Strong growth in the world economy throughout 2007, combined with an increasingly complex risk environment, makes it vital to manage technical, societal and business risks. Society is adopting a zero tolerance for failure, and companies are expected to run safe, reliable and sustainable operations. DNV is in a unique position to meet these demands. The growth in the company’s turnover of 11% in 2007 demonstrates the need for services to identify, assess and manage risk.
DNV has strengthened its position in all its main areas of activity in 2007. Considerable growth in the number of employees, turnover and profitability ensures a sound financial foundation. This is required to secure the competence, independence and integrity of DNV’s operations.
Close to 19% of all contracted ship newbuildings worldwide in 2007, measured in gross tons, have been ordered to DNV class. This represents a strong position in a period of unprecedented newbuilding activity. DNV’s focus on quality and its relentless fight against substandard vessels and operations have attracted leading shipping companies to DNV, both in the newbuilding phase and for the follow-up of their fleets during operation.
Risk-based technology and management services are in great demand in the oil and gas industry, ensuring a high level of activity for DNV in the energy sector. High oil prices have made it more sustainable to develop front-end technologies in pursuit of new resources. The qualification of new technologies is a stronghold for DNV. Brazil, China, India and North America represent important areas of growth, while the North Sea is still DNV’s largest single market for services to the oil and gas industry.
Accredited management system certification in the fields of quality, environment, safety and health represents close to 25% of DNV’s total revenue. As DNV is one of the three leading certification bodies worldwide, management system certification is a key element in the global DNV brand.
The increased international focus on climate change has led to strong growth in DNV’s services supporting the quota trading mechanisms under the Kyoto Protocol and other regional and local schemes.
Truly independent
DNV produced strong financial results in 2007, with a total revenue growth of 11% and a net profit of NOK 536 million. At year-end 2007, DNV’s equity ratio reached 65%. A sound financial basis is a prerequisite for the independence and integrity required to serve the purpose of “Safeguarding Life, Property and the Environment.” The number of employees increased by net 926 to a total of 7 691.
DNV is committed to reporting on environmental and social aspects in addition to its financial accounts. The Global Reporting Initiative (GRI) forms the basis for the triple-bottom-line reporting. DNV’s main environmental contribution is through the improvement of customers’ environmental footprints by using DNV’s environmental services.
Corporate responsibility is high on the public agenda and a growing concern for businesses. DNV has developed a concept for Ethical Behaviour, which represents a valuable tool for companies to improve their ability to perform responsibly. DNV has used the tool in own operations, and the Profile identified improvement areas, enabling DNV to further reduce its exposure to possible misconduct.
The Board of Directors regards DNV’s market position as strong and financial status as satisfactory. This gives the company a robust platform on which to base its efforts to achieve the newly formulated vision of “Global impact for a safe and sustainable future”.
Corporate governance
Changes to the Norwegian Foundation Act have led to the transfer of approval of the annual accounts from the Council to the Board of Directors.
The Board of Directors has been extended by one member, from nine to ten. This extension represents a strengthening of the employee representation from three to four board members. The employees’ representatives now truly represent the diversity of the DNV staff. Two of the employee representatives are elected from the staff in Norway, one is elected from the rest of Europe and one from the rest of the world, i.e. Asia and the Americas.
Strategy
The strategy approved in June 2006 was reviewed by the Board in 2007, leading to only minor adjustments. The increased focus on industry sectors lies firm. DNV concentrates on capital intensive and high risk industry sectors where the company has, or intends to develop, an in-depth industry knowledge, and thus have an impact. The two most important industry sectors are the maritime industry and the energy sector. In June 2007, the food and beverage industry was added as a priority sector for DNV.
Risk-based services have been developed to enhance food safety and help global companies in this industry to manage their demanding international supply chains. Certification schemes are also important elements in managing risk in the food and beverage industry. DNV’s ambition is to develop a position in this industry, where trust and confidence among consumers is paramount.
Society and business are increasingly vulnerable to failures in software and IT systems. DNV spends considerable resources building an organisation to help customers manage risks related to business and safety-critical software systems. This expertise is relevant to all industries and organised as a separate business area in DNV. However, one of DNV’s major objectives is to introduce these new services to customers in the maritime and energy sectors.
Risk and safety are the overriding features of the various research programmes run by the strategic research unit, DNV Research and Innovation. Technology qualification for carbon capture and storage and cleaner and renewable energies are among the prioritised areas in the energy sector. There is also a special focus on fuel cell technology and the production and storage of hydrogen. New challenges in the Arctic include evacuation methodology and the need for more knowledge about ice loading and icing. Multifunctional materials and surfaces represent another field of research, where the use of nanotechnology has resulted in improved coatings.
Maritime industry
DNV Maritime’s strategic objective is to be the leading classification society in terms of quality, profitability and size. Regulatory bodies and the public at large expect classification societies to represent an effective safety net in the shipping industry. A strong focus on quality has helped to maintain DNV’s position as one of the classification societies with the lowest ratio of detentions in the Port State Control regimes worldwide. This is one of the main elements in DNV Maritime’s quality index, and represents an important means of measuring the results of efforts to eradicate substandard shipping.
The maritime industry is facing a major challenge to maintain its safety level as capacity is being fully stretched both at shipyards and in many shipping companies. At the same time, new players are entering the shipping scene. The lack of experience at some shipyards, on board vessels and in organisations onshore represents a risk that might lead to an increase in the number of accidents.
Attracting and retaining people with the right competence is a great challenge for all organisations in the maritime industry, including classification societies. Due to society’s zero tolerance for failure, all the international maritime industry’s stakeholders need to play their part in the process of continuously improving operations.
Deputy CEO and Head of DNV Maritime, Mr Tor E. Svensen, is serving as chairman of the International Association of Classification Societies (IACS) for one year as from July 2007. This gives DNV a strong influence on the development of the class concept of the self-regulatory regime in international shipping. The role of class and an increased focus on the environmental performance of the maritime industry are topics that are high on IACS’ agenda.
DNV and IACS both strongly support the IMO as the regulator of the international maritime industry. The development of Goal Based Standards by the IMO represents an important basis for the class rules. Decisions on detailed technical standards need to reside with the classification societies and not the IMO, which has a higher level responsibility to set policy and safety goals and to verify that class rules meet these goals.
In late January, 2008, the EFTA Surveillance Agency (ESA) carried out an unannounced inspection at DNV’s headquarters outside Oslo. According to ESA, the inspection was initiated to provide facts related to information given to the EU Commission of activity among members of IACS, sought to reduce the level of competition in the classification industry. A similar inspection was made at the headquarters of Lloyd’s Register, Germanischer Lloyd, RINA, Bureau Veritas and at the IACS secretariat in London.
The DNV-classed share of the world fleet, measured in gross tons, is approximately 16%. Of the newbuildings contracted during 2007, DNV’s share of the world market was 19%. This represents 741 ships. A total of 5 400 trading vessels, representing 121 million gross tons, were classed by DNV at year-end, which is an all-time high for DNV.
DNV Energy’s strategic objective is to become a leading provider of solutions that integrate business risk management and technology expertise. The aim is to help customers safely and responsibly improve their business performance.
Continued high oil prices and a growing demand for energy are reasons for the high level of activity in the oil and gas sector. This is also reflected in the high level of activity in DNV Energy, demonstrating the need for risk-based services and qualification of new technologies. DNV’s turnover related to upstream and downstream activities, pipeline transport, utilities and cleaner and renewable energies have shown an unprecedented growth of 15%. The financial performance has been sound. A limiting factor for further growth is the availability of competent and experienced people.
DNV has achieved an increased number of projects with national oil companies as a result of a strategic shift in focus from primarily serving the international oil majors to more dedicated efforts aimed also at national oil companies in countries with significant oil and gas resources. Much of the future oil and gas developments are expected to take place in regions with more unstable political conditions and demanding business environments. This requires a strong focus on business ethics from all levels in the DNV organisation.
Extraordinary efforts have been made to build an organisation to serve the offshore classification segment for mobile offshore units. These efforts have led to a sharp increase in DNV’s share of the classification market for FPSOs and mobile rigs. DNV has a market share of well above 40% of the new generation of advanced drilling semis and -ships now under construction, including most units intended for operation in harsh environment like the North Sea and offshore Canada.
DNV has also strengthened its leading position in the certification of offshore wind farms and in qualification of technologies to enable carbon capture and storage.
Key industry sectors
Services to industries other than the maritime and energy industries are organised in DNV Industry. Its operations are based on DNV’s global position as a leading provider of certification services and strong expertise in risk management. Extensive related training is provided worldwide. DNV’s increased focus on industry sectors has led to priority being given to the food and beverage, automotive, IT and telecom, transportation and healthcare industries.
The food and beverage industry has been selected as an industry where DNV intends to build a global position as a provider of risk management services. The leading companies in the food and beverage industry are truly international and are all challenged by complex supply chain risks. They are dependent on credibility in the consumer markets, and DNV’s services aim at building trust and confidence in the sensitive food sector.
The market for accredited management system certification, where DNV enjoys a position as one of the world’s three largest certification bodies, is gradually maturing. One clear trend in management system certification is the development of industry-specific certification schemes. This requires an in-depth knowledge and understanding of the individual industries. DNV is heavily engaged in making the emission trading mechanism of the Kyoto Protocol and other regional and local schemes operational and credible. Quota trading has become an important way of fighting climate change by facilitating investments being made where the emission reductions can be achieved most cost-effectively and in a sustainable manner. This also contributes to sharing of relevant environmental technology world- wide. Services where DNV has a strong international position within validation of emission reduction projects and verification of actual emission reductions in specific projects, carbon inventory assessments and has furthermore an emerging position within voluntary schemes.
Corporate responsibility has become an aspect of most companies’ increasingly complex risk reality. The verification of sustainability reports is part of DNV’s portfolio of services in this area. Other services are within ethical supply chain management, corporate governance assessment, and fraud and corruption resistance.
DNV Industry deployed a worldwide customer and production management system ConCert during 2007 covering key business processes. The system represents the single, largest IT investment in DNV outside the maritime and energy areas.
Improving IT processes
2007 was a year of integration for the four acquired companies which make up the new business area DNV IT Global Services. Its aim is to help large organisations improve the efficiency of their IT-related processes and systems by assuring the safety and integrity of business critical operations as well as maximising returns on IT investments.
This is achieved through an in-depth knowledge of the software and systems disciplines, business environment and IT-leading technologies. An ability to effectively help customers to improve competences and introduce robust solutions to business- and safety-critical issues is crucial.
DNV IT Global Services targets specific market sectors, such as the finance, telecom, automotive, aerospace, maritime and energy industries. DNV IT Global Services started to develop business in cooperation with DNV Maritime and DNV Energy in early 2007 and has completed its first successful projects and gained experience. The revised strategy has a special focus on global customers where DNV’s competence portfolio is a key differentiator to bring value to the business.
Organisation
Changes to the DNV organisation were introduced at the beginning of 2007 as a consequence of the new strategy. The business area structure was changed, introducing DNV Energy, DNV Industry and DNV IT Global Services as separate organisational entities with new management teams. In this period of change, DNV has seen a growth in revenue of 11% while maintaining a satisfactory level of profitability. The Board appreciates the dedicated and hard work carried out by all the employees to achieve these results. At year-end 2007, DNV had 7 691 employees, compared to 6 765 the previous year. The total number of employees includes 7 245 permanent staff and 446 employees on long-term contracts. 98 nationalities are represented in the staff.
The turnover of personnel during 2007 was 9.7%, compared to 9.4% in 2006, and the sickness absence rate was 2.0%. An international Attraction and Retention project has contributed to an increase in systematic recruitment efforts worldwide, leading to the achievement of ambitious growth targets in most parts of DNV. The Board has encouraged an active and targeted recruitment policy, and realises that talented new staff needs efficient induction programmes and continuous competence development opportunities.
DNV makes great efforts to improve diversity in the organisation and has an equal opportunity policy for all employees, irrespective of their nationality, gender or age. 67% of the managers are from countries outside Scandinavia. The number of women in management training programmes is rising, and the ratio of female managers is now at 16%, an all-time high.
Corporate focus areas
DNV’s most substantial contribution to environmental improvement is the improvements achieved by customers when using DNV’s environmental services. Projects have been initiated to map the environmental impact DNV’s services have on the customers’ environmental footprints. As part of its environmental commitment, DNV is further developing its environmental management system based on the ISO 14001 standard. An environmental initiative has been established which makes NOK 40 million available for DNV employees in 2008 to introduce initiatives that can improve their and their families’ environmental footprint.
DNV’s own activities do not have significant negative impact on the environment. Procedures for waste handling and energy savings have been introduced in the international network of offices as part of DNV’s Environmental Management System. A survey has been initiated to identify in further detail and
subsequently improve DNV’s own environmental performance with regard to areas such as emissions, energy consumption and waste handling.
Financial performance
The continued and strong growth in the world economy, with a high level of activity in most industries, has also resulted in good financial performance and a solid and long-term order reserve for DNV. DNV achieved operating revenue of NOK 8 126 million in 2007, NOK 829 million or 11% higher than in 2006. All the business areas achieved growth in 2007, with the strongest growth coming from DNV Maritime and DNV Energy.
The operating profit increased from NOK 794 million in 2006 to NOK 873 million in 2007, representing an operating margin of 11%. The improvement in operating profit from 2006 to 2007 is NOK 79 million or 10%, reflecting a sound underlying financial performance in the business areas.
DNV does business in 70 currencies, and has subsidiaries and branch offices in close to 100 countries. During 2007, the NOK has strengthened more than 7% compared to DNV’s basket of currencies, and the USD has weakened substantially, adversely affecting the 2007 financial performance. The negative currency effects are partly offset by the return on short-term financial investments and a positive development of the hedging costs, leading to net financial expenses of NOK 1 million in 2007.
The tax cost in 2007 of NOK 336 million gives an average tax cost of 38%, an increase from 34% in 2006, mainly caused by non tax-deductible goodwill depreciations. The net profit after tax for 2007 is NOK 536 million, which can be compared to NOK 546 million in 2006 and NOK 528 million in 2005.
DNV has a sound cash flow and no interest-bearing debt. Short-term financial investments in equity funds and in the money market amount to NOK 1 529 million, and by year-end the unused available credit lines were NOK 750 million. DNV has a strong balance sheet with a total equity of NOK 4 492 million, or 65% of its total assets.
The accounts for the parent company, Stiftelsen Det Norske Veritas, show a profit after tax of NOK 494 million, of which NOK 500 million is dividend paid from Det Norske Veritas Holding AS. The profit after tax has been allocated to Other Equity. The Board of Directors confirms that the going concern assumption applies and that the financial statement has been prepared under this assumption.
Outlook
DNV believes that the demand for its services will continue to be high in 2008. This is based on the assumption of a continued growth of the world economy, high energy prices and a high level of activity in all our main markets.
The financial risks are primarily related to currency fluctuations, and in particular related to a potential further strengthening of the NOK against the US Dollar. More volatile bond and stock markets can also have negative effects.
DNV is in a strong financial position with a 65% equity ratio and no interest bearing debt. This represents a unique strength and gives DNV a considerable freedom to pursue new future opportunities.
The order reserve is satisfactory at the start of 2008 for all business areas, and DNV expects a sound growth in revenue throughout 2008.
Photo: Nina Eirin Rangøy