We aim to grow by 20% year-on-year in the Middle East

With the strong demand for risk management services in the region's energy and industrial sectors and surging growth in ship classification, Det Norske Veritas (DNV) in the Middle East has announced record turnover in 2007.

In an exclusive interview with Emirates Business, Henrik O Madsen, President and Chief Executive Officer of DNV, said he expects the region to continue to rake in double-digit growth and to remain the fastest growing region within the company's portfolio.

"Globally, our ambition is to grow by 10-12 per cent year on year. Here, we aim to grow by 20 per cent year on year, so we will grow twice as fast here," he said. Madsen, who forecasts an $80 per barrel scenario next year, says the UAE will be less affected thanks to its massive oil bank. "The world will still need energy as there is no real alternative to fossil fuels. For sure, there will still be money flowing back to the region, which means you have a queue of activity and most of the plans will be executed."

However, with project cancellations and delays being announced every now and then, he says it pays to be "alert".

"Our order book currently stands at around $1.5 billion (Dh5.50bn). That's about 60 per cent of our revenue for next year," he said. "So far those that have been delayed may only be one or two per cent."



Det Norske Veritas' Middle East revenues went up by 33 per cent in 2007. With the financial crisis already hitting the region, do you expect this kind of growth to continue?

We aim to grow by 20 per cent year on year. It's difficult to grow much more than 20 per cent as you risk losing control. Maybe in one year you can do it but the next year it will be difficult. For the whole of DNV, our ambition is to grow by 10-12 per cent year on year. We will grow twice as fast here.

Your goal seems very ambitious considering the economic slowdown…

I'm sure it will affect the UAE but I think it will affect this country less than the other parts of the world. First of all, on the energy side, the world will still need energy. There is no real alternative to fossil fuels. And the price will come back again. Internally, for our planning next year, we have a $80 per barrel scenario. But we've also worked on a $60 scenario, which is the worst case for us.

But oil is trading at less than $50 these days. Isn't it?

Yes, but if you look at forward trading, it tells us it's $80. There will surely still be money flowing back to the region, which means you have a queue of activity and most of the plans will be executed.

Does that mean you are not affected by the credit crisis?

We have some contracts two or three years ahead and as long as they don't get cancelled we will still be okay. Besides our fees – which come in annually – are small compared to the operational cost of the company. But we will feel it, let's not be naïve.

A lot of projects in this region have been cancelled, pushed back or delayed indefinitely…

We have some cancellations and some delays but we know it's a lot less for us than for our competitors. That's because we work with the best quality shipowners and they do better than the average ones. So far only one to two per cent have been delayed. For us the worst case scenario is 10 per cent.

And this will continue in the foreseeable future?

We don't know, but we can look a year or one-and-a-half years ahead and then we'll see if the financing can be arranged because for that period the financing is secured. After that, if the financing is not secured, it depends on what happens in the finance sector in the next 12 months – whether we will see more cancellations. We have to be alert and be cautious but for the first year we are quite confident.

Have you envisaged the worst effect of the financial crisis in a certification company such as DNV?

First of all, we have many customers and our biggest customers account for two per cent of our revenue. So it's not like as if when one good company goes down it would hurt as a lot. That's a good thing about us – we are well-diversified. Also, we need energy – the world would stop without shipping. In case of our management systems, you need quality certifications in good times and bad. If you see lots of mergers and acquisitions, that's also a lot of work. We are not so vulnerable, but of course if there's a general downfall – we will feel it.

M&As have been the talk of the town. Have you been looking at one as well?

If you look at consolidation in ship classification, we have kept on hearing about mergers and acquisitions for 10 years and they didn't happen. It also has to do with the ownership structure. So I don't see ship classification consolidation. We also like to have competencies, which we don't have and we may acquire it from other companies. But we don't have anything in the pipeline.

What are the major challenges in your industry?

It's the strong competition. Another challenge is the one you just brought up. We hope the financial crisis would not mean that focus on the environment is lost. We really try to push every bolt, keep the promises on whatever we are going to do on the environmental side. That can be worrying even though we are fairly not so pessimistic about it because that's an area that we really want to grow.

Another talk of the town is job cuts. Will you be downsizing your workforce?

No. We are growing and expanding next year. We have to replace those who are leaving. But we will be increasing our net workforce by four to five per cent next year all over the world. This year we have grown by 1,000 people. Now we have 8,600 people globally. As regards our order book, it is currently around $1.5bn. That's about 60 per cent of our revenue for next year.

Which sector records highest growth?

We are growing across the board. The highest growth for next year would be from the energy side and maritime. On the energy side, it not only includes oil and gas but also renewable energies, particularly wind energy. We are very active in carbon capture and storage, which is also being studied here.

How big is your clean energy portfolio in terms of revenue?

It's $35 million this year. We expect it to grow to $40m next year and it is growing very fast. This could be one of our largest markets. For instance, in emissions trading if you look at the Clean Development Mechanism (CDM) projects, 50 per cent of all the projects that have been executed have been certified by DNV. To have trust and confidence in this market is extremely important. It is like printing money. When we send a certificate saying the emission reduction is 100,000 tonnes of CO2 per year then you multiply it by €20 (Dh106) – we are printing $2m worth of paper. Down here, we don't have much projects yet. We started to work on wind projects in the early 1980s in California. We have developed DNV standards on wind turbines and for offshore wind farms. About 80 per cent of all offshore wind farms there are designed according to DNV standards. If you look to the North Sea and the UK, a very big portion of wind farms there are approved by DNV.

With the price of oil dipping down, analysts say clean energy projects will be stalled. Do you think so?

What we see is that governments will simply put requirements and you have to continue the development of renewable projects. So even if from the financial point of view it will not be attractive, governments will just decide, 'we will give incentives, tax incentives, price guarantee incentives and we want this much energy to come from renewable sources'. So I am not too worried about that. It will not be the market forces that will decide it but the governments who will put regulations into place. The US has this 20-20 policy that is 20 per cent of electricity should come from renewable energy. And I think the new US president will put in similar targets.

Don't you think all this is mere talk?

No. I think it's real. Climate change is so real now that nobody dares to play around.

Currently, the Middle East is also trying to get into the carbon trading market. Doha Bank has planned for a $1bn sukuk to finance the region's first carbon trading, although this is delayed. Do you think this scheme is likely to happen in this region in the near future?

It very much depends on what happens in Copenhagen. If each government accepts that there is a cap for carbon emission then if a country exceeds that cap they have to buy credits. The more countries that accept caps – either forced or voluntary – the more you will grow the demand side. This is now a developed region and governments here should accept the Copenhagen 2009 cap.

Currently the UAE is still not obliged to, as it is still classified as an emerging market?

They were not part of the Kyoto where you have the Annex 1 and Annex 2. In 1997, this region was a non-Annex 1. But the economy has developed so much since 1997, so I think this region could take on an obligation. All countries – even India and China – should take on an obligation.

With regards to management systems certification, what can you say about the UAE Government?

They are very transparent on what they want to achieve. It's very interesting to see the government offices show their employees that they are working to certain standards. We don't see that in other parts of the world where the government is so strong, but if they want to be known as world-class, their employees have to work to a world-class standards.


PROFILE: Henrik O Madsen, President and CEO of DNV

Madsen began his career with DNV in Oslo in 1982 as Chief Scientist in Structural Reliability Analysis. During the 1980s, he led a large industry initiatives to introduce structural reliability methods in the oil and gas industry. Acknowledging this work, he was elected to the US Offshore Energy Centre Technology Hall of Fame as an Offshore Pioneer in 2002.

Madsen has been heading all the major business sectors in DNV (Maritime, Energy and Industry and Research Division) – and has also served as Regional Manager in Japan and Denmark.

In May 2006, he became President and CEO of DNV. His attention today is very much focused on environment and climate issues, and how DNV can contribute to a safe and sustainable future. He is a member of the World Business Council for Sustainable Development and a member of the Focus Area Core team for energy and climate. Madsen has a PhD in civil and structural engineering from the Technical University of Denmark, where he also held a position as professor of structural mechanics. He has published several books and more than 80 papers on his field of expertise.

Follow Emirates 24|7 on Google News.