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Rating action

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

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: BBB+ (unchanged). DNV’s business risk profile remains driven by its leading global position and brand strength in maritime classification and services. In addition, through its Energy Systems area, DNV has an active role in the transition to cleaner energy among its industry clients (positive ESG factor). The assessment is constrained by moderate profitability under the current push for growth as well as concentration of earnings around the largest service lines.

In 2023, DNV maintained its leading position for fleet-in-service classifications, with a global market share of 18%, as measured by gross tonnes. Concurrently, the company's share of the more cyclical newbuilding market suffered in 2023, with DNV securing 18% of ship orders, down from 23% in 2021 and 30% in 2022. The weakening was primarily driven by orders shifting from container vessels to the tanker and bulker segments, in which DNV holds a comparatively weaker market share.

By business area, Maritime and Energy Systems still accounts for the majority of group revenues, with 35% each in 2023. The remaining revenues were generated by Business Assurance (12%), Supply Chain and Product Assurance (6%), Digital Solutions (5%) and The Accelerator (7%). DNV's business areas remains adequately diversified, supported by a diverse customer base and a global reach.

DNV’s cash flow generation remains skewed towards its largest service lines, particularly classification services, which constrains the company’s diversification. This picture is likely to persist in the next few years despite an expected improvement as part of DNV’s strategy for inorganic and organic growth.

DNV’s profitability was stable in 2023, with a Scope-adjusted EBITDA margin* of 15.8%, which is slightly above the level of 15.5% in 2022. Scope expects a weakening of DNV’s Scope-adjusted EBITDA margin in 2024 into a range of between 14% and 15%. The weakening is expected to be driven by growth in lower-margin services and ongoing cost inflationary pressures across business lines.

Financial risk profile: AA (unchanged). DNV's financial risk profile supports the issuer rating. The AA assessment reflects strong internal cash generation and negative Scope-adjusted debt (i.e. net cash position) along with a prudent financial policy and liquidity profile.

At YE 2023, the reported gross financial debt amounted to NOK 4.8bn, mainly comprising a NOK 3bn term loan with Nordic banks and NOK 1.7bn of lease liabilities. Adjusted for restricted cash and marketable equity funds, the company’s net cash position stood at NOK 1.8bn.

Scope expects the net cash position to be sustained in 2024-2026, ultimately leading to an assessment of very strong credit metrics.

The financial risk profile is supported by expected positive free operating cash flow of around NOK 2.5bn per annum in combination with low pressure for shareholder remuneration. This results in a consistent deleveraging potential unless funds are used for M&A or invested in marketable securities that are not netted as cash (e.g. equity funds) in the calculation of Scope-adjusted debt.

Liquidity: adequate (unchanged). Liquidity is adequate with available liquidity sources expected to cover the company’s short-term maturities by more than 200%.

The liquidity profile is supported by substantial cash sources. At YE 2023, the company had NOK 6,617m of available cash and marketable securities (excludes restricted cash of NOK 769m and equity funds of NOK 358m). Other liquidity sources are expected positive free operating cash flow and an undrawn revolving credit facility of NOK 3,000m with maturity in 2028.

DNV has arranged for the refinancing of its NOK 2,998m term loan through the issuance NOK 2,000m of bonds in October 2024. The remaining amount is covered by available cash. The bonds were issued in two tranches, consisting of NOK 750m with a 3-year tenor and NOK 1,250m with a 5-year tenor.

The next notable debt maturities beyond 2024 are those of the recently issued bonds in 2027-2029.

Supplementary rating drivers: credit neutral. No adjustments have been made for supplementary rating drivers.

Despite its expansion strategy, DNV has maintained headroom to its maximum threshold for leverage (net debt/EBITDA) of 2x in the past years. Furthermore, there are no pressures for upstreaming of cash to the ultimate shareholder, Det Norske Veritas Foundation, given its main activity is owning and further developing the business activities in DNV.

The financial policy and ownership structure has implicitly been incorporated in the financial risk profile assessment. This is reflected by Scope’s assumption of low dividend payments and the likelihood of larger M&A activities under DNV’s growth strategy.

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

Outlook and rating sensitivities

The Outlook is Stable, reflecting Scope’s expectation that DNV will remain in a net cash position over the next few years, driven by robust cash flow generation and relatively stable profitability, while keeping its leading position in maritime classification and services alongside growth in other business areas.

The upside scenario for the rating and Outlook could materialise if:

•    DNV Group were to sustain its net cash position combined with improved profitability and/or diversification through successful organic and inorganic growth.

The negative scenario for the rating and Outlook is:

• Increased leverage with debt/EBITDA moving towards 1x, particularly due to a financial policy change or other event reducing the likelihood of subsequent deleveraging.

Debt rating

Scope has affirmed the A instrument rating on senior unsecured debt, in line with the issuer rating.

The short-term debt rating is affirmed at S-1. It is based on the A/Stable issuer rating and reflects DNV’s better-than-adequate liquidity cover as well as adequate banking relationships and adequate standing in capital markets.

Environmental, social and governance (ESG) factors

The demand for assurance and risk management services is supported by growing importance of ESG and related compliance. This includes the secular transition to cleaner energy and digitalisation, as well as adherence to increasingly complex regulations and quality control. We believe this underpins the future cash flow of DNV as a globally recognised provider of services to meet these developments.

Through its Energy Systems area, DNV plays a role in and benefits from industry transition towards decarbonisation and the usage of more sustainable, green energy.

All rating actions and rated entities

DNV Group AS

Issuer rating: A/Stable, affirmation

Short-term debt rating: S-1, affirmation

Senior unsecured debt rating: A, affirmation

*All credit metrics refer to Scope-adjusted figures.

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. The Credit Ratings/Outlook were last updated on 8 February 2024.

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, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
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