Bond report for the three months ended 31 March 2015

Transcription

1 Bond report for the three months ended 31 March 2015 Published 10 June 2015 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 17 Description of other indebtedness 18 Definitions key performance measures and key line items 19 Appendix Silk Bidco Group Unaudited Consolidated Financial Statements for the first quarter

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 first quarter 2015 with a reduction in Normalised Adjusted EBITDA of NOK 19.8 million to NOK 26.9 million for the three months ended 31 March 2015 from NOK 46.7 million in the three months ended 31 March Investing in future growth is reflected in the first quarter figures by increased marketing costs, which is materializing in increased pre bookings for second and third quarter Increased pay roll tax affects the results negatively in the first quarter 2015 compared to last year as the new regulations was effective from 1 July The seasonality in the business where the demand is strongest for our Hurtigruten Norwegian Coast product during the northern hemisphere s summer months and holidays, is reflected in the first quarter result where the Normalised adjusted EBITDA represents 7% of the full year Normalised adjusted EBITDA (based on 2014 figures). This reflects a significant potential to grow the business in first quarter, also within the current cost base. The Hurtigruten Norwegian Coast segment increased its operating revenues by NOK 17.7 million, or 4.2% to NOK million for the three months ended 31 March 2015 from NOK million in the three months ended 31 March 2014.The overall increase in our Hurtigruten Norwegian Coast revenues was primarily driven by an increase of 6.3% 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, as well as a significant increase in onboard spending of 9.0%. The Normalised Adjusted EBITDA for the Hurtigruten Norwegian Coast segment for the three months ended 31 March 2015 represented a loss of NOK 12.5 million, a reduction of NOK 15.5 million compared to the three months ended 31 March MS Fram total revenues in the three months ended 31 March 2015 was NOK 94.2 million, compared to NOK 98.4 million in the three months ended 31 March The development is mainly driven by a 16.8% decrease in PCNs, which was not offset by a 15.0% increase in Gross ticket revenue per PCN. Lower volume in the Antarctica is related to a shortfall of group business which has not been recovered by individual travellers. As a direct consequence, the marketing effort for Antarctica for the fourth quarter 2015 has been changed, and is reflected in a positive booking momentum. Growing the business outside the peak season is important for increasing the EBITDA, and launching The Northern Light Promise is one of several initiatives that have been launched in order to increase the utilization. Additionally, an important element is to differentiate Hurtigruten towards other operators along the Norwegian Coast. 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 three months ended 31 March 2015 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. However, note that for Silk Bidco Group the only transactions during 2014 was the foundation of the company in September and the acquisition of Hurtigruten AS in December. Thus, the comparable period of three months ended 31 March 2014 only includes Hurtigruten Group. You should read this discussion in conjunction with the annual bond report for 2014 published 29 April 2015 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 bond report for 2014, 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 centered 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 12 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, MS Fram 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 80.6% for the three months ended 31 March of our 12 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 MS Fram segment, accounted for 9.7% of our total revenues from continuing operations in the year ended 31 December 2014 and 12.2% for the three months ended 31 March 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. 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. This segment accounted for 5.6% of our total revenues from continuing operations in the year ended 31 December 2014 and 7.2% for the three months ended 31 March

6 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 the annual bond report 2014 and the offering memorandum at 30 January 2015 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 2015 to April The hedging is covered by a call option covering 100% of the expected fuel consumption from May 2015 to September 2015, as the period from October 2015 to April 2017 is hedged through a fuel swap. 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 31 March 2015 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. Key Performance Measures The following table presents, for the periods indicated, certain key performance measures with respect to our Hurtigruten Norwegian Coast and MS Fram segments: Key operating metrics for Hurtigruten Norwegian Coast For the three months ended 31 March March 2015 (NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel cost per liter) Hurtigruten Norwegian Coast: PCNs APCNs Occupancy rate % 49.5% 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

7 For the three months ended 31 March March 2015 (NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel cost per liter) 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 three months ended 31 March (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 three months ended 31 March Key operating metrics for MS Fram For the three months ended 31 March March 2015 (NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel cost per liter) MS Fram: PCNs APCNs Occupancy rate % 65.7% 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

8 Results of Operations The following table presents, for the periods indicated, our operating results: For the three months ended 31 March 2014 % Change 31 March 2015 (NOK thousands, except as otherwise indicated) Continuing Operations: Operating revenues (1) Contractual revenues (0.1) Total revenues Payroll costs... ( ) 13.0 ( ) Other operating costs (2)... ( ) 10.0 ( ) Depreciation, amortization and impairment losses... (96 777) 0.5 (97 283) Other (losses)/gains net (1, 2) NM (73 918) Operating profit/(loss)... (53 598) ( ) Finance income Finance expense... (75 848) ( ) Finance expenses net... (54 038) ( ) Share of profit/(loss) of associates... (59) NM - Profit/(loss) before income tax from continuing operations... ( ) ( ) Income tax expense from continuing operations... - NM 678 Profit/(Loss) for the period from continuing operations... ( ) ( ) Discontinued Operations: Profit/(Loss) for the period from discontinued operations (2 273) NM - Profit/(Loss) for the Period... ( ) ( ) (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 three months ended 31 March (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 three months ended 31 March 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 three months ended 31 March 2014 % Change 31 March 2015 (NOK thousands, except as otherwise indicated) Continuing Operations: Total revenues: Hurtigruten Norwegian Coast (1) MS Fram (4.4) Spitsbergen (1.0) Other Business (75.1) 214 Eliminations... (1 940) (91.6) (163) Total revenues from continuing operations (1) Operating profit/(loss) for the period: Hurtigruten Norwegian Coast... (79 836) ( ) MS Fram (56.5)

9 For the three months ended 31 March 2014 % Change 31 March 2015 (NOK thousands, except as otherwise indicated) Spitsbergen (33.1) Other Business... (6 702) (98.6) (92) Total operating profit/(loss) from continuing operation... (53 599) ( ) Normalised Adjusted EBITDA: Hurtigruten Norwegian Coast (506.7) (12 464) MS Fram (15.3) Spitsbergen Other Business (52.6) 303 Total continuing operations (42.5) Normalised Adjusted EBITDA margin: Hurtigruten Norwegian Coast (1) % (2.5) (2.0%) MS Fram % (4.0) 30.8% Spitsbergen % % Other Business... NM NM NM Total continuing operations (1) % (2.7) 3.5% (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 three months ended 31 March Comparison of the three months ended 31 March 2015 with the three months ended 31 March 2014 The financial information for the three months ended 31 March 2015 discussed below has been derived from the comparative information for the three months ended 31 March 2014 included in the unaudited consolidated financial statements of Silk Bidco Group as of and for the three months ended 31 March 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 three months ended 31 March 2015 increased by NOK 13.8 million, or 1.8% to NOK million from NOK million in the three months ended 31 March 2014, as a result of an increase in revenues from Hurtigruten Norwegian Coast. Hurtigruten Norwegian Coast increased its total revenues by NOK 17.4 million, or 2.9% to NOK million for the three months ended 31 March 2015 from NOK million in the three months ended 31 March The overall increase in our Hurtigruten Norwegian Coast revenues was primarily driven by an increase of 6.3% 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, as well as a significant increase in on-board spending of 9.0%. Contractual revenue amounted to NOK million in the three months ended 31 March 2015, principally on par with the three months ended 31 March MS Fram total revenues in the three months ended 31 March 2015 was NOK 94.2 million, compared to NOK 98.4 million in the three months ended 31 March The development is mainly driven by a 16.8% decrease in PCNs, which was not offset by a 15.0% increase in Gross ticket revenue PCN. Lower volume in the Antarctica is related to shortfall of group business which has not been recovered by individual travellers. As a consequence the marketing effort for Antarctica for the fourth quarter 2015 has been changed. 9

10 Spitsbergen total revenues for the three months ended 31 March 2015 was NOK 55.4 million, principally on par with the three months ended 31 March 2014, and is developing as expected. Payroll costs Payroll costs from continuing operations for the three months ended 31 March 2015 increased by NOK 26.8 million, to NOK million from NOK million in the three months ended 31 March 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 three months ended 31 December 2014 and 2015 are set forth below: For the three months ended 31 March 2014 % Change 31 March 2015 (NOK thousands, except as otherwise indicated) Other Operating Costs: Cost of goods sold Operating costs (5.0) Sales and administrative costs Total Other operating costs from continuing operations for the three months ended 31 March 2015 increased by NOK 50.9 million, or 10.0%, to NOK million from NOK million in the three months ended 31 March The main reason for the increase is NOK 51.4 million in transaction and acquisition costs related to Silk Bidco buying the shares in Hurtigruten AS. Additionally there has been investment in future growth reflected in the sales and administrative costs through increased marketing costs, which is materializing in increased pre bookings for second and third quarter Fuel costs decreased with NOK 17.0 million in the three months ended 31 March 2015 compared to the three months ended 31 March Depreciation, Amortization and Impairment Losses Depreciation, amortization and impairment losses from continuing operations for first quarter 2015 increased by NOK 0.9 million, to NOK 97.2 million from NOK 96.3 million in first quarter Other losses net Other losses net from continuing operations for the three months ended 31 March 2015 ended at NOK 73.9 million compared to a net gain of NOK 1.4 million for the three months ended 31 March 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 three months ended 31 March 2015 includes net losses on derivative financial instruments of NOK 74.1 million and for the three months ended 31 March 2014 a net gain of NOK 0.1 million. For the three months ended 31 March 2015 net losses of NOK 62.3 million is related to derivative contracts which was terminated as part of the refinancing of the company. EBITDA Our EBITDA from continuing operations for the three months ended 31 March 2015 decreased by NOK million, to a loss of NOK 96.0 million from NOK 43.2 million in the three months ended 31 March Nonrecurring items for the three months ended 31 March 2015 totals NOK 122,6 million where the following are the major ones; i) a NOK 51.3 million in administrative expenses as a result of the acquisition of Hurtigruten AS and; ii) a NOK 62.3 million net loss on foreign exchange and bunker derivatives terminated in January In the comparable period, the three months ended 31 March 2014, non-recurring items totalled NOK 4.6 million. The rest of the decrease in the EBITDA is explained by increase in payroll tax following a change in Norwegian tax legislation in July 2014 and marketing investments materializing in increased pre bookings for the next two quarters. These effects are partially offset by increased revenue from Hurtigruten Norwegian Coast and lower fuel costs. 10

11 The Normalised Adjusted EBITDA from continuing operations does not include the above mentioned nonrecurring items among other smaller effects, and decreased by NOK 19.8 million to NOK 26.9 million for the three months ended 31 March 2015 from NOK 46.7 million in the three months ended 31 March Hurtigruten Norwegian Coast EBITDA for the three months ended 31 March 2015 decreased by NOK million, to a loss of NOK million from a loss of NOK 1.2 million in the three months ended 31 March 2014 related to the non-recurring items. The EBITDA decrease is primarily driven by a NOK million share of the increase in non-recurring items where the major ones are the ones mentioned above. The rest of the decrease in the EBITDA is explained by increase in payroll tax following a change in Norwegian tax legislation in July 2014 and marketing investments materializing in increased pre bookings for the next two quarters. These effects are partially offset by increased revenue and lower fuel costs. MS Fram EBITDA for the three months ended 31 March 2015 decreased by NOK 14.7 million, or 43.3% to NOK 19.2 million from NOK 33.9 million in the three months ended 31 March 2014, primarily attributable to a NOK 9.4 million share of the increase in non-recurring items as well as a decrease in revenue from lower volumes which was not offset by a an increase in Gross ticket revenue per PCN. Spitsbergen EBITDA for the three months ended 31 March 2015 decreased by NOK 1.5 million, or 16.8% to NOK 7.3 million from NOK 8.8 million in the three months ended 31 March 2014, principally due to a NOK 2.7 million share of the increase in non-recurring items. Other business EBITDA for the three months ended 31 March 2015 decreased by NOK 1.6 million, or 93.8% to NOK 0.1 million from NOK 1.7 million in the three months ended 31 March 2014, primarily due to the nonrecurring gain on the disposal of the two remaining fast ferries in the three months ended 31 March EBITDA margin Our EBITDA margin from continuing operations for the three months ended 31 March 2015 decreased by 18.1 percentage points, to negative 12.4% from 5.7% in the three months ended 31 March 2014 due to the nonrecurring items related to the acquisition of Hurtigruten AS. However, Normalised Adjusted EBITDA margin for the three months ended 31 March 2015 decreased by 2.7 percentage points, to 3.5% from 6.2% in the three months ended 31 March Hurtigruten Norwegian Coast EBITDA margin for the three months ended 31 March 2015 decreased by 19.5 percentage points, to negative 19.7% from negative 0.2% in the three months ended 31 March The Normalised Adjusted EBITDA margin for the three months ended 31 March 2015 decreased by 2.5 percentage points, to negative 2.0% from 0.5% in the three months ended 31 March MS Fram EBITDA margin for the three months ended 31 March 2015 decreased by 14.0 percentage points, to 20.4% from 34.4% in the three months ended 31 March The Normalised Adjusted EBITDA margin for the three months ended 31 March 2015 decreased by 4.0 percentage points, to 30.8% from 34.8% in the three months ended 31 March Spitsbergen EBITDA margin for the three months ended 31 March 2015 decreased by 2.5 percentage points, to 13.2% from 15.7% in the three months ended 31 March The Normalised Adjusted EBITDA margin for the three months ended 31 March 2015 increased by 2.5 percentage points, to 18.1% from 15.7% in the three months ended 31 March Other business EBITDA margin for the three months ended 31 March 2015 decreased by percentage points, to 49.1% from 198.4% in the three months ended 31 March Operating profit Operating profit from continuing operations for the three months ended 31 March 2015 decreased by NOK million, or 260.6%, to a loss of NOK million from a loss of NOK 53.6 million in the three months ended 31 March 2014, primarily due to the reasons stated above with respect to EBITDA. Finance expenses net Finance expenses net from continuing operations for the three months ended 31 March 2015 increased by NOK 75.2 million, or 139.1%, to NOK million from NOK 54.0 million in three months ended 31 March Finance expense for the three months ended 31 March 2015 increased by NOK 98.2 million, or 129.5%, to NOK million from NOK 75.8 million in the three months ended 31 March The increase was principally a result of; i) fees and termination costs related to the refinancing of the company following the acquisition of 11

12 Hurtigruten ASA totalling NOK 39.5 million; ii) increased interest expenses since the three months ended 31 March 2015 includes the financing of Silk Bidco Group which is higher and at other conditions than in the comparable period of the three months ended 31 March 2014 for Hurtigruten Group and; iii) a foreign exchange loss of NOK 32.9 million related to the repayment of the bridge financing. The finance expense was partially offset by finance income of NOK 44.8 million in the three months ended 31 March 2015 and NOK 21.8 million in the three months ended 31 March 2014, representing an increase of NOK 23.0 million, or 105.6%. Such increase in finance income was primarily due to an increase in realized and unrealized gross gains of NOK 22.0 million, related to the translation of monetary assets and liabilities in foreign currency to our functional currency, which is the Norwegian kroner, in the three months ended 31 March Share of profit/(loss) of associates Share of profit of associates from continuing operations for the three months ended 31 March 2015 came to zero from a loss of NOK 0.1 million in 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 2015 came to an income of NOK 0.7 million which was mainly driven by an loss before income tax for some of the subsidiaries. In the three months ended 31 March 2014 the income tax expense was zero. Profit/(loss) for the period from continuing operations As a result of the factors discussed above, profit from continuing operations for the three months ended 31 March 2015 decreased by NOK million to a loss of NOK million from a loss of NOK million in the three months ended 31 March 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 2015, 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 three months ended 31 March March 2015 (NOK thousands) 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: 12

13 For the three months ended 31 March March 2015 (NOK thousands) Profit/(loss) before income tax from continuing and discontinued operations ( ) ( ) Adjustments for: Depreciation, amortization and impairment from continuing and discontinued business Other (losses)/gains net... (1 297) (162) Unrealized foreign exchange (losses)/gains... (862) (12 431) Unrealized (losses)/gains on derivatives held for trading purposes... (11 300) (58 771) Interest expenses Share of profit/(loss) of associates from continuing and discontinued operations Difference between expensed pension and payments Change in working capital: Inventories Trade and other receivables... (31 481) Financial assets at fair value through profit or loss Trade and other payables Interest paid... (54 090) (42 136) Income tax paid (7 488) 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. However, the amount of revenues collected in advance is relatively small as the amount payable generally accounts for 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 do 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 million, to negative NOK million in the three months ended 31 March 2015 compared to NOK 3.2 million in the three months ended 31 March 2014 reflecting a decrease in the cash flow from underlying operations mainly driven by transaction costs related to the acquisition of the shares in Hurtigruten AS. 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 three months ended 31 March March2015 (NOK thousands) Purchases of property, plant and equipment ( PPE )... (63 915) (60 359) Net proceeds from sale of PPE Purchases of intangible assets... (10 907) (8 424) Settlement of derivatives... - ( ) Dividends received

14 For the three months ended 31 March March2015 (NOK thousands) 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. Net cash flows used in investing activities decreased by NOK million to NOK million in the three months ended 31 March 2015 compared to a positive cash flow of NOK 14.9 million in the three months ended 31 March Net cash flows used in investing activities in the three months ended 31 March 2015 is affected by the settlement of almost all derivatives in relation to the refinancing, totalling NOK million. Net cash flows from investing activities in the three months ended 31 March 2014 is positive due to proceeds we received from the sale of our Fast Ferries Business in March 2014 as well as proceed from the associated company following the sale of a property. Our capital expenditure decreased by NOK 6.0 million in the periods discussed, and includes in the three months ended 31 March 2015 expenses with respect to scheduled drydocking of our ships during this period and investments to improve on-line booking. We expect our capital expenditures in 2015 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; work on the engines with respect to MS Finnmarken and MS Trollfjord and the propulsion systems with respect to MS Nordnorge and MS Kong Harald as part of our NOx saving projects in 2015; further development of our IT infrastructure, including our e-commerce channel; and the upgrade of our Spitsbergen hotels. In addition to this amount, in 2015 we expect to incur capital expenditures of approximately NOK 30 million with respect to the 305 Classification rebuild. The latter amount have been 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. 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 three months ended 31 March March 2015 (NOK thousands) Proceeds from borrowings Repayments of borrowings... ( ) ( ) 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 three months ended 31 March 2015 and reflect the refinancing of the company. The proceeds from borrowings includes the issuance of the bond reduced for 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 Facilitiy 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, as well as the indebtedness of the limited partners in the SPEs and Spitsbergen Travel Group. 14

15 The redemption of debt in the three months ended 31 March 2014 included the redemption of a NOK 40 million loan related to the two remaining fast ferries on the occasion of their sale in March 2014 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 31 March 2015 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. Contractual Obligations The following table summarizes certain categories of our contractual obligations owed to third-parties by period as at 31 March 2015, on an as adjusted basis after giving effect to the Hurtigruten Acquisition Transaction and the Refinancing Transactions: Payments Due By Period Total Less than 1 Year 1-5 Years After 5 Years (NOK equivalent in millions) Notes offered (1) Local Line Facilities Bareboat charter obligations (2) Capital expenditure commitments (3) Total (1) Represents million in aggregate principal amount of Notes offered. (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 Richard With and MS Nordlys, respectively. (3) Capital expenditure commitments are contractual commitments for dry-dockings, work on the engines with respect to MS Finnmarken and MS Trollfjord 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 2015 may be reimbursed by the Confederation of Norwegian Enterprise s NOx fund. See Net Cash Flows from Investing Activities. The decrease in the total contractual obligations from the publication of the annual bond report is due to the foreign exchange rate and the bareboat charter paid in February In the table above the daily rate at 31 March 2015 as set by Norges Bank 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 31 March 2015 we have a total debt of NOK million which includes NOK 450 million drawn on the Revolving Credit Facility. Additionally we have 13.3 million available under our Revolving Credit Facility. 15

16 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. Selected critical accounting policies The preparation of the consolidated financial statements requires management to make estimates and assumptions, based on historical experience and various other factors, including expectations of future events that are believed to be reasonable under the circumstances, and that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Our unaudited consolidated financial statements included elsewhere in this report comply with IFRS as at the date of such financial statements. In the future, the adoption of new or revised standards or interpretations relating to the presentation of net assets, our financial position or results of operations may have a material effect on our future consolidated financial statements. For example, new standards relating to the accounting for leases may result in significant shifts between administrative expenses, depreciation and amortization expenses and financial expenses in our consolidated income statement as well as between property, plant and equipment and financial liabilities in our consolidated balance sheet. For information regarding important accounting estimates and judgements, see note 3A to the consolidated financial statement for Hurtigruten Group for the year ended 31 December 2014 which is included in the annual bond report for For information regarding significant accounting policies, see note 2 to the consolidated financial statement for Hurtigruten Group for the year ended 31 December 2014 which is included in the annual bond report for

17 Recent developments This section includes updates related to the Business, the Management, Principal shareholders and Related party transactions. Business Introducing MS Midnatsol to Antarctica in 2016/2017 MS Midnatsol will be introduced to Antarctica September 2016 and will until April 2017 do 10 spectacular sailing in Antarctica. In addition, the ship will do six unique sailings under south- and northbound crossings of the Atlantic. As MS Fram, MS Midnatsol will be registered in NIS flag (Norwegian International Ship Register) when sailing in Antarctica. Introducing MS Midnatsol into expedition voyaging in Antarctica is an important strategic decision for the company and supports our new vision "World leader in exploration travel." The expedition market is growing rapidly and the company wants to capitalize on the significant improvement of MS Fram. Following the introduction of Midnatsol to Antarctica, Hurtigruten doubles the capacity and become the largest operator with both MS Midnatsol and MS Fram in expedition voyaging in Antarctica. The itineraries for MS Midnatsol in Antarctica are adjusted to seasonal variations and follow the wildlife in the area, the ice conditions and the local cultural history. Through the choice of itinerary, landing sites and popular scientific lectures on board, guests will experience and explore this continent that has had such a lasting attraction on the world's polar explorers and scientists. MS Midnatsol will not compete with MS Fram. The MS Midnatsol Antarctica concept will have different itineraries, different landing sites, another turnaround port and not least another onboard program than MS Fram. MS Midnatsol will during the Antarctica season be replaced with an alternative ship in the traditional route along the Norwegian coast. Efforts to find the best option is ongoing and further details are to be announced later. Management Senior Management Team There has been one change in the senior management team of Hurtigruten since the publication of the annual bond report Senior Vice President ICT, Oscar Engeli has resigned from his position in Hurtigruten from 1 May

18 Description of other indebtedness Revolving Credit Facility Agreement We are party to the Revolving Credit Facility Agreement which provides for a committed 65 million multicurrency senior revolving credit facility (the Revolving Credit Facility ), of which NOK million was drawn on 22 January 2015 to be used in connection with the Hurtigruten Acquisition Transactions. Another NOK 100 million was drawn on 11 February 2015 as well as NOK 100 million drawn on 13 March These funds have been used to pay fees related to the refinancing of the Company and to settle the terminated options allocated to management following the Company's acquisition of Hurtigruten. Additionally the first and the fourth quarter are the lowest in terms of revenue compared to the second and third quarter, and at the same time the first and the fourth quarters are the time of the year when the dry-dockings are carried through. Accordingly our liquidity is at its lowest at the end of the first quarter. On 22 May we repaid NOK 100 million on the Revolving Credit Facility. 18

19 Definitions Key Performance Measures and Key Line Items Key Performance Measures In evaluating our results of operations, we refer to key financial and non-financial measures relating to the performance of our business. In addition to the key line items of our consolidated income statement, the principal measures that we use to evaluate the performance of our Hurtigruten Norwegian Coast and MS Fram segments include: Passenger cruise nights ( PCNs ), which is our measurement of guest volume and represents the number of guests onboard our ships and the length of their stay. Available passenger cruise nights ( APCNs ), which is our measurement of capacity and represents the aggregate number of available berths on each of our ships (assuming double occupancy per cabin), multiplied by the number of operated days for the relevant ship for the period. Occupancy rate, which represents our PCNs for the relevant period as a percentage of our APCNs for the period. Gross ticket revenues, which represents ticket revenues, revenues from flights, hotels, transportation, food, beverage, shop and excursions as well as other passenger revenues, including car transportation, travel insurance and retained deposits in cases of cancellations. Net ticket revenues, which represents Gross ticket revenues less commissions and costs of goods for flights, hotels, transportation, food, beverage, shop and excursions as well as other passenger services, including travel insurance. Gross ticket revenues per PCN, which represents Gross ticket revenues divided by PCNs. Net ticket revenues per PCN, which represents Net ticket revenues divided by PCNs. Gross cruise costs, which represents ship operating costs and selling, general and administrative expenses. Net cruise costs, which represents Gross cruise costs less commissions and costs of goods for flights, hotels, transportation, food, beverage, shop and excursions as well as other passenger services, including travel insurance. Net cruise costs per APCN, which represents Net cruise costs divided by APCNs. We also measure fuel consumption in liters per nautical mile and fuel costs per liter. Our key performance indicators are not measurements of performance under IFRS. We have presented these non-ifrs financial measures (i) as they are used by our management to monitor and report to our board members on our financial performance and (ii) to represent similar measures that may be used by certain investors, securities analysts and other interested parties as supplemental measures of financial performance. We believe these measures enhance the investor s understanding of our financial performance and our ability to fund our ongoing operations, make capital expenditures and meet and service our obligations. However, these non-ifrs financial measures are not measures determined based on IFRS, or other accepted accounting principles, and you should not consider such items as an alternative to the historical financial performance or other indicators of our cash flow and forward position based on IFRS measures. The non-ifrs financial measures, as defined by us, may not be comparable to similarly titled measures as presented by other companies due to differences in the way our non-ifrs financial measures are calculated. The non-ifrs financial information contained in this offering memorandum is not intended to comply with the reporting requirements of the SEC or any other regulatory authority and will not be subject to review by the SEC or any other regulatory authority. Even though the non-ifrs financial measures are used by management to assess our financial performance and these types of measures are commonly used by investors, they have important limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our position or results as reported under IFRS. 19