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FINANCIAL REPORT HALF YEAR JUNE 2018

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 2018


ORGANIZATION DNV GL GROUP

STRATEGIC RESEARCH

HEADQUARTERS:

OSLO NORWAY

GROUP CENTRE

MARITIME

OIL & GAS

ENERGY

HEADQUARTERS:

HEADQUARTERS:

HEADQUARTERS:

HAMBURG GERMANY

OSLO NORWAY

ARNHEM NETHERLANDS

BUSINESS ASSURANCE

DIGITAL SOLUTIONS

HEADQUARTERS:

HEADQUARTERS:

LONDON UK

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

DIGITAL SOLUTIONS We provide software solutions, data platform and cyber security services that support businesscritical activities across many industries.

HALF-YEAR FINANCIAL REPORT 2018

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KEY FIGURES

REVENUE (01.01–30.06) MILLION NOK

9 735 2017: 9,982

EBITA MARGIN (30.06)

3.2% 2017: 2.8%

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HALF-YEAR FINANCIAL REPORT 2018

EBITA (01.01–30.06) MILLION NOK

314 2017: 276

EBIT / OPERATING PROFIT (01.01–30.06) MILLION NOK

63 2017: 28


EQUITY RATIO (30.06)

58% 2017 65%

LOST TIME ACCIDENT FREQUENCY PER MILLION HOURS WORKED (ROLLING AVERAGE)

1.1

NUMBER OF EMPLOYEES (30.06)

12 315 2017: 13,173

TOTAL SICKNESS ABSENCE RATE (01.01–30.06)

2.3%

* Note: figures now exclude subcontractors

2017: 1.6

2017: 2.6%

HALF-YEAR FINANCIAL REPORT 2018

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PRESIDENT & CEO’S STATEMENT

Photo: NTNU / Kai T. Dragland

We aspire to zero harm and a healthy work environment for employees and subcontractors. I therefore regret to report the loss of a colleague while on duty for DNV GL. Our surveyor passed away on his way to an inspection. The incident is being investigated. Our lost time accident frequency is low and stable.

As we pass the half-way mark in 2018, we have seen an improvement from a tough first quarter and closed the second quarter slightly ahead of last year. So far, 2018 has been another demanding year for DNV GL, but we have much to be proud of, and we have much to look forward to. t is encouraging to see that our customer centricity, drive for digitalization and improved operational efficiency is starting to pay off. Financial performance varies among our sectors, but DNV GL as a whole is showing a positive trend in profitability. Even more significantly, we are also seeing encouraging improvements in our sales orderbooks in several parts of the business. Our forecast indicates that the positive trend will continue.

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In Business Assurance, revenue grew by 16% compared to last year, an all-time high. Growth was particularly strong for management system certification. We combined our digital offerings in Digital Solutions at the end of last year. In our newest business area, sales are up more than 40% for new software licenses and up 15% for software consulting.

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HALF-YEAR FINANCIAL REPORT 2018

Digitalization is driving transformation in all the industries we are active in, and getting this right is key to our future business. Our cross-industry data platform, Veracity, is closing in on 1 million service subscriptions from 1,500 companies. Continued cost pressures and a prolonged downward turn in the market are accelerating digitalization projects in our Maritime market. Revenue remains affected by a slow market which resulted in a 10% decline year-on-year. We are clearly seeing a revival in global ordering, that reflects the more optimistic long-term outlook among our customers. Our newbuilding market share grew compared to last year, and is currently stands at 23.5% for ships measured in gross tonnes and 5 out of 8 mobile offshore units ordered. The overall market in Oil & Gas is showing budding signs of optimism, but still facing fierce price pressures. Revenue slightly behind last year, but profitability is improving as we keep a continued focus on cost and efficiency initiatives. Sales are up 10% from last year. Our Energy business is also showing encouraging signs after a tough first quarter. However, the Energy market dynamics are changing at rapid speed. Electricity prices have dropped considerably and investment levels are declining in several markets. Our focus going forward is on digital services and finding new ways to support our customers.

The past few years have been among the most demanding in DNV GL’s history. Tough market conditions, sharp declines in revenue and profitability, and reductions in manning have taken their toll. However, this must never come at the expense of delivering on our purpose of safeguarding life, property and the environment. We in DNV GL are committed and conscientious, and working hard to win new business and deliver on our customer projects. We have continued with capacity and cost reduction initiatives in several units to adjust for a sustained decrease in activity levels. At the same time, we have been allocating more resources to other units to take new positions and enable growth. This is a difficult balance to strike, but one we must address to future-proof our business. We want to foster a culture where our employees continuously embrace learning, develop new skills, and explore new ways of doing things. To enable this, we are investing in competence and technology development, such as our Leading Digital Transformation programme for our top three levels of management. We are prioritizing the introduction of advanced digital tools in all business areas, and we are scaling our data management platform Veracity. As research into blockchain, machine learning and artificial intelligence develops, new ways to use these technologies are emerging. To bolster our understanding and expertise in these areas, we have joined a research partnership to develop artificial intelligence with Norwegian Open AI Lab and purchased a stake in the Singaporebased blockchain company, VeChain. The tough expectations we are putting on ourselves to modernize processes and services, and the extraordinary investments we are making right now are ultimately to ensure that our services, and the technical expertise that DNV GL is founded on, continues to be relevant for our customers also in the future.


HALF-YEAR PERFORMANCE GROUP PERFORMANCE

The external revenue for the first half of the year amounted to NOK 9,735 million, producing an EBITA of NOK 314 million and an operating profit of 63 million. The nominal growth rate was at -2,7%, with no material effects from M&A activities and an adjusted growth rate of -2.5% when taking currency effects into account.

DNV GL Group performance for the first half of the year was affected by the continued revenue contraction in Maritime, and demanding market conditions also in the Oil & Gas and Energy business areas. This trend was partly offset by significant growth for Business Assurance and Digital Solutions services. The revenue contraction flattened out in the second quarter, and a flat development in revenue volume is expected in the second half of the year. DNV GL is constantly adapting to the changes in

the market development, and we have managed to lower our cost base and improved the EBITA compared to the same period last year. Net result after financial items and tax was a loss of NOK 21 million, slightly improved from same period last year. DNV GL Group has maintained a strong balance sheet with a total equity of NOK 15,540 million. The equity ratio is reduced to 58% from 65% at yearend 2017, mainly due to the dividend distribution of NOK 3,000 million from DNV GL Group AS to the sole shareholder Det Norske Veritas Holding AS. The dividend was financed though bank deposits, utilization of our credit facility, and an internal loan from Det Norske Veritas Holding AS. Equity was also impacted by negative currency effects from net investments in foreign subsidiaries and actuarial gains from increased discount rates for defined benefit liabilities in Norway and Germany.

Cash flow from operations was positive with NOK 341 million, bank deposits amounted to NOK 2,416 million and unused credit lines were NOK 700 million. Investment activities in the first half of 2018 related primarily to the development and implementation of system integrations in the business areas, Oracle ERP system and Oracle HR system. Investments in tangible fixed assets are mainly related to our Energy laboratories. The M&A activities were limited to a 3% investment in blockchain expert VeChain and the acquisition of the remaining 50% in the joint venture DNV GL Nemko PreSafe AS, a global testing and product certification company. The management regards DNV GL’s financial status as robust, giving the company a firm basis to manage challenging market conditions and maintain its independence as a financially strong and trusted company.

HALF-YEAR FINANCIAL REPORT 2018

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HALF-YEAR PERFORMANCE BUSINESS AREAS MARITIME The maritime ship and offshore newbuilding classification market has steadily started to pick up compared to the first half of 2017, with a higher volume of orders of new tonnage secured.

With ship newbuilding prices on the rise for several vessel types it is not unlikely that there will be a further upswing in the ordering of vessels in the second half of 2018. The current upswing in contracts will impact revenue in the long-term, while we are still seeing the effects of the downturn in our financial performance. Revenue ended at NOK 3,406 million for the first half of the year and is expected to remain 10% lower than in 2017 throughout the remainder of the year. Offshore class newbuilding revenue is also expected to see a similar contraction. Ongoing capacity and cost reduction initiatives are being implemented as planned, and have so far proven effective in adjusting to the reduced activity level. Class digitalization and efficiency projects are expected to contribute significantly to the financial performance over the coming two years.

OIL & GAS Despite the weak start to the year in terms of revenue, the market is picking up as the oil price continues to stabilize above USD 70 per barrel.

External revenue in DNV GL’s Oil & Gas business area was NOK 2,228 million for the first half-year. This represents a revenue contraction of about 4% compared to last year. The sales orderbook improved by 1% over the last 12 months. This despite our Asian region experiencing an expected reduction in orders after the completion

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HALF-YEAR FINANCIAL REPORT 2018

of several CAPEX projects. Cost reduction activities exceeded revenue contraction and contributed positively to our EBITA development. Price pressure remains fierce as there is still spare capacity in the market, but there are some signs of improvement. The view on the long-term gas market has changed significantly over the last months, from general oversupply to a likely shortfall of LNG after 2020. The implementation of greater digitalization across the oil and gas sector is accelerating as companies look to adopt long-term saving measures in operations.

ENERGY DNV GL’s Energy business area is experiencing a demanding market which resulted in a revenue contraction of about 4% compared to last year and revenues of NOK 1,727 million for the period.

The energy market dynamics are changing at rapid speed. Prices for generating electricity with renewables have dropped in several markets, as feed-in prices are being replaced by auctions. Picking up after a slow start to the year, the advisory business is now showing results in line with 2017 on both revenue and earnings. The market for testing and certification of power systems and components is also seeing the effects of these new market dynamics. Our new services such as Horizon, Wind Gemini and Smart Cable Guard will, however, help to secure future profitable growth. The further integration and increasing complexity of energy systems will provide opportunities for growth in the market for DNV GL in the future. Global political uncertainties such as Brexit and new clean energy auctions may impact the energy industry going forward. Against this backdrop, the conditions for new investments in energy projects remain unpredictable in the short term, however, decarbonization is a trend that is likely to accelerate in the years to come.

BUSINESS ASSURANCE Revenue in Business Assurance grew by 16% compared to last year, closing at NOK 1,884 million. The exceptionally strong performance is largely related to re-certification and transitions to new ISO standards this year.

The global market for management system certification is expected to be relatively flat over the next two years. Sales of other assurance services are showing a steady growth that is forecasted to continue over the coming quarters. We are continuing our digital journey, and all our management system certificates are now digital, using block chain technology. The acquisition of the remaining 50% stake in PreSafe was completed in May. The integration process is progressing smoothly and will strengthen our product certification services.

DIGITAL SOLUTIONS Digital Solutions reported revenue of NOK 446 million for the period, which represents an organic growth of 5%, excluding services transferred from other business areas such as cyber security.

Software licensing sales were 47% higher, and Sales of Delivery services remain at the same level as last year. Service Level Agreements (SLA) declined by 10% compared to last year. Our digital data management platform, Veracity, is attracting an increasing number of users, and we have secured the first commercial contracts. The platform will be a fully open industry platform during the second half of 2018. Cyber security advisory services are expected to improve performance in the coming quarters. License sales are expected to increase on the back of a positive outlook on the American market.


INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)

NOTE

1 JAN.– 30 JUNE 2018

1 JAN.– 30 JUNE 2017

1 JAN.– 31 DEC. 2017

Total operating revenue 3

9 735.0

9 982.4

19 474.9

5 891.0

6 308.6

11 678.3

Depreciation

163.6

163.7

349.6

Amortization and impairment

250.8

247.5

518.7

3 366.6

3 234.2

6 454.4

63.1

28.4

474.0

(111.3)

(54.6)

(109.8)

(48.2)

(26.2)

364.2

27.0

(3.0)

(302.7)

(21.2)

(29.2)

61.5

4.1

5.0

11.7

Equity holders of the parent

(25.3)

(34.1)

49.8

Total

(21.2)

(29.2)

61.5

AMOUNTS IN NOK MILLION

OPERATING EXPENSES

Payroll expenses

Other operating expenses

Operating profit

Net financial income/(expenses)

Profit / (loss) before tax

Tax expense

Profit /(loss) for the period

4

PROFIT / (LOSS) FOR THE PERIOD ATTRIBUTABLE TO:

Non-controlling interest

HALF-YEAR FINANCIAL REPORT 2018

9


INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

1 JAN.– 30 JUNE 2018

1 JAN.– 30 JUNE 2017

(21.2)

(29.2)

61.5

198.8

26.4

423.6

(439.2)

599.1

885.1

0.0

(5.9)

0.0

Other comprehensive income for the period, net of tax

(240.4)

619.6

1 308.8

Total comprehensive income for the period

(261.6)

590.5

1 370.2

4.1

5.0

11.7

Equity holders of the parent

(265.7)

585.5

1 358.5

Total

(261.6)

590.5

1 370.2

AMOUNTS IN NOK MILLION

Profit /(loss) for the period

1 JAN.– 31 DEC. 2017

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

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HALF-YEAR FINANCIAL REPORT 2018


INTERIM CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

NOTE

30 JUNE 2018

30 JUNE 2017

31 DEC. 2017

12 541.9

12 549.1

12 842.6

2 418.0

2 494.5

2 544.3

1 417.6

906.9

1 244.5

16 377.6

15 950.5

16 631.4

Trade debtors, work in progress and other receivables

7 907.1

8 568.2

8 452.1

Cash and bank deposits

2 415.7

3 171.9

3 659.7

Total current assets

10 322.7

11 740.1

12 111.9

TOTAL ASSETS

26 700.3

27 690.6

28 743.2

15 504.8

18 064.5

18 770.5

35.4

34.9

39.7

6

15 540.2

18 099.3

18 810.1

AMOUNTS IN NOK MILLION

ASSETS

Intangible assets Tangible fixed assets Non-current financial assets

5

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

5

3 674.5

3 884.9

4 009.6

Non-current interest bearing loans and borrowings

6

300.0

0.0

0.0

Non-current loan group companies

6

1 538.6

0.0

0.0

5 647.0

5 706.3

5 923.5

Total liabilities

11 160.1

9 591.2

9 933.1

TOTAL EQUITY AND LIABILITIES

26 700.3

27 690.6

28 743.2

Current liabilities

HALF-YEAR FINANCIAL REPORT 2018

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INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)

NOTE

1 JAN.– 30 JUNE 2018

1 JAN.– 30 JUNE 2017

(48.2)

(26.2)

364.2

0.0

0.0

(17.5)

(1.0)

(1.6)

(1.6)

0.0

0.0

(20.3)

Depreciation, amortization and impairment

414.4

411.2

868.3

Change in working capital and other accruals

(24.2)

(558.5)

(537.2)

Net cash flow from operations

341.0

(175.1)

656.0

(333.5)

(292.3)

(656.2)

(42.6)

0.0

(24.0)

12.2

11.3

0.0

(15.0)

0.0

11.3

(378.9)

(281.0)

(669.0)

(40.1)

0.0

44.7

(1 466.0)

0.0

0.0

300.0

0.0

0.0

Net cash flow from financing activities

(1 206.1)

0.0

44.7

Net increase/ (decrease) in cash and bank deposits

(1 244.0)

(456.1)

31.7

Liquidity at beginning of period

3 659.7

3 628.0

3 628.0

Liquidity at end of period

2 415.7

3 171.9

3 659.7

AMOUNTS IN NOK MILLION

1 JAN.– 31 DEC. 2017

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

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

Change in overdraft Dividend paid Multi-currency revolving credit facility drawn/ (paid)

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HALF-YEAR FINANCIAL REPORT 2018

6


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

NOTE AMOUNTS IN NOK MILLION

Equity as at 1 January Profit for the period Dividend 6 Actuarial gains/(losses) on defined benefit pension plans Currency translation differences Other equity changes

Equity as at end of period

NOTES

01

1 JAN.– 30 JUNE 2018

1 JAN.– 30 JUNE 2017

1 JAN.– 31 DEC. 2017

18 810.1

17 508.9

17 508.9

(21.2)

(29.2)

61.5

(3 000.0)

0.0

0.0

198.8

26.4

423.6

(439.2)

599.1

885.1

(8.4)

(5.9)

(69.0)

15 540.2

18 099.3

18 810.1

TO THE INTERIM ACCOUNTS FOR THE FIRST SIX MONTHS OF 2018

BASIS FOR PREPARATION AND SIGNIFICANT ACCOUNTING PRINCIPLES

The condensed consolidated interim financial statements for DNV GL Group AS for the first six months of 2018, 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 2017. 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 2017. 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

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). The interim condensed consolidated financial statements for the first six months of 2018 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.

HALF-YEAR FINANCIAL REPORT 2018

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NOTES

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CHANGES IN GROUP STRUCTURE

The following acquisitions/ investments have been made since 1 January 2018: 15 May 2018, DNV GL acquired 3% of the shares in VeChain. VeChain is a leading public blockchain service provider and the investment is part of DNV GL’s multi-tiered approach of using digital solutions to improve quality, efficiency and transparency in the targeted markets.

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1 June 2018, DNV GL acquired the remaining 50% shares of the associated company, DNV GL Nemko Presafe AS (Presafe), leading to a 100% ownership of the company. Presafe is an accredited Certification Body and EU Notified Body. By having full ownership of the company, DNV GL secures a strong business foundation with single leadership, enabling it to create a more competitive and agile organization. A purchase price allocation (PPA) for the acquisition will be included in the 2018 annual accounts of DNV GL Group AS.

OPERATING REVENUE PER BUSINESS AREA 1 JAN.– 30 JUNE 2018

1 JAN.– 30 JUNE 2017

Maritime

3 405.9

3 746.0

7 021.2

Oil & Gas

2 227.9

2 337.9

4 593.7

Energy

1 727.1

1 823.3

3 677.0

Business Assurance

1 884.0

1 616.8

3 278.4

446.5

406.9

852.0

43.6

51.6

52.6

9 735.0

9 982.4

19 474.9

AMOUNTS IN NOK MILLION

1 JAN.– 31 DEC. 2017

BUSINESS AREA:

DNV GL Digital Solutions Other

Total operating revenue

04

PAYROLL EXPENSES

Payroll expenses 1 Jan.– 30 June 2018 include NOK 169 million termination benefit expenses. NOK 300 million

05

DEFINED BENEFIT PENSION LIABILITIES

As a consequence of interest rate increase since year-end 2017, the assumptions for calculation of the defined benefit pension liabilities in Norway and Germany have been changed. Increased discount rate in Norway from 2.4% to 2.6% (covered bonds) lead to increased net pension asset

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of NOK 200 million. Increased discount rate in Germany from 1.8% to 2.0% (high-value corporate bonds) lead to reduced pension liabilities of NOK 66 million. These effects have been reflected in the 2018 half year financial statements.

DIVIDEND DISTRIBUTION TO DET NORSKE VERITAS HOLDING AS

15 February 2018, a dividend distribution of NOK 3 000 million from DNV GL Group AS to the sole shareholder Det Norske Veritas Holding AS was declared. The dividend

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temination benefit expenses were included in payroll expenses 1 Jan.– 30 June 2017.

HALF-YEAR FINANCIAL REPORT 2018

was financed though bank deposits, utilization of a credit facility and internal loan from the parent company Det Norske Veritas Holding AS.


SAFER, SMARTER, GREENER

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

©DNV GL 08/2018 Design: Fasett

DNV GL 2018 first half (final).pdf  

DNV GL's 2018 half year performance.

DNV GL 2018 first half (final).pdf  

DNV GL's 2018 half year performance.