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ASKER, NORWAY (13 April 2015) - Today, TGS announced a Cost Reduction Program reflecting the deterioration of the market for seismic data seen in the first quarter of 2015. Based on preliminary reporting from operating units, TGS management now expects net revenues for the first quarter of 2015 to be approximately USD 172 million, about 23% lower than revenues reported for the first quarter of 2014.
Net revenues were lower than management`s expectations due to weaker late sales from the data library in all geographic regions. Demand for seismic data has significantly deteriorated over the first three months of 2015 and the outlook for improvement in the market remains quite uncertain. TGS is in constant communication with its customers and many of those energy companies have not finalized their spending plans for 2015. From these discussions and an assumption that the price of oil will remain under pressure, TGS expects annual net revenues of approximately USD 630 million for 2015, down from USD 750 million as originally communicated in January. Operating profit (EBIT) is expected to be negatively affected by the lower revenues, however higher amortization will be partly compensated by the effects of the Cost Reduction Program.
The Cost Reduction Program will position the company for the more challenging seismic market caused by the significant drop in oil price. A key element of this program is a reduction of more than 10% of TGS' global workforce effective from April. Restructuring charges of approximately USD 4 million will be booked in Q2 as a result of this Program. The company expects annual cost savings of approximately USD 10 million as a result of the Cost Reduction Program. In addition to the reduction in headcount, Management has taken concrete actions to recognize additional operational cost savings from the original 2015 budget. Management will continue to review the Company's cost structure and if necessary, take additional action to reduce cost if the market continues to deteriorate.
Cash flow was strong in Q1 as cash holdings increased from USD 256 million at year-end 2014 to USD 352 million as of 31 March 2015. In addition, the company has an undrawn credit facility of USD 50 million resulting in a total liquidity reserve of USD 402 million. The strong balance sheet and liquidity position continue to provide dividend support going forward. The Board of Directors has reviewed the Company's financial situation, including the Company's distributable reserves according to the annual accounts for 2014. On this basis and in accordance with the Company's resolved dividend policy, the Board of Directors wishes to be authorized to distribute quarterly dividend payments from Q1 2016. Reference is made to the Notice to the Annual General Meeting published this morning for more information on the quarterly dividend proposal.
The full first quarter earnings release is scheduled for 23 April 2015. A conference call will be held the same day in association with that release.