Bond report for the nine months ended 30 September 2015

Transcription

1 Bond report for the nine months ended Published 11 November Silk Bidco AS (issuer) 455,000, % Senior Secured Notes due 2022 Silk Bidco AS Fredrik Langes gate 14, P.O. Box 6144 Langnes, 9291 Tromsø, Norway Booking: , Switchboard: Business register number: NO

2 Table of contents Cautionary notice 3 Summary 4 Management's discussions and analysis of our financial condition and results of operation 5 Recent developments 19 Description of other indebtedness 20 Definitions key performance measures and key line items 21 Appendix Silk Bidco Group Unaudited Consolidated Financial Statements for the third quarter and for the nine months ended 2

3 Cautionary notice This quarterly report may contain forward-looking statements, which reflect expectations of Silk Bidco AS (together with its subsidiaries and affiliates, the Company ) regarding its future operational and financial performance. Although any forward-looking statements contained in this quarterly report reflect management s current beliefs based upon information currently available to management and upon assumptions which management believes to be reasonable, actual results may differ materially from those stated in or implied by these forward-looking statements. A number of factors could cause actual results, performance or achievements to differ materially from the results expressed or implied in any forward-looking statements. These factors should be considered carefully and readers should not place undue reliance on any forwardlooking statements. Except as required by law, the Company undertakes no obligation, and specifically declines any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The Company has included certain non-ifrs financial measures in this presentation, including EBITDA, Normalised Adjusted EBITDA, Normalised Adjusted EBITDA Margin, Capital Expenditure, Normalised Capital Expenditure, Gross Cruise Costs, Gross Ticket Revenues, Net Cruise Costs, Net Ticket Revenues and certain other financial measures and ratios. These measurements may not be comparable to those of other companies and may be calculated differently from similar measurements under the indenture governing the Company s 7.50% Senior Secured Notes due Reference to these non-ifrs financial measures should be considered in addition to IFRS financial measures, but should not be considered a substitute for results that are presented in accordance with IFRS. 3

4 Summary Operational results for Silk Bidco AS and its subsidiaries developed as expected for the nine months ended 30 September with an improvement of NOK million in Normalised Adjusted EBITDA to NOK million from NOK million in the nine months ended The improvement in Normalised Adjusted EBITDA is driven by the second and the third quarter where the latter improved by NOK million to NOK million from NOK million in the third quarter The improvement for the third quarter is related to increased revenue from all three segments combined with cost efficient operations. The macroeconomic environment continues to stay favourable with a weak Norwegian krone and low oil price. Increased commercial focus and increased operational efficiency has been important throughout the efficiency program and is materialising in the third quarter by increased Normalised adjusted EBITDA margin on the Norwegian Coast from 33.5% to 38.9% and on Explorer from 43.4% to 46.3%. The Hurtigruten Norwegian Coast segment increased its total revenues by NOK million, or 10.1% to NOK million for the nine months ended from NOK million in the nine months ended The increase is both a result of an increase in PCNs of 3.1% driven by the Nordic market as well as an increase of 9.9% in Gross ticket revenue per PCN. The increase in Gross ticket revenues per PCN was partly driven by the decrease in the value of the Norwegian kroner in relation to the euro, pound sterling and U.S. dollar, among others, compared to the prior corresponding period, and partly by a significant increase in on-board spending of 12.6% per PCN. Underlying prices increased by 1.0% in the same period. The revenue increase combined with cost efficient operations is reflected in an improvement of NOK million or 29.4% in the Normalised Adjusted EBITDA for the nine months ended which came to NOK million from NOK million in the nine months ended For the third quarter the Normalised Adjusted EBITDA improved by NOK million, or 35.3%, to NOK million from NOK million in the third quarter MS Fram total revenues in the nine months ended was NOK million, compared to NOK million in the nine months ended The development is mainly driven by a 17.6% increase in Gross ticket revenue per PCN mainly driven by the decrease in the value of the Norwegian kroner in relation to the euro, pound sterling and U.S. dollar. PCNs decreased by 8.7% in the same period driven by lower volume in the Antarctica in the first quarter, combined with a planned docking in April who reduced the capacity in the second quarter compared to the prior corresponding period. The planned docking is also reflected in a lower Normalised Adjusted EBITDA in the nine months ended compared to the nine months ended 2014, to NOK 94.3 million from NOK 97.3 million, down NOK 3.0 million or 3.1%. MS Fram total revenues in the third quarter came to NOK million from NOK million in the third quarter 2014, an improvement of NOK 24.8 million or 23.9% driven by increased volume for the Spitsbergen and Greenland destination. Normalised Adjusted EBITDA for the third quarter improved by NOK 14.5 million or 32.2% and came to NOK 59.5 million in the third quarter 2105 from NOK 45.0 million in the third quarter On 3 November Hurtigruten announced that the Norwegian shipyard Fosen Yard won the contract in an international tender for the fleet refurbishment named New Arctic Interior, including four of our 90-class ships and the rebuild of our new expedition ship MS Spitsbergen (previously MS Norway Explorer). The contract has a value of about NOK 550 million and will be financed through free cash flow combined with the Revolving Credit Facility. Of the NOK 550 million a NOK 80 to 100 million is related to planned dry dockings, about NOK 250 million is related to renewal of four Norwegian coastal ships and about NOK 200 million is related to the rebuild of the new expedition ship MS Spitsbergen. Adventure travellers of today are looking for the unique and authentic experience. By renewing the fleet, we are able to offer a world-class onboard environment that complement what nature put forward outside. Also the restaurants and the food served are transformed. With over annual foreign guests, Hurtigruten provides the best Norwegian food based on coastal receipts in cooperation with local food suppliers. The tastes are natural with a modern touch. Improved results from the underlying business both in the second and the third quarter, together with favourable macroeconomic environment upholds the expectations on increased Normalised Adjusted EBITDA margin in. 4

5 Management's discussion and analysis of our financial condition and results of operation The following is a discussion of the consolidated financial condition and results of operations of Silk Bidco AS and its subsidiaries for the nine months ended compared to the nine months ended 30 September Accordingly, all references to we, us or our in respect of historical consolidated financial information in this discussion are to Silk Bidco AS and its subsidiaries on a consolidated basis. However, note that for Silk Bidco Group the only transactions occurring during 2014 was the foundation of the company in September and the acquisition of Hurtigruten AS in December. Thus, the comparable period of nine months ended 2014 only includes Hurtigruten Group. You should read this discussion in conjunction with the previous quarterly bond reports for published 10 June and 26 August, the annual bond report for 2014 published 29 April and the annual report 2014 for Hurtigruten Group, as well as our historical consolidated financial statements included in the offering memorandum dated 30 January offering the % Senior Secured Notes due 2022 issued by Silk Bidco AS. The following presentation and analysis contains forward looking statements that involve risks and uncertainties. Our future results may differ materially from those expected or implied in these forward looking statements. The sections "Risk Factors" and "Factors affecting our results of operations" in the offering memorandum mentioned above as well as the update in the annual bond report for 2014 and the previous quarterly bond reports for, should be regarded reading this Management s discussion and analysis of our financial condition and results of operations" The presentation of forward exchange contracts and bunker swaps in the income statement for 2014 has changed. The comparative figures for the quarters in 2014 have been restated accordingly. Forward exchange contracts have been reclassified from operating revenues to other (losses)/gains. Bunker swaps have been reclassified from other operating costs to other (losses)/gains. Further information can be found in Note 3B Restatement of comparative figures to the financial statement for 2014 for Hurtigruten Group. Overview We are a cruise line, local transport, cargo shipment and exploration tourism operator centred around the Norwegian coast as well as Polar waters. Hurtigruten s vision is to be the world leader in exploration travel. It will lead the world for expedition-based tourism, a niche with substantial potential on an international basis. With a fleet of 13 ships specially built for expedition voyages in Polar waters, the company is already the front runner. Two-thirds of the Bergen-Kirkenes route lies north of the Arctic Circle. Hurtigruten thereby has more than half its fleet in Arctic waters throughout the year. Its goal is to reinforce this position, differentiated from the rest of the cruise industry with authentic and active experiences on land and at sea. The group s business segments are divided into the following product areas: Hurtigruten Norwegian Coast, Explorer and Spitsbergen. Activities which do not naturally fall within these areas are grouped in Other business. Our Hurtigruten Norwegian Coast segment is our largest segment, accounting for 84.9% of our total revenues from continuing operations in the year ended 31 December 2014 and 84.3% for the nine months ended 30 September. 11 of our 13 ships provide services along the Norwegian coast under this segment, making 34 northbound and 33 southbound daily departures from ports located between Bergen in the south and Kirkenes in the north. Freight and passenger transport remain an important part of our offering, which includes basic transport infrastructure, carrying cargo and local residents across shorter distances, and for which we receive a fixed fee from the Norwegian government each year under the coastal service contract. We leverage this vessel schedule and infrastructure to offer distinct expedition based services and activities to leisure seekers through our cruise voyage products. The ships that we use to provide local transport services and cargo shipments are also used to offer exploration based voyages for leisure travellers, including a high proportion of international guests. Our second largest segment, the Explorer segment, accounted for 9.7% of our total revenues from continuing operations in the year ended 31 December 2014 and 8.6% for the nine months ended. The segment consists of our MS Fram explorer ship, which takes our guests on distinct Polar voyages year-round in Antarctic, Spitsbergen and Greenland waters. Going forward the segment will expand its services with a second ship introduced in Antarctica from September 2016, the MS Midnatsol. Additionally the new ship acquired end of June, given the name MS Spitsbergen, increases the capacity and gives opportunities to expand our services in Polar waters. 5

6 Our Spitsbergen segment comprises year-round hotel and restaurant activities as well as Arctic experience tourism in Svalbard. Spitsbergen Travel operates three hotels and an equipment store. Additionally, cruise with the former Hurtigruten ship MS Nordstjernen was introduced this summer. This segment accounted for 5.6% of our total revenues from continuing operations in the year ended 31 December 2014 and 7.1% for the nine months ended. Our Other business segment comprises non-core operations, the bus transport through TIRB and its Cominor subsidiary being the largest up through Hurtigruten sold its shareholding in TIRB to Boreal Transport Nord in July 2014, with closing of the sale 4 September Factors affecting our results of operations Factors affecting our results of operation which have not changed substantially since the publication of our previous quarterly bond reports for, annual bond report 2014 and the offering memorandum at 30 January are not included here, but should nevertheless be considered. Price of bunker fuel We are exposed to fluctuations in the price of bunker fuel, which is used to operate our ships. In order to reduce the risk related to the fuel price we have entered into hedges for the period of May to April The hedging is covered by a call option covering 100% of the expected fuel consumption from May to September, as the period from October to April 2017 is hedged through a fuel swap covering 75% of the expected fuel consumption. The oil price has been volatile over the last months, and by buying a call for the first 6 months we have flexibility to take advantage of a potential decrease in the oil price. On the longer term the rationale behind using a swap, which is offering a fixed price, is that under the current environment the swap price was favourable and enables us to keep the fuel costs on a significantly lower level compared to 2013 and Efficiency Improvement Program Our Efficiency Improvement Programme has been important to reduce our operational costs, both ship operating and administrative costs. As of we have achieved total efficiency improvements of NOK million in connection with the Efficiency Improvement Program. We believe that our Efficiency Improvement Program has positioned us for the implementation of our strategic initiatives and the next phase of development of our operations. 6

7 Key Performance Measures The following table presents, for the periods indicated, certain key performance measures with respect to our Hurtigruten Norwegian Coast and Explorer segments: Key operating metrics for Hurtigruten Norwegian Coast For the quarter ended 2014 For the nine months ended 2014 (NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel cost per liter) Hurtigruten Norwegian Coast: PCNs APCNs Occupancy rate % 90.9% 69.5% 71.2% Gross ticket revenues (1) Less: Commissions, costs of goods for flights, hotels, transportation and other passenger services Food, beverage, shop, excursions Net ticket revenues (1) Gross ticket revenues per PCN (NOK) (1) Net ticket revenues per PCN (NOK) (1) Ship operating costs (2) Selling, general and administrative expenses Gross cruise costs (2) Less: Commissions, costs of goods for flights, hotels, transportation and other passenger services Food, beverage, shop, excursions Net cruise costs (2) Net cruise costs per APCN (NOK) (2) Fuel consumption (liter/nautical mile) Fuel cost per liter (1) The presentation of forward exchange contracts in the income statement for 2014 has changed. The comparative figures for the quarters in 2014 have been restated accordingly. Net loss on forward exchange contracts totalling NOK thousand have been reclassified from operating revenues to other (losses)/gains for the nine months ended (2) The presentation of bunker swaps in the income statement for 2014 has changed. The comparative figures for the quarters in 2014 have been restated accordingly. Net gain on bunker swaps totalling NOK thousand have been reclassified from other operating costs to other (losses)/gains for the nine months ended

8 Key operating metrics for MS Fram For the quarter ended 2014 For the nine months ended 2014 (NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel cost per liter) MS Fram: PCNs APCNs Occupancy rate % 86.3% 78.8% 73.8% Gross ticket revenues Less: Commissions, costs of goods for flights, hotels, transportation and other passenger services Food, beverage, shop, excursions Net ticket revenues Gross ticket revenues per PCN (NOK) Net ticket revenues per PCN (NOK) Ship operating costs Selling, general and administrative expenses Gross cruise costs Less: Commissions, costs of goods for flights, hotels, transportation and other passenger services Food, beverage, shop, excursions Net cruise costs Net cruise costs per APCN (NOK) Fuel consumption (liter/nautical mile) Fuel cost per liter

9 Results of Operations The following table presents, for the periods indicated, our operating results: For the quarter ended For the nine months ended 2014 % Change 2014 % Change (NOK thousands, except as otherw ise indicated) Continuing Operations: Operating revenues (1) Contractual revenues (0.2) Total revenues Payroll costs.. ( ) 6.1 ( ) ( ) 10.1 ( ) Other operating costs (2) ( ) 13.4 ( ) ( ) 10.4 ( ) Depreziation, amotization and impairment losses.. (95 888) 1.8 (97 579) ( ) 0.7 ( ) Other (losses)/gains - net (1, 2) NM (55 738) (13 789) NM ( ) Operating profit/(loss) (16.9) Finance income Finance expense (63 694) NM ( ) ( ) ( ) Finance expenses - net (38 521) NM ( ) ( ) ( ) Share of profit/(loss) of associates 505 (60.4) Profit/(loss) before income tax from continuing operations (114.8) (40 223) (227.6) ( ) Income tax expense from continuing operations.. (29 735) (42.3) (17 156) (29 735) 12.2 (33 348) Profit/(loss) for the period from continuing operations (123.7) (57 379) (257.7) ( ) Dicontinued Operations: Profit/(loss) for the period from discontinued operations.. (2 596) (100.0) (100.0) - Profit/loss for the period (123.9) (57 379) (251.2) ( ) (1) The presentation of forward exchange contracts in the income statement for 2014 has changed. The comparative figures for the quarters in 2014 have been restated accordingly. Net loss on forward exchange contracts totalling NOK thousand have been reclassified from operating revenues to other (losses)/gains for the nine months ended (2) The presentation of bunker swaps in the income statement for 2014 has changed. The comparative figures for the quarters in 2014 have been restated accordingly. Net gain on bunker swaps totalling NOK thousand have been reclassified from other operating costs to other (losses)/gains for the nine months ended

10 The following table presents, for the periods indicated, the revenues, operating profit, Normalised adjusted EBITDA and Normalised adjusted EBITDA margin by reporting segment and for the Group as a whole: For the quarter ended For the nine months ended 2014 % Change 2014 % Change (NOK thousands, except as otherw ise indicated) Continuing Operations: Total revenues: Hurtigruten Norwegian Coast (1) MS Fram Spitsbergen Other business Eliminations.. (3 715) (99.5) (20) (7 473) (93.3) (502) Total revenues from continuing operations (1) Operating profit/loss for the period: Hurtigruten Norwegian Coast (28.3) MS Fram (23.9) Spitsbergen Other business.. (8 111) (105.1) 417 (23 954) (101.6) 384 Total operating profit/(loss) from continuing operations (16.9) Normalised Adjusted EBITDA: Hurtigruten Norwegian Coast MS Fram (3.1) Spitsbergen Other business Total continuing operations Normalised Adjusted EBITDA margin: Hurtigruten Norwegian Coast (1). 33.5% % 22.7% % MS Fram % % 35.7% (9.8) 32.2% Spitsbergen 17.8% % 21.3% % Other business.. NM NM NM NM NM NM Total continuing operations (1) % % 23.9% % (1) The presentation of forward exchange contracts in the income statement for 2014 has changed. The comparative figures for the quarters in 2014 have been restated accordingly. Net loss on forward exchange contracts totalling NOK thousand have been reclassified from operating revenues to other (losses)/gains for the nine months ended Comparison of the nine months ended with the nine months ended 2014 The financial information for the nine months ended 2014 discussed below has been derived from the comparative information for the nine months ended 2014 included in the unaudited consolidated financial statements of Silk Bidco Group as of and for the nine months ended 30 September. Hurtigruten AS has changed the presentation of forward exchange contracts and bunker swaps in the income statement for The comparative figures for each quarter in 2014 have been restated accordingly. Forward exchange contracts have been reclassified from operating revenues to other (losses)/gains. Bunker swaps have been reclassified from other operating costs to other (losses)/gains. Total revenues Our total revenues from continuing operations for the nine months ended increased by NOK million, or 11.6% to NOK million from NOK million in the nine months ended 30 September 2014, as a result of an increase in revenues from all our business segments. Hurtigruten Norwegian Coast increased its total revenues by NOK million, or 10.1% to NOK million for the nine months ended from NOK million in the nine months ended 30 September The overall increase in our Hurtigruten Norwegian Coast revenues was driven by both an increase in PCNs of 3.1% and an increase of 9.9% in Gross ticket revenue per PCN. The increase in PCNs was mainly driven by the Nordic market. The increase in Gross ticket revenues per PCN was partly driven by the 10

11 decrease in the value of the Norwegian kroner in relation to the euro, pound sterling and U.S. dollar, among others, compared to the prior corresponding period, and partly by a significant increase in on-board spending of 12.6% per PCN. Underlying prices increased by 1.0% in the same period. Contractual revenue amounted to NOK million in the nine months ended, principally on par with the nine months ended MS Fram total revenues in the nine months ended was NOK million, compared to NOK million in the nine months ended The increase of NOK 20.2 million, or 7.4%, is mainly driven by a 17.6% increase in Gross ticket revenue per PCN mainly driven by the decrease in the value of the Norwegian kroner in relation to the euro, pound sterling and U.S. dollar. Underlying prices decreased by 1.4% in the same period. PCNs decreased by 8.7% in the same period driven by lower volume in the Antarctica in the first quarter due to a shortfall of group business which was not recovered by individual travellers, combined with a planned docking in April which reduced the capacity in second quarter compared to same period last year. In the third quarter this year the Spitsbergen destination is the main driver for the revenue increase compared to third quarter last year, mainly driven by increased volume. Spitsbergen total revenues for the nine months ended increased by NOK 62.1 million, or 34.8%, to NOK million from NOK million for the nine months ended The increase is both due to 7.8% increase in guest nights and 25.1% increase in gross revenue per guest night. RevPAR increased as well as sales of activities and food & beverage per guest night. Additionally, cruises with the former Hurtigruten ship MS Nordstjernen was introduced in with a positive revenue effect, and a strengthening of the explorer product. Payroll costs Payroll costs from continuing operations for the nine months ended increased by NOK 67.2 million, or 10.1%, to NOK million from NOK million in the nine months ended 2014, mainly due to an increase in payroll tax with respect to our crew and some of the administrative positions following a change in Norwegian tax legislation in July 2014 together with salary increase of 2.8%. Other operating costs Our other operating costs from continuing operations for the nine months ended 2014 and are set forth below: For the quarter ended 2014 % Change For the nine months ended 2014 % Change (NOK thousands, except as otherw ise indicated) Other Operating Costs: Cost of goods sold Operating costs Sales and administrative costs Total Other operating costs from continuing operations for the nine months ended increased by NOK million, or 10.4%, to NOK million from NOK million in the nine months ended 30 September The main reason for the increase is NOK 61.7 million in transaction and acquisition costs related to Silk Bidco buying the shares in Hurtigruten AS and an increase of NOK 50.2 million, or 10.2%, in Cost of goods sold related to the revenue increase. Additionally there has been investment in future growth reflected in the sales and administrative costs through increased marketing costs in the first quarter, which has materialized in increased pre bookings for second and third quarter. In the third quarter additional marketing funds have been spend related to the introduction of MS Midnatsol in Antarctica from September Due to these two conditions, marketing costs are NOK 33.2 million higher for the nine months ended 30 September compared to the nine months ended Additionally various project costs has incurred related to the refurbishment of four Norwegian coastal ships, the acquisition and rebuild of MS Spitsbergen, introducing MS Midnatsol to Antarctica and other efficiency projects within some administrative functions. The project costs are expensed mainly as administrative costs, but a smaller part has been expensed as operating costs. Fuel costs decreased with NOK 55.4 million in the nine months ended compared to the nine months ended 2014, mainly due to the low oil price. Depreciation, Amortization and Impairment Losses Depreciation, amortization and impairment losses from continuing operations for the nine months ended 30 September was NOK million, principally on par with the nine months ended

12 Other losses net Other losses net from continuing operations for the nine months ended ended at NOK million compared to a net loss of NOK 13.8 million for the nine months ended These net losses are in principal related to forward exchange contracts and bunker swaps. Following a change in the presentation of forward exchange contracts and bunker swaps in the income statement for the year ended 31 December 2014, the comparative figures for the quarters in 2014 have been restated accordingly. Forward exchange contracts have been reclassified from operating revenues to other (losses)/gains. Bunker swaps have been reclassified from other operating costs to other (losses)/gains. Other losses net for the nine months ended includes net losses on derivative financial instruments of NOK million and for the nine months ended 2014 a net loss of NOK 14.3 million. For the nine months ended net losses of NOK million is related to derivative contracts which was terminated as part of the refinancing of the company and NOK 6.3 million is related to the premium for a bunker call for the period May through September. EBITDA Our EBITDA from continuing operations for the nine months ended decreased by NOK 69.1 million, or 9.7%, to NOK million from NOK million in the nine months ended Non-recurring items for the nine months ended totals NOK million where the following are the major ones; i) a NOK 61.7 million in administrative expenses as a result of the acquisition of Hurtigruten AS and; ii) a NOK million net loss on foreign exchange and bunker derivatives terminated in January. The rest of the non-recurring costs are mainly related to legal fee on the harbour case and project costs. The revenue increase on all our business segments together with increased operational efficiency and a favourable oil price results in an improved EBITDA adjusted for the non-recurring items incurred in the nine months ended compared to the nine months ended In the comparable period, the nine months ended 2014, non-recurring items totalled NOK 12.4 million. The Normalised Adjusted EBITDA from continuing operations does not include the above mentioned nonrecurring items among other smaller effects, and increased by NOK million, or 26.8%, to NOK million for the nine months ended from NOK million in the nine months ended 30 September Hurtigruten Norwegian Coast EBITDA for the nine months ended decreased by NOK 73.3 million, or 12.7%, to NOK million from NOK million in the nine months ended 2014 related to the non-recurring items. The EBITDA decrease is driven by a NOK million share of the increase in non-recurring items where the major ones are the ones mentioned above. These non-recurring items are more than offset by increased revenue and lower fuel costs. MS Fram EBITDA for the nine months ended decreased by NOK 16.0 million, or 16.6% to NOK 80.4 million from NOK 96.4 million in the nine months ended The decrease is primarily attributable to a NOK 13.0 million share of the increase in non-recurring items and a planned docking in April. Spitsbergen EBITDA for the nine months ended increased by NOK 20.2 million, or 53.0% to NOK 58.2 million from NOK 38.0 million in the nine months ended The EBITDA increase comes from an increase in guest nights and gross revenue per guest night, partly offset by a NOK 3.3 million share of the increase in non-recurring items. Other business EBITDA for the nine months ended increased by NOK 0.1 million, or 4.8% to NOK 1.0 million from NOK 0.9 million in the nine months ended EBITDA margin Our EBITDA margin from continuing operations for the nine months ended decreased by 4.5 percentage points, to 19.0% from 23.5% in the nine months ended 2014 due to the nonrecurring items related to the acquisition of Hurtigruten AS. However, Normalised Adjusted EBITDA margin for the nine months ended increased by 3.2 percentage points, to 27.1% from 23.9% in the nine months ended Hurtigruten Norwegian Coast EBITDA margin for the nine months ended decreased by 4.6 percentage points, to 17.7% from 22.3% in the nine months ended The Normalised Adjusted EBITDA margin for the nine months ended increased by 4.0 percentage points, to 26.7% from 22.7% in the nine months ended

13 MS Fram EBITDA margin for the nine months ended decreased by 7.9 percentage points, to 27.5% from 35.4% in the nine months ended The Normalised Adjusted EBITDA margin for the nine months ended decreased by 3.5 percentage points, to 32.2% from 35.7% in the nine months ended Spitsbergen EBITDA margin for the nine months ended increased by 2.9 percentage points to 24.2%, from 21.4% the nine months ended The Normalised Adjusted EBITDA margin for the nine months ended increased by 4.3 percentage points, to 21.3% from 25.6% in the nine months ended Other business EBITDA margin for the nine months ended decreased by 8.9 percentage points, to 90.8% from 99.7% in the nine months ended Operating profit Operating profit from continuing operations for the nine months ended decreased by NOK 71.2 million, or 16.9%, to NOK million from NOK million in the nine months ended 2014, primarily due to the reasons stated above with respect to EBITDA. Finance expenses net Finance expenses net from continuing operations for the nine months ended increased by NOK million, or 343.0%, to NOK million from NOK million in nine months ended 30 September Finance expense for the nine months ended increased by NOK million, or 284.8%, to NOK million from NOK million in the nine months ended The increase was principally a result of; i) fees and termination costs related to the refinancing of the company following the acquisition of Hurtigruten ASA totalling NOK 39.5 million; ii) increased interest expenses since the nine months ended includes the financing of Silk Bidco Group which is higher and at other conditions than in the comparable period of the nine months ended 2014 for Hurtigruten Group; iii) a foreign exchange loss of NOK 32.9 million related to the repayment of the bridge financing and; iv) an unrealised foreign exchange loss on the fair value evaluation of the bond of NOK million due to weakening of the Norwegian kroner since the issuance of the bond. The finance expense was partially offset by finance income of NOK million in the nine months ended 30 September and NOK 49.9 million in the nine months ended 2014, representing an increase of NOK 51.4 million, or 103.0%. Such increase in finance income was primarily due to an increase in realised and unrealised gross gains of NOK 50.1 million, related to the translation of monetary assets and liabilities in foreign currency to our functional currency, which is the Norwegian kroner, in the nine months ended 30 September. Share of profit/(loss) of associates Share of profit of associates from continuing operations for the nine months ended came to NOK 0.7 million from NOK 0.4 million in the nine months ended Income tax expense from continuing operations Income tax expense from continuing operations for the nine months ended came to NOK 33.3 million which related to a profit before income tax for some of the subsidiaries. In the nine months ended 2014 the income tax expense was NOK 29.7 million. Profit/(loss) for the period from continuing operations As a result of the factors discussed above, loss from continuing operations for the nine months ended 30 September decreased by NOK million to a loss of NOK million from a profit of NOK million in the nine months ended

14 Liquidity and capital resources Our primary source of liquidity is cash flows from operating activities. Our primary cash needs relate to capital expenditures for dry-dockings, maintenance and refurbishment of our ships, meeting debt service requirements and funding our working capital requirements. The most significant components of our working capital are cash and short-term deposits, trade and other receivables, trade and other payables and other current liabilities. We believe that, based on our current level of operations, as reflected in our results of operations for the nine months ended, these sources of liquidity, together with existing available borrowings under our Revolving Credit Facility, will be sufficient to fund our operations, capital expenditures and debt service obligations for at least the next twelve months. The following table summarizes our consolidated statements of cash flows for the periods indicated. For the quarter ended 2014 For the nine months ended 2014 (NOK thousand) Net cash flows from/(used in) operating activities Net cash flows from/(used in) investing activities.. (39 060) (54 102) (62 815) ( ) Net cash flows from/(used in) financing activities. ( ) ( ) ( ) Cash, cash equivalents and bank overdrafts Net cash flows from/used in operating activities The following table reconciles our profit/loss to net cash flows from/(used in) operating activities for the periods indicated: For the quarter ended 2014 For the nine months ended 2014 (NOK thousand) Profit/(loss) before income tax from continuing and discontinued operations (40 223) ( ) Adjustments for: Depreciation, amortization and impairment losses from continuing and discontinued business Other (losses)/gains - net (12 368) 400 Foreign exchange (losses)/gains - net.. (895) (674) (Losses)/gains on derivatives (11 139) (8 671) Dividends received (472) (184) (724) (405) Interest expenses Share of profit/(loss) of associates from continuing and discontinued operations.. (505) (200) (352) (700) Impairment on financial investments Difference between expensed pension and payments (1 706) Change in working capital: Inventories (2 792) (6 993) (6 009) Trade and other receivables (1 653) Financial assets at fair value through profit or loss. (7 793) (1 824) Trade and other payables. ( ) ( ) (48 317) (59 313) Interests paid.. (48 907) ( ) ( ) ( ) Income tax paid.. (248) (9) (4 177) (10 485) Net cash flows from/(used in) operating activities The principal factors affecting our net cash flows from operating activities in the periods presented are the change in our operating profit, the impact of changes in our working capital, the amount of interest paid and the movement with respect to our income taxes. A number of our operating costs are fixed; however certain of our costs, such as costs of goods, vary on a seasonal basis in line with our peak season, which typically occurs in the second and third calendar quarters of each year. We also collect a portion of pre-booked revenues at the time of booking and our peak booking periods are from September to October and January to February. The amount of revenues collected in advance is approximately 10 to 30% of the total cost of the trip booked. Therefore, due to the seasonal nature of our business, we tend to have positive working capital during our peak season in the second and third calendar 14

15 quarters, and negative working capital during the first and fourth calendar quarters (our non-peak period) when we collect less revenues. Our operating costs are generally lower during our non-peak season. However, in addition to our fixed costs, the phasing of certain of our expenses does not track the seasonality of our revenues. For example, we typically schedule dry-docking of our ships during the winter season, and this has a negative effect on our working capital during our non-peak period. Net cash flows from operating activities decreased by NOK 41.6 million, to NOK million in the nine months ended compared to NOK million in the nine months ended 2014 reflecting a decrease in a negative change in the working capital and higher interests paid which was partly offset by an increase in the cash flow from operations. Net cash flows from/used in investing activities The following table summarizes the principal components of our net cash flows from/(used in) investing activities for the period indicated: For the quarter ended 2014 For the nine months ended 2014 (NOK thousand) Purchases of property, plant and equipment ( PPE ). (10 027) (33 027) ( ) ( ) Net proceeds from sale of PPE.. (362) (170) Purchases of intangible assets. (12 131) (29 266) (35 036) (63 146) Loans to associates and other companies Proceeds from sale of shares and shareholdings Net liquid assets from purchase and sale of businesses. (69 997) - (69 997) - Settlement of derivatives ( ) Dividends received and payments from associates Change in restricted funds (5 417) Net cash flows from/(used in) investing activities (39 060) (54 102) (62 815) ( ) Cash flows from investing activities principally relates to capital expenditures on property, plant and equipment and intangible assets, less any proceeds from the sale or disposal of property, plant and equipment and shares and shareholdings. Net cash flows used in investing activities decreased by NOK million to NOK million in the nine months ended compared to NOK 62.8 million in the nine months ended The major items explaining this decrease is for the nine months ended ; i) the settlement of almost all derivatives in relation to the refinancing, totalling NOK million and; ii) capital expenditure related to the investment in a new expedition ship totalling NOK million and investments to improve on-line booking. Additionally, the following positive cash flows from investing activities in the nine months ended 2014 explains the decrease; i) proceeds we received from the sale of our Fast Ferries Business in March 2014 and the sale of property in May 2014 used by our bus business and; ii) proceed from an associated company following the sale of a property. In total our capital expenditure increased by NOK million in the periods discussed, and includes in the nine months ended expenses with respect to scheduled dry-dockings of our ships during this period, NOK million related to the acquisition of our new expedition ship MS Spitsbergen as well as investments to improve on-line booking. We expect our normalised capital expenditures in and 2016 to be at about NOK 200 million per year (2014 Norwegian kroner) based on our current operations. Such capital expenditure will be incurred primarily in relation to ongoing maintenance of our fleet including minor upgrades to public areas; NOx saving projects in and 2016 such as work on the engines with respect to MS Finnmarken and MS Trollfjord, the propulsion systems on MS Midnatsol and MS Trollfjord as well as new propellers on MS Kong Harald and MS Nordkapp; further development of our IT infrastructure, including our e-commerce channel; and the upgrade of our Spitsbergen hotels. In addition to this amount, in we expect to incur capital expenditures of approximately NOK 30 million with respect to the 305 Classification rebuild. The latter amount was reduced from a worst case scenario of approximately NOK 118 million since the publication of the offering memorandum, after the Ministry of Trade and Industry sided with us in our appeal. We are now in progress with implementation of our equivalent solution for dividing the car deck area for our one compartment ships, which can be done during operations. 15

16 In and 2016 we also expect capital expenditure of about NOK 250 million related to renewal of four Norwegian coastal ships and about NOK 200 million related to the rebuild of MS Spitsbergen. The main part of the capital expenditure will incur in 2016, but approximately NOK 90 million in prepayments for the new interior will incur in. Net cash flows used in financing activities The following table summarizes the principal components of our net cash flows used in financing activities for the periods indicated: For the quarter ended 2014 For the nine months ended 2014 (NOK thousand) Proceeds from borrowings Repayments of borrowings (84 233) ( ) ( ) ( ) Dividend paid to non-controlling interests.. (25 911) (17 838) (44 622) (40 694) Net cash flows from/(used in) financing activities.. ( ) ( ) ( ) Cash used in financing activities reflects the repayment of our previously outstanding debt, including our senior facility, notes and revolving credit facility, as well as the indebtedness of the limited partners in the SPEs. Net cash flows from financing activities came to NOK million in the nine months ended and reflect the refinancing of the company. The proceeds from borrowings includes the issuance of the bond reduced for repayment of the first draw of the bridge financing which was done in December 2014 and reduced for fees paid in relation to the refinancing. Additionally, the utilisation of the Revolving Credit Facility totalling NOK 550 million is included in Proceeds from borrowings. Repayment of borrowings reflects the repayment of our previously outstanding debt, including our senior facility, notes and revolving credit facility, repayment of NOK 400 million on the Revolving Credit Facility as well as the indebtedness of the limited partners in the SPEs and Spitsbergen Travel Group. The redemption of debt in the nine months ended 2014 included the redemption of a NOK 40 million related to the two remaining fast ferries on the occasion of their sale in March 2014, the repayment of NOK 150 million on a short-term seasonal credit as well as instalments of our previously outstanding debt. Off-balance Sheet Arrangements Hurtigruten AS has deferred income tax assets recognised in the balance sheet of NOK million at 30 September and NOK 197 million in deferred income tax assets not recognised in the balance sheet. In the future when taxable profit is sufficient to utilise deferred income tax assets, Hurtigruten will first utilise deferred income tax assets that is not recognised in the balance sheet. Tax losses may be carried forward for an indefinite period in Norway. Except for the off balance deferred income tax assets we do not have any material off-balance sheet arrangements. 16

17 Contractual Obligations The following table summarizes certain categories of our contractual obligations owed to third-parties by period as at : Total Payments Due By Period Less than 1 year 1-5 years After 5 years (NOK equivalent in millions) Notes (1) , ,2 Local Line Facilities.. 22,8 2,8 9,3 10,7 Bareboat charter obligations (2)... 80,2 40,9 39,4 - Capital expenditure commitments (3) ,1 60,6 56,5 - Total ,3 104,2 105, ,9 (1) Represents million in aggregate principal amount of the Notes. (2) Bareboat charter obligations consist of charter hire agreements relating to our bareboat charter lease agreements with Kirberg Shipping KS and Kystruten KS for the MS Nordlys and MS Richard With, respectively. (3) Capital expenditure commitments are contractual commitments for dry-dockings, work on the engines with respect to MS Finnmarken and MS Trollfjord, replacement of the propulsion system on MS Midnatsol and MS Trollfjord, new propellers on MS Kong Harald and MS Nordkapp, installations on MS Midnatsol for operations in Antarctica, rebuilding the side gate on MS Spitsbergen and capital expenditures with respect to the development of our IT infrastructure. A portion of the capital expenditure commitments related to our NOx saving projects in and 2016 may be reimbursed by the Confederation of Norwegian Enterprise s NOx fund. See Net Cash Flows from Investing Activities. The increase in the total contractual obligations from the publication of the second quarter bond report is due to the foreign exchange rate and increased capital expenditure commitment related to new propellers on MS Kong Harald and MS Nordkapp, installations on MS Midnatsol for operations in Antarctica and rebuilding the side gate on MS Spitsbergen. A portion of this capital expenditure may be reimbursed by the Confederation of Norwegian Enterprise s NOx fund. In the table above the period-end Bloomberg Generic rate at has been used for the conversion of the Notes offered and the Bareboat charter obligations. Other contractual obligations not included in the table above include outstanding purchase contracts with product suppliers and payments due to trade creditors. Capital Resources We are highly leveraged and have significant debt service obligations. As of we have a total debt of NOK million which includes NOK 150 million drawn on the Revolving Credit Facility. Additionally we have 49.2 million available under our Revolving Credit Facility. Quantitative and qualitative disclosure of market risks We are exposed to various market risks as part of our business activities, which are intrinsically linked to our business dealings. See Risk Factors in the annual bond report for 2014 and the "Risk Factors" chapter in the offering memorandum. We handle these risks using a risk management system, which forms an integral part of our business process and is a key factor in business decisions. It aims to identify potential risks in connection with our business activities at an early stage, to monitor them and to take suitable measures to limit them. The key elements of the risk management system include the planning system, internal reporting and integrated risk reporting. 17