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FINANCIAL

REPORT
HALF YEAR
JUNE 2017

SAFER, SMARTER, GREENER


ABOUT DNV GL

DNV GL is a global quality assurance and risk management


company. Driven by our purpose of safeguarding life,
property and the environment, we enable organizations
to advance the safety and sustainability of their business.

We provide classification, technical assurance, software


and independent expert advisory services to the maritime,
oil & gas and energy industries. We also provide certi-
fication, supply chain and data management services
to customers across a wide range of industries.

Combining technical, digital and operational expertise,


risk methodology and in-depth industry knowledge,
we empower our customers decisions and actions with
trust and confidence. We continuously invest in research
and collaborative innovation to provide customers and
society with technological and operational foresight.

With origins stretching back to 1864, and operations in


100 countries, our professionals are dedicated to helping
customers make the world safer, smarter and greener.

2 HALF-YEAR FINANCIAL REPORT 2017


ORGANIZATION

DNV GL
GROUP

HEADQUARTERS:
HVIK
NORWAY
GROUP
CENTRE

BUSINESS
MARITIME OIL & GAS ENERGY ASSURANCE SOFTWARE

HEADQUARTERS: HEADQUARTERS: HEADQUARTERS:


HEADQUARTERS: HEADQUARTERS:
HAMBURG HVIK ARNHEM LONDON HVIK
GERMANY NORWAY NETHERLANDS UK NORWAY

GLOBAL SHARED SERVICES

DNV GL IS ORGANIZED INTO FIVE BUSINESS AREAS:

MARITIME OIL & GAS ENERGY

We help enhance the safety, From the drawing board to We support our customers
efficiency and sustainability decommissioning, we provide across the electric power
of our customers in the technical advice and assurance value chain in ensuring
global shipping industry, services to enable oil and gas reliable, efficient and
covering all vessel types companies to enhance safety, sustainable energy supply.
and mobile offshore units. increase reliability and manage
costs in projects and operations.

BUSINESS
ASSURANCE SOFTWARE

We help customers in all We provide software solutions


industry sectors build sustain- based on our broad domain
able business performance expertise developed to optimize
and create stakeholder trust. our customers operations.

HALF-YEAR FINANCIAL REPORT 2017 3


KEY FIGURES

REVENUE (01.0130.06) MILLION NOK EBITA (01.0130.06) MILLION NOK

9 982 276
2016: 10,985 2016: 590

EBIT / OPERATING PROFIT (01.0130.06)


EBITA MARGIN (30.06) MILLION NOK

2.8% 28
2016: 5.4% 2016: 329

4 HALF-YEAR FINANCIAL REPORT 2017


EQUITY RATIO (30.06) NUMBER OF EMPLOYEES (30.06)

65% 13173
2016 59% 2016: 14,273

LOST TIME ACCIDENTS TOTAL SICKNESS ABSENCE RATE


PER MILLION HOURS WORKED (01.0130.06) (01.0130.06)

1.6 2.6%
2016: 1.2 2016: 2.5%

HALF-YEAR FINANCIAL REPORT 2017 5


PRESIDENT & CEOS STATEMENT

As expected, 2017 is proving The ship and mobile offshore unit new- this has certainly resulted in smarter and
building markets, with the exception more cost-efficient solutions. The question
to be another challenging of cruise and some niche segments, now is whether the industry can deliver
year for our customers and remained depressed in the first half of on these proposed solutions in practice.
for DNV GL. In the first two the year, continuing the considerable
drop in activity level experienced in 2016. The onshore market continues to show
quarters of 2017, we saw con-
better activity than anticipated and we
tinued challenges, but also The continued decline in ship and off- secured several substantial contracts
improvement in some areas. shore newbuilding activity significantly in the first half of the year.
impacted our revenues and EBITA from
The positive news is that
classification services in the first two The revenue and EBITA performance for
all the business areas were quarters of the year. Our global market our oil and gas business is on target year-to-
profitable after the first six share for newbuildings also dropped date and better than last year. Our quality
months of the year, which to 20% and action has been taken to performance is showing a positive trend.
improve this in the second half of 2017.
was not the case in 2016. Our quality performance continues to For our Energy business area, the market
show a positive trend. situation has become more uncertain in the
e are maintaining invest- past six months. The US is implementing

W
ment levels in research Oil and gas companies are making less stringent environmental policies and
& innovation, moving strategic shifts in their portfolio towards this will most likely negatively influence our
forward with our digital lower-cost projects, shorter investment renewable advisory business in the US.
transformation and cycles and higher levels of flexibility.
gradually reaping the With the oil price fluctuating around The revenue and EBITA performance
benefits of internal efficiency projects, all 50 USD/barrel, the market continues to for our energy business is behind target,
of which will strengthen our position in the be challenging. However, current market but the year-to-date sales performance
longer term. Our purpose of safeguarding sentiments are slightly more positive than has improved from last year. Our invest-
life, property and the environment is more they were six months ago. The industry ment in the high-power lab at Arnhem is
relevant than ever before and serves as has had a pause for thought about the way progressing as planned, with completion
our guiding star and source of inspiration. offshore fields are being developed and due this autumn.

6 HALF-YEAR FINANCIAL REPORT 2017


Business Assurance is delivering accord- Our ambition to become carbon neutral As the leading class society, assurance
ing to expectations, and we anticipate in relation to office buildings and travel provider and technical advisor, our most
the demand for management system activity by the end of 2020 is progressing. valuable asset is the trust our customers
certification to increase during second place in us. I believe that DNV GL can
half of the year due to the introduction STRATEGY repay that trust by offering a space that
of an updated ISO 9001 standard. In 2016, The first year and a half of the current is neutral and secure. A space where
we saw strong double-digit organic growth strategy period has been dominated our customers and other asset owners
within the food and supply chain manage- by extremely challenging core markets, can quality assure, manage and enrich
ment sectors, and this has continued major geopolitical developments and their data to create new insights and
into 2017. accelerated uptake of digital solutions. unlock value.

Our Software house is delivering revenue We are therefore conducting a review DNV GL has always been entrusted with
and EBITA below targets, but maintains to update the current strategy so it can data in the analogue world. I believe
good cost control. The shortfall in exter- better enable us to meet our customers we can bring this trust position into the
nal revenue YTD has partly been offset evolving needs, continue to differentiate digital world.
by lower-than-planned operating costs. ourselves in tough markets, improve our
About 30 per cent of our new software efficiency and position ourselves for OUTLOOK
licence sales are to new customers, which future growth in a more digital world. I expect the challenging market situation
indicates that our software solutions are for shipping to continue for at least the
gaining market shares. next 18 months, even allowing for a more
optimistic short term outlook in selected
ORGANIZATION AND PEOPLE shipping markets such as cruise, gas
As the downturn in several of DNV GLs THE RIGHT-SIZING and bulk. For offshore supply and mobile
key markets continues, our Maritime busi- OF THE ORGANI- offshore units we must see beyond year
ness area is most impacted by ongoing 2020 for recovery, with only select
ZATION HAS BEEN
right-sizing and redundancy processes. opportunities in floating production
In response to developments in our core ACHIEVED BY NATURAL and re-gasification.
markets, the total number of employees fell AND VOLUNTARY TURN-
to 13,173 at the end of June 2017, down from OVER, AS WELL AS The number of large-scale offshore oil
13,550 at the end of 2016. The right-sizing THROUGH WORKFORCE & gas conventional projects is on the rise.
of the organization has been achieved by REDUCTION PROCESSES The number of final investment decisions
natural and voluntary turnover, as well as for large developments will be bigger in
THAT WILL CONTINUE
through workforce reduction processes 2017 than in 2016. However, the market
that will continue in some locations in
IN SOME LOCATIONS is more selective than before, so only
the second half of the year. IN THE SECOND HALF premium projects are moving forward.
OF THE YEAR.
Our employees represent 113 national- I believe the renewable energy sector has
ities, 31.5% are female and 87% have a the potential to grow significantly due to
higher education. the drop in the cost of both renewable
energy and energy storage, making this
BUSINESS ETHICS, HEALTH, SAFETY combination increasingly competitive.
AND THE ENVIRONMENT In September, we will launch our inaugural
I regret to report that one of our col- Energy Transition Outlook in London. The assurance market is robust and pro-
leagues recently passed away while at The next three decades will see enormous vides many opportunities for our business
work for DNV GL. Although we cannot changes in the global energy mix as the assurance unit to grow, particularly
find any proven link between the cause of world decarbonizes and pursues energy within the food and health sectors.
death and the work our surveyor was efficiencies on an unprecedented scale.
conducting, an internal investigation is With our deep expertise in oil & gas, The promise of data-driven decision
ongoing to identify possible improve- power & renewables, and energy use, making, machine learning and automation
ments of our systems and procedures as I believe our outlook reports will stimu- is attractive, but getting there is not easy.
well as any learning opportunities. late rich debate and discussion, and Our software house, in combination with
be in stark contrast to some existing our state-of-the-art IT organization is a
The number of work-related injuries per outlook publications typically repre- key enabler in developing opportunities
million worked hours increased to 1.6 as senting certain interest groups. offered by the fourth industrial revolution.
of end of June from 1.2 end of June 2016.
The number of lost-time accidents are up Common to all the sectors we work in I am confident that our customer centricity,
33%, but on average the accidents have is an accelerated call for digital trans- digital leadership and cost discipline will
been less serious compared to last year. formation. Part of our response to this further strengthen our competitiveness.
is that we want to facilitate frictionless
The sickness absence rate remained stable connections between different industry
at 2.6% YTD. There were no confirmed players, domain experts and data scien- Remi Eriksen
incidents of corruption or non-compliance tists on our own industry data manage- Group President & CEO
with environmental laws and regulations. ment platform Veracity. DNV GL Group

HALF-YEAR FINANCIAL REPORT 2017 7


HALF-YEAR PERFORMANCE
GROUP PERFORMANCE

The external revenue for the first The DNV GL Groups performance in Investment activities in the first half
half of the year amounted to NOK the first half-year was affected by the of 2017 related primarily to the devel-
9,982 million, producing an EBITA continued downturn in the Maritime opment and implementation of new
of NOK 276 million and an operating and Oil & Gas business areas due to ERP, HR and business systems, and
profit of NOK 28 million. The nominal challenging market conditions for our the development of the industry data
growth rate was 9%, while the organic customers. The contraction in business management platform named Veracity.
and currency-adjusted growth rate volume is expected to continue in the Investments in tangible fixed assets
was 7%. The relative strengthening second half-year and into 2018. were mainly linked to the extension of
of the NOK versus all major currencies our high-power laboratory in Arnhem.
resulted in a negative currency DNV GL Group has a strong balance sheet
effect of 2%. with total equity of NOK 18,099 million. M&A activities during the first half of
The equity ratio is 65%, slightly higher the year were limited to the divestment
than end of 2016 mainly due to positive of shares in STRI AS.
currency effects from net investments
in foreign subsidiaries. The management regards DNV GLs
financial status as satisfactory. The
The cash flow from operations was half year results include significant
NOK 175 million negative, impacted by cost related to capacity adjustment of
increased accounts receivable and work the organization. Hence, the company
in progress since year-end. Cash deposits has a robust platform to manage the
amounted to NOK 3,172 million, and challenging market and to maintain its
unused credit lines were at NOK 1,500 independence as a financially strong
million. The outlook for the second half and trusted company.
of the year reflects a positive cash flow
development from operations, coming
from improvement in the working capital
and improved business performance.

8 HALF-YEAR FINANCIAL REPORT 2017


HALF-YEAR PERFORMANCE
BUSINESS AREAS

The capacity reduction activities imple-


mented last year had a positive effect in
MARITIME the first half-year of 2017, and contributed BUSINESS ASSURANCE
to a significant improvement of the EBITA.
The market for classification of ships and The external revenues of DNV GLs
offshore mobile units remained bleak, Oil production cuts have done little Business Assurance division came to
with low ordering activity. The business to return confidence to the market, but NOK 1,617 million, equal to organic
volume decreased as anticipated and fundamental data support the forecast that and currency-adjusted growth of
external revenue for the Maritime busi- the oil price will improve in the second half some 5% year-on-year.
ness area ended at NOK 3,746 million of 2017. Digitalization is being implemented
for the first half-year, a year-to-date across the oil and gas sector increasingly
currency-adjusted contraction of as companies look to adopt long-term Management System Certification (MSC)
some 16%. saving measures within operations. services, representing more than 70% of
Business Assurances external revenues,
delivered solid financial performance in
The contraction is expected to continue the first half-year. The strong performance
throughout the year and remain negative of MSC and Personal Certification more
in the range of 10-11% at the year-end. ENERGY than offsets the slower financial perfor-
mance of our Assurance and Supply
The ship and offshore class newbuilding The Energy business areas financial Chain Management services.
markets remained challenging. The busi- performance continued at the same
ness volume of ships-in-operation related level as the first half of 2016 with The MSC portfolio for the coming quar-
activity was also lower than expected due year-to-date external revenues of ters is improving and is considered robust,
to a slower uptake of the Ballast Water NOK 1,823 million. and action has been taken to accelerate
Management Code than planned. our customers transition to the new ISO
standards. Sales of assurance services
Capacity adjustment initiatives have been The overall performance of our energy are stable and are expected to ramp up
executed as planned to secure the targeted advisory services did not show any im- in the second half of the year.
financial performance for the year and the provement, but we noted solid results
immediate future beyond 2017. Synergies from the newly acquired solar monitor-
from the DNV and GL merger and efficiency ing provider Green Power Monitor.
programmes continue to have a positive Our renewable certification business
effect on the cost base. continued to perform reasonably well, SOFTWARE
but consolidation in the wind turbine
The Maritime market is likely to be chal- market may indicate future contractions. The Software business area experienced
lenging for another one or two years, and a challenging market, with external
the strong competition with other class Revenues from testing, inspection and revenue of NOK 407 million reflecting
societies is expected to continue. DNV GL certification of power transmission sys- currency-adjusted contraction of 7%.
will remain focused on technology inno- tems and components contracted by 5%,
vation, digitalization and efficient energy mainly due to planned maintenance and
use to help its customers address current integration of the high-power laboratory Many software customers have reduced
market challenges. extension in Arnhem. The financial per- their activity level, leading to lower demand
formance is expected to catch up in the for Consulting services, scope reductions
second half-year due to the improved for Service Level Agreements (SLA) and
sales order book and higher utilization lower sales of Asset Integrity and Electric
of the laboratories. Our Sustainable Use Utilities software solutions.
OIL & GAS services in the US continued to achieve
the same revenue and sound financial The outlook is however more positive as
The contraction of DNV GLs Oil & Gas performance. the weighted sales funnel for licence sales
business volume is easing, resulting in is growing. The slight increase in licence
improved financial performance and The energy power market remains sub- sales combined with a declining amount
external revenue of NOK 2,338 million. ject to political and regulatory uncertainty of lost SLA revenue indicates a levelling
The currency-adjusted negative growth and the cost level of renewable energy out of the markets and that a slow
was 3% compared to last year. is dropping significantly. Hence, the need recovery could be expected.
to offer new and digital services to our
customers will be in focus.
The sales order book has been relatively
stable during the last 12 months. The hit
ratio is improving for each quarter, and
the order-intake outlook for the second
half-year is moresolid than it was last year.

HALF-YEAR FINANCIAL REPORT 2017 9


INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT
(UNAUDITED)

1 JAN. 30 JUNE 1 JAN. 30 JUNE 1 JAN. 31 DEC.


AMOUNTS IN NOK MILLION NOTE 2017 2016 2016

Total operating revenue 2 9982.4 10984.6 20834.0

OPERATING EXPENSES

Payroll expenses 3 6308.6 6654.9 12554.2

Depreciation 163.7 182.9 368.2

Amortization and impairment 247.5 261.3 829.7

Other operating expenses 3234.2 3556.5 6927.9

Operating profit 28.4 328.9 154.0

Net financial income/(expenses) (54.6) 42.6 (17.9)

Profit / (loss) before tax (26.2) 371.5 136.1

Tax expense (3.0) (130.0) (352.0)

Profit /(loss) for the period (29.2) 241.5 (215.8)

PROFIT / (LOSS) FOR THE PERIOD ATTRIBUTABLE TO:

Non-controlling interest 5.0 7.7 12.9

Equity holders of the parent (34.1) 233.8 (228.7)

Total (29.2) 241.5 (215.8)

10 HALF-YEAR FINANCIAL REPORT 2017


INTERIM CONDENSED CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME (UNAUDITED)

1 JAN. 30 JUNE 1 JAN. 30 JUNE 1 JAN. 31 DEC.


AMOUNTS IN NOK MILLION 2017 2016 2016

Profit /(loss) for the period (29.2) 241.5 (215.8)

Other comprehensive income not to be reclassified

to profit or loss in subsequent periods:

Actuarial gains /(losses) on defined benefit pension plans 26.4 (569.0) (85.8)

Other comprehensive income to be reclassified

to profit or loss in subsequent periods:

Currency translation differences / Translation differences 599.1 (867.1) (1056.7)

foreign operations

Share of other comprehensive income from associated companies (5.9) 27.4 60.8

Other comprehensive income for the period, net of tax 619.6 (1408.7) (1081.6)

Total comprehensive income for the period 590.5 (1167.2) (1297.5)

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:

Non-controlling interest 5.0 7.7 12.9

Equity holders of the parent 585.5 (1174.9) (1310.3)

Total 590.5 (1167.2) (1297.5)

HALF-YEAR FINANCIAL REPORT 2017 11


INTERIM CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)

AMOUNTS IN NOK MILLION NOTE 30 JUNE 2017 30 JUNE 2016 31 DEC. 2016

ASSETS

Intangible assets 12549.1 12828.8 12102.9

Tangible fixed assets 2494.5 2545.6 2455.2

Non-current financial assets 906.9 591.5 910.8

Total non-current assets 15950.5 15965.9 15468.9

CURRENT ASSETS

Trade debtors, work in progress and other receivables 8568.2 9735.5 7904.6

Cash and bank deposits 3171.9 4099.9 3628.0

Total current assets 11740.1 13835.4 11532.6

TOTAL ASSETS 27690.6 29801.3 27001.5

EQUITY AND LIABILITIES

Share capital and other equity 18064.5 17635.4 17475.0

Non-controlling interest 34.9 47.6 33.9

Total equity 18099.3 17683.0 17508.9

LIABILITIES

Non-current provisions and obligations 4 3884.9 4449.1 3797.7

Non-current interest-bearing loans and borrowings 0.0 350.0 0.0

Current liabilities 5706.3 7319.2 5694.9

Total liabilities 9591.2 12118.3 9492.6

TOTAL EQUITY AND LIABILITIES 27690.6 29801.3 27001.5

12 HALF-YEAR FINANCIAL REPORT 2017


INTERIM CONDENSED CONSOLIDATED STATEMENT
OF CASH FLOW (UNAUDITED)

1 JAN. 30 JUNE 1 JAN. 30 JUNE 1 JAN. 31 DEC.


AMOUNTS IN NOK MILLION 2017 2016 2016

CASH FLOW FROM OPERATIONS

Profit/(loss) before tax (26.2) 371.5 136.1

Gain on disposal of tangible fixed assets 0.0 0.0 (5.8)

Gain on divestments (1.6) (7.2) (131.9)

Gain from change of defined benefit pension plans 0.0 0.0 (64.1)

Depreciation, amortization and impairment 411.2 444.3 1197.9

Change in working capital and other accruals (558.5) (330.9) (470.7)

Net cash flow from operations (175.1) 477.6 661.6

CASH FLOW FROM INVESTMENTS

Net investments tangible and intangible assets (292.3) (235.7) (611.5)

Acquisitions (business combinations) 0.0 (87.0) (234.6)

Divestments 11.3 9.0 155.1

Change in other investments 0.0 0.0 8.7

Net cash flow from investments (281.0) (313.7) (682.3)

CASH FLOW FROM FINANCING ACTIVITIES

Dividend paid 0.0 (507.0) (506.9)

Multi currency revolving credit facility drawn/ (paid) 0.0 250.0 (100.0)

Net cash flow from financing activities 0.0 (257.0) (606.9)

Net increase/ (decrease) in cash and bank deposits (456.1) (93.1) (627.6)

Liquidity at beginning of period 3628.0 4193.0 4193.0

Cash in acquired companies 0.0 0.0 62.6

Liquidity at end of period 3171.9 4099.9 3628.0

HALF-YEAR FINANCIAL REPORT 2017 13


INTERIM CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY (UNAUDITED)

1 JAN. 30 JUNE 1 JAN. 30 JUNE 1 JAN. 31 DEC.


AMOUNTS IN NOK MILLION 2017 2016 2016

Equity as at 1 January 17508.9 18850.2 18850.2

Profit / (loss) for the period (29.2) 241.5 (215.8)

Actuarial gains / (losses) on defined benefit pension plans 26.4 (569.0) (85.8)

Exchange differences 599.1 (867.1) (1056.7)

Other equity changes (5.9) 27.4 17.0

Equity as at end of period 18099.3 17683.0 17508.9

NOTES TO THE INTERIM ACCOUNTS FOR


THE FIRST SIX MONTHS OF 2017

01 BASIS FOR PREPARATION AND SIGNIFICANT ACCOUNTING PRINCIPLES

The condensed consolidated interim financial statements Simplified IFRS requires that the IFRS recognition and
for DNV GL Group AS for the first six months of 2017, have measurement criteria (as adopted by the European Union)
been prepared in accordance with IAS 34 Interim Financial are complied with, but disclosure and presentation require-
Reporting. The interim condensed consolidated financial ments (the notes) follow the Norwegian Accounting Act
statements do not include all the information and disclosures and Norwegian Generally Accepted Accounting Standards.
required in the annual financial statements and should be
read in conjunction with the Groups Annual Report 2016. The financial statements are presented in Norwegian
The accounting policies adopted in the preparation of the Kroner (NOK) and all values are rounded to the nearest
interim consolidated financial statements are consistent with million (NOK million).
those followed in the preparation of the Groups Annual
Financial Statements for the year ended 31 December 2016. The interim condensed consolidated financial statements
for the first six months of 2017 include the parent company
The annual consolidated financial statements for DNV GL DNV GL Group AS and all companies in which the parent
Group AS have been prepared in accordance with the company directly or indirectly has controlling interest.
Norwegian Accounting Act 3-9 and Regulations on
Simplified IFRS as enacted by the Ministry of Finance The interim accounts have not been audited.
3 November 2014. In all material aspects, Norwegian

14 HALF-YEAR FINANCIAL REPORT 2017


NOTES

02 OPERATING REVENUE PER BUSINESS AREA

1 JAN. 30 JUNE 1 JAN. 30 JUNE 1 JAN. 31 DEC.


AMOUNTS IN NOK MILLION 2017 2016 2016

BUSINESS AREA:

Maritime 3746.0 4510.8 8216.1

Oil & Gas 2337.9 2536.9 4954.5

Energy 1823.3 1850.1 3582.5

Business Assurance 1616.8 1578.2 3145.9

Software 406.9 449.4 859.1

Other 51.6 59.2 76.0

Total operating revenue 9982.4 10984.6 20834.0

03 PAYROLL EXPENSES

Payroll expenses 1 Jan.30 June 2017 include NOK 300 temination benefit expenses were included in payroll
million termination benefit expenses. NOK 272 million expenses 1 Jan.30 June 2016.

04 DEFINED BENEFIT PENSION LIABILITIES

As a consequence of interest rate increase since year- Increased discount rate in Germany from 1.8% to 2.0%
end 2016, the assumptions for calculation of the defined (high-value corporate bonds) lead to reduced pension
benefit pension liabilities in Germany have been changed. liabilities of NOK 39 million, which has been reflected
in the 2017 half year financial statements.

HALF-YEAR FINANCIAL REPORT 2017 15


SAFER, SMARTER, GREENER

HEADQUARTERS:

DNV GL AS
Veritasveien 1
NO-1322 Hvik, Norway
Tel: +47 67 57 99 00
www.dnvgl.com

DNV GL 08/2017
Design: Fasett

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