collaborating for a while, for a long time, and especially when it came to activities that were more risky in exploration, particularly the com and form consortium. And so I think we have not been good at mimicking that from our space. So one of the announcements that we made is in Suriname and that's going to be 3 of us investing. And that's about risk management. The second one that you would have seen is around Versal. And it's a bit of a different one. It's recognizing -- it's about delivering the data in an efficient way to our clients, multi-client data and giving them access to their entitlements. Recognizing that, if you want, is a bit of a backbone for Multi-Client, but it's not a differentiator. It's not something that we believe TGS, PGS, or us should differentiate on. And rather, we should join forces to just do the best product to serve our clients. So it's more about putting together resources to better serve our clients, which want efficient data delivery into their platforms. The other one you would have seen is the collaboration on CCUS with PGS. And we felt that it would make sense to join forces with them in the North Sea because we are the 2 companies that have, if you want the largest data sets -- And it was easier to collaborate on something new like the CCUS. So we thought, okay, why don't we do something together and see what we can provide to the invest together, knowing that we have got best data sets to do that. So a bit of a different driver, but generally speaking, risk management, efficiency and I guess, business synergies would be the driver, but different angles.

Another question. Can I just ask about conversations you are having with your clients. Obviously, the gap between breakeven and the oil price is as big as we ever seen at the moment. And the U.S. call today, you have to know the word super cycle. So going into 4Q. Obviously, there's usually a seasonal spend at year-end. Are you getting the sense that, that much more likely now with the proteome and [ environmental ] workload is coming back?

I will say it's really strange times because oil price is super high. The -- all of our clients are generating a very profitable and generating very strong cash flows. I don't have the sense that they are going to be moving from their capital discipline. Now, you have to keep in mind, they have under their well below their guided -- the guidance on capex spend. which means they have a lot of sort of spare money when it comes to year end. I would say there are some signals that they want to discuss year-end deals because they have been into the discipline of gathering the needs from various departments and various groups and assets geographically into year-end and trying to negotiate a larger deal. So I think that will certainly happen and I mentioned that like positive signal. I just don't know the magnitude of it and how much of that money they will actually release because again, they are well below the run rate of spending. So that means they have got a lot of money, but I don't know if they will spend it all or if they will keep some under their shoulder or keep it to just give that through to the shareholders through other forms.

And then a quick one if I just finish up. Prefunding was above 100%, obviously very good. Is that just prudence on what you are investing or is it that reprocessing comes with higher prefunding? What's driving that 100% plus?

The prefunding should never -- we should never look at it on a quarter-to-quarter basis. I did mention last quarter that there was a sort of a deal that we were working on that had moved into Q3. So in reality, that prefunding should have come in earlier in Q2, which would have made H1 stronger and this one was normal. So it's just sometimes it's a bit lumpy and the sequencing makes it happen that way. And typically, there is some level of catch-up on prefunding when it comes to more the later month of the year, which is what's happening. So you shouldn't read into this particular quarter. It was driven by a catch-up of prefunding that should have really come last quarter. But what it does say though, is our prefunding year-to-date at 70% and we will probably go better than that in Q4. It shows that we are investing in the right places and that there is interest in our projects, which is essentially Norway and Brazil. We will now take our next question, and it comes from the line of Jean-Luc Romain from CIC Market Solutions.

Okay. My question relates to CCUS. You mentioned that in terms of diversification away from oil and gas and that's something oil companies, you see Americans are pointing to very seriously. What kind of services would it involves in terms of you mentioned identification -- but will there be a need of [ Gamma ] monitoring and that sort of services for the CCUS?

Yes. Thank you for that question. You will find in the CCUS, very similar ingredients to the exploration and production. So exploration is going to be similar ingredients, and that's what we aim to do with our data sets in the North Sea, particularly that's going to be very active in CCUS is identification and characterization. You could do this using a Geoscience at large, so it definitely will involve geology and geophysics and that geophysics will either be acquired on a proprietary basis or will be on a Multi-Client basis. So it will involve data sales, one way or another or data acquisition and processing activities. And then there will be a perhaps more important component of monitoring because that will be driven by regulatory requirements. Of course, if you think about a you injecting CO2 perhaps at high rates and you have a risk of fracking the rock or breaking the integrity of the reservoir or the storage area. And therefore, there will be -- there will have to be mechanisms to monitor. I would think some permanent perhaps combined with the likes of the 4Ds that we see in the oil and gas industry. But there will be definitely a component of permanent monitoring, which we intend to position on.

We will now take our next question, and it comes from the line of [ Mela Belimo Karmeta ] from BlackRock.

Just one from my side. I just wanted to check on your non-return charges. I seem to have a number of $32 million for 2021 as an adjustment to EBITDA from $42 million in 2020. Would you confirm that that's still the number I should be looking for? Because I think year-to-date, obviously, there were no adjustments this quarter full year-to-date where I think it's $3 million in total. So how should I think about that?

So Pamela, yes good afternoon. You are looking at cash flow or P&L?

Sorry, that's P&L.

Yes. So on the P&L side, we -- we had a credit actually from earlier in the year from the reassessment of provisions for first social plan in France. So basically, we don't have the significant kind of difference between the EBITDA and adjusted segment EBITDA.

I would say, I mean, this year is a fairly clean year in terms of non-recurring costs because last year, we took all the provision -- either the provisions or the cash cost for the reductions of essentially headcount -- large headcount reductions, and we had non-recurring or some adjustments, I guess, on client data library. But since the beginning of the year, we haven't made any adjustment. Actually, if anything, like Yuri mentioned, we got a credit because we took a larger provision for a social plan in France, and you don't know the exact number until the people actually leave because it includes -- it depends on how long actually people take to find another job. And so we actually had a fairly significant credit that we took. And so it -- so our adjusted EBITDA is actually lower than our EBITDA.

Yes. And basically, yes, the difference between the 2 and the 9 months year-to-date basis is $2 million. So $195 million EBITDA and $193 million adjusted EBITDA. And when it comes to operating income, so we have basically operating income of $14 million for the first 9-months versus adjusted operating income of $6 million. So in other words, again, there is a plus $9 million kind of positive -- or credit effectively related to the provisions and charges that we took last year.

So I shouldn't expect any meaningful adjustments in Q4 or in 2022?

No, not when it comes to P&L. And then on the cash flow, you will see that obviously, we continue kind of to pay those severance costs and the growth for the reduction in liability. In other words, the change in what -- again, on the cash flow statement, basically, we see the -- over the first 9-months, the change in RCF liability of negative $19 million. So basically, that's what happened on a year-to-date basis.

So that's for '21 in total and 2022, what are your expectations?

Well, '22 should be close to 0 because basically, there might be a small tail end trends, but pretty much all of those severance costs are paid this year.

And then a similar number to Q3 and Q4, I assume was slightly lower, but not increasing?

No, it's not increasing exactly -- In fact, it's kind of gradually decreasing.

[Operator Instructions] Our next question comes from the line of [ Lebacq Baptiste ].

Very quick question from me. In today's environment, we see some bottlenecks like in semiconductors, but also in some different raw mats. -- for you, is it a risk for your equipment divisions? And what's the most, let us say, risky equipment for you, we should focus on? And second question is still linked to this point. There is also some increase of route mat costs. Do you think that it's possible for you to preserve your margin in this context? I always think about the Equipment division.

Yes. Thank you, [ Baptiste ]. Very good question. And it is something that we are looking at very carefully as we are planning into 2021. So I will just say, generally speaking, on the equipment side, we plan probably a year ahead. And so we placed the orders for critical parts quite early in the cycle. And that's why we have been -- I mean, we haven't felt any issues this year of these bottleneck on semiconductors or increases in raw materials. So we might see -- we are starting to see some tension on electronic equipment, not necessarily the raw materials, that's not a concern to us. And it's something we are working to resolve. We do think that if we get affected for a period of time next year, it would be a short period and that we would be able to catch up during the year. So we are not planning right now, we are planning to be able to deliver what we need to deliver next year basically. -- and that is mainly because we have anticipated a lot of the orders -- Does that answer your question?

Yes. And regarding the cost of -- the increased cost of input and your margin and your ability to preserve your level of margin and speaking with clients, do you --

Yes, we are not seeing yet. I mean, again, this is -- like I said, we placed the order quite ahead of time. So we haven't seen any inflation on the raw materials on what we buy. It's more about -- the issues being more about the availability of some electrical components and that we have been working on. So I would think -- yes, we are not -- I mean, right now, we are not seeing impact on our margin. And our margins are more dependent on the mix of products that we deliver. And as Kevin pointed out earlier, the -- or someone asked the question on the GPR, the GPR is a good margin. So it really depends on what we are selling rather than the inflation on the raw materials. And we are in the process by the way of doing our budgeting. So I will definitely know more on the next call. But yes, directionally, we are not seeing a big deal of the inflation of the raw material.

Our next question comes from the line of [ Matthew Shike ] from Morgan Stanley.

I have a quick question about the cash flow generation and deleveraging in the remaining part of the '21 and 2022. So should we assume that $95 million you are going to receive from Geoscience will go towards deleveraging? That's the first question. And the second question would be going into the future and going into 2022 as activity, as you mentioned, is picking up. How should we think about cash flow generation, i.e., the prefunding levels are relatively low at the moment and do you expect them to go back quickly towards the 95% to 100% levels? That would obviously help a little bit. I mean that's basically the key question.

Yes. Thank you for your question. I will take the question on prefunding. If you remember, and historically, we have always committed to sort of a 7%, 5% prefunding, which we felt offered the right balance of funding projects, the best projects because the best projects aren't necessarily the ones that are the most refunded in early stages. So we wanted to make sure we had the mix. So the hyper funding is not necessarily a sign of the good performance of Multi-Client. It needs to be, I believe, over that 75%, but 100% might actually be too high, meaning you are not taking enough risk on the projects and on your portfolio or you are not investing enough. Now of course, what we want and what we need is more after sales. And that's what we have been short on from, I guess, this started last year because of the COVID crisis and into this year, and that's where we are seeing the discipline of our ILCs and our client play is they are just not buying data that's on the shelf. So if we do see the -- when or if we see that after sales pick up, obviously, this is a direct cash generation, and they will be falling through all the way into cash. So I would say this year, we have committed to be sort of cash positive. And so that will not unfortunately allow us to deleverage. And 2022, I think it's too early to say which way it's going to pan out. Do you want to add anything?

Well, we will -- under the new ones kind of covenants and terms and conditions, we have until April of next year to decide whether to apply basically generated cash against the 10% repayment that we build into the bonds. 10% of equipment at 103%. So as you hear right we said, we will be looking at next year and once we have more visibility, then we will make those decisions. But it will apply to deleveraging us indirectly, not [indiscernible] the cash on balance [ sheet ] produces [indiscernible].

[Operator Instructions]

Carl, if there is no additional questions, then we hand the floor back to Sophie for the conclusions.

Yes, no questions at the moment, sir.

Well, thank you very much. It's been a great call. Many more questions than in previous calls. I think we were right to change the time and the scheduling. So thank you very much for your questions. Thank you for the interest in CGG, and I look forward to meeting some of you in the next few days.

Thank you. Have a good evening.

Thank you. Have a good evening.

Have a good evening, and good afternoon.

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

Goodbye. Thank you.

Thanks, sir. Have a good day.