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FINANCIAL REPORT HALF YEAR JUNE 2016

SAFER, SMARTER, GREENER


ABOUT DNV GL

Driven by our purpose of safeguarding life, property and the environment, DNV GL enables 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 certification services to customers across a wide range of industries. Combining leading technical 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 operational and technological foresight. With origins stretching back to 1864, DNV GL’s reach today is global. Operating in more than 100 countries, our professionals are dedicated to helping customers make the world safer, smarter and greener.

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HALF-YEAR FINANCIAL REPORT 2016


ORGANIZATION DNV GL GROUP HEADQUARTERS:

HØVIK NORWAY

GROUP CENTRE

MARITIME

OIL & GAS

ENERGY

HEADQUARTERS:

HEADQUARTERS:

HEADQUARTERS:

HAMBURG GERMANY

HØVIK NORWAY

ARNHEM NETHERLANDS

BUSINESS ASSURANCE

SOFTWARE

HEADQUARTERS:

HEADQUARTERS:

LONDON UK

HØVIK NORWAY

GLOBAL SHARED SERVICES

DNV GL IS ORGANIZED INTO FIVE BUSINESS AREAS:

MARITIME

OIL & GAS

ENERGY

We help enhance the safety, efficiency and sustainability of our customers in the global shipping industry, covering all vessel types and mobile offshore units.

From the drawing board to decommissioning, we provide technical advice to enable oil and gas companies to enhance safety, increase reliability and manage costs in projects and operations.

We support our customers across the electric power value chain in ensuring reliable, efficient and sustainable energy supply.

BUSINESS ASSURANCE We help customers in all industry sectors build sustainable business performance and create stakeholder trust.

SOFTWARE Our software solutions are based on our broad domain competence and developed to improve our customers’ operational efficiency and business optimization.

HALF-YEAR FINANCIAL REPORT 2016

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KEY FIGURES

REVENUE (01.01–30.06) MILLION NOK

10 985 2015: 11,667

EBITA MARGIN (30.06)

5.4% 2015: 10.0%

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HALF-YEAR FINANCIAL REPORT 2016

EBITA (01.01–30.06) MILLION NOK

590 2015: 1,171

EBIT / OPERATING PROFIT (01.01–30.06) MILLION NOK

329 2015: 925


EQUITY RATIO (30.06)

59% 2015 60%

LOST TIME ACCIDENTS PER MILLION HOURS WORKED (01.01–30.06)

1.2 2015: 1.4

NUMBER OF EMPLOYEES (30.06)

14 273 2015: 15,382

TOTAL SICKNESS ABSENCE RATE (01.01–30.06)

2.5% 2015: 2.5%

HALF-YEAR FINANCIAL REPORT 2016

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PRESIDENT & CEO’S MESSAGE

POSITIONING FOR A DIGITAL FUTURE Our financial performance in the first two quarters of 2016 was characterized by a further overall decline in business volume. We reduced cost levels and headcount to meet weaker demand in some of our core markets. At the same time, we saw growth in other sectors, and accelerated our investment in digitalization to offer improved as well as new and smarter services to our customers.

T

he shipping industry is facing some really difficult times, with overcapacity in most segments.

The sharp decline in ship and offshore newbuilding activity significantly impacted our revenues from classification services in the first two quarters of the year. In response, a number of cost-cutting measures have been taken. The cruise ship segment was one of few shipping segments to see strong growth, and I am pleased that we captured the lion’s share of these newbuilding contracts. Also, major customers chose to construct vessels based on our new, state-of-the-art class rules, and we are slowly regaining our overall market share

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HALF-YEAR FINANCIAL REPORT 2016

for ships in operation. We further improved our strong quality performance compared to competitors. We also strengthened our leading position for vessels using alternative fuels, such as LNG, hybridelectric and full-electric solutions. Our oil and gas-related business volume continued to suffer from generally lower industry investments due to the low oil price. Nevertheless, we secured significant new contracts, including contracts with Statoil, Gazprom, Pacific Gas & Electric, and National Grid. We also initiated 43 new collaborative innovation projects which, together with our continued efforts to drive standardization, help the industry safely reduce costs and inefficiencies. One example of this is the standardization project with major Korean yards, which has already delivered four Recommended Practices offering significant potential for cost reductions. Our other business areas – Energy, Business Assurance and Software – developed positively. We continue to expand our customer base within renewable power, power transmission and distribution, energy efficiency and life sciences. In the energy business, we continue to push new technologies to ensure a clean, affordable and safe energy supply. We were selected to lead the largest energy-related EU project

on the development of future proof power grids, and we are on track to expand the world’s largest high power laboratory in Arnhem, the Netherlands. Business Assurance secured several strategic life sciences projects and took major steps forward in its digitalization journey. Our Software business reached an important milestone by launching our first softwareas-a-service solution. While DNV GL’s overall business volume declined and profitability also decreased, our financial position remains sound. Ensuring that we quickly adapt to the needs of our customers, helping them to further improve efficiency and safety remains a top priority for me. RIGHTSIZING OUR ORGANIZATION

In response to the weaker developments in our core markets, the total number of permanent employees fell to 14,273, down from 14,954 at the end of 2015. The rightsizing of the organization has been achieved by natural and voluntary turnover, as well as through workforce reduction processes that will continue in some locations in the second half of the year. SUSTAINED FOCUS ON ETHICS, HEALTH, SAFETY AND THE ENVIRONMENT

There were no confirmed incidents of corruption or non-compliance with environmental laws and regulations.


The Lost Time Absence Frequency fell to 1.2 lost time accidents per million hours worked, down from 1.4 in the same period last year. Our Severity Accident Index (number of days absence due to Lost Time Accidents per million hours worked) fell from 26.7 to 15.7. The improved safety performance is due partly to reduced business activity and partly due to our continuous focus on developing a strong safety culture. The Sickness Absence Rate was stable at 2.5%. Our employees represent 114 nationalities, 31% are female, and 87% have higher education. Our new mandatory Code of Conduct training has been completed by 89% of employees, approaching our goal of 100% completion during the second half of the year. Direct emissions of greenhouse gases are measured on an annual basis, with 28,000 tonnes of CO2e year-end 2015 as the baseline for our strategy to become carbon neutral by the end of 2020. EXECUTING THE 2016–2020 STRATEGY

The new strategy sets the ambition and direction for how DNV GL intends to reinforce existing positions and capture new opportunities in the next five years through efficiency, agility and digitalization. I strongly believe that we can be an ideal partner for our customers as they cope with both the digital transformation

of their businesses and the cost pressures exerted by a combination of industry and socio-economic factors. The combination of DNV GL’s industry knowledge, deep technical expertise and role as a trusted independent party gives us an opportunity to add a new dimension to our traditional certification, classification and technical advisory services. Increasingly, we will be a custodian of data and offer data analytics and insights to our customers. This will enable them to advance safety, efficiency and sustainability through better-informed and short-cycled decisions. In the first half of the year, we launched a number of initiatives to that end. We also introduced new digital services, standards, software and tools that enable our customers and us to work smarter.

INCREASINGLY, WE WILL BE A CUSTODIAN OF DATA AND OFFER DATA ANALYTICS AND INSIGHTS TO OUR CUSTOMERS. THIS WILL ENABLE THEM TO ADVANCE SAFETY, EFFICIENCY AND SUSTAINABILITY THROUGH BETTER-INFORMED AND SHORT-CYCLED DECISIONS.

Examples include cyber-physical systems and digital twins, allowing customers to efficiently optimize their ships, oil & gas platforms, solar farms or other physical assets. Other examples are the use of drones for ship surveys and solar plant inspections and big data analytics services from smart meters in the energy sector. OUTLOOK

We remain committed to our purpose of safeguarding life, property and the environment – the guiding star for all our people. While I expect continued growth in our Energy, Business Assurance and Software segments, the adverse market conditions in the maritime and oil and gas industries are expected to further reduce DNV GL’s overall business volume and profitability for the year. Nevertheless, our market positions remain strong across all of our core industry sectors and management system certification services. I am convinced that we will further strengthen our competitiveness by intensifying collaboration with our customers and continuing to develop our people and invest 5% of our annual revenues in research and innovation to offer superior services and insights. Remi Eriksen President & CEO, DNV GL Group

HALF-YEAR FINANCIAL REPORT 2016

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HALF-YEAR PERFORMANCE

GROUP PERFORMANCE

The external revenue for the first half of the year amounted to NOK 10,985 million, producing an EBITA of NOK 590 million. The nominal growth rate was -6%, while the organic and currency adjusted growth rate was -11%. The positive currency effect is largely explained by a further weakening of the NOK, primarily against the USD, and an increased business volume in favourable currencies. The challenging market conditions in the Maritime and Oil & Gas segments are expected to continue into 2017, and hence influence the overall DNV GL financial performance for this year and next. KEY OBSERVATIONS:

Maritime: The continuing challenging market conditions have affected our financial performance, which reflects the 10% decline in business volume compared to the same period in 2015. The newbuilding market is depressed, strongly influencing our ship newbuilding and component certification services. Oil & Gas: The contraction in the offshore oil & gas market experienced last year continued with the same strength in the first half of 2016. As a consequence, our risk management services and related verification services were heavily influenced by the negative market developments. Accordingly, significant capacity adjustments have been made during the period. Energy: Our services to the energy market experienced a slight upturn, with continuous growth in renewable services, combined with a more positive trend

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HALF-YEAR FINANCIAL REPORT 2016

for laboratory testing and certification services. This has contributed to stronger financial performance in the first half of 2016 for this business area. Business Assurance continued to achieve strong organic growth and solid financial performance during the period. Management system certification services are still dominant, but the demand for other assurance services, particularly within the healthcare and food safety sectors, is consistently increasing. Software: Despite the challenging market conditions in our traditional markets, we experienced healthy organic growth and improved financial performance during the period. Software licensing and related advisory services, in particular, contributed to the positive developments.

DNV GL Group has a strong balance sheet, with total equity of NOK 17,683 million after NOK 507 million in dividend payments in June 2016. The equity ratio is 59%. The cash flow from operations was NOK 478 million for the period. Cash deposits amounted to NOK 4,100 million, and unused credit lines were at NOK 1,250 million. Investment activities in the first half of 2016 related primarily to the implementation of the Oracle Finance and ERP system, plus the establishment of a Digital Accelerator unit to drive new digital services. M&A activities in the first half year were limited to the acquisition of Swedish power system expert Gothia Power in January. The management regards DNV GL’s financial status as strong, giving the company a robust platform to manage challenging markets and maintain its independence as a financially strong and trusted company. DNV GL will remain focused on technology innovation, digitalization and efficiency measures to help its customers address current market challenges.

BUSINESS AREAS

MARITIME The maritime ship and offshore market remained bleak, with low ordering activity. The business volume decreased as anticipated in the second quarter and external revenue ended at NOK 4,511 million for the first half year, a year-todate currency-adjusted contraction of about 14%. The contraction in the second half of the year is expected to gradually flatten out but remain negative in the range of –10 to –12%.

The ship and offshore class newbuilding markets remained depressed. The order intake of 149 vessels represents a reduction of about 40% compared to last year. The tanker, RoRo, cruise and passenger segments remained active. Mitigating actions are currently in place to deal with all known risks and uncertainties with respect to the 2016 financial performance. Synergies from the merger and efficiency programmes continue to deliver positive effects to the cost base. The Maritime market is likely to be challenging for another two years, and the strong competition with other class societies is expected to continue.


OIL & GAS Oil & Gas faced ongoing OPEX and CAPEX reductions in a challenging market with project delays and cancellations. Financial performance was below expectations with external revenue of NOK 2,537 million. This represented an organic and currency-adjusted contraction of 20% compared to last year.

Project delays, cancellations and a lower order volume were registered mainly within our risk management advisory, marine assurance and inspection services in South East Asia, the Middle East and the Americas. Continental Europe was a positive exception, performing according to expectations. Mitigation actions have been taken to reduce the financial risk, with measures already effective within some regions and others to be effective throughout the second half of the year. The market is expected to stay challenging into 2017, with significantly reduced CAPEX and OPEX activity and strong price pressure. Performance projection for the second half of 2016 is following this trend, but with some seasonal uptrends.

ENERGY The financial performance of our Energy business area was in line with expectations with year-to-date external revenues of NOK 1,850 million, representing a currency adjusted growth of 1% for the first half of 2016. This includes revenues of newly acquired Gothia Power.

Revenues from our Power Testing Inspection and Certification services declined slightly, but improved in the second quarter mainly at our high-power testing laboratories in Chalfont (US) and Arnhem (Netherlands). Our Renewables Certification services also improved over the last months after a weaker first quarter. In addition to fierce competition and price pressure, the energy power market is currently subject to political and regulatory uncertainty. Examples of this include the update of the Renewable Energy Act in Germany, the uncertainty relating to offshore wind funding in the UK and Brexit, as well as the Energy Policy Modernization Act in the US. These processes will have a substantial impact on the entire energy sector and related business decisions.

BUSINESS ASSURANCE The external revenues of Business Assurance ended the half year at NOK 1,578 million, an organic and currency-adjusted growth of 4% year-on-year.

SOFTWARE The external revenues of the Software business area amounted to NOK 449 million, a year-on-year currency-adjusted growth of 7%. Financial performance was strong and above expectations, despite a challenging market situation, particularly in the oil and gas industry.

Software’s consultancy services delivered double-digit growth year-on-year, while revenues from Service Level Agreements declined as a result of order cancellations and the reduced scope of software contracts. Considering developments in the first half of the year, Software´s outlook for 2016 is positive with a robust order backlog. Developments in both the oil & gas and maritime sectors are being tightly monitored to manage risks in the volatile CAPEX and OPEX markets.

All services within the business area reported solid performance. Management System Certification services, representing more than 70% of Business Assurance´s external revenues, faced growing price pressure in key markets and lower business volume. Personal Certification and Training, Product Compliance, Supply Chain Management and Assurance services had doubledigit growth year-on-year, in line with our strategy of growing this part of the business. The outlook for Business Assurance is solid and robust despite uncertainty related to world economic growth, the slowdown of the economy, and the impact of Brexit.

The slight year-to-date revenue growth can be attributed mainly to our Sustainable Use and Advisory services.

HALF-YEAR FINANCIAL REPORT 2016

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INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED) 1 JAN.– 30 JUNE 2016

1 JAN.– 30 JUNE 2015

1 JAN.– 31 DEC. 2015

10 984.6

11 666.6

23 390.3

6 654.9

6 550.1

13 116.0

Depreciation

182.9

182.5

374.8

Amortization and impairment

261.3

245.7

535.8

3 556.5

3 762.9

7 625.5

328.9

925.4

1 738.1

42.6

13.6

(12.4)

371.5

939.0

1 725.7

(130.0)

(278.4)

(711.9)

241.5

660.6

1 013.8

7.7

12.0

11.1

Equity holders of the parent

233.8

648.6

1 002.7

Total

241.5

660.6

1 013.8

AMOUNTS IN NOK MILLION

NOTE

Total operating revenue 2

OPERATING EXPENSES

Payroll expenses

Other operating expenses

Operating profit

Net financial income

Profit before tax

Tax expense

Profit for the period

PROFIT FOR THE PERIOD ATTRIBUTABLE TO:

Non-controlling interest

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HALF-YEAR FINANCIAL REPORT 2016


INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) 1 JAN.– 30 JUNE 2016

1 JAN.– 30 JUNE 2015

241.5

660.6

1 013.8

(569.0)

4.1

540.5

(867.1)

(51.1)

1 335.5

27.4

(8.6)

(22.7)

Other comprehensive income for the period, net of tax

(1 408.7)

(55.6)

1 853.4

Total comprehensive income for the period

(1 167.2)

605.0

2 867.2

7.7

12.0

11.1

Equity holders of the parent

(1 174.9)

593.1

2 856.2

Total

(1 167.2)

605.0

2 867.2

AMOUNTS IN NOK MILLION

Profit for the period

1 JAN.– 31 DEC. 2015

Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Actuarial gains /(losses) on defined benefit pension plans Other comprehensive income to be reclassified to profit or loss in subsequent periods: Currency translation differences / Translation differences foreign operations Share of other comprehensive income from associated companies

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:

Non-controlling interest

HALF-YEAR FINANCIAL REPORT 2016

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INTERIM CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

NOTE

30 JUNE 2016

30 JUNE 2015

31 DEC. 2015

12 828.8

12 213.6

13 050.1

2 545.6

2 350.3

2 663.9

591.5

555.8

860.6

15 965.9

15 119.7

16 574.5

Trade debtors, work in progress and other receivables

9 735.5

9 402.1

9 511.8

Cash and bank deposits

4 099.9

3 800.1

4 193.0

Total current assets

13 835.4

13 202.2

13 704.8

TOTAL ASSETS

29 801.3

28 321.9

30 279.3

17 635.4

17 053.8

18 810.2

47.6

42.0

40.0

17 683.0

17 095.8

18 850.2

4 449.1

4 345.0

3 945.8

AMOUNTS IN NOK MILLION

ASSETS

Intangible assets Tangible fixed assets Non-current financial assets

Total non-current assets

CURRENT ASSETS

EQUITY AND LIABILITIES

Share capital and other equity Non-controlling interests

Total equity

LIABILITIES

Non-current provisions and obligations Non-current interest-bearing loans and borrowings

350.0

250.0

100.0

7 319.2

6 631.1

7 383.3

Total liabilities

12 118.3

11 226.1

11 429.1

TOTAL EQUITY AND LIABILITIES

29 801.3

28 321.9

30 279.3

Current liabilities

12

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HALF-YEAR FINANCIAL REPORT 2016


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)

AMOUNTS IN NOK MILLION

1 JAN.– 30 JUNE 2016

1 JAN.– 30 JUNE 2015

1 JAN.– 31 DEC. 2015

371.5

939.0

1 725.7

0.0

0.0

(23.6)

(7.2)

0.0

0.0

0.0

0.0

30.6

444.3

428.2

910.6

(330.9)

(340.3)

(429.0)

477.7

1 026.9

2 214.3

(235.7)

(417.2)

(898.6)

(87.0)

(33.8)

(200.4)

9.0

0.0

0.0

(313.7)

(451.0)

(1 098.9)

0.0

0.0

(4.5)

(507.0)

(504.0)

(503.5)

250.0

(250.0)

(400.0)

(257.0)

(754.0)

(908.0)

(93.1)

(178.1)

207.3

4 193.0

3 978.2

3 978.2

0.0

0.0

7.4

4 099.9

3 800.1

4 193.0

CASH FLOW FROM OPERATIONS

Profit before tax Gain/loss on disposal of tangible fixed assets Gain on divestments Loss (gain) from change of defined benefit pension plans Depreciation, amortization and impairment Change in working capital and other accruals Net cash flow from operations

CASH FLOW FROM INVESTMENTS

Net investments in tangible and intangible assets Acquisitions (business combinations) Divestments Net cash flow from investments

CASH FLOW FROM FINANCING ACTIVITIES

Change in overdraft Dividend paid Multi-currency revolving credit facility drawn / (paid) Net cash flow from financing activities Net increase / (decrease) in cash and bank deposits Liquidity at beginning of period Cash in acquired companies Liquidity at end of period

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) 1 JAN.– 30 JUNE 2016

1 JAN.– 30 JUNE 2015

18 850.2

16 496.4

16 496.4

241.5

660.6

1 013.8

0.0

0.0

(506.9)

Actuarial gains/(losses) on defined benefit pension plans

(569.0)

4.1

540.5

Exchange differences

(867.1)

(51.1)

1 335.5

Other equity changes

27.4

(14.1)

(29.2)

17 683.0

17 095.8

18 850.2

AMOUNTS IN NOK MILLION

Equity as at 1 January Profit for the period Dividend

Equity as at end of period

1 JAN.– 31 DEC. 2015

HALF-YEAR FINANCIAL REPORT 2016

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NOTES 01

TO THE INTERIM ACCOUNTS FOR THE FIRST SIX MONTHS OF 2016

BASIS FOR PREPARATION AND SIGNIFICANT ACCOUNTING PRINCIPLES

The condensed consolidated interim financial statements for DNV GL Group AS for the first six months of 2016 have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group’s Annual Report 2015. The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group’s Annual Financial Statements for the year ended 31 December 2015. Consolidated financial statements for DNV GL Group AS have been prepared in accordance with the Norwegian Accounting Act section 3–9 and Regulations on Simplified IFRS as enacted by the Ministry of Finance on 3 November 2014.

02

The financial statements are presented in Norwegian Kroner (NOK) and all values are rounded off to the nearest million (NOK million). The interim condensed consolidated financial statements for the first six months of 2016 include the parent company DNV GL Group AS and all companies in which the parent company directly or indirectly has a controlling interest. The interim accounts have not been audited.

CHANGES IN GROUP STRUCTURE

The following acquisitions have been made since 1 January 2016: On 18 January 2016, DNV GL acquired 100% of the shares in Gothia Power AB. Gothia Power is an established consulting company with a strong market position and network in the electric power field in Sweden. The company offers advanced analysis and measurements for power

14

In all material aspects, Norwegian Simplified IFRS requires that the IFRS recognition and measurement criteria (as adopted by the European Union) are complied with, but disclosure and presentation requirements (the notes) follow the Norwegian Accounting Act and Norwegian Generally Accepted Accounting Standards.

HALF-YEAR FINANCIAL REPORT 2016

production, power transmission and power consumption. For DNV GL Group, the acquisition of Gothia Power establishes DNV GL’s technical and strategic power systems in the Swedish and Baltic energy markets and further strengthens DNV GL’s leading position worldwide. A purchase price allocation (PPA) for the acquisition will be included in the 2016 annual financial accounts of DNV GL Group AS.


03

OPERATING REVENUE PER BUSINESS AREA

1 JAN.– 30 JUNE 2016

1 JAN.– 30 JUNE 2015

Maritime

4 510.8

5 014.3

9 885.9

Oil & Gas

2 536.9

3 087.2

6 053.6

Energy

1 850.1

1 685.8

3 522.6

Business Assurance

1 578.2

1 415.4

3 024.0

449.4

398.8

823.9

59.2

65.1

80.3

10 984.6

11 666.6

23 390.3

AMOUNTS IN NOK MILLION

1 JAN.– 31 DEC. 2015

BUSINESS AREA:

Software Other

Total operating revenue

04

DEFINED BENEFIT PENSION LIABILITIES

As a consequence of interest rate reductions since yearend 2015, the assumptions for calculating the defined benefit pension liabilities in Norway and Germany have changed.

05

The reduced discount rate in Norway, from 2.6% to 2.1% (covered bonds), and in Germany from 2.2% to 1.4% (highvalue corporate bonds), has led to increased pension liabilities of NOK 780 million, which has been reflected in the 2016 half year financial statements.

EVENTS AFTER THE REPORTING PERIOD

In July 2016, DNV GL acquired 100% of the shares in GreenPowerMonitor. GreenPowerMonitor is an international company, headquartered in Barcelona, that offers products and services in the renewable energy sector, with

a specific focus on the photovoltaic space. The company is a leading provider of solar monitoring, control and asset management systems. The acquisition of GreenPowerMonitor is not reflected in the 2016 half year financial statements.

HALF-YEAR FINANCIAL REPORT 2016

15


SAFER, SMARTER, GREENER

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

©DNV GL 08/2016 Design: Fasett


Half-year report 2016