Quarterly Bond report 2017

Transcription

1 Quarterly Bond report 2017 Published 22 May 2017 Silk Bidco AS (issuer) 455,000, % Senior Secured Notes due 2022

2 Table of contents Cautionary notice 3 Summary 4 Risk factors 5 Management's discussions and analysis of our financial condition and results of operation 8 Recent developments in the business 22 Additional information 23 Definitions key performance measures and key line items 24 Appendix Silk Bidco group Unaudited consolidated financial statements for the first quarter 2017 Previous page: Arctic Haute Route Instagram arctichauteroute 2

3 Cautionary notice This 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 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 forward-looking 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 Hurtigruten s performance in the first quarter of 2017 has been strong, with growth in Revenues as well as EBITDA compared to the same period in In the Explorer segment, MS Midnatsol has completed its first full Antarctica season, and been very well received by passengers, with high levels of guest satisfaction and strong demand coming through for the upcoming seasons. On the Norwegian Coast, occupancy in what has historically been low season continues to rise, reaching nearly 65% in the first quarter of There were no significant disruptions of the operations in the period. Normalized adjusted EBITDA went to NOK 54 million in the three months ended 31 March 2017 from NOK (1) million in the three months ended March This was driven by top-line revenue growth, with Normalized Total Revenue from Continuing Operations going to NOK 980 million from NOK 832 million in the three months ended 31 March 2017 and 2016 respectively (an increase of 17.8%), with higher operating costs in 2017 due to the new addition in the fleet (MS Spitsbergen) and the change in deployment, as well as continued investments in the Commercial organization to support the growth in the business. Both main segments have continued to perform well, after record performances in Occupancy on the Norwegian Coast improved from 56.2% in the three months ended 31 March 2016 to 64.8% in the three months ended 31 March 2017, with an increase in passenger cruise nights of 10.1%. In the Explorer segment, occupancy dropped from 91.9% in the three months ended 31 March 2016 to 78.0% in the three months ended 31 March 2017, due to the addition of MS Midnatsol which increased capacity by over 200%. Passenger cruise nights grew by 170.5% in the period and the additional capacity in the Explorer segment will allow Hurtigruten to absorb the high levels of demand for Expedition cruising. Hurtigruten Norwegian Coast increased its total revenue (excl. Contractual income from the State Agreement) by NOK 45 million, or 9.8% to NOK 500 million for the three months ended 31 March 2017 from NOK 455 million in the three months ended 31 March This was driven mainly by the increase in Passenger Cruise Nights. Contractual revenue amounted to NOK 170 million in the three months ended 31 March 2017 from NOK 174 million in the three months ended 31 March Normalized Adjusted EBITDA increased from NOK (44) million in the three months ended 31 March 2016 to NOK (11) million in the three months ended 31 March Explorer segment s total revenue in the three months ended 31 March 2017 was NOK 240 million, compared to NOK 115 million in the three months ended 31 March The development is mainly driven by the 170.5% increase in PCN mentioned above. Normalized Adjusted EBITDA went from NOK 36 million in the three months ended 31 March 2016 to NOK 53 million in the three months ended March Hurtigruten Svalbard segment s total revenue for the three months ended 31 March 2017 increased by NOK 4 million, or 5.4%, to NOK 71 million from NOK 67 million for the three months ended 31 March The increase is due to higher gross revenue per guest night. Normalized Adjusted EBITDA for the three months ended 31 March 2017 increased by NOK 5 million to NOK 12 million from NOK 7 million in the three months ended 31 March There is increasing demand for the excursions and activities offered. 4

5 Risk factors You should carefully consider the risks described below, the other information contained in this document as well as in the Offering Memorandum before making an investment decision. Any of the following risks could materially adversely affect our business, financial condition or results of operations, and as a result you may lose all or part of your original investment. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations. An increase in port taxes or fees or other adverse change of our terms of business with the authorities operating the ports in which we call could increase our operating costs and adversely affect our business, financial condition, results of operations and prospects. In recent years, authorities have assessed new taxes, introduced new fees or raised existing taxes or fees charged for the use of ports, raised value added taxes on tickets and onboard revenues and changes in the scope of income included in tonnage based tax regimes Our port costs for the Hurtigruten Norwegian Coast segment have increased significantly. Such increases are beyond the scope of the inflationary index covered under the Coastal Service Contract and to the extent that we are not able to pass on such additional costs to our customers, our operating costs will increase. In addition, an increase in the prices we charge our guests as a result of such increased operating costs could decrease the demand for our services, which could adversely affect our revenues. We are subject to complex laws and regulations, including environmental, health and safety laws and regulations, which could adversely affect our operations and any changes in the current laws and regulations could lead to increased costs or decreased revenue. We are directly and indirectly subject to various international and national laws, regulations, treaties and employee union agreements related to, among other things, the environment, health, safety, security and employment. Failure to comply with these laws and regulations could lead to enforcement actions, fines, civil or criminal penalties or the assertion of litigation claims and damages. We expect our normalised capital expenditures in 2017 to be at about NOK 200 million per year 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 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. Further capital expenditure may be incurred based on new regulation or directives. 5

6 The Group s inability to deploy new ships and carry out ship repairs, maintenance and refurbishments on terms and within timeframes that are favourable or consistent with the Group s expectations could result in revenue losses and unforeseen costs. The deployment of new ships and the repair, maintenance and refurbishment of the Group s ships are complex processes and involve risks similar to those encountered in other large and sophisticated construction, repair, maintenance and refurbishment projects. The Group could experience delays and cost overruns in completing such work. The delays can result in lost revenues as well as lost on-board revenues associated with cancelled bookings. Cancellation of a voyage or part of a voyage due to delays in the deployment of new ships or the repair, maintenance and refurbishment of existing ships may negatively impact the Group s reputation, and even if the Group is able to rebook customers on other ships, such rebookings may entail additional costs with respect to transportation and accommodation of rebooked passengers. In addition, as the Group s fleet ages, the Group s repair and maintenance expenses have increased due to additional repair and maintenance work required to be performed. In addition, other events, such as work stoppages and other labour actions, insolvencies, force majeure events or other financial difficulties experienced at the shipyards and among the subcontractors and suppliers that build, repair, maintain or refurbish the Group s ships could prevent or delay the completion of the refurbishment, repair and maintenance of the Group s ships. These events could adversely affect the Group s operations, including causing delays or cancellations of the Group s trips or unscheduled or prolonged dry-docks and repairs. Any termination or breach of contract on the Group s part following such an event may result in, among other things, the forfeiture of prior deposits or payments made by the Group as well as potential claims by the Group s customers against it if the Group s ships are out of service and the Group cannot provide alternative services. A significant delay in the refurbishment or repair of one or more of the Group s ships, or a significant performance deficiency or mechanical failure of a ship, particularly in light of decreasing availability of dry-dock facilities, could have an adverse effect on the Group s business, results of operations and financial condition. In addition, the consolidation of ownership of certain cruise shipyards, capacity reductions at shipyards or insolvencies could reduce competition and result in increased prices for new builds and repairs. The Group typically uses shipyards in close proximity to its routes, in particular for the Group s Hurtigruten Norwegian Coast segment, which limits its options for choosing shipyards and this could exacerbate the impact on the Group s business from any consolidations, capacity reductions or insolvencies. Finally, the lack of qualified shipyard repair facilities could result in the Group being unable to repair and maintain its ships on a timely basis, which could also result in reduced profitability. Any of the foregoing could have a material adverse effect on the Group s business, results of operations and financial condition 6

7 Our results of operations are susceptible to unseasonable changes in weather and we may be affected by adverse weather conditions. Extreme weather events, adverse weather and climate conditions may disrupt or require us to alter or cancel our cruise or hotel operations. Extreme weather events, adverse weather and climate conditions could also disrupt commercial airline flights that transport our guests to the geographies in which we operate. Our insurance does not cover additional cost related to delays or cancellations of ports due to weather conditions. In addition, we may incur costs in providing alternative transportation to those guests onboard our ships that need to get to the next port, and we may lose revenue from commissions paid to us by our excursion partners at ports where we cancel calls. We are not obliged to cover costs for transporting guests on their way to a ship if such ship service is cancelled unless the guest has booked a travel package including ancillary transportation such as flights through us. If the guest has booked such package and started their journey, we have to refund the purchase price for such package and in certain instances have to cover their costs associated with transporting such guests back to the point where they initiated their journey. In most cases with respect to our Hurtigruten Norwegian Coast product, where we have ships departing every day, we try to re-book such guests to a ship that is departing either the day before or the day after, however, if we are unable to re-book the guests, we would refund the cost of their tickets (including their deposit). In addition, inclement weather conditions may prevent or discourage our guests from electing our services altogether. In addition, extreme weather conditions could result in increased wave and wind activity, which would make it more challenging to sail and dock our ships and could cause sea/motion sickness among guests and crew. The risk of adverse weather is in particularly high with respect to our Explorer segment, which operates in Polar waters and our Spitsbergen Travel segment, which operates in Spitsbergen, where weather conditions are extreme. Weather events could have an adverse impact on the safety of, and our customers satisfaction with, our services and could have a material adverse effect on our business, financial condition, results of operations and prospects. Extreme weather events or other adverse weather may also disrupt the supply chain from or to the impacted region and could disrupt our bunker fuel, food and shore power supplies. Finally, extreme weather conditions could cause property damage to our ships, port and related commercial facilities and other assets and impact our ability to obtain insurance coverage for operations in such areas at reasonable rates. If our services are delayed or cancelled, we may need to re-route our guests to other ports of call or cancel their bookings. As a result, we may face difficulty in maintaining consumer loyalty to our brand and our business, financial condition, results of operations and prospects may be adversely affected. Our services may be delayed, cancelled or disrupted due to conditions that are beyond our control. For example, if there are delays in the operations of the ports of call or if other ships staying in the port are delayed, we may not be able to moor alongside the pier and, as a result, our scheduled service may be delayed or we may be required to cancel stops or re-route our services. In addition, a delay at one port may result in ongoing delays to the remainder of our route and scheduled stops at other ports. Furthermore, as our Explorer segment offers activities and voyages to remote Polar areas, where medical assistance is not immediately available, we are exposed to the risk of rerouting our itineraries due to medical emergencies onboard. As a result of re-routing or delays in our services, we may need to direct our guests to our other ports of call or cancel their bookings. In addition, such incidents may prevent or discourage our guests from selecting our services altogether and our business, financial condition, results of operations and prospects may be adversely affected. 7

8 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 three months ended 31 March 2017 compared to the three months ended 31 March 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. In the following discussions for the three months ended 31 March 2017, the comparable period of three months ended 31 March 2016 is shown. You should read this discussion in conjunction with the previous annual and quarterly bond reports for 2014, 2015 and 2016, and the annual report 2014 for Hurtigruten Group, as well as our historical consolidated financial statements included in the offering memorandum dated 30 January 2015 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 and quarterly bond reports for 2015 and 2016 and the annual bond report for 2014, should be regarded reading this Management s discussion and analysis of our financial condition and results of operations" Overview We are an exploration cruise and travel operator in Polar Waters, as well as providing local transport and cargo shipment along the Norwegian coast. Hurtigruten s vision is to be the world leader in exploration travel. It will lead the world for environmentally friendly expedition-based tourism, a niche with substantial potential on an international basis. With a fleet of 13 ships (14 including MS Nordstjernen) 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 and expand 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 Hurtigruten Svalbard. 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 68.3% of our total revenues from continuing operations for the three months ended 31 March 2017 compared to 77.6% of our total revenues from continuing operations for the three months ended 31 March of our 14 ships provide services along the Norwegian coast under this segment, making 33 northbound and 32 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 24.5% of our total revenues from continuing operations for the three months ended 31 March 2017 compared to 14.2% of our total revenues from continuing operations for the three months ended 31 March The segment consists of vessels MS Fram, MS Spitsbergen and MS Midnatsol (the latter two vessels alternating between Norwegian Coast and Explorer segment) as well as MS Nordstjernen which is leased and operated in Svalbard in the summer season. In the period covered by this report, MS Fram and MS Midnatsol were sailing in the Explorer segment in 2017, while MS Fram was operating alone in the segment in Note that in order to better define our Explorer Cruise segment, we are reporting MS Nordstjernen as an Explorer product from 2016 (previously included in the Spitsbergen segment). This does not impact Q1 results as MS Nordstjernen was not operating at the time. Additionally, the Explorer segment shall be strengthened from 2018 and onward with two new polar cruise ships, the first of which is currently under construction. Our Hurtigruten Svalbard segment comprises year-round hotel and restaurant activities as well as Arctic experience tourism in Svalbard. We operate three hotels and an equipment store. This segment accounted for 7.2% of our 8

9 total revenues from continuing operations for the three months ended 31 March 2017 compared to 8.3% of our total revenues from continuing operations for the three months ended 31 March Factors affecting our results of operations Factors affecting our results of operation which have not changed substantially since the publication of our previous bond reports including the latest for Full year 2016 may not be included here, but should nevertheless be considered. Pre-bookings We typically commence our marketing activities for our Hurtigruten Norwegian Coast and Explorer voyages and our Spitsbergen hotels in the first quarter of the year before the voyage at the latest; some Explorer voyages are sold up to 18 months before the beginning of the season. We typically require our guests to pay a non-refundable deposit ranging from 10% to 30% of the total amount payable at the time the booking is made. Our advanced customer bookings provide us with visibility into near term revenue across our business segments. Moreover, the payment of the non-refundable deposits reduces the risk of cancellation. As a result, in the twelve months ended 31 December 2016, 42.9% of our reservations in terms of PCNs were made at least six months in advance and 38.3% of our reservations in terms of PCNs were made at least six months in advance in the twelve months ended 31 December As of the date this quarterly bond report is published, our pre-bookings in terms of revenue at constant currency for 2017 and 2018 compared to the same date last year, for the Hurtigruten Norwegian Coast segment and Explorer segment, has continued to develop positively. Depending on the level of our pre-bookings, we adjust prices in order to maximize ticket sales as we approach the relevant travel date. Seasonality Our business is seasonal in nature based on demand for our services. Demand is strongest for our Hurtigruten Norwegian Coast product during the northern hemisphere s summer months and holidays. As Hurtigruten Norwegian Coast is our largest segment, this seasonality in demand results in fluctuations in our revenues and results of operations. The first and fourth calendar quarters are weaker periods in terms of revenues and EBITDA. With the introduction of more capacity in the Explorer segment, particularly MS Midnatsol in Antarctica in the southern hemisphere summer and the future growth of the fleet with the two new vessels, there will be significantly less seasonality in the business, with the Explorer segment contributing positively while the Hurtigruten Norwegian Coast is in its lower season. In addition, the Norwegian Coastal segment has seen strong improvement in occupancy year-round, with a strong demand for Northern Lights voyages from markets such as the UK and China. The results in the first quarter 2017 show positive EBITDA contribution and very strong growth in passenger volumes, in line with the company strategy. 9

10 Currency effect Our results of operations are subject to both translation risk and transaction risks as a result of fluctuations in exchange rates. Fluctuating foreign exchange rates, in particular as between the Norwegian kroner and the euro, the U.S. dollar and the pound sterling, can have a material effect on the results of our operations. For the quarter months ended 31 March 2017, we generated 40% of our operational revenues, which excludes foreign currency effects with respect to trade receivables during the same period ( Operational Revenues ), in Norwegian kroner, 39% of our Operational Revenues in euros, 11% of our Operational Revenues in pound sterling, 7% of our Operational Revenues in U.S. dollars and 3% in other currencies. The majority of Operating costs, excluding bunker fuel costs and crew for some Explorer voyages which are incurred in U.S. dollars, are incurred in Norwegian kroner. Commissions and office operating expenses are incurred in the currency of their Market. The company monitors inflows and outflows by currency, and will adopt hedging strategies as appropriate. Foreign Exchange rates We are exposed to different currencies in the normal course of business, and will from time to time enter into hedges to limit the risks associated with wide fluctuations. In the context of the construction of a new vessel, where c. 50% of the contract is denominated in NOK and longterm financing is expected to be EUR denominated, we have entered into a foreign exchange risk hedge in order to limit our exposure. On 18 th July 2016 we entered into a zero premium collar contract of a notional amount of 60 million EUR, with a call strike at 9.86 NOK/EUR, a put strike at 9.20 NOK/EUR and a two-year maturity. 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. The period from November 2015 to April 2017 was hedged through a fuel swap covering 75% of the total fuel consumption in 2016 and until end of April In 2016, we have purchased additional derivatives contracts and have hedged 83% of the estimated bunker oil consumption for the period 2017 until December The company will continue to monitor the price fluctuations and cover the risk through hedges, in order to limit the impact on results. 10

11 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 NB. This report does not include the State Contract s revenue neither the goods and other operating revenue originated by the Norwegian Coast activity. The perimeter of the activity is slightly changed for Q1 2017, with MS Spitsbergen replacing MS Midnatsol on the Coast. For the quarter ended 31 March March 2017 (NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel cost per liter) Hurtigruten Norwegian Coast: PCNs APCNs Occupancy rate.. 56,2% 64,8% 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).. 78,1 82,1 Fuel cost per liter. 5,77 5,99 11

12 Key operating metrics for Explorer NB. In Q1 2016, operations include MS Fram only. In Q1 2017, operations include MS Fram and MS Midnatsol, which has increased capacity by c. 220% in the quarter. For the quarter ended 31 March March 2017 (NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel cost per liter) Hurtigruten Explorer: PCNs APCNs Occupancy rate.. 91,9% 78,0% 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).. 81,0 93,1 Fuel cost per liter. 7,00 5,66 12

13 Results of Operations The following table presents, for the periods indicated, our operating results: For the quarter ended 31 March 2016 % Change 31 March 2017 (NOK thousands, except as otherw ise indicated) Continuing Operations: Operating revenues , Contractual revenues (2,2) Total revenues , Payroll costs.. ( ) 10,2 ( ) Other operating costs ( ) 15,5 ( ) Depreciation, amortization and impairment losses.. ( ) 13,3 ( ) Other (losses)/gains - net (36 440) (54,7) (16 514) Operating profit/(loss).. ( ) (40,4) (91 627) Finance income (80,4) Finance expense ( ) 22,8 ( ) Finance expenses - net (4 301) NM ( ) Share of profit/(loss) of associates 908 (16,9) 755 Profit/(loss) before income tax from continuing operations. ( ) 40,7 ( ) Income tax expense from continuing operations.. - NM (6 186) Profit/(loss) for the period from continuing operations.. ( ) 44,6 ( ) Dicontinued Operations: Profit/(loss) for the period from discontinued operations Profit/loss for the period. ( ) 44,6 ( ) 13

14 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 31 March 2016 % Change 31 March 2017 (NOK thousands, except as otherw ise indicated) Continuing Operations: Total revenues: Hurtigruten Norwegian Coast , Hurtigruten Explorer , Hurtigruten Svalbard , Other business. (466) (159,9) 279 Eliminations.. 0 NM - Total revenues from continuing operations , Operating profit/loss for the period: Hurtigruten Norwegian Coast. ( ) (26,2) ( ) Hurtigruten Explorer , Hurtigruten Svalbard , Other business.. (1 033) NM 68 Total operating profit/(loss) from continuing operations.. ( ) (40,4) (91 627) Normalised Adjusted EBITDA: Hurtigruten Norwegian Coast.. (43 603) (74,9) (10 939) Hurtigruten Explorer , Hurtigruten Svalbard , Other business.. (893) NM 177 Total continuing operations (1 089) NM Normalised Adjusted EBITDA margin: Hurtigruten Norwegian Coast.. (6,7%) (75,6) (1,6%) Hurtigruten Explorer. 31,3% (29,9) 22,0% Hurtigruten Svalbard. 11,0% 54,6 17,0% Other business.. NM NM NM Total continuing operations.... (0,1%) NM 5,5% 14

15 Comparison of the three months ended 31 March 2017 with the three months ended 31 March 2016 The financial information for the three months ended 31 March 2017 discussed below has been derived from the unaudited consolidated financial statements of Silk Bidco Group as of and for the three months ended 31 March Total revenues Our total revenues from continuing operations for the three months ended 31 March 2017 increased by NOK 170 million, or 21% to NOK 980 million from NOK 810 million in the three months ended 31 March 2016, as a result of the deployment of MS Midnatsol in Antarctica (500+ berths) which has significantly grown the Explorer segment (in addition to MS Fram, 252 berths) as well as continued improvement in the Coastal operations. Hurtigruten Norwegian Coast increased its total revenue (excl. Contractual income from the State Agreement) by NOK 45 million, or 9.8% to NOK 50 million for the three months ended 31 March 2017 from NOK 455 million in the three months ended 31 March This was driven mainly by a 10.1% increase in PCN. The Trade channel share is stable, with growth in demand from all Hurtigruten s markets apart from Nordics, where revenues were flat yearover-year. Contractual revenue amounted to NOK 170 million in the three months ended 31 March 2017 from NOK 174 million in the three months ended 31 March The decrease of NOK 4 million is related to the contractual payment schedule. There were no material disruptions to the operations on the Coast in 2017 as there were in 2016 due to the significant docking and refurbishment plan, which had resulted in a loss of Contractual Revenues in Explorer segment s total revenue in the three months ended 31 March 2017 was NOK 240 million, compared to NOK 115 million in the three months ended 31 March The development is mainly driven by the 170.5% increase in PCN (building off of the 218.9% increase in APCN) with high occupancy levels for the Antarctic voyages, where both ships in the segment were deployed at this period. Hurtigruten Svalbard segment s total revenue for the three months ended 31 March 2017 increased by NOK 4 million, or 5.4%, to NOK 71 million from NOK 67 million for the three months ended 31 March The increase is due to higher gross revenue per guest night. Payroll costs Payroll costs from continuing operations for the three months ended 31 March 2017 increased by NOK 26 million, or 10.2%, to NOK 283 million from NOK 257 million in the three months ended 31 March 2016, partly due to introducing new capacity in the Explorer segment. Other operating costs Our other operating costs from continuing operations for the three months ended 31 March 2016 and 2017 are set forth below: For the quarter ended 31 March 2016 % Change 31 March 2017 (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 three months ended 31 March 2017 increased by NOK 89 million, or 15.5%, to NOK 659 million from NOK 570 million in the three months ended 31 March The highest increase is from the Cost of goods sold, which reflects the increase in sales, and Operating costs, which include an extra vessel in the Explorer segment. The Commercial team has been strengthened throughout 2016, to support the growth in capacity and prepare for the launch of the Newbuild vessels. 15

16 Depreciation, Amortization and Impairment Losses Depreciation, amortization and impairment losses from continuing operations for the three months ended 31 March 2017 increased by NOK 13 million, to NOK 113 million from NOK 100 million in the three months ended 31 March The increase relates to the investments made in PP&E over the year and reflect an increase in the value of the fleet. Other losses net Other losses net from continuing operations for the three months ended 31 March 2017 were of NOK 17 million compared to a net loss of NOK 36 million for the three months ended 31 March EBITDA Our EBITDA from continuing operations for the three months ended 31 March 2017 increased by NOK 75 million, from NOK (54) million in the three months ended 31 March 2016 to NOK 22 million in the three months ended 31 March Non-recurring items for the three months ended 31 March 2017 totals NOK 32 million, of which i) NOK 17 million of Losses on Fuel derivatives and ii) 10 million of Project costs. The non-recurring costs for the same period in 2016 were NOK 53 million, of which NOK 42 million of cancellation and project costs, none of which are recurring in The Normalised Adjusted EBITDA from continuing operations does not include the above mentioned non-recurring items among other smaller effects, and increased from NOK (1) million for the three months ended March 2016 to NOK 54 million for the three months ended 31 March For the Norwegian Coast, Normalized Adjusted EBITDA increased from NOK (44) million in the three months ended 31 March 2016 to NOK (11) million in the three months ended 31 March The improvement in EBITDA relates to strong growth in occupancy on the Coast, which has been a focus for the Commercial organization as this has traditionally been a lower demand season. Occupancy went from 56.2% to 64.8% and the additional volume, combined with improved offerings for Food and Excursions on the Coastal vessels, has been a strategic driver for increased profitability. For the Explorer segment, Normalized Adjusted EBITDA went from NOK 36 million in the three months ended 31 March 2016 to NOK 53 million in the three months ended March 2017, reflecting the growth in capacity and sustained demand for the Antarctic products. MS Midnatsol offers voyages at a lower price than MS Fram due to its larger size and different landing options, which drives the change in the Net Ticket Revenue per PCN in the segment; this is compensated by significant economies of scale on the vessel which carries more than twice the number of passengers, while ship operating costs are around 20-25% higher than for MS Fram. MS Midnatsol has performed very well in its first season, and will see improved profitability as occupancy increases in future seasons. Hurtigruten Svalbard s Normalized Adjusted EBITDA for the three months ended 31 March 2017 increased by NOK 5 million to NOK 12 million from NOK 7 million in the three months ended 31 March The EBITDA increase comes from higher revenues per guest night, with continued demand for the excursions and activities offered. Other business s EBITDA for the three months ended 31 March 2016 and 31 March 2017 are not material (NOK (1) million in 2016 and NOK 0 in 2017) EBITDA margin Our Reported EBITDA margin from continuing operations for the three months ended 31 March 2017 increased by 8.8 percentage points, to 2.2% in the three months ended 31 March 2017 from (6.6%) in the three months ended 31 March The Normalized Adjusted EBITDA margin increased by 5.6 percentage points, to 5.5% from (0.1%) in the three months ended 31 March Hurtigruten Norwegian Coast Reported EBITDA margin for the three months ended 31 March 2017 increased by 9.0 percentage points, to (5.9%) from (14.9%) in the three months ended 31 March The Normalised Adjusted EBITDA margin for the three months ended 31 March 2017 increased by 5.1 percentage points, to (1.6%) from (6.7%) in the three months ended 31 March

17 EBITDA margin (continued) Explorer Reported EBITDA margin for the three months ended 31 March 2017 decreased by 8.9 percentage points, to 20.4% from 29.4% in the three months ended 31 March The Normalised Adjusted EBITDA margin for the three months ended 31 March 2017 decreased by 9.4 percentage points, to 22.0% from 31.3% in the three months ended 31 March The decrease in margin relates mainly to the addition of MS Midnatsol in the Explorer Segment, which has been very well received and achieved occupancy levels of above 80% on several voyages; further increases in occupancy will result in strong margin gains due to the fixed cost nature of the operations. The Explorer segment remains the main EBITDA contributor in the first quarter. Hurtigruten Svalbard Reported EBITDA margin for the three months ended 31 March 2017 increased by 6.3 percentage points to 17.1%, from 10.8% in the three months ended 31 March The Normalised Adjusted EBITDA margin for the three months ended 31 March 2017 increased by 6.0 percentage points, to 17.0% from 11.0% in the three months ended 31 March 2016, reflecting higher prices per night and continued cost control. Operating profit Operating profit from continuing operations for the three months ended 31 March 2017 increased by NOK 62 million, to NOK (92) million from NOK (154) million in the three months ended 31 March 2016, due to the reasons stated above with respect to EBITDA. Finance expenses net Net financial items (financial results) from continuing operations for the three months ended 31 March 2017 decreased by NOK 126 million to a loss of NOK 130 million from a loss of NOK 4 million as at 31 March Finance expenses for the three months ended 31 March 2017 increased by NOK 28 million, to NOK 154 million from NOK 125 million in the three months ended 31 March The increase was principally a result of the financing of the MS Spitsbergen in the summer of 2016, treated as a Financial Lease in Silk Bidco Group s accounts as well as the Shareholder Loan and increase of the Revolving Credit Facility in Q1 of Finance expenses were partially offset by a financial income of NOK 24 million in the three months ended 31 March 2017 vs. NOK 121 million in the three months ended 31 March 2016, representing a decrease of NOK 97 million. The high levels of financial income in Q were primarily due an unrealised foreign exchange gain in the fair value evaluation of the Euro-denominated bond due to strengthening of the Norwegian kroner since 31 December In Q the Euro strengthened against the Norwegian Kroner and resulted in an unrealized foreign exchange loss, reducing the financial income. Share of profit/(loss) of associates Share of profit of associates from continuing operations for the three months ended 31 March 2017 came to NOK 1 million, on par with the three months ended 31 March Income tax expense from continuing operations Income tax expense from continuing operations for the three months ended 31 March 2017 came to NOK 6 million which related to a profit before income tax for some of the subsidiaries. In the three months ended 31 March 2016 the income tax expense was NOK 0 million. Profit/(loss) for the period from continuing operations As a result of the factors discussed above, loss from continuing operations for the three months ended 31 March 2017 decreased by 70 million to a loss of NOK 227 million from a loss of NOK 157 million in the three months ended 31 March

18 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 three months ended 31 March 2017, these sources of liquidity, together with existing available borrowings under our Revolving Credit Facility and Shareholder Loans, will be adequate to fund our operations, budgeted 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 31 March March 2017 (NOK thousand) Net cash flows from/(used in) operating activities ( ) Net cash flows from/(used in) investing activities.. ( ) ( ) 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 31 March March 2017 (NOK thousand) Profit/(loss) before income tax from continuing and discontinued operations.. ( ) ( ) Adjustments for: Depreciation, amortization and impairment losses from continuing and discontinued business Other (losses)/gains - net 200 (189) Foreign exchange (losses)/gains - net.. (94 282) (Losses)/gains on derivatives Dividends received - (95) Interest expenses Share of profit/(loss) of associates from continuing and discontinued operations.. (908) (755) Difference between expensed pension and payments. (4 420) (5 208) Change in working capital: Inventories Trade and other receivables. (11 459) (562) Trade and other payables Interests paid.. ( ) ( ) Income tax paid.. (13 186) (6 018) 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. 18

19 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 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 274 million, to NOK (118) million in the three months ended 31 March 2017 compared to NOK 156 million in the three months ended 31 March While the underlying operations reflect an increase in cash generation, Q included a large change in Trade payables which related to exceptional payables for the dockings on the Norwegian Coast. 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 31 March March 2017 (NOK thousand) Purchases of property, plant and equipment ( PPE ). ( ) ( ) Net proceeds from sale of PPE Advance payment for PPE.. - (49 089) Purchases of intangible assets. (7 577) (6 819) Loans to associates and other companies Dividends received and payments from associates Change in restricted funds Net cash flows from/(used in) investing activities ( ) ( ) 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. The Advance payment for PPE relates to payments for the construction of the Newbuild vessels. Net cash flows used in investing activities decreased by NOK 441 million to NOK (164) million in the three months ended 31 March 2017 compared to NOK (605) million in the three months ended 31 March The variation relates to the Capital expenditures, where the first quarter of 2016 included the exceptional docking program on the Coast. We expect our normalised capital expenditures for the fleet to be at NOK 200 million per year based on our current operations. 19

20 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 31 March March 2017 (NOK thousand) Proceeds from borrowings Repayments of borrowings (10 637) (13 701) 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, shareholder loans as well as the indebtedness of the limited partners in the SPEs. Net cash flows from financing activities amounted to NOK 270 million in the three months ended 31 March 2017, where the proceeds from borrowings reflect the Shareholder Loan and increase of the Revolving Credit Facility in Q1 of Shareholder loan Silk Bidco s shareholders, via the parent entity Silk Topco, extended a EUR 12 million facility accessible to the Company from February At the time of this report, the facility is fully drawn. Accordion Increase under the Revolving Credit Facility Agreement As permitted by the existing Revolving Credit Facility agreement, the Facility was increased by EUR 20 million, drawn on 3 March At the time of this report, the facility is fully drawn. Off-balance Sheet Arrangements Hurtigruten AS has deferred income tax assets recognised in the balance sheet of NOK million at 31 March 2017 and NOK 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 these off balance deferred income tax assets, we do not have any material off-balance sheet arrangements. 20