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FINANCIAL REPORT HALF YEAR JUNE 2015


ABOUT DNV GL

Driven by its purpose of safeguarding life, property and the environment, DNV GL enables organizations to advance the safety and sustainability of their business. We provide classification and technical assurance along with 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 16,000 professionals are dedicated to helping customers make the world safer, smarter and greener.

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HALF-YEAR FINANCIAL REPORT 2015


KEY FIGURES

REVENUE (01.01–30.06) MILLION NOK

11 667 2014: NOK 10,625 MILLION

EBITA (01.01–30.06) MILLION NOK

1171 2014: NOK 863 MILLION

EBIT / OPERATING PROFIT (01.01–30.06) MILLION NOK

925 2014: NOK 599 MILLION

NUMBER OF EMPLOYEES (30.06)

15 382 2014: 16,062

EBITA MARGIN (30.06)

10.0% 2014: 8.1%

EQUITY RATIO (30.06)

60% 2014: 59%

HALF-YEAR FINANCIAL REPORT 2015

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ORGANIZATION

DNV GL GROUP HEADQUARTERS:

HØVIK NORWAY

GROUP CENTRE

MARITIME

OIL & GAS

ENERGY

HEADQUARTERS:

HEADQUARTERS:

HEADQUARTERS:

HAMBURG GERMANY

HØVIK NORWAY

ARNHEM NETHERLANDS

GLOBAL SHARED SERVICES

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HALF-YEAR FINANCIAL REPORT 2015

BUSINESS ASSURANCE

INDEPENDENT BUSINESS UNITS

HEADQUARTERS:

SOFTWARE

MILAN ITALY

MARINE CYBERNETICS


IN THE REPORTING PERIOD, DNV GL WAS STRUCTURED INTO FOUR BUSINESS AREAS AND TWO INDEPENDENT BUSINESS UNITS.

MARITIME

OIL & GAS

SOFTWARE

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.

Our software supports design and engineering, risk assessment, asset integrity and optimization, QHSE and ship management.

MARINE CYBERNETICS We provide third-party testing of control software for the maritime, offshore and drilling industries.

ENERGY

BUSINESS ASSURANCE

We help our customers across the electricity value chain to ensure a reliable, efficient and sustainable energy supply.

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

HALF-YEAR FINANCIAL REPORT 2015

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PRESIDENT & CEO’S MESSAGE

TAKING ON CHALLENGING MARKET CONDITIONS

The first half of this year has been both challenging and encouraging for DNV GL . Weaker developments in some of our main markets resulted in negative currency-adjusted growth, but our financial position remains strong. We continued to strengthen our ability to help customers improve their business performance in a safe, efficient and responsible manner.

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HALF-YEAR FINANCIAL REPORT 2015

O

ur more than 15,000 employees have come together following the merger of DNV and GL in September 2013 to offer a broader set of services and unrivalled technical expertise and innovation. The merger integration has progressed according to plan and is successfully nearing completion, creating synergies of scope, scale and skills. This will further strengthen our leading position in the industries we serve and enable us to better serve our customers during difficult times. SET TING NEW STANDARDS. A major

integration project has been to create a common classification rule set based on the legacy DNV and legacy GL Class Rules. The ambition is not just to take the best from the legacy GL and DNV rule sets, but to develop modern, state-of-the-art and risk-based classification rules. We have combined 300 years of accumulated knowledge to create this new, construction-friendly benchmark for the maritime industry. During the first part of this year, we launched a consultation process involving third parties for our new ship and offshore classification rule set, which will enter into force on 1 January 2016.

Our dedicated efforts to enhance safety and quality are not only demonstrated in the standards we develop for the future. Safety and quality are the main focus of the services we offer every day. Ensuring safe and sustainable operations has become a key priority in all the industries we serve – and we welcome this trend.

THE AMBITION IS NOT JUST TO TAKE THE BEST FROM THE LEGACY GL AND DNV RULE SETS, BUT TO DEVELOP MODERN, STATE-OF-THEART AND RISK-BASED CLASSIFICATION RULES.

Another important industry development is the drive for standardization in order to drive cost efficiencies and reduce complexity throughout the supply chain. The challenging market conditions, in particular in the maritime and oil and gas sectors, have increased the pressure to reduce costs.


We are being trusted by industry players to set new standards that help them work safer, smarter and greener. This trust in our unique set of skills and impartiality was also decisive when the United Nations Global Compact asked us to assess the impact of the first 15 years of the world’s largest corporate sustainability initiative. This assessment was presented to the UN General Assembly in June, together with recommendations on how to increase business impact on sustainable development. DOWNSIZING AND IMPROVING HEALTH AND SAFETY PERFORMANCE. In antici-

pation of merger synergies and weaker market developments, a strict recruitment policy has been enforced since 2013. So far this year, the total number of permanent employees has declined by 292 to 15,382. A common compensation system, which is designed to encourage people to change jobs while maintaining base compensation, has been implemented. Together with a continued strict recruitment policy, the flexibility of the workforce will be the main means to meet the anticipated lower volume of work in certain markets during the next few years.

The sickness absence rate for the period is low at 2.2%. The Lost Time Accident Frequency, which shows the number of lost time accidents per million hours worked, has dropped to 1.3 from 1.4 at the end of last year. The recorded number of sickness hours related to accidents at work has decreased, and the severity of the accidents is also on a good declining trend. A global programme to further strengthen the safety and health culture across the company is currently being implemented. In addition, our business areas are developing action plans to address the health and safety challenges identified in the annual employee survey.

This is further emphasized in our new strategy for 2016–2020, where we outline our growth ambitions and how we will further develop our competitive advantage. Many parts of the organization, and a large number of our customers and stakeholders, have provided input to the new strategy. Even though we foresee a reduced business volume over the next two to three years, mainly due to contraction of the maritime and oil and gas markets, our financial position remains sound. With very competent people, highly relevant services and a strong customer base, we are moving forward from a position of strength.

GOING FORWARD. There is no doubt

that some of our main markets, notably the shipping and oil and gas markets, are experiencing adverse conditions, and DNV GL will not be unaffected. I have confidence in our ability to constantly improve and adapt. Our strong positions across different industry sectors and the cross-disciplinary expertise offered to a wide variety of customers mean that we are more resilient to market fluctuations than our competitors.

Remi Eriksen President & CEO DNV GL Group

HALF-YEAR FINANCIAL REPORT 2015

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HALF-YEAR PERFORMANCE

GROUP PERFORMANCE

Energy reported growth in renewable & energy advisory services, but a slowdown in laboratory testing and certification services. This has led to the financial performance remaining the same as last year. Business Assurance delivered growth and continued strong financial performance, mainly driven by its largest service line, Management System Certification.

The external revenue for the first half of the year amounts to NOK 11,667 million, producing an EBITA of NOK 1,171 million after integration costs. The nominal growth rate was 10%, while the organic and currency-adjusted growth rate was minus 3%. The large currency effects are mainly explained by the weakening of the NOK against the EUR, USD and GBP. The currency effects are positive for the EBITA results compared to external revenue, primarily because of a more significant cost base in NOK and higher revenues in USD.

KEY OBSERVATIONS:

Maritime continued to deliver strong financial results, despite a challenging market and sharp contraction of the orderbook. This is mainly as a result of a long lead time from contract to delivery. The solid financial performance was achieved across locations and services, with classification services performing particularly well. Oil & Gas experienced a difficult first half-year with a decline in services follow– ing the low oil price and negative market developments in the oil and gas sector. The market tightened during the period, with significant project cancellations and delays.

Software experienced a revenue contraction in the first half-year due to a lower level of new sales of licences to the oil and gas industry. Its financial result improved as a result of a recent restructuring programme.

The Group’s financial performance is expected to slow down in the second half of the year as a result of further contraction of the business volume. The DNV GL Group has a strong balance sheet with total equity of NOK 17,096 million after dividend payments of NOK 504 million in June 2015. Its equity ratio is 60%. The investment activity in 2015 relates primarily to high-power-laboratory investments in the Netherlands and the acquisition of International Standards Certification. Cash deposits amount to NOK 3,800 million, and unused credit lines are NOK 1,350 million. The management regards DNV GL’s financial status as strong, giving the Group a robust platform to manage a challenging market and maintain its independence as a financially strong and trusted company.

SEGMENTS

MARITIME Our maritime business area continued to deliver strong financial results in a challenging market and achieved external revenue of NOK 4,956 million. This represents an organic, currencyadjusted growth rate of 2%.

DESPITE A CHALLENGING MARKET, fierce competition among classification societies and a low order intake in the last few quarters, the financial performance remains solid and is driven by a higher volume than projected for materials and components certification services. The outlook beyond 2015 is more challenging, as the reduction in the ship and offshore newbuilding order book will translate into lower revenues from classification services. Negative growth rates are expected already in the second half of 2015, with a further contraction in 2016.

The integration projects and activities are progressing as planned. Synergies from the merger and efficiency programmes are still having a positive effect on the cost base. The weak market outlook and poor commercial conditions continued to negatively impact most of the shipping segments, with low activity in the dry bulk and offshore segments. Orders for gas and chemical tankers remained at relatively good levels. The container segment was also relatively active with most of the interest focused on larger vessels. The maritime market is likely to be challenging for another one or two years, and the fierce competition with other classification societies is expected to continue. DNV GL will remain focused on technology innovation, efficient energy use and LNG as a shipping fuel to help its customers address current challenges.

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HALF-YEAR FINANCIAL REPORT 2015


OIL & GAS Business area Oil & Gas is operating in a challenging market and performed below expectations, with external revenue of NOK 3,087 million.

THE OVERALL PERFORMANCE was lower than expected for the first half-year, with organic and currency-adjusted growth that fell by 13% compared to last year. The contraction comes mainly from the significant decline in risk management and verification services due to negative market developments in the oil and gas companies’ capital investments. A further tightening of the market was observed during the period, with significant project cancellations and delays. Technical advisory and inspection services are improving, but not on a scale that offsets the volume reductions from the remaining service portfolio. The revenue contraction is most profound in Europe, but also significant in the Americas, Asia and Pacific.

The negative trends in the market are expected to further accelerate into 2016, with an increase in project cancellations and delays. Most oil and gas companies have initiated rigorous cost reduction initiatives and are seeking ways to work smarter and reduce costs, representing both a threat and an opportunity for DNV GL.

ENERGY Energy delivered a financial performance largely on par with last year, with less-than-expected external revenue of NOK 1,686 million.

REVENUE GROWTH from the renewable

and energy advisory services is offset by a contraction in laboratory testing, certification and sustainable use services. This results in a flat organic growth rate when adjusted for currency effects. The increase in renewable advisory services is driven by extraordinary growth in North America.

Power laboratory testing services are facing a difficult market, with many transmission and distribution infrastructure projects being delayed and strong competition from Asia. The expansion of the high-power laboratory in Arnhem is approaching mechanical completion and will significantly increase our testing capability next year. Renewables certification services are facing reduced overall market activity and increased competition. There is overall confidence in the market as the demand for energy continues to grow. The supply will continue to rely primarily on fossil fuels during the years to come. However, a major transition towards cleaner energy will create new opportunities for DNV GL to help energy customers meet tomorrow’s energy demand while addressing climate change, energy security and cost-efficiency.

BUSINESS ASSURANCE Business Assurance’s financial performance shows a solid improvement compared to last year, with external revenue of NOK 1,415 million.

For the first half of the year, Business Assurance delivered currency-adjusted growth of 7%. The total portfolio developed positively and supported the growth ambitions for the remaining part of the year. The integration of the acquired company International Standards Certification proceeded as planned and will contribute to a stronger position in the health care industry, primarily in Australia and Japan. The Management System Certification services account for most of Business Assurance’s revenue. Worldwide trends such as population growth, globalization, consumption patterns and urbanization, coupled with the challenging financial situation, will continue to drive the need for business assurance services.

SOFTWARE AND MARINE CYBERNETICS DNV GL’s software services are organized as an independent business unit, and achieved external revenues for the period of NOK 399 million.

SOFTWARE EXPERIENCED a shortfall in

revenue stemming primarily from lowerthan-expected new licence sales to the oil and gas market, leading to negative organic, currency-adjusted organic growth of 8% in the first half-year. Most of Software’s revenue is oil & gas related, and the downturn in the CAPEX market has especially hit the service lines Design & Engineering, Process Safety, and Risk & Reliability. In contrast, the products and solutions targeting the OPEX market have done well, especially Asset Integrity & Performance. Consultancy and recurring Service Level Agreement services are developing steadily, with continued growth in the first half-year. An efficiency programme was initiated this year and is progressing according to plan. The effects will be visible in the second half of the year. The oil & gas market is expected to be challenging going forward, but there are signals that customers are adjusting to a new normal and increasing their level of activity and engagements. Software’s maritime market is considered to be more positive and the QHSE and Enterprise Risk markets, which span several industry segments, are improving. Marine Cybernetics, a newly acquired control software testing company, reported external revenues of NOK 58 million for the period.

HALF-YEAR FINANCIAL REPORT 2015

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INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED) 1 JAN.– 30 JUNE 2015

1 JAN.– 30 JUNE 2014

1 JAN.– 31 DEC. 2014

11 666.6

10 624.8

21 622.8

6 550.1

5 883.1

11 597.5

Depreciation

182.5

164.7

348.4

Amortization and impairment

245.7

263.3

591.5

3 762.9

3 714.1

7 473.8

925.4

599.5

1 611.5

13.6

(12.2)

69.9

939.0

587.3

1 681.5

(278.4)

(176.2)

(674.4)

660.6

411.1

1 007.1

12.0

1.7

8.2

Equity holders of the parent

648.6

409.4

998.9

Total

660.6

411.1

1 007.1

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 2015


INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) 1 JAN.– 30 JUNE 2015

1 JAN.– 30 JUNE 2014

660.6

411.1

1 007.1

4.1

0.0

(920.2)

(51.1)

183.2

1 707.0

(8.6)

0.0

(29.4)

Other comprehensive income for the period, net of tax

(55.6)

183.2

757.3

Total comprehensive income for the period

605.0

594.3

1 764.4

AMOUNTS IN NOK MILLION

Profit for the period

1 JAN.– 31 DEC. 2014

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

12.0

1.7

8.2

Equity holders of the parent

593.1

592.6

1 756.2

Total

605.0

594.3

1 764.4

HALF-YEAR FINANCIAL REPORT 2015

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INTERIM CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

30 JUNE 2015

30 JUNE 2014

31 DEC. 2014

12 213.6

11 758.2

12 681.6

2 350.3

2 035.7

2 211.1

555.8

910.0

554.4

15 119.7

14 704.0

15 447.1

Trade debtors, work in progress and other receivables

9 402.1

8 444.5

8 951.6

Cash and bank deposits

3 800.1

3 632.2

3 978.2

Total current assets

13 202.2

12 076.7

12 929.8

TOTAL ASSETS

28 321.9

26 780.7

28 376.9

17 053.8

15 800.8

16 460.8

42.0

23.8

35.5

17 095.8

15 824.6

16 496.4

4 345.0

3 616.9

4 438.7

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

250.0

1 100.0

500.0

6 631.1

6 239.2

6 941.8

Total liabilities

11 226.1

10 956.1

11 880.6

TOTAL EQUITY AND LIABILITIES

28 321.9

26 780.7

28 376.9

Current liabilities

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HALF-YEAR FINANCIAL REPORT 2015


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)

AMOUNTS IN NOK MILLION

1 JAN.– 30 JUNE 2015

1 JAN.– 30 JUNE 2014

939.0

587.3

1 JAN.– 31 DEC. 2014

CASH FLOW FROM OPERATIONS

Profit before tax

1 681.5

Gain /loss on disposal of tangible fixed assets

0.0

0.0

(2.3)

Gain on divestments

0.0

(1.6)

(18.7)

Gain on conversion of loan to associated companies

0.0

0.0

(26.3)

Gain on change of defined benefit pension plans

0.0

0.0

(175.0)

428.2

428.0

940.0

Depreciation, amortization and impairment Tax payable Change in work in progress, trade debtors and trade creditors

(278.4)

(176.2)

(702.9)

118.5

(628.4)

(701.1)

Change in accruals, provisions and other

(180.4)

266.0

663.0

Net cash flow from operations

1 026.9

475.1

1 658.2

CASH FLOW FROM INVESTMENTS

Net investments tangible and intangible assets

(417.2)

(475.5)

(724.8)

(33.8)

(237.7)

(276.8)

Settlement of minority shareholders KEMA

0.0

(670.0)

(670.0)

Change in other investments

0.0

(98.9)

(98.6)

(451.0)

(1 482.1)

(1 770.2)

Net acquisitions /divestments

Net cash flow from investments

CASH FLOW FROM FINANCING ACTIVITIES

Change in overdraft

0.0

0.0

4.5

Dividend paid

(504.0)

(335.5)

(335.5)

Multi-currency revolving credit facility drawn /(paid)

(250.0)

1 100.0

500.0

Net cash flow from financing activities

(754.0)

764.5

169.0

Net increase /(decrease) in cash and bank deposits

(178.1)

(242.5)

57.0

Liquidity at beginning of period

3 978.2

3 874.7

3 874.7

Cash in acquired companies Liquidity at end of period

0.0

0.0

46.5

3 800.1

3 632.2

3 978.2

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) 1 JAN.– 30 JUNE 2015

1 JAN.– 30 JUNE 2014

16 496.4

15 561.2

15 561.2

660.6

411.1

1 007.1

Dividend

0.0

(335.5)

(839.1)

Actuarial gains /(losses) on defined benefit pension plans

4.1

0.0

(920.2)

Exchange differences

(51.1)

183.2

1 707.0

Other equity changes

(14.1)

4.6

(19.6)

17 095.8

15 824.6

16 496.4

AMOUNTS IN NOK MILLION

Equity as at 1 January Profit for the period

Equity as at end of period

1 JAN.– 31 DEC. 2014

HALF-YEAR FINANCIAL REPORT 2015

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NOTES 01

TO THE INTERIM ACCOUNTS FOR THE FIRST SIX MONTHS OF 2015

BASIS FOR PREPARATION AND SIGNIFICANT ACCOUNTING PRINCIPLES

The interim condensed consolidated financial statements for DNV GL Group AS for the first six months of 2015 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 2014. 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 2014. The annual 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.

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) and all values are rounded off to the nearest million (NOK million). The interim condensed consolidated financial statements for the first six months of 2015 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 financial statements have not been audited.

02

CHANGES IN GROUP STRUCTURE

The following acquisitions have been made since 1 January 2015: 13 February 2015, DNV GL acquired ISC (100% of the shares in International Standards Certification Pty Ltd., Australia and 100% of the shares in International Standards Certification Japan Co. Ltd). ISC is an international certification body, with a particular presence in Australia and Asia. ISC is a full-service international certification and training body accredited by JAS-ANZ (Joint Accreditation System – Australia New Zealand) and Exemplar Global as a certified training organization. It provides extensive certification and training services for products and systems across key industry sectors, including healthcare and food & beverage.

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HALF-YEAR FINANCIAL REPORT 2015

ISC certifies small through to large organizations, businesses, hospitals and government departments to both national and international standards, across a wide array of management systems and product certifications. For the DNV GL Group, the acquisition of ISC will increase DNV GL’s presence and growth in key industries such as the healthcare industry. The acquisition also strengthens the DNV GL brand and provides a position and growth within the assurance sector. A purchase price allocation (PPA) for the acquisition will be included in the 2015 annual financial accounts of DNV GL Group AS.


03

OPERATING REVENUE PER BUSINESS AREA

1 JAN.– 30 JUNE 2015

1 JAN.– 30 JUNE 2014

Maritime

4 956.1

4 352.0

8 805.8

Oil & Gas

3 087.2

3 119.2

6 264.2

Energy

1 685.8

1 498.2

3 122.1

Business Assurance

1 415.4

1 199.4

2 491.7

AMOUNTS IN NOK MILLION

1 JAN.– 31 DEC. 2014

BUSINESS AREA:

Software

398.8

377.2

783.3

Marine Cybernetics

58.2

8.3

72.0

Other

65.1

70.5

83.7

11 666.6

10 624.8

21 622.8

Total operating revenue

04

PAYROLL EXPENSES

In May 2015, the APB pension plan in the Netherlands (Multi Employer Plan) was closed to new entrants. The change in the pension plan led to a non-recurring expense of NOK 42 million, which is included in payroll expenses in the interim financial statements.

HALF-YEAR FINANCIAL REPORT 2015

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 08/2015 Design: Fasett

DNV GL 2015 half year report  

Half-year financial report for the first half of 2015. Read more about DNV GL here: www.dnvgl.com.

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