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Rating action

Scope Ratings GmbH (Scope) has today affirmed the A/Stable issuer rating of DNV Group AS (DNV). Scope has also affirmed the A senior unsecured debt rating and S-1 short-term debt rating.

Rating rationale

The rating affirmation reflects DNV’s unchanged business risk and financial risk profiles. The issuer rating continues to reflect the company’s solid cash generation and leading global position in largely non-discretionary maritime classification and services, paired with very strong credit metrics.

The business risk profile is unchanged at ‘BBB+’ and is driven by DNV’s leading position in maritime classification and services, which supports cash flow visibility as classification is necessary for customers to operate their vessels. In 2021-2023, DNV has maintained a global market share of around 20% for fleet-in-service and between 18%-33% share for newbuilds. The company also offers similar classification and advisory services to the energy industry, along with certification, inspection and monitoring, while it serves more diverse end-markets through its assurance services and digital platforms. DNV’s business areas reflects overall good diversification with regards to customers, geographic markets, client segments and service offerings, although the Maritime and Energy Systems divisions accounts for the majority of earnings.

DNV plays an active role in the secular transition to cleaner energy among its industry clients (positive ESG factor). In addition, Scope expects the growing importance of ESG and digitalisation to create potential for product innovation and increased cross-selling across the company’s business areas.

DNV’s growth strategy relies partially on M&A, especially in the Digital Solutions, Supply Chain and Product Assurance, Business Assurance, and Accelerator divisions. For 2023-2025, Scope forecasts bolt-on acquisitions totalling NOK 8bn, an increase from the reported level of NOK 0.9bn in each of 2021 and 2022. The company’s inorganic growth could put some pressure on the group’s profitability in the short to medium-term, as the higher-margin services offered by the Maritime division are diluted by the expansion of lower-margin activities.

The very strong financial risk profile at ‘AA’ remains the key support for the rating and is driven by a prudent financial policy, strong internal cash generation, and low indebtedness. Scope expects DNV to maintain conservative credit metrics despite increasing growth investments in the coming years. This view is based on the company’s net cash position and the fact that a large portion of discretionary spending is expected to be financed with free cash flow. In addition, the assessment is also based on the company’s history of maintaining a net cash position, which leaves significant headroom under its own maximum leverage threshold of 2.0x (net interest-bearing debt/EBITDA).

Liquidity is adequate, with available liquidity sources comfortably covering upcoming debt maturities, including the NOK 3bn term loan maturing in December 2024. In addition to substantial unrestricted cash and cash equivalents, DNV’s liquidity benefits from undrawn committed credit lines of NOK 3bn maturing in December 2028 and good access to external funding from banks and capital markets, as well as positive free operating cash flow.

The ultimate ownership of DNV by the Det Norske Veritas Foundation is seen as positive for the rating. As a result of the ownership structure, Scope does not expect DNV to pay significant dividends, as there is no pressure from external shareholders for short-term capital returns.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating-change drivers

The Stable Outlook reflects the expectation that DNV will continue to have a net cash position over the next few years, driven by relatively stable profit margins, while keeping its leading position in maritime classification and services.

A positive rating action is seen as remote but could be triggered if DNV were to sustain its net cash position while improving diversification and/or profitability through successful execution of organic and inorganic growth.

A negative rating action might be warranted if Scope-adjusted debt/EBITDA were to approach towards 1.0x, in particular due to a change in financial policy.

Long-term and short-term debt ratings

Scope has affirmed the senior unsecured debt rating at A, the same level as the issuer rating.

The S-1 short-term rating reflects the company’s underlying A/Stable issuer rating as well as sufficient short-term debt coverage and adequate access to banks and debt capital markets.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 16 October 2023; European Business and Consumer Services Rating Methodology, 15 January 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Per Haakestad, Senior Specialist
Person responsible for approval of the Credit Ratings: Thomas Faeh, Executive Director
The Credit Ratings/Outlook were first released by Scope Ratings on 2 February 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.