Board of Directors' report 2020
DNV’s purpose is to safeguard life, property and the environment. As customers and employees faced acute disruption to their lives and livelihoods during 2020, DNV’s purpose and deep-seated values of sharing, caring and daring became all the more relevant to guide the company’s activities and response.
Despite the many challenges faced by DNV’s customers and employees during 2020, DNV’s business models proved resilient and the financial year ended strongly. The company recorded operating revenues of NOK 20,911 million in 2020, a drop of a mere 3.0% from 2019. The emphasis on, and investment in, digitalization in previous years proved critical to DNV’s ability to continue operations and serve customers. The Board sincerely thanks the management and employees for their hard work and commitment throughout 2020. On 1 March 2021, the company changed its name from DNV GL Group AS to DNV Group AS. In this report we refer to DNV throughout.
Like for most companies, business circumstances were extremely challenging during 2020. As a highly international company, operations were affected in all regions and sectors, and management have monitored developments closely since the outbreak of the COVID-19 pandemic. An emergency response team was convened and has been fully operational since mid-January 2020. To ensure the health and safety of employees and their families, offices were closed, and employees worked from home where possible.
In addition to other cost mitigating actions, more than half of the workforce was placed on partial furloughs or agreed to 10% salary cuts to curtail costs. These tough decisions were taken based on the company’s uncertain prospects and the rapidly changing developments in early April and in dialogue with both employee representatives and national governments where possible.
The swift and early response and adjustments made to enable business processes ensured that the financial impact was minimized. DNV’s ability to serve customers throughout the pandemic was helped by the successful implementation of the company’s digitalization strategy in previous years. Thanks to a robust IT infrastructure and digital tools, the majority of employees were able to work from home and many services were performed remotely – including remote surveys, audits and inspections. As the financial impact to business from COVID-19 proved less severe than expected, employees were compensated for their financial sacrifices due to layoffs/furloughs and salary cuts at year end.
The Board is very satisfied with the way the pandemic has been handled, which has enabled the company to achieve financial year-end results in line with original targets, continue key investments and be in a position to compensate employees for their contributions, hard work and dedication.
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DNV Group recorded operating revenues of NOK 20,911 million in 2020, NOK 640 million less than in 2019, representing a decline of 3.0%. Adjusted for exchange rate fluctuations and the sale of Power TIC Laboratories in 2019, the decrease was 5.1%. This was mainly driven by negative market effects following COVID-19 and a drop in activity level in the oil and gas industry caused by a sharp fall in the oil price, which was partly compensated by growth in the renewable energy sector.
Business Area Maritime recorded revenues of NOK 7,557 million in 2020, corresponding to a decline of 2.4% compared to 2019. Oil & Gas reported revenues of NOK 3,715 million, representing a drop of 5.2%. Energy achieved revenues of NOK 3,939 million, equal to a growth of 11.4%, mainly from winning new contracts. Business Assurance ended the year with revenues of NOK 3,595 million, a decline of 0.9%, while Digital Solutions had a growth of 8.4% in 2020 and delivered external revenues of NOK 1,135 million.
Earnings before interest, taxes, depreciation and amortization (EBITDA) fell by NOK 48 million from NOK 3,529 million in 2019 to NOK 3,481 million in 2020. The operating profit (EBIT) for 2020 ended at NOK 2,406 million, NOK 71 million up from NOK 2,334 million in 2019. The reduction in EBITDA relates primarily to COVID-19’s market impact, weaker oil and gas markets and the continued decline in ship newbuilding activity.
The net financial expenses were NOK 233 million in 2020, compared to NOK 349 million in 2019. The change from 2019 is primarily due to lower net currency losses, reduced net interest on defined benefit pension liabilities and the return on financial investments.
The 2020 tax expense of NOK 671 million represents an average tax cost of 31%. The average corporate income tax is 25% of the pre-tax profit from operations, while the additional tax cost is caused by withholding taxes on remitted earnings, losses from operations without recognition of tax assets and non-taxdeductible items. The net profit for the year was NOK 1,502 million, compared to last year’s net profit of NOK 1,375 million. A year in the shadow of COVID-19 Like for most companies, business circumstances were extremely challenging during 2020. As a highly international company, operations were affected in all regions and sectors, and management have monitored developments closely since the outbreak of the COVID-19 pandemic. An emergency response team was convened and has been fully operational since mid-January 2020. To ensure the health and safety of employees and their families, offices were closed, and employees worked from home where possible.
The cash flow from operations ended at NOK 4,081 million in 2020, compared with NOK 2,679 million in 2019. The cash flow was significantly impacted by the continued reduction in working capital of NOK 1,419 million.
The cash flow from investments was NOK -305 million in 2020. The investment of NOK 237 million in intangible assets mainly relates to the development of commercial software by Digital Solutions, in-house Oracle ERP implementation, and system integration in the business areas. The cash flow from investments was reduced by NOK 136 million due to the acquisition of US energy management company Energy and Resource Solutions (ERS) in December 2020, while the cash effect of the divestment of the US Energy laboratories in February 2020 was NOK 179 million.
Financing activities produced a negative cash flow of NOK 2,235 million, of which NOK 1,750 million pertained to funding Det Norske Veritas Holding AS’s repayment of an external loan in 2020. Following from IFRS 16, change in lease liabilities caused a negative impact of NOK 466 million in cash flow from financing activities, with the opposite effect in cash flow from operations.
The total net positive cash flow for the year was NOK 1,541 million.
At year-end, DNV Group had liquidity of NOK 5,365 million plus an unused credit line of NOK 1,000 million. The Group has a strong balance sheet, with an equity ratio of 49% after NOK 1,950 million dividend to Det Norske Veritas Holding AS and group contributions after tax of NOK 33 million were declared in 2020.
A net actuarial loss of NOK 363 million from defined benefit pension plans and positive exchange differences from net investments in foreign subsidiaries of NOK 605 million were recognized in equity at the year-end.
The accounts of the parent company, DNV Group AS, show a net profit for the year of NOK 123 million, mainly generated from group contributions received. As of 31 December 2020, DNV Group AS had total assets of NOK 18,995 million and total equity of NOK 9,258 million after declaring dividend of NOK 1,950 million. The Board proposes to transfer the profit for the year to other equity.
The Board confirms that the going concern assumption applies and that the financial statements have been prepared on this basis. The Board regards DNV Group’s financial performance as strong and liquidity as very good, even more so considering the challenging operating conditions during 2020. Both parameters contribute to a robust platform for achieving our strategic targets and maintaining our independence as a financially strong and autonomous company. The Board also confirms that, to the best of its knowledge, the information presented in the financial statements gives a true and fair view of the assets, liabilities, financial position and results of the DNV Group for the period, and that there are no material events after the balance sheet date affecting the 2020 financial statements.
The Board was involved throughout 2020 in the development of a new five-year strategy for DNV. The company’s strategy is informed by wide-ranging consultations with stakeholders, a thorough study of global and sectoral trends and a critical analysis of recent company performance. The strategy is designed to drive the company’s purpose of safeguarding life, property and the environment and is inspired by DNV’s new vision to be a trusted voice to tackle global transformations.
The 2025 strategy is a customer-centric growth strategy with the overall ambition to shape the future of assurance. As part of the 2025 strategy, the company has set ambitious growth targets for a profitable, robust business portfolio. To deliver on this ambition, the company aims to lead the digital transformation of assurance and the assurance of digital assets.
The strategic market goals include to be the leading maritime classification society through major transformations, to enable customers to tackle the energy transition, to lead the assurance of management systems, supply chains, products, medical technology and aquaculture, and to strengthen the company’s digital platforms, software solutions and cyber security portfolio.
DNV aspires to be THE place for employees to grow and make a difference – offering a purpose driven, customer centric, diverse, agile, international, and innovative business environment. DNV’s reputation as a knowledge house comes from the exceptional talent and expertise of employees and their ability to be forwardthinking.
DNV strives for responsible and sustainable global operations. The company’s greatest impact on sustainability is through the expertise and services it provides to customers. DNV has selected UN Sustainable Development Goal (SDG) 3 (good health and wellbeing), 7 (affordable and clean energy), 13 (climate action) and 14 (life below water) as the goals where it can contribute the most and have the largest impact.
The company is upholding its commitment to invest at least 5% of its annual revenues in research, development and innovation. More than half of these activities are shaped to support the company’s digitalization journey. DNV is actively pursuing joint innovation projects and partnerships with academia and business in areas such as artificial intelligence, machine learning and autonomous systems.
The new corporate strategy and the organization to drive its implementation were launched in January 2021 together with strategies for six business areas.
DNV considers sound corporate governance to be fundamental for securing trust in the company and a cornerstone for achieving sustainable value creation in the best interests of DNV’s customers, employees, owner and other stakeholders.
DNV issues an annual Corporate Governance Report to verify corporate governance in accordance with the Norwegian Code of Practice for Corporate Governance (Code of Practice) to the extent relevant for the DNV Group as a private limited company. DNV’s Corporate Governance Report deals with each of the 15 topics covered by the Code of Practice and describes DNV’s adherence to this code. The Corporate Governance Report also describes the legal basis and principles for DNV’s corporate governance structure.
The management company of the DNV companies is DNV Group AS, registered in Norway and governed by the Norwegian Private Limited Liability Companies Act. DNV Group AS is wholly owned by Det Norske Veritas Holding AS (DNV Holding). DNV Holding is a private limited company registered in Norway and is fully owned by Stiftelsen Det Norske Veritas. Stiftelsen Det Norske Veritas issues a separate annual corporate governance report available on www.detnorskeveritas.com. The Board of Directors of DNV Group AS consists of ten members. Six of these are elected by the shareholders while four are elected by and from DNV employees worldwide. The Board comprises six men and four women from four nationalities, with an average age of 57.4 years.The Board’s combined expertise represents a range of stakeholders, markets and competences.
In 2020, Leif-Arne Langøy and Liselott Kilaas informed the Nomination Committee that they were not available for re-election. Due to the COVID-19 situation, the 2020 elections were postponed from June to October.
The results of the 2020 Board elections are as follows:
- Jon Fredrik Baksaas was elected Chair of the Board
- Lasse Kristoffersen was elected Vice-Chair of the Board
- Ingvild Sæther was elected as a Board Member
- Christian Venderby was elected as a Board Member
- Nina Ivarsen was re-elected by the employees in the constituency ‘Norway’
- Jon Eivind Thrane was re-elected by the employees in the constituency ‘Norway’.
The Board sincerely thanks Leif-Arne Langøy and Liselott Kilaas for their contributions.
The Board would like to extend a special “thank you” to Leif-Arne Langøy for his contribution to the Board and the company over the past 10 years – first as Vice-Chair for one year and then as Chair of the Board for nine years. Leif-Arne Langøy has been Chair of the Board during a period of significant change and development. He has guided the company through a series of major M&A transactions, significant organic growth, and a digital transformation – in periods of very challenging market conditions. He will leave behind a significant legacy for the company to build on in the years to come.
The Board held six ordinary meetings and one extraordinary meeting in 2020. The average attendance at these Board meetings was close to 100%. The Board’s Audit Committee held four ordinary meetings in 2020 and the attendance at these was 100%. The Board’s Compensation Committee held three ordinary meetings and one extraordinary meeting in 2020 and the attendance at these was 100%.
Further information related to DNV’s corporate governance can be found in the company’s Corporate Governance Report.
The Board underlines the importance of continuously having a comprehensive understanding of the risks facing DNV that could affect the Group’s reputation and key business objectives. DNV has processes in place to proactively identify such risks at an early stage and initiate adequate mitigating measures and actions.
DNV’s risk management policy is part of the management system and ensures that the risk management processes are integrated into everything the company does. The policy is aligned with the ISO 31000 framework.
The Board formally reviews the risk management status and outlook, both risks and opportunities twice a year – as part of the strategy revision process and annual plan process.
DNV calculates its risk-adjusted equity on an annual basis, considering the most important risk factors. Based on value-at-risk methodology, the analysis includes potential losses from operations, foreign-exchange exposure and pension plan assets and liabilities. The book equity less the maximum calculated loss illustrates DNV’s total risk exposure and the amount that can be lost in a worst-case scenario. This exercise gives the Board a measurable overview of the key quantified risks and DNV’s capacity to take on additional risk.
In order to mitigate cyber security risks, DNV’s information security management systems for GSS IT, Energy, Oil & Gas, Digital Solutions and Maritime are certified to the ISO 27001 information security standard. The Board continues to review DNV’s cyber security risk annually.
Severe quality, safety and integrity risks in the company represent another focus area. Numerous barriers exist to minimize the likelihood of such events occurring, and DNV’s management system is constantly scrutinized to ensure the company is managing this risk satisfactorily. To limit the potential financial consequences of such risks, DNV has put in place global insurance policies with a level of insurance cover suited to DNV’s operation and risk profile.
DNV’s main financial risks are its market risk (interest rate and foreign currency risk), credit risk, liquidity risk, pension plan risk and political risk related to trade sanctions.
Interest rate risk:
As the company has limited borrowings, its exposure to interest rate risk is primarily connected to the risk of changes in market interest rates for DNV’s forward exchange contracts.
Foreign currency risk:
DNV has revenues and expenses in approximately 70 currencies. Of these, six (NOK, EUR, USD, CNY, KRW and GBP) make up 77% of the total revenue. In most currencies, the company has a natural hedge through a balance of revenues and expenses. However, a significant portion of DNV’s net income is based on USD or currencies closely correlated to USD. DNV is also materially exposed to the re-evaluation of balance sheet items, including net investments in foreign subsidiaries.
Receivable balances are monitored on an ongoing basis, with the result that the company’s exposure to bad debts is limited. There are no significant credit risk concentrations within the company. With respect to the credit risk resulting from the other financial assets, which comprise cash, cash equivalents and certain derivative instruments, DNV’s exposure to this arises from any default of the counterparty, with the maximum exposure equal to the market value of these instruments.
Det Norske Veritas maintains a liquidity reserve where the targeted amount shall correspond to 15% of the annual revenue for the Group plus NOK 500 million in an acquisition and investment reserve. DNV monitors its liquidity risk on a continuous basis. The liquidity planning considers the maturity of the financial assets (e.g. accounts receivable, other financial assets) and projected cash flows from operations.
Pension plan risk:
The company has closed all existing defined benefit pension schemes to new entrants. However, DNV is exposed to volatility in the financial markets affecting the value of the pension plan assets. The Group is also exposed to interest rate volatility affecting the pension commitments. Lower interest rates over the past few years have led to an increase in the pension commitments.
Compliance with applicable trade sanctions is monitored at business area and Group level. This risk is considered to be limited.
Information security risk:
As delivery of services are increasingly digitally enabled, we also see increased risk in securing technical-, business- and customer critical information. Generally, this risk is considered to be moderate, but a single instance of breech could be critical, and it is therefore high priority to monitor and mitigate this within Group and the Business Areas.
International concerns about the climate emergency have moved up the agenda. Addressing these concerns is a major driver of the energy transition which will affect both DNV and its customers. DNV conducts significant research into this which is fed into our strategy development. An impact analysis in line with the Task Force on Climate-related Financial Disclosures (TCFD) standard will be performed during 2021.
DNV’s vision is to be a trusted voice to tackle global transformations, and safeguarding the environment is part of DNV’s purpose. DNV conducts extensive research to understand and inform about the challenges facing the climate, ocean, energy, food, healthcare, and transport systems, and how technology can help to address these challenges.
In 2020, DNV had zero cases of non-compliance with environmental regulations and zero fines related to environmental aspects. Internal and external audits are undertaken to assure performance.
DNV pursues continuous improvement in its sustainability performance and its management systems are certified to the ISO 9001, ISO 14001, and OHSAS 18001 standards.
DNV will continue to work in partnership with the United Nations Global Compact. The Board maintains that the integration of the ten principles on human rights, labour standards, environmental performance and anti-corruption is critical for achieving longterm value, and that the UN Sustainable Development Goals (SDGs) are to be used to set goals for the business community.
DNV is also continuing its active partnership with the World Business Council for Sustainable Development and actively supports the work of the Red Cross. DNV reports in accordance with the core level GRI Standards. KPMG has conducted limited assurance of the sustainability reporting on material topics. The Board’s audit committee has reviewed DNV’s sustainability reporting, including recommendations made by KPMG.
As part of its new strategy, DNV will use its technical expertise to accelerate transformation required to make a positive impact on the SDGs and achieve the goal of limiting global warming to 1.5°C established by the Paris Agreement. DNV supports the SDGs and SDG 3, 7, 13 and 14 which have been identified as core goals where DNV can make a positive impact through the work we do for our customers.
The new sustainability strategy includes plans for offices and laboratories worldwide to use solely renewable electricity by 2025. In addition, the company will develop and implement projects to become climate net positive.
The Board is monitoring the implementation of the strategy to ensure that DNV meets these ambitious targets and reduces the environmental impact of its operations.
The Board refers to the Annual Report for a complete account of corporate sustainability, including information on the priorities, management approach, targets and performance relating to: sustainable leadership; health and safety; business ethics and anti-corruption; people, environment and climate; sustainable procurement; and partnerships for sustainability.
The DNV Group has employees in close to 80 countries and corporate headquarters located at Høvik, just outside Oslo, Norway. DNV was in 2020 organized in a group structure with five business areas: Maritime, Oil & Gas, Energy, Business Assurance, and Digital Solutions. Global Shared Services provides support services within areas such as finance, HR, IT, and procurement for all business areas. Following a new 2025 Group Strategy, changes were made to this business area structure in 2021. The new group structure has resulted in six business areas: Maritime, Energy Systems, Business Assurance, Supply Chain and Product Assurance, Digital Solutions, and the Accelerator. Veracity is organised as an internal joint venture.The total number of employees at year-end 2020 was 11,614, of whom 98.4% are permanent employees.
In addition, 9,189 subcontractors and expert personnel were engaged at the year-end. Employee turnover was 7.4%, with voluntary turnover at 4.7%.
DNV strives for diversity at all levels of the organization and is firmly committed to providing equal opportunity in all aspects of employment. A career in DNV should not be hindered by nationality, gender, or age if the employee has the competence, attitude and values needed for the role. The Board considers the company’s purpose, vision, and values to be instrumental in attracting and retaining a diverse workforce necessary in global markets. The Board also emphasizes the importance of sound management of human and labour rights. The Board reviews compliance annually, and HR and people matters are continuously reported to the Board. DNV’s statement pursuant to the UK Modern Slavery Act has been signed by the Board and is published on the company website.
The employees represent 115 nationalities, and DNV has 100 or more employees in 19 countries. DNV’s largest operations are in Norway, the US, Germany, the UK, and China.
Of the permanent employees, 86.7% have a higher education. The proportion of female employees is 33% and the proportion of female managers is 28%.As of 31 December 2020, the Executive Committee consisted of three women and seven men. As of 1 February 2021, the Executive Committee consists of four women and seven men. The expansion reflects the new organization with six business areas.
DNV’s business model and success are based upon trust in all business environments. Building trust is enshrined in the company’s new vision and values. The Board emphasizes the necessity of reflecting DNV’s values and demonstrating ethical leadership in society.
The DNV Group has a zero-tolerance policy for corruption and unethical behaviour that applies to all employees, subcontractors, agents, and suppliers. The compliance programme and related instructions are based on the Code of Conduct prepared by the Board.
The Code of Conduct covers anti-corruption, antitrust, export controls, sanctions and personal data protection, and processes to handle cases are in place. Information on how to report occurrences or suspicions of misconduct is published on the company website and the intranet, and an e-learning module on the reporting of misconduct must be completed by all employees. There is also an ethical helpline and anonymous whistleblowing channel.
Compliance risks are regularly assessed as part of the corporate risk management process and measures are taken accordingly.
The Group Compliance Officer reports on performance to the Board annually, to the Board’s Audit Committee quarterly, and to the Executive Committee when relevant.
In 2020, 64 potential compliance cases were reported and handled (versus 67 in 2019). An ongoing case concerns a former employee of DNV who was arrested in Norway and charged with espionage and corruption. The case is being handled by public prosecution in Norway and DNV is assisting with the investigation as required. DNV was not a participant in any legal action regarding anti-competitive behaviour or violations of antitrust or monopoly legislation during the reporting period. DNV was not subjected to any significant fines or non-monetary sanctions and no non-compliance with laws and/or regulations in the environmental, social, or economic areas was identified.
Measures implemented in 2020 to sustain a high level of integrity include training, communication, and updates to governing documents following statutory amendments. The company performed compliance reviews in countries identified for special anti-corruption and fraud measures and determined a new list of countries for special measures in 2021–2023. Web-based classroom training on integrity and personal data protection was provided in the newly established second Global Shared Services Centre in India. Further web-based classroom training on integrity was arranged for new managers and for employees with customer contact. Around 1,000 employees received individual training on compliance programme topics.
DNV’s vision is zero harm to, and a healthy working environment for, its workforce. To achieve these goals, the company has focused on initiatives that support staff resilience and empower employees to make the right decisions about their own safety, health, and wellbeing. No work is so urgent or important that we cannot do it in a safe and healthy way. This has always been our guiding principle and is now more relevant than ever in 2020, a year dominated by the response to the COVID-19 pandemic.
The pandemic made it very challenging to ensure the health and safety of employees working from home or resuming work in offices or at customer sites. During 2020, several extra initiatives were launched to support employees, including a central COVID-19 information hub, regular updates, resilience webinars and tools to support employees’ physical, mental, and social wellbeing.
DNV’s new Values, adopted at the start of 2020, proved relevant and were embraced by the organization. The Values – We Care, We Share, We Dare – were reflected in the tremendous determination, resilience, and solidarity shown by DNV employees in all corners of the world in 2020.
Although it is too early to assess the pandemic’s long-term impact on staff wellbeing, there is evidence from surveys and organizational feedback that employees have coped and adapted well to the disruptions caused by the pandemic. Some employees reported feeling anxious due to the difficult situation but also supported by the company.
The company’s main occupational health and safety risks are related to slips, trips and falls, field work, driving, and stress caused by a high workload. Some cases of ill health related to working from home were also recorded and are being monitored.
The long-term trend in the number of injuries and occupational disease cases has been stable for the last couple of years, with an improvement in the injury and absentee rates in 2020 compared with 2019. The number of workdays lost among employees decreased in 2020 compared to 2019. The decrease in reported hours lost relates to fewer hours per work related accident. More details are provided in the health and safety section of the annual report.
Employee health and safety performance is reviewed by the Board twice a year and is included in the CEO’s report to every Board meeting. DNV’s health and safety performance is on par with industry benchmarks, and a programme is in place to continuously strengthen the resilience of our employees and foster a learning health and safety culture.
Despite massive efforts, COVID-19 is not yet contained and growth prospects for 2021 and 2022 remain uncertain. After a sharp decline in the financial markets in the initial months following the first global lockdowns, the markets have picked up throughout 2020 and are at the beginning of 2021 at a higher level than when entering the crisis. As a result, both business and consumer confidence have picked up slightly. Provided COVID-19 is gradually contained with the help of vaccines during 2021, the GDP of most economies is expected to start recovering in 2021 and return to growth no later than 2022.
However, the short-term downside risk is probably higher and more explicit than we have experienced in modern times. With interest rates at around zero, and a sharp rise in public spending and debts, there are fewer financial tools available to fight another major set-back.
Although some market segments (such as the fossil-based energy sector and personal travel industries) have been significantly hit and recovery will take time, other segments have thrived, and DNV’s assurance services are more in demand than ever. The company’s ability to deliver services and secure new orders during the pandemic has been remarkably good, largely owing to the focus on digital transformation the past five years. Further development of these digital capabilities will be critical going forward.Open All Close All