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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 certification, 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.

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HALF-YEAR FINANCIAL REPORT 2017


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 and assurance services 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

SOFTWARE

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

We provide software solutions based on our broad domain expertise developed to optimize our customers’ operations.

HALF-YEAR FINANCIAL REPORT 2017

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KEY FIGURES

REVENUE (01.01–30.06) MILLION NOK

9 982 2016: 10,985

EBITA MARGIN (30.06)

2.8% 2016: 5.4%

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HALF-YEAR FINANCIAL REPORT 2017

EBITA (01.01–30.06) MILLION NOK

276 2016: 590

EBIT / OPERATING PROFIT (01.01–30.06) MILLION NOK

28 2016: 329


EQUITY RATIO (30.06)

65% 2016 59%

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

1.6 2016: 1.2

NUMBER OF EMPLOYEES (30.06)

13173 2016: 14,273

TOTAL SICKNESS ABSENCE RATE (01.01–30.06)

2.6% 2016: 2.5%

HALF-YEAR FINANCIAL REPORT 2017

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PRESIDENT & CEO’S STATEMENT

As expected, 2017 is proving to be another challenging year for our customers and for DNV GL. In the first two quarters of 2017, we saw continued challenges, but also improvement in some areas. The positive news is that all the business areas were profitable after the first six months of the year, which was not the case in 2016. e are maintaining investment levels in research & innovation, moving forward with our digital transformation and gradually reaping the benefits of internal efficiency projects, all of which will strengthen our position in the longer term. Our purpose of safeguarding life, property and the environment is more relevant than ever before and serves as our guiding star and source of inspiration.

W

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HALF-YEAR FINANCIAL REPORT 2017

The ship and mobile offshore unit newbuilding markets, with the exception of cruise and some niche segments, remained depressed in the first half of the year, continuing the considerable drop in activity level experienced in 2016. The continued decline in ship and offshore newbuilding activity significantly impacted our revenues and EBITA from classification services in the first two quarters of the year. Our global market share for newbuildings also dropped to 20% and action has been taken to improve this in the second half of 2017. Our quality performance continues to show a positive trend. Oil and gas companies are making strategic shifts in their portfolio towards lower-cost projects, shorter investment cycles and higher levels of flexibility. With the oil price fluctuating around 50 USD/barrel, the market continues to be challenging. However, current market sentiments are slightly more positive than they were six months ago. The industry has had a pause for thought about the way offshore fields are being developed and

this has certainly resulted in smarter and more cost-efficient solutions. The question now is whether the industry can deliver on these proposed solutions in practice. The onshore market continues to show better activity than anticipated and we secured several substantial contracts in the first half of the year. The revenue and EBITA performance for our oil and gas business is on target year-todate and better than last year. Our quality performance is showing a positive trend. For our Energy business area, the market situation has become more uncertain in the past six months. The US is implementing less stringent environmental policies and this will most likely negatively influence our renewable advisory business in the US. The revenue and EBITA performance for our energy business is behind target, but the year-to-date sales performance has improved from last year. Our investment in the high-power lab at Arnhem is progressing as planned, with completion due this autumn.


Business Assurance is delivering according to expectations, and we anticipate the demand for management system certification to increase during second half of the year due to the introduction of an updated ISO 9001 standard. In 2016, we saw strong double-digit organic growth within the food and supply chain management sectors, and this has continued into 2017.

Our ambition to become carbon neutral in relation to office buildings and travel activity by the end of 2020 is progressing.

Our Software house is delivering revenue and EBITA below targets, but maintains good cost control. The shortfall in external revenue YTD has partly been offset by lower-than-planned operating costs. About 30 per cent of our new software licence sales are to new customers, which indicates that our software solutions are gaining market shares.

We are therefore conducting a review to update the current strategy so it can better enable us to meet our customers’ evolving needs, continue to differentiate ourselves in tough markets, improve our efficiency and position ourselves for future growth in a more digital world.

STRATEGY

The first year and a half of the current strategy period has been dominated by extremely challenging core markets, major geopolitical developments and accelerated uptake of digital solutions.

ORGANIZATION AND PEOPLE

As the downturn in several of DNV GL’s key markets continues, our Maritime business area is most impacted by ongoing right-sizing and redundancy processes. In response to developments in our core markets, the total number of employees fell to 13,173 at the end of June 2017, down from 13,550 at the end of 2016. The right-sizing 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.

THE RIGHT-SIZING 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.

BUSINESS ETHICS, HEALTH, SAFETY

I regret to report that one of our colleagues recently passed away while at work for DNV GL. Although we cannot find any proven link between the cause of death and the work our surveyor was conducting, an internal investigation is ongoing to identify possible improvements of our systems and procedures as well as any learning opportunities. The number of work-related injuries per million worked hours increased to 1.6 as of end of June from 1.2 end of June 2016. The number of lost-time accidents are up 33%, but on average the accidents have been less serious compared to last year. The sickness absence rate remained stable at 2.6% YTD. There were no confirmed incidents of corruption or non-compliance with environmental laws and regulations.

DNV GL has always been entrusted with data in the analogue world. I believe we can bring this trust position into the digital world. OUTLOOK

I expect the challenging market situation for shipping to continue for at least the next 18 months, even allowing for a more optimistic short term outlook in selected shipping markets such as cruise, gas and bulk. For offshore supply and mobile offshore units we must see beyond year 2020 for recovery, with only select opportunities in floating production and re-gasification. The number of large-scale offshore oil & gas conventional projects is on the rise. The number of final investment decisions for large developments will be bigger in 2017 than in 2016. However, the market is more selective than before, so only premium projects are moving forward. I believe the renewable energy sector has the potential to grow significantly due to the drop in the cost of both renewable energy and energy storage, making this combination increasingly competitive.

Our employees represent 113 nationalities, 31.5% are female and 87% have a higher education.

AND THE ENVIRONMENT

As the leading class society, assurance provider and technical advisor, our most valuable asset is the trust our customers place in us. I believe that DNV GL can repay that trust by offering a space that is neutral and secure. A space where our customers and other asset owners can quality assure, manage and enrich their data to create new insights and unlock value.

In September, we will launch our inaugural Energy Transition Outlook in London. The next three decades will see enormous changes in the global energy mix as the world decarbonizes and pursues energy efficiencies on an unprecedented scale. With our deep expertise in oil & gas, power & renewables, and energy use, I believe our outlook reports will stimulate rich debate and discussion, and be in stark contrast to some existing outlook publications typically representing certain interest groups. Common to all the sectors we work in is an accelerated call for digital transformation. Part of our response to this is that we want to facilitate frictionless connections between different industry players, domain experts and data scientists on our own industry data management platform – Veracity.

The assurance market is robust and provides many opportunities for our business assurance unit to grow, particularly within the food and health sectors. The promise of data-driven decision making, machine learning and automation is attractive, but getting there is not easy. Our software house, in combination with our state-of-the-art IT organization is a key enabler in developing opportunities offered by the fourth industrial revolution. I am confident that our customer centricity, digital leadership and cost discipline will further strengthen our competitiveness.

Remi Eriksen Group President & CEO DNV GL Group

HALF-YEAR FINANCIAL REPORT 2017

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HALF-YEAR PERFORMANCE GROUP PERFORMANCE

The external revenue for the first half of the year amounted to NOK 9,982 million, producing an EBITA of NOK 276 million and an operating profit of NOK 28 million. The nominal growth rate was –9%, while the organic and currency-adjusted growth rate was –7%. The relative strengthening of the NOK versus all major currencies resulted in a negative currency effect of –2%.

The DNV GL Group’s performance in the first half-year was affected by the continued downturn in the Maritime and Oil & Gas business areas due to challenging market conditions for our customers. The contraction in business volume is expected to continue in the second half-year and into 2018. DNV GL Group has a strong balance sheet with total equity of NOK 18,099 million. The equity ratio is 65%, slightly higher than end of 2016 – mainly due to positive currency effects from net investments in foreign subsidiaries. The cash flow from operations was NOK 175 million negative, impacted by increased accounts receivable and work in progress since year-end. Cash deposits amounted to NOK 3,172 million, and unused credit lines were at NOK 1,500 million. The outlook for the second half of the year reflects a positive cash flow development from operations, coming from improvement in the working capital and improved business performance.

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HALF-YEAR FINANCIAL REPORT 2017

Investment activities in the first half of 2017 related primarily to the development and implementation of new ERP, HR and business systems, and the development of the industry data management platform named Veracity. Investments in tangible fixed assets were mainly linked to the extension of our high-power laboratory in Arnhem. M&A activities during the first half of the year were limited to the divestment of shares in STRI AS. The management regards DNV GL’s financial status as satisfactory. The half year results include significant cost related to capacity adjustment of the organization. Hence, the company has a robust platform to manage the challenging market and to maintain its independence as a financially strong and trusted company.


HALF-YEAR PERFORMANCE BUSINESS AREAS MARITIME The market for classification of ships and offshore mobile units remained bleak, with low ordering activity. The business volume decreased as anticipated and external revenue for the Maritime business area ended at NOK 3,746 million for the first half-year, a year-to-date currency-adjusted contraction of some 16%.

The contraction is expected to continue throughout the year and remain negative in the range of 10-11% at the year-end.

The capacity reduction activities implemented last year had a positive effect in the first half-year of 2017, and contributed to a significant improvement of the EBITA. Oil production cuts have done little to return confidence to the market, but fundamental data support the forecast that the oil price will improve in the second half of 2017. Digitalization is being implemented across the oil and gas sector increasingly as companies look to adopt long-term saving measures within operations.

ENERGY

The ship and offshore class newbuilding markets remained challenging. The business volume of ships-in-operation related activity was also lower than expected due to a slower uptake of the Ballast Water Management Code than planned.

The Energy business area’s financial performance continued at the same level as the first half of 2016 with year-to-date external revenues of NOK 1,823 million.

Capacity adjustment initiatives have been executed as planned to secure the targeted financial performance for the year and the immediate future beyond 2017. Synergies from the DNV and GL merger and efficiency programmes continue to have a positive effect on the cost base.

The overall performance of our energy advisory services did not show any improvement, but we noted solid results from the newly acquired solar monitoring provider Green Power Monitor. Our renewable certification business continued to perform reasonably well, but consolidation in the wind turbine market may indicate future contractions.

The Maritime market is likely to be challenging for another one or two years, and the strong competition with other class societies is expected to continue. DNV GL will remain focused on technology innovation, digitalization and efficient energy use to help its customers address current market challenges.

OIL & GAS The contraction of DNV GL’s Oil & Gas business volume is easing, resulting in improved financial performance and external revenue of NOK 2,338 million. The currency-adjusted negative growth was 3% compared to last year.

Revenues from testing, inspection and certification of power transmission systems and components contracted by 5%, mainly due to planned maintenance and integration of the high-power laboratory extension in Arnhem. The financial performance is expected to catch up in the second half-year due to the improved sales order book and higher utilization of the laboratories. Our Sustainable Use services in the US continued to achieve the same revenue and sound financial performance. The energy power market remains subject to political and regulatory uncertainty and the cost level of renewable energy is dropping significantly. Hence, the need to offer new and digital services to our customers will be in focus.

BUSINESS ASSURANCE The external revenues of DNV GL’s Business Assurance division came to NOK 1,617 million, equal to organic and currency-adjusted growth of some 5% year-on-year.

Management System Certification (MSC) services, representing more than 70% of Business Assurance’s external revenues, delivered solid financial performance in the first half-year. The strong performance of MSC and Personal Certification more than offsets the slower financial performance of our Assurance and Supply Chain Management services. The MSC portfolio for the coming quarters is improving and is considered robust, and action has been taken to accelerate our customers’ transition to the new ISO standards. Sales of assurance services are stable and are expected to ramp up in the second half of the year.

SOFTWARE The Software business area experienced a challenging market, with external revenue of NOK 407 million reflecting currency-adjusted contraction of 7%.

Many software customers have reduced their activity level, leading to lower demand for Consulting services, scope reductions for Service Level Agreements (SLA) and lower sales of Asset Integrity and Electric Utilities software solutions. The outlook is however more positive as the weighted sales funnel for licence sales is growing. The slight increase in licence sales combined with a declining amount of lost SLA revenue indicates a levelling out of the markets and that a slow recovery could be expected.

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 2017

1 JAN.– 30 JUNE 2016

1 JAN.– 31 DEC. 2016

9 982.4

10 984.6

20 834.0

6 308.6

6 654.9

12 554.2

Depreciation

163.7

182.9

368.2

Amortization and impairment

247.5

261.3

829.7

3 234.2

3 556.5

6 927.9

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

(3.0)

(130.0)

(352.0)

(29.2)

241.5

(215.8)

5.0

7.7

12.9

Equity holders of the parent

(34.1)

233.8

(228.7)

Total

(29.2)

241.5

(215.8)

AMOUNTS IN NOK MILLION

NOTE

Total operating revenue 2

OPERATING EXPENSES

Payroll expenses

Other operating expenses

Operating profit

Tax expense

Profit /(loss) for the period

3

PROFIT / (LOSS) FOR THE PERIOD ATTRIBUTABLE TO:

Non-controlling interest

10

HALF-YEAR FINANCIAL REPORT 2017


INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

1 JAN.– 30 JUNE 2017

1 JAN.– 30 JUNE 2016

(29.2)

241.5

(215.8)

26.4

(569.0)

(85.8)

599.1

(867.1)

(1 056.7)

(5.9)

27.4

60.8

Other comprehensive income for the period, net of tax

619.6

(1 408.7)

(1 081.6)

Total comprehensive income for the period

590.5

(1 167.2)

(1 297.5)

5.0

7.7

12.9

Equity holders of the parent

585.5

(1 174.9)

(1 310.3)

Total

590.5

(1 167.2)

(1 297.5)

AMOUNTS IN NOK MILLION

Profit /(loss) for the period

1 JAN.– 31 DEC. 2016

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 2017

11


INTERIM CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

NOTE

30 JUNE 2017

30 JUNE 2016

31 DEC. 2016

12 549.1

12 828.8

12 102.9

2 494.5

2 545.6

2 455.2

906.9

591.5

910.8

15 950.5

15 965.9

15 468.9

Trade debtors, work in progress and other receivables

8 568.2

9 735.5

7 904.6

Cash and bank deposits

3 171.9

4 099.9

3 628.0

Total current assets

11 740.1

13 835.4

11 532.6

TOTAL ASSETS

27 690.6

29 801.3

27 001.5

18 064.5

17 635.4

17 475.0

34.9

47.6

33.9

18 099.3

17 683.0

17 508.9

3 884.9

4 449.1

3 797.7

0.0

350.0

0.0

Current liabilities

5 706.3

7 319.2

5 694.9

Total liabilities

9 591.2

12 118.3

9 492.6

27 690.6

29 801.3

27 001.5

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 interest

Total equity

LIABILITIES

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

TOTAL EQUITY AND LIABILITIES

12

HALF-YEAR FINANCIAL REPORT 2017

4


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)

1 JAN.– 30 JUNE 2017

1 JAN.– 30 JUNE 2016

(26.2)

371.5

136.1

0.0

0.0

(5.8)

(1.6)

(7.2)

(131.9)

0.0

0.0

(64.1)

411.2

444.3

1 197.9

Change in working capital and other accruals

(558.5)

(330.9)

(470.7)

Net cash flow from operations

(175.1)

477.6

661.6

(292.3)

(235.7)

(611.5)

0.0

(87.0)

(234.6)

11.3

9.0

155.1

0.0

0.0

8.7

(281.0)

(313.7)

(682.3)

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

3 628.0

4 193.0

4 193.0

0.0

0.0

62.6

3 171.9

4 099.9

3 628.0

AMOUNTS IN NOK MILLION

1 JAN.– 31 DEC. 2016

CASH FLOW FROM OPERATIONS

Profit/(loss) before tax Gain on disposal of tangible fixed assets Gain on divestments Gain from change of defined benefit pension plans Depreciation, amortization and impairment

CASH FLOW FROM INVESTMENTS

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

CASH FLOW FROM FINANCING ACTIVITIES

Cash in acquired companies Liquidity at end of period

HALF-YEAR FINANCIAL REPORT 2017

13


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

1 JAN.– 30 JUNE 2017

1 JAN.– 30 JUNE 2016

17 508.9

18 850.2

18 850.2

(29.2)

241.5

(215.8)

26.4

(569.0)

(85.8)

Exchange differences

599.1

(867.1)

(1 056.7)

Other equity changes

(5.9)

27.4

17.0

18 099.3

17 683.0

17 508.9

AMOUNTS IN NOK MILLION

Equity as at 1 January Profit / (loss) for the period Actuarial gains / (losses) on defined benefit pension plans

Equity as at end of period

NOTES

01

TO THE INTERIM ACCOUNTS FOR THE FIRST SIX MONTHS OF 2017

BASIS FOR PREPARATION AND SIGNIFICANT ACCOUNTING PRINCIPLES

The condensed consolidated interim financial statements for DNV GL Group AS for the first six months of 2017, 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 2016. 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 2016. The annual consolidated financial statements for DNV GL Group AS have been prepared in accordance with the Norwegian Accounting Act § 3-9 and Regulations on Simplified IFRS as enacted by the Ministry of Finance 3 November 2014. In all material aspects, Norwegian

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1 JAN.– 31 DEC. 2016

HALF-YEAR FINANCIAL REPORT 2017

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. The financial statements are presented in Norwegian Kroner (NOK) and all values are rounded to the nearest million (NOK million). The interim condensed consolidated financial statements for the first six months of 2017 include the parent company DNV GL Group AS and all companies in which the parent company directly or indirectly has controlling interest. The interim accounts have not been audited.


NOTES

02

OPERATING REVENUE PER BUSINESS AREA 1 JAN.– 30 JUNE 2017

1 JAN.– 30 JUNE 2016

Maritime

3 746.0

4 510.8

8 216.1

Oil & Gas

2 337.9

2 536.9

4 954.5

Energy

1 823.3

1 850.1

3 582.5

Business Assurance

1 616.8

1 578.2

3 145.9

406.9

449.4

859.1

51.6

59.2

76.0

9 982.4

10 984.6

20 834.0

AMOUNTS IN NOK MILLION

1 JAN.– 31 DEC. 2016

BUSINESS AREA:

Software Other

Total operating revenue

03

PAYROLL EXPENSES

Payroll expenses 1 Jan.–30 June 2017 include NOK 300 million termination benefit expenses. NOK 272 million

04

temination benefit expenses were included in payroll expenses 1 Jan.–30 June 2016.

DEFINED BENEFIT PENSION LIABILITIES

As a consequence of interest rate increase since yearend 2016, the assumptions for calculation of the defined benefit pension liabilities in Germany have been changed.

Increased discount rate in Germany from 1.8% to 2.0% (high-value corporate bonds) lead to reduced pension 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 Høvik, Norway Tel: +47 67 57 99 00 www.dnvgl.com

©DNV GL 08/2017 Design: Fasett

DNV GL 2017 Half-Year Report  

A look at the half-year financial results for 2017 from DNV GL.

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